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

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 22, 2023

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Diffusion Pharmaceuticals Inc. and EIP Pharma, Inc.:

Diffusion Pharmaceuticals Inc., a Delaware corporation (“Diffusion”), EIP Pharma, Inc., a Delaware corporation (“EIP”) and Dawn Merger Sub Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Diffusion (“Merger Sub”) entered into an Agreement and Plan of Merger, dated as of March 30, 2023 (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into EIP, with EIP surviving as a wholly-owned subsidiary of Diffusion. These transactions are referred to in this proxy statement/prospectus/information statement collectively as the “Merger.” At the effective time of the Merger (the “Effective Time”), Diffusion will be renamed “CervoMed Inc.” and, subject to satisfying The Nasdaq Stock Market LLC’s initial listing standards, expects to trade on the Nasdaq Capital Market under the symbol “CRVO.”

Immediately prior to the Effective Time, EIP’s convertible notes (“EIP Convertible Notes”) and each of EIP’s Series A-1 preferred stock, par value $0.001, EIP’s Series A-2 preferred stock, par value $0.001, and EIP’s Series B preferred stock, par value $0.001 (collectively, “EIP Preferred Stock”) will be converted into common stock of EIP, par value $0.001 per share (“EIP Common Stock”). At the Effective Time, other than certain excluded shares and dissenting shares, each share of EIP Common Stock will be converted into the right to receive shares of common stock, par value $0.001 of Diffusion (“Diffusion Common Stock”), equal to the “Exchange Ratio” described in this proxy statement/prospectus/information statement, subject to adjustment to account for the effect of a reverse stock split, if any, of outstanding Diffusion Common Stock, within a range of one new share for not less than       and not greater than       shares outstanding, with such ratio to be mutually agreed upon by Diffusion and EIP prior to the Effective Time, as discussed in this proxy statement/prospectus/information statement, and further adjusted based on Diffusion’s net cash immediately prior to the closing of the Merger. As of the date of the Merger Agreement, it was estimated that, after giving effect to the transactions contemplated thereby, including the conversion of the EIP Convertible Notes and the EIP Preferred Stock, the Exchange Ratio would be approximately 0.1860 pre-split shares of Diffusion’s Common Stock, based on certain assumptions described in this proxy statement/prospectus/information statement, including an assumed $3.00 per share conversion price with respect to the conversion of the EIP Convertible Notes. After giving effect to the June 2023 amendment to the EIP Convertible Notes establishing $1.47 per share as the actual conversion price, it is estimated that the Exchange Ratio would be approximately 0.1681 pre-split shares of Diffusion Common Stock and, on a post-reverse split basis, the Exchange Ratio would be within a range of approximately       to       post-split shares of Diffusion Common Stock, in each case, holding all other assumptions described in this proxy statement/prospectus/information statement the same.

Applying the Exchange Ratio, immediately following the Effective Time, pre-Merger EIP equity holders are expected to own approximately 77.26% of the outstanding shares of Diffusion Common Stock, and the pre-Merger equity holders of Diffusion are expected to own approximately 22.74% of the outstanding shares of Diffusion Common Stock, in each case, subject to certain assumptions, including that net cash (as calculated in accordance with the Merger Agreement) at the closing of the Merger is between $13.5 million and $14.5 million. 

The Merger will result in a combined company primarily focused on the advancement of central nervous system (“CNS”) focused therapeutics, including EIP’s lead drug candidate neflamapimod, which is currently being developed for the treatment of dementia with Lewy bodies (“DLB”).  Phase 2a clinical trial results with neflamapimod in DLB that showed statistically significant positive effects compared to placebo on dementia severity and walking ability were published in a major scientific journal in September 2022, and in January 2023, EIP was awarded $21.0 million in non-dilutive grant funding from the National Institutes of Health’s National Institute on Aging (“NIA”) that is expected to fully fund clinical trial costs associated with the Phase 2b study evaluating neflamapimod in patients with DLB, a study which EIP initiated in the second quarter of 2023.

At the Effective Time, each outstanding and unexercised option to purchase shares of EIP Common Stock will be assumed by Diffusion and converted into an option to purchase, on the same terms and conditions, a number of shares of Diffusion Common Stock determined by multiplying (1) the number of shares of EIP Common Stock that were subject to such option, as in effect immediately prior to the Effective Time, by (2) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Diffusion Common Stock, at an exercise price per share determined by dividing (A) the per share exercise price of EIP Common Stock subject to such option, as in effect immediately prior to the effective time, by (B) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent. At the Effective Time, all outstanding and unexercised warrants to purchase shares of EIP Common Stock outstanding immediately prior to the Merger will be assumed by Diffusion and become exercisable (1) for a number of shares of Diffusion Common Stock equal to the number of shares of EIP Common Stock subject to such warrant immediately prior to the effectiveness of the Merger multiplied by the Exchange Ratio (rounding down to the nearest whole share) and (2) at an exercise price per share of Diffusion Common Stock equal to the exercise price per share of EIP Common Stock applicable immediately prior to the effectiveness of the Merger divided by the Exchange Ratio (rounding up to the nearest whole cent). Diffusion stockholders and option holders will continue to own and hold their existing shares of Diffusion Common Stock and options, respectively. All options and warrants to purchase shares of Diffusion Common Stock that are outstanding immediately prior to the Effective Time will remain outstanding following the Effective Time.

Diffusion Common Stock is currently listed on the Nasdaq Capital Market under the symbol “DFFN.” In connection with The Nasdaq Stock Market LLC (“Nasdaq”) “reverse merger” rules, Diffusion has filed an initial listing application with Nasdaq to seek listing on the Nasdaq Capital Market or other appropriate Nasdaq trading market upon the closing of the Merger. On          , 2023, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Diffusion Common Stock was $       per share.

Diffusion is holding a special meeting of stockholders in order to obtain the stockholder approvals necessary to complete the Merger and related matters. At the Diffusion special meeting, which will be held virtually on       , 2023 at       , Eastern Time by means of a live webcast, unless postponed or adjourned to a later date, Diffusion will ask its stockholders:

After careful consideration, Diffusion’s board of directors has unanimously adopted resolutions (a) approving the execution, delivery, and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger and (b) recommending that the stockholders of Diffusion vote “FOR” each of the proposals set forth in this proxy statement/prospectus/information statement.

After careful consideration, EIP’s board of directors has unanimously (a) approved the execution, delivery, and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (b) deemed it fair to, advisable and in the best interests of, EIP and its stockholders to enter into the Merger Agreement, and (c) resolved to recommend adoption of the Merger Agreement by the stockholders of EIP, in each case, in accordance with the General Corporation Law of the State of Delaware.

Please refer to the attached proxy statement/prospectus/information statement for further information with respect to the business to be transacted at the Diffusion special meeting. As described in this proxy statement/prospectus/information statement, the officers, directors and certain stockholders of EIP who in the aggregate beneficially own or control shares of EIP capital stock necessary to adopt the Merger Agreement and approve the Merger and the related transactions contemplated thereby have entered into support agreements pursuant to which they have agreed to vote such shares in favor of such adoption and approval, subject to the terms of the support agreements. The officers, directors and certain Diffusion stockholders who in the aggregate beneficially own or control less than 1% of the outstanding shares of Diffusion Common Stock have entered into support agreements pursuant to which they have agreed to vote such shares in favor of the Stock Issuance Proposal and the Reverse Split Proposal, subject to the terms of the support agreements. No meeting of EIP stockholders to adopt the Merger Agreement and approve the Merger and related transactions will be held. Instead, all EIP’s stockholders will have the opportunity to vote to adopt the Merger Agreement and approve the Merger and related transactions, by signing and returning to EIP a written consent on or after the effective date of the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part. EIP stockholders, including those who are parties to support agreements, are requested to execute written consents providing such approvals.

More information about Diffusion, EIP and the proposed transactions are contained in this proxy statement/prospectus/information statement. Diffusion and EIP urge you to read this proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 36.

Diffusion and EIP are excited about the opportunities the Merger brings to both Diffusion and EIP stockholders. Thank you for your consideration and continued support.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus/information statement is dated          , 2023, and is first being mailed to Diffusion and EIP stockholders on or about          , 2023.

 

DIFFUSION PHARMACEUTICALS INC.
300 Main Street, Suite 201

Charlottesville, Virginia 22902

(434) 220-0718

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On             , 2023

Dear Stockholders of Diffusion:

On behalf of the board of directors of Diffusion Pharmaceuticals Inc., a Delaware corporation (“Diffusion”), Diffusion is pleased to deliver this proxy statement/prospectus/information statement with respect to the Agreement and Plan of Merger, dated as of March 30, 2023 (the “Merger Agreement”), by and among Diffusion, Dawn Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Diffusion (“Merger Sub”), and EIP Pharma, Inc., a Delaware corporation (“EIP”), pursuant to which, upon the terms and subject to the conditions set forth in the Merger Agreement, EIP will become a wholly-owned subsidiary of Diffusion (the “Merger”). A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus/information statement.

There will not be a physical meeting location. The special meeting of stockholders of Diffusion will be held virtually on          , 2023 at       , Eastern Time by means of a live audio webcast. Online check-in will begin at          Eastern Time, and you should allow ample time for the check-in procedures. If you experience technical difficulties during the check-in process or during the meeting, please call the number on the virtual meeting portal landing page for assistance.

The special meeting of stockholders of Diffusion will be held for the following purposes:

The Diffusion special meeting will be completely virtual and there will be no physical location for Diffusion stockholders to attend. In order to attend the meeting, Diffusion stockholders must pre-register at                   by       Eastern Time on           , 2023. If you are a Diffusion stockholder holding shares in “street name” through a bank, broker or other nominee, and also wish to vote at the meeting, you will need to obtain from that entity a “legal proxy” and submit it when you register. After you register, you will receive an email with a unique link and password that will allow you to attend the meeting. If your shares are held in “street name” and you provided a legal proxy when you registered, that email will also contain a control number that will allow you to vote at the meeting. If you hold your shares through Diffusion’s transfer agent, use the control number on your proxy card to vote at the meeting.

The meeting webcast will begin promptly at        Eastern Time. Diffusion encourages its stockholders to access the meeting prior to the start time. Online check-in will begin at          Eastern Time, and you should allow ample time for the check-in procedures. If you experience technical difficulties during the check-in process or during the meeting, please call the number on the virtual meeting portal landing page for assistance. For additional information on how you can attend and participate in the Diffusion special meeting, please see the instructions beginning on page 102 of the proxy statement/prospectus/information statement that follows.

The Diffusion board of directors has fixed        , 2023 as the record date for the determination of Diffusion stockholders entitled to notice of, and to vote at, the Diffusion special meeting and any adjournment or postponement thereof. Only holders of record of shares of Diffusion Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Diffusion special meeting. At the close of business on the record date, Diffusion had       shares of Diffusion Common Stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Diffusion Common Stock present in person or represented by proxy at the Diffusion special stockholder meeting and entitled to vote generally on the subject matter, presuming a quorum is present, is required for approval of the Stock Issuance Proposal and the Postponement Proposal.

The required vote for the Reverse Split Proposal will depend on whether the Proposed 2023 DGCL Amendments (as defined in this proxy statement/prospectus/information statement) are enacted and effective prior to the date of Diffusion’s special stockholder meeting.  In the event the Proposed 2023 DGCL Amendments are NOT enacted and effective prior to the date of the special meeting, the affirmative vote of the holders of a majority of the Diffusion Common Stock outstanding on the record date for the Diffusion special stockholder meeting will be required to approve the Reverse Split Proposal.  If, however, the event the Proposed 2023 DGCL Amendments ARE enacted and effective prior to the date of the special meeting, presuming a quorum is present, the affirmative vote of the holders of a majority of the shares of Diffusion Common Stock present in person or represented by proxy at the Diffusion special stockholder meeting and entitled to vote generally on the subject matter will apply.  For additional information regarding the Proposed 2023 DGCL Amendments, please see, “What is required to consummate the Merger?,” beginning on page 14 of the proxy statement/prospectus/information statement.

No proposal is conditioned upon any other proposal.

Even if you plan to attend the Diffusion special meeting virtually, Diffusion requests that you sign and return the enclosed proxy card or vote by Internet or telephone to ensure that your shares will be represented at the Diffusion special meeting if you are unable to attend.

DIFFUSION’S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, DIFFUSION AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. DIFFUSION’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT DIFFUSION’S STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of the Diffusion Board of Directors,

William Elder
General Counsel and Corporate Secretary
Charlottesville, Virginia

, 2023

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Diffusion, constitutes a prospectus of Diffusion under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Diffusion Common Stock to be issued pursuant to the Merger Agreement, between Diffusion and EIP, pursuant to the Merger. This document also constitutes a notice of a meeting and a proxy statement of Diffusion under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the Diffusion special meeting at which Diffusion stockholders will be asked to consider and vote on a proposal to approve the issuance of Diffusion Common Stock to the securityholders of EIP as well as to consider and vote on certain other proposals.

No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus/information statement. This proxy statement/prospectus/information statement is dated as of the date set forth on the cover hereof. You should not assume that the information contained in this proxy statement/prospectus/information statement is accurate as of any date other than that date. Neither the mailing of this proxy statement/prospectus/information statement to EIP stockholders nor the issuance by Diffusion of Diffusion Common Stock in connection with the proposed Merger will create any implication to the contrary.

This proxy statement/prospectus/information statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Information contained in this proxy statement/prospectus/information statement regarding EIP and its business, operations, management and other matters has been provided by EIP and information contained in this proxy statement/prospectus/information statement regarding Diffusion and its business, operations, management and other matters has been provided by Diffusion.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about Diffusion that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Corporate Secretary of Diffusion Pharmaceuticals Inc., 300 Main Street, Suite 201, Charlottesville, Virginia 22902 or by calling (434) 220-0718.

To ensure timely delivery of these documents, any request should be made no later than         , 2023 to receive them before the special meeting.

For additional details about where you can find information about Diffusion, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Presentation of Information

In this proxy statement/prospectus/information statement, unless the context requires otherwise:

QUESTIONS AND ANSWERS ABOUT DIFFUSION’S SPECIAL STOCKHOLDER MEETING AND THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed Reverse Split of Diffusion Common Stock described in the Reverse Split Proposal in this proxy statement/prospectus/information statement.

The following section provides answers to frequently asked questions about the special meeting of Diffusion’s stockholders and the Merger. These questions and answers may not address all issues that may be important to you as a Diffusion or an EIP stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement/prospectus/information statement, including each of the annexes.

Immediately prior to the Effective Time, the EIP Convertible Notes and the EIP Preferred Stock will be converted into shares of EIP Common Stock. At the Effective Time, other than certain excluded shares and dissenting shares, each share of EIP Common Stock will be converted into the right to receive shares of Diffusion Common Stock, or the “Exchange Ratio” (as defined in the Merger Agreement). As of the date of the Merger Agreement, it was estimated that, after giving effect to the transactions contemplated thereby, including the conversion of the EIP Convertible Notes and the EIP Preferred Stock, the Exchange Ratio would be 0.1860 pre-split shares of Diffusion’s Common Stock for each share of EIP Common Stock, based on certain assumptions described in this proxy statement/prospectus/information statement, including an assumed $3.00 per share conversion price with respect to the conversion of the EIP Convertible Notes. After giving effect to the June 2023 amendment to the EIP Convertible Notes establishing $1.47 per share as the actual conversion price, it is estimated that the Exchange Ratio would be approximately 0.1681 pre-split shares of Diffusion Common Stock, holding all other assumptions described in this proxy statement/prospectus/information statement the same. In connection with and immediately prior to the consummation of the Merger, and subject to obtaining the requisite stockholder approval for the Reverse Split Proposal pursuant to this proxy statement/prospectus/information statement, Diffusion may effect a reverse stock split of outstanding Diffusion Common Stock, within a range of one new share for not less than and not greater than shares outstanding, with such ratio to be mutually agreed upon by Diffusion and EIP prior to the Effective Time, as discussed in this proxy statement/prospectus/information statement. Accordingly, on a post-reverse split basis, the Exchange Ratio would be within a range of approximately to post-split shares of Diffusion Common Stock, holding all other assumptions used in calculating the Exchange Ratio described elsewhere herein the same. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in this proxy statement/prospectus/information statement, and these estimates are subject to adjustment, as described below.

In connection with the Merger, each outstanding and unexercised option to purchase shares of EIP Common Stock will be assumed by Diffusion and will be converted into an option to purchase that number of shares of Diffusion Common Stock as determined pursuant to the Exchange Ratio. Diffusion stockholders and option holders will continue to own and hold their existing shares of Diffusion Common Stock and options, respectively. All options and warrants to purchase shares of Diffusion Common Stock that are outstanding immediately prior to the Effective Time will remain outstanding following the Effective Time.

Applying the Exchange Ratio, immediately after the Effective Time, former EIP equity holders immediately before the Merger are expected to own approximately 77.26% of the outstanding shares of Diffusion Common Stock, and the Diffusion stockholders immediately before the Merger are expected to own approximately 22.74% of the outstanding shares of Diffusion Common Stock, subject to certain assumptions, including that net cash (as calculated in accordance with the Merger Agreement) at the closing of the Merger is between $13.5 million and $14.5 million. These estimates are subject to adjustment prior to the closing of the Merger, including an upward adjustment to the extent that Diffusion’s net cash at the Effective Time is less than $13.5 million (and as a result, Diffusion securityholders could own less, and EIP equity holders could own more, of the combined company), or a downward adjustment to the extent that Diffusion’s net cash at the Effective Time is more than $14.5 million (and as a result, Diffusion securityholders could own more, and EIP equity holders could own less, of the combined company). For example, if Diffusion’s net cash at the Effective Time is $13.5 million, applying the Exchange Ratio, the former EIP equity holders immediately before the Merger would own approximately 77.51% of the outstanding shares of Diffusion Common Stock following the Merger, and the Diffusion stockholders immediately before the Merger would own approximately 22.49% of the outstanding shares of Diffusion Common Stock following the Merger. If Diffusion’s net cash at the Effective Time is $15.0 million, applying the Exchange Ratio, the former EIP equity holders immediately before the Merger would own approximately 77.01% of the outstanding shares of Diffusion Common Stock following the Merger, and the Diffusion stockholders immediately before the Merger would own approximately 22.99% of the outstanding shares of Diffusion Common Stock following the Merger.

Diffusion is required to have net cash, as calculated pursuant to the Merger Agreement, of at least $12.0 million at the closing of the Merger as a condition to EIP’s obligation to consummate the Merger. In the event that Diffusion’s net cash falls below this threshold, EIP’s obligation to consummate the Merger would not be satisfied and, unless EIP waived such obligation, EIP would have the right to terminate the Merger Agreement if Diffusion were unable to cure such deficiency in accordance with the terms of the Merger Agreement. Net cash as calculated under the Merger Agreement makes certain adjustments to the value of Diffusion’s cash, cash equivalents and marketable securities, which were equal to $17.6 million as of March 31, 2023. These adjustments include, among other things, Diffusion’s current liabilities and transaction related expenses, as well as additions for costs shared by EIP. Based on its cash, cash equivalents and marketable securities and other balance sheet line items as of March 31, 2023 and current estimates of the other elements of net cash (including projected remaining transaction costs), Diffusion calculates that it has net cash of approximately $13.4 million. Diffusion expects to continue to incur losses in future periods primarily related to the proposed Merger and, as a result, available cash, cash equivalents and marketable securities will continue to decrease. For a description of the calculation of net cash as set forth in the Merger Agreement, please see the section titled “Merger Agreement — Merger Consideration and Exchange Ratio — Calculation of Diffusion Net Cash” beginning on page 149.

The Merger Agreement terms applicable to the calculation of the Exchange Ratio are complex and circumstances as of the Effective Time of the Merger may result in an Exchange Ratio that differs from estimates in this proxy statement/prospectus/information statement. See “The Merger Agreement — Merger Consideration and Exchange Ratio” beginning on page 146.

For a more complete discussion of Diffusion’s and EIP’s reasons for the Merger, please see the sections titled “The Merger — Diffusion Reasons for the Merger” and “The Merger — EIP Reasons for the Merger” beginning on pages 119 and 122, respectively.

Diffusion Stockholder Approval

The approval of the Stock Issuance Proposal requires the affirmative vote of the holders of a majority of the shares of Diffusion Common Stock present in person or represented by proxy at the Diffusion special meeting and entitled to vote generally on the subject matter, presuming a quorum is present at the meeting. As of June 20, 2023, the approval of the Reverse Split Proposal would require the affirmative vote of the holders of a majority of the Diffusion Common Stock outstanding on the record date for the Diffusion special stockholder meeting. On May 16, 2023, the Delaware State Senate passed a Senate Bill No. 114 proposing several amendments (the "Proposed 2023 DGCL Amendments") to the General Corporation Law of the State of Delaware (the “DGCL”), including an amendment to Section 242 of the DGCL that would reduce the stockholder vote threshold required for certain amendments to a corporation’s certificate of incorporation in connection with a proposed reverse stock split. If the Proposed 2023 DGCL Amendments are approved by the Delaware State House of Representatives and enacted into law, effective as of August 1, 2023, this lower vote threshold would apply pursuant to applicable law such that, presuming a quorum is present, only the affirmative vote of the holders of a majority of the shares of Diffusion Common Stock present in person or represented by proxy at the Diffusion special meeting and entitled to vote generally on the subject matter will be required for approval.

Diffusion’s current directors and executive officers who collectively own or control an aggregate of less than 1.0% of the outstanding shares of Diffusion Common Stock are parties to support agreements with EIP (the “Diffusion Support Agreements”). The Diffusion Support Agreement provides that, among other things, each of the stockholders signatory thereto has agreed to vote or cause to be voted all of the shares of Diffusion Common Stock beneficially owned by such stockholder in favor of the matters to be brought before Diffusion’s stockholders at the Diffusion special stockholder meeting. For a more detailed discussion of the Diffusion Support Agreements see the section titled “Agreements Related to the Merger — Support Agreements and Written Consent” beginning on page 166.

EIP Stockholder Approval

The adoption of the Merger Agreement and the approval of the Merger and transactions contemplated thereby by the stockholders of EIP requires the affirmative vote of both (1) the holders of a majority of the outstanding shares of EIP Preferred Stock and (2) the holders of a majority of the shares of EIP Common Stock (including the shares of EIP Preferred Stock, voting as a single class on an as-converted basis).

Certain EIP stockholders who in the aggregate own shares of EIP capital stock necessary to approve the Merger and related transactions contemplated by the Merger Agreement are parties to support agreements with Diffusion (the “EIP Support Agreements). The EIP Support Agreements provide that, among other things, each of the stockholders signatory thereto has agreed to vote or cause to be voted all of the shares of EIP capital stock beneficially owned by such stockholder in favor of the Merger Agreement, the Merger and the other transactions contemplated thereby. For a more detailed discussion of the EIP Support Agreements see the section titled “Agreements Related to the Merger — Support Agreements and Written Consent” beginning on page 166.

Satisfaction of Other Closing Conditions

In addition to the requirement of obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 150.

For a more complete description of what Diffusion stockholders will receive in the Merger, please see the sections titled “Market Price and Dividend Information” beginning on page 35 and “The Merger Agreement — Merger Consideration and Exchange Ratio” beginning on page 146.

For a more complete description of what EIP stockholders, option holders and warrant holders will receive in the Merger, please see the sections titled “Market Price and Dividend Information” beginning on page 35 and “The Merger Agreement — Merger Consideration and Exchange Ratio” beginning on page 146.

However, there are many requirements that must be satisfied in order for the Merger to be treated as a reorganization under Section 368(a) of the Code, some of which are based upon factual determinations, and the reorganization treatment could be affected by actions taken after the Merger. If the Merger failed to qualify as a reorganization under Section 368(a) of the Code, the EIP stockholders generally would recognize the full amount of gains and losses realized on the exchange of their EIP Common Stock in the Merger.

Tax matters are very complicated, and the tax consequences of the Merger to a particular EIP stockholder will depend on such stockholder’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section titled “The Merger — Certain Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 139.

For example, the employment agreements of Diffusion’s executive officers provide for post-employment compensation arrangements. These Diffusion employment agreements establish the amount of severance payments and benefits available in the event of a termination of employment by Diffusion without other than for “cause”, death or “disability,” or upon the executive’s resignation for “good reason” (as such terms are defined in the agreement).

Additionally, pursuant to the terms of the Merger Agreement, certain directors and executive officers of Diffusion will continue as directors and executive officers, respectively, of the combined company after the Effective Time and will be eligible for certain compensation as directors and executive officers.

As of June 1, 2023, the directors and executive officers of Diffusion owned, in the aggregate, approximately 0.2% of the outstanding voting shares of Diffusion Common Stock. In connection with the Merger, each of Diffusion’s executive officers and directors have entered into support agreements, and Diffusion’s directors and executive officers who beneficially hold less than 1% of outstanding shares of Diffusion’s capital stock have entered into lock-up agreements. The support agreements and lock-up agreements are discussed in greater detail in the section titled section titled “Agreements Related to the Merger — Support Agreements and Written Consent” beginning on page 166.

Diffusion’s board of directors was aware of these interests and considered them, among other matters, in the decision to approve the Merger Agreement. For more information, please see the section titled “The Merger — Interests of the Diffusion Directors and Executive Officers in the Merger” beginning on page 133.

No stockholder proposal is conditioned upon any other stockholder proposal.

If you are a Diffusion stockholder, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card or voting instruction form in the enclosed return envelope. Second, you may also provide your proxy instructions via the Internet or telephone by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting of Diffusion stockholders.

If you are an EIP stockholder, you may execute and return your written consent to EIP in accordance with the instructions provided once this Registration Statement is declared effective by the SEC.

If your shares of Diffusion Common Stock are held in “street name” and you do not give instruction to your broker, your broker can vote your Diffusion shares with respect to “routine” items but not with respect to “non-routine” items, and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Broker non-votes, if any, will be treated as shares that are present at the Diffusion special meeting for purposes of determining whether a quorum exists but will not have any effect for the purpose of voting on Proposal No. 1 (Stock Issuance Proposal) and Proposal No. 3 (Postponement Proposal).

If the Proposed 2023 DGCL Amendments are NOT enacted into law, broker non-votes, if any, will have the same effect as “AGAINST” votes for Proposal No. 2 (Reverse Split Proposal).  However, if the Proposed 2023 DGCL Amendments ARE approved by the Delaware State House of Representatives and enacted into law, effective as of August 1, 2023 as a result of the change in law described above under “What is required to consummate the Merger? – Diffusion Stockholder Approval,” broker non-votes, if any, will be treated as shares that are present at the Diffusion special meeting for purposes of determining whether a quorum exists but will not have any effect for the purpose of voting on Proposal No. 2 (Reverse Split Proposal).

If your shares are held in “street name,” you should instruct your broker to vote your shares following the procedures provided by your broker to make sure your vote is counted.

The online meeting will begin promptly at        Eastern Time on        , 2023. Diffusion encourages its stockholders to access the meeting approximately 15 minutes prior to the start time in order to leave ample time for the check-in. Please follow the registration instructions as outlined in this proxy statement/prospectus/information.

In order to attend the special meeting of stockholders of Diffusion, Diffusion stockholders must pre-register at by         Eastern Time on        , 2023. If a Diffusion stockholder holds their shares in “street name” through a bank, broker or other nominee, and also wishes to vote at the meeting, you will need to obtain from that entity a “legal proxy” and submit it when you register. After you register, you will receive an email with a unique link and password that will allow you to attend the meeting. If your shares are held in “street name” and you provided a legal proxy when you registered, that email will also contain a control number that will allow you to vote at the meeting. If you hold your shares through our transfer agent, use the control number on your proxy card to vote at the meeting. You will not need the control number to join the meeting, you will need it if you choose to vote during the meeting.

In accordance with the rules of order, a copy of which will be available during the special meeting, only questions pertinent to meeting matters will be answered. In the interest of fairness to all stockholders, the question and answer period will be limited to a total of twenty minutes and multiple questions submitted on the same topic will be summarized and responded to collectively. Diffusion reserves the right to not address any questions that are repetitious, irrelevant to Diffusion’s business, related to pending or threatened litigation, derogatory in nature, related to personal grievances, or otherwise inappropriate.

Alliance Advisors LLC

If you are an EIP stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

EIP Pharma, Inc.

20 Park Plaza, Suite 424

Boston, MA 02116 USA

Attn: William Tanner (wtanner@eippharma.com)

RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the risks described below before making any investment decisions. In addition, you should read and consider the risks associated with the business of Diffusion because these risks may also affect EIP and the combined company. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information” beginning on page 298.

Risks Related to the Merger

The Exchange Ratio is adjustable based on Diffusion’s net cash at the closing of the Merger but is not adjustable based on changes in the market value of Diffusion Common Stock following the date of the Merger Agreement and prior to the Closing, either of which could result in the value of the merger consideration having a greater or lesser value at the time of Closing than at the time the Merger Agreement was signed.

The relative proportion of the combined company that the Diffusion stockholders will own when the Merger closes will be based on the valuations of Diffusion and EIP and the Exchange Ratio as negotiated by the parties and as specified in the Merger Agreement.  Under the Exchange Ratio formula described in the Merger Agreement, the equity holders of EIP immediately before the effective time of the Merger are expected to hold approximately 77.26% of the outstanding shares of Diffusion Common Stock immediately after the Effective Time and the equity holders of Diffusion immediately before the Effective Time are expected to hold approximately 22.74% of the outstanding shares of Diffusion Common Stock immediately after the effective time, in each case, assuming Diffusion’s net cash (as calculated pursuant to the Merger Agreement) at the closing of the Merger is between $13.5 million and $14.5 million. 

Furthermore, any changes in the market price of Diffusion Common Stock before the completion of the Merger will not affect the number of shares of Diffusion Common Stock issuable to EIP’s equityholders pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of Diffusion Common Stock declines from the market price on the date of the Merger Agreement, then EIP equityholders could receive merger consideration with substantially lower market value than the value of such merger consideration on the date of the Merger Agreement. Conversely, if before the completion of the Merger the market price of Diffusion Common Stock increases from the market price of Diffusion Common Stock on the date of the Merger Agreement, then EIP’s equityholders could receive merger consideration with substantially greater value than the value of such merger consideration on the date of the Merger Agreement.

For more information, see the section titled “The Merger Agreement — Merger Consideration and Exchange Ratio” beginning on page 146.

Diffusion’s net cash may be less than $13.5 million at the closing of the Merger, which would result in Diffusion’s stockholders owning a smaller percentage of the combined company than currently anticipated, and, if Diffusion’s net cash is less than $12.0 million at the Determination Date (as defined in the Merger Agreement), could even cause a condition to EIP’s obligation to consummate the Merger fail to be satisfied and may result in the termination of the Merger Agreement.

For purposes of the Merger Agreement, net cash is subject to certain reductions, including, without limitation, accounts payable, accrued expenses (except those related to the Merger), current liabilities payable in cash, unpaid expenses related to the Merger and certain other unpaid obligations, including outstanding lease obligations. In the event the amount of Diffusion’s cash is smaller or such reductions are greater than anticipated, Diffusion stockholders could hold a significantly smaller portion of the combined organization. Diffusion is required to have net cash of at least $12.0 million at the closing of the Merger as a condition to EIP’s obligation to consummate the Merger. In the event that Diffusion’s net cash falls below this threshold, a condition to the EIP’s obligation to consummate the Merger would not be satisfied and EIP would have the right to terminate the Merger Agreement if Diffusion were unable to cure such deficiency in accordance with the terms of the Merger Agreement and Diffusion’s net cash continues to be lower than $12.0 million.

There is no assurance that the proposed Merger between Diffusion and EIP will be completed in a timely manner or at all.

Even if the proposals referred to herein are approved by the stockholders of Diffusion and EIP, specified other conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement — Conditions to Closing of the Merger” beginning on page 150. Diffusion and EIP cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and Diffusion and EIP each may lose some or all of the intended benefits of the Merger.

A delay or failure to complete the Merger may result in Diffusion paying a termination fee and could harm the price of Diffusion Common Stock and Diffusion’s future business and operations.

If the Merger is not completed or is delayed, Diffusion’s business is subject to a number of additional and heightened risks, including, among others:

In addition, if the Merger Agreement is terminated and Diffusion’s or EIP’s board of directors determines to seek another business combination, there can be no assurance that either company will be able to diversify and enhance its product candidate portfolio on terms equivalent or more attractive than the Merger. Moreover, it will be difficult for Diffusion to continue development of TSC, since many development activities have been put on hold, and the employment of Diffusion’s Chief Medical Officer and of its Chief Regulatory Officer has been terminated.

If the Merger is not completed, Diffusion may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the proposed transaction with EIP, or at all, and Diffusion may be unable to reestablish an operating business. Diffusion’s board of directors may decide to pursue a dissolution and liquidation of Diffusion. In such an event, the amount of cash available for distribution to Diffusion’s stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

Diffusion has paused significant portions of its TSC development activities, including initiation of its previously announced Phase 2 study of TSC in newly diagnosed GBM patients and have implemented operating cost reductions and organizational restructurings, including a reduction in its workforce, to preserve its cash resources. Diffusion’s strategic focus has shifted to the identification and evaluation of a range of potential strategic alternatives designed to maximize stockholder value.

To date, Diffusion’s current assets consist primarily of cash, cash equivalents and marketable securities, its clinical assets, its listing on the Nasdaq Capital Market and the Merger Agreement with EIP. The completion of the Merger may be delayed or may not occur at all and there can be no assurance that the Merger will deliver the anticipated benefits Diffusion expects or enhance stockholder value.

If Diffusion is unable to consummate the Merger with EIP, Diffusion’s board of directors may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the proposed merger with EIP. Attempting to complete an alternative transaction will be costly and time consuming, and Diffusion can make no assurances that such an alternative transaction would occur at all. Alternatively, Diffusion’s board of directors may elect to continue operations to conduct another study of TSC or decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution, if any, to Diffusion’s stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Diffusion continues to fund its operations. In addition, if Diffusion’s board of directors was to approve and recommend, and its stockholders were to approve, a dissolution and liquidation of the company, Diffusion would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. Diffusion’s commitments and contingent liabilities may include severance obligations, regulatory and clinical obligations remaining under its Phase 2 study of TSC, fees and expenses related to the Merger and liabilities relating to any investigations of, or litigation against, Diffusion and other various claims and legal actions. As a result of this requirement, a portion of Diffusion’s assets may need to be reserved pending the resolution of such obligations. In addition, Diffusion may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, Diffusion’s board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Diffusion Common Stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

The issuance of shares of Diffusion Common Stock to EIP stockholders in the Merger will dilute substantially the voting power of Diffusion’s current stockholders.

The issuance of shares of Diffusion Common Stock to EIP stockholders in the Merger will reduce significantly the relative voting power of each share of Diffusion Common Stock held by Diffusion’s current securityholders. Consequently, Diffusion securityholders as a group will have significantly less influence over the management and policies of the combined company after the Merger than prior to the Merger.

If the combined company after the Merger is unable to realize the strategic and financial benefits currently anticipated from the Merger, the Diffusion stockholders and the EIP stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or receiving only part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.

The pendency of the Merger could have an adverse effect on Diffusion’s business, financial condition, results of operations or business prospects.

The pendency of the Merger could disrupt Diffusion’s business in the following ways, including among others:

Should they occur, any of these matters could harm Diffusion’s financial condition, results of operations or business prospect.

Certain stockholders could attempt to influence changes within Diffusion which could adversely affect Diffusion’s operations, financial condition and the value of Diffusion Common Stock.

One or more of Diffusion’s stockholders may from time to time seek to acquire a significant or controlling stake in Diffusion, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes to Diffusion’s board of directors or corporate governance policies. Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, could disrupt Diffusion’s operations and divert the attention of the Diffusion board of directors and senior management from the pursuit of the proposed Merger, and could adversely affect Diffusion’s operations, financial condition, ability to consummate the Merger and the value of Diffusion Common Stock. For example, in November 2022, LifeSci Special Opportunities Master Fund Ltd. (the “LifeSci Fund”), a Diffusion stockholder, informed the Company of its intent to nominate an alternative slate of directors for election at Diffusion’s 2022 annual meeting of stockholders, which was subsequently withdrawn following Diffusion and the LifeSci Fund entering into a settlement agreement on December 11, 2022. 

The settlement agreement provides that, among other things, (1) the LifeSci Fund and its affiliates would immediately and irrevocably withdraw their nominees for election as directors of Diffusion at Diffusion’s 2022 annual stockholder meeting and (2) subject to certain conditions, including the LifeSci Fund and its affiliates continuing to hold the same number of shares of Diffusion Common Stock and not breaching the terms of the settlement agreement, Diffusion will appoint one of the LifeSci Funds’ nominees to Diffusion’s board of directors in the future if Diffusion has not consummated any tender offer or exchange offer, merger, acquisition, business combination, reorganization, restructuring, recapitalization, sale or acquisition of material assets, or liquidation or dissolution by July 1, 2023.

On March 29, 2023, a representative of the LifeSci Fund delivered a letter to the Diffusion’s board of directors which, among other things, urged Diffusion’s board of directors to pursue a dissolution of Diffusion and distribution to stockholders of remaining cash in lieu of pursuing any strategic transaction alternative. Following instruction by Diffusion’s board of directors, on March 31, 2023, Dechert, counsel for Diffusion, emailed the LifeSci Fund’s outside counsel on Diffusion’s behalf, informing the LifeSci Fund that Diffusion believes such actions violated the settlement agreement. Counsel for the LifeSci Fund replied that same day that LifeSci Fund understands and will comply with its obligation under the settlement agreement. On June 21, 2023, such counsel to the LifeSci Fund (n/k/a Wasatch Peaks Capital Management Master Fund Ltd.) delivered a letter to the Diffusion board of directors seeking to have one of its nominees appointed to the Diffusion board of directors if an Extraordinary Transaction (as defined in the settlement agreement) is not completed prior to July 1, 2023.

Despite these assurances, during a personal lunch meeting on April 13, 2023 unrelated to Diffusion and the Merger, a managing director of LifeSci Capital informed John Alam, the Chief Executive Officer of EIP, that Mr. Dobkin was speaking to other stockholders of Diffusion and that a number of Diffusion’s stockholders intended to vote against the Merger and had agreed to vote against any future proposals that might be submitted for a vote of Diffusion stockholders. On April 20, 2023, Dechert sent a letter to the LifeSci Fund’s outside counsel on Diffusion’s behalf, notifying the LifeSci Fund that Mr. Dobkin’s conversations with Diffusion’s stockholders were in breach of the Settlement Agreement. On May 2, 2023, counsel for the LifeSci Fund replied refuting that the LifeSci Fund has breached the Settlement Agreement.

Stockholder litigation and regulatory inquiries and investigations are expensive and could harm Diffusion’s business, financial condition and operating results and could divert management attention.

In the past, securities class action litigation and/or stockholder derivative litigation and inquiries or investigations by regulatory authorities have often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, such as the Merger, or the announcement of negative events, such as negative results from clinical trials. Diffusion is currently and may in the future be the target of this type of litigation as a result of changes in Diffusion’s stock price, past transactions, results of clinical trials or other matters. Any stockholder litigation and/or regulatory investigations against Diffusion, whether or not resolved in Diffusion’s favor, could result in substantial costs and divert Diffusion’s management’s attention from other business concerns, which could adversely affect Diffusion’s business and cash resources and Diffusion’s ability to consummate a potential strategic transaction or the ultimate value Diffusion’s stockholders receive in any such transaction.

Following announcement of the Merger Agreement with EIP and the filing of the Registration Statement on May 11, 2023, two lawsuits were filed in the United States District Court for the Southern District of New York on May 15, 2023 and May 17, 2023, respectively by purported stockholders of Diffusion in connection with the Merger. The lawsuits are captioned Dunlea v. Diffusion Pharmaceuticals, Inc., et al., No. 1:23-cv-04043 (S.D.N.Y.) and Pikazin v. Diffusion Pharmaceuticals, Inc., et al., No. 1:23-cv-04096 (S.D.N.Y.) (together, the “Complaints”). The Complaints each named as defendants Diffusion and the members of Diffusion’s board of directors. Each of the Complaints alleges claims for violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder against all defendants, and violations of Section 20(a) of the Exchange Act against the members of Diffusion’s board of directors. The plaintiffs in each Complaint contend that Registration Statement filed on May 11, 2023 omitted or misrepresented material information regarding the proposed Merger, rendering the Registration Statement materially misleading. The Complaints seek injunctive and declaratory relief, as well as damages.

Diffusion has also received correspondence from law firms claiming to represent purported stockholders, either making other demands relating to the Merger, including that additional disclosures be provided.  In addition, Diffusion received a books and records demand, dated June 15, 2023 (the “Section 220 Demand”), on behalf of a purported stockholder of Diffusion seeking access to certain relevant books and records of Diffusion pursuant to Section 220 of the DGCL in connection with the Merger.

Diffusion believes that the claims asserted in the Complaints, the demand letters, and the Section 220 Demand are without merit.

Diffusion stockholders may serve additional demands and/or file additional lawsuits challenging the Merger, which may name Diffusion, EIP, members of the Diffusion board of directors, members of the EIP board of directors and/or others as defendants. No assurance can be made as to the outcome of such additional demands, lawsuits, the demand letters, the Section 220 Demand or the Complaints, including the amount of costs associated with defending, settling, or any other liabilities that may be incurred in connection with the litigation or settlement of, such claims. If any additional demands are served and/or any additional lawsuits filed, absent new or different allegations that are material, Diffusion will not necessarily announce such additional demands and/or complaints.

Diffusion or EIP may waive one or more of the conditions to the Merger without recirculation of this proxy statement/prospectus/information statement or resoliciting stockholder approval.

Conditions to Diffusion’s or EIP’s obligations to complete the Merger may be waived, in whole or in part, to the extent permitted by law, either unilaterally or by agreement of Diffusion, EIP and Merger Sub. In the event of a waiver of a condition, the Diffusion’s board of directors will evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus/information statement and resolicitation of stockholder approval is necessary. In the event that Diffusion’s board of directors, in its own reasonable discretion, determines any such waiver is not significant enough to require recirculation of this proxy statement/prospectus/information statement and re-solicitation of its stockholders, it will have the discretion to complete the Merger without seeking further stockholder approval, which decision may have a material adverse effect on the Diffusion stockholders.

If Nasdaq does not approve Diffusion’s listing application for the combined company and the parties waive the Nasdaq closing condition and continue with the Merger, Diffusion may be subject to delisting.

Diffusion has filed an initial listing application with Nasdaq pursuant to Nasdaq’s “reverse merger” rules. In the event the application is not accepted by Nasdaq and the parties waive the Nasdaq closing condition and proceed with the Merger, the combined company will be subject to delisting proceedings and could be delisted. If Diffusion’s shares lose their status on the Nasdaq Capital Market, Diffusion believes that its shares would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by OTC Markets Group Inc., such as the OTC Pink marketplace and now known as the OTCQB market. These markets are generally considered not to be as efficient as, and not as broad as, the Nasdaq Capital Market. If Diffusion’s common stock is delisted, this would, among other things, substantially impair its ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for the combined company. Additionally, investors would find it more difficult to buy and sell shares of the combined company’s common stock.

Diffusion or EIP may waive one or more of the conditions to the Merger without re-soliciting stockholder approval.

Certain conditions to Diffusion’s and EIP’s respective obligations to complete the Merger may be waived, in whole or in part, to the extent permitted by law and the Merger Agreement, either unilaterally or by agreement of Diffusion and EIP.

In the event of a waiver of a condition, the Diffusion board of directors will evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus/information statement and re-solicitation of proxies is necessary. In the event that the Diffusion board of directors, in its own reasonable discretion, determines any such waiver is not significant enough to require re-solicitation of its stockholders, it will have the discretion to complete the Merger without seeking further stockholder approval, which decision may have a material adverse effect on the Diffusion stockholders. For example, if Diffusion and EIP agree to waive the requirement that the Nasdaq application be accepted for listing prior to the consummation of the Merger, and their respective boards of directors elected to proceed with the closing of the Merger, Nasdaq may notify the combined company of its determination to delist the company’s securities based upon the failure to satisfy the initial inclusion criteria subject to a right of appeal by the combined company to stay the delisting action pending a Nasdaq hearings panel decision.

Notwithstanding the foregoing, certain closing conditions may not be waived due to applicable law or otherwise. The following closing conditions may not be waived: receipt of the requisite stockholder approvals by each party; the effectiveness of the registration statement of which this proxy statement/prospectus/information statement forms a part; and the absence of any order or injunction that has the effect of prohibiting the consummation of the Merger. The foregoing closing conditions are the only closing conditions to the Merger that may not be waived. All other closing conditions to the Merger may be waived by EIP and/or Diffusion, as applicable. See the section “The Merger Agreement—Conditions to the Closing of the Merger” beginning on page 150 for further information.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

In general, either Diffusion or EIP can refuse to complete the Merger if there is a material adverse change affecting the other party between the date of the Merger Agreement and the closing of the Merger. However, pursuant to the terms of the Merger Agreement, certain types of changes do not permit either party to refuse to complete the Merger, even though such change could have a material adverse effect on Diffusion or EIP, including:

If one or more such adverse changes occur and Diffusion and EIP still complete the Merger, the combined company stock price may suffer. This in turn may reduce the value of the Merger to the stockholders of Diffusion and EIP.

Certain Diffusion and EIP executive officers and directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.

Certain officers and directors of Diffusion and EIP will participate in arrangements that provide them with interests in the Merger that are different from yours, including, among others, the continued service as officers and/or directors of the combined company, and continued indemnification. For more information, please see the sections titled “The Merger — Interests of the Diffusion Directors and Executive Officers in the Merger” beginning on page 133 and “The Merger — Interests of the EIP Directors and Executive Officers in the Merger” beginning on page 134.

The market price of the combined company’s common stock following the Merger may decline as a result of the Merger.

There can be no assurance as to the market price of the combined company’s common stock as a result of the Merger for a number of reasons. The market could decline including, including if:

During the pendency of the Merger, Diffusion and EIP may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Diffusion and EIP to make acquisitions, subject, in the case of Diffusion, to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending the closing of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third-party, subject to, in the case of Diffusion, certain exceptions. Any such transactions could be favorable to such party’s stockholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Diffusion and EIP from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except, with respect to Diffusion, in certain circumstances where Diffusion’s board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or could be reasonably likely to result in a superior takeover proposal. In addition, if Diffusion or EIP terminate the Merger Agreement under certain circumstances, including terminating because of a decision of a board of directors to recommend an alternative proposal, Diffusion may be required to pay a termination fee of $765,000. These obligations could discourage third parties from submitting alternative takeover proposals to Diffusion and its stockholders and may cause the Diffusion board of directors to be less inclined to recommend an alternative proposal, even if any such third party were prepared to pay consideration with a higher value than the value of the Merger.

Because the lack of a public market for EIP’s capital stock makes it difficult to evaluate the fairness of the Merger, the stockholders of EIP may receive consideration in the Merger that is less than the fair market value of EIP’s capital stock and/or Diffusion may pay more than the fair market value of EIP’s capital stock.

The outstanding capital stock of EIP is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of EIP’s capital stock. Because the percentage of Diffusion equity to be issued to EIP stockholders was determined based on negotiations between the parties, it is possible that the value of the Diffusion Common Stock to be received by EIP stockholders will be less than the fair market value of EIP’s capital stock, or Diffusion may pay more than the aggregate fair market value for EIP’s capital stock.

The combined company will incur significant transaction costs as a result of the Merger, including investment banking, legal, and accounting fees. In addition, the combined company will incur significant operating expenses which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed the parties’ estimates and may have an adverse effect on the combined company’s financial condition and operating results.

The long-range financial projections for EIP included in the section titled “The Merger — Certain Unaudited Long-Range Financial Projections of EIP’s Business” beginning on page 131, which were considered by the Diffusion board of directors in evaluating the Merger and used by CG at the direction of the Diffusion board of directors in connection with its fairness opinion and related financial analyses, reflect numerous variables, estimates and assumptions and are inherently uncertain. If any of these variables, estimates and assumptions prove to be wrong, such as the assumptions relating to the approval of EIP’s product candidates, the actual results for the combined company’s business may be materially different from the results reflected in the long-range financial projections.

As further described below in the section titled “The Merger — Certain Unaudited Long-Range Financial Projections of EIP’s Business”, in connection with the Diffusion board of directors’ evaluation of the Merger, preliminary internal financial projections for EIP were prepared by the management of EIP and provided to the management of Diffusion for, following certain adjustments, consideration by the Diffusion board of directors and use by Diffusion’s financial advisor, CG, in connection with the rendering of its fairness opinion and performing its related financial analyses. The long-range financial projections reflect numerous variables, estimates, and assumptions made by EIP’s management at the time the initial financial projections were prepared by EIP and Diffusion’s management at the time such adjustments were made. If any of these variables, estimates and assumptions prove to be wrong, the actual results for the combined company’s business may differ materially from the results reflected in the long-range financial projections.

The estimated probabilities of success included in the long-range financial projections take into account a range of potential outcomes, including outcomes in which product candidates fail to achieve commercial launch due to commercial and regulatory uncertainty (including failure to obtain regulatory authorization to market the applicable product candidate) as well as economic and portfolio management decisions and competition, and these assumptions, including those with respect to regulatory approval and probability of success more broadly, are inherently uncertain and could prove inaccurate. If one or more of the EIP product candidates do not receive marketing authorization when anticipated, for the indications anticipated, or at all, or the other assumptions reflected in the estimates as to probability or magnitude of success prove untrue, the actual results of the combined company’s business will differ materially from the results reflected in the long-range financial projections. For example, while the long-range financial projections reflect the assumption that neflamapimod is approved for commercial sale in the U.S. by the FDA at a particular time in the future, if neflamapimod is not approved at such time or at all then actual results will differ materially, including the potential for neflamapimod to generate no revenue at all.

In addition, the long-range financial projections cover a significant period of time, specifically through 2036. This extended period was used in light of the anticipated timing for regulatory approval and the initiation of commercial sales of EIP’s product candidates. However, the risks and uncertainties regarding the long-range financial projections, including the potential for adverse developments such as delays in obtaining or failure to obtain regulatory approvals or additional competition or changes in the competitive or regulatory landscape, increase with each successive year and the likelihood that the actual results will differ materially from the projected results increase with each successive year. The long-range financial projections also do not reflect potential changes in general business, economic, market and financial conditions and any changes in any of these conditions over the period of the projections could result in the actual results differing materially from the results reflected in the long-range financial projections.

The fairness opinion delivered by CG to Diffusion’s board of directors prior to the entry into the Merger Agreement does not reflect changes in circumstances that may have occurred since the date of the opinion.

The Diffusion board of directors has not obtained an updated fairness opinion either as of the date of this proxy statement/prospectus/information statement or as of any other date subsequent to the date of such opinion from CG. Changes in circumstances, including in the operations and prospects of Diffusion or EIP, stock prices, general market and economic conditions and other factors, some or all of which may be beyond the control of Diffusion are not reflected in such opinion. The opinion does not speak as of any date other than the date of such opinion. CG has assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances or events occurring after the date of such opinion.

Because the Merger will result in an ownership change under Section 382 of the Code for Diffusion, Diffusion’s pre-merger net operating loss (“NOL”) carryforwards and certain other tax attributes will be subject to limitation. In addition, the NOL carryforwards and other tax attributes of EIP and of the combined company may also be subject to limitation as a result of ownership changes.

As of December 31, 2022, Diffusion had U.S. federal and state NOL carryforwards of approximately $34.2 million and EIP had U.S. federal NOL carryforwards and state NOL carryforwards of $38.2 million and $37.2 million, respectively.  Under Sections 382 and 383 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownership change” (within the meaning of Section 382 of the Code (“Section 382”)), the corporation’s NOL carryforwards and certain other tax attributes (such as research tax credits) arising before the ownership change are subject to limitation on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points (by value) over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Diffusion and, accordingly, Diffusion’s NOL carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use after the Merger. Diffusion’s NOL carryforwards may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Diffusion’s, EIP’s, and the combined company’s NOL carryforwards. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Diffusion’s, EIP’s, and the combined company’s NOL carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, the combined company’s existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.

The Merger may have adverse tax consequences.

Subject to the limitations and qualifications described in the section titled “The Merger — Certain Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 139 of this proxy statement/prospectus/information statement, in the opinion of Mintz, the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. This opinion is based on facts and representations contained in representation letters provided by EIP, Diffusion and Merger Sub and on customary factual assumptions, and further assumes that the Merger is completed in the manner set forth in the Merger Agreement and the registration statement on Form S-4 of which this proxy statement/prospectus/information statement forms a part. If the Merger were to fail to so qualify, then each holder of EIP Common Stock generally would recognize gain or loss, as applicable, equal to the difference between (1) the sum of the fair market value of the shares of Diffusion Common Stock received by such U.S. holder in the Merger and the amount of cash received for fractional shares by such U.S. holder in the Merger and (2) its adjusted tax basis in the shares of EIP Common Stock surrendered in exchange therefor. The consequences of the Merger to any particular stockholder will depend on that stockholder’s particular situation. We strongly urge you to consult your own tax advisor to determine the particular tax consequences of the Merger to you.

Once the Merger has closed, there can be no further recourse by either party or its stockholders for a breach of representation or warranty.

The representations and warranties of Diffusion, EIP and Merger Sub contained in the Merger Agreement or any certificate or instrument delivered pursuant to the Merger Agreement will terminate at the Effective Time and there would be no recourse for any breach of such representations and warranties discovered or occurring following the closing of the Merger.

Diffusion may choose to waive certain of its rights under the lock-up agreements signed by certain EIP equityholders if required to meet the listing requirements of Nasdaq.

In April 2023, Diffusion received written notice from the staff (the “Staff”) of the Nasdaq listing qualifications department that the Staff has determined that, in connection with the proposed Merger and pursuant to Nasdaq Listing Rule 5110(a), the combined company will be required to satisfy all of Nasdaq’s initial listing criteria prior to consummation of the Merger in order to obtain such approval. Diffusion currently meets, and anticipates that it will meet at the Effective Time, each of the initial listing requirements for the Nasdaq Capital Market under the “Equity Standard” set forth in Nasdaq Rule 5505(b)(1) other than requirements that the company’s listed securities have (i) a bid price of at least $4.00 and (ii) an aggregate market value of unrestricted publicly held shares of at least $15.0 million.

On June 20, 2023, based upon the closing price of the Diffusion Common Stock as reported by Nasdaq of $3.76, the aggregate market value of unrestricted publicly held shares of Diffusion Common Stock was approximately $7.7 million. Assuming the registration statement of which this proxy statement/prospectus/information statement forms a part if declared effective by the SEC prior to the Effective Time, for purposes of determining Diffusion’s satisfaction of Nasdaq Rule 5505(b)(1), the value of shares issued to former EIP stockholders at the Effective Time of the Merger will generally be added to such amount, except to the extent that such shares are subject to contractual or other restrictions on the transfer thereof.

As further described under “Agreements Related to the Merger – Lock-Up Agreements” beginning on page 166, EIP’s directors, executive officers and certain principal stockholders, who beneficially hold 69.3% of EIP Common Stock on an as-converted to common stock basis as of April 1, 2023, have entered into lock-up agreements, pursuant to which such parties have agreed not to, except in limited circumstances, transfer, grant an option with respect to, sell, exchange, pledge or otherwise dispose of, or encumber any shares of the combined company’s common stock for up to 180 days following the Effective Time.  To the extent the aggregate market value of other unrestricted publicly held shares of Diffusion Common Stock is less than $15 million, Diffusion may choose to waive its rights under any or all of such lock-up agreements in order to increase the amount of unrestricted publicly held shares outstanding.  In such an event, the holders of those shares would be permitted to sell or transfer the shares of common stock they will receive in the Merger sooner than they otherwise would, which could result in a decrease to the company’s stock price.

Risks Related to the Reverse Split Proposal

Failure to obtain stockholder approval for the Reverse Split Proposal may result in the combined company being unable to obtain compliance with the minimum bid price requirements for an initial listing on any Nasdaq market tier and may result in Diffusion Common Stock being delisted from the Nasdaq Capital Market. In addition, the Reverse Split may not result in an increase to the combined company’s stock price that is sufficient to satisfy Nasdaq’s listing requirements so as to qualify for Nasdaq listing and/or Diffusion may fail to satisfy other Nasdaq listing requirements that cannot be cured through a Reverse Split.

As further described elsewhere in this proxy statement/prospectus/information statement under the section titled, “The Merger Agreement – Conditions to the Closing of the Merger,” under the terms of the Merger Agreement, one of the conditions to the completion of the Merger is that the existing shares of Diffusion Common Stock shall have been continually listed on Nasdaq as of and from the date of the Merger Agreement through the closing date of the Merger and the shares of Diffusion Common Stock to be issued in the Merger pursuant to the Merger Agreement shall have been approved for listing, subject to official notice of issuance, on Nasdaq after the closing. In April 2023, Diffusion received written notice from the Staff that, in connection with the proposed Merger and pursuant to Nasdaq Listing Rule 5110(a), the combined company will be required to satisfy all of Nasdaq’s initial listing criteria prior to consummation of the Merger in order to obtain such approval. Diffusion currently meets, and anticipates that it will meet at the Effective Time, each of the initial listing requirements for the Nasdaq Capital Market under the “Equity Standard” set forth in Nasdaq Rule 5505(b)(1) other than requirements that the company’s listed securities have (i) a bid price of at least $4.00 and (ii) an aggregate market value of unrestricted publicly held shares of at least $15.0 million.

On June 20, 2023, the closing price of the Diffusion Common Stock as reported by Nasdaq was $3.76, resulting in an aggregate market value of unrestricted publicly held shares of less than $10.0 million. Diffusion is required pursuant to the terms of the Merger Agreement to submit to its stockholders a proposal to approve an amendment to its certificate of incorporation to authorize the Diffusion board of directors to effect the Reverse Split of all outstanding shares of its common stock. The Reverse Split, if approved by Diffusion stockholders, may be implemented by the Diffusion board of directors in an effort to increase the per-share market price of Diffusion’s common stock above the minimum bid price requirement under the Nasdaq rules so that the listing of the combined company and the shares of Diffusion Common Stock being issued in the Merger on Nasdaq will be approved. Diffusion has filed a listing application for the combined company with Nasdaq.

If the price of Diffusion Common Stock is less than $4.00 per share, and if the Reverse Split Proposal is not approved by Diffusion’s stockholders and the Merger is completed, the combined company will likely not be able to obtain compliance with the minimum bid price requirement for an initial listing on any Nasdaq market tier. Further, while it is expected that, if the Reverse Split Proposal is approved and the Reverse Split is implemented, the reduction in the number of outstanding shares of common stock that would result from the Reverse Split would proportionally increase the market price of the combined company’s common stock, the Reverse Split may not result in an increase to the combined company’s stock price that is sufficient to satisfy Nasdaq’s initial listing requirements. There can be no assurances that Nasdaq will approve the listing application, and further, Nasdaq’s determination may not be known at the time stockholders are asked to approve the Merger.

In addition, due to the fact that the Reverse Split would result in a decrease to the number of shares of Diffusion Common Stock outstanding, it is not anticipated that the Reverse Split, even if approved and implemented, will have any direct impact on the combined company’s ability to satisfy the aggregate market value of unrestricted securities requirement for an initial listing. Under the rules and regulations of Nasdaq, new shares that would be issued to EIP’s stockholders at the Effective Time are included in the calculation of the combined company’s aggregate market value of unrestricted shares, provided that such shares are not restricted pursuant to securities laws, contractual lock-up agreements or otherwise. As further described under “Agreements Related to the Merger – Lock-Up Agreements” beginning on page 166, EIP’s directors, executive officers and certain principal stockholders, who beneficially held 69.3% of EIP Common Stock on an as-converted to common stock basis as of April 1, 2023, have entered into lock-up agreements, pursuant to which such parties have agreed not to, except in limited circumstances, transfer, grant an option with respect to, sell, exchange, pledge or otherwise dispose of, or encumber any shares of the combined company’s common stock for up to 180 days following the Effective Time. However, pursuant to the terms of the lock-up agreements, Diffusion may agree to waive its rights under the lock-up agreements of certain EIP stockholders in order for the shares to be considered “unrestricted,” included in the combined company’s aggregate market value of unrestricted securities and, to the extent such amount results in an aggregate amount of at least $15.0 million in the aggregate, support the combined company’s ability to satisfy the associated Nasdaq initial listing requirement.

If the Reverse Split does not result in an increase to the market price of Diffusion Common Stock sufficient to satisfy the minimum bid price Nasdaq listing criteria, or if Diffusion does not otherwise satisfy Nasdaq’s initial listing requirements, Nasdaq may not approve the listing of the combined company and the shares of Diffusion Common Stock that would be issued in the Merger, which would entitle EIP to terminate the Merger Agreement due to Diffusion’s failure to satisfy the associated closing condition. Even if Diffusion and EIP agreed to waive the requirement that the Nasdaq application be accepted for listing prior to the consummation of the Merger, and their respective boards of directors determined to proceed with the closing of the Merger in its absence, Nasdaq may notify the combined company of its determination to delist the company’s securities based upon the failure to satisfy the initial inclusion criteria. The combined company may appeal the determination to a hearings panel, which will stay the delisting action pending a panel decision. If the combined company does not appeal the determination, its common stock will be delisted. Any potential suspension of the shares of common stock from Nasdaq would likely result in decreased liquidity and increased volatility for the combined company’s common stock and would adversely affect the combined company’s ability to raise additional capital or to enter into strategic transactions. Any potential suspension of the shares of common stock from Nasdaq would also make it more difficult for stockholders to sell the combined company’s common stock in the public market. Furthermore, if Diffusion waives its rights under the lock-up agreements of certain EIP stockholders, these holders would no longer be restricted from transacting in Diffusion Common Stock during the prescribed lock-up period. Any sales by these holders, which could be significant, could put additional downward pressure on the trading price of the Diffusion Common Stock.

For more information regarding the conditions to closing the Merger, see, “The Merger Agreement – Conditions to the Closing of the Merger” beginning on page 150, and for more information regarding the ability of the parties to waive conditions to the Merger, see “Risks Related to the Merger — Diffusion or EIP may waive one or more conditions to the Merger without re-soliciting stockholder approval” beginning on page 40.

Diffusion’s board of directors will determine the Reverse Split ratio in its discretion (subject to mutual agreement with EIP regarding the Reverse Split ratio assuming the Merger Agreement remains in effect at such time) and may consider a variety of factors in making its determination.

If the Reverse Split Proposal is approved by Diffusion’s stockholders, Diffusion intends to effect the Reverse Split, with the exact ratio to be determined in the discretion of Diffusion’s board of directors in accordance with the terms set forth in the Reverse Split Proposal (subject to mutual agreement with EIP regarding the Reverse Split ratio assuming the Merger Agreement remains in effect at such time). If the Merger is not approved or consummated, Diffusion’s board of directors may elect to proceed with the Reverse Split even in the absence of completion of the Merger, and the exact ratio of the Reverse Split will be determined by Diffusion’s board of directors.

The proposed Reverse Split may not increase the combined company’s stock price over the long-term.

There is no assurance however that the per-share market price of Diffusion Common Stock will remain at such increased level for any meaningful period of time. While the reduction in the number of outstanding shares of Diffusion Common Stock should proportionally increase the market price of Diffusion Common Stock, it cannot be assured that the proposed Reverse Split will increase the market price of Diffusion Common Stock by a multiple of the proposed Reverse Split ratio, or result in any permanent or sustained increase in the market price of Diffusion Common Stock , which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Therefore, while the stock price of the combined company might meet the initial listing requirements for the Nasdaq Capital Market initially, it cannot be assured that it will continue to do so.

The proposed Reverse Split may lead to a decrease in the combined company’s overall market capitalization.

The Reverse Split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the proposed Reverse Split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Diffusion Common Stock will remain the same after the proposed Reverse Split is effected, or that the proposed Reverse Split will not have an adverse effect on the stock price of Diffusion Common Stock due to the reduced number of shares outstanding after the proposed Reverse Split. In addition, any such decrease in the combined company’s overall market capitalization would exacerbate any deficiency in satisfying the aggregate market value of unrestricted securities requirement, which may require Diffusion to waive its rights under lock-up agreements with additional EIP stockholders.

The proposed Reverse Split may decrease the liquidity of the combined company’s common stock.

The liquidity of the combined company’s common stock could be adversely affected by the reduced number of shares outstanding after the proposed Reverse Split is effected. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for the combined company’s common stock.

Risks Related to Diffusion

Risks Related to Diffusion’s Business, Financial Position, Results of Operation, and Organizational Structure if the Merger is Not Completed

If the Merger is not completed, the Diffusion board of directors may decide to pursue a liquidation and dissolution of Diffusion. In such an event, there can be no assurances as to the amount or timing of available cash left, if any, to distribute to Diffusion stockholders after paying its debts and other obligations and setting aside funds for reserves.

While Diffusion has entered into the Merger Agreement with EIP, the closing of the Merger may be delayed or may not occur at all and there can be no assurance that the Merger will deliver the anticipated benefits Diffusion expects or enhance stockholder value. If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, Diffusion may be required to pay EIP a termination fee of $765,000. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, Diffusion will have incurred significant fees and expenses, most of which must be paid whether or not the Merger is completed.

If, for any reason, the Merger does not close, the Diffusion board of directors may elect to, among other things, attempt to complete another strategic transaction like the Merger, attempt to sell or otherwise dispose of the various assets of Diffusion including TSC, resume its research and development activities and continue to operate the business of Diffusion. Any of these alternatives would be costly and time-consuming and would likely require that Diffusion obtain additional funding. Diffusion can make no assurances that it would be able to obtain additional financing or find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement or that any such alternatives are possible or would be successful, if pursued. To the extent that Diffusion seeks and is able to raise additional capital through the sale of equity or convertible debt securities, Diffusion stockholders’ ownership interest would be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of Diffusion’s common stockholders. Investors may demand significant discounts to market prices or that Diffusion agrees to restrictive covenants or other limitations on Diffusion’s ability to operate Diffusion’s business, and conditions in the capital markets may make equity and debt financing more difficult to obtain or negatively impact Diffusion’s ability to complete a financing transaction at all. Debt financing or preferred equity financing, if available, may involve agreements that include covenants limiting or restricting Diffusion’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Diffusion raises funds through strategic transactions or marketing, distribution, or licensing arrangements with third parties, Diffusion may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to it. If Diffusion is unable to raise additional capital in sufficient amounts or on terms acceptable to us, Diffusion may have to significantly delay, scale back, discontinue the development or commercialization of one or more of Diffusion’s product candidates, or seek alternative financing opportunities such as collaborations or licensing opportunities. Even if Diffusion is able to pursue such alternatives, the failure to complete the Merger may result in negative publicity and/or a negative impression of Diffusion in the investment community, could significantly harm the market price of Diffusion Common Stock and may affect Diffusion’s relationship with employees and other partners in the industry.

If the Merger is not completed, the Diffusion board of directors may decide that it is in the best interests of the Diffusion stockholders to dissolve the company and liquidate its assets. In that event, the amount of cash available for distribution to the Diffusion stockholders would depend heavily on the timing of such decision and, ultimately, such liquidation since the amount of cash available for distribution continues to decrease as Diffusion funds its operations and incurs fees and expenses related to the Merger. In addition, if the Diffusion board of directors were to approve and recommend, and the Diffusion stockholders were to approve, a dissolution of Diffusion, it would be required under the DGCL to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to the Diffusion stockholders. As a result of this requirement, a portion of Diffusion’s assets may need to be reserved pending the resolution of such obligations. In addition, Diffusion may be subject to litigation or other claims related to a liquidation and dissolution of the company. If a liquidation and dissolution were pursued, the Diffusion board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, the Diffusion stockholders could lose all or a significant portion of their investment in the event of a liquidation and dissolution of Diffusion.

Diffusion is substantially dependent on Diffusion’s remaining employees to facilitate the consummation of a strategic transaction, including the Merger.

On February 16, 2023, Diffusion announced its commitment to a reduction in force impacting seven of Diffusion’s 13 employees, including the departure of Dr. Christopher D. Galloway, M.D., Diffusion’s former Chief Medical Officer, and Ms. Raven Jaeger, Diffusion’s former Chief Regulatory Officer, in each case, effective March 1, 2023. In addition, effective as of the close of business on May 15, 2023, Mr. William Hornung, Diffusion's former Chief Financial Officer, departed the company. Diffusion’s ability to successfully complete a strategic transaction depends in large part on Diffusion’s ability to retain certain of Diffusion’s remaining personnel. Despite Diffusion’s efforts to retain these employees, one or more may terminate their employment with Diffusion on short notice. The loss of the services of any of these employees could potentially harm Diffusion’s ability to consummate a strategic transaction, to run Diffusion’s day-to-day operations, or fulfill Diffusion’s reporting obligations as a public company.

Diffusion currently generates no revenue from the sale of products, have incurred significant losses since Diffusion’s inception, have a history of net losses and negative cash flow from operations, expect to incur losses for the foreseeable future, and may never become profitable. In addition, Diffusion’s operating results may fluctuate significantly, which makes Diffusion’s future operating results difficult to predict and could cause Diffusion’s operating results to fall below expectations. As a result, any investment in Diffusion Common Stock is speculative and risky.

Diffusion is a clinical stage biotechnology company and, as a result, it has a limited operating history from which to assess how it will respond to competitive, economic, or other challenges to Diffusion’s business, and Diffusion’s business and prospects must be considered in light of the risks and uncertainties frequently encountered by similarly situated companies.

Diffusion has limited cash resources, has generated substantial net losses and negative cash flow from operations since Diffusion’s inception, and Diffusion continues to incur significant research, development, and other expenses related to Diffusion’s ongoing operations. To date, Diffusion has not yet obtained regulatory approvals for any of Diffusion’s product candidates and, accordingly, has not generated any revenues from the sale of products. Diffusion expects to continue to incur losses and negative cash flow for the foreseeable future. Furthermore, Diffusion’s future operating results may fluctuate due to a variety of other factors, many of which are outside of Diffusion’s control and may be difficult to predict, including the delays in Diffusion’s product development programs including as a result of regulatory review, increased expenditures related to manufacturing or the enforcement of intellectual property rights, other litigation costs, changes in accounting policies, or other unanticipated events.

Diffusion’s ability to generate sufficient revenues from any of Diffusion’s product candidates, if approved, will depend on numerous factors described throughout this proxy statement/prospectus/information statement. Even if Diffusion is able to successfully develop and receive regulatory approval for any of Diffusion’s product candidates, it does not know if or when any such product will achieve commercial success or generate revenue for Diffusion, and Diffusion will incur significant costs associated with the commercialization that will need to be offset by revenue before achieving a profit. Diffusion may also in the future enter into collaboration agreements and license agreements with other companies that include milestone expenditures and payments, in which case Diffusion’s ability to generate revenue or achieve profitability may be dependent on the achievement of those milestones. Even if Diffusion achieves profitability in the future, Diffusion may not be able to sustain profitability in subsequent periods, and Diffusion’s prior losses and expected future losses have had and will continue to have an adverse effect on Diffusion’s stockholders’ equity. Furthermore, due to the uncertainty of the drug development process, Diffusion is often unable to predict the timing or amount of increased expenses, or when Diffusion will be able to achieve or maintain profitability, if at all.

Diffusion’s forecast of the period of time through which Diffusion’s financial resources will be adequate to support Diffusion’s operations is a forward-looking statement and involves the associated risks and uncertainties. Although Diffusion has based this estimate on assumptions that Diffusion believes to be reasonable, they may prove to be wrong, Diffusion could utilize Diffusion’s available capital resources sooner than it currently expects, and actual results could vary greatly from Diffusion’s expectations expressed in this proxy statement/prospectus/information statement as a result.

Diffusion’s forecast of the period of time through which Diffusion’s financial resources will be adequate to support Diffusion’s operations is a forward-looking statement and involves the associated risks and uncertainties. Although Diffusion has based this estimate on assumptions that Diffusion believes to be reasonable, they may prove to be wrong, Diffusion could utilize Diffusion’s available capital resources sooner than it currently expects, and actual results could vary greatly from Diffusion’s expectations expressed in this proxy statement/prospectus/information statement as a result. The magnitude and timing of Diffusion’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

Whether or not the Merger is completed, Diffusion may not be able to enter into a transaction with a suitable acquiror or licensee for TSC or any transaction entered into may not be on terms that are favorable to Diffusion.

As previously announced, in connection with its strategic review process, Diffusion made the strategic decision to voluntarily pause significant portions of the TSC development program. Currently, Diffusion believes the primary path available to derive value from its TSC-related assets would be to find a suitable acquiror or licensee for the asset. Although Diffusion management has contacted numerous parties to assess their potential interest in such a transaction, to date, Diffusion has been unable to identify an interested counterparty. Furthermore, even if Diffusion is able to identify such a counterparty, supporting diligence activities conducted by potential acquirors or licensees and negotiating the financial and other terms of an agreement or license are typically long and complex processes, and the results of such processes cannot be predicted.

There can be no assurance that Diffusion will enter into any transaction as a result of this effort or that any transaction involving Diffusion’s TSC-related assets will be entered into or, if entered into, will be on terms that are favorable to Diffusion. Furthermore, Diffusion cannot predict the impact that such a transaction or, alternatively, a failure to monetize the TSC assets in any material way, might have on its stock price.

In connection with Diffusion’s strategic decision to voluntarily pause significant portions of the TSC development program, Diffusion may become involved in disagreements or disputes with counterparties relating to the development TSC, which may be time consuming, costly and could divert its efforts and attention from consummating the Merger and harm Diffusion’s efforts to seek a partner to continue development of TSC.

Diffusion has entered into various agreements with other counterparties related to the development of TSC which impose a variety of obligations on Diffusion and the counterparties to such agreements. As a result of Diffusion’s decision to pause significant portions of the TSC development program and subsequent decision to enter into the Merger Agreement, Diffusion has begun the process of winding down the majority of its own operations relating to TSC while seeking a partner for the further development of TSC. While Diffusion is not aware of any such matters as of the date of this proxy statement/prospectus, disagreements and disputes between Diffusion and certain counterparties related to this wind-down may arise in the future regarding each parties’ obligations under these agreements. Any such disagreement or dispute could become time consuming, costly and could divert Diffusion’s efforts and attention from consummating the Merger and could harm its efforts to seek a partner to continue development of TSC. Any disagreements or disputes with such parties that lead to litigation, arbitration or similar proceedings will result in Diffusion incurring significant legal expenses, as well as potential significant legal liability.

Regulatory authorities, including the FDA, may not accept data from clinical trials conducted outside of their jurisdiction.

Diffusion’s clinical trial conducted during 2020-2021 evaluating TSC in patients with COVID-19 was conducted in Bucharest, Romania and, if the Merger is completed, the combined company may in the future conduct additional clinical trials evaluating its product candidates outside the U.S. The acceptance of trial data from clinical trials conducted outside the U.S. by the FDA may be subject to certain conditions or may not be accepted at all, and other comparable non-U.S. regulatory authorities may have similar restrictions and conditions with respect to clinical trials conducted outside of their jurisdiction. In cases where data from non-U.S. clinical trials are intended to serve as the basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of non-U.S. data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many comparable non-U.S. regulatory authorities have similar approval requirements.

There can be no assurance that the FDA will accept data from trials conducted outside of the United States or that any comparable non-U.S. regulatory authority will accept data form trials conducted outside of the applicable jurisdiction. If the FDA or any comparable non-U.S. regulatory authority does not accept such data or believes that additional data is necessary to supplement such data, it would result in the need for additional trials, which would be costly and time-consuming, could delay a product candidate’s development plan, and which may result in product candidates not receiving approval for commercialization in the applicable jurisdiction.

Conducting clinical trials outside the U.S. may also expose us to additional risks, including risks associated with the following: additional foreign regulatory requirements; foreign exchange fluctuations; compliance with foreign manufacturing, customs, shipment and storage requirements; the failure of enrolled subjects in foreign countries to adhere to clinical protocol as a result of differences in SOC; cultural differences in medical practice and clinical research; diminished protection of intellectual property rights; and compliance with general local legal requirements.

Whether or not the Merger is completed, Diffusion’s business may be affected from time-to-time by government investigations and litigation with third parties, including our ongoing matter with Paul Feller.

Diffusion may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and other third parties and may become subject to claims and other actions related to its business activities. While the ultimate outcome of investigations, inquiries, information requests and legal proceedings is difficult to predict, defense of litigation claims (even if ultimately successful) can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modifications to business practices, costs and significant payments, any of which could have a material adverse effect on Diffusion’s business, financial condition, results of operations and prospects. For example, in August 2014, Paul Feller, the former Chief Executive Officer of Diffusion’s legal predecessor, filed a complaint asserting various causes of action related to his past affiliations with Diffusion’s legal predecessor. While Diffusion believes the claims in this matter are without merit and is defending itself vigorously, Diffusion is unable to predict the outcome and possible loss or range of loss, if any, associated with its resolution or any potential effect the matter may have on Diffusion’s financial position. Depending on the outcome or resolution of this matter, it could have a material effect on Diffusion’s consolidated financial position, results of operations and cash flows.  For additional information regarding the Feller matter, please see the section titled, “Diffusion Business – Legal Proceedings,” beginning on page 195.

General Risks Related to Diffusion’s Business, Financial Condition, Results of Operations, and Organizational Structure if the Merger is not Completed.

Diffusion’s business, financial condition, or results of operations may also be materially adversely affected by a number of general risks related thereto and to Diffusion’s organizational structure that are not specific to Diffusion, including:

Risks Related to Ownership of Diffusion Common Stock if the Merger is Not Completed

Provisions in Diffusion’s corporate charter documents and under Delaware law could make an acquisition of the company, which may be beneficial to Diffusion’s stockholders, more difficult and may prevent attempts by Diffusion’s stockholders to replace or remove its current directors and members of management.

Provisions in Diffusion’s certificate of incorporation, as amended, and its amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of the company that stockholders may consider favorable, including transactions in which Diffusion’s stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of Diffusion Common Stock, thereby depressing the market price of its common stock. In addition, because Diffusion’s board of directors is responsible for appointing the members of its management team, these provisions may frustrate or prevent any attempts by Diffusion’s stockholders to replace or remove its current management by making it more difficult for stockholders to replace members of Diffusion’s board of directors. Among other things, these provisions:

Moreover, because Diffusion is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which generally prohibits a person who, together with their affiliates and associates, owns 15% or more of a company’s outstanding voting stock from, among other things, merging or combining with the company for a period of three years after the date of the transaction in which the person acquired ownership of 15% or more of the company’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Diffusion’s certificate of incorporation designates the state courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could discourage lawsuits against the company and its directors, officers and employees.

Diffusion’s restated certificate of incorporation provides that, unless Diffusion consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for certain proceedings, including: (1) any derivative action or proceeding brought on Diffusion’s behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of Diffusion’s directors, officers, employees or stockholders to the company or its stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (4) any action asserting a claim arising pursuant to any provision of Diffusion’s restated certificate of incorporation or amended and restated bylaws (in each case, as they may be amended from time to time) or governed by the internal affairs doctrine. These choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which federal courts have exclusive jurisdiction.

These exclusive-forum provisions may make it more expensive for stockholders to bring a claim than if the stockholders were permitted to select another jurisdiction and may limit the ability of Diffusion’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Diffusion or its directors, officers or employees, which may discourage such lawsuits against Diffusion and its directors, officers and employees. Alternatively, if a court were to find the choice of forum provisions contained in Diffusion’s restated certificate of incorporation to be inapplicable or unenforceable in an action, Diffusion may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect its business, financial condition and operating results.

If Diffusion cannot continue to satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, Diffusion Common Stock could be delisted, which would harm Diffusion’s business, the trading price of Diffusion Common Stock, Diffusion’s ability to raise additional capital and the liquidity of the market for Diffusion Common Stock.

Diffusion Common Stock is currently listed on the Nasdaq Capital Market. To maintain the listing of Diffusion Common Stock on the Nasdaq Capital Market, Diffusion is required to meet certain listing requirements. In the event that Diffusion Common Stock is delisted from Nasdaq and is not eligible for quotation or listing on another market or exchange, trading of Diffusion Common Stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult for us to raise capital and for Diffusion’s stockholders to dispose of, or obtain accurate price quotations for, Diffusion Common Stock, and there would likely also be a reduction in Diffusion’s coverage by securities analysts and the news media, which could cause the price of Diffusion Common Stock to decline further.

Diffusion holds its cash and cash equivalents that it uses to meet its working capital needs in deposit accounts that could be adversely affected if the financial institutions holding such funds fail.

Diffusion holds its cash and cash equivalents that we use to meet its working capital needs in deposit accounts at multiple financial institutions. The balance held in these accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”), standard deposit insurance limit or similar government guarantee schemes. If a financial institution in which Diffusion holds such funds fails or is subject to significant adverse conditions in the financial or credit markets, Diffusion could be subject to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured funds. Any such loss or lack of access to these funds could adversely impact Diffusion’s short-term liquidity and ability to meet its obligations.

For example, on March 10, 2023, Silicon Valley Bank (“SVB”), and on March 12, 2023, Signature Bank, were closed by state regulators and the FDIC was appointed receiver for each bank. The FDIC created successor bridge banks and all deposits of SVB and Signature Bank were transferred to the bridge banks under a systemic risk exception approved by the United States Department of the Treasury, the Federal Reserve and the FDIC. If financial institutions in which Diffusion holds funds for working capital were to fail, Diffusion cannot provide any assurances that such governmental agencies would take action to protect its uninsured deposits in a similar manner.

Diffusion also maintains investment accounts with other financial institutions in which it holds its investments and, if access to the funds Diffusion uses for working capital is impaired, Diffusion may not be able to sell investments or transfer funds from its investment accounts to new accounts on a timely basis sufficient to meet its working capital needs.

Risks Related to Diffusion’s Intellectual Property if the Merger is Not Completed

Diffusion has paused significant portions of its TSC development activities. If Diffusion chooses to pursue further development of TSC or any other product candidate, Diffusion may not be able to obtain or enforce patent rights or other intellectual property rights that cover its product candidates and technologies that are of sufficient breadth to prevent third parties from competing against Diffusion.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing, and marketing of health care products competitive with those that Diffusion is developing, and Diffusion faces competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic and research institutions. Accordingly, our ability to obtain and maintain patent protection in both the U.S. and non-U.S. jurisdictions will be critical to our Diffusion’s to successfully develop, obtain regulatory approval for, and, in particular, commercialize TSC and its other product candidates. These protections are and will be essential to preserving and protecting Diffusion’s novel inventions, proprietary developments, and trade secrets and to preventing third parties from infringing upon them. In particular, Diffusion’s ability to protect any of its product candidates from unauthorized or infringing use by third parties depends in substantial part on its ability to obtain and maintain valid and enforceable patents in the U.S. and worldwide.

Diffusion’s patent portfolio includes patents and patent applications in the U.S. and other major markets covering its technology with varying scope, including issued U.S. patents related to composition of matter, formulation, methods of delivery, and methods of use and the scope of coverage vary from country to country. Although Diffusion believes that its intellectual property position is strong and is currently assessing its operations and existing portfolio for additional intellectual property opportunities, Diffusion does not have – and may be unable to obtain – patent protection for every aspect of its technology. For aspects of Diffusion’s technology for which it does not have patent coverage, or in countries where Diffusion does not have granted patents, Diffusion may not have any ability to prevent the unauthorized use of its technologies or technologies substantially similar to Diffusion’s, and any patents that Diffusion may obtain in the future may be narrow in scope and thus easily circumvented by competitors. Further, in countries where Diffusion does not have granted patents, third parties may be able to make, use or sell products identical to or substantially similar to, Diffusion’s product candidates.

Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, Diffusion’s ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. The patent application process, also known as patent prosecution, is expensive and time-consuming, and Diffusion may not be able to prepare, file, and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Diffusion will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Despite any past and future efforts to obtain additional intellectual property and patent protections for product candidates, there is no assurance Diffusion will obtain such protections through its applications. Therefore, these and any of Diffusion’s patents and applications may not be prosecuted and enforced in an optimal manner. It is also possible that defects of form in the preparation or filing of Diffusion’s patents or patent applications may exist, or may arise in the future, such as with respect to inadvertent prior public disclosures, proper priority claims, inventorship, claim scope, or patent term adjustments. If Diffusion’s current or future third-party development partners are not fully cooperative or disagree with Diffusion as to the prosecution, maintenance, or enforcement of any patent rights, those patent rights could be compromised and Diffusion might not be able to prevent third parties from making, using and selling competing products. Moreover, Diffusion’s competitors may independently develop equivalent knowledge, methods and know-how. Accordingly, Diffusion cannot guarantee that any patents will issue from any of its currently pending patent applications, which could impair its ability to prevent competition from third parties.

Even for aspects of Diffusion’s technology for which it has obtained, or obtains in the future, patent protection, the complexity of legal and factual questions underlying such claims means they may not provide Diffusion with sufficient protection for its product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. Diffusion cannot guarantee that the claims of these patents are or will be held valid or enforceable by the courts or will provide Diffusion with any significant protection against competitive products or otherwise be commercially valuable to Diffusion. Third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued patents it owns or licenses, which may result in such patents being narrowed, invalidated or held unenforceable. If the breadth or strength of protection provided by the patents it holds or pursues with respect to its product candidates is challenged, it could dissuade companies from collaborating with Diffusion to develop, or threaten our ability to commercialize, its product candidates. Changes in either the patent laws or in the interpretations of patent laws in the U.S. and other countries may diminish the value of Diffusion’s intellectual property.

In addition, patents have a limited lifespan, presenting further challenges in effectively protecting Diffusion’s technologies and associated commercial position. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available under a variety of legislative and regulatory avenues but often the life afforded by these extensions and the protections they afford are limited relative to full patent protection. The extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which Diffusion can market a product candidate under patent protection, which may particularly affect the profitability of Diffusion’s early-stage product candidates. Even if patents covering Diffusion’s products are obtained, once the patent life has expired, Diffusion may be open to competition from competitive products. If one of Diffusion’s products requires extended development, testing and/or regulatory review, patents protecting such products might expire before or shortly after such products are commercialized. As a result, Diffusion’s owned and licensed patent portfolio may not provide Diffusion with sufficient rights to exclude others from commercializing products similar or identical to Diffusion’s, which could have a material adverse effect on Diffusion’s business, financial condition and results of operations.

For example, historically, Diffusion’s primary focus since the founding of Diffusion LLC in the early 2000s has been developing TSC and, as a result, portions of Diffusion’s patent portfolio, including certain patents related to TSC’s composition of matter, have expired or will expire in the near future. While the Company actively engages in efforts to obtain additional patent protection covering Diffusion’s product candidates, there is no assurance that Diffusion will successfully obtain such patent protection. Furthermore, if Diffusion is unable to obtain regulatory approval of and successfully commercialize Diffusion’s product candidates prior to the expirations of key underlying patents, Diffusion’s owned and licensed patent portfolio may not provide Diffusion with sufficient rights to exclude others from commercializing products similar or identical to Diffusion’s.

Furthermore, the laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for Diffusion to stop the infringement of Diffusion’s patents or marketing of competing products in violation of Diffusion’s proprietary rights generally in those countries. If Diffusion encounters such difficulties in protecting or are otherwise precluded from effectively protecting Diffusion’s intellectual property in foreign jurisdictions, Diffusion’s business prospects could be substantially harmed.

Proprietary trade secrets and unpatented know-how are also very important to Diffusion’s business. Although we have taken steps to protect Diffusion’s trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection agreements with certain employees, consultants and advisors, third parties may still obtain this information or Diffusion may be unable to protect Diffusion’s rights. Diffusion also has limited control over the protection of trade secrets used by Diffusion’s suppliers, manufacturers and other third parties. There can be no assurance that binding agreements will not be breached, that Diffusion would have adequate remedies for any breach or that Diffusion’s trade secrets and unpatented know-how will not otherwise become known or be independently discovered by Diffusion’s competitors. If trade secrets are independently discovered, Diffusion would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using Diffusion’s trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secret information.

If we are unable to adequately obtain or enforce Diffusion’s patent and other intellectual property rights for any reason, it could materially and adversely affect Diffusion’s business, financial condition, and results of operations. For more information about Diffusion’s intellectual property and Diffusion’s competition, see the information included under the heading, “Diffusion Business – Product Development” beginning on page 181.

If Diffusion becomes involved in lawsuits to protect or enforce Diffusion’s patents or other intellectual property, or if Diffusion is sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation could have a material adverse effect on Diffusion’s business, financial condition, or results of operations.

Diffusion’s ultimate commercial success depends upon Diffusion’s ability to develop, manufacture, market, and sell Diffusion’s product candidates and use Diffusion’s proprietary technologies in the U.S. and non-U.S. markets. In order to do so, it is critical that we prevent third parties from infringing on Diffusion’s intellectual property rights and that we operate Diffusion’s business without infringing on the intellectual property rights of others.

However, numerous U.S. and non-U.S. issued patents and pending patent applications owned by third parties exist in fields relating to Diffusion’s product candidates, their potential methods of delivery, potential indications they may be used to treat, and their other features, and, as more patents are issued over time, the risk increases that others may assert that Diffusion’s product candidates, technologies, or methods of delivery or use infringe their patent or other intellectual property rights, or that we discover a third party infringing on Diffusion’s rights. Moreover, it is not always clear to industry participants, including us, which patents cover various drugs, biologics, drug delivery systems, or their methods of use, which of these patents may be valid and enforceable, and what inventions or technologies may be claimed by non-public patent applications. Patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after their first non-provisional filing and publications in the scientific literature often lag behind actual discoveries, meaning Diffusion cannot be certain whether others, including Diffusion’s competitors, have filed patent applications for technology covered by patents or Diffusion’s pending applications and whether any such filing has priority over Diffusion’s own applications or patents.

In the biopharmaceutical and pharmaceutical industries in particular, there is a substantial amount of litigation involving patent and other intellectual property rights. This type of litigation may occur unexpectedly but may also be prompted by specific events, such as a patent application being made public by the U.S. Patent and Trademark Office (“USPTO”) or a non-U.S. governmental authority or under Paragraph IV of the Hatch-Waxman Amendments.

As of the date of this proxy statement/prospectus/information statement, no litigation asserting infringement claims has been brought against Diffusion, nor has Diffusion filed such a claim against any third party. However, Diffusion cannot assure you that the development or future commercialization of any of Diffusion’s product candidates or other technologies will not result in claims that Diffusion’s activities infringe on the existing or future intellectual property rights of third parties. Furthermore, potential competitors may infringe Diffusion’s intellectual property, including Diffusion’s patents.

Diffusion may be required to file infringement claims to stop third-party infringement or unauthorized use or, if a third party claims Diffusion is infringing on their rights, respond to such claims. This process can be expensive and time consuming and could result in a court deciding that a patent of Diffusion’s is not valid or is unenforceable, that a third party is not required to stop using a technology Diffusion believes infringes on Diffusion’s rights, significant costs, or the diversion of management’s time. An adverse determination in any litigation or other proceedings could put one or more of Diffusion’s patents at risk of being invalidated, interpreted narrowly, or amended such that they do not cover Diffusion’s product candidates in a manner sufficient to support Diffusion’s development and commercialization needs or that such product candidate needs to be significantly redesigned, or put Diffusion’s pending patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope. Further, some of Diffusion’s competitors may be able to sustain the costs of complex patent litigation more effectively than Diffusion can because they have substantially greater resources.

In addition, interference, derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to Diffusion’s patents or patent applications. Litigation or USPTO proceedings brought by us may fail or may be invoked against Diffusion by third parties. Even if Diffusion is successful in these proceedings, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and the diversion of management’s time. Diffusion may not be able to prevent all misappropriation of Diffusion’s proprietary rights, particularly in countries with a legal framework that offers limited intellectual property protections or where the costs of enforcement outweigh the commercial and other benefits of maintaining intellectual property protections.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of Diffusion’s confidential information could be compromised by disclosure during this type of litigation or other proceedings, including as a result of public announcements of the results of hearings, motions or other interim proceedings or developments, or public access to related documents. This type of disclosure could put Diffusion at a significant competitive disadvantage by disclosing important trade secrets or other proprietary information to Diffusion’s competitors and other third parties.

Any litigation or other challenge related to Diffusion’s intellectual property could materially and adversely affect Diffusion’s business, financial condition, and results of operations.

General Risks Related to Diffusion’s Intellectual Property if the Merger is Not Completed

Diffusion’s business, financial condition, or results of operations may also be materially adversely affected by a number of general risks related to Diffusion’s intellectual property that are not specific to Diffusion, including:

Risks Related to the Development, Regulatory Approval, and Commercialization of Diffusion’s Product Candidates if the Merger is Not Completed

Notwithstanding the fact that Diffusion has paused significant portions of its TSC development activities, the success of Diffusion if the Merger is not completed would be dependent on the successful development, regulatory approval, and, ultimately, commercialization of its product candidates. However, the drug development process is expensive, time-consuming and uncertain. Diffusion efforts to develop, obtain regulatory approval for, and commercialize any of Diffusion’s product candidates could fail at any stage of the development process for a variety of reasons. Furthermore, because the results of preclinical studies and early-stage clinical trials are not necessarily predictive of future results, even if Diffusion is able to advance a product candidate into additional clinical trials, we may not continue to experience favorable results.

If the Merger is not completed, the success of Diffusion, including Diffusion’s ability to finance Diffusion’s operations and generate revenue in the future, will depend primarily on the successful development, regulatory approval, and, ultimately, commercialization of Diffusion’s product candidates. Historically, the majority of Diffusion’s product development resources have been dedicated to Diffusion’s most advanced product candidate, TSC, and for the foreseeable future, Diffusion’s planned expenditures are primarily related to Diffusion’s ongoing strategic review process and other costs associated with the conduct of certain preclinical studies and general research and development activities related to TSC. In the future, Diffusion may also seek to develop or commercialize additional product candidates, including product candidates that we may in-license or acquire to supplement Diffusion’s internally developed portfolio through Diffusion’s ongoing strategic process or otherwise.

The drug development process is very expensive, time-consuming, difficult to design and implement, and its outcome is inherently uncertain. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization and success in early-stage clinical trials does not ensure that later clinical trials will demonstrate the efficacy and safety of an investigational drug in a manner adequate to support regulatory approval. Countless other companies, including many with greater resources and experience, have failed or suffered significant setbacks attempting to navigate the drug development process, and there can be no assurance that Diffusion will have success where others have failed.

Diffusion’s current product candidates remain in early stages of the development process and, if further developed, Diffusion expects that the additional clinical trials necessary to support a new drug application (an “NDA”) will take several years to complete. Diffusion does not know whether the clinical trials Diffusion may conduct will demonstrate adequate efficacy and safety or otherwise provide adequate information to result in regulatory approval to market any of Diffusion’s product candidates in any particular jurisdiction. Furthermore, the timeline for Diffusion’s clinical trials may be delayed in the future for a variety of reasons, including delays related to regulatory and institutional review board (“IRB”) review and approval, slower than anticipated rates of enrollment in or early withdrawals from the trial, third party performance issues beyond Diffusion’s control including any contract research organization (“CRO”) engaged in the conduct of the trial, discovery of series or unexpected toxicities or side effects, or a lack of effectiveness.

Whether Diffusion is able to successfully develop any of Diffusion’s product candidates will depend on a large number of factors, including the following:

Any of these factors, many of which are beyond Diffusion’s control, could result in significant delays or an inability to develop, obtain regulatory approvals for, or commercialize Diffusion’s product candidates, and Diffusion may ultimately be able to receive regulatory approval or generate revenue from the sale of any product candidate.

A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in later-stage Phase 3 clinical development even after promising results in earlier preclinical studies or clinical trials. If later-stage clinical trials do not produce favorable results for Diffusion’s product candidates, or Diffusion is unable to complete the necessary clinical trials for any reason (including a lack of funding), Diffusion’s ability to achieve regulatory approval or successfully commercialize may be compromised. At any time, Diffusion may decide or be forced by circumstance to delay or discontinue the development or commercialization of TSC or any of Diffusion’s other product candidates, including as a result of unfavorable results in later-stage clinical trials, changes in Diffusion’s internal product, technology or indication focus, the appearance of new technologies that make Diffusion’s product candidate obsolete, competition from a competing product, or changes in (or failure to comply with) applicable regulatory requirements. If Diffusion decides or are forced to terminate any development program in which Diffusion has invested significant resources, Diffusion may not receive any return on Diffusion’s investment despite the allocation of significant resources, Diffusion may not be able to execute on Diffusion’s business plan effectively, and Diffusion’s business, financial condition, results of operations may be materially and adversely affected.

If the Merger is not completed, even if Diffusion is able to successfully complete the clinical trials and over development activities necessary to submit an NDA to the FDA or an application for marketing approval to an equivalent non-U.S. regulatory authority, Diffusion may be unable to obtain regulatory approval for any product candidates it may attempt to develop, for the indications for which Diffusion initially seek approval or at all. The FDA and similar non-U.S. regulatory authorities have significant discretion in the approval process, including the ability to delay, limit, or deny approval of product candidates. The delay, limitation, or denial of regulatory approval for any of Diffusion’s product candidates would limit or restrict altogether its ability to commercialize the product and generate revenue, which could materially and adversely impact Diffusion’s business, financial condition, and results of operations.

Diffusion currently has no products approved for sale, and Diffusion may never obtain regulatory approval to commercialize any product candidates Diffusion may attempt to develop. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and abroad, which often differ from country to country. Diffusion will not be permitted to market any of Diffusion’s product candidates in the U.S. until Diffusion receives approval of an NDA or other applicable regulatory filing from the FDA, and Diffusion will not be permitted to market in any non-U.S. countries until Diffusion receives the requisite approval from the applicable regulatory authorities.

To gain approval to market a new drug, the FDA and similar non-U.S. regulatory authorities require the submission of an NDA (or similar application) that contains preclinical and clinical data adequately demonstrating the safety, purity, potency, efficacy, and compliant manufacturing of the product for the intended indication. The FDA and their non-U.S. counterparts have substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of applications for many reasons, including:

Historically, of the large number of drugs in development at any given time, only a small percentage successfully complete the regulatory approval processes and are ultimately commercialized. Diffusion’s product candidates may not be approved for sale and marketing by the FDA or any other governmental authority, even if they meet specified endpoints in Diffusion’s clinical trials. The FDA or applicable foreign regulatory agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into a further phase of clinical development or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials.

Any delay in obtaining, or inability to obtain, the regulatory approvals necessary to market and sell Diffusion’s product candidates would delay or prevent commercialization and would materially and adversely affect Diffusion’s business, financial condition, and result of operations. Furthermore, if Diffusion determines in the future that the development, approval, or commercial prospects of any product candidate are insufficient to justify Diffusion’s continued expenditure of the associated development and other costs, Diffusion may choose to delay, suspend, or abandon Diffusion’s development or commercialization efforts with respect thereto, which would reduce or eliminate Diffusion’s potential return on investment for those product candidates.

If the Merger is not completed, Diffusion’s ability to develop Diffusion’s product candidates will depend, and, if any of Diffusion’s product candidates are approved, Diffusion’s ability to successfully commercialize Diffusion’s products will depend, in part on Diffusion’s ability to successfully obtain sufficient quantities of the necessary active pharmaceutical ingredients (“APIs”), other component substances and materials, and finished drug product for Diffusion’s product candidates. Diffusion is currently entirely dependent on third parties for the manufacture and supply of Diffusion’s product candidates and their component parts, including, with respect to Diffusion’s product candidate TSC, a sole supplier. Diffusion may be unable to continue to develop or commercialize Diffusion’s product candidates or face significant delays in that process if Diffusion is unable to successfully obtain these materials or manufacture drug product in sufficient quantities.

Maintaining an adequate supply of Diffusion’s product candidates to meet Diffusion’s needs is critical to the success of Diffusion’s business. However, manufacturing and supply of APIs, other substances and materials and finished drug products is a complex and technically challenging process, and changes beyond Diffusion’s direct control can impact the quality, volume, price, and successful delivery of Diffusion’s product candidates or impede, delay, limit or prevent the successful development and commercialization of Diffusion’s product candidates. Mistakes and mishandling are not uncommon in the biopharmaceutical and pharmaceutical industry and can affect successful production and supply significantly.

As of the date of this Annual Report, Diffusion has no internal manufacturing capabilities and therefore Diffusion does not have direct control over Diffusion’s ability to maintain drug supply sufficient to serve Diffusion’s needs for Diffusion’s ongoing and planned clinical trials or, if any of Diffusion’s product candidates are approved, commercialization. Although Diffusion is ultimately responsible for ensuring compliance with regulatory requirements such as current good manufacturing practices (“cGMPs”), Diffusion is dependent on Diffusion’s third-party contract manufacturing operations (“CMOs”) and other contract suppliers and manufacturers for the manufacture of Diffusion’s drug product, including both APIs and finished products, as well as day-to-day compliance with cGMPs and certain other manufacturing-related regulatory requirements. Facilities used by Diffusion’s contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection, provide regulators with certain technical information, and be approved by the FDA and other relevant regulatory authorities to confirm compliance with cGMP requirements and other regulatory requirements. If the safety of TSC or any of Diffusion’s other product candidates (or any component thereof) is found in the future to be compromised, Diffusion may not be able to successfully commercialize or obtain regulatory approval for the product candidate, and we may be held liable for injuries sustained as a result.

Any disruption in Diffusion’s relationship with these third parties or their ability to manufacture the APIs and finished drug product we need for Diffusion’s clinical trials and other development activities could result in significant delays in Diffusion’s anticipated development timelines and/or significant additional supply costs. Such a disruption could be the result of any number of reasons, including contractual disputes with Diffusion’s partners, regulatory issues with Diffusion’s partners or at their facilities (whether or not related to Diffusion or Diffusion’s drug product), financial issues faced by Diffusion’s partners (including bankruptcy or insolvency), damages to Diffusion’s partners’ facilities or equipment, communication breakdowns, or acts of God. For example, during 2021 Diffusion faced certain delays in the manufacturing process for planned, new batches of TSC drug product due to the fact that, in connection with the U.S. federal government’s Operation Warp Speed initiative in response to the COVID-19 pandemic, the facility at which Diffusion’s former, primary CMO partner conducts significant portions of the TSC manufacturing process had been mandated to devote the majority of the facility’s available resources to the manufacture of components of the COVID-19 vaccine.

Amplifying this risk is the fact that, notwithstanding the improvements made to Diffusion’s supply chain during 2021, Diffusion currently depends upon a sole source to manufacture Diffusion’s API for TSC and other aspects of Diffusion’s manufacturing process, limiting Diffusion’s available options to troubleshoot these issues. Although Diffusion actively manages this third-party relationship to ensure continuity, quality, and compliance with regulations and Diffusion intends to identify and develop alternative manufacturing and supply alternatives in the future, this process remains ongoing, will take time, and will involve significant costs. Even with these efforts, some events beyond Diffusion’s control, including global instability due to political unrest or from an outbreak of pandemic or contagious disease, such as COVID-19, could result in supply chain disruptions or the complete or partial failure of these manufacturing services. Any such failure or disruptions could materially adversely affect Diffusion’s business, financial condition, cash flows, and results of operations. Furthermore, due to the significant regulatory oversight of the pharmaceutical manufacturing process, any changes in the identity of Diffusion’s third-party partners or in Diffusion’s manufacturing processes – even if in the best interests of the Company and successful – could result in regulatory and other delays, as well as significant additional costs. In addition, if Diffusion’s current supplier terminated Diffusion’s arrangement or failed to meet Diffusion’s supply needs for any reason prior to the time Diffusion is able to identify sufficient alternative manufacturing capacity, Diffusion may be forced to delay Diffusion’s development plans significantly.

Diffusion’s CMO and other manufacturing and supply partners are also engaged to supply and manufacture materials or products for other biopharmaceutical and pharmaceutical companies, exposing them to regulatory risks unrelated to the work they are doing for Diffusion but which may nevertheless impact their ability to meet their contractual requirements to us or otherwise impede their ability to supply Diffusion with sufficient quantities of drug product. Failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of Diffusion’s product candidates or if it withdraws its approval in the future, even if such lack of approval is unrelated to Diffusion or Diffusion’s product candidates, Diffusion may need to find alternative supply or manufacturing facilities.

In addition, to date we have only manufactured TSC and Diffusion’s other product candidates in relatively small quantities for preclinical studies and clinical trials. As Diffusion prepares for additional, later-stage clinical trials and potential commercialization, Diffusion will need to take steps to substantially increase the scale at which Diffusion is able to produce TSC, its API, and its other component parts. In order to meet these needs, Diffusion’s CMOs and suppliers will need to produce Diffusion’s API, other components, and finished product in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. These third-party contractors may not be able to successfully increase the manufacturing capacity for any of such drug substance and product candidates in a timely or cost-effective manner or at all. Even if such a scale up is possible, it may require additional processes, technologies, and validation studies, which are costly, may not be successful, and which the FDA and foreign regulatory authorities would need to review and approve prior to any commercial sale of TSC or any other product candidate. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a product candidate itself or in combination with other components added during the process of manufacturing, packaging, shipping, or storage.

Diffusion’s reliance on contract manufacturers and suppliers further exposes Diffusion to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate Diffusion’s trade secrets or other proprietary information. In addition, the manufacturing facilities of certain of Diffusion’s suppliers are located outside of the United States. This may give rise to difficulties in importing Diffusion’s product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging.

Any of these factors could cause a delay or termination of preclinical studies, clinical trials, other development activities, regulatory submissions or approvals of Diffusion’s product candidates, or, if any of Diffusion’s product candidates is approved, commercial supply, and could result in significant, unanticipated costs or an inability to effectively develop Diffusion’s products candidates or commercialize Diffusion’s approved products on a timely basis, or at all, which could materially and adversely affect Diffusion’s business, financial condition, and results of operations.

If the Merger is not completed, Diffusion expects to rely on third-party CROs and other third parties to conduct and oversee Diffusion’s clinical trials and other aspects of Diffusion’s development process for Diffusion’s product candidates. If these third parties do not meet Diffusion’s requirements or otherwise conduct the trials or perform the other services for which they are engaged, Diffusion may not be able to successfully develop, obtain regulatory approval for, or commercialize Diffusion’s product candidates when expected or at all. Furthermore, if Diffusion is not able to establish and maintain the necessary collaborative relationships with Diffusion’s CROs and other third-party partners, Diffusion may have to alter Diffusion’s development and commercialization plans.

Conducting Diffusion’s clinical trials in a safe, compliant, and timely manner is critical to Diffusion’s success. Diffusion has historically relied on third-party CROs to conduct and oversee Diffusion’s clinical trials and other aspects of Diffusion’s product development, as well as various medical institutions, clinical investigators, contract laboratories, consultants, and other third parties to design and conduct Diffusion’s trials, to analyze the results therefrom, and to ensure that the trials are conducted in accordance with Diffusion’s clinical protocols and all applicable regulatory requirements, including the FDA’s regulations and good clinical practices (“GCP”). These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data therefrom, as Diffusion controls only certain aspects of their activities and relies heavily on them to execute Diffusion’s trials in a safe, compliant, and timely manner. Although Diffusion may internalize portions of  these functions if and as Diffusion’s organization grows, Diffusion expects to continue to rely on these third parties to a significant degree in the future.

If any of Diffusion’s CROs, clinical trial sites, or other third-party partners terminate their involvement in one of Diffusion’s clinical trials (or with Diffusion entirely) for any reason, Diffusion may not be able to enter into alternative arrangements sufficient to meet Diffusion’s needs, on a timely basis, on commercially reasonable terms, or at all. In addition, if Diffusion’s relationship with clinical trial sites is terminated, Diffusion may incur significant additional costs or experience the loss of follow-up information on patients enrolled in Diffusion’s ongoing clinical trials, unless Diffusion is able to transfer the care of those patients to another qualified clinical trial site.

Diffusion, as well as the CROs and other third-party contractors acting on Diffusion’s behalf, is required to comply with GCP and good laboratory practice (“GLP”) requirements in all of Diffusion’s clinical trials, which are enforced through periodic inspections of trial sponsors, principal investigators, and trial sites. If Diffusion or any of these third parties fail to comply with applicable GCP, GLP, or other regulatory requirements, the clinical data generated in Diffusion’s clinical trials may be deemed unreliable and Diffusion may be required to perform additional clinical trials to supplement or replace such data before receiving approval of a product candidate from the FDA foreign regulatory authority. Diffusion’s clinical trials must also generally be conducted with product produced under cGMP regulations. Diffusion’s and Diffusion’s partners’ compliance with these various regulations may be reviewed by regulatory inspections at any time, processes over which Diffusion we will have very little control or immediate visibility, and a failure to comply with these regulations and policies by us, Diffusion’s CROs, or any of Diffusion’s other third-party partners may result in significant delays in Diffusion’s development programs. In addition, principal investigators for Diffusion’s clinical trials may serve as scientific advisors or consultants to Diffusion from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

In addition, in order to fund or otherwise further development of Diffusion’s current or future product candidates, Diffusion may collaborate with other pharmaceutical and biotechnology companies on their development and potential commercialization of those product candidates. Diffusion would face significant competition in seeking appropriate partners and whether Diffusion reaches a definitive agreement for a collaboration will depend on many factors, including, Diffusion’s assessment of a partner’s resources and experience, the terms and conditions of the proposed collaboration, the likelihood of approval by the FDA or other regulatory authorities; the potential market for the subject product candidate; uncertainty with respect to Diffusion’s ownership of Diffusion’s intellectual property; and industry and market conditions generally. These types of collaborations are complex and time-consuming to negotiate and document and could ultimately result in lower returns on investment for Diffusion’s stockholders than would have been achieved developing the product candidate without a partner. Further, if Diffusion were to breach Diffusion’s obligations under the agreements governing any such future collaboration, Diffusion may face substantial consequences, including potential termination of the collaboration, and Diffusion’s rights to Diffusion’s partners’ product candidates, in which Diffusion has invested substantial time and money, would be lost.

Any failure to successfully enter into and maintain the necessary relationships with CROs and Diffusion’s other current and future third-party partners and collaborators could materially and adversely affect Diffusion’s business, financial condition, and results of operations.

General Risks Related to the Development, Regulatory Approval, and Commercialization of Diffusion’s Product Candidates if the Merger is Not Completed

Diffusion’s business, financial condition, or results of operations may also be materially adversely affected by a number of general risks related to the development and regulatory approval of Diffusion’s product candidates that are not specific to Diffusion’s Company, including:

In addition, although Diffusion currently has no marketed products, in the event any of Diffusion’s product candidates are approved for marketing and commercial sale by the FDA or any other regulatory authority, Diffusion’s business, financial condition, or results of operations may be materially adversely affected by a number of general risks related to the commercialization of such products that are not specific to Diffusion’s Company, including:

Risks Related to EIP

Risks Related to EIP’s Business, Financial Position and Capital Requirements

EIP currently does not have, and may never have, any products that generate significant revenues.

EIP is a clinical stage CNS therapeutics company with a limited operating history on which to evaluate its business and prospects. EIP currently has no products that are approved for commercial sale, and it may never be able to develop a marketable product. To date, EIP has not generated any revenues from its lead product candidate, neflamapimod, or from any other product candidate. EIP cannot guarantee that neflamapimod, or any other product candidate that it may develop or acquire in the future, will ever become marketable products. EIP’s limited operating history as a company makes any assessment of its future success and viability subject to significant uncertainty.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation in the U.S. and in other countries. Before the FDA and other regulatory authorities in the European Union and elsewhere will approve neflamapimod for commercialization, EIP must demonstrate that its drug satisfies rigorous standards of safety and efficacy for each of its intended uses. In order to compete effectively, EIP’s drugs must be easy to administer, cost-effective and economical to manufacture on a commercial scale. EIP may not achieve any of these objectives.

EIP initiated a Phase 2b randomized double-blind placebo-controlled clinical study of neflamapimod in subjects with DLB in the second quarter of 2023. EIP anticipates completing enrollment in the study in the first half of 2024. EIP cannot be certain that this Phase 2b trial or any future clinical development of neflamapimod will be successful, or that it will receive the regulatory approvals required to commercialize that drug candidate for any intended use, or that any future research and drug discovery programs undertaken by EIP will yield a drug candidate suitable for investigation through clinical trials. Even if EIP is able to successfully develop neflamapimod through approval and commercialization, any revenues from sales of the drug will not materialize for several years, if at all.

EIP is a clinical-stage biopharmaceutical company, and it has incurred significant losses since its inception. EIP expects its net losses to continue for the foreseeable future. EIP is not currently profitable and may never achieve or sustain profitability. EIP is unable to predict the extent of future losses or when it might become profitable, if ever.

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval, and become commercially viable. EIP has incurred net losses since its inception, and as of March 31, 2023, it had an accumulated deficit of approximately $53.4 million. EIP expects to incur net losses for the foreseeable future as it incurs significant clinical development costs related to the advancement of neflamapimod. EIP has not commercialized any products and has never generated revenue from neflamapimod or any other product. In order to obtain revenues from any product candidate, EIP must succeed, either alone or in collaboration with others, in developing, obtaining regulatory approval for, and manufacturing and marketing drugs with significant market potential. EIP may never succeed in these activities and may never generate revenues that are significant enough to achieve profitability.

EIP expects to incur significant additional operating losses for at least the next several years as it advances neflamapimod through clinical development, conduct clinical trials, seek regulatory approval and commercialize neflamapimod, if it is ultimately approved for marketing. The costs of advancing product candidates into each clinical phase tend to increase substantially over the clinical development process. Therefore, the total costs to advance neflamapimod to marketing approval in even a single jurisdiction will be substantial. Because of the numerous risks and uncertainties associated with pharmaceutical product development, EIP is unable to accurately predict the timing or amount of increased expenses, or when or if it will be able to begin generating revenue from the commercialization of neflamapimod, let alone achieve or maintain profitability.

The amount of EIP’s future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenues. If EIP is unable to develop and commercialize one or more product candidates, either alone or through collaborations, or if revenues from any product that receives marketing approval are insufficient, it will not achieve profitability. Even if EIP does achieve profitability, it may not be able to sustain it, which could materially and adversely affect its business.

EIP will require additional capital to fund its operations. If EIP fails to obtain necessary financing on acceptable terms, or if at all, it may not be able to complete the development and commercialization of neflamapimod.

EIP expects to spend substantial amounts to complete the development of, seek regulatory approvals for, and commercialize neflamapimod, if it is ultimately approved for marketing. These expenditures will include costs related to the recently initiated Phase 2b clinical trial of neflamapimod in DLB and costs associated with its license agreement with Vertex, under which EIP is obligated to make certain payments in connection with the achievement of specified events.

Until such time, if ever, that EIP can generate sufficient product revenue and achieve profitability, it expects to seek to finance future cash needs through equity or debt financings and/or corporate collaboration, licensing arrangements and grants. Based upon EIP’s current operating plan, EIP believes that EIP’s existing cash and cash equivalents and a grant from the NIA will enable EIP to fund its operating expenses and capital expenditure requirements for at least the next 12 months. EIP’s estimates and expectations regarding its cash runway are based on assumptions that may prove to be incorrect, and changing circumstances could cause it to consume capital faster or in different ways than EIP currently expects. For example, EIP’s recently initiated Phase 2b trial for neflamapimod may be more expensive, time-consuming, or difficult to implement than EIP currently anticipates. Because the length of time and activities associated with the successful development of neflamapimod is highly uncertain, EIP is unable to estimate the actual funds it will require to complete research and development and ultimately commercialize its drug candidate for one or more indications.

EIP’s future capital requirements will depend on, and could increase significantly as a result of, many factors, including:

EIP may raise additional capital in the future through a variety of sources, including public or private equity offerings, debt financings, grant funding, or strategic collaborations and licensing arrangements. Adequate additional financing may not be available to EIP on acceptable terms, or at all. EIP’s failure to raise capital as and when needed would have a negative effect on its financial condition and its ability to pursue its business strategy. If EIP is unable to secure additional capital in sufficient amounts or on terms acceptable to EIP, it may have to delay, scale back or discontinue its development or commercialization activities for neflamapimod. EIP might also be required to seek funds through arrangements with third parties that require it to relinquish certain of its rights to neflamapimod or otherwise agree to terms unfavorable to it.

The Phase 2b clinical study is funded by a non-dilutive grant that is subject to certain conditions for funding in subsequent years.

EIP’s recently initiated Phase 2b clinical study is funded by a grant from the NIA. The funds for the study will be disbursed over the course of the study as costs are incurred. While the funds for the first year of the study have already been allocated, the awarded funds future year total cost support are subject to the availability of funds (i.e., the NIA is funded by Congress in subsequent fiscal years) and EIP’s demonstration of progress in the project that is in line with the timelines provide in the grant. If such funds are no longer available or EIP fails to demonstrate such progress, EIP’s ability to continue its clinical programs may be impaired and delayed, and EIP may otherwise need to seek additional financing.

EIP could be subject to audit and repayment of its non-dilutive NIA grant.

In connection with the NIA grant, EIP may be subject to routine audits by certain government agencies. As part of an audit, these agencies may review EIP’s performance, cost structures and compliance with applicable laws, regulations, policies and standards and the terms and conditions of the applicable NIA grant. If any of EIP’s expenditures are found to be unallowable or allocated improperly or if EIP has otherwise violated terms of such NIA grant, the expenditures may not be reimbursed and/or it may be required to repay funds already disbursed. Any audit by the NIA may result in a material adjustment to EIP’s results of operations and financial condition and harm EIP’s ability to operate in accordance with its business plan. Additionally, negative results in any of its planned clinical trials of neflamapimod that are funded with an NIA grant may result in EIP’s failure to receive additional NIA grants to fund future clinical trials.

EIP may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because EIP has limited financial resources, it intends to focus on developing neflamapimod and future product candidates for specific indications that EIP identifies as most likely to succeed, in terms of both regulatory approval and commercialization. As a result, EIP may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential. EIP’s resource allocation decisions may cause EIP to fail to capitalize on viable commercial products or profitable market opportunities. Its spending on current and future research and development programs and on product candidates for specific indications may not yield any commercially viable products. If EIP does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for EIP to retain sole development and commercialization rights to such product candidate.

EIP may be required to make significant payments to Vertex in connection with EIP’s license agreement.

In August 2012, EIP entered into an Option and License Agreement with Vertex which EIP amended in April 2014 and then further amended in November 2015 (collectively, the “Vertex Agreement”). Pursuant to the terms of the Vertex Agreement, EIP acquired an exclusive license to develop and commercialize neflamapimod for the diagnosis, treatment, and prevention of Alzheimer’s disease (“AD”) and other CNS disorders.

Under the Vertex Agreement, EIP is subject to significant potential future obligations, including payment of development milestones and royalties on net product sales, as well as other material obligations. The Vertex Agreement sets forth specific regulatory and product approval events and the related payments that EIP would be obligated to make to Vertex if and when such events occur.

The terms of the Vertex Agreement also provide that EIP will make royalty payments to Vertex in the event aggregate net sales for a commercialized licensed product meet specified thresholds, subject to adjustment in the event of certain events, such as the absence of a valid patent claim or if fees are due to a third party for a license necessary for the development, manufacture, sale or use of a licensed product. Such royalties will be on a sliding scale as a percentage of net sales, depending on the amount of net sales in the applicable years. EIP is also obligated to make a milestone payment to Vertex upon net sales reaching a certain specified amount in any 12-month period.

The first expected milestone events concern filing of an NDA with the FDA for marketing approval of a licensed product in the U.S., or a similar filing for a non-U.S. major market. Thus, although EIP does not expect any milestone or royalty payments to be due in the immediate future, these potential obligations represent significant cash amounts that it may ultimately be obligated to pay. EIP does not know that it will have sufficient funds available to meet its obligations if and when these payments become due. The obligation to pay some or all of these milestone and royalty amounts may materially harm EIP’s development efforts, as well as its overall financial condition.

EIP has identified material weaknesses in its internal control over financial reporting which, if not corrected, could affect the reliability of the combined company’s financial statements and have other adverse consequences. EIP may identify additional material weaknesses in its internal controls over financing reporting which it may not be able to remedy in a timely manner.

In connection with the audit of EIP’s financial statements for the year ended December 31, 2022, material weaknesses in EIP’s internal control over financial reporting were identified in relation to: (i) EIP’s valuation and recording of significant complex transactions, specifically related to the valuation of the EIP Convertible Notes and the recording of accrued interest and related interest expense in connection therewith; and (ii) the absence of effective controls regarding the accurate identification, evaluation and proper recording of various expense accounts at year-end.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. The identified material weaknesses, if not corrected, could result in a material misstatement to the combined company’s consolidated financial statements that may not be prevented or detected. Given that EIP operates as a private company prior to the Merger, it does not, as of the date of this proxy statement/prospectus/information statement, have the necessary formalized processes to effectively implement review controls within its internal control over financial reporting.

The material weaknesses will not be considered remediated until a remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and it has been concluded, through testing, that the newly implemented and enhanced controls are operating effectively. EIP currently expects to commence the remediation plan during 2023 by by adding additional review procedures by qualified personnel over complex accounting matters and expense accounts. EIP cannot predict the success of such efforts or the outcome of its assessment of the remediation efforts. EIP’s efforts may not remediate this material weakness in its internal control over financial reporting, or additional material weaknesses may be identified in the future. In addition, the combined company plans to adopt Diffusion's current financial reporting processes. A failure to appropriately integrate financial reporting processes between the two companies, and to implement and maintain effective internal control over financial reporting could result in errors in the combined company’s financial statements that could result in a restatement of the combined company’s financial statements and could cause the combined company to fail to meet our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of the combined company’s common stock.

EIP and its independent registered public accounting firm were not required to perform an evaluation of its internal control over financial reporting as of December 31, 2022 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, EIP cannot assure you that it has identified all material weaknesses or that there will not be additional material weaknesses in the future.

The combined company will incur costs and demands upon management as a result of complying with the laws, rules and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that EIP did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the laws, rules and regulations of the SEC as well as Nasdaq rules. These laws, rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, the combined company’s management team will consist of a number of executive officers of EIP prior to the Merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These laws, rules and regulations also may make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

EIP’s future success depends in large part on EIP’s ability to retain its key employees, as well as its ability to attract, train and motivate qualified personnel. EIP may also encounter difficulties in managing its growth, which could disrupt its operations.

EIP has a small number of full and part-time employees, and it is highly dependent on the principal members of its management team, including its two co-founders, John Alam, M.D. and Sylvie Grégoire, Pharm.D. Although EIP has employment agreements or offer letters with its executive officers and certain key employees, these agreements do not prevent them from terminating their services at any time.

Competition in the biotechnology industry for skilled and experienced employees is intense, particularly in the greater Boston, Massachusetts area where EIP’s headquarters is located. EIP also faces competition for the hiring of scientific and clinical personnel from universities and research institutions, many of which are near EIP’s headquarters. The loss of the services of any member of EIP’s senior management, clinical development or scientific staff may significantly delay or prevent the achievement of drug development and other business objectives and could have a material adverse effect on EIP’s business, operating results and financial condition.

EIP also relies on consultants and advisors to assist it in formulating and executing its business strategy. All of EIP’s consultants and advisors are either self-employed or employed by other organizations, and they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other organizations, that may affect their ability to contribute to EIP.

As EIP continues to develop neflamapimod for the treatment of DLB, and also to expand into clinical trials for other CNS disorders, EIP expects to experience significant growth in the number of employees and the scope of its operations. This strategy will require it to recruit additional clinical development, regulatory, scientific, and technical personnel, as well as sales and marketing personnel if EIP’s drug is approved. If EIP is unable to attract, retain and motivate a sufficient number of highly qualified personnel to match its growth, its ability to further develop and commercialize neflamapimod, or any future product candidates EIP may develop or acquire, will be limited.

EIP may also be required to implement and improve managerial, operational and financial systems to manage its potential growth. Due to its limited financial and personnel resources, EIP may not be able to effectively manage the expansion of its operations or recruit and train additional qualified personnel. The expansion of EIP’s operations may lead to significant costs and may divert its management and business development resources. Any inability to manage growth could delay the execution of EIP’s business plans or disrupt its operations.

Consumers may sue EIP for product liability, which could result in substantial liabilities that exceed its available resources and damage its reputation.

Researching, developing, and commercializing drug products entail significant product liability risks. The use of neflamapimod or any other product candidates EIP may develop in clinical trials and the sale of any products for which it obtains marketing approval exposes it to the risk of product liability claims. Product liability claims might be brought against EIP by clinical trial participants, patients, healthcare providers, pharmaceutical distributors or others selling or otherwise coming into contact with its product candidates or future commercial products. EIP has obtained limited product liability insurance coverage for its clinical trials, which EIP believes to be reasonable given its current operations. However, EIP’s insurance coverage may not reimburse EIP or may not be sufficient to reimburse it for any expenses or losses it may suffer.

Although EIP currently has limited product liability insurance that covers its clinical trials, it will need to increase and expand this coverage as it commences larger scale trials, as well as if neflamapimod is ultimately approved for commercial sale. This insurance may be extremely expensive or may not fully cover EIP’s potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of neflamapimod, if it is approved. Product liability claims could have a material adverse effect on EIP’s business and results of operations.

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

EIP is exposed to the risk of fraud, misconduct or other illegal activity by its employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA, European Medicines Agency (“EMA”) and other comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA, EMA and other comparable foreign regulatory authorities; comply with manufacturing standards EIP has established; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to EIP. If EIP obtains FDA approval of any of its product candidates and begins commercializing those products in the United States, its potential exposure under such laws will increase significantly, and its costs associated with compliance with such laws are also likely to increase. In particular, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of subject recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to EIP’s reputation. EIP has adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and third parties, and the precautions EIP takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against EIP, and EIP is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of significant fines or other sanctions.

If EIP seeks to enter into collaborative arrangements or strategic alliances for its drug candidates, but fails to enter into and maintain successful relationships, it may have to reduce or delay its drug development activities or increase its expenditures.

An important element of a biotechnology company’s strategy for developing, manufacturing and commercializing its drug candidates may be to enter into strategic alliances with pharmaceutical companies or other industry participants to advance its programs and enable it to maintain its financial and operational capacity. Biotechnology companies at EIP’s stage of development sometimes rely upon collaborative arrangements or strategic alliances to complete the development and commercialization of drug candidates, particularly after the Phase 2 stage of clinical testing.

To date, EIP has not entered into any collaborative arrangements or strategic alliances, and it may face significant competition in seeking such relationships. In addition, such arrangements may place the development of EIP’s drug candidates outside its control, require EIP to relinquish important rights, or may otherwise be on terms unfavorable to EIP. EIP may not be able to negotiate collaborations and alliances on acceptable terms, if at all. If EIP enters into a collaborative arrangement and it proves to be unsuccessful, EIP may have to delay, or limit the size or scope of, certain of its drug development activities.

Alternatively, if EIP elects to fund drug development or research programs on its own, it will have to increase its expenditures and will need to obtain additional funding, which may be not be available to EIP on acceptable terms, if at all.

EIP’s business is subject to complex and evolving U.S. and foreign laws and regulations relating to privacy and data protection. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to its business practices, or monetary penalties, and otherwise may harm EIP’s business.

A wide variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, the European Union General Data Protection Regulation (“GDPR”) which became fully effective on May 25, 2018, imposes stringent data protection requirements and provides for penalties for noncompliance of up to the greater of €20 million or four percent of worldwide annual revenues. The GDPR and many other laws and regulations relating to privacy and data protection are still being tested in courts, and they are subject to new and differing interpretations by courts and regulatory officials. EIP is working to comply with the GDPR and other privacy and data protection laws and regulations that apply to it, and EIP anticipates needing to devote significant additional resources to complying with these laws and regulations. It is possible that the GDPR or other laws and regulations relating to privacy and data protection may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with EIP’s current policies and practices.

EIP’s actual or perceived failure to adequately comply with applicable laws and regulations relating to privacy and data protection, or to protect personal data and other data EIP processes or maintains, could result in regulatory fines, investigations and enforcement actions, penalties and other liabilities, claims for damages by affected individuals, and damage to EIP’s reputation, any of which could materially affect its business, financial condition, results of operations and growth prospects.

EIP’s internal computer systems, or those of its vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of its product development programs, compromise sensitive information related to its business or prevent it from accessing critical information, potentially exposing it to liability or otherwise adversely affecting its business.

EIP’s internal computer systems and those of its current and any future third-party vendors, collaborators and other contractors or consultants are vulnerable to damage, interruption or data theft from computer viruses, computer hackers, malicious code, employee theft or misuse, ransomware, social engineering (including phishing attacks), denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Cybersecurity incidents, which may not be immediately or ever detected, are increasing in frequency and evolving in nature. Additionally, due to geopolitical tensions related to Russia’s invasion of Ukraine, the risk of cyber-attacks may be elevated.

While EIP seeks to protect its information technology systems from system failure, accident and security breach, if such an event were to occur and cause interruptions in its operations, it could result in a disruption of EIP’s development programs and its business operations, whether due to a loss of its trade secrets or other proprietary information or other disruptions. For example, the loss of clinical trial data from future clinical trials could result in delays in EIP’s regulatory approval efforts and significantly increase its costs to recover or reproduce the data. If EIP were to experience a significant cybersecurity breach of its information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counterparties and data subjects could be material. In addition, EIP’s remediation efforts may not be successful. If it does not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, it could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information. In addition, in response to the recent COVID-19 pandemic, a majority of EIP’s workforce began to work remotely, which has continued and is now considered its normal business. This could increase EIP’s cyber security risk, create data accessibility concerns, and make EIP more susceptible to communication disruption.

To the extent that any disruption or security breach were to result in a loss of, or damage to, EIP’s or its third-party vendors’, collaborators’ or other contractors’ or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, EIP could incur liability including litigation exposure, penalties and fines, EIP could become the subject of regulatory actions or investigations, its competitive position could be harmed and the further development and commercialization of its product candidates could be delayed. Any of the above could have a material adverse effect on EIP’s business, financial condition, results of operations or prospects. While EIP maintains cyber-liability insurance (covering security and privacy matters), such insurance may not be adequate to cover any losses experienced as a result of a cybersecurity incident.

Unfavorable global economic conditions could adversely affect EIP’s business, financial condition or results of operations.

EIP’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, in 2008, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets and the recent COVID-19 pandemic has caused significant volatility and uncertainty in U.S. and international markets. A severe or prolonged economic downturn, or additional global financial crises, could result in a variety of risks to EIP’s business, including weakened demand for its product candidates, if approved, or its ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain EIP’s suppliers, possibly resulting in supply disruption. Any of the foregoing could harm EIP’s business and it cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact its business.

U.S. federal income tax reform could adversely affect EIP’s business and financial condition.

The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect EIP or holders of its common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, on March 27, 2020, former President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which included certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 coronavirus outbreak, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. Additionally, on December 22, 2017, former President Trump signed into law the Tax Cuts and Jobs Act of 2017 (“TCJA”), which significantly reformed the Code. The TCJA included significant changes to corporate and individual taxation, some of which could adversely impact an investment in EIP’s common stock. Under the TCJA, in general, NOLs generated in taxable years beginning after December 31, 2017 may offset no more than 80 percent of such year’s taxable income and there is no ability for such NOLs to be carried back to a prior taxable year. The CARES Act modified the TCJA with respect to the TCJA’s limitation on the deduction of NOLs and provided that NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. In addition, the CARES Act eliminated the limitation on the deduction of NOLs to 80 percent of current year taxable income for taxable years beginning before January 1, 2021 (but reinstated the limitation for taxable years beginning after December 31, 2020). As a result of such limitations, EIP may be required to pay federal income tax in some future year notwithstanding that it had a net loss for all years in the aggregate. Future changes in tax laws could have a material adverse effect on EIP’s business, cash flow, financial condition or results of operations. EIP urges investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in EIP’s Common Stock.

EIP faces risks associated with increased political uncertainty.

The recent invasion of Ukraine by Russia and the sanctions, bans and other measures taken by governments, organizations and companies against Russia and certain Russian citizens in response thereto has increased the political uncertainty in Europe and has strained the relations between Russia and a significant number of governments, including the U.S. The duration and outcome of this conflict, any retaliatory actions taken by Russia and the impact on regional or global economies is unknown, but could have a material adverse effect on EIP’s business, financial condition and results of its operations.

Risks Related to EIP’s Product Development and Regulatory Approval

EIP is heavily dependent on the success of its lead product candidate, neflamapimod, which is still under clinical development. If neflamapimod does not receive regulatory approval or is not successfully commercialized, EIP’s business will be materially harmed.

EIP has invested almost all of its efforts and financial resources to date in the development of neflamapimod for the treatment of DLB. To date, EIP has not initiated or completed a pivotal clinical trial, obtained marketing approval for any product candidate, manufactured a commercial scale product or arranged for a third party to do so on its behalf, or conducted sales and marketing activities necessary for successful product commercialization. EIP’s future success is substantially dependent on its ability to successfully complete clinical development of, obtain regulatory approval for, and successfully commercialize neflamapimod for this indication and additional indications, which may never occur.

EIP expects a substantial portion of its efforts and expenditures over the next few years will be devoted to the advancement of neflamapimod. In order to be successful, EIP will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions, securing manufacturing supply, building a commercial organization, and significant marketing efforts, among other requirements, before it can generate any revenues from commercial sales. EIP cannot be certain that it will be able to successfully complete any or all of these activities.

EIP has not submitted an NDA to the FDA or comparable applications to other regulatory authorities for neflamapimod, and it does not expect to be in a position to do so for several years, if ever. Significant additional clinical testing and research will be required before it can file such applications seeking approval of neflamapimod for the treatment of DLB, or in any other indications that EIP may pursue. If EIP is unable to obtain the necessary regulatory approvals for neflamapimod, it will not be able to commercialize its drug. This would materially adversely affect EIP’s financial position, and EIP may not be able to generate sufficient revenue to continue its business.

The development and commercialization of drug products is subject to extensive regulation, and the regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. There is no guarantee that EIP’s planned clinical trials for neflamapimod to treat patients with DLB, or in any other indications that EIP may pursue, will be successful. If EIP is ultimately unable to obtain regulatory approval for its lead product candidate on a timely basis, if at all, its business will be substantially harmed.

The development and commercialization of drug products is subject to extensive regulation, and the regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. If EIP is ultimately unable to obtain regulatory approval for its lead product candidate neflamapimod on a timely basis, if at all, its business will be substantially harmed.

Clinical trials are expensive and can be difficult to design and implement. Such trials can take many years to complete, and their outcomes are inherently uncertain. Failure can occur at any stage during the clinical trial process. EIP may experience difficulties in initiating and completing the clinical trials that it intends to conduct, and EIP does not know whether such trials will enroll patients on time, need to be redesigned, or be completed on schedule, if at all. In connection with clinical trials, EIP faces significant risks, including that its product candidate may not prove to be efficacious; patients may suffer adverse effects for reasons that may or may not be related to the product candidate being tested; the results may not confirm the positive results of its earlier preclinical studies and clinical trials; and the results may not meet the level of statistical significance required by the FDA or other regulatory agencies.

In EIP’s clinical studies to date, EIP has obtained positive clinical data for neflamapimod treatment in patients with DLB. Its Phase 2a data for neflamapimod demonstrated improvement vs. placebo in dementia severity and motor function. Based on the encouraging results of its Phase 2a studies, EIP initiated a confirmatory, hypothesis-testing Phase 2b randomized double-blind placebo-controlled clinical study of neflamapimod in subjects with DLB in the second quarter of 2023. EIP’s Phase 2b trial may not be successful or the FDA may disagree with EIP’s interpretation of the clinical trial data or how those data inform the design of a potentially pivotal Phase 3 clinical trial for EIP’s lead indication.

Even if EIP’s initial clinical trials results are confirmed in this Phase 2b clinical proof-of-concept (“POC”) trial, EIP will still need to successfully complete additional clinical trials, including a Phase 3 trial, before it is prepared to submit an NDA for regulatory approval of neflamapimod in patients with DLB, assuming that the data collected from EIP’s clinical trials are deemed sufficient to support the submission of an NDA. EIP cannot predict with any certainty if or when it might complete its development efforts and submit an NDA for regulatory approval of neflamapimod, or whether any such NDA will be approved by the FDA. An NDA or comparable foreign submission seeking marketing approval for neflamapimod also may not be accepted by FDA or foreign regulatory authorities due to, among other reasons, the content or formatting of the submission.

This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in EIP’s failure to obtain regulatory approval to market neflamapimod for any of its planned indications, which would significantly harm EIP’s business, results of operations, and prospects. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for a new product candidate. As a result, EIP may be required to conduct additional nonclinical studies, alter its proposed clinical trial designs, or conduct additional clinical trials to satisfy the regulatory authorities in each of the jurisdictions in which it hopes to conduct clinical trials and develop and market its products, if approved. Further, even if EIP believes the data collected from its clinical trials are promising, such data may not be sufficient to support approval by the FDA or any comparable foreign regulatory authority.

EIP has concentrated its research and development efforts on the treatment of DLB, a disease that has seen limited success in drug development. In addition, its rationale for neflamapimod in the treatment of DLB is based on a scientific understanding of the disease that may be wrong.

There have been limited efforts by biopharmaceutical and pharmaceutical companies to develop treatments for DLB and there are no therapies available for patients that have been approved with a specific indication to treat DLB. Only symptomatic therapies that are approved for other diseases, generally either AD or Parkinson’s disease, are currently utilized to manage patients with DLB. In addition, many potential disease-modifying therapies have been evaluated in other neurodegenerative diseases, particularly in AD, and these have encountered challenges in their development and, as a result, only recently two disease-modifying treatments to treat AD have been approved in the United States.

EIP’s approach to the treatment of DLB focuses in large part on neflamapimod’s ability to inhibit the intra-cellular enzyme p38α. The expression of p38α is considered to be a critical contributor in the toxicity of inflammation, alpha-synuclein, amyloid-beta and tau to neurons and synapses, which EIP and other scientific experts believe leads to synaptic dysfunction. Synaptic dysfunction, specifically impaired synaptic plasticity, leads to disruption of episodic memory and is a significant event in the development and symptomatology of DLB.

Neflamapimod blocks the effects of inflammation and other stress-inducers on neurons and synapses by inhibiting p38α. In targeting synaptic dysfunction in this manner, EIP believes neflamapimod has the potential to not only slow disease progression, but also reverse existing memory deficits in patients with DLB; that is, to both prevent further decline and improve cognitive function. In EIP’s clinical studies to date, neflamapimod treatment in patients with DLB has led to statistically significant improvement in cognition, motor function, and cognition & function, which appear to be the best clinical measures of DLB.

However, EIP cannot be certain that its approach will lead to the development of approvable or marketable products. To date the only drugs approved by the FDA to treat DLB have addressed the disease’s symptoms. In addition, there has never been an approval of a drug in DLB and therefore, there are no regulatory precedents for endpoints in that indication. Consequently, the FDA has a limited set of products to rely upon in evaluating neflamapimod. This could result in a longer than expected regulatory review process, increased expected development costs or the delay or prevention of commercialization of neflamapimod for the treatment of DLB.

EIP has a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for its future viability.

EIP was initially formed as a Massachusetts limited liability company in 2010 and became a Delaware corporation in March 2018. Its operations to date have generally been limited to financing and staffing the company, acquiring an exclusive license to EIP’s lead product candidate, neflamapimod, and advancing neflamapimod through preclinical activities and clinical trials.

EIP has not yet demonstrated, either on its own or through collaboration with third parties, an ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial product, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about its future success or viability may not be as accurate as they could be if EIP had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

In addition, as a business with a limited operating history, EIP may encounter unforeseen expenses, complications, delays and other known and unknown factors. If it is able to successfully develop neflamapimod, EIP may eventually need to transition from a company with a research focus to a company capable of supporting commercial activities. EIP may not be successful in such a transition and, as a result, its business may be adversely affected.

As EIP continues to build its business, EIP expects that its financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond its control. Accordingly, investors should not rely upon the results of any particular quarterly or annual period as indications of EIP’s future operating performance.

Safety issues with neflamapimod or with any other product candidate EIP may develop or acquire in the future, or with product candidates or approved products of third parties that are similar to EIP’s product candidates, could give rise to delays in the regulatory approval process, restrictions on labeling or product withdrawal after approval, if any.

Results of any clinical trial EIP conducts could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Serious adverse events or undesirable side effects caused by neflamapimod, or any other product candidates EIP may develop or acquire, could cause it or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. In addition, many compounds that have initially showed promise in clinical or earlier stage testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound. Further, problems with product candidates or approved products marketed by third parties that utilize the same therapeutic target or that belong to the same therapeutic class as neflamapimod or any future product candidates could adversely affect the development, regulatory approval and commercialization of EIP’s product candidates.

To date, neflamapimod has been evaluated in 217 patients, at doses up to 750 mg twice a day, and up to 24 weeks of treatment. The adverse effects (side effects) seen in more than 5% of neflamapimod-treated patients include headache (10% in neflamapimod-treated patients vs. 5% in placebo recipients), diarrhea (10% vs. 5%), abdominal pain (6% vs. 5%), respiratory infection (5% vs. 5%), and falls (5% vs. 5%); these events were generally were mild and in all but one case (a case of diarrhea and abdominal pain) did not lead to treatment discontinuation. In addition, increased levels of certain “liver enzymes” in the blood are a well-known dose-dependent side effect of p38 MAPK inhibitors. These liver enzymes, aspartate aminotransferase and alanine aminotransferase, are proteins are commonly produced in the liver, the measurements of which can help doctors evaluate liver function. With neflamapimod, during 12 weeks of dosing at 250mg BID (i.e., four-fold higher daily dosing than in the recently initiated Phase 2b trial) in 44 subjects with rheumatoid arthritis, elevations in such liver enzymes levels were noted in six subjects (14%). Additionally, in one subject (1%) participating in the Reverse-SD 24-week trial in mild AD, ALT and AST levels increased to three times the upper limit of normal.

After EIP acquired an exclusive license from Vertex to develop and commercialize neflamapimod for the treatment of AD and other CNS disorders, EIP submitted an investigational new drug (“IND”) application, to the FDA’s Division of Neurology Products (“DNP”) in February 2015. The DNP cleared EIP’s clinical trial application in March 2015. However, in August 2015, following a standard review of the long-term animal toxicity studies, the DNP placed a partial clinical hold on Phase 2a Study 303 and any subsequent studies proposed under the IND, limiting administration of neflamapimod to doses that lead to plasma drug levels which provide at least a 10-fold safety margin to the plasma drug levels in animals that in long-term animal toxicity studies had previously led to minimal or equivocal findings in the liver, bone marrow and CNS. A partial clinical hold means that FDA suspends part of the clinical work requested under the IND (e.g., a specific protocol or part of a protocol is not allowed to proceed); however, other protocols or parts of the protocol are allowed to proceed under the IND. Under DNP’s partial clinical hold that remains in effect for the neflamapimod IND, the agency limited administration of neflamapimod to doses that lead to plasma drug levels that provide a ten-fold safety margin to human subjects, based on the plasma drug levels in animals that had previously led to minimal or equivocal toxicity findings. EIP’s current understanding of plasma drug levels achieved with neflamapimod in humans means that its investigational dosing in the United States is limited by this partial clinical hold to no more than 40 mg three times daily in patients weighing 60kg (132 lbs.) or more. EIP’s recently initiated Phase 2b clinical study is being conducted at 40mg three times daily (limited to patients weighing 60kg or more within the United States, and not so limited outside the US).

Our current plans across our indications do not envision surpassing this dose level, and we do not expect this partial clinical hold to impact our ongoing and planned clinical trials. With respect to the adverse effects discussed above, the patients were asymptomatic, there were no associated increases in bilirubin, and the elevations resolved with treatment discontinuation. Liver enzyme abnormalities were not observed in the Phase 2a trial of neflamapimod in DLB. However, as EIP continues the development and clinical trials of neflamapimod, treatment-related serious adverse events (“SAEs”) may arise in the future. Side effects that are deemed to be drug-related could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Undesirable side effects in one of EIP’s clinical trials for neflamapimod in one indication could adversely affect enrollment in clinical trials, regulatory approval and commercialization of EIP’s product candidate in other indications. These side effects may not be appropriately recognized or managed by the treating medical staff. In addition, discovery of previously unknown class effect problems may prevent or delay clinical development and commercial approval of product candidates or result in restrictions on permissible uses after their approval. If EIP or others identify undesirable side effects caused by the mechanisms of action of a product candidate or a class of product candidates, the FDA may require EIP to conduct additional clinical trials, or to implement a Risk Evaluation and Mitigation Strategy program, or REMS program, prior to commercial approval. Alternatively, regulatory authorities may not approve the product candidate or, as a condition of approval, require specific warnings and contraindications or place certain limitations on how EIP can promote the drug. Following a potential future drug product approval, regulatory authorities might also withdraw such approval and require EIP to take its drug off the market. Any of these occurrences may harm our business, financial condition and prospects significantly.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients, rare and severe side effects of neflamapimod or future product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If neflamapimod, or any other product candidates EIP may develop or acquire, receives marketing approval and EIP or others identify undesirable side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:

Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for neflamapimod would delay EIP’s commercialization prospects, substantially increase the costs of commercializing neflamapimod, and severely harm EIP’s business and financial condition.

Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. EIP may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of neflamapimod or any other product candidates EIP may develop or acquire.

The risk of failure in drug development is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, EIP must complete nonclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of its product candidates in humans. Clinical trials are expensive, difficult to design and implement and can take several years to complete, and their outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if neflamapimod will prove to be effective or safe for any indication in humans or will receive marketing approval.

EIP may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or commercialize neflamapimod for any indication. Clinical trials may be delayed, suspended or prematurely terminated because costs are greater than EIP anticipates or for a variety of other reasons, such as:

Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval for neflamapimod or any other future product candidates. Further, the FDA or comparable foreign regulatory authorities may disagree with EIP’s clinical trial design and EIP’s interpretation of data from clinical trials or may change the requirements for approval even after the FDA has reviewed and commented on the design for EIP’s clinical trials.

If EIP is required to conduct additional clinical trials or other nonclinical studies of neflamapimod in various disease conditions beyond those that EIP currently contemplates, if it is unable to successfully complete clinical trials of EIP’s product candidates or other studies, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, EIP may:

Enrollment and retention of participants in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside EIP’s control.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on EIP’s ability to enroll a sufficient number of research participants who remain in the study until its conclusion. EIP may encounter delays in enrolling, or be unable to enroll, a sufficient number of individuals to complete any of its clinical trials, and even once enrolled EIP may be unable to retain a sufficient number of participants to complete any of its trials. Subject enrollment and retention in clinical trials depends on many factors, including:

Furthermore, any negative results EIP may report in clinical trials may make it difficult or impossible to recruit and retain subjects in other clinical trials of that same product candidate. Delays or failures in planned enrollment or retention of clinical trial subjects may result in increased costs or program delays, which could have a harmful effect on EIP’s ability to develop a product candidate or could render further development impossible.

If EIP is unable to take full advantage of regulatory programs designed to expedite drug development or provide other incentives, its development programs may be adversely impacted.

There are a number of incentive programs administered by the FDA and other regulatory bodies to facilitate development of drugs in areas of unmet medical need. For example, neflamapimod received a Fast Track designation in October 2019 from the FDA for investigation as a treatment of DLB. Fast Track designation is granted by FDA, in response to a sponsor’s request, upon a determination that the product candidate is intended to treat a serious or life-threatening disease or condition and has the potential to address an unmet medical need, meaning it could provide a therapeutic option for patients where none exists or a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast Track designation and other available FDA programs do not change the standards for approval but may expedite the development or approval process for certain drug candidates.

Neflamapimod may not qualify for or maintain designations under this or other incentive programs under any of the FDA’s existing or future programs to expedite drug development in areas of unmet medical need. EIP’s inability to fully take advantage of these incentive programs may require EIP to run larger trials, incur delays, lose opportunities that may not otherwise be available to it, and incur greater expense in the development of its product candidates.

Results of preclinical studies and early clinical trials may not be indicative of results obtained in later trials. In addition, preliminary, topline and interim data from EIP’s clinical trials that EIP may announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

The results of preclinical studies and early clinical trials of a product candidate, including neflamapimod, may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry, both generally and in the DLB treatment space in particular, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Even if EIP’s clinical trials for neflamapimod are completed as planned, including a future Phase 3 trial, EIP cannot be certain that their results will support the safety and efficacy sufficient to obtain regulatory approval.

In addition, from time-to-time EIP may announce or publish preliminary, topline, or interim data from its clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. EIP also makes assumptions, estimations, calculations and conclusions as part of its analyses of data, and it may not have received or had the opportunity to fully and carefully evaluate all data. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data EIP previously published. As a result, preliminary and interim data are not necessarily predictive of final results and should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm EIP’s business prospects. Accordingly, the results from the completed preclinical studies and clinical trials for EIP’s product candidates may not be predictive of the results EIP may obtain in later stage trials. Its clinical trials may produce negative or inconclusive results, and EIP may decide, or regulators may require it, to conduct additional clinical trials.

Moreover, 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 have nonetheless failed to obtain approval from the FDA, the EMA or other regulatory agencies for their products. Others, including regulatory agencies, may not accept or agree with EIP’s assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and EIP in general.

In addition, the information EIP chooses to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information. Others may not agree with what EIP determines is the material or otherwise appropriate information to include in its disclosure, and any information EIP determines not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding neflamapimod, a future product candidate, or its business. If the interim, preliminary, or topline data that EIP reports differ from later, final or actual results, or if others, including the FDA and comparable foreign regulatory authorities, disagree with the conclusions reached, EIP’s ability to obtain approval for, and commercialize our product candidates may be harmed, which could harm its business, financial condition, results of operations and prospects.

EIP relies on third parties to conduct, supervise and monitor its clinical trials. If those third parties do not successfully carry out their contractual duties, or if they perform in an unsatisfactory manner, EIP’s business will be harmed.

Although EIP designs and manages its preclinical studies and clinical trials, it does not currently have the ability to conduct clinical trials for neflamapimod on its own. EIP has relied, and will continue to rely, on third parties such as contract research organizations, medical institutions, and clinical investigators to ensure the proper and timely conduct of its clinical trials. EIP’s reliance on CROs for clinical development activities limits its control over these activities, but it remains responsible for ensuring that each of EIP’s trials is conducted in accordance with the applicable protocol, legal and regulatory and scientific standards. EIP does not control these third parties, and they may not devote sufficient time and resources to EIP’s projects, or their performance may be substandard, resulting in clinical trial delays or suspensions, delays in submission of our marketing applications or failure of a regulatory authority to accept our applications for filing. There is no assurance that the third parties EIP engages will be able to provide the functions, tests, activities or services as agreed upon, or provide them at the agreed upon price and timeline or to EIP’s requisite quality standards, including due to geopolitical events, natural disasters, public health emergencies or pandemics, or poor workforce relations or human capital management.

EIP and its CROs are required to comply with the Good Laboratory Practice requirements for preclinical studies and GCP requirements for clinical trials, which are regulations and guidelines enforced by the FDA and are also required by comparable foreign regulatory authorities. If EIP or its CROs fail to comply with GCP requirements, the clinical data generated in its clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require EIP to perform additional clinical trials before approving its marketing applications. There is also no assurance these third parties will not make errors in the design, management or retention of EIP’s data or data systems. Any failures by such third parties could lead to a loss of data, which in turn could lead to delays in clinical development and obtaining regulatory approval. Third parties may not pass FDA or other regulatory audits, which could delay or prohibit regulatory approval. In addition, the cost of such services could significantly increase over time. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, regulatory approval of current and future product candidates may be delayed, prevented or cost significantly more than expected, all of which could have a material adverse effect on EIP’s business, financial condition, results of operations and prospects.

If EIP’s CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to EIP’s clinical protocols or regulatory requirements or for any other reason, EIP’s clinical trials may be extended, delayed or terminated, and it may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that it develops. As a result, EIP’s financial results and the commercial prospects for neflamapimod would be harmed, its costs could increase, and its ability to generate revenue could be delayed.

EIP has employed several different contract research organizations for clinical trial services. Although EIP believes there are numerous alternatives to provide these services, in the event that it seeks a new CRO, EIP may not be able to enter into replacement arrangements without delays or incurring additional expenses. Switching or adding additional CROs involves substantial cost and requires management’s time and focus. In addition, there is a natural transition period when a new CRO commences work. Though EIP intends to carefully manage its relationships with its CROs, there can be no assurance that EIP will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on its business, financial condition and prospects.

EIP’s reliance on third parties for the production of neflamapimod may result in delays in EIP’s clinical trials or regulatory approvals and may impair the development and ultimate commercialization of neflamapimod, which would adversely impact EIP’s business and financial position.

EIP has no manufacturing facilities and does not have extensive experience in the manufacturing of drugs or in designing drug-manufacturing processes. EIP currently relies on third parties for the manufacture of drug substance, the manufacture of drug product, and the packaging of drug product for clinical use. This reliance on contract manufacturers and suppliers subjects EIP to inherent uncertainties related to product safety, availability, security and cost. Holders of NDAs, or other forms of FDA approvals, or those distributing a regulated product under their own name, are ultimately responsible for compliance with manufacturing obligations even if the manufacturing is conducted by a third party.

EIP further intends to rely on third-party contract manufacturing organizations (“CMOs”), for the production of commercial supply of neflamapimod if its drug is ultimately approved. If CMOs cannot successfully manufacture drug substance and drug product for EIP’s neflamapimod program, or any other product candidate that EIP may develop or acquire in the future, in conformity to its specifications and the applicable regulatory requirements, EIP will not be able to secure or maintain regulatory approval for the use of that product candidate in clinical trials, or for commercial distribution of that product candidate, if approved. Additionally, any problems EIP experiences with any such CMOs could delay the manufacturing of its product candidates, which could harm its results of operations.

All drug manufacturers and packagers are required to operate in accordance with FDA-mandated cGMPs. A failure of any of EIP’s current or future contract manufacturers to establish and follow cGMPs and to document their adherence to such practices may lead to significant delays in obtaining regulatory approval of product candidates or the ultimate launch of products based on EIP’s product candidates into the market. In the event of such failure, EIP could also face fines, injunctions, civil penalties, and other sanctions. Further, if the FDA or comparable foreign regulatory authority finds deficiencies with or does not approve a CMO’s facilities for the future commercial manufacture of neflamapimod, or if it withdraws any such approval or finds deficiencies in the future, EIP may need to find alternative manufacturing facilities, which would delay its development program and significantly impact its ability to obtain regulatory approval for or commercialize neflamapimod.

If any facility of EIP’s third-party drug manufacturers or suppliers were to suffer an accident or a force majeure event such as war, missile or terrorist attack, earthquake, major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of its backup generators or similar event, EIP could be materially adversely affected and any of its clinical trials could be materially delayed. Such an extended shut down may force EIP to procure a new research and development facility or another manufacturer or supplier, which could be time-consuming. During this period, EIP may be unable to receive investigational neflamapimod supplies or any other product candidates it may develop or acquire.

The recently initiated Phase 2b clinical trial is being conducted with a drug substance (the active pharmaceutical ingredient, or “API”) already manufactured in 2019 at a third-party contract manufacturer. In addition, we have sufficient drug substance available to cover the anticipated needs for Phase 3 in DLB. This drug substance was manufactured at an established commercial contract manufacturing organization that is approved for and manufactures drug both for investigational use and marketed products. We anticipate utilizing the company for clinical trials beyond the Phase 3 clinical trial in DLB, as well potentially for commercial use. However, supplies of our neflamapimod drug substance could be interrupted from time to time, and we cannot be certain that alternative supplies could be obtained within a reasonable timeframe, at an acceptable cost, or at all. In addition, a disruption in the supply of drug substance could delay the commercial launch of our product candidates, if approved, or result in a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates. Growth in the costs and expenses of raw materials may also impair our ability to cost effectively manufacture our product candidates.

We also currently rely on a third-party CMO (different than that for the API) for the manufacture of our neflamapimod drug product. We have used the same manufacturer for our neflamapimod drug product in all our clinical trials to date. If neflamapimod is ultimately approved for commercial sale, we expect to continue to rely on third-party contractors for manufacturing the drug product. Although we intend to do so prior to any commercial launch, we have not yet entered into long-term agreements for the commercial supply of either drug substance or drug product with our current manufacturing providers, or with any alternate manufacturers.

While EIP believes that there are multiple alternative sources available for manufacturing of both drug substance and drug product in its neflamapimod program, EIP may not be able to enter into replacement arrangements without delays or additional expenditures. It cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in EIP’s development and commercialization efforts.

Although EIP generally has not, and does not intend to, begin a clinical trial unless it believes it has on hand, or will be able to obtain, a sufficient supply of neflamapimod to complete the clinical trial, any significant delay in the supply of neflamapimod drug substance or drug product could considerably delay conducting EIP’s clinical trials and potential regulatory approval of its product candidates.

Further, third-party suppliers, manufacturers, or distributors may not perform as agreed or may terminate their agreements with EIP, including due to the effects related to geopolitical events, natural disasters, public health emergencies or pandemics, such as the COVID-19 pandemic, or force majeure events that affect their facilities or ability to perform. Any significant problem that EIP’s suppliers, manufacturers, distributors or regulatory service providers experience could delay or interrupt supply of materials necessary to produce EIP’s product candidates. Failure to obtain the needed quantities of EIP’s product candidates could have a material and adverse effect on its business, financial condition, results of operations and prospects.

If EIP changes the manufacturers of its product candidates, it may be required to conduct comparability studies evaluating the manufacturing processes of the product candidates.

The FDA and other regulatory agencies maintain strict requirements governing the manufacturing process for prescription drug products that would apply to EIP’s product candidates, if approved. For example, when a manufacturer seeks to make any change to the manufacturing process, the FDA typically requires the applicant to conduct non-clinical and, depending on the magnitude of the changes, potentially clinical comparability studies that evaluate the potential differences in the product candidates resulting from the change in the manufacturing process. If EIP were to change manufacturers of its drug substance or drug product during or after the clinical trials and regulatory approval process for neflamapimod or any of its other product candidates, EIP will be required to conduct comparability studies assessing product candidates manufactured at the new manufacturing facility. Further, manufacturing changes are generally categorized as having either a substantial, moderate, or minimal potential to adversely affect the identity, strength or quality of the drug product as they may relate to the safety or effectiveness of the product, and if a change has a substantial potential to have an adverse effect on the drug product, an applicant must submit and receive FDA approval of a prior approval supplemental (“PAS”) application before the product made with the manufacturing change is distributed. Other forms of notice to FDA are also required for manufacturing changes that have a moderate or minimal potential to have an adverse effect on the drug product’s safety or effectiveness. Regardless of the type of manufacturing change, the methods used and the facilities and controls used for the manufacture, processing, packaging, or holding of human drugs must comply with applicable cGMP regulations.

Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory agencies could delay or preclude EIP’s development plans and, thereby, delay EIP’s ability to receive marketing approval or limit its revenue and growth, once approved. In addition, in the event that the FDA or other regulatory agencies do not accept non-clinical comparability data, EIP may need to conduct a study involving dosing of patients comparing the two products. That study may result in a delay in the approval or launch of any of its product candidates.

Any product candidate for which EIP obtains marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and EIP may be subject to penalties if it fails to comply with regulatory requirements or if it experiences unanticipated problems with its products, when and if any of them are approved.

If the FDA or a comparable foreign regulatory authority approves neflamapimod or any of EIP’s future product candidates for marketing, activities such as the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The FDA or a comparable foreign regulatory authority may also impose requirements for costly post-marketing nonclinical studies or clinical trials (often called “Phase 4 trials”) and post-marketing surveillance to monitor the safety or efficacy of the product. If EIP or a regulatory authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, production problems or issues with the facility where the product is manufactured or processed, such as product contamination or significant not-compliance with applicable cGMPs, a regulator may impose restrictions on that product, the manufacturing facility or EIP. If EIP or its third-party providers, including EIP’s CMOs, fail to comply fully with applicable regulations, then EIP may be required to initiate a recall or withdrawal of its products.

EIP must also comply with requirements concerning advertising and promotion for any of its product candidates for which it obtains marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, EIP will not be able to promote any products it develops for indications or uses for which they are not approved. The FDA and other agencies closely oversee the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products, and if EIP promotes its products beyond their approved indications, it may be subject to enforcement actions or prosecution arising from that off-label promotion. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. Accordingly, to the extent EIP receives marketing approval for neflamapimod, EIP and its CMOs and other third-party partners will continue to expend time, money and effort in all areas of regulatory compliance, including promotional and labeling compliance, manufacturing, production, product surveillance, and quality control. If EIP is not able to comply with post-approval regulatory requirements, it could have marketing approval for any of its products withdrawn by regulatory authorities and its ability to market any future products could be limited, which could adversely affect its ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on EIP’s operating results and financial condition.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of EIP’s product candidates. If EIP is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained, which would adversely affect EIP’s business, prospects and ability to achieve or sustain profitability.

If EIP is unable to establish sales, marketing and distribution capabilities either on its own or in collaboration with third parties, it may not be successful in commercializing neflamapimod, if approved.

EIP does not currently have any infrastructure for the sales, marketing or distribution of an approved drug product, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market and successfully commercialize neflamapimod, if approved, EIP must build its sales, distribution, marketing, managerial and other non-technical capabilities, or make arrangements with third parties to perform these services.

There are significant expenses and risks involved in establishing EIP’s own sales, marketing and distribution functions, including EIP’s ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Alternatively, to the extent that EIP depends on third parties for such services, any revenues it receives will depend upon the efforts of those third parties, and there can be no assurance that such efforts will be successful.

If EIP is unable to establish adequate sales, marketing and distribution capabilities, either on its own or in collaboration with others, EIP will not be successful in commercializing neflamapimod, if it is ultimately approved, and it may never become profitable. EIP will be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, EIP may be unable to compete successfully against these more established companies.

Risks Related to EIP’s Commercialization

EIP’s business operations are subject to applicable healthcare laws and regulations. If neflamapimod is approved, EIP will also be subject to stringent regulation and ongoing regulatory obligations and restrictions, which could delay its marketing and commercialization activities and also expose it to penalties if EIP fails to comply with applicable regulations.

Although EIP does not currently have any products on the market, once it begins commercializing neflamapimod or any other future product candidates, it will be subject to additional healthcare statutory and regulatory requirements and oversight by federal and state governments as well as foreign governments in the jurisdictions in which EIP conducts its business. Physicians, other healthcare providers and third-party payors will play a primary role in the recommendation, prescription and use of any product candidates for which EIP obtains marketing approval. EIP’s future arrangements with such third parties may expose EIP to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which it markets, sells and distributes any products for which EIP obtains marketing approval. Restrictions under applicable domestic and foreign healthcare laws and regulations include the following:

Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from the business. Efforts to ensure that EIP’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of health care reform, especially in light of the lack of applicable precedent and regulations. Any action against EIP for violation of these laws, even if EIP successfully defends against it, could cause EIP to incur significant legal expenses and divert our management’s attention from the operation of its business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a health care company may run afoul of one or more of the requirements. If the FDA or a comparable foreign regulatory authority approves any of EIP’s product candidates, EIP will be subject to an expanded number of these laws and regulations and will need to expend resources to develop and implement policies and processes to promote ongoing compliance. It is possible that governmental authorities will conclude that EIP’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations, resulting in government enforcement actions.

If EIP’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to EIP, it may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from federal healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of EIP’s operations. If any of the physicians or other healthcare providers or entities with whom EIP expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from federal healthcare programs.

Even if neflamapimod or any other product candidate EIP develops receives marketing approval, it may fail to achieve the level of acceptance necessary for commercial success.

If neflamapimod, or any other product candidate EIP may develop or acquire in the future, receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, health care professionals, patients, third-party payors and others in the medical community. If EIP’s drug does not achieve an adequate level of acceptance, EIP may not generate significant product revenues or become profitable. The degree of market acceptance will depend on a number of factors, including but not limited to:

If neflamapimod or any other product candidate that EIP may develop in the future does not provide a treatment regimen that is at least as beneficial as the current standard of care or otherwise does not provide some additional patient benefit over the current standard of care, that product will not achieve market acceptance, and EIP will not generate sufficient revenues to achieve profitability. Because EIP expects sales of its product candidates, if approved, to generate substantially all of its revenues for the foreseeable future, the failure of EIP’s product candidates to find market acceptance would materially harm its business.

If the market opportunity for any product candidate that EIP develops is smaller than it believes, its revenue may be adversely affected and its business may suffer.

EIP intends to initially focus its product candidate development on treatments for various CNS and neurodegenerative indications. The addressable patient populations that may benefit from treatment with EIP’s product candidates, if approved, are based on its estimates. These estimates, which have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations and market research, may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these CNS and neurodegenerative diseases. Any regulatory approval of EIP’s product candidates would be limited to the therapeutic indications examined in EIP’s clinical trials and as determined by the FDA, which would not permit EIP to market its products for any other therapeutic indications not expressly reviewed and approved as safe and effective. Additionally, the potentially addressable patient population for EIP’s product candidates may not ultimately be amenable to treatment with EIP’s product candidates. Even if EIP receives regulatory approval for any of its product candidates, such approval could be conditioned upon label restrictions that materially limit the addressable patient population. EIP’s market opportunity may also be limited by future competitor treatments that enter the market. If any of EIP’s estimates prove to be inaccurate, the market opportunity for any product candidate that EIP or its strategic partners develop could be significantly diminished and have an adverse material impact on its business.

EIP faces substantial competition from other biotechnology and pharmaceutical companies, and its operating results will suffer if it fails to compete effectively.

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. If neflamapimod is approved, it will face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies, biopharmaceutical companies in the United States and other jurisdictions, academic institutions and governmental agencies and public and private research institutions. These organizations may have significantly greater resources than EIP does. They may also conduct similar research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing and marketing of products that may compete with neflamapimod.

Currently, there are a limited number of companies and disease modifying approaches for DLB. However, given the potential market opportunity for the treatment of DLB and other neurodegenerative diseases, an increasing number of established pharmaceutical firms and smaller biotechnology/biopharmaceutical companies are pursuing a range of potential therapies for these diseases in various stages of clinical development. In addition to these current and potential competitors, EIP anticipates that more companies will enter the DLB market in the future. EIP’s potential competitors could have significantly greater financial resources, as well as drug development, manufacturing, marketing, and sales expertise. They may also be able to develop and commercialize products that are safer, more effective, less expensive, more convenient, easier to administer, or have fewer severe effects, than existing treatments or, if it is ultimately approved, neflamapimod. Competitors may also obtain FDA or other regulatory approval for their product candidates more rapidly than EIP may obtain approval for neflamapimod, which could result in their establishing or strengthening a commercial position before EIP is able to enter the market. The highly competitive nature of the biotechnology and pharmaceutical industries, as well as the rapid technological changes in those fields, could limit EIP’s ability to advance neflamapimod commercially. If EIP is unable to compete effectively, this could have a material adverse effect on its business and results of operations.

The successful commercialization of neflamapimod, or any other product candidate EIP may develop or acquire, will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels, and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for EIP’s product candidates, if approved, could limit its ability to market those products and decrease its ability to generate revenue.

In the United States, the availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers, and other third-party payors are essential for most patients to be able to afford prescription medications such as neflamapimod, if it is approved. EIP’s ability to achieve acceptable levels of coverage, payment, and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on EIP’s ability to successfully commercialize neflamapimod and any other potential future product candidates. Assuming EIP obtains coverage for neflamapimod by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. EIP cannot be sure that coverage, payment, and reimbursement in the United States or elsewhere will be available for or any drug product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Further, if neflamapimod is approved in any jurisdictions outside of the United States, EIP may also be subject to extensive governmental price controls and other market regulations in those countries. Governments outside of the United States, particularly the countries of the European Union, tend to impose strict price controls on prescription pharmaceutical products. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, EIP may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. If reimbursement of EIP’s products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, EIP’s business could be harmed, possibly materially. As a result, EIP might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay its commercial launch of the product and negatively impact the revenue EIP is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder EIP’s ability to recoup its investment in its product candidates, even after obtaining regulatory approval.

The market for any products for which EIP may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies, which are the lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. No uniform policy of coverage and reimbursement for drug products exists among third-party payors in the United States, and coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often time-consuming and costly. It will require EIP to provide scientific and clinical support for the use of its product candidates to each payor separately, with no assurance that coverage will be obtained.

In addition, efforts by governmental and third-party payors in the United States to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products. As a result, those payors may not cover or provide adequate payment for neflamapimod, if it is approved. Third-party payors are also increasingly challenging the prices charged for pharmaceutical products and services. Those payors may consider a product as substitutable, and only offer to reimburse patients for the less expensive product. Even if EIP shows improved efficacy or improved convenience of administration compared to existing treatments for its target indications, pricing of existing drugs may limit the amount EIP will be able to charge for neflamapimod.

If EIP is unable to obtain adequate coverage and payment levels for its products from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them, and patients may decline to purchase them. This in turn would affect EIP’s ability to successfully commercialize any approved products and thereby adversely impact its profitability, results of operations, and financial condition.

Enacted and future healthcare legislation may increase the difficulty and cost for EIP to obtain marketing approval of and commercialize its product candidates, if approved, and also affect the prices it may set.

There have been, and EIP expects will continue to be, a number of legislative and regulatory proposals and changes to the healthcare systems in the United States and other jurisdictions that could affect EIP’s future results of operations. In particular, a number of initiatives at the U.S. federal and state levels have aimed to reduce healthcare costs and improve the quality of healthcare. Existing regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of neflamapimod or any future product candidates EIP may develop or acquire. EIP cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If EIP is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it is not able to maintain regulatory compliance, EIP may lose any marketing approval that it may have obtained, and it may not achieve or sustain profitability.

In the United States, there have been and continue to be a number of significant legislative initiatives to contain healthcare costs. Federal and state governments continue to propose and pass legislation designed to reform delivery of, or payment for, healthcare, which include initiatives to reduce the cost of healthcare. For example, in March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act (“ACA”), which expanded healthcare coverage through Medicaid expansion and the implementation of the individual mandate for health insurance coverage and which included changes to the coverage and reimbursement of drug products under federal healthcare programs. The ACA contained a number of provisions that affect coverage and reimbursement of drug products or that could potentially reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid. Since its enactment, there have been numerous judicial, administrative, executive and legislative challenges to certain aspects of the ACA. In June 2021 the U.S. Supreme Court dismissed a judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain in effect in its current form.

EIP’s industry continues to face potential changes in the legal and regulatory landscape on the federal, state and international levels. Additional legislative actions to control U.S. healthcare or other costs have passed. The Budget Control Act, as amended, resulted in the imposition of 2% reductions in Medicare (but not Medicaid) payments to providers in 2013 and will remain in effect through 2027 unless additional Congressional action is taken. There has also been increasing public and government interest in the United States with respect to specialty drug pricing practices, including proposed federal and state legislation designed to bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, put in place limits and caps on pharmaceutical prices, request rebates for certain pharmaceutical products, and reform government program reimbursement methodologies for drugs. For example, in March 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price (“AMP”), for single source and innovator multiple source drugs, beginning January 1, 2024. Payment methodologies may also be subject to changes in health care legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law in August 2022. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated, or the impact of the IRA on our business.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmacy benefit managers (“PBMs”) and other members of the health care and pharmaceutical supply chain, an important decision that may lead to appears to be leading to further and more aggressive efforts by states in this area. The Federal Trade Commission in mid-2022 also launched sweeping investigations into the practices of the PBM industry, and members of Congress continue to propose reforms for the PBM industry, all or each of which could lead to additional federal and state legislative or regulatory proposals targeting such entities’ operations, pharmacy networks, or financial arrangements. Significant efforts to change the PBM industry as it currently exists in the U.S. may affect the entire pharmaceutical supply chain and the business of other stakeholders, including pharmaceutical product developers like EIP.

In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. In markets outside of the United States, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. For example, 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.

EIP cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action in the United States or any other jurisdiction. In the United States, future laws and regulation may result in more rigorous coverage criteria and increased downward pressure on the price pharmaceutical companies may receive for any approved product. Reductions in reimbursement from Medicare or other government programs may result in similar reductions in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent EIP from being able to generate revenue, attain profitability or commercialize its product candidates. Further, if EIP or any third parties with whom it engages in the future are slow or unable to adapt to changes in existing requirements or policies, or if EIP is not able to maintain regulatory compliance, its ability to generate revenue, attain profitability, or commercialize neflamapimod or any other products for which it receives regulatory approval may be materially and adversely affected.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of EIP’s business may rely, which could negatively impact EIP’s business.

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

Disruptions at the FDA and other agencies may also slow the time necessary for clinical trial applications and/or marketing applications for new drugs to be reviewed or approved by necessary government agencies, which would adversely affect EIP’s business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government or slowdown shutdown occurs, it could significantly impact the ability of the FDA to timely review and process EIP’s regulatory submissions, which could have a material adverse effect on EIP’s business. Further, upon completion of the Merger and in EIP’s operations as a public company, future government shutdowns or slowdowns could impact its ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.

EIP’s business activities may be subject to the Foreign Corrupt Practices Act “(FCPA”) and similar anti-bribery and anti-corruption laws.

EIP’s business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which EIP operates, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. EIP’s business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, EIP’s dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the Securities and Exchange Commission, or SEC, and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of EIP’s employees, agents, contractors, or collaborators, or those of EIP’s affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against EIP, its officers, or its employees, the closing down of EIP’s facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of its business. Any such violations could include prohibitions on EIP’s ability to offer its products in one or more countries and could materially damage EIP’s reputation, its brand, its international expansion efforts, its ability to attract and retain employees, and its business, prospects, operating results, and financial condition.

Risks Related to EIP’s Intellectual Property

If EIP does not adequately protect its proprietary rights, EIP may not be able to compete effectively.

EIP relies upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to its neflamapimod drug development program. EIP’s commercial success depends on obtaining and maintaining proprietary rights in the United States and in international jurisdictions, and successfully defending these rights against third-party challenges. EIP seeks to protect its proprietary position by filing patent applications related to its neflamapimod drug development programs in the United States and in other countries.

EIP acquired an exclusive license from Vertex in 2014 to develop and commercialize neflamapimod for the treatment of AD and other CNS disorders. This license covers know-how, preclinical and clinical data, and certain specified Vertex patent rights, including a composition of matter patent for neflamapimod that expired in 2017. EIP has thus focused its efforts on discoveries related to neflamapimod that are reflected in issued patents and patent applications covering a range of subjects, including: methods of treating patients suffering from DLB or AD, as well as methods of reducing amyloid plaque burden; methods of improving cognition and treating neurologic disorders; methods for promoting recovery of function in patients who have suffered acute neurologic injuries, including those resulting from various forms of stroke; and methods of treating patients suffering from dementia. In addition, EIP has filed patents related to formulations of neflamapimod, including pharmaceutical compositions for oral administration exhibiting desirable pharmacokinetics and processes for the manufacture thereof. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent is limited.

EIP’s issued patents and patent applications remain subject to uncertainty and continued monitoring. EIP’s patent applications may fail to result in issued patents with claims that provide further coverage for neflamapimod in the United States or in foreign countries. The patent prosecution process is expensive and time-consuming, and EIP may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. EIP may also fail to identify further patentable aspects of its research and development output before it is too late to obtain patent protection. There is no assurance that all potentially relevant prior art relating to EIP’s patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application.

Although EIP has already obtained several issued patents and are working to expand its estate with additional patent applications, third parties may challenge its patents’ validity, enforceability, or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to EIP could deprive it of rights necessary for the successful commercialization of neflamapimod, or any other product candidates it may develop. Further, if EIP encounters delays in regulatory approvals, the period of time during which it could market a product candidate under patent protection could be reduced.

The patent position of life sciences companies can often involve complex legal and factual questions and in recent years has been the subject of significant litigation. Publications of discoveries in 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, or in some cases not at all. Therefore, EIP cannot know with certainty whether it was the first to make the inventions claimed in its owned or licensed patents or pending patent applications, or that it was the first to file for patent protection of such inventions. Further, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and EIP’s patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated, held unenforceable, in whole or in part, or reduced in term. Such a result could limit EIP’s ability to prevent others from using or commercializing similar or identical technology and products.

EIP also intends to rely on regulatory exclusivity for protection of its product candidates, if approved for commercial sale. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or to maintain the extent or duration of such protections that we expect for EIP’s product candidates, if approved, could affect EIP’s decision on whether to market the products in a particular country or countries or could otherwise have an adverse impact on its revenue or results of operations.

Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of EIP’s patents, requiring it to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may also develop, seek approval for and launch generic versions of EIP’s products.

There is no composition matter patent protection that covers neflamapimod. Rather, EIP’s patents provide protection around either the use of neflamapimod for specific or medical indication (so called “use patents”) or the administration of neflamapimod in specific manner (e.g., at a specific dose or in a specific formulation). Patents that are not around composition of matter are narrower in scope (i.e., they do not protect against development of neflamapimod in an indication other than that the patent defines), more difficult to defend against challenges against validity, and more difficult to enforce against infringement. For these reasons, some pharmaceutical companies choose not to develop and/or license compounds that are not covered by a composition of matter patent. EIP owns a patent that is issued in the US around co-crystals of neflamapimod, any of which if they were successfully developed would be afforded composition of matter patent protection under this patent.

Without patent protection for EIP’s current or future product candidates, these candidates may be open to competition from other products. As a result, EIP’s patent portfolio may not provide EIP with sufficient rights to exclude others from commercializing products similar or identical to EIP’s.

If EIP fails to comply with its obligations under its existing license agreement with Vertex, or with any future intellectual property licenses with third parties, EIP could lose license rights that are important to its business.

EIP is party to an Option and License Agreement with Vertex, pursuant to which EIP acquired an exclusive license to develop and commercialize neflamapimod for the diagnosis, treatment, and prevention of AD and other CNS disorders. Under the terms of the Vertex Agreement, EIP must use commercially reasonable efforts during the license term to develop and obtain regulatory approval for a licensed product in specified major markets, and to promptly and effectively commercialize the licensed product once such approval is obtained. The Vertex Agreement also contains certain specified minimum diligence requirements, including making annual expenditures set forth in a development plan, and commencing a Phase 2 clinical trial of the licensed product within a specified time period.

The Vertex Agreement provides that either party may terminate the agreement if the other party is in material breach of its obligations thereunder, following a 60-day notice and cure period, or if the other party files for bankruptcy, reorganization, liquidation, receivership, or an assignment of a substantial portion of assets to creditors. The Vertex Agreement also provides that in the event EIP materially breaches any of certain specified diligence obligations as to a specific major market, Vertex’s sole remedy for such breach, following the applicable notice and cure period, will be to terminate the license as to such specific major market country.

Accordingly, EIP must be diligent in meeting its obligations under the Vertex Agreement. Any uncured, material breach under the Vertex Agreement could result in the loss of certain of its rights to neflamapimod and could compromise EIP’s development and commercialization efforts. This in turn would have an adverse effect on EIP’s business, which could be material.

EIP may become subject to third parties’ claims alleging infringement of their patents and proprietary rights, or EIP may need to become involved in lawsuits to protect or enforce its patents, which could be costly and time consuming, as well as potentially delay or prevent the development and commercialization of its product candidates or put its patents and other proprietary rights at risk.

EIP’s commercial success depends, in part, upon EIP’s ability to develop, manufacture, market and sell its lead product candidate, neflamapimod, without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. While EIP is not currently subject to any pending intellectual property litigation, and is not aware of any such threatened litigation, EIP may be exposed to future litigation by third parties based on claims that its product candidates, technologies or activities infringe the intellectual property rights of others. Some claimants may have substantially greater resources than EIP does and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than it could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target EIP. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that EIP’s product candidates may be subject to claims of infringement of the intellectual property rights of third parties.

EIP may be subject to third-party claims including infringement, interference or derivation proceedings, reexamination proceedings, post-grant review and inter partes review before the U.S. Patent and Trademark Office, or USPTO, or similar adversarial proceedings or litigation in other jurisdictions. Even if EIP believes such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block EIP’s ability to commercialize the applicable product candidate unless EIP obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. These proceedings may also result in EIP’s patent claims being invalidated or narrowed in scope. In addition, a court may hold that a third-party is entitled to certain patent ownership rights instead of EIP.

As a result of patent infringement claims, or in order to avoid potential infringement claims, EIP may choose to seek, or be required to seek, a license from the third party, which may require it to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if a license can be obtained on acceptable terms, the rights may be nonexclusive, which could give EIP’s competitors access to the same intellectual property rights. If EIP is unable to enter into a license on acceptable terms, it could be prevented from commercializing one or more of its product candidates, forced to modify such product candidates, or to cease some aspect of EIP’s business operations, which could harm EIP’s business significantly. In addition, if the breadth or strength of protection provided by EIP’s patents and patent applications is threatened, it could dissuade companies from collaborating with EIP to license, develop or commercialize current or future product candidates.

If EIP were to initiate legal proceedings against a third party to enforce a patent covering one of its product candidates, the defendant could counterclaim that EIP’s patent is invalid or unenforceable. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, EIP cannot be certain that there is no invalidating prior art of which EIP and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, EIP would lose at least part, and perhaps all, of the patent protection on its product candidates. Furthermore, EIP’s patents and other intellectual property rights also will not protect its technology if competitors design around EIP’s protected technology without infringing its patents or other intellectual property rights.

Finally, even if resolved in EIP’s favor, litigation or other legal proceedings relating to intellectual property claims may cause EIP to incur significant expenses and could distract its technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, which could damage EIP’s reputation, harm its business, and the price of its common stock could be adversely affected.

EIP may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect EIP’s ability to develop, manufacture and market its product candidates.

From time to time, EIP may identify patents or applications in the same general area as its products and product candidates. EIP may determine these third-party patents are irrelevant to its business based on various factors including its interpretation of the scope of the patent claims and its interpretation of when the patent expires. If the patents are asserted against EIP, however, a court may disagree with EIP’s determinations. Further, while EIP may determine that the scope of claims that will issue from a patent application does not present a risk, it is difficult to accurately predict the scope of claims that will issue from a patent application, EIP’s determination may be incorrect, and the issuing patent may be asserted against EIP. EIP cannot guarantee that it will be able to successfully settle or otherwise resolve such infringement claims. If EIP fails in any such dispute, in addition to being forced to pay monetary damages, it may be temporarily or permanently prohibited from commercializing its product candidates. EIP might also be forced to redesign its product candidates so that it no longer infringes the third-party intellectual property rights, if such redesign is even possible. Any of these events, even if EIP were ultimately to prevail, could require it to divert substantial financial and management resources that it would otherwise be able to devote to its business.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing EIP’s ability to protect its product candidates.

EIP’s success is heavily dependent on intellectual property, particularly patents, and obtaining and enforcing patents in its industry involves both technological complexity and legal complexity. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of EIP’s patents or narrow the scope of its patent protection.

As an example, the America Invents Act (“AIA”), which was passed in September 2011, resulted in significant changes to the U.S. patent system. Pursuant to the AIA, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before EIP could therefore be awarded a patent covering an invention of EIP’s even if EIP made the invention before it was made by the third party. This requires EIP to be cognizant going forward of the time from invention to filing of a patent application.

The AIA also introduced changes that provide opportunities for third parties to challenge any issued patent with the USPTO. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Such changes could increase the uncertainties and costs surrounding the prosecution of EIP’s patent applications and the enforcement or defense of its issued patents.

In addition, the laws of foreign countries may not protect EIP’s rights to the same extent as the laws of the United States. The complexity and uncertainty of European patent laws has increased in recent years, and the European patent system is relatively stringent in the type of amendments that are allowed during prosecution. Complying with these laws and regulations could limit EIP’s ability to obtain new patents in the future that may be important for its business.

EIP enjoys only limited geographical protection with respect to certain patents, and it may not be able to protect its intellectual property rights throughout the world.

Filing, prosecuting and defending patents covering EIP’s product candidates in all countries throughout the world would be prohibitively expensive. Competitors may use EIP’s technologies in jurisdictions where it has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where EIP has patent protection, but enforcement is not as strong as that in the United States or the EU. These products may compete with EIP’s product candidates, and its patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Although EIP intends to protect its intellectual property rights in its expected significant markets, EIP cannot ensure that it will be able to initiate or maintain similar efforts in all jurisdictions in which EIP may wish to market its product candidates. EIP may also decide to abandon national and regional patent applications before grant. The grant proceeding of each national or regional patent is an independent proceeding, which may lead to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while granted by others.

The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for EIP to stop the infringement of its patents or marketing of competing products in violation of EIP’s proprietary rights generally. Proceedings to enforce its patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert its efforts and attention from other aspects of EIP’s business, could put EIP’s patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing, and could provoke third parties to assert claims against EIP. EIP may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful.

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

EIP’s reliance on third parties requires EIP to share its trade secrets, which increases the possibility that its trade secrets will be misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets and protect other proprietary information.

EIP may rely on trade secrets or confidential know-how to protect various aspects of its business, especially where patent protection is believed by EIP to be of limited value. Because it relies on third parties to manufacture neflamapimod and any future product candidates, and EIP may also collaborate with third parties on the development of neflamapimod and any future product candidates, EIP must, at times, share trade secrets with such parties. EIP may also conduct joint research and development programs that require it to share trade secrets under the terms of EIP’s research and development partnerships or similar agreements. Such trade secrets or confidential know-how can be difficult to protect as confidential.

To protect this type of information against disclosure or appropriation by competitors, EIP’s policy is to require its employees, consultants, contractors and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with EIP prior to beginning research or disclosing proprietary information. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose EIP’s confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time-consuming and unpredictable. In addition, the enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

Despite EIP’s efforts to protect its trade secrets, EIP’s competitors may discover EIP’s trade secrets, either through breach of EIP’s agreements with third parties, independent development or publication of information by any of its third-party collaborators. A competitor’s discovery of EIP’s trade secrets could impair its competitive position and have an adverse impact on its business.

Intellectual property discovered or developed through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a manufacturing preference for U.S.-based companies. Compliance with such regulations may limit EIP’s exclusive rights and limit its ability to contract with non-U.S. manufacturers.

EIP received a grant from the NIA to support its recently initiated Phase 2b clinical trial for treatment in patients with DLB. Pursuant to the Bayh-Dole Act of 1980 (“Bayh-Dole Act”), the U.S. government may have certain rights in any invention developed or reduced to practice with this funding. In addition, in the future EIP may discover, develop, acquire, or license intellectual property that has been generated through the use of U.S. government funding or grants in which the U.S. government may have certain rights pursuant to the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require EIP to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (1) adequate steps have not been taken to commercialize the invention; (2) government action is necessary to meet public health or safety needs; or (3) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). Such “march-in” rights would apply to new subject matter arising from the use of such government funding or grants and would not extend to pre-existing subject matter or subject matter arising from funds unrelated to the government funding or grants. If the U.S. government exercises its march-in rights in EIP’s intellectual property rights that are generated through the use of U.S. government funding or grants, EIP could be required to license or sublicense intellectual property discovered or developed by it or that it licenses on terms unfavorable to EIP, and there can be no assurance that EIP would receive compensation from the U.S. government for the exercise of such rights. The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require EIP to expend substantial resources. Should any of these events occur, it could significantly harm EIP’s business, results of operations and prospects. In addition, the U.S. government requires that, in certain circumstances, any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit EIP’s ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.

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