Incannex Healthcare Inc.

11/12/2026 | Press release | Distributed by Public on 11/12/2026 07:30

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report. This Quarterly Report contains forward-looking statements. This discussion and analysis contain forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section in our 2026 Annual Report. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Quarterly Report. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Quarterly Report.
Our accounting policies under accounting principles generally accepted in the United States ("US GAAP") are referred to in Note 2 of the unaudited condensed consolidated financial statements in this Quarterly Report. All amounts are in United States dollars, unless otherwise indicated.
Overview
We are a clinical-stage biopharmaceutical company dedicated to developing innovative combination therapies for patients living with serious chronic conditions and significant unmet needs. During the quarter, we continued to execute our clinical development strategy, advancing IHL-42X into patient dosing in DReAMzz following the positive RePOSA results. Our lead clinical program, IHL-42X, is an oral fixed-dose combination of dronabinol and acetazolamide for the treatment of obstructive sleep apnea ("OSA"). IHL-42X has completed a Phase 2 clinical program (RePOSA) with positive results, has been granted Fast Track designation by the U.S. Food and Drug Administration ("FDA"), and patient dosing has commenced in the DReAMzz Phase 2 crossover dose-optimization study, which is being conducted across 13 clinical sites in the United States. DReAMzz is designed to further refine the dosing profile ahead of a planned Phase 3 registration program. RePOSA demonstrated statistically significant reductions in the apnea-hypopnea index, a measure of OSA severity, compared with placebo in both IHL-42X dose groups. Building on those findings, patient dosing commenced in DReAMzz in August 2026. The study is expected to provide dose-selection data to inform the planned Phase 3 study design, with completion estimated for mid-2027. The Company has also secured U.S. patent protection for IHL-42X, covering its composition and methods of treatment, with a baseline expiry date of 2040. The patent was granted in June 2026, adding U.S. protection for the proprietary combination as the program advances through clinical development. PSX-001 is an oral synthetic psilocybin treatment in combination with psychological therapy for generalized anxiety disorder ("GAD"). Following positive results from its Phase 2 proof-of-concept study, PsiGAD1, the Company holds an FDA-cleared Investigational New Drug ("IND") application for PsiGAD2 and is evaluating the next stage of clinical development, including potential adjustments to the Phase 2 study design. The Company has also engaged with the United Kingdom Medicines and Healthcare products Regulatory Agency ("MHRA") through a scientific advice meeting to support the program's clinical and regulatory development strategy. In parallel, the Company has established a clinical advisory board comprising experts in psychiatry, drug development and mental health to support the continued advancement of PSX-001. The completed 73-participant PsiGAD1 study, IND clearance and MHRA engagement provide the clinical evidence and regulatory input for the next stage of the program. The Company is using this work to finalize its next clinical development plan. Each of these programs targets conditions that currently have limited, inadequate, or no approved pharmaceutical treatment options.
Results of Operations
Comparison of the Three Months Ended September 30, 2026 and 2025
The following tables summarize our results of operations for the periods presented (in thousands):
For the three months ended
September 30, 		$ Change % Change
2026 2025
Revenue from customers $ - $ - $ - - %
Operating expenses: - %
Research and development (1,123) (1,120) (3) - %
General and administrative (2,313) (5,674) 3,361 59 %
Total operating expenses (3,436) (6,794) 3,358 49 %
Loss from operations (3,436) (6,794) 3,358 49 %
Other income (expense): - %
R&D tax incentive 239 389 (150) (39) %
Foreign exchange losses (3) (13) 10 77 %
Interest income 410 5 405 8,100 %
Change in fair value of warrant liabilities 880 - 880 - %
Share of earnings (loss) of joint venture (28) 6 (34) (567) %
Total other income / (expenses), net 1,498 387 1,111 287 %
Currency translation adjustment, net of tax 390 223 167 75 %
Comprehensive loss $ (1,548) $ (6,184) $ 4,636 75 %
Revenue from Customers
We have not generated revenue for the three months ended September 30, 2026 and we do not expect to generate material revenues unless and until our drug candidates are approved.
Operating Expenses
Research and development
Research and development expenses consist primarily of external and internal costs incurred in performing clinical and preclinical development activities.
Our R&D expenses include:
•external costs incurred under agreements with contract research organizations, contract manufacturers, consultants and other third parties to conduct and support our clinical trials and preclinical studies; and
•internal costs, including R&D personnel-related expenses such as salaries, and benefits, as well as allocated facilities costs and dues and subscriptions.
We expense research and development costs as incurred.
Research and development expenses increased by $3,000 for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The primary R&D expense for the period related to the DReAMzz Study clinical trial investigating IHL-42X in patients with obstructive sleep apnea. We generally expect research and development costs to increase as we progress our drug candidates through clinical trials. Although research and development activities are central to our business model, the successful development of our drug candidates is highly uncertain.
There are numerous factors associated with the successful development of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. As a result, we expect our research and development expenses will increase substantially in connection with our ongoing and
planned clinical and preclinical development activities in the near term and in the future to the extent our development activities are successful. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of our drug candidates. Our research and development expenses have varied, and our future research and development expenses may vary, significantly based on a wide variety of factors such as:
•the number and scope, rate of progress, expense and results of our clinical trials and preclinical studies, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities;
•per patient trial costs;
•the number of trials required for approval;
•the number of sites included in the trials;
•the countries in which the trials are conducted;
•the length of time required to enroll eligible patients;
•the number of patients that participate in the trials;
•the number of doses that patients receive;
•the drop-out or discontinuation rates of patients;
•the potential additional safety monitoring requested by regulatory agencies;
•the duration of patient participation in the trials and follow-up;
•the cost and timing of manufacturing of our drug candidates;
•the costs, if any, of obtaining third-party drugs for use in our combination trials;
•the extent of changes in government regulation and regulatory guidance;
•the efficacy and safety profile of our drug candidates;
•the timing, receipt, and terms of any approvals from applicable regulatory authorities; and
•the extent to which we establish additional collaboration, license, or other arrangements.
A change in the outcome of any of these variables with respect to the development of our drug candidates could significantly change the costs and timing associated with the development of that drug candidate. We may never succeed in obtaining regulatory approval for any drug candidate.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses finance and accounting, human resources and other administrative functions, including salaries, stock-based compensation and benefits for employees, legal fees, expenses relating to patent and corporate matters and professional fees paid for accounting, auditing, consulting and tax services, as well as facilities-related costs not otherwise included in research and development expenses and other costs such as insurance costs and travel expenses.
General and administrative expenses decreased by $3.4 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The decrease was primarily attributable to decreased in recognition of amortized stock-based payment expenses in the current quarter.
We anticipate our general and administrative expenses will increase substantially in the future as we expand our operations, including increasing our headcount to support our continued research and development activities and preparing for potential commercialization of our drug candidates. We also anticipate we will incur increased accounting, audit, legal,
regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a U.S. public company.
Other Income (Expense)
Benefit from R&D tax incentives
We receive tax incentives from the Australian government for research and development activities. Subject to certain exclusions, the Australian Government tax incentives provide benefits for eligible research and development activities. Entities are entitled to either (i) a 48.5% refundable tax offset for eligible companies with an aggregated turnover of less than A$20 million per annum or (ii) a non-refundable 38.5% tax offset for all other eligible companies. Our aggregated turnover is less than A$20 million and we are not controlled by one or more income tax exempt entities, we anticipate being entitled to a claim of 48.5% refundable tax offset for costs relating to eligible research and development activities during the year.
Benefit from R&D tax incentive decreased by $0.2 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The decrease in the R&D tax incentive for the three months ended September 30, 2026, was primarily due to a lower estimate based on historical experience of claims.
Foreign exchange losses and Interest Income
Foreign exchange losses decreased by $10,000 for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, due to favorable currency exchange rates. Interest income increased by $0.4 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 over the same period, reflecting higher interest received from cash deposits.
Share of earnings (loss) of joint venture
Share of earnings (loss) of joint venture decreased by $34,000 for the three months ended September 30, 2026, compared to the three months ended September 30, 2025, due to the losses generated from the Company's investment in Mind Clinics Australia Pty Ltd.
Currency translation adjustment, net of tax
Currency translation adjustment, net of tax, increased by $0.2 million for the three months ended September 30, 2026, compared to the three months ended September 30, 2025. The increase was due to the appreciation of the Australian dollar against the U.S. dollar. We maintain our consolidated financial statements in Australian dollars, our functional currency, while our financial statements are translated into U.S. dollars for reporting purposes.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred net losses since inception and expect to incur substantial and increasing losses in the future as we expand our R&D activities in an effort to move our drug candidates into later stages of development.
We incurred total comprehensive loss of $1.5 million and $6.2 million for the three months ended September 30, 2026 and three months ended September 30, 2025, respectively. We incurred net loss of $1.9 million and $6.4 million for the three months ended September 30, 2026 and three months ended September 30, 2025, respectively. As of September 30, 2026, we had accumulated deficit of $178.8 million. For the three months ended September 30, 2026, we experienced net cash provided by operating activities of $0.5 million, an increase of $9.7 million compared to the three months ended September 30, 2025.
Our material cash requirements for the next twelve months are expected to consist primarily of costs associated with our clinical development activities, payments to contract research organizations, contract manufacturers and consultants, personnel and public-company costs, lease obligations and other working capital needs. Over the longer term, our cash requirements will depend on the timing, scope and results of our clinical development programs, regulatory interactions, manufacturing activities and any commercialization activities if we obtain regulatory approval for any drug candidate. Historically, the Company has financed its operations to date primarily through partnerships, funds received from public offerings of Common Stock, a debt financing facility, as well as funding from governmental bodies. Based on
our current operating plans, we do not expect to require additional financing to fund our planned operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these financial statements. We may nevertheless consider financing before additional funding is required where the terms or the involvement of strategic investors would support our development plans or otherwise benefit the Company and our stockholders. We would assess any such opportunity in light of our capital needs, potential dilution and strategic objectives. Potential sources could include public offerings or private placements of common stock, debt financing, collaborations or other strategic transactions. Any additional equity fundraising in the capital markets may be dilutive for our stockholders. To the extent that we raise additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of our stockholders will be diluted, and the terms of new securities may include liquidation or other preferences that adversely affect rights of our stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, completing acquisitions or declaring or paying dividends. If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our drug candidates or future revenue streams or grant licenses on terms that are not favorable to us. There can be no assurance that any future financing would be available on acceptable terms or at all. Our assessment of our ability to fund our current plans for the period described above is based on existing cash resources and does not depend on completing any such financing.
As of September 30, 2026, we had cash and cash equivalents of $68.3 million, compared to our cash and cash equivalents as of June 30, 2026 of $67.7 million. As of September 30, 2026, our current assets exceed our current liabilities by 69.2 million, a 2.1 million decrease compared to the difference between our current assets and current liabilities as of June 30, 2026 of 71.3 million. Although we expect to use cash in operating activities as we advance our development programs, we believe our existing unrestricted cash and cash equivalents are sufficient to meet our obligations and sustain operations for at least one year from the issuance date of the financial statements included in this Quarterly Report. However, we could use our capital resources sooner than we expect. Our operating plans may change, and we may need additional funds sooner than planned. The process of testing drug candidates in pre-clinical and clinical studies is costly, and the timing of progress in studies is uncertain. Because the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our drug candidates or whether, or when, we may achieve profitability.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Cash Flows
Comparison of cash flows for the three months ended September 30, 2026 and 2025
The following table summarizes our cash flows for the periods presented (in thousands):
For Three Months Ended September 30, 2026 For Three Months Ended September 30, 2025
Net cash provided by (used in) operating activities $ 521 $ (9,163)
Net cash used in investing activities (54) (42)
Net cash provided by financing activities - 67,177
Net increase in cash before exchange rate movements $ 467 $ 57,972
Net cash flows from operating activities
Cash provided in operating activities increase by $9.7 million for the three months ended September 30, 2026, compared to the three months ended September 30, 2025. The increase primarily reflected changes in working capital, including movements in trade and other payables, together with R&D tax receipts of $3.4 million received during the period.
Net cash flows from investing activities
Cash used in investing activities increased by $12,000 for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The increase was due to our investment in Mind Clinics Australia Pty Ltd.
Cash flows from financing activities
No cash was provided by financing activities during the three months ended September 30, 2026, compared to the $67.2 million for the three months ended September 30, 2025. In the three months ended September 30, 2025, proceeds from stock issuances were $69.5 million, less stock issuance costs of $2.3 million, including financing under our then-active at-the-market offering program. The at-the-market offering program was terminated on March 11, 2026.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited interim condensed consolidated financial statements as of September 30, 2026, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements described in the 2026 Annual Report, we believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Stock Based Compensation
We account for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options. The fair value method requires us to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We use either the trinomial pricing or Black-Scholes option-pricing model to estimate the fair value of options granted. Stock-based compensation awards are expensed using the graded vesting method over the requisite service period, which is generally the vesting period, for each separately vesting tranche. We have elected a policy of estimating forfeitures at grant date. Option valuation models, including the trinomial pricing and Black-Scholes option-pricing model, require the input of several assumptions. These inputs are subjective and generally require significant analysis and judgment to develop.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs consist of salaries, benefits and other personnel related costs including equity-based compensation expense, laboratory supplies, preclinical studies, clinical trials and related clinical manufacturing costs, costs related to manufacturing preparations, fees paid to other entities to conduct certain research and development activities on our behalf and allocated facility and other related costs.
Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed.
We record accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in trade and other payables on the consolidated balance sheets and within research and development expenses on the consolidated statements of operations and comprehensive loss.
We accrue for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. We make significant judgments and estimates in determining the accrued liabilities balance at the end of each reporting period. As actual costs become known, we adjust our accrued liabilities. We have not experienced any material differences between accrued costs and actual costs incurred.
Benefit from R&D Tax Incentive
Benefit from R&D tax incentive consists of the R&D tax incentive received in Australia, which is recorded within other income (expense), net. We recognize grants once both of the following conditions are met: (i) we are able to comply with the relevant conditions of the grant and (ii) the grant will be received.
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