Incannex Healthcare Limited Sponsored ADR (IXHL) Risk Analysis

Our common stock is currently listed on the Nasdaq Capital Market. The requirements for all Nasdaq market tiers, including the Nasdaq Capital Market, impose a minimum $1.00 per share bid price requirement. To comply with this requirement, the closing price for our common stock must not fall below $1.00 for a 30 consecutive trading day period. Since early March of 2025, the closing bid price for our common stock has consistently been below $1.00 per share, and on April 23, 2025, we received a written notice (the "Notice") from the Listing Qualifications Department (the "Staff") of Nasdaq notifying the us that, because the closing bid price for our common stock, closed below $1.00 per share for 30 consecutive trading days, we no longer met the minimum bid price requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Bid Price Requirement"). The Staff provided us with an initial grace period expiring on October 20, 2025. To regain compliance the closing price of our common stock must exceed a minimum of $1.00 per share for at least 10 consecutive trading days and potentially 20 consecutive trading days in the discretion of the Staff. On or following October 20, 2025, the Staff may provide us with an additional 180-day compliance period in which we may seek to regain compliance with the Minium Bid Price Rule, but there can be no guarantee that such an additional compliance period will be granted or that we will regain compliance within this additional 180-day compliance period. In the event of a delisting notice, we would typically have an opportunity to appeal such decision to the Nasdaq Hearing Panel or take other measures to preserve the listing of our common stock on Nasdaq, but these measures and any appeal may not be successful. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, where an investor may find it more difficult to sell our common stock or obtain accurate quotations as to the market value of our common stock. In the event we are delisted from Nasdaq, the only established trading market for our common stock would be eliminated, and we would be forced to list our shares on the OTC Markets or another quotation medium, depending on our ability to meet the specific listing requirements of those quotation systems. As a result, an investor would likely find it more difficult to trade or obtain accurate price quotations for our shares. Delisting would likely also reduce the visibility, liquidity, and value of our common stock, reduce institutional investor interest in our company, and may increase the volatility of our common stock. Delisting could also cause a loss of confidence of potential industry partners, lenders, and employees, which could further harm our business and our future prospects. Unless our common stock is listed on a national securities exchange, such as Nasdaq, our common stock may also be subject to the regulations and restrictions regarding trading in "penny stocks," which are those securities trading for less than $5.00 per share, and that are not otherwise exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations. These penny stock requirements and regulations could severely limit the liquidity of our common stock in the secondary market because fewer brokers or dealers would likely to be willing to undertake related compliance activities to trade in our common stock. If our common stock is not listed on a national securities exchange, the rules and restrictions regarding penny stock transactions may limit an investor's ability to sell to a third-party and our trading activity in the secondary market may be reduced. Delisting from Nasdaq would also likely limit the range and attractiveness of strategic alternatives that we are able to consider, adversely affect our ability to raise additional capital through the public or private sale of equity securities, significantly affect the ability of investors to trade our securities, and/or negatively affect the value and liquidity of our common stock.

Our board of directors authorized a share repurchase program pursuant to which we may repurchase up to $20 million of our common stock. The manner, timing and amount of any share repurchases may fluctuate and will be determined by us based on a variety of factors, including the market price of our common stock, our priorities for the use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further, our share repurchases could have an impact on our share trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. Our share repurchase program may be modified, suspended, or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value. Additionally, repurchases are subject to the 1% share repurchase excise tax enacted by the IRA, which may be offset by shares newly issued during that fiscal year. We have and will continue to take the share repurchase excise tax into account with respect to our decisions to repurchase shares.

Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. Our internal controls over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with our policies and procedures. Any failure to design and implement an effective system of internal controls may reveal deficiencies in our internal controls that are deemed to be material weaknesses. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has concluded that we did not maintain effective disclosure controls and procedures due to the material weakness in internal control over financial reporting which existed as of June 30, 2025, relating to the documentation of accounting policies and procedures, particularly relating to the correct application of complex accounting measures. The measures that we are undertaking to remediate the material weakness in internal control over financial reporting have and will include: (i) hiring qualified internal control personnel or consultants to manage the implementation of internal control policies, procedures and improvement of the internal audit function, as applicable; (ii) developing and implementing written policies and procedures for accounting and financial reporting that meet the standards applied to public companies listed in the United States; and (iii) conducting internal control training to management, key operations personnel and the accounting department, so that management and relevant personnel understand the requirements and elements of internal control over financial reporting mandated by the U.S. securities laws. This material weakness will not be considered remediated until we have completed implementing the necessary additional applicable controls and operate with these controls for a sufficient period of time to allow management and our auditors to conclude that these controls are operating effectively. While we believe we have made progress in accordance with our remediation plan, we cannot determine when our remediation plan will be fully completed, and we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

We are a clinical-stage biopharmaceutical company, and the success of our drug candidates is therefore uncertain. None of our drug candidates has been approved for commercial sale in any jurisdiction, and we expect it to be several years before any of them may be approved, if ever. We will not be able to generate product revenue unless and until our drug candidates, alone or with future partners, successfully complete clinical trials, receive regulatory approval and are successfully commercialized. Although we have entered into a joint venture with respect to PSX-001 and may again seek to obtain revenue from collaboration or licensing agreements with third parties, these agreements and joint ventures may not provide us with material or ongoing revenues. We have experienced significant recurring operating losses and negative cash flows from operating activities since inception. For example, for the fiscal years ended June 2024 and 2025, we had total comprehensive losses of $46.7 million and $18.5 million, respectively, and we had negative cash flows from operating activities of $12.5 million and $5.8 million, respectively. As of June 30, 2025, we had accumulated comprehensive losses of $157.6 million. We expect to continue to incur losses from operations for the foreseeable future and expect the costs of drug development to increase in the future as more patients are recruited for our clinical trials. Because of the numerous risks and uncertainties associated with the research, development and manufacturing of our drug candidates, we may experience larger than expected future losses and, particularly if we fail to successfully develop one or more of our drug candidates, we may never become profitable or if we become profitable, main profitability.

To date, we have not generated any revenue from product sales to customers and none of our drug candidates have been approved for commercialization by any regulatory body. We do not expect to receive any material revenue from any drug candidates that we develop, including IHL-42X, PSX-001, and IHL-675A, unless and until we obtain regulatory approval for these candidates. Our future net losses will depend, in large part, on our success in developing our drug candidates. Correspondingly, the amount of our future net losses will depend, in part, on the rate of our future expenditures. We anticipate that our expenses will increase substantially for the foreseeable future if, and as, we: - continue our research and preclinical and clinical development of our drug candidates;- expand the scope of our current proposed clinical studies for our drug candidates;- initiate additional preclinical, clinical or other studies for our drug candidates;- change or add manufacturers or suppliers;- seek regulatory and marketing approvals for our drug candidates that successfully complete clinical studies;- seek to identify and validate additional drug candidates;- acquire or in-license other drug candidates and technologies;- maintain, protect and expand our intellectual property portfolio;- attract and retain skilled personnel;- create additional infrastructure to support our operations as a publicly quoted company and our product development and planned future commercialization efforts; and - experience any delays or encounter issues with any of the above. We will need to obtain additional funding in connection with the further development of our drug candidates. 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. As noted above, we also have historically received, and may receive in the future, tax incentives for R&D. These tax incentives have been, and any future government grants and contracts we may receive may be, subject to the risks and contingencies set forth above this section in the risk factor titled "We rely on R&D tax incentives to provide resources to conduct our business operations. If the amount of R&D tax incentives decreases our business operations may be materially affected." Although we might apply for additional tax incentives, government contracts or grants in the future, we cannot assure that we will be successful in obtaining these for any drug candidates or programs. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. As such, additional financing may not be available to us when needed, on acceptable terms, or at all. In addition, disruptions and volatility in recent years in the financial markets have made equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs. During the past year, we delayed the development of our drug candidate IHL-675A due to a lack of financial resources. If we are again unable to secure sufficient capital to fund our operations, then we may be required to again delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to third parties to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. Moreover, we could also have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. In addition, securing additional financing requires a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of our drug candidates. Any of these circumstances or the failure to obtain funding, when and as needed, and on favorable terms would adversely affect our business, results of operations, R&D efforts, prospects and potentially the value of our common stock.