{"url_path":"/sec/pbm/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 KEY INFORMATION","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-06-22","source_url":"https://www.sec.gov/Archives/edgar/data/1985062/0001213900-26-070607-index.html","accession_number":"0001213900-26-070607","cik":"0001985062","ticker":"PBM","issuer_name":"PSYENCE BIOMEDICAL LTD.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1985062/0001213900-26-070607-index.html","primary_entity_key":"0001985062","primary_entity_name":"PSYENCE BIOMEDICAL LTD."},"word_count":19672,"has_tables":true,"body_markdown":"** **\n\nITEM 3. KEY INFORMATION\n\n** **\n\nA. [Reserved.]\n\n** **\n\nB. Capitalization and Indebtedness\n\n \n\nNot applicable.\n\n** **\n\nC. Reasons for the Offer and Use of Proceeds\n\n \n\nNot applicable.\n\n** **\n\nD. Risk Factors\n\n* *\n\n*Investing in our securities involves a high\ndegree of risk. You should carefully consider the following information about these risks, together with the other information appearing\nelsewhere in this Report, including our financial statements, the notes thereto and the section entitled “Management’s Discussion\nand Analysis of Financial Condition and Results of Operations,” before deciding to invest in our securities. The occurrence of any\nof the following risks could have a material adverse effect on our business, reputation, financial condition, results of operations and\nfuture growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our securities\ncould decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that\nwe currently deem immaterial may also impair our business operations and the market price of our securities.*\n\n* *\n\n**Risks Related to Our Business and Industry**\n\n \n\n**We are a clinical-stage biotechnology company and have incurred\nsignificant losses since our inception. We anticipate that we will incur significant losses for the foreseeable future.**\n\n \n\nInvestment in biotechnology product development is highly speculative\nbecause it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate\neffectiveness or an acceptable safety profile, gain regulatory approval and become commercially viable. All of Psyence’s product\ncandidates will require substantial additional capital expenditures and development time, including extensive clinical research and resources,\nbefore it would be able to apply for and then receive marketing authorization and begin generating revenue from product sales.\n\n \n\nSince its inception, Psyence has invested most of its resources in\nestablishing strategic partnerships, securing intellectual property licensing rights, advancing its clinical trial program, raising capital,\nbuilding its management team and providing general and administrative support for these operations. Psyence has incurred losses since\nits inception and expects to incur significant losses for the foreseeable future. Psyence’s net profit/(loss) for the years ended\nMarch 31, 2026, March 31, 2025 and March 31, 2024 was ($6.89 million), $1 million and ($50.96 million), respectively. The March 31, 2025\nnet profit was driven by the fair value gains on conversion of debt into equity and warrant liability fair value remeasurement. To date,\nno products have been approved for commercial sale and Psyence has not generated any revenue. Psyence has financed operations solely through\nthe sale of equity securities and convertible debt financings. Psyence continues to incur significant research and development and other\nexpenses related to ongoing operations and expects to incur losses for the foreseeable future.\n\n \n\nDue to the numerous risks and uncertainties associated with the development\nof its product candidates, Psyence is unable to predict the timing or amount of its expenses, or when it will be able to generate any\nmeaningful revenue or achieve or maintain profitability, if ever. In addition, its expenses could increase beyond current expectations\nif Psyence is required by the Therapeutic Goods Administration in Australia (“TGA”), the U.S. Food and Drug Administration\n(“FDA”), the European Medicines Agency (“EMA”), Medicines and Healthcare products Regulatory Agency in the UK\n(“MHRA”), or other comparable foreign regulatory authorities, to perform preclinical studies or clinical trials in addition\nto those that Psyence currently anticipates, or if there are any delays in any of Psyence’s or its future collaborators’ clinical\ntrials or the development of the existing product candidates and any other product candidates that Psyence may identify. Even if Psyence’s\nexisting product candidates or any future product candidates that Psyence may identify are approved for commercial sale, Psyence anticipates\nincurring significant costs associated with commercializing any approved product and ongoing compliance efforts.\n\n \n\n1\n\n \n\n \n\n**Psyence has a limited operating history and expects a number\nof factors to cause its operating results to fluctuate on an annual basis, which may make it difficult to predict the future performance\nof Psyence.**\n\n \n\nPsyence is a clinical stage biotechnology development company with\na limited operating history. Consequently, any predictions made about Psyence’s future success or viability may not be as accurate\nas they could be if Psyence had a longer operating history and additional definitive partnership agreements in place. Psyence’s\noperating results are expected to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of\nwhich are beyond its control. Factors relating to Psyence’s business that may contribute to these fluctuations include, but are\nnot limited to:\n\n \n\n●any delays or issues in finding, and establishing successful\nbusiness arrangements with, pharmaceutical and product development partners to assist in moving its product candidates through the development\nand commercialization processes;\n\n \n\n●delays in the commencement, enrolment and timing of clinical\ntrials;\n\n \n\n●the success of its preclinical trials;\n\n \n\n●potential side effects of its product candidates that could\ndelay or prevent approval or license-out agreements or cause an approved product candidate to be eliminated;\n\n \n\n●supply chain interruptions, which could delay Psyence in\nthe process of developing its product candidates;\n\n \n\n●its ability to obtain additional funding to develop its product\ncandidates;\n\n \n\n●its ability to attract and retain talented and experienced\npersonnel to manage its business effectively;\n\n \n\n●competition from existing psychedelic analogs companies or\nnew psychedelic analogs companies that continue to emerge;\n\n \n\n●assuming market authorization has been obtained for our product\ncandidates, the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for such products;\n\n \n\n●its ability to adhere to clinical study requirements directly\nor with third parties such as clinical research organizations (“CROs”);\n\n \n\n●its dependency on third-party manufacturers to manufacture\nproducts and key ingredients;\n\n \n\n●its ability to establish or maintain collaborations, licensing\nor other transactions;\n\n \n\n●its ability to defend against any challenges to its intellectual\nproperty, including claims of patent infringement;\n\n \n\n●its ability to enforce its intellectual property rights against\npotential competitors;\n\n \n\n●its ability to secure additional intellectual property protection\nfor its product candidates and associated manufacturing methods currently under development;\n\n \n\n●a biological or chemical effect that Psyence does not predict;\n\n \n\n●adverse economic circumstances; and\n\n \n\n●potential liability claims.\n\n \n\nAccordingly, the results of any historical financial periods should\nnot be relied upon as indications of future operating performance.\n\n \n\n2\n\n \n\n \n\n**Psyence has never generated revenue and may never be profitable.**\n\n \n\nPsyence may never be able to develop or commercialize marketable products\nor achieve profitability. Revenue from the sale of any product candidate for which regulatory approval is obtained will be dependent,\nin part, upon the size of the markets in the territories for which Psyence gains regulatory approval, the accepted price for the product,\nthe acceptance of the product by physicians and patients, the ability to obtain reimbursement at any price and whether Psyence owns the\ncommercial rights for that territory. Psyence’s growth strategy depends on its ability to generate revenue. In addition, if the\nnumber of addressable patients is not as anticipated, the indication or intended use approved by regulatory authorities is narrower than\nexpected, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, Psyence\nmay not generate significant revenue from sales of such products, even if approved. Even if Psyence is able to generate revenue from the\nsale of any approved products, Psyence may not become profitable and may need to obtain additional funding to continue operations. Even\nif Psyence were to achieve profitability in the future, it may not be able to sustain profitability in subsequent periods.\n\n \n\nPsyence’s failure to achieve sustained profitability would depress\nthe value of the Company and could impair its ability to raise capital, expand the business, diversify its research and development pipeline,\nmarket its product candidates, if approved, and pursue or continue operations. Psyence’s prior losses, combined with expected future\nlosses, have had and will continue to have an adverse effect on shareholders’ equity and working capital.\n\n \n\n**The Company will require substantial additional funding to achieve\nits business goals, and if it is unable to obtain this funding when needed and on acceptable terms, it could be forced to delay, limit\nor terminate its product development efforts.**\n\n \n\nPsyence’s clinical trial and product development pipeline currently\nconsists of an approved Phase IIb Study in Australia. We have also obtained approval from the MHRA to conduct a Phase IIa study in the\nUK, which was not initiated due to certain cost-effective incentives provided by Australia. Once the Phase IIb Study in Australia is completed,\na Phase III pivotal study program will begin, of which the size and number of trials will depend on the results of the Phase IIb Study,\nthe advice given to Psyence from the regulatory authorities and whether the FDA will assess the program as being fast-tracked or eligible\nas a breakthrough therapy. If the assessment is the latter, the Phase III program could be smaller than anticipated and less than the\nusual required two pivotal studies to support market authorization.\n\n \n\nConducting clinical trials and developing biopharmaceutical products\nis expensive and time consuming, and we expect to require substantial additional capital to conduct research, preclinical studies and\nclinical trials for the current and future trials, seek regulatory approvals for our product candidates and launch and commercialize any\nproducts for which Psyence may receive regulatory approval, including building our own commercial sales, marketing and distribution organization.\nOur management and strategic decision makers have not made decisions regarding the future allocation of certain resources among Psyence’s\npipeline of trials, but continue to evaluate the needs and opportunities with respect to each of these trials routinely and on a case-by-case\nbasis. Because the outcome of any preclinical or clinical development and regulatory approval process is highly uncertain (including the\nsize and quantum of the Phase III registrational program), Psyence cannot reasonably estimate the actual amounts necessary to successfully\ncomplete the development, regulatory approval process and potential commercialization of its product candidates and any future product\ncandidates it may identify.\n\n \n\n3\n\n \n\n \n\nPsyence expects that the existing available cash will be sufficient\nto fund operations beyond 12 months from the date of this filing. As of March 31, 2026, we had USD$7,491,954 in cash and cash equivalents\nand restricted cash. However, Psyence’s operating plan may change as a result of many factors currently unknown, and Psyence may\nneed to seek additional funds sooner than planned, through public or private equity or debt financings, sales of assets or programs, other\nsources, such as strategic collaborations or license and development agreements, or a combination of these approaches. Even if Psyence\nbelieves that its funds are sufficient for its current or future operating plans, it may, subject to obtaining the necessary contractual\nconsents, opportunistically seek additional capital if market conditions are favorable or for specific strategic considerations. Psyence’s\nspending will vary based on new and ongoing product development and business development activities. Any such additional fundraising efforts\nfor Psyence may divert management from their day-to-day activities, which may adversely affect Psyence’s ability to develop and\ncommercialize product candidates that Psyence may identify and pursue. Moreover, such financing may result in dilution to shareholders,\nimposition of debt covenants and repayment obligations, or other restrictions that may affect Psyence’s business. Changing circumstances,\nsome of which may be beyond Psyence’s control, could cause Psyence to consume capital significantly faster than currently anticipated,\nand Psyence may need to seek additional funds sooner than planned. Psyence’s future funding requirements, both short-term and long-term,\nwill depend on many factors, including, but not limited:\n\n \n\n●the time and cost necessary to complete ongoing and planned\nclinical trials;\n\n \n\n●the outcome, timing and cost of meeting regulatory requirements\nestablished by the TGA, FDA, the EMA, the MHRA and other comparable foreign regulatory authorities;\n\n \n\n●the progress, timing, scope and costs of preclinical studies,\nclinical trials and other related activities for ongoing and planned clinical trials, and potential future clinical trials;\n\n \n\n●the costs of obtaining clinical and commercial supplies of\nraw materials and drug products for Psyence’s product candidates, as applicable, and any other product candidates Psyence may identify\nand develop;\n\n \n\n●Psyence’s ability to successfully identify and negotiate\nacceptable terms for third-party supply and contract manufacturing agreements with contract manufacturing organizations (“CMOs”);\n\n \n\n●the costs of commercialization activities for any of Psyence’s\nproduct candidates that receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution\nand manufacturing capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities;\n\n \n\n●the amount and timing of sales and other revenues from Psyence’s\nproduct candidates, if approved, including the sales price and the availability of coverage and adequate third-party reimbursement;\n\n \n\n●the cash requirements of developing Psyence’s programs\nand Psyence’s ability and willingness to finance their continued development;\n\n \n\n●the cash requirements of any future acquisitions or discovery\nof product candidates;\n\n \n\n●the time and cost necessary to respond to technological and\nmarket developments, including other products that may compete with one or more of Psyence’s product candidates;\n\n \n\n●supply chain interruptions, which could delay Psyence in\nthe process of developing its product candidates;\n\n \n\n●the costs of acquiring, licensing or investing in intellectual\nproperty rights, products, product candidates and businesses;\n\n \n\n●the costs of maintaining, expanding and protecting Psyence’s\nintellectual property portfolio;\n\n \n\n●its ability to attract, hire and retain qualified personnel\nas Psyence expands research and development and establishes a commercial infrastructure; and\n\n \n\n●the costs of operating as a public company in the United\nStates and maintaining a listing on Nasdaq.\n\n \n\nPsyence cannot be certain that additional funding will be available\non acceptable terms, or at all. Market volatility resulting from the introduction of significant instability and uncertainty into global\nsupply chains, pricing structures, and international trade relationships due to the geopolitical and trade policy uncertainty, including\nU.S. tariff measures and escalations in the Middle East, could adversely affect global economic conditions and our business. Other factors\ncould also adversely impact the ability to access funds as and when needed. If adequate funds are not available to Psyence on a timely\nbasis, Psyence may be required to delay, limit or terminate one or more research or development programs or trials or the potential commercialization\nof any approved products or be unable to expand operations or otherwise capitalize on business opportunities, as desired, which could\nmaterially affect Psyence’s business, prospects, financial condition and results of operations.\n\n \n\n4\n\n \n\n \n\n**Recent U.S. federal actions to accelerate the development of\npsychedelic therapies may benefit competitors more than us, or may not benefit us at all.**\n\n \n\nOn April 18, 2026, a federal executive order directed agencies to expedite\nthe research, regulatory review and access pathways for psychedelic therapies for serious mental illness, and on April 24, 2026, the FDA\nannounced corresponding regulatory actions, including the issuance of Commissioner’s National Priority Vouchers to companies developing\npsilocybin- and methylone-based product candidates and the clearance of the first U.S. clinical study of an ibogaine derivative. While\nthese developments may signal a more favorable federal posture toward the class of products in which Psyence operates, they do not change\nthe statutory standards for FDA approval and do not approve any product candidate. These developments may disproportionately benefit competitors\nthat are further advanced in clinical development, are better capitalized, or have been selected for expedited-review designations that\nPsyence has not received and may never receive. The acceleration of competing programs could intensify competition, compress the period\nwithin which Psyence must reach key development milestones to remain commercially relevant, and otherwise adversely affect Psyence’s\nbusiness, prospects, financial condition and results of operations.\n\n \n\n**We depend on our current key personnel and our ability to attract\nand retain employees.**\n\n \n\nOur future growth and success depends on our ability to recruit, retain,\nmanage and motivate our employees. We are highly dependent on our current management and scientific personnel, including Jody Aufrichtig\n(Executive Chairman and Chief Executive Officer), Warwick Corden-Lloyd (Chief Financial Officer), Dr. Neil Maresky (Global Head of Clinical\nDevelopment) and Taryn Vos (General Counsel). The inability to hire or retain experienced management personnel could adversely affect\nour ability to execute our business plan and harm our operating results. Due to the specialized scientific and managerial nature of our\nbusiness, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition\nfor qualified personnel in the pharmaceutical field is intense and we may be unable to continue to attract and retain qualified personnel\nnecessary for the development of our business or to recruit suitable replacement personnel.\n\n \n\n**Our historical financial results may not be representative of\nour results as a separate, stand-alone company.**\n\n \n\nSome of the historical financial information we have included in this\nReport has been derived from the financial statements and accounting records of PGI (as defined below) and does not necessarily reflect\nwhat our financial position, results of operations or cash flows would have been had we been a separate, stand-alone company during the\nperiods presented. The historical information does not necessarily indicate what our results of operations, financial position cash flows\nor costs and expenses will be in the future.\n\n \n\n**The psychedelic therapy and biotechnology industries are intensely\ncompetitive and subject to rapid and significant technological change, and consolidation in the industries could harm our competitive\nposition.**\n\n \n\nThe psychedelic therapy and biotechnology industries are undergoing\nrapid growth and substantial change, which has resulted in an increase in competitors, consolidation and formation of strategic relationships.\nAcquisitions or other consolidating transactions could harm Psyence in a number of ways, including by losing strategic partners if they\nare acquired by or enter into relationships with a competitor, losing customers, revenue and market share, or forcing Psyence to expend\ngreater resources to meet new or additional competitive threats, all of which could harm Psyence’s operating results.\n\n \n\nThe psychedelic therapy and biotechnology industries are intensely\ncompetitive and subject to rapid and significant technological change. Psyence has competitors in Canada, the United States, Europe and\nother jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical\nand generic drug companies and universities and other research institutions. Many of our competitors have greater financial and other\nresources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large\npharmaceutical companies, in particular, have extensive experience in, and substantial capital resources for, conducting research, molecular\nderivative development, obtaining regulatory approvals, obtaining intellectual property protection and establishing key relationships.\nThese companies also have significantly greater sales and marketing capabilities and experience in completing collaborative transactions\nin Psyence’s target markets with leading companies and research institutions.\n\n \n\n5\n\n \n\n \n\nPsyence’s competitors may introduce new psychedelic analogs or\ndevelop technological advances that compete with Psyence. Psyence cannot predict the timing or impact of competitors introducing new psychedelic\nanalogs or technological advances. Such competing psychedelic analogs may be safer, more effective, more effectively marketed, licensed\nor sold or have lower prices or superior performance features than Psyence’s psychedelic analogs, and this could negatively impact\nPsyence’s business and results of operations. Established pharmaceutical companies may also invest heavily to accelerate discovery\nand development of novel compounds or to in-license novel compounds that could make the psychedelic analogs that Psyence develops obsolete.\nAs a result of any of these factors, Psyence’s competitors may succeed in obtaining patent protection or discovering, developing\nand commercializing psychedelic analogs before Psyence does or may develop psychedelic analogs that are deemed to be more effective or\ngain greater market acceptance than those of Psyence.\n\n \n\nSmaller or early-stage companies may also prove to be significant competitors,\nparticularly through collaborative transactions with large, established companies. In addition, many universities and private and public\nresearch institutions may become active in the development of novel compounds. Psyence’s competitors may succeed in developing,\nacquiring or licensing on an exclusive basis, technologies and psychedelic analogs that are more effective or less costly than any of\nthe psychedelic analogs that Psyence is currently developing or that it may develop, which could render its psychedelic analogs obsolete\nor non-competitive. If Psyence’s competitors’ market psychedelic analogs that are more effective, safer or less expensive\nor that reach the market sooner than Psyence’s psychedelic analogs, if any, Psyence may not achieve commercial success. In addition,\nbecause of its limited resources, it may be difficult for Psyence to stay abreast of the rapid changes in each technology. If Psyence\nfails to stay at the forefront of technological change, it may be unable to compete effectively. Technological advances or products developed\nby its competitors may render its technologies or psychedelic analogs obsolete, less competitive or not economical.\n\n \n\n**Current and future preclinical and clinical studies will be conducted\noutside the United States, and the FDA may not accept data from such studies to support any NDAs submitted after completing the applicable\ndevelopmental and regulatory prerequisites (absent an IND).**\n\n \n\nPsyence is conducting a clinical study outside the United States. Psyence\nhas received full approval of a study in the UK from the MHRA, which was not initiated due to certain cost-effective incentives provided\nby Australia. Psyence has received full approval from the Australian Human Research Ethics Committees (HRECs), the body responsible for\nthe review of research proposals involving human participants to ensure that they are ethically acceptable. The protocol under review\nin Australia will be reviewed as part of a Pre-IND (Investigational New Drug) application by the FDA. To the extent Psyence does not conduct\nthese clinical trials under an IND, the FDA may not accept data from such trials. Although the FDA may accept data from clinical trials\nconducted outside the United States that are not conducted under an IND, the FDA’s acceptance of these data is subject to certain\nconditions. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance\nwith ethical principles and all applicable FDA regulations. The trial population must also adequately represent the intended U.S. population,\nand the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. There\ncan be no guarantee that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data\nfrom such clinical trials, this would likely result in the need for additional trials and the completion of additional regulatory steps,\nwhich would be costly and time-consuming and could delay or permanently halt the development of Psyence’s product candidates.\n\n \n\n**There is a high rate of failure for product candidates proceeding\nthrough clinical trials.**\n\n \n\nPsyence has no registered products on the market, and its new potential\npsilocybin-based product candidates are currently either in the preclinical or clinical development phase. Psyence’s ability to\nachieve and sustain profitability with respect to its product candidates in which psilocybin is featured as the active pharmaceutical\ningredient depends on obtaining regulatory approvals for and, if approved, successfully commercializing, its product candidates, either\nalone or with third parties. Before obtaining regulatory approval for the commercial distribution of its current or future product candidates,\nPsyence or an existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the safety,\npurity and potency of its product candidates.\n\n \n\nGenerally, there is a high rate of failure for product candidates proceeding\nthrough clinical trials. Psyence may suffer significant setbacks in its clinical trials similar to the experience of a number of other\ncompanies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even\nif Psyence views the results of a clinical trial to be positive, applicable international regulatory authorities may disagree with Psyence’s\ninterpretation of the data. In the event that Psyence obtains negative results from clinical trials for product candidates or other problems\nrelated to potential chemistry, manufacturing and control issues or other hurdles occur and its current or future product candidates are\nnot approved, Psyence may not be able to generate sufficient revenue or obtain financing to continue its operations, its ability to execute\non its current business plan may be materially impaired and its reputation in the industry and in the investment community might be significantly\ndamaged. In addition, Psyence’s inability to properly design, commence and complete clinical trials may negatively impact the timing\nand results of its clinical trials and ability to seek approvals for its product candidates.\n\n \n\n6\n\n \n\n \n\nThe testing, marketing and manufacturing of any new drug product for\nuse in the U.S. will require approval from the FDA. Psyence cannot predict with any certainty the amount of time necessary to obtain such\nFDA approval and whether any such approval will ultimately be granted. Preclinical and clinical trials may reveal that one or more product\ncandidates are ineffective or unsafe, in which event further development of such product candidates could be seriously delayed or terminated.\nMoreover, obtaining approval for certain product candidates may require testing on human subjects of substances whose effects on humans\nare not fully understood or documented. Delays in obtaining FDA or any other necessary regulatory approvals of any proposed drug and failure\nto receive such approvals would have an adverse effect on the drug’s potential commercial success and on Psyence’s business,\nprospects, financial condition and results of operations. In addition, it is possible that a proposed drug may be found to be ineffective\nor unsafe due to conditions or facts that arise after development has been completed and regulatory approvals have been obtained. In this\nevent, Psyence may be required to withdraw such proposed drug from the market. To the extent that its success will depend on any regulatory\napprovals from government authorities outside of the U.S. that perform roles similar to that of the FDA, uncertainties similar to those\nstated above will also exist.\n\n \n\n**Because the results of preclinical studies and earlier clinical\ntrials are not necessarily predictive of future results, Psyence may not have favorable results in its planned and future clinical trials.**\n\n \n\nSuccessful development of therapeutic products is highly uncertain\nand is dependent on numerous factors, many of which are beyond Psyence’s control. Product candidates that appear promising in the\nearly phases of development may fail to reach the market for several reasons, including, but not limited to:\n\n \n\n●preclinical or clinical study results that may show the product\nto be less effective than desired (e.g., the study failed to meet Psyence’s primary objectives) or to have harmful or problematic\nside effects;\n\n \n\n●failure to receive the necessary regulatory approvals or\na delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical studies, length of\ntime to achieve study endpoints, additional time requirements for data analysis or regulatory requests for additional preclinical or\nclinical data or unexpected safety or manufacturing issues;\n\n \n\n●manufacturing costs, pricing, or reimbursement issues or\nother factors that make the product not economical; and\n\n \n\n●the proprietary rights of others and their competing products\nand technologies that may prevent the product from being commercialized.\n\n \n\nAny positive results from preclinical testing of Psyence’s prospective\nproduct candidates may not necessarily be predictive of the results from planned or future clinical trials for such product candidates.\nMany companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving\npositive results in preclinical and early clinical development, and Psyence cannot be certain that it will not face similar setbacks.\nThese setbacks have been caused by, among other things, preclinical findings while clinical trials were underway or safety or efficacy\nobservations in clinical trials, including adverse events. If Psyence fails to produce positive results in its planned clinical trials\nfor its product candidates as described in the section titled “Business”, or its future clinical trials, the development timeline\nand regulatory approval and commercialization prospects for such product candidates, and, correspondingly, Psyence’s business and\nfinancial prospects, would be materially adversely affected.\n\n \n\n**Negative results from clinical trials or studies of others and\nadverse safety events involving Psyence’s psychedelic analogs could have a material adverse effect on Psyence’s business.**\n\n \n\nFrom time to time, studies or clinical trials on medical-grade psilocybin\nmushroom products may be conducted or sponsored by academics, research institutions or others, including government agencies. The publication\nof negative results of studies or clinical trials related to Psyence’s proposed products or the therapeutic areas in which Psyence’s\nproposed products will compete could have a material adverse effect on Psyence’s business, prospects, financial condition and results\nof operations.\n\n \n\n7\n\n \n\n \n\n**Supply chain interruptions could delay Psyence in the process\nof developing its product candidates.**\n\n \n\nThere are few licensed suppliers of input materials for the manufacture\nof Psyence’s product candidates. Any loss of stored materials or facilities through fire, theft or other causes could have an adverse\neffect on Psyence’s ability to procure the product candidate materials and continue product development activities. Furthermore,\nPsyence is largely dependent on Psyence Labs Ltd and its affiliates (“PsyLabs”), a British Virgin Islands-based company focused\non the production of psychedelic active pharmaceutical ingredients, for the supply of NPX-5 (capsules containing 25mg naturally sourced\npsilocybin and product being used in Psyence’s Phase IIb Study), and any interruption in PsyLabs’ supply chain (or the supply chain\nof any other suppliers engaged by Psyence) will lead to delays in Psyence’s drug development timelines. Furthermore, PsyLabs, as\nwell as any other suppliers engaged by Psyence, will be required to continue to meet regulatory requirements applicable to the NPX-5 product\ncandidate and maintain GMP compliant standards which dictate the minimum requirements for the methods, facilities and controls used in\nmanufacturing, processing and packing of a drug product. There can be no assurances that PsyLabs or any CMOs will be able to meet Psyence’s\ntimetable and requirements or carry out their contractual obligations in accordance with the applicable regulations. In addition, the\ndrug product supplied to Psyence may not meet its specifications and quality policies and procedures nor may they be able to supply the\ndrug product in commercial quantities when the time comes. If Psyence is unable to arrange for alternative third-party supply sources\non commercially reasonable terms or in a timely manner, it may delay the development of its product candidates and could have a material\nadverse effect on Psyence’s business operations and financial condition.\n\n \n\nFurther, the failure of CMOs to operate in compliance with GMP or other\napplicable quality related regulations could result in, among other things, certain product liability claims in the event such failure\nto comply results in defective products that caused injury or harm. In general, Psyence’s dependence upon third parties for the\nsupply of Psyence’s drug product may adversely affect profit margins and Psyence’s ability to develop and deliver viable end\nproducts on a timely and competitive basis.\n\n \n\n**Psyence’s proprietary information, or that of its strategic\nbusiness partners, may be lost or Psyence may suffer security breaches.**\n\n \n\nIn the ordinary course of its business, Psyence collects and stores\nsensitive data, including valuable and commercially sensitive intellectual property, clinical trial data, proprietary business information\nand that of Psyence’s strategic business partners, as well as the personally identifiable information of clinical trial subjects,\nemployees and patients, in and on Psyence’s networks. Despite security measures, information technology and infrastructure may be\nvulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise\nPsyence’s networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure\nor other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information,\nregulatory penalties, disruption of operations, damage to Psyence’s reputation, and cause a loss of confidence in Psyence’s\nability to conduct clinical trials, which could adversely affect Psyence’s business, prospects, financial condition and results\nof operations.\n\n \n\n**Costs associated with compliance with numerous laws and regulations\ncould impact our financial results. In addition, we could become subject to increased enforcement and/or litigation risks associated with\nthe psychedelic therapeutics industry.**\n\n \n\nThe manufacture, labeling and distribution of products containing psilocybin\nor other psychedelic analogs is governed by various federal, state and local agencies. To the extent we are able to successfully commercialize\nany of our currently contemplated product candidates via the FDA’s NDA approval pathway, the presence of psychedelic analogs as\nactive or inactive ingredients, as applicable, may give rise to heightened regulatory scrutiny and greater risk of consumer litigation,\neither of which could further restrict the permissible scope of our marketing claims about such products or our ability to sell them in\nthe United States at all. The shifting compliance environment and the need to build and maintain robust systems to comply with different\npsychedelic-related regulations in jurisdictions may increase costs and/or the risk that we may violate one or more applicable regulatory\nrequirements. If our operations, or any of our activities or prospective products, are found to be in violation of any such laws or any\nother governmental regulations that apply to the manufacture, distribution, or sale of prescription drug products, generally, and to products\ncontaining psychedelic analogs, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages,\nfines, the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business or\nour financial results.\n\n \n\n8\n\n \n\n \n\nFailure to comply with any applicable regulatory requirements, relating\nto psilocybin or otherwise, may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and\ncriminal prosecutions. Additionally, advertising and labeling laws are often enforced by governmental officials, and any action based\non potentially misleading or deceptive advertising is often followed by costly class-action complaints under consumer-protection laws.\n\n \n\n**Psyence may acquire businesses or products, or form additional\nstrategic alliances, in the future, and may not realize the benefits of such acquisitions.**\n\n \n\nPsyence may acquire additional businesses or products, form additional\nstrategic alliances, or create joint ventures with third parties that it believes will complement or augment its existing business. Any\nof these relationships may require Psyence to incur non-recurring and other charges, increase Psyence’s near and long-term expenditures,\nissue securities that dilute Psyence’s existing shareholders or disrupt Psyence’s management and business. In addition, we\nface significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. If Psyence\nacquires businesses with promising markets or technologies, it may not be able to realize the benefit of acquiring such businesses if\nit is unable to successfully integrate them with its existing operations and company culture. Psyence may encounter numerous difficulties\nin developing, manufacturing, and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent\nit from realizing their expected benefits or enhancing its business. There is no assurance that, following any such acquisition, Psyence\nwill achieve the synergies expected in order to justify the transaction, which could result in a material adverse effect on its business\nand prospects.\n\n \n\n**We rely on third parties to conduct our clinical trials. If these\nthird parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain\nregulatory approval of, or commercialize, our product candidates.**\n\n \n\nPsyence relies on Southern Star Research Pty Ltd (“Southern Star\nResearch”), full-service Australian CRO, to conduct clinical development activities with Psyence’s product candidates, which\nactivities involve trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management\nand analysis, safety monitoring and project management.\n\n \n\nAdditionally, we expect to utilize and depend upon independent investigators\nand collaborators, such as medical institutions, CROs, CDMOs and strategic partners to conduct our preclinical studies under agreements\nwith us and in connection with our clinical trials. We expect to have to negotiate budgets and contracts with CROs, trial sites and CDMOs,\nwhich may result in delays to our development timelines and increase costs. We will rely heavily on these third parties over the course\nof our clinical trials, and we control only certain aspects of their activities. As a result, we have less direct control over the conduct,\ntiming and completion of these clinical trials and the management of data developed through clinical trials than would be the case if\nwe were relying entirely upon our own staff. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance\nwith applicable protocol, legal and regulatory requirements and scientific standards and our reliance on third parties does not relieve\nus of our regulatory responsibilities. We and these third parties are required to comply with good clinical practices (“GCPs”),\nwhich are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical\ndevelopment. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial\nsites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical\ntrials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical\ntrials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine\nthat any of our clinical trials comply with the GCP regulations. Our failure or any failure by these third parties to comply with these\nregulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval\nprocess. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims\nlaws and regulations or healthcare privacy and security laws.\n\n \n\n9\n\n \n\n \n\nAny third parties conducting our clinical trials are not and will not\nbe our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not\nthey devote sufficient time and resources to our product candidates. These third parties may also have relationships with other commercial\nentities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which\ncould affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations\nor meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised\ndue to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended,\ndelayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our\nproduct candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs\ncould increase and our ability to generate revenue could be delayed.\n\n \n\nSwitching or adding third parties to conduct our clinical trials involves\nsubstantial cost and requires extensive management time and focus. In addition, changes in manufacturers often involve changes in manufacturing\nprocedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical\ntrials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require\nthe conduct of additional clinical trials. Additionally, there is a natural transition period when a new third party commences work. As\na result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.\n\n \n\n**Psyence’s insurance coverage may be inadequate or expensive.**\n\n \n\nPsyence’s business is subject to a number of risks and hazards\ngenerally, including adverse clinical trial results, accidents, labor disputes and changes in the regulatory environment. Such occurrences\ncould result in damage to assets, personal injury or death, environmental damage, delays in operations, monetary losses and possible legal\nliability.\n\n \n\nPsyence’s insurance may not cover all the potential risks associated\nwith its operations. Psyence may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance\ncoverage may not be available (or generally available on acceptable terms) or may not be adequate to cover any resulting liability. The\nsuccessful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in\nour insurance policies, including premium increases or the imposition of large retention, or deductible, or co-insurance requirements,\ncould have an adverse effect on our business, financial condition and results of operations.\n\n \n\n**Certain significant personnel may allocate their time to other\nbusinesses, which may cause conflicts of interest in their determination as to how much time to devote to our affairs and potentially\ncompetitive fiduciary and pecuniary interests that conflict with our interests.**\n\n \n\nCertain of Psyence’s directors and officers do not devote their\nfull time to the affairs of Psyence and certain of Psyence’s directors and officers are also directors, officers and shareholders\nof other biotechnology and research and development companies or other public companies in general, and as a result they may find themselves\nin a position where their duty to another company conflicts with their duty to Psyence. Although Psyence has policies which address such\npotential conflicts and the Business Corporations Act (Ontario) has provisions governing directors in the event of such a conflict, there\nis no assurance that any such conflicts will be resolved in favor of Psyence. If any such conflicts are not resolved in favor of Psyence,\nPsyence may be adversely affected.\n\n \n\n**We have received research and development incentives from the\nAustralian government. If we don’t qualify for future research and development incentives, we may encounter difficulties in funding\nresearch and development projects, which could harm our operating results.**\n\n \n\nWe have previously received a research and development (R&D) cash\nrebate through the Australian Government’s Research and Development Tax Incentive program, which provides up to a 43.5% rebate on\nqualifying R&D expenses in Australia.\n\n \n\nFor Psyence Australia Pty Ltd.’s (“Psyence Australia”,\nthe Company’s Australian subsidiary) fiscal years ended June 30, 2025 and June 30, 2023, it received a cash refund of AUD $441,732 and\nAUD $1,336,622 respectively. To receive this research and development cash rebate, we qualified for certain conditions under the R&D\nTax Incentive legislation (Income Tax Assessment Act 1997 (Cth), Division 355) in Australia including, but not limited to, having a company\nincorporated under Australian law, all R&D activities being conducted solely within Australia, the Company’s aggregated group\nturnover not being equal to, or more than, AU$20M for relevant period; all R&D activities are conducted by, or will be conducted for,\nthe Company, and all CRO expenditures have been physically undertaken in Australia.\n\n \n\n10\n\n \n\n \n\nEntitlement to tax benefits under the Research and Development Tax\nIncentive for eligible R&D purposes is based on an annual application to the Australian Government. We believe that we continue to\nbe eligible for the tax benefits. If these tax benefits are reduced, cancelled, or discontinued, or if we fail to meet certain conditions,\nwe may encounter difficulties funding further funding R&D projects, which could harm our operating results.\n\n \n\n**Risks Related to Regulatory Matters**\n\n \n\n**Psilocybin and ibogaine remain Schedule I controlled substances\nunder U.S. federal law, and any rescheduling is uncertain in timing and outcome.**\n\n \n\nPsilocybin and ibogaine are currently classified as Schedule I controlled\nsubstances under the U.S. Controlled Substances Act, the most restrictive classification, which is reserved for substances determined\nto have a high potential for abuse and no currently accepted medical use. Although recent federal actions contemplate that certain psychedelics\nthat complete late-stage research could be considered for rescheduling to a less restrictive schedule upon FDA approval, no such rescheduling\nhas occurred for psilocybin or ibogaine, and there can be no assurance that any rescheduling will occur or that it will occur on a timeline\nuseful to Psyence. Unless and until rescheduling occurs, Psyence’s ability to conduct clinical trials in the United States, to manufacture,\nimport, export, store and handle product candidates, and ultimately to commercialize any approved product in the United States, will remain\nsubject to significant federal restrictions, registration requirements and enforcement risk, any of which could materially and adversely\naffect Psyence’s business. In addition, the regulatory treatment of ibogaine differs from that of psilocybin and is subject to distinct\nsafety considerations, including documented cardiotoxicity risks, which may result in heightened or different regulatory scrutiny of any\nibogaine-related activities Psyence pursues, whether directly or through PsyLabs.\n\n \n\n**If we fail to comply with healthcare regulations, we could face\nsubstantial enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be\nadversely affected.**\n\n \n\nThe research and development, studying, manufacturing, packaging, labeling,\nadvertising and distribution of Psyence’s planned product candidates are subject to regulation by one or more governmental authorities,\nand various agencies of the federal, provincial, state and localities in which Psyence intends to commercialize its products. These governmental\nauthorities may attempt to regulate any of its products that fall within their jurisdiction. Such governmental authorities may not accept\nthe evidence of safety for any ingredients that Psyence may want to market, may determine that a particular product or product ingredient\npresents an unacceptable health risk and may determine that a particular statement of nutritional support that Psyence wants to use is\nan unacceptable claim. Such a determination would prevent Psyence from marketing particular products or using certain statements of nutritional\nsupport on its products. Psyence also may be unable to disseminate third-party literature that supports its products if the third-party\nliterature fails to satisfy certain requirements. In addition, governmental authorities could require Psyence to remove a particular product\nfrom the market. Any recall or removal would result in additional costs to Psyence, including lost revenues from any products that it\nis required to remove from the market, any of which could be material. Any such product recalls or removals could lead to liability, substantial\ncosts and reduced growth prospects, all of which could be material.\n\n \n\n**Our prospective products will be subject to the various federal\nand state laws and regulations relating to health and safety and failure to comply with, or changes in, these laws or regulations could\nhave an adverse impact on our business.**\n\n \n\nWe are in the process of developing an investigational new drug for\nwhich we intend to pursue FDA approval via the New Drug Application (“NDA”) process.\n\n \n\n11\n\n \n\n \n\nIn connection with our development and future commercialization (if\napplicable) of the above-described prospective products, we and each contemplated product candidate are subject to the Federal Food Drug\nand Cosmetic Act (FDCA). The FDCA is intended to assure the consumer, in part, that drugs and devices are safe and effective for their\nintended uses and that all labeling and packaging is truthful, informative, and not deceptive. The FDCA and FDA regulations define the\nterm “drug,” in part, by reference to its intended use, as “articles intended for use in the diagnosis, cure, mitigation,\ntreatment, or prevention of disease” and “articles (other than food) intended to affect the structure or any function of the\nbody of man or other animals.” Therefore, almost any ingested or topical or injectable product that, through its label or labeling\n(including internet websites, promotional pamphlets, and other marketing material), that is claimed to be beneficial for such uses will\nbe regulated by FDA as a drug. The definition also includes components of drugs, such as active pharmaceutical ingredients. Drugs must\ngenerally either receive premarket approval by FDA through the NDA process or conform to a “monograph” for a particular drug\ncategory, as established by FDA’s Over-the-Counter (OTC) Drug Review. If the FDA does not award premarket approval for our product\ncandidates through the NDA process, this could have a material adverse effect on our business, financial condition and results of operations.\n\n \n\nThe FDA will accept data from studies performed in other countries,\nas long as the study complies with GCP and ICH guidelines. FDA will review the Phase IIb protocol prior to the start of the study to provide\nadvice on what and how aspects of the trial will be captured. Advice from a pre-IND meeting with the FDA was received in July 2023, which\ninformed the Phase IIb Study design and may also inform the phase III program we plan to do.\n\n \n\n**Clinical trials are expensive, time-consuming, uncertain and\nsusceptible to change, delay or termination. The results of clinical trials are open to differing interpretations.**\n\n \n\nClinical testing is expensive, time consuming, and uncertain as to\noutcome and may be more costly than anticipated due various factors including, but not limited to, regulatory environment, legal compliance,\nsupply and demand of services and inflationary costs. We cannot guarantee that any clinical trials will be conducted as planned or completed\non schedule, or at all. Failures in connection with one or more clinical trials can occur at any stage of testing.\n\n \n\nRegulatory agencies may analyze or interpret the results of clinical\ntrials differently than Psyence. Even if the results of the clinical trials are favorable, the clinical trials for the product candidates\nare expected to continue for several years and may take significantly longer to complete. Events that may prevent successful or timely\ncompletion of clinical development include:\n\n \n\n●delays in reaching a consensus with regulatory authorities\non trial design and other trial related matters;\n\n \n\n●delays in reaching agreement on acceptable terms with prospective\nthird party service providers assisting the CROs in the conduct of the trial;\n\n \n\n●actual or perceived lack of effectiveness of the product\ncandidate during clinical trials;\n\n \n\n●discovery of serious or unexpected toxicities or side effects\nexperienced by trial participants or other safety issues, such as drug interactions;\n\n \n\n●slower than expected rates of subject recruitment and enrollment\nrates in clinical trials;\n\n \n\n●difficulty in retaining subjects for the entire duration\nof applicable clinical studies (as study subjects may withdraw at any time due to adverse side effects from the therapy, insufficient\nefficacy, fatigue with the clinical trial process, death or for any other reason;\n\n \n\n●delays or inability in manufacturing or obtaining sufficient\nquantities of materials for use in clinical trials due to regulatory and manufacturing constraints;\n\n \n\n●inadequacy of or changes in manufacturing process or product\ncandidate formulation;\n\n \n\n●delays in obtaining and maintaining regulatory authorizations,\nincluding “clinical holds” or delays requiring suspension or termination of a trial by a regulatory agency, such as the TGA,\nbefore or after a trial is commenced;\n\n \n\n●changes in applicable regulatory policies and regulation,\nincluding changes to requirements imposed on the extent, nature or timing of studies;\n\n \n\n●uncertainty regarding proper dosing;\n\n \n\n●delay or failure to supply product for use in clinical trials\nwhich conforms to regulatory specification;\n\n \n\n●unfavorable results from ongoing pre-clinical studies and\nclinical trials;\n\n \n\n●failure of the CRO, or other third-party contractors to comply\nwith all contractual requirements or to perform their services in a timely or acceptable manner;\n\n \n\n12\n\n \n\n \n\n●failure by Psyence, its employees, the CRO or its employees\nto comply with all applicable regulatory requirements relating to the conduct of clinical trials;\n\n \n\n●scheduling conflicts with participating clinicians and clinical\ninstitutions;\n\n \n\n●failure to design appropriate clinical trial protocols;\n\n \n\n●regulatory concerns with administering a psychoactive product,\ngenerally, and the potential for abuse;\n\n \n\n●insufficient data to support regulatory approval; and\n\n \n\n●inability or unwillingness of medical investigators to follow\nour clinical protocols; or difficulty in maintaining contact with patients during or after treatment, which may result in incomplete\ndata.\n\n \n\nAny of the foregoing could have a material adverse effect on our business,\nfinancial condition and results of operations.\n\n \n\n**Psyence may be subject to federal, state and foreign healthcare\nlaws and regulations and implementation of or changes to such healthcare laws and regulations could adversely affect Psyence’s business\nand results of operations.**\n\n \n\nIf Psyence successfully completes the requisite preclinical and clinical\ntesting, makes the required regulatory submissions and obtains any corresponding authorizations or licenses (as applicable), fulfills\nall other applicable development-related regulatory obligations, and, eventually, obtains FDA approval to market one or more of its current\nor future product candidates in the United States, Psyence will be subject to certain healthcare laws and regulations. In Australia, the\nU.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system\nin ways that could impact Psyence’s ability to commercialize Psyence’s product candidates. If Psyence were found to be in\nviolation of any of these laws or any other federal, state or foreign regulations, Psyence may be subject to administrative, civil and/or\ncriminal penalties, damages, fines, individual imprisonment, exclusion from federal health care programs and the restructuring of its\noperations. Any of these could have a material adverse effect on its business and financial results. Since many of these laws have not\nbeen fully interpreted by the courts, there is an increased risk that Psyence may be found in violation of one or more of their provisions.\nAny action against Psyence for violation of these laws, even if Psyence is ultimately successful in its defense, will cause Psyence to\nincur significant legal expenses and divert management’s attention away from the operation of the business. In addition, in many\nforeign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control.\n\n \n\n**Serious adverse events or other safety risks could require Psyence\nto abandon development and preclude, delay or limit approval of its current or future product candidates, limit the scope of any approved\nlabel or market acceptance, or cause the recall or loss of marketing approval of products that are already marketed.**\n\n \n\nIf any of Psyence’s current or future product candidates, prior\nto or after any approval for commercial sale, cause serious or unexpected side effects, or are associated with other safety risks such\nas misuse, abuse or diversion, a number of potentially significant negative consequences could result, including:\n\n \n\n●regulatory authorities may interrupt, delay or halt clinical\ntrials;\n\n \n\n●regulatory authorities may deny regulatory approval of future\nproduct candidates;\n\n \n\n●regulatory authorities may require certain labeling statements,\nsuch as warnings or contraindications or limitations on the indications for use, and/or impose restrictions on distribution;\n\n \n\n●regulatory authorities may withdraw their approval, require\nmore onerous labeling statements, or require Psyence may be required to change the way the product is administered or conduct additional\nclinical trials;\n\n \n\n●Psyence’s relationships with its collaboration partners\nmay suffer;\n\n \n\n●Psyence could be sued and held liable for harm caused to\npatients; or\n\n \n\n●Psyence’s reputation could suffer.\n\n \n\nAny of these events could prevent us from achieving or maintaining\nmarket acceptance of our product candidates, if approved, and could significantly harm our business, financial condition, results of operations\nand prospects.\n\n \n\n13\n\n \n\n \n\n**Psyence may voluntarily suspend or terminate a clinical trial\nif at any time its believes that any of its product candidates presents an unacceptable risk to participants, if preliminary data demonstrates\nthat the product candidate is unlikely to receive regulatory approval or unlikely to be successfully commercialized, or if sufficient\nfunds to proceed to the next phases of clinical trials are not raised.**\n\n \n\nAfter obtaining the requisite regulatory authorizations to commence\nor advance clinical trials, Psyence may voluntarily suspend or terminate any of its clinical trials for any number of reasons, including\nif it believes that a product candidate’s use, or a person’s exposure to such product candidate, may cause adverse health\nconsequences or death. In addition, regulatory agencies may at any time recommend the temporary or permanent discontinuation of a clinical\ntrial or request that Psyence cease using investigators in the clinical trials if the agency believes that a clinical trial is not being\nconducted in accordance with applicable regulatory requirements, or that it presents an unacceptable safety risk to participants. If Psyence\nelects or is forced to suspend or terminate a clinical trial of any of its product candidates, the commercial prospects for that product\nwill be harmed and its ability to generate product revenue from such product candidate may be delayed or eliminated. Furthermore, any\nof these events may result in labeling statements such as warnings or contraindications. In addition, such events or labeling could prevent\nPsyence or its partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase\nthe costs of commercializing its future product candidates and impair its ability to generate revenue from the commercialization of these\nproduct candidates either by Psyence or by its collaboration partners.\n\n \n\nThe clinical trial is divided into stages and progression of each stage\nis dependent on governmental approval to proceed to the next stage being furnished by Psyence. Accordingly, if Psyence believes that it\ndoes not have sufficient funds to progress with the next phases of the clinical trials, or for any other reason, Psyence is entitled to\nexercise this discretion in accordance with applicable laws and regulatory compliance and approvals, taking patient risk and safety into\naccount.\n\n \n\n**The success of Psyence’s product candidates and future\napproved products, if any, is subject to a number of constantly-evolving state and federal laws, regulations, and enforcement policies\npertaining to psilocybin containing products.**\n\n \n\nLocal, state, federal, and international psilocybin laws and regulations\nremain highly restrictive and subject to evolving interpretations, which could require Psyence to incur substantial costs associated with\ncompliance requirements. Psyence seeks independent local legal opinions confirming the lawfulness of Psyence’s existing and proposed\nactivities as well as its compliance with legal, regulatory and governmental developments as they pertain to and affect Psyence’s\noperations. In addition, violations of these laws, or allegations of such violations, could disrupt Psyence’s business and result\nin a material adverse effect on Psyence’s operations. In addition, it is possible that regulations may be enacted in the future\nthat will be directly applicable to Psyence’s proposed business regarding the administration of psilocybin or psilocybin-assisted\npsychotherapy. Psyence cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can it determine\nwhat effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its\nactivities in the psychedelics industry.\n\n \n\nThere can be no assurance that Psyence’s product candidates containing\npsilocybin (as the active pharmaceutical ingredient) will be approved for commercialization in Australia, the U.S. or any other target\njurisdiction at any time in the near or distant future. Any regulations the FDA issues relating to the sale, marketing, and/or other activities\ninvolving administration of psilocybin or psilocybin-assisted psychotherapy could have a material adverse effect on Psyence’s business,\nfinancial condition and results of operations.\n\n \n\n**We may seek fast track and breakthrough therapy designations\nor priority review for one or more of our product candidates, but we might not receive such designation or priority review, and even if\nwe do, such designation or priority review may not lead to a faster development or regulatory review or approval process, and does not\nassure FDA approval of our product candidates.**\n\n \n\nWe may seek fast track, breakthrough therapy, and/or regenerative medicine\nadvanced therapy designations or priority review for one or more of our product candidates.\n\n \n\n14\n\n \n\n \n\nThe FDA may issue a fast track designation to a product candidate if\nit is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease\nor condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast track designation\napplies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new biologic may\nrequest that the FDA designate the biologic as a fast track product at any time during the clinical development of the product. For fast\ntrack products, sponsors may have greater interactions with the FDA during product development. A fast track product may also be eligible\nfor rolling review, where the FDA may consider for review sections of the Biologic License Application (“BLA”) on a rolling\nbasis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA,\nthe FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees\nupon submission of the first section of the BLA. However, the FDA’s goal for reviewing a BLA fast track application under the Prescription\nDrug User Fee Act (“PDUFA”) does not begin until the last section of the application is submitted. Fast track designation\nmay be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.\n\n \n\nA breakthrough therapy is defined as a product candidate that is intended,\nalone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical\nevidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically\nsignificant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have\nbeen designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify\nthe most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Product\ncandidates designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the\ntime of the submission of the BLA.\n\n \n\nFast track designation, priority review, and breakthrough therapy designation\nare within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for any such\ndesignation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of such designation may\nexpedite the development or approval process, but do not change the standards for approval. Even if a product qualifies for one or more\nof these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time\nperiod for FDA review or approval will not be shortened.\n\n \n\n**We may seek approval of our product candidates, where applicable,\nunder the FDA’s accelerated approval pathway. This pathway may not lead to a faster development, regulatory review or approval process\nand does not increase the likelihood that our product candidates will receive marketing approval.**\n\n \n\nA product may be eligible for accelerated approval if it is designed\nto treat a serious or life-threatening disease or condition and generally provides a meaningful advantage over available therapies upon\na determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably\nlikely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality (“IMM”),\nthat is reasonably likely to predict an effect on IMM or other clinical benefit. The FDA considers a clinical benefit to be a positive\ntherapeutic effect that is clinically meaningful in the context of a given disease, such as IMM. For the purposes of accelerated approval,\na surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought\nto predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint\nthat can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible\nmorbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new\ndrug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public\nhealth perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent\nmanner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. Under the Food and Drug\nOmnibus Reform Act of 2022 (“FDORA”), the FDA is permitted to require, as appropriate, that a post-approval confirmatory study\nor studies be underway prior to approval or within a specified time period after the date of accelerated approval was granted. FDORA also\nrequires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets,\nand the FDA must promptly post this information publicly. FDORA also gives the FDA increased authority to withdraw approval of a drug\nor biologic granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner, send the\nnecessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit. Under FDORA,\nthe FDA is empowered to take action, such as issuing fines, against companies that fail to conduct with due diligence any post-approval\nconfirmatory study or submit timely reports to the agency on their progress. In addition, the FDA currently requires, unless otherwise\ninformed by the agency, pre-approval of promotional materials for products receiving accelerated approval, which could adversely impact\nthe timing of the commercial launch of the product. Thus, even if we seek to utilize the accelerated approval pathway, we may not be able\nto obtain accelerated approval and, even if we do, we may not experience a faster development, regulatory review or approval process for\nthat product. There can be no assurance that the FDA would allow any of the product candidates we may develop to proceed on an accelerated\napproval pathway, and even if the FDA did allow such pathway, there can be no assurance that such submission or application will be accepted\nor that any expedited development, review or approval will be granted on a timely basis, or at all. Moreover, even if we received accelerated\napproval, any post-approval studies required to confirm and verify clinical benefit may not show such benefit, which could lead to withdrawal\nof any approvals we have obtained. Receiving accelerated approval does not assure that the product’s accelerated approval will eventually\nbe converted to a traditional approval.\n\n \n\n15\n\n \n\n \n\n**Risks Relating to the Psychedelic Therapy Market and Biotechnology\nIndustry**\n\n \n\n**Our business and prospects depend in part on continued favorable\ngovernmental policy toward psychedelic therapies, which is subject to political and administrative uncertainty and could change.**\n\n \n\nRecent improvements in the U.S. federal posture toward psychedelic\ntherapies have been driven substantially by executive action and statements of current officials rather than by legislation. Public reporting\nhas indicated differing views among senior federal health officials regarding the pace and appropriateness of accelerating this class\nof products. Governmental policy, agency leadership, enforcement priorities and the availability of expedited pathways may change, including\nas a result of changes in administration, and any reversal of, or failure to implement, the current favorable posture could adversely\naffect Psyence, the demand for and perception of psychedelic therapies generally, the trading price of Psyence’s securities, and\nPsyence’s ability to raise capital. Conversely, to the extent investor enthusiasm for the psychedelics sector is driven by these\npolicy developments, any disappointment in their implementation could contribute to volatility in the price of Psyence’s securities\nthat is unrelated to Psyence’s own clinical or operational progress.\n\n \n\n**The psychedelic therapy industry and market are relatively new,\nand this industry and market may not continue to exist or grow as anticipated.**\n\n \n\nPsyence operates its business in a relatively new industry and market.\nIn addition to being subject to general business risks, Psyence must continue to build brand awareness in this industry and market through\nsignificant investments in its strategy, operational capacity, quality assurance and compliance with regulations. In addition, there is\nno assurance that the industry and market will continue to exist and grow as currently estimated or anticipated or function and evolve\nin a manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the psychedelic\ntherapy industry and market could have a material adverse effect on Psyence’s business, financial conditions and results of operations.\n\n \n\nPsilocybin is considered scientifically to be the safest of the psychedelics\nand/or drugs of abuse potential. In fact, psilocybin has been described as being anti-addictive and has been studied for the use in substance\naddictive disorders, such as alcohol use disorder, smoking cessation and opioid addiction. Notwithstanding the foregoing, the psychedelic\ntherapy market will face specific marketing challenges given the products’ status as a controlled substance, which has resulted\nin past and current public perception that the products have negative health and lifestyle effects and have the potential to cause physical\nand social harm due to psychoactive and potentially addictive effects. Any marketing efforts by Psyence would need to overcome this perception\nto build consumer confidence, brand recognition and goodwill.\n\n \n\n**Negative public opinion and perception of the psychedelic industry\ncould adversely impact Psyence’s ability to operate and Psyence’s growth strategy.**\n\n \n\nConsumer perception of Psyence’s products may be significantly\ninfluenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the\nconsumption of naturally derived, medicinal-grade psilocybin mushroom products. There can be no assurance that future scientific research,\nfindings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the naturally\nderived medicinal-grade psilocybin mushroom market or any particular product, or consistent with earlier publicity. Future research reports,\nfindings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question,\nearlier research reports, findings or publicity could have a material adverse effect on the demand for Psyence’s envisaged products\nand Psyence’s business, results of operations, financial condition and cash flows. Psyence’s dependence upon consumer perception\nmeans that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether\nor not accurate or with merit, could have a material adverse effect on Psyence, the demand for Psyence’s products, and Psyence’s\nbusiness, results of operations, financial condition and cash flows. Further, adverse publicity reports or other media attention regarding\nthe safety, efficacy and quality of naturally derived medicinal-grade psilocybin mushroom in general, or Psyence’s products specifically,\nor associating the consumption of naturally derived medicinal-grade psilocybin mushroom’s negative effects or events, could have\nsuch a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated\nwith such products resulted from consumers’ failure to consume such products appropriately or as directed.\n\n \n\n16\n\n \n\n \n\n**The expansion of the use of psychedelics in the medical industry\nmay require new clinical research into effective medical therapies.**\n\n \n\nResearch in the UK, Canada, Australia and internationally regarding\nthe medical benefits, viability, safety, efficacy, addictiveness, dosing and social acceptance of psychedelic and psychoactive products\nremains in early stages. There have been relatively few clinical trials on the benefits of such products. Although Psyence believes that\nthe articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance\nof psychedelic and psychoactive products, future research and clinical trials may prove such statements to be incorrect, or could raise\nconcerns regarding, and perceptions relating to, psychedelic and psychoactive products. Future research studies and clinical trials may\ndraw opposing conclusions to those stated in this Report or reach negative conclusions regarding the medical benefits, viability, safety,\nefficacy, dosing, social acceptance or other facts and perceptions related to psychedelic and psychoactive products, which could have\na material adverse effect on the demand for Psyence’s product candidate and psychedelic therapies and a material adverse effect\non Psyence’s business, financial condition and results of operations.\n\n \n\n**The psychedelic therapy industry is difficult to quantify and\ninvestors will be reliant on their own estimates of the accuracy of market data.**\n\n \n\nBecause the psychedelic therapy industry is in a nascent stage with\nuncertain boundaries, there is a lack of information about comparable companies available for potential investors to analyze in deciding\nwhether to invest in Psyence and, few, if any, established companies whose business model Psyence can follow or upon whose success Psyence\ncan build. Accordingly, investors will have to rely on their own estimates in deciding whether to invest in Psyence. There can be no assurance\nthat Psyence’s estimates are accurate or that the market size is sufficiently large for its business to grow as projected, which\nmay negatively impact its financial results.\n\n \n\n**Risks Related to Intellectual Property**\n\n \n\n**Psyence may not be able to adequately protect or enforce its\nintellectual property rights, which could harm its competitive position.**\n\n \n\nPsyence relies upon a combination of patent, copyright, trademark and\ntrade secret laws, as well as nondisclosure agreements, know-how of the scientific team, and other methods, to protect its proprietary\ntechnologies and processes. The strengths of patents in the pharmaceutical field involve complex legal and scientific questions and can\nbe uncertain. Where appropriate, Psyence will seek patent protection for certain aspects of its products and technology. Filing, prosecuting\nand defending patents in a wide range of countries can be prohibitively expensive. If Psyence fails to adequately protect its intellectual\nproperty, it may face competition from companies who attempt to create a generic product to compete with its future product candidates.\nPsyence may also face competition from companies who develop a substantially similar product to its future product candidates that are\nnot covered by any patents.\n\n \n\nWhile Psyence will apply for a number of patents upon the discovery\nor creation of something novel, there can be no assurances that any patents will be issued. Specifically, naturally occurring substances\narising from botanical sources, e.g Psilocybin, cannot be patented. As such, we will be required to rely on other processes such as extraction,\npurification, or formulation in order to establish patents and such processes are not guaranteed to receive issued patents. Even if patents\nare issued, the claims allowed may not be sufficiently broad to protect all of Psyence’s intellectual property. In addition, any\nfuture patents issued to Psyence may be challenged, invalidated or circumvented. As such, any rights granted under these patents may not\nprovide Psyence with meaningful protection. If Psyence’s patents do not adequately protect its intellectual property, competitors\nmay be able to offer products similar to Psyence’s products.\n\n \n\nPsyence will be further dependent, to an extent, on PsyLabs to maintain\nand defend the intellectual property currently being licensed to Psyence under the PsyLabs IP Agreement, and which is relevant for use\nin Psyence’s Phase IIb Study. Any failure on the part of PsyLabs to adequately maintain or defend its intellectual property will\nhave a direct effect on the viability of Psyence’s Australian palliative care clinical trial initiatives.\n\n \n\nPsyence’s strategy is to patent technologies with commercial\npotential in jurisdictions with significant commercial opportunities. However, patent protection may not be available for some of the\nproducts or technologies Psyence is developing, such as in the areas of methods of treatment (which are not patentable in most jurisdictions).\n\n \n\n17\n\n \n\n \n\nThe patent positions of pharmaceutical products are complex and uncertain.\nThe scope and extent of patent protection for future product candidates are particularly uncertain. Protection of Psyence’s future\nproduct candidates will be sought in respect of, among other things, composition-of-matter for specific formulations, methods of use,\nand delivery mechanisms, bearing in mind that patent protection is not available for naturally derived psilocybin alone. If any of Psyence’s\nproducts are approved and marketed for an indication for which it does not have an issued or licensed patent, Psyence’s ability\nto use a patent to prevent a competitor from commercializing a non-branded version of its commercial products for that non-patented indication\ncould be significantly impaired or even eliminated.\n\n \n\nMany companies have encountered significant problems in protecting,\ndefending and enforcing intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain\ndeveloping countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to pharmaceuticals,\nwhich could make it difficult for Psyence to stop the infringement of patents or marketing of competing products in violation of its proprietary\nrights generally. Proceedings to enforce patent rights in foreign jurisdictions may not be successful, could result in substantial cost\nand divert Psyence’s efforts and attention from other aspects of its business.\n\n \n\n**We are dependent on licensed intellectual property. If we were\nto lose our rights to licensed intellectual property, we may not be able to continue developing or commercializing our product candidates,\nif approved.**\n\n \n\nWe do not currently own any patents, and we are heavily reliant upon\na number of license agreements under which we are granted rights to intellectual property that are important to our business and we may\nneed or choose to enter into additional license agreements in the future.\n\n \n\nSpecifically, our business and active Phase IIb Study is highly dependent\non the PsyLabs IP Agreement with PsyLabs for the rights to NPX-5, which expires when terminated by the parties in accordance with a provision\nof the agreement and covers the Phase IIb Study, as well as the Phase III and commercialization phases which will follow therefrom. Until\nwe develop our own product candidates, the termination, non-renewal or hinderance of use of the license granted under the PsyLabs IP Agreement\ncould have a material adverse effect on our ability to develop our product candidates. Furthermore, following the completion of the Phase\nIIb Study, we may be required to enter into a further agreement with PsyLabs with respect to the supply and licensing of alternative drug\nproduct for use in our pivotal Phase III studies in palliative care, and there can be no guarantees that such agreements will be finalized.\nThe Company continues to evaluate its bridging program into Phase III in this regard, which bridging program will require regulatory agency\napproval, and there can be no guarantees that such approvals will be obtained.\n\n \n\nOur existing license agreements impose, and we expect that future license\nagreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties\nand other obligations. If we fail to comply with our obligations under these agreements, the licensor may have the right to terminate\nthe license, in which event we would not be able to market products covered by the license. Our business could suffer, for example, if\nany current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensed patents or other\nrights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms.\n\n \n\nLicensing of intellectual property is of critical importance to our\nbusiness and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual\nproperty subject to a license agreement, including:\n\n \n\n●the scope of rights granted under the license agreement and\nother interpretation-related issues;\n\n \n\n●whether and the extent to which our technology and processes\ninfringe on intellectual property of the licensor that is not subject to the licensing agreement;\n\n \n\n●our right to sublicense patent and other rights to third\nparties;\n\n \n\n●our diligence obligations with respect to the use of the\nlicensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those\ndiligence obligations;\n\n \n\n18\n\n \n\n \n\n●our obligation to pursue, or license others to pursue, development\nof indications we are not currently pursuing;\n\n \n\n●the ownership of inventions and know-how resulting from the\njoint creation or use of intellectual property by our licensors and us and our partners;\n\n \n\n●our right to transfer or assign the license; and\n\n \n\n●the effects of termination.\n\n \n\nIf disputes over intellectual property that we have licensed prevent\nor impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and\ncommercialize the affected product candidates.\n\n \n\nWe may enter into additional licenses to third-party intellectual property\nthat are necessary or useful to our business. Our current licenses and any future licenses that we may enter into may impose various royalty\npayment, milestone, and other obligations on us. Under some license agreements, we may not control prosecution of the licensed intellectual\nproperty, or may not have the first right to enforce the intellectual property. In those cases, we may not be able to adequately influence\npatent prosecution or enforcement, or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. If we fail to comply\nwith any of our obligations under a current or future license agreement, the licensor may allege that we have breached our license agreement,\nand may accordingly seek to terminate our license. Termination of any of our current or future licenses could result in our loss of the\nright to use the licensed intellectual property, which could materially adversely affect our ability to develop and commercialize a product\ncandidate or product, if approved, as well as harm our competitive business position and our business prospects. Under some license agreements,\ntermination may also result in the transfer of or granting in rights under certain of our intellectual property and information related\nto the product candidate being developed under the license, such as regulatory information.\n\n \n\nThe agreements under which we license intellectual property or technology\nto or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution\nof any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant\nintellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement,\neither of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover,\nif disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements\non commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.\n\n \n\nIn addition, if our licensors fail to abide by the terms of the license,\nif the licensors fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable,\nor if we are unable to enter into necessary licenses on acceptable terms, our business could suffer. Moreover, our licensors may own or\ncontrol intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit,\nthat we are infringing, misappropriating or otherwise violating the licensor’s rights.\n\n \n\nSimilarly, if we are unable to successfully obtain rights to required\nthird-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to seek alternative\noptions, such as developing new product candidates with design-around technologies, which may require more time and investment, or abandon\ndevelopment of the relevant research programs or product candidates and our business, financial condition, results of operations and prospects\ncould suffer.\n\n \n\n**If third parties claim that intellectual property owned or used\nby Psyence infringes upon their intellectual property, Psyence’s operating profits could be adversely affected.**\n\n \n\nThere is a substantial amount of litigation, both within and outside\nthe U.S., involving patent and other intellectual property rights in the pharmaceutical industry. Psyence may, from time to time, be notified\nof claims that Psyence is infringing upon patents, trademarks, copyrights or other intellectual property rights owned by third parties,\nand Psyence cannot provide assurances that other companies will not, in the future, pursue such infringement claims against it, its commercial\npartners or any third-party proprietary technologies it has licensed. If Psyence were found to infringe upon a patent or other intellectual\nproperty right, or if Psyence failed to obtain or renew a license under a patent or other intellectual property right from a third party,\nor if a third party that Psyence were licensing technologies from was found to infringe upon a patent or other intellectual property rights\nof another third party, Psyence may be required to pay damages, suspend the manufacture of certain products or reengineer or rebrand its\nproducts, if feasible, or it may be unable to enter certain new product markets. Any such claims could also be expensive and time-consuming\nto defend and divert management’s attention and resources. Psyence’s competitive position could suffer as a result. In addition,\nif Psyence has declined or failed to enter into a valid non-disclosure or assignment agreement for any reason, Psyence may not own the\nintellectual property, and its products may not be adequately protected. Thus, Psyence cannot guarantee that any of its future product\ncandidates, or its commercialization thereof, does not and will not infringe any third party’s intellectual property.\n\n \n\n19\n\n \n\n \n\n**We may infringe the intellectual property rights of others, which\nmay prevent or delay our product development efforts and stop us from commercializing, or increase the costs of commercializing our product\ncandidates.**\n\n \n\nOur success will depend in part on our ability to operate without infringing\nthe proprietary rights of third parties. We are not aware of any third-party proprietary rights that our planned products will infringe\nor misappropriate, but we have not conducted any freedom to operate study as we are in the earliest stages of development. We thus cannot\nguarantee that our product candidates, or manufacture or use of our product candidates, will not infringe third-party patents. Furthermore,\na third party may claim that we are using inventions covered by the third party’s patent rights and may go to court to stop us from\nengaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could\naffect our results of operations and divert the attention of managerial and scientific personnel. Some of these third parties may be better\ncapitalized and have more resources than us. There is a risk that a court would decide that we are infringing the third party’s\npatents and would order us to stop the activities covered by the patents. In that event, we may not have a viable way around the patent\nand may need to halt commercialization of our product candidates. In addition, there is a risk that a court will order us to pay the other\nparty damages for having violated the other party’s patents. In addition, we may be obligated to indemnify our licensors and collaborators\nagainst certain intellectual property infringement claims brought by third parties, which could require us to expend additional resources.\nThe pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants,\nincluding us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by\nthe courts, and the interpretation is not always uniform.\n\n \n\nIf we are sued for patent infringement, we would need to demonstrate\nthat our product candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid,\nand we may not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of\nclear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings,\nwe may incur substantial costs and diversion of management’s time and attention in pursuing these proceedings, which could have\na material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license,\nwhich may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly\nand time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not\nobtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents\ndeclared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market\nand be precluded from manufacturing or selling our product candidates.\n\n \n\nSome of our competitors may be able to sustain the costs of complex\npatent litigation more effectively than us or the third parties from whom we license intellectual property because they have substantially\ngreater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material\nadverse effect on our ability to raise the funds necessary to continue our operations.\n\n \n\n**If Psyence is not able to adequately prevent disclosure of trade\nsecrets and other proprietary information, the value of its products could be significantly diminished.**\n\n \n\nPsyence relies, to an extent, on trade secrets to protect its proprietary\nlicensed intellectual property, especially where it does not believe patent protection is appropriate or obtainable. However, trade secrets\nare difficult to protect. Psyence relies in part on confidentiality agreements and restraints of trade with its current and former employees,\nconsultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and other advisors, as well as similar\nconfidentiality protections benefiting its strategic partners and licensors to protect Psyence’s owned and licensed trade secrets\nand other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide\nan adequate remedy in the event of unauthorized disclosure of confidential information. In addition, Psyence cannot guarantee that it,\nnor its strategic and business partners, have executed these agreements with each party that may have or have had access to owned and\nlicensed trade secrets. Any party with whom Psyence or strategic and business partners have executed such an agreement may breach that\nagreement and disclose proprietary information, including owned and licensed trade secrets, and adequate remedies for such breaches may\nnot be available.\n\n \n\n20\n\n \n\n \n\nEnforcing a claim that a party illegally disclosed or misappropriated\na trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside\nthe U.S. are less willing or unwilling to protect trade secrets. If any of Psyence’s owned or licensed trade secrets were to be\nlawfully obtained or independently developed by a competitor, Psyence would have no right to prevent them, or those to whom they disclose\nsuch trade secrets, from using that technology or information to compete with it. If any of Psyence’s owned and licensed trade secrets\nwere to be disclosed to or independently developed by a competitor or other third-party, Psyence’s competitive position would be\nharmed.\n\n \n\n**Risks Related to Ownership of Our Securities**\n\n \n\n**Future sales of our securities by existing holders could cause\nour stock price to decline.**\n\n \n\nIf we or our existing holders sell, or indicate an intent to sell,\nsubstantial amounts of our Common Shares or securities convertible into our Common Shares in the public market, or if the public perceives\nthat such sales could occur, this could have an adverse impact on the market price of our Common Shares, even if there is no relationship\nbetween such sales and the performance of our business. We also intend to register all Common shares that we may issue under our Incentive\nPlan. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable\nto affiliates.\n\n \n\n**If we fail to meet applicable continued listing requirements,\nNasdaq may delist our Common Shares from trading, in which case the liquidity and market price of our Common Shares could decline.**\n\n \n\nWe cannot assure you that we will be able to meet the continued listing\nstandards of Nasdaq in the future. On March 11, 2024, we received two letters from the Nasdaq staff, one notifying the Company that for\nthe last 30 consecutive business days, the Company’s Market Value of Listed Securities was below the minimum of $50 million required\nfor continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A), and the other notifying the Company that\nfor the last 30 consecutive business days, the Company’s Market Value of Publicly Held Shares was below the minimum of $15 million\nrequired for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(C). Additionally, on June 27, 2024,\nwe received a notification letter from the Nasdaq staff notifying the Company that the Company’s closing bid price per share was\nbelow $1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum bid price requirement set forth\nin Nasdaq Listing Rule 5450(a)(1). On November 20, 2024, we announced the favorable outcome of the Nasdaq Listing Qualifications Hearing\nthat was held on October 31st, 2024. The Nasdaq Hearings Panel granted the Company an extension until December 31st, 2024, to demonstrate\ncompliance with all Nasdaq continued listing rules. During the Company’s Nasdaq Listing Qualifications Hearing, we presented a comprehensive\nplan to regain and maintain compliance with Nasdaq’s continued listing requirements, including 5550(a)(2), the $1 minimum bid price\nrequirement, 5550(a)(5), the $1.0 million minimum market value of publicly held shares requirement, and 5550(b)(1), the $2.5 million minimum\nstockholders’ equity requirement.\n\n \n\nAs part of its plan, we\nrequested to be transferred from The Nasdaq Global Market to The Nasdaq Capital Market pursuant to a panel exception, effective\nNovember 15th, 2024. Furthermore, as previously announced, we obtained shareholder approval during the Annual Meeting held on\nNovember 12th, 2024, to effect a 75-for-1 share consolidation, which became effective on November 26, 2024, and we obtained\nstockholder approval during a Special Meeting held on April 16, 2025, to effect a 7.97-for-1 share consolidation, which became\neffective on May 5, 2025 and to effect a 6.25-for-1 share consolidation, which became effective on February 2, 2026, in each case to satisfy Nasdaq’s $1 minimum bid price requirement. There can be no assurance that\nany reverse share consolidation will produce a lasting increase in the trading price of the Common Shares; a reverse consolidation\nmay be followed by further price declines and may reduce the liquidity and increase the volatility of the Common Shares.\n\n \n\nOn April 16, 2025, the Company received a notification letter from\nthe Listings Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that\nthe Company was not in compliance with the $1.00 Minimum Bid Price Rule. The Staff’s determination was based on the closing bid\nprice of the Company’s common shares being below $1.00 for 30 consecutive business days from March 5, 2025 through April 15, 2025.\nOn June 17, 2025, the Company announced it had received formal notification from the Nasdaq Hearings Panel confirming that the Company\nhas regained compliance with all applicable Nasdaq continued listing requirements, following a successful compliance hearing held on May\n29, 2025.\n\n \n\n21\n\n \n\n \n\nIf we fail to comply with the applicable listing standards and Nasdaq\ndelists our Common Shares, we and our shareholders could face significant material adverse consequences, including:\n\n \n\n●a limited availability of market quotations for our Common\nShares;\n\n \n\n●reduced liquidity for our Common Shares;\n\n \n\n●a determination that our Common Shares are “penny stock”,\nwhich would require brokers trading in our Common Shares to adhere to more stringent rules and possibly result in a reduced level of\ntrading activity in the secondary trading market for our Common Shares;\n\n \n\n●a limited amount of news about us and analyst coverage of\nus; and\n\n \n\n●a decreased ability for us to issue additional equity securities\nor obtain additional equity or debt financing in the future.\n\n \n\nThe National Securities Markets Improvement Act of 1996, which is a\nfederal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered\nsecurities.” Because our Common Shares and Public Warrants are listed on Nasdaq, such securities are covered securities. Although\nthe states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies\nif there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered\nsecurities in a particular case. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we\nwould be subject to regulations in each state in which we offer our securities.\n\n \n\n**The market price and trading volume of the Common Shares may\nbe volatile and could decline significantly.**\n\n \n\nThe stock markets, including Nasdaq, on which the Company lists its\nsecurities, have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading\nmarket develops and is sustained for the Common Shares, the market prices of the Common Shares may be volatile and could decline significantly.\nIn addition, the trading volumes in the Common Shares may fluctuate and cause significant price variations to occur. There can be no assurance\nthat the market prices of the Common Shares will not fluctuate widely or decline significantly in the future in response to a number of\nfactors, including, among others, the following:\n\n \n\n●the realization of any of the risk factors presented in this\nReport;\n\n \n\n●actual or anticipated differences in our estimates, or in\nthe estimates of analysts, for the Company’s revenues, results of operations, cash flows, liquidity or financial condition;\n\n \n\n●announcements by the Company or its competitors of significant\nbusiness developments;\n\n \n\n●changes in customers;\n\n \n\n●acquisitions or expansion plans;\n\n \n\n●the Company’s involvement in litigation;\n\n \n\n●sale of Common Shares or other securities in the future;\n\n \n\n●market conditions in the Company’s industry;\n\n \n\n●changes in key personnel;\n\n \n\n●the trading volume of Common Shares;\n\n \n\n●actual, potential or perceived control, accounting or reporting\nproblems;\n\n \n\n●changes in accounting principles, policies and guidelines;\n\n \n\n22\n\n \n\n \n\n●other events or factors, including but not limited to those\nresulting from infectious diseases, health epidemics and pandemics (including but not limited to the COVID-19 pandemic), natural disasters,\nwar, acts of terrorism or responses to these events; and\n\n \n\n●general economic and market conditions.\n\n \n\nIn addition, the stock markets have experienced extreme price and volume\nfluctuations. Broad market and industry factors may materially harm the market price of the Common Shares, regardless of our operating\nperformance. In the past, following periods of volatility in the market price of a company’s securities, securities class action\nlitigation has often been instituted against that company. If the Company were involved in any similar litigation it could incur substantial\ncosts and our management’s attention and resources could be diverted.\n\n \n\n**Our Warrants are exercisable for Common Shares, which would increase\nthe number of shares eligible for future resale in the public market and result in dilution to our shareholders.**\n\n \n\nAn aggregate of 45,112 Common Shares are issuable upon exercise of\nwarrants, including 3,169 Common Shares issuable upon exercise of Public Warrants, 153 Common shares issuable upon exercise of Private\nWarrants, 134 Common shares issuable upon exercise of Addendum Private Warrants, 20,075 Common Shares issuable upon exercise of Series\nA Warrants, 20,075 Common Shares issuable upon exercise of Series B Warrants, and 1,506 Common Shares Issuable upon exercise of the Placement\nAgent Warrants. These Public Warrants and Private Warrants are currently exercisable at an exercise price of $42,963.28 per share, the\nAddendum Private Warrants $1,867.97 per share, the Series A Warrants and Series B Warrants at $99.63 per Common Share, and the Placement\nAgent Warrants at $124.53 per Common Share and each contain 4.99% beneficial ownership limitations that may be waived at the option of\neach holder upon 61 days’ notice to the Company, but in no event may such beneficial ownership limitation exceed 19.99% of the number\nof outstanding Common Shares. To the extent such warrants are exercised, 45,112 additional Common Shares will be issued, representing\napproximately 1.18% of our current outstanding Common Shares and could result in dilution to the holders of Common Shares and increase\nthe number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the\nfact that such Warrants may be exercised could adversely affect the market price of Common Shares. Notwithstanding the foregoing, because\nthe Nasdaq official closing price of our Common Shares was $3.09 on June 17, 2026, the Private Warrants and Public Warrants\nare currently “out-of-the-money” and it is unlikely that any of the Warrants will be exercised by holders anytime in the near\nfuture.\n\n \n\n**If securities or industry analysts do not publish research, publish\ninaccurate or unfavorable research or cease publishing research about the Company, its share price and trading volume could decline significantly.**\n\n \n\nThe trading market for Common Shares depends, in part, on the research\nand reports that securities or industry analysts publish about the Company or its business. The Company may be unable to sustain coverage\nby well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts maintain\ncoverage of the Company, or if these securities or industry analysts are not widely respected within the general investment community,\nthe demand for Common Shares could decrease, which might cause its share price and trading volume to decline significantly. In the event\nthat the Company obtains securities or industry analyst coverage or, if one or more of the analysts who cover the Company downgrade their\nassessment of the Company or publish inaccurate or unfavorable research about the Company’s business, the market price and liquidity\nfor Common Shares could be negatively impacted.\n\n \n\n**The requirements of being a public company may strain the Company’s\nresources, divert the Company management’s attention and affect the Company’s ability to attract and retain qualified board\nmembers.**\n\n \n\nThe Company has incurred and will continue to incur additional legal,\naccounting and other expenses since becoming a public company. The Company is subject to the reporting requirements of the Exchange Act,\nthe Sarbanes-Oxley Act, the Dodd-Frank Act, the Nasdaq listing requirements and other applicable securities rules and regulations. These\nexpenses may increase even more if the Company no longer qualifies as an “emerging growth company,” as defined in Section\n2(a) of the Securities Act. The Exchange Act requires that we file annual and other material reports with respect to our businesses, financial\ncondition, and results of operations. In addition, we must establish the corporate infrastructure necessary for operating a public company,\nwhich may divert our management’s attention from implementing our growth strategy, which could delay or slow the implementation\nof our business strategies, and in turn negatively impact our financial condition and results of operations.\n\n \n\n23\n\n \n\n \n\nChanging laws, regulations and standards relating to corporate governance\nand public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities\nmore time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of\nspecificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing\nbodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to\ndisclosure and governance practices. The Company expects these laws and regulations to increase its legal and financial compliance costs\nand to render some activities more time-consuming and costly, although the Company is currently unable to estimate these costs with any\ndegree of certainty.\n\n \n\nThe Company’s management team has limited experience managing\na publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public\ncompanies. The Company’s management team may not successfully or efficiently manage the transition to being a public company subject\nto significant regulatory oversight and reporting obligations under the federal securities laws and regulations and the continuous scrutiny\nof securities analysts and investors. The need to establish the corporate infrastructure demanded of a public company may divert the management’s\nattention from implementing its growth strategy, which could prevent the Company from improving its business, financial condition and\nresults of operations. Furthermore, the Company expects these rules and regulations to make it more difficult and more expensive for the\nCompany to maintain director and officer liability insurance, and consequently the Company may be required to incur substantial costs\nto obtain such coverage. These additional obligations could have a material adverse effect on its business, financial condition, results\nof operations and prospects. These factors could also make it more difficult for the Company to attract and retain qualified members of\nits Board, particularly to serve on the Company’s audit committee, compensation committee and nominating and corporate governance\ncommittee, and qualified executive officers.\n\n \n\nAs a result of disclosure of information in this Report and in filings\nrequired of a public company, the Company’s business and financial condition will become more visible, which may result in threatened\nor actual litigation, including by competitors and other third parties. If such claims are successful, the Company’s business and\noperating results could be adversely affected, and, even if the claims do not result in litigation or are resolved in the Company’s\nfavor, these claims, and the time and resources necessary to resolve them, could have an adverse effect on its business, financial condition,\nresults of operations and prospects.\n\n* *\n\n**The Company is an “emerging growth company,” and\nit cannot be certain if the reduced SEC reporting requirements applicable to emerging growth companies will make the Company’s Common\nShares less attractive to investors, which could have a material and adverse effect on the Company, including its growth prospects.**\n\n \n\nThe Company is an “emerging growth company” as defined\nin the JOBS Act. The Company will remain an “emerging growth company” until the earliest to occur of (i) the last day of the\nfiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective\nregistration statement under the Securities Act, (b) in which the Company has total annual gross revenue of at least $1.235 billion or\n(c) in which the Company is deemed to be a large accelerated filer, which means the market value of Common Shares held by non-affiliates\nexceeds $700 million as of the last business day of the Company’s prior second fiscal quarter, and (ii) the date on which the Company\nissued more than $1.0 billion in non-convertible debt during the prior three-year period. The Company intends to take advantage of exemptions\nfrom various reporting requirements that are applicable to most other non “emerging growth companies” including, but not limited\nto, an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that the Company’s independent registered\npublic accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting and reduced\ndisclosure obligations regarding executive compensation, and exemptions from the requirements of holding a non-binding advisory vote on\nexecutive compensation and shareholder approval of any golden parachute payments not previously approved.\n\n \n\n24\n\n \n\n \n\nFurthermore, even after the Company no longer qualifies as an “emerging\ngrowth company,” as long as the Company continues to qualify as a foreign private issuer under the Exchange Act, the Company will\nbe exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, as described under “—The\nCompany qualifies as a foreign private issuer …” below. As a result, the Company shareholders may not have access to certain\ninformation they deem important. The Company cannot predict if investors will find Common Shares less attractive because it relies on\nthese exemptions. If some investors do find Common Shares less attractive as a result, there may be a less active trading market and share\nprice for Common Shares may be more volatile.\n\n \n\n**The Company qualifies as a foreign private issuer within the\nmeaning of the rules under the Exchange Act, and as such the Company is exempt from certain provisions applicable to United States domestic\npublic companies.**\n\n \n\nBecause the Company qualifies as a foreign private issuer under the\nExchange Act, the Company is exempt from certain provisions of the securities rules and regulations in the United States that are applicable\nto U.S. domestic issuers, including, but not limited to: (i) the rules under the Exchange Act requiring the filing of quarterly reports\non Form 10-Q and current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies,\nconsents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring\ninsiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made\nin a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.\n\n \n\nThe Company is required to file an annual report on Form 20-F within\nfour months of the end of each fiscal year. Press releases relating to financial results and material events will also be furnished to\nthe SEC on Form 6-K. However, the information the Company is required to file with or furnish to the SEC will be less extensive and less\ntimely compared to that required to be filed with the SEC by U.S. domestic issuers. Accordingly, if you continue to hold Common Shares,\nyou may receive less or different information about the Company than you would receive about a U.S. domestic public company.\n\n \n\n**The Company may lose its foreign private issuer status which\nwould then require it to comply with the domestic reporting regime of the Exchange Act and cause us to incur significant additional legal,\naccounting and other expenses.**\n\n \n\nAs discussed above, the Company is a foreign private issuer and therefore\nis not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and may take advantage\nof certain exemptions to Nasdaq’s corporate governance rules. The determination of foreign private issuer status is made annually\non the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination\nwill be made with respect to the Company on September 30, 2026. In the future, the Company would lose its foreign private issuer status\nif (1) more than 50% of its outstanding voting securities are owned by U.S. residents and (2) a majority of its directors or executive\nofficers are U.S. citizens or residents, or it fails to meet additional requirements necessary to avoid loss of foreign private issuer\nstatus. If the Company loses its foreign private issuer status, it will be required to file with the SEC periodic reports and registration\nstatements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer.\nThe Company would also have to mandatorily comply with U.S. federal proxy requirements, and its officers, directors and principal shareholders\nwill become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, it would\nlose its ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq. As a U.S. listed\npublic company that is not a foreign private issuer, the Company could incur significant additional legal, accounting and other expenses\nthat it will not incur as a foreign private issuer.\n\n \n\n**Psyence currently reports financial results under IFRS® Accounting\nStandards as issued by the International Accounting Standards Board, which differs in certain significant respects from U.S. GAAP.**\n\n \n\nPsyence currently reports financial results under IFRS. There are and\nthere may in the future be certain significant material differences between IFRS and U.S. GAAP. As a result, financial information and\nreported earnings of Psyence for historical or future periods could be significantly different if they were prepared in accordance with\nU.S. GAAP. In addition, the Company does not intend to provide a reconciliation between IFRS and U.S. GAAP unless it is required under\napplicable law. As a result, you may not be able to meaningfully compare our financial statements under IFRS with those of companies that\nprepare financial statements under U.S. GAAP.\n\n \n\n25\n\n \n\n \n\n**If we are classified as a passive foreign investment company,\nUnited States taxpayers who own our Common Shares may have adverse United States federal income tax consequences.**\n\n \n\nA non-U.S. corporation such as ourselves will be classified as a passive\nforeign investment company, which is known as a PFIC, for any taxable year if, for such year, either\n\n \n\n●At least 75% of our gross income for the year is passive\nincome; or\n\n \n\n●The average percentage of our assets (determined at the end\nof each quarter) during the taxable year which produces passive income or which are held for the production of passive income is at least\n50%.\n\n \n\nPassive income generally includes dividends, interest, rents, royalties\n(other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.\n\n \n\nIf we are determined to be a PFIC for any taxable year (or portion\nthereof) that is included in the holding period of a U.S. taxpayer who holds our Common Shares, the U.S. taxpayer may be subject to increased\nU.S. federal income tax liability and may be subject to additional reporting requirements.\n\n \n\nDepending on the amount of our cash and other assets held for the production\nof passive income, it is possible that, for our current taxable year or for any subsequent year, more than 50% of our assets may be assets\nwhich produce passive income. We will make this determination following the end of any particular tax year. Although the law in this regard\nis unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only\nbecause we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their\neconomic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. For purposes of\nthe PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity\nin which it is considered to own, directly or indirectly, at least 25% of the equity by value. Our status as a PFIC is a fact-intensive\ndetermination made on an annual basis, and no opinion of counsel has or will be provided regarding our classification as a PFIC.\n\n \n\nFor a more detailed discussion of the application of the PFIC rules\nto us and the consequences to U.S. taxpayers who own our Common Shares if we were determined to be a PFIC, see “Material U.S. Federal\nIncome Tax Considerations for U.S. Holders — Passive Foreign Investment Company Rules.”\n\n \n\n**You may face difficulties in protecting your interests, and your\nability to protect your rights through U.S. courts may be limited, because the Company is incorporated under the laws of Canada, the Company\nconducts substantially all of its operations and a majority of its directors and executive officers reside outside of the United States.**\n\n \n\nThe Company is a corporation incorporated under the laws of Canada,\nand conducts a majority of its operations through its subsidiaries outside the United States. Substantially all of the Company’s\nassets are located outside the United States. A majority of the Company’s officers and directors reside outside the United States\nand a substantial portion of the assets of those persons are located outside of the United States. As a result, it could be difficult\nor impossible for you to bring an action against the Company or against these individuals outside of the United States in the event that\nyou believe that your rights have been infringed upon under the applicable securities laws or otherwise and it will be difficult to effect\nservice of process within the United States upon the Company’s officers or directors, or enforce judgments obtained in United States\ncourts against the Company’s officers or directors. Even if you are successful in bringing an action of this kind, the laws of Ontario\ncould render you unable to enforce a judgment against the Company’s assets or the assets of the Company’s directors and officers.\n\n \n\n26\n\n \n\n \n\n**The Articles of Incorporation and certain Canadian legislation\ncontain provisions that may have the effect of delaying or preventing a change in control.**\n\n \n\nCertain provisions of the Articles of Incorporation, together or separately,\ncould discourage potential acquisition proposals, delay or prevent a change in control and limit the price that certain investors may\nbe willing to pay for our common shares. For instance, our Articles of Incorporation contain provisions that establish certain advance\nnotice procedures for nomination of candidates for election as directors at shareholders’ meetings.\n\n \n\nIn addition, a non-Canadian must file an application for review with\nthe Minister responsible for the Investment Canada Act and obtain approval of the Minister prior to acquiring control of a “Canadian\nBusiness” within the meaning of the Investment Canada Act, where prescribed financial thresholds are exceeded. Finally, limitations\non the ability to acquire and hold our common shares may be imposed by the Competition Act (Canada). The Competition Act (Canada) establishes\na pre-merger notification regime for certain types of merger transactions that exceed certain statutory shareholding and financial thresholds.\nTransactions that are subject to notification cannot be closed until the required materials are filed and the applicable statutory waiting\nperiod has expired or been waived by the Commissioner. The Commissioner of Competition still retains the authority under the Competition\nAct (Canada) to review any acquisition or establishment, directly or indirectly, including through the acquisition of shares, of control\nover or of a significant interest in us, whether or not it is subject to mandatory notification. Otherwise, there are no limitations either\nunder the laws of Canada or Ontario, or in our articles on the rights of non-Canadians to hold or vote our common shares. Any of these\nprovisions may discourage a potential acquirer from proposing or completing a transaction that may have otherwise presented a premium\nto our shareholders. We cannot predict whether investors will find our company and our Common Shares less attractive because we are governed\nby foreign laws.\n\n \n\n**It is not expected that the Company will pay dividends in the\nforeseeable future.**\n\n \n\nIt is expected that the Company will retain most, if not all, of its\navailable funds and any future earnings to fund the development and growth of its business. In addition, the Company is a holding company\nand its subsidiaries are located abroad. Part of the Company’s primary internal sources of funds to meet its cash needs will be\nits share of the dividends, if any, paid by the Company’s subsidiaries. The distribution of dividends to the Company from the subsidiaries\nin certain markets where the Company operates is subject to restrictions imposed by the applicable laws and regulations in these markets.\nAs a result, it is not expected that the Company will pay any cash dividends in the foreseeable future.\n\n \n\nThe Board has complete discretion\nas to whether to distribute dividends. Even if the Board decides to declare and pay dividends, the timing, amount and form of future\ndividends, if any, will depend on the future results of operations and cash flow, capital requirements and surplus, the amount of distributions,\nif any, received by the Company from subsidiaries, the Company’s financial condition, contractual restrictions and other factors\ndeemed relevant by the Board. There is no guarantee that the Common Shares will appreciate in value or that the trading price of the\nCommon Shares will not decline. Holders of the Common Shares should not rely on an investment in Common Shares as a source for any future\ndividend income.\n\n \n\n27"}