Clearmind Medicine

Kurta Law is investigating broker recommendations of Clearmind Medicine. This high-risk investment may not have been suitable for many investors. Under regulations like FINRA Rule 2111 and Regulation Best Interest, brokers must only recommend investments that are suited to their client’s risk profile.

If you lost money on your investment in Clearmind Medicine, consider contacting a securities attorney. Contact us at (877) 600-0098 or email info@kurtalawfirm.com to speak to one of our securities attorneys for free today.

What is Clearmind Medicine?

According to the prospectus, Clearmind Medicine Inc. (CMND) is a preclinical pharmaceutical company that develops psychedelic medications intended to treat mental health disorders, eating disorders, and alcohol use disorders (AUDs) and binge drinking.

The prospectus states that the company’s short-term focus is on conducting preclinical studies on how 5-Methoxy-2-aminoindane (MEAI) affects alcohol consumption. MEAI is a synthetic psychoactive molecule that interacts with serotonergic receptors which are believed to play a role in alcohol dependence and the control of other cravings.

Nasdaq Delisting Notice

On November 17, 2023, Clearmind Medicine received a notice from the Listing Qualifications Department of the Nasdaq Stock Market that the company’s stock had fallen below a minimum closing bid price of $1.00 per share for thirty consecutive days. This placed the company at risk of being delisted from Nasdaq.

In response, Clearmind Medicine enacted a 1-for-30 reverse share split to improve its share price and announced its return to compliance with Nasdaq standards on December 14, 2023.

What are the Risks Associated with Clearmind Medicine?

Pharmaceutical companies frequently face an uphill battle when it comes to developing and receiving approval for new drugs. These companies often rely on external financing to stay afloat while conducting clinical trials.

In its stock prospectus, Clearmind Medicine discloses a long list of risks. The company states that it has “incurred losses since [its] inception” and “will incur significant losses for the foreseeable future.” Given that it has no current products on the market, it has “never generated any revenue from product sales,” and may never become profitable even if its products are approved.

Outcome of Clinical Trials

As a preclinical stage company, Clearmind Medicine has not yet received approval to begin testing its product candidates on human subjects. Even after preclinical studies are complete, these products may not necessarily be approved for clinical trials, and these trials may not prove the effectiveness of the products.

With regard to the psychedelic substances in MEAI, the FDA may determine that MEAI is a controlled substance, which may make commercialization difficult or impossible.

Drugs that target central nervous system disorders also have a “higher failure rate […] compared with most other areas of drug discovery,” making potential clinical trials especially challenging.

Changes in Business Classification

At the time of the prospectus, Clearmind Medicine was classified as an emerging growth company, which means it could take advantage of reduced financial reporting requirements. This could make it more difficult for investors to evaluate the company’s financial situation and how it compensates executives.

However, the prospectus notes that the company could become reclassified as a passive foreign investment company (PFIC) if either at least 75% of its gross income is passive or at least 50% of the value of its assets is produced by assets producing passive income.

Reclassification could have unwanted tax consequences for investors, including “having gains realized on the sale of [its] Common Shares treated as ordinary income, rather than capital gain.”

Since Clearmind Medicine does not expect to generate revenue in the near future, it is likely to be classified as a PFIC.

Reliance on Third Parties

Clearmind Medicine relies on third parties to help conduct its preclinical studies and potential clinical trials, and any disputes with collaborators could delay these studies. Collaborators may also own or co-own intellectual property relating to products developed with Clearmind Medicine, which could complicate the company’s attempts to commercialize these products or lead to intellectual property disputes.

Additionally, these third parties may not conduct preclinical and clinical studies according to FDA requirements, meet deadlines, or may choose to terminate their contracts.

Because Clearmind Medicine has no “infrastructure or capability internally to manufacture drug supplies” for its clinical trials, it also “lack[s] the resources to manufacture any product candidates on a commercial scale.” This leads to a reliance on third-party manufacturers, and similar risks involving quality control, delays, and intellectual property disputes.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

What Can I Do If I Suffered Losses?

If you believe Clearmind Medicine was overly risky for your risk profile, consider contacting a Kurta Law securities attorney for a consultation. Our experienced attorneys have 5-star reviews on Google and a reputation for achieving fair settlements for our clients. Call (877) 600-0098 or email info@kurtalawfirm.com.