UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

| | x | QUARTERLY
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | --------------------------------------------------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2015



| |  ̈ | TRANSITION
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------------------------------------------------



For the transition period from ______ to _______



Commission File Number: 001-37426



CYNAPSUS THERAPEUTICS
INC.

(Exact name of registrant as specified
in its charter)



|Canada
        (State or other jurisdiction
        of incorporation or organization)                               | 98-1226819
        (I.R.S.
        Employer
        Identification No.)
|------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------
|                                                                                                                    |                                                                        
|828 Richmond Street West,
        Toronto, Ontario, Canada
        (Address of principal executive
        offices) | M6J 1C9
        (zip
        code)                                     
|                                                                                                                   
|416-703-2449
        (Registrant’s telephone number,
        including area code)                                  



Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes  ̈ No x



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes  ̈ No  ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.



|Large accelerated filer  ̈                                            | Accelerated filer  ̈        
|-------------------------------------------------------------------- | ---------------------------
|Non-accelerated filer x(Do not check if a smaller reporting company) | Smaller reporting company  ̈



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No x



As of August 13, 2015, there were 12,117,301
common shares, no par value per share, of Cynapsus Therapeutics Inc. outstanding.










CYNAPSUS THERAPEUTICS
INC.



FORM 10-Q

TABLE OF CONTENTS



|                                                                              | Page                                                                                                                        
|----------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|                                                                              |                                                                                                                             
|general
    matters                                                           | 1                                                                                                                           
|                                                                              |                                                                                                                             
|Special
    Note Regarding Forward-Looking statements                         | 2                                                                                                                           
|                                                                              |                                                                                                                             
|PART
                                         I
        FINANCIAL INFORMATION |                                                                                                                             
|                                                                              |                                                                                                                             
|ITEM 1.                                                                       | FINANCIAL
    STATEMENTS.                                                                                                   
|                                                                              |                                                                                                                             
|                                                                              | Interim Consolidated Statements of Financial
    Position as of June 30, 2015 and December 31, 2014                         
|                                                                              |                                                                                                                             
|                                                                              | Interim Consolidated Statements of Loss and
    Comprehensive Loss for the three and six months ended June 30, 2015 and 2014
|                                                                              |                                                                                                                             
|                                                                              | Interim Consolidated Statements of Changes
    in Equity for the six months ended June 30, 2015 and 2014                    
|                                                                              |                                                                                                                             
|                                                                              | Interim Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014                               
|                                                                              |                                                                                                                             
|                                                                              | Notes to the Unaudited Condensed Interim Consolidated
    Financial Statements                                              
|                                                                              |                                                                                                                             
|ITEM 2.                                                                       | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS                                   
|                                                                              |                                                                                                                             
|ITEM 3.                                                                       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                  
|                                                                              |                                                                                                                             
|ITEM 4.                                                                       | CONTROLS AND PROCEDURES                                                                                                     
|                                                                              |                                                                                                                             
|PART
                                         II
        OTHER INFORMATION    |                                                                                                                             
|                                                                              |                                                                                                                             
|ITEM 1A.                                                                      | RISK FACTORS                                                                                                                
|                                                                              |                                                                                                                             
|ITEM 2.                                                                       | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                 
|                                                                              |                                                                                                                             
|ITEM 6.                                                                       | EXHIBITS                                                                                                                    
|                                                                              |                                                                                                                             
|SIGNATURES                                                                    | 76                                                                                                                          
|                                                                              |                                                                                                                             
|EXHIBIT INDEX                                                                 | 77                                                                                                                          



i







GENERAL
MATTERS



In this Quarterly Report on Form 10-Q,
unless the context otherwise requires, the terms “Cynapsus,” “we,” “us” and “our”
refer to Cynapsus Therapeutics Inc. and our wholly-owned subsidiary, Adagio Pharmaceuticals Ltd., or Adagio.



Cynapsus, a corporation organized under
the federal laws of Canada, qualifies as a foreign private issuer in the U.S. for purposes of the United States Securities Exchange
Act of 1934, as amended, or the Exchange Act. Although, as a foreign private issuer, we are not required to do so, we currently
file quarterly reports on Form 10-Q and current reports on Form 8-K, and we will file annual reports on Form 10-K, with the United
States Securities and Exchange Commission, or the SEC, instead of filing the reporting forms available to foreign private issuers.



Unless otherwise noted herein, all references
to “$,” “Cdn$,” “Canadian dollars,” or “dollars” are to the currency of Canada
and “US$,” “United States dollars,” or “U.S. dollars” are to the currency of the United States.



As of August 13, 2015, the noon rate of
exchange published by the Bank of Canada was US$1.00 = Cdn$1.3078.



1







Special
Note Regarding Forward-Looking Statements



Some of the statements contained in this
Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable securities
laws. These forward-looking statements include information about possible or assumed future results of our business, financial
condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements
by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,”
“intend,” “should,” “plan,” “expect,” “predict,” “potential,”
or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking
by their nature and are based on certain of the assumptions noted below:



| | · | our
                                         beliefs regarding the advantages of APL-130277 and assumptions that others will share
                                         such beliefs;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectations regarding the commercialization of APL-130277;
| | - | --------------------------------------------------------------------------------------------------------



| | · | our
                                         belief that there is an unmet medical need and market opportunity for APL-130277;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectations regarding regulatory approval in the United States and in other jurisdictions;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectation that APL-130277 will be able to follow the regulatory pathway set forth in
                                         Section 505(b)(2) of the United States Federal Food, Drug, and Cosmetic Act, or FDCA;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         plan to timely commence and/or complete remaining trials and studies as required by the
                                         U.S. Food and Drug Administration, or FDA, and other regulators, including our Phase
                                         3 clinical trials and studies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         beliefs regarding frequency, types and severity of OFF episodes;
| | - | -------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectations regarding future capital needs and funding requirements and our assumptions
                                         relating to current and future costs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         ability to otherwise successfully develop APL-130277 and any other product candidates
                                         we may develop in the future;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         beliefs regarding the sufficiency of our existing cash for funding certain activities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         intention to develop and commercialize APL-130277 in international markets;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectation that third-party contract manufacturing organizations will be able to provide
                                         us with sufficient quantities of our sublingual thin film formulation of apomorphine;
                                         and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our
                                         expectation for building a focused sales and marketing infrastructure to market APL-130277
                                         and any other product candidates in the United States.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The preceding list is not intended to be
an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions
and expectations of future performance, taking into account the information currently available to us. These statements are only
predictions based upon our current expectations and projections about future events. There are important factors that could cause
our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity,
performance or achievements expressed or implied by the forward-looking statements including, but not limited to those factors
identified under the caption “Risk Factors” in Part II, Item 1A and in our filings and reports in the United States
with the SEC available on the SEC’s web site at www.sec.gov, and in Canada with the various Canadian securities regulators,
which are available online at www.sedar.com. Furthermore, unless otherwise stated, the forward-looking statements contained in
this Quarterly Report on Form 10-Q are made as of the date hereof, and we have no intention and undertake no obligation to update
or revise any forward-looking statements, whether as a result of new information, future events, changes or otherwise, except
as required by law.



-2-






PART I – FINANCIAL
INFORMATION



ITEM 1. FINANCIAL STATEMENTS.



|CYNAPSUS THERAPEUTICS INC.                               
|---------------------------------------------------------
|Interim Consolidated Statements
    of Financial Position



UNAUDITED

(in Canadian dollars)



|                                           |  |       |  | June 30, |             |   | December 31, | 
|------------------------------------------ |  | ----- |  | -------- | ----------- | - | ------------ | 
|                                           |  | NOTES |  | 2015     |             |   | 2014         | 
|                                           |  |       |  | $        |             |   | $            | 
|ASSETS                                     |  |       |  |          |             |   |              | 
|Current assets                             |  |       |  |          |             |   |              | 
|Cash                                       |  | 5     |  |          | 111,455,042 |   |              | 
|Prepaid expenses and other current assets  |  |       |  |          | 564,289     |   |              | 
|Total current assets                       |  |       |  |          | 112,019,331 |   |              | 
|Non-current assets                         |  |       |  |          |             |   |              | 
|Property, plant and equipment              |  | 6     |  |          | 386,965     |   |              | 
|Intangible assets                          |  | 7     |  |          | 550,584     |   |              | 
|                                           |  |       |  |          |             |   |              | 
|Total assets                               |  |       |  |          | 112,956,880 |   |              | 
|                                           |  |       |  |          |             |   |              | 
|LIABILITIES                                |  |       |  |          |             |   |              | 
|Current liabilities                        |  |       |  |          |             |   |              | 
|Accounts payable and accrued liabilities   |  | 8, 14 |  |          | 4,473,840   |   |              | 
|Total current liabilities                  |  |       |  |          | 4,473,840   |   |              | 
|                                           |  |       |  |          |             |   |              | 
|SHAREHOLDERS’ EQUITY                       |  |       |  |          |             |   |              | 
|Share capital                              |  | 9     |  |          | 140,407,452 |   |              | 
|Equity reserves                            |  |       |  |          |             |   |              | 
|Warrants                                   |  | 9     |  |          | 12,026,470  |   |              | 
|Share-based payments                       |  | 9     |  |          | 4,612,711   |   |              | 
|Deficit                                    |  |       |  |          | (48,563,593 | ) |              | 
|Total shareholders’ equity                 |  |       |  |          | 108,483,040 |   |              | 
|                                           |  |       |  |          |             |   |              | 
|Total liabilities and shareholders’ equity |  |       |  |          | 112,956,880 |   |              | 



COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)



APPROVED ON BEHALF OF THE BOARD:



|“Ronald
    Hosking” , | Director | “Rochelle
    Stenzler” , | Director
|---------------------- | -------- | ------------------------- | --------



The accompanying notes are an integral part of these condensed
interim consolidated financial statements.



-3-






|CYNAPSUS THERAPEUTICS INC.                                        
|------------------------------------------------------------------
|Interim
    Consolidated Statements of Loss and Comprehensive Loss



UNAUDITED

(in Canadian dollars)



|                                                                      |  |        |  | For the three months
    ended
    June 30, |            |   | For the six months ended
    June 30, | 
|--------------------------------------------------------------------- |  | ------ |  | ------------------------------------------- | ---------- | - | ------------------------------------- | 
|                                                                      |  | NOTES  |  | 2015                                        |            |   | 2014                                  | 
|                                                                      |  |        |  | $                                           |            |   | $                                     | 
|EXPENSES                                                              |  |        |  |                                             |            |   |                                       | 
|Research and development                                              |  | 10     |  |                                             | 7,880,569  |   |                                       | 
|Operating, general and administrative                                 |  | 11     |  |                                             | 2,039,823  |   |                                       | 
|Share-based payments                                                  |  | 9      |  |                                             | 1,601,005  |   |                                       | 
|Amortization of intangible assets                                     |  | 7      |  |                                             | 11,969     |   |                                       | 
|Depreciation of property, plant and equipment                         |  | 6      |  |                                             | 33,414     |   |                                       | 
|Acquisition milestone share-based payment                             |  | 13, 14 |  |                                             | -          |   |                                       | 
|Unrealized foreign exchange (gain) loss                               |  |        |  |                                             | (562,593   | ) |                                       | 
|Recovery on scientific research                                       |  |        |  |                                             | (40,000    | ) |                                       | 
|Research grant                                                        |  | 12     |  |                                             | -          |   |                                       | 
|Interest
    income net of interest expense and related charges       |  |        |  |                                             | (5,678     | ) |                                       | 
|Loss and comprehensive loss for the period                            |  |        |  |                                             | 10,958,509 |   |                                       | 
|                                                                      |  |        |  |                                             |            |   |                                       | 
|Loss per share - basic and diluted                                    |  |        |  |                                             | 1.50       |   |                                       | 
|Weighted average number of
    shares outstanding – basic and diluted |  | 9      |  |                                             | 7,316,076  |   |                                       | 



The accompanying notes are an integral part of these condensed
interim consolidated financial statements.



-4-






|CYNAPSUS THERAPEUTICS INC.                              
|--------------------------------------------------------
|Interim Consolidated Statements
    of Changes in Equity



UNAUDITED

(in Canadian dollars)





|                                              |  | ShareCapital |             |  | EquityReserves –Warrants |  |            | EquityReserves –Share-basedPayments |  |  | Deficit   |   |  | Total |            
|--------------------------------------------- |  | ------------ | ----------- |  | ------------------------ |  | ---------- | ----------------------------------- |  |  | --------- | - |  | ----- | -----------
|                                              |  | $            |             |  | $                        |  |            | $                                   |  |  | $         |   |  | $     |            
|Balance as at December 31, 2014               |  |              | 31,740,941  |  |                          |  | 13,452,183 |                                     |  |  | 2,787,525 |   |  |       | (32,510,652
|                                              |  |              |             |  |                          |  |            |                                     |  |  |           |   |  |       |            
|Public offering, net of transaction costs     |  |              | 81,260,387  |  |                          |  | -          |                                     |  |  | -         |   |  |       | -          
|Private placement, net of transaction costs   |  |              | 19,551,377  |  |                          |  | -          |                                     |  |  | -         |   |  |       | -          
|Exercise of warrants                          |  |              | 6,219,154   |  |                          |  | (1,425,713 | )                                   |  |  | -         |   |  |       | -          
|Acquisition milestone share-based payment     |  |              | 1,500,000   |  |                          |  | -          |                                     |  |  | -         |   |  |       | -          
|Exercise of share-based payments              |  |              | 135,593     |  |                          |  | -          |                                     |  |  | (49,887   | ) |  |       | -          
|Share-based payments                          |  |              | -           |  |                          |  | -          |                                     |  |  | 1,875,073 |   |  |       | -          
|Loss for the period                           |  |              | -           |  |                          |  | -          |                                     |  |  | -         |   |  |       | (16,052,941
|Activity for the period                       |  |              | 108,666,511 |  |                          |  | (1,425,713 | )                                   |  |  | 1,825,186 |   |  |       | (16,052,941
|                                              |  |              |             |  |                          |  |            |                                     |  |  |           |   |  |       |            
|Balance as at June 30, 2015                   |  |              | 140,407,452 |  |                          |  | 12,026,470 |                                     |  |  | 4,612,711 |   |  |       | (48,563,593
|                                              |  |              |             |  |                          |  |            |                                     |  |  |           |   |  |       |            
|Balance as at December 31, 2013               |  |              | 16,156,398  |  |                          |  | 4,211,014  |                                     |  |  | 1,918,672 |   |  |       | (21,692,065
|                                              |  |              |             |  |                          |  |            |                                     |  |  |           |   |  |       |            
|Prospectus offering, net of transaction costs |  |              | 13,037,024  |  |                          |  | 9,803,212  |                                     |  |  | -         |   |  |       | -          
|Exercise of warrants                          |  |              | 988,356     |  |                          |  | (251,360   | )                                   |  |  | -         |   |  |       | -          
|Exercise of share-based payments              |  |              | 226,892     |  |                          |  |            |                                     |  |  | (106,774  | ) |  |       | -          
|Share-based payments                          |  |              | -           |  |                          |  | -          |                                     |  |  | 418,096   |   |  |       | -          
|Loss for the period                           |  |              | -           |  |                          |  | -          |                                     |  |  | -         |   |  |       | (4,026,330 
|Activity for the period                       |  |              | 14,252,272  |  |                          |  | 9,551,852  |                                     |  |  | 311,322   |   |  |       | (4,026,330 
|                                              |  |              |             |  |                          |  |            |                                     |  |  |           |   |  |       |            
|Balance as at June 30, 2014                   |  |              | 30,408,670  |  |                          |  | 13,762,866 |                                     |  |  | 2,229,994 |   |  |       | (25,718,395







The accompanying notes are an integral part of these condensed
interim consolidated financial statements.



-5-






|CYNAPSUS THERAPEUTICS INC.                       
|-------------------------------------------------
|Interim Consolidated Statements
    of Cash Flows



(in Canadian dollars)



|                                                             |  |       |  | For the six months ended
    June 30, |            
|------------------------------------------------------------ |  | ----- |  | ------------------------------------- | -----------
|                                                             |  | NOTES |  | 2015                                  |            
|                                                             |  |       |  | $                                     |            
|Operating activities                                         |  |       |  |                                       |            
|Loss for the period                                          |  |       |  |                                       | (16,052,941
|Items not affecting cash:                                    |  |       |  |                                       |            
|Share-based payments                                         |  | 9     |  |                                       | 1,875,073  
|Amortization of intangible assets                            |  | 7     |  |                                       | 23,938     
|Depreciation of property, plant and equipment                |  | 6     |  |                                       | 41,701     
|Acquisition milestone share-based payment                    |  | 13    |  |                                       | 1,500,000  
|Unrealized gain on foreign exchange                          |  |       |  |                                       | (1,745,025 
|                                                             |  |       |  |                                       | (14,357,254
|Changes in non-cash working capital:                         |  |       |  |                                       |            
|Change in prepaid expenses and other current assets          |  |       |  |                                       | (294,510   
|Change in accounts payables and accrued liabilities          |  |       |  |                                       | 1,393,209  
|Deferred grant proceeds                                      |  |       |  |                                       | -          
|Net cash used in operating activities                        |  |       |  |                                       | (13,258,555
|                                                             |  |       |  |                                       |            
|Investing activities                                         |  |       |  |                                       |            
|Purchase of property, plant and equipment                    |  | 6     |  |                                       | (170,836   
|Net cash used in investing activities                        |  |       |  |                                       | (170,836   
|Financing activities                                         |  |       |  |                                       |            
|Gross proceeds from issuance of shares and warrants          |  | 9     |  |                                       | 110,290,694
|Commissions and share issuance costs                         |  | 9     |  |                                       | (9,478,930 
|Gross proceeds from exercise of warrants                     |  | 9     |  |                                       | 4,793,441  
|Gross proceeds from exercise of share-based payments         |  | 9     |  |                                       | 85,706     
|Net cash provided by financing activities                    |  |       |  |                                       | 105,690,911
|Effect of exchange rate changes on cash and cash equivalents |  |       |  |                                       | 1,745,025  
|Increase in cash and cash equivalents                        |  |       |  |                                       | 94,006,545 
|Cash and cash equivalents, beginning of period               |  |       |  |                                       | 17,448,497 
|Cash and cash equivalents, end of period                     |  |       |  |                                       | 111,455,042



The accompanying notes are an
integral part of these condensed interim consolidated financial statements.



-6-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 1. | NATURE OF OPERATIONS
| | -- | --------------------



Cynapsus Therapeutics Inc. (“Cynapsus”
or the “Company”) is a specialty pharmaceutical company currently focused on developing and preparing to commercialize
a fast-acting, easy-to-use, sublingual thin film for the on-demand management of debilitating OFF episodes associated with Parkinson’s
disease. The Company’s shares are listed on the TMX Group Inc.’s Toronto Stock Exchange (“Exchange”) (CTH:
TSX) and traded in the United States on the NASDAQ Global Market (NASDAQ: CYNA). Cynapsus was incorporated under the federal laws
of Canada. The head office, principal address, registered address and records office of the Company are located at 828 Richmond
Street West, Toronto, Ontario, Canada, M6J 1C9.



| | 2. | BASIS OF PREPARATION
| | -- | --------------------



The condensed interim consolidated
financial statements consolidate the financial statements of Cynapsus and its wholly-owned subsidiary, Adagio Pharmaceuticals
Ltd. (“Adagio”). All significant intercompany transactions and balances have been eliminated.



These unaudited condensed interim
consolidated financial statements have been prepared in compliance with International Accounting Standard 34 Interim Financial
Reporting. The notes presented in these unaudited condensed interim consolidated financial statements include only significant
events and transactions occurring since our last fiscal year end and are not fully inclusive of all matters required to be disclosed
in our annual audited consolidated financial statements. The policies applied in these unaudited condensed interim consolidated
financial statements are based on International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). Any subsequent changes to IFRS or their interpretation, that are given effect
in the Company’s annual consolidated financial statements for the year ending December 31, 2015 could result in a restatement
of these unaudited condensed interim consolidated financial statements.



On August 13, 2015, the Board of
Directors approved and authorized these condensed interim consolidated financial statements for the three and six months ended
June 30, 2015.



Certain comparative figures have
been reclassified to conform with the financial statement presentation adopted for the current period.



In the opinion of management,
all adjustments considered necessary for fair presentation of the Company’s financial position, results of operations and
cash flows have been included. Operating results for the three and six month periods ended June 30, 2015 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2015.



-7-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 3. | FUTURE
                                         ACCOUNTING CHANGES
| | -- | ------------------------------------------------------------------



Certain pronouncements that were
issued by the IASB or the International Financial Reporting Interpretations Committee are mandatory for accounting periods beginning
on or after January 1, 2016. Many are not applicable or do not have a significant impact to the Company and have been excluded.
The following pronouncement has not yet been adopted and is being evaluated to determine its impact on the Company.



IFRS 9, Financial Instruments(“IFRS 9”) was issued by the IASB in July 2014 and will replace IAS 39, Financial Instruments: Recognition
and Measurement (“IAS 39”) and all previous versions of IFRS 9. IFRS 9 uses a single approach to determine whether
a financial asset is measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive
income. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model
and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged to IFRS 9, except that an entity choosing to measure a financial
liability at fair value will present the portion of any change in fair value due to changes in the entity’s own credit risk
in other comprehensive income, rather than within profit or loss. The new standard also requires a single impairment method to
be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January
1, 2018. Earlier adoption is permitted.



| | 4. | SIGNIFICANT
                                         ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
| | -- | ----------------------------------------------------------------------------------------------------



The preparation of these condensed
interim consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and reported amounts of assets and liabilities at the date of the condensed
interim consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes
could differ from these estimates. The condensed interim consolidated financial statements include estimates, which, by their
nature, are uncertain. The impact of such estimates are pervasive throughout the condensed interim consolidated financial statements,
and may require accounting adjustments based on future occurrences.



The estimates and underlying assumptions
are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised
and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where the assumptions
and estimates are significant to the financial statements were the same as those applied to the Company’s consolidated financial
statements as at and for the year ended December 31, 2014.



-8-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 5. | RISK MANAGEMENT
| | -- | ---------------



Financial risk management



In the normal course of business,
the Company is exposed to a number of financial risks that can affect its operating performance. These risks are credit risk,
liquidity risk and market risk. The Company’s overall risk management program and prudent business practices seek to minimize
any potential adverse effects on the Company’s financial performance. There were no changes in the Company’s approach
to risk management during the three and six months ended June 30, 2015.



| | (i) | Credit risk
| | --- | -----------

The Company’s cash balance
is on deposit with a Canadian chartered bank. The Company has no significant concentration of credit risk arising from operations.
Management believes that the credit risk concentration with respect to these financial instruments is remote.



| | (ii) | Liquidity
                                         risk
| | ---- | -------------------------------------------------------

The
Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when
due. As at June 30, 2015, the Company had cash of $111,455,042 and prepaid expenses and other current assets of $564,289 (December
31, 2014 - $17,448,497 and $269,779, respectively) to settle current liabilities of $4,473,840 (December 31, 2014 - $3,080,631).
The Company’s accounts payable and accrued liabilities have contractual maturities of less than 30 days and are subject
to normal trade terms.



Market
risk



| | (i) | Interest rate risk
| | --- | ------------------

The Company had a cash balance
of $111,455,042 as at June 30, 2015 (December 31, 2014 - $17,448,497). The Company’s current policy is to invest excess
cash in a business savings account and investment-grade short-term deposit certificates issued by its banking institutions. The
Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. The Company considers
interest rate risk to be minimal as investments are short-term.







| | (ii) | Foreign currency risk
| | ---- | ---------------------

Foreign currency risk is the
risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange
rates. The Company’s functional and presentation currency is the Canadian dollar and all amounts in the condensed interim
consolidated financial statements are expressed in Canadian dollars, unless otherwise noted. The Company funds the majority of
research and development expenses in the United States from its U.S. dollar bank account held in Canada and certain expenses in
Europe on a cash call basis using the Euro converted from its Canadian dollar bank accounts held in Canada. The Company believes
that while currency conversions could affect results of operations, there is not a significant risk to its ability to meet its
obligations. The Company does not use derivative instruments to hedge its foreign currency risk.



The following table summarizes
accounts denominated in U.S. dollars, reported in Canadian dollar equivalents, and the effective US$/Cdn$ exchange rate applied
as at:



|                       |  | June 30, 2015 |             |   | December 31, 2014 | 
|---------------------- |  | ------------- | ----------- | - | ----------------- | 
|                       |  | $             |             |   | $                 | 
|Cash                   |  |               | 107,913,724 |   |                   | 
|Accounts payable       |  |               | (2,070,117  | ) |                   | 
|Net exposure           |  |               | 105,843,607 |   |                   | 
|                       |  |               |             |   |                   | 
|US$/Cdn$ exchange rate |  |               | 1.249       |   |                   | 



Based on the Company’s
foreign currency exposures noted above, a 10% strengthening of the U.S. dollar against the Canadian dollar as at dates indicated
would have decreased the net loss by approximately $10,600,000 (December 31, 2014 - $1,100,000), assuming all other variables remained
constant. A 10% weakening of the U.S. dollar would have an opposite effect, assuming that all other variables remained constant.



| | (iii) | Price
                                         risk
| | ----- | ---------------------------------------------------

| |  | The Company is exposed to price
                                         risk with respect to Active Pharmaceutical Ingredient (“API”) prices used
                                         in research and development activities. The Company monitors API prices in the United
                                         States, Europe and Asia to determine the appropriate course of action to be taken by
                                         the Company. Management believes that the price risk concentration with respect to API
                                         is minimal.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-9-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 5. | RISK MANAGEMENT (continued)
| | -- | ---------------------------



| | (iv) | Fair value
| | ---- | ----------

IFRS require that the Company
disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the consolidated
statement of financial position date based on relevant market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties in significant matters of judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect these estimates.



Cash is classified as loans and
receivables, measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities,
which are measured at amortized cost.



The carrying amounts for cash,
accounts payable and accrued liabilities on the consolidated statement of financial position approximate fair value because of
the short term of these instruments.



Capital risk management



The Company manages its capital
structure and makes adjustments to it, based on the funds available to the Company, in order to support its research and development
activities. The Company’s capital structure consists of share capital and equity reserves. The Board of Directors does not
establish quantitative return on capital criteria for management but rather relies on the expertise of the Company’s management
to sustain future development of the business.



The product candidates which the
Company currently has in its pipeline are in the research stage; as such, the Company is dependent on external financing to fund
its activities. In order to carry out the planned research and development and pay for administration costs, the Company will
spend its existing working capital and raise additional amounts as needed.



Management reviews its capital
management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.



There were no changes in the Company’s
approach to capital management during the three and six months ended June 30, 2015. The Company and its subsidiary are not subject
to externally imposed capital requirements.



-10-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 6. | PROPERTY, PLANT
                                         AND EQUIPMENT
| | -- | ----------------------------------------------------------------------



The following
is a summary of property, plant and equipment as at December 31, 2014 and June 30, 2015:



|                                       |  | Computer  |         |  | Furniture    |  |        | Leasehold    |  |  |        | 
|-------------------------------------- |  | --------- | ------- |  | ------------ |  | ------ | ------------ |  |  | ------ | 
|                                       |  | Equipment |         |  | and Fixtures |  |        | Improvements |  |  | Total  | 
|                                       |  | $         |         |  | $            |  |        | $            |  |  | $      | 
|Cost                                   |  |           |         |  |              |  |        |              |  |  |        | 
|Balance as at December 31, 2014        |  |           | 199,773 |  |              |  | 54,093 |              |  |  | 32,880 | 
|Additions                              |  |           | 148,119 |  |              |  | 12,043 |              |  |  | 10,674 | 
|Balance as at June 30, 2015            |  |           | 347,892 |  |              |  | 66,136 |              |  |  | 43,554 | 
|                                       |  |           |         |  |              |  |        |              |  |  |        | 
|Accumulated Depreciation               |  |           |         |  |              |  |        |              |  |  |        | 
|Balance as at December 31, 2014        |  |           | 10,934  |  |              |  | 10,982 |              |  |  | 7,000  | 
|Depreciation                           |  |           | 27,236  |  |              |  | 4,818  |              |  |  | 9,647  | 
|Balance as at June 30, 2015            |  |           | 38,170  |  |              |  | 15,800 |              |  |  | 16,647 | 
|                                       |  |           |         |  |              |  |        |              |  |  |        | 
|Net book value                         |  |           |         |  |              |  |        |              |  |  |        | 
|Net book value as at December 31, 2014 |  |           | 188,839 |  |              |  | 43,111 |              |  |  | 25,880 | 
|Net book value as at June 30, 2015     |  |           | 309,722 |  |              |  | 50,336 |              |  |  | 26,907 | 



| | 7. | INTANGIBLE ASSETS
| | -- | -----------------



The following is a summary of intangible
assets as at December 31, 2014 and June 30, 2015:



|                                                      |  | APL-130277 |         |  | License   |  |         |       | 
|----------------------------------------------------- |  | ---------- | ------- |  | --------- |  | ------- | ----- | 
|                                                      |  | Patents    |         |  | Agreement |  |         | Total | 
|                                                      |  | $          |         |  | $         |  |         | $     | 
|Cost                                                  |  |            |         |  |           |  |         |       | 
|Balance as at December 31, 2014
    and June 30, 2015 |  |            | 718,150 |  |           |  | 200,000 |       | 
|                                                      |  |            |         |  |           |  |         |       | 
|Accumulated Amortization                              |  |            |         |  |           |  |         |       | 
|Balance as at December 31, 2014                       |  |            | 143,628 |  |           |  | 200,000 |       | 
|Amortization                                          |  |            | 23,938  |  |           |  | -       |       | 
|Balance as at June 30, 2015                           |  |            | 167,566 |  |           |  | 200,000 |       | 
|                                                      |  |            |         |  |           |  |         |       | 
|Net book value                                        |  |            |         |  |           |  |         |       | 
|Net book value as at December 31, 2014                |  |            | 574,522 |  |           |  | -       |       | 
|Net book value as at June 30, 2015                    |  |            | 550,584 |  |           |  | -       |       | 



-11-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 7. | INTANGIBLE ASSETS (continued)
| | -- | -----------------------------



On December 22, 2011, the Company
completed the acquisition of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio. The acquisition
was accounted for as a purchase of assets by the Company, as Adagio did not meet the definition of a business.



On June 10, 2005, the Company entered
into a license agreement with a research and development company relating to technologies associated with the Company’s
previous drug development candidate. The license is for patents that have been issued in certain jurisdictions, which will expire
in February 2023, and are currently pending in other jurisdictions. On December 31, 2014, due to the emphasis by the licensee
on a different product line in their development pipeline, and the lack of any progress on the licensed project, the Company reviewed
the carrying value of the intangible asset for potential impairment. The Company determined that there are no expected future
cash flows attributable to this asset and recorded an impairment charge of $94,449 to write down the carrying value of the intangible
asset to zero.



ARx LLC Supply Agreement



On March 17, 2015, the Company
entered into an agreement with ARx LLC (“ARx”), whereby ARx assigned to the Company certain patents related to APL-130277
and in exchange the agreement provides that ARx is the sole partner for formulation and process development activities for APL-130277
during the term of the agreement and the expectation of entering into a commercial supply agreement, under which ARx will be the
majority supplier of APL-130277 in the United States prior to filing for Food and Drug Administration (“FDA”) approval
of APL-130277. The agreement provides that the Company retain sole ownership of all filings with respect to APL-130277. The non-monetary
transaction has been recorded at nil, as the fair value of the patents received by the Company and considerations given up could
not be reliably measured.



| | 8. | ACCOUNTS
                                         PAYABLE AND ACCRUED LIABILITIES
| | -- | ---------------------------------------------------------------------------------



The following is a summary of accounts
payable and accrued liabilities as at December 31, 2014 and June 30, 2015:



|                                            |  | June 30, 2015 |           |  | December 31, 2014 | 
|------------------------------------------- |  | ------------- | --------- |  | ----------------- | 
|                                            |  | $             |           |  | $                 | 
|Trade payables                              |  |               | 3,628,380 |  |                   | 
|Due to related parties (Note 14)            |  |               | 386,412   |  |                   | 
|Bonus accruals to related parties (Note 14) |  |               | 249,000   |  |                   | 
|Other accrued liabilities                   |  |               | 210,048   |  |                   | 
|                                            |  |               | 4,473,840 |  |                   | 



-12-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 9. | SHARE
                                         CAPITAL
| | -- | ------------------------------------------------------



| | i) | Authorized
                                         common shares
| | -- | -----------------------------------------------------------------



Unlimited
number of common shares with no par value



| | ii) | Issued
                                         and outstanding common shares
| | --- | -----------------------------------------------------------------------------



On May 15, 2015, the Company
completed a share consolidation of the Company’s issued and outstanding common shares on the basis of one (1) new common
share for every sixteen (16) common shares issued and outstanding. All common shares, options, warrants and per share amounts
have been restated to give retrospective effect to the share consolidation.



|                                                             |  | Number of Common
    Shares |           
|------------------------------------------------------------ |  | --------------------------- | ----------
|                                                             |  | #                           |           
|Balance as at December 31, 2014                              |  |                             | 5,020,885 
|Shares issued for cash –  public offering                    |  |                             | 5,175,000 
|Shares issued for cash – private placement                   |  |                             | 1,377,467 
|Shares issued as acquisition milestone share-based payment   |  |                             | 69,960    
|Shares issued for cash from exercise of warrants             |  |                             | 463,157   
|Shares issued for cash from exercise of share-based payments |  |                             | 7,895     
|Balance as at June 30, 2015                                  |  |                             | 12,114,364





On March 11, 2015, pursuant
to an amended agreement, the Company issued 69,960 common shares to former Adagio shareholders as acquisition milestone share-based
payment (see Note 13, Acquisition Milestone Share-based Payment).



On March 31, 2015, the Company
announced the completion of a private placement of 1,377,467 common shares of the Company for gross proceeds of $20,981,579 (US$16,750,000).
The issue price of $15.23 per share represents a 20% discount to the five-day volume-weighted average price per common share on
the TSX as of the close of business on March 27, 2015. The common shares issued are subject to a hold period, which will expire
four months plus one day from the date of issue. The Company incurred share issuance and broker commissions costs of $1,430,201
in connection with this transaction.



As part of the March 31, 2015
private placement, the Dexcel Pharma Group, a strategic pharmaceutical investor and significant shareholder of Cynapsus and which
also has two directors on the Board of Directors of the Company, subscribed for 271,381 common shares having an aggregate subscription
price of $4,133,684 (see Note 14, Related Party Transactions).



On June 23, 2015, the Company
completed an underwritten public offering in the United States of 5,175,000 common shares at a price to the public of US$14.00
per share, for gross proceeds of $89,309,115 (US$72,450,000), including the exercise in full of the underwriters’ option
to purchase additional common shares. The Company incurred share issuance and broker commissions costs of $8,048,728 in connection
with this transaction. The Company’s common shares are now dual listed on the NASDAQ Global Market and the TSX. As part
of the June 23, 2015 public offering in the United States, the Dexcel Pharma Group subscribed for 733,500 common shares having
an aggregate subscription price of $12,658,596 (US$10,269,000).



-13-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 9. | SHARE
                                         CAPITAL (continued)
| | -- | ------------------------------------------------------------------



| | iii) | Equity
                                         Reserve – Warrants
| | ---- | ------------------------------------------------------------------



| |  | The number
                                         of warrants outstanding as at December 31, 2014 and June 30, 2015 and changes during
                                         the six months ended June 30, 2015 are presented below:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                |  | Number of  Warrants |           |   | Equity  Reserve |  |            | Weighted  Average
     Exercise  Price/Share | 
|------------------------------- |  | ------------------- | --------- | - | --------------- |  | ---------- | -------------------------------------------- | 
|                                |  | #                   |           |   | $               |  |            | $                                            | 
|Balance as at December 31, 2014 |  |                     | 3,752,182 |   |                 |  | 13,452,183 |                                              | 
|Exercised                       |  |                     | (463,157  | ) |                 |  | (1,425,713 | )                                            | 
|Balance as at June 30, 2015     |  |                     | 3,289,025 |   |                 |  | 12,026,470 |                                              | 





A summary of warrants exercised
during the six months ended June 30, 2015 is as follows:



|Number of  Warrants |         |  | Cash  Proceeds |  |           | Exercise  Price | 
|------------------- | ------- |  | -------------- |  | --------- | --------------- | 
|#                   |         |  | $              |  |           | $               | 
|                    | 321,569 |  |                |  | 2,958,447 |                 | 
|                    | 141,588 |  |                |  | 1,834,994 |                 | 
|                    | 463,157 |  |                |  | 4,793,441 |                 | 



Warrants issued and outstanding as
at June 30, 2015 were as follows:



|Number of  Warrants |           |  | Exercise  Price |  |       | Exercise  Trigger* |  |  | Expiry Date |  | Description
|------------------- | --------- |  | --------------- |  | ----- | ------------------ |  |  | ----------- |  | -----------
|#                   |           |  | $/ Share        |  |       | $/ Share           |  |  |             |  |            
|                    | 11,875    |  |                 |  | 16.00 |                    |  |  | 24.00       |  |            
|                    | 20,650    |  |                 |  | 10.00 |                    |  |  | -           |  |            
|                    | 7,968     |  |                 |  | 10.00 |                    |  |  | -           |  |            
|                    | 696,372   |  |                 |  | 9.20  |                    |  |  | 22.08       |  |            
|                    | 183,387   |  |                 |  | 9.20  |                    |  |  | 22.08       |  |            
|                    | 2,368,773 |  |                 |  | 12.96 |                    |  |  | 31.20       |  |            
|                    | 3,289,025 |  |                 |  |       |                    |  |  |             |  |            



-14-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 9. | SHARE
                                         CAPITAL (continued)
| | -- | ------------------------------------------------------------------



| | iii) | Equity
                                         Reserve – Warrants
| | ---- | ------------------------------------------------------------------



*Note: Included in some of
the warrant agreements are provisions such that each warrant entitles the holder to purchase one common share at a price equal
to the exercise price per share for a period up to the expiry date, except that, subject to certain exceptions, the warrants will
be cancelled if they are not exercised within 30 days after written notice from the Company that the closing price of its common
shares on the principal stock exchange of the Company has been three times the unit price of the offering or more for 20 consecutive
trading days.



There were no warrants issued during
the three or six months ended June 30, 2015. The weighted average grant date fair value of the warrants issued during the year
ended December 31, 2014 was $3.81. The weighted average contractual life remaining for the warrants as at June 30, 2015 is 3.48
years (December 31, 2014 - 3.71 years).



| | iv) | Reserve
                                         – Share-based payments
| | --- | -----------------------------------------------------------------------



The Company has in place a stock
option plan for the purchase of common shares by its directors, officers, employees and other service providers. No amounts are
paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options
may be exercised at any time from the date of vesting to the date of their expiry. The number of options granted is approved by
the Board of Directors. All options expire up to 365 days after the resignation of an employee or director and expire 90 days
after the resignation of a consultant.



The aggregate number of common shares
reserved for issuance under the stock option plan is a maximum of 10% of the issued and outstanding common shares of the Company.
As at June 30, 2015, there were a total of 581,501 options outstanding, representing 4.8% of the issued and outstanding common
shares of the Company. No one person shall be granted options representing more than 5% of the issued and outstanding common shares
of the Company in a 12-month period. Option grants to persons providing consulting and investor services may not exceed 2% of
the issued and outstanding common shares of the Company in any 12-month period. The options are non-assignable and non-transferable
and may be granted for a term not exceeding five years. The exercise price of the options is fixed by the Board of Directors of
the Company and shall not be lower than the discounted market price (as defined by the TSX) of the shares at the time of grant,
subject to all applicable regulatory requirements.



The number of stock options outstanding
as at December 31, 2014 and June 30, 2015, and changes during the six months ended June 30, 2015 are as follows:



|                                            |  | Number of  Options |         |   | Weighted  Average
     Exercise  Price/Share | 
|------------------------------------------- |  | ------------------ | ------- | - | -------------------------------------------- | 
|                                            |  | #                  |         |   | $                                            | 
|Options outstanding as at December 31, 2014 |  |                    | 340,653 |   |                                              | 
|Exercised                                   |  |                    | (7,895  | ) |                                              | 
|Granted                                     |  |                    | 248,743 |   |                                              | 
|Options outstanding as at June 30, 2015     |  |                    | 581,501 |   |                                              | 



-15-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 9. | SHARE
                                         CAPITAL (continued)
| | -- | ------------------------------------------------------------------



| | iv) | Reserve
                                         – Share-based payments (continued)
| | --- | -----------------------------------------------------------------------------------



On April 2, 2015, the Company
granted stock options to acquire 248,743 common shares. The stock options were granted to officers, directors and employees of
the Company at an exercise price equal to $21.76 per share and expire 5 years from the date of grant. 39,686 options fully vested
immediately. For 209,057 of the options, one-quarter vested immediately, one-quarter will vest in one year, one-quarter will vest
in two years, and one-quarter will vest in three years.



Weighted average assumptions
used in the Black-Scholes option pricing model to determine the fair value of stock options granted during the six months ended
June 30, 2015 are as follows:



|Exercise price                                                     |  | $ | 21.76      | 
|------------------------------------------------------------------ |  | - | ---------- | 
|Grant date share price                                             |  | $ | 21.76      | 
|Risk-free interest rate                                            |  |   | 0.52%      | 
|Expected dividend yield                                            |  |   | -          | 
|Expected volatility                                                |  |   | 97.8%      | 
|Expected option term                                               |  |   | 3.13 years | 
|Weighted average fair value of options granted during
    the year |  | $ | 13.31      | 



For the three months ended June
30, 2015, share-based compensation expense attributable to the operating, general and administrative function was $1,056,605 (June
30, 2014 - $323,988) and to the research and development function was $544,400 (June 30, 2014 – $77,032). For the six months
ended June 30, 2015, share-based compensation expense attributable to the operating, general and administrative function was $1,136,938
(June 30, 2014 - $358,649) and to the research and development function was $738,135 (June 30, 2014 – $59,447).



-16-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 9. | SHARE
                                         CAPITAL (continued)
| | -- | ------------------------------------------------------------------



| | iv) | Reserve
                                         – Share-based payments (continued)
| | --- | -----------------------------------------------------------------------------------



Stock options issued
and outstanding as at June 30, 2015 were as follows:



|Number of Options 
    Outstanding |         |  | Number of Options 
    Vested and  Exercisable |  |         | Effective Exercise
    Price/  Share |  |  | Expiry Date
|---------------------------------- | ------- |  | ---------------------------------------------- |  | ------- | ------------------------------------ |  |  | -----------
|#                                  |         |  | #                                              |  |         | $                                    |  |  |            
|                                   | 5,624   |  |                                                |  | 5,624   |                                      |  |  | 16.00      
|                                   | 312     |  |                                                |  | 312     |                                      |  |  | 16.00      
|                                   | 3,124   |  |                                                |  | 3,124   |                                      |  |  | 16.00      
|                                   | 2,500   |  |                                                |  | 2,500   |                                      |  |  | 16.00      
|                                   | 17,185  |  |                                                |  | 17,185  |                                      |  |  | 16.00      
|                                   | 1,625   |  |                                                |  | 1,625   |                                      |  |  | 16.00      
|                                   | 937     |  |                                                |  | 937     |                                      |  |  | 16.00      
|                                   | 23,332  |  |                                                |  | 23,332  |                                      |  |  | 7.36       
|                                   | 55,998  |  |                                                |  | 55,998  |                                      |  |  | 5.76       
|                                   | 1,562   |  |                                                |  | 1,562   |                                      |  |  | 4.96       
|                                   | 137,749 |  |                                                |  | 137,749 |                                      |  |  | 10.40      
|                                   | 82,810  |  |                                                |  | 27,759  |                                      |  |  | 19.84      
|                                   | 248,743 |  |                                                |  | 91,955  |                                      |  |  | 21.76      
|                                   | 581,501 |  |                                                |  | 369,662 |                                      |  |  |            



The total number of common
shares that were issuable pursuant to stock options that were exercisable as at June 30, 2015 is 369,662 (December 31, 2014 –
222,317). The weighted average exercise price of these options as at June 30, 2015 is $13.49 (December 31, 2014 - $12.22).



The weighted average contractual life remaining for the exercisable
and outstanding shares issuable on exercise of stock options as at June 30, 2015 is 3.69 years and 4.05 years, respectively (December
31, 2014 - 3.59 years and 3.98 years).



-17-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 10. | RESEARCH
                                         AND DEVELOPMENT
| | --- | -----------------------------------------------------------------



| |  | Components of research and development
                                         expenses for the three and six months ended June 30, 2015 and June 30, 2014, respectively,
                                         were as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  | Three
                                         Months Ended June
                                         30, |           |  | Six
                                         Months Ended June
                                         30, | 
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------- | --------- |  | ----------------------------------------------------------------------------------------------------------- | 
|                               |  | 2015                                                                                                          |           |  | 2014                                                                                                        | 
|                               |  | $                                                                                                             |           |  | $                                                                                                           | 
|Salaries, benefits and bonuses |  |                                                                                                               | 470,488   |  |                                                                                                             | 
|Other research and development |  |                                                                                                               | 7,410,081 |  |                                                                                                             | 
|                               |  |                                                                                                               | 7,880,569 |  |                                                                                                             | 



| | 11. | OPERATING, GENERAL AND ADMINISTRATIVE
| | --- | -------------------------------------



| |  | Components of operating, general and
                                         administrative expenses for the three and six months ended June 30, 2015 and June 30,
                                         2014, respectively, were as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                            |  | Three
                                         Months Ended June
                                         30, |           |  | Six
                                         Months Ended June
                                         30, | 
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- | --------- |  | ----------------------------------------------------------------------------------------------------------- | 
|                                            |  | 2015                                                                                                          |           |  | 2014                                                                                                        | 
|                                            |  | $                                                                                                             |           |  | $                                                                                                           | 
|Salaries, benefits, bonuses and board fees  |  |                                                                                                               | 771,172   |  |                                                                                                             | 
|Other operating, general and administrative |  |                                                                                                               | 1,268,651 |  |                                                                                                             | 
|                                            |  |                                                                                                               | 2,039,823 |  |                                                                                                             | 



| | 12. | RESEARCH GRANT
| | --- | --------------



On August 8, 2012, the Company
was awarded a grant of US$947,925 ($942,977) from The Michael J. Fox Foundation (“MJFF”) for Parkinson’s Research
to support clinical studies to develop the Company’s product candidate APL-130277, a sublingual thin film strip reformulation
of apomorphine. The grant was awarded under the Foundation's The Edmond J. Safra Core Programs for Parkinson’s Research,
Clinical Intervention Awards aimed at supporting human clinical trials testing promising Parkinson’s disease therapies that
may significantly and fundamentally improve treatment for people with Parkinson’s disease. Funds awarded by MJFF are to
be used solely for the specified project and are conditioned on meeting certain milestones and deliverables. The first milestone
payment of US$297,825 ($289,516) was received on September 20, 2012 and was fully used by December 31, 2012. The second milestone
payment of US$412,087 ($410,053) was received on January 30, 2013 and was fully used by December 31, 2013. On December 16, 2013,
the Company received the final milestone payment for the first grant of US$238,012 ($254,102). As at December 31, 2013, $239,969
was recorded as deferred grant proceeds, and was fully used and recognized into income in the three months ended March 31, 2014.



-18-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 12. | RESEARCH GRANT (continued)
| | --- | --------------------------



On July 3, 2014, the Company was
awarded a second grant of US$500,000 from MJFF to support clinical studies to develop APL-130277. This MJFF grant was used to
fund the Company’s CTH-105 clinical study. Funds awarded by MJFF are to be used solely for the specified project and are
conditioned on meeting certain milestones and deliverables. The first milestone payment of US$100,000 ($112,000) was received
on September 4, 2014 and was recognized as research grant income in the third quarter of 2014. The second milestone payment of
US$300,000 ($342,660) was received on December 9, 2014 and was recognized as research grant income in the fourth quarter of 2014.
The final milestone payment of US$100,000 ($127,710) was received on March 13, 2015 and was recognized as research grant income
in the first quarter of 2015.



As part of the MJFF grant agreement,
Cynapsus is required to support further Parkinson’s disease research by making up to US$1,000,000 in contributions to MJFF
based on future sales of APL-130277 beginning the year that the Company posts net sales of APL-130277 in excess of US$5,000,000.





| | 13. | ACQUISITION
                                         MILESTONE SHARE-BASED PAYMENT
| | --- | ----------------------------------------------------------------------------------



On December 22, 2011, the
Company completed the acquisition of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio (the
“Transaction”). The Transaction was structured as a share exchange with Adagio shareholders receiving newly
issued common shares of the Company in exchange for all of the issued and outstanding shares of Adagio. The Transaction also
provided for contingent payments upon the completion of operational milestones. On January 28, 2015, the Company and the
former Adagio shareholders, who are substantially represented by key management and therefore are related parties, signed an
amendment to the Adagio Share Purchase Agreement to better reflect the contemplated agreement between the parties resulting
in an amended condition as described in milestone payment (a) below. Adagio shareholders were entitled to the following
additional payments pursuant to the Transaction:



| | a) | a
                                         payment of $1,500,000 conditional upon the successful completion of the Company’s
                                         Phase 2 CTH-105 study in Parkinson’s patients, and written confirmation from the
                                         FDA, that one Phase 3 efficacy study, one Phase 3 safety study, a bridging study and
                                         an ease-of-use study will be sufficient to allow the Company to pursue approval for a
                                         new drug application pursuant to Section 505(b)(2) of the United States Federal Food,
                                         Drug and Cosmetic Act, as amended, to be satisfied by the issuance of common shares at
                                         a deemed value equal to the 30-day volume weighted average trading price ("VWAP")
                                         immediately prior to the first public announcement of the receipt of written minutes
                                         from the FDA confirming the above; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | a
                                         payment of $2,500,000 conditional upon the successful completion of the APL-130277 final
                                         safety study, to be satisfied by the issuance of common shares at a deemed value equal
                                         to the 30 day VWAP immediately prior to the first public announcement of the results
                                         of such study. This study had not been started as of June 30, 2015.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



With
respect to the payments described in (a) and (b) above, the VWAP of the common shares may not be less than the “discounted
market price” as defined in the policies of the Exchange.



On
March 11, 2015, the Company announced the results of the end of Phase 2 meeting with the FDA, which triggered the milestone payment
described in (a) above to former Adagio shareholders of 69,960 common shares at a deemed value of $21.44 per common share. The
fair value of these shares, in the amount of $1,500,000, was recorded as an expense. See Note 14, Related Party Transactions.



-19-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 14. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



Key management personnel are those
persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors
and senior executives. Compensation paid or payable to key management was composed of the following during the three and six months
ended June 30, 2015 and June 30, 2014, respectively:



|                                                            |  | Three
                                         Months Ended June
                                         30, |           |  | Six
                                         Months Ended June
                                         30, | 
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- | --------- |  | ----------------------------------------------------------------------------------------------------------- | 
|                                                            |  | 2015                                                                                                          |           |  | 2014                                                                                                        | 
|                                                            |  | $                                                                                                             |           |  | $                                                                                                           | 
|Short-term salaries, benefits and bonuses
    to executives |  |                                                                                                               | 462,967   |  |                                                                                                             | 
|Directors’ fees                                             |  |                                                                                                               | 293,750   |  |                                                                                                             | 
|Share-based payments                                        |  |                                                                                                               | 3,310,825 |  |                                                                                                             | 
|                                                            |  |                                                                                                               | 4,067,542 |  |                                                                                                             | 



Share-based payments presented above
represent the grant date fair value of options issued to key management during the period.



As at June 30, 2015, included in
accounts payable and accrued liabilities was $386,412 (December 31, 2014 - $128,713) due to officers and directors of the Company
(See Note 8, Accounts Payable and Accrued Liabilities). These amounts are unsecured and non-interest bearing with no fixed terms
of repayment. As at June 30, 2015, $249,000 was accrued as bonuses to related parties (December 31, 2014 - $508,710).



The Company’s executive agreements
provide for additional payments in the event of termination without cause (see Note 15, Commitments and Contingent Liabilities).



On March 11, 2015, the Company
announced the results of the end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders
of 69,960 common shares. Of the total, 37,652 shares were issued to the Company’s President and Chief Executive Officer
(see Note 13, Acquisition Milestone Share-based Payment).



As part of the March 31, 2015 private
placement, the Dexcel Pharma Group, a strategic pharmaceutical investor and significant shareholder of Cynapsus, and which also
has two directors on the Board of Directors of the Company, subscribed for 271,381 common shares having an aggregate subscription
price of $4,133,684 (see Note 9, Share Capital).



-20-






|CYNAPSUS THERAPEUTICS INC.                                                    
|------------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial
    Statements
|June 30, 2015                                                                 
|(in Canadian dollars)                                                         



| | 15. | COMMITMENTS
                                         AND CONTINGENT LIABILITIES
| | --- | -------------------------------------------------------------------------------



As at June 30, 2015, the Company
had research and development and other service contract commitments, as well as minimum future payments under operating leases
for the periods presented as follows:



|                              |  | Less
                                         than 1
                                         year |           |  | 1-2 years |  |       | Total | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------- | --------- |  | --------- |  | ----- | ----- | 
|                              |  | $                                                                                                  |           |  | $         |  |       | $     | 
|Purchase Obligations          |  |                                                                                                    | 9,094,000 |  |           |  | -     |       | 
|Operating Leases              |  |                                                                                                    | 95,000    |  |           |  | 5,000 |       | 
|Total Contractual Obligations |  |                                                                                                    | 9,189,000 |  |           |  | 5,000 |       | 



Of the total purchase obligations,
one consulting contract contains a change of control clause in which, subject to certain conditions, the Company agrees to pay
the vendor an amount equal to fees based on the minimum billable hours for the remainder of the agreement term. As a triggering
event has not taken place, these contingent payments have not been recognized in these financial statements. The Company does
not have a practicable estimate for the expected value of this contingent liability due to the nature of the triggering event.
As at June 30, 2015, the maximum amount of any contingent liability, based on a remaining term of 11 months, was $421,000, which
was included in the amount of unrecognized purchase obligations.



The Company is a party to certain
management contracts for its executive officers and employees. Minimum management contract termination commitments remaining under
the agreements, for termination without cause, are approximately $1,940,425 and would be payable within one year.



See also Note 12, Research Grant
and Note 13, Acquisition Milestone Share-Based Payment.



-21-






ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



The following “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, or MD&A, relates to the financial position
and results of operations of Cynapsus for the three and six months ended June 30, 2015 and should be read in conjunction with
our unaudited condensed interim consolidated financial statements and related notes for the three and six months ended June 30,
2015 as well as our audited annual consolidated financial statements and related notes for the year ended December 31, 2014 included
in the prospectus that forms a part of our registration statement on Form F-10 (File No. 333-204226), as supplemented and filed
with the SEC on June 18, 2015. Our unaudited condensed interim consolidated financial statements for the period ended June 30,
2015 and related notes have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting.
The policies applied in the unaudited condensed interim consolidated financial statements are based on International Financial
Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.



The discussion and analysis within this
MD&A are as of August 13, 2015.



In this MD&A, unless otherwise indicated,
all dollar amounts are expressed in Canadian dollars. The term “dollars” and the symbols “$” and “Cdn$”
refer to Canadian dollars and the term “U.S. dollars” and the symbol “US$” refer to United States dollars.



The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could
cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly
in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements
included in this Quarterly Report on Form 10-Q are made only as of the date hereof.



Overview



Cynapsus is a specialty central nervous
system, or CNS, pharmaceutical company developing and preparing to commercialize a Phase 3, fast-acting, easy-to-use, sublingual
thin film for the on-demand turning ON of debilitating OFF episodes associated with Parkinson’s disease, or PD. PD is a
chronic, progressive neurodegenerative disease characterized by motor symptoms including tremor at rest, rigidity and impaired
movement as well as significant non-motor symptoms such as cognitive impairment and mood disorders. The re-emergence of PD symptoms
is referred to as an OFF episode. We recently successfully completed a Phase 2 clinical trial for our product candidate, APL-130277,
a sublingual formulation of apomorphine hydrochloride, or apomorphine. Apomorphine is the only molecule approved for acute, intermittent
treatment of OFF episodes for advanced PD patients, but is currently only approved as a subcutaneous injection in the United States.
APL-130277 is a “turning ON” medication designed to rapidly, safely and reliably convert a PD patient from the OFF
to the ON state while avoiding many of the issues associated with subcutaneous delivery of apomorphine. It is designed to convert
all types of OFF episodes, including morning OFF episodes, often considered the most difficult to treat. We have recently initiated
our Phase 3 clinical program for APL-130277, relying on the abbreviated Section 505(b)(2) regulatory pathway in the United States,
and we intend to submit a new drug application, or NDA, in 2016.



-22-






Since our inception in 2004, we have devoted
substantially all of our resources to business planning, capital raising and identifying and developing our product candidates,
preparing to conduct clinical studies of our product candidates, providing general and administrative support for these operations
and protecting our intellectual property. We have funded our operations primarily through the public and private placements of
common shares and warrants, the exercise of warrants, and the issuance of secured debentures. From inception, we have received
net proceeds of approximately Cdn$148.7 million from such transactions. As of June 30, 2015, we had cash in the amount of Cdn$111.5
million.



We expect to continue to incur significant
expenses and increasing operating losses for at least the next several years. We also expect expenses will increase substantially
in connection with our ongoing activities, as we:



| | · | continue the
                                         development of our APL-130277 product candidate, including conducting planned and future
                                         clinical trials;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | continue to
                                         engage third-party providers to supply and manufacture our clinical study materials and
                                         to develop large-scale manufacturing capabilities;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | seek regulatory
                                         approvals for our product candidate in the United States, Europe and other jurisdictions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | add personnel,
                                         including personnel to support our product development and future commercialization of
                                         APL-130277 in the United States;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | add operational,
                                         financial and management information systems;
| | - | -------------------------------------------------------------------------------------------------------



| | · | maintain, leverage
                                         and expand our intellectual property portfolio; and
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | operate as
                                         a public company in the United States.
| | - | ------------------------------------------------------------------------------------------



We are a clinical stage company and have
not generated any revenue. We have incurred significant losses and negative cash flows from operations since our inception. As
of June 30, 2015, we had a deficit accumulated of Cdn$48.6 million and expect to continue to incur significant losses for the
foreseeable future. Management expects our research and development and general and administrative expenses to continue to increase
substantially for the foreseeable future and, as a result, we may need additional capital to fund operations, which may be obtained
through one or more public or private equity or debt financings, or other sources such as potential licensing or partnership arrangements.



Recent Developments





On February 4, 2015, we held our End-of-Phase
2 meeting with the FDA. For development of APL-130277 in the U.S., we will follow Section 505(b)(2) of the FDCA. The drug substance
(apomorphine) in APL-130277 is identical to the active pharmaceutical ingredient in the FDA approved subcutaneous injection, Apokyn®,
and APL-130277 is designed for similar usage but potentially for a broader range of PD patients. The Section 505(b)(2) regulatory
pathway will require us to provide statistically significant clinical evidence that PD patients experience improvement in their
motor function as a result of delivery of apomorphine via the sublingual thin film route compared to placebo.



On March 11, 2015, following the End-of-Phase
2 meeting with the FDA, we announced that an agreement was reached on the design, duration and size for the Phase 3 program clinical
studies, as well as for primary and key secondary endpoints. As a result, we have initiated a pivotal Phase 3 program evaluating
the safety and efficacy of APL-130277 in PD patients.



On March 12, 2015, Tamar Howson was appointed
to our board of directors. Ms. Howson is a seasoned business development executive within the pharmaceutical industry, having formerly
served as Senior Vice President at both Bristol-Myers Squibb and SmithKline Beecham. Ms. Howson currently serves as a business
development and strategy consultant to biopharmaceutical companies and she also serves as a director at Oxigene Pharmaceuticals
and Organovo. She has formerly served as a director at several biotechnology companies, including Actavis, Ariad, Idenix Pharmaceuticals,
NPS Pharmaceuticals, SkyePharma and Warner Chilcott.







-23-








On March 31, 2015, we announced the completion
of a private placement of 1,377,467 common shares for gross proceeds of approximately Cdn$21.0 million (approximately US$17 million).
The financing was led by funds associated with OrbiMed, Aisling Capital and Venrock, with participation from various other institutional
investors, including existing shareholders Broadfin Capital, Sphera Funds Management, Pura Vida Investments, DAFNA Capital Management
and Dexcel Pharma Technologies Ltd./Dexxon Holdings Ltd.





On April 22, 2015, we presented data at
the American Academy of Neurology annual meeting that demonstrated that a minimum efficacious plasma threshold of apomorphine was
required to convert a patient from the OFF state to the ON state. APL-130277 reached this threshold in as early as 10 minutes and
levels were maintained over this threshold through 90 minutes after dosing. This translated to clinically meaningful improvement
in motor function as assessed by the MDS-UPDRS Part III score.



On May 15, 2015, we announced the filing
of a registration statement with the SEC relating to our initial public offering in the United States of our common shares and
the filing of an application to list our common shares on The NASDAQ Stock Market LLC, or NASDAQ. We also announced an amendment
to our articles to consolidate our issued and outstanding common shares on the basis of one post-consolidation common share for
16 pre-consolidation common shares to facilitate the proposed listing on NASDAQ.



On June 4, 2015, we announced the issuance
of a U.S. Patent No. 9,044,475 providing broad coverage for sublingual apomorphine.  This patent is solely owned by Cynapsus
and granted with claims that provide us with protection of pharmaceutical dosage forms that combine apomorphine hydrochloride particles
with an organic pH neutralizing agent and a permeation enhancer in a sublingual film. This patent is scheduled to expire in June
of 2030 and covers APL-130277 and related formulations. The issued patent is the third to issue as a U.S. patent from our patent
application filings directed to sublingual apomorphine therapies.



On June 18, 2015, following the pricing
of our initial public offering in the United States, our common shares commenced trading on the NASDAQ Global Market under the
symbol “CYNA”.  Our common shares also continue to be listed on the Toronto Stock Exchange, or TSX, under the
symbol “CTH.”  On June 23, 2015, we announced the completion of our initial public offering in the United States
of 5,175,000 common shares for total gross proceeds of approximately Cdn$89.3 million (approximately US$72.5 million), including
the exercise in full of the underwriters’ option to purchase additional common shares.



On June 25, 2015, we announced that we presented
data from clinical trials of APL-130277 at the 19th International Congress of Parkinson’s Disease and Movement
Disorders (MDS) in San Diego, California, showing APL-130277 significantly improved PD symptoms (as measured by MDS-UPDRS Part
III), rapidly turning patients from the OFF to ON state and was generally safe and well tolerated.



On June 29, 2015, we announced enrollment
of the first patient in the CTH-300 clinical trial, a pivotal Phase 3 study to examine the efficacy, safety and tolerability of
APL-130277 for the acute treatment of OFF episodes in patients with PD. The CTH-300 trial is a double-blind, placebo-controlled,
parallel-design study with an estimated enrollment of 126 PD patients in 35 centers who have at least one OFF episode every 24
hours, with total OFF time of at least two hours per day.





-24-






Results of Operations – Comparison of the three months
ended June 30, 2015 and the three months ended June 30, 2014



Loss and Loss Per Share



For the three months ended June 30,



|                                 |  | 2015 (Cdn$) |            |  | 2014 (Cdn$) |  |           | Cdn$ change in2015 |  |  | % change in2015 | 
|-------------------------------- |  | ----------- | ---------- |  | ----------- |  | --------- | ------------------ |  |  | --------------- | 
|Loss                             |  |             | 10,958,509 |  |             |  | 2,816,058 |                    |  |  | 8,142,451       | 
|Basic and diluted loss per share |  |             | 1.50       |  |             |  | 0.62      |                    |  |  | 0.88            | 



Net loss for the
three months ended June 30, 2015 exceeded the loss for the three months ended June 30, 2014 due mainly to higher research and
development program costs related to the APL-130277 Phase 3 program, higher personnel costs with the number of staff increasing
from eight to 17 people, higher professional fees, investor relations and shareholder relations costs, and higher share-based compensation expenses.



Basic loss per
share is calculated using the weighted average number of common shares outstanding during the period. As a result of losses in
the respective periods, there is no dilutive loss per share calculation.



The weighted
average number of common shares outstanding for the three months ended June 30, 2015 was 7,316,076 (June 30, 2014 –
4,524,549). The weighted average number of common shares outstanding increased primarily as a result of 1,377,467 common
shares issued in a private placement on March 31, 2015, and 5,175,000 common shares issued in our initial public offering in
the United States on June 23, 2015.



Research and Development (R&D)



For the three months ended June 30,



|                               |  | 2015 (Cdn$) |           |  | 2014 (Cdn$) |  |           | Cdn$ change in2015 |  |  | % change in2015 | 
|------------------------------ |  | ----------- | --------- |  | ----------- |  | --------- | ------------------ |  |  | --------------- | 
|Salaries, benefits and bonuses |  |             | 470,488   |  |             |  | 86,827    |                    |  |  | 383,661         | 
|Other R&D                      |  |             | 7,410,081 |  |             |  | 1,077,339 |                    |  |  | 6,332,742       | 
|Total R&D                      |  |             | 7,880,569 |  |             |  | 1,164,166 |                    |  |  | 6,716,403       | 



Research and development
expenses for the three months ended June 30, 2015 were substantially higher than for the three months ended June 30, 2014 due
to increased activity associated with the APL-130277 program. Expenditures increased as a result of increases in salaries and
benefits associated with additional staff, consulting, clinical research, packaging development, patent protection, analytics,
and scale-up chemistry, manufacturing and controls, or CMC, work for APL-130277.



-25-






Operating, General and Administrative
(OG&A)



For the three months ended June 30,



|                                           |  | 2015 (Cdn$) |           |  | 2014 (Cdn$) |  |         | Cdn$ change in2015 |  |  | % change in2015 | 
|------------------------------------------ |  | ----------- | --------- |  | ----------- |  | ------- | ------------------ |  |  | --------------- | 
|Salaries, benefits, bonuses and board fees |  |             | 771,172   |  |             |  | 259,243 |                    |  |  | 511,929         | 
|Other OG&A                                 |  |             | 1,268,651 |  |             |  | 634,868 |                    |  |  | 633,783         | 
|Total OG&A                                 |  |             | 2,039,823 |  |             |  | 894,111 |                    |  |  | 1,145,712       | 



OG&A costs
for the three months ended June 30, 2015 were higher than for the comparable period in 2014 due mainly to increases in salaries
and benefits associated with the addition of new staff, investor and public relations activities, professional fees, increases
in employee base salaries, increased board fees related to the public offering in the United States, and travel costs.



Other Expenses (Recoveries)



For the three months ended June 30,



|                                                            |  | 2015 (Cdn$) |           |   | 2014 (Cdn$) |  |         | Cdn$ change in2015 |  |  | % change in2015 |  
|----------------------------------------------------------- |  | ----------- | --------- | - | ----------- |  | ------- | ------------------ |  |  | --------------- | -
|Share-based payments                                        |  |             | 1,601,005 |   |             |  | 401,020 |                    |  |  | 1,199,985       |  
|Amortization of intangible assets                           |  |             | 11,969    |   |             |  | 14,747  |                    |  |  | (2,778          | )
|Depreciation of property, plant and equipment               |  |             | 33,414    |   |             |  | 1,776   |                    |  |  | 31,638          |  
|Unrealized foreign exchange (gain) loss                     |  |             | (562,593  | ) |             |  | 367,327 |                    |  |  | (929,920        | )
|Recovery on scientific research                             |  |             | (40,000   | ) |             |  | (10,000 | )                  |  |  | (30,000         | )
|Interest income net of interest expense and related charges |  |             | (5,678    | ) |             |  | (17,089 | )                  |  |  | (11,411         | )



Share-based payments
increased to Cdn$1,601,005 for the three months ended June 30, 2015 from Cdn$401,020 for the three months ended June 30, 2014,
primarily due to the expense related to 248,743 stock options granted on April 2, 2015, as well as compensation expense recognized
over the vesting period for stock options previously granted.



Foreign exchange
gains for three months ended June 30, 2015 were Cdn$562,593 compared to a loss of Cdn$367,327 in the three months ended June 30,
2014 due to unrealized gains on significantly higher U.S. dollar cash balances on hand at June 30, 2015, combined with a
strengthening of the U.S. dollar, compared to June 30, 2014. As at June 30, 2015, we had cash of US$86,441,773 denominated in
U.S. dollars, compared to US$13,032,596 as at June 30, 2014.



-26-








Results of Operations – Comparison
of the six months ended June 30, 2015 and the six months ended June 30, 2014



Loss and Loss Per Share



For the six months ended June 30,



|                                 |  | 2015 (Cdn$) |            |  | 2014 (Cdn$) |  |           | Cdn$ change in2015 |  |  | % change in2015 | 
|-------------------------------- |  | ----------- | ---------- |  | ----------- |  | --------- | ------------------ |  |  | --------------- | 
|Loss                             |  |             | 16,052,941 |  |             |  | 4,026,330 |                    |  |  | 12,026,611      | 
|Basic and diluted loss per share |  |             | 2.56       |  |             |  | 1.15      |                    |  |  | 1.41            | 



Net loss for the
six months ended June 30, 2015 exceeded the loss for the six months ended June 30, 2014 due mainly to higher research and development
program costs related to the APL-130277 program, higher personnel costs with the number of staff increasing from eight to 17 people,
higher professional fees, investor relations and shareholder relations costs, fees related to the application and listing on NASDAQ,
and higher share-based compensation expenses.



Basic loss per
share is calculated using the weighted average number of shares outstanding during the period. As a result of losses in the respective
periods, there is no dilutive loss per share calculation.



The weighted average
number of common shares outstanding for the six months ended June 30, 2015 was 6,280,674 (2014 – 3,501,059).The
weighted average number of common shares outstanding increased primarily as a result of 1,377,467 common shares issued in a private
placement on March 31, 2015, and 5,175,000 common shares issued in our initial public offering in the United States on June 23,
2015.



Research and Development (R&D)



For the six months ended June 30,



|                               |  | 2015 (Cdn$) |            |  | 2014 (Cdn$) |  |           | Cdn$ change in2015 |  |  | % change in2015 | 
|------------------------------ |  | ----------- | ---------- |  | ----------- |  | --------- | ------------------ |  |  | --------------- | 
|Salaries, benefits and bonuses |  |             | 845,015    |  |             |  | 114,077   |                    |  |  | 730,938         | 
|Other R&D                      |  |             | 9,906,655  |  |             |  | 1,498,781 |                    |  |  | 8,407,874       | 
|Total R&D                      |  |             | 10,751,670 |  |             |  | 1,612,858 |                    |  |  | 9,138,812       | 



Research and development
expenses for the six months ended June 30, 2015 were substantially higher than for the six months ended June 30, 2014 due to increased
activity associated with the APL-130277 program. Expenditures increased as a result of increases in salaries and benefits associated
with additional staff, consulting, clinical research, packaging development, patent protection, analytics, and scale-up CMC work
for APL-130277.



Operating, General and Administrative
(OG&A)



For the six months ended June 30,



|                                           |  | 2015 (Cdn$) |           |  | 2014 (Cdn$) |  |           | Cdn$ change in2015 |  |  | % change in2015 | 
|------------------------------------------ |  | ----------- | --------- |  | ----------- |  | --------- | ------------------ |  |  | --------------- | 
|Salaries, benefits, bonuses and board fees |  |             | 1,222,676 |  |             |  | 604,759   |                    |  |  | 617,917         | 
|Other OG&A                                 |  |             | 2,595,297 |  |             |  | 1,247,715 |                    |  |  | 1,347,582       | 
|Total OG&A                                 |  |             | 3,817,973 |  |             |  | 1,852,474 |                    |  |  | 1,965,499       | 



-27-






OG&A costs
for the six months ended June 30, 2015 were higher than for the comparable period in 2014 due mainly to increases in salaries
and benefits associated with the addition of new staff, investor and public relations activities, professional fees, increases
in employee base salaries, increased board fees related to the public offering in the United States, and travel costs.



Other Expenses
(Recoveries)



For the six months ended June 30,



|                                                            |  | 2015 (Cdn$) |            |   | 2014 (Cdn$) |  |          | Cdn$ change in2015 |  |  | % change in2015 |  
|----------------------------------------------------------- |  | ----------- | ---------- | - | ----------- |  | -------- | ------------------ |  |  | --------------- | -
|Share-based payments                                        |  |             | 1,875,073  |   |             |  | 418,096  |                    |  |  | 1,456,977       |  
|Amortization of intangible assets                           |  |             | 23,938     |   |             |  | 29,493   |                    |  |  | (5,555          | )
|Depreciation of property, plant and equipment               |  |             | 41,701     |   |             |  | 2,435    |                    |  |  | 39,266          |  
|Acquisition milestone share-based payment                   |  |             | 1,500,000  |   |             |  | -        |                    |  |  | 1,500,000       |  
|Unrealized foreign exchange (gain) loss                     |  |             | (1,745,025 | ) |             |  | 390,225  |                    |  |  | (2,135,250      | )
|Recovery on scientific research                             |  |             | (70,000    | ) |             |  | (20,000  | )                  |  |  | (50,000         | )
|Research grant                                              |  |             | (127,710   | ) |             |  | (239,968 | )                  |  |  | 112,258         |  
|Interest income net of interest expense and related charges |  |             | (14,679    | ) |             |  | (19,283  | )                  |  |  | (4,604          | )



Under the terms
of the amended Adagio Share Purchase Agreement, we are required to pay the former Adagio shareholders contingent consideration
upon the completion of certain operational milestones. (See “Contractual Obligations and Commitments” below.) On March 11,
2015, we announced the results of our end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio
shareholders of 69,960 newly issued common shares. The fair value of these shares, in the amount of Cdn$1,500,000, was recorded
as an expense during the three months ended March 31, 2015.



Foreign exchange
gains for the six months ended June 30, 2015 were Cdn$1,745,025 compared to a loss of Cdn$390,225 in the six months ended June
30, 2014 due to unrealized gains on significantly higher U.S. dollar cash balances on hand at June 30, 2015, combined with
a strengthening of the U.S. dollar, compared to June 30, 2014. As at June 30, 2015, we had cash of US$86,441,773 denominated in
U.S. dollars, compared to US$13,032,596 as at June 30, 2014.



Share-based payments
increased to Cdn$1,875,073 for the six months ended June 30, 2015 from Cdn$418,096 for the six months ended June 30, 2014, primarily
due to the expense related to 248,743 stock options granted on April 2, 2015, as well as compensation expense recognized over
the vesting period for stock options previously granted.



-28-






Research grants
for the six months ended June 30, 2015 represent the final installment of the second The Michael J. Fox Foundation for Parkinson’s
Research, or MJFF, grant received, while research grants recognized in the six months ended June 30, 2014 relate to amounts previously
deferred from the first MJFF grant. MJFF grants were awarded to support clinical research activities and have been recognized
in accordance with IFRS.



Summary of Quarterly Results



The following table presents a summary
of our unaudited quarterly results of operations for each of our last eight quarters. This data has been derived from our unaudited
condensed interim consolidated financial statements, which the policies applied were based on IFRS and the same basis as our annual
audited financial statements and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments,
for the fair presentation of such information.



Financial Information (in Canadian
dollars):



(Numbers rounded to the nearest thousands)



|                                                                |  | Q2
                                         2015 (Cdn$) |             |   | Q1
                                         2015 (Cdn$) |  |            | Q4
                                         2014 (Cdn$) |  |  | Q3
                                         2014 (Cdn$) |  
|--------------------------------------------------------------- |  | ------------------------------------------------------- | ----------- | - | ------------------------------------------------------- |  | ---------- | ------------------------------------------------------- |  |  | ------------------------------------------------------- | -
|Total assets                                                    |  |                                                         | 112,957,000 |   |                                                         |  | 38,434,000 |                                                         |  |  | 18,551,000                                              |  
|R&D                                                             |  |                                                         | 7,881,000   |   |                                                         |  | 2,871,000  |                                                         |  |  | 3,333,000                                               |  
|OG&A                                                            |  |                                                         | 2,040,000   |   |                                                         |  | 1,778,000  |                                                         |  |  | 2,148,000                                               |  
|Other operating expenses                                        |  |                                                         | 1,044,000   |   |                                                         |  | 582,000    |                                                         |  |  | (22,000                                                 | )
|Research grant                                                  |  |                                                         | -           |   |                                                         |  | (128,000   | )                                                       |  |  | (343,000                                                | )
|Interest income net of interest expense and related
    charges |  |                                                         | (6,000      | ) |                                                         |  | (9,000     | )                                                       |  |  | (16,000                                                 | )
|Loss and comprehensive loss                                     |  |                                                         | 10,959,000  |   |                                                         |  | 5,094,000  |                                                         |  |  | 5,100,000                                               |  
|Loss per share (basic and diluted)                              |  |                                                         | 1.50        |   |                                                         |  | 0.97       |                                                         |  |  | 1.03                                                    |  



|                                                                |  | Q2
                                         2014 (Cdn$) |            |   | Q1
                                         2014 (Cdn$) |  |           | Q4
                                         2013 (Cdn$) |  |  | Q3
                                         2013 (Cdn$) |  
|--------------------------------------------------------------- |  | ------------------------------------------------------- | ---------- | - | ------------------------------------------------------- |  | --------- | ------------------------------------------------------- |  |  | ------------------------------------------------------- | -
|Total assets                                                    |  |                                                         | 21,540,000 |   |                                                         |  | 2,398,000 |                                                         |  |  | 3,149,000                                               |  
|R&D                                                             |  |                                                         | 1,164,000  |   |                                                         |  | 449,000   |                                                         |  |  | 946,000                                                 |  
|OG&A                                                            |  |                                                         | 894,000    |   |                                                         |  | 958,000   |                                                         |  |  | 1,033,000                                               |  
|Other operating expenses                                        |  |                                                         | 775,000    |   |                                                         |  | 45,000    |                                                         |  |  | 85,000                                                  |  
|Research grant                                                  |  |                                                         | -          |   |                                                         |  | (240,000  | )                                                       |  |  | (213,000                                                | )
|Interest income net of interest expense and related
    charges |  |                                                         | (17,000    | ) |                                                         |  | (2,000    | )                                                       |  |  | (1,000                                                  | )
|Loss and comprehensive loss                                     |  |                                                         | 2,816,000  |   |                                                         |  | 1,210,000 |                                                         |  |  | 1,851,000                                               |  
|Loss per share (basic and diluted)                              |  |                                                         | 0.62       |   |                                                         |  | 0.49      |                                                         |  |  | 0.76                                                    |  



-29-






Income Taxes



Our management uses estimates when determining
deferred income taxes. These estimates are used to determine the recoverability of tax loss carry forward amounts, research and
development expenditures and investment tax credits. Significant judgment is required regarding our future profitability to be
able to recognize deferred taxes. Changes in market conditions, changes in tax legislation, patent challenges and other factors,
including the approval or launch of generic versions of our products, could adversely affect the ongoing value of deferred taxes.
The carrying amount of deferred income tax assets is reassessed at each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to utilize all or part of the deferred income tax assets.
Unrecognized deferred income tax assets are reassessed at each reporting period and are recognized to the extent that it is probable
that there will be sufficient taxable profits to allow all or part of the asset to be recovered.



We had approximately Cdn$26,316,000 of
non-capital losses as at December 31, 2014, which under certain circumstances can be used to reduce the taxable income of future
years. We currently have not recognized any deferred income tax assets with respect to these balances.



Liquidity and Capital Resources



Since inception,
our cash requirements have been financed primarily through issuances of securities and secured debentures. We anticipate future
funding requirements to be met primarily through additional securities issuances, debentures, research and development tax credits,
other potential sources of government funding, grants from foundations that support PD research, or a combination of the above.



The development
of pharmaceutical products is a process that requires significant investment. We expect to incur significant research and development
expenses, including expenses related to completing Phase 3 clinical trials, NDA submission with the FDA, commercialization studies,
and preparation for a U.S. product launch. We also expect that our general and administrative expenses will increase in the future
as we add infrastructure, including personnel costs, investor relations activities and professional fees.



Our future capital
requirements will depend on a number of factors, including the continued progress of our research and development for our APL-130277
product candidate, the timing and outcome of clinical trials and regulatory approvals, payments received or made under licensing
or other collaborative agreements, if any, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing
patent claims and other intellectual property rights, defending against patent infringement claims, the acquisition of licenses
or technologies, the status of competitive products and our success in developing and maintaining markets for our product candidate,
if approved.



Our cash balance
was Cdn$111,455,042 at June 30, 2015 compared to Cdn$17,448,497 at December 31, 2014. Accounts payable and accrued liabilities
as at June 30, 2015 was Cdn$4,228,670 compared to Cdn$3,080,631 at December 31, 2014.



Our cash and cash
equivalents balance was Cdn$17,448,497 at December 31, 2014 compared to Cdn$2,289,046 at December 31, 2013. Accounts
payable and accrued liabilities as at December 31, 2014 were Cdn$3,080,631 compared to Cdn$2,315,082 at December 31,
2013.



Based on our current
operating plan, we believe that existing cash will be sufficient to fund research and development and OG&A overhead expenditures,
complete Phase 3 clinical studies and CMC requirements for an NDA in the United States in 2016, continue to prepare for commercial
launch of APL-130277 in the U.S. market in late 2017, commence initial regulatory, clinical and commercial activities for European
market registration, and initiate other early stage pipeline development programs.



-30-






There are a significant
number of warrants and options outstanding, some of which are in-the-money and may provide future sources of capital. As at June
30, 2015, we had 879,759 warrants outstanding with an exercise price of Cdn$9.20, which, if exercised, could result in gross proceeds
to us of approximately Cdn$8,093,783. Also, as at June 30, 2015, we had 2,368,733 warrants outstanding with an exercise price
of Cdn$12.96, which, if exercised, could result in gross proceeds to us of approximately Cdn$30,699,298.



Operating
Activities



For the three
months ended June 30, 2015, our operating activities used cash of Cdn$7,568,654 compared to Cdn$3,265,835 in the three months
ended June 30, 2014. The increase is primarily attributed to increased research and development expenses associated with Phase
3 clinical trials for the APL-130277 product candidate. Cash used in operating activities for the three months ended June 30,
2015 reflects the net loss of Cdn$10,958,509 for the three months ended June 30, 2015, adjusted for non-cash items including share-based
payments, amortization of intangible assets, depreciation of property, plant and equipment, changes in non-cash working capital
(including prepaid expenses and other current assets, and accounts payable and accrued liabilities) and unrealized gain on foreign
exchange.



For the six months
ended June 30, 2015, our operating activities used cash of Cdn$13,258,555 compared to Cdn$4,942,221 in the six months ended
June 30, 2014. The increase is primarily attributed to increased research and development expenses associated with Phase 3 clinical
trials for the APL-130277 product candidate. Cash used in operating activities for the six months ended June 30, 2015 reflects
the net loss of Cdn$16,052,941 for the six months ended June 30, 2015, adjusted for non-cash items including share-based payments,
amortization of intangible assets, depreciation of property, plant and equipment, changes in non-cash working capital (including
prepaid expenses and other current assets, and accounts payable and accrued liabilities), acquisition milestone share-based payment
and unrealized gain on foreign exchange.



For the year ended
December 31, 2014, our operating activities used cash of Cdn$9,990,841 compared to Cdn$4,182,839 in the year ended December 31,
2013. The increase is primarily attributed to the resumption of expenditures that were constrained in the prior years due to lack
of financial resources. Cash used in operating activities for the year ended December 31, 2014 reflects the net loss of Cdn$10,818,587
for the year ended December 31, 2014, adjusted for non-cash items including share-based payments, amortization of intangible
assets, depreciation of property, plant and equipment, changes in non-cash working capital (including prepaid expenses and other
current assets, accounts payable and accrued liabilities, and deferred grant proceeds) and unrealized gain on foreign exchange.



Investing
Activities



For the three
months ended June 30, 2015, we purchased Cdn$37,690 of computer equipment and leasehold improvements, compared to Cdn$17,096 in
the three months ended June 30, 2014.



For the six months
ended June 30, 2015, we purchased Cdn$170,836 of computer equipment and leasehold improvements, compared to Cdn$17,096 in the
six months ended June 30, 2014.



For the year ended
December 31, 2014, we purchased Cdn$260,224 of furniture and computer equipment, compared to Cdn$11,442 in the year ended
December 31, 2013.



-31-






Financing Activities



For the three
months ended June 30, 2015, our net financing activities generated cash of Cdn$81,837,781, compared to Cdn$23,028,084 for the
three months ended June 30, 2014.



For the six months
ended June 30, 2015, our net financing activities generated cash of Cdn$105,690,911 compared to Cdn$23,697,350 for the six months
ended June 30, 2014.



During the second
quarter of 2015, we completed an underwritten public offering in the United States of 5,175,000 common shares for net proceeds
of Cdn$81,298,214 (approximately US$66.4 million), while in in the three months ended June 30, 2014, we generated Cdn$22,840,236
from the completion of a short form prospectus offering in Canada with a concurrent U.S. private placement. In addition, during
the three months ended June 30, 2015, we generated Cdn$539,567 in proceeds from the exercise of warrants, while in the three months
ended June 30, 2014, we generated Cdn$12,501 in proceeds from the exercise of warrants.



During the first
quarter of 2015, we raised net proceeds of Cdn$19,513,550 through a private placement of common shares. In addition, during the
three months ended March 31, 2015, we generated Cdn$4,253,874 in proceeds from the exercise of warrants, and Cdn$85,706 in
proceeds from the exercise of share-based payments, while in the three months ended March 31, 2014, we generated Cdn$724,495
in proceeds from the exercise of warrants.



For the year ended
December 31, 2014, our net financing activities generated cash of Cdn$24,718,938, compared to Cdn$6,432,926 for the year
ended December 31, 2013. During 2014, we raised Cdn$25 million through a short form prospectus offering of units in Canada,
less transaction costs of Cdn$2,159,764, compared to Cdn$7,317,536 raised, less transaction costs of Cdn$667,186, in the year
ended December 31, 2013. In addition, during the year ended December 31, 2014, we generated Cdn$1,758,584 in proceeds
from the exercise of share purchase warrants, and Cdn$120,118 in proceeds from the exercise of stock options, while in the year
ended December 31, 2013, we used Cdn$217,424 as a partial repayment of debentures.



Effect of Exchange Rate Changes



For the three
months ended June 30, 2015, the effect of exchange rate changes on cash was Cdn$562,593 as result of the Canadian dollar weakening
relative to the U.S. dollar.



For the six months
ended June 30, 2015, the effect of exchange rate changes on cash was Cdn$1,745,025 as result of the Canadian dollar weakening
relative to the U.S. dollar.



As at June 30,
2015, we had cash of US$86,232,733 and accounts payable and accrued liabilities of US$1,658,199 denominated in U.S. dollars (December
31, 2014 – US$12,370,423 and US$1,539,496, respectively).



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



-32-






Related Party
Transactions



Key management
personnel are those persons having authority and responsibility for planning, directing and controlling the activities of Cynapsus,
including directors and senior executives. Compensation paid or payable to key management was composed of the following during
the three and six months ended June 30, 2015 and June 30, 2014, respectively:



|                                                        |  | Three Months Ended June 30, |           |  | Six Months Ended June 30, | 
|------------------------------------------------------- |  | --------------------------- | --------- |  | ------------------------- | 
|                                                        |  | 2015                        |           |  | 2014                      | 
|                                                        |  | (Cdn$)                      |           |  | (Cdn$)                    | 
|Short-term salaries, benefits and bonuses to executives |  |                             | 462,967   |  |                           | 
|Directors’ fees                                         |  |                             | 293,750   |  |                           | 
|Share-based payments                                    |  |                             | 3,310,825 |  |                           | 
|Total Related Party Transactions                        |  |                             | 4,067,542 |  |                           | 



As at June 30,
2015, included in accounts payable and accrued liabilities was Cdn$386,412 (December 31, 2014 - $128,713) due to our officers
and directors. These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at June 30, 2015, Cdn$249,000
was accrued as bonuses to related parties (December 31, 2014 - Cdn$508,710).



The employment
agreements with our executive officers provide for additional payments in the event of termination without cause.



On March 11, 2015,
we announced the results of the end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders
of 69,960 common shares. Of the total, 37,652 common shares were issued to our President and Chief Executive Officer.



As part of the
March 31, 2015 private placement, the Dexcel Pharma Group, a strategic pharmaceutical investor and significant shareholder of
Cynapsus, and which also has two directors on our board of directors, subscribed for 271,381 common shares having an aggregate
subscription price of Cdn$4,133,684.



As part of the
June 23, 2015 public offering in the United States, the Dexcel Pharma Group subscribed for 733,500 common shares having an aggregate
subscription price of Cdn$12,658,596 (US$10,269,000).



-33-








Contractual
Obligations and Commitments



As
at June 30, 2015, we had research and development and other service contract commitments, as well as minimum future payments under
operating leases for the periods presented as follows:



|                              |  | Less than 1 year(Cdn$) |           |  | 1 - 2 Years(Cdn$) |  |       | Total(Cdn$) | 
|----------------------------- |  | ---------------------- | --------- |  | ----------------- |  | ----- | ----------- | 
|Purchase Obligations          |  |                        | 9,094,000 |  |                   |  | -     |             | 
|Operating Leases              |  |                        | 95,000    |  |                   |  | 5,000 |             | 
|Total Contractual Obligations |  |                        | 9,189,000 |  |                   |  | 5,000 |             | 



Of the total purchase
obligations, one consulting contract contains a change of control clause in which, subject to certain conditions, we agreed to
pay the vendor an amount equal to fees based on the minimum billable hours for the remainder of the agreement term. As a triggering
event has not taken place, these contingent payments have not been recognized in our financial statements. We do not have a practicable
estimate for the expected value of this contingent liability due to the nature of the triggering event. As at June 30, 2015, the
maximum amount of any contingent liability, based on a remaining term of 11 months, was Cdn$421,000, which was included in the
amount of unrecognized purchase obligations.



We are a party
to certain management contracts for our executive officers. Minimum management contract termination commitments remaining under
the agreements, for termination without cause, are approximately Cdn$1,940,425 and are all payable within one year.



On December 22,
2011, we completed the acquisition of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio, which
we refer to as the Transaction. The Transaction was structured as a share exchange with Adagio shareholders receiving newly issued
common shares of Cynapsus in exchange for all of the issued and outstanding shares of Adagio. On January 28, 2015, we and
the former Adagio shareholders, who are substantially represented by key management and therefore are related parties, signed
an amendment to the Adagio Share Purchase Agreement to better reflect the contemplated agreement between the parties. Adagio shareholders
are entitled to a payment of Cdn$2,500,000 conditional upon the successful completion of the APL-130277 final safety study, to
be satisfied by the issuance of common shares at a deemed value equal to the 30 day volume weighted average trading price, or
VWAP, immediately prior to the first public announcement of the results of such study. This study had not been started as of June
30, 2015. The VWAP of the common shares may not be less than the “discounted market price” as defined in the policies
of the TSX.



Our President
and Chief Executive Officer was also a director, officer and majority shareholder of Adagio. To satisfy our board of director’s
fiduciary duties and to appropriately manage the related party transaction, our board of directors appointed an independent special
committee of our board of directors with independent legal counsel. In addition, the special committee of our board of directors
retained an independent registered financial advisor registered with the Financial Industry Regulatory Authority, Inc., or FINRA,
to provide a fairness opinion. We also obtained minority shareholder approval.



As a condition
of the MJFF grant agreement, we are required to support further PD research by making up to US$1,000,000 in contributions to MJFF
conditional on future sales of APL-130277.



-34-






Critical Accounting
Policies and Estimates



A summary of significant
accounting policies is included in Note 6 of our audited consolidated financial statements for the year ended December 31,
2014. Critical accounting estimates require our management to make judgments, estimates and assumptions that affect the application
of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and
reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. Changes
in our management’s accounting estimates can have a material impact on our financial results. Our significant accounting
judgments, estimates and assumptions are included in Note 5 of our audited consolidated financial statements for the year ended
December 31, 2014 and are also described below.



The estimates
and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in
which the estimate is revised and in any future periods affected. The areas involving a higher degree of judgment or complexity,
or areas where the assumptions and estimates are significant to the financial statements were the same as those applied to our
consolidated financial statements as at and for the year ended December 31, 2014.



Intangible
assets



We estimate the
useful lives of intangible assets from the date they are available for use in the manner intended by our management and periodically
review the useful lives to reflect our management’s intent about developing and commercializing the assets. Our management
also estimates their recoverability to assess if there has been an impairment. The amounts and timing of recorded expenses for
amortization and impairments of intangible assets for any period are affected by these estimates. The estimates are reviewed at
least annually and are updated if expectations change as a result of technical or commercial obsolescence, generic threats and
legal or other limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful
lives of our intangible assets in the future.



Share-based
payments



Our management
determines costs for share-based payments using market-based valuation techniques. The fair value of the market-based and performance-based
share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgments
are used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the stock
price, expected dividend yield, future employee turnover rates and future employee stock option exercise behaviors and corporate
performance. Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.



-35-






Share Capital



Since the three months
ended June 30, 2015, the following changes have occurred to common shares, stock options and warrants:



|                      |  | As at August 13, 2015                                     |           
|--------------------- |  | --------------------------------------------------------- | ----------
|                      |  | Number
                                         of shares |           
|                      |  | #                                                         |           
|As at June 30, 2015   |  |                                                           | 12,114,364
|Warrants exercised    |  |                                                           | 2,937     
|Options issued        |  |                                                           | -         
|As at August 13, 2015 |  |                                                           | 12,117,301



Exercised Warrants



Summary of warrants exercised since the
six months ended June 30, 2015 are as follows:



|Number of Warrants |       |  | Cash Proceeds |  |        | Exercise Price |  |  | Expiry Date  
|------------------ | ----- |  | ------------- |  | ------ | -------------- |  |  | -------------
|#                  |       |  | $             |  |        | $              |  |  |              
|2,000              |       |  | 18,400        |  |        | 9.20           |  |  | March 1, 2018
|                   | 937   |  |               |  | 12,144 |                |  |  | 12.96        
|                   | 2,937 |  |               |  | 30,544 |                |  |  |              



-36-






| | ITEM 3. | QUANTITATIVE AND QUALITATIVE
                                         DISCLOSURES ABOUT MARKET RISK.
| | ------- | ----------------------------------------------------------------------------------------------------



FINANCIAL RISK MANAGEMENT



In the normal
course of business, we are exposed to a number of financial risks that can affect our operating performance. These risks are credit
risk, liquidity risk and market risk. Our overall risk management program and prudent business practices seek to minimize any
potential adverse effects on our financial performance. There were no changes in our approach to risk management during the three
months ended June 30, 2015.



Credit risk



Our cash balance
is on deposit with a Canadian chartered bank. We have no significant concentration of credit risk arising from operations. Our
management believes that the credit risk concentration with respect to these financial instruments is remote.



Liquidity risk



Our approach to
managing liquidity risk is to ensure that we will have sufficient liquidity to meet liabilities when due. As at June 30, 2015,
we had cash of Cdn$111,455,042 and prepaid expenses and other current assets of Cdn$564,289 (December 31, 2014 - Cdn$17,448,497
and Cdn$269,779, respectively) to settle current liabilities of Cdn$4,473,840 (December 31, 2014 - Cdn$3,080,631). Our accounts
payable and accrued liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.



Market risk



| | (a) | Interest rate risk
| | --- | ------------------



| |  | We had a cash balance of Cdn$111,455,042 as at June 30, 2015
                                         (December 31, 2014 - Cdn$17,448,497). Our current policy is to invest excess cash in
                                         a business savings account and investment-grade short-term deposit certificates issued
                                         by our banking institutions. We periodically monitor the investments we make and are
                                         satisfied with the credit ratings of our banks. We consider interest rate risk to be
                                         minimal as investments are short-term.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (b) | Foreign currency risk
| | --- | ---------------------







| |  | Foreign currency risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our functional and
presentation currency is the Canadian dollar and all amounts in the condensed interim consolidated financial statements are expressed
in Canadian dollars, unless otherwise noted. We fund the majority of research and development expenses in the United States from
our U.S. dollar bank account held in Canada and certain expenses in Europe on a cash call basis using the Euro converted from
our Canadian dollar bank accounts held in Canada. We believe that while currency conversions could affect results of operations,
there is not a significant risk to our ability to meet our obligations. We do not use derivative instruments to hedge our foreign
currency risk.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The following table summarizes accounts denominated
in U.S. dollars, reported in Canadian dollar equivalents, and the effective US$/Cdn$ exchange rate applied as at:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  | June 30, 2015 |             |   | December 31, 2014 | 
|---------------------- |  | ------------- | ----------- | - | ----------------- | 
|                       |  | (Cdn$)        |             |   | (Cdn$)            | 
|Cash                   |  |               | 107,913,724 |   |                   | 
|Accounts payable       |  |               | (2,070,117  | ) |                   | 
|Net exposure           |  |               | 105,843,607 |   |                   | 
|                       |  |               |             |   |                   | 
|US$/Cdn$ exchange rate |  |               | 1.249       |   |                   | 



| |  | Based on our foreign currency exposures noted above,
a 10% strengthening of the U.S. dollar against the Canadian dollar as at dates indicated would have decreased the net loss by
approximately Cdn$10,600,000 (December 31, 2014 - Cdn$1,100,000), assuming all other variables remained constant. A 10% weakening
of the U.S. dollar would have an opposite effect, assuming that all other variables remained constant.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-37-






| | (c) | Price risk
| | --- | ----------



| |  | We are exposed to price risk with respect to active pharmaceutical
                                         ingredient, or API, prices used in research and development activities. We monitor API
                                         prices in the United States, Europe and Asia to determine the appropriate course of action
                                         to be taken by us. Our management believes that the price risk concentration with respect
                                         to API is minimal.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | Fair value
| | --- | ----------



| |  | IFRS require that we disclose information about the fair value
                                         of our financial assets and liabilities. Fair value estimates are made at the consolidated
                                         statement of financial position date based on relevant market information and information
                                         about the financial instrument. These estimates are subjective in nature and involve
                                         uncertainties in significant matters of judgment and, therefore, cannot be determined
                                         with precision. Changes in assumptions could significantly affect these estimates.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cash is classified as loans and receivables, which is measured
                                         at amortized cost. Accounts payable and accrued liabilities are classified as other financial
                                         liabilities, which are measured at amortized cost.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The carrying amounts for cash, accounts payable and accrued
                                         liabilities on the consolidated statement of financial position approximate fair value
                                         because of the short term of these instruments.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capital risk management



We manage our capital structure and make
adjustments to it, based on the funds available to us, in order to support our research and development activities. Our capital
structure consists of share capital and equity reserves. Our board of directors does not establish quantitative return on capital
criteria for management but rather relies on the expertise of our management to sustain future development of the business.



The product candidates which we currently
have in our pipeline are in the research stage; as such, we are dependent on external financing to fund our activities. In order
to carry out the planned research and development and pay for administration costs, we will spend our existing working capital
and raise additional amounts as needed.



Management reviews our capital management
approach on an ongoing basis and believes that this approach, given our relative size, is reasonable.



There were no changes in our approach to
capital management during the three and six months ended June 30, 2015. We and our subsidiary are not subject to externally imposed
capital requirements.



-38-






| | ITEM 4. | CONTROLS AND PROCEDURES.
| | ------- | ------------------------



We conducted an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was conducted
under the supervision and with the participation of management, including our President and Chief Executive Officer (“CEO”),
who is our principal executive officer, and Chief Operating Officer and Chief Financial Officer (“CFO”), who is our
principal financial officer, as of December 31, 2014. Based on the evaluation, our CEO and CFO concluded that such disclosure
controls and procedures—as defined in Canada under National Instrument 52-109—Certification of Disclosure in Issuers’
Annual and Interim Filings, are effective as at December 31, 2014.



We also conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Such evaluation was conducted under the supervision and
with the participation of management, including our CEO and CFO, as of June 30, 2015. Based on such evaluation, our CEO and CFO
concluded that as of June 30, 2015, such disclosure controls and procedures were effective to ensure that information required
to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in SEC rules and forms, and accumulated and communicated to our management, including our CEO
and CFO, to allow timely decisions regarding required disclosure.



It should be noted
that while our disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving their objectives,
our CEO and CFO do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent
all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.



There were no
changes in our internal control over financial reporting during the quarter ended June 30, 2015 that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



-39-






PART II - OTHER
INFORMATION



| | ITEM 1A. | RISK FACTORS.
| | -------- | -------------



Investing in
our common shares involves numerous risks. You should carefully consider the risks and uncertainties described below together
with all of the other information contained in this Quarterly Report on Form 10-Q, including our consolidated financial statements
and related notes appearing in this Quarterly Report on Form 10-Q, before deciding to invest in our common shares. If any of the
following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the
trading price of our common shares could decline and you could lose all or part of your investment. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently
believe to be immaterial may also adversely affect our business.



This
Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the
risks faced by us described below and elsewhere in this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking
Statements” for information relating to these forward-looking statements.



Risks Related to Our Financial Position and Need for Additional
Capital



We have incurred net losses since our inception
and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or
sustain profitability.



We have incurred net losses during each
fiscal period since our inception. Our net loss was Cdn$10.8 million for the year ended December 31, 2014, and Cdn$4.4 million
for the year ended December 31, 2013. As of December 31, 2014, we had a deficit accumulated during the development stage of Cdn$32.5
million. Our net loss was Cdn$11.0 million for the quarter ended June 30, 2015, and as of June 30, 2015, we had a deficit of Cdn$48.6
million. We do not know when or whether we will become profitable. To date, we have not commercialized any products or generated
any revenues from the sale of products, and we do not expect to generate any product revenues in the foreseeable future. Our losses
have resulted principally from costs incurred in our research and development activities. Our net losses may fluctuate significantly
from quarter-to-quarter and year-to-year.



We have devoted most of our financial resources
to research and development, including our clinical and preclinical development activities. To date, we have financed our operations
primarily through the sale of equity securities and debt and, to a lesser extent, through grants from charitable foundations.
The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding
through equity or debt financings, strategic collaborations (such as licensing agreements or the sale of a share of our revenue
stream) or additional grants. We have not completed pivotal clinical trials for our product candidate and it will be a few years,
if ever, before our product candidate APL-130277 is ready for commercialization. Even if we obtain regulatory approval to market
our product candidate, our future revenues (if any) will depend upon a number of factors, including the size of any markets in
which our product candidate has received approval, and our ability to achieve sufficient market acceptance, reimbursement from
third-party payors and adequate market share for our product candidate in those markets.



We expect to continue to incur significant
expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in
connection with our ongoing activities, as we:



-40-






| | • | conduct our Phase 3 clinical trials for APL-130277;
| | - | ---------------------------------------------------



| | • | prepare and submit our Section 505(b)(2) NDA to the FDA;
| | - | --------------------------------------------------------



| | • | seek regulatory approval for APL-130277 in the United States
                                         and elsewhere;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | add personnel to support our product development and commercialization
                                         efforts;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | continue evaluating additional product opportunities within
                                         the CNS field; and
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | operate as a public company in both Canada and the United
                                         States.
| | - | ----------------------------------------------------------------------------------------------------------



If we are required by the FDA, or any equivalent
foreign regulatory authority, to perform clinical trials or studies in addition to those we currently expect to conduct, or if
there are any delays in completing the clinical trials of APL-130277, our expenses could further increase.



To become and remain profitable, we must
succeed in developing our product candidate, obtaining regulatory approval for it, and manufacturing, marketing and selling our
product when and if we obtain regulatory approval in the United States or elsewhere. We may not succeed in these activities, and
we may never generate revenue from our product sales that is significant enough to achieve profitability. Even if we achieve profitability
in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would
depress our market value and could impair our ability to raise capital, expand our business, discover or develop other product
candidates or continue our operations. A decline in our value could cause you to lose all or part of your investment.



We will require substantial additional financing
to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate
our product development or commercialization efforts.



Our cash was Cdn$111.5 million as of June
30, 2015. Based on our current operating plan, we believe that our existing cash will be sufficient to fund research and development
and OG&A overhead expenditures, complete Phase 3 clinical studies and CMC requirements for the filing of an NDA in 2016 under
the abbreviated Section 505(b)(2) regulatory pathway in the United States, continue to prepare for commercial launch of APL-130277
in the U.S. market in late 2017, commence initial regulatory and clinical activities for European market registration, and initiate
other early stage pipeline development programs. We believe that we will continue to expend substantial resources for the foreseeable
future developing APL-130277. These expenditures will include costs associated with research and development, conducting Phase
3 clinical trials, potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products
approved for sale, if any, and potentially acquiring new technologies. In addition, other unanticipated costs may arise. Because
the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts
necessary to successfully complete the development and commercialization of our product candidate. Our costs will increase if
we suffer any delays in our Phase 3 clinical trials for APL-130277, including, without limitation, delays in enrollment of patients.
We expect to continue incurring additional costs associated with operating as a public company in the United States, hiring additional
personnel and expanding our facilities.



Our future capital requirements depend
on many factors, including:



| | • | the scope, progress, results and costs of researching and
                                         developing APL-130277 and conducting clinical trials in the United States and elsewhere;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the timing of, and the costs involved in, obtaining regulatory
                                         approvals in the United States, Europe and elsewhere for APL-130277 if clinical trials
                                         are successful;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-41-






| | • | the cost of commercialization activities for APL-130277, if
                                         our product candidate is approved for sale, including marketing, sales and distribution
                                         costs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the cost of manufacturing APL-130277 for clinical trials in
                                         preparation for regulatory approval and in preparation for commercialization;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our ability to establish and maintain licensing or other arrangements
                                         with third-parties and the financial terms of such agreements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs involved in preparing, filing, prosecuting, maintaining,
                                         defending and enforcing patent claims, including litigation costs and the outcome of
                                         such litigation; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the timing, receipt, and amount of sales of, or royalties
                                         on, our product candidate, if any.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



Based on our current operating plan, we
believe that our existing cash will be sufficient to fund research and development and OG&A overhead expenditures, complete
Phase 3 clinical studies and CMC requirements for an NDA in the United States in 2016, continue to prepare for commercial launch
of APL-130277 in the U.S. market in late 2017, commence initial regulatory and clinical activities for European market registration,
and initiate other early stage pipeline development programs. However, our operating plan may change as a result of many factors
currently unknown to us. As a result of these factors, we may need additional funds sooner than planned. In addition, we may seek
additional capital due to strategic considerations even if we believe we have sufficient funds for our current or future operating
plans. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds
are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate clinical trials or other development
activities for our product candidates, or delay, limit, reduce or terminate our establishment of sales and marketing capabilities
or other activities that may be necessary to commercialize our product candidate.



Raising additional capital may cause dilution to
our existing shareholders, restrict our operations or require us to relinquish rights to our product candidate on unfavorable
terms to us.



We may seek additional capital through
a variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such
equity or convertible debt securities may include liquidation or other preferences that are senior to, or otherwise adversely
affect, your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take certain actions, such as incurring indebtedness, making capital expenditures, declaring dividends
or encumbering our assets to secure future indebtedness. If we raise additional funds through strategic partnerships with third-parties,
we may have to relinquish valuable rights to our product candidate, or grant licenses on terms that are not favorable to us. If
we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce
or terminate our product development or commercialization efforts for APL-130277, or grant rights to develop and market our product
candidate that we would otherwise prefer to develop and market ourselves or on terms less favorable than we might otherwise negotiate.



-42-






Risks Related to Clinical Development and Regulatory Approval
of Our Product Candidate



Clinical failure may occur at any stage of clinical
development, and we may never succeed in developing marketable products or generating product revenue.



Although the active ingredient in APL-130277,
apomorphine, has been used safely as apomorphine hydrochloride in injectable form for treatment of PD for a number of years, it
has not previously been approved or demonstrated to be safe in sublingual form. Our early encouraging clinical results for APL-130277
are not necessarily predictive of the results of our ongoing or future clinical trials, including our Phase 3 clinical trials,
and the safety of our product candidate. Promising results in preclinical studies and early clinical trials of any product candidate
may not be predictive of similar results in humans during later clinical trials. Any further clinical trials that we may conduct
may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidate and the FDA
could require us to complete additional safety, efficacy or other studies. If the results of our ongoing or future clinical trials
are inconclusive with respect to the efficacy of our product candidate or if we do not meet the clinical endpoints with statistical
significance or if there are safety concerns associated with our product candidate, we may be prevented from or delayed in obtaining
marketing approval for our product candidate. In some instances, there can be significant variability in safety or efficacy results
between different clinical trials of the same product candidate due to numerous factors, including, without limitation, changes
in trial procedures set forth in protocols, differences in the size and type of the patient populations, differences in the dosage
amounts of APL-130277 and the response of patients to such amounts, changes in and adherence to the clinical trial protocols and
the rate of dropout among clinical trial participants.



Alternatively, even if we obtain regulatory
approval, that approval may be for indications or patient populations that are not as broad as intended or desired or may require
labeling that includes significant use or distribution restrictions or safety warnings. For example, certain existing formulations
of apomorphine outside the United States used for the treatment of OFF episodes (ApoGo, ApokinON and Apomin) are currently only
indicated for advanced PD patients, and there can be no assurance that our product candidate will not be similarly limited in
its indications for the treatment of PD. We may also be required by the FDA to perform additional or unanticipated clinical trials
to obtain approval, including, without limitation, an ease-of-use study to be completed in patients in the morning OFF state;
a Thorough QT study in healthy volunteers to determine the potential arrhythmia liability of our product candidate; additional
toxicity studies; and additional safety and/or efficacy studies if the primary endpoint does not show a large enough delta, if
the FDA finds a small safety signal or does not accept our final safety data, or is concerned with our study blinding. We could
also be subject to additional post-approval or post-marketing testing requirements to maintain regulatory approval. In addition,
regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form
of a modified Risk Evaluation and Mitigation Strategy. The failure to obtain timely regulatory approval of our product candidate,
any product marketing limitations or a product withdrawal would negatively impact our business, results of operations and financial
condition.



Delays or failure in the commencement, enrollment
or completion of clinical trials of our product candidate could result in increased costs to us as well as a delay or failure
in obtaining regulatory approval, or prevent us from commercializing our product candidate on a timely basis, or at all.



We cannot guarantee that clinical trials,
including those associated with Phase 3 clinical trials for APL-130277, will be conducted as planned or completed on schedule,
if at all. A delay or failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful
or timely commencement, enrollment or completion of clinical development include, without limitation:



| | • | delays by us in reaching a consensus with regulatory agencies
                                         on trial design;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | delays in reaching agreement on acceptable terms with prospective
                                         clinical research organizations, or CROs, and clinical trial sites;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | delays in obtaining required Institutional Review Board approval
                                         at each clinical trial site;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | • | delays in recruiting suitable patients to participate in clinical
                                         trials and/or recruitment occurring more slowly than expected;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | insufficient or inadequate supply or quality of materials,
                                         including API, to conduct our clinical trials;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



-43-






| | • | imposition of a clinical hold by regulatory agencies for any
                                         reason, including safety concerns or after an inspection of clinical operations or trial
                                         sites;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | failure by CROs, other third-parties or us to adhere to clinical
                                         trial requirements;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | • | failure to perform in accordance with the FDA’s good
                                         clinical practices, or GCP, or applicable regulatory guidelines in other countries;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | delays or other problems in the testing, validation, manufacturing
                                         and delivery of our product candidate to the clinical sites;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | delays or negative results caused by patients not completing
                                         participation in a trial or not returning for post-treatment follow-up;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | delays in clinical trial site start-up;
| | - | ---------------------------------------



| | • | impact of placebo administered on patient participation in
                                         clinical trials and on efficacy of our product candidate;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | failure to adhere to our Phase 3 clinical trial protocols,
                                         including not administering the thin film correctly;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | patients’ inability for whatever reason to dose at home
                                         as a part of such clinical trials;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | • | occurrence of serious adverse events, or AEs, in further clinical
                                         trials that are associated with our product candidate and such AEs viewed to outweigh
                                         our product candidate’s potential benefits;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes in regulatory requirements and guidance that require
                                         amending or submitting new clinical protocols; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | varying interpretations of data by the FDA and foreign regulatory
                                         agencies.
| | - | --------------------------------------------------------------------------------------------------------------------



Moreover, principal investigators for our
clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection
with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA
may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise
affected interpretation of the trial. The FDA may therefore question the integrity of the data generated at the applicable clinical
trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection,
of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of our product candidate.



Delays, including delays caused by the
above or other factors, can be costly and could negatively affect our ability to complete a clinical trial, which could negatively
affect the price of our common shares. If we are not able to successfully complete clinical trials, we will not be able to obtain
regulatory approval and will not be able to commercialize our product candidate.



Clinical development, regulatory review and approval
of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable. If we are ultimately
unable to obtain regulatory approval for our product candidate, our business will be materially adversely affected.



Our product candidate will be subject to
extensive governmental regulations relating to, among other things, development, clinical trials, manufacturing and commercialization.
In order to obtain regulatory approval for the commercial sale of our product candidate, we must demonstrate through extensive
preclinical studies and clinical trials that our product candidate is safe and effective for use in the target indication.



-44-








The time required to obtain approval by
the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical
trials, and depends upon numerous factors.



In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of our product candidate’s
clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an
application. We have not obtained regulatory approval for our product candidate in any jurisdiction, and it is possible that our
product candidate or any product candidates we may seek to develop in the future will not obtain regulatory approval in any jurisdiction.
In addition, we may gain regulatory approval for APL-130277 in some but not all of the jurisdictions available or some but not
all of the target indications, resulting in limited commercial opportunity for our product candidate, if approved.



Applications for our product candidate
could be delayed or could fail to receive regulatory approval for many reasons, including, but not limited to, the following:



| | • | the FDA or comparable foreign regulatory authorities may disagree
                                         with the design or implementation of our clinical trials;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the population studied in the clinical program may not be
                                         sufficiently broad or representative to assure safety in the full population for which
                                         we seek approval;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA or comparable foreign regulatory authorities may disagree
                                         with our interpretation of data from nonclinical studies or clinical trials;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the data collected from clinical trials of our product candidate
                                         may not be sufficient to support the submission of an NDA or other submission or to obtain
                                         regulatory approval in the United States or elsewhere;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may determine that we cannot rely on Section 505(b)(2)
                                         for our product candidate, in which case we may be required to conduct additional clinical
                                         trials, provide additional data and information and meet additional standards for product
                                         approval, resulting in increased time and financial resources required to obtain FDA
                                         approval for our product candidate;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may not grant our product candidate three years of
                                         marketing exclusivity under the United States Drug Price Competition and Patent Term
                                         Restoration Act of 1984;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may determine that we have identified the wrong Reference
                                         Listed Drug, or RLD, or that approval of a Section 505(b)(2) application for our product
                                         candidate is blocked by patent or non-patent exclusivity of the RLD or RLDs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may require us to conduct additional clinical trials
                                         depending on the safety data from our planned future clinical trials, including our Phase
                                         3 clinical trials for APL-130277;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we may be unable to demonstrate to the FDA or comparable foreign
                                         regulatory authorities that our product candidate’s risk-benefit ratio for its
                                         proposed indication is acceptable;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA or comparable foreign regulatory authorities may fail
                                         to approve the manufacturing processes, test procedures and specifications, or facilities
                                         of third-party manufacturers with which we contract for clinical and commercial supplies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our third-party providers may be unable to demonstrate compliance
                                         with current Good Manufacturing Practices, or cGMP, to the satisfaction of the FDA or
                                         comparable foreign regulatory authorities, which could result in delays in regulatory
                                         approval or require us to withdraw or recall products and interrupt commercial supply
                                         of our products; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-45-






| | • | the approval policies or regulations of the FDA or comparable
                                         foreign regulatory authorities may significantly change in a manner rendering our clinical
                                         data insufficient for approval.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This lengthy approval process, as well
as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market our
product candidate or any of our product candidates in the future, which would significantly harm our business, results of operations,
and prospects.



We currently have only one product candidate, APL-130277,
in clinical trials and are substantially dependent on this single product candidate. A failure of this product candidate in clinical
development would adversely affect our business. If we decide to leverage success with our APL-130277 product candidate to develop
other product opportunities, we may not be successful in such efforts.



APL-130277 is our only product candidate.
If we were required to discontinue development of APL-130277, if APL-130277 does not receive regulatory approval, if we do not
obtain our targeted indications for APL-130277 or if APL-130277 fails to achieve sufficient market acceptance for any indication,
we would be delayed by many years in our ability to achieve profitability, if ever. Moreover, if we decide to leverage success
with our APL-130277 product candidate to develop other product opportunities, we may not be successful in such efforts. In any
such event, our business will be materially adversely affected.



If we fail to obtain regulatory approval in jurisdictions
outside the United States, we will not be able to market our products in those jurisdictions.



We intend to market our product candidate,
APL-130277, if approved, in international markets, including in Europe, either directly or through partnerships. Such marketing
will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements, including
initial regulatory and clinical activities for European market registration. The approval procedures vary from country to country
and may require additional testing that we are not required to perform to obtain regulatory approval in the United States. Moreover,
the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside
the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country.
Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one
foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The
foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign
regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize APL-130277 or any of our future products in any market. If we and/or any future partner are unable
to obtain regulatory approval for APL-130277 in one or more significant foreign jurisdictions, then the commercial opportunity
for APL-130277, and our financial condition, will be adversely affected.



Even if we receive regulatory approval for APL-130277
for any indication, it will be subject to ongoing regulatory review, which may result in significant additional expense. Additionally,
our product, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties if we fail to
comply with regulatory requirements or experience unanticipated problems with our product.



Any regulatory approvals that we receive
for our product candidate may also be subject to limitations on the approved indicated uses for which the product may be marketed
or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical
trials, and surveillance to monitor safety and efficacy. In addition, if the FDA or comparable foreign regulatory authorities
approve our product candidate, the manufacturing process, labeling, packaging, distribution, AE reporting, storage, advertising,
promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance
with cGMP and GCP, for any clinical trials that we conduct post-approval.



-46-






Later discovery of previously unknown problems
with our approved product, including AEs of unanticipated severity or frequency, or with manufacturing operations or processes,
or failure to comply with regulatory requirements, may result in, among other things:



| | • | restrictions on the marketing or manufacturing of the product,
                                         withdrawal of the product from the market, or voluntary or mandatory product recalls;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | fines, warning letters, or holds on clinical trials;
| | - | ----------------------------------------------------



| | • | refusal by the FDA or comparable foreign regulatory authorities
                                         to approve supplements to approved applications filed by us, or suspension or revocation
                                         of product license approval;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | product seizure or detention, or refusal to permit the import
                                         or export of our product; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | injunctions or the imposition of civil or criminal penalties.
| | - | -------------------------------------------------------------



The policies of the FDA and comparable
foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidate in the United States or foreign jurisdictions. We cannot predict the likelihood,
nature or extent of government regulation that may arise from future legislation or administrative action, either in the United
States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or not able to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we
may not achieve or sustain profitability, which would adversely affect our business.



Our product candidate may cause undesirable side
effects or have other properties that delay or prevent its regulatory approval or limit its commercial potential.



Undesirable side effects caused by our
product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the
denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Serious AEs deemed
to be caused by our product candidate could have a material adverse effect on the development of our product candidate and our
business as a whole. The AEs seen in clinical studies in healthy volunteers and PD patients to date reflect typical dopaminergic
AEs seen with all dopaminergic medications. In particular, apomorphine, the active ingredient in our product candidate, has been
associated with several safety and tolerability challenges, including nausea, vomiting, lowering of blood pressure and orthostatic
hypotension (a form of low blood pressure that may cause lightheadedness or fainting). Our understanding of the relationship between
APL-130277 and these events may change as we gather more information, and additional unexpected AEs may occur. As we complete
additional clinical trials for our product candidate, the FDA could potentially require labeling recommending extensive physician
monitoring during titration (same as with injectable apomorphine), which could adversely affect the commercial potential of our
product candidate. In addition, although apomorphine has been in use for over 20 years, the long-term impact of using apomorphine
in sublingual delivery form is not well understood. Although side effects exhibited by patients in our clinical trials have been
limited so far, there can be no assurance that, in later clinical trials or if approved, our product candidate will not cause
patients to experience unexpected side effects or expected side effects on a more severe level. Moreover, incorrect or improper
use of our thin film (including if a patient swallows the film rather than allowing it to dissolve under the tongue) will result
in the apomorphine drug not having its intended effect, and may result in additional unexpected side effects or AEs. While we
intend to invest in physician and patient education to foster correct and proper use, there can be no assurance that our product
candidate will be used correctly, and if used incorrectly, such misuse could hamper commercial adoption of our product candidate,
if approved, at the rate we currently expect.



-47-






If we or others identify undesirable side
effects caused by our product candidate either before or after receipt of marketing approval, a number of potentially significant
negative consequences could result, including, without limitation:



| | • | our clinical trials may be put on hold;
| | - | ---------------------------------------



| | • | we may be unable to obtain regulatory approval for our product
                                         candidate;
| | - | ------------------------------------------------------------------------------------------------------------------



| | • | regulatory authorities may withdraw approvals of our product
                                         candidate;
| | - | ----------------------------------------------------------------------------------------------------------------



| | • | regulatory authorities may require additional warnings on
                                         the label;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | we may be required to change the way our product candidate
                                         is administered, conduct additional clinical trials or change the labeling of our product
                                         candidate;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we may be subject to limitations on how we may promote our
                                         product candidate;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | a medication guide outlining the risks of such side effects
                                         for distribution to patients may be required;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we could be sued and held liable for harm caused to patients;
                                         and
| | - | ----------------------------------------------------------------------------------------------------------



| | • | our reputation may suffer.
| | - | --------------------------



Any of these events could prevent us from
achieving or maintaining market acceptance of our product candidate and could substantially increase commercialization costs.



Risks Related to Development and Manufacturing of Our
Product Candidate and Our Reliance on Third-Parties



We rely on third-parties to supply APIs and manufacture
and package our sublingual thin film formulation of apomorphine. We do not have long-term contracts with such manufacturers or
suppliers.



We depend on third-party suppliers of APIs
and third-party contract manufacturing organizations for all clinical supply and packaging of APL-130277, our sublingual thin
film formulation of apomorphine, for use in our clinical trials. Any problems we experience with any such third-parties could
delay the manufacturing of our product candidate and our clinical studies, which could harm our business and results of operations.
We do not currently have a long-term manufacturing contract for our sublingual thin film formulation of apomorphine. We anticipate
entering into a commercial supply agreement with ARx LLC, or ARx, under which ARx will be the majority supplier of APL-130277
with respect to the United States prior to our filing for FDA approval of APL-130277. Under our existing agreement with ARx, we
have agreed to pay ARx in certain circumstances a fee based on the invoiced cost incurred by us (less the costs of the related
API and packaging) if we engage a different supplier for the manufacture of APL-130277, which would make it more costly in certain
circumstances for us to use a contingency supplier for APL-130277.



-48-






We receive the drug substance for use in
our clinical trials of our product candidate on a purchase order basis. We may be unable to enter into long-term agreements or
agreements that would provide sufficient quantities of any materials for our product candidate. Though we expect that third-party
contract manufacturing organizations will be able to provide sufficient quantities of our sublingual thin film formulation of
apomorphine for our Phase 3 clinical trials and for commercializing our product candidate if and when it is approved, we do not
have agreements in place that guarantee the supply or the price of the materials for our product candidate, so there can be no
assurance that we actually receive sufficient quantities. In particular, orders of our API, which is derived from the opium poppy,
must be made with significant lead time due to limited supply of opium poppy produced for this purpose. In addition, production
of our API is generally lower in priority to other opium poppy derivates, such as morphine. In the event of supply limitations,
due to adverse events (including poor germination conditions or catastrophic events) or otherwise, the supply of our API may be
significantly reduced. Any such decrease in the availability or significant delay in the acquisition of our API or other material
could considerably delay the manufacturing of our product candidate. If we are unable to arrange for alternative third-party sources,
or to do so on commercially reasonable terms or in a timely manner, we may be delayed in completing our remaining clinical trials
of, obtaining regulatory approval for and commercializing our product candidate. In addition, because we do not have any control
over the process or timing of the supply of the API, there is greater risk that we will not have sufficient quantities of the
API at an acceptable cost or quantity, which could delay, prevent or impair our development or commercialization efforts.



Reliance on third-party manufacturers and
suppliers entails risks to which we would not be subject if we manufactured and packaged our product candidate ourselves, including
reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach of the agreement by the
third-party because of factors beyond our control (including a failure to manufacture our product candidate in accordance with
our specifications) and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business
priorities, at a time that is costly or damaging to us. In addition, our product candidate may compete with others for access
to manufacturing facilities and capacity. There are a limited number of manufacturers that operate under cGMP regulations in the
United States or elsewhere and that might be capable of manufacturing for us. We may therefore be subject to unexpected increases
in the cost of our supplies or manufacture of our product candidate, which may far exceed the cost of producing a drug substance
and require increased capital expenditures.



We are subject to a number of risks relating to
our third-party service providers, any of which could substantially increase our costs and limit supply of our products.



If our offices or any facility of our third-party
service providers, such as the CROs, contract manufacturing organizations and API suppliers that we utilize to develop and manufacture
our product candidate, were to suffer an accident or a force majeure event such as major fire or explosion, major equipment failure
or power failure lasting beyond the capabilities of its backup generators or other similar event, we could be materially adversely
affected and any of our clinical trials could be materially delayed. Such an extended shut down may force us to procure a new
research and development facility or another manufacturer or supplier, which could be time-consuming and costly. During any such
period, we may be unable to receive our product candidate. For example, our API is derived from the opium poppy, which is sensitive
to changes in weather and environmental conditions. Any adverse changes in such conditions or other catastrophe could significantly
reduce the supply of API for our product candidate.



-49-






The process of manufacturing the active
drug in our product candidate, our sublingual thin film formulation of apomorphine, is complex, highly regulated and subject to
the risk of product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor
or operator error. Even minor deviations from normal manufacturing processes or quality requirements for our product candidate
could result in reduced production yields, product defects and other supply disruptions. If microbial, viral, or other contaminations
are discovered in our product candidate or in the manufacturing facilities in which our product candidate is or will be made,
such manufacturing facilities may need to be closed to investigate and remedy the contamination. Any adverse developments affecting
manufacturing operations for our product candidate may result in shipment delays, inventory shortages, lot failures, withdrawals
or recalls, or other interruptions in the supply of our product candidate. We may also have to take inventory write-offs and incur
other charges and expenses for our product candidate that fails to meet specifications, undertake costly remediation efforts,
or seek more costly manufacturing alternatives. Also, as any third-party manufacturer we engage scales up manufacturing of our
product candidate, if approved, it may encounter unexpected issues relating to the manufacturing process or the quality, purity
and stability of the product candidate, and it may be required to refine or alter its manufacturing processes to address these
issues. Resolving these issues could result in significant delays and may result in significantly increased costs. If any of our
third-party manufacturers experience significant delays or other obstacles in producing any approved product for commercial scale,
our ability to market and sell any approved products may be adversely affected and our business could suffer.



Our third-party manufacturers and suppliers
are subject to FDA inspection from time to time. Failure by our third-party manufacturers and suppliers to pass such inspections
and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidate may result in regulatory
actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating
licenses. Based on the severity of the regulatory action, our clinical or commercial supply of product and packaging and other
services could be interrupted or limited, which could have a material adverse effect on our business. In addition, in order to
obtain regulatory approval for our product candidate, our third-party manufacturers will be required to consistently produce the
API used in our product candidate in commercial quantities and of specified quality on a repeated basis and document their ability
to do so. This is referred to as process validation. If the third-party manufacturers are unable to satisfy this requirement,
our business will be materially and adversely affected.



Furthermore, if our product candidate or
any future product candidate is approved and contract manufacturers fail to deliver the required commercial quantities of finished
product on a timely basis or at commercially reasonable prices, and we are unable to find one or more replacement manufacturers
capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis,
we would likely be unable to meet demand for our product and could lose potential revenue. It may take several years to establish
an alternative source of supply for our product candidate and to have any new source approved by the FDA, the European Medicines
Agency or any other relevant regulatory authorities.



The ability of our third-party manufacturers and
suppliers to continue manufacturing and supplying our product candidate depends on their continued adherence to cGMP regulations.



The manufacturing processes for our product
candidate and API are governed by detailed cGMP regulations. Failure by third-party manufacturers, suppliers and quality operations
units to adhere to established regulations or to meet a specification or procedure set forth in cGMP requirements could require
that a product or material be rejected and destroyed. Adherence to cGMP regulations and the effectiveness of our quality control
systems are periodically assessed through inspections of manufacturing facilities by regulatory authorities, including the FDA
through its facilities inspection program. Such inspections could result in deficiency citations, which would require action to
correct those deficiencies to the satisfaction of the applicable regulatory authorities. If critical deficiencies are noted or
if recurrences are not prevented, we may have to recall product or suspend operations until appropriate measures are implemented.
Since cGMP reflects ever-evolving standards, manufacturing processes and procedures must be regularly updated to comply with cGMP.
We have limited or no control over our manufacturers’ or suppliers’ compliance with these regulations and standards.
These changes may cause us to incur additional costs and may adversely impact our results of operations. For example, more sensitive
testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation,
all of which may be costly and time-consuming and could delay or prevent the manufacturing of our product candidate. If the safety
of any product candidate or API supplied is compromised due to our manufacturers’ or suppliers’ failure to adhere
to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our
product candidate and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of
clinical studies, regulatory submissions, approvals or commercialization of our product candidate, entail higher costs or impair
our reputation.



-50-






If we change the manufacturers of our product candidate,
we may be required to conduct comparability studies evaluating the manufacturing processes of the product candidate.



The FDA and other regulatory authorities
maintain strict requirements governing the manufacturing process for medical delivery systems, such as the thin films used to
deliver the apomorphine sublingually in our product candidate. For example, when a manufacturer seeks to modify or change that
process, the FDA typically requires the applicant to conduct non-clinical and, depending on the magnitude of the changes, potentially
clinical comparability studies that evaluate the potential differences in the product candidate resulting from the change in the
manufacturing process. Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory
agencies could delay or preclude our development plans and, thereby, delay our ability to receive marketing approval, or limit
our revenue and growth once our product candidate is approved. In addition, in the event that the FDA or other regulatory agencies
do not accept non-clinical comparability data, we may need to conduct a study involving dosing of patients comparing the two products.
That study may result in a delay of the approval or launch of our product candidate.



We rely on third-parties to conduct clinical trials
for APL-130277, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory
approvals for APL-130277.



We have designed the clinical trials for
APL-130277. However, we rely on CROs and other third-parties to assist in managing, monitoring and otherwise carrying out many
of these trials. We compete with many other companies for the resources of these third-parties. There is a limited number of third-party
service providers that specialize or have the expertise required to achieve our business objectives. The third-parties on whom
we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development
and commercialization of our product candidate.



The FDA and comparable foreign regulatory
authorities require compliance with regulations and standards, including GCP, for designing, conducting, monitoring, recording,
analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that
the rights, integrity and confidentiality of trial participants are protected. Although we rely on third-parties to conduct many
of our clinical trials, they are not our employees, and we are responsible for ensuring that each of these clinical trials is
conducted in accordance with its general investigational plan, protocol and other requirements. Our reliance on these third-parties
for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities,
and we cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any
of our clinical trials comply with GCP regulations.



These CROs and third-parties are not our
employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote
to our product candidate and clinical trials. In addition, the use of third-party service providers requires us to disclose our
proprietary information to these parties, which could increase the risk that this information will be misappropriated. If these
third-parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain
is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise
fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidate may not
meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third-parties need to be replaced,
such clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain
regulatory approval of our product candidate on a timely basis or at all.



-51-






We may not be successful in establishing and maintaining
strategic partnerships, which could adversely affect our ability to develop and commercialize products, negatively impacting our
operating results.



We continue to evaluate and, as deemed
appropriate, we expect to enter into partnerships in the future when strategically attractive, with one or more pharmaceutical
companies for the development and commercialization of APL-130277 in Europe, Japan and other countries. We face significant competition
in seeking appropriate partners for our product candidate, and the negotiation process is time-consuming and complex. In order
for us to successfully partner our product candidate, potential partners must view our product candidate as economically valuable
in markets they determine to be attractive in light of the terms that we are seeking and other available products for development
and commercialization or licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships,
the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for
example, development or approval of our product candidate is delayed or sales of our approved product are disappointing. Any delay
in entering into strategic partnership agreements related to our product candidate could delay the development and commercialization
of our product candidate and reduce its competitiveness even if it reaches the market.



If we fail to establish and maintain strategic
partnerships related to our product candidate, we will bear all of the risk and costs related to the development and commercialization
of our product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise,
such as regulatory expertise, for which we have not budgeted. This could negatively affect the development of our product candidate.



Risks Related to Commercialization of Our Product Candidate



Our future commercial success depends upon attaining
significant market acceptance of our product candidate, if approved, among physicians, health care payors, patients and the medical
community.



Even if we obtain regulatory approval for
APL-130277, our product candidate may not gain market acceptance among physicians, health care payors (both private insurers and
government programs, such as Medicare and Medicaid), patients and the medical community. Market acceptance of our product candidate,
if approved, depends on a number of factors, including, without limitation:



| | • | the efficacy and safety of the product, as demonstrated in
                                         clinical trials, compared to other products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the indications for which the product is approved and the
                                         label approved by regulatory authorities for use with the product, including any limitations
                                         or warnings that may be required on the label;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | acceptance by physicians and patients of the product as a
                                         safe and effective treatment;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | the cost, safety and efficacy of treatment in relation to
                                         alternative treatments;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | improper use of the product by patients;
| | - | ----------------------------------------



| | • | changes in the standard of care for the targeted indications
                                         for our product candidate;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | the availability of adequate reimbursement and pricing by
                                         third-party payors and government authorities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



-52-






| | • | relative convenience and ease of administration, including,
                                         but not limited to, the potential need for titration in a physician’s office, the
                                         ease of opening the packaging and retrieving the thin film and the limited need to administer
                                         medication to control for any side effects such as nausea;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the prevalence and severity of adverse side effects; and
| | - | --------------------------------------------------------



| | • | the effectiveness of our sales and marketing efforts.
| | - | -----------------------------------------------------



Market acceptance is critical to our ability
to generate significant revenue and become profitable. Our product candidate, if approved and commercialized, may be accepted
in only limited capacities or not at all. If our approved product is not accepted by the market to the extent that we expect,
we may not be able to generate significant revenue and our business would suffer.



The market for our product candidate may not be
as large as we expect.



Our estimates of the potential market opportunity
for APL-130277 include several key assumptions based on our industry knowledge, industry publications, third-party research reports
and other surveys, and market research with health care providers, payors and patients.These assumptions include the prevalence
and growth of PD, the percentage of patients receiving apomorphine as part of their treatment regimen, the percentage of these
patients experiencing OFF episodes and the percentage of PD patients for which APL-130277 may be an effective treatment option.
While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual
market for APL-130277 could be smaller than our estimates of our potential market opportunity.If the actual market for
APL-130277 is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain
profitability.



In addition, final product labeling specifically
lists the approved therapeutic indications, the types of patients that should be treated with the product, how frequently and
for how long these patients should be treated and how treatment should be initiated. While physicians are free to use the product
as they choose, we and any pharmaceutical company partner are prohibited from marketing or promoting the product outside these
approved indications and uses. In addition, certain existing formulations of apomorphine outside the United States used for the
treatment of OFF episodes (ApoGo, ApokinON and Apomin) are currently only indicated for advanced PD patients. Should final approved
labeling differ materially from our proposed labeling, the actual market for APL-130277 could be smaller than our estimates of
our potential market opportunity.



We currently have no sales and marketing staff
and no product distribution network. If we are unable to establish sales and marketing arrangements, we will not be successful
in commercializing our product candidate.



We do not currently have a sales or marketing
infrastructure and do not have experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial
success for our product candidate in the United States, Europe and other jurisdictions, we may enter into sales, marketing and
distribution agreements with third-parties in respect of the commercialization of our product candidate in such jurisdictions.
Entering into arrangements with third-parties to perform these services may result in lower product revenues and profitability,
if any, than if we were to market, sell and distribute our product ourselves. In addition, we may not be successful in entering
into arrangements with third-parties in the future to sell, market and distribute our product candidate or may be unable to do
so on terms that are favorable to us. We likely will have little control over such third-parties, and any of them may fail to
devote the necessary resources and attention to sell and market our product effectively.



-53-






In the future, we expect to build a focused
sales and marketing infrastructure to market APL-130277 and, potentially, other product candidates in the United States, if and
when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For
example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial
launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur
for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and
our investment would be lost if we cannot retain or reposition our sales and marketing personnel.



Factors that may inhibit our efforts to
commercialize our products on our own include:



| | • | our inability to recruit, train and retain adequate numbers
                                         of effective sales and marketing personnel;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our inability to effectively reach our target audience of
                                         general neurologists and movement disorder specialists;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the lack of adequate numbers of physicians to prescribe our
                                         product candidate, if approved, or any future products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the lack of complementary products to be offered by sales
                                         personnel, which may put us at a competitive disadvantage relative to companies with
                                         more extensive product lines; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | unforeseen costs and expenses associated with creating an
                                         independent sales and marketing organization.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



If we do not successfully establish sales,
marketing and distribution capabilities, either on our own or in collaboration with third-parties, we will not be successful in
commercializing our product candidates.



Reimbursement may be limited or unavailable in
certain market segments for our product candidate, which could make it difficult for us to sell our product, if approved, profitably.



In both domestic and foreign markets, sales
of our product, if approved, will depend, in part, on the extent to which the costs of our product will be covered by third-party
payors, such as government health programs, commercial insurance and managed health care organizations. These third-party payors
decide which drugs will be covered and establish reimbursement levels for those drugs. The containment of health care costs has
become a priority of governments in the United States, Europe and elsewhere as well as private third-party payors. The prices
of drugs have been a focus in this effort. Governments and private third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product, if approved,
profitably. Cost-control initiatives could cause us to decrease the price we might establish for our product, if approved, which
could result in lower than anticipated product revenues.



In the United States, we will need to obtain
approvals for payment for our product candidate from private insurers, including managed care organizations, and from governmental
health care programs including Medicare and Medicaid. Coverage and reimbursement by a third-party payor may depend upon a number
of factors, including the third-party payor’s determination that use of our product candidate is:



| | • | a covered benefit under its health plan;
| | - | ----------------------------------------



| | • | safe, effective and medically necessary;
| | - | ----------------------------------------



| | • | appropriate for the specific patient;
| | - | -------------------------------------



| | • | cost-effective; and
| | - | -------------------



-54-






| | • | neither experimental nor investigational.
| | - | -----------------------------------------



Adverse pricing limitations may hinder
our ability to recoup our investment in APL-130277, even if such product candidate obtains marketing approval.



Obtaining coverage and reimbursement approval
for our product candidate from a government or other third-party payor is a time consuming and costly process that could require
us to provide supporting scientific, clinical and cost-effectiveness data for the use of our product candidate to the payor. Further,
there is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs, including those
with novel formulations such as APL-130277. We may not be able to provide data sufficient to gain acceptance with respect to coverage
and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidate. Also,
we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidate. If reimbursement
is not available or is available only to limited levels, we may not be able to commercialize our product, if approved. In addition,
in the United States, third-party payors are increasingly attempting to contain health care costs by limiting access, coverage,
and the level of reimbursement of new drugs. As a result, significant uncertainty exists as to whether and how much third-party
payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs.



Price controls may be imposed in foreign markets,
which may adversely affect our future profitability.



In some countries other than the United
States, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval
for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement
levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate
pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various
European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further
reduce prices. In some countries, additional clinical research may be required to enable comparison of the cost-effectiveness
of our product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication
of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the
country of publication and other countries. If reimbursement of our product candidate is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, our business could be adversely affected.



The impact on us of health care reform legislation
and other changes in the health care industry and in health care spending is currently unknown, and may adversely affect our business
model.



Our revenue prospects could be affected
by changes in health care spending and policy in the United States and abroad. We operate in a highly regulated industry and new
laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health
care availability, the method of delivery or payment for health care products and services could negatively impact our business,
operations and financial condition.



There have been, and likely will continue
to be, legislative and regulatory proposals and initiatives within the United States and foreign jurisdictions directed at broadening
the availability of health care and containing or lowering the cost of health care. We cannot predict the initiatives that may
be adopted in the future or whether initiatives that have been adopted will be repealed or modified. These legislative and/or
regulatory changes may negatively impact the reimbursement for drug products, following approval, and thus affect our ability
to sell our product profitably. The continuing efforts of governments, insurance companies, managed care organizations and other
payors of health care services to contain or reduce costs of health care may adversely affect:



-55-






| | • | the demand for our product candidate if we obtain regulatory
                                         approval;
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | our ability to set a price that we believe is fair for our
                                         product candidate;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | our ability to obtain coverage and reimbursement approval
                                         for our product candidate;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | • | our ability to generate revenues and achieve or maintain profitability;
| | - | -----------------------------------------------------------------------



| | • | the level of taxes that we are required to pay; and
| | - | ---------------------------------------------------



| | • | our access to capital.
| | - | ----------------------



Any significant spending reductions affecting
Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant taxes
or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the United States
Budget Control Act, could have an adverse impact on our anticipated product revenues.



We face substantial competition, which may result in
others discovering, developing or commercializing products before, or more successfully, than we do.



Our industry is highly competitive and subject
to rapid and significant technological change. While we believe that our technology, knowledge, experience and scientific resources
provide us with competitive advantages, we face competition from many different sources, including large pharmaceutical, specialty
pharmaceutical, biotechnology and generic drug companies and academic and government institutions. These organizations may have
significantly greater resources than we do and conduct similar research, seek and obtain patent protection that may impact our
freedom to operate and establish collaborative arrangements for research, development, manufacturing and marketing of products
that compete with our product candidate. Our commercial opportunity could be reduced or eliminated if our competitors have products
that are better in one or more of these categories. Furthermore, our competitors may, among other things: develop and commercialize
products that are, or are perceived to be, safer, more effective, less expensive, or more convenient or easier to administer;
obtain quicker regulatory approval; establish superior proprietary positions; have access to more manufacturing capacity; implement
more effective approaches to sales and marketing; or form more advantageous strategic alliances.



We believe that the main competitors for APL-130277
are therapies that can limit the occurrence of OFF episodes and other therapies for the on-demand treatment of OFF episodes. These
therapies include both pharmacotherapies and invasive therapies for advanced patients such as deep brain stimulation and intestinal-infused
levodopa that may be used in less advanced PD patients. Pharmacotherapies that can maintain consistent plasma concentration of
levodopa over extended durations could reduce the occurrence of motor fluctuations and thus reduce the need for on-demand treatments
for OFF episodes such as APL-130277. Approaches to achieve consistent levodopa plasma concentrations include new formulations
of carbidopa/levodopa, a combination of levodopa and an inhibitor of DOPA decarboxylase (an enzyme found throughout the body)
referred to as carbidopa, such as extended-release and intestinal infusions, and therapies that prolong the effect of levodopa.
Extended-release formulations of oral and patch carbidopa/levodopa are being developed by groups including Impax Laboratories,
Inc., Depomed Inc. and Neuroderm Ltd. A continuous administration of a gel-containing levodopa through a tube that is surgically
implanted into the intestine is being developed by AbbVie Inc. This therapy, known as Duodopa/Duopa, is approved in the European
Union and recently gained approval in the United States. Additionally, new formulations of dopamine agonist therapies (such as
pramipexole and rotigotine) may be developed that can further prolong the effect of carbidopa/levodopa regimens and reduce the
frequency of motor fluctuations.





-56-






If approved for the treatment of OFF episodes,
APL-130277 would also compete against on-demand therapies that aim to specifically address OFF episodes, such as the levodopa
capsules administered through an inhaler for the treatment of OFF episodes that are being developed by Acorda Therapeutics, Inc.
If such treatment is approved before our product candidate, then such treatment could capture a large percentage of the market
share for the treatment of OFF episodes and could affect the acceptance and adoption of our product candidate. At this time, an
injectable formulation of apomorphine, Apokyn®, which is a STADA Arzneimittel AG product distributed by U.S. Worldmeds, LLC
in the United States, is the only therapy approved for the treatment of OFF episodes. Apokyn was approved for this use in the
United States in 2004, and for advanced PD patients in Europe in 1993. As we complete additional clinical trials for our product
candidate, if our pharmacokinetic data suggests that the time to ON associated with our product candidate is slower than with
Apokyn, the commercialization of our product candidate could be adversely affected.



One or more of our competitors may utilize
their expertise in sublingual delivery of drugs to develop and obtain approval for sublingual delivery products that may compete
with APL-130277. If approved, our product candidate may face competition in the target commercial areas. The availability of our
competitors’ products could limit the demand and the price we are able to charge for our product candidate that we may develop
and commercialize.



Risks Related to Our Intellectual Property



If we are unable to obtain and maintain sufficient
intellectual property protection for our product candidate, or if the scope of the intellectual property protection is not sufficiently
broad, our ability to successfully commercialize our product candidate and compete effectively may be adversely affected.



Our success depends in large part on our ability
to obtain and maintain protection with respect to our intellectual property and proprietary technology. We rely upon a combination
of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to APL-130277.
If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate
any competitive advantage that we may have, which could harm our business and ability to achieve profitability. In particular,
our success depends in large part on our ability to obtain and maintain patent protection with respect to our product candidate
in the United States, Europe, Japan, and other countries. The patentability of inventions and the validity, enforceability and
scope of patents in the pharmaceutical field can be uncertain because they involve complex legal and factual considerations. The
standards applied by the United States Patent and Trademark Office, or USPTO, and other foreign patent offices in granting patents
are not always applied uniformly or predictably, even within a given jurisdiction. For example, there is no uniform worldwide
policy regarding patentable subject matter or the scope of claims allowable in patents. The same patent applications that we own
may fail to result in issued patents in the United States, Europe, Japan, or in other countries, and if they do, such patents
may not cover our product candidate in the United States, the European Union, Japan or in other countries. The patent prosecution
process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost or in a timely manner. It is also possible that we may fail to identify patentable aspects of our research
and development prior to the deadlines for taking action to obtain patent protection on such research and developments. No patentability
searches have been completed nor have patentability opinions of counsel been obtained. There is no assurance that all potentially
relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be
used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. The issuance of a patent
is not conclusive as to the correctness of its inventorship, ownership, priority, validity or enforceability. Therefore, even
if patents do successfully issue and even if such patents cover our product candidate, third-parties may challenge their validity,
enforceability or scope, and such challenges may result in such patents being narrowed or invalidated. Furthermore, even if they
are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide sufficient
exclusivity for our product candidate, prevent others from designing around our claims or otherwise provide us with a competitive
advantage.





-57-






Additionally, our confidentiality agreements
and other contractual protections may not be adequate to protect our intellectual property from unauthorized disclosure, third-party
infringement or misappropriation. We may not have adequate remedies in the case of a breach of any such agreements, and our trade
secrets and other proprietary information could be disclosed to our competitors or others may independently develop substantially
equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies.
ARx is a non-exclusive licensee in all fields other than generic APL-130277 applications of our patent family entitled “Sublingual
Films”, of which ARx was previously a co-owner with us. Accordingly, ARx has some freedom to operate with respect to these
patents. In addition, ARx is an exclusive licensee of all intellectual property generated under our agreement with ARx in all
fields, in respect of other products and formulations and such license affects our use of such intellectual property and survives
termination of the agreement. Additionally, the laws of some foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States, Europe, and Japan, and many companies have encountered significant problems
in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating
to pharmaceuticals, and this could make it difficult for us to stop the infringement of our patents. Any of these outcomes could
impair our ability to prevent competition from third-parties, which may have an adverse impact on our business.



If the patent applications we own with respect
to our product candidate fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful
exclusivity, it could dissuade companies from collaborating with us. We cannot offer any assurances about which, if any, patents
will issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable or will be threatened
by third-parties. Any successful challenge to these patents or any other patents owned by us could deprive us of rights necessary
for the successful commercialization of our product candidate. Since patent applications in the United States, Europe, and Japan,
and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain
that we were the first to file any patent application related to our product candidate. Furthermore, if third-parties have filed
such patent applications, an interference proceeding in the United States can be initiated by the USPTO or a third-party to determine
who was the first to invent the subject matter covered by the patent claims of our first two families of patents and applications.
In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after
the utility application is filed. Various extensions may be available; however, the life of a patent and the protection it affords
is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market our product
under patent protection could be reduced. Even if patents covering our product candidate are obtained, once the patent life has
expired or lapsed for a product, we may be open to competition from similar or generic products. The launch of a generic version
of our product in particular would be likely to result in an immediate and substantial reduction in the demand for our product,
which could have a material adverse effect on our business.



Recent patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents. On September 16, 2011, the United States Leahy-Smith America Invents Act, or AIA, was signed into law. The AIA includes
a number of significant changes to United States patent law. These include provisions that affect the way patent applications
are prosecuted, redefine what qualifies as relevant prior art, may affect patent litigation and switch the United States patent
system from a “first-to-invent” system to a “first-to-file” system. The USPTO recently developed new regulations
and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA,
and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if
any, impact the AIA will have on the operation of our business. The AIA and its implementation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of
which could have a material adverse effect on our business and financial condition. Further changes to the patent laws in the
United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope
of our patent protection.





-58-






Obtaining and maintaining our patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The USPTO
and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions during the patent process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other
means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment
or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
In this event, competitors might be able to enter the market earlier than would otherwise have been the case. Any loss of patent
protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market
with a product that is similar to or the same as our product candidate.



We may become involved in lawsuits to protect or enforce
our intellectual property, which could be expensive, time consuming and unsuccessful.



Competitors may infringe, misappropriate or
otherwise violate our patents or our other intellectual property rights. To counter infringement or unauthorized use, litigation
may be necessary to enforce or defend our intellectual property rights, to protect our trade secrets and/or to determine the validity
and scope of our own intellectual property rights or the proprietary rights of others. Such litigation can be expensive and time
consuming, and any such claims could provoke these parties to assert counterclaims against us, including claims alleging that
we infringed their patents or other intellectual property rights. Many of our current and potential competitors have the ability
to dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts,
we may not be able to prevent third-parties from infringing upon or misappropriating our intellectual property. Litigation could
result in substantial costs and diversion of management attention and resources, which could harm our business and financial results.
In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable,
or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology
in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated,
held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not issuing as a patent. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during such litigation.



We could become subject to interference or
derivation proceedings provoked by third-parties or brought by the USPTO or other foreign patent authorities to determine the
priority of inventions or other matters of inventorship with respect to our patents or patent applications. Our business could
be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all.
We may also become involved in other proceedings, such as re-examination or opposition proceedings, before the USPTO, the European
Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual property rights of others.
An unfavorable outcome in any such proceedings could require us to cease using the related technology or require us to attempt
to license rights to the related technology from the prevailing party, or could cause us to lose valuable intellectual property
rights. We may also become involved in disputes with others regarding the ownership of intellectual property rights. For example,
where we jointly develop intellectual property with certain parties, disagreements may arise as to the ownership of the intellectual
property developed pursuant to these relationships. If we are unable to resolve these disputes, we could lose valuable intellectual
property rights.





-59-






Third-party claims of intellectual property infringement
or misappropriation may prevent or delay our development and commercialization efforts or impact our share price.



Our commercial success depends, in part, on
us not infringing the patents and proprietary rights of third-parties. There is a substantial amount of litigation, both within
and outside the United States, involving patent and other intellectual property rights in the pharmaceutical industry, including
patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the USPTO and
corresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications owned
by third-parties exist in the field in which we are developing our product candidate. As the pharmaceutical industries expand
and more patents are issued, the risk increases that our product candidate may be subject to claims of infringement of the patent
rights of third-parties. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always
uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidate or methods either do
not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this.
Demonstrating patent invalidity and/or non-infringement may be difficult. Even if we are successful in these proceedings, we may
incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these
proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these
actions to a successful conclusion.



Third-parties may assert that we, our customers,
licensees or parties indemnified by us are employing their proprietary technology without authorization or have infringed upon,
misappropriated or otherwise violated their intellectual property or other rights. For example, we may be subject to claims that
we are infringing the patent, trademark or copyright rights of third-parties, or that our employees have misappropriated or divulged
their former employers’ trade secrets or confidential information. There may be third-party patents or patent applications
with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our
product candidate, that we failed to identify. For example, applications filed before November 29, 2000 and certain applications
filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for
the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting
period of approximately 18 months after the earliest filing, and sometimes not at all. Therefore, patent applications covering
our product candidate could have been filed by others without our knowledge. Additionally, pending patent applications that have
been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our
product candidate or the use or manufacture of our product candidate.



If any third-party patents were held by a court
of competent jurisdiction to cover aspects of our product candidate, including the materials, formulations, methods of manufacture,
methods of analysis, and/or methods for treatment, the holders of any such patents would be able to block our ability to develop
and commercialize our product candidate until such patent expired or unless we obtain a license from such third-party in order
to use the infringing technology and continue developing and commercializing our infringing product candidate. Such licenses may
not be available on commercially acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive,
which could result in our competitors gaining access to the same intellectual property licensed to us. Ultimately, we could be
prevented from commercializing our product candidate, or be forced to cease some aspect of our business operations, if, as a result
of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.





-60-






Parties making claims against us may obtain
injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product
candidate. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming,
regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could
burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands
on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of
a successful claim of infringement against us, in addition to potential injunctive relief, we may have to pay substantial damages,
including treble damages and attorneys’ fees if we are found to have willfully infringed a patent, pay royalties, redesign
our infringing product or obtain one or more licenses from third-parties, which may be impossible or require substantial time
and monetary expenditure.



We are evaluating third-party patents and pending
patent applications that may pose risks to the commercialization of APL-130277 in the U.S. and Europe. The validity of several
of such third-party patents is being challenged either in the U.S. district courts, at the USPTO, or both, by multiple third-parties.
We have discussed a license to certain of these third-party patents and applications, and we are evaluating whether a license
to certain of these third-party patents and patent applications is desirable. Should APL-130277 ultimately be found to infringe
a valid and enforceable third-party patent claim, such third-party patents could adversely impact our commercial efforts, requiring
us to obtain a license from the relevant third-party patent owner in order to continue commercializing our product candidate,
and such licenses may not be available on commercially reasonable terms or at all. If one or more of these third-party patents
were asserted against us, we expect to vigorously contest such an action.



We may face a claim of misappropriation if
a third-party believes that we inappropriately obtained and used trade secrets of such third-party. We are not aware of any material
threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims.
If we are found to have misappropriated a third-party’s trade secrets, we may be prevented from further using such trade
secrets, limiting our ability to develop our product candidate, and we may be required to pay damages.



During the course of any patent or other intellectual
property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings
in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product
candidate or intellectual property could be diminished and it could have a substantial adverse effect on the market price of our
common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available
for development activities or any future marketing or distribution activities.



We will not be able to protect our intellectual property
rights throughout the world.



Filing, prosecuting and defending patents on
our product candidate throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products
to territories where we have patent protection but where enforcement is not as strong as in the United States. These products
may compete with our product candidate in jurisdictions where we do not have any issued patents and our patent claims or other
intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property
protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our
patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent
rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our
business.





-61-






Confidentiality agreements with employees and third-parties
may not prevent unauthorized disclosure of trade secrets and other proprietary information.



In addition to the protection afforded by patents,
we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that
we elect not to patent, processes for which patents are difficult to enforce and any other elements of our platform technology
and discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents.
Trade secrets can be difficult to protect. Any disclosure to, misappropriation by, or reverse engineering by third-parties of
our confidential proprietary information or know-how could enable competitors to quickly duplicate or surpass our technological
achievements, thus eroding our competitive position in our market. We seek to protect our proprietary technology and processes,
in part, by entering into confidentiality agreements, non-disclosure and invention assignment agreements with our employees, consultants,
and third-party scientific advisors, contractors and collaborators. However, we cannot be certain that such agreements have been
entered into with all relevant parties, that our trade secrets and other confidential proprietary information will not be disclosed
or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information
and techniques. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside
scientific advisors might intentionally or inadvertently disclose our trade secret information to competitors.



Enforcing a claim that a third-party illegally
obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition,
courts outside the United States sometimes do not protect proprietary rights such as trade secrets to the same extent or in the
same manner as United States courts. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive
position and may have a material adverse effect on our business, results of operations and financial condition.



Risks Related to Our Business and Industry



If we fail to attract and keep senior management and
key scientific personnel, we may be unable to successfully develop our product candidate, conduct our clinical trials and commercialize
our product candidate.



We are highly dependent on members of our senior
management, including Anthony Giovinazzo, our President and Chief Executive Officer, Albert Agro, our Chief Medical Officer, Thierry
Bilbault, our Chief Scientific Officer and Executive Vice President, CMC, Andrew Williams, our Chief Operating Officer and Chief
Financial Officer, and Jordan Dubow, our Vice President, Medical Affairs. The loss of the services of any of these persons could
impede the achievement of our research, development and commercialization objectives. Also, each of these persons may terminate
their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other
employees.



Recruiting and retaining qualified scientific,
clinical, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel
on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We
also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research
and development and commercialization strategy. Our consultants and advisors, including our scientific founders, may be employed
by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit
their availability to us.





-62-






We may encounter difficulties in managing our growth
and expanding our operations successfully.



As we seek to advance our product candidate
through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and
sales capabilities or contract with third-parties to provide these capabilities for us. As our operations expand, we expect that
we will need to manage additional relationships with one or more strategic partners, and with suppliers and other third-parties.
Future growth will impose significant added responsibilities on members of management. Our future financial performance and our
ability to commercialize our product candidate and to compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train
and integrate additional management, administrative and, if necessary, sales and marketing personnel. Due to our limited financial
resources, we may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully
growing our company or disrupt our operations.



Our relationships with health care professionals, institutional
providers, principal investigators, consultants, customers (actual and potential) and third-party payors are, and will continue
to be, subject, directly and indirectly, to Canadian and United States federal and state health care fraud and abuse, false claims,
marketing expenditure tracking and disclosure, government price reporting, and health information privacy and security laws. If
we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil,
criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare,
Medicaid and other government health care programs, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment or restructuring of our operations.



Our business operations and activities may
be directly or indirectly subject to various fraud and abuse laws, including, without limitation, the United States federal Anti-Kickback
Statute and the United States False Claims Act. If we obtain FDA approval for our product candidate and begin commercializing
our product candidate in the United States, our potential exposure under such laws will increase significantly, and our costs
associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current
activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs.
In addition, we may be subject to patient privacy regulation by the federal government and state governments in which we conduct
our business. The laws that may affect our ability to operate include, but are not limited to:



| | • | the United States federal health care Anti-Kickback Statute,
                                         which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
                                         or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly,
                                         overtly or covertly, in cash or in kind, to induce, or in return for, either the referral
                                         of an individual, or the purchase, lease, order or recommendation of any good, facility,
                                         item or service for which payment may be made, in whole or in part, under a United States
                                         federal health care program, such as the Medicare and Medicaid programs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal civil and criminal false claims laws,
                                         including the United States False Claims Act, and civil monetary penalty laws, which
                                         prohibit, among other things, individuals or entities from knowingly presenting, or causing
                                         to be presented, claims for payment or approval from Medicare, Medicaid, or other third-party
                                         payors that are false or fraudulent or knowingly making a false statement to improperly
                                         avoid, decrease or conceal an obligation to pay money to the United States government;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





-63-






| | • | the United States Health Insurance Portability and Accountability
                                         Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly
                                         and willfully executing, or attempting to execute, a scheme to defraud any health care
                                         benefit program or obtain, by means of false or fraudulent pretenses, representations,
                                         or promises, any of the money or property owned by, or under the custody or control of,
                                         any health care benefit program, regardless of the payor (public or private) and knowingly
                                         and willfully falsifying, concealing, or covering up by any trick or device a material
                                         fact or making any materially false statements in connection with the delivery of, or
                                         payment for, health care benefits, items or services relating to health care matters;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | HIPAA, as amended by the United States Health Information
                                         Technology for Economic and Clinical Health Act of 2009 and their respective implementing
                                         regulations, which impose requirements on certain covered health care providers, health
                                         plans, and health care clearinghouses as well as their respective business associates
                                         that perform services for them that involve the use, or disclosure of, individually identifiable
                                         health information, relating to the privacy, security and transmission of individually
                                         identifiable health information without appropriate authorization;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States federal physician self-referral law, commonly
                                         known as the Stark Law, which prohibits a physician from making a referral to an entity
                                         for certain designated health services reimbursed by Medicare or Medicaid if the physician
                                         or a member of the physician’s family has a financial relationship with the entity,
                                         and which also prohibits the submission of any claims for reimbursement for designated
                                         health services furnished pursuant to a prohibited referral;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States Physician Payments Sunshine Act, created
                                         under Section 6002 of the United States Patient Protection and Affordable Care Act, as
                                         amended by the United States Health Care and Education Reconciliation Act of 2010, or
                                         collectively, the ACA, and its implementing regulations requires manufacturers of drugs,
                                         devices, biologicals and medical supplies for which payment is available under Medicare,
                                         Medicaid or the Children’s Health Insurance Program (with certain exceptions) to
                                         report annually to the United States Department of Health and Human Services information
                                         related to payments or other transfers of value made to physicians (defined to include
                                         doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
                                         as well as ownership and investment interests held by physicians and their immediate
                                         family members, with data collection required beginning August 1, 2013 and reporting
                                         to the Centers for Medicare & Medicaid Services required by March 31, 2014 and by
                                         the 90th day of each subsequent calendar year;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal consumer protection and unfair competition
                                         laws, which broadly regulate marketplace activities and activities that potentially harm
                                         consumers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal government price reporting laws, changed
                                         by the ACA to, among other things, increase the minimum Medicaid rebates owed by most
                                         manufacturers under the Medicaid Drug Rebate Program and offer such rebates to additional
                                         populations, that require us to calculate and report complex pricing metrics to government
                                         programs, where such reported prices may be used in the calculation of reimbursement
                                         and/or discounts on our marketed drugs (participation in these programs and compliance
                                         with the applicable requirements may subject us to potentially significant discounts
                                         on our products, increased infrastructure costs, and potentially limit our ability to
                                         offer certain marketplace discounts);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States Foreign Corrupt Practices Act, which regulates
                                         certain financial relationships with foreign government officials (which could include,
                                         for example, certain medical professionals); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





-64-






| | • | U.S. state law equivalents of each of the above federal laws,
                                         such as anti-kickback, false claims, consumer protection and unfair competition laws
                                         which may apply to our business practices, including but not limited to, research, distribution,
                                         sales and marketing arrangements as well as submitting claims involving health care items
                                         or services reimbursed by any third-party payor, including commercial insurers; state
                                         laws that require biotech companies to comply with the pharmaceutical industry’s
                                         voluntary compliance guidelines and the relevant compliance guidance promulgated by the
                                         federal government that otherwise restricts payments that may be made to health care
                                         providers; state laws that require drug manufacturers to file reports with states regarding
                                         marketing information, such as the tracking and reporting of gifts, compensation and
                                         other remuneration and items of value provided to health care professionals and entities
                                         (compliance with such requirements may require investment in infrastructure to ensure
                                         that tracking is performed properly, and some of these laws result in the public disclosure
                                         of various types of payments and relationships, which could potentially have a negative
                                         effect on our business and/or increase enforcement scrutiny of our activities); and state
                                         laws governing the privacy and security of health information in certain circumstances,
                                         many of which differ from each other in significant ways and often are not preempted
                                         by HIPAA, thus complicating compliance efforts.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the regulatory approval and commercialization
of our product candidate outside the United States will also likely subject us to foreign equivalents of the health care laws
mentioned above, among other foreign laws.



Because of the breadth of these laws and the
narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be
subject to challenge under one or more of such laws. In addition, recent health care reforms have strengthened some of these laws.
Efforts to ensure that our business arrangements will comply with applicable health care laws may involve substantial costs. It
is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages,
monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other state and federal government
health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring
of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.



We or our third-party providers may experience a security
breach that could lead to the loss of critical information.



Our business is increasingly dependent on critical,
complex and interdependent information technology systems, including Internet-based systems, to support business processes as
well as internal and external communications. The size and complexity of our and our third-party providers’ computer systems
make them potentially vulnerable to breakdown, natural disaster, malicious intrusion, malware and other cyber-attacks, which may
result in the impairment of production and key business processes. In addition, our and our third-party providers’ systems
are potentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data
to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, the
value of which may be contingent upon maintaining its confidentiality, or could lead to the public exposure of personal information
(including sensitive personal information) of our employees, clinical trial patients, partners and others. This could require
us to expend significant efforts and resources or incur significant expense to eliminate these problems and address related security
concerns. Such disruptions and breaches of data security could have a material adverse effect on our business, reputation, and
financial condition, could cause significant interruptions in our operations and impair our ability to conduct our business and
comply with regulations during the occurrence of any such incident.





-65-






Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements and insider trading.



We are exposed to the risk of employee fraud
or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate
information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care
fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities
to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and
regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical
trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including
the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from
participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished
profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability
to operate our business and our results of operations.



If product liability lawsuits are brought against us,
we may incur substantial liabilities and may be required to limit commercialization of our product candidate.



We face an inherent risk of product liability
as a result of the clinical testing of our product candidate and will face an even greater risk if we commercialize our product
candidate. For example, we may be sued if the product we develop allegedly causes injury or is found to be otherwise unsuitable
during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a
breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product
candidate. Even a successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in, without limitation:



| | • | injury to our reputation;
| | - | -------------------------



| | • | decreased demand for our product candidate;
| | - | -------------------------------------------



| | • | withdrawal of clinical trial participants;
| | - | ------------------------------------------



| | • | costs to defend the related litigations;
| | - | ----------------------------------------



| | • | a diversion of management’s time and our resources;
| | - | ---------------------------------------------------



| | • | substantial monetary awards to trial participants or patients;
| | - | --------------------------------------------------------------



| | • | product recalls, withdrawals, or labeling, marketing or promotional
                                         restrictions;
| | - | --------------------------------------------------------------------------------------------------------------------------





-66-






| | • | loss of revenue;
| | - | ----------------



| | • | the inability to commercialize our product candidate; and
| | - | ---------------------------------------------------------



| | • | a decline in our share price.
| | - | -----------------------------



Failure to obtain and retain sufficient product
liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of our product candidate. We currently carry product liability insurance covering our clinical trials. Although we maintain such
insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered,
in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also
have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay
any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our
insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we are unable to obtain or maintain
sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could
prevent or inhibit the development and commercial production and sale of our product candidate, which could adversely affect our
business, financial condition, results of operations and prospects.



We and our third-party contract manufacturers and suppliers
must comply with environmental, health and safety laws and regulations, and failure to comply with these laws and regulations
could expose us to significant costs or liabilities.



We and our third-party manufacturers and suppliers
are subject to numerous and increasingly stringent environmental, health and safety laws and regulations, including those governing
laboratory procedures and the use, generation, manufacture, distribution, storage, handling, treatment, remediation and disposal
of hazardous materials and wastes. Hazardous chemicals, including flammable and biological materials, are involved in certain
aspects of our business, and we cannot eliminate the risk of injury or contamination from the use, generation, manufacture, distribution,
storage, handling, treatment or disposal of hazardous materials and wastes. In the event of contamination or injury, or failure
to comply with environmental, health and safety laws and regulations, we could be held liable for any resulting damages and any
such liability could exceed our assets and resources. We could also incur significant costs associated with civil or criminal
fines and penalties for failure to comply with such laws and regulations. If our third-party manufacturers and suppliers fail
to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated
with our product candidate, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption
in the manufacture and supply of our product candidate.



Risks Related to Our Common Shares



If we are a passive foreign investment company, or
PFIC, for United States federal income tax purposes in any year, certain adverse tax rules could apply to U.S. Holders of our
common shares.



Based on estimates of the composition of our
income and the value of our assets, we believe that we may be a PFIC for United States federal income tax purposes for our current
taxable year.



We will be classified as a PFIC for any taxable
year for United States federal income tax purposes if either (i) 75% or more of our gross income in that taxable year is passive
income or (ii) the average percentage of our assets by value in that taxable year which produce or are held for the production
of passive income (which includes cash) is at least 50%.





-67-






PFIC status is determined annually and depends
upon the composition of a company’s income and assets and the market value of its stock from time to time. Therefore, there
can be no assurance as to our PFIC status for future taxable years. The value of our assets will be based, in part, on the then
market value of our common shares, which is subject to change.



If we are a PFIC for any taxable year during
which a U.S. Holder (as defined below) holds common shares, such U.S. Holders could be subject to adverse United States federal
income tax consequences (whether or not we continue to be a PFIC). For example, U.S. Holders may become subject to increased tax
liabilities under United States federal income tax laws and regulations, and will become subject to burdensome reporting requirements.
If we are a PFIC during which a U.S. Holder holds common shares, such U.S. Holder may be able to make a “mark-to-market”
election or a “qualified electing fund” election that could mitigate the adverse United States federal income tax
consequences that would otherwise apply to such U.S. Holder. We will provide the information necessary for a U.S. Holder to make
the qualified election; however, no assurance can be given that such information will be available for any lower-tier PFIC that
we do not control.



The term “U.S. Holder” means a
holder of a common share of Cynapsus that is for United States federal income tax purposes:



| | · | an individual citizen
                                         or resident of the United States;
| | - | ------------------------------------------------------------------------------------------------



| | · | a corporation (or
                                         other entity treated as a corporation for United States federal income tax purposes)
                                         created or organized in or under the laws of the United States, any state thereof or
                                         the District of Columbia;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate the income
                                         of which is subject to United States federal income taxation regardless of its source;
                                         or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a trust if it (1)
                                         is subject to the primary supervision of a court within the United States and one or
                                         more United States persons have the authority to control all substantial decisions of
                                         the trust or (2) has a valid election in effect under applicable United States Treasury
                                         regulations to be treated as a United States person.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



U.S. Holders are urged to consult their own
tax advisers as to whether we may be treated as a PFIC and the tax consequences thereof.



We are eligible to be treated as an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we cannot be certain
if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to
investors.



We are an “emerging growth company,”
as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth companies, including,
but not limited to, (1) not being required to comply with the auditor attestation requirements of Section 404 of the United States
Sarbanes-Oxley Act of 2002, (2) reduced disclosure obligations regarding executive compensation in our periodic reports, and (3)
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any
golden parachute payments not previously approved.





-68-






We could be an emerging growth company for
up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common
shares held by non-affiliates exceeds US$700 million as of any June 30 before that time or if we have total annual gross revenue
of US$1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company
as of the following December 31 or, if we issue more than US$1.0 billion in non-convertible debt during any three-year period
before that time, we would cease to be an emerging growth company immediately. We cannot predict if investors will find our common
shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a
result, there may be a less active trading market for our common shares and our share price may be more volatile.



There is no assurance that an active trading market
in our common shares will be sustained. We do not know what the market price of our common shares will be and, as a result, it
may be difficult for you to sell your common shares.



Our common shares are listed on the TSX in
Canada and the NASDAQ in the United States. If a robust market for our common shares is not sustained, it may be more difficult
for you to sell your common shares at an attractive price. Further, an inactive market in either Canada or the United States may
also impair our ability to raise capital by selling common shares and may impair our ability to enter into strategic partnerships
or acquire companies or products by using our common shares as consideration. We cannot predict the prices at which our common
shares will trade. It is possible that in one or more future periods our results of operations may be below the expectations of
public market analysts and investors and, as a result of these and other factors, the price of our common shares may fall.



The market price of our common shares may be highly
volatile, which could cause our investors to incur substantial losses.



The market price of our common shares could
be subject to wide fluctuations in response to many risk factors listed in this “Risk Factors” section, and others
beyond our control, including, but not limited to:



| | • | results and timing of clinical trials of our product candidate,
                                         APL-130277;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | results of clinical trials of our competitors’ products;
| | - | --------------------------------------------------------



| | • | failure to adequately protect our intellectual property or
                                         proprietary technology;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | • | pending or threatened litigation involving our intellectual
                                         property or proprietary technology or us infringing upon a third-party’s intellectual
                                         property or proprietary technology;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our inability to raise additional capital, or if we are able
                                         to raise capital, the terms on which we raise it;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | commencement or termination of any licensing or other partnering
                                         arrangement;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | regulatory actions with respect to our product candidate or
                                         our competitors’ products;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | • | actual or anticipated fluctuations in our financial condition
                                         and operating results;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | • | publication of research reports by securities analysts about
                                         us or our competitors or our industry;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | • | our failure or the failure of our competitors to meet analysts’
                                         projections or guidance that we or our competitors may give to the market;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | additions and departures of key personnel;
| | - | ------------------------------------------



| | • | strategic decisions by us or our competitors, such as acquisitions,
                                         divestitures, spin-offs, joint ventures, strategic investments or changes in business
                                         strategy;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





-69-






| | • | the passage of legislation or other regulatory developments
                                         affecting us or our industry;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | fluctuations in the valuation of companies perceived by investors
                                         to be comparable to us;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | sales of our common shares by us, our insiders or our other
                                         shareholders;
| | - | ------------------------------------------------------------------------------------------------------------------



| | • | speculation in the press or investment community about us,
                                         our common shares or our industry;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | • | announcement or expectation of additional financing efforts;
| | - | ------------------------------------------------------------



| | • | changes in accounting principles;
| | - | ---------------------------------



| | • | terrorist acts, acts of war or periods of widespread civil
                                         unrest;
| | - | -----------------------------------------------------------------------------------------------------------



| | • | natural disasters and other calamities;
| | - | ---------------------------------------



| | • | changes in market conditions for biotechnology and pharmaceutical
                                         stocks; and
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | changes in general market and economic conditions.
| | - | --------------------------------------------------



In addition, the stock market has recently
experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company
stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating
performance of the companies represented by the stock. As a result of this volatility, the price of our common shares may decline
even if our operating results, underlying asset values or prospects have not changed.As we operate in a single industry,
we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent
our markets. Continued listing of our common shares on the NASDAQ in addition to the TSX may increase share price volatility on
the TSX and also result in volatility of the trading price on the NASDAQ because trading will be split between the two markets,
resulting in less liquidity on both exchanges. In addition, different liquidity levels, volume of trading, currencies and market
conditions on the two exchanges may result in different prevailing trading prices. In the past, securities class action litigation
has often been initiated against companies following periods of volatility in their share price. This type of litigation could
result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial
payments to satisfy judgments or to settle litigation.



A significant portion of our total outstanding common
shares may be sold into the public market in the near future, which could cause the market price of our common shares to drop
significantly, even if our business is doing well.



Sales of a substantial number of our common
shares in the public market could occur at any time after the expiration of the lock-up agreements recently entered into in connection
with our initial public offering of common shares in the United States. These sales, or the market perception that the holders
of a large number of common shares intend to sell shares, could reduce the market price of our common shares. As of August 13,
2015, we had 12,117,301 common shares outstanding.



Approximately 1,268,076 common shares will
be able to be sold on or about September 15, 2015, due to lock-up agreements between the holders of such common shares and the
underwriters that participated in our initial public offering. However, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
on behalf of the underwriters, can waive the provisions of such lock-up agreements by prior written consent and allow such shareholders
to sell their common shares at any time.



As of August 13, 2015, there were 581,501
common shares subject to outstanding options granted under our Stock Option Plan. We have registered 1,211,730 common shares that
we may issue under our Stock Option Plan. Once those common shares are issued in accordance with the terms of the plan, they can
be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates
under Rule 144. If the options are exercised and the underlying common shares resold in the public market in the near future,
the market price of our common shares may drop.





-70-






We do not expect to pay any cash dividends for the
foreseeable future.



You should not rely on an investment in our
common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common shares
in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future
debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our
common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur,
as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our
common shares.



If securities or industry analysts do not publish research,
or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.



The trading market for our common shares will
depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or
more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business,
our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price
would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand
for our common shares could decrease, which might cause our share price and trading volume to decline.



As we are a Canadian company, it may be difficult for
United States shareholders to effect service on us or to realize on judgments obtained in the United States.



We are incorporated under the federal laws
of Canada, most of our directors and officers are residents of Canada, and most or all of our assets and the assets of such persons
are located outside the United States. Consequently, it may be difficult for United States investors to effect service of process
within the United States upon us or upon such persons who are not residents of the United States, or to realize in the United
States upon judgments of United States courts predicated upon civil liabilities under United States securities laws. A judgment
of a United States court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the
United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There
is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated
solely upon such civil liabilities.



As a foreign private issuer, we are subject to different
United States securities laws and rules than a domestic United States issuer, which may limit the information publicly available
to our shareholders.



We are currently a “foreign private issuer”
as defined under U.S. securities laws. As a result, even though we are subject to the informational requirements of the Exchange
Act, as a foreign private issuer, we are currently exempt from certain informational requirements of the Exchange Act to which
domestic U.S. issuers are subject, such as the proxy solicitation rules under Section 14 of the Exchange Act. In order to be more
easily compared to our principal competitors, we will be filing annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, with the SEC, as if we were a U.S. domestic issuer. The insider reporting and short-profit provisions
under Section 16 of the Exchange Act are not applicable to us, so our shareholders may not know on as timely a basis when our
officers, directors and principal shareholders purchase or sell our common shares, as the reporting periods under the corresponding
Canadian insider reporting requirements are longer.





-71-






We may lose our foreign private issuer status in the future,
which could result in significant additional costs and expenses to us.



In the future, we might potentially lose our
foreign private issuer status. If we are not a foreign private issuer, we would not be eligible to use certain foreign issuer
forms and would be required to file periodic and current reports and registration statements on United States domestic issuer
forms with the SEC. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements
that are available to foreign private issuers. Further, if we engage in capital raising activities after losing our foreign private
issuer status, there is a higher likelihood that investors may require us to file resale registration statements with the SEC
as a condition to any such financing.



-72-






ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS.



(a) Sales of Unregistered
Securities



Set forth below are the sales of our securities
sold by us during the quarter ended June 30, 2015, which were not registered under the United States Securities Act of 1933, as
amended, or the Securities Act.



From April 7, 2015 to June 23, 2015, we issued
an aggregate of 44,923 common shares pursuant to the exercise of warrants, for aggregate cash consideration of Cdn$539,567. Such
common shares were issued by us in the United States and to “U.S. persons” (as both such terms are defined in Regulation
S under the Securities Act, or Regulation S, in reliance upon Rule 506(b) of Regulation D under the Securities Act, or Regulation
D, solely to “accredited investors,” as such term is defined in Rule 501(a) of Regulation D. Such common shares were
issued outside the United States to non-U.S. persons in reliance upon Regulation S.



On April 2, 2015, 248,743 options were granted
to certain of our officers, directors and employees at an exercise price of Cdn$21.76 per share expiring five years from the date
of the grant. 39,686 of the options vested immediately. For 209,057 of the options, one-quarter vested immediately, one-quarter
will vest in one year, one-quarter will vest in two years, and one-quarter will vest in three years. Such options were granted
by us in the United States and to U.S. persons in reliance upon Rule 701 under the Securities Act. Such options were granted outside
the United States to non-U.S. persons in reliance upon Regulation S.



(b) Use of Proceeds



On June 17,
2015, our registration statement on Form F-10 (File No. 333-204226) was declared effective by the SEC for our initial public offering
in the United States pursuant to which we sold an aggregate of 5,175,000 common shares (inclusive of 675,000 common shares sold
by us pursuant to the full exercise of an option granted to the underwriters in connection with the offering) at a price to the
public of US$14.00 per share for aggregate gross offering proceeds of approximately US$72.5 million. Merrill Lynch, Pierce, Fenner
& Smith Incorporated acted as sole book-running manager for the offering, Nomura Securities International, Inc. acted as a
lead manager and Noble Financial Capital Markets acted as co-manager. On June 23, 2015, we closed the sale of such common shares,
resulting in net proceeds to us of approximately US$66.4 million after deducting underwriting discounts and commissions of approximately
US$5.1 million and other offering expenses of approximately US$1 million. No payments were made by us to directors, officers or
persons owning ten percent or more of our common shares or to their associates, or to our affiliates.



There has
been no material change in the planned use of proceeds from our initial public offering as described in our prospectus that forms
a part of our registration statement on Form F-10 (File No. 333-204226), as supplemented and filed with the SEC on June 18, 2015.
As of June 30, 2015, we held all of the funds received in cash.



(c) Issuer Purchases of
Equity Securities



Not
applicable.



-73-






ITEM
6.	   EXHIBITS.



|Exhibit
    Number |  | Description                                                                                                                                                                                          
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                                                                      
|3.1                |  | Articles of Amalgamation of Cynapsus, as amended                                                                                                                                                     
|                   |  |                                                                                                                                                                                                      
|3.2                |  | By-law No. 2 of Cynapsus                                                                                                                                                                             
|                   |  |                                                                                                                                                                                                      
|4.1                |  | Specimen Common Share Certificate of Cynapsus                                                                                                                                                        
|                   |  |                                                                                                                                                                                                      
|4.2                |  | Form of Warrant Certificate dated July 18, 2012                                                                                                                                                      
|                   |  |                                                                                                                                                                                                      
|4.3                |  | Form of Warrant Certificate dated October 24, 2012                                                                                                                                                   
|                   |  |                                                                                                                                                                                                      
|4.4                |  | Form of Warrant Certificate dated November 23, 2012                                                                                                                                                  
|                   |  |                                                                                                                                                                                                      
|4.5                |  | Warrant Indenture dated March 1, 2013, by and between Equity Financial
    Trust Company and Cynapsus                                                                                                
|                   |  |                                                                                                                                                                                                      
|4.6                |  | Supplemental Indenture dated May 15, 2015, by and between Equity
    Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated March 1, 2013)                                    
|                   |  |                                                                                                                                                                                                      
|4.7                |  | Warrant Indenture dated April 15, 2014, by and between Equity Financial
    Trust Company and Cynapsus                                                                                               
|                   |  |                                                                                                                                                                                                      
|4.8                |  | Supplemental Indenture dated May 15, 2015, by and between Equity
    Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated April 15, 2014)                                   
|                   |  |                                                                                                                                                                                                      
|10.1               |  | Lease, dated May 1, 2008, by and between Richmond Walnut Business
    Centre Inc. and Cynapsus                                                                                                       
|                   |  |                                                                                                                                                                                                      
|10.2               |  | Lease Extension Agreement, dated May 1, 2014, by and between Richmond
    Walnut Business Centre Inc. and Cynapsus                                                                                   
|                   |  |                                                                                                                                                                                                      
|10.3#              |  | Agreement dated March 17, 2015 by and between ARx, LLC and Cynapsus                                                                                                                                  
|                   |  |                                                                                                                                                                                                      
|10.4+              |  | 2014 Amended and Restated Stock Option Plan (incorporated by reference
    to Exhibit 4.1 to Cynapsus’s registration statement on Form S-8 filed with the SEC on July 29, 2015 (File No. 333-205929))
|                   |  |                                                                                                                                                                                                      
|10.5+              |  | Employment Agreement, dated May 13, 2015, between Anthony Giovinazzo and Cynapsus                                                                                                                    
|                   |  |                                                                                                                                                                                                      
|10.6+              |  | Employment Agreement, dated May 13, 2015, between Andrew Williams and Cynapsus                                                                                                                       
|                   |  |                                                                                                                                                                                                      
|10.7+              |  | Employment Agreement, dated May 13, 2015, between Albert Agro and Cynapsus                                                                                                                           
|                   |  |                                                                                                                                                                                                      
|10.8+              |  | Employment Agreement, dated May 13, 2015, between Thierry Bilbault and Cynapsus                                                                                                                      
|                   |  |                                                                                                                                                                                                      
|10.9+              |  | Form of Director and Officer Indemnification Agreement                                                                                                                                               
|                   |  |                                                                                                                                                                                                      
|31.1               |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
    of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                    



-74-






|ExhibitNumber |  | Description                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                   
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
    of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                 
|              |  |                                                                                                                                                                                   
|32.1          |  | Certifications of Chief Executive Officer and Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________



| | # | Confidential portions of the exhibit have been redacted and filed
                                         separately with the SEC pursuant to a confidential treatment request in accordance with
                                         Rule 24b-2 of the Exchange Act.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | + | Indicates management contract or compensatory plan.
| | - | ---------------------------------------------------



-75-






SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.



|                      | CYNAPSUS THERAPEUTICS INC.
|--------------------- | --------------------------
|                      | (Registrant)              
|                      |                           
|Date: August 14, 2015 | By:                       
|                      |                           
|                      |                           
|                      |                           



-76-






EXHIBIT INDEX



|Exhibit
    Number |  | Description                                                                                                                                                                                          
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                                                                      
|3.1                |  | Articles of Amalgamation of Cynapsus, as amended                                                                                                                                                     
|                   |  |                                                                                                                                                                                                      
|3.2                |  | By-law No. 2 of Cynapsus                                                                                                                                                                             
|                   |  |                                                                                                                                                                                                      
|4.1                |  | Specimen Common Share Certificate of Cynapsus                                                                                                                                                        
|                   |  |                                                                                                                                                                                                      
|4.2                |  | Form of Warrant Certificate dated July 18, 2012                                                                                                                                                      
|                   |  |                                                                                                                                                                                                      
|4.3                |  | Form of Warrant Certificate dated October 24, 2012                                                                                                                                                   
|                   |  |                                                                                                                                                                                                      
|4.4                |  | Form of Warrant Certificate dated November 23, 2012                                                                                                                                                  
|                   |  |                                                                                                                                                                                                      
|4.5                |  | Warrant Indenture dated March 1, 2013, by and between Equity Financial
    Trust Company and Cynapsus                                                                                                
|                   |  |                                                                                                                                                                                                      
|4.6                |  | Supplemental Indenture dated May 15, 2015, by and between Equity
    Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated March 1, 2013)                                    
|                   |  |                                                                                                                                                                                                      
|4.7                |  | Warrant Indenture dated April 15, 2014, by and between Equity Financial
    Trust Company and Cynapsus                                                                                               
|                   |  |                                                                                                                                                                                                      
|4.8                |  | Supplemental Indenture dated May 15, 2015, by and between Equity
    Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated April 15, 2014)                                   
|                   |  |                                                                                                                                                                                                      
|10.1               |  | Lease, dated May 1, 2008, by and between Richmond Walnut Business
    Centre Inc. and Cynapsus                                                                                                       
|                   |  |                                                                                                                                                                                                      
|10.2               |  | Lease Extension Agreement, dated May 1, 2014, by and between Richmond
    Walnut Business Centre Inc. and Cynapsus                                                                                   
|                   |  |                                                                                                                                                                                                      
|10.3#              |  | Agreement dated March 17, 2015 by and between ARx, LLC and Cynapsus                                                                                                                                  
|                   |  |                                                                                                                                                                                                      
|10.4+              |  | 2014 Amended and Restated Stock Option Plan (incorporated by reference
    to Exhibit 4.1 to Cynapsus’s registration statement on Form S-8 filed with the SEC on July 29, 2015 (File No. 333-205929))
|                   |  |                                                                                                                                                                                                      
|10.5+              |  | Employment Agreement, dated May 13, 2015, between Anthony Giovinazzo and Cynapsus                                                                                                                    
|                   |  |                                                                                                                                                                                                      
|10.6+              |  | Employment Agreement, dated May 13, 2015, between Andrew Williams and Cynapsus                                                                                                                       
|                   |  |                                                                                                                                                                                                      
|10.7+              |  | Employment Agreement, dated May 13, 2015, between Albert Agro and Cynapsus                                                                                                                           
|                   |  |                                                                                                                                                                                                      
|10.8+              |  | Employment Agreement, dated May 13, 2015, between Thierry Bilbault and Cynapsus                                                                                                                      
|                   |  |                                                                                                                                                                                                      
|10.9+              |  | Form of Director and Officer Indemnification Agreement                                                                                                                                               



-77-






|ExhibitNumber |  | Description                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                   
|31.1          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
    of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                 
|              |  |                                                                                                                                                                                   
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
    of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                 
|              |  |                                                                                                                                                                                   
|32.1          |  | Certifications of Chief Executive Officer and Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________________



| | # | Confidential portions of the exhibit have been redacted and filed
                                         separately with the SEC pursuant to a confidential treatment request in accordance with
                                         Rule 24b-2 of the Exchange Act.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | + | Indicates management contract or compensatory plan.
| | - | ---------------------------------------------------



-78-