Adial Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results. Adial is a clinical-stage biotechnology company developing AD04 for alcohol use disorder (AUD) and Purnovate drug candidates, including a pain-treatment program. It has no approved products and reported no product revenue.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.20 million | $2.32 million | $1.80 million | $4.37 million |
| General and administrative expense | $2.63 million | $2.08 million | $5.09 million | $4.87 million |
| Total operating expenses | $3.83 million | $4.40 million | $6.89 million | $9.24 million |
| Net loss | $3.85 million | $4.44 million | $6.76 million | $9.27 million |
| Basic and diluted loss per share | $0.16 | $0.25 | $0.29 | $0.55 |
Cash flow: For the first six months, operating cash use was $6.03 million, investing cash flow was zero, and financing provided $9.13 million. Cash increased $3.09 million to $9.16 million.
Balance sheet at June 30: Current assets were $9.94 million and current liabilities $1.87 million; working capital was approximately $8.07 million. Total assets were $10.92 million, total liabilities $2.96 million, and shareholders’ equity $7.96 million. Liabilities included $892,000 of acquisition-related contingent consideration and $233,000 of lease obligations. The filing reports no outstanding borrowing debt at period-end.
Margins: Not meaningful because the company had no revenue.
Changes versus prior comparable periods
- Q2 net loss narrowed by about $593,000 year over year; six-month net loss narrowed by about $2.52 million.
- R&D expense fell 48% in Q2 and 59% in the first half, mainly as AD04 Phase 3 trial activity wound down. Lower trial costs were partly offset by higher Purnovate research spending.
- G&A expense rose 26% in Q2, reflecting higher salaries, equity compensation and planning-consultant costs; first-half G&A increased about $220,000.
- Cash increased from $6.06 million at December 31, 2021, primarily after a February 2022 equity and warrant financing that generated $9.12 million net. Common shares outstanding rose from 20.95 million to 25.85 million during the period.
- Other income included a $122,000 first-half gain from revaluing contingent consideration, versus a $61,000 expense in the comparable 2021 period. The 2021 period also included a one-time $29,000 PPP loan-forgiveness gain.
Outlook, developments and risks
- Liquidity and going concern: Management said cash was not expected to fund operations for the 12 months following the filing and forecast exhaustion near the beginning of Q3 2023. It estimated approximately $8.1 million of cash use over the 12 months ending June 30, 2023. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management is pursuing additional capital but gives no assurance it will be available on acceptable terms or at all.
- Funding needs: The company estimated a minimum of $20 million for a second AD04 Phase 3 trial and at least $1.4 million for a Purnovate pain-program Phase 1 safety trial, expected to begin in 2023. Without funding, programs could be delayed, scaled back or discontinued. Equity financing could dilute shareholders; debt or partnering could impose obligations or require giving up rights.
- AD04 trial and regulatory path: Results announced July 20, 2022, after quarter-end, from the 302-patient ONWARD Phase 3 trial showed a statistically significant reduction in heavy-drinking days at month six in the prespecified heavy-drinker subgroup (p=0.03). The combined heavy- and very-heavy-drinker population did not show a statistically significant result on the prespecified primary efficacy analysis. Adial plans to discuss next steps with European and U.S. authorities; further trials may be required, including at least one and possibly two additional Phase 3 trials for U.S. approval. Approval timing and requirements remain uncertain.
- Safety and development: The company reported a safety profile similar to placebo in ONWARD, but notes limited long-term safety data beyond six months. Clinical, regulatory, manufacturing, financing and commercialization outcomes remain uncertain.
- Commitments and unusual items: Adial prepaid $579,000 under a $1.409 million PNV5030 preclinical research agreement; no services had been received or expense recognized by June 30. Other consulting, trial-support and testing agreements could require about $1.5 million if fully utilized. The UVA license accrued a $155,000 milestone after the Phase 3 trial was deemed complete, in addition to minimum royalties. No material pending legal proceedings were reported.
- Controls and other risks: Management disclosed material weaknesses in financial-reporting controls, including inadequate documentation and review processes, insufficient GAAP expertise for complex transactions, IT-control deficiencies and limited segregation of duties. Management nevertheless concluded the financial statements fairly present the periods reported. The filing also cites market volatility, potential dilution, foreign-exchange exposure and possible effects of COVID-19 and geopolitical or economic conditions.
Important facts for investors to verify
- Whether Adial secures sufficient financing, on what terms, and how that affects its runway and dilution.
- Regulatory feedback on ONWARD, the evidence required for approval, and the scope, cost and timing of any additional AD04 trials.
- Whether the heavy-drinker subgroup result is replicated and how regulators assess the nonsignificant combined-population primary analysis.
- Progress, spending and milestones for PNV5030 and other Purnovate programs, alongside outstanding contractual commitments.
- Remediation of the disclosed internal-control material weaknesses and the potential dilution from outstanding warrants, options and future equity issuance.