Adial Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Adial is a clinical-stage biotechnology company with no product sales or revenue. Its lead candidate, AD04, is in a Phase 3 trial for alcohol use disorder (AUD); the company acquired Purnovate, a drug-development business, in January 2021.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.32 million | $0.89 million | $4.37 million | $1.94 million |
| General and administrative expense | $2.08 million | $0.93 million | $4.87 million | $2.18 million |
| Net loss | $4.44 million | $1.81 million | $9.27 million | $4.09 million |
| Basic and diluted loss per share | $0.25 | $0.16 | $0.55 | $0.38 |
| Operating cash used | Not separately presented | Not separately presented | $6.05 million | $2.81 million |
Gross margin and operating margin are not meaningful because Adial had no revenue. At June 30, cash and cash equivalents were $5.21 million, versus $4.40 million at December 31, 2020. Total assets were $8.06 million; total liabilities were $3.23 million, including $273,000 of lease liabilities and $793,000 of contingent acquisition consideration. The company had an accumulated deficit of $40.8 million. It reported no material conventional borrowings; Purnovate’s $29,088 PPP loan was forgiven in April, producing a $29,088 gain.
Six-month financing cash inflows of $6.89 million, mainly equity sales and warrant exercises, exceeded $6.05 million of operating cash outflow and $34,000 of investing outflow, resulting in a $809,000 net cash increase. The filing estimates cash use of about $8.7 million over the 12 months ending June 30, 2022, assuming planned trial, discretionary R&D and corporate costs.
Changes versus the prior period
- Q2 net loss increased by $2.63 million year over year; six-month net loss increased by $5.19 million.
- R&D expense rose 161% in Q2 and 125% for the first half, mainly as AD04 trial enrollment and site activity increased; the Purnovate acquisition also added R&D payroll.
- G&A expense rose 124% in both the quarter and six-month period, reflecting higher staffing, fundraising and transaction costs, consulting and investor-relations costs, and stock-based compensation.
- Operating cash use increased by $3.24 million year over year for the first half. Cash nevertheless increased, supported by equity financing and warrant exercises.
- Purnovate added acquired R&D supplies, in-process R&D, goodwill, lease assets and contingent consideration. The acquisition was a related-party transaction because the CEO held an interest in Purnovate.
Outlook, commentary and risks
- Management said cash on hand was expected to fund operations for at least 12 months after filing and to support the ongoing AD04 trial to database lock. The company projected trial completion and data availability in Q1 2022; the trial was more than 90% enrolled, with all 25 planned sites actively enrolling.
- Management estimated that a second Phase 3 trial would require about $20 million and that up to $10 million of additional development spending would be needed to bring AD04 to market. Additional financing will therefore be needed. The Keystone equity purchase agreement permits up to $15 million, subject to market-price and other conditions; access is not guaranteed.
- After quarter-end, investors agreed to purchase $5.0 million of common stock at $3.00 per share; the filing reports the remaining shares purchased August 2. Adial also sold $500,000 of shares through the Keystone equity line in July. These financings provide additional cash but dilute shareholders.
- COVID-19 previously delayed trial approvals and enrollment in some countries. Management noted continuing uncertainty about further delays, site costs and cash projections; Scandinavian sites, which are higher-cost, recovered enrollment more quickly than lower-cost Central and Eastern European sites.
- Adial reported that the blinded trial’s adverse events were mostly mild and that no study-drug-related serious adverse events had been observed to date. These are interim observations, not final efficacy or safety results; long-term ondansetron safety at the intended chronic dosing has not been comprehensively studied.
- Management identified financing availability, clinical-trial execution and outcomes, regulatory approval, manufacturing and supplier availability, and competition as material risks. It also disclosed ineffective disclosure controls and material weaknesses in financial-reporting controls, including inadequate documentation and review processes, limited complex-GAAP expertise and insufficient staffing for segregation of duties.
- The filing reported no pending material legal actions and no off-balance-sheet arrangements. No material market-risk disclosure was applicable.
Important facts for investors to verify
- Actual ONWARD trial completion, database-lock timing, final efficacy and safety results, and any regulatory requirements for the genetic companion diagnostic.
- Cash runway against trial and operating costs, the availability and terms of further financing, and the extent of dilution from equity-line usage and other share issuances.
- Whether COVID-19 or enrollment patterns increase trial duration or site costs beyond management’s estimates.
- Progress and carrying values of Purnovate’s acquired R&D assets, and potential milestone or royalty obligations under the acquisition.
- Remediation of the disclosed internal-control weaknesses and whether subsequent filings report effective controls.