Adial Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; financial statements are unaudited. Adial is a clinical-stage biopharmaceutical company developing AD04 for alcohol use disorder (AUD). It has no approved company-developed products and has generated no significant revenue.
Financial performance and position
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No significant revenue; minimal commission income from COVID-19 test distribution | — |
| Operating expenses | $3.338 million for the quarter; $7.457 million for nine months | Q3 2019: $1.746 million; nine months 2019: $6.154 million |
| Net loss | $3.336 million for the quarter; $7.424 million for nine months | Q3 2019: $1.716 million; nine months 2019: $6.533 million |
| Loss per share, basic and diluted | $0.24 for the quarter; $0.63 for nine months | Q3 2019: $0.17; nine months 2019: $0.68 |
| Cash and cash equivalents | $7.365 million | $6.777 million at December 31, 2019 |
| Working capital | Approximately $7.1 million | Approximately $7.1 million at December 31, 2019 |
| Current liabilities | $1.093 million | $539,051 at December 31, 2019 |
| Operating cash flow | $(5.019) million for nine months | $(4.586) million for nine months 2019 |
| Financing cash flow | $5.607 million for nine months | $9.247 million for nine months 2019 |
No debt is reported; the company says its liabilities consisted of accounts payable and accrued expenses. Profit margins are not meaningful given the absence of significant revenue and continuing losses.
Material changes versus prior comparable periods
- Q3 R&D expense increased 114% to $1.847 million, primarily from clinical-trial CRO and site costs. For the nine-month period, R&D rose 37% to $3.790 million as Phase 3 trial activity expanded.
- Q3 G&A expense increased 69% to $1.491 million, including higher business development, shareholder relations, cash compensation, and equity compensation. Nine-month G&A increased 8% to $3.668 million.
- Q3 net loss widened to $3.336 million. The nine-month net loss increased to $7.424 million; the prior-year period included a $442,000 noncash warrant-modification expense, so other income/expense comparisons were affected by that item.
- Cash increased from year-end despite operating cash use, primarily due to financing. Adial raised $4.657 million net in a June registered direct offering and $500,000 in a September private placement, and received $450,008 from warrant exercises. Shares outstanding increased from 10.37 million at year-end to 14.22 million at September 30.
Outlook, risks, contingencies, and notable items
- Liquidity and going concern: Management said the $7.4 million cash balance was expected to fund operations only through Q3 2021 and was insufficient for the next 12 months following the filing. The filing states substantial doubt exists about the company’s ability to continue as a going concern. It also says cash was no longer projected to be sufficient to reach database lock if current enrollment and cost trends continued. Additional financing is being pursued, with no assurance it will be available on acceptable terms or at all.
- Trial plans and costs: The initial Phase 3 trial was projected to complete near the end of Q4 2021. Estimated total cost was approximately $10.1 million, with about $6.4 million in direct trial expenses remaining at the time of the filing. A second Phase 3 trial was estimated at $20 million, plus up to $10 million in other development expenses; a possible third trial could add another $20 million.
- COVID-19: Pandemic-related regulatory delays slowed enrollment and shifted enrollment toward higher-cost Scandinavian sites. Further recruitment delays, site or vendor disruption, foreign-exchange movements, and public-health restrictions could increase costs or extend the trial. The filing’s liquidity discussion and risk factors both emphasize uncertainty around funding through database lock.
- Clinical and regulatory updates: Adial reported approval to commence the European ONWARD Phase 3 trial in Croatia and submitted a request for an FDA expedited review program. Subsequent to quarter-end, the FDA reactivated the IND and lifted the clinical hold. A November 3 update cited all 25 planned sites active, trial enrollment above 25%, expected full enrollment in Q2 2021, and data readout in Q4 2021 or earlier; these are company projections, not results. The company reported no serious adverse events at that update.
- Other activities: Adial began distributing COVID-19 antibody test kits and entered a profit-sharing distribution arrangement; no significant revenue had yet been received. The filing noted FDA emergency use authorization for the distributed test.
- Equity and dilution: Potentially dilutive securities included 8.63 million warrants and 2.67 million options at September 30; these were excluded from diluted loss per share as anti-dilutive. Shareholders approved increasing the equity plan authorization to 5.5 million shares.
- Controls and legal matters: Management concluded disclosure controls were not effective and identified material weaknesses involving documentation, approval and review processes, GAAP expertise, and staffing/segregation of duties. The company reported no pending material legal actions.
- License commitments: The UVA license includes annual minimum royalties, development milestones, and royalties on future product sales. The company recognized $30,000 of minimum royalty expense for the first nine months of 2020.
Important facts for investors to verify
- Whether additional capital was raised, and on what terms, to fund operations through database lock and subsequent development.
- Actual trial enrollment, site costs, timelines, and whether the projected Q2 2021 enrollment and Q4 2021-or-earlier readout were achieved.
- Regulatory feedback on the FDA expedited-review request, trial design, and the number of Phase 3 trials required for approval.
- Whether pandemic-related disruptions, foreign-exchange changes, or vendor issues altered the $10.1 million trial-cost estimate.
- Progress in remediating the disclosed internal-control material weaknesses and the potential dilution from outstanding warrants, options, and future financing.