Adial Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Adial is a clinical-stage biopharmaceutical company developing AD04 for alcohol use disorder (AUD) and Purnovate drug candidates, including PNV5030. It had no approved products and reported no product revenue.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $1.24 million | $1.69 million | $3.04 million | $6.06 million |
| General and administrative expense | $1.94 million | $2.37 million | $7.04 million | $7.25 million |
| Net loss | $3.11 million | $4.32 million | $9.86 million | $13.59 million |
| Net loss per share, basic and diluted | $0.12 | $0.22 | $0.40 | $0.76 |
| Net cash used in operating activities | Not provided quarterly | Not provided quarterly | $9.44 million | $9.58 million |
Margins are not meaningful because the company reported no product revenue. At September 30, 2022, cash and cash equivalents were $5.75 million, total current assets $6.77 million, total current liabilities $1.33 million, total liabilities $2.33 million, and shareholders’ equity $5.41 million. Accumulated deficit was $60.81 million. The filing reports no conventional borrowings; liabilities include lease obligations and $817,000 of acquisition-related contingent consideration.
For the nine months, financing provided $9.13 million, principally from a February 2022 stock-and-warrant offering. Cash declined by $310,000 from year-end 2021. Outstanding common shares increased from 20.95 million at December 31, 2021 to 26.85 million at September 30, 2022. The company also reported 12.17 million warrants and 4.32 million options outstanding.
Material changes versus the prior comparable period
- Nine-month operating expenses decreased $3.23 million, primarily because ONWARD Phase 3 trial and related manufacturing costs fell after trial activities concluded. R&D expense fell by $3.02 million; new Purnovate preclinical work partly offset the reduction.
- Nine-month net loss improved by $3.73 million. This reflected lower operating expenses and a favorable change in the fair value of contingent consideration, which produced a $197,000 gain versus a $336,000 loss in 2021.
- Q3 R&D expense decreased $448,000, while Purnovate R&D costs increased $471,000 as new preclinical programs began. Q3 G&A expense declined $428,000, largely due to lower equity-based compensation.
- Operating cash use remained similar year over year despite lower recognized expenses, partly because of prepaid costs and payments of previously accrued expenses.
Outlook, risks and unusual items
- Going concern and funding: Management said existing cash was not expected to fund operations for the 12 months following the filing and estimated cash would be exhausted near the end of Q2 2023. Projected cash use for the 12 months ended September 30, 2023 was approximately $7.7 million. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Management estimated that a further AD04 Phase 3 trial would require at least $20 million and a PNV5030 Phase 1 safety trial at least $1.4 million. Additional financing may come from equity or debt, grants, collaborations, or licensing, but availability and terms are uncertain. Equity funding could dilute shareholders; debt could add obligations and restrictive covenants.
- ONWARD results: In the prespecified heavy-drinker subgroup, AD04 showed a statistically significant reduction from baseline in heavy drinking days at month six versus placebo (p=0.03). The combined heavy- and very-heavy-drinker population’s prespecified primary analysis was not statistically significant. The company intended to discuss next steps with U.S. and European health authorities; further trials and regulatory requirements remained uncertain.
- The company said it expected at least one, and possibly two, additional Phase 3 trials for U.S. approval; whether further trials would be needed in Europe was unknown. Long-term safety data were limited to six months in ONWARD, and the filing notes the FDA may require 12-month safety data.
- Adial reported receiving a Nasdaq notice because its share price was below the $1.00 minimum bid requirement for 30 consecutive business days. It had until February 27, 2023 to regain compliance, subject to Nasdaq rules.
- Management disclosed material weaknesses in internal controls, including inadequate formal risk assessment and documentation, approval and review processes, complex-GAAP expertise, IT controls, and segregation of duties. Management nevertheless concluded the filed financial statements fairly presented the company’s financial condition and results.
- Other commitments included $1.409 million under the PNV5030 preclinical research agreement, approximately $900,000 of other vendor and consulting commitments if fully utilized, and operating lease liabilities of $220,249. The company reported no pending material legal actions.
- COVID-related supply-chain and cost effects, inflation, financing conditions, trial execution, regulatory outcomes, dilution, and share-price volatility were identified as risks. The company also noted potential foreign-exchange exposure because some trial costs were euro-denominated.
Key facts for investors to verify
- Updated cash runway, financing plans, and whether capital can be raised before the anticipated Q2 2023 cash exhaustion.
- Regulatory feedback on ONWARD and the required AD04 trial and safety-data pathway, including estimated costs and timing.
- Progress and funding needs for PNV5030 and other Purnovate programs.
- Nasdaq minimum-bid compliance status and any subsequent listing notices or actions.
- Progress in remediating internal-control material weaknesses and the potential effect of outstanding warrants, options, and equity awards on dilution.