Adial Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Adial is a clinical-stage biopharmaceutical company developing AD04 for alcohol use disorder (AUD) and, through its Purnovate subsidiary, drug candidates including a pain program. It has no approved products and reported no product revenue.
Financial results and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $596,341 | $2,051,623; down 71% |
| General and administrative expense | $2,462,613 | $2,788,711; down 12% |
| Total operating expenses | $3,058,954 | $4,840,334 |
| Net loss | $2,907,839 | $4,833,764 |
| Basic and diluted loss per share | $0.13 | $0.30 |
| Net cash used in operating activities | $2,496,753 | $2,843,424 |
| Cash and cash equivalents, at period end | $12,689,161 | $6,062,173 at Dec. 31, 2021 |
Margins are not meaningful given the absence of product revenue. The company reported a $151,115 gain in other income, mainly reflecting a $146,000 favorable change in the estimated fair value of Purnovate contingent consideration. It had $13,963,648 in total assets, $3,256,323 in total liabilities, and $10,707,325 in shareholders’ equity at March 31, 2022. Liabilities included $868,000 of contingent consideration and $245,148 of operating lease liabilities; no material conventional borrowings are reported in the balance sheet.
Financing provided $9,123,741 in net proceeds from a February stock-and-warrant offering. Cash increased by $6,626,988 during the quarter. Common shares outstanding rose to 23,718,962 from 20,946,712 at year-end; the offering and equity awards contributed to the increase. Warrants and options create potential additional dilution.
Material changes and operating developments
- Net loss narrowed by about $1.9 million year over year, primarily alongside lower operating expenses. R&D fell as ONWARD trial activity wound down, a CRO dispute was settled on better-than-expected terms, and a clinical-supply project completed; these reductions were partly offset by $458,000 of new Purnovate R&D costs.
- Management reported that all subjects had completed dosing in the ONWARD Phase 3 trial: 302 participants were enrolled, above the 290 target, across 25 sites in six countries. The filing describes the trial as nearing completion; data release timing is not specified.
- On April 28, 2022, after quarter-end, the company and Crown CRO settled a dispute and revised remaining trial milestones. The filing also notes subsequent milestone payments after quarter-end.
- The filing states estimated remaining ONWARD trial costs of about $1.7 million, approximately $20 million for a potential second Phase 3 trial, and at least $1.4 million for a Purnovate pain-program Phase 1 trial expected to begin in 2023.
Liquidity, outlook, and risks
Liquidity disclosures are inconsistent. The liquidity note says existing cash is expected to fund operations for at least 12 months after filing, and MD&A says cash is expected to last 12 months while also forecasting approximately $10.2 million of cash use through March 31, 2023 and exhaustion near the beginning of Q3 2023. However, the overview says the company does not believe current cash will be sufficient for the next 12 months. Management says additional financing will be needed for its broader plans and provides no assurance it will be available on acceptable terms or at all.
- Key risks include clinical-trial timing and results, regulatory approval, manufacturing and supply, competition, future financing needs, potential shareholder dilution, and COVID-19-related delays or cost impacts. The company also cites foreign-exchange exposure because some trial costs are denominated in euros.
- The company has incurred losses since inception and reported an accumulated deficit of approximately $53.9 million. It expects ongoing losses and does not expect product commercialization before 2025 or later.
- Management disclosed material weaknesses in internal control over financial reporting, including deficiencies in risk assessment, documentation and review procedures, accounting expertise, IT controls, and segregation of duties. Management nevertheless concluded the financial statements fairly present the company’s condition and results in all material respects.
- No pending legal actions were reported as of March 31, 2022. The company reported related-party relationships and transactions, including the Purnovate acquisition and consulting arrangements.
Important facts for investors to verify
- Reconcile the filing’s conflicting statements about whether cash covers the next 12 months and confirm the assumptions behind the expected Q3 2023 cash exhaustion date.
- Track ONWARD completion, data-release timing and results, remaining trial costs, and regulatory next steps.
- Confirm financing plans for a possible second Phase 3 trial and the Purnovate pain program, including dilution and warrant effects.
- Monitor remediation of the disclosed material weaknesses and changes in clinical, regulatory, vendor, and foreign-exchange risks.