Adial Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Adial is a clinical-stage biopharmaceutical company with no product revenue. Its lead candidate, AD04, is in the ONWARD Phase 3 trial for alcohol use disorder (AUD); the January 2021 acquisition of Purnovate added preclinical drug-development programs.
Financial performance and liquidity
- Revenue: None reported; the company has not generated product-sales revenue.
- Net loss: $4.834 million, versus $2.277 million in Q1 2020. Basic and diluted loss per share was $0.30, versus $0.22.
- Operating expenses: $4.840 million, up from $2.300 million. R&D expense rose to $2.052 million from $1.060 million; G&A rose to $2.789 million from $1.241 million. The filing attributes the increases principally to greater trial activity and enrollment, higher study-drug distribution costs, compensation, equity awards, legal and investor-relations costs, and acquisition-related activity.
- Cash flow: Operating activities used $2.843 million, compared with $1.825 million in Q1 2020. Financing provided $4.081 million, primarily from stock sales ($2.641 million) and warrant exercises ($1.425 million). Cash increased by $1.237 million to $5.638 million.
- Balance sheet at March 31: Current assets were $6.172 million and current liabilities were $2.042 million; total assets were $8.625 million and total liabilities were $3.008 million. Accumulated deficit was $36.354 million. The filing reports no operating margin because there was no revenue.
- Debt and other obligations: The company assumed a $29,088 PPP loan with the Purnovate acquisition. It reported $283,908 in lease liabilities and $726,012 in acquisition-related contingent consideration liabilities. The Purnovate agreement also includes potential milestone payments and 3% royalties on net sales.
Material changes and notable transactions
- On January 26, 2021, Adial acquired Purnovate in a related-party transaction. Consideration included $350,000 cash, common stock valued at approximately $1.060 million, and contingent consideration initially valued at $732,287. The acquisition added $1.548 million of research and development supplies, $455,000 of acquired in-process R&D, and $131,495 of goodwill.
- Common shares outstanding increased from 14.393 million at December 31, 2020 to 17.270 million at March 31, 2021, reflecting financing, warrant and option exercises, compensation issuances, and acquisition consideration.
- Warrants for 712,500 shares were exercised for $1.425 million. The company also had an equity purchase agreement with Keystone allowing up to $15 million in equity financing, subject to market price and other conditions; $2.85 million had been raised under it by the filing date.
Outlook, risks, and unusual items
- Management said cash was expected to fund operations only into Q4 2021, not for the 12 months following the filing. It estimated approximately $10.5 million of cash use over the next 12 months and said about $2.7 million of additional funding would be needed to reach the anticipated database lock in February 2022. The company expected a further $1.8 million from a separate stock-purchase arrangement after registration effectiveness, which would reduce the estimated database-lock funding gap to about $1.0 million.
- Management projected ONWARD trial completion near Q1 2022. At filing, all 25 planned sites were enrolling and the trial was more than 50% enrolled. COVID-19-related delays and higher site costs could extend timelines and increase cash requirements. The company said it would need additional financing and that availability on acceptable terms was uncertain.
- The filing states that recurring losses and projected funding needs raise substantial doubt about the company’s ability to continue as a going concern. Failure to obtain financing could force it to delay, scale back, or discontinue programs; equity financing could dilute shareholders.
- Other material risks include clinical-trial efficacy and safety, regulatory approval, manufacturing and supply, and the absence of a comprehensive long-term safety study of ondansetron at the intended AD04 dosage. The company also disclosed material weaknesses in financial-reporting controls and concluded disclosure controls were not effective as of March 31, 2021.
- Adial reported no pending legal actions and no off-balance-sheet arrangements. A post-quarter April 12 Keystone sale generated $500,000; the filing also notes a Form S-3 filing on April 19.
Investor verification points
- Confirm current cash runway, actual spending, and access to the Keystone equity facility and the separate $1.8 million stock-purchase proceeds; both depend on conditions and market factors.
- Track ONWARD enrollment, retention, trial costs, database-lock timing, and any further COVID-19-related disruption.
- Review the Purnovate acquisition’s related-party terms, contingent milestones, royalties, and purchase-price estimates.
- Reconcile the filing’s differing descriptions of acquisition shares: the financial statements and acquisition note generally report 699,980 shares, while a later note states 669,980.
- Assess potential dilution from outstanding warrants and options and monitor remediation of the disclosed internal-control material weaknesses.