Adial Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Adial is a clinical-stage biopharmaceutical company developing AD04 for alcohol use disorder (AUD); it has no approved products and has generated no revenue.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.819 million for Q2; $4.119 million for six months | $2.159 million and $4.408 million, respectively, in 2019 |
| Net loss | $1.811 million for Q2; $4.088 million for six months | $2.134 million and $4.817 million, respectively, in 2019 |
| Loss per share, basic and diluted | $0.16 for Q2; $0.38 for six months | $0.21 and $0.52, respectively, in 2019 |
| Cash and cash equivalents | $8.624 million | $6.777 million at December 31, 2019 |
| Working capital | Approximately $8.8 million | Approximately $7.1 million at December 31, 2019 |
| Operating cash flow | $(2.811) million for six months | $(2.861) million in 2019 |
| Debt | No debt reported; liabilities were accounts payable and accrued expenses |
Margins are not meaningful because the company has no revenue. Accumulated deficit was $24.7 million. Total current liabilities were $682,000 at June 30, 2020.
Changes versus the prior comparable period
- Q2 operating expenses declined $340,000 year over year, mainly because of lower R&D costs following completion of trial start-up activities and lower manufacturing costs; Q2 R&D fell 27% to $888,000.
- For the first six months, R&D increased 2% to $1.943 million as trial sites began activation, while G&A declined 13% to $2.176 million. The six-month net loss improved by $729,000, partly because 2019 included a $442,000 warrant modification expense.
- Operating cash use was broadly similar year over year. Financing proceeds were lower: the June 2020 offering generated $4.657 million net, compared with $9.246 million from stock sales and warrant exercises in the first half of 2019.
Outlook, risks and notable items
- Management said June 30 cash was expected to fund operations for at least 12 months after filing, through Q3 2021, and was projected to support the current Phase 3 trial through database lock. These estimates are uncertain, especially if COVID-19 causes further enrollment, regulatory, site or vendor delays or increases costs.
- The initial Phase 3 trial was estimated to cost approximately $9.1 million in total; about $2.9 million had been incurred or prepaid, leaving approximately $6.2 million in direct trial expenses. Management expects additional capital will be needed for later development, including an estimated $20 million for a second Phase 3 trial and up to $10 million in other development expenses.
- COVID-19-related regulatory delays in some countries slowed enrollment during the first half; enrollment later improved. In July 2020, the company announced approval to begin the trial in Croatia and approvals in its intended Scandinavian and Eastern European countries.
- The June 11 registered direct offering and concurrent warrant placement raised $5.217 million gross and $4.657 million net. It issued 2.82 million common shares and warrants for 2.115 million shares at $2.00 per share, creating potential dilution.
- The company has no pending legal actions reported. It disclosed material weaknesses in internal controls, including inadequate documentation and review procedures, limited GAAP expertise for complex reporting, and insufficient staffing for segregation of duties; management concluded disclosure controls were not effective.
- Key risks include continued losses and need for financing, clinical-trial execution and regulatory approval, long-term safety and efficacy of AD04, dependence on third parties, potential equity dilution, and foreign-exchange exposure because many trial costs are denominated in euros.
Important facts for investors to verify
- Whether trial enrollment and database-lock timing remain achievable within available cash, given COVID-19 and trial-cost uncertainty.
- Availability and terms of funding needed for subsequent trials and development.
- Progress, results and regulatory requirements for the AD04 Phase 3 program, including the companion diagnostic.
- Remediation progress on the disclosed internal-control material weaknesses.
- Potential dilution from outstanding warrants, options and future equity financing.