Azora Therapeutics, Inc. (DE) 10-Q for FY2022 Q3
Azora Therapeutics, Inc. (DE) (AZR)
About this 10-Q
Azora Therapeutics, Inc. (DE) filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $3.11M
- compared with a net loss of $4.32M a year earlier
- Diluted EPS
- -$0.12
- compared with -$0.22 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ___________ to ___________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
| State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. | |
| | ||
| Address of Principal Executive Offices | Zip Code |
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Warrants | ADILW | NASDAQ |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
Number of shares of common
stock outstanding as of November 14, 2022 was
ADIAL PHARMACEUTICALS, INC.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item lA. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those risks identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2022 (“2021 Form 10-K”). Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Adial,” the “Company,” “we,” “us” and “our” refer to Adial Pharmaceuticals, Inc.
FORM 10-Q
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Unaudited Financial Statements
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid research and development | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Fixed Assets, net | ||||||||
| Intangible assets, net | ||||||||
| Acquired in-process research and development | ||||||||
| Right-to-use Asset | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses, related party | ||||||||
| Lease liability, current | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Contingent liabilities | ||||||||
| Lease liability, non-current | ||||||||
| Deferred tax liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (footnote 7) | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred Stock, | ||||||||
| Common Stock, | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development expenses | $ | $ | $ | $ | ||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Change in value of contingent liability | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Loss Before Provision For Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid In | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Sale of common stock and warrants, net of transaction costs | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2022 | ( | ) | ||||||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2022 | ( | ) | ||||||||||||||||||
| Common Stock | Additional Paid In | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||
| Stock issued as consideration for acquisition | ||||||||||||||||||||
| Sale of common stock, net of transaction costs | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Sale of common stock, net of transaction costs | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Equity-based compensation - stock option expense | — | |||||||||||||||||||
| Equity-based compensation - stock issuances to consultants and employees | ||||||||||||||||||||
| Sale of common stock, net of transaction costs | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ADIAL PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Equity-based compensation | ||||||||
| Gain on forgiveness of loan | ( | ) | ||||||
| Depreciation of fixed assets | ||||||||
| Fixed asset disposal | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of right-to-use asset | ||||||||
| Change in fair value of contingent liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid research and development expenses | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ||||||
| Accrued expenses, related party | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Change in operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Purchase consideration paid for acquisition, net of cash acquired | ||||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from sale of common stock and warrants | ||||||||
| Proceeds from warrant exercise | ||||||||
| Proceeds from options exercise | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS-END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Issuance of common stock for acquisition | $ | |||||||
| Contingent consideration for acquisition | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ADIAL PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 — DESCRIPTION OF BUSINESS
Adial Pharmaceuticals, Inc. (the “Company” or “Adial”) was converted from a limited liability company formed under the name Adial Pharmaceuticals, LLC, formed on November 23, 2010 in the Commonwealth of Virginia to a corporation and reincorporated in Delaware on October 1, 2017. Adial is presently engaged in the development of medications for the treatment or prevention of addictions and related disorders.
The Company’s wholly owned subsidiary, Purnovate, Inc. (“Purnovate”), was acquired on January 26, 2021, having been formed as Purnovate, LLC in December of 2019. Purnovate is a drug development company with a platform focused on developing drug candidates for non-opioid pain reduction and other diseases and disorders potentially targeted with adenosine analogs that are selective, potent, stable, and soluble.
The Company has recently released data from its ONWARD™ Phase 3 pivotal trial of its lead compound AD04 (“AD04”) for the treatment of Alcohol Use Disorder. Key patents have been issued in the United States, the European Union, and other jurisdictions for which the Company has exclusive license rights. The active ingredient in AD04 is ondansetron, a serotonin-3 antagonist. Due to its mechanism of action, AD04 is believed to have the potential to be used for the treatment of other addictive disorders, such as Opioid Use Disorder, obesity, smoking, and other drug addictions.
2 — LIQUIDITY, GOING CONCERN, AND OTHER UNCERTAINTIES
The
unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern. The Company is in
a development stage and has incurred losses each year since inception and has experienced negative cash flows from operations in each
year since inception and has an accumulated deficit of approximately $
Based on the recently announced results of its ONWARD Phase 3 trial, the Company intends to share the results of the trial with the relevant health authorities in Europe and the United States to discuss the appropriate next steps towards the expeditious development of AD04 and to seek product approval. The results of these discussions may materially change the Company’s expectations concerning the expected development cost of AD04. The Company has also initiated a number of research and development projects associated with Purnovate, including Purnovate’s lead compound, PNV5030, for treatment of pain and potentially for treatment of cancer. Though the Company’s cash on hand at the filing date is not estimated to be sufficient to fund operations through the twelve months subsequent to the date of this report, the Company believes funds on hand to be sufficient to bring the Purnovate program to the point of filing an IND for PNV5030. However, there can be no guarantee that conditions will not change and that the Company will not require additional funding in order to fund these additional projects, which may not be available on acceptable terms or at all, in which case significant delays or cost increases may result in material disruption to the Company’s operations. In such case, the Company would be required to delay, scale back or eliminate some or all of its research and development programs or delay its approach to regulators concerning AD04, which would likely have a material adverse effect on the Company and its financial statements.
5
The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity and/or debt financings, grant funding, strategic relationships, or out-licensing in order to complete its subsequent clinical trial requirements for AD04. Management is actively pursuing financing and other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. Without additional funding, the Company would be required to delay, scale back or eliminate some or all of its research and development programs, which would likely have a material adverse effect on the Company and its financial statements.
Other Uncertainties
Generally, the industry in which the Company operates subjects the Company to a number of other risks and uncertainties that can affect its operating results and financial condition. Such factors include, but are not limited to: the timing, costs and results of clinical trials and other development activities versus expectations; the ability to obtain regulatory approval to market product candidates; the ability to manufacture products successfully; competition from products sold or being developed by other companies; the price of, and demand for, Company products once approved; the ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products.
With the results of the ONWARD trial having been released, the risk of delays to the Company’s development programs from COVID-19 are reduced. However, the ongoing effects of the ongoing coronavirus pandemic, such as supply chain disruptions and post-stimulus inflation, may increase non-trial costs such as insurance premiums, increase the demand for and cost of capital, increase loss of work time from key personnel, and negatively impact our other key vendors and suppliers. The full extent to which the COVID-19 pandemic impacts the clinical development of AD04, preclinical development of the PNV5030, research and development activities around other Purnovate drug candidates, and the Company’s suppliers and other commercial partners, will depend on future developments that are still highly uncertain and cannot be predicted with confidence at this time, all of which could have a material adverse effect on our business, financial condition, and results of operations.
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principals of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results of operations for the periods presented. The interim operating results are not necessarily indicative of results that may be expected for any subsequent period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2021, included in the 2021 Form 10-K. The unaudited condensed consolidated financial statements represent the consolidation of the Company and its subsidiary in conformity with GAAP. All intercompany transactions have been eliminated in consolidation.
6
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include the valuation of stock-based compensation, accruals associated with third party providers supporting clinical trials, estimated fair values of long-lived assets used to record impairment charges related to intangible assets, acquired in-process research and development (“IPR&D”) and goodwill, allocation of purchase price in business acquisitions, measurement of contingent liabilities, and income tax asset realization. In particular, the recognition of clinical trial costs is dependent on the Company’s own judgement, as well as the judgment of our contractors and subcontractors in their reporting of information to us.
Basic and Diluted Loss per Share
Basic and diluted loss per share are computed based on the weighted-average outstanding shares of common stock, which are all voting shares. Diluted net loss per share is computed giving effect to all proportional shares of common stock, including stock options and warrants to the extent dilutive. Basic net loss per share was the same as diluted net loss per share for the three and nine months ended September 30, 2022 and 2021 as the inclusion of all potential common shares outstanding would have an anti-dilutive effect.
The total potentially dilutive common shares that were excluded for the three and nine month periods ended September 30, 2022 and 2021 were as follows:
| Potentially Dilutive Common Shares Outstanding September 30, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase common shares | ||||||||
| Common Shares issuable on exercise of options | ||||||||
| Shares subject to repurchase | ||||||||
| Total potentially dilutive Common Shares excluded | ||||||||
Fair Value Measurements
FASB ASC 820, Fair Value Measurement, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The methodology establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:
| ● | Level 1 inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs). |
| ● | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially). |
| ● | Level 3 inputs are unobservable inputs that reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available). |
7
The fair value of cash and cash equivalents, accounts payable approximate their carrying value due to their short-term maturities.
Non-financial assets, such as IPR&D and goodwill, are accounted for at fair value on a nonrecurring basis.
Acquisition-Related Contingent Consideration
In connection with the Purnovate
business combination, the Company may be required to pay future consideration that is contingent upon the achievement of specified development,
regulatory approvals or sales-based milestone events. The Company determines the fair value of these obligations using various estimates
that are not observable in the market and represent a Level 3 measurement within the fair value hierarchy. As of September 30, 2022, the
resulting probability-weighted cash flows were discounted using a weighted average cost of capital of
| September 30, 2022 | ||||
| Balance, December 31, 2021 | $ | ( | ) | |
| Total gains recognized | ||||
| Balance as of September 30, 2022 | $ | ( | ) | |
Adoption of Recent Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Adoption of this guidance did not have any material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company adopted ASU 2020-06 on January 1, 2021, with no material impact on our financial statements.
4 — ACCRUED EXPENSES
Accrued expenses consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Clinical research organization services and expenses | $ | $ | ||||||
| Employee compensation | ||||||||
| Preclinical and manufacturing expenses | ||||||||
| Legal and consulting services | ||||||||
| Total accrued expenses | $ | $ | ||||||
8
5 — RELATED PARTY TRANSACTIONS
On December 7, 2020, the Company
entered into an Equity Purchase Agreement with Purnovate, LLC to purchase all of the outstanding membership interests of Purnovate from
the members of Purnovate (the “Members”), such that after the acquisition, Purnovate became a wholly owned subsidiary of the
Company. The Company’s then Chief Executive Officer and board member, William B. Stilley, and another Adial board member, James
W. Newman, Jr. were, directly or indirectly, the members of Purnovate. Messrs. Stilley and Newman agreed to sell their membership interests
on the same terms as the other Members, except that Mr. Stilley is subject to a two (2) year lock up with respect to the sale and transfer
of the stock consideration that he received so long as his employment has not been terminated by the Company without cause prior to the
end of such period.
On March 11, 2021, the Company entered into Securities Purchase Agreements (the “March 2021 SPAs”) with each of Bespoke, three entities controlled by Mr. Newman, and Keystone Capital Partners, LLC (“Keystone”), pursuant to which: (i) Bespoke Growth Partners, Inc. (“Bespoke”) a company controlled by Mark Peikin, the Company’s Chief Strategy Officer who is not an executive officer, agreed to purchase an aggregate of 336,667 shares of the Company’s common stock at a purchase price of $3.00 per share for aggregate gross proceeds of $1,010,001; (ii) Mr. Newman agreed to purchase an aggregate of 30,000 shares of the Company’s common stock at a purchase price of $3.00 per share for aggregate gross proceeds of $90,000; and (iii) Keystone agreed to purchase an aggregate of 333,334 shares of the Company’s common stock at a purchase price of $3.00 per share for aggregate gross proceeds of $1,000,002. During the year ended December 31, 2021, the Company issued an aggregate of 700,001 shares of common stock to such individuals for total proceeds of $2,100,003. The shares sold pursuant to the March 2021 SPAs were registered pursuant to a registration statement on Form S-3 that was filed with the SEC on April 20, 2021 and declared effective on May 26, 2021.
See Note 11 for related party vendor, consulting, and lease agreements.
6 — SHAREHOLDERS’ EQUITY
Common Stock Issuances
9
During the three and nine
months ended September 30, 2022, the Company issued no shares of common stock and
During the nine months ended September 30, 2022, the Company issued employees 1,250,000 shares of common stock as bonuses. The first issuance of 250,000 shares are subject to forfeiture for nominal consideration to Company on termination of the employee, the shares no longer being liable to forfeiture (“vesting”) on the following schedule: 1/24 of 166,667 shares vesting on the date of issue and the first of each of the next twenty-three subsequent months, and 83,333 shares vesting on the third anniversary of the date of issue. The second issuance of 1,000,000 shares are subject to forfeiture on the same conditions, but on the following schedule: 1/6 of the issued shares vesting six months from date of issue, then 1/12 vesting at the end of each subsequent three month period, the entire grant being vested three years from date of issue. On September 30, 2022, 55,556 shares were vested and 1,194,444 shares remained subject to repurchase.
2017 Equity Incentive Plan
On October 9, 2017, the Company
adopted the Adial Pharmaceuticals, Inc. 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”); which became effective
on July 31, 2018. Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the
2017 Equity Incentive Plan was
Stock Options
The following table provides the stock option activity for the nine months ended September 30, 2022:
| Total Options Outstanding | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | Weighted Average Fair Value at Issue | |||||||||||||
| Outstanding December 31, 2021 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Cancelled | ||||||||||||||||
| Outstanding September 30, 2022 | $ | $ | ||||||||||||||
| Outstanding September 30, 2022, vested and exercisable | $ | $ | ||||||||||||||
At September 30, 2022, the total intrinsic value
of the outstanding options was $
The Company used the Black Scholes valuation model to determine the fair value of the options issued, using the following key assumptions for the nine months ended September 30, 2022:
| September 30, 2022 |
||||
| Fair Value per Share | $ | |||
| Expected Term (years) | ||||
| Expected Dividend | $ | |||
| Expected Volatility | % | |||
| Risk free rate | % | |||
10
During the nine months ended
September 30, 2022,
The components of stock-based compensation expense included in the Company’s Statements of Operations for the three and nine months ended September 30, 2022 and 2021 are as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and development options expense | ||||||||||||||||
| Total research and development expenses | ||||||||||||||||
| General and administrative options expense | ||||||||||||||||
| Stock and warrants issued to consultants and employees | ||||||||||||||||
| Total general and administrative expenses | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
Stock Warrants
The following table provides the activity in warrants for the respective periods.
Total Warrants | Weighted Average Remaining Term (Years) | Weighted Average Exercise Price | Average Intrinsic Value | |||||||||||||
| Outstanding December 31, 2021 | $ | |||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Outstanding September 30, 2022 | $ | |||||||||||||||
This table includes warrants to purchase 344,851 shares of common stock issued to consultants, including the 200,000 issued during the nine months ended September 30, 2022, with a total fair value of $263,195 at time of issue, calculated using the Black Scholes model assuming an underlying security values of $2.06, volatility rate of 107.88% risk-free rate of 1.71%, and an expected term of 6.5 years. During the nine months ended September 30, 2022, the Company recognized $305,230 in expense associated with these warrants with no additional expense remaining to be recognized.
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7 — COMMITMENTS AND CONTINGENCIES
License with University of Virginia Patent Foundation – Related Party
In January 2011, the Company entered into an exclusive, worldwide license agreement with the University of Virginia Patent Foundation, dba UVA Licensing and Ventures Group (“UVA LVG”) for rights to make, use or sell licensed products in the United States based upon the ten separate patents and patent applications made and held by UVA LVG.
As consideration for the rights
granted in the UVA LVG License, the Company is obligated to pay UVA LVG yearly license fees and milestone payments, as well as a royalty
based on net sales of products covered by the patent-related rights.
The license agreement may be terminated by UVA LVG upon sixty (60) days written notice if the Company breaches its obligations thereunder, including failing to make any milestone, failure to make required payments, or the failure to exercise diligence to bring licensed products to market. In the event of a termination, the Company will be obligated to pay all amounts that accrued prior to such termination. The Company is required to use commercially reasonable efforts to achieve the goals of submitting a New Drug Application to the FDA for a licensed product by December 31, 2024 and commencing commercialization of an FDA approved product by December 31, 2025. If the Company were to fail to use commercially reasonable effort and fail to meet either goal, the licensor would have the right to terminate the license.
The term of the license continues until the expiration, abandonment or invalidation of all licensed patents and patent applications, and following any such expiration, abandonment or invalidation will continue in perpetuity on a royalty-free, fully paid basis.
During both the three and
nine months ended September 30, 2022 and 2021, the Company recognized $
12
Clinical Research Organization (CRO)
On October 31, 2018, the Company
entered into a master services agreement (“MSA”) with Crown CRO Oy (“Crown”) for contract clinical research and
consulting services.
On November 16, 2018,
On April 28, 2022, the Company
and Crown settled a previous dispute concerning a putative change order. As part of this agreement, the Company agreed to pay Crown a
total of $
At September 30, 2022, the remaining future milestone payments are shown in the table below, converted to dollars from euros at the exchange rate then prevailing.
| Milestone Event | Percent Milestone Fees | Amount | ||||||
| eTMF Transfer | % | $ | ||||||
During the nine months ended
September 30, 2022, the Company recognized $
Service Agreement 1 also estimated
approximately $
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Lease Commitments – Purnovate lease
The Company has one operating lease which consists of office space with a remaining lease term of approximately years.
Leases with an initial term
of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components
of contracts. The Company’s lease agreement does not provide for determination of the interest rate implicit in the lease. Therefore,
the Company used a benchmark approach to derive an appropriate incremental borrowing rate. The Company’s incremental borrowing rate
is the rate of interest that the lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the
lease payments in a similar economic environment. The Company benchmarked itself against other companies of similar credit ratings and
comparable quality and derived an incremental borrowing rate, which was used to discount its lease liabilities. The Company used an estimated
incremental borrowing rate of
The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants. In addition, the Company does not have any finance leases, any sublease arrangements, or any leases where the Company is considered the lessor.
The components of lease expense, which are included in general and administrative expense, based on the underlying use of the ROU asset, were as follows:
| Components of total lease cost: | Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | ||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short-term lease expense | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases are as follows:
| Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | $ | $ | ||||||
| Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| As of September 30, 2022 | As of December 31, 2021 | |||||||
| Assets | ||||||||
| Lease right of use assets | $ | $ | ||||||
| Total lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Lease liability - current portion | $ | $ | ||||||
| Noncurrent liabilities: | ||||||||
| Lease liability, net of current portion | ||||||||
| Total lease liability | $ | $ | ||||||
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The weighted-average remaining lease term of the Company’s operating leases and the weighted-average discount rates used to calculate the Company’s operating lease liabilities are as follows:
| As of September 30, 2022 | As of September 30, 2021 | |||||||
| Weighted average remaining lease term (in years) - operating leases | ||||||||
| Weighted average discount rate - operating leases | % | % | ||||||
Future lease payments included in the measurement of lease liabilities on the condensed balance sheet as of September 30, 2022, for the following five fiscal years and thereafter were as follows:
| Year ending December 31, | Operating Leases | |||
| 2022 (remaining) | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total Minimum Lease Payments | $ | |||
| Less effects of discounting | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
Lease Commitments – Related Party
On March 1, 2020,
Consulting Agreements – Related Party
On March 24, 2019,
15
On July 5, 2019, the Company
entered into a Master Services Agreement (the “PEPCO MSA”) and statement of work with Psychological Education Publishing Company
(“PEPCO”) to administer a behavioral therapy program during the Company’s upcoming Phase 3 clinical trial. PEPCO is
owned by a related party, Dr. Bankole Johnson. It is anticipated that the compensation to be paid to PEPCO for services under the PEPCO
MSA will total approximately $
As of September 30, 2022, the Company had recognized all expenses associated with this agreement. No further expenses associated with the PEPCO MSA work order are expected.
On April 5, 2021, the Company entered into another Lock-Up Agreement Extension, which amended the Lock-Up Extension and extended the term of Dr. Johnson’s Lock-Up from April 1, 2021 until such date as the Company shall have publicly released the data from its ONWARD™ Phase 3 pivotal trial of AD04, in genetically identified subjects for the treatment of Alcohol Use Disorder.
Preclinical Research Agreement
On June 1, 2022, the Company
entered into an agreement and scope-of-work (“SOW”) specification for research services with IIT Research Institute for a
range of in vitro and preclinical safety studies of PNV5030, Purnovate’s lead drug candidate for treatment of pain and potentially
cancer. The studies are intended to enable a submission of an Investigational New Drug application for PNV5030 to the FDA. In total, this
agreement commits the Company to
Other Consulting and Vendor Agreements
The Company has entered into
a number of agreements and work orders for future consulting, clinical trial support, and testing services, with terms ranging between
Litigation
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. As of September 30, 2022, the Company did not have any pending legal actions.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited consolidated financial statements and the notes presented herein included in this Form 10-Q and the audited financial statements and the other information set forth in the Annual Report on Form 10-K for the year ended December 31, 2021 that we filed with the SEC on March 28, 2022 (the “2021 Form 10-K”). ln addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties including, but not limited to, those set forth below under “Risk Factors” and elsewhere herein, and those identified under Part I, Item 1A of the 2021 Form 10-K. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission (“SEC”).
Overview
We are a clinical-stage biopharmaceutical company focused on the development of therapeutics for the treatment or prevention of addiction and related disorders. Our lead investigational new drug product, AD04, is being developed as a therapeutic agent for the treatment of alcohol use disorder (“AUD”). In January 2021, we expanded our portfolio in the field of addiction with the acquisition of Purnovate, LLC via a merger into our wholly owned subsidiary, Purnovate, Inc., (“Purnovate”) and we continue to explore opportunities to expand our portfolio in the field of addiction and related disorders such as pain reduction, both through internal development and through acquisitions. Our vision is to create the world’s leading addiction focused pharmaceutical company. Additionally, we are using Purnovate’s adenosine drug discovery and development platform to invent and develop novel chemical entities as drug candidates for large unmet medical needs with the intention of spinning off or licensing drug candidates and development programs not related to the field of addiction.
We have devoted the vast majority of our resources to development efforts relating to AD04, including preparation for conducting clinical trials, providing general and administrative support for these operations and protecting our intellectual property. We currently do not have any products approved for sale and we have not generated any significant revenue since our inception. From our inception through the date of this Quarterly Report on Form 10-Q, we have funded our operations primarily through the private and public placements of debt and equity securities and an equity line.
We have incurred net losses in each year since our inception, including net losses of approximately $9.9 million and $13.6 million for the nine months ended September 30, 2022 and 2021, respectively. We had accumulated deficits of approximately $60.8 and $50.9 million as of September 30, 2022 and December 31, 2021, respectively. Substantially all our operating losses resulted from costs incurred in connection with our research and development programs, from general and administrative costs associated with our operations, and from financing costs.
We will not generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for AD04 or one of our other product candidates, which we expect will take a number of years and is subject to significant uncertainty. We do not believe our current cash and equivalents will be sufficient to fund our operations for the next twelve months from the filing of these financial statements, since we expect the reduction in R&D costs driven by the completion of the recent phase 3 trial will be partially offset by continued development and regulatory activities of AD04, increased research and development costs associated with the advancement of the Purnovate portfolio of drug candidates, and ongoing general and administrative costs associated with our operations. We do believe that we have flexibility in the timing of expenditures related to Purnovate projects which would allow us to extend the amount of time our current cash on hand can fund operations if necessary.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop AD04 or the Purnovate candidates.
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Recent Developments
On August 18, 2022, our board of directors appointed Cary J. Claiborne, age 61, as President and Chief Executive Officer.
In connection with his appointment, we entered into an amendment to our December 2021 employment agreement with Mr. Claiborne to employ Mr. Claiborne on a full-time basis as the Company’s President and Chief Executive Officer for the remaining term of the three-year employment agreement at an annual base salary of $450,000, with a discretionary bonus of up to 40% of his base salary upon achievement of objectives as may be determined by our board of directors. Mr. Claiborne also received a grant of restricted stock units for 1,000,000 shares of the Company’s common stock pursuant to the Company’s 2017 Equity Incentive Plan, vesting over 36 months. In his previous capacity as our Chief Operating Officer Mr. Claiborne devoted eighty percent (80%) of his business time to the affairs of the Company for which he received an annual base salary of $304,000.
On August 18, 2022, our board of directors also appointed Kevin Schuyler as non-executive Chairman of the board of directors. Kevin Schuyler, age 53, has served as a director since April 2016 and is Lead Independent Director. From April 2016 to August 2022, he served as our Vice Chairman of the board of directors.
On August 18, 2022, William B. Stilley was appointed Chief Executive Officer of Purnovate, Inc. In connection with Mr. Stilley’s appointment as Chief Executive Officer of Purnovate, Inc., we and Mr. Stilley entered into an amendment to our July 2018 employment agreement with Mr. Stilley, as amended to employ Mr. Stilley as the Chief Executive Officer of Purnovate, Inc. for the remaining term of the five-year employment agreement at an annual base salary of $260,000, with opportunity for bonuses and a salary increase upon certain achievements. Mr. Stilley also received a grant of options to purchase 100,000 shares of our common stock pursuant to the Company’s 2017 Equity Incentive Plan, vesting upon the achievement of certain milestones.
On July 20, 2022, we announced the following results from the Company’s ONWARD™ trial. We also announced our intent to share the results of the ONWARD trial with the relevant health authorities to discuss the appropriate next steps towards the expeditious development of AD04 and to seek product approval.
| ● | AD04 patients, compared with placebo patients, achieved a statistically significant reduction from baseline at month six in heavy drinking days for the pre-specified patient group of heavy drinkers (avg. <10 drinks per drinking day at baseline; p=0.03), which accounted for approximately two-thirds of the trial population. A similar trend was seen in the combined month five and six analysis in the reduction from baseline (p =0.07). |
| ● | AD04 patients, compared with placebo patients, showed a trend in the reduction from baseline at month six in heavy drinking days for the combined trial population of heavy and very heavy drinkers (p=NS), which was influenced by the high placebo response among very heavy drinkers (avg. ≥10 drinks per drinking day at baseline), due to both the AD04 and placebo groups reducing mean heavy drinking days by more than 50%. A similar, non-statistically significant trend was seen in the combined months five and six analysis in the reduction from baseline, which was the pre-specified primary efficacy analysis. |
| ● | Compared with placebo patients, AD04 patients in the heavy drinking group had an overall significant difference in the severity of their AUD diagnosis (p=0.04) under the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5). For the group of those who no longer meet AUD criteria (<2 symptoms), the comparisons were 27.4% vs. 14.9% (i.e., an 84% decrease), of AD04 and placebo patients, respectively. These data underscore the clinical relevance of the findings that heavy drinking AUD patients that receive AD04 appear more likely to recover from the disease by the end of the treatment regimen. |
| ● | Based on the levels of alcohol consumption reported in a meta-analysis of 83 prospective studies in primary care screening for those with AUD (Wood, et. al., Lancet 2018), the Company estimates that a majority of potential patients for AD04 would fall under the pre-specified group of heavy drinkers. This finding underscores the potential broad applicability of the results to general practice and that they could be the basis for potential regulatory approvals. |
18
Additionally, AD04 had a safety and tolerability profile that was similar to placebo:
| ● | Serious Adverse Events (SAEs) |
| * | No SAEs were determined to be related to AD04 treatment. |
| * | More SAEs were reported in the placebo group compared with the AD04 group (7 on placebo vs. 3 on AD04). |
| * | There were two cardiac events in placebo group and none in the AD04 group. |
| ● | Side effects/Adverse Events (AEs) |
| * | The AE profiles between AD04 and placebo were similar. |
| * | AEs reported with a frequency of 5% or more of patients in either group were: headache (11% on placebo, 12% on AD04), insomnia (3% on placebo, 7% on AD04), blood magnesium decreased (5% on placebo, 6% on AD04), and fatigue (3% on placebo, 6% on AD04). All of the above AE’s were reported as mild to moderate. |
| * | Importantly, in the overall category of cardiac disorders, patients on placebo showed a greater number of adverse events relative to AD04 (7% on placebo, 4% on AD04), in addition to greater number of cardiac SAEs in the placebo group as reported above. |
Financial Developments
On February 10, 2022, we entered into a securities purchase agreement (the “2022 Purchase Agreement”) with an accredited institutional investor providing for the issuance of (i) 2,322,250 shares of common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 1,865,000 shares of common stock (the “Pre-Funded Warrant Shares”) with an exercise price of $0.001 per share, which Pre-Funded Warrants are to be issued in lieu of shares of common stock to ensure that the investor does not exceed certain beneficial ownership limitations, and (iii) warrants (the “2022 Warrants”), with a term of five years and six months from the date of issuance, to purchase an aggregate of up to 3,977,888 shares of common stock at an exercise price of $2.52 per share, subject to customary adjustments thereunder. The total net proceeds, after expenses, to us were approximately $9.1 million.
19
Results of operations for the three months ended September 30, 2022 and 2021 (rounded to nearest thousand)
The following table sets forth the components of our statements of operations in dollars for the periods presented:
| For the Three Months Ended September 30, | Change | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Research and development expenses | $ | 1,244,000 | $ | 1,692,000 | $ | (448,000 | ) | |||||
| General and administrative expenses | 1,944,000 | 2,372,000 | (428,000 | ) | ||||||||
| Total Operating Expenses | 3,188,000 | 4,064,000 | (876,000 | ) | ||||||||
| Loss From Operations | (3,188,000 | ) | (4,064,000 | ) | 876,000 | |||||||
| Gain (loss) on change of fair value of contingent liability | 75,000 | (274,000 | ) | 349,000 | ||||||||
| Interest income | 3,000 | 3,000 | — | |||||||||
| Other income | — | 17,000 | (17,000 | ) | ||||||||
| Total other income (expenses) | 78,000 | (254,000 | ) | 332,000 | ||||||||
| Net Loss | $ | (3,110,000 | ) | $ | (4,318,000 | ) | $ | 1,208,000 | ||||
Research and development (“R&D”) expenses
Research and development expenses decreased by $448,000 (26%) during the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The three months ended September 30, 2022 continued to see very substantial decreases in clinical trials expense of $788,000 and ONWARD-supporting manufacturing expense of $167,000 with the completion of the ONWARD trial. There was also an additional decrease of $28,000 in R&D equity compensation expense with the completed vesting of option grants to R&D-directed employees. These decreases were partially offset by an increase in Purnovate research and development expense of $471,000 as several new preclinical programs began.
General and administrative expenses (“G&A”) expenses
The decrease of $428,000 (18%) in general and administrative expense during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was driven primarily by a large decrease in G&A equity compensation expense of $604,000, this decrease due to decreased use of stock grants and the completed vesting of a number of options grants in the period. This was partially offset by increases in legal expenses, public relations, and G&A-directed salaries of $82,000, $34,000, and $101,000, respectively.
Change in Fair Value of Contingent Consideration
The change in the fair value of contingent consideration changed of $349,000 during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, resulted from the Company recognizing a gain of $78,000 during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, when the Company recognized a loss of $254,000. This difference came as a result of changes in estimated completion of milestones triggering future payments, as well as an increase in the discount rate used to calculate the present value of contingent consideration.
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Results of operations for the nine months ended September 30, 2022 and 2021 (rounded to nearest thousand)
The following table sets forth the components of our statements of operations in dollars for the periods presented:
| For the Nine Months Ended September 30, | Change | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Research and development expenses | $ | 3,040,000 | $ | 6,062,000 | $ | (3,022,000 | ) | |||||
| General and administrative expenses | 7,037,000 | 7,245,000 | (208,000 | ) | ||||||||
| Total Operating Expenses | 10,077,000 | 13,307,000 | (3,230,000 | ) | ||||||||
| Loss From Operations | (10,077,000 | ) | (13,307,000 | ) | 3,230,000 | |||||||
| Loss on change of fair value of contingent liability | 197,000 | (336,000 | ) | 533,000 | ||||||||
| Interest income | 15,000 | 4,000 | 11,000 | |||||||||
| Other income | – | 46,000 | (46,000 | ) | ||||||||
| Total other income (expenses) | 212,000 | (286,000 | ) | 498,000 | ||||||||
| Net Loss | $ | (9,865,000 | ) | $ | (13,593,000 | ) | $ | 3,728,000 | ||||
Research and development (“R&D”) expenses
Research and development expenses decreased by $3,022,000 (50%) in the nine months ended September 30, 2022 compared to the nine months ended September 31, 2022. This decrease was due to the sharp decrease in direct trial expenses of $4,152,000 and in ONWARD-supporting manufacturing expenses of $306,000 with the completion of the ONWARD trial clinical activities during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, when the ONWARD trial was actively recruiting patients. These decreases were partially offset by increases in Purnovate research and development project costs of $1,144,000, as several new preclinical programs began.
General and administrative expenses (“G&A”) expenses
The decrease in general and administrative expenses during the nine months ended September 30, 2021 was driven primarily by a large decrease in G&A equity compensation expense of $674,000, this decrease was due to decreased use of stock grants and the completed vesting of a number of options grants in the period. This was partially offset by increases in G&A-directed salaries of $491,000 associated with increased headcounts.
Change in Fair Value of Contingent Consideration
The change in the fair value of contingent consideration had a favorable change of $533,000 (159%) in the nine months ended September 30, 2022, when the Company recognized a gain of $197,000, compared to the nine months ended September 30, 2021, when the Company recognized a loss of $336,000. This difference came as a result of changes in estimated completion of milestones triggering future payments, as well as an increase in the discount rate used to calculate the present value of contingent consideration.
Liquidity and capital resources at September 30, 2022
Our principal liquidity needs have historically been working capital, R&D, patent costs and personnel costs. We expect these needs to continue to increase in the near term as we develop and eventually commercialize our compound, if approved, and develop other product candidates acquired from Purnovate. To date, we have funded our operations primarily with the proceeds from our initial and secondary public offerings, private placements and our equity line, as well as other equity financings and exercise of warrants and, prior to that, the issuance of debt securities. On July 31, 2018, we closed our initial public offering.
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During the nine months ended September 30, 2022, our primary source of cash was from the sale of securities in a registered direct offering. On February 10, 2022, we entered into a securities purchase agreement with an accredited institutional investor providing for the issuance of (i) 2,322,250 shares of our common stock, (ii) pre-funded warrants to purchase up to 1,865,000 shares of common stock with an exercise price of $0.001 per share, which Pre-Funded Warrants are to be issued in lieu of shares of common stock to ensure that the investor does not exceed certain beneficial ownership limitations, and (iii) warrants, with a term of five years and six months from the date of issuance, to purchase an aggregate of up to 3,977,888 shares of common stock at an exercise price of $2.52 per share. We received net proceeds from the offering of approximately $9.1 million after deducting fees due to the placement agent and our transaction expenses.
At September 30, 2022, our cash and cash equivalents were $5,752,665 as compared to $6,062,173 at December 31, 2021.
Our current cash and cash equivalents are not expected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q, based our current projections. We expect to use approximately $7.7 million in cash during the twelve months ended September 30, 2023 for residual trial costs, preparing regulatory filings for AD04, preclinical development of PNV5030, other R&D project costs for Purnovate compound development, and general corporate expenses, which is more than the cash on hand. We expect to exhaust funds on hand near the end of the second quarter of 2023. There is no assurance that funds could be raised prior to our exhausting our funds on acceptable terms. These factors raise considerable doubt as to our ability to continue as a going concern.
We will also require additional financing as we continue to execute our overall business strategy, including an estimated minimum of $20 million for a second phase three trial of AD04. Preparing regulatory filings for AD04, to the degree that outside legal and consulting resources are required, may add to our costs. We will also require at least $1.4 million for a phase one safety trial of PNV5030, which we expect to begin in 2023. Our liquidity may be negatively impacted as a result of research and development cost increases in addition to general economic and industry factors. We anticipate that, our future liquidity requirements will be funded through the incurrence of indebtedness, additional equity financings or a combination. In addition, we may raise additional funds through grants and/or corporate collaboration and licensing arrangements.
If we raise additional funds by issuing equity securities or convertible debt, our shareholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.
22
Cash flows
| (rounded to nearest thousand) | For the Nine Months Ended September 30, | |||||||
| 2022 | 2021 | |||||||
| Provided by (used in) | ||||||||
| Operating activities | $ | (9,435,000 | ) | (9,576,000 | ) | |||
| Investing activities | – | (34,000 | ) | |||||
| Financing activities | 9,126,000 | 12,390,000 | ||||||
| Net increase in cash and cash equivalents | $ | (309,000 | ) | 2,779,000 | ||||
Net cash used in operating activities
Net cash used in operating activities decreased by $141,000 in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This reduction in cash used was substantially less than the $3,230,000 decrease in recognized expense when comparing the same two periods. This difference was primarily due to increases in prepaid expenses of $613,000, increased payment of previously accrued expenses of $2,291,000 and an increase in the change in fair value of contingent liability of $533,000.
Net cash provided by investing activities
The Company purchased Purnovate and capital equipment in the nine months ended September 30, 2021, resulting in net negative cash flow due to investing activities of $34,000. No such investing activity took place in the nine months ended September 30, 2022.
Net cash provided by financing activities
Net cash provided by financing activities decreased by $3,264,000 during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This decrease was due to the confluence of management’s assessment that less financing would be needed to take the Company to its next critical milestone of releasing the ONWARD trial data with generally tighter capital markets. During the nine months ended September 30, 2022, substantially all of our cash flows from financing activities was from the proceeds that we received from the sale of $9,124,000 of common stock and warrants in February 2022. During the nine months ended September 30, 2021, our cash flows from financing activities was primarily from the sale of $10,950,000 of securities and to a lesser extent proceeds of $1,425,000 from warrant exercises.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 3 to the unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements, if any.
Estimates
The preparation of the financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, our expected liquidity needs and expected future cash positions, and the reported amounts of sales and expenses during the reporting periods. Certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate our judgments, including those related to prepaid research and development, accruals associated with third party providers supporting clinical trials, realization of income tax assets, as well as the fair value of stock based compensation to employees and service providers. We use historical experience and other assumptions as the basis for our judgments and making these estimates. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in those estimates will be reflected in our financial statements as they occur.
While our significant accounting policies are more fully described in Note 3 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.
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R&D Expenses
Recognition and accrual of expenses associated with our clinical trial are dependent on the judgment of our contractors and subcontractors in their reporting and communication of information to us. Occurrence of certain fees to our clinical research organization, clinical trial sites, and subcontractors are tied to events, for which the determination of likelihood requires judgment both on our part and on the part of our contractors.
Fair Value of Financial Instruments and Fair Value Measurements
Our financial instruments consist primarily of cash, accounts payable and accrued liabilities, and, prior to our initial public offering, debt instruments and derivative liabilities.
FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by us. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables, current liabilities, convertible notes, payable senior notes, and bridge notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
The three levels of valuation hierarchy are defined as follows:
| ● | Level 1: Observable inputs such as quoted prices in active markets; |
| ● | Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. As of December 31, 2021, the significant inputs to our contingent consideration recorded at fair value were considered level 3 inputs. |
Stock Based Compensation
We estimate the fair value of options and stock warrants granted using the Black Scholes Merton model. We estimate when and if performance-based awards will be earned. If an award is not considered probable of being earned, no amount of equity-based compensation expense is recognized. If the award is deemed probable of being earned, related equity-based compensation expense is recorded. The fair value of an award ultimately expected to vest is recognized as an expense, net of forfeitures, over the requisite service periods in our statements of operations, which is generally the vesting period of the award.
The Black Scholes Merton model requires the input of certain subjective assumptions and the application of judgment in determining the fair value of the awards. The most significant assumptions and judgments include the expected volatility, risk-free interest rate, the expected dividend yield, and the expected term of the awards. In addition, the recognition of equity-based compensation expense is impacted by our forfeitures, which are accounted for as they occur.
The assumptions used in our option pricing model represent management’s best estimates. If factors change and different assumptions are used, our equity-based compensation expense could be materially different in the future. The key assumptions included in the model are as follows:
| ● | Expected volatility — We determine the expected price volatility based on the historical volatilities of a peer group as we do not have a sufficient trading history for our shares of common stock to determine expected volatility for the entire expected life of our options and other equity based awards. We therefore blend our available historical volatility data with volatility data on our industry peers. Industry peers consist of several public companies in the bio-tech industry similar to us in size, stage of life cycle and financial leverage. We intend to continue to blend peer data with our own using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. Starting in 2020, we began blending data on our historical volatility together with this peer group of companies, the proportion of our volatility used growing as the period of our historical volatility becomes longer. |
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| ● | Risk-free interest rate — The risk free rate was determined based on yields of U.S. Treasury Bonds of comparable terms. |
| ● | Expected dividend yield — We have not previously issued dividends and do not anticipate paying dividends in the foreseeable future. Therefore, we used a dividend rate of zero based on our expectation of additional dividends. |
| ● | Expected term —The expected term of the options was estimated using the simplified method. |
Business Combinations
We account for our business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. For transactions that are business combinations, we evaluate the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.
The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the context of purchase accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. The estimated fair values reflected in the purchase accounting rely on management’s judgment.
Contingent Consideration
We record contingent consideration resulting from a business combination at fair value on the acquisition date. On a quarterly basis, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses. Changes to contingent consideration obligations can result from adjustments to discount rates, accretion of the liability due to the passage of time, changes in our estimates of the likelihood or timing of achieving development or commercial milestones, changes in the probability of certain clinical events or changes in the assumed probability associated with regulatory approval.
Intangible Assets
Intangible assets generally consist of patents, purchased technology, acquired IPR&D and other intangibles. Intangible assets with definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment.
Intangible assets related to acquired IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. Impairment testing is performed at least annually or when a triggering event occurs that could indicate a potential impairment. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these assets.
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Goodwill
Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. We are organized in one reporting unit and evaluate the goodwill for our company as a whole. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill might not be recoverable. Under the authoritative guidance issued by the FASB, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. The goodwill impairment test requires us to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying amount, then no impairment is recognized. If the carrying amount recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. The judgments made in determining the projected cash flows used to estimate the fair value can materially impact our financial condition and results of operations. There was no impairment of goodwill for the period ended September 30, 2022.
Research and Development
Research and development costs are charged to expense as incurred and include supplies and other direct trial expenses such as fees due to contract research organizations, consultants which support our research and development endeavors, the acquisition of technology rights without an alternative use, and compensation and benefits of clinical research and development personnel. Certain research and development costs, in particular fees to contract research organizations (“CROs”), are structured with milestone payments due on the occurrence of certain key events. Where such milestone payments are greater than those earned through the provision of such services, we recognize a prepaid asset which is recorded as expense as services are incurred.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. We have identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified to date include (i) lack of formal risk assessment under COSO framework: (ii) policies and procedures which are not adequately documented; (iii) lack of proper approval processes, review processes and documentation for such reviews; (iv) insufficient GAAP experience regarding complex transactions and ineffective review processes over period end financial disclosure and reporting; (v) deficiencies in the risk assessment, design and policies and procedures over information technology general controls; and (vi) insufficient segregation of duties.
Notwithstanding the material weaknesses described above, our management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the unaudited condensed consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations, and cash flows as of and for the periods presented in this quarterly report.
Changes in Internal Control
There has been no change in our internal control procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II–OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2021 Form 10-K. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 2021 Form 10-K.
Risks Relating to Our Company
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
Our shares of common stock are currently listed on The Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, such as the corporate governance requirements, minimum bid price requirement or the minimum stockholder’s equity requirement, The Nasdaq Stock Market LLC may take steps to delist our common stock. Any delisting would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase their common stock when they wish to do so.
On August 31, 2022, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying us that for the preceding 30 consecutive business days (July 20, 2022 through August 30, 2022), our common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by Nasdaq Listing Rule 5550(a)(2). The notice has no immediate effect on the listing or trading of our common stock which will continue to trade on The Nasdaq Capital Market under the symbol “ADIL”. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we initially have a compliance period of 180 calendar days, or until February 27, 2023, to regain compliance with Nasdaq Listing Rules. Compliance can be achieved automatically and without further action if the closing bid price of our common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the compliance period, in which case Nasdaq will notify us of our compliance and the matter will be closed. If, however, we do not achieve compliance with the Minimum Bid Price Requirement by February 27, 2023, we may be eligible for additional time to comply; however, such additional time is not guaranteed and is subject to the discretion of Nasdaq. In order to be eligible for such additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and must notify Nasdaq in writing of our intention to cure the deficiency during the second compliance period
We intend to attempt to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any action taken by us would result in our common stock meeting The Nasdaq listing requirements, or that any such action would stabilize the market price or improve the liquidity of our common stock. Any perception that we may not regain compliance or a delisting of our common stock by Nasdaq could adversely affect our ability to attract new investors, decrease the liquidity of the outstanding shares of our common stock, reduce the price at which such shares trade and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholder. In addition, delisting of our common stock from Nasdaq could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our common stock.
We have incurred net losses every year and quarter since our inception and anticipate that we will continue to incur net losses in the future.
We are a clinical stage biotechnology pharmaceutical company that is focused on the discovery and development of medications for the treatment of addictions and related disorders of AUD in patients with certain targeted genotypes. We have a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. To date, we have not generated positive cash flow from operations, revenues, or profitable operations, nor do we expect to in the foreseeable future. As of September 30, 2022, we had an accumulated deficit of approximately $60.8 million.
Even if we succeed in commercializing our product candidate or any future product candidates, we expect that the commercialization of our product will not begin until 2025 or later, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates and will continue to incur substantial losses and negative operating cash flow. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital.
Our business is substantially dependent upon the success of our lead product candidate, AD04, which requires significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales.
Our business and future success substantially depends upon our ability to obtain regulatory approval of and then successfully commercialize our lead investigational product candidate, AD04 and other product candidates. AD04 is in clinical stage development. To date, our main focus and the investment of a significant portion of our efforts and financial resources has been in the development of our lead investigational product candidate, AD04. All of our future product candidates, as well as AD04, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. We expect AD04 will need additional development activity, including, without limitation, clinical trials, in order to seek approval for the use of AD04 to treat any other indications (e.g., such as opioid use disorder, gambling addiction, smoking cessation, and other drug addictions).
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We have recently completed and released date from the ONWARD Phase 3 clinical trial with 302 patients in Scandinavia and Central and Eastern Europe, which targeted the reduction of risk drinking (heavy drinking of alcohol) in subjects that possess selected genetics of the serotonin transporter and/or 5-HT3 receptor gene. While the data did show a statistically significant reduction in heavy drinking in the predefined population of heavy drinkers at month six as compared to placebo, we did not show a reduction of heavy drinking amongst the predefined subset of very heavy drinkers compared to placebo and showed a non-statistically significant trend in reduction of heavy drinking in the combined study population as compared to placebo, the latter of which was the pre-specified primary efficacy analysis endpoint. We are in the process of approaching the EMA for guidance with respect to the approval pathway in the European Union. We do not know, at this time and with the current data, whether additional clinical trials will be needed to obtain marketing approval in the European Union. We are also planning to approach the FDA regarding the approval pathway in the United States and expect that at least one, and possibly two, additional Phase 3 clinical trial will be required for approval in the United States, as well as one or more supportive clinical studies. Even though we are pursuing a registration pathway based on specific FDA input and guidance and the EMA precedents and guidance, there are many uncertainties known and unknown that may affect the outcome of the trial or trials. These include adequate patient enrollment, adequate supply of our product candidate, potential changes in the regulatory landscape, and the results of the trial or trials being successful.
In addition, because AD04 is our most advanced product candidate and there is limited history information on long-term effects of our proposed dosage, there is always a chance of developmental delays or regulatory issues or other problems arising, with our development plans and depending on their magnitude, our business could be significantly harmed. In any case, the costs associated with the clinical advancement of AD04 for AUD, including any required future trials, commercialization of AD04, and the costs of developing AD04 for use in other indications are significant, and will require obtaining funding, possibly through equity sales, before AD04 generates revenue.
Our future success depends heavily on our ability to successfully manufacture, develop, obtain regulatory approval, and commercialize AD04, which may never occur. We currently generate no revenues from our product candidate, and we may never be able to develop or commercialize a marketable drug.
While there exists a large body of evidence supporting the safety of the active ingredient in AD04, ondansetron, under short-term use, there is currently limited long-term use clinical safety data available beyond the 6-month safety data from our recently completed ONWARD trial.
We intend to market our products, particularly AD04, for long-term use by patients seeking to reduce their number of days of heavy drinking, and we assume future sales volumes reflecting such extended use.
Studies of Zofran®, which also has ondansetron as its active ingredient, conducted as part of its FDA and other regulatory agencies review process found that the drug is well-tolerated and results in few adverse side effects at dosages almost 100 times the dosage expected to be formulated in AD04. However, to the best of our knowledge, the only safety data reported on the long term use of ondansetron is that from our recently completed ONWARD trial. That trial showed no serious adverse events related to the use of ondansetron at the therapeutic dose over a period of six months. We expect the FDA will require us to provide safety data in at least 100 patients for 12 months and can offer no assurances that safety results of these long term use studies will lead to any subsequent approval for long-term use. There can be no assurance that long-term usage of ondansetron, at dosages anticipated by us, will be safe. Though the FDA has stated it will not require additional non-clinical testing nor will it require a QT interval prolongation clinical study, such statements by the FDA are not legally binding on the agency.
All of our current data for our lead product candidate are the result of Phase 2 clinical trials conducted by third parties and our single Phase 3 trial and do not necessarily provide sufficient evidence that our products are viable as potential pharmaceutical products.
Through our proprietary access to relevant laboratory and clinical trial results of the University of Virginia’s research program, and through our reliance on publicly available third-party research, we possess toxicology, pharmacokinetic, and other preclinical data and clinical data on AD04. As of now, AD04 has completed only Phase 2 clinical trials and a single Phase 3 trial. The single Phase 3 trial produced data showing effectiveness in the prespecified subset population of heavy drinkers as compared to placebo. The trial did not show a reduction of heavy drinking amongst the predefined subset of very heavy drinkers compared to placebo and showed a non-statistically significant trend in reduction of heavy drinking in the combined study population as compared to placebo, the latter analysis being the pre-specified primary efficacy analysis.
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We cannot be sure that the results of future clinical trials would replicate the results of the Phase 3 trial for heavy drinkers, nor that they would satisfy the requirements of the FDA or other regulatory agencies. Clinical trials may fail to demonstrate that our product candidate is safe for humans and effective for indicated uses. Preclinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining FDA or EMA approval for the affected product candidate and, ultimately, our ability to commercialize that product candidate.
Previous clinical trials using ondansetron have had different trial designs, doses, parameters and endpoints than the current ONWARD Phase 3 clinical trial that is intended to serve as a potential basis for approval of AD04. Though various doses of ondansetron have been tested as treatments for alcohol addiction (Johnson, BA et al., 2011; Johnson, BA et al., 2000; Kranzler et al, 2003; Sellers, EM et al., 1994), the 283-patient Phase 2b clinical trial on which, until the ONWARD trial, we were largely basing our clinical expectations on and only tested one dosing regimen, which was weight-based (Johnson, BA et al., 2011). The recently completed ONWARD trial tested a fixed dose regimen, and provided data showing apparent effectiveness for a predetermined subset of heavy drinkers. We plan to continue to use this same fixed dose in future clinical trials that we believe provides good coverage given the dose ranges tested clinically; however, it is possible that the dose selected is not the optimal dose and so drug effects may be limited or not be demonstrated sufficiently in additional clinical testing. Moreover, only one genotype in the genetic panel that will be used to define patients that are genotype positive for treatment with AD04 was used in primary analyses of the Phase 2b trial and three of the genotypes were added to the panel after a retrospective exploratory analysis of the Phase 2b data. The genotype in the panel related to the 5-HTT, that was included in the primary analysis (Johnson, BA et al., 2011) appears to make up almost half of the patients that are genotype positive. The three genotypes related to modulation of the 5-HT3 receptor were selected based on a retrospective analysis that was constrained to 18 single-nucleotide polymorphism (“SNPs”) identified for analysis (Johnson, BA et al., 2013). Therefore, while the effects of the full genetic panel appear to have been confirmed in the ONWARD trial, confidence in the effects of the 5-HT3 genetics is less than that for the 5-HTT genetics based on the Phase 2b trial analysis, and this could negatively impact the treatment effect of AD04 in Phase 3 trials for a segment of the patients identified as genotype positive, which could dilute the overall demonstrated effect of AD04 in any such trials.
The endpoints for the Phase 2b clinical trial of AD04 were reduction in the severity of drinking, measured as drinks per day of drinking alcohol and reduction frequency of drinking, measured by days of total abstinence from alcohol. These are surrogate endpoints for the endpoints expected to be required for approval, which, for Europe, are expected to be reduction of heavy drinking days (defined herein), measured in percentage of heavy drinking days per month, and total average alcohol consumed per month, and, for the United States, is expected to be the percentage of patients that have no heavy drinking days in the final 2 months of a six month treatment regimen of AD04. Though the Phase 3 trial showed a statistically significant effect at month six in the prespecified subset of heavy drinkers against the pre-specified endpoint when analyzed for reducing heavy drinking days, when compared against the placebo group, AD04 showed a trend in the reduction from baseline in heavy drinking days but did not demonstrate a statistically significant effect in the combined population. We do not know if this data will be sufficient to gain approval in the European Union for the population of heaving drinkers. We believe that at least one, and possibly two, additional trial in heavy drinkers will be needed to obtain approval in the United States.
We have limited experience as a company conducting clinical trials.
We are a clinical stage company and our success is dependent upon our ability to obtain regulatory approval for and commercialization of our investigational products, and we have not demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product candidates. The successful commercialization of any product candidates may require us to perform a variety of functions, including:
| ● | continuing to undertake preclinical development and successfully enroll patients in clinical trials; |
| ● | participating in regulatory approval processes; |
| ● | formulating and manufacturing products; and |
| ● | conducting sales and marketing activities. |
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We have limited experience conducting and enrolling patients in clinical trials. We have recently successfully completed our first Phase 3 trial, but this trial was limited in size (302 patients enrolled) compared to future trials we may need to conduct. Until recently, our operations have been limited primarily to organizing and staffing our company, acquiring, developing and securing our proprietary technology and conducting our Phase 3 trial of AD04 and preclinical trials of our Purnovate assets. These operations provide a limited basis to assess our ability to further develop and commercialize our product candidate and the advisability of investing in our securities.
Aside from the recently completed ONWARD trial, all of the preclinical and clinical trials relating to our product candidate have been conducted by third parties. Although we have recruited a team that has significant experience with managing clinical trials and gaining drug approvals and have experienced some recent success in completing clinical trials, our experience as a company conducting clinical trials is still limited. In part because of this lack of experience, we cannot guarantee that planned future clinical trials will be completed on time, if at all, or that any activities or initiatives for achieving a drug approval will be successful. Large-scale trials and/or seeking drug approvals require significant additional financial and management resources, monitoring and oversight, and reliance on third-party clinical investigators, contract research organizations (“CROs”), or consultants. Relying on third-party clinical investigators, CROs and manufacturers, which are all also subject to governmental oversight and regulations, may also cause us to encounter delays that are outside of our control.
Our product candidate will require extensive clinical and other testing.
Our product candidate will require extensive clinical and other testing to achieve its full commercial value, and possibly to achieve any value. Although our lead product candidate has completed a 283-patient Phase 2b clinical trial and its first 302-patient Phase 3 clinical trial, we anticipate that we will be required to complete at least one more Phase 3 clinical trial in order to obtain regulatory approval in the United States and possibly in Europe and therefore cannot predict with any certainty if or when we might submit an application for regulatory approval for any of our product candidates or whether any such application will be accepted for review by the FDA or EMA, or whether any application will be approved upon review.
Though we have recently released the results of our first Phase 3 trial, we cannot be certain that the results will support our proposed indications. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. Results from earlier clinical trials may not be repeated in later clinical trials. The clinical trial process may fail to demonstrate that our product candidate is safe and effective for their proposed uses. This failure could cause us to abandon our product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay and possibly preclude the filing of any NDAs with the FDA or EMA and, ultimately, our ability to commercialize our product candidate and generate product revenues.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of AD04 or any future product candidates, which would likely prevent or delay regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of AD04 or any future product candidates, including AD04, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and previous clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Results from subsequent clinical trials may not be the same as the results from the Phase 2b clinical trial that was conducted by the University of Virginia. The results of our recently completed Phase 3 trial showed significant effectiveness in the predetermined subset of heavy drinkers, but not in the combined trial population. It is not certain whether future trials will reproduce this result in the heavy drinking group. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. We can make no assurances that, even with data indicating effectiveness in the predetermined subset of heavy drinkers, that these same results will also provide evidence of greater patient efficacy rates and or patient benefit ratios vis-à-vis currently marketed drug treatments for this group. Most product candidates that commence clinical trials are never approved as products.
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In addition, even if the trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of product candidates.
The FDA and/or EMA may not accept our planned Phase 3 endpoints for final approval of AD04 and may determine additional clinical trials are required for approval of AD04.
The FDA has indicated to us that a comparison of the percent of patients with no heavy drinking days in the last two months of a six month clinical trial between the drug and placebo groups will be a satisfactory endpoint for determination of a successful Phase 3 trial of AD04 and has published the draft guidance Alcoholism: Developing Drugs for Treatment Guidance for Industry dated February 2015 indicating this endpoint for the development of drugs for AUD. Similarly, the EMA has in the past accepted the co-primary endpoints of reduction from baseline in days of heavy drinking and reduction total grams of alcohol consumed per month and has published the Guideline on the development of medicinal products for the treatment of alcohol dependence on February 18, 2010 stating these endpoints as approvable endpoints for alcohol addiction treatment. Despite these indications, neither the FDA nor the EMA is bound to accept the stated endpoint if a new drug application for AD04 is submitted and their definitions of a heavy drinking day may change. We, however, can offer no assurance that the FDA or EMA will approve our primary endpoints, that we can achieve success at the any endpoints they do approve, or that these potential benefits will subsequently be realized.
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in U.S. trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
| ● | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes; |
| ● | supply chain disruptions; |
| ● | a global or regional economic slowdown in any of our market segments; |
| ● | changes in government policies and regulations affecting the Company or its significant customers; |
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| ● | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether; |
| ● | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs; |
| ● | postponement of spending, in response to tighter credit, financial market volatility and other factors; |
| ● | rapid material escalation of the cost of regulatory compliance and litigation; |
| ● | difficulties protecting intellectual property; |
| ● | longer payment cycles; |
| ● | credit risks and other challenges in collecting accounts receivable; and |
| ● | the impact of each of the foregoing on outsourcing and procurement arrangements. |
Risks Related to Our Securities and Investing in Our Securities
Certain of our shareholders have sufficient voting power to make corporate governance decisions that could have a significant influence on us and the other stockholders.
Our officers and directors currently beneficially own (would own, if they collectively exercised all owned warrants and options exercisable within 60 days) approximately 24.8% of our outstanding common stock. Bankole Johnson, our Chief Medical Officer and our former Chairman of the Board of Directors, Cary J. Claiborne, our CEO and a director, William B. Stilley, a director, Kevin Schuyler, a director, James W. Newman, a director, and Joseph Truluck, our Chief Financial Officer, beneficially own approximately 3.14%, 4.38%, 9.54%, 4.11%, 3.19%, and 2.32%, respectively, of our common stock. As a result, our directors currently have significant influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in our control and might affect the market price of our common stock, even when a change in control may be in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that we would not otherwise consider.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans and outstanding warrants, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Pursuant to our 2017 equity incentive plan, which became effective on the business day prior to the public trading date of our common stock, our management is authorized to grant equity awards to our employees, officers, directors and consultants.
Initially, the aggregate number of shares of our common stock that might be issued pursuant to stock awards under our 2017 equity incentive plan was 1,750,000 shares, which has been since increased to 9,500,000 at our 2022 Annual Stockholders Meeting, and of which 2,907,716 remain available for grant as of the date hereof. Increases in the number of shares available for future grant or purchase may result in additional dilution, which could cause our stock price to decline.
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At September 30, 2022, we had outstanding (i) warrants to purchase 12,168,159 shares of common stock outstanding at exercise prices ranging from $0.001 to $7.634 (with a weighted average exercise price of $4.03), and (ii) options to purchase 4,316,977 shares of common stock at a weighted average exercise price of $2.48 per share. The issuance of the shares of common stock underlying the options and warrants will have a dilutive effect on the percentage ownership held by holders of our common stock.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses.
The trading price of our common stock has been and is expected to continue to be volatile and has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. On October 26, 2022, the reported low sale price of our common stock was $0.28, the reported high sale price was $0.30 and closing price of our common stock was $0.28 while on December 31, 2021 the closing price of our common stock was $2.70. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance for prospects. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Quarterly Report, these factors include:
| ● | the commencement, enrollment or results of the planned clinical trials of AD04 or any future clinical trials we may conduct, or changes in the development status of AD04 or any product candidates; |
| ● | any delay in our regulatory filings for our product candidate and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information; |
| ● | adverse results or delays in clinical trials; |
| ● | our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; |
| ● | adverse regulatory decisions, including failure to receive regulatory approval of our product candidate; |
| ● | changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; |
| ● | adverse developments concerning our manufacturers; |
| ● | our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices; |
| ● | our inability to establish collaborations if needed; |
| ● | our failure to commercialize AD04; |
| ● | additions or departures of key scientific or management personnel; |
| ● | unanticipated serious safety concerns related to the use of AD04; |
| ● | introduction of new products or services offered by us or our competitors; |
| ● | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
| ● | our ability to effectively manage our growth; |
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| ● | the size and growth of our initial target markets; |
| ● | our ability to successfully treat additional types of indications or at different stages; |
| ● | actual or anticipated variations in quarterly operating results; |
| ● | our cash position; |
| ● | our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; |
| ● | publication of research reports about us or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
| ● | changes in the market valuations of similar companies; |
| ● | overall performance of the equity markets; |
| ● | sales of our common stock by us or our stockholders in the future; |
| ● | trading volume of our common stock and declines in the market prices of stocks generally; |
| ● | changes in accounting practices; |
| ● | ineffectiveness of our internal controls; |
| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our or our licensee’s technologies; |
| ● | significant lawsuits, including patent or stockholder litigation; |
| ● | general political and economic conditions; and |
| ● | other events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, including the conflict in Eastern Europe, public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability. |
In addition, the stock market in general, and The Nasdaq Capital Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Since the stock price of our common stock has fluctuated in the past, has recently been volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.
Fluctuations in the international currency markets may significantly impact the cost of our planned Phase 3 trial.
Many of the costs associated with our ongoing ONWARD Phase 3 trial and any future trials, with expected remaining costs of about $200,000, are denominated in Euros, while our funding is held in US Dollars. A change in the value of the Euro relative to the US Dollar may significantly impact the cost of our trial, positively or negatively.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
We did not sell any equity securities during the nine months ended September 30, 2022 in transactions that were not registered under the Securities Act other than as disclosed in our filings with the SEC.
(b) Use of Proceeds
Not applicable.
(c) Issuer Purchases of Equity Securities
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits
The exhibit index set forth below is incorporated by reference in response to this Item 6.
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ADIAL PHARMACEUTICALS, INC. | ||
| By: | /s/ Cary J. Claiborne | |
| Name: | Cary J. Claiborne | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| By: | /s/ Joseph Truluck | |
| Name: | Joseph Truluck | |
| Title: | Chief Financial Officer | |
(Principal Financial Officer and Principal Accounting Officer) | ||
Dated: November 14, 2022
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Cary J. Claiborne, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Adial Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | By: | /s/ Cary J. Claiborne |
| Cary J. Claiborne | ||
| President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph Truluck, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Adial Pharmaceuticals, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | By: | /s/ Joseph Truluck |
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Adial Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cary J. Claiborne, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| Date: November 14, 2022 | By: | /s/ Cary J. Claiborne |
| Name: | Cary J. Claiborne | |
| Title: |
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Adial Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Truluck, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| Date: November 14, 2022 | By: | /s/ Joseph Truluck |
| Name: | Joseph Truluck | |
| Title: |
Chief Financial Officer (Principal Financial Officer) |