10-K
1
f10k2020_adialpharmaceutical.htm
ANNUAL REPORT
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 001-38323
ADIAL PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in
Its Charter)
1180 Seminole Trail, Suite 495
Charlottesville, Virginia 22901
(Address of Principal Executive Offices)
(Zip Code)
(434) 422-9800
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbols Name of each exchange on which registered
Common Stock, par value $0.001 per share ADIL The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the issuer:
(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. Yes ☒ No ☐
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 (section
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐
Non-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 has filed a report
on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s
common stock on June 30, 2020 (the last business day of the registrant’s mostly recently completed second fiscal quarter)
as reported by the Nasdaq Capital Market on such date was approximately $14,669,240. This calculation does not reflect a determination
that certain persons are affiliates of the registrant for any other purpose.
As of March 22, 2021, the issuer had 17,269,877 shares of common
stock outstanding.
Documents incorporated by reference: None
FORM 10-K
TABLE OF CONTENTS
Page
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 34
Item 1B. Unresolved Staff Comments 69
Item 2. Properties 70
Item 3. Legal Proceedings 70
Item 4. Mine Safety Disclosures 70
Item 6. Selected Financial Data 74
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 85
Item 9B. Other Information 86
PART III 87
Item 10. Directors, Executive Officers and Corporate Governance 87
Item 11. Executive Compensation 93
Item 14. Principal Accountant Fees and Services 103
Item 15. Exhibits and Financial Statement Schedules 104
i
PART I
ADIAL PHARMACEUTICALS, INC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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 initiatives,
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 I, Item lA. “Risk Factors” and elsewhere in this Annual Report on 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 Annual Report on Form
10-K, “Adial,” the “Company,” “we,” “us” and “our” refer to Adial
Pharmaceuticals, Inc.
ii
Summary Risk Factors
Our
business faces significant risks and uncertainties of which investors should be aware before making a decision to invest in our
common stock. If any of the following risks are realized, our business, financial condition and results of operations could be
materially and adversely affected. The following is a summary of the more significant risks relating to the Company. A more
detailed description of our risk factors set forth under the caption “Risk Factors”
in Item 1A in Part I of this Annual Report on Form 10-K.
Risks Relating to our Company
Risks Relating to our Acquisition of
Purnovate
Risks Relating to our Business and Industry
iii
● Certain of our officers may have a conflict of interest.
Risks Related to our Securities
and Investing in our Securities
iv
PART I
Item 1. Business
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, and we continue to
explore opportunities to expand our portfolio in the field of addiction and related disorders, both through internal development
and through acquisitions. Our vision is to create the world’s leading addiction focused pharmaceutical company.
AUD is characterized by an urge to consume
alcohol and an inability to control the levels of consumption. We have commenced the landmark ONWARDTM pivotal
Phase 3 clinical trial using AD04 for the potential treatment of AUD in subjects with certain target genotypes. As of this filing,
all 25 planned clinical sites were actively enrolling patients, and the ONWARD trial was more than 50% enrolled. The trial is expected
to be completed by the first quarter of 2022. We believe our approach is unique in that it targets the serotonin system and individualizes
the treatment of AUD, through the use of genetic screening (i.e., a companion diagnostic genetic biomarker). We have created an
investigational companion diagnostic biomarker test for the genetic screening of patients with certain biomarkers that, as reported
in the American Journal of Psychiatry (Johnson, et. al. 2011 & 2013), we believe will benefit from treatment with AD04.
Our strategy is to integrate the pre-treatment genetic screening into AD04’s label to create a patient-specific treatment
in one integrated therapeutic offering. Our goal is to develop a genetically targeted, effective and safe product candidate to
treat AUD by reducing or eliminating the patients’ consumption of alcohol.
We have a worldwide, exclusive license
from the University of Virginia Patent Foundation (d.b.a the Licensing & Venture Group) (“UVA LVG”), which is the
licensing arm of the University of Virginia, to commercialize our investigational drug candidate, AD04, subject to Food and Drug
Administration (“FDA”) approval of the product, based upon three separate patent application families, with patents
issued in over 40 jurisdictions, including three issued patents in the U.S. Our investigational agent has been used in several
investigator-sponsored trials and we possess or have rights to use toxicology, pharmacokinetic and other preclinical and clinical
data that supports our landmark ONWARD pivotal Phase 3 clinical trial. Our therapeutic agent was the product candidate used in
a University of Virginia investigator sponsored Phase 2b clinical trial of 283 patients. In this Phase 2b clinical trial, ultra-low
dose ondansetron, the active pharmaceutical agent in AD04, showed a statistically significant difference between ondansetron and
placebo for both the primary endpoint and secondary endpoint, which were reduction in severity of drinking measured in drinks per
drinking day (1.71 drinks/drinking day; p=0.0042), and reduction in frequency of drinking measured in days of abstinence/no drinking
(11.56%; p=0.0352), respectively. Additionally, and importantly, the Phase 2b results showed a significant decrease in the percentage
of heavy drinking days (11.08%; p=0.0445) with a “heavy drinking day” defined as a day with four (4) or more alcoholic
drinks for women or five (5) or more alcoholic drinks for men consumed in the same day.
The active pharmaceutical agent in AD04,
our lead investigational new drug product, is ondansetron, which is also the active ingredient in Zofran®, which was granted
FDA approval in 1991 for nausea and vomiting post-operatively and after chemotherapy or radiation treatment and is now commercially
available in generic form. In studies of Zofran®, conducted as part of its FDA review process, ondansetron was given
acutely at dosages up to almost 100 times the dosage expected to be formulated in AD04 with the highest doses of Zofran®
given intravenously (“i.v.”), which results in approximately 160% of the exposure level as oral dosing. Even at high
doses given i.v. the studies found that ondansetron is well-tolerated and results in few adverse side effects at the currently
marketed doses, which reach more than 80 times the AD04 dose and are given i.v. The formulation dosage of ondansetron used in our
drug candidate (and expected to be used by us in our Phase 3 clinical trials) has the potential advantage that it contains a much
lower concentration of ondansetron than the generic formulation/dosage that has been used in prior clinical trials, is dosed orally,
and is available with use of a companion diagnostic genetic biomarker. Our development plan for AD04 is designed to demonstrate
both the efficacy of AD04 in the genetically targeted population and the safety of ondansetron when administered chronically at
the AD04 dosage. However, to the best of our knowledge, no comprehensive clinical study has been performed to date that has evaluated
the safety profile of ondansetron at any dosage for long-term use as anticipated in our ongoing and planned clinical trials.
According to the National Institute of
Alcohol Abuse and Alcoholism (the “NIAAA”) and the Journal of the American Medical Association (“JAMA”),
in the United States alone, approximately 35 million people each year have AUD (such number is based upon the 2012 data provided
in Grant et. al. the JAMA 2015 publication and has been adjusted to reflect a compound annual growth rate of 1.13%, which is the
growth rate reported by U.S. Census Bureau for the general adult population from 2012-2017), resulting in significant health, social
and financial costs with excessive alcohol use being the third leading cause of preventable death and is responsible for 31% of
driving fatalities in the United States (NIAAA Alcohol Facts & Statistics). AUD contributes to over 200 different diseases
and 10% of children live with a person that has an alcohol problem. According to the American Society of Clinical Oncologists,
5-6% of new cancers and cancer deaths globally are directly attributable to alcohol. And, The Lancet published that alcohol
is the leading cause of death in people ages 15-49 globally. The Centers for Disease Control (the “CDC”) has reported
that AUD costs the U.S. economy about $250 billion annually, with heavy drinking accounting for greater than 75% of the social
and health related costs. Despite this, according to the article in the JAMA 2015 publication, only 7.7% of patients (i.e., approximately
2.7 million people) with AUD are estimated to have been treated in any way and only 3.6% by a physician (i.e., approximately 1.3
million people). In addition, according to the JAMA 2017 publication, the problem in the United States appears to be growing with
almost a 50% increase in AUD prevalence between 2002 and 2013.
AUD is characterized by an urge to consume
alcohol and an inability to control the levels of consumption. Until the publication of the fifth revision of the Diagnostic
and Statistical Manual of Mental Disorders in 2013 (the “DSM-5”), AUD was broken into “alcohol dependence”
and “alcohol abuse”. More broadly, overdrinking due to the inability to moderate drinking is called alcohol addiction
and is often called “alcoholism”, sometimes pejoratively.
Since ondansetron is already manufactured
for generic sale, the active ingredient for AD04 is readily available from several manufacturers, and we have contracted with a
U.S. manufacturer to acquire ondansetron at a cost expected to be under $0.01 per dose. Clinical trial material (“CTM”)
has already been manufactured for the ONWARD Phase 3 trial. The CTM has demonstrated good stability after four years with the stability
studies to date.
We have also developed the manufacturing
process at a third-party vendor to produce tablets at what we expect will serve for commercial scale production (i.e., greater
than 1 million tablets per batch), also at a cost expected to be less than $0.01 per dose. A proprietary packaging process has
been developed, which appears to extend the stability of the drug product. Packaging costs are expected to be less than $0.05 per
dose. We do not have a written commitment for supply of either the tablets or the packaging and believe that alternative suppliers
are available to whom we can transfer the processes that have been developed.
Methods for the companion diagnostic genetic
test have been developed as a blood test, and we established the test with a third-party vendor capable of supporting the ONWARD
Phase 3 clinical trial. Additionally, we have built validation and possible approval of the companion diagnostic into the Phase
3 program, including that we plan to store blood samples for all patients in the event additional genetic testing is required by
regulatory authorities.
Recent Developments
Clinical Developments
In January 2020, we announced that we had
received favorable opinions from the Finnish Medicines Agency (FIMEA) and National Committee
on Medical Research Ethics (TUKIJA) to commence our landmark ONWARD pivotal Phase 3 clinical trial to investigate AD04 as a genetically
targeted therapeutic agent for the treatment of AUD.
On June 11, 2020, we announced that we
had received all necessary approvals to commence our landmark ONWARD pivotal Phase 3 clinical
trial to investigate AD04 as a genetically targeted therapeutic agent for the treatment of AUD.
On July 17, 2020, we received notice that
the European Medicines Agency (EMA) had accepted the Pediatric Investigation Plan (PIP) submitted by us for development of our
lead drug candidate, AD04, for the treatment of alcohol use disorder in the pediatric population, ages 12 to 17.
On July 30, 2020, we announced that we
had received approval to commence our landmark ONWARD pivotal Phase 3 clinical trial of AD04 for the treatment of AUD in Croatia.
As a result, we secured approvals to run the trial in all of the Scandinavian and Eastern European countries in which we intend
to run the clinical trial.
On September 14, 2020, we filed with the
FDA to take our Investigational New Drug (IND) Application for the use of our lead product candidate, AD04, as a treatment for
Alcohol Use Disorder (AUD) off inactive status with the United States Food and Drug Administration (FDA) and on October 15, 2020
we announced that that the FDA had reactivated the IND.
On December 31, 2020, we provided the following highlighted
updates on our landmark ONWARD pivotal Phase 3 clinical trial of AD04 for the treatment of AUD
● All 25 planned investigative sites are active.
● 35% of the planned 290 subjects in the ONWARD trial were enrolled
Acquisition of Purnovate, LLC
On January 26, 2021, we closed the acquisition
(the “Acquisition”) contemplated by that certain Equity Purchase Agreement, dated December 7, 2020, as amended (the
“Purchase Agreement”), by and among Adial, Purnovate, LLC (“Purnovate”), each of the members of Purnovate
(the “Members”) and Dr. Robert D. Thompson, as representative of the Members.
Prior to closing, we had advanced Purnovate
$350,000 for use as working capital during the due diligence period. At closing, in exchange for Purnovate, Adial paid the members
an additional $350,000 (the “Cash Consideration”) and issued to the members an aggregate of 700,000 shares of Adial
restricted common stock (the “Stock Consideration”) with an approximate total market value of $1,638,000. In addition,
members will receive (i) development milestone payments in an aggregate amount of up to $2,100,000 for each compound developed,
(ii) development milestone payments in an aggregate amount of up to $20,000,000 for each compound commercialized, and (iii) royalties
of 3.0% of Net Sales (as such term is defined in the Purchase Agreement). The Stock Consideration has been placed into escrow to
secure certain indemnification and other obligations of Purnovate and the members in connection with the Acquisition.
The acquisition was effected by a merger
(the “Merger”) of Purnovate into Purnovate, Inc., a Delaware corporation and wholly owned subsidiary of Adial, which
survived the Merger. In connection with the Merger, on January 20, 2021, Purnovate converted from a limited liability company to
a corporation and on January 25, 2021, the parties entered into an Amendment to the Purchase Agreement (the “Amendment”)
to provide for the mechanism of closing the Acquisition through a Merger.
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. Purines are a class of chemical structures that
include adenosine, an important neurotransmitter. Purnovate uses innovative methods and technologies to enhance the drug properties
of purines, which are a class of chemical structures that include adenosine, an important neurotransmitter. Adenosine receptors
are hypothesized to be involved in the mediation of nociception (i.e., pain) and blocking the receptor is proposed as an anti-nociceptive.
Additionally, selective adenosine analogs may be useful to treat pain while avoiding the tolerability problems (i.e., wakefulness,
gastrointestinal) and safety issues (e.g., cardiac block and vasodilation) and therefore have the potential to provide a meaningful
non-opioid treatment for pain without the side effects of earlier generations of adenosine compounds or certain other pain products.
These adenosine analogs may also be useful in a number of other diseases and disorders such as cocaine addiction, infectious disease,
inflammation, cancer, asthma, and diabetes. Purnovate’s portfolio of pre-clinical technologies are also believed to offer
opportunities to improve the characteristics of other classes of molecules outside of the adenosine chemistry space and maybe even
outside the purine chemistry space. All drug candidates developed using Purnovate’s platform technologies are expected to
be patently distinct new chemical entities (i.e., patentable compositions of matter). Purnovate operates a chemistry and analytics
laboratory in its 4,175 square feet leased laboratory and office space. Purnovate has been synthesizing new adenosine analog chemical
entities with promising potency, selectivity, stability, and solubility characteristics.
Dr. Thompson, Purnovate’s Chief Executive
Officer who continued his employment with Purnovate and joined Adial as its Vice President of Chemistry after the Acquisition,
is a distinguished adenosine chemist that has been working in the field for over 35 years. He is an inventor on over 20 adenosine
analog patents covering tens of thousands of novel molecules and has authored dozens of scientific publications.
Purnovate, was formed in 2019 by Dr. Thompson,
William Stilley, Chief Executive Officer of Adial and a Member, Mikel Poulsen, a Member and consultant to Purnovate, and Cameron
Black, a Member.
The Stock Consideration has been placed
into escrow to secure certain indemnification and other obligations of Purnovate and the equity holders in connection with the
Acquisition:
The Stock Consideration, if not used to
satisfy indemnification obligations, and the cash consideration will be distributed to the equity holders on a pro rata basis
based on each such equity holders’ equity interest in Purnovate as compared to the aggregate Purnovate equity interests held
by all equity holders.
In addition to the payments described above,
under the terms of the Equity Purchase Agreement, we agreed to make cash payments to Dr. Thompson, as representative of the members
for the benefit of such members in an amount equal to (i) 3.0% of Net Sales (as such term is defined in the Purchase Agreement)
and (ii) upon the achievement of the following development and commercialization milestones:
Milestone Event Milestone Payment
First dose in a Phase 2 Trial $ 300,000
First dose in a Phase 3 Trial $ 400,000
First acceptance of U.S. NDA submission $ 500,000
First acceptance of NDA equivalent submission in Europe $ 300,000
First acceptance of NDA equivalent submission in Asia $ 300,000
First Commercial Sale in the U.S. $ 10,000,000
First Commercial Sale in Europe $ 5,000,000
First Commercial Sale in Asia $ 5,000,000
The Equity Purchase Agreement contains
customary representations, warranties and covenants of us, Purnovate and the equity holders. Subject to certain customary limitations,
the members have agreed to indemnify us and our officers and directors against certain losses related to, among other things, breaches
of Purnovate’s and the Members’ representations and warranties, certain specified liabilities and the failure to perform
covenants or obligations under the Purchase Agreement.
In connection with the Acquisition, Dr.
Thompson entered into an employment agreement with us and a lock-up agreement with a term of two (2) years with respect to fifty
percent (50%) of the Stock Consideration received by him, or his termination of employment by us without cause, if earlier. William
Stilley entered into a lock-up agreement with a term of two (2) years with respect to one hundred percent (100%) of the Stock Consideration
received by him, or his respective termination of employment by us without cause, if earlier.
In connection with entering into the Purchase
Agreement, we loaned Purnovate $350,000 to continue its research and development efforts, which loan is evidenced by a 3.5% promissory
note due December 7, 2021.
William B. Stilley, our President and Chief
Executive Officer and a member of its board of directors, and James W. Newman, a member of our board of directors, were members
of Purnovate. In connection with the Acquisition Mr. Stilley sold approximately a 28.7% interest in Purnovate for 201,109 shares
of Adial common stock and Mr. Newman, through two entities he controls, together sold an aggregate 0.53% interest in Purnovate
for 3,731 shares of Adial common stock, which shares have been placed in escrow. Messrs. Stilley and Newman, through two entities
he controls, also received their respective pro rata share of the cash consideration paid by us to the Members.
COVID-19 Impact
As we advance our clinical programs, we
are in close contact with our CROs and clinical sites and are assessing the impact of COVID-19 on our studies and current timelines
and costs. In order to protect our patients in the ONWARD Phase 3 trial and potentially increase retention rates, we secured distribution
rights to certain SARS-CoV-2 antibody tests to administer to patients in the trial and various time points. In an effort to make
the antibody tests more widely available in the United States, we entered engagements with third parties for sell tests provided
by Adial as their distributor. Significant resources have not been devoted to this effort and the impact on the Company is not
expected to be material.
Disease Targets and Markets
Limitations of Current AUD Therapies
Today the most common treatments for AUD
are directed at achieving abstinence and typical treatments include psychological and social interventions. Most therapies actually
require abstinence prior to initiating therapy. Abstinence requires dramatic lifestyle changes often with serious work and social
consequences. Frequently, patients cannot attend family and social events in order to ensure compliance with abstinence, and patients
often must suffer from the stigma of having been labelled an alcoholic. Significant side effects of current pharmacologic therapies
include mental side effects such as psychiatric disorders and depressive symptoms and physical side effects such as nausea, dizziness,
vomiting, abdominal pain, arthritis and joint fitness. In fact, according to peer reviewed studies referenced in The Sober Truth:
Debunking the Bad Science Behind 12-Step Programs and the Rehab Industry, L. Dodes and Z. Dodes, 2014 by Dr. Lance Dodes, the
former Director of the substance abuse treatment unit of Harvard’s McLean Hospital, 90% or more of patients that use current
therapy solutions, such as Alcoholics Anonymous, do not achieve long-term abstinence.
There are four drugs approved by the FDA
and marketed in the United States for the treatment of alcohol addiction, Antabuse ® (disulfram) Vivitrol ®
(naltrexone), Revia ® (naltrexone) and Campral ® (acomprosate) and one drug, Selincro ®
(nalmefene) is marketed outside of the United States. All of the approved drugs, other than Selincro ®, require
abstinence prior to commencing treatment with the drug, and all five drugs are known to have significant side effects.
Antabuse ® was approved
for the treatment of alcohol dependence more than 50 years ago, making it the oldest such drug on the market. It works by interfering
with the body’s ability to process alcohol. Its method of action and purpose is to cause patients that drink alcohol while
taking Antabuse ® to experience numerous and extremely unpleasant adverse effects, including, among others, flushing,
nausea, and palpitations, with the goal that patients will continue the medication but refrain from drinking in order to avoid
these effects.
Naltrexone, which can be taken as a once-daily
pill (Revia®) or in an approved once-monthly injectable form (Vivitrol ® ) that requires a doctor
to administer is often associated with gastrointestinal complaints and has been reported to cause liver damage when given at certain
high doses. As a result, it carries an FDA boxed warning, a special emphasized warning, for this side effect.
Campral®, taken by mouth
three times daily, acts on chemical messenger systems in the brain.
Selincro® has not been approved
for sale in the United States.
Our Proposed Solution
Our goal with AD04 is to develop an effective
and safe product to treat AUD that does not require abstinence as part of the treatment and does not have the negative side effects
of the current drugs on the market. Our product candidate, AD04, is designed for genotype positive patients who desire to control
their drinking but cannot or do not want to completely abstain from drinking. By removing the difficulties associated with abstinence
and the side effects associated with the other current products on the market, we believe that we may be able to remove barriers
to patient adoption that inhibit adoption of current therapies and can attract a greater portion of the many millions of patients
with AUD that remain untreated. Unlike other therapies, our investigational product, AD04, uses a novel mode of action for treating
AUD that involves genetic screening with a companion diagnostic genetic test prior to treatment and is designed to reduce cravings
for alcohol to effectively curb alcohol intake, without the requirement of abstinence prior to or during treatment. Our product
candidate is intended to be easy to use since it is administered orally, currently on a twice daily basis and with a once-a-day
tablet planned as part of the product’s life cycle management. To date, clinical testing of AD04 has shown it to have a positive
safety and tolerability profile with side effects similar to placebo.
The companion diagnostic genetic test to
be used to identify patients that are most likely to benefit from treatment with AD04 may potentially enhance the likelihood of
a successful outcome for those undergoing treatment. Additionally, it may provide doctors with the opportunity to have a non-threatening
conversation about alcohol with their patients and may provide the patient an acceptable path to help them determine if they might
be a candidate for help with their alcohol use. If the test results are positive, they would have a science-based rationale for
their treatment, which reduces some of the stigma patients might otherwise endure, and allows them to be treated in the confidence
of their doctor, potentially with a simple, oral tablet.
Strengths and Competitive Advantages
Large Market Opportunity for an Effective
Solution
In the United States alone, approximately
35 million people each year have AUD. Based on data from the Phase 2b trial of AD04 and our analysis of publicly available genetic
databases, we preliminarily estimate that about one in three patients with AUD in the U.S. will have the genetic markers to indicate
possible treatment with AD04. At this time, we are not aware of any oral pharmaceutical treatment approved in the U.S. that addresses
the needs of patients who desire to control their drinking but cannot or do not want to abstain from drinking. The current abstinence-based
treatments have limitations. The limited side effects expected for our investigational new drug, based on clinical data so far,
are also believed to be an important factor in the expected rapid uptake of AD04 in the market. Our approach, if approved by FDA,
may allow for social drinking to continue and is aimed at reducing the dangerous, heavy drinking. This would allow patients to
live the life they want without the stigma associated with complete abstention and currently endured by those seeking help for
their excessive drinking. Assuming that one-third of AUD patients are genotype positive for treatment with AD04 and a $255 price
for a one month supply of the drug (assumed pricing based on an average of prices published by Blue Cross Blue Shield in June 2017
for tier-3 oral, on-patent, chronic maintenance drugs, discounted by 16.6%, to reflect the average difference between retail and
wholesale pricing for branded drugs as reported by drugs.com), the total potential market for AD04 would be approximately $36 billion
in the United States alone.
Beyond the United States, alcohol consumption
worldwide is a serious health issue. The 2014 Global Status Report on Alcohol and Health published by the World Health Organization
(the “WHO”) states that 5.9% of all deaths (about 3.3 million per year) and 5.1% of disease worldwide are attributable
to alcohol consumption. Europe consumes over 25% of the total alcohol consumed worldwide despite only having 14.7% of the world’s
population. The WHO estimates that about 55 million people in Europe have AUD and, within Europe, Eastern Europe has a particularly
acute problem with Russia estimated to have about 21 million people with AUD. The WHO further estimates that 17.4% of adult Russians
and 31% of adult Russian males have AUD, and the Organization for Economic Cooperation and Development data indicates that 30%
of all deaths in Russia are alcohol related as reported by Quartz Media.
Companion Genetic Bio-Marker Aimed
at Identifying Patients Most Likely to Respond To Treatment, Potentially Results in Increased Use of AD04
We believe our drug is unique in that it
is designed to reduce heavy drinking in individuals with certain genotypes. We are pursuing a strategy that aims to integrate pre-treatment
screening with the companion diagnostic genetic test into the drug label, essentially combining the test and treatment into one
integrated therapeutic offering that has combined intellectual property protections. This companion diagnostic testing approach
may be a useful genetic screening tool to predict those most likely to respond to the drug and to have minimal side effects. Based
on the clinical experience to date and publicly available databases, we believe the genetic prevalence of genotype positive people
is about 33% of the population in the United States and that the prevalence in Scandinavia and in certain areas of Central and
Eastern Europe may be greater than 50%. The FDA has agreed that the Phase 3 trials of AD04 can proceed only enrolling patients
that are genotype positive, which greatly reduces the cost, time and risk relative to a trial that also enrolled patients that
are genotype negative for treatment with AD04. We are conducting our current landmark ONWARD pivotal Phase 3 clinical trial in
counties in Scandinavia and Central and Eastern Europe, including Finland, Sweden, Estonia,
Latvia, Poland, Bulgaria, and Croatia. We expect to use the ONWARD trial as a pivotal Phase 3 trial to serve as a basis
for approval in both the United States and Europe.
We believe that the companion diagnostic
genetic test enables physicians to more easily have an initial conversation with their patients about alcohol use and, for the
patient, provides a less threatening and obtrusive first step toward treatment because the conversation will include the topic
of genetic testing and not be solely about behavior. Patients that then test positive against the AD04 genetic panel would be expected
to be more likely to then receive a prescription for AD04 (based on an external quantitative market study of 156 primary care physicians
and psychiatrists that was conducted by Ipsos-Insight LLC, who we commissioned, and that concluded a majority of genetically targeted
patients currently receiving pharmacologic treatment would be switched to a drug with the characteristics expected for AD04).
Prior Work of Universities and our
Ability to Leverage Relationships Creates Cost Efficiencies
We have a worldwide, exclusive license
to intellectual property developed at the University of Virginia by our Chief Medical Officer and largest stockholder, Dr. Bankole
A. Johnson, who was Chairman of the Department of Psychiatry & Neurobehavioral Sciences at the University of Virginia (and
prior to that the Chief of the Division of Alcohol and Drug Addiction at the University of Texas) and was Chair, Department of
Psychiatry and Director of the Brain Science Research Consortium Unit at the University of Maryland. Dr. Johnson has spent almost
three decades researching the underlying subject matter. Significant portions of the supporting research were also funded under
grants from the National Institute of Health to the University of Virginia and the University of Texas. On July 5, 2019, we entered
into a Master Services Agreement and statement of work with Psychological Education Publishing Company (“PEPCO”), a
company owned by Dr. Johnson, that is engaged in the business of administering a behavioral therapy program, Brief Behavioral Compliance
Enhancement Treatment, for our upcoming Phase 3 clinical trial using AD04, for the treatment of AUD.
By leveraging the prior work of universities
and their researchers, including their pre-clinical studies and accumulated data, we believe we have developed a significant drug
development opportunity. Because of the licensing approach taken to secure intellectual property, including, without limitation,
patents and rights to clinical trial data, and our collaborations with the University of Virginia, we, historically have not had
to incur the significant costs that would normally be required to develop therapeutic treatments to the point of being ready to
commence a Phase 3 clinical trial, which often amount to tens of millions of dollars or more. In fact, based upon current information,
and depending on what the regulatory authorities may require to secure marketing authorization, we estimate that we will require
approximately $10.7 million for the current Phase 3 clinical trial (not including company overhead) and an additional $30 million
of additional capital to complete our second Phase 3 program (which includes $20 million for a confirmatory Phase 3 trial and any
necessary Phase 1 clinical trials and other development expenses and does not include the additional cost of a possible third Phase
3 clinical trial) as currently contemplated in order to achieve regulatory approval for the use of AD04 to treat AUD in the United
States and Europe. We have already used approximately $5.3 million in funds derived from our initial public offering and subsequent
financings and warrant exercises to fund trial activities. We anticipate that the approximate $5.4 million needed to complete the
initial Phase 3 clinical trial to the point of achieving database lock will be funded from our cash on hand, funds from additional
financings, grant awards, and/or funds received from the exercise of warrants. We anticipate, with our expected rate of expenditure,
to have exhausted our funds on hand by the end of November of 2021. We have entered into an equity purchase agreement with Keystone
Capital, LLC, which provides for the sale of up to $15 million in common stock, of which $13 million remains available at the time
of filing. These funds would be more than sufficient to fund our operations over the coming year and to completion of the initial
Phase 3 trial. However, as our ability to access these funds is dependent upon the market price of our common stock, access to
these funds is not guaranteed. If we are unable to access these funds, we may have to obtain additional funds through other means.
There is no assurance that such funds could be raised in time to complete the trial on acceptable terms.
The NIAAA has provided and continues to
provide technical assistance and advice to us, and we have applied for an NIAAA Research Resource Award, which if granted would
provide financial support for our Phase 3 clinical trial. Although there can be no assurance that we will be selected by the NIAAA
to receive funding, since we are not aware of any pharmaceutical company planning Phase 3 pivotal trials to serve as a basis for
marketing approval for products for the treatment of AUD, we believe AD04 would be a competitive candidate. Currently, much of
the funding expected for grants such as those for which we have applied has been diverted to COVID-19-related grants, and we are
not certain if and when funding for grants such as ours will be available.
Known, Well-Tested Agent Has Shown Favorable Results in
Non-AUD Uses
Ondansetron, the principal active pharmaceutical
agent in AD04 has been approved by the FDA to treat nausea and vomiting but is administered at much higher doses than we intend
to use and has shown limited side effects even at the higher dosages currently on the market. However, it has not been approved
in our anticipated dosage or for our anticipated uses and treatment period. Consequently, we expect to submit a new drug application,
pursuant to section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, for U.S. marketing authorization. Section 505(b)(2)
of the Federal Food, Drug, and Cosmetic Act allows the FDA to rely, for approval of an NDA, on data not developed by the applicant.
Such an NDA contains full reports of investigations of safety and effectiveness, but where at least some of the information required
for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
Such applications permit approval of applications other than those for duplicate products and permits reliance for such approvals
on literature or an FDA finding of safety and/or effectiveness for an approved drug product. A Phase 2b University of Virginia
investigator sponsored clinical trial of AD04 for the treatment of AUD showed promising results and no overt safety concerns (there
were no statistically significant serious adverse events reported). Not only did the trial show no statistically significant, serious
adverse side effects, but both of the pre-specified endpoints, reduction in severity of drinking measured in drinks per day of
drinking day and reduction in frequency of drinking measured in days of abstinence, were met with statistical significance as shown
in the graph below:
Phase 2b Clinical Trial Results–
Analysis of Primary and Secondary Efficacy Endpoints for Target Genotypes
A 12-week, randomized, two-center, parallel-group,
double-blind, placebo-controlled, two-arm (four cell) clinical trial of oral ondansetron (n=283) conducted by University of Virginia
Our Substantial Proprietary Estate and Protection from
Competition
We currently hold a worldwide, exclusive
license to three (3) patent families that provide us with the ability to exclude potential competitors from practicing the claimed
inventions, such as the use of ondansetron to treat any of the four (4) specified genotypes for AUD. Our licensed patent estate
is expected to provide us patent protection through 2032 plus possible extensions. Ondansetron, the active ingredient in AD04,
has never been approved in a low dosage near the AD04 dose of 0.33mg per tablet, and we believe our licensed patents will protect
AD04 from any competitor that attempts to bring to market an ondansetron dose at or near the AD04 dose for treatment of patients
having one or more of the four target genotypes.
We believe use of the currently marketed
doses “off-label” will not be significant due to (i) the lack of demonstrated efficacy at currently marketed doses,
(ii) potential safety concerns if the currently marketed doses are used chronically as is expected to be necessary for treating
AUD, and (iii) cutting the smallest currently marketed dose into the 12 pieces that would be necessary to achieve the AD04 dose
is deemed by us to be impractical and likely to result in inaccurate dosing.
Companion Genetic Bio-Marker Aimed
at Identifying Patients Most Likely to Respond To Treatment, Potentially Results in Increased Use of AD04
We believe our drug is unique in that it
is designed to treat individuals with certain genotypes. We are pursuing a strategy that aims to integrate pre-treatment screening
with the companion diagnostic genetic test into the drug label, essentially combining the test and treatment into one integrated
therapeutic offering that has combined intellectual property protections. This companion diagnostic testing approach may be a useful
genetic screening tool to predict those most likely to respond to the drug and to have minimal side effects. Based on the clinical
experience to date and publicly available databases, we believe the genetic prevalence of genotype positive people is about 33%
of the population in the United States and that the prevalence in Scandinavia and in certain areas of Central and Eastern Europe
may be greater than 50%. The FDA has agreed that the Phase 3 trials of AD04 can proceed only enrolling patients that are genotype
positive, which greatly reduces, the cost, time and risk relative to a trial that also enrolled patients that are genotype negative
for treatment with AD04. The FDA has indicated that any approval based on a trial only in genotype positive patients would result
in labeling restricted to treating genotype positive patients.
We believe that the companion diagnostic
genetic test enables physicians to more easily have an initial conversation with their patients about alcohol use and, for the
patient, provides a less threatening and obtrusive first step toward treatment because the conversation will include the topic
of genetic testing and not be solely about behavior. Patients that then test positive against the AD04 genetic panel would be expected
to be more likely to then receive a prescription for AD04.
Experienced Leadership
Our management, advisors and board of directors
have extensive experience in pharmaceutical development, the clinical trial and regulatory approval processes, drug commercialization,
financing capital-intensive projects, and developing new markets for pharmaceutical agents. Members of our team have previously
worked in senior management and senior officer positions, or led significant research initiatives at Gensia, Clinical Data, Shire,
Viagene, New River Pharmaceuticals, Collateral Therapeutics, Indivior, Krystal Biotech, Adenosine Therapeutics, and the University
of Virginia and University of Maryland in a broad range of therapeutic areas. Our management and board members have particular
expertise in the science and development of addiction related drugs and bringing new drugs to the market.
Our Strategy
We develop pharmaceutical treatments for
addictions and addictive disorders and related diseases and disorders. Our business strategy is to advance AD04, our lead investigational
drug candidate, toward regulatory approval for alcohol addiction in the United States, the European Union, and then eventually
other territories. We subsequently plan to develop label expansions into other indications (e.g., opioid use disorder, other drug
addictions, obesity, smoking cessation, eating disorders and anxiety). Additionally, we are inventing and developing novel therapeutic
agents at our chemistry facilities and seeking to acquire addiction related assets, particularly those expected to be synergistic
with AD04 once it is marketed, if it is approved.
Our goals in executing this strategy are
to keep capital requirements to a minimum, expedite product development, gain access to clinical research and manufacturing expertise
that will advance product development, approval and eventual market uptake of our product, and rely on a well-defined and carefully
executed intellectual property strategy in order to position our products with long-term, defensible, competitive advantages. Execution
of this strategy may include seeking grant funding and funding from partners and collaborators when available on terms we believe
to be favorable to us, and on which there is no guarantee will be available. In collaboration with our CRO, we have been and are
working to adapt the implementation of our strategy in response to the ongoing coronavirus pandemic.
Our near-term strategy includes:
The clinical development plan for AD04
can be described as a two-stage development strategy in which we expend limited resources to achieve the significant value inflection
point of Phase 3 data in our primary indication of AUD. With a successful trial and the risk reduction associated with that success,
we would then be ready to conduct the final trials to seek approval in the U.S. and Europe as shown below:
AD04 — Two-Stage Clinical Development Strategy —
Conduct the Phase 3 clinical trials sequentially
After approval, we plan to execute a two-stage
commercialization plan for AD04. With psychiatrists and addiction specialists treating a majority of the current AUD patients today
and with psychiatrists most likely to be familiar with the mechanism of action of AD04, we believe that a relatively small psychiatry-targeted,
specialty sales force could successfully sell AD04 into the market. This plan creates the opportunity for us to develop into a
commercial enterprise with an initial niche-market sales force at a relatively low cost for market entry. It also expands the universe
of potential acquirers of our company or AD04 to smaller and mid-size pharmaceutical companies. Once success is shown in the niche
market and the thought leaders and early adopters are prescribing AD04, market adoption risk will have been greatly reduced and
we would expect to be able to sell or partner with a large pharmaceutical partner to develop AD04 as a blockbuster product. This
commercialization plan is shown below:
AD04 — Two-Stage Commercialization
Strategy — Initial launch with a specialty sales force to build the market, then partner or sell to a large pharmaceutical
partner to capture market share and optimize the market
Ondansetron History and Foundation for
Treating AUD
Ondansetron is a 5-HT3 receptor antagonist.
Preclinical and pharmacobehavioral studies suggest that blockade of serotonin-3 receptors will influence the dopamine reward system
activated by alcohol, decreasing dopamine release and attenuating craving for alcohol (Dawes, MA et al., 2005b; Johnson, BA et
al., 2002; Lovinger, DM, 1999a). Early clinical studies found that the efficacy of ondansetron is limited to certain subgroups
of the alcohol-dependent population and suggested the differential effect could be predicted based on age of onset of alcoholism,
an indistinct concept likely confounded by genetic, regional and ethnic differences (Johnson, BA et al., 2000; Kranzler, HR et
al., 2003). Recent research suggests the variable effect may be predictable based on molecular mechanism of ondansetron action
and individual subject genotype of key genes in the serotonin system (Enoch, MA et al., 2010; Johnson, BA et al., 2011; Kenna,
GA et al., 2009).
We are pursuing development of ondansetron
in the alcohol-dependent population. Clinical studies will initially focus on the use of a low dose, oral tablet (0.33 mg administered
twice daily) to reduce alcohol consumption in subjects with genotypes that have been correlated with a responsive to treatment
with ondansetron.
Ondansetron was first approved by the FDA
in 1991 as a solution for injection. Subsequent approvals were obtained for oral tablets in dosage forms and an oral solution.
It is marketed as Zofran ® and is also available in generic formulations, and it has been used widely for the approved
indications – prevention of nausea and vomiting associated with certain cancer chemotherapies and radiotherapies and for
the prevention of postoperative nausea or vomiting — at adult doses of 8–24 mg/day with manageable side effects.
Ondansetron has been administered to dogs‚
rats‚ and mice as part of a preclinical toxicology program which included single-dose acute‚ repeated-dose studies.
Ondansetron was not mutagenic in the standard battery of microbial tests for mutagenicity and no carcinogenic effects were seen
in 2-year studies in rats and mice with oral ondansetron doses up to 10 and 30 mg/kg/day, respectively. In studies of rats and
rabbits there was no evidence of reproductive toxicity seen on fertility, early embryonic development, perinatal/postnatal development
or fetal development of the F2 generation. Based on these studies, as well as over 20 years of human use in clinical trials and
the post-marketing environment, ondansetron is considered to be a well-tolerated drug with a generally mild safety profile.
Ondansetron, by blocking the 5-HT3 receptor,
is known to affect dopaminergic signaling in the brain; and the scientific rational for use of a 5-HT3 antagonist in the treatment
of alcohol dependence is well established (Johnson, BA, 2004). Briefly, studies suggest that: the rewarding effects of alcohol
involve activation of the 5-HT3 receptors leading to release of dopamine within the mesolimbic system of the brain (McBride, WJ
et al., 2004). Thus, by blocking activation of the 5-HT3 receptor, ondansetron may reduce the ethanol-stimulated release of dopamine
leading to reduced feelings of pleasure or reward and consequently, reduced consumption (Carboni, E et al., 1989; Costall, B et
al., 1987; Hagan, RM et al., 1990; Imperato, A and Angelucci, L, 1989; Lovinger, DM, 1999b; McBride, WJ et al., 2004; Minabe, Y
et al., 1991; Rasmussen, K et al., 1991; Wozniak, KM et al., 1990; Yoshimoto, K et al., 1996).
Preclinical studies have demonstrated that
alcohol stimulates the release of both serotonin (5-hydroxytryptamine or 5-HT) and dopamine within the cortio-mesolimbic system
(Campbell, AD et al., 1996; Campbell, AD and McBride, WJ, 1995; Di Chiara, G and Imperato, A, 1988; Imperato, A and Angelucci,