Item 1A. Risk Factors 35
Item 1B. Unresolved Staff Comments 72
Item 2. Properties 72
Item 3. Legal Proceedings 72
Item 4. Mine Safety Disclosures 72
PART II
Item 6. [Reserved] 76
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84
Item 8. Consolidated Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 85
Item 9B. Other Information 85
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 85
PART III
Item 10. Directors, Executive Officers and Corporate Governance 86
Item 11. Executive Compensation 92
Item 14. Principal Accountant Fees and Services 102
PART IV
Item 15. Exhibits and Financial Statement Schedules 103
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.
1
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
● There is substantial doubt about our ability to continue as a going concern.
● We have identified weaknesses in our internal controls.
● We have limited experience as a company conducting clinical trials.
● Our product candidate will require extensive clinical and other testing.
● Our success will be dependent upon adoption of our products by physicians.
Risks
Relating to Purnovate, Inc. (“Purnovate”)
● The product candidates of Purnovate are in the early stages of development.
Risks
Relating to Our Business and Industry
● AD04 and any future product candidates may cause undesirable side effects.
2
● We have limited protection for our intellectual property.
● Certain of our officers may have a conflict of interest.
● We may acquire other businesses that could harm our operating results.
Risks
Related to Our Securities and Investing in Our Securities
● Future sales of securities could result in additional dilution.
● If we implement a reverse stock split, it may not result in intended benefits.
● The warrants that we have issued are speculative in nature.
● There is no established market for the warrants.
3
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 candidate, AD04, is being developed as a therapeutic agent for the treatment
of alcohol use disorder (“AUD”). AD04 was recently investigated in a Phase 3 clinical trial, designated the ONWARD trial,
for the potential treatment of AUD in subjects with certain target genotypes, which were identified using our companion diagnostic genetic
test. Based on our analysis of the subgroup data from the ONWARD trial, we are now focused on commercializing AD04 in the U.S. and Europe.
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.
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 in
January 2023, we entered into an option agreement (the “Option Agreement”) with Adenomed LLC (“Buyer”), pursuant
to which we granted to the Buyer an exclusive option for a period of one hundred twenty (120) days from the effective date of the Option
Agreement (the “Option Term”) for Buyer or its designated affiliate to acquire all of the assets of Purnovate. We have been
using Purnovate’s adenosine drug discovery and development platform to invent and develop novel chemical entities as drug candidates
for large unmet medical needs.
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.
Recent
Developments
In
March 2023, we announced an update to our regulatory strategy for AD04. Key highlights included:
● Advancing discussions with potential U.S. and European partners.
On
February 23, 2023, we entered into a securities purchase agreement (the “2023 Purchase Agreement”) with an accredited institutional
investor providing for the issuance of 1,829,269 shares of our common stock, par value $0.001 for an aggregate purchase price of approximately
$750,000.
On January 27, 2023, we and the Buyer entered into the Option Agreement
pursuant to which we granted to the Buyer an exclusive option for the Option Term for Buyer or its designated affiliate to acquire all
of the assets of Purnovate. William Stilley, a director and Executive Vice President of the Company and Chief Executive Officer of Purnovate,
serves as the President of Buyer and is the principal stockholder of Buyer. See “Purnovate Option Agreement” for additional
details about the Option Agreement.
4
AD04
Clinical Development Program
ONWARD
Phase 3 Clinical Trial Results – Topline Data Analysis
Clinical
Trial Design
The
FDA indicated we could proceed with a randomized, placebo-controlled Phase 3 clinical trial design for the testing of AD04 as a treatment
for AUD in patients that are genotype positive when tested against the AD04 genetic panel using our companion diagnostic test (i.e.,
a negative genetic test result will be an exclusion criterion). The initial Phase 3 trial, designated the ONWARD trial, started in February
2020 in Scandinavia and Central and Eastern Europe. The ONWARD trial was a 24-week, multicenter, randomized, double-blind, placebo-controlled,
parallel group, Phase 3 clinical study to evaluate the efficacy, safety and tolerability of AD04 in patients with AUD and selected polymorphisms
in the serotonin transporter and receptor genes. Patients were genetically screened prior to enrollment in the ONWARD trial so that only
genetically positive patients were enrolled. ONWARD enrolled 302 patients (a total of 303 patients were recruited and then randomized
in the trial, however, one subject never initiated treatment and has been excluded from enrollment numbers and will not be included in
the full analysis data set or efficacy analysis for the trial). and was conducted in 25 clinical sites in six countries in Scandinavia
and Central and Eastern Europe (Sweden, Finland, Poland, Latvia, Bulgaria and Croatia). Approximately one-third of the screened patients
tested genetically positive for the targeted genetics.
The
primary endpoint of the ONWARD trial was change from baseline in the monthly percent of heavy drinking days (PHDD) experienced by each
patient in months 5 and 6 combined. Key secondary endpoints include reduction in total alcohol consumed and improvement as measured by
the Patient Health Questionnaire-9, a widely accepted tool for assessment of depression. The definition of a heavy drinking day was greater
than 40 grams or 60 grams of ethyl alcohol in a day for a woman or a man, respectively. An alternative analysis was conducted for filing
in the United States using the FDA specified endpoint of reduction in percentage of patients with heavy drinking during the efficacy
observation period as compared to placebo (FDA Feb. 2015 Draft Guidance Alcoholism: Developing Drugs for Treatment Guidance for Industry
) and which the FDA has indicated will be acceptable. Under this guidance, the FDA appears to now define a heavy drinking as more
than three drinks in a day for a woman and more than four drinks in a day for a man, which is a reduction from the prior definition.
We intend to seek clarification from the FDA on the definition of a heavy drinking day prior to our submission to them and do not believe
a minor change to the definition of a heavy drinking day will be material to our plans.
Topline
Data Analysis
On
July 20, 2022, we announced the following results from the ONWARDTM Phase 3 trial. Although the trial missed the primary endpoint,
it did show statistical significance in a pre-defined patient group and we believe we can meet the FDA and EMA defined primary endpoints
in a subsequent trial that incorporates outcomes from the ONWARD trial.
5
Additionally,
and consistent with the Phase 2b trial, 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.
* 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.
Future
Planned Regulatory Actions
We
have meetings planned or scheduled to review the data from the ONWARD trial with FDA and five European countries. From these meetings
we expect to obtain confirmation of a clear clinical development plan for the U.S. and Europe including whether any additional clinical
trials would be required. Our current assumption is that we will be required to conduct a second Phase 3 clinical trial. If we are required
to conduct a second Phase 3 clinical trial it may be conducted in a broader geography that may include the United States. The trial design
is expected to include the two target genotypes (approximately 20% of AUD patients) that resulted in a favorable response to AD04 in
the genotypic subgroup analyses and only include the “heavy drinker” population. We believe the data indicate that AD04 safely
reduces drinking in these patients and plan to confirm these findings in the next clinical trial. Based on the narrower targeted genotypes
and the more favorable response among this group, we currently estimate that size of a second Phase 3 trial to be smaller than the ONWARD
trial. Depending on the results of the meeting with FDA, it is also possible that the FDA may require a third Phase 3 trial. If a third
Phase 3 trial is required, we would expect to conduct it in parallel with the second Phase 3 trial with a goal of not delaying approval
of AD04.
We
have had a joint meeting with the Center for Drug Evaluation and Review (“CDER”) and the Center for Devices and Radiological
Health (“CDRH”), the two divisions of the FDA responsible for drug approvals and device authorizations, respectively. At
the meeting the divisions agreed that clinical validation of our companion diagnostic test for AD04 will be evaluated by CDER and the
technical validation of our companion diagnostic will be evaluated by CDRH. We expect to need approval of a premarket approval application
(“PMA”) or a premarket notification submission (“510(k)”) from CDRH for the companion diagnostics to be used
with the drug product. We already developed the methods for the companion diagnostic as a blood test and established the test with a
third-party vendor capable of supporting a Phase 3 clinical trial, and 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.
We
plan to test AD04 in adolescent patients (ages 12-17) as part of our next Phase 3 trial. If successful, we intend to request labeling
for treating adolescent patients.
In
parallel with the second Phase 3 trial, we expect to conduct any standard Phase 1 studies required by the regulatory agencies. Studies
that have been discussed with the FDA as potentially being required might assess food effects, potentiation of the central nervous system
effects of alcohol, and pharmacodynamic impact of certain cytochrome P450 enzyme variants. We also expect to conduct a 12-month open-label
Phase 1 safety study in at least 100 subjects to evaluate the 12-month safety of AD04.
6
Phase
2b Investigator Initiated Clinical Trial of AD04 for Alcohol Use Disorder Conducted by the University of Virginia
In
various studies, it has been shown that alcohol dependent individuals with the LL genotype of the 5’-HTT and the TT genotype in
the 3’-UTR LL and TT genotype have lower B-CIT neuronal binding to 5-HTT. It is hypothesized that individuals with the LL or TT
genotype, 5-HTT gene expression is suppressed by increased alcohol consumption, and therefore, ondansetron, which causes 5-HTT gene expression
would have the greatest effect upon individuals that possess both the LL genotype of the 5’-HTT and the TT genotype in the 3’-UTR.
A subsequent Phase 2b study (N = 283), conducted by the University of Virginia for which we have acquired rights to the data, showed
that a prospectively identified subgroup of alcohol-dependent individuals with these specific polymorphisms of the serotonin transporter
protein responded therapeutically to ondansetron administration (Johnson, BA et al., 2011). Further analysis of this same data set against
18 additional polymorphisms located on the genes for the A and B subunits of the serotonin 5-HT3 receptor revealed polymorphisms that
were also associated with a therapeutic response to ondansetron. Collectively, the genotypes from the two aforementioned analyses comprise
the genotypes selected for testing in Phase 3 trials for AD04.
Phase
2B Trial Design
The
Phase 2b clinical trial conducted by the University of Virginia was a 283-patient, 12-week, randomized, two-center, parallel-group, placebo-controlled
study. Following a 1 week placebo run in (single-blind), alcohol-dependent subjects were randomized to receive either 4 μg/kg ondansetron
or placebo, orally, twice daily (double-blind) for 11 additional weeks. In addition to study treatment, all subjects received weekly,
standardized, manual-driven, cognitive behavioral therapy.
Eligible
subjects were classified to one of twelve groups described by the 2×2 x 3 factorial combinations and randomized to placebo or ondansetron
(4 mcg/kg twice daily [b.i.d.]) using a computed blocks randomization procedure that balances the twelve treatment groups on drinks/day
≤ 7.99 vs ≥8.00), age of onset (early vs. late), and genotype (LL, SS, SL).
Genotyping
and analysis of the study subjects for the SNP rs1042173 (TT, TG or GG) in the 3 ́-UTR of the 5-SLC6A4 gene that codes for the serotonin
transporter was performed following randomization but prior to database lock. Genotyping and analysis of the study subjects for SNPs
located on genes that govern expression of the 5-HT3A and 5-HT3B subunits of the 5-HT3 receptor was performed after database lock.
During
treatment, subjects were evaluated weekly at the study center for efficacy, safety, and tolerability. Alcohol consumption was collected
via the self-reported Timeline Follow-Back (TLFB) method (Sobell and Sobell, Psychosocial & Biochem. Meth., 1992).
Efficacy
measures were based on self-reported drinking outcomes with drinks per drinking day (“DDD”), with a standard drink equal
to 14 grams of alcohol, and the percentage of days abstinent (“PDA”) being the pre-specified efficacy end points. Withdrawal
symptoms, social functioning, and motivation to use alcohol were assessed using standard questionnaires and scales. Subject safety was
monitored through periodic electrocardiograms (EKGs), physical exams, safety laboratories and collection of adverse events, concomitant
medications, and vital signs. Additionally, a post hoc analysis was conducted using the endpoint of percentage of heavy drinking
days (“PDHD”), which is the number of days of heavy drinking days in a month as a percentage of days in the month, because
it is widely recognized as a clinically meaningful endpoint and is expected to be an end point in a pivotal/Phase 3 trials. The PDHD
end point requires that each day be determined to be a heavy drinking day (e.g., a day in which a female drinks 4 or more drinks or a
male drinks 5 or more drinks) or not, making each day binary and requiring an increased sample size to ensure statistical power. Therefore,
the goal of the PDHD analysis was to determine if there was a trend toward and effect with PDHD without necessary achieving statistical
significance.
The
study objectives were to evaluate the safety of AD04 and to test the hypotheses that: (i) ondansetron will have a greater effect of reducing
the severity of alcohol drinking and of increasing the percentage of days abstinent among alcohol-dependent subjects with the LL genotype
as compared with S carriers (SS or SL) of the 5 ́-HTTLPR; and (ii) ondansetron’s therapeutic effect will be greatest among
alcohol-dependent subjects who possess both the LL genotype of the 5 ́-HTTLPR and the TT genotype of rs1042173 in the 3 ́-UTR
of the 5 ́-HTT. After completion of the study, a planned additional analysis of the correlation between genotype and drinking outcomes
was conducted considering 18 SNPs located on the 5-HT3A and 5-HT3B subunit genes that were selected based on their minor allele frequency
(≥ 0.05) in different ethnic populations, to obtain uniform physical coverage of the two genes, and on results from previous genetic
association studies. This latter analysis identified three SNPs as having an apparent beneficial effect.
The
primary analytic procedure used mixed-effects linear regression models and a sensitivity analysis using repeated measures models.
Additionally,
based on the expectation that subjects with the LL and LL/TT variants of the SLC6A4 gene would respond to ondansetron treatment while
others do not, the possibility that SNPs in the 5-HT3A and 5-HT3B subunits of the 5-HT3AB receptor complex may also influence the response
to ondansetron was planned as a post hoc analysis. The possible role of SNPs on the HTR3A and HTR3B genes in the response to ondansetron
is logical since the 5-HT3A receptor subunit is the primary target for ondansetron’s actions, and the 5-HT3B receptor subunit may
be associated with the availability and externalization of the 5-HT3AB receptor complex. Thus, alterations in post-synaptic receptors,
such as the 5-HT3AB receptor complex, could have a large impact on signal transduction along post-synaptic neurons. For these analyses,
a total of 18 SNPs on the genes for the 5-HT3A and 5-HT3B subunits were examined. SNPs were selected based on their minor allele frequency
(≥ 0.05) in different ethnic populations, to obtain uniform physical coverage of the two genes, and on results from previous genetic
association studies.
7
Summary
Results — Safety:
Overall,
95% of the subjects in the ondansetron group and 96% in the placebo group reported a treatment-emergent AE (TEAE) during the study. TEAEs
occurred most frequently in the SOCs of gastrointestinal disorders (ondansetron 65%, placebo 61%), metabolism and nutritional disorders
(38%, 43%), and nervous system disorders (60%, 58%). The incidence of TEAEs by preferred term was similar between the ondansetron and
placebo groups. TEAEs that occurred at a frequency ≥ 5% in the ondansetron group compared with the placebo group included constipation
(32%, 21%), fatigue (39%, 25%), and dizziness (21%, 12%). There was one death during the study; Subject #218 committed suicide on Study
Day 40. The event was considered not related to study drug. Treatment-emergent SAEs were reported in 3 (2.1%) ondansetron-treated subjects
and 6 (3.8%) placebo-treated subjects. No SAE was considered related to study drug, and detoxification was the only SAE that was reported
for more than 1 subject (2 ondansetron subjects). No clinically meaningful changes in clinical laboratory results, vital sign measurements,
ECGs or physical examinations were observed for subjects during the course of the study.
The results
are summarized in the below graphs.
Phase
2b Clinical Trial Results — Post Hoc Analysis of Effect on Percentage of Heavy Drinking Days (defined as 4/5 or more drinks
in a day for a woman/man, respectively)
A
12-week, randomized, two-center, parallel-group, double-blind, placebo-controlled, two-arm (four cell) clinical trial of oral ondansetron
(n=283)
Summary
Results Phase 2b Clinical Trial — Primary Analysis of Efficacy of LL and LL/TT
Analysis
of the LL genotype of the 5 ́-HTTLPR as compared to the non-LL genotypes showed a significant reduction in DDD and PDA (Johnson,
et.al, Am. Jrnl. Psych., 2011). However, the demonstrated effect of the LL/TT vs. other patients was more pronounced, and carriers of
LL/TT genotype who received ondansetron showed a greater reduction in drinking compared to LL/TT on placebo. Carriers of the LL/TT genotype
who received ondansetron showed a greater reduction in DDD compared to: 1) LL/TT carriers who received placebo (difference of 2.05 drinks/drinking
day; 95% CI, -3.72 to -0.39; p=0.0158), 2) LL/Gx carriers who received ondansetron (difference of 2.29 drinks/drinking day; 95% CI, -3.99
to -0.72; p=0.0048), and 3) all other genotypes who received ondansetron treatment (difference of 2.58 drinks/drinking day; 95% CI, -3.94
to 1.22; p<0.0001); and a greater PDA compared with: 1) the LL/TT genotype group treated with placebo (mean difference=12.38%; 95%
CI= -1.57 to 26.33; p= 0.0819), 2) LL/Gx carriers treated with ondansetron (mean difference=15.14%; 95% CI= 1.41 to 28.87;
p= 0.0307), and 3) all other genotypes treated with ondansetron (difference= 16.82%; 95% CI= 6.15 to 27.48; p=0.0020). The post hoc
analysis of the PDHD endpoint show that ondansetron treatment of subjects with the LL/TT genotype was associated with a larger (but
not statistically significant) reduction in PDHD compared to changes in PDHD in subjects with all other genotypes who received treatment
with ondansetron (mean difference= -8.49%; 95% CI= 20.34 to 3.367; p= 0.1601). Similar trends (i.e., augmented reductions in PDHD) were
observed for the LL/TT group treated with ondansetron versus the LL/Gx genotype group treated with ondansetron and versus the LL/TT group
treated with placebo (mean difference=-2.54% 95% CI= 17.74 to 12.66, p=0.7431; and mean difference= 5.72% 95% CI= 21.20 to 9.75, p=0.4684;
respectively).
8
Identification
of Modulators of the 5-HT3 Receptor and Selection of the Phase 3 Genetic Panel for AD04
As
stated above, a total of 18 SNPs on the genes for the 5-HT3A and 5-HT3B subunits were examined with SNPs selected based on frequency
and on results from previous genetic association studies.
These
analyses identified 3 SNPs (three in the gene for the 5-HT3A subunit and one in the gene for the 5-HT3B subunit) that were significantly
associated with a positive response to ondansetron based on reductions in DDD and PDA. Thus, the genotype profile targeted for Phase
3 development is defined as those subjects who carry the LL/TT genotype and/or one of three 5-HT3 SNPs of interest (i.e., rs1150226-AG
and rs1176713-GG in the gene that encodes the 5-HT3A receptor subunit and rs17614942-AC in the gene that encodes the 5-HT3B receptor
subunit). The hypothesis that subjects who are carriers of the genotype panel targeted for study in Phase 3 (“P3-genotype”,
with such patients “genotype positive” or “marker positive”) preferentially respond to treatment with ondansetron
compared to subjects who do not carry any of the genotypes targeted for study in Phase 3 were assessed using the drinking endpoints of
DDD, PDA, and PDHD.
Carriers
of the P3-genotype who received ondansetron showed a greater reduction in DDD compared to P3-genotype carriers who received placebo (difference
of 1.71 drinks/drinking day; 95% CI= -2.88 to -0.54; p=0.0042), and compared to subjects treated with ondansetron who were not carriers
of the P3-genotype (All Other-OND; difference of 2.05 drinks/drinking day; 95% CI= -3.11 to -1.00, p=0.0001). In contrast, no difference
was observed between non-P3-genotypes who received ondansetron (All Other-OND) versus non-P3-genotypes who received placebo (All Other-Placebo;
difference of 0.40 drinks/drinking day; 95% CI= -0.43 to 1.23; p=0.3445). The mean baseline DDD for all subjects was 9.5 drinks/drinking
day. Carriers of the P3-genotype who received ondansetron (P3-OND) had a greater increase in PDA compared to P3-genotype carriers who
received placebo (P3-Placebo; difference of 11.56%; 95% CI= 0.80 to 22.31; p=0.0352) and compared to non-P3-genotype carriers who received
ondansetron (All Other-OND; difference of 11.52%; 95% CI= 1.76 to 21.28; p=0.0208). In contrast, no differences were observed for the
PDA endpoint between non-P3-genotypes treated with ondansetron versus non P3-genotypes treated with placebo (All Other-OND versus All
Other-Placebo; difference of -0.96%; 95% CI= -8.61 to 6.69; p=0.8055). The mean baseline PDA for all subjects was 17%.
The
results are summarized in the below graphs.
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)
As
stated, above, the study was not powered to achieve statistical significance against the binary-by-day end point of PDHD, however, carriers
of the P3-genotype who received ondansetron (P3-OND) showed a significantly greater reduction in PDHD compared to P3-genotype carriers
who received placebo (P3-Placebo; difference of -11.08%; 95% CI= -21.90 to 0.27; p=0.0445), and compared to non-P3-genotype carriers
who received ondansetron (All Other-OND; difference of -10.35%; 95% CI= -20.11 to -0.58; p=0.0378). In contrast, no difference was observed
between non-P3-genotypes who received ondansetron (All Other-OND) versus non-P3-genotypes who received Placebo (All Other-Placebo; difference
of 2.88%; 95% CI= -4.80 to 10.56; p=0.4625). The mean baseline PDHD for all subjects was 70%.
9
Definition
of Heavy Drinking Day
As
stated above, for the PDHD post hoc analysis of the Phase 2b clinical trial data, a heavy drinking day was defined as a day when
a female drank 4 or more drinks in a day, with a drink being defined as containing 14 grams of alcohol, or when a man drank 5 or more
drinks in a day, which was the definition the FDA indicated to us was required. It is also currently the definition of “high-risk
drinking” in Dietary Guidelines for Americans 2015-2020 (U.S. Departments of HHS and Agriculture), the NIAAA’s definition
of “binge drinking”, and has historically been the definition for a heavy drinking day (Neal, D., & Carey, K., 2007).
The Substance Abuse and Mental Health Services Administration (SAMHSA) defines heavy drinking “as drinking 5 or more alcoholic
drinks on the same occasion.” Subsequent to our analysis of the Phase 2b data and agreement with the FDA on the definition of a
heavy drinking day as 4/5 or more drinks in a day for females/males, the FDA published a draft guidance, in which it states, “Those
drinking 4 plus/5 plus [drinks for females and males, respectively] even on occasion have significantly higher risks (10 to 20 percent)
of meeting criteria for AUD.” The FDA’s draft guidance then states that the NIAAA defines a heavy drinking day as more than
3 drinks in a day for a woman and more than 4 drinks in a day for a man, which is currently only part of the NIAAA’s definition
for “low-risk drinking”, and which is very similar but not necessarily identical to what the FDA indicated to us was required
and the criteria we used when generating our study report on the Phase 2b. So, it is unclear which definition of a heavy drinking day
the FDA will accept at this time. However, under this different definition of a heavy drinking day as more than 3/4 for females/males,
the Phase 2b trial data support the effect of AD04 on reducing heavy drinking and showed a greater reduction in PDHD compared to P3-genotype
carriers who received placebo (P3-Placebo; difference of -10.24%; 95% CI= -21.18 to 0.70; p=0.0665), and compared to non-P3-genotype
carriers who received ondansetron (All Other-OND; difference of -11.65%; 95% CI= -21.54 to -1.77; p=0.0209). In contrast, no difference
was observed between non-P3-genotypes who received ondansetron (All Other-OND) versus non-P3-genotypes who received Placebo (All Other-Placebo;
difference of 4.09%; 95% CI= -3.70 to 11.88; p=0.3033). We do not expect a small change to the definition of a heavy drinking day to
dramatically change our plans or probability of success. We intend to discuss the definition of a heavy drinking day with the FDA and
EMA prior to our relevant submissions.
Alcohol
Use Disorder and AD04
AUD
is characterized by an urge to consume alcohol and an inability to control the levels of consumption. We have completed the clinical
phase of 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 302 patients included in the trial had completed dosing and follow up visits and
the final monitoring and close-out activities are completed (a total of 303 patients were recruited and then randomized in the trial,
however, one subject never initiated treatment and has been excluded from enrollment numbers and will not be included in the full analysis
data set or efficacy analysis for the trial). ONWARD trial data was unblinded and analyzed in the second quarter of 2022 and topline
data analysis was reported in July 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 support our landmark ONWARD pivotal Phase 3 clinical trial. Our licensed therapeutic agent was the product candidate used in the
ONWARD pivotal Phase 3 clinical trial of 302 patients as well as a University of Virginia investigator sponsored Phase 2b clinical trial
of 283 patients.
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.
10
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 our clinical program. 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.
Disease
Targets and Markets for AD04
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, and hepatoxicity. 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.
11
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 potentially allows them to be treated
in the confidence of their doctor with an oral tablet.
Strengths
and Competitive Advantages
Large
Market Opportunity for an Effective Solution
Based on our analysis of the subgroup data from the ONWARD trial, we
are now focused on commercializing AD04 in the U.S. and Europe. In the United States alone, approximately 35 million people each year
have AUD. Based on data from the ONWARD trial and 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. and Europe will have the genetic markers to indicate possible
treatment with AD04. Our initial focus, based on the subgroup analysis will include genotypes that we estimate represent about 20% of
AUD patients in the U.S, and Europe. 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 20% of AUD patients are genotype positive for treatment with AD04 and a $600 price for a one-month supply of the drug (assumed pricing
based on Adial commissioned health care payer research for Wholesale Acquisition Costs (WAC)), the total potential market for AD04 would
be in excess of $40 billion in the United States alone.
12
Beyond
the United States, alcohol consumption worldwide is a serious health issue. The 2018 Global Status Report on Alcohol and Health published
by the World Health Organization (the “WHO”) states that 5.3% of all deaths (about 3.0 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. 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 Europe. Our experience in the ONWARD Phase 3 clinical trial indicates
the prevalence in this area to also be about 33%. Our initial focus, based on the subgroup analysis will include those genotypes that
we estimate represent about 20% of AUD patients in the U.S, and Europe. We previously believed the prevalence in Scandinavia and in certain
areas of Central and Eastern Europe may be greater than 50%, but our experience in the ONWARD Phase 3 clinical trial indicates the prevalence
in this area to also be about 33%. 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 are conducting our current landmark ONWARD pivotal Phase 3 clinical
trial in counties in Scandinavia and Central and Eastern Europe, including Finland, Sweden, 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 have
requested Scientific Advice meetings with five countries in Europe, including Sweden, Germany, the United Kingdom, Finland and France.
From these meetings, we expect to gain a clear understanding from each regulatory authority regarding the most expeditious path to approval
in each European country – including insight into whether additional trials would be required. The meetings with Sweden and Germany
are scheduled for March and April 2023 respectively. Scheduling for the United Kingdom, Finland and France are pending confirmation.
In
the U.S. we requested and were granted a Type C meeting with FDA, which will be held in Q2 2023. The Type C meeting is expected to provide
us with confirmation of a clear clinical development plan for the U.S.
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, 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 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 up to the
point of commencing a Phase 3 clinical trial.
13
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. The 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 trials 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:
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 2031. 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