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Risk Overview Q2, 2026
Risk Distribution
36% Finance & Corporate
25% Tech & Innovation
16% Legal & Regulatory
10% Production
9% Ability to Sell
4% Macro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Adial Pharmaceuticals Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q2, 2026
Main Risk Category
Finance & Corporate
With 29 Risks
Finance & Corporate
With 29 Risks
Number of Disclosed Risks
80
+13
From last reportS&P 500 Average: 31
80
+13
From last reportS&P 500 Average: 31
Recent Changes
14Risks added
0Risks removed
5Risks changed
Since Jun 2026
14Risks added
0Risks removed
5Risks changed
Since Jun 2026
Number of Risk Changed
5
+2
From last reportS&P 500 Average: 1
5
+2
From last reportS&P 500 Average: 1
See the risk highlights of Adial Pharmaceuticals in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 80
Finance & Corporate
Total Risks: 29/80 (36%)Above Sector Average
Share Price & Shareholder Rights17 | 21.3%
Share Price & Shareholder Rights - Risk 1
We could lose our listing on the Nasdaq Capital Market if our stockholders' equity does not meet Nasdaq requirements or if we do not comply with other Nasdaq requirements, including if we do not receive conditional approval from Nasdaq of our Initial Listing Application prior to our receipt of stockholder approval of the conversion of shares of our Series A Preferred Stock. The loss of our Nasdaq listing would likely have an adverse effect on the liquidity and market price of our common stock.Changed
Share Price & Shareholder Rights - Risk 2
If certain proposals are not approved by stockholders at the 2026 Annual Meeting, certain securities will remain outstanding and unconverted, which could adversely affect the Company and our stockholders.Added
Under the terms of the Merger Agreement, we are obligated to obtain stockholder approval for the conversion of all outstanding shares of Series A Preferred Stock issued in the Merger into shares of our common stock, as required by the Nasdaq Listing Rules. Under the terms of the Purchase Agreement and Exchange Agreements, we are obligated to obtain stockholder approval for the exercise of all outstanding issued or issuable Initial Closing Pre-Funded Warrants and the Milestone Warrants as required by the Nasdaq Listing Rules. We are seeking such approval at the 2026 Annual Meeting. If our stockholders do not approve the conversion of the Series A Preferred Stock, the Series A Preferred Stock will remain outstanding and unconvertable, and we are obligated to seek such approval at one or more subsequent stockholders meetings until such approval is obtained, which would result in additional cost and delay. If our stockholders do not approve the exercise of the Initial Closing Pre-Funded Warrants, the Initial Closing Pre-Funded Warrants will remain outstanding and not exercisable, and we are obligated to seek such approval at one or more subsequent stockholders meetings until such approval is obtained. If our stockholders do not approve the exercise of the Milestone Warrants, any Milestone Pre-Funded Warrants and/or Milestone Incentive Warrants issued, if any, will not be exercisable and we will be obligated to seek such approval at subsequent stockholders meetings, resulting in additional cost and delay and we do not believe the PIPE Investors or Azora Noteholders will seek to acquire any Milestone Warrants until stockholder approval of their exercise is obtained. If the conversion of the Series A Preferred Stock is approved, the conversion of all such Series A Preferred Stock will result in the issuance of a maximum of 12,930,617 shares of our common stock, causing dilution to existing holders of our common stock and an increase in the number of shares eligible for resale in the public market. If the exercise of the Initial Closing Pre-Funded Warrant Proposal is approved, the exercise of all such Initial Closing Pre-Funded Warrants issuable will result in the issuance of a maximum of 11,780,948 shares of our common stock, causing dilution to existing holders of our common stock and an increase in the number of shares eligible for resale in the public market. If the issuance and exercise of the Milestone Warrants is approved, the exercise of all such Milestone Pre-Funded Warrants and Milestone Incentive Warrants will result in the issuance of a maximum of 23,561,896 shares of our common stock, causing dilution to existing holders of our common stock and an increase in the number of shares eligible for resale in the public market. We also have a contractual obligation under the Merger Agreement and RRA to register all shares of common stock issuable upon exercise of the Initial Closing Pre-Funded Warrants for resale within 80 days of the closing of the Financing and to file, within 30 days after a Milestone Registration Trigger Date a registration statement registering for resale the common stock issuable upon exercise of the Milestone Warrants that have not yet been registered.
Share Price & Shareholder Rights - Risk 3
The market price of our common stock after the Merger may be affected by factors different from those that historically affected the market price of our common stock.Added
The business of Azora differs from that of our legacy ADO4 business in important respects, and, accordingly, our results of operations after the Merger, as well as the market price of our common stock, may be affected by factors different from those that historically affected the results of operations of the Company. Additionally, the market price of our common stock may fluctuate significantly following the Merger. Moreover, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.
Share Price & Shareholder Rights - Risk 4
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans and outstanding warrants, or conversions of shares of our Series A Preferred Stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.Changed
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Additionally, in connection with the Merger, we issued 12,930.617 shares of Series A Preferred stock to the former stockholders of Azora, which are convertible into an aggregate of 12,930,617 shares of our common stock. Subject to certain beneficial ownership limitations, the outstanding shares of our Series A Preferred Stock will automatically convert into shares of our common stock upon stockholder approval of such conversions, which we intend to seek at our 2026 Annual Meeting of Stockholders (the "2026 Annual Meeting"). Pursuant to our 2017 equity incentive plan, which became effective on the business day prior to the public trading date of our common stock, our management is authorized to grant equity awards to our employees, officers, directors and consultants.
At June 30, 2026, we had outstanding (i) warrants to purchase 1,240,076 shares of common stock outstanding with a weighted average exercise price of $18.79, (ii) options to purchase 1,646,685 shares of common stock at a weighted average exercise price of $4.56 per share, (iii) 557,248 restricted stock units, and (iv) shares of Series A Preferred Stock convertible into an aggregate of 12,930,617 shares of our common stock. The issuance of the shares of common stock underlying the options. warrants and Series A Convertible Preferred Stock will have a dilutive effect on the percentage ownership held by holders of our common stock.
Share Price & Shareholder Rights - Risk 5
Pursuant to the terms of the Merger Agreement, the Purchase Agreement and the Exchange Agreements, we are required to recommend that our stockholders approve the conversion of all outstanding shares of our Series A Preferred Stock into shares of our common stock, the exercise of all of the Assumed Options, the exercise of all of the Initial Closing Pre-Funded Warrants and the exercise of all of the Milestone Warrants. We cannot guarantee that our stockholders will approve these matters, and if they fail to do so we may be required to settle certain shares of our Series A Preferred Stock in cash and continue to solicit our stockholders, which could be time-consuming and costly and adversely affect our financial condition.Added
Under the terms of the Merger Agreement, the Purchase Agreement and the Exchange Agreements, as promptly as practicable following the date of the Merger Agreement, we are required to call and hold a meeting of our stockholders to obtain the requisite approval from our stockholders, in accordance with Nasdaq Stock Market Rules, for, among other things: (i) the conversion of the shares of our Series A Preferred Stock into shares of common stock, (ii) the exercise of the Assumed Options by the holders thereof, (iii) the exercise of the Initial Closing Pre-Funded Warrants by the holders thereof, (iv) the exercise of the Milestone Warrants by the holders thereof, (v) the amendment of our certificate of incorporation to increase the number of shares of common stock authorized for issuance thereunder to 500,000,000 shares, (vi) the adoption of a new 2026 Equity Incentive Plan and (vii) the adoption of a new 2026 Employee Stock Purchase Plan (collectively, the "Transaction Stockholder Matters"). If we fail to have enough shares present in person or by proxy to constitute a quorum, fail to obtain the required vote on the Transaction Stockholder Matters and/or the Nasdaq Listing Application is not approved, we will be required to adjourn the 2026 Annual Meeting one or more times for up to 30 days per adjournment. If stockholder approval of the Transaction Stockholder Matters or approval of the Nasdaq Listing Application are still not obtained following such adjournment(s), we will be obligated to continue soliciting stockholder approval at subsequent annual or special meetings of our stockholders, held at intervals of no more than six months, until such approvals are obtained, which would be time consuming and costly.
There can be no assurance that our stockholders will approve the Transaction Stockholder Matters.
Additionally, if the conversion of the shares of our Series A Preferred Stock into shares of our common stock is not approved by the date that is six months following the initial issuance date of the Series A Preferred Stock, the holders of the Series A Preferred Stock would be entitled to require us to settle the shares of our common stock underlying the Series A Preferred Stock for cash at a price per share equal to the fair value of our common stock at such time as described in the Certificate of Designation. If we are forced to cash settle a significant amount of the shares of our common stock underlying the Series A Preferred Stock, it could materially affect our results of operations, business and financial condition.
Share Price & Shareholder Rights - Risk 6
The expected dilution caused by the issuance of our securities in connection with the Transactions may adversely affect the market price of our common stock.Added
The expected dilution caused by the issuance of new shares of our common stock in connection with the conversion of the Series A Preferred Stock issued to former Azora stockholders, and the issuance of common stock upon the exercise of the Assumed Options, the Initial Closing Pre-Funded Warrants, the Milestone Warrants either alone or in combination with any negative impact on the market price of our common stock following the release of lock-up restrictions entered by the respective directors, officers and certain stockholders of Azora and the Company in connection with the Merger, may result in fluctuations in the market price of our common stock, including a stock price decrease.
Share Price & Shareholder Rights - Risk 7
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Share Price & Shareholder Rights - Risk 8
Our Certificate of Incorporation and our bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain types of state actions that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.Our Certificate of Incorporation and our bylaws provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine. The exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
These exclusive-forum provisions may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, employees, control persons, underwriters, or agents, which may discourage lawsuits against us and our directors, employees, control persons, underwriters, or agents. Additionally, a court could determine that the exclusive forum provision is unenforceable, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. If a court were to find these provisions of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.
Share Price & Shareholder Rights - Risk 9
Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
- our board of directors is divided into three classes, one class of which is elected each year by our stockholders with the directors in each class to serve for a three-year term;- the authorized number of directors can be changed only by resolution of our board of directors;- directors may be removed only by the affirmative vote of the holders of at least sixty percent (60%) of our voting stock, whether for cause or without cause; - our bylaws may be amended or repealed by our board of directors or by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of our stockholders; - stockholders may not call special meetings of the stockholders or fill vacancies on the board of directors;- our board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a "poison pill" to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;- our stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors; and - our stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder meeting.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Share Price & Shareholder Rights - Risk 10
Our need for future financing may result in the issuance of additional securities which will cause investors to experience dilution.Our cash requirements may vary from those now planned depending upon numerous factors, including the result of future research and development activities. We will require additional funds in the future to complete our clinical trials of AD04. There are no other commitments by any person for future financing. In addition, the issuance of securities in any future financing using our securities may dilute an investor's equity ownership. Moreover, we may issue derivative securities, including options and/or warrants, from time to time, to procure qualified personnel or for other business reasons. The issuance of any such derivative securities, which is at the discretion of our board of directors, may further dilute the equity ownership of our stockholders. No assurance can be given as to our ability to procure additional financing, if required, and on terms deemed favorable to us. To the extent additional capital is required and cannot be raised successfully, we may then have to limit our then current operations and/or may have to curtail certain, if not all, of our business objectives and plans.
Share Price & Shareholder Rights - Risk 11
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses.The trading price of our common stock has been and is expected to continue to be volatile and has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. On March 4, 2026, the reported low sale price of our common stock was $1.90, the reported high sale price was $2.28 and closing price of our common stock was $1.99 while on December 31, 2025 the closing price of our common stock was $5.50. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance for prospects. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this Annual Report, these factors include:
- the commencement, enrollment or any future clinical trials we may conduct, or changes in the development status of AD04 or any product candidates;- any delay in our regulatory filings for our product candidate and any adverse development or perceived adverse development with respect to the applicable regulatory authority's review of such filings, including without limitation the FDA's issuance of a "refusal to file" letter or a request for additional information;- adverse results or delays in clinical trials;- our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;- adverse regulatory decisions, including failure to receive regulatory approval of our product candidate;- changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;- adverse developments concerning our manufacturers;- our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices;- our inability to establish collaborations if needed;- our failure to commercialize AD04;- additions or departures of key scientific or management personnel;- unanticipated serious safety concerns related to the use of AD04;- introduction of new products or services offered by us or our competitors;- announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;- our ability to effectively manage our growth;- the size and growth of our initial target markets;- our ability to successfully treat additional types of indications or at different stages;- actual or anticipated variations in quarterly operating results;- our cash position;- our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;- publication of research reports about us or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;- changes in the market valuations of similar companies;- overall performance of the equity markets;- sales of our common stock by us or our stockholders in the future;- trading volume of our common stock and declines in the market prices of stocks generally;- changes in accounting practices;- ineffectiveness of our internal controls;- disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our or our licensee's technologies;- significant lawsuits, including patent or stockholder litigation;- general political and economic conditions; and - other events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, including the conflict in Eastern Europe, public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability.
In addition, the stock market in general, and The Nasdaq Capital Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Since the stock price of our common stock has fluctuated in the past, has recently been volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company's securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business, operating results or financial condition.
Share Price & Shareholder Rights - Risk 12
Our common stock has often been thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.To date, there have been many days on which limited trading of our common stock took place. We cannot predict the extent to which investors' interests will lead to an active trading market for our common stock or whether the market price of our common stock will be volatile. If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. We are likely to be too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including "short" sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.
Share Price & Shareholder Rights - Risk 13
As a result of being a public company, we are subject to additional reporting and corporate governance requirements that will require additional management time, resources and expense.As a public company, and particularly since we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Capital Market and other applicable securities rules and regulations impose various requirements on public companies, including the obligation to file with the SEC annual and quarterly information and other reports that are specified in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and to establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Share Price & Shareholder Rights - Risk 14
We are a "smaller reporting company," and we cannot be certain if the reduced SEC reporting requirements applicable to smaller reporting companies will make our common stock less attractive to investors.We are a "smaller reporting company", as defined in Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will cease to be a smaller reporting company if we have (i) more than $700 million in market value of our shares held by non-affiliates as of the last business day of our most recently completed second fiscal quarter or (ii) more than $100 million of annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter and a market value of our shares held by non-affiliates more than $250 million as of the last business day of our second fiscal quarter.
We intend to take advantage of exemptions from various reporting requirements that are applicable to most other public companies, whether or not they are classified as "emerging growth companies," including, but not limited to, an exemption from the provisions of Section 404(b) of Sarbanes-Oxley requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. An attestation report by our auditor would require additional procedures by them that could detect problems with our internal control over financial reporting that are not detected by management. If our system of internal control over financial reporting is not determined to be appropriately designed or operating effectively, it could require us to restate financial statements, cause us to fail to meet reporting obligations, and cause investors to lose confidence in our reported financial information. The JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in the Securities Act, for complying with new or revised accounting standards. However, we have chosen to "opt out" of this extended transition period and, as a result, we will comply with new or revised accounting standards on or prior to the relevant dates on which adoption of such standards is required for all public companies that are not emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. We cannot predict if investors will find our common stock less attractive because we have relied, and intend to rely on, certain of these exemptions and benefits.
Share Price & Shareholder Rights - Risk 15
If we issue preferred stock with superior rights than our common stock, it could result in a decrease in the value of our common stock and delay or prevent a change in control of us.Our board of directors is authorized to issue 5,000,000 shares of preferred stock in series. The issuance of any preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of our common stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion rights and rights to elect directors. The issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us without further vote or action by the stockholders and may adversely affect the voting and other rights of the holders of our common stock.
Share Price & Shareholder Rights - Risk 16
We have additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock.Our Certificate of Incorporation authorizes the issuance of 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. The common stock and preferred stock, as well as the awards available for issuance under our 2017 equity incentive plan, can be issued by our board of directors, without stockholder approval. Any future issuances of such stock would further dilute the percentage ownership in us held by holders of our common stock and may be issued at prices below the initial price offering. In addition, the issuance of preferred stock may be used as an "anti-takeover" device without further action on the part of our stockholders, and may adversely affect the holders of the common stock.
Share Price & Shareholder Rights - Risk 17
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our common stock.Our shares of common stock are listed for trading on The Nasdaq Capital Market ("Nasdaq") under the symbol "ADIL." If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market such as the corporate governance requirements, the stockholder's equity requirement or the minimum closing bid price requirement, The Nasdaq Capital Market may take steps to de-list our common stock or warrants.
On March 5, 2025, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (the "Staff") notifying us that for the preceding 30 consecutive business days (January 17, 2025 through March 4, 2025), our common stock did not maintain the a minimum closing bid price of $1.00 per share as required by Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). The notice had no immediate effect on the listing or trading of our common stock and the common stock continued to trade on The Nasdaq Capital Market under the symbol "ADIL." In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had a compliance period of 180 calendar days, or until September 1, 2025, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance could be achieved without further action if the closing bid price of our common stock were at or above $1.00 for a minimum of ten consecutive business days (or longer at the discretion of Nasdaq) at any time during the 180-day compliance period, in which case Nasdaq would notify us if it determines it is in compliance and the matter will be closed; however Nasdaq could require the closing bid price to equal or to exceed the Minimum Bid Price Requirement for more than 10 consecutive business days before determining that a company complies. The letter further stated that if, however, we did not achieve compliance with the Minimum Bid Price Requirement by September 1, 2025, we may be eligible for additional time to comply.
On May 23, 2025, we received a letter from The Nasdaq Stock Market stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1) ( "Rule 5550(b)(1)") because our stockholders' equity of $2,126,662 as of March 31, 2025, as reported in our Quarterly Report on Form 10-Q filed with the SEC on May 14, 2025, was below the minimum requirement of $2,500,000. The letter also stated that we were not in compliance with Nasdaq Listing Rule 5550(b)(2) and Rule 5550(b)(3), the alternative quantitative standards for continued listing on the Nasdaq Capital Market, because we did not have a market value of listed securities of $35 million, or net income from continued operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal year.
On July 10, 2025, we filed a Current Report on Form 8-K with the SEC that stated that as of the date of such Form 8-K, we believed that we had regained compliance with the Nasdaq stockholders' equity requirements as a result of the closing of the June 2025 Offering and the related issuance of securities in such offering. On July 14, 2025, Nasdaq issued us a conditional compliance with Rule 5550(b)(1).
As reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, at September 30, 2025, our stockholders' equity of $4.5 million was above the Nasdaq minimum requirement of $2.5 million.
On September 2, 2025, we received a letter (the "September 2025 Nasdaq Letter") from Nasdaq stating that we are eligible for an additional 180 calendar days, or until March 2, 2026 (the "Extended Compliance Deadline"), to regain compliance with the Minimum Bid Price Requirement, following the expiration of the initial 180 calendar day period granted to the Company by Nasdaq to regain compliance by September 1, 2025 (the "Initial Compliance Date"). Nasdaq initially notified us of (i) our failure to meet the Minimum Bid Price Requirement and (ii) the Initial Compliance Date in a letter sent by Nasdaq and addressed to us, dated March 5, 2025, as discussed above.
On February 5, 2026, we effected the 1-for-25 Reverse Stock Split. On February 23, 2026, we received a letter from Nasdaq stating that the closing bid price of our common stock was at $1.00 or greater for the last 10 consecutive business days. Accordingly, we regained compliance with the Minimum Bid Price Requirement and the matter was closed.
If our common stock should again fall below $1.00 for 30 consecutive trading days, we will be limited in the action we can take to regain compliance with the Nasdaq rules. Listing Rule 5810(c)(3)(A)(iv) states that any listed company that fails to meet the Minimum Bid Price Requirement and has effected a reverse stock split over the prior one-year period, or has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one, will not be eligible for an automatic 180-day grace compliance period and the Nasdaq Listing Qualifications Department is obligated to immediately issue a delisting determination. Therefore, if we were to fall out of compliance with the Minimum Bid Price Requirement prior to February 5, 2027, we would not be able to effect a reverse stock split and would immediately be issued a delisting determination. Further, the Nasdaq rule provides that a company will not be considered to have regained compliance with the Minimum Bid Price Requirement if the company takes an action to achieve compliance (such as a reverse split) and that action results in the Company's security falling below the numeric threshold for another listing requirement.
The Nasdaq has recently proposed a new rule change to (i) adopt Listing Rules 5450(a)(3) and 5550(a)(6) to require issuers listed on the Nasdaq Global and Capital Markets, respectively, to maintain a minimum Market Value of Listed Securities (as defined in Nasdaq Listing Rule 5005(a)(23)) of at least $5 million for a period of thirty (30) consecutive business days, and (ii) amend Rule5810 to suspend trading and immediately delist from Nasdaq securities of issuers that do not satisfy the proposed new requirements, and Rule 5815 to set forth the procedures for requesting a hearing before a Hearings Panel and the scope of the Panel's discretion (collectively, the "Proposed $5 Million MVLS Rule"). As of the date of the filing of this Annual Report the market value of our listed securities is less than $5 million.
In the event of a de-listing, we would take actions to restore our compliance with The Nasdaq Capital Market's listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below The Nasdaq Capital Market, minimum bid price requirement or prevent future non-compliance with The Nasdaq Capital Market's listing requirements.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as "covered securities." Because our common stock is listed on The Nasdaq Capital Market, our common stock is covered securities. Although the states are preempted from regulating the sale of covered securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were to be delisted from The Nasdaq Capital Market, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which we offer our securities.
Accounting & Financial Operations4 | 5.0%
Accounting & Financial Operations - Risk 1
We have never paid dividends and have no plans to pay dividends in the future.Accounting & Financial Operations - Risk 2
We have identified a material weakness in our internal controls, and we cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur in the futureChanged
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act. During the preparation of our financial statements for the second quarter of 2026, management identified a material weakness in internal control over financial reporting related to the accounting and financial reporting of the non-routine, complex transactions associated with the Transaction. While we plan to take remedial action to address the material weakness, we cannot provide any assurance that such remedial measures, or any other remedial measures we take, will be effective. If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report our financial results, detect or prevent fraud, or file our periodic reports in a timely manner, which may, among other adverse consequences, cause investors to lose confidence in our reported financial information and lead to a decline in our stock price. In addition, a material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Although management believes that the material weakness will be remediated in the near future there can be no assurance that the deficiencies will be remediated at such time or that the internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
Accounting & Financial Operations - Risk 3
We have incurred losses from our operations every year and quarter since our inception and anticipate that we will continue to incur losses from our operations in the future.Changed
We are a clinical stage biotechnology pharmaceutical company that is focused on developing treatments for serious inflammatory diseases, and the development of therapeutics for the treatment or prevention of addiction related disorders. We have a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. To date, we have not generated positive cash flow from operations, revenues, or profitable operations, nor do we expect to in the foreseeable future. As of June 30, 2026, we had an accumulated deficit of approximately $144.0 million and during the three months ended June 30, 2026, we incurred a net loss of $52.0 million.
Our current cash and cash equivalents are not expected to be sufficient to fund operations for the twelve months from the date of filing this Quarterly Report on Form 10-Q and are only anticipated to be sufficient to fund our needs into the second half of 2027, based our current projections and current commitments. Implementation of our full development plans would exhaust our cash on hand more quickly. Therefore, despite the funding we have recently received, we will need to engage in additional fundraising in the near term as we carry out our development plans. We do not have any fixed commitments of financing and there can be no assurance that we will be able to meet the conditions for continued sales pursuant to the AGP ATM. In addition, there is no assurance that funds could be raised before we have expended our current cash on hand on acceptable terms to continue our operations and AT177 or AD04 development projects. We are actively pursuing financing, but can provide no assurances that such financing will be available on acceptable terms, or at all.
We expect our research and development expenses to increase as we continue our clinical development program in the US. Even if we succeed in commercializing our product candidate or any future product candidates, we expect that the commercialization of our product will not begin until 2028 or later, we will continue to incur substantial research and development and other expenditures, including potentially developing additional product candidates and will continue to incur substantial losses and negative operating cash flow. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.
Accounting & Financial Operations - Risk 4
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern on Form 10-K as do our notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.Changed
Our consolidated unaudited financial statements as of June 30, 2026 have been prepared assuming we will continue as a going concern. During the three months ended June 30, 2026, we incurred a net loss of $52.0 million and used $8.0 million of cash in operations. During the year ended December 31, 2025, we incurred a net loss of $8.0 million and used cash in operations of $6.5 million. Losses have principally occurred as a result of the research and development efforts coupled with no operating revenue. The notes to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q state that we do not believe that the existing cash and cash equivalents are sufficient to fund operations for the next twelve months following the filing of this Quarterly Report on Form 10-Q and our significant accumulated deficit, recurring losses, and needs to raise additional funds to sustain its operations raise substantial doubt about our ability to continue as a going concern. In addition, the report of our independent registered public accounting firm included in the 2025 Form 10-K contains an explanatory paragraph that our accumulated deficit, incurred recurring losses and need to raise additional funds to sustain our operations has raised substantial doubt about our ability to continue as a going concern. During 2026, the Company received net proceeds of approximately $27.6 million from equity issuances. However, the Company will require additional capital to continue operations and development of AT177 and AD04.
Even if we succeed in commercializing our product candidate or any future product candidates, we expect that the commercialization of our product will not begin until 2028 or later, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates and will continue to incur substantial losses and negative operating cash flow.
Debt & Financing2 | 2.5%
Debt & Financing - Risk 1
We will require substantial additional capital to fund the clinical development of AT177, and our failure to obtain sufficient funding on acceptable terms could force us to delay, reduce or eliminate our development programs.Added
Debt & Financing - Risk 2
We will need to secure additional financing in order to support our operations and fund our current and future clinical trials. We can provide no assurances that any additional sources of financing will be available to us on favorable terms, if at all. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative, selling and marketing and research and development activities are forward-looking statements and involve risks and uncertainties.If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete planned product development activities or obtain approval of our product candidate from the FDA and other regulatory authorities. We do not have any committed sources of capital. Moreover, if our future trial activities are significantly delayed due to pandemics or unrest, our project cost and operating overhead costs may significantly increase. In such case, we would need to obtain additional funding, either through other grants or through potentially dilutive means. In any case, we will need to raise additional capital to complete our development program and to meet our long-term business objectives.
Our cash and cash equivalents at the date of filing this Annual Report on Form 10-K are not expected to be sufficient to fund our operations for the next twelve months. Given current expectations, we will require additional financing as we continue to execute our business strategy. Though we have recently received total net proceeds of approximately $8.5 million from equity sales and warrant exercise fees, we have determined to use these additional funds to accelerate our development of AD04. Moreover, we will require additional funds in order to continue operations and for additional clinical trials of AD04, if needed, as well as any additional clinical trials or other development of any products we may acquire or license. Our liquidity may be negatively impacted as a result of a research and development cost increases in addition to general economic and industry factors. We anticipate that, to the extent that we require additional liquidity, it will be funded through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. In addition, we may raise additional funds to finance future cash needs through grant funding and/or corporate collaboration and licensing arrangements. There can be no assurance that the new administration in the United States will devote significant funds to grants or that any grant money will be available to us. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. We are in discussions with potential partners that could fund a Phase 3 clinical program and/or commercialization of AD04 and have entered into a collaboration framework agreement for commercialization of ADO4 in Europe, assuming a successful regulatory outcome; however, there can be no assurance that we will be successful in entering into a definitive agreement with Molteni or attracting other partners. If we raise additional funds through collaboration and licensing arrangements with third parties or third parties obtain commercialization rights, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Even if we enter into a definitive agreement with Molteni or any other partner or collaborator, there can be no assurance that we will receive any royalty or milestone payments from our potential collaboration with Molteni or any other partner or collaborator. The covenants under future credit facilities may limit our ability to obtain additional debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.
Additional financing, which is not in place at this time, may be from the sale of equity or convertible or other debt securities in a public or private offering, from a credit facility or strategic partnership coupled with an investment in us or a combination of both. Our ability to raise capital through the sale of equity may be limited by the various rules of the SEC and The Nasdaq Capital Market (the "Nasdaq"), which place limits on the number of shares of stock that may be sold. Equity issuances would have a dilutive effect on our stockholders. We may be unable to raise sufficient additional financing on terms that are acceptable to us, if at all. Our failure to raise additional capital and in sufficient amounts may significantly impact our ability to expand our business. For further discussion of our liquidity requirements as they relate to our long-term plans, see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."
Corporate Activity and Growth6 | 7.5%
Corporate Activity and Growth - Risk 1
We have had limited operations to date and there can be no assurance that we will be able to execute on our business strategy.Corporate Activity and Growth - Risk 2
We may fail to realize the anticipated benefits of the Merger.Added
The Company believes that there are significant benefits that may be realized by the Merger. However, the efforts to realize these benefits will be a complex process and may disrupt our existing operations if not implemented in a timely and efficient manner. The full benefits of the Merger may not be realized as expected or may not be achieved within the anticipated time frame, or at all. Failure to achieve the anticipated benefits of the Merger could adversely affect our business, operating results or financial condition and cause the combined business to not perform as expected.
Specifically, the following issues, among others, must be addressed to realize the anticipated benefits of the Merger:
- combining certain of the companies' financial, reporting and corporate functions;- expanding our number of employees primarily those involved in research and development;- consolidating the companies' administrative and information technology infrastructure;- implementing and maintaining requisite internal controls over financial reporting and disclosure controls and procedures; and - maintaining continued compliance with the Nasdaq Listing Rules, including compliance with Nasdaq corporate governance requirements.
Corporate Activity and Growth - Risk 3
Substantially all of the value of the assets acquired in the Merger is concentrated in Azora's colon-targeted AhR program. If this program fails, we may not be able to recover the value attributed to Azora in the Merger.Added
We have determined that substantially all (greater than 90%) of the fair value of the assets acquired in the Merger is concentrated in a single asset - Azora's colon-targeted AhR program. Accordingly, the Merger was treated as an asset acquisition for accounting purposes. Because the acquired value is concentrated in a single program, any failure or material setback in the development of AT177 or other product candidates arising from the AhR program would disproportionately impact the combined company and could result in a significant loss of the value attributed to Azora in the Merger. Unlike a diversified pharmaceutical company with multiple product candidates across various stages of development, our post- Acquisition business is substantially dependent on the success of this single program.
Corporate Activity and Growth - Risk 4
We may not successfully effect our intended expansion.Our success will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and on our administrative, operational and financial resources. To manage this growth, we must expand our facilities, augment our operational, financial and management systems and hire additional qualified personnel. As our clinical, regulatory, and business planning is finalized, we may need to hire additional qualified personnel with expertise in clinical research, government regulation, formulation and manufacturing, sales and marketing and accounting and financing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success. If we are unable to manage our growth effectively, our business would be harmed.
Corporate Activity and Growth - Risk 5
No assurance can be given that a definitive agreement to implement the terms set forth in the collaboration framework agreement will be executed with Molteni.The collaboration framework agreement that we entered into with Molteni is subject to execution of a definitive agreement and Molteni has no obligation to enter into such definitive agreement to establish the proposed partnership with us. Even if such a definitive agreement is entered into, there can be no assurance given that ADO4 will successfully progress through clinical development and commercialization in Europe, that Molteni will be able to successfully commercialize ADO4 in Europe or that we will receive any royalties or milestone payments as a result of the proposed partnership. If we enter into the definitive agreement with Molteni, we will be solely dependent upon Molteni to commercialize ADO4 in Europe.
Corporate Activity and Growth - Risk 6
We may not be successful in establishing and maintaining strategic partnerships or collaborations, which could adversely affect our ability to develop and commercialize products.We have recently entered into a strategic collaboration framework agreement for a proposed partnership to commercialize ADO4 in Europe and may seek to enter into strategic partnerships in the future, including alliances with other biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization of our products, such as a third party drug development company. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex and can be costly. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy or return on investment. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing.
If we ultimately determine that entering into strategic partnerships is in our best interest but either fail to enter into, are delayed in entering into or fail to maintain such strategic partnerships:
- the development of our current product candidate or certain future product candidates may be terminated or delayed;- our planned clinical trials may be restructured or terminated;- our cash expenditures related to development of our current product candidate or certain future product candidates may increase significantly and we may need to seek additional financing;- we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted;- we will bear all of the risk related to the development of any such product candidates; and - the competitiveness of any product candidate that is commercialized could be reduced.
Our ability to reach a definitive agreement for a collaboration with any strategic partner will depend generally, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator's evaluation of our technologies, product candidates, and market opportunities. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and could determine that such other collaboration is more attractive than a collaboration with us for our product candidate. Similar risks exist with respect to any joint ventures we may pursue, as well as risks and uncertainties related to the costs, time, and other resources required to manage and gain the benefit of any such joint venture, and any potential liabilities we may incur in connection with a joint venture.
Tech & Innovation
Total Risks: 20/80 (25%)Below Sector Average
Innovation / R&D9 | 11.3%
Innovation / R&D - Risk 1
AD04 and any future product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.Innovation / R&D - Risk 2
Clinical trials are very expensive, time-consuming and difficult to design and implement.As part of the regulatory process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy to the satisfaction of the FDA and other regulatory authorities. As we advance AD04 or any future product candidates we expect that our expenses will increase when we commence the two planned Phase 3 clinical trials of AD04 for the treatment of AUD. Given the recent shift in the FDA's evidentiary posture to potentially provide approval based on one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04, which would significantly decrease the additional expenses that we would incur in connection with such clinical trials. The number and design of the clinical trials that will be required varies depending upon product candidate, the condition being evaluated, current medical strategies and the trial results themselves. Therefore, it is difficult to accurately estimate the cost of the clinical trials. Clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time consuming. We estimate that clinical trials of product candidates including AD04, will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed or prevented by several factors, including:
- unforeseen safety issues;- failure to determine appropriate dosing;- greater than anticipated cost of our clinical trials;- failure to demonstrate effectiveness during clinical trials;- slower than expected rates of subject recruitment or difficulty obtaining investigators;- subject drop-out or discontinuation;- inability to monitor subjects adequately during or after treatment;- third party contractors, including, without limitation, CRO's and manufacturers, failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;- reaching agreements with prospective CROs, and trial sites, both of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;- insufficient or inadequate supply or quality of product candidates or other necessary materials to conduct our trials;- potential additional safety monitoring, or other conditions required by FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials, or other studies requested by regulatory agencies;- problems engaging Institutional Review Boards ("IRBs"), to oversee trials or in obtaining and maintaining IRB approval of studies;- imposition of clinical hold or suspension of our clinical trials by regulatory authorities; and - inability or unwillingness of medical investigators to follow our clinical protocols.
In addition, we or the FDA may suspend or terminate our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our Investigational New Drug, or IND, submissions or the conduct of these trials. Therefore, we cannot predict with any certainty when, if ever, future clinical trials will commence or be completed.
Innovation / R&D - Risk 3
Our clinical trials may fail to demonstrate adequately the safety and efficacy of AD04 or any future product candidates, which would likely prevent or delay regulatory approval and commercialization.Before obtaining regulatory approvals for the commercial sale of AD04 or any future product candidates, including AD04, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early and even later stage clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Results from subsequent clinical trials may not be the same as the results from the Phase 2b clinical trial that was conducted by the University of Virginia or the results of our Phase 3 trial. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. We can make no assurances that, should our future Phase 3 studies provide statistically significant and clinical meaningful results evidencing that treatment with AD04 results in reduced days of heavy drinking or abstinence, these same results will also provide evidence of greater patient efficacy rates and or patient benefit ratios vis-à-vis currently marketed drug treatments. Most product candidates that commence clinical trials are never approved as products.
In addition, even if the trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of product candidates.
Innovation / R&D - Risk 4
Our product candidate will require extensive clinical and other testing.Our product candidate will require extensive clinical and other testing. Although our product candidate has completed a 283-patient Phase 2 clinical trial and has also completed an initial 302-patient Phase 3 clinical trial, we anticipate completing two additional Phase 3 clinical trials in order to obtain regulatory approval and therefore cannot predict with any certainty if or when we might submit an application for regulatory approval for any of our product candidates or whether any such application will be accepted for review by the FDA or other global regulators, or whether any application will be approved upon review. Given the recent shift in the FDA's evidentiary posture to potentially provide approval based on one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support our proposed indications. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. Results from earlier clinical trials may not be repeated in later clinical trials. The clinical trial process may fail to demonstrate that our product candidate is safe and effective for their proposed uses. This failure could cause us to abandon our product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay and possibly preclude the filing of any NDAs with the FDA or other global regulators and, ultimately, our ability to commercialize our product candidate and generate product revenues.
Innovation / R&D - Risk 5
Our investigational product, AD04, is dependent on a successful development, approval, and commercialization of a genetic test, which is expected to be classified as a companion diagnostic.Treatment with AD04 will be dependent on identification of patients with a genetic test (i.e., a companion diagnostic). Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA and, as such, require either clearance or approval prior to commercialization. While the technology for the test we plan to use is well established, it cannot be certain the testing laboratory we set up will be able to conduct the test with the selectivity and sensitivity that will be required or that the genetic test will be approved by FDA for such use, which could increase the time and cost to develop AD04 and possibly prevent marketing approval. While we have been party to a joint meeting with the Center for Drug Evaluation and Research ("CDER", the FDA division responsible for drug approvals) and the CDRH, the FDA division responsible for device approvals, including genetic tests) at which agreement was reached as to the development path for the genetic test, neither CDER nor CDRH is bound to accept our planned submission package even if the data is positive. We expect to need approval of a PMA or a 510(k) from CDRH for the companion diagnostics to be used with the drug product. We have collected and are storing additional blood samples from all patients enrolled in the ONWARD Phase 3 trial, and plan to do so for any future trials that may be conducted, in the event of any difficulties, however, we cannot be certain we can overcome all of the technological, logistical or regulatory hurdles related to the genetic testing, which include, without limitation, technical validation of the test (e.g. specificity, sensitivity, reproducibility, robustness of methods), clinical validation acceptable to CDER and CDRH, all of which are needed for approval of AD04 and its companion diagnostic genetic test. Failure in any of these areas could delay approval of AD04, increase the cost necessary to achieve approval of AD04 or prevent approval of AD04.
If we obtain approval of AD04 and its genetic test, we currently plan to distribute the genetic test through an approved third party clinical testing lab partner in order to achieve wider availability of the genetic test to drive market uptake of AD04. However, we cannot be sure that third party testing companies will be willing to provide the test, that reimbursement for the test will be available to make such business profitable, or that taking a genetic test will be acceptable to patients or physicians.
In November 2025, the FDA published a CDx reclassification order proposing that nucleic-acid based test systems, e.g. PCR and NGS tests should be reclassified to Class II (rather than Class III) and these tests can leverage a 510(k) regulatory pathway (less burdensome regulatory pathway than a DeNovo or PMA). The FDA has requested comments on these reclassification orders. While these orders, if approved, could streamline the regulatory burden and impact on the genetic test development, there are no guarantees that these orders will be approved or even approved as proposed and could change in the future.
Innovation / R&D - Risk 6
The current data for our lead product candidate, AD04 are the result of Phase 2 clinical trials conducted by third parties as well as data generated from the ONWARD trial we conducted and do not currently provide sufficient evidence that our products are viable as potential pharmaceutical products.Through our proprietary access to relevant laboratory and clinical trial results of the University of Virginia's research program, and through our reliance on publicly available third-party research, we possess toxicology, pharmacokinetic, and other preclinical data and clinical data on AD04. As of now, AD04 has completed only Phase 2 clinical trials and one Phase 3 trial. There is no guarantee that Phase 2 results can or will be replicated by additional pivotal Phase 3 studies.
To date, long-term safety and efficacy have not yet been demonstrated in clinical trials for our investigational product candidate. Favorable results in early studies or trials may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned, we cannot be certain that the results will support our product candidate claims. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. We cannot be sure that the results of later clinical trials would replicate the results of prior clinical trials and preclinical testing, nor that they would satisfy the requirements of the FDA or other regulatory agencies. Clinical trials may fail to demonstrate that our product candidate is safe for humans and effective for indicated uses. Preclinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining FDA or other global regulatory approval for the affected product candidate and, ultimately, our ability to commercialize that product candidate.
On July 20, 2022, we announced the results from the ONWARD™ Phase 3 trial. Although the trial missed the primary endpoint, it did show statistical significance in a pre-defined patient group. AD04 patients, compared with placebo patients, achieved a statistically significant reduction from baseline at month six in percentage of heavy drinking days (PHDD) for the pre-specified patient group of heavy drinkers. across all genotypes combined (avg. <10 drinks per drinking day at baseline; p=0.03), which accounted for approximately two-thirds of the trial population. A similar trend was seen in the combined month five and six analysis in the reduction from baseline (p =0.07). Notably, in the last month of the trial, AD04 heavy drinking patients had a mean reduction of approximately 79% in heavy drinking compared with baseline.
Compared with placebo patients, AD04 patients in the heavy drinking group had an overall significant difference in the severity of their AUD diagnosis (p=0.04) under the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5). For the group of those who no longer meet AUD criteria (<2 symptoms), the comparisons were 27.4% vs. 14.9% (i.e., an 84% decrease), of AD04 and placebo patients, respectively. These data underscore the clinical relevance of the findings that heavy drinking AUD patients that receive AD04 appear more likely to recover from the disease by the end of the treatment regimen.
Additionally, and consistent with the Phase 2b trial, AD04 had a safety and tolerability profile that was similar to placebo. No side effects or severe adverse events (SAEs) were determined to be related to AD04 treatment. In fact, more SAEs were reported in the placebo group compared with the AD04 group (7 on placebo vs. 3 on AD04). There were two cardiac events in placebo group and none in the AD04 group. Comparing overall Adverse Events (AEs), the profiles between AD04 and placebo were similar. AEs reported with a frequency of 5% or more of patients in either group were: headache (11% on placebo, 12% on AD04), insomnia (3% on placebo, 7% on AD04), blood magnesium decreased (5% on placebo, 6% on AD04), and fatigue (3% on placebo, 6% on AD04). All of the AE's were reported as mild to moderate. Importantly, in the overall category of cardiac disorders, patients on placebo showed a greater number of adverse events compared to AD04 (7% on placebo, 4% on AD04), in addition to greater number of cardiac SAEs in the placebo group as reported above.
As a result of the above clinical trials, Adial will have to conduct additional clinical trials to meet US and global regulatory requirements for approval, and no assurance can be given that the results of any additional trials will provide support for commercialization of AD04.
Innovation / R&D - Risk 7
Our business is dependent upon the success of our lead product candidate, AD04, which requires significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales.Our business and future success depends upon our ability to obtain regulatory approval of and then successfully commercialize our lead investigational product candidate, AD04 and other product candidates. AD04 is in clinical stage development. AD04 currently, as well as any potential future product candidates, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. To date, our main focus and the investment of a significant portion of our efforts and financial resources has been in the development of our lead investigational product candidate, AD04, for which we recently completed the ONWARD Phase 3 clinical trial with 302 patients in Scandinavia and Central and Eastern Europe, which targets the reduction of risk drinking (heavy drinking of alcohol) in subjects that possess selected genetics of the serotonin transporter and/or 5-HT3 receptor gene. We currently plan to conduct two additional Phase 3 clinical trials, as historically expected by FDA, as well as one or more supportive clinical studies to gain approval in either the U.S. or outside the US for AUD and additional development activity, including, without limitation, clinical trials, in order to seek approval for the use of AD04 to treat any other indications (e.g., such as opioid use disorder, gambling addiction, smoking cessation, and other drug addictions). In a recent article, published on February 19, 2026 in The New England Journal of Medicine, the FDA leadership has outlined a shift in the agency's default evidentiary posture under which, where scientifically appropriate, approval may be supported by one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials. Hence, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04. Even though we are pursuing a registration pathway based on specific FDA input and guidance and the EMA precedents and guidance, there are many uncertainties known and unknown that may affect the outcome of the trial. These include adequate patient enrollment, adequate supply of our product candidate, potential changes in the regulatory landscape, and the results of the trial being successful. In addition, because AD04 is our most advanced product candidate and there is limited history information on long-term effects of our proposed dosage, there is always a chance of developmental delays or regulatory issues or other problems arising, with our development plans and depending on their magnitude, our business could be significantly harmed. In any case, the costs associated with completion of any additional Phase 3 trials, commercialization of AD04, and the costs of developing AD04 for use in other indications are significant and will require obtaining funding, possibly through equity sales, before AD04 generates revenue.
Our future success depends heavily on our ability to successfully manufacture, develop, obtain regulatory approval, and commercialize AD04, which may never occur. We currently generate no revenues from our product candidate, and we may never be able to develop or commercialize a marketable drug.
Innovation / R&D - Risk 8
We may encounter difficulties in managing the integration of Azora's research and development operations and in scaling our organization to support clinical-stage development activities.Added
Following the Merger, we must integrate the research and development operations of Azora and significantly expand its organizational capabilities to support clinical-stage development activities, including, among other things, combining financial, reporting and corporate functions, expanding the number of employees primarily involved in research and development, consolidating administrative and information technology infrastructure, and implementing and maintaining requisite internal controls over financial reporting and disclosure controls and procedures. Prior to the Merger our development activities were focused on its legacy AD04 program, which is at a different stage and involves a different therapeutic area than Azora's AhR program. The need to pivot our operational focus, combined with the challenges inherent in integrating a newly acquired pre-clinical program, may divert management attention from clinical development activities and increase operating costs. Any failure to successfully manage this transition could delay the development timeline for AT177 and adversely affect our business, financial condition and results of operations.
Innovation / R&D - Risk 9
Azora is a pre-clinical stage company with a limited operating history and its lead product candidate, AT177, has not yet been tested in human clinical trials. There is no assurance that AT177 will successfully advance through clinical development or receive regulatory approval.Added
Azora was founded in 2019 and is a pre-clinical stage biopharmaceutical company. Azora's lead product candidate, AT177, a colon-targeted AhR agonist being developed for the treatment of ulcerative colitis, has not yet been tested in human clinical trials. We expect to file an IND for AT177 and initiate a Phase 1a SAD/MAD study in the first half of 2027, with a proof-of-concept readout in UC patients expected in the first half of 2028. There can be no assurance that the IND will be accepted by the FDA or that AT177 will demonstrate safety or efficacy in clinical trials. Drug development is inherently uncertain, and pre-clinical results may not be predictive of clinical outcomes. Even if clinical trials are initiated, there is a significant risk that AT177 could fail at any stage due to safety concerns, lack of efficacy, manufacturing difficulties or other factors, which would have a material adverse effect on our business, financial condition and results of operations.
Trade Secrets7 | 8.8%
Trade Secrets - Risk 1
Our intellectual property protection for the AhR program may be insufficient to protect our competitive position, and we may be unable to prevent third parties from using our technology or developing competing products.Added
Trade Secrets - Risk 2
We rely on a license to use various technologies that are material to our business and if the agreement were to be terminated or if other rights that may be necessary or we deem advisable for commercializing our intended products cannot be obtained, it would halt our ability to market our products and technology, as well as have an immediate material adverse effect on our business, operating results and financial condition.Our prospects are significantly dependent upon the UVA LVG License. The UVA LVG License grants us exclusive, worldwide rights to certain existing patents and related intellectual property that covers AD04, currently our only product candidate. If we breach the terms of the UVA LVG License, including any failure to make minimum royalty payments required thereunder or failure to reach certain developmental milestones and completion of deadlines, including, submitting an NDA by March 31, 2028 and commencing commercialization of an FDA approved product by March 31, 2029, or other factors, including but not limited to, the failure to comply with material terms of the Agreement, the licensor has the right to terminate the license. As a result of our ongoing business and clinical development planning for AD04, we are approaching UVA LVG to extend the milestones referenced in our license agreement with UVA. If we were to lose or otherwise be unable to maintain this license on acceptable terms, or find that it is necessary or appropriate to secure new licenses from other third parties, we would not be able to market our products and technology, which would likely require us to cease our current operations which would have an immediate material adverse effect on our business, operating results and financial condition.
Trade Secrets - Risk 3
Patents are subject to changing legal interpretation by the USPTO and the Courts.If the U.S. Supreme Court, other federal courts, or the USPTO were to change the standards of patentability such changes could have a negative impact on our business. Court cases have made it more difficult to protect certain types of inventions. For instance, on October 30, 2008, the Court of Appeals for the Federal Circuit issued a decision that methods or processes cannot be patented unless they are tied to a machine or involve a physical transformation. On March 20, 2012, in the case Mayo v. Prometheus, the U.S. Supreme Court invalidated a patent focused on a diagnostic process because the patent claim embodied a law of nature. On July 3, 2012, the USPTO issued its Interim Guidelines for Subject Matter Eligibility Analysis of Process Claims Involving Laws of Nature in view of the Prometheus decision. Some aspects of our technology involve processes that may be subject to this evolving standard and we cannot guarantee that any of our pending process claims will be patentable as a result of such evolving standards.
Trade Secrets - Risk 4
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
Trade Secrets - Risk 5
We may be involved in lawsuits to protect or enforce the patents of our licensors, which could be expensive, time-consuming and unsuccessful.Competitors may infringe the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our licensed patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our licensed patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our licensed patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our licensed patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.
Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to some of our licensed patents or patent applications subject to pre-AIA or those of our licensors. An unfavorable outcome could result in a loss of our current licensed patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or interference proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.
A derivation proceeding is a trial proceeding conducted at the Patent Trial and Appeal Board to determine whether (i) an inventor named in an earlier application derived the claimed invention from an inventor named in the petitioner's application; and (ii) the earlier application claiming such invention was filed without authorization. An applicant subject to the first-inventor-to-file provisions may file a petition to institute a derivation proceeding only within one year of the first publication of a claim to an invention that is the same or substantially the same as the earlier application's claim to the invention. The petition must be supported by substantial evidence that the claimed invention was derived from an inventor named in the petitioner's application. Derivation proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our shares of common stock.
Trade Secrets - Risk 6
The technology we license, our products or our development efforts may be found to infringe upon third-party intellectual property rights.Our commercial success depends in part on us avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference and reexamination proceedings before the USPTO, or oppositions and other comparable proceedings in other jurisdictions. Recently, under the American Invents Act ("AIA"), new procedures including inter parties review and post grant review have been implemented. These procedures are relatively new and the manner in which they are being implemented continues to evolve, which brings additional uncertainty to our licensed patents and pending applications. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.
Third parties may, in the future, assert claims or initiate litigation related to their patent, copyright, trademark and other intellectual property rights in technology that is important to us. The asserted claims and/or litigation could include claims against us, our licensors or our suppliers alleging infringement of intellectual property rights with respect to our products or components of those products. Regardless of the merit of the claims, they could be time consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. We have not undertaken an exhaustive search to discover any third party intellectual patent rights which might be infringed by commercialization of the product candidates described herein. Although we are not currently aware of any such third party intellectual patent rights, it is possible that such rights currently exist or might be obtained in the future. In the event that a third party controls such rights and we are unable to obtain a license to such rights on commercially reasonable terms, we may not be able to sell or continue to develop our products, and may be liable for damages for such infringement. We cannot assure you that licenses will be available on acceptable terms, if at all. Furthermore, because of the potential for significant damage awards, which are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results and financial condition could be materially adversely affected.
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to:
- obtain licenses, which may not be available on commercially reasonable terms, if at all;- abandon an infringing drug or therapy candidate;- redesign our products or processes to avoid infringement;- stop using the subject matter claimed in the patents held by others;- pay damages; or - defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize product candidates, which could harm our business significantly.
Trade Secrets - Risk 7
We have limited protection for our intellectual property. Our licensed patents and proprietary rights may not prevent us from infringing on the rights of others or prohibit potential competitors from commercializing products.We intend to rely on a combination of common law copyright, patent, trademark, and trade secret laws and measures to protect our proprietary information. We have licensed patents to protect certain of our proprietary intellectual property and have obtained exclusive rights to license certain of the technology for which patent protection has been obtained; however, such protection does not prevent unauthorized use of such technology. Our licensed patent estate is expected to provide us with patent protection through 2031. Additionally, we have filed a new patent in 2025, which was recently published, and if granted, would extend the patent protection of AD04 to 2045. This patent is owned by Adial and not part of the licensed families. Trademark and copyright protections may be limited, and enforcement could be too costly to be effective. It may also be possible for unauthorized third parties to copy aspects of, or otherwise obtain and use, our proprietary information without authorization, including, but not limited to, product design, software, customer and prospective customer lists, trade secrets, copyrights, patents and other proprietary rights and materials. Other parties can use and register confusingly similar business, product and service names, as well as domain names, which could divert customers, resulting in a material adverse effect on our business, operating results and financial condition.
We have not conducted an exhaustive patent search and cannot assure you that patents do not exist or could not be filed that would negatively affect our ability to market our products or maintain our competitive position with respect to our products. Additionally, our licensed patents may not prevent others from developing competitive products using related technology. Furthermore, other companies that obtain patents claiming products or processes useful to us may bring infringement actions against us. As a result, we may be required to obtain licenses from others to develop, manufacture or market our products. We cannot assure you that we will be able to obtain any such licenses on commercially reasonable terms, if at all.
We also rely on trade secrets and proprietary know-how that we seek to protect, in part, by confidentiality agreements with our employees, consultants, suppliers, and licensees. We cannot give any assurance that these third parties will not breach these agreements, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently developed by competitors.
We cannot assure you that the U.S. Patent and Trademark Office ("USPTO") will approve pending patent applications for intellectual property for which we are currently the exclusive worldwide licensee, or that any patent issued to, or licensed by, us will provide protection that has commercial significance. In this regard, the patent position of pharmaceutical compounds and compositions is particularly uncertain. Even issued patents may later be modified or revoked by the USPTO in proceedings instituted by others or by us. In addition, we cannot assure you that our licensed patents will afford protection against competitors with similar compounds or technologies, that others will not obtain patents with claims similar to those covered by our licensed patents or applications, or that the patents of others will not adversely affect our ability to conduct our business.
Despite licensing patents issued in more than 40 jurisdictions around the world, continuing to achieve additional foreign patent issuances and maintaining and defending foreign patents may be more difficult than defending domestic patents because of differences in patent laws, and our licensed patent position therefore may be stronger in the United States than abroad. In addition, the protection provided by foreign patents, once they are obtained, may be weaker than that provided in the United States.
If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. Competitors may challenge the validity or scope of our licensed patents or future patents we may obtain or license. In addition, our licensed patents may not provide us with a meaningful competitive advantage. We may be required to spend significant resources to monitor and police our licensed intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share.
Cyber Security2 | 2.5%
Cyber Security - Risk 1
Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.Cyber Security - Risk 2
Any failure to maintain the security of information relating to our patients, customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and harm our reputation.Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In connection with the pre-clinical and clinical development, sales and marketing of our products and services, we may from time to time transmit confidential information. We also have access to, collect or maintain private or confidential information regarding our clinical trials and the patients enrolled therein, employees, and suppliers, as well as our business. Although we have instituted security measures, there can be no assurance that these security measures will be able to protect against cyberattacks. Cyberattacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information of patients in our clinical trials, vendors, employees and suppliers or our business information. A security breach of any kind, including physical or electronic break-ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations.
Technology2 | 2.5%
Technology - Risk 1
We rely extensively on our information technology systems, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks.Technology - Risk 2
Rapid technological change and substantial competition may impair the business.The pharmaceutical industry is subject to rapid and substantial technological change. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities, and others diversifying into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities, as well as substantially more marketing, financial, and managerial resources than we do, and represent significant competition. Acquisitions of, or investments in, competing biotechnology companies by large pharmaceutical companies could increase these competitors' financial, marketing, and other resources. We cannot assure you that developments by others will not render our products or technologies noncompetitive or that we will be able to keep pace with technological developments. Competitors have developed, or are in the process of developing, technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic endpoints than products we are currently developing. These competing products may be more effective and less costly than the products that we are developing. In addition, conventional behavioral therapies and other treatment approaches currently in use today may continue to be used instead of, rather than in conjunction with, our products.
Any product that we successfully develop, and for which we gain regulatory approval, must compete for market acceptance and market share. Accordingly, important competitive factors, in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing, and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, pricing, and patent protection. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and our business will suffer.
We will compete against fully integrated pharmaceutical companies such as Alkermes and Indivior and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have drugs already approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in:
- developing drugs, and other therapies;- undertaking preclinical testing and clinical trials;- obtaining FDA and other regulatory approvals of drugs, biologics and other therapies;- formulating and manufacturing drugs, biologics and other therapies; and - launching, marketing and selling drugs, and other therapies.
Legal & Regulatory
Total Risks: 13/80 (16%)Below Sector Average
Regulation8 | 10.0%
Regulation - Risk 1
If we experience delays in the enrollment of patients in our clinical trials our receipt of necessary regulatory approvals could be delayed or prevented.Regulation - Risk 2
Our use of the currently manufactured clinical trial material in the planned Phase 3 trial is dependent upon the review and approval of the relevant regulatory agencies and authorities.The Company has manufactured additional clinical trial material for use in the other studies that may be required by the FDA or EMA. No assurance can be given that the CMC plan developed by us will be satisfactory to the regulatory agencies or that the clinical trial material produced for use in clinical trials of AD04 will be approved for use in the trials, either of which could result in delay of the clinical trial program and a requirement for increased investment prior to commencement of clinical trials.
Regulation - Risk 3
We will incur additional costs and our approvals could be delayed if the FDA or other global regulators requires additional clinical trials in patients that are negative for the genotypes targeted by AD04. In addition, clinical trials conducted with only genotype positive subjects will likely result in labeling restricted to treating patients that are genotype positive.Although the FDA has indicated that it sees little evidence of positive effects for the use of AD04 in subjects that are negative for the genotypes targeted by AD04, the FDA has indicated that some research in this area may be required prior to approval of AD04 for AUD within the marker negative population. We believe data in genotype negative patients will be needed to satisfy FDA requirements, and necessary for approval of the genetic test with CDRH. Our current planning assumption is to conduct one Phase 3 trial with an adaptive enrichment trial design, one subsequent confirmatory Phase 3 trial and one open label extension safety study. These assumptions may change based on the recent shift in the FDA's evidentiary posture to potentially provide approval based on one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials ongoing discussions with regulatory authorities, and final trial designs and results. It is possible that we may conduct only one additional Phase 3 clinical trial of AD04. We expect the label for AD04 to be restricted. If the results of such studies are not positive for AD04, it may result in AD04 not being approved.
Under the Pediatric Research Equity Act ("PREA"), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. 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. Under PREA, an applicant may request and be granted a waiver based on meeting specific criteria as outlined in guidance published in February 2023.
Regulation - Risk 4
The FDA and/or other global regulators may not accept our planned Phase 3 endpoints for final approval of AD04 and may determine additional clinical trials are required for approval of AD04.The FDA has indicated to us at the July 2025 EOP2 meeting that a comparison of the percent of patients with no heavy drinking days in the last two months of a six month clinical trial between the drug and placebo groups will be a satisfactory endpoint for determination of a successful Phase 3 trial of AD04. In February 2025, the FDA Center for Drug Evaluation and Research (CDER) published a qualifying tool to support the development of treatments for alcohol use disorder. This new tool is based on a two-level reduction in risk drinking level of alcohol consumption and was validated as a clinically meaningful endpoint. The new endpoint provides an option for researchers and drug developers alongside abstinence and no heavy drinking days. With this qualification, investigators can now determine if their proposed treatment works as they expect based on whether it reduced risk drinking level (RDL). The new tool is alongside the draft guidance Alcoholism: Developing Drugs for Treatment Guidance for Industry dated February 2015 indicating this endpoint for the development of drugs for AUD. Similarly, the EMA has in the past accepted the co-primary endpoints of reduction from baseline in days of heavy drinking and reduction total grams of alcohol consumed per month and has published the Guideline on the development of medicinal products for the treatment of alcohol dependence, . Despite these developments we, however, can offer no assurance that the FDA or EMA will approve our primary endpoints, that we can achieve success at any endpoints they do approve, or that these potential benefits will subsequently be realized.
Regulation - Risk 5
Obtaining and maintaining regulatory approval of product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of product candidates in other jurisdictions.Obtaining and maintaining regulatory approval of product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, and a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials, as clinical studies conducted in one jurisdiction may not be accepted by or sufficient for regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our candidate products is also subject to approval. Additionally, some foreign jurisdictions require participation of subjects from their country in the Phase 3 trials in order to gain approval in their country.
We intend to also submit marketing applications in other jurisdictions, including European countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of AD04 or any future product candidates will be harmed.
Even if we receive regulatory approval of AD04 or any future product candidates, we will be subject to ongoing regulatory obligations, such as post market surveillance and current good manufacturing practice ("GMP") requirements, and continued regulatory review, which may result in significant additional expense. We may also be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with product candidates. In addition, third parties on whom we rely must comply with regulatory requirements, and any non-compliance on their part may negatively impact our business, assuming we obtain regulatory authorization at all.
Any regulatory approvals that we receive for product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy ("REMS") program in order to approve product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA could also require a boxed warning, sometimes referred to as a Black Box Warning on the product label to identify a particular safety risk, which could affect commercial efforts to promote and sell the product. In addition, if the FDA or a comparable foreign regulatory authority approves product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current GMPs and current good clinical practices ("GCPs") for any clinical trials that we conduct post-approval. We are also subject to certain user fees imposed by the regulatory agencies. Later discovery of previously unknown problems with product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
- restrictions on the marketing or manufacturing of product candidates, withdrawal of the product from the market, or product recalls;- fines, warning letters or holds on clinical trials;- refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of approvals;- product seizure or detention, or refusal to permit the import or export of product candidates; and - injunctions or the imposition of civil or criminal penalties.
The FDA's and other regulatory authorities' policies may change, such as those required by the 21st Century Cures Act, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of AD04 or any future product candidates. In addition, it is unclear what changes, if any, the new presidential administration may bring. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Regulation - Risk 6
If we do not obtain the necessary regulatory approvals in the United States and/or other countries, we will not be able to sell our product candidates.We cannot assure you that we will receive the approvals necessary to commercialize AD04 or any future product candidates we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the United States and approvals from the FDA-equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA, demonstrating that the product candidate is safe, pure and potent, and effective for its intended use. This demonstration requires significant research including preclinical studies, as well as clinical trials. We plan to conduct two additional Phase 3 clinical trials of AD04 for the treatment of AUD; however, given the recent shift in the FDA's evidentiary posture to potentially provide approval based on one adequate and well-controlled clinical trial plus confirmatory evidence, rather than the historic expectation of two independent clinical trials, it is possible that we may conduct only one additional Phase 3 clinical trial of AD04. Satisfaction of the FDA's regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our clinical trials will demonstrate the safety and efficacy of our product candidates or if the results of any clinical trials will be sufficient to advance to the next phase of development or for approval from the FDA. We also cannot predict whether our research and clinical approaches will result in drugs or therapeutics that the FDA considers safe and effective for the proposed indications. The FDA has substantial discretion in the approval process.
The approval process may be delayed by changes in government regulation, future legislation or administrative action, or changes in FDA policy that occur prior to or during our regulatory review. Factors that might lead to a suspension or termination of a clinical trial include, but are not limited to:
- failure to conduct the clinical trial in accordance with U.S., international and or local regulatory requirements;- failure of medical investigators to follow clinical trial protocols;- unforeseen safety issues; and/or - lack of adequate funding to continue any clinical trial.
Further, delays in obtaining regulatory approvals may:
- prevent or delay commercialization of, and our ability to derive product revenues from, product candidates; and - diminish any competitive advantages that we may otherwise believe that we hold.
Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our applications. We may never obtain regulatory clearance for any product candidates. Failure to obtain FDA approval of any of product candidates will severely undermine our business by leaving us without a saleable product, and therefore without any source of revenues, until another product candidate can be developed. There is no guarantee that we will ever be able to develop or acquire another product candidate.
In addition, the FDA may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies, as a condition to granting marketing approval of a product. Initial acceptance by the FDA of clinical trial protocols is subject to constant review and any process control failures could result in additional required testing. Regulatory approval of products often requires that subjects in clinical trials be followed for long periods to assess their overall survival. The results generated after approval could result in loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of a product. The FDA has significant post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved risk evaluation and mitigation strategies. The FDA's exercise of its authority has in some cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved products based on labeling or other requirements.
In foreign jurisdictions, we must also receive approval from the appropriate regulatory authorities, and pricing authorities, before we can commercialize any candidate products. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. There can be no assurance that we will receive the approvals necessary to commercialize our product candidate for sale outside the United States.
Changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols or our development plan to reflect these changes. Amendments may require resubmitting clinical trial protocols to FDA and institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate any clinical trials, the commercial prospects for product candidates may be harmed, and the ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of product candidates.
Regulation - Risk 7
Even if we are able to obtain regulatory approval for our product candidate or any product candidates we develop or acquire, we will continue to be subject to ongoing and extensive regulatory requirements, and our failure, or the failure of our contract manufacturers, to comply with these requirements could substantially harm our business.If the FDA approves our product candidate or any product candidates we develop or acquire, the labeling, manufacturing, packaging, adverse events reporting, storage, advertising, promotion and record-keeping for our products will be subject to ongoing FDA requirements and continued regulatory oversight and review. We may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market product candidates and/or may be subject to product recalls or seizures. The subsequent discovery of previously unknown problems with any marketed product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market.
Regulation - Risk 8
Failure to obtain approval of the Nasdaq Listing Application could materially affect our results of operations, business and financial condition.Added
Pursuant to the Merger Agreement, in order to permit the waiver of the beneficial ownership limitations applicable to the Series A Preferred Stock and take other actions following the consummation of the Merger, which would constitute a "change of control" under Nasdaq Listing Rule 5110(a), we are required to use our reasonable best efforts to file the Nasdaq Listing Application. The Nasdaq Listing Application must be conditionally approved prior to the date of our stockholder meeting to approve the Transaction Stockholder Matters. If we fail to meet the Nasdaq listing requirements and Nasdaq does not approve the Nasdaq Listing Application, we will be required to adjourn our stockholder meeting to approve the Transaction Stockholder Matters one or more times for up to 30 days per adjournment, continue to use our reasonable best efforts to obtain approval of the Nasdaq Listing Application and to continue soliciting stockholder approval of the Transaction Stockholder Matters at subsequent annual or special meetings of our stockholders, held at intervals of no more than six months, until such approval and the approval of the Transaction Stockholder Matters are obtained, which would be time consuming and costly. Additionally, if the conversion of the shares of our Series A Preferred Stock into shares of common stock is not approved by the date that is six months following the initial issuance date of the Series A Preferred Stock, the holders of the Series A Preferred Stock would be entitled to require us to settle their shares of Series A Preferred Stock for cash at a price per share equal to the fair value of the Series A Preferred Stock at such time as described in the Certificate of Designation. If we are forced to cash settle a significant amount of the shares of our common stock underlying the Series A Preferred Stock, it could materially affect our results of operations, business and financial condition. We cannot assure you that we will be able to meet Nasdaq's initial listing standards. Furthermore, if we fail to obtain approval of the Nasdaq Listing Application, we may be unable to execute on our plans for the Company following the Merger, which could materially affect our results of operations, business and financial condition.
Litigation & Legal Liabilities2 | 2.5%
Litigation & Legal Liabilities - Risk 1
Potential litigation against us could result in substantial costs and divert management's attention.Added
Litigation & Legal Liabilities - Risk 2
We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.The testing and marketing of drug product candidates entail an inherent risk of product liability. Product liability claims might be brought against us by consumers, health care providers or others selling or otherwise coming into contact with our products. Clinical trial liability claims may be filed against us for damages suffered by clinical trial subjects or their families. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products which could impact our ability to continue as a going concern. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with collaborators. In addition, regardless of merit or eventual outcome, product liability claims may result in:
- decreased demand for any approved product candidates;- impairment of our business reputation;- withdrawal of clinical trial participants;- costs of related litigation;- distraction of management's attention;- substantial monetary awards to patients or other claimants;- loss of revenues; and - the inability to successfully commercialize any approved drug candidates.
Taxation & Government Incentives2 | 2.5%
Taxation & Government Incentives - Risk 1
Inadequate funding for the FDA, the SEC and other government agencies, including from government shutdowns, or other disruptions to these agencies' staffing and operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.Taxation & Government Incentives - Risk 2
A shutdown of the U.S. federal government may adversely affect our business.A prolonged or recurring shutdown of the U.S. federal government may adversely affect our business operations and regulatory compliance. During such shutdowns, while the SEC's EDGAR system remains operational, the unavailability of SEC staff to review filings, issue comments, or declare registration statements effective may delay our ability to complete public offerings, respond to comment letters, or obtain timely regulatory approvals. These delays could impact our access to capital markets, hinder strategic transactions, and create uncertainty around our disclosure obligations. Additionally, the lack of interpretive guidance or exemptive relief during a shutdown may increase legal and compliance risks. We continue to monitor developments and adjust our regulatory strategies accordingly, but there can be no assurance that future shutdowns will not materially affect our operations or financial condition.
Environmental / Social1 | 1.3%
Environmental / Social - Risk 1
We may face particular data protection, data security and privacy risks in connection with the European Union's Global Data Protection Regulation and other privacy regulations.Production
Total Risks: 8/80 (10%)Below Sector Average
Manufacturing1 | 1.3%
Manufacturing - Risk 1
While there exists a large body of evidence supporting the safety of our primary API, ondansetron, under short-term use, there are currently no long-term use clinical safety data available.Employment / Personnel4 | 5.0%
Employment / Personnel - Risk 1
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.Employment / Personnel - Risk 2
We rely on key executive officers and scientific, regulatory and medical advisors, and their knowledge of our business and technical expertise would be difficult to replace.Because of the specialized nature of our business, our ability to maintain a competitive position depends on our ability to attract and retain qualified management and other personnel. We cannot assure you that we will be able to continue to attract or retain such persons.
We are highly dependent on our principal scientific, regulatory and medical advisors and our chief executive officer. We do not have an insurance policy on the life of our chief executive officer, Cary J. Claiborne; and we do not have "key person" life insurance policies for any of our other officers or advisors. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect our operating results.
Employment / Personnel - Risk 3
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees' former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Employment / Personnel - Risk 4
We are dependent on the continued services of key personnel, including Dr. Matthew Davidson, who is critical to the advancement of the Azora AhR program, and the loss of such personnel could materially harm our business.Added
The successful development of the Azora AhR program is substantially dependent on the expertise and continued contributions of key scientific and management personnel, including Matthew Davidson, Ph.D., our Chief Development Officer and a co-founder of Azora, who invented and developed the first FDA-approved drug for the skin disease molluscum contagiosum during his prior role as CEO and founder of Verrica Pharmaceuticals, Inc. Dr. Davidson's scientific expertise and institutional knowledge of the AhR program are critical to advancing AT177 through clinical development. The loss of Dr. Davidson or other key personnel could significantly delay or impair our ability to advance the AhR program. Competition for qualified personnel in the biopharmaceutical industry is intense, and we may not be able to attract or retain qualified scientists and other key personnel on acceptable terms, which could materially adversely affect our business and prospects.
Supply Chain2 | 2.5%
Supply Chain - Risk 1
To the extent we elect to enter into licensing or collaboration agreements to partner AD04 or any future product candidates, our dependence on such relationships may adversely affect our business.Supply Chain - Risk 2
The active ingredient of our product candidate, ondansetron, is currently available in generic form.Ondansetron, the active pharmaceutical ingredient ("API") of AD04, was granted FDA approval as Zofran in January 1991 and is approved in many foreign markets. Ondansetron is commercially available in generic form, but not available: (i) at the formulation/dosage levels expected to be marketed by us, or (ii) with a requirement to use a diagnostic biomarker, as we expect to be the case with AD04. Although ondansetron has been approved to treat nausea and emesis it has not been approved to treat AUD and it has not been approved for daily long-term use as planned by us. Clinical testing to date of ondansetron at the higher doses used to treat nausea/emesis have not shown effectiveness in treating AUD or any other addictive disorder; however, if a third party conducted a Phase 3 clinical program and showed success treating AUD at those doses, we could not prevent such third party from marketing ondansetron for AUD at those doses.
Results from clinical studies suggest that high intravenous doses of ondansetron may affect the electrical activity of the heart. In a Drug Safety Communication dated June 29, 2012, the FDA stated that: "A 32 mg single intravenous dose of ondansetron (Zofran, ondansetron hydrochloride, and generics) may affect the electrical activity of the heart (QT interval prolongation), which could pre-dispose patients to develop an abnormal and potentially fatal heart rhythm known as Torsades de Pointes." In addition: "No single intravenous dose should exceed 16 mg." There are also several recent lawsuits claiming that Zofran used for the unapproved use of morning sickness causes birth defects. Although we do not believe that our dosage will cause such adverse event there can be no assurance that the negative side effects of the generic drug that have been found in higher dosages will not occur in our dosage or otherwise deter potential users of our product candidate and adversely impact sales of our product candidate. If we were to be required to have such a warning on our drug label, patients may be deterred from using our product candidates.
In addition, we also face the risk, that doctors will prescribe off label, the generic form of ondansetron to treat AUD despite the different dosage of ondansetron in the generic form from that in AD04, the lack of demonstrated clinical efficacy against AUD at the currently available doses (i.e., the Zofran and approved generics), and the potential safety concerns if the currently available/higher doses are taken chronically as would be needed for AUD or other addictions. Physicians, or their patients, could divide the lowest dose existing oral tablet into more than ten parts to approximate the necessary AD04 dosage.
Although we believe that any attempt by competitors to reformulate and market ondansetron at our intended dosage levels, while technically feasible, infringes on our intellectual property rights, and should, accordingly, be actionable, we cannot give assurances that we would be successful in defending our rights or that we will have access to sufficient funds necessary to successfully prosecute any such violations of, or infringements on, our intellectual property rights. Additionally, we cannot ensure investors that other companies will not discover and seek to commercialize low doses of ondansetron, not currently available, for other indications.
Costs1 | 1.3%
Costs - Risk 1
If we are unable to obtain adequate coverage and reimbursement for our tests, it is unlikely that our tests will gain widespread acceptance.Ability to Sell
Total Risks: 7/80 (9%)Above Sector Average
Competition1 | 1.3%
Competition - Risk 1
The market for the treatment of UC is highly competitive, and AT177 may not be able to compete effectively with existing and future therapies.Added
Demand2 | 2.5%
Demand - Risk 1
There is uncertainty as to market acceptance of our technology and product candidates.Demand - Risk 2
Our success will be dependent upon adoption by physicians and others.Even if the FDA and/or EMA approves our product candidate or any future product candidates we may develop or acquire, the product will require acceptance among physicians, healthcare payers, patients, and the medical community. Our product is to be used in combination with a genetic test targeted at patients with certain specified genotypes. It is anticipated that physicians will recommend patients for screening prior to administration of AD04 or future product candidates. Therefore, our business will be substantially dependent upon our ability to communicate with and obtain support from physicians regarding the benefits of our products relative to alternative treatments available at that time.
Sales & Marketing4 | 5.0%
Sales & Marketing - Risk 1
We have no experience selling, marketing or distributing products and have no internal capability to do so.Sales & Marketing - Risk 2
Our ability to generate product revenues will be diminished if our products sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.Our ability to commercialize our products, alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:
- government and health administration authorities;- private health maintenance organizations and health insurers; and - other healthcare payers.
Patients generally expect that products such as ours are covered and reimbursed by third-party payors for all or part of the costs and fees associated with their use. If such products are not covered and reimbursed then patients may be responsible for the entire cost of the product, which can be substantial. Therefore, health care providers generally do not prescribe products that are not covered and reimbursed by third-party payors in order to avoid subjecting their patients to such financial liability. The existence of adequate coverage and reimbursement for the products by government and private insurance plans is central to the acceptance of AD04 and any future products we provide.
During the past several years, third-party payors have undertaken cost-containment initiatives including different payment methods, monitoring health care expenditures, and anti-fraud initiatives. For some governmental programs, such as Medicaid, coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for AD04 or any of our other products or may make no payment at all. Furthermore, the health care industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control health care costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Therefore, we cannot be certain that our services will be reimbursed at a level that is sufficient to meet our costs.
Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use AD04 or any future product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of AD04 or any future product candidates.
We intend to seek approval to market AD04 and future product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for AD04 or any future product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for product candidates and may be affected by existing and future health care reform measures.
Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the "Healthcare Reform Act"), was enacted. The Healthcare Reform Act and its implementing regulations, among other things, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs, including product candidates, under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government's comparative effectiveness research.
Other legislative changes have been proposed and adopted in the United States since the Healthcare Reform Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the "ATRA") which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. In March 2013, the President signed an executive order implementing sequestration, and in April 2013, the 2% Medicare payment reductions went into effect. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, particularly in light of the new presidential administration in the United States, and any proposed changes to healthcare laws that could potentially affect our clinical development or regulatory strategy. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
- the demand for AD04, or future product candidates, if we obtain regulatory approval;- our ability to set a price that we believe is fair for our products;- our ability to generate revenue and achieve or maintain profitability;- the level of taxes that we are required to pay; and - the availability of capital.
Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
Sales & Marketing - Risk 3
A variety of risks associated with marketing AD04 or any future product candidates internationally could materially adversely affect our business.We plan to seek regulatory approval of AD04 and any future product candidates outside of the United States, in particular in European markets, and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
- differing regulatory and reimbursement requirements in foreign countries;- unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;- economic weakness, including inflation, or political instability in particular foreign economies and markets;- compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;- foreign taxes, including withholding of payroll taxes;- foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;- compliance with U.S. and foreign export control regulations, including economic sanctions and embargo programs, each of which may be subject to unexpected changes;- difficulties staffing and managing foreign operations;- workforce uncertainty in countries where labor unrest is more common than in the United States;- potential liability under the FCPA or comparable foreign regulations;- challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;- production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;- business interruptions resulting from geo-political actions, including war and terrorism; and - potential difficulties that may arise with pharmaceutical company partners under license or other agreement to jointly develop, seek regulatory approval, and commercialize our products.
These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.
Sales & Marketing - Risk 4
We currently have no product revenues and may not generate revenue at any time in the near future, if at all. Currently, we have no products approved for commercial sale.We currently have no products for sale and we cannot guarantee that we will ever have any drug products approved for sale. We and our product candidate are subject to extensive regulation by the FDA, and comparable regulatory authorities in other countries governing, among other things, research, testing, clinical trials, manufacturing, labeling, promotion, marketing, adverse event reporting and recordkeeping of our product candidates. Until, and unless, we receive approval from the FDA or other regulatory authorities for our product candidates, we cannot commercialize product candidates and will not have product revenues. Even if we successfully develop products, achieve regulatory approval, and then commercialize our products, we may be unable to generate revenue for many years, if at all. If we are unable to generate revenue, we will not become profitable, and we may be unable to continue our operations. For the foreseeable future, we will have to fund all of our operations from equity and debt offerings, cash on hand and grants. In addition, changes may occur that would consume our available capital at a faster pace than expected, including changes in and progress of our development activities, acquisitions of additional candidates and changes in regulation. Moreover, preclinical and clinical testing may not start or be completed as we forecast and may not achieve the desired results. Therefore, we expect to seek additional sources of funding, such as additional financing, grant funding or partner or collaborator funding, which additional sources of funding may not be available on favorable terms, if at all.
Macro & Political
Total Risks: 3/80 (4%)Below Sector Average
Economy & Political Environment3 | 3.8%
Economy & Political Environment - Risk 1
Healthcare reform measures could hinder or prevent the commercial success of our product candidates.Economy & Political Environment - Risk 2
Declining general economic or business conditions and changes to trade policy, including tariff and customs regulations, may have a negative impact on our business.Continuing concerns over U.S. health care reform legislation and energy costs, geopolitical issues, including those in Eastern Europe, the availability and cost of credit and government stimulus programs in the United States and other countries have contributed to increased volatility and diminished expectations for the global economy. These factors, combined with low business and consumer confidence and high unemployment, precipitated an economic slowdown and recession and stagnant economy for more than a decade. Additionally, political changes in the U.S. and elsewhere in the world have created a level of uncertainty in the markets. If the economic climate does not improve or deteriorate, our business, as well as the financial condition of our suppliers and our third-party payors, could be adversely affected, resulting in a negative impact on our business, financial condition and results of operations.
Changes in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing trade, manufacturing, development and investment in the countries where we currently conduct our business could adversely affect our business, reputation, financial condition and results of operations. Changes or proposed changes in U.S. or other countries' trade policies may result in restrictions and economic disincentives on international trade. The U.S. government has recently imposed, or is currently considering imposing, tariffs on certain trade partners. Tariffs, economic sanctions and other changes in U.S. trade policy have in the past and could in the future trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. Further, any emerging protectionist or nationalist trends (whether regulatory- or consumer-driven) either in the United States or in other countries could affect the trade environment. Our business, like many other corporations, would be impacted by changes to the trade policies of the United States and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, the global economy, and our industry, and as a result, could have a material adverse effect on our business, financial condition and results of operations.
In addition, the global macroeconomic environment could be negatively affected by, among other things, pandemics or epidemics, instability in global economic markets, instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of the withdrawal of the United Kingdom from the European Union, the Russian invasion of Ukraine, the war in the Middle East and other political tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets.
Economy & Political Environment - Risk 3
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. General worldwide economic conditions have experienced significant instability in recent years including the recent global economic uncertainty and financial market conditions.
The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values could impact our business in the future. Any pandemic will likely have a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services, such as travel, have fallen. We expect the same will be true for any other pandemic. The future progression of the pandemic and its effects on our business and operations are uncertain. In addition, the outbreak of a pandemic could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. Pandemics could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.
Further, due to increasing inflation, operating costs for many businesses including ours have increased and, in the future, could impact demand or pricing manufacturing of our drug candidates or services providers, foreign exchange rates or employee wages. Inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition, the Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.
Actual events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, uncertainty and liquidity concerns in the broader financial services industry remain and the failure of Silicon Valley Bank and its potential near- and long-term effects on the biotechnology industry and its participants such as our vendors, suppliers, and investors, may also adversely affect our operations and stock price.
We are actively monitoring the effects these disruptions and increasing inflation could have on our operations.
These conditions make it extremely difficult for us to accurately forecast and plan future business activities.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
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Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
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How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.