By Daniel Wilhelmi
Part 1: Facts of the ONWARD Phase III-trials
Part 2: Mistakes around the data readout and how they affect the future of Adial
Part 3: The assessment of Adial by the stock market and where we go from here.
Preamble: I have been working as a financial journalist and analyst for small cap companies and growth stories for over 20 years. I also work as an investor relations-consultant for publicly traded companies. But I am not a native English-speaker. I apologize for any language mistakes.
Part 2: Mistakes around the data readout and how they affect the future of Adial
In the first part, I analyzed the topline data of the ONWARD phase III trials. You can read this article: HERE. In this second part, I analyze the actions of the management around the data readout and the communication of the trial results. As you know after part 1: The ONWARD phase III data of AD04 was not bad. It was quite the opposite: the data was good proofing that the drug is working and that it is safe.
This leads us to the reaction of the stock market and the actions of the management. Initially the share price of Adial dropped about -20 % after the publication of the topline data. A clear indication that the market read the data as disappointing, but didn`t know how to interpret the results correctly.
Shareholders understood that the data wasn`t the homerun everybody was hoping for. But for most shareholders the results sounded positive (which they are). So, investors waited for the conference call with managements comments and interpretation of the data. At this point, it was not about the data anymore. It was about the way the management would guide the market.
Then this happened: The Adial-stock collapsed around -60 % after the conference-call of the management. This collapse in share price doesn`t seem to make sense, considering that the data of the ONWARD trials was good, as I analyzed in PART 1.
Here is where the mistakes in communication of the company with the capital markets comes into play. The conference call didn`t provide the right information about the trials to investors. I have defended the management for a lot of the actions taken in the design and early execution of the ONWARD trials. However, I must critique them for the way they managed the aftermath of data readout.
Mistakes in communication about trials lead to massive selloff
As I wrote: The stock was down about 20 % after the data was announced but broke down after the call. That tells us all we need to know: The former management didn`t communicate the positive results of the ONWARD trials to the market. The market obviously didn’t understand the the data in the right way – otherwise the stock price wouldn’t be down so much. Clear explanations and guidance for the market and a close follow up with positive messaging about the interpretation of the data and how the company is planning to proceed with AD04, would have been crucial in shareholder communication. Instead the company didn`t put out any explanations between July 20th (day of data readout) and the business update on August 22nd.
No communication with markets for four weeks after trial results
I spoke with the new CEO Cary Claiborne, and he clearly understands the need for better communication with the market. The new Adial management is working on different strategies to get the right information about the ONWARD phase III trials to the market now. I am optimistic that the new management will increase the communication with the markets. You already heard it on the webcast from August 22nd, which you can listen to HERE.
This concludes part 1 and 2: the data of the ONWARD phase III trials was good. Not as great as hoped for. But quite good: it proofed that AD04 works in the most important patient group of Heavy Drinkers and is safe. Since patients take it as a tablet (twice a day), it also holds several advantages over the few competing drugs on the market.
But the data was difficult to understand for the market and the management did not do a good job communicating the important data points of the trials to the markets. However: the market hates nothing more then uncertainty – especially in a risk off-environment we have in the markets in 2022.
The needed strategy would have been: Go on the investor-relations-offensive, explain the data and send the right message out to the markets: the ONWARD trials did not achieve our high goals, but the data is good and shows that AD04 works great in the more important patient group of Heavy Drinkers. That is the patient group AD04 needed to work in, as it would make up the majority of the customers – and it did work with these patients.
There will be one or maybe two additional trials needed, but the story around AD04 and its potential hasn`t changed. It will take an additional two to three years now, which is not great. But on the other hand, the risks of AD04 not working efficiently or not being safe have been reduced dramatically with these trial results.
Conclusion: This narrative about AD04, which is the truth based on the data, would have improved the sentiment for the Adial-stock dramatically in my eyes. Now we see massive insecurity among shareholders about the drug and the company. Stock markets are a unique mix of fundamental facts and investor psychology (behavioral finance).
In the case of Adial, the fundamental facts were good, but not as great as hoped for. Therefore, the management needed to do an exceptional job on the psychological side. It didn`t, which lead to the second sell off in Adial-shares. The good news: this is a problem that can easily be improved by the new management. In the third and last part I will analyze the reaction of the stock market and where we go from here.
– Disclaimer –
All information provided is never investment advice and reflects my very own opinion. My company, W.J. Investor Strategies GmbH acts as an investor relations provider for small cap companies in the European market and, in some cases, owns shares of mentioned companies which could be a conflict of interest.
