Shares of Adial Pharmaceuticals (NASDAQ:ADIL) experienced a significant 24% drop on Friday, following the announcement of definitive agreements for a private placement deal. The deal involves the sale of 1.4 million shares and series A and B warrants, each allowing for the purchase of an additional 1.4 million shares at a price of $2.82 per share. This price is notably lower than the company's InvestingPro Fair Value of $4.06 USD.
The completion of the offering, scheduled to close by next Tuesday, hinges on obtaining stockholder approval for the warrants. The series A warrants are set to expire in five and a half years, while the series B warrants have a shorter lifespan of 18 months. This comes as the company's stock has taken a significant hit over the last six months, with a total return of -56.8% according to InvestingPro data.
Adial Pharmaceuticals anticipates that this deal will generate revenue of approximately $4 million. The company plans to allocate these funds towards general corporate expenses and strengthening regulatory and clinical support for AD04, their primary investigational drug. AD04 is specifically being developed for the treatment of Alcohol Use Disorder.
This latest development comes as Adial continues its efforts to secure financing and enhance its research capabilities, particularly around AD04. The company's financial position, as per InvestingPro, is unique in that it holds more cash than debt on its balance sheet, and its liquid assets exceed short term obligations. Yet, it's important to note that analysts do not anticipate the company will be profitable this year and it has not been profitable over the last twelve months.
The market's reaction to the private placement deal underscores the inherent risks and uncertainties associated with such financing strategies. The company's P/E Ratio stands at -0.31, which indicates that investors currently have negative expectations of its future earnings. This aligns with an InvestingPro Tip that highlights the company's poor return on assets and low return on invested capital.
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