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Adial Pharmaceuticals looks to precision medicine to treat alcohol use disorder


IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

The Market Intelligence Platform

Adial Pharmaceuticals looks to precision medicine to treat alcohol use disorder

➤Adial Pharmaceuticals Inc. is developing a serotonin blocker drug for alcohol use disorder, or AUD, which currently has limited therapeutic options.

➤According to Adial CEO William Stilley, existing treatments including disulfiram, acamprosate and Alkermes PLC's Vivitrol, or naltrexone, are extreme.

Charlottesville, Va.-based Adial completed an IPO in July 2018. Its AUD therapy, currently called AD04, will enroll two consecutive phase 3 trials in Europe and the U.S., with data expected by the end of 2020.

This interview has been condensed for clarity.

S&P Global Market Intelligence: Treatment with AD04 is preceded by a genetic test. How does it work and what is it targeting?

SNL Image

Adial Pharmaceuticals president
and CEO William Stilley.

Source: Adial Pharmaceuticals

William Stilley: What this genetic test does is identify those with whom the drug would be expected to work. If you're positive you get the drug, and if you're not positive, the drug wouldn't be expected to work. There's nothing special about the test; it's a standard polymerase chain reaction test. But knowing which genes to look at is critical, and that's the newness of it. We believe right now there are 14 different serotonin receptors and receptor cell types, and we target just one of those with a serotonin 3 blocker. So AD04 blocks serotonin 3, which works upstream of the dopamine system.

The genetic test is a companion diagnostic, and it would be approved at the same time as AD04.

What were the endpoints of the phase 2b trial?

The primary endpoint was severity of drinking, which is, on the days you drink, how much you drink. The secondary endpoint was frequency of drinking measured by percentage of days abstinent, when you haven't had drinks. What happened in our 283-patient trial is that patients who were on the drug of genotype had a dramatic and significant decrease in frequency of drinking, so they drank almost half as often, and when they drank they drank about 60% less.

I'd also say, there's this whole idea, abstinence versus what they call reduction of harm, which is reduction of drinking, and both the European Medicines Agency and the U.S. Food and Drug Administration agreed that heavy drinking days are the culprit. It's like a linear curve: the more heavy drinking days you have in a month, the worse the outcomes. There are over 200 diseases caused by alcohol. You reduce alcohol consumption, you reduce bad outcomes, you reduce costs.

How was data reported?

It's self-reported; they came in every week. And there's been a lot of work trying to figure out the best ways to report, and [Adial chairman] Bankole Johnson found out that the best way you can get the answer is, you have to remove the person from the alcohol, remove the person from the day and ask them to report back what happened. If you're in a study, you don't really have an incentive to cheat. And if there is any, it's going to be the same between drug and placebo.

If you ask, last Monday, did you drink? That's very objective, that's an event. So there's no subjectivity, only memory problems, which is very different from a lot of diseases where you're measuring subjectivity. And then you ask, how much did you drink, and then you take them to a table and there's a variety of glasses, bottles, and you ask what kind of glass. Then you ask how far was it filled and what were you drinking, and then pour it into a bucket and measure it. And both the EMA and FDA consider that a validated collection method.

What have been the challenges of developing an AUD treatment?

You have to meet the need. If you think about another addiction, in nicotine, they had all sorts of treatments for many decades — Nicorette, cessation programs. It wasn't until a simple, oral drug that actually reduced craving for nicotine came out, called Chantix, that overnight it was a billion-dollar drug. Those other things didn't really stop the craving, they had side effects, they were life makeovers, which is really extreme treatment.

The treatments today for alcohol are extreme. Alcoholics Anonymous will even tell you: You will likely not be willing to tolerate the treatment we want you to undergo unless you've hit "rock bottom," meaning your life has been destroyed.

So then if you want to take one of the pharmacologic answers, like Antabuse (or disulfiram), which has been on the market for decades, you take the pill, then you drink, get violently ill — throw up all over the place, which can be fatal, actually. The other market leader today is Vivitrol. So every 30 days you have to go in for an 18-gauge needle; they give you one of the most painful injections known and put a huge chunk of gel into your backside. So those are your options.

We have a simple, easy-to-use pill that does the job it's supposed to do, you take in the confidence of your doctor and it's genetically targeted for you.

Credit Analysis
IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

IFRS 9 is a reporting standard for financial instruments that replaces IAS39 (the previous incurred loss standard) with the introduction of provisions for expected credit losses (ECLs) on all financial assets, such as those held to collect contractual cash flows, or held with the possibility of being sold.

The date for adoption was January 1, 2018 and is mandatory for public non-financial corporations (and financial institutions) across a number of jurisdictions outside the United States, including many European countries.

The two key changes introduced by the IFRS 9 accounting standard are:

  • Calculation and provisions must be performed on all affected financial assets, not just the impaired ones, as per the standard it replaces
  • New expected credit loss calculations

Additional challenges will be presented when making assessments for low default asset classes, and companies may find it difficult to access models and sufficient data history.

Impact for non-financial corporations

Non-financial corporations will have some material exposure to many of the financial assets that are defined under IFRS 9. These include investment portfolios, intercompany loans, lease receivables, contract assets, and trade receivables, as illustrated below and further explained in our webinar on IFRS 9 for non-financial corporates.

This, together with the need to assess losses on performing and non-performing assets, might have a material impact on the profit and loss (P&L) of such companies.

ECL calculations under IFRS 9

The IFRS 9 accounting standard introduces new expected credit loss (ECL) calculations that require more data and new models. The key requirements are:

  • Significant increase in credit risk (SICR): Expected loss needs to be assessed at each reporting period to identify a SICR since initial recognition
  • Explicit macro-economic forecasts need to be considered using factors such as the relevant GDP growth, unemployment rate, and stock market index growth figures
  • Credit risk metrics such as probability of default (PD), credit rating, credit score, and loss given default (LGD) need to be adjusted to point in time (PiT), versus through the cycle (TTC)
  • Calculations need to be extended over the lifetime of the assets for underperforming exposures, or in standardized calculations

General versus simplified approach

When performing ECL calculations for trade receivables, the company can choose to take a general or simplified approach (the company is presented with a choice between the two depending on the type of exposure).

  • The general approach uses the 12-month ECL calculation for performing assets (Stage 1 assets) and lifetime calculation for the assets whose creditworthiness has deteriorated since recognition (Stage 2 assets)
  • The simplified approach uses the lifetime ECL calculation for all performing and non-performing assets

The simplified approach can have a bigger impact on P&L expense, as all losses are calculated over the lifetime of the asset, while the general approach can have more impact on P&L volatility, as assets might move between stages incurring 12-month and lifetime calculations.

How S&P Global Market Intelligence can help

A best practice approach used by many financial institutions, which non-financial corporations can also use to comply with the new provision, is to use the existing TTC metrics and convert them into PiT metrics to reflect the current credit cycle, as well as include the required future macroeconomic considerations.

S&P Global Market Intelligence has developed models and tools to help your business undertake the relevant ECL calculations. These models can also be used to assess the creditworthiness of your counterparties and recovery of your exposure in the context of your core business process such as customer credit, supply chain risk, vendor management, and selection and transfer pricing.

The calculation method involves four steps:

  1. We calculate the TTC metric, i.e. the S&P Global Market Intelligence Fundamental PD, CreditModel™ score, for the concerned entity.
  2. We apply our macro-economic model, which weights user defined macro-economic scenarios to produce weighted average forecasted PDs.
  3. We apply a credit cycle adjustment, which converts the TTC risk metric into a PiT PD, leveraging the difference between observed default rates from S&P Global Ratings’ rated universe over last year versus over the past 30+ years.
  4. In addition, as a best practice, we also offer the option to incorporate market-based forward looking information. This is done by further adjusting the PD with the analysis of PD Market Signals country and industry benchmark trends over the past three months versus the past year.

In addition to this quantitative approach available on the Credit Analytics platform, we also offer scorecards that cover low default asset classes for PD, LGD, and point in time adjustments.

Learn More About Credit Analysis
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