NASDAQ: ADIL

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 Annual Report
on Form 10-K, based on our current commitments and development plans.

We have incurred net
losses in each year since our inception, including net losses of approximately $8.0 million and $13.2 million for the years ended December
31, 2025 and 2024, respectively. We had accumulated deficits of approximately $90.0 million and $82.0 million as of December 31, 2025
and 2024, respectively. All of our operating losses in the year ended December 31, 2025 resulted from costs incurred in continuing operations,
including costs in connection with our continuing research and development programs and from general and administrative costs associated
with our operations.

We will not generate
revenue from product sales unless and until we successfully complete development and obtain marketing approval for AD04, which we expect
will take a number of years and is subject to significant uncertainty. We do not believe our current cash and equivalents will be sufficient
to fund our operations for the next twelve months from the date of this Annual Report on Form 10-K.

Until such time, if ever,
as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity
offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such
other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and
when needed would have a negative impact on our financial condition and our ability to develop AD04.

Recent Developments

Collaboration
Framework

On March 3, 2026, we entered into a collaboration
framework agreement with a strategic partner, Molteni Farmaceutici (“Molteni”),
for a proposed exclusive partnership covering the commercialization of AD04 in Europe. The collaboration framework, which is subject to
execution of a final definitive agreement, sets forth the strategic and financial parameters of the proposed partnership, covering clinical,
regulatory, manufacturing, and commercial terms. Under the framework, the strategic partner has been granted a period of exclusivity to
evaluate the feasibility of the project, conduct planning, due diligence, and a comprehensive assessment of the requirements for the successful
commercial launch of AD04 across Europe.

The definitive agreement is expected to include an upfront payment,
milestone payments tied to development and commercial progress, and tiered royalties on European AD04 net sales, payable to us. We believe
the total potential aggregate value from royalties and milestones over time will be significant, estimated
at nearly $60 million, assuming AD04 progresses through clinical development and is successfully introduced in the European market. However,
there can be no assurance given that a definitive agreement to implement the terms set forth in the collaboration framework agreement
will be executed to establish the proposed partnership (and Molteni has no obligation to
enter into such definitive agreement), that ADO4 will successfully progress through clinical development and commercialization in Europe
or that we will receive any royalties or milestone payments as a result of the proposed partnership.

Clinical Developments

On September 16, 2025,
we announced the receipt of the final meeting minutes from our End of Phase 2 (EOP2) meeting with the Food and Drug Adminstration (the
“FDA”) held on July 29, 2025. The minutes provide the FDA’s formal input about the AD04 Phase 3 adaptive clinical trial
design and broader clinical development strategy. The objective for the EOP2 meeting was to align with the FDA on the design of the Phase
3 clinical development program for AD04. The discussion included key elements of the planned adaptive study design elements, such as target
population, clinical endpoints, inclusion and exclusion criteria, dosing regimen, and affirmation of the biomarker-positive and biomarker-negative
groups.

1

AD04 Clinical Development Program

Adial’s AD04 clinical development program
began with initiation of a Phase 3 trial, otherwise known as the ONWARD™ trial. Adial believed that the ONWARD trial design provided
the flexibility to meet global regulatory requirements. The trial started in February 2020 in Scandinavia and Central and Eastern Europe.
The ONWARD trial was a 24-week, multicenter, randomized, double-blind, placebo-controlled, parallel group, Phase 3 clinical study to evaluate
the efficacy, safety and tolerability of AD04 in patients with AUD and selected polymorphisms in the serotonin transporter and receptor
genes. Patients were genetically screened prior to enrollment in the ONWARD trial so that only genetically positive patients were enrolled.
ONWARD enrolled 302 patients (a total of 303 patients were recruited and then randomized in the trial, however, one subject never initiated
treatment and has been excluded from enrollment numbers and was not included in the full analysis data set or efficacy analysis for the
trial); and was conducted in 25 clinical sites in six countries in Scandinavia and Central and Eastern Europe (Sweden, Finland, Poland,
Latvia, Bulgaria and Croatia). Approximately one-third of the total screened patients tested positive for the targeted genotypes.

A Phase 2b study (N = 283), conducted by the University
of Virginia for which we have acquired rights to the data, showed that a prospectively identified subgroup of alcohol-dependent individuals
with specific polymorphisms of the serotonin transporter protein responded therapeutically to ondansetron administration (Johnson, BA
et al., 2011). Further analysis of this same data set against 18 additional polymorphisms located on the genes for the A and B subunits
of the serotonin 5-HT3 receptor revealed polymorphisms that were also associated with a therapeutic response to ondansetron. It was this
hypothesis that collectively led Adial to focus the ONWARD trial on genotypes LL/TT, GG, AG, and AC.

The primary efficacy endpoint of the ONWARD trial
was the average percentage change from baseline in the monthly heavy drinking days (PHDD) experienced by each patient in months 5 and
6 combined. Key secondary endpoints included reduction in total alcohol consumed (TAC), and improvement as measured by the Patient Health
Questionnaire-9, a widely accepted tool for assessment of depression. The definition of a heavy drinking day was greater than 40 grams
or 60 grams of ethyl alcohol in a day for a woman or a man, respectively.

ONWARD Phase 3 Clinical Trial Results – Topline Data Analysis

Topline Data Analysis

On July 20, 2022, we announced the following 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.

Heavy drinkers are defined by NIAAA (National
Institute on Alcohol Abuse and Alcoholism) as men who drink 5 or more drinks on any day or 15 or more per week and women who drink 4 or
more drinks on any day or 8 or more per week. 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.

2

U.S. Clinical Development and Regulatory
Actions Completed

Our regulatory strategy for the US has been clearly
defined as a result of both ongoing discussions with key advisors in US regulatory affairs as well as meetings with the FDA.

We engaged a third party statistical consulting group to rigorously reevaluate
our historical clinical data, the ONWARD datasets, and the signals identified in prior post hoc analyses. Their mandate was
to pressure test all assumptions using deep biostatistical expertise and proprietary analytic platforms that integrate multiple
statistical methodologies, Artificial Intelligence (AI), and machine learning tools. This approach was specifically designed to address
the noise inherent in smaller subgroup analyses by enhancing analytical sensitivity, reducing variance, and isolating the most reliable
data signals. Methods included exploratory Bayesian modeling, Bayesian shrinkage techniques (e.g., horseshoe priors), predictive analytics
and trial simulations, real world data–enabled feasibility modeling, sparse PK modeling, and sensitivity analyses of baseline drinking
and endpoint definitions. Together, these efforts were intended to ensure methodological rigor and clinically meaningful stratification.

SLC6A4 (serotonin transporter) and HTR3A/HTR3B
receptor polymorphisms were included in the ONWARD trial; however, the serotonin transporter does not directly influence receptor sensitivity
or excitability, key determinants of ondansetron’s mechanism of action. The independent statistical review reanalyzed the ONWARD
data using genotype based stratification, confirming and refining our understanding of subgroup specific efficacy signals. These
analyses validated the predictive value of the HTR3A and HTR3B SNPs and reinforced their central role in treatment
stratification. This work confirmed our focus on specific 5HT3A variants within relevant AUD populations and strengthened the receptor
based pharmacogenetic framework used to define biomarker positive and biomarker negative groups. It also increased confidence in endpoint
selection, inclusion and exclusion criteria, and other key design assumptions, while informing strategic decisions related to patient
enrichment, site selection, and regulatory positioning.

These insights directly shaped the U.S. Phase
3 program and informed the design of the first pivotal Phase 3 study discussed with FDA at the EndofPhase2 (EOP2) meeting on July 29,
2025, where FDA aligned on the major elements of the planned adaptive enrichment pivotal study and the overall registration pathway. Taken
together, these activities have reinforced the foundation of our clinical, regulatory, and commercial strategy in the United States, alongside
additional efforts such as submission of the FDA safety update/annual report, a Type D meeting to confirm Phase 3 manufacturing plans,
and ongoing discussions regarding the required initial Pediatric Study Plan (iPSP).

U.S. Clinical Development and Regulatory
Actions Planned

We have assessed the impact of the regulatory
guidance on the future business and operating plan requirements to meet the needs of the FDA for submission and approval of AD04 to treat
genetic subtypes of AUD.

Based on our expectations regarding the
targeted genotypes, 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 ongoing discussions with regulatory
authorities, and final trial designs and results. 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 investigation plus
confirmatory evidence, rather than the historic expectation of two independent pivotal studies. If AD04 can be advanced under a
one-study framework, the impact could be substantial – significantly lowering Phase 3 costs, improving overall capital
efficiency, and accelerating our path toward NDA submission.

The planned adaptive enrichment trial
derisks early at onset by constraining enrollment and defining the biomarker positive population upfront, it derisks
midtrial through an interim analysis that provides the opportunity to eliminate the biomarker negative group and enrich
the biomarker positive group, and derisks at the end through an analysis that preserves alpha and protects the primary claim. The
timing for these activities will be contingent on the start of the trial and enrollment rates, with the first
interim analysis occurring after approximately 50% of subjects have completed treatment (estimates
for the first interim analysis for the Biomarker negative group are between 2 to 4 months from first patient enrolled).

3

EX US Clinical Development and Regulatory
Actions Completed

In July 2023, we announced results from meetings
held with key country-level regulatory agencies in Europe. The results of these meetings as previously reported are being used for the
development of our future clinical and regulatory strategy.

EX US Clinical Development and Regulatory
Actions Planned

As previously stated, based on positive feedback
received from the relevant global regulatory bodies and overlapping clinical requirements, we made the strategic decision to focus our
efforts on the US. We believe that these clinical endpoints should translate to acceptance in other international markets. We will continue
to look for synergies where they exist in the primary efficacy data variables when planning for study designs to meet global regulatory
requirements. We have a high level of confidence in the US clinical program based on our post hoc analysis and regulatory feedback and
we believe these data results to be useful for Ex US regulators.

However, if these synergies cannot be found, it
is possible that new analysis and/or additional data generation may be required to meet the requirements of global regulators, including
the EU and UK. This is also vital for our ongoing partnering efforts based on discussions with companies active in the EU and UK.

Disease Overview - Alcohol Use Disorder

AUD is characterized by an urge to consume alcohol
and an inability to control the levels of consumption.

In the United States alone, the 2024
National Survey on Drug Use and Health (NSDUH) reported approximately 27.9 million people age 12 and older had AUD. Among those
reporting AUD, 21.4% or 5.97M were classified as moderate and 19.2% or 5.35M were classified as Severe. Among the 27.9 million, only
2.5% or 697,000 people received medication for AUD treatment. AUD results in significant health, social, and financial costs, with excessive alcohol use being the third leading
cause of preventable death and responsible for 31% of driving fatalities (NIAAA Alcohol Facts & Statistics). AUD contributes to
over 200 different diseases and 10% of children live with a person that has an alcohol problem. According to the American Society of
Clinical Oncologists, 5-6% of new cancers and cancer deaths globally are directly attributable to alcohol. The Lancet
published an article that alcohol is the leading risk factor for death and disability in people ages 15-49 globally. The Centers for
Disease Control (the “CDC”) has reported that AUD costs the U.S. economy about $250 billion annually, with heavy
drinking accounting for greater than 75% of the social and health related costs.

According to the WHO (World Health Organization,
2022), the harmful use of alcohol is a causal factor in more than 200 disease and injury conditions. Worldwide, 3 million deaths every
year result from harmful use of alcohol. This represents 5.3% of all deaths. Overall, 5.1% of the global burden of disease and
injury is attributable to alcohol, as measured in disability-adjusted life years (DALY’s). Alcohol consumption causes death and
disability relatively early in life. In people aged 20-39 years, approximately 13.5% of total deaths are attributable to alcohol. 

AUD confers complex medical, psychological, social,
and occupational impacts and can be life-limiting. AUD, similar to other addictions is characterized by a cluster of behavioral,
cognitive, and physiological phenomena including a strong desire to take the drug, difficulties in controlling its use, persisting in
its use despite harmful consequences, a higher priority given to drug use than to other activities and obligations, increased tolerance,
and sometimes physical withdrawal. AUD has no single cause and can be triggered by a variety of factors such as genetic predisposition,
psychological trauma, sociological and environmental factors, among others.

The DSM-5-TR (Diagnostic
and Statistical Manual of Mental Disorders, Fifth Edition) defines Alcohol Use Disorder (AUD) based on 11 criteria. The severity mild,
moderate, or severe depends on how many criteria an individual meets within a 12-month period:

● Mild
AUD: 2-3 criteria met

● Moderate
AUD: 4-5 criteria met

● Severe
AUD: 6 or more criteria met

● Importantly,
the diagnosis of AUD in DSM-5-TR is independent of meeting any threshold for alcohol
consumption. For many individuals, AUD is chronic, relapsing, and can be treatment
resistant.

Before the publication of the fifth revision of the
Diagnostic and Statistical Manual of Mental Disorders in 2013 (the “DSM-5”), AUD was separated into two categories, which
can co-occur “alcohol dependence” and “alcohol abuse”. More broadly, overdrinking due to the inability to moderate
drinking is called alcohol addiction and is often called “alcoholism”, sometimes pejoratively.

4

Limitations of Current AUD Therapies

The four FDA-approved medications for Alcohol
Use Disorder (AUD) are built around an abstinence-based treatment model. They require patients to stop drinking before initiating therapy
and typically must be combined with structured psychotherapy and social-support interventions to be effective. For many individuals, these
requirements create substantial barriers to care. Achieving and maintaining abstinence often demands abrupt and disruptive lifestyle
changes, which can carry significant physical, medical, occupational, and social consequences. Patients may feel unable to participate in
family gatherings, work events, or social activities for fear of jeopardizing abstinence, and many experience the added burden of stigma
associated with being labeled an “alcoholic.” These limitations contribute to low treatment uptake and highlight the need
for therapeutic approaches that support harm reduction and meet patients where they are, rather than requiring complete abstinence as
a precondition for care.

Significant side effects of current pharmacologic
therapies include a broad spectrum of adverse effects such as nausea, vomiting, dizziness, abdominal pain,
and clinically meaningful risks of hepatotoxicity, as well as mood disturbances, anxiety, irritability, and other psychiatric symptoms, These
adverse effects contribute to poor adherence, early discontinuation, and reduced real-world effectiveness. In fact, according to peer
reviewed studies referenced in The Sober Truth: Debunking the Bad Science Behind 12-Step Programs and the Rehab Industry, L. Dodes
and Z. Dodes, 2014 by Dr. Lance Dodes, the former Director of the substance abuse treatment unit of Harvard’s McLean Hospital, 90%
or more of patients that use current therapy solutions, such as Alcoholics Anonymous, do not achieve long-term abstinence.

There are four drugs approved by the FDA and marketed
in the United States for the treatment of alcohol addiction, Antabuse® (disulfram) Vivitrol® (naltrexone),
Revia® (naltrexone) and Campral® (acomprosate) and one drug, Selincro® (nalmefene) is marketed
outside of the United States. All of the approved drugs, other than Selincro®, (which is approved only in Europe)
require abstinence prior to commencing treatment with the drug, and all five drugs are known to have significant side effects.

Antabuse® (disulfiram) was approved
for the treatment of alcohol dependence more than 50 years ago, making it the oldest pharmacologic therapy in this field. Disulfiram
is an aversive therapy: it works by blocking aldehyde dehydrogenase, which prevents the normal metabolism of alcohol. When a patient drinks
while taking Antabuse®, acetaldehyde rapidly accumulates, triggering a severe and highly unpleasant reaction. Symptoms can include
flushing, throbbing headache, nausea, vomiting, chest pain, palpitations, hypotension, dyspnea, and marked anxiety. In some cases, reactions
may be medically serious, with risks including cardiovascular collapse, arrhythmias, respiratory depression, and, rarely, death.

Because its therapeutic effect depends entirely
on provoking this aversive reaction, Antabuse® requires complete abstinence before starting treatment and strict avoidance
of alcohol during therapy. This abstinence-based approach can be difficult for many patients and does not address craving, motivation,
or the underlying neurobiology of Alcohol Use Disorder. As a result, adherence is often poor, and the medication is not suitable for individuals
who cannot maintain abstinence or who are seeking harm-reduction approaches rather than complete cessation.

Naltrexone is available as a once-daily pill (Revia®)
and as a once-monthly injectable form (Vivitrol®) administered by a healthcare professional. Both forms are commonly associated with
gastrointestinal side effects such as nausea and abdominal discomfort, and some patients also experience headaches, dizziness, and fatigue.
In addition, Naltrexone has been linked to dose-related liver toxicity, and the oral formulation carries an FDA boxed warning for the
risk of hepatocellular injury at higher doses. Vivitrol® is marketed by Alkermes for the treatment of AUD.

Campral®, (acamprosate) is
an oral medication taken three times daily and is thought to stabilize chemical signaling in the brain that becomes dysregulated in chronic
alcohol use and reduce post-acute withdrawal symptoms. Campral is not effective unless the patient has already stopped
drinking, so it is also used strictly as an abstinence-maintenance therapy.

Selincro® has not been approved
for sale in the United States.

5

Our Proposed Solution is AD04 and a PGx Companion
Diagnostic

The active pharmaceutical agent in AD04, our lead
investigational new drug product, is ondansetron, which is also the active ingredient in Zofran®, which was granted FDA
approval in 1991 for nausea and vomiting post-operatively and after chemotherapy or radiation treatment and is now commercially available
in generic form. In studies of Zofran®, conducted as part of its FDA review process, ondansetron was given acutely at dosages
up to almost 100 times the dosage expected to be formulated in AD04 with the highest doses of Zofran® given intravenously
(“i.v.”), which results in approximately 160% of the exposure level as oral dosing. Even at high doses given i.v. the studies
found that ondansetron is well-tolerated and results in few adverse side effects at the currently marketed doses, which reach more than
80 times the AD04 dose and are given i.v. The formulation dosage of ondansetron used in our drug candidate (and expected to be used by
us in our Phase 3 clinical trials) has the potential advantage that it contains a much lower concentration of ondansetron than the generic
formulation/dosage that has been used in prior clinical trials, is dosed orally, and is available with use of a companion diagnostic genetic
biomarker. Our development plan for AD04 is designed to demonstrate both the efficacy of AD04 in the genetically targeted population and
the safety of ondansetron when administered chronically at the AD04 dosage. However, to the best of our knowledge, no comprehensive clinical
study has been performed to date that has evaluated the safety profile of ondansetron at any dosage for long-term use as anticipated in
our ongoing and planned clinical trials. Under current US FDA regulations, the approval of the specific dosage of 0.33mg ondansetron in
AD04 for the new indication of AUD in patients with genetic subtypes and data exclusivity will result in a minimum of 3 years of regulatory
and, therefore, commercial exclusivity for AD04 in the US.

Our goal with AD04 is to develop a safe effective,
and patient-centered treatment for Alcohol Use Disorder (AUD) that aligns with how people actually seek help. Unlike existing medications
that require complete abstinence and are often associated with significant side effects, AD04 is being developed to support a harm-reduction
approach helping patients meaningfully reduce heavy drinking and alcohol-related risks without mandating that they stop drinking
altogether.

Our product candidate, AD04, is specifically designed
for genotype positive individuals who want to regain control over their drinking but cannot, or do not wish to, pursue full abstinence.
By removing the barriers associated with abstinence-based treatment and avoiding the tolerability issues that limit the use of current
therapies, AD04 has the potential to reach the millions of people with AUD who remain untreated today. Unlike other therapies, our investigational
product, AD04, uses a novel mechanism of action and incorporates a companion diagnostic genetic test to identify patients
most likely to benefit. AD04 is intended to reduce craving and support sustained reductions in alcohol intake, without requiring detoxification
or abstinence prior to or during treatment. It is orally administered, currently twice daily, with a once-daily formulation planned
as part of lifecycle management and has demonstrated a favorable safety and tolerability profile with side effects similar
to placebo. 

The companion diagnostic genetic test used to identify patients
most likely to benefit from AD04.

The companion diagnostic genetic test to be used to identify patients that
are most likely to benefit from treatment with AD04 has the potential to meaningfully enhance treatment outcomes. It
gives clinicians a structured, non-threatening way to begin conversations about alcohol use, an area that is often difficult
for both patients and providers to address. For patients, the test would offer an acceptable and objective entry point into care, helping
them determine whether they may be a good candidate for treatment. A positive result would provide a science-based
rationale for their treatment, which can reduce stigma, validate the patient’s experience, and support engagement.
It would also enable treatment to occur discreetly and confidently within the doctor–patient relationship, using a simple oral medication.

Strengths and Competitive Advantages

Large Market Opportunity for an Effective
Solution

In the United States
alone, the 2024 National Survey on Drug Use and Health (NSDUH) reported approximately 27.9 million people age 12 and older had AUD. Among
those reporting AUD, 21.4% or 5.97M were classified as moderate and 19.2% or 5.35M were classified as Severe. Among the 27.9 million, only 2.5% or 697,000 people received medication
for AUD treatment. Based on data from the ONWARD trial and Phase 2b trial of AD04, our initial focus, based on the comprehensive subgroup
analysis will center on patients carrying the HTR3A rs1150226 AG genotype and the combined HTR3A/HTR3B variant pattern
characterized by the presence of both the AG (HTR3A) and AC (HTR3B rs1176744) alleles. These biomarker-positive genotypes represent the
populations most likely to benefit from AD04 based on prior clinical and mechanistic evidence.

6

At this time, we
are not aware of any oral pharmaceutical treatment approved in the U.S. that addresses the needs of patients who desire to better control or
limit their drinking but cannot or do not want to abstain completely from drinking. The current abstinence-based treatments
have limitations, as outlined in the previous section “Limitations of Current AUD Therapies”. The limited side
effects expected for our investigational new drug, based on clinical data so far, are also believed to be an important factor in
the expected rapid uptake of AD04 in the market. Our approach, if approved by FDA, may allow for social drinking to continue and is aimed
at reducing the dangerous, heavy drinking. This would allow patients to live the life they want without the stigma associated with complete
abstention and currently endured by those seeking help for their excessive drinking. 

Companion Genetic Bio-Marker Test Aimed
at Identifying Patients Most Likely to Respond To Treatment, Potentially Results in Increased Use of AD04

We believe our AD04 and its companion diagnostic
is unique in that it is designed to reduce heavy drinking in individuals with certain genotypes. We are pursuing a strategy that aims
to integrate pre-treatment screening with the companion diagnostic genetic test into the drug label. This companion diagnostic testing
approach may be a useful genetic screening tool to predict those most likely to respond to the drug.

As noted above, we believe that the companion
diagnostic genetic test enables physicians to more easily have an initial conversation with their patients about alcohol use and, for
the patient, provides a less threatening and obtrusive first step toward treatment because the conversation will include the topic of
genetic testing and not be solely about behavior. Patients that then test positive for one of the targeted variants responsive to AD04
would be expected to be more likely to then receive a prescription for AD04 (based on an external quantitative market study of 156 primary
care physicians and psychiatrists that was conducted by Ipsos-Insight LLC, who we commissioned, and that concluded a majority of genetically
targeted patients currently receiving pharmacologic treatment would be switched to a drug with the characteristics expected for AD04).

Our Substantial Proprietary Intellectual Property Estate and
Protection from Competition

We currently hold a worldwide, exclusive license
to three (3) patent families that provide us with the ability to exclude potential competitors from practicing the claimed inventions,
such as the use of ondansetron to treat any of the four (4) specified genotypes for AUD. Our licensed patent estate is expected to provide
us 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. Ondansetron,
the active ingredient in AD04, has never been approved in a low dosage near the AD04 dose of 0.33mg per tablet, and we believe our licensed
patents will protect AD04 from any competitor that attempts to bring to market an ondansetron dose at or near the AD04 dose for treatment
of patients having one or more of the four target genotypes.

We believe use of the currently marketed doses
“off-label” will not be significant due to (i) the lack of demonstrated efficacy at currently marketed doses, (ii) potential
safety concerns if the currently marketed doses are used chronically as is expected to be necessary for treating AUD, and (iii) cutting
the smallest currently marketed dose into the 12 pieces that would be necessary to achieve the AD04 dose is deemed by us to be impractical
and likely to result in inaccurate dosing.

Experienced Leadership

Our management, advisors and board of directors
have extensive experience in pharmaceutical development, the clinical trial and regulatory approval processes, drug commercialization,
financing capital-intensive projects, and developing new markets for pharmaceutical agents. Members of our team have previously worked
in senior management and senior officer positions, or led significant research initiatives at Indivior, Shire, Viagene, Collateral Therapeutics,
Krystal Biotech, Sucampo Pharmaceuticals, GlaxoSmithKline, Osiris Therapeutics, Yumanity Therapeutics, Delix Therapeutics, and Aravive
in a broad range of therapeutic areas. Our management and board members have particular expertise in the science and development of addiction
related drugs and bringing new drugs to the market.

Our Strategy for AD04 and Addiction Related
Diseases and Disorders

We are developing pharmaceutical treatments for
addictions, addictive disorders, and related diseases and disorders. Our business strategy is to advance AD04, our lead investigational
drug candidate, toward regulatory approval for alcohol use disorder in the United States, the European Union, and then eventually other
territories. We subsequently plan to develop label expansions into other indications (e.g., opioid use disorder, other drug addictions,
obesity, smoking cessation, eating disorders, and anxiety).

7

Our goals in executing this strategy are to keep
capital requirements to a minimum, expedite product development, gain access to clinical research and manufacturing expertise that will
advance product development, approval and eventual market uptake of our product, and rely on a well-defined and carefully executed intellectual
property strategy in order to position our products with long-term, defensible, competitive advantages. Execution of this strategy may
include seeking grant funding and funding from partners and collaborators when available on terms we believe to be favorable to us.

Near Term

●
Advancing the AD04 Clinical Development Program in the US.

After the completion of the ONWARD trial, an updated product profile for AD04 was developed to be used to guide future clinical development planning as well as to be used in primary market research.

Summarizing the findings, addiction specialists will order the genetic test for 50% to 100% of their AUD patients. If the genetic test is positive, addiction specialists will prescribe AD04. Addiction specialists are particularly interested in the Mechanism of Action (MOA) and how AD04 complements current products being used to treat AUD. The HDD endpoint validates the hypothesis about AD04 modulating cravings and impulsiveness. For heavy drinking AUD patients seen by addiction specialists, AD04 is likely to be used in conjunction with existing approved products as a first- line medication assisted treatment (MAT) to treat AUD. Because of its high tolerability and excellent safety profile, we believe AD04 is uniquely positioned to reduce alcohol consumption without requiring abstinence among the broader population including mild- and moderate- AUD, and patients that do not have an AUD diagnosis.

Based on the ONWARD trial results, and after discussions with our regulatory advisors and key opinion leaders (KOLs), we believe there is a clear, cost-effective path toward FDA approval that we plan to aggressively pursue. This decision was based on a detailed analysis of both the prior Phase 2 clinical trial and the recently completed ONWARD Phase 3 clinical trial. These results were reviewed with regulatory and statistical experts to confirm their validity. Additionally, after these results were analyzed and confirmed, we engaged commercial experts to confirm the value of this data as tested through market research with physicians and payers.

The detailed analysis of the Phase 2 and Phase 3 data identified two specific genotypes that we believe can meet the FDA’s prespecified, confirmed and recommended primary endpoint, which is to measure the proportion of patients who attain and sustain zero heavy drinking days in a pre-specified efficacy observation period, which was months five and six of the six-month study period in ONWARD.

Based on the information collected and the feedback received from meetings held in Q2 2023 with the FDA and European regulatory agencies and overlapping clinical requirements, we made the strategic decision to focus our efforts on the US as the US standards should translate to acceptance in other international markets. We believe that AD04 will achieve success in clinical development based on our post hoc analysis and the US FDA regulatory feedback on the pre-specified primary endpoint that the FDA has now confirmed (PNHDD). This is also vital for our ongoing partnering efforts based on discussions with companies active in the US and Europe.

Regulators acknowledged
the value of this post hoc work, which showed that patients with the AG+ genetic subtype began treatment averaging more than
17 heavy drinking days per month (17.23) and improved to fewer than 3 heavy drinking days per month (2.37) by study completion. This
resulted in statistical significance difference for the AG+ group of p=0.031 and p=0.021 respectively
in the Phase 2 and Phase 3 trials Importantly, the credible intervals generated by the independent, third-party statistical
consulting group confirmed signals highly consistent with those identified in the original post hoc analysis.

These clinically meaningful results are important as evidenced by the US healthcare provider research completed after the ONWARD trial, which suggests AD04 would play an important role as a medication for physicians currently treating patients with AUD.

8

Market research conducted subsequent to completion of the ONWARD trial suggests unit pricing for AD04 could be significantly higher than previous assumptions which we believe confirms AD04 as an attractive commercial opportunity.

We currently intend to engage a U.S. partner to assist with funding the anticipated required clinical trials and, assuming a successful outcome with FDA, to advance commercialization efforts. We are exploring partnerships with companies that have an established commercial presence and existing relationships with psychiatrists and addiction specialists. With an experienced partner, assuming we obtain FDA approval, we believe that we can rapidly penetrate the U.S. market given the expectation of AD04 being widely accessible, reasonably priced, and reimbursable.

●
Prosecuting and expanding our intellectual property and product portfolio. We have acquired rights to a promising drug candidate and made a significant investment in the development of our licensed patent portfolio to protect our technologies and programs, and we intend to continue to do so. We have obtained exclusive rights to three different patent families directed to therapeutic methods related to our AD04 platform. These families include 3 issued U.S. patents, and at least one foreign equivalent patent covering AD04 issued in over 40 national jurisdictions, including most of Europe and Eurasia. Divisional and continuation applications to expand the coverage have also been filed in certain jurisdictions.

●
Maximizing commercial opportunity for our technology. AD04 targets large markets with significant unmet medical need. We intend to develop an extended release, once-a-day, or other modified formulation of AD04 to enhance compliance and market appeal.

●
Managing our business with efficiency and discipline. We believe we have efficiently utilized our capital and human resources to develop and acquire our product candidate and programs and create a broad intellectual property portfolio. We operate cross-functionally and are led by an experienced management team with backgrounds in developing product candidates. We use project management techniques to assist us in making disciplined strategic program decisions and to attempt to limit the risk profile of our product pipeline.

Longer Term

Evidence from the primary qualitative market research
suggests the product profile for AD04 will be received well by physician and payors. We will continue to develop plans to support future
communications with physicians and payors as well as pre market commercialization planning for AD04

License with University of Virginia Patent
Foundation

We have a worldwide, exclusive license from the
University of Virginia Patent Foundation (d/b/a the Licensing & Venture Group) (“UVA LVG”), which is the licensing arm
of the University of Virginia, to commercialize our investigational drug candidate, AD04, subject toFDA approval of the product, based
upon three separate patent application families, with 90 issued patents in over 40 jurisdictions, including eight issued patents in the
U.S. Our investigational agent has been used in several investigator-sponsored trials and we possess or have rights to use toxicology,
pharmacokinetic and other preclinical and clinical data that support our landmark ONWARD Phase 3 clinical trial. Our licensed therapeutic
agent was the product candidate used in the ONWARD Phase 3 clinical trial of 302 patients as well as a University of Virginia investigator
sponsored Phase 2b clinical trial of 283 patients.

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In January 2011, we entered into an exclusive,
worldwide license agreement with UVA LVG for rights to make, use or sell licensed products in the United States based upon the patents
and patent applications made and held by UVA LVG (the “UVA LVG License”). Three patent and patent application families are
included in the UVA LVG License, with patents issued in over 40 countries, including, without limitation, in the U.S., Europe and Eurasia.
The licensed patents and patent applications currently include the below listed U.S. patents and patent application and any divisional
patents, continuation patents and foreign equivalents.

1.
U.S. Patent Number 8,697,361, issued 4/2017

“Serotonin Transporter Gene and Treatment of Alcoholism”

2.
U.S. Patent Number 10,533,226, filed issued 1/2020

“Serotonin Transporter Gene and Treatment of Alcoholism”

3.
U.S. Patent Number 8,753,815, issued 6/2014

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

4.
U.S. Patent Number 9,539,242, issued 1/2017

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

5.
U.S. Patent Number 10,603,307, issued 3/2020

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

6.
U.S. Patent Number 11,116,753 issued 9/2021

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

7.
US Patent Number 11,324,723, issued 5/2022

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

8.
U.S. Patent Number 11,351,154, issued 7/2020

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

9.
U.S. Patent Number 11,905,562 issued 2/2024

“Serotonin Transporter Gene and Treatment of Substance Use Disorder
including Opioid Use Disorder”

10.
U.S. Patent Number 12,150,931 issued 11/2024

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

11.
US Patent Number 11,957,664 issued 4/2024

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

12.
U.S. Patent Number 12,226,401 issued 2/2025

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

13.
U.S. Patent Number 12,221,654 issued 2/2025

“Serotonin transporter gene and treatment of opioid-related disorders”

14.
U.S. Patent Number 10,619,209 issued 4/2020

“Serotonin transporter gene and treatment of opioid-related
disorders”

15.
US Patent Number 10,995,374 issued 5/2021

“Serotonin transporter gene and treatment of opioid-related
disorders”

16.
US Patent Number 12,274,692 issued 4/2025

“Molecular genetic approach to treatment and diagnosis of alcohol
and drug dependence”

Additionally, the UVA LVG License grants rights
to data and know-how developed by the University of Virginia related to AD04, including, without limitation, to the data from the Phase
2b study described above.

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As consideration for the rights granted in
the license agreement, we are obligated to pay UVA LVG yearly license fees and milestone payments, and a royalty based on net sales
of products covered by the patent-related rights set forth above. More specifically, upon commencement of the license we issued to
UVA LVG Class A Units (which was equal to four percent (4%) of our equity on the date of issuance and was later converted into
shares of common stock) as a license issue. We are obligated to pay UVA LVG (i) annual minimum royalties of $40,000 commencing in
2017; (ii)a $20,000 milestone payments that was originally due upon dosing the first patient under a Phase 3 human clinical trial of
a licensed product but has been paid in full, $155,000 upon the earlier of the completion of a Phase 3 trial of a licensed product
or the partnering of the licensed or sale of our company, which was paid in 2022 with completion of the ONWARD trial, $275,000 upon
acceptance of an NDA by the FDA, and $1,000,000 upon approval for sale of AD04 in the U.S., Europe or Japan; and (iii) royalties
equal to a 2% and 1% of net sales of licensed products in countries in which a valid patent exists or does not exist, respectively,
with royalties paid quarterly. In the event of a sublicense to a third party, we are obligated to pay royalties to UVA LVG equal to
a percentage of what we would have been required to pay to UVA LVG had we sold the products under sublicense ourselves. In addition,
we are required to pay to UVA LVG 15% of any sublicensing income. The license agreement, as amended on October 21, 2013, and further
amended on May 18, 2016, March 27, 2017, August 15, 2017, December 14, 2017, December 18, 2018, December 31, 2019, and October 21,
2024 sets forth specific diligence milestones completion deadlines including using commercially reasonable efforts to submit an NDA
with the FDA for a Licensed Product by March 31, 2028 and commence commercialization of an FDA approved Licensed Product by March
31, 2029. 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. The license agreement may be terminated by UVA LVG upon sixty (60) days
written notice if we breach our material obligations thereunder, including failing to make any milestone, or failing to use
commercially reasonable efforts to submit an NDA or commence commercialization within the date specified above, failing to make
other required payments, or the failure to exercise diligence to bring licensed products to market. In the event of a termination,
we will be obligated to pay all amounts that accrued prior to such termination. The license agreement also contains other customary
clauses and terms as are common in similar agreements between industry and academia, including agreements to indemnify UVA LVG for
any liabilities arising out of or related to the licensee’s exercise of its rights under the license agreement, making the
license grant subject to the Bayh-Dole Act (35 U.S.C. 200 et seq.), the reservation of the licensor of the right to use the licensed
intellectual property rights for its internal, non-commercial purposes, limitations/disclaimers of various warranties and
representations, reporting and record-keeping requirements, and licensee liability insurance requirements.

The term of the license continues until the expiration,
abandonment or invalidation of the licensed patents, and following any such expiration, abandonment or invalidation will continue in perpetuity
on a royalty-free, fully paid basis.

The UVA LVG currently has a policy under which
up to 35% of the payments made to the UVA LVG under a license may be distributed to inventor of the licensed technology, therefor our
former Chief Medical Officer in his capacity as inventor of the patents licensed by us from the UVA LVG may be eligible to receive such
payments from the UVA LVG.

Adial Owned Published Patent Applications

In July of 2025, Adial, through its company
represented patent counsel filed an update to the provisional new patent application which was filed in July
2024. The PCT patent application is a wholly owned patent of Adial Pharmaceuticals. The
new patent application and its expected approval will extend protection of the core assets of Adial to at least
2045 once granted. The implications of this patent greatly enhance the value of AD04 by extending the commercial
exclusivity of AD04’s revenue far into the future once approved.

Protection from Generic Competition

Since our inception, we have focused on taking
action primarily through the filing of patents geared toward ensuring AD04 will have market exclusivity for several years after it is
launched with particular focus on the U.S. and Europe. Ondansetron, the active pharmaceutical ingredient (“API”) of AD04 was
granted FDA approval as Zofran® for the treatment of post-operative and post-chemotherapy nausea and emesis in January
1991 and is now commercially available in generic form at doses from more than 12 times the AD04 dose to over 70 times the AD04 dose with
the highest doses being administered intravenously (“i.v.”), which provides almost twice the drug exposure levels as oral
dosing. With generic ondansetron available, the following threats have been addressed: (i) the potential use of currently available ondansetron
products (i.e., Zofran®) “off-label”, and (ii) the potential manufacturing and launching of a generic version
AD04 by a competitor.

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Limited Threat of “Off-label” Use
of Zofran ®

The lowest doses of Zofran® tablets
(and its generic equivalents) on the market are a 4 mg and 8 mg tablet as compared to AD04, which is currently formulated as a 0.33 mg
tablet (12.2 times less than the 4 mg tablet). Thus, in order for a patient to use tablets already on the market and get the AD04 dose,
a patient would have to cut the 4 mg tablet into 12 parts (or the 8 mg tablet into 24 parts), which we do not believe is reasonably possible;
and, even with precise sectioning into 12 pieces, the dose may still not be accurate because tablets at the Zofran® dose
have not been manufactured to ensure uniformity of distribution of the active ingredient across the tablet. Therefore, we believe that
the risk of a large number of patients attempting to cut the currently marketed tablet to achieve the AD04 dose to be extremely low.

Since we do not believe that Zofran®
tablets can be used as a substitute for AD04, the main question related to the potential for off-label use of the current products for
treating addictions then becomes whether doctors and patients will believe it is possible to use the currently available, higher doses
of ondansetron to treat addictions, including AUD. We believe doctors are extremely unlikely to prescribe currently available high dose
versions of ondansetron and that any such prescribing that dose will likely be limited and immaterial to the sales of AD04 for two reasons
— (1) we believe the high doses are unlikely to be efficacious as a treatment for AUD, and (2) we believe the high doses would likely
raise significant safety concerns.

1.
Lack of Efficacy. The high doses of ondansetron found in Zofran® have been tested in clinical trials for treating AUD and have not shown efficacy against AUD (Sellers, et. al. 1994). At best, existing trial results do not suggest that the high Zofran®-level doses of ondansetron currently on the market and approved for nausea and emesis will be effective.

2.
Safety Concerns. While high-dose ondansetron is safe and tolerable at the doses on the market if administered acutely (i.e., dosed for a few hours i.v. or a few days orally) as is done for post-operative and post-chemotherapy nausea and emesis, the drug is known to have cardiovascular side effects at higher doses, and results from clinical studies suggest that high doses of ondansetron may affect the electrical activity of the heart. In fact, the FDA withdrew approval of the 32 mg i.v. Zofran® product that was previously on the market. As part of the FDA’s on-going safety review of currently available ondansetron doses, the FDA has stated that: “Ondansetron at currently marketed levels may increase the risk of developing prolongation of the QT interval of the electrocardiogram, which can lead to an abnormal or potentially fatal heart rhythm.” There are also several recent lawsuits claiming that Zofran® used for off label for morning sickness causes birth defects. Thus, if the currently available high-dose ondansetron was used chronically as would be needed for treating addiction there could potentially be significant safety concerns without additional clinical studies related to the chronic dosing of currently available ondansetron. At the lower dose of ondansetron in AD04, our product is almost as low as one one-hundredth of the dose of i.v. ondansetron that was removed from the market. The FDA has stated that we can commence chronic dosing of patients with AD04 without any further safety or non-clinical studies.

Therefore, we do not expect physicians to prescribe
current ondansetron doses for currently unapproved use for treating AUD because there is no evidence those doses would work for treating
AUD and there may be safety concerns associated with the chronic administration of currently available doses.

There is also a liquid, pediatric formulation
of Zofran® on the market. It is offered in a 50 mL bottle that is available for a little over $100 online and would provide
a 2-month supply of AD04 if dosed at the 0.4 mL required to achieve the 0.33 mg AD04 dose. Our risk assessment is that, though it would
be possible to use the liquid formulation for administering a dose of ondansetron equivalent to AD04, it is not expected to be a practice
that would materially impact the sales of AD04, and the risk from the liquid formulation is low for the following reasons:

1.
Compliance concerns. In the field of addiction, patient compliance is one of the biggest concerns for both the physicians and the patients themselves. A treatment not appropriately administered is a treatment that will not work. Oral tablets have been shown to have one of the highest compliance rates over other dosage forms. It is likely that both physicians and patients will demand the tablet in order to improve compliance and, thus, treatment success rates.

2.
Inconvenient, complicated delivery. A major driver of compliance is the convenience of appropriately administering the drug. Appropriate delivery of the liquid formulation would require patients to measure each dose into a graduated dropper or syringe (administration of such a small amount (0.4 mL) by graduated cup would not be practical). Cleanup of the sticky product would be inconvenient as would transportation and storage, and an opened bottle would need to be used within 4 weeks (per UKPAR). Therefore, we expect that AD04’s convenient tablet would increase patient compliance relative to the liquid formulation. Bottle breakage and spillage will also be a concern.

12

3.
Dosing Accuracy. Dosing accuracy is particularly important when using ondansetron to treat alcoholism due to the limitations of the therapeutic window and the cardiovascular side effects at high doses. With the liquid formulation, measuring the small (0.4 mL) dose will be difficult with great opportunity for misdosing even if a graduated syringe is used. In real-world practice, many patients would use other methods such as estimated pouring into cups and drinking directly from the bottle. Misdosing could significantly affect the safety and/or efficacy of the treatment.

4.
Lack of physician motivation to prescribe the liquid formulation. Given the known compliance advantages of oral tablets vs. liquid formulations, the heightened need for compliance in this particular patient population, and the concerns around dosing accuracy with a liquid formulation, we believe it is likely physicians would recognize the risk of prescribing the liquid formulation off-label and so be unwilling to prescribe it. For insured patients, any differential in co-payments would create little incentive to use the liquid formulation relative to the compliance and inconvenience problems.

5.
Lack of competitive marketing. Manufacturers of liquid ondansetron are not allowed to market for reduction in alcohol use disorder because reduction in alcohol use disorder is not an approved indication for their product. Furthermore, most generic companies do not have marketing efforts of any kind.

6.
Litigation risk to large prescribers. If a large clinic (such as a rehabilitation clinic) prescribes or provides the liquid formulation off-label, the institution could be liable for inducing infringement of our licensed patents.

In summary, we do not expect off-label use of
currently available ondansetron to meaningfully impact the sales of AD04.

Protection from a Competitor Launching a Generic
Version of AD04.

We believe that we have licensed the patent protection
necessary to protect us against the launch by a competitor of a generic version of AD04. The label being sought for AD04 will be the use
of AD04 (i.e., ondansetron) for the treatment of patients that are positive for the specified genetic markers.

The only use for the AD04 dose of ondansetron
will be under this label.

Our licensed patents cover the following:

The use of AD04 (i.e., ondansetron) for the treatment
of patients that are positive for the specified genetic markers.

We believe that any attempt by competitors to
reformulate and market ondansetron at our intended dosage levels, while technically feasible, can be interpreted under current case law
as inducement to infringe on our intellectual property rights, which should, accordingly, be actionable. Additionally, there will be no
unpatented use for the AD04 dose of ondansetron. So, a competitor that sells a product containing the AD04 dose of ondansetron will indirectly
infringe our licensed patents, which should, accordingly, be actionable.

A competitor could sell a dose equal to that of
AD04 and avoid our licensed patents were they to conduct a Phase 3 program using the AD04 dose to treat a different label indication and
achieved successful results and approval. We do not know of any clinical development programs of ondansetron underway at this time and
so consider this risk to be negligible.

Governmental Regulation

Our business is subject to extensive laws and
regulations, the most significant of which are summarized below.

FDA Approval Process

In the United States, pharmaceutical products
are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (the “FDC Act”), and other federal
and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of
pharmaceutical products. In the United States, pharmaceutical products used for the prevention, treatment, or cure of a disease or condition
of a human being are subject to extensive regulation under the FDC Act. Failure to comply with applicable U.S. requirements may subject
a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning or untitled letters,
product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and
criminal prosecution.

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Pharmaceutical product development for a new product
or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission
to the FDA of an investigational new drug application (“IND”), which must become effective before clinical testing may commence,
and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA
approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary
substantially based upon the type, complexity, and novelty of the product or disease.

Preclinical tests include laboratory evaluation
of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy
of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory
practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information
about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal
tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of
each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND
within this 30-day period, the clinical trial proposed in the IND may begin. However, the FDA can impose a clinical hold after 30 days
if it has safety or compliance-related concerns.

Clinical trials involve the administration of
the investigational new drug or biologic to healthy volunteers or patients under the supervision of a qualified investigator. Clinical
trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (“GCP”),
an international standard meant to protect the rights and health of subjects and to define the roles of clinical trial sponsors, administrators,
and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety,
and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. subjects and subsequent protocol amendments must
be submitted to the FDA as part of the IND.

As noted, the FDA may order the temporary, or
permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is
not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol
and informed consent information for subjects in clinical trials must also be submitted to an institutional review board (“IRB”),
for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply
with the IRB’s requirements, for safety or other concerns, or may impose other conditions.

Clinical trials to support NDAs for marketing
approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug
or biologic into healthy human subjects or patients, the product is tested to assess metabolism, pharmacokinetics, pharmacological actions,
side effects associated with increasing doses, and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a
limited patient population to determine the effectiveness of the drug or biologic for a particular indication, dosage tolerance, and optimum
dosage, and to identify common adverse effects and safety risks. If preliminary evidence of effectiveness and an acceptable safety profile
in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger
number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk
relationship of the drug or biologic and to provide adequate information for the labeling of the product. In most cases, the FDA requires
two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug or biologic. 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.

After completion of the required clinical testing,
an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United
States. The NDA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s
pharmacology, chemistry, manufacture, and control. The cost of preparing and submitting an NDA is substantial. The submission of most
NDAs is additionally subject to a substantial application user fee, currently exceeding $4.6 million for fiscal year 2026 (although a
waiver is possible in certain cases), and the manufacturer and/or sponsor under an approved new drug application are also subject to a
program fee set at more than $442,000 for fiscal year 2026. These fees are typically increased annually.

14

The FDA has 60 days from its receipt of an NDA
to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently
complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed
to certain performance goals in the review of NDAs. Most such applications for standard review drug or biologic products are reviewed
within ten to twelve months; most applications for priority review drugs or biologics are reviewed in six to eight months. The FDA can
extend these reviews by three months. The review process for both standard and priority review may be extended by the FDA for three additional
months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel
drug or biologic products, or drug or biologic products that present difficult questions of safety or efficacy, to an advisory committee
— typically a panel that includes clinicians and other experts — for review, evaluation, and a recommendation on questions
raised by an application, including whether the application should be approved. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical
sites to assure compliance with GCP. Additionally, the FDA may inspect the facility or the facilities at which the drug is manufactured.
The FDA will not approve the product unless compliance with current good manufacturing practice (“cGMP”) is satisfactory and
the NDA contains data that provide substantial evidence that the drug or biologic is safe and effective in the indication studied.

After the FDA evaluates the NDA and the manufacturing
facilities, it issues either an approval letter or a Complete Response Letter (“CRL”). In some cases, FDA may choose to extend
the review time, in consultation with the sponsor. A CRL generally outlines the deficiencies in the submission and may require substantial
additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed
to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing
such resubmissions in two or six months depending on the type of information included.

An approval letter authorizes commercial marketing
of the drug or biologic with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require
a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can
include medication guides, communication plans for healthcare professionals, and elements to assure safe use (“ETASU”). ETASU
can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances,
special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability
of the product. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the product’s
safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems
are identified following initial marketing. The FDA could also impose a boxed warning (sometimes referred to as a Black Box Warning) in
the product label if it identifies a specific risk that requires particular attention. This imposition of a Black Box Warning limits certain
types of promotions.

Changes to some of the conditions established
in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and
FDA approval of a new NDA or NDA supplement before the change can be implemented.

Enacted in 2016, the 21st Century Cures
Act (the “Cures Act”), in part, revises the drug and device review and approval processes at the FDA. The Cures Act, which
was signed into law on December 13, 2016, among other things, requires the manufacturer of an investigational drug for a serious disease
or condition to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual
patient access to such investigational drug. This requirement applies on the later of 60 calendar days after the date of enactment of
the Cures Act or the first initiation of a Phase 2 or Phase 3 trial of the investigational drug.

The FDA has various programs, including fast track
designation, accelerated approval, priority review, and breakthrough therapy designation, which are intended to expedite or simplify the
process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions
and demonstrate the potential to address unmet medical needs. We believe AD04 may qualify for one or more of these programs and intend
to pursue one or more of them as part of our strategy to expedite the approval of AD04 for marketing.

15

Post-Approval Requirements

Once an NDA is approved, a product will be subject
to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs and
biologics, including standards and regulations for direct-to-consumer advertising, industry-sponsored scientific and educational activities
and promotional activities involving the internet. Drugs and biologics may be marketed only for the approved indications and in accordance
with the provisions of the approved labeling.

Adverse event reporting and submission of periodic
reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS,
and special surveillance to monitor the effects of an approved product, or the FDA may place other conditions on an approval that could
restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must
continue to conform to cGMPs after approval. Drug and biologic manufacturers must list the product with the FDA, and they and certain
of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA
subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing and other facilities
to assess compliance with cGMPs and other requirements. Accordingly, manufacturers must continue to expend time, money, and effort in
the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals,
issue warning or other letters, suspend production activities, or request product recalls if a company fails to comply with regulatory
standards, or take other regulatory or enforcement action if it encounters problems following initial marketing, or if previously unrecognized
problems are subsequently discovered. Significant expenses are required to correct deficiencies.

Companion diagnostics and complementary
diagnostics

We believe that the success of our product candidates
may depend, in part, on the development and commercialization of either a companion diagnostic or complementary diagnostic. Companion
diagnostics and complementary diagnostics can identify patients who are most likely to benefit from a particular therapeutic product;
identify patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product;
or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety
or effectiveness. Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA and, as such, require
either clearance or approval prior to commercialization. The level of risk combined with available controls to mitigate risk determines
whether a companion diagnostic device requires Premarket Approval Application, or PMA, approval or is cleared through the 510(k) premarket
notification process. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product. This is
also true for a complementary diagnostic, although it is not a prerequisite for receiving the therapeutic product approval. Currently,
we intend to submit a 505(b)(2) new drug application to the FDA for AD04. We have interacted primarily with the FDA’s Center
for Drug Evaluation and Research, in consultation with the agency’s Center for Devices and Radiological Health (“CDRH”).
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 and this approval
process will take place after approval of the therapeutic product. The necessary information required for the completion of the companion
diagnostic PMA or 510K submission to CDRH will be part of the clinical development program for AD04 and will also require a MDUFA (Medical
Device User Fee Amendments) fee. As of 2026 the fee for submission of the PMA is $579,272 and the fee for a 510K is $26,067. These fees
are typically increased annually.

Hatch-Waxman Amendments to the Federal Food,
Drug and Cosmetic Act

Under certain circumstances, an approved application
may be eligible for three years of non-patent market exclusivity provided by the Hatch-Waxman Amendments to the Federal Food, Drug, and
Cosmetic Act. The FDA might grant such exclusivity, (which would be separate from any patent protection to which an approved drug might
be entitled) if the applicant conducted new clinical investigations (other than bioavailability studies) that are new and essential to
the application’s approval. Among the types of exclusivity are those for a “new chemical entity” and those for a new
formulation or indication for a previously-approved drug. If granted, marketing exclusivity for the types of products that include only
drugs with innovative changes to previously-approved products using the same active ingredient, might prohibit the FDA from approving
an application for a competitor product, such as an abbreviated new drug application or a 505(b)(2) NDA relying on the finding of safety
and efficacy for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does
not prohibit the FDA from approving applications for drugs with the same active ingredient but without the new innovative change. These
marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative change. There
is no guarantee that the FDA will grant such exclusivity and competitors can try to seek approval of competitive products, notwithstanding
the exclusivity. However, if three years of exclusivity is afforded, it offers us one more barrier to competitor entry for a few years.

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505(b)(2) NDA

For AD04, we intend to submit a 505(b)(2) NDA.
A 505(b)(2) NDA provided by Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, allows the FDA to rely, for approval of an
NDA, on data not developed by the applicant. Such an NDA, referred to as a 505(b)(2) application contains full reports of investigations
of safety and effectiveness, but where at least some of the information required for approval comes from studies not conducted by or for
the applicant and for which the applicant has not obtained a right of reference. Such applications permit approval of applications other
than those for duplicate products and permit reliance for such approvals on scientific literature or an FDA finding of safety and/or effectiveness
for a previously approved drug product. While each application is different, these types of applications will typically require bridging
studies (to support the change or modification from the listed drug) and could require clinical data to support the modification of the
already-approved drug product.

In addition, a 505(b)(2) NDA requires the applicant
to certify as to any patents that claim the drug for which a claim of patent infringement could be made. In certain cases, the applicant
of the NDA with a patent certification must provide notice to the patent holder, which can lead to a patent infringement lawsuit, thereby
delaying the FDA approval of the competitor product for up to 30 months, separate from any traditional patent infringement litigation
delay. Similarly, if the competitor has its own market exclusivity, this can delay approval of the product. However, if a product obtains
exclusivity or patent protection, it can delay entry of competitors for several years.

Pediatric Information

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.
The FDA may grant full or partial waivers, or deferrals, for submission of data.

Fraud and Abuse and Other Healthcare Regulation

We are subject to various federal and state healthcare
laws, including, but not limited to, anti-kickback laws. Penalties for violations of these healthcare laws include, but are not limited
to, criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from Medicare,
Medicaid and other federal and state healthcare programs, and the curtailment or restructuring of operations.

Anti-Kickback Statute

The federal Anti-Kickback Statute prohibits persons
or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or
covertly, in cash or in kind, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending
a good or service, or for the purchasing, leasing, ordering, or arranging for or recommending, any good, facility, service or item for
which payment may be made in whole or in part under federal healthcare programs, such as the Medicare and Medicaid programs. The federal
Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry.
The term “remuneration” expressly includes kickbacks, bribes, or rebates and also has been broadly interpreted to include
anything of value, including for example, gifts, discounts, meals, entertainment, the furnishing of supplies or equipment, credit arrangements,
payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value.

There are a number of statutory exceptions and
regulatory safe harbors protecting certain business arrangements from prosecution under the federal Anti-Kickback Statute. These statutory
exceptions and safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers
and other parties that they may not be prosecuted under the federal Anti-Kickback Statute. The failure of a transaction or arrangement
to fit precisely within one or more applicable statutory exceptions or safe harbors does not necessarily mean that it is per se
illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy all requirements of
an applicable safe harbor may result in increased scrutiny by government enforcement authorities and will be evaluated on a case-by-case
basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the federal Anti-Kickback
Statute was amended under the Affordable Care Act, to a stricter standard such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation. The Affordable Care Act provides that
the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the federal civil False Claims Act, which is discussed below.

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Federal Civil False Claims Act

The federal civil False Claims Act prohibits,
among other things, persons or entities from knowingly presenting or causing to be presented a false or fraudulent claim to, or the knowing
use of false statements to obtain payment from or approval by, the federal government. Suits filed under the federal civil False Claims
Act, known as “qui tam” actions, can be brought by any individual on behalf of the government. These individuals, sometimes
known as “relators” or, more commonly, as “whistleblowers”, may share in any amounts paid by the entity to the
government in fines or settlement. The number of filings of qui tam actions has increased significantly in recent years, causing more
healthcare companies to have to defend a case brought under the federal civil False Claim Act. If an entity is determined to have violated
the federal civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil
penalties for each separate false claim. Many comparable state laws are broader in scope and apply to all payors, and therefore, are not
limited to only those claims submitted to the federal government.

Federal Physician Self-Referral Prohibition

We may also be subject to the federal physician
self-referral prohibitions, commonly known as the Stark Law, which prohibits, among other things, physicians who have a financial relationship,
including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaid patients for designated
health services (which include clinical laboratory services) to such entity, unless an exception applies. Similarly, entities may not
bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral. Many states have their own self-referral
laws as well, which in some cases apply to all third-party payors, not just Medicare and Medicaid.

Federal Civil Monetary Penalties Statute

The federal Civil Monetary Penalties Statute,
among other things, imposes fines against any person or entity who is determined to have presented, or caused to be presented, claims
to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is
false or fraudulent.

Health Insurance Portability and Accountability
Act of 1996

The federal Health Insurance Portability and Accountability
Act (“HIPAA”) created several new federal crimes, including healthcare fraud and false statements relating to healthcare matters.
The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including
private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services.

In addition, HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act (“HITECH”), and their implementing regulations established uniform standards
for certain covered entities, which are healthcare providers, health plans and healthcare clearinghouses, as well as their business associates,
governing the conduct of specified electronic healthcare transactions and protecting the security and privacy of protected health information.
Among other things, HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file
civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs
associated with pursuing federal civil actions.

The Federal Physician Payments Sunshine
Act

The federal Physician Payment Sunshine Act requires
certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program, with certain exceptions, to report annually to CMS, information related to “payments
or other transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors)
and teaching hospitals, and to report annually to CMS ownership and investment interests held by physicians, as defined above, and their
immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of
value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to
an aggregate of $1.0 million per year for “knowing failures.”

Data Privacy

We are subject to various laws and regulations
globally regarding privacy and data protection, including laws and regulations relating to the collection, storage, handling, use, disclosure,
transfer and security of personal information. The legislative and regulatory environment regarding privacy and data protection is continuously
evolving and developing and the subject of significant attention globally. Certain privacy and data protection laws, such as the HIPAA
and the California Consumer Privacy Act (“CCPA”), may not apply to us directly at this time, but those laws may apply to
the investigators, health care professionals, third party payors, and business partners with whom we have relationships and so may apply
to our processing of personal information that we receive from or share with such third parties. We may also engage service providers,
such as contract research organizations, to process personal information on our behalf. We cannot ensure that all our contractors, vendors,
licensees, business partners or collaborators will comply with all applicable privacy and data protection laws and regulations. The failure
to comply with these current and future laws could result in significant penalties and reputational harm and could have a material adverse
effect on our business and results of operations.

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State Law Equivalents

Many states have also adopted laws similar to
each of the above federal laws, such as anti-kickback and false claims laws, which may be broader in scope and apply to items or services
reimbursed by any third-party payor, including commercial insurers, as well as laws that restrict our marketing activities with health
care professionals and entities, and require us to track and report payments and other transfers of value, including consulting fees,
provided to certain healthcare professionals and entities. Some states mandate implementation of compliance programs to ensure compliance
with these laws. We also are subject to foreign fraud and abuse laws, which vary by country.

Pricing and Reimbursement

In both the U.S. and foreign markets, the ability
to successfully commercialize product candidates that have obtained regulatory approval by the FDA or other governmental authorities depends
in significant part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the U.S.,
governmental payors such as Medicare and Medicaid, managed care organizations, and private commercial health insurers. There is significant
uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions
about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services (“CMS”). Private
payors tend to follow CMS to a substantial degree. However, no uniform or consistent policy of coverage and reimbursement for drug products
exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor
as well as from state to state. Consequently, the coverage determination process is often a time-consuming and costly process that must
be played out across many jurisdictions and different entities. Further, a payor’s decision to provide coverage for a drug product
does not imply that an adequate reimbursement rate will be approved.

In addition, direct or indirect governmental price
regulation may affect the prices that we may charge for product candidates. For example, in the United States and some foreign jurisdictions,
the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price
control mechanisms. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare
system in ways that could significantly affect the pharmaceutical industry, including the Patient Protection and Affordable Care Act of
2010 (the “ACA”) and the Inflation Reduction Act of 2022 (the “IR Act”). We anticipate that in the U.S., Congress,
state legislatures, and private sector entities will continue to consider and may adopt healthcare policies intended to curb rising healthcare
costs.

Healthcare Reform

In the United States, there have been, and continue
to be, proposals by the federal government, state governments, regulators and third-party payors to control or manage the increased costs
of health care and, more generally, to reform the U.S. healthcare system. Healthcare reforms that have been adopted, and that may be adopted
in the future, could result in further reductions in coverage and levels of reimbursement for pharmaceutical products, increases in rebates
payable under U.S. government rebate programs and additional downward pressure on pharmaceutical product prices. There has been increasing
legislative and enforcement interest in the United States with respect to drug pricing practices.

For example, several healthcare reform initiatives
culminated in the enactment of the IR Act in August 2022, which, among other things, requires the U.S. Department of Health and Human
Services (the “HHS”) to directly negotiate the selling price of a statutorily specified number of drugs and biologics each
year that CMS reimburses under Medicare Part B and Part D. The negotiated price may not exceed a statutory ceiling price. Only high-expenditure
single-source drugs that have been approved for at least 7 years (11 years for single-source biologics) are eligible to be selected by
CMS for negotiation, with the negotiated price taking effect two years after the selection year. For 2026, the first year in which negotiated
prices become effective, CMS selected 10 high-cost Medicare Part D products in 2023, negotiations began in 2024, and the negotiated maximum
fair price for each product has been announced. In addition, CMS selected and announced the negotiated maximum fair price for 15 additional
Medicare Part D drugs, which will become effective in 2027. For 2028, CMS has selected an additional 15 drugs, comprised of drugs covered
under Medicare Part D and, for the first time, drugs payable under Medicare Part B. For 2029 and subsequent years, 20 Part B or D drugs
will be selected. The negotiated prices have represented, and will continue to represent, a significant discount from average prices to
wholesalers and direct purchasers. The IR Act also imposes rebates on Medicare Part B and Part D drugs whose prices have increased at
a rate greater than the rate of inflation, and in 2024, CMS finalized regulations for the Medicare Part B and Part D inflation rebates.
The IR Act permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial
years. Manufacturers that fail to comply with the IR Act may be subject to various penalties, including civil monetary penalties. These
provisions have been, and may continue to be, subject to legal challenges. It is unclear what policies will be advanced with respect to
IR Act implementation and other drug pricing proposals.

In addition, Congress often uses the Medicare
program for pay for legislation. For example, on April 16, 2015, President Obama signed into law the “Medicare Access and CHIP Reauthorization
Act of 2015” (“MACRA”). MACRA repealed the Medicare sustainable growth rate formula that had been used to determine
payment levels under the Medicare physician fee schedule (“PFS”), and established a new method to update payments for physicians
and other providers paid under the PFS. Congress reduced Medicare payments for several categories of providers and made changes to Medicare
policies to offset the cost of the bill. It is possible that future legislation and regulations may include Medicare payment reductions
or policy changes that result in reduced payments, increased burdens or increased operating costs.

In addition, in May 2025, the administration published
an executive order regarding most favored nation (“MFN”) drug pricing, which is sometimes referred to as international reference
pricing. This executive order directs HHS to communicate MFN price targets to pharmaceutical manufacturers, and if significant progress
towards MFN pricing is not delivered, to propose a rule making plan to implement MFN pricing. Recently, on December 23, 2025, CMS issued
proposed regulations to establish, under the Center for Medicare and Medicaid Innovation, two mandatory MFN demonstration models under
Medicare Parts B and D, respectively. If these rules or other MFN pricing rules are finalized, they are likely to mandate reduced prices
of at least some drugs in the United States, if they are also sold in comparator countries.

At the state level, legislatures have increasingly
passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and in some cases,
designed to encourage importation from other countries and bulk purchasing. It is unclear to what extent additional statutory, regulatory,
and administrative initiatives will be enacted and implemented.

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The full impact of the IR Act and MACRA, as well as
other laws, executive orders and reform measures that may be proposed and adopted in the future, remains uncertain, but may continue the
downward pressure on medical device pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating
costs, which could have a material adverse effect on our business operations. Regulatory changes related to healthcare reform could have
a significant impact on important aspects of our business including medical device and drug pricing, Medicare payment reductions or policy
changes that result in reduced payments, or increased burdens or operating costs.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (“FCPA”),
prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or
indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of such foreign
official in her or her official capacity or to secure any other improper advantage in order to obtain or retain business. In addition
to the antibribery provisions, the FCPA also obligates “issuers,” companies whose securities are registered pursuant to Section
12 of the Exchange Act or is required to file periodic and other reports with SEC under Section 15(d) of the Exchange Act to comply with
the FCPA’s record keeping and internal controls provisions; the accounting provisions require a listed company to maintain books
and records that, in reasonable detail, accurately and fairly reflect all transactions of the corporation, including international affiliates,
and to devise and maintain an adequate system of internal accounting controls to assure management’s control authority, and responsibility
over the company’s assets.

Export Controls and Economic Sanctions

Several U.S. statutes and regulations regulate
the export from the United States of pharmaceutical products. Pursuant to the Export Administration Regulations, (“EAR”) the
export (including re-exports and “deemed exports”) of commercial and “dual-use” products may require a license
or be prohibited. A listing of the types of goods and services controlled for export by the EAR is on the Commerce Control List (“CCL”),
which includes essentially all civilian science, technology, and engineering dual use items. For products listed on the CCL, a license
will be required as a condition to export, unless an exclusion or license exception applies. Those items not explicitly included on the
CCL are included in a broad category known as “EAR99.” Although a license may not generally be required for EAR99 designated
items, a license will be required if the item will be shipped or otherwise transferred to a comprehensively embargoed country or for a
potentially prohibited purpose.

The Commerce Department’s Office of Antiboycott
Compliance and the Treasury Department’s Internal Revenue Service enforce anti-boycott compliance regulations that prohibit U.S.
persons such as the Company from participating directly or indirectly with an economic boycott that is not recognized by the United States.
The regulations include reporting requirements, prohibitions, and tax liabilities that may be incurred if the Company supports, even inadvertently,
an economic boycott in which the U.S. does not participate.

Pursuant to the Trading With the Enemy Act, the
International Emergency Economic Powers Act, and other related statutes, regulations, and Executive Orders, the Treasury Department’s
Office of Foreign Assets Control (“OFAC”), administers and enforces economic and trade sanctions that prohibit or restrict
certain activities with embargoed countries, sanctioned entities, and sanctioned individuals for particular foreign policy and national
security reasons. The scope of the sanctions varies significantly, but may include comprehensive restrictions on imports, exports, investment,
and facilitation of foreign transactions involving a sanctioned jurisdiction, entity or person, as well as non-sanctioned persons and
entities acting on behalf of sanctioned jurisdictions, entities or people. OFAC’s programs also prohibit U.S. persons, such as the
Company, from transacting with any person or entity that is deemed to be a Foreign Sanctions Evader (foreign individuals and entities
determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions).

Other U.S. government agencies, including the
U.S. Department of State, may maintain regulations that impact the Company’s ability to export pharmaceutical products from the
United States. These broad range of U.S. export control laws and regulations obligate U.S. businesses to develop, maintain, and enforce
an adequate system of internal controls to ensure compliance with such laws and regulations.

Implications of Being a Smaller Reporting Company

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 $250 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 $700 million as of the last business
day of our second fiscal quarter.

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Corporate Information

ADial Pharmaceuticals, L.L.C. was formed as a
Virginia limited liability company in November 2010. ADial Pharmaceuticals, L.L.C. converted from a Virginia limited liability company
into a Virginia corporation on October 3, 2017, and then reincorporated in Delaware on October 11, 2017 by merging the Virginia corporation
with and into Adial Pharmaceuticals, Inc., a Delaware corporation that was incorporated on October 5, 2017 as a wholly owned subsidiary
of the Virginia corporation. We refer to this as the corporate conversion/reincorporation. In connection with the corporate conversion/reincorporation,
each unit of ADial Pharmaceuticals, L.L.C. was converted into shares of common stock of the Virginia corporation and then into shares
of common stock of Adial Pharmaceuticals, Inc., the members of ADial Pharmaceuticals, L.L.C. became stockholders of Adial Pharmaceuticals,
Inc. and Adial Pharmaceuticals, Inc. succeeded to the business of ADial Pharmaceuticals, L.L.C.

Purnovate, LLC, was our wholly owned subsidiary,
formed as a Virginia limited liability company in April 2019. Purnovate, LLC converted from a Virginia limited liability company into
a Virginia corporation on January 18, 2021, and reincorporated in Delaware on January 26, 2021 by merging the Virginia corporation with
and into Purnovate, Inc., a Delaware corporation that was incorporated on January 20, 2021 and was a wholly owned subsidiary of ours.
The assets and business of Purnovate were sold in 2023. In January 2025, our board of directors approved the merger of Purnovate into
Adial. This merger was completed during the third quarter of 2025.

Our principal executive offices are located at
4870 Sadler Rd, Suite 300, Glen Allen VA 23060, and our telephone number is (804) 487-8196. Our website address is adial.com. Information
contained in our website does not form part of this Annual Report on Form 10-K and is intended for informational purposes only. The SEC
maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that website is sec.gov.

This Annual Report on Form 10-K contains references
to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this
Annual Report on Form 10-K, including logos, artwork and other visual displays, may appear without the ® or TM symbols,
but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our
rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’
trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Human Capital/Employees

As of the date of filing this Annual Report on
Form 10-K, we have six employees, of which five are full-time employees, and one is a consultant. Our Chief Medical Officer is a consultant
that devotes approximately 50% of her working time to providing services to us. None of our employees is represented by a labor union,
and we consider our relationship with our employees to be good.

We anticipate that we will need to identify, attract,
train and retain other highly skilled personnel to pursue our development program. Hiring for such personnel is competitive, and there
can be no assurance that we will be able to retain our key employees or attract, assimilate or retain the qualified personnel necessary
for the development of our business.

We have no collective bargaining agreements with
our employees and have not experienced any work stoppages. We consider our relations with our employees to be good. Although, management
continually seeks to add additional talent to its work force, management believes that it has sufficient human capital to operate its
business successfully.

Competitive Pay and Benefits. Our compensation
programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract,
retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for
both short-term and long-term performance. Specifically:

●
We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

●
Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.

●
All full-time employees are eligible for health insurance, paid and unpaid leaves, a 401K retirement plan with employer matching contributions (maximum of 4% match), and life insurance coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs, including flexible time-off, telemedicine, and paid parental leave.

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