Cardiol Therapeutics Inc.

Cardiol Therapeutics Inc. is a clinical-stage life sciences company focused on the research and clinical development of anti-inflammatory and anti-fibrotic therapies for the treatment of heart diseases. The company's core business model revolves around developing and commercializing novel drug candidates, primarily CardiolRx™ (cannabidiol) oral solution and CRD-38, a subcutaneously administered drug formulation. Revenue generation is currently in the development stage, with no significant product sales revenue expected for several years, if at all, from its acute myocarditis, recurrent pericarditis, and subcutaneous product candidates. The company's primary customer segments are patients suffering from heart diseases such as acute myocarditis, recurrent pericarditis, and heart failure, with a strategic focus on rare diseases that may qualify for Orphan Drug Designation.

Cardiol's lead drug candidate, CardiolRx™ (cannabidiol) oral solution, is pharmaceutically manufactured and is currently in clinical development for two rare heart diseases. It is being evaluated in a Phase II multi-center open-label pilot study (MAvERIC-Pilot; NCT05494788) for recurrent pericarditis, an inflammatory disease of the pericardium. The FDA has granted Orphan Drug Designation to CardiolRx for the treatment of pericarditis, which includes recurrent pericarditis. Additionally, CardiolRx is in a Phase II multi-national, randomized, double-blind, placebo-controlled trial (ARCHER; NCT05180240) for acute myocarditis, a significant cause of acute and fulminant heart failure in young adults. The company is also developing CRD-38, a novel subcutaneously administered drug formulation of its lead small molecule drug candidate, for use in heart failure. This formulation is in preclinical development and is intended to improve the pharmacokinetic profile compared to existing oral formulations, potentially allowing for lower and less frequent dosing.

For the fiscal year ended December 31, 2023, Cardiol Therapeutics Inc. reported no sales revenue ¹. The company incurred a net loss and comprehensive loss of $28,128,292 ², an improvement from the $30,930,647 ³ loss in 2022 and $31,638,244 ⁴ loss in 2021. Operating expenses for 2023 included $15,561,217 ⁵ in general and administration and $14,224,287 ⁶ in research and development. This compares to $22,373,798 ⁷ in general and administration and $18,962,080 ⁸ in research and development for 2022. Basic and diluted net loss per share for 2023 was $(0.44) ⁹, compared to $(0.49) ¹⁰ in 2022 and $(0.73) ¹¹ in 2021. As of December 31, 2023, cash and cash equivalents stood at $34,931,778 ¹², a decrease from $59,469,868 ¹³ at December 31, 2022. Total liabilities were $8,454,001 ¹⁴ at year-end 2023, down from $9,826,930 ¹⁵ in 2022. The company's total equity was $28,246,507 ¹⁶ as of December 31, 2023, compared to $52,201,588 ¹⁷ at the end of 2022.

Year-over-year, the company experienced a reduction in both general and administration expenses, which decreased from $22,373,798 ⁷ in 2022 to $15,561,217 ⁵ in 2023, and research and development expenses, which fell from $18,962,080 ⁸ in 2022 to $14,224,287 ⁶ in 2023. This contributed to the narrowing of the net loss from $30,930,647 ³ in 2022 to $28,128,292 ² in 2023. Interest income increased significantly to $2,038,465 ¹⁸ in 2023 from $1,237,632 ¹⁹ in 2022. The company also reported a foreign exchange loss of $(712,717) ²⁰ in 2023, contrasting with a gain of $2,761,935 ²¹ in 2022. The change in derivative liability resulted in a gain of $181,725 ²² in 2023, a substantial decrease from the $6,241,221 ²³ gain in 2022.

During the reported period, Cardiol Therapeutics achieved several significant operational developments. In January 2024, the ARCHER trial for acute myocarditis exceeded 50% patient enrollment ²⁴. The company also regained compliance with Nasdaq's minimum bid price requirement in January 2024 ²⁵. In February 2024, the FDA granted Orphan Drug Designation to CardiolRx for the treatment of pericarditis ²⁶, including recurrent pericarditis. Patient enrollment in the MAvERIC-Pilot study for recurrent pericarditis was completed in February 2024 ²⁷. Pre-clinical study results in October 2023 demonstrated that subcutaneously administered cannabidiol (CRD-38) slowed increases in body weight and heart weight, and prevented increases in key cardiac inflammatory and remodeling markers in a model of HFpEF ²⁸. Further, in November 2023, study results showed that an experimental model of pericarditis induces mesothelial to mesenchymal transition (MMT), and this process is inhibited by cannabidiol treatment ²⁹. The LANCER trial for COVID-19 was discontinued in October 2022 due to a lack of eligible patients and a lower-than-anticipated event rate ³⁰.

Cardiol Therapeutics expects to report topline results from the MAvERIC-Pilot study in Q2 2024 ³¹ and trial extension data during H2 2024 ³². The company has budgeted approximately $1 million ³³ in additional costs to complete this study. If the study meets its objectives, Cardiol expects to undertake a larger clinical study, the details of which will be determined in conjunction with external clinical advisors and regulatory agencies. Patient recruitment for the ARCHER trial is anticipated to be completed during Q3 2024 ³⁴, with additional costs to complete this study budgeted at approximately $6 million ³⁵. Similar to MAvERIC-Pilot, if ARCHER meets its objectives, a larger clinical study is expected, with details to be determined in consultation with advisors and regulatory agencies.

The company is actively pursuing two major growth vectors: the clinical development of CardiolRx for recurrent pericarditis and acute myocarditis, and the preclinical development of CRD-38 for heart failure. For recurrent pericarditis, CardiolRx has received Orphan Drug Designation from the FDA, which provides incentives including seven-year marketing exclusivity and exemptions from certain FDA fees ³⁶. The MAvERIC-Pilot study, which completed patient enrollment in February 2024 ²⁷, aims to evaluate the tolerance, safety, and efficacy of CardiolRx, as well as its impact on objective disease measures and the feasibility of weaning concomitant background therapy. For acute myocarditis, the ARCHER trial, which exceeded 50% patient enrollment in January 2024 ²⁴, is designed to study the safety, tolerability, and impact of CardiolRx on myocardial recovery. The company believes there is a significant opportunity for CardiolRx to receive Orphan Drug Designation for acute myocarditis in the U.S. and E.U. ³⁷.

In terms of operational outlook, Cardiol is developing CRD-38, a novel subcutaneously administered cannabidiol formulation, for heart failure. This formulation is undergoing scale-up manufacturing to support toxicity studies ³⁸. Pharmacokinetic testing on CRD-38 in 2023 showed a long blood level duration, supporting the premise of once-per-week or less frequent administration ³⁹. The company's nanotechnology, based on patented biocompatible and biodegradable polymers, is designed for drug encapsulation and delivery, with nanoparticles accumulating in inflamed and fibrotic tissue, making them suitable for anti-fibrotic and anti-inflammatory drugs ⁴⁰.

Cardiol's planned capital allocation includes ongoing investment in research and development programs. The company relies on contract research organizations (CROs), clinical data management organizations, and consultants for the design, conduct, supervision, and monitoring of its preclinical studies and clinical trials ⁴¹. For 2024, the Corporation is committed to contract research services at a cost of approximately $441,032 ⁴². Additionally, the company has remaining commitments of $494,503 ⁴³ for consultant services in 2024. The company's current policy is to retain earnings to finance the development and enhancement of its product candidates and to otherwise reinvest in the Corporation, with no anticipated cash dividends on Common Shares in the foreseeable future ⁴⁴.

Management has explicitly flagged several structural headwinds and execution risks. The company's prospects depend on the success of its subcutaneous product candidate, which is in early stages of development, and the success of its Phase II trials in acute myocarditis and recurrent pericarditis, with no assurance of generating revenue for several years ⁴⁵. Clinical trials are expensive, time-consuming, uncertain, and susceptible to delays or termination ⁴⁶. Negative results from clinical trials or adverse safety events could harm future commercialization efforts ⁴⁷. The company relies on contract manufacturers and third-party suppliers, and quality, cost, or delivery issues could significantly harm business operations ⁴⁸. Existing or future collaboration agreements may not be successful, which would have adverse financial consequences ⁴⁹. Product candidate shipment delays due to import/export restrictions or storage issues could also adversely affect the business ⁵⁰.

Geographic, regulatory, and macro factors identified as constraints include comprehensive regulation under healthcare laws and compliance requirements in the U.S. and Canada, with potential for significant penalties for non-compliance ⁵¹. Product candidates containing cannabinoids are subject to the Cannabis Act and Cannabis Regulations in Canada, and controlled substance laws in other jurisdictions, which may delay product launch or restrict sales ⁵². Changes in laws and regulations may make compliance challenging, costly, and time-consuming ⁵³. The company may also be classified as a "passive foreign investment company" (PFIC) for U.S. federal income tax purposes, which would subject U.S. investors to potentially significant adverse U.S. federal income tax consequences ⁵⁴. The company believes it was a PFIC for the taxable year ended December 31, 2023, and expects it may be a PFIC for the current taxable year ⁵⁵. Macroeconomic risks such as inflation, rising energy and commodity costs, and global market volatility could also adversely affect operations and financial condition ⁵⁶.

The most material risks disclosed in the filing include the inherent uncertainty of product development and clinical trials, with no guarantee that current product candidates will result in regulatory approval or commercially viable products, and no expectation of revenue generation for several years ⁴⁵. The company has a history of operating losses and requires additional financing, with no assurance that such capital will be available or on favorable terms, potentially leading to dilution for existing shareholders ⁵⁷. Clinical trials are expensive, time-consuming, and susceptible to delays or termination, which could substantially harm the business and delay commercialization ⁴⁶. Negative results from clinical trials or adverse safety events related to product candidates or therapeutic areas could adversely affect securities prices and financing ability ⁴⁷. The company relies on contract manufacturers and third parties for preclinical and clinical development, and their failure to perform as required could cause substantial harm ⁴⁸. Regulatory compliance is extensive and ongoing, with failure to comply potentially leading to significant penalties, withdrawal of approvals, or market limitations ⁵¹. Product candidates containing cannabinoids are subject to varying controlled substance laws across jurisdictions, which may restrict development and sales ⁵². The company may be classified as a "passive foreign investment company" (PFIC) for U.S. federal income tax purposes, which would subject U.S. investors to potentially significant adverse U.S. federal income tax consequences ⁵⁴. The company believes it was a PFIC for the taxable year ended December 31, 2023, and expects it may be a PFIC for the current taxable year ⁵⁵. Macroeconomic risks, including inflation, rising energy and commodity costs, and global market volatility, could adversely affect operations and financial condition ⁵⁶. Foreign currency risk exists due to U.S. dollar balances, with a plus or minus 10% change in the U.S. dollar against the Canadian dollar affecting reported loss and comprehensive loss by approximately $2,770,000 ⁵⁸.

Management's message to shareholders emphasizes the company's focus as a clinical-stage life sciences company dedicated to developing anti-inflammatory and anti-fibrotic therapies for heart diseases. They highlight the ongoing clinical development of CardiolRx™ oral solution for recurrent pericarditis and acute myocarditis, and the preclinical development of CRD-38 for heart failure. Key strategic priorities include advancing the MAvERIC-Pilot study, with topline results expected in Q2 2024 ³¹ and trial extension data in H2 2024 ³², and completing patient recruitment for the ARCHER trial during Q3 2024 ³⁴. Management also underscores the significance of the FDA's Orphan Drug Designation for CardiolRx in pericarditis ²⁶ and the potential for similar designation in acute myocarditis ³⁷. They acknowledge the need for additional financing to fund operations to profitability and the potential for commercial partnerships to support late-stage clinical development and commercialization of their product candidates.