Relmada Therapeutics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019, compared with fiscal 2018. The filing is an annual report, not a report for 2018 Q4. Filed September 24, 2019.
Business context
Relmada is a clinical-stage biotechnology company with no approved products, commercial sales, or product revenue. Its priority is REL-1017 (dextromethadone), an oral NMDA-receptor antagonist being studied for major depressive disorder. The Phase 2 study completed dosing in July 2019; top-line results were expected in the second half of 2019. The company also has three earlier-stage 505(b)(2) candidates—LevoCap ER, BuTab, and MepiGel—but said it was limiting investment in these programs to focus on REL-1017.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $7.02 million | $2.94 million |
| General and administrative expense | $5.70 million | $3.97 million |
| Net loss | $17.32 million | $8.96 million |
| Net loss per share, basic and diluted | $0.69 | $0.71 |
| Cash used in operating activities | $10.50 million | $6.00 million |
| Cash and cash equivalents at year-end | $9.22 million | $2.24 million |
There is no product gross margin. R&D expense rose mainly with Phase 2 study costs; G&A increased, including litigation and settlement costs and stock-based compensation. The larger net loss also reflected a $3.77 million non-cash loss on extinguishment of debt. Interest expense declined to $0.76 million from $1.34 million, primarily after convertible notes were extinguished.
At June 30, 2019, total assets were $10.22 million and total liabilities were $2.61 million, including $364,000 of notes payable related to directors’ and officers’ insurance. Convertible promissory notes and accrued interest were converted into equity during the year; the company reported no promissory notes payable at year-end. Accumulated deficit was $111.66 million. The company raised $17.76 million net from equity and warrants and converted $8.03 million of notes and accrued interest into common stock. Shares outstanding increased from 12.55 million to 38.98 million.
Management reported approximately $7.74 million cash at September 23, 2019, including post-year-end financing, and forecast $5–6 million cash burn for the 12 months ending September 30, 2020, including about $2 million of discretionary R&D. Management believed funding would cover at least one year from the financial-statement issuance date, but stated that additional trials would require additional financing. Cash deposits exceeded federally insured limits.
Material changes and unusual items
- Net loss increased approximately 93% year over year; operating cash use also increased substantially.
- R&D expense increased about $4.08 million, principally due to Phase 2 study costs. G&A expense increased about $1.73 million.
- The company completed multiple equity-and-warrant financings. These provided cash but materially increased shares and potential dilution; 17.72 million warrants and 5.89 million options were outstanding at year-end.
- Convertible notes converted in October 2018. The conversion generated a $3.77 million non-cash extinguishment loss and eliminated the associated promissory-note and derivative liabilities.
- A settlement with former officer Najib Babul required $1.5 million in cash payments, with installments extending through December 2019. The company recorded a $1.11 million settlement loss after recognizing the value of relinquished shares; total settlement-related expense and legal fees were approximately $1.6 million.
- The company adopted ASU 2017-11, reversing $59,000 of derivative liabilities into equity; legacy warrants with down-round provisions expired during the year.
Outlook, commentary, and principal risks
Management is prioritizing REL-1017 and made Phase 2 results a key determinant of the size and timing of subsequent trials and future financing. The company stated that its first product was not expected to be commercialized before at least 2023. No revenue or earnings guidance was provided.
- Clinical and regulatory risk is substantial: REL-1017 remained in Phase 2, and successful early studies do not ensure later-stage efficacy, safety, or FDA approval. The filing notes potential need for a QTc study given the history of cardiac warnings for racemic methadone.
- Funding remains a central risk. The company has persistent losses, negative operating cash flow, and expects to seek additional capital; future equity financing could dilute shareholders.
- Controlled-substance regulation, DEA scheduling and quotas, manufacturing requirements, and opioid-related public and regulatory scrutiny could affect development or commercialization.
- Relmada relies on third parties for clinical trials and manufacturing, has no sales infrastructure, and may need commercial partners. A single source supplied levorphanol for R&D, with no material commercial supply agreement disclosed.
- Competition includes approved esketamine (Spravato) and other depression therapies and development programs. The company also faces patent, reimbursement, product-liability, and market-acceptance risks.
- The d-methadone license requires quarterly payments of $45,000 until specified events, plus royalties and potential sublicense payments; the license may terminate under specified circumstances.
The independent auditor gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting at June 30, 2019; the auditor did not audit internal controls.
Key facts for investors to verify
- Whether the Phase 2 REL-1017 results were released, and what the data show on efficacy, safety, and next-trial requirements.
- Current cash, actual cash burn, financing needs, and whether the stated one-year runway was achieved.
- Fully diluted share count, warrant and option terms, registration obligations, and potential dilution from additional capital raises.
- Status and timing of Babul settlement installments, and any material subsequent legal or contractual developments.
- REL-1017 regulatory requirements, including DEA scheduling, QTc evaluation, and manufacturing plans; and the status of supply arrangements.