Relmada Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2017 (the company’s fiscal first quarter; unaudited). The filing states the company is a clinical-stage biotechnology company developing four CNS-focused product candidates. It has not generated product revenue and does not expect revenue in the foreseeable future.
Financial results and position
| Metric | Quarter ended Sep. 30, 2017 | Comparable 2016 period / prior balance date |
|---|---|---|
| Product revenue | None | None reported |
| Research and development expense | $165,750 | $364,152 |
| General and administrative expense | $815,106 | $1,252,444 |
| Total operating expenses / operating loss | $980,856 | $1,616,596 |
| Net loss | $981,686 | $1,640,581 |
| Net loss per share, basic and diluted | $0.08 | $0.14 |
| Cash used in operating activities | $979,048 | $2,144,487 |
| Cash and cash equivalents | $4,684,567 at Sep. 30 | $1,710,512 at Jun. 30, 2017 |
| Total assets | $5,613,561 at Sep. 30 | $2,836,923 at Jun. 30, 2017 |
| Total liabilities | $4,148,899 at Sep. 30 | $1,376,639 at Jun. 30, 2017 |
Margins are not meaningful because the company reported no product revenue. Cash increased by $2.97 million during the quarter, primarily due to financing. Investing cash use was $2,591; financing provided $3,955,694. The filing reports no cash taxes paid and $1,969 of interest paid.
Changes and financing
- Operating expenses declined $635,740 year over year. Management attributed the G&A reduction mainly to lower staffing and stock compensation, legal, facility, and investor-relations costs, partly offset by higher patent legal fees. Lower clinical trial costs and other reductions drove the R&D decline.
- In September 2017, Relmada issued two-year convertible promissory notes and warrants for $4.48 million gross proceeds. The notes bear 7% interest, are convertible at $0.75 per share at the holder’s option, and include an automatic conversion provision upon a qualifying equity financing. The company reported $4,038,200 of net financing proceeds in cash flows.
- At September 30, notes payable included $194,164 of current insurance-policy financing and $678,875 of promissory notes net of a $3,801,125 discount. The notes’ embedded redemption feature was recorded separately as a $2,336,456 derivative liability; total derivative liabilities were $2,518,011.
- After quarter-end, the company issued an additional $2.61 million of notes and warrants in October. As of November 8, management reported approximately $6.0 million of cash and expected it to fund operations through the end of calendar 2018.
Outlook, risks, and notable items
- Management expects continued development spending and says additional funding will be needed to continue clinical trials. Financing may be unavailable or on unacceptable terms; equity financing could dilute shareholders, and programs could be delayed, reduced, or discontinued if funds are insufficient.
- Relmada reported that d-Methadone (REL-1017) had completed Phase I studies, its IND was accepted in January 2017, and it received FDA Fast Track designation for adjunctive treatment of major depressive disorder. The filing provides no specific financial guidance or clinical-trial timing forecast.
- Management said it did not plan to advance LevoCap ER into further clinical studies at that time, citing budget and pipeline prioritization. The other described candidates are BuTab and MepiGel; the filing does not state a new development timetable for them.
- Derivative valuations rely on Level 3, unobservable inputs and models, including Monte Carlo valuation of the notes’ redemption feature. Changes in assumptions could materially affect reported liabilities and earnings.
- A former officer’s lawsuit continues on defamation and wrongful-use-of-civil-process claims after other claims were dismissed. Management believes it has good defenses and that an unfavorable outcome would not materially affect operations or financial position; no litigation contingency was recorded for the quarter.
- The company disclosed no material change to previously reported risk factors, and management concluded disclosure controls were effective as of September 30, 2017. It also stated the 2015 shelf registration statement had not been declared effective and that the company could not access those funds until it was uplisted to a national stock exchange.
Important facts for investors to verify
- Whether the October note financing was completed on the stated terms and how proceeds affect cash runway and the stated year-end 2018 funding estimate.
- The potential dilution and conversion/redemption consequences of the notes and the substantial warrants issued in connection with them.
- Progress, funding needs, and timelines for REL-1017 and the other pipeline programs, including whether LevoCap ER remains paused.
- Assumptions underlying the large Level 3 derivative liability and any subsequent changes in its fair value.
- Developments in the former officer litigation and any resulting financial exposure.