Relmada Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period. Relmada is a clinical-stage biotechnology company developing CNS treatments, with four product candidates at varying stages. This unaudited report covers the three and six months ended December 31, 2017, compared with the same periods in 2016; the balance sheet compares December 31, 2017 with June 30, 2017. The company reported no product revenue.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2017 | Six months ended Dec. 31, 2017 | Prior comparable period |
|---|---|---|---|
| Revenue | None | None | None |
| Operating expenses | $1.457 million | $2.437 million | $1.536 million and $3.153 million, respectively |
| Net loss | $1.427 million; $0.11 per share | $2.409 million; $0.19 per share | $1.031 million and $2.671 million; $0.09 and $0.22 per share, respectively |
| Cash used in operating activities | Not stated for the quarter | $2.111 million | $3.595 million for six months |
| Cash and cash equivalents | Not stated for the quarter | $5.940 million at Dec. 31 | $1.711 million at June 30 |
Gross margin is not applicable because the company had no product revenue. At December 31, total assets were $6.574 million, total liabilities $5.853 million, and stockholders’ equity $0.721 million. Current assets of $6.242 million exceeded current liabilities of $4.575 million by approximately $1.667 million. Current liabilities included $3.683 million of derivative liabilities. The company also reported promissory notes payable net of discount of $1.278 million and a $111,235 insurance-related note payable. Contractual obligations included $7.175 million of convertible notes due in one to two years.
Changes versus the prior period
- For the six months, operating expenses declined $716,000: general and administrative expense fell $414,000 and research and development expense fell $302,000. Management cited lower staffing, rent, investor advisory, stock compensation, and clinical-trial costs, partly offset by increased patent and litigation expenses.
- Six-month net loss narrowed by $262,000, while quarterly net loss increased by $397,000. The quarterly comparison included higher litigation costs and substantially higher interest expense following the convertible-note issuances.
- Operating cash use improved by $1.484 million year over year. Financing generated $6.342 million in the six months, principally from the promissory-note financing; cash increased by $4.229 million.
- In September, October, and November 2017, the company issued two-year convertible notes for aggregate gross proceeds of $7.175 million. Notes are generally convertible at $0.75 per share, with automatic conversion at a discount upon a qualifying equity financing; accompanying warrants have exercise prices of $1.50 or $1.65 and seven-year terms.
Outlook, risks, and notable items
- Management said the approximately $5.2 million of cash on hand as of February 12, 2018 was expected to fund operations for the next twelve months. The company nevertheless expects to need additional capital to continue clinical trials. Financing may be unavailable or dilutive, and insufficient funds could delay, reduce, or end development programs.
- Management is prioritizing d-methadone (REL-1017); investments in LevoCap ER, BuTab, and MepiGel are being limited. REL-1017 had completed Phase I studies, its Phase II IND was accepted by the FDA in January 2017, and it received Fast Track designation for adjunctive treatment of major depressive disorder in April 2017. The filing describes a planned Phase II program, not a quantified financial forecast or firm development timetable.
- On January 16, 2018, Relmada entered agreements concerning d-methadone intellectual property, including an exclusive worldwide license for specified neurological and other uses. It paid a non-refundable $180,000 upfront fee and agreed to quarterly payments of $45,000, royalties on licensed-product sales, and payments on sublicense consideration.
- Derivative liabilities are measured using models with significant unobservable inputs. Their reported fair value rose to $3.683 million, largely reflecting the embedded redemption feature of the new notes; valuation changes can materially affect reported non-cash income or expense.
- A former officer’s lawsuit retains defamation and wrongful-use-of-civil-process claims after other claims were dismissed. Management believes it has defenses and that an unfavorable outcome would not materially affect the company; no litigation liability or expense was recorded for the six months.
- The filing identifies clinical, regulatory, financing, and commercialization uncertainties, and states that the company may never generate sufficient product revenue. Management reported disclosure controls were effective at December 31, 2017 and no material changes in internal control during the six months.
Important facts for investors to verify
- Whether cash, subsequent spending, and available financing support the stated twelve-month runway and planned clinical work.
- The terms, maturity, conversion mechanics, redemption provisions, and potential dilution from the $7.175 million note financing and associated warrants.
- REL-1017 clinical-trial progress, costs, regulatory milestones, and the scope and economics of the January 2018 license agreements.
- The assumptions underlying the $3.683 million derivative-liability valuation and the potential effects of future fair-value changes.
- Developments in the former officer litigation and whether any change could affect the company’s financial position.