Business Context and Reporting Period
Company: Camp Nine, Inc. (effectively Relmada Therapeutics, Inc. following a reverse merger).
Reporting Date: May 20, 2014.
Event: Camp Nine, Inc. completed a Share Exchange with Relmada Therapeutics, Inc. (Relmada), acquiring 94% of Relmada's equity in exchange for 28,098,178 shares of Camp Nine common stock. The transaction is accounted for as a reverse merger, with Relmada treated as the accounting acquirer. Camp Nine ceased its surfboard business and is now a holding company for Relmada, a clinical-stage biopharmaceutical company focused on pain management. The company intends to change its name to Relmada Therapeutics, Inc. and reincorporate in Delaware.
Key Financial Metrics
Revenue: $0. The company has generated no product revenue to date and does not anticipate revenue in the foreseeable future.
Profitability:
- Year Ended Dec 31, 2013: Net loss of approximately $19,872,000 ($0.82 per share).
- Year Ended Dec 31, 2012: Net loss of approximately $6,860,000 ($0.32 per share).
- Three Months Ended March 31, 2014: Net income of approximately $6,493,800 ($0.13 per share), driven primarily by a non-cash gain of $7,329,500 from the change in fair value of derivative liabilities.
Cash Flow (Year Ended Dec 31, 2013):
- Cash used in operating activities: $(2,237,529).
- Cash provided by financing activities: $3,996,028.
- Net increase in cash: $1,749,628.
Liquidity and Capital Raise:
- Prior to the merger, Camp Nine held $2 million in cash.
- On May 15, 2014, Relmada completed a private placement raising gross proceeds of $15,051,110 and net proceeds of approximately $13,016,100.
- Management expects the net proceeds to fund operations for at least 18 months.
Debt: The company has outstanding subordinated 8% promissory notes. As of March 31, 2014, the face value was approximately $900,000. The company is currently in default on September 2013 notes with a principal due of $216,000 plus accrued interest.
Material Changes vs. Prior Period
Operational Shift: Transitioned from a surfboard manufacturer (Camp Nine) to a clinical-stage biopharmaceutical company (Relmada) via reverse merger.
Financial Volatility: The Q1 2014 net income is a significant deviation from historical losses, attributable entirely to non-cash accounting adjustments regarding derivative liabilities rather than operational performance. Operating cash burn continues.
Expense Trends:
- R&D Expenses: Increased significantly in 2013 ($5.25M) compared to 2012 ($0.67M), largely due to a $3.75M non-cash expense related to the Medeor merger and increased clinical development activities.
- Derivative Liabilities: Non-cash expenses related to derivative liabilities increased from $3.69M in 2012 to $12.88M in 2013.
Guidance, Outlook, Risks, and Contingencies
Outlook: The company expects to incur substantial net losses for the foreseeable future as it advances clinical trials. It anticipates needing to raise additional capital in or before the second half of 2015 to fund operations and development.
Key Risks:
- Going Concern: Substantial doubt exists regarding the company's ability to continue as a going concern without additional financing.
- Regulatory Approval: All products are in early clinical stages (Phase I/IIa). No products have received FDA approval. Failure to obtain approval would prevent commercialization.
- Capital Requirements: Limited access to capital markets; future financing may be dilutive or unavailable.
- Controlled Substances: Products contain DEA-controlled substances, subjecting the company to strict quotas and regulations that could delay trials or commercialization.
Legal Contingencies:
- Litigation vs. Former Officer: The company is suing former President Najib Babul for approximately $1.5 million in "questionable expenses" incurred between 2004 and 2012. The company has cancelled warrants held by Mr. Babul, and he has countersued. The outcome is uncertain.
Unusual Items: The Q1 2014 net income is misleading as it is driven by a $7.3M non-cash gain from the revaluation of derivative liabilities, masking an underlying operating loss.
Investor Verification Checklist
- Cash Runway: Verify the actual cash balance post-merger and confirm the 18-month runway estimate given the high burn rate.
- Derivative Liability Accounting: Review the valuation methodology for derivative liabilities, as fluctuations in stock price significantly impact reported net income/loss without affecting cash flow.
- Legal Exposure: Assess the potential financial impact of the ongoing litigation with Najib Babul and the risk of warrant reinstatement.
- Debt Default: Confirm the status of the defaulted September 2013 notes and any potential acceleration of debt or interest rate increases (noted to rise to 10% if not public by Sept 2014).
- Regulatory Milestones: Verify the specific timelines and requirements for the 505(b)(2) pathway for LevoCap ER and BuTab ER, and the Phase IIb study for d-methadone.
- Stock Liquidity: Note that the stock trades on the OTC Bulletin Board under symbol "CMPE" and is subject to "penny stock" rules, which may limit liquidity.