Relmada Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2018; the filing is for fiscal 2018’s third quarter, notwithstanding the request metadata. The financial statements are unaudited. Relmada is a clinical-stage biotechnology company with no product revenue.
Business context
The company’s lead candidate, REL-1017 (dextromethadone), is being developed for major depressive disorder. Relmada initiated a Phase II study in February 2018 and reported FDA Fast Track designation. It also has three 505(b)(2) candidates—LevoCap ER, BuTab and MepiGel—but said it was limiting investment in those programs while focusing on REL-1017.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Research and development expense | $1.67 million (2018); $0.49 million (2017) | $1.98 million (2018); $1.11 million (2017) |
| General and administrative expense | $0.88 million (2018); $1.79 million (2017) | $3.00 million (2018); $4.33 million (2017) |
| Net loss | $3.20 million (2018); $1.98 million (2017) | $5.61 million (2018); $4.65 million (2017) |
| Loss per share, basic and diluted | $0.26 (2018); $0.16 (2017) | $0.45 (2018); $0.39 (2017) |
For the nine-month period, operating cash use was $3.74 million, versus $5.45 million in 2017. Investing cash use was $2,591; financing provided $6.29 million, principally from promissory-note financing. Cash rose to $4.26 million at March 31, 2018, from $1.71 million at June 30, 2017; management reported approximately $3.6 million on hand as of May 14, 2018. The filing does not provide a cash-runway estimate.
At March 31, 2018, total assets were $4.80 million, total liabilities $7.11 million, and stockholders’ deficit $2.32 million. Current assets were $4.48 million and current liabilities $5.54 million, implying a working-capital deficit of approximately $1.05 million. Cash and cash equivalents were $4.26 million. Current derivative liabilities were $3.96 million, including a $3.94 million embedded redemption-feature liability valued using Level 3 inputs. Promissory notes had $7.205 million face value and a reported carrying amount of $1.58 million, net of discount.
No profit or operating margin is reported because the company had no product revenue and incurred operating losses.
Material changes and notable items
- Quarterly R&D expense increased by $1.18 million year over year, primarily from increased project costs associated with the Phase II depression trial. Nine-month R&D expense rose $0.87 million.
- Quarterly G&A expense fell $0.91 million, reflecting lower litigation, rent and compensation costs. Nine-month G&A declined $1.32 million, partly offset by increased patent expense.
- Relmada issued two-year convertible promissory notes and warrants for $7.205 million in gross proceeds during the nine months. Notes are convertible at the holder’s option at $0.75 per share and may automatically convert at a discount upon a qualifying equity financing. The associated embedded redemption feature is recorded as a derivative liability.
- Interest expense for the nine months was $706,460, primarily associated with the notes. The company also recorded a noncash $80,542 gain from changes in derivative fair value.
- As a subsequent event, Dr. Ottavio Vitolo became Senior Vice President, Head of R&D and Chief Medical Officer effective April 2, 2018; the agreement provides for options to purchase 300,000 shares, subject to vesting.
Outlook, risks and contingencies
Management said additional funding is needed to continue clinical trials and expects to seek equity or debt financing, loans, or strategic collaborations and licensing. Financing may not be available on acceptable terms or at all; equity financing could dilute shareholders. The company anticipates no revenue for the foreseeable future and warns that insufficient funds could delay, reduce or eliminate development programs. No specific financial guidance was provided.
Development, regulatory approval and commercial viability remain uncertain. The filing identifies dependence on financing, clinical-study costs and regulatory approvals among key risks. A former-officer lawsuit retains defamation and wrongful-use-of-civil-process claims after other claims were dismissed; management believes it has defenses and that an adverse result would not materially affect the company. No litigation contingency liability or expense was recorded for the nine months. The company estimated approximately $253,800 of potential liability if cancellable R&D contracts were terminated.
Management reported disclosure controls and procedures were effective as of March 31, 2018 and no material change in internal control over financial reporting during the nine months. The company said there were no material changes to previously disclosed risk factors or market-risk exposures.
Important facts for investors to verify
- Current cash, spending rate and financing runway, particularly in light of management’s stated need for additional capital.
- Terms, conversion mechanics, maturity and potential dilution from the $7.205 million face amount of convertible notes and related warrants.
- Progress, enrollment and costs of the REL-1017 Phase II trial, and whether development milestones or regulatory plans have changed.
- Basis and sensitivity of the $3.94 million embedded derivative valuation and the large discount between notes’ face value and carrying amount.
- Updates on the former-officer litigation and any changes to potential exposure or estimated R&D contract-termination obligations.