Relmada Therapeutics, Inc. — Form 10-Q Summary
Business context and period: This unaudited report covers the three months ended September 30, 2014, the first quarter of the company’s fiscal year following its June 30 year-end. Relmada is a clinical-stage biopharmaceutical company developing four pain-treatment candidates. It has no approved products and has generated no product revenue. The May 2014 share exchange was accounted for as a reverse merger, with Relmada Therapeutics, Inc. treated as the accounting acquirer.
Financial results and position
| Metric | Quarter ended September 30, 2014 | Comparable 2013 period / other reference |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $719,000 | $274,000 |
| General and administrative expense | $3.004 million | $207,000 |
| Operating loss | $3.723 million | $482,000 |
| Net loss | $29.838 million | $1.565 million |
| Net loss per common share, basic and diluted | $0.73 | $0.64 |
| Cash used in operating activities | $2.322 million | $409,000 |
| Cash and cash equivalents | $27.391 million at September 30, 2014 | $25.564 million at June 30, 2014 |
| Total current liabilities | $48.470 million at September 30, 2014 | $26.773 million at June 30, 2014 |
| Notes payable | $148,000 at September 30, 2014 | $58,000 at June 30, 2014 |
| Stockholders’ deficit | $20.722 million at September 30, 2014 | $1.109 million at June 30, 2014 |
No operating margin or gross margin is meaningful because the company reported no revenue. The quarter’s $26.115 million change in fair value of derivative liabilities was a noncash expense and the principal driver of the net loss. Derivative liabilities were $46.817 million at quarter-end, valued using Level 3 inputs.
Material changes and cash flows
- R&D expense increased about $445,000 year over year, primarily due to product-development costs and employee stock-based compensation.
- G&A expense increased about $2.796 million, reflecting higher professional fees, payroll, insurance, related-party advisory fees, and stock-based compensation. The company recorded approximately $875,000 of expense for 291,666 shares issued for consulting services.
- The derivative-liability fair-value loss increased about $25.098 million year over year. The filing says these liabilities largely relate to warrants and instruments with anti-dilution features; valuation changes can cause significant noncash earnings volatility.
- Financing activities provided $4.159 million, mainly from warrant exercises; investing activities used $11,000. Cash increased $1.826 million during the quarter.
- In October 2014, warrant exercises generated approximately $9.125 million in net proceeds. Management estimated that quarter-end cash plus these proceeds would fund operations until the end of the first calendar quarter of 2016.
Outlook, risks, and contingencies
- Management expects no product revenue for the foreseeable future, anticipates increasing development expenses, and says substantial additional financing will be needed. Failure to obtain financing could delay, reduce, or eliminate development programs; future equity financing could dilute shareholders.
- LevoCap ER: A Phase I pharmacokinetic study was completed in 2013. The company was preparing a Phase III program and planned to discuss the development path with the FDA; its expectation of potentially proceeding from Phase I to Phase III is not an FDA determination.
- d-Methadone: The company filed a Canadian clinical-trial application in September 2014 for two planned pharmacokinetic studies in healthy subjects; the application was under review.
- BuTab ER: Following preclinical work, the company expected to produce GMP batches and begin a Phase I study in healthy volunteers in the first calendar quarter of 2015.
- MepiGel: An animal study identified a potentially suitable formulation. The company planned GMP batches, an FDA IND filing, and a Phase I study, with timing dependent on resource allocation.
- Relmada is litigating with former executive Najib Babul over alleged questionable expenses of approximately $1.5 million, cancelled warrants, and related claims. Babul denies wrongdoing and has counterclaimed. A Delaware court ordered Relmada to advance his litigation expenses; reimbursement is uncertain. Management said the outcome of the litigation cannot be predicted.
- Management reported disclosure controls and procedures were effective as of September 30, 2014, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the October warrant-exercise proceeds were received as described and how they affect the stated cash runway.
- Current cash burn, financing requirements, and the assumptions supporting management’s runway estimate through early 2016.
- The value and accounting treatment of Level 3 derivative liabilities, including the effect of warrant exercises, expirations, stock-price changes, and any change to anti-dilution provisions.
- Regulatory and clinical progress, costs, and timelines for each candidate; planned milestones remain subject to regulatory review and funding.
- Developments in the Babul litigation, including expense advances, possible recovery, and potential financial or share-count effects.
- Share dilution from outstanding warrants, options, preferred stock, and consulting or other equity commitments.