Relmada Therapeutics, Inc. — Form 10-Q Summary
Reporting period: The unaudited filing covers the three and six months ended December 31, 2014, compared with the corresponding 2013 periods. The company is a clinical-stage pharmaceutical developer with four pain-treatment candidates: LevoCap ER, d-Methadone, BuTab ER and MepiGel. It reported no product revenue and had no products approved for sale.
Financial highlights
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $2.09 million | $2.81 million |
| General and administrative expense | $2.29 million | $5.30 million |
| Net income (loss) | $5.46 million | $(24.38) million |
| Net income (loss) per share, basic | $0.11 | $(0.53) |
| Operating cash flow | Not separately presented | $(7.31) million |
- The quarter’s net income was driven by a $9.84 million non-cash gain from changes in the fair value of derivative liabilities. For the six months, the corresponding fair-value change was a $16.28 million non-cash loss, contributing to the reported net loss.
- Cash and cash equivalents were $31.42 million at December 31, 2014, versus $25.56 million at June 30, 2014. Total current assets were $32.76 million and current liabilities $28.10 million; working capital was approximately $4.66 million.
- Six-month investing cash use was $17,000; financing provided $13.18 million, primarily from warrant exercises. Cash increased $5.85 million over the six months.
- Total liabilities were $28.20 million, including $26.57 million of derivative liabilities and $38,000 of short-term note payable. Stockholders’ equity was $4.59 million.
- Margins are not meaningful because the company had no revenue.
Material changes and business developments
- Quarterly R&D expense fell $2.17 million year over year, mainly because the prior-year period included a $3.75 million non-cash charge related to the Medeor transaction. Six-month R&D expense declined $1.73 million for the same principal reason, despite increased development spending.
- G&A expense increased $1.50 million for the quarter and $4.30 million for the six-month period, primarily due to higher payroll, professional fees, consulting and other operating costs.
- Six-month net loss increased from $6.73 million in 2013 to $24.38 million in 2014, largely reflecting the larger derivative-liability fair-value loss. Results are also affected by the reverse-merger accounting, under which the operating business’s historical results are presented.
- Warrant exercises generated approximately $13.43 million in net proceeds during the six months. Common shares outstanding were 53,681,045 as of February 13, 2015.
Outlook, risks and unusual items
- Management estimated that December 31 cash would fund operations until the end of the second calendar quarter of 2016. The company expects rising development costs and said it will need additional funding to continue clinical trials; financing may be unavailable or dilutive.
- Development milestones included an ongoing d-Methadone Phase I single-ascending-dose study, with a multiple-ascending-dose study planned; Health Canada had approved the clinical trial application. Management expected to generate GMP batches and seek to begin a BuTab ER Phase I study in early 2015, and planned MepiGel Phase I preparations and a Health Canada application during 2015.
- For LevoCap ER, the company reported completion of a 30-patient Phase I pharmacokinetic study and was preparing for a potential Phase III program. Management planned to discuss the development pathway with the FDA; skipping Phase II was the company’s view, not an approval or confirmed regulatory decision.
- Derivative liabilities are Level 3 fair-value estimates based on significant unobservable inputs and can cause substantial non-cash earnings volatility. Management said warrant-related liabilities could decline through exercise, expiration or removal of anti-dilution provisions.
- The company disclosed no material change to previously reported risk factors. Key risks include clinical and regulatory uncertainty, lack of revenue, reliance on future financing, and the possibility that development programs may be delayed, reduced or discontinued.
- Relmada dropped its Pennsylvania lawsuit against former executive Najib Babul and reissued 868,213 previously cancelled warrants following judgment in his favor. A Delaware court ordered advancement of his litigation expenses; objections to certain reimbursement requests remained pending.
- On February 12, 2015, the company amended its articles to establish a classified board. Management reported disclosure controls were effective at December 31, 2014 and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether the cash-runway estimate through the second quarter of 2016 remains achievable given clinical-trial costs and the need for additional capital.
- Clinical and regulatory progress, particularly the d-Methadone Phase I studies and the proposed LevoCap ER Phase III pathway.
- The assumptions and sensitivity behind the $26.57 million Level 3 derivative liability and its potential impact on reported earnings.
- Potential dilution from outstanding warrants, options and other equity awards, and the terms of any future financing.
- The status and financial exposure of the Delaware litigation-expense dispute and any other material contingencies.