Relmada Therapeutics, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The company changed its year-end from June 30 to December 31; the comparable calendar 2019 results are unaudited, and the filing also presents a separate six-month transition period.
Business context
Relmada is a clinical-stage biotechnology company with no approved products, commercial sales, or sales infrastructure. Its lead candidate, esmethadone (REL-1017), is being developed as an oral adjunctive treatment for major depressive disorder (MDD). The first patient entered the first Phase 3 trial, RELIANCE I, in December 2020. The company reported Fast Track designation for esmethadone in adjunctive MDD.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019, unaudited |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $36.0 million | $7.9 million |
| General and administrative expense | $24.9 million | $7.2 million |
| Net loss | $59.5 million | $15.0 million |
| Net loss per share, basic and diluted | $3.81 | $1.62 |
| Cash used in operating activities | $27.8 million | $12.1 million |
Revenue-based margins are not meaningful because the company has no revenue. Operating expenses increased substantially, driven by clinical-trial activity, personnel and consulting costs, and stock-based compensation. FY 2020 stock-based compensation was $20.8 million; the auditor identified its valuation and accounting as a critical audit matter.
At December 31, 2020, cash and cash equivalents were $2.5 million and short-term investments were $114.6 million, for combined liquid assets of approximately $117.1 million. Total current liabilities were $12.6 million, including $8.3 million of accounts payable and $4.3 million of accrued expenses. No notes payable remained outstanding at year-end. Management reported approximately $105.3 million of cash, cash equivalents, and short-term investments at March 15, 2021, after subsequent warrant and option exercises.
FY 2020 financing activities provided $28.5 million, including $19.8 million of net proceeds from common-stock sales, $8.1 million from warrant exercises, and $0.7 million from option exercises. The company had an accumulated deficit of $179.3 million. Management said available funds were expected to support operations for at least 12 months from the filing and estimated 2021 cash burn of $75–$100 million.
Material changes versus the prior comparable period
- Net loss increased to $59.5 million from $15.0 million, while R&D and G&A expenses rose to $36.0 million and $24.9 million, respectively.
- Operating cash use increased to $27.8 million from $12.1 million. Noncash stock-based compensation rose to $20.8 million from $3.2 million.
- Combined cash and short-term investments increased modestly, to $117.1 million from $116.4 million, while year-end cash alone declined and short-term investments increased.
- Common shares outstanding rose to 16.3 million from 14.5 million. At year-end, 3.9 million options and 2.7 million warrants were outstanding, representing potential dilution.
Outlook, risks, contingencies, and unusual items
- Clinical program: The Phase 3 program comprises two placebo-controlled adjunctive MDD trials, each planned for approximately 400 patients. The primary endpoint is change in MADRS score at Day 28. Management expected to start RELIANCE II and a Phase 2 MDD monotherapy trial in the first half of 2021, with pivotal trial results expected in the first half of 2022. These are forward-looking expectations, not reported outcomes.
- Phase 2 evidence: The 2019 trial enrolled 62 subjects. The filing reports statistically significant improvements on several measures and no serious adverse events in that small study; results may not predict Phase 3 outcomes.
- Key risks: Clinical or regulatory failure, enrollment or trial delays, controlled-substance supply and DEA quota limits, dependence on third-party manufacturers and research organizations, competition, and the need for future capital. Esmethadone is derived from a Schedule II controlled substance.
- License and intellectual property: The esmethadone license includes recurring payments and royalties, and key-man provisions relating to the CEO that may permit termination in specified circumstances during the stated term ending no earlier than December 31, 2022. Loss of the license could impair the company’s sole clinical program.
- Legal and other matters: A current employee filed a lawsuit in July 2020 alleging unequal pay based on gender and other employment claims; the case was in discovery and the outcome was unknown. The company reported no other known proceedings likely to have a material adverse effect. It did not carry product-liability insurance.
- COVID-19: The filing warns that the pandemic could disrupt trial enrollment, sites, suppliers, and regulatory interactions; the ultimate impact was uncertain.
- Audit and controls: The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Current status and results of RELIANCE I, RELIANCE II, and the planned monotherapy study, including any departures from the disclosed timelines or endpoints.
- Actual cash, investment balances, operating burn, and financing needs compared with management’s 12-month runway assessment and $75–$100 million 2021 burn estimate.
- Whether the employee lawsuit or other contingencies have developed, and whether any material legal exposure has been recorded.
- Current DEA scheduling, quotas, API supply, and manufacturing readiness for clinical development and any potential commercialization.
- Potential dilution from outstanding options and warrants and subsequent equity-plan awards; the filing also describes a proposed 2021 incentive plan subject to stockholder approval.
- The filing gives inconsistent timing for RELIANCE I’s first-patient enrollment in different passages (December 20 in the business section and December 7 in MD&A); verify the correct date against company disclosures.