Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
Relmada Therapeutics, Inc.
Consolidated Balance Sheets
As of
September 30,
2020
(Unaudited)
As of
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$ 7,544,728
$ 36,278,519
Short-term investments
115,593,750
80,164,823
Lease payments receivable – short term
77,815
73,091
Prepaid expenses
2,249,199
423,863
Total current assets
125,465,492
116,940,296
Fixed assets, net of accumulated depreciation
2,081
5,010
Other assets
25,000
25,000
Lease payments receivable – long term
106,868
165,834
Total assets
$ 125,599,441
$ 117,136,140
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 728,633
$ 522,663
Accrued expenses
2,660,824
824,936
Note payable
-
110,247
Total current liabilities
3,389,457
1,457,846
Stockholders’ Equity:
Preferred stock, $0.001 par value, 200,000,000 shares authorized, none issued and outstanding
-
-
Class A convertible preferred stock, $0.001 par value, 3,500,000 shares authorized, none issued and outstanding
-
-
Common stock, $0.001 par value, 50,000,000 shares authorized, 16,189,258 and 14,457,013 shares issued and outstanding, respectively
16,189
14,457
Additional paid-in capital
280,746,968
235,522,746
Accumulated deficit
(158,553,173 )
(119,858,909 )
Total stockholders’ equity
122,209,984
115,678,294
Total liabilities and stockholders’ equity
$ 125,599,441
$ 117,136,140
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
1
Relmada Therapeutics, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended
Nine months ended
September 30,
September 30,
2020
2019
2020
2019
Operating expenses:
Research and development
$ 11,237,186
$ 1,887,367
$ 21,068,923
$ 6,233,214
General and administrative
5,946,396
1,820,043
18,846,299
4,311,902
Total operating expenses
17,183,582
3,707,410
39,915,222
10,545,116
Loss from operations
(17,183,582 )
(3,707,410 )
(39,915,222 )
(10,545,116 )
Other (expenses) income:
Interest/investment income, net
363,300
37,916
1,174,957
66,965
Realized loss on short-term investments
(86,171 )
-
(244,972 )
-
Unrealized gain on short-term investments
3,946
-
290,973
-
Total other (expenses) income
281,075
37,916
1,220,958
66,965
Net loss
$ (16,902,507 )
$ (3,669,494 )
$ (38,694,264 )
$ (10,478,151 )
Loss per common share – basic and diluted
$ (1.05 )
$ (0.38 )
$ (2.52 )
$ (1.23 )
Weighted average number of common shares outstanding – basic and diluted
16,044,670
9,761,188
15,371,118
8,515,560
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
2
Relmada Therapeutics, Inc.
Consolidated Statements of Stockholders’
Equity
(Unaudited)
Nine months ended September 30, 2020
Common Stock
Additional
Paid-in
Accumulated
Shares
Par Value
Capital
Deficit
Total
Balance - December 31, 2019
14,457,013
$ 14,457
$ 235,522,746
$ (119,858,909 )
$ 115,678,294
Stock based compensation
-
-
5,039,362
-
5,039,362
Warrant exercised for cash
447,107
447
3,041,726
-
3,042,173
Cashless warrant exercise
34,114
34
(34 )
-
-
Options exercised
2,434
3
73,017
-
73,020
Net loss
-
-
-
(10,673,316 )
(10,673,316 )
Balance - March 31, 2020
14,940,668
$ 14,941
$ 243,676,817
$ (130,532,225 )
$ 113,159,533
Stock based compensation
-
-
7,302,513
-
7,302,513
Warrant exercised for cash
368,364
368
2,576,735
-
2,577,103
Cashless warrant exercise
1,840
2
(2 )
-
-
Options exercised
113,281
113
457,510
-
457,623
Equity offering, net
427,700
428
19,854,590
-
19,855,018
Net loss
-
-
-
(11,118,441 )
(11,118,441 )
Balance - June 30, 2020
15,851,853
$ 15,852
$ 273,868,163
$ (141,650,666 )
$ 132,233,349
Stock based compensation
-
-
5,244,658
-
5,244,658
Warrant exercised for cash
214,899
215
1,566,815
-
1,567,030
Cashless warrant exercise
6,521
7
(7 )
-
-
Options exercised
25,781
25
105,850
-
105,875
Cashless option exercised
90,204
90
(90 )
-
-
Equity offering costs
-
-
(38,421 )
-
(38,421 )
Net loss
-
-
-
(16,902,507 )
(16,902,507 )
Balance - September 30, 2020
16,189,258
$ 16,189
$ 280,746,968
$ (158,553,173 )
$ 122,209,984
Nine months ended September 30, 2019
Common Stock
Additional
Paid-in
Accumulated
Shares
Par Value
Capital
Deficit
Total
Balance - December 31, 2018
7,441,053
$ 7,441
$ 106,280,950
$ (104,853,710 )
$ 1,434,681
Stock-based compensation expense
-
-
394,692
-
394,692
Equity units issued for Cash
379,960
379
1,724,621
-
1,725,000
Shares relinquished
(75,848 )
(75 )
(394,335 )
-
(394,410 )
Net loss
-
-
-
(2,686,065 )
(2,686,065 )
Balance - March 31, 2019
7,745,165
$ 7,745
$ 108,005,928
$ (107,539,775 )
$ 473,898
Stock-based compensation expense
-
-
403,459
-
403,459
Equity units issued for Cash
1,974,487
1,974
10,856,576
-
10,858,550
Issuance of common stock for cashless exercises of warrants from consultants and Series A Preferred stock warrant holder
24,991
25
(25 )
-
-
Net loss
-
-
-
(4,122,592 )
(4,122,592 )
Balance - June 30, 2019
9,744,643
$ 9,744
$ 119,265,938
$ (111,662,367 )
$ 7,613,315
Stock-based compensation expense
-
-
757,716
-
757,716
Purchase of common stock
117,965
118
825,631
-
825,749
Warrants exercised
75,000
75
449,925
450,000
Net loss
-
-
-
(3,669,494 )
(3,669,494 )
Balance - September 30, 2019
9,937,608
$ 9,937
$ 121,299,210
$ (115,331,861 )
$ 5,977,286
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
3
Relmada Therapeutics, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
2020
2019
Cash flows from operating activities
Net loss
$ (38,694,264 )
$ (10,478,151 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
2,929
3,263
Stock-based compensation
17,586,533
1,555,867
Fair value of shares relinquished in litigation
-
(394,410 )
Realized loss on short-term investments
244,972
-
Unrealized gain on short-term investments
(290,973 )
-
Change in operating assets and liabilities:
Other assets
-
(6,092 )
Lease payment receivable
54,242
49,896
Prepaid expenses
(1,825,336 )
524,967
Accounts payable
205,970
907,657
Accrued expenses
1,835,888
(376,157 )
Net cash used in operating activities
(20,880,039 )
(8,213,160 )
Cash flows from investing activities
Purchase of short-term investments
(88,763,192 )
-
Sale of short-term investments
53,380,266
-
Net cash used in investing activities
(35,382,926 )
-
Cash flows from financing activities
Principal payments of notes payable
(110,247 )
(223,017 )
Proceeds from issuance of common stock - net
19,816,597
13,409,299
Proceeds from options exercised for common stock
636,518
-
Proceeds from warrants exercised for common stock
7,186,306
450,000
Net cash provided by financing activities
27,529,174
13,636,282
Net (decrease)/increase in cash and cash equivalents
(28,733,791 )
5,423,122
Cash and cash equivalents at beginning of the period
36,278,519
2,426,751
Cash and cash equivalents at end of the period
$ 7,544,728
7,849,873
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes
$ -
$ -
Interest
$ 2,415
$ 6,959
Non-cash investing and financing activities:
Cashless exercise of warrants for common stock
$ 43
$ 25
Cashless exercise of options for common stock
$ 90
$ -
Notes payable issued in connection with directors and officers insurance policies
$ -
$ 364,204
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
4
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 1 - BUSINESS
Relmada Therapeutics, Inc. (Relmada or
the Company, we or us) (a Nevada corporation), is a clinical-stage biotechnology company focused on the development of REL-1017
(d-methadone, dextromethadone), an N-methyl-D-aspartate (NMDA) receptor antagonist. d-methadone is a new chemical entity (NCE)
that potentially addresses areas of high unmet medical need in the treatment of central nervous system (CNS) diseases and other
disorders.
On October 7, 2019, our application to
list our common stock on the NASDAQ Capital Market was approved. On October 10, 2019, our common stock began trading on Nasdaq
under our existing symbol, “RLMD.” On July 14, 2020, our common stock was uplisted to The Nasdaq Global Select Market
and continues to trade under the symbol “RLMD”.
On December 19, 2019, the Board of Directors
of the Company approved a change to its end of fiscal year from June 30 to December 31. The change in fiscal year became effective
for the Company’s 2020 fiscal year, which began on January 1, 2020 and will end December 31, 2020.
In addition to the normal risks associated
with a new business venture, there can be no assurance that the Company’s research and development will be successfully completed
or that any product will be approved or commercially viable. The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors
of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with the FDA
and other governmental regulations and approval requirements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited consolidated
financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) for interim unaudited consolidated financial information. Accordingly, they do not include all of
the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The unaudited consolidated
financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative
of the results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the six months ended December 31, 2019 and notes thereto contained in the
Company’s Transition Report on Form 10-KT.
On September 26, 2019, the Company’s
Board of Directors approved a 1-for-4 reverse split of the Common Stock, which was effective on the OTC Markets on September 30,
2019. As a result of the reverse stock split, every 4 shares of issued and outstanding common stock were converted into 1 share
of issued and outstanding common stock, with all fractional shares rounded up to the nearest whole share, and the Company’s
authorized share of common stock were reduced from 200,000,000 to 50,000,000 shares. All share and per share amounts have been
retroactively restated to reflect this reverse stock split.
Liquidity
As shown in the accompanying financial statements,
the Company incurred negative operating cash flows of $20.9 million for the nine months ended September 30, 2020 and has an accumulated
deficit of $158.6 million from inception through September 30, 2020. At September 30, 2020 the Company had cash and short term
investments of $123.1 million.
Relmada has funded its past operations
through equity raises and most recently in 2020 raised net proceeds from the sale of common stock of $19,816,597 and $7,186,306 through the exercise of warrants. The Company also raised an additional $636,518 during the nine months
ended September 30, 2020 from the exercises of options.
5
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Management believes that due to the
recent equity raises completed and exercises of outstanding options and warrants and the current cash position on its balance
sheet, it has obtained sufficient funding to continue ongoing operations for at least 12 months from the issuance of these
unaudited consolidated quarterly financial statements.
Management believes that their existing
cash and cash equivalents will enable them to fund operating expenses and capital expenditure requirement for at least the next
12 months. Beyond that point management will evaluate the size and scope of any subsequent trials that will affect the timing of
additional financings through public or private sales of equity or debt securities or from bank or other loans or through strategic
collaboration and/or licensing agreements. Any such expenditures related to any subsequent trials will not be incurred until such
additional financing is raised. Further, additional financing related to subsequent trials does not affect the Company’s
conclusion that based on the cash on hand and the budgeted cash flow requirements, the Company has sufficient funds to maintain
operations for at least 12 months from the issuance of these consolidated financial statements.
Principles of Consolidation
The unaudited consolidated financial statements
include the Company’s accounts and those of the Company’s wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Risks and Uncertainties
The pandemic caused by an outbreak of a
new strain of coronavirus (COVID-19) has resulted, and is likely to continue to result, in significant national and global economic
disruption and may adversely affect our business. Based on the Company’s current assessment, the Company does not expect
any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus.
However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations,
suppliers, industry, and workforce.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could differ from those estimates. The significant estimates
are the valuation of stock-based compensation expenses and recorded amounts related to income taxes.
6
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
The Company considers cash deposits and
all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s
cash deposits are held at two high-credit-quality financial institutions. The Company’s cash deposits at these institutions
exceed federally insured limits.
Short-term Investments
The Company’s investments consist
entirely of mutual funds. The securities are measured at fair value based on the net asset value (NAV). The Company adopted Financial
Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2016-01, Financial Instruments, for the six months ended December
31, 2019 which requires substantially all equity investments in nonconsolidated entities to be measured at fair value with recurring
changes recognized in earnings, except for those accounted for using equity method accounting. Changes in fair value of the securities
are recorded as part of other income on the consolidated statement of operations. Short term investment activity is presented in
the investing activities section on the consolidated statement of cash flows.
Patents
Costs related to filing and pursuing patent
applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures
is uncertain.
Fixed Assets
Fixed assets are stated at cost less accumulated
depreciation. Fixed assets are comprised of computers and software, leasehold improvements, and furniture and fixtures. Depreciation
is calculated using the straight-line method over the estimated useful life of the assets. Computers and software have an estimated
useful life of three years. Furniture and fixtures have an estimated useful life of approximately seven years.
Leases
The Company recognizes its leases with
a term of greater than a year on the balance sheet by recording right-of-use assets and lease liabilities. Leases can be classified
as either operating leases or finance leases. Operating leases will result in straight-line lease expense, while finance leases
will result in front-loaded expense. The Company’s lease consists of an operating lease for office space. The Company does
not recognize a lease liability or right-of-use asset on the balance sheet for short-term leases. Instead, the Company recognizes
short-term lease payments as an expense on a straight-line basis over the lease term. A short-term lease is defined as a lease
that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying
asset that the lessee is reasonably certain to exercise.
7
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The Company’s financial instruments
primarily include cash, short term investments, and accounts payable. Due to the short-term nature of cash and accounts payable
the carrying amounts of these assets and liabilities approximate their fair value.
Fair value is defined as the price that
would be received to sell an asset, or paid to transfer a liability (an exit price), in an orderly transaction between market participants
at the reporting date. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted
prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy
is as follows:
Level 1 Inputs - Unadjusted quoted prices
in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted
prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted
prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities,
prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation
or other means.
Level 3 Inputs - Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
The Company’s short-term investment
instruments of $115,593,750 at September 30, 2020 are classified using Level 1 inputs within the fair value hierarchy because
they are valued using NAV. Unrealized gains and losses are recorded in the consolidated statement of operations under other income.
The Company recorded an unrealized gain of $290,973 included in other income for the nine months ended September 30, 2020.
Income Taxes
The Company accounts for income taxes using
the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized
when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not
that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future
deductibility is uncertain. As of September 30, 2020 and December 31, 2019, the Company had recognized a valuation allowance to
the full extent of the Company’s net deferred tax assets since the likelihood of realization of the benefit does not meet
the more likely than not threshold.
The Company files a U.S. Federal income
tax return and various state returns. Uncertain tax positions taken on the Company’s tax returns will be accounted for as
liabilities for unrecognized tax benefits. The Company will recognize interest and penalties, if any, related to unrecognized tax
benefits in general and administrative expenses in the statements of operations. There were no liabilities recorded for uncertain
tax positions at September 30, 2020 and December 31, 2019. The open tax years, subject to potential examination by the applicable
taxing authority, for the Company are from June 30, 2017 forward.
8
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Research and Development
Research and development costs primarily
consist of research contracts for the advancement of product development, salaries and benefits, stock-based compensation, and
consultants. The Company expenses all research and development costs in the period incurred. The Company makes an estimate of costs
in relation to clinical study contracts. The Company analyzes the progress of studies, including the progress of clinical studies
and phases, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid
asset and accrued liability.
Stock-Based Compensation
The Company measures the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is
recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service
period. The grant-date fair value of employee share options is estimated using the Black-Scholes option pricing model adjusted
for the unique characteristics of those instruments.
Loss per Common Share
Basic loss per common share attributable
to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number
of common shares outstanding for the period, without consideration for common stock equivalents. Diluted loss per common share
attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average
number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock
equivalents are comprised of options and warrants to purchase common stock. For all periods presented, there is no difference in
the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
For the nine months ended September 30,
2020 and 2019, the potentially dilutive securities that would be anti-dilutive due to the Company’s net loss are not included
in the calculation of diluted net loss per share attributable to common stockholders. The anti-dilutive securities are as follows
(in common stock equivalent shares):
Nine months ended
September 30,
2020
September 30,
2019
Stock options
4,110,425
2,373,314
Common stock warrants
2,674,265
4,308,762
Total
6,784,690
6,682,076
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related
to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies
and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of ASU
2019-12 to have a material impact on our consolidated financial statements.
9
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In August 2018, FASB issued ASU
2018-13, Fair Value Measurement – Disclosure Framework (Topic 820). The updated guidance improves the disclosure
requirements on fair value measurements, primarily associated with Level 3 fair value measurements and is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted
upon issuance of the standard disclosures modified or removed with a delay of adoption of the additional disclosures until
their effective date. The Company adopted this standard effective January 1, 2020 and the standard did not have a significant
impact on the Company’s financial statements.
In November 2018, FASB issued ASU 2018-18
– Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 , which, among
other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for
under Topic 606. The amendments in the ASU are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019, with early adoption permitted. The Company adopted this standard on January 1, 2020 and the standard did
not have a significant impact on the Company’s financial statements.
Subsequent Events
The Company’s management reviewed
all material events through the date the financial statements were issued for subsequent event disclosure consideration.
NOTE 3 - PREPAID EXPENSES
Prepaid expenses consisted of the following (rounded to nearest
$00):
September 30,
2020
December 31,
2019
Insurance
$ 839,400
$ 223,600
Research and Development
1,373,500
139,200
Legal
11,000
11,000
Other
25,300
50,100
Total
$ 2,249,200
$ 423,900
NOTE 4 - FIXED ASSETS
Fixed assets, net of accumulated depreciation, consisted of
the following (rounded to nearest $00):
Useful lives
September 30,
2020
December 31,
2019
Computer and Software
3 years
$ 16,700
$ 16,700
Less: accumulated depreciation
(14,600 )
(11,700 )
Fixed Assets
$ 2,100
$ 5,000
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consisted of the following (rounded to nearest
$00):
September 30,
2020
December 31,
2019
Research and development
$ 1,111,600
$ 134,500
Professional fees
213,600
172,900
Accrued bonus
952,300
50,000
Accrued vacation
312,900
124,600
Legal settlement
-
250,000
Other
70,400
92,900
Total
$ 2,660,800
$ 824,900
10
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 6 - NOTE PAYABLE
In June 2019, the Company entered into
a note for approximately $364,200 in conjunction with a renewal of its director and officer insurance policy. The interest rate
was 3.09% per annum. The note matured on April 9, 2020.
At September 30, 2020 and December 31,
2019, the note payable outstanding balances were approximately $0 and $110,200, respectively.
NOTE 7 - STOCKHOLDERS’ EQUITY
On September 26, 2019, the Company’s
Board of Directors approved a 1-for-4 reverse split of the Common Stock, which was effective on the OTC Markets on September 30,
2019. As a result of the reverse stock split, every 4 shares of issued and outstanding common stock were converted into 1 share
of issued and outstanding common stock, with all fractional shares rounded up to the nearest whole share, and the Company’s
authorized share of common stock were reduced from 200,000,000 to 50,000,000 shares. All share and per share amounts have been
retroactively restated to reflect this reverse stock split.
Common Stock
During the nine months ended September
30, 2020, the Company issued shares of common stock for cashless exercise of warrants. The Company also issued shares of common
stock for cash exercises of warrants for proceeds of $7,186,306.
During the nine months ended September
30, 2020, the Company issued shares of common stock for cashless exercise of options. During the nine months ended September 30,
2020, the Company issued shares of common stock for the exercise of options for proceeds of $636,518.
On May 15, 2020, the Company entered into
an Open Market Sale Agreement with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company
may offer and sell, from time to time, through Jefferies, shares of the Company’s common stock, having an aggregate offering
price of up to $75,000,000 . The Company is not obligated to sell any shares under the agreement. During the nine months ended
September 30, 2020 the Company issued shares of common stock for net cash proceeds of $19,816,597 under the agreement.
Options and Warrants
In December 2014, the Board of Directors
adopted and the shareholders approved Relmada’s 2014 Stock Option and Equity Incentive Plan, as amended (the “Plan”),
which allows for the granting of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to
purchase shares of the Company’s common stock to designated employees, non-employee directors, and consultants and advisors.
The Plan allowed for the granting of 5,152,942 options or stock awards.
Stock options are exercisable generally for
a period of 10 years from the date of grant and generally vest over four years. As of September 30, 2020, 1,042,520 shares were
available for future grants under the Plan.
As of September 30, 2020, no stock appreciation
rights have been issued.
The Company utilizes the Black-Scholes
option pricing model to estimate the fair value of stock options and warrants. The risk-free interest rate assumptions were based
upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield was assumed
to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable
future. The expected volatility was based on historical volatility. The Company routinely reviews its calculation of volatility
changes in future volatility, the Company’s life cycle, its peer group, and other factors.
The Company uses the simplified
method for share-based compensation to estimate the expected term for equity awards for share-based compensation in its
option-pricing model.
During the nine months ended September
30, 2020, the Company awarded a total of 950,000 options to employees with exercise price ranging from $28.00- $45.61 and a 10-year
term vesting over 4-year period. The options have an aggregate fair value of $31.1 million calculated using the Black-Scholes option-pricing
model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 0.36%-0.83% (2) expected life of
6.25 years, (3) expected volatility of 106%-108%, and (4) zero expected dividends.
11
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 7 - STOCKHOLDERS’ EQUITY (continued)
At September 30, 2020, the Company has
unrecognized stock-based compensation expense of approximately $67,964,000 related to unvested stock options over the weighted
average remaining service period of 3.29 years.
During
the nine months ended September 30, 2020, the Company recognized additional compensation expense of approximately $1,500,000 related
to acceleration of vesting and a nominal amount related to the modification of certain options in connection with the separation
and settlement agreement with Dr. Ottavio Vitolo (see note 8).
Options
A summary of the changes in options during
the nine months ended September 30, 2020 is as follows:
Number
of
Options
Weighted
Average
Exercise
Price For
Share
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Outstanding and expected to vest at December 31, 2019
3,615,602
$ 19.96
9.2
$ 74,837,043
Granted
950,000
$ 39.82
9.54
$ 2,256,000
Exercised
(239,865 )
$ 3.98
-
$ -
Forfeited
(215,312 )
$ 21.57
-
$ -
Outstanding at September 30, 2020
4,110,425
$ 25.40
8.72
$ 61,858,297
Options exercisable at September 30, 2020
982,608
$ 13.87
7.77
$ 24,526,894
Warrants
A summary of the changes in outstanding warrants during the
nine months ended September 30, 2020 is as follows:
Number of
Shares
Weighted
Average
Exercise
Price Per
Share
Outstanding and vested at December 31, 2019
3,646,872
$ 6.83
Granted
122,000
31.69
Exercised
(1,081,581 )
7.34
Forfeited
(13,026 )
16.00
Outstanding at September 30, 2020
2,674,265
$ 7.77
Warrants exercisable at September 30, 2020
2,646,141
$ 7.81
12
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 7 - STOCKHOLDERS’ EQUITY (continued)
On April 1, 2020, the Company granted 120,000
warrants to consultants with exercise price of $31.59, a 5-year term and immediate vesting. The warrants have an aggregated fair
value of $2.5 million that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing
model include: (1) discount rate of 0.26% (2) expected life of 2.5 years, (3) expected volatility of 118%, and (4) zero expected
dividends.
On April 27, 2020, the Company granted
2,000 warrants to a consultant with exercise price of $37.67, a 5-year term and immediate vesting. The warrants have an aggregated
fair value of $48 thousand that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes
option-pricing model include: (1) discount rate of 0.27% (2) expected life of 2.5 years, (3) expected volatility of 116%, and (4)
zero expected dividends.
At September 30, 2020, the Company had
approximately $90,400 of unrecognized compensation expense related to outstanding warrants.
At September 30, 2020 and December 31,
2019, the aggregate intrinsic value of warrants vested and outstanding was approximately $78,875,000 and $115,731,000, respectively.
The following summarizes the components
of stock-based compensation expense which includes stock options and warrants in the unaudited consolidated statements of operations
for the nine months ended September 30, 2020 and 2019 (rounded to nearest $00):
Nine
Months
Ended
September 30,
2020
Nine
Months
Ended
September 30,
2019
Research and development
$ 4,635,300
$ 259,400
General and administrative
12,951,200
1,296,500
Total
$ 17,586,500
$ 1,555,900
NOTE 8 - RELATED PARTY TRANSACTIONS
Effective March 6, 2020, Dr. Vitolo entered
into a Separation and Severance Agreement with the Company. Pursuant to the terms of the agreement, the Company agreed to pay Dr.
Vitolo severance of $200,000 in accordance with his employment contract. In addition, Dr. Vitolo’s options granted under
the Company’s 2014 Stock Option and Equity Incentive Plan continued to vest until September 6, 2020. Dr. Vitolo shall
have until March 6, 2021 to exercise his vested options and he shall be allowed to use a cashless exercise provision to exercise
his vested options. The agreement also contains customary confidentiality, release, and non-disparagement provisions, and the Company
agreed to pay accrued and unpaid salary, vacation time and attorney’s fees totaling approximately $45,000.
On March 9, 2020, the Company appointed
Dr. Thomas Wessel as the Company’s Executive Vice President, Head of Research and Development.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
License Agreements
Wonpung
On August 20, 2007, the Company entered
into a License Development and Commercialization Agreement with Wonpung Mulsan Co, a shareholder of the Company. Wonpung has exclusive
territorial rights in countries it selects in Asia to market up to two drugs the Company is currently developing and a right of
first refusal (“ROFR”) for up to an additional five drugs that the Company may develop in the future as defined in
more detail in the license agreement. If the parties cannot agree to terms of a license agreement then the Company shall be able
to engage in discussions with other potential licensors. As of November 12, 2020, no discussions are active between the Company
and Wonpung.
The Company received an upfront license
fee of $1,500,000 and will earn royalties of up to 12% of net sales for up to two licensed products it is currently developing.
The licensing terms for the ROFR products are subject to future negotiations and binding arbitration. The terms of each licensing
agreement will expire on the earlier of any time from 15 years to 20 years after licensing or on the date of commercial availability
of a generic product to such licensed product in the licensed territory.
13
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(continued)
Third Party Licensor
Based upon a prior acquisition, the Company
assumed an obligation to pay third parties (Dr. Charles E. Inturrisi and Dr. Paolo Manfredi – see below): (A) royalty payments
up to 2% on net sales of licensed products that are not sold by sublicensee and (B) on each and every sublicense earned royalty
payment received by licensee from its sublicensee on sales of license product by sublicensee, the higher of (i) 20% of the royalties
received by licensee; or (ii) up to 2% of net sales of sublicensee. The Company will also make milestone payments of up to $4 or
$2 million, for the first commercial sale of product in the field that has a single active pharmaceutical ingredient, and for the
first commercial sale of product in the field of product that has more than one active pharmaceutical ingredient, respectively.
As of September 30, 2020, the Company has not generated any revenue related to this license agreement.
Inturrisi / Manfredi
In January 2018, we entered into an
Intellectual Property Assignment Agreement (the Assignment Agreement) and License Agreement (the License Agreement and together
with the Assignment Agreement, the Agreements) with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively, the Licensor).
Pursuant to the Agreements, Relmada assigned its existing rights, including patents and patent applications, to d-methadone in
the context of psychiatric use (the Existing Invention) to Licensor. Licensor then granted Relmada under the License Agreement
a perpetual, worldwide, and exclusive license to commercialize the Existing Invention and certain further inventions regarding
d-methadone. In consideration of the rights granted to Relmada under the License Agreement, Relmada paid the Licensor an upfront,
non-refundable license fee of $180,000. Additionally, Relmada will pay Licensor $45,000 every three months until the earliest to
occur of the following events: (i) the first commercial sale of a licensed product anywhere in the world, (ii) the expiration or
invalidation of the last to expire or be invalidated of the patent rights anywhere in the world, or (iii) the termination of the
License Agreement. Relmada will also pay Licensor tiered royalties with a maximum rate of 2%, decreasing to 1.75%, and 1.5% in
certain circumstances, on net sales of licensed products covered under the License Agreement. Relmada will also pay Licensor tiered
payments up to a maximum of 20%, and decreasing to 17.5%, and 15% in certain circumstances, of all consideration received by Relmada
for sublicenses granted under the License Agreement.
Legal
From time to time, the Company may become
involved in lawsuits and other legal proceedings that arise in the course of business. Litigation is subject to inherent uncertainties,
and it is not possible to predict the outcome of litigation with total confidence. The Company is currently not aware of any legal
proceedings or potential claims against it whose outcome would be likely, individually or in the aggregate, to have a material
adverse effect on the Company’s business, financial condition, operating results, or cash flows.
Lawsuit Brought by Former Officer
On February 6, 2019, the Company entered
into a settlement agreement in its previous dispute with Najib Babul, Relmada’s former President. Babul relinquished his
303,392 shares in Relmada, signed a consulting contract and Relmada committed to a $500,000 initial payment and four subsequent
payments of $250,000 on March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019. The Company recorded a loss on
the settlement of $1.1 million in the first quarter of 2019.
On
July 15, 2020, an employee of the Company filed a Complaint alleging unequal pay based on gender and other employment based claims.
The Company intends to defend the lawsuit vigorously and does not expect that the lawsuit will have a material effect on its financial
position.
14
Relmada Therapeutics, Inc.
Notes to Unaudited Consolidated Financial
Statements
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
Leases and Sublease
The Company’s corporate headquarters
are located at 880 Third Avenue, 12th Floor, New York, New York 10022 pursuant to a lease agreement for a period of one year. As
the Company’s leases consist of one lease for their corporate headquarters, which is for a period of 12 months or less. In
accordance with ASC 842, Leases, the Company has elected the practical expedient and recognizes rent expense evenly over the 12
months. The monthly rent is approximately $13,800. For the nine months ended September 30, 2020 and 2019, the Company recognized
lease expense of approximately $124,400 and $70,300, respectively.
On June 8, 2017, the Company entered into
an Amended and Restated License Agreement with Actinium. Pursuant to the terms of the agreement, Actinium will continue to license
the furniture, fixtures, equipment and tenant improvements located in its office (“FFE”) for a license fee of $7,529
per month until December 8, 2022. Actinium shall have at any time during the term of this agreement the right to purchase the FFE
for $496,914, less any previously paid license fees. The license of FFE qualifies as a sales-type lease. At inception, the Company
derecognized the underlying assets of $493,452, recognized discounted lease payments receivable of $397,049 using the discount
rate of 8.38% and recognized loss on sales-type lease of fixed assets of $96,403. For the nine months ended September 30, 2020
and 2019, the Company recognized lease income of approximately $13,500 and $17,900, respectively. As of September 30, 2020, the
balance of unearned interest income was approximately $18,600.
Contractual Obligations
The following tables sets forth our contractual
obligations for the next five years and thereafter:
Total
Less than
1 year
1 - 2
years
3 - 5
years
More than
5 years
Office lease
$ 41,400
$ 41,400
$ -
$ -
$ -
Total obligations
$ 41,400
$ 41,400
$ -
$ -
$ -
NOTE 10 - SUBSEQUENT EVENTS
Subsequent
to September 30, 2020, 52,268 outstanding warrants were exercised for total cash proceeds of approximately $437,100.
On October 25, 2020, the Company awarded
a total of 25,000 options to a new employee with an exercise price of $33.34 and a 10-year term vesting over a four year period.
15
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENT NOTICE
This Quarterly Report on Form 10-Q (this
Report) contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description
of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” All statements other than statements of historical fact contained in this Quarterly Report, including
statements regarding future events, our future financial performance, business strategy and plans and objectives of management
for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology
including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“should,” or “will” or the negative of these terms or other comparable terminology. Although we do not
make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks
outlined under “Risk Factors” or elsewhere in this Quarterly Report, which may cause our or our industry’s actual
results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we
operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us
to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume
no obligation to update any such forward-looking statements.
You should not place undue reliance on
any forward-looking statement, each of which applies only as of the date of this Quarterly Report on Form-10-Q. Before you invest
in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors”
and elsewhere in this Quarterly Report could negatively affect our business, operating results, financial condition and stock price.
Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after
the date of this Quarterly Report on Form-10-Q to conform our statements to actual results or changed expectations.
Business Overview
Relmada Therapeutics, Inc. (Relmada or
the Company, we or us) (a Nevada corporation), is a clinical-stage biotechnology company focused on the development of REL-1017
(d-Methadone dextromethadone), an N-methyl-D-aspartate (NMDA) receptor antagonist. d-Methadone is a new chemical entity (NCE) that
potentially addresses areas of high unmet medical need in the treatment of central nervous system (CNS) diseases and other disorders.
NMDA receptors are present in many parts of
the CNS and play important roles in regulating neuronal activity and promoting synaptic plasticity in brain areas important for
mood, behavioral aspects and cognitive functions such as learning and memory. Based on these premises, d-methadone could show benefits
in several different CNS indications.
On October 7, 2019, our application to
list its common stock on the NASDAQ Capital Market was approved. On October 10, 2019, the Company’s common stock began trading
on NASDAQ under the existing symbol, “RLMD”. On July 14, 2020, our common stock was uplisted to The Nasdaq Global Select
Market and continues to trade under the symbol “RLMD.”
On December 19, 2019, the Board of Directors
of the Company approved a change to its end of fiscal year from June 30 to December 31. The change in fiscal year became effective
for the Company’s 2020 fiscal year, which began on January 1, 2020 and will end December 31, 2020.
Our lead product candidate,
d-methadone, is an NCE in development as a rapidly acting, sustained effect oral agent for the treatment of depression and
other potential indications. We have previously successfully completed Phase 1 single and multiple ascending dose studies
with safety and tolerability supporting further development. On October 15, 2019 we reported top-line data from the proof of
concept study REL-1017-202. This was a double-blind, placebo-controlled Phase 2 clinical trial evaluating the safety,
tolerability and efficacy of two oral doses of REL-1017, 25 mg once a day and 50 mg once a day, as an adjunctive treatment in
patients with major depressive disorder (MDD), who experienced an inadequate response to 1 to 3 treatments with an
antidepressant medications.
In the REL-1017-202 study, 62 subjects,
average age 49.2 years, with an average Hamilton Depression Rating Scale score of 25.3 and an average Montgomery-Asberg Depression
Rating Scale (MADRS) score of 34.0 (severe depression), were randomized. Demographic characteristics were balanced across all arms.
After an initial screening period, subjects were randomized to one of three arms: placebo, REL-1017 25 mg or REL-1017 50 mg, in
addition to stable background antidepressant therapy. Subjects in the REL-1017 treatment arms received one loading dose of either
75 mg (25 mg arm) or 100 mg (50 mg arm) of REL-1017. Subjects were treated as inpatients for 7 days and discharged home at Day
9. They returned for follow-up visits at Day 14 and Day 21. Efficacy was measured on Days 2, 4 and 7 in the dosing period and on
Day 14, one week after treatment discontinuation. 61 subjects received all treatment doses and were included in the per-protocol
population (PPP) treatment analysis; 57 subjects completed all visits. All 62 randomized subjects were part of the intention-to-treat
(ITT) analysis. No differences were observed between the ITT and PPP analyses and results.
16
Key findings:
We observed that subjects in both the REL-1017
25 mg and 50 mg treatment groups experienced statistically significant improvement on all efficacy measures tested as compared
to subjects in the placebo group, including: the Montgomery-Asberg Depression Rating Scale (MADRS); the Clinical Global Impression
– Severity (CGI-S) scale; the Clinical Global Impression – Improvement (CGI-I) scale; and the Symptoms of Depression
Questionnaire (SDQ).
Statistically significant improvements on the MADRS endpoint
appeared on Day 4 in both REL-1017 dose groups and continued through Day 7 and Day 14, seven days after treatment discontinuation,
with P values< 0.03 and large effect sizes (a measure of quantifying the difference between two groups), ranging from 0.7 to
1.0. Similar findings emerged from the CGI-S and CGI-I scales.
MADRS: Analysis of Change from Baseline
to Day 7 and to Day 14 ITT Population
Day 2
Day 4
Day 7
Day 14
LS
Means
Difference
P-value
d
LS
Means
Difference
P-value
d
LS
Means
Difference
P-value
d
LS
Means
Difference
P-value
d
REL-1017 25mg vs Placebo
-1.9
0.4340
0.3
-7.9
0.0087
0.9
-8.7
0.0122
0.8
-9.4
0.0103
0.9
REL-1017 50mg vs Placebo
-0.3
0.9092
0.0
-7.6
0.0096
0.8
-7.2
0.0308
0.7
-10.4
0.0039
1.0
LS = Least Squares; d = Cohen’s effect
size
The study also confirmed the favorable tolerability profile
of REL-1017, which was observed in the Phase 1 studies. Subjects experienced only mild and moderate adverse events (AEs), and no
serious adverse events, without significant differences between placebo and treatment groups. The AEs observed in the Phase 2a
clinical study were of the same nature as those observed in the Phase 1 clinical studies in d-methadone, and there was no evidence
of either treatment induced psychotomimetic and dissociative AEs or withdrawal signs and symptoms upon treatment discontinuation.
Key Upcoming Anticipated Milestones
We expect multiple key milestones over
the next 12 months. These include:
4Q20 – Start of first pivotal Phase III
adjunctive MDD trial
1H21 – Start of second pivotal Phase
III adjunctive MDD trial
1H21 – Start of Phase II monotherapy
MDD trial
2Q21 – Results of human abuse potential
studies
4Q21 – Results of Phase II monotherapy
MDD trial
1H22 – Results of Phase III adjunctive
MDD trials
NMDA receptors are present in many parts
of the CNS and play important roles in regulating neuronal activity and promoting synaptic plasticity in brain areas important
for cognitive functions such as executive function, learning and memory. Based on these premises, d-methadone could show benefits
in several different CNS indications.
d-Methadone Phase 1 Clinical Safety Studies
The safety data from two Company-funded
d-methadone Phase 1 clinical safety studies and a third study conducted by researchers at Memorial Sloan-Kettering Cancer Center
indicate that d-methadone was well tolerated in both healthy subjects and cancer patients at all projected therapeutic doses tested.
17
Our Corporate History and Background
We are a clinical-stage, publicly traded biotechnology company
developing NCEs that potentially address areas of high unmet medical need in the treatment of depression and other CNS diseases.
Currently, none of our product candidates
have been approved for sale in the United States or elsewhere. We have no commercial products nor do we have a sales or marketing
infrastructure. In order to market and sell our products we must conduct clinical trials on patients and obtain regulatory approvals
from appropriate regulatory agencies, like the FDA in the United States, and similar organizations elsewhere in the world.
We have not generated revenues and do
not anticipate generating revenues for the foreseeable future. We had net loss of $38,694,264 for the nine months ended September
30, 2020. At September 30, 2020, we have an accumulated deficit of $158,553,173.
Business Strategy
Our strategy is to leverage our considerable
industry experience, understanding of CNS markets and development expertise to identify, develop and commercialize product candidates
with significant market potential that can fulfill unmet medical needs in the treatment of CNS diseases. We have assembled a management
team along with both scientific and business advisors, including recognized experts in the fields of depression, with significant
industry and regulatory experience to lead and execute the development and commercialization of REL-1017.
We plan to further develop REL-1017 as our priority program.
As the drug d-methadone is an NCE, the regulatory pathway required to support and NDA submission will consist of conducting a full
clinical development program. We plan to continue to generate intellectual property (IP) that will further protect our products
from competition. We will also continue to prioritize our product development activities after taking into account the resources
we have available, market dynamics and potential for adding value.
Market Opportunity
We believe that the market for addressing
areas of high unmet medical need in the treatment of CNS diseases will continue to be large for the foreseeable future and that
it will represent a sizable revenue opportunity for us. For example, the World Health Organization (WHO) has estimated that CNS
diseases affect nearly 2 billion people globally, making up approximately 40% of total disease burden (based on disability adjusted
life years), compared with 13% for cancer and 12% for cardiovascular disease.
The depression treatment market is segmented
on the basis of antidepressants drugs, devices, and therapies. Antidepressants are the largest and most popular market segment.
The antidepressants segment consists of large pharmaceutical and generic companies, such as Eli Lilly, Pfizer, GlaxoSmithKline,
Allergan, Sage Therapeutics and Johnson & Johnson. Some of the notable drugs produced by these companies are Cymbalta®
(Eli Lilly), Effexor® (Pfizer), Pristiq® (Pfizer), Zulresso® (Sage) and Spravato® (Johnson & Johnson).
Intellectual Property Portfolio and
Market Exclusivity
We
have over 50 issued patents and pending patent applications related to REL-1017 for multiple uses, including psychological and
neurological conditions. We have also secured an Orphan Drug Designation from the FDA for d-methadone for “the treatment
of postherpetic neuralgia”, which, if pursed and upon potential NDA approval, would carry 7-year FDA Orphan Drug marketing
exclusivity. In the European Union, some of our products may be eligible up to 10 years of market exclusivity, which includes
8 years data exclusivity and 2 years market exclusivity. In addition to any granted patents, REL-1017 will be eligible for market
exclusivity to run concurrently with the term of the patent for 5 years in the U.S. (Hatch Waxman) plus additional 6 months of
pediatric exclusivity and up to 10 years of in the E.U. We believe an extensive intellectual property estate of US and foreign
patents and applications, once approved, will protect our technology and products.
18
Key Strengths
We believe that the key elements for our market success include:
●
Compelling lead product opportunity, REL-1017 completed Phase 2 trial for the adjunctive treatment of MDD.
●
Potential in multiple indications in underserved markets with large patient population, such as MDD, other affective disorders, and cognitive disorders.
●
Scientific support
of leading experts: Our scientific advisors include clinicians and scientists who are affiliated with a number of highly regarded
medical institutions such as Harvard, Cornell, Yale, and University of Miami.
●
Substantial IP portfolio and market protection: approved and filed patent applications provide coverage beyond 2030.
A vailable Information
Reports we file with the Securities and
Exchange Commission (SEC) pursuant to the Exchange Act of 1934, as amended (the Exchange Act), including annual and quarterly reports,
and other reports we file, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street
NE, Washington, D.C. 20549.
Reverse Stock Split
On September 26, 2019, our Board of Directors
approved a 1-for-4 reverse split of our common stock, which was effective on the OTC Markets on September 30, 2019. As a result
of the reverse stock split, every 4 shares of issued and outstanding common stock were converted into 1 share of issued and outstanding
common stock, with all fractional shares rounded up to the nearest whole share, and our authorized shares of common stock were
reduced from 200,000,000 to 50,000,000 shares. All share and per share amounts herein have been retroactively
restated to reflect this reverse stock split.
Results of Operations
For the Three Months Ended September 30, 2020 versus September
30, 2019
Three Months
Ended
Three Months
Ended
September 30,
2020
September 30,
2019
Increase
(Decrease)
Operating Expenses
Research and development
$ 11,237,186
$ 1,887,367
$ 9,349,819
General and administrative
5,946,396
1,820,043
4,126,353
Total
$ 17,183,582
$ 3,707,410
$ 13,476,172
Research and Development Expense
Research and development expense for
the three months ended September 30, 2020 was approximately $11,237,200 compared to $1,887,400 for the three months ended
September 30, 2019, an increase of approximately $9,349,800. The increase was driven by an increase in development costs of
$7,511,400, of which the majority pertained to cost associated with toxicology, and in vitro metabolic studies along with the
preparation of the Phase 3 program, as well as an increase in compensation costs of $1,838,400 as a result of hiring four
additional research and development employees and the related options granted to them.
General and Administrative Expense
General and administrative expense for
the three months ended September 30, 2020 was approximately $5,946,400 compared to $1,820,000 for the three months ended September
30, 2019, an increase of approximately $4,126,400. The increase resulted from an increase in compensation costs of $552,400 as
a result of hiring four additional employees; an increase in stock-based compensation costs of $3,047,200 primarily related to options
granted to employees during 2020; a net increase in other G&A expenses of $526,800 that pertained primarily to insurance expense
and state and city franchise taxes.
19
Other Income (Expense)
Interest / investment income was approximately
$363,300 and $37,900 for the three months ended September 30, 2020 and 2019, respectively. Unrealized gain on short-term investments
was approximately $3,946 for the three months ended September 30, 2020. Realized loss on short-term investments was approximately
$86,171 for the three months ended September 30, 2020. All investments were classified as cash equivalents at September 30, 2019.
There was no unrealized gain or loss or realized gain or loss at September 30, 2019.
Income Taxes
The Company did not provide for income
taxes for the three months ended September 30, 2020 and 2019, since there was a loss and a full valuation allowance against all
deferred tax assets.
Net Loss
The net loss for the Company for the three
months ended September 30, 2020 and 2019 was approximately $16,902,500 and $3,669,500 respectively. The Company had loss per share,
basic and diluted of $1.05 and $0.38 for the three months ended September 30, 2020 and 2019, respectively.
For the Nine Months Ended September 30, 2020 versus September
30, 2019
Nine Months
Ended
Nine Months
Ended
September 30,
2020
September 30,
2019
Increase
(Decrease)
Operating Expenses
Research and development
$ 21,068,923
$ 6,233,214
$ 14,835,709
General and administrative
18,846,299
4,311,902
14,534,397
Total
$ 39,915,222
$ 10,545,116
29,370,106
Research and Development Expense
Research and development expense for the nine months ended September
30, 2020 was approximately $21,068,900 compared to $6,233,200 for the nine months ended September 30, 2019, an increase of approximately
$14,835,700. The increase was driven by an increase in development costs of $8,810,000, of which the majority pertained to completion
of our Phase 2 study, costs associated with the toxicology, and in vitro metabolic studies along with the preparation of the Phase
3 program, as well as an increase in compensation costs of $6,025,700 which included the approximately $4,375,900 of stock based
compensation expense related to the hiring of four additional research and development employees and the related options granted
to them, and the separation agreement with Ottavio Vitolo.
General and Administrative Expense
General and administrative expense for
the nine months ended September 30, 2020 was approximately $18,846,300 compared to $4,311,900 for the nine months ended September
30, 2019, an increase of approximately $14,534,400. The increase resulted from an increase in compensation costs of $1,981,400,
as a result of hiring four additional employees and their related bonuses; an increase in stock-based compensation costs of $11,654,800
primarily related to options granted to employees during 2020; a net increase in other G&A expenses of $898,200 that pertained
primarily to insurance expense and state and city tax expense.
Other Income (Expense)
Interest / investment income was approximately
$1,175,000 and $67,000 for the nine months ended September 30, 2020 and 2019, respectively. Unrealized gain on short-term investments
was approximately $291,000 for the nine months ended September 30, 2020. Realized loss on short-term investments was approximately
$245,000 for the nine months ended September 30, 2020. All investments were classified as cash equivalents at September 30, 2019.
There was no unrealized gain or loss or realized gain or loss at September 30, 2019.
Income Taxes
The Company did not provide for income
taxes for the nine months ended September 30, 2020 and 2019, since there was a loss and a full valuation allowance against all
deferred tax assets.
Net Loss
The net loss for the Company for the nine
months ended September 30, 2020 and 2019 was approximately $38,694,300 and $10,478,200 respectively. The Company had loss per share,
basic and diluted of $2.52 and $1.23 for the nine months ended September 30, 2020 and 2019, respectively.
20
Liquidity
As shown in the accompanying financial
statements, the Company incurred negative operating cash flows of $20,880,039 for the nine months ended September 30, 2020 and
has an accumulated deficit of $158,553,173 from inception through September 30, 2020. At September 30, 2020 the Company had cash
and short term investments of $123,138,478.
Relmada has funded its past operations
through equity raises and most recently in 2020 raised net proceeds from the sale of common stock of $19,816,597, and $7,186,306 through the exercise of warrants. The Company also raised an additional $636,518 during the nine months
ended September 30, 2020 from the exercises of options.
Management
believes that due to the recent equity raises completed and exercises of outstanding warrants and the current cash position on
its balance sheet, it has obtained sufficient funding to continue ongoing operations for at least 12 months from the issuance of
the accompanying consolidated quarterly financial statements. Since September 30, 2020 and to date, the Company has received approximately
$437,100 in warrant exercises, which resulted in the Company having approximately $121.5 million in cash, cash equivalents and
short term investments at November 9, 2020. Based on its budgeted cash flow requirements, the Company believes these funds are
sufficient to fund its ongoing operations for at least 12 months after the issuance of these consolidated quarterly financial statements.
The following table sets forth selected cash flow information
for the periods indicated below:
Nine Months Ended
September 30,
2020
Nine Months Ended
September 30,
2019
Cash used in operating activities
$ (20,880,039 )
$ (8,213,160 )
Cash used in investing activities
(35,382,926 )
-
Cash provided by financing activities
27,529,174
13,636,282
Net decrease in cash and cash equivalents
$ (28,733,791 )
5,423,122
For the nine months ended September 30,
2020, cash used in operating activities was $20,880,039 primarily due to the net loss of $38,694,264, partially offset by non-cash
stock compensation charges of $17,586,533, an increase in prepaid expense of $1,825,336, an unrealized gain of $290,973, an increase
in accounts payable of $205,970, a realized loss of $244,972, and an increase in accrued expenses of $1,835,888.
For the nine months ended September 30,
2019, cash used in operating activities was $8,213,160 primarily due to the loss from operations for the nine months ended September
30, 2019 of $10,478,151, partially offset by non-cash stock compensation charges of 1,555,867, a decrease in prepaids of $524,967,
an increase in accounts payable of $907,657, and a decrease in accrued expenses of $376,157 and shares relinquished in litigation
of $394,410.
For the nine months ended September 30,
2020, cash used in investing activities was $35,382,926 related to the net purchase of short-term investments. For the nine months
ended September 30, 2019, no cash was used in investing activities.
Net cash provided by financing activities
for the nine months ended September 30, 2020 was $27,529,174 due to sales of common stock of $19,816,597, proceeds from warrants
exercised for common stock of $7,186,306, and proceeds from options exercised for common stock of $636,518, partially offset by
payments of notes payable of $110,247.
Net cash provided by financing activities
for the nine months ended September 30, 2019 was $13,636,282 due to sales of common stock of $13,409,299 and proceeds from warrants
exercised for common stock of $450,000, partially offset by payments of notes payable of $223,017.
Effects of Inflation
Our assets are primarily monetary, consisting
of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Because we intend
to retain and continue to use our equipment, we believe that the incremental inflation related to replacement costs of such items
will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation
and contract services, which could increase our level of expenses and the rate at which we use our resources.
21
Off-Balance Sheet Arrangements
As part of our ongoing business, we do
not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually limited purposes. As of September 30, 2020 and December 31,
2019, we were not involved in any SPE transactions.
Commitments and Contingencies
Please refer to Note 12 in our Annual Report
on Form 10-KT for the six months ended December 31, 2019 under the heading Commitments and Contingencies. To our knowledge there
have been no material changes to the risk factors that were previously disclosed in the Company’s Annual Report on Form 10-KT
for the six months ended December 31, 2019. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Critical Accounting Policies and Estimates
A critical accounting policy is one that
is both important to the portrayal of a company’s financial condition and results of operations and requires management’s
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Our unaudited consolidated financial statements
are presented in accordance with U.S. GAAP, and all applicable U.S. GAAP accounting standards effective as of September 30, 2020
have been taken into consideration in preparing the unaudited consolidated financial statements. The preparation of unaudited consolidated
financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related
disclosures. Some of those estimates are subjective and complex, and, consequently, actual results could differ from those estimates.
The following accounting policies and estimates have been highlighted as significant because changes to certain judgments and assumptions
inherent in these policies could affect our consolidated financial statements:
●
Research and development expenses, and
●
Stock-based compensation expenses
We base our estimates, to the extent possible,
on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions
that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate
our estimates on an on-going basis and make changes when necessary. Actual results could differ from our estimates.
22
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes to
our exposures to market risks as disclosed under the heading “Quantitative and Qualitative Disclosures About Market Risks”
in the annual MD&A contained in our Form 10-KT for the six months ended December 31, 2019.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.