RELMADA THERAPEUTICS, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information and financial data discussed below is derived from the consolidated financial statements of Relmada for the years ended December 31, 2021 and 2020. The consolidated financial statements of Relmada were prepared and presented in accordance with generally accepted accounting principles in the United States. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes of Relmada contained elsewhere in this Report. The consolidated financial statements contained elsewhere in this Report fully represent Relmada’s financial condition and operations; however, they are not indicative of the Company’s future performance. See “Cautionary Note Regarding Forward Looking Statements” above for a discussion of forward-looking statements and the significance of such statements in the context of this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “ Risk Factors ” and elsewhere herein. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes of Relmada Therapeutics, Inc. contained elsewhere in this document. Relmada’s current consolidated financial position and consolidated results of operations; are not necessarily indicative of the Company’s future performance. See “Cautionary Note Regarding Forward Looking Statements” above for a discussion of forward-looking statements and the significance of such statements in the context of this document. Our Corporate History and Background Relmada Therapeutics, Inc. is 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. The Company’s lead product candidate, esmethadone, is being developed as a rapidly acting, oral agent for the treatment of depression and other potential indications. On October 15, 2019, we reported top-line data from study REL-1017-202. This was a a double-blind, placebo-controlled Phase 2 clinical trial evaluating the safety, tolerability and efficacy of two doses of REL-1017, 25 mg once a day and 50 mg once a day, as an adjunctive treatment in patients with MDD, who experienced an inadequate response to 1 to 3 treatments with an antidepressant medication. On December 20, 2020, the Company announced that the first patient had been enrolled in the first Phase 3 clinical trial (RELIANCE I) of REL-1017, as an adjunctive treatment for MDD. On April 1, 2021, Relmada announced the initiation of RELIANCE II, the second of two sister pivotal Phase 3 clinical trials (RELIANCE I and RELIANCE II) of REL-1017, as an adjunctive treatment for MDD. Patients who complete RELIANCE I and RELIANCE II are eligible to rollover into the long-term, open-label study, which also includes subjects who had not previously participated in a REL-1017 clinical trial. On October 4, 2021, Relmada announced the initiation of RELIANCE III, the ongoing monotherapy trial for REL-1017, which aims to randomize 364 patients and it is expected to be completed in mid-2022. Following discussion with the FDA, Relmada’s MDD Phase 3 program includes the following key attributes: ● The Phase 3 program consists of two sister, two-arm, placebo-controlled clinical trials. Each trial will be conducted in 55 clinical sites in the United States and will include planned enrollment of 364 MDD patients with inadequate response to standard antidepressants in their current depression episode. In the studies, patients will add either a 25 mg oral dose of REL-1017 once per day or placebo to their ongoing antidepressant treatment. ● The primary endpoint to be evaluated is the change from baseline on the Montgomery and Asberg Depression Rating Scale (MADRS) score at day-28 for REL-1017 compared to placebo. Success on this endpoint with the collection of sufficient safety data would support the use of REL-1017 for chronic treatment, if approved. ● The change from baseline and the 7-day MADRS score serves as a key secondary endpoint and will provide data on the rapid onset of treatment effect. In addition, in order to support potential regulatory submissions seeking approval for REL-1017 as adjunctive and monotherapy treatment, the FDA confirmed that, based on what is known at this time, Relmada will not be required to conduct a two-year carcinogenicity study of REL-1017, as sufficient clinical data have been generated to date. The FDA also confirmed that Relmada does not need to conduct a TQT cardiac study in humans to support cardiac safety in potential regulatory submissions for REL-1017, as the data already provided and the data to be generated by the Phase 3 program will be adequate to evaluate the cardiac safety profile of REL-1017. We have not generated revenues and do not anticipate generating revenues for the foreseeable future. We had a net loss of approximately $125,751,800 and $59,456,400 for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, we have an accumulated deficit of approximately $305,067,100. 34 Results of Operations For the Year Ended December 31, 2021 vs the Year Ended December 31, 2020 Research and Development Expense Total research and development expense for the year ended December 31, 2021 was approximately $90,621,600, as compared to $35,972,700 for the same period of 2020, an increase of $54,648,900. The increase in research and development expense was primarily due to: ● Increase in study costs of $31,673,300 associated with the execution of three Phase 3 trials and open label extension safety study; ● Increase in manufacturing and drug storage costs of $3,823,100 related to materials needed to complete the Phase 3 program; ● Decrease in pre-clinical and toxicology expenses of $2,501,900; ● Decrease in compensation expense of $955,500 due to lower employee-related costs; ● Increase in stock-based compensation expense of $11,787,400 of stock-based compensation expense related to the options granted to employees and the issuance of warrants to consultants during 2021; and ● Increase in other research expenses of $10,822,500 primarily associated with additional consultants contracted to assist in the execution of our Phase 3 trials. General and Administrative Expense Total general and administrative expense for the year ended December 31, 2021 was approximately $35,081,900, as compared to 24,865,900 for the same period of 2020, an increase of $10,216,000. The increase in general and administrative expenses was primarily due to: ● Increase in compensation expense of $439,000 due to higher employee-related costs; ● Increase in stock-based compensation expense of $7,919,800 primarily related to options granted to employees and the board of directors during 2021; ● Increase in other G&A expenses of $1,857,200 due to increases in professional fees and consulting expenses during 2021. Other Income, Net Interest income was approximately $1,199,100 for the year ended December 31, 2021 compared to approximately $1,399,200 for the same period of 2020, a decrease of $200,100. The decrease was primarily related to a lower average investment balance during 2021 as compared to 2020. Realized loss on short-term investments was approximately $636,000 compared to approximately $156,200 for the same period of 2020, an increase of $479,800. The increase was related to the timing of the sales of short-term investments along with market conditions. Unrealized loss on short-term investments was approximately $611,400 compared to an unrealized gain on short-term investments of approximately $139,300 for the same period of 2020, an increase of $750,700. The increase was related to the timing of the sales of short-term investments along with market conditions. Income Taxes The Company did not provide for income taxes for the years ended December 31, 2021 and 2020, since there was a loss and a full valuation allowance against all deferred tax assets. Net Loss The Company recorded a net loss of approximately $125,751,800 and 59,456,400 or $7.16 and $3.81 per common share, basic and diluted, during the years ended December 31, 2021 and 2020, respectively, based on the factors described above. 35 Liquidity As shown in the accompanying financial statements, the Company incurred negative operating cash flows of $91,873,395 for the year ended December 31, 2021 and has an accumulated deficit of $305,067,112 from inception through December 31, 2021. Relmada has funded its past operations through equity raises and most recently in the year ended December 31, 2021, Relmada raised $184,642,981 in net proceeds from the sale of common stock, $2,628,061 through the exercise of warrants, and $668,431 through the exercise of options. Management believes that due to the recent equity raises completed and exercises of options and warrants and the resulting cash position on its balance sheet, it has obtained sufficient funding, based on its budgeted cash flow requirements, to continue ongoing operations for at least 12 months from the filing of this annual report. The following table sets forth selected cash flow information for the periods indicated below: For the Year Ended For the Year Ended December 31, December 31, 2021 2020 Cash used in operating activities $ (91,873,395 ) $ (27,808,801 ) Cash used in investing activities (54,118,036 ) (34,447,648 ) Cash provided by financing activities 187,939,473 28,473,327 Net increase/(decrease) in cash and cash equivalents $ 41,948,042 $ (33,783,122 ) For the year ended December 31, 2021, cash used in operating activities was $91,873,395 primarily due to the net loss of $125,751,809. This was offset by non-cash expenses which primarily consisted of stock-based compensation of $40,494,476 and depreciation expense of $1,258. There were realized and unrealized losses on short term investments of $636,012 and $611,382, respectively. In addition, there were increases in operating assets and liabilities for the year ended December 31, 2021 of $7,864,714. For the year ended December 31, 2020, cash used in operating activities was $27,808,801 primarily due to the net loss of $59,456,394. This was offset by non-cash expenses which primarily consisted of stock-based compensation of $20,777,272. There were realized losses and unrealized gains on short term investments of $156,213 and $139,267, respectively. In addition, there were decreases in operating assets and liabilities for the year ended December 31, 2020 of $10,849,623. For the year ended December 31, 2021, cash used in investing activities was $54,118,036, due to $222,981,675 of purchases of short term investments offset by $168,863,639 of sales of short term investments. For the year ended December 31, 2020, cash used in investing activities was $34,447,648, due to $182,051,630 of purchases of short term investments offset by $147,603,982 of sales of short term investments. Net cash provided by financing activities for the year ended December 31, 2021, was $187,939,473 due to proceeds from issuance of common stock of $184,642,981, proceeds from warrants exercised for common stock of $2,628,061, proceeds from options exercised for common stock of $668,431. Net cash provided by financing activities for the year ended December 31, 2020, was $28,473,327 due to proceeds from issuance of common stock of $19,791,644, proceeds from warrants exercised for common stock of $8,056,416, proceeds from options exercised for common stock of $735,514 partially offset by payments of notes payable of $110,247. 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. Lease Obligations The Company is obligated to pay approximately $78,550 under an office operative lease over the next year. 36 Seasonality We do not have a seasonal business cycle. Critical Accounting Policies and Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such reviews, and if deemed appropriate, managements estimates are adjusted accordingly. Actual results could differ from those estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate to be critical if: ● it requires assumptions to be made that were uncertain at the time the estimate was made; and ● changes in the estimate, or the use of different estimating methods that could have been selected, could have a material impact on results of operations or financial condition. We evaluate our estimates and assumptions on an ongoing basis and none of the Company’s estimates and assumptions used within the consolidated financial statements involve a high level of estimation uncertainty. For additional discussion regarding the application of the significant accounting policies, see Note 2 to the Company’s consolidated financial statements included in this report. Recent Accounting Pronouncements The Company lists material recent accounting pronouncements in Note 2 of the consolidated financial statements. 37