Item 7. Management’s Discussion and Analysis
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, 2022 and 2021. 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 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 the RELIANCE III study, the monotherapy trial for the Company’s lead product candidate, REL-1017.
On August 9, 2022, Relmada announced that the
FDA granted Fast Track designation to REL-1017 as a monotherapy for the treatment of MDD.
On October 13, 2022, Relmada announced that its
RELIANCE III study, evaluating REL-1017 in the monotherapy setting for MDD, did not achieve its primary endpoint, which was a statistically
significant improvement in depression symptoms compared to placebo as measured by MADRS on Day 28. In the study, the REL-1017 treatment
arm showed a MADRS reduction of 14.8 points at Day 28 versus 13.9 points for the placebo arm, a higher than expected placebo response.
On December 7, 2022, Relmada announced that its RELIANCE I study, evaluating
REL-1017 as an adjunctive treatment for MDD, did not achieve its primary endpoint, which was a statistically significant improvement in
depression symptoms compared to placebo as measured by MADRS on Day 28. In the study, the REL-1017 treatment arm (n= 113) showed a MADRS
reduction of 15.1 points at Day 28 versus 12.9 points for the placebo arm (n=114), which is a clinically meaningful difference of 2.2
points on the MADRS, as well as a statistically significant difference in the response rate, with a response rate of 27.2% on placebo
vs 39.8% in the REL1017 arm (p<0.05).
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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 $157,043,800 and $125,751,800 for the years ended December
31, 2022 and 2021, respectively. At December 31, 2022, we have an accumulated deficit of approximately $462,110,900.
Results of Operations
For the Year Ended December 31, 2022 vs the Year Ended December
31, 2021
Research and Development Expense
Total research and development expense for the
year ended December 31, 2022 was approximately $113,323,000, as compared to $90,621,600 for the same period of 2021, an increase of $22,701,400.
The increase in research and development expense was primarily due to:
●
Increase in other research expenses of $19,073,100 primarily associated with additional consultants contracted to assist in the execution of our Phase 3 trials;
●
Increase in study costs of $14,689,700 associated with the execution of three Phase 3 trials and one open label extension safety study;
●
Increase in pre-clinical and toxicology expenses of $225,500;
●
Decrease in stock-based compensation expense of $7,953,200 primarily related to warrants issued for a license agreement to Arbormentis, LLC in 2021 for $10,241,600;
●
Decrease in manufacturing and drug storage costs of $3,213,900 related to materials needed to complete the Phase 3 program; and
●
Decrease in compensation expense of $119,800 due to lower employee-related costs.
General and Administrative Expense
Total general and administrative expense for the
year ended December 31, 2022 was approximately $47,926,100, as compared to $35,081,900 for the same period of 2021, an increase of $12,844,200.
The increase in general and administrative expenses was primarily due to:
●
Increase in stock-based compensation expense of $11,653,600 primarily related to options granted to employees and the board of directors during 2021;
●
Increase in other general and administrative expenses of $1,762,100 due to increases in professional fees and consulting expenses during 2022; and
●
Decrease in compensation expense of $571,500 due to lower employee-related costs.
Other Income, Net
Gain on settlement fees was approximately $6,351,600 received from
a settlement during 2022.
Interest/investment income was approximately $2,659,400
for the year ended December 31, 2022 compared to approximately $1,199,100 for the same period of 2021, an increase of $1,460,300. The
increase was primarily related to a lower average investment balance during 2021 as compared to 2022.
Realized loss on short-term investments was approximately
$585,500 compared to approximately $636,000 for the same period of 2021, a decrease of $50,500. The decrease was related to the timing
of the sales of short-term investments along with market conditions.
Unrealized loss on short-term investments was
approximately $4,220,300 compared to approximately $611,400 for the same period of 2021, an increase of $3,608,900. The increase was related
to the market conditions.
Income Taxes
The Company did not provide for income taxes
for the years ended December 31, 2022 and 2021, 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
$157,043,800 and $125,751,800 or $5.30 and $7.16 per common share, basic and diluted, during the years ended December 31, 2022 and 2021,
respectively, based on the factors described above.
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Liquidity
As shown in the accompanying financial statements,
the Company incurred negative operating cash flows of $103,801,617 for the year ended December 31, 2022 and has an accumulated deficit
of $462,110,935 from inception through December 31, 2022.
Relmada has funded its past operations through
equity raises and most recently in the year ended December 31, 2022, Relmada raised $42,728,599 in net proceeds from the sale of common
stock, $1,264,523 through the exercise of warrants, and $703,720 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,
2022
2021
Cash used in operating activities
$ (103,801,617 )
$ (91,873,395 )
Cash provided by (used in) investing activities
19,733,609
(54,118,036 )
Cash provided by financing activities
45,020,474
187,939,473
Net increase/(decrease) in cash and cash equivalents
$ (39,047,534 )
$ 41,948,042
For the year ended December 31, 2022, cash used in operating activities
was $103,801,617 primarily due to the net loss of $157,043,823. This was offset by non-cash expenses which primarily consisted of stock-based
compensation of $44,194,765 and a gain on settlement of $6,351,606. There were realized and unrealized losses on short term investments
of $585,522 and $4,220,255, respectively. In addition, there were increases in operating assets and liabilities for the year ended December
31, 2022 of $10,593,270.
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, 2022, cash provided
by investing activities was $19,733,609, due to $47,293,763 of purchases of short term investments offset by $67,027,372 of sales of short
term investments.
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.
Net cash provided by financing activities for
the year ended December 31, 2022, was $45,020,474 due to proceeds from issuance of common stock of $42,728,599, proceeds from warrants
exercised for common stock of $1,264,523, proceeds from options exercised for common stock of $703,720, proceeds from 16b short swing
profit of $373,632 offset by the payment of fees for warrants issued for common stock of $50,000.
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.
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
$274,000 under 2 office operative leases over the next year.
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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.
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