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, 2023 and 2022. 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.
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.
In addition, on October 4, 2021, Relmada announced
that in order to support potential regulatory submissions seeking approval for REL-1017 as adjunctive and monotherapy treatment, the FDA
confirmed that, based on what was known at the time, Relmada would not be required to conduct a two-year carcinogenicity study of REL-1017,
as sufficient clinical data had been generated to date. The FDA also confirmed that Relmada would 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 would be adequate to evaluate the cardiac safety profile of REL-1017.
On October 13, 2022, Relmada announced that the
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 the Montgomery-Asberg Depression Rating Scale (MADRS)
on Day 28.
On December 7, 2022, Relmada announced that the
RELIANCE I, 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 the Montgomery-Asberg Depression Rating Scale (MADRS) on Day 28
Patients who completed the RELIANCE trials were eligible to rollover
into a long-term, open-label study (Study 310), which also included subjects who had not previously participated in a REL-1017 clinical
trial. This rollover study completed subject visits on July 11, 2023.
On August 23, 2023, Relmada announced the dosing
of the first patient in RELIGHT, a Phase 3 clinical trial for REL-1017, as an adjunctive treatment for MDD.
On September 20, 2023, Relmada announced efficacy
results for the de novo (or new to treatment) patients (204 patients) and safety results for all subjects (627 patients) from the Phase
3, long-term, open-label, safety trial (Study 310) of REL-1017 in patients with Major Depressive Disorder (MDD). Patients treated daily
with REL-1017 for up to one year experienced rapid, clinically meaningful, and sustained improvements in depressive symptoms and associated
functional impairment. REL-1017 was well-tolerated with long-term dosing, showing low rates of adverse events and discontinuations due
to adverse events. No new safety signals were detected.
We have not generated revenues and do not anticipate
generating revenues for the foreseeable future. We had a net loss of approximately $98,791,700 and $157,043,800 for the years ended December
31, 2023 and 2022, respectively. At December 31, 2023, we have an accumulated deficit of approximately $560,902,700.
36
Results of Operations
For the Year Ended December 31, 2023 vs the Year Ended December
31, 2022
Research and Development Expense
Total research and development expense for the
year ended December 31, 2023 was approximately $54,807,400, as compared to $113,323,000 for the same period of 2022, a decrease of $58,515,600.
The decrease in research and development expense was primarily due to:
●
Decrease in study costs of $45,506,500 associated with the completion
execution of two Phase 3 trials and the long-term, open-label, safety study (Study 310);
●
Decrease in other research
expenses of $12,919,100 primarily associated with additional consultants contracted to assist in the execution of our Phase 3 trials;
●
Decrease in manufacturing
and drug storage costs of $924,800 related to materials needed to complete the Phase 3 program;
●
Decrease in stock-based compensation expense of $658,700;
●
Decrease in pre-clinical and toxicology expenses of $131,000; and
●
Increase in compensation expense of $1,624,500 due to higher employee-related costs.
General and Administrative Expense
Total general and administrative expense for the year ended December
31, 2023 was approximately $48,894,900, as compared to $47,926,100 for the same period of 2022, an increase of $968,800. The increase
in general and administrative expenses was primarily due to:
●
Increase in compensation expense of $2,242,000 due to higher employee-related costs;
●
Increase in stock-based
compensation expense of $275,000 primarily related to options granted to employees and the board of directors during 2023; and
●
Decrease in other general and administrative expenses
of $1,548,200 due to decreases in professional fees and consulting expenses during 2023.
Other Income, Net
Gain on settlement fees was approximately $6,351,600
received from a settlement during 2022. There was no gain on settlement of fees during 2023.
Interest/investment income was approximately $5,151,700
for the year ended December 31, 2023 compared to approximately $2,659,400 for the same period of 2022, an increase of $2,492,300. The
increase was primarily related to higher returns from higher interest rates, offset by lower average investment balance during 2023 as
compared to 2022.
Realized loss on short-term investments was approximately
$4,064,400 compared to approximately $585,500 for the same period of 2022, an increase of $3,478,900. The increase was related to the
timing of the sales of short-term investments along with market conditions.
Unrealized gain on short-term investments was
approximately $3,823,200 compared to an unrealized loss of approximately $4,220,300 for the same period of 2022, an increase of $8,043,500.
The increase was related to the market conditions.
Income Taxes
The Company did not provide for income taxes
for the years ended December 31, 2023 and 2022, 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
$98,791,700 and $157,043,800 or $3.28 and $5.30 per common share, basic and diluted, during the years ended December 31, 2023 and 2022,
respectively, based on the factors described above.
37
Liquidity
As shown in the accompanying financial statements, the Company incurred
negative operating cash flows of $51,659,206 for the year ended December 31, 2023 and has an accumulated deficit of $560,902,681 from
inception through December 31, 2023.
Relmada has funded its past operations through
equity raises and warrant and stock option exercises.
Management
believes that due to previous equity raises completed and exercises of options and warrants and the resulting cash position on its balance
sheet, it has 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,
2023
2022
Cash used in operating activities
$ (51,659,206 )
$ (103,801,617 )
Cash provided by investing activities
50,453,332
19,733,609
Cash provided by (used in) financing activities
(98,463 )
45,020,474
Net decrease in cash and cash equivalents
$ (1,304,337 )
$ (39,047,534 )
For the year ended December 31, 2023, cash used in operating activities
was $51,659,206 primarily due to the net loss of $98,791,746. This was offset by non-cash expenses which primarily consisted of stock-based
compensation of $43,811,149. There were realized losses and unrealized gains on short term investments of $4,064,391 and $3,823,234, respectively.
In addition, there were increases in operating assets and liabilities for the year ended December 31, 2023 of $3,080,234.
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, 2023, cash provided by investing activities
was $50,453,332, due to $90,463,532 of purchases of short term investments offset by $140,916,864 of sales of short term investments.
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.
Net cash used in financing activities for the
year ended December 31, 2023, was $98,463 due to ATM reactivation fees.
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 Section 16b short
swing profit of $373,632 offset by the payment of fees for warrants issued for common stock of $50,000.
38
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
$171,800 under 2 leases for office space over the next year.
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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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.