Relmada Therapeutics: Run Up Likely Into Phase 3 Results, Enhanced By Possible Interim Readout

Four months ago I rated Relmada Therapeutics (NASDAQ:RLMD) a hold. The company was making the right moves with its redesigned trials of esmethadone in depression patients, but was a long way out from any potential readout. The company has recently provided details of a new trial, confirmed progress in the existing trial and reported earnings. Those updates are the focus of this article.

Figure 1: Past year of RLMD trading, the stock took a hit with the failure of RELIANCE III, a trial of esmethadone in major depressive disorder, in October 2022. A further failure in RELIANCE I, a trial of esmethadone as adjunctive treatment in major depressive disorder, in December 2022, sent the stock even lower. RLMD redesigned the existing RELIANCE II study and planned another study in the wake of these failures.

The RELIANCE II on track, RELIGHT underway

With Q2'23 earnings on August 8, RLMD confirmed enrollment of the modified RELIANCE II study (study 302) was on track to complete in H1'24. RELIANCE II has a estimated primary completion date of June 2024 listed on the clinicaltrials.gov entry for the trial. With a primary endpoint at 28 days, if the study completes enrollment a month or so earlier, by May 2024, then completion in June and and a readout in late June 2024 is certainly possible. Either way it looks like the study should produce results in mid-2024, barring an interim analysis producing a result that allows an early stoppage.

On August 23, RLMD announced it had dosed the first patient in RELIGHT (study 304), which has the same key features as RELIANCE II. Namely, it is a randomized, placebo-controlled trial of esmethadone added to background antidepressant therapy in major depressive disorder patients. Like RELIANCE II, RELIGHT has an endpoint, the change from baseline in the Montgomery-Asberg Depression Rating Scale, at four weeks.

Financial Overview

RLMD reported a net loss of $25.3M in Q2'23 with G&A expenses of $12.3M and R&D expenses of $13.7M during the quarter. The company had cash, cash equivalents and short-term investments of $118.5M at June 30, 2023. Since net cash used in operating activities was $29.8M in the first six months of 2023, the company could keep going at the current rate for nearly two years. That being said, the initiation of Relight could come with an increase in cash burn. Nonetheless, RLMD has reiterated it is sufficiently funded to make it to the end of both RELIANCE II (results likely in mid-2024) and RELIGHT (completion anticipated in H2'24 according to the earnings press release).

As of August 3, 2023, there were 30,099,203 shares of RLMD's common stock outstanding, corresponding to a market cap of $101.74M ($3.38 per share).

Rating RLMD a strong buy

RLMD trades below cash, but it does have to burn some of that cash before it could get near to even an interim readout from its RELIANCE II study and particularly the RELIGHT study. A trial being stopped early due to positive efficacy findings is a big hurdle, and while possible, we tend to have less information about when that interim would occur and how large a difference would be needed to show the drug works at the early stage.

... Yes, an interim analysis is certainly possible. We've looked at various scenarios and what we might consider doing that. We have included in the protocol an opportunity to do that as well. But in terms of giving granular detail at which point, and what that interim would assess, we haven't disclosed that yet.

Cedric O'Gorman, CMO RLMD, August 8, 2023, earnings call.

There is no guarantee of an early stoppage due to positive efficacy findings, but it is possible. Between the possibility of an early stoppage and the run up I'd expect anyway into 2024 and throughout ahead of results, I rate RLMD a strong buy. RLMD also has the opportunity to complete enrolment ahead of schedule and even communication about timely achievement of expected enrolment milestones is a positive, as it reduces the risks of delays, locking in the timing of the catalyst.

Risks including dilution

An interim analysis can also result in an early stoppage due to futility, a stoppage due to toxicity seems far less likely given the experience with the drug already. Further, anyone holding RLMD through the results at completion of the trials is exposed to the possibility of the trial producing negative results, at which time RLMD would fall heavily.

Another risk is that RLMD takes advantage of any run up to raise cash by conducting an offering. I recently wrote about Minerva Neurosciences (NERV), which raised $20M cash in June in a private placement, $15M of which came from Boehringer Ingelheim. NERV is awaiting an FDA decision on its New Drug Application (NDA) for roluperidone for the negative symptoms of schizophrenia. NERV actually rallied on the news of the private placement, perhaps because although dilution occurred, the shares were sold at a premium to the trading price at the time, and the interest from a major pharmaceutical company didn't hurt either.

It isn't guaranteed that RLMD would be able to raise funds in such a fashion and so an offering closer to, or below the trading price, with various funds participating rather than a Big Pharma player seems more likely. I wouldn't be surprised if such an offering curtailed a run-up in RLMD. Whether or not it would cancel out the benefits from any run up seems less likely, but it is a risk worth considering.