IBB - Relmada: Another Trial Failure Downgrading To A Sell Rating

Summary

• Relmada's second pivotal phase 3 trial of REL-1017 failed last December, which wasn't that surprising based on previous failure in monotherapy, RELIANCE 3.
• The third trial, RELIANCE 2, is ongoing, but with the recent two failures, we do not see much prospect of success.
• We downgrade Relmada Therapeutics to a sell rating.

Relmada reported another disappointing result

Relmada Therapeutics (RLMD) reported another negative data from the RELIANCE I study of REL-1017, targeting adjunctive major depressive disorder ((MDD)). Although expected, this second failure puts the whole pipeline and the future prospect of the company in question. We note that REL-1017 failed the MDD monotherapy RELIANCE III study back in October, where the management claimed the negative results were due to the fact that the placebo arm had dramatically outperformed REL-1017 in certain study sites. Of note, the RELIANCE I study enrolled the patient population in the adjunctive setting (patients who failed multiple products) vs. treatment naïve patients enrolled in RELIANCE III. We believe the fact that REL-1017 failed twice in two phase 3 pivotal trials and the management citing the cause of the failure as due to two sites driving the outliers further complicates the prospect of the drug. We believe there are increasing chances that the failure is due to the drug's inadequate pharmacological efficacy rather than due to confounders. Moving forward, the management has indicated their plans to advance the drug development by making adjustments to the trial design of the ongoing RELIANCE II study. We expect the RELIANCE II study data to come out around 2023. However, based on the two negative results, we do not believe making adjustments in the protocol and operation of the trial can move the needle for the RELIANCE II study if the cause is the drug's lack of efficacy. Hence we downgrade the rating to a sell rating.

Downside Risks

As additional trials are ongoing, the clinical risk remains as an overhang for the stock. Although the company has USD180M in cash, as the company is not cashflow positive, there is a potential stock dilution overhang as the company may decide to raise more capital through the secondary offering.

Conclusion

Failure shown again in the RELIANCE I trial drastically reduced our conviction around the platform, and even though the third trial, RELIANCE 2, is still ongoing, we do not see much prospect of success. Relmada finished Q3 2022 with around USD180M in cash, and the current stock price in the USD4 handle reflects that the stock is trading around cash value, and investors are ascribing close to zero value to the company's pipeline. Of note, the management guided that their cash runway is another 2 years. We downgrade RLMD to a sell rating even at the current valuation.

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