RLMD - Relmada Therapeutics: Not A Clear Buy Right Now But Making The Right Moves

2023-04-19 19:28:02 ET

Summary

• RLMD's Q4'22 earnings call came with details of changes to its RELIANCE II study in adjunctive major depressive disorder and news of an additional ~300-patient study in the same indication.
• RELIANCE II already has 100 patients enrolled and is enrolling a further 200 with an expected readout in H1'24. The second study won't begin until mid-2023 and readout until H2'24.
• RLMD's explanations for why RELIANCE I failed do have merit, and the changes made to address the issues increase my confidence that RELIANCE II and the newer study will succeed.
• While RLMD is trading well below cash, the wait for the readout will see cash run down substantially.

When I last wrote about Relmada Therapeutics ( RLMD ) in November 2022, the name had reported negative results from its RELIANCE III clinical trial of REL-1017 (esmethadone) in major depressive disorder ((MDD)). The company did have some explanations for that failure, but I remained too skeptical on REL-1017 to rate the stock a buy, rating it a hold instead. Since that time, RLMD has reported another negative result, with findings from RELIANCE I, a trial of REL-1017 in the adjunctive treatment of MDD ((aMDD)). RLMD's full year and Q4'22 earnings, reported on March 23, provided an opportunity for the company to discuss how it planned to succeed next time around. This article takes a look at those plans and discusses if RLMD might be worth the wait.

Figure 1: Past year of RLMD trading. The failure of RELIANCE III in October 2022 and RELIANCE I in December hit the stock hard.

Potential issues with RELIANCE I

With the Q4'22 earnings call, RLMD discussed the factors it believed were behind the failure of the RELIANCE I study of REL-1017 in aMDD. These factors are;

1) The fact that some patients in the trial may have had situational depression due to COVID, rather than true MDD.

2) The site visits being too long with too many assessments.

3) Some sites recruiting a lot of patients opened up the result to being heavily impacted by one site.

4) Subjects recruited through unverifiable sources (social media, internet search) rather than verifiable sources (past or current patients at a site or healthcare provider referral), might not have accurately been diagnosed (i.e., may not have had MDD).

5) Screening eligibility adjudication was outsourced somewhat but could instead be centralized.

Is COVID really an issue?

Since COVID might have impacted the results of the study, the company performed an analysis of the data from RELIANCE I on patients enrolled before and after April 1, 2022.

... we believe that during the pandemic, many patients have situational depression, most likely related to isolation and other pandemic related issues when we cut the data using April 1, 2022 when COVID's restrictions were largely lifted, as the demarcation point, we saw a placebo adjusted difference of 4.1 points favoring REL-1017 on the day 28 MADRS score for the post pandemic subgroup.

Sergio Traversa - CEO of RLMD, Q4'22 earnings call , March 23.

While Sergio Traversa notes a 4.1 point difference between the REL-1017 group and the placebo group at day 28, slide 8 of the earnings call presentation notes a p-value from this comparison of p = 0.08898, meaning that even in the post-COVID restrictions environment, the drug still didn't beat placebo. That being said, this subset of patients includes only 98 patients of the 227 in the study. What is more compelling regarding the potential effect of COVID is if we look at the patients enrolled prior to April 1, 2022. The mean change from baseline on day 28 was -14.52 points in the REL-1017 group (n = 62) and -14.79 points in the placebo group (n= 61, p = 0.89048). There is virtually no difference! It seems the post-COVID restrictions environment is a better setting in which to run a COVID trial.

The changes to RELIANCE II and the 304 study

RLMD has made adjustments to the existing RELIANCE II study, and these changes will also be seen in the new 304 study too (a new ~300 patient aMDD study set to start mid-2023). RLMD will be limiting the number of patients per site, and requiring medical and pharmacy records to verify the patients have depression, and to look at antidepressant treatment history. Further, there will be a reduction in the duration of site visits and the number of assessments. RLMD will also exploit its knowledge of site performance thus far to select which sites are used in its trials. Lastly, there will be increased trial oversight to improve adjudication on the eligibility of patients.

RLMD has already enrolled 100 patients in the RELIANCE I study and will be enrolling another 200, with the study expected to complete in H1'24.

Financial Review

RLMD had cash, cash equivalents and short-term investments of $148.3M as of December 31, 2022. R&D expense for 2022 was $113.3M and G&A was $47.9M. The company reported a net loss of $157M for 2022 and net cash used in operating activities was $103.8M for the year. Burning cash at a rate of ~$100M per year, RLMD would make it to the midpoint of 2024. Despite that the company expects its cash to last through the completion of RELIANCE II and the new 304 (RELIANCE IV) study which isn't expected to readout until H2'24. It seems feasible however that RLMD could reduce its cash burn relative to the 2022 rate, given it is only running two studies now, the modified RELIANCE II and RELIANCE IV. By comparison, in 2022 RLMD was running the RELIANCE I, II, and III studies. Nonetheless, it will be worth keeping a close eye on RLMD's rate of cash burn and any fundraising activities, especially in comparison to the rate of enrollment in its studies. As of April 19, there were 30,099,203 shares of RLMD outstanding corresponding to a market cap of $84.6M ($2.81 per share).

Conclusions

While the changes to RLMD's RELIANCE II have resulted in a wait for the company and investors, I do think RLMD is in with a shot in 2024 when its trials readout. The 2023 catalyst calendar, however, is a little sparse. Updates on enrollment, especially if the trial runs ahead of schedule could spur a run up in the stock, but there is no guarantee on that. As such I rate RLMD a hold right now, whereas last time I was sceptical about RELIANCE I, this time I am more upbeat about RELIANCE II and the new study. Instead, it is the wait for results that has me rating the name a hold. Yes, the name trades below 60% of year-end 2022 cash, but cash will have run down quite a bit by the time even the first study reads out. Indeed, I'd expect cash at year end 2023 to be below $90M. I think RLMD might be a better long closer to the end of 2023 when a run up into results could begin, but I'll wait to see if enrollment is proceeding at the required rate and where cash is before I rate it a buy or otherwise.

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