Don't Be Fooled By Relmada's Clinical Data Readout

Dec. 08, 2019 5:12 AM ETRelmada Therapeutics, Inc. (RLMD)32 Comments2 Likes
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Zhiyuan Sun
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Summary

  • REL-1017 saw superb Phase 2 results with 40% reduction vs. placebo on the HAM-D scale measuring patients' depression.
  • The market seems to buy into the results, sending shares of RLMD into a massive rally since its recent press release.
  • On a deeper dive, however, the clinical data may be deceiving in the context of a critical design oversight in REL-1017's investigation.

Image Source: ZwavelStream Clinic

Company Thesis

Relmada Therapeutics (NASDAQ:RLMD) has recently announced top-line Phase 2 data for its sole pipeline candidate REL-1017 under evaluation for major depressive disorder. At first glance, the data seems fantastic and appears to have surpassed all expectations. When analyzed in context, however, various issues with the drug's mechanism of action and clinical trial design cast a serious shadow over its ability to advance into Phase 3. Nevertheless, the market seems to favor the results on the surface in the short term and may cause uninformed investors to buy en masse into the stock. Without further ado, let's take a look at why the company will be rated as neutral.

Concerns With REL-1017

In an intention-to-treat cohort of 62 patients, subjects who took 25 to 50mg REL-1017 saw 0.9 to 1.0 point improvement vs. placebo as measured by Cohen's d after 14 days. Cohen's d is calculated as the mean Hamilton Depression Rating Scale difference between treatment groups divided by their pooled standard deviation. Any difference below 0.2 would indicate a small effect, and differences under 0.5 would indicate a medium effect.

As investors can observe, REL-1017 was able to achieve a very large effect in alleviating MDD using this metric, which is further confirmed by its 40% baseline reduction on the HAM-D scale against placebo. The trial also met all statistical endpoints beyond Day 2, with p values ranging from 0.0039 to 0.0308 for all efficacy results thereafter. No serious adverse events occurred in the trial. More specifically, there were no reported psychotomimetic side effects associated with REL-1017, which has been a major concern among ketamine-like NMDA receptors being investigated to treat MDD.

The market seems to like this data. RLMD has rallied over 200% in the past weeks, causing the stock to hit a four-year high of $45 by today's close. Despite investor euphoria, however, glaring flaws in its trial design may cause REL-1017 to ultimately fail its Phase 3 investigation, where the standards for drug safety are much higher.

Research indicates the NMDA receptor targeted by REL-1017 is mediated by mu-opioid agonism, as the effects of ketamine were blocked when patients took naloxone. The active pharmaceutical ingredient in REL-1017 happens to be dextromethadone, which is an s-enantiomer of methadone that is thought to have 10 times greater affinity to mu-opioid receptors as compared to the r-enantiomer.

This is alarming for RLMD, as clinical experience in using opioids to treat depression suggest acute relief of symptoms, but chronic worsening of the condition as opioid addiction kicks in.

In REL-1017's Phase 2 clinical trial, there were no endpoints which assessed the efficacy or addictive potential of using s-methadone to treat MDD patients beyond 21 days. Moreover, its "superb" efficacy in such a short duration corresponds well to acute relief of symptoms, as dosage was only administered for seven days. This puts patients on track to chronic worsening of symptoms after persistent use and would likely render its investigation ineffective.

In the context of the rising opioid crisis, the FDA is well aware that the use of opioids to target new conditions possesses poor risk-reward potential. As a result, REL-1017 would likely be required to conduct follow-up studies of its ITT patients 6-12 months after initial treatment. At this endpoint, the drug may fail its clinical investigation as the chronic addictive potential of s-methadone's mu-opioid agonism is captured by its trial design in Phase 3.

Caveat For Short Sellers

In response to this data readout, RLMD has recently closed a mixed shelf offering of 3.3 million shares for proceeds of up to $100 M to further finance R&D expenses for REL-1017. Currently, the company stands at over $400 million in terms of market cap. After the adjustment from proceeds, shareholders would suffer a whopping -25% dilution to their holdings. However, the stock inexplicably soared on the day the offering was expected to close, which is traditionally a very bullish sign foreboding further market optimism to come.

In context, it is simple to see why the crowd loves REL-1017's results. For starters, there has only been one drug in the past two decades approved for the treatment of depression, that of Johnson & Johnson's (JNJ) esketamine. The lack of any competitors in a multi-billion market with little innovation represents a significant opportunity if research candidates are proven successful.

As for the company's financials, RLMD is suffering an annualized net loss of $15 M from a combination of R&D and SG&A expenses. Meanwhile, the company's cash balance will balloon to over $107 M after accounting for its latest financing deal. As Sage Therapeutics (SAGE) has illustrated, its now failed pipeline candidate SAGE-217 took only two years from Phase 2 completion to Phase 3 data readout. Hence, RLMD should not be expected to raise equity for quite some time and may even have enough liquidity throughout its entire Phase 3 investigation based on its cash vs. burn rate ratio.

Takeaway

The market seems to be blinded by critical oversights in RLMD's Phase 2 trial design. While there has been only one psychiatric drug approved for MDD in the past two decades, investors should note REL-1017 has serious barriers on the path to becoming the second candidate. On the other hand, it is important to note this is a multi-billion-dollar market with ample unaddressed medical needs. The current standards of care were found to only improve patients' Hamilton Depression Score by 2 points vs. placebo when the scale itself has a span of 52 in a study involving more than 100,000 subjects. Hence, it is easy to see why investors may get excited over the slightest of positive developments in this sector. Keep in mind, SAGE traded for over $7 billion before its SAGE-217 failed to meet its primary endpoint, and this was a drug candidate which demonstrated superb efficacy in Phase 2. As a result, RLMD will be rated as neutral due to the likelihood of continued bullish sentiment until a disappointing Phase 3 data readout.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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