DiaMedica Therapeutics Inc. — Q2 2022 Form 10-Q Summary
Business Context and Reporting Period
DiaMedica is a clinical-stage biopharmaceutical company developing DM199, a recombinant human tissue kallikrein-1 protein, for acute ischemic stroke and chronic kidney disease. The filing covers the quarter and six months ended June 30, 2022, and was filed August 10, 2022. The company had 26,443,067 common shares outstanding as of August 9, 2022.
DiaMedica has no approved products and generated no commercial revenue. Its principal programs were the Phase 2/3 ReMEDy2 trial in acute ischemic stroke, the completed Phase 2 REDUX trial in chronic kidney disease, and preclinical work on DM300 for inflammatory diseases.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.0 million | $3.9 million |
| General and administrative expense | $1.4 million | $3.0 million |
| Operating loss | $3.4 million | $6.9 million |
| Net loss | $3.4 million | $6.9 million |
| Net loss per share | $0.13 | $0.26 |
| Net cash used in operating activities | Not separately provided | $6.4 million |
Because the company had no revenue, gross and operating margins are not meaningful. Accumulated deficit was $89.4 million at June 30, 2022. Cash and cash equivalents were $3.1 million, and marketable securities were $35.4 million, for combined liquidity of $38.4 million. Working capital was $37.6 million and shareholders’ equity was $37.7 million.
Total liabilities were $1.5 million of current liabilities and $7,000 of non-current finance lease obligations. The filing reports no credit facilities or other material borrowing arrangements.
- Operating cash use was $6.4 million for the six months ended June 30, 2022, compared with $6.4 million in the comparable 2021 period.
- Investing activities provided $4.7 million, primarily reflecting maturities of marketable securities exceeding purchases.
- Financing activities used $3,000, consisting primarily of finance lease principal payments.
- Cash and cash equivalents declined from $4.7 million at December 31, 2021 to $3.1 million at June 30, 2022; combined cash, cash equivalents and marketable securities declined from $45.1 million to $38.4 million.
Material Changes Versus the Prior Comparable Period
- Six-month R&D expense decreased $0.6 million, from $4.6 million to $3.9 million, primarily due to reduced REDUX wrap-up costs, lower nonclinical testing and lower manufacturing process-development costs. These reductions were partly offset by ReMEDy2 and personnel costs.
- Six-month G&A expense increased $0.5 million, from $2.4 million to $3.0 million, primarily due to higher directors’ and officers’ insurance, personnel and professional-services costs. Lower share-based compensation partly offset the increase.
- Six-month net loss improved slightly from $6.9 million to $6.866 million, while net loss per share improved from $0.37 to $0.26 because the weighted-average share count increased from approximately 18.8 million to 26.4 million.
- No common shares were issued during the six months ended June 30, 2022. The company had 2.6 million outstanding employee and non-employee stock options, 134,402 deferred stock units and 265,000 warrants reserved or issuable at quarter-end.
- The company entered into a new office lease expected to commence September 1, 2022. The initial 65-month term carries approximately $608,000 of aggregate base rent before specified abatements.
Guidance, Outlook, Risks and Unusual Items
On July 6, 2022, after the reporting period, the FDA placed a clinical hold on the ReMEDy2 trial following three unexpected clinically significant hypotension events shortly after initiation of the intravenous DM199 dose. Enrollment cannot resume until DiaMedica submits its analysis, proposed protocol modifications and supporting data, and the FDA authorizes resumption.
Management believes the events may have resulted from use of a different type of plastic IV administration bag and intends to propose a proportionate reduction in the initial IV dose. The company planned to submit a revised protocol to the FDA in September 2022, but stated that the hold may not be lifted, may require additional studies or data, or may result in stricter approval conditions.
- Before the clinical hold, ReMEDy2 experienced slower-than-expected site activation and enrollment due in part to COVID-19-related staffing shortages, reduced research activity and patient-discharge logistics.
- REDUX enrolled 79 patients, and all patients had completed their treatment periods by March 31, 2022. Final data evaluation and decisions regarding the CKD program remained in process.
- Management expects continued operating losses and substantial additional capital needs. It believes existing cash, cash equivalents and marketable securities will fund planned operations for at least twelve months from issuance of the interim financial statements, but funding may be needed earlier depending on trial timing, clinical results, enrollment and market conditions.
- Potential future financing sources include equity or debt offerings, strategic collaborations and license agreements. Equity financing could dilute shareholders, while licensing or collaboration transactions could require relinquishing valuable rights.
- If adequate funding is unavailable, the company may reduce operations, delay or modify development programs, license rights on unfavorable terms, divest assets or cease operations through a merger, sale or liquidation.
- The company reported no material pending legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2022.
Important Facts for Investors to Verify
- Whether the FDA lifted the ReMEDy2 clinical hold and the conditions, additional data or studies required for resumption.
- Whether the company’s proposed IV bag and dosing explanations adequately address the hypotension events.
- Updated ReMEDy2 site activation, enrollment, timing and cost expectations after the clinical hold.
- Final REDUX trial results and management’s decision on continued CKD development.
- Cash burn, marketable-securities maturities and the timing and terms of any required financing.
- Potential dilution from the 2.6 million outstanding options, deferred stock units, warrants and future equity issuance.
- Whether the company’s stated twelve-month liquidity outlook remains valid if clinical delays or unfavorable capital-market conditions persist.