DiaMedica Therapeutics Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Clinical-stage biopharmaceutical company focused on developing DM199, a recombinant human tissue kallikrein-1 protein, for chronic kidney disease (CKD) and acute ischemic stroke (AIS). The filing covers the three months ended March 31, 2020; financial statements are unaudited and prepared under U.S. GAAP.
DiaMedica had no commercial products or product revenue. Its principal activities were clinical development, regulatory preparation and related research and development.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.381 million | $2.607 million |
| General and administrative expense | $1.023 million | $0.814 million |
| Operating loss | $2.404 million | $3.421 million |
| Net loss | $2.425 million | $3.252 million |
| Basic and diluted loss per share | $0.19 | $0.27 |
| Net cash used in operating activities | $2.978 million | $3.134 million |
The filing does not provide a meaningful gross or operating margin because the company has no revenue. Share-based compensation was $393,000, compared with $130,000 in Q1 2019.
As of March 31, 2020, cash and cash equivalents were $3.3 million, marketable securities were $9.3 million, and total cash, cash equivalents and marketable securities were $12.648 million. Working capital was $13.230 million and shareholders’ equity was $13.323 million. Current liabilities were $935,000. The company had no credit facilities or material traditional debt; reported obligations primarily consisted of finance and operating leases.
Cash used in investing activities was $5.301 million, principally reflecting purchases of marketable securities, while financing activities provided $7.696 million. The company issued 2.125 million common shares in February 2020 at $4.00 per share, generating approximately $7.7 million of net proceeds.
Material changes versus the prior comparable period
- R&D expense declined by $1.226 million, primarily because Q1 2019 included costs for a DM199 production run and a Phase Ib CKD study; ReMEDy trial costs also declined. These reductions were partly offset by REDUX trial costs and higher share-based compensation.
- G&A expense increased by $209,000, primarily because of higher non-cash share-based compensation.
- Net loss improved by $827,000, although the company remained loss-making.
- Other income of $178,000 in Q1 2019 became other expense of $12,000 in Q1 2020, mainly due to foreign-currency transaction losses, lower research incentives and lower interest income.
- Operating cash use improved modestly, while investing cash use decreased substantially because of lower marketable-security purchases and increased maturities.
- Cash and marketable securities increased by $4.770 million from December 31, 2019, primarily because of the February equity offering.
Guidance, outlook, risks and unusual items
Management expects continuing operating losses and higher operating expenses in 2020 as DM199 development advances. The company stated that its current cash resources were expected to fund the ongoing Phase II ReMEDy AIS trial, the first two REDUX CKD cohorts and planned operations through 2021. Management also stated that substantial additional capital will ultimately be required and that funding may be needed earlier than expected.
COVID-19 slowed REDUX enrollment because clinical sites reduced or suspended activities. Management expected a delay in the timing of costs, but not a significant overall increase, while noting that the pandemic could adversely affect enrollment and trial timing.
ReMEDy enrollment was completed in Q4 2019 with 92 participants. The filing states that positive top-line results were announced on May 13, 2020, after the quarter ended, including achievement of primary safety and tolerability endpoints and no DM199-related serious adverse events. A therapeutic effect was reported in participants who received tPA before enrollment, but not in participants receiving mechanical thrombectomy.
DM199 was not expected to be commercially available for at least three to five years, if ever. Key risks include clinical-trial failure or delay, regulatory uncertainty, manufacturing and commercialization requirements, COVID-19 disruption, inability to obtain financing, potential dilution from future equity offerings and dependence on strategic collaborations or licensing transactions.
The company disclosed ongoing litigation against PRA Netherlands and PRA Health Sciences concerning alleged clinical-trial execution errors and the production of study records. The company seeks access to records and damages; the venue-transfer motion remained unresolved. Management stated that it was not aware of other threatened legal actions.
Important facts for investors to verify
- Whether REDUX enrollment recovered from COVID-19-related disruptions and whether trial milestones or costs changed.
- The complete ReMEDy clinical results, including the distinction between tPA-treated and mechanically thrombectomized participants.
- The cash runway relative to the stated expectation of funding operations through 2021 and the timing of any additional financing.
- Future R&D spending, particularly as DM199 programs advance or expand.
- The status, potential financial impact and expected resolution of the PRA litigation.
- The effect of the February 2020 equity offering and outstanding options, warrants and other potential dilution.