Diamedica Therapeutics Inc. annual report, FY2022

DiaMedica Therapeutics Inc. — Fiscal 2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K rather than a quarterly filing for Q4 2022; fourth-quarter information is disclosed only where specifically identified.

Business context

DiaMedica is a clinical-stage biopharmaceutical company with no approved products or product sales. Its lead candidate, DM199, is a recombinant human tissue kallikrein-1 protein being developed primarily for acute ischemic stroke (AIS) and chronic kidney disease (CKD). DM300 is in early preclinical development for inflammatory diseases.

The principal near-term objective is to resolve the FDA clinical hold on the Phase 2/3 ReMEDy2 AIS trial and resume enrollment. The company also expects to complete analysis of its Phase 2 REDUX CKD trial and evaluate next steps for that program.

Financial results and key metrics

Metric	2022	2021	Change
Product revenue	$0	$0	No change
Research and development expense	$7.839 million	$8.765 million	Down $0.926 million
General and administrative expense	$6.162 million	$4.881 million	Up $1.281 million
Total operating expenses	$14.001 million	$13.646 million	Up $0.355 million
Operating loss	$14.001 million	$13.646 million	Loss increased
Other income, net	$0.353 million	$0.082 million	Up $0.271 million
Net loss	$13.676 million	$13.592 million	Loss increased $0.084 million
Comprehensive loss	$13.699 million	$13.641 million	Loss increased $0.058 million
Basic and diluted loss per share	$0.52 loss	$0.65 loss	Improved, primarily due to higher share count
Net cash used in operating activities	$11.511 million	$12.252 million	Use decreased $0.741 million

Margins are not meaningful because the company has no product revenue and remains loss-making. Share-based compensation was $1.502 million in 2022, compared with $1.558 million in 2021.

Liquidity, capital structure, and commitments

Cash, cash equivalents, and marketable securities were $33.502 million at December 31, 2022, compared with $45.112 million one year earlier.
Cash and cash equivalents were $4.728 million; marketable securities were $28.774 million, principally commercial paper, corporate bonds, and government securities.
Working capital was $31.667 million, down from $43.915 million.
Total current liabilities were $2.168 million, and total liabilities were approximately $2.568 million. The filing does not identify material funded debt; finance lease obligations totaled approximately $10,000.
Shareholders’ equity was $31.827 million, down from $44.024 million, and accumulated deficit was $96.177 million.
Management expects existing liquidity to fund planned operations for at least 12 months from issuance of the financial statements, but states that substantial additional capital will be required.
Outstanding commitments were estimated at approximately $4.0 million over the next 12 months and $3.0 million in the following 12 months, excluding commitments associated with resuming ReMEDy2. Remaining operating lease commitments were approximately $459,000.
The company has no existing credit facilities and expects future financing may include equity, debt, strategic collaborations, or licensing transactions. Additional equity financing would dilute shareholders.

Material changes versus the prior comparable period

ReMEDy2 clinical hold: In July 2022, the FDA placed the Phase 2/3 AIS trial on clinical hold after three participants experienced transient, clinically significant hypotension shortly after the IV dose. Enrollment remains paused.
Investigational response: DiaMedica believes the events resulted from a change in IV bag materials that increased the delivered DM199 dose. The FDA continued the hold and requested additional in-use stability testing involving the IV bag, tubing, infusion pump, and other contact materials.
Additional studies: Part 1 of the requested in-use study was complete by the filing date; Part 2 was expected in April 2023. A Phase 1C study in Australia, intended to enroll up to 15 healthy participants, was initiated to further evaluate dose exposure, safety, and tolerability.
Trial execution: Before the hold, site activation and enrollment were slower than expected, partly due to COVID-19-related staffing and site constraints. These issues could continue even if the hold is lifted.
R&D expense: R&D declined because REDUX trial wrap-up and certain preclinical testing costs were lower, partially offset by higher personnel and manufacturing-process development costs.
G&A expense: G&A increased due primarily to higher directors’ and officers’ insurance, personnel and professional services costs, and legal fees related to litigation against PRA.
Liquidity: Cash, cash equivalents, and marketable securities declined by approximately $11.6 million, mainly reflecting operating cash use; investing cash flow was positive due to marketable-security maturities.
Equity financing: No common shares were issued in 2022. The company’s most recent major financing was a September 2021 private placement that generated $29.8 million of net proceeds.

Guidance, outlook, risks, contingencies, and unusual items

Management expects quarterly expenses to remain relatively consistent with recent periods while the clinical hold remains in place and to increase once ReMEDy2 resumes. The filing states that DM199 is not expected to be commercially available for at least three years, if at all, and that the company does not expect product-sale revenue for at least three to five years.

The FDA may not lift the ReMEDy2 clinical hold, may request additional testing, or may impose stricter conditions. The company cannot enroll additional participants until the FDA authorizes resumption.
Even if the hold is lifted, enrollment, site activation, protocol compliance, and COVID-19-related staffing issues may delay the trial and increase costs. The adaptive design may also require more than the targeted approximately 350 participants.
DM199 remains subject to the risks of unsuccessful or inconclusive clinical results, additional adverse events, regulatory rejection, manufacturing problems, and inability to obtain reimbursement or market acceptance.
The company relies on contract research organizations and Catalent for manufacturing and licensed technology. One milestone payment remains due upon the first commercial sale, and a royalty of less than 1% of net sales would apply after launch.
The company is pursuing litigation against PRA Netherlands and PRA USA concerning alleged clinical-study execution issues and incomplete study records. A Dutch court proceeding was active at year-end; the financial impact and outcome are uncertain.
DiaMedica believes it was a passive foreign investment company for U.S. tax purposes in 2022. This may create adverse tax and reporting consequences for U.S. shareholders, including potential IRS Form 8621 obligations.
The company remains an emerging growth company and smaller reporting company, with reduced disclosure requirements. It expects to lose emerging-growth-company status after December 31, 2023.

Most important facts for investors to verify

Whether and when the FDA lifts the clinical hold on the ReMEDy2 IND, and the conditions required for resumption.
Results of the complete in-use stability study and the Phase 1C study, including any further hypotension or other safety findings.
Updated ReMEDy2 enrollment, site activation, trial-cost, endpoint, and expected-completion information after any restart.
Final REDUX CKD data and the company’s decision regarding further CKD development.
Cash burn, liquidity runway, and the timing, size, and terms of any future financing or strategic transaction.
The status and potential financial exposure of the PRA litigation and any related commitments.
Potential dilution from 2.782 million outstanding options, 265,000 warrants, 134,402 deferred stock units, and approximately 2.540 million shares available for future equity awards.
The company’s 2022 PFIC status and the resulting tax reporting implications for U.S. shareholders.