Business Context and Reporting Period
DiaMedica Therapeutics Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The clinical-stage biopharmaceutical company is developing DM199, a recombinant human tissue kallikrein-1 protein, for acute ischemic stroke (AIS) and chronic kidney disease (CKD). The company has not generated product revenue and has not commercialized a product.
As of August 9, 2021, 18,786,157 common shares were outstanding. The company’s shares trade on Nasdaq under the symbol DMAC.
Financial Performance and Position
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.2 million | $1.6 million | $4.6 million | $2.9 million |
| General and administrative expense | $1.2 million | $1.1 million | $2.4 million | $2.2 million |
| Operating loss | $3.4 million | $2.7 million | $7.0 million | $5.1 million |
| Net loss | $3.3 million | $2.5 million | $6.9 million | $4.9 million |
| Basic and diluted loss per share | $0.17 | $0.17 | $0.37 | $0.36 |
Profitability and operating margins are not meaningful because the company has no revenue and remains loss-making. The accumulated deficit was $75.8 million at June 30, 2021, compared with $68.9 million at December 31, 2020.
- Cash and cash equivalents were $2.2 million, compared with $7.4 million at December 31, 2020.
- Marketable securities were $19.1 million, compared with $20.1 million at December 31, 2020.
- Combined cash, cash equivalents and marketable securities were $21.3 million, compared with $27.5 million at year-end.
- Working capital was $20.2 million, compared with $25.9 million at December 31, 2020.
- Shareholders’ equity was $20.3 million, compared with $26.0 million at year-end.
- Current liabilities were $1.4 million, including $1.1 million of accrued liabilities. Accrued clinical study costs increased to $638,000 from $13,000 at December 31, 2020.
- The company had no credit facilities and no material debt other than finance and operating lease obligations. Total operating lease obligations were approximately $75,000 at June 30, 2021.
Cash Flow and Liquidity
- Net cash used in operating activities was $6.4 million for the six months ended June 30, 2021, compared with $3.8 million in the prior-year period.
- Investing activities provided $1.0 million, primarily reflecting maturities of marketable securities exceeding purchases.
- Financing activities provided $241,000, primarily from stock-option exercises. The prior-year period included $7.7 million of financing cash flow, largely from a public equity offering.
- Cash and cash equivalents declined by $5.2 million during the first six months of 2021, ending at $2.2 million.
Management expects current cash, cash equivalents and marketable securities to fund completion of the ongoing REDUX CKD study, initiation of the ReMEDy2 AIS study and currently planned operations into the third quarter of 2022. Management also states that these resources will not fund operations for at least twelve months from the financial statement issuance date. The filing identifies substantial doubt about the company’s ability to continue as a going concern and indicates that additional financing will likely be required.
Material Changes Versus the Prior Comparable Period
- Six-month R&D expense increased $1.6 million, or approximately 55%, primarily because of ReMEDy2 preparation, higher REDUX and manufacturing-development costs, and additional personnel. Prior-year costs included the now-completed ReMEDy Phase 2 stroke study.
- Six-month G&A expense increased approximately $259,000, or 12%, primarily from higher professional-service and personnel costs.
- Six-month net loss increased $2.0 million, or approximately 41%, to $6.9 million.
- Operating cash burn increased $2.6 million, or approximately 67%, to $6.4 million.
- No public equity offering occurred in the first six months of 2021; the company received $7.7 million from its February 2020 offering in the comparable period.
- The share count increased modestly to 18.8 million shares from 18.7 million at December 31, 2020, primarily from option exercises.
Guidance, Outlook, Risks and Unusual Items
- The FDA accepted the company’s AIS IND in May 2021. Preparations for the pivotal adaptive Phase 2/3 ReMEDy2 study were underway, with initiation expected later in summer 2021.
- June 2021 interim REDUX results reported preliminary improvements or stability in kidney-function and albuminuria measures across cohorts. The company reported no DM199-related severe adverse events or discontinuations due to drug-related adverse events; the data were preliminary and the study remains subject to completion and further analysis.
- As of July 31, 2021, REDUX had enrolled 75 participants: 20 in Cohort I, 22 in Cohort II and 33 in Cohort III. Enrollment in the first two cohorts was slower than expected, partly because of concerns about visiting clinical sites.
- The company was assessing the impact of the COVID-19 Delta variant on enrollment and had not provided a clear anticipated completion date for the first two REDUX cohorts.
- Management expects operating losses and expenses to increase as it advances REDUX and ReMEDy2, develops manufacturing processes, evaluates the DM300 program and supports intellectual-property activities.
- DM199 may not be commercially available for at least three to five years, if ever, and commercialization depends on successful clinical development, regulatory approval, financing and potential licensing or commercial partnerships.
- If additional funding is unavailable, the company may reduce costs, delay or modify development programs, license or relinquish rights, divest assets or cease operations. Future equity financing could dilute existing shareholders.
- The company is pursuing litigation against PRA Netherlands in the Netherlands Commercial Court concerning alleged clinical-trial execution failures and incomplete study records. The outcome and any potential recovery are uncertain, and the filing does not provide a clear estimate of possible damages.
- The company disclosed a related-party arrangement with a consulting firm owned by its Vice President of Regulatory Affairs. Charges were approximately $149,000 for the six months ended June 30, 2021, with approximately $8,500 outstanding at quarter-end.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the ReMEDy2 Phase 2/3 study was initiated as planned and whether enrollment, timing or design changed after the filing.
- Updated REDUX enrollment, completion timing, full clinical results, statistical significance and safety findings beyond the preliminary interim data.
- Actual cash burn and remaining runway, particularly given management’s statement that funding does not cover at least twelve months from issuance.
- The timing, structure, dilution and terms of any subsequent equity, debt, partnership or licensing financing.
- Regulatory feedback, clinical milestones and manufacturing readiness for DM199 in AIS and CKD.
- The status, jurisdiction, potential recovery and costs associated with the PRA litigation.
- Whether COVID-19 or other operational factors continue to delay clinical-site activity or materially increase development costs.