DiaMedica Therapeutics Inc. 2019 Q3 Form 10-Q Summary
Business context and reporting period
DiaMedica is a clinical-stage biopharmaceutical company developing DM199, a recombinant human KLK1 protein, primarily for chronic kidney disease (CKD) and acute ischemic stroke (AIS). The filing covers the three and nine months ended September 30, 2019, with comparative periods in 2018. The company has no commercial products and has not generated product-sale revenue.
Financial condition and performance
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0.5 million | $0 | $0.5 million |
| Research and development expense | $1.6 million | $1.2 million | $6.1 million | $3.1 million |
| General and administrative expense | $1.0 million | $0.8 million | $2.7 million | $2.1 million |
| Net loss | $2.4 million | $1.4 million | $8.2 million | $3.8 million |
| Net loss per share | $0.20 | $0.18 | $0.68 | $0.51 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $7.2 million | $3.8 million |
Operating margins are not meaningful because the company had no operating revenue in 2019. The nine-month operating loss was $8.8 million, compared with $4.6 million in 2018. Other income, primarily government research incentives and interest income, partially offset expenses.
- At September 30, 2019, cash and cash equivalents were $4.7 million and marketable securities were $5.0 million, for $9.7 million of immediately available cash and investments.
- Working capital was $9.6 million, compared with $16.7 million at December 31, 2018.
- Total assets were $11.0 million and shareholders’ equity was $9.7 million.
- The company had no credit facilities and only modest lease and finance-lease obligations; total liabilities were approximately $1.3 million.
- Net cash used in investing activities was $4.9 million, principally reflecting purchases of marketable securities. Financing activities provided only $71,000 in the first nine months of 2019.
- The accumulated deficit was $54.1 million at September 30, 2019.
Material changes versus the prior comparable period
- Revenue declined to zero because the prior-year $500,000 license payment was nonrecurring.
- Nine-month R&D expense increased by $3.0 million, primarily due to approximately $1.4 million for a new DM199 drug-substance production run, CKD clinical studies, related testing, increased personnel costs and share-based compensation.
- Nine-month G&A expense increased by $652,000, largely due to Nasdaq listing and U.S. public-company compliance costs, professional fees, personnel costs and share-based compensation.
- Nine-month net loss increased by $4.4 million, and operating cash use increased by $3.4 million.
- The company invested $10.9 million in marketable securities and received $6.0 million from maturities during the period, contributing to the reduction in cash and cash equivalents.
- DiaMedica terminated its license and collaboration agreement with Ahon Pharmaceutical on August 12, 2019 after Ahon failed to pay a $4.5 million milestone. DiaMedica regained worldwide AIS rights to DM199 but lost the potential milestone, development payments and royalties under that agreement.
- The company adopted the new lease accounting standard on January 1, 2019 and recognized an operating lease right-of-use asset and liability of approximately $205,000 at adoption.
Guidance, outlook, risks and unusual items
- Management expected available cash resources to fund completion of the ongoing Phase II REMEDY AIS trial, the first two cohorts of the Phase II CKD study and planned operations into the fourth quarter of 2020. Management cautioned that additional funds may be needed earlier.
- The company expects continuing and increasing operating losses until product sales, royalties, licensing fees or milestone payments generate sufficient revenue. Commercial availability of DM199, if ever achieved, was not expected for at least three to five years.
- The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern because it has never generated positive operating cash flow and will require substantial additional capital.
- Management may seek equity or debt financing, strategic collaborations or license agreements. Additional equity or convertible debt could dilute shareholders, while collaborations could require relinquishing valuable rights.
- In October 2019, after the reporting period, the FDA accepted the protocol for the Phase II CKD study. As of October 31, 2019, the REMEDY AIS study had reached its enrollment goal of 92 participants.
- The company completed enrollment in its Phase Ib diabetic CKD study in July 2019 and reported that interim results met primary and secondary endpoints; the results informed the Phase II CKD trial design.
- DiaMedica is pursuing litigation against PRA Netherlands and PRA Health Sciences concerning alleged clinical-trial execution errors and access to study records. The Delaware court allowed jurisdictional discovery regarding a possible transfer to Minnesota; the matter remained unresolved.
- The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the reported cash and marketable securities balance and projected runway remain sufficient as CKD and AIS trials progress.
- The timing, cost and enrollment status of the Phase II CKD cohorts and final results from the REMEDY AIS trial.
- Whether additional financing is required before the projected fourth quarter 2020 runway and the potential dilution or terms of that financing.
- The regulatory path and probability of approval for DM199, including the significance of the October 2019 FDA protocol acceptance.
- The financial and strategic consequences of terminating the Ahon agreement and regaining worldwide AIS rights.
- The status and potential recovery, if any, from the PRA litigation and the availability of complete historical clinical-trial records.