DiaMedica Therapeutics Inc. — Fiscal 2019 Form 10-K Summary
Business context and reporting period
DiaMedica Therapeutics Inc. is a clinical-stage biopharmaceutical company incorporated in British Columbia and listed on Nasdaq under DMAC. This Form 10-K covers the fiscal year ended December 31, 2019; it is an annual filing rather than a standalone fourth-quarter report.
The company’s primary asset is DM199, a recombinant human tissue kallikrein-1 protein being developed for chronic kidney disease (CKD) and acute ischemic stroke (AIS). DiaMedica had no approved products and no product-sales revenue at year-end.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| License revenue | $0 | $0.5 million |
| Research and development expense | $7.9 million | $4.5 million |
| General and administrative expense | $3.7 million | $2.7 million |
| Total operating expenses | $11.6 million | $7.3 million |
| Operating loss | $11.6 million | $6.8 million |
| Net loss | Approximately $10.6 million | $5.7 million |
| Net loss per share | $0.89 | $0.74 |
| Cash used in operating activities | $9.1 million | $5.7 million |
| Cash, cash equivalents and marketable securities | $7.9 million | $16.8 million |
| Working capital | $7.5 million | $16.7 million |
| Total current liabilities | $1.3 million | $1.3 million |
| Shareholders’ equity | $7.6 million | $17.0 million |
The filing presents a minor numerical inconsistency between certain statements for 2019 net loss and comprehensive loss; the reported net loss is approximately $10.6 million.
Investing cash flow was an outflow of $3.9 million, primarily reflecting purchases of short-term marketable securities. Financing cash flow was $0.1 million, compared with $21.2 million in 2018, when the company completed its U.S. initial public offering and private placements. The company had no credit facilities and no material traditional debt; liabilities primarily consisted of accounts payable, accrued expenses, finance leases and operating lease obligations.
Material changes versus the prior comparable period
- Revenue declined to zero because the $0.5 million Ahon Pharma upfront license payment recognized in 2018 was not repeated.
- R&D expense increased $3.4 million, or approximately 75%, primarily due to a new DM199 production run, CKD clinical development and related testing.
- G&A expense increased $1.0 million, largely because of Nasdaq listing, public-company compliance, professional service and personnel costs.
- Net loss increased from $5.7 million to approximately $10.6 million, while operating cash burn increased from $5.7 million to $9.1 million.
- Cash and short-term investments decreased by approximately $8.9 million during 2019, partially offset by the conversion of some cash into marketable securities.
- The company completed enrollment in the Phase II REMEDY AIS study with 92 participants, versus an original target of up to 100 participants.
- DiaMedica initiated and completed a 32-subject Phase Ib CKD study and began enrollment and dosing in the Phase II REDUX CKD study.
- DiaMedica terminated its Ahon Pharma license agreement after Ahon failed to pay a $4.5 million milestone, regaining worldwide AIS rights to DM199.
Clinical progress, outlook and risks
The CKD Phase Ib study reported that DM199 was well tolerated, with no treatment-related serious adverse events, deaths or discontinuations due to treatment-related adverse events. Exploratory pharmacodynamic observations included increases in nitric oxide, prostaglandin E2 and estimated glomerular filtration rate, and a decrease in urinary albumin-to-creatinine ratio. These results were preliminary and do not establish efficacy.
The FDA accepted the Phase II REDUX protocol for approximately 60 CKD participants in two cohorts: non-diabetic, hypertensive African Americans with Stage II or III CKD and patients with IgA nephropathy. Management reported slower-than-expected CKD enrollment, and the filing identifies COVID-19 as a potential additional source of delay.
Management expected cash resources at December 31, 2019, together with approximately $7.7 million of net proceeds from a February 2020 public offering, to fund the REMEDY AIS trial, the first two CKD cohorts and planned operations through 2021. The company also states that substantial additional capital will be required and that financing may not be available on acceptable terms.
- DM199 remains unapproved and may never demonstrate sufficient safety or efficacy to obtain regulatory approval.
- The company expects continuing operating losses and no product-sales revenue for several years, if at all.
- Clinical programs are subject to enrollment, execution, regulatory, manufacturing and third-party contractor risks.
- Approximately $4.9 million of clinical and development commitments were outstanding for the next 12 months as of December 31, 2019; many were generally cancellable with 30 days’ notice.
- DiaMedica relies on Catalent for DM199 manufacturing and licensed gene-expression technology. Remaining potential Catalent milestones totaled $370,000, with a post-launch royalty of less than 1% of net sales.
- The company is litigating against PRA Netherlands and its U.S. parent regarding alleged clinical-trial execution errors and missing study records. Litigation funding of up to $1.0 million is contingent on a venue transfer and is repayable only from litigation proceeds, with additional participation by the funder.
- The company’s patent portfolio includes issued U.S. and European patents with certain claims projected to expire in 2033, plus pending applications with projected expiration in 2038 if granted.
Subsequent event
On February 13, 2020, DiaMedica issued 2.125 million common shares at $4.00 per share, generating gross proceeds of $8.5 million and net proceeds of approximately $7.7 million. This financing increased liquidity but also diluted existing shareholders.
Most important facts for investors to verify
- Final results and statistical significance of the REMEDY AIS Phase II trial.
- Enrollment pace, completion timing and outcomes for the REDUX CKD study, including the impact of COVID-19-related disruptions.
- Cash runway after the February 2020 offering, expected monthly operating burn and timing of additional financing needs.
- Whether DM199 can advance to pivotal trials and ultimately obtain FDA or other regulatory approval.
- Details and potential financial impact of the PRA litigation, including whether the venue transfer occurs and whether any net recovery is likely.
- Manufacturing capacity, quality, cost and supply dependence on Catalent.
- Potential dilution from 971,953 warrants, 1,220,359 options, 21,183 deferred share units and 1,384,822 shares available for future grants as of December 31, 2019.
- Whether the company’s preliminary biomarker improvements translate into clinically meaningful patient benefits.