DiaMedica Therapeutics Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
DiaMedica is a clinical-stage biopharmaceutical company developing DM199, a recombinant human tissue kallikrein-1 protein, for acute ischemic stroke (AIS) and chronic kidney disease (CKD). The filing covers the three and nine months ended September 30, 2021, and was signed November 10, 2021. The company has no commercial products and has not generated product revenue.
- ReMEDy2 Phase 2/3 AIS trial was initiated in September 2021 and received FDA Fast Track Designation.
- ReMEDy2 was targeted to enroll approximately 350 patients at 75 U.S. sites; COVID-19-related staffing and site-activation delays were affecting enrollment.
- REDUX Phase 2 CKD study had enrolled 78 subjects as of October 31, 2021, with continued enrollment focused on the IgA nephropathy cohort.
Financial condition and key metrics
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No commercial revenue |
| R&D expense | $2.3 million | $2.2 million | Increased $0.2 million |
| G&A expense | $1.1 million | $1.2 million | Decreased $0.1 million |
| Operating loss | $3.4 million | $3.3 million | Loss increased $0.1 million |
| Net loss | $3.5 million | $3.2 million | Loss increased $0.3 million |
| Net loss per share | $0.18 | $0.19 | Improved on a per-share basis |
For the nine months ended September 30, 2021, R&D expense was $6.9 million versus $5.1 million in the prior-year period, G&A expense was $3.5 million versus $3.3 million, operating loss was $10.4 million versus $8.4 million, and net loss was $10.3 million versus $8.1 million. No meaningful revenue or profit margin exists because the company remains pre-commercial.
| Liquidity and capital structure | September 30, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $16.2 million | $7.4 million |
| Marketable securities | $31.9 million | $20.1 million |
| Cash, cash equivalents and marketable securities | $48.1 million | $27.5 million |
| Working capital | $46.9 million | $25.9 million |
| Shareholders’ equity | $47.0 million | $26.0 million |
| Current liabilities | $1.6 million | $2.0 million |
There was no significant funded debt. Obligations consisted primarily of lease liabilities and a small finance lease obligation. Operating cash flow was negative $9.4 million for the first nine months of 2021, compared with negative $6.2 million in 2020. Financing activities provided $30.1 million, including $29.9 million of net proceeds from a September 2021 private placement of 7.65 million common shares. Investing activities used $11.8 million, primarily for marketable securities.
Material changes versus the prior comparable period
- R&D spending increased for ReMEDy2 preparation and initiation, manufacturing process development and personnel, partly offset by lower costs in completed or later-stage studies.
- Nine-month net loss increased by $2.3 million, primarily reflecting higher R&D spending and the absence of comparable prior-year research incentives.
- Cash resources increased substantially following the September private placement, while shares outstanding increased to 26.4 million from 18.7 million at December 31, 2020, creating dilution for existing shareholders.
- Operating cash burn increased year over year, despite the stronger liquidity position.
- Preliminary REDUX data cited clinically meaningful changes in kidney-function and albuminuria measures in certain cohorts; these findings remain clinical-stage results and are not evidence of regulatory approval or commercial efficacy.
Guidance, outlook, risks and unusual items
Management expects significant operating losses and negative cash flow to continue for at least the next several years. Current cash, cash equivalents and marketable securities were expected to fund planned operations for at least twelve months from the financial statement issuance date, but management also expects to require substantial additional capital to complete clinical, regulatory and development activities.
- COVID-19, including Delta and other variants, caused slower site activation and patient enrollment and may continue to delay ReMEDy2 and REDUX.
- DM199 is not expected to be commercially available for at least three to five years, if at all, and remains subject to successful clinical testing, regulatory approval, manufacturing scale-up and market acceptance.
- Additional equity, debt, collaboration or licensing financing may be required. Equity financing would dilute shareholders; debt or strategic financing could impose restrictive terms or require surrender of valuable rights.
- If funding is inadequate, the company may reduce or delay development, license rights to third parties, divest assets or cease operations.
- The September private placement included registration rights; failure to maintain the resale registration statement could result in liquidated damages of up to 10% of invested capital, subject to exceptions.
- The company is pursuing litigation in the Netherlands against PRA Netherlands regarding missing clinical-study records and alleged study execution issues. The outcome and any recovery are uncertain.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Actual ReMEDy2 site activation, enrollment pace, interim-analysis timing and any subsequent FDA protocol changes.
- REDUX Cohort 2 enrollment and final clinical results, including whether preliminary efficacy signals are confirmed.
- Cash burn, investment maturities and the period for which available liquidity can support operations under different trial-enrollment scenarios.
- Timing and terms of any future financing and the resulting dilution or strategic encumbrances.
- Regulatory status, clinical-trial outcomes, manufacturing readiness and the absence of any approved or revenue-generating product.
- Status and potential financial consequences of the PRA Netherlands litigation and the private-placement registration-rights obligations.