DiaMedica Therapeutics Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
DiaMedica is a clinical-stage biopharmaceutical company developing DM199, a recombinant tissue Kallikrein-1 protein, for chronic kidney disease (CKD) and acute ischemic stroke (AIS). The filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. The company has no approved or commercialized products and has generated no product revenue.
DM199 was being evaluated in the REDUX Phase II CKD study and the completed ReMEDy Phase II AIS study. As of October 30, 2020, REDUX had enrolled 49 subjects across three cohorts. Management expected Cohort III enrollment to be completed by year-end 2020, with topline results in the first half of 2021, but provided no overall REDUX completion guidance because of COVID-19-related enrollment delays.
Financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $2.2 million | $1.6 million | $5.2 million | $6.1 million |
| General and administrative expense | $1.1 million | $1.0 million | $3.2 million | $2.7 million |
| Operating loss | $3.3 million | $2.7 million | $8.4 million | $8.8 million |
| Net loss | $3.2 million | $2.4 million | $8.1 million | $8.2 million |
| Net loss per share | $0.19 | $0.20 | $0.55 | $0.68 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $6.2 million | $7.2 million |
Profit margins are not meaningful because the company has no revenue. The accumulated deficit was $64.7 million at September 30, 2020.
- Cash and cash equivalents: $9.8 million.
- Marketable securities: $20.8 million.
- Cash, cash equivalents and marketable securities: $30.6 million.
- Working capital: $29.7 million.
- Shareholders’ equity: $29.8 million.
- Current liabilities: $1.4 million.
- Debt: No credit facilities or material borrowing arrangements; obligations primarily consisted of finance and operating leases totaling approximately $0.2 million in present value.
Material changes versus the prior comparable period
- Q3 R&D expense increased $0.6 million, primarily because of REDUX Phase II costs and the launch of its third cohort.
- Year-to-date R&D expense decreased $0.9 million because 2019 included approximately $1.3 million of non-recurring DM199 manufacturing costs, higher ReMEDy costs and Phase 1b CKD study costs.
- Year-to-date G&A expense increased $0.5 million, mainly from higher share-based compensation and professional service costs.
- Year-to-date net loss improved modestly by $0.1 million, while operating cash use declined $1.1 million.
- Cash resources increased substantially following public offerings in February and August 2020. The company issued 2.125 million shares for approximately $7.7 million of net proceeds in February and 4.6 million shares for approximately $21.2 million of net proceeds in August.
- Shares outstanding increased from 12.0 million at December 31, 2019 to 18.7 million at September 30, 2020, creating dilution for existing shareholders.
- Investing cash outflows increased to $16.8 million from $4.9 million as offering proceeds were invested in marketable securities.
Guidance, outlook, risks and unusual items
- Management expects 2020 operating expenses to be comparable to or slightly higher than 2019, although the filing also states that COVID-19-related enrollment delays could make expenses comparable to or slightly lower than 2019. The filing does not provide a precise expense forecast.
- Management believes existing cash resources will fund planned operations and completion of all three REDUX cohorts for at least the next twelve months from the financial statement issuance date. The company nevertheless expects substantial additional capital will be required for further development, clinical trials and regulatory activities.
- COVID-19 slowed enrollment in REDUX Cohorts I and II, and may cause further delays, higher costs, protocol changes, site disruptions or data-quality issues. Two additional sites were added to support enrollment.
- ReMEDy topline AIS results met primary safety and tolerability endpoints, with no DM199-related serious adverse events reported. A therapeutic effect was observed in participants who received tPA before enrollment, but not in participants who received mechanical thrombectomy.
- The company submitted an FDA pre-IND meeting request in October 2020 regarding the development and regulatory strategy for DM199 in AIS.
- DiaMedica remains dependent on equity financing, potential licensing or collaboration arrangements, government incentives and other external funding. It has no existing credit facilities.
- The company is involved in litigation against PRA Netherlands and PRA USA concerning alleged clinical-trial execution errors and incomplete study records. A Delaware court denied venue transfer to Minnesota on September 21, 2020; management believes the case may be dismissed for lack of personal jurisdiction and is evaluating appeal alternatives.
- A litigation funding agreement providing up to $1.0 million was terminated after the venue-transfer motion was denied.
- A related-party consulting firm owned by the Vice President of Regulatory Affairs was paid approximately $90,000 during Q3 and $137,000 during the first nine months of 2020; $11,000 remained payable at September 30.
- Disclosure controls and procedures were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm REDUX enrollment progress, the timing of Cohort III topline results and the effect of COVID-19 on Cohorts I and II.
- Assess whether the reported cash and marketable securities balance is sufficient for planned trials and when additional financing may be required.
- Evaluate the clinical significance and regulatory implications of the ReMEDy AIS subgroup results, including the lack of demonstrated effect in participants receiving mechanical thrombectomy.
- Review dilution from the 2020 offerings, outstanding options, deferred share units and warrants.
- Monitor the PRA litigation, potential dismissal or appeal, and the termination of litigation funding.
- Reconcile the filing’s inconsistent descriptions of the September 11, 2020 Craig-Hallum warrant expiration date: one section states October 1, 2024, while another states October 1, 2021.