Business Context and Reporting Period
DiaMedica Therapeutics Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The clinical-stage biopharmaceutical company is developing DM199, a recombinant KLK1 protein, for chronic kidney disease (CKD) and acute ischemic stroke (AIS). The company has not generated product revenue and does not expect commercial availability for at least three to five years, if at all.
DM199 was being evaluated in the REDUX Phase II CKD trial and the completed ReMEDy Phase II AIS trial. As of August 5, 2020, REDUX had enrolled 18 subjects across its first two cohorts. COVID-19 materially slowed enrollment.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | Comparable Prior Period |
|---|---|---|---|
| Product revenue | $0 | $0 | $0 |
| Research and development expense | $1.6 million | $3.0 million | $1.9 million and $4.5 million, respectively |
| General and administrative expense | $1.1 million | $2.1 million | $0.9 million and $1.7 million, respectively |
| Operating loss | $2.7 million | $5.1 million | $2.7 million and $6.2 million, respectively |
| Net loss | $2.5 million | $4.9 million | $2.5 million and $5.7 million, respectively |
| Net loss per share | $0.17 | $0.36 | $0.21 and $0.48, respectively |
| Net cash used in operating activities | Not separately provided | $3.8 million | $6.0 million |
Gross margin and operating margin are not meaningful because the company has no product sales or revenue. Other income was $243,000 in the quarter and $231,000 in the first six months, including government research incentives and investment-related income.
At June 30, 2020, cash and cash equivalents were $5.0 million, marketable securities were $6.8 million, and total liquidity was $11.8 million. Working capital was $11.2 million, compared with $7.5 million at December 31, 2019. Total assets were $12.6 million and shareholders’ equity was $11.3 million.
The company had no credit facilities or material conventional debt. Reported obligations consisted primarily of operating and finance leases; total current liabilities were $1.2 million and non-current liabilities were $92,000.
Six-month cash flows included $3.8 million used in operations, $2.8 million used in investing activities, and $7.7 million provided by financing activities. The financing inflow primarily reflected the February 2020 sale of 2.125 million common shares for net proceeds of approximately $7.7 million.
Material Changes Versus the Prior Comparable Period
- Six-month net loss declined to $4.9 million from $5.7 million, primarily because of lower research and development spending.
- Six-month R&D expense decreased by $1.5 million. The prior-year period included approximately $1.3 million of non-recurring DM199 production costs, higher ReMEDy study costs, and Phase 1b CKD study costs.
- Six-month G&A expense increased by approximately $0.4 million, primarily because of higher non-cash share-based compensation.
- Six-month operating cash use improved to $3.8 million from $6.0 million, while investing cash use declined to $2.8 million from $7.9 million.
- Shares outstanding increased to 14.1 million at June 30, 2020 from 12.0 million at December 31, 2019 because of the February equity offering and option exercises.
- On August 10, 2020, after quarter-end, the company issued 4.6 million common shares at $5.00 per share for gross proceeds of $23.0 million and net proceeds of approximately $21.1 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects 2020 operating expenses to be comparable to or slightly lower than 2019 because COVID-19 delayed REDUX enrollment and the timing of related costs. The filing also states that expenses are expected to increase as development advances.
- Including the August 2020 offering proceeds, management expects available resources to fund completion of all three REDUX cohorts and planned operations through 2021. Management nevertheless expects to require substantial additional capital and may seek financing earlier.
- COVID-19 caused slower-than-expected clinical enrollment and may delay trial timelines, data readouts, regulatory filings, and commercialization. The filing provides no clear estimate for completion of REDUX enrollment.
- ReMEDy top-line Phase II results announced in May 2020 reportedly met primary safety and tolerability endpoints, with no DM199-related serious adverse events. A therapeutic effect was reported in participants who received tPA before enrollment, but not in those who received mechanical thrombectomy. The filing states that REDUX data were insufficient to assess efficacy.
- Development, regulatory approval, manufacturing, commercialization, and financing remain uncertain. Failure to obtain additional funding could require reduced operations, delayed or modified development, unfavorable licensing, asset divestitures, or cessation of operations.
- The company is involved in litigation with PRA Netherlands and PRA Health Sciences concerning an earlier clinical study, including alleged protocol execution issues and failure to provide complete study records. The outcome is uncertain.
- The company reported no material change in internal control over financial reporting and concluded that disclosure controls and procedures were effective as of June 30, 2020.
Most Important Facts for Investors to Verify
- Whether REDUX enrollment and trial execution recovered from COVID-19 disruptions, and whether the three-cohort study remains on schedule.
- The full clinical results and regulatory implications of the ReMEDy AIS study, including the differing results for tPA and mechanical-thrombectomy subgroups.
- Cash burn, remaining liquidity after the August 2020 offering, and the timing and terms of any future financing.
- Progress toward regulatory approval and the company’s ability to generate partnering, licensing, milestone, or eventual product revenue.
- The status, potential recovery, and possible costs or implications of the PRA litigation.
- Potential dilution from the August offering and outstanding options, deferred share units, and warrants; approximately 2.8 million shares were reserved for these instruments at June 30, 2020.