DiaMedica Therapeutics Inc. — Form 10-Q Summary
Business context and reporting period
DiaMedica Therapeutics Inc. is a clinical-stage biopharmaceutical company developing DM199, a recombinant KLK1 protein, primarily for chronic kidney disease (CKD) and acute ischemic stroke (AIS). The filing covers the three and six months ended June 30, 2019, and was filed August 13, 2019. The company had 12,006,874 common shares outstanding as of August 6, 2019.
- DM199 was in clinical development; DiaMedica had no product sales and no commercially approved products.
- The Phase Ib CKD study began dosing in February 2019, reported interim results in June, and completed enrollment in July 2019.
- The Phase II REMEDY trial for AIS was ongoing and expected to enroll up to 100 patients.
Financial condition and key metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable period |
|---|---|---|---|
| License revenue | $0 | $0 | $0 |
| Research and development expense | $1.874 million | $4.481 million | $1.070 million and $1.861 million, respectively |
| General and administrative expense | $0.867 million | $1.681 million | $0.780 million and $1.295 million, respectively |
| Operating loss | $2.741 million | $6.162 million | $1.850 million and $3.156 million, respectively |
| Net loss | $2.469 million | $5.721 million | $1.735 million and $2.385 million, respectively |
| Basic and diluted loss per share | $0.21 | $0.48 | $0.22 and $0.33, respectively |
| Net cash used in operating activities | Not separately provided | $6.005 million | $1.958 million |
All amounts in the table are presented as absolute loss or expense amounts. The company reported no revenue, continued to incur operating losses, and had an accumulated deficit of $51.689 million at June 30, 2019.
| Balance-sheet metric | June 30, 2019 | December 31, 2018 |
|---|---|---|
| Cash and cash equivalents | $2.974 million | $16.823 million |
| Marketable securities | $7.992 million | $0 |
| Cash plus marketable securities | $10.966 million | $16.823 million |
| Working capital | $11.329 million | $16.676 million |
| Total current liabilities | $0.947 million | $1.296 million |
| Shareholders’ equity | $11.702 million | $17.025 million |
- Six-month operating cash burn was $6.005 million, compared with $1.958 million in the prior-year period.
- Investing cash outflow was $7.916 million, primarily reflecting $10.928 million of marketable-security purchases, partly offset by $3.000 million of maturities.
- Financing activities provided $0.072 million, versus $6.373 million in the prior-year period.
- The company had no existing credit facilities and reported no material off-balance-sheet arrangements.
- Debt was limited primarily to finance and operating lease obligations; total lease obligations were approximately $0.183 million on a present-value basis for the operating lease and $0.020 million for the finance lease.
Material changes versus the prior comparable period
- Six-month R&D expense increased $2.620 million, primarily from approximately $1.3 million for a new DM199 drug-substance production run, the Phase Ib CKD study, higher REMEDY Phase II costs, and increased personnel costs.
- Six-month G&A expense increased $0.386 million, driven mainly by Nasdaq listing and U.S. public-company reporting costs and higher personnel costs, partly offset by lower share-based compensation.
- Six-month net loss increased $3.336 million, from $2.385 million to $5.721 million.
- Research-incentive income declined year over year, from $0.850 million to $0.400 million for the six-month period, while quarterly research-incentive income increased from $0.118 million to $0.226 million.
- Cash and cash equivalents declined substantially as operating losses and purchases of marketable securities exceeded limited financing inflows. The company reclassified a significant portion of its liquidity from cash into short-term marketable securities.
- Common shares outstanding increased modestly to 12,006,874 from 11,956,874 at December 31, 2018; 50,000 shares were issued from option exercises during the six months.
- Effective January 1, 2019, the company adopted the new lease accounting standard and recognized an operating lease right-of-use asset and liability of approximately $205,000. The company also adopted new nonemployee share-based payment guidance without a material impact.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected current cash resources to fund ongoing clinical trials and planned operations into the fourth quarter of 2020, but stated that additional capital will be required and that funding could be needed earlier than expected.
- The company expects continued significant operating losses and increasing expenses as it advances DM199, conducts clinical trials, seeks regulatory approvals, supports its public-company infrastructure, and protects its intellectual property.
- DiaMedica had not generated product revenue and stated that commercial availability of DM199 was not expected for three to five years, if at all.
- On August 12, 2019, after the reporting date, DiaMedica terminated its license and collaboration agreement with Ahon Pharma because Ahon did not pay the $4.5 million milestone due by July 1, 2019. DiaMedica regained worldwide rights to DM199 for AIS, but lost the related potential milestone and royalty opportunity.
- After quarter-end, DiaMedica Australia received approximately $0.650 million in research and development incentive payments for qualifying 2018 activities.
- The company is engaged in litigation with PRA Netherlands and PRA USA concerning alleged clinical-trial execution deficiencies and failure to provide complete study records. As of the filing date, jurisdictional discovery was ongoing and the venue-transfer motion remained pending.
- Key risks include clinical-trial failure or delay, regulatory rejection, manufacturing and trial costs, inability to raise capital, dilution from future equity financing, dependence on third parties, intellectual-property challenges, competitive pressures, and the absence of product revenue.
Most important facts for investors to verify
- Whether cash, marketable securities, and subsequent research-incentive receipts were sufficient to support operations through the projected fourth quarter of 2020.
- The clinical results and regulatory status of the Phase Ib CKD program and the progress, enrollment, and results of the REMEDY AIS trial.
- The financial and strategic consequences of terminating the Ahon Pharma agreement, including the loss of the $4.5 million milestone and potential royalties.
- The company’s timing and terms for obtaining additional financing, including potential equity dilution or strategic licensing of DM199 rights.
- The status and potential financial impact of the PRA litigation and the company’s ability to obtain the disputed clinical-trial records.
- The composition, liquidity, maturity, and credit quality of the $7.992 million marketable-securities portfolio.