Business Context and Reporting Period
DiaMedica Therapeutics Inc. filed this Form 10-Q for the quarter and nine months ended September 30, 2023. The clinical-stage biopharmaceutical company is developing DM199, a recombinant KLK1 protein, for acute ischemic stroke (AIS) and cardio-renal disease (CRD). The company has no approved commercial products and has not generated product revenue.
As of November 6, 2023, 37,953,711 common shares were outstanding. The company is listed on Nasdaq under the symbol DMAC.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $3.3 million, versus $1.6 million | $9.4 million, versus $5.6 million |
| General and administrative expense | $1.9 million, versus $1.5 million | $6.0 million, versus $4.5 million |
| Operating loss | $5.2 million, versus $3.1 million | $15.4 million, versus $10.0 million |
| Other income, net | $0.7 million, versus $0.1 million | $1.2 million, versus $0.1 million |
| Net loss | $4.5 million, versus $3.1 million | $14.2 million, versus $9.9 million |
| Net loss per share | $0.12, versus $0.12 | $0.46, versus $0.38 |
| Net cash used in operating activities | Not separately provided | $14.9 million, versus $8.7 million |
Profitability and operating margins are not meaningful because the company has no product revenue and remains loss-making.
At September 30, 2023, cash and cash equivalents were $2.2 million, marketable securities were $54.0 million, and combined cash, cash equivalents and marketable securities were $56.2 million. Working capital was $45.7 million, total assets were $58.1 million, and shareholders’ equity was $55.6 million. The company reported no credit facilities and only nominal lease and finance obligations; the filing does not identify material traditional debt.
Material Changes Versus Prior Comparable Period
- R&D expense increased 69% for the nine-month period, primarily because of studies and activities supporting removal of the ReMEDy2 clinical hold, the Phase 1C study, manufacturing and process development, and increased clinical personnel.
- G&A expense increased 34% for the nine-month period, driven principally by legal fees related to the ICON/PRA Netherlands litigation, higher personnel costs, patent prosecution and share-based compensation.
- Net loss increased to $14.2 million from $9.9 million, while operating cash usage increased to $14.9 million from $8.7 million.
- Interest and other income increased to $1.2 million from $0.1 million because of higher invested cash balances and market interest rates.
- The company raised approximately $36.8 million of net proceeds through April and June 2023 private placements. The June placement included 11,011,406 common shares and materially increased shares outstanding and paid-in capital.
- Marketable securities increased substantially, with $53.979 million held at September 30, 2023 versus $28.774 million at December 31, 2022.
Guidance, Outlook, Risks and Unusual Items
- The FDA removed the clinical hold on the ReMEDy2 Phase 2/3 AIS trial in June 2023 after reviewing additional stability data and proposed protocol modifications. The company began preparations to resume the trial.
- ReMEDy2 is an adaptive, randomized, double-blind, placebo-controlled study intended to enroll approximately 350 participants at up to 100 sites. Resumption, site activation and enrollment timing remain uncertain.
- The company completed its Phase 1C study, including an ACE-inhibitor patient cohort, with no significant DM199-related adverse events reported in the described cohorts.
- The company continues to finalize analyses and the clinical study report from the Phase 2 REDUX CRD trial and is evaluating next steps for the CRD program.
- Management expects current cash, cash equivalents and marketable securities to fund planned operations for at least the next 12 months from issuance of the financial statements. Management also expects monthly negative cash flow to increase as ReMEDy2 resumes and states that substantial additional capital will likely be required.
- Key execution risks include adverse or inconclusive clinical results, renewed regulatory restrictions, slow site activation or enrollment, competition for trial sites and subjects, staffing shortages, manufacturing and regulatory delays, and the need for additional financing.
- The company is involved in litigation with ICON/PRA Netherlands concerning clinical-study records and contractual obligations. An April 2023 Netherlands Commercial Court judgment favored DiaMedica on document ownership and access issues, but ICON/PRA appealed. A related primary case was scheduled for hearing on December 7, 2023. The company states that it is not aware of legal actions expected to have a material adverse effect on its financial position or results.
- The June 2023 registration rights agreement may require liquidated damages of up to 10% of invested capital if the resale registration statement is not kept effective, subject to permitted exceptions.
- The company added risks related to bank failures, financial institution liquidity, access to deposits and broader credit or capital-market disruptions. Certain cash balances may exceed FDIC insurance limits.
Important Facts for Investors to Verify
- Whether ReMEDy2 actually resumed on schedule, including the number of active sites, enrollment pace, interim-analysis timing and any new safety findings.
- Whether additional FDA requests, clinical holds or protocol changes arise after the June 2023 hold removal.
- The results and strategic implications of the REDUX CRD trial and the final Phase 1C data.
- The company’s cash burn and remaining liquidity as ReMEDy2 activity increases, including the timing and terms of any future financing.
- Potential dilution from future equity offerings and the 5.6 million shares reserved for options, deferred stock units, restricted stock units and warrants.
- The status, potential financial exposure and effect on clinical data access of the ICON/PRA Netherlands litigation.
- Whether the company can obtain regulatory approval and ultimately generate product, licensing, milestone or royalty revenue; the filing states that commercial availability is not expected for at least three years, if at all.