DiaMedica Therapeutics Inc. — Fiscal 2020 Form 10-K Summary
Business Context and Reporting Period
DiaMedica Therapeutics Inc. is a British Columbia-incorporated, clinical-stage biopharmaceutical company focused primarily on DM199, a recombinant human tissue kallikrein-1 protein, for acute ischemic stroke (AIS) and chronic kidney disease (CKD). The filing covers the fiscal year ended December 31, 2020, with comparative information for 2019. The company has no approved products and has not generated product-sales revenue.
At year-end, DM199 remained in clinical development. The Phase 2 ReMEDy AIS study was completed in 2020; the Phase 2 REDUX CKD study was ongoing; and management planned an adaptive Phase 2/3 AIS study following FDA feedback.
Financial Performance, Cash Flow, Liquidity and Capitalization
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Product revenue | $0 | $0 | No change |
| Research and development expense | $8.31 million | $7.90 million | Up $0.41 million |
| General and administrative expense | $4.39 million | $3.69 million | Up $0.70 million |
| Total operating expenses | $12.70 million | $11.59 million | Up $1.11 million |
| Operating loss | $12.70 million | $11.59 million | Higher loss |
| Net loss | $12.30 million | $10.65 million | Higher loss of $1.65 million |
| Basic and diluted loss per share | $0.78 loss | $0.89 loss | Improved per share due to share issuance |
| Cash used in operating activities | $9.19 million | $9.10 million | Comparable cash burn |
| Cash, cash equivalents and marketable securities | $27.51 million | $7.88 million | Up $19.63 million |
| Working capital | $25.89 million | $7.52 million | Up $18.37 million |
| Accumulated deficit | $68.91 million | $56.62 million | Increased by $12.29 million |
Amounts in the financial statements are in thousands unless otherwise stated. Profitability and conventional revenue-based margins are not meaningful because the company had no product revenue and incurred continuing operating losses. The filing does not provide a clear revenue-based gross margin.
Cash provided by financing activities was $28.85 million, primarily from two public offerings: 2.125 million shares issued in February 2020 for net proceeds of approximately $7.7 million and 4.6 million shares issued in August 2020 for net proceeds of approximately $21.1 million. Investing activities used $16.13 million, mainly because offering proceeds were invested in short-term marketable securities.
The company had no existing credit facilities and no material conventional debt. Reported liabilities primarily consisted of accounts payable, accrued liabilities, finance lease obligations and operating lease obligations. Total current liabilities were $2.03 million, and total lease obligations were approximately $105,000 at December 31, 2020.
Management stated that year-end cash, cash equivalents and marketable securities were expected to fund completion of the REDUX Phase 2 study, initiation of the planned AIS Phase 2/3 study and planned operations for at least the next twelve months from issuance of the financial statements. Additional capital will likely be required to advance DM199 beyond these activities.
Material Changes Versus the Prior Comparable Period
- R&D expense increased 5% to $8.31 million, principally because of the REDUX CKD study, including its third cohort, and higher non-cash share-based compensation. These increases were partly offset by the wind-down of the ReMEDy stroke study and the absence of prior-year Phase 1b CKD costs.
- G&A expense increased 19% to $4.39 million due mainly to higher share-based compensation, professional fees and directors’ and officers’ liability insurance. Lower travel and meeting costs related to COVID-19 partly offset the increase.
- Other income declined to $0.43 million from $0.98 million, primarily because Australian R&D incentives decreased to $205,000 from $856,000 as ReMEDy-related spending declined.
- Net operating cash burn remained broadly stable, while financing activity increased substantially because of the two 2020 equity offerings.
- Shares outstanding increased from 12.01 million at December 31, 2019 to 18.75 million at December 31, 2020, creating dilution but materially strengthening liquidity.
- Share-based compensation increased to $1.84 million from $1.16 million.
Clinical Progress, Outlook, Risks and Unusual Items
- AIS: The Phase 2 ReMEDy study met its primary safety and tolerability endpoints. Severe recurrent strokes occurred in 1 DM199-treated participant versus 7 placebo participants, representing an 86% relative reduction with p=0.028. The filing cautions that certain subgroup results were based on small sample sizes and were not statistically significant.
- AIS regulatory path: In December 2020, the FDA provided written feedback supporting key elements of a proposed adaptive Phase 2/3 trial and indicated that, if results qualify, a single trial could support a BLA submission. Management intended to file the IND by the end of the first quarter of 2021.
- CKD: REDUX targeted approximately 90 participants across three cohorts involving African Americans with CKD, IgA nephropathy and diabetic kidney disease. As of March 1, 2021, 68 subjects had been enrolled. COVID-19 caused slower enrollment in the first two cohorts; management expected their completion in the second half of 2021 and anticipated third-cohort topline results in the second quarter of 2021.
- Funding outlook: The company expects continuing losses and increasing expenses as it advances clinical trials, regulatory work and manufacturing-process development. It may need additional equity, debt, collaboration or licensing financing, and future equity financing could dilute shareholders.
- Clinical and regulatory risk: DM199 has not established efficacy in pivotal trials and may fail to obtain regulatory approval. Early-stage results may not predict later results, and clinical trials may be delayed, suspended or terminated.
- COVID-19: The pandemic affected clinical-site activity and enrollment and could continue to delay trials, regulatory filings and commercialization timelines.
- Third-party dependence: The company relies on contract research organizations, clinical sites and Catalent Pharma Solutions for manufacturing and related technology. It does not own manufacturing facilities.
- Litigation: DiaMedica is pursuing claims against PRA Netherlands concerning alleged clinical-trial execution errors and missing study records. A related U.S. action was dismissed in November 2020, and the company moved its claims to Dutch proceedings. The outcome is uncertain.
- Commitments: The company reported approximately $2.2 million of clinical and development commitments over the next twelve months, generally cancellable on 30 days’ notice, plus approximately $105,000 of remaining operating lease obligations. Two Catalent milestones of $185,000 each may become payable upon initiation of the first Phase 3 trial and first commercial regulatory approval, respectively; future royalties are less than 1% of net sales.
- Unusual item: A consulting firm owned by the Vice President of Regulatory Affairs received approximately $235,000 for services in 2020, with approximately $33,000 outstanding at year-end.
Most Important Facts for Investors to Verify
- Whether the planned AIS Phase 2/3 IND was filed on schedule and whether FDA permitted the trial to proceed.
- REDUX enrollment, cohort completion and topline results, particularly the impact of COVID-19-related delays.
- Whether the positive ReMEDy stroke findings are replicated in a larger, adequately powered trial.
- Cash burn, remaining runway and the timing, size and terms of any future financing.
- Potential dilution from future equity offerings and outstanding options, warrants and deferred share units; 2.80 million shares were reserved or issuable under these instruments at year-end.
- The status and potential financial effect of the PRA Netherlands litigation.
- Manufacturing scale-up, Catalent dependencies, milestone obligations and the ability to meet regulatory requirements.
- DM199’s eventual regulatory approval, reimbursement prospects, competitive position and commercialization strategy, none of which were established as of the filing date.