DiaMedica Therapeutics Inc. — Q1 2019 Form 10-Q Summary
Reporting period: Three months ended March 31, 2019; filed May 13, 2019. DiaMedica is a Canadian clinical-stage biopharmaceutical company developing DM199, a recombinant KLK1 protein, primarily for chronic kidney disease and acute ischemic stroke. The company has no approved products and has not generated product-sales revenue.
Financial condition and performance
| Metric | Q1 2019 | Q1 2018 / Dec. 31, 2018 |
|---|---|---|
| License revenue | $0 | $0 in Q1 2018 |
| Research and development expense | $2.607 million | $0.791 million |
| General and administrative expense | $0.814 million | $0.515 million |
| Operating loss | $3.421 million | $1.306 million |
| Net loss | $3.252 million | $0.650 million |
| Net loss per share | $0.27 | $0.10 |
| Net cash used in operating activities | $3.134 million | $0.935 million |
| Cash and cash equivalents | $2.759 million | $16.823 million at Dec. 31, 2018 |
| Marketable securities | $10.958 million | None reported at Dec. 31, 2018 |
| Working capital | $13.519 million | $16.676 million at Dec. 31, 2018 |
| Shareholders’ equity | $13.906 million | $17.025 million at Dec. 31, 2018 |
No meaningful revenue-based margin was reported because revenue was zero. The operating loss increased primarily because of higher clinical-development and manufacturing costs. The filing reports no credit facility or conventional debt; liabilities primarily consist of operating and finance lease obligations, including a $195,000 present value of operating lease obligations at March 31, 2019.
Cash flow and liquidity
- Operating cash use increased to $3.134 million from $0.935 million, reflecting the higher net loss.
- The company invested $10.928 million in marketable securities, causing cash and equivalents to decline by $14.064 million during the quarter. The securities consisted primarily of investment-grade commercial paper, corporate bonds and government securities with maturities of less than one year.
- Financing cash flow was negative $2,000; there were no equity issuances during the quarter. The company received approximately $14.7 million of net proceeds from its December 2018 U.S. initial public offering.
- Management stated that current cash resources were expected to fund ongoing clinical trials and planned operations through 2020, but also stated that additional capital may be required earlier than expected.
Material changes versus the prior comparable period
- R&D expense rose 230% to $2.607 million, driven by approximately $1.0 million for a new DM199 drug-substance production run, initiation of the Phase Ib CKD study, higher REMEDY Phase II stroke-study costs and increased personnel costs.
- G&A expense increased 63.3% to $0.814 million, mainly because of costs associated with Nasdaq listing and U.S. public-company reporting requirements.
- Net loss increased to $3.252 million from $0.650 million, while diluted weighted-average shares increased to 11.96 million from 6.55 million.
- Other income declined to $178,000 from $657,000, primarily because Q1 2018 included higher Australian government research incentives. The 2019 period benefited from interest income on marketable securities.
- Effective January 1, 2019, the company adopted the new lease standard and recognized approximately $205,000 of operating lease right-of-use assets and lease liabilities. Adoption did not materially affect operating results.
Clinical development, outlook and risks
- The FDA accepted DiaMedica’s investigational new drug application in December 2018 for a Phase Ib DM199 study in patients with moderate or severe diabetic CKD; patient dosing began in February 2019.
- The Phase II REMEDY trial for acute ischemic stroke, expected to enroll up to 100 patients, was ongoing.
- Under a 2018 license agreement, Ahon Pharma received exclusive DM199 stroke-development and commercialization rights in mainland China, Taiwan, Hong Kong and Macau. DiaMedica received a $500,000 upfront payment and could receive a $4.5 million payment upon the earlier of Chinese clinical-trial clearance or July 1, 2019, plus potential milestones and royalties. No license revenue was recognized in Q1 2019.
- DM199 remains investigational and may never receive regulatory approval or generate commercial revenue. The company expects substantial additional operating losses and capital needs.
- Potential funding sources include equity or debt financings, government support, collaborations and licensing transactions. Additional equity financing would dilute shareholders; insufficient funding could require delaying or reducing programs, relinquishing rights or ceasing operations.
- The company is pursuing litigation against PRA Netherlands and PRA USA concerning alleged clinical-trial execution failures and missing study records. A motion to transfer the case to Minnesota was pending as of the filing date; the filing does not quantify any potential recovery or loss.
Facts investors should verify
- Actual cash runway and whether the company’s stated ability to fund operations through 2020 remains valid given the $3.1 million quarterly operating cash burn and clinical-trial spending.
- Progress, enrollment, safety and efficacy results for the Phase Ib CKD study and Phase II REMEDY stroke trial.
- Whether the $4.5 million Ahon Pharma milestone was triggered and the status of the collaboration.
- Future financing requirements, potential dilution and the availability of equity, debt or strategic funding.
- Regulatory milestones for DM199 and the likelihood and timing of any eventual approval.
- Status and potential financial impact of the PRA litigation, including access to complete clinical-trial records.