# DiaMedica Therapeutics Inc.: Form 10-Q for the period ended Mar 31, 2021

- Company: [DiaMedica Therapeutics Inc.](/companies/dmac.md) (CIK 1401040)
- Form: 10-Q
- Filed: 2021-05-05
- Accepted by EDGAR: May 5, 2021, 16:32 ET
- Period: 2021-03-31
- Accession: 0001437749-21-010912
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1401040/000143774921010912/dmtp20210331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1401040/000143774921010912/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2021-01-01 to 2021-03-31 | $2.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | −$3.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $7.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | −$3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | −$0.19 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | −$4.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-01-01 to 2021-03-31 | $9.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2021-03-31 | $3.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-31 | $24.2m | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-31 | $24.4m | us-gaap:Assets |
| Current liabilities | at 2021-03-31 | $1.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2021-03-31 | $23.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,271 characters.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon accounting principles generally accepted in the United States of America and discusses the financial condition and results of operations for DiaMedica Therapeutics Inc. and its subsidiaries for the three months ended March 31, 2021 and 2020.

This discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2020, which includes additional information about our critical accounting policies and practices and risk factors. The following discussion contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties. See “*Cautionary Note Regarding Forward-Looking Statements”* for additional cautionary information.

### Business Overview

We are a clinical stage biopharmaceutical company primarily focused on developing novel treatments for neurological disorders and kidney diseases. Currently, our primary focus is on developing DM199, a proprietary recombinant KLK1 protein for the treatment of acute ischemic stroke (AIS) and chronic kidney disease (CKD). Our goal is to use our patented and licensed technologies to establish our Company as a leader in the development and commercialization of therapeutic treatments from novel recombinant proteins. We plan to advance DM199, our lead drug candidate, through required clinical trials to create shareholder value by establishing its clinical and commercial potential as a therapy for AIS and CKD.

DM199 is a recombinant form of human tissue kallikrein-1 (KLK1). KLK1 is a serine protease (protein) produced primarily in the kidneys, pancreas and salivary glands, which plays a critical role in the regulation of local blood flow and vasodilation (the widening of blood vessels which decreases blood pressure) in the body, as well as an important role in inflammation and oxidative stress (an imbalance between potentially damaging reactive oxygen species, or free radicals, and antioxidants in the body). We believe DM199 has the potential to treat a variety of diseases where healthy functioning requires sufficient activity of KLK1 and its system, the kallikrein-kinin system.

Our DM199 product candidate is in clinical development as follows:

#### AIS Phase 2/3 ReMEDy2 Study

In December 2020, we received written responses from the FDA following a Type B Pre-IND meeting request that we submitted in October 2020 regarding our development plan for DM199 in the treatment of AIS. In the FDA’s written responses to the questions we provided, the FDA agreed with our proposals regarding key elements of a Phase 2/3 trial for DM199 in patients with AIS, including plans for an adaptive trial design with a primary endpoint based upon the modified Rankin Scale at day 90 and acknowledged that, provided the study results qualify, a single trial may support a Biologics License Application submission. Additionally, based upon the clinical and preclinical testing performed to date and currently in process, the FDA did not recommend any additional studies in preparation for an IND submission and initiation of our planned Phase 2/3 trial. We have filed an IND for this study and anticipate initiation of enrollment later this summer.

#### REDUX Clinical Trial

In October 2019, the U.S. Food and Drug Administration (FDA) accepted our Phase 2 clinical trial protocol for the treatment of CKD caused by rare or significant unmet diseases. The trial named REDUX, Latin for restore, is a multi-center, open-label investigation targeting enrollment of approximately 90 participants with mild or moderate CKD (Stage II or III) and albuminuria, who are being enrolled in three equal cohorts. The study is being conducted in the United States at 13 sites and is focused on participants with CKD: Cohort I is focused on non-diabetic, hypertensive African Americans with Stage II or III CKD. African Americans are at greater risk for CKD than Caucasians, and those African Americans who have the APOL1 gene mutation are at an even higher risk. The study is designed to capture the APOL1 gene mutation as an exploratory biomarker in this cohort. Cohort II is focused on participants with IgA Nephropathy. Cohort III, which was added after the completion of our August 2020 public offering, is focused on participants with Type 2 diabetes mellitus with CKD, hypertension and albuminuria. The study will evaluate two dose levels of DM199 within each cohort. Study participants receive DM199 by subcutaneous injection twice weekly for 95 days. The primary study endpoints include safety, tolerability, blood pressure, albuminuria and kidney function, which will be evaluated by changes from baseline in estimated glomerular filtration rate and albuminuria, as measured by the urinary albumin to creatinine ratio. Participant enrollment and dosing for this study commenced in December 2019.

As of April 30, 2021, we had enrolled 70 subjects, including 17 African American subjects into Cohort I, 21 subjects with IgAN into Cohort II and 32 subjects with Type 2 diabetes, hypertension and albuminuria into Cohort III of the REDUX study. Due to restrictions implemented at our clinical study sites to combat the COVID-19 pandemic, we have continued to experience slower than expected enrollment in the first two cohorts of the REDUX trial. We believe this is due to the reduction or suspension of activities at our clinical study sites as they address staff and patient safety concerns and patient concerns related to visiting clinical study sites in light of the COVID-19 pandemic. However, with the significant declines in new COVID-19 cases and the availability and effectiveness of vaccines, we currently anticipate completion of Cohort I and Cohort II in the second half of 2021. The enrollment of Cohort III was much more rapid completing in December 2020, which is likely due to the large population of potential subjects. We currently expect topline results from Cohort III to be available during the second quarter of 2021.

### Financial Overview

We have not generated any revenues from product sales. Since our inception, we have financed our operations from public and private sales of equity, the exercise of warrants and stock options, interest income on funds available for investment and government grants. We have incurred losses in each year since our inception. We have incurred losses in each year since our inception. Our net losses were $3.6 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $72.5 million. Substantially all of our operating losses resulted from expenses incurred in connection with the development of our DM199 product candidate, our primary research and development (R&D) activities, and general and administrative (G&A) support costs associated with our operations.

We expect to continue to incur significant expenses and increased operating losses for at least the next several years. In the near term, we anticipate that our expenses will increase as we:

- complete our ongoing Phase 2 study of DM199 for CKD;
- initiate and complete our pending Phase 2/3 study of DM199 for AIS;
- complete manufacturing process development to support applications for commercial approval of DM199;
- provide G&A support for our operations; and
- maintain, expand and protect our intellectual property portfolio.

While we expect our rate of future negative cash flow per month will vary due to the timing of expenses incurred, we expect our current cash and marketable securities resources will be sufficient to allow us to complete all three cohorts in our REDUX Phase 2 study in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to otherwise fund our planned operations for at least the next twelve months from the date of issuance of the financial statements included in this report. However, the amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, including enrollment in our clinical trials, the potential expansion of our current development programs, potential new development programs, related G&A support and the effects of the COVID-19 pandemic. We may require significant additional funds earlier than we currently expect and there is no assurance that we will not need or seek additional funding prior to such time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.

### Overview of Expense Components

#### Research and Development Expenses

R&D expenses consist primarily of fees paid to external service providers such as contract research organizations; contractual obligations for clinical development including clinical sites, outside nursing services and laboratory testing, and preclinical trials; development of manufacturing processes, costs for production runs of DM199; salaries, benefits, and share-based compensation and other personnel costs.

At this time, due to the risks inherent in the clinical development process and the clinical stage of our product development programs, we are unable to estimate with any certainty the costs we will incur in the continued development of DM199 or any of our preclinical development programs. Although as previously discussed, we have experienced a delay and expect to continue to expect a delay in the timing of costs incurred in the REDUX trial as a result of the COVID-19 pandemic, we do not expect to experience a significant overall increase in costs. We intend to continue to assess the effect of the pandemic on our REDUX trial and our future trials by monitoring the spread of the COVID-19 virus and the actions implemented to combat the virus. We expect that our R&D expenses will increase in the future if we are successful in advancing DM199, or any of our preclinical programs, into advanced stages of clinical development. The process of conducting clinical trials necessary to obtain regulatory approval and manufacturing scale-up to support expanded development and potential future commercialization is costly and time consuming. Any failure by us or delay in completing clinical trials, manufacturing scale-up or in obtaining regulatory approvals could lead to increased R&D expenses and, in turn, have a material adverse effect on our results of operations.

#### General and Administrative Expenses

G&A expenses consist primarily of salaries and related benefits, including share-based compensation related to our executive, finance, business development and support functions. Other G&A expenses include insurance, rent and utilities, travel expenses, patent costs and professional fees for auditing, tax and legal services. We expect our G&A expenses will continue to increase in the future as we expand our development and operating activities.

We have instituted a number of procedural changes related to protecting the health and safety of our employees in response to the COVID-19 pandemic.Our office was closed in the second quarter of 2020 and remained closed during the first quarter of 2021 and our employees worked remotely. In addition, all non-essential travel was on hold. We have encouraged our employees to interact with each other and vendors through audio and video conferencing. We did not incur significant additional G&A expenses during the first quarter of 2021 related to these changes, nor do we expect to incur significant additional G&A expenses going forward. We expect to continue to work remotely and restrict non-essential travel for the foreseeable future.

#### Other (Income) Expense

Other (income) expense consists primarily of interest income and foreign currency exchange gains and losses. In past years governmental assistance – research incentives, which were associated with the ReMEDy Phase 2 stroke study, were a significant component of this line item.

### Results of Operations

#### Comparison of the Three Months ended March 31, 2021 and 2020

The following table summarizes our unaudited results of operations for the three months ended March 31, 2021 and 2020 (in thousands):

| Operating expenses: | Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Research and development | $2,406 | $1,349 |
| General and administrative | 1,213 | 1,055 |

#### Research and Development Expenses

R&D expenses were $2.4 million for the three months ended March 31, 2021, compared with $1.4 million for the three months ended March 31, 2020, an increase of $1.0 million. The increase was due to a number of factors including a year-over-year increase in costs incurred for our REDUX Phase 2 CKD study, and costs associated with an increase in staff levels, consulting services and non-clinical testing required to support preparation for our ReMEDy2 Phase 2/3 stroke study. These increases were partially offset by a year-over-year decrease in costs incurred for our ReMEDy Phase 2 stroke study which completed during 2020.

#### General and Administrative Expenses

G&A expenses were $1.2 million for the three months ended March 31, 2021, up from $1.1 million for the three months ended March 31, 2020. The increase in G&A expenses resulted primarily from increased directors and officers liability insurance, personnel and non-cash share-based compensation costs.

### Liquidity and Capital Resources

The following tables summarize our liquidity and capital resources as of March 31, 2021 and December 31, 2020, and our sources and uses of cash for each of the three month periods ended March 31, 2021 and 2020, and is intended to supplement the more detailed discussion that follows (in thousands):

| Liquidity and Capital Resources | March 31, 2021 | December 31, 2020 |
| --- | ---: | ---: |
| Cash, cash equivalents and marketable securities | $23,400 | $27,507 |
| Total assets | 24,356 | 28,095 |
| Total current liabilities | 1,178 | 2,028 |
| Total shareholders’ equity | 23,145 | 26,014 |
| Working capital | 23,017 | 25,893 |

16

| Cash Flow Data Cash flow provided by (used in): | Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Operating activities | $(4,313) | $(2,978) |
| Investing activities | (9) | (5,301) |
| Financing activities | 242 | 7,696 |
| Net decrease in cash | $(4,080) | $(583) |

### Working Capital

We had cash and cash equivalents of $3.3 million, marketable securities of $20.1 million, current liabilities of $1.2 million and working capital of $23.0 million as of March 31, 2021, compared to $7.4 million in cash and cash equivalents, marketable securities of $20.1 million, $2.0 million in current liabilities and $25.9 million in working capital as of December 31, 2020. The decreases in our combined cash, cash equivalents and marketable securities and in our working capital are due primarily to our increased clinical study costs related to our REDUX Phase 2 CKD study and costs associated with preparing for our ReMEDy2 Phase 2/3 stroke study.

### Cash Flows

#### Operating Activities

Net cash used in operating activities for the three months ended March 31, 2021 was $4.3 million compared to $3.0 million for the three months ended March 31, 2020. This increase relates primarily to the increase in the net loss, partially offset by the effects of the changes in operating assets and liabilities.

#### Investing Activities

Investing activities consist primarily of purchases and maturities of marketable securities. Net cash used in investing activities was $9,000 for the three months ended March 31, 2021 compared to $5.3 million for the three months ended March 31, 2020.

#### Financing Activities

Financing activities in the current year consisted primarily of net proceeds from the exercise of stock options and from the sale of common shares in the prior year period. Net cash provided by financing activities was $0.2 million and $7.7 million for the three months ended March 31, 2021 and 2020, respectively.

### Capital Requirements

Since our inception, we have incurred losses while advancing the R&D of our DM199 product candidate. We have not generated any revenues from product sales and do not expect to do so for at least three to five years. We do not know when, or if, we will generate any revenues from product sales of our DM199 product candidate or any future product candidate. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval. We expect to continue to incur substantial operating losses until such time as any future product sales, royalty payments, licensing fees and/or milestone payments are sufficient to generate revenues to fund our continuing operations. We expect our operating losses to increase in the near term as we continue the research, development and clinical trials of, and seek regulatory approval for, our DM199 product candidate. In the long-term, subject to obtaining regulatory approval of our DM199 product candidate or any future product candidate and in the absence of the assistance of a strategic partner, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

Accordingly, we expect we will need substantial additional capital to further our R&D activities, planned clinical trials, regulatory activities and otherwise develop our product candidate, DM199, or any future product candidates, to a point where they may be commercially sold. Although we are striving to achieve these plans, there is no assurance these and other strategies will be achieved or that additional funding will be obtained on favorable terms or at all. While our rate of future negative cash flow per month will vary due to the timing of expenses incurred, we expect our current cash resources will be sufficient to allow us to complete all three cohorts in our REDUX Phase 2 study in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to otherwise fund our planned operations for at least the next twelve months from the date of issuance of the financial statements included in this report. However, the amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of current development programs, potential new development programs and related G&A support. We may require significant additional funds earlier than we currently expect and there is no assurance that we will not need or seek additional funding prior to such time, especially if market conditions for raising additional capital are favorable.

Since our inception, we have financed our operations from public and private sales of equity, the exercise of warrants and stock options, interest income on funds available for investment and government incentive grants, and we expect to continue this practice for the foreseeable future. We do not have any existing credit facilities under which we could borrow funds. We may seek to raise additional funds through various sources, such as equity or debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if our clinical data is not positive or economic and market conditions deteriorate.

To the extent we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. The availability of financing will be affected by our clinical data and other results of scientific and clinical research; the ability to attain regulatory approvals; market acceptance of our product candidates; the state of the capital markets generally with particular reference to pharmaceutical, biotechnology and medical companies; the status of strategic alliance agreements; and other relevant commercial considerations.

If adequate funding is not available, we may be required to implement cost reduction strategies; delay, reduce, or eliminate one or more of our product development programs; relinquish significant rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us; and/or divest assets or cease operations through a merger, sale, or liquidation of our Company.

### Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (as defined by applicable SEC regulations) that could have a current material effect or that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

### Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in “*Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,”* included in our annual report on Form 10-K for the fiscal year ended December 31, 2020.

## Controls and procedures

As filed, 1,958 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2021 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Filed May 5, 2021.
Source: SEC EDGAR, the filing index for accession 0001437749-21-010912. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.