Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  News  >  Companies  >  All News

News : Companies
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance ProfessionalsCalendarSectors

DIAMEDICA THERAPEUTICS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
05/13/2019 | 04:53pm EDT

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 subsidiaries for the three months ended March 31, 2019 and 2018.

This discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. 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 the development of novel recombinant proteins. 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 for novel recombinant proteins to treat kidney and neurological diseases. Our current primary focus is on chronic kidney disease ("CKD") and acute ischemic stroke ("AIS"). 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 CKD and AIS.

DM199 is a recombinant form of human tissue kallikrein-1 ("KLK1"). KLK1 is a serine protease (protein) produced in the pancreas, kidneys 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 your 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 ("KKS").

Our DM199 product candidate is in clinical development as follows:



[[Image Removed]]






In December 2018, the FDA accepted our Investigational New Drug application for the initiation of a Phase Ib clinical trial of DM199 in patients with moderate or severe CKD caused by Type I or Type II diabetes, and in February 2019, we initiated dosing patients in this study. The results from this Phase Ib study will assist us in the design of upcoming Phase II studies in patients suffering from rare diseases and CKD. The DM199 drug levels from this Phase Ib study will also help determine the optimal dose levels for testing in the Phase II studies.




                                       14

--------------------------------------------------------------------------------

In February 2018, we initiated treatment on the first patient in our Phase II REMEDY trial assessing the safety, tolerability and markers of therapeutic efficacy of DM199 in patients suffering from AIS. Our REMEDY trial is expected to enroll up to 100 patients to evaluate DM199 in patients with AIS.

In September 2018, we entered into a license and collaboration agreement with Ahon Pharmaceutical Co Ltd. ("Ahon Pharma"), which grants Ahon Pharma exclusive rights to develop and commercialize DM199 for acute ischemic stroke in mainland China, Taiwan, Hong Kong S.A.R. and Macau S.A.R. Under the terms of the agreement, we received an upfront payment of $500,000 on signing and are entitled to receive an additional payment of $4.5 million upon regulatory clearance to initiate a clinical trial in China. We also have the potential to receive up to an additional $27.5 million in development and sales related milestones and up to approximately 10% royalties on net sales of DM199 in the licensed territories. All development, regulatory, sales, marketing, and commercial activities and associated costs in the licensed territories will be the sole responsibility of Ahon Pharma. This agreement may be terminated at any time by Ahon Pharma by providing 120 days written notice. Fosun Pharma, through its partnership with SK Group, a South Korea based company, is an investor in DiaMedica through its equity investment in 2016.

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 and tax credits. We have incurred losses in each year since our inception. Our net losses were $3.3 million and $650,000 for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had an accumulated deficit of $49.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, 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:



  ? advance the ongoing clinical development of DM199;


  ? provide G&A support for our operations; and


  ? maintain, expand and protect our intellectual property portfolio.



In addition, we expect our operating expenses to increase in 2019 compared to 2018 as a result of our recently obtained Nasdaq-listed U.S. public reporting company status.

While we expect our rate of future negative cash flow per month to vary due to the timing of expenses incurred, we expect our current cash resources to be sufficient to allow us to complete our currently ongoing clinical trials and to otherwise fund our planned operations through the end of 2020. However, the amount and timing of our future funding requirements will depend on many factors, including the timing and results of ongoing development efforts, the potential expansion of current development programs, potential new development programs and related general and administrative 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.



Financial Overview



Revenues


Since our inception, we have incurred losses while advancing the R&D of our therapeutic product candidates. While we received $500,000 in license revenue last year, we have not generated any revenues from product sales and do not expect to do so for a number of years. We may never generate sales revenues from our current DM199 product candidate as we may never succeed in obtaining regulatory approval or commercial sale of this product candidate.




                                       15

--------------------------------------------------------------------------------

Research and Development Expenses

R&D expenses consist primarily of fees paid to external service providers such as contract research organizations and contract manufacturing organizations related to clinical trials, contractual obligations for clinical development, clinical sites, laboratory testing, preclinical trials, development of DM199 and the related manufacturing processes, salaries, benefits, share-based compensation and other personnel costs. We incurred $2.6 million and $791,000 in R&D expenses for the three months ended March 31, 2019 and 2018, respectively.

At this time, due to the risks inherent in the clinical development process and the early 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. We expect that our R&D expenses may continue to increase 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 and professional fees for auditing, tax and legal services. We expect that G&A expenses will increase in the future as we expand our operating activities. In addition, G&A expenses are expected to reflect increased costs associated with our listing on The Nasdaq Capital Market and U.S. public reporting company status, which commenced in December 2018.



Other (Income) Expense


Other (income) expense consists primarily of governmental assistance - research incentives, interest income and foreign currency exchange gains and losses.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases. The guidance in ASU 2016-02 supersedes the lease recognition requirements in the Accounting Standards Codification Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The new standard requires the immediate recognition of all excess tax benefits and deficiencies in the income statement and requires classification of excess tax benefits as an operating activity as opposed to a financing activity in the statements of cash flows. This standard became effective for us on January 1, 2019.

The FASB has subsequently issued the following amendments to ASU 2016-02, which have the same effective date and transition date of January 1, 2019, and which we collectively refer to as the new leasing standards:



  ? ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for
    Transition to Topic 842, which permits an entity to elect an optional
    transition practical expedient to not evaluate under Topic 842 land easements
    that exist or expired prior to adoption of Topic 842 and that were not
    previously accounted for as leases under the prior standard, ASC 840, Leases.




  ? ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends
    certain narrow aspects of the guidance issued in ASU 2016-02.




  ? ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allows for a
    transition approach to initially apply ASU 2016-02 at the adoption date and
    recognize a cumulative-effect adjustment to the opening balance of retained
    earnings in the period of adoption as well as an additional practical
    expedient for lessors to not separate non-lease components from the associated
    lease component.




  ? ASU No. 2018-20, Narrow-Scope Improvements for Lessors, which contains certain
    narrow scope improvements to the guidance issued in ASU 2016-02.




                                       16

--------------------------------------------------------------------------------

We adopted the new leasing standards on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019; and consequently, financial information will not be updated and the disclosures required under Topic 842 will not be provided for dates and periods prior to January 1, 2019. We have reviewed our existing lease contracts and the impact of the new leasing standards on our consolidated results of operations, financial position and disclosures. Upon adoption of the new leasing standards, we recognized a lease liability and related right-of-use asset on our consolidated balance sheet of approximately $205,000.

In June 2018, the FASB issued ASU No. 2018-07, "Improvements to Nonemployee Share-Based Payment Accounting," to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. This ASU is effective for public entities for fiscal years beginning after December 15, 2018, with early adoption permitted. Prior to the adoption of this ASU, share-based compensation awarded to non-employees was subject to revaluation over its vesting terms. Subsequent to the adoption of this ASU, non-employee share-based payment awards are measured on the date of grant, similar to share-based payment awards granted to employees. We adopted this standard on January 1, 2019 and the adoption of this ASU did not have a material impact on our financial position or our condensed consolidated statements of operations.



Results of Operations


Comparison of the Three Months Ended March 31, 2019 and 2018

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2018 (in thousands):



                                 Three Months Ended
                                      March 31,
                                  2019           2018
Research and development       $    2,607$  791
General and administrative            814          515

Total other (income) expense (178 ) (657 )

Research and Development Expenses

R&D expenses increased 230% to $2.6 million for the three months ended March 31, 2019 compared to $791,000 for the three months ended March 31, 2018, an increase of $1.8 million. This increase was due to costs of approximately $1.0 million related to the initiation of a new production run of the DM199 drug substance, as well as costs incurred in conjunction with the Phase Ib clinical study in CKD patients and increased year over year costs for the REMEDY Phase II stroke study. Increased personnel costs also contributed slightly to the increase.

General and Administrative Expenses

G&A expenses were $814,000 for the three months ended March 31, 2019, an increase of 63.3% from $515,000 for the three months ended March 31, 2018. This increase was primarily due to costs associated with our status as a Nasdaq-listed U.S. public reporting company, which commenced in December 2018. Increased personnel costs also contributed to the increase.

Total Other (Income) Expense

Total other income decreased 72.9% to $178,000 for the three months ended March 31, 2019 down from $657,000 for three months ended March 31, 2018. The decrease is primarily related to the initial recognition of R&D incentives from the Australian Government, paid for qualifying research work performed by DiaMedica Australia, during the three months ended March 31, 2018. This decrease was partially offset by increased interest income earned on marketable securities during the three months ended March 31, 2019.




                                       17

--------------------------------------------------------------------------------

Liquidity and Capital Resources

The following tables summarize our liquidity and capital resources as of March 31, 2019 and December 31, 2018, and our sources and uses of cash for each of the three month periods ended March 31, 2019 and 2018, and is intended to supplement the more detailed discussion that follows (in thousands):




Liquidity and Capital Resources   March 31, 2019       December 31, 2018
Cash and cash equivalents         $         2,759     $            16,823
Marketable securities                      10,958                       -
Total assets                               15,494                  18,339
Total current liabilities                   1,425                   1,296
Total shareholders' equity                 13,906                  17,025
Working capital                            13,519                  16,676




                                      Three Months Ended March 31,
Cash Flow Data                           2019                 2018
Cash flow provided by (used in):
Operating activities               $         (3,134 )     $       (935 )
Investing activities                        (10,928 )              (32 )
Financing activities                             (2 )            6,324

Net increase (decrease) in cash $ (14,064 )$ 5,357




Working Capital


We had cash and cash equivalents of $2.8 million, marketable securities of $11.0 million, current liabilities of $1.4 million and working capital of $13.5 million as of March 31, 2019, compared $16.8 million in cash and cash equivalents, $1.3 million in current liabilities and $16.7 million in working capital as of December 31, 2018. The decreases in our combined cash and equivalents and marketable securities and in our working capital are due primarily to our operating loss incurred for the three months ended March 31, 2019.




Cash Flows



Operating Activities



Net cash used in operating activities for the three months ended March 31, 2019 was $3.1 million compared to $935,000 for the three months ended March 31, 2018. This increase relates primarily to an 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 of marketable securities and property and equipment during the respective periods. Net cash used in investing activities was $10.9 million for the three months ended March 31, 2019 compared to $32,000 for the three months ended March 31, 2018. This increase was caused by the purchase of marketable securities during the current year period.



Financing Activities


Financing activities consist primarily of net proceeds from the sale of common shares and warrants and proceeds from the exercise of stock options and warrants and in 2019, include principal payments on financing lease obligations. Net cash used in financing activities was $2,000 for the three months ended March 31, 2019. Net cash provided by financing activities was $6.3 million for the three months ended March 31, 2018. Cash flows from financing activities for 2018 included net proceeds from our March 2018 private placements of our common shares and warrants to purchase common shares and the exercise of warrants to purchase common shares which expired in February 2018.




                                       18

--------------------------------------------------------------------------------

In December 2018, we completed an initial public offering of our common shares in the United States by issuing 4,100,000 common shares at an offering price of $4.00 per share, resulting in net proceeds to us of approximately $14.7 million, after deducting underwriting discounts and commissions and offering expenses.

On March 29, 2018, we completed, in two tranches, a brokered and non-brokered private placement of 1,322,965 units at a price of $4.90 per unit for aggregate gross proceeds of approximately $6.3 million. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of $7.00 at any time prior to expiration on March 19, 2020 and March 29, 2020 for tranche 1 and tranche 2, respectively. The warrants are subject to early expiration under certain conditions. In connection with the offering, we paid an aggregate cash fee of approximately $384,000 to brokers and issued an aggregate of 80,510 compensation options. Each compensation option entitles the holder to purchase one common share at $4.90, the offering price, for a period of two years from the closing of the offering, subject to acceleration on the same terms as the warrants issued to the investors.



Capital Requirements


Since our inception, we have incurred losses while advancing the R&D of our product candidates. We have not generated any revenues from product sales and do not expect to do so for a number of years. We do not know when, or if, we will generate any sales revenue from our DM199 product candidate or any future product candidates. We do not expect to generate any revenue from sales of product candidates 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 addition, we expect our operating expenses to increase in 2019 compared to 2018 as a result of our recently obtained Nasdaq-listed U.S. public reporting company status. In the long-term, subject to obtaining regulatory approval of our DM199 product candidate or any other future product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

Accordingly, despite our recent initial public offering, 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. While 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, which include the net proceeds of our recent initial public offering, to be sufficient to allow us to complete our current ongoing Phase II REMEDY trial in patients with AIS and our current Phase Ib trial in patients with CKD and a Phase II study in patients with CKD and to otherwise fund our planned operations through 2020. 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 our 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. We may elect to raise additional funds even before we need them 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 grants and tax credits, 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 and 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.




                                       19

--------------------------------------------------------------------------------

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 Securities and Exchange Commission regulations) that could have a material current effect or that are reasonably likely to have 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, 2018, other than as a result of DiaMedica's adoption of ASU 20116-02, Leases, and related guidance requiring the recognition of an operating lease right-of-use asset and related operating lease obligation in our condensed consolidated balance sheets. See Note 3, "Summary of Significant Accounting Policies," to our condensed consolidated financial statements contained in this report.

Recent Accounting Pronouncements

For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see Note 3, "Summary of Significant Accounting Policies," to our condensed consolidated financial statements contained in this report.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news "Companies"
05:29aWINDSTREAM : Wins 5G Spectrum in FCC Auctions to Boost Rural Broadband Speeds
AQ
05:29aRIVIERA RESOURCES : Announces Commencement of Tender Offer to Purchase Up To 2,666,666 Shares of Its Common Stock at a Purchase Price of $15.00 Per Share
AQ
05:29aPROFICIENT ALPHA ACQUISITION CORP : . Announces the Separate Trading of its Common Stock, Warrants and Rights
AQ
05:29aGENSIGHT BIOLOGICS : Announces Presentation of Results from the REVERSE Phase III Trial of GS010 at the 14th Meeting of the European Neuro-Ophthalmology Society (EUNOS)
AQ
05:29aOPSENS : UPDATE - Opsens Solutions Partners With Temai Ingenieros for the Commissioning of an Optical-Based Fuel Monitoring System for a Major Aircraft Manufacturer
AQ
05:29aARMADA HOFFLER PROPERTIES : Announces Closing of Public Offering of Preferred Stock and Exercise of Underwriters Option to Purchase Additional Shares
AQ
05:29aAustralian Patent Office Grants New Patent Covering Enlivexs AllocetraTM Immunotherapy Treatment
AQ
05:29aIRAQ : Rocket hits site housing several global oil companies in Basra, 2 injured
AQ
05:29aBOEING : apologizes, Airbus jumps ahead of manufacturer in plane battle
AQ
05:29aFIRSTRAND : BANK LIMITED - FRC303 - Listing of New Financial Instrument
PU
Latest news "Companies"