ITEM 1.
|
FINANCIAL STATEMENTS
|
DiaMedica Therapeutics Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,797
|
|
|
$
|
3,883
|
|
Marketable securities
|
|
|
20,826
|
|
|
|
3,995
|
|
Amounts receivable
|
|
|
335
|
|
|
|
823
|
|
Prepaid expenses and other assets
|
|
|
138
|
|
|
|
47
|
|
Deposits
|
|
|
10
|
|
|
|
88
|
|
Total current assets
|
|
|
31,106
|
|
|
|
8,836
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset
|
|
|
114
|
|
|
|
153
|
|
Property and equipment, net
|
|
|
50
|
|
|
|
64
|
|
Total non-current assets
|
|
|
164
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
31,270
|
|
|
$
|
9,053
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
720
|
|
|
$
|
182
|
|
Accrued liabilities
|
|
|
658
|
|
|
|
1,076
|
|
Finance lease obligation
|
|
|
6
|
|
|
|
6
|
|
Operating lease obligation
|
|
|
59
|
|
|
|
54
|
|
Total current liabilities
|
|
|
1,443
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Finance lease obligation, non-current
|
|
|
8
|
|
|
|
13
|
|
Operating lease obligation, non-current
|
|
|
61
|
|
|
|
105
|
|
Total non-current liabilities
|
|
|
69
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Common shares, no par value; unlimited authorized; 18,739,074 and 12,006,874 shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively
|
|
|
—
|
|
|
|
—
|
|
Paid-in capital
|
|
|
94,457
|
|
|
|
64,232
|
|
Accumulated other comprehensive income
|
|
|
10
|
|
|
|
2
|
|
Accumulated deficit
|
|
|
(64,709
|
)
|
|
|
(56,617
|
)
|
Total shareholders’ equity
|
|
|
29,758
|
|
|
|
7,617
|
|
Total liabilities and shareholders’ equity
|
|
$
|
31,270
|
|
|
$
|
9,053
|
|
See accompanying notes to the condensed consolidated financial statements.
DiaMedica Therapeutics Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,180
|
|
|
$
|
1,617
|
|
|
$
|
5,190
|
|
|
$
|
6,098
|
|
General and administrative
|
|
|
1,139
|
|
|
|
1,044
|
|
|
|
3,241
|
|
|
|
2,725
|
|
Operating loss
|
|
|
(3,319
|
)
|
|
|
(2,661
|
)
|
|
|
(8,431
|
)
|
|
|
(8,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Governmental assistance - research incentives
|
|
|
(25
|
)
|
|
|
(263
|
)
|
|
|
(205
|
)
|
|
|
(663
|
)
|
Other (income) expense, net
|
|
|
(103
|
)
|
|
|
38
|
|
|
|
(154
|
)
|
|
|
(20
|
)
|
Total other income
|
|
|
(128
|
)
|
|
|
(225
|
)
|
|
|
(359
|
)
|
|
|
(683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(3,191
|
)
|
|
|
(2,436
|
)
|
|
|
(8,072
|
)
|
|
|
(8,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
2
|
|
|
|
12
|
|
|
|
20
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,193
|
)
|
|
|
(2,448
|
)
|
|
|
(8,092
|
)
|
|
|
(8,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities
|
|
|
(19
|
)
|
|
|
(5
|
)
|
|
|
8
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(3,212
|
)
|
|
$
|
(2,453
|
)
|
|
$
|
(8,084
|
)
|
|
$
|
(8,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.68
|
)
|
Weighted average shares outstanding – basic and diluted
|
|
|
16,689,074
|
|
|
|
12,006,874
|
|
|
|
14,652,749
|
|
|
|
11,981,233
|
|
See accompanying notes to the condensed consolidated financial statements.
DiaMedica Therapeutics Inc.
Condensed Consolidated Statements of Shareholders’ Equity
For the Nine Months Ended September 30, 2020 and 2019
(In thousands, except share and per share amounts)
(Unaudited)
|
|
Common
Shares
|
|
|
Paid-In
Capital
|
|
|
Accumulated Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Shareholders’
Equity
|
|
Balances at December 31, 2019
|
|
|
12,006,874
|
|
|
$
|
64,232
|
|
|
$
|
2
|
|
|
$
|
(56,617
|
)
|
|
$
|
7,617
|
|
Issuance of common shares net of offering costs of $819
|
|
|
2,125,000
|
|
|
|
7,682
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,682
|
|
Exercise of common stock options
|
|
|
7,200
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
393
|
|
|
|
—
|
|
|
|
—
|
|
|
|
393
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
|
|
40
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,425
|
)
|
|
|
(2,425
|
)
|
Balances at March 31, 2020
|
|
|
14,139,074
|
|
|
$
|
72,323
|
|
|
$
|
42
|
|
|
$
|
(59,042
|
)
|
|
$
|
13,323
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
436
|
|
|
|
—
|
|
|
|
—
|
|
|
|
436
|
|
Unrealized loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,474
|
)
|
|
|
(2,474
|
)
|
Balances at June 30, 2020
|
|
|
14,139,074
|
|
|
$
|
72,759
|
|
|
$
|
29
|
|
|
$
|
(61,516
|
)
|
|
$
|
11,272
|
|
Issuance of common shares net of offering costs of $1.8 million
|
|
|
4,600,000
|
|
|
|
21,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,190
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
508
|
|
|
|
—
|
|
|
|
—
|
|
|
|
508
|
|
Unrealized loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(19
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,193
|
)
|
|
|
(3,193
|
)
|
Balances at September 30, 2020
|
|
|
18,739,074
|
|
|
$
|
94,457
|
|
|
$
|
10
|
|
|
$
|
(64,709
|
)
|
|
$
|
29,758
|
|
|
|
Common
Shares
|
|
|
Paid-In
Capital
|
|
|
Accumulated Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Shareholders’
Equity
|
|
Balances at December 31, 2018
|
|
|
11,956,874
|
|
|
$
|
62,993
|
|
|
$
|
—
|
|
|
$
|
(45,968
|
)
|
|
$
|
17,025
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,252
|
)
|
|
|
(3,252
|
)
|
Balances at March 31, 2019
|
|
|
11,956,874
|
|
|
$
|
63,123
|
|
|
$
|
3
|
|
|
$
|
(49,220
|
)
|
|
$
|
13,906
|
|
Exercise of common stock options
|
|
|
50,000
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,469
|
)
|
|
|
(2,469
|
)
|
Balances at June 30, 2019
|
|
|
12,006,874
|
|
|
$
|
63,380
|
|
|
$
|
11
|
|
|
$
|
(51,689
|
)
|
|
$
|
11,702
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
451
|
|
|
|
—
|
|
|
|
—
|
|
|
|
451
|
|
Unrealized loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(5
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,448
|
)
|
|
|
(2,448
|
)
|
Balances at September 30, 2019
|
|
|
12,006,874
|
|
|
$
|
63,831
|
|
|
$
|
6
|
|
|
$
|
(54,137
|
)
|
|
$
|
9,700
|
|
See accompanying notes to the condensed consolidated financial statements.
DiaMedica Therapeutics Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,092
|
)
|
|
$
|
(8,169
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
1,337
|
|
|
|
763
|
|
Amortization of discount on marketable securities
|
|
|
(24
|
)
|
|
|
(68
|
)
|
Non-cash lease expense
|
|
|
39
|
|
|
|
36
|
|
Depreciation
|
|
|
16
|
|
|
|
16
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Amounts receivable
|
|
|
488
|
|
|
|
116
|
|
Prepaid expenses
|
|
|
(91
|
)
|
|
|
280
|
|
Deposits
|
|
|
78
|
|
|
|
(39
|
)
|
Accounts payable
|
|
|
538
|
|
|
|
(171
|
)
|
Accrued liabilities
|
|
|
(458
|
)
|
|
|
(1
|
)
|
Net cash used in operating activities
|
|
|
(6,169
|
)
|
|
|
(7,237
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(25,048
|
)
|
|
|
(10,928
|
)
|
Maturities of marketable securities
|
|
|
8,249
|
|
|
|
6,000
|
|
Purchase of property and equipment
|
|
|
(2
|
)
|
|
|
—
|
|
Disposition of property and equipment, net
|
|
|
—
|
|
|
|
12
|
|
Net cash used in investing activities
|
|
|
(16,801
|
)
|
|
|
(4,916
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares, net of offering costs
|
|
|
28,872
|
|
|
|
—
|
|
Proceeds from the exercise of stock options
|
|
|
16
|
|
|
|
75
|
|
Principal payments on finance lease obligations
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net cash provided by financing activities
|
|
|
28,884
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,914
|
|
|
|
(12,082
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
3,883
|
|
|
|
16,823
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,797
|
|
|
$
|
4,741
|
|
See accompanying notes to the condensed consolidated financial statements.
DiaMedica Therapeutics Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
DiaMedica Therapeutics Inc. and its wholly-owned subsidiaries, DiaMedica USA Inc. and DiaMedica Australia Pty Ltd. (collectively we, us, our, DiaMedica and the Company), exist for the primary purpose of advancing the clinical and commercial development of a proprietary recombinant, or synthetic, tissue Kallikrein-1 protein (KLK1) for the treatment of kidney and neurological diseases with our primary focus on chronic kidney disease (CKD) and acute ischemic stroke (AIS). Our parent company is governed under the British Columbia Business Corporations Act and our common shares are publicly traded on The Nasdaq Capital Market under the symbol “DMAC.”
2.
|
Risks and Uncertainties
|
DiaMedica operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the FDA in the United States, the European Medicines Agency (EMA) in the European Union and comparable agencies in other countries. We are in the clinical stage of development of our initial product candidate, DM199, for the treatment of CKD and AIS. The Company has not completed the development of any product candidate and, accordingly, has not begun to commercialize any product candidate or generate any revenues from the commercial sale of any product candidate. DM199 requires significant additional clinical testing and investment prior to seeking marketing approval and is not expected to be commercially available for at least three to five years, if at all.
Additionally, clinical testing is currently being adversely impacted by the novel strain of the coronavirus (COVID-19) pandemic. We are experiencing slower than expected enrollment in the REDUX clinical trial 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. We anticipate that the COVID-19 pandemic will likely continue to adversely affect our ability to recruit or enroll subjects and we cannot provide any assurance as to when sites will be able to resume enrollment at a normal rate.
The Company’s future success is dependent upon the success of its development efforts, its ability to demonstrate clinical progress for its DM199 product candidate in the United States or other markets, its ability to obtain required governmental approvals of its product candidate, its ability to license or market and sell its DM199 product candidate and its ability to obtain additional financing to fund these efforts.
As of September 30, 2020, we have incurred losses of $64.7 million since our inception in 2000. For the nine months ended September 30, 2020, we incurred a net loss of $8.1 million and negative cash flows from operating activities of $6.2 million. We expect to continue to incur operating losses until such time as any future product sales, royalty payments, licensing fees, and/or milestone payments generate revenue sufficient to fund our continuing operations. For the foreseeable future, we expect to incur significant operating losses as we continue the development and clinical trials of, and to seek regulatory approval for, our DM199 product candidate. As of September 30, 2020, DiaMedica had cash and cash equivalents of $9.8 million, marketable securities of $20.8 million, working capital of $29.7 million and shareholders’ equity of $29.8 million. Our principal source of cash has been net proceeds from the issuance of equity securities. Although the Company has previously been successful in obtaining financing through equity securities offerings, there is no assurance that we will be able to do so in the future. This is particularly true if our clinical data is not positive or economic and market conditions deteriorate.
We expect that we will need substantial additional capital to further our research and development activities, complete the required clinical trials and regulatory activities and otherwise develop our product candidate, DM199, or any future product candidates, to a point where they may be commercially sold. We expect our current cash resources will be sufficient to allow us to complete all three cohorts in our REDUX Phase II study in patients with CKD and to otherwise fund our planned operations for at least the next twelve months from the date of issuance of these financial statements. 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. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.
3.
|
Summary of Significant Accounting Policies
|
Interim financial statements
We have prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations, consolidated statement of shareholders’ equity and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2019 was derived from our audited consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with our annual consolidated financial statements and the notes thereto. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.
Cash and cash equivalents
The Company considers all bank deposits, including money market funds, and other investments, purchased with an original maturity to the Company of three months or less, to be cash and cash equivalents. The carrying amount of our cash equivalents approximates fair value due to the short maturity of the investments.
Concentration of credit risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents. The Company believes that the credit risk related to marketable securities is limited due to the adherence to an investment policy focused on the preservation of principal.
Marketable securities
The Company’s marketable securities typically consist of obligations of the United States government and its agencies, investment grade corporate obligations and bank certificates of deposit, which are classified as available-for-sale and included in current assets as they are intended to fund current operations. Securities are valued based on market prices for similar assets using third party certified pricing sources. Available-for-sale securities are carried at fair value with unrealized gains and losses reported as a component of shareholders’ equity in accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization or accretion is included in interest income. Realized gains and losses, if any, are calculated on the specific identification method and are included in other income in the condensed consolidated statements of operations.
Available-for-sale securities are reviewed for possible impairment at least quarterly, or more frequently if circumstances arise that may indicate impairment. When the fair value of the securities declines below the amortized cost basis, impairment is indicated and it must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i) intends to sell the security, (ii) will more likely than not be forced to sell the security before recovering its cost, or (iii) does not expect to recover the security’s amortized cost basis. If the decline in fair value is considered other than temporary, the cost basis of the security is adjusted to its fair market value and the realized loss is reported in earnings. Subsequent increases or decreases in fair value are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss). There were no other-than-temporary unrealized losses as of September 30, 2020.
Fair value measurements
Under the authoritative guidance for fair value measurements, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The hierarchy is broken down into three levels defined as follows:
Level 1 Inputs — quoted prices in active markets for identical assets and liabilities
Level 2 Inputs — observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs — unobservable inputs
As of September 30, 2020, the Company believes that the carrying amounts of its other financial instruments, including amounts receivable, accounts payable and accrued liabilities, approximate their fair value due to the short-term maturities of these instruments. See Note 4, titled “Marketable Securities” for additional information.
The available-for-sale marketable securities are primarily comprised of investments in commercial paper, corporate bonds and government securities and consist of the following, measured at fair value on a recurring basis (in thousands):
|
|
Fair Value Measurements Using Inputs Considered as of:
|
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Government securities
|
|
$
|
12,827
|
|
|
$
|
—
|
|
|
$
|
12,827
|
|
|
$
|
—
|
|
|
$
|
1,998
|
|
|
$
|
—
|
|
|
$
|
1,998
|
|
|
$
|
—
|
|
Bank certificates of deposit
|
|
|
1,748
|
|
|
|
—
|
|
|
|
1,748
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial paper and corporate bonds
|
|
|
6,251
|
|
|
|
—
|
|
|
|
6,251
|
|
|
|
—
|
|
|
|
1,997
|
|
|
|
—
|
|
|
|
1,997
|
|
|
|
—
|
|
Total
|
|
$
|
20,826
|
|
|
$
|
—
|
|
|
$
|
20,826
|
|
|
$
|
—
|
|
|
$
|
3,995
|
|
|
$
|
—
|
|
|
$
|
3,995
|
|
|
$
|
—
|
|
Accrued interest receivable on available-for-sale securities is included in amounts receivable and was $38,000 and $25,000 as of September 30, 2020 and December 31, 2019, respectively.
There were no transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the nine months ended September 30, 2020.
Under the terms of the Company’s investment policy, purchases of marketable securities are limited to investment grade governmental and corporate obligations and bank certificates of deposit with a primary objective of principal preservation. Maturities of individual securities are less than one year and the amortized cost of all securities approximated fair value as of September 30, 2020 and December 31, 2019.
Amounts receivable consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Research and development incentives
|
|
$
|
289
|
|
|
$
|
793
|
|
Accrued interest
|
|
|
38
|
|
|
|
17
|
|
Sales-based taxes receivable
|
|
|
—
|
|
|
|
13
|
|
Other
|
|
|
8
|
|
|
|
—
|
|
Total amounts receivable
|
|
$
|
335
|
|
|
$
|
823
|
|
Deposits consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Advances to vendors - current
|
|
$
|
10
|
|
|
$
|
88
|
|
We periodically advance funds to vendors engaged to support the performance of our clinical trials and supporting activities. The funds advanced are held, interest free, for varying periods of time and may be recovered by DiaMedica through partial reductions of ongoing invoices, application against final study/project invoices or refunded upon completion of services to be provided. Deposits are classified as current or non-current based upon their expected recovery time.
7.
|
Property and Equipment
|
Property and equipment consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Furniture and equipment
|
|
$
|
51
|
|
|
$
|
51
|
|
Computer equipment
|
|
|
58
|
|
|
|
56
|
|
|
|
|
109
|
|
|
|
107
|
|
Less accumulated depreciation
|
|
|
(59
|
)
|
|
|
(43
|
)
|
Property and equipment, net
|
|
$
|
50
|
|
|
$
|
64
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Accrued compensation
|
|
$
|
340
|
|
|
$
|
419
|
|
Accrued clinical study costs
|
|
|
211
|
|
|
|
433
|
|
Accrued research and other professional fees
|
|
|
94
|
|
|
|
172
|
|
Accrued taxes and other liabilities
|
|
|
13
|
|
|
|
52
|
|
Total accrued liabilities
|
|
$
|
658
|
|
|
$
|
1,076
|
|
We lease certain office space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions. This lease terminates on August 31, 2022 and we do not have an option to renew. This lease does include both lease (e.g., fixed rent) and non-lease components (e.g., common-area and other maintenance costs). The non-lease components are deemed to be executory costs and are therefore excluded from the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-use asset.
This lease does not provide an implicit rate and, due to the lack of a commercially salable product, we are generally considered unable to obtain commercial credit. Therefore, we estimated our incremental borrowing rate to be 9%, considering the quoted rates for the lowest investment-grade debt and the interest rates implicit in recent financing leases. We used our estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments.
Our operating lease cost and variable lease costs were $49,000 and $40,000, respectively, for the nine months ended September 30, 2020. Variable lease costs consist primarily of common area maintenance costs, insurance and taxes which are paid based upon actual costs incurred by the lessor.
Maturities of our operating lease obligation are as follows as of September 30, 2020 (in thousands):
2020
|
|
$
|
17
|
|
2021
|
|
|
68
|
|
2022
|
|
|
46
|
|
Total lease payments
|
|
$
|
131
|
|
Less interest portion
|
|
|
(11
|
)
|
Present value of lease obligation
|
|
$
|
120
|
|
Authorized capital stock
The Company has authorized share capital of an unlimited number of voting common shares and the shares do not have a stated par value.
Common shareholders are entitled to receive dividends as declared by the Company, if any, and are entitled to one vote per share at the Company's annual general meeting and any special meeting.
Equity issued during the nine months ended September 30, 2020
On August 10, 2020, we issued and sold an aggregate 4,600,000 common shares in a public, underwritten offering at a public offering price of $5.00 per share. As a result of the offering, we received gross proceeds of $23.0 million, which resulted in net proceeds to us of approximately $21.2 million, after deducting the underwriting discount and offering expenses.
On February 13, 2020, we issued and sold an aggregate of 2,125,000 common shares in a public, underwritten offering at a public offering price of $4.00 per share. As a result of the offering, we received gross proceeds of $8.5 million, which resulted in net proceeds to us of approximately $7.7 million, after deducting the underwriting discount and offering expenses.
On September 11, 2020, we issued a warrant to purchase up to 10,000 common shares at an exercise price equal to $4.00 per share to Craig-Hallum Capital Group LLC in consideration for certain strategic advisory services. The warrant is exercisable until October 1, 2024, unless terminated earlier pursuant to the terms thereof.
During the nine months ended September 30, 2020, 7,200 common shares were issued on the exercise of options for gross proceeds of $16,000 and no warrants were exercised.
Equity issued during the nine months ended September 30, 2019
During the nine months ended September 30, 2019, 50,000 common shares were issued on the exercise of options for gross proceeds of $75,000 and no warrants were exercised.
Shares reserved
Common shares reserved for future issuance are as follows:
|
|
September 30, 2020
|
|
Stock options outstanding
|
|
|
1,395,399
|
|
Deferred share units outstanding
|
|
|
47,237
|
|
Shares available for grant under the DiaMedica Therapeutics Inc. Omnibus Incentive Plan
|
|
|
1,107,431
|
|
Common shares issuable under common share purchase warrants
|
|
|
265,000
|
|
Total
|
|
|
2,815,067
|
|
We compute net loss per share by dividing our net loss (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period, if any, are weighted for the portion of the period that they were outstanding. The computation of diluted earnings per share, or EPS, is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Our diluted EPS is the same as basic EPS due to common equivalent shares being excluded from the calculation, as their effect is anti-dilutive.
The following table summarizes our calculation of net loss per common share for the periods (in thousands, except share and per share data):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(3,193
|
)
|
|
$
|
(2,448
|
)
|
|
$
|
(8,092
|
)
|
|
$
|
(8,169
|
)
|
Weighted average shares outstanding—basic and diluted
|
|
|
16,689,074
|
|
|
|
12,006,874
|
|
|
|
14,652,749
|
|
|
|
11,981,233
|
|
Basic and diluted net loss per share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.68
|
)
|
The following outstanding potential common shares were not included in the diluted net loss per share calculations as their effects were not dilutive:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Employee and non-employee stock options
|
|
|
1,395,399
|
|
|
|
1,251,893
|
|
|
|
1,395,399
|
|
|
|
1,251,893
|
|
Common shares issuable under common share purchase warrants
|
|
|
265,000
|
|
|
|
807,563
|
|
|
|
265,000
|
|
|
|
807,563
|
|
Common shares issuable under deferred unit awards
|
|
|
47,237
|
|
|
|
21,183
|
|
|
|
47,237
|
|
|
|
21,183
|
|
12.
|
Share-Based Compensation
|
2019 Omnibus Incentive Plan
The DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan (2019 Plan) was adopted by the Board of Directors in March 2019 and approved by our shareholders at our annual general and special meeting of shareholders held on May 22, 2019. The 2019 Plan permits the Board, or a committee or subcommittee thereof, to grant to the Company’s eligible employees, non-employee directors and consultants non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards and other stock-based awards. We grant options to purchase common shares under the 2019 Plan at no less than the fair market value of the underlying common shares as of the date of grant. Options granted to employees and non-employee directors have a maximum term of ten years and generally vest in approximately equal quarterly installments over one to three years. Options granted to non-employees have a maximum term of five years and generally vest in approximately equal quarterly installments over one year. Subject to adjustment as provided in the 2019 Plan, the maximum number of the Company’s common shares authorized for issuance under the 2019 Plan is 2,000,000 shares. As of September 30, 2020, options to purchase 866,515 common shares were outstanding and there were 26,054 common shares reserved for deferred stock units (DSUs) outstanding under the 2019 Plan.
Prior stock option plan
The DiaMedica Therapeutics Inc. Stock Option Plan, Amended and Restated November 6, 2018 (Prior Plan), was terminated by the Board of Directors in conjunction with the shareholder approval of the 2019 Plan. Awards outstanding under the Prior Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the Prior Plan have terms similar to those used under the 2019 Plan. As of September 30, 2020, options to purchase 528,884 common shares were outstanding under the Prior Plan.
As the TSX Venture Exchange was the principal trading market for the Company’s common shares, all options granted prior to December 31, 2018 were priced in Canadian dollars. Options granted after December 31, 2018 have been priced in United States dollars.
Prior deferred share unit plan
The DiaMedica Therapeutics Inc. Amended and Restated Deferred Share Unit Plan (DSU Plan) was terminated by the Board of Directors in conjunction with the shareholder approval of the 2019 Plan. Awards outstanding under the DSU Plan remain outstanding in accordance with and pursuant to the terms thereof. As of September 30, 2020, there were 21,183 common shares reserved for DSUs outstanding under the DSU Plan.
The aggregate number of common shares reserved for issuance for awards granted under the 2019 Plan, the Prior Plan and the DSU Plan as of September 30, 2020 was 1,442,636.
Share-based compensation expense for each of the periods presented is as follows (in thousands):
|
|
Three Months Ended
September 30
|
|
|
Nine Months Ended
September 30
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
141
|
|
|
$
|
151
|
|
|
$
|
379
|
|
|
$
|
276
|
|
General and administrative
|
|
|
367
|
|
|
|
300
|
|
|
|
958
|
|
|
|
487
|
|
Total share-based compensation
|
|
$
|
508
|
|
|
$
|
451
|
|
|
$
|
1,337
|
|
|
$
|
763
|
|
We recognize share-based compensation based on the fair value of each award as estimated using the Black-Scholes option valuation model. Ultimately, the actual expense recognized over the vesting period will only be for those shares that actually vest.
A summary of option activity is as follows (in thousands except share and per share amounts):
|
|
Shares
Underlying
Options
Outstanding
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic Value
|
|
Balances at December 31, 2019
|
|
|
1,220,359
|
|
|
$
|
5.32
|
|
|
$
|
—
|
|
Granted
|
|
|
282,332
|
|
|
|
4.77
|
|
|
|
|
|
Exercised
|
|
|
(7,200
|
)
|
|
|
2.25
|
|
|
|
|
|
Expired/cancelled
|
|
|
(78,147
|
)
|
|
|
5.10
|
|
|
|
|
|
Forfeited
|
|
|
(21,945
|
)
|
|
|
—
|
|
|
|
|
|
Balances at September 30, 2020
|
|
|
1,395,399
|
|
|
$
|
5.24
|
|
|
$
|
301
|
|
Information about stock options outstanding, vested and expected to vest as of September 30, 2020, is as follows:
|
|
|
|
|
Outstanding, Vested and Expected to Vest
|
|
|
Options Vested and Exercisable
|
|
Per Share Exercise Price
|
|
Shares
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Options
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
$2.00
|
-
|
$2.99
|
|
|
|
125,700
|
|
|
|
5.3
|
|
|
$
|
2.28
|
|
|
|
125,700
|
|
|
|
5.2
|
|
$3.00
|
-
|
$3.99
|
|
|
|
97,905
|
|
|
|
6.2
|
|
|
|
3.88
|
|
|
|
97,905
|
|
|
|
6.2
|
|
$4.00
|
-
|
$4.99
|
|
|
|
932,744
|
|
|
|
8.7
|
|
|
|
4.56
|
|
|
|
483,716
|
|
|
|
8.4
|
|
$5.00
|
-
|
$10.00
|
|
|
|
188,900
|
|
|
|
7.0
|
|
|
|
7.84
|
|
|
|
130,280
|
|
|
|
7.2
|
|
$10.01
|
-
|
$34.00
|
|
|
|
50,150
|
|
|
|
2.1
|
|
|
|
18.16
|
|
|
|
50,150
|
|
|
|
2.1
|
|
|
|
|
|
|
|
1,395,399
|
|
|
|
7.8
|
|
|
$
|
5.24
|
|
|
|
887,751
|
|
|
|
7.2
|
|
13.
|
Related Party Transaction
|
During 2020, we have engaged a consulting firm owned by our Vice President of Regulatory Affairs to perform certain tasks supporting our quality and regulatory activities. The work is performed as required by us and all services are invoiced on an hourly basis with no minimum commitment. Total charges invoiced were approximately $90,000 and $137,000 for the three and nine-months ended September 30, 2020, and are recorded as research and development expenses, of which $11,000 is outstanding and included in accounts payable as of September 30, 2020.
14.
|
Commitments and Contingencies
|
Litigation funding agreement
On December 27, 2019, we entered into a litigation funding agreement with LEGALIST FUND II, L.P. (the Funder) for the purpose of funding our currently pending lawsuit against Pharmaceutical Research Associates Group B.V. Under the terms of the litigation funding agreement, the Funder agreed to pay up to an aggregate of $1.0 million to fund reasonable legal fees, court costs, and other expenses incurred by us in connection with the litigation. These payments, however, were conditioned upon the transfer of venue of the litigation from Delaware to Minnesota; and if the venue was not transferred, we were not entitled to receive any payments under the agreement. On September 21, 2020, the United States District Court, District of Delaware, issued a ruling denying our motion to transfer the litigation indicating that we had not met the required standards to support a venue transfer. As a result of this ruling, the litigation funding agreement is terminated.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
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 and nine months ended September 30, 2020 and 2019.
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, 2019, 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 the development of novel recombinant, or synthetic, 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 from novel recombinant proteins. Our current focus is on the treatment of 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 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:
REDUX Clinical Trial
In October 2019, the U.S. Food and Drug Administration (FDA) accepted our Phase II 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 of approximately 90 participants with mild or moderate CKD (Stage II or III) and albuminuria, who are being enrolled in three cohorts (30 participants per cohort). The study is being conducted in the United States at 14 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 (IgAN). Cohort III, which was added after the completion of our August 2020 public offering, is focused on participants with Type II diabetes mellitus with CKD, hypertension and albuminuria. The study will evaluate two dose levels of DM199 within each cohort. Study participants will 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 (eGFR) and albuminuria, as measured by the urinary albumin to creatinine ratio. Participant enrollment and dosing for this study commenced in December 2019.
As of October 30, 2020, we had enrolled 49 subjects, including 11 African American subjects into Cohort I, 13 subjects with IgAN into Cohort II and 25 subjects with Type II diabetes, hypertension and albuminuria into Cohort III of the REDUX study. Due to actions 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. We have added two additional study sites to increase the enrollment rates in these cohorts. The enrollment rate for Cohort III has been much more rapid, which is likely due to the large population of potential subjects. We anticipate that the COVID-19 pandemic will likely continue to adversely affect our ability to recruit or enroll subjects, and we cannot provide any assurance as to when clinical sites will be able to resume enrollment in Cohorts I and II at a normal rate or any guidance at this time as to when we will complete enrollment in the study. DiaMedica expects enrollment in Cohort III to complete by the end of the year with topline results available in the first half of 2021.
ReMEDy Clinical Trial
Enrollment in the ReMEDy study began in February 2018 and concluded in October 2019. We enrolled 92 participants to assess DM199 in the treatment of participants who experienced an AIS. The study drug (DM199 or placebo) was administered as an intravenous (IV) infusion within 24 hours of stroke symptom onset, followed by subcutaneous injections later that day and once every 3 days for 21 days. The study was designed to measure safety and tolerability along with multiple tests designed to investigate DM199’s therapeutic potential including plasma-based biomarkers and standard functional stroke measures assessed at 90 days post-stroke. Standard functional stroke measurements include the Modified Rankin Scale, National Institutes of Health Stroke Scale, the Barthel Index and C-reactive protein, a measure of inflammation. Positive top-line results, including the achievement of primary safety and tolerability endpoints and no DM199-related serious adverse events, were announced on May 13, 2020. In addition, there was also a demonstrated therapeutic effect in participants that received tissue plasminogen activator (tPA) prior to enrollment but not in participants receiving mechanical thrombectomy prior to enrollment according to top-line phase II results.
On October 5, 2020, we submitted a pre-IND meeting request to the FDA. We have requested an initial meeting with the FDA to review our proposed strategy and plan for conducting the safety/toxicology studies and human clinical trials required for approval of DM199 for the treatment of AIS.
From a strategic perspective, we continue to believe that strategic alternatives with respect to our DM199 product candidate, including licenses and business collaborations, with other regional and global pharmaceutical and biotechnology companies can be important in advancing the clinical development of DM199. Therefore, as a matter of course and from time to time, we engage in discussions with third parties regarding these matters.
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. Our net losses were $8.1 million and $8.2 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $64.7 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.
On August 10, 2020, we issued and sold an aggregate of 4,600,000 common shares in a public underwritten offering at a public offering price of $5.00 per share, receiving gross proceeds of $23.0 million and net proceeds of approximately $21.2 million, after deducting the underwriting discount and offering expenses.
We expect to continue to incur significant expenses and continuing operating losses in 2020, which we believe will be up slightly from 2019. Our expenses will increase further if we progress to advanced stages of clinical development over 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.
|
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 II study in patients with CKD and to otherwise fund our planned operations for at least the next twelve months from the date of issuance of these financial statements. 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. 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, however, expect to experience a significant overall increase in costs. We intend to continue to assess the effect of the pandemic on our REDUX trial 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 and professional fees for auditing, tax and legal services. We expect our G&A expenses will 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. During the third quarter of 2020 our office remained closed and our employees worked remotely. In addition, all non-essential travel remained 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 expenses during the third quarter of 2020 related to these changes, nor do we expect to incur significant additional 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 governmental assistance – research incentives, interest income and foreign currency exchange gains and losses.
Related Party Transactions
For a discussion of related party transactions, see Note 13 to the Company’s condensed consolidated financial statements included herein.
Results of Operations
Comparison of the Three and Nine Months ended September 30, 2020 and 2019
The following table summarizes our unaudited results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,180
|
|
|
$
|
1,617
|
|
|
$
|
5,190
|
|
|
$
|
6,098
|
|
General and administrative
|
|
|
1,139
|
|
|
|
1,044
|
|
|
|
3,241
|
|
|
|
2,725
|
|
Total other income, net
|
|
|
128
|
|
|
|
225
|
|
|
|
359
|
|
|
|
683
|
|
Research and Development Expenses
R&D expenses increased to $2.2 million for the three months ended September 30, 2020, up from $1.6 million for the three months ended September 30, 2019, an increase of $0.6 million, due primarily to costs incurred in connection with the REDUX Phase II CKD trial, including the launching of the third Cohort. R&D expenses decreased to $5.2 million for the nine months ended September 30, 2020, compared to $6.1 million for the nine months ended September 30, 2019, a decrease of $0.9 million. The decrease for the nine-month comparison was primarily due to non-recurring costs of approximately $1.3 million incurred for a new production run of the DM199 drug substance during the nine months ended September 30, 2019 and a net decrease in year-over-year clinical study costs. The decrease in clinical study costs was due to a combination of the decrease in costs incurred for the ReMEDy stroke study as it wound down and non-recurring costs of the Phase 1b CKD study which was started and completed in the prior year period. These decreases were partially offset by costs incurred for the REDUX Phase II CKD study initiated late in 2019, increased manufacturing development costs and increased non-cash share-based compensation costs.
General and Administrative Expenses
G&A expenses were $1.1 million for the three months ended September 30, 2020, up from $1.0 million for the three months ended September 30, 2019. G&A expenses increased to $3.2 million for the nine months ended September 30, 2020, up $0.5 million from $2.7 million for the nine months ended September 30, 2019. The increase for the nine-month comparison was primarily due to increased non-cash share-based compensation costs and increased professional service costs.
Total Other (Income) Expense
Total other income decreased to $128,000 for the three months ended September 30, 2020, down from $225,000 for the prior year period. Total other income decreased to $359,000 for the nine months ended September 30, 2020, compared to $683,000 for the nine months ended September 30, 2019. The decrease for the nine-month comparison is primarily related to reduced R&D incentives associated with decreased ReMEDy stroke study costs during the nine months ended September 30, 2020, partially offset by foreign currency transaction gains recognized in the current year.
Liquidity and Capital Resources
The following tables summarize our liquidity and capital resources as of September 30, 2020 and December 31, 2019, and our sources and uses of cash for each of the nine month periods ended September 30, 2020 and 2019, and is intended to supplement the more detailed discussion that follows (in thousands):
Liquidity and Capital Resources
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
30,623
|
|
|
$
|
7,878
|
|
Total assets
|
|
|
31,270
|
|
|
|
9,053
|
|
Total current liabilities
|
|
|
1,443
|
|
|
|
1,318
|
|
Total shareholders’ equity
|
|
|
29,758
|
|
|
|
7,617
|
|
Working capital
|
|
|
29,663
|
|
|
|
7,518
|
|
|
|
Nine Months Ended September 30,
|
|
Cash Flow Data
|
|
2020
|
|
|
2019
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(6,169
|
)
|
|
$
|
(7,237
|
)
|
Investing activities
|
|
|
(16,801
|
)
|
|
|
(4,916
|
)
|
Financing activities
|
|
|
28,884
|
|
|
|
71
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
5,914
|
|
|
$
|
(12,082
|
)
|
Working Capital
We had cash and cash equivalents of $9.8 million, marketable securities of $20.8 million, current liabilities of $1.4 million and working capital of $29.7 million as of September 30, 2020, compared to $3.9 million in cash and cash equivalents, marketable securities of $4.0 million, $1.3 million in current liabilities and $7.5 million in working capital as of December 31, 2019. The increases in our combined cash, cash equivalents and marketable securities and in our working capital are due primarily to our February and August 2020 public offerings.
On December 27, 2019, we entered into a litigation funding agreement with LEGALIST FUND II, L.P. (the Funder) for the purpose of funding our currently pending lawsuit against Pharmaceutical Research Associates Group B.V., which lawsuit is described in more detail under “Part II. Other Information – Item 1. Legal Proceedings.” Under the terms of the litigation funding agreement, the Funder agreed to pay up to an aggregate of $1.0 million to fund reasonable legal fees, court costs, and other expenses incurred by us in connection with the litigation. These payments, however, were conditioned upon the transfer of venue of the litigation from Delaware to Minnesota; and if the venue was not transferred, we were not entitled to receive any payments under the agreement. As described in more detail under “Part II. Other Information – Item 1. Legal Proceedings” of this report, on September 21, 2020, the United States District Court, District of Delaware, issued a ruling denying our motion to transfer the litigation indicating that we had not met the required standards to support a venue transfer. As a result of this ruling, the litigation funding agreement is terminated.
Cash Flows
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2020 was $6.2 million compared to $7.2 million for the nine months ended September 30, 2019. This decrease relates primarily to the combination of the decrease in the net loss and increase in non-cash share-based compensation.
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 $16.8 million for the nine months ended September 30, 2020 compared to $4.9 million for the nine months ended September 30, 2019. This increase was due to the investment of a portion of the net proceeds received in the August 2020 public offering, partially offset by an increase in the maturities of marketable securities during the current year period.
Financing Activities
Financing activities consist primarily of net proceeds from the sale of common shares in the current year period. Net cash provided by financing activities was $28.9 million for the nine months ended September 30, 2020 compared to $71,000 for the nine months ended September 30, 2019. This increase was due to our February and August 2020 public offerings.
On February 13, 2020, we issued and sold an aggregate of 2,125,000 common shares in a public, underwritten offering at a public offering price of $4.00 per share, resulting in net proceeds to us of approximately $7.7 million, after deducting the underwriting discount and offering expenses.
On August 10, 2020, we issued and sold an aggregate of 4,600,000 common shares in a public underwritten offering at a public offering price of $5.00 per share, receiving gross proceeds of $23.0 million and net proceeds of approximately $21.2 million, after deducting the underwriting discount and offering expenses.
Capital Requirements
Since our inception, we have incurred losses while advancing the development 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 be able to license and/or market and sell our DM199 product candidate or any future product candidates. We expect the development work required to obtain regulatory approval may take at least an additional three to five years. We will likely 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 continue in the near term and increase if we progress to advanced stages of clinical development and we seek regulatory approval for our DM199 product candidate. However, with the effects of the COVID-19 pandemic slowing the enrollment in our REDUX trial we expect our operating expenses for the year ended December 31, 2020 to be comparable to or slightly less than our operating expenses for the year ended December 31, 2019. 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.
We have experienced a delay and expect to continue to experience a delay in the timing of costs incurred in the REDUX trial as a result of the COVID-19 pandemic. We do not, however, expect to experience a significant overall increase in costs. We intend to continue to assess the effect of the pandemic on our REDUX trial by monitoring the spread of the COVID-19 virus and the actions implemented to combat the virus.
Accordingly, despite the completion of our recent public offerings, 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 that 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 II study in patients with CKD and to otherwise fund our planned operations for at least the next twelve months from the date of issuance of these financial statements. 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, 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 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 when needed, we may be required to scale back our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing the number of our employees or employee compensation, or implementing other cost reduction strategies; significantly modify or delay the development of our DM199 product candidate; license to third parties the rights to commercialize our DM199 product candidate for CKD, AIS or other indications that we would otherwise seek to pursue, or otherwise 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, 2019.