2020 Annual Report
To Our Friends and Shareholders,
As we look back on 2020, it was a very challenging year for all of us both professionally and personally.
The entire world was beset by the COVID-19 pandemic and we all had to make significant adjustments
and adapt to many new ways of living and working. Most everyone experienced losses as a result of
COVID-19 and we would like to take this opportunity to offer our sincere condolences to all of those who
lost friends and loved ones during this past year.
The challenges presented by COVID-19 last year were significant, which is why we are so proud of the
progress DiaMedica made over the year and why we are proud to present you with this overview of our
2020 performance.
Beginning with our acute ischemic stroke (AIS) program, in May 2020 we announced positive top-line
results in our ReMEDy Phase 2 study of DM199 in AIS subjects. The study was completed in January
2020, and we were able to complete the collection, verification and analysis of the ReMEDy data without
much adverse impact from the COVID-19 pandemic. The preliminary top-line results showed that in
addition to meeting the primary safety and tolerability end points of the study, ReMEDy demonstrated a
14% (N=91) statistically significant reduction in the number of participants with severe recurrent stroke
in the active treatment group: one (2%) patient treated with DM199 vs. seven (16%) on placebo
(p=0.028), with four of the seven recurrent strokes in the placebo group resulting in participant death
(p=0.28). It was further observed that in participants treated with DM199 (n=25) vs. standard of care
supportive therapies and/or tissue plasminogen activator (tPA) (n=21), 36% of participants receiving
DM199 progressed to a full or nearly full recovery at 90 days (National Institutes of Health Stroke Scale
(NIHSS): 0-1). This compares to 14% of participants in the placebo group and represents a 22% absolute
increase in the proportion of participants achieving a full or nearly full recovery. This subset of
participants (n=46), who did not receive mechanical thrombectomy, aligns closely with the target
treatment population for DM199 in our proposed ReMEDy II Phase 2/3 study. Based upon these results,
we are extremely excited about the potential for DM199 to achieve the endpoints of the ReMEDy II
Phase 2/3 study and ultimately provide meaningful improvement to the lives of patients suffering from
AIS.
With the results of the ReMEDy Phase 2 study in hand, we requested a Type B Pre-IND meeting with the
FDA to discuss our development plan for studying DM199 in the treatment of AIS. In their written
responses to questions we submitted in October 2020, we believe the FDA provided us with a well-
defined regulatory pathway, which informed the development of our recently submitted investigational
new drug (IND) application for a Phase 2/3 study of DM199 in AIS. We proposed that the study be a
double blinded, placebo controlled, randomized study of approximately 350 participants. The study size is
based on a 90% powering for statistical significance on the primary endpoint of modified Rankin Score
(mRS) at day 90. The study also includes an adaptive design, which provides for an independent interim
analysis to determine whether DM199 is having a positive effect consistent with our statistical analysis
plan assumptions and allows for adjustment in the number of patients if necessary. Our proposed
secondary endpoints include stroke recurrence, mRS shift, NIHSS and Barthel Index scores, deaths,
safety and tolerability measures and certain biomarkers relating to KLK1. We also plan to discuss with
the FDA the addition of a sub-study for proof of efficacy in reducing stroke recurrence based upon the
statistically significant reduction in severe recurrent strokes observed in the ReMEDy Phase 2 AIS trial.
We expect to initiate enrollment in this study later this summer.
Turning to our chronic kidney disease program (CKD), our REDUX Phase 2 study of DM199 was
impacted by the COVID-19 pandemic. Throughout 2020, we experienced slower than expected
enrollment in the first two cohorts in the study, non-diabetic African American subjects with hypertension
and subjects suffering from IgA nephropathy. Note that individuals eligible for these first two cohorts
were/are considered to be in the group of individuals “at-risk” from COVID-19.
In August of last year, we added a third cohort to this trial focused on diabetic kidney disease (DKD),
specifically participants with Type II diabetes mellitus, hypertension and albuminuria. This cohort was
added based upon the analysis of additional data from our ReMEDy Phase 2 AIS study, in which we
observed significantly improved blood flow through the kidneys as measured by the estimated glomerular
flow rates. The enrollment rate for this cohort was much more rapid and was completed in December
2020 due to the much larger population of potential subjects.
With the significant declines in new COVID-19 cases and the anticipated availability and effectiveness of
vaccines, we now anticipate the completion of the first two cohorts in the second half of 2021. We look
forward to sharing preliminary top-line results from the DKD Cohort during the second quarter of 2021.
During 2020 we completed two successful underwritten public offerings of our common shares raising
total gross proceeds of $31.5 million. We were pleased that the price per share in the August offering was
25% higher than the February offering. These financings provided much needed balance sheet strength,
allowing us to complete the REDUX study, initiate the Phase 2/3 ReMEDy 2 study, and be more selective
with our future financing and business development opportunities.
Turning to 2021, we have multiple milestones centered around the initiation of our ReMEDy 2 Phase 2/3
study and the completion of our REDUX Phase 2 study. As our experience builds with the clinical use of
DM199, we are truly excited about our opportunity to positively impact the lives of individuals suffering
from AIS and CKD. We look forward to reporting on the progress of DM199 as we move forward with
our programs. We are grateful for your commitment and continued belief in DiaMedica Therapeutics’
ability to deliver value for our investors and innovative protein replacement therapy to patients in need.
Best regards,
Rick Pauls
President and Chief Executive Officer
Richard Pilnik
Chairman of the Board
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
July 15, 2021
The Annual General Meeting of Shareholders of DiaMedica Therapeutics Inc., a corporation existing
under the laws of British Columbia, will be held at our corporate offices located at Two Carlson Parkway,
Suite 260, Minneapolis, Minnesota 55447, USA, beginning at 2:30 p.m., Central Daylight Savings Time,
on Thursday, July 15, 2021, for the following purposes:
1.
2.
3.
4.
To receive the audited consolidated financial statements of DiaMedica Therapeutics Inc. for the
financial year ended December 31, 2020 and accompanying report of the independent registered
public accounting firm (for discussion only).
To elect six persons to serve as directors until our next annual general meeting of shareholders or
until their respective successors are elected and qualified (Voting Proposal One).
To consider a proposal to appoint Baker Tilly US, LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2021 and to authorize the Board of
Directors to fix our independent registered public accounting firm’s remuneration (Voting
Proposal Two).
To transact such other business as may properly come before the meeting or any adjournment of
the meeting.
Only those shareholders of record at the close of business on May 27, 2021 will be entitled to notice of,
and to vote at, the meeting and any adjournments thereof. A shareholder list will be available at our
corporate offices beginning June 4, 2021 during normal business hours for examination by any
shareholder registered on our common share ledger as of the record date, May 27, 2021, for any purpose
germane to the meeting.
By Order of the Board of Directors,
Scott Kellen
Corporate Secretary
June 4, 2021
Minneapolis, Minnesota
Important: Whether or not you expect to attend the meeting in person, please vote by the Internet or
telephone, or request a paper proxy card to sign, date and return by mail so that your shares may be voted.
A prompt response is helpful and your cooperation is appreciated.
* As part of our precautions regarding the COVID-19 pandemic, we are planning for the possibility that the Annual
General Meeting may be held at a different venue or solely by means of virtual communication. If we take this step, we
will publicly announce the decision to do so in advance, and details on how to participate will be posted on our website at
https://www.diamedica.com and filed with the SEC as additional proxy materials. If we hold the Annual General Meeting
in person, we plan to impose social distancing, non-stockholder attendance limitations and other safety protocols if
required in accordance with federal, state and local guidance.
TABLE OF CONTENTS
________________
Page
PROXY STATEMENT SUMMARY ........................................................................................................... 1
GENERAL INFORMATION ABOUT THE ANNUAL GENERAL MEETING AND VOTING ............. 1
Date, Time, Place and Purposes of Meeting .................................................................................... 1
Who Can Vote ................................................................................................................................. 1
How You Can Vote .......................................................................................................................... 1
How Does the Board of Directors Recommend that You Vote ....................................................... 3
How You May Change Your Vote or Revoke Your Proxy ............................................................. 3
Quorum Requirement....................................................................................................................... 3
Vote Required .................................................................................................................................. 3
Appointment of Proxyholders .......................................................................................................... 4
Other Business ................................................................................................................................. 4
Procedures at the Meeting ................................................................................................................ 4
Householding of Meeting Materials ................................................................................................ 5
Proxy Solicitation Costs ................................................................................................................... 5
VOTING PROPOSAL ONE—ELECTION OF DIRECTORS .................................................................... 6
Board Size and Structure ................................................................................................................. 6
Information about Current Directors and Board Nominees ............................................................. 6
Additional Information about Current Directors and Board Nominees ........................................... 6
Penalties or Sanctions ...................................................................................................................... 9
Corporate Cease Trade Orders or Bankruptcies .............................................................................. 9
Board Recommendation................................................................................................................. 10
VOTING PROPOSAL TWO—APPOINTMENT OF BAKER TILLY US, LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND AUTHORIZATION TO FIX
REMUNERATION ..................................................................................................................................... 11
Appointment of Independent Registered Public Accounting Firm ................................................ 11
Authorization to Board of Directors to Fix Remuneration ............................................................ 11
Audit, Audit-Related, Tax and Other Fees .................................................................................... 11
Audit Committee Pre-Approval Policies and Procedures .............................................................. 12
Board Recommendation................................................................................................................. 12
STOCK OWNERSHIP ............................................................................................................................... 13
Security Ownership of Significant Beneficial Owners .................................................................. 13
Security Ownership of Management ............................................................................................. 14
CORPORATE GOVERNANCE ................................................................................................................ 16
Management by Board of Directors ............................................................................................... 16
Corporate Governance Guidelines ................................................................................................. 16
Board Leadership Structure ........................................................................................................... 17
Director Independence ................................................................................................................... 18
Board Committees ......................................................................................................................... 18
Audit Committee ............................................................................................................................ 18
Compensation Committee .............................................................................................................. 20
i
Nominating and Corporate Governance Committee ...................................................................... 21
Director Qualifications and the Nomination Process ..................................................................... 22
Board Diversity .............................................................................................................................. 23
Role of Board in Risk Oversight Process....................................................................................... 24
Code of Business Conduct and Ethics ........................................................................................... 24
Board and Committee Meetings and Attendance .......................................................................... 25
Policy Regarding Director Attendance at Annual General Meetings of Shareholders .................. 25
Complaint Procedures .................................................................................................................... 25
Process Regarding Shareholder Communications with Board of Directors .................................. 25
DIRECTOR COMPENSATION ................................................................................................................ 26
Non-Employee Director Compensation Program .......................................................................... 26
Director Compensation Table ........................................................................................................ 28
Indemnification .............................................................................................................................. 29
EXECUTIVE COMPENSATION .............................................................................................................. 30
Executive Compensation Overview ............................................................................................... 30
Summary Compensation Table ...................................................................................................... 37
Outstanding Equity Awards at Fiscal Year-End ............................................................................ 38
Employee Benefit and Stock Plans ................................................................................................ 39
Anti-Hedging and Pledging Policy ................................................................................................ 41
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS ......................................................... 43
Introduction .................................................................................................................................... 43
Description of Related Party Transactions ..................................................................................... 43
Policies and Procedures for Related Party Transactions ................................................................ 44
SHAREHOLDER PROPOSALS FOR 2022 ANNUAL GENERAL MEETING OF
SHAREHOLDERS ..................................................................................................................................... 45
COPIES OF FISCAL 2020 ANNUAL REPORT AND ADDITIONAL INFORMATION ...................... 45
________________
DiaMedica Therapeutics Inc. is sometimes referred to as “DiaMedica,” “we,” “our” or “us” in this proxy
statement.
The Annual General Meeting of Shareholders to be held on July 15, 2021 is sometimes referred to as the
“Annual General Meeting” or “meeting” in this proxy statement.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended, is
sometimes referred to as our “Annual Report to Shareholders” or “2020 Annual Report” in this proxy
statement.
Our voting common shares, no par value, are sometimes referred to as our “common shares” or “shares”
in this proxy statement.
All dollar amounts in this proxy statement are expressed in United States currency unless otherwise noted.
ii
PROXY STATEMENT SUMMARY
________________
This summary provides an overview of the information included in this proxy statement. We recommend
that you review the entire proxy statement and our Annual Report to Shareholders before voting.
2021 ANNUAL GENERAL MEETING OF SHAREHOLDERS
DATE AND TIME
Thursday, July 15, 2021
2:30 p.m. (CDT)
LOCATION*
DiaMedica Therapeutics Inc.
Two Carlson Parkway, Suite 260
Minneapolis, MN 55447
Voting Item
Voting Proposal No. 1:
Election of Directors
Voting Proposal No. 2:
Appointment of Independent
Registered Public Accounting
Firm and Authorization to Fix
Remuneration
Board’s Vote
Recommendation
FOR
Page
6
FOR
11
RECORD DATE
May 27, 2021
Holders of record of our common shares at the close of business on May 27, 2021
are entitled to notice of, to attend, and to vote at the 2021 Annual General Meeting.
* As part of our precautions regarding the COVID-19 pandemic, we are planning for the possibility that the Annual
General Meeting may be held at a different venue or solely by means of virtual communication. If we take this step, we
will publicly announce the decision to do so in advance, and details on how to participate will be posted on our website at
https://www.diamedica.com and filed with the SEC as additional proxy materials. If we hold the Annual General Meeting
in person, we plan to impose social distancing, non-stockholder attendance limitations and other safety protocols if
required in accordance with federal, state and local guidance.
INTERNET AVAILABILITY OF PROXY MATERIALS
Instead of mailing a printed copy of our proxy materials, including our Annual Report to Shareholders, to
each shareholder of record, we have provided access to these materials in a fast and efficient manner via
the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the costs
of our meeting and reduces the environmental impact of our meeting. On or about June 4, 2021, we
expect to begin mailing a Notice of Internet Availability of Proxy Materials to shareholders of record as
of May 27, 2021 and post our proxy materials on the website referenced in the Notice of Internet
Availability of Proxy Materials (www.proxyvote.com). As more fully described in the Notice of Internet
Availability of Proxy Materials, shareholders may choose to access our proxy materials at
www.proxyvote.com or may request proxy materials in printed or electronic form. In addition, the Notice
of Internet Availability of Proxy Materials and website provide information regarding how you may
request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
For those who previously requested printed proxy materials or electronic materials on an ongoing basis,
you will receive those materials as you previously requested.
Important Notice Regarding the Availability of Proxy Materials
for the Annual General Meeting of Shareholders to be Held on July 15, 2021:
The Notice of Annual General Meeting of Shareholders and Proxy Statement and
Annual Report to Shareholders, including our Annual Report on Form 10-K
for the fiscal year ended December 31, 2020, as amended, are available at www.proxyvote.com.
1
2020 BUSINESS HIGHLIGHTS
Below are highlights of our clinical and financial achievements during 2020.
Clinical – Acute Ischemic Stroke
Well-Defined Pathway for Acute
Ischemic Stroke (AIS)
Positive Results in ReMEDy
Phase 2 Study
Clinical – Chronic Kidney Disease
REDUX Phase II Study
Commenced – Chronic Kidney
Disease (CKD)
Financial
Improved Financial Position
We received written responses from the U.S. Food and Drug
Administration (FDA) following a Type-B Pre-IND meeting
request regarding our development plan for DM199 in the
treatment of AIS. We believe that this feedback provides a
well-defined regulatory pathway and we prepared an
Investigational New Drug (IND) application to initiate a Phase
2/3 adaptive trial for the treatment of AIS with the objective of
commencing participant enrollment in the summer of 2021. This
IND was subsequently accepted by the FDA in May 2021.
Top-line data from the ReMEDy Phase 2 study in AIS showed
that DM199 met primary safety and tolerability endpoints.
DM199 also demonstrated a statistically significant reduction in
the number of participants with severe recurrent strokes.
Additionally, in a subset of participants most closely aligned
with the target treatment population for DM199 in our proposed
ReMEDy II Phase 2/3 study, those subjects not receiving a
mechanical thrombectomy, which is indicative of a large vessel
occlusion, prior to enrollment, DM199 demonstrated a clinically
significant increase in physical recoveries in which 36% of
subjects receiving DM199 achieved a full or nearly full recovery
at 90 days, compared to 14% in the placebo group. Deaths in the
DM199 group were 12% compared to 24% in the placebo group.
We believe the combination of improvement in recoveries and
reduction in recurrent strokes creates an encouraging signal for
the potential benefit of DM199 to AIS patients.
In December 2019, we began dosing patients in our Phase 2
REDUX study, which is a multi-center, open-label, investigation
to assess the safety and efficacy of multiple doses of DM199,
administered over 90 days, in participants with CKD (Stage 2 or
3) enrolling approximately 90 participants in three equal
cohorts. Cohort 1 of the study is focused on non-diabetic,
African Americans with hypertension, a group that is at greater
risk for CKD than Caucasians. Cohort 2 of the study is focused
on participants with IgA Nephropathy (IgAN) and Cohort 3
includes participants with diabetic kidney disease. Cohort 3
completed enrollment in December 2020.
We significantly improved our financial position during 2020,
with a cash, cash equivalent and short-term investments of $27.5
million as of December 31, 2020 compared to $7.9 million as of
December 31, 2019, due primarily to two underwritten public
offerings completed in August and February 2020.
2
CORPORATE GOVERNANCE HIGHLIGHTS
Annual election of directors
Majority of independent directors
Independent Board Chairman
Three fully independent Board committees Independent compensation consultant
Corporate governance guidelines
Annual review of governance documents
Regular executive sessions
No conflicts of interest
Access to independent advisors
No guaranteed bonuses
No perquisites
BOARD OF DIRECTORS NOMINEES
Below are the director nominees for election by shareholders at the 2021 Annual General Meeting of
Shareholders for a one-year term. All director nominees listed below served during the fiscal year ended
December 31, 2020, except for Ms. Burroughs and Dr. Semba.
Director
Richard Pilnik
Michael Giuffre, M.D.
James Parsons
Rick Pauls
Amy Burroughs
Charles Semba, M.D.
Age
64
65
55
49
51
61
Serving Since
2009
2010
2015
2010
N/A
N/A
Independent
Yes
Yes
Yes
No
Yes
Yes
The Board of Directors recommends a vote “FOR” each of these six nominees.
BOARD COMMITTEE COMPOSITION
The Board of Directors maintains a standing Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee.
Below are our current directors and their Board committee memberships.
Director
Richard Pilnik
Michael Giuffre, M.D.
James Parsons
Rick Pauls
Audit
Committee
●
●
●
Compensation
Committee
●
●
●
Nominating and
Corporate Governance
Committee
●
●
●
Independent
Director
(Y/N)
Y
Y
Y
N
It is anticipated that the Board of Directors will determine which Board committees Ms. Burroughs and
Dr. Semba will join after their election to the Board at the Annual General Meeting.
KEY QUALIFICATIONS
The following are some key qualifications, skills, and experiences of our Board of Directors.
Leadership/Management
Prior Board Experience
Financial Expertise
Regulatory Expertise
Business Development Experience
Biopharmaceutical Industry Expertise
3
EXECUTIVE COMPENSATION BEST PRACTICES
Our compensation practices include many best practices that support our executive compensation
objectives and principles and benefit our shareholders.
What We Do:
Emphasize pay for performance
Structure our executive compensation so a
What We Don’t Do:
No guaranteed salary increases or bonuses
No repricing of stock options unless approved
significant portion of pay is at risk
by shareholders
Structure our executive compensation so a
No pledging or hedging of DiaMedica
significant portion is paid in equity
Maintain competitive pay packages
securities
No perquisites
HOW WE PAY
Our executive compensation program consists of the following principal elements which are described in
more detail below under “Executive Compensation—Executive Compensation Overview—Elements of
Our Executive Compensation Program”:
Base salary – a fixed amount, paid in cash and reviewed annually and, if appropriate, adjusted.
Short-term incentive – a variable, short-term element that is payable in cash and is based on annual
corporate performance objectives and individual performance objectives.
Long-term incentive – a variable, long-term element that is provided in stock options.
2020 EXECUTIVE COMPENSATION ACTIONS
2020 compensation actions and incentive plan outcomes based on performance are summarized below:
Element
Base Salary
Short-Term Incentive
Long-Term Incentive
Other Compensation
Our named executive officers received increases of 3% over their
respective 2019 base salaries.
Key 2020 Actions
Our named executive officers received short-term incentive cash payments
equal to 95% of their respective target bonus opportunities based on the
achievement of corporate performance and individual performance
objectives. In determining achievement, the Compensation Committee
took into consideration the COVID-19 pandemic and its effect on our
business and management’s response to the pandemic, especially with
respect to the continuation of our clinical trials.
Our named executive officers received stock option awards, which vest
quarterly over three years.
No changes were made to other components of our executive
compensation program.
4
Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447
____________________________________
PROXY STATEMENT FOR
ANNUAL GENERAL MEETING OF SHAREHOLDERS
July 15, 2021
____________________________________
The Board of Directors of DiaMedica Therapeutics Inc. is soliciting your proxy for use at the 2021
Annual General Meeting of Shareholders to be held on Thursday, July 15, 2021. The Board of Directors
expects to make available to our shareholders beginning on or about June 4, 2021 the Notice of Annual
General Meeting of Shareholders, this proxy statement and a form of proxy on the Internet or has sent
these materials to shareholders of DiaMedica upon their request.
GENERAL INFORMATION ABOUT THE ANNUAL GENERAL MEETING AND VOTING
________________
Date, Time, Place and Purposes of Meeting
The Annual General Meeting of Shareholders of DiaMedica Therapeutics Inc. will be held on Thursday,
July 15, 2021, at 2:30 p.m., Central Daylight Savings Time, at our corporate offices located at Two
Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447, USA, for the purposes set forth in the
Notice of Annual General Meeting of Shareholders.
As part of our precautions regarding the COVID-19 pandemic, we are planning for the possibility that the
Annual General Meeting may be held at a different venue or solely by means of virtual communication.
If we take this step, we will publicly announce the decision to do so in advance, and details on how to
participate will be posted on our website at https://www.diamedica.com and filed with the Securities and
Exchange Commission (SEC) as additional proxy materials. If we hold the Annual General Meeting in
person, we plan to impose social distancing, non-stockholder attendance limitations and other safety
protocols if required in accordance with federal, state and local guidance.
Who Can Vote
Shareholders of record at the close of business on May 27, 2021 will be entitled to notice of and to vote at
the Annual General Meeting or any adjournment thereof. As of that date, there were 18,786,157 common
shares outstanding. Each common share is entitled to one vote on each matter to be voted on at the
Annual General Meeting. Shareholders are not entitled to cumulate voting rights.
How You Can Vote
Your vote is important. Whether you hold shares directly as a shareholder of record or beneficially in
“street name” (through a broker, bank or other nominee), you may vote your shares without attending the
meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting
instructions to your broker, bank or other nominee.
1
If you are a registered shareholder whose shares are registered in your name, you may vote your shares in
person at the meeting or by one of the three following methods:
Vote by Internet, by going to the website address http://www.proxyvote.com and following the
instructions for Internet voting shown on the Notice of Internet Availability of Proxy Materials or
on your proxy card.
Vote by Telephone, by dialing 1-800-690-6903 and following the instructions for telephone
voting shown on the Notice of Internet Availability of Proxy Materials or on your proxy card.
Vote by Proxy Card, by completing, signing, dating and mailing the enclosed proxy card in the
envelope provided if you received a paper copy of these proxy materials.
If you vote by Internet or telephone, please do not mail your proxy card.
If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a
separate voting instruction form with this proxy statement or you may need to contact your broker, bank
or other nominee to determine whether you will be able to vote electronically using the Internet or
telephone.
The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Daylight Savings
Time (10:59 p.m., Central Daylight Savings Time), on July 14, 2021, the day before the meeting. Please
see the Notice of Internet Availability of Proxy Materials, your proxy card or the information your bank,
broker or other nominee provided to you for more information on your options for voting.
If you return your signed proxy card or use Internet or telephone voting before the meeting, the named
proxies will vote your shares as you direct. You have multiple choices on each matter to be voted on as
follows:
For Voting Proposal One—Election of Directors, you may:
Vote FOR all six nominees for director or
WITHHOLD your vote from one or more of the six nominees for director.
For Voting Proposal Two—Appointment of Baker Tilly US, LLP as our Independent Registered Public
Accounting Firm and Authorization to Fix Remuneration, you may:
Vote FOR the proposal,
WITHHOLD your vote from the proposal or
ABSTAIN from voting on the proposal.
If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to
vote your shares, the proxies will vote your shares FOR all six of the nominees for election to the Board
of Directors in Voting Proposal One—Election of Directors and FOR Voting Proposal Two—
Appointment of Baker Tilly US, LLP as our Independent Registered Public Accounting Firm and
Authorization to Fix Remuneration.
2
How Does the Board of Directors Recommend that You Vote
The Board of Directors unanimously recommends that you vote:
FOR all six of the nominees for election to the Board of Directors in Voting Proposal One—
Election of Directors; and
FOR Voting Proposal Two—Appointment of Baker Tilly US, LLP as our Independent
Registered Public Accounting Firm and Authorization to Fix Remuneration.
How You May Change Your Vote or Revoke Your Proxy
If you are a shareholder whose shares are registered in your name, you may revoke your proxy at any time
before it is voted by one of the following methods:
Submitting another proper proxy with a more recent date than that of the proxy first given by
following the Internet or telephone voting instructions or completing, signing, dating and
returning a proxy card to us;
Sending written notice of your revocation to our Corporate Secretary; or
Attending the meeting and voting by ballot.
Quorum Requirement
The quorum for the transaction of business at the meeting is any number of shareholders who, in the
aggregate, hold at least 33 and 1/3% of our issued common shares entitled to be voted at the meeting or
6,262,053 common shares. In general, our common shares represented by proxies marked “For,”
“Abstain” or “Withheld” are counted in determining whether a quorum is present. In addition, a “broker
non-vote” is counted in determining whether a quorum is present. A “broker non-vote” is a proxy
returned by a broker on behalf of its beneficial owner customer that is not voted on a particular matter
because voting instructions have not been received by the broker from the customer and the broker has no
discretionary authority to vote on behalf of such customer on such matter.
Vote Required
If your shares are held in “street name” and you do not indicate how you wish to vote, your broker is
permitted to exercise its discretion to vote your shares only on certain “routine” matters.
Voting Proposal One—Election of Directors is not a “routine” matter. Accordingly, if you do not direct
your broker how to vote, your broker may not exercise discretion and may not vote your shares on this
proposal. This is called a “broker non-vote” and although your shares will be considered to be
represented by proxy at the meeting, they will not be considered to be “votes cast” at the meeting and will
not be counted as having been voted on the proposal.
Voting Proposal Two—Appointment of Baker Tilly US, LLP as our Independent Registered Public
Accounting Firm and Authorization to Fix Remuneration is a “routine” matter and, as such, your broker is
permitted to exercise its discretion to vote your shares for or withhold your vote from the proposal in the
absence of your instruction.
3
The table below indicates the vote required for each voting proposal and the effect of any votes withheld,
abstentions and broker non-votes.
Effect of
Votes Withheld
Votes withheld
will have no
effect.
Effect of
Abstentions
Abstentions will have
no effect.
Votes withheld
will have no
effect.
Abstentions will have
no effect.
Effect of
Broker Non-
Votes
Broker non-
votes will
have no
effect.
We do not
expect any
broker non-
votes on this
proposal.
Votes Required
Affirmative vote
of a majority of
votes cast on the
voting proposal.
Affirmative vote
of a majority of
votes cast on the
voting proposal.
Voting Proposal
Voting Proposal
One: Election of
Directors
Voting Proposal
Two: Appointment
of Independent
Registered Public
Accounting Firm
and Authorization to
Fix Remuneration
Appointment of Proxyholders
The persons named in the accompanying proxy card are officers of DiaMedica.
A shareholder has the right to appoint a person or company to attend and act for the shareholder
and on that shareholder’s behalf at the meeting other than the persons designated in the enclosed
proxy card. A shareholder wishing to exercise this right should strike out the names now
designated in the enclosed proxy card and insert the name of the desired person or company in the
blank space provided. The desired person need not be a shareholder of DiaMedica.
Only a registered shareholder at the close of business on May 27, 2021 will be entitled to vote, or grant
proxies to vote, his, her or its common shares, as applicable, at the meeting.
If your common shares are registered in your name, then you are a registered shareholder. However, if,
like most shareholders, you keep your common shares in a brokerage account, then you are a beneficial
shareholder. The process for voting is different for registered shareholders and beneficial shareholders.
Registered shareholders and beneficial shareholders should carefully read the instructions herein if they
wish to vote their common shares at the meeting.
Other Business
Our management does not intend to present other items of business and knows of no items of business
that are likely to be brought before the meeting, except those described in this proxy statement. However,
if any other matters should properly come before the meeting, the persons named on the proxy card will
have discretionary authority to vote such proxy in accordance with their best judgment on the matters.
Procedures at the Meeting
The presiding officer at the meeting will determine how business at the meeting will be conducted. Only
matters brought before the meeting in accordance with our Articles will be considered.
Only a natural person present at the meeting who is either one of our shareholders, or is acting on behalf
of one of our shareholders, may make a motion or second a motion. A person acting on behalf of a
4
shareholder must present a written statement executed by the shareholder or the duly-authorized
representative of the shareholder on whose behalf the person purports to act.
Householding of Meeting Materials
Some banks, brokers and other nominee record holders may be participating in the practice of
“householding” proxy statements, annual reports and the Notice of Internet Availability of Proxy
Materials. This means that only one copy of this proxy statement, our Annual Report to Shareholders or
the Notice of Internet Availability of Proxy Materials may have been sent to each household even though
multiple shareholders are present in the household, unless contrary instructions have been received. We
will promptly deliver a separate copy of any of these documents to any shareholder upon written or oral
request to Corporate Secretary, DiaMedica Therapeutics Inc., Two Carlson Parkway, Suite 260,
Minneapolis, Minnesota 55447, telephone: (763) 312-6755. Any shareholder who wants to receive
separate copies of this proxy statement, our Annual Report to Shareholders or the Notice of Internet
Availability of Proxy Materials in the future, or any shareholder who is receiving multiple copies and
would like to receive only one copy per household, should contact the shareholder’s bank, broker or other
nominee record holder, or the shareholder may contact us at the above address and telephone number.
Proxy Solicitation Costs
The cost of soliciting proxies, including the preparation, assembly, electronic availability and mailing of
proxies and soliciting material, as well as the cost of making available or forwarding this material to the
beneficial owners of our common shares will be borne by DiaMedica. Our directors, officers and regular
employees may, without compensation other than their regular compensation, solicit proxies by
telephone, e-mail, facsimile or personal conversation. We may reimburse brokerage firms and others for
expenses in making available or forwarding solicitation materials to the beneficial owners of our common
shares.
5
VOTING PROPOSAL ONE—ELECTION OF DIRECTORS
________________
Board Size and Structure
Our Articles provide that the Board of Directors will consist of at least three members. The Board of
Directors has fixed the number of directors at six, effective as of the date of the Annual General Meeting.
The Board of Directors currently consists of four directors.
Information about Current Directors and Board Nominees
The Board of Directors has nominated the following six individuals to serve as our directors until the next
annual general meeting of shareholders or until their respective successors are elected and qualified. All
of the nominees named below are current members of the Board of Directors, except for Ms. Burroughs
and Dr. Semba.
The following table sets forth as of May 27, 2021 the name, age and position of each current director and
each individual who has been nominated by the Board of Directors to serve as a director of our company:
Name
Richard Pilnik(1)(2)(3)(4)..................
Michael Giuffre, M.D.(1)(2)(3)(4) ....
James Parsons(1)(2)(3)(4)..................
Rick Pauls ...................................
Amy Burroughs(1) ........................
Charles Semba, M.D.(1) ...............
Age
64
65
55
49
51
61
Position
Chairman of the Board
Director
Director
President and Chief Executive Officer, Director
Director Nominee
Director Nominee
(1) Current or Anticipated Independent Director
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating and Corporate Governance Committee
The principal occupations and recent employment history of each of our directors and director nominees
are set forth below.
Additional Information about Current Directors and Board Nominees
The following paragraphs provide information about each current director and nominee for director,
including all positions held, principal occupation and business experience for the past five years, and the
names of other publicly-held companies of which the director or nominee currently serves as a director or
has served as a director during the past five years. We believe that all of our directors and nominees
display personal and professional integrity; satisfactory levels of education and/or business experience;
broad-based business acumen; an appropriate level of understanding of our business and its industry and
other industries relevant to our business; the ability and willingness to devote adequate time to the work
of the Board of Directors and its committees; a fit of skills and personality with those of our other
directors that helps build a board that is effective, collegial and responsive to the needs of our company;
strategic thinking and a willingness to share ideas; a diversity of experiences, expertise and background;
and the ability to represent the interests of all of our shareholders. The information presented below
regarding each director and nominee also sets forth specific experience, qualifications, attributes and
skills that led the Board of Directors to the conclusion that such individual should serve as a director in
light of our business and structure.
6
Richard Pilnik has served as a member of the Board of Directors since May 2009. Mr. Pilnik serves as
our Chairman of the Board. Mr. Pilnik has served as the President and member of the board of directors
of Vigor Medical Services, Inc., a medical device company, since May 2017. From December 2015 to
November 2017, he served as a member of the board of directors of Chiltern International Limited, a
private leading mid-tier Clinical Research Organization, and was Chairman of the Board from April 2016
to November 2017. Mr. Pilnik has a 30-year career in healthcare at Eli Lilly and Company, a
pharmaceutical company, and Quintiles Transnational Corp., a global pioneer in pharmaceutical services.
From April 2009 to June 2014, he served as Executive Vice President and President of Quintiles
Commercial Solutions, an outsourcing business to over 70 pharma and biotech companies. Prior to that,
he spent 25 years at Eli Lilly and Company where he held several leadership positions, most recently as
Group Vice President and Chief Marketing Officer from May 2006 to July 2008. He was directly
responsible for commercial strategy, market research, new product planning and the medical marketing
interaction. From December 2000 to May 2006, Mr. Pilnik served as President of Eli Lilly Europe,
Middle East and Africa and the Commonwealth of Independent States, a regional organization of former
Soviet Republics, and oversaw 50 countries and positioned Eli Lilly as the fastest growing pharmaceutical
company in the region. Mr. Pilnik also held several marketing and sales management positions in the
United States, Europe and Latin America. Mr. Pilnik currently serves on the board of directors of Vigor
Medical Systems, Inc., NuSirt, an early-stage biopharma, and BIAL Farma, a Portuguese pharmaceutical
company. Mr. Pilnik is an Emeritus Board Member of Duke University Fuqua School of Business.
Mr. Pilnik previously served on the board of directors of Elan Pharmaceuticals, Chiltern International, the
largest mid-size Clinical Research Organization, and Certara, L.P., a private biotech company focused on
drug development modeling and biosimulation. Mr. Pilnik holds a Bachelor of Arts in Economics from
Duke University and an MBA from the Kellogg School of Management at Northwestern University.
Mr. Pilnik is a resident of Florida, USA.
We believe that Mr. Pilnik’s deep experience in the industry and his history and knowledge of our
company enable him to make valuable contributions to the Board of Directors.
Michael Giuffre, M.D. has served as a member of the Board of Directors since August 2010. Since July
2009, Dr. Giuffre has served as a Clinical Professor of Cardiac Sciences and Pediatrics at the University
of Calgary and has had an extensive portfolio of clinical practice, cardiovascular research and university
teaching. Dr. Giuffre is actively involved in health care delivery, medical leadership and in the
biotechnology business sector. From 2012 to October 2019, Dr. Giuffre served as Chief Scientific Officer
and President of FoodChek Laboratory, a global developer and provider of proprietary rapid and accurate
food safety tests for the detection of foodborne and environmental pathogens and other microorganisms,
and also as a member of the board of directors of FoodChek Systems Inc. From November 2017 to
October 2019, he served as FoodChek Systems Inc.'s Chairman of the Board. Dr. Giuffre previously
served on the board of directors of the Canadian Medical Association (CMA), Unicef Canada, the Alberta
Medical Association (AMA), Can-Cal Resources Ltd, Vacci-Test Corporation, IC2E International Inc.,
MedMira Inc. and Brightsquid Dental, Inc. Dr. Giuffre has received a Certified and Registered
Appointment and a Distinguished Fellow appointment by the American Academy of Cardiology. In
2005, he was awarded Physician of the Year by the Calgary Medical Society and in 2017 was "Mentor of
the Year" for the Royal College of Physicians and Surgeons of Canada. Dr. Giuffre was also a former
President of the AMA and the Calgary and Area Physicians Association and also a past representative to
the board of the Calgary Health Region. Dr. Giuffre holds a Bachelor of Science in cellular and microbial
biology, a Ph.D. candidacy in molecular virology, an M.D. and an M.B.A. He is Canadian Royal College
board certified FRCPS in specialties that include Pediatrics and Pediatric Cardiology and has a
subspecialty in Pediatric Cardiac Electrophysiology. Dr. Giuffre is currently a member of the board of
directors of Avenue Living (AL) Asset Management, a private real estate company in Alberta, Canada
and its affiliates, AL Real Estate Opportunity Trust and AgriSelect Trust. Dr. Giuffre is currently a
resident of Alberta, Canada.
7
We believe that Dr. Giuffre’s medical experience, including as a practicing physician and professor,
enable him to make valuable contributions to the Board of Directors.
James Parsons has served as a member of the Board of Directors since October 2015. Previously,
Mr. Parsons served as our Vice President of Finance from October 2010 until May 2014. Since August
2011, Mr. Parsons has served as Chief Financial Officer and Corporate Secretary of Trillium Therapeutics
Inc., a Nasdaq-listed immuno-oncology company. Mr. Parsons serves as a member of the board of
directors and audit committee chair of Sernova Corp., which is listed on the TSX Venture Exchange.
Mr. Parsons has been a Chief Financial Officer in the life sciences industry since 2000 with experience in
therapeutics, diagnostics and devices. Mr. Parsons has a Master of Accounting degree from the
University of Waterloo and is a Chartered Professional Accountant and Chartered Accountant.
Mr. Parsons is a resident of Ontario, Canada.
We believe that Mr. Parsons’ financial experience, including his history and knowledge of our company,
enable him to make valuable contributions to the Board of Directors.
Rick Pauls was appointed our President and Chief Executive Officer in January 2010. Mr. Pauls has
served as a member of the Board of Directors since April 2005 and the Chairman of the Board from April
2008 to July 2014. Prior to joining DiaMedica, Mr. Pauls was the Co-Founder and Managing Director of
CentreStone Ventures Inc., a life sciences venture capital fund, from February 2002 until January 2010.
Mr. Pauls was an analyst for Centara Corporation, another early stage venture capital fund, from January
2000 until January 2002. From June 1997 until November 1999, Mr. Pauls worked for General Motors
Acceptation Corporation specializing in asset-backed securitization and structured finance. Mr. Pauls
previously served as an independent member of the board of directors of LED Medical Diagnostics, Inc.
Mr. Pauls received his Bachelor of Arts in Economics from the University of Manitoba and his M.B.A. in
Finance from the University of North Dakota. Mr. Pauls is a resident of Minnesota, USA.
We believe that Mr. Pauls’ experience in the biopharmaceutical industry as an executive and investor and
his extensive knowledge of all aspects of our company, business, industry, and day-to-day operations as a
result of his role as our President and Chief Executive Officer enable him to make valuable contributions
to the Board of Directors. In addition, as a result of his role as President and Chief Executive Officer,
Mr. Pauls provides unique insight into our future strategies, opportunities and challenges, and serves as
the unifying element between the leadership and strategic direction provided by the Board of Directors
and the implementation of our business strategies by management.
Amy Burroughs is a director nominee. Ms. Burroughs has over 25 years of experience in drug
development and commercial planning for specialty biopharmaceuticals. Since April 2019, Ms.
Burroughs has served as Director, President and Chief Executive Officer of Cleave Therapeutics, Inc., a
biopharmaceutical company focused on valosin-containing protein as a novel target in oncology and
neurodegenerative diseases. From December 2017 to March 2019, Ms. Burroughs served as Executive in
Residence at 5AM Ventures, a leading venture capital firm focused on building next-generation life
science companies, and from March 2018 to April 2019, Ms. Burroughs served as Senior Advisor to
Crinetics Pharmaceuticals, a 5AM portfolio company focused on the development of therapies for people
with rare endocrine diseases. From May 2015 to December 2017, Ms. Burroughs served as founder and
managing partner of The Ventral Group, a strategic life sciences consulting and investor advisory firm
which worked with a variety of companies in the pharmaceutical and healthcare industries. Roles earlier
in Ms. Burroughs’ career included leadership development, talent and governance at Egon Zehnder
International, chief commercial officer and head of business development for APT Pharmaceuticals,
commercial leadership roles at Genentech and brand management at Procter & Gamble. Ms. Burroughs
holds a Bachelor of Arts in Computer Science and a minor in Economics from Dartmouth College and an
MBA from Harvard Business School where she graduated as a Baker Scholar.
8
We believe that Ms. Burroughs’s experience in the pharmaceutical and healthcare industries, particularly
in drug development and commercial planning for specialty biopharmaceuticals, will enable her to make
valuable contributions to the Board of Directors.
Charles Semba, M.D. is a director nominee. Dr. Semba has over 20 years of drug-development
experience in public and venture-funded biotechnology companies. Since June 2020, Dr. Semba has
served as the Chief Medical Officer of Eluminex Biosciences, an ophthalmology-focused biotechnology
company. From June 2016 to March 2020, Dr. Semba served as the Chief Medical Officer of Graybug
Vision, Inc., a clinical-stage biopharmaceutical company focused on developing transformative medicines
for the treatment of chronic diseases of the retina and optic nerve, and from June 2014 to June 2016,
Dr. Semba served as the Chief Medical Officer of ForSight VISION5 (acquired by Allergan), a company
focused on developing non-invasive products that replace eye drops and provide sustained therapy for
major eye diseases, including glaucoma, dry eye, and allergy. Prior to his work at ForSight VISION5,
Dr. Semba held senior positions at biopharmaceutical companies including Genentech (a Roche
company) and Shire (acquired by Takeda). Additionally, since 1992, Dr. Semba has served as an adjunct
professor of vascular and interventional radiology at the Stanford University School of Medicine.
Dr. Semba holds a Bachelor of Arts in Chemistry from Carleton College and an M.D. from the University
of Minnesota Medical School and is a recognized expert in endovascular therapy, thrombolysis,
mechanical thrombectomy, and endovascular surgery.
We believe that Dr. Semba’s experience in the biotechnology and biopharmaceutical industries,
particularly in drug development and clinical-stage companies, will enable him to make valuable
contributions to the Board of Directors.
Penalties or Sanctions
To the knowledge of the Board of Directors and our management, none of our directors or director
nominees as of the date of this proxy statement is or has been subject to:
any penalties or sanctions imposed by a court relating to a securities legislation or by a securities
regulatory authority or has entered in a settlement agreement with a securities regulatory
authority; or
any other penalties or sanctions imposed by a court or regulatory body that would likely be
considered important to a reasonable security holder in deciding whether to vote for a director
nominee.
Corporate Cease Trade Orders or Bankruptcies
To the knowledge of the Board of Directors and our management, none of our directors or director
nominees as of the date of this proxy statement is or has been, within 10 years before the date of this
proxy statement, a director, chief executive officer or chief financial officer of any company (including
DiaMedica) that, while that person was acting in that capacity:
was subject to a cease trade or similar order or an order that denied the relevant company access
to any exemption under securities legislation, for a period of more than 30 consecutive days; or
was subject to an event that resulted, after the director, chief executive officer or chief financial
officer ceased to be a director, chief executive officer, or chief financial officer, in DiaMedica
being the subject of a cease trade or similar order or an order that denied the relevant company
access to any exemption under securities legislation, for a period of more than 30 consecutive
days; or
9
within a year after the director, chief executive officer, or chief financial officer ceased to be a
director, chief executive officer or chief financial officer of DiaMedica, became bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency, or was subject to or instituted
any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager
or trustee appointed to hold its assets or the assets of the proposed director.
Board Recommendation
The Board of Directors unanimously recommends a vote FOR the election of all of the six nominees
named above.
The Board of Directors Recommends a Vote FOR Each Nominee for Director
10
VOTING PROPOSAL TWO—APPOINTMENT OF BAKER TILLY US, LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND AUTHORIZATION TO
FIX REMUNERATION
_________________
Appointment of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors appoints our independent registered public accounting
firm and fixes its remuneration. In this regard, the Audit Committee evaluates the qualifications,
performance and independence of our independent registered public accounting firm and determines
whether to re-engage our current independent registered public accounting firm. As part of its evaluation,
the Audit Committee considers, among other factors, the quality and efficiency of the services provided
by the firm, including the performance, technical expertise and industry knowledge of the lead audit
partner and the audit team assigned to our account; the overall strength and reputation of the firm; its
capabilities relative to our business; and its knowledge of our operations. Upon consideration of these
and other factors, the Audit Committee has appointed Baker Tilly US, LLP to serve as our independent
registered public accounting firm for the fiscal year ending December 31, 2021. Baker Tilly US, LLP
was first appointed as our auditor on April 27, 2018.
Representatives of Baker Tilly US, LLP will be present at the meeting to respond to appropriate
questions. They also will have the opportunity to make a statement if they wish to do so.
Authorization to Board of Directors to Fix Remuneration
The approval of this proposal also constitutes authorization to the Board of Directors to fix the
remuneration of Baker Tilly US, LLP as our independent registered public accounting firm.
Audit, Audit-Related, Tax and Other Fees
The following table presents the aggregate fees billed to us by Baker Tilly US, LLP for the fiscal years
ended December 31, 2020 and December 31, 2019.
Aggregate Amount Billed by
Baker Tilly US, LLP ($)
Fiscal 2020
Fiscal 2019
Audit Fees(1) .............................................................. $
Audit-Related Fees(2) .................................................
Tax Fees ....................................................................
All Other Fees ...........................................................
$
111,500
73,500
—
—
106,500
6,500
—
—
(1)
(2)
These fees consisted of the audit of our annual consolidated financial statements for fiscal 2020 and 2019,
review of quarterly consolidated financial statements and other services normally provided in connection with
statutory and regulatory filings or engagements.
These fees consisted of the review of our registration statement on Form S-3 in 2020 and registration
statements on Form S-8 and Form S-3 in 2019 and related services normally provided in connection with
statutory and regulatory filings or engagements.
11
Audit Committee Pre-Approval Policies and Procedures
All services rendered by Baker Tilly US, LLP to DiaMedica were permissible under applicable laws and
regulations and all services provided to DiaMedica, other than de minimis non-audit services allowed
under applicable law, were approved in advance by the Audit Committee. The Audit Committee’s formal
written charter requires the Audit Committee to pre-approve all auditing services and permitted non-audit
services, including fees for such services. The Audit Committee has not adopted any formal pre-approval
policies and procedures.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote FOR the appointment of Baker
Tilly US, LLP, as our independent registered public accounting firm for the fiscal year ending December
31, 2021 and authorization to the Board of Directors to fix the remuneration of our independent registered
public accounting firm.
The Board of Directors Recommends a Vote FOR Voting Proposal Two
12
STOCK OWNERSHIP
________________
Security Ownership of Significant Beneficial Owners
The table below sets forth information as to entities that have reported to the SEC or have otherwise
advised us that they are a beneficial owner, as defined by the SEC’s rules and regulations, of more than
five percent of our common shares.
Title of Class
Common Shares
Name and Address of
Beneficial Owner
Stonepine Capital Management, LLC
919 NW Bond Street, Suite 204
Bend, OR 97703-2767
Nantahala Capital Management
Amount and
Nature of
Beneficial
Ownership
950,000 (2)
Percent of
Class(1)
5.1%
(1)
(2)
Percent of class is based on 18,786,157 shares outstanding as of our record date, May 27, 2021.
Based solely on information contained in a Schedule 13G of Stonepine Capital Management, LLC filed
with the SEC on February 12, 2021, reflecting beneficial ownership as of December 31, 2020. Stonepine
Capital Management, LLC (GP) is the record owner of 950,000 shares. The GP is the general partner and
investment advisor of investment funds, including Stonepine Capital, L.P. (LP), Jon M. Plexico and
Timothy P. Lynch are the control persons of the GP. The GP, LP, Mr. Plexico and Mr. Lynch filed their
Schedule 13G jointly, but not as members of a group, and each disclaims membership in a group. Each of
the GP, LP, Mr. Plexico and Mr. Lynch disclaim beneficial ownership of these shares, except to the extent
of that person’s pecuniary interest therein.
13
Security Ownership of Management
The table below sets forth information known to us regarding the beneficial ownership of our common
shares as of May 27, 2021, by:
each of our current directors and director nominees;
each of the individuals named in the Summary Compensation Table under “Executive
Compensation” on page 37; and
all of our current directors, director nominees and executive officers as a group.
To our knowledge, each person named in the table has sole voting and investment power with respect to
all of the securities shown as beneficially owned by such person, as determined by the rules of the SEC,
except as otherwise set forth in the notes to the table and subject to community property laws, where
applicable. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or
indirectly, of voting power and/or investment power. A shareholder is also deemed to be, as of any date,
the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after
that date through (i) the exercise of any option, warrant or right; (ii) the conversion of a security; (iii) the
power to revoke a trust, discretionary account or similar arrangement; or (iv) the automatic termination of
a trust, discretionary account or similar arrangement. However, such unissued shares of common shares
are not deemed to be outstanding for calculating the percentage of common shares owned by any other
person.
Unless otherwise indicated below, the address for each beneficial owner listed is c/o DiaMedica
Therapeutics Inc., Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447.
Title of Class
Name of Beneficial Owner
Common Shares Richard Pilnik ...............................................
Common Shares Michael Giuffre, M.D. ..................................
Common Shares
James Parsons ...............................................
Common Shares Rick Pauls .....................................................
Common Shares Amy Burroughs ............................................
Common Shares Charles Semba, M.D. ...................................
Common Shares
Scott Kellen ..................................................
Common Shares Harry Alcorn, Jr., Pharm.D. .........................
Common Shares All current directors, director nominees and
executive officers as a group (9 persons) .....
Amount and Nature
of Beneficial
Ownership(1)
149,760
234,585 (3)
53,506
527,722
0
0
173,957
167,843
Percent of
Class(2)
*
1.2%
*
2.7%
*
*
*
*
1,338,260
6.7%
*
(1)
Represents beneficial ownership of less than one percent.
Includes for the persons listed below the following shares subject to options held by such persons that are
currently exercisable or become exercisable within 60 days of May 27, 2021:
Name
Directors and Director Nominees
Richard Pilnik .............................................
Michael Giuffre, M.D. ................................
James Parsons .............................................
Rick Pauls ...................................................
Amy Burroughs ...........................................
Charles Semba, M.D. ..................................
Shares Underlying
Stock Options
96,670
57,506
51,256
498,667
0
0
14
Name
Executive Officers
Rick Pauls ...................................................
Scott Kellen.................................................
Harry Alcorn, Jr., Pharm.D. ........................
Other Executive Officers. ...........................
All current directors, director nominees and
executive officers as a group (9 persons) .......
Shares Underlying
Stock Options
498,667
161,667
159,583
30,833
1,056,182
Excludes the following common shares issuable upon the settlement of deferred share unit awards, which
will be settled after the holder’s employment or service relationship with DiaMedica terminates: Mr. Pilnik
(27,475 shares); Mr. Pauls (1,749 shares); Dr. Giuffre (19,371 shares); and Mr. Parsons (19,697 shares).
(2)
(3)
Percent of class is based on 18,786,157 shares outstanding as of our record date, May 27, 2021.
Includes: (i) 5,165 shares held by 424822 Alberta Ltd, over which Dr. Giuffre has sole voting and
dispositive power , (ii) 36,498 shares Dr. Giuffre and his wife hold jointly, (iii) 54,186 shares held by
Dr. Giuffre’s sons and daughters, (iv) 21,070 common shares held by Dr. Giuffre’s wife and (v) 60,160
shares held directly by Dr. Giuffre.
15
CORPORATE GOVERNANCE
________________
Management by Board of Directors
The Board of Directors is responsible for overseeing the management of DiaMedica and for the conduct
of our affairs generally. Each director is elected annually by the shareholders and serves for a term that
will end at the next annual general meeting of shareholders.
The Board of Directors facilitates its exercise of independent supervision over the management of
DiaMedica through a combination of formal meetings of the Board of Directors and informal discussions
amongst Board members. Due to the small size of the Board of Directors, and with a majority of
independent directors, the Board of Directors manages governance matters both directly and through its
Board committees, which are described in more detail below. The Board of Directors looks to
management of DiaMedica to keep it apprised of all significant developments affecting the company and
its operations. All major acquisitions, dispositions, investments, contracts and other significant matters
outside the ordinary course of our business are subject to approval by the Board of Directors.
Corporate Governance Guidelines
The Board of Directors has established Corporate Governance Guidelines that describe our basic
approach to corporate governance. A copy of these Corporate Governance Guidelines can be found on
the “Investor Relations—Governance” section of our corporate website www.diamedica.com. Among the
topics addressed in our Corporate Governance Guidelines are:
Board size and qualifications;
Selection of directors;
Board leadership;
Board committees;
Board and committee meetings;
Executive sessions of independent directors;
Meeting attendance by directors and non-directors;
Appropriate information and access;
Ability to retain advisors;
Conflicts of interest and director independence;
Board interaction with corporate constituencies;
Change of principal occupation;
Term limits;
Retirement and resignation policy;
Board compensation;
Stock ownership by directors;
Loans to directors and executive officers;
CEO evaluation;
Board and committee evaluation;
Succession planning; and
Communications with directors.
16
Board Leadership Structure
Under our Corporate Governance Guidelines, the Board of Directors may select from its members a
Chairman of the Board. The office of Chairman of the Board and the office of President and Chief
Executive Officer may be held by one person. The Board of Directors believes it is best not to have a
fixed policy on this issue and that it should be free to make this determination based on what it believes is
best in light of current circumstances. The Board of Directors, acting as a group or through the
Nominating and Corporate Governance Committee, will periodically review the leadership structure of
the Board of Directors to assess whether it is appropriate given the specific characteristics and
circumstances of DiaMedica. However, the Board of Directors does strongly endorse the concept of
independent directors being in a position of leadership. If at any time, the Chief Executive Officer and
Chairman of the Board are the same, the Board of Directors shall elect an independent director to serve as
the lead director. The lead director will have the following duties and responsibilities in addition to such
other duties and responsibilities as may be determined by the Board of Directors from time to time.
chairing the executive sessions of the independent directors and calling meetings of the
independent directors;
determining the agenda for the executive sessions of the independent directors and participating
with the Chairman of the Board in establishing the agenda for Board meetings;
coordinating feedback among the independent directors and the Chief Executive Officer;
overseeing the development of appropriate responses to communications from shareholders and
other interested persons addressed to the independent directors as a group;
on behalf of the independent directors, retaining legal counsel or other advisors as they deem
appropriate in the conduct of their duties and responsibilities; and
performing such other duties as the Board of Directors deems appropriate from time to time.
Mr. Pilnik currently serves as Chairman of the Board and Rick Pauls currently serves as President and
Chief Executive Officer.
We currently believe this leadership structure is in the best interests of DiaMedica and our shareholders
and strikes the appropriate balance between the President and Chief Executive Officer’s responsibility for
the strategic direction, day-to day-leadership and performance of our company and the Chairman of our
Board’s responsibility to guide overall strategic direction of our company and provide oversight of our
corporate governance and guidance to our President and Chief Executive Officer and to set the agenda for
and preside over board meetings. We recognize that different leadership structures may be appropriate
for companies in different situations and believe that no one structure is suitable for all companies. We
believe that our company is well-served by this leadership structure. We anticipate that the Board of
Directors will periodically review our leadership structure and may make such changes in the future as it
deems appropriate.
Under our Corporate Governance Guidelines, our independent directors will meet with no company
management present during a portion of or after Board meetings on a regular basis but not less than two
times per year. After each such executive session, and as otherwise necessary, our Chairman of the Board
provides our Chief Executive Officer with any actionable feedback from our independent directors. The
Board of Directors met five times in executive session during the fiscal year ended December 31, 2020.
17
Director Independence
The Board of Directors has affirmatively determined that three of DiaMedica’s current four directors are
“independent directors” under the Nasdaq Listing Rules: Richard Pilnik, Michael Giuffre, M.D. and
James Parsons, and that both of our two new director nominees, Amy Burroughs and Charles Semba,
M.D., will be “independent directors” under the Nasdaq Listing Rules. In making these affirmative
determinations that such individuals are “independent directors,” the Board of Directors reviewed and
discussed information provided by the directors and director nominees and by DiaMedica with regard to
each director’s and director nominee’s business and personal activities as they may relate to DiaMedica
and our management.
Board Committees
The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee. Each of these committees has the composition described in the table
below and the responsibilities described in the sections below. The Board of Directors has adopted a
written charter for each committee of the Board of Directors which can be found on the “Investor
Relations—Governance” section of our corporate website www.diamedica.com. The Board of Directors
from time to time may establish other committees.
The following table summarizes the current membership of each of our three board committees.
Director
Rick Pauls
Michael Giuffre, M.D.
James Parsons
Richard Pilnik
Audit Committee
—
Chair
Compensation
Committee
—
Chair
Nominating and
Corporate Governance
Committee
—
Chair
It is anticipated that the Board of Directors will determine which Board committees Ms. Burroughs and
Dr. Semba will join after their election at the Annual General Meeting.
Audit Committee
Responsibilities. The Audit Committee assists the Board of Directors in fulfilling its oversight
responsibilities relating to our annual and quarterly financial statements filed with the SEC and any
applicable securities regulatory authorities of the provinces and territories of Canada, our financial
reporting process, our internal control over financial accounting and disclosure controls and procedures,
the annual independent audit of our financial statements and the effectiveness of our legal compliance and
ethics programs. The Audit Committee’s primary responsibilities include:
overseeing our financial reporting process, internal control over financial reporting and disclosure
controls and procedures on behalf of the Board of Directors;
having sole authority to appoint, oversee, evaluate, retain and terminate the engagement of our
independent registered public accounting firm and establish the compensation to be paid to the
firm;
reviewing and pre-approving all audit services and permissible non-audit services to be provided
to us by our independent registered public accounting firm;
establishing procedures for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters and for the confidential, anonymous
18
submission by our employees of concerns regarding questionable accounting or auditing matters;
and
overseeing our systems to monitor legal and ethical compliance programs, including the
establishment and administration of (including the grant of any waiver from) a written code of
ethics applicable to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions.
The Audit Committee has the authority to engage the services of outside experts and advisors as it deems
necessary or appropriate to carry out its duties and responsibilities.
Composition. The current members of the Audit Committee are Dr. Giuffre, Mr. Parsons and Mr. Pilnik.
Mr. Parsons is the Chair of the Audit Committee.
Each member of the Audit Committee qualifies as “independent” for purposes of membership on audit
committees pursuant to the Nasdaq Listing Rules and the rules and regulations of the SEC and is
“financially literate” as required by the Nasdaq Listing Rules. In addition, the Board of Directors has
determined that Mr. Parsons qualifies as an “audit committee financial expert” as defined by the rules and
regulations of the SEC and meets the qualifications of “financial sophistication” under the Nasdaq Listing
Rules as a result of his extensive financial background and various financial positions he has held
throughout his career. Shareholders should understand that these designations related to our Audit
Committee members’ experience and understanding with respect to certain accounting and auditing
matters do not impose upon any of them any duties, obligations or liabilities that are greater than those
generally imposed on a member of the Audit Committee or of the Board of Directors.
Audit Committee Report. This report is furnished by the Audit Committee of the Board of Directors with
respect to DiaMedica’s consolidated financial statements for the year ended December 31, 2020.
One of the purposes of the Audit Committee is to oversee DiaMedica’s accounting and financial reporting
processes and the audit of DiaMedica’s annual consolidated financial statements. DiaMedica’s
management is responsible for the preparation and presentation of complete and accurate financial
statements. DiaMedica’s independent registered public accounting firm, Baker Tilly US, LLP, is
responsible for performing an independent audit of DiaMedica’s annual consolidated financial statements
in accordance with the standards of the Public Company Accounting Oversight Board (United States) and
for issuing a report on their audit.
In performing its oversight role, the Audit Committee has reviewed and discussed DiaMedica’s audited
consolidated financial statements for the year ended December 31, 2020 with DiaMedica’s management.
Management represented to the Audit Committee that DiaMedica’s financial statements were prepared in
accordance with generally accepted accounting principles. The Audit Committee has discussed with
Baker Tilly US, LLP the matters required to be discussed under Public Company Accounting Oversight
Board standards. The Audit Committee has received the written disclosures and the letter from Baker
Tilly US, LLP required by applicable requirements of the Public Company Accounting Oversight Board
regarding Baker Tilly US, LLP’s communications with the Audit Committee concerning independence.
The Audit Committee has discussed with Baker Tilly US, LLP its independence and concluded that the
independent registered public accounting firm is independent from DiaMedica and DiaMedica’s
management.
Based on the review and discussions of the Audit Committee described above, in reliance on the
unqualified opinion of Baker Tilly US, LLP regarding DiaMedica’s audited consolidated financial
statements, and subject to the limitations on the role and responsibilities of the Audit Committee
discussed above and in the Audit Committee’s charter, the Audit Committee recommended to the Board
of Directors that DiaMedica’s audited consolidated financial statements for the fiscal year ended
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December 31, 2020 be included in its Annual Report on Form 10-K for the year ended December 31,
2020 for filing with the Securities and Exchange Commission.
This report is dated as of March 8, 2021.
Audit Committee
James Parsons, Chair
Michael Giuffre, M.D.
Richard Pilnik
Other Information. Additional information regarding the Audit Committee and our independent
registered public accounting firm is disclosed under the “Voting Proposal Two—Appointment of Baker
Tilly US, LLP as our Independent Registered Public Accounting Firm and Authorization to Fix
Remuneration” section of this proxy statement.
Compensation Committee
Responsibilities. The Compensation Committee assists the Board of Directors in fulfilling its oversight
responsibilities relating to compensation of our Chief Executive Officer and other executive officers and
administers our equity compensation plans. The Compensation Committee’s primary responsibilities
include:
determining all compensation for our Chief Executive Officer and other executive officers;
administering our equity-based compensation plans;
reviewing, assessing and approving overall strategies for attracting, developing, retaining and
motivating our management and employees;
overseeing the development and implementation of succession plans for our Chief Executive
Officer and other key executive officers and employees;
reviewing, assessing and approving overall compensation structure on an annual basis; and
recommending and leading a process for the determination of non-employee director
compensation.
The Compensation Committee has the authority to engage the services of outside experts and advisors as
it deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so,
assesses the independence of such experts and advisors from management.
Composition. The current members of the Compensation Committee are Dr. Giuffre, Mr. Parsons and
Mr. Pilnik. Dr. Giuffre is the Chair of the Compensation Committee. The Board of Directors has
determined that each of the members of the Compensation Committee is an “independent director” under
the Nasdaq Listing Rules, a “non-employee director” within the meaning of Rule 16b-3 under the
Exchange Act, and otherwise independent under the rules and regulations of the SEC.
Processes and Procedures for Consideration and Determination of Executive Compensation. As
described in more detail above under “—Responsibilities,” the Board of Directors has delegated to the
Compensation Committee the responsibility, among other things, to determine any and all compensation
payable to our executive officers, including annual salaries, incentive compensation, long-term incentive
compensation, perquisites and any and all other compensation, and to administer our equity-based
compensation plans. The Compensation Committee has the full power and authority of the Board of
Directors to perform these duties and to fulfill these responsibilities. Under the terms of its formal written
20
charter, the Compensation Committee has the power and authority, to the extent permitted by applicable
law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation
Committee. The Compensation Committee has not delegated any of its duties and responsibilities to
subcommittees, but rather has taken such actions as a committee, as a whole.
The Compensation Committee has historically engaged the services of 21-Group, an independent
compensation consultant, to assist the Compensation Committee in developing a comprehensive
compensation strategy based upon compensation levels at benchmark companies for DiaMedica. The
Compensation Committee used the information in this report, recommendations from the 21-Group and
discussions with management, to establish a compensation strategy and set target compensation levels for
officers and non-employee directors. The Compensation Committee retained 21-Group in 2020 and in the
beginning of 2021 to update its executive officer and non-employee director compensation analyses.
Recently, the Compensation Committee retained Aon plc, an independent compensation consultant, to
provide input on executive and non-employee director compensation. In making final decisions regarding
compensation to be paid to our executive officers, the Compensation Committee considers several factors,
including the benchmarking information gathered by its compensation consultants, the achievement by
DiaMedica of pre-established performance objectives, the general performance of DiaMedica and the
individual officers, the performance of DiaMedica and other factors that may be relevant.
Final deliberations and decisions by the Compensation Committee regarding the form and amount of
compensation to be paid to our executive officers are made by the Compensation Committee, without the
presence of any executive officer of our company.
Processes and Procedures for Consideration and Determination of Director Compensation. As
mentioned above under “—Responsibilities,” the Board of Directors has delegated to the Compensation
Committee the responsibility, among other things, to review and make recommendations to the Board of
Directors concerning compensation for non-employee members of the Board of Directors, including but
not limited to retainers, meeting fees, committee chair and member retainers and equity compensation.
Decisions regarding director compensation made by the Compensation Committee are not considered
final and are subject to final review and approval by the entire Board of Directors. In making
recommendations to the Board of Directors regarding compensation to be paid to our non-employee
directors, the Compensation Committee considers fees and other compensation paid to directors of
benchmark companies as gathered by its compensation consultants, the number of board and committee
meetings that our directors are expected to attend, the duties and responsibilities of individual Board
members, and other factors that may be relevant. In making final decisions regarding non-employee
director compensation, the Board of Directors considers the same factors and the recommendation of the
Compensation Committee.
Nominating and Corporate Governance Committee
Responsibilities. The Nominating and Corporate Governance Committee assists the Board of Directors in
fulfilling its oversight responsibilities relating to director nominations and corporate governance. The
primary responsibilities of the Nominating and Corporate Governance Committee include:
identifying individuals qualified to become members of the Board of Directors, which includes
reviewing and considering director nominees submitted by shareholders;
recommending director nominees for each annual general meeting of our shareholders and
director nominees to fill any vacancies that may occur between general meetings of shareholders;
being aware of best practices in corporate governance matters and developing and recommending
to the Board of Directors a set of corporate governance guidelines to govern the Board of
Directors, its committees, DiaMedica and our employees;
21
recommending director diversity, retirement age, tenure and refreshment policies;
developing and overseeing an orientation process for new directors; and
developing and overseeing a periodic Board of Directors and Board committee evaluation
process.
The Nominating and Corporate Governance Committee has the authority to engage the services of outside
experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Orientation and Continuing Education of Directors. The Nominating and Corporate Governance
Committee is responsible for developing and overseeing an orientation process for all new members of
the Board of Directors. New directors are provided with access to our recent, publicly filed documents,
technical reports and internal financial information and given copies of all Board of Director minutes and
corporate governance materials. Directors are encouraged to ask questions and communicate with
management, auditors and technical consultants to keep themselves current with industry trends and
developments and changes in legislation. Continuing education is an important compliance requirement
to promote the competence and integrity of Board members. Our directors are encouraged to take part in
relevant education programs offered by appropriate regulatory bodies.
Composition. The current members of the Nominating and Corporate Governance Committee are
Dr. Giuffre, Mr. Parsons and Mr. Pilnik. Mr. Pilnik is the Chair of the Nominating and Corporate
Governance Committee. The Board of Directors has determined that each of the members of the
Nominating and Corporate Governance Committee is an “independent director” under the Nasdaq Listing
Rules.
Director Qualifications and the Nomination Process
The Board of Directors seeks to ensure that the Board is composed of members whose particular
experience, qualifications, attributes and skills, when taken together, will allow the Board to satisfy its
oversight responsibilities effectively. New directors will be approved by the Board after evaluation and
recommendation by the Nominating and Corporate Governance Committee. In identifying candidates for
director, the Nominating and Corporate Governance Committee and the Board take into account the
following:
the comments and recommendations of Board members regarding the qualifications and
effectiveness of the existing Board, or additional qualifications that may be required when
selecting new Board members;
the requisite expertise and sufficiently diverse backgrounds of the Board’s overall membership
composition;
the independence of outside directors and other possible conflicts of interest of existing and
potential members of the Board; and
any other factors they consider appropriate.
Ms. Burroughs, one of our two new director nominees was identified by one of our shareholders, and Dr.
Semba, our other new director nominee was identified by Ms. Burroughs. When considering directors and
nominees the Nominating and Corporate Governance Committee and the Board of Directors focuses
primarily on the information discussed in each of the directors’ individual biographies, personal interview
and recommendations.
22
The Nominating and Corporate Governance Committee will consider director candidates recommended to
it by our shareholders. Those candidates must be qualified and exhibit the experience and expertise
required of the Board’s own pool of candidates, as well as have an interest in our business and
demonstrate the ability to attend and prepare for Board, committee, and shareholder meetings. Any
candidate must provide a written statement, in advance, affirming his or her willingness and interest in
serving on the Board. Candidates should represent the interests of all shareholders and not those of a
special interest group. The Nominating and Corporate Governance Committee will evaluate candidates
recommended by shareholders using the same criteria it uses to evaluate candidates recommended by
others as described above. A shareholder that desires to nominate a person for election to the Board of
Directors at a meeting of shareholders must follow the specified advance notice requirements contained
in, and provide the specific information required by British Columbia’s Business Corporations Act. See
additional information below in “Shareholder Proposals for 2022 Annual General Meeting of
Shareholders.”
Board Diversity
The Nominating and Corporate Governance Committee is responsible for reviewing with the Board of
Directors, on an annual basis, the appropriate characteristics, skills and experience required for the Board
of Directors as a whole and its individual members. In evaluating the suitability of individual candidates
(both new candidates and current members), the Nominating and Corporate Governance Committee, in
recommending candidates for election, and the Board of Directors in approving (and, in the case of
vacancies, appointing) such candidates, take into account many factors, including the following:
personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly
held company;
strong finance experience;
relevant social policy concerns;
experience relevant to our industry;
experience as a board member or executive officer of another publicly held company;
relevant academic expertise or other proficiency in an area of our operations;
diversity of expertise and experience in substantive matters pertaining to our business relative to
other board members;
diversity of background and perspective, including, but not limited to, with respect to age, gender,
race, place of residence and specialized experience;
practical and mature business judgment, including, but not limited to, the ability to make
independent analytical inquiries; and
any other relevant qualifications, attributes or skills.
The Board of Directors evaluates each individual in the context of the Board of Directors as a whole, with
the objective of assembling a group that can best perpetuate the success of the business and represent
shareholder interests through the exercise of sound judgment using its diversity of experience in these
various areas. In determining whether to recommend a director for re-election, the Nominating and
Corporate Governance Committee may also consider the director’s past attendance at meetings and
participation in and contributions to the activities of the Board of Directors.
23
We believe that a board of directors made up of highly qualified individuals from diverse backgrounds
promotes better corporate governance, performance and effective decision-making. Our Board of
Directors has not, at this time, adopted any fixed policies, targets or quotas relating to the representation
on the Board of Directors or in executive officer positions based upon any external physiological
attribute, including gender, as we do not believe that quotas or a formulaic approach necessarily result in
the identification or selection of the best candidates. The Nominating and Corporate Governance
Committee nonetheless makes efforts to ensure that directors and officers have a wide range of skills,
experiences and backgrounds to meet our needs. To support this objective, the Nominating and Corporate
Governance Committee will, when seeking candidates for Board of Directors or executive positions,
among other things, (a) consider candidates who are highly qualified based on their experience, functional
expertise and personal skills and qualities; and (b) consider diversity criteria including gender and
geographical background of the candidate. As at the date of this proxy statement, no (0%) women and no
(0%) individuals who are racially or ethnically diverse are on our Board of Directors or are executive
officers of DiaMedica. Assuming Ms. Burroughs and Dr. Semba are elected as directors at the Annual
General Meeting, then one out of our six directors (17%) will be a woman and one of our six directors
(17%) will be racially or ethnically diverse.
Role of Board in Risk Oversight Process
Risk is inherent with every business. We face a number of risks, including regulatory, compliance, legal,
competitive, financial (accounting, credit, interest rate, liquidity and tax), operational, political, strategic
and reputational risks. Our management is responsible for the day-to-day management of risks faced by
us, while the Board of Directors, as a whole and through its committees, has responsibility for the
oversight of risk management. In its risk oversight role, the Board of Directors ensures that the risk
management processes designed and implemented by management are adequate and functioning as
designed. The Board of Directors oversees risks through the establishment of policies and procedures that
are designed to guide daily operations in a manner consistent with applicable laws, regulations and risks
acceptable to us. Our President and Chief Executive Officer, who is also a member of the Board of
Directors, regularly discusses with the Board of Directors the strategies and risks facing our company.
The standing committees of the Board of Directors oversee risks associated with their respective principal
areas of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of
financial reporting to shareholders and on our processes for the management of business and financial
risk. The Audit Committee, along with management, is also responsible for developing and participating
in a process for review of important financial and operating topics that present potential significant risk to
our company. The Compensation Committee is responsible for overseeing risks and exposures associated
with our compensation programs and arrangements, including our executive and director compensation
programs and arrangements, and management succession planning. The Nominating and Corporate
Governance Committee oversees risks relating to our corporate governance matters and policies and
director succession planning.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to all of our directors, officers and
employees, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002, the rules of the SEC
promulgated thereunder and the Nasdaq Listing Rules. We monitor employee and director compliance
with our code of business conduct and ethics through employee and director reporting. Violations may be
reported to supervisors, the Chief Financial Officer or, alternatively, to the Chair of the Audit Committee
via e-mail. We investigate and discipline all reported violations as appropriate. In the event that any
changes are made or any waivers from the provisions of the code of business conduct and ethics are
made, these events would be disclosed on our website or in a Current Report on Form 8-K within four
business days of such event. The code of business conduct and ethics is posted on our website at
24
www.diamedica.com. Copies of the code of business conduct and ethics will be provided free of charge
upon written request directed to Corporate Secretary, DiaMedica Therapeutics Inc., Two Carlson
Parkway, Suite 260, Minneapolis, Minnesota 55447.
Board and Committee Meetings and Attendance
The table below summarizes the attendance of each director for meetings of the Board of Directors and
the meetings of all Board committees on which the director served during the fiscal year ended December
31, 2020:
Number of Board
Meetings
Attended
10
10
10
10
10
Number of Audit
Committee
Meetings
Attended(1)
N/A
6
6
6
6
Number of
Compensation
Committee
Meetings
Attended
N/A
6
6
6
6
Director
Rick Pauls
Michael Giuffre, M.D.
James Parsons
Richard Pilnik
Total Meetings Held
Number of
Nominating and
Corporate
Governance
Committee
Meetings
Attended
N/A
3
3
3
3
(1)
The Audit Committee met twice in executive session with Baker Tilly US, LLP, our independent registered
public accounting firm.
Policy Regarding Director Attendance at Annual General Meetings of Shareholders
Directors are encouraged, but not required, to attend our annual general meetings of shareholders.
Messrs. Pauls, Pilnik and Parsons attended the 2020 Annual General and Special Meeting of Shareholders
either in person, by telephone or by video conference.
Complaint Procedures
The Audit Committee has established procedures for the receipt, retention and treatment of complaints
received by DiaMedica regarding accounting, internal accounting controls or auditing matters. These
procedures provide for the submission by our employees, on a confidential and anonymous basis, of
concerns regarding questionable accounting or auditing matters. Our personnel with such concerns are
encouraged to discuss their concerns with our compliance officer, outside legal counsel or Audit
Committee Chair.
Process Regarding Shareholder Communications with Board of Directors
Shareholders may communicate with the Board of Directors or any one particular director by sending
correspondence, addressed to DiaMedica’s Corporate Secretary, DiaMedica Therapeutics Inc., Two
Carlson Parkway, Suite 260, Minneapolis, MN 55447 with an instruction to forward the communication
to the Board of Directors or one or more particular directors. DiaMedica’s Corporate Secretary will
promptly forward all such shareholder communications to the Board of Directors or the one or more
particular directors, with the exception of any advertisements, solicitations for periodical or other
subscriptions and other similar communications.
25
DIRECTOR COMPENSATION
________________
Non-Employee Director Compensation Program
Overview. Our non-employee directors currently consist of Michael Giuffre, M.D., James Parsons, and
Richard Pilnik. If our two non-employee director nominees, Amy Burroughs and Charles Semba, M.D.,
are elected to the Board, they will also be non-employee directors covered by our non-employee director
compensation program.
We use a combination of cash and long-term equity-based incentive compensation in the form of stock
option grants to attract and retain qualified candidates to serve on the Board of Directors. In setting non-
employee director compensation, we follow the process and procedures described under “Corporate
Governance—Compensation Committee—Processes and Procedures for the Determination of Director
Compensation.”
In April 2020, we reviewed our non-employee director compensation program in light of a benchmarking
analysis performed by our independent compensation consultant, 21-Group. The peer group used for this
benchmarking analysis was the same peer group used for the executive compensation analysis. As a
result of this review, we increased the cash retainers for our Board committee chairs and instituted new
cash retainers for our Board committee members to bring their compensation closer to our target market
positioning.
In May 2021, we reviewed our non-employee director compensation program in light of a benchmarking
analysis performed by a new independent compensation consultant, Aon plc, and other input received
from Aon plc. The peer group used for this benchmarking analysis was the same peer group used for the
executive compensation analysis. As a result of this review, we instituted a new director equity
compensation component to the program, increased the value of the annual stock option award and
converted it to be based on a percentage of our outstanding shares as opposed to a fixed dollar amount,
and increased the cash retainer for our non-executive Chairman of the Board to recognize the increased
work involved in that position.
Cash Retainers. The following table sets forth the annual cash retainers paid to our non-employee
directors during fiscal 2020:
Description
Board Member .................................................................................. $
Chairman of the Board ......................................................................
Audit Committee Chair .....................................................................
Audit Committee Member ................................................................
Compensation Committee Chair .......................................................
Compensation Committee Member ..................................................
Nominating and Corporate Governance Committee Chair ...............
Nominating and Corporate Governance Committee Member ..........
Fiscal 2020
Annual Cash
Retainer Prior
to April 1, 2020
40,000
20,000
8,000
0
4,000
0
4,000
0
Fiscal 2020
Annual Cash
Retainer
Effective
April 1, 2020
$
40,000
20,000
15,000
7,500
10,000
5,000
7,500
3,750
For 2021, none of the annual cash retainers paid to our non-employee directors changed, except that the
annual cash retainer for our Chairman of the Board was increased to $30,000, effective as of July 1, 2021,
to reflect his increased workload and the benchmarking analysis from Aon plc.
26
Stock Options. During 2020, each of our non-employee directors received a stock option with a value of
$45,000 and our Chairman of the Board received an additional option with a value of $20,000.
Accordingly, on June 1, 2020, each of our non-employee directors received an option to purchase 13,306
common shares at an exercise price equal to $4.64 per share and our Chairman of the Board received an
additional option to purchase 5,914 common shares at an exercise price equal to $4.64 per share. These
options expire on May 31, 2030 and vest in four nearly equal quarterly installments over one year, subject
to continued service.
In May 2021, we amended our non-employee director compensation program to increase the value of the
annual stock option award and convert it to be based on a percentage of our outstanding shares as opposed
to a fixed dollar amount and to introduce a new director equity compensation component to the program.
Beginning in 2021 and each year thereafter, each non-employee director will be granted a stock option to
purchase a number of common shares equal to 0.05% of our outstanding shares and the Chairman of the
Board will be granted an additional stock option to purchase a number of common shares equal to 0.02%
of our outstanding shares, in each case rounding down to the nearest whole share. It is contemplated that
these annual stock options will be granted effective as of the later of June 1st or the date of the Annual
General Meeting of Shareholders each year. All of these stock options will have a term of 10 years, a per
share exercise price equal to 100% of the fair market value of a common share on the date of grant and
will vest and become exercisable in four as nearly equal as possible quarterly installments over one year,
and in each case so long as the non-employee director is a director of the Company as of such date. Each
new non-employee director will be granted a stock option to purchase a number of common shares equal
to 0.1% of our outstanding shares, rounding down to the nearest whole share, effective as of the new
director’s first day as a director. It is contemplated that this initial equity award will be in lieu of an
annual equity award for the first year of service. This initial stock option will have a term of 10 years, a
per share exercise price equal to 100% of the fair market value of a common share on the date of grant
and will vest and become exercisable in 12 as nearly equal as possible quarterly installments over three
years, and in each case so long as the non-employee director is a director of the Company as of such date.
Deferred Stock Units or Restricted Stock Units. We provide our non-employee directors the opportunity
to elect to receive Deferred Stock Units (DSUs) or Restricted Stock Units (RSUs) in lieu of up to 100% of
their annual cash retainers payable for services to be rendered as a non-employee director, chairman and
chair or member of any board committee. Effective as of the first business day of each year (or June 1,
2020 in the case of DSU or RSU awards applicable to the 2020 transition period or the first date as a
director in the case of new directors), each of our non-employee directors who elected to receive DSUs or
RSUs in lieu of all or a portion of such director’s annual cash retainers, were granted DSU or RSU awards
under the DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan (2019 Plan) covering that number
of shares as determined based on the following formula (rounding down to the nearest whole share):
the aggregate dollar amount of the elected portion of the annual cash retainers that otherwise
would have been payable to the non-employee director for services to be rendered as a non-
employee director, Chairman of the Board and Chair or member of any Board committee during
the year (or transition or other period, if applicable) based on such director’s Board committee
memberships and Chair positions as of the date of grant, divided by
the 10-trading day average closing sale price of our common shares, as reported by the Nasdaq
Capital Market, and as determined on the third (3rd) business day prior to the anticipated grant
date of the award.
Such DSU and RSU awards vest in four as nearly equal as possible quarterly installments, on March 31,
June 30, September 30 and December 31, in each case so long as the non-employee director is a director
of the Company as of such date. DSU awards are settled following a separation from service by such
director and RSU awards are settled immediately upon vesting or, if earlier, the death of the director.
27
If a non-employee director who elected to receive an DSU or RSU award in lieu of all or a portion of such
director’s annual cash retainers is no longer a director of the Company before such director’s interest in
all of the shares underlying the DSU or RSU award have vested, the director will forfeit his or her rights
to receive all of such unvested shares on the day his or her status as a director of the Company terminates.
However, shares underlying the DSU or RSU award corresponding to the elected cash retainers for such
quarter in which the director’s status changed will vest ratably for such quarter based on the number of
days of service as a director of the Company during such quarter.
If a non-employee director of the Company who elected to receive an DSU or RSU award in lieu of his or
her annual cash retainers becomes entitled to receive an increased or additional annual cash retainer
during the year, the director will receive such increased or additional annual cash retainer in cash until the
director makes his or her election for the following year. Conversely, if a non-employee director of the
Company who elected to receive an DSU or RSU award in lieu of such director’s annual cash retainers
experiences a change in committee membership or Chair positions prior to year end, such that the
aggregate amount of annual cash retainers for the year to which the director is entitled is less than the
aggregate amount used to calculate the director’s most recent DSU or RSU award, the director will forfeit
effective as of such change his or her rights to receive the corresponding portion of the shares underlying
such DSU or RSU award; provided, however, that in the event the director elected to receive only a
portion of his or her cash retainers in the form of an DSU or RSU award, the amount of cash retainers to
be received will be reduced first. In addition, in the event shares underlying the DSU or RSU award are
forfeited, the vesting of the DSU or RSU award will be revised accordingly as of the date of such change.
Director Compensation Table
The table below provides summary information concerning the compensation of each individual who
served as a director of our company during the fiscal year ended December 31, 2020, other than Rick
Pauls, our President and Chief Executive Officer, who was not compensated separately for serving on the
Board of Directors during fiscal 2020. His compensation during fiscal 2020 for serving as an executive
officer of our company is set forth under “Executive Compensation—Summary Compensation Table.”
Fees Earned
or Paid in
Cash(1)
Name
Michael Giuffre, M.D. ..... $
James Parsons ..................
Richard Pilnik ..................
Zhenyu Xiao, Ph.D.(5).......
56,938
59,813
76,000
16,904
Option
Awards(2)(3)
$ 45,294
45,294
65,425
—
$
Stock
Awards(4)
389
405
513
—
All Other
Compensation
—
$
—
—
—
Total
$ 102,621
105,512
141,938
16,904
(1)
(2)
(3)
(4)
The following directors elected to receive DSUs for part of their retainers: Giuffre ($35,729 was paid in
the form of 7,784 DSUs); Parsons ($37,188 was paid in the form of 8,102 DSUs); and Pilnik ($46,667 was
paid in the form of 10,168 DSUs).
Amounts reflect the grant date fair value for option awards granted to each non-employee director
computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 718.
The following directors held the following option awards as of December 31, 2020: Giuffre (57,506
options); Parsons (51,256 options); and Pilnik (96,670 options).
Represents the difference between the grant date fair value of the DSUs received by the director, using the
grant date fair value of $4.64 per share, and the dollar amount of retainers used to calculate the number of
DSUs, using an average stock price of $4.59 per share.
28
(5)
Zhenyu Xiao, Ph.D. served as a director until the 2020 Annual General Meeting of Shareholders held on
June 2, 2020.
Indemnification
Our Articles provide that subject to British Columbia’s Business Corporations Act (BCBCA), we will
indemnify a director or a former director (each an “eligible party”) and his or her heirs and legal
representatives, against all eligible penalties to which such person is liable. The Company must pay the
expenses actually and reasonably incurred by such person in respect of any eligible proceeding either as
they are incurred in advance of the final disposition of the proceeding or after the final disposition of a
proceeding. Our Articles define an “eligible penalty” as a judgment, penalty or fine awarded or imposed
in, or an amount paid in settlement of, an eligible proceeding. Our Articles define an “eligible
proceeding” as a legal proceeding or investigative action, whether current, threatened, pending or
completed, in which an eligible party or any of the heirs and legal personal representatives of the eligible
party, by reason of the eligible party being or having been a director of the Company: (i) is or may be
joined as a party; or (ii) is or may be liable for or in respect of a judgment, penalty or fine in, or expenses
related to, the proceeding.
We entered into indemnification agreements with all of our directors, which are nearly identical to the
indemnification agreements with our executive officers as described under “Executive Compensation—
Executive Compensation Overview—Indemnification Agreements.”
At present, there is no pending litigation or proceeding involving any of our directors or executive
officers as to which indemnification is required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the United States Securities Act of 1933, as
amended (Securities Act) may be permitted to directors, executive officers or persons controlling us, we
have been informed that, in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
29
EXECUTIVE COMPENSATION
________________
Executive Compensation Overview
This section addresses the compensation of our President and Chief Executive Officer and the two most
highly compensated executive officers for the year ended December 31, 2020:
Rick Pauls, our President and Chief Executive Officer;
Scott Kellen, our Chief Financial Officer and Corporate Secretary; and
Harry Alcorn, Jr., Pharm.D., our Chief Medical Officer.
These executive officers are collectively referred to as the named executive officers.
When reading this Executive Compensation Overview, please note that we are an emerging growth
company under the Jumpstart our Business Startups Act (JOBS Act) and are not required to provide a
“Compensation Discussion and Analysis” of the type required by Item 402 of SEC Regulation S-K. This
Executive Compensation Overview is intended to supplement the SEC-required disclosure, which is
included in this section, and it is not a Compensation Discussion and Analysis.
Compensation Philosophy
The Compensation Committee generally targets executive compensation at the 50th percentile of our peer
group as discussed below under “—Elements of Our Executive Compensation Program.”
Use of Market Data
We strive to compensate our executive officers competitively relative to other companies that are similar
to us from a market capitalization, revenue, number of employees and clinical development perspective.
To ensure reasonableness and competitiveness of our executive compensation packages relative to our
peer companies, the Compensation Committee evaluates our peer group with the aid of our independent
compensation consultant and with input from management. The peer group used to help determine 2020
compensation was prepared by our independent compensation consultant in 2018 and consisted of the
following 12 other companies in the same industry and with similar characteristics from a market
capitalization, revenue, number of employees and clinical development perspective.
Actinium Pharmaceuticals, Inc.
Aptose Biosciences Inc.
Athersys, Inc.
Cellectar Biosciences, Inc.
Cidara Therapeutics, Inc.
CohBar, Inc.
Oncolytics Biotech Inc.
Oncomed Pharmaceuticals, Inc. Zafgen, Inc.
Regulus Therapeutics Inc.
Sun BioPharma, Inc.
Trillium Therapeutics Inc.
Data from this peer group, therefore, was considered in the compensation benchmarking process as one
input in helping us determine appropriate pay levels.
Use of Consultants
The Compensation Committee has the authority to engage the services of outside experts and advisors as
it deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so,
assesses the independence of such experts and advisors from management. During 2018, the
Compensation Committee engaged the 21-Group, a compensation consultant, to assist the Compensation
Committee in designing and reviewing our executive compensation program. The Compensation
30
Committee retained 21-Group again in 2020 and in the beginning of 2021 to update its executive officer
and non-employee director compensation analyses. The 21-Group does not provide any services to our
company other than those for which it has been retained by the Compensation Committee.
Elements of Our Executive Compensation Program
During 2020, our executive compensation program consisted of several key elements, which are
described in the table below along with the key characteristics of, and the purpose for, each element. The
following table also describes any key 2020 changes to each of these elements.
Element
Base Salary
(Fixed, Cash)
Short-Term
Incentive (STI)
(Variable, Cash)
Key Characteristics
A fixed amount, paid in cash
periodically throughout the
year and reviewed annually
and, if appropriate, adjusted.
Purpose
Provides a source of fixed
income that is market
competitive and reflects
scope and responsibility of
the position held.
Key 2020 Changes
Our named executive officers
received increases of 3% over
their respective 2019 base
salaries.
A variable, short-term element
of compensation that is
payable in cash based on
achievement of key pre-
established annual corporate
objectives, and for certain
executives, individual goals.
Motivates and rewards our
executives for achievement
of annual corporate and
other objectives.
Our named executive officers
received STI cash payments
equal to 95% of their respective
target bonus opportunities based
on the achievement of corporate
performance and individual
performance objectives. In
determining achievement levels,
the Compensation Committee
took into consideration the
COVID-19 pandemic and its
effect on our business and
management’s response to the
pandemic, especially with respect
to the continuation of our clinical
trial work.
Long-Term
Incentives (LTI)
(Variable, Equity-
Based Awards)
A variable, long-term element
of compensation that is
provided in the form of time-
vested stock option awards.
Our named executive officers
received stock option awards,
which vest quarterly over three
years.
Aligns the interests of our
executives with our
shareholders; encourages
our executives to focus on
the Company’s long-term
performance; promotes
retention of our
executives; and encourages
significant ownership of
our common shares.
Retirement
Benefits
Includes a defined
contribution retirement plan
with a discretionary Company
match.
Provides an opportunity
for employees to save and
prepare financially for
retirement.
No changes.
We describe each key element of our executive compensation program in more detail in the following
pages, along with the compensation decisions made in 2020. The compensation paid to our named
executive officers is governed, in part, by written employment agreements with them, which are described
below under “—Employment Agreements.” The named executive officers also have termination and
change in control benefits as set forth in their respective employment agreements. See “—Post-
Termination Severance and Change in Control Arrangements.”
31
Pay for Performance and Pay Mix
We seek to motivate management to achieve corporate objectives and increase shareholder value through
incentive plans that reward higher performance with increased incentive payouts and hold management
accountable for performance that falls below targeted levels by paying reduced or no incentive payouts.
Accordingly, in general, our executive compensation program emphasizes variable, at-risk, pay elements
as a significant portion of each executive’s total compensation package.
The breakdown of variable, at-risk, pay (broken out between short-term incentives and long-term
incentives) compared to fixed pay (i.e., base salary) reported for 2020 in the Summary Compensation
Table for our President and Chief Executive Officers and other named executive officers is as follows:
Base Salary
We provide a base salary for our named executive officers, which is not subject to company or individual
performance risk. We recognize the need for most executives to receive at least a portion of their total
compensation in the form of a guaranteed base salary that is paid in cash regularly throughout the year.
The base salaries set for our named executive officers are intended to provide a steady income regardless
of share price performance, allowing executives to focus on both near-term and long-term goals and
objectives without undue reliance on short-term share price performance or market fluctuations.
We initially fix base salaries for our executives at a level that we believe enables us to hire and retain
them in a competitive environment and to reward satisfactory individual performance and a satisfactory
level of contribution to our overall business objectives. The Compensation Committee reviews and
approves any increases in base salaries for our named executive officers.
32
The base salary for each of our named executive officers for fiscal 2020 compared to fiscal 2019 is as
follows:
Name
Rick Pauls ......................................... $
Scott Kellen .......................................
Harry Alcorn, Jr., Pharm.D. ..............
Fiscal 2020
Fiscal 2019
$
458,350
278,100
293,550
445,000
270,000
285,000
% Change from
Fiscal 2019
3.0%
3.0%
3.0%
The base salary increases for each of our named executive officers were intended to provide for cost of
living adjustments.
Annual Short-Term Incentive Compensation
In addition to base compensation, we provide our named executive officers the opportunity to earn short-
term incentive (STI) compensation based on the achievement of certain annual corporate and individual
performance goals. Our STI program directly aligns the interests of our executive officers and
shareholders by providing an incentive for the achievement of key corporate and individual performance
objectives that are critical to the success of our company and linking a significant portion of each
executive’s annual compensation to the achievement of such objectives.
Under the 2020 STI program, each named executive officer had a target incentive percentage that was a
percentage of their base salary:
Name
Rick Pauls
Scott Kellen
Harry Alcorn, Jr., Pharm.D.
Percentage of Salary Base
50%
30%
30%
2020 STI payouts were based primarily on the achievement of three pre-established corporate
performance objectives that related to clinical development milestones and either one or two individual
performance objectives that related to each named executive’s corporate responsibilities. The STI
payouts reflected adjustments in light of the COVID-19 pandemic and its effect on our business and
management’s response to the pandemic, especially with respect to the continuation of our clinical trials,
resulting in payouts representing 95% of each officer’s respective target bonus opportunity:
Officer Name and Position
Rick Pauls
Scott Kellen
Harry Alcorn, Jr., Pharm.D.
2020 Base
Salary
$ 458,350
278,100
293,550
Target Incentive
Percentage of
Base Salary
50%
30%
30%
Target Bonus
Opportunity
$ 229,175
83,430
88,065
2020 Actual
Payout
$ 217,716
79,238
83,662
Long-Term Equity-Based Incentive Compensation
The long-term equity-based incentive compensation component consists of stock options granted under
the DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan. Long-term equity-based incentives are
intended to comprise a significant portion of each executive’s compensation package, consistent with our
executive compensation objective to align the interests of our executives with the interests of our
shareholders.
33
The Compensation Committee believes that options effectively incentivize executives to maximize
company performance over the long-term, as the value of awards is directly tied to an appreciation in the
value of our common shares. Stock options also provide an effective retention mechanism because of
vesting provisions. An important objective of our long-term equity-based incentive program is to
strengthen the relationship between the long-term value of our common shares and the potential financial
gain for our executives. Stock options provide recipients with the opportunity to purchase our common
shares at a price fixed on the grant date regardless of future market price. Because stock options become
valuable only if the share price increases above the exercise price and the option holder remains employed
during the period required for the option to vest, they provide an incentive for an executive to remain
employed. In addition, stock options link a portion of an executive’s compensation to the interests of our
shareholders by providing an incentive to achieve corporate goals and increase the market price of our
common shares over time.
The table below sets forth the stock options that we granted to our named executive officers in 2020,
which options vest quarterly over three years:
Name
Rick Pauls ............................
Scott Kellen ..........................
Harry Alcorn, Jr., Pharm.D. .
Grant Date
06/01/20
06/01/20
06/01/20
Grant Date
Fair Value
$ 190,624
119,140
119,140
Number of Shares
Underlying Options
56,000
35,000
35,000
Exercise Price
$ 4.64
4.64
4.64
All Other Compensation
It is generally our policy not to extend perquisites to our executives that are not available to our
employees generally. Our executives receive benefits that are also received by our other employees,
including participation in the DiaMedica USA, Inc. 401(k) Plan and health, dental, disability and life
insurance benefits.
Employment Agreements
In September 2018, we entered into an employment agreement with each of our executive officers, which
provides for an annual base salary, subject to periodic reviews, incentive based compensation, equity-
based compensation and benefits, in each case as determined by the Board of Directors (or a committee
thereof) from time to time. The agreements contain standard confidentiality, non-competition, non-
solicitation and assignment of intellectual property provisions. The agreements also contains standard
severance and change in control provisions which are described under “—Post-Termination Severance
and Change in Control Arrangements.”
Post Termination Severance and Change in Control Arrangements
Severance Arrangements. Under the terms of the employment agreements with our executive officers, if
we terminate the executive’s employment without “cause”, the executive will be entitled to: (i) salary
continuation payments for 12 months in the case of Mr. Pauls and nine months in the case of each of the
other executives, (ii) Consolidated Omnibus Budget Reconciliation Act (COBRA) premium
reimbursement during the salary continuation period, (iii) a pro rata portion of their target annual bonus
for the year of termination, and (iv) immediate acceleration of their equity awards. These severance
benefits are subject to the executive executing a separation agreement and release of claims. “Cause” is
defined in the employment agreements as: (i) gross negligence or willful failure to perform the
executive’s duties and responsibilities to DiaMedica; (ii) commission of any act of fraud, theft,
embezzlement, financial dishonesty or any other willful misconduct that has caused or is reasonably
expected to result in injury to DiaMedica; (iii) conviction of, or pleading guilty or nolo contendere to, any
34
felony or a lesser crime involving dishonesty or moral turpitude; (iv) material breach by the executive of
any of their obligations under the agreement or any written agreement or covenant with DiaMedica,
including the policies adopted from time to time by DiaMedica applicable to all executives, that has not
been cured within 30 days of notice of such breach; or (v) we terminate the employment of the executive
in connection with a liquidation, dissolution or winding down of DiaMedica. We believe that the form
and amount of these severance benefits are fair and reasonable to both DiaMedica and our executives.
The Compensation Committee reviews our severance arrangements periodically to ensure that they
remain necessary and appropriate.
Change in Control Arrangements. To encourage continuity, stability and retention when considering the
potential disruptive impact of an actual or potential corporate transaction, we have established change in
control arrangements, including provisions in the 2019 Plan and executive employment agreements.
These arrangements are designed to incentivize our executives to remain with our company in the event
of a change in control or potential change in control.
Under the terms of the 2019 Plan, subject to the terms of the applicable award agreement or an individual
agreement between DiaMedica and a participant, upon a change in control, the Board of Directors may, in
its discretion, determine whether some or all outstanding options and stock appreciation rights shall
become exercisable in full or in part, whether the restriction period and performance period applicable to
some or all outstanding restricted stock awards and restricted stock unit awards shall lapse in full or in
part and whether the performance measures applicable to some or all outstanding awards shall be deemed
to be satisfied. The Board of Directors may further require that shares of stock of the corporation
resulting from such a change in control, or a parent corporation thereof, be substituted for some or all of
our common shares subject to an outstanding award and that any outstanding awards, in whole or in part,
be surrendered to us by the holder, to be immediately cancelled by us, in exchange for a cash payment,
shares of capital stock of the corporation resulting from or succeeding us or a combination of both cash
and such shares of stock.
Under the terms of the employment agreements that we entered into with our executives in September
2018, if we terminate the executive’s employment without “cause” or the executive terminates their
employment with “good reason” in connection with or within 12 months after a “change in control,” the
executive will be entitled to: (i) salary continuation payments for 18 months in the case of Mr. Pauls and
12 months in the case of each of the other executives, (ii) COBRA premium reimbursement during the
salary continuation period, (iii) a pro rata portion of their target annual bonus for the year of termination,
and (iv) immediate acceleration of their equity awards. These severance benefits are subject to the
executive executing a separation agreement and release of claims.
“Good reason” is defined in the employment agreements as the executive’s resignation within 30 days
following the expiration of any cure period following the occurrence of one or more of the following,
without the executive’s express written consent: (i) a material reduction of the executive’s duties,
authority, reporting level, or responsibilities, relative to their duties, authority, reporting level, or
responsibilities in effect immediately prior to such change in control; (ii) a material reduction in the
executive’s base compensation; or (iii) DiaMedica’s requiring of the executive to change the principal
location at which the executive is to perform services by more than 50 miles.
“Change in control” is defined in the employment agreements as the occurrence of any of the following:
(i) the acquisition, other than from us, by any individual, entity or group of beneficial ownership of 50%
or more of either our then outstanding common shares or the combined voting power of our then
outstanding voting securities entitled to vote generally in the election of directors; (ii) the consummation
of a reorganization, merger or consolidation of DiaMedica, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective beneficial owners of our common
shares and voting securities immediately prior to such reorganization, merger or consolidation do not,
35
following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than
50% of, respectively, of then outstanding common shares and the combined voting power of then
outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation; or (iii) the sale or other
disposition of all or substantially all of our assets.
We believe these change in control arrangements are an important part of our executive compensation
program in part because they mitigate some of the risk for executives working in a smaller company
where there is a meaningful risk that DiaMedica may be acquired. Change in control benefits are
intended to attract and retain qualified executives who, absent these arrangements and in anticipation of a
possible change in control of our company, might consider seeking employment alternatives to be less
risky than remaining with our company through the transaction. We believe that the form and amount of
these change in control benefits are fair and reasonable to both our company and our executives. The
Compensation Committee periodically reviews our change in control arrangements to ensure that they
remain necessary and appropriate.
Indemnification Agreements
We have entered into indemnification agreements with all of our executive officers. The indemnification
agreements are governed exclusively by and construed according to the substantive laws of the BCBCA,
without regard to conflicts-of-laws principles that would require the application of any other law, and
provide, among other things, for indemnification, to the fullest extent permitted by law and our Articles,
against any and all expenses (including attorneys’ fees) and liabilities, judgments, fines and amounts paid
in settlement that are paid or incurred by the executive or on his or her behalf in connection with such
action, suit or proceeding. We will be obligated to pay these amounts only if the executive acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our
company and, in the case of a criminal or administrative proceeding that is enforced by a monetary
penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. The
indemnification agreements provide that the executive will not be indemnified and expenses advanced
with respect to an action, suit or proceeding initiated by the executive unless (i) so authorized or
consented to by the Board of Directors or DiaMedica has joined in such action, suit or proceeding or
(ii) the action, suit or proceeding is one to enforce the executive’s rights under the indemnification
agreement. Our indemnification and expense advance obligations are subject to the condition that an
appropriate person or body not party to the particular action, suit or proceeding shall not have determined
that the executive is not permitted to be indemnified under applicable law. The indemnification
agreements also set forth procedures that apply in the event an executive requests indemnification or an
expense advance.
36
Summary Compensation Table
The table below provides summary information concerning all compensation awarded to, earned by or
paid to our named executive officers during our 2020 and 2019 fiscal years.
Name and Principal Position
Year
Rick Pauls(5) ................................. 2020
2019
President and Chief Executive
Officer
Salary
Bonus(1)
$ 455,013 $ —
—
420,000
Non-
Equity
Incentive
Plan
Compen-
sation(3)
All
Other
Compen-
sation(4)
Option
Awards(2)
$ 190,624 $ 217,716 $ 14,850 $ 878,203
733,707
890,736
178,000
14,650
Total
Scott Kellen ................................. 2020
2019
Chief Financial Officer and
Secretary
276,075
262,500
—
—
119,140
336,557
79,238
64,800
14,850
13,950
489,303
677,807
Harry Alcorn, Jr., Pharm.D. ........ 2020
2019
Chief Medical Officer
291,413
273,750
—
—
119,140
421,750
83,662
68,400
14,850
14,400
509,065
778,300
(1)
(2)
(3)
(4)
We generally do not pay discretionary bonuses.
Amounts reflect the full grant-date fair value of stock options granted during the applicable year computed
in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual.
The grant date fair value is determined based on our Black-Scholes option pricing model. The table below
sets forth the specific assumptions used in the valuation of each such option award:
Grant Date
06/01/2020
06/24/2019
Grant Date Fair
Value Per Share
$
3.40
3.37
Risk Free
Interest Rate
0.32%
1.75%
Expected
Life
5.1 years
5.1 years
Expected
Volatility
97.99%
96.3%
Expected
Dividend Yield
—
—
There can be no assurance that unvested awards will vest (and, absent vesting and exercise, no value will
be realized by the executive for the award).
Amounts reported represent awards earned for that year under our annual short-term incentive plan but paid
during the following year. See “—Executive Compensation Overview—Annual Short-Term Incentive
Compensation.”
The amounts shown in the “All Other Compensation” column for fiscal 2020 include the following with
respect to each named executive officer:
Name
Rick Pauls .............................. $
Scott Kellen ............................
Harry Alcorn, Jr., Pharm.D. ...
401(k) Match
11,400
11,400
11,400
Health Savings
Account Contribution
$
3,450
3,450
3,450
$
Total
14,850
14,850
14,850
(5)
Mr. Pauls is also a director of DiaMedica and did not receive any compensation related to his role as a
director.
37
Outstanding Equity Awards at Fiscal Year-End
The following table presents for each named executive officer information regarding outstanding equity
awards held as of December 31, 2020. All of our named executive officers held stock options as of
December 31, 2020 and one of our named executive officers held deferred share units.
Option Awards(1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
Option
Expiration
Date(2)
Stock Awards
Number
of Shares
or Units
of Stock
That
Have Not
Vested(3)
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(4)
($)
10,000
10,000
10,000
67,500
42,500
42,500
27,917
198,000
9,333
48,175
74,183
5,833
18,750
93,750
5,833
—
—
—
—
—
—
5,583
66,000
46,667
(CAD$) 23.00
(CAD$) 34.00
(CAD$) 21.40
(CAD$) 3.00
(CAD$) 5.20
(CAD$) 6.40
(CAD$) 11.20
(US$) 4.60
(US$) 4.64
10/06/2021
02/15/2022
06/25/2023
12/01/2025
11/28/2026
06/19/2027
04/17/2028
06/23/2029
05/31/2030
8,375
24,937
29,167
(CAD$) 11.20
(US$) 4.60
(US$) 4.64
04/17/2028
06/23/2029
05/31/2030
6,250
31,250
29,167
(CAD$) 10.40
(US$) 4.60
(US$) 4.64
08/15/2028
06/23/2029
05/31/2030
1,749 (US$) 17,735
Name
Rick Pauls
Stock Options ..........
DSUs .....................
Scott Kellen
Stock Options .............
Harry Alcorn, Pharm.D.
Stock Options .............
(1)
(2)
(3)
(4)
All stock options vest in 12 equal quarterly installments over three years, except the stock options granted
on June 24, 2019 which vest in eight equal quarterly installments over two years. The vesting of the stock
options may be accelerated under certain circumstances, including if the recipient’s employment or service
relationship with our company is involuntarily terminated.
All stock options have a 10-year term, but may terminate earlier if the recipient’s employment or service
relationship with our company terminates.
All DSU awards are settled after the holder’s employment or service relationship with our company
terminates.
The market value of DSU awards that have not been settled as of December 31, 2020 is based on the
closing sale price of our common shares as reported by The Nasdaq Capital Market on December 31, 2020
($10.14).
38
Employee Benefit and Stock Plans
2019 Omnibus Incentive Plan
The DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan was adopted by the Board of Directors on
March 14, 2019 and approved by our shareholders on May 22, 2019.
Shares Available. Subject to adjustment (as described below), the maximum number of our common
shares authorized for issuance under the 2019 Plan is 2,000,000 shares. No more than 2,000,000 shares
may be granted as incentive stock options and no more than 100,000 shares may be granted to any non-
employee director in any one year (other than shares received in lieu of any annual cash retainer or
meeting fees).
Eligible Participants. Awards may be granted to employees, non-employee directors and consultants of
DiaMedica or any of our subsidiaries. A “consultant” for purposes of the 2019 Plan is one who renders
services to DiaMedica or its subsidiaries that are not in connection with the offer and sale of our securities
in a capital raising transaction and do not directly or indirectly promote or maintain a market for our
securities.
Awards Available. The 2019 Plan permits us to grant 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. Awards may be granted either
alone or in addition to or in tandem with any other type of award.
Transferability. Except pursuant to a testamentary will or the laws of descent and distribution or as
otherwise expressly permitted by the 2019 Plan, no right or interest of any participant in an award prior to
the exercise (in the case of options or stock appreciation rights) or vesting, issuance or settlement of such
award will be assignable or transferable, or subjected to any lien, during the lifetime of the participant,
either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.
Termination of Employment or Other Service. The 2019 Plan provides for certain default rules in the
event of a termination of a participant’s employment or other service. These default rules may be
modified in an award agreement or an individual agreement between DiaMedica and a participant. If a
participant’s employment or other service with DiaMedica is terminated for cause, then all outstanding
awards held by such participant will be terminated and forfeited. In the event a participant’s employment
or other service with DiaMedica is terminated by reason of death, disability, or retirement, then:
All outstanding stock options (excluding non-employee director options in the case of retirement)
and stock appreciation rights held by the participant will, to the extent exercisable, remain
exercisable for a period of one year after such termination, but not later than the date the stock
options or stock appreciation rights would otherwise expire;
All outstanding stock options and stock appreciation rights that are not exercisable and all
outstanding restricted stock will be terminated and forfeited; and
All outstanding unvested restricted stock units, performance awards, and other stock-based
awards held by the participant will terminate and be forfeited. However, with respect to any
awards that vest based on the achievement of performance goals, if a participant’s employment or
other service with DiaMedica or any subsidiary is terminated prior to the end of the performance
period of such award, but after the conclusion of a portion of the performance period (but in no
event less than one year), the Board of Directors may, in its sole discretion, cause shares to be
delivered or payment made with respect to the participant’s award, but only if otherwise earned
for the entire performance period and only with respect to the portion of the applicable
39
performance period completed at the date of such event, with proration based on the number of
months or years that the participant was employed or performed services during the performance
period.
In the event a participant’s employment or other service with DiaMedica is terminated by reason other
than for cause, death, disability, or retirement, then:
All outstanding stock options (including non-employee director options) and stock appreciation
rights held by the participant that then are exercisable will remain exercisable for three months
after the date of such termination, but will not be exercisable later than the date the stock options
or stock appreciation rights would otherwise expire;
All outstanding restricted stock will be terminated and forfeited; and
All outstanding unvested restricted stock units, performance awards and other stock-based awards
will be terminated and forfeited. However, with respect to any awards that vest based on the
achievement of performance goals, if a participant’s employment or other service with
DiaMedica or any subsidiary is terminated prior to the end of the performance period of such
award, but after the conclusion of a portion of the performance period (but in no event less than
one year), the Board of Directors may, in its sole discretion, cause shares to be delivered or
payment made with respect to the participant’s award, but only if otherwise earned for the entire
performance period and only with respect to the portion of the applicable performance period
completed at the date of such event, with proration based on the number of months or years that
the participant was employed or performed services during the performance period.
Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture, or
extraordinary dividend (including a spin off) or other similar change in the corporate structure or our
common shares, the Board of Directors will make the appropriate adjustment or substitution in order to
prevent dilution or enlargement of the rights of participants. These adjustments or substitutions may be to
the number and kind of securities and property that may be available for issuance under the 2019 Plan. In
order to prevent dilution or enlargement of the rights of participants, the Board of Directors may also
adjust the number, kind and exercise price of securities or other property subject to outstanding awards.
Term, Termination and Amendment. Unless sooner terminated by the Board of Directors, the 2019 Plan
will terminate at midnight on May 21, 2029. No award will be granted after termination of the 2019 Plan,
but awards outstanding upon termination of the 2019 Plan will remain outstanding in accordance with
their applicable terms and conditions and the terms and conditions of the 2019 Plan.
Subject to certain exceptions as set forth in the 2019 Plan, the Board of Directors has the authority to
terminate and the Board of Directors has the authority to amend the 2019 Plan or any outstanding award
agreement at any time and from time to time. No termination or amendment of the 2019 Plan or an award
agreement shall adversely affect in any material way any award previously granted under the 2019 Plan
without the written consent of the participant holding such award.
Prior Stock Option Plan
The DiaMedica Therapeutics Inc. Amended and Restated Stock Option Plan (Option Plan) was adopted
by the Board of Directors on September 30, 2018 and by our shareholders on November 6, 2018. The
Option Plan was terminated with respect to future grants upon the approval by the shareholders of the
2019 Plan. Options outstanding under the Option Plan remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of the Option Plan.
40
Subject to the discretion of the Board of Directors, where a person ceases to be an eligible participant
under the Option Plan, other than by reason of death or in the event of termination for cause, options
granted to participants will cease to be exercisable on the earlier of the expiry date and 90 days after the
date of termination. Subject to the discretion of the Board of Directors, if a participant is terminated for
cause, all options received will terminate and cease to be exercisable upon such termination.
In the event of any change in our outstanding common shares by reason of any stock dividend, split,
recapitalization, reclassification, amalgamation, merger, consolidation, combination or exchange of shares
or distribution of rights to holders of shares or any other form of corporate reorganization whatsoever, an
equitable adjustment will be made to the share limits in the Option Plan and any options then outstanding
and the exercise price in respect of such options.
Prior Deferred Share Unit Plan
The DiaMedica Therapeutics Inc. Deferred Share Unit Plan (DSU Plan) was adopted by the Board of
Directors on August 25, 2011 and by our shareholders on September 22, 2011. The DSU Plan was
terminated with respect to future grants upon the approval by the shareholders of the 2019 Plan. DSU
awards outstanding under the DSU Plan remain outstanding in accordance with their applicable terms and
conditions and the terms and conditions of the DSU Plan. All DSU awards held by a recipient settle and
the shares underlying such awards become issuable only after the termination of the recipient’s
employment or other service with DiaMedica.
Anti-Hedging and Pledging Policy
DiaMedica has determined that there is a heightened legal risk and/or the appearance of improper or
inappropriate conduct if officers, directors and employees engage in certain types of transactions in
DiaMedica’s securities that hedge or offset, or are designed to hedge or offset, any decrease in the market
value of DiaMedica’s equity securities. Therefore, DiaMedica’s Insider Trading Policy provides that
officers, directors and employees must comply with the following policies with respect to certain
transactions in DiaMedica’s securities:
Short Sales. Short sales of DiaMedica’s securities evidence an expectation on the part of the
seller that the securities will decline in value, and therefore signal to the market that the seller has
no confidence in DiaMedica or its short-term prospects. In addition, short sales may reduce the
seller’s incentive to improve the Company’s performance. For these reasons, short sales of
DiaMedica’s securities are prohibited.
Publicly Traded Options. A transaction in options is, in effect, a bet on the short-term movement
of DiaMedica’s common shares and therefore creates the appearance that an officer, director or
employee is trading based on inside information. Transactions in options also may focus an
officer’s, director’s or employee’s attention on short-term performance at the expense of the
Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative
securities involving DiaMedica’s equity securities, on an exchange or in any other organized
market, are prohibited.
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost
collars and forward sale contracts, allow an officer, director or employee to lock in much of the
value of his or her stock holdings, often in exchange for all or part of the potential for upside
appreciation in the stock. These transactions allow the officer, director or employee to continue
to own the covered securities, but without the full risks and rewards of ownership. When that
occurs, the officer, director or employee may no longer have the same objectives as DiaMedica’s
41
other shareholders. Therefore, such transactions involving DiaMedica’s equity securities are
prohibited.
Purchases of the Company’s Securities on Margin; Pledging the Company’s Securities to
Secure Margin or Other Loans. Purchasing on margin means borrowing from a brokerage firm,
bank or other entity in order to purchase DiaMedica’s securities (other than in connection with a
cashless exercise of stock options through a broker under the Company’s equity plans). Margin
purchases of DiaMedica’s securities are prohibited. Pledging DiaMedica’s securities as collateral
to secure loans is also prohibited. This prohibition means, among other things, that directors,
officers and employees cannot hold DiaMedica’s securities in a “margin account.”
42
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
________________
Introduction
Below under “—Description of Related Party Transactions” is a description of transactions that have
occurred during the past two fiscal years, or any currently proposed transactions, to which we were or are
a participant and in which:
the amounts involved exceeded or will exceed the lesser of: $120,000 or one percent (1%) of the
average of our total assets at year end for the last two completed fiscal years; and
a related person (including any director, director nominee, executive officer, holder of more than
5% of our common shares or any member of their immediate family) had or will have a direct or
indirect material interest.
Description of Related Party Transactions
Agreement with Trident Rx Consulting Services LLC
We have engaged the services of Trident Rx Consulting Services LLC, a company owned by Dr. Sydney
Gilman, our Vice President of Regulatory Affairs, to perform regulatory consulting services for us. The
fees we pay are based solely on the hourly fees of the consultants performing services for us. There is no
markup received by Dr. Gilman. During 2020, we paid $235,143 to Trident Rx Consulting Services LLC
under this arrangement. During 2019, we did not make any payments under this arrangement. The Audit
Committee reviewed the purpose of the transaction, the benefits of the transaction, the availability of
other sources for comparable services, the terms of the transaction, and the terms available to unrelated
third parties or employees generally and determined in good faith that the transaction is in, and not
inconsistent with, the best interests of the Company.
Relationship with Hermeda Industrial Co., Limited
We and Hermeda Industrial Co., Limited (Hermeda) were parties to an investment agreement, which
included terms relating to the composition of the Board of Directors. Under director nomination
provisions of this agreement, Hermeda had the right to designate a representative to be nominated to the
Board of Directors for so long as Hermeda beneficially owned at least 10% of our outstanding common
shares on a non-diluted basis, and we agreed to use our reasonable best efforts to cause the Hermeda
designee to be elected. Zhenyu Xiao, Ph.D., a former director who did not stand for re-election at our
2020 Annual General Meeting, was the designee of Hermeda under the investment agreement. Currently
Hermeda beneficially owns less than five percent of our outstanding common shares.
Indemnification Agreements
We have entered into indemnification agreements with all of our directors and executive officers. The
indemnification agreements provide, among other things, for indemnification, to the fullest extent
permitted by law and our Articles, against any and all expenses (including attorneys’ fees) and liabilities,
judgments, fines and amounts paid in settlement that are paid or incurred by the executive or on his or her
behalf in connection with such action, suit or proceeding. The indemnification agreements also set forth
procedures that apply in the event an executive requests indemnification or an expense advance. For
more information regarding these agreements, see “Director Compensation—Indemnification.”
43
DiaMedica has not identified any arrangements or agreements relating to compensation provided by a
third party to DiaMedica’s directors or director nominees in connection with their candidacy or board
service as required to be disclosed pursuant to Nasdaq Rule 5250(b)(3).
Policies and Procedures for Related Party Transactions
The Board of Directors has delegated to the Audit Committee, pursuant to the terms of a written policy
and the formal written charter of the Audit Committee, the authority to review, approve and ratify related
party transactions. If it is not feasible for the Audit Committee to take an action with respect to a
proposed related party transaction, the Board of Directors or another committee, may approve or ratify it.
No member of the Board of Directors or any committee may participate in any review, consideration or
approval of any related party transaction with respect to which such member or any of his or her
immediate family members is the related party.
Our policy defines a “related party transaction” as a transaction, arrangement or relationship (or any series
of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries and
affiliates) were, are or will be a participant and in which any related party had, has or will have a direct or
indirect interest (other than solely as a result of being a director or less than 10 percent beneficial owner
of another entity).
Prior to entering into or amending any related party transaction, the party involved must provide notice to
our Chief Financial Officer of the facts and circumstances of the proposed transaction, including:
the related party’s relationship to us and his or her interest in the transaction;
the material facts of the proposed related party transaction, including the proposed aggregate
value of such transaction or, in the case of indebtedness, the amount of principal that would be
involved;
the purpose and benefits of the proposed related party transaction with respect to us;
if applicable, the availability of other sources of comparable products or services; and
an assessment of whether the proposed related party transaction is on terms that are comparable
to the terms available to an unrelated third party or to employees generally.
If the Chief Financial Officer determines the proposed transaction is a related party transaction in which
the amount involved will or may be expected to exceed $10,000 in any calendar year, the proposed
transaction will be submitted to the Audit Committee for consideration. In determining whether to
approve a proposed related party transaction, the Audit Committee, or where submitted to the Chair of the
Audit Committee, the Chair of the Audit Committee, will consider, among other things, the following:
the purpose of the transaction;
the benefits of the transaction to us;
the impact on a director’s independence in the event the related party is a non-employee director,
an immediate family member of a non-employee director or an entity in which a non-employee
director is a partner, shareholder or executive officer;
the availability of other sources for comparable products or services;
the terms of the transaction; and
the terms available to unrelated third parties or to employees generally.
44
Under our policy, certain related party transactions as defined under our policy will be deemed to be pre-
approved by the Audit Committee and will not be subject to these procedures.
SHAREHOLDER PROPOSALS FOR 2022 ANNUAL GENERAL MEETING OF SHAREHOLDERS
________________
Shareholders who, in accordance with Rule 14a-8 under the Exchange Act, wish to present proposals for
inclusion in the proxy materials relating to the 2022 Annual General Meeting of Shareholders must
submit their proposals so that they are received by us at our principal executive offices no later than the
close of business on February 4, 2022, unless the date of the 2022 Annual General Meeting of
Shareholders is delayed by more than 30 calendar days. The proposals must satisfy the requirements of
the proxy rules promulgated by the SEC and as the rules of the SEC make clear, simply submitting a
proposal does not guarantee that it will be included.
Any other shareholder proposals, including director nominations, to be presented at the 2022 Annual
General Meeting of Shareholders (other than a matter brought pursuant to SEC Rule 14a-8) must be given
in writing to our Corporate Secretary and must be delivered to or mailed and received at our registered
office no later than the close of business on the date that is three months before the anniversary of the
previous year’s annual reference date, such date being April 15, 2022. The proposals must satisfy the
requirements of the BCBCA. Subject to the BCBCA, a registered owner or beneficial owner of one or
more shares that carry the right to vote at general meetings and who has been a registered owner or
beneficial owner of one or more such shares for an uninterrupted period of at least two years may submit
to us a notice of any matter that the person wishes to have considered at our next annual general meeting.
COPIES OF FISCAL 2020 ANNUAL REPORT AND ADDITIONAL INFORMATION
________________
We have sent or made electronically available to each of our shareholders a copy of our Annual
Report on Form 10-K (without exhibits) for the fiscal year ended December 31, 2020, as amended.
Our 2020 Annual Report includes our financial information included in our consolidated annual
financial statements and the related Management’s Discussion and Analysis of Financial Condition
and Results of Operations for the fiscal year ended December 31, 2020. Our 2020 Annual Report is
electronically available on our website at www.diamedica.com, by accessing the SEC’s EDGAR
filing database at www.sec.gov or on SEDAR at www.sedar.com. The exhibits to our Form 10-K
are available by accessing the SEC’s EDGAR filing database at www.sec.gov. We will furnish a
copy of any exhibit to our Form 10-K upon receipt from any such person of a written request for
such exhibits upon the payment of our reasonable expenses in furnishing the exhibits. This request
should be sent to: DiaMedica Therapeutics Inc., Two Carlson Parkway, Suite 260, Minneapolis,
Minnesota 55447, Attention: Shareholder Information.
_________________________
Your vote is important. Whether or not you plan to attend the meeting in person, vote your shares of
DiaMedica common shares by the Internet or telephone, or request a paper proxy card to sign, date and
return by mail so that your shares may be voted.
By Order of the Board of Directors
June 4, 2021
Minneapolis, Minnesota
Richard Pilnik
Chairman of the Board
45
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 001-36291
DIAMEDICA THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
British Columbia
(State or other jurisdiction of incorporation or organization)
Not Applicable
(I.R.S. Employer Identification No.)
Two Carlson Parkway, Suite 260
Minneapolis, Minnesota
(Address of principal executive offices)
55447
(Zip Code)
Registrant’s telephone number, including area code: (763) 612-6755
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Voting Common Shares, no par value per share
Trading Symbol(s)
DMAC
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES □ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES □ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YES □ NO ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES ☒ NO □
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting
company’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.
Accelerated filer □
Non-accelerated filer ☒
Large accelerated filer □
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES □ NO ☒
The aggregate market value of the registrant’s voting common shares held by non-affiliates, computed by reference to the closing sales
price at which the voting common shares were last sold as of June 30, 2020 (the last business day of the registrant’s most recently
completed second fiscal quarter), as reported by The Nasdaq Capital Market on that date, was $78.5 million.
As of March 8, 2021, there were 18,776,157 voting common shares outstanding.
Smaller reporting company ☒
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein)
from the registrant’s Proxy Statement for its 2021 Annual General Meeting of Shareholders to be held May 25, 2021.
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DIAMEDICA THERAPEUTICS INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .
INDUSTRY AND MARKET DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.
Item 13.
Item 14.
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
98
98
101
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
i
This annual report on Form 10-K contains certain forward-looking statements that are within the meaning of
Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For
more information, see ‘‘Cautionary Note Regarding Forward-Looking Statements.’’
As used in this report, references to ‘‘DiaMedica,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘our’’ or ‘‘us,’’ unless the context
otherwise requires, refer to DiaMedica Therapeutics Inc. and its subsidiaries, all of which are consolidated in
DiaMedica’s consolidated financial statements. References in this report to ‘‘common shares’’ mean our voting
common shares, no par value per share.
We own various unregistered trademarks and service marks, including our corporate logo. Solely for
convenience, the trademarks and trade names in this report are referred to without the ® and ™ symbols, but
such references should not be construed as any indicator that the owner of such trademarks and trade names
will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display
of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of
us by, any other companies.
ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this annual report on Form 10-K that are not descriptions of historical facts are forward-looking
statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 that are
based on management’s current expectations and are subject to risks and uncertainties that could negatively affect
our business, operating results, financial condition and share price. We have attempted to identify
forward-looking statements by terminology including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘can,’’ ‘‘continue,’’ ‘‘could,’’
‘‘estimates,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘plans,’’ ‘‘potential,’’ ‘‘predicts,’’ ‘‘should,’’ ‘‘will,’’ ‘‘would,’’ the
negative of these terms or other comparable terminology, and the use of future dates.
The forward-looking statements in this report include, among other things, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our plans to develop, obtain regulatory approval for and commercialize our DM199 product candidate
for the treatment of acute ischemic stroke (AIS) and chronic kidney disease (CKD) and our
expectations regarding the benefits of our DM199 product candidate;
our ability to conduct successful clinical testing of our DM199 product candidate for AIS and CKD and
certain anticipated dates with respect to our pending and anticipated clinical trials;
our ability to obtain required regulatory approvals of our DM199 product candidate for AIS and CKD;
the perceived benefits of our DM199 product candidate over existing treatment options for AIS and
CKD;
the potential size of the markets for our DM199 product candidate and our ability to serve those
markets;
the rate and degree of market acceptance, both in the United States and internationally, of our
DM199 product candidate for AIS and CKD;
our ability to partner with and generate revenue from biopharmaceutical or pharmaceutical partners to
develop, obtain regulatory approval for and commercialize our DM199 product candidate for AIS and
CKD;
the success, cost and timing of planned clinical trials, as well as our reliance on collaboration with
third parties to conduct our clinical trials;
our commercialization, marketing and manufacturing capabilities and strategy;
expectations regarding federal, state, and foreign regulatory requirements and developments, such as
potential United States Food and Drug Administration (FDA) regulation of our DM199 product
candidate for AIS and CKD;
expectations regarding competition and our ability to obtain data exclusivity for our DM199 product
candidate for AIS and CKD;
our ability to obtain funding for our operations, including funding necessary to complete planned
clinical trials and obtain regulatory approvals for our DM199 product candidate for AIS and CKD;
our estimates regarding expenses, future revenue, capital requirements and needs for additional
financing;
our expectations regarding our ability to obtain and maintain intellectual property protection for our
DM199 product candidate; and
our anticipated use of the net proceeds from our 2020 public offerings.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those
described under ‘‘Part I. Item 1A. Risk Factors in this report. Moreover, we operate in a very competitive and
rapidly-changing environment. New risks emerge from time to time. It is not possible for our management to
predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this report may not occur and actual results could differ materially and adversely from
those anticipated or implied in the forward-looking statements. Forward-looking statements should not be relied
1
upon as predictions of future events. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events
and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by
law, including the securities laws of the United States, we do not intend to update any forward-looking
statements to conform these statements to actual results or to changes in our expectations.
INDUSTRY AND MARKET DATA
In addition to the industry, market and competitive position data referenced in this report from our own internal
estimates and research, some market data and other statistical information included in this report are based in
part upon information obtained from third-party industry publications, research, surveys and studies, none of
which we commissioned. Third-party industry publications, research, surveys and studies generally indicate that
their information has been obtained from sources believed to be reliable, although they do not guarantee the
accuracy or completeness of such information.
We are responsible for all of the disclosure in this report, and while we believe that each of the publications,
research, surveys and studies included in this report are prepared by reputable sources, we have not
independently verified market and industry data from third-party sources. In addition, while we believe our
internal company research and estimates are reliable, such research and estimates have not been verified by
independent sources. Assumptions and estimates of our and our industry’s future performance are necessarily
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in ‘‘Part I.
Item 1A. Risk Factors.’’ These and other factors could cause our future performance to differ materially from our
assumptions and estimates. See ‘‘Cautionary Note Regarding Forward-Looking Statements.’’
2
Item 1.
Business
Overview
PART I
We are a clinical stage biopharmaceutical company developing novel treatments for neurological and kidney
diseases. Our goal is to use our patented and in-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 acute ischemic stroke (AIS) and chronic kidney disease (CKD). We plan to advance
DM199, our lead drug candidate, through required clinical trials to create shareholder value by establishing its
clinical and commercial potential as a therapy for AIS and CKD.
AIS and CKD patients suffer from impaired blood flow in the brain and kidneys, respectively. These patients
also tend to exhibit lower than normal levels of endogenous (produced by the body) kallikrein-1 (KLK1), which
is a protein produced primarily in the kidneys, pancreas and salivary glands. We believe treatment with DM199
could replenish levels of KLK1, thereby allowing the natural function of kallikrein-kinin system (KKS) to release
bradykinin (BK) in the body where and when needed, generating beneficial nitric oxide and prostacyclin, setting
in motion metabolic pathways that can improve blood flow (through vasoregulation), dampen inflammation and
protect tissues and end-organs from ischemic damage, supporting structural integrity and normal functioning.
In the case of AIS, low KLK1 levels are associated with increased risk of stroke and a predictor of stroke
recurrence. Our ReMEDy Phase 2 trial in AIS was completed in the first half of 2020 and, in addition to meeting
its primary safety and tolerability endpoints, showed a 13.4% absolute decrease in severe recurrent strokes
(p=0.03) over the 90-day treatment period. Related to CKD, we completed a Phase 1b single dose,
pharmacokinetic (PK) study of DM199 in subjects with moderate CKD during 2019. Subjects received a single
dose in the study, after which short-term improvements in the biomarkers Nitric Oxide (NO) and Prostaglandin
E2 (PGE2) of 27.2% and 40.6%, respectively, were observed at approximately 24 hours after DM199
administration. Increases in these biomarkers are consistent with the expected mechanism of action for DM199.
We believe DM199 has the potential to treat a variety of diseases where restoring healthy function requires
sufficient activity of KLK1 and its system, KKS.
Today, forms of KLK1 derived from human urine and pancreas of a pig (porcine pancreas) are approved and
sold in Japan, China and Korea to treat AIS, CKD, retinopathy, hypertension and related vascular diseases. We
believe millions of patients have been treated with these KLK1 therapies and the data from more than
200 published papers and studies support their clinical benefit. However, there are numerous regulatory,
commercial and clinical drawbacks associated with KLK1 derived from human urine and porcine pancreas which
can be overcome by developing a synthetic version of KLK1 such as DM199. We believe higher regulatory
standards and antibody reactions are the primary reasons why KLK1 derived from human urine and porcine
pancreas are not currently available and used in the United State or Europe. We are not aware of any synthetic
version of KLK1 with regulatory approval for human use in any country, nor are we aware of any synthetic
version in development other than our drug candidate, DM199.
Kallikrein-Kinin System
KLK1 is a serine protease, or protein, produced primarily in the kidneys, pancreas and salivary glands. KLK1
plays a critical role in the regulation of local blood flow and vasodilation (the widening of blood vessels, which
decreases vascular resistance) in the body, as well as an important role in reducing inflammation and oxidative
stress (an imbalance between potentially damaging reactive oxygen species, or free radicals, and antioxidants in
the body).
KLK1 is involved in multiple biochemical processes. The most well-characterized activity of KLK1 is enzymatic
cleavage of low molecular weight kininogen (LMWK) to produce bradykinin (BK)-like peptides, collectively
known as kinins, which activate BK receptors (primarily BK2R with some BK1R). Activation of BK receptors
by kinins sets in motion metabolic pathways that can improve blood flow (through vasodilation), dampen
inflammation, and protect tissues and end-organs from ischemic damage. Scientific literature, including
publications in Circulation Research, Immunopharmacology and Kidney International, suggests that lower
endogenous KLK1 levels in patients are associated with diseases related to vascular disorders, such as kidney
diseases, stroke and hypertension. DM199, as a protein replacement therapy, may replenish KLK1 levels to
3
properly activate the KKS to locally produce nitric oxide, prostaglandin and other anti-inflammatory mediators
that protect the brain and kidney from damage. By providing additional supply of the KLK1 protein, DM199
treatment could potentially improve blood flow to and reduce inflammation in damaged end-organs, such as the
brain and the kidneys, supporting their structural integrity and normal functioning.
DM199 (KLK1) and Our Therapeutic Hypothesis
We have conducted numerous internal and third-party analyses to demonstrate that DM199 is structurally and
functionally equivalent to KLK1 derived from human urine. Specifically, the amino acid structure of DM199 is
identical to the human urine form, and the enzymatic and pharmacokinetic profiles are substantially similar to
both human urine and porcine derived KLK1. The physiological effects of DM199 on blood pressure, from our
completed studies, is similar to that of human urine and porcine-derived forms of KLK1. We believe that the
results of this work suggest that the therapeutic action of DM199 will be the same or, potentially, better than that
of the forms marketed in Asia.
We believe DM199 may provide new treatment options with significant benefits over the current standards of
care by offering a therapeutic treatment option to a greater number of patients with the potential for fewer side
effects.
Summary of Clinical Results
To date, clinical trials have been and/or are being conducted in the United States, Europe and Australia. We
believe the clinical data generated to date by DM199 supports the continued development of DM199 as a
treatment for AIS and CKD.
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Our Phase 2 ReMEDy study of DM199 in the treatment of AIS (n=91) met our primary safety and
tolerability end points and further demonstrated a statistically significant reduction in the number of
participants with severe recurrent stroke was noted in the active treatment group: 1 (2%) patient treated
with DM199 vs. 7 (16%) on placebo (p=0.028), with 4 of the 7 resulting in participant death (p=0.28).
Additionally, in our Phase 2 ReMEDy study, in a subset of participants (n=46) most closely aligned
with the target treatment population for DM199 in our proposed ReMEDy II Phase 2/3 study,
participants treated with DM199 (n=25) vs. standard of care supportive therapies and/or tissue
plasminogen activator (tPA) (n=21), the results showed that 36% of participants receiving DM199
progressed to a full or nearly full recovery at 90 days (National Institutes of Health Stroke Scale
(NIHSS): 0-1), compared to 14% of participants in the placebo group. This represents a 22% absolute
increase in the proportion of participants achieving a full or nearly full recovery.
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Our Phase 2 REDUX trial of DM199 in the treatment of CKD caused by rare or significant unmet
diseases is ongoing. As of the date of the report 68 participants have been enrolled and no results have
been released.
In July 2019, we completed a Phase 1b clinical trial of DM199 in participants with moderate or severe
CKD caused by Type 1 or Type 2 diabetes. The study was performed mainly to assess the
pharmacokinetics (PK) of three dose levels of DM199 (3, 5 and 8 µg/kg), administered in a single
subcutaneous (SC) dose. In August 2019, we announced the successful completion of this study
including positive pharmacodynamic (PD) results which were consistent with the proposed mechanism
of action for DM199.
In all studies, DM199 was shown to be safe and well tolerated with no DM199 related serious adverse events or
study discontinuations. The primary adverse events noted in our studies include constipation, nausea and
headache, all of which resolved without medical intervention.
We are developing DM199 to treat AIS and CKD in the following clinical trials:
Indication
Neurological Diseases
Acute Ischemic Stroke
Delivery
Stage
Status
Endpoints
Intravenous
(IV)/SC
Phase 2/3
Investigational
New Drug
(IND)
Application
Submission by
end of the first
quarter of
2021
Primary endpoint at day 90:
Modified Rankin Scale score of
0-1
Secondary endpoints at day 90:
Stroke recurrence
NIHSS and Barthel index
Deaths
Kidney Diseases
IgA Nephropathy (IgAN)
SC
Phase 2
Enrolling
African Americans with
CKD
SC
Phase 2
Enrolling
Diabetic Kidney Disease
(DKD)
SC
Phase 2
Enrollment
complete
Primary endpoint at day 95:
Safety & tolerability
Proteinuria and estimated
glomerular filtration rate (eGFR)
Secondary endpoints at day 90:
Change in IgG & IgA
biomarkers
Primary endpoint at day 95:
Safety & tolerability
Proteinuria and eGFR
Secondary endpoints at day 90:
Change in blood pressure
Primary endpoint at day 95:
Safety & tolerability
Proteinuria and eGFR
Secondary endpoints at day 90:
Change in blood sugar levels
5
Supporting Data for Use of DM199 (KLK1):
We have identified several hundred papers supporting the clinical use of urinary and porcine derived KLK1 from
China, Japan and Korea. We estimate approximately 25 companies are marketing porcine KLK1 and 1 company
marketing human urinary KLK1 in these countries.
For patients with chronic kidney disease, studies have shown that KLK1 excretion, or levels of KLK1 in the
urine, were significantly decreased. This decrease was more pronounced in patients with severe renal failure
requiring dialysis, as illustrated in the graph below.
Low KLK1 Levels Are Associated With Chronic Kidney Disease
Severe Kidney Disease,
Lower KLK1 Levels
KLK1 LEVELS
ng/μg
Normal
Mild
Severe
Source: Immunopharmacology 44 1999. 183–192
Studies have also shown that lower KLK1 levels are also a predictor of stroke recurrence. As shown in the graph
below, the red line represents patients in the lowest KLK1 quartile who are at the highest risk for recurrence of
stroke. (2,478 stroke patients and event free survival over 5 years).
Source: Annals of Neurology (2011) 70:265-73
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Our Strategy
Our long-term goal is to become a leader in the discovery, development and commercialization of recombinant
proteins for the treatment of severe and life-threatening diseases. We seek to identify and select, for development
and partnership, recombinant proteins with novel mechanisms that have biological properties with broad
applicability. Once we have selected a class of recombinant proteins, we apply their biological properties to
clinical settings with unmet needs. We evaluate opportunities based on the estimated development timeline, cost,
regulatory pathway and commercial opportunity. After identifying suitable molecules for clinical development,
we intend to mitigate development risk by maintaining a diversified and broad clinical pipeline, analyzing data to
determine the potential of each program and entering into development collaborations with industry-leading
companies.
Our near-term goal is to focus on properly designing and initiating our ReMEDy 2 Phase 2/3 study of DM199 in
AIS and to complete our currently ongoing REDUX Phase 2 study of DM199 in CKD.
Currently, our strategy includes the following key components:
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DM199 for CKD - complete our ongoing Phase 2 study;
DM199 for AIS – initiate and complete our pending Phase 2/3 study;
Complete manufacturing process development to support applications for commercial approval of
DM199;
Identify a strategic partner(s) to assist with future clinical development and commercialization of
DM199; and
Use our expertise to identify and manufacture other novel recombinant proteins.
AIS Background and Disease Pathology
Acute Ischemic Stroke Background
Stroke is characterized by the rapidly developing loss of brain function due to a blockage of blood flow in the
brain. As a result, the affected tissues of the brain becomes inactive and may eventually die. Strokes can be
classified into two major categories: AIS and hemorrhagic stroke. AIS is characterized by interruption of the
blood supply by a blood clot (ischemia), while a hemorrhagic stroke results from rupture, or bleeding, of a blood
vessel in the brain. Risk factors for stroke include, among other things, advanced age, hypertension (high blood
pressure), previous stroke or transient ischemic attack (TIA), diabetes, high cholesterol, cigarette smoking, atrial
fibrillation, physical inactivity and obesity.
More specifically, with respect to an ischemic stroke, at the site of a blood flow blockage in the brain, there exist
two major ischemic zones - the core ischemic zone with nearly complete loss of blood flow (blood flow below
10% to 25%), and the surrounding ischemic penumbra, a rim of mild to moderately ischemic tissue surrounding
the core ischemic zone. Within minutes, the significant lack of blood flow in the core ischemic zone deprives
these cells of glucose and oxygen which rapidly depletes energy stores and triggers the loss of ion gradients,
ultimately leading to neuronal cell death, or apoptosis. The ischemic penumbra zone, however, may remain
viable for several hours via collateral arteries that branch from the main occluded artery in the core ischemic
zone. Unfortunately, the penumbra is at great risk of delayed tissue damage due to inflammation which may also
lead to neuronal cell death. As time goes on, a lack of blood flow in the core ischemic zone (infarct) may lead to
fluid buildup (edema) and swelling which creates intracranial pressure. This pressure on the brain leads to tissue
compression resulting in additional ischemia. Additional events in AIS include vascular damage to the blood
vessel lining or endothelium, loss of structural integrity of brain tissue and blood vessels and inflammation. A
stroke can lead to permanent damage with memory loss, speech problems, reading and comprehension
difficulties, physical disabilities and emotional/behavioral problems. The long-term costs of stroke are substantial,
with many patients requiring extended hospitalization, extended physical therapy or rehabilitation and/or
long-term institutional or family care. However, provided the extended window of viability in the penumbra, next
generation stroke therapies are being developed to protect valuable brain tissue during the hours to a week after a
stroke.
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Unmet Medical Need in AIS
According to the World Health Organization, each year approximately 1.7 million in the U.S., Europe and Japan
and approximately 15 million people worldwide suffer a stroke, of which 5.0 million will die and 5.0 million
will be permanently disabled. According to the U.S. Center for Disease Control and Prevention (CDC)
approximately 87% of all strokes are ischemic in nature, a blockage of blood flow in/to the brain. We believe
that stroke represents an area of significant unmet medical need and a KLK1 therapy (such as DM199) could
provide a significant patient benefit, in particular given its proposed treatment window of up to 24 hours after the
first sign of symptoms. Currently, the only FDA-approved pharmacological intervention for AIS is tPA, which
must be given within 4.5 hours of symptom onset. Treating patients with tPA during this time window can be
challenging because it is difficult to determine precisely when symptoms began and a patient must undergo
complex brain imaging before treatment to rule out a hemorrhagic stroke, a ruptured blood vessel causing
bleeding within the brain. Mechanical thrombectomy, a procedure in which the clot is removed using
catheter-based tools, is also available to certain patients. Despite the availability of these treatments, we believe
they are relevant to approximately 10% of ischemic stroke patients due to the location of the clot, the elapsed
time after the stroke occurred or other safety considerations. Thus, we believe DM199 may offer significant
advantages over the current treatment options in that it fills a serious, unmet need for patients who cannot
receive tPA or mechanical thrombectomy. Additionally, we believe DM199 may also offer a complimentary
follow-on treatment for patients who initially receive tPA or mechanical thrombectomy treatments by enabling
sustained blood flow improvements to the brain during the critical weeks and months after a stroke, reducing the
risk of stroke recurrence.
Specifically with respect to the United States, and according to the CDC:
•
•
•
•
Every year in the United States, approximately 795,000 people experience a stroke (ischemic or
hemorrhagic). Approximately 610,000 of these are first events and approximately 25%, or 185,000, are
recurrent stroke events.
Approximately one of every 20 deaths in the United States is caused by stroke and is the fifth leading
cause of death. On average, someone in the United States has a stroke every 40 seconds and someone
dies from a stroke every four minutes.
Stroke is the leading cause of serious long-term disability and reduces mobility in more than half of
stroke survivors age 65 and over.
Risk of having a first stroke is nearly twice as high for African Americans as for Caucasians, and
African Americans have the highest rate of death due to stroke.
Stroke costs in the United States, as reported by the American Heart Association, averaged nearly $46 billion in
2014 and 2015, including the cost of health care services, medications and lost productivity.
Acute Ischemic Stroke Treatment Options
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DM199 – Our Novel Solution for the Treatment of AIS
We believe DM199 has the potential to preserve ‘‘at risk’’ brain tissue by increasing cerebral blood flow,
establishing better collateral circulation, decreasing inflammation, reducing cell death, or apoptosis, and
facilitating improved blood flow to at-risk brain tissue in the ischemic penumbra. Immediate actions include
activation of the KKS to release nitric oxide and improve microcirculation in ischemic tissue along with
improvements in the balance between blood flow and brain activity (neurovascular coupling). Longer term (days
following the stroke) actions include the restoration of the blood brain barrier through increases in regulatory
T cells (Tregs), a subpopulation of regulatory T cells that modulate the immune system and prevent pathologic
autoimmune response, and inhibition of neuronal cell death, or apoptosis.
DM199 Acute Ischemic Stroke: Proposed Mechanism
In January 2019, we published a paper titled ‘‘Human Tissue Kallikrein in the Treatment of Acute Ischemic
Stroke’’ in the peer reviewed journal, Therapeutic Advances in Neurological Disorders. The paper reviews the
scientific literature covering the biochemical role of KLK1 and presents the mechanistic rationale for using
KLK1 as an additional pharmacological treatment for AIS. In addition to the biochemical mechanism of KLK1,
the review highlights supporting results from human genetics and preclinical animal models of brain ischemia. It
also reviews published clinical results for treatment of AIS by a form of KLK1 that is isolated from human
urine. This form has been approved for post-infarct treatment of AIS in China and data has been published from
clinical trials involving over 4,000 patients. The paper offers a series of testable therapeutic hypotheses for
demonstrating the long-term beneficial effect of KLK1 treatment in AIS patients and the reasons for this action.
We are developing DM199 to treat AIS patients with a therapeutic window of up to 24 hours after the first sign
of symptoms, well beyond the current window of up to 4.5 hours for tPA, thereby filling a large unmet need for
those patients who cannot receive tPA under the currently available treatment window of tPA. This important
attribute could potentially make therapy available to the millions of patients worldwide who currently have
limited treatment options.
9
Supporting Data from the Use of Urine-derived KLK1 for the Treatment of AIS in China
In China, Kailikang is approved and marketed by Techpool Bio-Pharma Inc., a company controlled by Shanghai
Pharmaceuticals Holding Co. Ltd. Kailikang has been approved for the treatment of AIS in China. We believe
the initial treatment window is up to 48 hours after stroke symptom onset. Based on IQVIA data, other
publications and our own internal analysis, we estimate that over 600,000 stroke patients have been treated with
Kailikang in China since its approval in 2005. More than 50 published clinical studies, covering over
4,000 stroke patients, have demonstrated a beneficial effect of Kailikang treatment in AIS including
improvements in standard stroke scores, blood flow and biomarkers of inflammation. According to a publication
in the China Journal of Neurology, in a double-blinded, placebo-controlled trial of 446 patients treated with
either Kailikang or a placebo with initial treatment administered up to 48 hours after symptom onset showed
significantly better scores on the European Stroke Scale and Activities of Daily Living at three weeks
post-treatment and after three months using the Barthel Index:
Additionally, a comprehensive meta-analysis covering 24 clinical studies involving 2,433 patients published in
the Journal of Evidence-Based Medicine concluded that human urinary KLK1 appears to ameliorate neurological
deficits for patients with AIS and improves long-term outcomes, though a few treated patients suffered from
transient hypotension.
Furthermore, in a retrospective study covering 300 consecutive AIS patients, published in Brain and Behavior
March 2018, patients treated with human urinary KLK1 experienced 39% (p=0.009) fewer recurrent strokes
within one year.
CKD Background and Disease Pathology
Chronic Kidney Disease Background
CKD is characterized by a progressive decline in overall kidney function as measured by the eGFR, a test used
to evaluate blood flow through the kidneys, and albuminuria, a marker for glomerular injury which is a measure
of the amount of albumin protein excreted in your urine and an indicator for how well the kidneys are filtering
excess fluid and waste products out of your blood. As glomerular filtration decreases, the body’s ability to
continue to regulate its many functions, including the elimination of metabolic waste, is lost and ultimately, may
result in severe physiologic consequences. Among multiple underlying causes, CKD often begins with an
increase in blood glucose which leads to the thickening of the glomerular membrane, known as fibrosis. As the
kidney function becomes impaired, eGFR decreases and albuminuria increases. Increased albuminuria means that
abnormal amounts of protein are released into the urine collecting tubules of the kidney through damaged
capillary pores in the glomerular floor. Additionally, increased blood glucose leads to increased blood pressure,
elevated reactive oxygen species, advanced glycation end product formation (harmful compounds that are formed
when protein or fat combine with sugar in the bloodstream) and inflammation. As these continue, structural
10
components of the kidney begin to collapse, resulting in cell ischemia and cell death. As the renal damage
continues, a progressive thickening of the glomerular basement membrane is seen along with continued
pathological changes in the cells and inflammation. Early stages of CKD are characterized as microalbuminuria
(small amounts of protein leak into the urine). Late stages are characterized as macroalbuminuria (large amounts
of protein leak into the urine). The rate of decline depends on a number of factors including the type of diabetes,
genetic predisposition, glycemic controls and blood pressure. At the final stages of CKD, the kidneys fail
completely and dialysis or a kidney transplant is needed.
Unmet Medical Need in CKD
CKD is a widespread health problem that generates significant economic burden throughout the world:
•
•
•
According to the National Kidney Foundation, 37 million Americans have CKD and millions of others
are at increased risk.
The primary causes of CKD are diabetes (Type 2 and Type 1) and hypertension. The Medical Clinics
of North America estimates that over 40% of those with Type 2 diabetes and 20% of those with Type 1
diabetes will eventually develop CKD, making it one of the more common risks for diabetics.
Patients with CKD are at greater risk for hypertension and heart disease.
Currently, there is no cure for CKD and treatment primarily involves management of the symptoms of the
disease. Blood pressure medications, such as angiotensin converting enzyme inhibitors (ACEi) or angiotensin
receptor blockers (ARB), are often prescribed to control hypertension, and hopefully, slow the progression of
CKD. Recently sodium glucose co-transporter 2 inhibitors (SGLT2) have received approval to expand their label
to treat diabetic kidney disease to reduce the rate of cardiovascular events. Nevertheless, according to the
National Kidney Foundation, many of these patients continue to show declining kidney function and 3.6% of the
overall population has a lifetime risk of developing ESRD, where dialysis or a kidney transplant is needed. We
believe DM199 offers a potentially novel approach for the treatment of CKD because KLK1 protein plays a vital
role in normal kidney function. Since patients with moderate to severe CKD often excrete abnormally low levels
of KLK1 in their urine, we believe that DM199 may potentially prevent or reduce further kidney damage by
increasing levels of KLK1 and restoring the protective KKS to regulate the production and release of nitric oxide
and prostacyclin.
DM199 – Our Novel Solution for the Treatment of CKD
We believe DM199 has the potential to offer meaningful therapeutic benefits for CKD patients. We believe that
the KLK1 protein plays a vital role in maintaining normal kidney function, promoting the production of nitric
oxide, prostacyclin and other anti-inflammatory mediators which are important for kidney health and integrity.
Patients with moderate to severe CKD often excrete abnormally low levels of KLK1 in their urine, leading to the
hypothesis that a KLK1 deficit contributes to disease progression. We believe that DM199, as a protein
replacement therapy, can potentially replenish KLK1 levels and properly activate the KKS enabling or improving
the production of nitric oxide, prostacyclin and other anti-inflammatory mediators which may protect the kidney
from damage and possibly restore normal kidney function. In related preclinical testing, DM199 treatment in an
animal model of Type 1 diabetes, a known cause of CKD, delayed the onset of the disease, attenuated the degree
of insulitis (inflammation in the insulin producing islet cells of the pancreas) and improved pancreatic beta cell
mass in a dose-dependent manner by increasing Tregs.
11
By providing additional KLK1, DM199 has the potential to:
•
•
•
Improve blood flow through the kidney by restoring proper regulation of blood flow through veins,
arteries and especially capillaries (vasoregulation);
Support the structural integrity of the kidney by reducing scar tissue formation (fibrosis), oxidative
stress, and inflammation; and
Activate mechanisms that upregulate Tregs, improve insulin sensitization, glucose uptake and glycogen
synthesis, and lower blood pressure.
Further supporting the hypothesis that an intact KKS is critical for normal kidney function, a series of
observational studies published in Immunopharmacology showed the amount of KLK1 released into the urine
appears to be inversely correlated with the severity of disease in patients with CKD. Urinary KLK1 excretion
was decreased in patients with both mild (not requiring dialysis) and severe (kidney failure/hemodialysis) renal
disease compared to controls. Decreases in urinary KLK1 activity were seen especially when the reduction was
associated with decreased glomerular filtration rate.
DM199 treatment is intended to directly replenish KLK1 levels to maintain, or possibly restore, kidney function.
Current treatment options, especially ACEi drugs, primarily slow the rate of decline in kidney function and are
associated with side effects. Importantly, it is becoming increasingly clear that part of the beneficial effect of
ACEi drugs involves preventing the normal breakdown of BK leading to substantial increases in BK levels
throughout the body. However, these effects can be unregulated and ACEi drugs therefore can generate excessive
BK where it is not needed, potentially leading to side effects such as persistent cough, angioedema (swelling of
skin and tissue) and hyperkalemia (abnormally high potassium levels that can lead to cardiac arrest and sudden
death). We believe DM199 treatment could potentially restore normal KLK1 levels allowing the KKS to perform
its normal physiological processes and release BK when and where it is needed, avoiding these side effects.
We intend to seek approval for use of DM199 as a novel and ground-breaking therapy for CKD. Protein
replacement therapy with DM199, through the activation of the KKS, may complement the renin-angiotensin
system, primarily targeted by ACEis and ARBs, and may potentially improve the function of the diseased renal
system by improving blood flow and vasodilation, as well as reducing inflammation and oxidative stress.
12
Supporting Data from the Use of Porcine-Derived KLK1 for the Treatment of CKD in Japan,
China and Korea
KLK1 derived from porcine pancreas is currently used to treat CKD in Japan, China and Korea. Specifically,
porcine KLK1 is also used to treat hypertension and retinopathy. Based on data published by the data analytics
company IQVIA and our own internal analysis, we estimate that millions of patients have been treated with
porcine KLK1 for these and other vascular diseases. We have identified 17 clinical papers, published in China
and Germany supporting the therapeutic activity of porcine KLK1 in CKD patients, whether given alone or in
combination with an ARB or an ACEi. These unblinded studies involve treatment durations ranging from a few
weeks up to six months and report improvement in kidney disease based on decreased urinary albumin excretion
rates and other clinical endpoints of kidney disease.
Observation
pKLK1 + ARB
pKLK1 + ARB
pKLK1
pKLK1
pKLK1
pKLK1
pKLK1
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1 + ARB
pKLK1
Study Details
Control
ARB
ARB
n/a
n/a
n/a
Antiplatelet
Antiplatelet
ARB
ARB
ARB
ARB
ARB
ARB
ARB
ARB
ARB
Standard Care
N
60
68
13
10
100
112
88
50
51
32
58
92
62
60
90
100
86
Length
1 Month
1 Month
2 Months
2 Months
2 Months
2 Months
2 Months
3 Months
3 Months
3 Months
3 Months
3 Months
6 Months
6 Months
6 Months
6 months
6 Months
eGFR (ml/min)
Journal Name
Publication Details
n/m
+21.9 **
+27.0 ^
+4.8
n/m
n/m
n/m
n/m
n/m
n/m
n/m
n/m
n/m
n/m
+42.2 *
+41.0 *
n/m
China Modern Doctor
Journal of XinXiang Medical College
Klinische Wochen-schrift 1 (Germany)
Japan Journal of Nephrology
Medical Information 2
Chinese Journal of Medicine (Micro) 3
Chinese Journal of Medicine (Macro) 3
Chinese Journal of Gerontology
Practical Clinical Medicine (Micro) 4
Practical Clinical Medicine (Macro) 4
Journal of Practical Diagnosis & Treatment 5
Contemporary Medicine
Guide of China Medicine
Chin J Diabetes 6
Chin J Lab Design
Journal of Guangzhao Medical University
Psychological Monthly
(57.7%) **
(63.2%) **
n/m
n/m
(42.6%) ^^
(56.3%) ^
(23.5%)
(46.4%) *
(32.7%) *
(51.0%) *
(37.5%) *
(64.4%) *
(58.6%) **
(84.3%) **
(57.8%) *
(52.7%) **
(60.5%) *
DM199 + ARB
n/a
28 @24 hours
(18.7%) UACR + 4.08^^
DiaMedica Phase 1b Single Dose Study 7
Year
2011
2012
1980
1984
2014
2015
2015
2005
2006
2006
2007
2016
2010
2011
2013
2017
2019
2019
Notes
1. Study assessed patients w ith low and normal urinary KLK1 (uKLK1) levels. Study subjects did not
have CKD. The data presented in the table is based on patients w ith low uKLK1 levels at baseline.
No significant GFR change w as observed in patients w ith normal uKLK1 levels at baseline.
2. A significant decrease w as observed from baseline (p <0.05), but the actual baseline statistic w as unavailable. The study did publish
UAER levels at the end of w eeks 1 - 8. Data presented in the table measures UAER change from w eek 1 to w eek 8.
3. Study analyzed tw o cohorts: microalbuminuria group (UAE 30 - 300 mg/24h) and clinical albuminuria group (UAE >300 mg/24h).
6. At 3 months UAER
7. Urinary albumin creatinine ratio excludes participants w ith baseline UACR levles <30 mg/g (normals)
* = p<0.05 (intergroup) | ^ = p<0.05 (Intragroup)
** = p<0.01 (intergroup) | ^^ = p<0.01 (Intragroup)
n/a = not applicable
n/m = not measured
We also identified one 90-patient study in which porcine KLK1 given in combination with an ARB restored
normal kidney function.
13
Our Competition and Current Treatments for Acute Ischemic Stroke and Chronic Kidney Disease
The biopharmaceutical industry is highly competitive and characterized by rapidly advancing technologies that
focus on rapid development of proprietary drugs. We believe that our DM199 product candidate, development
capabilities, experience and scientific knowledge provide us with certain competitive advantages. However, we
face significant potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other research
institutions. Any product candidates that we successfully develop and commercialize will compete with existing
therapies and new therapies that may become available in the future.
Many of our competitors, either alone or with their strategic partners, have substantially greater financial,
technical and human resources than we do, and experience in obtaining FDA and other regulatory approvals of
treatments and commercializing those treatments. Accordingly, our competitors may be more successful than us
in obtaining approval for competitive products and achieving widespread market acceptance. Our competitors’
treatments may be more effectively marketed and sold than any products we may commercialize, thus limiting
our market share and resulting in a longer period before we can recover the expenses of developing and
commercializing our DM199 product candidate.
Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources
being concentrated among a smaller number of our competitors. Smaller or early stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These activities may lead to consolidated efforts that allow for more rapid development of
competitive product candidates.
We also compete for staff, development and clinical resources. These competitors may impair our ability to
recruit or retain qualified scientific and management personnel, our ability to work with specific advisors, or our
ability to work with clinical contract organizations due to conflicts of interest or capacity constraints, and may
also delay recruitment of clinical study sites and study volunteers, impeding progress in our development
programs.
We expect any products that we develop and commercialize to compete on the basis of, among other things,
efficacy, safety, price and the availability of reimbursement from government or other third-party payers. Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products
that are viewed as safer, more effective or less expensive than any products that we may develop.
Acute Ischemic Stroke
Currently, there is one approved pharmaceutical treatment for AIS. That treatment is tPA (marketed under the
brand name Activase®), and its therapeutic window is limited to up to 4.5 hours after the AIS. There are,
however, a number of companies that are actively pursuing a variety of approaches to develop pharmaceutical
products for the treatment of AIS including, among others:
•
•
•
•
•
•
Stem cells (Athersys, Inc.)
tPA extended treatment window (Genentech)
Cerebral edema (Biogen Inc.)
Anti-inflammatory and clot dissolving (Biogen Inc.)
Cell protection and anti-inflammation (ZZ Biotech LLC)
Inhibiting platelet aggregation (Acticor Biotech SAS)
There is a large unmet therapeutic need for AIS treatments that can be administered beyond the 4.5-hour time
window of tPA. With this large unmet therapeutic need, there is significant competition to develop new
therapeutic options. New therapeutic options in development include tissue protection focused therapies
(deliverable from hours to days after the stroke) that preserve and protect brain cells beyond the tPA therapeutic
window. Currently, the most advanced treatments involve the mechanical removal of blood clots in arteries
supplying blood to the brain through sophisticated catheter-based approaches, or mechanical thrombectomy.
According to published research, use of mechanical thrombectomy is growing and the window of time after a
14
stroke where the procedure can be used is widening. The goal is to provide treatment options for the vast
majority of AIS patients who do not receive hospital care early enough to qualify for tPA therapy. We believe
there is a very significant market opportunity for a drug that has a therapeutic window beyond that of tPA and is
able to obtain regulatory approval.
Chronic Kidney Disease
CKD is primarily associated with diabetes and hypertension along with other disease states. In the United States,
we are aware of only two currently approved treatments for CKD. These treatments include an ACEi (marketed
under the brand name Captopril®) which is approved for the treatment of patients with CKD caused by Type 1
diabetes and a sodium glucose co-transporter 2 inhibitor (marketed under the brand name INVOKANA® and
Farxiga®) which is approved for the treatment of diabetic kidney disease (DKD), a type of CKD, in adults with
mild to moderate Type 2 diabetes and macroalbuminuria.
There are several pharmaceutical products for the treatment of CKD currently in clinical development, some of
which include:
• Mineralcorticortisteroid receptor agonist (Bayer HealthCare Pharmaceuticals LLC)
•
Chymase inhibitor (Bayer HealthCare Pharmaceuticals LLC)
•
•
•
•
•
•
•
•
•
Transient receptor potential canonical channel 5 (Goldfinch Bio)
CCR2 receptor antagonists (ChemoCentryx, Inc., Bristol-Myers Squibb Company)
Oxidative stress, cyclo-oxygenase 2 inhibitors (Reata Pharmaceuticals, Inc.)
Glycosylation inhibitors (Glycadia, Inc. aka Glycadia Pharmaceuticals)
Endothelin A receptor antagonists (Chinook therapeutics, Inc.)
Cyclin nucleotide phosphodiesterase inhibitor (Pfizer Inc.)
Aldosterone receptor antagonists (Mitsubishi Tanabe Pharma Corporation)
Nitric oxide enzyme inhibitor (GenKyoTex SA)
Nitric oxide (Cyclerion/Ironwood Pharmaceuticals, Inc.)
Additionally, there are several pharmaceutical products specifically for the treatment of IgAN currently in clinical
development, some of which include:
•
•
•
•
•
Local corticoid steroid gut immune system (Calliditas Therapeutics AB)
Dual acting ARB and endothelin receptor antagonist (Travere Therapeutics, Inc.)
Antibody MASP-2 inhibitor (Omeros Corporation)
Small-molecule inhibitor of complement factor B (Novartis AG)
Small-molecule inhibitor Nrf2 activator/NFkB inhibitor (Reata Pharmaceuticals, Inc.)
Current treatment strategies for CKD include the strict control of high blood pressure and high blood sugar. The
ACEi drug Captopril® is approved for use in patients with CKD due to Type 1 diabetes and both ACEi and
ARBs are widely prescribed to slow the progression of CKD. Furthermore, the treatment with ACEi has been
linked to hyperkalemia (elevated blood potassium levels), which increases the risk for abnormal heart rhythms
and sudden death. In fact, two clinical trials investigating the use of ACEi and ARB combination therapy in
kidney disease were stopped prematurely because participants developed hyperkalemia. The added complication
of hyperkalemia results in patients receiving smaller, or suboptimal, doses or patients being untreated because
they cannot tolerate the treatment. Additional side effects with ACEi treatment are angioedema (swelling of skin
tissue) and persistent cough.
INVOKANA® (canagliflozin) is approved for use in patients to reduce the risk of end-stage renal disease
(ESRD), worsening of kidney function, cardiovascular death and hospitalization for heart failure in adults with
Type 2 diabetes and DKD with a certain amount of protein in the urine. Potential side effects of INVOKANA
include lower limb amputations, dehydration, diabetic ketoacidosis and genital mycotic infections. Farxiga
15
(dapagliflozin) is approved for use in patients to reduce the risk of hospitalization for heart failure in adults with
Type 2 diabetes and established cardiovascular disease. Potential side effects of INVOKANA include
dehydration, diabetic ketoacidosis and genital mycotic infections.
DM199 treatment is intended to directly replenish KLK1 levels, maintaining or potentially restoring kidney
function. Current treatment options, especially ACEi drugs, only partially restore kidney function and are
associated with high-risk side effects. ACEi drugs can generate excessive BK where it is not needed, potentially
leading to side effects such as cough and angioedema. DM199 treatment may potentially allow KLK1 to follow
its normal physiological processes and release BK when and where it is needed, avoiding these side effects.
DM199 Clinical Studies
AIS Phase 2/3 ReMEDy 2 Study
In December 2020, we received written responses from the FDA following a Type B Pre-IND meeting request
that we submitted in October 2020 regarding our development plan for DM199 in the treatment of AIS. In the
FDA’s written responses to the questions we provided, the FDA agreed with our proposals regarding key
elements of a Phase 2/3 trial for DM199 in patients with AIS, including plans for an adaptive trial design with a
primary endpoint based upon the modified Rankin Scale (mRS) at day 90 and acknowledged that, provided the
study results qualify, a single trial may support a Biologics License Application (BLA) submission. Additionally,
based upon the clinical and preclinical testing performed to date and currently in process, the FDA did not
recommend any additional studies in preparation for an IND submission and initiation of our planned Phase 2/3
trial. We intend to file an IND for this study by the end of the first quarter of 2021.
We believe that the feedback received from the FDA provides us a well-defined regulatory pathway and we are
preparing an IND submission to initiate an adaptive Phase 2/3 randomized, double-blind, placebo-controlled
study. This study is intended to assess the efficacy, safety and tolerability of DM199 in patients with mild to
moderate AIS. The study is expected to enroll approximately 300 to 350 male and female subjects age 18 and
over. Enrolled participants must have a diagnosis of mild to moderate AIS (NIHSS scores between 5 and 20),
and present within 24 hours of symptom onset. Current plans for the study are to exclude patients with large
vessel occlusions, which are eligible for treatment with mechanical thrombectomy, and/or patients eligible for
tPA. We believe that our targeted study population represents approximately 80% of all AIS patients. As currently
planned, study participants will be dosed with either DM199 or placebo over 21 days with the primary endpoint
measured at day 90. In order to increase the probability of a successful outcome, we also intend to propose
conducting an interim analysis with the potential to adjust the study sample size to ensure proper statistical
powering, if necessary. The primary endpoint for the Phase 2/3 trial will be the modified Rankin Scale.
Secondary endpoints are anticipated to include stroke recurrence and standard stroke measures, including
National Institutes of Health Stroke Scale (NIHSS) and Barthel Index.
AIS Phase 2 ReMEDy Study
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 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
standard functional stroke measures and stroke recurrence assessed at 90 days post-stroke and certain
plasma-based biomarkers. 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 in May 2020. In addition to meeting its primary safety and tolerability
endpoints, a statistically significant 86% (P=0.028) relative reduction in the number of participants with severe
recurrent strokes was observed in the active treatment group (N=1, 2.2%) compared to placebo (N=7, 15.6%), a
potentially transformative outcome given that approximately 25% of the 795,000 strokes occurring each year in
the United States are recurrent strokes.
When participants treated with mechanical thrombectomy are excluded from the study data set, representing the
group of participants most closely aligned with the target treatment population for DM199 in our proposed Phase
2/3 ReMEDy II study, a positive therapeutic effect was demonstrated. As shown in the table below, when
16
evaluating the participants treated with DM199 (n=25) vs. standard of care supportive therapies and/or tPA
(n=21), the results showed that 36% of participants receiving DM199 progressed to a full or nearly full recovery
at 90 days (NIHSS: 0-1), compared to 14% of participants in the placebo group. This represents a 22% absolute
increase in the proportion of participants achieving a full or nearly full recovery. Additionally, subject deaths
decreased from 24% in the placebo group to 12% in the active therapy group, a 50% relative reduction. Note
that the number of subjects in these subsets were insufficient for statistical significance.
DM199 vs. Standard of Care Supportive Therapies and/or tPA
Placebo (n=21)
DM199 (n=24)
NIHSS Outcomes at 90 Days
0-1
14%
36%
2-8
57%
36%
≥ 9
5%
16%
Death
24%
12%
Further, in reviewing evaluable participants (n=91), improvements in the following biomarkers were observed in
participants treated with DM199, which we believe are consistent with the DM199 mechanism of action:
•
•
•
Increased NO (+105%) and PGE2 (+54%) were observed at day 22 vs. baseline (p<0.05). Placebo
group was not statistically significant vs. baseline (p>0.05). These changes noted in the active treatment
group did not reach statistical significance compared to placebo.
Reduction in C-reactive protein (CRP) of (-70%), a blood marker of inflammation, at 90 days. CRP
decreased significantly vs. baseline (p<0.05), but was not statistically significant vs. placebo. The
change in the placebo group was not statistically significant vs. baseline (p>0.05).
Reduction in elevated glucose levels in participants with Type 2 diabetes (n=30), as defined by a blood
glucose level >7 mmol/l (n=14), an average decrease of 1.9 mmol/l (p=0.06) in blood glucose levels of
participants on active therapy was observed at day 22. In comparison, participants in the placebo group
(n=16) showed an average increase of 0.08 mmol/l (p=0.94) at day 22.
Changes in the eGFR, a measure of kidney function, were also analyzed in participants with eGFR <70
mL/Min/1.732 at baseline, which indicates the presence of CKD. Participants receiving DM199 exhibited a
marked increase in eGFR at days 22 (last dose) and 56 (34 days post-treatment), as shown in the table below.
eGFR at day 22 increased by at least 2 mL/Min in 77% of DM199 participants compared to 20% in placebo
(p=0.007).
Placebo
DM199
Group Difference
eGFR Mean Δ from Baseline
(mL/Min/1.732)
Day 22
(Last Dose)
+0.84 (n=15)
+7.5 (n=13)
+6.6
Day 56
(Off Treatment)
-0.24 (n=12)
+5.8 (n=12)
+6.1
We believe these findings from our Phase 2 ReMEDy trial,which are consistent with Chinese data on the
urine-derived form of KLK1, provide a signal that DM199 appears safe and well tolerated and may have promise
as a new tool for physicians who have limited options for the treatment of patients suffering AIS and may also
mitigate the adverse impact of ischemic stroke on kidney function.
CKD Phase 2 REDUX Study
In October 2019, the FDA accepted our Phase 2 clinical trial protocol for the treatment of CKD caused by rare
or significant unmet diseases. The trial named REDUX, Latin for restore, is a multi-center, open-label
investigation 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
17
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 IgAN. Cohort III, which was added after the completion of our August 2020 public offering, is focused on
participants with Type 2 diabetes mellitus with CKD, hypertension and albuminuria. The study will evaluate two
dose levels of DM199 within each cohort. Study participants 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 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 March 1, 2021, we had enrolled 68 subjects, including 15 African American subjects into Cohort I, 21
subjects with IgAN into Cohort II and 32 subjects with Type 2 diabetes, hypertension and albuminuria into
Cohort III of the REDUX study. Due to 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. However, with the significant declines in new COVID-19 cases and the anticipated
availability and effectiveness of vaccines, we currently anticipate completion of Cohort I and Cohort II in the
second half of 2021. The enrollment of Cohort III was much more rapid completing in December 2020, which is
likely due to the large population of potential subjects. We currently expect topline results from Cohort III to be
available in the second quarter of 2021.
CKD Phase 1b
In July 2019, we completed a Phase 1b clinical trial of DM199 in participants with moderate or severe CKD
caused by Type 1 or Type 2 diabetes. We initiated dosing patients in this study in February 2019. The study was
performed to assess the pharmacokinetics (PK) of three dose levels of DM199 (3, 5 and 8 µg/kg), administered
in a single subcutaneous dose, as well as the evaluation of safety, tolerability and secondary pharmacodynamic
(PD) endpoints. The study results demonstrated that at the 3µg/kg dose level, the PK profiles were similar
between moderate and severe CKD patients, and consistent with healthy subjects (normal kidney function) tested
previously. Additionally, DM199 was well tolerated with no dose-limiting tolerability observed. There were no
deaths, no discontinuations due to a treatment-related adverse event (AE) and no treatment-related significant
adverse events (SAEs). AEs were minor and consistent with standard treatment(s) in the CKD patient population.
We announced favorable overall interim PD results from the first 28 subjects that included short-term
improvements in NO, average increase of 35.2%, PGE2, average increase of 41.2%, eGFR, average increase of
4.08 mL/min/1732, and the urinary albumin to creatinine ratio (UACR) excluding subjects with normal UACR
levels, average decrease of 18.7%. PD results appeared to be drug related in that the greatest improvements
occurred approximately 24 hours after DM199 administration and subsequently declined.
18
Other Clinical Studies
In 2017, we completed and published, in the International Journal of Clinical Trials, results from, a Phase 1b
study with DM199 designed to assess the safety, tolerability, pharmacokinetics, and pharmacodynamics in healthy
volunteers. This study compared multiple dose levels of DM199, administered via IV and SC routes to identify a
dose and delivery route that most closely compared to, or improved upon, the pharmacokinetic and
pharmacodynamics profile of the approved urinary KLK1 (Kailikang) in China. We found that a dose of DM199
administered via IV infusion mimicked the drug profile of IV-administered Kailikang. This study also identified a
dose of DM199, administered via SC injection, which had a superior pharmacokinetic profile and that maintained
more normal KLK1 levels throughout the day. Below are results from our clinical trial showing the
pharmacokinetic profile of subcutaneously administered DM199 observed in study subjects as compared to what
we believe is normal range in healthy subjects.
7
KLK1 levels
(ng / mL)
3
First
Dose
0
0
Pharmacokinetic Profile (Drug Levels in Blood) In Subjects Dosed Every 3 Days
Last
Dos
e
Target range for
stroke patients
7
14
21
Days
28
Expected
normal human
KLK1 range
During 2013 and 2014, five clinical trials were completed with DM199 in over 120 volunteers, including
multiple Phase 1 single dose ascending and multiple dose ascending studies in healthy volunteers and patients
with Type 2 diabetes. Chronic dosing studies over 16 to 28 days were also conducted in healthy volunteers and
patients with Type 2 diabetes (see below). As is generally the case for early phase clinical trials, the primary
endpoints for all studies were safety, tolerability, and pharmacokinetics. The Phase 2 (Part D) study also
investigated a series of secondary endpoints that included blood glucose concentration, insulin levels, glucose
tolerance testing and a variety of experimental biomarkers evaluating the potential efficacy of DM199 in treating
Type 2 diabetes patients.
DM199 Trial Design Overview
Trial
Participants (N)
Design
Doses (μg/kg)
Route
Length
Phase-1 Part A
Healthy (32)
Phase-1 Part B
Type 2 diabetes
(10)
Phase-1 Part C
Healthy (18)
Phase-2A Part D
Type 2 diabetes
(36)
Phase 1 Bridging
Healthy (36)
Single ascending
dose
Single ascending
dose
Multiple
ascending dose
Blinded multiple
dose
Single ascending
dose
5, 15, 30, 50
0.3, 1.5, 15
3, 15, 25
Placebo, 3, 15
0.25, 0.50, 0.75
1.0
3.0
SC
SC
SC
SC
IV
IV
SC
1 week
1 week
6 doses over 16
days
10 doses over 28
days
1 week
In combination, these studies showed that DM199 was well tolerated and demonstrated clear physiological
activity. After SC injection, DM199 exhibited a favorable pharmacokinetic profile with extended half-life (i.e.,
the time required to reduce concentration of the drug in the body by one-half), supporting potential dosing
intervals of up to one week. The dose-limiting tolerability issue in healthy volunteers was orthostatic hypotension
(a condition in which blood pressure falls significantly when a person stands) observed largely at the 50 µg/kg
dose level, which is much greater than the dose level anticipated to be efficacious in patients. In each trial,
observed treatment emergent side-effects were mild to moderate in severity and resolved. The most common
19
treatment-emergent side effects included headache, dizziness, nausea and injection site pain, the majority of
which were observed in the highest dose group of the Phase 1-Part A trial.
Two of these clinical studies focused on patients with Type 2 diabetes. The first study enrolled 10 Type 2
diabetic patients. The patients were dosed with either DM199, at three single ascending dose levels or placebo.
DM199 was well-tolerated at all three dose levels by the diabetic patients with no dose limiting side effects. The
second study in patients with Type 2 diabetes enrolled 36 patients treated with one of two SC dose levels of
DM199 or placebo over 28 days. This study achieved its primary endpoints and demonstrated that DM199 was
well-tolerated. The secondary endpoints for this study, however, were not met. The secondary efficacy endpoints
were confounded due to what we believe were significant execution errors caused by protocol deviations
occurring at the clinical trial site that were unable to be reconciled. See ‘‘Part I. Item 1. Business—Legal
Proceedings’’ for more information on this study.
Potential DM199 Commercial Advantages
Several researchers have studied the structural and functional properties of KLK1. This deep body of knowledge
has revealed the potential clinical benefits of KLK1 treatments. Today, forms of KLK1 derived from human urine
and porcine pancreas are sold in Japan, China and Korea to treat AIS, CKD, retinopathy, hypertension and
related diseases. We are not aware of any synthetic version of KLK1 with regulatory approval for human use in
any country, nor any synthetic version in development besides our drug candidate DM199 (recombinant human
KLK1). We believe at least five companies have attempted, unsuccessfully, to create a synthetic version of
KLK1.
The growing understanding of the role of KLK1 in human health and its use in Asia as an approved therapeutic
highlight two important potential commercial advantages for DM199:
• KLK1 treatment is sold in Japan, China and Korea. Research has shown that patients with low
levels of KLK1 are associated with a variety of diseases related to vascular dysfunction, such as CKD,
AIS, retinopathy and hypertension. Clinical trial data with human urine and porcine derived KLK1 has
demonstrated statistically significant clinical benefits in treating a variety of patients with KLK1
compared to placebo. These efficacy results are further substantiated by established markets in Japan,
China and Korea for pharmaceutical sales of KLK1 derived from human urine and porcine pancreas.
We estimate that millions of patients have been treated with these forms of KLK1 in Asia. Altogether,
we believe this supports a strong market opportunity for a synthetic version of KLK1 such as DM199.
• KLK1 treatment has had limited side effects and has been well tolerated in studies to date. KLK1
is naturally produced by the human body; and, therefore, the body’s own control mechanisms act to
limit potential side effects. The only notable side effect observed in our clinical trials was orthostatic
hypotension, or a sudden drop in blood pressure, which was only seen at doses 10 to 20 times higher
than our anticipated therapeutic dose levels. Moreover, routine clinical use of KLK1 treatment in Asia
we understand has been well-tolerated by patients for several decades. In 2017, we completed a clinical
trial comparing the pharmacokinetic profile of DM199 to the human urinary form of KLK1
(Kailikang), which showed DM199, when administered in intravenous form, had a similar
pharmacokinetic profile. Further, when DM199 was administered subcutaneously, DM199 demonstrated
a longer acting pharmacokinetic profile, superior to the intravenously administered Kailikang and
DM199.
In addition, we believe that there are also significant formulation, manufacturing, regulatory and other advantages
for synthetic human KLK1 drug candidate DM199:
•
•
Potency and Impurity Considerations. KLK1 produced from human urine or porcine pancreas
presents risks related to preventing impurities, endotoxins, and chemical byproducts due to the inherent
variability of the isolation and purification process. We believe that this creates the risk of
inconsistencies in potency and impurities from one production run to the next. However, we expect to
produce a consistent formulation of KLK1 that is free of endotoxins and other impurities.
Cost and Scalability. Large quantities of human urine and porcine pancreas must be obtained to derive
a small amount of KLK1. This creates potential procurement, cost and logistical challenges to source
the necessary raw material, particularly for human urine sourced KLK1. Once sourced, the raw material
is processed using chemicals and costly capital equipment and produces a significant amount of
20
byproduct waste. Our novel recombinant manufacturing process utilizes widely available raw materials
and can be readily scaled for commercial production. Accordingly, we believe our manufacturing
process will have significant cost and scalability advantages.
•
Regulatory. We are not aware of any attempts by manufacturers of the urine or porcine based KLK1
products to pursue regulatory approvals in the United States. We believe that this is related to
challenges presented by using inconsistent and potentially hazardous biomaterials, such as human urine
and porcine pancreas, and their resulting ability to produce a consistent drug product. Our novel
recombinant manufacturing process utilizes widely available raw materials which we believe provides a
significant regulatory advantage, particularly in regions such as the United States, Europe and Canada,
where safety standards are high. In addition, we believe that DM199 could qualify for 12 years of data
exclusivity under the Biologics Price Competition and Innovation Act of 2009, which was enacted as
part of the Patient Protection and Affordable Care Act as amended by the Health Care and Education
Reconciliation Act of 2010.
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.
Regulatory Approval
Securing regulatory approval for the manufacture and sale of human therapeutic products in the United States,
Europe, Canada and other commercial territories is a long and costly process that is controlled by that particular
territory’s national regulatory agency. The national regulatory agency in the United States is the FDA, in Europe
it is the European Medicines Agency (EMA), and in Canada it is Health Canada. Other national regulatory
agencies have similar regulatory approval processes, but each national regulatory agency has its own approval
processes. Approval in the United States, Europe or Canada does not assure approval by other national regulatory
agencies, although often test results from one country may be used in applications for regulatory approval in
another country.
Prior to obtaining regulatory approval to market a drug product, every national regulatory agency has a variety of
statutes and regulations which govern the principal development activities. These laws require controlled research
and testing of products, governmental review, and approval of a submission containing preclinical and clinical
data establishing the safety and efficacy of the product for each use sought, approval of manufacturing facilities
including adherence to good manufacturing practices (GMP) during production and storage, and control of
marketing activities, including advertising, labeling and pricing approval.
None of our product candidates have been completely developed or tested; and, therefore, we are not yet in a
position to seek regulatory approval in any territory to market any of our product candidates.
The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import,
export, and marketing, among other things, of our product candidates are subject to extensive regulation by
governmental authorities in the United States and other countries. The process of obtaining regulatory approvals
and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require
the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at
any time during the product development process, approval process, or after approval may subject us to a variety
of administrative or judicial sanctions, including refusal by the applicable regulatory authority to approve pending
applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types
of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and
penalties brought by the FDA and the Department of Justice or other governmental entities.
U.S. Approval Process
In the United States, the FDA is responsible for the drug approval process. The FDA’s mission is to ensure that
all medications on the market are safe and effective. The FDA’s approval process examines and thoroughly
reviews potential new drugs; only those that are in compliance with the Code of Regulations, 21 CFR 312 and
21 CFR 314 are approved.
21
The U.S. food and drug regulations require licensing of manufacturing facilities, carefully controlled research and
testing of products, governmental review and approval of test results prior to marketing of therapeutic products,
and adherence to GMP, as defined by each licensing jurisdiction, during production.
A description of the different stages in the drug approval process in the United States follows.
Stage 1: Preclinical Research. After an experimental drug is discovered, research is conducted to help determine
its potential for treating or curing an illness. This is called preclinical research. Animal and/or bench studies are
conducted to determine if there are any harmful effects of the drug and to help understand how the drug works.
Information from these experiments is submitted to the FDA as part of an IND application. The FDA reviews the
information in the IND and decides if the drug is safe to study in humans.
Stage 2: Clinical Research. The experimental drug is studied in humans. The studies are known as clinical trials.
Clinical trials are carefully designed and controlled experiments in which the experimental drug is administered
to patients to test its safety and to determine the effectiveness of an experimental drug. The four general phases
of clinical research are described below.
•
•
•
•
Phase 1 Clinical Studies. Phase 1 clinical studies are generally conducted with healthy volunteers who
are not taking other medicines; patients with the illness that the drug is intended to treat are not tested
at this stage. Ultimately, Phase 1 studies demonstrate how an experimental drug affects the body of a
healthy individual. Phase 1 consists of a series of small studies consisting of ‘‘tens’’ of volunteers. Tests
are done on each volunteer throughout the study to see how the person’s body processes, responds to,
and is affected by the drug. Low doses and high doses of the drug are usually studied, resulting in the
determination of the safe dosage range in volunteers by the end of Phase 1. This information will
determine whether the drug proceeds to Phase 2.
Phase 2 Clinical Studies. Phase 2 clinical studies are conducted in order to determine how an
experimental drug affects people who have the disease to be treated. Phase 2 usually consists of a
limited number of studies that help determine the drug’s short-term safety, side effects, and general
effectiveness. The studies in Phase 2 often are controlled investigations involving comparison between
the experimental drug and a placebo, or between the experimental drug and an existing drug.
Information gathered in Phase 2 studies will determine whether the drug proceeds to Phase 3.
Phase 3 Clinical Studies. Phase 3 clinical studies are expanded controlled and uncontrolled trials that
are used to more fully investigate the safety and effectiveness of the drug. These trials differ from
Phase 2 trials because a larger number of patients are studied (sometimes in the thousands) and because
the studies are usually double blinded, placebo controlled and of longer duration. As well, Phase 3
studies can include patients who have more than one illness and are taking medications in addition to
the experimental drug used in the study. Therefore, the patients in Phase 3 studies more closely reflect
the general population. The information from Phase 3 forms the basis for most of the drug’s initial
labeling, which will guide physicians on how to use the drug.
Phase 4 Clinical Studies. Phase 4 clinical studies are conducted after a drug is approved. Phase 4
studies may be required by the FDA or conducted by companies to more fully understand how their
drug compares to other drugs. FDA-required Phase 4 studies often investigate the drug in specific types
of patients that may not have been included in the Phase 3 studies and can involve very large numbers
of patients to further assess the drug’s safety.
Stage 3: FDA Review for Approval. Following the completion of Phase 3 clinical studies, the pharmaceutical
company prepares an electronic common technical document reporting all clinical nonclinical and chemistry,
manufacturing and control studies conducted on the drug that is transmitted to the FDA as a New Drug
Application (NDA). The FDA reviews the information in the NDA to determine if the drug is safe and effective
for its intended use. An advisory panel meeting is scheduled for a new drug allowing the FDA to gain feedback
from experts. If the FDA determines that the drug is safe and effective, the drug will be approved.
Stage 4: Marketing. After the FDA has approved the experimental drug, the pharmaceutical company can make
it available to physicians and their patients. A company also may continue to conduct research to discover new
uses for the drug. Each time a new use for a drug is discovered, the drug once again is subject to the entire FDA
approval process before it can be marketed for that purpose.
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Any FDA approved pharmaceutical products are subject to continuing regulation by the FDA, including, among
other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA
with updated safety and efficacy information, product sampling and distribution requirements, complying with
certain electronic records and signature requirements and complying with FDA promotion and advertising
requirements, which include, among others, standards for direct-to-consumer advertising, promoting
pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product’s
approved labeling (known as ‘‘off-label use’’), industry-sponsored scientific and educational activities and
promotional activities involving the internet. Failure to comply with FDA requirements is likely to have negative
consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or
communications with doctors, and civil or criminal penalties.
The FDA also may require post-marketing testing, known as Phase 4 testing, risk evaluation and mitigation
strategies and surveillance to monitor the effects of an approved product or place conditions on an approval that
could restrict the distribution or use of the product.
DM199 may qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act
of 2009 (the BPCIA), which was enacted as part of the Affordable Care Act (ACA). Under the BPCIA, an
application for a biosimilar product (BLA) cannot be submitted to the FDA until four years, or if approved by
the FDA, until 12 years, after the original brand product identified as the reference product is approved under a
BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable biological
products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve
biosimilar biologics, including the possible designation of a biosimilar as ‘‘interchangeable’’ based on its
similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and
implemented by the FDA.
European Approval Process
The EMA is roughly parallel to the FDA in terms of the drug approval process and the strict requirements for
approval. The EMA was set up in 1995 in an attempt to harmonize, but not replace, the work of existing national
medicine regulatory bodies in individual European countries. As with the FDA, the EMA drug review and
approval process follows similar stages from preclinical testing through clinical testing in Phase 1, 2, and 3.
There are some differences between the FDA and EMA review process, specifically the review process in
individual European countries. Such differences may allow certain drug products to be tested in patients at an
earlier stage of development.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local
authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services and other divisions
of the U.S. government, including, the Department of Health and Human Services, the Department of Justice and
individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example,
if a drug product is reimbursed by Medicare, Medicaid, or other federal or state healthcare programs, a company,
including its sales, marketing and scientific/educational grant programs, must comply with the federal Food, Drug
& Cosmetic Act as it relates to advertising and promotion of drugs, the federal False Claims Act, as amended,
the federal Anti-Kickback Statute, as amended, the Physician Payments Sunshine Act, the federal Health
Insurance Portability and Accountability Act of 1996 (HIPAA), and similar state laws. If a drug product is
reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid
rebate requirements of the Omnibus Budget Reconciliation Act of 1990 (OBRA), and the Medicare Prescription
Drug Improvement and Modernization Act of 2003. Among other things, OBRA requires drug manufacturers to
pay rebates on prescription drugs to state Medicaid programs and empowers states to negotiate rebates on
pharmaceutical prices, which may result in prices for our future products being lower than the prices we might
otherwise obtain. Additionally, the ACA substantially changes the way healthcare is financed by both
governmental and private insurers. There may continue to be additional proposals relating to the reform of the
U.S. healthcare system, in the future, some of which could further limit coverage and reimbursement of drug
products. If drug products are made available to authorized users of the Federal Supply Schedule of the General
Services Administration, additional laws and requirements may apply.
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Pharmaceutical Coverage, Pricing and Reimbursement
In the United States and markets in other countries, sales of any products for which we receive regulatory
approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement
from third-party payers, including government health administrative authorities, managed care providers, private
health insurers and other organizations. In the United States, private health insurers and other third-party payers
often provide reimbursement for products and services based on the level at which the government (through the
Medicare and/or Medicaid programs) provides reimbursement for such treatments. Third-party payers are
increasingly examining the medical necessity and cost-effectiveness of medical products and services in addition
to their safety and efficacy; and, accordingly, significant uncertainty exists regarding the coverage and
reimbursement status of newly approved therapeutics. In particular, in the United States, the European Union and
other potentially significant markets for our product candidates, government authorities and third-party payers are
increasingly attempting to limit or regulate the price of medical products and services, particularly for new and
innovative products and therapies, which has resulted in lower average selling prices. Further, the increased
emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement
controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which
may adversely affect our future product sales and results of operations. These pressures can arise from rules and
practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare,
Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. As a result,
coverage and adequate third party reimbursement may not be available for our products to enable us to realize an
appropriate return on our investment in research and product development.
The market for our product candidates for which we may receive regulatory approval will depend significantly
on access to third-party payers’ drug formularies or lists of medications for which third-party payers provide
coverage and reimbursement. The industry competition to be included in such formularies often leads to
downward pricing pressures on pharmaceutical companies. Also, third-party payers may refuse to include a
particular branded drug in their formularies or may otherwise restrict patient access to a branded drug when a
less costly generic equivalent or another alternative is available. In addition, because each third-party payer
individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a
time-consuming and costly process. We would be required to provide scientific and clinical support for the use of
any product candidate to each third-party payer separately with no assurance that approval would be obtained,
and we may need to conduct expensive pharmacoeconomic studies to demonstrate the cost-effectiveness of our
product candidates. This process could delay the market acceptance of any of our product candidates for which
we may receive approval and could have a negative effect on our future revenues and operating results. We
cannot be certain that our product candidates will be considered cost-effective. If we are unable to obtain
coverage and adequate payment levels for our product candidates from third-party payers, physicians may limit
how much or under what circumstances they will prescribe or administer them and patients may decline to
purchase them. This in turn could affect our ability to successfully commercialize our products and impact our
profitability, results of operations, financial condition, and future success.
Research and Development
We have devoted substantially all of our efforts to research and development (R&D) which therefore comprises
the largest component of our operating costs. Our primary focus over the past approximately nine years has been
our lead product candidate, DM199, which is currently in clinical development for the treatment of AIS and
CKD.
We expect our R&D expenses will continue to increase in the future as we advance our initial product candidate,
DM199, through clinical trials in AIS and CKD and seek to expand our product candidate portfolio. The process
of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming and we
consider the active management and development of our clinical pipeline to be integral to our long-term success.
The actual probability of success for each product candidate, clinical indication and preclinical program may be
affected by a variety of factors including, among other things, the safety and efficacy data for each product
candidate, amounts invested in their respective programs, competition and competitive developments,
manufacturing capability and commercial viability.
24
R&D expenses include:
•
•
•
•
•
•
expenses incurred under contract research agreements and other agreements with third parties;
expenses incurred under agreements with clinical trial sites that conduct research and development
activities on our behalf;
employee and consultant-related expenses, which include salaries, benefits, travel and share-based
compensation;
laboratory and vendor expenses related to the execution of clinical trials and non-clinical studies;
the cost of acquiring, developing, manufacturing, and distributing clinical trial materials; and
facilities and other expenses, which include direct and allocated expenses for rent and maintenance of
facilities, insurance, and other supply costs.
R&D costs are expensed as incurred. Costs for certain development activities such as clinical trials are
recognized based on an evaluation of the progress to completion of specific tasks using information and data
provided to us by our vendors and our clinical sites.
We expect that it will be at least three to five years, if ever, before we have any product candidates ready for
commercialization.
Manufacturing
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of
DM199 nor do we have plans to develop our own manufacturing operations in the foreseeable future. We rely on
Catalent Pharma Solutions, LLC (Catalent), a contract manufacturing organization (CMO) with proven GMP
experience in the manufacturing of recombinant proteins for clinical trials, for all of our required raw materials,
active pharmaceutical ingredients for our clinical trials. We have licensed certain gene expression technology and
we contract with Catalent for the manufacture of DM199. We currently employ internal resources and third-party
consultants to manage our manufacturing relationship with Catalent.
Sales and Marketing
We have not yet defined our sales, marketing or product distribution strategy for our initial product candidate,
DM199, or any future product candidates, because it is still early in the clinical development stage. We currently
expect to partner with a large pharmaceutical company for sales execution. However, our future commercial
strategy may include the use of distributors, a contract sales force or the establishment of our own commercial
and specialty sales force, as well as similar strategies for regions and territories outside the United States.
Intellectual Property
We view patents and other means of intellectual property protection including trade secrets as an important
component of our core business. We focus on translating our innovations into intangible property protecting our
proprietary technology from infringement by competitors. To that end, patents are reviewed frequently and
continue to be sought in relation to those components or concepts of our preclinical and clinical products to
provide protection. Our strategy, where possible, is to file patent applications to protect our product candidates,
as well as methods of manufacturing, administering and using a product candidate. Prior art searches of both
patent and scientific databases are performed to evaluate novelty, inventiveness and freedom-to-operate. We
require all employees, consultants and parties to a collaborative research agreement to execute confidentiality
agreements upon the commencement of employment, consulting relationships or a collaboration with us. These
agreements require that all confidential information developed or made known during the course of the
engagement with us is to be kept confidential. We also maintain agreements with our scientific staff and all
parties contracted in a scientific capacity affirming that all inventions resulting from work performed for us,
using our property or relating to our business and conceived or completed during the period covered by the
agreement are the exclusive property of DiaMedica.
Our DM199 patent portfolio includes three granted U.S. patents, a granted European patent and pending
applications in Australia, Canada, China, Europe, India, Japan, Korea and the United States. Granted or pending
25
claims offer various forms of protection for DM199 including claims to compositions of matter, pharmaceutical
compositions, specific formulations and dosing levels and methods for treating a variety of diseases, including
chronic kidney disease, stroke and related disorders. These U.S. patents and applications, and their foreign
equivalents, are described in more detail below.
Issued patents held by us cover the DM199 composition of matter based on an optimized combination of
closely-related isoforms that differ in the extent of glycosylation (process by which sugars are chemically
attached to proteins). Issued claims in this patent family cover the most pharmacologically active variants of
DM199 and methods of using the same for treating ischemic conditions and these patents are due to expire in
2033. A second patent family includes an issued U.S. patent with claims directed to methods of treating subjects
by administering a SC formulation of DM199 or related recombinant kallikrein-1 (KLK1) polypeptides and is
predicted to expire in 2033. The pending applications are directed to a range of dose levels and dosing regimens
of DM199 that are potentially useful for treating a wide range of diseases including, e.g. pulmonary arterial
hypertension, cardiac ischemia, chronic kidney disease, diabetes, stroke and vascular dementia which, if granted,
are predicted to expire in 2038.
As previously discussed, we do not own or operate manufacturing facilities for the production of clinical or
commercial quantities of DM199. We are contracting with Catalent for the manufacture of DM199. We have
licensed certain gene expression technology and we contract with Catalent for the manufacture of DM199. Under
the terms of this license, certain milestone and royalty payments may become due and are dependent upon,
among other factors, performing clinical trials, obtaining regulatory approvals and ultimately the successful
commercialization of a new drug, the outcome and timing of which is uncertain. The royalty term is indefinite
but the license agreement may be canceled by us on 90 days’ prior written notice. The license may not be
terminated by Catalent unless we fail to make required milestone and royalty payments.
Methods and reagents required for commercial scale manufacture of DM199 are subject to a series of patents
issued to Catalent. We license these patents from Catalent, and such license is exclusive as it relates to the
production of DM199 or any human KLK1 protein.
We believe that our proprietary technology along with trade secrets and specialized knowledge of the
manufacturing process will provide substantial protection from third-party competitors. We also believe that
DM199 cannot be easily reverse engineered for the production of a copycat version.
We believe that the most relevant granted patents and applications with composition of matter or method of use
claims covering DM199 are listed below, along with their projected expiration dates exclusive of any patent term
extension:
Patent/Application
Number
Issued patents
Title
Geography
Predicted
Expiration
US 9,364,521 . . . . . . . . . . . . . Human Tissue Kallikrein 1 Glycosylation Isoforms
US 9,839,678 . . . . . . . . . . . . . Human Tissue Kallikrein 1 Glycosylation Isoforms
US
US
2033
2033
EP 2 854 841 . . . . . . . . . . . . . Human Tissue Kallikrein 1 Glycosylation Isoforms
Europe
2033
US 9,616,015 . . . . . . . . . . . . . Formulations for Human Tissue Kallikrein-1 for
Parenteral Delivery and Related Methods
US
2033
Pending applications
AU 2018230478 . . . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
CA 3054962 . . . . . . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
CN 201880016380.4 . . . . . . . Dosage Forms of Tissue Kallikrein 1
EP 18763243.5 . . . . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
IN 201917037712. . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
JP 2019-548655 . . . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
KR 10-2019-7026369. . . . . . . Dosage Forms of Tissue Kallikrein 1
US 16/492,059 . . . . . . . . . . . . Dosage Forms of Tissue Kallikrein 1
Australia
Canada
China
Europe
India
Japan
Korea
US
2038
2038
2038
2038
2038
2038
2038
2038
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Employees
As of December 31, 2020, we had 11 employees, 10 of which were full-time employees. We have never had a
work stoppage and none of our employees are covered by collective bargaining agreements. We believe our
employee relations are good.
Information About Our Executive Officers
The following table sets forth information as of December 31, 2020 regarding each of our current executive
officers:
Name
Rick Pauls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Pharm.D. . . . . . . . . . . . . . . . . . . .
Sydney Gilman, Ph.D. . . . . . . . . . . . . . . . . . . . .
Age
49
55
64
68
Positions
President and Chief Executive Officer, Director
Chief Financial Officer and Secretary
Chief Medical Officer
Vice President, Regulatory Affairs
The present principal occupations and recent employment history of each of our executive officers are set forth
below.
Rick Pauls was appointed our President and Chief Executive Officer in January 2010. Mr. Pauls has served as a
member of our Board of Directors since April 2005 and the Chairman of the Board from April 2008 to
July 2014. Prior to joining DiaMedica, Mr. Pauls was the Co-Founder and Managing Director of CentreStone
Ventures Inc., a life sciences venture capital fund, from February 2002 until January 2010. Mr. Pauls was an
analyst for Centara Corporation, another early stage venture capital fund, from January 2000 until January 2002.
From June 1997 until November 1999, Mr. Pauls worked for General Motors Acceptation Corporation
specializing in asset-backed securitization and structured finance. Mr. Pauls previously served as an independent
member of the board of directors of LED Medical Diagnostics, Inc. Mr. Pauls received his Bachelor of Arts in
Economics from the University of Manitoba and his M.B.A. in Finance from the University of North Dakota.
Scott Kellen joined DiaMedica as our Vice President of Finance in January 2018 and was appointed our Chief
Financial Officer and Secretary in April 2018. Prior to joining DiaMedica, Mr. Kellen served as Vice President
and Chief Financial Officer of Panbela Therapeutics, Inc., formerly known as Sun BioPharma, Inc., a
publicly-traded clinical stage drug development company, from October 2015 until April 2018. From
February 2010 to September 2015, Mr. Kellen served as Chief Financial Officer and Secretary of Kips Bay
Medical, Inc., a publicly-traded medical device company, and became Chief Operating Officer of Kips Bay in
March 2012. From November 2007 to May 2009, Mr. Kellen served as Finance Director of Transoma Medical,
Inc. From 2005 to October 2007, Mr. Kellen served as Corporate Controller of ev3 Inc. From March 2003 to
April 2005, Mr. Kellen served as Senior Manager, Audit and Advisory Services of Deloitte & Touche, LLP.
Altogether, Mr. Kellen has spent more than 25 years in the life sciences industry, focusing on publicly traded
early stage and growth companies. Mr. Kellen has a Bachelor of Science degree in Business Administration from
the University of South Dakota and is a Certified Public Accountant (inactive).
Harry Alcorn Jr. Pharm.D. was appointed our Chief Medical Officer in August 2018. Prior to joining DiaMedica,
Dr. Alcorn served as Chief Scientific Officer at DaVita Clinical Research (DCR), a company that provides
clinical research services for Pharmaceutical and Biotech companies, from October 1997 to June 2018. While at
DCR, Dr. Alcorn was responsible for clinical research operations, including the formation and management of the
early clinical and late phase research services. Dr. Alcorn also founded the U.S. Renal Network, the first network
of Phase 1 renal research sites in the United States. Dr. Alcorn developed DCR’s site management organization
for clinical trials. Dr. Alcorn also served as an Executive Director, a Pharmacist and an Investigator at DCR.
During this time, from January 2013 to December 2014, he also served on the Board of Directors for the
Association of Clinical Pharmacology Units, an association of Phase 1 clinical trial sites. Dr. Alcorn has over
30 years of clinical research experience working with biotech and pharmaceutical companies, both public and
private, in conducting research in renal, hepatic and cardiovascular disease. Dr. Alcorn has written and consulted
on the development of several protocols and has served as Principal Investigator or Sub Investigator in numerous
studies and, for several of these studies, presented study design and results to the FDA. Currently he holds
27
clinical faculty appointments with the University of Minnesota, Creighton University, University of Nebraska
Medical Center, Virginia Commonwealth and the University of Colorado, Denver. Dr. Alcorn graduated from
Creighton University with a Bachelor of Pharmacy and went on to earn his Doctor of Pharmacy degree from
University of Nebraska Medical Center.
Sydney A. Gilman, Ph.D. was appointed our Vice President, Regulatory Affairs in November 2019. Dr. Gilman is
currently the founder and President of Trident Rx Consulting Services LLC, a regulatory consulting firm, a
position he has held since January 2004. Dr. Gilman is a former FDA Chemistry reviewer. He spent six years at
the FDA in various CDER Therapeutic Drug Divisions of the Center for Drug Evaluation and Research with
consulting ties to both Biologics and Devices. Dr. Gilman also has an additional 20 years of experience in the
pharmaceutical industry in positions ranging from Senior Scientist to Director to Vice President responsibilities.
He earned his Bachelor of Science from Loyola College and a Ph.D. in Organic Chemistry from the
University of Pittsburgh.
Available Information
We are a corporation governed under British Columbia’s Business Corporations Act (BCBCA). Our company
was initially incorporated pursuant to The Corporations Act (Manitoba) by articles of incorporation dated
January 21, 2000. Our articles were subsequently amended several times, including on April 11, 2016 to continue
the Company from The Corporations Act (Manitoba) to the Canada Business Corporations Act (CBCA) and on
May 31, 2019, to continue our existence from a corporation incorporated under the CBCA into British Columbia
under the BCBCA.
Our registered office is located at 301-1665 Ellis Street, Kelowna, British Columbia, Canada V1Y 2B3 and our
principal executive office is located at our wholly owned subsidiary, DiaMedica USA Inc., located at Two
Carlson Parkway, Suite 260, Minneapolis, Minnesota, USA 55447. Our telephone number is 763-496-5454. Our
internet website address is http://www.diamedica.com. Information contained on our website does not constitute
part of this report.
We make available, free of charge and through our Internet web site, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to any such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (SEC). Reports filed with the SEC may be viewed at www.sec.gov.
Implications of Being an Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act),
and we may remain an emerging growth company for up to five years from December 31, 2018. However, if
certain events occur prior to the end of such five-year period, including if we become a large accelerated filer,
our annual gross revenue exceeds $1.07 billion, or we issue more than $1.0 billion of non-convertible debt in any
three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from
certain disclosure and other requirements that are applicable to other public companies that are not emerging
growth companies. In particular, in this report, we have provided only two years of audited financial statements
and have not included certain other information that would be required if we were not an emerging growth
company. Accordingly, the information contained herein may be different than the information you receive from
other public companies in which you hold equity interests. However, we have irrevocably elected not to avail
ourselves of the extended transition period for complying with new or revised accounting standards, and,
therefore, we are subject to the same new or revised accounting standards as other public companies that are not
emerging growth companies.
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Item 1A. Risk Factors
The following are the material factors known to us that could materially adversely affect our business, operating
results or financial condition.
Risk Factors Summary
This summary is not complete and should be read in conjunction with the risk factors that follow.
Risks Related to Our DM199 Product Candidate and Clinical Trials
•
Our prospects depend on the clinical and commercial success of DM199, which is in the clinical stage
of development.
• We are required to conduct clinical trials and if these trials fail to demonstrate the safety and efficacy
of DM199, or any future product candidate, we will not obtain the approvals required to market and
commercialize the product.
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The COVID-19 pandemic has resulted and will likely continue to result in enrollment delays in our
REDUX trial.
Our DM199 product candidate may cause or have attributed to it undesirable side effects.
• We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in
accordance with regulatory requirements, the results are negative or inconclusive or the trials are not
well designed.
Risks Related to Governmental and Regulatory Compliance and Approvals
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The regulatory approval process is expensive, time-consuming and uncertain and may prevent us or any
future partner or collaborator from obtaining approvals for the commercialization of DM199 or any
future product candidate.
Any product candidate for which we or any future partner or collaborator obtains marketing approval
could be subject to post-marketing restrictions or recall or withdrawal from the market, and we may be
subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated
problems with the product candidate.
Risks Related to Our Reliance on Third Parties
• We rely on contract manufacturers over whom we have limited control.
• We rely on third parties to plan, conduct and/or monitor our clinical trials, and their failure to perform
could cause delays in completing our product development.
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Future development collaborations are expected to be important to us.
Risks Related to the Future Commercialization of DM199 or Any Future Product Candidate
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The successful commercialization of DM199 or any future product candidate, if approved, will depend
on market acceptance and coverage and adequate reimbursement for the product.
• We face competition in developing our DM199 or any future product candidate and our DM199
product candidate may face competition sooner than expected.
Risks Related to Our International Operations
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Our international operations involve a variety of risks.
If we lose our ability to operate in Australia and receive the R&D incentive payment, our results of
operations could suffer.
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Risks Related to Intellectual Property
• We may be unable to adequately protect our technology and enforce our intellectual property rights.
• We may require additional third-party licenses to effectively develop, manufacture and commercialize
our DM199 or any future product candidate, and such license might not be available on
commercially-acceptable terms, or at all.
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Changes in patent law and its interpretation could diminish the value of our patents.
Intellectual property litigation may be expensive, time consuming and cause delays in the development,
manufacturing and commercialization of our DM199 or any future product candidate.
• We could lose important intellectual property rights that we currently license from a third party if we
fail to comply with our obligations under the license agreements or otherwise experience disruptions to
our relationships with our licensors.
Risks Related to Pending Litigation and Other Legal Matters
• We face the risk of product liability claims, which could exceed our insurance coverage and lead to
clinical trial delays.
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If we are unable to maintain product liability insurance, certain agreements would be subject to
termination.
• We have sued a contract research organization to compel it to comply with the terms of a clinical trial
research agreement and to date have been unsuccessful in this litigation.
Risks Related to Our Financial Position and Need for Additional Capital
• We have incurred and expect to continue to incur substantial losses and may never become profitable.
•
Since we have no revenue from product sales and do not expect any revenue from product sales for at
least three to five years, we will need additional funding to continue our R&D activities and other
operations, which may not be available to us on acceptable terms, or at all.
Risks Related to Human Capital Management
• We heavily rely on the capabilities and experience of our key executives and scientists and the loss of
any of them could affect our ability to develop DM199 or any future product candidate.
• We will likely need to expand our operations and increase the size of our company and we may
experience difficulties in managing growth.
Risks Related to Our Common Shares
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Our common share price has been and may continue to be volatile and no assurance can be provided
that an active trading market for our shares will continue.
• We may issue additional common shares resulting in share ownership dilution, and if there are
substantial sales of our common shares or the perception that such sales may occur, the market price of
our common shares could decline.
Risks Related to Our Jurisdiction of Organization
• We are governed by the corporate laws of British Columbia, which in some cases have a different
effect on shareholders than the corporate laws in effect in the United States.
• We may be classified as a ‘‘passive foreign investment company’’ in future taxable years, which may
have adverse U.S. federal income tax consequences for U.S. shareholders.
Risks Related to Our DM199 Product Candidate
Our prospects depend on the clinical and commercial success of our DM199 product candidate which is in the
clinical stage of development.
We are highly dependent on the success of DM199 and we may not be able to successfully obtain regulatory or
marketing approval for, or successfully commercialize, this product candidate. To date, we have expended significant
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time, resources and effort on the development of DM199, including conducting preclinical and clinical trials, for the
treatment of AIS and CKD. DM199 requires significant additional clinical testing and investment prior to seeking
marketing approval. A commitment of substantial resources by ourselves and any potential partner or collaborator to
continue to conduct the clinical trials for DM199 will be required to obtain required regulatory approvals and
successfully commercialize this product candidate. Although we intend to study the use of DM199 to treat multiple
diseases, we have no other product candidates in our current clinical development pipeline. Our ability to generate
revenue from product sales and to achieve commercial success of DM199 will depend almost entirely on our ability to
demonstrate sufficient safety and efficacy to obtain regulatory approval for DM199. We may fail to complete required
clinical trials successfully, obtain regulatory approvals, or commercialize DM199. Competitors may develop alternative
products and methodologies to treat the diseases or indications that we are pursuing, thus reducing or eliminating the
anticipated competitive advantages of DM199. We do not know whether any of our product development efforts will
prove to be effective, meet applicable regulatory standards required to obtain the requisite regulatory approvals, be
capable of being manufactured at a reasonable cost or be successfully marketed. DM199 is not expected to be
commercially viable for at least three to five years. In addition, although no significant adverse events have occurred
to date in our clinical trials, it is possible that DM199 may be observed to cause undesirable side effects. Results of
early preclinical and clinical research may not be indicative of the results that will be obtained in later stages of
clinical research. If regulatory authorities do not approve DM199 for the treatment of AIS and/or CKD or any other
indications, or if we fail to maintain regulatory compliance, we will likely be unable to commercialize DM199 and our
business and results of operations would be harmed. If we do succeed in developing viable products from DM199, we
will face many potential future obstacles, such as the need to develop or obtain manufacturing, sales and marketing
and distribution capabilities.
The clinical and commercial success of our DM199 product candidate will depend on a number of factors,
many of which are beyond our control.
The clinical and commercial success of our DM199 product candidate will depend on a number of factors, many
of which are beyond our control, including, among others:
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the timely initiation, continuation and completion of our currently ongoing Phase 2 and future clinical
trials for DM199, which will depend substantially upon requirements for such trials imposed by the
FDA and other regulatory agencies and bodies;
our ability to demonstrate the safety and efficacy of DM199 to the satisfaction of the relevant
regulatory authorities;
whether we are required by the FDA or other regulatory authorities to conduct additional clinical trials,
and the scope and nature of such clinical trials, prior to approval to market our DM199 product
candidate;
the timely receipt of necessary marketing approvals from the FDA and foreign regulatory authorities, as
well as pricing and reimbursement determinations;
the ability to successfully commercialize DM199, if approved by the FDA or foreign regulatory
authorities, whether alone or in collaboration with others;
our ability and the ability of third-party manufacturers to manufacture the quantities of DM199, with
quality attributes necessary to meet regulatory requirements, sufficient to meet anticipated demand at a
cost that allows us to achieve profitability;
acceptance of DM199, if approved, as safe and effective by patients and the healthcare providers;
the achievement and maintenance of compliance with all regulatory requirements applicable to DM199
by us and our third-party manufacturers and supporting vendors;
the maintenance of an acceptable safety profile of DM199 following any approval;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative
and competitive treatments;
our ability to provide approved product with a convenient and patient-friendly administration method;
our ability to successfully enforce our intellectual property rights for DM199 and against the products
of potential competitors; and
our ability to avoid or succeed in defending any third-party patent interference or patent infringement
claims.
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No assurance can be provided that we will ever be able to achieve profitability through the sale of, or royalties
from, our DM199 product candidate. If we or any future partners or collaborators are not successful in obtaining
approval for and commercializing DM199, or are delayed in completing those efforts, our business and
operations would be substantially harmed.
Risks Related to Our Clinical Trials
If clinical trials of our DM199 or any future product candidate fails to demonstrate safety and efficacy to the
satisfaction of regulatory authorities or does not otherwise produce positive results, we would incur additional
costs and experience delays in completing, or may ultimately be unable to complete, the development of
DM199 or any future product candidate and therefore be unable to commercialize it.
Before obtaining marketing approval from regulatory authorities for the sale of DM199 or any future product
candidate, we must conduct preclinical studies and extensive clinical trials in humans to demonstrate the safety
and efficacy of our product candidate. Clinical testing is expensive and difficult to design and implement, can
take many years to complete and has uncertain outcomes. The outcome of preclinical studies and early clinical
trials may not predict the success of later clinical trials, and interim results of a clinical trial do not necessarily
predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles,
notwithstanding promising results in earlier trials. We do not know whether the clinical trials we are currently
conducting or may conduct in the future will demonstrate adequate efficacy and safety to result in regulatory
approval to market DM199 or any future product candidate in any jurisdiction. A product candidate may fail for
safety or efficacy reasons at any stage of the testing process. In addition, the patient populations in our clinical
studies for DM199 often have co-morbidities that may cause severe illness or death, which may be attributed to
DM199 in a manner that negatively affects the safety profile of our DM199 product candidate. If the results of
our ongoing or future clinical trials for DM199 are inconclusive with respect to efficacy, if we do not meet our
clinical endpoints with statistical significance, or if there are unanticipated safety concerns or adverse events that
emerge during clinical trials, we may be prevented from or delayed in obtaining marketing approval, and even if
we obtain marketing approval, any sales of DM199 may be limited.
If we have difficulty enrolling patients in our clinical trials or experience other delays in clinical testing, we
will be delayed in commercializing DM199 or any future product candidate, and our business may be
substantially harmed.
We cannot predict whether any clinical trials will begin as planned, will need to be restructured or will be
completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical
testing. Significant clinical trial delays could shorten any periods during which we may have the exclusive right
to commercialize our DM199 or any future product candidate or allow our competitors to bring products to
market before us, which would impair our ability to successfully commercialize our DM199 or any future
product candidate and may harm our financial condition, results of operations and prospects. The commencement
and completion of clinical trials for our DM199 or any future product candidate may be delayed for a number of
reasons, including among others:
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patients choosing an alternative treatment for the indications for which we are developing our product
candidate or participating in competing clinical trials;
competing clinical trials and scheduling conflicts with participating clinicians;
patients failing to enroll or remain in our trials at the rates and within the timelines we expect;
suspension or termination of clinical trials by regulators for many reasons, including concerns about
patient safety or failure of our contract manufacturers to comply with current Good Manufacturing
Practices (cGMP) requirements;
any changes to our manufacturing process that may be necessary or desired;
delays or failure to obtain clinical supply from contract manufacturers of our product candidate
necessary to conduct clinical trials;
the product candidate demonstrating a lack of safety or efficacy during clinical trials;
patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects, or other
reasons;
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clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a
trial or employing methods not consistent with the clinical trial protocol, regulatory requirements or
other third parties not performing data collection and analysis in a timely or accurate manner;
inspections of clinical trial sites by regulatory authorities, Institutional Review Boards (IRBs) or ethics
committees finding regulatory violations that require us to undertake corrective action, resulting in
suspension or termination of one or more sites or the imposition of a clinical hold on the entire study;
one or more IRBs or ethics committees rejecting, suspending or terminating the study at an
investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the
trial; or
public health crises, epidemics and pandemics, such as the COVID- 19 pandemic, which adversely
impacted and may continue to adversely impact our ability to recruit or enroll subjects for our clinical
trials.
Our product development costs will increase if we experience delays in testing or approval or if we need to
perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies
may occur, and we may need to amend study protocols to reflect these changes. Amendments may require us to
resubmit our study protocols to regulatory authorities or IRBs or ethics committees for re-examination, which
may impact the cost, timing or successful completion of that trial. Delays or increased product development costs
may have a material adverse effect on our business, financial condition, and prospects.
The COVID-19 pandemic has resulted in a delay in enrollment in our REDUX trial and will likely continue to
result in enrollment delays and could also significantly disrupt in other ways our REDUX trial or other
clinical trials which could delay or prevent our receipt of necessary regulatory approvals for DM199.
The COVID-19 pandemic is having a severe effect on the clinical trials of many drug candidates. Some trials
have been merely delayed, while others have been cancelled. Due to actions implemented at our clinical study
sites to combat the COVID-19 pandemic, we have experienced slower than expected enrollment in the first two
cohorts of our REDUX clinical trial. We believe this is due to both the reduction or suspension of activities at
our clinical study sites as they address staff and patient safety concerns as well as patient concerns related to
their personal risk in visiting clinical study sites in light of the COVID-19 pandemic. However, with the
significant declines in new COVID-19 cases and the anticipated availability and effectiveness of vaccines, we
currently anticipate completion of Cohort I and Cohort II in the second half of 2021.
The extent to which the pandemic may impact our ongoing and planned clinical trials will depend on future
developments, which are highly uncertain and cannot be predicted with confidence, such as the duration and
severity of the pandemic, and the effectiveness of actions to contain, treat and prevent COVID-19, including the
availability and effectiveness of recently authorized vaccines. The continued spread of COVID-19 could cause us
to experience continued and/or additional disruptions that could severely impact our business and clinical trials,
including:
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continued or additional delays or difficulties in enrolling or retaining participants in our clinical trials;
delays or difficulties in the initiation of additional clinical sites in the event that the current clinical
sites are unable to recruit sufficient participants or at an acceptable rate;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials,
including interruption in shipping that may affect the transport of clinical trial materials;
changes in local regulations as part of a response to the pandemic, which may require us to change the
ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue
the clinical trials altogether;
inability of participants to comply with clinical trial protocols, impede participant movement or
interrupt healthcare services;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on
travel imposed or recommended by federal or state governments, employers and others, or interruption
of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of
clinical trial data;
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risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is
ongoing, which could result in participants dropping out of the trial, missing scheduled doses or
follow-up visits or failing to follow protocol or otherwise impact the results of the clinical trial,
including by increasing the number of observed adverse events;
delays in receiving authorizations from local regulatory authorities to initiate our planned clinical trials;
delays in necessary interactions with local regulatory authorities, ethics committees and other important
agencies and contractors due to limitations in employee resources or forced furlough of government
employees; and
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials,
including because of sickness of employees or their families, required quarantines or the desire of
employees to avoid contact with large groups of people.
As a result, the expected timeline for the full data readout of our REDUX clinical trial has been and may
continue to be negatively impacted, which has also adversely affected the timing of certain regulatory filings and
our ability to initiate required Phase 3 studies, obtain regulatory approval for and to commercialize our DM199
product candidate.
Our DM199 product candidate may cause or have attributed to it undesirable side effects or have other
properties that could delay or prevent its regulatory approval, limit the commercial scope of its approved uses,
or result in significant negative consequences following any marketing approval.
Although no significant adverse events have occurred to date in our clinical trials, undesirable side effects may
be identified as related to DM199 by investigators conducting our clinical trials and could cause us or regulatory
authorities to interrupt, delay or halt clinical trials and result in the delay or denial of regulatory approval by the
FDA or other comparable foreign regulatory authorities, potential product liability claims or a more restrictive
label. This may require longer and more extensive clinical development or we could suspend or terminate our
clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or
deny approval of our DM199 product candidate for any or all of our targeted indications. Drug-related side
effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial. Any of these
occurrences may significantly harm our business, financial condition and prospects.
We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance
with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.
Clinical trials must be conducted in accordance with the FDA’s current Good Clinical Practices (cGCP)
requirements, or analogous requirements of applicable foreign regulatory authorities. Clinical trials are subject to
oversight by the FDA, other foreign governmental agencies and IRBs or ethics committees at the study sites
where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates
produced in accordance with applicable cGMP. Clinical trials may be suspended by us or by the FDA, other
foreign regulatory authorities, or by an IRB or ethics committee with respect to a particular clinical trial site, for
various reasons, including:
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deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in
accordance with regulatory requirements or study protocols;
deficiencies in the clinical trial operations or trial sites;
unforeseen adverse side effects or the emergence of undue risks to study subjects;
deficiencies in the trial design necessary to demonstrate efficacy;
the product candidate may not appear to offer benefits over current therapies; or
the quality or stability of the product candidate may fall below acceptable standards.
The design and implementation of clinical trials is a complex process. As a Company, we have limited
experience designing and implementing clinical trials. We may not successfully or cost-effectively design and
implement clinical trials that achieve our desired clinical endpoints efficiently, or at all. A clinical trial that is not
well designed may delay or even prevent initiation of the trial, can lead to increased difficulty in enrolling
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patients, may make it more difficult to obtain regulatory approval for the product candidate on the basis of the
study results or, even if a product candidate is approved, could make it more difficult to commercialize the
product successfully or obtain reimbursement from third party payers. Additionally, a trial that is not
well-designed could be delayed and more expensive than it otherwise would have been, or we may incorrectly
estimate the costs to implement the clinical trial, which could lead to a shortfall in funding.
We have conducted and may in the future conduct clinical trials for our product candidates outside the United
States, and the FDA may not accept data from such trials.
We have conducted and may in the future conduct clinical trials for our product candidates outside the United
States. For example, we conducted our ReMEDy Phase 2 clinical trial in Australia. Based upon our recently
completed Type B, pre-IND meeting with the FDA, we believe that the FDA will accept this data; however, there
can be no assurance that the FDA will accept data from the clinical trial we conducted in Australia when we
submit our IND for our planned Phase 2/3 trial of DM199 in stroke patients. Clinical trial conducted outside the
United States must be conducted in accordance with cGCP requirements, and the FDA must be able to validate
the data from the clinical trial through an onsite inspection if it deems such an inspection necessary.
If the FDA does not accept data from the clinical trial we conducted in Australia, it would likely result in the
need for additional clinical trials, which would be costly and time-consuming and delay aspects of our business
plan, including the development and commercial launch of our DM199 product candidate for the treatment of
AIS. In addition, the conduct of clinical trials outside the United States also exposes us to additional risks,
including risks associated with the following:
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foreign regulatory requirements that could burden or limit our ability to conduct our clinical trials;
administrative burdens of conducting clinical trials under multiple foreign regulatory schemes;
foreign currency exchange rate fluctuations;
compliance with foreign manufacturing, customs, shipment, and storage requirements;
cultural differences in medical practice and clinical research; and
diminished protection of intellectual property in some countries.
Future legislation in the United States, Europe or other countries, and/or regulations and policies adopted by
the FDA, the EMA or comparable regulatory authorities, may increase the time and cost required for us or
any future partners or collaborators to conduct and complete clinical trials of our current or any future
product candidates.
The FDA and the EMA have each established regulations to govern the product development and approval
process, as have other foreign regulatory authorities. The policies of the FDA, the EMA and other regulatory
authorities may change. For example, in December 2016, the 21st Century Cures Act (Cures Act) was signed into
law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation,
but not all of its provisions have yet been implemented. Additionally, in August 2017, the FDA issued final
guidance setting forth its current thinking with respect to development programs and clinical trial designs for
antibacterial drugs to treat serious bacterial diseases in patients with an unmet medical need. We cannot predict
what if any effect the Cures Act or any existing or future guidance from the FDA or other regulatory authorities
will have on the development of DM199 or any future product candidate.
Risks Related to Governmental and Regulatory Compliance and Approvals
We may not be able to obtain FDA acceptance of INDs to commence future clinical trials in the United States
or on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed in a timely
manner, or at all.
Prior to commencing additional clinical trials in the United States for future trials of DM199 or any future
product candidate, we will be required to have an accepted IND for each product candidate and for each targeted
indication. During 2019, we filed and the FDA accepted an IND for the Phase 1b study and a Phase 2 study in
patients with CKD. A submission of an IND may not result in the FDA allowing further clinical trials to begin
and, once begun, issues may arise that will require us to suspend or terminate such clinical trials. Additionally,
even if relevant regulatory authorities agree with the design and implementation of the clinical trials set forth in
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an IND, these regulatory authorities may change their requirements in the future. Failure to submit or obtain
acceptance of INDs may cause the development of DM199 or any future product candidate to be delayed or
terminated, which could materially and adversely affect our business and prospects.
Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is
expensive, time-consuming and uncertain and may prevent us or any future partner or collaborator from
obtaining approvals for the commercialization of our DM199 or any future product candidate.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take
many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including
the type, complexity and novelty of the product candidate involved. Our DM199 or any future product candidate,
and the activities associated with their development and commercialization, including design, research, testing,
manufacture, quality control, recordkeeping, labeling, packaging, storage, approval, advertising, promotion, sale,
distribution, import, export and reporting of safety and other post-market information, are subject to
comprehensive regulation by the FDA, the EMA and other similar foreign regulatory agencies. Failure to obtain
marketing approval for DM199 or any future product candidate will prevent us or any future partner or
collaborator from commercializing the product candidate. We have only limited experience in filing and
supporting the applications necessary to gain marketing approvals and expect to rely on third-parties to assist us
in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data
and supporting information to regulatory authorities for each therapeutic indication to establish the product
candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about
the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities.
The FDA, EMA or other regulatory authorities may determine that DM199 or any future product candidate may
not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects,
toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit its
commercial use. As a result, any marketing approval we ultimately obtain may be limited or subject to
restrictions or post-approval commitments that render the approved product not commercially viable. Our
inability to obtain regulatory approval for DM199 or any future product candidate, or if such approval is limited,
could substantially harm our business.
Any product candidate for which we or any future partner or collaborator obtains marketing approval could
be subject to post-marketing restrictions or recall or withdrawal from the market, and we may be subject to
penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with
the product candidate, when and if it is approved.
The FDA and other federal and state agencies, including the U.S. Department of Justice (DOJ), closely regulate
compliance with all requirements governing prescription drug products, including requirements pertaining to
marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing
of products in accordance with cGMP requirements. The FDA and DOJ impose stringent restrictions on
manufacturers’ communications regarding off-label use, and if we do not market our products for their approved
indications, we may be subject to enforcement action for off-label marketing. Violations of such requirements
may lead to investigations alleging violations of the FDCA and other statutes, including the False Claims Act and
other federal and state health care fraud and abuse laws, as well as state consumer protection laws.
Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events
or other problems with our products, manufacturers or manufacturing processes, may yield various results,
including:
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litigation involving patients using our products;
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning or untitled letters;
withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
damage to relationships with any potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
Non-compliance by us or any future partner or collaborator with regulatory requirements regarding safety
monitoring or pharmacovigilance, and with requirements related to the development of products, can also result
in significant financial penalties. Similarly, failure to comply with regulatory requirements regarding the
protection of personal information can also lead to significant penalties and sanctions.
Current and future legislation may increase the difficulty and cost for us and any future partner or
collaborator to obtain marketing approval of and commercialize our DM199 or any future product candidate
and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory
changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of
our DM199 or any future product candidate, restrict or regulate post-approval activities and affect our ability to
profitably sell DM199 or any future product candidate for which we obtain marketing approval.
Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting
changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or
expanding access. For example, the ACA includes measures to change health care delivery, decrease the number
of individuals without insurance, ensure access to certain basic health care services, and contain the rising cost of
care. This healthcare reform movement, including the enactment of the ACA, has significantly changed health
care financing by both governmental and private insurers in the United States. With respect to pharmaceutical
manufacturers, the ACA increased the number of individuals with access to health care coverage, including
prescription drug coverage, but it simultaneously imposed, among other things, increased liability for rebates and
discounts owed to certain entities and government health care programs, fees for the manufacture or importation
of certain branded drugs and transparency reporting requirements under the Physician Payments Sunshine Act. In
addition to the ACA, other federal health reform measures have been proposed and adopted in the United States.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may
result in more rigorous coverage criteria and additional downward pressure on the price that we may receive for
any product, if approved. Any reduction in reimbursement from Medicare or other government programs may
result in a similar reduction in payments from private payers. The implementation of cost containment measures
or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or
commercialize our DM199 or any future product candidate.
Risks Related to Our Reliance on Third Parties
We rely on contract manufacturers over whom we have limited control. If we are subject to quality, cost or
delivery issues with the materials supplied by these or future contract manufacturers, we may be unable to
produce adequate supplies of DM199 or any future product candidate, and our clinical and business
operations could suffer significant harm.
Completion of our clinical trials and commercialization of our DM199 product candidate and any future product
candidate require access to, or development of, facilities to manufacture our product candidates at sufficient
yields and, ultimately, at commercial scale. Clinical and commercial drug product must be produced under
applicable cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials,
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which would delay the regulatory approval process. We rely on a CMO to manufacture DM199. We rely on
CMOs for manufacturing, filling, labeling, packaging, storing and shipping DM199 in compliance applicable
cGMP regulations. The FDA ensures the quality of drug products by carefully monitoring drug manufacturers’
compliance with cGMP regulations.
As a company, we have no direct experience in manufacturing or managing third parties in manufacturing our
DM199 product candidate in the volumes that are expected to be necessary to support commercialization, if
DM199 is approved. Our efforts to establish these capabilities may not meet our requirements as to scale-up,
timeliness, yield, cost or quality in compliance with applicable cGMP regulations. We or any future partner or
collaborator or our CMOs may encounter difficulties in production, which may include the following, among
others:
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costs and challenges associated with scale-up and attaining sufficient manufacturing yields;
supply chain issues, including the timely availability and shelf life requirements of raw materials and
supplies and the lack of redundant and backup suppliers;
quality control and assurance;
shortages of qualified personnel and capital required to manufacture large quantities of our product
candidate;
competing capacity needs at CMOs supporting product development as quantities for supply increase;
establishment of commercial supply capacity through binding supply agreements;
compliance with regulatory requirements that vary in each country where a product might be sold;
capacity limitations and scheduling availability in contracted facilities; and
natural disasters, cyberattacks or other force majeure events that affect facilities and possibly limit
production or loss of product inventory maintained in third party storage facilities.
There can be no assurances that our current CMOs or any future CMOs will be able to meet our timetable and
requirements for our DM199 product candidate or any future product candidate. If we are unable to arrange for
alternative third-party manufacturing sources on commercially reasonable terms or in a timely manner, we may
be delayed in the development of DM199 or any future product candidate. Further, CMOs must operate in
compliance with cGMP regulations, and failure to do so could result in, among other things, the disruption of
product supplies. Our dependence upon our current CMOs and any future third parties for the manufacture of our
product candidates may adversely affect our ability to develop our product candidates on a timely and
competitive basis and, if we are able to commercialize our product candidates, may adversely affect our revenues
from product sales and profit margins.
We rely and will continue to rely on third parties to plan, conduct and monitor our preclinical and clinical
trials, and their failure to perform as required could cause delays in completing our product development and
substantial harm to our business.
We rely and will continue to rely on third parties to conduct a significant portion of our preclinical and clinical
development activities. Preclinical activities include in vivo studies in specific disease models, pharmacology and
toxicology studies and assay development. Clinical development activities include trial design, regulatory
submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety
monitoring and project management. If there is any dispute or disruption in our relationship with third parties, or
if they are unable to provide quality services in a timely manner and at a feasible cost, our development
programs may face delays. Further, if any of these third parties fails to perform as we expect or if its work fails
to meet regulatory requirements, our testing could be delayed, cancelled or rendered ineffective. This happened
to us in the past and resulted in us commencing litigation against Pharmaceutical Research Associates Group
B.V. (PRA Netherlands) as a result of its handling of a double-blinded, placebo-controlled, single-dose and
multiple-dose study to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and proof of concept
of DM199 in healthy subjects and in patients with Type 2 diabetes mellitus, as described later in this report, and
could happen again.
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Our inability to maintain contractual relationships with physicians could have a negative impact on our
research and development.
We maintain contractual relationships with respected physicians in hospitals and universities who assist us in the
design of our clinical trials and interpretation of trial results. If we are unable to enter into and maintain these
relationships, our ability to develop, obtain required regulatory approvals for, and market our DM199 or any
future product candidate could be adversely affected. In addition, it is possible that U.S. federal and state and
international laws requiring us to disclose payments or other transfers of value, such as gifts or meals, to
surgeons and other healthcare providers could have a chilling effect on the relationships with individuals or
entities that may, among other things, want to avoid public scrutiny of their financial relationships with us.
Future development collaborations are expected to be important to us. If we are unable to enter into or
maintain these collaborations, or if these collaborations are not successful, our business could be adversely
affected.
In the future, we intend to seek to collaborate with pharmaceutical and biotechnology companies for the
development and/or commercialization of DM199. We face significant competition in seeking appropriate
collaborators or partners. Our ability to reach a definitive agreement for any collaboration will depend, among
other things, upon our assessment of the collaborator’s or partner’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed collaborator’s or partner’s evaluation of a number of
factors. If we are unable to reach agreements with suitable collaborators or partners on a timely basis, on
acceptable terms, or at all, we may have to curtail the development of our DM199 product candidate and take
certain actions including, among other things, reducing or delaying its development program, delaying its
potential development schedule or reducing the scope of research activities. If we fail to enter into one or more
collaborations and do not have sufficient funds or expertise to undertake the necessary development or clinical
trial activities, we may not be able to continue or further develop DM199 and our business may be materially
and adversely affected.
Future collaborations we may enter into may involve the following risks, among others:
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collaborators may have significant discretion in determining the efforts and resources that they will
apply to the collaboration;
collaborators may not perform their obligations as expected;
changes in the collaborators’ strategic focus or available funding, or external factors, such as an
acquisition, may divert resources or create competing priorities;
collaborators may delay nonclinical or clinical development, provide insufficient funding for product
development of targets selected by us, stop or abandon nonclinical or clinical development for a
product candidate, or repeat or conduct new nonclinical and clinical development for a product
candidate;
collaborators could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates if the collaborators believe that competitive
products are more likely to be successfully developed than our products;
product candidates discovered in collaboration with us may be viewed by our future collaborators as
competitive with their own product candidates or products, which may cause collaborators to cease to
devote resources to the development of our product candidates;
disagreements with collaborators, including disagreements over proprietary rights, contract
interpretation or the preferred course of development, might cause delays or termination of the
preclinical or clinical development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any
of which would be time-consuming and expensive;
collaborators may not properly maintain or defend our intellectual property rights or intellectual
property rights licensed to us or may use our proprietary information in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property or proprietary information or
expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third parties, which may expose us to
litigation and potential liability; and
collaborations may be terminated for the convenience of the collaborator and, if terminated, we could
be required to raise additional capital to pursue further development or commercialization of the
applicable product candidates.
If a collaborator terminates its agreement with us, we may find it more difficult to attract new collaborators and
the way we are perceived in the business and financial communities could be adversely affected.
If our collaborations do not result in the successful development of DM199 or any future product candidate, it
could be delayed and we may need additional resources to develop product candidates. All of the risks relating to
product development, regulatory approval and commercialization described in this report also apply to the
activities of our future collaborators.
Risks Related to the Future Commercialization of DM199 or Any Future Product Candidate
The successful commercialization of DM199 or any future product candidate, if approved, will depend on
achieving market acceptance and we may not be able to gain sufficient acceptance to generate significant
revenue.
Even if DM199 or any future product candidate is successfully developed and receives regulatory approval, it
may not gain market acceptance among physicians, patients, healthcare payers such as private insurers or
governments and other funding parties. The degree of market acceptance for DM199 or any product candidate
we develop will depend on a number of factors including, among others:
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demonstration of sufficient clinical efficacy and safety;
the prevalence and severity of any adverse side effects;
limitations or warnings contained in the product’s approved labeling;
cost-effectiveness and availability of acceptable pricing;
the availability of alternative treatment methods and the superiority of alternative treatment methods;
the effectiveness of marketing and distribution methods and support for the product; and
coverage and reimbursement policies of government and third-party payers to the extent that the
product could receive regulatory approval but not be approved for coverage by or receive adequate
reimbursement from government and quasi-government agencies or other third-party payers.
If we fail to obtain coverage and adequate reimbursement for DM199 or any future product candidate, our
revenue-generating ability will be diminished and there is no assurance that the anticipated market for the
product will be sustained.
Our ability to successfully commercialize DM199 or any future product candidate will depend, in part, on the
extent to which coverage of and adequate reimbursement for such product and related treatments will be
available from governmental health payer programs at the federal and state levels, including Medicare and
Medicaid, private health insurers, managed care plans and other organizations. No assurance can be given that
third-party coverage and adequate reimbursement will be available that will allow us to obtain or maintain price
levels sufficient for the realization of an appropriate return on our investment in product development. Coverage
and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and
private health insurers, managed care plans and other organizations is critical to new product acceptance by
healthcare providers. There is no uniform coverage and reimbursement policy among third-party payers in the
United States; however, private third-party payers may follow Medicare coverage and reimbursement policy in
setting their own coverage policy and reimbursement rates. Additionally, coverage decisions may depend upon
clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic
alternatives are already available or subsequently become available. Even if we obtain coverage for DM199 or
any future product candidate, the related reimbursement rates might not be adequate to make the product
attractive to providers, or may require patient cost sharing (e.g., copayments/deductibles) that patients find
unacceptably high. In addition, healthcare reform and controls on healthcare spending may limit coverage of the
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product and the price we charge and get paid for the product and the volumes thereof that we can sell. Patients
are unlikely to use our DM199 or any future product candidate unless coverage is provided and reimbursement is
adequate to cover a significant portion of its cost.
Outside of the United States, the successful commercialization of DM199 or any future product candidate will
depend largely on obtaining and maintaining government coverage, because in many countries patients are
unlikely to use prescription drugs that are not covered by their government healthcare programs. Negotiating
coverage and reimbursement with governmental authorities can delay commercialization by 12 months or more.
Coverage and reimbursement policies may adversely affect our ability to sell our DM199 or any future product
candidate on a profitable basis. In many international markets, governments control the prices of prescription
pharmaceuticals, including through the implementation of reference pricing, price cuts, rebates, revenue-related
taxes and profit control, and we expect prices of prescription pharmaceuticals to decline over the life of the
product or as volumes increase.
We face competition from other biotechnology and pharmaceutical companies and our financial condition and
operations will suffer if we fail to compete effectively.
Technological competition is intense in the industry in which we operate. Development of new, potentially
competitive therapies comes from pharmaceutical companies, biotechnology companies and universities, as well
as companies that offer non-pharmaceutical solutions. Many of our competitors have substantially greater
financial and technical resources; more extensive R&D capabilities; and greater marketing, distribution,
production and human resources than we do. Moreover, competitors may develop products more quickly than us
and may obtain regulatory approval for such products more rapidly than we do. Products and processes which
are more effective than those that we intend to develop may be developed by our competitors. R&D by others
may render our product candidates non-competitive or obsolete.
Our DM199 product candidate may face competition sooner than expected.
We believe that DM199 could qualify for 12 years of data exclusivity in the United States under the Biologics
Price Competition and Innovation Act of 2009 (BPCIA), which was enacted as part of the ACA. Under the
BPCIA, an application for a biosimilar product, or BLA, cannot be submitted to the FDA until four years, or if
approved by the FDA, until 12 years, after the original brand product identified as the reference product is
approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and
interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the
FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as
‘‘interchangeable’’ based on its similarity to an existing brand product. This law is complex and is only
beginning to be interpreted and implemented by the FDA. While it is uncertain when any such processes may be
fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial
prospects for DM199 or any future product candidate that is a biologic. There is also a risk that the U.S.
Congress could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity
for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the
extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar
to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of
marketplace and regulatory factors that are still developing.
Even if, as we expect, our DM199 product candidate is considered to be a reference product eligible for 12 years
of exclusivity under the BPCIA, another company could market competing products if the FDA approves a full
BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled
clinical trials to demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of
the BPCIA could result in a shorter exclusivity period for our DM199 product candidate, which could have a
material adverse effect on our business.
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Risks Related to Our International Operations
A variety of risks are associated with operating our business internationally which could materially adversely
affect our business.
We have conducted R&D operations and/or clinical trials in the United States, Canada and Australia. In the
future, we expect to conduct certain clinical trials, and plan to seek regulatory approval of DM199 or any future
product candidates, outside of the United States. Accordingly, we are subject to risks related to operating in
foreign countries including, among others:
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differing regulatory requirements for drug approvals;
different standards of care in various countries that could complicate the evaluation of our product
candidates;
different United States and foreign drug import and export rules;
reduced protection for intellectual property rights in certain countries;
withdrawal from or revision to international trade policies or agreements and the imposition or
increases in import and export licensing and other compliance requirements, customs duties and tariffs,
import and export quotas and other trade restrictions, license obligations, and other non-tariff barriers to
trade;
unexpected changes in tariffs, trade barriers, and regulatory requirements;
the imposition of U.S. or international sanctions against a country, company, person or entity with
whom we do business that would restrict or prohibit continued business with that country, company,
person or entity;
different reimbursement systems and different competitive drugs indicated to treat the indications for
which our product candidates are or will be developed;
economic weakness, including inflation or political instability in particular foreign economies and
markets;
compliance with tax, employment, immigration, and labor laws for employees living or traveling
abroad;
compliance with the Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws;
foreign taxes, including withholding of payroll taxes;
foreign currency exchange rate fluctuations, which could result in increased operating expenses and/or
reduced revenue, and other obligations incident to doing business in another country;
difficulties in managing and staffing international operations and increases in infrastructure costs,
including legal, tax, accounting, and information technology;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing
capabilities abroad;
potential liability resulting from development work conducted by foreign partners or collaborators;
transportation delays and interruptions;
business interruptions resulting from natural disasters or geopolitical actions, including war and
terrorism or systems failure, including cybersecurity breaches; and
compliance with evolving and expansive international data privacy laws, such as the European Union
General Data Protection Regulation.
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We have conducted certain R&D operations through our Australian wholly-owned subsidiary. If we lose our
ability to operate in Australia, or if our subsidiary is unable to receive the R&D incentive payment allowed by
Australian regulations, our business and results of operations could suffer.
We maintain a wholly-owned Australian subsidiary, DiaMedica Australia Pty Ltd., and have conducted various
clinical activities in Australia. Current Australian tax regulations provide for a refundable R&D incentive
payment equal to 43.5% of qualified expenditures. We received incentive payments of approximately
USD $205,000 and USD $856,000 during 2020 and 2019, respectively, for research expenditures made during
2020 and 2019. If our subsidiary loses its ability to operate in Australia, or if we are ineligible or unable to
receive the R&D incentive payment or the Australian government significantly reduces or eliminates the
incentive program, our results of operations may be adversely affected.
Risks Related to Intellectual Property
If we are unable to adequately protect our technology and enforce our intellectual property rights, our
competitors may take advantage of our development efforts or acquired technology and compromise our
prospects of marketing and selling our DM199 or any future product candidate.
We believe that patents and other proprietary rights are key to our business. Our policy is to file patent
applications to protect technology, inventions and improvements that may be important to the development of our
business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our
rights to proprietary information and technology. We review third-party patents and patent applications, both to
refine our own patent strategy and to monitor the landscape related to our technology.
Our success depends, in part, on our ability to secure and protect our intellectual property rights and to operate
without infringing on the proprietary rights of others or having third parties circumvent the rights owned or
licensed by us. We have a number of patents, patent applications and rights to patents related to our compounds,
product candidates and technology, but we cannot be certain that they will be enforceable or provide adequate
protection or that pending patent applications will result in issued patents.
To the extent that development, manufacturing and testing of our product candidates is performed by third party
contractors, such work is performed pursuant to fee for service contracts. Under the contracts, all intellectual
property, technology know-how and trade secrets arising under such agreements are our exclusive property and
must be kept confidential by the contractors. It is not possible for us to be certain that we have obtained from the
contractors all necessary rights to such technologies. Disputes may arise as to the scope of the contract or
possible breach of contract. No assurance can be given that our contracts would be enforceable or would be
upheld by a court.
The patent positions of pharmaceutical and biotechnology firms, ourselves included, are uncertain and involve
complex questions of law and fact for which important legal issues remain unresolved. Therefore, it is not clear
whether our pending patent applications will result in the issuance of patents or whether we will develop
additional proprietary products which are patentable. Part of our strategy is based on our ability to secure a
patent position to protect our technology. There is no assurance that we will be successful in this approach and
failure to secure patent protection may have a material adverse effect upon us and our financial condition. Also,
we may fail in our attempt to commercialize products using currently patented or licensed technology without
having to license additional patents. Moreover, it is not clear whether the patents issued or to be issued will
provide us with any competitive advantages or if any such patents will be the target of challenges by third
parties, whether the patents of others will interfere with our ability to market our products, or whether third
parties will circumvent our patents by means of alternate processes. Furthermore, it is possible for others to
develop products that have the same effect as our product candidates or technologies on an independent basis or
to design around technologies patented by us. Patent applications relating to or affecting our business may have
been filed by pharmaceutical or biotechnology companies or academic institutions. Such applications may
conflict with our technologies or patent applications and such conflict could reduce the scope of patent protection
that we could otherwise obtain or even lead to the rejection of our patent applications. There is no assurance that
we can enter into licensing arrangements on commercially reasonable terms or develop or obtain alternative
technology in respect of patents issued to third parties that incidentally cover our products or production
technologies. Any inability to secure licenses or alternative technology could result in delays in the introduction
of some of our product candidates or even lead to us being prevented from pursuing the development,
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manufacture or sale of certain products. Moreover, we could potentially incur substantial legal costs in defending
legal actions that allege patent infringement, or by initiating patent infringement suits against others. It is not
possible for us to be certain that we are the creator of inventions covered by pending patent applications or that
we were the first to invent or file patent applications for any such inventions. While we have used commercially
reasonable efforts to obtain assignments of intellectual property from all individuals who may have created
materials on our behalf (including with respect to inventions covered by our patent and pending patent
applications), it is not possible for us to be certain that we have obtained all necessary rights to such materials.
No assurance can be given that our patents, if issued, would be upheld by a court, or that a competitor’s
technology or product would be found to infringe on our patents. Moreover, much of our technology know-how
that is not patentable may constitute trade secrets. Therefore, we require our employees, consultants, advisors and
collaborators to enter into confidentiality agreements either as stand-alone agreements or as part of their
employment or consulting contracts. However, no assurance can be given that such agreements will provide
meaningful protection of our trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure of confidential information. Also, while we have used commercially reasonable
efforts to obtain executed copies of such agreements from all employees, consultants, advisors and collaborators,
no assurance can be given that executed copies of all such agreements have been obtained.
We may require additional third-party licenses to effectively develop, manufacture and commercialize our
DM199 or any future product candidate and are currently unable to predict the availability or cost of such
licenses.
A substantial number of patents have already been issued to other biotechnology and pharmaceutical companies.
To the extent that valid third-party patent rights cover our product candidates, we or our strategic collaborators
would be required to seek licenses from the holders of these patents in order to manufacture, use or sell these
product candidates, and payments under them would reduce our profits from these product candidates. We are
currently unable to predict the extent to which we may wish or be required to acquire rights under such patents,
the availability and cost of acquiring such rights, and whether a license to such patents will be available on
acceptable terms, or at all. There may be patents in the United States or in foreign countries or patents issued in
the future that are unavailable to license on acceptable terms. Our inability to obtain such licenses may hinder or
eliminate our ability to develop, manufacture and market our product candidates.
Changes in patent law and its interpretation could diminish the value of patents in general, thereby impairing
our ability to protect our DM199 or any future product candidate.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on
intellectual property rights, particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involves technological and legal complexity, and obtaining and enforcing biopharmaceutical patents is
costly, time consuming, and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in
recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the
rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our
licensors’ or collaborators’ ability to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the
federal courts, and the U.S. Patent and Trademark Office (USPTO), the laws and regulations governing patents
could change in unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to obtain
new patents or to enforce existing patents and patents we and our licensors or collaborators may obtain in the
future. Changes in either the patent laws or interpretation of the patent laws in the United States or other
countries could increase the uncertainties and costs surrounding the prosecution of patent applications and the
enforcement or defense of issued patents.
Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to
invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent
application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the
America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system
in which, assuming that other requirements for patentability are met, the first inventor to file a patent application
will be entitled to the patent on an invention regardless of whether a third party was the first to invent the
claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us
could, therefore, be awarded a patent covering an invention of ours even if we had made the invention before it
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was made by such third party. This will require us to be cognizant of the time from invention to filing of a
patent application. Since patent applications in the United States and most other countries are confidential for a
period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either
(i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our
or our licensor’s patents or patent applications.
The America Invents Act also includes a number of significant changes that affect the way patent applications
will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior
art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent in
USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation
proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary
standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially
provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same
evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a
third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been
invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the
America Invents Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or
in-licensed issued patents, all of which could have a material adverse effect on our business, financial condition,
results of operations, and prospects.
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent
protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents
in the future, this combination of events has created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark
Office, and similar legislative, judicial, and administrative bodies in other countries, the laws and regulations
governing patents could change in unpredictable ways that would weaken our and our licensors’ or collaborators’
ability to obtain new patents or to enforce existing patents and patents we and our licensors or collaborators may
obtain in the future.
Litigation regarding patents, patent applications, and other proprietary rights may be expensive, time
consuming and cause delays in the development, manufacturing and commercialization of our DM199 or any
future product candidate.
Third parties may claim that we are using their proprietary information without authorization. Third parties may
also have or obtain patents and may claim that technologies licensed to or used by us infringe their patents. If we
are required to defend patent infringement actions brought by third parties, or if we sue to protect our own patent
rights or otherwise to protect our proprietary information and to prevent its disclosure, we may be required to
pay substantial litigation costs and managerial attention may be diverted from business operations even if the
outcome is in our favor. In addition, any legal action that seeks damages or an injunction to stop us from
carrying on our commercial activities relating to the affected technologies could subject us to monetary liability
(including treble damages and attorneys’ fees if we are found to have willfully infringed) and require us or any
third-party licensors to obtain a license to continue to use the affected technologies. We cannot predict whether
we would prevail in any of these types of actions or that any required license would be available on
commercially acceptable terms or at all. Some of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have substantially greater resources.
Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings
against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that
the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of
novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be
an allegation that someone connected with prosecution of the patent withheld relevant information from the
USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of
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invalidity and unenforceability is unpredictable. Moreover, similar challenges may be made by third parties
outside the context of litigation, e.g., via administrative proceedings such as post grant or inter partes review in
the United States or via oppositions or other similar proceedings in other countries/regions.
Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may
be necessary to determine the priority of inventions with respect to our patents or patent applications. An
unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it
from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on
commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access
to the same technology. Our defense of litigation, validity or enforceability, interference or derivation proceedings
may fail and, even if successful, may result in substantial costs and distract our management and other
employees. In addition, the uncertainties associated with litigation or such other proceedings could have a
material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our
research programs, license necessary technology from third parties, or enter into development partnerships that
would help us bring our product candidates to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation or administrative proceedings, there is a risk that some of our confidential information could be
compromised by disclosure. There could also be public announcements of the results of hearings, motions or
other interim proceedings or developments. If securities analysts or investors perceive these results to be
negative, it could have a material adverse effect on the market price of our common shares.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights
from third parties or otherwise experience disruptions to our business relationships with our licensors, we
could lose intellectual property rights that are important to our business.
We are a party to a license agreement relating to an expression system and cell line for use in the production of
DM199 or any human KLK1, and we may need to obtain additional licenses from others to advance our R&D
activities or allow the commercialization of DM199 or any other product candidates we may identify and pursue.
Future license agreements may impose various development, diligence, commercialization and other obligations
on us. If any of our in-licenses are terminated, or if the underlying patents fail to provide the intended
exclusivity, competitors or other third parties may gain access to technologies that are material to our business,
and we may be required to cease our development and commercialization of DM199 or other product candidates
that we may identify or to seek alternative manufacturing methods. However, suitable alternatives may not be
available or the development of suitable alternatives may result in a significant delay in our commercialization of
DM199. Any of the foregoing could have a material adverse effect on our competitive position, business,
financial condition, results of operations and prospects.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including, among
others:
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the extent to which our product candidates, technology and processes infringe on intellectual property
of the licensor that is not subject to the licensing agreement;
the sublicensing of patent and other rights under our collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence
obligations;
the inventorship and ownership of inventions and know-how resulting from the joint creation or use of
intellectual property by our licensors and us and our partners; and
the priority of invention of patented technology.
In addition, the agreements under which we currently license intellectual property or technology from third
parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the
scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our
financial or other obligations under the relevant agreement, either of which could have a material adverse effect
on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual
46
property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
commercially acceptable terms, we may be unable to successfully develop and commercialize the affected
product candidates, which could have a material adverse effect on our business, financial condition, results of
operations, and prospects.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a
competitor will discover them.
Because we rely on third parties to develop our DM199 product candidate, we must share trade secrets with
them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if
applicable, material transfer agreements, collaborative research agreements, employment or consulting agreements
or other similar agreements with our collaborators, advisors, employees, and consultants prior to beginning
research or disclosing proprietary information. These agreements typically restrict the ability of our collaborators,
advisors, employees, and consultants to publish data potentially relating to our trade secrets. Our academic
collaborators typically have rights to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure our intellectual property rights arising from the collaboration.
In other cases, publication rights are controlled exclusively by us, although in some cases we may share these
rights with other parties. We also conduct joint R&D programs which may require us to share trade secrets under
the terms of R&D collaboration or similar agreements. However, we cannot be certain that such agreements have
been entered into with all relevant parties. Moreover, despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets, either through breach of these agreements, independent development
or publication of information including our trade secrets in cases where we do not have proprietary or otherwise
protected rights at the time of publication. Trade secrets can be difficult to protect. If the steps taken to maintain
our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for
misappropriating any trade secrets. A competitor’s discovery of our trade secrets may impair our competitive
position and could have a material adverse effect on our business and financial condition.
Patent terms may be inadequate to protect the competitive position of our DM199 or any future product
candidate for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural
expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions
may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our
product candidates are obtained, once the patent life has expired, we may be open to competition from
competitive products, including generics or biosimilars. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not
provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used
or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed
alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously
employed at universities or other biotechnology or pharmaceutical companies, including our competitors or
potential competitors. Although we try to ensure that our employees, consultants and independent contractors do
not use the proprietary information or know-how of others in their work for us, we may be subject to claims that
we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed
intellectual property, including trade secrets or other proprietary information, of any of our employees’ former
employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel, which could adversely impact our business. Even if we are successful in defending against
such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent
protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or
applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United
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States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind
us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to
non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance
with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process. We employ reputable law firms and other professionals to help us comply, and in many
cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the
applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
In such an event, our competitors might be able to enter the market and this circumstance would have a material
adverse effect on our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would
be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we
may not be able to prevent third parties from practicing our inventions in all countries outside the United States,
or from selling or importing products made using our inventions in and into the United States or other
jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection
to develop their own products and may also export infringing products to territories where we have patent
protection, but enforcement is not as strong as that in the United States. These products may compete with our
products and our patents or other intellectual property rights may not be effective or sufficient to prevent them
from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights
in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not
favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those
relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at risk of not issuing and could provoke third parties
to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage
from the intellectual property that we develop or license.
Risks Related to Pending Litigation and Other Legal Matters
We have sued a contract research organization to compel them to comply with the terms of a clinical trial
research agreement and to date have been unsuccessful in this litigation
In March 2013, we entered into a clinical research agreement with PRA Netherlands to perform a
double-blinded, placebo-controlled, single-dose and multiple-dose study to evaluate the safety, tolerability,
pharmacokinetics, pharmacodynamics and proof of concept of DM199 in healthy subjects and in patients with
Type 2 diabetes mellitus. In one arm of this study, we enrolled 36 patients with Type 2 diabetes who were
treated with two subcutaneous dose levels of DM199 over a 28-day period. This study achieved its primary
endpoint and demonstrated that DM199 was well tolerated. The secondary endpoints for this study, however,
were not met. We believe there were significant execution errors in Part D of the study that were caused by
protocol deviations occurring at the clinical trial site that were unable to be reconciled. We believe these included
dosing errors and sample mix-ups. These errors undermined our ability to interpret the secondary endpoints.
To date, we have been unable to obtain the complete study records from PRA Netherlands for the arm of the
study that included 36 patients with Type 2 diabetes and was intended to measure primary endpoints (safety,
tolerability) and secondary endpoints (blood glucose concentration, insulin levels, glucose tolerance test and a
variety of experimental biomarkers). Without these records, and given our inability to reconcile the protocol
deviations, we have been unable to generate a final study report. Due in part to these confounded secondary
endpoints, we are not currently continuing the clinical study of DM199 for Type 2 diabetes. We have initiated
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litigation against PRA Netherlands in the Netherlands to compel them to comply with the terms of the clinical
research agreement, including providing full study records, and to recover damages. No assurance can be
provided that we will be successful in this litigation or even continue to pursue it, especially in light of the
history of this case and our inability to obtain success in commencing litigation against a U.S. subsidiary of
PRA Netherlands in the United States. Litigation distracts the attention of our management from our business, is
expensive and the outcome is uncertain.
We face the risk of product liability claims, which could exceed our insurance coverage, deplete our cash
resources and lead to clinical trial delays.
A risk of product liability claims, and related negative publicity, is inherent in the development of human
therapeutics. We are exposed to the risk of product liability claims alleging that use of our DM199 or any future
product candidate caused an injury or harm. These claims can arise at any point in the development, testing,
manufacture, marketing or sale of a product candidate and may be made directly by patients involved in clinical
trials of our product candidate, by consumers or healthcare providers, or by individuals, organizations or
companies selling our products, if and when approved. Product liability claims can be expensive to defend, even
if the product or product candidate did not actually cause the alleged injury or harm, and could lead to clinical
trial delays and could negatively impact existing or future collaborations.
Insurance covering product liability claims becomes increasingly expensive as a product candidate moves through
the development pipeline to commercialization. To protect against potential product liability risks, we have
AUD $20 million per occurrence and AUD $20 million aggregate clinical trial insurance for the ReMEDy Phase
2 clinical trial in Australia and US $5.0 million product liability insurance coverage. However, there can be no
assurance that such insurance coverage is or will continue to be adequate or available to us at a cost acceptable
to us or at all. We may choose or find it necessary under our collaboration agreements to increase our insurance
coverage in the future. We may not be able to secure greater or broader product liability insurance coverage on
acceptable terms or at reasonable costs when needed. Any liability for damages resulting from a product liability
claim could exceed the amount of our coverage, require us to pay a substantial monetary award from our own
cash resources, and otherwise have a material adverse effect on our business, financial condition, and results of
operations.
If we are unable to maintain product liability insurance required by third parties, certain agreements, such as
those with clinical study sites, contract resource organizations and other supporting vendors, would be subject
to termination, which could have a material adverse impact on our operations.
Some of our agreements with third parties require, and in the future will likely require, us to maintain product
liability insurance in at least certain specified minimum amounts. If we cannot maintain acceptable amounts of
coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the
corresponding agreements would be subject to termination, which could have a material adverse impact on our
operations.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred substantial losses since our inception and expect to continue to incur substantial losses for
at least three to five years and may never become profitable.
We are a clinical stage biopharmaceutical company focused on the development of our DM199 product
candidate. Investment in biopharmaceutical product development is highly speculative because it entails
substantial upfront capital expenditures and significant risk that a product candidate will fail to prove effective,
gain regulatory approval or become commercially viable. We do not have any products approved by regulatory
authorities and have not generated any revenues from product sales to date, and do not expect to generate any
revenue from the sale of products for at least three to five years. We have incurred significant R&D and other
expenses related to our ongoing operations and expect to continue to incur such expenses. As a result, we have
not been profitable and have incurred significant operating losses in every reporting period since our inception.
For the years ended December 31, 2020 and 2019, we incurred a net loss of $12.3 million and $10.6 million,
respectively. As of December 31, 2020, we had an accumulated deficit of $68.9 million. Our prior losses,
combined with expected future losses, have had and will continue to have an adverse effect on our shareholders’
equity and working capital. We expect to continue to incur substantial operating losses as we continue our R&D
activities, planned clinical trials, regulatory activities and otherwise develop our DM199 or any future product
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candidate to a point where it receives required regulatory approvals and may be commercially sold and we begin
to recognize future product sales, or receive royalty payments, licensing fees and/or milestone payments
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 or any future product candidate. We are unable to predict the extent of any future losses or when we
will become profitable, if ever. Our failure to become and remain profitable may depress the market price of our
common shares and could impair our ability to raise capital, continue to develop our DM199 or any future
product candidate, expand our business and product offerings or continue our operations. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on an ongoing basis.
Since we currently have no revenue from product sales and do not expect any revenue from product sales for
at least three to five years, we will need additional funding to continue our R&D activities and other
operations, which may not be available to us on acceptable terms, or at all.
We expect we will need substantial additional capital to further our R&D activities, planned clinical trials and
regulatory activities and to otherwise develop our DM199 product candidate to a point where it may be
commercially sold. We expect our current cash resources of $27.5 million in cash, cash equivalents and
marketable securities as of December 31, 2020 to be sufficient to allow us to complete all three cohorts in our
REDUX Phase 2 study in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to
otherwise fund our planned operations for at least the next twelve months from the date of issuance of the
financial statements included in this report. However, the amount and timing of our future funding requirements
will depend on many factors, including, among others:
•
•
•
•
•
•
•
•
•
the rate of progress in the development of and the conduct of clinical trials with respect to our DM199
or any future product candidates;
the timing and results of our ongoing development efforts, including in particular our current Phase 2
clinical studies;
the costs of our development efforts, including the conduct of clinical trials with respect to our DM199
or any future product candidates;
the costs associated with identifying additional product candidates and the potential expansion of our
current development programs or potential new development programs;
the costs necessary to obtain regulatory approvals for our DM199 or any future product candidates;
the costs of developing and validating manufacturing processes for our DM199 or any future product
candidates;
the costs associated with being a U.S. public reporting company with shares listed on The Nasdaq
Capital Market;
the costs we incur in the filing, prosecution, maintenance and defense of our intellectual property; and
the costs related to 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.
Since our inception, we have financed our operations primarily from public and private sales of equity securities,
the exercise of warrants and stock options, interest income on funds available for investment, and government
grants and tax incentives, 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.
Although we have previously been successful in obtaining financing through our equity securities offerings, there
can be no assurance that we will be able to do so in the future. To the extent we raise additional capital through
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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. It is possible that financing will
not be available or, if available, may not be on favorable terms. The availability of financing will be affected by
the results of our clinical studies and other scientific and clinical research; our ability to obtain regulatory
approvals; market acceptance of DM199 or any future 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 DM199 or any future product candidates or obtain funds
on less favorable terms than we would otherwise accept; and/or divest assets or cease operations through a
merger, sale or liquidation of our company.
Risks Related to Human Capital Management
We rely heavily on the capabilities and experience of our key executives, clinical personnel and advisors and
the loss of any of them could affect our ability to develop our DM199 or any future product candidate.
We depend heavily on members of our management team and certain other key personnel, including in particular
our clinical personnel. We also depend on our clinical collaborators and advisors, all of whom have outside
commitments that may limit their availability to us. In addition, we believe that our future success will depend in
large part upon our ability to attract and retain highly skilled scientific, managerial, medical, clinical and
regulatory personnel, particularly as we continue to expand our activities and seek regulatory approvals for
clinical trials and eventually our DM199 product candidate. We enter into agreements with scientific and clinical
collaborators and advisors, key opinion leaders and academic partners in the ordinary course of our business. We
also enter into agreements with physicians and institutions that will recruit patients into our clinical trials on our
behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant
competition for these types of personnel from other companies, research and academic institutions, government
entities and other organizations. We cannot predict our success in hiring or retaining the personnel we require for
our continued growth. The loss of the services of any of our key executive officers, clinical personnel and
advisors could potentially harm our business, operating results or financial condition.
We will likely need to expand our operations and increase the size of our Company and we may experience
difficulties in managing our growth.
As we advance our DM199 product candidate through preclinical testing and clinical studies, or develop any
future product candidates, we will need to increase our product development, scientific, clinical, regulatory and
compliance and administrative headcount to manage these programs. In addition, to continue to meet our
obligations as a U.S. public reporting company, we will likely need to increase our general and administrative
capabilities. Our management, personnel and systems currently in place may not be adequate to support this
future growth. Our need to effectively manage our operations, growth and various projects requires that we:
•
successfully attract and recruit new employees with the expertise and experience we will require;
• manage our clinical programs effectively, which we anticipate being conducted at numerous clinical
sites;
•
•
develop a marketing, distribution and sales infrastructure if we seek to market our products directly;
and
continue to improve our operational, manufacturing, quality assurance, financial and management
controls, reporting systems and procedures.
If we are unable to successfully manage this growth and increased complexity of operations, our business may be
adversely affected.
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Risks Related to Our Common Shares
Our common share price has been volatile and may continue to be volatile.
Our common shares trade on The Nasdaq Capital Market under the trading symbol ‘‘DMAC.’’ During 2020, the
sale price of our common shares ranged from $1.87 to $10.43 per share. A number of factors could influence the
volatility in the trading price of our common shares, including changes in the economy or in the financial
markets, industry related developments and the impact of material events and changes in our operations, such as
our clinical results, operating results and financial condition. Each of these factors could lead to increased
volatility in the market price of our common shares. In addition, the market prices of the securities of our
competitors may also lead to fluctuations in the trading price of our common shares.
We do not have a history of a very active trading market for our common shares.
During 2020, the daily trading volume of our common shares ranged from 1,100 shares to 1.1 million shares.
Although we anticipate a more active trading market for our common shares in the future, we can give no
assurance that a more active trading market will develop or be sustained. If we do not have an active trading
market for our common shares, it may be difficult for you to sell our common shares at a favorable price or at
all.
We may issue additional common shares resulting in share ownership dilution.
Future dilution will likely occur due to anticipated future equity issuances by us. 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. In addition, as of December 31, 2020, we had outstanding warrants to purchase
265,000 common shares, options to purchase 1,389,564 common shares, deferred share units representing
47,237 common shares and 1,099,098 common shares reserved for future issuance in connection with future
grants under the DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan. If these or any future outstanding
warrants, options or deferred share units are exercised or otherwise converted into our common shares, our
shareholders will experience additional dilution.
If there are substantial sales of our common shares or the perception that such sales may occur, the market
price of our common shares could decline.
Sales of substantial numbers of our common shares, or the perception that such sales may occur, could cause a
decline in the market price of our common shares. Any sales by existing shareholders or holders who exercise
their warrants or stock options may have an adverse effect on our ability to raise capital and may adversely
affect the market price of our common shares.
We are an ‘‘emerging growth company’’ and a ‘‘smaller reporting company,’’ and because we have opted to
use the reduced disclosure requirements available to us, certain investors may find investing in our common
shares less attractive.
We are an ‘‘emerging growth company,’’ as defined in the Jumpstart Our Business Startups Act of 2012. We may
remain an emerging growth company until December 31, 2023, the last day of the fiscal year following the fifth
anniversary of our first sale of common shares pursuant to a registration statement under the Securities Act of
1933, as amended, or until such earlier time as we have more than $1.07 billion in annual revenue, the market
value of our common shares held by non-affiliates is more than $700 million or we issue more than $1 billion of
non-convertible debt over a three-year period. For so long as we remain an emerging growth company, we are
permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other
public companies that are not emerging growth companies. These exemptions include not being required to
comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404), not being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements, reduced disclosure obligations
regarding executive compensation and exemptions from the requirements of holding a non-binding advisory vote
on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We are also a ‘‘smaller reporting company’’ under the federal securities laws and, as such, are subject to scaled
disclosure requirements afforded to such companies. For example, as a smaller reporting company, we are subject
to reduced executive compensation disclosure requirements.
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Our shareholders and investors may find our common shares less attractive as a result of our status as an
‘‘emerging growth company’’ and ‘‘smaller reporting company’’ and our reliance on the reduced disclosure
requirements afforded to these companies. If some of our shareholders or investors find our common shares less
attractive as a result, there may be a less active trading market for our common shares and the market price of
our common shares may be more volatile.
We have never paid dividends and do not expect to do so in the foreseeable future.
We have not declared or paid any cash dividends on our common shares to date. The payment of dividends in
the future will be dependent on our earnings and financial condition and on such other factors as our Board of
Directors considers appropriate. Unless and until we pay dividends, shareholders may not receive a return on
their common shares. There is no present intention by our Board of Directors to pay dividends on our common
shares. We currently intend to retain all of our future earnings, if any, to finance the growth and development of
our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a
result, appreciation, if any, in the market price of our common shares will be your sole source of gain for the
foreseeable future.
Risks Related to Our Jurisdiction of Organization
We are governed by the corporate laws of British Columbia, which in some cases have a different effect on
shareholders than the corporate laws in effect in the United States.
We are a British Columbia corporation. Our corporate affairs and the rights of holders of our common shares are
governed by British Columbia’s Business Corporations Act (BCBCA) and applicable securities laws, which laws
may differ from those governing a company formed under the laws of a United States jurisdiction. The
provisions under the BCBCA and other relevant laws may affect the rights of shareholders differently than those
of a company governed by the laws of a United States jurisdiction and may, together with our Notice of Articles
and Articles, have the effect of delaying, deferring or discouraging another party from acquiring control of our
company by means of a tender offer, proxy contest or otherwise, or may affect the price an acquiring party
would be willing to offer in such an instance. The material differences between the BCBCA and the Delaware
General Corporation Law (DGCL), by way of example, that may be of most interest to shareholders include the
following:
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•
•
for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate
transactions or amendments to our Notice of Articles), the BCBCA, subject to the provisions of our
Articles, generally requires two-thirds majority vote by shareholders; whereas, the DGCL generally
only requires a majority vote of shareholders;
under the BCBCA, a holder of 5% or more of our common shares can requisition a special meeting at
which any matters that can be voted on at our annual meeting can be considered; whereas, the DGCL
does not give this right;
our Articles require two-thirds majority vote by shareholders to pass a resolution for one or more
directors to be removed; whereas, the DGCL only requires the affirmative vote of a majority of the
shareholders; and
our Articles may be amended by resolution of our directors to alter our authorized share structure,
including to (a) subdivide or consolidate any of our shares and (b) create additional classes or series of
shares; whereas, under the DGCL, a majority vote by shareholders is generally required to amend a
corporation’s certificate of incorporation and a separate class vote may be required to authorize
alternations to a corporation’s authorized share structure.
We cannot predict if investors find our common shares less attractive because of these material differences. If
some investors find our common shares less attractive as a result, there may be a less active trading market for
our common shares and our share price may be more volatile.
We may be classified as a ‘‘passive foreign investment company’’ in future taxable years, which may have
adverse U.S. federal income tax consequences for U.S. shareholders.
General Rule. For any taxable year in which 75% or more of our gross income is passive income, or at least
50% of the value of our assets (where the value of our total assets is determined based upon the market value of
our common shares at the end of each quarter) are held for the production of, or produce, passive income, we
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would be characterized as a passive foreign investment company (PFIC) for U.S. federal income tax purposes.
The percentage of a corporation’s assets that produce or are held for the production of passive income generally
is determined based upon the average ratio of passive assets to total assets calculated at the end of each fiscal
quarter. On December 4, 2020, the Treasury and IRS published a set of final and proposed regulations and
guidance on PFICs. Among other changes that were made in the final regulations, a change in the computation
of the 50% passive asset test described above will be implemented that will close off any alternative method of
calculating assets that was advantageous to taxpayers. Taxpayers must calculate the value of assets at the end of
each measuring period, then use the ‘‘weighted average’’ of those values to determine the value of assets for the
passive asset test for the taxable year. Under the old rules, the ‘‘weighted average’’ arguably could be calculated
based on value, or percentage. Final regulations section 1.1297-1(d)(1)(i) now requires the weighted average to
be calculated based on the average value at the end of each measuring period (generally each of the four quarters
that make up the company’s taxable year, unless an election is made to use an alternative measuring period (such
as a week or month)). In addition, in new proposed regulations section 1.1297-1(d)(2), a limited exception to the
treatment of working capital to take into account the short-term cash needs of operating companies was provided
for purposes of measuring the passive asset test. This new rule provides that an amount of cash held in a
non-interest bearing account that is held for the present needs of an active trade or business and is no greater
than the amount reasonably expected to cover 90 days of operating expenses incurred in the ordinary course of
the trade or business of the foreign corporation (for example, accounts payable for ordinary operating expenses
or employee compensation) is not treated as a passive asset. The Treasury Department and the IRS indicated that
they continue to study the appropriate treatment of working capital for purposes of the passive asset test.
PFIC Status Determination. The tests for determining PFIC status for any taxable year are dependent upon a
number of factors, some of which are beyond our control, including the value of our assets, the market price of
our common shares, and the amount and type of our gross income. Based on these tests (i) we believe that we
were a PFIC for the taxable year ended December 31, 2016, and (ii) we do not believe that we were a PFIC for
any of the taxable years ended thereafter through December 31, 2020. Our status as a PFIC is a fact-intensive
determination made for each taxable year, and we cannot provide any assurance regarding our PFIC status for the
taxable year ending December 31, 2021 or for future taxable years. U.S. shareholders who own our common
shares for any period during which we are a PFIC (which we believe would currently only be those shareholders
holding our common shares in the taxable year ended December 31, 2016) will be required to file IRS Form
8621 for each tax year during which they hold our common shares, unless, after we are no longer a PFIC, any
such shareholder makes the ‘‘purging election’’ discussed below.
PFIC Consequences. If we are a PFIC for any year during a non-corporate U.S. shareholder’s holding period of
our common shares, and the U.S. shareholder does not make a Qualified Electing Fund election (QEF Election)
or a ‘‘mark-to-market’’ election, both as described below, then such non-corporate U.S. shareholder generally will
be required to treat any gain realized upon a disposition of our common shares, or any so-called ‘‘excess
distribution’’ received on our common shares, as ordinary income, rather than as capital gain, and the preferential
tax rate applicable to dividends received on our common shares would not be available. This income generally
would be allocated over a U.S. shareholder’s holding period with respect to our common shares and the amount
allocated to prior years will be subject to tax at the highest tax rate in effect for that year and an interest charge
would be imposed on the amount of deferred tax on the income allocated to prior taxable years. Pursuant to the
specific provisions of the PFIC rules, a taxpayer may realize gain on the disposition of common shares if the
securities are disposed of by a holder whose securities are attributed to the U.S. shareholder, if the securities are
pledged as security for a loan, transferred by gift or death, or are subject to certain corporate distributions.
Additionally, if we are a PFIC, a U.S. shareholder who acquires our common shares from a decedent would be
denied normally available step-up in tax basis for our common shares to fair market value at the date of death
but instead would have a tax basis equal to the lower of the fair market value of such common shares or the
decedent’s tax basis in such common shares.
QEF Election. A U.S. shareholder may avoid the adverse tax consequences described above by making a timely
and effective QEF election. A U.S. shareholder who makes a QEF election generally must report, on a current
basis, its share of our ordinary earnings and net capital gains, whether or not we distribute any amounts to our
shareholders, and would be required to comply with specified information reporting requirements. Any gain
subsequently recognized upon the sale by that U.S. shareholder of the common shares generally would be taxed
as capital gain and the denial of the basis step-up at death described above would not apply. The QEF election is
available only if the company characterized as a PFIC provides a U.S. shareholder with certain information
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regarding its earnings and capital gains, as required under applicable U.S. Treasury regulations. We intend to
provide all information and documentation that a U.S. shareholder making a QEF election is required to obtain
for U.S. federal income tax purposes (e.g., the U.S. shareholder’s pro rata share of ordinary income and net
capital gain, and a ‘‘PFIC Annual Information Statement’’ as described in applicable U.S. Treasury regulations).
Mark-to-Market Election. As an alternative to a QEF Election, a U.S. shareholder may also mitigate the adverse
tax consequences of PFIC status by timely making a ‘‘mark-to-market’’ election. A U.S. shareholder who makes
the mark-to-market election generally must include as ordinary income each year the increase in the fair market
value of the common shares and deduct from gross income the decrease in the value of such shares during each
of its taxable years. Losses would be allowed only to the extent of the net mark-to-market gain accrued under the
election. If a mark-to-market election with respect to our common shares is in effect on the date of a U.S.
shareholder’s death, the tax basis of the common shares in the hands of a U.S. shareholder who acquired them
from a decedent will be the lesser of the decedent’s tax basis or the fair market value of the common shares. A
mark-to-market election may be made and maintained only if our common shares are regularly traded on a
qualified exchange, including The Nasdaq Capital Market. Whether our common shares are regularly traded on a
qualified exchange is an annual determination based on facts that, in part, are beyond our control. Accordingly, a
U.S. shareholder might not be eligible to make a mark-to-market election to mitigate the adverse tax
consequences if we are characterized as a PFIC.
Election Tax Risks. Certain economic risks are inherent in making either a QEF Election or a mark-to-market
election. If a QEF Election is made, it is possible that earned income will be reported to a U.S. shareholder as
taxable income and income taxes will be due and payable on such an amount. A U.S. shareholder of our
common shares may pay tax on such ‘‘phantom’’ income, i.e., where income is reported to it pursuant to the
QEF Election, but no cash is distributed with respect to such income. There is no assurance that any distribution
or profitable sale will ever be made regarding our common shares, so the tax liability may result in a net
economic loss. A mark-to-market election may result in significant share price gains in one year causing a
significant income tax liability. This gain may be offset in another year by significant losses. If a mark-to-market
election is made, this highly variable tax gain or loss may result in substantial and unpredictable changes in
taxable income. The amount included in income under a mark-to-market election may be substantially greater
than the amount included under a QEF election. Both the QEF and mark-to-market elections are binding on the
U.S. shareholder for all subsequent years that the U.S. shareholder owns our shares unless permission to revoke
the election is granted by the IRS.
Purging Election. Although we generally will continue to be treated as a PFIC as to any U.S. shareholder if we
are a PFIC for any year during a U.S. shareholder’s holding period, if we cease to satisfy the requirements for
PFIC classification, the U.S. shareholder may avoid PFIC classification for subsequent years if the U.S.
shareholder elects to make a so-called ‘‘purging election,’’ by recognizing income based on the unrealized
appreciation in the common shares through the close of the tax year in which we cease to be a PFIC. When a
foreign corporation no longer qualifies as a PFIC (due to a change in facts or law), the foreign corporation
nonetheless retains its PFIC status with respect to a shareholder unless and until the shareholder makes an
election under Code section 1298(b)(1) and regulations section 1.1298–3 (purging election) on IRS Form 8621
attached to the shareholder’s tax return (including an amended return), or requests the consent of the IRS
Commissioner to make a late election under Code section 1298(b)(1) and regulations section 1.1298–3(e) (late
purging election) on Form 8621-A.
RULES RELATING TO A PFIC ARE VERY COMPLEX. YOU SHOULD CONSULT YOUR TAX ADVISER
CONCERNING THE RELATIVE MERITS AND THE ECONOMIC AND TAX IMPACT OF THE PFIC
RULES TO YOUR INVESTMENT IN OUR COMMON SHARES AS A NON-ELECTING U.S.
SHAREHOLDER, A U.S. SHAREHOLDER MAKING A QEF ELECTION, A U.S. SHAREHOLDER MAKING
A MARK-TO-MARKET ELECTION, OR A U.S. SHAREHOLDER MAKING ANY AVAILABLE PURGING
ELECTION.
Should we be classified as a PFIC during a U.S. shareholder’s holding period for our common shares, each such
U.S. shareholder should consult their own tax advisors with respect to the possibility of making these elections
and the U.S. federal income tax consequences of the acquisition, ownership and disposition of our common
shares. In addition, the possibility of us being classified as a PFIC may deter certain U.S. investors from
purchasing our common shares, which could have an adverse impact on the market price of our common shares
and our ability to raise additional financing by selling equity securities, including our common shares.
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It may be difficult for non-Canadian shareholders or investors to obtain and enforce judgments against us
because of our organization as a British Columbia corporation.
We are a corporation existing under the laws of British Columbia, Canada. Two of our directors are residents of
Canada, and all or a substantial portion of their assets, and a small portion of our assets, are located outside the
United States. Consequently, it may be difficult for holders of our securities who reside in the United States to
effect service within the United States upon those directors who are not residents of the United States. It may
also be difficult for holders of our securities who reside in the United States to realize in the United States upon
judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors,
and officers under the United States federal securities laws. Our shareholders and other investors should not
assume that British Columbian or Canadian courts (i) would enforce judgments of United States courts obtained
in actions against us or such directors, or officers predicated upon the civil liability provisions of the United
States federal securities laws or the securities or ‘‘blue sky’’ laws of any state or jurisdiction of the United States,
or (ii) would enforce, in original actions, liabilities against us or such directors, or officers predicated upon the
United States federal securities laws or any securities or ‘‘blue sky’’ laws of any state or jurisdiction of the
United States. In addition, the protections afforded by the securities laws of British Columbia or Canada may not
be available to our shareholders or other investors in the United States.
General Risk Factors
We may not achieve our publicly announced milestones according to schedule, or at all.
From time to time, we may announce the timing of certain events we expect to occur, such as the anticipated
timing of initiation or completion of or results from our clinical trials. These statements are forward-looking and
are based on the best estimates of management at the time relating to the occurrence of such events. However,
the actual timing of such events may differ significantly from what has been publicly disclosed. The timing of
events such as the initiation or completion of a clinical trial, filing of an application to obtain regulatory approval
or an announcement of additional clinical trials for a product candidate may ultimately vary from what is
publicly disclosed. These variations in timing may occur as a result of different events, including the nature of
the results obtained during a clinical trial or during a research phase, problems with a CMO or contract research
organization, the COVID-19 pandemic or any other event having the effect of delaying the publicly announced
timeline. We undertake no obligation to update or revise any forward-looking information, whether as a result of
new information, future events or otherwise, except as otherwise required by law. Any variation in the timing of
previously announced milestones could have a material adverse effect on our business plan, financial condition or
operating results, and the trading price of our common shares.
If securities or industry analysts do not continue to publish research or reports about our business, or publish
negative reports about our business, the market price of our common shares and trading volume could
decline.
The market price and trading volume for our common shares will depend in part on the research and reports that
securities or industry analysts publish about us or our business. We do not have any control over these analysts.
There can be no assurance that analysts will continue to cover us or provide favorable coverage. If one or more
of the analysts who cover us downgrade our common shares or change their opinion of our common shares, the
market price of our common shares would likely decline. If one or more of these analysts cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could
cause the market price of our common shares or trading volume to decline.
We could be subject to securities class action litigation, which is expensive and could divert management
attention.
In the past, securities class action litigation has often been brought against a company following a decline or
increase in the market price of its securities or certain significant business transactions. We may become involved
in this type of litigation in the future, especially if our clinical trial results are not successful or we enter into an
agreement for a significant business transaction. If we face such litigation, it could result in substantial costs and
a diversion of management’s attention and our resources, which could harm our business. This is particularly true
in light of our limited securities litigation insurance coverage.
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Fluctuations in insurance cost and availability could adversely affect our operating results or risk
management profile.
We hold a number of insurance policies, including product liability insurance, directors’ and officers’ liability
insurance, property insurance and workers’ compensation insurance. The costs of maintaining adequate insurance
coverage, most notably directors’ and officers’ liability insurance, have increased significantly recently and may
continue to do so in the future, thereby adversely affecting our operating results. If such costs continue to
increase, we may be forced to accept lower coverage and higher deductibles, which, in the event of a claim,
could require significant, unplanned expenditures of cash and inhibit our ability to recruit qualified directors and
officers. In addition, if any of our current insurance coverages should become unavailable to us or become
economically impractical, we would be required to operate our business without indemnity from commercial
insurance providers.
Item 1B. Unresolved Staff Comments
This Item 1B is inapplicable to us as a smaller reporting company.
Item 2.
Properties
Our principal executive offices, together with our research and development operations, are at the office of our
wholly owned subsidiary, DiaMedica USA Inc., located at Two Carlson Parkway, Suite 260, Minneapolis,
Minnesota, USA 55447. We lease these premises, which consist of approximately 3,800 square feet, pursuant to a
lease that expires in August 2022. We believe that our facilities are adequate for our current needs and that
suitable additional space will be available as and when needed on acceptable terms.
Item 3.
Legal Proceedings
In March 2013, we entered into a clinical research agreement with PRA Netherlands to perform a
double-blinded, placebo-controlled, single-dose and multiple-dose study to evaluate the safety, tolerability,
pharmacokinetics, pharmacodynamics and proof of concept of DM199 in healthy subjects and in patients with
Type 2 diabetes mellitus. In one arm of this study, we enrolled 36 patients with Type 2 diabetes who were
treated with two subcutaneous dose levels of DM199 over a 28-day period. This study achieved its primary
endpoint and demonstrated that DM199 was well-tolerated. The secondary endpoints for this study, however,
were not met. The secondary efficacy endpoints were confounded due to what we believe were significant
execution errors caused by protocol deviations occurring at the clinical trial site that were unable to be
reconciled. To date, we have been unable to obtain the complete study records from PRA Netherlands and
generate a final study report. On November 14, 2017, we initiated litigation with PRA Netherlands in the
United States District Court, Southern District of New York, to compel PRA Netherlands to comply with the
terms of the clinical research agreement, including providing full study records and to recover damages. After
PRA Netherlands objected to personal jurisdiction and venue, on August 24, 2018, we re-filed our complaint
against both PRA Netherlands and its U.S. parent, PRA Health Sciences, Inc. (PRA USA and collectively with
PRA Netherlands, PRA), in the United States District Court, District of Delaware. PRA again objected to the
venue and personal jurisdiction. The complaint alleges, among other things, that PRA failed to conduct the study
in accordance with the study protocol and with generally accepted standards for conducting such clinical trials
and that PRA further refused to provide us with all data, records and documentation, and/or access thereto,
related to the study in accordance with the clinical trial study agreement. The complaint sought to compel PRA
to comply with the terms of the clinical trial study agreement, including providing full study records and to
recover damages. On November 19, 2018, PRA Netherlands and PRA USA filed motions to dismiss the lawsuit.
On February 20, 2019, we filed a motion seeking to transfer the Delaware action to the United States District
Court, District of Minnesota. PRA Netherlands and PRA USA filed an opposition to our motion. On
September 21, 2020, the District Court judge issued a ruling denying our motion to transfer indicating that
DiaMedica had not met the required standards to support a venue transfer. We believe that, based upon the
rationale utilized in the opinion, that the case will likely be dismissed for lack of personal jurisdiction over PRA
Netherlands. On November 2, 2020, a final dismissal order was issued by the District Court judge. Due to the
uncertainty inherent in appealing this ruling, we have chosen to cease action in the United States and file our
claims against PRA Netherlands directly in a Dutch Court. On November 13, 2020, PRA Netherlands was served
with our complaint. PRA Netherlands and PRA USA filed their initial appearances with the Dutch Court on
February 24, 2021, and are due to submit their defense, bringing forward all procedural and substances defenses,
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by April 7, 2021. However, before that time, we intend to file a motion to move the case to the Netherlands
Commercial Court (NCC), which specializes in handling international commercial disputes and provides more
flexibility to accommodate the specific needs of an individual case. If the case is moved to the NCC, the existing
deadlines could change.
From time to time, we may be subject to other various ongoing or threatened legal actions and proceedings,
including those that arise in the ordinary course of business, which may include employment matters and breach
of contract disputes. Such matters are subject to many uncertainties and to outcomes that are not predictable with
assurance and that may not be known for extended periods of time. Other than the PRA matter noted above, we
are not currently engaged in or aware of any threatened legal actions.
Item 4.
Mine Safety Disclosures
Not applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common shares are listed on The Nasdaq Capital Market under the trading symbol ‘‘DMAC’’ and have been
so listed since December 7, 2018, the date of our initial public offering in the United States. Our common shares
previously traded in Canada on the TSX Venture Exchange under the trading symbol ‘‘DMA’’ through
January 18, 2019. We voluntarily delisted our common shares from the TSX Venture Exchange since we believe
that the financial and administrative costs associated with maintaining a dual listing were not justified. Prior to
our initial public offering, our common shares traded over-the-counter in the United States on the OTCQB
marketplace under the trading symbol ‘‘DMCAD’’ from November 15, 2018 to December 7, 2018 and before
November 15, 2018, under the trading symbol ‘‘DMCAF.’’
Number of Record Holders
As of March 1, 2021, we had 39 holders of record of our common shares. This does not include persons whose
common shares are in nominee or ‘‘street name’’ accounts through brokers or other nominees.
Dividend Policy
We have never declared or paid cash dividends on our common shares, and currently do not have any plans to
do so in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and
expansion of our business. Additionally, we may in the future become subject to contractual restrictions on, or
prohibitions against, the payment of dividends. Subject to the foregoing, the payment of cash dividends in the
future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings
levels, capital requirements, our overall financial condition and any other factors deemed relevant by our Board
of Directors. As a result, our shareholders will likely need to sell their common shares to realize a return on their
investment and may not be able to sell their shares at or above the price paid for them.
Purchases of Equity Securities by the Company
We did not purchase any common shares or other equity securities of our company during the fourth quarter
ended December 31, 2020.
Recent Sales of Unregistered Equity Securities
We did not sell any unregistered equity securities of our company during the fourth quarter ended December 31,
2020.
Exchange Controls
There are no governmental laws, decrees or regulations in Canada that restrict the export or import of capital,
including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to
non-resident holders of the securities of DiaMedica, other than Canadian withholding tax.
Certain Canadian Federal Income Tax Considerations for U.S. Holders
The following is, as of March 1, 2021, a summary of the principal Canadian federal income tax considerations
under the Income Tax Act (Canada) (Tax Act) generally applicable to a holder of our common shares who, for
purposes of the Tax Act and at all relevant times, is neither resident in Canada nor deemed to be resident in
Canada for purposes of the Tax Act and any applicable income tax treaty or convention, and who does not use or
hold (and is not deemed to use or hold) common shares in the course of carrying on a business in Canada, deals
at arm’s length with us, is not affiliated with us, is not a ‘‘specified shareholder’’ of us (within the meaning of
subsection 18(5) of the Tax Act) and holds our common shares as capital property (Holder). A ‘‘specified
shareholder’’ for these purposes generally includes a person who (either alone or together with persons with
whom that person is not dealing at arm’s length for the purposes of the Tax Act) owns or has the right to acquire
or control 25% or more of the common shares determined on a votes or fair market value basis. Generally,
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common shares will be considered to be capital property to a Holder thereof provided that the Holder does not
hold common shares in the course of carrying on a business and such Holder has not acquired them in one or
more transactions considered to be an adventure or concern in the nature of trade.
This summary does not apply to a Holder, (i) that is a ‘‘financial institution’’ for purposes of the mark-to-market
rules contained in the Tax Act; (ii) that is a ‘‘specified financial institution’’ as defined in the Tax Act; (iii) that
holds an interest which is a ‘‘tax shelter investment’’ as defined in the Tax Act; or (iv) that has elected to report
its tax results in a functional currency other than Canadian currency. Special rules, which are not discussed in
this summary, may apply to a Holder that is an ‘‘authorized foreign bank’’ within the meaning of the Tax Act, a
partnership or an insurer carrying on business in Canada and elsewhere. Such Holders should consult their own
tax advisors.
This summary is based upon the provisions of the Tax Act (including the regulations (Regulations) thereunder) in
force as of March 1, 2021 and our understanding of the current administrative policies and assessing practices of
the Canada Revenue Agency (CRA) published in writing by the CRA prior to March 1, 2021. This summary
takes into account all specific proposals to amend the Tax Act (and the Regulations) publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date hereof (Tax Proposals) and assumes that the Tax
Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will
be enacted in their current form or at all. This summary does not otherwise take into account any changes in law
or in the administrative policies or assessing practices of the CRA, whether by legislative, governmental or
judicial decision or action. This summary is not exhaustive of all possible Canadian federal income tax
considerations and does not take into account other federal or any provincial, territorial or foreign income tax
legislation or considerations, which may differ materially from those described in this summary.
This summary is of a general nature only and is not, and is not intended to be, and should not be construed to
be, legal or tax advice to any particular Holder, and no representations concerning the tax consequences to any
particular Holder are made. Holders should consult their own tax advisors regarding the income tax
considerations applicable to them having regard to their particular circumstances.
Dividends
Dividends paid or credited (or deemed to be paid or credited) to a Holder by us are subject to Canadian
withholding tax at the rate of 25% unless reduced by the terms of an applicable tax treaty or convention.
For example, under the Canada-United States Tax Convention (1980), as amended (US Treaty), the dividend
withholding tax rate is generally reduced to 15% (or 5% in the case of a Holder that is a company that
beneficially owns at least 10% of our voting shares) in respect of a dividend paid or credited to a Holder
beneficially entitled to the dividend who is resident in the United States for purposes of the US Treaty and
whose entitlement to the benefits of the US Treaty is not limited by the limitation of benefits provisions of the
US Treaty. Holders are urged to consult their own tax advisors to determine their entitlement to relief under the
US Treaty or any other applicable tax treaty as well as their ability to claim foreign tax credits with respect to
any Canadian withholding tax, based on their particular circumstances.
Disposition of Common Shares
A Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or deemed disposition of a common share, unless the common share constitutes or is deemed to
constitute ‘‘taxable Canadian property’’ to the Holder thereof for purposes of the Tax Act, and the gain is not
exempt from tax pursuant to the terms of an applicable tax treaty or convention.
In general, provided the common shares are listed on a ‘‘designated stock exchange’’ (which currently includes
The Nasdaq Capital Market) at the date of the disposition, the common shares will only constitute ‘‘taxable
Canadian property’’ of a Holder if, at any time within the 60-month period preceding the disposition: (i) such
Holder, persons with whom the Holder did not deal at arm’s length, partnerships in which the Holder or a person
with whom the Holder did not deal at arm’s length holds a membership interest directly or indirectly through one
or more partnerships, or any combination thereof, owned 25% or more of the issued shares of any class or series
of the Company’s share capital; and (ii) more than 50% of the fair market value of the common shares was
derived directly or indirectly from one or any combination of (A) real or immovable property situated in Canada,
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(B) Canadian resource properties, (C) timber resource properties, and (D) options in respect of, or interests in, or
for civil law rights in, property described in any of subparagraphs (ii)(A) to (C), whether or not the property
exists. However, and despite the foregoing, in certain circumstances the common shares may be deemed to be
‘‘taxable Canadian property’’ under the Tax Act.
Holders whose common shares may be ‘‘taxable Canadian property’’ should consult their own tax advisers.
Certain U.S. Federal Income Tax Considerations
The following discussion is generally limited to certain material U.S. federal income tax considerations relating
to the purchase, ownership and disposition of our common shares by U.S. Holders (as defined below). This
discussion applies to U.S. Holders that hold our common shares as capital assets. This summary is for general
information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition,
ownership, and disposition of our common shares. Accordingly, this summary is not intended to be, and should
not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Although this
discussion is generally limited to the U.S. federal income tax considerations to U.S. Holders, the U.S. federal
income tax treatment of dividends on and gain on sale or exchange of our common shares by certain ‘‘Non-U.S.
Holders’’ (as defined below) is included below at ‘‘U.S. Federal Income Taxation of Non-U.S. Holders.’’
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (IRS) has been requested,
or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from
taking a position that is different from, and contrary to, the positions presented in this summary. In addition,
because the guidance on which this summary is based are subject to various interpretations, the IRS and the U.S.
courts could disagree with one or more of the positions described in this summary.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (Code), U.S. Treasury
regulations promulgated thereunder and administrative and judicial interpretations thereof, and the income tax
treaty between the United States and Canada (Convention), all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This summary is applicable to U.S. Holders who are
residents of the United States for purposes of the Convention and who qualify for the full benefits of the
Convention. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed
legislation.
This discussion does not address all of the U.S. federal income tax considerations that may be relevant to
specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment
under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and
traders in securities or other persons that generally mark their securities to market for U.S. federal income tax
purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts,
certain former citizens or residents of the United States, persons who hold common shares as part of a
‘‘straddle,’’ ‘‘hedge,’’ ‘‘conversion transaction,’’ ‘‘synthetic security’’ or integrated investment, persons that have a
‘‘functional currency’’ other than the U.S. dollar, persons that own (or are deemed to own) 10% or more
(by voting power or value) of our common shares, persons that acquire their common shares as part of a
compensation arrangement, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships
and other pass-through entities, and investors in such pass-through entities). This discussion does not address any
U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax
considerations. In addition, except as specifically set forth below, this summary does not discuss applicable tax
reporting requirements.
As used in this discussion, the term ‘‘U.S. Holder’’ means a beneficial owner of common shares that is, for U.S.
federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation
(or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws
of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject
to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the
United States is able to exercise primary supervision over its administration and one or more United States
persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S.
Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
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If an entity treated as a partnership for U.S. federal income tax purposes holds the common shares, the U.S.
federal income tax considerations relating to an investment in the common shares will depend in part upon the
status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor
regarding the U.S. federal income tax considerations applicable to it and its partners of the purchase, ownership
and disposition of the common shares.
Persons holding common shares should consult their own tax advisors as to the particular tax considerations
applicable to them relating to the purchase, ownership and disposition of common shares, including the
applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Distributions
Subject to the discussion below under ‘‘Passive Foreign Investment Company Considerations,’’ a U.S. Holder
that receives a distribution with respect to the common shares generally will be required to include the gross
amount of such distribution (before reduction for any Canadian withholding taxes) in gross income as a dividend
when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or
accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a
distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of
our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce
(but not below zero) the adjusted tax basis of the U.S. Holder’s common shares. To the extent the distribution
exceeds the adjusted tax basis of the U.S. Holder’s common shares, the remainder will be taxed as capital gain.
However, we cannot provide any assurance that we will maintain or provide earnings and profits determinations
in accordance with U.S. federal income tax principles. Therefore, U.S. Holders should expect that a distribution
will generally be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return
of capital or as capital gain under the rules described above.
The U.S. dollar value of any distribution on the common shares made in Canadian dollars generally should be
calculated by reference to the exchange rate between the U.S. dollar and the Canadian dollar in effect on the date
of receipt (or deemed receipt) of such distribution by the U.S. Holder regardless of whether the Canadian dollars
so received are in fact converted into U.S. dollars at that time. If the Canadian dollars received are converted
into U.S. dollars on the date of receipt (or deemed receipt), a U.S. Holder generally should not recognize
currency gain or loss on such conversion. If the Canadian dollars received are not converted into U.S. dollars on
the date of receipt (or deemed receipt), a U.S. Holder generally will have a basis in such Canadian dollars equal
to the U.S. dollar value of such Canadian dollars on the date of receipt (or deemed receipt). Any gain or loss on
a subsequent conversion or other disposition of such Canadian dollars by such U.S. Holder generally will be
treated as ordinary income or loss and generally will be income or loss from sources within the United States for
U.S. foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax
accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax
consequences of receiving, owning, and disposing of foreign currency.
Distributions on the common shares that are treated as dividends generally will constitute income from sources
outside the United States for foreign tax credit purposes and generally will constitute ‘‘passive category income.’’
Because we are not a United States corporation, such dividends will not be eligible for the ‘‘dividends received’’
deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.
Dividends paid by a ‘‘qualified foreign corporation’’ to a U.S. Holder who is an individual, trust or estate will
generally be treated as ‘‘qualified dividend income’’ and are eligible for taxation at a reduced capital gains rate
rather than the marginal tax rates generally applicable to ordinary income provided that a holding period
requirement (more than 60 days of ownership, without protection from the risk of loss, during the 121-day period
beginning 60 days before the ex-dividend date) and certain other requirements are met. However, if we are a
PFIC for the taxable year in which the dividend is paid or the preceding taxable year (see discussion below
under ‘‘Passive Foreign Investment Company Considerations’’), we will not be treated as a qualified foreign
corporation, and therefore the reduced capital gains tax rate described above will not apply. Each U.S. Holder is
advised to consult its own tax advisors regarding the availability of the reduced tax rate on dividends.
If a U.S. Holder is subject to Canadian withholding tax on dividends paid on the holder’s common shares (see
discussion above under ‘‘Material Canadian Federal Income Tax Considerations—Dividends’’), the U.S. Holder
may be eligible, subject to a number of complex limitations, to claim a credit against its U.S. federal income tax
for the Canadian withholding tax imposed on the dividends. However, if U.S. persons collectively own, directly
62
or indirectly, 50% or more of the voting power or value of our common shares it is possible that a portion of any
dividends we pay will be considered U.S. source income in proportion to our U.S. source earnings and profits,
which could limit the ability of a U.S. Holder to claim a foreign tax credit for the Canadian withholding taxes
imposed in respect of such a dividend, although certain elections may be available under the Code and the
Convention to mitigate these effects. A U.S. Holder may claim a deduction for the Canadian withholding tax in
lieu of a credit, but only for a year in which the U.S. Holder elects to do so for all creditable foreign income
taxes. The rules governing the foreign tax credit are complex. Each U.S. Holder is advised to consult its tax
advisor regarding the availability of the foreign tax credit under its particular circumstances.
Sale, Exchange or Other Disposition of Common Shares
Subject to the discussion below under ‘‘Passive Foreign Investment Company Considerations,’’ a U.S. Holder
generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or
other disposition of common shares. The amount of gain recognized will equal the excess of the amount realized
(i.e., the amount of cash plus the fair market value of any property received) over the U.S. Holder’s adjusted tax
basis in the common shares sold or exchanged. The amount of loss recognized will equal the excess of the U.S.
Holder’s adjusted tax basis in the common shares sold or exchanged over the amount realized. Such capital gain
or loss generally will be long-term capital gain or loss if, on the date of sale, exchange or other disposition, the
common shares were held by the U.S. Holder for more than one year. Net long-term capital gain derived by a
non-corporate U.S. Holder with respect to capital assets is currently subject to tax at reduced rates. The
deductibility of a capital loss is subject to limitations. Any gain or loss recognized from the sale, exchange or
other disposition of common shares will generally be gain or loss from sources within the United States for U.S.
foreign tax credit purposes, except as otherwise provided in an applicable income tax treaty and if an election is
properly made under the Code.
Passive Foreign Investment Company Considerations
General Rule. In general, a corporation organized outside the United States will be treated as a PFIC in any
taxable year in which either (1) at least 75% of its gross income is ‘‘passive income’’ or (2) at least 50% of the
average quarterly value of its assets is attributable to assets that produce passive income or are held for the
production of passive income. Passive income for this purpose generally includes, among other things, dividends,
interest, royalties, rents, and gains from commodities transactions and from the sale or exchange of property that
gives rise to passive income. Assets that produce or are held for the production of passive income include cash,
even if held as working capital or raised in a public offering, marketable securities and other assets that may
produce passive income. The percentage of a corporation’s assets that produce or are held for the production of
passive income generally is determined based upon the average ratio of passive assets to total assets calculated at
the end of each fiscal quarter. On December 4, 2020, the Treasury and IRS published a set of final and proposed
regulations and guidance on PFICs. Among other changes that were made in the final regulations, a change in
the computation of the 50% passive asset test described above will be implemented that will close off any
alternative method of calculating assets that was advantageous to taxpayers. Taxpayers must calculate the value
of assets at the end of each measuring period, then use the ‘‘weighted average’’ of those values to determine the
value of assets for the passive asset test for the taxable year. Under the old rules, the ‘‘weighted average’’
arguably could be calculated based on value, or percentage. Final regulations section 1.1297-1(d)(1)(i) now
requires the weighted average to be calculated based on the average value at the end of each measuring period
(generally each of the four quarters that make up the company’s taxable year, unless an election is made to use
an alternative measuring period (such as a week or month)). In addition, in new proposed regulations section
1.1297-1(d)(2), a limited exception to the treatment of working capital to take into account the short-term cash
needs of operating companies was provided for purposes of measuring the passive asset test. This new rule
provides that an amount of cash held in a non-interest bearing account that is held for the present needs of an
active trade or business and is no greater than the amount reasonably expected to cover 90 days of operating
expenses incurred in the ordinary course of the trade or business of the foreign corporation (for example,
accounts payable for ordinary operating expenses or employee compensation) is not treated as a passive asset.
The Treasury Department and the IRS indicated that they continue to study the appropriate treatment of working
capital for purposes of the passive asset test. In determining whether a foreign corporation is a PFIC, a
proportionate share of the items of gross income and assets of each corporation in which it owns, directly or
indirectly, at least a 25% interest (by value) are taken into account.
63
PFIC Status Determination. Although the tests for determining PFIC status are applied as of the end of each
taxable year and are dependent upon a number of factors, some of which are beyond our control, including the
value of our assets, the market price of our common shares, and the amount and type of our gross income (i) we
believe that we were a PFIC for the taxable year ended December 31, 2016, and (ii) we do not believe that we
were a PFIC for the taxable years ended December 31, 2017 through 2020. Our status as a PFIC is a
fact-intensive determination made on an annual basis, and we cannot provide any assurance regarding our PFIC
status for the taxable year ending December 31, 2021 or for subsequent taxable years. U.S. Holders who own our
common shares for any period during which we are a PFIC will be required to file IRS Form 8621 for each tax
year during which they hold our common shares. No opinion of legal counsel or ruling from the IRS concerning
our status as a PFIC has been obtained or is currently planned to be requested. However, the determination of
our PFIC status is made annually after the close of each taxable year and it is difficult to predict before such
determination whether we will be a PFIC for any given taxable year. Even if we determine that we are not a
PFIC after the close of a taxable year, there can be no assurance that the IRS will agree with our conclusion. No
assurance can be provided regarding our PFIC status, and neither we nor our United States counsel expresses any
opinion with respect to our PFIC status.
PFIC Consequences. If we are a PFIC at any time when a non-corporate U.S. Holder owns common shares, and
such U.S. Holder does not make a ‘‘qualified electing fund’’ election (QEF election) or a ‘‘mark-to-market’’
election, both as described below, such U.S. Holder will generally be subject to federal tax under the excess
distribution rules (described below). Under such rules, additional taxes and interest charges would apply to
certain distributions by us or to gain upon dispositions of our common shares. If neither of such elections are
made, the excess distribution rules apply to (1) distributions paid during a taxable year that are greater than
125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S.
Holder’s holding period for the common shares, and (2) any gain recognized on a sale, exchange or other
disposition (which would include a pledge or transfer by gift or death) of common shares. Under the excess
distribution rules, the non-corporate U.S. Holder’s tax liability will be determined by allocating such distribution
or gain ratably to each day in the U.S. Holder’s holding period for the common shares. The amount allocated to
the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year
prior to the first taxable year in which we were a PFIC in the holding period will be taxed as ordinary income
earned in the current taxable year and the preferential tax rate applicable to capital gains or dividends received
on our common shares would not be available. The amount allocated to other taxable years (i.e., prior years in
which we were a PFIC) will be taxed at the highest marginal rate in effect (for individuals or corporations as
applicable) for ordinary income in each such taxable year, and an interest charge, generally applicable to the
underpayment of tax, will be added to the tax and the preferential tax rate applicable to capital gains or
dividends received on our common shares would not be available. These adverse tax consequences would not
apply to a pension or profit-sharing trust or other tax-exempt organization that did not borrow funds or otherwise
utilize leverage in connection with its acquisition of our common shares. In addition, if a non-electing U.S.
Holder who is an individual dies while owning our common shares, such U.S. Holder’s successor generally
would not receive a step-up in tax basis with respect to such common shares, but instead would have a tax basis
equal to the lower of the fair market value of such common shares or the decedent’s tax basis in such common
shares.
Purging Election. If we are a PFIC at any time when a U.S. Holder holds our common shares, we will generally
continue to be treated as a PFIC with respect to the U.S. Holder for all succeeding years during which the U.S.
Holder holds our common shares even if we cease to meet the PFIC gross income test or asset test in a
subsequent year. However, if we cease to meet these tests, a U.S. Holder can avoid the continuing impact of the
PFIC rules by making a special election (a Purging Election) to recognize gain by making a ‘‘deemed sale’’
election with respect to all of the U.S. Holder’s common shares and have such common shares deemed to be
sold at their fair market value on the last day of the last taxable year during which we were a PFIC. The
shareholder makes a purging election under Code section 1298(b)(1) and regulations section 1.1298-3 on IRS
Form 8621 attached to the shareholder’s tax return (including an amended return), or requests the consent of the
IRS Commissioner to make a late election under Code section 1298(b)(1) and regulations section 1.1298-3(e)
(late purging election) on Form 8621-A. In addition, for a U.S. Holder making such an election, a new holding
period would be deemed to begin for our common shares for purposes of the PFIC rules. After the Purging
Election, the common shares with respect to which the Purging Election was made will not be treated as shares
in a PFIC unless we subsequently again become a PFIC.
64
QEF Election. The tax considerations that would apply if we were a PFIC would be different from those
described above if a U.S. Holder were able to make a valid QEF election. For each year that we meet the PFIC
gross income test or asset test, an electing U.S. Holder would be required to include in gross income its pro rata
share of our ordinary income and net capital gains, if any, as determined under U.S. federal income tax
principles. The U.S. Holder’s adjusted tax basis in our common shares would be increased by the amount of such
inclusions. An actual distribution to the U.S. Holder out of such income generally would not be treated as a
dividend and would decrease the U.S. Holder’s adjusted tax basis in our common shares. Gain realized from the
sale of our common shares covered by a QEF election would be taxed as a capital gain and the denial of the
basis step-up at death described above would not apply. Generally, a QEF election must be made by the U.S.
Holder in a timely filed tax return for the first taxable year in which the U.S. Holder held our common shares
that includes the close of our taxable year for which we met the PFIC gross income test or asset test. A separate
QEF election would need to be made for any of our subsidiaries that are classified as a PFIC. A QEF election is
made on IRS Form 8621. U.S. Holders will be eligible to make QEF elections only if we agree to provide U.S.
Holders with the information they will need to comply with the QEF rules. In the event we become a PFIC, we
intend to provide all information and documentation that a U.S. Holder making a QEF election is required to
obtain for U.S. federal income tax purposes (e.g., the U.S. Holder’s pro rata share of ordinary income and net
capital gain, and a ‘‘PFIC Annual Information Statement’’ as described in applicable U.S. Treasury regulations).
Mark-to-Market Election. As an alternative to a QEF election, a U.S. Holder may also mitigate the adverse tax
consequences of PFIC status by timely making a ‘‘mark-to-market’’ election, provided the U.S. Holder completes
and files IRS Form 8621 in accordance with the relevant instructions and related Treasury regulations. A U.S.
Holder who makes the mark-to-market election generally must include as ordinary income each year the increase
in the fair market value of the common shares and deduct from gross income the decrease in the value of such
shares during each of its taxable years, but with losses limited to the amount of previously recognized net gains.
The U.S. Holder’s tax basis in the common shares would be adjusted to reflect any income or loss recognized as
a result of the mark-to-market election. If a mark-to-market election with respect to our common shares is in
effect on the date of a U.S. Holder’s death, the tax basis of the common shares in the hands of a U.S. Holder
who acquired them from a decedent will be the lesser of the decedent’s tax basis or the fair market value of the
common shares. Any gain from a sale, exchange or other disposition of the common shares in any taxable year
in which we are a PFIC (i.e., when we meet the gross income test or asset test described above) would be treated
as ordinary income and any loss from a sale, exchange or other disposition would be treated first as an ordinary
loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as a capital
loss. If we cease to be a PFIC, any gain or loss recognized by a U.S. Holder on the sale or exchange of the
common shares would be classified as a capital gain or loss.
A mark-to-market election is available to a U.S. Holder only for ‘‘marketable stock.’’ Generally, stock will be
considered marketable stock if it is ‘‘regularly traded’’ on a ‘‘qualified exchange’’ within the meaning of
applicable U.S. Treasury regulations. A class of stock is regularly traded during any calendar year during which
such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar
quarter. The common shares should be marketable stock as long as they are listed on The Nasdaq Capital Market
and are regularly traded. A mark-to-market election will not apply to the common shares for any taxable year
during which we are not a PFIC but will remain in effect with respect to any subsequent taxable year in which
we again become a PFIC. Such election will not apply to any subsidiary that we own. Accordingly, a U.S.
Holder may continue to be subject to the PFIC rules with respect to any lower-tier PFICs notwithstanding the
U.S. Holder’s mark-to-market election. Whether our common shares are regularly traded on a qualified exchange
is an annual determination based on facts that, in part, are beyond our control. Accordingly, a U.S. Holder might
not be eligible to make a mark-to-market election to mitigate the adverse tax consequences if we are
characterized as a PFIC.
Each U.S. person who is a shareholder of a PFIC generally must file an annual report (on IRS Form 8621) with
the IRS containing certain information, and the failure to file such report could result in the imposition of
penalties on such U.S. person and in the extension of the statute of limitations with respect to federal income tax
returns filed by such U.S. person.
65
The U.S. federal income tax rules relating to PFICs are very complex. U.S. Holders are urged to consult their
own tax advisors with respect to the purchase, ownership and disposition of common shares, the consequences to
them of an investment in a PFIC, any elections available with respect to the common shares and the IRS
information reporting obligations with respect to the purchase, ownership and disposition of common shares in
the event we are considered a PFIC.
Additional Tax on Passive Income
Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) with
adjusted income exceeding certain thresholds, will be subject to a 3.8% tax on all or a portion of their ‘‘net
investment income,’’ which includes dividends on the common shares, and net gains from the disposition of the
common shares. Further, excess distributions treated as dividends, gains treated as excess distributions, and
mark-to-market inclusions and deductions are all included in the calculation of net investment income.
Treasury regulations provide, subject to the election described in the following paragraph, that solely for
purposes of this additional tax, that distributions of previously taxed income will be treated as dividends and
included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of
any capital gain from the sale or other taxable disposition of common shares that will be subject to the additional
tax on net investment income, a U.S. Holder who has made a QEF election will be required to recalculate its
basis in the common shares excluding any QEF election basis adjustments.
Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in
controlled foreign corporations and PFICs that are subject to a QEF election and that are held in that year or
acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF election income
inclusions and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are
individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to any of
their income or gains in respect of the common shares.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common shares, other than a partnership or entity treated as a partnership for U.S.
Federal income tax purposes, that is not a U.S. Holder is referred to herein as a ‘‘Non-U.S. Holder’’. Non-U.S.
Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from
us with respect to our common shares, unless that income is effectively connected with the Non-U.S. Holder’s
conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits
of certain U.S. income tax treaties with respect to those dividends, that income is taxable only if it is attributable
to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain
realized upon the sale, exchange or other disposition of our common shares, unless:
•
•
the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the
United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain income tax
treaties with respect to that gain, that gain is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during
the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income
from the common shares, including dividends and the gain from the sale, exchange or other disposition of the
stock, that is effectively connected with the conduct of that trade or business will generally be subject to regular
U.S. federal income tax in the same manner as discussed above relating to the general taxation of U.S. Holders.
In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the
effectively connected income, which are subject to certain adjustments, may be subject to an additional branch
profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Information Reporting with Respect to Foreign Financial Assets
U.S. individuals that own ‘‘specified foreign financial assets’’ (as defined in Section 6038D of the Code) with an
aggregate fair market value exceeding certain threshold amounts generally are required to file an information
report on IRS Form 8938 with respect to such assets with their tax returns. Significant penalties may apply to
66
persons who fail to comply with these rules. Specified foreign financial assets include not only financial accounts
maintained in foreign financial institutions, but also, unless held in accounts maintained by certain financial
institutions, any stock or security issued by a non-U.S. person, such as our common shares. Upon the issuance of
future U.S. Treasury regulations, these information reporting requirements may apply to certain U.S. entities that
own specified foreign financial assets. The failure to report information required under the current regulations
could result in substantial penalties and in the extension of the statute of limitations with respect to federal
income tax returns filed by a U.S. Holder. U.S. Holders should consult their own tax advisors regarding the
possible implications of these U.S. Treasury regulations for an investment in our common shares.
Special Reporting Requirements for Transfers to Foreign Corporations
A U.S. Holder that acquires common shares generally will be required to file IRS Form 926 with the IRS if
(1) immediately after the acquisition such U.S. Holder, directly or indirectly, owns at least 10% of our common
shares, or (2) the amount of cash transferred in exchange for common shares during the 12-month period ending
on the date of the acquisition exceeds USD $100,000. Significant penalties may apply for failing to satisfy these
filing requirements. U.S. Holders are urged to contact their tax advisors regarding these filing requirements.
Information Reporting and Backup Withholding
Dividends on and proceeds from the sale or other disposition of common shares may be reported to the IRS
unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to
reporting if (1) the U.S. holder fails to provide an accurate taxpayer identification number or otherwise establish
a basis for exemption, (2) the U.S. Holder is notified by the IRS that backup withholding applies, or (3) the
payment is described in certain other categories of persons.
If you sell your common shares through a U.S. office of a broker, the payment of the proceeds is subject to both
U.S. backup withholding and information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a
non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, then
information reporting and backup withholding generally will not apply to that payment. However, U.S.
information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even
if that payment is made to you outside the United States, if you sell your common shares through a non-U.S.
office of a broker that is a U.S. person or has certain other contacts with the United States, unless you certify
that you are a non-U.S. person, under penalty of perjury, or you otherwise establish an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally
will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required
information is furnished by the U.S. Holder on a timely basis to the IRS.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS
THAT MAY BE OF IMPORTANCE TO A U.S. HOLDER. EACH U.S. HOLDER IS URGED TO CONSULT
ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN
COMMON SHARES IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
67
Item 6.
Selected Financial Data
The following tables present, as of the dates and for the periods indicated, our selected historical financial data
as indicated therein. The consolidated statements of operations data for the years ended December 31, 2020 and
2019 and the consolidated balance sheet data as of December 31, 2020 and 2019 are derived from our audited
financial statements that are included elsewhere in this annual report on Form 10-K. Our historical results are not
indicative of the results to be expected in the future.
This information should be read together with our consolidated financial statements and the related notes, as well
as the section entitled ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ included elsewhere in this report.
Consolidated Statements of Operations Data:
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,310
4,389
12,699
$
7,900
3,693
11,593
Year Ended December 31,
2019
2020
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,699)
(11,593)
Other (income) expense:
Governmental assistance – research incentives . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense and other comprehensive income . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss (gain) on marketable securities . . . . . . . . . . . . . . . . . . . .
Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(205)
(229)
(434)
(12,265)
27
4
(12,296)
(0.78)
$
$
(856)
(119)
(975)
(10,618)
31
(2)
(10,647)
(0.89)
$
$
Weighted average number of shares outstanding:
Basic and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,680,320
11,987,696
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,507
25,893
28,095
2,028
26,014
$7,878
7,518
9,053
1,317
7,617
December 31,
2020
2019
68
Item 7.
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 subsidiaries for the years ended
December 31, 2020 and 2019.
This discussion should be read in conjunction with our 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 developing novel treatments for neurological and kidney
diseases. Our goal is to use our patented and in-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 AIS and CKD. We plan to advance DM199, our lead drug candidate, through required
clinical trials to create shareholder value by establishing its clinical and commercial potential as a therapy for
AIS and CKD.
DM199 is a recombinant form of human tissue kallikrein-1 (KLK1). KLK1 is a serine protease (protein)
produced primarily in the kidneys, pancreas and salivary glands, which plays a critical role in the regulation of
local blood flow and vasodilation (the widening of blood vessels which decreases vascular resistance) 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:
Neurological Diseases
AIS Phase 2/3 ReMEDy 2 Study
In December 2020, we received written responses from the FDA following a Type B Pre-IND meeting request
that we submitted in October 2020 regarding our development plan for DM199 in the treatment of AIS. In the
FDA’s written responses to the questions we provided, the FDA agreed with our proposals regarding key
elements of a Phase 2/3 trial for DM199 in patients with AIS, including plans for an adaptive trial design with a
primary endpoint based upon the modified Rankin Scale at day 90 and acknowledged that, provided the study
results qualify, a single trial may support a Biologics License Application submission. Additionally, based upon
69
the clinical and preclinical testing performed to date and currently in process, the FDA did not recommend any
additional studies in preparation for an IND submission and initiation of our planned Phase 2/3 trial. We intend
to file an IND for this study by the end of the first quarter of 2021.
AIS Phase 2 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 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 standard functional stroke measures and stroke recurrence assessed at 90 days post-stroke and certain
plasma-based biomarkers. 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 in May 2020. In addition to meeting its primary safety and tolerability
endpoints, a statistically significant 86% (P=0.028) relative reduction in the number of participants with severe
recurrent strokes was observed in the active treatment group (N=1, 2.2%) compared to placebo (N=7, 15.6%), a
potentially transformative outcome given that approximately 25% of the 795,000 strokes occurring each year in
the United States are recurrent strokes.
Kidney Diseases
CKD Phase 2 REDUX Clinical Trial
In October 2019, the FDA accepted our Phase 2 clinical trial protocol for the treatment of CKD caused by rare
or significant unmet diseases. The trial named REDUX, Latin for restore, is a multi-center, open-label
investigation targeting enrollment of approximately 90 participants with mild or moderate CKD (Stage II or III)
and albuminuria, who are being enrolled in three equal cohorts. The study is being conducted in the United
States at 13 sites and is focused on participants with CKD: Cohort I is focused on non-diabetic, hypertensive
African Americans with Stage II or III CKD. African Americans are at greater risk for CKD than Caucasians,
and those African Americans who have the APOL1 gene mutation are at an even higher risk. The study is
designed to capture the APOL1 gene mutation as an exploratory biomarker in this cohort. Cohort II is focused on
participants with IgA Nephropathy. Cohort III, which was added after the completion of our August 2020 public
offering, is focused on participants with Type 2 diabetes mellitus with CKD, hypertension and albuminuria. The
study will evaluate two dose levels of DM199 within each cohort. Study participants receive DM199 by
subcutaneous injection twice weekly for 95 days. The primary study endpoints include safety, tolerability, blood
pressure, albuminuria and kidney function, which will be evaluated by changes from baseline in estimated
glomerular filtration rate and albuminuria, as measured by the urinary albumin to creatinine ratio. Participant
enrollment and dosing for this study commenced in December 2019.
As of March 1, 2021, we had enrolled 68 subjects, including 15 African American subjects into Cohort I,
21 subjects with IgAN into Cohort II and 32 subjects with Type 2 diabetes, hypertension and albuminuria into
Cohort III of the REDUX study. Due to 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. However, with the significant declines in new COVID-19 cases and the anticipated
availability and effectiveness of vaccines, we currently anticipate completion of Cohort I and Cohort II in the
second half of 2021. The enrollment of Cohort III was much more rapid completing in December 2020, which is
likely due to the large population of potential subjects. We currently expect topline results from Cohort III to be
available the second quarter of 2021.
CKD Phase 1b Clinical Trial
During 2019, we initiated and completed a Phase 1b clinical trial of DM199 in 32 subjects with moderate or
severe CKD caused by Type 1 or Type 2 diabetes mellitus. The study was performed at 3 sites in the U.S. and
was designed to assess the pharmacokinetics of three dose levels of DM199 (3, 5 and 8 µg/kg), administered in a
single subcutaneous dose, as well as the evaluation of safety, tolerability and secondary pharmacodynamic
endpoints. Results from the study were also used to guide the design of Phase 2 CKD studies.
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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 and tax credits. We have incurred losses in each year since our
inception. Our net losses were $12.3 million and $10.6 million for the years ended December 31, 2020 and 2019,
respectively. As of December 31, 2020, we had an accumulated deficit of $68.9 million. Substantially all of our
operating losses resulted from expenses incurred in connection with our product candidate development
programs, our primary R&D activities, and general and administrative (G&A) support costs associated with our
operations.
We expect to continue to incur significant expenses and increased operating losses for at least the next several
years. In the near term, we anticipate that our expenses will increase as we:
•
•
•
•
complete our ongoing Phase 2 study of DM199 for CKD;
initiate and complete our pending Phase 2/3 study of DM199 for AIS;
complete manufacturing process development to support applications for commercial approval of
DM199;
provide G&A support for our operations; and
• maintain, expand and protect our intellectual property portfolio.
While we expect our rate of future negative cash flow per month will vary due to the timing of expenses
incurred, we expect our current cash resources will be sufficient to allow us to complete all three cohorts in our
REDUX Phase 2 study in patients with CKD, initiate our pending Phase 2/3 study in patients with AIS and to
otherwise fund our planned operations for at least the next twelve months from the date of issuance of the
financial statements included in this report. However, the amount and timing of future funding requirements will
depend on many factors, including the timing and results of our ongoing development efforts, including
enrollment in our clinical trials, the potential expansion of our current development programs, potential new
development programs, related G&A support and the effects of the COVID-19 pandemic. We may require
significant additional funds earlier than we currently expect and there is no assurance that we will not need or
seek additional funding prior to such time. We may elect to raise additional funds even before we need them if
market conditions for raising additional capital are favorable.
Components of Our Results of Operations
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 site costs, outside nursing
services, laboratory testing, preclinical trials; development of manufacturing processes; costs for production runs
of DM199; salaries, benefits and share-based compensation and other personnel costs. We incurred $8.3 million
and $7.9 million in R&D expenses for the years ended December 31, 2020 and 2019, respectively. Over the past
approximately nine years, our R&D efforts have been primarily focused on developing DM199.
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
71
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 of salaries and related benefits, including share-based compensation related to our
executive, finance, business development and support functions. Other G&A expenses include professional fees
for auditing, tax and legal services, insurance, rent, utilities and travel expenses. 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 last three quarters of 2020 our office remained closed and
our employees worked remotely. In addition, all non-essential travel was on hold. We have encouraged our
employees to interact with each other and vendors through audio and video conferencing. We did not incur
significant additional expenses during 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.
In 2020, our G&A expenses increased due to increased costs associated with non-cash share-based compensation
costs, outside professional services and directors and officers liability insurance. The increase in 2020 was
partially offset by reduced travel and meeting costs primarily due to the COVID-19 pandemic.
Other Income, Net
Other income, net consists primarily of governmental assistance comprised of R&D incentives earned by our
Australian subsidiary DiaMedica Australia Pty Ltd., foreign currency exchange gains and losses and interest
income.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these consolidated financial statements requires us to make estimates
and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our
estimates are based on our historical experience and on various other factors that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 3 to our consolidated financial
statements included elsewhere in this report, we believe the following discussion addresses our most critical
accounting policies, which are those that are most important to the portrayal of our financial condition and
results of operations and require our most difficult, subjective and complex judgments.
Research and Development Costs
R&D costs include expenses incurred in the conduct of human clinical trials, for third-party service providers
performing various treatment, testing and data accumulation and analysis related to these clinical studies;
non-clinical research studies; developing the manufacturing process necessary to produce sufficient amounts of
the DM199 compound for use in our clinical studies; consulting resources with specialized expertise related to
execution of our development plan for our DM199 product candidate; and personnel costs, including salaries,
benefits and share-based compensation.
We charge R&D costs, including clinical trial costs, to expense when incurred. Our human clinical trials are
performed at clinical trial sites and are generally administered jointly by us with assistance from contract
research organizations, and include outside service providers such as outside nursing services, testing laboratories
and data coordination and collection. Costs of setting up clinical trial sites are accrued upon execution of the
72
study agreement. Expenses related to the performance of clinical trials are accrued based on contracted amounts
and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor
levels of performance under each significant contract, including the extent of patient enrollment and other
activities through communications with the clinical trial sites, CROs and supporting vendors and adjust the
estimates, if required, on a quarterly basis so that clinical expenses reflect the actual work performed at each
clinical trial site and by each CRO or supporting vendor.
Clinical Trial Costs
Our clinical trials are performed at clinical trial sites and are administered by us with assistance from CROs or
outside contractors as necessary. Clinical trial costs are accrued based on estimates of work completed to date by
CROs, outside contractors and clinical trial sites that manage and perform the trials. We obtain initial estimates
of total costs based on the trial protocol, actual enrollment of subjects, trial duration, project management costs,
manufacturing costs, patient treatment costs and other activities as required by the trial protocol. Additional,
non-patient related costs may be charged to us and are recognized as the tasks are completed by the clinical trial
site. Accrued clinical trial costs may be subject to revisions as clinical trials progress and any revisions are
recorded in the period in which the facts that give rise to the revisions become known.
Share-based Compensation
We account for all share-based compensation awards using a fair value method. The cost of employee and
non-employee services received in exchange for awards of equity instruments is measured and recognized based
on the estimated grant date fair value of those awards. Compensation cost is recognized ratably using the
straight-line attribution method over the vesting period, which is considered to be the requisite service period.
We record forfeitures in the periods in which they occur.
The fair value of share-based awards is estimated using the Black-Scholes option pricing model. The
determination of the fair value of share-based awards is affected by our common share price, as well as
assumptions regarding a number of complex and subjective variables. Risk-free interest rates are based upon
United States Government bond rates appropriate for the expected term of each award. Expected volatility rates
are based on the historical volatility equal to the expected life of the option. The assumed dividend yield is zero,
as we do not expect to declare any dividends in the foreseeable future. The expected term of options is estimated
considering the vesting period at the grant date, the life of the option and the average length of time similar
grants have remained outstanding in the past.
The assumptions used in calculating the fair value under the Black-Scholes option valuation model are set forth
in the following table for options issued by us for the years ended December 31, 2020 and 2019:
Common share fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.08 – $6.91
0.3 – 1.3%
0%
5.0 – 5.2
94.4 – 102.2%
$2.07 – $4.60
1.5 – 2.4%
0%
4.2 – 5.1
88.7 – 103.5%
2020
2019
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019
(in thousands):
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2020
$8,310
4,389
(434)
2019
$7,900
3,693
(975)
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Research and Development Expenses
R&D expenses were $8.3 million for the year ended December 31, 2020 compared to $7.9 million for the year
ended December 31, 2019, an increase of $0.4 million. The increase was primarily due to a combination of costs
incurred for our REDUX Phase 2 CKD study initiated late in 2019, driven in particular by the addition of the
third cohort targeting participants with DKD, which fully enrolled during the fourth quarter of 2020, and
increased non-cash share-based compensation costs. These increases were partially offset by decreases in clinical
study costs incurred for the ReMEDy stroke study, which wound down in the first half of 2020, and
non-recurring costs of the Phase 1b CKD study which was started and completed in the prior year period.
Additionally, there was a year over year net decrease in drug manufacturing and development costs.
General and Administrative Expenses
G&A expenses were $4.4 million and $3.7 million for the years ended December 31, 2020 and 2019,
respectively. This $0.7 million increase was primarily due to increased non-cash share-based compensation costs,
outside professional services and directors and officers liability insurance. The increase in 2020 was partially
offset by reduced travel and meeting costs primarily due to the COVID-19 pandemic.
Other Income, Net
Other income, net, was $0.4 million for the year ended December 31, 2020 compared to $1.0 million for 2019.
This decrease was driven primarily by reduced R&D incentives receivable from the Australian Government, paid
for qualifying research work performed by DiaMedica Australia Pty Ltd. during 2020, related to the decreased
ReMEDy stroke study costs. This decrease was partially offset by increased foreign currency transaction gains
recognized during 2020.
Liquidity and Capital Resources
The following tables summarize our liquidity and capital resources as of December 31, 2020 and 2019 and cash
flows for each of the years ended December 31, 2020 and 2019, and are intended to supplement the more
detailed discussion that follows (in thousands):
Liquidity and Capital Resources
December 31,
2020
December 31,
2019
Cash, cash equivalents and marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,507
28,095
2,028
26,014
25,893
$7,878
9,053
1,318
7,617
7,518
Cash Flow Data
Cash flow provided by (used in):
Year Ended December 31,
2020
2019
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (9,185)
(16,134)
28,845
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,526
$ (9,102)
(3,908)
70
$(12,940)
Working Capital
We had cash, cash equivalents and marketable securities of $27.5 million, current liabilities of $2.0 million and
working capital of $25.9 million as of December 31, 2020, compared to $7.9 million in cash, cash equivalents
and marketable securities, $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 were due primarily to our February 2020 and August 2020 public offerings.
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 $21.1 million, after deducting the underwriting discount and offering expenses.
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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, receiving gross proceeds of $8.5 million and net proceeds
of approximately $7.7 million, after deducting the underwriting discount and offering expenses.
Cash Flows
Operating Activities
Net cash used in operating activities for the year ended December 31, 2020 was $9.2 million compared to
$9.1 million for the year ended December 31, 2019. This slight increase relates primarily to the combination of
the increase in the net loss and partially offset by an increase in non-cash share-based compensation.
Investing Activities
Investing activities consist primarily of purchases of marketable securities and property and equipment. Net cash
used in investing activities was $16.1 million for the year ended December 31, 2020 compared to $3.9 million
for the year ended December 31, 2019. This increase was due to the investment of a portion of the net proceeds
received in the February 2020 and August 2020 public offerings in short-term marketable securities, partially
offset by an increase in the maturities of marketable securities during 2020.
Financing Activities
Financing activities consist primarily of net proceeds from the sale of common shares. Net cash provided by
financing activities was $28.8 million for the year ended December 31, 2020 compared to $70,000 for the year
ended December 31, 2019. This increase was due to our February 2020 and August 2020 public offerings
compared to no offerings in 2019.
Capital Requirements
Since our inception, we have incurred losses while advancing the R&D of our DM199 product candidate. We
have not generated any revenues from product sales and do not expect to do so for at least three to five years.
We do not know when, or if, we will generate any revenues from product sales of our DM199 product candidate
or any future product candidate. We do not expect to generate any revenue from product sales unless and until
we obtain regulatory approval. We expect to continue to incur substantial operating losses until such time as any
future product sales, royalty payments, licensing fees and/or milestone payments are sufficient to generate
revenues to fund our continuing operations. We expect our operating losses to increase in the near term as we
continue the research, development and clinical trials of, and seek regulatory approval for, our DM199 product
candidate. In the long-term, subject to obtaining regulatory approval of our DM199 product candidate or any
future product candidate and in the absence of the assistance of a strategic partner, we expect to incur significant
commercialization expenses for product sales, marketing, manufacturing and distribution.
Accordingly, we expect we will need substantial additional capital to further our R&D activities, planned clinical
trials, regulatory activities and otherwise develop our product candidate, DM199, or any future product
candidates, to a point where they may be commercially sold. Although we are striving to achieve these plans,
there is no assurance these and other strategies will be achieved or that additional funding will be obtained on
favorable terms or at all. While our rate of future negative cash flow per month will vary due to the timing of
expenses incurred, we expect our current cash resources will be sufficient to allow us to complete all three
cohorts in our REDUX Phase 2 study in patients with CKD, initiate our pending Phase 2/3 study in patients with
AIS and to otherwise fund our planned operations for at least the next 12 months from the date of issuance of
the financial statements included in this report. However, the amount and timing of future funding requirements
will depend on many factors, including the timing and results of our ongoing development efforts, the potential
expansion of 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, especially if market conditions for raising additional
capital are favorable.
Since our inception, we have financed our operations primarily 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 incentives. We expect to continue this practice for the foreseeable future. We do not have any existing
75
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.
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.
Commitments and Contingencies
In the normal course of business, we incur obligations to make future payments as we execute our business plan.
As of December 31, 2020, we had outstanding commitments, including R&D contracts and other commitments,
that are known and committed of approximately $2.2 million over the next 12 months and $0 in the following
12 months. These contracts relate to clinical, and development activities, including the clinical study sites and
related professional service providers conducting or supporting the conduct of the REDUX study and the clinical
research organization conducting the Phase 2 clinical trial for DM199 related to AIS. These commitments are
subject to significant change and the ultimate amounts due may be materially different as these obligations are
affected by, among other factors, the number and pace of patients enrolled, the number of clinical study sites, the
amount of time to complete study enrollments and the time required to finalize the analysis and reporting of
study results. These commitments are generally cancelable upon 30 days’ notice, with our obligation then limited
to costs incurred up to that date. As of December 31, 2020, we had future operating lease commitments totaling
approximately $105,000 over the remainder of the lease, of which $61,000 is due over the next 12 months.
We have entered into a license agreement with Catalent Pharma Solutions, LLC whereby we have licensed
certain gene expression technology and we contract with Catalent for the manufacture of DM199. Under the
terms of this license, certain milestone and royalty payments may become due under this agreement and are
dependent upon, among other factors, clinical trials, regulatory approvals and ultimately the successful
development of a new drug, the outcome and timing of which is uncertain. As of December 31, 2020,
two milestones remain which include $185,000 due upon the initiation of dosing in our first Phase 3 trial and
$185,000 upon our first regulatory approval for commercial sale. Following the launch of our first product, we
will also incur a royalty of less than 1% on net sales. The royalty term is indefinite but the license agreement
may be canceled by us on 90 days’ prior written notice. The license may not be terminated by Catalent unless
we fail to make required milestone and royalty payments.
Off-Balance Sheet Arrangements
During 2020 and 2019, we did not have any off-balance sheet arrangements (as defined by applicable SEC
regulations) 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item 7A is inapplicable to DiaMedica as a smaller reporting company and has been omitted pursuant to
Item 305(e) of SEC Regulation S-K.
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Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss for the years ended
Page
78
79
80
December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020 and 2019 . . . . .
82
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83-101
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
DiaMedica Therapeutics Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DiaMedica Therapeutics Inc. and Subsidiaries
(the ‘‘Company’’) as of December 31, 2020 and 2019, and the related consolidated statements of operations and
comprehensive loss, shareholders’ equity and cash flows for the years then ended, and the related notes
(collectively referred to as the ‘‘consolidated financial statements’’). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020
and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board of the United States of
America (‘‘PCAOB’’) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditors since 2016.
Minneapolis, MN
March 10, 2021
78
DiaMedica Therapeutics Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets:
Operating lease right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
December 31,
2019
$ 7,409
20,098
340
10
64
27,921
100
74
174
$ 3,883
3,995
823
88
47
8,836
153
64
217
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,095
$ 9,053
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,099
864
6
59
2,028
Non-current liabilities:
Finance lease obligation, non-current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligation, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
46
53
$
182
1,076
6
54
1,318
13
105
118
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common shares, no par value; unlimited authorized; 18,746,157 and
12,006,874 shares issued and outstanding, as of December 31, 2020
and 2019, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
94,925
(2)
(68,909)
26,014
—
64,232
2
(56,617)
7,617
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,095
$ 9,053
See accompanying notes to consolidated financial statements.
79
DiaMedica Therapeutics Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2019
2020
8,310
4,389
12,699
(12,699)
$
7,900
3,693
11,593
(11,593)
Other (income) expense:
Governmental assistance - research incentives . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(205)
(229)
(434)
(12,265)
(856)
(119)
(975)
(10,618)
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
31
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,292)
(10,649)
Other comprehensive income (loss)
Unrealized (gain) loss on marketable securities . . . . . . . . . . . . . . . . . . . . . . . .
4
(2)
Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(12,296)
(0.78)
$
$
(10,647)
(0.89)
Weighted average shares outstanding – basic and diluted . . . . . . . . . . . . . . . .
15,680,320
11,987,696
See accompanying notes to consolidated financial statements.
80
DiaMedica Therapeutics Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands, except share amounts)
Balances at December 31, 2018. . . . . . .
Exercise of common stock options . . .
Share-based compensation expense . . .
Unrealized gain on marketable
securities . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Common
Shares
11,956,874
50,000
—
Paid-In
Capital
$62,993
75
1,164
—
—
—
—
Balances at December 31, 2019
12,006,874
$64,232
Issuance of common shares, net of
offering costs of $2,694 . . . . . . . . . .
Exercise of common stock options . . .
Share-based compensation expense . . .
Unrealized loss on marketable
securities . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
6,725,000
14,283
—
28,805
45
1,843
—
—
—
—
Balances at December 31, 2020. . . . . . .
18,746,157
$94,925
Accumulated Other
Comprehensive
Income (Loss)
$—
—
—
2
—
$ 2
—
—
—
(4)
—
$ (2)
Accumulated
Deficit
$(45,968)
—
—
Total
Shareholders’
Equity
$ 17,025
75
1,164
—
(10,649)
2
(10,649)
$(56,617)
$ 7,617
—
—
—
28,805
45
1,843
—
(12,292)
(4)
(12,292)
$(68,909)
$ 26,014
See accompanying notes to consolidated financial statements.
81
DiaMedica Therapeutics Inc.
Consolidated Statements of Cash Flows
(In thousands, except share amounts)
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of discount on marketable securities . . . . . . . . . . . . . . . . . . . . . .
Non-cash lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Amounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2020
2019
$(12,292)
$(10,649)
1,843
(4)
52
21
483
(17)
78
917
(266)
1,164
(74)
49
21
(43)
322
183
(301)
226
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,185)
(9,102)
Cash flows from investing activities:
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposition of property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of common shares, net of offering costs. . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39,746)
23,643
(47)
16
(16,134)
28,805
45
(5)
28,845
3,526
3,883
(12,919)
9,000
(2)
13
(3,908)
—
75
(5)
70
(12,940)
16,823
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,409
$ 3,883
Supplemental disclosure of cash flow information:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
36
2
$
$
26
2
See accompanying notes to consolidated financial statements.
82
DiaMedica Therapeutics Inc.
Notes to Consolidated Financial Statements
1. Business
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 KLK1 protein for the treatment of
neurological and kidney diseases. Currently, our primary focus is on acute ischemic stroke (AIS) and chronic
kidney disease (CKD). 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 Food
and Drug Administration (FDA) in the United States, the European Medicines Agency 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 AIS and CKD. 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. 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 DM199 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 December 31, 2020, we have incurred losses of $68.9 million since our inception in 2000. For the year
ended December 31, 2020, we incurred a net loss of $12.3 million and negative cash flows from operating
activities of $9.2 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 are sufficient to generate revenue to fund our
continuing operations. Further, we expect our operating losses to continue as we pursue the research,
development and clinical trials of, and to seek regulatory approval for, our DM199 product candidate. In
addition, we expect our operating expenses to increase in 2021 compared to 2020 to support our ongoing clinical
and organizational development. As of December 31, 2020, we had cash, cash equivalents and short-term
investments of $27.5 million, working capital of $25.9 million and shareholders’ equity of $26.0 million.
Our principal sources of cash have included net proceeds from the issuance of equity securities. See Note 12
titled ‘‘Shareholders’ Equity’’ for additional information. 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, regulatory activities and otherwise develop our DM199 product candidate or
any future product candidates, to a point where they may be commercially sold. We expect our current cash, cash
equivalents and marketable securities, to be sufficient to allow us to complete our currently ongoing Phase 2
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, especially if market
conditions for raising additional capital are favorable.
83
3.
Summary of Significant Accounting Policies
Basis of consolidation
The accompanying consolidated financial statements include the assets, liabilities and expenses of DiaMedica
Therapeutics Inc., and our wholly-owned subsidiaries, DiaMedica USA, Inc. and DiaMedica Australia Pty Ltd.
All significant intercompany transactions and balances have been eliminated in consolidation.
Functional currency
The United States dollar is our functional currency as it represents the economic effects of the underlying
transactions, events and conditions and various other factors including the currency of historical and future
expenditures and the currency in which funds from financing activities are mostly generated by the Company. A
change in the functional currency occurs only when there is a material change in the underlying transactions,
events and condition. A change in functional currency could result in material differences in the amounts
recorded in the consolidated statements of operations and comprehensive loss for foreign exchange gains and
losses. All amounts in the accompanying consolidated financial statements are in U.S. dollars unless otherwise
indicated.
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
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.
Marketable securities
The Company’s marketable securities typically consist of obligations of the United States government and its
agencies and investment grade corporate obligations, 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 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 December 31, 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
84
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 December 31, 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.
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.
Long-lived assets
Property and equipment are stated at purchased cost less accumulated depreciation. Depreciation of property and
equipment is computed using the straight-line method over their estimated useful lives of three to ten years for
office equipment and four years for computer equipment. Upon retirement or sale, the cost and related
accumulated depreciation are removed from the consolidated balance sheets and the resulting gain or loss is
reflected in the consolidated statements of operations. Repairs and maintenance are expensed as incurred.
Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the
carrying amount of the asset or related group of assets may not be recoverable. If the expected future
undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that
time. Measurement of impairment may be based upon appraisal, market value of similar assets or discounted
cash flows.
Research and development costs
Research and development costs include expenses incurred in the conduct of human clinical trials, for third-party
service providers performing various treatment, testing and data accumulation and for analysis related to clinical
studies; sponsored non-clinical research agreements; developing the manufacturing process necessary to produce
sufficient amounts of the DM199 compound for use in our clinical studies; consulting resources with specialized
expertise related to execution of our development plan for our DM199 product candidate; and personnel costs,
including salaries, benefits and share-based compensation.
We charge research and development costs, including clinical trial costs, to expense when incurred. Our human
clinical trials are performed at clinical trial sites and are administered jointly by us with assistance from contract
research organizations. Costs of setting up clinical trial sites are accrued upon execution of the study agreement.
Expenses related to the performance of clinical trials are accrued based on estimates of work completed to date
by contract research organizations, outside contractors and clinical trial sites that manage and perform the trials,
and those that manufacture the investigational product. We obtain initial estimates of total costs based on the trial
protocol, extent of enrollment of subjects, trial duration, project management costs, manufacturing costs, patient
treatment costs and other activities as required by the trial protocol. Additionally, actual costs may be charged to
us and are recognized as the tasks are completed by the clinical trial site. Accrued clinical trial costs may be
subject to revisions as clinical trials progress and any revisions are recorded in the period in which the facts that
give rise to the revisions become known.
85
Patent costs
Costs associated with applying for, prosecuting and maintaining patents are expensed as incurred given the
uncertainty of patent approval and, if approved, the resulting probable future economic benefit to the Company.
Patent-related costs, consisting primarily of legal expenses and filing/maintenance fees, are included in research
and development costs and were $105,000 and $87,000 for the years ended December 31, 2020 and 2019,
respectively.
Share-based compensation
The cost of employee and non-employee services received in exchange for awards of equity instruments is
measured and recognized based on the estimated grant date fair value of those awards. Compensation cost is
recognized ratably using the straight-line attribution method over the vesting period, which is considered to be
the requisite service period. We record forfeitures in the periods in which they occur.
The fair value of share-based awards is estimated at the date of grant using the Black-Scholes option pricing
model. The determination of the fair value of share-based awards is affected by our share price, as well as
assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon
United States Government bond rates appropriate for the expected term of each award. Expected volatility rates
are based on the historical volatility over a term equal to the expected life of the option. The assumed dividend
yield is zero, as we do not expect to declare any dividends in the foreseeable future. The expected term of
options is estimated considering the vesting period at the grant date, the life of the option and the average length
of time similar grants have remained outstanding in the past.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted rates, for each
of the jurisdictions in which the Company operates, expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more
likely than not to be realized. The Company has provided a full valuation allowance against the gross deferred
tax assets as of December 31, 2020 and 2019. See Note 14, ‘‘Income Taxes’’ for additional information. The
Company’s policy is to classify interest and penalties related to income taxes as income tax expense.
Government assistance
Government assistance relating to research and development performed by DiaMedica Australia Pty Ltd. is
recorded as a component of other (income) expense. Government assistance is recognized when the related
expenditures are incurred. We recognized $205,000 and $856,000 of other income related to research activities
performed in 2020 and 2019, respectively.
Net loss per share
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 the
exclusion of common share equivalents as their effect would be anti-dilutive.
86
The following table summarizes our calculation of net loss per common share for the periods presented (in
thousands, except share and per share data):
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding—basic and diluted . . . . . . . . . . . . . . . . . . . . .
$
(12,292)
15,680,320
$
(10,649)
11,987,696
Basic and diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(0.78)
$
(0.89)
The following outstanding potential common shares were not included in the diluted net loss per share
calculations as their effects were not dilutive:
Year Ended December 31,
2020
2019
Employee and non-employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares issuable under common share purchase warrants . . . . . . . . . . . . . .
Common shares issuable upon settlement of deferred share units . . . . . . . . . . . . . .
Year Ended December 31,
2020
2019
1,389,564
265,000
47,237
1,701,801
1,220,359
971,953
21,183
2,213,495
4. Marketable Securities
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:
Fair Value
Level 1
Fair Value Measurements
as of December 31, 2020
Using Inputs Considered as
Level 2
Commercial paper and corporate bonds . . . . . . . . . . .
Bank certificate of deposit. . . . . . . . . . . . . . . . . . . . . .
Government securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . .
$10,678
496
8,924
$20,098
$—
—
—
$—
$10,678
496
8,924
$20,098
Fair Value
Level 1
Fair Value Measurements
as of December 31, 2019
Using Inputs Considered as
Level 2
Commercial paper and corporate bonds . . . . . . . . . . .
Government securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . .
$1,997
1,998
$3,995
$—
—
$—
$1,997
1,998
$3,995
Level 3
$—
—
—
$—
Level 3
$—
—
$—
Accrued interest receivable on available-for-sale securities was $34,000 and $25,000 for the years ended
December 31, 2020 and 2019, respectively, and is included in amounts receivable.
There were no transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during
the year ended December 31, 2020.
Under the terms of the Company’s investment policy, purchases of marketable securities are limited to
investment grade governmental and corporate obligations 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 December 31, 2020.
87
5. Amounts Receivable
Amounts receivable consisted of the following (in thousands):
Research and development incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales-based taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$289
2
49
$340
$793
13
17
$823
December 31,
2020
December 31,
2019
6. Deposits
Deposits consisted of the following (in thousands):
Advances to vendors, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10
$88
We periodically advance funds to vendors engaged to support the performance of our clinical trials and related
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.
December 31,
2020
December 31,
2019
7.
Property and Equipment
Property and equipment consisted of the following (in thousands):
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
December 31,
2019
$ 69
62
131
(57)
$ 74
$ 51
56
107
(43)
$ 64
Depreciation expense was $21,000 for each of the years ended December 31, 2020 and 2019. During 2020 and
2019, we disposed of $23,000 and $14,000 of equipment, respectively.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Trade and other payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued research and other professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued clinical study costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,099
483
360
13
8
$1,963
$ 182
419
172
433
52
$1,258
9. Operating Lease
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
88
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, considering the quoted rates for the lowest
investment-grade debt and the interest rates implicit in recent financing leases, we estimated our incremental
borrowing rate to be 9%. 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 $66,000 and $53,000, respectively, for the year ended
December 31, 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 December 31, 2020 (in thousands):
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less interest portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 68
46
$114
(9)
$105
10. Commitments and Contingencies
Clinical trials and product development
In the normal course of business, the Company incurs obligations to make future payments as it executes its
business plan. These contracts may relate to preclinical or clinical studies, manufacturing or manufacturing
process development and other product development activities. Currently, these contracts include clinical study
sites in our Phase 2 CKD study, home nursing services and various vendors supporting the performance of the
study. These commitments are subject to significant change and the ultimate amounts due may be materially
different as these obligations are affected by, among other factors, the number and pace of patients enrolled, the
number of clinical study sites enrolling subjects, the amount of time to complete study enrollments and the time
required to finalize, analyze and report of study results. Clinical research agreements are generally cancelable
upon 30 days’ notice, with the Company’s obligation limited to costs incurred up to that date, including any
non-cancelable costs. Cancelation terms for product manufacturing and process development contracts vary and
are generally dependent upon timelines for sourcing research materials and reserving laboratory time. As of
December 31, 2020, the Company estimates that its outstanding commitments, including such cancellable
contracts, are approximately $2.2 million over the next 12 months and $0 in the following 12 months.
On December 17, 2019, we announced the enrollment of the first subject in REDUX, a multi-center, open-label,
Phase 2 clinical trial investigating 90 participants with Stage II or III CKD, who will be enrolled in three equal
cohorts. The study is being conducted in the United States at 13 sites and is focused on participants with CKD:
Cohort I is focused on non-diabetic, hypertensive African Americans with Stage II or III CKD. African
Americans are at greater risk for CKD than Caucasians, and those African Americans who have the APOL1 gene
mutation are at an even higher risk. The study is designed to capture the APOL1 gene mutation as an exploratory
biomarker in this cohort. Cohort II is focused on participants with IgA Nephropathy (IgAN). Cohort III, which
was added after the completion of our August 2020 public offering, is focused on participants with Type 2
diabetes mellitus with CKD, hypertension and albuminuria. The study will evaluate two dose levels of DM199
within each cohort. Study participants receive DM199 by subcutaneous injection twice weekly for 95 days. The
primary study endpoints include safety, tolerability, blood pressure, albuminuria and kidney function, which will
be evaluated by changes from baseline in estimated glomerular filtration rate (eGFR) and albuminuria, as
measured by the urinary albumin to creatinine ratio.
Additional clinical trials will be subsequently required if the results of the Phase 2 REDUX study are positive. In
addition, we are preparing an Investigational New Drug submission to initiate an adaptive Phase 2/3 randomized,
double-blind, placebo-controlled study. This study is intended to assess the efficacy, safety and tolerability of
89
DM199 in patients with mild to moderate AIS. The study is expected to enroll approximately 300 to 350 subjects
age 18 and over. At this time, we are unable to reasonably estimate the total costs of future trials. Such costs are
contingent on and subject to change depending on the results of current and future clinical trials as well as
developments in the regulatory requirements.
Technology license
The Company has entered into a license agreement with Catalent Pharma Solutions, LLC (Catalent) whereby we
have licensed certain gene expression technology and we contract with Catalent for the manufacture of DM199.
Under the terms of this license, certain milestone and royalty payments may become due under this agreement
and are dependent upon, among other factors, clinical trials, regulatory approvals and ultimately the successful
development of a new drug, the outcome and timing of which is uncertain. As of December 31, 2020,
two milestones remain which include $185,000 due upon the initiation of dosing in our first Phase 3 trial and
$185,000 upon our first regulatory approval for commercial sale. Following the launch of our first product, we
will also incur a royalty of less than 1% on net sales. The royalty term is indefinite but the license agreement
may be canceled by us on 90 days’ prior written notice. The license may not be terminated by Catalent unless
we fail to make required milestone and royalty payments. There were no amounts due or payable under this
agreement during 2020 and 2019.
Indemnification of directors and officers
The Company, as permitted under laws of British Columbia and in accordance with the Company’s articles and
indemnification agreements, will indemnify and advance expenses to its directors and officers to the fullest extent
permitted by law and may choose to indemnify other employees or agents from time to time. The Company has
secured insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or
her actions in connection with their services to the Company. As of December 31, 2020, there was no pending
litigation or proceeding involving any director or officer of the Company as to which indemnification is required
or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for
indemnification. Insofar as indemnification for liabilities arising under the United States Securities Act of 1933,
as amended (Securities Act) may be permitted to directors, officers and controlling persons of the Company, the
Company has been advised that, in the opinion of the United States Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. The
Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company had
not recorded any liabilities for these obligations as of December 31, 2020 or 2019.
11. Shareholders’ Equity
Authorized capital stock
DiaMedica has authorized share capital of an unlimited number of common voting 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 extraordinary general meeting.
Equity issued during the year ended December 31, 2020
On August 10, 2020, the Company issued and sold an aggregate of 4,600,000 common shares in an initial public
offering at a price to the public of $5.00 per share. As a result of the offering, the Company received gross
proceeds of $23.0 million, which resulted in net proceeds to the Company of approximately $21.1 million, after
deducting the underwriting discount and offering expenses.
On February 13, 2020, the Company issued and sold an aggregate of 2,125,000 common shares in an initial
public offering at a price to the public of $4.00 per share. As a result of the offering, the Company received
gross proceeds of $8.5 million, which resulted in net proceeds to the Company of approximately $7.7 million,
after deducting the underwriting discount and offering expenses.
During the year ended December 31, 2020, 14,283 common shares were issued upon the exercise of options for
gross proceeds of $45,161 and no warrants were exercised.
90
Equity issued during the year ended December 31, 2019
During the year ended December 31, 2019, 50,000 common shares were issued upon 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:
Employee and non-employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares issuable upon settlement of deferred share units. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares available for grant under the 2019 Omnibus Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares issuable under common share purchase warrants . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
1,389,564
47,237
1,099,098
265,000
2,800,899
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 (Board) 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
December 31, 2020, there were options to purchase 873,182 common shares were outstanding and 26,054
common shares were reserved for issuance upon settlement of deferred share units (DSUs) 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 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 December 31, 2020, options to
purchase 516,384 common shares were outstanding under the Prior Plan.
Prior Deferred share unit plan
The DiaMedica Therapeutics Inc. Amended and Restated Deferred Share Unit Plan (Prior DSU Plan) was
terminated by the Board 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
December 31, 2020, there were 21,183 common shares reserved for issuance upon settlement of DSUs
outstanding.
The aggregate number of common shares reserved for issuance for awards granted under the 2019 Plan, the Prior
Plan and the Prior DSU Plan as of December 31, 2020 was 1,436,803.
Prior to December 31, 2018, all options granted under the Prior Plan were priced in Canadian dollars. Options
granted after December 31, 2018 under the 2019 Plan and the Prior Plan have been priced in United States
dollars.
91
Share-based compensation expense for each of the periods presented is as follows (in thousands):
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
December 31,
2019
$ 534
1,309
$1,843
$ 370
794
$1,164
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):
Balances at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired/cancelled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired/cancelled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Underlying
Options
639,359
725,825
(50,000)
(7,353)
(87,472)
1,220,359
302,332
(14,283)
(78,147)
(40,697)
Balances at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . .
1,389,564
Weighted
Average Exercise
Price Per Share
$6.07
4.52
1.50
5.49
5.22
$5.33
4.73
3.21
5.29
4.86
$5.24
Aggregate
Intrinsic Value
$ —
$ 678
$7,109
A summary of the status of our unvested shares underlying options during the year ended and as of
December 31, 2020 is as follows:
Unvested at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Underlying
Options
578,747
302,332
(449,556)
(40,697)
390,826
Weighted
Grant Date Fair
Value Per Share
$3.73
4.73
5.09
4.86
$4.83
Information about stock options outstanding, vested and expected to vest as of December 31, 2020, is as follows:
Outstanding, Vested and Expected to Vest
Options Vested and Exercisable
Per Share Exercise Price
$2.00 - $2.99. . . . . . . . . . .
$3.00 - $3.99. . . . . . . . . . .
$4.00 - $4.99. . . . . . . . . . .
$5.00 - $10.00. . . . . . . . . .
$10.01 - $34.00. . . . . . . . .
Shares
125,700
15,000
950,546
248,168
50,150
1,389,564
Options
Exercisable
125,700
15,000
596,401
211,487
50,150
998,738
Weighted Average
Remaining
Contractual Life
(Years)
5.0
6.2
8.1
6.7
1.9
7.1
Weighted Average
Remaining
Contractual Life
(Years)
Weighted
Average Exercise
Price
$ 2.29
3.90
4.55
8.33
18.22
$ 5.33
5.0
6.2
8.4
6.7
1.9
7.5
92
The cumulative grant date fair value of employee options vested during the years ended December 31, 2020 and
2019 was $1.4 million and $918,000, respectively. Total proceeds received for options exercised during the years
ended December 31, 2020 and 2019 were $45,161 and $75,000, respectively.
As of December 31, 2020, total compensation expense related to unvested employee stock options not yet
recognized was $1.1 million, which is expected to be allocated to expenses over a weighted-average period of
1.4 years.
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2020 and 2019
was $41,000 and $75,000, respectively.
The assumptions used in calculating the fair value under the Black-Scholes option valuation model are set forth
in the following table for options issued by the Company for the years ended December 31, 2020 and 2019:
Common share fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life (years). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.08 – $6.91
0.3 – 1.3%
0%
5.0 – 5.2
94.4 – 102.2%
$2.07 – $4.60
1.5 – 2.4%
0%
4.2 – 5.1
88.7 – 103.5%
2020
2019
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 $235,000 during the year ended December 31, 2020, and are recorded as research and
development expenses, of which approximately $33,000 was outstanding and included in accounts payable as of
December 31, 2020.
14. Employee Benefit Plan
We maintain an employee 401(k) retirement savings plan (401(k) Plan). The 401(k) Plan provides eligible
employees with an opportunity to make tax-deferred contributions into a long-term investment and savings
program. All employees over the age of 21 may elect to participate in the 401(k) Plan beginning on their hire
date. The 401(k) Plan allows eligible employees to contribute a portion of their annual compensation, subject
only to maximum limits required by law. We contribute an amount up to 4% of each employees’ compensation
under the safe harbor provisions provided by the Internal Revenue Service rules governing 401(k) plans.
Employee and employer safe harbor contributions vest immediately.
We have recorded contribution expenses of $62,000 for each of the years ended December 31, 2020 and 2019.
15. Income Taxes
The Company has incurred net operating losses since inception. The Company has not reflected the benefit of net
operating loss carryforwards in the accompanying consolidated financial statements and has established a full
valuation allowance against its deferred tax assets.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as operating
losses and tax credit carryforwards.
93
The significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets (liabilities):
Non-capital losses carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax asset, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
2019
$ 14,321
817
837
300
6
(14)
16,267
(16,267)
$ 11,211
817
395
294
13
3
12,733
(12,733)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
$
—
Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the
carryforward period. Because of our history of operating losses, management believes that the deferred tax assets
arising from the above-mentioned future tax benefits are currently not likely to be realized and, accordingly, we
have provided a full valuation allowance.
The reconciliation of the Canadian statutory income tax rate applied to the net loss for the year to the income tax
expense is as follows:
Statutory income tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax recovery based on statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australian research and development incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior-year true-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2020
2019
27.0%
$(3,274)
(728)
498
(102)
84
15
3,534
$
27
27.0%
$(2,841)
—
315
137
—
(9)
2,429
$
31
Net operating losses and tax credit carryforwards as of December 31, 2020, are as follows:
Non-capital income tax losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense carry forwards . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
(In thousands)
$48,815
3,027
484
Expiration Years
Beginning 2026
Indefinitely
Beginning 2020
The Company is subject to taxation in Canada, the United States and Australia. Tax returns, since the inception
of DiaMedica Therapeutics Inc., are subject to examinations by Canadian tax authorities and may change upon
examination. Tax returns of DiaMedica USA, Inc., since its inception in 2012 and thereafter, are subject to
examination by the U.S. federal and state tax authorities. Tax returns of DiaMedica Therapeutics Australia Pty
Ltd., since its inception in 2016 and thereafter, are subject to examination by the Australian tax authorities.
94
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United
States Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to provide reasonable
assurance that information required to be disclosed by us in the reports we file or submit under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms and that such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Our management evaluated, with the participation of its
Chief Executive Officer and its Chief Financial Officer, the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of the end of such period to provide reasonable assurance that information required to be
disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rule 13a-15(f) under the Exchange Act.
Our management conducted an assessment of the effectiveness of our internal control over financial reporting
based on the criteria set forth in ‘‘Internal Control-Integrated Framework (2013)’’ issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that,
as of December 31, 2020, our internal control over financial reporting was effective.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for
‘‘emerging growth companies.’’
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter
ended December 31, 2020 that has materially affected or is reasonably likely to materially affect our internal
control over financial reporting.
Item 9B. Other Information
Not applicable.
95
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
The information in the ‘‘Voting Proposal One – Election of Directors’’ section of our definitive proxy statement
to be filed with the SEC with respect to our next annual general meeting of shareholders, which involves the
election of directors, is incorporated in this annual report on Form 10-K by reference.
Executive Officers
Information concerning our executive officers is included in this annual report on Form 10-K under Item 1 of
Part I under ‘‘Information About Our Executive Officers.’’
Code of Ethics
We have adopted a code of business conduct and ethics applicable to all of our directors, officers and employees,
in accordance with Section 406 of the Sarbanes-Oxley Act, the rules of the SEC promulgated thereunder, and the
Nasdaq Listing Rules. In the event that any changes are made or any waivers from the provisions of the code of
business conduct and ethics are made, these events would be disclosed on our website or in a report on
Form 8-K within four business days of such event. The code of business conduct and ethics is posted on our
website at www.diamedica.com. Copies of the code of business conduct and ethics will be provided free of
charge upon written request directed to Investor Relations, DiaMedica Therapeutics Inc., Two Carlson Parkway,
Suite 260, Minneapolis, Minnesota 55447.
Changes to Nomination Procedures
During the fourth quarter of fiscal 2020, we made no material changes to the procedures by which shareholders
may recommend nominees to our Board of Directors.
Audit Committee Matters
The information in the ‘‘Corporate Governance—Audit Committee’’ section of our definitive proxy statement to
be filed with the SEC with respect to our next annual general meeting of shareholders, which involves the
election of directors, is incorporated in this annual report on Form 10-K by reference.
Item 11.
Executive Compensation
The information in the ‘‘Director Compensation’’ and ‘‘Executive Compensation’’ sections of our definitive proxy
statement to be filed with the SEC with respect to our next annual general meeting of shareholders, which
involves the election of directors, is incorporated in this annual report on Form 10-K by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Stock Ownership
The information in the ‘‘Stock Ownership—Security Ownership of Significant Beneficial Owners’’ and
‘‘Stock Ownership—Security Ownership of Management’’ sections of our definitive proxy statement to be filed
with the SEC with respect to our next annual general meeting of shareholders, which involves the election of
directors, is incorporated in this annual report on Form 10-K by reference.
96
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes outstanding options and other awards under our equity compensation plans as of
December 31, 2020. Our equity compensation plans as of December 31, 2020 were the DiaMedica Therapeutics
Inc. 2019 Omnibus Incentive Plan (2019 Plan), the DiaMedica Therapeutics Inc. Stock Option Plan, Amended
and Restated November 6, 2018 (Prior Plan) and the DiaMedica Therapeutics Inc. Amended and Restated
Deferred Share Unit Plan (DSU Plan).
Equity Compensation Plan Information
(a)
(b)
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
column (a))
Plan Category
Equity compensation plans approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,436,803(1)
—
1,436,803(1)
$5.24(2)
$ —
$5.24(2)
1,099,098(3)
—
1,099,098(3)
(1) Amount includes 873,182 common shares issuable upon the exercise of stock options and 26,054 common shares issuable upon the
settlement of DSU awards outstanding under the 2019 Plan, 516,384 common shares issuable upon the exercise of stock options under
the Prior Plan and 21,183 common shares issuable under the DSU Plan.
(2) Not included in the weighted-average exercise price calculation are 26,054 deferred share unit awards under the 2019 Plan and
21,183 deferred share unit awards under the DSU Plan.
(3) Amount includes 1,099,098 shares remaining available for future issuance under the 2019 Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information in the ‘‘Related Person Relationships and Transactions’’ and ‘‘Corporate Governance—Director
Independence’’ sections of our definitive proxy statement to be filed with the SEC with respect to our next
annual general meeting of shareholders, which involves the election of directors, is incorporated in this annual
report on Form 10-K by reference.
Item 14.
Principal Accounting Fees and Services
The information in the ‘‘Voting Proposal Two—Appointment of Baker Tilly US, LLP as our Independent
Registered Public Accounting Firm and Authorization to Fix Remuneration’’ section of our definitive
proxy statement to be filed with the SEC with respect to our next annual general meeting of shareholders, which
involves the election of directors, is incorporated in this annual report on Form 10-K by reference.
97
Item 15.
Exhibits and Financial Statement Schedules
Financial Statements
PART IV
Our consolidated financial statements are included in ‘‘Part II, Item 8. Financial Statements and Supplementary
Data.’’
Financial Statement Schedules
All financial statement schedules are omitted because they are inapplicable since we are a smaller reporting
company.
Exhibits
The exhibits being filed or furnished with this report are listed below, along with an indication as to each
management contract or compensatory plan or arrangement.
A copy of any of the exhibits listed or referred to herein will be furnished at a reasonable cost to any person
who is a shareholder upon receipt from any such person of a written request for any such exhibit. Such request
should be sent to: Mr. Scott Kellen, Chief Financial Officer and Corporate Secretary, DiaMedica Therapeutics
Inc., Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447, Attn: Shareholder Information.
Item
Method of Filing
Item No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Notice of Articles of DiaMedica Therapeutics
Inc. dated May 31, 2019
Articles of DiaMedica Therapeutics Inc. dated
May 31, 2019
Description of Securities Registered Pursuant
to Section 12 of the Securities Exchange Act
of 1934
Specimen Certificate representing Voting
Common Shares of DiaMedica Therapeutics
Inc.
Warrant dated December 11, 2018 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
Warrant dated October 1, 2019 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
Warrant dated September 11, 2020 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
10.1#
DiaMedica Therapeutics Inc. 2019 Omnibus
Incentive Plan
98
Incorporated by reference to Exhibit 3.1 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 4, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 3.2 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 4, 2019 (File No. 001-36291)
Filed herewith
Incorporated by reference to Exhibit 4.2 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 4, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
December 11, 2018 (File No. 001-36291)
Incorporated by reference to Exhibit 4.8 to
DiaMedica’s Annual Report on Form 10-K for the
year ended December 31, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 4.1 to
DiaMedica’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2020
(File No. 001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
May 23, 2019 (File No. 001-36291)
Item
Method of Filing
Item No.
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
Form of Option Award Agreement under the
DiaMedica Therapeutics Inc. 2019 Omnibus
Incentive Plan
Form of Restricted Stock Unit Award
Agreement under the DiaMedica Therapeutics
Inc. 2019 Omnibus Incentive Plan
Form of Deferred Stock Unit Award
Agreement under the DiaMedica Therapeutics
Inc. 2019 Omnibus Incentive Plan
DiaMedica Therapeutics Inc. Stock Option
Plan Amended and Restated November 6,
2018
Form of Option Agreement under the
DiaMedica Therapeutics Inc. Stock Option
Plan Amended and Restated November 6,
2018
Form of Option Agreement under the
DiaMedica Therapeutics Inc. Stock Option
Plan Amended and Restated December 21,
2017
10.8#
DiaMedica Therapeutics Inc. Amended and
Restated Deferred Share Unit Plan
10.9#
DiaMedica Therapeutics Inc. Short-Term
Incentive Plan
10.10#
10.11#
10.12#
10.13#
Form of Indemnification Agreement between
DiaMedica Therapeutics Inc. and Each
Director and Officer
Employment Agreement effective as of
September 12, 2018 between DiaMedica
USA, Inc. and Rick Pauls
Employment Agreement effective as of
September 12, 2018 between DiaMedica
USA, Inc. and Scott Kellen
Employment Agreement effective as of
September 12, 2018 between DiaMedica
USA, Inc. and Harry Alcorn, Ph.D.
99
Incorporated by reference to Exhibit 10.2 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 21, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 10.3 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 21, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2020 (File No.
001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.3 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.2 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.4 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 21, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as filed
with the Securities and Exchange Commission on
June 4, 2019 (File No. 001-36291)
Incorporated by reference to Exhibit 10.6 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.7 to
DiaMedica’s Annual Report on Form 10-K for the
year ended December 31, 2018 (File No.
001-36291)
Incorporated by reference to Exhibit 10.9 to
DiaMedica’s Annual Report on Form 10-K for the
year ended December 31, 2018 (File No.
001-36291)
Item
Method of Filing
Item No.
10.14
10.15
10.16
10.17
Two Carlson Parkway Office Lease dated
September 18, 2015 between One Two
Holding LLC and DiaMedica USA Inc.
Supplemental to Lease Agreement dated
December 16, 2015 between One Two
Holding LLC and DiaMedica USA Inc.
First Amendment to Lease dated May 3, 2017
between One Two Holding LLC and
DiaMedica USA Inc.
Second Amendment to Lease dated
September 5, 2017 between One Two Holding
LLC and DiaMedica USA Inc.
10.18(1) GPEx® - Derived Cell Line Sale Agreement
dated February 2, 2012 between DiaMedica
Therapeutics Inc. and Catalent Pharma
Solutions, LLC
First Amendment to GPEx® Development and
Manufacturing Agreement dated April 10,
2017 between DiaMedica Therapeutics Inc.
and Catalent Pharma Solutions, LLC
10.19
10.20
Second Amendment to GPEx® Development
and Manufacturing Agreement dated as of
October 22, 2018 between DiaMedica
Therapeutics Inc. and Catalent Pharma
Solutions, LLC
21.1
Subsidiaries of DiaMedica Therapeutics Inc.
Incorporated by reference to Exhibit 10.8 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.9 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.10 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.11 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.12 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.13 to
DiaMedica’s Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
on November 9, 2018 (File No. 333-228313)
Incorporated by reference to Exhibit 10.19 to
DiaMedica’s Annual Report on Form 10-K for the
year ended December 31, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 21.1 to
DiaMedica’s Annual Report on Form 10-K for the
year ended December 31, 2019 (File No.
001-36291)
23.1
31.1
31.2
32.1
32.2
Consent of Baker Tilly US, LLP
Certification of President and Chief Executive
Officer Pursuant to SEC Rule 13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer
Pursuant to SEC Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of President and Chief Executive
Officer Pursuant to Rule 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer
Pursuant to Rule 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
Furnished herewith
100
Item No.
101
Item
Method of Filing
Filed herewith
The following materials from DiaMedica
Therapeutics Inc.’s Annual Report on Form
10-K for the year ended December 31, 2020,
formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated
Balance Sheets, (ii) the Consolidated
Statements of Operations, (iii) the
Consolidated Statements of Comprehensive
Income (Loss), (iv) the Consolidated
Statements of Equity, (v) the Consolidated
Statements of Cash Flows, and (vi) Notes to
Consolidated Financial Statements
#
(1)
Indicates a management contract or compensatory plan or arrangement.
Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under Rule 406 of the United
States Securities Act of 1933, as amended (File No. 333-228313, CF #36833). The redacted material was filed separately with the
Securities and Exchange Commission.
Item 16.
Form 10-K Summary
None.
101
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DIAMEDICA THERAPEUTICS INC.
Date: March 10, 2021
By:
/s/ Rick Pauls
Rick Pauls
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
/s/ Rick Pauls
Rick Pauls
/s/ Scott Kellen
Scott Kellen
/s/ Richard Pilnik
Richard Pilnik
Title
Date
President, Chief Executive Officer and Director
(principal executive officer)
March 10, 2021
Chief Financial Officer and Secretary
(principal financial and accounting officer)
March 10, 2021
Chairman of the Board
March 10, 2021
/s/ Michael Giuffre, M.D.
Director
March 10, 2021
Michael Giuffre, M.D
/s/ James Parsons
James Parsons
Director
March 10, 2021
102
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 001-36291
DIAMEDICA THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
British Columbia
Not Applicable
(I.R.S. Employer Identification No.)
Two Carlson Parkway, Suite 260
Minneapolis, Minnesota
(Address of principal executive offices)
55447
(Zip Code)
Registrant’s telephone number, including area code: (763) 612-6755
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Voting Common Shares, no par value per share
Trading Symbol(s)
DMAC
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES □ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES □ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YES □ NO ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES ☒ NO □
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting
company’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer □
Emerging growth company ☒
Accelerated filer □
Non-accelerated filer ☒
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES □ NO ☒
The aggregate market value of the registrant’s voting common shares held by non-affiliates, computed by reference to the closing sales
price at which the voting common shares were last sold as of June 30, 2020 (the last business day of the registrant’s most recently
completed second fiscal quarter), as reported by The Nasdaq Capital Market on that date, was $78.5 million.
As of April 26, 2021, there were 18,786,157 voting common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
We filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (Original Filing) with
the U.S. Securities and Exchange Commission (SEC) on March 10, 2021. We are filing this Amendment No. 1
(Amendment) on Form 10-K/A to amend the Original Filing solely for the purpose of including in Part III the
information that was to be incorporated by reference from our definitive proxy statement for the 2021 annual
general meeting of shareholders, because our definitive proxy statement will not be filed with the SEC within
120 days after the end of our fiscal year ended December 31, 2020. This information was previously omitted
from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in
the above-referenced items to be incorporated in the Form 10-K by reference from a definitive proxy statement
involving the election of directors if such statement is filed no later than 120 days after our fiscal year end. This
Amendment hereby amends and restates in their entirety the Form 10-K cover page and Items 10 through 14 of
Part III.
In addition, pursuant to the rules and regulations promulgated by the SEC, we have also included in Part IV of
this Amendment as exhibits currently dated certifications of our principal executive officer and principal financial
officer as required under Section 302 of the Sarbanes-Oxley Act of 2002. Because no financial statements have
been included in this Amendment and this Amendment does not contain or amend any disclosure with respect to
Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted.
Additionally, we are not including the certificate required under Section 906 of the Sarbanes-Oxley Act of 2002
as no financial statements are being filed with this Amendment.
Except as described above, no other changes have been made to the Original Filing. Except as otherwise
explicitly stated herein, this Amendment continues to speak as of the date of the Original Filing, and we have not
updated the disclosures contained therein to reflect any events that occurred subsequent to the date of the
Original Filing. The filing of this Amendment is not a representation that any statements contained in items of
our Original Filing other than Items 10 through 14 of Part III and Part IV are true or complete as of any date
subsequent to the Original Filing. This Amendment should be read in conjunction with our other filings made
with the SEC subsequent to the date filed of the Original Filing, including any amendments to those filings, as
well as our Current Reports on Form 8-K subsequent to the date of the Original Filing.
DIAMEDICA THERAPEUTICS INC.
AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K/A
FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.
Item 13.
Item 14.
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
3
3
14
28
30
32
33
33
37
This Amendment contains certain forward-looking statements that are within the meaning of Section 27A of the
United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act
of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see
‘‘Cautionary Note Regarding Forward-Looking Statements.’’
As used in this Amendment, references to ‘‘DiaMedica,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘our’’ or ‘‘us,’’ unless the
context otherwise requires, refer to DiaMedica Therapeutics Inc. and its subsidiaries, all of which are
consolidated in DiaMedica’s consolidated financial statements. References in this Amendment to ‘‘common
shares’’ mean our voting common shares, no par value per share.
We own various unregistered trademarks and service marks, including our corporate logo. Solely for
convenience, the trademarks and trade names in this Amendment are referred to without the ® and ™ symbols,
but such references should not be construed as any indicator that the owner of such trademarks and trade names
will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display
of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of
us by, any other companies.
i
[page intentionally left blank]
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Amendment that are not descriptions of historical facts are forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of 1995 that are based on
management’s current expectations and are subject to risks and uncertainties that could negatively affect our
business, operating results, financial condition and share price. We have attempted to identify forward-looking
statements by terminology including ‘‘anticipates,’’ ‘‘believes,’’ ‘‘can,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimates,’’
‘‘expects,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘plans,’’ ‘‘potential,’’ ‘‘predicts,’’ ‘‘should,’’ ‘‘will,’’ ‘‘would,’’ the negative of these
terms or other comparable terminology, and the use of future dates.
The forward-looking statements in this Amendment include, among other things, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our plans to develop, obtain regulatory approval for and commercialize our DM199 product candidate
for the treatment of acute ischemic stroke (AIS) and chronic kidney disease (CKD) and our
expectations regarding the benefits of our DM199 product candidate;
our ability to conduct successful clinical testing of our DM199 product candidate for AIS and CKD and
certain anticipated dates with respect to our pending and anticipated clinical trials;
our ability to obtain required regulatory approvals of our DM199 product candidate for AIS and CKD;
the perceived benefits of our DM199 product candidate over existing treatment options for AIS and
CKD;
the potential size of the markets for our DM199 product candidate and our ability to serve those
markets;
the rate and degree of market acceptance, both in the United States and internationally, of our DM199
product candidate for AIS and CKD;
our ability to partner with and generate revenue from biopharmaceutical or pharmaceutical partners to
develop, obtain regulatory approval for and commercialize our DM199 product candidate for AIS and
CKD;
the success, cost and timing of planned clinical trials, as well as our reliance on collaboration with
third parties to conduct our clinical trials;
our commercialization, marketing and manufacturing capabilities and strategy;
expectations regarding federal, state, and foreign regulatory requirements and developments, such as
potential United States Food and Drug Administration (FDA) regulation of our DM199 product
candidate for AIS and CKD;
expectations regarding competition and our ability to obtain data exclusivity for our DM199 product
candidate for AIS and CKD;
our ability to obtain funding for our operations, including funding necessary to complete planned
clinical trials and obtain regulatory approvals for our DM199 product candidate for AIS and CKD;
our estimates regarding expenses, future revenue, capital requirements and needs for additional
financing;
our expectations regarding our ability to obtain and maintain intellectual property protection for our
DM199 product candidate; and
our anticipated use of the net proceeds from our 2020 public offerings.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those
described under ‘‘Part I. Item 1A. Risk Factors in the Original Filing. Moreover, we operate in a very
competitive and rapidly-changing environment. New risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of all factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from those contained in
any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this report may not occur and actual results could differ
materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking
1
statements should not be relied upon as predictions of future events. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of
activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or
occur. Except as required by law, including the securities laws of the United States, we do not intend to update
any forward-looking statements to conform these statements to actual results or to changes in our expectations.
2
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
PART III
The following table sets forth, as of April 26, 2021, the name, age and position of each current director and
executive officer of our company:
Name
Richard Pilnik(1)(2)(3)(4) . . . . . . . . . . . . . . . . . . . . . . . .
Michael Giuffre, M.D.(1)(2)(3)(4) . . . . . . . . . . . . . . . . . .
James Parsons(1)(2)(3)(4) . . . . . . . . . . . . . . . . . . . . . . . .
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Pharm.D.. . . . . . . . . . . . . . . . . . . . . . . .
Sydney Gilman, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . .
Age
64
65
55
49
55
65
68
Position
Chairman of the Board
Director
Director
President and Chief Executive Officer, Director
Chief Financial Officer and Secretary
Chief Medical Officer
Vice President, Regulatory Affairs
(1)
Independent Director
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating and Corporate Governance Committee
The principal occupations and recent employment history of each of our directors and executive officers are set
forth below.
Additional Information about Current Directors and Executive Officers
The following paragraphs provide information about each current director and executive officer, including all
positions held, principal occupation and business experience for the past five years, and the names of other
publicly-held companies of which the director or executive officer currently serves as a director or has served as
a director during the past five years. We believe that all of our directors display personal and professional
integrity; satisfactory levels of education and/or business experience; broad-based business acumen; an
appropriate level of understanding of our business and its industry and other industries relevant to our business;
the ability and willingness to devote adequate time to the work of the Board of Directors and its committees; a
fit of skills and personality with those of our other directors that helps build a board that is effective, collegial
and responsive to the needs of our company; strategic thinking and a willingness to share ideas; a diversity of
experiences, expertise and background; and the ability to represent the interests of all of our shareholders. The
information presented below regarding each director also sets forth specific experience, qualifications, attributes
and skills that led the Board of Directors to the conclusion that such individual should serve as a director in light
of our business and structure.
Richard Pilnik has served as a member of the Board of Directors since May 2009. Mr. Pilnik serves as our Chairman
of the Board. Mr. Pilnik has served as the President and member of the board of directors of Vigor Medical Services,
Inc., a medical device company, since May 2017. From December 2015 to November 2017, he served as a member of
the board of directors of Chiltern International Limited, a private leading mid-tier Clinical Research Organization, and
was Chairman of the Board from April 2016 to November 2017. Mr. Pilnik has a 30-year career in healthcare at Eli
Lilly and Company, a pharmaceutical company, and Quintiles Transnational Corp., a global pioneer in pharmaceutical
services. From April 2009 to June 2014, he served as Executive Vice President and President of Quintiles Commercial
Solutions, an outsourcing business to over 70 pharma and biotech companies. Prior to that, he spent 25 years at Eli
Lilly and Company where he held several leadership positions, most recently as Group Vice President and Chief
Marketing Officer from May 2006 to July 2008. He was directly responsible for commercial strategy, market research,
new product planning and the medical marketing interaction. From December 2000 to May 2006, Mr. Pilnik served as
President of Eli Lilly Europe, Middle East and Africa and the Commonwealth of Independent States, a regional
organization of former Soviet Republics, and oversaw 50 countries and positioned Eli Lilly as the fastest growing
pharmaceutical company in the region. Mr. Pilnik also held several marketing and sales management positions in the
United States, Europe and Latin America. Mr. Pilnik currently serves on the board of directors of Vigor Medical
Systems, Inc., NuSirt, an early-stage biopharma, and BIAL Farma, a Portuguese pharmaceutical company. Mr. Pilnik is
3
an Emeritus Board Member of Duke University Fuqua School of Business. Mr. Pilnik previously served on the board
of directors of Elan Pharmaceuticals, Chiltern International, the largest mid-size Clinical Research Organization, and
Certara, L.P., a private biotech company focused on drug development modeling and biosimulation. Mr. Pilnik holds a
Bachelor of Arts in Economics from Duke University and an MBA from the Kellogg School of Management at
Northwestern University. Mr. Pilnik is a resident of Florida, USA.
We believe that Mr. Pilnik’s deep experience in the industry and his history and knowledge of our company
enable him to make valuable contributions to the Board of Directors.
Michael Giuffre, M.D. has served as a member of the Board of Directors since August 2010. Since July 2009, Dr.
Giuffre has served as a Clinical Professor of Cardiac Sciences and Pediatrics at the University of Calgary and has had
an extensive portfolio of clinical practice, cardiovascular research and university teaching. Dr. Giuffre is actively
involved in health care delivery, medical leadership and in the biotechnology business sector. From 2012 to October
2019, Dr. Giuffre served as Chief Scientific Officer and President of FoodChek Laboratory, a global developer and
provider of proprietary rapid and accurate food safety tests for the detection of foodborne and environmental pathogens
and other microorganisms, and also as a member of the board of directors of FoodChek Systems Inc. From November
2017 to October 2019, he served as FoodChek Systems Inc.’s Chairman of the Board. Dr. Giuffre previously served
on the board of directors of the Canadian Medical Association (CMA), UNICEF Canada, the Alberta Medical
Association (AMA), Can-Cal Resources Ltd, Vacci-Test Corporation, IC2E International Inc., MedMira Inc. and
Brightsquid Dental, Inc. Dr. Giuffre has received a Certified and Registered Appointment and a Distinguished Fellow
appointment by the American Academy of Cardiology. In 2005, he was awarded Physician of the Year by the Calgary
Medical Society and in 2017 was ‘‘Mentor of the Year’’ for the Royal College of Physicians and Surgeons of Canada.
Dr. Giuffre was also a former President of the AMA and the Calgary and Area Physicians Association and also a past
representative to the board of the Calgary Health Region. Dr. Giuffre holds a Bachelor of Science in cellular and
microbial biology, a Ph.D. candidacy in molecular virology, an M.D. and an M.B.A. He is Canadian Royal College
board certified FRCPS in specialties that include Pediatrics and Pediatric Cardiology and has a subspecialty in
Pediatric Cardiac Electrophysiology. Dr. Giuffre is currently a member of the board of directors of Avenue Living
(AL) Asset Management, a private real estate company in Alberta, Canada and its affiliates, AL Real Estate
Opportunity Trust and AgriSelect Trust. Dr. Giuffre is currently a resident of Alberta, Canada.
We believe that Dr. Giuffre’s medical experience, including as a practicing physician and professor, enable him
to make valuable contributions to the Board of Directors.
James Parsons has served as a member of the Board of Directors since October 2015. Previously, Mr. Parsons
served as our Vice President of Finance from October 2010 until May 2014. Since August 2011, Mr. Parsons has
served as Chief Financial Officer and Corporate Secretary of Trillium Therapeutics Inc., a Nasdaq-listed
immuno-oncology company. Mr. Parsons serves as a member of the board of directors and audit committee chair
of Sernova Corp., which is listed on the TSX Venture Exchange. Mr. Parsons has been a Chief Financial Officer
in the life sciences industry since 2000 with experience in therapeutics, diagnostics and devices. Mr. Parsons has
a Master of Accounting degree from the University of Waterloo and is a Chartered Professional Accountant and
Chartered Accountant. Mr. Parsons is a resident of Ontario, Canada.
We believe that Mr. Parsons’ financial experience, including his history and knowledge of our company, enable
him to make valuable contributions to the Board of Directors.
Rick Pauls was appointed our President and Chief Executive Officer in January 2010. Mr. Pauls has served as a
member of the Board of Directors since April 2005 and the Chairman of the Board from April 2008 to
July 2014. Prior to joining DiaMedica, Mr. Pauls was the Co-Founder and Managing Director of CentreStone
Ventures Inc., a life sciences venture capital fund, from February 2002 until January 2010. Mr. Pauls was an
analyst for Centara Corporation, another early stage venture capital fund, from January 2000 until January 2002.
From June 1997 until November 1999, Mr. Pauls worked for General Motors Acceptation Corporation
specializing in asset-backed securitization and structured finance. Mr. Pauls previously served as an independent
member of the board of directors of LED Medical Diagnostics, Inc. Mr. Pauls received his Bachelor of Arts in
Economics from the University of Manitoba and his M.B.A. in Finance from the University of North Dakota.
Mr. Pauls is a resident of Minnesota, USA.
We believe that Mr. Pauls’ experience in the biopharmaceutical industry as an executive and investor and his
extensive knowledge of all aspects of our company, business, industry, and day-to-day operations as a result of
his role as our President and Chief Executive Officer enable him to make valuable contributions to the Board of
4
Directors. In addition, as a result of his role as President and Chief Executive Officer, Mr. Pauls provides unique
insight into our future strategies, opportunities and challenges, and serves as the unifying element between the
leadership and strategic direction provided by the Board of Directors and the implementation of our business
strategies by management.
Scott Kellen joined DiaMedica as our Vice President of Finance in January 2018 and was appointed our Chief
Financial Officer and Secretary in April 2018. Prior to joining DiaMedica, Mr. Kellen served as Vice President
and Chief Financial Officer of Panbela Therapeutics, Inc., formerly known as Sun BioPharma, Inc., a
publicly-traded clinical stage drug development company, from October 2015 until April 2018. From
February 2010 to September 2015, Mr. Kellen served as Chief Financial Officer and Secretary of Kips Bay
Medical, Inc., a publicly-traded medical device company, and became Chief Operating Officer of Kips Bay in
March 2012. From November 2007 to May 2009, Mr. Kellen served as Finance Director of Transoma Medical,
Inc. From 2005 to October 2007, Mr. Kellen served as Corporate Controller of ev3 Inc. From March 2003 to
April 2005, Mr. Kellen served as Senior Manager, Audit and Advisory Services of Deloitte & Touche, LLP.
Altogether, Mr. Kellen has spent more than 25 years in the life sciences industry, focusing on publicly traded
early stage and growth companies. Mr. Kellen has a Bachelor of Science degree in Business Administration from
the University of South Dakota and is a Certified Public Accountant (inactive).
Harry Alcorn Jr. Pharm.D. was appointed our Chief Medical Officer in August 2018. Prior to joining DiaMedica,
Dr. Alcorn served as Chief Scientific Officer at DaVita Clinical Research (DCR), a company that provides
clinical research services for Pharmaceutical and Biotech companies, from October 1997 to June 2018. While at
DCR, Dr. Alcorn was responsible for clinical research operations, including the formation and management of the
early clinical and late phase research services. Dr. Alcorn also founded the U.S. Renal Network, the first network
of Phase 1 renal research sites in the United States. Dr. Alcorn developed DCR’s site management organization
for clinical trials. Dr. Alcorn also served as an Executive Director, a Pharmacist and an Investigator at DCR.
During this time, from January 2013 to December 2014, he also served on the Board of Directors for the
Association of Clinical Pharmacology Units, an association of Phase 1 clinical trial sites. Dr. Alcorn has over
30 years of clinical research experience working with biotech and pharmaceutical companies, both public and
private, in conducting research in renal, hepatic and cardiovascular disease. Dr. Alcorn has written and consulted
on the development of several protocols and has served as Principal Investigator or Sub Investigator in numerous
studies and, for several of these studies, presented study design and results to the FDA. Currently he holds
clinical faculty appointments with the University of Minnesota, Creighton University, University of Nebraska
Medical Center, Virginia Commonwealth and the University of Colorado, Denver. Dr. Alcorn graduated from
Creighton University with a Bachelor of Pharmacy and went on to earn his Doctor of Pharmacy degree from
University of Nebraska Medical Center.
Sydney A. Gilman, Ph.D. was appointed our Vice President, Regulatory Affairs in November 2019. Dr. Gilman is
currently the founder and President of Trident Rx Consulting Services LLC, a regulatory consulting firm, a
position he has held since January 2004. Dr. Gilman is a former FDA Chemistry reviewer. He spent six years at
the FDA in various CDER Therapeutic Drug Divisions of the Center for Drug Evaluation and Research with
consulting ties to both Biologics and Devices. Dr. Gilman also has an additional 20 years of experience in the
pharmaceutical industry in positions ranging from Senior Scientist to Director to Vice President responsibilities.
He earned his Bachelor of Science from Loyola College and a Ph.D. in Organic Chemistry from the University
of Pittsburgh.
Management by Board of Directors
The Board of Directors is responsible for overseeing the management of DiaMedica and for the conduct of our
affairs generally. Each director is elected annually by the shareholders and serves for a term that will end at the
next annual general meeting of shareholders.
The Board of Directors facilitates its exercise of independent supervision over the management of DiaMedica
through a combination of formal meetings of the Board of Directors and informal discussions amongst Board
members. Due to the small size of the Board of Directors, and with a majority of independent directors, the
Board of Directors manages governance matters both directly and through its Board committees, which are
described in more detail below. The Board of Directors looks to management of DiaMedica to keep it apprised
of all significant developments affecting the company and its operations. All major acquisitions, dispositions,
investments, contracts and other significant matters outside the ordinary course of our business are subject to
approval by the Board of Directors.
5
Corporate Governance Guidelines
The Board of Directors has established Corporate Governance Guidelines that describes our basic approach to
corporate governance. A copy of these Corporate Governance Guidelines can be found on the ‘‘Investor
Relations—Governance’’ section of our corporate website www.diamedica.com. Among the topics addressed in
our Corporate Governance Guidelines are:
•
•
•
•
•
Board size and qualifications;
Selection of directors;
Board leadership;
Board committees;
Board and committee meetings;
•
Executive sessions of independent directors;
• Meeting attendance by directors and non-directors;
•
Appropriate information and access;
•
•
•
•
•
•
•
•
•
•
•
•
•
Ability to retain advisors;
Conflicts of interest and director independence;
Board interaction with corporate constituencies;
Change of principal occupation;
Term limits;
Retirement and resignation policy;
Board compensation;
Stock ownership by directors;
Loans to directors and executive officers;
CEO evaluation;
Board and committee evaluation;
Succession planning; and
Communications with directors.
Board Leadership Structure
Under our Corporate Governance Guidelines, the Board of Directors may select from its members a Chairman of
the Board. The office of Chairman of the Board and the office of President and Chief Executive Officer may be
held by one person. The Board of Directors believes it is best not to have a fixed policy on this issue and that it
should be free to make this determination based on what it believes is best in light of current circumstances. The
Board of Directors, acting as a group or through the Nominating and Corporate Governance Committee, will
periodically review the leadership structure of the Board of Directors to assess whether it is appropriate given the
specific characteristics and circumstances of DiaMedica. However, the Board of Directors does strongly endorse
the concept of independent directors being in a position of leadership. If at any time, the Chief Executive Officer
and Chairman of the Board are the same, the Board of Directors shall elect an independent director to serve as
the lead director. The lead director will have the following duties and responsibilities in addition to such other
duties and responsibilities as may be determined by the Board of Directors from time to time.
•
•
chairing the executive sessions of the independent directors and calling meetings of the independent
directors;
determining the agenda for the executive sessions of the independent directors and participating with
the Chairman of the Board in establishing the agenda for Board meetings;
6
•
•
•
•
coordinating feedback among the independent directors and the Chief Executive Officer;
overseeing the development of appropriate responses to communications from shareholders and other
interested persons addressed to the independent directors as a group;
on behalf of the independent directors, retaining legal counsel or other advisors as they deem
appropriate in the conduct of their duties and responsibilities; and
performing such other duties as the Board of Directors deems appropriate from time to time.
Mr. Pilnik currently serves as Chairman of the Board and Rick Pauls currently serves as President and Chief
Executive Officer.
We currently believe this leadership structure is in the best interests of DiaMedica and our shareholders and
strikes the appropriate balance between the President and Chief Executive Officer’s responsibility for the
strategic direction, day-to day-leadership and performance of our company and the Chairman of our Board’s
responsibility to guide overall strategic direction of our company and provide oversight of our corporate
governance and guidance to our President and Chief Executive Officer and to set the agenda for and preside over
board meetings. We recognize that different leadership structures may be appropriate for companies in different
situations and believe that no one structure is suitable for all companies. We believe that our company is
well-served by this leadership structure. We anticipate that the Board of Directors will periodically review our
leadership structure and may make such changes in the future as it deems appropriate.
Under our Corporate Governance Guidelines, our independent directors will meet with no company management
present during a portion of or after Board meetings on a regular basis but not less than two times per year. After
each such executive session, and as otherwise necessary, our Chairman of the Board provides our Chief
Executive Officer with any actionable feedback from our independent directors. The Board of Directors met
five times in executive session during the fiscal year ended December 31, 2020.
Director Independence
The Board of Directors has affirmatively determined that three of DiaMedica’s current four directors are
‘‘independent directors’’ under the Nasdaq Listing Rules: Richard Pilnik, Michael Giuffre, M.D. and James
Parsons. In making these affirmative determinations that such individuals are ‘‘independent directors,’’ the Board
of Directors reviewed and discussed information provided by the directors and by DiaMedica with regard to each
director’s business and personal activities as they may relate to DiaMedica and our management.
Board Committees
The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee. Each of these committees has the composition described in the table below
and the responsibilities described in the sections below. The Board of Directors has adopted a written charter for
each committee of the Board of Directors which can be found on the ‘‘Investor Relations—Governance’’ section
of our corporate website www.diamedica.com. The Board of Directors from time to time may establish other
committees.
The following table summarizes the current membership of each of our three board committees.
Director
Audit Committee
Rick Pauls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Giuffre, M.D. . . . . . . . . . . . . . . . . . . . .
James Parsons. . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard Pilnik. . . . . . . . . . . . . . . . . . . . . . . . . . .
—
✓
Chair
✓
Audit Committee
Compensation
Committee
Nominating and
Corporate Governance
Committee
—
Chair
✓
✓
—
✓
✓
Chair
Responsibilities. The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities
relating to our annual and quarterly financial statements filed with the SEC and any applicable securities
regulatory authorities of the provinces and territories of Canada, our financial reporting process, our internal
7
control over financial accounting and disclosure controls and procedures, the annual independent audit of our
financial statements and the effectiveness of our legal compliance and ethics programs. The Audit Committee’s
primary responsibilities include:
•
•
•
•
•
overseeing our financial reporting process, internal control over financial reporting and disclosure
controls and procedures on behalf of the Board of Directors;
having sole authority to appoint, oversee, evaluate, retain and terminate the engagement of our
independent registered public accounting firm and establish the compensation to be paid to the firm;
reviewing and pre-approving all audit services and permissible non-audit services to be provided to us
by our independent registered public accounting firm;
establishing procedures for the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters and for the confidential, anonymous submission by our
employees of concerns regarding questionable accounting or auditing matters; and
overseeing our systems to monitor legal and ethical compliance programs, including the establishment
and administration of (including the grant of any waiver from) a written code of ethics applicable to
our principal executive officer, principal financial officer, principal accounting officer or controller, or
persons performing similar functions.
The Audit Committee has the authority to engage the services of outside experts and advisors as it deems
necessary or appropriate to carry out its duties and responsibilities.
Composition. The current members of the Audit Committee are Dr. Giuffre, Mr. Parsons and Mr. Pilnik.
Mr. Parsons is the Chair of the Audit Committee.
Each member of the Audit Committee qualifies as ‘‘independent’’ for purposes of membership on audit
committees pursuant to the Nasdaq Listing Rules and the rules and regulations of the SEC and is ‘‘financially
literate’’ as required by the Nasdaq Listing Rules. In addition, the Board of Directors has determined that
Mr. Parsons qualifies as an ‘‘audit committee financial expert’’ as defined by the rules and regulations of the
SEC and meets the qualifications of ‘‘financial sophistication’’ under the Nasdaq Listing Rules as a result of his
extensive financial background and various financial positions he has held throughout his career. Shareholders
should understand that these designations related to our Audit Committee members’ experience and understanding
with respect to certain accounting and auditing matters do not impose upon any of them any duties, obligations
or liabilities that are greater than those generally imposed on a member of the Audit Committee or of the Board
of Directors.
Audit Committee Report. This report is furnished by the Audit Committee of the Board of Directors with respect
to DiaMedica’s consolidated financial statements for the year ended December 31, 2020.
One of the purposes of the Audit Committee is to oversee DiaMedica’s accounting and financial reporting
processes and the audit of DiaMedica’s annual consolidated financial statements. DiaMedica’s management is
responsible for the preparation and presentation of complete and accurate financial statements. DiaMedica’s
independent registered public accounting firm, Baker Tilly US, LLP, is responsible for performing an independent
audit of DiaMedica’s annual consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and for issuing a report on their audit.
In performing its oversight role, the Audit Committee has reviewed and discussed DiaMedica’s audited
consolidated financial statements for the year ended December 31, 2020 with DiaMedica’s management.
Management represented to the Audit Committee that DiaMedica’s financial statements were prepared in
accordance with generally accepted accounting principles. The Audit Committee has discussed with Baker Tilly
US, LLP the matters required to be discussed under Public Company Accounting Oversight Board standards. The
Audit Committee has received the written disclosures and the letter from Baker Tilly US, LLP required by
applicable requirements of the Public Company Accounting Oversight Board regarding Baker Tilly US, LLP’s
communications with the Audit Committee concerning independence. The Audit Committee has discussed with
Baker Tilly US, LLP its independence and concluded that the independent registered public accounting firm is
independent from DiaMedica and DiaMedica’s management.
8
Based on the review and discussions of the Audit Committee described above, in reliance on the unqualified
opinion of Baker Tilly US, LLP regarding DiaMedica’s audited consolidated financial statements, and subject to
the limitations on the role and responsibilities of the Audit Committee discussed above and in the Audit
Committee’s charter, the Audit Committee recommended to the Board of Directors that DiaMedica’s audited
consolidated financial statements for the fiscal year ended December 31, 2020 be included in its Annual Report
on Form 10-K for the year ended December 31, 2020 for filing with the Securities and Exchange Commission.
This report is dated as of March 8, 2021.
Audit Committee
James Parsons, Chair
Michael Giuffre, M.D.
Richard Pilnik
Compensation Committee
Responsibilities. The Compensation Committee assists the Board of Directors in fulfilling its oversight
responsibilities relating to compensation of our Chief Executive Officer and other executive officers and
administers our equity compensation plans. The Compensation Committee’s primary responsibilities include:
•
•
•
•
•
•
determining all compensation for our Chief Executive Officer and other executive officers;
administering our equity-based compensation plans;
reviewing, assessing and approving overall strategies for attracting, developing, retaining and
motivating our management and employees;
overseeing the development and implementation of succession plans for our Chief Executive Officer
and other key executive officers and employees;
reviewing, assessing and approving overall compensation structure on an annual basis; and
recommending and leading a process for the determination of non-employee director compensation.
The Compensation Committee has the authority to engage the services of outside experts and advisors as it
deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so, assesses the
independence of such experts and advisors from management.
Composition. The current members of the Compensation Committee are Dr. Giuffre, Mr. Parsons and Mr. Pilnik.
Dr. Giuffre is the Chair of the Compensation Committee. The Board of Directors has determined that each of the
members of the Compensation Committee is an ‘‘independent director’’ under the Nasdaq Listing Rules, a
‘‘non-employee director’’ within the meaning of Rule 16b-3 under the Exchange Act, and otherwise independent
under the rules and regulations of the SEC.
Processes and Procedures for Consideration and Determination of Executive Compensation. As described in
more detail above under ‘‘—Responsibilities,’’ the Board of Directors has delegated to the Compensation
Committee the responsibility, among other things, to determine any and all compensation payable to our
executive officers, including annual salaries, incentive compensation, long-term incentive compensation,
perquisites and any and all other compensation, and to administer our equity-based compensation plans. The
Compensation Committee has the full power and authority of the Board of Directors to perform these duties and
to fulfill these responsibilities. Under the terms of its formal written charter, the Compensation Committee has
the power and authority, to the extent permitted by applicable law, to delegate all or a portion of its duties and
responsibilities to a subcommittee of the Compensation Committee. Except for a delegation of authority to the
Company’s Chief Executive Officer and Chief Financial Officer to approve equity compensation awards under
the Company’s shareholder-approved plan to newly-hired employees other than the executive officers of the
Company, the Compensation Committee has not delegated any of its duties and responsibilities to subcommittees,
but rather has taken such actions as a committee, as a whole.
In 2018, the Compensation Committee engaged the services of 21-Group, an independent compensation
consultant, to assist the Compensation Committee in developing a comprehensive compensation strategy based
upon compensation levels at benchmark companies for DiaMedica. The Compensation Committee used the
information in this report, recommendations from the 21-Group and discussions with management, to establish a
9
compensation strategy and set target compensation levels for officers and non-employee directors. In making
final decisions regarding compensation to be paid to our executive officers, the Compensation Committee
considers several factors, including the benchmarking information gathered by its compensation consultant, the
achievement by DiaMedica of pre-established performance objectives, the general performance of DiaMedica and
the individual officers, the performance of DiaMedica and other factors that may be relevant. The Compensation
Committee retained 21-Group again in 2020 and in the beginning of 2021 to update its executive officer and
non-employee director compensation analyses.
Final deliberations and decisions by the Compensation Committee regarding the form and amount of
compensation to be paid to our executive officers are made by the Compensation Committee, without the
presence of any executive officer of our company.
Processes and Procedures for Consideration and Determination of Director Compensation. As mentioned above
under ‘‘—Responsibilities,’’ the Board of Directors has delegated to the Compensation Committee the
responsibility, among other things, to review and make recommendations to the Board of Directors concerning
compensation for non-employee members of the Board of Directors, including but not limited to retainers,
meeting fees, committee chair and member retainers and equity compensation. Decisions regarding director
compensation made by the Compensation Committee are not considered final and are subject to final review and
approval by the entire Board of Directors. In making recommendations to the Board of Directors regarding
compensation to be paid to our non-employee directors, the Compensation Committee considers fees and other
compensation paid to directors of benchmark companies as gathered by its compensation consultant, the number
of board and committee meetings that our directors are expected to attend and other factors that may be relevant.
In making final decisions regarding non-employee director compensation, the Board of Directors considers the
same factors and the recommendation of the Compensation Committee.
Nominating and Corporate Governance Committee
Responsibilities. The Nominating and Corporate Governance Committee assists the Board of Directors in
fulfilling its oversight responsibilities relating to director nominations and corporate governance. The primary
responsibilities of the Nominating and Corporate Governance Committee include:
•
•
•
•
•
•
identifying individuals qualified to become members of the Board of Directors, which includes
reviewing and considering director nominees submitted by shareholders;
recommending director nominees for each annual general meeting of our shareholders and director
nominees to fill any vacancies that may occur between general meetings of shareholders;
being aware of best practices in corporate governance matters and developing and recommending to the
Board of Directors a set of corporate governance guidelines to govern the Board of Directors, its
committees, DiaMedica and our employees;
recommending director diversity, retirement age, tenure and refreshment policies;
developing and overseeing an orientation process for new directors; and
developing and overseeing a periodic Board of Directors and Board committee evaluation process.
The Nominating and Corporate Governance Committee has the authority to engage the services of outside
experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Orientation and Continuing Education of Directors. The Nominating and Corporate Governance Committee is
responsible for developing and overseeing an orientation process for all new members of the Board of Directors.
New directors are provided with access to our recent, publicly filed documents, technical reports and internal
financial information and given copies of all Board of Director minutes and corporate governance materials.
Directors are encouraged to ask questions and communicate with management, auditors and technical consultants
to keep themselves current with industry trends and developments and changes in legislation. Continuing
education is an important compliance requirement to promote the competence and integrity of Board members.
Our directors are encouraged to take part in relevant education programs offered by appropriate regulatory
bodies.
Composition. The current members of the Nominating and Corporate Governance Committee are Dr. Giuffre,
Mr. Parsons and Mr. Pilnik. Mr. Pilnik is the Chair of the Nominating and Corporate Governance Committee.
10
The Board of Directors has determined that each of the members of the Nominating and Corporate Governance
Committee is an ‘‘independent director’’ under the Nasdaq Listing Rules.
Director Qualifications and the Nomination Process
The Board of Directors seeks to ensure that the Board is composed of members whose particular experience,
qualifications, attributes and skills, when taken together, will allow the Board to satisfy its oversight
responsibilities effectively. New directors will be approved by the Board after evaluation and recommendation by
the Nominating and Corporate Governance Committee. In identifying candidates for director, the Nominating and
Corporate Governance Committee and the Board take into account the following:
•
•
•
•
the comments and recommendations of Board members regarding the qualifications and effectiveness of
the existing Board, or additional qualifications that may be required when selecting new Board
members;
the requisite expertise and sufficiently diverse backgrounds of the Board’s overall membership
composition;
the independence of outside directors and other possible conflicts of interest of existing and potential
members of the Board; and
any other factors they consider appropriate.
When considering directors and nominees the Nominating and Corporate Governance Committee and the Board
of Directors focuses primarily on the information discussed in each of the directors’ individual biographies.
The Nominating and Corporate Governance Committee will consider director candidates recommended to it by
our shareholders. Those candidates must be qualified and exhibit the experience and expertise required of the
Board’s own pool of candidates, as well as have an interest in our business and demonstrate the ability to attend
and prepare for Board, committee, and shareholder meetings. Any candidate must provide a written statement, in
advance, affirming his or her willingness and interest in serving on the Board. Candidates should represent the
interests of all shareholders and not those of a special interest group. The Nominating and Corporate Governance
Committee will evaluate candidates recommended by shareholders using the same criteria it uses to evaluate
candidates recommended by others as described above. A shareholder that desires to nominate a person for
election to the Board of Directors at a meeting of shareholders must follow the specified advance notice
requirements contained in, and provide the specific information required by the BCBCA. During the fourth
quarter of fiscal 2020, we made no material changes to the procedures by which shareholders may recommend
nominees to our Board of Directors.
Board Diversity
The Nominating and Corporate Governance Committee is responsible for reviewing with the Board of Directors,
on an annual basis, the appropriate characteristics, skills and experience required for the Board of Directors as a
whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and
current members), the Nominating and Corporate Governance Committee, in recommending candidates for
election, and the Board of Directors in approving (and, in the case of vacancies, appointing) such candidates,
take into account many factors, including the following:
•
•
•
•
•
•
•
•
personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly held
company;
strong finance experience;
relevant social policy concerns;
experience relevant to our industry;
experience as a board member or executive officer of another publicly held company;
relevant academic expertise or other proficiency in an area of our operations;
diversity of expertise and experience in substantive matters pertaining to our business relative to other
board members;
11
•
•
•
diversity of background and perspective, including, but not limited to, with respect to age, gender, race,
place of residence and specialized experience;
practical and mature business judgment, including, but not limited to, the ability to make independent
analytical inquiries; and
any other relevant qualifications, attributes or skills.
The Board of Directors evaluates each individual in the context of the Board of Directors as a whole, with the
objective of assembling a group that can best perpetuate the success of the business and represent shareholder
interests through the exercise of sound judgment using its diversity of experience in these various areas. In
determining whether to recommend a director for re-election, the Nominating and Corporate Governance
Committee may also consider the director’s past attendance at meetings and participation in and contributions to
the activities of the Board of Directors.
We believe that a board of directors made up of highly qualified individuals from diverse backgrounds promotes
better corporate governance, performance and effective decision-making. Our Board of Directors has not, at this
time, adopted any fixed policies, targets or quotas relating to the representation on the Board of Directors or in
executive officer positions based upon any external physiological attribute, including gender, as we do not
believe that quotas or a formulaic approach necessarily result in the identification or selection of the best
candidates. The Nominating and Corporate Governance Committee nonetheless makes efforts to ensure that
directors and officers have a wide range of skills, experiences and backgrounds to meet our needs. To support
this objective, the Nominating and Corporate Governance Committee will, when seeking candidates for Board of
Directors or executive positions, among other things, (a) consider candidates who are highly qualified based on
their experience, functional expertise and personal skills and qualities; and (b) consider diversity criteria
including gender and geographical background of the candidate. As of the date of this report, no women (0%)
are on our Board of Directors or are executive officers of DiaMedica.
Role of Board in Risk Oversight Process
Risk is inherent with every business. We face a number of risks, including regulatory, compliance, legal,
competitive, financial (accounting, credit, interest rate, liquidity and tax), operational, political, strategic and
reputational risks. Our management is responsible for the day-to-day management of risks faced by us, while the
Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk
management. In its risk oversight role, the Board of Directors ensures that the risk management processes
designed and implemented by management are adequate and functioning as designed. The Board of Directors
oversees risks through the establishment of policies and procedures that are designed to guide daily operations in
a manner consistent with applicable laws, regulations and risks acceptable to us. Our President and Chief
Executive Officer, who is also a member of the Board of Directors, regularly discusses with the Board of
Directors the strategies and risks facing our company.
The standing committees of the Board of Directors oversee risks associated with their respective principal areas
of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of financial reporting
to shareholders and on our processes for the management of business and financial risk. The Audit Committee,
along with management, is also responsible for developing and participating in a process for review of important
financial and operating topics that present potential significant risk to our company. The Compensation
Committee is responsible for overseeing risks and exposures associated with our compensation programs and
arrangements, including our executive and director compensation programs and arrangements, and management
succession planning. The Nominating and Corporate Governance Committee oversees risks relating to our
corporate governance matters and policies and director succession planning.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to all of our directors, officers and employees,
in accordance with Section 406 of the Sarbanes-Oxley Act of 2002, the rules of the SEC promulgated thereunder
and the Nasdaq Listing Rules. We monitor employee and director compliance with our code of business conduct
and ethics through employee and director reporting. Violations may be reported to supervisors, the Chief
Financial Officer or, alternatively, to the Chair of the Audit Committee via e-mail. We investigate and discipline
all reported violations as appropriate. In the event that any changes are made or any waivers from the provisions
12
of the code of business conduct and ethics are made, these events would be disclosed on our website or in a
Current Report on Form 8-K within four business days of such event. The code of business conduct and ethics is
posted on our website at www.diamedica.com. Copies of the code of business conduct and ethics will be
provided free of charge upon written request directed to Corporate Secretary, DiaMedica Therapeutics Inc.,
Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447.
Board and Committee Meetings and Attendance
The table below summarizes the attendance of each director for meetings of the Board of Directors and the
meetings of all Board committees on which the director served during the fiscal year ended December 31, 2020:
Director
Number of Board
Meetings
Attended
Number of Audit
Committee
Meetings
Attended(1)
Rick Pauls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Giuffre, M.D. . . . . . . . . . . . . . . . . . . . .
James Parsons. . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard Pilnik. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Meetings Held. . . . . . . . . . . . . . . . . . . .
10
10
10
10
10
N/A
6
6
6
6
Number of
Compensation
Committee
Meetings
Attended
Number of
Nominating and
Corporate
Governance
Committee
Meetings
Attended
N/A
6
6
6
6
N/A
3
3
3
3
(1)
The Audit Committee met twice in executive session with Baker Tilly US, LLP, our independent registered public accounting firm.
Policy Regarding Director Attendance at Annual General Meetings of Shareholders
Directors are encouraged, but not required, to attend our annual general meetings of shareholders. Messrs. Pauls,
Pilnik and Parsons attended the 2020 Annual General Meeting of Shareholders either in person, by telephone or
by video conference.
Complaint Procedures
The Audit Committee has established procedures for the receipt, retention and treatment of complaints received
by DiaMedica regarding accounting, internal accounting controls or auditing matters. These procedures provide
for the submission by our employees, on a confidential and anonymous basis, of concerns regarding questionable
accounting or auditing matters. Our personnel with such concerns are encouraged to discuss their concerns with
our compliance officer, outside legal counsel or Audit Committee Chair.
Process Regarding Shareholder Communications with Board of Directors
Shareholders may communicate with the Board of Directors or any one particular director by sending
correspondence, addressed to DiaMedica’s Corporate Secretary, DiaMedica Therapeutics Inc., Two Carlson
Parkway, Suite 260, Minneapolis, MN 55447 with an instruction to forward the communication to the Board of
Directors or one or more particular directors. DiaMedica’s Corporate Secretary will promptly forward all such
shareholder communications to the Board of Directors or the one or more particular directors, with the exception
of any advertisements, solicitations for periodical or other subscriptions and other similar communications.
13
Item 11.
Executive Compensation
Executive Compensation Overview
This section addresses the compensation of our President and Chief Executive Officer and the two most highly
compensated executive officers for the year ended December 31, 2020:
•
•
•
Rick Pauls, our President and Chief Executive Officer;
Scott Kellen, our Chief Financial Officer and Corporate Secretary; and
Harry Alcorn, Jr., Pharm.D., our Chief Medical Officer.
These executive officers are collectively referred to as the named executive officers.
When reading this Executive Compensation Overview, please note that we are an emerging growth company
under the Jumpstart our Business Startups Act (JOBS Act) and are not required to provide a ‘‘Compensation
Discussion and Analysis’’ of the type required by Item 402 of SEC Regulation S-K. This Executive
Compensation Overview is intended to supplement the SEC-required disclosure, which is included in this section,
and it is not a Compensation Discussion and Analysis.
Compensation Philosophy
The Compensation Committee generally targets executive compensation at the 50th percentile of our peer group
as discussed below under ‘‘—Elements of Our Executive Compensation Program.’’
Use of Market Data
We strive to compensate our executive officers competitively relative to other companies that are similar to us
from a market capitalization, revenue, number of employees and clinical development perspective. To ensure
reasonableness and competitiveness of our executive compensation packages relative to our peer companies, the
Compensation Committee evaluates our peer group with the aid of our independent compensation consultant and
with input from management. The peer group used to help determine 2020 compensation was prepared by our
independent compensation consultant in 2018 and consisted of the following 12 other companies in the same
industry and with similar characteristics from a market capitalization, revenue, number of employees and clinical
development perspective.
Actinium Pharmaceuticals, Inc.
Cidara Therapeutics, Inc.
Regulus Therapeutics Inc.
Aptose Biosciences Inc.
CohBar, Inc.
Sun BioPharma, Inc.
Athersys, Inc.
Oncolytics Biotech Inc.
Trillium Therapeutics Inc.
Cellectar Biosciences, Inc.
Oncomed Pharmaceuticals, Inc.
Zafgen, Inc.
Data from this peer group, therefore, was considered in the compensation benchmarking process as one input in
helping us determine appropriate pay levels.
Use of Consultants
The Compensation Committee has the authority to engage the services of outside experts and advisors as it
deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so, assesses the
independence of such experts and advisors from management. During 2018, the Compensation Committee
engaged the 21-Group, a compensation consultant, to assist the Compensation Committee in designing and
reviewing our executive compensation program. The Compensation Committee retained 21-Group again in 2020
and in the beginning of 2021 to update its executive officer and non-employee director compensation analyses.
The 21-Group does not provide any services to our company other than those for which it has been retained by
the Compensation Committee.
14
Elements of Our Executive Compensation Program
During 2020, our executive compensation program consisted of several key elements, which are described in the
table below along with the key characteristics of, and the purpose for, each element. The following table also
describes any key 2020 changes to each of these elements.
Key Characteristics
Purpose
Key 2020 Changes
Element
Base Salary
(Fixed, Cash)
Short-Term
Incentive (STI)
(Variable, Cash)
Provides a source of fixed
income that is market
competitive and reflects
scope and responsibility of
the position held.
Motivates and rewards our
executives for achievement
of annual corporate and
other objectives.
A fixed amount, paid in cash
periodically throughout the
year and reviewed annually
and, if appropriate, adjusted.
A variable, short-term
element of compensation
that is payable in cash based
on achievement of key
pre-established annual
corporate objectives, and for
certain executives, individual
goals.
Our named executive
officers received increases of
3% over their respective
2019 base salaries.
Our named executive
officers received STI cash
payments equal to 95% of
their respective target bonus
opportunities based on the
achievement of corporate
performance and individual
performance objectives. In
determining achievement
levels, the Compensation
Committee took into
consideration the COVID-19
pandemic and its effect on
our business and
management’s response to
the pandemic, especially
with respect to the
continuation of our clinical
trial work.
Our named executive
officers received stock
option awards, which vest
quarterly over three years.
Long-Term
Incentives (LTI)
(Variable,
Equity-Based
Awards)
A variable, long-term
element of compensation
that is provided in the form
of time-vested stock option
awards.
Aligns the interests of our
executives with our
shareholders; encourages our
executives to focus on the
Company’s long-term
performance; promotes
retention of our executives;
and encourages significant
ownership of our common
shares.
Retirement
Benefits
Includes a defined
contribution retirement plan
with a discretionary
Company match.
Provides an opportunity for
employees to save and
prepare financially for
retirement.
No changes.
We describe each key element of our executive compensation program in more detail in the following pages,
along with the compensation decisions made in 2020. The compensation paid to our named executive officers is
governed, in part, by written employment agreements with them, which are described below under
‘‘—Employment Agreements.’’ The named executive officers also have termination and change in control benefits
as set forth in their respective employment agreements. See ‘‘—Post-Termination Severance and Change in
Control Arrangements.’’
15
Pay for Performance and Pay Mix
We seek to motivate management to achieve corporate objectives and increase shareholder value through
incentive plans that reward higher performance with increased incentive payouts and hold management
accountable for performance that falls below targeted levels by paying reduced or no incentive payouts.
Accordingly, in general, our executive compensation program emphasizes variable, at-risk, pay elements as a
significant portion of each executive’s total compensation package.
The breakdown of variable, at-risk, pay (broken out between short-term incentives and long-term incentives)
compared to fixed pay (i.e., base salary) reported for 2020 in the Summary Compensation Table for our President
and Chief Executive Officers and other named executive officers is as follows:
Base Salary
We provide a base salary for our named executive officers, which is not subject to company or individual
performance risk. We recognize the need for most executives to receive at least a portion of their total
compensation in the form of a guaranteed base salary that is paid in cash regularly throughout the year. The base
salaries set for our named executive officers are intended to provide a steady income regardless of share price
performance, allowing executives to focus on both near-term and long-term goals and objectives without undue
reliance on short-term share price performance or market fluctuations.
We initially fix base salaries for our executives at a level that we believe enables us to hire and retain them in a
competitive environment and to reward satisfactory individual performance and a satisfactory level of
contribution to our overall business objectives. The Compensation Committee reviews and approves any
increases in base salaries for our named executive officers.
The base salary for each of our named executive officers for fiscal 2020 compared to fiscal 2019 is as follows:
Name
Fiscal 2020
Fiscal 2019
% Change from
Fiscal 2019
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$458,350
278,100
293,550
$445,000
270,000
285,000
3.0%
3.0%
3.0%
The base salary increases for each of our named executive officers were intended to provide for cost of living
adjustments.
Annual Short-Term Incentive Compensation
In addition to base compensation, we provide our named executive officers the opportunity to earn short-term
incentive (STI) compensation based on the achievement of certain annual corporate and individual performance
16
goals. Our STI program directly aligns the interests of our executive officers and shareholders by providing an
incentive for the achievement of key corporate and individual performance objectives that are critical to the
success of our company and linking a significant portion of each executive’s annual compensation to the
achievement of such objectives.
Under the 2020 STI program, each named executive officer had a target incentive percentage that was a
percentage of their base salary:
Name
Percentage of Salary Base
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50%
30%
30%
2020 STI payouts were based primarily on the achievement of three pre-established corporate performance
objectives that related to clinical development milestones and either one or two individual performance objectives
that related to each named executive’s corporate responsibilities. The STI payouts reflected adjustments in light
of the COVID-19 pandemic and its effect on our business and management’s response to the pandemic,
especially with respect to the continuation of our clinical trials, resulting in payouts representing 95% of each
officer’s respective target bonus opportunity:
Officer Name and Position
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D. . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Equity-Based Incentive Compensation
2020 Base
Salary
$458,350
278,100
293,550
Target Incentive
Percentage of
Base Salary
50%
30%
30%
Target Bonus
Opportunity
2020 Actual
Payout
$229,175
83,430
88,065
$217,716
79,238
83,662
The long-term equity-based incentive compensation component consists of stock options granted under the
DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan. Long-term equity-based incentives are intended to
comprise a significant portion of each executive’s compensation package, consistent with our executive
compensation objective to align the interests of our executives with the interests of our shareholders.
The Compensation Committee believes that options effectively incentivize executives to maximize company
performance over the long-term, as the value of awards is directly tied to an appreciation in the value of our
common shares. Stock options also provide an effective retention mechanism because of vesting provisions. An
important objective of our long-term equity-based incentive program is to strengthen the relationship between the
long-term value of our common shares and the potential financial gain for our executives. Stock options provide
recipients with the opportunity to purchase our common shares at a price fixed on the grant date regardless of
future market price. Because stock options become valuable only if the share price increases above the exercise
price and the option holder remains employed during the period required for the option to vest, they provide an
incentive for an executive to remain employed. In addition, stock options link a portion of an executive’s
compensation to the interests of our shareholders by providing an incentive to achieve corporate goals and
increase the market price of our common shares over time.
The table below sets forth the stock options that we granted to our named executive officers in 2020, which
options vest quarterly over three years:
Name
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D. . . . . . . . . . . . . . . . . . .
Grant Date
06/01/20
06/01/20
06/01/20
Grant Date
Fair Value
Number of Shares
Underlying Options
Exercise Price
$190,624
119,140
119,140
56,000
35,000
35,000
$4.64
4.64
4.64
All Other Compensation
It is generally our policy not to extend perquisites to our executives that are not available to our employees
generally. Our executives receive benefits that are also received by our other employees, including participation
in the DiaMedica USA, Inc. 401(k) Plan and health, dental, disability and life insurance benefits.
17
Employment Agreements
In September 2018, we entered into an employment agreement with each of our executive officers, which
provides for an annual base salary, subject to periodic reviews, incentive based compensation, equity-based
compensation and benefits, in each case as determined by the Board of Directors (or a committee thereof) from
time to time. The agreements contain standard confidentiality, non-competition, non-solicitation and assignment
of intellectual property provisions. The agreements also contains standard severance and change in control
provisions which are described under ‘‘—Post-Termination Severance and Change in Control Arrangements.’’
Post Termination Severance and Change in Control Arrangements
Severance Arrangements. Under the terms of the employment agreements with our executive officers, if we
terminate the executive’s employment without ‘‘cause’’, the executive will be entitled to: (i) salary continuation
payments for 12 months in the case of Mr. Pauls and nine months in the case of each of the other executives,
(ii) Consolidated Omnibus Budget Reconciliation Act (COBRA) premium reimbursement during the salary
continuation period, (iii) a pro rata portion of their target annual bonus for the year of termination, and
(iv) immediate acceleration of their equity awards. These severance benefits are subject to the executive
executing a separation agreement and release of claims. ‘‘Cause’’ is defined in the employment agreements
as: (i) gross negligence or willful failure to perform the executive’s duties and responsibilities to DiaMedica;
(ii) commission of any act of fraud, theft, embezzlement, financial dishonesty or any other willful misconduct
that has caused or is reasonably expected to result in injury to DiaMedica; (iii) conviction of, or pleading guilty
or nolo contendere to, any felony or a lesser crime involving dishonesty or moral turpitude; (iv) material breach
by the executive of any of their obligations under the agreement or any written agreement or covenant with
DiaMedica, including the policies adopted from time to time by DiaMedica applicable to all executives, that has
not been cured within 30 days of notice of such breach; or (v) we terminate the employment of the executive in
connection with a liquidation, dissolution or winding down of DiaMedica. We believe that the form and amount
of these severance benefits are fair and reasonable to both DiaMedica and our executives. The Compensation
Committee reviews our severance arrangements periodically to ensure that they remain necessary and
appropriate.
Change in Control Arrangements. To encourage continuity, stability and retention when considering the potential
disruptive impact of an actual or potential corporate transaction, we have established change in control
arrangements, including provisions in the DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan (2019 Plan)
and executive employment agreements. These arrangements are designed to incentivize our executives to remain
with our company in the event of a change in control or potential change in control.
Under the terms of the 2019 Plan, subject to the terms of the applicable award agreement or an individual
agreement between DiaMedica and a participant, upon a change in control, the Board of Directors may, in its
discretion, determine whether some or all outstanding options and stock appreciation rights shall become
exercisable in full or in part, whether the restriction period and performance period applicable to some or all
outstanding restricted stock awards and restricted stock unit awards shall lapse in full or in part and whether the
performance measures applicable to some or all outstanding awards shall be deemed to be satisfied. The Board
of Directors may further require that shares of stock of the corporation resulting from such a change in control,
or a parent corporation thereof, be substituted for some or all of our common shares subject to an outstanding
award and that any outstanding awards, in whole or in part, be surrendered to us by the holder, to be
immediately cancelled by us, in exchange for a cash payment, shares of capital stock of the corporation resulting
from or succeeding us or a combination of both cash and such shares of stock.
Under the terms of the employment agreements that we entered into with our executives in September 2018, if
we terminate the executive’s employment without ‘‘cause’’ or the executive terminates their employment with
‘‘good reason’’ in connection with or within 12 months after a ‘‘change in control,’’ the executive will be entitled
to: (i) salary continuation payments for 18 months in the case of Mr. Pauls and 12 months in the case of each of
the other executives, (ii) COBRA premium reimbursement during the salary continuation period, (iii) a pro rata
portion of their target annual bonus for the year of termination, and (iv) immediate acceleration of their equity
awards. These severance benefits are subject to the executive executing a separation agreement and release of
claims.
‘‘Good reason’’ is defined in the employment agreements as the executive’s resignation within 30 days following
the expiration of any cure period following the occurrence of one or more of the following, without the
18
executive’s express written consent: (i) a material reduction of the executive’s duties, authority, reporting level, or
responsibilities, relative to their duties, authority, reporting level, or responsibilities in effect immediately prior to
such change in control; (ii) a material reduction in the executive’s base compensation; or (iii) DiaMedica’s
requiring of the executive to change the principal location at which the executive is to perform services by more
than 50 miles.
‘‘Change in control’’ is defined in the employment agreements as the occurrence of any of the following: (i) the
acquisition, other than from us, by any individual, entity or group of beneficial ownership of 50% or more of
either our then outstanding common shares or the combined voting power of our then outstanding voting
securities entitled to vote generally in the election of directors; (ii) the consummation of a reorganization, merger
or consolidation of DiaMedica, in each case, with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of our common shares and voting securities immediately prior
to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively, of then outstanding common shares and
the combined voting power of then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; or
(iii) the sale or other disposition of all or substantially all of our assets.
We believe these change in control arrangements are an important part of our executive compensation program in
part because they mitigate some of the risk for executives working in a smaller company where there is a
meaningful risk that DiaMedica may be acquired. Change in control benefits are intended to attract and retain
qualified executives who, absent these arrangements and in anticipation of a possible change in control of our
company, might consider seeking employment alternatives to be less risky than remaining with our company
through the transaction. We believe that the form and amount of these change in control benefits are fair and
reasonable to both our company and our executives. The Compensation Committee periodically reviews our
change in control arrangements to ensure that they remain necessary and appropriate.
Indemnification Agreements
We have entered into indemnification agreements with all of our executive officers. The indemnification
agreements are governed exclusively by and construed according to the substantive laws of the BCBCA, without
regard to conflicts-of-laws principles that would require the application of any other law, and provide, among
other things, for indemnification, to the fullest extent permitted by law and our Articles, against any and all
expenses (including attorneys’ fees) and liabilities, judgments, fines and amounts paid in settlement that are paid
or incurred by the executive or on his or her behalf in connection with such action, suit or proceeding. We will
be obligated to pay these amounts only if the executive acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of our company and, in the case of a criminal or
administrative proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing
that his or her conduct was lawful. The indemnification agreements provide that the executive will not be
indemnified and expenses advanced with respect to an action, suit or proceeding initiated by the executive unless
(i) so authorized or consented to by the Board of Directors or DiaMedica has joined in such action, suit or
proceeding or (ii) the action, suit or proceeding is one to enforce the executive’s rights under the indemnification
agreement. Our indemnification and expense advance obligations are subject to the condition that an appropriate
person or body not party to the particular action, suit or proceeding shall not have determined that the executive
is not permitted to be indemnified under applicable law. The indemnification agreements also set forth
procedures that apply in the event an executive requests indemnification or an expense advance.
19
Summary Compensation Table
The table below provides summary information concerning all compensation awarded to, earned by or paid to
our named executive officers during our 2020 and 2019 fiscal years.
Name and Principal Position
Rick Pauls(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President and Chief Executive Officer
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chief Financial Officer and Secretary
Harry Alcorn, Jr., Pharm.D.
Chief Medical Officer
. . . . . . . . . . . . . . .
Year
Salary
Bonus(1)
Option
Awards(2)
Non-Equity
Incentive
Plan
Compen-
sation(3)
All
Other
Compen-
sation(4)
Total
2020 $455,013
2019
2020
2019
2020
2019
420,000 — 890,736
276,075 — 119,140
262,500 — 336,557
291,413 — 119,140
273,750 — 421,750
$— $190,624 $217,716 $14,850 $878,203
733,707
178,000
489,303
79,238
677,807
64,800
509,065
83,662
778,300
68,400
14,650
14,850
13,950
14,850
14,400
(1) We generally do not pay discretionary bonuses.
(2) Amounts reflect the full grant-date fair value of stock options granted during the applicable year computed in accordance with
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, rather than the amounts paid to or
realized by the named individual. The grant date fair value is determined based on our Black-Scholes option pricing model. The table
below sets forth the specific assumptions used in the valuation of each such option award:
Grant Date
06/01/2020
06/24/2019
Grant Date Fair
Value Per Share
Risk Free
Interest Rate
$3.40
3.37
0.32%
1.75%
Expected
Life
5.1years
5.1years
Expected
Volatility
97.99%
96.3%
Expected
Dividend Yield
—
—
There can be no assurance that unvested awards will vest (and, absent vesting and exercise, no value will be realized by the executive
for the award).
(3) Amounts reported represent awards earned for that year under our annual short-term incentive plan but paid during the following year.
See ‘‘—Executive Compensation Overview—Annual Short-Term Incentive Compensation.’’
(4)
The amounts shown in the ‘‘All Other Compensation’’ column for fiscal 2020 include the following with respect to each named
executive officer:
Name
401(k) Match
Health Savings
Account Contribution
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D.
$11,400
11,400
11,400
$3,450
3,450
3,450
Total
$14,850
14,850
14,850
(5) Mr. Pauls is also a director of DiaMedica and did not receive any compensation related to his role as a director.
20
Outstanding Equity Awards at Fiscal Year-End
The following table presents for each named executive officer information regarding outstanding equity awards
held as of December 31, 2020. All of our named executive officers held stock options as of December 31, 2020
and one of our named executive officers held deferred share units.
Name
Rick Pauls
Stock Options . . . . . . . . . . . . . . .
DSUs. . . . . . . . . . . . . . . . . . . . . .
Scott Kellen
Stock Options . . . . . . . . . . . . . . .
Harry Alcorn, Pharm.D.
Stock Options . . . . . . . . . . . . . . .
Option Awards(1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
Option
Expiration
Date(2)
Stock Awards
Number of
Shares or
Units of
Stock That
Have Not
Vested(3)
(#)
Market Value
of Shares or
Units of
Stock That
Have Not
Vested(4)
($)
10,000
10,000
10,000
67,500
42,500
42,500
27,917
198,000
9,333
48,175
74,183
5,833
18,750
93,750
5,833
— (CAD$) 23.00 10/06/2021
— (CAD$) 34.00 02/15/2022
— (CAD$) 21.40 06/25/2023
(CAD$) 3.00 12/01/2025
—
(CAD$) 5.20 11/28/2026
—
(CAD$) 6.40 06/19/2027
—
(CAD$) 11.20 04/17/2028
5,583
(US$) 4.60 06/23/2029
66,000
(US$) 4.64 05/31/2030
46,667
8,375
24,937
29,167
(CAD$) 11.20 04/17/2028
(US$) 4.60 06/23/2029
(US$) 4.64 05/31/2030
6,250
31,250
29,167
(CAD$) 10.40 08/15/2028
(US$) 4.60 06/23/2029
(US$) 4.64 05/31/2030
1,749
(US$)17,735
(1) All stock options vest in 12 equal quarterly installments over three years, except the stock options granted on June 24, 2019 which vest
in eight equal quarterly installments over two years. The vesting of the stock options may be accelerated under certain circumstances,
including if the recipient’s employment or service relationship with our company is involuntarily terminated.
(2) All stock options have a 10-year term, but may terminate earlier if the recipient’s employment or service relationship with our company
terminates.
(3) All DSU awards are settled after the holder’s employment or service relationship with our company terminates.
(4)
The market value of DSU awards that have not been settled as of December 31, 2020 is based on the closing sale price of our
common shares as reported by The Nasdaq Capital Market on December 31, 2020 ($10.14).
Employee Benefit and Stock Plans
2019 Omnibus Incentive Plan
The DiaMedica Therapeutics Inc. 2019 Omnibus Incentive Plan was adopted by the Board of Directors on
March 14, 2019 and approved by our shareholders on May 22, 2019.
Shares Available. Subject to adjustment (as described below), the maximum number of our common shares
authorized for issuance under the 2019 Plan is 2,000,000 shares. No more than 2,000,000 shares may be granted
as incentive stock options and no more than 100,000 shares may be granted to any non-employee director in any
one year (other than shares received in lieu of any annual cash retainer or meeting fees).
Eligible Participants. Awards may be granted to employees, non-employee directors and consultants of
DiaMedica or any of our subsidiaries. A ‘‘consultant’’ for purposes of the 2019 Plan is one who renders services
21
to DiaMedica or its subsidiaries that are not in connection with the offer and sale of our securities in a capital
raising transaction and do not directly or indirectly promote or maintain a market for our securities.
Awards Available. The 2019 Plan permits us to grant 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. Awards may be granted either alone or in addition
to or in tandem with any other type of award.
Transferability. Except pursuant to a testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by the 2019 Plan, no right or interest of any participant in an award prior to the exercise
(in the case of options or stock appreciation rights) or vesting, issuance or settlement of such award will be
assignable or transferable, or subjected to any lien, during the lifetime of the participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law or otherwise.
Termination of Employment or Other Service. The 2019 Plan provides for certain default rules in the event of a
termination of a participant’s employment or other service. These default rules may be modified in an award
agreement or an individual agreement between DiaMedica and a participant. If a participant’s employment or
other service with DiaMedica is terminated for cause, then all outstanding awards held by such participant will
be terminated and forfeited. In the event a participant’s employment or other service with DiaMedica is
terminated by reason of death, disability, or retirement, then:
•
•
•
All outstanding stock options (excluding non-employee director options in the case of retirement) and
stock appreciation rights held by the participant will, to the extent exercisable, remain exercisable for a
period of one year after such termination, but not later than the date the stock options or stock
appreciation rights would otherwise expire;
All outstanding stock options and stock appreciation rights that are not exercisable and all outstanding
restricted stock will be terminated and forfeited; and
All outstanding unvested restricted stock units, performance awards, and other stock-based awards held
by the participant will terminate and be forfeited. However, with respect to any awards that vest based
on the achievement of performance goals, if a participant’s employment or other service with
DiaMedica or any subsidiary is terminated prior to the end of the performance period of such award,
but after the conclusion of a portion of the performance period (but in no event less than one year), the
Board of Directors may, in its sole discretion, cause shares to be delivered or payment made with
respect to the participant’s award, but only if otherwise earned for the entire performance period and
only with respect to the portion of the applicable performance period completed at the date of such
event, with proration based on the number of months or years that the participant was employed or
performed services during the performance period.
In the event a participant’s employment or other service with DiaMedica is terminated by reason other than for
cause, death, disability, or retirement, then:
•
•
•
All outstanding stock options (including non-employee director options) and stock appreciation rights
held by the participant that then are exercisable will remain exercisable for three months after the date
of such termination, but will not be exercisable later than the date the stock options or stock
appreciation rights would otherwise expire;
All outstanding restricted stock will be terminated and forfeited; and
All outstanding unvested restricted stock units, performance awards and other stock-based awards will
be terminated and forfeited. However, with respect to any awards that vest based on the achievement of
performance goals, if a participant’s employment or other service with DiaMedica or any subsidiary is
terminated prior to the end of the performance period of such award, but after the conclusion of a
portion of the performance period (but in no event less than one year), the Board of Directors may, in
its sole discretion, cause shares to be delivered or payment made with respect to the participant’s
award, but only if otherwise earned for the entire performance period and only with respect to the
portion of the applicable performance period completed at the date of such event, with proration based
on the number of months or years that the participant was employed or performed services during the
performance period.
22
Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture, or extraordinary
dividend (including a spin off) or other similar change in the corporate structure or our common shares, the
Board of Directors will make the appropriate adjustment or substitution in order to prevent dilution or
enlargement of the rights of participants. These adjustments or substitutions may be to the number and kind of
securities and property that may be available for issuance under the 2019 Plan. In order to prevent dilution or
enlargement of the rights of participants, the Board of Directors may also adjust the number, kind and exercise
price of securities or other property subject to outstanding awards.
Term, Termination and Amendment. Unless sooner terminated by the Board of Directors, the 2019 Plan will
terminate at midnight on May 21, 2029. No award will be granted after termination of the 2019 Plan, but awards
outstanding upon termination of the 2019 Plan will remain outstanding in accordance with their applicable terms
and conditions and the terms and conditions of the 2019 Plan.
Subject to certain exceptions as set forth in the 2019 Plan, the Board of Directors has the authority to terminate
and the Board of Directors has the authority to amend the 2019 Plan or any outstanding award agreement at any
time and from time to time. No termination or amendment of the 2019 Plan or an award agreement shall
adversely affect in any material way any award previously granted under the 2019 Plan without the written
consent of the participant holding such award.
Prior Stock Option Plan
The DiaMedica Therapeutics Inc. Amended and Restated Stock Option Plan (Option Plan) was adopted by the
Board of Directors on September 30, 2018 and by our shareholders on November 6, 2018. The Option Plan was
terminated with respect to future grants upon the approval by the shareholders of the 2019 Plan. Options
outstanding under the Option Plan remain outstanding in accordance with their applicable terms and conditions
and the terms and conditions of the Option Plan.
Subject to the discretion of the Board of Directors, where a person ceases to be an eligible participant under the
Option Plan, other than by reason of death or in the event of termination for cause, options granted to
participants will cease to be exercisable on the earlier of the expiry date and 90 days after the date of
termination. Subject to the discretion of the Board of Directors, if a participant is terminated for cause, all
options received will terminate and cease to be exercisable upon such termination.
In the event of any change in our outstanding common shares by reason of any stock dividend, split,
recapitalization, reclassification, amalgamation, merger, consolidation, combination or exchange of shares or
distribution of rights to holders of shares or any other form of corporate reorganization whatsoever, an equitable
adjustment will be made to the share limits in the Option Plan and any options then outstanding and the exercise
price in respect of such options.
Prior Deferred Share Unit Plan
The DiaMedica Therapeutics Inc. Deferred Share Unit Plan (DSU Plan) was adopted by the Board of Directors
on August 25, 2011 and by our shareholders on September 22, 2011. The DSU Plan was terminated with respect
to future grants upon the approval by the shareholders of the 2019 Plan. DSU awards outstanding under the DSU
Plan remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of
the DSU Plan. All DSU awards held by a recipient settle and the shares underlying such awards become issuable
only after the termination of the recipient’s employment or other service with DiaMedica.
23
Anti-Hedging and Pledging Policy
DiaMedica has determined that there is a heightened legal risk and/or the appearance of improper or
inappropriate conduct if officers, directors and employees engage in certain types of transactions in DiaMedica’s
securities that hedge or offset, or are designed to hedge or offset, any decrease in the market value of
DiaMedica’s equity securities. Therefore, DiaMedica’s Insider Trading Policy provides that officers, directors and
employees must comply with the following policies with respect to certain transactions in DiaMedica’s securities:
•
•
Short Sales. Short sales of DiaMedica’s securities evidence an expectation on the part of the seller that
the securities will decline in value, and therefore signal to the market that the seller has no confidence
in DiaMedica or its short-term prospects. In addition, short sales may reduce the seller’s incentive to
improve the Company’s performance. For these reasons, short sales of DiaMedica’s securities are
prohibited.
Publicly Traded Options. A transaction in options is, in effect, a bet on the short-term movement of
DiaMedica’s common shares and therefore creates the appearance that an officer, director or employee
is trading based on inside information. Transactions in options also may focus an officer’s, director’s or
employee’s attention on short-term performance at the expense of the Company’s long-term objectives.
Accordingly, transactions in puts, calls or other derivative securities involving DiaMedica’s equity
securities, on an exchange or in any other organized market, are prohibited.
• Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars
and forward sale contracts, allow an officer, director or employee to lock in much of the value of his or
her stock holdings, often in exchange for all or part of the potential for upside appreciation in the
stock. These transactions allow the officer, director or employee to continue to own the covered
securities, but without the full risks and rewards of ownership. When that occurs, the officer, director or
employee may no longer have the same objectives as DiaMedica’s other shareholders. Therefore, such
transactions involving DiaMedica’s equity securities are prohibited.
•
Purchases of the Company’s Securities on Margin; Pledging the Company’s Securities to Secure
Margin or Other Loans. Purchasing on margin means borrowing from a brokerage firm, bank or other
entity in order to purchase DiaMedica’s securities (other than in connection with a cashless exercise of
stock options through a broker under the Company’s equity plans). Margin purchases of DiaMedica’s
securities are prohibited. Pledging DiaMedica’s securities as collateral to secure loans is also prohibited.
This prohibition means, among other things, that directors, officers and employees cannot hold
DiaMedica’s securities in a ‘‘margin account.’’
Director Compensation
Non-Employee Director Compensation Program
Overview. Our non-employee directors currently consist of Michael Giuffre, M.D., James Parsons, and
Richard Pilnik.
We use a combination of cash and long-term equity-based incentive compensation in the form of stock option
grants to attract and retain qualified candidates to serve on the Board of Directors. In setting non-employee
director compensation, we follow the process and procedures described under ‘‘Item 10. Directors, Executive
Officers and Corporate Governance—Compensation Committee—Processes and Procedures for the
Determination of Director Compensation.’’
In April 2020, we reviewed our non-employee director compensation program in light of a benchmarking
analysis performed by our independent compensation consultant, 21-Group. The peer group used for this
benchmarking analysis was the same peer group used for the executive compensation analysis. As a result of this
review, we increased the cash retainers for our Board committee chairs and instituted new cash retainers for our
Board committee members to bring their compensation closer to our target market positioning.
24
Cash Retainers. The following table sets forth the annual cash retainers paid to our non-employee directors
during fiscal 2020:
Description
Fiscal 2020
Annual Cash
Retainer Prior to
April 1, 2020
Fiscal 2020
Annual Cash
Retainer Effective
April 1, 2020
Board Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Corporate Governance Committee Chair . . . . . . . . . . . . .
Nominating and Corporate Governance Committee Member . . . . . . . . . . .
$40,000
20,000
8,000
0
4,000
0
4,000
0
$40,000
20,000
15,000
7,500
10,000
5,000
7,500
3,750
Stock Options. During 2020, each of our non-employee directors received a stock option with a value of $45,000
and our Chairman of the Board received an additional option with a value of $20,000. Accordingly, on June 1,
2020, each of our non-employee directors received an option to purchase 13,306 common shares at an exercise
price equal to $4.64 per share and our Chairman of the Board received an additional option to
purchase 5,914 common shares at an exercise price equal to $4.64 per share. These options expire on May 31,
2030 and vest in four nearly equal quarterly installments over one year.
Deferred Stock Units or Restricted Stock Units. We provide our non-employee directors the opportunity to elect
to receive Deferred Stock Units (DSUs) or Restricted Stock Units (RSUs) in lieu of up to 100% of their annual
cash retainers payable for services to be rendered as a non-employee director, chairman and chair or member of
any board committee. Effective as of the first business day of each year (or June 1, 2020 in the case of DSU or
RSU awards applicable to the 2020 transition period or the first date as a director in the case of new directors),
each of our non-employee directors who elected to receive DSUs or RSUs in lieu of all or a portion of such
director’s annual cash retainers, were granted DSU or RSU awards under the DiaMedica Therapeutics Inc. 2019
Omnibus Incentive Plan (2019 Plan) covering that number of shares as determined based on the following
formula (rounding down to the nearest whole share):
•
•
the aggregate dollar amount of the elected portion of the annual cash retainers that otherwise would
have been payable to the non-employee director for services to be rendered as a non-employee director,
Chairman of the Board and Chair or member of any Board committee during the year (or transition or
other period, if applicable) based on such director’s Board committee memberships and Chair positions
as of the date of grant, divided by
the 10-trading day average closing sale price of our common shares, as reported by the Nasdaq Capital
Market, and as determined on the third (3rd) business day prior to the anticipated grant date of the
award.
Such DSU and RSU awards vest in four as nearly equal as possible quarterly installments, on March 31,
June 30, September 30 and December 31, in each case so long as the non-employee director is a director of the
Company as of such date. DSU awards are settled following a separation from service by such director and RSU
awards are settled immediately upon vesting or, if earlier, the death of the director.
If a non-employee director who elected to receive an DSU or RSU award in lieu of all or a portion of such
director’s annual cash retainers is no longer a director of the Company before such director’s interest in all of the
shares underlying the DSU or RSU award have vested, the director will forfeit his or her rights to receive all of
such unvested shares on the day his or her status as a director of the Company terminates. However, shares
underlying the DSU or RSU award corresponding to the elected cash retainers for such quarter in which the
director’s status changed will vest ratably for such quarter based on the number of days of service as a director
of the Company during such quarter.
If a non-employee director of the Company who elected to receive an DSU or RSU award in lieu of his or her
annual cash retainers becomes entitled to receive an increased or additional annual cash retainer during the year,
the director will receive such increased or additional annual cash retainer in cash until the director makes his or
25
her election for the following year. Conversely, if a non-employee director of the Company who elected to
receive an DSU or RSU award in lieu of such director’s annual cash retainers experiences a change in committee
membership or Chair positions prior to year end, such that the aggregate amount of annual cash retainers for the
year to which the director is entitled is less than the aggregate amount used to calculate the director’s most
recent DSU or RSU award, the director will forfeit effective as of such change his or her rights to receive the
corresponding portion of the shares underlying such DSU or RSU award; provided, however, that in the event
the director elected to receive only a portion of his or her cash retainers in the form of an DSU or RSU award,
the amount of cash retainers to be received will be reduced first. In addition, in the event shares underlying the
DSU or RSU award are forfeited, the vesting of the DSU or RSU award will be revised accordingly as of the
date of such change.
Director Compensation Table
The table below provides summary information concerning the compensation of each individual who served as a
director of our company during the fiscal year ended December 31, 2020, other than Rick Pauls, our President
and Chief Executive Officer, who was not compensated separately for serving on the Board of Directors during
fiscal 2020. His compensation during fiscal 2020 for serving as an executive officer of our company is set
forth under ‘‘—Executive Compensation Overview’’ and ‘‘—Summary Compensation Table.’’
Name
Michael Giuffre, M.D.
. . . . . . . . . . . . . . . . . . .
James Parsons. . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard Pilnik. . . . . . . . . . . . . . . . . . . . . . . . . . .
Zhenyu Xiao, Ph.D.(5) . . . . . . . . . . . . . . . . . . . .
Fees Earned
or Paid in
Cash(1)
$56,938
59,813
76,000
16,904
Option
Awards(2)(3)
Stock
Awards(4)
All Other
Compensation
$45,294
45,294
65,425
—
$389
405
513
—
$—
—
—
—
Total
$102,621
105,512
141,938
16,904
(1)
The following directors elected to receive DSUs for part of their retainers: Giuffre ($35,729 was paid in the form of 7,784 DSUs);
Parsons ($37,188 was paid in the form of 8,102 DSUs); and Pilnik ($46,667 was paid in the form of 10,168 DSUs).
(2) Amounts reflect the grant date fair value for option awards granted to each non-employee director computed in accordance with FASB
ASC Topic 718.
(3)
(4)
The following directors held the following option awards as of December 31, 2020: Giuffre (57,506 options); Parsons (51,256 options);
and Pilnik (96,670 options).
Represents the difference between the grant date fair value of the DSUs received by the director, using the grant date fair value of
$4.64 per share, and the dollar amount of retainers used to calculate the number of DSUs, using an average stock price of
$4.59 per share.
(5)
Zhenyu Xiao, Ph.D. served as a director until the 2020 Annual General Meeting of Shareholders held on June 2, 2020.
Indemnification
Our Articles provide that subject to British Columbia’s Business Corporations Act (BCBCA), we will indemnify
a director or a former director (each an ‘‘eligible party’’) and his or her heirs and legal representatives, against all
eligible penalties to which such person is liable. The Company must pay the expenses actually and reasonably
incurred by such person in respect of any eligible proceeding either as they are incurred in advance of the final
disposition of the proceeding or after the final disposition of a proceeding. Our Articles define an ‘‘eligible
penalty’’ as a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible
proceeding. Our Articles define an ‘‘eligible proceeding’’ as a legal proceeding or investigative action, whether
current, threatened, pending or completed, in which an eligible party or any of the heirs and legal personal
representatives of the eligible party, by reason of the eligible party being or having been a director of the
Company: (i) is or may be joined as a party; or (ii) is or may be liable for or in respect of a judgment, penalty
or fine in, or expenses related to, the proceeding.
We entered into indemnification agreements with all of our directors, which are nearly identical to the
indemnification agreements with our executive officers as described under ‘‘—Executive Compensation
Overview—Indemnification Agreements.’’
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to
which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.
26
Insofar as indemnification for liabilities arising under the United States Securities Act of 1933, as amended
(Securities Act) may be permitted to directors, executive officers or persons controlling us, we have been
informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
27
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Security Ownership of Significant Beneficial Owners
The table below sets forth information as to entities that have reported to the Securities and Exchange
Commission (SEC) or have otherwise advised us that they are a beneficial owner, as defined by the SEC’s rules
and regulations, of more than five percent of our common shares.
Title of Class
Common Shares. . . . . . . . . . . . . . . . . . . . . . .
Name and Address of
Beneficial Owner
Stonepine Capital Management, LLC
919 NW Bond Street, Suite 204
Bend, OR 97703-2767
Nantahala Capital Management
Amount and
Nature of
Beneficial
Ownership
950,000(2)
Percent of
Class(1)
5.1%
(1)
(2)
Percent of class is based on 18,786,157 shares outstanding as of April 26, 2021.
Based solely on information contained in a Schedule 13G of Stonepine Capital Management, LLC filed with the SEC on February 12,
2021, reflecting beneficial ownership as of December 31, 2020. Stonepine Capital Management, LLC (GP) is the record owner of
950,000 shares. The GP is the general partner and investment advisor of investment funds, including Stonepine Capital, L.P. (LP),
Jon M. Plexico and Timothy P. Lynch are the control persons of the GP. The GP, LP, Mr. Plexico and Mr. Lynch filed their Schedule
13G jointly, but not as members of a group, and each disclaims membership in a group. Each of the GP, LP, Mr. Plexico and
Mr. Lynch disclaim beneficial ownership of these shares, except to the extent of that person’s pecuniary interest therein.
Security Ownership of Management
The table below sets forth information known to us regarding the beneficial ownership of our common shares as
of April 26, 2021,by:
•
•
•
each of our current directors;
each of the individuals named in the Summary Compensation Table under ‘‘Item 11. Executive
Compensation—Summary Compensation Table’’; and
all of our current directors and executive officers as a group.
To our knowledge, each person named in the table has sole voting and investment power with respect to all of
the securities shown as beneficially owned by such person, as determined by the rules of the SEC, except as
otherwise set forth in the notes to the table and subject to community property laws, where applicable. The SEC
has defined ‘‘beneficial’’ ownership of a security to mean the possession, directly or indirectly, of voting power
and/or investment power. A shareholder is also deemed to be, as of any date, the beneficial owner of all
securities that such shareholder has the right to acquire within 60 days after that date through (i) the exercise of
any option, warrant or right; (ii) the conversion of a security; (iii) the power to revoke a trust, discretionary
account or similar arrangement; or (iv) the automatic termination of a trust, discretionary account or similar
arrangement. However, such unissued shares of common shares are not deemed to be outstanding for calculating
the percentage of common shares owned by any other person.
28
Unless otherwise indicated below, the address for each beneficial owner listed is c/o DiaMedica Therapeutics
Inc., Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447.
Title of Class
Name of Beneficial Owner
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Common Shares
Richard Pilnik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Giuffre, M.D.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James Parsons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D. . . . . . . . . . . . . . . . . . . . . . . . . .
All current directors and executive officers as a group
(7 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount and
Nature of
Beneficial
Ownership(1)
Percent of
Class(2)
149,760
234,585(3)
53,506
527,722
173,957
169,927
*
1.2%
*
2.7%
*
*
1,340,290
6.8%
*
(1)
(2)
(3)
Represents beneficial ownership of less than one percent.
Includes for the persons listed below the following shares subject to options held by such persons that are currently exercisable or
become exercisable within 60 days of April 26, 2021:
Name
Directors
Richard Pilnik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Giuffre, M.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James Parsons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name Executive Officers
Rick Pauls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Kellen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harry Alcorn, Jr., Pharm.D.
Shares Underlying
Stock Options
96,670
57,506
51,256
498,667
498,667
161,667
161,667
All current directors and executive officers as a group (7 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,058,266
Excludes the following common shares issuable upon the settlement of deferred share unit awards, which will be settled after the
holder’s employment or service relationship with DiaMedica terminates: Mr. Pilnik (27,475 shares); Mr. Pauls (1,749 shares);
Dr. Giuffre (19,371 shares); and Mr. Parsons (19,697 shares).
Percent of class is based on 18,786,157 shares outstanding as of April 26, 2021.
Includes: (i) 5,165 shares held by 424822 Alberta Ltd, over which Dr. Giuffre has sole voting and dispositive power , (ii) 36,498 shares
Dr. Giuffre and his wife hold jointly, (iii) 54,186 shares held by Dr. Giuffre’s sons and daughters, (iv) 21,070 common shares held by
Dr. Giuffre’s wife and (v) 60,160 shares held directly by Dr. Giuffre.
29
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes outstanding options and other awards under our equity compensation plans as of
December 31, 2020. Our equity compensation plans as of December 31, 2020 were the DiaMedica Therapeutics
Inc. 2019 Omnibus Incentive Plan (2019 Plan), the DiaMedica Therapeutics Inc. Stock Option Plan, Amended
and Restated November 6, 2018 (Prior Plan) and the DiaMedica Therapeutics Inc. Amended and Restated
Deferred Share Unit Plan (DSU Plan).
Equity Compensation Plan Information
(a)
(b)
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
column (a))
1,436,803(1)
$5.24(2)
1,099,098(3)
—
1,436,803(1)
$ —
$5.24(2)
—
1,099,098(3)
Plan Category
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Amount includes 873,182 common shares issuable upon the exercise of stock options and 26,054 common shares issuable upon the
settlement of DSU awards outstanding under the 2019 Plan, 516,384 common shares issuable upon the exercise of stock options under
the Prior Plan and 21,183 common shares issuable under the DSU Plan.
(2) Not included in the weighted-average exercise price calculation are 26,054 deferred share unit awards under the 2019 Plan and
21,183 deferred share unit awards under the DSU Plan.
(3) Amount includes 1,099,098 shares remaining available for future issuance under the 2019 Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Introduction
Below under ‘‘—Description of Related Party Transactions’’ is a description of transactions that have occurred
during the past fiscal year, or any currently proposed transactions, to which we were or are a participant and in
which:
•
•
the amounts involved exceeded or will exceed the lesser of: $120,000 or one percent (1%) of the
average of our total assets at year end for the last two completed fiscal years; and
a related person (including any director, director nominee, executive officer, holder of more than 5% of
our common shares or any member of their immediate family) had or will have a direct or indirect
material interest.
Description of Related Party Transactions
Agreement with Trident Rx Consulting Services LLC
We have engaged the services of Trident Rx Consulting Services LLC, a limited liability company owned by
Dr. Sydney Gilman, our Vice President of Regulatory Affairs, to perform regulatory consulting services for us.
The fees we pay are based solely on the hourly fees of the consultants performing services for us. There is no
markup received by Dr. Gilman. During 2020, we paid $235,143 to Trident Rx Consulting Services LLC under
this arrangement. The Audit Committee reviewed the purpose of the transaction, the benefits of the transaction,
the availability of other sources for comparable services, the terms of the transaction, and the terms available to
unrelated third parties or employees generally and determined in good faith that the transaction is in, and not
inconsistent with, the best interests of the Company.
Relationship with Hermeda Industrial Co., Limited
We and Hermeda Industrial Co., Limited (Hermeda) were parties to an investment agreement, which included
terms relating to the composition of the Board of Directors. Under director nomination provisions of this
agreement, Hermeda had the right to designate a representative to be nominated to the Board of Directors for so
30
long as Hermeda beneficially owned at least 10% of our outstanding common shares on a non-diluted basis, and
we agreed to use our reasonable best efforts to cause the Hermeda designee to be elected. Zhenyu Xiao, Ph.D., a
former director who did not stand for re-election at our 2020 Annual General Meeting, was the designee of
Hermeda under the investment agreement. Currently Hermeda beneficially owns less than five percent of our
outstanding common shares.
Indemnification Agreements
We have entered into indemnification agreements with all of our directors and executive officers. The
indemnification agreements provide, among other things, for indemnification, to the fullest extent permitted by
law and our Articles, against any and all expenses (including attorneys’ fees) and liabilities, judgments, fines and
amounts paid in settlement that are paid or incurred by the executive or on his or her behalf in connection with
such action, suit or proceeding. The indemnification agreements also set forth procedures that apply in the event
an executive requests indemnification or an expense advance. For more information regarding these agreements,
see ‘‘Item 11. Executive Compensation—Director Compensation—Indemnification.’’
DiaMedica has not identified any arrangements or agreements relating to compensation provided by a third party
to DiaMedica’s directors or director nominees in connection with their candidacy or board service as required to
be disclosed pursuant to Nasdaq Rule 5250(b)(3).
Policies and Procedures for Related Party Transactions
The Board of Directors has delegated to the Audit Committee, pursuant to the terms of a written policy and the
formal written charter of the Audit Committee, the authority to review, approve and ratify related party
transactions. If it is not feasible for the Audit Committee to take an action with respect to a proposed related
party transaction, the Board of Directors or another committee, may approve or ratify it. No member of the
Board of Directors or any committee may participate in any review, consideration or approval of any related
party transaction with respect to which such member or any of his or her immediate family members is the
related party.
Our policy defines a ‘‘related party transaction’’ as a transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which we (including any of our subsidiaries and affiliates)
were, are or will be a participant and in which any related party had, has or will have a direct or indirect interest
(other than solely as a result of being a director or less than 10 percent beneficial owner of another entity).
Prior to entering into or amending any related party transaction, the party involved must provide notice to our
Chief Financial Officer of the facts and circumstances of the proposed transaction, including:
•
•
•
•
•
the related party’s relationship to us and his or her interest in the transaction;
the material facts of the proposed related party transaction, including the proposed aggregate value of
such transaction or, in the case of indebtedness, the amount of principal that would be involved;
the purpose and benefits of the proposed related party transaction with respect to us;
if applicable, the availability of other sources of comparable products or services; and
an assessment of whether the proposed related party transaction is on terms that are comparable to the
terms available to an unrelated third party or to employees generally.
If the Chief Financial Officer determines the proposed transaction is a related party transaction in which the
amount involved will or may be expected to exceed $10,000 in any calendar year, the proposed transaction will
be submitted to the Audit Committee for consideration. In determining whether to approve a proposed related
party transaction, the Audit Committee, or where submitted to the Chair of the Audit Committee, the Chair of the
Audit Committee, will consider, among other things, the following:
•
•
•
the purpose of the transaction;
the benefits of the transaction to us;
the impact on a director’s independence in the event the related party is a non-employee director, an
immediate family member of a non-employee director or an entity in which a non-employee director is
a partner, shareholder or executive officer;
31
•
•
•
the availability of other sources for comparable products or services;
the terms of the transaction; and
the terms available to unrelated third parties or to employees generally.
Under our policy, certain related party transactions as defined under our policy will be deemed to be
pre-approved by the Audit Committee and will not be subject to these procedures.
Director Independence
The Board of Directors has affirmatively determined that three of DiaMedica’s current four directors are
‘‘independent directors’’ under the Nasdaq Listing Rules: Richard Pilnik, Michael Giuffre, M.D. and James
Parsons. In making these affirmative determinations that such individuals are ‘‘independent directors,’’ the Board
of Directors reviewed and discussed information provided by the directors and by DiaMedica with regard to each
director’s business and personal activities as they may relate to DiaMedica and our management.
Item 14.
Principal Accounting Fees and Services
Audit, Audit-Related, Tax and Other Fees
The following table presents the aggregate fees billed to us by Baker Tilly US, LLP for the fiscal years ended
December 31, 2020 and December 31, 2019.
Aggregate Amount Billed by
Baker Tilly US, LLP ($)
Fiscal 2020
Fiscal 2019
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$111,500
73,500
—
—
$106,500
6,500
—
—
(1)
(2)
These fees consisted of the audit of our annual consolidated financial statements for fiscal 2020 and 2019, review of quarterly
consolidated financial statements and other services normally provided in connection with statutory and regulatory filings or
engagements.
These fees consisted of the review of our registration statement on Form S-3 in 2020 and registration statements on Form S-8 and
Form S-3 in 2019 and related services normally provided in connection with statutory and regulatory filings or engagements.
Audit Committee Pre-Approval Policies and Procedures
All services rendered by Baker Tilly US, LLP to DiaMedica were permissible under applicable laws and
regulations and all services provided to DiaMedica, other than de minimis non-audit services allowed under
applicable law, were approved in advance by the Audit Committee. The Audit Committee’s formal written charter
requires the Audit Committee to pre-approve all auditing services and permitted non-audit services, including
fees for such services. In accordance with applicable law, the Audit Committee may delegate to one or more
designated members of the Audit Committee the authority to grant the required pre-approvals, provided that the
decisions of any member(s) to whom such authority is delegated to pre-approve an activity shall be presented to
the full Audit Committee at its next regularly scheduled meeting. The Audit Committee has delegated to the
Audit Committee Chair the authority to grant the required pre-approvals for any engagement that does not
exceed $25,000.
32
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
PART IV
Our consolidated financial statements are included in ‘‘Part II, Item 8. Financial Statements and Supplementary
Data.’’
Financial Statement Schedules
All financial statement schedules are omitted because they are inapplicable since we are a smaller reporting
company.
Exhibits
The exhibits being filed or furnished with this report are listed below, along with an indication as to each
management contract or compensatory plan or arrangement.
A copy of any of the exhibits listed or referred to herein will be furnished at a reasonable cost to any person
who is a shareholder upon receipt from any such person of a written request for any such exhibit. Such request
should be sent to: Mr. Scott Kellen, Chief Financial Officer and Corporate Secretary, DiaMedica Therapeutics
Inc., Two Carlson Parkway, Suite 260, Minneapolis, Minnesota 55447, Attn: Shareholder Information.
Item No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Item
Method of Filing
Notice of Articles of DiaMedica Therapeutics
Inc. dated May 31, 2019
Articles of DiaMedica Therapeutics Inc. dated
May 31, 2019
Description of Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of
1934
Specimen Certificate representing Voting
Common Shares of DiaMedica Therapeutics Inc.
Warrant dated December 11, 2018 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
Warrant dated October 1, 2019 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
Warrant dated September 11, 2020 issued by
DiaMedica Therapeutics Inc. to Craig-Hallum
Capital Group LLC
Incorporated by reference to Exhibit 3.1 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 4, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 3.2 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 4, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 4.8 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Incorporated by reference to Exhibit 4.2 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 4, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on December 11, 2018 (File No.
001-36291)
Incorporated by reference to Exhibit 4.8 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 4.1 to
DiaMedica’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2020
(File No. 001-36291)
33
Item
Method of Filing
Item No.
10.1#
10.2#
10.3#
10.4#
DiaMedica Therapeutics Inc. 2019 Omnibus
Incentive Plan
Form of Option Award Agreement under the
DiaMedica Therapeutics Inc. 2019 Omnibus
Incentive Plan
Form of Restricted Stock Unit Award Agreement
under the DiaMedica Therapeutics Inc. 2019
Omnibus Incentive Plan
Form of Deferred Stock Unit Award Agreement
under the DiaMedica Therapeutics Inc. 2019
Omnibus Incentive Plan
10.5#
DiaMedica Therapeutics Inc. Stock Option Plan
Amended and Restated November 6, 2018
10.6#
10.7#
Form of Option Agreement under the DiaMedica
Therapeutics Inc. Stock Option Plan Amended
and Restated November 6, 2018
Form of Option Agreement under the DiaMedica
Therapeutics Inc. Stock Option Plan Amended
and Restated December 21, 2017
10.8#
DiaMedica Therapeutics Inc. Amended and
Restated Deferred Share Unit Plan
10.9#
DiaMedica Therapeutics Inc. Short-Term
Incentive Plan
10.10#
Form of Indemnification Agreement between
DiaMedica Therapeutics Inc. and Each Director
and Officer
34
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on May 23, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 10.2 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 21, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 10.3 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 21, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2020 (File
No. 001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.3 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.2 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.4 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 21, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 10.1 to
DiaMedica’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on June 4, 2019 (File No.
001-36291)
Item
Method of Filing
Item No.
10.11#
10.12#
10.13#
10.14
10.15
10.16
10.17
Employment Agreement effective as of
September 12, 2018 between DiaMedica USA,
Inc. and Rick Pauls
Employment Agreement effective as of
September 12, 2018 between DiaMedica USA,
Inc. and Scott Kellen
Employment Agreement effective as of
September 12, 2018 between DiaMedica USA,
Inc. and Harry Alcorn, Ph.D.
Two Carlson Parkway Office Lease dated
September 18, 2015 between One Two Holding
LLC and DiaMedica USA Inc.
Supplemental to Lease Agreement dated
December 16, 2015 between One Two Holding
LLC and DiaMedica USA Inc.
First Amendment to Lease dated May 3, 2017
between One Two Holding LLC and DiaMedica
USA Inc.
Second Amendment to Lease dated September 5,
2017 between One Two Holding LLC and
DiaMedica USA Inc.
10.18(1)
GPEx® - Derived Cell Line Sale Agreement
dated February 2, 2012 between DiaMedica
Therapeutics Inc. and Catalent Pharma Solutions,
LLC
10.19
10.20
21.1
First Amendment to GPEx® Development and
Manufacturing Agreement dated April 10, 2017
between DiaMedica Therapeutics Inc. and
Catalent Pharma Solutions, LLC
Second Amendment to GPEx® Development and
Manufacturing Agreement dated as of
October 22, 2018 between DiaMedica
Therapeutics Inc. and Catalent Pharma Solutions,
LLC
Subsidiaries of DiaMedica Therapeutics Inc.
35
Incorporated by reference to Exhibit 10.6 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.7 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2018 (File No.
001-36291)
Incorporated by reference to Exhibit 10.9 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2018 (File No.
001-36291)
Incorporated by reference to Exhibit 10.8 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.9 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.10 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.11 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.12 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.13 to
DiaMedica’s Registration Statement on Form S-1
as filed with the Securities and Exchange
Commission on November 9, 2018 (File No.
333-228313)
Incorporated by reference to Exhibit 10.19 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2019 (File No.
001-36291)
Incorporated by reference to Exhibit 21.1 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2019 (File No.
001-36291)
Method of Filing
Incorporated by reference to Exhibit 23.1 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Incorporated by reference to Exhibit 31.1 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Incorporated by reference to Exhibit 31.2 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Filed herewith
Filed herewith
Incorporated by reference to Exhibit 32.1 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Incorporated by reference to Exhibit 32.2 to
DiaMedica’s Annual Report on Form 10-K for
the year ended December 31, 2020 (File No.
001-36291)
Previously filed
Item No.
Item
23.1
Consent of Baker Tilly US, LLP
Certification of President and Chief Executive
Officer Pursuant to SEC Rule 13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant
to SEC Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of President and Chief Executive
Officer Pursuant to SEC Rule 13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant
to SEC Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of President and Chief Executive
Officer Pursuant to Rule 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant
to Rule 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
The following materials from DiaMedica
Therapeutics Inc.’s Annual Report on Form 10-K
for the year ended December 31, 2020, formatted
in XBRL (Extensible Business Reporting
Language): (i) the Consolidated Balance Sheets,
(ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statements of
Comprehensive Income (Loss), (iv) the
Consolidated Statements of Equity, (v) the
Consolidated Statements of Cash Flows, and
(vi) Notes to Consolidated Financial Statements
31.1
31.2
31.3
31.4
32.1
32.2
101
#
(1)
Indicates a management contract or compensatory plan or arrangement.
Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under Rule 406 of the United
States Securities Act of 1933, as amended (File No. 333-228313, CF #36833). The redacted material was filed separately with the
Securities and Exchange Commission.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this Amendment No. 1 to its Annual Report on Form 10-K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIAMEDICA THERAPEUTICS INC.
Date: April 29, 2021
By:
/s/ Rick Pauls
Rick Pauls
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to its Annual Report
on Form 10-K/A has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Name
Title
President, Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer and Secretary
(principal financial and accounting officer)
Date
April 29, 2021
April 29, 2021
Chairman of the Board
April 29, 2021
/s/ Rick Pauls
Rick Pauls
/s/ Scott Kellen
Scott Kellen
/s/ Richard Pilnik
Richard Pilnik
/s/ Michael Giuffre, M.D.
Director
Michael Giuffre, M.D.
/s/ James Parsons
James Parsons
Director
April 29, 2021
April 29, 2021
37
[page intentionally left blank]
BOARD OF DIRECTORS
PROFESSIONAL
SERVICE PROVIDERS
SHARE INFORMATION
Our voting common shares are
traded on The Nasdaq Capital
Market under the symbol “DMAC.”
ANNUAL GENERAL MEETING
The Annual General Meeting of our
shareholders will be held on
Thursday, July 15, 2021,
beginning at 2:30 p.m., Central
Daylight Savings Time, at the
offices of:
DiaMedica Therapeutics Inc.
Two Carlson Parkway
Suite 260
Minneapolis, MN 55447
Richard Pilnik
Chairman of the Board
Michael Giuffre, M.D.
Clinical Professor of Cardiac Sciences
and Pediatrics
University of Calgary
James Parsons
Chief Financial Officer and Corporate
Secretary
Trillium Therapeutics Inc.
Rick Pauls
President and Chief Executive Officer
DiaMedica Therapeutics Inc.
EXECUTIVE OFFICERS
Rick Pauls
President and Chief Executive Officer
Harry Alcorn Jr., PharmD
Chief Medical Officer
Scott Kellen
Chief Financial Officer and Corporate
Secretary
Sydney Gilman, Ph.D.
VP, Regulatory Affairs
Independent Auditors
Baker Tilly US, LLP
225 South Sixth Street
Suite 2300
Minneapolis, MN 55402
Legal Counsel
Fox Rothschild LLP
Two22 Building
Suite 2000
222 South Ninth Street
Minneapolis, MN 55402
Pushor Mitchell LLP
301 – 1665 Ellis Street
Kelowna, BC V1Y 2B3
Canada
Patent Counsel
Cooley LLP
1700 Seventh Avenue
Suite 1900
Seattle, WA 98101
Transfer Agent and Registrar
Computershare Investor Services
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Canada
800.564.6253
+1 (514) 982 7555
service@computershare.com
DiaMedica Therapeutics Inc.
Two Carlson Parkway, Ste 260
Minneapolis, MN 55447
+1.763.479.1196 Phone
www.diamedica.com
bd@diamedica.com