Minnesota-based, DiaMedica Therapeutics is a biopharmaceutical company designing novel recombinant (synthetic) proteins to treat acute ischemic stroke, chronic kidney disease, and Vascular Dementia.
The company’s lead product candidate, DM199, is at Phase 2 of development for the treatment of acute ischemic stroke and at Phase 1b of development for the treatment of chronic kidney disease. Additionally, the company intends to initiate a Phase 2 for the treatment of Vascular Dementia once the Phase 2 for acute ischemic stroke is completed. The pipeline is shown below:
Source: Company’s Website
Investors should be ready to assess the information to be released in Q4 2019 or Q1 2020. If the results from the Phase 2 clinical trial are beneficial, the share price could increase.
On the top of it, the company’s target market does not seem small. Each year, approximately 15 million people worldwide suffer a stroke, of which 5.0 million will die and 5.0 million will be permanently disabled. With this in mind, if the FDA approves the treatment of DiaMedica Therapeutics, expected renueves should be large. At $4.5, the company’s expected market capitalization is not larger than $55 million. It does not seem a lot for a company that could change the lives of 15 million people every year.
The company’s financial situation seems solid. DiaMedica Therapeutics expects to have $20 million in cash after the IPO and holds no financial debt. With this in mind, the company seems well prepared to complete its Phase 2 without issuing more equity. The market should really appreciate this feature.
Regarding the cash flow, DiaMedica Therapeutics burns a lot of cash each year. According to the prospectus, CFO was equal to -$3.9 million and -$2.9 million in 2017 and 2016 respectively. If CFO is $3 million, with $20 million in cash, DiaMedica Therapeutics will have financing to continue its research for many years.
What will happen if the results are not satisfactory in Q4 2019? If the Phase 2 for the treatment of acute ischemic stroke is not successful, the share price should decline. The share price may go to a price mark equal to the cash per share, which is expected to be $1.69 after the IPO goes live. Additionally, the company may raise further equity to finance its future development, which could lead to share price depreciation. That’s the biggest risk on this name.
Disclosure: We hold no position in DiaMedica Therapeutics either long or short and we have not been compensated for this article.