DiaMedica Therapeutics, a clinical-stage biopharmaceutical company focused on acute ischemic stroke treatments, recently released their Q1 2024 earnings transcript, detailing progress on their pivotal ReMEDy2 trial. While the overall tone was positive, highlighting site activations and the first participant dosed since restarting the trial, a curious narrative emerged: delays attributed to lingering "COVID effects." This explanation, while seemingly plausible on the surface, warrants a deeper examination.

Management, specifically Scott Kellen, the CFO, cited "reduced staff" and "slower response times" at academic institutions as contributing factors to the activation delays, framing it as a lingering consequence of the pandemic. While acknowledging the pandemic's undeniable impact on healthcare systems, attributing delays solely to COVID three years after its peak feels like a convenient scapegoat.

The transcript itself reveals a more nuanced story. The delay, specifically a one-quarter lag in Canadian site activation, is attributed to a "paperwork timing issue." DiaMedica needs official support from the Canadian Stroke Consortium, a process requiring site identification and regulatory submissions, before requesting clearance to begin. This suggests a reliance on external stakeholders and a sequential process, which, by nature, is susceptible to time lags.

Furthermore, the transcript reveals a strategic shift in DiaMedica's approach to site selection, prioritizing "high-enrolling top-tier stroke sites" over quantity. This shift, while positive in the long run, likely contributes to the delay in the short term, as these prestigious institutions have more stringent due diligence processes and a larger volume of research proposals to assess.

Looking Beyond the Narrative: A Potential Hypothesis

Is DiaMedica intentionally slowing down site activations to manage cash burn and extend their runway?

Consider this: DiaMedica reported a cash runway extending to 2026. Based on their Q4 2023 filing, their cash and investments stood at $52.9 million, with an annual cash burn of $18.7 million. A simple projection suggests they could reach a critical cash point in 2025, precisely when the interim analysis data readout is expected.

By strategically managing the pace of site activations, DiaMedica can optimize cash flow, potentially delaying the need for further fundraising until after the interim analysis results. Positive results would significantly bolster their negotiating position for future financings, allowing them to secure more favorable terms and minimize dilution.

Evidence from the Transcripts

This hypothesis, while speculative, is supported by subtle cues in the transcript. While acknowledging a slight shortfall in short-term activation targets, management emphasizes a focus on "quality sites that are considered high enrollers," suggesting a deliberate selection process aimed at maximizing enrollment efficiency and minimizing unnecessary expenditure.

Furthermore, the decision to pursue an appeal in their lawsuit against PRA, despite securing capped and contingent fee arrangements to limit costs, indicates a willingness to pursue strategic objectives, even if they initially appear costly.

Projected Cash Runway

Note: This projection assumes a consistent quarterly cash burn rate based on the annual cash burn reported in the Q4 2023 filing. Actual cash burn may vary.

Conclusion

The narrative of "COVID delays," while factually correct, may be masking a more strategic approach by DiaMedica. Investors should look beyond the surface explanations and consider the underlying financial dynamics. The interim analysis in 2025 will be a pivotal moment, not just for the clinical efficacy of DM199, but also for DiaMedica's ability to navigate the complex financial landscape of biotech development.

"Fun Fact: The human brain uses about 20% of the body's total oxygen supply, making cerebral blood flow crucial for brain function. DiaMedica's DM199 aims to improve this blood flow in stroke patients, potentially leading to better recovery outcomes."