DiaMedica Inc. (TSX VENTURE: DMA) ("DiaMedica" or the "Company"), a
biopharmaceutical company that has discovered and is developing a
novel approach to treating diabetes, today announced that, further
to its non-binding letter of intent to acquire all of the issued
and outstanding shares of Sanomune Inc. ("Sanomune") announced
December 1, 2009, it has now entered into a definitive share
exchange agreement (the "Share Exchange Agreement") with all of the
shareholders of Sanomune.
Pursuant to the terms of the Share Exchange Agreement, DiaMedica
has agreed to acquire from the Sanomune shareholders all of the
issued and outstanding shares of Sanomune at closing (the "Proposed
Transaction"), being a total of 3,751,463 common shares of Sanomune
(each a "Sanomune Common Share") and 20,998,317 preference shares
of Sanomune (each a "Sanomune Preference Share") on the basis of
0.517 of a DiaMedica Common Share for each Sanomune Common Share
and 0.517 of a DiaMedica Common Share for each Sanomune Preference
Share.
As a result of the Proposed Transaction, a total of 12,806,377
DiaMedica Common Shares will be issued to the current Sanomune
shareholders, representing approximately 40% of the issued and
outstanding DiaMedica Common Shares post-closing, and Sanomune will
become a wholly-owned subsidiary of DiaMedica. Following completion
of the Proposed Transaction, it is expected that there will be a
total of 32,015,943 DiaMedica Common Shares issued and
outstanding.
Approval of the Share Exchange Agreement and the terms of the
Proposed Transaction from the board of directors of DiaMedica,
including the unanimous approval of the independent directors, was
received on February 18, 2010.
Completion of the Proposed Transaction is subject to certain
conditions, including receipt of necessary TSX-V and regulatory
approvals (including the exemptive relief described below),
approval of DiaMedica shareholders (including the disinterested
minority shareholder approval described below), completion of
satisfactory due diligence and completion of definitive legal
documentation, among others. It is also a condition of closing of
the Proposed Transaction that the Sanomune shareholders place the
DiaMedica Common Shares received by them in exchange for Sanomune
Common Shares into escrow for a period of three years following
closing, and the DiaMedica Common Shares received by them in
exchange for Sanomune Preference Shares into escrow for a period of
four months following closing. Subject to the satisfaction of such
conditions, the Proposed Transaction is scheduled to close on or
about March 15, 2010.
Background to the Proposed Transaction
Sanomune's lead compound, SAN-61, for the treatment of
Alzheimer's disease, has demonstrated neural protection (protects
brain cells) as well as the ability to trigger neural stem cell
proliferation (generates new brain cells). In Alzheimer's
transgenic mice treated with SAN-61, research indicates a
restoration of neurogenesis to near normal/wild-type levels. The
compound also exhibits potent protection against a variety of in
vitro challenges such as amyloid beta peptide, hydrogen peroxide
and oxygen/glucose deprivation including up to an 80% reduction of
neuronal cell death in an Alzheimer's amyloid toxic challenge.
Together, the data suggests SAN-61 could protect and regenerate
brain tissue and therefore may represent a promising agent for the
treatment of neurodegenerative diseases. Previous studies have
demonstrated that SAN-61 has a statistically significant and
measurable effect on EEG patterns (a marker of cognitive function)
in dementia patients. SAN-61 has received regulatory clearance to
enter a phase II clinical trial for Alzheimer's disease.
DiaMedica believes the Proposed Transaction will allow it to
strategically connect the common base technologies of the two
companies, while taking advantage of cost synergies. Following
completion of the Proposed Transaction, DiaMedica's initial
neurological focus will be on Alzheimer's and Huntington's
diseases, with the possibility of expanding into autoimmune
disorders such as rheumatoid arthritis and type I diabetes.
Concurrently, DiaMedica will be advancing its small molecule,
DM-71, for type II diabetes.
As a result of the Proposed Transaction, DiaMedica will also
acquire Sanomune's panel of monoclonal antibodies (mAbs) that
triggers the inhibition of glycogen synthetase kinase 3 beta
(GSK3B) in vitro. GSK3B has been linked to diabetes, cancer and a
variety of neurological disorders such as Alzheimer's and
Huntington's diseases. This panel of mAbs is currently being tested
at leading institutions around the world for these and other
indications. The mAbs program will complement DiaMedica's core
DM-199 program, which has also been shown to have GSK3B inhibiting
activity as a potential follow-on product line.
MI 61-101 and Minority Shareholder Approval
The Proposed Transaction falls within the definition of "related
party transaction", as set out in Multilateral Instrument 61-101 -
Protection of Minority Security Holders in Special Transactions
("MI 61-101"), as, at the date that the Proposed Transaction was
agreed to, certain parties to the transaction were "related
parties" (within the meaning of MI 61-101) of DiaMedica and
Sanomune. More specifically, CentreStone Ventures Limited
Partnership ("CentreStone LP") and its general partner, CentreStone
Ventures Inc. ("CentreStone GP"), are each a "control person" of
both DiaMedica and Sanomune, Genesys Ventures Inc. ("Genesys") is a
promoter of both DiaMedica and Sanomune, and Mr. Eric Johnstone,
DiaMedica's Vice-President, Finance, is also a shareholder of
Sanomune. The following table sets out the number of Sanomune
Common Shares, Sanomune Preference Shares and DiaMedica Common
Shares which will be held by CentreStone LP, CentreStone GP,
Genesys and Mr. Johnstone immediately prior to completion of the
Proposed Transaction, as well as the number of DiaMedica Common
Shares to be issued to CentreStone LP, CentreStone GP, Genesys and
Mr. Johnstone as a result of the Proposed Transaction, and the
number of DiaMedica Common Shares which will be held by CentreStone
LP, CentreStone GP, Genesys and Mr. Johnstone upon completion of
the Proposed Transaction:
DiaMedica
Common
Shares DiaMedica
to be Common
issued Shares
upon compl- held
etion of following
Sanomune Sanomune Proposed comple-
Common Preference Total DiaMedica Transaction tion of
shares Shares Sanomune Common (% Proposed
held held shares Shares held of total Transac-
(% of (% of held (% (% of DiaMedica tion (%
total total of total Common of total
Sanomune Sanomune total DiaMedica Shares DiaMedica
Related Common Preference Sanomune Common to be Common
Party Shares) Shares) shares) Shares) issued) Shares)
----------------------------------------------------------------------------
CentreStone 99 99 51 51
GP (0.003%) nil (0.0004%) nil (0.0004%) (0.0002%)
CentreStone 14,798,444 14,798,444 4,316,600 7,657,373 11,973,973
LP nil (70.47%) (59.79%) (22.47%) (59.79%) (37.40%)
Genesys 2,642,578 2,642,578 1,176,923 1,367,388 2,544,311
(70.50%) nil (10.68%) (6.13%) (10.68%) (7.95%)
E. 87,445 87,445 45,248 45,248
Johnstone nil (0.42%) (0.35%) nil (0.35%) (0.14%)
----------------------------------------------------------------------------
TOTAL: 2,642,677 14,885,889 17,528,566 5,493,523 9,070,060 14,563,583
(70.44%) (70.89%) (70.82%) (28.60%) (70.82%) (45.49%)
MI 61-101 provides that, in the absence of any applicable
exemptions, related party transactions, such as the Proposed
Transaction, will be subject to the formal valuation requirements
of Section 5.4 of MI 61-101 and the minority approval requirements
of Section 5.6 of MI 61-101.
Formal Valuation
Implementation of the Proposed Transaction is exempt from the
formal valuation requirements of Section 5.4 of MI 61-101 pursuant
to Section 5.5(b) of such instrument, as none of DiaMedica's
securities are listed or quoted on any "specified markets" as
defined in MI 61-101.
Minority Approval
No exemptions are available from the minority approval
requirements of Section 5.6 of MI 61-101 in respect of the Proposed
Transaction, and, as such, DiaMedica is required to obtain
"disinterested minority" approval (the "Minority Approval") for the
Proposed Transaction from the holders of DiaMedica Common Shares at
a meeting of such holders. For the purposes of MI 61-101, such
approval must exclude any votes attached to DiaMedica Common Shares
which, to DiaMedica's knowledge, are beneficially owned or over
which control or direction is exercised by: (a) DiaMedica, (b) an
"interested party", as such term is defined in MI 61-101, (c) a
related party of an interested party, unless the related party
meets that description solely in its capacity as a director or
senior officer of one or more entities that are neither interested
parties nor issuer insiders of DiaMedica, or (d) a joint actor with
a person or company referred to in (b) or (c) in respect of the
Proposed Transaction.
DiaMedica does not beneficially own, and it does not exercise
control or direction over any DiaMedica Common Shares. To the
Company's knowledge, there are no other "interested parties" in
respect of the Proposed Transaction other than CentreStone LP,
CentreStone GP, Genesys and Mr. Johnstone. In the aggregate, such
parties beneficially own, or exercise control or direction over, a
total of 5,493,523 DiaMedica Common Shares, or 28.60% of the total
issued and outstanding DiaMedica Common Shares as of the date
hereof.
As the holding of a meeting of shareholders is both costly and
time-consuming, DiaMedica has applied to the Ontario Securities
Commission for a decision under Section 9.1 of MI 61-101 exempting
the Company from the requirement to call a meeting of shareholders
to consider the Proposed Transaction, and to send an information
circular to shareholders in connection with such meeting, and, in
lieu of such requirements, to obtain the Minority Approval for the
Proposed Transaction by obtaining the written consent of
shareholders representing at least 50% + 1 of the DiaMedica Shares
held by disinterested minority shareholders with respect to the
Proposed Transaction.
Pursuant to Section 5.14(b) of TSXV Policy 5.3, the TSXV also
requires approval of the Proposed Transaction by the disinterested
shareholders of DiaMedica. DiaMedica has requested, and the TSXV
has determined as part of its conditional acceptance of the
Proposed Transaction, that such shareholder approval may be
provided by the written consent of DiaMedica shareholders holding
at least 50% + 1 of the DiaMedica Common Shares, as evidenced by
the signing of consents by such shareholders, if permitted by
applicable securities laws.
The information and form of consent to be provided to DiaMedica
shareholders whose written consent to the Proposed Transaction is
sought will be filed on SEDAR as a "Material Document", and will be
accessible at www.sedar.com.
About Sanomune
Sanomune Inc. is a private biotechnology company focused on
developing treatments for neurological diseases. The company's lead
compound, SAN-61, is a promising treatment for Alzheimer's disease
that has demonstrated neural protection (protects brain cells)
properties as well as the ability to trigger neural stem cell
proliferation (creates new brain cells). SAN-61 has received
regulatory clearance for a phase II clinical trial and the compound
has demonstrated measurable effects on EEG patterns (a marker of
cognitive function) in dementia patients. Sanomune is also
developing treatments for Parkinson's disease, Huntington's disease
and other disease indications. In addition to its neurological
products, the company is also developing a product for radiation
exposure and a suite of mABs for Alzheimer's disease, mixed lineage
leukemia and diabetes through the inhibition of GSK3B. The company
was named a "Top 10 Canadian Life Science Company" for 2008/9 by
the Ottawa Centre for Research and Innovation. For additional
information, please visit www.sanomune.com.
About DiaMedica
DiaMedica is developing novel treatments for type 2 diabetes
based on a newly discovered nerve signal mechanism. DiaMedica
completed a successful phase II trial with its first clinical stage
product, DM-71, which demonstrated the ability to reduce HbA1c
(blood sugar) levels and weight in humans. DiaMedica also completed
a successful phase II trial with its second compound, DM-83, which
showed a decrease in insulin levels. Results from a phase IIa
clinical trial demonstrated encouraging results that DM-99 may be
able to lower blood glucose in type 2 diabetes patients after
consumption of a meal. The Company's DM-199 compound is an improved
proprietary recombinant version of DM-99. DiaMedica has been
recognized as one of Canada's Top 10™ Life Sciences Company's for
2007/2008 and 2008/2009 by the Ottawa Centre for Research and
Innovation. The Company is listed on the TSX Venture Exchange under
the trading symbol "DMA". For additional information please visit
the Company's website: www.diamedica.com.
Caution Regarding Forward-Looking Information
Certain statements contained in this press release constitute
forward-looking information within the meaning of applicable
Canadian provincial securities legislation (collectively, the
"forward-looking statements"). These forward-looking statements
relate to, among other things, DiaMedica's objectives, goals,
targets, strategies, intentions, plans, beliefs, estimates and
outlook, and can, in some cases, be identified by the use of words
such as "believe," "anticipate," "expect," "intend," "plan,"
"will," "may" and other similar expressions. In addition, any
statements that refer to expectations, projections or other
characterizations of future events or circumstances are
forward-looking statements. Specifically, this press release
contains forward-looking statements regarding matters such as, but
not limited to, DiaMedica's ability to obtain the regulatory, stock
exchange and shareholder approvals necessary to implement the
Proposed Transaction, the satisfaction of all conditions precedent
to the completion of the Proposed Transaction, including completion
of satisfactory due diligence by the parties to the Proposed
Transaction and the completion of definitive legal documentation,
as well as DiaMedica's plans, strategies and objectives, and
DiaMedica's ability to integrate and develop the compounds and
other assets acquired as a result of the Proposed Transaction, as
well as its own products. These statements reflect management's
current beliefs and are based on information currently available to
management. Certain material factors or assumptions are applied in
making forward-looking statements, and actual results may differ
materially from those expressed or implied in such statements.
Important factors that could cause actual results to differ
materially from these expectations include, among other things:
DiaMedica's inability to obtain the necessary regulatory, stock
exchange and shareholder approvals to implement the Proposed
Transaction, or to obtain such approvals on terms acceptable to
DiaMedica, Sanomune and the Sanomune shareholders, the
dissatisfaction of any of the parties to the Proposed Transaction
with the results of their due diligence investigations, the
inability of the parties to the Proposed Transaction to complete
definitive legal documentation or to satisfy any other condition to
closing, uncertainties related to clinical trials and product
development, rapid technological change, uncertainties related to
forecasts, competition, potential product liability, additional
financing requirements and access to capital, unproven markets, the
cost and supply of raw materials, management of growth, effects of
insurers' willingness to pay for products, risks related to
regulatory matters and risks related to intellectual property
matters.
Additional information about these factors and about the
material factors or assumptions underlying such forward-looking
statements may be found in the body of this news release, as well
as under the heading "Risk Factors" contained in DiaMedica's final
long-form prospectus dated March 12, 2007. DiaMedica cautions that
the foregoing list of important factors that may affect future
results is not exhaustive. When relying on DiaMedica's
forward-looking statements to make decisions with respect to
DiaMedica, investors and others should carefully consider the
foregoing factors and other uncertainties and potential events.
Such forward-looking statements are based on a number of estimates
and assumptions which may prove to be incorrect, including, but not
limited to, assumptions regarding DiaMedica's ability to obtain the
necessary regulatory, stock exchange and shareholder approvals to
implement the Proposed Transaction on terms acceptable to
DiaMedica, Sanomune and the Sanomune shareholders, satisfactory
completion of due diligence by each of the parties to the Proposed
Transaction, the completion of definitive legal documentation, the
ability of the parties to the Proposed Transaction to satisfy all
other conditions to closing, DiaMedica's plans, strategies and
objectives, DiaMedica's ability to integrate and develop the
compounds and other assets acquired as a result of the Proposed
Transaction, as well as its own products, the ability of DiaMedica
to obtain sufficient financing, the cost and supply of raw
materials, insurers' willingness to pay for products, market
competition and general economic conditions. These risks and
uncertainties should be considered carefully and investors and
others should not place undue reliance on the forward-looking
statements. Although the forward-looking statements contained in
this press release are based upon what management believes to be
reasonable assumptions, DiaMedica cannot provide assurance that
actual results will be consistent with these forward-looking
statements. DiaMedica undertakes no obligation to update or revise
any forward-looking statement.
The TSX Venture Exchange does not accept responsibility for the
adequacy or accuracy of this release.
Contacts: DiaMedica Inc. Kevin Richardson, Ph.D 204.899.3868
204.453.3745 (FAX) krichardson@diamedica.com www.diamedica.com
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