DiaMedica to acquire all issued and outstanding shares of Sanomune

Dec 2 2009

DiaMedica Inc. (TSX VENTURE:DMA)("Diamedica"), a biopharmaceutical company that has discovered and is developing a novel approach to treating diabetes, announces it has entered into a non-binding letter of intent to acquire all of the issued and outstanding shares of Sanomune Inc. ("Sanomune"), a privately held biopharmaceutical company developing treatments for neurological, autoimmune and other indications.

Sanomune was named a Top 10™ Canadian Life Sciences Company for 2008/2009 and its pipeline includes a promising neuroprotective protein that also triggers neural stem cell proliferation and an attractive monoclonal antibody program.

"The proposed Sanomune acquisition will allow us to take advantage of a unique opportunity to strengthen our patent portfolio and expand the indications targeted by our DM-199 program by gaining access to Sanomune's complementary SAN-61. Furthermore, we expect to capitalize on increased product development opportunities while bringing together two of Canada's Top 10™ life sciences companies," stated Rick Pauls, President and Chief Executive Officer of DiaMedica.

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 suggest 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.

"We believe that the proposed acquisition will allow DiaMedica to strategically connect the common base technologies of the two companies while taking advantage of cost synergies in an effort to expand into neurological and other indications. Following the acquisition of Sanomune, the company's initial neurological focus will be on Alzheimer's and Huntington's disease 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 2 diabetes. " continued Mr. Pauls.

As a result of the proposed acquisition, 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 disease. The 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.

"The proposed transaction will allow DiaMedica to focus on the development of the DM-199 recombinant protein program for diabetes while expanding into the neurological diseases such as Alzheimer's and Huntington's. We expect that, following the acquisition, DiaMedica will have access to broader financing markets, a strong corporate image to raise capital, and increased business development opportunities" concluded Mr. Pauls.

Pursuant to the letter of intent, entered into with Sanomune and CentreStone Ventures Limited Partnership ("CentreStone"), Sanomune's principal shareholder, DiaMedica is proposing to acquire all of the issued and outstanding shares of Sanomune from Sanomune shareholders in exchange for approximately 12.8 million common shares of DiaMedica, representing 40% of the shares of DiaMedica post acquisition. Completion of the acquisition is subject to certain conditions, including receipt of necessary exchange and regulatory approvals, DiaMedica board and shareholder approval (including any required minority approval), completion of satisfactory due diligence and completion of definitive legal documentation with all Sanomune shareholders, among others. There can be no assurance that all of these conditions will be satisfied. As CentreStone is a "control person" of both DiaMedica and Sanomune, currently holding approximately 22% of the issued and outstanding common shares of DiaMedica and 59% of the issued and outstanding shares of Sanomune, the acquisition will be considered a "related party transaction", and will also be subject to certain requirements of Multilateral Instrument 61-101 ("MI 61-101"). Among these will be the requirement to obtain DiaMedica minority shareholder approval. Post-acquisition, CentreStone is expected to hold approximately 11.8 million (36.8%) shares of DiaMedica. Pursuant to MI 61-101, each of Genesesys Venture Inc., a promoter and Eric Johnstone DiaMedica's Vice President, Finance will be considered "related parties" for the purpose of the proposed transaction.

Bloom Burton & Co. acted as the advisor on the proposed transaction.