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Biopharmaceuticals Neurology Mergers & Acquisitions

 News Release - December 1, 2009

DiaMedica Proposes to Expand Into Neurological and Other Disorders Through Acquisition of Sanomune

WINNIPEG, MANITOBA - (HSMN NewsFeed) - DiaMedica Inc. ("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(TM) 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(TM) 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.

About Sanomune

Sanomune 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, and 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

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(TM) 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:

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, "forward-looking statements"). These forward-looking statements relate to, among other things, our objectives, goals, targets, strategies, intentions, plans, beliefs, estimates and outlook, including, without limitation, our anticipated future operating results, 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.

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 early stage of development, lack of product revenues and history of operating losses, 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, supply of raw materials, income tax matters, management of growth, partnerships for development and commercialization of technology, effects of insurers' willingness to pay for products, system failures, dependence on key personnel, foreign currency risk, risks related to regulatory matters and risks related to intellectual property and other risks detailed from time to time in DiaMedica's filings with Canadian securities regulatory authorities, as well as DiaMedica's ability to anticipate and manage the risks associated with the foregoing. 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.

These risks and uncertainties should be considered carefully and prospective investors 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.

Source: DiaMedica

Issuer of this News Release is solely responsible for its content.
Please address inquiries directly to the issuing company.

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