DiaMedica Therapeutics Inc. (DMAC) Earnings Call Transcript & Summary

Thank you, Lisa. Hi, everyone — we hope each of you is doing well and remains in good health. We're glad you could join this call, where we'll go over our results for the year ended 2019 along with a business update. Following the close of trading yesterday, we issued a press release that included a business update and a summary of our financial results for 2019. Our Form 10-K annual reports were filed as well. Both documents are available in the Investors and Media section of our website, diamedica.com. With me today are Scott Kellen, our Chief Financial Officer, and Dr. Harry Alcorn, our Chief Medical Officer. DiaMedica set some ambitious objectives for 2019. Our team makes me proud, because they delivered on each item we laid out 12 months ago. Specifically, we designed, launched and completed a Phase 1b study in subjects with chronic kidney disease — a crucial step toward understanding how kidney disease affects the pharmacokinetics profile for DM199 and toward preparing for our Phase 2 study in patients with chronic kidney disease. Next, we assembled a truly world-class advisory board to guide our clinical development program in chronic kidney disease. Third, alongside the advisory board, we designed and launched our Phase 2 chronic kidney disease trial, a significant trial in which we will examine participants with chronic kidney disease resulting from IgA Nephropathy as well as African Americans who are hypertensive and non-diabetic. Finally, we completed enrollment in our expanded REMEDY study in acute ischemic stroke; we believe that thanks to these achievements, we managed to attract interest from a couple of biotech equity funds and close a small public offering in February of this year, which strengthened our balance sheet. As a result, we have the capital required to complete our current studies, even taking into account potential negative effects related to the Coronavirus outbreak, while also funding our operations through the end of 2021. Consequently, we have less exposure to today's market volatility and the difficult conditions brought about by COVID-19. Though full of our achievements, the whole team remains dedicated to advancing the clinical development of DM199 in 2020. DM199 could potentially deliver a meaningful impact for patients who suffer from chronic kidney disease and acute ischemic stroke. We are eager and cautiously optimistic about seeing Phase 2 clinical data from DM199 at some point in 2020, and we look forward to sharing results once they are available. Now let's discuss our clinical programs in greater detail. First, regarding our REMEDY study in subjects with acute ischemic stroke. We previously reported that enrollment wrapped up last October, with a final total of 92 participants. Remedy is a Phase 2 study built to evaluate the safety and tolerability of DM199 in treating participants who suffer from acute ischemic stroke, or AIS, and also to investigate markers of possible therapeutic efficacy for DM199. This study's endpoints consist of the standard functional measurements for stroke: the Modified Rankin Scale, the National Institutes of Health Stroke Scale and the Barthel Index. We will also examine a number of plasma biomarkers, among them inflammation indicators like C-reactive protein. Throughout the trial, these markers are assessed at multiple time points, and one of those is 90 days following stroke. In addition, because of our kidney research and the medical community's rising interest, along with potential links between vascular and renal disease, we will be evaluating kidney function as well, which we'll measure by computing the estimated glomerular filtration rate for participants over the course of the study. Our last participant follow-up visit concluded in late January 2020, and at this point we are waiting on the statistical analysis, or SAP, files along with the study results from the contract research organization. Once those files reach us and our advisors, we will verify that the clinical database is complete and accurate, after which we will conduct the analysis and then disclose the topline results. Unfortunately, staffing difficulties at the contract research organization that is preparing the analysis have set this process back by a few weeks; COVID-19 played no part in these issues; we will work hard to review and then release the topline results as fast as possible, with early Q2 2020 as the target. In addition, because the European Stroke Conference shifted from May to November 2020, we are weighing alternative ways to present the complete study results. Now let's turn to our REDUX Phase 2 CKD study, which is enrolling participants in two cohorts. The first cohort focuses on participants whose IgA Nephropathy has already been confirmed by biopsy, whereas the second cohort targets hypertensive African Americans who do not have diabetes. Our goal is to enroll 30 participants per cohort, and they will be treated for about 13 weeks at two dose levels. The primary endpoints consist of the estimated glomerular filtration rate, or eGFR, and albuminuria, along with standard safety and tolerability measures. We continue to enroll subjects in the REDUX study, including sign-ups during the past two weeks. That said, subject enrollment has proceeded more slowly than expected. This has largely occurred in the African-American cohort, where we have encountered a higher number of screening failures related to finding individuals who have chronic kidney disease but are not diabetic; we have been working with our study sites to improve identification, recruitment and screening of study participants, and we recently increased the number of clinical sites from 10 to 12 so that the candidate pool would expand. Nevertheless, despite recent enrollment, the COVID-19 outbreak in the U.S. and the measures taken to curb the spread of this virus appear to have recently harmed subject recruitment. For background, I want to mention that our original study design had registered nurses conducting home visits for most subject treatments. We chose that approach initially to maximize participant compliance with the treatment protocol. Today, we take some reassurance that this approach is consistent with the social distancing principle advised by the various government authorities. Right now, we believe that patients who are already enrolled won't have their treatment disrupted by COVID-19. Our 12 clinical sites are spread out pretty widely across the United States. As of yesterday, 10 of those 12 study sites are still enrolling patients, and the rest intend to remain open, continuing to recruit and screen subjects. We did enroll new patients last week. This can change day to day and differ by state. Our clinical team has also been working hard to ensure that procedures are in place at study sites and with home nursing service providers that protect study participants and clinical staff. We're also taking steps that allow subject screening to take place in the subject's home, which further reduces the need for subjects to travel to a doctor's office or clinic. That would limit a study subject's clinic visit requirement to only the first day of treatment and reduce how social isolation affects study participation. Thanks to recent Institutional Review Board, or IRB, acceptance of changes, we could cut patient visits to the clinic down to just the initial dosing of drug. Clearly, the U.S. is still in the early process of fighting the COVID-19 outbreak, and nobody knows how far the measures that might ultimately be taken could go. We continue monitoring and evaluating how COVID-19 impacts our studies, yet given how rapidly the COVID-19 situation is evolving, we no longer feel comfortable giving a projection regarding when interim topline results will be available. Instead, we will commit to providing additional information once conditions permit; we remain focused on protecting trial participants' safety, adhering to clinical best practices, and keeping any risk to trial integrity at a minimum; with that, I will now hand the call over to Scott so he can provide a summary of our financial results for 2019. In Q4 2019, that summary will cover the period's key figures.

Thanks, Rick. Morning, everybody. Just like Rick said, we put out our results for the whole of 2019 and submitted our Form 10-K yesterday once trading had ended. I hope you've all had a chance to go through those documents. Beginning with the income statement. For the entirety of 2019, our net loss came to $10.6 million, which works out to $0.89 per share; that's against a net loss of $5.7 million, or $0.74 per share, for all of 2018. Our research and development expenses rose to $7.9 million across 2019, up $3.4 million from $4.5 million during the whole of 2018. That year-over-year rise stemmed from several things, among them the costs of manufacturing a fresh batch of the DM199 drug substance, roughly $1.4 million, plus the expense tied to our Phase 1b and Phase 2 clinical studies involving chronic kidney disease patients in 2019, along with some associated non-clinical testing. Higher non-cash share-based compensation costs also played a part in that increase. Now, those increases were partly offset by a year-over-year drop in costs tied to the REMEDY Phase 2 clinical study in AIS patients, which finished enrolling in October 2019. Our general and administrative expenses came to $3.7 million for all of 2019, versus $2.7 million across 2018. That $1 million rise was mostly driven by extra costs connected to the company's status as a NASDAQ listed U.S. public reporting company, which began in December 2018. Those extra costs took in higher professional service, compliance and non-cash share-based compensation costs. Greater personnel costs also fed into the increase. Now, that increase was partly offset by one-time costs of about $360,000, incurred back in 2018 and tied to the NASDAQ listing process and related legal and accounting fees. Our total other net income, net, was $1 million for all of 2019, versus $1.1 million across 2018. That drop relates mainly to the initial recognition of the R&D incentives from the Australian government, paid for qualifying research work carried out by DiaMedica Australia during 2018, which took in research work done in 2017 and 2018. The decrease was partly offset by higher interest income earned on marketable securities during 2019. Next, the balance sheet. We closed 2019 with cash, cash equivalents and marketable securities of $7.9 million, current liabilities of $1.3 million and working capital of $7.5 million; now, that's against $16.8 million in cash and cash equivalents, $1.3 million in current liabilities and $16.7 million in working capital at the close of 2018. The declines in overall cash, cash equivalents and marketable securities and in working capital are mainly because of cash used to fund operations during 2019. So then, on February 11 of this year, we finished a public offering of common shares — Rick talked about this — and through it we brought in gross proceeds of $8.5 million, with net proceeds of roughly $7.7 million. So if you look at December 31, 2019 on a pro forma basis, and you include those net proceeds, our cash, cash equivalents and marketable securities came to $15.6 million; with this extra capital from the February offering, we ought to be able to finish the Phase 2 clinical studies we have underway now and keep our operations funded through 2021. That strengthening of our balance sheet in February came at a very good time, and we think that, the way things look today, we can handle any potential financial shock coming out of the responses to the COVID-19 virus, and fortunately, as Rick also said, our exposure to the volatility currently in the capital markets is much smaller. So now let me hand the call back to Rick.

Thank you Scott. Operator, would you please open the lines up for questions?

Thanks, and good morning, everybody. Rick, you brought up that the African-American group is enrolling more slowly since you're not locating diabetic patients there. If we stopped excluding diabetic African-Americans and let them join instead, what risk would that create?

Right. Alex, I'd say a piece of this is simply what happens when a study gets going — you figure out where the patients are and how to locate them. A few weeks back, honestly, we already felt far more confident about the actions we'd taken to identify these patients. What we're not willing to do right now — or ever, really — is rewrite the protocol just to bring in a handful of extra patients. Together with our scientific advisory board, we made the choice to keep diabetics out, because once you add them, you're usually also dealing with a few additional medications those patients take. That makes for a less clean patient population. So as things stand, we're comfortable with our plan: raising the site count from 10 to 12, plus the effort our clinical team has put in with the sites — essentially phone calls every day. That had us feeling significantly better even just a couple of weeks back. Then COVID-19 came along and threw a bit of a wrench into things. So right now, we'll watch how the coming weeks unfold with COVID. Still, one thing that makes us happy is that under this study design, home healthcare nurses travel out to see the patients; since we keep the touch points down to as few as one — the patient's initial site visit — we believe that even once COVID-19 settles and patients and people return to normalcy, patients will feel more at ease joining our study than they would other studies, where people must come into the clinic every week. Some worries are inevitable.

Okay, I understand. And staying with that subject — judging by your prepared remarks, over the past week patient dosing and follow-up at home are all continuing as planned, is that right?

Nothing has changed. Patients have been enrolled by us during the last week, and nurses keep making visits to the sites. No patient has missed a dose.

Okay, glad to hear it. So what has to change before your study sites can shift enrollment into the home setting? Is it merely a matter of adjusting paperwork, or does it take something more involved to get them to make the switch?

Yes. Our IRB change went through last week, so we'll be set to go. It takes two weeks. So I'd guess we'll be ready as early as next week.

All right, understood. And so, if this COVID situation keeps going into the summer, and you're simultaneously struggling to enroll people, might you ever think about reporting the 12-week data using only those patients you've got so far? Or will you hold off until all 60 patients are in at this stage?

Right. Right now, we're weighing every option. What we're seeing is that this is largely a COVID-19 problem at this point, rather than a matter of finding the African-American patients who aren't diabetic.

Okay, understood. And one final thing from me. Regarding the stroke study, you noted during the prepared remarks that eGFR data is being measured, which is quite interesting. When you talk with your advisory board, how do they view eGFR within a stroke population as a substitute indicator for your kidney study? Is it reasonable to call this a solid proxy? Or might there simply be too much noise among the stroke group for you to actually isolate the benefit?

We're examining that. Our advisory board found it intriguing that, to begin with, a lot of patients who suffered a stroke — including some in our study — also suffer from kidney disease; so it will serve as, let's say, an initial glimpse at kidney function within our study.

Okay, that's interesting. Well, congratulations on the strong progress in 2019, and stay safe out there.

All right, thank you, Alex.

Good morning, everyone. Thanks for taking the questions. So Rick, I realize you preferred not to give guidance regarding when enrollment would finish or the study's timing. Could you give us a sense, either as a percentage or as a raw number, of where we stand compared with the 60 patients total that have enrolled? Are we a quarter of the way there? Is there any quantitative detail you can share on that?

Sure. So we haven't given specifics regarding patient numbers. That said, I'll mention that two weeks ago, really before COVID-19 became the dominant concern, we were looking at topline results in Q2, and whether that would come earlier or later. But once COVID-19 hit, we felt we simply had to pause any guidance. So hopefully in the weeks ahead, as the situation develops and we gain more clarity on COVID-19, we'll be better positioned to offer some updated guidance.

Great. And does the cash runway through the end of 2021 cover the start of any Phase 3 studies, whether in stroke or chronic kidney disease?

Yes. It lets us finish the Phase 2 trials currently underway and then to plan and get ready to launch Phase 3. However, at that point we'll either need a partner or have to bring in more money; still, this definitely buys us room to figure those things out, free from the pressure of being pushed into something or having to go out and raise funds immediately once the data lands. It gives us a window to make a few choices.