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

Thanks, Lisa, and good morning, everyone — I appreciate you taking part in today's presentation. Before the company proceeds with our remarks, I want to note that forward-looking statements will be made on this call; those statements carry risks and uncertainties that could cause actual results to differ materially from what those statements project. More information, including the factors that might lead actual results to differ from the projected results, appears in the section titled Cautionary Statement Note regarding forward-looking statements in the press release the company issued today, as well as under the heading Risk Factors in DiaMedica's previously filed annual reports on Form 10-K. DiaMedica's SEC filings can be found on our website and at www.sec.gov. One thing I want to point out: whatever gets said during this call reflects where we stand only as of today, May 14, 2020, and it could prove inaccurate later, once someone listens to a replay or goes back through a transcript. DiaMedica takes no responsibility for updating any forward-looking statements. Today we're really eager to walk everyone through the topline data from our ReMEDy Phase 2 trial, which looked at DM199 in people who had an acute ischemic stroke, and also to offer a bit more detail about how we intend to continue advancing DM199 for acute ischemic stroke. During yesterday's session, we issued a press release that outlined the top-level findings from the ReMEDy trial. In addition, we submitted a copy of the presentation for today to the SEC. Both of those documents are available on our website, www.diabetic.com, under the Investors section. With me right now are Dr. Harry Alcorn, our Chief Medical Officer, and Scott Kellen, our Chief Financial Officer. As has been mentioned previously, DM199 is being positioned by us as a recombinant, meaning synthetic, version of the KLK1 protein, and we're using it to address a number of highly significant conditions. KLK1 is a protein that the body primarily generates in the kidneys, the pancreas, and the salivary glands. KLK1 is essential for controlling blood flow on a local level and vasodilation — that is, the process by which blood vessels get wider and vascular resistance throughout the body goes down. It also has a significant function in keeping inflammation and oxidative stress in check. Our view is that DM199 could potentially address many different conditions in which proper healthy functioning depends on there being enough KLK1 activity within the system — the kallikrein-kinin system. To kick off today's call, I'd like to go over the topline data from the ReMEDy study we conducted. ReMEDy was a double-blind, placebo controlled trial involving participants who had suffered an acute ischemic stroke. Whenever we say stroke on this call, we're referring to acute ischemic stroke. Safety and tolerability were the primary endpoints, and we also looked for efficacy signals that would align with the approved Kailikang — the urine-derived form of KLK1 that's currently used in China to treat acute ischemic stroke. If you turn to the slide deck you have, Slide 3 sets out the key takeaways we intend to cover today. What ReMEDy demonstrated is that DM199 emerged as safe and well tolerated, with no serious adverse events tied to DM199. As of now, more than 200 participants have received DM199, giving us a robust data foundation behind that favorable safety profile. That matters a great deal when the FDA weighs potential patient benefits against risks associated with treatment. A solid safety record should help the agency's review and allow us to move forward into further clinical trials. In our view, this reduces the regulatory hurdles that could otherwise hold us back or introduce delay. Second, when we look at efficacy signals, DM199 outperforms placebo by a wide margin, and the stroke subjects most closely resembled the intended DM199 population in roughly 90% of stroke patients who don't undergo mechanical thrombectomy. Among 46 subjects who had not undergone thrombectomy, we observed that a notably larger proportion of those receiving DM199 achieved full or near full recovery relative to the placebo arm. That means individuals regaining the ability to carry on normal daily activities independently. It's particularly encouraging because DM199 can be administered as long as 24 hours after a stroke. The only therapy currently approved in the U.S. is alteplase recombinant tPA, and it can only be given to carefully selected patients within the four and a half hours — 4.5 hours — following a stroke. We'll also cover DM199 findings alongside tPA and KLK, the human urine-derived KLK1 protein that China has approved for stroke; beyond that, we'll go over decreases in recurrent strokes and in the inflammatory biomarker C-reactive protein. And naturally, given our focus on chronic kidney disease and our ongoing Phase 2 kidney trial, we're pleased to report that subjects with chronic kidney disease who received DM199 showed a meaningful gain in kidney function. That's why we're quite eager to bring you these topline results today. Moving to Slide 4, we have several charts that provide a high-level visual picture of the promising outcomes seen in the ReMEDy study; taken together, these findings rest on small numbers; in our view they demonstrate that DM199 is a biologically active protein whose behavior matches its mechanism of action. To put it briefly, starting on the left — the top left corner — this chart displays the 22% gain in stroke recoveries among subjects who most closely matched our intended population, the ones left out of mechanical thrombectomy. The chart beside it shows the reduced rate of recurrent strokes in the group receiving DM199, and keep in mind this draws on every subject who got at least one dose of the study drug, including the 800,000 who were screened. For the group of patients who had chronic kidney disease—identified as having eGFR values below 70 mL—those receiving DM199 showed a notable increase in eGFR three weeks into treatment. The next row starts with C-reactive protein, or CRP, which serves as a measure of inflammation in the body, and people who got DM199 had a meaningful drop over the course of 90 days. The last two charts show improvements in prostaglandin E2 and nitric oxide levels after three weeks of therapy, and we see these biomarkers as important because they seem to capture activity that aligns with how DM199 works. Now, on Slide 6, I want to pause for just a moment, very briefly, to remind everyone how serious an unmet need acute ischemic stroke is in our healthcare system. Around the world, roughly 15 million strokes occur each year. In the U.S., that number is 8000, and about 690,000 of those are acute ischemic strokes, or AIS. What makes this unmet need so severe is mainly that 90% of patients who have AIS have no direct treatment option—a situation known as being out of care. Slide 7 provides an overview of the ReMEDy design. Our goal is to evaluate safety while also looking for possible signs of efficacy. In this trial, DM199 was administered to subjects beginning with an initial IV dose of 1 mcg/kg, then a DM199 dose of 3 mcg/kg, and after that once every third day over a total period of 22 days. Primary endpoint measurements were taken on day 90. Then, on Slide 8, we share several baseline characteristics of the study participants—ages, genders, and typical stroke severity—arranged by cohort.

Ninety-one people in all took part, divided equally between the DM199 arm and the placebo arm. You'll see that quite a few of those enrolled had already undergone treatment with mechanical thrombectomy, TPA, or a combination of the two. I'll say more about those individuals shortly. If we go to Slide 9, there's a summary of the safety and tolerability findings, which served as the primary endpoint for ReMEDy. The Independent Data Safety Monitoring Board found no serious adverse events tied to DM199, which we found highly encouraging and in line with what earlier studies showed. On top of that, the adverse events tended to be fairly mild. That matters a great deal to us, since the FDA and other regulators weigh a drug for clinical study and approval on the basis of potential benefits against risk to patients. We think that gives us this continued and future studies DM199 safety profile should make any regulatory review of DM199 easier and reduce risk further along our regulatory pathway. Now on Slide 10, before getting into the ReMEDy results, let me take you through the NIH Stroke Scoring System. Strokes produce varying levels of damage from person to person and are frequently more severe when a stroke recurs. On the NIHSS scale, a higher score means greater impairment for the patient. The scale is meant to try to quantify how much impact the participant is experiencing. A lot of this assessment revolves around the activities of daily living. Is the person able to dress on their own? Are they able to feed themselves? Can they use the bathroom, and so on. In an ideal world we'd see every individual reach a post-stroke score of zero or 1, meaning they have fully or nearly fully regained the capacity to live independently. Sadly, a great many individuals don't recover completely, and so a shift analysis gets carried out to assess improvement across the full range of impacts. The book and fully recovery an NIH score of 0 to 1 on the right and on the left and then on the right the deaths, have the least amount of subjectivity and most important to regulatory authorities. The scores in between carry more subjectivity. Slide 11 is there simply as a reference to show you the improvements and full recoveries NIHSS score of 0 to 1 in dark blue and the reduction in patient deaths and the tPA study used for FDA approval. tPA showed an 11% improvement in participants reaching a full recovery, that being an NIHSS score of 0 or 1. And I'd note that tPA can also come with some serious side effects. Slide 12 shows the comparison of the NIHSS score for both cohorts, using the 91 participants on the ReMEDy side of the study. One participant can't be evaluated because they withdrew prior to the first dose, which is what the requirements for inclusion in the safety analysis call for. At this level we don't see a large portion of participants in the placebo group achieving full recovery. The reason for this comes down to how many people had already undergone thrombectomy before joining ReMEDy. As a reminder, thrombectomy involves inserting a mechanical device—a catheter—into the patient's arterial system and steering it up to the clots so the clot can be removed right away. Only patients whose blockage sits in a large vessel qualify for this procedure, and they generally show up at the hospital within six hours, though occasionally it can be 12 or more. On top of that, a skilled and experienced physician has to carry it out. Given those constraints, roughly just 6% of stroke victims in the U.S. currently undergo thrombectomy. DM199 does not serve as a substitute for thrombectomy. When a stroke stems from a large vessel occlusion and the patient reaches an appropriate hospital in time, thrombectomy is able to restore blood flow immediately. Speaking for myself, I would choose this procedure for myself or my family if any of us found ourselves in that situation and qualified for it; these participants were enrolled because we aimed to study a sampling of thrombectomy patients for safety and to assess whether a beneficial clinical effect might appear when combined with DM199. The thrombectomy component turned out far larger than anticipated; in China, as we understand it, urinary KLK1 is not prescribed on top of mechanical thrombectomy; in other words, patients treated with thrombectomy did not receive urinary KLK1; we have no plans to include thrombectomy in our target patient population. Our focus is on the 90% of stroke victims who do not undergo a thrombectomy procedure. Moving to Slide 13, here are the NIHSS scores for ReMEDy participants who had not received thrombectomy prior to enrollment; this group best reflects the target patient population DM199 is intended to treat, and this analysis includes a total of 46 participants. Though the number is small, the differences are visually quite compelling. Among the DM199 group, 36% of participants reached a full or near full recovery, versus 14% in the placebo group—a 22% positive difference. The p value came in below 0.2. The results additionally showed a 50% reduction in participant deaths in the DM199 group relative to the placebo group. I cannot emphasize enough that these results came about with DM199 given as the first dose within a 24-hour treatment window—a dramatically longer therapeutic window than tPA, which must be administered within four and a half hours of a stroke and only to patients who are selectively chosen. We believe most stroke victims can reach the hospital within 24 hours of a stroke and be eligible for therapy. Also note that when we exclude participants who received tPA prior to enrollment and restrict the placebo group to those participants receiving palliative care only, the results look similar. We also observe some results with the Modified Rankin scores. Turning to Slide 14, what we'd like to do is give you a side-by-side look at the Phase 2 data for DM199 against the trials involving Activase, recombinant tPA, and Kailikang — that's the urinary KLK1, the version of urinary KLK1 that has won approval in Asia. The main takeaway is this: our outcomes look similar to what was seen with Kailikang, and they look better than what tPA delivered, and on top of that we can offer a therapeutic window that's far longer, plus what we expect to be a substantially better safety profile than tPA's. Let's move to Slide 15. In addition to gains in how well participants function, there are other things we've observed in the study data that have us quite enthusiastic. Here on this slide, you can see fewer recurrent strokes and fewer severe recurrent strokes — one in the DM199 arm versus seven on placebo, and of those seven, four ended in the death of the participant in the placebo arm. All of this rests on the 91 participants making up the safety group, which takes in those who received thrombectomy. So as you can see, the difference is obvious; and these findings line up with the published work on urine KLK1, where stroke recurrence dropped meaningfully. One more thought — this is a major part of why we think DM199 could eventually serve as a neoadjuvant therapy for patients undergoing thrombectomy.

Turning to Slide 16, you can see the drop in CRP, which is a key inflammation blood marker, within the DM199 arm. In our view, that finding also lines up with how DM199 is thought to work. Given our focus on CKD, we're likewise keen to examine what DM199 does for people who had CKD when their stroke occurred. While the link between stroke and CKD isn't well characterized, a large share of stroke sufferers do contend with chronic kidney disease as well. Our view is that low KLK1 levels accompany both conditions. Slide 18 covers our review of shifts in estimated glomerular filtration rate, or eGFR, among any trial participant whose eGFR sat below 70 mL when they entered the study. Kidney function is primarily gauged through eGFR; these individuals started with a baseline eGFR averaging in the mid-50s range. Regarding the 28 subjects at day 22 and 24 subjects at day 56, it's gratifying that following 22 days of treatment, those on DM199 displayed a 7.5 mL mean gain in eGFR. That result was markedly superior to what the placebo arm showed. Just as heartening, we saw that DM199 recipients kept a greater eGFR level at day 56, which came 34 days after dosing stopped; this might be an early hint of possible lasting advantages tied to DM199 use. Keep in mind that the participant count is small, yet the signal here is quite favorable. Moving to Slide 19, we separated out the share of patients whose eGFR rose versus placebo, examining the data from a somewhat different angle. What emerges here is that 77% of those on DM199 saw an eGFR gain of at least 2 mL. That indicates the impact was broad rather than the mean being pushed by a handful of outliers; next, on Slide 20, since DM199 was first developed for diabetes, we're glad to observe drops in elevated blood glucose among the DM199 arm, though not among those on placebo; this chart captures blood glucose level shifts for participants whose glucose was elevated at baseline. By day 22, DM199 had brought blood glucose down by nearly 2 mm/L per liter, with the benefit persisting at day 56. Finally, Slide 21 shows how DM199, or KLK1, works: it restores bradykinin to normal levels, and bradykinin releases two essential hormones, nitric oxide and prostaglandins. As is evident here, the DM199 arms posted meaningful gains relative to baseline, far exceeding the placebo arm. Once more, from our standpoint, these are promising indicators of DM199 activity. Slide 23, if you would. To sum up what we've presented today, DM199 came across as better tolerated, with no serious adverse events tied to DM199, and cultivating a favorable safety profile matters greatly for keeping our route to commercialization as smooth and foreseeable as we can. We've likewise seen that among stroke patients, the DM199 arm clearly beat the placebo arm once mechanical thrombectomy was excluded, bringing the analysis as close as possible to the intended DM199 patient population. Roughly ninety percent of stroke victims hadn't gotten any drug therapy for their stroke. On top of that, those findings came from giving DM199 as late as 24 hours after a stroke—about six times the window for tPA, which is the sole medication cleared in the U.S. We went over how DM199's Phase 2 data stacked up against results from improved studies of alteplase, the recombinant tPA in the U.S., and the Kailikang product in China. Finally, on the stroke side, we covered the favorable data on cutting severe recurrent strokes, a crucial element when treating stroke patients. And naturally, given that we're developing DM199 for chronic kidney disease at the same time, participants who had chronic kidney disease and received DM199 demonstrated meaningful gains in kidney function. I'd also like to point out that no negative data has turned up in the study results. In our view, this topline data gives a fair picture of what our ReMEDy study found. Moving to Slide 24, here's a quick look at what comes next for DM199 in stroke treatment. We're planning to ask for a meeting with the regulators to go over ReMEDy results, what future stroke studies will require, and the possibility of breakthrough therapy and accelerated review designations. We mean to bring in stroke advisors, health economists, and payers more deeply so we can design and get ready for a Phase 2/3 study. We intend to look at possible strategic partnerships at the same time; we'll do that while still keeping tight fiscal discipline and staying focused on finishing the REDUX Phase 2 study for chronic kidney disease. Now I'll hand the call to Dr. Harry Alcorn for a short update on the REDUX trial.

Thanks, Rick. Morning, everybody. I'm certain you're already aware that 60 participants in total are being enrolled in our REDUX Phase 2 CKD, or chronic kidney disease, study, split into two cohorts of equal size. Hypertensive African Americans who aren't diabetic yet have albuminuria make up the first cohort. The second cohort centers on participants who have albuminuria along with IgA nephropathy that was confirmed earlier through biopsy. For roughly 13 weeks, participants will receive DM199 at a dose of 2 mcg or 5 mcg/kg, given subcutaneously twice weekly. eGFR and albuminuria serve as the primary efficacy endpoints for the study as a whole. Standard markers for safety and tolerability are being tracked by us as well. Enrollment of participants remains slow; although we technically have 12 sites, given the current COVID environment only about half of them can recruit and screen participants right now. During our prior call, we talked about how registered nurses are provided for by our study design to conduct home visits for most of the treatments participants receive. Additional protocol changes were put in place by us in April, among them permitting screening of participants to be done by a registered nurse inside the participant's home, lowering participant contact even further. Such an approach aligns with social distancing principles that various governmental authorities recommend. So far, treatment for none of our enrolled participants has been disrupted by the safer at home policies that have been enacted. I'm glad to share as well that the procedures our clinical team, study site and home nursing service providers have implemented have succeeded as of today, since no reports of COVID-19 infections among any of our participants have come in. With every one of our study sites, we stay in close communication. From the inactive sites, what we hear right now is that they should be able to restart activities during the first half of June. Our optimism is that given the limited participation, contact and design of the REDUX study, sites can move faster in that window to resume recruitment and screening for the REDUX study. Monitoring and evaluating how COVID-19 affects our study will go on, yet because of the uncertainty around COVID-19, a projection for when interim top line results might come cannot be provided by us; more information will be shared by us as conditions permit.

Thanks, Harry. At this point, I'd like to have Scott Kellen walk everyone through what happened with our finances in Q1 2020.

Thanks, Rick. Morning, everybody. So, like Rick said, we put out our results for Q1 2020 and filed the 10-Q yesterday once the markets had closed. In case you haven't looked at those yet, you can find both on the DiaMedica site or the SEC's. We had a net loss of $2.4 million, or $0.19 per share, in Q1 2020. That's against a net loss of $3.3 million, or $0.27 per share, in Q1 2019. R&D expenses came down to $1.4 million in Q1 2020, which is a drop of $1.2 million from the $2.6 million we spent in Q1 2019. The reason for that year-over-year decline is costs we took on in Q1 2019 that didn't come back in Q1 2020. Mainly that's the production run for the DM199 drug substance and our Phase 1b pharmacokinetic study in CKD patients. Lower remedy study costs this year versus the prior year period also played a part in that decline. Now, those reductions were partly offset by costs for our REDUX Phase 2 CKD study, which started enrolling in December of 2019, plus higher non-cash share based compensation costs. G&A expenses came to $1 million in Q1 2020, versus $814,000 in Q1 2019; that rise was mostly from higher non-cash share based compensation costs. Now, total other income or expense in Q1 2020 was a net expense of $12,000; that's versus net income of $178,000 in Q1 2019. The main driver of that shift was foreign currency transaction losses tied to funds held in non-functional currency, or non-U.S. dollar, accounts. In our case, that's mainly Australian dollars. On top of that, a decline in our accrued R&D incentives related to the lower remedy study costs, along with reduced interest income earned on our marketable securities in Q1 2020, also fed into that change. Moving to the balance sheet, we ended Q1 2020 with cash, cash equivalents and marketable securities of $12.6 million, current liabilities of $0.9 million, and working capital of $13.2 million. That compares with $7.9 million in cash, cash equivalents and marketable securities, $1.3 million in current liabilities, and $7.5 million in working capital at the end of 2019; the increases in the combined cash, cash equivalents and marketable securities and in our working capital come from the February 2020 public offering of common shares. Let me remind you that on February 11, 2020, we closed a public offering of common shares, bringing in gross proceeds of $8.5 million and net proceeds of $7.7 million. Our current capital position should let us finish the REDUX Phase 2 clinical study and fund our operations through 2021. But, like Harry said, one thing to keep in mind is that the steps taken to fight the new coronavirus strain have resulted in fewer people signing up for the REDUX trial. What we anticipate from this is that the timing of the cost incurred gets pushed back, rather than a meaningful rise in the total, since we are running this study in-house. Even so, we keep evaluating how the pandemic is affecting our REDUX trial by watching how the virus spreads and the measures put in place to fight it, and we will keep giving updates whenever we can. At this point, I'll hand the call back to Rick.

Thanks, Scott. At this point we want to take questions from the call. Operator, would you mind bringing on our first analyst?

Good morning, everybody, and congratulations on completing the Phase 2 stroke trial. Rick, you brought this up before, but might you give us additional specifics and perspective on the reason mechanical thrombectomy got incorporated into the trial from the start? Back then, it sounded like the rationale leaned toward safety, yet can you verify that it was pre-specified that the actual intent-to-treat group truly left out mechanical thrombectomy?

Absolutely, thanks, Alex. When the original protocol was written, roughly a couple of years back, at first it was not permitted. With guidance from our advisory board, we subsequently chose to enroll patients who had undergone mechanical thrombectomy. Thus we sought a sample of such patients for safety purposes and to figure out whether any potential clinical advantages existed. Ultimately, when we examine it, roughly 20% of patients qualify for thrombectomy, while across the U.S. only about 6% actually got it. Consequently, we simply aimed to gauge whether this is something worth considering for Phase 3. Regarding the human urine form of KLK1 in China, fairly compelling synergistic findings exist alongside tPA, yet nothing really existed for mechanical thrombectomy. Therefore we wanted a sense of whether it belongs in Phase 3 or not. Mechanistically, there are distinct differences — we believe our drug acts on microvascular circulation, while those who qualify for thrombectomy are addressing larger vessel occlusion. So this was something we chose to investigate.

That helps. What did the trial's primary physicians say regarding the elevated mechanical thrombectomy enrollment rate you observed, and once your stroke advisory board was shown the data, how did they respond overall to the findings?

Sure, so on the whole, we expected 10%, 15% perhaps would have thrombectomy. All of us, advisors included, were taken aback that the level came in so high. From our advisors' standpoint, you can look at the quote from Dr. Campbell. This began as a safety trial — stroke, after all, is a serious condition. Above all, confirming safety mattered, and seeing decreases in stroke recurrences was quite encouraging; it appears we have signals here that align with what the human urine form of KLK1 has shown.

Good. And as we've discussed through the years, I'm aware that you and the team have talked with bigger pharma companies and large strategics regarding your KLK1 efforts. Based on prior conversations you've had with them about stroke, what do they look for in stroke, and does the intent-to-treat population data truly satisfy all those requirements?

That's still up in the air, I suppose — we'll need to reach out and speak with them directly. From a partnership standpoint, our belief is that chronic kidney disease will draw significantly greater interest. Still, what we have in hand — and I don't mean only the NIHs scores — encompasses the safety profile, the mechanism, the entirety of it, all the components brought together from a fairly small study, and everything there indicates a biologically active protein. We firmly believe it now has a role in stroke as well as kidney disease.

Right, agreed. Let me pivot to CKD for a moment, Harry — the CKD findings you released involving eGFR look like they could be quite significant. Could anything about the physiology or the condition state of stroke make it hard to treat the data presented here as a direct proxy for your Phase 2 kidney study? Also, has your Kidney Advisory Board been shown these results yet?

Thanks for raising that, Alex. The data did go to the CKD Scientific Advisory Board. Their reaction was that it was extremely impressive and very interesting, since it verified for them what our drug is capable of doing for kidney function. Naturally, that will be synergistic with our discussion with the agency and with other regulatory bodies as we proceed regarding stroke and eGFR, given that eGFR is a fact that occurs among stroke patients. Consequently, they must address total clinical care for these stroke patients, not just obviously the clot, but their kidney function too. So, I hope this has been a wonderful conversation, since they've been supportive regarding total care of these patients for their disease state.

That sounds positive. I’ve got one more item for you. As COVID begins to diminish somewhat in this area and a number of states are reopening, can you give any schedule, or an approximate one, for when the CKD study will report out the complete 90 days? Is it reasonable to expect that before the year ends?