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

Thanks, operator. Hello, everyone—hope you're doing well, and welcome to our call covering business updates and results for the 2020 earnings year. After trading ended yesterday, we put out a press release summarizing the business update and our financial results for 2020. Alongside that, we submitted our annual reports on Form 10-K. You can locate both of those materials in the Investor Relations area of diamedica.com. With me this morning are Scott Kellen, our Chief Financial Officer, and Dr. Harry Alcorn, our Chief Medical Officer. I'd like to start things off today with some remarks about our program focused on Acute Ischemic Stroke. Looking back, it was great news that the FDA agreed to hold a pre-IND meeting with us regarding our Stroke Development program, and the written feedback they gave to our inquiries has left us optimistic. In those replies, they showed support for important parts of the Phase 2/3 study design we have in mind for DM199 among individuals suffering Acute Ischemic Stroke. To be precise, we put forward an adaptive approach to the trial, and this makes it possible for us to carry out a look at the data partway through. That midway review will assess how well DM199 is performing. To put it plainly, an independent data monitoring committee is going to assess whether DM199 is producing a favorable impact that lines up with the assumptions in our statistical analysis plan, and that will permit changes to the number of patients if needed. In essence, we feel the advice we got from the FDA gives our Stroke program a clear route ahead. Right now we are putting the finishing touches on the investigational new drug application for the Phase 2/3 study we are proposing, and we expect to file it before this month ends. Alongside that effort, we are arranging the vendors whose support is needed to carry out the study. Our expectation is still that enrollment in the study will begin sometime later in the summer. Data from our ReMEDy Phase 2 trial in Acute Ischemic Stroke is going to be shared through an oral presentation during the virtual International Stroke Conference 2021, which runs from March 17th through 19th, 2021. We also shared earlier how excited we are to present a Stroke Key Opinion Leader Webinar focused on treating Acute Ischemic Stroke, scheduled for March 19th at noon Eastern time. During that webinar, talks will be given by Dr. Scott Kasner from the University of Pennsylvania, along with Dr. We'll be joined by Paolo Madeddu from the University of Bristol, who is going to talk about the current treatment landscape and the unmet medical need when it comes to treating patients with Acute Ischemic Stroke, as well as the mechanism rationale and clinical data regarding stroke and recurrent stroke. One last related point I want to make: with respect to DM199 in our Stroke Program, specifically around lowering the rate of stroke reoccurrence, back in November 2020, AstraZeneca got approval to expand the label for Brilinta, which is its newest generation blood thinner product. The approval they received included an indication for cutting stroke reoccurrence among patients who had experienced a mild stroke. In our view, AstraZeneca's label expansion could potentially create another pathway to approval for DM199 when it comes to treating stroke reoccurrence. If you go back to what we saw in the ReMEDy Phase 2 data, we set aside — what we found was a statistically significant decrease in recurrent severe strokes. That worked out to an 86% reduction, with a single patient in the DM199 arm versus 7 in the placebo arm. It's also worth pointing out that among those 7 recurrences on placebo, the outcome was fatal. Those findings held across the entire study, and in our view they point to what DM199 could offer in terms of both enhancing physical recovery and lowering the chances of another stroke. Recurrence of stroke is generally the more disabling, deadly, and expensive kind. We think DM199 could do even more when it comes to improving how well stroke survivors live and feel day to day. Turning now to a REDUX update — that's the study testing DM199 as a treatment for three distinct forms of chronic kidney disease, also called CKD. REDUX is a Phase 2 study taking place across 13 sites, with a target of 90 people enrolled, divided among 3 groups of 30 patients apiece. Those groups are IgA Nephropathy, diabetic kidney disease, or DKD, and hypertensive African Americans. Everyone in the REDUX CKD study will receive DM199 for about 13 weeks, using 2 different dose levels. For the study overall, the primary measure of efficacy is based on improvements in albuminuria and eGFR. We're also looking at secondary endpoints, which involve evaluating if DM199 could produce a beneficial impact on every one of the underlying causes of CKD. In total, 68 people have been enrolled in REDUX so far. That number represents full enrollment for the DKD cohort. For our IgA Nephropathy cohort, we've reached 70%, which is 21 participants, whereas the African American cohort remains at 50%, or 15 participants. Of course, we're very pleased with how fast the DKD cohort reached capacity. A big part of that is just how many people with DKD fit the criteria for the DKD study, so locating those 30 participants becomes a lot easier, even with concerns related to COVID. Also remember that the last person for this cohort enrolled back in the middle of December; we're still very much on track to report initial top line data from this cohort in Q2 of 2021. When it comes to IgA Nephropathy and African Americans, enrollment there has been much slower than we'd anticipated, but we're pleased to report that we're seeing indications of increased activity. Given substantial drops in new COVID cases along with the recent arrival of vaccines, we can now share that we expect both of these cohorts to wrap up in the second half of 2021. At this point I'd like to hand things over to Scott Kellen to walk us through the 2020 financial results.

Thanks, Rick, and good morning to all of you. As Rick said, we did not put out our complete 2020 full-year financial results and submit our 10-K until yesterday afternoon. Should you not have had an opportunity to look over those documents, you can find both of them on the DiaMedica site or on the sec site. For the whole of 2020, our net loss came to $12.3 million, or $0.78 per share; that is against a net loss of $10.6 million, or $0.89 per share, for the earlier year. Research and development expenses totaled $8.3 million for the year that closed on December 31, 2020, versus $7.9 million for the year that closed on December 31, 2019 — a rise of point $0.4 million. That rise came mainly from a mix of costs we took on for our REDUX Phase 2 CKD study, which got underway in late 2019, and was of course pushed in particular by adding the third cohort, aimed at the DKD patients, which reached full enrollment in the fourth quarter of 2020. We also took on higher non-cash share-based compensation costs. Those costs were partly offset by reductions tied to clinical study costs we took on for a ReMEDy Stroke study, which wound down during the first half of 2020, plus the non-recurring costs of the Phase 1b CKD study, which began and finished in 2019. On top of that, there was a net year-over-year drop in drug manufacturing and development costs. General and administrative expenses came to $4.4 million and $3.7 million for the years that closed on December 31, 2020 and 2019, respectively. That $0.7 million rise came mainly from higher non-cash share-based compensation costs, more outside professional services, and greater directors and officers’ liability insurance; and the 2020 rise was partly offset by lower travel and meeting costs, caused by restrictions put in place as countermeasures to the COVID-19 pandemic. Total other income, net, came to $0.4 million for the year that closed on December 31, 2020; that is against $1 million for all of 2019; this drop came mainly from the lower R&D incentives receivable from the Australian Government, which get paid for qualifying research work carried out by our Australian subsidiary during 2020, and this of course ties to the wind down of the ReMEDy study during the first half of 2020. This drop was partly offset by greater foreign currency transaction gains recognized during 2020. Moving to the balance sheet, we closed the fourth quarter of 2020 with cash, cash equivalents and marketable securities of $27.5 million, current liabilities of $2 million, and working capital of $25.9 million. That is against $7.9 million in cash, cash equivalents and marketable securities, $1.3 million in current liabilities, and $7.5 million in working capital as of the end of 2019. The rises in the company’s combined cash and marketable securities and in our working capital stem from our February and August 2020 public offerings of common shares; and as you may remember, in August, we finished an underwritten public offering, bringing in gross proceeds of $23 million, or net proceeds of $21.2. Additionally, during February, we wrapped up a financing that brought in $8.5 million in gross proceeds, which came to $7.7 million net. With the capital we have right now, we ought to be able to hit several key milestones for DiaMedica, such as getting data readouts across all three cohorts in our REDUX Phase 2 CKD trial, plus kicking off our Phase 2/3 trial for Acute Ischemic Stroke, and keeping our planned operations funded through the third quarter of 2020. At this point, I'll hand the call back to Rick.

Thanks, Scott. At this point we want to turn things over to Q&A. Operator, would you mind bringing in our first analyst?

Thanks. Morning, all. Could you maybe discuss the label expansion for stroke reoccurrence — how exactly would that function, and do you expect that one pivotal Phase 2/3 trial would be enough on its own to support a label for stroke recurrence? And honestly, does that 350 patients give you sufficient power to secure an indication? What feedback have you been receiving from the FDA?

Yes. Appreciate it, Alex. Our intention is definitely, once we've filed the IND for the planned Phase 2/3, to contact the FDA and ask for a meeting so we can talk through the clinical paths and the powering. We truly believe there's meaningful promise here, considering how our therapy profiles for stroke recurrence. That's a point we'd like to get clarity on with the FDA before anything else.

Okay, got it — that makes sense. So that decision gets made later on. That sounds reasonable; and maybe on the topic of the feedback — alright, and maybe about what the FDA told you last December, did they say anything regarding fast track or breakthrough designation? And when do you plan to put in for those two — for both of those labels?

Right, so our plan is to apply for fast track designation fairly soon after the IND gets submitted. Then, based on the conversations we have with the FDA, we'll look into additional routes for getting expedited approval.

All right, got it. Do you have any news on the timing for the pivotal stroke study? What kind of duration are we looking at? And what would the full expense be for 350 patients? Also, has anyone talked about a partnership for stroke that would let us enroll people outside the US?

Yeah, so with 90% powering, we're figuring on about 350 patients altogether. That study starts this summer. And once roughly half of them have completed, we plan to do an interim analysis. Right now, our plan is for that to happen next year, in 2022, and then hopefully we finish the study in 2023. For 350 patients, the trial's overall cost is going to be close to $30 million. As for partnering, yes, we are always having conversations — discussions are ongoing right now. Still, our primary emphasis is on getting the IND submitted and getting the chronic kidney disease cohorts completed. My belief is that when we get there, we'll be much better positioned, whether that's looking for a partner in Asia or globally.

Understood. That makes sense. Then you pointed out in the press release that you intend to advance the drug in IgA Nephropathy, and that's before you've even looked at the data. So is that the right way for me to read it? And maybe walk us through why you decided to syndicate now, ahead of seeing results from the three cohorts. Also, I guess, how closely should the DKD findings match up with the IgA group?

Yeah. So when we look at the clinical and regulatory path for these different cohorts, there's a pretty clear path for IgA Nephropathy, which is the rare form. A number of other recent compounds are moving into pivotal trials for IgA Nephropathy. So for us, we think that's the most obvious path forward. When we think about what DM199 could achieve in kidney disease, the idea is to start with the rare condition and then, further down the road, we — we're < > partner move into the wider CKD, or diabetic kidney disease, space. Part of the reason is just that right now, running a pivotal trial for diabetic kidney disease involves a much greater scale and cost. So that's our perspective, and the rationale for, you know, for this particular pathway is, once again, that we can identify a clear route for IgA, and then further out, we could envision a partner having interest in taking this into the larger CKD or DKD patient population.

Got it. Is there any relationship between how DKD turns out and how IgA turns out?

Sure. Our expectation is that DM199 will boost kidney performance regardless of what's causing the problem. The purpose of this trial is really to get a clear picture on that front. In the end, I think one thing that sets DKD apart from IgA is our belief that following IgA, there may be an immune-modulating impact. Still, we're keeping our fingers crossed for all three cohorts, and we plan to let the data guide us.

That's clear. Thanks for the update. Appreciate it.

Thank you for fielding the questions. Starting with the stroke question. I was hoping you could give us a bit more detail on which mechanisms—or rather, which medications—are going to be off-limits in the Phase 2/3 stroke trial.

Absolutely. We're still working through and finalizing the protocol, including the inclusion and exclusion criteria. What we've spelled out is that patients won't be allowed to be on tPA, get tPA, or undergo mechanical thrombectomy. Apart from those, every patient will be evaluated on a case-by-case basis. For this population, those are the only two exclusions at this point.

Understood. Thanks. Then, just briefly regarding the kidney side — IgA nephropathy and diabetic kidney disease appear to be fairly well-established populations. I was just curious whether regulators look at the hypertensive African American with CKD group in the same manner as they do other CKD indications, and whether the UACR and eGFR trajectories — whether that's a drop or the gains that novel treatments would need to demonstrate in that specific indication — are viewed similarly.

That's right. Specifically when it comes to UACR, a meeting was held as recently as last week about CKD 3, where the agency gave its feedback that they are looking at UACR itself as a metric for kidney improvement, alongside eGFR as well.

Understood. Thanks. Congratulations on the advancement.