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

Thanks, Erica. Morning, everyone — glad you could join us. On today's call, we'll discuss our first quarter earnings along with a business update. Once the market closed yesterday, we issued a press release detailing our Q1 2021 financial results and providing a comprehensive update. Alongside that, we filed our Form 10-Q quarterly report. Both items are available on our website, diamedica.com, under the Investor Relations section. Joining me today are Scott Kellen, our Chief Financial Officer, and Dr. Harry Alcorn, our Chief Medical Officer. Because only a month-and-a-half has passed since the previous call, we'll keep today's update short and then move to your questions. Starting with the Acute Ischemic Stroke program: we're glad to be advancing a Phase 2/3 trial of DM199 in patients with acute ischemic stroke. The IND was submitted on April 16, slightly past our target of the end of March, though that extra time let us make sure the study plan was right and that the statistical analysis properly backs our proposed adaptive design. At this point, the IND submission is what determines when this study can begin, and we feel good about our current time lines. The FDA's review window of 30 days concludes at the close of next week. Up to yesterday, all we have received from the FDA is confirmation that they have received the IND. Because of what the FDA told us last December, we do not anticipate significant additional inquiries regarding the study protocol. This Phase 2/3 trial, as expected, will be a randomized, double-blinded, placebo controlled study involving roughly 350 participants. That figure rests on 90% powering for statistical significance concerning the primary endpoint, the modified Rankin Scale at day 90. Secondary end points are to encompass stroke reoccurrence, MR shift, NIHSS and the Barthel index, in addition to deaths, safety and tolerability measures, and biomarkers tied to KLK1. In addition to preparing for the Phase 2/3 trial, we plan to talk with the FDA about stroke recurrence as an endpoint that carries clinical significance. You may remember that in our ReMEDy Phase 2 trial, a statistically significant decrease in severe recurrent strokes was seen. To be specific, across the whole study there was an 86% reduction. That meant one patient in the DM199 arm versus 7 in the control arm, and 4 of those control cases proved fatal. In our view, this offers a robust signal that DM199 could help stroke victims recover more fully on the physical side, and on top of that lower the rate of repeat strokes, tied to a mechanism we think involves plaque stabilization. Repeat strokes are generally associated with higher costs, greater disability, and death. Cutting down how often this condition comes back would be a huge win for patients and for the healthcare system that treats them. Beyond that, we plan to file for fast-track status for DM199 as a way of getting that conversation started. Dr. Alcorn led a comprehensive push to finalize the study protocol, bringing together several key opinion leaders, our scientific advisory board, and specialists in clinical and regulatory affairs. So that we can identify, evaluate, and enroll as many as 75 clinical sites, we've engaged a contract research organization. Meanwhile, the team is focused on nailing down the operational processes and services the study requires. Prioritizing urgent needs is how they intend to keep the study on schedule, precise, and streamlined. If the FDA grants clearance, they hope to get the trial underway during the summer months. Turning to the chronic kidney disease effort and the REDUX trial, what we've primarily been waiting on is initial top-line findings from the cohorts focused on diabetic kidney disease. Those findings are currently being compiled. We remain on track to report that data before this quarter ends, and we look forward to sharing the results with all of you shortly. In total, the REDUX study has reached 70 enrolled participants. That number represents full enrollment for the diabetic kidney disease cohorts, which stands at 32 participants. On the IgA Nephropathy side, we're at 70% enrollment, which works out to 21 people, and the African American groups are at about 60%, or 17 people. Enrollment in both the IgA Nephropathy and African American cohorts has been slower to build, and COVID is still weighing on them. Two additional sites have now been identified and qualified, and activation should happen very shortly. With new COVID cases down so sharply, vaccines recently becoming available, and these extra sites coming on, our expectation remains that enrollment in both cohorts will wrap up during the second half of 2021. At this point I'll turn it over to Scott Kellen, who will take us through the first quarter's financial results.

Thanks, Rick. Hello, everybody. As Rick said, we reported our Q1 results and submitted our Form 10-Q quarterly filing yesterday afternoon. In case you haven't looked at those yet, you can find both on the DiaMedica site or the SEC site. For Q1 of 2021, we posted a net loss of $3.6 million, which works out to $0.19 per share. That's against a net loss of $2.4 million, or $0.19 per share, during the equivalent stretch a year earlier. R&D spending came to $2.4 million across the 3 months closing March 31, 2021 — a $1 million rise from $1.4 million during the 3 months closing March 31, 2020. Several things drove that bump, among them year-over-year growth in costs for the REDUX Phase 2 CKD study plus expenses tied to more staff, consulting services and non-clinical testing needed to get us ready for the ReMEDy 2 Phase 2/3 stroke study. Those gains, though, were partly balanced out by a year-over-year drop in costs for the ReMEDy Phase 2 stroke study, which wrapped up in 2020. G&A costs reached $1.2 million over the 3 months closing March 31, 2021, a modest rise from $1.1 million in the same stretch last year. That G&A increase came mostly from higher director and officer liability insurance premiums along with greater personnel costs and non-cash share-based compensation. Turning to the balance sheet, we closed Q1 of 2021 holding $23.4 million in cash, cash equivalents and marketable securities. Current liabilities stood at $1.2 million, with working capital of $23 million — versus $27.5 million in cash, cash equivalents and marketable securities, $2 million in current liabilities and $25.9 million in working capital at the close of 2020. Those declines in combined cash resources and in working capital stem mainly from clinical study costs for the REDUX Phase 2 CKD study and expenses tied to preparing for our ReMEDy2 Phase 2/3 stroke study. With our present capital position, we ought to be able to finish all 3 cohorts, run the REDUX Phase 2 clinical study, kick off the Phase 2/3 study in acute ischemic stroke, and keep funding our planned operations through mid-2022. Let me now hand the call back to Rick.

Thanks, Scott. At this point we want to take questions from the line. Operator, please go ahead and bring on our first analyst.

Alex, good morning to you. Thanks for the question. So once we received approval to move forward with that trial, the intention on our side is to file with the FDA seeking fast-track status.

All right. And we're talking about that review of 60 days, is that right?

Yes, exactly.

All right, that sounds excellent. Regarding the IND, it doesn't seem like you have much concern. Is there anything specific we should be aware of that could cause the FDA to hesitate during the IND submission, or do you anticipate a pretty routine review?

Yeah, the brief response is that our confidence is high. However, as everyone knows, a possibility always exists. New questions or concerns could come back from the FDA; the fact that we received written feedback from the FDA in December was quite helpful for us, and we are adhering to their guidance and comments. And, yes, we are optimistic that this will be — it feels like it would be favorable.

Okay, got it. Then perhaps you could provide a few benchmarks for how we should approach the kidney readout in DKD? The information available for comparison consists of, clearly, the Phase 1b trial you completed, the kidney studies conducted in China, plus additional CKD therapies currently in development; so from an EGFR and a UACR perspective, what results would you want to see before declaring success? Yeah, so once more, this is a study lasting 3 months; we have 2 distinct doses, and we're measuring against baseline. And so — and in the best case, if we were able to observe a reduction in UACR proteinuria while also seeing EGFR remain stable or rise, that would make us quite happy.

All right, that makes sense. Then here's my final question. Enrollment for DKD wrapped up in December, and those 90 days bring us to March. What more do you need to do on your side before you can review the data with the goal of eventually publishing it? And tied to that, should we anticipate a comparable schedule for the remaining 2 cohorts later in the year, since the press release said enrollment would be finished during the second half of 2021? Does that refer to having a readout within the second half of 2021, or merely getting enrollment done?

Alex, when it comes to the REDUX CKD cohort 3 DKD, you've got that right. Right now the lab runs some of its assays in batches, so while all the patients have been enrolled, we still need the results to arrive. We're going through a process aimed at making sure the data is accurate. And for DKD, we expect that data will need to be reported out in early June. As for the other 2 cohorts, 1 and 2 respectively, those will be reported out before the year ends.

That's fantastic. Thanks for the update—appreciate it.

Terrific, and thanks for taking my question. So for my first one, I suppose: have you heard anything anecdotal regarding where patients stand as they leave the cohorts in the DKD trial?

Looking at the data one case at a time isn't something we favor. Our aim is to be certain we possess the full set, so we can thoroughly grasp and analyze it. Therefore, right now, we can't provide an answer to that until a final report is available to us.

Understood. Then perhaps — along the same lines, I suppose — regarding, sort of, how many patients in the trials are receiving SGLT2 inhibitors, and I suppose what I'm really asking about isn't just the data readout itself, but your thinking on, sort of, what it means for Phase 3 design, since as you'd expect, maybe a larger number of patients would, sort of, by now be on, sort of, SGLT2 inhibitors and have DKD, or simply your views on that. Yeah, I'd say first, the plan is that we'll let the data guide us, based on the 3 cohorts. Our expectation is that the more probable route here is for IgA nephropathy; we believe that represents a — it is a quite obvious route, in terms of a rare disease, where there's potential to obtain conditional approval following 6 months on the basis of proteinuria, full approval, 2 years in EGFR; and after that, over a longer horizon, we see the opportunity in diabetic kidney disease. And DM199's mechanism of action is really about improving vascular turf, whereas the SGLT2s work by excreting glucose through the urine. So our view is that it's a distinct mechanism that in the end might be complementary, though that's something we'll need to examine more closely as we go through our data.

Wonderful, thanks. I can't wait to see all the news coming in 2021.

Thanks so much, Etzer.

Hey, I appreciate you taking the questions. I've got a couple here. Regarding the strategy for stroke recurrence, could you discuss a bit about when you plan to approach the FDA and what the possible outcomes might be? Would that be a secondary outcome, a co-primary outcome, an entirely new study — any thoughts on that? And to finish that answer, could you elaborate a bit more on how the mechanism of action works for stabilizing plaque and why that would make a great deal of sense for stroke recurrence?

Sure. Here's how our approach stands: assuming we get clearance to proceed with the existing trial in its proposed form, we're currently reviewing several options for addressing stroke recurrence — one being a sub-study nested within the Phase 2/3. We're likewise looking into whether co-primary endpoints might work, with the caveat that neither would have to be met, plus the chance of running a distinct trial. Turning to the Phase 2 results — a small study, as we noted before — for severe recurrent strokes the counts were 7 patients on placebo versus 1 on drug. For ischemic recurrent strokes, the numbers came out at 6 on placebo and 0 on drug. When you look at how the drug actually works — and we covered this extensively during our recent KOL events — we think KLK1 and DM199 have real potential to stabilize plaque. We also believe this could apply across small vessel, medium vessel, and large vessel occlusions. That's a big deal for us, and it's something we're continuing to investigate. But even at the very least, lowering the chances of stroke recurrence matters a great deal, both as part of the rationale and based on what we've observed with our protein along with the data reported for the urinary form in Asia today.

All right, that's great. So if I could slip in a few additional ones here, after the DKD data comes out, is there anything to extrapolate here — you mentioned what you'd want to observe regarding eGFR, and clearly it's only 3 months in the protein area, but is there anything there we could consider for the IgA Nephropathy data? And on that data, how important would it be to perhaps see certain key biomarkers on the IgG and IgA side?

Yes. So the study's aim is to view this through a basket approach. We therefore have 3 distinct cohorts, and our overall feeling is that DM199 will enhance kidney function across varying causes of kidney disease, though we'd truly want to find out whether differences exist among the cohorts. And once more, as you pointed out, 1 of the elements that, I believe, I'm also enthusiastic about with the IgA, is the possibility of it being thought of as disease modifying. And part of that reasoning comes from some of our preclinical work conducted in a type 1 animal model, where we observed a significant increase in Tregs and also a halting of the autoimmune attack. So should that hold true, we believe the potential for our drug to not merely improve kidney function, but possibly to assist with the autoimmune attack, I think, could deliver a greater impact and a greater differentiator from other compounds currently in development.

All right, excellent. And then one final item regarding the 2022 stroke study, I suppose. You mentioned interim results, so could you assist us in grasping whether that remains blinded, and what exactly factors into that outcome even if we aren't directly observing the efficacy we're able to infer from the interim 1 in 2022? Thanks.

Certainly. The approach is that once roughly 40% of patients have finished and been sold up, the DSMB will convene, an interim analysis will take place, DiaMedica will stay blinded, and there are essentially 3 possible scenarios. The first is to keep the study going as designed — meaning if the data arrives the way we expect, we've powered the study for a 15% absolute improvement in excellent outcomes. Should the data arrive below expectations — say, somewhere between 5% and 10% — we'd be able to expand the size of the study. And in the case of no effect from the drug, or minimal effects, meaning outcomes fall below 4 or 5 excellent outcomes, we would halt the study. So I believe it ought to provide us a solid signal regarding whether the drug's efficacy is arriving as expected.