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

Thanks, operator. Morning, everyone, and thanks for being with us today. This is our second quarter 2021 earnings and business call update, and we're glad to have you. After trading wrapped up yesterday, we put out a press release covering a business update along with a summary of the financial results for Q2 2021. We also submitted our quarterly reports on Form 10-Q at that point. You can locate both of those documents in the Investor Relations area of our site, diamedica.com. With me this morning are Scott Kellen, our Chief Financial Officer, and Dr. Harry Alcorn, our Senior Vice President of Clinical Operations. Because we had a clinical update call at the end of June, our prepared remarks will be short today, and then we'll open things up for your questions. To start, I want to call attention to the positive interim data from the REDUX Phase 2 chronic kidney disease study that we announced at the end of June. REDUX was set up as a signal finding study covering 3 different causes of chronic kidney disease. Keep in mind that for chronic kidney disease patients, kidney function gets worse as time passes. It doesn't get better by itself, and no therapies currently exist that bring kidney function back. So today's treatments are aimed at slowing how fast that decline happens. What we're hoping to see from REDUX, as the primary signal or signals, is an absolute drop in the UACR, a measure of albuminuria, together with eGFR that's stable to increasing — that would point to the possibility of maintaining or improving kidney function, something entirely new for patients dealing with chronic kidney disease, or CKD. Beyond that, we're looking for signals that give further evidence of how DM199 works; take blood pressure reductions among hypertensive patients, along with kidney biomarkers. Mechanisms like these might either contribute to better kidney function or deliver extra clinical benefit of value to CKD patients; for instance, again, bringing blood pressure down could lower the risk for cardiovascular disease or heart attacks, and strokes as well. As we said in June, the interim data from REDUX gave us what we consider meaningful signals of kidney function that's stable to improving, plus mechanistic blood pressure control. Those signals line up with both the hypothesized mechanism of action for DM199 and the data from our Phase 1b study in CKD patients, as well as the clinical use of porcine KLK1 in Asia today. The interim results also keep confirming how excellent the safety and tolerability profile of DM199 is in the CKD patient population; we were especially encouraged by what we saw in the IgA nephropathy cohort. Within this group, DM199 showed a statistically significant decrease in the urinary albumin to creatinine ratio, or UACR, along with stabilizing of the estimated glomerular filtration rate, or eGFR. UACR fell by an average of 33% in patients with moderate to severe albuminuria, with a statistically significant p-value of 0.002, which essentially tells us that nearly all of the participants so far in this group saw an improvement in their UACR levels. Also, eGFR readings stayed steady. Our view is that DM199 could become the initial compound to satisfy the FDA's rare CKD criteria for conditional approval in IgA nephropathy—an uncommon source of CKD—meaning a reduction in UACR of at least 30% sustained beyond 6 months. One more point, just for context. Three patients in the IgAN cohort asked us to keep giving them treatment under compassionate use, since these individuals' vitals didn't merely get better—they also reported feeling improved while on DM199. It's rare for a trial of this size to generate direct feedback from several patients about feeling better or about how treatment has enhanced their quality of life. Still, hearing that from these patients makes all the difficulties of creating a new therapy for patients feel worth it; overall, we observed clinical gains matching the DM199 mechanism of action in every study cohort, which in our view is a distinct signal that DM199 has biological activity, including among the diabetic kidney disease cohorts with hypertension, where participants experienced a statistically significant drop in blood pressure. Our view is that combining these signals—mechanistic validation plus biologic activity—is assembling a persuasive data set for DM199, provided the final REDUX data holds up. If so, REDUX will meet our goal and confirm our approach of targeting rare forms and causes of chronic kidney disease, while the primary emphasis stays on IgA nephropathy. As a reminder, we anticipate further data from the study—covering kidney function, blood pressure control, and IgAN biomarkers, plus dosing level specifics—will be shared at the American Society of Nephrology Annual Meeting in November of this year. Now to our lead program in acute ischemic stroke. Our near-term priority, our IND application to the FDA for an adaptive Phase 2/3 clinical trial of DM199, gained FDA acceptance earlier this year in mid-May. Launching the trial is proceeding as planned. And we continue to expect the first study sites to be initiated and open for enrollment by the end of the summer. It's also worth noting that the biological activity and mechanistic signals—including blood pressure reductions among hypertensive patients in the interim data from the REDUX trial—give us still greater confidence in DM199's potential to improve patient outcomes after a stroke and to lower the risk of stroke recurrence. Our ReMEDy2 Phase 2/3 trial is a double-blinded, placebo-controlled, randomized study of roughly 350 participants. It is based on 90% powering for statistical significance on the primary endpoint of excellent outcomes with the modified Rankin Scale at day 90. Following consultations with numerous regulatory and statistical experts, as well as vascular neurologists, we are adding prevention of stroke recurrence as an independent co-primary endpoint for the study. Note, this alters nothing regarding the design or execution of this study. Crucially, it provides us a second endpoint, which might also serve as the basis for approval of DM199 as a second separate use. Recurrent strokes make up 25% of acute ischemic strokes occurring now. Those events tend to cause greater disability, cost more, and prove deadlier. As you may remember, our ReMEDy2 Phase 2 trial showed a statistically significant drop in severe stroke reoccurrence. On an absolute basis that came to a 13% reduction, which works out to an 86% reduction relatively. For context, roughly 25 strokes today are repeat events. That means among 100 stroke patients, you'd expect 25 out of 100 to suffer a second stroke. According to the reduction rate seen in our ReMEDy Phase 2 trial, that figure would fall from 25 of 100 to 4 of 100. Because recurrent strokes tend to hit people who've had a stroke harder, this stands out as an especially meaningful potential advantage of DM199. And I believe it's clear why we want to elevate stroke reoccurrence into an independent co-primary endpoint for the study. We're additionally getting ready to publish a broader rationale for DM199 in stroke recurrence, which will cover plaque stabilization plus endothelial and blood pressure improvements. Secondary endpoints for the ReMEDy2 study will cover mRS shift, the NIHSS scale, Barthel Index scores, death, safety, tolerability measures, and biomarkers tied to KLK1. The ReMEDy study will aim at up to 80% of acute ischemic stroke patients lacking any treatment option at present. These are patients ineligible for, or not given, tPA or mechanical thrombectomy. Our belief is that ReMEDy2 could function as a pivotal study of DM199 within this patient population. We're getting ready for up to 75 sites in the U.S. With ReMEDy2, we have a feel for the pace of site activation and enrollment. We'll give an update on expected timing for the interim analysis, planned for once roughly 40% of patients have finished the study; we've also submitted an application to the FDA seeking fast track designation for DM199. That application went in during July. And as strongly as we believe it ought to be granted, I remind you that issuance is not a certainty. Now I'll turn things over to Scott Kellen, who will walk us through the financial results for the first quarter.

Thanks, Rick, and good morning to all of you. As Rick said, we've put out our financial results for the second quarter, and yesterday afternoon we filed our Form 10-Q quarterly report. In case you haven't looked at those documents yet, you can find both of them on the DiaMedica website or on the SEC's site. R&D expenses for the quarter came in at $2.2 million, which is an increase from $1.6 million during the 3 months that ended June 30, 2020. For the 6 months that ended June 30, 2021, R&D expenses rose to $4.6 million, versus $2.9 million in the same period a year earlier. Several things drove that 6-month increase, among them costs for our ReMEDy2 clinical study, higher year-over-year costs tied to manufacturing process development, our REDUX Phase 2 CKD study, and greater personnel costs from added staff brought on to support R&D operations. Those increases were partly offset by lower costs for our ReMEDy Phase 2 stroke study, which wrapped up in the prior year. G&A expenses totaled $1.2 million in the second quarter, compared with $1.1 million a year earlier. For the 6 months that ended June 30, 2021, G&A expenses climbed to $2.4 million, which is $0.2 million above the $2.2 million recorded for the 6 months that ended June 30, 2020. That 6-month increase was mainly the result of higher professional service costs and greater personnel costs needed to support our growing clinical programs. Now on to the balance sheet. Cash, cash equivalents and marketable securities stood at $21.3 million. Current liabilities came to $1.4 million, giving us working capital of $20.2 million as of June 30, 2021. That compares with $27.5 million in cash and securities, $2 million in current liabilities and $25.9 million in working capital as of December 31, 2020. The declines in combined cash, cash equivalents and marketable securities, and in working capital, stem mainly from higher clinical study costs related to preparing for a pivotal ReMEDy2 Phase 2/3 stroke study, costs for our REDUX Phase 2 CKD study, and greater costs for manufacturing development. Net cash used in operating activities for the 6 months that ended June 30, 2021, was $6.4 million, versus $3.8 million for the 6 months that ended June 30, 2020. That rise is mostly tied to the larger net loss, partly offset by non-cash share based compensation and the effects of changes in operating assets and liabilities. Looking ahead, if we keep running operations as currently planned, our cash would carry us into the third quarter of 2021 — sorry, of 2022. And naturally, as you'd anticipate, there are levers we can pull to cut back on delayed expenditures that aren't directly helping move the ReMEDy2 pivotal trial forward, which would stretch our runway nearer to the close of 2022, so we can reduce the extra capital needed to carry us through the interim analysis for the ReMEDy trial and provide additional time to concentrate on regional partnerships. So now I'll hand the call back to Rick.

Thanks, Scott. At this point we want to turn things over to Q&A. Operator, could you bring in our first analyst, please?

Thanks a lot. Appreciate you taking my questions. I just want to clarify something first, Rick, regarding the fast track for DM199 — was that specifically for stroke? Also, I was curious whether you've had any discussions with regulators about the CKD data since you disclosed it at the end of June. If you haven't, how are you considering the timing of those interactions, especially for IgA nephropathy within the hypertensive African-American cohorts? Thanks.

Of course. Thanks, Etzer. That's right — the fast-track designation covered stroke outcomes specifically, for the excellent outcomes. On your second point: right now we're reviewing where things stand midway through REDUX and weighing what choices we have as we push toward finishing that trial more fully. As of today, our view hasn't changed — IgA nephropathy remains the main indication we're pursuing. When we speak with members of our SAB in particular, they've likewise shown real enthusiasm about certain early findings among African-American patients with hypertension. So the data review continues. And as the study moves to completion, that window lets us begin mapping out what comes next for the kidney program.

Understood, thank you very much.

Morning, everybody. Rick, to build on what comes after this, could you elaborate on what those subsequent actions might involve, given the information you currently have for IgAN and for African-Americans? Would a bigger trial in those groups be required prior to advancing to a pivotal one? Or do you believe at this point that a pivotal trial would very likely be feasible?

Yeah, that's an excellent question, Alex. That is precisely the thing we are examining. We're reviewing a few different alternatives going forward and considering a possible route ahead. We clearly envision a route ahead when it comes to kidney disease, though we now have some time as we wrap up the study to figure out what that route will be. More specifically, it will involve evaluating a Phase 2b or a Phase 3, while also ensuring our current priority remains our acute ischemic stroke pivotal trial.

Alright, that's clear to me. So, how many locations do you anticipate will be active for the pivotal stroke trial during this summer? Also, following up on what Scott mentioned regarding partnerships by region, could you elaborate a bit on those discussions you're currently having, for both stroke and kidney?

Regarding the count of locations we are considering for the stroke trial at present, we are collaborating with a lab named Labcorp Covance, which serves as our CRO. We are aiming for as many as 20 locations to be up and running before the year concludes for that stroke study.

And Alex, regarding partnerships. As you remember, a few years back we had to end things with Ahon, that pharmaceutical firm in China, after they attempted to pressure us into handing over the manufacturing technology. Back then, we mentioned that we wanted to hold off on going much further along that route until we saw the IgAN data results, given how significant IgAN is as an indication in China. Keep in mind, over there it's 2 million people a year, compared with 140,000 here in the U.S. So now that we have those results, we feel quite confident about being able to hold those discussions. So I suppose the best way to respond to your question is this: yes, we are open to partnering. It's the source we prefer for raising extra capital, and there's nothing we can share publicly right now.

No, got it. Thanks for the details about the site — my apologies. Perhaps one more item, this time regarding the study you're kicking off. What kind of extra staffing, or I suppose infrastructure, would the company have to put in place ahead of launching the pivotal trial later this summer?

Yes. Excellent question, Alex. At present, we intend to bring on a couple of additional support staff for Harry's clinical group. That said, a CRO is handling things for us, and all of it remains on schedule.

That sounds excellent. I'm grateful for the news. Thank you.

Hello, everyone. I appreciate you answering my question. Hi there, Rick. I just need some clarification regarding the coprimary endpoint. You mentioned it was independent and coprimary, and for me that phrasing is somewhat uncommon. So the two are entirely separate, which means that even if the current study fails, as long as you achieve success on the previous primary end point, the trial would still count as a success, correct? Is my understanding right?

Yes, exactly. The key point is that including stroke recurrence as a separate coprimary endpoint won't undermine the statistical power behind the strong mRS results.