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

Thanks, Chris. Good morning, everyone, and thanks for joining us today. Welcome to this call, where we'll discuss our third quarter earnings and provide a business update. On November 11, 2021, after the market had closed yesterday, we issued a press release summarizing our financial results for the third quarter of 2021 along with a general update. Simultaneously, we submitted our quarterly reports on Form 10-Q. Both documents are available in the Investor Relations section of our website, diamedica.com. Joining me this morning are Scott Kellen, our Chief Financial Officer, and Dr. Harry Alcorn, our Senior Vice President of Clinical Operations. I want to begin by providing an update on DM199, our lead program, which is aimed at treating acute ischemic stroke. For the remainder of today, I'll refer to that as AIS. Our pivotal ReMEDy2 clinical trial is a Phase 2/3 clinical study assessing DM199 as a treatment for AIS. It's a randomized, double-blind, placebo-controlled study that will enroll up to approximately 350 patients; an interim analysis will occur after roughly 40%, or 140 participants, have completed 90 days. This represents our primary near-term focus. Let me start by noting that over the past few months we've had some very encouraging interactions with the FDA. In September, the FDA approved their application and granted fast track designation to DM199 for treating AIS. We view this as a significant milestone in developing our product, since it underscores the considerable unmet medical need among patients who suffer a stroke, a field where no new or meaningful therapeutic advance has emerged in 25 years. Thanks to the Fast Track designation, we can interact with the FDA more frequently, which allows us to discuss things like our development plan, questions about clinical trial design, the use of biomarkers, and how much data would be needed for potential approval. Fast Track designation could eventually make DM199 eligible for accelerated and priority review of a new drug approval application, provided certain criterias are met. Second, as we announced earlier this week, the FDA accepted our protocol amendment for the ReMEDy2 trial, elevating stroke reoccurrence to an additional independent primary endpoint. The trial now has two independent primary endpoints centered on the two very important factors that patients who had a stroke experience; namely, the initial physical recovery from the stroke, and second, avoiding a second or recurrent stroke. Our rationale for elevating stroke recurrence to an independent primary endpoint comes from results in our prior Phase 2 stroke study and a supporting mechanism of action. In that earlier Phase 2 trial of 91 participants, there was a statistically significant reduction in recurrent ischemic strokes of 13% on an absolute basis, or 100% reduction on a relative; this was based upon six recurrent strokes in the placebo group, while there was none in the DM199 treatment group. We saw an impact that was bigger and clinically meaningful in patients who hadn't received mechanical thrombectomy prior to enrolling; that subgroup looks most like the population being studied in our ReMEDy2 trial. About 1 in 4 strokes that happen nowadays are recurrent. The risk of such an event climbs particularly in the first several weeks after an initial stroke, and these events usually lead to greater disability, higher costs, and death more frequently than a first stroke. For patients, this might mean a particularly significant benefit from DM199. I'd also like to point out that ReMEDy2's design provides the statistical power needed to assess DM199's efficacy on either or both independent primary endpoints. In addition, the protocol amendment keeps the treatment, inclusion and exclusion criteria, trial length, and study population the same. We look forward to ongoing cooperation with the FDA as we advance our stroke program. Now, on the study's status, we've activated the first site in the Stroke trial. And it's our great pleasure to report that our first patient has been enrolled as well. We're actively working with over 50 potential study sites, which are at various stages of evaluation — from contracting through IRB review, plus the planning phase. Some delays have come up during startup. Per the sites, they remain short-staffed and have trouble finding qualified research personnel to hire. Among sites currently in process, we're seeing slower turnaround on essential documents. The sites attribute this staffing challenge to the summertime surge in COVID-19 infections driven by the Delta variant, which isn't surprising, and the effects are partly region-specific based on Delta levels across the country. Our startup timelines, we believe, have slipped a few months behind. Even so, our clinical team has been coordinating with members of our Scientific Advisory Board and other physicians in our network to reach out directly to neurologists at key study sites, in order to gain their support and make ReMEDy2 a priority study for those institutions, all while working closely with our contract research organizations. This effort is now producing a meaningful response. As for when we expect things to happen, our projected study timelines rely on a highly conservative enrollment assumption of 1 patient per 4 months at each site. That assumption comes from historical stroke studies with short treatment windows and often tied to serious possible adverse effects. This gives us some upside if actual rates increase — even if only slightly; given our 24-hour treatment window, the strong safety potential profile, the possibility of improving both stroke recoveries and, crucially, lowering the risk of stroke recurrence, together with the absence of treatment options, we think there's a solid likelihood we can reach higher enrollment rates. We expect the interim analysis to wrap up at some point in the first half of 2023. Once we have clearer insight into how sites are activating and how quickly patients are enrolling, we'll be sure to keep everyone updated. Moving on, I'd like to briefly update you on our REDUX Phase Two study of DM199 in chronic kidney disease. Last week, at the Annual American Society of Nephrology Kidney Week conference, we were able to present further data from the REDUX trial. Most of that new data came out of the IgA Nephropathy cohort, where we continue to observe meaningful reductions in albuminuria. To be specific, for patients receiving the 2 microgram per kg dose who had moderate to severe albuminuria at baseline, we saw a drop of over 30% in albuminuria after 90 days of treatment. In addition, at that same dose, patients demonstrated encouraging declines in two important biomarkers for IgA Nephropathy: proliferation inducing ligand, or APRIL, which fell by 30%, and IgA1, which fell by 20%. These biomarker gains are early indicators that DM199 might be able to modify the disease in this population. Given that, we believe the data collected so far for DM199 in IgA Nephropathy patients suggest DM199 could provide clinically meaningful benefits to these individuals, and we think that with longer term treatment, there's potential for improved efficacy in these patients. I'd also like to touch briefly on DM199 for the hypertensive African American cohorts, which demonstrated reductions in systolic and diastolic blood pressure of 19 and 12 millimeters of mercury, respectively, at the two microgram per kg dose level. Even more importantly, from a mechanism of action perspective, there is minimal blood pressure change in normotensive patients, particularly those in the IgA Nephropathy cohort. That lends further support to our Stroke study, where bringing blood pressure down might also help reduce the risk of stroke reoccurrence, given that high blood pressure following a stroke is a leading contributor to a recurrent stroke. And it's worth noting that neurologists shouldn't have to be concerned about blood pressure drops in normotensive patients, or about patients becoming hypertensive; this is yet another demonstration of the selective activity of the DM199 mechanism of action. These positive signals from our REDUX study are encouraging, and they support future development of DM199 for renal diseases. The improvements we observed all point to a better physiological effect from DM199 treatment, and they also provide added support for our study of DM199 in treating stroke. Although the positive signals from our REDUX study justify further development, our near-term focus is still on our stroke pivotal trial. As of November 11, 2021, I'll now hand things over to Scott Kellen, who will walk us through the financial results for the third quarter.

Thank you, Rick. Good morning to all of you. As Rick noted, yesterday afternoon we released our financial results for the third quarter and submitted the quarterly report; once more, both of these documents can be found on the DiaMedica and SEC websites. Beginning with the balance sheet, which we bolstered substantially in September when we closed a private placement worth $30 million involving 10 accredited investors. We received net proceeds of roughly $29.9 million from that transaction, and by September 30, 2021, our cash, cash equivalents and marketable securities had risen to $48.1 million, compared with $27.5 million at the close of December 2020. In our view, the cash we currently hold will fund the clinical development of DM199 as well as our operations through the end of 2023. Turning to research and development expenses, these rose modestly in the third quarter to $2.3 million, versus $2.2 million during the same period a year earlier, while R&D expenses climbed to $6.9 million across the 9 months ended September 30, 2021, versus $5.1 million across the 9 months ended September 30, 2020, which represents a $1.8 million increase. Several factors drove the rise in the 9 month comparison, among them costs we incurred for our pivotal ReMEDy2 clinical study, higher year-over-year costs tied to manufacturing process development, and greater personnel costs from adding staff to support R&D operations. Partially offsetting these increases were lower costs incurred for our ReMEDy Phase 2 Stroke study, which wrapped up in the prior year, and for a REDUX study, as enrollment numbers fell during that study's later stages. Our general and administrative expenses came to $1.1 million in the third quarter, a decrease from $1.2 million in the same period a year earlier. G&A expenses rose to $3.5 million across the 9 months ended September 30, 2021, which is $0.2 million above the $3.3 million recorded across the 9 months ended September 30, 2020. The rise in the 9-month comparison stemmed mainly from higher professional services costs and greater personnel costs needed to support our growing clinical programs. Partially offsetting those increases were lower noncash share-based compensation costs. Net cash used in operating activities came to $9.4 million across the 9 months ended September 2021, versus $6.2 million across the 9 months ended September 2020. These increases are tied mainly to the larger net loss in the current year, and were partially offset by noncash share-based compensation along with the effects of changes in operating assets and liabilities. And to repeat, in our view the capital we currently hold will fund the clinical development of DM199 as well as our operations through the end of 2023. Now, I'll hand the call back to Rick.

Thank you, Scott. As you're able to see, our third quarter proved quite productive. Considerable strides were made with our lead program targeting stroke — we launched a pivotal trial and brought additional activated clinical sites on board. The trial protocol was also broadened so that recurrent stroke is now formally incorporated as a second independent primary endpoint, which might additionally serve as the foundation for approving DM199 under a potential separate label, and we secured FDA Fast Track designation for DM199 for treating these patients. Important confirmation regarding how DM199 works mechanistically came to us as well from our REDUX Phase 2 trial, along with additional direction concerning what comes next for our DM199 program in renal disease. Last, we reinforced our balance sheet, and we're well-positioned to carry out the plans we went over today. With that said, I'd like to open up the call for — to the operator. Operator, would you please introduce the first analyst?

Thanks. Morning, all. I wanted to ask about what comes next for the chronic kidney disease data. Findings from Kidney Week appeared solid. I'd describe them as comparable to the interim update we received a few months ago, which leaned more toward the IgA Nephropathy cohort. Where do you see this heading? Would you grow the Phase 2 so that more patients enroll in that particular cohort? Would you start a fresh trial, a Phase 2b? Or would you bring it to the FDA and seek guidance on subsequent steps, possibly pivotal?

Yeah. Appreciate that, Alex. So, yeah, honestly — at present, stroke is unmistakably where our attention sits. That means no update right now regarding what lies ahead for CKD. That said, I'll note we are examining the data with greater care. And I'd say we feel quite encouraged by certain biomarker results indicating some early signals of disease modifying. So we'll speak with our Scientific Advisory Board and other parties, and evaluate the future paths. Still, we truly want to ensure our focus remains on the Stroke program.

Yeah, that's clear. I'd like to get a sense of the current number of sites that are actively enrolling patients into the Stroke program. Also, regarding that interim readout from the first half of 2023 — does that timeline being somewhat delayed versus what you initially expected perhaps tie back to some of the site enrollment difficulties you've had because of the Delta variant?

Right, so one site is now up and running. As I said earlier, 50 sites are at varying points when it comes to advancing them; what we've discovered is that we're running a few months behind our initial timelines. The two main factors at play here are site enrollment — and I'd say we're quite encouraged that no competing studies are showing up. That said, staffing problems have genuinely been an issue across many of the sites. The second major piece is how many patients get added each month at each site. Currently we're modeling this on a rate of one patient per site every 4 months, drawn from historical levels; and we have confidence in what the profile looks like — so picture a patient arriving at the hospital in a distress situation; a decision has to be made, and they've got 24 hours to make it; they show up first, and crucially, this drug we believe is safe; it's just replenishing a protein that's deficient. Should a patient be lucky enough to receive therapy, we think it could genuinely transform their chances of achieving a recovery at the 90-day mark. Yet perhaps the even stronger rationale for why patients ought to think about enrolling is this: the danger of another stroke occurring within the initial weeks following the first one — often those are far more devastating, and it's something both the patient and their caregiver should feel real concern about. Given that profile, we believe there's a genuine possibility that patient recruitment might come in significantly above what we're projecting, though on the basis < > we consider these our conservative recruitment estimates.

Yes, that makes sense. Do you intend to file for a separate Fast Track and/or breakthrough designation for stroke recurrence? Then, regarding the personnel build-up to prepare the company for this much larger study — who else do you need to bring on board so you're fully positioned as you move through this?

Yes. At present, we hold the Fast Track designation, and we're examining other expedited pathways, possibly including breakthrough status for stroke reoccurrence. As for the study, several new staff have joined Harry's team. We're collaborating closely with our contract research organization; additionally, we're in the process of adding a Chief Medical Officer to further assist and enable us to execute, with our focus right now squarely on getting the study fully enrolled and getting the data.

Okay, that's good. I appreciate the update, thank you.

Morning, and thanks for taking our questions. Rick, I just want to clarify something: for the Stroke study, is every site located in the U.S., or are some outside the country too?

They're all going to be in the U.S. We may consider broadening that later on, but at this point the U.S. is where we're concentrating.

And with that said, might you spend a moment addressing the matter that remains open as of today — that of alpha splitting within the Stroke study, across the two endpoints — and sort of where your thinking stands on it?

Right. So to begin with, our aim is to obtain clarity from the FDA regarding whether they find our protocol amendments acceptable, in which we have two separate primary endpoints: stroke recovery along with stroke recurrence. So that is now in place, and we could not be more pleased. At this point, as we work toward finalizing our statistical analysis plan, we intend to examine the possibility of having no alpha splitting at all. So that is one thing under consideration on our end. Yet what matters greatly is this: should statistical significance appear on both stroke recovery and stroke occurrence, that would represent an enormous win in our eyes.