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

Thanks, Julie. Morning, everyone, and thanks for joining our business update and earnings call for year-end 2021. After the market shut yesterday, we put out a press release that summarized the financial results for our fourth quarter of 2021 and gave a general update. We also filed our quarterly report on Form 10-Q at that time. You can find both of those documents in the Investor Relations area of our site, diamedica.com. With me this morning are our Chief Financial Officer, Scott Kellen; our Chief Medical Officer; Kirsten Gruis, who serves as our Chief Commercial Officer; Dominic Cundari; and Harry Alcorn, our Senior VP of Clinical Operations. I want to start today by introducing the 2 newest people on our executive team. Kirsten is a board-certified neurologist with experience in clinical medicine as well as drug development. She advanced and taught at the University of Michigan and the State University of New York in Syracuse. Her drug development career started at Pfizer, and she has worked with organizations both large and small, among them leading one of the neurological divisions at Roche, and she brings hands-on experience guiding multiple compounds through the clinical and regulatory process in the U.S. and Europe. Dominic Cundari brings more than 30 years of commercial experience with Genentech, which includes managing growth of the Activase or tPA franchise as it became the first approved therapeutic for treating acute ischemic stroke. Don also supplied commercial leadership for LUCENTIS, the blockbuster macular degeneration treatments. We feel very fortunate that both of these individuals have joined our team, and we figured you might want to hear from these 2 and learn their perspective and what drew them to our team; so let's begin with Dr. Gruis.

Thank you, Rick. There were three primary reasons why the company appealed to me. To begin with, I was drawn by the repeated results seen across many randomized controlled trials, published in peer-reviewed medical journals from Asia, which consistently showed clinical gains for acute ischemic stroke patients who were given the human urinary derived version of KLK1. Next, I found the way KLK1 works compelling, since it selectively dilates arteries, and that could enhance collateral blood flow into the ischemic region of the brain, leading to better stroke recovery; on top of that, better collateral circulation might lower the chance that a stroke happens again because a blood vessel recloses. And finally, the company invested effort in aligning the PK profile of DM199, which is the recombinant version of KLK1, with the urinary version of KLK1 that had already shown clinical improvement in repeated trials; the purpose was to fine-tune the dosing schedule for DM199 in stroke studies. When you put all of this together, those three reasons are exactly what pulled me toward the company, because they raise the odds that a clinical trial of recombinant DM199 in acute ischemic stroke will succeed.

Perfect. Kirsten, thanks so much — we couldn't be happier that you're now part of this team. At this point, let's turn things over to Dominic.

Absolutely. Thanks, Rick. Upon looking into DiaMedica and DM199, what struck me right away was that DM199 isn't just a small step forward — it isn't merely an incremental therapeutic approach, but rather a treatment capable of meaningfully moving stroke care ahead for a substantial population of ischemic stroke patients. For roughly the last 20 years, my work in acute ischemic stroke has centered on collaborating with hospital neurologists at the front end, within a 0 to 4.5-hour window for administering TPA. Sadly, just around 1/3 of acute ischemic stroke patients arrive at the hospital inside that tight window. And among those, roughly half qualify for TPA. The end outcome, then, is that merely about 8% of all stroke patients who are admitted actually receive TPA. Usually, someone with a stroke will spend 5 or 6 days in the hospital under physician monitoring, possibly with another CT or MRI scan, and maybe an anticoagulant or an antiplatelet gets added into the treatment plan. Now, looking forward, according to Phase II data, DM199 may be able to lower visibility and decrease the chance of a recurrent stroke. Plus, with a treatment window broadened from 0 to 24 hours, each year more than 500,000 acute ischemic stroke patients could fit inside that window. So there's a real opportunity to push stroke care forward for a great many patients during the recovery phase of stroke. I should also mention that how DM199 works is clearly explained and well understood. Second, many clinical trials using human sourced KLK1 show safety along with better stroke recovery when it comes to lessening disability and cutting stroke recurrence. I'd also note that a recombinant version of DM199 will guarantee product purity and a plentiful supply; and finally, my belief is that the neurology customer base will warmly receive DM199. Thanks, Rick. 500,000.

Thank you, Don. We feel just as thrilled that you're becoming part of our team. And when all is said and done, our view is that patients will wind up being the ones who truly benefit. So at this point, I'd like to give you an update on our lead program — the Phase II/III ReMEDy2 trial of DM199, which is being studied for the treatment of acute ischemic stroke, or AIS. The way ReMEDy2 is designed has a few aspects that are interesting and distinct. It's a randomized, placebo-controlled study, and roughly 350 patients will be enrolled at clinical sites across the U.S. What makes the design stand out is our plan to evaluate 2 separate independent primary endpoints within the same study population. These endpoints include an assessment of stroke recovery — whether patients can get back to normal physical function, meaning things such as eating, sleeping, and driving independently — plus how often acute ischemic stroke recurs during the 3 months that follow the initial stroke. Every one of these endpoints carries clinical meaning and could deliver major benefits to stroke patients, along with their families and caregivers. It also hands us 2 chances to reach a better outcome with the FDA. The adaptive design of the study is the second distinctive element. In this context, adaptive means the interim analysis we intend to run once approximately 40%, or 140 patients, have finished enrollment. The study's Data Safety Monitoring Board, or DSMB, will go over the findings from those patients to gauge what effect DM199 is having on stroke recovery and on recurrence rates. With that assessment in hand, the DSMB will take one of several actions: halting the study for futility or for overwhelming efficacy, letting it proceed as planned, or raising the number of participants. The advantage there lies in being able to grow the sample size. Should the actual benefit appear to be arriving under the planned benefit level, the chance to add more patients lets us make sure we reach a statistically significant outcome and end up with a successful clinical trial. Using an adaptive trial design lets us manage clinical risk more effectively and improves our odds of finishing a successful trial. Keep in mind that we'll be blinded to the results of this analysis, learning only whether and how the DSMB advises us to proceed. Let me also touch briefly on the fact that DM199 was granted FDA Fast Track designation for treating AIS last year. That's a significant milestone, and it highlights the considerable unmet medical need among patients who suffer from AIS, an area where no new or meaningful therapeutic advancement has arrived in over 25 years. With Fast Track designation, we gain the chance for more frequent interactions with the FDA, and eventually DM199 may qualify for accelerated and priority review. As an update on the sites: we now have 10 sites under contract. And when we add the sites presently in the startup phase, we've engaged with more than 70% of our targeted number of sites for the trial. When we refer to startup sites, those are locations that have already undergone vetting, shown interest in taking part, and are moving toward activation so they can begin enrolling patients. Sadly, COVID is not something we can manage, but our clinical group keeps collaborating with people on our Scientific Advisory Board as well as other doctors in our network, reaching out straight to neurologists at important study sites so that ReMEDy2 becomes a priority study for their hospitals. Although it's regrettable that activation has moved somewhat slowly so far, we take encouragement from the fact that the problems have stemmed from COVID rather than from any worries regarding DM199 or how the study is designed. Given that COVID infections and hospitalizations have been falling quickly at the present rate, we feel optimistic that hospitals can bring their research staff back. We are additionally looking into extra measures that might help with site contracting and bringing in patients. We think we're in a strong position to connect with them and push this clinical trial forward. Regarding when we expect things to happen, as we've said before, the final schedule for finishing our interim analysis and the study overall will depend on how quickly our sites can enroll people. Our present expectations rest on enrollment rates that are projected rather conservatively. As I noted, we've grown more hopeful following the recent sharp drop in COVID cases. We think that pairing our longer treatment window — 24 hours from stroke onset — with our safety profile and the possibility of both aiding stroke recovery and lowering the chance of stroke recurrence could lead to better enrollment. We'll keep you informed as we gain greater clarity on site activation and enrollment rates once we reach milestones. I also want to restate that ReMEDy2 is our main priority at this time, since we see it as having the quickest route to commercial approval. Now shifting to REDUX, our Phase II CKD program. We finished enrollment not long ago and are now handling the last patient follow-ups and cleaning the study data so we can get ready for the final analysis and reporting. As many of you are aware, REDUX is a basket or signaling study where we're looking at 3 distinct causes of chronic kidney disease along with 2 different dose levels of DM199, across a treatment period of roughly 3 months. Right now, the main point from REDUX is that CKD offers an appealing development opportunity for DM199. We think the study is pointing us toward focusing on a subgroup of hypertensive African-Americans and/or IG nephropathy patients who have moderate to severe kidney disease. For those patients who are seeing their kidney function get better while also getting their blood pressure under control, the improvement to their quality of life could be substantial. Once we finish the final analysis of the REDUX data, we're eager to come back to you with an update on what comes next, and on the possibility of talking through what we found with the FDA. At this point, I'd like to hand things over to Scott Kellen so he can walk us through the financial results for our fourth quarter.

Thanks, Rick. Morning, everybody. Just like Rick said, yesterday, once trading had wrapped up, we released our financial results for the full year '21 and submitted our annual report on Form 10-K; you can find both of those documents on the DiaMedica site or the SEC site. So let me walk through the financials. For the full year of '21, our net loss came to $13.6 million, or $0.65 per share, compared with a net loss of $12.3 million, or $0.78 per share, in the prior year. Our cash position is still solid, with $45.1 million in cash, cash equivalents and marketable securities as of December 31, 2021, an increase from $27.5 million at the close of the prior year. We believe the cash we currently hold will carry the clinical development of DM199 and keep our operations funded into early 2024. Research and development expenses rose slightly, reaching $8.8 million for the year ended December 31, 2021, versus $8.2 million for the full year of 2020. That rise was mainly driven by a mix of extra costs from our Phase II/III ReMEDy2 trial and higher personnel costs from bringing on staff to back our growing clinical programs. Partially offsetting that increase were lower costs from our earlier ReMEDy1 Phase II AIS study, which wrapped up during 2020, along with reduced costs for the REDUX trial as enrollment numbers fell throughout 2021 while the study moved toward completion. General and administrative expenses came in at $4.9 million and $4.5 million for the full fiscal years 2021 and 2020, respectively. Several factors drove that increase, among them higher costs tied to professional services, a payment made to Catalent for a milestone obligation under our technology license agreement with Catalent, greater directors and officers' liability insurance costs, and higher personnel costs to support the company's R&D operations. Partially offsetting these increases was a reduction in our noncash share-based compensation costs. Now on to cash flows. Net cash used in operating activities for the year ended December 31, 2021, was $12.3 million, versus $9.2 million for the full year 2020. That increase is mostly tied to our larger net loss in 2021, partially offset by share-based compensation and the effects of changes in operating assets and liabilities; and importantly, as I noted earlier, we believe the cash we currently hold will carry the clinical development of DM199 and our operations into early 2024; now I'll hand the call back to Rick.

Thanks, Scott. It's clear 2021 was a highly productive year for us, and that momentum is carrying over into 2022 — we've made considerable headway on DM199, advanced our clinical trials, and grown our team. On top of that, our balance sheet remains strong, which puts us in a good position to keep delivering on the initiatives we walked you through earlier. At this point, we're ready to take your questions. Operator, please go ahead and bring on our first analyst.

Kirsten, thanks for that introduction and for explaining what drew you to this organization. I'm just wondering — aside from the key stroke study currently underway, could you describe a few of the other trials, plus the laboratory or bench results you plan to produce in the months and years ahead, so as to better position DM199, the company's product?

Sure, happy to. I'll handle that one. At this moment, our clinical group is genuinely centered on the ReMEDy2 trial. While that work continues, we've begun exploring which future or possible steps exist for the kidney program, yet we simply need to ensure our attention stays squarely on the pivotal stroke study at present.

All right, got it. And perhaps give us a refresher — I suppose this is a wider question — on where the regulatory situation stands for chronic kidney disease here in the U.S., especially since we recently saw that CRL from Reata. They were, in a way, clearing the route ahead; so does the wider CKD field, do we need — I mean, is the route required to secure FDA approval actually known to us right now? Should we rethink which kidney metrics ought to be our focus, things like UACR, eGFR? Any perspective on that would help.