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

Thanks, operator. Hi, everybody, and thanks for joining our Q2 2022 earnings call. Today, we want to zero in on the enrollment halt in our ReMEDy2 stroke study. As everyone is aware, on July 6, we put out a press release announcing that the FDA had placed a clinical hold on the trial. That action followed our own voluntary decision to stop enrolling patients in ReMEDy2 so we could look into 3 unforeseen cases of clinically significant hypotension — that is, a drop in blood pressure. These cases showed up soon after we began giving the intravenous, or IV, infusion of DM199, which represents the initial dose of DM199 for every patient. I'd like to stress that for all 3 patients, the low blood pressure was transient — their readings came back to what they had been before dosing within a matter of minutes once the IV dosing was halted, and no additional adverse events occurred for them. The biggest thing pushing us to stop the trial was that nothing comparable had ever been reported in our earlier Phase II ReMEDy1 stroke study. In ReMEDy1, DM199 was well tolerated across all 46 patients given the drug. Given that earlier experience, we grew worried that something had shifted between the 2 studies, so we chose to halt enrollment while we dug into what was causing these events. Dr. Gruis headed up a thorough review of how the 2 studies differed, assessing everything from the drug itself to the steps taken when preparing and administering the first IV dose. Based on that review, we think the probable source of these hypotensive events involves the effects of switching which type of IV bag was used to give the IV dose of DM199. The IV bag type had to be changed because polyolefin IV bags — the kind used in Australia for the ReMEDy1 trial — were not available in the U.S. After running compatibility testing on a range of IV bags, the one chosen for the ReMEDy2 trial was a PVC bag. PVC bags proved the most compatible with DM199, since the DM199 protein does not bind to them. The bags used in ReMEDy1 were polyolefin, a material that does bind up, or retain, a portion of the DM199 protein inside the IV bag. What changing IV bags did was cause the full 1 microgram per kg dose of DM199 to reach patients in the ReMEDy2 trial. Another way to say it: this shows what we mean when we talk about the IV bag in ReMEDy1 — as much as half of the DM199 protein remained in the bag while half reached the patient; with ReMEDy2, the entire drug reaches the patient and none of it remains in the IV bag. As support for this view, last week we finished an IV bag compatibility study that covered the IV bags used in the ReMEDy1 trial. The study's findings showed that up to 50% of the DM199 protein attaches to the polyolefin IV bag that was used in the ReMEDy1 trial. That same study confirmed again that the DM199 protein does not attach to the PVC IV bag that was used in the ReMEDy2 trial. Given these study results, we think we now have the data we can give the FDA to back up our explanation for what caused the hypotensive events and our reasoning for adjusting the IV dose level in the ReMEDy2 trial. Basically, what we'll propose is changing the IV dose levels so they match the actual IV dose that was administered in the ReMEDy1 trial, where DM199 was well tolerated across 46 stroke patients in the DM199 arm. We're confident this change will lower the risk of these clinically significant hypotensive events, and we hope the FDA will agree. Turning to next steps for getting enrollment restarted after the FDA's clinical hold letter, they requested that we supply a review of the etiology of the 3 events along with any proposed mitigating strategies to prevent such events, and that we also submit our proposed protocol modifications to address the significant risk of hypotension when DM199 is administered. Our plan is to submit a response in September, after which the FDA will have as many as 30 days to review it and respond. Having said all that, let me point out a few things for additional context. First, everything we're seeing today indicates this issue stems from the switch in the IV bag rather than any problem with DM199 itself. If anything, a drop in blood pressure fits with the mechanism of action of this protein. So it may be yet another clinical indicator that DM199 is biologically active. Second, no comparable hypotensive events have been reported with subcutaneous dosing, which further backs our conclusion that the IV bag is what's involved. Because of that, we expect no changes to the subcutaneous dosing regimen. Finally, and most importantly, although clinically significant hypotension is a serious matter for stroke patients, blood pressure in these patients gets monitored continuously, so a problematic drop in blood pressure can be identified quickly. And in the 3 patients, their blood pressure came back to baseline levels within a few minutes after the IV dose infusion was stopped, and they experienced no ongoing adverse events. So we believe we can run this trial with sufficient clinical monitoring of blood pressure, and the fact that stopping the infusion quickly reversed a blood pressure drop will lower the risk to these patients. I'd now like to turn things over to our CFO, Scott Kellen, to walk through our financial results.

Thanks, Rick. Morning, everybody. Like Rick said, the day before today in the afternoon, we put out our financial results for the second quarter and submitted our quarterly report on Form 10-Q. You can find both of those documents on the DiaMedica site or on the SEC's site. So let's begin with the balance sheet. At June 30, 2022, cash plus investments came to $38.4 million in total, which is $2.6 million less than the $41 million we had at the close of Q1 of 2022, and $6.7 million below the $45.1 million figure from our previous year-end. The cash we used during the quarter just ended came in under what we had planned, because enrollment in the ReMEDy2 trial was halted. That figure ought to climb back up once we finish responding to the FDA and get things ready to restart enrollment. We'd also like to repeat that the cash we have now will fund clinical development of DM199 plus our operations through early 2024. R&D expenses came in at $2 million for the second quarter and $3.9 million for the year-to-date period. For those same periods a year ago, the figures were $2.2 million and $4.6 million. Several things drove the drop across the year-to-date period, among them lower costs this year tied to closing out our REDUX Phase II CKD basket trial, where enrollment wrapped up at the close of 2021. There were also smaller nonclinical testing costs, since we spent more on those during 2021 getting ready for our ReMEDy2 trial, which got underway in 2021, along with reduced costs for manufacturing process development. Partly offsetting those declines were costs this year from running our Phase II/III ReMEDy2 trial, plus higher personnel expenses from bringing on staff to bolster R&D operations. G&A expenses were $1.4 million in the second quarter and $3 million for the year-to-date period. A year earlier, the comparable figures were $1.2 million and $2.4 million. The rise across the year-to-date period came mainly from higher directors and officers liability insurance, personnel expenses, and professional services costs needed for our growing clinical programs; those gains were partly offset by a decrease in noncash share-based compensation. Now I'll hand the call back to Rick.

Thanks, Scott. So, as you can all see, we've come a long way since the update we gave on July 6, and at this point we believe we have all the clarity we're going to get. Our intention is to send the FDA our analysis along with the proposed steps to mitigate things in September, which would kick off that 30-day clock. Naturally, we're hoping the agency comes back to us in under 30 days, and that what they tell us is that the clinical hold is being lifted. Once that hold comes off, we'll share more guidance about where things go next for the DM199 program. And lastly, the balance sheet is still in good shape, and we're positioned well to carry out these plans, keeping our focus on the ReMEDy2 trial. With that, we'd like to take questions now. Operator, could you please bring on the first analyst?

Thanks for the details on the ReMEDy2 matter. Rick, you said as much as 50% of the drug would be — would be retained — how much variation was there in that? I want to get a handle on the spread you have to account for when adjusting the dose, and on whether one adjustment to the dose would do the job.

Right. The distinction comes down to this: when we say as much as, it genuinely hinges on how much each patient weighs, since that determines how the IV dose gets prepared. So what the — we are still wrapping up the figures here, but our current plan would be to cut the dose by half. In other words, bringing it down to 0.5 micrograms per kg for every patient.

Understood. And in that pause period, in what way have the talks about activating sites moved forward, or possibly not?

Of course — Kirsten, would you like to handle that one?

Absolutely, so our team has been working hard to make sure the locations remain informed about where things stand with our review, and we've kept the lines of communication open with them. On top of that, certain pre-activation work can keep moving forward. That means reviewing spending plans and checking whether each site has enough people on hand, and we've managed to keep that going even while this analysis has been underway.

Excellent. And if I could, just one last question. Before you paused or stopped enrollment, how is the pace of enrollment tracking versus what you've told the Street to expect?

Absolutely. I believe on earlier calls, we said enrollment had been extremely sluggish. We felt really encouraged, especially during the month leading up to the hold. We saw a genuinely strong increase in recruiting patients. I think that's partly because — getting these sites operational takes time, and it's also partly due to what Kirsten has accomplished by giving the sites a memo that just confirms certain elements of the protocol. So again, we felt really encouraged when it seemed like things were starting to ramp up, and then this happened; we've also been using this period during the hold. Kirsten and her team have been extremely busy here, not only handling all of this but also making several revisions to the protocol, which we believe will truly be able to assist us with enrollment going forward once we're past this hold.

Let's revisit the period when you were conducting the Phase II trial for the stroke indication. At that point, had you realized that the IV readings were leading the protein to adhere to the bag, which in effect reduced the dose?

Correct. Prior to actually running our Phase I study for the IV infusion, when we went back and reviewed the reports, binding had been observed, yet our medical staff at that time concluded it wasn't significant. Consequently, the PK — the PK effort we carried out for Phase I and subsequently applied to Phase II relied on this polyolefin bag in which the drug was sticking.

And Alex, let me just jump in here for a second. What's happening is just that protein gets trapped inside the bag — the bag itself has no effect whatsoever on how the drug performs. Its activity, its clarity, and especially its enzymatic activity are all unaffected by the polyolefin.

All right, got it. That helps. So if we take those remarks plus the internal bench work that was carried out once the Phase II stroke trial had started, along with our assumptions regarding that dose — I'm curious, now that it turns out the bag may be retaining as much as 50% of the protein, how much does that shift the internal PK studies, whether those are for the stroke program, the data that has to be submitted to the FDA for the pivotal trial there, or even the CKD study?

Yes. To begin with, this problem applies only to the IV infusion. So with subcu, there's no bag problem or impact we're worried about. That covers any of the subcu studies we've run. What's happening here is just that as much as half the drug was sticking in the polyolefin bag; and now that we've nailed down that percentage, we've — we're just going to adjust the current study by the right amount so we can match, essentially match our Phase II data very, very closely. And then I'd also add that for our Phase I and Phase II stroke trials, we'd built a great deal of that work not only on the PK that we think are levels in healthy subjects, but it also matters that we relied on the PK of the human urinary form of this protein that's used in China; so we went back and checked, and I'd also point out that with the approved dosing of the urinary form, when that dose is doubled, efficacy was reported to be similar, but then — but those patients do run the risk of hypotension. So I think we're also encouraged that this is very painful, but these adverse events are the kind that are expected at the higher dose level.

All right, got it. That makes sense, very useful. And finally, could you address whether any feedback or comments have come from the FDA regarding the clinical hold, particularly concerning the problems with the IV bags — is this something they've encountered previously? And also, regarding the KOLs who spoke with your advisory board, what remarks have they made about this matter?

Sure. So during the prepared remarks, I essentially went over the feedback we received from the FDA. Once that letter arrived, I'd say we felt encouraged. There really wasn't anything beyond essentially recapping what took place with these 3 patients. And what the FDA wants is our recommendation regarding the plans moving forward. And Kirsten, perhaps you'd like to address the KOL question?