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

Good day, and welcome to DiaMedica Therapeutics ReMEDy2 Update Conference Call. [Operator Instructions] And finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to hand over to Rick Pauls to begin the conference. Rick, over to you.

Good morning. Before we proceed with remarks, please note that we will be making forward-looking statements on today's call. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. More information, including factors that could cause actual results to differ from projected results, appears in the section entitled Cautionary Statement Note regarding forward-looking statements in the company's press release issued yesterday, and under the heading Risk Factors in DiaMedica's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. DiaMedica's SEC filings are available at www.sec.gov and on its website. Please also note that any comments made on today's call speak only as of today, October 27, 2022, and may no longer be accurate at the time of any replay or transcript rereading. DiaMedica disclaims any duty to update its forward-looking statements. Following the prepared remarks, we will open the lines for questions. So hello, everyone, and welcome to our ReMEDy2 update conference call. I am joined this morning by Dr. Kirsten Gruis and -- our Chief Medical Officer; and Scott Kellen, our Chief Financial Officer. We'd like to focus today on the latest communication from the FDA and addressing the additional nonclinical data requested to resolve the clinical hold. Let me begin with a high-level overview and then turn you over to Kirsten for more detail. Last month, we submitted data that we believe supported our position that switching the type of IV bag used in a ReMEDy2 Phase II/III stroke study was the cause of the transient acute hypotensive events experienced by 3 patients in our ReMEDy2 trial. We further believe that these results from the Phase II ReMEDy1 trial, in which no hypotensive events were observed, which bolsters our position. We're obviously disappointed that additional nonclinical data is being requested by the FDA to resolve the clinical hold. However, there are 2 important positives in the FDA's response. First, the additional data will be derived from an in vitro or lab-based testing. Lab-based testing generally takes much less time to conduct and is much less expensive. And we've already begun the process identifying an appropriate lab and designing the study plan. It's too early to give specific time frame today, but early discussions with a few qualified laboratories are talking about testing and report time frames up to approximately 2 months. And as we mentioned in the press release, we will provide an update on the timing after we've met with the FDA. And the second positive is that we believe we now have a clear path to resolve the clinical hold. Our submission included an updated investigator's brochure, pharmacy annual and protocol, which includes the mitigation steps to further minimize the risk of future hypotensive events. These are all lengthy documents covering the key elements of the trial. The FDA reviewed all these materials prior to communicating with us and did not have any additional comments on our clinical plans. Because of that, we are optimistic that the FDA's response give us the path forward to provide them with sufficient information to justify lifting the hold. I would like now to ask Kirsten to walk us through the FDA feedback and next steps.

Thank you, Rick. Good morning, everyone. As you know, DM199 is a recombinant protein which can adhere to plastics, such as those used to make materials used in IV drug administration like the IV bags. As Rick indicated, the additional information that the FDA requested will come from what we call an in-use stability study or a laboratory-based study of the materials used during IV administration. While our CMC tested the bags and saw that DM199 inhered or stuck to the bags used in the ReMEDy1 study, but not -- but DM199 did not stick to the bag used in the ReMEDy2 study, the FDA has requested this additional in-use study. The in-use study evaluates the other medical components like the IV tubing and the infusion rate used in the infusion process, as well as the environmental conditions in which the IV infusion is performed, to evaluate the effects of all of these elements on the IV infusion collectively, not just the bag in isolation, relative to the amount of DM199 delivered to the patient. For us, given our recently completed IV bag study, the in-use study will confirm whether or not any of the additional components involved in the IV infusion process or conditions are also having an effect on DM199 IV dosing beyond what we already know about the effect of changing the IV bag. This expanded data set from the in-use study will allow us to rule out any etiology other than the IV bag binding to DM199 and understanding the recently observed hypotensive events. And as Rick mentioned, our CMC team has already begun the process of defining the in-use study and identifying a resource to perform the work. As part of conducting the in-use study, the FDA has also recommended that our CMC team use a second test methodology to collaborate our measurement of the amount of DM199 drug that ultimately comes out of IV bag. Our CMC team notes there are readily available test methodologies for performing this confirmatory testing and adding this additional test will likely not affect the duration of the in-use study. The FDA also included a question regarding trypsin in the DM199 drug product as a potential cause of or a contributor to the hypotensive events. Our CMC team believes this question stems from the use of trypsin in the DM199 manufacturing process. Our CMC team also reports that the purification of DM199 with -- sorry, with the purification of DM199, all trypsin is filtered out of the drug substance and they have recent trypsin in testing data to provide to the FDA in this regard. In our response to the FDA requesting the lifting of the clinical hold, we also proposed a number of protocol modifications aimed at reducing the hypotensive risk and ensuring patient safety. First, we proposed a 50% reduction in the IV dose for ReMEDy2. We believe this dose adjustment in ReMEDy2 would then effectively match the well-tolerated IV dose administered in the completed ReMEDy1 study based on our CMC teams' completed bag study, which demonstrated that as much as 50% of DM199 binds to the bag used in the prior ReMEDy1 study. In addition, we also proposed starting with an initial slower infusion rate, additional blood pressure monitoring during the infusion and established [ dosing ] criteria in the event of any significant decline in blood pressure. We also proposed a greater role for the Data Safety Monitoring Board in monitoring the first patients enrolled once ReMEDy2 is able to resume to confirm that the revised dosing regimen mitigates the hypotension risk. In their letter, the FDA acknowledged these proposed changes and do not recommend any additional changes. In addition, we'll plan to have a Type A meeting with the FDA to confirm our in-use stability study design and get any additional guidance towards lifting the clinical hold, and we will provide an update at that time. One last thing before I turn this back over to Rick, I want to remind everyone that the severe hypotensive events only occurred during the IV infusion in the ReMEDy2 study, and the events were transient and quickly resolved when the IV infusion was stopped because of what we believe is an unexpected overdose by changing to the different bags in the ReMEDy2 study. There is no concern with or changes planned for the subcutaneous dosing.

Thank you, Kirsten. Next, let me ask Scott to provide a brief financial update.

Thanks, Rick, and good morning, everyone. As noted in yesterday's press release, we published our $36.1 million cash position at the end of Q3 to provide some financial context for this discussion. So immediately upon our voluntary halting enrollment in ReMEDy2, we began to scale back and/or pause the spending with our contract research organization and other supporting vendors for the ReMEDy2 trial in order to conserve cash. The lack of new enrollments after our voluntary halt also contributed to the lower cash burn for Q3. And the net result of this is that our cash burn for the quarter was $2.3 million, down from $2.6 million in Q2 and $4.1 million in Q1. So we expect that our quarterly cash burn will remain at approximately these levels until we resume enrollments in the ReMEDy2 trial. So we intend to continue to take steps to conserve cash and extend our runway. And it's also clear that the effects of the clinical hold will extend our cash runway further into 2024. And when we get closer to restarting the trial, we'll provide more clarity on just how far.

Thanks, Scott. So while we're disappointed that the FDA is requiring this additional nonclinical data, it's important to note that these are -- there are no questions about DM199 itself or its clinical use, and generating this additional data is something that we can do and we believe we can do it in a timely manner. We see the FDA's response as a clear path to resolve the clinical hold, and we will be working with our outside lab, our CMC and regulatory experts, and the FDA in the coming weeks to prepare and run the in-use stability study. Completing the study is our highest priority, so we can get back to the FDA and get this clinical hold lifted. While it's too early to give you an estimate on timing, we should be able to complete the study relatively quickly, and we will provide an update on the timing after our meeting with the FDA. One more important item to note this morning, we recently learned that kallikrein, the human urinary derived form of the KLK1 protein, after having been added to the China's National Essential Medical -- Medicines List in November of 2019, had a sales increase dramatically. Last year, there were over 600,000 patients with acute ischemic stroke that were treated. This is approximately 15% of the estimated 4 million stroke patients that occur each year in China. KLK1 therapy is an important drug for stroke patients to improve their outcomes. We remain committed to completing the clinical development of DM199 to ensure that patients in the U.S., Europe and the rest of the world, where there's no treatment options for stroke today, have the opportunity to benefit from this novel and important therapeutic protein. With that, I'd like to open the call for questions. Operator, if you could please introduce the first analyst.

[Operator Instructions] The first question comes from the line of Thomas Flaten of Lake Street.

Rick, did this kind of catch you by surprise, particularly given the significant side effect profile of tPA with respect to bleeds? Does this strike you as a bit of overkill?

I think we did a very comprehensive analysis to see what has changed from our Phase II to our Phase III trial, and the only item that came up was the bag. We did the bag study, and we just discovered half the drug is sticking. And so then if we're looking in terms of bigger context here is that, moving forward, if patients do experience hypotensive events, we'll be starting off the trial with -- in the first 15 minutes at a slower infusion rate. If there are signs of hypotension, we can stop the infusion. And by doing so, we believe within minutes, the blood pressure will return to normal. So if you look in terms of context here, that stroke docs today, that they've got to always have to manage the risk and the reward of tPA for those patients that can get to the hospital and get treated within that 4.5 hour window. But when we look at the efficacy data of tPA, there's about 11% to 12% of patients have what we call full recovery, but that has to be weighed against the risk of 5% to 6% of patients could have a severe brain bleed. So we feel ultimately, after we get off hold here, that the risk -- the benefit risk here is -- should be compelling. And I don't know if Kirsten have thoughts on physicians' perspective on hypotensive events.

Yes. So some of our key neurology colleagues who -- that we keep apprised of the situation have been pretty understanding knowing that this is a -- it requires a dose adjustment, and it was just too much drug too fast that induced these events. And they're pretty positive that we can adjust the dose and avoid these events and -- where the events didn't occur in the ReMEDy1 study. In terms of hypotension, it's easy to monitor. These people are in a hospital bed. They are hooked up to the blood pressure cuff, it's cycling automatically every so many minutes. That's standard of care. So that's already being done. And then the key thing is that it goes away when you shut the infusion off, so monitorable and reversible. So that's what makes these physicians comfortable.

Great. And then just to clarify on timing. Is there anything you can do ahead of getting a meeting with FDA so that you can pull the trigger on the study as soon as you execute that meeting with them? Or are these going to be sequential and that there's nothing you can do while waiting for the FDA meeting?

So the FDA gave us some pretty clear outline of what the in-use study will look like. There's also FDA guidance to industry on what the study should be designed. So we plan to initiate that study as soon as possible and even before meeting with the FDA. And the meeting with the FDA would be more just to confirm what we're doing. So we'll get the study off and start it as soon as we possibly can.

Your next question comes from the line of Alex Nowak of Craig-Hallum Group.

Rick or Kirsten, I just want to follow up on Tom's point there. When this first issue arose, there was this game plan to generate the data necessary to lift the clinical hold. And at the time, we thought we had a handle on what was needed, what studies were needed. In hindsight, should the in-use stability studies with the IV tubing set, with the mechanical pump, should those have been included in those initial studies that you were doing around the bag? Again, just trying to -- going back to Tom's point, just trying to understand if we were kind of caught off by surprise by the FDA's commentary here? Or if this is just FDA constantly wanting more detail to ensure the patient safety?

Yes. So we believe that the FDA did a very comprehensive review of what else could possibly cause this hypotension. So things like the question about trypsin. So we think that was very comprehensive. What we looked at is what changed from Phase II to Phase III, and it was the bag. I mean that was the main piece. We don't anticipate that having a mechanical infusion pump or having tubing will impact, so we have to do the study. So I think this is a matter of checking all the boxes and making sure that we're ruling out anything else. So we're not anticipating that there will be any meaningful difference from the in-use study in terms of the amount of drug that gets through compared to just from the IV bags data that we completed.

Okay. And just going back to the Phase II stroke study, there was certainly, I think, some confusion on how much protein was ultimately being given to the patient. During the communications with the FDA, has there been any concern especially from the agency side with regards to other studies, whether it be patient or benchtop studies, where there's just this concern or there's this conflict because of the issue around protein binding, in essence, without truly knowing how much protein is going to the patient? Has the FDA brought that issue up?

No. I mean the -- again, the issue here is with this polyolefin bags that we use in both our Phase I and Phase II, up to half the drug was sticking. So by determining the difference and the drug sticking from the bags used -- the polyolefin in the Phase I, Phase II and comparing that to our Phase III trial, where we're using the PVC bag, we believe that 50% of drug is sticking. So we've adjusted the dosing appropriately so that we can -- basically matching the drug profile. And in addition, as Kirsten mentioned, we've got some additional safety measures just to make sure that if any more events do occur -- because it's still possible that -- we know this drug clearly lowers blood pressure. But if we do see it again, that it's something that we can manage and, most importantly, be on top of patient safety.

Okay. Understood. And then just last question, just around timing. You said relatively soon to do the studies here. Is that weeks? Months? Is that a year? And then just the time line for when the FDA meeting takes place.

Yes. So we're going to request the Type A meeting as soon as possible. So ideally, sometime in the next month. And then we're -- like literally, we're doing everything we can here to talking to -- we've got a half a dozen vendors we're talking to. And we're trying to get this study initiated as quickly as possible. It's a relatively -- to do this in-use study, it's a relatively short study. So it's more of a question of getting in queue, getting the study completed and then having the contract for completing the reports and analysis for submission. And as I mentioned in the prepared remarks is this is something that can be up to 2 months in time. But again, we're doing everything we can here to see how we can get to the front of the list with the vendor and getting this started as quickly as possible.

Your next question comes from the line of François Brisebois from Oppenheimer.

So in terms of the -- from your interaction with the FDA so far and their response, when you meet with the FDA here for this type of meeting -- so far, they haven't talked about anything else. But is there a precedence -- like is there still a possibility that they ask for more clinical or preclinical data? Or is this totally off the table here?

Yes. I think there's always a potential they could ask for more. But I'd say from the feedback they've given us, we believe it's very comprehensive. We think that what they're asking for is checking a lot of boxes. So I think it will be great to get these boxes checked off and then getting back to them. And an important part of this discussion with the FDA, we also want to make sure that we go over the mitigation strategy here that we have here so that if there are future events, patients that are hypotensive that, most importantly, we have the patient safety in mind. And so the mitigation plan that we have, I think, is going to be very important here as well as we move forward with this drug.

Okay. No, that's helpful. And then can you see -- like from the data you shared with them or what you can share with us, can you see -- how do you measure -- did you actually show exactly that half the drug got stuck in the bag in the first study? And I'm just wondering because it seems like those bags -- like if those bags were still available, I guess, why not keep going with those bags? Or were you able to find the bags or tell exactly that half the drug was in there and show that to them? Or are these bags long gone?

Yes. No, it's a really good question. And so when we started preparing for this -- for the ReMEDy2 trial, what we determined is that those -- the polyolefin bags that we used in Phase II were not available in the U.S. And so for that reason, we decided to pivot and we moved to a PVC bag that are much more common. And so what we actually did as well is that the bags that we're using, we actually purchased them and we're providing the supply of them to the actual sites. So that was the reason why we changed the bags from the Phase II to Phase III.

Sorry, but you were able to show that the old -- like what did you have to be able to show them that half the drug got stuck, is my question, I guess?

Yes. So we did at a comparative bag study. So where we compared the polyolefin bags used in Phase II with the PVC bags used -- that we're currently using in Phase III. And what we saw in the PVC bags, there is no drug sticking. But in the polyolefin bag, up to half of the drug was sticking to the bag.

So there still are enough bags to test that on, sort of is my question.

Yes. So we had to go out and source -- yes. So we sourced the bags we used. And one of the time constraints that we had in running that bag study was actually tracking down the bags. They were out of supply at vendors around the world. And so it took some time for us to actually source. But we did source them and we're able to do that head-to-head comparability study.

And is there any thought of just redoing a study with those polyolefin bags if you can find a way to source them? Or you are not doing that anymore?

No, I think it's -- I mean, we need to be running the study with bags that we'll be using commercially. And so if we know that there's some drugs sticking, ideally, we shouldn't be using it. We know, for example, tPA, right on the label it says use a PVC bag. So I think this will just -- so again, this is -- I think this is a speed bump here. We're getting this resolved. I think we'll be making this much more clearer just knowing no drug is sticking, and just makes it for a much more clearer clinical launch, commercial launch.

Okay. Sorry for the amount of questions. But just on the change of protocol that you're doing with that. When you talk about restarting the trial, is it -- yes, restarting, is it more fair to say maybe starting over the trial from scratch if you're going to change the dosing and all the other steps that you're proposing to the FDA? And just trying to get a feel for if this has to kind of start from the get-go based on the changing of dosing and whatnot?

No. The change in dosing is only for the IV and just for the first IV, there's no change in the subcu dosing. So by dropping the dose in half, stopping -- starting with a 15-minute slower infusion rate, we don't anticipate any difference in terms of the study. We're just going to continue as after we get off the hold here.

Okay. Great. And just on Alex's question about the FDA, basically if this was a problem with other drugs, maybe in bags, and if this has happened before. Is there any precedence of the FDA checking these different parts of IV bags to make sure that the change in bag was a problem? Or is this kind of a new problem for them?

I mean the FDA didn't specifically tell us. But we do know -- of course, we've been looking back here now for the last couple of months. In terms of other drugs, I mean, we have determined and even talking to other investors and other groups that there have been a number of other drugs where the protein actually does stick. So this is something that actually, to our surprise, occurred. And I think when the problem arise in -- just talking to even a few investors said they have experienced other compounds that had an issue of drug sticking.

And based on the label there, did tPA ever run into this issue? Is that why the PVC bag is on the label or...

I'm not sure. But I can follow up after, I can check with our chief commercial officer to follow up on you on that.

Okay. Great. No. I appreciate very much the color.

Yes. Thanks, Frank.

There are no further questions at this time. So I'd like to hand back to Rick Pauls. Rick, it's over to you.

All right. Again, we'd like to thank everybody for joining us this morning and for your continued support. The goal of bringing this important treatment to stroke patients as quickly as possible is of great importance. We appreciate your interest in DiaMedica and your continued support. This concludes our call this morning.