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

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics ReMEDy2 Update Conference Call. An audio recording of the webcast will be available shortly after the call today on DiaMedica's website at www.diamedica.com in the Investor Relations section. Before the company proceeds with its remarks, please note that the company 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 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. 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, March 29, 2023, 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 phone lines for questions. I would now like to introduce your host for today's call, Mr. Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin, sir.

Thanks, Paul. Hello, everyone, and welcome to our fourth quarter con call. I'm joined this morning by Kirsten Gruis, our Chief Medical Officer; and Scott Kellen, our Chief Financial Officer. . I'd like to start off today's call by updating everyone on the status of our work to remove the clinical hold on our ReMEDy2 Phase II/III pivotal trial and our communications with the FDA as we approach what we believe will be the final resolution of the clinical hold. Recall that the hold was not caused by any issue with our drug product candidate, DM199, but was caused by the effects of switching to a new IV bag formulation in our ReMEDy2 trial. In our prior ReMEDy1 Phase II trial, the IV bag made from polyolefin retained up to half of the DM199 drug. In our pivotal Phase II/III ReMEDy2 trial, we switched to the new PVC IV bag formulation, which does not retain any of the DM199, effectively delivering up to twice as much DM199 to study participants. We believe that this is what caused the transient clinically significant blood pressure drops or hypotension in those 3 participants. In our initial safety studies, we identified hypotension as the dose-limiting tolerability for DM199. As a result, drops in blood pressure are consistent with the mechanism of action for DM199, and we believe that the hypotensive events at least indicate that DM199 is clearly active in patients. In the FDA's October continuable clinical hold letter, their most significant request was to expand our IV bag compatibility study to stimulate real-world usage, which is referred to as an in-use study. We had originally expected that we would need to request a Type A meeting with the FDA to discuss the requirements for the study. However, in December, we received written communication from the FDA which provided their expectations for our in-use study. Since we're only entitled to one Type A meeting, we are pleased that this written communication saved us from having to use our Type A meeting for a discussion on the in-use study requirements. We incorporated the FDA's feedback into the study protocol and submitted the updated protocol to the FDA with a request for confirmation that the protocol would satisfy the requirements. Last month, we received a follow-up notification indicating that the FDA believed that our in-use study protocol was reasonable. The in-use study is being conducted in 2 parts. Part 1 simulates actual use in the hospital with IV bag and the tubing using a pump to administer DM199. Part 2 test worst-case scenarios such as varying storage, duration, temperatures and light. The first part of the in-use study is complete, and we believe that the data from this part confirms the conclusion we reached in our prior testing. Specifically, it confirmed that up to approximately 50% of the DM199 was retained in the IV bags used in the ReMEDy1 as compared to the IV bags used in ReMEDy2 and supports our earlier proposed revision to the IV dose from ReMEDy2 from 1 to 0.5 micrograms per kg. These results have been submitted to the FDA along with a request for feedback and confirmation that we now have addressed all issues of the clinical hold once the Part 2 of the in-use study is submitted. We are currently conducting Part 2 of the in-use study, and the results, once complete, will be submitted to the FDA, which we anticipate occurring in April. Note that Part 2 of the in-use study what we learned will likely only affect handling procedures for the IV dosing and not the dose rates. Late last year and early this year, while we are awaiting feedback from the FDA on the in-use study protocol and preparing to run the in-use study, we developed a more sensitive assay for measuring KLK1 levels and enhance the consistency in our assay that measures the activity levels of KLK1. We'd also do this as the FDA had posed a question about our existing assay methods. While we believe our existing assays were reasonable, we decided to be prudent and ultimately less time consuming to complete this work and eliminate a risk that the FDA might have additional questions and further delay the resumption of ReMEDy2 trial. The FDA had also asked whether trypsin could be a potential cause or contributor to the hypotensive events in ReMEDy2. This question likely stems from the use of trypsin in the manufacturing of the DM199 substance and trypsin by itself can cause drops in blood pressure. Early in 2022, as part of our ongoing manufacturing development program, we had initiated testing to that trypsin was fully removed from the DM199 during the manufacturing process. This testing confirmed that there is no or at least not detectable residue trypsin in DM199. In February, we submitted reports to the FDA confirming that trypsin was not measurable in DM199 and provided the update, validated methods, assays to the FDA for review. We recently received their feedback that the assays developed appear appropriate and our assessment of trypsin levels is also acceptable. At this point, I'm pleased to say that we believe we have a good ongoing dialogue with the FDA. We appreciate their engagement and we are confident that an end is in sight to our clinical hold. Note that the FDA has up to 30 days to review and respond to a Complete Response Letter, requesting the lifting of the clinical hold. Once we receive their response, we will provide an update on expected timing for getting ReMEDy2 restarted. Yesterday, we also announced that we have initiated a Phase IC open-label, single-ascending dose study of the IV dosing of DM199 in the IV bags made from PVC used in the ReMEDy2 trial. This was not requested by the FDA, but as a proactive measure on our part decided before starting the in-use study. We chose to do so for 2 primary reasons: First, if for some reason, the FDA is not satisfied that the results of the in-use study provided sufficient basis for adjusting the IV dose levels going forward in ReMEDy2, then the results of the Phase IC study will conclusively demonstrate the serum concentration levels of DM199 achieved with our proposed IV dose. The second reason has to do with driving confidence in the physician investigators. This study demonstrates our commitment to the patient safety. I mean I hope that will help us start strong when we resume enrollment in ReMEDy2. Enrollment in the Phase IC study began last week in the first 3 cohorts which gets us to 0.5 micrograms per kg dose level we've proposed to use going forward should be completed in April with preliminary data available in May. I would like to also recognize and give a special thank you to our clinical team for getting this study designed, planned and initiated in a remarkably short period of time. We've learned a lot through this process. And as a result, DiaMedica will come out stronger and better prepared to resume trial activities once cleared by the FDA to do so. This is also due in small part to some key additions to our management team in 2022. Dr. Kirsten Gruis, our Chief Medical Officer, is the Board certified neurologists with extensive experience in medical practice and drug development in bringing several drugs through FDA approval. Kirsten has also been instrumental in leading the response to the FDA and managing our FDA communications. Dominic Cundari, our Chief Commercial Officer, you will recall, he managed the TPA franchise at Genentech for 30 years and came out of retirement to join DiaMedica because of his passion for the stroke community and the potential benefits of DM199. We also added significant late-phase clinical operation expertise with Julie Daves, our Senior Vice President of Clinical Development, Operations, bringing vast experience in clinical trial planning and execution and has a reputation for completing trials on time and under budget. In addition, at the Board level, we recently announced that Tanya Lewis has joined us. Tanya has extensive global regulatory expertise. This includes positions as Chief Development Officer, Chief Regulatory Officer and Chief Quality Officer. She has been involved with other clinical hold situations and has been responsible for several products making their way through the regulatory approval process with the FDA. It's a privilege to work with these individuals and the entire DiaMedica team. As you can tell here this morning, we look forward to getting out from under this clinical hold and resuming the development of DM199 to bring this important treatment to stroke patients. We see a bright horizon with the team we have built, and we will continue to grow as we move forward. One additional point that I'd like to make this morning. An important rationale for developing DM199, a synthetic form of the KLK1 protein, is the current usage of the KLK1 protein in China. As many of you know, in China, a form of the KLK1 protein is isolated from human urine, that product is called kallikrein and has been treating patients for over a decade now. In 2019, kallikrein was added to the National Reimbursement Medicines List. This spurred a dramatic increase in usage in China. There are more than 600,000 patients treated for stroke in 2021 alone. To put this into perspective, that's approximately 15% of the estimated 4 million annual strokes per year in China. This gives us extensive knowledge of the KLK1's clinical use and even more confidence that our recombinant form of the KLK1 therapy can bring this much-needed treatment to the U.S. and the rest of the world for patients who today do not have a treatment option. I would like to now turn over the call to Scott Kellen to review the financial highlights.

Thanks, Rick, and good morning, everyone. As Rick mentioned, we announced our full year 2022 financial results and filed our annual report on Form 10-K yesterday afternoon. These documents are both available on either the DiaMedica or the SEC websites. Starting with our balance sheet. As of December 31, 2022, our combined cash and investments totaled $33.5 million, down $2.6 million from $36.1 million as of the end of Q3 2022 and down $11.6 million from $45.1 million as of our prior year-end. Our 2022 cash usage was $11.6 million compared to $12.3 million in the prior year, and our cash usage was lower than planned due primarily to the halting of the enrollment in our ReMEDy2 trial. This should scale back up as we complete our response to the FDA and prepare for resuming enrollment. As Rick mentioned, we intend to provide an update on the timing for the resumption of the trial in the near future. We also reiterate that we believe our current cash will support the clinical development of DM199 and our operations into the fourth quarter of 2024. Our research and development expenses decreased to $7.8 million for the year ended December 31, 2022, down from $8.8 million for the full year of 2021. This decrease was driven primarily by reduced costs incurred during 2022 for the wrap-up of our REDUX Phase II CKD trial and decreased nonclinical testing costs, a significant amount of which were incurred during 2021 in preparation for initiating the Phase II/III ReMEDy2 trial in 2022. These decreases were partially offset by increased personnel costs associated with expanding our R&D operations and increased manufacturing process development activities. Our general and administrative expenses were $6.2 million and $4.9 million for the years ended December 31, 2022 and 2021, respectively. This increase was primarily driven by increased directors and officers liability insurance, increased personnel and professional services costs to support our expanding clinical programs and increased legal fees for our lawsuit against PRA. These increases were partially offset by reduced noncash share-based compensation costs. With that, let me turn the call back over to Rick.

Thanks, Scott. With that, we'd like to open the call for questions. Paul, if you could please introduce the first analyst.

[Operator Instructions] And our first question comes from Thomas Flaten of Lake Street Capital.

Just a quick couple of questions on the Phase IC study. Was that protocol developed in conjunction with FDA? Or is this something you did completely independently as kind of a back pocket backup data set?

So I'll take that question. This is Kirsten. We've developed it independently the protocol in our -- what was your last response, to have in our back pocket. But we explained our situation to the sites and the local ethics board in terms of what we wanted to measure in that study.

And then, Frank, then we can -- our previous Phase I trial that we did using the polyolefin bag, we basically are going to be able to compare that data with this new data and just confirm that we have the right dose range.

Got it. And is there any risk that a normotensive patient would suffer a significant blood pressure drop outside of what you might see in a stroke patient?

No. We wouldn't expect that because the prior Phase I that was done with the polyolefin bags that Rick mentioned, there were no problems with healthy volunteers who were normotensive having lowering of their blood pressure.

Got it. And then one final one. Rick, you mentioned that FDA has 30 days to respond to your final response. And if I'm reading the press release correctly, that response will go in, in April. So May would be the time line for a response on whether or not you've satisfied their outstanding questions?

Yes. As soon as we have the Part 2 of the in-use study, and we're -- that's already initiated, there's few weeks for that study to be completed. So as soon as we have that completed, we'll submit and the FDA will then have up to 30 days. I think we're encouraged by the fact that over the last few months, we've had a good dialogue. We've been able to submit data along the way and then getting positive feedback. So I think this will be helpful instead of waiting to the end and submitting everything together.

Our next question comes from Alex Nowak from Craig-Hallum Capital Group.

Okay. I think last call we had, I think there was -- I think, some strong confidence at the time that we weren't going to near the safety study in patient and now we're launching the Phase IC study. So was there something that you saw in the in-use study, anything in the FDA commentary that ultimately led you to say, we want to have this in our back pocket? Like what's changed here from the last call we had in October?

It's just for additional level of confidence, Alex. So we initiated the Phase IC. We started planning this well before even starting the in-use study. And so part of also the rationale is that when we were looking at some different scenarios, we actually were able to find a clinical site in Australia that had a slot open. That allowed us to get this study up and going quickly. So at this point here, we anticipate to ideally having the results in early May. And while we didn't want to be in a situation that we run that in-use study and for some reason, we see something unexpected. And then we'd have to go back and run a Phase IC trial that could then put this out until this fall. So I think it was an important step here to giving us some comfort backup plan. And then importantly, it also helps with just providing some confidence for the sites that we're taking patient safety very, very importantly, and we'll give us just some additional data here to support this trial. And I think it's going to help with enrollment after the trials up and running.

Okay. That all makes sense. And a question that I think still sits out there, did we know the correct dosage going into patients for the Phase II stroke study done in Australia going back a couple of years ago? So I mean I know we don't have it a clear answer on that, but what's the risk of the FDA even when you provide all this information back to them, they say, "Okay, fine, but we'd like you to do another Phase II study before relaunching this Phase II/Phase III study?"

Sure. So the initial Phase I study we did supports the Phase II for stroke. That study was really designed on the IV portion was to match the drug level. So the PK profile to what's been shown with the kallikrein, the human urinary form. So we did that with the polyolefin bag and then we went to our Phase II trial and we used the same bag. And so then what we discovered here is that, close to half of the drug was sticking. We went -- pivoted to the Phase II/III with a PVC bag. And effectively, we're overdosing by twofold. So we've now confirmed this in our 2 studies, the IV bag study we did last fall and then now with the in-use study. So we feel that for us and patient safety, we think we've identified the right range, but we're going to also have this data here in really a matter of weeks on -- from this additional Phase I trial that is ongoing.

Okay. And walking through it like that, I think that makes sense. I think that should be a good argument to the FDA. Final question here. Once the clinical hold is lifted and maybe it's in the May-ish time frame, how quickly can you reactivate sites and start enrolling patients? Are you really starting from square one there? Or can you decide to activate or reactivate relatively quickly?

Yes. I mean before we had the clinical hold, I mean if you're looking at clinical trials like that, we had 15 sites. Really, we're going to do all we can to get that up and going. I think importantly, with having Kirsten and Julie of joining our team since last year, I think we're going to be in a lot better position here to get the study up. It's going to take a little bit of time, but I think importantly, after we get it up and running, we've been doing a lot of work since then and just getting all of our documents and materials cleaned up in really good shape. So as soon as we get off -- after we get off the clinical hold, we'll provide an update here in terms of some of the timing.

And our final question comes from Francois Brisebois of Oppenheimer.

This is Dan on for Frank. Just a follow-up from the other 2 on the Phase IC study that's ongoing. Could you share some color on the doses that you're going to be using in the single ascending dose study? I believe the original Phase II -- the original plan for the ReMEDy2 was to use both 1 microgram per kilogram and 3 microgram per kilogram. So just in terms of what's the maximum dose that you're testing in this study?

Sure. So there's 2 doses. So the first is the IV dose that's being tested in the Phase IC. So maybe just to step back for a moment. So when a patient has a stroke, they come into the hospital and they will get the IV dose of DM199. So in our Phase IC, we're planning 3 initial doses of 0.1, 0.25 and 0.5 micrograms per kg. We believe that 0.5 will be the dose that we're using based upon the in-use data, the IV bag study and in our previous work. And then that's followed then clinically with subcu dosing, and that's at 3 micrograms per kg, and there's no change in that. So the subcu dosing occurs twice a week for 3 weeks and then they'll get 3 micrograms. And there's no impact on that dosing with this hold.

And we have no further questions in queue. I'll turn the call back over to our host.

All right. Again, we'd like to thank everyone for joining us this morning and for your continued support. The goal of bringing this important treatment to stroke patients as quickly as possible. We appreciate your interest in DiaMedica and your continued support. And this concludes our call today. Thank you.

That concludes today's conference call. Thank you for joining, and have a pleasant day.