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

Thanks, Paul. Morning, everyone, and I appreciate you being on the call as we go over what we recorded for the fourth quarter. Joining me are our Chief Medical Officer, Kirsten Gruis, and Scott Kellen, who is our Chief Financial Officer. First, I'd like to update all of you on the status of our push to get the clinical hold removed from ReMEDy2, which is our phase II/III pivotal trial, and also on where things stand in our talks with the FDA, given that we're nearing what we believe will be the hold's final resolution. Just to remind everyone, no issue with DM199, our drug product candidate, led to the hold. That instead came about because of what happened when we changed the IV bag formulation for the ReMEDy2 trial. In the earlier phase II ReMEDy1 trial, the polyolefin IV bag was retaining up to 50% of the DM199 drug. So for the pivotal phase II/III ReMEDy2 trial, we switched over to the new PVC IV bag formulation, which doesn't hold on to any of the DM199, meaning study participants were essentially receiving up to double the DM199. We believe this explains the temporary but clinically significant drops in blood pressure—hypotension—that were observed in those three participants. Hypotension had already been flagged in our initial safety studies as a dose-limiting tolerability issue for DM199. So because of that, the way blood pressure goes down matches up with the mechanism behind DM199, and we believe those hypotensive episodes at least demonstrate that DM199 is definitely doing something in patients. When the FDA wrote to us in October and kept the full clinical hold in place, their main request was for us to expand the IV bag compatibility study so that it mimics how the product would actually be used in practice — what they referred to as an in-use study. At first, our assumption was that we'd need to ask the FDA for a Type A meeting in order to discuss what that study should involve. Then December came, and the FDA gave us written feedback spelling out what they wanted from our in-use study. Since there's just a single Type A meeting available to us, we're glad this written exchange meant we didn't have to use it on debating the in-use study requirements. We incorporated the FDA's input into the study protocol, then forwarded the revised protocol to the agency with a request for confirmation that it satisfied the requirements. A follow-up notification arrived last month indicating the FDA judged our in-use study protocol to be reasonable. The in-use study is conducted in two parts. The first simulates real hospital usage involving the IV bag and tubing, with DM199 delivered via a pump. The second looks at worst-case scenarios, covering varying storage conditions, durations, temperatures, and light. The first part of the in-use study has been completed. It's our belief that the data from this part backs up the conclusion we drew from our earlier testing. To be specific, it verified that roughly as much as 50% of the DM199 stayed in the IV bags utilized in ReMEDy1, in contrast with the IV bags utilized in ReMEDy2, and this backs the revision we proposed earlier to the IV dose for ReMEDy2, going from 1 to 0.5 mcg / kg. We have sent these results to the FDA together with a request for feedback and confirmation that every issue of the clinical hold has now been addressed once part two of the in-use study is submitted. The second phase of the in-use study is underway at this moment. Once that finishes, we'll submit the findings to the FDA, and our expectation is that this happens in April. Just remember, whatever we discover in that second phase of the in-use study will likely have an effect on how IV dosing is handled, and nothing more — it won't change the dose rates. Toward the end of last year and at the start of this one, while we were waiting on FDA input regarding the in-use study protocol and preparing to conduct the in-use study, we developed an assay with greater sensitivity for KLK1 level measurement and made our assay for KLK1 activity levels more consistent. The reason we made that choice is that the FDA came back to us with a concern about the assay methods we already had in place. Our view is that those assays were sound, but we decided the smart move was to go ahead and complete this work — it ultimately costs us less time — and in doing so, eliminate the possibility that the FDA keeps asking questions and pushes back the restart of ReMEDy2 even further. Separately, the FDA wanted to know if trypsin could be playing a role in, or contributing to, the hypertensive events seen in ReMEDy2. That inquiry likely stems from the fact that trypsin is used when we manufacture the DM199 substance. When given by itself, trypsin is capable of bringing blood pressure down. At the start of 2022, within our continuing efforts to advance manufacturing, we began running tests aimed at verifying that trypsin had been completely eliminated from DM199 throughout production. Those tests showed no leftover trypsin in DM199 — or at minimum, nothing at a level we could detect. During February, we filed reports with the FDA demonstrating that trypsin could not be measured in DM199, and we provided the agency with updated validated method assays for its review. Their response, which we received not long ago, indicated that the assays we created seem suitable, and that the way we evaluated trypsin concentrations is likewise satisfactory. We feel we're now in a solid, continuing conversation with the FDA. Their involvement means a lot to us, and we're optimistic that this clinical hold will soon be behind us. Don't forget, the agency gets as many as 30 days to look over and reply to our Complete Response Letter, in which we ask for the hold to be removed. The moment their answer arrives, we'll share news about when ReMEDy2 should be able to begin again. There's also yesterday's news: we kicked off a phase I-C open label, single ascending dose trial of DM199 given intravenously, using the PVC IV bags that the ReMEDy2 study relies on. The FDA didn't ask us to do this — it's something we decided to undertake on our own initiative, and the decision was made prior to launching the IND study. There were two main reasons behind our choice. First, should the FDA somehow conclude that what the IND study showed doesn't give them enough confidence to justify changing the IV dose levels as we move forward in ReMEDy2, the phase I-C study data will provide definitive proof of the serum concentration levels of DM199 that our proposed IV dose achieves. The next factor has to do with establishing trust with the doctors running the trials. This research demonstrates our strong dedication to keeping patients safe, and we're hopeful it will let us start off on solid ground once ReMEDy2 begins enrolling again. Last week, dosing began in the phase I-C trial for the initial three cohorts, bringing us to the 0.5 mcg / kg level that we plan to use from here on out. That stage is expected to finish in April, and we should have preliminary data by May. I also want to recognize our clinical team and extend a special thanks to them — they managed to design, plan, and launch this study in a remarkably short period of time. This process has taught us quite a bit, and because of that, DiaMedica will emerge stronger and better positioned to restart trial activities once the FDA gives us the green light. A good deal of the credit also goes to some important hires we made to our management team in 2022. Dr.

Our Chief Medical Officer, Kirsten Gruis, is a board-certified neurologist who brings deep experience in clinical practice and in developing drugs, having helped guide multiple therapies through FDA approval. She has also played a key role in spearheading our interactions with the FDA and handling our communications with the agency. Our Chief Commercial Officer is Dominic Cundari — as you may remember, he spent 30 years running the tPA franchise at Genentech, and he came out of retirement to join DiaMedica out of his dedication to the stroke community and his belief in what DM199 could offer; we also brought in considerable late-stage clinical operations know-how with Julie Daves, our Senior Vice President of Clinical Development Operations, who arrives with broad expertise in planning and executing clinical trials and a reputation for finishing trials on schedule and within budget. On top of that, at the board level, we announced not long ago that Tanya Lewis has come aboard. Tanya brings wide-ranging global regulatory knowledge. This encompasses roles as chief development officer, chief regulatory officer, and chief quality officer. She has dealt with other clinical hold circumstances and has been responsible for multiple products navigating the regulatory approval pathway with the FDA. Working alongside these people and the whole DiaMedica team is a privilege. As you can hear this morning, we are eager to emerge from this clinical hold and restart development of DM199 so we can deliver this vital treatment to stroke patients. With the team we have assembled, we see a bright horizon. We will keep growing as we move ahead. There's one more thing I want to mention this morning: a key reason for developing DM199, a synthetic version of the KLK1 protein, is how the KLK1 protein is currently used in China. As lots of you are aware, in China a form of the KLK1 protein is extracted from human urine. That product goes by the name Kailikang and has been treating patients for more than a decade now; in 2019, Kailikang was placed on the National Reimbursement Drug List; that drove a sharp rise in usage across China. Over 600,000 patients were treated for stroke in 2021 by itself. For context, that amounts to roughly 15% of the estimated four million strokes that occur annually in China. This provides us with deep insight into KLK1's clinical use and even greater confidence that our recombinant version of the KLK1 therapy can deliver this much-needed treatment to the U.S. and the rest of the world for patients who currently have no treatment option. I'd now like to hand the call over to Scott Kellen to go through the financial highlights.

Appreciate that, Rick. Morning, everybody. Like Rick said, we released our full year 2022 financial results and submitted our annual report on Form 10-K yesterday afternoon; you can find both documents on the DiaMedica site or the SEC's. Beginning with the balance sheet: at December 31, 2022, cash plus investments came to $33.5 million altogether, which is $2.6 million less than the $36.1 million we had at the close of Q3 2022, and $11.6 million below the $45.1 million at the end of the previous year. Cash used during 2022 amounted to $11.6 million, versus $12.3 million the year before. That usage came in under plan, mainly because enrollment in our ReMEDy2 trial was halted. It ought to ramp back up once we finish our response to the FDA and get ready to restart enrollment. Rick Pauls noted earlier that we plan to share an update soon on when the trial will resume. We'll also repeat that we expect our existing cash to fund clinical development of DM199 plus our operations through Q4 2024. R&D expenses fell to $7.8 million for the year ending December 31, 2022, compared with $8.8 million across the whole of 2021. The drop came mostly from lower costs during 2022 tied to winding down our REDUX phase II CKD trial, along with reduced non-clinical testing costs — a sizable portion of those had been incurred in 2021 to get ready for launching the phase II/III ReMEDy2 trial during 2022. Partly offsetting those reductions were higher personnel costs from growing our R&D operations and more spending on manufacturing process development. G&A expenses came in at $6.2 million and $4.9 million for the years ending December 31, 2022 and 2021, respectively. That rise was mainly due to higher directors and officers liability insurance, greater personnel and professional services costs supporting our growing clinical programs, and bigger legal fees from our lawsuit against PRA; these were partly offset by lower non-cash share-based compensation costs; with that, I'll hand the call back to Rick.

Appreciate that, Scott. At this point, we're ready to take questions from everyone on the line. Paul, would you mind bringing in our first analyst?

Morning, and thanks for fielding our questions. I have a pair of quick ones regarding the phase I-C study. Did you create that protocol together with the FDA, or was it entirely your own effort, sort of a fallback data set kept in reserve?

Hello, I'll handle that one. Kirsten here. We put it together on our own, the protocol, meaning what we had... Sorry, what did you say your last response was? To keep in our back pocket. We laid out our circumstances for the site and the local ethics board regarding the things we intended to measure in that trial.

Frank, when it comes to the earlier phase I trial we ran with the polyolefin bag, what we’ll essentially be able to do is put those results side by side with the new results, and simply verify that the dose is correct — that the dose range is correct.

Understood. Could there be any danger that someone with normal blood pressure would experience a major decrease in blood pressure beyond what would typically be observed in a stroke patient?

No, that isn't something we'd anticipate, since the earlier phase I study conducted using the polyolefin bags that Rick brought up showed no issues among healthy volunteers with normal blood pressure in terms of their blood pressure going down.

Understood. Just one more thing from me. Rick, you said the FDA gets 30 days to reply once your final response is in.

That's right.

From what I can tell in the press release, that reply is set to be filed in April. May would be the point at which we'd hear back on whether your answers to their remaining questions were adequate.

Correct. Once part two of the in-use study is available — and that work has already begun — well, completing that study takes a matter of a few weeks. The moment it's done, we'll file, and then the FDA gets as many as 30 days. What gives us encouragement, I'd say, is that across the last few months we've maintained a solid back-and-forth. We've managed to hand over data as we went and received favorable responses. Rather than holding everything until the end and delivering it all at once, this approach should serve us well.

Excellent. Thanks for taking the questions.

Thanks, Thomas.