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

Thanks, operator. Good morning, everyone, and welcome to the Q1 2023 conference call. Joining me today are our Chief Medical Officer, Dr. Kirsten Gruis, and our Chief Financial Officer, Scott Kellen. I'm happy to report this morning that we are in the final stages of completing our response requesting that the clinical hold be lifted, and we plan to submit it to the FDA this week. Reaching this point has required a tremendous amount of work. The additional study the FDA requested was completed in April; it was conducted by an independent lab and consisted of two parts. In the first portion, we replicated how the medication is actually administered in hospital settings, whereas the second portion examined extreme conditions—varying how long it was stored, the temperature, and exposure to light. Based on the first portion, we feel the results confirmed our determination that changing the material of the IV bag produced the drops in blood pressure that prompted us to halt study enrollment. Results from the second portion of the in-use stability investigation were largely consistent with the first, which suggests that probably no additional special handling requirements will be necessary when giving DM199 intravenously. I should also mention that the results from part one matched what we observed in the IV bag testing that wrapped up in the fall of last year, at which point we suggested adjusting the IV dose to 0.5 mcg/kg so it would align with the IV dosing levels used in our phase II stroke trial; we're hopeful this consistency will assist in securing a favorable FDA decision. Just to remind everyone, the study protocol does not call for any modifications to the three-week subcutaneous dosing that follows. I'm also delighted to report that we completed a phase I-C trial in healthy volunteers not long ago. Even though the FDA didn't ask for or recommend testing in people, we went ahead and designed and started a phase I-C open label single ascending dose trial of DM199 administered via the PVC IV bags—the same ones intended for the ReMEDy2 trial—at 0.1 mcg/kg, 0.025 mcg/kg, and 0.5 mcg/kg. This trial was conducted in Australia. For us, the findings provided confirmation through human data that a proposed revised IV dose of DM199 at 0.5 mcg/kg would be generally safe and well tolerated, and that it produced a blood concentration level hitting the desired therapeutic range, just as observed in our earlier phase II acute ischemic stroke trial. The phase I-C trial data has strengthened our belief that adjusting the proposed DM199 IV dose to 0.5 mcg/kg for ReMEDy2 will reduce the likelihood of clinically significant hypotension and allow us to hit the desired range. We will submit these findings as further supporting evidence in our clinical hold response. Additionally, we think this trial and its data will demonstrate our dedication to patient safety and provide greater reassurance to both our existing and newly added principal investigators and study sites, encouraging them to take part in and back the ReMEDy2 trial. Given everything we've done, we feel hopeful that the root cause behind last year's unforeseen drops in blood pressure has been completely pinpointed, and that we'll give the FDA sufficient data backing our examination of what triggered the earlier hypertensive episodes. In our view, the phase I-C study findings lend additional weight to the IV dose adjustment we've proposed, set at 0.5 mcg/ kg, and show DM199 to be safe and well tolerated. Taken together, we hold a measured optimism that this will lead the FDA to remove the clinical hold; thanks to growing our team over the past year, I have confidence the right people are now assembled to carry out the ReMEDy2 trial, which we see as a pivotal one. After we receive the FDA's reply, should it be favorable, we'll share an update regarding the next steps and the anticipated timeline for restarting the ReMEDy2 trial. Our management team also recently grew with David Wambeke joining as Chief Business Officer. Dave carries more than 15 years of pertinent experience in life sciences capital markets, M&A, and investor relations into DiaMedica. He actually acted as the top banker when we went public on Nasdaq back in 2018, and over these past five years, he's been one of the outside advisors I lean on most and trust the deepest. On top of that, he has a thorough understanding of what our DM199 programs involve. He also brings valuable ties across the biotech world and the investment community. So as you can tell, Dave is committed to pushing DM199 ahead — he just purchased $750,000 worth of DiaMedica's common stock. It's a privilege to have him on our team. At this point, I want to turn things over to Scott Kellen, who will walk through the financial highlights.

Thanks, Rick, and good morning to all of you. Like Rick said, yesterday afternoon we reported our financial results for the first quarter of 2023 and submitted our quarterly report on Form 10-Q. You can find both of those documents on the DiaMedica website or the SEC's. Turning to our balance sheet, on March 31, 2023, cash and investments combined came to $28.7 million, which is a decrease from $33.5 million at the close of 2022. During the first quarter of 2023, we used $5.1 million in cash, versus $3.9 million during the same period a year earlier. That higher cash usage stemmed mainly from the in-use in the phase I-C studies. In our view, the cash we have now will fund the clinical development of DM199 and keep our operations going through the fourth quarter of next year. Research and development expenses rose to $3.6 million for the three months that ended March 31, 2023, an increase of $1.6 million over the $2 million recorded for the first three months ended March 31, 2022. A number of factors drove those higher costs, among them greater manufacturing and process development costs for the in-use and the phase I-C studies, plus higher personnel costs tied to growing the clinical team. Those increases were partly offset by lower costs from the phase II/III ReMEDy2 stroke trial because of the clinical hold. General and administrative expenses came in at $1.9 million for the three months ended March 31, 2023, compared with $1.6 million during the same period a year ago. That rise was mostly attributable to recruiting costs tied to expanding the company's team and higher legal fees related to the company's lawsuit against PRA Netherlands. On that subject, let me give you a brief update on our continuing lawsuit against PRA Netherlands, which ICON plc acquired as of July 1, 2021. Last month, the Netherlands Commercial Court handed down its ruling concerning who owns the study data and records from the trial that PRA/ICON conducted for us in 2013 and 2014. In that decision, the court declared DiaMedica the rightful owner of the study records, paper and electronic alike, as set out in the original study agreement. The court instructed PRA/ICON to, quote, allow and tolerate, end quote, DiaMedica exercising its rights as owner of the documents and to cooperate in surrendering both the physical documents and the digital data. The court went on to rule that PRA/ICON lacked any legal basis for withholding the study documents. After all these years, that ruling felt like quite the vindication; we now look forward to getting the records, conducting a proper audit of the study, and evaluating the inconsistent messaging from PRA. At present, we are taking steps to enforce the court's ruling and gain access to the study documents. PRA does, however, hold a right to appeal this decision. That right remains in effect until mid-July of this year. Once we reach that point, we should be in a position to offer a clearer picture regarding when the subsequent stages will occur within the Dutch legal process. Thanks, and having said that, I'll now hand things back to Rick.

Appreciate that, Scott. With that said, we're ready to move into the Q&A portion of the call. Operator, please go ahead and bring on our first analyst.

Thank you, and good morning, everyone. I appreciate your time on the questions. Rick, I found myself wondering—perhaps I got the wrong impression from the prior call, where the phase I-C seemed like a reserve data set you could hold in your back pocket should the FDA keep raising questions—yet now it will be filed as part of your official response alongside the in-use study. I'd just like to hear your thoughts on that. Did it simply come down to timing lining up, or did the strategy shift in some way?

No, that's a really good question. It honestly came down to timing. We were getting ready to file our complete response in April, at the close of April, combining part one and part two of the in-use. We came to see that the phase I-C in healthy volunteers was progressing very rapidly. With that in mind, only a couple more weeks and we could put together a complete response that would actually contain human data—and encouragingly, that human data now backs up the in-use data and also backs up the IV bag study we ran last fall; we think on the whole, pairing the in-use study with the phase I-C data gives, in our view, a very compelling basis for the FDA to let us restart the trial.

Appreciate that. If we rewind a little, whenever you folks first arrived at that 1 mcg/kg dosage, my guess is it came from translating either the porcine version or the human urinary version you'd previously settled on. Now that it's behaving this way — producing an identical result with only half the amount — I got curious about whether you've revisited things retrospectively to figure out, you know, ought you to have started at 1 mcg from the beginning? Maybe just a few backward-looking reflections on that.

Sure. Going back to the start, our first step was a phase I study among healthy volunteers designed to replicate the PK profile of the IV dose — our product against the human urinary version currently in use across China. Back then we were working with the polyolefin bag, and while relying on that bag, we settled on 1 mcg/kg dose levels. Moving ahead, that same bag carried us through our phase II, where we obtained the phase II data. After that, as we advanced into the phase II/III study launched last year, we switched over to a PVC bag, and that's when the three serious adverse events involving significant blood pressure drops occurred. Come last summer, we revisited everything and examined what had shifted between phase II and phase II/III, and that's when we pinpointed that the sole factor we could identify was the bag change. We ran more testing, both during last summer and subsequently with the in-use work. What's clear to us now is that with the polyolefin bag, essentially half the drug was adhering to it. In practice, that 1 mcg/kg delivered via the PVC bag meant patients received double the amount we believed they were getting. Through this fresh in-use study within the phase I-C, we managed to essentially achieve a comparable PK profile with the PVC bag to what we'd gotten using the earlier bag.

Got it. Thanks, Rick.

Yeah.

Okay. Rick, morning to everybody. Picking up where Tom's questions left off, I find the effort you've put in here quite compelling. Going back just to verify those dose levels — do you intend to get that work out there, demonstrating every stage you went through, from pinpointing the root cause, to how you ultimately fixed it, to the studies you ran, whether that means presenting at a conference or putting out an abstract somewhere, so that we might gain additional solid backing, solid proof regarding the shifts in how the study was designed?

Yeah, that's a topic on the table. I mean, I suppose we won't make a firm commitment to it, though it will matter quite a bit. Especially for the, you know, the lead investigators working at those locations. Should we be able to offer more clarity, we'll be exploring ways to, you know, to make that information available. It's quite evident that we have pinpointed, you know, the cause and the reason we think we can steer clear of such occurrences largely from here on.

All right, that's fine. Is there anything coming out of the in-use stability study or the phase I-C data that would cause the FDA to say, hmm, okay, terrific, we appreciate you sending this over, but did you think about X, Y, Z? What might still catch us off guard when it comes to how the FDA replies here?

So, look, we've completed what we consider to be a really thorough evaluation. We brought in several outside consultants too, to assist in going over all of it. We believed we already had the data from the in-use experience, but by pushing this further and conducting a human study — which, as I noted during the prepared remarks, the FDA did not require, indicate, or suggest — we think this is the best approach. It should give them greater reassurance that we're doing all we can when it comes to patient safety. Another thing we've handled is making some changes to the protocol. Specifically, we'll begin the infusion slowly for the initial 15 minutes. Should there be any indication of meaningful blood pressure drops, the sites will be able to administer the dose to those patients across a few hours. I believe that matters. We're also implementing a 24-hour washout for any patient who had been taking an ACE inhibitor beforehand. All three of these patients who experienced this serious adverse event were on ACE inhibitors. We're aware that an interaction exists with ACE inhibitors where the mechanism of action is concerned. These extra precautionary measures that Kirsten and the clinical team have put in place, I think, will offer additional reassurance regarding prevention. Until the FDA gives us their feedback, we can't be certain, but we believe we've addressed all of it. The FDA had also raised some further questions concerning trypsin and our assay, and they've already come back saying they found the work we've done acceptable. We intend to file this — submit it this week — and after that, the FDA will have as many as 30 days to provide us a response.

Alright, no, that's fine. Perhaps just a couple of brief questions. First, I believe during the prepared remarks you said there were new principal investigators for the study. Could you expand on that? And just refresh us regarding the PRA lawsuit—what study was PRA running, going back almost 10 years at this point? What data exists that you want to obtain or will obtain, and how might that data prove useful for the continued development of DM199?