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

Thank you, Paul. Good morning, everybody, and welcome to the call covering our second quarter. Joining me today is Scott Kellen, our Chief Financial Officer. Before we begin this morning, I want to take a moment to welcome Dr. Richard Kuntz to the Board of Directors. Dr. Kuntz recently retired from Medtronic, where he served as Chief Medical Officer, Chief Scientific Officer, and a member of the Executive Committee. Earlier in his career there, he was Senior Vice President and President, Neuromodulation of Medtronic. Before joining Medtronic, he established the Harvard Clinical Research Institute in Boston and acted as its Chief Scientific Officer. He also served as Associate Professor of Medicine at Harvard Medical School, was Chief of the Division of Clinical Biometrics, and practiced as an interventional cardiologist in the cardiovascular diseases division at Brigham and Women's Hospital in Boston. In addition, he advised many national and regional committees at the National Academy of Medicine and National Institutes of Health. Dr. Kuntz has led numerous multi-center clinical trials and has authored more than 200 original publications; we feel fortunate that Rick is joining our Board. His contributions will strengthen and broaden the expertise and capabilities our Board already possesses. Returning to our update. The second quarter brought two important milestones for DiaMedica and our shareholders: the FDA lifted its clinical hold on our ReMEDy2 stroke study, and we closed an at-the-market financing that produced $37,500,000 in gross proceeds, with net proceeds of $36,100,000, lifting our cash balance to more than $60,000,000 at the quarter's end. Let's begin with the FDA news. On June 21, we announced that the agency had fully removed the clinical hold on our Phase II/III ReMEDy2 trial, which is studying DM199 for acute ischemic stroke, or AIS. Once that decision arrived, we immediately reengaged with our study support vendors and have chosen a new contract research organization possessing deep, current stroke expertise. As everyone probably knows, preparing for a pivotal registrational study demands considerable work. I want to assure all of you that the entire team is eager and committed to working alongside our CRO, the supporting vendors, and our key advisers as we relaunch this trial. Remember that we hold a bit of an edge, since approximately twelve sites had already been enrolled during the prior year. In addition, we are presently exploring the addition of clinical locations outside the United States, which would assist us in accelerating enrollment in countries viewed as able to recruit patients more quickly than comparable American sites. Our goal is to deliver the FDA a complete, clean clinical data package when ReMEDy2 concludes, so the agency can approve DM199 and improve it. That is why we expanded our clinical team over the last year. As matters stand now, every essential vendor is in place and working diligently to prepare for resuming patient enrollment. At this moment, we aren't in a position to provide a solid estimate of the timeline, but after talking with our CRO and several other parties, we feel good about completing enrollment for the interim analysis prior to the close of 2024. When we actually finish depends on the pace at which we're able to enroll patients. I'd like to point out that thanks to the capital we brought in recently, which came in well above what we had expected, we can now move ahead with expanding this study globally. Enrollment ought to speed up as a result, which helps us get to both the interim and the final analysis earlier. We think we'll be able to offer clearer visibility on the timeline as a whole during our Q3 earnings call. On a related note, as we've said before, we have underway a Phase Ic open-label, single-ascending IV dose trial of DM199 in healthy volunteers, and it depends on the same PVC IV bags that are used in ReMEDy2. Results from the first part of that study showed that the 0.5 microgram per kg intravenous dose we had intended—one that will be given moving forward in the ReMEDy2 trial—is safe. On top of that, that dose level was shown to reach the KLK1 blood concentration we'd been targeting, a level thought to line up with our intended therapeutic range, comparable to what we saw in our earlier Phase II stroke study and to the drug levels reported for the human urine-derived KLK1 protein, which sees wide use in China under the brand name Kailikang. We were also able today to report that a fourth cohort in the Phase Ic study has been completed, made up of three hypertensive patients who take ACEi inhibitors. All of those participants received 0.5 micrograms per kilogram through the revised procedures meant for ReMEDy2, and it's encouraging that each of them got the full intravenous dose with no hypotension or meaningful blood pressure reductions. We believe the extra clinical evidence from these pooled findings will give both current and prospective physician investigators more confidence that the right IV dosage has been pinned down and that patients, including those on ACEi, can be safely enrolled in ReMEDy2. Turning to milestone number two: over the past quarter, we also substantially bolstered our balance sheet. In June, we closed an offering of plain common stock—no warrants attached—priced at the market. This raise generated $37.5 million before expenses, with $36.1 million reaching us after costs, and that lifted our cash position above $60 million by the time the quarter ended. The round was led by people who already held stakes in the company, who provided a major share of the money, and their enthusiasm about DM199 and what it could mean as a strong new option for treating stroke hasn't faded. Our leadership and Board members also stepped up nicely, collectively putting in $700,000. We're grateful to everyone backing us, since their support means we now feel we can chart our own course. We feel the money we have on hand right now will carry us through the interim analysis, leaving us with a cash runway of about 1 year. Our focus is squarely on that interim analysis. It may be able to demonstrate a positive impact from DM199 in stroke patients — a population that has not seen any truly meaningful therapeutic progress in over 25 years, going all the way back to when tPA won approval. Before I turn it over to Scott, I want to point you toward a new video and slide that we've put into our corporate deck, which does more to illustrate the way DM199 functions in stroke patients, especially how it helps enhance collateral circulation. Here's the key updated takeaway on mechanism: when ischemic conditions result from a stroke, bradykinin 2 receptors located on endothelial cells inside the brain's arteries get strongly upregulated in the local ischemic penumbra. Based on animal model testing, that increase may go as high as forty-fold. By adding DM199, we believe a much greater number of those upregulated bradykinin 2 receptors can be activated, generating the beneficial focal basal dilation in the affected brain region — the ischemic penumbra — so that both blood flow and oxygen rise. In our view, this improved collateral circulation will save brain tissue in the penumbra and lead to better outcomes for patients. The second quarter brought two key milestones for DiaMedica and our shareholders: gross proceeds from the offering came to $37,500,000, net proceeds were $36,100,000, and that lifted our cash balance to more than $60,000,000 by the close of the quarter. You can find this video on our website, www.diamedica.com, by scrolling down the front page to the section titled Advancing Patient Care with Innovative Treatments. I'd now like to hand the call to Scott Kellen for a review of the financial highlights.

Thank you, Rick, and good morning, everyone. As Rick mentioned a bit earlier, we strengthened our balance sheet considerably during June by completing a private placement with accredited investors that brought in $37.5 million in total. Net proceeds from that deal amounted to approximately $36.1 million. On top of that, when Dave Wambeke joined us as Chief Business Officer in April, he invested $750,000. So as of June 30, 2023, cash, cash equivalents and marketable securities together totaled $60.6 million, compared with $33.5 million at the end of 2022. Across the 6 months ended June 30, 2023, we used $10.1 million in cash, compared to $6.4 million in the prior year period. A number of things combined to push that cash usage higher, including completing the in-use study and the Phase Ic study, ongoing manufacturing development work, a bigger management and clinical team backing the ReMEDy2 trial, and our litigation with PRA. We now believe our current capital is sufficient to fund clinical development of DM199 as well as our operations into 2026. During the 3 months ended June 30, 2023, research and development expenses increased to $2.5 million, up from $2 million in the same period last year. Across the 6 months ended June 30, 2023, R&D expenses reached $6.2 million, versus $3.9 million for the 6 months ended June 30, 2022. Costs associated with the in-use study — conducted to clear the clinical hold on our ReMEDy2 trial, which was lifted recently — plus costs from the Phase Ic study, which determined the DM199 blood concentration levels achieved with the new IV dose of DM199, were the main drivers of that 6-month increase. Other factors included higher manufacturing and process development costs, expenses to finalize clinical data and perform related analyses for the REDUX trial, and increased personnel costs from growing our clinical team. Those increases were partially offset by lower ReMEDy2 trial costs, since that trial had been on clinical hold until late June. General and administrative expenses totaled $2.2 million for the 3 months ended June 30, 2023, up from $1.4 million for the 3 months ended June 30, 2022. For the 6 months ended June 30, 2023, G&A expenses came in at $4.1 million, an increase from $3 million for the 6 months ended June 30, 2022. The main drivers of that 6-month increase were higher legal fees tied to our lawsuit against PRA Netherlands and greater personnel costs from expanding our management team. Higher professional service fees and noncash share-based compensation also contributed. Now, before I turn things back over to Rick, let me give a brief update on the litigation we have underway against PRA Netherlands. As many of you recall, in December of 2022, the Netherlands court, at our request, seized our study records from PRA. Subsequently, in April 2023, the Dutch court issued a ruling, which came after a hearing held in March 2023. That decision made clear we possess the study data, and even more crucially, it established that PRA had no legal basis whatsoever for withholding it. In June, PRA filed an appeal, and while getting that appeal resolved might require somewhere from 9 to 12 months, our main damages case continues at full speed. A hearing in that case is scheduled for December 7 of this year, and we can't wait to present our arguments against PRA and share our analysis of the damages resulting from PRA's behavior. One more thing worth noting: the exact same panel of three judges who oversaw the hearing regarding our ownership of the study data will also oversee the hearing in the primary lawsuit; for further information about how this litigation started, please see our SEC filings. Compared to $6,400,000 in the prior year period. And with that, I'll turn the call back over to Rick.

Thanks for that, Scott. With that out of the way, we're ready to begin the question-and-answer session at this point. Paul, could you please open the phone lines so that people are able to pose their questions? We also want to note $2 million.

Rick, regarding the pre — the individuals who got into the trial before the clinical hold, I'm not sure whether you've shared a count with us, but are they going to remain part of the efficacy analysis set? Or are they going to be censored out?

Yes, Thomas; so that figure hasn't been disclosed by us, but our plan is for those to be part of the analysis.

Understood. Then regarding that interim look — since the endpoint has been changed, does the patient count for it remain unchanged?

That's right. For the interim analysis, 144 patients is still what we're planning for.

Understood. Understood. And you're still aiming for 75 sites in total, correct?

The plan we have right now is in the process of being updated, essentially in real time while we proceed. At present, we're targeting 40 sites in the U.S. and 10 sites in Australia. Then, as I said during the prepared remarks, given the extra capital that came in, I believe we're also considering moving beyond the U.S. We're evaluating Canada and Europe. Some effort is underway at the moment just to determine what will be required in terms of timelines to add them. But I think it matters for us, if we're able to grow internationally, to boost the enrollment rate for the trial.

All right. I hope my voice is coming through on your end now. I can't tell what reached you and what didn't, Rick. Regarding the clinical hold being removed and the hunt for a new CRO, what new criteria did you apply this time around, as opposed to when ReMEDy2 first got underway? It sounds like greater international reach may have been one fresh criterion, but was there anything else?

Right. Alex, the situation has changed — we're now more than a year beyond COVID. Because of that, carrying over the lessons we'd gained before mattered a great deal; beyond that, we wanted a CRO with a worldwide footprint capable of supporting our growth beyond the U.S., while also — and this is key — bringing recent stroke trial know-how to the table. That piece was significant; the organization we chose brings deep familiarity from several trials conducted more recently, along with a sharper grasp — that is, a solid grasp — of which sites would likely serve as the strongest enrollers for this study.

All right, that makes sense. Could you also say more about how much uptake you expect for DM199 internationally in the clinical study compared with what you expect domestically? From your discussions, why would things necessarily move more quickly outside the country? What's your reasoning there?

Sure. So, when we examine enrollment rates from earlier trials, one thing we noticed was that in Europe especially, the rate of enrollment for each site each month was noticeably greater than what has typically been observed in U.S. trials. Some of that could be tied to socialized health care. Even so, on that basis, we believe it would matter just as much if we can genuinely explore expansion outside the U.S.