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

Thanks, Paul. Hello, everyone, and thanks for joining the call about our third-quarter results. Joining me this morning is our Chief Financial Officer, Scott Kellen. Before we dive in, I want to take a moment to introduce Dr. Ambarish Shah, our new Chief Technology Officer. Dr. Shah has spent over 25 years working on biopharmaceuticals, guiding them from the early stages all the way to commercialization. He has played an important role in more than 50 drugs and in several successful approvals. Most recently, he was Vice President and Head of Global Vaccines Development at CSL Seqirus, where he oversaw end-to-end chemistry, manufacturing, and control for vaccine development. Prior to taking on that position, his title was Executive Director and Head of Drug Product Development with Bristol-Myers Squibb, which was previously known as Celgene. Going further back in his career, he held roles of growing responsibility at AstraZeneca, which used to be MedImmune, at GlaxoSmithKline, once called Human Genome Sciences, and at Pfizer, formerly Wyeth. For a stretch of five months before he came aboard permanently, Ambarish worked with us as a consultant. Having Ambarish as part of our team is something we're delighted about. Now for the phase II updates: as we've talked about before, the people handling our clinical operations have been putting in relentless effort to build up the team, revise our procedures, and get the necessary tools ready so that physician investigators and clinical study sites receive proper support. Throughout this time, we've been in discussions with the sites running the trial, thought leaders in the field, outside industry specialists, members of our scientific advisory board, and Dr. Jordan Dubow, who has stepped in as our interim Chief Medical Officer. The goal is making sure the ReMEDy2 protocol is something study sites can follow with maximum clarity while still producing the data that the FDA and other regulators need. On top of that, our aim is to give DM199 the best shot we can at achieving clinical success. Our conversation today centers on those protocol changes. Along with putting out our quarterly earnings press release yesterday, we also shared a slide deck that lays out additional details. You can find that material on the DiaMedica site, www.diamedica.com, as well as on the SEC's site, www.sec.gov. We sent the updated amendment protocols to the FDA at the start of October. When the 30-day review window closed on November 3rd, the agency had raised no comments. Because of that, we now can proceed — and indeed are proceeding — with running ReMEDy2 under the revised protocol. Taken as a whole, we think this amended protocol gives us a much better shot at clinical success and speeds up the activation of sites. On top of that, should we boost the improvement in performance shown by DM199 relative to placebo when the interim analysis is done, the overall patient count needed for the study can be lowered, and that represents the fastest, most economical route to finishing the trial and delivering our drug to stroke patients. The biggest adjustment we made to the protocol had to do with who could and couldn't take part in the trial. To be specific, we changed the inclusion score on the baseline National Institutes of Health Stroke Scale, also known as NIHSS, so that the focus would be on ischemic strokes of moderate severity. That means patients who come in with a baseline NIHSS score between 5 and 15. We ran a post-hoc analysis of ReMEDy1, the phase II stroke study, and zeroed in on subjects who hadn't received mechanical thrombectomy prior to enrolling in our ReMEDy1 trial. That subgroup is the one that best matches the intended patient population for ReMEDy2; among them, there was a 15% larger absolute gain in subjects achieving an excellent result, defined as a modified Rankin Scale, or mRS, score of 0 to 1; this cohort consisted of 45 subjects, 25 on active treatment and 21 on placebo. Those subjects entered based on a baseline NIHSS score of 6 to 24. Scores higher than 15 indicate moderate to severe and severe strokes. When we examine results from only the moderate severity strokes in this trial, meaning NIHSS scores of 6 to 15, which covers 34 subjects, 19 receiving DM199 and 15 receiving placebo, the gain in excellent outcomes rose to 18%. Expanding the scope slightly, when we focus exclusively on strokes that began with an NIHSS score between 6 and 10, the improvement in excellent outcomes becomes even more pronounced — 35%. This figure comes from 26 participants: 14 were given DM199, while 12 got placebo. I should note a limitation here: this post hoc review covers only a modest patient count. Still, it's important to point out that among those in the non-mechanical thrombectomy group whose starting score was 15, not a single subject achieved an excellent result, meaning an mRS of 0 to 1. When you're dealing with a moderately severe stroke — an initial NIHSS above 15 — anticipating that many patients will wind up at an mRS of 0 to 1 sets a very demanding clinical standard. One key point: across the majority of Kailikang trials — Kailikang being the Chinese human urinary version of KLK1 — the typical starting NIHSS comes in at 8 to 8.5. For ReMEDy1, that figure was 10.9. Since our emphasis is on moderate strokes, we anticipate getting closer to the range seen with Kailikang. As a final piece, individuals whose baseline NIHSS is five are now part of the study too, and that group makes up about 20% of moderate strokes overall. We found, as mentioned, that the strongest response to treatment appeared among those scoring 6 to 10 on NIHSS, so adding a score of five should let us enroll more of that population. Additionally, our newly introduced 5-to-15 span aligns perfectly with what the NIHSS officially classifies as moderate ischemic strokes. Although narrowing the NIHSS eligibility window does reduce how many patients could potentially enroll in ReMEDy2, our view is that zeroing in on moderate strokes gives us the best shot at clinical success, meaning the biggest achievable benefit relative to placebo. That benefit matters not only because it shrinks the enrollment burden and boosts statistical significance, but also—maybe just as crucially—because it should help drive commercial uptake and support favorable pricing once the FDA grants marketing approval. Another modification we'd like to cover involves leaving out ischemic strokes that happen in the brain's posterior circulation, otherwise known as PC strokes. For clinical trials, these strokes can pose difficulties. Neurological deficits caused by strokes in the anterior, or front, circulation of the brain are what the NIH Stroke Scale mainly assesses. Because of that, the NIH Stroke Scale frequently underrates PC strokes. Dave Wambeke, our Chief Business Officer, was lately traveling in China for business development, and there he gained a broader view regarding clinical usage of Kailikang, which is the human urinary-derived version of KLK1. Through his different conversations, it emerged clearly that the primary Kailikang studies had left out PC strokes because of problems with the NIH Stroke Scale adequately assessing such patients. Clearly, this matter could lead to uncontrollable variability within a clinical trial, something we would rather not bring into ReMEDy2. Once again, this might likewise lower the count of patients eligible for the trial, yet we anticipate the effect will be minimal.

Just 20% of every stroke case starts in the posterior circulation, and roughly 70% of those patients score below five on the NIHSS, which means most of this already limited group wouldn't satisfy even the lowest threshold of the baseline criteria we're using for inclusion. The final modification I'd like to discuss carries the smallest chance of influencing when the trial finishes overall, though it's more on the technical side. That change involves taking out the overwhelming efficacy assessment at the interim analysis stage. Evaluating efficacy at an interim point creates a statistical penalty when analyzing the trial as a whole, and that penalty is much bigger than what you'd get from re-estimating sample size. Eliminating that penalty, in our view, pushes the likelihood of study success even higher. On top of that, looking at things practically, the enrollment rates we project going forward indicate there's minimal advantage to running an interim analysis; it's crucial to keep in mind that enrollment won't halt after patient number 144 is enrolled. Across the stretch that covers enrolling patient 144, following them through 90 days, and then analyzing the interim data, we expect enrollment to approach 240 patients. That figure of 240 sits at the bottom edge of our re-estimated sample size range. What if our interim findings showed overwhelming efficacy, strong enough that stopping the study would be justified? By then we'd probably be at that point already, or extremely close to it; it's crucial to note that enrollment won't halt after patient number 144 is enrolled. Now that we have an effective amended protocol that we believe offers the greatest probability of clinical success, our attention is entirely on activating sites and recruiting patients. Our team is energized and collaborating closely with our global CROs. We've contacted more than 600 sites across 23 countries, and we're carrying out extensive feasibility work and site selection, narrowing things down to what we expect will be the optimal sites for our trial, still aiming for as many as 100 sites worldwide. Our protocol is also presently being reviewed by the Canadian and Australian Stroke Consortiums. The trial's first three sites remain on schedule for reactivation in November and December, with 20 fast-track sites in the U.S. to come afterward. We're partnering with our CRO and scientific advisory board throughout the selection process. Most U.S. sites ought to be activated during the first half of 2024. We'll share additional details about site timing on our next conference call. Additionally, as we mentioned on our previous earnings call, drawing on enrollment rates from recent stroke trials and conversations with several CROs, we think full enrollment for the interim analysis can wrap up in 2024. In the end, though, actual enrollment rates will determine this. Before I pass things to Scott, I want to stress that we've seen considerable interest from key opinion leaders and investigators. DM199 works by boosting collateral circulation, an approach we see as better than neuroprotectants and closer in nature to proven revascularization therapies such as tPA and mechanical thrombectomy. Another draw for them is the potential safety profile of DM199, especially the fact that it does not raise bleeding risk. On top of that, we think the updated trial design — which has a greater chance of showing an improvement in excellent outcomes — plays a role in this interest as well. Our view is that we have reached a pivotal point in ischemic stroke care; at this stage, more than 25 years after tPA won approval for stroke, our strategy could represent a landmark step forward in stroke treatment since that time. At this point I want to hand the call over to Scott Kellen so he can walk through the financial results for this quarter.

Appreciate that, Rick, and hello everybody, and thank you for joining us on the call today. At the close of Q3, our total cash, cash equivalents, and investments stood at $56.2 million, which is an increase from $33.5 million on December 31, 2022; the main driver of that rise was $33.8 million in net proceeds from the private placements we completed in June and April of this year, partly offset by cash spent funding operating activities across the nine months ended September 30, 2023. For the nine months ended September 30, 2023, net cash used in operating activities came to $14.9 million, versus $8.7 million during the same period a year earlier. That greater cash usage is mainly tied to a larger net loss in the current year period compared with the prior year period, plus higher amortization of discounts on marketable securities, partly offset by non-cash share-based compensation and the impact of shifts in operating assets and liabilities this year. In our view, the capital we have now will fund the clinical development of DM199 and keep our operations going into 2026. Research and development expenses rose to $3.3 million for the three months ended September 30, 2023, compared with $1.6 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, R&D expenses climbed to $9.4 million, from $5.6 million for the nine months ended September 30, 2022. What drove the nine-month increase was chiefly costs from the in-use studies run to resolve the recently lifted clinical hold on the company's ReMEDy2 AIS trial. There were also costs for the phase I-C study, which established the DM199 blood concentration levels reached with the IV dose of DM199 using PVC IV bags, along with higher manufacturing and process development costs. Additional contributors to the rise included greater personnel costs from growing the clinical team. Those increases were partly offset by lower costs for the phase II/III ReMEDy2 AIS trial, since activity there was limited before the clinical hold was lifted in June 2023. General and administrative expenses came in at $1.9 million for the three months ended September 30, 2023, up from $1.5 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, G&A expenses reached $6 million, compared with $4.5 million for the nine months ended September 30, 2022. The nine-month increase stemmed primarily from higher legal fees tied to our lawsuit against PRA Netherlands and greater personnel costs from expanding the team. Increased costs per patent prosecution and non-cash share-based compensation also played a part. Before handing things to Rick, I want to note that the hearing for the PRA lawsuit remains scheduled for December 7th of this year. PRA recently submitted a counterclaim asserting that our enforcement of the April 2023 judgment, which affirmed our ownership of all study records, breached Dutch procedural laws. Their counterclaim is something we do not accept, and as things stand, we do not expect it to move the hearing scheduled for December 7th. Presenting our case against PRA is something we are truly eager to do; at this point, I'll hand things back to Rick.

Thanks, Scott. Having said that, we'd like to begin the Q&A portion now. Operator, please go ahead and open up the lines so people can ask questions.

Morning. Ricky, just two or three fast ones from me. If you picture the whole patient population like a funnel, and you take out mechanical thrombectomy plus tPA — being cautious, let's say that's 20% of patients — then you're also pulling out roughly 20% for posterior circulation. Could you take us through how you expect that to play out, particularly when the NIHSS score gets factored in?

Yes. Appreciate it, Thomas. The way we look at it, the larger picture, what matters most on our end is achieving, in our view, the biggest clinical benefit from this drug. Commercially, then, we figure the wider the delta — meaning the improvement shown by DM199 relative to placebo — the more commercial value there is. Initially, the plan is to go after — we expect the first label to cover patients with moderate severity stroke, which represents somewhere around 35%-40% of all strokes; after that, on the commercial side, from our conversations with neurologists and with folks on the commercial side, our sense is that whether someone has a mild stroke, a moderate to severe stroke, or a severe stroke, they will in all likelihood receive our therapy.

Got it. So to get to 144 patients enrolled by the end of the year, given how quickly you're going, how many sites would need to be actively enrolling to reach that number?

Yeah. Right now, we're looking at — and talking about — up to 100 sites, though the main focus is on that first 75. What we're assessing at present is about 40 in the U.S., maybe 10 in Australia, 10 in Canada, and the remainder in Europe and other parts of the world. So when we look at the enrollment rate, that's assumption number one; assumption number two is how many patients each site enrolls per month. Right now we've set our goal for the enrollment rate at 0.25, which works out to one patient per site every four months. That figure comes from looking at data from past stroke studies; not long ago we revisited and reviewed roughly the last 20 trials involving acute ischemic stroke. A lot of those were mechanical thrombectomy studies, which used a narrower treatment window and went after a smaller group of patients. Also, the typical enrollment rate came in at 0.5, which is roughly double what our goal is; however, many unknowns remain; therefore, despite the adjustments we've implemented, we continue to base our projections on a 0.25 enrollment rate. Then, as we move into the new year and begin gaining momentum, with the initial locations launching, we'll gain a clearer picture of what the real enrollment rate turns out to be.

Understood. And then, if I could, one last item. Is there any reason we wouldn't expect the interim analysis to read out in Q2 of 2025, assuming everything proceeds as planned?

As of today, that is the plan. And once more, many factors are in play, but my hope is that this rate of enrollment is on the conservative side. Previously, we ran into some difficulties with, you know, COVID; additionally, as part of those protocol changes, certain elements in there were not entirely clear. So having our new Interim Chief Medical Officer, in particular, assist us in simply revising and simply making the trial protocol clearer, I believe that will aid with recruitment.

Great, and thanks for fielding these. I appreciate it.

You're welcome, Thomas.

Okay, thanks a lot. Hello, everybody. Under the earlier protocol, DM199 could be accessed solely in cases where mechanical thrombectomy was not performed. At present, the approach centers more on the anterior circulation, yet does the objective remain unchanged — namely, to bring down the number of mechanical thrombectomy patients? Is that right?

Our intention remains to leave out individuals who had mechanical thrombectomy before, as well as to leave out patients presenting with a large vessel occlusion. Our belief is that roughly 20% of strokes occurring today involve a large vessel occlusion.

And at this point, the anterior — and after that, the posterior circulation gets layered in on top of it.

Alex, hi there, Scott here. As we described during the prepared comments, posterior circulation strokes aren't assessed particularly well by the NIHSS score. Because of that, there's a risk that patients could end up incorrectly scored in the trial — whether too low or too high — and that adds a degree of variability we simply have no interest in bringing in. Also, bear in mind that among that 20% who have PC strokes, 70% typically show up with an NIHSS score of 4 or lower. So when it comes to the addressable patient population for ReMEDy2, the impact is really quite small.

All right, I understand. Now, regarding evaluating whether it's anterior or posterior circulation, how fast is that doable at the site? Is it simply something assessed in real time? Also, within ReMEDy1, what was the count for anterior cases?

Right, that's just a fast look-over that the neurologist does. From our ReMEDy1, we don't currently have those figures with us, though we're able to verify that.