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

Thanks, Paul. Hi, everyone, and welcome to the conference call for our full year 2023. With me this morning are Lorianne Masuoka, who serves as our Chief Medical Officer, and Scott Kellen, our CFO. To kick things off today, I'd like to extend a welcome to Lorianne Masuoka in her new role as Chief Medical Officer. Dr. Masuoka joined us just a few short months ago, yet she's already delivering an enormous impact with clinical sites and generating strong momentum among both current and potential physician investigators. Dr. Masuoka is a board-certified neurologist with over 25 years of experience building and expanding high-value pipelines in the biopharmaceutical industry. She brings a track record of building and leading high-performing teams in clinical development across all stages and through the ultimate approval of new medicines. Her background also includes a key role in developing strategic partners and acquisitions of multiple biotechnology companies. She has held the position of Chief Medical Officer at Epygenix Therapeutics, Marinus Pharmaceuticals Pharmaceuticals, Cubist Pharmaceuticals, now part of Merck, and Nektar Therapeutics. In addition, she was an independent Board member of Opiant Pharmaceuticals, which was acquired last year for an upfront premium of over 100% and the potential for an approximately 200% premium if the contingent value rights are achieved. Her experience spans managing teams in clinical research, pharmacovigilance, biostatistics and data management, regulatory affairs and clinical operations. We welcome Lorianne on today's call, and I'm thrilled to have her as a key member of our team.

Thanks, Rick. There are multiple reasons why I'm thrilled to become part of the management team here at DiaMedica. First, DM199 could be a real breakthrough for treating acute ischemic stroke — a severe, life-threatening condition where nothing new has won approval as a medical therapy in more than 25 years. Based on subgroup analyses from the ReMEDy1 study, DM199 looks highly promising for helping stroke patients get back to their baseline neurologic function and for stopping recurrent stroke and death. Last month, DiaMedica had a booth at the International Stroke Conference, and more than 80 stroke centers followed up asking about our ReMEDy2 trial; 11 of them have already asked to take part in our trial. They were enthusiastic about the way DM199 enhances collateral circulation within the ischemic damage area after a stroke, and does so without increasing the danger of hemorrhage. From their perspective, DM199 is similar to revascularization methods such as tPA and mechanical thrombectomy, and it looks much more encouraging than the many neuroprotective agents that have not succeeded. Additionally, during this year's International Stroke Conference, a poster presentation on the ReMEDy2 trial's design was delivered in the main hall by Dr. Scott Kasner, DiaMedica's Global Principal Investigator for ReMEDy2. Next, the management team along with the clinical functions, which are now under my leadership, are among the brightest, hardest-working, and most cooperative groups I have ever been part of. Additionally, we brought in several key clinical personnel whose additions have strengthened both what we do and how well we do it. Last, ReMEDy2 is a study built with careful forethought, sound design, and strong operational oversight — and in my view it will produce conclusive proof regarding whether DM199 deserves a place among the therapies available to individuals who have experienced an ischemic stroke. Let me now share where ReMEDy2 stands. To recap, our finalized clinical protocol took effect during the middle of November, while the initial U.S. sites came online in December 2023. The locations that went live in December were the fast-track centers that had already been operating before our clinical hold took effect. At this point, we're working on broadening out to between 40 and 50 total sites across the United States. After a site shows interest and we've chosen it, roughly 3 to 6 months are needed to complete contracting and secure IRB approval. Commitments from new sites were sluggish during the holiday period; however, starting in mid-January and running through the ISC conference in February, we experienced a wave of new site sign-ups. As things stand today, 6 sites are activated, another 18 are in the start-up phase, and we have a substantial pipeline of 40 more sites that have been selected for prequalification visits in the U.S. Another key thing worth mentioning: several of the nation's biggest and best-regarded hospitals for stroke research have signed on to our study. These newly added sites see a lot of patients, have strong clinical research capabilities, and regularly appear among the highest-enrolling centers for AIS trials. Entering Q2 and the start of summer, we anticipate a major acceleration in the pace of U.S. sites coming online. Drawing on my own past experience launching recruitment sites for other trials, our expectation is not a steady, linear climb in either site count or patient enrollment. What we do expect is a hockey-stick pattern of growth throughout the U.S. during the back half of 2024, continuing into 2025. Turning to other nations: up in Canada, our protocol has received endorsement from the Canadian Stroke Consortium, which also issued recommendations about which study sites qualify. So far, we've pinpointed 6 hospitals there to take part in ReMEDy2, and we're now in a position to submit our application to Health Canada seeking trial approval. Activation of Canadian sites should begin during Q3 of this year, in our expectation. Down in Australia, just last week the Australian Stroke Trials Network gave provisional endorsement to our protocol, and at this point we're proceeding to pick study sites and kick off the regulatory filing work. Our plan is to collaborate with numerous highly engaged centers—many of the same ones involved in ReMEDy1—plus additional sites the network has put forward. We anticipate Australian study sites will start activating by year-end too. Over in Europe, the U.K. included, we must satisfy fresh regulations and stipulations concerning quality audits for drug manufacturing. The extra procedures and paperwork needed are almost finished; that effort has to wrap up before we go after European regulatory clearance for the study. Our intention is to target sites in chosen European nations that have seasoned research teams and the possibility of considerably greater enrollment rates; site activations should get underway late this year, as we see it. In summary, by the time Q2 wraps up, we expect between 25 and 30 sites to be up, running, and enrolling people. Then, by the finish of 2024, most of the approximately 75-plus sites should be in that same position. We've kept a close line of communication going with the sites that opened first, and we know they're screening patients ahead of time—we can tell because questions keep coming in about who qualifies and how the consent process works. It shouldn't be long before the first post hoc participant is signed up; that could happen on literally any day. Once that happens, it all becomes a matter of volume. With more sites joining and getting underway, we anticipate enrollment regaining momentum, followed by a steep rise as the bulk of sites go live toward the year's end. I'd also note that a number of competing trials are wrapping up in the near term, which frees up bandwidth for critical study center staff and probably widens the pool of patients who can be approached. With all that in mind, we feel at ease now stating that, absent any unforeseen problems, we expect the 144th participant for our interim analysis to be enrolled in Q1 2025. At this point I'll hand the call back to Rick.

Thanks, Lorianne. I'd like to remind everyone too that, as we talked about during the prior quarter, our submission of a protocol revision back in October of 2023 was intended to boost the likelihood that the clinical work would succeed. Those adjustments included tightening the target population to individuals suffering moderate strokes, as measured by a National Institutes of Health Stroke Scale score falling between 5 and 15; within our Phase II ReMEDy1 trial, these were the participants who showed a higher degree of complete recovery, based on a modified Rankin score of 0 to 1 on a 6-point scale, where an 18% improvement for DM199 over placebo appeared. That stands against the moderate to moderate severe group, which displayed a 15% improvement relative to placebo. Crucially, our view is that this won't sharply cut the count of stroke patients who qualify. We further adopted steps designed to lower the alpha penalty during the interim analysis. We feel sure these refinements will deliver a stronger chance of clinical success and put DM199 on the quickest route to FDA approval and, just as important, get DM199 to stroke patients who currently have no treatment choices. Our clinical team has worked tirelessly to locate, qualify, and bring on board physician investigators and clinical sites, and to make certain sites feel properly supported in running this trial. In February, we also recently grew our clinical operations by welcoming Rebekah de Vitry Fries as our Vice President of Clinical Operations, in order to further broaden and reinforce the leadership of our clinical operations team. Previously, Rebekah served as Head of Clinical Operations at Epygenix Therapeutics. I'd now like to hand the call over to Scott Kellen to go through the financial results for this quarter.

Appreciate that, Rick, and hello everybody on this morning's call — thanks for joining us today. Per Rick's remarks, yesterday we released our financial results for full year 2023 and submitted our annual report on Form 10-K. Once again, you can find both of those documents on the DiaMedica site or the SEC's site. At December 31, 2023, the combined total we reported for cash and investments stood at $52.9 million, alongside current liabilities of $2.8 million and working capital of $50.9 million. That's measured against combined cash and investments totaling $33.5 million, current liabilities of $2.2 million, and working capital of $31.7 million at December 31, 2022. Driving those gains in cash and investments as well as in working capital was mainly the $36.8 million in net proceeds generated by our private placements during April and June of last year, naturally offset in part by cash spent funding operating activities across fiscal '23. For the year ended December 31, 2023, net cash used in operating activities came to $18.7 million, versus $11.5 million during the prior year. Fueling that rise in cash used for operating activities was chiefly a larger net loss for the company plus greater amortization of discounts on purchased marketable securities, partly offset by noncash share-based compensation along with the impacts of shifts in operating assets and liabilities throughout '23. In our view, the cash and investments we hold today give us a runway extending into 2026. Research and development expenses climbed to $13.1 million for the year ended December 31, 2023, versus $7.8 million for the year ended December 31, 2022. Behind that increase were principally costs we incurred on the in-use studies run to resolve the earlier clinical hold placed on our ReMEDy2 trial, costs tied to the Phase Ic study, and greater manufacturing and process development costs for DM199; also adding to the rise were higher personnel costs, among them noncash share-based compensation connected to growing the clinical team. General and administrative expenses reached $8.2 million for the year ended December 31, 2023, versus $6.2 million in the prior year. That growth came primarily from higher legal fees tied to the company's lawsuit against PRA and greater personnel costs associated with expanding the company's team. Bigger patent prosecution costs and noncash share-based compensation likewise fed the increase. Other income came in at $1.9 million for the year ended December 31, 2023, against $0.4 million for 2022. Higher interest rates combined with larger marketable securities balances during 2023, following our private placements in April and June '23, drove that improvement. Now, prior to handing things back to Rick, allow me to give you an update on where things stand most recently with the PRA lawsuit. We were recently told by the 3-judge panel that they couldn't see a sufficient causal link between PRA's violation of our study agreement and the damages that we had claimed. So we're in this strange situation where a court has found that PRA breached the study agreement and that we're entitled to the study's full results — a judgment PRA is appealing right now, by the way — yet we're not entitled to even get back the fees we paid under that agreement. As a result, we have until May 6 to let PRA and the court know whether we'll appeal. We're evaluating our options at this point. With that said, we'd like to open up the call for questions. Operator, could you please open the lines now.

Regarding getting patients signed up, if the first locations went live in December of last year and we expect the first participant shortly, should we anticipate that gap between a site opening and actually enrolling someone? Would a delay of 3 to 4 months be a fair assumption? Or does that only apply because the entire trial is just getting underway?

Lorianne, would you be willing to handle that question?

Okay, so like I said before, a lot of the places where we run studies are academic centers, and those tend to require several rounds of IRB sign-offs; frequently they won't even look at a study contract before the IRB has given its approval. So we did make really strong headway getting them opened not long after the clinical hold came off and the final protocol got locked down in November. Still, getting them fully operational does take a while on their end; we've got to get their pharmacies set up so they can handle the intravenous infusion, and that eats up some time. And for the most part, you're just waiting. It comes down to volume; we need a much bigger critical mass of clinical sites open and ready to enroll, since we never know when the right patient is going to walk through the emergency room doors.

Also, considering how slowly things have gone in bringing Canada and Australia online, it looks like the interim analysis is going to lean pretty heavily on patients from the U.S. Is there any basis for thinking that this wouldn't reflect the overall enrollment, which is expected to include more people from Australia, Canada, and the EU?

So, our expectation is that patients will come from a variety of places, since, if you recall what we've stated, we expect the EU and U.K., along with Canada and Australia, to be operational before this year ends. Therefore, we expect the interim analysis to reach complete enrollment of 144 patients by the close of Q1 in 2025. So patients will be drawn from multiple regions. Clearly, a portion of them will be from the U.S., yet we do think it will be representative.

Can you hear me okay?

Yes. Yes, Frank.

Okay, that makes sense. I was just curious — with Q1 '25 being when we believe enrollment will wrap up for the interim read, could you go over again what's expected for that interim read, and based on the study design, what the timeline would look like from full enrollment through to data? Whatever you're able to tell us would be useful.

Of course. Once the 144th patient has been dosed, a 90-day follow-up period follows; after that comes 6 to 7 weeks for database lock along with DSMB review, and then we'll be notified about the resampling size.

All right, that's helpful. And regarding what we might expect from the data, could you walk us through the potential scenarios again? Is it the same as before, or has anything shifted?

Of course. At the point of the interim analysis, should no drug effect be observed — meaning the effect we see is under roughly 4% compared with placebo — then the trial gets stopped. If that isn't the case, a resampling of size will occur, with that resampling size falling somewhere between 240 and 728 patients. The study, then, has been powered around a 14% base case, which works out to about 350. Should a larger effect emerge, we would expect the size to shrink. Should the effect turn out smaller, we would expect it to grow.