Earnings Call Transcript - DMAC Q1 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics First Quarter 2022 Conference Call. An audio recording of the webcast will be available shortly after the call today on DiaMedica's website at www.diamedica.com in the Investor Relations section. Before the company proceeds with its remarks, please note that the company will be making forward-looking statements on today's call. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. More information, including factors that could cause actual results to differ from the projected results, appears in the section entitled Cautionary Statement Note Regarding Forward-Looking Statements in the company's press release issued yesterday and under the heading Risk Factors in DiaMedica's most recent annual report on Form 10-K. DiaMedica's SEC filings are available at www.sec.gov and on its website. Please note that any comments made on today's call speak only as of today, May 5, 2022, and may no longer be accurate at the time of any replay or transcript rereading. DiaMedica disclaims any duty to update its forward-looking statements. Following the prepared remarks, we will open the phone lines for questions. I would now like to introduce your host for today's call, Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin.

Rick Pauls, President and CEO

Thank you, Julie. Good morning, everyone, and welcome to our first quarter 2022 conference call. I'm happy to be able to speak with you this morning. I'm joined by Dr. Kirsten Gruis, our Chief Medical Officer. Our CFO, Scott Kellen, is sick today and won't be joining us. I want to start off today by addressing the progress in our ReMEDy2 stroke trial in which we are studying DM199's potential to improve the physical recoveries and the rate of stroke recurrence in acute ischemic stroke patients who have no current treatment options other than supportive care. Remember, this group represents about a half a million patients in the U.S. alone. Less than two months since our last call, on March 15, we are pleased to share that we have made considerable progress, and I'd like to ask Kirsten to provide a clinical update.

Kirsten Gruis, Chief Medical Officer

Thank you, Rick, and good morning, everyone. We've continued to make solid progress on site engagement and activation, which will be key to finishing this trial timely and efficiently. As of our last call, we had four hospital sites activated, meaning enabled to recruit and enroll patients. Today, we have nine sites activated and are on target to have approximately 17 sites activated by June, which is aligned with our corporate target. Equally as important is recognizing that many hospitals have not been able to restore their research teams to pre-pandemic levels. In a situation where the study team is running below staffing capacity, they understandably have concerns over the adequacy of their staff and their ability to manage the study patient after the patient leaves the hospital. This may result in further uncertainty over the patient being able to receive the full three-week study treatment and can be a barrier to the site enrolling a patient that they would otherwise normally recruit. To address this, we've recently brought on a nationally recognized clinical support service firm to assist us in engaging with those study sites that can benefit from us providing supplemental staff resources to support both the recruitment of patients and the management of the patient's participation in the study as they transition from the hospital to an intermediate care facility and ultimately to their home. From the many discussions we've had with study sites, our advisors and others, we understand that staffing at the study site is the number one issue reported as inhibiting research. In providing assistance with additional staff, we intend to minimize the administrative burden on the physician, the study site coordinator, and the rest of the study team.

Rick Pauls, President and CEO

Thank you, Kirsten. We are very pleased to be getting into a rhythm of bringing hospitals on board and with the clinical team proactively developing creative solutions to drive enrollment in our stroke trial, even as clinical sites continue to deal with staffing issues. As we discussed in our last call, we are prioritizing clinical study sites that have the highest enrollment potential, ideally those that can enroll one patient or more per month. I'm very interested to see if our staffing solution can help sites achieve these types of enrollment rates. We are deeply committed to advancing DM199, the first pharmaceutically active synthetic form of KLK1 protein in patients. DM199 represents a new therapeutic mechanism of action with the potential to offer stroke patients the prospect of improving recoveries and reducing the risk of recurrence. I want to stress that the urine-derived form of the KLK1 protein approved in Asia has been on the market and has treated several hundred thousand patients since 2005. The results from our first study, ReMEDy1, were consistent with the reported results of the urinary KLK1. This is why we remain bullish on DM199. To reiterate, the patient treatment period in our ReMEDy2 trial is quite short relative to other trials. Patients are treated for three weeks, and the final follow-up is at 90 days for each stroke patient. We expect to complete the interim analysis for ReMEDy2 during 2023. We will provide more guidance on exactly when we get closer. Turning briefly to our chronic kidney disease (CKD) program, we strongly believe in the unique ability of DM199 to both improve kidney function in patients with CKD and control blood pressure in hypertensive patients by restoring low levels of KLK1. As we mentioned on our last call, we are focused on collecting final data and preparing next steps, including the selection of lead causes of CKD that could bring a much-needed therapy to patients. We expect the final analysis of the full dataset will continue to demonstrate strong signals for IgA nephropathy and in the hypertensive African-American population. While stroke is our main focus right now, we are developing a plan to move forward with the CKD program. I would now like to review our financials. We announced our first-quarter financial results and filed our quarterly reports on Form 10-Q yesterday after the market closed. These documents are available on either DiaMedica's or the SEC's website. Let me start with the balance sheet. As of March 31, 2022, our combined cash and investments totaled $41 million, down $4.1 million from $45.1 million at December 31, 2021. With the strength in our balance sheet, we believe our cash balance will support the clinical development of DM199 and our operations into early 2024. Research and development expenses for the first three months of 2022 were $2 million compared with $2.4 million for the first three months of 2021, a decrease of $400,000. This decrease was driven mainly by a reduction in costs related to the REDUX CKD trial, which completed patient enrollment in December 2021, and a lower level of DM199 manufacturing process development work in the current year quarter compared to the prior year quarter. These decreases were only partially offset by increased costs incurred in the ReMEDy2 stroke trial and higher personnel costs related to the expansion of our clinical team in the current year period. General and administrative expenses were $1.6 million for the first three months of 2022, up from $1.2 million for the first three months of 2021. This $400,000 increase resulted from a combination of increased professional services costs, directors’ and officers’ liability insurance, and personnel costs incurred in support of expanding our operations and clinical programs. As you can see, we have had a very productive first quarter. We continue to make significant progress in our lead acute ischemic stroke program. We brought on two key members to our management team and continue to expand the sites able to enroll patients in the ReMEDy2 trial. Finally, our balance sheet remains strong, and we believe we are well-positioned to execute the plans we reviewed for you today. With that, we'd like to open the call to questions. Operator, if you could please introduce the first analyst.

Operator, Operator

Thank you. Your first question comes from Thomas Flaten from Lake Street Capital Markets. Please go ahead.

Thomas Flaten, Analyst

Thanks. Good morning, guys. From the sites that you already have activated and enrolling, do you have any sense of what enrollment rates look like there? Or anything you can comment on to give us a sense of how productive these sites can be?

Rick Pauls, President and CEO

Yes. Thomas, it's still a little bit early. We're just getting these sites up. Our target has been for our projections for the interim analysis next year to get to a 0.25 enrollment rate per site per month, so basically one patient per site every four months. It’s still a little bit early, but I think over the coming months, we should be able to get more clarity on that enrollment rate. As part of our prepared remarks, we mentioned that we're really targeting those sites that we think have the ability to achieve one patient per month.

Thomas Flaten, Analyst

And then just to clarify on the interim analysis and on the prepared remarks, you said in 2023, and I think you just said in early 2023; is it still the goal to have it in the first half of 2023?

Rick Pauls, President and CEO

Yes. Our guidance is 2023, and we're still hoping that it'll be the first half of the year.

Thomas Flaten, Analyst

Got it. And then just one more quick question. With respect to the cash runway, what does that contemplate for CKD development? Is there any CKD investment in that cash runway projection?

Rick Pauls, President and CEO

Very little. Our cash and our internal focus is really on this stroke trial.

Thomas Flaten, Analyst

Great. Appreciate it. Thanks, guys.

Rick Pauls, President and CEO

Thanks, Thomas.

Operator, Operator

Your next question comes from Alex Nowak from Craig-Hallum Capital Group. Please go ahead.

Alexander Nowak, Analyst

Good morning, everyone. Just curious, when did the support service go live for the stroke study, and then what's the incremental cost in the study for adding that support?

Rick Pauls, President and CEO

So it's really just been the last few weeks getting things up and started, so that expense will really start kicking in here over the next few months. It will be several hundred thousand dollars, but nothing that will impact our current budget in terms of our expected cash out, still into early 2024.

Alexander Nowak, Analyst

Okay. That's good. And then the pickup in sites and active sites that are enrolling now, was this really just a function of you've been talking to these sites for a couple of months now, and with COVID kind of waning here, they're just actively pursuing more studies? Maybe just a little more detail on the conversation you're having with the sites?

Rick Pauls, President and CEO

Yes. I think it's a combination of both. To get a study site up, it can easily take six to nine months, depending if it's an academic or smaller hospital. I think it really is a combination of the work we've been doing over the last six to nine months and, clearly, the reduction in COVID cases, allowing hospitals to have beds available and more resources has also contributed to the uptick in sites.

Alexander Nowak, Analyst

Understood. And then you've made some very good personnel investments. You're adding the support service; how should we think about additional investments that need to be made to get ready for stroke from a trial enrollment standpoint or getting ready for eventual commercialization?

Rick Pauls, President and CEO

Yes. We'll continue to look to expand our team, but we don't see a huge increase in terms of staff. We have this all built into our current budget. For us, in particular, our clinical team is really most important right now. It’s a balance between the staff we have internally and the CRO we’re using to help with this study. In terms of the commercial part, yes, in January this year, we brought on Dom Cundari, our new Chief Commercial Officer, who is helping to lay out what key things we need to be thinking about a couple of years ahead of a product launch. This is all going forward, and it’s really about balancing the amount of cash we commit now versus as we get closer to a potential launch.

Alexander Nowak, Analyst

Excellent. Appreciate the update. Thank you.

Rick Pauls, President and CEO

Thanks, Alex.

Operator, Operator

Your next question comes from Francois Brisebois from Oppenheimer. Please go ahead.

Francois Brisebois, Analyst

All right. Thanks for taking the question. I was just wondering, just to reiterate, I'm sorry if you mentioned this, but is the total target number of sites still expected to be around 75, or has that changed?

Rick Pauls, President and CEO

Yes. Our plan is up to 75, and what we're really focusing on near-term is that there’s a lot of activity happening now. It's about focusing on those sites that we think can be higher enrollers. Throughout the remainder of the year, we'll continue adding sites ideally at a nice pace so that we can reach that interim analysis next year and complete the study afterward.

Francois Brisebois, Analyst

And the interim, is that still supposed to be around 140 patients?

Rick Pauls, President and CEO

Yes.

Francois Brisebois, Analyst

Okay. And then last quarter you mentioned about 10 sites, I believe, that were under contract and greater than 70% were engaged in the startup phase. Is everything still on track here, or has the pandemic and staffing issues delayed things further?

Rick Pauls, President and CEO

Yes. The two key variables are site activation and enrollment rates. The time from contracting to site activation can take another six weeks or so. As we reported in our last call seven weeks ago, we were at four sites that were active, and now we're at nine. Our internal target is to be at 17 in June. The second component is the enrollment rates per patient per month, which is expected to be 0.25. If that rate can come in higher, that would be great. Our clinical team has been very active in understanding the challenges of running a trial today, particularly with staffing challenges at hospitals. I've brought in a consulting company to help provide additional resources when hospitals need them, which is expected to help get sites on board and have them recruit new patients for us.

Francois Brisebois, Analyst

Okay. Great. And then lastly, did you mention that in a few months we might have a better idea of how that 0.25 patients per site per month enrollment is going, and maybe even color on the sites you're focusing on that can do one patient per month?

Rick Pauls, President and CEO

Yes. I think over the coming months, we should get better clarity on that enrollment rate. Part of that is the additional work specifically with having this home nursing company helping us with support.

Francois Brisebois, Analyst

All right. Thank you.

Rick Pauls, President and CEO

Thanks, Frank.

Operator, Operator

Your next question comes from Elemer Piros from ROTH Capital Partners. Please go ahead.

Elemer Piros, Analyst

Yes. Good morning, Rick. I think I know the answer to this question, but I would like to ask it anyway. Do you see any competing programs at the sites that you identified that may actually interfere with your enrollment?

Rick Pauls, President and CEO

No, we really do not. The ongoing studies we’re seeing are companies conducting mechanical thrombectomy and some studies that are connected plays, which really target a four and a half hour window, but for our treatment window hasn’t seemed to be an issue.

Elemer Piros, Analyst

Okay. Thank you. And of the kidney programs, which one do you think considering the current landscape is the most promising as a partnering candidate?

Rick Pauls, President and CEO

Yes. We still see opportunities for both our IgA nephropathy and also in our hypertensive African-American patients. If we look at our phase basket study and the data we have today, we see the drops in albuminuria in hypertensive African-Americans of 50%, 60% over three months, coupled with large drops in blood pressure. We feel that patient population is, and maybe more specifically patients that have hypertensive nephrosclerosis, often salt sensitive, which we think is key to our mechanism. While we are very focused on the stroke program, quietly behind the scenes we’re getting additional feedback on which cause of CKD to move forward. We see a real need for patients with kidney disease, and we believe restoring KLK1 levels could potentially provide real treatment options for these patients in great need today.

Elemer Piros, Analyst

Thank you very much, Rick.

Rick Pauls, President and CEO

Thank you, Elemer.

Operator, Operator

And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Rick Pauls, President and CEO

All right. Again, we'd like to thank everyone for joining us this morning. We appreciate your interest in DiaMedica and your continued support. With that, this concludes our call today.

Operator, Operator

This concludes today’s conference call. You may now disconnect. Thank you.