Earnings Call Transcript - DMAC Q2 2023

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Second Quarter 2023 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 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 also note that any comments made on today's call speak only as of today, August 15, 2023, and may no longer be accurate at the time of any replay or transcript re-reading. 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, Mr. Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin, sir.

Rick Pauls, President and CEO

Thank you, Paul. Hello, everyone, and welcome to our second quarter conference call. I'm joined this morning by Scott Kellen, our Chief Financial Officer. Before we begin this morning, I want to take a moment to welcome Dr. Richard Kuntz to our Board of Directors. Dr. Kuntz recently retired from Medtronic, where he was the Chief Medical Officer, Chief Scientific Officer and a member of the Executive Committee. Prior to that, he served as a Senior Vice President and President, Neuromodulation at Medtronic. Before Medtronic, he was the Founder and Chief Scientific Officer of the Harvard Clinical Research Institute in Boston. He also served as an Associate Professor of Medicine at Harvard Medical School, Chief of the Division of Clinical Biometrics and as an Interventional Cardiologist in the division of cardiovascular diseases at the Brigham and Women's Hospital in Boston. He also served as an adviser to multiple national and regional committees in the National Academy of Medicine and National Institutes of Health. Dr. Kuntz has directed numerous multi-center clinical trials and has authored over 200 original publications. We are grateful to have Rick join our Board. His experience complements and broadens the knowledge and skill set of our Board. Turning back to our update. The second quarter saw two important milestones for DiaMedica and our shareholders: The FDA's lifting of the clinical hold on our ReMEDy2 stroke trial and the completion of an at-the-market financing, raising gross proceeds of $37.5 million. Starting with the FDA. On June 21, we announced that the FDA had fully lifted the clinical hold on our ReMEDy2 Phase 2/3 clinical trial, studying DM199 as a treatment for acute ischemic stroke or AIS. With this decision, we immediately reengaged with our study support vendors and have selected a new contract research organization with strong current experience in the stroke space. As many of you know, there's a great deal of work involved with preparing for a pivotal registrational clinical trial. I can assure everyone that our entire team is excited and focused on working with our CRO, supporting vendors and key advisors for the resumption of the trial. Recall that we have a bit of a leg up as we have approximately a dozen sites already under contract from last year. Additionally, we are now also evaluating the addition of clinical sites outside of the US to increase our enrollment rate in countries viewed as being able to enroll more quickly than their US counterparts. Our goal is to deliver a complete and clean clinical data package to the FDA at the conclusion of the ReMEDy2 trial, enabling the FDA to accept and approve DM199. It has been with this objective in mind that we expanded our clinical team over the past year. As of today, all key vendors have been engaged and are actively pursuing preparations for the resumption of patient enrollment. The estimated timeline has not yet been finalized. But based upon discussions with our CRO and multiple others, we are optimistic that enrollment for the interim analysis can be completed before the end of 2024. The final timing will come down to the actual pace of enrollment. I want to stress that with our recent capital raise, which brought in significantly more capital than anticipated, we are able to pursue expanding the study globally in order to increase the enrollment rate with the intent to ultimately reach both the interim and final analysis more quickly. We expect to be able to provide more clarity on the overall timeline at our Q3 earnings call. On a related note, and as we've previously discussed, we are conducting a Phase 1C open-label, single-ascending IV dose study of DM199 in healthy volunteers using the same PVC IV bags as in the ReMEDy2 trial. The first part of the study demonstrated the safety of our planned 0.5 micrograms per kg IV dose level to be used going forward in the ReMEDy2 trial. It also demonstrated that this dose level achieved our targeted KLK1 blood concentration level, a level that we believe is the desired therapeutic range, similar to our prior Phase 2 stroke trial and the reported drug levels of the human urine-derived KLK1 protein widely used in China under the product name kallikrein. We were able to report today that we also completed a fourth cohort in the Phase 1C study, consisting of three hypertensive patients on ACE inhibitors. These patients received the 0.5 micrograms per kg dose using the updated methods planned for the ReMEDy2 trial. We are pleased to see that all participants received the full IV dose and there were no instances of hypotension or large drops in blood pressure. We believe that the additional clinical data from these combined results will provide further assurance to current and potential physician investigators that the correct IV dose level has been identified and patients, including those on ACE inhibitors, may be safely enrolled in the ReMEDy2 trial. Turning to our second milestone. We also significantly strengthened our balance sheet during the past quarter. In June, we completed an offering of straight common shares, no warrant coverage priced at the market. Gross proceeds from the offering were $37.5 million and net proceeds were $36.1 million, bringing our cash balance to over $60 million at the end of the quarter. The financing was led by existing investors who contributed a significant portion of this capital raise and remain enthusiastic about DM199 and its potential to offer a compelling new treatment option for stroke patients. We also had excellent participation from our management team and Board who collectively invested $700,000. We are grateful to our investors who have put us in a position where we believe we can now drive our destiny. We believe that we now have the sufficient capital enabling us to complete the interim analysis with the remaining cash runway of approximately one year. We focus on the interim analysis. It has the potential to signal a beneficial impact of DM199 to stroke patients, a patient set that has not seen a significant therapeutic development in over 25 years since the approval of tPA. Before I turn the call over to Scott, I also want to call your attention to a new video and slide in our corporate deck that we had created, which further illustrates the DM199 mechanism of action as it applies to stroke patients, specifically, DM199's role in increasing collateral circulation. The key updated mechanism message is that in response to ischemic conditions caused by a stroke, the bradykinin 2 receptors expressed on endothelial cells in the arteries of the brain are highly upregulated locally in the ischemic penumbra. This increase may be by as much as 40-fold higher based upon testing in animal models. By augmenting with DM199, we believe a significantly greater number of the upregulated bradykinin 2 receptors may be activated, causing the beneficial focal basal dilation in the affected area of the brain, the ischemic penumbra, to increase blood flow and oxygen. We believe this improved collateral circulation will salvage brain tissue in the penumbra and lead to improved patient outcomes. This video can be found on our website at www.diamedica.com and scrolling down to the front page to the section titled Advancing Patient Care with Innovative Treatments. I would like to now turn the call to Scott Kellen to review the financial highlights.

Scott Kellen, Chief Financial Officer

Thanks, Rick, and good morning, everyone. As Rick mentioned, we strengthened our balance sheet considerably in June with the completion of a $37.5 million private placement with accredited investors. Net proceeds from the transaction were approximately $36.1 million. And also, when David Wambeke joined us as our Chief Business Officer in April, he invested $750,000. As a result, our June 30, 2023, total cash, cash equivalents and marketable securities increased to $60.6 million, up from $33.5 million at the end of 2022. Our cash usage was $10.1 million for the six months ended June 30, 2023, compared to $6.4 million in the prior year period. The increase in our cash usage was due primarily to a combination of factors, including the completion of the in-use and the Phase 1C studies, ongoing manufacturing development work, our expanded management and clinical team to support the ReMEDy2 trial and our lawsuit with PRA. Now we believe that our current capital will support the clinical development of DM199 and our operations into 2026. Our research and development expenses increased to $2.5 million for the three months ended June 30, 2023, up from $2 million in the prior year period. R&D expenses increased to $6.2 million for the six months ended June 30, 2023, compared to $3.9 million for the six months ended June 30, 2022. The increase for the six-month comparison was due primarily to costs incurred for the in-use study performed to address the recently lifted clinical hold on our ReMEDy2 trial and costs incurred for the Phase 1C study, determining the DM199 blood concentration levels achieved with the new IV dose of DM199. Also contributing to the increase were increased manufacturing and process development costs, costs incurred to finalize the clinical data and perform the related analyses for the REDUX trial and increased personnel costs associated with expanding our clinical team. These increases were partially offset by decreased costs incurred for the ReMEDy2 trial, which until late June had been on clinical hold. Our general and administrative expenses were $2.2 million for the three months ended June 30, 2023, up from $1.4 million for the three months ended June 30, 2022. G&A expenses were $4.1 million for the six months ended June 30, 2023, and this was up from $3 million for the six months ended June 30, 2022. The increase for the six-month comparison was primarily due to increased legal fees incurred in connection with our lawsuit against PRA Netherlands and increased personnel costs associated with expanding our management team. Increased professional service fees and noncash share-based compensation also contributed to this increase. Now before I turn you back over to Rick, let me also provide a brief update on our ongoing lawsuit against PRA Netherlands. As many of you will recall, in December of 2022, the Netherlands court at our request seized our study records from PRA. Then in April 2023, following a March 2023 hearing, the Netherlands court issued a ruling affirming our ownership of the study data and importantly, stating that PRA had no legal basis for withholding the study data. Now PRA appealed this decision in June, and while this appeal may take nine to 12 months to resolve, it is not holding up our main damages lawsuit. This hearing is currently scheduled for December 7 of this year, and we look forward to presenting our case against the PRA and providing our analysis of the damages caused by PRA's actions. It's also interesting to note that the same three-judge panel that oversaw the hearing on our ownership of the study data is scheduled to oversee the hearing for the main lawsuit. For more information regarding the background to this lawsuit, please see our SEC filings. Now let me turn the call back over to Rick.

Rick Pauls, President and CEO

Thanks, Scott. With that, we would like to open the call for questions. Paul, if you could please open the line for questions.

Operator, Operator

Our first question comes from Thomas Flaten from Lake Street Capital. Your line is open.

Thomas Flaten, Analyst

Hey, good morning. Thank you. Good morning, guys. Appreciate taking the questions. Hey, Rick, with respect to the patients that were enrolled in the study prior to the clinical hold, I don't know if you've told us how many there were, but will they be kept in the efficacy analysis set or will they be censored out?

Rick Pauls, President and CEO

Yeah, Thomas. So we haven't disclosed that number, but we do plan to have those included in the analysis.

Thomas Flaten, Analyst

Got it. And then for the interim analysis, given the change to the endpoint, is the number of patients still the same for the interim analysis?

Rick Pauls, President and CEO

Yeah, we're still planning for 144 patients for the interim analysis.

Thomas Flaten, Analyst

Got it. Got it. And then you're still shooting for a total of 75 sites. Is that right?

Rick Pauls, President and CEO

The current plan is being revised as we progress. We are working towards establishing 40 sites in the US and 10 in Australia. Additionally, with the new capital we received, we are considering expanding beyond the US to Canada and Europe. We are currently assessing the necessary timelines for this expansion. It is crucial for us to increase the trial enrollment rate through international growth.

Thomas Flaten, Analyst

Excellent. Appreciate you taking the questions. Thank you.

Rick Pauls, President and CEO

Thanks, Thomas.

Operator, Operator

Our next question comes from Alex Nowak of Craig-Hallum Capital Group. Your line is open. One moment, we seem to have lost him from the queue. I apologize for the technical difficulty. Mr. Nowak, your line is open.

Alex Nowak, Analyst

Okay. Hopefully, you can hear me this time. I'm not sure what you could hear, what you couldn't hear, Rick. But just with regards to getting the clinical hold lifted and searching for the new CRO, what were some of the new requirements that you had this time when searching for a CRO compared to when ReMEDy2 was initially started? It sounds like maybe some more international exposure was a new requirement, but anything in addition?

Rick Pauls, President and CEO

We are in a different environment today, over a year past COVID. It was essential for us to apply the insights we gained earlier. We sought a global CRO to assist with our expansion beyond the US, and it was vital to find one with recent experience in stroke trials. The CRO we've chosen has a wealth of experience from various recent trials and has a solid understanding of sites that could be highly effective at enrolling participants for this trial.

Alex Nowak, Analyst

Okay. Understood. And then maybe expand on the expected international uptake at DM199 and the clinical study versus domestic uptake. Why would international necessarily go faster just from your conversations? What are you thinking there?

Rick Pauls, President and CEO

Yes. As we examine the enrollment rates from previous trials, we observed that in Europe, the enrollment rates per site per month were significantly higher compared to what we've seen in US trials. This difference may be partly due to the presence of socialized healthcare. Given this information, we believe it is crucial to seriously consider expanding beyond the US.

Alex Nowak, Analyst

Okay. Understood. And then do you need a specific number of patients in the US versus outside the US to meet that statistical analysis plan? Or is that kind of getting baked in with the 40 sites US and then remainder amount outside the US?

Rick Pauls, President and CEO

There's not. And the context here also is the timelines to get sites set up in Europe will be longer than they are in the US. So in particular for the interim analysis, we still think it's going to be driven by the US sites. And then the other outside US sites will be supplementary.

Alex Nowak, Analyst

Okay. Understood. And then just a two-part question to end it out here is, first, I think the ReMEDy2 patients with ACE inhibitors would have been excluded. But will this be reversed based on the Phase 1C’s findings in that fourth cohort? And then the second part of the question is any other protocol changes to be aware of?

Rick Pauls, President and CEO

If a patient was previously on an ACE inhibitor, there will be a 24-hour washout period to ensure the drug is effectively eliminated from the system. This is similar to the protocol for the human urinary form of the protein in China, which also has a 24-hour washout. All patients will be included in the study. For context, in our Phase 2 trial for stroke, we had about 10 patients who were on ACE inhibitors. Out of the 46 total patients who received the drug, there were no occurrences of hypertensive events. We also made some protocol changes based on our learnings from the hold. Specifically, we will start with a 15-minute slow infusion. If there are significant drops in blood pressure, the dosing will extend over three hours instead of the one hour initially prescribed. We believe that the hypertensive events result from rapidly overwhelming the system when dosing begins. This will be a crucial aspect of our approach. In the recently completed Phase 1C trial, especially within the ACE cohort, we feel confident that we've addressed the dosing to align with what we previously had in our Phase 2 trial, which corresponds to the drug exposure levels of the human urinary form of the protein in China.

Alex Nowak, Analyst

Okay. It makes sense. Well, I appreciate the update and congrats on getting the clinical hold lifted.

Rick Pauls, President and CEO

Thanks, Alex.

Operator, Operator

And our next question comes from Francois Brisebois from Oppenheimer. Your line is open.

Dan Hultberg, Analyst

Hi, this is Dan on for Franc. Thanks for taking my questions. In relation to the interim analysis, is the plan still to end the study if you see great efficacy in around the 140 patients? Any changes there?

Rick Pauls, President and CEO

Yeah. So, similar to what we've discussed in the past. So at the interim analysis, there's really three scenarios. So the first is that we'll stop the study for futility. So if we're not seeing a positive drug effect, we'll stop the study for overwhelming efficacy, and that's based upon hitting a p value of less than approximately 0.0072. Or alternatively, we'll continue the study, and we'll do a resampling size where the total size will be somewhere between 240 and 728.

Dan Hultberg, Analyst

Great. Thanks. That makes sense. And just a quick one. Regarding the Phase 1C data in hypertensive patients, had any of the dozen sites from before requested to see additional data in patients or was this more of a proactive move as you target new sites?

Rick Pauls, President and CEO

This was completely proactive. The FDA did not ask us to run this trial; we did it on our own initiative. None of the sites requested it either. When we consult with sites about the hypotensive events, we find that these issues are manageable. By stopping the infusion, the blood pressure in the three patients with serious adverse events returned to normal within minutes. This is another step we are taking to provide reassurance for any new sites we approach who may have concerns about significant drops in blood pressure. It’s important to note that many neurologists regularly treat patients with tPA, where 5% to 6% of patients experience severe brain hemorrhage. We believe that the drop in blood pressure is manageable, but we want to ensure everyone is comfortable, including the sites, with the dosing.

Dan Hultberg, Analyst

Okay. Thanks for taking my questions.

Rick Pauls, President and CEO

Thank you, Dan.

Operator, Operator

And I see no further questions in queue. I'll turn the call back over to our host for closing comments.

Rick Pauls, President and CEO

All right. Again, we'd like to thank everyone for joining us this morning and for your continued support. Our goal is to bring this important treatment to stroke patients as quickly as possible. We appreciate your interest in DiaMedica and your continued support. With that, this concludes our call today. Thank you.

Operator, Operator

The meeting has now concluded. Thank you for joining and have a pleasant day.