Earnings Call Transcript - DMAC Q2 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Second 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 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 and Form 10-Qs. 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 11, 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, Mr. Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin.

Rick Pauls, President and CEO

Thank you, operator. Hello, everyone, and welcome to our second quarter 2022 conference call. We'd like to focus today on addressing the enrollment pause in our ReMEDy2 stroke trial. As you know, on July 6, we issued a press release in which we announced that the FDA imposed a clinical hold on our trial. This came after we voluntarily paused enrollments in the ReMEDy2 trial to investigate three unexpected incidents of clinically significant hypotension or a decrease in blood pressure. These incidents occurred shortly after initiating intravenous infusion of DM199, which is the first administration of DM199 for each patient. I want to emphasize that in all three patients, the hypotension was transient, meaning their blood pressure returned to pre-dosing levels within a few minutes after stopping the IV dosing. They did not experience any further adverse events. The most salient factor driving us to pause the trial was that we did not have any similar events reported in our prior Phase II ReMEDy1 stroke trial. In ReMEDy1, DM199 was well-tolerated in all of the 46 patients who received DM199. Considering that prior experience, we were concerned that something had changed between the two studies, and we made the decision to pause enrollment while we investigated the cause of these events. Dr. Gruis led a comprehensive analysis of the differences between the two studies, evaluating everything from the drug itself to the procedures performed in preparing and delivering the first IV dose. As a result of this analysis, we believe that the likely cause of these hypotensive events was the effect of changing the type of IV bag used to administer the IV dose of DM199. The type of IV bag was changed due to a lack of availability in the U.S. of the polyolefin IV bags used in Australia for the ReMEDy1 trial. After compatibility testing of a number of IV bags, the IV bag selected for the ReMEDy2 trial was made from PVC. The PVC bags were the most compatible with DM199 as there is no binding of the DM199 protein to these bags. The bags used in the ReMEDy1 trial were made from polyolefin, a material which does bind up or hold a portion of the DM199 protein in the IV bag. The effect of changing IV bags was that all of the one microgram per kg dose of DM199 was delivered to patients in the ReMEDy2 trial. To put this another way, and illustrate what we're talking about with the IV bag used in ReMEDy1, as much as half of the DM199 protein was staying in the bag and half was being delivered to the patients. In ReMEDy2, all the drug is being delivered to the patient and none of the drug is staying in the IV bag. To support this position, last week we completed an IV bag compatibility study, which included the IV bags used in the ReMEDy1 trial. Results of the study determined that as much as half of the DM199 protein binds to the IV bag made from polyolefin, as used in the ReMEDy1 trial. This study also reaffirmed that the DM199 protein does not bind to the IV bag made from PVC, as used in the ReMEDy2 trial. With the results of the study, we believe that we have the data to provide to the FDA to support our rationale for the cause of the hypotensive events and the rationale for revising the IV dose level for the ReMEDy2 trial. Essentially, we will propose revising IV dose levels to match the actual IV dose given in the ReMEDy1 trial, in which DM199 was well tolerated in 46 stroke patients in the DM199 arm. We're confident that the change will mitigate the risk for these clinically significant hypotensive events and hope that the FDA agrees. As for next steps towards resuming enrollment. In the clinical hold letter from the FDA, they asked us to provide a review of the etiology of the three events and any suggested mitigating strategies to prevent such events and to also submit our proposed modifications to the protocol to address the significant risk of hypotension with administration of DM199. We plan to submit a response in September, and the FDA will then have up to 30 days to review and respond. With all that said, let me highlight a few things for further context. First, everything today points to this issue being driven by the change in the IV bag and not a problem with DM199. If anything, a blood pressure drop is consistent with the mechanism of action of this protein. As such, it's potentially another clinical indicator that DM199 is biologically active. Second, there have been no similar hypotensive events reported with the subcutaneous dosing, further supporting our conclusion that the issue relates to the IV bag. Accordingly, we anticipate no changes to the subcutaneous dosing regimen. Lastly, and most importantly, while clinically significant hypotension is a serious issue for stroke patients, blood pressure in these patients is continually monitored such that a problematic drop in blood pressure can be rapidly identified. In the three patients, their blood pressure returned to baseline levels within a few minutes of stopping the IV dose infusion and they suffered no ongoing adverse events. Therefore, we believe that we can conduct this trial with adequate clinical monitoring of blood pressure and the fact that a drop in blood pressure was quickly reversible by stopping the infusion will reduce the risks to these patients. I would now like to bring on our CFO, Scott Kellen, to go over our financial results.

Scott Kellen, CFO

Thank you, Rick. Good morning, everyone. As Rick mentioned, we announced our second quarter financial results and filed our quarterly report on Form 10-Q yesterday afternoon. These documents are both available on either the DiaMedica or the SEC websites. Now starting with our balance sheet. As of June 30, 2022, our combined cash and investments totaled $38.4 million, down $2.6 million from $41 million as of the end of Q1 of 2022 and down $6.7 million from $45.1 million as of our prior year-end. Cash used in the current quarter was lower than planned due to the halting of enrollment in our ReMEDy2 trial. This should scale back up as we complete our response to the FDA and prepare for resuming enrollment. We also reiterate that our current cash will support the clinical development of DM199 and our operations into early 2024. Research and development expenses for the second quarter and year-to-date period were $2 million and $3.9 million, respectively; this compares to $2.2 million and $4.6 million for the corresponding periods in the prior year. The overall year-to-date decrease was due to a number of factors, including reduced costs incurred in the current year for the wrap-up of our REDUX Phase II CKD basket trial for which enrollment was concluded at the end of 2021, decreased non-clinical testing costs, which were incurred at greater levels in 2021 in preparation for our ReMEDy2 trial, which initiated during 2021, and the decreased manufacturing process development costs. These decreases were partially offset by current year costs incurred in conducting our Phase II/III ReMEDy2 trial and increased personnel costs associated with adding staff to support R&D operations. General and administrative expenses for the second quarter and year-to-date period were $1.4 million and $3 million, respectively. This compares to $1.2 million and $2.4 million for the corresponding periods in the prior year. The overall year-to-date increase was primarily due to increases in directors and officers liability insurance, personnel costs, and professional services costs to support our expanding clinical programs. These increases were partially offset by a reduction in non-cash share-based compensation. With that, let me turn the call back over to Rick.

Rick Pauls, President and CEO

Thank you, Scott. As you can see, we have made significant progress since our last announcement on July 5, and we feel like we have as much clarity as possible at this stage. We plan to submit our analysis and propose mitigation steps to the FDA in September to get that 30-day clock started. And of course, we hope to hear back from the agency in less than 30 days and that their response is to lift the clinical hold. When the clinical hold is lifted, we will provide further guidance on the next steps for our DM199 program. And finally, our balance sheet remains strong, and we are well-positioned to execute on the plans with a focus on our ReMEDy2 trial. With that, we would like to open the call for questions. Operator, if you could please introduce the first analyst.

Thomas Flaten, Analyst

Thank you. Good morning, guys. And I appreciate all the insight into the ReMEDy2 issue. Hey, Rick, you mentioned that up to 50% of the drug would be with the hold. How variable was that? I'm trying to understand what the range is that you need to dose adjust and whether a single dose adjustment would be appropriate?

Rick Pauls, President and CEO

The difference is when we say up to, you know, it really is dependent on the body weight of the patients that the IV dose will be prepared for. So, we're just finalizing here the amounts, but our intent right now will be to drop the dosing in half. So basically dropping it to 0.5 micrograms per kg for all patients.

Thomas Flaten, Analyst

Got it. And then during this hold, how have site activation discussions proceeded or perhaps not?

Kirsten Gruis, VP of Clinical Operations

Sure. So we've been doing our best to keep the sites up to date in terms of our investigation and maintain communication with them. In addition, we can continue some of the pre-activation. So looking at budgets and whether or not everyone has adequate staffing, you've been able to do while we've been undergoing this analysis.

Thomas Flaten, Analyst

Great. And then just one final one, if I may. Prior to holding or halting enrollment, how was enrollment pacing relative to the expectations you've shared with the Street?

Rick Pauls, President and CEO

Sure. So I think on past calls, we've indicated that enrollment was definitely very slow. I think we were very encouraged, particularly in the month before the hold. We had a really nice uptick in patient recruitment. I think that’s in part - it takes time to get these sites up, also part of the work that Mike Pearson has done in terms of providing a memo to the site just confirming some of the aspects of the protocols. So again, I think we are very encouraged just when it felt like things were kicking into gear, this will occur. We have been taking this time here during this hold as well, Pearson and her team have been incredibly busy here, not just dealing with the hold, but also making a number of updates to the protocol so that we think that it's really going to be able to help us with future enrollment after we get off this hold.

Thomas Flaten, Analyst

Appreciate it. Thank you, guys.

Rick Pauls, President and CEO

Thanks, Thomas.

Alex Nowak, Analyst

Right. Good morning, everyone. I want to go back to when you ran the Phase II stroke trial. Were you aware that the IV bags at that time were causing the protein to bind to the bag and effectively lower the dose?

Rick Pauls, President and CEO

Yes. So that's when we did - so before we actually did our Phase I trial for the IV infusion, going back and looking at the reports, it was noted that there was binding, but the conclusion from our medical team at that time was that it was not significant. So then the PK work we did for both Phase I and then used for Phase II was based on this polyolefin where there was drug sticking.

Scott Kellen, CFO

And Alex, if I could just quickly add. The issue is simply trapping protein in the bag; the bag is not affecting the performance of the drug in any way. Its activity, its clarity, its mechanistic activity in particular, is un-impacted by the polyolefin.

Alex Nowak, Analyst

Okay. Understood. That's helpful. And then maybe, taking that commentary and the studies that were done internally on the bench after the Phase II stroke began and we had the assumptions around what that dose was. I guess just how does this information coming to life that a bag may be holding up to 50% of protein change some of the internal studies being done around PK, whether it be for the stroke study, data that needs to go to the FDA for the pivotal there or even the CKD study?

Rick Pauls, President and CEO

Yeah. So first off, this is only an issue with the IV infusion. So there's no bag issue or effect or concern with subcutaneous studies that we've done. The issue here is simply, you know, up to half the drug was sticking in the polyolefin bag. And now that we've confirmed that percentage, we're simply going to be adjusting the current study to the appropriate amount that we can match, basically very closely match our Phase II data. And then also, I'll mention our Phase I and Phase II trial for stroke. We had based a lot of that work also not just on the PK that we believe are levels that are healthy subjects, but also it's important that we based upon the PK of the human urinary form of this protein that's being used in China. And so we went back and looked and also note that the approved dosing of the urinary form when that dose is doubled, efficacy was reported to be similar, but then these patients do risk hypotension. So I think we're also encouraged that, you know, like this is very painful, but these adverse events are something that are anticipated at the higher dose levels.

Alex Nowak, Analyst

Okay. Understood. That's helpful. And then just lastly, maybe speak to if there has been any FDA feedback or commentary on the clinical hold and specifically just with the issues with the IV bag. Have they seen this before and then also have the KOLs speaking to your advisory for? What have they commented around this issue?

Rick Pauls, President and CEO

Yeah. So in the prepared remarks, I basically summarized the feedback from the FDA. When that letter came in, I think we were encouraged. There wasn't anything really beyond basically summarizing what happened with these three patients. And the FDA is looking for our recommendation in terms of the plans going forward. Kirsten, maybe you want to touch on the KOL question?

Kirsten Gruis, VP of Clinical Operations

Yeah. So like I mentioned earlier, we've been keeping our KOLs aware of this, particularly our national leading stroke experts. Their responses have been quite supportive in terms of, you know, who would have guessed that protein has more sticking to certain plastics than other plastics. So they've been quite supportive in terms of this is simply an unintended higher dose in ReMEDy2, and you can adjust the dose back to what was given in ReMEDy1 that was very well tolerated and in healthy volunteer patients has a PK that increases within the applications range that the human urinary form increases into.

Alex Nowak, Analyst

Okay. Understood. Yes, I definitely didn't think changing the bags would have that effect either. So I appreciate the update. Thank you.

Rick Pauls, President and CEO

Thanks, Alex.

Elemer Piros, Analyst

Yes. Good morning. Rick, would you be able to tell us that roughly how many patients have been enrolled up until this point in the stroke trial?

Rick Pauls, President and CEO

Yeah. So we aren't providing updates on the quarterly calls, but we will update on some milestones. And I think as we previously mentioned, enrollment was very slow at the start of the study. However, we're quite encouraged until that we have some strong momentum building, in particular in the months before we paused the enrollment.

Elemer Piros, Analyst

Okay. So the - since the dose level in the previous trial, those patients are approximately maybe twice as high. Do you think that you would be able to use that data as part of the package? Or do you think you might have to exclude it?

Rick Pauls, President and CEO

No, at this point in time, we do believe we'll be able to include it, and we plan to confirm that with the FDA.

Elemer Piros, Analyst

Okay. And last question, you refer to additional modifications to the protocol besides the dose; what might some of those be?

Rick Pauls, President and CEO

Yeah. So this is currently in draft, but there are a few aspects that we are looking at, in particular, we're going to be starting off with a slow infusion for the first 15 minutes or so. So infusion. This will give the medics a chance to monitor closely the patients' outcomes. And then the other piece that we're looking at is having a washout from ACE inhibitors. So that all three of these patients that were hypotensive were also on ACE inhibitors. We believe that there is a potential interaction by having a 24-hour washout. We can feel a little bit of void that risk of interaction of ACE inhibitors that are involved in preventing the breakdown of kinase whereas DM199 is involved in making new kinase.

Elemer Piros, Analyst

Okay. Thank you so much for taking my questions.

Rick Pauls, President and CEO

Thanks, Elemer.

Francois Brisebois, Analyst

Hey. Thanks for taking the questions. Just a couple here. Thanks for all the color on the situation. But I was just wondering if the FDA had seen this KOLs kind of feedback. But is there anything - this was based off a shortage of material, I guess, or IV bags that you had used previously. Has there been any issues with other drugs noticing this? Or you haven't heard of anything?

Rick Pauls, President and CEO

So I think it's interesting that, you know, when something like this occurs and you're talking to investors and you're talking to partnership discussions and related that we've been having, surprisingly a number of other people told us that they've seen these types of situations. I don't have any specifics on the top of my tongue right now, but there's definitely something that has occurred with other compounds.

Francois Brisebois, Analyst

Okay. And the 50% kind of sticking of the protein in the bag that happened in ReMEDy1, is that like - I think Thomas had asked about the variability there, but do you guys have that data to show the FDA that's kind of proven? And I guess when you tested that in the past, when the medical team had said they didn't think it was significant, did they use similar testing? Or did they just kind of figure from looking at the bag, do you know how they came to the conclusion that this wasn't a problem in the past?

Rick Pauls, President and CEO

Yeah. So the testing was a little different, but similar. But basically, the data that we recently completed is - first off, it took us some time to actually track down the exact same bags that we used in our Phase II in Australia. Part of it is these Fresenius bags were not available anywhere. And so we're into a great length to track them down. And basically, the data, this recent data from last week told us is that in lower weight patients, 48% of the drug is sticking, and in higher weight patients they will be a little less. But we feel that this definitely gives us support as a comprehensive study with multiple bags. And then we're also able to confirm that the PVC bags that we're currently using, there was no drug sticking. And maybe just to kind of touch upon your last question a little bit more is, for example, if you look at TPA. So really the only drug approved for stroke today, right on the label says to use a PVC bag. There likely may have been issues when they were running their trials earlier too.

Francois Brisebois, Analyst

That's interesting. And then on the - we'll get more color once you get news from the FDA and hopefully within that 30 days? But can you just maybe outline potential outcomes they could happen? Is it - do we have to redo a remedy one? Or is there some modeling that's doable to make sure that, look, it's the same PK terms, this is the amount of drug that's going in? Any details on potential outcomes from the FDA feedback?

Rick Pauls, President and CEO

Sure. So I mean we believe this simply is a bag issue. You know, adjusting the dose, matching the Phase II and then moving on. Part of the piece here is that we're taking some additional time in our preparation work for filing for the FDA to make sure that it's very comprehensive and that we're including basically a strategy plan going forward so that ideally we can lay out a very clear path on the rationale of coming off the hold.

Francois Brisebois, Analyst

Okay. That's it for me. Thank you.

Rick Pauls, President and CEO

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

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.