Earnings Call Transcript - DMAC Q4 2021

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Fourth Quarter 2021 Conference Call. An audio recording of the webcast would 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, March 15, 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, CEO

Thank you, Julie. Good morning, everyone, and welcome to our year-end 2021 business update and earnings call. Yesterday, after the market closed, we issued a press release summarizing our fourth quarter 2021 financial results and providing a general update. At the time, we also filed our quarterly report on Form 10-Q. Both documents can be found in the Investor Relations section of our website at diamedica.com. I'm joined this morning by our Chief Financial Officer, Scott Kellen; our Chief Medical Officer, Kirsten Gruis; our Chief Commercial Officer, Dominic Cundari; and our Senior VP of Clinical Operations, Harry Alcorn. I'd like to begin today by introducing you to our two newest members of our executive team. Kirsten is a board-certified neurologist, experienced in both clinical medicine and drug development. She progressed and taught at the University of Michigan and the State University of New York in Syracuse. She began her work in drug development with Pfizer and has experience working with large and smaller organizations, including heading one of the neurological divisions at Roche and brings direct experience moving multiple compounds through the clinical and regulatory process in both the US and Europe. Dominic Cundari has over 30 years of commercial experience with Genentech, including managing the growth of the Activase or tPA franchise as it became the first approved therapeutic for treating acute ischemic stroke. Dom also provided the commercial leadership for Lucentis, the blockbuster macular degeneration treatments. We're extremely grateful to have both of these individuals join our team, and we thought that you may want to hear from them and get their perspective on what attracted them to join us. So let's start with Dr. Gruis.

Kirsten Gruis, Chief Medical Officer

Thanks Rick. So there were three main factors that attracted me to the company. First, the repeat findings from numerous randomized controlled trials described in the peer-reviewed medical literature from Asia consistently demonstrating clinical improvement in acute ischemic stroke patients receiving the human urinary-derived form of KLK1. Second, the mechanism of action of KLK1 to selectively vasodilate arteries, as this may improve collateral blood flow to the area of the brain with ischemia, resulting in improved recovery from stroke. In addition, this improved collateral blood flow may also reduce the potential for stroke recurrence from a reocclusion of a blood vessel. Third, that the company took the time to match the pharmacokinetic profile of DM199, the recombinant form of KLK1, to the urinary form of KLK1 that has previously demonstrated clinical improvement in repeat trials. This was to optimize the dosing regimen of DM199 in stroke clinical trials. So taken together, these three factors are what drew me to the company, as they increase the probability of success in a clinical trial of recombinant DM199 in acute ischemic stroke.

Rick Pauls, CEO

Great. Thank you, Kirsten. We're very excited to have you join our team. Now, let's hear from Dominic.

Dominic Cundari, Chief Commercial Officer

Yeah. Thanks Rick. When I researched DiaMedica and DM199, my first impression was that DM199 is not an incremental therapeutic modality, but a treatment that can significantly advance stroke care for a large number of ischemic stroke patients. Over the past couple of decades, my focus in acute ischemic stroke has involved working with hospital neurologists on the front-end with a zero to 4.5-hour treatment window for tPA. Unfortunately, only about a third of acute ischemic stroke patients get to the hospital within this narrow treatment window. Of those, only about half are eligible for tPA. So, the net result is that only about 8% of all admitted stroke patients receive tPA. Typically, a stroke patient will have a hospital stay of five or six days with physician monitoring, and perhaps an additional look at CT or MRI, with maybe an anticoagulant or an anti-platelet added to the treatment regimen. Now, looking ahead, based on Phase 2 data, DM199 can potentially reduce visibility and the likelihood of recurrent stroke. With an expanded treatment window from zero to 24 hours, over 500,000 acute ischemic stroke patients can fall within this treatment window. So, there is a significant opportunity to advance stroke care for a large number of patients during the recovery phase of stroke. I might add that the mode of action for DM199 is well explained and understood. Secondly, there are numerous clinical trials with human sourced KLK1, demonstrating safety and improved stroke recovery in terms of reducing disability and recurrence of stroke. I might add that a recombinant form of DM199 will ensure purity of the product and abundant supply. Lastly, I believe that DM199 will be well received by the neurology customer base. Thanks, Rick.

Rick Pauls, CEO

Thank you, Dom. We're equally excited to have you join our team. And ultimately, we feel the real winners here are going to be the patients. So now, I'd like to provide an update on our lead program, our Phase 2/3 ReMEDy2 trial of DM199 in the treatment of acute ischemic stroke referred to as AIS. The design of the ReMEDy2 trial has some interesting and unique aspects. The trial is a randomized placebo-controlled study that will enroll approximately 350 patients across clinical sites in the US. What is unique about the design is that we're planning to assess two separate independent primary endpoints with the same study population. These endpoints include an evaluation of stroke recoveries—can the patients return to normal physical functions, such as being able to eat, sleep, and drive on their own—and the rate of recurrence of acute ischemic stroke in the three months following the initial stroke. Each of these endpoints is clinically meaningful and could greatly benefit stroke patients as well as their families and caregivers. This also gives us two opportunities to achieve an improved outcome with the FDA. The adaptive design of the study is a second unique feature. For the study, adaptive refers to the interim analysis we are planning after approximately 40% or 140 patients have completed enrollment. The Data Safety Monitoring Board (DSMB) for the study will review the results from these patients to evaluate the effects DM199 is having on stroke recoveries and the rate of recurrence. Based upon this evaluation, the DSMB will take action to either stop the study for futility or overwhelming efficacy, to continue the study as planned, or increase the number of study participants. The benefit here is having the ability to increase the sample size. If the actual benefit is looking like it’s coming in below the planned benefit level, having the opportunity to increase the number of patients gives us the chance to ensure that we achieve statistically significant outcomes and have a successful clinical trial. Utilizing the adaptive trial design allows us to better manage the clinical risk and increase our chances for completing a successful trial. Note that we will be blinded to the results of this analysis and will only know if and how the DSMB recommends that we move forward. Let me also briefly highlight that DM199 received FDA Fast Track designation for the treatment of AIS last year. This is an important milestone that underscores the significant unmet medical need that exists among patients suffering from AIS, where there hasn't been a new or meaningful therapeutic advancement in over 25 years. The Fast Track designation provides us with the opportunity for more frequent interactions with the FDA and may eventually qualify DM199 for accelerated and priority review. As an update on the sites, we have 10 sites now under contract, and with the sites currently in the startup phase, we've engaged with over 70% of our targeted number of sites for the trial. Startup sites represent sites that have been vetted, are interested in participating, and are proceeding towards activation to be able to enroll patients. Unfortunately, we can't control COVID, but our clinical team continues to work with members of our Scientific Advisory Board and other physicians in our network to reach out directly to the neurologists at key study sites to prioritize making ReMEDy2 a priority study for their institutions. While it's unfortunate that the startup process has been a bit slow thus far, we are encouraged by the fact that our issues have been COVID-related and not related to concerns about DM199 or the study design. Given the current rates of COVID infections and hospitalizations rapidly declining, we're optimistic that hospitals will be able to restore their research staffing. We're also in the process of evaluating additional steps to potentially support site contracting and patient recruitment. We believe that we are well-positioned to then engage them and advance this clinical trial. In terms of our expected timing, as we have discussed, the ultimate timing for completion of our interim analysis and the study itself will be driven by the rate at which our study sites are able to enroll patients. Our current plans are based upon a fairly conservative projected enrollment rate. We are more optimistic after the recent quick decline in COVID cases. We believe that the combination of our longer treatment window of 24 hours from stroke onset, combined with our safety profile and potential to improve both stroke recovery and reduce the risk of stroke recurrence, may drive a better enrollment rate. We will keep you updated as we get more clarity on both the site activation and enrollment rates as we hit milestones. I would like to also reiterate that the ReMEDy2 is our primary focus right now as we believe it has the fastest path to commercial approval. Turning to our REDUX, our Phase II, CKD program, we recently completed enrollment and are working through the final patient follow-ups and cleaning the study data to prepare for the final analysis and reporting. As most of you know, REDUX is a basket or signaling study in which we're evaluating three different causes of chronic kidney disease and two different dose levels of DM199 over approximately a three-month treatment period. Currently, the key takeaway from REDUX is that CKD represents an attractive development opportunity for DM199. We believe that the study is directing us toward targeting a subgroup of hypertensive African-Americans and/or IgA nephropathy patients who have moderate to severe kidney disease. Patients who can both improve kidney function and control blood pressure could greatly enhance their quality of life. We look forward to updating you on the next steps after we complete the final analysis of the REDUX data and in terms of the next steps and potentially discussing our results with the FDA. Now, I'll ask Scott Kellen to take us through the financial results for our fourth quarter.

Scott Kellen, CFO

Thank you, Rick. Good morning, everyone. As Rick mentioned, we did announce our full-year 2021 financial results and filed our annual report on Form 10-K yesterday after the markets closed. These documents are both available on either the DiaMedica or the SEC website. Now, going through the financials. Our net loss for the full year of 2021 was $13.6 million, or $0.65 per share, which compares with our prior year net loss of $12.3 million, or $0.78 per share. Our cash position remains strong with $45.1 million in cash, cash equivalents, and marketable securities as of December 31, 2021, which is up from $27.5 million at the end of the prior year. We believe our current cash will support the clinical development of DM199 and fund our operations into early 2024. Our research and development expenses increased slightly to $8.8 million for the year ended December 31, 2021, up from $8.2 million for the full year of 2020. This increase was primarily due to a combination of additional costs incurred for our Phase II/III ReMEDy2 trial and increased personnel costs associated with adding staff to support our expanding clinical programs. This increase was partially offset by decreased costs incurred for our earlier ReMEDy1 Phase 2 AIS study, which completed during 2020, and then decreased costs for the REDUX trial as the number of enrollments in the trial declined through 2021 as the study neared completion. Our general and administrative expenses were $4.9 million and $4.5 million for the full fiscal years 2021 and 2020, respectively. The increase was due to several factors, including increased costs associated with professional services, the payment to Catalent of a milestone obligation under our technology license agreement with Catalent, increased directors and officers' liability insurance costs, and increased personnel costs to support the company's R&D operations. These increases were partially offset by a reduction in our non-cash share-based compensation costs. Turning to cash flows, our net cash used in operating activities for the year ended December 31, 2021, was $12.3 million compared to $9.2 million for the full year 2020. This increase relates primarily to our increased net loss in 2021 and was partially offset by share-based compensation and the effects of changes in operating assets and liabilities. Importantly, as I mentioned earlier, we believe our current cash will support the clinical development of DM199 and our operations into early 2024. Now let me turn the call back over to Rick.

Rick Pauls, CEO

Thank you, Scott. As you can see, we've had a very productive 2021, which is continuing into 2022, including significant progress with DM199, our clinical trials, and building our team. And with our strong balance sheet, we are well-positioned to continue executing on our plans we have reviewed with you today. With that, we'd like to open the call for questions. Operator, could you please introduce the first analyst?

Operator, Operator

Thank you. Your first question comes from Alex Nowak from Craig-Hallum Capital Group. Please go ahead.

Alex Nowak, Analyst

Hi, good morning, everyone. Kirsten, I appreciate the intro and kind of your background on what attracted you to the company. Just curious beyond the pivotal stroke study that's going on, can you walk through some of the additional studies or bench data that you're looking to generate here over the coming months to years to help position the company's product DM199?

Rick Pauls, CEO

Yes, absolutely. Maybe I'll take this. So right now, really our focus with our clinical team is on the ReMEDy2 trial. While we're working on that, we are starting to look at potential next steps for the kidney program, but we just want to ensure that we're very focused right now on the stroke pivotal trial.

Alex Nowak, Analyst

Okay. Understood. And maybe refresh us, and this is I guess a broader question, refresh us on the regulatory landscape for chronic kidney disease in the US now because we saw the CRL from Reata recently. I mean they were paving the path forward. So does the broader CKD space, do we know the path necessary to get through FDA approval at this time? Do we need to reset, which kidney metrics we need to focus on, like UACR eGFR? Just any thoughts there?

Rick Pauls, CEO

Yes. That's a really good question, Alex. If we look back in 2019, there was new guidance from a working group with the National Kidney Foundation, the FDA, and EMA that focused on surrogate endpoints for approval. Our understanding, particularly when we're looking at rare forms of kidney disease, is that there’s potential for conditional approval based on UACR albuminuria levels and guidelines of ideally over a 30% reduction over six-plus months for conditional approval, and then full approval over two years based on slowing the rate of decline of eGFR. I think we can look at the recent approval of Callidus based upon their UACR just going back a few months. So, I think we're very encouraged in terms of the potential regulatory path here for chronic kidney disease. We're currently looking at a few different potential pathways to move forward in kidney disease, focusing more on hypertensive African-Americans or perhaps a subgroup of these patients and/or IgA nephropathy. Again, we want to look more carefully at our data to really see which cause of kidney disease we think would be the best fit for our therapy and also in the context of the competitive landscape. So, we're very excited about the potential, but we want to ensure that we have a very clear indication of what that cause and what that regulatory path will be moving forward before we provide an update to the market.

Alex Nowak, Analyst

Yeah. Understood, that makes total sense. And then, just a clarification question around the enrollment. You said 10 sites were under contract, are those the number of sites that are actively enrolling patients? If not, what is that number of actively enrolling? And then, how long to convert the 70% of targeted sites under discussion to active enrollment, just based on where things are trending in the last month or so?

Rick Pauls, CEO

Yeah. So actually, we can track this live on ClinicalTrials.gov, though it may be a couple of weeks late. We've got four or five sites right now that are actively recruiting. Our intent here is to provide everyone with an update on enrollment milestones along the way. And just with a bit of additional context, with the COVID variants surging in the second half of the year, there were some challenges with sites shifting their staff away from research. What we can share at this point is that we're not having any trouble getting interest from the sites that have research teams in place. Once committed, they’ve been steadily moving this process forward. Combining that with the response we received at the recent International Stroke Conference, we don’t have concerns about the interest. It’s really about converting these sites. So, we're talking over 50 sites in total here that are contracted and/or in process. The other piece we’re refocusing on is really on those sites that we believe can enroll greater than one patient per month, concentrating on those sites that we think will be the optimal enrollers. We’re still targeting the first half of 2023 for the interim analysis.

Alex Nowak, Analyst

That's great. Thanks, Rick, for the update. I appreciate it.

Rick Pauls, CEO

Yeah. Thanks, Alex.

Operator, Operator

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

Unidentified Analyst, Analyst

Hi. This is Daniel on behalf of Frank Brisebois. Thanks for taking my question. Just a quick one, could you add some more color on the importance of the interim look, particularly in terms of efficacy? You've already talked about the enrollment rate, so just wondering how the enrollment is going, given that you have this sweet spot of patients who need to have a small blood vessel occlusion enrollment within 24 hours. Just to provide some color on the interim look; that would be great. Thanks.

Rick Pauls, CEO

Sure. Yes, at the interim analysis, so after 40% of the patients have completed therapy, the data safety monitoring board will review the results and make recommendations on how to proceed. There are really three different options — three different scenarios that we anticipate. The first is to continue the study as planned. The second is to increase the number of patients. The third would be stopping the study for either overwhelming efficacy or a lack of efficacy. The premise here is that DiaMedica will be blinded, but it will be an opportunity to most importantly increase the study size if needed to potentially reach statistical significance.

Unidentified Analyst, Analyst

Great, that makes sense. And just one more question on the REDUX side of things. Are you sharing anything on when we can expect to see the final CKD data? Is it related, are you planning to move forward with the program yourself, or is there any thoughts about partnership on that end?

Rick Pauls, CEO

Yeah. So, later this year, we're not anticipating any material difference from what's been reported. In particular, you can look at the ASN poster presentation we had back in November. Right now, we're exploring a number of different options, and the potential for partnership is one of the pieces we are considering as potential next steps. I think we want to be very careful here; we don’t want to do anything that jeopardizes our capital use funding for our stroke program to reach that interim, and then still have a runway post-interim, which is most important in terms of our capital budget right now.

Unidentified Analyst, Analyst

Great. Thanks for taking my questions.

Rick Pauls, CEO

Thank you, Daniel.

Operator, Operator

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

Rick Pauls, CEO

All right. Again, we would like to thank everyone for joining us this morning. We appreciate your interest in DiaMedica and your continued support. With this, we conclude our call.

Operator, Operator

This concludes today's conference call. You may now disconnect.