DiaMedica Therapeutics Inc. (DMAC) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the DiaMedica Corporate Update and 2018 Financial Results Conference Call. An audio recording of the webcast will be available shortly after the call today on DiaMedica's website at diamedica.com in the Investor sector. Before the Company proceeds with these remarks, please note that the Company will be making forward-looking statement on today’s call. These statements are subject to risk and uncertainties that could cause results to differ materially from those projected in these statements. More information appears in the section entitled cautionary statement regarding forward-looking statements in the Company’s press release and under the heading Risk Factors in DiaMedica's recent filed and report in Form 10-K. DiaMedica's SEC filings are available at www.sec.gov and on its website at diamedica.com. Please also note that any comments made on today's call speak only as of today March 20, 2019 and may no longer be accurate at the time of any webcast replay or transcript reviewing. Following the prepared remarks, we will open the call up for questions. I would now like to introduce your host for today's call Rick Pauls, DiaMedica's President and CEO. You may begin.

Thank you, Chris, and good morning everyone. Welcome to DiaMedica's first conference call as a NASDAQ listed company. It’s a privilege to speak with everyone this morning and we appreciate the opportunity to bring everyone up-to-date on DiaMedica and the tremendous progress we've made this past year. We believe that our DM199 protein has a potential to become a new class of medicine for the treatment of chronic kidney disease and acute ischemic stroke. Certainly, there are very limited treatment options for these patients and doctors are limited to treating these symptoms. Yesterday, we issued a press release where the summary of these results and filed our annual report on Form 10-K, both of which can be found on the investor section of our website at www.diamedica.com. I’m joined today with our Chief Financial Officer, Scott Kellen. I would like to begin today this call with a brief background on DiaMedica. We have successfully synthesized and manufactured a key protein, which the human body produces to regulate microvascular blood flow. This protein is called Tissue Kallikrein or KLK1 and is a key component for our bodies to increase or decrease blood flow as required. We call it synthetic version of this protein DM199 and we’re currently conducting clinical studies of DM199 for the treatment of patients suffering from chronic kidney disease or CKD and acute ischemic stroke. As we age, our body’s ability to produce KLK1 may be diminished. In summary, CKD and stroke patients suffer from lack of blood flow to organ tissue and we believe treatment with DM199 will help us grow the body's ability to regulate blood flow. For kidney disease patients, DM199 has a potential to maintain the physiology of the kidneys in order to preserve function and ultimately delay or ideally avoid the need for dialysis. For acute ischemic stroke patients, we believe DM199 will improve patient recovery post-stroke with treatment starting after 24 hours after a stroke. This could give doctors a therapeutic treatment option where none is available today. After the current standard of care TPA which is limited to no more than four hours after the stroke, with this limited window less than 10% of stroke patients are receiving TPA today. I would like to also highlight that in Asia, there are currently two forms of the KLK1 protein being used and they are sourced from human urine and pancreas of pigs. These two forms are marketed by several large pharmaceutical companies in Asia and then based on our research we believe millions of patients have been treated over there. We are positioning DM199 in its synthetic form of KLK1 for worldwide use as a protein replacement therapy to restore depleted levels this critical protein. Another way of looking at this that we are attempting to replace porcine KLK1, the way porcine insulin was replaced with synthetic insulin by Genentech and ultimately Lilly. In 2018, we've made significant progress in advancing our development pipeline. We now include DM199 treatment of CKD and acute ischemic stroke. In the past year, DiaMedica has achieved important development goals for both programs. After an in-person meeting with the FDA, in early 2018, we successfully submitted an IND to commence the study of DM199 in CKD patients in the U.S. This IND was accepted in December and last year we begin enrolling patients in a Phase Ib clinical trial, which has been conducted at three sites in the U.S. This is an open-label study designed to evaluate three doses, dose levels of DM199 administered in a single subcutaneous dose in 32 patients with moderate or severe CKD. Primary end points include safety tolerability, pharmacokinetics, change in KLK1 levels, albumin to creatinine ratio and other kidney biomarkers, all measured over a 12-day period. This study will assist us in identifying those levels for use in subsequent Phase II and Phase III clinical trials. We expect to read out on the results of the CKD study in mid-2019. We’re currently planning a randomized Phase II study in patients with rare forms of chronic kidney disease to be initiated in the second half of 2019. We will update on these rare forms to be target in this study and others details to follow. Turning to our progress with stroke, we begin enrolling patients in our REMEDY trial in 2018. This is a Phase II randomized double-blinded, placebo-controlled study, designed to assess the safety, tolerability and markers of DM199 in acute ischemic stroke patients. With the success of our recent U.S. IPO, we've raised enrollment target from 60 to up to 100 patients, with the increasing patients, we hope to provide additional data to support the design of robust and efficient Phase III studies. This study will also include multiple tests to investigate DM199 therapeutic potential. Given the increase in enrollment target, we expect to complete this trial in the fourth quarter of 2019 or first quarter of 2020, as previously described. We expect to build upon our success in 2019 as we work towards advancing our pipelines of clinical programs, which hold the potential to have significant impact on patient suffering from chronic kidney disease and acute ischemic stroke. After our successful U.S. IPO and NASDAQ listing in December, we believe we have sufficient capital to obtain Phase II read-outs in our two lead programs. We are well positioned to execute on our clinical development plans to achieve meaningful milestones in the next year and we look forward to sharing our progress. Turning to other developments, in January of this year, we announced that our manuscript titled, Human Tissue Kallikrein in the treatment of acute ischemic stroke was published in peer-reviewed journals, Therapeutic Advances in Neurological Disorders. This paper reviews the scientific literature covering the biochemical role of KLK1 and presents the mechanistic rationale for using KLK1 as an additional pharmacological treatment for acute ischemic stroke. In addition to the biochemical mechanism of KLK1, the paper highlights supporting results from human genetics and preclinical animal models of brain ischemia. It also reviews published clinical results for treatment of acute ischemic stroke by the form of KLK1 is isolated from human urine in Asia. This form has been approved for post-infarct treatment of acute ischemic stroke in China and data has been published on clinical trials involving over 4,000 patients. We believe at least 500,000 patients have been treated to-date with the urine form of this protein. The paper offers a series of testable therapeutic hypotheses for demonstrating the long-term benefits effect of KLK1 treatment in acute ischemic stroke patients and the reasons for this action. Today, we also released the white paper that further details the potential of KLK1/DM199 to treat patients with chronic kidney disease and summarizes the clinical use of this protein in Asia isolated from pig pancreas. The white paper is available today on our website under product candidate and chronic kidney disease. Shortly, we plan to provide an update on the information on our Scientific Advisory Board that’s been assembled for chronic kidney disease and also to follow shortly expanding our Stroke Advisory Board. Before turning the call over to Scott to review the review the financial results, I'd like to also highlight some of the personnel development this past year. In 2018, we announced the appointment of Dr. Harry Alcorn as Chief Medical Officer. Dr. Alcorn brings DiaMedica over 20 years of experience in conducting clinical research in treating patients with chronic kidney disease. Dr. Alcorn has designed studies and served as principal investigator on hundreds of clinical trials with a focus on chronic kidney disease while at DaVita Clinical Research as their Chief Scientific Officer. Harry's extensive experience in standing in the kidney community provides him with unique prospective with the global kidney community as he leads our clinical development. Additionally in 2018, we added Scott Kellen as our Chief Financial Officer. Scott has over 25 years of experience with public and private early-stage life science companies. He was positioned as Chief Operating Officer and Chief Financial Officer within multiple publicly traded healthcare companies, has significant experience with capital formation, external reporting and corporate governance and of course he was instrumental in our recent NASDAQ IPO. With that, I will now turn the call over to Scott to provide a summary of our financials for the fourth quarter and full year of 2018.

Thank you, Rick. First speaking of our December 6th IPO, we completed this IPO, straight common shares in the United States and concurrently obtain a listing on the NASDAQ Capital Market. In the offering, we raised 16.4 million in gross proceeds and after cost we netted 14.7 million. This was an important milestone for us and that we both expanded our investor base adding several U.S. institutional investors and strengthened our balance sheet. And as Rick indicated, it gave us the capital to complete Phase II clinical trials in both CKD and stroke. Yesterday, we reported financial results for 2018. Our net loss for the year was 5.7 million or $0.74 per share, compared to a net loss of 4.3 million or 72% per share for 2017. Our revenue for 2018 was comprised of the initial $500,000 license payments we received in connection with the license and collaboration agreement we signed with Ahon Pharmaceuticals, a subsidiary of Fosun Pharma in September of last year and we had no revenue during 2017. Our research and development expenses increased to 4.5 million for 2018, an increase of 1.3 million from 3.2 million in 2017. The increase was primarily due to the additional preclinical testing and related cost required to support our investigational new drug application to the U.S FDA, higher study cost for the REMEDY Phase II stroke study as compared with the DM199 bridging study, which was substantially completed in 2017 and increased personnel and non-cash stock-based compensation cost. Our general and administrative expenses were 2.7 million for 2018 compared to 1.3 million in 2017. These cost increased due to a one-time cost incurred associated with the Company's planned U.S. IPO, primarily related to the NASDAQ listing process and related legal and accounting fees. Higher salaries, fees and short-term benefits due to the addition of staff and higher share-based compensation also contributed to the increase during 2018. Our other income of 1.1 million for the full year 2018 is compared to the 259,000 for 2017. The increase resulted primarily from the recognition of the research and development incentives from the Australian government. These are paid for qualifying research work performed by DiaMedica in Australia. This increase was partially offset by increased foreign currency transaction losses during 2018.So at December 31, 2018, we finished the year with 17.6 million in cash and receivables which we expect to fund our operations through the end of 2020. And with that, I'll turn the call back over to Rick.

Thanks, Scott. So 2019 and 2020 had a potential to be a transformative time for DiaMedica. Its positive data from our Phase II critical studies for chronic kidney disease and acute ischemic stroke could support our transition Phase III clinical studies. This concludes our prepared remarks and now I will ask the operator to open up the lines for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Alex Nowak with Craig-Hallum Capital. Your line is now open.

Congrats Rick and Scott on the recent up-listing in IPO. Rick, could you walk us through in how enrollment is tracking for both the REMEDY trial then the CKD trial? How many patients are currently enrolled for both and looks like all three sites are recruiting here for the kidney trial, how many sites are actively recruiting in REMEDY?

Right, so, we’re still on track listing the Phase II data read-out within the next year. We haven’t provided formal guidance in terms of the specific number of patients that have been enrolled. We expect to complete our Phase Ib, the chronic kidney disease study this summer, and we believe that will allow us to initiate the Phase II in the second half of this year. We have three sites that are up and running on the CKD clinical study. And on the stroke side, we are still on track with the Phase II timelines. We have 11 sites up and running today, and we expect to report top line data of this Q4 this year or Q1 in 2020.

Okay good to hear, and then congrats on publishing the recent peer-reviewed paper, supporting the use of DM199 and KLK1 acute ischemic stroke. It's been almost two months since the paper first went live. Can you provide any comments around what sort of reactions you’re getting from the science community out there? And has the paper provoked any additional conversations with larger strategic, perhaps anyone looking at other areas where synthetic form of KLK1 could be useful?

So, definitely, the review paper has been very well received. The nice aspect of this and important aspect of this protein in particular how it’s been used today in Asia is not well understood. So, we've had very positive response in ways one paper to really summarize the mechanism how this protein works and the clinical use is today, I mean, literally these I'd say at least 500,000 patients have been treated with the porcine form of this protein for acute ischemic stroke. With regard to big pharma, those discussions are starting but we have no comments on that. And then, we’re excited to get the chronic kidney disease, we do paper out yesterday. I think it's a great opportunity for people to in one document really understand how the crude form now of the KLK1 protein has been used for kidney disease. We believe that there has literally been millions of patients have been using porcine KLK1 protein in Japan and China.

And then Scott just a question on the cash usage. With this stroke trial ongoing and then the launch of Phase Ib and the later Phase II kidney trials, you've mentioned your confident having enough cash to get through both Phase II read-outs. So just to get my model lined up with your thinking. What are you modeling for total cash when both of the Phase II trials wrap up? And what in -- does your cash total -- does that include any incremental milestone payments from Ahon Pharma?

Again, it's given the variable nature of these studies. It’s hard to predict the timing of the cash. And so, I think a bit like a 60/40 maybe split in terms of this year versus next year. And the whole goal of the IPO was to complete the Phase II data and still have some runway left to be able to react on our terms, not somebody else's. And short answer is no, that’s not based upon in the inclusion of the milestone. So, that will be a nice add when it comes, but we’re building our plan to get our study work done with the resources we have.

And then just last question from me and just touching on that, Rick, any update on the Ahon Pharma partnership? And when should we expect and begin enrolling their Phase III stroke trial in China?

Scott, do you want to take that one.

Sure, under the terms of the agreement, Alex, they agreed to move as expeditiously as possible through the process. They still have some information they need to nail down relative to the regulatory path over there. But our job has been to support them with all of our design dossier and non-clinical test documents, help them through the translation process and support their preparation of the application. And so while we believe they are very close to applying, ultimately the timing of that will be based upon what they developed in their discussions with the Chinese FDA. And then depending on how those go, we'll have to decide the course they want to take. So, it's really hard for us to predict when they will actually start enrolling patients.

Thank you. [Operator Instructions] And that does conclude today's question-and-answer session. I would now like to turn the call back to Mr. Rick Paul, President and CEO for any further remarks.

Thank you all for the continued dedication and support for DiaMedica. Our mission is to develop novel treatments for kidney diseases and neurological disorders, and we're making in progress. I truly hope that our shareholders take pride in accomplishments of DiaMedica is driving to bring a novel treatment to medical community and for treatments of these very serious diseases. We appreciate your interest and continued support and this concludes our call. Thank you very much.

Ladies and gentlemen, thank you for participating in the today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.