Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Second Quarter 2019 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 section. Before the company proceeds with its 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 including the factors that could cause our actual results to differ from our projected results appears in the section entitled cautionary statement regarding forward-looking statements in the company's press release and under the heading Risk Factors and DiaMedica's recent filed annual report on Form 10-K. DiaMedica's SEC filings are available at www.sec.gov and on its website at diamedica.com. Please note that any comments made on today's call speak only as of today, August 14, 2019 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 call up for questions [Operator Instructions] I would now like to introduce your host for today's call, Rick Pauls, DiaMedica's President and CEO. Mr. Pauls, you may begin.

Thank you, Krystal. Good morning, everyone. I'd like to welcome you to our quarterly earnings and business update call. We’ve had a very good quarter clinically and are happy to have a chance to discuss our progress with you. Yesterday we issued a press release with the business update and summary of our financial results for the quarter. We also filed our quarterly report on Form 10-Q. Both documents can be found in the Investor Section of our website at diamedica.com. I'm joined today by our Chief Financial Officer, Scott Kellen and our Chief Medical Officer Dr. Harry Alcorn. Let me begin with updating you on the Phase 2 chronic kidney disease or CKD study. On Tuesday, yesterday, we filed our clinical trial protocol with the FDA for our Phase 2 multi cohort study in chronic kidney disease caused by rare or significant unmet diseases. This is another important milestone for our company. We spent months working with our scientific advisory board and other advisors and key opinion leaders to ensure the best possible design for this protocol. I would note here that not only where we are able to draw up on the data from our recently completed Phase 1b study and the insights from our highly experienced scientific advisory board, we were also able to leverage the vast body of knowledge of KLK1 and the clinical research surrounding the use of porcine KLK1 in Asia, which has been used to treat hundreds of thousands of patients with chronic kidney disease. The FDA has now 60 days to complete the review of the protocol and expect the patient enrollment to start in Q4 of 2019. Before I get into the details of our trial design, I want to spend a minute discussing a potentially unique attribute of DM199 for…

Thank you, Rick. Good morning, everyone. Yesterday afternoon as Rick pointed out, we released our second quarter 2019 financial results. And I hope that you have an opportunity to review that release. Our net loss for the second quarter of 2019 was $2.5 million or $0.21 per share. Our net loss for the six months ended June 30, 2019 was $5.7 million or $0.48 per share. These compared to a net loss of $1.7 million or $0.22 per share for the first -- for the second quarter of 2018 and a net loss of $2.4 million or $0.33 per share for the first half of 2018. Our research and development expenses increased $1.9 million for the three months ended June 30, 2019, which was up from $1.1 million for the same period in 2018, or an increase of $0.8 million or $800,000. Our R&D expenses increased to $4.5 million for the six months ended June 30, 2019 compared to $1.9 million for the six months ended June 30, 2018, again an increase of $2.6 million. The increase for the six months ended June 30, 2019 was due to the costs incurred for new production of our DM199 drug substance as well as the cost of our Phase 1b clinical study in CKD patients and increased year-over-year cost for our REMEDY Phase 2 stroke study in Australia. Increased personnel costs also contributed to the increase. Our general and administrative expenses were $867,000 for the three months ended June 30, 2019. This compared to $780,000 for the second quarter of 2018. G&A expenses for the six months ended June 30, 2019 increased to $1.7 million, which was up from $1.3 million for the first half of 2018. On a year-to-date basis, this increase was primarily due to costs associated with our status…

Thank you, Scott. Operator, would you please open the lines for questions.

Thank you. [Operator Instructions] And our next question -- our first question comes from Alex Nowak from Craig-Hallum Capital Group. Your line is open.

Great. Good morning, everyone. Rick, can you provide a bit more color about the conversations you've been having with Fosun and Hermed [ph] Pharma here over the past couple of weeks. And was there no other path forward here with Fosun other than to terminate the agreement?

Yes. Thanks, Alex. So -- yes, so we had ongoing discussions here. The background on this is that the agreement we signed last fall was to have clearance to start a clinical trial by this summer. It became pretty clear that that was not going to happen. Through some of the discussions we had over, in particularly last few weeks, there were requests to extend the agreements and delay the payment and potentially renegotiate. And as a mentioned on the call here, in light of the progress that we've made here over the last year in particular, we thought it was be in their best interest to and the agreement and really focus on executing our studies, while also continuing other discussions we’ve had with the partners.

Okay. Understood. And are you in talks with any other partners out there either for stroke or chronic kidney? And can you say if those conversations are within, what I’d call the advanced stage, meaning we could potentially see a signed document and upfront payment here within the next six months?

Yes, we had a number of recent interest, in particular, a lot has been driven by our Phase 1b results both regional and worldwide. But at this point, we are not providing any guidance.

Okay, got it. And you know hear you loud and clear that the portion, milestone payment that’s not necessary to get the readout here for Phase 2 trial. Just to get us some comfort around the cash usage, can you just walk us through the expected expenses here over the next couple of quarters is $3 million, and overall cash burn per quarter at the right number here?

Alex, this is Scott. No, the burn is for the first half of the year. It includes that the one-time costs really associated with producing the new batch of drug substance. But the costs are going to go. There will be a bit of a low between now and when we start enrolling in the Phase 2 CKD studies. And we don't expect those to take a great deal of time to complete. And then, of course, with Phase 2 in stroke winding down, we will see a decline next quarter, an increase in Q4, probably something similar in Q1 and then we should see costs go down from there as we focus on preparing for the Phase 3 and next steps.

Okay, got it. And just last question on the cash side. What level of cost overruns if you want to call that, are you assuming here [indiscernible]? I know it's a hard question to answer here with a phone, but I’m just trying to get to what level of conservatism are you building into the model for cash usage and trying to understand what amount of enrollment trial delays are acceptable here in the model still get through the Phase 2 trials with some existing cash on hand.

So, Alex, you're asking me to confess what the padding is with the Chief Medical Officer in the room?

That’s right.

The -- obviously the -- everything you just mentioned are issues that we're concerned within and we’ve to pay attention to. And we're setting levels that are based upon things we've seen with our existing clinical trial work to date. And again even with that I'm still comfortable with the position that we have, the capital to get through these Phase 2 readouts.

Okay, got it. Just wanted to confirm that. It's good to hear. And just last question for me. Walk us through the process here to starting the Phase 2 CKD study. You [indiscernible] the protocols of the FDA, what else is needed here before you start enrollment and what is the chance, I guess the risk that FDA comes back with any questions on the protocol, what sort of the like we potential see regarding that. And then if FDA was to issue some sort of fast-track designation. Would they do so at this time?

Let me see if I can break. This is Harry by the way. Let me just break those questions down for you Alex. So the submission to the FDA were in yesterday for the protocol for Phase 2 CKD, respectively. They’ve 60 days to make comments. We will be reaching out to them probably within the next two to three weeks to confirm confirmation as to receipt of the protocol [indiscernible] current or ongoing questions. Obviously, it's a wait-and-see scenario with the FDA. So we are waiting for them to respond to us. During that period we will be qualifying sites and qualifying a central laboratory to conduct the Phase 2 CKD study, which will be accomplished by the middle of September to late September. Whereby we will be ready to start enrollment of our study in October as the 60 days will expire on October 11 approximately. At which time we can move forward. Previously, they did come back with questions on the Phase 1b study. We made sure that we’ve addressed those in the Phase 2. But you know with the agency they can always ask questions at any time, and we stand prepared to answer those questions and we have the right resources to respond quickly.

Okay, got it. Thanks, Harry. And then Rick last question for me. It's been almost 2 months here since releasing the results from the Phase 1b CKD study. I’m sure you’ve had a chance to go back to the Scientific Advisory Board a couple of times here as well, talk to larger pharma about the resulting. What are you hearing from both parties and what were they pleased to see in the Phase 1b results and why do they still have more questions?

Yes, great question, Alex. The first point is that from a mechanism perspective, what we’re hearing is that, we’ve got early signals. And that's very important. So up until now a lot of our story has been about the importance of the use of the crude forms in Asia. And it's been very encouraging that inpatients specifically with kidney disease we see mechanistic changes in nitric oxide and prostaglandins. And then also to see the early signals for eGFR in UACR, which are really the two key endpoints for kidney studies. The biggest question really is, that this was a single study and hopefully we can maintain those levels and improve as we start treating patients over several months.

Okay. Understood.

Thank you. Yes, and also I will just add to any other comment we getting to is that, seeing improvements in both eGFR and UACR is quite rare. Other compounds that are in development, typically you’ve seen improvement in one or the other. So I think it's very encouraging that we're seeing early signs of that in our protein, but also seeing clear signs in the porcine form in the protein in Asia for CKD.

Okay, got it. Thank you.

Thank you. And our next question comes from Thomas Flaten from Lake Street Capital. Your line is open.

Good morning, guys. Just I would wanted to confirm, Rick, that I hear that one of the doses selected for Phase 2 was 2 micrograms per kilogram?

Yes, we are going to 2 and 5.

Can you walk us through the rational for 2, given that the doses in the Phase 1 were 3, 5 and 8.

Yes. So ahead of starting the Phase 1B, we identified a range of normal KLK1 in healthy non-diabetic non-kidney patients. And that range from 1 to 5 nanograms per ML. And so in the Phase 1b we completed, both of 3 and the 5 micrograms were in that range where as the 8 was a little bit above that. We believe there's an inverted yield curve with this protein. And so by selecting 2 and 5, those are two doses that are clearly in the range. So the 2-ish is a little bit below the -- that’s 3 we had in the study.

And then just -- thanks for that. And then just a follow-up on the Ahon agreement. So can you add some color to the ongoing relationship with Fosun in particular, given their ownership stake in the company, like how are those -- how is the relationship post the termination?

Its good. I mean, this has been an ongoing discussion both with Hermed Capital being on our board. But also I mean the relationship with Ahon is good. I mean, we’re going to continue talking to them. There's still interest down the road and potentially partnering this for stroke and so we’re going to continue the relationship. So it's -- I don’t think there's any damage created here.

So and I can imagine that it was the $4.5 million that was -- was that -- I’m trying to wrap my head around that being a wrinkle [ph] for them given the financial backing that they’ve, was it more on your side around the proprietary manufacturing things they wanted to bring over? Just its -- I’m having trouble wrapping my head around the fact that this would be a financial consideration for them, given that I think they can certainly afford that.

Yes. There's a series of aspects that we took into account. A very important one, as I mentioned earlier was the requests for proprietary manufacturing information, that was not part of the original agreement. And so from our perspective, our number one priority is protecting that and that was basically a nonstarter for us. And so that was an important aspect from the regulatory team. That we just -- we're not going to proceed. And so that was a key aspect there. There were request to extend the timing of payment and we just starts in light of the progress we've made that we will terminate the agreement and focus on executing on this on the studies, and in particular as we talk to earlier we have the capital required to complete these three Phase 2 clinical trials.

Excellent. Thanks, guys. I appreciate it.

Yes.

Thank you. And our next question comes from Kyle Bauser from Dougherty & Company. Your line is open.

Hi. Good morning. Thanks for taking the questions. Just following up on the Ahon agreement again here. Since they were running quarterback on getting that trial proved at the Chinese FDA. What happens now? Is that application still in review?

I guess, they did meet with the Chinese FDA last week and we got a series of comments. We're part of that. Part of that, but we're on the call for that. And so we have the feedback of what’s required. And so what we intend our clinical path in China with or without a partner will be part of MRCT, so a multi-international study where we would include China as a -- we would include sites in China. So no matter what direction we choose to select another Chinese partner or just do this for the worldwide partner for Phase 3. We’ve some clear direction here on that pathway.

And Kyle this is Scott, if I might add. In the last communication I indicated that they were going to finish developing responses to the questions that were raised at the meeting to try and make that the package is complete as possible at this stage. So, again, it seems to reiterate Rick's earlier point that they continue to have interest in the drug and we would like to get back involved at some point in the future.

Okay. That’s helpful. In regarding the REMEDY Phase 2 stroke trial you said you’re close to 70 patients [indiscernible] at the 100, which should be completed Q1 at the latest. Since this is a fairly large trial, can you remind me if you anticipate doing any sort of interim analysis or data readout here?

No, it's double blinded placebo-controlled. So we have not had a look at the data and we're going to wait until the phase complete before we unblind it.

Okay. And following up on that, I'd assume all patients in both the control and the treatment arms are receiving TPA, but what is the proportion that you think will receive mechanical thrombectomy and do you think the percentages will be the same in both arms?

This is Harry. I can't give you specific numbers today as it relates to mechanical versus the TPA, but they’re fairly close.

And I will add as well that the protocol design is that if a patient comes into the clinic and they get TPA, and after a certain number of hours afterwards if TPA is not effective, then they will get DM199. But if TPA is effective, they will be excluded from the study.

Okay. Thanks so much for taking the questions.

Thank you, Kyle.

Thank you. And I’m showing no further questions from our phone lines. I'd now like to turn the conference back over to Rick Pauls for any closing remarks.

Well, thank you everyone for joining us this morning. We appreciate the continued support of our shareholders and analysts, and also our employees who work hard and have been instrumental in moving DM199 forward. We look forward to speaking to you again soon and updating you on our progress. With that, this concludes our call.

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