DiaMedica Therapeutics Inc.
Q3 2019 Earnings Call Transcript

Published: 14 Nov 2019

[Operator:]

Good morning, ladies and gentlemen, and welcome to DiaMedica Therapeutics' Third 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 actual 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 appear in the section entitled cautionary statements regarding forward-looking statements in the company's press release 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 note that any comments made on today's call speak only as of today, November 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 be open 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.

[Rick Pauls:]

Thank you, Jack. Good morning, everyone. I'd like to welcome you to our quarterly earnings and business update call.In Q3, we made significant progress in the clinic and we are on track to deliver top line results from our Phase 2 programs in Q1 of 2020. Specifically, interim results in CKD and preliminary results in acute ischemic stroke.Yesterday after the market closed, we issued a press release with a 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, Harry Alcorn.We've made tremendous strides since we last spoke, and I'd like to begin with a quick recap. First, we submitted the protocol and obtained FDA clearance for our Phase 2 trial in chronic kidney disease, during which we will study participants with CKD in two forms

[Scott Kellen:]

Thank you, Rick. Good morning, everyone. And as Rick mentioned, we filed the financials yesterday and issued the earnings release. And I hope you've had a chance to review those documents.Our net loss for the third quarter of 2019 was $2.4 million, or $0.20 per share, and our net loss for the nine months ended September 30, 2019 was $8.2 million or $0.68 per share. These compare to a net loss of $1.4 million or $0.18 per share for the third quarter of 2018, and a net loss of $3.8 million or $0.51 per share for the nine-month period ended September 30, 2018. Within these figures, our research and development expenses increased to $1.6 million for the third quarter of 2019, which was up from $1.2 million from the third quarter of 2018, an increase of $400,000.Our R&D expenses increased to $6.1 million for the nine months ended September 30, which compared to $3.1 million for the same period in 2018, for an increase of $3 million. The increase for the nine-month period ended September 30, 2019 was due to a combination of factors. We incurred cost of approximately $1.4 million for the production of a new run of the DM199 drug substance, as well as all the costs we incurred in conjunction with completing the Phase 1B and starting the Phase 2 CKD studies this year. Increased personnel and non-cash share-based compensation costs also contributed to these increases. The increase for the three months ended September 30 in particular was due to the cost incurred in conjunction with the Phase 1B and start-up of the Phase 2 CKD studies, and non-cash share-based compensation costs. These were partially offset by a decline in the costs incurred for the remedy study on a quarter-over-quarter basis.Our general administrative expenses were $1 million for the three months ended September 30, 2019, and this compared to $777,000 for the three months ended September 30, 2018. G&A expenses increased to $2.7 million for the nine months ended September 30, 2019, which was up from $2.1 million for the same period in 2018. Now these increases were primarily due to the costs associated with our status as a NASDAQ listed U.S. reporting company, which commenced back in December of 2018 and includes increased professional services costs, compliance cost, non-cash share-based compensation costs, and also increased personnel cost for administrative organization.Our total other income increased to $225,000 for the three months ended September 30, 2019, which was up from $157,000 for the prior year period. Our total other income decreased to $683,000 for the nine months ended September 30, 2019, and this compared to $946,000 for the nine months ended September 30, 2018. The year-to-date decrease is primarily related to the initial recognition of the R&D incentives from the Australian government, paid for the qualifying research work performed by DiaMedica Australia, covering the 2017 and year-to-date 2018 study costs. The increase in the quarterly comparison relates to increased study costs compared to the prior year, driving an increase in the eligible R&D incentive. The year-to-date decrease was partially offset by, and the current quarter increase was partially augmented by, increased income earned on marketable securities during the three- and nine-month period ended September 30, 2019.As of September 30, 2019, we had cash and equivalents of $4.7 million, marketable securities of $5 million, and receivables of $664,000, giving us $10.4 million in total capital at the end of the third quarter. We expect that our current capital resources will be sufficient to allow us to complete the first two cohorts in the Phase 2 CKD study, as well as wrap up the Phase 2 study in the acute ischemic stroke patients and fund our planned operations into the fourth quarter of 2020.Now let me turn the call back over to Rick.

[Rick Pauls:]

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

[Operator:]

Certainly. [Operator Instructions] Alex Nowak with Craig-Hallum Capital, your line is open.

[Alex Nowak:]

Great. Good morning, everyone. And congrats on the progress to date here. Harry, as you've been out there screening patients here for the Phase 2 REDUX study, are you finding that a number are meeting the exclusion criteria or is the screening process so far pretty straightforward?

[Harry Alcorn:]

The screening process to this point has been very straightforward, as the sites that we selected have the experience with this patient population.

[Alex Nowak:]

Okay, good. And then Rick, remind us the potential of getting a fast track breakthrough designation from the FDA on either of these cohorts in CKD.

[Rick Pauls:]

I think it's all possible. We'll wait until–we'll let the data drive it. So assuming we get data as we anticipate and data that's consistent with what we've seen with the forms of the protein that have been used in Asia, there is a potential here that we could go down that path, yes.

[Alex Nowak:]

Okay. And you mentioned the primary efficacy endpoints here for REDUX regarding eGFR and UACR. Would you expect to see an increase in eGFR versus baseline or would you say stable eGFR is enough in this patient group? And then I guess the same question for UACR. Would you expect to see a decrease here, or again, is stable enough in this patient group?

[Rick Pauls:]

If you look at today's standard of care and compounds that are in development, I think even preventing the decline, the slowing, the decline is very positive. We do believe we'll be looking for a both increase in eGFR compared to baseline and a reduction in albuminuria versus baseline. And I think that's something that really differentiates what we're doing compared to other compounds that for the most sense seem to affect one or the other. But ultimately, we believe that both of these markers really do need to be improved long term if you're having an improvement in kidney disease and function.

[Alex Nowak:]

Okay. All right. Good to hear. And then congrats on completing enrollment here for the stroke trial. Walk us through the timing. The patient's going to complete the 90-assessment now. And then how long to gather the data, un-blind it and then ultimately analyze it? Are we talking a month?

[Rick Pauls:]

So after the last patient was dosed, there'll be a 90-day period, and then after that point, the data, the CRO that we're working with is cleaning up the data and so our guidance right now would be sometime in Q1 that we'll have the results.

[Alex Nowak:]

Okay. Understood. And then just last question from me here. Just you talked about this in the past, but can you remind us the work that you can do here or what you've done this quarter to look at reformulating DM199 to extend the dosing schedule in other clinical studies in the future?

[Rick Pauls:]

Yes. At this point here, we've been more doing just analysis of the potential for a long-acting formulation, and we do believe that there's a real potential of moving this to once–ideally to once a month subcutaneous, and that's something that we'll work on further in 2020. Right now, the focus is on executing these studies and on the regulatory front, and then again, sometime in 2020 we'll start down that path. We do believe, based upon the pharmacodynamics and the structure of this protein, that we should be able to move to a second long-acting formulation for these diseases and, or for others that we'll be considering in the future.

[Alex Nowak:]

Okay. Understood. Congrats on the good progress here.

[Rick Pauls:]

Thank you, Alex.

[Operator:]

Thomas Flaten with Lake Street Capital, your line is open.

[Thomas Flaten:]

Thanks. Good morning, guys. A couple quick questions. Could you clarify, Rick, around the timing of the CKD cohorts? I think you mentioned on the call that the African American cohort should enroll much quicker than the IGA nephropathy cohort. Are they both going to be ready in the first quarter though from a top line data perspective?

[Rick Pauls:]

So that's what–yes, we're working towards top line for both. We do believe from the sites that we're in discussion with and we're setting up that the African Americans will enroll quicker. So we anticipate that that cohort will enroll before the IGA nephropathy patients.

[Thomas Flaten:]

Great. And then with respect to recruiting the additional sites, I think as of–I haven't checked in a couple days, but in clincaltrials.gov, there were six sites but only four recruiting and I think you were gunning for 10. How critical are those from a Q1 data availability perspective, or can you give us some more insight into how that's progressing?

[Rick Pauls:]

Yes. We're quite optimistic that the sites that we have established, the six that are up and running–today, actually six are up and running and we're looking at several others. We feel very good about the sites that we have, that these sites, particularly in African Americans and then also with the IGA, we're working with several sites that have recently come off of completing IGA studies. So the I think timing of this works out well. So we actually feel comfortable with the six sites we have and we're exploring increasing to 10. But we're internally believe the six actually may be enough to meet these milestones.

[Thomas Flaten:]

Okay. And then just one final one from me. With respect to a third potential CKD indication, is that still on the cards for the near term?

[Rick Pauls:]

Right now, we're focusing on executing these two cohorts while we're doing some additional work internally in terms of what that next cohort may be. So yes, we are looking at a number of different cohorts. And so that's something we'll keep you up to date on as we just determine the best–that next best fit for this protein.

[Thomas Flaten:]

Excellent. Thanks so much, guys.

[Rick Pauls:]

Thanks, Thomas.

[Operator:]

Kyle Bauser with Dougherty & Company. Your line is open.

[Greg Bogdanski:]

Hi, thanks for taking questions this morning. This is actually Greg Bogdanski filling in for Kyle. I was just wondering if you could just talk more - following the contract termination with AHAN, have there been any initial or follow-up discussions with other potential partners?

[Rick Pauls:]

Yes, we'll continue to have discussions, but nothing to report here today.

[Greg Bogdanski:]

Okay, thank you for that. And then can you provide a bit more color around operating expenses over the next couple of quarters with the REMEDY trial now done and rolling and the REDUX trial just starting? Should we be approaching Q1 operating spending levels in this upcoming quarter?

[Scott Kellen:]

Greg, this is Scott. Let me jump in on that. Yes. The short answer is yes. As Phase 2 gets going, REMEDY winds down, we had a nice lull, if you could say that, from a financial perspective in the third quarter. But the activity will resume and restore. And maybe if I step back and just put it this way

[Greg Bogdanski:]

Okay. That makes sense. Thank you. And then maybe just one more from me. I know we're only just finishing enrollment of Phase 2 stroke REMEDY trial, but can you talk about how you're thinking about Phase 3 study as it relates to enrollment sites? Where beyond the U.S. might you enroll this trial and how many patients would it be?

[Rick Pauls:]

Yes, thank you. So we will really let the data direct the size of the study. So we're looking at the–based upon the results of the Phase 2 will tell us how many patients. I mean it will be several hundred patients. The actual number will be to be determined. And we will look at doing a global study with or without a partner, and U.S. will be the focus along with Europe. And we'll be likely looking at Japan and other regions. So really actually a global study.

[Greg Bogdanski:]

Okay. Awesome, that's super helpful. Thanks so much, guys.

[Rick Pauls:]

Thank you.

[Operator:]

We have no further questions at this time. I will now turn the call back over to Mr. Pauls for closing remarks.

[Rick Pauls:]

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

[Operator:]

This concludes the DiaMedica Therapeutics third quarter 2019 conference call. We thank you for your participation. You may now disconnect.