DiaMedica Therapeutics Inc.
Q4 2023 Earnings Call Transcript

Published: 20 Mar 2024

[Operator:]

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Full Year 2023 Conference Call. An audio recording of the webcast will be available shortly after the call 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 20, 2024, 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, sir.

[Dietrich Pauls:]

Thank you, Paul. Hello, everyone, and welcome to our full year 2023 conference call. I am joined this morning by Lorianne Masuoka, our Chief Medical Officer; and Scott Kellen, our CFO. To start off the call this morning, I would like to welcome Lorianne Masuoka as our new Chief Medical Officer. Dr. Masuoka has only been with us for a few short months, but is already making an enormous impact with clinical sites and building strong momentum with current and potential physician investigators. Dr. Masuoka is board-certified neurologist with more than 25 years of experience building and expanding high-value pipelines in the biopharmaceutical industry. She has the history of building and leading high-performing teams in clinical development through all stages and the ultimate approval of new medicines. Her experience also includes playing a key role in developing strategic partners and acquisitions of multiple biotechnology companies. She has served as the Chief Medical Officer for Epygenix Therapeutics, Marinus Pharmaceuticals Pharmaceuticals, Cubist Pharmaceuticals, now part of Merck, and Nektar Therapeutics. She was also an independent Board member of Opiant Pharmaceuticals, which was acquired last year for an upfront premium of over 100% and the potential for an approximately 200% premium if the contingent value rights are achieved. The breadth of her experience includes managing teams in the areas of clinical research, pharmacovigilance, biostatistics and data management, regulatory affairs and clinical operations. We welcome, Lorianne, on the call today, and I'm thrilled to have her as a key member of our team.

[Lorianne Masuoka:]

Thank you, Rick. I'm excited to join management team at DiaMedica for several reasons

[Dietrich Pauls:]

Thank you, Lorianne. I would also remind everyone that as we discussed last quarter, the reason we submitted a protocol revision in October of 2023 was to increase our probability of clinical success. Those changes, including narrowing the focus to patients experiencing moderate strokes as indicated by the National Institutes of Health Stroke Scale score between 5 and 15. In our Phase II ReMEDy1 trial, they were the patients which demonstrated a greater level of full recovery as measured by the modified Rankin score of 0 to 1 on a 6-point scale where there was an 18% improvement of DM199 versus placebo. This compared to the moderate to moderate severe participants, which showed a 15% improvement versus placebo. Importantly, we don't believe that this will dramatically reduce the number of eligible stroke patients. We also took measures aimed at reducing the alpha penalty in the interim analysis. We are confident that these enhancements will provide greater likelihood of clinical success and place DM199 on the fastest path to FDA approval and importantly, bringing DM199 to stroke patients who have no treatment options today. Our clinical team has been working diligently to identify, qualify and engage physician investigators and clinical sites and ensure that sites feel well supported to conduct this trial. We also recently expanded our clinical operations with the addition of Rebekah de Vitry Fries as our Vice President of Clinical Operations in February to further expand and strengthen our clinical operations team leadership. Rebekah was previously Head of Clinical Operations at Epygenix Therapeutics. I would like to now turn the call to Scott Kellen to review this quarter's financial results.

[Scott Kellen:]

Thanks, Rick, and good morning, everyone, and thank you for being part of today's call. As Rick mentioned, we announced our full year 2023 financial results and filed our annual report on Form 10-K yesterday. These documents again are both available at either the DiaMedica or the SEC websites. As of December 31, 2023, we reported a total combined cash and investments of $52.9 million, current liabilities of $2.8 million and working capital of $50.9 million. This compares with the total combined cash and investments of $33.5 million, $2.2 million in current liabilities and $31.7 million in working capital as of December 31, 2022. The increases in cash and investments and in working capital were due primarily to the $36.8 million of net proceeds from our private placements in April and June of last year, of course, partially offset by cash used to fund operating activities during fiscal '23. Net cash used in operating activities for the year ended December 31, 2023, was $18.7 million compared to $11.5 million in the prior year. The increase in cash used in operating activities was driven primarily by the company's higher net loss and increased amortization of discounts on purchased marketable securities, partially offset by noncash share-based compensation and the effects of changes in operating assets and liabilities during '23. We believe that our current cash and investments provide us a runway that will get us to 2026. Our research and development expenses increased to $13.1 million for the year ended December 31, 2023, up from $7.8 million for the year ended December 31, 2022. This increase was driven principally by costs incurred for the in-use studies performed to address the previous clinical hold on our ReMEDy2 trial, costs incurred for the Phase Ic study and increased manufacturing and process development costs for DM199. Also contributing to the increase were higher personnel costs, including noncash share-based compensation associated with expanding the clinical team. General and administrative expenses were $8.2 million for the year ended December 31, 2023, up from $6.2 million in the prior year. This increase was primarily driven by increased legal fees incurred in connection with the company's lawsuit against PRA and increased personnel costs incurred in conjunction with expanding the company's team. Increased costs for patent prosecution and noncash share-based compensation also contributed to the increase. Other income was $1.9 million for the year ended December 31, 2023, compared to $0.4 million for 2022. This increase was driven by both higher interest rates and increased marketable securities balances in 2023 following our April and June '23 private placements. Now before I turn you back over to Rick, let me provide an update on the latest developments with the PRA lawsuit. The 3-judge panel recently informed us that they did not find sufficient causal link between PRA's breach of our study agreement and the damages we claimed. We find ourselves in an odd position of having a court finding PRA in breach of the study agreement and that we are entitled to the full results of the study, a judgment which PRA is currently appealing, by the way. But not being entitled to at least a return of fees paid under that agreement. So we have until May 6 to notify PRA and the court of a decision to appeal. We are currently evaluating our options. With that, we would like to open the call for questions. Operator, if you could please open the lines now.

[Operator:]

[Operator Instructions] And our first question comes from Thomas Flaten of Lake Street Capital.

[Thomas Flaten:]

With respect to patient enrollment, so if the initial sites were activated in December of last year and we're looking for the first patient soon. Is that something we should expect that from activation to actual patient enrollment? We're looking at a 3- to 4-month lag. Is that reasonable? Or is that unique to the fact that the whole study is starting up?

[Dietrich Pauls:]

Lorianne, do you mind taking that one?

[Lorianne Masuoka:]

Sure. So as mentioned earlier, many of our study sites are academic institutions, and they have multiple layers of IRB approvals and often won't review study contracts until after the IRB approval has been obtained. So we made great progress in opening them shortly after the clinical hold was lifted and the final protocol was finalized in November. But it does take them some time to get up and running. We have to program their pharmacies to be able to do the intravenous infusion, and that takes a little bit of time. And mostly, it's a waiting game. It's an issue of numbers. We need to have a lot more critical mass of clinical sites up and ready to enroll because we never know when the right patient is going to come to the emergency room doors.

[Thomas Flaten:]

And another question, given the lag in getting Canada and Australia up and running, it seems that the interim analysis will be heavily weighted towards U.S. patients. Is there any reason to suspect that, that would not be representative of the full patient enrollment, which will be more represented by Australia, Canada and the EU?

[Lorianne Masuoka:]

Well, we anticipate that there will be a mix of patients because remember, as we said, we have anticipated that EU and U.K. and Canada, Australia will be up and running by the end of the year. So we anticipate a full enrollment of the interim analysis of 144 patients to be completed by the end of Q1 of 2025. So there will be a mix of patients. There will be a number of U.S. patients, obviously, but we do believe it will be representative.

[Operator:]

Our next question comes from François Brisebois of Oppenheimer.

[François Brisebois:]

Can you hear me okay?

[Dietrich Pauls:]

Yes. Yes, Frank.

[François Brisebois:]

Okay. Perfect. So I was just wondering, so first quarter '25 is what we think enrollment will be complete for the interim read. Can you remind us expectations around the interim read and from enrollment just in terms of the study design, what would make sense from full enrollment to data time line? Anything you can share there would be helpful.

[Dietrich Pauls:]

Sure. So after patient 144th has been dosed, there will be a 90-day follow-up. And then after that, there'll be 6 to 7 weeks for database lock and DSMB review and then notice of the resampling size.

[François Brisebois:]

Okay. Great. And in terms of expectations of data, can you remind us of possible outcomes? Is it similar to what it used to be? Or any changes there?

[Dietrich Pauls:]

Sure. So at the interim analysis, if we are not seeing a drug effect, so we're seeing a drug effect of less than approximately 4% versus placebo. The study will be terminated. Otherwise, there will be a resampling size, and resampling size will be between 240 and 728 patients. And so we've had the study powered for a 14% as the base case, which would be approximately 350. So we're seeing a greater effect, then we would anticipate seeing a reduction in the size. If we're seeing less of an effect, we'd see an increase.

[François Brisebois:]

And then the last question is just in terms of the lawsuit. Those fees, do you disclose what those fees were that you were hoping to get reimbursed?

[Scott Kellen:]

No, Frank. This is Scott. We haven't disclosed any of those details thus far.

[Operator:]

Our next question comes from Alex Nowak of Craig-Hallum.

[Alex Nowak:]

Just in the timelines here. Timelines did shift to the right by about a quarter here. So I'm just curious what changed versus the prior targets given on the Q3 call?

[Dietrich Pauls:]

Sure. So on the Q3 call, what we had disclosed is that our CRO had thought that we could complete the interim enrollment by the end of this year. And since then, we've had more time to better understand the projections for site enrollment in particular. And by that, we are now comfortable to actually putting out formal guidance of Q1 2025.

[Alex Nowak:]

Are you finding that it's harder to, whether it be activate a site, enroll the first patient at a site versus your prior expectation?

[Dietrich Pauls:]

No. No change in terms of that.

[Alex Nowak:]

Okay. And then maybe to ask Frank's question a different way, is just how much overall has been spent on the PRA lawsuit? And how much of a risk is it? I guess, if you need to appeal it or you don't appeal it, is it a material risk of the cash?

[Scott Kellen:]

Yes. Again, we haven't disclosed those numbers specifically other than noted that it's obviously a significant driver of the increase, Alex. And principally, what we got to get our arms around relative to the appeal is, can we put any kind of bands or caps on this fees. So that we don't put our current cash runway at risk. Okay, so in other words, if it costs too much, that could be a determining factor in moving forward.

[Alex Nowak:]

So if you decide not to move forward with an appeal, I'm sure you must have some sort of -- you must know what the damage amount is generally. So I assume it's not material enough to disclose. Is that right?

[Scott Kellen:]

I'm not sure I understand. The court found no sufficient causal link. So at this point, if we don't appeal, I don't think they'll change that conclusion.

[Alex Nowak:]

Okay. Well, I guess the -- reading the court document, it looked like the court wanted you to pay PRA's legal fees. I'm just trying to understand what their legal fees ultimately is.

[Scott Kellen:]

No. No, we don't have exposure for that. The Dutch Courts operate a little differently. They have an assigned amount that they charged us, and we had to pay that. But it wasn't determined based upon their costs. It was around USD 40,000.

[Operator:]

And seeing no further questions, I'll turn the call back over to our host.

[Dietrich Pauls:]

Great. We would like to thank everyone for joining us this morning and for your continued support. We're building momentum in our ReMEDy2 trial and look forward to the next update. This concludes our call today. Thank you.

[Operator:]

The meeting has now concluded. Thank you for joining, and have a pleasant day.