DiaMedica Therapeutics Inc.

Good morning, ladies and gentlemen, and welcome to the Diomedica Therapeutics Second Quarter 2020 Financial Results Conference call. An audio recording of the webcast will be available shortly after the call today on Diomedica's website at www.diomedica.com in the Investors section. Before the company proceeds with its remark, 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 the 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 Diametica, previously filed annual report on Form 10-K. Diomedica'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, August 12, 2020, and may no longer be accurate at the time of any replay or transcript rereading. Diomedica disclaims any duty to update its forward-looking statements. Following the prepared remarks, we will open the phone lines for questions. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to introduce your host for today's call, Rick Pauls, Diomedica's Chief Executive Officer. Mr. Pauls, you may begin.

Thank you, Lisa. Good morning, everyone. We hope you continue to be safe and well. We'd like to welcome you to our second quarter 2020 earnings and business update call. Yesterday, after the market closed, we issued a press release. with a business update and financial results for the second quarter of 2020. We also filed our quarterly report on Form 10-Q. Both documents can be found in the Investors and Media section on our website at diametica.com. With me here today is our Chief Financial Officer, Scott Kellen, and our Chief Medical Officer, Dr. Harry Alcorn. First, let me begin with a few comments on our public offering, which we closed this past Monday. As I'm sure you saw, Guggenheim Securities was the lead book running manager with Craig Hallam as the joint book running manager and National Holdings as the lead manager in the offering that raised gross proceeds of $23 million, which included the exercise by the underwriters of the full over-allotment option at a public offering price of $5 per share. Over the last few months, we have been clear that given that we believe we have adequate capital to get to the phase two results in the first two cohorts of our REDEX CKD study, we were not going to seek additional capital until we had that data. We've also been clear, however, that a good reason to deviate from this plan would be that if we had an opportunity to bring in recognized biotech funds whose investment would represent an independent validation of DM-19. Over this past summer, we have continued to share our story and the results from our remedy stroke study and our plans in the CKD space with a number of biotech funds. We were recently presented with an opportunity to conduct an offering with specialist biotech funds, and that's what's driven this offering. The offering was primarily sold to institutional investors. While I wish we could share with you the names of our new investors, we'll have to wait for the investor to report their positions. I'm confident that our shareholders will be pleased with our new investors. In addition to our new investors, it was also very gratifying to see a number of our existing investors also participate in the offering. We intend to use the net proceeds from this offering to continue our clinical and product development activities for D-19, including the addition of a third cohort of diabetic kidney disease subjects to our REDUX study and the initiation of our next study in acute ischemic stroke. We'll further use the net proceeds to expand our team to support this additional work and for other working capital and general corporate purposes. Let me begin my update on our REDEX trial with a review of our clinical progress in the study of DM-189 for CKD. In July of 2019, we completed a phase 1B clinical trial of DM-189 in participants with moderate or severe chronic kidney disease or CKD caused by type 1 or type 2 diabetes. The study was performed to assess the pharmacokinetics of three dose levels of DM-19, those being three, five, and eight micrograms per kg, administered in a single subcutaneous dose, as well as the evaluation of safety, tolerability, and secondary pharmacodynamic endpoints. The study results identified the dosing at a rate of up to five micrograms per kg in the moderate CKD patients was likely to restore KOK1 to what we believe is normal range. This affirmed our dosing plans for our ongoing clinical trial in CKD patients. We observed favorable overall pharmacodynamics results that included short-term improvements in estimated glomerular filtration rates, or EGFR, with an average increase of 4.6 mLs, and the urinary albumin to creatinine ratio, or UACR, excluding subjects with normal UACR levels. The average USAR decrease was 23%. These improvements correlated with the timing of the greatest increase in the hormones nitric oxide and prostaglandins. We believe that these results were drug-related, as the greatest improvements occurred at approximately 24 hours after DM-49 administration and then subsequently declined. Next, we completed a post-hoc analysis of endpoints in the remedy stroke trial, which was comprised of a subset of participants with impaired kidney function as determined by the participants having an EGFR less than 90 and elevated blood glucose levels above seven millimoles. This subgroup represents individuals with diabetic kidney disease and included 25 participants, nine of which were treated with DM-09 and 16 of which received placebo. While the sample size was small, those who received DM-09 were observed to experience a statistically significant improvement in kidney function as measured by EGFR compared to placebo, specifically a mean difference of 12.7 mLs at day 22. The average improvement in the EGFR levels in the DM-19 group was maintained after being off DM-19 for 34 days, a potential signal of a sustained benefit. Patients who received DM-19 also demonstrated a reduction in blood glucose levels compared to placebo. with a mean decrease trend of 2.2 millimoles. We believe the DM-109 product profile for patients with diabetic kidney disease could include improvement in kidney function as measured by both EGFR and albinuria along with reducing glucose and diabetic retinopathy while also reducing the risk of recurrent strokes. We believe DM-109 can do so by restoring the levels of KLK1 to a normal healthy range. In addition, from a regulatory perspective, we are optimistic based upon a scientific workshop collaboration conducted over the last few years by the National Kidney Foundation with the US FDA and the European Medicines Agency that we could see new potentially lower thresholds for registration studies for the treatment of diabetic and chronic kidney diseases, which are based upon both EGFR and albinuria. If these new metrics are allowed, it could greatly reduce the clinical burden. Based upon these observations, we're very excited to initiate a third cohort in our Redux Phase II CKD trial focused on participants with diabetic kidney disease. In total, our Redux Phase II CKD study will now enroll 90 participants in three equal cohorts. The first cohort is focused on participants with IgA nephropathy, the second in hypertensive African Americans with CKD who are not diabetic, the third cohort being added is in diabetic kidney disease. Participants will be treated with D-119 for approximately 13 weeks at a dose level of either 2 or 5 micrograms per kg, which is administered subcutaneously twice per week. The primary efficacy endpoints for the overall study are EGFR and albinuria. Secondary endpoints are focused on evaluating the potential for D-119 to positively impact the underlying disease causing each participant's CKD. As we recently reported, as of August 5, 2020, enrollment in the first two cohorts of the REDUX study was approximately one-third complete. Due to actions implemented to combat the COVID-19 pandemic, we have experienced slower than anticipated enrollment. We believe this has been due to a combination of the reduction or suspension of activities at some of the clinical study sites as they address staff and patient safety concerns and patients' concerns related to visiting clinical sites. We anticipate that the COVID-19 pandemic will likely continue to adversely affect our ability to recruit or enroll subjects, and at this point, while we have recently seen an increase in screening activity with a few participants poised to enroll, we are still not able to provide guidance on the completion and enrollment of the study. We added a 13th study site in July to assist with the subject enrollment and will consider additional sites if conditions warrant. While results observed to date in the REDUX study indicate a safety profile consistent with past studies, there is insufficient data at this time for us to evaluate or comment upon efficacy. The third cohort in diabetic kidney disease will be leveraging the current 13 clinical sites, and once COVID-related pressures ease, and we do not anticipate that the addition of the third cohort will adversely affect recruitment in the first two cohorts. We also remain optimistic that with the limited participant contact required by the design of the Redux study, sites will be able to progress more rapidly with resuming recruitment and screening for the Redux study once COVID-related pressures ease. Turning to our stroke program, and for our new listeners, DM-109's 24-hour treatment window following an acute ischemic stroke is intended to provide a treatment option to approximately 90% of stroke patients who are not eligible for either mechanical thrombectomy or TPA. Treatment for these patients is limited to palliative care, which focuses on rehab and symptom management. When we looked into the remedy data set, at just those patients that most closely aligned with our patient population intended to be treated with DM9, those that did not receive mechanical thrombectomy and those that did not respond to TPA, We saw a positive therapeutic effect in patients treated with DM-19. This group included a total of 46 participants, 25 of which were treated with DM-19 and 21 who were on placebo. The results showed that 36% of participants in the DM-19 group progressed to a full or nearly full recovery at day 90. This was measured by the NIHSS score of 0 or 1. In the placebo group, only 14% of participants progressed to a full or nearly full recovery. This represents a 22% absolute increase in the portion of participants achieving a full or nearly full recovery, or also a 157% relative increase. In addition, subject deaths decreased from 24% in the placebo group to just 12% in the DM-19 group, a 12% absolute decrease in subject deaths. While these results are based upon a relatively small number of subjects, it is interesting to note that DM-19 results were based upon a 24-hour therapeutic window to first dosing. Compared to TPA, the current standard of care, which demonstrated an approximately 11% improvement in full or nearly full recoveries with an initial treatment window of three hours post-stroke at first approval. I would also note that Calicang, the human form of KLP-1 extracted from human urine, was approved in China based upon similar efficacy as our DM-109 results. Based on our estimates, Calicang has treated over half a million patients for acute ischemic stroke. Looking forward with our stroke program, we are currently developing a protocol for a proposed phase three study of DM-109 in the treatment of stroke. As part of this process, we have engaged a global consulting firm to provide an independent evaluation of our target product profile and proposed clinical endpoints, along with feedback from payers and neurologists. We also want to ensure that we are addressing the necessary economic endpoints to support product deployment and reimbursement of DM-19. We are currently finalizing a meeting request for a Type B meeting with the US FDA. This meeting request is expected to be submitted shortly, and if the FDA agrees, this meeting would likely take place this fall. I would now like to ask Scott Kellen to take us through the Q2 2020 financials.

Thank you, Rick. Good morning, everyone. As Rick mentioned, we did release our financial results for the second quarter of 2020 and filed the 10-Q yesterday after the markets closed. If you haven't had a chance to review those documents, they are both available on either the Diametico or the SEC websites. Our net loss for the second quarter of 2020 was $2.5 million, or 17 cents per share. Our net loss for the six months ended June 30, 2020 was $4.9 million or $0.36 per share. This compares to a net loss of $2.5 million or $0.21 per share for the second quarter of 2019 and a net loss for the six months ended June 30, 2019 of $5.7 million or $0.48 per share. Our research and development expenses decreased to $1.6 million for the three months ended June 30, 2020. Down from $1.9 million for the three months ended June 30, 2019, a decrease of $0.3 million. R&D expenses decreased to $3 million for the six months ended June 30, 2020, compared to $4.5 million for the six months ended June 30, 2019, a decrease of $1.5 million. The decrease for the six-month comparison was primarily due to nonrecurring costs of approximately $1.3 million incurred for a new production run of the DM-199 drug substance during the six months ended June 30, 2019, and the net decrease in year-over-year clinical study costs. The decrease in the clinical study costs was due to a combination of the decrease in costs incurred for the remedy stroke study, as it winds down in the current year, and non-recurring costs of the Phase 1b CKD study, which was started and completed in the first half of 2019. These decreases were partially offset by costs incurred for the Redux Phase 2 CKD study, which initiated late in 2019, as well as increased non-cash share-based compensation costs. Our general and administrative expenses were $1.1 million for the three months ended June 30, 2020, up from $867,000 for the three months ended June 30, 2019. G&A expenses increased to $2.1 million for the six months ended June 30, 2020, up $.4 million from $1.7 million for the six months ended June 30, 2019. The increase for the six-month comparison was primarily due to increased non-cash share-based compensation costs. Total other income decreased to $243,000 for the three months ended June 30, 2020, Down from $280,000 for the prior year period. Total other income decreased to $231,000 for the six months ended June 30, 2020, compared to $458,000 for the six months ended June 30, 2019. The decrease for the six month comparison is primarily related to reduced R&D incentives associated with decreased remedy stroke study costs during the six months ended June 30, 2020. partially offset by reduced foreign currency transaction losses. Turning to the balance sheet, we finished the second quarter of 2020 with cash, cash equivalents, and marketable securities of $11.8 million, current liabilities of 1.2 million, and working capital of 11.2 million. This compares to 7.9 million in cash, cash equivalents, and marketable securities, 1.3 million in current liabilities, and 7.5 million in working capital as of the end of 2019. The increases in the company's combined cash, cash equivalents and marketable securities and in our working capital are due to our February 2020 public offering of common shares. Further, on a pro forma basis, after giving effect to the public offering which closed on Monday, our cash, cash equivalents and marketable securities would be 32.9 million. So again, as Rick pointed out, this week we completed a public offering of common shares, raising gross proceeds of $23 million, with estimated net proceeds of $21.1 million. Our current capital position should allow us to complete all three cohorts in our Redux Phase II clinical study, initiate a Phase III study in acute ischemic stroke, and fund our planned operations for the next two years. Further, we continue to expect the impact of the delay in the REDUX study to affect the timing of costs incurred, but not cause a significant overall increase in costs as we are managing this study internally. However, we continue to assess the effect of the pandemic on our REDUX trial by monitoring the spread of the COVID-19 virus and the actions implemented to combat the virus, and we will continue to provide updates. Now let me turn the call back over to Rick.