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spk01: Good morning, ladies and gentlemen, and welcome to the Diametica Therapeutics third quarter 2020 conference call. An audio recording of the webcast will be available shortly after the call today on Diametica's website at www.diametica.com in the investor and media 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 Diomedica's previously filed annual report on Form 10-K and subsequent quarterly report on Form 10-Q for the quarterly period ended September 30, 2020. 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, November 5th, 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 to questions. To ask a question during this session, please press star 1 on your telephone. I would now like to introduce your host for today's call, Rick Pauls, DiMedica's President and Chief Executive Officer. Mr. Pauls, you may begin.
spk06: Thank you, Laura. Good morning, everyone. We hope you are all doing well and staying safe. And I'd like to welcome you to our third quarter 2020 business update call. We issued a press release with a business update in summary of our financial results for the third quarter 2020 yesterday after the market closed. At that time, we also filed our quarterly report on Form 10Q. Both documents can be found in the Investors and Media section of our website at diamedica.com. I'm joined this morning by our Chief Financial Officer, Scott Kellan, and our Chief Medical Officer, Dr. Harry Elkhorn. Let me begin with an update on our REDUX trial in which we are studying DM-19 for the treatment of chronic kidney disease or CKD. REDUX is a phase two multi-center open label investigation targeting 90 participants with CKD enrolled in three cohorts with 30 participants per cohort. Cohort one of the study is focused on non-diabetic hypertensive African Americans with stage two or three CKD and albinuria. which is at greater risk for CKD than Caucasians. We also note that for African Americans who have the APOL1 gene mutation, the risk for developing CKD is even higher. Therefore, in our study, we are testing for the APOL1 gene mutation as an exploratory biomarker. Cohort 2 is enrolling participants with IgA nephropathy. Cohort 3 is focused on participants with type 2 diabetes with hypertension and albinuria. We initiated cohort three in DKD participants in August based in part upon some exciting data from our remedy phase two stroke study completed earlier this year, specifically in a post-hoc analysis of a subset of participants considered to have diabetic kidney disease at enrollment. DKD was defined as having an estimated glomerular filtration rate, or EGFR, below 90 ml and glucose above 7 millimole. Those subjects treated with DMY-9 experienced a statistically significant 12.7 ml mean improvement in EGFR versus placebo during the 22-day treatment period. In addition, the DMA9-treated group experienced a two-millimole mean reduction in blood glucose levels. We also noted that the DMA9 group demonstrated a retained EGFR benefit of 8.8 mLs mean improvement at day 56. which was 34 days off drug. We think this is a very interesting signal for a potential retained EGFR benefit, which could make DM-19 completely unique in the field of chronic kidney disease and DKD therapeutics, with the potential to significantly improve patient conditions. The second reason we are evaluating participants with DKD has to do with the potential new regulatory perspective for registration studies in the U.S. and Europe. Earlier this year, the National Kidney Foundation led in the publishing of a special report based upon a scientific workshop collaboration conducted over the last few years by the National Kidney Foundation with the FDA, the EMA, and industry. The report suggested that regulators use surrogate endpoints such as early changes in albinuria and or reductions in the rate of GFR decline as a basis for conditional approval in clinical trials for CKD. If these new metrics are allowed, it could greatly reduce the clinical burden, which would reduce the time required to getting a treatment like DM-189 to patients in need of new therapies, and further increase the interest of pharmaceutical companies in this space. Before I continue, just a quick reminder, participants in the REDUX-CKD study are will receive DM-49 for approximately 13 weeks at two dose levels. The primary efficacy endpoints for the overall study are improvements in albinuria and EGFR. Secondary endpoints include evaluating the potential for DM-49 to positively impact the underlying disease. As we reported yesterday, at the end of last week, October 30th, We have enrolled a total of 49 subjects, up from 18 subjects as of August 5th. Breaking this down, we have enrolled 11 subjects in Cohort 1, 13 subjects in Cohort 2, and 25 subjects in Cohort 3. Obviously, we're very happy that enrollment is nearly complete in the diabetic kidney disease cohort. This rapid enrollment is a function of a large patient population that matches the enrollment criteria for diabetic kidney disease. We believe that enrollment for our DKD cohorts will complete by the end of the year and top line results will be available in the first half of 2021. In cohorts one and two, where enrollment has continued at a much slower than expected pace, note that the feedback we're receiving from our study sites is that potential subjects are still hesitant to enter the study. Many of these individuals are considered to have comprised immune systems, which makes COVID a greater risk. We believe that these concerns have likely been heightened with the recent surge reported of COVID infections and infection rates. And in some cases, the uptick in infection rates has also resulted in a reduction or suspension of activities at some of our study sites. While we anticipate that the COVID pandemic will likely continue to adversely affect our ability to recruit or enroll subjects in Cohort 1 and 2, we are taking actions to improve the situation. We've recently added two study sites and are working with existing sites to expand the referral network. We also continue to evaluate additional sites to further expand recruitment. Turning to our stroke program, we're very pleased to announce that the FDA has accepted our request for a Type B pre-IND meeting to review our accumulated clinical and non-clinical data, our proposed clinical study design, and certain other regulatory questions. The FDA did not put any qualifications on their acceptance and has opted to provide written responses to us by early December. We believe that we have a solid foundation with the non-clinical and clinical data that we've generated to date. And of course, our belief is supported by the extensive use of efficacy of approved KLK1 products derived from human urine and porcine pancreas in Japan, China, and Korea. As part of our meeting request, we've asked the agency a number of questions to clarify the requirements for moving forward with the clinical development of DM-109 for acute ischemic stroke, or AIS. These include, among other things, the adequacy of our non-clinical work performed to date, and remaining planned non-clinical work, and ultimately whether they agree that our current accumulated data supports moving into an inter-seamless phase two, three adoptive study. In addition, we asked about timing to apply for fast track and breakthrough designation. Our goal is to conduct a well-controlled study, which can be used to support an application for commercial approval. We believe that our proposed phase two, three adaptive study design can accomplish this goal. With adaptive design upon completion of the interim analysis of the study, while Diomedica will remain blinded to the study results, the data monitoring committee would review the results to determine whether the study should continue as planned or the sample size should be adjusted to ensure a statistical significant outcome is reached in the study. We look forward to updating everyone after we receive the FDA's feedback in the coming weeks. We remain optimistic about DMR9's therapeutic potential for patients suffering from acute ischemic stroke. In our Remedy Phase 2 study in the non-mechanical thrombectomy cohort, there was a 22% absolute increase or 2.5 times improvement in the number of patients who achieved an excellent outcome compared to placebo. This was based on the NIHSS score of 0 to 1. Keep in mind the importance of this. An NIH score excellent outcome of 01 means that you're able to live independently, don't need help to dress, eat, or bathe. For our Phase 2-3 study, we have proposed excluding patients with large vessel occlusions and those pretreated with mechanical thrombectomy and TPA. We believe D-109 and its 24-hour treatment window may represent an effective and safe treatment option for the 80% to 90% of AIS patients that are currently ineligible to receive TPA and or mechanical thrombectomy and for whom the only alternative is supportive care. For perspective, the clot buster TPA was initially approved with a three-hour treatment window and an 11% absolute improvement in excellent outcomes based on the NIHS score of 01. Now turning to our recently completed public offering, on August 10th of this year, we completed a public underwritten offering of $23 million in gross proceeds, with net proceeds just over $21 million. We intend to use the proceeds for the recently added DKD cohort to our REDIX trial to continue our clinical development of DM-19 in AIS and for other working capital and general corporate purposes. I'd also like to highlight that Guggenheim Securities, which was the lead book runner managing for this offering, were pleased to share that the analyst coverage was recently initiated by Edsard Darrell. I'd now like to ask Scott Kellan to take us through the Q3 2020 financials.
spk03: Thank you, Rick, and good morning, everyone. As Rick mentioned, we did release the financial results for the third quarter and filed our 10-Q yesterday afternoon. And if you haven't had a chance to review these documents, they are both available on either our website or the SEC's website. Our net loss for the third quarter of 2020 was $3.2 million, or 19 cents per share. Our net loss for the nine months ended September 30, 2020 was $8.1 million or $0.55 per share. This compares to a net loss of $2.4 million or $0.20 per share for the third quarter of 2019 and a net loss for the nine months ended September 30, 2019 of $8.2 million or $0.68 per share. Now within that, our research and development expenses increased to $2.2 million for the three months ended September 30, 2020, which is up from $1.6 million for the three months ended September 30, 2019, an increase of $0.6 million, which was due primarily to the costs incurred in connection with the REDUX trial, including the recent launching of the DKD cohort. Now for the nine months ended September 30, 2020, our research expenses decreased to $5.2 million, down $.9 million from the $6.1 million for the nine months ended September 30, 2019. The decrease for the nine-month period was primarily due to non-recurring costs of approximately $1.3 million incurred for the new production run of the DM-199 drug substance during the nine months ended September 2019. and a net decrease in the year-over-year clinical study costs. Now, the decrease in the clinical study costs was due to a combination of the decrease in the costs incurred for the remedy stroke study, as it completed and wound down here in 2020, and the non-recurring costs of the Phase 1b CKD study, which started and completed in the prior year period. Now, these decreases were partially offset by the costs incurred for the REDUX trial, which initiated late in 2019, and increased manufacturing development costs and increased non-cash share-based compensation costs. Our general and administrative expenses were $1.1 million for the three months ended September 30, 2020, up from $1.0 million for the three months ended September 30, 2019. G&A expenses increased to $3.2 million for the nine months ended September 2020, which is up $.5 million from the $2.7 million for the nine months ended September 2019. The increase for the nine-month comparison was primarily due to increased non-cash share-based compensation costs and increased professional service costs. Total other income decreased to $128,000 for the three months ended September 30, 2020 down from $225,000 for the prior year period. Total other income decreased to $359,000 for the nine months ended September 30, 2020 compared to $683,000 for the nine months ended September 30, 2019. The decrease for the nine-month period is primarily related to the reduced R&D incentives associated with a decreased remedy stroke study costs during the current year period, which is partially offset by foreign currency transaction gains recognized during the current year. Next, turning to the balance sheet, we finished the third quarter of 2020 with cash and marketable securities of $30.6 million, current liabilities of $1.4 million, and working capital of $29.7 million. This compares to $7.9 million in cash 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 and marketable securities and in our working capital were due to our February and August 2020 public offerings of common shares. In August, we completed a public offering, which Rick discussed. Also in February of this year, we completed a public offering of common shares, which raised gross proceeds of $8.5 million and net proceeds of $7.7 million. Our current capital position should allow us to complete all three cohorts of our Redux Phase II clinical study, which includes the DKD cohort initiated here in August, Additionally, we will be able to initiate our Phase III study in acute ischemic stroke and fund our planned operations for the next two years. We continue to expect the impact of the delay in the Redux study enrollment to affect the timing of the costs incurred, but not to cause a significant overall increase in costs as, again, we're managing this study internally. However, we'll continue to assess the effect of the pandemic on the Redux trial by monitoring the spread of the virus and the actions implemented by local authorities to combat the virus, and we will continue to provide updates. Now, let me turn the call back over to Rick. Thank you, Scott.
spk06: We'd like to open the call for questions. Operator, if you could please introduce the first analyst.
spk01: Yes, sir. And as a reminder, to ask your question, you'll need to press star 1 on your telephone. Our first question comes from Alex Nowak of Craig Callum Capital.
spk05: Great. Good morning, everyone. You know, I appreciate all the comments on the differences in enrollment with IGA African-Americans and types of diabetics. You know, other than opening up more sites, what else can be done to improve enrollment in that group if they're just unwilling to come in given the coronavirus? Harry, can you comment on that please?
spk02: Sure. Good morning. Harry Alcorn here. So we're working with the sites in regards to how the messaging is occurring from the physician at the clinical trial site to these patients to see if there is willingness for them to have a nurse physically come to their home. Or what are the primary concerns to see if we can overcome their, I would say, objections for wanting to screen for our study? As you know, these patients are limited and they're pocketed throughout the country. And so the sites that we have selected are clearly the right sites, as we've seen with the third cohort with DKD. And so along with messaging, along with networking with their primary care physician, we have added the two new sites, as we talked about earlier from Rick and Scott. And then we're asking the physicians at the sites what additional streams of networking they would recommend as well.
spk05: And, Harry, it sounds like part of the issue is not necessarily getting the patient to come in for the first visit to do the enrollment. It's actually the willingness to have a nurse come into the home. Is that fair? And maybe a second question is that is there any interest or ability to move the actual enrollment steps to the home so everything's done there?
spk02: we actually can do that now we have that capability and it's the concern that the patients have not for that first screen visitor let's say enrolling in the study is the ongoing three months of participation and with the nurses coming in the nurses are seeing other patients as well there's a perception there that they may be at risk for receiving treatment from a nurse that may be exposed to somebody else that had COVID. So we're trying to work through that from a messaging perspective and show them that we do have procedures in place to minimize their level of risk. Sure.
spk05: No, I understood. Given the rate of enrollment for the type two diabetes cohort, would you expand that size just given the very fast pace of enrollment instead of doing 30 patients look at 60 patients?
spk06: Right now, 30 patients is the study size that we feel very comfortable with, and we're also anxious to get top-line data out to the street.
spk05: Okay, that's great.
spk01: Can you speak to any conversation?
spk02: Yeah, Harry, go ahead. I'm sorry. We also added feeder sites. So like in the Florida area, specifically in Orlando, we have physicians that have network with one another and specifically primary care physicians that have these potential patients that if they do feel that they potentially could screen, they're being referred on to our clinical trial sites. Now, that's also a new strategy that we put in place in the last month.
spk05: Okay, got it. Very helpful. And then any update on conversations you're having with finding a partner on stroke? And my guess is they're probably going to want to wait to hear from FDA before signing anything. But just any update on the partnering conversations there on stroke?
spk06: Yeah, so we've been having some ongoing conversations both – global and also specifically for regional in China and Japan. At this point here, we're literally months away here now, I'd say, from top line results for CKD. And so we really want to wait and be in a position so that when that data comes out, we can be in a great position to looking at partners for both indications individually or together.
spk05: That's great. And then just two more questions. On the FDA meeting, just to confirm, is the FDA meeting on December 4th or you're expecting to hear back written comments by December 4th? And if the agency does decide to issue a breakthrough designation or a fast track designation, when would we expect to hear that?
spk06: So the guidance is that we'll get written responses by December 4th. And part of those questions that we have for them is timing on submitting breakthrough and fast track and related designations. So that would then be something we would look at filing, you know, shortly thereafter.
spk05: Okay, understood. And then on your prepared remarks, you mentioned the phase two and three-stroke study design. But did I hear you say that you will seek the label that excludes TPA as well plus mechanical thrombectomy? And if so, I'm just curious why the TPA exclusion, just because it looks, you know, when you did include TPA and DM-199 in your phase two, the data actually looked pretty good. Maybe I misheard you there.
spk06: Yeah, so ultimately we think DM-19 could be effective with or without TPA. But for the registration studies, what we feel now is having a very clean trial study so that we'll exclude the TPA along with the mechanical thrombectomy and also those patients with large vessel occlusions. So it's something from an initial label we plan to exclude TPA, but we could look at adding that at a later date. You know, as we had in the prepared remarks, I mean, ultimately, you know, 80% to 90% of patients are not receiving TPA or mechanical thrombectomy, and so we want to just have a very focused, targeted trial design.
spk05: Okay, I hope that makes sense. Well, I appreciate the update. Thank you.
spk01: Our next question is from Edsir Daraut of Guggenheim.
spk07: Great. Thanks for taking the question. It sounds like the issue is for IgA nephropathy and hypertensive African-Americans is not site-specific and more around sort of patient risks or maybe a lack of diagnosis due to COVID. Are you seeing similar enrollment issues across other IgA nephropathy trials and maybe what you've been able to kind of take away from those? And then I have a follow-up question.
spk02: Sure. Harry? Yeah. Sure, good question. The sites that we have for the IGA nephropathy cohort are sites that also have done other protocols and in our conversations with them, it is across the board. They're having the same issues for all their protocols, all their studies, specifically in these niche populations. It's been very difficult.
spk07: Great. Thanks for that. And, you know, overall, I guess given sort of the KLK-1 sort of rationale for DM-199, And I guess how much read-through do you see sort of on a positive DKD study to, you know, the IgA nephropathy and African American hypertensives? How much more confidence do you get in that mechanisms from that DKD trial, given that it's going to read out first and sort of the overall hypothesis here for the low KLK1 levels?
spk06: Yeah, I think it will be strong. You know, we feel that, you know, DME9, KLK1 will be effective really for all forms of chronic kidney disease. The rationale for the study design, you know, with the three cohorts now is, you know, give us an opportunity to look at the different groups and, you know, determine where do we see the, you know, ideally the greatest clinical effect. And then what our plan then is taking, you know, the clinical data and, in the context of the clinical path for each of the causes to then very quickly decide on which of the three cohorts will move forward into the late stage clinical studies.
spk07: Great. Thanks and congrats on the progress. Thank you.
spk01: Our next question is from Thomas Flaten of Lake Street Capital.
spk04: Hey, good morning guys. Thanks for taking the question. Just a couple, and just to follow up on the earlier question about the FDA meeting. So just to confirm, have you met with FDA or is that still to be, is that still a to be completed item?
spk06: So we sent in a formal request with questions to the FDA here going back a number of weeks ago. And they responded with a, you know, accepting the meeting request. and asked for us to send them the questions and that they would provide a formal response in writing to us by early December.
spk04: And so is there an expectation that there will be a formal meeting following that or is the written response a surrogate for actually meeting with them?
spk06: That's right. Okay. And then if there are any follow-ups, then we'll look at a discussion based upon that.
spk04: Got it. And then can you just remind us what discussions, if any, have you had with FDA around APOL-1 as a biomarker?
spk06: We have not had a discussion yet about APOL-1. It's something that we want to have some data in hand. And so ideally, you know, first part of next year sometime we'll be in a position to talk to the FDA with actual some data in hand. So we want to get that data first.
spk04: Got it. Appreciate it. Thank you.
spk01: Thank you. And we have no further questions at this time.
spk06: Thank you, everybody. We appreciate your time, and we hope everybody stays well and safe, and we look forward to keeping you updated with our progress.
spk01: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
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