DiaMedica Therapeutics Inc.

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.

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.

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.