Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics First 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 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 appears in the section entitled cautionary statement regarding forward-looking statements in the company's press release and under the heading Risk Factors and DiaMedica's recent filed annual report on Form 10-K.

DiaMedica's SEC filings are available at www.sec.gov and on its website at diamedica.com. Please note that any comments made on today's call speak only as of today, May 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 open the call up 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..

Thank you, Michelle. I'd like to welcome everyone to our quarterly earnings call for our quarter ended March 31. DiaMedica is developing DM199 for two important diseases with very significant unmet medical needs. That being chronic kidney disease and acute ischemic stroke.

Currently, there are very few limited options for these patients and doctors are mainly focused on treating symptoms. Yesterday we issued a press release with a business update and summary of our financial results for the quarter.

We also filed our quarterly reports on Form 10-Q, both of which can be found in the investor section of our website at www.diamedica.com. I'm joined today by our Chief Financial Officer, Scott Kellen. So first, we are pleased to bring you up to-date on our DM199 program for patients with chronic kidney disease.

In February this year, we began enrolling patients, in a Phase 1b clinical trial, which is being conducted at three sites in the U.S. This is an open label study being performed primarily to evaluate the pharmacokinetics of three dose levels of DM199 in patients with chronic kidney disease.

Just as a reminder in a study, DM199 is being administered in a single subcutaneous dose, and we're looking for 32 subjects with moderate or severe chronic kidney disease. Our endpoints include the standard safety and tolerability measurements.

In addition, we're also evaluating the changes in KLK1 levels, pharmacokinetics, pharmacodynamics and biomarkers of kidney function measured over a period of 10 days - 12 days.

And to reiterate the purpose of this study is to determine the dose level of DM199 required to restore normal KLK1 levels and understand whether there's any difference in a safety tolerability and pharmacokinetic profile in patients with chronic kidney disease as compared to our previous studies in healthy volunteers.

Knowing this will help us and our scientific advisors to identify the DM199 dose level or levels for use in our planned Phase 2 trials. And I'm very pleased to report that we are now near full enrollment, which is slightly ahead of our schedule and thus far, DM199 has been safe and well tolerated in this patient population.

We expect report top line clinical results in June of 2019. If you indulge us for a moment, let me talk briefly about DM199 as a treatment for chronic kidney disease. DM199 has the potential to offer important therapeutic benefits for chronic kidney disease patients. DM199 is recombinant, also referred to as a synthetic form of the KLK1 protein.

We believe the KLK1 protein plays a vital role in normal kidney function, by producing nitric oxide, prostacyclin and anti-inflammatory medias [ph], which are critical for kidney health and integrity. Nitric oxide and prostacyclin are key physiological regulators of vital systems, including both the kidneys and the brain.

These are two of the body's most critical hormones. In fact, discoveries of nitric oxide and prostacyclin have both been the basis of Nobel prizes in physiology and medicine. Several clinical studies have shown that patients with moderate to severe chronic kidney disease have low levels of KLK1.

Based upon our understanding of the mechanism of action for KLK1, we believe that people with moderate to severe chronic kidney disease also have low levels of bradykinin, nitric oxide and prostacyclin. And the deficit in these important enzymes contribute to the development and progression of chronic kidney disease.

Our goal is for DM199 therapy to replenish KLK1 levels and release physiological levels of bradykinin to when and where needed generating beneficial production of both nitric oxide and prostacyclin, which work together synergistically to protect kidneys from damage by increasing basal dilation, increasing the blood flow and lowering inflammation, lowering fibrosis and also oxidative stress, thus to ultimately position DM199 as a treatment option for patients with chronic kidney disease to improve renal blood flow and reduce renal injury.

You can learn more about our product for chronic kidney disease under our website under CKD, chronic kidney disease. With respect to the Phase 2 chronic kidney disease study, we're continuing with the planning for the study and expect to initiate this in the second half of 2019.

We will have further updates on the study including identifying the targeted causes of CKD to be studied in the coming weeks and we remain excited about DM199 potential to be an important treatment for patients with chronic kidney disease.

We're also excited to be formalizing what we believe will be recognized as a world class Scientific Advisory Board for chronic kidney disease. We plan to announce the group in the very near-term.

These advisors will assist us in selecting the targeted causes for chronic kidney disease to be studied in Phase 2, and guide us through our clinical developments. Turning our progress to stroke, we continue to enroll subjects in our REMEDY trial.

As you know this is a Phase 2 randomized double-blinded, placebo-controlled study, designed to assess the safety, tolerability and stroke markers of DM199 in subjects who have experience an acute ischemic stroke. We plan to enroll up to approximately 100 subjects and we are currently recruiting at 12 hospitals.

This study is in subjects within 24 hours after an acute ischemic stroke. We believe DM199 with its 24 hour treatment window, following an acute ischemic stroke could offer the first significant new treatment option for patient population where less than 10% have a treatment option today.

Current therapeutic treatments are limited to breaking up the clock with a drug called TPA or also trade name Activase, which must generally be administered within four hours after a stroke. Our study with DM199 is evaluating patient outcomes at 21 and 90 days following a stroke.

We're using the standard stroke measurements to investigate DM199's therapeutic potential.

Although we discussed this at the last call, I want to remind everybody of our manuscript titled, Human Tissue Kallikrein in the treatment of acute ischemic stroke that was published in a peer reviewed medical journal, Therapeutic Advances in Neurological Disorders.

This paper lays out the scientific literature covering the biochemical role of KLK1 and presents the mechanistic rationale for using KLK1 as an additional pharmaceutical treatment for patients with - whoever has experienced a kidney acute ischemic stroke.

It's a very good overview document for anyone interested in understanding how DM199 therapy can benefit stroke patients. Turning next to another important facet in the development of new pharmaceuticals is manufacturing and our ability to reliably produce the drug product.

We commenced production of a 250 liter batch of DM199 in the first quarter of 2019 and it is now complete. Previously, we've had produced 100 liters and 200 liter batches.

This successful completion of our current 250 meter run further demonstrates our technical abilities to consistently generate large quantities of high quality DM199 rapidly and efficiently to meet the needs of the development program and eventually the market. We're very pleased with our success in reliably producing multiple batches of DM199.

I cannot overstate enough the importance of having consistently and successfully completed now runs of a 100, 200 and 250 liters, which significant reduces another risk for us in the developments of DM199. Next, let me now highlight for DiaMedica efforts to broaden the exposure of DM199 in the medical and investment communities.

Last week, our Chief Medical Officer, Dr. Harry Alcorn was invited to present at the chronic kidney disease, drug development, also called CKD 3 Summit which was held in Boston. His presentation was entitled CKD, new therapeutic development, DM199 for chronic kidney disease.

This was our first introduction of DM199 for chronic kidney disease to a scientific conference focused on kidney disease.

On the investor front we recently presented at the Class Of 2018 Biotech IPO Investor Day, and we will BE presenting to institutional investors at the upcoming 16th Annual Craig Hallum Institutional Investor Conference later this month. We look forward to many more upcoming scientific and investor presentations.

I would like to thank all of our employee for their dedication to our company. Together with their hard work and commitment to change we have made significant progress and we're very optimistic on what the future holds. With that I will turn the call over to Scott to provide a summary of our financials for the first quarter 2019..

Thank you, Rick. Good morning, everybody. Yesterday, we reported our financial results for the first quarter of 2019. Our net loss for the first quarter was $3.4 million or $0.27 per share. This compared to a net loss of $650,000 or $0.10 per share for the same quarter in 2018.

Our research and development expenses increased to $2.6 million for Q1 of 2019, an increase of $1.8 million, up from $791,000 in 2018. This increase was due to a combination of factors. We incurred costs of approximately $1 million related to the initiation of the new production run of DM199 drug substance as mentioned by Rick.

In addition the cost of the phase 2-1b clinical study in chronic kidney disease subjects, the increased year-over-year cost for the REMEDY Phase 2 stroke study and other increased personnel costs made up the balance of this increase.

General and administrative expenses were $814,000 for the three months ended March 31, 2019, as compared to $515,000 in the first quarter of 2018.

This $299,000 increase was primarily driven by increased costs associated with the company's status as a NASDAQ-listed US public reporting company which commenced in December 2018 and therefore course didn't occur in the first quarter of 2018. Increased personnel costs also contributed to the increase in G&A.

Our other income for the first quarter of 2019 was a $170,000 net income. This is a decrease of $479,000 from the $657,000 net other income in the first quarter of 2018.

This decrease primarily related to the initial recognition of the R&D incentives from the Australian government recorded during the first three months of 2018, and that incentive covered all the activity of 2017 and the first quarter of 2018.

Now these incentives are those that are paid for qualifying research work performed by our subsidiary, DiaMedica Australia and related to the REMEDY Phase 2 stroke study. This decrease was partially offset by interest income earned on our investments in marketable securities during the first quarter of 2019.

As a result, as of March 31, 2019, we had cash and cash equivalents of $2.8 million, marketable securities of $11 million, which combined we expect to be sufficient to fund our operations through the end of 2020. And with that I'll turn you back over to Rick..

Thank you, Scott. We would like to open the call for questions. Operator if you can please introduce the first question..

[Operator Instructions] Our first question comes from Alex Novak of Craig Hallum. Your line is open..

Great. Good morning, everyone. Rick, glad to hear timelines are on track here for REMEDY and B [ph] schedule for kidney.

So, can you detail how the Phase 1B came together faster, a little bit faster than you were expecting? Was it just conservative timing on your part, or does this just show that there really is a lack of treatment options for CKD? And then on stroke, is it fair to assume that you'll be completing the enrollment here in September, or October this year with a readout for the last patient 90 days after that?.

Great. Thanks, Alex. Appreciate the questions. In terms of the enrollments, I think that really is a tribute to our clinical team. So this study was done internally. We did not use an external CRO, and so a lot of that has to do with relationships that Dr.

Alcorn and his team has, that has contributed to the smooth - I mean it's never smooth, smooth, but to the relatively smooth process. With regards to the stroke, we're still on track with our guidance of having a readout top line Q4 this year or Q1 in 2020..

Okay, that's great. And then Scott, the DiaMedica team has been managing the cash burn here very well.

Can you just detail how the burn, how do you expect the burn to increase for the second half of the year? I assume you're going to be ramping up spending due to the Phase 2 for kidney? And will the Phase 2 for kidney cost similar to the Phase 2 for stroke?.

Thanks, Alex. Let's see, three questions. The burn is going to cycle with the study progression. So obviously we had a great first quarter from an enrollment standpoint. It will have a little bit of a lull between the time the Phase 1b wraps up and the Phase 2 gets underway. The Phase 2 kidney I expect will be fairly steady for the balance of the year.

And then the big aberration was in Q1, we had to pay a significant part of the manufacturing costs for the manufacturing run of the DM199 drug substance..

Okay, that's helpful. And then just Rick, maybe expand a bit on the incremental efficacy data points you will learn from the Phase 1b. Obviously the primary outcome here is safety and dosing.

But do you anticipate seeing any of the efficacy metrics such as blood pressure, [indiscernible] that would support the conclusion that DM199 is working despite such a small treatment window here with the Phase 1b?.

Yeah, so this is a single dose measured over 12 days. So typically we would not anticipate to see any efficacy signals. We will be looking at some pharmacodynamics, we're looking at some markers to further validate the mechanism of action. And so we'll be more focused on that.

But most importantly, is really determining what dose DM199 can - what we believe restore the levels, depleted levels of KLK1, and then I'll give us comfort. So we don't want to give any guidance of anticipated efficacy after just a single dose..

Okay, understand, it obviously a very small treatment window there too. So and then just last question for me. Just any update on your partnership with Ahon? I think last time we talked, we were talking about the review papers, you were also planning on broadening the outreach to other large pharma companies.

So just curious how those efforts are ongoing there..

Yeah, so no change with Ahon. Our partner in China. They're currently going through the process of getting feedback from the Chinese FDA. And we anticipate that next milestone sometime this summer..

Okay, understood. Thank you..

Our next question comes from Carl Bozer [ph] of Dougherty and Company. Your line is open..

Hi, good morning.

Can you hear me, Okay?.

Yes, good morning, Carl..

All right, great.

Just following up on the Ahon agreement, as you think about this trial in China, that you're preparing for, how might that trial design differ from REMEDY? I mean, in particular, any sort of updates or learnings from the REMEDY trial that might be applied to the Chinese one?.

Yeah, that's a good question. So I mean, the one of the things that give us a lot of comfort with this program for the DM199 and KLK1 protein, is that I mean this, I would estimate over 100 clinical papers published showing the beneficial effects of the human urine form of KLK1.

We've done a series of enzymatic comparisons, a series of - we have done a human study to really getting the dosing right. So a lot of that kind of Phase 2 work of trying to determine, which patients to treat, how long, when to give the drug, how long to give the drug. We really feel we've got a very good handle based upon the existing uses in China.

And so ultimately, there's a number of aspects we will be looking for in the REMEDY trial to give us some further direction. But at this point, I mean, we think that the Phase 3 design for us around the world and also in China should be very similar to our Phase 2, just looking at more patients for the Phase 3..

Got it. That's helpful.

And then to the extent you can share, can you speak to the cadence in terms of the milestone payments related to the stroke indication in Asia? And in particular terms for unlocking that subsequent $27.5 million?.

Yes, so there's a combination. So there's a 4.5 million payments that is due this summer. And that's basically on approval to start a clinical trial in China. There's no efficacy markers..

Right..

And then beyond that, there's a series - for the $27 million additional, I mean, it's a series of both completion of our - so things - items like completion of our Phase 2 here that we're conducting in the West. The successful completion of the Phase 3, the first commercial sale in China, and then there's going to be a series of milestone payments.

And those will be basically based upon on hitting certain revenue numbers. And then of course addition to that they'll be royalty rates on sales..

Okay. Great. Thanks so much for the progress and update there..

Thanks Carl..

Our next question comes from Raghuram Selvaraju of H.C. Wainwright. Your line is open..

Good morning. This is Edward Marks on for Ram. Thanks for taking the questions. I just have a couple on CKD and then just a broader one on DM199. So in regards to CKD, just wondering, it looks like you're focusing on moderate to severe patients.

Just wondering why this is the focus patient population? And then I'm also wondering what sort of clinically meaningful impact you might be looking for in terms of kidney functions for patients with CKD?.

Yes, thanks for questions. So first, the - we're targeting moderate to severe. We think at this stage of the disease, there's still an opportunity to intervene. And we believe with the late stage, really very few compounds will help. I mean, after the damages has occurred, I think it'd be very difficult to restore repair the damage.

But also a big reason why we're targeting the mild to moderate is, as I talked about earlier on the stroke, the clinical experience in Asia. Now looking at the human use, the porcine form of the KLK1 protein in both Japan and China, most of the studies, almost all the studies are showing the clinical benefits. The greatest that the mild to moderate.

And so we really want to follow the clinical use. So instead of you relying solely on animal models of this stage of development, we feel much more comfortable having understood now the clinical use in Asia. In terms of clinical impact, so we're currently in the process of finalizing the causes of chronic kidney disease will be targeting.

We've got a very near-term meeting with our Scientific Advisory Board to really help us to nail down, which causes CKD that will be targeting and starting those studies in the second half of this year.

In terms of clinical impact, we just got back from the CKD3 conference and really the big endpoint that the FDA is looking for is urinary albumin creatinine rate and some of the clinical efficacy now of the porcine formula KLK1 protein over three months showing 50% plus improvement over six months as high as 80%.

But over a three month period, if we can get greater than 30% I think that would be very encouraging for us..

Excellent. Thank you.

And then on a broader level it looks like you're progressing very well with CKG and stroke but just looking at the MOA of modulating nitric oxide and prostacyclin, I'm wondering if there are any other disease areas that you either been focusing on or things might be a good future focus?.

Yeah, that's a great question. So the exciting aspect of this protein as we believe that the KLK1 protein can increase nitric oxide and prostacyclin whenever it's needed and really doing that in a synergistic manner. So really we've been preparing a critical function. There are obviously a number of very important other disease we could be targeting.

At this point we really want to be focused on these two indications and then as we get some progress made a little bit of time we'll look at expanding but I think we got very, very strong plans here, to make sure the focus remains on these two diseases while we can quietly in the background doing a little bit of work, but really the focus has been - is really on stroke and kidney disease at this point in time.

And then as we get positive clinical data readouts we can then look at expanding the therapeutic uses of this protein..

Right, okay, well, thank you. I appreciate you taking the questions..

Our next question comes from Thomas Flaten of Lake Street Capital. Your line is open..

Good morning. Thanks for taking my question. Just a couple of quick follow ups.

On the Phase 2 for CKD is there any need to have an FDA interaction prior to kicking off the Phase 2?.

So we did have an in person meeting with the FDA about a year ago, and we will be submitting an application. At this point here we don't we don't believe necessary we will need an in person meeting. We attempted to answer all of their questions from the meeting from our last filing..

And then on the manufacturing scale up, can you give us a sense of the 250 liters how many doses how many patients do you have a metric like that and then how do that scale compare to what you might need from a commercial perspective assuming success across both stroke and kidney disease?.

Thanks, Tom. Yeah, so we haven't disclosed the breakdown in some of the costs involved. I mean I will say a single 250 liter run will provide hundreds of thousands of doses but we haven't specifically broken that out.

We anticipate for product launch I mean we could likely we'll be looking at a thousand liter runs would be the next run for commercialization. Although you can do some simple math here, even a couple of 250 meter runs will be enough to get started.

We're very optimistic on the prospects here so I think ultimately we'd probably looking at several thousand liter runs. The nice aspect here is that now this is the third decent side scale we've been able to produce so the 100 to 200 liter, now the 250 liter and we're seeing a great deal of consistency.

So I think one of the risky aspects of this drug development program are any is can you consistently manufacture. So we have a lot of comfort here being able to do that now. With multiple runs and each run we learn a little bit more and things that we can do better on the next run.

And so we feel very, very confident here now moving forward and this current cash flow will provide us clearly through Phase 3..

All right that's great. Then just back to the manufacturing run. So I just want to confirm so the million dollarish that was in the 1Q spend related to that.

Will that be entirety of the payment or are we expecting some of that to spill over into Q2 or I'm just trying to get a sense of what should baseline R&D spending without that I don't want to call it one time item but for lack of a better term, let's call that..

Tom this is Scott. It's a significant portion of it, there will be spill over but in production runs like this they want the bulk of it upfront and then the balance due on delivery.

Yeah, so I think if you think if it is the bulk that's in Q1 there will be some spill in to Q2 and then when we get to the ongoing stability work, maintaining the batch overtime that's just part of the background R&D spend..

I'll just add to that the expenses on this for manufacturing is consistent with we had budgeted end of 2018..

Got it. Thanks so much. Appreciate it..

Thanks Thomas..

There are no further questions. I'd like to turn back over to Rick Pauls for any closing remarks..

All right. Well, thank you everyone for joining us this morning. I'd like to thank our shareholders and analysts for your continued support of DiaMedica and also employees for the hard work and innovation. We look forward to speaking to you again soon reporting on our progress.

We appreciate your interest and continued support and this concludes our call. Thank you very much..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..