Good morning, ladies and gentlemen, and welcome to DiaMedica Therapeutics' Third 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 actual 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 appear in the section entitled cautionary statements regarding forward-looking statements in the company's press release 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 note that any comments made on today's call speak only as of today, November 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 be open 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..

African American participants that are hypertensive but not diabetic, and participants with IgA nephropathy. We have named this trial REDUX, which is Latin for restore or restoration, an appropriate name for a clinical trial assessing DM199's potential to restore the normal levels of tissue kallikrein or also called KLK1 protein.

Second, as we announced, we've already begun screening patients for REDUX. We have six sites that are currently active, and plan on engaging up to 10 sites. We've also completed enrollments in our Phase 2 remedy trial in acute ischemic stroke with a total of 92 participants.

And lastly, we brought on Doctor Syd Gilman as Vice President of Regulatory Affairs. Syd has been consulting with us for the past six months and was instrumental in directing and preparing our Phase 2 protocol submission to the FDA for the REDUX trial, and we're thrilled to have him join us with this important role.

I will touch on these points in more detail in a moment, but overall, we are very pleased with the progress of our clinical programs and we believe that we have a solid team and foundation in place to drive significant long-term shareholder value. DiaMedica is quickly approaching a clinical inflexion point.

We anticipate reporting top line results for three Phase 2 clinical trials in the first of half of 2020.

In Q1 of 2020, we anticipate reporting interim top line results for African Americans with hypertension and chronic kidney disease, which will be the first clinical readout for CKD, and preliminary top line results for our remedy study in acute ischemic stroke.

IgA nephropathy is a rare disease affecting approximately 140,000 individuals in the U.S., and we expect enrollment to occur more slowly in this cohort than in the African American cohort. Enrollment of the IgA nephropathy cohort will likely be at a pacing item, which will drive the completion and final report of the Phase 2 CKD study.

We will provide updates along the way. We also want to reiterate that we believe we also have the necessary capital to completes these three Phase 2 trials and fund our operations into Q4 2020. Now let me talk a bit more about our progress in chronic kidney disease. We believe DM199 represents a potential breakthrough therapy for CKD.

What is unique about DM199 as compared to other therapies currently in development is that we believe the mechanism of action for DM199 has the potential to improve both eGFR in the kidneys and albuminuria, an indicator of the kidney damage, and to measure of the kidney's ability to filter.

In our Phase 1B CKD study, we saw early signals supporting our understanding of this mechanism. Specifically, we observed drug-related, short-term positive movements in both eGFR and albuminuria. We also recently conducted a thorough review of the clinical studies using porcelain-derived KLK1 to treat CKD.

A table summarizing the studies and the results can be found in our corporate presentation, which is available on our website. In each study, the reported eGFR and the albuminuria results were positive, with treatment duration ranging from one to six months.

We'd also point out that these studies measured albuminuria more frequently than eGFR, which is an interesting focus and perhaps consistent with the FDA's recent interest in albuminuria as a surrogate endpoint for evaluating the efficacy of kidney therapies.

The data from these porcelain-derived KLK1 studies, which were primarily focused in Asia, is consistent with our observations of short-term functional improvements during our Phase 1B study.

We believe that this data provides a strong clinical proven principle for DM199, and we believe following both eGFR and albuminuria will be important for patients suffering from chronic kidney disease and clinical developments. As we noted yesterday, we intend to release the full Phase1B results at an upcoming conference and journal publication.

Those results will include a detailed analysis breaking out results for patients with moderate versus severe chronic kidney disease, as well as the results by dose levels. We're excited to report that we have started screening patients in our Phase 2 REDUX CKD study.

Our clinical team has done a fantastic job over the past few months working with study sites and supporting vendors and labs to prepare for enrollment. As a reminder, the REDUX study will enroll two cohorts of CKD participants.

The first cohort is focused on African American participants with hypertension but not diabetes, and the second cohort is focusing on participants with IG nephropathy, previously confirmed by biopsy. Our enrollment target is 30 participants per cohort for a total 60 chronic kidney disease participants in the REDUX clinical trial.

Participants will be treated for approximately 13 weeks at a dose level of either three or five micrograms per KG, administered subcutaneously twice per week. The primary endpoints will be both eGFR and albuminuria, along with standard safety and tolerability markers.

As I indicated, we believe DM199 represents a new approach for the treatment of chronic kidney disease. Studies have shown that individuals with CKD often have low levels of the KLK1 protein in their bodies.

We believe that by using DM199 to restore levels of the KLK1 protein, the body's natural ability to regulate and achieve stable blood flow or homeostasis may be restored.

With respect to CKD patients, we believe DM199 protein replacement therapy may improve renal blood flow to dilation throughout the kidneys, including the afferent and efferent arterials, the glomerulus and the peritubular capillaries.

This would allow blood flow to improve without the potentially damaging effects from increasing blood pressure, and avoiding the potential risk of hyperfiltration.

We also believe that restoring KLK1 levels may reduce renal inflammation, fibrosis and oxidative stress, and may maintain or ideally restore the kidney's ability to filter wastewater from the blood. These potential benefits would apply to CKD sufferers resulting from many causes, and by themselves can be a valuable tool for nephrologists.

In addition, remember that the KLK1 protein is a serine protease, which we believe impacts a variety of processes within the body.

Because of this, we believe the DM199 may provide additional benefits to patients with IGA nephropathy and hypertense of African Americans, which is why we selected these two patient groups to work with in the REDUX trial.

For individuals with IG nephropathy, the IGA cells mutate and migrate to the kidneys, where they cause inflammation and damage to the glomerulus, the kidney's filter. We have conducted pre-clinical studies that show DM199 increases Tregs and beta cells.

Increasing Tregs and beta cells may slow or even halt the IGA autoimmune attack against the glomerulus. For African Americans with hypertension, we read research indicating that KLK1 produces an important signaling molecule, which regulates the epithelial sodium channel, also known as ENaC, which maintains the balance of sodium levels in the body.

Salt-sensitive patients experience disproportionate increases in blood pressure when they consume high sodium foods, due to the breakdown in ENaC channel, causing the retention of excess sodium. Research studies have shown that over 70% of hypertensive African Americans are salt sensitive.

When sodium levels are high, bradykinin derived from KLK1 promotes the excretion of sodium and water into [Technical Difficulty] the ENaC channel to close.

If an individual's bradykinin and KLK1 levels are low, proper authorization of the ENaC channel may be adversely impacted, resulting in elevated levels of sodium in the blood stream, and as a result, hypertension.

It is also worth noting that studies have shown that African Americans tend to exhibit lower levels of urinary KLK1 compared to Caucasians, which may help to explain why African Americans suffer more greatly from heightened salt sensitivity, hypertension and also chronic kidney disease.

Lastly, we want to touch on APOL1 exploratory biomarker we are examining in the African American cohort. It is estimated that between 11% to 13% of African Americans carry the genetic variance of APOL1 alias.

African Americans with these APOL1 alias are at twice the risk of developing end stage renal disease than African Americans without the APOL1 alias. Given the additional risk for such individuals, we believe that tracking APOL1 is an important exploratory biomarker to examine as we evaluate the results from the study.

Turning now to acute ischemic stroke. We're also excited to announce that we have recently closed enrollment in REMEDY, our Phase 2 study assessing the safety, tolerability and markers of therapeutic efficacy of DM199 in patients suffering from acute ischemic stroke. Final enrollment in REMEDY was 92 participants.

We want to sincerely thank the study participants, the clinical trials sites for their support and dedication to the study. Stroke is a devastating condition, and current treatment options are very limited.

According to the Centers of Disease Control, worldwide, stroke is an important cause of adult disability and the second leading cause of death in developed countries. Stroke patients are currently benefiting greatly from urinary KLK1 derived treatments in China.

Our goal is to demonstrate a similar or greater impact, and if successful, bring a recombinant, also called synthetic, version of the KLK1 protein to the West and for worldwide use.

In REMEDY, DM199 or placebo was administered as an intravenous infusion within 24 hours of stroke symptoms on set, followed by subcutaneous injection later that day and once every three days for 21 days thereafter.

The study was designed to measure safety and tolerability, along with multiple tests designed to investigate DM199's therapeutic potential, including plasma-based biomarkers and standard functional stroke measures assessed at 90 days post stroke.

These stroke measurements include the modified Rankin scale, the National Institute of Health stroke scale, the Barthel index and C-reactive protein, a measure of inflammation.

The REMEDY trial design was based in part on the design of the multi-center, randomized, double-blinded, placebo-controlled Phase 3 trial with [indiscernible] in China, in which 466 acute ischemic stroke patients were treated with either urinary derived KLK1 or placebo.

The results of this study showed a significant improvement in stroke patients and was used for regulatory approval. However, there are two important distinctions in the REMEDY trial that we'd like to highlight. First, in REMEDY, the initial treatment was required to occur within 24 hours of a stroke.

This compares to 48 hours in the Phase 3 study using the urine-derived KLK1 protein named kallikrein. Based upon our research into the urinary-derived KLK1, we believe that earlier intervention is important in order to improve microcirculation and deliver oxygen to ischemic tissue before more permanent damage occurs.

Second, the urine-derived KLK1 protein needs to be delivered by IV infusion, whereas DM199 can be delivered both intravenously and subcutaneously. We believe initial delivery by IV is important to rapidly increase KLK1 levels in the bloodstream; however, with IV infusion, KLK1 levels in the blood also drop rapidly when the IV is stopped.

Our bridging clinical trial showed that subcutaneous administration resulted in sustained levels of KLK1 in the bloodstream over an extended period of time, which we believe could allow for superior outcomes.

With these two changes, we believe that we have further optimized the KLK1 pharma kinetics, and this may translate into improved outcomes for acute ischemic stroke patients and we look forward to reporting preliminary top line results in Q1 2020.

As we progress in our clinical programs, our need for knowledgeable and experienced regulatory affairs person has been more important. Over the past six months, we have been working with an outstanding person on a consultancy basis. We are pleased to welcome that person, Dr.

Syd Gilman, to a more formal role on our team with appointment as our Vice President of Regulatory Affairs. As a consultant, Dr. Gilman has been instrumental in helping us complete our Phase 1B study report and preparing for our Phase 2 CKD study. Dr.

Gilman also worked with several pharmaceutical and biotech companies, where he was involved in early stages to clinical approval for multiple products. Dr. Gilman also spent six years at the FDA and over 30 years in the pharmaceutical industry. We also recently announced the resignation of Todd Verdoorn, our CSO.

Todd has been an important part in getting us to where we are, and we want to take this time to thank him for his many contributions. With that, I'll now turn the call over to Scott to provide a summary of our financials for the third quarter of 2019..

Thank you, Rick. Good morning, everyone. And as Rick mentioned, we filed the financials yesterday and issued the earnings release. And I hope you've had a chance to review those documents.

Our net loss for the third quarter of 2019 was $2.4 million, or $0.20 per share, and our net loss for the nine months ended September 30, 2019 was $8.2 million or $0.68 per share.

These compare to a net loss of $1.4 million or $0.18 per share for the third quarter of 2018, and a net loss of $3.8 million or $0.51 per share for the nine-month period ended September 30, 2018.

Within these figures, our research and development expenses increased to $1.6 million for the third quarter of 2019, which was up from $1.2 million from the third quarter of 2018, an increase of $400,000.

Our R&D expenses increased to $6.1 million for the nine months ended September 30, which compared to $3.1 million for the same period in 2018, for an increase of $3 million. The increase for the nine-month period ended September 30, 2019 was due to a combination of factors.

We incurred cost of approximately $1.4 million for the production of a new run of the DM199 drug substance, as well as all the costs we incurred in conjunction with completing the Phase 1B and starting the Phase 2 CKD studies this year. Increased personnel and non-cash share-based compensation costs also contributed to these increases.

The increase for the three months ended September 30 in particular was due to the cost incurred in conjunction with the Phase 1B and start-up of the Phase 2 CKD studies, and non-cash share-based compensation costs. These were partially offset by a decline in the costs incurred for the remedy study on a quarter-over-quarter basis.

Our general administrative expenses were $1 million for the three months ended September 30, 2019, and this compared to $777,000 for the three months ended September 30, 2018. G&A expenses increased to $2.7 million for the nine months ended September 30, 2019, which was up from $2.1 million for the same period in 2018.

Now these increases were primarily due to the costs associated with our status as a NASDAQ listed U.S. reporting company, which commenced back in December of 2018 and includes increased professional services costs, compliance cost, non-cash share-based compensation costs, and also increased personnel cost for administrative organization.

Our total other income increased to $225,000 for the three months ended September 30, 2019, which was up from $157,000 for the prior year period. Our total other income decreased to $683,000 for the nine months ended September 30, 2019, and this compared to $946,000 for the nine months ended September 30, 2018.

The year-to-date decrease is primarily related to the initial recognition of the R&D incentives from the Australian government, paid for the qualifying research work performed by DiaMedica Australia, covering the 2017 and year-to-date 2018 study costs.

The increase in the quarterly comparison relates to increased study costs compared to the prior year, driving an increase in the eligible R&D incentive.

The year-to-date decrease was partially offset by, and the current quarter increase was partially augmented by, increased income earned on marketable securities during the three- and nine-month period ended September 30, 2019.

As of September 30, 2019, we had cash and equivalents of $4.7 million, marketable securities of $5 million, and receivables of $664,000, giving us $10.4 million in total capital at the end of the third quarter.

We expect that our current capital resources will be sufficient to allow us to complete the first two cohorts in the Phase 2 CKD study, as well as wrap up the Phase 2 study in the acute ischemic stroke patients and fund our planned operations into the fourth quarter of 2020. Now let me turn the call back over to Rick..

Thank you, Scott.

Operator, would you please open the lines up for questions?.

Certainly. [Operator Instructions] Alex Nowak with Craig-Hallum Capital, your line is open..

Great. Good morning, everyone. And congrats on the progress to date here.

Harry, as you've been out there screening patients here for the Phase 2 REDUX study, are you finding that a number are meeting the exclusion criteria or is the screening process so far pretty straightforward?.

The screening process to this point has been very straightforward, as the sites that we selected have the experience with this patient population..

Okay, good. And then Rick, remind us the potential of getting a fast track breakthrough designation from the FDA on either of these cohorts in CKD..

I think it's all possible. We'll wait until–we'll let the data drive it. So assuming we get data as we anticipate and data that's consistent with what we've seen with the forms of the protein that have been used in Asia, there is a potential here that we could go down that path, yes..

Okay. And you mentioned the primary efficacy endpoints here for REDUX regarding eGFR and UACR. Would you expect to see an increase in eGFR versus baseline or would you say stable eGFR is enough in this patient group? And then I guess the same question for UACR.

Would you expect to see a decrease here, or again, is stable enough in this patient group?.

If you look at today's standard of care and compounds that are in development, I think even preventing the decline, the slowing, the decline is very positive. We do believe we'll be looking for a both increase in eGFR compared to baseline and a reduction in albuminuria versus baseline.

And I think that's something that really differentiates what we're doing compared to other compounds that for the most sense seem to affect one or the other. But ultimately, we believe that both of these markers really do need to be improved long term if you're having an improvement in kidney disease and function..

Okay. All right. Good to hear. And then congrats on completing enrollment here for the stroke trial. Walk us through the timing. The patient's going to complete the 90-assessment now.

And then how long to gather the data, un-blind it and then ultimately analyze it? Are we talking a month?.

So after the last patient was dosed, there'll be a 90-day period, and then after that point, the data, the CRO that we're working with is cleaning up the data and so our guidance right now would be sometime in Q1 that we'll have the results..

Okay. Understood. And then just last question from me here.

Just you talked about this in the past, but can you remind us the work that you can do here or what you've done this quarter to look at reformulating DM199 to extend the dosing schedule in other clinical studies in the future?.

Yes. At this point here, we've been more doing just analysis of the potential for a long-acting formulation, and we do believe that there's a real potential of moving this to once–ideally to once a month subcutaneous, and that's something that we'll work on further in 2020.

Right now, the focus is on executing these studies and on the regulatory front, and then again, sometime in 2020 we'll start down that path.

We do believe, based upon the pharmacodynamics and the structure of this protein, that we should be able to move to a second long-acting formulation for these diseases and, or for others that we'll be considering in the future..

Okay. Understood. Congrats on the good progress here..

Thank you, Alex..

Thomas Flaten with Lake Street Capital, your line is open..

Thanks. Good morning, guys. A couple quick questions. Could you clarify, Rick, around the timing of the CKD cohorts? I think you mentioned on the call that the African American cohort should enroll much quicker than the IGA nephropathy cohort.

Are they both going to be ready in the first quarter though from a top line data perspective?.

So that's what–yes, we're working towards top line for both. We do believe from the sites that we're in discussion with and we're setting up that the African Americans will enroll quicker. So we anticipate that that cohort will enroll before the IGA nephropathy patients..

Great. And then with respect to recruiting the additional sites, I think as of–I haven't checked in a couple days, but in clincaltrials.gov, there were six sites but only four recruiting and I think you were gunning for 10.

How critical are those from a Q1 data availability perspective, or can you give us some more insight into how that's progressing?.

Yes. We're quite optimistic that the sites that we have established, the six that are up and running–today, actually six are up and running and we're looking at several others.

We feel very good about the sites that we have, that these sites, particularly in African Americans and then also with the IGA, we're working with several sites that have recently come off of completing IGA studies. So the I think timing of this works out well.

So we actually feel comfortable with the six sites we have and we're exploring increasing to 10. But we're internally believe the six actually may be enough to meet these milestones..

Okay. And then just one final one from me.

With respect to a third potential CKD indication, is that still on the cards for the near term?.

Right now, we're focusing on executing these two cohorts while we're doing some additional work internally in terms of what that next cohort may be. So yes, we are looking at a number of different cohorts. And so that's something we'll keep you up to date on as we just determine the best–that next best fit for this protein..

Excellent. Thanks so much, guys..

Thanks, Thomas..

Kyle Bauser with Dougherty & Company. Your line is open..

Hi, thanks for taking questions this morning. This is actually Greg Bogdanski filling in for Kyle.

I was just wondering if you could just talk more - following the contract termination with AHAN, have there been any initial or follow-up discussions with other potential partners?.

Yes, we'll continue to have discussions, but nothing to report here today..

Okay, thank you for that.

And then can you provide a bit more color around operating expenses over the next couple of quarters with the REMEDY trial now done and rolling and the REDUX trial just starting? Should we be approaching Q1 operating spending levels in this upcoming quarter?.

timing's always a question based upon enrollment rates. But the Phase 2 study is going to be $3.5 million to $4 million in the Phase 2 CKD study. We need approximately $1.5 million to finish the REMEDY study. And that's what we're looking at for clinical costs between now and the end of the Phase 2 work..

Okay. That makes sense. Thank you. And then maybe just one more from me. I know we're only just finishing enrollment of Phase 2 stroke REMEDY trial, but can you talk about how you're thinking about Phase 3 study as it relates to enrollment sites? Where beyond the U.S.

might you enroll this trial and how many patients would it be?.

Yes, thank you. So we will really let the data direct the size of the study. So we're looking at the–based upon the results of the Phase 2 will tell us how many patients. I mean it will be several hundred patients. The actual number will be to be determined. And we will look at doing a global study with or without a partner, and U.S.

will be the focus along with Europe. And we'll be likely looking at Japan and other regions. So really actually a global study..

Okay. Awesome, that's super helpful. Thanks so much, guys..

Thank you..

We have no further questions at this time. I will now turn the call back over to Mr. Pauls for closing remarks..

Thank you everyone for joining us this morning. We appreciate the continued support of our shareholders and analysts, and also our employees who have worked very hard and has been instrumental in moving DM199 forward. We look forward to speaking to you again soon and updating you on our progress. This concludes our call. Thank you..

This concludes the DiaMedica Therapeutics third quarter 2019 conference call. We thank you for your participation. You may now disconnect..