Ladies and gentlemen, thank you for standing by and welcome to the DiaMedica Therapeutics Inc. Q4 2019 results earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Rick Pauls, President and Chief Executive Officer. Thank you. Please go ahead, sir..

Thank you Lisa. Good morning everyone. We hope you are all safe and well. We would like to welcome you to our year-end 2019 earnings and business update call. Yesterday, after the market closed, we issued a press release with a business update and summary of our financial results for 2019. We also filed our annual reports on Form 10-K.

Both documents can be found in the Investors and Media section of our website at diamedica.com. With me here today is our Chief Financial Officer, Scott Kellen and our Chief Medical Officer, Dr. Harry Alcorn. DiaMedica set out some ambitious goals for 2019. I am proud of our team which has accomplished each of the items we outlined a year ago.

Specifically, we planned, initiated and completed a Phase 1b study in subjects with chronic kidney disease, a key step in understanding the impact of kidney disease on the pharmacokinetics profile for DM199 and preparing for our Phase 2 study in patients with chronic kidney disease.

Second, we assembled a truly world-class advisory board to guide our chronic kidney disease clinical development program.

Third, working with advisory board, we planned and initiated our Phase 2 chronic kidney disease trial, an important trial in which we will study participants with chronic kidney disease caused by IgA Nephropathy and African Americans that are hypertensive and non-diabetic.

Lastly, we completed enrollment in our enlarged REMEDY study in acute ischemic stroke. We believe because of these accomplishments, we were able to attract the interest of a couple of biotech equity funds and complete a small pubic offering in February of this year, which strengthened our balance sheet.

As a result, we have the capital to complete our current studies, even with potential adverse impacts related to the Coronavirus outbreak along with funding our operations through the end of 2021. Therefore, we are less exposed to the current market volatility and challenging environment caused by COVID-19.

While replete with our accomplishments, the entire team remains committed to advancing the clinical development of DM199 in 2020. DM199 holds the potential to have significant impact on patients suffering from chronic kidney disease and acute ischemic stroke.

We are excited and cautiously optimistic to see the Phase 2 clinical data from DM199 during 2020 and we look forward to sharing results as they become available. Now let us touch on our clinical programs in more detail. First, with respect to our REMEDY study in subjects with acute ischemic stroke.

We have previously disclosed that enrollment was completed last October and final enrollment was 92 participants. Remedy is a Phase 2 study designed to assess the safety and tolerability of DM199 in the treatment of participants suffering from acute ischemic stroke or AIS and to also explore markers of potential therapeutic efficacy of DM199.

The endpoints of this study include the standard functional measurements for stroke, the Modified Rankin Scale, the National Institutes of Health Stroke Scale and the Barthel Index. We will also evaluate multiple plasma-based biomarkers, such as measures of inflammation like C-reactive protein.

These markers are assessed at multiple points throughout the study, including 90 days post-stroke.

In addition, because of our work in the kidney space and the ever-increasing interest of the medical community and the potential links between vascular and renal disease, we will also be looking at kidney function measured by calculating the estimated glomerular filtration rate for participants over the duration of the study.

The last participant follow-up visit was completed in late January 2020 and we are waiting for the statistical analysis or SAP files from our contract research organization along with the study results.

Once we and our advisors have those files, we will verify the completeness and accuracy of the clinical database and then we will analyze and follow by announcing the topline results. Unfortunately, this process has been slowed by few weeks due to staffing issues with the contract research organization compiling the analysis.

These have been unrelated to COVID-19. We will work aggressively to review and then release the topline results as soon as possible and which is planned for early Q2 2020. Additionally, with the postponement of the European Stroke Conference from May to November 2020, we are evaluating alternatives for releasing full study results.

Next, let us turn to our REDUX Phase 2 CKD study, which is enrolling participants in two cohorts. The first cohort is focusing on participants with IgA Nephropathy, previously confirmed by biopsy and the second cohort is focused on hypertensive African Americans who are not diabetic.

Our enrollment target is 30 participants per cohort and participants will be treated for approximately 13 weeks at two dose levels. The primary endpoints will be the estimated glomerular filtration rate also referred to as eGFR and albuminuria, along with standard safety and tolerability markers.

We continue to enroll subjects in the REDUX study and this includes enrollment in the past two weeks. That said, subject enrollment has been slower than expected.

This has been primarily in the African-American cohort where we have experienced a higher level of screening failures related to finding individuals with chronic kidney disease, but that are not diabetic.

We have been working with our study sites to improve the identification, recruitment and screening of study participants and we recently increased the number of clinical sites from 10 to 12 to expand the available pool of candidates. However, in spite of recent enrollment, the COVID-19 outbreak in the U.S.

and measures taken to mitigate the spread of this virus appear to have a recent adverse effect on subject recruitment. For context here, I want to point out that our original study design provided for registered nurses to make home visits for the majority of subject treatments.

We chose this approach originally to maximize participant compliance with the treatment protocol. Today, we take some comfort in that this approach is consistent with the principle of social distancing recommended by the various government authorities. As of today, we don't expect that COVID-19 will disrupt the treatment of subjects already enrolled.

The 12 clinical sites are spread out widely across the U.S. As of yesterday, 10 of the 12 study sites are continuing to enroll patients while the others intend to remain open and continue to recruit and screen subjects. We did have new patients enrolled last week. This could change on a day-to-day basis and state-by-state.

Our clinical team has also been working diligently to ensure that study sites and home nursing service providers have procedures in place to protect the safety of study participants and clinical personnel.

In addition, we are taking steps to allow subject screening to be performed in the subject's home to further reduce the requirement for subjects to travel to the doctor's office or clinic.

This would limit the study subject's need to visit the clinic to just the first day of treatment and minimize the impact of social isolation on study participation. With recent acceptance of the Institutional Review Board also called the called the IRB changes, we could minimize patient visits to the clinic to just the initial dosing of drug.

Obviously, the U.S. is still in early process of combating COVID-19 outbreak and no one knows the extent of the measures that may ultimately be taken.

We continue to monitor and evaluate the impact of COVID-19 on our studies, but in light of the rapidly evolving COVID-19 situation, we no longer feel comfortable providing a projection for the availability of interim topline results. Instead, we will commit to providing additional information as conditions allow.

We remain focused on protecting the safety of trial participants, adhering to clinical best practices and keep the risk of trial integrity to a minimum. With that, I will now turn the call over to Scott to provide a summary of our financial results for 2019..

Thank you Rick. Good morning everyone. As Rick mentioned, we did release our financial results for full year 2019 and filed our Form 10-K yesterday after the markets closed. I trust you have had an opportunity to review these documents. Starting with the income statement. Our net loss for the full year 2019 was $10.6 million or $0.89 per share.

This compares to a net loss of $5.7 million or $0.74 per share for the full year of 2018. Our research and development expenses increased to $7.9 million for the full year of 2019, an increase of $3.4 million from $4.5 million for the full year of 2018.

The year-over-year increase was due to a number of factors which included the costs we incurred in producing a new batch of the DM199 drug substance, which is approximately $1.4 million, as well as the cost incurred in conjunction with our Phase 1b and Phase 2 clinical studies in the chronic kidney disease patients during 2019 and some related non-clinical testing.

An increase in the non-cash share-based compensation costs also contributed to this increase. Now, these increases were partially offset by a year-over-year reduction in the cost incurred in conjunction with the REMEDY Phase 2 clinical study in AIS patients, which completed enrollment in October 2019.

Our general and administrative expenses were $3.7 million for the full year of 2019, compared to $2.7 million for the full year of 2018. This $1 million increase was primarily due to additional costs associated with the company's status as a NASDAQ listed U.S. public reporting company which commenced in December 2018.

These additional costs included increased professional service, compliance and non-cash share-based compensation costs. Increased personnel costs also contributed to the increase.

Now, this increase was partially offset by one-time costs of approximately $360,000, which were incurred in 2018 and were associated with the NASDAQ listing process and related legal and accounting fees. Our total other net income, net, was $1 million for the full year of 2019, compared to $1.1 million for the full year of 2018.

This decrease is primarily related to the initial recognition of the R&D incentives from the Australian government, which were paid for qualifying research work performed by DiaMedica Australia during 2018, which included research work performed in 2017 and 2018.

The decrease was partially offset by increased interest income earned on marketable securities during 2019. Next, the balance sheet out. We finished 2019 with cash, cash equivalents and marketable securities of $7.9 million, current liabilities of $1.3 million and working capital of $7.5 million.

Now, this compares to $16.8 million in cash and cash equivalents, $1.3 million in current liabilities and $16.7 million in working capital as of the end of 2018. The decreases in the overall cash, cash equivalents and marketable securities and working capital are mainly due to the use of cash to fund operations during 2019.

Now, on February 11 of this year, we completed a public offering of common shares, as Rick mentioned, in which we raised gross proceeds of $8.5 million and net proceeds of approximately $7.7 million.

Therefore, looking at December 31, 2019 on a pro forma basis, including these net proceeds, we had cash, cash equivalents and marketable securities of $15.6 million. This additional capital from the February offering should allow us to complete our current Phase 2 clinical studies and fund our operations through 2021.

The strengthening of our balance sheet in February was very timely and we believe we are in a position that, as things stand today, we can deal with any potential financial shock produced by the responses to the COVID-19 virus and thankfully, as Rick mentioned as well, we are much less exposed to the current volatility in the capital markets.

Now let me turn the call back over to Rick..

Thank you Scott.

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

[Operator Instructions]. And our first question comes from the line of Alex Nowak from Craig-Hallum Capital. Your line is open..

Great. Good morning everyone. Rick, you mentioned enrollment is slower in the African-American cohort as you aren't finding patients who are diabetic here.

What will be the risk of opening up enrollment to the African-Americans who are diabetic instead of excluding them?.

Yes. So I think part of it is, Alex, is just part of getting a study underway, learning where the patients are, how to track them down. Even going back a few weeks ago, we felt a lot better with the steps taken being able to find these patients.

What we don't want to do at this point is or at any point for that matter is change the protocol to add a few more patients. We selected with our scientific advisory board to limit diabetics because adding diabetics now adds in typically a couple other medications that the patients are on. So it's just not as clean patient population.

So at this point here, we feel comfortable with the plan of the increased number of sites from 10 to 12 and then also the work that our clinical group has been doing working with the sites, basically daily phone calls. So we felt much better, even a couple weeks ago. And then this whole COVID-19 has put a bit of a wrench here.

So at this point here, we will see how the next few weeks go in terms of COVID. But one of the things that we are pleased about is that this study design is having the home healthcare nurses go visit the patients.

We feel by limiting the touch points to as few as one as the initial site visit for the patient, even when things get back going again with COVID-19 in patients and people getting back to normalcy, we feel that patient will be more comfortable entering our study versus other studies where patients have to go to the clinic on a weekly basis.

There is going to be some concerns..

Okay. Understood. And actually staying on that topic there.

Within the last week, it sounds like from your prepared remarks that patient dosing and follow-up in the home, those are all proceeding according to plan just within the last week?.

There has been no changes. We have enrolled patients in the last week and nurses are continuing going to the sites. There hasn't been any missed dosing of the patients..

Okay. That's good to hear.

And then what needs to change to allow your study sites to move enrollment to the home setting? Is it as simple as a change in paperwork? Or is it something more intensive to get them to switch?.

Yes. So the change in our IRB, which occurred last week, so we will be ready to go here. It's a two week process. So we will be ready to go, I guess, as soon as next week..

Okay. Got it.

And then, would you ever consider if this COVID impact continues to last into the summer months, would you consider and you are having trouble enrolling at the same time, would you ever consider reading out the 12-week data on just the patients you have enroll to-date? Or are you going to wait to do the full 60 patients at this point?.

Yes. At this point, we are considering everything. We do feel that it's more of a COVID-19 issue now versus identifying the African-American patients that are non-diabetic..

Okay. Got it. And then just last question for me. In the stroke study, you mentioned in the prepared remarks measuring eGFR data which is pretty interesting.

When you speak with your advisory board, how do they look at eGFR in a stroke population as a proxy for your kidney study? Is it fair to say this is a good proxy here? Or could there just be too much noise in the stroke group that you really can't tease out the benefit?.

We are looking at it. Our advisory board saw it as intriguing that, first, many patients who had a stroke including those in our study also have kidney disease. So it will be a, call it an early look at kidney function in our study..

Okay. That's interesting. Well, congrats on the good progress in 2019 and stay safe out there..

Okay. Thank you Alex..

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

Good morning guys. Thanks for taking the questions. So Rick, I know you didn't want to provide guidance with respect to completion of enrollment and timing of the study.

Could you give us a sense of, on a percentage basis or an absolute number basis, where we are relative to the 60 total patients enrolled? Are we quarter of the way? Is there any quantitative information you can provide there?.

Yes. So we haven't provided specifics in terms of the number of patients. I mean I will say, two weeks ago, really before the whole COVID-19 really became front and center, we were looking at topline results in Q2 and early versus later. But then when COVID-19, hit, we feel we just have to put a pause here on any guidance.

So hopefully here in the coming weeks, as things progress and we get more clarity on COVID-19, we will be in a better position to provide some updated guidance..

Great.

And then the cash runway through the end of 2021, does that include the initiation of any Phase 3 studies, either in stroke or chronic kidney disease?.

Yes. It allows us to complete the ongoing Phase 2 trials and then to plan and prepare to launch Phase 3. But then, we will need to either partner or secure additional capital. But it will clearly give us time to make those decisions without having to worry about getting forced in or having to raise capital right after data comes out.

It will give us some time to make some decisions..

Okay.

And then with respect to stroke data, so are you guys still blinded to it?.

Yes, we are..

Okay.

And then given that you don't know the venue for the release given the delay in the Vienna meeting, are there other meetings where you have to be considered to embargo rules or anything like that? Or are you comfortable that you will be able to release a meaningful data set in the next few weeks, I think you said in your press release?.

Yes. The plan is, we will do topline in the next few weeks. And then, right now we are looking at other conferences, other events. The challenge is that a lot of these other events that we are normally considering are also now there is uncertainty whether or not they will be held at their current times.

So we should hope we will get clarity here though, call it, in the next month on venue. But yes, our plan is to do topline results after we got the data and analyzed it..

That's great. Thanks guys. Appreciate it..

Thanks Thomas..

And our next question comes from the line of Kyle Bauser from Dougherty. Your line is open..

Hi. Good morning. Thanks for taking the questions.

Just first, how are the production runs going? What does the latest run look like? And how do you feel about the supply levels for now?.

For the drug levels?.

That's right..

Yes. So last summer and fall, we completed a 250 liter run. That will be enough product to get us through Phase 3. And so there is no concerns there with having enough material, in particular in completing the Phase 2 trials..

Okay. And as we think about Phase 3 for stroke, I know we want to see how the Phase 2 data shakes out first. But I believe the earlier plan was to have some sites in China. It seems, given the COVID-19 situation, the way your competitor in China manufactures KLK1 with human urine might not be in favor as much anymore for obvious reasons.

To the extent you can share, has there been any indication that the regulatory process for you in China could therefore be accelerated or stretched? Just kind of any thoughts there?.

Yes. Really, right now, our focus is going to be on a global study. So focusing on US.. and Europe. And then if there is an opportunity to add sites in China and other parts of the world, for that matter, we will consider. But we still feel the real opportunity for this treatment is in the U.S.

and Europe, while also will be open to having sites in China, if it makes sense for us..

Okay.

And maybe if you were able to find another strategic partner, any updates regarding conversations with the potential partner?.

For the Chinese market, right now our focus is on the data. And after that point then we have got a list of companies interested. We want to get the data. And then from that point, we think we will be in a stronger position..

Makes sense. Okay. Thanks so much..

Thanks Kyle..

I would now like to turn the call back over 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 work hard and have been instrumental in moving DM199 forward. We look forward to speaking to you in the future and updating you on our progress. With that, we conclude our call. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..