Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics Second Quarter 2020 Financial Results 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 Investors 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 the 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 DiaMedica's previously filed annual reports on Form 10-K.

DiaMedica'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, August 12, 2020 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 phone lines for questions. [Operator Instructions] I would now like to introduce your host for today’s call, Rick Pauls, DiaMedica's Chief Executive Officer. Mr. Pauls, you may begin..

Thank you, Lisa. Good morning, everyone. We hope you continue to be safe and well. We'd like to welcome you to our second quarter 2020 earnings and business update call. Yesterday after the market closed, we issued a press release with the business update [technical difficulty] for financial results for the second quarter of 2020.

We also filed our quarterly report on Form 10-Q. 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. First, let me begin with a few comments on our public offering, which we closed this past Monday.

As I'm sure you saw Guggenheim Securities was the lead book-running manager with Craig-Hallum as a joint book-running manager and National Holdings as the lead manager in the offering that raised gross proceeds of $23 million, which included the exercise by the underwriters of the full over allotment option at a public offering price of $5 per share.

Over the last few months, we've been clear that given that we believe we have adequate capital to get to the Phase II results in the first two cohorts of our REDUX CKD study. We were not going to seek additional capital until we have that data.

We've also been clear, however, that a good reason to deviate from this plan would be that if we had an opportunity to bring in recognized biotech funds, whose investment would represent an independent validation of DM199.

Over this past summer, we have continued to share our story and the results from our ReMEDy stroke study and our plans in the CKD space with a number of biotech funds. We were recently presented with an opportunity to conduct an offering with specialist biotech funds, and that's what's driving this offering.

The offering was primarily sold to institutional investors. Well, I wish we could share with you the names of our new investors, we'll have to wait for the investor to report their positions. I'm confident that our shareholders will be pleased with our new investors.

In addition to our new investors, it was also very gratifying to seeing a number of our existing investors also participate in the offering.

We intend to use the net proceeds from this offering to continue our clinical and product development activities for DM199, including the addition of a third cohort of diabetic kidney disease subjects to our REDUX study and the initiation of our next study in acute ischemic stroke.

We will further use the net proceeds to expand our team to support this additional work and for other working capital and general corporate purposes. Let me begin my updates on our REDUX trial with a review of our clinical progress in the study of DM199 for CKD.

In July of 2019, we completed a Phase 1b clinical trial of DM199 in participants with moderate or severe CK chronic kidney disease, or CKD caused by Type I or Type II diabetes. The study was performed to assess the pharmacokinetics of three dose levels of DM199.

Dose being 3, 5, and 8 micrograms per kg administered in a single subcutaneous dose, as well as the evaluation of safety, tolerability in secondary pharmacodynamics endpoints. The study results identified the dosing at a rate of up to 5 micrograms per kg in the moderate CKD patients was likely to restore KLK1 to what we believe is normal range.

This affirmed our dosing plans for our ongoing clinical trial in CKD patients. We observed favorable overall pharmacodynamics results that included short-term improvements in estimated glomerular filtration rates or eGFR with an average increase of 4.6 mLs and the urinary albumin to creatinine ratio or UACR.

Excluding subjects with normal UACR levels, the average UACR decrease was 23%. These improvements correlated with the timing of the greatest increase in the hormones nitric oxide and prostaglandins.

We believe that these results were drug related as the greatest improvements occurred at approximately 24 hours after DM199 administration and then subsequently declined.

Next, we completed a post hoc analysis of endpoints in the ReMEDy stroke trial, which was comprised of a subset of participants with impaired kidney function, as determined by the participants, having an eGFR far less than 90 and elevated blood glucose levels above 7 millimoles.

This subject represents individuals with diabetic kidney disease and included 25 participants. 9 of which were treated with DM199 and 16 of which received placebo.

Well, the sample size was small, those who received DM199 were observed to experience a statistically significant improvement in kidney function as measured by eGFR compared to placebo, specifically a mean difference of 12.7 mLs at day 22.

The average improvement in the eGFR levels in the DM199 group was maintained after being off DM199 for 34 days, a potential signal of a sustained benefits. Patients who received DM199 also demonstrated a reduction in blood glucose levels compared to placebo with the mean decrease trend of 2.2 millimoles.

We believe that DM199 product profile for patients with diabetic kidney disease could include improvement in kidney function as measured by both eGFR and albinuria, along with reducing glucose in diabetic retinopathy, while also reducing the risk of recurrent strokes.

We believe DM199 can do so by restoring the levels of KLK1 to a normal healthy range.

In addition, from a regulatory perspective, we are optimistic based upon a scientific workshop collaboration conducted over the last few years by the national kidney foundation with the USFDA and the European Medicines Agency that we could see new potentially lower thresholds for registration studies for the treatment of diabetic and chronic kidney diseases, which are based upon both eGFR and albinuria.

If these new metrics are allowed, it could greatly reduce the clinical burden. Based upon these observations, we're very excited to initiate a third cohort in our REDUX Phase II CKD trial focused on participants with diabetic kidney disease. In total, our REDUX Phase II CKD study will now enroll at 90 participants in three equal cohorts.

The first cohort is focused on participants with IgA Nephropathy. The second in hypertensive African Americans with CKD who are not diabetic. The third cohort being added is in diabetic kidney disease.

Participants will be treated with DM199 for approximately 13 weeks at dose level of either 2 or 5 micrograms per kg, which is administered subcutaneously twice per week. The primary efficacy end points for the overall study are eGFR and albinuria.

Secondary end points are focused on evaluating the potential for DM199 to positively impact the underlying disease causing each participants CKD. As we recently reported, as of August 5, 2020 enrollment in the first two cohorts of the REDUX study was approximately one-third complete.

Due to actions implemented to combat the COVID-19 pandemic, we have experienced slower than anticipated enrollment.

We believe this has been due to a combination of the reduction or suspension of activities at some of the clinical study sites, as they address staff and patient safety concerns, and patient's concerns related to visit -- visiting clinical sites.

We anticipate that the COVID-19 pandemic will likely continue to adversely affect our ability to recruit or enroll subjects. And at this point, while we have recently seen an increase in screening activity with a few participants poised to enroll, we're still not able to provide guidance on the completion and enrollment of the study.

We added the 13th study site in July to assist with the subject enrollment and we'll consider additional sites if conditions warrant. While results observed to date in the REDUX study indicate a safety profile consistent with past studies, there is insufficient data at this time for us to evaluate or comment upon efficacy.

The third cohort and diabetic kidney disease, we'll be leveraging the current 13 clinical sites. And once COVID related pressures ease, and we do not anticipate that the addition of the third cohort will adversely affect recruitment in the first two cohorts.

We also remain optimistic that with the limited participant contact required by the design of the REDUX study, States will be able to progress more rapidly with resuming recruitment and screening for the REDUX study once COVID related pressures ease.

Turning to our stroke program and for our new listeners, DM199's 24-hour treatment window following an acute ischemic stroke is intended to provide a treatment option to the approximately 90% of stroke patients who are not eligible for either mechanical thrombectomy or tPA.

Treatment for these patients is limited to palliative care, which focuses on rehab and symptom management. When we looked into the ReMEDy data set and just those patients that most closely lined with our patient population intended to be treated with DM199, those that did not receive mechanical thrombectomy, and those did not respond to tPA.

We saw a positive therapeutic effect in patients treated with DM199. This group included a total of 46 participants, 25 of which were treated with DM199 and 21 who were on placebo. The results showed that 36% of participants in the DM199 group progressed to a full or nearly full recovery at day 90. This was measured by the NIHSS score of zero or one.

In the placebo group, only 14% of participants progressed to a full or nearly full recovery. This represents a 22% absolute increase in the proportion of participants achieving a full or nearly recovery, or also a 157% relative increase.

In addition, subject deaths decreased from 24% in the placebo group to just 12% in the DM199 group, a 12% absolute decrease in subject deaths. While these results are based upon a relatively small number of subjects, it is interesting to note that DM199 results were based upon a 24-hour therapeutic window to first dosing.

Compared to tPA the current standard of care, which demonstrated an approximately 11% improvement in full or nearly full recoveries with an initial treatment window of 3 hours of stroke at first approval.

I would also note that kallikrein, the human form of KLK1 extracted from human urine was approved in China based upon similar efficacy as our DM199 results. Based on our estimates, kallikrein has treated over a half a million patients for acute ischemic stroke.

Looking forward with our stroke program, we are currently developing a protocol for a proposed Phase III study of DM199 in the treatment of stroke.

As part of this process, we have engaged a global consulting firm to provide an independent evaluation of our target product profile and proposed clinical endpoints, along with feedback from payers and neurologists.

We also want to ensure that we are addressing the necessary economic end points to support product deployment and reimbursement of DM199. We are currently finalizing a meeting request for a Type B meeting with the USFDA. This meeting request is expected to be submitted shortly, and if the FDA agrees, this meeting would likely take place this fall.

I would now like to ask Scott Kellen to take us through the Q2 2020 financials..

Thank you, Rick. Good morning, everyone. As Rick mentioned, we did release our financial results for the second quarter of 2020 and filed the 10-Q yesterday after the markets closed. If you haven't had a chance to review those documents, they're both available on either the DiaMedica or the sec websites.

Our net loss for the second quarter of 2020 was $2.5 million or $0.17 per share. Our net loss for the 6 months ended June 30, 2020 was $4.9 million or $0.36 per share. This compares to a net loss of $2.5 million or $0.21 per share for the second quarter of 2019 and the net loss for the 6 months ended June 30, 2019 of $5.7 million or $0.48 per share.

Our research and development expenses decreased to $1.6 million for the 3 months ended June 30, 2020, down from $1.9 million for the 3 months ended June 30, 2019, a decrease of $0.3 million.

R&D expenses decreased to $3 million for the 6 months ended June 30, 2020 compared to $4.5 million for the 6 months ended June 30, 2019, a decrease of $1.5 million.

The decrease for the 6-month comparison was primarily due to non-recurring costs of approximately $1.3 million incurred for a new production run of the DM199 drug substance during the 6 months ended June 30, 2019, and the net decrease in year-over-year clinical study costs.

The decrease in the clinical study costs was due to a combination of the decrease in costs incurred for the ReMEDy stroke study, as it winds down in the current year and nonrecurring costs of the Phase 1b CKD study, which was started and completed in the first half of 2019.

These decreases were partially offset by costs incurred for the REDUX Phase II CKD study, which initiated late in 2019 as well as increased non-cash share-based compensation costs. Our general and administrative expenses were $1.1 million for the 3 months ended June 30, 2020, up from $867,000 for the 3 months ended June 30, 2019.

G&A expenses increased to $2.1 million for the 6 months ended June 30, 2020, up $0.4 million from $1.7 million for the 6 months ended June 30, 2019. The increase for the 6-month comparison was primarily due to increased non-cash share-based compensation costs.

Total other income decreased to $243,000 for the 3 months ended June 30, 2020, down from $280,000 for the prior year period. Total other income decreased to $231,000 for the 6 months ended June 30, 2020, compared to $458,000 for the 6 months ended June 30, 2019.

The decrease for the 6-month comparison is primarily related to reduced R&D incentives associated with decreased ReMEDy stroke study costs during the 6 months ended June 30, 2020, partially offset by reduced foreign currency transaction losses. Turning to the balance sheet.

We finished the second quarter of 2020 with cash, cash equivalents and marketable securities of $11.8 million, current liabilities of $1.2 million and working capital of $11.2 million.

This compares to $7.9 million in cash, cash equivalents 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, cash equivalents and marketable securities and in our working capital are due to our February 2020 public offering of common shares. Further, on a pro forma basis after giving effect to the public offering which closed on Monday, our cash, cash equivalents and marketable securities would be $32.9 million.

So again, as Rick pointed out this week, we completed a public offering of common shares, raising gross proceeds of $23 million with estimated net proceeds at $21.1 million.

Our current capital position should allow us to complete all three cohorts in our REDUX Phase II clinical study, initiate a Phase III study in acute ischemic stroke and fund our planned operations for the next two years.

Further, we continue to expect the impact of the delay in the REDUX study to affect the timing of costs incurred, but not cause a significant overall increase in costs as we are managing this study internally.

However, we continue to assess the effect of the pandemic on our REDUX trial, by monitoring the spread of the COVID-19 virus and the actions implemented to combat the virus and we will continue to provide updates. Now, let me turn the call back over to Rick..

Thank you, Scott. We'd like to open the call for questions.

Lisa, if you could please introduce the first analyst?.

[Operator Instructions] Your first question comes from the line of Alex Nowak with Craig-Hallum Capital..

Great. Good morning, everyone. Thank you for providing the enrollment figures, those were very helpful. In the early weeks of August, how has enrollment been trending compared to the last few months? And given we're hearing that centers are reopening, but we're seeing enrollments slow throughout all of healthcare.

Is the slow down really patients not wanting to try something new at this point, just due to COVID? Or is it that patients still just aren't coming back to the clinic yet?.

Yes. Thanks, Alex. Yes, so, I mean, we're encouraged to seeing increasing numbers of screening. The challenge is clearly related to patients being hesitant to come to the clinic.

Going back to earlier this year, we adjusted our protocol where patients would only need to make the first visit, so the screening could be done at their home or office by a nurse, coming to the clinic for the first dose and then everything else actually, although, the dosing, the vitals can be done at the patient's home or office.

But clearly there's some concerns with even making one visit and we're seeing that more so in the African American group than we are in the IgA. And so it's something that we're working to, I think we've identified the patient.

It's just a matter of them getting to the comfort level where they'll come to the clinic for that -- literally for that first dose. And after that everything else can be done at their home or office..

Okay. Understood. And understood that, that IgA is a rare disease here in the African American cohorts, pretty big population, but do want to come in. Is another piece of the limiting factor there in the African American cohort is that the patients can't be diabetic.

I'm just wondering, what is the risk of opening up that group to include African Americans that are diabetic?.

No. The -- we're not concerned about identifying the patients for either the first two cohorts that have been enrolling here since early this year and also for the third cohort in diabetic kidney disease.

Harry has been working very closely with the -- now 13 sites, many of these sites he's had past relationships with, and I've been working to identifying the patients so that the patients within the clinics have been identified. It's literally just a matter of having the patient's comfort to come into the clinic..

Okay. Understood. And then on the third cohort here for kidney is the idea to prove that DM199 can improve kidney function or reduce blood glucose, or maybe both. And this kind of goes back to the prior use case of DM199 to reduce blood glucose.

Also, would you expected this third cohort to enroll more quickly than the other two?.

Yes. So the rationale for the diabetic kidney disease is when we look at the -- this particular -- after looking at the ReMEDy stroke data and looking at the subgroup, post hoc analysis, and just looking at those patients that had -- that were diabetic and with chronic kidney disease.

And we saw that 12.7 mL change in eGFR versus placebo, that was statistically significant. It just jumped out at us. And then we also looked at the -- early signs of retained benefits 34 days later.

And so by adding this, this third cohort, I think longer term, I really can't see DM199 being used for chronic kidney diseases in patients that will -- that have diabetic or chronic kidney disease that will improve both eGFR and albinuria, while also lowering glucose in those patients that are diabetic while also improving retinopathy -- diabetic retinopathy specifically.

In Japan, we know that the porcine KLK1 has a label and it is widely used by directly cleaving VEGF in the eye, and then furthermore, looking at the profile of our drug can also help to treating some of the complications, so helping to reduce recurrent strokes.

So when we look at it as a profile on a drug with a -- as I call it, it was simply protein replacement therapy. It just has a wonderful profile. So it just gives us more options here so that when the REDUX study is complete, we can look at the data.

We can decide, where, which cohort we see the great -- the most compelling clinical effect, while also taking into from a regulatory perspective, the pathway.

So we can need to look at going rare or else we can -- near-term, or else we could more near-term looking at going into the diabetic kidney disease, but knowing it'd be very helpful for us to know that longer term there could be a real opportunity here for treating the greater diabetic kidney, chronic kidney disease patient population..

Okay, excellent. That's really helpful. And then there's two more questions, if I can. On stroke, it does look like the FDA meeting in stroke pushed out just a couple months versus the original expectations.

Any reason for the push, or is this just -- it takes time to analyze all the data, put a pack to get it to submit to FDA, all while we're dealing with COVID and a work-from-home environment..

Yes. That's a great question. So we have a package that's very close for a submission.

But what we want to do before submitting that is we had engaged a global consulting firm that's really helping us on the product profile, getting feedback from payers from neurologist, so that we really got a -- we fully understand the profile ahead of that submission so that any additional questions can be incorporated.

So, yes, so it's pushing it back slightly here from what we initially anticipated. But not changing the timelines of when we think we can launch the -- ideally the Phase II trial..

Okay. Understood.

And then as you're finalizing this meeting with FDA, can you just provide any highlights to some of the questions you'll be asking, and will you still be seeking an SPA for the Phase III?.

Yes. So some of the questions that we have -- we'll be asking about breakthrough fast track in SPA, size of the study. So we -- as we look at the profile for Phase III, we feel it will be very similar to the Phase II.

The biggest difference is that at this point, we're planning to exclude mechanical thrombectomy and also to exclude patients that have a large vessel occlusion. We feel those patients aren't the right fit for our therapy.

And so that really is what we're planning right now is as being the main difference from our Phase II, other than increasing the number of patients..

Okay. Understood. Very helpful. Thank you for the update..

Thanks, Alex..

Your next question comes from the line of Thomas Flaten with Lake Street..

Hey, good morning, guys. Thanks for taking the questions. Just a follow-up on the stroke discussion. And I just want to make sure I wasn't confused, Rick, about your prepared comments.

Is there still some question about what the appropriate endpoint might be, or is that likely going to be a full or near full recovery and/or death, and would you think about doing those as co-primary?.

So, yes, that's also a key question for the FDA. We are planning to propose an excellent outcome of either MRS or the NIHS stroke scale..

But not death?.

Death we will be looking as a secondary endpoint..

Okay. And then with respect to the cash position, I know you said that in your release you'd have about two years worth of cash.

Does that include the initiation of a Phase III study in stroke, or does that -- would that be incremental to the cash that you required going forward?.

No, Thomas, that includes the initiation..

Okay.

And then given the slow down and not looking at a stroke study initiation this year, do you think that the spend in operating expenses in the second quarter is reflective of what it's going to look like going forward? Or do you see some acceleration in that with the potential rebound from COVID and the addition of the third arm to the REDUX study?.

Boy, I sure hope it increases. Hope that doesn't sound weird, but I hope we see an increase related to some easing of the tensions related to COVID. And then of course adding this third cohort, all in, we're looking at an incremental $2 million for that cohort.

So, we'll incur that over the period of time it takes to enroll that, which again, hopefully we'll -- hopefully the rate of enrollments will increase here soon..

Great. All right. Well, thanks for the questions. I appreciate it..

Thanks, Alex..

Thomas..

Thomas..

At this time, there are no further questions. I would like to turn the call back over to Mr. Rick Pauls for closing remarks..

All right. Again, we'd like to thank everyone for joining us this morning. We are pleased to share the rationale for expanding the REDUX study to include diabetic kidney disease. And we look forward to discussing our plans for our Phase III stroke study with the FDA and sharing those results with you.

We look forward to speaking again soon and reporting on our progress. We appreciate your interest and continued support. Please stay safe in these challenging times. And with that, this concludes our call..

This concludes today's conference. You may now disconnect..