Good morning, ladies and gentlemen and welcome to the DiaMedica Therapeutics Third Quarter 2021 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 Relations section.

Before the company proceeds with its remarks, please note that the company will be making forward-looking statements on today's call. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements.

More information, including factors that could cause actual results to differ from projected results, appears in the section entitled Cautionary Statement Note Regarding Forward-Looking Statements in the company's press release issued yesterday and under the heading Risk Factors in 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 also note that any comments made on today's call speak only as of today, November 11, 2021, 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. I would now like to introduce your host for today's call, Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin..

Thank you, Chris. Good morning, everyone, and thank you for joining us today. And welcome to our third quarter earnings and business update call. Yesterday, after the markets closed, we issued a press release summarizing our third quarter 2021 financial results and providing a general update.

At that time, we also filed our quarterly reports on Form 10-Q. Both documents can be found in the Investor Relations section of our website at diamedica.com. I'm joined this morning by our Chief Financial Officer, Scott Kellen; and our Senior Vice President of Clinical Operations, Dr. Harry Alcorn.

I would like to begin today with an update on our lead program DM199 for the treatment of acute ischemic stroke. Today I will refer to this as AIS. Our pivotal ReMEDy2 clinical trial is a Phase 2/3 clinical study of DM199 for the treatment of AIS.

This is a randomized double-blind, placebo-controlled study that’s going to be -- with up to approximately 350 patients. We will be having an interim analysis after approximately 40% or 140 participants if completed 90 days. This is our primary near-term focus.

Let me start by noting that we have some very encouraging interactions with the FDA in the past few months. In September, the FDA approved their application and granted a fast track designation. to DM199 for the treatment of AIS.

We believe this is an important milestone for the development of our product, as it underscores the significant unmet medical need that exists among patients who suffer from a stroke, an area where there hasn't been a new or meaningful therapeutic advance in 25 years.

With the Fast Track designation, we are eligible for more frequent interactions with the FDA, allowing us to discuss such things as our development plan, clinical trial design questions, the use of biomarkers and the extent of data needed for potential approval.

Fast Track designation may eventually qualify DM199 for accelerated and priority review of a new drug approval application if certain criterias are met. Second, as we announced earlier this week, the FDA accepted our protocol amendment for the ReMEDy2 trial, elevating stroke reoccurrence, as an additional independent primary endpoint.

The trial has two independent primary endpoints focused on the two very important factors that patients would had a stroke experience. That being the initial physical recovery from the stroke, and second, avoiding a second or recurrent stroke.

Our rationale for elevating stroke recurrence to an independent primary endpoint is based upon results from our prior Phase 2 stroke study and a supporting mechanism of action.

In our earlier Phase 2 trial of 91 participants, there was a statistically significant reduction in recurrent ischemic strokes of 13% on an absolute basis, or 100% reduction on a relative. This was based upon six recurrent strokes in the placebo group, while there was none in the DM199 treatment group.

We saw an even greater and also significant effect in the patients who does not receive mechanical thrombectomy prior to enrollment. This is the subgroup that most closely resembles the patients being studied in our ReMEDy2 trial. Recurrent strokes make up about a quarter of all strokes today.

There's a greater risk of occurring in the first few weeks in particular, after initial stroke, and are typically more disabling, more costly and more fatal than an -- a initial stroke. This has the potential to be a particular significant benefit of DM199 for patients.

I'd also like to point out that the design of a ReMEDy2 is power to assess the efficacy of DM199 in either or both independent primary endpoints. Additionally, the protocol amendment does not change the treatment, the inclusion exclusion criteria, the duration or the study population of the trial.

We look forward to continuing to work with the FDA as we advance our stroke program. Turning to our progress with the study, we initiated the first site in Stroke trial. And we also are very pleased to announce that our first patient has been -- has also been enrolled.

We are actively working with over 50 potential study sites who are at various stages in the evaluation from contracting to the IRB review, and also the planning process. We have encountered some delays in the startup process. Sites are indicating that they remain understaffed and are having difficulty finding qualified research staff to hire.

For the sites that are currently in process, we are experiencing delays in turnaround times for essential documents. Sites attributing to this staffing challenge is to the summer surge in the COVID-19 infections driven by the Delta variant, which is not a surprise and the impact is in parts regional based upon Delta levels across the country.

We believe that we're a few months behind in our startup timelines.

That said our clinical team has been working with members of our Scientific Advisory Board and other physicians in our network to reach out directly to the neurologist, a key study site to enlist their support and making ReMEDy2 a priority study for the institutions, while working closely with our contract research organizations.

This is now having a meaningful response. In terms of our expected timing, our projected study timelines is based upon a very conservative enrollment rate of one patient every 4 months at each site. This is based on historical stroke studies that have short treatment windows and often have associated with severe potential side effects.

This leaves us some upside if the actual rates increase -- increases by even a small amount.

With our 24-hour treatment window, the excellent safety potential profile and the potential to improve both the stroke recoveries and importantly also reducing the risk of stroke recurrences and along with the lack of treatment options, we believe there is a good chance for us to achieve a higher enrollment rates.

Our projected window for completion of the interim analysis is in the first half of 2023. We'll keep you updated as we get more clarity on both the site activation and also on the enrollment rates. I'll turn now to our brief update on our REDUX Phase Two trial of DM199 in chronic kidney disease.

Last week at the Annual American Society of Nephrology Kidney Week conference, we had the opportunity to present additional data from our REDUX trial. Principally the additional data was from the IgA Nephropathy cohort, where we continue to see significant reductions in albuminuria.

And particularly at the 2 microgram per kg dose level, participants with moderate to severe baseline albuminuria demonstrated an over 30% reduction in albuminuria after 90 days treatment.

Additionally, at the same dose level, participants demonstrated encouraging reductions in two key biomarkers for IgA Nephropathy, proliferation inducing ligand or APRIL, which showed a 30% reduction in IgA1 had a 20% reduction.

Improvements in these biomarkers are early signals of potential disease modifying effects of DM199 in this patient population.

Based upon this, we believe that the data generated date for DM199 in patients with IgA Nephropathy suggests that DM199 may offer clinically significant benefits to these patients, and something we believe with longer term treatment, the potential for improved efficacy for these patients.

Also briefly wanted to touch upon the DM199 for the hypertensive African American cohorts, which demonstrated decreases in both systolic and diastolic blood pressure of 19 and 12 millimeters of mercury, respectively, at the two microgram per kg dose level.

And more importantly, from a mechanism of action perspective, there's little blood pressure change in the normal tense of patients, in particular those in the IgA Nephropathy cohort.

This offers further support for our Stroke study, where reducing blood pressure may also contribute to reducing the risk of stroke reoccurrence, as high blood pressure following a stroke as a leading contributor to a recurrent stroke.

Also, it's important to note for neurologists shouldn't have to worry about blood pressure drops in the normal tense of patients, and patients becoming hypertensive. This is another example of the selective activity of the DM199 mechanism of action.

We are pleased to see these positive signals from our REDUX study, which support future development of DM199 for renal diseases. The observed improvements all point to improved physiological effect of DM199 treatment and also provides additional support for our study of DM199 in the treatment of stroke.

While the positive signals observed from our REDUX study merit further development, our near-term focus remains on our stroke pivotal trial. I'll now ask Scott Kellen to take us through the financial results for the third quarter..

Thank you, Rick. Good morning, everyone. As Rick mentioned, we announced our third quarter financial results and filed the quarterly report yesterday afternoon. And again, these documents are both available on the DiaMedica and the SEC websites.

Starting with our balance sheet, which we strengthened considerably in September with the completion of a $30 million private placement to 10 accredited investors.

Net proceeds from this transaction were approximately $29.9 million and as of September 30, 2021, our cash, cash equivalents and marketable securities increased to $48.1 million, up from $27.5 million as at the end of December 2020. We believe our current cash will support the clinical development of DM199 and our operations through the end of 2023.

Now our research and development expenses for the third quarter increased slightly to $2.3 million, up from $2.2 million for the prior year period, while R&D expenses increased to $6.9 million for the 9 months ended September 30, 2021, compared to $5.1 million for the 9 months ended September 30, 2020, an increase of $1.8 million.

The increase for the 9 month comparison was due to a number of factors, including the costs incurred for our pivotal ReMEDy2 clinical study, increased year-over-year costs related to manufacturing process development, and increased personnel costs associated with adding staff to support R&D operations.

These increases were partially offset by decreased costs incurred for our ReMEDy Phase 2 Stroke study, which completed in the prior year, and a REDUX study as the number of enrollments declined in the later stages of the study.

Our general and administrative expenses were $1.1 million for the third quarter, down from $1.2 million in the prior year period. G&A expenses increased to $3.5 million for the 9 months ended September 30, 2021, up $0.2 million from $3.3 million for the 9 months ended September 30, 2020.

The increase for the 9-month comparison was primarily due to increased professional services costs, and increased personnel costs to support our expanding clinical programs. These increases were partially offset by reduced noncash share-based compensation costs.

Our net cash used in operating activities for the 9 months ended September 2021 was $9.4 million, compared to $6.2 million for the 9 months ended September 2020.

These increases relate primarily to the increase in the current year net loss, and were partially offset by the noncash share-based compensation and the effects of changes in operating assets and liabilities. And to reiterate, we believe our current capital will support the clinical development of DM199 and our operations through the end of 2023.

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

Thank you, Scott. So as you can see, we had a very productive third quarter. We made significant progress in our lead program for stroke, initiating a pivotal trial and adding activated clinical sites.

We also expanded the trial protocol to formally include recurrent stroke as a second independent primary endpoint, which could also be the basis for approval of DM199 as a potential separate label, and attained FDA Fast Track designation for DM199 for the treatment of these patients.

We also obtained important validation of the mechanism of action of DM199 from our REDUX Phase 2 trial, as well as further guidance on the next steps for our DM199 program in renal disease. Finally, we strengthened our balance sheet, and we're well-positioned to execute our plans we reviewed today.

With that, I'd like to open the call for -- to the operator. Operator, if you could please introduce the first analyst..

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

Great. Good morning, everyone. So I was just hoping we could touch on the next steps here for the chronic kidney disease data. The data looked good from the Kidney Week. I would say similar to the interim update, we got a few months back more focused on the IgA Nephropathy group.

But just where do you think we go forward with this? Do you expand the Phase 2 to enroll more patients in that specific cohort? Do you launch a new study, a Phase 2b? Or do you take this to the FDA and ask for next steps, potentially pivotal?.

Yes. Thanks, Alex. So, yes, really -- so right now our focus clearly is on stroke. So we don't have an update at this time in terms of what's next for CKD. But I will say, we're looking at the data more carefully. And I think we're very encouraged with some of the biomarker data of showing some early signs of disease modifying.

And so we'll be talking to our Scientific Advisory Board and others, and looking at the future paths. But really, we want to make sure that we're staying focused on the Stroke program..

Yes, that makes sense.

And I just want to clarify how many sites do you now have enrolling for the Stroke program? And is the interim readout of the first half 2023, is that a little bit later than your original thinking maybe goes to some of the site enrollment issues you've experienced due to the Delta variant?.

Yes, so we have one site that has been set up. And as I mentioned, we have 50 sites that were at different stages in terms of moving them forward. So we have found that we are a few months behind what our initial timelines are.

And so the two key variables on this are site enrollment, and I think we're very encouraged that we're not seeing any competitive studies. But it really has been challenges with staffing at a lot of the sites. And then the other key component here is the number of patients that are added per month per site.

And so we are basing this right now on one patient per site every 4 months, based on historical levels. And we believe what the profile, and so if you think about a patient comes into the hospital, this is a distress situation. And they have to make a decision, but they have 24 hours to make this decision.

And so they come in first and importantly, this is a drug that we believe is safe. This is simply restoring a protein that's in deficit. And if a patient is fortunate enough to get on therapy, we think that this could really make a difference in their ability to have a recovery after 90 days.

But maybe even more importantly in rationale why patients should consider joining is that, that risk of a reoccurrence stroke in the first few weeks after the first often these are much more devastating and something that the patient and their caregiver should be very concerned about.

So we believe from this profile, that there's a real opportunity that patient recruitment could be much higher than what we're anticipating, but with basis [ph] we think is our conservative estimates for recruitment..

Yes. That makes sense.

And do you have plans to submit a separate Fast Track or and/or breakthrough designation for stroke recurrence? And then just on the personnel build up here to get the company ready for this much larger study, what -- who else do you need to add to the company here to be fully positioned as you move through this?.

Yes. So, right now, now we have the Fast Track designation, we are looking at other expedited reviews, including potentially breakthrough for the stroke reoccurrence. In terms of the study, we've added several new staff to Harry's team. We're working closely with our contract research organization.

And we are also in the process of bringing on a Chief Medical Officer to further help and allow us to execute, and really focus right now on getting the study fully enrolled and getting the data..

All right. Good. Appreciate the update. Thank you..

Our next question is from Thomas Flaten with Lake Street Capital Markets. Your line is open..

Great. Good morning. Thanks, guys for taking the questions.

Rick, just to clarify, in the Stroke study, are all the sites U.S based or they international as well?.

Yes, these will be all U.S based. We'll look at in the future potential expanding, but right now the focus is on the U.S..

And then could you talk a little bit about the unanswered question to date of alpha splitting in the Stroke study between the two endpoints kind of where your -- what your thinking is around that?.

Yes. So first, we want to get clarity from the FDA, if they -- agreeable with our protocol amendments, where we have two independent primary endpoints, stroke recovery and stroke recurrence. So now we have that, and we are very pleased.

We are now looking at as part of our finalizing our statistical analysis plan, we're going to look at the potential for having no alpha splitting. So this is something that we're looking at. But importantly, if we see statistical significance on both stroke recovery and stroke occurrence, it'd be a huge win for us..

Great. And then just one question on the CKD data from Kidney Week. If you look at the UACR numbers in the greater than 500 micrograms groups, there was a significant drop in blood pressure in the African American population, which led to a decrease at least in the lower dose level.

And you can kind of link to those two, if you have less blood pressure, you have less clearance. But interestingly, in the IgA group, there was also robust UACR decrease, but no change in blood pressure. So there are two different dynamics going on there.

Could you just help me understand why there's no blood, kind of what mechanism might be behind the UACR drop in either group?.

Yes, good question. There's a physiological difference in the mechanism of action here with KLK1 as it works with these two different disease states, respectively. In the African Americans that are hypertensive, this is a very difficult group to reduce their blood pressure. And to see this type of reduction was remarkable.

Again, in regards to them being normotensive, the body sees this as being a normal blood pressure and does not respond to the mechanism of action of KLK1 in the same way, and thus, we did not see a reduction..

Got it. That's very helpful. Thanks guys for taking the questions..

Our next question is from Francois Brisebois with Oppenheimer. Your line is open..

Thanks for taking the questions.

So on the powering side, if they were independent, is that where you're speaking that you can potentially get it to just below P value of .05 instead of the .25?.

Absolutely..

Okay.

And what would it take that like, is that just a -- what is the work to be done where you would feel comfortable being able to power it that way?.

So the study has been powered, so both of these endpoints, stroke recurrence and stroke recovery have powered for 90% to see statistical significance..

Okay, okay.

So -- and then in terms of the timeline you talked about in that the answer to Alex here, so I think we kind of seen there's a [indiscernible] probably be -- probably later not as 2022 events with the interim look, so that little delay is new from the last quarter call, or is it kind of still in line where we're expecting first half '23?.

Yes, I think we're a few months back from where we were initially anticipating. And that's really a result of a little slower recruitment of new sites. So it's going a little slower, but I think we're encouraged more recently, in particular, [indiscernible] in terms of the Delta variant of COVID is dropping rapidly.

And we see the sites much more interested open to joining the study, whereas going back in summertime, there were times where sites didn't even want to -- didn’t want to hear about any studies. So I think, it's a few months off, and this is going to be something that is -- it's going to be some give and take here.

We're learning how quickly the sites come up and importantly, we'll be learning on how fast the patient recruitment is at the site level..

Great.

And then just lastly, on the potential for breakthrough designation on stroke recurrence, is that something that you would need at least more interim look, or you think that is something that potentially could be achieved with the existing data?.

Yes, something that we’re currently looking at and particularly when we look at our existing data from our Phase 2 trial, small study 91 patients, but we had prevented the stroke reoccurrence and whereas the placebo had a 13%.

So based upon that data, the fact that it's statistically significant, and then the fact you look at what else is out there, there's very few compounds in treatment options for patients who had a stroke and are at really great risk of having a second stroke in the weeks following the first..

Sounds good. Thank you. That's it for me..

We have no further questions at this time, Mr. Pauls. I'll turn the call back over to you..

All right. Again, we'd like to thank everyone for joining us this morning. We appreciate your interest and continued support. Please stay safe in these challenging times. And this concludes our call today..

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