Q3 2023 DiaMedica Therapeutics Inc Earnings Call
Participants
Rick Pauls; President & CEO; DiaMedica Therapeutics Inc.
Scott Kellen; CFO; DiaMedica Therapeutics Inc.
Thomas Flaten; Analyst; Lake Street Capital Markets, LLC
Alex Nowak; Analyst; Craig-Hallum Capital Group
Francois Brisebois; Analyst; Oppenheimer & Co. Inc.
Presentation
Operator
(audio in progress) 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, Mr. Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin, sir.
Rick Pauls
Thank you, Paul. Hello, everyone, and welcome to our third quarter conference call. I'm joined this morning by Scott Kellen, our Chief Financial Officer.
Before we begin this morning, I want to take a moment to welcome Dr. Ambarish Shah as our Chief Technology Officer. Dr. Shah has over 25 years of experience in advancing biopharmaceuticals from early stage to commercialization, where he has had key contributions to over 50 drugs and multiple successful drug approvals. He was previously the Vice President and Head of Global Vaccine Development at CSL Seqirus, where he is accountable for end-to-end chemistry, manufacturing, and control in the development of vaccines.
Prior to that position, he was Executive Director, Head of Drug Product Development at Bristol-Myers Squib, formerly Celgene. His prior experience comprised increasingly impactful roles at AstraZeneca, formerly MedImmune; GlaxoSmithKline, formerly Human Genome Sciences; and Pfizer, formerly Wyeth.
Ambarish consulted with us for five months before joining us in a permanent role. We are thrilled to have Ambarish as part of our team.
Turning to our Phase 2 updates. As we've discussed, our clinical operations have been working tirelessly to assemble the team, update procedures, and prepare for the tools to properly support the physician investigators in the clinical study sites. During this time, we have also been speaking with study sites, key opinion leaders, industry experts, our Scientific Advisory Board, and our new interim Chief Medical Officer, Dr. [Duran Dubow], to ensure that the ReMEDy2 protocol is clear and executable as possible by study sites while generating the data required for the FDA and other regulatory bodies. More than that, we want to give DM199 greatest possible probability of clinical success.
We will focus today on discussing these protocol amendments. In addition to issuing our quarterly earnings press release yesterday, we provided a slide deck presenting more detailed information. This information is available on both the DiaMedica website at www.diamedica.com and the SEC website, www.sec.gov.
The amendment protocols was submitted to the FDA in early October, and the FDA did not have any comments as of the end of the 30-day review period, which expired on November 3. Given this, we are able to and they're moving forward in conducting ReMEDy2 with this amended protocol. In its totality, we believe the amended protocol significantly increases our probability of achieving clinical success and will accelerate site activation.
Furthermore, if we increase the performance improvement of DM199 versus placebo at the interim analysis, we can reduce the total required number of patients for the trial, which is our quickest and most cost-effective path to completing the trial and getting our drug to stroke patients, the most significant change in the protocol centered around the inclusion and exclusion criteria for the trial. Specifically, we modified the baseline National Institute of Health Stroke Scale, or NIHSS inclusions score to focus on a schematic strokes of moderate severity.
This is defined as patients presenting with a baseline NIHS score of 5 to 15. We conducted a post hoc review of a ReMEDy1 Phase 2 stroke trial, focusing on those participants that did not receive mechanical thrombectomy prior to enrollment in a ReMEDy1 trial. This is a subset of that trial that most closely aligns with the target patient population for the ReMEDy2 trial. In these patients, there was a 15% greater absolute improvement in participants reaching an excellent outcome, defined as a score of zero to one on a Modified Ranking Scale or MRS.
This group comprised of 45 participants, 25 active, and 21 placebo. These participants were enrolled based upon a baseline NIHSS score, of 6 to 24. Scores above 15 represent moderate to severe and severe strokes. When we look at the results from just a (technical difficulty) moderate severity strokes in this trial. Those in the NIHS scores of 6 to 15, which includes 34 participants, 19 on DM119 and 15 and placebo, the improvement in excellent outcomes increased to 18%.
And if we go one step further and look at just the strokes with the baseline NIHSS score of 6 to 10, the improvement in excellent outcomes is even higher, where we had 35%, based on 26 participants, of which 14 were on DM199, and 12, placebo.
Let me add the caveat here and recognize that the post-hoc analysis includes a small number of patients, but is a key to point out there were no study participants in the non mechanical thrombectomy subgroup with a baseline score of 15 that achieved an excellent outcome and MRS of zero to one.
It is a high clinical bar to take a patient with a baseline NIHSS score above 15, a moderately severe stroke and expect many to get to an MRS score of zero to one. It is important to note the average NIHSS baseline in most kallikrein studies, this is the human urinary form of KLK1 in China ranged from 8 to 8.5. In contrast, ReMEDy1 was 10.9. By targeting some moderate strokes, we anticipate aligning more closely with the kallikrein range.
Just to tie things out, we're also including stroke patients, having a baseline NIHS score of five, which represents approximately 20% of all moderate strokes. As mentioned, we saw the highest treatment effect in the NIHS scores of 6 to 10, and by including NIHS scores of 5, we hope to capture more of these patients. Our new range of 5 to 15 also fall the alliance with official NIHS definition of moderate ischemic strokes.
The net effect of the change in NIHS inclusion range does reduce the number of potentially eligible patients in the ReMEDy2 trial. However, we believe that by focusing on moderate strokes, we have the highest probability of clinical success in generating the largest possible improvement relative to placebo, the latter being important for both reducing the number of participants we need in the trial and generating greater statistical significance and perhaps equally as important, eventually driving commercial adoption and favorable pricing assumptions after the FDA marketing approval.
The second thing is you want to discuss is the exclusion of ischemia strokes occurring in the posterior circulation of the brain or PC strokes. These can be problematic strokes for clinical trials. The NIH Stroke Scale predominantly evaluates neurological deficits created by strokes are occurring in the interior or front circulation of the brain. As a result, PC strokes are often underscored by the NIH Stroke Scale.
Our Chief Business Officer, Dave, Wambeke was recently on a business development trip in China where he was able to capture greater perspective on the clinical use of kallikrein, the human urinary derived farmers, KLK1. In his various discussions, it became clear that PC strokes were excluded from the primary kallikrein studies, due to the issues with the NIH Stroke Scale properly evaluating these patients.
Obviously, this issue has the potential to create uncontrollable variability in a clinical trial, which we prefer not to introduce in ReMEDy2. Here again, this may also reduce the number of eligible patients for the trial, but we expect the impact to the minimum. Only 20% of all strokes originate in the posterior circulation and approximately 70% of those have an NIHS score less than 5, meaning the vast majority of this already small pool of patients would not meet the bottom end of our baseline inclusion criteria.
The last change I want to address is the one that has the least the potential to affect the overall timing of the trial, but it is more technical. It is our removal of the overwhelming efficacy assessment during the interim analysis. And interim assessment of efficacy comes with a penalty in the statistical analysis of the overall trial.
This penalty is significantly larger than the penalty for re-estimating the sample size. By removing this penalty, we believe will further increase the possibility of study success. Additionally, from a practical perspective, our projected future enrollment rates suggest little benefit in conducting an interim analysis.
It is key to remember that we will not stop enrolling patients once the 144th patient is recruited. During the period encompassing the enrollment of 144 patients through the 90 day follow-up and subsequent data analysis of the interim analysis, we anticipate enrollment nearing 240 patients. This 240 number represents the lower threshold of our re-estimated sample size range.
Should our interim results demonstrate overwhelming efficacy strong enough to warrant halting the study, we would likely already be at or very near that point. It is key to point out that we will not stop enrolling patients once the 144th patient is recruited. With now effective amended protocol that we believe gives us the highest probability of clinical success, our focus is solely on the site activation and patient recruitments.
Our team is energized and working closely with our global CROs. We have reached out to over 600 sites in 23 countries, and we are conducting extensive feasibility and site selection and narrowing down to what we believe will be the best sites for our trial, with a target still about 200 sites globally.
Our protocol is also currently in review by the Canadian and Australian Stroke Consortiums. The first three sites of our trials are on track to be reactivated in November and December. then, 20 fast-track sites to be follow in the US. We are working with our CRO and scientific advisory board in the selection process.
The majority of US sites should be activated in the first half of 2024. We'll provide more information on the timing of sites at our next conference call.
Also, as we discussed in our last earnings call, based upon enrollment rates in recent stroke trials and discussions with multiple CROs, we believe that full enrollment for the interim analysis can be completed in 2024. But ultimately, this will depend upon the actual enrollment rates.
Before handing it over to Scott, I'd like to emphasize we have received significant interest from key opinion leaders and investigators. DM199 is designed to enhance collateral circulation, a method we consider superior to neuroprotectant and more like other established revascularization treatments like TPA and mechanical thrombectomy. They are also attracted to DM199's potential safety profile, particularly its lack of increased bleeding.
Additionally, we believe that revised trial design with a higher potential to demonstrate an improvement and excellent outcomes also contributes to this interest. We believe are at a pivotal moment in the treatment of ischemic stroke. Now at over a quarter century since approval of TPA for stroke. Our strategy represent a potential landmark advancement in stroke treatment since then.
I'd like to now turn the call to Scott Kellen to review this quarter's financial results.
Scott Kellen
Thanks, Rick, and good morning, everyone, and thanks for being part of today's call. Our total cash, cash equivalents, and investments were $56.2 million at the end of Q3, up from $33.5 million as of December 31, 2022. This increase was due primarily to the $33.8 million of net proceeds from our June and April private placements conducted earlier this year, partially offset by cash used to fund operating activities during the nine months ended September 30, 2023.
Net cash used in operating activities for the nine months ended September 30, 2023, was $14.9 million compared to $8.7 million in the prior year period. The increase in cash usage relates primarily to increased net loss in the current year period over the prior year period and increased amortization of discounts on marketable securities, partially offset by non-cash share-based compensation and the effects of changes in operating assets and liabilities in the current year period.
We believe that our current capital will support the clinical development of DM199 and our operations into 2026. Our research and development expenses increased to $3.3 million for the three months ended September 30, 2023, up from $1.6 million for the three months ended September 30, 2022.
R&D expenses increased to $9.4 million for the nine months ended September 30, 2023, up from $5.6 million for the nine months ended September 30, 2022. The increase for the nine month comparison was driven primarily by costs incurred for the NU studies performed to address the recently lifted clinical hold on the company's ReMEDy2 AIS trial, cost incurred for the Phase 1c study, determining the DM199 blood concentration levels achieved with the IV dose of DM199 using PDC IV bags, and increased manufacturing and process development costs. Also contributing to the increase were higher personnel costs associated with expanding the clinical team.
These increases were partially offset by decreased costs incurred for the Phase 2/3 ReMEDy2 AIS trial, as activity was limited prior to the June 2023 lift of the clinical hold. Our general and administrative expenses were $1.9 million for the three months ended September 30, 2023, up from $1.5 million for the three months ended September 30, 2022.
G&A expenses were $6 million for the nine months ended September 30, 2023, up from $4.5 million for the nine months ended September 30, 2022. To the increase for the nine month comparison was primarily due to increased legal fees incurred in connection with our lawsuit against PRA Netherlands and increased personnel costs incurred incurred in conjunction with expanding the team. Higher cost for patent prosecution and non-cash share-based compensation also contributed to the increase.
Before I turn you over to Rick, let me share that the hearing for the PRA lawsuit is currently still on track for December 7 of this year. PRA recently filed a counterclaim alleging that our enforcement of the April 2023 judgment affirming our ownership of all study records violated Dutch procedural loss. We disagree with their counter claim, and we don't currently anticipate that this will change the December 7 hearing date. We very much look forward to presenting our case against PRA.
Now let me turn you back over to Rick.
Rick Pauls
Thanks, Scott. With that, we would like to open the call for questions. Operator, if you could please open the lines for questions.
Question and Answer Session
Operator
(Operator Instructions) Thomas Flaten, Lake Street Capital.
Thomas Flaten
Good morning. Just a couple of quick questions, Rick. If you think about the total patients as a funnel, so you're excluding mechanical thrombectomy, TPA, so conservatively call that 20% of patients. Then you were moving about 20% of patients for the posture circulation. Can you just walk us through how that -- how you see that all working, especially if you include the NIHSS score as well?
Rick Pauls
Yeah, thanks, Thomas. So as we see this that -- bigger picture here is what's most important for us is getting to the -- we think that the greatest clinical effect with this drug. And so we think commercially, the larger Delta, we see some improvement of DM199 versus placebo. We think the greater commercial value.
And so as we're initially going to be targeting here, we anticipate initial label will be in the moderate severity stroke patients, which should be in a 35% to 40% of all strokes. And then commercially, though, as we talked to neurologists and commercial people, we think that if a patient has a mild or a moderate to severe strokes, then they most likely beginning in our treatment.
Thomas Flaten
Got it. And then to get to the 144 patient enrollment by year end, how many sites do you need to have actively enrolling at your pacing to get to that number?
Rick Pauls
So right now we're looking at and we're talking about up to a 100 sites. Really focusing on those steel first 75. So what we're looking at right now is about 40 in the US, potentially 10 in Australia, 10 in Canada, and then the remaining in Europe and other parts of the world. So as we are looking at the enrollment rate, that's the first assumption.
And then the second assumption is the patient to enrolment by site -- by month. So right now, what we're using as an enrollment rate target of 0.25. So having one patient per site every four months. And so this is based upon some of the analysis of some historical stroke trials.
We recently gone back and did an analysis of the last 20 or so stroke trials for acute ischemic stroke. Many of those were mechanical thrombectomy that a smaller treatment window and targeting a smaller patient population. And on average, there was an enrollment rate of 0.5. So about twice in terms of the rate that we're targeting. But there's still a lot of variables here that we just don't know.
So even with these change is that we've made, we're still using the assumption of 0.25 enrollment rate and getting into the new year as we start to get some traction here. And we started in the first sites that will have better clarity of where that actual enrollment rates comes in at.
Thomas Flaten
Got it. And then one final one, if I might. Any reason that we shouldn't see the interim analysis readout in the second quarter of '25 if everything goes to plan?
Rick Pauls
No, that's the plan. And again, there's lots of variables. but I'm hoping here, I'm hoping that this enrollment rate is conservative. In the past, we had some challenges with COVID. Also part of these on protocol changes, there are some aspects in there that we had some -- that weren't quite clear. So with our new interim Chief Medical Officer in particular, helping us with just revising and just making the trial protocol more clear. And I think that's going to help with recruitment.
Thomas Flaten
Excellent. Appreciate taking the questions. Thank you.
Rick Pauls
Thanks, Thomas.
Operator
Alex Nowak from Craig-Hallum.
Alex Nowak
All right, great. Good morning, everyone. So the prior protocol made DM199 available only in one of mechanical thrombectomy wasn't given now it's based more on the interior circulation, but the goal still the same through reduced in mechanical thrombectomy patients. Is that correct?
Rick Pauls
So the plan still is to be excluding patients that were previously treated with mechanical thrombectomy and to exclude those patients that have a large vessel occlusion. And we believe that's about 20% of the strokes today that have a large vessel occlusion.
Thomas Flaten
And now interior -- and then the interior circulations is being added on top of that?
Scott Kellen
Yeah. Alex, hey, this is Scott. As we were laying out the remarks, the NIHS score doesn't evaluate the posterior circulation strokes very well. And so the potential for getting miss scored patients into the trial -- scored low or high creates variability that we just don't want to introduce.
And keep in mind that of those 20% that PCS strokes, 70% generally present within an NIHS score of four or less. So the effect on the addressable patient population for ReMEDy2 is very minimal.
Alex Nowak
Okay. Got it. And then the assessment of the anterior versus posterior circulation, how quickly can that performance centers that just the real-time assessment? And then how many of ReMEDy1 were anterior?
Rick Pauls
Yes, it's something that's a quick review by neurologists. We don't have the data in front of us from our ReMEDy1, but we can double check on that.
Alex Nowak
Okay. Understood. And then I just want to confirm -- so what will be reported now during the interim analysis? I understand you don't want to get the penalty. I just want to be clear on what we're going to see when that interim analysis heads.
Rick Pauls
Sure. So the interim analysis, if we're seeing a lack of efficacy, this study will be terminated for lack of efficacy. Otherwise, there'll be a resampling size between 240 and 728 patients. So the only thing has changed here is that we remove the option for stopping for overwhelming efficacy.
Alex Nowak
Got it. And there won't be any unblinding of the data we won't necessarily see excellent outcomes in the interim piece. We'll just either know it's either going to be stopped for lack of efficacy or study site need to be modified.
Rick Pauls
Yes, that's right. And we basically what drove this the change here as we're going through our forecasting and realizing that even if we achieve overwhelming efficacy at the interim analysis during that five month period from patient 144 is dosed in the interim analysis is conducted, we should be pretty close to that 240 patient anyways. In particular with not now expanding with our trial site of the US.
So we felt that there's no sense of taking that statistical penalty if effectively, we're going to be there anyways at that point in time.
Alex Nowak
Yeah, makes total sense. And then all these recommendations to the study change. Did they come internal? Did they come by KOLs that in the field or were they from the CRO?
Rick Pauls
So really good questions. They came really a combination. I mean, first off, Dave Wambeke, our Chief Business Officer was in China for a week in August. And speaking to the company that's currently marketing the kallikrein, the urine form of KLK1, speaking to several other pharmaceutical firms and related. And based upon that, he got some pretty clear feedback on some of these changes we've made like this posterial strokes, we'd be better targeting the moderates patient.
So really leveraging the feedback, really in China in terms of patients that we believe will be better responders and then also having -- Duran Dubow, our interim Chief Medical Officer joining, taking another close looking at the protocol, getting some additional feedback here from the initial sites that we reached out to. So after coming off clinical hold, we reached out to numerous sites.
And there is a number of feedbacks to the protocol that we could be -- that could be done just to simplify and reducing some of the steps that we're perceived as complicated. And the point here right now, it's very important here that we make this protocol as simple as possible for the sites so that they are not looking at this protocol and feel that let's overcomplicate it.
So although this is taking a small delay here, I'd call it, but really very minor on terms of the big picture. So we see this as if we can increase the efficacy at the interim analysis by a few percentage than the previous protocol, that could really make the difference in not having to go to a larger total sample size. So ultimately, we feel this should reduce the total number of patients time and the costs from trial.
Alex Nowak
All right. That makes sense. Appreciate the update. Thank you.
Rick Pauls
Yep. Thanks, Alex.
Operator
Francois Brisebois, Oppenheimer.
Francois Brisebois
Hey, thanks for taking questions. So just a couple here. In terms of the moderate severity, can you help us understand -- I guess you're talking about the prevalence, but mechanistically, is there a rationale for this to make more sense here? And how do we get to feel comfortable that -- this won't -- having patients that are only moderately severe. Is it easy to gauge, choose moderate, and how do we feel comfortable that that will make enrollment quite a bit harder. Thank you.
Scott Kellen
Yes. So thanks, Frank. So the premise here is if you take a stroke patient that's come in -- and so first off, it's very clear. So the severity is scored by the NIHSS. So if the score is 5 to 15, that is a clear moderate severity stroke patient.
And so we take a step back and we look at this, as a patient has a moderate to severe so above 15, the likelihood of that patient getting to a full recovery, an excellent outcome is not very high. And so as we take a step back and we look at this, and as we mentioned on the prepared remarks, from our Phase 2 trial, we didn't have a single pay patient on DM199 who came in with baseline above 15 that got to an excellent outcome.
So I think what this does is just biases the opportunity here for a higher effect. And as we're looking at our Phase 2 data further, it's really in those patients that are -- frankly that were in the 6 to the 10 that we saw the greatest impact in getting to a full recovery compared to placebo. So we think these changes will ultimately show a greater effect and then furthermore, when we take a looking at the clinical use of the KLK1 in China, most of those trials are targeting a less severe -- so targeting more of a moderate severity stroke scale.
Francois Brisebois
Okay, thanks. And then lastly, can you help us understand the potential outcomes of this lawsuit that's coming up here? Thank you.
Scott Kellen
Oh, sure, Frank. Hopefully the outcome is that we get access to our data, we get access to the study site, we're able to finally audit that study and confirm what the actual results were. I mean, first and foremost, we really really would like to get a final study report that's accurate and fileable.
Beyond that, we're going to ask -- we're asking for damages. That last proof of concept study that we believe was messed up would cost $6 million or $7 million to reperform today. So we're asking for that. We're asking for the some damages related to the license that -- an opportunity that DiaMedica had at the time that was basically undermined by the error reporting from PRA and we are taking a chance on lost value of the company as well.
So all in, we're asking for as much as $75 million in damages and we'll see how much we can get through the court's process, again, provided that they have they reaffirmed their judgment from April that DiaMedica is the owner and the PRA has breached the agreement. Does that answer your question, Frank?
Francois Brisebois
Yes, all set. Thank you.
Rick Pauls
All right. Thanks, Frank.
Operator
And seeing no further questions, I'll turn the call back over to our host.
Rick Pauls
All right, thanks, Paul. So the requirements that we discussed today in the inclusion criteria are intended to enhance ReMEDy2's probability of success on the primary endpoint, which also has the potential to reduce the total number of participants required to be enrolled in ReMEDy2 trial without significantly impacting the estimated enrollment rates.
We'd like to thank everyone for joining us this morning and for your continued support. We are thrilled to be reengaged with clinical study sites and hope to be enrolling participants in. This concludes our call.
Operator
The meeting has now concluded. Thank you for joining, and have a pleasant day.
