Fractyl Health Q1 2023 Earnings Call Transcript

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May 16, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics First Quarter 2023 www.diamedica.com in the Investor Relations section. 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 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 ks and subsequent quarterly report on Form 10 Q.

Operator

DiaMedica's SEC filings are available at the SEC's website, www.sec.gov and on its website. Please also note that any comments made on today's call speak only as of today, May 16, 2023 and may no longer be accurate at the time of any replay or transcript rereading. Dia Medica 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.

Operator

Rick Pauls, DiaMedica's President and Executive Officer. Mr. Pauls, you may begin, sir.

Speaker 1

Thank you, operator. Hello, everyone, and welcome I am joined this morning with Doctor. Kirsten Grusz, our Chief Medical Officer and Scott Kellen, our Chief Financial Officer. I am happy to report this morning that our complete response requesting the lifting of our clinical hold is being finalized as we speak and we plan to submit to the FDA this week. Much hard work has been performed to get us here.

Speaker 1

The FDA requested a new study was completed in April. This was performed at an independent laboratory and consisted of 2 parts. Part 1 simulated actual use in the hospital of drug being administered And Part 2 evaluated worst case scenarios such as varying storage durations, temperature and light exposure. We believe that the data from Part 1 confirmed our conclusions that the effects of the change in the IV bag material was the cause of the hypotensive events leading to our halting of enrollment in the study. Results from Part 2 of the INU study were substantially consistent with Part 1, which means that there were Likely be no new special handling instructions required for the IV administration of DM199.

Speaker 1

I would also point out that Part 1 results were consistent with the results of the IV bag testing we completed in the fall of last year, where we proposed revising the IV dose to 0.5 micrograms per kg to match our Phase 2 stroke trial IV dosing levels. We hope that this will contribute to a favorable decision by the FDA. And just to remind everyone, there are no proposed changes to the ensuing 3 weeks subcutaneous dosing under the study protocol. I'm also very pleased to report that we have recently completed a Phase 1c in healthy volunteers trial. Even though the FDA did not request or suggest human testing, we plan and initiated a Phase 1c open label single ascending dose study of DM199 This study was conducted in Australia.

Speaker 1

The results is confirmed to us with human data that a proposed revised IV dose of DM199 of 0.5 micrograms per kg would be generally safe, well tolerated and achieved a blood concentration level that reached the desired therapeutic range as seen in our prior Phase 2 acute ischemic stroke trial. The results from this Phase 1c study give us further confidence that a proposed DM199 IV dose revision to 0.5 micrograms per kg for REMEDY-two will minimize the risk for clinically significant hypertension and reach the targeted range. These results will be included as additional supporting data in our clinical hold response. We also believe that this study and the resulting data demonstrate our commitment to patient safety and provide greater comfort for our prior and new principal investigators and study sites to engage in and support the REMEDY-two trial. As a result of all this work, we are optimistic that we have fully identified the cause for last year's unexpected hypotensive events and we'll be providing the FDA with adequate data to support our analysis of the cause of the prior comprehensive events.

Speaker 1

We believe the results of the Phase 1c study further support our proposed revision to the IV dose of 0.5 micrograms per kg and demonstrate the safety and tolerability of DM199. All in, we are cautiously optimistic that this will allow the FDA to lift the clinical hold. With the expansion of our team this past year, I'm confident that we have the right team in place to execute the REMEDY-two trial, which we believe will be a pivotal trial. Once we hear back from the FDA and if the response is positive, we will provide an update on the next steps and expected timing for relaunching the REMEDY-two trial. We have also recently expanded our management team with the addition of David Wombeck as our Chief Business conference call.

Speaker 1

Dave brings over 15 years of relevant life sciences, capital markets, M and A and Investor Relations experience to DiaMedica. He was actually the lead banker on our 2018 initial public offering on NASDAQ and has been one of my most reliable and trusted outside advisors over the past 5 years. And as well, he has an extensive understanding of our DM199 programs. He also brings key relationships across the biotech and investment communities. David is committed to advancing DM199 as you can tell with his recent purchase of $750,000 of DiaMedica's common stock.

Speaker 1

We're grateful

Speaker 2

to have him part of our team. I would like to now turn the call to Scott Kellen to review the financial highlights. Thanks, Rick, and good morning, everyone. As Rick mentioned, we announced our Q1 2023 financial results and filed our quarterly report on Form 10 Q yesterday afternoon. These Our combined cash and investments totaled $28,700,000 down from $33,500,000 as of the end of 2022.

Speaker 2

Our Q1 2023 cash usage was $5,100,000 compared to $3,900,000 in the prior year period. The increase in our cash usage was due primarily to the end use and the Phase 1c studies. We believe that our current cash will support the clinical development of DM199 and our operations into the Q4 of next year. Our research and development expenses increased to $3,600,000 for the 3 months ended March 31, 2023, up $1,600,000 from $2,000,000 for the 1st 3 months ended March 31, 2022. The increased costs were driven by a number of factors, including increased manufacturing and process development costs, costs for the end use and the Phase 1c studies and increased personnel costs associated with the expansion of the clinical team.

Speaker 2

These increases were partially offset by decreased costs incurred in the Phase twothree REMEDY 2 stroke trial due to the clinical hold. Our general and administrative expenses were $1,900,000 for the 3 months ended March 31, 2020 up from $1,600,000 for the same period in the prior year. The increase was primarily due to recruiting costs incurred in conjunction with the expansion of the company's team and increased legal fees incurred in connection with the company's lawsuit against PRA Netherlands. Speaking of which, let me provide a quick update on our ongoing lawsuit against PRA Netherlands, which as of July 1, 2021 was acquired by Icon Plc. Last month, The Netherland Commercial Court issued its ruling on the matter of our ownership of the study data and records from the trial that PRAICON ran for us in 2013 2014.

Speaker 2

In that ruling, the court declared that DiaMedica was the rightful owner of the study records, both paper and electronic as stipulated in the original study agreement. The court ordered PRA slash Icon to allow and tolerate that DiaMedica exercise its right as owner of documents and to cooperate with the surrender of both the physical documents and the digital data. The court further ruled that PRAICON had no legal basis for withholding the study documents. After all these years, that ruling was quite the vindication. We now look forward to obtaining the records and conducting a proper audit of the study and to evaluate the inconsistent messaging from PRA.

Speaker 2

We are currently taking steps to enforce the court's ruling and to get access to the study documents. PRA however does have a right to appeal this decision. This right lasts until mid July of this year. At that We'll be able to provide some clarity on the timing for the next steps through the Netherlands legal system. So thank you.

Speaker 2

And with With that, let me turn the call back over to Rick.

Speaker 3

Thanks, Scott. With that,

Speaker 1

we'd like to open the call for questions. Operator, if you could please introduce the first analyst.

Speaker 4

Conference Call. And our first question comes from Thomas Flaten of Lake Street Capital. Your line is open.

Speaker 5

Thanks. Good morning, guys. And I appreciate you taking the questions. Rick, I was curious and maybe I misunderstood from the last call That the Part 1C was kind of a back pocket data set that you could use in the event that FDA had ongoing questions, but it's now going to be submitted as part of your formal response to with the INU study. I was just curious if you could comment on that.

Speaker 5

Was it more just that the timing worked out or was there a change in strategy there?

Speaker 1

Comp? No, really good question. So it really was a question of timing. And so we were preparing to submit Our complete response in April, the end of April, with combining both the Part 1 and Part 2 of the end use. And then we realized that the Phase 1 seen healthy volunteers was moving along very quickly.

Speaker 1

And so recognizing that in just a couple of more weeks, we could actually do a complete response that would actually include human data. And encouragingly, that human data now supports the in use data and also supports the IV BAG study we did last fall. So we think overall, the combination of the INU study, the Phase 1C data, we believe provides a very compelling basis for the FDA to allow us to resume the trial.

Speaker 5

And thanks for that. And just Looking back a bit, when you guys conceived of the 1 microgram per kilogram dose, I'm assuming that was a translation from the either the porcine or the the dose. I was just curious what you guys have maybe gone back on a postmortem basis to understand, should you have been at 1 microgram in the 1st place? Comp? I'm just maybe some post mortem thoughts on that.

Speaker 1

Yes. So if you go back, so we initially did a Phase 1 trial in healthy subjects that look to match the PK profile of the IV dose of our drug compared to the human urinary form that's being used today in China. And at the time we'd use the polyofran bag and we're using that bag, We came up with a 1 microgram per kg dose levels. Fast forward, that was the same bag that we used for our Phase 2 that we had the Phase two results. And then when we progressed and moved to our Phase twothree that initiated last year, We pivoted to a PVC bag and that's where we had the 3 serious adverse events of large drops in blood pressure.

Speaker 1

Last summer, we went back and looked at what changed from the Phase 2 to the Phase twothree. And that's where we recognized that The really only thing that we could determine was changing the bags. Did additional work, both last summer and then further with the in use. And what we now realize is that the polyoferm bag that effectively half the drug was sticking. And so effectively the 1 microgram per kg using the PVC bag was giving patients twice the dose.

Speaker 1

So that we thought that they were getting. So with this new in use study in the Phase 1c, we were able to basically match up to a similar PK profile using the PVC bag

Speaker 4

as we did with the

Speaker 5

previous Got it. Thanks, Rick.

Speaker 4

And our next question comes from Alex Nowak from Craig Hallum. Your line is open.

Speaker 3

All right. Great. Good morning, everyone. So to continue to ask Tom's questions there, I think that the work that you've done here is really interesting To go back and just confirm the dose levels, would you plan on publishing that work just showing all the steps you took from root cause identification, how you ended up solving it, the studies that you've done either published this at a conference or published an abstract somewhere, just so I think we can add some more hard supports heart evidence around the kind of changes in the study design?

Speaker 1

Yes. It's something that we're talking about. I guess we're not going to commit to it, but it will be something that's important. And in particular for the principal investigators at these sites. So if we can give greater clarity, we'll be looking at how to get that data out.

Speaker 1

So it is very clearly we have identified what happened And why we believe that we'll be able to avoid these events for the most part going forward.

Speaker 3

Okay. No, that's good. Anything from the in use study of the Phase 1c data that's going to make the FDA go, Okay, great. Thanks for providing this. But have you considered XYZ?

Speaker 3

What could we be still surprised by the FDA's response here?

Speaker 1

Comp? We've done what we think has been a very extensive review. We've used a number of different outside consultants as well to help us to review everything. We thought we had the data with the in use and then we feel by taking this even further in running a study in humans That I mentioned on the prepared remarks was not required or indicated or alluded to by the FDA. We think this is ideally this will give them more comfort In terms of we're doing everything we can regarding patient safety.

Speaker 1

Other aspect to it, we've also done some revisions to the protocol. And so in particular, we'll be starting the infusion for the first 15 minutes, slow. And if there are any signs of drop some blood pressure that are significant then the sites can dose these patients over a few hours. We think that'll be important. And then we also are doing a 24 hour washout if a patient was previously on an ACE inhibitor.

Speaker 1

So these three patients were all on ACE inhibitors that had the serious adverse event. And so we know there is an interaction with ACE inhibitors in terms of the mechanism of action. So So we think these additional precautionary steps that Kirsten and the clinical team have added, I think will provide more comfort as well in terms of prevention. Until we get the feedback from the FDA, we don't know, but we believe we've answered everything. There's some additional questions that the FDA had also asked regards to tripsin and Our assay and they've already responded that they thought that the work we've done has been acceptable.

Speaker 1

So we'll plan to file this week and then the FDA will have up to 30 days to get us a response.

Speaker 3

Okay. No, that's great. And then maybe just two quick questions. One was, I think you mentioned in the prepared remarks, there was new principal investigators in the study. Can you just elaborate on that?

Speaker 3

And then just remind us on the PRA lawsuit, what study was PRA conducting going back almost 10 years now. What data is there that you'd like to get or you're going to get and what could be helpful in that data for for the ongoing development of DM199?

Speaker 1

Yes. So the first part is my prepared remarks in reference We had 15 sites that we had under contract and on clinicaltrials dot gov. And then we have numerous others that we've had different layers of interaction that as soon as we get the whole feedback from the FDA and coming off, We'll be full steam on getting as many of these sites up as quickly as we can. And then let Scott take the PRA question.

Speaker 2

Hi, Alex. Yes, good question on PRA. It's been a while. They were doing the original first in man work. So the original dose tolerance studies, a number of single and multiple ascending dose studies that culminated in a small proof of concept study for type 2 diabetes.

Speaker 2

And the lawsuit issues revolve around that proof of concept study where Their representations as to what we would expect, what we could expect from the outcome of that study didn't match what they initially reported as the outcome and then they refused to allow us access to perform a proper audit of the study to truly understand what actually happened. So we're waiting to see the data to understand whether or not we have a signal for the overall development. But we'll wait until we see what those results are before we form an opinion on whether or not we should be looking harder Back at type 2 diabetes.

Speaker 3

Yes, absolutely. It will be great to see that data. All right. Appreciate the update. Thank you.

Speaker 4

Conference. And we have a question from Francois Bisbo from Conference Call Oppenheimer. Your line is open.

Speaker 6

Hi, this is Dan. Sorry about that. Hi, this is Dan on for Frank. Thanks for taking my question. Regarding the P1C, You mentioned the 0.5 microgram per kilogram achieved the exposure levels similar to REMEDY-one.

Speaker 6

Of course, these are healthy volunteers, but Were there any PD parameters that were part of the data collected? Are you if you're able to share at this time if there was any dose response in the PKPD parameters in across the in across the 3 doses, any additional granularity you can share at this time on the P1C? Thanks.

Speaker 1

I think we've been having some troubles here with We lost Kirsten. Lost her here. Dan, no, I mean, this was these patients were healthy subjects. And I'll point out that the study design was quite similar to our Phase 1 trial we did in healthy subjects before launching our Phase 2 study for stroke.

Speaker 6

Thanks. Thanks for taking my questions.

Speaker 5

Thanks, Dan.

Speaker 4

Thank you. And seeing no further questions in queue at this time, I'll turn the call back over to our host.

Speaker 1

All right. Again, we'd like to thank everyone for joining us this morning and for your continued support. Our goal is to bring this important treatment to stroke patients as

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Fractyl Health Q1 2023
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