DURECT Corp (DRRX) 2021 Q3 法說會逐字稿

Greetings. Welcome to DURECT Corporation Third Quarter 2021 Earnings Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to Mike Arenberg, Chief Financial Officer. Thank you. You may begin.

Good afternoon, and welcome to our third quarter 2021 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief review of our financial results and then Jim Brown, our President and CEO, will provide an update on our programs. We will then open up the call for a question-and-answer session.

Before beginning, I would like to remind you of our safe harbor statement. During the course of this call, we may make forward-looking statements regarding DURECT's products and development, expected product benefits, our development plans, future clinical trials or projected financial results. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Further information regarding these and other risks can be found in our SEC filings, including our 10-K and 10-Qs under the heading Risk Factors.

Let me now turn to our financials. Total revenues in Q3 2021 were $2.2 million compared to $1.8 million in Q3 2020. Collaborative R&D revenue increased by approximately 137,000 year-over-year. Product revenue, essentially from the sale of ALZET Pumps increased from $1.5 million in Q3 2020 to $1.7 million in Q3 2021 with a gross margin of 79%. Product revenue continues to be strongly cash flow positive. R&D expense was $8 million in Q3 2021 as compared to $6.9 million in Q3 2020. The increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for DUR-928. SG&A expenses were $3.2 million in Q3 2021 as compared to $3.4 million in Q3 2020. Our underlying burn rate during the quarter was $7.6 million. At September 30, 2021, we had cash and investments of $80.9 million as compared to $56.9 million at December 31, 2020.

With that, thanks again for joining our call. And I will now turn the call over to Jim for an update on certain of our programs.

Thank you, Mike. Hello, everyone. Thank you for joining us today for our 2021 third quarter update. We are proud of the enrollment rate in a firm our Phase IIb study of DUR-928 in patients with severe alcohol-associated hepatitis. We made excellent progress in opening additional clinical sites with the addition of 10 new clinical sites since our last earnings call. We now have 36 sites enrolling for a firm, which represents more than 50% of our goal. Several of these new sites are in Australia, and we are closing in on getting clinical sites up and running in Europe and in the U.K. With strong interest from U.S. and ex U.S. thought leaders to join the trial, we have decided to expand the number of clinical trial sites to 60 or more.

The United States Adopted Names Council, USAN, has approved larsucosterol as the nonproprietary or generic name for DUR-928. We are making good progress in our POSIMIR partnering negotiations. DUR-928 was also the topic of a podcast on regenerative medicine and the epigenome with Moira Gunn from NPR's Tech Nation. The link to this podcast can be found on Tech Nation radio podcast episode 21-37. The title is One way Streets in Pompe. We're the third segment of this podcast. And the DURECT interview starts at 38 minutes, 42 seconds in.

Let's now move to our most important program. DUR-928, now called larsucosterol in alcohol-associated hepatitis or AH and the AHFIRM trial. AHFIRM firm is our ongoing Phase IIb efficacy and safety study. It is a placebo-controlled, double-blind, multinational study targeting 300 patients. There are 3 treatment arms, 30 milligrams and 90 milligrams of larsucosterol and a placebo arm. As with the Phase IIa trial, patients in the AHFIRM trial received an infusion of larsucosterol or placebo on day 1. And if they are still in the hospital on day 4, they receive a second infusion. The primary endpoint for the trial is 90-day survival. We have been enrolling patients since the end of January and have been continuously adding new clinical trial sites. We now have opened 36 sites, which represents more than 50% of the 60-plus sites we have planned for this international study.

We now have sites open in Australia, and are closing in on getting clinical sites up and running in Europe and in the U.K. During the quarter, we expanded the target number of clinical trial sites to more than 60. This was due to interest from U.S. and ex-U.S. thought leaders to participate in the trial. We continue to be pleased with the enrollment rate. We expect the overall rate to accelerate as newer sites fit their strive. We look forward to providing an update to our expected completion date once this latest wave of COVID-19 passes and the hospital environment at our clinical trial site stabilizes for a few months. Based on enrollment so far, we are hopeful that we will be in a position to guide to a shorter time line to trial completion. The main focus of the company is to execute this trial to the highest level of quality and in a timely fashion. AHFIRM is the highest priority in the company.

There are approximately 132,000 hospitalizations per year in the United States for AH, and there is no approved treatment. What physicians have available to them today primarily involves abstinent and supportive care, which includes nutrition and hydration. Corticosteroids are used in some cases, but have been shown to have no survival benefit at 90 days or at 1 year. The average overall mortality for AH across clinical trial is 26% at 28 days, 29% at 90 days and 44% at 180 days, and has not improved in the last 50 years. Unfortunately, prior to the COVID-19 pandemic, the incidence of AH was increasing in younger patients. And during the pandemic, alcohol consumption in the United States increased by about 30%. This has led to a dramatic increase in hospitalizations for AH as well as many more AH patients being listed for a liver transplant. This dilemma has been described in the literature, including a recent article in JAMA Network Open. This paper notes approximately 6% of severe AH patients are listed for liver transplant.

During the pandemic, the percentage of patients waiting for a transplant due to AH increased from 1.4% to 2.4%. This represents a 71% increase. The percentage of patients who received a deceased donor liver transplant increased from 1.6% to 3%. This represents an 88% increase. AH has a significant economic cost to the health care system. The average hospital stay for an AH patient is approximately 1 week, with many staying significantly longer. The average hospitalization cost for an AH patient is more than $50,000 in the first year. Alcoholic liver disease is becoming a leading cause of liver transplants in the United States and the cost of liver transplant exceeds $875,000.

Let's now review why we are so optimistic about the use of larsucosterol in the treatment of patients with severe AH. In our first trial of larsucosterol and AH patients, all 19 patients, including the 12 severe AH patients, survived. Additionally, 14 of the 19 patients were discharged in less than 4 days after receiving only 1 IV infusion of larsucosterol. The prognostic scores from the AH patients in this trial, including the LEO, MELD, bilirubin and other biomarkers were improved compared to baseline. Larsucosterol was also well tolerated by all the patients and at all the doses evaluated in the Phase IIa trial. There were no serious drug-related adverse events reported in this trial.

Dr. McClain from the University of Boville, or UL, conducted a comparative analysis of the 8 severe AH patients treated with our Larsucosterol in the 30- and 90-milligram cohort formal Phase IIa trial, with 13 severe AH patients from the UL study. The UL patients receive supportive care, including steroids. Both groups had similarly high initial MELD scores and high moderate discriminate function scores. The larsucosterol-treated patients had substantially lowered legal scores as compared to the UL group and all of the most Larsucosterol patients survived the 28-day follow-up period while 3 of the UL patients did not survive past 28 days. This analysis was presented by Dr. Craig McClain at the 2019 AASLD Liver Meeting. A slide of this comparison can be seen in our corporate deck on the DURECT website.

In addition to the clinical trial results, we also have numerous in vivo animal models supporting data that demonstrates large Larsucosterol potential against multi-organ failure, which can occur in AH patients. Larsucosterol mechanism of action helps us to better understand the remarkable results we saw in the treatment of AH. Larsucosterol is an endogenous epigenetic regulator. It binds to and inhibits the activity of DNMT1, 3A and 3B. DNMTs are epigenetic regulating enzymes that add metholgroupe to DNA in a process called DNA methylation. Treatment with larsucosterol in stressed liver cells can lead to decreased DNA hypermethylation and modulated expression of more than 1,000 genes that are associated with multiple crucial cellular signaling pathway.

In July of 2019, our (inaudible) et al published a study in Nature Communications. In this study, the gene transcription patterns of AH patients were found to be distinctly different from the control subjects and the patients with other liver diseases. In the AH patients, there was DNA hypomethylation, ultratech cytomics and liver cell dysfunction. The expression of DNMT1 and DNMT3A were found to be profoundly increased in AH patients but not in control subjects or patients with other liver diseases. Larsucosterol binds to and inhibits these DNMT which adds to the strong rationale for evaluating larsucosterol as a therapeutic agent for patients with AH. The results of this study suggests that inhibition of the DNMTs could be a novel therapeutic approach for AH. In conclusion, the results from our Phase IIa study, the comparative analysis with the UL severe AH patient data, the in vivo animal model results and the correlation of larsucosterol mechanism of action with the epigenetic dysregulation seen at AH patients, all together make us optimistic regarding the potential for the AHFIRM trial.

Given the high unmet need for hospitalized AH patients, the lack of current treatment options, and the high mortality rates, we believe a robust survival benefit in the AHFIRM trial will support an NDA filing. In addition, the FDA has granted fast track designation for larsucosterol in the treatment of AH. 42% of new drugs launched in the United States in 2018 were approved based on a single trial.

Next, I will update on the larsucosterol NASH program. In 2020, we reported positive results from our 28-day Phase Ib trial of DUR-928 in 65 NASH patients with stage 1 to 3 fibrosis. This was a randomized, open-label multicenter study of larsucosterol and NASH patients conducted in the United States. Larsucosterol treatment in this trial resulted in a reduction from baseline of liver enzymes, liver fat by imaging, liver stiffness by imaging and biomarker with serum lipids and insulin resistance. Many of these reductions were statistically significant. A statistically significant 24% reduction from baseline of plasma to growers, or TG, was seen in 16 patients who had baseline TG levels above 200 milligrams per deciliter. Larsucosterol was well tolerated at all 3 doses evaluated. There were no serious adverse events reported during the study. The clinical results we've observed with larsucosterol and NASH patients, together with the continued safety profile in patients with severe chronic liver disease and its mechanism of action, all support further evaluation of larsucosterol potential in NASH. We are planning our next steps for NASH.

Next, to the POSIMIR program. POSIMIR is a novel, non-opioid sustained-released local anesthetic that is approved to produce postsurgical analgesia for up to 72 hours following arthroscopic subacromial decompression, POSIMIR contains more bupivacaine than any other approved single-dose sustained release bupivacaine product. We believe this may be an important differentiator in the marketplace. Another potential differentiator for POSIMIR is the ease of application. POSIMIR applied directly into the surgical room, the primary source of postsurgical pain. At the end of surgery, POSIMIR is administered into the subacromial space under direct arthroscopic visualization where it continuously releases bupivacaine for 72 hours or more. FDA approval is based on the pivotal trial in arthroscopic subacromial decompression surgery with an intact rotated cost. The primary outcome measures were mean pain intensity and total opioid rescue analgesia administered, both evaluated over the first 72 hours after surgery versus placebo.

The opioid epidemic in our country is responsible for approximately 200 deaths every day. The objective of the POSIMIR program is to give health care providers in entering their patients a non-opioid alternative for postoperative pain control, or at a minimum a way to reduce the amount of opioids required to reduce postsurgical pain. Double chroma decompression is a shoulder surgery that is used to treat impingement syndrome, the common repetitive use injury that causes pain when the arm is raised over the head. There are over 600,000 surgeries involving ochrostopic subacromial decompression performed each year in the United States. We view subacromial decompression as the beachhead to get POSIMIR on the market, and we believe the opportunity to expand the label to cover a broader group of surgical procedures represent significant upside.

POSIMIR partnering discussions are advancing nicely, and we are on track to license the United States rights to a partner with an existing hospital sales force. Our plan is to use the proceeds from this partnership to help fund our epigenetic program and our flagship product, larsucosterol, for the treatment of alpha-associated hepatitis. In summary, we are making great strides with the firm. We have 36 sites up and running. We are pleased with the patient enrollment rate. With 36 sites recruiting patients, we now have opened more than half of the 60-plus sites planned for the trial. We have sites now open in Australia, and remain on track to initiate sites in the U.K. and Europe. Elevated the DNMT expression and DNA hypermethylation reported in the liver samples of AH patients fits with our super steroids mechanism of action and helps to explain the efficacy signals, including the survival of patients observed in our Phase IIa AH trial.

Since the pandemic, alcohol consumption has increased by 30% in the United States, and the percentage of AH patients waiting for and receiving liver transplants have increased substantially. We have fast track designation by the FDA for our AH program. We expect that if we achieve a robust survival benefit, this trial would support an NDA filing. The commercial partnership process for POSIMIR has advanced, and we are on track to put a partnership in place. The United States Adopted Names Council, or USAN, has approved larsucosterol as the nonproprietary or generic name for DUR-928. DUR-928 was the topic of a podcast on regenerative medicine and the epigenome with Moira Gunn from NPR's Tech Nation. Beyond AH, the mechanism of action for larsucosterol provides for further scientific rationale for developing treatments for other acute organ injuries and chronic diseases.

We'd now like to take any questions you might have.

(Operator Instructions)

Our first question comes from Kristen Kluska with Cantor Fitzgerald.

So the first one, you noted there was strong demand from hepatologists to join the study, which was 1 reason for expanding the number of sites. What I wanted to ask -- it would be interesting to hear more about this, particularly how they've learned about the program. Are these physicians who are aware of the progress being made, particularly in light of the late breaker at AASLD 2 years ago? And then would you say that the increased rates on some of these publications, including the one you cited, are making physicians starting to look more at the drawing board in light of this heightening demand?

Well, there certainly is more awareness of the disease in the general population. And there is no, unfortunately, good therapy out there today. But I think it's more just kind of grassroot with -- people either were at the talk or have heard about it and listen to it. But I'll let the one fielding these calls address that. .

Kristen, this is Norman Sussman. I think the presentation at AASLD in 2019 was really a turning point. And it was extremely well attended, one of the most popular sessions at the meeting, and the presentation that Dr. Hassanein did was really well received and generated a lot of interest.

Then secondly, today is actually my 1-year anniversary of starting at DURECT. But a lot of those people I know personally having been a hepatologist and worked in the field for many years. And so a few of them, I would call, but they were all aware and sort of the combination of a personal contact and awareness of the program, along with the real lack of efficacious therapies has spurred a lot of interest. And we have had practically nobody who didn't want to be in the trial and a lot of unsolicited calls for people wanting to get in.

And with the updated guidance today that you're looking at 60-plus total sites. Could you please break down or are you able to comment on how the split is going to be amongst the 3 continents?

We can give a range of that.

Yes. Yes. So the vast majority are in the U.S. because we started here earlier, and we've had a lot of run time to get them up. We have -- we're planning I would say, 8 to 10 in Australia and somewhere between 14 and 18 in the U.K. and Europe.

Okay. And then the last question for me. In some of prepared remarks, you noted that you're hopeful you could potentially be in a position to have a shorter time line to trial completion. Is this based off of how you kind of internally thought about the guidance, especially in light of some of these uncertainties with COVID-19? Or are you perhaps looking at it from the standpoint of what was done in some of these other late-stage trials?

I think it's a bit of both. I mean we set our initial patient per site per month estimates based on the -- our own experience in the Phase IIa trial and some of the work that Gilead and others have done. But then certainly, COVID has had an effect, as we all know because it's taken steady coordinators out of hospitals not being considered essential. And it's reduced or eliminated transfer of patients between hospitals and the like. So it's definitely changed the environment, which is now starting to change back more towards normal. So I think it's probably both. I don't know if Norman, you want to comment further on that?

Yes. It's sort of a mixed response because alcohol consumption increased that the pandemic made a lot of hospitals and especially research -- the research side. So research is sometimes considered less essential in addition to which many hospitals wouldn't allow coordinators into the hospital. So you have sort of higher demand, but sort of a limitation on the supply side. That is improving, and we're starting to see a lot more sites coming back into what I would call normal steady maintenance.

Our next question is from Francois Brisebois with Oppenheimer & Company.

I was just wondering in terms of the improvement of the pandemic situation coming back to normal, and the more sites, can you just help us figure out a little bit what would give you confidence to give us more of a precise study completion time or data rollout time? Is it just the pandemic? Or is these more sites? Or just any color on when you say potentially shorter with more sites, what were the prior expectations? And how does that get impacted by more sites versus the pandemic slowing down?

Yes. Well, the prior expectation was the September of '23 and the fall of '23, which is the number to date, we have on the clinicaltrials.gov site. And so we're always seeing whether or not we can't move that date back to the left and get it down sooner. As we've always said, and it's still true, I think we have to wait for a number of months post Delta now to clear through the hospital to really get a good sense of clearly bring back what staff has been vaccinated versus not. We've seen some of these kind of things, and all that come to pass. So we know get a sense of what is the reasonable estimate of the patient per site per month, that plus some of the newer sites that we're adding on may well accelerate it. But we want to wait until we have that experience before we make that projection.

Okay. No, that's helpful. And then in terms of time line, just on the POSIMIR side, you said continued progression. Just a question there, it's kind of twofold. Is the potential money that can come in from that, are you speaking more on the royalty side? Or is this a strong focus on an upfront payment? And would that money just help with the firm or is there a certain amount of money, let's say, that could help you go after other acute indications with DUR-928?

I'll let Mike speak to -- but for me, the money coming in will be not selling shares, which is always a natural way to bring money into a company. And so that would be our preference to be able to do that to look to drive forward the epigenetic program certainly for a firm, but hopefully potentially for others as well. But Mike, if you want to speak to that more specifically?

Sure. So Frank, your first question was related to the timeline.

Yes. And just the timeline and are you mostly focused on an upfront or more on a royalty kind of side with potential partnership.

So with regard to the deal structure, we don't want to comment too much in the middle of negotiations. But the -- I would expect it will have an upfront payment and milestones and royalties. And I don't really want to get into the -- how much money to expect from the deal.

(Operator Instructions)

Our next question is from Ed RC with H.C. Wainwright.

This is Thomas Yip asking a couple of questions for Ed. Congratulations on your progress this quarter. First question regarding the AHFIRM. You mentioned 10 new sites have been added. Can you tell us what are some approximate geographical breakdown of the remaining 25 sites? And what are some mitigation activities against potential corporate delays, as you mentioned, the Delta surge.

I think Norman kind of laid that out, but I think we're saying that these initial sites are in Australia, and we're getting closer in the U.K. and Europe. I think he said between 14 to 18 in the U.K. and Europe. And some additional sites, another 5 to 7 or so, maybe in Australia. And I guess the second part of your question, was it the effect of Delta on the enrollment?

What are some mitigation measures that Norman can speak to about the trial.

Yes. Norman, any mitigating measures that one could put in place?

Yes. Yes. It's -- so what we tried to do right from the beginning is have a very broad -- cover a very wide range of sites and cities and states so that if there was a surge in place, it might be offset by lower problem than others. Offshore, we -- obviously, we can't control any of that, but we're constantly working with the sites. If one site is temporarily in lockdown, then we just have to focus on others. But in general, I feel as if things are improving. There is -- especially in some of the bigger cities, there's more control and more confidence of their ability to get the patients in. It's still been a bit of an issue and -- But I don't think there's much we can do about it. It's honestly the pandemic. I wish we had more control over it, but I have to just admit we try to roll our focus to places that have less of a problem until you until the problem places to open up.

Understood. Perhaps switching gears to larsucosterol potential in NASH. Can you go over some -- what are some possibilities in the indication? And when do you hope to make a decision?

Yes. We -- that's the exercise we're undertaking right now is looking at we have the nice position in a race at this point, being able to see those in front of us where they stumbled. And so we can get a good -- a better sense, I think, of which patient populations to look at. I think the nice thing -- really strong thing about 928 is its breadth of activity not only attacks the accumulation of lipids and the distribution of lipids where some are focusing, but it also deals with the information and the fibrosis and so -- and allowed for regeneration to hit kind of across the board in a very safe way. And so we've tested it in the sickest of patients from a liver standpoint, and not seen issues there.

So I think we've got an open field with regard to how we want to approach NASH. And now we're working with thought leaders to get more specific on that. I would like to maybe ask Norman to wait if you guys would like to comment further on that?

Yes. I would just say it's a work in progress at the moment. As Jim says, everyone is aware that there have been a lot of a lot of drugs that have gone into testing and failed. And so we're learning from those, and we're assessing everyone knows it's a big market. The question is what can -- what segment of it is going to work and what segment is actually druggable. I would say the other major advantage we have is the safety profile that a number of drugs have proven to have some safety issues. And as far as we can tell, even in, as Jim mentioned, very, very silver patients, the safety profile of DUR-928 or larsucosterol seems to be very favorable.

Our next question is from Jeffrey Silber with KB Advisors.

And congratulations on a lot of progress. And also thank you very much for the very timely regular updates to clinicaltrials.gov. It's very helpful. I have a few questions on U.K. Europe. You shared with us data on the number of hospitalizations in the U.S. Do you have any data on the number of hospitalizations in the U.K. and the EU? I guess there are 2 different -- we're now 2 different entities given Brexit. But do you have any data you could share with us, how many people the U.K. or the EU are hospitalized for this?

We are gathering it at this point. I don't feel confident enough to be able to share much beyond. We believe that the market is similar in size if you put the 2 together, perhaps normally based on your years of experience in the field. Could you -- and certainly, I can tell you, Jeffrey, we are working with the absolute top of the top thought leaders, both in the U.K. and in Europe, they're very excited about being able to look at us and have been for a while with us with larsucosterol.

And I would congratulate you because I see you've got the hospital where the leader score was invented as one of your sites as well as Kings College, which is Europe's largest liver transplant hospitals. So congratulations. And I'm just curious, is there the possibility that you could be looking at almost a parallel process using the U.K. Zai Lab and the EMEA's prime programs for accelerated consideration?

It is possible. We are -- we're thinking of them in terms of being able to help patients and save the health care system dollars and be able to have an opportunity for DURECT shareholders as nearly equivalent in size actually. And you're absolutely right. We do have thought leaders on both those sites. They're well published and very well respected. Norman, do you want to...

So perhaps next quarter, you might have some information you could share with you a little bit more the market information you might share with us?

It's perhaps -- market research comes as it comes. I don't know, Mike, maybe you can speak to that when do you think -- I don't know if we want to set expectations, but we are working on it.

Yes. We're definitely working on it, Jeffrey, and it's -- It's -- we're early in figuring that out in terms of the size of the market in those other territories. But I think your point is well taken, and that we could potentially be able to leverage the AHFIRM trial with patients being dosed in all of those countries to -- if the trial is successful, to potentially be able to file in those territories as well.

And that is our hope is to be able to do the submissions in parallel, should the trial be successful.

That is all the time we have for questions and answers today. I would like to turn the conference back over to management for closing remarks.

I just want to thank you all. We all want to thank you for your time today. And as always, if you have any further questions, please reach out to us. We look forward to catching up with you. Take care. Bye-bye.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.