DURECT Corp (DRRX) 2002 Q1 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen, to the DURECT Corporation's First Quarter Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. If you'd like to access a rebroadcast of this conference, you may do so by dialing into 1-800-428-6051, and please enter ID number 236412. At the rest of the company, we will open the conference up for questions and answers after the presentation.

I will now turn the conference over to Schond Greenway, Senior Director of Investor Relations and Strategic Planning.

Hello, everyone, and good afternoon. This is Schond Greenway, head of IR for DURECT Corporation. We're happy to have everyone

; we would like to welcome you to our first quarter 2002 financial results conference call.

I have with me today Jim Brown, our CEO, Tom Schreck, our CFO, Felix Theeuwes, our Chairman and Chief Scientific Officer, and

, our Controller.

The order of the call will be as follows: Contract review of DURECT's first quarter results. Next, the call will be turned over to Jim Brown and Felix Theeuwes to discuss the highlights of the quarter. Afterwards, we will open up the call for our Q&A session.

Before I turn the call over to Tom, we'd 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 in development, expected product benefits, product development plans, future clinical trials or potential product markets. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. The potential risks and uncertainties include but are not limited to DURECT's ability to research, develop and manufacture and commercialize its products, obtain product and manufacturing approvals and regulatory agencies, manage its growth and expenses, finance its activities and operations, as well as marketplace acceptance of DURECT's products. Further information regarding these and other risks are included in DURECT's Annual Report on Form 10-K for the fiscal year end December 31, 2001, filed with the SEC on March

, 2002, under the heading "Factors that May Affect Results.

I will now turn the call over to Tom Schreck, our CFO.

Thanks, Shawn. Good afternoon, everyone, and thanks for joining our first quarter earnings conference call. I'm going to briefly review financials for the quarter before asking Jim Brown, our President and CEO, to review the highlights of the quarter in greater detail.

Our net loss for the three months ended March 31, 2002 was $9.7 million, or $0.20 per share, compared to $4.9 million, or $0.11 per share for the same period in 2001. Our results for the three months ended March 31, 2002 included non-cash charges for the amortization and intangible assets and stock-based compensation of $933,000, compared to $1.2 million for the same period in 2001.

Research and development expenses were $8 million in the three months ended March 31, 2002, compared to $4.1 million for the same period in 2001. The increase was primarily attributable to expanded research and development activities, as

preparation for the Company's pivotal

clinical trials for its lead product, Chronogesic. The increase was also attributable to continuing investment in the research and development of other pharmaceutical systems and the hiring of additional research and development personnel.

Selling, general and administrative expenses were $2.3 million in the three months ended March 31, 2002, compared to $1.9 million for the same period in 2001. The increase was primarily due to the expansion of corporate infrastructure to support the growth in all areas of our business.

At March 31, 2002, we had cash and investments of $67.4 million, including $3.4 million in restricted investments. We expect our net loss for the second quarter of 2002 to be in the range of $10.5 million to $11 million, or $0.22 to $0.23 per share. Our estimates include non-cash charges for the amortization of intangible assets in stock-based compensation of approximately

thousand dollars for the second quarter of 2002.

I will now turn the call over to Jim Brown, our President and CEO, to discuss the highlights of business during the first quarter.

Thank you, Tom. Good afternoon, everyone, and thank you for joining us. We began 2002 by continuing strong progress in our business. To date, we've announced project results from our pilot Phase III study for our leading product, Chronogesic. The objective of the pilot Phase III study was to confirm the potency ratio of Sufentanil, which is the active agent in our Chronogesic product, to fentanyl, the active agent in

. This ratio was previously determined in our Phase II studies. We're using this Duragesic-Chronogesic transition strategy because it allows us to use the 10 years' of experience physicians have had in converting chronic pain patients from pills over to the Duragesic patch product.

The

test to the market side, Duragesic has been grown to over an $800 million product last year, with a growth rate of over 30 percent, both domestically and internationally. At DURECT, we are simply building on the conversion tables that have been established by 10 years of clinical practice to enable this transition of product of chronic pain patients from their pills, which last hours, to the three-day patches, and now over to our three-month Chronogesic product.

In the pilot Phase III trial, we successfully and effectively converted patients from the Duragesic product to our Chronogesic product without observing clinically relevant side effects or adverse events. During the six-week implant period, patients were evaluated for overall opioid consumption. There was no evidence that a patient overdosed at any point in time. And, our Chronogesic therapy provided 72 percent of the patient's pain medicine requirements.

To put this in perspective, Chronogesic provided a baseline maintenance dose that supplied over 70 percent of the medicine required to manage a patient's pain. These patients are still able to take medicine for breakthrough pain as they need it, but they now have a new foundation of pain control that should provide them

relief.

Patients were also asked about the adequacy of their pain treatment in our pilot Phase III trial. Seventy percent of patients reported either an improvement or equivalence to the previous pain scores. Based on the absence of overdose and the substantial replacement of pain medicines by our Chronogesic product, this pilot Phase III study confirms the accuracy of the potency ratio to determine

trial. The study also demonstrates the patients can be transitioned safely and effectively from the Duragesic product to our Chronogesic product. We expect to initiate our pivotal Phase III trial mid-year. The prior objective of our pivotal programs are to demonstrate the patient can be safely transitioned from the variety of

opioids, such as

for Chronogesic product, and to demonstrate that our Chronogesic product provides pain relief at least equivalent to the pain

. The program will include placebo controlled safety and efficacy trials. The program will also include an

to reevaluate

procedures and long-term safety and efficacy.

On the basis of our clinical and market research, we believe that our Chronogesic product will compete head on in the marketplace with oral controlled release dosage forms and transdermal patches for the treatment of patients with chronic opioid responses to pain. This market is over $2 billion worldwide and growing about 20 percent annually.

I'll now turn the call over to Dr. Felix Theeuwes, our Chairman and Chief Scientific Officer, to discuss some of the highlights from our other R&D programs.

Thank you, Jim, and good afternoon. Almost one year ago, we acquired Southern BioSystems at a time when the

technologies had been

in our models. With that acquisition, we gained an experienced team of specialists

technologies in the field of depo injectables, implants and biodegradable polymers. We are moving these technologies forward at an accelerated pace to a commercialization with an experience research and development team of

based on

.

At this time, I've been engaged in a multitude of discussions with potential partners to

with Cardinal Health to research and develop long-term

using our SABER technology.

Corporation is a subsidiary of Cardinal Health and is a leading developer and manufacturer of soft gels and capsules that rapidly dissolve in

and other drug-related systems. (Inaudible) have been involved in the design of unique drug

systems and related manufacturing technologies for really a dozen of the top 100 pharmaceuticals, and

is used in products such as Advil and liquid gels.

The use of our SABER technology as

in the gel and capsule has the potential of expanding such gel and capsule business into

. For

, this corporation brings an experienced manufacturing team

that, if successful, will greatly accelerate plans to market for such an

. With respect to our internal development programs, we also recently announced a filed

application with the FDA to investigate the delivery of

sodium for the treatment of asthma and allergic rhinitis, realizing one of our privately

drug delivery platforms.

Asthma is a seriously growing and potentally life-threatening condition that will affect approximately

million people in the United States. Allergic rhinitis is the fifth most common chronic disease in the U.S. and affects as many as 40 million people in the U.S. Sales of asthma and allergic rhinitis treatment exceeded $5 billion annually. (Inaudible) sodium and also the anti-inflammatory medication,

FDA-approved drug for the management of mild to moderate persistent asthma, and is recommended for early intervention and daily anti-inflammatory therapy.

Cromolyn sodium has an excellent safety profile and its position in the asthma therapy field is well established. However, when cromolyn therapy is not effective, it is believed to be due to the failure of the patient to take the medicine on a prophylactic basis.

One contributing factor is that the presence of

of cromolyn, namely, inhalation, is often irritant to the airways, discouraging patients from taking the medication. Development of a viable

product will have a significant impact on patient compliance and may provide the benefits of chromium to a much larger patient population, particularly if it proves to be

. With optimal dosing, cromolyn may prove to be one of the most effective agents for the treatment of patients with asthma.

Our Phase I

study will be a single center study

patients with exercise-induced bronchospasms. Patients will be

in five visits or approximately five weeks, and efficacy will be assessed by evaluating protection from

bronchospasms as a function of

of cromolyn sodium.

I will now turn the call back to Jim Brown for some closing remarks.

Thank you, Felix, for highlighting a few of our development programs. In closing, we're continuing to research and develop a host of products here direct. We're focusing our effort on a selected number of products that we'll commercialize ourself and are talking to potential partners regarding other programs. To that end, we are conducting studies that will answer the critical questions for each of these programs in order to establish

plans for product development.

The way to track direct progress throughout 2002 is follow our lead product, Chronogesic. We will be initiating the pivotal Phase Three studies in mid-year. As well, to track the progress of our other programs, I would watch for additional

applications and partnerships.

This is an exciting time to be an investor in DURECT. I would like to thank you all very much for participating in this call. I will now take any questions that you might have.

The question-and-answer will begin now. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you have a question, please press the one, followed by four, on your push-button telephone. If you would like to

your question, please press one, followed by three. Your questions will be taken in the order they are received. Please stand by for your first question.

The first question comes from

. Please state your affiliation, followed by your question.

Hi, actually, this is Gary Nachman, and we're with Morgan Stanley. First of all, Jim, could you update us on where you are in terms of entering into a partnership for Chronogesic?

Sure, thanks, Gary. With regard to the discussions that are around Chronogesic, we're actually in discussions with numerous companies, and we're not going to be going into any detail beyond that as far as where we are from a status standpoint

have you guys know there are two main points that we look at these partnerships or potential partnerships, and the first is we want to assure ourselves that the product will reach the marketplace.

And, secondarily, that the partner with work with DURECT to ensure that we keep a

. I think one thing we should all understand--I think it's inherent, but just to repeat it here--is that every month that goes by where we haven't as yet established a partnership, we only add

value to our company with regard to moving this program forward.

OK, great. And, for Felix, a couple of questions. First, the collaboration with Cardinal Health. Could you talk a little bit about what you might currently have in works and when we may see something come out of this? And with respect to the cromolyn project, when do you think this will enter Phase II? Thank you.

With regard to the Cardinal Health program, we have disclosed that we have a joint project at the site of the feasibility of using the SABER as a

. As you know, the SABER is ordinarily used in foodstuff, so it has a fantastic safety record. It has been demonstrated to be an excellent vehicle for subcutaneous injection for long-term duration, and it has also been validated in an animal model as an oral agent to extend the delivery of medication in the GI tract. So we are very excited about the

based on our scientific evidence and based, obviously, on the marketing and manufacturing strength of the Cardinal Health.

However, you know, before we can just go this point, what the agents are that we haven't filed but we are working on a number of compounds at this point in time, and when this

results, our next movement will be to

definitely communicate that to you.

With regards to the cromolyn IND, it has been filed, and, in fact, we have the go-ahead to continue the Phase I trial

study, and we are now in the process of testing the hypothesis, whether cromolyn given

is going to be effective as some others. We know that given as an inhalant, it works very well, and so we are now studying the effects of cromolyn systemically and checking

what effects are on brochospasms. We plan to provide additional detail in the fourth quarter this year as to where we are with our findings.

Hey, it's Marc. Let me ask you a question. What made you think to even use cromolyn in the first place in this way? I mean it's not logical, right, for us to be thinking that? I mean what made you think about this?

Well, if it's not logical, then that really makes it a scientific invention because--

Hey, why ask, Marc, we've got interesting patents on the floor

.

Wouldn't have thought this. I'm just wondering where the idea came up.

Well, you see, if you look at all the history of the other, it has been taking compounds that were discarded because of a fatal flaw and picked up by their delivery in fictional flaw. You might remember the

couple of million dollars per year and it was

.

You may remember that Sentinel was sold for 25 million a year and certainly

, and Procardia came out at a $200 million sales on

only, and what

sell into a medicine for angina and hypertension then became 1.4 billion of product in its heyday. So these transformations are exceeding powerful, and, you know, this is why we can rather simply test the hypothesis, whether or not if this

can be given systemically and do its job, you basically have solved the fatal flaw of the compound, which is that people who need to take this prophylactically and the

people are put off by it and therefore if, you know,

turns out to be positive, I think this will be potentially a very important medication for that indication.

You might remember that we took the same approach with Sufentanil in our first trial

.

Yes, actually, that's with

. You know, we--when we started Sufentanil, you could have almost asked the same question because it was a

anesthetic. Granted, it was given for short-term treatments of pain, but so is cromolyn used for asthma. And the question was asked, when you give this continuously via an infusion pump, you know, will this produce good medicine? And we did exactly the same

study and infused Sufentanil

and found essentially the correlation that we were looking for, which gave us the ammunition to ingest large sums of money to bring this drug to where it is today.

OK. I'll let you move on. Thanks.

Great.

Thank you. The next question comes from Corey Davis. Please state your affiliation, followed by your question.

Hi, this is actually Kristen Choi in for Corey Davis from JP Morgan. The first question I have is relatively simple. I was just wondering if you were going to issue a press release or

some way once the pivotal phase

for Chronogesic, you know, sometime this summer?

good question, and I believe we will, yes.

OK. And the second question is for Felix. Actually, a few set of questions. The first is I was wondering if you could remind us, you know, what kind of limitations or

approach and drug there are, which are their ideal characteristics for

drugs for

delivery versus SABER delivery? And the second question is whether or not going forward the new

from the SABER pipeline is going to be more from the Cardinal Health operation, where SABER's being used as

versions of SABER technology as a depo injectable?

OK, I think as far as the

drug delivery, there are a few questions that one can ask from various points of view. One is from a physical chemical point of view; which are the carriers that are suitable for protein delivery? And invariably, if you ask a question from the scientist, they will say something that has

and water.

And so in that sense, essentially, SABER is excellent because it's hydrophobic, means it seals water from the drug, and, therefore, it's a very, very fascinating platform. In addition to that characteristic, from a

point of view, the question

, and, again, SABER's competitor, for example,

does a tremendous job. And, also, the third question is can you make a simple regimen lasting for some

point in time?

And, again, this is where SABER shines because

compares to

, we can basically take something that only can be given orally for 14 days at a time, and we can actually do that for a whole month. Now, when it comes to DURIN system, the DURIN has those same kind of

characteristics. It can shield the dirt from the body since it's a titanium cylinder and you can

that drug in varying concentrations and actually maintain a

stable for a long period of time away from the body enzymes and water. And, in addition, we find that the

attachment with the

take that drug and plug it into into

organs.

And what you can do now is take a small amount of the very--make it go a long way. One of our collaborators in the Netherlands, Dr.

, came out with the concept called the "Local Advantage," whereby

can probably in many cases reduce

by a factor of 10 to 100 and sometimes by 1,000. And even also make that

a target site for very long times.

And I'd like to take a moment to highlight one of our research programs that we've talked about, which is

to the pericardial sac, where both Genetech and

spend a lot of money delivering

, respectively, in the coronary arteries, where the dirt resides for seconds or fraction of a second. We have been able to show that we can maintain a drug that of two weeks create new blood vessels that actually--that actually have reestablished the spontaneous hypertensive animal to the cardiovascular system of the normal animal.

So we think that with these technologies that we have we will be able to really do justice to our motto, which is treating chronic, debilitating disease and enabling biotechnology drugs. Without our technologies, a lot of the biotech drugs which come out of genome fields will be laboratory curiosities unless you can place them at the right site at the right time in the right amount, such as the example of

.

Hey Kristen, this is Schond here. I think your last question was in regards to additional news-flow coming from either SABER or Cardinal

Health. I definitely just wanted to say that we plan to have additional news-flow beyond just the Cardinal Health transaction. You definitely will be able to look and see other collaborations, as well as other

in the near-term.

I may add to that that we have a number of programs within DURECT that actually, now looking at the oral side as well. And classically we've been looking, obviously, at injectables and depos and implants.

I hat to have three people answering one question, but just to king of finish up on that point here this is Jim.

With regard to DURECT over the last year, we basically have significantly repositioned the company, starting just as a DUROS company. And with our implantable systems, now we have a very broad opportunity to be

with the DURIN injectable and

products. And now with the addition of the use of SABER in soft gelatin capsules we have a chance to transition those acute-use products to chronic delivery and open up that entire large market of oral drug delivery as well.

Great, thanks.

Thank you. The next question comes from Cindy Glass. Please state your affiliation followed by your question.

Hi, it's Cindy Glass from ThinkEquity Partners.

Given - Jim or Felix, whoever wants to take this - given that you've highlighted Chronogesic as what we should watch for direct progress in 2002, I was wondering if you could remind us what some of the milestones are we could expect. And some of that's, I guess, asking about patient enrollment, how many patients do you expect - can you give us some more color on the trial? Are you taking all comers, or is it chronic back pain patients you're focusing on? And how long do you think things might take to enroll, and crunch the numbers in terms of an

filing.

I think at this point in time, first off, we're really pleased with the pilot Phase Three trial results. I mean, that was - we expected those kind of results, but it's really nice to be able to expect and to get exactly what you're looking for. So we were very pleased that we were able to have the kind of efficacy and the conversion ratios and everything work out, as we had hoped for and anticipated. And so that's the first hurdle that we've passed - or gate that we've passed through this year.

The second will be the announcement we talked about earlier, when we start our pivotal program for this project. And we look forward to that as well. I think we stated earlier that this will be in approximately, about 1,000 patients in this overall pivotal program. The longest duration of any one given, particular patient will be one year of dosing, so there will be four sequences of three months for these patients. And for these patients we're looking at a subset, then, of that 1,000. So about 100 patients will be dosed for a year.

Beyond that, as far as the overall program is concerned, what we're doing now is we're talking about when we're going to start the pivotal program and the overall size of it, but we're not giving any exact predictions beyond, you know, where we're going in the next 12 months or so with it.

Thanks.

OK.

Thank you. Once again ladies and gentlemen, as a reminder, if you should have a question at this time, please press one, followed by four on your push-button telephone.

The next question comes from Mara Goldstein. Please state your affiliation followed by your question.

Yes, thank you. This is Mara Goldstein with CIBC World Markets.

I just had a question about the SABER technology. Have all the different delivery formulations - meaning either oral or injectable - been validated in animals at this point?

Actually

Mara, what has been dine in the injectables side is we have validated in an animal model the delivery or proteins and peptides, and we validated small molecules as well. We've shown that we can deliver proteins over one month constantly, and that we can deliver small molecules. And we have an example of that for three months in very consistent, continuous

plasma concentration profile.

OK.

And to the - as far as the oral, I already mentioned earlier that we have already validated. That the technology can sustain medication delivery from a period of 12 to 24 hours.

OK, thank you very...

Thank you. Once again, ladies and gentlemen, as a final reminder: If you should have a question at this time, please press one followed by four on your push-button telephone.

If there are no further questions at this time, I will now turn the conference back to Schond Greenway for final remarks.

Great. Once again, we want to thank everyone for participating in this conference call. And we look forward to our second quarter 2002 conference call. Thanks again everyone.

Ladies and gentlemen, as a reminder, if you'd like to access a replay of this conference, you may do so by dialing into 1-800-428-6051, and please enter ID number 236412. This will be available in approximately one hour, and it will run from April 24, 2002, ending at 11:59 p.m. Eastern.

That concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.