DURECT Corp (DRRX) 2002 Q2 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the DURECT corporation earnings conference call.

I would like to inform you this conference is being recorded and all participants are in listen-only mode.

If you would like to access the rebroadcast, dial 800-428-6051.

And international callers may dial 973-709, 2089 and enter the I.D. number 246-967.

We will open up the conference for question-and- answer session following the presentation.

I will turn over to Mr. Schond Greenway.

Please go ahead, sir.

Hello, everyone and good afternoon.

On behalf of everyone at the company, we would like to welcome you to the second 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 (inaudible) our controller.

The order of the call will figure.

Tom Schreck will review financial 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 for Q and A session.

Before I turn over to Tom, I would like to remind you of our Safe Harbor statement.

We may make forward-looking statements regarding product development plans, future clinical trials or financial markets.

These forward-looking statements involve risks and uncertainties that can cause actual results to differ from those in such forward- looking statements.

Potential risks and uncertainties include direct ability to research, develop and commercialize product.

Obtain approval from regulatory agencies, management growth and expenses, finance activities and operations, as well as market place acceptance of DURECT's products.

Further information regarding these and other risks are included on form 10-K on file with the SEC.

I will turn over to Tom Schreck, CFO of DURECT.

Good afternoon, ladies and gentlemen and thank you for joining our second quarter earnings conference call.

I am going to 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 3 months ended June 30, 2002, was $9.9 million or 21 cents per share, compared to $21 million or 45 cents per share for the same period in 2001.

Our results for the three months ended June 30 2002, included other non-cash charges for the amortization of intangible assets and stock-based compensation of $820,000 compared to $1.4 million for the same period in 2001.

Our net loss for the 3 months ended June 30, 2001, included a one-time non-cash charge of $14 million, for acquired process research and development associated with the acquisition of Southern BioSystems, Inc.

Research and development expenses were $8.2 million for 3 months ended June 30, 2002, compared to $5.3 million for the same period in 2001.

The increase was attributable to expanded research and development activities, especially related to continued preparation for pivotal stage III product for Alleve(phonetic), which commenced in 2002.

The increase was attributable to continued investments in research and development of other pharmaceutical systems based on SABER and ENDUR(phonetic) technology and hiring of personnel.

Selling, general and administrative expenses were $2.4 million, in 3 months ended June 30, 2002, compared to $2.2 million for the same period in 2001.

The increase was primarily due to modest expansion of corporate infrastructure to support the growth in all areas of our business.

At June 30, 2002, we had cash, cash equivalent and invests of 58.4 million, including $2.9 million in restricted investments.

We expect net loss for the third quarter of 2002 to be in the range of 11 to 11 and a half million dollars, or 23 to 24 cents per share.

Our estimates include non-cash charges for the amortization of intangible assets and stock they have compensation of approximately $800,000 for the third quarter of 2002.

I will turn over to Jim Brown, our president and CEO, to discuss recent highlights of our business.

Thank you, Tom and good afternoon, everyone.

As many of you know, we recently announced achievement of major milestone with initiation of pivotal phase III program for CHRONOGESIC pain therapy system.

We have begun dosing patients in the first clinical trial for the program.

The CHRONOGESIC is a pain-relief system that delivers for three months and is intended for patients with malignant and nonmalignant chronic pain. (inaudible) is a pain relief medication that is FDA approved for use in hospitalized as an agent.

In direct studies, our CHRONOGESIC product shows safety profile in 70 patients.

Our CHRONOGESIC therapy is the first systemic medication to provide patients with uninterrupted pain treatment from a single application.

We believe it is an improvement over currently available long-term pain therapy on the market today.

We hope to provide physicians with the valuable medicine to potentially treat millions of underserved patients suffering from chronic pain.

We are excited to bring this to the advanced stage of development.

Initiation of the pivotal stage III program represents an important milestone for us.

The objectives of this program are to demonstrate patients can be safely transitioned from existing pain relief medication to our CHRONOGESIC product without compromising their pain relief and identify long-term safety for the product.

Our pivotal stage III program will consist of four clinical studies.

The first trial is open labeled safety studied evaluating the CHRONOGESIC product in 100 patients for 12 months.

The pivotal phase roam 3 product will (inaudible) in the United States.

We also plan to conduct studies to compare our CHRON OGESIC product to an active control therapy in support of European registration.

In the pivotal clinical 3 (inaudible) while maintaining or improving pain relief.

As indicated by improvement in the patients visual analogue pain discourse.

Secondary (inaudible) life improvements, as well as functions such as reduction in constipation.

As a result of our phase II and pilot phase III clinical trials and market research, we believe our CHRONOGESIC will compete head-on in the market place with transdermal patches for the treatment of patients with the (inaudible) pain.

This market is $2 billion and growing at 20% annually.

We are currently in active discussions with a number of companies concerning the commercialization of CHRON OGESIC.

I will turn the call over to Dr. Felix Theeuwes, our chairman and chief scientific officer to discuss highlights from other R and D programs.

We continue to make (inaudible) in our efforts and positive activities focused on chronic de(inaudible) we announced an agreement with (inaudible) pharmaceutical corporation for development and commercialization of the patented treatment for the management of Alzheimer's.

We are very excited (inaudible) have selected us for use in (inaudible).

Alzheimer's disease is a nerve disorder affecting four million Americans.

Alzheimer's Disease is a huge medical program that leads to memory loss, impairment in behavior and language and physical deterioration.

The market potential for Alzheimer's Disease treatment is estimated to be in excess of 10 billion dollars.

Under the agreement with (inaudible), has a right to commercialize the product on worldwide basis.

We will receive payments (inaudible) upon milestones, payment for R and D expenditures, as well as royalty, based on product sales.

We are excited to be (inaudible) Voyager's identification of such an innovative metal of statement.

We believe this product exemplifies the opportunities available to us (inaudible) platforms, such as new technology to develop more therapies.

In addition, this program broadens our franchise.

By doing (inaudible) technology is a platform for delivery of drugs for pace of weeks, six months or more.

Technology is based on the use of (inaudible), which has proven effective use in approved drug delivery systems and medical device products.

We also continue to make progress in other internal development programs and we are happy to report that we have initiated enrollment of patients in a phase I clinical study to investigate delivery of (inaudible) sodium for the treatment of (inaudible) and allergic rhinitis.

If this trial is positive, it will initiate drug based on one of our proprietary (inaudible). (inaudible) safety profile therapies were established.

When (inaudible) therapy is not effective, it is believed to be due to patients failing to take the medicine on prophylactic basis. (inaudible), namely inhalation is irritating for the airwaves and discourages the patients from taking the drug.

The development of the (inaudible) impact on patient compliance and may prove the benefits of (inaudible) to a broader patient population, particularly if it proves to be steroid sparing.

With optimal dosing, chrome (inaudible) phase one clinical study have asthma and we will be evaluated during multiple visits. (inaudible) will be assessed exercising asthma, as functions range of (inaudible).

We look forward to providing you with updates as the program unfolds.

In summary, we would like to restate our goal for the remainder of the year, that is to continue to make progress on the CHRONOGESIC (inaudible) R and D and expansion of partnerships for new technologies.

Thank you very much for participating in this call.

We would like now to take the opportunity to answer some of your questions. 00:26:11

Thank you.

The question-and-answer session will begin at this time.

If you are using speakerphone, pick up the handset before pressing numbers.

Should you have a question, please press 1, followed by 4 on your push button telephone.

To withdraw, press 1, followed by 3.

Your questions will be taken in the order they are received.

Please stand by for the first question.

Our first question comes from Mara Goldstein.

Please state your affiliation and your question.

Thank you very much.

CIBC World Markets.

Tom, could you talk about the financial outlay for the CHRONOGESIC program and how you would expect that to play out should you not find a partner for the product for the phase III program.

Let me provide guidance for Q3.

We are reaffirming our guidance of 2002.

We expect our net loss for the third quarter of 2002 to be in the range of 11 to 11 and a half million or 23 to 24 cents per share.

Again, our estimates include non-cash charges for the amortization of intangible assets and stock-based compensation of about $800,000 for the third quarter of 2002.

Mara, directly, we have high expectations and hopes with regard to our partnership efforts.

We expect that by the end of the year, we will have a partnership in place.

You may know, again, our cash is approximately $58 or $59 million, with additional restricted investments.

But, we think that that in combination with a partnership, will significantly augment our cash position going forward.

Thank you.

Our next question comes from Corey Davis, please state your affiliation, followed by your question.

I am with J.P. Morgan.

My question is on the enrollment rate of CHRONOGESIC phase III.

We worry about enrollment taking longer.

Can you give us comfort that enrollment won't take inordinate amount of time.

Is the gating factor for when it will finish the one-year safety trial or might the other ones take longer?

That is a good question.

Look at a clinical trial and here is what people look at.

First off, we expect for the longest duration study we have in the program will be the one-year trial.

It will be enrollment of the last patient in the trial that finishes up the full year.

I can only say with regard to overall normal rate.

We were pleased with the enrollment rate in phase II program.

We had 60 patients and we had expected a good length of time.

I think we allowed for 6 months and it had taken less than 2 months to fully enroll the program.

The initial look at the product, the enrollment rate exceeded expectations.

So far, since we just initiated this in June, we are pleased with progress to date.

We have patients being dosed by the trials underway.

As we make progress, we will give you additional information.

You mentioned you were replacing opiod(phonetic) use.

Are there specific types of pain patients this trial is restricted to?

What type of competition for the patient system out there for other drugs and development is this

The interesting thing is we are not restricted to any particular pain source.

All we need is for a patient to be opiod responsive.

If a patient has chronic pain and opiod responsive, they are potential patient in this trial.

That is a huge percentage of patients out there.

As far as the patients that we would be looking at competing for, with regard to clinical trials, it would be any patient in a patch or pill program.

What we are seeing is a lot of interest from both of those patients as far as desire to be involved with this trial.

Tom spoke briefly about the partnership discussions.

We have had high level of interest and activity from a number of partners and expect we will have more toward the end of the year.

Interesting to me is to note the size of the opportunities some are coming back with, as far as the number of patients they expect might convert from a pill or patch over to CHRONOGESIC.

I might add, in pharmacy discussions, they are covering the fact we will be indeed competing head-on with pills and patches.

It is a very real product like CHRONOGESIC that comes along once in a while, where you have significant added value, together with the very strongly ethnicity we have.

I think we have a very excited product here and our partners are confirming that.

Okay.

Just to be clear, you said four different trials.

One open label and then, trials II and III are placebo controlled, correct?

The fourth is versus active arm for Europe?

Most likely, yeah.

Okay.

As far as enrollment, you mentioned that the end would be 100 in in the first trial.

Is it roughly equal between the other trials?

The enrollment can be hire.

We want 100 patients to be dosed for a full year.

We will try to space out the patients between all the trials as equal as we can.

Okay.

My last question is for Felix.

Is there could evidence that Lupride(phonetic) works in Alzheimer's?

How would your technology be different than using Lupron(phonetic) or Liadrif(phonetic)?

The first part of the question, Richard Bowen is one of the co-founders.

He was a physician who was treating an Alzheimer's patient who also had cancer.

He basically made the observation that the patient, after four years of treatment, his Alzheimer's had not significantly progressed.

A number of studies were subsequent to be carried out to find out Alzheimer's patients had very high levels of (inaudible) and the hypothesis was to be proven that this treatment would work.

There are other indications out of the past, that you may recall, where women on estrogen, for example, have low instances of Alzheimer's, which fits the hypothesis.

Now, this treatment is a patent protected treatment, essentially because of the use of the compound.

Just like, for example, a patent was filed on (inaudible), while previously the hospital had (inaudible).

It is something that happens on an occasional basis, but rarely one finds existing compound with a great deal of safety behind it that can be repositioned.

So, while it may potentially be true, the dose is in the range of (inaudible) cancer treatments are in the same range and that is totally unclear at this point.

If they were the same, people may not be able to make those claims and may not be able to sell the products based on patents Voyager has.

Okay.

Great.

Thanks, guys.

Our next question comes from Cindy Glass.

Please state your affiliation, followed by your question.

Hi, good afternoon.

Bank Equity Partners.

Today and tomorrow, there are meetings going on in Washington with the FDA with the arthritis committee.

I think the topic being pain trials, in particular chronic pain.

Do you expect anything to come out that have implications for pain study in general and anything that might be beneficial to DURECT in specific?

Beneficial-(inaudible) is at that meeting.

We are standing by to find out what his findings are going to be.

One thing we can say so far, we have seen a trend in the market place, for the use of lower dose opiates in the treatment of arthritic pain. (inaudible).

It might be lower dose CHRONOGESIC drug has opportunity.

This is upside to the comment.

Thank you.

Our next question comes from Patrick Flannagan.

Please state your affiliation.

(inaudible) hi, it is (inaudible).

In terms of the other phase III clinical trial that is we expect in the latter half of this year, which ones are most likely to begin, the comparative study in the U.S. or Europe first or the two studies in the U.S.?

If it is the two in the U.S., how do you expect that to impact enrollment of the safety study?

We are completing the safety study first.

We are working on that one because it is longer duration.

The other trials are three-month duration in each patient.

Our focus is (inaudible), then we will enroll the other trials.

Okay.

And then for the Cromalen(phonetic) study, what is the internal assumption as to what success would be in that phase I study to determine if you go forward with testing the compound?

Weapon obviously, Cromalen(phonetic) has an extensive safety record in the treatment of (inaudible).

We are testing the hypothesis, which concentrations will be necessary to achieve what (inaudible).

We are testing what are previously up to date. (inaudible) to the lung.

The hypothesis that we are pursuing is if circulation, will you get equal efficacy?

We are not trying to (inaudible) are.

If we find plasma concentrations that are effective, that would be the first question we will need to answer.

Secondly, at what plasma concentration, in other words, a plasma concentration obviously has to be consistent with delivery profile that we can make convenient (inaudible) by.

And we are obviously hopeful that that will be answering both of those questions.

Okay.

Thank you.

If there are further questions please press 1, followed by 4 at this time.

Our next question comes from Tim Comb, please state your affiliation, followed by your question.

U.S.

Bancorp Piper Jaffray.

In the CHRONOGESIC trial (inaudible).

Actually we have those two options.

We have three options.

We could make a (inaudible), as well.

So, again, it will depend on the magnitude of the plasma concentration, the delivery profile and eventually the convenience.

We haven't done a full marketing study to date.

We will find out if people prefer 3 month, 6-monthor one year injectible.

We will take that into account.

The phase I trial has three different arms to it?

(inaudible) infusion.

We are not using the actual (inaudible).

Also, Tim, we may develop more than one dosage form.

We may end up with injectible product for hay fever or asthma or something.

Good.

Thank you.

Again, if there are further questions, please press 1, followed by 4 on your bush button telephone.

If there are no further questions, I will turn back to Mr. Greenway to conclude.

Again, we appreciate everyone participating in this call.

We look forward to updating you at our third-quarter 2002 conference call.

Thank you.

Ladies and gentlemen, that concludes our conference call for today.

Thank you all for participating.

Have a wonderful day.

If you would like to access the rebroadcast dial 800-428-6051 and international dialers call 973-709-2089, and please enter the id code 246-967.

All participants 00:39:53 may now disconnect.