DURECT Corp (DRRX) 2003 Q1 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to Durect Corporation's first quarter 2003 earnings conference call.

At this time, I'd like to inform you that this conference is being recorded and all participants are in a listen-only mode.

At the request of the company, we'll open up the conference for questions and answers after the presentation.

If you wish to access a replay after the conference, call 800-428-6051 with an I.D. number of 289571.

I will now turn the conference to Mr. Schond L. Greenway.

Please go ahead, sir.

Hello, everyone and good afternoon.

This is Schond L. Greenway.

On behalf of everyone at the company, we would like to welcome to you our first quarter 2003 financial results conference call.

I have with me toy Jim Brown, our CEO, Tom Schreck, our CEO, Felix Theeuwes, and Jean Liu our comptroller.

Tom Schreck will review the first quarter 2003 financial results.

Next the call will be turned over to Jim Brown to discuss the highlights of the quarter.

Afterwards, we'll open the call up for question and answers session.

Before I turn the all cover to Tom, I would like to remind you of our safe harbor statement.

During the course of this call, we may make forward-looking statements regarding product development plans, future clinical trials or potential product markets.

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

Potential risks and uncertainties include but not limited to development and manufacturing process, development of its products, achieve milestones that would trigger payments from third parties pursuant to collaboration agreements, obtain product and market approvals for regulatory agencies.

Mag its growth and expenses, manage relationships with third parties, finance 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 form 10 k for the fiscal year ended December 31, 2002 filed march 14th2003 under the heading of factors that may affect future results.

I will now turn the call over to Tom Schreck.

Thanks, Schond.

Thanks for joining our first quarter 2003 earnings conference call.

We are happy with our first quarter results and proud of our accomplishments thus far this year.

I am 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 31st, 2003 was $5.9 million or 12 cents per share compared to 20 cents per share for the same period in 2002.

Our results for the three months ended march 31st, 2003 included noncash charges for the amortization of intangible assets and stock-based compensation of 181,000 compared to the same period in 2002.

Total revenues were $2.6 million for the three months ended march 31st, 200 3rks compared to 1.6 million for the same period in 2002.

The increase in total revenues was primarily attributable to higher collaborative research and development revenue recognized from the strategic collaborative agreements, the company signed with Pain therapeutics, voyager pharmaceutical corporation and other corporate partners in 2002.

Research and development expenses were $5.6 million for the three months ended march 31st, 2003, compared to $8 million for the same period in 2002.

The decrease in the three months ended march 31st, 2003 was primarily attributable to the lower development cost related to the lead product Chronogesic compared with higher costs associated with the aseptic manufacturing and other preparations required for the phase three trial for Chronogesic the same period of 2002.

In addition, the decrease in the research and development expenses was also the result of cost savings due to the reduction in force in the fourth quarter of 2002.

Selling general and administrative expenses were $2.2 million in the three months ended march 31st, 2003, compared to $2.3 million for the same period 2002.

The slight decrease was attributable primarily to additional cost savings in personnel and other corporate infrastructure expenses as we continue to focus on tighter cost controls in all areas of our business.

At march 3 1st, 2003 Durect had cash and investments of $43.2 million in restricted investments compared with cash of $48.3 million at the end of the year 2002.

We expect our net loss for the second quarter of 2003 will range from 7 million to 7.5 million or 14 cents to 15 cents per share.

Our estimates include noncash charges for the amortization of intangible assets, stock-based compensation and depreciation of approximately $1.3 million to $1.4 million for the second quarter of 2003.

We are very pleased that quarter over quarter we have continued to offset our cash by virtue of our corporate collaborations and anticipate this trend will continue in the future.

Throughout 2003 we will continue to build and strengthen our company by executing on our strategy, focusing on increased revenues and leveraging our corporate collaborations.

I will now turn the call over to Jim Brown, our President, CEO to discuss recent highlights of our business during the first quarter of 2003.

Thank you, John.

Good afternoon, everyone, and thanks for joining us.

We continue to enhance the value of our business over the past quarter.

Three main points I want to convey to you on this conference call are, the status of our Chronogesic program, progress with our other development programs both partnered and internally funded and finally our revenue growth and associated reduction in cash burn.

For the first quarter in 2003, we've made significant progress in the terminal sterilization manufacturing process for and enhancements to our Chronogesic product.

We have completed an extensive amount after analysis to determine if Chronogesic can be terminally sterilized, thus reducing our costs of manufacturing once the product is commercialized.

To date, we have data indicating all of the components used to create the Chronogesic product can be terminally sterilized.

At present, we continue to perform the necessary tests to validate this process and we look forward to receiving the final results.

We are also currently testing several product iterations and parallel both in vitro and animal studies.

Given the progress of terminal sterilization and system optimization, we remain confident that we will move this program back into the clinic in the second half of the year.

During the remainder of this year, we intend to complete the required technical enhancements to our product, manufacturer product to support clinical trials, gain FDA approval to commence clinical trials on the product and begin dosing in our clinical program.

We look forward to informing you of the progress on these goals through public announcements as these milestones for the Chronogesic program are achieved.

With regard to our Saber program for the treatment of mostoperativeain, we are on track to begin human dosing.

We received IRB approval from the clinical site we will use to conduct our initial clinical study for that program and look ford to updating you on our clinical outcome.

As you may recall, we are developing a sustained release of a local anesthetic using our Saber delivery system for the treatment of post operative pain.

Physicians would administer the product at the time of surgery.

We believe that by delivering effective amounts of a local anesthetic to the surgical wound, adequate pain control can be achieved with minimal exposure to the remainder of the body.

This product could potentially reduce hospital stays, the amount of traditional post surgical pain products needed by patients as well as their associated side effects.

We expect that that product will provide local delivery of the anesthetic for two to three days, which coincides with the greatest need for post surgical, pain control and most patients.

There are more than 20 million surgical procedures performed annually in the United States for which this product could be potentially utilized.

We are very excited about the prospects nor product and have held discussions with a selected number of potential partners regarding a commercialization agreement.

Our first announced biotechnology development program is for a sustained release Saber injectable formulation of recombinant Interferon alpha for the treatment of hepatitis c.

Our partnership is progressing well and we are happy to announce we have initiated animal studies for this program one quarter ahead of schedule.

We are pleased with the achievement of the team and completing this initial development milestone, and we look forward to continuing to make progress with Biopartners on this program.

If you recall, Biopartners is competitively priced by pharms.

Its funders and board members are made up of some of e most respected and recognized leaders in the pharmaceutical industry, including the former chairman of SmithKline Beecham and of Merck KGA.

The hepatitis c product we're developing with biopartners will use to direct Saber and biopartners recombinant Interferon alpha.

Biopartners plans to develop a full line for this product.

The worldwide recombinant Interferon alpha market was worth $1.8 billion in 2001, and it's forecasted to grow to 5.5 billion in 2010 due to added convenience offered by sustained release as well as the predicted rise and prevalence of hepatitis c.

One of the particular developments is that Saber does not require the Interferon.

Saber allows for a sustained release of the unaltered natural molecule.

In our program with pain therapeutics, we are developing gel cap formulations for the treatment of pain.

One goal of this project is to demonstrate that our patented control released gel cap formulation could reduce the abuse potential of these oral opiates.

Data from [INAUDIBLE] is very encouraging.

This program is progressing well and we anticipate moving this into the clinic in the second half of this year.

We also continue to make good progress with our other partner development programs.

In summary, during the first quarter of 2003, we continue to make progress in our research and development program while growing our revenue and reducing our cash burn.

To date, our signed collaborative agreement have the potential to provide up to an estimated $135 million in R&D funding and milestone payments.

These potential funding sources in conjunction with the $43 million in cash and investments reported on our balance sheet at quarter end provide Durect with a solid financial foundation to continue to advance our product development, activities and operations.

These collaborations also help to reduce the risk profile of our company by broadening our mix and validating our own technology platforms.

We anticipate we will continue to forge new collaborations with pharmaceutical and biotechnology companies throughout 2003.

In closing, we're making good progress with Chronogesic and look forward to this product being back in the clinic later this year.

At the same time, we are advancing out other internal and partner development programs, increasing our revenues, while reducing our cash burn.

Durect is a company with a broad-based, cutting-edge technology strength.

We are developing [INAUDIBLE].

Thank you, sir.

If you are using a speaker phone, please pick up the hand set before pressing any numbers.

Should you have a question, press star one on your push button telephone.

If you'd like to withdraw your question, please press star two.

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

Please stand by for your first question.

Our first question comes from Mark Goodman with Morgan Stanley.

Please state your question.

Hey, guys.

Could you just give us a flavor for what's been going on behind the scenes in order to give us more comfort that the phase three trials for Chronogesic will be starting in the second half?

Well,Mark, it's progressing as we outlined..

The process is one where we put in place to validate ta piece then manufacturer our clinical batches, reach final concurrence on the protocol and start the trials.

What we'll be doing is we'll actually be making announcements as we achieve each of these milestones.

When we announce the completion of the clinical batches, from there until lot releases is three months because of the length of duration of the product.

So just have a general understanding of that time.

And second of all, can you just give us a flavor for, you know what kind of milestones we should be expecting for the rest of the year?

I think I would look at those four milestones.

With Chronogesic manufacturing the batches, the agreement on the protocols and back in the clinic.

Then with regard to Saber, the initial clinical trials will start soon on that one as well as announcing additional partnership agreements and maybe perhaps other additional clinical information with other programs.

Okay.

Thanks, Mark.

Our next question cops from Deb Nobleman with JP Morgan.

Please state your question.

Hi, guys, how are you?

This is a modeling question.

Your top line is higher than expected.

Can we expect sequential growth from the top line based on the R&D revenue?

Well, we're very pleased with the top line growth, and clearly, that's a result of the collaborative R&D.

So year-over-year, we're going to be lev raving our platform technologies and initiating new collaborations so, you know, we are highly, I think, buoyant about that opportunity.

Okay.

But sequentially, do you have any feel for how it will be?

Yeah.

I wouldn't at the moment, you know, get into sequential numbers.

I think really we want to reiterate again that, you know, in terms of top-line guidance in the 12 to $14 million range, we're still very comfortable.

Okay, great.

Good quarter, guys.

Thank you.

Our next question comes from Mara Goldstein with CIBC.

Please state your question.

Can you hear me okay?

Great.

Okay.

I wanted to touch base for a second on the protocol issue and maybe if you could explain to us what has to happen, whether this is a conversation between you and Endo and the FDA, how long the scheduling of that takes, so we have a better sense of what the second half of the year might look like from an fda per expect sniff

Well, you know, the events that need to occur finally since we have a partner is obviously to agree with the partners on finalizing and optimizing the system and then starting into the finishing the thermal sterilization and also working through the protocols which we need to get going into the clinic.

So we would expect that -- in fact, we under conversations with our partners on a weekly basis, and we expect to have that agreement worked out in the next several months and be ready to have our conversations with the fda during the subsequent months and being able to start the clinical trials at the end of the year.

Okay.

And just other than the initial share purchase, no funds have exchanged hands between you and Endo, at this point, correct?

That's correct.

Thank you.

Our next question comes from Cindy Glass with Think Equity Partners.

Please ask your question.

Good afternoon.

I have a question about Saber pain product.

Given that is a drug for acute pain, Could we expect that this trial could go fairly quickly once it's in humans and, in fact, could we see almost a parallel tract in terms of fda submission, approval with Saber? -- I mean, not Saber, but Chronogesic?

Cindy, I appreciate the question, I think it's a good one.

It begs a question with a number of these programs.

We're obviously very, very bullish and looking forward to Chronogesic tremendously because it is a great opportunity and great product for us but to look at the Saber product and think can it move more quickly through the clinical process.

One would expect it has to opportunity since it will only be in each patient for three days versus three months so you have the potential to move that project faster through.

Right now, we haven't partnered -- partnered it.

When we have a part in place and it's most likely we will at some point in time that will be changing by the direction gained from that partner.

With regard to our other programs, either oral or some of the other products we have developing, some may move more rapidly than others.

So for one to expect that one of these could be challenging Chronogesic, I think it's not impossible to conceive of that.

Great.

Thank you.

Thank you.

As a reminder, ladies and gentlemen, if you do have a question, please press star one on your push button telephone at this time.

Our next question comes from Patrick Flanigan from Adams, Harkness & Hill.

Hi, guys.

Is your commercialization partnership strategy with Saber cane that you want to sign the partner after the phase one study but before the phase two or would you take this one in the phase two before signing a partner?

You know, the partnership comes about when both partners feel comfortable.

So we have committed to take this drug forward on our own.

The further we take it, you know, the more we will see in return.

But certainly, we are talking to a number of partners now.

If the right time and right partner came along, we will sign up.

Can you give us more detail on the phase one study in terms of how many patients and centers?

It will be a single center study so just an initial study, just looking at an initial basically kind a dose response really.

It's injection and duration -- duration of activity.

It's basically, the study has to do with safety so we really basically investigate the kinetic response to the drug and also the size of registration and how it stimulates over the distance to learn more about what that final drug should be looking like.

Yeah.

We've seen encouraging data in our preclinical work in animal models, but we're looking for it in humans.

Okay.

Can you just give us an update on the Chromolyn program?

With Chromolyn, we have data that means response of human control [INAUDIBLE] to the drug as challenged.

At this point, we are analyzing that data and our goal is to discuss this opportunity with some partners in that industry in order to take the drug forward.

I'd say at this time, we're in partnership, early discussions with people.

Okay.

And do you still have the goal of starting a phase one-two study in asthmatics?

We have good evidence at this point of the response to the drug, and I think at this point in time, we need to really get together with a partner to decide what a marketing program should be, and to focus this product where it needs to be sitting in the marketplace.

That's a good point, Felix.

When you talk to certain partners, seems they want to look at one aspect versus another.

Just one last question on the modeling.

I was wondering if that collaborative R&D with most of that milestone related or funding for on going R&D?

Typically, our collaboration agreements with partners are such that partners way the work as we go.

Our goal is obviously to share in return when the products get to the market, then it's in the industry.

Okay, great.

Thank you.

Thanks, Patrick.

If there are any further questions at this time,please press star one on your push button telephone.

If there are no further questions, I'll turn the conference back to Mr. Schond L. Greenway for closing comments.

Once again, everyone, we would like to thank you for participating on this call.

I look forward to updating you on our second quarter, 2003 earnings call.

Thanks again, everyone.

Ladies and gentlemen, if you'd like to access a replay for this conference call, you may dial 800-428-6051 or 973-709-2789 with an I.D. number of 289571.

This concludes our conference call for today.

Thank you all for participating and have a wonderful day.

All participants may now disconnect.