DURECT Corp (DRRX) 2003 Q2 法說會逐字稿

Good afternoon and welcome ladies and gentlemen, to the DURECT Corporation second-quarter 2003 financial results conference call.

At this time I would like to inform you that the conference is being recorded and that all participants are on a listen-only mode.

At the request of the company, we will open the conference for questions and answers following the presentation.

I would now like to turn the conference over to Mr. Schond Greenway, Senior Director of IR and Strategic Planning.

Please go ahead, sir.

Good afternoon, this is Schond Greenway and on behalf of everyone here at DURECT we would like to welcome you to our second-quarter 2003 financial results conference call.

I have with me today Jim Brown, our CEO;

Tom Schreck, our CFO; (technical difficulty), our Chairman and Chief Scientific Officer; and Jean Liu, our Controller.

The order of the call will be as follows, Tom Schreck will review DURECT's second-quarter financial results, next the call will be turned over to Jim Brown to discuss the highlights of the quarter.

Afterwards we will open up the call for a question-and-answer session.

Before I turn the call over 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 DURECT's products and development, prospective product benefits, (indiscernible) 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 forward-looking.

Potential risks and uncertainties include but are not limited to, DURECT's ability to complete the design, development, and manufacture of this product, chief milestones that would trigger payments for third parties pursuant to collaboration agreements, (indiscernible) products, attain product and manufacture improvements from regulatory industries, management's growth and expenses, manager relationships with third parties, financing activities and operations, as well as marketplace acceptance of DURECT's product.

(indiscernible) information regarding these and other risks are included in DURECT's annual report on 10k for fiscal year ended December 31st, 2002, filed with the SEC on March 14th, 2003, under the heading Factors that may effect (indiscernible) results.

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

Thanks Schond.

Good morning everyone and thanks for joining our second-quarter 2003 earnings conference call.

We are very pleased with our second-quarter results and proud of our accomplishments thus far this year.

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 a three months ended June 30, 2003, was 5.1 million or 10 cents per share.

Compared to $9.9 million or 21 cents per share for the same period in 2002.

Our results for the three months ended June 30, 2003 included non-cash charges for the amortization of intangible assets and stock based compensation of 470,000 compared to 820,000 for the same period in 2002.

Cash used in operating activities was $3.6 million for the three months ended June 30, 2003, compared to $8.8 million in the same period of 2002.

Total revenues were $3.2 million for the three month ended June 30, 2003, compared to $1.8 million for the same period in 2002.

The increase in total revenues was primarily attributable to higher collaborative research and development revenue recognized from our agreements with Pain Therapeutics, Bio Partners, Voyager Pharmaceutical and other strategic partners and higher product sales from our various product line.

Research and development expenses were 5.3 million for the three months ended June 30, 2003, compared to 8.2 million for the same period in 2002.

In the three-month into June 30, 2003 was primarily attributable to the lower development cost related to our lead product Chronogesic, compared with higher development costs associated with the Phase III trial for Chronogesic in the same period in 2002.

In addition, the decrease in the research and development expenses was also the result of the lower personnel expenses in the second-quarter of 2003, compared with the same period in 2002.

Selling, general and administrative expenses were $2.2 million in the three-month ended June 30, 2003 compared to $2.4 million for the same period in 2002.

The decrease was primarily attributable to continued cost savings in personnel legal, and facility expenses due to a higher focus on tighter cost controls in all areas of our business.

June 30, 2003 DURECT had cash and investments of $86.7 million, including $3.3 million in restricted (technical difficulty) compared with cash and investments of $43.2 million at March 31st, 2003.

This increase was primarily due to the net proceeds of approximately 47.2 million received in June, 2003 from a sale of $50 million of aggregate principal amount of convertible notes due 2008.

On July 14th, 2003, the company received a roughly $9.5 million in net proceeds from the sale of an additional $10 million of convertible notes.

These convertible notes will be convertible into DURECT common stock at a conversion price as $3.15 per share and will bear interest at a rate of 6.25 percent per annum.

After giving effect of the sale of the additional 10 million principal amount of the convertible notes, we received net proceeds of approximately (technical difficulty ) million after deducting underwriters discount and other offering expenses.

From the sale of 60 million aggregate amount of convertible notes.

This financing gives us the flexibility and liquidity to fund additional research and development and commercialize existing and future products.

Our current cash position combined with the potential collaborative funding provides us with a solid financial foundation to reduce the risk profile of the Company and to broaden our product portfolio mix for successful commercialization of our proprietary and partnered products.

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

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

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

Thank you Tom.

Good afternoon everyone and thanks for joining us.

The two main points I want to convey to you on this conference call are the status of our Chronogesic program and the progress we had made with our other development programs.

Our near-term objective for Chronogesic had been to address issues around the premature shutdowns of delivery systems.

To valuate the potential for shipping to a terminal sterilization manufacturing process, manufacture of our clinical batches and to move this program back into the clinic by the end of this year.

During the course of this year, we've kept several products (technical difficulty) in both in vitro and in animal studies.

To evaluate the system design enhancements we have implemented to our Chronogesic product.

While we continue to perform additional analyses and generate data around our revised design, we are pleased to report that we have data from animal studies that confirm that our Chronogesic pump delivers for the full ninety-day duration of the product delivery period.

We have also completed an extensive number of studies to determine that we can terminally sterilize our Chronogesic product, thus reducing our manufacturing cost.

At present we are finalizing our validation package for terminal sterilization and look forward to reporting on its completion.

We also continue to dialogue and work with the FDA to implement their input into the amended clinical protocol for Chronogesic, which includes additional patient monitoring and data collection.

During the remainder of this year we intend to complete the validation package to enable terminal sterilization of our product, manufacture product to support clinical trials and began dosing in our clinical program.

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

In June of this year, we commenced clinical testing for our post-operative pain relief product, which addresses the pain management needs for more than 20 million patients recovering from surgical procedures performed annually in United States.

This (indiscernible) which uses our SABER technology and local anesthetic is designed to be administered around a surgical site for post-operative pain relief. (indiscernible) , the activation for our product, is currently FDA approved for use in hospitals as a local anesthetic and is typically administered to patients in the post surgical setting to provide pain relief for four to six hours.

One dose of our post operative pain relief is intended to provide up to three days of regional pain relief, which is a substantial improvement for patients when compared to conventional practices.

In our market research, physicians indicated that this product concept would represent an innovation over currently available post-operative pain relief therapies.

We believe this product could potentially reduce the amount of post-surgical drugs needed and side effects experienced by patients, as well as shorten hospital stays for these patients.

(technical difficulty) clinical trial was an important milestone for DURECT and our SABER development program.

This clinical trial was initiated in normal, healthy volunteers in Europe.

Objective of this study are to determine the safety, and tolerability of SABER and SABER Bupivacaine.

And to determine the drug delivery profile over three days for SABER Bupivacaine administered subcutaneously.

We are very excited about the prospect for this product and are containing discussions with a select number of potential partners regarding a commercialization agreement.

With regard to our other product pipeline products, we continue to make great progress with both our internally and externally funded and partnered programs.

We continue to achieve our development milestones and capture significant economic value from these collaborations.

We expect to move another program into the clinic later this year, and we look forward to providing additional information on these programs as progress is achieved.

In summary, during the second-quarter of 2003, we continue to make good progress was the Chronogesic program; advance our development programs and strengthen our financial position.

We have potential blockbuster products in development for the treatment of chronic debilitating diseases ranging from chronic pain and post-surgical pain, to hepatitis C and Alzheimer's disease.

We (indiscernible) our focus on utilizing our technology and utilizing our technologies to enable biotechnology products and execute on our plan to become a self-sustaining business model in the near term.

Once again thank you very much for participating in this call, we would now like to take any questions that you may have.

(CALLER INSTRUCTIONS) Gary Nachman with Morgan Stanley.

Regarding Chronogesic, I understand that you were able to complete animal studies showing ninety-day duration, but what exactly is the additional analysis that needs to be done on the revised design of the product and could this potentially hold up things at all?

We will work from here forward along the standard line to our development activities, which is basically to continue to work in our in vitro and in vivo setting to check on specifications.

We will also plan for (indiscernible) manufacturing process and looking forward to getting back into our PK studies and clinical trials.

Unfortunately, the specific details of all the tests that we are going through and the specific designs of the system, we cannot go into at this point in time, because we are in the process of filing additional patents around subject.

Thanks.

Regarding SABER Caine, you mentioned that you are in talks with commercialization partners, can you give us a sense of how far along you might be right now?

We are in discussions with a number of partners, what we are doing now as a Company is going through our -- beginning our 2004 portfolio process, we are looking at our budge cycle and basically, I would say early stages discussions rather than late stages.

We're looking at the process of how we spend our dollars and when do we want to budget and when do we want to partner these programs.

Obviously the earlier we partner them, typically you get less return, the longer you hold on to them the greater return.

Obviously, as well with the strength of this financing it gives us a lot stronger position in our negotiating procedures in regard to flexibility of the company.

Finally, you said that you plan on having another program into the clinic by the end of the year.

You previously said that you expect SABER Gel Caps to go into the clinic in the second half of this year, is that sort of the program that you're referring to?

At this point I don't think we want to be more specific that we have been in the conference call.

Because we have a number of projects that can actually go to the clinic this year.

One last one for Tom.

You gave us third-quarter guidance, can you update us on full-year guidance?

Has that changed from what you said previously?

No change.

Thank you.

Corey Davis with J.P. Morgan.

A series of questions and the first would be just to make sure that I've got it right, the modifications to Chronogesic and are there modifications that you plan on making beyond the terminal sterilization process?

At this point we have a system that is fully operation for 90 days.

That system is being slated to go back into the clinic.

We will continuously monitor the performance of the system throughout this and potentially make minor modifications if that is warranted.

But at this point is performing quite well according to specifications that we're seeing.

Your statements and what is in the press release is that you hope to begin clinical program by the end of this year, does that mean Phase III or is there potentially some more human studies that need to be done before you formally start the big Phase III?

Our plan is also to start the PK study and we will see how far we get through the PK work and back to the Phase III, also depends on negotiation discussions with the FDA.

How much do you want to say about the PK study in terms of number of patients and how its designed?

We have in the past already executed on a PK study and I think the data is in fact in publication as I recall.

The study that we will be doing will be very similar along the same lines.

Why is that necessary, just because of the modifications you made with product?

We have a very good in vitro and vivo coalition and one could make the point that it is really not necessary.

But at this point we take the option to really make sure that we go through all the steps and that there are no uncertainties on anybody's part.

Just keep up everybody's confidence we will be putting in back into PK study.

Thanks.

Mara Goldstein with CIBC World Markets.

I have two questions.

Just following up on Corey's question.

Does PK study qualify under the terms of your agreement with Endo as a point in time in which you receive payment from Endo and funding in the program?

Secondarily, you got obviously issues around (indiscernible) and what not, can you kind of walk us through what other process or what has to happen to finalize the validation package?

The term of (indiscernible) is actually a routine piece of this.

What one does is initially test and ensure that the entire design itself can eradicated and function as one expects.

And ensure that the product itself is stable under those conditions, and those are the kind of activities that we have already undertaken in large part.

And then the final component of all of that is just showing that terminal sterilization itself with all these pieces together will knock out any bugs that might be present.

So it's a fairly traditional process of validation.

Your questions regard to the Endo, we really haven't made too many comments with the specifics that we have them.

We have said that when we are back in the clinic as far as ghosting patients (technical difficulty) is one or back in with regard to the placebo control trial.

At that point in time they will be contributing on a half time basis with us.

There are other components with regard to over time that also move into play as well, that are written into the contract.

So it is all a timing thing.

So based on having seen the PK study's first, if not certain that you'll actually begin the placebo control part within the scope at the end of this calendar year?

I think we are going to take these things kind of one at a time, what we are going to do is complete the terminal sterilization processes obviously initiating complete our (indiscernible) manufacturing and then conduct this work in conjunction with other discussions with the FDA and then on the heels of that, start dosing.

Thinks.

(CALLER INSTRUCTIONS) If there are no further questions I will not turn the conference back to Mr. Greenway, for closing comments.

We want to thank everyone for joining this conference call and look forward to updating you on our progress on our third quarter call.

Thank you again.

Ladies and gentlemen, if you wish to access the replay of this call, you may do so by dialing 1-800-428-6051, or 973-709-2089 with an ID number of 300138.

This concludes our conference for today, thank you all for participating and have a nice day.

All parties may now disconnect.

(CONFERENCE CALL CONCLUDED)