DURECT Corp (DRRX) 2003 Q4 法說會逐字稿

Good afternoon and welcome ladies and gentlemen to the Durect Corporation to the fourth quarter and year end 2003 financial results 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 will open the conference up for questions and answers after the presentation.

I would now like to turn the conference over to Schond Greenway, Head of IR and strategic planning.

Please go ahead, Mr. Greenway.

Hello everyone, and good afternoon.

On behalf of everyone here at the company, we would like to welcome you to our fourth quarter and year end 2003 financial results conference call.

I have with me today Jim Brown, our CEO;

Tom Schreck, our Chief Financial Officer;

Felix Theeuwes (technical difficulty) and Chief scientific Officer and Jean Li, our Controller.

The order of the call will be as follows.

Tom Schreck will review Durect's fourth quarter year end 2003 financial results, next the call will be turned over to Jim Brown to discuss the highlights of the quarter and 2003.

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

Before I turn the call over to Tom, I'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 and development, expected product benefits, product development plans, future clinical trials, potential product markets and projected financial results.

These forward-looking statements involve risks and uncertainties that can differ materially from those in such forward-looking statements.

Further information regarding these and other risks are included in our annual report on form 10-K and quarterly reports on form 10-Q filed with the SEC under the heading -- factors that may affect future results.

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

Thanks.

Good afternoon everyone and thank you for joining our fourth quarter and year end 2003 earnings conference call.

I will briefly review the financials before asking Jim Brown, our President and CEO, to review the highlights of the quarter and fiscal year in greater detail.

Our net loss for the three months ended December 31, 2003 were $5.3 million, or 10 cents per share, compared to a net loss of $8.5 million, or 17 cents per share for the same period in 2002.

Our results for the three months ended December 31, 2003 included non-cash charges for the amortization of intangible assets and stock-based compensation of 373,000 compared to 103,000 for the same period in 2002.

Cash used in operating activities was $6.1 million for the three months ended December 31, 2003 compared to $8.4 million for the same period in 2002.

Our net loss for the year ended December 31, 2003 was $22.7 million, or 45 cents per share compared to a net loss of $37.2 million, or 77 cents per share for the same period in 2002.

Our results for the year ended December 31, 2003 included non-cash charges for the amortization of intangible assets and stock-based compensation of $1.2 million, compared to $2.5 million for the same period in 2002.

Cash used in operating activities was $19.3 million for the year ended December 31, 2003 compared to $31.3 million for the same period in 2002.

Total revenues were $3.1 and $11.8 million for the three months and the year ended December 31, 2003, respectively, compared to $2 million and $7.2 million for the same periods in 2002.

The increase in total revenues was primarily attributable to higher collaborative research and development revenue and higher net product sales from our product lines.

Research and development expenses were $4.7 million and $20.9 million for the three months and the year ended December 31, 2003, respectively, compared to $5.8 million and $29.6 million for the same period in 2002.

The decreases were primarily attributable to the lower development costs related to our lead product Chronogesic, offset by a slight increase in research and development expenses for our postoperative pain product and other direct expenses incurred under our collaborative arrangements.

The decreases in the research and development expenses also resulted from lower research and development personnel expenses compared with the same periods in 2002.

Selling, general administrative expenses were 1.9 million and 8.5 million for the three months and the year ended December 31st 2003, respectively, compared to 4 million and 11 million for the same periods in 2002.

The decrease was primarily attributable to effective cost controls in the existing corporate infrastructure to support all areas of our business.

In addition, the decrease was due to a onetime expense of $1.7 million for strategic partner advisory services in connection with the Endo (ph) partnership in the fourth quarter of 2002.

At December 31, 2003, Durect had cash and investments of $85.2 million, including $3.1 million in restricted investments, compared with total cash and investments of $48.3 million at December 31, 2002.

This increase was primarily due to the net proceeds of approximately $56.7 million from the sale of 60 million aggregate principal amount of convertible notes in June and July of 2003, offset by cash used in operating activities in the year 2003.

We expect our total cash burn for the fiscal year 2004 to be in the range of $25-$27 million, which includes interest payment of $3.8 million for our convertible notes.

We estimate our net loss will range from $30 to $32 million or 58 to 62 cents per share for the fiscal year 2004.

Our estimates include non-cash charges for the amortization of intangible assets and stock-based compensation of approximately $1.3 to $1.4 billion for the fiscal year 2004.

We expect our net loss for the first quarter of 2004 will range from $7 to $8 million, or 14-16 cents per share.

I will now turn the call over to Jim Brown, our President and CEO, to discuss the highlights of our business during 2003 and provide a look into what you should expect for 2004.

Thank you, Tom.

Good afternoon, everyone, and thank you for joining us.

During this conference call, I want to provide you with a status update for our Chronogesic program and discuss the progress we have made on our postoperative pain product and other products under development.

At present, the Company is implementing improvements to our Chronogesic products to address the premature shutdown.

To date, we have completed 30 days of testing of new systems, both in vitro and in vivo.

While we continued to perform additional analyses and generate data around our revised design, we're pleased with the results we're thus far seen.

The initial tests from the in vivo studies will be completed by the end of the first quarter.

At the end of last year, the company delayed the restart of the product's Phase III clinical program after we received data from a preclinical test.

The data indicated a number of units experienced a premature shutdown of drug delivery prior to the end of the three-month delivery period.

During the course of this year, we will continue our testing.

While we may perform additional enhancements to our Chronogesic products, we remain confident that we will move this program back into the clinic.

I would like to review with you once again what we're projecting for our Phase III program for Chronogesic.

This last stage of development will consist of a number of segments with the redesigned product, including a pharmacokinetic study, a control study that will characterize the initial start-up of the system and later, larger studies that include both placebo-controlled safety and efficacy trials, as well as a long-term extension study.

All of the subjects in these various studies will count towards the safety and efficacy database for our NDA.

On the commercial side, Chronogesic remains a very attractive product in a large and growing market with sales of opioids (ph) for the treatment of chronic pain currently exceeding $3 billion annually.

We continue to work closely with Endo Pharmaceuticals for the development of Chronogesic in the U.S.

As well, we continue to have a significant level of interest in the commercialization rights for Chronogesic from international pharmaceutical companies in the pain management market.

These partners, both current and future, recognize the market potential for such an innovative product as Chronogesic and anticipate that Chronogesic will be a significant improvement over currently available long-term pain therapy on the market today.

I would now like to focus on our Saber postoperative pain relief (indiscernible) product, which is a product that we moved into the clinic last year and we anticipate moving into later stage development this year.

Our postoperative pain relief Depo (ph), which is a sustained release injectable using the Saber delivery system and a local anesthetic, is designed to be administered locally and on a surgical site after surgery for postoperative pain relief.

This product is intended to provide local pain relief up to three days, which coincides with the time period of the greatest need for postsurgical pain control in most patients.

We completed our initial clinical test last year in 12 normal healthy volunteers at a site located in Europe.

The objectives of this critical study were to determine the safety and tolerability of Saber and Saber (indiscernible) as well as evaluate the pharmacokinetics of our Saber product versus current treatment methods, which include (indiscernible) caine (indiscernible).

The extent of absorption of the drug was 100 percent and the rate of absorption of the drug from (indiscernible) was found be continuously for three days, as was designed.

The release of our product for over three days is a significant improvement over the current period of drug release in current methods, which is typically 4-6 hours.

There were no significant clinical events, local or systemic toxicity problems noted in this study.

Additionally, the injections were well tolerated by the subject.

We are very pleased with the biocompatibility that we have seen for liquid (ph) Saber Depo (ph) on these subjects.

The plasma concentration of drugs measured in the study allowed us to estimate the extent and rate of absorption in these subjects.

This study increased our confidence in the capability of our Saber Depo technology and is very positive for the further development of our Saber (indiscernible) product.

We've studied the formulation parameters and are currently optimizing our formulation to achieve the level of efficacy needed for up to 72 hours of postoperative pain relief.

We believe that there are currently more than 20 million surgical procedures performed annually in the United States for which this product could be potentially utilized.

One dose of Durect's postoperative pain relief product is aimed at providing up to 72 hours of regional pain relief, reduce hospital stays and opioid consumption, as well as costs associated with patient care.

We intend to have our end of Phase I meeting with regulatory agencies by the end of the first quarter -- excuse me second quarter -- submit our Phase II protocol to regulatory agencies and begin enrollment in these studies during the fourth quarter of 2004.

I would also like to like highlight a significant milestone for our Saber Gelcap technology.

Last month, our partner Pain Therapeutics began a Phase I clinical test for a new Saber-based Oxycodone product named Remoxy.

This product is a novel long-acting oral formulation of Oxycodone that utilizes our Saber Gelcap technology, which is targeted to decrease the potential for Oxycodone abuse.

Oxycodone is a strong opioid painkiller with an abuse liability similar to morphine.

Oxycodone is also the active ingredient in a long-acting narcotic painkiller with annual sales exceeding $1.5 billion annually.

We believe that Remoxy may deter abuse by making it difficult for the average drug abuser to extract the Oxycodone from the product.

Due to Saber's high-viscosity base components, the potential of abuse from this product may be significantly reduced as compared to current long-acting oral pain medications.

Saber is a unique and practical choice of drug delivery technologies to use for this strategical product opportunity.

The data generated thus far demonstrates that Saber technology may have the capability to make a significant contribution to the potential safety and abuse concerns of products with very important compounds, such as Oxycodone.

We look forward to the clinical results from this program.

In closing, we feel confident that we will make significant progress in 2004 as we continue to build and advance our product pipeline.

The news related to the progress of our Chronogesic postoperative pain and Remoxy programs we believe should provide investors with a significant amount of news flow throughout the year.

In addition, we have an estimated $130 million in potential R&D funding and milestone payments through the course of our collaboration, combined with over $85 million in cash on our balance sheet.

We have the flexibility and liquidity to fund our research, development and commercialization activity.

Again, thank you for participating in this call and we now would like to take any questions that you may have.

(Operator Instructions).

Mara Goldstein, CIBC World Markets.

Thank you.

I have two questions, and I apologize because I got on a little bit late.

But I know it is difficult to kind of give us exact timelines for certain things.

But with respect to Chronogesic, you gave certainly some steps that we should expect as you continue through the testing process for that the product.

Maybe not -- I don't know if you can gate that through the year, maybe what we can expect by second-quarter or second half or something like that?

And then with respect to Sabercaine (ph), I know you have not met with FDA to discuss your trials, but is it correct to assume that the trials will be either placebo-controlled or active controlled and it will be versus oral pain relief or injectable?

Why don't I take the latter one first and then we will go into the Chronogesic question.

With regard to the Saber design, we will be moving into a Phase I/II, which in this case, what we would be doing is we will be comparing the performance -- and we have not worked out the final details of this protocol obviously.

But at this point, it's our belief that we will be looking at our product versus the acute use product, which right now, would be (indiscernible) caine or (indiscernible) caine in the 4-6 hour saline formulations that are out there, and I would expect that the patients would be having the ability to use oral narcotics or oral pain killers as they would need be.

And so what we would be actually doing then is comparing the efficacy of the Saber plus the Epivocaine (ph) versus the naked Bufivicaine (ph), vis-a-vis the amount of external pain control that people would need.

Does that answer that question?

Thank you very much.

And with regard to the Chronogesic question, it was just a question with regard to timing this year?

Yes.

First off, we certainly know a lot about more than we did going into last year.

Last year, I think we laid out the various stages that we have to go through any time we're taking a long-acting dosage, such as this product forwarded into the clinic.

And that is, once we have defined the system's final designs that we would make, we would go into manufacturing the batches and then revise the final steps in the protocol and then move back into the clinics.

This is kind of a typical process that has its own course in time.

But what we're building on this year is a significant amount of information that we did not have last year.

And probably the simplest thing to do would be to look directly at that, and that is -- what is different from last your versus this year?

And the main difference is we now understand the indicators that associated with the shutdown after a good bit of learning last year.

That's the most important I think to make right now is that we understand and can measure and characterize the events that we need to shut down.

And so after the first 30 days that we've seen, so far we're encouraged and moving forward in time, and we will see again over time at the 60-day and the 90-day time points.

Once we've gotten to the point that we have systems that we are satisfied with, that will take us forwarded at that point in time.

But obviously we're moving and operating towards being back in the clinic before the end of the year.

And are you able to share what those factors are that you have been able to uncover with respect to the shutdown of the system?

I'd love to be able to do that and we will one day and I know I've been talking about this for the last month or two with regard to the product.

The bottom line is -- we can't right now because it needs new patents.

So we're going to have the great portion of being able to move back into Phase III with an additional, we believe, a very strong patent protecting us as well.

Okay.

Amit Bhalla, Morgan Stanley.

A couple of quick questions for you.

I am assuming you guys are including some Endo R&D reimbursements that you're modeling.

Can you give us a sense of when you are factoring those in?

Thank you so much for the question.

In fact, the Endo collaboration, given the timeline that Jim just annunciated, would be happening at the end of the calendar year.

And therefore, the guidance that we would like to provide in terms of overall revenue for Durect is in the $10-$12 million range.

Okay, thanks.

A couple of other follow-ups here.

You mentioned last quarter that the shutdowns were taking place in mature systems.

Anything that would change that statement that you guys made last time, and can you give us a quick update on your progress of your Cromolyn product?

Okay.

With regard to the shutdown, what we have always described is that the shutdowns have occurred before the three months were up.

And as we said, we can and do mark and characterize these indicators that allow us to measure the process towards the point where these systems shutdown early, and that really hasn't changed.

We actually understand that and we track and as we are in these current studies.

With regard to Cromolyn, we had some very interesting -- we are quite excited about the clinical data that we have initially from our Cromolyn program.

Where we are with that one right now is that we continue to do research work on this program as we're actively looking into funding alternatives and discussions with various partners with regard to that product.

It is not currently in the clinic at this point; it is in a preclinical stage.

Thanks a lot.

If there's no more questions, again, we want to thank everybody for participating on this call and we look forward to updating you on our first quarter 2004 conference call.