DURECT Corp (DRRX) 2004 Q2 法說會逐字稿

We are now ready to begin the Q2 2004 earnings call for DURECT.

I'll now turn the call over to Schond Greenway.

Hello everyone and good afternoon.

This is Schond Greenway Head of IR and Strategic Planning of DURECT Corporation.

And on behalf of everyone in the Company we would like to welcome you to our second quarter 2004 financial results conference call.

I have with me today Jim Brown, our CEO, Tom Schreck, our CFO, Felix Theeuwest our Chairman and Chief Scientific Officer and Jean Liu our Controller.

The order of the call will be as follows: Tom Shcreck will review direct second quarter 2004 financial results.

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

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

Before I turn over the call 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 and development, expected product benefits our development plans, future clinical trials and projected financial results.

These forward-looking statements involve risks and uncertainties that can cause actual results to 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 under the heading Factors That May Effect Future Results.

I will now turn the call over to Tom Schreck CFO of DURECT.

Good afternoon and thanks for joining our second quarter 2004 earnings conference call.

I’m going to briefly review the financials 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, 2004 was $7.4 million or 14 cents per share compared to $5.1 million or 10 cents per share for the same period in 2003.

Our results for the 3 months ended June 30, 2004 included non-cash charges for the amortization of intangible assets and stock-based compensation of 443,000 compared to 470,000 for the same period in 2003.

Cash used in operating activities was $6.3 million for the 3 months ended June 30, 2004 compared to $3.6 million for the same period in 2003.

Total revenues were $3.1 million for the three months ended June 30, 2004 compared to $3.2 million for the same period in 2003.

The slight decrease in total revenues was primarily attributable to lower collaborative research and development revenue recognized from our strategic partners offset by higher product sales from our product lines.

Research and development expenses were $6 million for the 3 months ends June 30, 2004 compared to $5.3 million for the same period in 2003.

The increase in the 3 months ended June 30, 2004 was primarily attributable to the higher development costs related to our CHRONOGESIC our SABER post-operative pain depot product and other products under development.

Selling general and administrative expenses were $2.3 million for the 3 months ended June 30, 2004 compared to $2.2 million for the same period in 2003.

The increase was primarily attributable to higher expenses to comply with the Sarbanes Oxley Act.

Interest income was $289,000 for the 3 months ended June 30, 2004 compared with $368,000 for the same period in 2003.

The decrease in interest income was primarily the result of lower yields in our cash and investments in the 3 months ended June 30, 2004.

Interest expense was $1.1 million for the 3 months ended June 30, 2004 as compared to 179,000 for the same period in 2003.

The increase during the 3 months ended June 30, 2004 was primarily the result of the interest expense on the 60 million convertible notes we issued in June and July of 2003.

At June 30, 2004 we had cash and investments of $73.8 million including $2.8 million in restricted investments compared with cash and investments of $80.3 million at March 31, 2004.

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

Our total cash burn for the physical year 2004 is expected to be in the range of $25-$27 million which includes interest payments of $3.8 million for the convertible notes.

We expect our net loss will range from 30-32 million or 58-62 cents per share for the fiscal year of 2004.

I will now turn the call over to Jim Brown our President and CEO to discuss the activities of the quarter in greater detail.

Thank you John and good afternoon, everyone.

Over the past 3 years, we have developed several patent-protected platform technologies here at DURECT.

We have certainly advanced the pipeline of products based on these technologies. 3 of not are: Our SABER based post-operative pain depot product, the Remoxy oral gel cap and a DURIN based Alzheimer's disease therapy.

These programs are either in the clinic or on track to be in the clinic by the end of this year.

With regard to the current status of CHRONOGESIC.

We had planned to resume clinical trials by the end of this year for the product.

After a series of promising results in vitro and in vivo, with our most recent CHRONOGESIC system designs, we had started the process of clinical manufacturing.

Unfortunately, we have learned recently from an animal study that we have not yet solved the premature shutdown problem at this time.

Therefore and based on this information we will not be resuming clinical trials for our CHRONOGESIC product in 2004.

We are currently working to address these issues in order to bring this product to market.

We have made significant investments into CHRONOGESIC and our sufentanil infrastructure and we plan to harvest from this investment.

DURECT has evolved as a company.

We have a breadth of technologies and programs.

In addition to CHRONOGESIC we have a diverse pipeline of products each with substantial market potential.

When taken as a portfolio they provide diversification to reduce risk and build lasting shareholder value.

The first of these products is our post-operative pain depot product which utilizes out Saber controlled release injectable depot technology.

This product utilizes a local anesthetic administered to a wound and provides 2-3-days of pain control postoperatively.

We have held clinical advisory meetings for input into not only product design but also the clinical protocols for this product.

We have formulated the product with higher drug loadings and are preparing for Phase II studies outside the United States which we anticipate to begin later this year.

With regard to market research for our post-operative pain product, we continue to have significant interest from physicians and potential partners.

Physicians have indicated that this product concept represents a significant innovation over currently available postoperative pain relief therapy.

A summary of some of the potential benefits are: reduction in hospital stays, reduction in the amount of surgical pain medications required by patients and reduced side effects resulting from the use of concomitant opioid medications.

The market opportunity for this product represents more than 25 million surgical procedures which are performed annually in the United States for which this product can be potentially utilized.

With regard to our ORADUR technology, we formerly referred to this as SABER our oral gel cap technology.

It is used as the basis for oral controlled release delivery.

And is able to transform short acting oral gel caps into long acting controlled release products.

Gel cap may also provide the added benefit of being less prone to abuse than other controlled release dosage forms on the market today.

We have a number of companies interested in this technology.

One ORADUR partnership that has been discussed publicly is that with Pain Therapeutics.

Under this partnership we are developing a product called REMOXY.

REMOXY is an oral long acting oxycodone capsule.

It incorporates several abuse deterrent properties and offers the convenience of twice a day dosing offered by the SABER technology.

Oxycodone is active ingredient in several long acting products including Oxycontin a brand name opioid pain killer with annual sales exceeding $1.9 billion.

We continue to work with Pain Therapeutics and make progress with the Remoxy program.

Utilizing our ORADUR gel cap technology.

In June of 2004 our partner announced the results of Phase I studies conducted in human volunteers in the U.K..

The positive results that were announced confirm REMOXY's anti-abuse properties and the drug's pharmacokinetics for twice a day dosing.

Pain Therapeutics has announced plans to initiate Phase I II studies for Remoxy by the end of 2004.

During the past months we have seen significant progress which has been made in our ongoing collaboration with Voyager Pharmaceuticals.

Voyager Pharmaceuticals is a privately held company with a proprietary position for the use of Leuprolide in the treatment of Alzheimer's disease.

Together we are developing an Alzheimer's disease treatment utilizing our DURIN drug delivery platform.

During the first half of 2004, Voyager completed an interim analysis of a proof of concept clinical study in Alzheimer's patients.

This study met its objective and in fact exceeded expectations and on the strength of this they have purported advancing the DURIN based products further into development.

Voyager plans to initiate Phase I clinical studies on this DURIN product by the end of this year.

We don't often during our quarterly call talk much about what's going on within our research pipeline.

But we thought we had an opportunity here with regard to our tinnitus program to highlight some of the efforts and some of the successes that we've had here.

Research for this program actually began over 5 years ago with our acquisition of [IntraEar]when we were still a privately held company.

And the research and business opportunity has finally come to the point of fruition here.

Tinnitus itself is a perception of a sound heard in the ears when there's no actually no external sound present.

It oftentimes presents in ringing, or hissing or buzzing.

Through our research we've identified a drug and we have a proprietary position with regard to treatment methods of this drug and drug delivery treatment technology.

We have licensed this tinnitus and the tinnitus product rights to NeuroSystec which is a privately held [allman] company.

And this product is currently in preclinical development.

The market opportunity for tinnitus as outlined by the American Tinnitus Association estimates about 50 million people in the United States have tinnitus.

About 12 million severe enough to seek treatment.

As well the severity if this disease increases with age.

There is really out there no effective treatment for tinnitus.

In fact 1 in 6 people report have tinnitus and 1 in 25 have tinnitus serious enough to seek medical help and 1 in 150 are disabled by their tinnitus.

We look forward to this collaboration, making progress and moving this opportunity into the clinic.

In closing, I want to reiterate the directors evolved at the Company with the breadth of technology in our programs.

Directors of the Company now with 3 programs that are either in the clinic or entering the clinic by year end.

Again we've established a diverse pipeline of products each with substantial market potential.

As well we have a solid financial foundation to continue to advance these products into development and to create lasting shareholder value.

With regard to our post operative pain product, we continue to work to move this product into Phase II by the end of the year.

With regard to Remoxy, our partner plans to start Phase III studies by the end of the year.

With regard to Voyager Pharmaceuticals, our partner plans to initiate Phase I clinical trials by the end of the year.

With regard to NeuroSystec our partner will be continuing preclinical development for this tinnitus product.

And with regard to CHRONOGESIC, we continue to work to direct the premature shutdown problems in order to bring this product to market.

And now I would now like to take any questions you may have.

There are questions on the audio line.

Please press 7 on your telephone and I will go ahead and acknowledge your question.

Our first question today comes from Kate Winkler.

Hi, guys.

Thanks for taking my call.

Obviously people are going to be focused on this CHRONOGESIC setback and I wondered if you can give us a little more color on exactly what the problem was?

Was it a similar shutdown?

And I know you had several sort of backup re-engineered versions in the pipeline as well.

And I wonder if any of those might address this need or what you can see as your potential timeline?

Okay sure Kate.

And to speak to CHRONOGESIC, first I think it's worth while stepping back a minute to remind people that we had developed this technology while at ALZA.

A good number of the management team here at DURECT.

During that time we developed a product, Viadur, a 1 year product for the treatment of prostate cancer.

Which we took from IND to approval in 3 years.

So we have a good solid background in this technology.

Obviously the CHRONOGESIC product with sufentanil has been a more complex and slower product in moving forward.

The issue that we're dealing with is a phenomenon around a valve that we put in place.

The valve offers some significant advantages.

The challenge has been that the valve itself has shut down in a very rare circumstance.

I want to emphasize that it's a very rare circumstance.

The fact is the majority of systems pop all the way through their life, the full 3 months without any issue at all.

Under very rare circumstance where it did shut down it's very late in the maturity of the system itself.

And as you noted Kate, we are looking at alternatives to this.

In fact, the answer we are taking forward with regard to this project is first of all we understand the phenomenon, the process by which the shut down occurs.

And we're working towards an answer that moves and provides an answer outside of the phenomenon that creates the shutdown.

And I can't get into specifics around that design because of the proprietary nature and the value to our shareholders around.

We believe that this is going to be a strong position coming out of that.

Okay.

But just as a follow-up, so is there a reason why you couldn't as an initial measure take a first version into the clinic?

For example because this shutdown is so rare and presumably patients would know when it was shutting down because it would return with symptoms that this is all a prerequisite to going forward.

Or maybe you could shed light on your strategy there?

Sure.

The question to kind of repeat that is does the rarity of the event lead one to take this something into the clinic that we can go forward.

First I think we have to remember that we dosed nearly 100 patients with CHRONOGESIC.

And seen 2:1 patient preferences.

We've seen statistically significant reduction of side effects in trials in clients.

We've seen a lot of good clinical information out of the clinic that lets us know this CHRONOGESIC product has absolute merit.

We've done the market research that lets us know that.

And so all that in hand we don't want to develop a system that from a commercial standpoint has any shortcomings and that is the issue for not wanting a system that rarely shuts down.

Would you like to add to that?

This is Felix I just I wanted to add, Kate, you're right.

If we were a few years earlier and wanted to learn more about what sufentanil is all about, what it means, what the kinetics would look like of absorption and delivery and the pharmacodynamics we would certainly do that.

But at this point we see no value since we have done some very nice pharmacokinetic work.

We know very much about the absorption, we know the conversion factors between fentanyl and sufentanil.

And we have Pilot Phase III studies, whereby you can switch people from DURIN using patches to the product.

So given that we have all of that is well understood, I think at this point we the want to get a system, that is a II Phase III system.

In other words that is a commercial image that we can take forward to Phase III into the marketplace.

Okay.

And just a last follow-up on the topic and then I'll hop back in line.

But wanted to get any kind indication that you might have on this alternative way around it and what the timeline is looking like there in terms of when you might have a decision as to what the new strategy was going to be?

At this point we are allowing the team to work on that.

We're just saying we're not going to be back in the clinic this year.

People look for clinical activity, when we'd have them look at the SABER project which is moving into Phase II and Remoxy going into Phase III and Voyager project moving into Phase I. I Think those are going to be the clinical activities that we have in the pipeline over the next few months.

Okay.

Thank you.

Our next question comes from David Shaw with JP Morgan.

Thanks.

It's actually Corey Davis.

I suspect I know the answer to it already, but I know that you said you have invested a lot in CHRONOGESIC already.

But does it still make sense to continue investing in the program?

How much are you going to be spending over the next year on fixing this problem?

And how confident are you that the problem can be fixed?

You know Corey, I think it's a great question.

If we look at this, we have first off I'll address that and then I'll let Felix take a crack at it as well.

We have made a significant investment on CHRONOGESIC.

We've learned so much about the product.

It gives us just huge energy to go on looking at the product.

If you get a chance to meet with these patients.

If you look at the market research.

If you talk to the physicians who have done these clinical trials, this product makes a huge difference to these patients.

There is a huge need for this product in the marketplace.

And we're dealing with a phenomenon that we absolutely understand and so to that end it seems to merit for us to continue forward.

I think we are fortunate that we've taken time also the last couple of years to expand our pipeline and grow these other products which gives us strength going forward as a Company.

But it doesn't lessen the value of CHRONOGESIC, it just really adds to the portfolio.

We are trying to look at this very objectively and obviously some costs are what they are.

But asking the question given the opportunity assessment of this product and others, where should we invest?

And given the market potential that is out there, given the potential solutions that we have under consideration today and infrastructure and then the wonderful drug that sufentanil is, we absolutely are going to be in a position to reap the rewards of this.

There's nothing that tells us right now that we should in any way be persuaded to do so.

Although we are obviously going to take a different approach.

And we're going to take a little step back into research mode and not going to make any announcements about where we are going to be in the clinic until we are very sure as to where we are going.

And maybe a second question, leave it open-ended if you want to compare your postoperative pain product to the [endoscipharma] depomorphine the brand name [Cephador].

I appreciate that, the opportunity to speak to that.

First off, the difference is the depomorphine has morphine in it.

And morphine has all the associated issues with narcotics and those kinds of things.

The difference with our product is our product a postoperative pain product applies a local anesthetic, bupivacaine which is a relative of novocaine and in this case we're infusing it around the wound.

So instead with depomorphine you're actually going up into the spinal cord and you're trying to block the pain by blocking the nerves there.

In our case I were to have hernia surgery, we would infuse SABER plus bupivacaine just SABERCaine for short for now in or around this wound which would numb my wound.

Actually a surgeon does that today.

They put bupivacaine plus saline around the wound.

So it numbs the would for 4-6 hours.

The difference with our product is we've seen in kinetics is that we can get more than 2 days of relief.

We actually saw in our U.K. trials some very nice steady safe released within the patients that were given in the U.K.

That's 1 piece.

So it's locally blocking the pain without using narcotics right around the wound itself leaving the rest of the body as it were free from or with certainly less medication in it.

The mantra when we first started the Company, the right amount of drug at the right place at the right time, objectively applies to that.

And that's our goal is to reduce the narcotic pain meds required by the patient to reduce the side effects associated with that, to reduce the nursing care associated with applying medicine and helping the patient along.

The other nice thing about is there's a company out there called [IFlow] out there which uses a catheterized product to deliver, bupivacaine if I were to have like a knee surgery or something, they'd leave the catheters infused for a couple of days, typically don't beyond that because there's some issue especially with the catheters, but a for a couple of days they infuse the bupivacaine which they have seen great reduction of side effects, pharmacokinetics, getting the patients up and around and a lot of benefits from those things.

We are able to with this one formation pack as much drug as you can infuse in a catheter over a couple into our injectable system and leave it behind in the wound from surgery.

And that's what we are looking to do in the Phase III trials.

Okay great.

Thanks.

Our next question comes from Mara Goldstein with CIBC World Markets.

Thanks.

Hi.

Just with respect to your partner on CHRONOGESIC, is there any change with respect to how they are feeling about going forward or their time horizon with CHRONOGESIC?

That's a good question as well.

We've spoken with Endo from very senior levels and then down to the working project team level.

I can only tell you that they’ve been phenomenal partners and continue to be phenomenal partners working within the project team.

And we look forward together.

At this point in time I haven't seen changes with regard to their outlook.

But they are an independent company and we'll go with them move forward as they see fit.

Right now we are working together with regards to this project.

Okay.

Thanks a lot.

Our next question comes from John Hickman with Halpern Capital.

Hi, Jim and Felix, can you or previously or earlier in the year you thought you might be in Phase III trials with the SABERCaine product by the end of the year and now you're telling us Phase II by the end of the year.

Can you give me any kind of like what's the timeline, how certain are you about this?

Yeah, sure, John.

Is this going to slip?

Let me address, first of all I don't think we've ever come out and said absolutely we're going to be in Phase III with SABERCaine.

We always said we'd like to move it to the next level which is Phase II.

I can only tell you right now that the Voyager project, the SABERCaine project and the Remoxy projects are all absolutely on schedule as we have outlined through our corporate objectives and through the Board as we've talked about.

But with regard to the product, we have learned a lot about this product in the meetings we had with physicians and thought leaders.

We've had a couple of meetings where we sat down and looked at application of the technology.

You know, can it come in a spray form, an injectable form and various different forms and can be applied to different surgeries in the body.

Everywhere from bunions to surgeries in the head and hernias and everything in between.

And the durations are different and we've also had a lot of interest from different partners.

What we've done is tried to take in the information that we received from different partners on this project.

We tried to take in the information, information from partners, looking at indications and try to pick the spots where the chance of success of time to market is going to be the quickest to get this product out there and be successful.

And so that end we have selected some Phase II opportunities that we are now moving forward with and it looks to be absolutely on track and get that into the clinic.

This year.

Felix do you want to add anything?

I may add, maybe, is some information that we had which is that we have very good in vitro and in vivo correlation in animal.

And that animal model also that correlates with humans.

So we have been able to test formulations that have the drug loadings which should be effective.

And we see no road blocks at this point going forward with the things that we need to get into a Phase II.

Could you describe a little bit what you have in mind as a Phase II, like number of patients, how many sites, that kind of thing?

Right now the first step is an initial site.

We might have more than 1 site, we might have more than 1 indication.

But we're starting to get the initial indication in probably somewhere in the range of 15-20 patients would be my assumption at this point in time.

And the surgeries that we are applying for, for use in right now we are not coming out publicly because a you know there are other people looking at the same approaches.

And so we just didn't disclose that.

Okay.

Thanks, John.

I'll get back in line.

Our next question from Gary Nachman with Morgan Stanley.

Hey, guys.

I was actually bounced out for a few minutes so I apologize if you touched on this already.

But could you elaborate on the CHRONOGESIC animal data?

How many shutdowns were there versus the last time?

I'm trying to get a sense for how much closer you.

And is the goal ultimately to get to 0 shutdowns?

I think that's a very good question.

And I'll let Felix answer it.

First of all, in the shutdown that we had last time was a very rare event.

And we mentioned to you we had indicators that would tell us that we had substantially improved that condition.

So under that scenario, the event is even less frequent.

And so it takes in order to have statistical differences between the different types, it takes an awful lot of data to get that.

So we have seen in a very rare situation that the system shut down.

And we feel at this point in time we are not going to continue on this track.

But basically design a system which operates basically outside of the range where we see these problems.

And basically design a system where this phenomenon does no longer occur.

And that approach, I think, will get us away from the statistical rare events and the problems that we had today.

So you do have to get to 0 shutdowns in order to push the product forward.

Yes.

As we said earlier if we were earlier in the program, we wanted to learn about the pharmacokinetics and pharmacodynamics of sufentanil we would go forward with the system as it is.

We see no reason to do this because we already have covered that area.

We have gone through human trials with kinetic data.

And we've gone through pharmacodynamic data sorting out the conversion factors from fentanyl to sufentanil.

And we had actually converted people from Duragesic [inaudible] to CHRONOGESIC.

So all that experience tells us that basically we know exactly how to handle CHRONOGESIC on the market.

And also the market is very large and we see just a wonderful opportunity ahead.

But we got to have a system that satisfies the Phase III requirements which means for us something we can take it to the marketplace.

And I think just to add on, this is not something imposed upon us by others.

This is something that as we look at the marketplace we want to make sure that product we produce will provide the pain therapy we would expect if we were those patients.

And to that end we're moving away from the specific designs that fall within the range of the phenomenon and moving to designs as Felix said that outside that range and should allow for that not to occur.

Okay.

Someone touched on this earlier, you had been working on other designs but now it sounds like none of those other designs are going to work and you have to try something completely different.

How long is that going to take?

Well, the experiences that we have with sufentanil have are obviously vast and we have a great handle on the design of these systems.

But we are at this point in time not willing to forecast the timelines of our new activities in this area until we have further classification.

What we'll want to do is come forward upon success rather than project something and have be design of experiment or whatever dictate the day.

As one looks at clinical markers and ways of tracking progress in DURECT, we are asking people at this point in time to look at SABERCaine and to look at REMOXY and to look at the Voyager project and to other programs that we will be bringing forward either in partnership or ourselves over the near term and the future and that's what we're asking people to look at.

CHRONOGESIC will have an opportunity to get right and move out on its own path.

Now I understand and appreciate that, but I just want to get a sense of you guys have already started working on this new device?

I mean, is this something that you haven't started yet?

We have information available to us that tells us the design that we need to have.

And obviously in all our activities to date and designing the system and formulating, we know exactly which track we are going to be pursuing.

Okay.

And actually have a question on Remoxy.

The Phase III is supposed to start by the end of the year.

Can you talk about the protocol, number of patients and length of the study and also just remind us of the financial terms you have with Pain Therapeutics?

First of all, I don't have the specific information with regard to the Phase III design at this point in time.

So I couldn't speak to that.

But I would ask you just to look at some of the oral products, there have been a number of them that have gone through and I imagine they'll be in the same range.

With regard to the financial terms, we have not disclosed what the royalty terms are, from Pain Therapeutics to us.

But it's a great deal I think for both companies.

One thing you should know is Pain Therapeutics is paying all of the development expenses.

Not only the expenses outside with regard to clinical trials and all the work on the project but also and the work within DURECT here, all the pharmaceutical work and the CMC work that occurs with DURECT.

This is a project that Pain Therapeutic is funding and as such at the end of the day they'll have their rights to commercialize their product and we will receive a royalty back on the product.

Okay, thank you.

We do have another question from Kate Winkler.

Go ahead, Kate.

Hi there, I just was wondering if you could tell us about the Voyager product?

Cause I understand that they have seen interim results but that's not something that's new.

And I had been under the impression that we were waiting for the full results of their current trial before they were committed to going ahead.

And now you're saying they are already committed.

So, I’m wondering what’s changed there or if you could can clarify my misconception?

Yeah I think it is a misconception Kate.

They actually just broke the code for that interim analysis in June.

Okay, so I was mistaken.

There's some new data.

It was a trial that included 60 women with Alzheimer's disease.

I can't get into any more information as they are a privately-held company.

It's their news but I'll simply just say that they were quite optimistic and pleased with what they saw and going full steam ahead.

Okay.

Thank you.

And we do have another question from John Hickman.

Please go ahead.

Yes, another follow-up on Voyager.

So obviously, Leuprolide the results were good enough to allow them to go ahead so now they're going to put Leuprolide in your DURIN technology, right?

Go ahead, sorry.

Is the Leuprolide or is the DURIN is that supposed to provide drug for 6 months or?

The first product duration that we are developing is actually a 2 month system.

Two months.

Yes.

Okay.

I should also note this is our proprietary patent protected DURIN base technology which is an extruded rod which just from my standpoint a very solid release rate kinetics.

So, Felix, if you want to speak to it.

Even though it is a two-month system, the expectation is that the patient in this condition will need it for the rest of their lives.

And longer duration systems will probably come out of it.

And can you provide us, is this another royalty arrangement?

This is actually fairly similar to the deal we have with Pain Therapeutics and Voyager.

And I forgot to mention that Pain Therapeutics, not only do they pay for the R&D but there are certain milestone agreements associated with certain progress made, they paid for research and development and obviously for the clinical work and make milestone payments upon achievement of such milestones and at the end we will achieve royalty based on sales.

Okay, I have 1 more question.

Why don't you just go back to the original DUROS pump?

I know it's a little harder to use but it works and you could get it on the market.

The DUROS pump [inaudible] the drug with a very wide therapeutic index.

It was clear from the start that we could not take that system forward in this format.

So we have engineered the system with the characteristics that can handle this sort of opioid.

Which means the start-up time that is very gradual as patients come off the current therapy.

And something that can be manufactured to contain this medication and to operate with extreme reliability for the duration of the system.

So I think it's a misconception to think you can just take sufentanil and put it in the previous dosage form and just have it in the market.

So the requirements for this compound are far beyond what you need for a product like [glucolide].

We put the valve in because it made sense with regard to the commercial and clinical requirements of the product.

Okay.

Thank you.

You're welcome.

That concludes the questions from the telephone.

Okay.

I just want to thank you all very much for participating in this call.

I'd like to maybe make a closing statement.

Obviously have been a large number of questions with regard to CHRONOGESIC and obviously this is about the value of DURECT in the end and while we are solving the problems of CHRONOGESIC, another way to solve the problem is to make DURECT be less dependant on CHRONOGESIC.

Which is what we have done by diversifying technology platforms and the product pipeline.

So that in the diversity that we have I think we make DURECT much less vulnerable and much less dependent on CHRONOGESIC.

But at the same time we can afford to maintain the value of CHRONOGESIC by putting it in the right place in the pipeline at the right time.

So I think we are very fortunate we have been able to institute this philosophy many years ago.

And that we are now having the diversity that can take some of the setbacks that inevitably are going to be the case when drugs are developed in a pharmaceutical industry.

As you look around companies have to deal with this as a matter of course all the time in the R&D setting.

But we are confident of the technology, the space that were in, about our cash positions, and the products in the pipeline, we are very excited about the position that we have and we've never been in a better place in the history of DURECT.

And just to add to that, we've highlighted today outside of CHRONOGESIC, 4 other technologies, the oral gel cap, the SABER injectable our DURIN and our tinnitus opportunity.

So that's a pretty broad array of opportunity so thank you all very much.

I do have a last-minute question from Kate.

Hi, sorry.

Thanks to squeeze me in.

I actually had a question about the SABER and when you're bringing it here to the U.S.

And what you see as the other disadvantages and advantages to doing these trials outside the U.S. and how do you see that ultimately in terms of approvability?

Because it is not necessarily the conventional route.

If you look around a lot of companies that I'm familiar with are doing initial clinical work outside the U.S. simply as just a cost of doing business.

When we look at the various markets through the trials we oftentimes pay half the expense to do a clinical trial and sometimes even less.

But some of the markets we’re looking at right now we’re talking about half the expense.

So we do some Phase I and Phase II work, that allows that we'll have a much stronger IND when we file it.

We can go in with a lot more clinical data.

The FDA knows more about the product going in and allows us to have just a more focused program going to Phase III.

Would you be able to take it into phase III on the basis of that data coming from outside the U.S.?

It would be speculation at this point.

It depends on how good those Phase II data come out.

But that's not unprecedented?

Not that I know of.

It is not unprecedented.

Thanks for getting that in.

Sure.

Again, this is Schond Greenway.

I want to thank everyone for participating in this call and look forward to updating you on the next conference call.

Have a good day.

Thank you again.