DURECT Corp (DRRX) 2004 Q3 法說會逐字稿

Hello, and welcome to the DURECT Corporation Q3 earnings call.

We are ready to begin, so please go ahead, Mr. Greenway.

Hello, everyone, and good afternoon.

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

And on behalf of everyone at the Company, we would like to welcome you to our third-quarter 2004 financial results conference call.

I have with me today Jim Brown, our CEO;

Tom Schreck, our CFO;

Felix Theeuwes, our Chairman and Chief Scientific Officer; and Jean Liu, our Controller.

The order of the call will be as follows -- Tom Schreck will review DURECT's third-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.

But 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, expected product benefits, our development plans, future clinical trials, or projected financial results.

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

Further information on these and other risks are included in our annual report on Form 10-K under the heading "Factors That May Affect Future Results."

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

Good afternoon, everyone, and thanks for joining our third-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 three months ended September 30th, 2004, was $7.3 million, or 14 cents per share, compared to $6.4 million or 13 cents per share for the same period in 2003.

Our results for the three months ended September 30th, 2004 include non-cash charges for the amortization of tangible assets and stock-based compensation of $311,000 compared to $217,000 for the same period in 2003.

Cash used in operating activities was $4.4 million for the three months ended September 30th, 2004 compared to $4.3 million for the same period in 2003.

Total revenues were $3.4 million for the three months ended September 30th, 2004, compared to 3 million for the same period in 2003.

The increase in total revenues was primarily attributable to higher collaborative research and development revenue, recognized from our strategic partners and higher product sales from our ALZET and polymer product line.

Research and development expenses were $6.6 million for the three months ended September 30th, 2004 compared with 5.4 million for the same period in 2003.

The increase in the three months ended September 30th, 2004 was primarily attributable to the higher development costs related to our SABER post-operative pain depot product, transdermal patch product, CHRONOGESIC, and other partnered products under development.

Selling, general and administrative expenses were 2.3 million for the three months ended September 30th, 2004, compared to 2.1 million for the same period in 2003.

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

Interest income was 326,000 for the three months ended September 30th, 2004, compared with 123,000 for the same period in 2003.

The increase in interest income was primarily the result of higher yields in our cash and investments in the three months ended September 30th, 2004.

Interest expense was $1.1 million for the three months ended September 30th, 2004 and 2003, which was primarily the result of the interest expense on the 60 million convertible notes we issued in June and July of 2003.

At September 30th, 2004, we had cash and investments of $69.3 million, including 2.8 million in restricted investments, compared with cash and investments of $73.8 million at June 30th, 2004.

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

Our total cash burn for the fiscal year 2004 is expected to be in the range of 23 to $25 million, which includes interest payments of $3.8 million for the convertible debentures.

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, Tom, and good afternoon, everyone.

What I want to do now is provide an update with regard to, first off, the objectives on our four previously announced development programs -- those are SABER-caine, Remoxy, CHRONOGESIC, and our Alzheimer's product we are developing with Voyager Pharmaceutical.

Then I want to take some time to discuss a new development program, our transdermal sufentanil program that we announced last week.

This product exploits the value we created from our year of work with sufentanil and our team's transdermal experience as we are developing the transdermal pain management product.

The first product I will update us on is with regard to our post-operative pain depot program.

Here, we are utilizing our SABER control release injectable depot technology.

We are combining it with bupivacaine, a local anesthetic, to be injected around a wound to treat postoperative pain for 2 to 3 days.

The Company believes that this product could potentially reduce hospital stays, could reduce the amount of traditional post-surgical pain medications that are needed by patients, and as well, could reduce the side effects that result from the use of these concomitant opioid medications.

With regard to the clinical program, we announced today that we have made a significant milestone in advancing this project into Phase II.

This initial Phase II study is for the treatment of pain following inguinal hernia repair.

The primary end points here include -- pharmacokinetic evaluation of plasma bupivacaine levels; time to first supplemental analgesic; analysis of the sum of pain intensity; as well as the analysis of total pain relief.

With regard to the market opportunity for this product, we continue to have significant interest from physicians and potential partners.

The physicians have indicated that this product concept would represent a significant innovation over the currently available postoperative pain relief therapy.

DURECT believes there are more than 25 million surgical procedures performed annually in the United States for which this product could potentially be utilized.

And next, I want to update us with regard to our ORADUR technology.

Last month, our partner, Pain Therapeutics, announced the receipt of FDA clearance to initiate clinical studies in the United States for Remoxy.

Remoxy is a proprietary, abuse-resistant version of sustained-release oxycodone, based on DURECT's ORADUR technology.

Remoxy incorporates several abuse-deterrent properties, and the convenience of twice a day dosing offered by our ORADUR gel-cap technology.

Oxycodone is the active ingredient in Oxycontin, an opioid painkiller with sales that exceed $1.9 billion a year.

With regard to ORADUR milestones, Pain Therapeutics has announced its plan to initiate Phase III studies for Remoxy by the end of 2004.

As well, DURECT is currently performing feasibility work for other companies using the abuse-deterrent properties and convenience of our ORADUR gel-cap technology.

Now, I want to update us with regard to the Alzheimer's disease therapy, using our DURIN technology.

Significant progress has been made with our ongoing collaboration with Voyager Pharmaceuticals.

Here, we are developing an Alzheimer's disease treatment using our DURIN drug delivery platform.

The current status is that there are two ongoing proof-of-concept studies of the active agent in men and women with Alzheimer's disease.

As well, Voyager plans to initiate Phase I clinical studies on our DURIN product within the next two months.

With regard to CHRONOGESIC, we continue to work to address the premature shutdown issue for CHRONOGESIC in order to bring this product to market.

We have made significant investments into CHRONOGESIC, which has provided us with their tremendous pharmaceutical and clinical knowledge about sufentanil, and we intend to capture value from this investment.

One of the ways in which we are capture value is through our DURECT's transdermal patch program.

Here we are leveraging our sufentanil franchise, as well as our management's transdermal development experience to develop the transdermal sufentanil patch for the treatment of chronic pain.

The rationale here is to introduce a differentiated transdermal opioid product with key patient-friendly attributes.

This product will be differentiated by first off, a different drug which will allow for rotation of products -- a rotation of the narcotic; a reduced size, because of the potency of sufentanil, will be about one-fifth the size of a DURAGESIC product.

And what that will put us in the range of is our larger or highest-dose system will be somewhere -- have the surface area somewhat represented by a quarter.

And the smallest size systems will have a surface area similar to that of a dime.

We expect to have reduced skin irritation.

And as well, we are looking for a seven-day system versus the current three-day system for the DURAGESIC product.

Additionally, should clinical trials for this sufentanil product demonstrate differentiated efficacy, reduce side effects, and/or improve safety, this will mean a tremendous upside.

To-date, we have dosed approximately 100 patients with CHRONOGESIC, which, of course, have sufentanil in it.

We have seen a 2 to 1 patient preference for this narcotic versus existing opioid medications.

We have seen reduced side effects, in fact, statistically significant reduced side effects, in trials that weren't powered for such.

We have seen improved pain management, as well.

With regard to the market research on the sufentanil patch, 87 percent of the oncologists and pain specialists perceive the product as significantly better than DURAGESIC.

The seven days duration, they feel, would provide increased quality of life and enhanced compliance and convenience for the patient.

As well, sufentanil was perceived as an acceptable agent for pain control in this product.

It is seen as a valuable opioid alternative versus fentanyl and the patch form.

The smaller patch size would be favorably received by the patient, and would (ph) approve the use of this product and potentially reduce irritation.

The probability of use as an average ranking was seen as 8.4 out of 10 versus DURAGESIC, and 7.0 out of 10 versus generic transdermal sufentanil products.

So in summary, DURECT is a Company with five products in development.

And these five products are based on five different drug delivery technologies.

Our ORADUR oral gel-cap technology; our control release injectable SABER technology; our transdermal patch technology; our DURA osmotic pump technology; and finally, our DURIN Biodegradable Implant Technology.

Four of these products are either in active clinical trials or will be by year-end.

Our lead oral gel-cap product, Remoxy, is poised to enter Phase III.

Our SABER injectable post-op pain product is in Phase II.

Our sufentanil patch is being tested in a Phase I PK trial.

But remember here, we are building on the strength of our years of experience with sufentanil and the Phase I and Phase 2 trial data there.

Lastly, our DURIN Alzheimer's disease product should initiate Phase I before the year-end.

And we should also remember that the active ingredient is currently being tested in two one-year proof of concept trials in over 200 Alzheimer's disease patients.

Taking nothing away from the potential CHRONOGESIC, all four of these products not only can get to market quicker, but have great market potential.

Remoxy is looking to enter a market where OxyContin sales are in excess of 1.9 billion.

SABER-bupivacaine impact on the health-care system is felt to be greater than $1 billion a year.

The sufentanil patch is entering DURAGESIC market where the 2003 DURAGESIC sales were over 1.6 billion.

And for Voyager Alzheimer's, well, if we can develop a therapy for Alzheimer's disease, we all know that the impact on that would be multi-billions of dollars on the health-care system.

Finally, DURECT has a solid financial foundation, with two programs fully paid for by partners and a strong profit return for DURECT on these programs, and a number potential partners interested in our other programs.

Thank you for your time, and we would now like to take any questions that you might have.

(Operator Instructions).

Mara Goldstein.

Can you tell us if you will get any milestone payments for the initiation of trials, either through the Voyager collaboration or through the Pain Therapeutics on Remoxy?

And then, I just had a question regarding the Phase II study, the dose escalation study.

Is it dose escalation based on patient demand for additional painkillers?

Are you doing sort of forced -- any kind of forced titration?

Okay, first off, with regard to the questions about both the Voyager and the Pain Therapeutics product -- we do have clinical milestone payments with regard to both of those.

So that's something that we should expect in the fourth quarter, or --?

Yes.

We typically haven't announced those, Mara.

They just kind of get folded into the financials.

But those will come in fourth quarter.

Okay.

Thanks.

And then, the other question -- can you just repeat it again?

With respect to the Phase II trials for SABER-caine -- you said it's a dosed titration -- there is a titration.

That's not a forced titration, is it?

It's just a sort of patient on demand?

Yes.

What we do here is actually, we will start a number of different cohorts.

And we'll start at a specific dose -- in other words, we give a single injection.

And it will have a certain potency of bupivacaine in that injection and a certain volume that we'll inject.

And that will be all that that patient from SABER-caine, right?

But then we will mark that patient's need for additional pain meds.

Okay.

So the additional pain meds would be then -- have you determined what they will be?

Actually, they are right now at -- the opportunity is open for them to be able to use whatever their physician prescribes.

Marc Goodman.

Marc?

We're trying to get Marc back into the conference so that he can ask his question.

He's speaking to another operator.

Just one moment.

Hello?

Okay, Marc; please go ahead.

Actually, this is Louise Chen (ph) for Marc Goodman.

I just wanted to ask you a few questions.

First one is where did you get the transdermal technology?

And are there any other potential uses for the patch outside of sufentanil?

Yes, absolutely.

I would be happy to answer that one.

Actually, where we got it was through Felix Theeuwes here, who was Head of Research and Development -- actually head of R&D at ALZA for a good number of years.

And also Su Il Young, who headed up the transdermal business, actually the DURAGESIC patch was brought up under Su Il as well as a number of others.

And so both of these gentlemen helped bring out the nicotine patch and really start, in my mind, the transdermal business in the pharmaceutical industry.

So I will let Felix maybe address that a little at this point.

Well, we have worked on the transdermal area for 25 years.

And there is, obviously, a lot has happened in that space.

And many products have been developed.

And other pioneers (indiscernible) that technology, obviously.

Today, obviously, because the technology has been around for some time, many of the patents that existed once no longer are there.

But the innovation, actually, is really for the active agent and for the therapeutic opportunity.

And this is where we saw a very unusual situation, where we have a compound, where we have either transitioned somebody from their current meds or the opioids or DURAGESIC, to the CHRONOGESIC patch.

And given all of the insight that we have and the investment and the infrastructure for sufentanil, it was just a natural for us to use our skills to put this product in place, which could be a nice transition product.

But actually, it couldn't seek a market of its own, obviously.

The beauty of it is that this compound is so potent that you need very small amounts of it.

And that, as Jim already highlighted, you know, the size of the system is small and neat.

It can be replaced on a seven-day basis.

So you have ample opportunity now to go from a DURAGESIC patch to CHRONOGESIC.

This transition from DURAGESIC to CHRONOGESIC was always something that -- even though we had done the pilot Phase III study, the question still is -- how will the patients fair with this new chemical entity?

And so I think that the opportunity that sufentanil patch just really makes that a very nice companion and a very nice extension of our capability.

And then, is there any other product that you are thinking about using it for?

Well, we have the capability internally.

And as you know, there are many, manufacturers of this type of technology where you can go and get manufacturing contracts.

So I think for us, it's a natural way to do business.

If it made therapeutic sense, we obviously have the capability, and we look at it on a case-by-case basis.

I have another question, which is regarding I guess your SABER-caine Phase II clinical study.

I just wanted to know how many patients you have enrolled so far, and when you think you will be fully enrolled for that?

It's actually going to be -- that trial is going to be ongoing for quite a while.

And so we expect, actually, that the Phase II program itself will be continuing into -- well into next year, into the second half of next year.

And we anticipate, I think, with this particular study, it is really a group studies lumped together.

I think we will have in excess of 90 patients, actually, in this trial. (multiple speakers) applications as we look at a different size and different ways to apply it and things like that.

Okay.

And then I guess my last question is in regards to CHRONOGESIC.

I think in your last call, you'd mentioned that you know what the issue is with the early shutdown, and you are working to address that.

I mean, do you feel comfortable with that?

And then, are you still in partnership with Endo back for that product?

I would say yes on both.

But, Felix, why don't you --?

Yes, you know, CHRONOGESIC still remains a very exciting product to us and also to our partner, Endo.

We were, obviously, very fortunate to be able to leverage the infrastructure that we have with all of the clinical insight and manufacturing techniques, so that the teams could actually work hand-in-hand.

So the investment that DURECT makes in CHRONOGESIC now is really the investment in the franchise.

And so CHRONOGESIC is now one of five products.

And we are very excited about this.

We have a number of technical solutions that we are working side-by-side.

And we will definitely bring this product forward.

And we will make pronouncements as we are close to the clinic.

Yes, I think that's an important thing to note.

With regard to CHRONOGESIC, probably I would look for the next significant announcement to be that we are back in a PK trial, and back to opening again.

At this time, there are no other questions.

Okay, great.

Well, I want to thank you all for your time.

And we look forward to seeing you as we get around to your various cities, and take care.

Thank you.

Thanks, everyone.