DURECT Corp (DRRX) 2005 Q1 法說會逐字稿

Welcome to DURECT's -- excuse me -- DURECT Corporation's first quarter 2005 earnings call.

We're now ready to begin.

Please go ahead.

Hello, everyone, and good afternoon.

This is Sean Greenway (ph), 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 first quarter 2005 financial results conference call.

I have with me today, Jim Brown, our CEO, Jian Li, our VP of Finance and Controller, and Felix Theeuwes, our Chairman and Chief Scientific Officer.

The order of the call will be as follows.

Jian will review DURECT's first quarter 2005 financial results.

Next, the call will be turned over to Jim Brown to discuss the highlights of the quarter in greater detail.

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

Before I turn over the call to Jian, I would like to remind you of our Safe Harbor statement.

During the course of this call, we may make forward-looking statements regarding our 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 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 Affect Future Results.

I will now turn the call over to Jian.

Thanks, Sean.

Good afternoon, everyone, and thanks for joining our first quarter 2005 earnings call.

I'm going to briefly review the financials before asking Jim to review the highlights of the quarter in greater detail.

Our net loss for the three months ended March 31, 2005 was 5.4 million or 10 cents per share compared to a net loss of six million or 12 cents per share for the same period in 2004.

Our cash used in operating activities was $5.2 million for the three months ended March 31, 2005 compared to $4.7 million for the same period in 2004.

As a result of rapid progress to date on our sufentanil patch program, we established at partnership with Endo Pharmaceuticals on this product in March for the United States and Canadian markets, which resulted in an upfront payment of $10 million with additional anticipated milestone payments of approximately $35 million.

Endo will also be solely responsible for funding the remaining development expenses for this product in the U.S. and Canada going forward.

On March 31, 2005, we had cash and investments of $55.8 million compared to $61.8 million at December 31, 2004.

As a result of our collaboration with Endo Pharmaceuticals or TRANSDUR sufentanil programs, we anticipate that our December 31, 2005 ending cash in investment balance will be in the range of $48-50 million.

Thanks again for participating in this call and I will now turn the call over to Jim to discuss the activities of the quarter in greater detail.

Thank you, Jian.

And hello, everyone.

The first quarter of 2005 was an outstanding quarter for DURECT.

During this quarter, we achieved all of our announced product development milestones.

We signed a development and commercialization agreement and we strengthened our financial position by managing our cash burn through -- excuse me -- through our collaborative deals and through milestones.

During this call, I'll provide updates with regard to our post-operative pain depot product, with regard to our TRANSDUR sufentanil patch seven-day program, with regard to our Romoxi (ph) gel-cap product as well as the DURIN leuprolide therapy for the treatment of Alzheimer's disease.

With regard to our post-operative pain depot product or our SABER-Bupivacaine program, you recall this is an application of our SABER technology that allows for a local anesthetic depot to be provided around a wound during the time of surgery to provide for multiple days of pain control.

The estimate market potential for our products -- for this product -- is in excess of a billion dollars.

There are more than 70 million surgical procedures in the United States that require post-operative pain control and for which this technology could be applicable.

The key attributes that we see as benefits coming from this product would be the potential for reduced hospital stays as well as the potential to reduce opiate use and their potential side effects.

With regard to the clinical program for this project, we have announced previously that we had completed Phase I, which involved four to seven days of release of our product and from a pharmacokinetic standpoint.

We are currently in a Phase II trial and this Phase II trial is evaluating pain control following the repair of inguinal hernia.

In this trial, this Phase II trial, we have three different cohorts totaling up to a total of potentially 90 patients or so.

The endpoint that we're looking at in this trial are, first, pharmacokinetic evaluation of the plasma bupivacaine levels.

Next, the time to first supplemental analgesics, the analysis of the total sum of pain controls and pain relief, safety and finally the total concomitant analgesic medications taken.

We have completed the first cohort of this Phase II trial, which involved six patients and demonstrated pharmacokinetic profile exactly as we had allowed and were hoping for as well as the safety that we were looking for.

On the strength of that, we went into the second cohort and we're announcing today that have concluded dosing in the second cohort of the study, which involves 15 patients dosed at higher doses.

These data are currently being analyzed for a cohort two and the results will be presented at the International College of Surgeons at the 39th North American Federation Congress in Acapulco, Mexico on June 18 of this year.

With regard to our TRANDUR sufentanil patch program, here we're providing a differentiated transdermal opiate patch using sufentanils.

We're leveraging our sufentanil franchise in the work we've done here over many years on sufentanil together with direct management's experience here on developing transdermal products.

This product, we think, has advantages over the current products that are on the marketplace today, sufentanil patches.

And that, first of all, it's longer duration.

It's a seven-day system versus a three-day system.

It's about one-fifth the size of sufentanil patches.

Obviously, because of the smaller size, it has a fivefold increase in variable skin size for application, has a potential for reduced irritation and sensitization and the potential for, as well, advanced compliance and convenience components with regard to patients as well as sufentanil, as an agent by itself, we've seen some strong indications for the potential for improved safety from this product as well as the potential for reduced harm associated with this narcotic.

Our Phase I results from this product, demonstrated in 24 patients -- no significant clinical adverse effects.

These are, obviously, this is a kinetic trial and volunteers.

And we've demonstrated very rapid onset, nice seven-day release and performance exactly as designed.

On the strength of that and of the strength of the work that we had done with Chronogesic and the sufentanil agent there, we went into our Phase II program.

And it's worth taking a moment here to back up for a second.

Remember, with regard to chronogesic, we have infused for many months sufentanil in up to approximately 100 patients.

We understand the plasma concentration of sufentanil as it relates to pain control in chronic pain patients.

These are patients of malignant and non-malignant sources of pain.

So, now understanding the plasma concentration of sufentanil as it relates to pain control, we understand from the patch work now, that's from the Chronogesic side, now going back to TRANSDUR.

From the pharmacokinetic work we've done with the patches, we understand the patch size, the relative patch size to plasma concentration.

And so, we're now going into the Phase II with all that -- armed with that information that we can translate from patch size to place to pain control.

So, the objective of the Phase II program with regard to the patch project we're to accept the pharmacokinetics, understand that, look at efficacy and the safety of repeated applications in patients, be they a pain source from malignant or non-malignant sources.

This is an open label study to evaluate the conversion strategy from duragesic to sufentanil patch system over to our TRANSDUR sufentanil system.

We'll also evaluate the efficacy and safety over a period of up to four weeks.

So, we'll look at applications of four of these systems, one-week systems in a month, looking at the -- at pain scores during the transition phase as well as kinetics during the transition phase.

We also announced, earlier this quarter, that we had signed a deal with Endo Pharmaceuticals for the commercialization and development of the TRANSDUR sufentanil patch in the United States and Canada.

Endo is a leading pain company focused in the United States on pain management.

They have stout (ph) portfolio of branded products, including Lidoderm, Percocet and Percodan.

We retain within this agreement co-promotional rights for this product, which is very important for us as we're transitioning direct into a specialty pharmaceutical company.

We also maintained ownership of all commercialization rights for the market price outside the U.S. and Canada.

And that's quite important to understand the magnitude of that.

Duragesic sales for January last year were $2.1 billion.

Over 800 million of that in 2004 was outside the U.S. and Canada.

And in fact, this year, the first quarter sales outside the U.S. and Canada were growing at over 36%, which leads one, if that trend continues, to look at a potential product outside the U.S. and Canada of being over a billion dollars by the end of 2005.

The terms of the deal with Endo Pharmaceuticals, with regard just to the milestones and upfronts were $10 million milestone -- upfront payment, excuse me, and $35 million of milestones, as Jian said earlier.

Endo will pay all of the product development expenses going forward, which will be significant.

Endo will also assume all the remaining development of regulatory responsibility for the United States and Canada.

And, as well, they will pay the launch costs.

Endo will then pay us an undisclosed royalty on net sales of the patch.

Next, I want to talk about our ORADUR technology.

And the first product in that arena is Romoxi.

Romoxi is a proprietary abuse-resistant version of a sustained release oxycodone formulation developed based on ORADUR technology.

This has been partnered with Pain Therapeutics.

It incorporates several abuse-to-turn (ph) properties and the convenience of twice-a-day dosings into a patient-friendly easy-to-swallow gel-cap type of technology.

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

The ORADUR product for Romoxi is currently Phase in III.

The initial Phase III trial was started, actually, in December of last year.

The study design was a randomized double-blind placebo controlled multicenter study that was to confirm the efficacy and safety in patients with chronic pain associated with osteoarthritis.

It involves about 200 patients in over 20 centers.

They will be titrated on for a week and then will receive either Romoxi or a placebo for a minimum of four weeks.

The dose we're looking to deliver in this trial is 20 milligrams twice a day or a total of 40 milligrams.

And the primary endpoint will be analgesic efficacy.

With regard to the Romoxi program, in January 2005, Pain Therapeutics reported plans to initiate a second Phase III trial for Romoxi in the second half of this year.

And we will be supporting this Phase III program in general, particular with regard to the CMC section throughout the remainder of the year.

I'd now like to bring us up to date with regard to our -- the DURIN-based Alzheimer's disease product.

We are developing an Alzheimer's disease treatment utilizing our DURIN and drug delivery platform, which is our little bio (ph) lot (ph) with Voyager Pharmaceuticals, who is our partner for this program.

Significant progress was made during this past quarter with regard to this project.

In January of 2005, we announced that we had completed patient enrollment in the Phase I PK study, which involved 50 subjects.

At that same time, we also announced, together with our partner, Voyager Pharmaceuticals, the completion of a one-year placebo-controlled study of the active agent in women with Alzheimer's disease.

Voyager are currently analyzing the results from this trial.

There is an additional one-year study ongoing in men with Alzheimer's disease.

An interim analysis of this trial is expected to be completed sometime in 2005.

With regard to our company financials.

At the beginning of 2005, we anticipated that our net increase in cash and investment balance for 2005 would range between $26-28 million.

As a result of our agreement with Endo Pharmaceuticals, we anticipate that this range will now be between $12-14 million this year.

I want to reiterate that DURECT has a very strong pipeline with four products in clinical development.

And this should summarize the goals that we have met so far this year.

With regard to the SABER-Bupivacaine product, we have completed the Phase II cohort one and we announced today the completion of our Phase II cohort two, with the data to be announced in June.

With regard to the TS (ph) TRANSDUR sufentanil patch protégé, we completed the Phase I PK studies and initiated the Phase II studies, as well as announced our collaboration with Endo Pharmaceuticals for the United States and Canada.

With regard to the Alzheimer's disease therapy, we completed patient enrollment in the PK program in January of 2005 and also announced completing of dosing -- (inaudible) dosing in the interim study, one-year study with -- in women with Alzheimer's disease.

As far as goals for the remainder of this year, with regard to SABER-Bupivacaine, we look forward to announcing Phase II clinical results.

With regard to the TRANSDUR sufentanil patch, we look forward to announcing Phase II clinical results.

With regard to the Romoxi program, we look forward to starting a second Phase III trial with the potential of data from the first.

With regard to the Alzheimer's disease therapy, we completed -- we announced completion -- we look forward to, excuse me, completion of the Phase I PK clinical trial.

As well, we look forward to the potential for announcing results of the Proof of Concept (ph) clinical trials.

Assuming positive data and a successful end of Phase II meeting, we look forward to initiation of Phase III clinical studies for this exciting project.

In closing, I'd like just to reiterate with regard to the advancement of our pipeline this year.

We have one product in Phase III with a potential to receive Phase II data from three other products in 2005.

All of this is while we're retaining significant value from these development programs - excuse me.

We've been able to reduce our cash burn rate.

Our financial strength has boosted significantly with the execution of the Endo agreement on the TRANSDUR sufentanil patch.

There's tremendous enthusiasm and optimism at DURECT because of the value of the product we're developing, but also because of the increasing stage of maturity as we transition these programs and DURECT into a fully-integrated specialty pharmaceutical company.

I'd like to thank you again for being on this call and we'd like to answer any questions you might have.

Jon Hickman has a question over audio.

Go ahead, Jon.

Hi.

This is just a clarification of the balance sheet.

Sure.

I got the last part where you said that your -- you anticipated that your cash use would be between $12-14 million for the year.

That's what you said, right?

Yes.

Okay.

And did you also say at the beginning that you had 85 million on the balance sheet right now?

No, we, actually, at the beginning of the year, we had 61.8 million ...

Yes.

...so, with the $10 million upfront payment from Endo, we expect ending cash investment balance will be in the range of $48-50 million.

As -- do you mean for this quarter now?

No, for the year.

For the end of 2005.

Okay.

So, you had 61 to start the year.

You got 10 million during the quarter.

That's correct.

So, what's the -- what's the cash balance in right now?

Right now the cash balance, we had $55.8 million at March 31, 2005.

We received $10 million in April from Endo Pharmaceuticals.

Okay.

That makes sense to me.

I'm sorry.

That was, my other question is can you say anything about Therugesic (ph) or CHRONOGESIC, sorry?

Just with regard to CHRONOGESIC, we remain optimistic about the program and continue to work on it.

But as we said earlier, we're not going to make any official announcements until we get it back into the clinic.

But you're still working on it?

Yes.

Absolutely.

Okay.

Thanks, Jon.

Thank you.

Mara Goldstein from CIBC World Markets has a question.

Yes.

Thank you very much.

Two quick questions, on the balance sheet there was a big jump in accounts receivable.

Should I infer that that is a $10 million Endo payment cause it goes from like 2.5 million to 13 or 14 million?

And then could you just talk a little bit on the collaborative research line you did 3.6 million on the quarter?

That's kind of trending higher than where you've been.

And just as we're thinking about kind of modeling out through the year how you'll be reimbursed from Endo or what not and how that flows through your P&L?

Okay.

The first question regarding accounts receivable balance, we actually booked the $10 million as accounts receivable at the end of March 2005.

So that's correct.

The increase in AR is related to the $10 million up-front payment.

Regarding collaborative R&D revenues, the first quarter 2005 we made significant progress with Remoxy and DURIN products partnered with PTI and Voyager.

In addition, we recognized revenue based on the activities that were performed for Endo Pharmaceuticals regarding the transfer Sufentanil program.

Okay.

But do you have an expectation of what that line will look like for the entire year?

Actually based on the current estimates the final numbers for the entire year will actually depend on our final discussion with our partner regarding the product development plans.

So it will be difficult to provide quarter-over-quarter estimates at this time.

The thing, Mara, with regard to Endo is that we signed the deal on March 10 but there's a certain period under which we're now negotiating with them with regard to the development plan and timeline.

So that still hasn't completed yet.

And when that's complete then we'll have a much better understanding.

Okay.

And would you anticipate that will complete in this quarter?

The talk with Endo regarding the development plan for that product would you expect that you'll complete that within the current quarter?

Well, yes, we will.

We expect to complete the discussions with them but we aren't able to provide any additional guidance until that's completed.

Right.

Okay.

Thanks.

You're welcome.

Thank you.

There's no other questions over audio.

Okay.

Just want to thank you all for joining us on this call.

And we look forward to future announcement calls.

Take care and we'll talk to you soon.

This concludes DURECT Corporation's first quarter 2005 earnings call.

Have a great day.