DURECT Corp (DRRX) 2005 Q2 法說會逐字稿

Hello and welcome to DURECT Corporation's second quarter 2005 earnings call.

We are now ready to begin.

Please go ahead.

Hello, everyone, and good morning.

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 second quarter 2005 financial results conference call.

I have with me today Jim Brown, our CEO;

Jian Li, VP of Finance and our Controller; and Felix Theeuwes, our Chairman and Chief Scientific Officer.

The order of the call will be as follows.

Jian will review our second quarter financial results.

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

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

Before I turn the call over 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 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 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, Schond.

Good morning, everyone, and thanks for joining our second 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 June 30th, 2005, was $3.6 million or $0.07 per share compared to a net loss of $7.4 million or $0.14 per share for the same period in 2004.

Our cash provided by operating activities was $4.8 million for the three months ended June 30th, 2005, compared to $6.3 million of cash used in operating activities for the same period in 2004.

We also announced today that we entered into a privately negotiated agreement with the holder of our 6.25% convertible notes due June 2008 to exchange up to $5 million in principal amount of these notes for 317.4603 shares of our common stock per $1000 principal amount as originally defined in the indenture, plus additional shares to compensate the note holder for the early exchange.

The issuance of common stock in this transaction is exempt from the registration requirements of the Securities Act of 1933 under Section 3(a)(9) of the Act.

At June 30th, 2005, DURECT had cash and investments of $60.5 million compared to $61.8 million at December 31st, 2004.

We anticipate that our December 31st, 2005, cash and investments balance to be in the range of $48 to $50 million.

Thanks, again, for joining us on this call.

I will now turn the call over to Jim to discuss the activities of the quarter in greater detail.

Thank you, Jian.

During the second-- excuse me.

The second quarter was an outstanding quarter for DURECT.

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

We were able to announce positive preliminary results from our SABER Bupivacaine development program.

As well, our first ORADUR product completed enrollment in its first Phase III trial.

We also announced today that we continue to strengthen our financial position by opportunistically retiring a portion of our convertible notes.

During this call, I'll provide updates on our postoperative pain depot product, the Remoxy gel-cap product and also briefly update you with regard to our collaborations with Endo Pharmaceuticals and Voyager Pharmaceuticals, as well discuss the retirement of a portion of our convertible notes.

Our postoperative pain depot product is the new program where we're taking Bupivacaine, a relative of novocaine that you might have received from your dentist, and what we're doing is putting it into our SABER controlled release injectable technology.

We're using this to help control postoperative pain.

The estimated market opportunity for this type of product is in excess of $1 billion with more than 70 million surgeries in the United States for which this technology could be applicable.

The opportunity here is to take Bupivacaine, which normally is quite infused around a wound during surgery, that allows for around four hours of pain control and extend it out with our SABER technology to four days or more.

The key attributes here are the potential to reduce hospital stays, as well as to reduce opioid-associated side effects and their complications and end paperwork.

As far as this clinical program goes, at this point in time we are in Phase II with this product and we just have recently announced that we've initiated the third cohort of this initial Phase II trial, which is an inguinal hernia trial.

And the total trial number of patients is about 90.

The end points that we're looking at in this trial are, first safety, next pharmacokinetic evaluation, so how the blood plasma concentration of the sufentanil follows over time, the time to first supplemental pain control, the analysis of total pain intensity from these patients, as well as total concomitant medications taken.

The first cohort involved 6 patients in this trial and we saw in there very nice kinetics, as we expected, and no safety issues.

We announced earlier this quarter that we had seen some-- what I term as phenomenal efficacy out of the second cohort of this trial, which involved 15 patients -- 5 on the standard of care, SABER plus Bupivacaine-- excuse me, SABER plus Bupivacaine being 10 of these subjects and 5 of the patients being on Bupivacaine plus saline.

The preliminary results from this second cohort of patients was presented last month at the International College of Surgeons 39th North American Federation Congress meeting in Acapulco, Mexico and the data that we presented I'll outline in the following few statements.

First, with regard to safety, we saw no local or systemic toxicity and the injection was well tolerated and easy to use.

It was very free flowing and felt similar to the Bupivacaine plus saline.

As well, I should note that we saw no burst, which is a very important piece with regard to this technology and allows for the kind of performance that we've been able to see.

We were able to reproduce the pharmacokinetic profile that we saw in our Phase I work where we saw multiple days of delivery of Bupivacaine.

With regard to the performance, the time to average supplemental analgesic for the patients who were on the standard of care -- this is the Bupivacaine plus saline -- they took their first medications at 2.3 hours post surgery where we saw with-- for the SABER plus Bupivacaine patients more than-- they took their first dose at greater than 45 hours.

The total number of pain meds over the 4 days post surgically for the saline plus Bupivacaine patients was 11 doses versus the SABER and standard-release Bupivacaine, we saw less than 3 doses or greater than a 70% reduction in narcotics use.

As far as analysis of total pain control, patients that were treated with the SABER Bupivacaine reported better overall mean pain relief over the 4 days following treatment when compared with patients treated with the commercial Bupivacaine.

Patients treated with the SABER Bupivacaine also reported lower pain intensity scores than the control group, using a visual analog scale of pain intensity over the 4 days following treatment.

And I think most significant coming from this trial was 5 of the 10 patients who-- these were patients who had open hernia repair, opening and hernia repair, 5 of these 10 patients woke up from surgery and never took so much as an aspirin.

They just simply walked away.

So we think this affords a great opportunity for DURECT and on the strength of that we initiated the final cohort from this inguinal hernia trial and that involves 60 patients, of which 45 will receive SABER plus Bupivacaine and 15 will receive the standard of care, which is Bupivacaine plus saline.

Next, I want to update you guys with regard to the Remoxy ORADUR product.

Remoxy is a proprietary, abuse-resistant version of the sustained release oxycodone based on our ORADUR technology.

It incorporates several abuse-deterrent properties, together with the convenience of twice-a-day dosing from the patient friendly, easier-to-swallow gel-cap technology.

Oxycodone as all of-- most of you should be aware, is the active pain ingredient in OxyContin, which is an opioid pain killer with sales last year in excess of $1.9 billion for Purdue Frederick.

We are currently in Phase III with regard to this program and the study design for the first Phase III trial is a randomized double-blind placebo-controlled multi-center study.

It's used to confirm safety and efficacy of patients who are in chronic pain.

The trial called for enrollment of a total of about 200 patients in over 20 centers with mild to moderate osteoarthritis pain and the dose regime here was 20 milligrams of oxycodone dosed twice a day, 40 milligrams per day, and the primary end point is analgesic efficacy.

In June of 2005 our partner, Pain Therapeutics, announced completion of enrollment in this first Phase III study and we look forward to the results from this study.

As well, PTI plans to initiate a second Phase III trial for Remoxy later on this year.

From DURECT's standpoint, we plan to support the Phase III studies and the CMC program for the Remoxy product for the remainder of 2005.

Our transdermal sufentanil product is one that we have a partnership in place with Endo Pharmaceuticals for the U.S. and Canada for this project.

This is one where we've built on the strength of work that we've done with sufentanil in the treatment of chronic pain for many years with our CHRONOGESIC program.

Within that program, we've been able to establish a plasma concentration to pain control for sufentanil.

As well, we were able to apply a number of the management team's experience here at DURECT Corporation in developing transdermal extended release technology and products.

And so we were able to combine those together and create a smaller, longer-duration system than the existing Fentanyl patch system, the DURAGESIC systems, that are out there today.

And this system is a 7-day patch that is about a fifth the size of the-- of the Fentanyl system.

We think it has the potential for reduced dermatological problems such as skin irritation and sensitization, the potential for enhanced compliance and convenience based on its duration and smaller size, as well as potential for reduced tolerance and improved safety based on the inherent qualities of sufentanil itself.

This program is currently in Phase II clinical development.

We're collaborating with Endo Pharmaceuticals, as I said earlier, in the U.S. and Canada and continue to make nice progress with this program.

We also have significant interest from partners outside the U.S. and I think it should be noted that DURAGESIC's sales for J&J last year were $2.1 billion, but in 2004 the sales for DURAGESIC outside the United States were over $800 million and first quarter this year the growth was 36% for the ex-U.S. sales, so we anticipate that that would be a total market opportunity in excess of $1 billion by the end of this year.

With regard to the DURIN-based Alzheimer's Disease product, here we're working with our partner Voyager Pharmaceuticals in developing a potential Alzheimer's Disease treatment utilizing our DURIN drug delivery platform.

Significant progress has been made within this ongoing collaboration.

The current status of this program is one where there are 3 ongoing clinical trials for this product.

The first is a Phase I PK-style-- trial, excuse me, which has completed enrollment with 50 subjects.

As well, Voyager is conducting 2 Phase II proof-of-concept trials.

Both of these trials are in mild to moderate Alzheimer's patients.

The first trial is in women, the second in men.

They involve between 50 and 100 subjects.

They're placebo-controlled trials in which the patients are allowed to take existing medications as they see fit.

The women's trial completed dosing in January of this year.

Analysis is continuing.

And the men's trial is undergoing an interim analysis right now.

With regard to the company financials, during 2005, as we were entering the year, we anticipated that our net decrease in cash and investment balance for 2005 would range between $26 to $28 million.

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

We also announced today that we have privately negotiated with the holder of our convertible notes to exchange up to $5 million in principal amount of the convertible notes for the common stock.

We believe this opportunistic transaction strengthens our financial position by reducing our debt and interest liability as well as further reducing our corporate cash burn.

Again, I want to reiterate that we've got a very strong pipeline here at DURECT with 5 products in clinical development, 4 of which we have partnered and 1 which is-- Excuse me one second here.

We just had the lights go out in the building here.

But one of which we're carrying forward ourselves.

What I'd like to do is actually just reiterate the milestones that we expect we will be seeing between now and the end of the year.

And the first will be some Phase II results with regard to the Alzheimer's therapy.

Next we look forward to Phase II results coming from our SABER Bupivacaine program, our postoperative pain product.

Next we expect to see some Phase II results with regard to the transdermal patch program and finally we look forward to Phase III results from the ORADUR Remoxy oxycodone product.

We expect, as well, to see a second Phase III trial started for the Remoxy program and with the potential, assuming a positive outcome of an end of Phase II meeting with the Agency, of starting a Phase III program for the Alzheimer's therapy.

So in final closing, currently we have 1 product in Phase III with the potential to receive Phase II data from 3 additional products this year.

We retain significant value with regard to our development programs and retain 1 product absolutely ourselves as we start transitioning to becoming a speciality pharmaceutical company here at DURECT.

We've been able to reduce our cash burn rate and our financial strength is boosted significantly with the execution of the Endo agreement on our transdermal sufentanil patch.

We're also opportunistically further reducing our debt payments and cash burn with the exchange of some of the convertible bonds.

There's tremendous enthusiasm and optimism at DURECT because of the value of the products we're developing and the increasing stage of maturity as we transition to becoming a fully integrated speciality pharmaceutical company.

I want to thank you for your time and we'd now like to answer any questions that you might have.

At this time we have no questions. [OPERATOR INSTRUCTIONS] Jim Molloy, Oppenheimer.

So the lights are back on over there?

Yes, it was kind of fun.

The question I had was regarding what's going on with the FDA and the Paladone getting pulled and the Fentanyl patch being looked at a little more closely, how does that impact the sufentanil patch and how does that-- how do you see the FDA looking at these stronger opioids now?

Or does it change anything?

It's a great question, Jim, and I'm going to actually allow Felix to address those.

Actually, it's interesting, not only do we have the sufentanil patch, which fits along with the Fentanyl and we can discuss that, but also our ORADUR and its abuse-deterrent capabilities with regard to alcohol also fits with the Paladone.

So I'll let Felix speak to this.

I think that the-- in essence, what the FDA raised as issues have been known for-- for a long time.

There's not really anything new.

That is, a drug that is of that strength like a transdermal patch can be abused, obviously, if it is-- if it is diverted and it can be-- specifically that particular system has a reservoir which can be cut and the drug can be extracted from it.

And our system is a matrix system, so it will be an improvement over that situation.

The drugs can also be mis-prescribed and this has been known for some time, as well, and there are certain drug interactions with the P450 inhibitors and this is typically part of a Phase III program that one goes through.

I think with the generic patches coming on board, I think this may be heightened awareness of the use of this drug and I think this is something that now everybody will have to take notice of is that this drug needs to be managed carefully with the patients.

So I think it's really nothing new and it's standard procedure in this business.

With regard to Paladone or the-- or that issue, this is precisely why we designed the ORADUR technology.

It's the anti-abuse resistance of the product concept that really attracted PTI to our technology and the development of Remoxy is essentially developed to prevent this and, in fact, Pain Therapeutics has done wonderful studies along those lines where they've shown that on chewing or actually taking this with alcohol the extraction rate from our dosage form is drastically reduced compared to, for example, what one sees with OxyContin by-- it's about a factor of 4 lower over what you see with the other product.

So I think that from both the abuse potential point of view for both products, I think we're well positioned.

And I think for the rest it's basically the management responsibly of these drugs, which have high potency.

I would agree on the ORADUR.

I guess the question-- the followup question might be can you put any other drugs into the ORADUR technology or is there any prohibition from Purdue calling you up about--?

No, the ORADUR technology is-- we built-- patented by DURECT and we have capability of extending the duration of delivery from the system in several-- 4 hours or twice a day or once a day administration.

We have an agreement with Pain Therapeutics for a number of compounds, but we are also developing or testing the system with a variety of other drugs and there's great interest, obviously, because of the abuse-- anti-abuse capacity or resistance to abuse that this thing already has.

There is great interest from other partners, as well.

The only thing I would add to that with regard to the patch is we may well see, but it has to be proven out in the clinic, some additional safety advantages to sufentanil as an agent, but we'll have to prove that out in the clinic.

We've seen some hints of it preclinically and some suggestion of it from the Phase II work with CHRONOGESIC, but it still remains to be proven out in Phase III with the sufentanil patch.

What do you think the next data point will be from Endo on the sufentanil patch?

Well, I think we have said that the next announcements will be--

Some Phase II.

--some Phase II data.

We'll have some Phase II data this year, yes.

OK.

We have no further questions at this time.

OK.

With that, I'd like to thank you all for your time and look forward to talking to you soon.

Thank you.

This concludes DURECT Corporation's second quarter earnings call.

Have a great day.