DURECT Corp (DRRX) 2005 Q4 法說會逐字稿

Welcome to the DURECT Corporation Q4 2005 earnings call.

Schond Greenway head of IR Strategic Planning for DURECT Corporation and on behalf of everyone at the Company we would like to welcome you to our fourth quarter 2005 and year end 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 our fourth quarter and year end financial results.

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

Afterwards, we will open up the call for a 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 DURECT's products in 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 and 10-Q, under the heading factors that may affect financial results.

And future results.

I will now turn the call over to Jian.

Thanks, Schond.

Good afternoon, everyone.

And thanks for joining our fourth quarter 2005 and year-end earnings call.

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

Our net loss for the three months ended December 31, 2005, was $6 million, or $0.10 per share, compared to a net loss of $7 million, or $0.13 per share for the same period in 2004.

Net cash used in operating activities was $5.6 million for the three months ended December 31, 2005, compared to $6.8 million for the same period in 2004.

Our net loss for the year ended December 31, 2005, was $18.1 million, or $0.34 per share compared to a net loss of $27.6 million or $0.54 per share for the same period in 2004.

Net cash used in operating activities was $7.2 million for the year ended December 31, 2005, compared to $22.2 million for the same period in 2004.

In November 2005, we completed a secondary offering with net proceeds of approximately $38.1 million, after deducting underwriter's commission and other offering expenses.

At December 31, 2005, we had cash and investments of $91 million, including $2 million in restricted investments, compared with total cash and investments of $61.8 million, at December 31, 2004.

We expect total cash burn for the fiscal year 2006 to be in the range of 31 to $34 million, which includes interest payments of $3.6 million for the convertible notes.

Thanks again for joining our earnings call.

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

Thank you, Jian.

And welcome, everyone. 2005 was the strongest year yet for DURECT as we achieved all of our product development milestones which we talked about at the beginning of 2005.

With regard to SABER-Bupivacaine we completed a Phase II study on over 80 patients.

With regard to our ORADUR technology, the first product there, Remoxy completed a Phase III trial on over 200 patients and King Pharmaceuticals sublicensed the rights for Remoxy and three remaining opioid ORADUR programs from King Therapeutics.

With regard to TRANSDUR-sufentanil, we completed a one month Phase II study and we signed Endo Pharmaceuticals as our collaboration partner for development of this product in the United States and Canada.

We completed a secondary offering for $40 million which strengthened our financial position and with regard to our Voyager program we had a successful end of Phase II meeting with the FDA and started the Phase III program for Memryte.

During this call, I will provide updates on our postoperative pain depot product, on the Remoxy gel and the other gel cap products, on our collaboration with Endo Pharmaceuticals, on our collaboration with Voyager Pharmaceuticals as well as provide a brief discussion on new development programs, and outline our projected development milestones for 2006.

With regard to SABER-Bupivacaine which is our postoperative pain depot product it is important for investors to understand that this is a first in class therapy.

This is the first time an injectable product has been able to be applied around a wound at the time of closure of surgery, and then controls pain for three to four days post that.

What we do is take a local anesthetic, administer it in a depot at the time of the surgery and achieve the pain control afterwards.

We've recently completed a top down as well as a bottoms up analysis to understand the market opportunity for this product.

And we estimate that the U.S. market exceeds $1 billion for this product.

With more than 70 million U.S. surgical procedures requiring postoperative pain medication.

In the fourth quarter last year, we announced positive preliminary results in an 80 patient Phase II study in inguinal hernia patients.

The preliminary data included and indicated that all the primary end points for this study were achieved and this included a delivery profile of three days or more with no burst upon injection.

We saw no significant clinical adverse events, nor was any local or systemic toxicity observed.

It should be noted that the product felt the same to the doctors as the standard of care which is bupivacaine plus saline so the injection was quite easy to use by the physicians.

We also were able to establish what we are looking for from every Phase II and that is the dose range for the product.

From a preliminary efficacy standpoint when we compared the control group to our SABER-Bupivacaine group we had less pain intensity in our treatment group, the bupivacaine plus SABER group and these patients also took approximately half of the supplemental opioid analgesics for the four days following surgery.

The current status of the this program is as follows.

In January we expanded our development program by starting work on Phase II studies for additional soft tissue as well as orthopedic surgical procedures outside the United States.

During this month, we also received acceptance in the United States for our IND, and plan to initiate studies in the U.S. for this program in the near future.

We intend to initiate the Phase III clinical program for this product in the second half of this year.

Just to reiterate as well the commercial plans here, we plan to commercialize this product ourselves in the United States, and we are seeking partnerships outside the United States.

With regard to our ORADUR technology, the lead product here is Remoxy.

Remoxy is a proprietary abuse resistance version of a sustained release form of oxycodone based on our ORADUR technology.

It incorporates several of these deterrent properties with the convenience of twice a day dosing and a patient friendly easy to swallow gel cap technology.

Oxycodone is the active drug ingredient in OxyContin which is an opioid pain killer with sales in 2004 exceeding $1.9 billion and over 7 million scripts written annually.

The first Phase III Remoxy trial completed and reported out in September of 2005, and here, we were able to see both efficacy and safety in the patients -- in patients with chronic pain.

It was a randomized double blind placebo controlled multicenter study.

It involved 200 patients in over 20 U.S. centers, these patients had moderate to severe osteoarthritic pain.

After one week titration period the patients were dosed on Remoxy for a period of at least four weeks and for as long as 12.

They were dosed in the study at 20 milligrams divided -- or excuse me, given twice daily for a total daily dose of 40 milligrams.

And the primary end point was analgesic efficacy.

To think back, a moment, on this product we were able to demonstrate in phase one very nice 12 hours of controlled release as well as a much more difficult to abuse potential from this product, and so when you step up with that kind of performance, 12 hours of delivery, it is not unexpected to go into Phase III against a placebo and to be able to demonstrate good efficacy.

And that was what we were able to do here.

We saw statistically significant decrease in pain scores versus placebo as one would expect as well as a statistically significant improvement in quality of life.

There were no drug related issues beyond typical opioid related side effects.

Now I would like to summarize the King Pain Therapies collaboration with regard to this and the three other narcotics that we have licensed into this.

This involves the commercialization rights of four ORADUR based opioid products .

The product rights were outlicensed by direct to pain therapeutics and then subsequently sublicensed to Pain Pharmaceuticals.

It is important to know that DURECT owns all of the technology for these products and we own all of the controlled release and formulation of intellectual property which arise from this collaboration.

A summary of some of the financial trends with regard to this.

In consideration for the program, pain therapeutics received an up front payment of 150 million, they also receive additional milestones and R&D expenses totaling around $250 million, as well as a royalty on sales.

DURECT is responsible for formulating all the products and providing clinical product as these products move into the clinic, and the consideration to DURECT here is in the form of milestone payments, for the development milestones achieved, as well we receive R&D reimbursement for all of the formulation activities we do, and we get a blended royalty on sales.

Which range from 6% at the low end, and scale up to 11.5% on the high end.

In addition, we receive a manufacturing mark-up on the key ingredient.

The key patented excipient they give the products characteristics of abuse deterrents and controlled release.

King Pharmaceuticals has stated plans to initiate a second Phase III study for Remoxy in the first quarter this year.

We plan to support the Phase III studies and this program throughout the year.

King has also indicated they plan to move the second ORADUR product or ORADUR narcotic products from this collaboration into the clinic later this year.

DURECT is currently developing a product formulation that will be used in the clinical testing later this year for the second product.

With regard to TRANSDUR, our sufentanil pain product,what we have here is basically a control release form of sufentanil that can be applied and compete possibly with the duragesic products that are out there.

The differences are this is a seven-day patch so it lasts for a full week, it's also about one fifth the size of a fentanyl patch.

It allows for a five-fold increase in available skin size for application and has the potential to reduce dermatological problems such as skin irritation.

We believe this should enhance patient compliance and convenience and it has also -- there's a potential for the molecule itself to have reduced tolerance and improved safety profile.

The collaboration overview with regard to this deal with Endo Pharmaceuticals for the United States and Canada, the consideration that DURECT received from this product was $10 million up front with an additional $35 million in milestones.

Endo has the responsibility for sales, marketing, and manufacturing.

As well as launch costs for this product in U.S. and Canada.

And pays all of the development expenses with regard to DURECT's expenses getting this product approved and we received on sale a very strong royalty on this product.

As well as receiving the royalty on net sales, we also have co promotion rights to this product in the United States and Canada.

Which helps us as we make the transition that DURECT is looking to make starting this year to becoming a specialty pharmaceutical company.

It should be noted that we retain all commercial rights for this product outside the United States and Canadian territories.

Now the U.S. outside the U.S. market opportunity just to give you a sense of this, the fiscal year '05 sales for a duragesic were over 900 million, with the growth rate of about 25%.

Current status of this project is one where we have established first-off the patch size and we understand now the patch size to plasma concentration from our phase one work so we know the appropriate size patch that will yield a given plasma concentration of sufentanil.

We have well established also the plasma concentration to efficacy from our work with CHRONOGESIC.

Remember we took nearly 100 patients into the Phase III here, delivered for months.

So we understand the plasma concentration of sufentanil as it relates to chronic pain control.

Putting those two things together, we were able to have this -- the results that we received right at the end of last year with regard to the Phase II work.

At our first Phase II study we received basically one month of delivery and very positive data with regard to kinetics and efficacy.

Preliminary efficacy from this product.

To give it in December of 2005, then we announced some of these Phase II data.

This study involved a total 13 patients and they -- they were always who were chronic pain patients.

This was an open label study looking to assess the pharmacokinetics and safety over four weeks and we are also looking to evaluate the conversion strategy from duragesic over to our TRANSDUR-sufentanil.

All the primary end points for this study were achieved, that is for PK and safety.

First we saw from a kinetic standpoint a rapid onset and we achieved the targeted plasma concentrations for the seven-day period.

We also achieved the targeted plasma concentrations for the consecutive doses over the entire four-week period.

It was well tolerated with no apparent safety issues over the entire four week period.

From preliminary efficacy observations on average the pain levels remained stable.

After the transition on to TRANSDUR-sufentanil and these patients had an opportunity to drop at any time or to go on to other medications and they were quite content with what they had and stayed on there for the month.

The current status of the program is that Endo is now responsible for the remaining work for the United States and Canada, and they have stated they have plans to move this program through development starting this year and moving forward.

Next I will update with regard to the Memryte product which is a DURON based Alzheimer's disease therapy product.

Here we are working with our partner Voyager Pharmaceuticals in developing an Alzheimer's disease treatment using our DURON drug delivery platform.

Significant progress was made with this ongoing collaboration in this past year.

In 2005, the collaboration completed enrollment in a Phase II dose ranging study in about 100 men with the active agent.

Also, it was completed dosing at a 48-week Phase II study in approximately 100 women with the active agent.

The results of the women's trial -- these were -- both the men's trial and the women's trial involved mild to moderate Alzheimer's disease patients.

And results of the women's study indicated a trend at 48 weeks in favor of the high dose Leuprolide acetate group which indicated a stabilization of the disease.

There was one subset analysis of 24 patients who were a also taking acetyl cholinesterase inhibitors.

These patients were the highest dose of Leuprolide acetate, and in this group the subset there was a statistically significant improvement in capacity to perform the activities of daily living.

This program completed the end of Phase II meeting with the FDA and initiated the Phase III program last year.

The Phase III programming in entirety will involve two studies that will involve approximately 1,100 total patients, they will be conducted in two randomized double blind placebo controlled studies, they will be 56-week trials of Memryte in patients with mild to moderate Alzheimer's disease.

Voyager's currently seeking to complete enrollment of this first trial which will involve 550 patients in 2006 and they're currently estimating they're about 20% completed in their enrollment of this study.

In these trials, Memryte will be tested in conjunction with acetyl cholinesterase inhibitors.

With regard to company financials.

As Jian reviewed to you earlier, we completed the year with $91 million in cash and investments.

We expect total cash burn for fiscal year 2006 to be in the range of 31 to 34 million which includes the interest payments of $3.6 million for our convertible notes.

Additionally, with our lease of an additional 40,000 square foot building here in Cupertino which was signed in the third quarter we believe that we are now positioned for growth of our operations to meet the demand of these maturing development programs as well as our expanding pipeline.

I'm now going to list some of the development milestones we look forward to in 2006.

In the first half of this year, we look forward to initiating additional Phase II studies in the United States for soft tissue and orthopedic surgical procedures, as well as continue our clinical studies outside the United States.

We look forward to initiating the remaining Phase III clinical work for Remoxy.

We look forward to being able to present additional data from our Phase II studies with regard to the post-op pain program.

In the second half of this year, we look forward to initiating the Phase III program for the post-op pain product.

We look forward to completion of Phase I clinical study for our new development product one which we obtained full rights for.

We also look forward to a second ORADUR product in the King PTI collaboration moving into Phase I. As well Voyager has plans to complete enrollment in the first Phase III trial for Memryte.

In summary, we continue to advance our pipeline in 2006.

We will be starting the year with two products in Phase III and hopefully ending the year with three products in Phase III.

We have the potential to receive additional Phase II data from at least one development product.

We will be advancing a new as yet undisclosed development product into the clinic, one for which we retain full rights.

We have the potential to have two new products enter Phase I this year.

The potential to complete a deal outside the United States for SABER-Bupivacaine or our Transdermal sufentanil product as a nondilutive mechanism to fund our company going forward.

In 2006, we are transforming this company into a fully integrated specialty pharmaceutical company.

We retain full commercialization rights to a number of significant development programs as well as co-promotion rights for another and we will build out a commercial team as these programs mature.

We also plan to hold an analyst day later this year to discuss our product pipeline and roll out DURECT's five year strategic plan.

Thanks again, and now I would like to answer any questions you guys may have.

Our first question comes from David Shaw with JP Morgan.

Hi, thanks for taking the questions.

I just have a couple.

On the mystery product that you I guess announced this morning, can you at least comment if that is a pain product and maybe what drug delivery system that is in, if that is even appropriate?

And then secondly, I guess you just mentioned -- you kind of alluded to this, Jim, that are you going to discuss your five-year strategic plan with us sometime later this year, but I was curious to wonder if you can give us a little preview on that?

You had mentioned that you plan to evolve as a company this year into a more -- into a broader specialty pharma company, I was just curious what kind of initiatives you are planning or implementing and if there's any big changes to your strategy you can talk about now?

With regard to the new product, since this is Felix's baby, I will let him talk to you about that.

And then I'll take the second question.

I think we are in a very fortunate situation at DURECT to have a number of very mature technologies with products that are in Phase II and Phase III, that are springboards for a number of opportunities.

We are in the process of executing a number of product opportunity assessments to fill our specialty pharma pipeline and we feel very strong about the first program that we are taking out.

I think we will give guidance, I think further on in the year, we hope on what drug and what technologies, but unfortunately at this point in time we just like to keep that as a sales project.

But it is clearly one that would fit very nicely on our specialty pharma company.

Thank you, Felix.

And David with regard to your second question, what we will be doing at our analyst day is profiling the products for direct and the economic opportunity of these development products as we go forward.

To outline our strategy over generally with regard to the Company, what we want to do is give you guys an opportunity to have a sense of what we believe DURECT will look like over the next five years.

Just as a follow-up to that, are you planning on making any investments in additional R&D people or in any other specific parts of the business, anything--?

I think we constantly look to strengthen our company.

I think you've seen if you look at some of the additions at the beginning of this year, we've promoted some people, we also brought in Harry Guy in the operations side.

We are maturing as a company to be able to handle the ICH badges and the commercialization of this these products as they roll forward.

The next area of growth I would think for the Company will be from a commercial team standpoint and also adding some additional strength on the clinical side as the Company broadens our pipeline and the effort that we have to take on.

Okay.

Thank you.

Sure.

Our next question comes from Jon Hickman with MDB Capital.

Hi, I have two questions.

Sure.

First one is, I listened to the Pain Therapeutics call, and they said they were going to introduce two new pain abuse anti-abuse opioids.

Are you being conservative or did you only hear one or am I wrong or--?

Well, actually you did hear correctly, they did say two, and we typically try to be a little more conservative and so we're just talking about the one that we talked about so far.

Okay.

But it is possible to put -- there is -- King has the rights to all four that we have licensed to them.

So it is within the realm of possibility that more than one could go into the clinic this year.

Okay.

Could you elaborate a little bit more on where you think like -- I mean you didn't say much about what Endo -- I know that they're responsible, but can you elaborate a little bit more on what you think they might accomplish this year?

I really -- Endo as a company tend to be fairly quiet with regard to the development program.

That is a history, a tradition that they have, and so we have to respect that of our partners.

We're supporting things as we go forward.

I really like what we have seen so far with this product and I'm very excited about it moving beyond where it is today in Phase II into Phase III.

But that will happen as it happens.

We will make the announcements as we're able to.

But at this point in time, I probably can't really elaborate more than that.

Okay.

That's it for me.

Sure, thanks, Jon.

Our next question comes from Jim Molloy with Oppenheimer.

Thanks for taking my call.

Sure, hey, Jim.

How are you?

The question I had was on the Remoxy royalty rate.

You mentioned the 6.5 going to 11.

Did you guys break out what the break points are or what point does it go to those various levels?

I'm sorry, go ahead.

Go right ahead.

I guess no is the answer?

No we haven't.

And actually it is 6 going to 11.5.

And the other thing that is important to note is we also have the manufacturing mark-up on the key ingredients to that.

And it is not -- that is an important point as well, it is also, for us with regard to returns.

And if that mark-up be separate from the 6.5 to 11, any idea what kind of number that would be?

That will be additive to that.

We haven't given guidance on that, though.

And then I guess one of the other questions would be, the SABER-caine, obviously, that may be right for a partnership, any thoughts or any color on that you might be able to give?

Well, I can can tell you obviously that the surgical world has been looking for this product for a long time.

Whenever we do market research, we see the strongest numbers we have ever seen.

Typically we do opportunity assessments for every product before we put it in development and if we get 7 out of 10 doctors liking an opportunity then we think we've got a strong chance here.

This one, it has numbers of 9.7 out of 10, so it clearly is something that the surgeons are looking for.

And it is not missed by those who serve -- the surgical suite, and serve the surgeons.

And so there has been a lot of interest from a lot of people, both in the United States and outside the U.S.

We have made it a goal, about, using this product to help us transition to become a specialty pharma company.

We are certainly talking to interested partners outside the U.S.

And we have people calling us all the time generally and we will give you more information with regard to this strategy during the analyst day and perhaps people more qualified than myself can be there helping to identify some of this.

And hopefully people more qualified than myself will ask the question.

The one last question I had was on the R&D costs kind of jumped up in the quarter, and the note said it was related to the Remoxy and the Transdermal.

My understanding was those costs were all laid out to the partners.

Could you walk through a little bit how that R&D cost jumped up?

Yes.

Just in general we are spending, I will let Jian answer afterwards but the products we're developing are maturing, and so that is kind of generally what you will see the expenses over time.

And I don't know Jian if you want to address that a little more directly.

Basically in the fourth quarter we started to increase spending for SABER-Bupivacaine product and also other partner products so during the course of 2006, we will continue to increase R&D expenditures to advance our pipeline for bupivacaine and our new product.

And part of what you may be also saying is we are laying down the foundation on the operational side to be able to produce these products and produce the excipients and other things that we need and that requires investment as well.

Thank you very much.

Sure.

Our next question comes from Joe Pantginis.

Hi, guys.

Thanks for taking the question.

I would like to ask more of a strategic question, if you will allow me.

You have had important positives and should have been stuck driving news in the latter of part of 2005 and therefore wanted to get your opinion or views as to why there certainly appears to be a disconnect between all of these new data points and the stock price.

I appreciate it.

Okay.

I think that is a great question.

And it is probably a tough one to answer.

To rephrase, with all the good news you have, why is the stock kind of going up -- I think I'll let -- Felix, here has probably more experience than most of us around this phone to kind of give some perspective here on that.

Well, I think, first of all, I think you being on the other side, you should be able to understand, I think more than we do.

Obviously, we make a lot of progress.

Some of the news may be -- has come out in the holiday season, maybe it was not noticed.

But I think that we would like to get feedback from you as to why you think there is a disconnect.

We have a tremendous amount of progress and I think that's what we've done, I think in this earnings call, is to give more clarity in certain areas, and I think that may be part of the reason.

The misunderstanding, for example, of the royalty rates on certain products, the exact strategy that we're taking on, on our SABER-Bupivacaine and I think as those things are going to come out, I think that that will work well.

As you may recall, from the ALZA experience, when ALZA finally decided to become a specialty pharma company, we had a very strong royalty check coming in.

And we were announcing all of the different compounds we were working on as strength opportunities, and during that whole period of time, which was about almost 10 years long, people kept really questioning the pipeline.

They kept saying, well, ALZA has no record in being in new products because they were referring to the [Inaudible] and they said they have no experience in doing it, and so during that time period, Ernie was kind of forced to validate the portfolio by doing a deal with Knoll for example on the high dose hydromorphone and that product still has not seen the light of day.

So in the end, the only way that the value was built, by bringing these products out, and then eventually generating the revenue.

So I think that out of this lesson, I think people will start to understand that the hockey stick phenomena that happened at ALZA is not going to be necessarily the situation here.

I think people should be able to understand the value of the pipeline, as we build it through all of these different time lines, just as we did in ALZA.

So I think that -- this is why we want to bring out the strategic plan, the five-year plan, in the middle of the year, so that you can actually see the end of it all.

Because you will see NDAs coming on in some strength over the next several year, and I think as people start to look at the end points, and starting to see the.performance of the products in a clinical phases, I think the credibility from our past experience and our current portfolio and bio technologies I think will be understood.

And I think that the mid year meeting, somewhere around May/June periods I think will be very important for us to lay it all out.

Just if I could add one other thing to it, because, Joe, I think it is is a great question, and one that we ponder often.

I think one of the things that people don't really appreciate often, unless they're really involved with them is in drug delivery products that you're bringing forward, once you understand the kinetics of the product, and you've got -- because you already know that you have the biological activity there, there is not nearly the risk in Phase III that you have in a new chemical entity.

And that was proven out, I think very well in the Remoxy data.

We showed 12 hours of release, 200 patients, it works very nicely.

With regard to the post-op pain product we have data from 80 patients now and 80 patients, with very nice performance of this product reducing narcotics in half.

Those kind of things translate -- should translate very nicely to Phase III.

So we expect that we'll see good progress.

We're a year-plus away from our first NDA being filed and we have multiple other ones starting to come on the heels of that.

So I think as a company people will start to appreciate this in the not too distant future and we will start to see growth.

Thank you very much for your insights.

Sure.

We have another question from David Shaw.

Thanks for the follow-up.

I don't have my notes on the converts in front of me, but I was just wondering if you could remind me about the moneyness of those converts?

And if they're in the money and I think they are what the fully diluted shares outstanding would be and what your fully diluted market cap would be?

Sure I'll hand that over to -- while Schond's got his calculator, he is calculating the market cap.

I will talk briefly, or do you want me to--.

Thanks, David but I think that in general, as you are talking about the converts, the converts are -- they're 6 1/4 converts convertible at $3.15 a share, so when you look at us, on a fully diluted basis, what we're talking about is approximately--?

70 million shares.

70 million shares.

Is it 70?

I thought it was 80.

Approximately 80 million shares.

So with that you are looking at -- I don't know where exactly we closed at today but I'm assuming $4 plus a share so you're talking about a $300 million, $320 million opportunity.

Okay.

Thank you.

Sure.

We have a question from Elliot Wilbur.

Good afternoon.

Thanks for taking a few questions.

Sure.

I wanted to ask a question about the the two recently initiated Phase II trials for bupivacaine.

Any particular reason why the -- those surgical settings were selected?

And are there -- with respect to thinking about the Phase III, is it just too early to tell or should we be thinking about the surgical settings for the products already been tested in Phase II is most likely serving as a same setting in the Phase III trial.

I think wherever you have success, you want to repeat that, right?

But I think in general you have to remember this is a first in class therapy, it's the first time it has been available so we haven't had that end of Phase II meeting yet, once we have that end of Phase II we will be able to give clarity as to the Phase III program.

So that's the first thing to look at.

But then knowing that, what we're doing right now is we're conducting additional studies to get an understanding of how the product performs in these various models.

To look at other soft tissue surgeries and to look at orthopedic opportunities and then we will move into our Phase III program with one or two or three pain models that we and the FDA feel very comfortable about.

That they give us as broad an application as possible, for use out of this.

Because it is highly likely the surgeons will want to apply this to more than just hernia or more than just another type of surgical procedure.

We have -- if we're ready to move on, we have another question from Jon Hickman.

Sure.

Absolutely.

Hi.

This question is for Felix.

If you would, I mean you probably don't want to answer this, but can you say anything about CHRONOGESIC?

CHRONOGESIC is still a phenomenal product.

If we can reach back into Phase III.

We have a number of activities ongoing in our research settings to fix the ongoing problem and I still remain very optimistic about the product, and we are making good progress.

As we stated in the past, we -- that is no longer -- the pressure on this product that we once had and we can bring this out when we finally have done it.

As you know, Endo re-upped its option, and so we both are looking forward to bringing the product back.

Okay.

Thanks.

There are no further questions at this time.

Okay.

Well, with that, we would like to thank all for your time and great questions and we look forward to seeing you all soon.

Take care.