DURECT Corp (DRRX) 2006 Q2 法說會逐字稿

Welcome to the DURECT Corp.

Q2 Earnings Call.

We are now ready to begin.

Please go ahead.

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 second quarter 2006 financial results conference call.

I have with me today Jim Brown, our CEO;

Jian Li, our Vice President 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 second quarter financial results, next the call will be turned over to Jim to discuss the highlights for the quarter in greater detail.

Afterwards, we will open up the call for a Q&A 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 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 as well as our 10-Q under the heading "Factors that may affect future results".

I will now turn the call over to Jian.

Thanks, Schond.

Good afternoon, everyone, and thanks for joining our second quarter 2006 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 30, 2006 was $8.7 million or $0.14 per share, compared to a net loss of $3.6 million or $0.07 per share for the same period in 2005.

Our results for the three months ended June 30, 2006 included non-cash charges for the amortization of intangible assets and stock-based compensation of $1.1 million compared to $646,000 for the same period in 2005.

Cash used in operating activities was $10.2 million for the three months ended June 30, 2006, compared to $4.8 million of cash provided by operating activities for the same period in 2005, which included a $10 million payment from Endo Pharmaceuticals in connection with our license agreement for the TRANSDUR-Sufentanil product for the US and Canadian markets.

During the second quarter of 2006, we converted $20 million in principal amount of our 6.25% convertible notes into an aggregate of approximately 6.3 million shares of our common stock.

In connection with this transaction, we recorded debt conversion expense of approximately $2.9 million in the three months ended June 30, 2006.

As of June 30, 2006, the remaining principal balance of our 6.25% convertible notes due 2008 was $37.3 million.

At June 30, 2006, we had cash and investments of $77.7 million, including $1.5 million in restricted investments, compared to cash and investments of $91 million at December 31, 2005.

Thanks again for joining our call.

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

Thank you, Jian and good afternoon everyone.

The first half of 2006 was a very strong for DURECT as we continue to drive forward our development programs.

During this call, I'll provide updates on our POSIDUR product, formerly referred to as SABER-Bupivacaine, on our collaboration with King Pharmaceuticals and Pain Therapeutics for the Remoxy gel-cap product, on our collaboration with Endo Pharmaceuticals for the seven-day sufentanil patch, and on our collaboration with Voyager Pharmaceuticals for Memryte, which is a novel therapy for the progression of Alzheimer's Disease.

Today we announced POSIDUR as the new name for our post-operative pain relief depot program formerly referred to as SABER-Bupivacaine.

This is a first-in-class anesthetic depot, which is administered during surgery to provide regional pain control for three days or more.

The estimated market for this product in the United States is over $1 billion.

We conducted a number of market research studies and most recently completed two, and in particular, one that reflected a top-down analysis of the market, revealed to us over a 100 million surgical procedures annually for this product in the United States and the top five countries in Europe.

I think more interestingly though is the bottoms-up at market analysis that we conducted which involved a survey of 275 surgeons.

There were 100 general surgeons, 100 orthopedic surgeon, and then 25 each from OB/Gyn, cardiovascular and cardiothoracic, and plastic surgery.

These surgeons were asked to take a look at the constellation of surgeries that they performed within their practices and looked at the characteristics of POSIDUR and to reflect to us the probability of use of this product given the frequency of the various surgeries they conducted and this reflected back that annually they saw this product being utilized in their hands in over 30 million procedures in the United States.

The most critical component of this product's development at this point is to be able to demonstrate control of burst, which we have done now in over 81 patients in a Phase II hernia trial down in Australia.

I can't emphasize that enough, that's because the concept of keeping a local anesthetic around a wound has been around for a long time.

A number of companies have tried and have failed in this regard, and we are very, very pleased to be at this point with the POSIDUR program.

We recently completed an 81-patient trial down in Australia where we looked at the relative dosing and the kinetic response in all 81 of these patients given this product.

We were able to safely dose a gram of bupivacaine into these patients.

We are able to determine the dose proportionality of this product, no burst and maximum tolerated dose.

From here now we are rolling into a much more involved Phase II program, and the objectives of this Phase II program are now to select a dose, to select the procedures that we will be testing in our final Phase III efficacy studies and to optimize the injection sites around these procedure.

We anticipate that this will involve between 200 to 300 patients.

We actually have five ongoing Phase II trials at this point in time, in both soft tissue and orthopedic surgery models.

The kind of models we are looking at are those like hernia, rotator cuff, hysterectomy and appendectomy and as I said, these are ongoing at this point in time, and we look forward to data coming in from these trials for the remainder of this year as well as early in '07.

The next product I want to update on is with regard to our ORADUR technology.

In this case, the lead product with regard to ORADUR technology is Remoxy.

It is a proprietary abuse-resistant version of a sustained release oxycodone product.

Our commercial partner with this program is King Pharmaceuticals and together in alliance with Pain Therapeutics.

This product incorporates several abuse-deterrent properties with the convenience of twice a day dosing and patient-friendly, easy-to-swallow gel-cap technology.

You may recall that oxycodone is the active ingredient in OxyContin, which had sales that exceeded $1.9 billion for Purdue Frederick in 2004.

Currently, a Special Protocol Assessment approved Phase III study for Remoxy is underway.

This is a randomized double-blind, placebo-controlled multi-center study.

It will involve approximately 400 patients, patients who suffer from moderate to severe osteoarthritic pain.

It will be conducted in a multiple of US sites and following the titration period the patients will be randomized either on to Remoxy to somewhere between a range of 10 to 80 milligrams per day or placebo, and be dosed for 12 weeks.

The primary end point is reduction of pain scores over the three months compared to baseline.

For the remainder of this year, we plan to continue to support the clinical studies for Remoxy.

Additionally, DURECT is currently working with the King Pharmaceuticals' alliance to advance a second ORADUR abuse-resistance opioid product into the clinic this year.

Now, I would like to update you with our TRANSDUR, our sufentanil pain patch.

This is a differentiated transdermal opioid patch for the treatment of chronic pain.

Here we're leveraging sufentanil franchise that we have here at DURECT, as well as our management's experience in regard -- with regards to developing transdermal products.

This is a seven-day patch that's approximately one-fifth a size of the existing fentanyl patch, Duragesic, on the market today.

It has the potential to reduce the dermatological problems such as skin irritation that are seen with the Duragesic product, as well as the potential to reduce tolerance and possibly a wider safety period -- safety index.

In March of 2005, we signed a deal with Endo Pharmaceuticals for the development of this product for the United States and Canada.

It involved $10 million up front as well as another $35 million in milestone fees.

As well, we will be receiving a royalty on sales.

DURECT maintains and owns all the ex-US right and other markets around the world for which sales of Duragesic in 2005 were over $900 million.

The current status of this program is that we are actually quite excited about the accelerated pace by which the sufentanil patch program is proceeding in development.

Our partner Endo Pharmaceuticals intends to conduct a robust Phase II program with multiple studies in parallel during the remainder of this year.

We are currently supplying additional Phase II clinical product for this program.

As well, Endo has secured the Phase III clinical and commercial manufacturing capabilities necessary for this product and we are accomplishing -- we are undergoing the tech transfer to that company as well.

The last product I will update today is with drug Memryte, which is our DURIN-based Alzheimer's Disease therapy.

Here we are working with our partner, Voyager Pharmaceutical in developing an Alzheimer's Disease treatment utilizing our DURIN drug delivery platform.

Significant progress was made with this collaboration this quarter as well.

Voyager recently completed a men's Phase II study, a one-year study and presented a poster at the 10th International Conference on Alzheimer's Disease and Related Disorders.

The data here demonstrate a positive trend in the activities of daily living and memory preservation.

If you recall, the women's study also showed a positive trend in the capability to perform activities of daily living as well as cognitive function.

Voyager also has announced the completion of enrollment of a 550-patient Phase III trial.

This is the first Phase III study for this program.

This is a significant milestone for it.

Especially, if you consider that this trial started enrolling in December of 2005.

So within eight months all 550 patients have been enrolled and study is now moving to the next phase.

As well, Voyager announced that enrollment has been initiated in the second Phase III trial.

Going forward, we will continue to support the ongoing Phase III clinical study by providing clinical products for these trials.

With regard to company financials, we completed the quarter with $77.9 million in cash and investments.

During the quarter, we further strengthened our financial position by reducing our long-term debt by approximately 35%.

This was done by retiring $20 million of our outstanding convertible notes on favorable terms.

During the first half of 2006, we completed a number of our anticipated development milestones and we look forward to making progress on others throughout the remainder of this year.

So, far this year, we received FDA or the FDA has accepted our US IND for POSIDUR; in the King alliance, we've received a Special Protocol Assessment approval and initiated a pivotal Phase III study for Remoxy.

We've expanded our Phase II program and initiated clinical studies for both soft tissue and orthopedic procedures for POSIDUR within United States and also outside the United States.

Our partner, Endo Pharmaceuticals, has secured clinical and commercial contract manufacturing for the transdermal sufentanil patch.

Our partner, Voyager, has announced positive trends for the men's 48-week Phase II study for Memryte.

Throughout the remainder of this year, alongside our partners, we're looking forward to continue progress with regard to our POSIDUR product to complete a Phase I clinical study for our new development product, which we still haven't yet trials to tell you guys about, but we will in the future, one that -- it is important to note that we've retained full rights to.

We look forward to moving the second ORADUR product within the King alliance into Phase I clinical studies and to continue patient enrollment into the end of Phase -- the last Phase III trial for the clinical program for Memryte.

Furthermore, our vision and goals for additional catalysts for the company in the future includes initiation of the Phase I clinical study for the third ORADUR product within the alliance, with King and Pain Therapeutics, and presenting additional Phase II data for POSIDUR, potential for an ex-US deal for either the transdermal patch or POSIDUR.

It should be noted that we are talking to partners both in the EU and in Japan with regard to both of those products and end of Phase II meeting for POSIDUR and the initiation of the Phase III program for POSIDUR.

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

We currently have two products in Phase III, with the third product looking to enter into Phase III.

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

We will advance a new undisclosed product into the clinic, one for which we've retained full rights; the potential to have two products enter Phase I this year; the potential to complete an outside deal for either SABER-Bupivacaine or the transdermal sufentanil patch, as a non-dilutive mechanism funding our company.

We continue to build our fully integrated specialty pharmaceutical company here at DURECT, to retain the commercialization rights to significant development programs and build out our commercial and clinical teams as these programs mature.

I do thank you for your time and we would now like to answer any questions that you may have.

[OPERATOR INSTRUCTIONS].

Our first question comes from Jim Molloy.

Hey Jim.

Hi.

Thanks for taking my question.

I had a question on the burn rate.

My understanding of the guidance for '06 is around 30 million for the year.

Does that include the expanded Phase II program for, say for POSIDUR?

Actually I would like to clarify that, what we have said since the beginning of the year, Jim, it is 31 to 34 million.

Okay.

But -- yes, that does include the Phase II program as we see it today for POSIDUR.

And then just to clarify, will it be two or three new products you expect to advance into Phase III, the one additional -- two additional from King and then the one secret program at DURECT?

No.

I think we have two in Phase III right now and we are looking at -- the next month to move into Phase III most likely would --

I am sorry, Phase I, I mean --

Phase I, okay.

Throughout the Phase I there is -- the product that we haven't talked about that we own ourselves and that will be at least one within the King alliance.

And you are expecting to stay on track for data for POSIDUR -- Phase II data for POSIDUR by the end of this year?

Yes, we're looking forward to reporting our data as we receive it.

Okay.

The last question, I know that Endo is very tightlipped with their development program.

Sure.

Anything that you can -- any color you can give us on when these -- the sufentanil might enter a Phase III?

I can't give you color on that because they are our partner and we respect that, but I was very encouraged at the last -- I was at a pain conference meeting couple of weeks ago in New York and Peter spoke right before I did, and his actual quote was, they look forward to and are in the process of a robust Phase II program for that product with multiple studies in parallel.

And they have said that they will announce when the product goes to Phase III, as you will see by virtue of the milestone payments that we will receive as well.

But I can just tell you that the program is moving along at a very nice pace.

Thank you very much.

Thank you.

[OPERATOR INSTRUCTIONS].

I do not have -- just one moment, our next question comes from Scott Henry.

Hello, Scott.

Hi.

Thank you for taking the additional question.

I just wanted to know if you could give any update, unless I missed it on, perhaps the potential of out-licensing some of your products outside the US.

Yes.

There is a large potential.

To start with the sufentanil patch product because that's the one we've licensed to Endo for the US and Canada.

If you look at the Duragesic's sales in 2005, they were a little over $900 million of that product outside the US.

So, it certainly is a significant market opportunity.

I can't tell you if for sure or when we would do a deal, but I can tell you there are a number of people interested in that product, both in the EU as well as in Japan.

So, we are talking to partners on both fronts.

As well, with the post-operative pain product, POSIDUR, we have a lot of excitement about that product as you can imagine worldwide, both in the US and outside the US and we are talking to partners, as well in Japan and in the region -- in the EU with regard to potential partnership.

So, ongoing, as you know these things take a long time but we are very encouraged.

Thank you.

Sure.

Our next question comes from Jon Hickman.

Go ahead Jon.

Hi, this question is for Felix.

Felix, I know you probably don't want to answer this question, but anything you could tell us about CHRONOGESIC?

Yeah, I think, you are right.

I think the -- we said that we are going to talk about it, when it is back in the clinic.

But just so you know, we have a very good research program ongoing.

We've made some very good progress and by no means, is this something that we should forget or write-off because our hand always gets stronger now that we've learned so much about sufentanil, the other transdermal patch, I think it would be an excellent product to come behind it.

And from an engineering point of view, I am very encouraged that we don't rely on [Traxol].

That's as much as we can say.

Okay.

All right.

Thank you.

You are welcome.

Our next question comes from Russell McAllister.

Thank you.

My question was already answered.

Very good.

We do have another question from Jim Molloy.

Hey Jim.

Hi.

One quick follow-up question, the five Phase II trials for POSIDUR, you went through hernia, rotator cuff, hysterectomy and appendectomy.

Right.

Is one of those a repeat trial for the fifth?

We actually -- those are the models that we are looking at [multiple speakers].

We just don't know how many into each different models that we are doing.

There also might be other models that we do, but the only thing we have to say right now is that we have five trials ongoing.

We don't want to shed a lot of light into that until it comes forward.

But we are very pleased with the progress so far this quarter.

Okay.

Thank you very much.

Sure.

[OPERATOR INSTRUCTIONS].

We don't have any further questions.

I want to thank you all for your time today and look forward to seeing you when we get a chance to.

Take care.

Thank you.