DURECT Corp (DRRX) 2006 Q3 法說會逐字稿

Welcome to the Q3 2006 earnings call for Durect Corporation.

We are now ready to begin.

Hello, everyone, and good morning.

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

On behalf of everyone at the Company, we would like to welcome you to our third-quarter 2006 financial results conference call.

I have with me today Jim Brown, our CEO, Matthew Hogan, our Chief Financial Officer, Felix Theeuwes, our Chairman and Chief Scientific Officer, and Jian Li, our Vice President of Finance and Controller.

The order of the call will be as follows.

Matt will briefly review our third-quarter financial results.

Next, the call will be turned over to Jim Brown to discuss (indiscernible) financial highlights for the quarter.

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

Before I turn the call over to Matt, 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, the 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 SEC filings, including our 10-Q, under the heading "Risk Factors."

I will now turn the call over to Matt.

Thanks, Schond.

Good morning, everyone, and thanks for joining our third quarter of 2006 earnings call.

I'm going to briefly review the financials before Jim reviews non-financial highlights for the quarter in greater detail.

Total revenue was 5.1 million in the third quarter of 2006, as compared to 8.6 million in the third quarter of 2005.

That third quarter last year did include 1.6 million as revenue from the sale of certain IP rights.

Revenue from our R&D collaborations was 3.2 million in the third quarter of 2006 as compared to 5.4 million in the third quarter of 2005, which is a decrease of 2.2 million.

Revenue from this source will always fluctuate from quarter to quarter depending on the state of development under the various programs and our role in those programs.

Revenue from Endo Pharmaceuticals related to our TRANSDUR-Sufentanil program declined by approximately 420,000.

Revenue from Voyager Pharmaceutical related to Memryte declined by approximately 2.2 million.

Revenue from pain therapeutics related to Remoxy and our other ORADUR-based products increased by approximately 500,000.

Product revenue from the sale of Alzet pumps and Lactel polymers increased by 323,000, from 1.7 million to 2 million.

R&D expense was 9.9 million in the third quarter of 2006 as compared to 7 million in the third quarter last year.

Of that $2.9 million increase, 774,000 was due to the inclusion of stock-based compensation, due to the adoption of SFAS 123R earlier this year.

In addition, spending on POSIDUR increased by approximately 1.2 million.

Spending on TRANSDUR-Sufentanil decreased by approximately 166,000.

Spending on Remoxy and other ORADUR-based products increased by approximately 415,000.

Spending on Memryte declined approximately 927,000.

Spending on other internal projects increased by approximately 1.6 million.

Our selling, general and administrative expenses were 3.3 million in the third quarter of 2006, as compared to 2.7 million in the third quarter last year, an increase of approximately 647,000.

Of that increase, 368,000 was due to the inclusion of stock-based compensation.

Our net loss for the three months ended September 30 2006 was 8.6 million, compared to a net loss of 3 million for the same period in 2005.

I would note that the third-quarter loss was virtually unchanged from our second quarter.

Probably a more relevant financial metric for us than our net loss was cash used in operating activities during the quarter, which was 3.1 million for that quarter.

At September 30, we had cash and investments of 74.3 million, including 1.5 million in restricted investments, compared with cash and investments of 77.7 million at June 30 and 91 million at December 31, 2005.

Thanks again for joining the call.

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

Thank you, Matt, and good morning to everyone.

Durect continued to make solid progress in advancing our pipeline during the third quarter.

During this call, I will provide updates on POSIDUR, our product for post-op--post-surgical pain relief, on our collaboration with King Pharmaceuticals and Pain Therapeutics for Remoxy, the gel-cap product, as well as for three other ORADUR opioid products under this alliance, on our collaboration with Endo Pharmaceuticals for the seven-day Sufentanil patch, and on our collaboration with Voyager Pharmaceuticals for Memryte, a potential therapy for Alzheimer's disease.

With regards to POSIDUR, during the quarter, this third quarter of 2006, we continued to conduct multiple ongoing Phase II clinical trials in a variety of soft tissue and orthopedic surgery models for the purpose of selecting the optimal dose and the surgeries to be used for the pivotal Phase III trials.

POSIDUR is a first-in-class therapy administered during surgery to provide regional pain control for three days or more.

Some potential advantages include the reduction in concomitant opioid medication, as well as the potential for shortening hospitals stays following surgery.

Durect's market research for this product identified over 100 million surgical procedures annually in the United States and the top five European countries.

POSIDUR has the potential to be a large product with an estimated U.S. market that could exceed over $1 billion annually.

Pending successful completion of these Phase II studies as well as discussions with regulatory authorities, we will continue into Phase III trials, which we anticipate to be in 2007.

I now want to shift gears and talk about our ORADUR technology and with the lead product there, Remoxy.

Remoxy is a proprietary, abuse-resistant version of a sustained-release Oxycodone-based product.

This ORADUR-based technology product is partnered with King Pharmaceuticals and Pain Therapeutics.

Remoxy-ORADUR incorporates several abuse-deterrent properties with the convenience of twice-a-day dosing and the patient-friendly gelcap technology.

Because of Purdue Frederick's successful defense of its patent position, Remoxy, which is not at a generic product but rather a new NDA, will enter a marketplace now without generic competition.

In 2004, Purdue's Oxycodone product, OxyContin, had sales in excess of $1.9 billion.

Currently, with regard to Remoxy, a pivotal Phase III clinical trial is underway, and this is being conducted in accordance with a special protocol assessment.

Pain Therapeutics recently stated that the Remoxy program remains on track to announce results from this pivotal Phase III trial in the first half of 2007, followed by an NDA filing for this drug candidate approximately three quarters after the date of release.

In August, we announced the initiation of a Phase I clinical trial for a new ORADUR-based opioid product to address needs of chronic pain patients.

This new drug candidate is the second ORADUR-based drug to go into clinical trials within the King alliance.

The active pharmaceutical drug in this new ORADUR-based opioid product has not been disclosed.

However, similar to Remoxy, we believe this product could move rapidly into late-stage development.

We plan to continue our support for the ongoing Phase I clinical trials for this product as our partners move this product into later-stage development.

I now want to discuss our TRANSDUR technology and the lead product in this category is our TRANSDUR-Sufentanil patch.

Here, we are leveraging our Sufentanil franchise and the experience we have here at Durect together with Durect's management experience in transdermal development.

This product is a seven-day patch versus the three-day patch, which is the current market leader, Duragesic.

As well, this product is about 1/5 the size of the Duragesic product.

Our TRANSDUR-Sufentanil patch has the potential to reduce dermatological problems such as skin irritation.

As well, it has the potential to reduce tolerance and potential wider safety therapeutic margin.

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

Endo is responsible for all development and launch costs for this product.

Durect will receive additional milestone payments, which will total approximately $35 million, as the product moves through development, as well as a strong royalty on net sales.

Additionally, Durect maintains all outside U.S. markets, other than Canada, for this product.

If we look at Duragesic sales for 2005, sells for that product outside the U.S. were over $900 million.

We are currently in discussions with potential partners, both in Europe and in Japan, with respect to this product.

As far as the U.S. program is concerned, Endo is currently conducting a Phase II clinical program for the TRANSDUR-Sufentanil program and has indicated their intent to initiate additional Phase II studies in a robust program, to quote Peter directly, in parallel for this product.

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

In addition, we continue our technology transfer to Endo's contract transdermal patch manufacturer in order to enable them to produce additional Phase II supplies, eventually Phase III supplies, and commercial.

Now, I want to talk about the Memryte Alzheimer's program.

Here, our partner, Voyager Pharmaceuticals, is developing an Alzheimer's disease treatment using our DURIN drug-delivery platform.

In October, Voyager informed us of their intent to end the Phase II clinical trials for Memryte in order to get an early look at potential efficacy.

We look forward to this early readout of these clinical trials.

During the first nine months of 2006, we've completed a number of our anticipated development milestones.

So far this year, the FDA has accepted our U.S.

IND for POSIDUR.

We've expanded our Phase II program for this product and initiated clinical trials in soft tissue and orthopedic surgeries, numerous trials in fact.

Our partners, King Pharmaceuticals and Pain Therapeutics, received a special protocol assessment approval and initiated the pivotal Phase III trial for Remoxy.

We've moved a second ORADUR opioid product candidate under the King alliance into development.

Our partner, Endo, has secured clinical and commercial contract manufacturing supply for the transdermal Sufentanil patch and have indicated their intent to initiate a robust and in-parallel number of studies in a parallel Phase II program for this product.

Milestones by which you will be able to track our progress for the remainder of this year and in 2007 are as follows--for POSIDUR, continued progress in development, additionally presenting additional Phase II clinical data for this product; the end of Phase II meeting for this product and the initiation of the Phase III clinical program for POSIDUR.

For the new product that we haven't disclosed the identity of, it will be, first off, disclosing the identity of this product.

Next, we will be completing a Phase I clinical study for this product, and it should be remembered this is a program for which we retain full commercial rights.

With regard to the King-Pain Therapeutics alliance, we look forward to the announcement of the results from the Phase III program for Remoxy in the first half of 2007, followed by an NDA filing three quarters after the date of release.

We look forward to completion of the Phase I clinical testing for the second ORADUR product within this alliance, as well as initiation of clinical testing that is Phase I work for the third product within this alliance.

With regard to business development, we have the potential to complete ex-U.S. deals for POSIDUR as well as for the transdermal Sufentanil patch to leverage these assets, which serve as a non-dilutive funding mechanism for the Company.

In conclusion, we continue to build our fully integrated specialty pharmaceutical company by retaining commercial rights to two of our development programs, as well as co-promotion rights to a third.

Additionally, we are building out our clinical and regulatory team as we move through the development process for these products.

I'd like to thank you again, and now answer questions that you may have.

We do have a question now from Angela Larson.

Good morning and thank you for taking the question--two questions actually. on the King relationship, we know that you have an intent to do four products in development.

Is each of those going to be a different chemical active ingredient, or is it possible that you could have two different delivery profiles of the same active ingredient?

It's a really good question, Angela, thank you.

But yes, the way the product, the way that the alliance has been structured is King has the right to commercialize four specific narcotics and there's some diligence requirements about which they need to put all these in development.

Remoxy is the first, with Oxycodone.

The second one is now put into development.

The third and fourth will be after that.

As to whether or not they may choose to want to combine two of those narcotics into a single product, that is certainly something they could consider, but that is something that, at this point in time, I wouldn't be able to talk about publicly.

On Memryte, do you have any idea on what the timing of the data release will be on that?

You know, I don't.

Right now, they are just going through the plan of how to cut the data and how to look at it, so I would anticipate it would be a number of months before we get the data.

When you consider the last patient was fairly recently dosed, you've got to let that patient finish up the two months and then you've got to gather the information and look at the data.

I wouldn't expect anything for awhile.

Great, thank you.

I would be, probably, yes, you know, within the first half, maybe even the first quarter (inaudible).

Jim Molloy.

Thanks for taking my question.

I was just wondering if it would be possible to put some dates on some of the timelines.

I know you mentioned, in POSIDUR, the continued development, and I think last we had heard was a Phase II data perhaps of the end of this year/early next year for the first Phase II trials.

Then when do you think you might ID what the second ORADUR drug is?

Let me take the last one first, because that's an easier one.

You know, that's not under control, unfortunately; that's under King's control.

So whenever they feel comfortable, they will talk about that.

I don't know when that might be.

One could speculate but I wouldn't know; it's under their control.

As far as the POSIDUR program, you know, we are very--feel very confident and very good about that program, I can tell you that, and so we look forward to it continuing to move forward.

We haven't given any specific dates because, as you know, we have a large number of trials in progress right now.

We are dosing somewhere in the range of between 2 to 300 patients in this Phase II program.

And so, what we are doing actually, as we look at '07, is that we will be unveiling some of these, the data from some of these trials in our various congresses that are occurring during the year, so that will be one way that one would see data, as well as we have the--when we (indiscernible) at the end of Phase II meeting, we will be talking about data and possibly even before that.

So I would think that it will be something that unrolls through the year and then obviously when we will start Phase III, by then we would have a good understanding of exactly where we are.

I don't know.

Felix, do you want to add anything to that?

I think, you know, if you look at the kinetics of the product and the performance characteristics in the various models, we are gaining a lot of confidence that we are on the right track and we have a lot of interesting data in-house that that makes us feel very positive about this program.

In addition, you know, the feedback that we get from partners outside the U.S. and in the U.S. and their significant interest in addition helps us to drive this product forward.

I think we are in a very fortunate situation to be able to hold onto this until we have all of the proof of-concept-data in place.

But the scientific underpinnings for what we are doing are very strong, and we feel very positive about the program.

Yes, oftentimes when I am giving the corporate talk, one of the things that I do is kind of lay out the analogy here, because I think we've seen a number of Phase III, smaller company Phase III trials this year in the pain space come up negative.

It's our belief that in part is due to inadequate Phase II work being done.

Oftentimes, some companies will conduct 20 patients at Phase II and run to Phase III.

That's not the approach we are taking on this product.

We have numerous trials underway.

We are dosing between 2 to 300 patients in various surgeries.

As Felix said, we've got two to three days of beautiful kinetic delivery.

We saw (indiscernible) we've delivered to a gram of Bupivacaine in over 40 patients in that one particular trial, kinetics on all those patients showing that it can be safely done.

So I think we feel very good about where this product is at and look forward to it continuing to make progress.

Okay, thank you.

Is there any chance that you might be able to lay out what trials are and what your expected timelines are for those trials? (indiscernible)

I can tell you that we talk about some of the pain models we're looking at are--hysterectomy is one; appendectomy is one, another one; hernia; rotator cuff.

Those are the kinds of surgeries we're looking at.

The way we are looking at these trials is around really focusing on a successful Phase III program.

So, we may identify a surgical model that we think the product will work beautifully in, say for example a hip replacement.

We may think (indiscernible) it's a wonderful opportunity for this product, but if you look at it from a Phase III clinical trial perspective, the enrollment rate might not be ideal, or we may look at knees and say, that would be--you know, knee surgeries might be another wonderful opportunity from a pain model standpoint.

However, the patient-to-patient variability on knee injury and the like may change some of the outcomes.

So a lot of this work is about (indiscernible) I think the appropriate pain model to be able to discern the proper efficacy.

So that's really what we're trying to do for the remainder of this Phase II program, is select the optimal dose and optimal surgeries to go into Phase III.

As far as timing, you know, right now, we're just saying we look forward to starting Phase III in '07, but we haven't broken out that--the hernia.

The first hernia trial in the U.S. will report out this date and that kind of thing; that's the stuff that we haven't done yet.

Is there any chance that you might do that at some point?

Not right now.

I think we will talk about these things as they unfold, because they all take place at different rates and some of the studies are looking at different components.

So we are basically--it's kind of like you're just gathering all of these pieces of a puzzle together.

I don't have any other questions at this time.

Okay.

Well, we want to thank you all, for those on the West Coast for getting up this early, on the East Coast.

Everyone have a great day and thank you for your time.