DURECT Corp (DRRX) 2007 Q4 法說會逐字稿

Hello, and welcome to the DURECT 2007 earnings call.

We are now ready to begin.

Here is your host, Matt Hogan.

Go ahead Matt,

Well, good morning and welcome to our fourth quarter 2007 earnings conference call.

It's Matt Hogan, CFO at DURECT.

This call will begin with a brief review of our financial results and then Jim Brown, our President and CEO will provide an update on the business.

We will then open up the call for a Q & A session.

Before beginning 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 SEC filings including our 10K under the heading risk factors.

Let me now turn to our financials.

Total revenue was $6.6 million in the fourth quarter of 2007 as compared to $5.4 million in the fourth quarter of 2006.

Revenue from our R&D collaborations was $4.6 million in the fourth quarter 2007 as compared to $3.5 million in the fourth quarter 2006, which is an increase of about $1.1 million or 29%.

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

Product revenue from the sale of (ALZET) pumps and LACTEL polymers increased by approximately 100,000 from $1.9 million in the fourth quarter 2006 to $2 million in the fourth quarter 2007.

Our gross margin on these products was 60% in the fourth quarter 2007.

R&D expense was $9.5 million in the fourth quarter 2007 as compared to $11.6 million in the fourth quarter 2006.

These figures included stock-based compensation of $1 million in the fourth quarter 2007 and 800,000 in the fourth quarter 2006.

About half of the $2.1 million decrease in the fourth quarter 2007 was due to the fact that the fourth quarter 2006 included $1 million in expense related to the up front fee paid to EpiCept in connection with the license agreement.

In addition we had lower clinical trials and contract manufacturing expenses incurred in the fourth quarter 2007 compared with the fourth quarter 2006 as well as lower net third party research expenses during the period as a result of R&D reimbursement from Nycomed on POSIDUR.

Selling, General, and Administrative expenses were $3.3 million in the fourth quarter 2007 as compared to $2.9 million in the fourth quarter 2006, an increase of about 400,000.

These figures contained 553,000 of stock-based compensation in the fourth quarter 2007 and 420,000 of stock-based compensation in the fourth quarter 2006.

Excluding the stock-based compensation increase, the rest of the increase was due to higher patent and marketing expenses.

The fourth quarter 2007 net loss included 495,000 debt conversion expense associated with the induced conversion of $9.5 million of our convertible bonds during the quarter.

Our outstanding balance on the conversion has been reduced from $37.3 million at the end of 2006 to $23.6 million at the end of 2007.

Our net loss for the fourth quarter of 2007 was $7.2 million compared to a net loss of $9.8 million for the same period in 2006.

Probably a more relevant financial metric for us than our net loss was net cash consumed during the quarter.

That figure was $4.6 million.

Early in 2007 DURECT provided guidance that we anticipated net cash consumption of about $32 to $36 million.

Upon releasing our second quarter 2007 financials we decreased our cash burn guidance to approximately $25 to $27 million.

We are pleased that the final decrease in cash, year over year, was actually $19.6 million.

At December 31, 2007, we had cash and investments of $62 million, compared with cash and investments of $81.6 million at the end of 2006.

These figures included $1 million in restricted investments in 2007 and $1.3 million in restricted investments in 2006.

Let me now turn to our financial guidance for 2008.

Our net cash consumption is heavily influenced by the timing and structure in new corporate collaborations as well as outsourced preclinical and clinical expenses.

While we anticipate entering into new collaborations in 2008 and beyond we believe it's more conservative to give financial guidance based on an assumption of no new collaborations, no milestones and aggressive funding of our R&D programs many of which are in clinical development.

Based on those key assumptions we anticipate net cash consumption in 2008 of approximately $32 to $36 million.

I would note that we have multiple late stage programs that we may potentially partner over the next 12 to 18 months, these include ELADUR, TRANSDUR Sufentanil for Europe and Asia, POSIDUR for Asia as well as various internal programs we haven't discussed publicly yet.

Thanks again for joining the call and I will turn it over to Jim to discuss non-financial matters in more detail.

Thank you, Matt and hello everyone.

2007 was indeed a very strong year for DURECT.

We had significant clinical data from three separate programs.

We reduced our convertible notes.

And all of this was accomplished while burning 40% less cash than we had anticipated.

2008 is positioned to be the year for the coming to fruition of DURECT's technology, our projection selection process and investment.

In 2008 we should see the validation of our business model.

Over the next 12 to 18 months, we expect to see our first NDA file, a number of development programs move into phase III and we are well-positioned to potentially achieve a variety of business development deals with a number of programs.

As I said earlier, we accomplished a great deal in 2007.

Remoxy met the primary end point in its pivotal phase III study conducted under a special protocol assessment.

POSIDUR reported statistically, significant improvements in pain control while at the same time meaningfully reducing the narcotic use in 122 patient phase II B hernia study.

The remaining phase II studies have been -- are now underway with regard to our seven-day TRANSDUR-Sufentanil patch and ELADUR showed improved pain control versus placebo over the three-day treatment period in a phase II A study.

We achieved this progress while burning considerably less cash than we had initially forecasted.

We originally projected that we would burn $32 to $36 million in 2007.

However we were able to achieve these results as outlined above while burning only $19.6 million.

I will now review our lead programs.

I'll start with Remoxy.

Remoxy is based on our ORADUR gel cap technology which provides twice daily form of oxycodone in a more difficult to abuse formulation.

Oxycodone is widely used by patients suffering from chronic pain.

OxyContin and oxycodone oral product sales were over $1.2 billion in 2006 in the United States.

That figure reflects the presence of generics which were on the market in 2006.

These generics were removed from the market in 2007 and as a result we believe that 2007 sales will be over $1.5 billion.

Potential future market growth may be driven by the aging population, the increased focus on treating of pain as well as improved deterrence features that reduce a physician's concern regarding abuse.

While OxyContin and other opioids are effective pain relievers, abuse and misuse of these medicines represents a major area of concern for the healthcare community, patients and society.

Data shows that over 12 million Americans use prescription pain relievers for nonmedical use in 2007, many of them children.

This problem is well understood by Congress and the FDA.

In FY 2006 a house appropriations committee report noted that, and I quote, "Providers and patients alike will benefit from the expedited review of safer drugs as well as the provision of information for accurately, -- that accurately, excuse me, as well as provision of information that accurately differentiates abuse resistant formulations." The national center for the addiction and substance abuse stated, and I quote, "The FDA should require pharmaceutical companies, manufacturing controlled drugs, to formulate or reformulate the drugs to where possible to minimize (substance abuse)." Pharmaceutical companies should be required to demonstrate in their application materials for FDA approval of new drugs, that they have made every effort to formulate the drug in such a way that avoids or at least minimizes the drugs potential for abuse.

DURECT's order of technology is our response to this national problem.

When a product such as Remoxy, which is oxycodone in a formulation of our ORADUR technology, when this type of product is crushed the long acting matrix is preserved, preventing a rapid release of the active drug.

This formulation is also resistant to common methods of abuse such as injection, snorting, thermal extraction and the rapid dissolution from a wide variety of liquids and solvents.

In December it was announced that the pivotal phase III step clinical trials for Remoxy successfully met its primary end point.

That it was prespectively defined by the FDA during a special protocol assessment process.

In addition, the study achieves (inaudible) significant results in the secondary end points such as quality of (analgesia) and global assessment.

All of these end points had statistical P values of less than 0.01.

No drug related safety issues were noted in the study.

Our partner Pain Therapeutics have stated that they expect to file the NDA for Remoxy in the second quarter of 2008.

Time to market is extremely important and it is useful to reflect back for a moment on the time line for this project.

We signed our initial collaboration with Pain Therapeutics covering Remoxy and we commenced formulation work in early 2003.

At the end of 2007 we had successfully completed the full clinical development program and are now months away from filing our first NDA.

That five-year time line exemplifies one of the advantages of [applying] drug delivery technologies to establish compounds as opposed to pursuing new chemical entities.

Namely we can produce products with blockbuster potential in about half the development time and for about 0.10 of development cost.

King Pharmaceuticals will be our commercialization partner for Remoxy and DURECT will receive royalties on sales that start at 6% and scale up to 11.5%.

As well we receive a manufacturing mark up on selected key excipients that we will supply.

We are hopeful, that given the product features of an abuse deterrent form of oxycodone and true twice a day dosing, that King's roughly 700 person sales force, will be successful with Remoxy.

Now I would like to update with regard to POSIDUR.

POSIDUR has the wonderful opportunity of being a first in class therapy.

The first injectable product available to surgeons that is designed to control pain at the site of surgery for two to three days.

We specifically designed POSIDUR to cover pain for a two to three-day period based on focus group meetings with surgeons.

Their feedback was that for the various types of surgeries that we envision covering, this was the critical time period for post surgical pain and in fact they wouldn't want substantially longer pain coverage for fear that we might be masking some medical issue that the presence of pain would flag.

2007 was a critical year in the development of POSIDUR.

In 2007, POSIDUR demonstrated a 30% improvement in pain control versus placebo over the first three-days after surgery in a phase II B hernia trial.

This improvement in postoperative pain control was achieved even though the placebo group took over three times more narcotics than the POSIDUR patient group.

This threefold increase in medication taken by the placebo group was seen on day one, day two and day three post surgery.

Well why does this matter?

Well, there are a number of studies that have been conducted demonstrating the healthcare cost savings which can be achieved by reducing narcotic side effects including potentially reducing the length of hospital stays.

These data from the phase II B study enabled DURECT to receive an $8 million payment from our European partner Nycomed.

The results from this trial will be presented at the American Hernia Society meeting which will be held March 12 and 16 of this year in Scottsdale Arizona.

We believe POSIDUR will be a first in class therapy because it works to control pain locally, at the site of the surgical wound in contrast to postoperative pain medications available today.

Such as systemic narcotics, which control pain by inhibiting transmission of the pain signal to the central nervous system, or as I like to say we want to control the pain without numbing the brain.

With regard to safety, in our overall phase II program for POSIDUR over 450 patients were tested.

Of these approximately 300 patients were dosed with the active POSIDUR.

We've seen comparable safety profiles in the patient groups -- when we compare the patient groups to the placebo groups.

And the drug administration was well tolerated.

In the phase II B study the side effects commonly observed with regard to opium medication were less frequent in the POSIDUR treatment group, as you would expect given the significantly less narcotics being used.

Where are we with regard to do clinical program?

As you know we upheld the end of phase II meeting with the FDA and we are now in dialogue with the agency regard the phase III program.

When these discussions are complete we will be in a position to describe the execution of the phase III program and get it underway.

I would also like to note that Hospira, our contract manufacturer for POSIDUR, produce supplies for our ICH stability studies, validation and phase III clinical trials during 2007.

So these time critical components are well in hand.

As a reminder Nycomed became our partner for this program in the fourth quarter of 2006.

Nycomed is a privately held specialty pharmaceutical company that has grown to become the 25th largest pharmaceutical company in the world.

They have a strong presence throughout Europe, Russia and the Commonwealth of Independent States, as well as selected territories where we licensed them the commercialization rights to POSIDUR.

They have a major hospital based sales force with access to the surgical suite and pain management is one of their core therapeutic areas.

They sell several products in the surgical suite for the control of hemostasis and multiple pain products including transdermal (inaudible) and (inaudible).

As part of the deal, Nycomed will assign a dedicated sales force to promote POSIDUR in their territories.

They feed us a $14 million up front payment as well as the additional $8 million for the first milestone we recently referred to and we have the potential for an additional $180 million in milestones to come.

Nycomed will commercialize the product in Europe and other defined territories, paying us royalties on their sales that begin at 15% and go to 40%.

Nycomed also pays 0.50 the development cost of this program for the Europe and U.S.

We've retained all the commercialization rights for the U.S.

market, the Canadian market and as well as Asia.

Since this is a surgical suite sale we think POSIDUR provides a unique opportunity to cover the U.S.

market with a specialty sales force of between 100 to 150 sales reps and we believe this will provide DURECT with a launching pad to become a specialty pharmaceutical company.

Now we'll update with regard to ELADUR.

ELADUR is a transdermal patch containing bupivacaine that is designed to provide three days of pain relief versus the existing market leading patch which is indicated for 12 hours of wear.

ELADUR is very thin and has an elegant design for superior wearability.

In December of 2007 we reported positive results for ELADUR from a 60 patient phase II A clinical trial in patients suffering from post-herpetic neuralgia.

We showed improved pain control versus placebo during three days of continuous treatment period.

In addition ELADUR appeared well tolerated overall and patients treated with ELADUR and the placebo exhibited similar safety profiles.

We will be presenting detailed results from this study in two posters at the American Pain Society annual meeting in May of 2008.

As a reminder we own full rights to this product.

We have received considerable interest from a number of companies about partnering this product driven no doubt by the commercial success of Lidoderm which generated about $700 million in sales in 2007.

Given that this product will require a large sales force to fully exploit it is likely we will partner this program.

We are -- we are continuing to advance ELADUR in 2008.

We plan to conduct sale-up and processing studies for phase III supplies.

We are also developing our clinical and regulatory strategy and moving forward.

The last product I will update on today is the transdermal sufentanil program.

Our Sufentanil patch, targets chronic pain users.

The market for the Duragesic and other fentanyl patches is over $1.4 billion in 2006.

Our transdermal sufentanil patch seeks to provide seven days of therapy versus the existing patches which deliver for three days.

This enhances patients compliance and convenience and essentially entails a lower manufacturing cost over a comparable treatment cycle.

Existing fentanyl patches, like Duragesic are about the size of a dollar bill folded in half which means that during the (inaudible) the patient has to find ten rather large sites around their body to rotate these patches around, in contrast our largest size system is about one-fifth the size of Duragesic or about the size of a postage stamp and during a month only four such small (inaudible) found.

Our partner for the U.S.

and Canada (inaudible) product is Endo Pharmaceuticals and their success with Lidoderm has demonstrated their ability to sell patches used to treat pain.

Now that we've provided technology transfer (inaudible) our role is largely a supported one to Endo for process optimization and general CMC support.

Endo Pharmaceuticals have publicly disclosed that they are continuing to conduct phase II studies of transdermal sufentanil and these studies are designed to evaluate the conversion of patients on oral opiates over to transdermal sufentanil.

Over the next 12 to 18 months we look forward to continued progress with our programs in clinical development, for POSIDUR it will be finalizing the phase III program and commencing these studies, for Remoxy, it will be filing NDA in the second quarter.

For the sufentanil patch, it will be execution of phase II studies by Endo and initiation of the phase III program by Endo.

For ELADUR it will be scale up in processing work and manufacturing a phase III clinical supplies as well as a continuation of the clinical development program building on the positive data from our phase II A study.

In conclusion DURECT has a rich pipeline consisting of four products in phase II or III and one product with positive phase I results.

These products are all addressing large market opportunities primarily in the under served pain management field.

Each of these products has differentiating features that constitutes a meaningful improvement over existing therapies.

We made considerable progress in 2007 in de-risking and advancing our development products.

We have products now advancing through the various stages of development.

Moving from phase II to phase III and from phase III to NDA filing.

We have collaborations in place.

Nycomed, Endo, King Pharmaceuticals and Pain Therapeutics, that provide considerable development funding and solid economics upon commercialization yet we've maintained a pathway to becoming a specialty pharmaceuticals company.

A company that will be able to commercialize our products in the surgical suite in the United States.

We have the potential for future business development deals with ELADUR, with the sufentanil patch in Europe and Asia, with POSIDUR in Asia, as well as other programs we've yet to disclose.

I want to thank you for your time and support and we now look forward to taking any questions you might have.

(OPERATOR INSTRUCTIONS) Okay our first question comes from Elliot Wilbur from Oppenheimer.

A question for you, Jim, with respect to the POSIDUR phase III program into phase II, I mean, I understand you don't want to give us a lot of details or can't give us a lot of details at this point but I guess in terms of just maybe the progression of discussions.

I mean, when do you expect to be in a position to give us a little bit more detail about the actual clinical development program, the phase III development program in terms of the pain models and the like and I guess anything come out of the -- the phase II discussions that you consider to be either a positive surprise or potentially a negative surprise?

And then do you really expect the clinical programs themselves to be kind of the gaiting factor in the development program or is there maybe something on the safety side that you would actually expect to be more the gaiting factor in terms of when you can actually file the NDA?

Was that all around POSIDUR?

All around POSIDUR.

Okay because of the safety part sounded more broad.

Anyway, with regard to POSIDUR, first off I do expect that the clinical program will be the critical path component, in other words, the critical timing aspect with regard to the activities we have to accomplish between now and the NDA filing.

We have held the end of phase II meeting as we have been talking about.

We aren't going into any more detail with regard to the phase III program because we haven't finished our discussions with the FDA.

They continue and it's a very active dialogue.

As you know we started this near the end of last year and the agency becomes quite involved with the filings that come through based on [PDUFA] and the other things that are associated.

For programs such as the stage of POSIDUR, it has to basically move in its place in line.

But now that we are in the new year I look forward to communicating as soon as we reach clarity with them our strategies going forward with regard to the phase III.

So, it's an answer that's a little bit not a tremendously -- great additional information other than just to know that we just turned the year and we're now in the new year and look forward to communicating this as soon as we reach resolution.

Okay, and then I just had two follow up questions for Matt as well.

With respect to your net cash burn guidance, $32 to $36 million, are there -- outside of strategic potential strategic transaction, are there any other potential swing factors there in terms of milestones and the like that you haven't included that could potentially positively impact that?

Yes, we specifically exclude any milestones from the guidance that we gave and we would anticipate getting milestone payments this year.

I almost don't want to quantify them but you saw the milestone, kind of milestones we got last year.

And that kind of order of magnitude is conceivable this year.

Could you maybe just hint as to what specific programs are the more likely to the generate those without discussing magnitude?

Well, certainly Remoxy would be one.

But really all of the partnered programs have a series of milestone payments associated with them.

We haven't gone into detail what triggers them but with Endo, we are eligible for potentially another $35 million in milestones, with Nycomed, another $180 million, so how do all of those programs -- we would anticipate getting some milestone income but because it's lumpy we'd prefer to give the guidance excluding that so that it's all kind of gravy if it happens.

Right, and that leads into my -- the second part of my question, really, I mean, I guess with cash on the balance sheet and then net cash burn guidance assuming no milestones, it would suggest that you might have to return to the Capital Markets sometime around year end, so, I am just trying to get a sense for that and what the potential degree of deferral of any Capital Markets funding is based on milestone activity.

I think that it really comes down to our success on the business development front and on the milestone front.

Because if those come through the way that we are hopeful we may well not have to go back to the markets for quite a long time.

But it really depends on those factors.

And I think there we kind of are trying to articulate that we have multiple shots on goal in the business development front.

We're in active discussions on ELADUR.

The sufentanil patch --Europe and Asia are two other separate possibilities for transactions.

POSIDUR in Asia is a possibility and then there are some programs that we really don't talk about too much that also could yield cash flow for us.

So, I think it really comes down to those factors.

The way we are presenting the cash burn guidance in a sense, is meant to be a highly conservative approach to things, kind of, I don't want to say worse case because it can always be worse but a really conservative way because it doesn't include the milestone income and it doesn't include business development income.

All right.

Thanks for the insight.

Those were are all my questions.

Our next question comes from David Lickrish from Broadpoint Capital.

Go ahead, David.

Good morning and thank you for taking the call.

A couple quick questions, Matt, I guess for you just to start, what do you think the share count will look like at the end of 2008 assuming those converts do go into equity, what sort of number should we be using there?

Okay, so we ended the year with 74.1 million shares and underlying the remaining convert is another 7.5 million shares.

So, if you add that in you get to 81.6.

And then there is always some small per quarter increase in the shares outstanding because of the exercise of some options or our employee stock purchase plan but those amount to a couple hundred thousand a quarter.

Let's say we end the year about 82 million shares out.

Okay, just want to make sure we are on the same page there.

And then as you know Endo does not disclose a lot of detail with regard to the Sufentanil program.

My question I guess to you, because they won't say anything until they move into phase III, have they had any concerns about the formulation or have they sent it back to you to be reformulated or tweaked?

That's a good question but, no.

But what we've been doing is working with 3M to basically take what was developed here through a phase II process and do the tech transfer.

And so that process of scale up in tech transfer has occurred and now 3M are now making actually the clinical phase II supplies that are being used right now in the clinic.

And as you know because our partner is Endo, they don't like to share much but I can tell you the product is well-positioned to be able to move forward in a timely matter from a CMC standpoint.

Okay, so then just based on some of the prior clinical studies we can extrapolate what the length of time is required to complete those phase II studies and then try and anticipate an announcement from them with regard to a phase III program.

I guess my other question is just with regard to the other product under development, the ELADUR program, you're talking about doing some scale up.

Just with regard to phase III, is that something that you are not going to contemplate, but hopefully on a business development front, would move forward with a partner at this point in time?

And if you don't see something materialize in the next quarter or two is it something that you would be motivated to move forward on your own?

That's a great question but basically we keep our projects moving forward regardless of partnering.

I mean we have huge interest in this project and I think Matt referred to that and that's why -- I think we are trying to be -- have the words that we have around the potential burn rate as we laid out.

But I think the important piece here is to note that ELADUR is moving forward full steam ahead.

There are a lot of people who would love to help us with this product and as the year unfolds we will see how that shakes out.

But, yes, right now we are doing the scale up work -- getting ready to be able to make a phase III supplies for them.

Okay, thank you very much.

Okay, our next question comes from Russ McAllister from Merriman Curhan Ford & Company.

Go ahead, Russ.

Hello, good morning Jim and Matt, thanks for taking the question.

Good morning.

Most of my pipeline questions have already been asked and answered but I was wondering if you could briefly revisit the other Remoxy programs, PTI, 202, et cetera, sort of where those are and if any significant progress is being made.

Yes, it's a good question.

The second product in the alliance completed phase I, a little while ago now.

If you've been following the King story, what Brian Markison has been said is they have really been focusing their effort to get the Remoxy product out.

And we are very pleased with timeline there -- looking forward to that NDA being filed this year.

The other projects -- now that that's pretty well in hand, the other projects are moving to the forefront and as I said we continue to work actually on all four of them at this point in time.

They are all in various stages of moving forward.

We do have diligence components built into our agreements and they are all taken into account.

Jim, any sense of when we might hear news on those or just that they are moving forward?

Yes, I mean, that will have to come from King, most likely.

As you know they have been very quiet about what the active agents are and so that hasn't been disclosed either.

I would assume at some point in time when they feel it makes the most sense then they will describe where the products are in development and perhaps what the agents are.

Sure, thank you very much.

Sure.

Okay, our next question comes from Dave Windley from Jeffries and Company.

Go ahead Dave.

Hello good morning, gentlemen.

My first question is on ELADUR.

You've talked about the high level of interest from potential partners for that product and potentially those partners being of the larger variety.

I guess I was wondering if you have gotten to a point in those discussions or your internal evaluation that would suggest or that would lead you to a more clear view as to whether this would be, I'll call it a big pharma-strategy where the partner would pursue a lot of the, what are off label uses for Lidoderm, on label for ELADUR or pursue more of a straight forward (inaudible) end strategy, if that's become more clear in your internal analysis at this point?

We have done a lot of analysis around the entire development strategy for this product as our potential partners have but I think it would be very presumptuous of me to say one or the other.

We are talking to a number of companies actively here.

I would say on average they are the much larger companies.

Which generally take a more broad stroke approach.

That's probably about the best I could give you at this point, Dave.

Okay.

Are you -- somewhat of an off the beaten path, but since a couple of your partnered products are in the controlled substance arena, we certainly aren't aware of any trend but know of a data point or two where some companies have had trouble getting quota for controlled substances.

Have you run into anything like that with the DEA?

You can run into that problem with the DEA if you don't plan and lay things out pretty well.

The DEA are -- their mechanism and their efforts are really all around pleasing the use of these controlled substances.

And so, one needs to make sure that you've got the control procedures in place internally as well as order in advance next year's needs.

And so I can see where, let's say, a company who is getting into this, may have -- let's say they want to do a new program for narcotic X and they would have to go back then to the DEA and ask for an increased allotment for product X.

Maybe they never even had it in their allotment for the given year.

So, that can be an issue if you don't look out far enough.

But right now we are in good shape.

Okay.

On the POSIDUR program, I think Elliot asked a couple of questions around that but I guess looking at some of your prior comments my question is very directly, is this -- is this program timing in terms of your start of phase III, is it -- is it slipping?

We thought that in some prior comments you had indicated that you hoped to start phase III in early '08 and now you're saying more toward mid year and I just wondered what the, if that -- if I'm reading that correctly what specifically are the issues that are slowing that down?

Yes, I know, we haven't gotten into it and we won't with regard to details of our conversations and, yes, we've had some changing in -- some slippage as far as when this actually starts.

But the culmination of the discussions may well lead to a strategy that enables things to move faster.

So, you never know until you are done with the discussions.

So, I think we have to wait until we're done with these and we see what the phase III program looks like.

It's not about when you start, it's about when you finish.

Sure, okay, moving on then, the transverse sufentanil program you commented on David's question, but I wondered if the leadership change at Endo has any impact on the progression of that program?

That's an interesting question.

I think what we have at Endo is a group, a project team that we are working with that hasn't changed.

They've had some change at the top.

We are looking forward to the progress that can be made with this program looking forward and working forward.

Now, I think that 3M is in place we feel that it's well-positioned to be able to quite frankly move into -- complete the phase II and move into phase III.

So, we'll see how the future unfolds.

Okay, my last question, I promise, I could have sworn that as I was reading the press release I saw an allusion to earlier stage programs that you have consistently talked about working on.

I wondered if you might provide some detail around how many of those there are or when we might see more elaboration on what is in the pipeline say behind ELADUR and behind the second King, Pain Therapeutics collaborative compound.

Yes, that's a good question.

We actually -- we, at any one given moment in time we probably have around a half a dozen or so feasibility programs percolating at DURECT.

Some are with internal funding.

Some are with biotech companies and some are with pharmaceutical companies.

The example I just stated is ELADUR.

One year, a couple years back, gave the statement that we would announce what this product was by the end of the year and so we had everybody waiting, waiting, waiting and then we wanted to complete phase I and start phase II and so we described it right at the beginning of 2007.

Rather than do that kind of thing in the future what we will do is just say here's the project and here's where it is in the clinic.

We typically like to advance the programs a little further along before we talk about them because we want to secure any IP that we can and make the progress that we can and it also, quite frankly, if people aren't interested in investing in DURECT with the forward lead products that we have -- now I think we have phenomenal products, they aren't going to be particularly interested in a phase I program, kind of thing.

Fair point, thanks for those answers and good luck in '08.

Okay, we have no further questions at this time.

Okay, well, thank you all for participating and we look forward to updating you next quarter if not earlier.

Thank you.

Thank you and this concludes the 2007 earnings call for DURECT.