DURECT Corp (DRRX) 2008 Q3 法說會逐字稿

Welcome to the Q3 earnings call for DURECT Corporation.

We are now ready to begin.

Good afternoon and welcome to the third-quarter earnings call.

This is Matt Hogan, CFO of DURECT Corporation.

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 our business.

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

Before beginning, I'd 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 could 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-K, under the heading "Risk Factors".

Let me now turn to our financials.

Total revenue was $6.6 million in the third quarter of 2008, as compared to $4.9 million in the third quarter of 2007.

Excluding the milestone revenues of $850,000 recognized in the third quarter of 2008, revenue from our R&D collaborations was $3.5 million in the third quarter of 2008, as compared to $3 million in Q3 2007, which is an increase of about $500,000 or 17%.

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.

Product revenue from the sale of ALZET pumps and LACTEL polymers increased by approximately $353,000, or 18%, from $1.9 million in the third quarter of 2007 to $2.3 million in the third quarter of 2008.

Our gross margin on these products was about 62% in the third quarter of 2008 and 60% in Q3 2007.

R&D expense was $11.4 million in the third quarter of 2008, as compared to $8.9 million in the third quarter of 2007.

These figures included stock-based compensation of $1.3 million in the third quarter of 2008 and $1 million in the third quarter last year.

The Q3 2008 figure also includes $2.25 million, which is what we paid EpiCept to obtain a fully paid up license to some IP that is relevant to ELADUR.

As background for that transaction, in 2006, we paid EpiCept $1 million for a license to some patent rights to cover the use of bupivacaine in transdermals for back pain.

In the future, we would have owed them up to another $9 million in milestone payments and an undisclosed royalty on product sales.

In the third quarter, we paid them a $2.25 million for a fully paid up license for that patent.

So we will no longer owe them any milestone payments or royalties going forward.

We expanded our patent rights to include myofascial pain and muscle tension pain.

Absent the change in stock-based comp and that EpiCept 1-time payment, our R&D spending was about the same in both quarters.

SG&A expenses were $3.8 million in the third quarter of 2008, as compared to $3.1 million in the third quarter of 2007, an increase of about $700,000.

These figures contain $620,000 of stock-based comp in the third quarter of 2008 and $496,000 of stock-based comp last year in the third quarter.

Excluding the stock-based comp increase, the rest of the increase was largely due to higher patent expenses arising from our acquisition of additional patent families in the first quarter of this year and the fourth quarter last year.

Our net loss for the third quarter of 2008 was $9.2 million, compared to a net loss of $7.9 million for the same period in 2007.

However, if you exclude the EpiCept license expense, our net loss in the third quarter of 2008 would have been about $1 million less than in the third quarter last year.

At September 30, 2008, we had cash and investments of $38.9 million, compared with cash and investments of $62 million at December 31, 2007.

These figures both included $1 million in restricted investments.

Circling back to our Alpharma transaction, we were able to close in the fourth quarter and have now received the $20 million upfront license fee.

Hence, the September 30 pro forma cash and investments figure would be $58.9 million.

We are now revising our financial guidance for cash burn in 2008 from $32 million to $36 million to approximately $10 million to $12 million.

Therefore, we expect to end the year with over $50 million in cash and investments.

This re-forecast continues to assume no additional collaborations during 2008, although we are pursuing potential collaborations on multiple fronts.

Assuming our final cash burn for the year is in fact $10 million to $12 million, then we will have spent a cumulative $48 million to $50 million over the last four years in building our pipeline, which averages out to about $12 million a year.

One last housekeeping matter I'd like to mention -- as many of you may recall, about three years ago, we filed a $75 million shelf registration statement.

These shelf registration statements go stale after three years, so what we are planning to refile a new $75 million shelf right after we file our 10-Q later this week.

We do not have immediate plans to use the shelf, but we think it's just good corporate practice to always have an effective shelf in place.

So when you see an S-3 filed in the next few days, that's what it's about.

Thanks again for joining the call.

I will now turn it over to Jim to discuss non-financial matters in greater detail.

Thank you, Matt, and hello, everyone.

Well, we at DURECT are in a fortunate position with our cash on-hand and maturity of our pipeline and multiple partnerships in place.

Over the last three to four years, we have financed DURECT through partnership investments, from our upfront license fees, milestone payments and R&D support.

We continue to expand and advance our pipeline while managing our cash needs.

As Matt just recently told you, we estimate that we will end this year with over $50 million, having spent a total of about $48 million (technical difficulty) last four years.

Additionally, with the anticipated continued progress of REMOXY, we expect to earn our first product royalties early in 2009.

The third quarter was highlighted by the receipt of a priority review for the REMOXY NDA, the filing of an IND for the third ORADUR-based opioid in our collaborations with Pain Therapeutics and King Pharmaceuticals, and signing of our ELADUR collaboration with Alpharma.

This last will allow us to accelerate this program and has enabled us to substantially lower our cash burn rate for 2008, as well as the cash requirements for this program in 2009 and beyond.

I will now briefly update you with regard to our lead programs, starting with REMOXY.

The REMOXY NDA was submitted on June 10 and in August, the NDA was accepted and granted priority review.

This is the first new drug application for a drug candidate using one of our platform technologies.

Our priority review is designated -- excuse me, our priority review is designed to give drugs -- really is designed to be able to be given to products that offer real advancements in treatment or that provide a treatment where no adequate therapy exists.

A priority review means that it will basically have the FDA review time be reduced from 12 months to approximately 6 months.

If we look at six months from the submission date of the REMOXY NDA, that translates to December 10 of this year.

We are looking forward to the FDA panel meeting for REMOXY, which is scheduled November 13, just 10 days from today.

REMOXY is based on our ORADUR gel cap technology, which provides a twice-daily form of oxycodone in a more difficult-to-misuse and abuse formulation.

Oxycodone is widely used by patients suffering from chronic pain.

In fact, sales of OxyContin and oxycodone-based oral products were almost $1.6 billion in 2007.

Sales of extended release opioids were approximately $4 billion in that same year.

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

Additionally, we will receive a manufacturing markup on selected key excipients that we will supply.

Just to do the math on the royalties, if King were to achieve royalties of REMOXY sales of about $400 million, which would constitute about 25% of OxyContin's 2007 sales or about 10% of the overall extended-release opioid market in 2007, DURECT would receive royalties on these sales of approximately $28 million.

That doesn't include any manufacturing revenue or profits.

We are now projecting that REMOXY will do $400 million in sales in any particular year.

Actual results could be higher or lower.

This is mentioned just as an illustration to the potential impact on DURECT.

However, we are hopeful that, given DURECT's abuse-deterrent features -- excuse me, our technologies, abuse-deterrent features that are offered in this product, this true twice-a-day formulation of oxycodone in the hands of King's roughly 700-person sales force will allow for a very successful product launch and future for this product.

Over the last year or so, we and our partners have been concentrating on getting REMOXY over the goal line.

We can now shift resources under the development of products two, three and four in this collaboration.

Based on the development of REMOXY and the validation of our ORADUR technology, we are optimistic about the development prospects for these additional products.

Pain Therapeutics has stated that it has commenced a Phase 1 study for a new abuse-resistant opioid under our collaboration in August of 2008.

This is the third product candidate to come out of this program.

Now, onto POSIDUR.

POSIDUR has the opportunity to be a first-in-class therapy, the first injectable product available to surgeons that is designed to control pain at the sight of surgery for up to three days.

In our Phase IIb hernia trial, POSIDUR demonstrated a 30% improvement in pain control versus placebo over the first two to three days after surgery.

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

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 post-operative pain medications available today such as systemic narcotics.

Narcotic side effects, such as constipation, sleepiness, nausea and dizziness, have a huge impact on patient care and can lengthen hospital stays as well as drive up other healthcare costs.

So, where are we with regard to this development program?

Well, we've been in dialogue with the FDA regarding all of the details of what will be required for the Phase III program to support a successful NDA.

This dialogue has taken us longer than we have anticipated.

Defining the comprehensive package that will be needed to get approval is perhaps the most critical thing companies can do at this stage.

The important thing is to come out of our discussion with the FDA with a clearly defined program that sets us up to succeed.

Quite often, the time spent at the front end is far better than having to modify things along the way, or worse, finding you haven't done things in a manner that sets you up for approval.

In parallel with these FDA discussions, we and our partner Nycomed are continuing to advance the program.

For example, because we believe that an orthopedic model will be part of the proposed studies for regulatory approval, we are commencing a 60-patient Phase IIb study in Australia using five [MLs] in the shoulder surgery model.

While we believe that our prior Phase IIa work in shoulder surgery has taught us what we need to know to design a successful Phase III trial, we believe there is merit in vetting the design of the study and the conduct in a Phase IIb setting.

It should be noted that we are not sizing this study to achieve statistical significance.

That will be the purview of the Phase III program.

Additionally, Nycomed is commencing Phase IIb studies in surgical models in Europe.

All of these studies will contribute to the total number of patient exposures that will be ultimately required by the FDA and the Europeans Medicines Agency, or the EMEA, as part of the product approval process in Europe and the United States.

However, these upcoming studies are not requested by the FDA.

In summary, we and our partner Nycomed continue to move this program ahead, and we look forward to advancing into Phase III.

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

Nycomed paid us $14 million upfront and an additional $8 million on our first milestone payment, and we have an additional potential of $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 up to 40%.

Nycomed also pays one half the development costs of this program in Europe and the US.

We've retained all of the commercialization rights for the United States, Canada and Asia.

Since this is a surgical suite sale, we think POSIDUR provides a unique opportunity to cover the US market with a specialized sales force of between 100 to 150 sales reps.

We believe this will provide us with a launching pad to become a specialty pharmaceutical company.

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

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

Our patch can even be worn in the shower and during exercise.

In May of this year, at the American Pain Society annual meeting, we presented a poster that outlined positive results for ELADUR from our 60-patient Phase IIa clinical trial in patients suffering from postherpetic neuralgia pain.

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

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

You can access this poster via our Web site.

We are very pleased to recently announce our collaboration with Alpharma, which has allowed us to accelerate the development of this product candidate.

This was a competitive -- the business development efforts here were a very competitive process, and we wanted to thank all of those companies who demonstrated an interest in ELADUR.

The deal terms were that Alpharma paid DURECT an upfront license fee of $20 million.

There are two potential and possible future additional payments of up to $93 million upon achievement of predefined development and regulatory milestones spread over multiple clinical indications in geographic territories, as well as the possible additional payments of up to $150 million in sales-based milestones.

If ELADUR is commercialized, DURECT will also receive a royalty on product sales.

Alpharma will control and fund the development program.

The deal terms were only one reason we signed this collaboration.

We recognize that Alpharma is currently the subject of a hostile takeover bid, and we felt comfortable, however, with the situation.

We think Dean Mitchell has done a very solid job of building a real franchise of branded products in the pain market.

The rest of his team is equally impressive.

I will just mention three here briefly -- Scott Shively, who runs the Pharmaceuticals Commercial Operations at Alpharma, including for FLECTOR, was also, prior to coming to Alpharma, the VP of Marketing at Endo and was directly involved in the Lidoderm launch.

These experiences are clearly relevant to us and to the ELADUR product.

Pam Weir, their VP of Marketing, has led multiple product launches during her career, and orchestrated, in a very short period of time, a strong product launch for FLECTOR.

We are eager to see what she can do with ELADUR, given that she will have more -- a much more normal period of time to prepare.

Finally, Joe Stauffer, Alpharma's Chief Medical Officer, who also has responsibility for clinical research and medical affairs, comes from the FDA and combines strong strategic thinking as well as tactical expertise.

These are top-tier people who really impressed us during -- with their ability to develop the product.

As a company, they are very creative and aggressive.

The final product I will talk about today is the TRANSDUR-sufentanil product.

Our sufentanil patch targets our sufentanil patch targets chronic pain users.

The market for J&J's sufentanil patch, DURAGESIC, was approximately $1.2 billion in 2007.

Our patch seeks to provide seven days pain relief versus existing sufentanil fentanyl patches that deliver medication for two to three days.

Our seven-day duration should enhance patient compliance and convenience, enables a lower manufacturing cost, especially when one considers over a month of cycle.

The existing fentanyl patches like DURAGESIC are about the size of a dollar bill folded in half, which means that, during a month, a patient has to find ten rather large spots on the body to rotate the patches around.

In contrast, our patch is approximately 1/5 the size of DURAGESIC, about the size of a postage stamp, and during a month only four such small sites are required.

Our partner for the US and Canada is Endo Pharmaceuticals.

Their success with Lidoderm has demonstrated their ability to sell patches used to treat pain.

Now that we've provided the technology transfer to 3M, our role in this program is largely a supportive one to Endo.

We continue to provide technical expertise for their clinical studies and CMC support.

Endo's new senior management team completed a review of all of their R&D programs.

While certain programs were cut, they have affirmed that the sufentanil patch is one that they are moving forward.

Endo has stated they expect to have data from the Phase II study for the TRANSDUR-sufentanil program by the end of 2008, and expect to hold an end of phase II meeting with the FDA in early 2009.

Over the next 12 months, we look forward to continued progress from our programs in clinical development, from REMOXY in the near term at the FDA panel meeting and then hearing from the FDA about the NDA submission.

For the other programs -- for the other products in this program, we look forward to additional data coming out of the clinical trials.

For POSIDUR, it's completing our discussions with the FDA and commencing the Phase III program.

For the sufentanil patch, it's completion of Endo's Phase II work, holding the end of Phase II meeting with the FDA, and then further communication with regard to the clinical development plan by Endo, including initiation of Phase III.

For ELADUR, it's a continuation of clinical development through the initiation of a Phase IIb study building on the positive Phase IIa data for this program.

DURECT has a rich pipeline consisting of one NDA now submitted to the FDA, three products in Phase II and other products in Phase I.

These products address large market opportunities in the underserved pain-management field.

Each of these products has differentiating features that continue to constitute meaningful improvements over existing therapies.

They address important trends in pain management, such as abuse-deterrence in the case of REMOXY, or reduction of the use of opioids in the case to POSIDUR and ELADUR.

We have multiple products advancing in various stages of development, entering Phase I and moving from Phase II to Phase III.

We have collaborations in place with Nycomed, Endo, King Pharmaceuticals, Pain Therapeutics and now Alpharma.

These provide considerable development funding and solid economics upon commercialization.

Yet we've maintained a pathway to become a specialty pharmaceutical company that commercializes selected products in North America.

We have the potential for future development deals, as well as R&D support and milestones from our existing deals, which historically have allowed us to maintain a modest burn rate -- approximately $12 million per year over the last four years -- while we are in this product development stage.

In a nutshell, in this environment, DURECT is in a very favorable position.

We have the money, partnerships, the advancing pipeline.

This is including our first product, which potentially could come to the market in early 2009.

I want to thank you for your support.

We now look forward to having your questions.

(Operator Instructions).

Dave Windley.

Good afternoon, gentlemen.

I want to start on POSIDUR.

Your initiation of these additional Phase II studies in the shoulder, are these -- first of all, are they also to be arthroscopy type models or more invasive than that?

You know, we aren't giving any detail with regard to the model, but I don't know, Peter, if you want to --?

Yes, this is Peter Langecker.

Typically, this is done arthroscopically (multiple speakers) way the (inaudible) evolves.

So the majority of these surgeries are done that way, but we aren't giving a lot of detail as far as the specifics of the trial.

Okay.

You might beg off on the next one, too, but you talk in your filings about having already done some exploratory Phase II studies in shoulder.

I'm wondering how these will differ from the already completed Phase II trials.

It's a great question, and also the timing of the whole thing could be another question that one might need to ask.

But you know, we've been going on these ongoing conversations with the FDA, and as the conversations have matured over time, we've gotten to the point that we felt like this was a good opportunity to do some additional work that will just be defining as we said, I think -- and the best term we used, the study conduct, and the way we will be approaching the study.

The difference between this and the Phase IIa is that there will be a few more patience.

Those Phase IIa studies were 15, 12 patients, that kind of thing.

This will be 60, but still be significantly smaller than what we expect from a Phase III where you'd look for statistical significance.

Those would be many, many full more.

And using only the five ml dosage strength?

Right.

Right, okay.

My last question, and I will jump out -- on ELADUR, you mentioned that the $93 million I believe in remaining development milestone value spreads over multiple clinical indications.

Can you quantify how much of the $93 million is tied to the primary PHN indication?

Unfortunately, we can't.

I don't think Alpharma would be very comfortable with that, Dave, but I think we're trying the point were trying tonight is we don't get $93 million if we just do PHN in the US.

It's spread over multiple indications and in fact over multiple geographic territories.

Right.

(multiple speakers) it's a worldwide deal.

Okay.

Have they made commitments to you about, or are there stipulations in the agreement that require them to pursue development against whatever other stipulated indications might be in there?

I mean, do they have to take that up within a certain period of time?

Their standard diligence clauses, like in every collaboration like this -- we can't get into what the details of those are, but yes, they can't just sit on them forever and do nothing.

All right, thank you.

Angela Larson.

Thank you for taking the question.

I want to go back to the POSIDUR Phase IIb and the defining study conduct.

So there's no change in the dosage.

I presume that means there's also no change in the recruitment criteria.

So is this a change in the timing of administration, the location of administration, that kind of thought, or is it more about the timing of the questions?

This is Peter Langecker.

The Phase IIa studies were designed to look at different types of patients.

The shoulder surgery is actually not just one type of surgery; there are quite a bit of variability in the types of injuries, the reason for the surgery, and so from that perspective, these are not uniform procedures.

What the Phase IIa studies did was allow us to hone-in on those patients where we think this type of treatment -- using POSIDUR -- is specifically effective and also reproducible.

You want to have it for your pivotal trials; you want to use a model that allows the study to be conducted so that you get reproducible results in a very specific patient population using a specific dose.

So that's really what we were honing into and it didn't really have much to do with the FDA.

So, you're really trying to define the recruitment criteria?

It's the recruitment criteria, the surgical procedures, how the drug is used, the tools that you use to collect the data; there's also quite a bit of art in that.

So yes, all of these aspects.

Okay, thank you.

Ken Trbovich.

I guess, Matt, if you could step back again and repeat the milestone or I guess the license fee that you paid to EpiCept?

$2.25 million.

It was all recognized in the quarter?

That's all recognized as R&D expense in the third quarter, and also the cash reflects the fact that we paid them.

But we didn't get the Alpharma money until the fourth quarter.

Okay.

Then on the Alpharma front, you know, there's a filing I guess suggesting you guys may have already started this Phase IIb for ELADUR back in September.

Have those studies actually started?

I'm not sure what you're reading.

I think what Alpharma has said in some of their calls was that the next meaningful clinical step in the program would be to do a Phase IIb, but I think they were more guiding to either late this year or early next year.

Sure.

I guess to follow-up on that, I was looking at the clinicaltrials.gov.

It was indicating September, and that obviously was given in May, so that was not necessarily when the trial actually began.

They were suggesting that they thought they would have about $3 million in R&D expense.

I guess that's my next question for you.

Is that something we should see as a pass-through, or should we expect that those expenses for the trial will maybe exceed slightly the amount that Alpharma is looking at expensing in the fourth quarter?

You know, I can't.

I don't know that I could comment on how they are planning to expense it.

But maybe the best guidance I could give you would be, if you take a look at the expenses we've had for ELADUR, like in the first/second, then as soon as we file the 10-Q, you'll see that for the third quarter.

Going forward, those ELADUR expenses would be basically born by Alpharma, if you will.

So in terms of the impact to us, our expenses in a sense would go down because we no longer bear the cost of the ELADUR program.

Sure.

I just meant from the standpoint of does it pass through on your P&L as revenue in terms of contract revenue and R&D expense?

So I understand the net change may be zero, but just trying to get a sense for directionally, so we are not shocked when we see either the revenue or the expense number when the fourth quarter is reported.

You know, I'm not sure, with respect to the Phase IIb, which in fact we're going to conduct and take the lead on, I'm not sure whether some of the CRO expenses will first flow to us and then will get reimbursed by them, or whether we are going to set it up so that they just go directly to Alpharma.

That's a little detail that we are still kind of working out.

As a net matter, it doesn't matter.

Sure, no, I understand.

That detail I actually honestly can't tell you right now.

It could go either way.

No, that's fine.

I guess I was just trying to get a sense for whether ELADUR expenses were any higher in the third quarter, relative to those first two, if we look at just the normal spend rate.

Was there any reason to think ELADUR would have been higher in the quarter?

I didn't bring my draft 10-Q in the room with me, but in about two days, you can have an answer to that because we're going to try and file the Q tomorrow.

No problem.

Then I guess, on the clinical side with POSIDUR, I guess one of the curious things for me is the mention of, I think, if I heard correctly, plural studies for European IIb.

Are they all in the same target indication, or are they looking at procedures outside of this orthopedic shoulder surgery we've heard described in Australia?

No, I think -- you know, in Nycomed, we haven't expressed a lot of what they're doing, but all of the work they're doing in Nycomed -- excuse me, in Europe with regard to the Phase IIb work they will do and eventually the Phase III work is all done in negotiations between them and the EMEA.

So there are some differences between the US and European approval processes and studies required and models and those kinds of things.

So there are some differences, but we haven't said what they were (inaudible).

Okay, but --.

And you could assume it's -- our efforts are always (inaudible) the global development (multiple speakers) get broader.

Sure, no, I guess that's part of the reason I asked the question.

Maybe if I could circle back and try to start with the target product profile, are you guys comfortable discussing at all what the target product profile is, so that we get a better sense as to whether orthopedic surgery in the shoulder is enough or if they're going to also ask you to repeat the same surgery in the knee, or for example, if you were to go after other noninvasive or less-invasive surgical procedures, whether they be hysterectomy or gall bladder surgeries?

You know, we are moving -- and hope to eventually achieve a general surgical use for the product.

We are though unfortunately still in dialogue with the agency with regard to what the Phase III program will look like.

Because this is the first product that will have these characteristics to be able to be injected in and around the wound and control pain for days, it is taking a bit longer, given the environment we are in.

So this is something that will be defined over time, what studies we will do to achieve what kind of approval.

Sure.

But I guess what I'm trying to understand is, it sounds like you guys made the decision to do this somewhat on your own.

It's not necessarily a specific requirement from the agency --

Right.

-- prior to initiating Phase III.

Are there other studies like this in other models or other surgical procedures that you might also have to complete before you could actually initiate those Phase III studies?

No, I think this is more about really just refining where we are with our study design and, as Peter said, various aspects of collecting data and those kinds of things.

So, it's really to a certain extent kind of tweaking the overall aspect to give us the greatest chance of success on Phase III.

Okay.

Then understanding that you guys bear half the cost for all of the studies at this point, are you willing to give us a sense for what those costs look like for just these studies you're talking about now?

You know, we typically haven't gotten into that level of detail.

I think, on the one hand, our POSIDUR expenses will go up down the road, although half as much as they would have otherwise.

Meanwhile, as we just said, our ELADUR expenses go down.

So you know, I think what we'll do, as is kind of our practice, in February, when we do our earnings announcement for the year, we will at that point have finished our bottom-up budgeting process, which meanwhile we are in the middle of.

At that point, we will be able to give guidance for 2009 in terms of what kind of burn we expect.

(multiple speakers) we've got some things that are going to go up, although not as much as if we bore the full cost of POSIDUR, other things that are going to go down, probably not material one way or the other, net.

Okay.

Then just with regard to ORADUR and further development of the oral capsule technology, do you have any plans to do proof-of-concept studies around opioids outside of the four that Pain Therapeutics has licensed the rights to, or alternatively, other active ingredients like methylphenidate or amphetamine (inaudible) that would be subject to abuse?

You know, I think that these are some very good questions in terms of we always look to exploit our technology in any way possible, so I think -- I don't know, Felix, if you want to (inaudible) (technical difficulty)?

(inaudible)?

No, we've always had more ideas than we had (inaudible) money and so those projects that you mentioned certainly are very much on our minds.

We are spending our research dollars wisely I think to be able to start some of those things with full force in the near future.

Okay, thank you.

Dave Windley.

I wondered if you would be willing to comment on what your expectations are for the November 13 I guess it is advisory committee meeting -- types of questions (multiple speakers)?

Our dreams or our expectations?

(LAUGHTER)

I'd say both!

Yes.

Obviously, we'd love to see the product approved as quickly as possible.

I think, as far as expectations, I mean it's one where we are going to be watching with great interest.

We've done everything we can to support the program to this point.

I think it's really in the hands of the advisory committee and those presenting (multiple speakers).

I think we have seen the previous panel discussions.

I think based on what we saw and what we know, I think our partners will go into that meeting very well prepared.

Yes, I think that's what [I] would say.

We feel very bullish about the ORADUR technology, but we remain guarded.

Do you expect the questions posed as it relates to REMOXY to be similar or the same as Embeda?

I don't know.

I mean they are very different in their mechanisms of how they work.

I think the questions around those -- I would have certainly different questions if I were the one asking, but we will see.

Alright, well that didn't work.

Thanks anyway!

(LAUGHTER)

You only have ten days to wait.

(Operator Instructions).

[Nick Farwell].

Just a quick follow-up -- if I did the math correctly, going sequentially from second to the third quarter, net of the license fee of 2.25, R&D went down from $9.9 million -- yes, went from $9.9 million to $9.1 million.

Is that correct?

-- $9.15 million?

Isn't that accurate?

I don't know if I brought everything in the room.

Well, the significance is it declined -- if my numbers are accurate, it declined sequentially $700,000, $800,000.

It looks like selling, general and administrative also declined $300,000.

Now while that may in aggregate not be a huge amount, $1 million is $1 million.

I'm wondering if there's some message you're sending in that.

Is there some significance in that sequential decline?

I think I will let you address -- just generally, we try to guard our cash every bit we can.

I mean not fly -- if we go to New York we fly JetBlue as often as we can, that kind of thing.

So we do certainly look everywhere we can to save cash, but nonetheless, we are moving every product forward that we can afford to do.

We have way more ideas than what we will be able to afford to do, that's the case.

I wouldn't draw any kind of a trendline from it one way or the other.

I mean, from quarter to quarter, especially sequentially, if you have some outside expense that goes up or down or gets pushed out two months, or forward by two months, it can fluctuate by that amount.

I don't think those changes are particularly material.

No, I ask because obviously there have been changes in other quarters, but typically the summer quarter, when one looks back in the past -- obviously there could be conferences or some other extraordinary event, but this seemed a little more significant than prior sequential quarterly expense declines; that's all.

It sounds like there was nothing significant that you wanted to point out.

I wouldn't read all that much into it.

I think, if anything, I wouldn't read much into it there.

Ken.

Just I apologize, Matt, I guess I'm circling back to what you said earlier about the POSIDUR expenses ramping up and ELADUR perhaps ramping down.

I'm assuming that the same would be true with sufentanil and REMOXY or the follow-on compounds to REMOXY, that you wouldn't necessarily have a lot of expenses or revenues associated with those products in future periods either.

So when we start thinking out to '09, is POSIDUR really the primary spend that we should be considering in our models for '09?

The challenge in that is that, as Felix alluded, we have a few things going on back in the kitchen.

We have really haven't unveiled what the details are.

We've kind of taken the position that things in research we don't really want to expose yet.

Let's wait until we are through Phase I and then we will suddenly announce we have a program with some data behind it, and with some patents filed using the data that we generated.

So you know, there's this all-other categories that we're spending a little bit of money on that also comes into play, quite frankly.

With respect to things like REMOXY, the sufentanil patch, for the most part, our role has always been pretty modest compared to either Pain Therapeutics or Endo.

They are bearing the bulk of the expenses for clinicals and all those kind of things.

So going forward, for instance, our sufentanil patch -- we haven't had a huge expenses on that one, or revenues.

I would expect that to continue in that role.

Okay.

With regard to the others, was there -- I guess, at one time in the past, there seemed like there was some discussion of potential biologic programs as well.

Are those things that you guys feel as though you have to pick and choose and prioritize?

Or do you really try to sort of send a cluster of these into formulation and then cherry-pick from the data, in terms of what the outcome of those initial studies are before you actually advance them?

Well what we do is sort of opportunity assessments whereby we gauge the investment that we need to the milestones, which is an exit milestone typically to a deal or something.

So we have multiple projects in place.

Obviously, we, I think, only announced these as an expense, as a package, and then as we reach a milestone, we will be breaking out those projects as they are coming forward in a deal.

Okay.

Is there any reason to think, based on the spending that you've got targeted for next year, that any of those programs will come out of that formulation in Phase I stage into the clinical stage?

You know, we are not going to formally set guidance on that.

I think one of the statements we made in the past is, every 12 to 18 months, we feel like we could bring something else into the clinic.

Now that might well be something like the third opioid in our Pain Therapeutics collaboration, or it may be something that we own 100% of.

But sort of every 12 to 18 months, we think we could probably take something forward and introduce some new program into the clinic.

Would you consider ELADUR to be the last of those that you've done, that you've publicly disclosed?

(multiple speakers) certainly not.

No, he means the most recent I think.

Right?

Yes, yes, yes.

I'm sorry, the most recent, that's correct.

I apologize.

(multiple speakers).

Yes.

There's a Phase I that they just started.

Okay, for the additional compound?

But we typically -- as Matt said earlier, we typically don't talk about our Phase I work.

We typically don't talk about things until they get a little more advanced, kind of Phase II.

But I would think certainly not -- ELADUR is certainly not the last one (multiple speakers).

That's for sure.

(LAUGHTER) We will never run out of ideas here, I don't think!

(LAUGHTER)

All right, I appreciate it.

Thank you.

(Operator Instructions).

Gentlemen, I don't seem to have any further questions.

Great.

I appreciate your interest and thank you very much.