DURECT Corp (DRRX) 2009 Q1 法說會逐字稿

Welcome to the DURECT Q1 earnings conference.

Hi, good afternoon and welcome to our first quarter 2009 earnings call.

This is Matt Hogan, CFO at 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 open the call up for 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 recart 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 including in our SEC filings including our 10-K under the heading risk factors.

Let me now turn to our financials.

Total revenue is $6.2 million in the first quarter of 2009.

Which compares to $6.4 million in the first quarter of 2008.

Revenue from our R&D collaborations was $3.7 million in the first quarter of 2009.

As compared to $4.3 million in the first quarter of 2008.

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

Product revenue from the sale of [LSAT] pumps and LACTEL polymers increased by $246,000 or 11%.

From $2.2 million in Q1 in 2008 to $2.4 million in the first quarter of 2009.

Our gross margin on these products was around 66% in the first quarter this year compared to 62% in the first quarter last year.

R&D expense was $9.9million in the first quarter of 2009.

As compared to $9.6 million in the first quarter of 2008.

These figures included stock base compensation of $2.3 million in the first quarter this year and $1.6 million in the first quarter last year.

So if we exclude the stock base comp, R&D expense actually declined by about $405,000.

SG&A expenses were $4.2 million in the first quarter 2009, as compared to $3.9 million in the first quarter 2008.

These figures included $1.2 million of stock base compensation in Q1 2009.

And $775,000 of stock base compensation in the first quarter of 2008.

Excluding the stock base compensation, SG&A expense declined by about $29,000.

Our net loss for the first quarter of 2009 was $8.7 million compared to a net loss of $7.8 million for the same period of 2008.

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

That figure was $5.7 million.

As compared to $8.6 million last year in the first quarter.

At March 31, 2009 we had cash and investments of $47 million compared with cash and investments of $52.7 million at December 31st, 2008.

These figures included $.7 million in restricted investments at March 31, 2009 and $1 million in restricted investments at December 31, 2008.

Like many companies these days we are ever mindful of our spending and head count today is down 44 positions for about 25% as compared to our head count at the start of the year.

We took steps late in the quarter across most functional areas and in a manner that was designed not to affect our major corporate goals for the year.

Thanks again for joining us call and I will turn to it Jim to discuss nonfinancial matters in greater detail.

Thank you, Matt and hello, everyone.

The most significant events in the first quarter for DURECT were intersections with the FDA.

First off we have no new news to report on the REMOXY NDA.

We did however, received feedback on POSIDUR an enabling us to put in place our Phase III development plans.

Endo completed the Phase II program for the TRANSDUR-Sufentanil and held a successful end of phase II meeting with the FDA.

Endo then returned the US and Canadian rights to this product.

Owning worldwide rights to this program which is poised to enter Phase II, is a great opportunity for us.

We are now in active discussions with potential partners for world wide commercialization rights to TRANSDUR-Sufentanil and US Canadian and Asian rights to POSIDUR.

I will now provide a more details program update with regard to our lead programs.

Starting with REMOXY.

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.

There really isn't a lot to update with regard to REMOXY yet.

As most of the followers of our Company know, Pain Therapeutics received a response letter from the FDA in December, of 2008.

And according to Pain Therapeutics the FDA indicated that additional nonclinical data will be required to support the approval of REMOXY.

But the FDA has not requested or recommended additional clinical efficacy studies prior to approval.

We understand that Pain Therapeutics, King Pharmaceuticals and their technical advisors have been evaluating the FDA complete response letter and they plan to meet with the FDA in the mid-of this year.

That meeting should provide them with a more reliable context with which to make projections about REMOXY.

The issue doesn't appear to be if the product will be approved but when.

As a reminder, oxycodone is widely used by patients suffering from chronic pain.

In fact, sales of OxyContin and oxycodone oral products were over $2 billion in 2008 with further growth expected in 2009.

There is a significant abuse problem in this country and we believe that REMOXY offers a major market opportunity for King Pharmaceuticals.

DURECT will receive royalties that start at 6% and scale up to 11.5% plus manufacturing mark up on key selected excipients.

Now I would lick to move to POSIDUR.

POSIDUR is an injectable product designed to control post surgical pain for up to three days using Bupivacaine, a well established local anesthetic.

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

In addition, the POSIDUR group took three times less narcotics than the placebo group.

These are compelling results that hold potential to change the treatment of pain after surgery.

During this quarter, we have received detail feedback from the FDA on our proposed Phase III program leading to NDA submission.

It has taken several long communication cycles to get to this point, but we feel good that we finally have a handle on the FDA's prospective on path forward for this product.

What makes this product ground breaking is that it is the first time the FDA would be approving a injectable product to provide two to three days of local pain relief and that this product may be used in a wide variety of surgeries.

To this end we are pursuing a target label for POSIDUR that would allow it to be used in a broad range of surgeries.

The results of our dialogue with the FDA are as follows.

Where as previously we expected that we would be conducting two pivotal efficacy studies that would be required in order to achieve our target label, we anticipate conducting a single pivotal study and several supportive studies.

These supportive studies will be conducted in additional surgical models and with different patient groups in order to demonstrate safety in a broader patient population and to provide greater definition for the surgical settings in which the product would be used.

We are currently mapping out the details of these supportive studies to address the types of situations the FDA wants to sees explored.

Certain of these studies are already in Nycomed's plans and will be conducted for EMEA purposes as well as for FDA.

We are currently conducting a 60 patient Phase II shoulder study in Australia.

Assuming this study yields the results that we expect, we anticipate shoulder surgery will be the pivotal efficacy study we would use to support our NDA application.

We currently envision the total number of patient exposures that we would submit to the FDA as part of the NDA would be approximately 700 to 800 patients and 300 patients have been dosed with POSIDUR to date.

Assuming that the program progresses as we expect, we anticipate the Phase III program will take approximately two years from initiation to NDA filing.

During the first quarter we also engaged an outside market research firm to conduct focus group interviews with 63 surgeons from seven surgical specialties.

The objectives of this research were to assess the current knowledge, attitudes, and practices regarding the use of analgesics among various surgical specialties, to gauge surgeon's levels of satisfaction with current analgesic , to gain the rection to the POSIDUR product profile and to evaluate interest in the use of POSIDUR.

POSIDUR received positive feedback from all of the surgical specialties and two highlights from the study were as follows.

First the average overall rating was 8.1 out of ten.

Which is a very strong rating.

And as wells likelihood to prescribe in the future was a 4.5 out of five, where five is defined as definitely will prescribe.

The physician's pointed to a multiple positive characteristics of POSIDUR.

They liked the longevity of relief.

The favorable safety profile.

The convenience, the ease of application.

The fact that it has Bupivacaine because it's a known drug and perceived to be safe and efficacious.

The potential pharmaco economic savings.

And finally the fact that it's a nonnarcotic and therefore will not have associated side effects.

This research was another confirming piece of data with respect to the market potential for POSIDUR and information we were sharing with potential partners.

The major planned activities for POSIDUR in 2009 are as follows.

We expect to have data from our approximately 60 patient Phase IIB clinical study in shoulder surgery in 2009.

We also plan to conduct a thorough QTC study this year.

A QTC study is a cardiac safety test increasingly recommended by the FDA.

It should be noted that we haven't seen any differences in cardiovascular or CNS side effects between the roughly 300 patients dosed to date with POSIDUR versus the approximately 150 placebo patients.

Additionally Nycomed is doing a Phase IIB study in hysterectomy patients and a Phase IIB study in shoulder surgery patients that are starting this year.

We were in discussions with various parties about licensing the US, Canadian, and Asian development rights with regard to POSIDUR.

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

Nycomed paid us $14 million up front and another $8 million on our first clinical milestone with regard to the Phase IIB data and we have additional $180 million in milestones to come.

Nycomed will commercialize this product in Europe and other defined territories, paying us royalties that start at 15 and go up to 40%.

Nycomed pays one-half of development costs of this program for the US and European markets.

Another significant event for DURECT during the first quarter was the successful end of Phase II meeting with the FDA for TRANSDUR-Sufentanil and restoration of world wide rights to this program.

Over the last few years Endo has conducted an extensive clinical and nonclinical program for TRANSDUR-Sufentanil.

This work includes a 74 patient Phase IIB clinical trial that was conducted to explore the conversion of opioid experience patients with nonmalignant moderate to severe chronic pain from current transdermal opioid's like [Deragesic], as well as oral opioids including OxyContin over to TRANSDUR-Sufentanil.

This study met its primary and secondary observatives of establishing a successful dose titration regime and dose potency relationships demonstrating safety and tolerability at the therapeutic dose, as well as achieving the effect of analgesic pain control.

In addition to this recent Phase IIB study, there have been nine additional clinical studies performed to date with TRANSDUR-Sufentanil that have involved over 300 patient exposures.

These studies include evaluating, wearing, pharmacokinetics, special populations, repeat application, skin abrasions, drug interactions, and dose conversion.

In addition a strong nonclinical package compromising multiple animal safety studies have been developed including carcenogenicity studies, long-term toxicology and and multiple biocompatability studies.

The phase II data, the extensive nonclinical and detailed protocols of the Phase III were reviewed with the FDA of Phase II meeting on February the 19th.

And as a result of the meeting we believe we have a clear idea of the anticipated regulatory pathway for the Phase II program and approval which will follow a 505-B2 process.

We're excited to have this Phase III ready product and we were in active discussions with several potential partners about licensing rights to this program and moving it into Phase II.

Our Sufentanil patch targets the market of chronic pain users.

J&J fentanyl patch, Duragesic had revenues of approximately $1 billion in 2008.

And there were about 7.5 million prescriptions for fentanyl patches in the US for 2008, which represents a continued growth over 2007.

That figure underestimates the opportunity as there were about 23.5 million prescriptions written in the US for extended release opioids in 2008 and many of these patients could benefit from a superior patch.

Some of the product advantages of the TRANSDUR-Sufentanil patches are, first off our patch seeks to provide seven days of pain relief versus existing fentanyl patches that deliver two to three days of medication or versus the twice daily oral opioids.

Our seven day duration should provide a more consistent blood level of drug and therefore uninterrupted delivery of pain relief.

From the standpoint of worry about diversion of drug, during a 28 day treatment cycle there will be four of our patches to monitor and versus nine to 14 fentanyl packages or 56 OxyContin pills.

Relative to the fentanyl patches we should have a lower manufacturing cost over a monthly treatment cycle.

Our patch is roughly one-fifth the size of fentanyl packages, an example of like Duragesic, and during a month only four of the small postage sized stamp sites will be required.

Between the longer duration of action and the smaller size, our fentanyl package is patient friendly product.

We believe the smaller size and formulation which drives less chemistry across the skin offers potential for improved safety and tolerability.

Lastly there maybe an inherent advantage in utilizing sufentanil as the active act.

It's a more potent agent the fentanyl and yet there are a number of clinical papers written that suggest it has a wider therapeutic index than fentanyl and possibly other chronically used narcotics.

So in summary, we think our Sufentanil patch with a strong clinical and nonclinical data set in hand and Phase III program plan, that has reviewed by the FDA is a exciting asset.

The last product I will review today is ELADUR.

ELADUR is a transdermal patch containing Bupivacaine which is designed to provide three days of relief verses 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.

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

In October we were pleased to announce our collaboration with Alpharma.

The terms of the deal were that Alpharma pay direct and up front licensing fee of $20 million.

There are future possible additional payments of up to $93 million for achievement of predefined development and regulatory milestones as well as the potential additional payments of up to $150 million of sales base milestones.

If ELADUR is commercialized DURECT will receive royalties o product sales.

Alpharma and now King will control and fund the development program going forward.

In December King acquired Alpharma, so now the rights and obligations of our agreement carry over to King.

Our main activity since the time since that time involved the inaction with the King team on this program such that specific decisions can be made with respect to the clinical program.

Just in closing now.

We occasionally get a request from some of our shareholders to say a bit more about other programs that we may be pursuing in our research efforts here at DURECT.

And in an attempt to respond to these requests, I have asked Felix Theeuwes DURECT's Chairman and Chief Scientific Officer to make a few brief remarks on that

Thank you, Jim.

I would like to make some closing remarks and comments on the status of our product development and business development capabilities and where we are and sort of where we are going in the long run.

To date I think it's fair to say we have built significant staying power in our business with multiple technologies in the oral area, the transdermal area, and now recently also in the injectable, [depot] and implantable area.

We have established a first rate team with senior staff that have multiple decades of experience in developing successfully marketed products.

To our various places where we have drawn upon that experience.

We have successfully executed a product assessment process.

To select products and to develop them just like the POSIDUR, ELADUR, TRANSDUR-Sufentanil, the ORADUR products including REMOXY.

And I think we have had remarkable success in licensing these products at very attractive deal terms.

That process of product selection and licensing is continuing and we can expect more announcements on that front.

As you know, there is a very big argument brewing in the biotech field on bio-simulous or biogenetics and some of those are already coming into the market overseas.

I think we can expect to see the same revolution going forward in the United States.

And I think what we saw in the 1970s and 1980s where the pharmaceutical community woke up to the fact that they were losing franchises.

The licensed in from companies like ours, I notice products with superior derivative profiles as an attempt to hang on to those franchises and extend with products life cycle management.

I think we are going to see exactly the same situation going on in the biotech area with the building so-called bio-advance products.

We are particularly strong situation with our [SABER] depot with opportunity to play a major role in delivering those biotech molecules.

Compared to conventional depot such as micro dure or such as micro encapsulated products and by the way we can also make those.

But SABER depot can carry ten times the drug loading which means that we can make them ten times smaller injection volume which has significant impact on pain on injection.

We have a very simple manufacturing process.

We can lower the drug burst and constantly deliver those drugs for payors of weeks to months.

So I think this is a very important area for us for growth.

And we are investing modest quantities of and in those areas.

We invested $4.6million in the depot area if 2008 and we already have collaboration with selected partners.

For example in 2007 we had the co-investments of $1.7 million and in 2008, $1.5 million.

So this area will become more prominent as time goes on.

So in conclusion I think we can say that we are situated -- situated multiple technology for the pharmaceutical as well as biotechnology industries.

We have a strong pipeline with one NDA on file.

Three programs in phase II.

Two announced in phase One.

And we will have small size Company any one of those products can have transforming impact on our market cap.

So I think that with the investments in research and the status of our product development we very well position to capitalize on the opportunities today and for the pharmaceutical industry and the biotech industry in the future to come.

We thank you for your support and we will be happy to answer any questions that you may have.

Our first question comes from Dave Windley with Jefferies & Company.

I have a couple.

Wondered, Jim, on the Phase III program for POSIDUR, is the two year time frame is that basically the -- is the rate limiting step there the pivotal trial and enrollment assumptions around that?

Or will some of the supportive trials be critical path limiters?

Just wondering what the two year time span is dictated by.

That's a good question and it's an estimate, Dave.

As you might expect.

We expect that the longest duration study will be the pivotal study because it has the most patients in it.

The supportive study has smaller group of patients but we were still mapping out exactly which surgical model we use in those supportive studies.

But I think your assumption is correct.

The pivotal study will be the longest duration.

Okay.

But we have built in time also at the end of that for typically one likes to see six plus months to put an NDA together and all of the rest of things.

So we have allocated all of that into that.

Okay.

And you have done while you are waiting on the FDA to give you some clarity on this you have been doing some, I guess you call them exploratory studies, some Phase IIB studies.

To what degree are they -- to what degree could they be used supportively or if not that, are those studies helpful in then dictating the supportive studies that you will do?

Actually, both.

I mean some of those will be readily used.

And I also stated earlier some the Nycomed work that they are doing, the hysterectomy and shoulder work that they will be doing also will be used to answer some of the questions.

And also we are doing that Phase IIB shoulder study down in Australia and that will help us in the construct of that -- should we use that model which we believe we will at this point in time in the Phase III pivotal study.

But the nice thing is that it's one and not two, right, which is what we are thinking before.

Okay .

On the comments, Felix that you just made, can you talk about the IP protection around the SABER depot and perhaps even bring that into a current litigious environment?

And how strong do you think that will be in an environment where kind of noncomposition matter patents are challenged left and right and some hold and some don't?

Maybe more

Yes.

Well, the SABER area we have first of all is the ORADUR and there is the SABER depot.

We have filed a series of very, what we feel are going to very strong patents to protect the ORADUR business.

And at the same time as you heard we are consistently investing in that area.

And based on our own research work we are capturing all of that intellectual property.

And our exclusivity on patents that we are building on top of it at this point we expect that we will run 2025.

Okay.

Thank you.

Thank you, Mr.

Windley.

(Operator Instructions) Okay.

We now have a question from [Jeffrey Deseibert with KB Advisors].

Good afternoon.

Coming back to the POSIDUR Phase III, you have given us a guesstimate time line of two years from start to filing an NDA.

Could you give us any further clarity on when you might expect to begin a Phase III?

Yes.

We are working on all that right now, but I think the work in front of us is the work we were look at in 2009.

And that is to complete the Phase IIB study that we are doing down in Australia.

Most likely we will also be completing the QTC work this year.

And then at the end of those things we anticipate we will be starting Phase III program.

Most likely early in 2010.

So you would -- so to be clear, you wouldn't expect POSIDUR Phase III to begin until the first half of 2010?

That would be an estimate for right now.

Yes.

We could certainly at risk do something and start it sooner but that's not been our mode for this.

We typically are taking a fairly conservative approach and making sure that we lay down our tracks on a firm foundation.

Right.

And so to extend the logic, to make sure I've understood this, we couldn't effect to see an NDA filing until the first half of 2012?

Well, it would depend on how thing goes.

I mean we are giving an estimate right now of a couple years.

Could we beat that.

Who knows?

Possibly.

Might it extend beyond that, possibly as well.

These are just estimates and that's the best we can do at this point in time.

Could you characterize a little more your discussions regarding both POSIDUR partnerships and TRANSDUR partnerships?

On the first one, Asia is something you have been looking at for sometime.

There was a change in policy toward North America in the last six months.

Is there a little activity?

A lot of activity?

Can you try and help us get a sense for in the current environment how much interest is this generating?

I think that's a great question.

And one of the reasons we are talking to people in the United States or for the US market in particular is we had so much interest from people on the outside.

There are a lot of small companies trying to sell themselves in their wares to exist, right?

To continue to exist in this environment .

But then at the end -- behind all of that background noise, there are just very few true products.

ANd I don't think too many pharm companies are interested in early stage dreams and ideas .

But they are interested in later stage projects.

And we have the good fortune that both of these are poised to enter Phase III.

And so to that end -- and they're both large potential products.

They could be block buster in size.

And so there is a lot of interest from big companies --many, many potential partners on each

All right.

And as a follow on to that, in the past as you've spoken about financial guidance and the financial needs of the Company, you had an approximately use of cash of $30 odd million a year which in the past you have been able to substantially fulfill by some type of a deal.

Do you expect that to be the case this year?

Is your -- without predicting where it would come from, do you think you will once again be able to do some type of a deal that will mean that you will finish the year with give or take something the same amount of cash you began it with?

Well, I will take a stab at that, Jeffrey.

I think a couple of comments.

One is whenever we give our cash guidance at the beginning of the year as you picked up, that assumes no milestones and and no new deals.

So we try to put that fourth as most conservative base case.

Because it's always hard to predict the timing of doing one of these licensing transactions that are kind of lumpy by nature and how large will they be in terms of up front versus downstream returns.

But a key part of our strategy, in fact, as you've heard is to work on more of these licensing transactions.

I guess another comment I would make is we are trying to be low key about it but we took some action to reduce head count substantially in the first quarter, late in the quarter.

So that was an attempt to ensure we had even more breathing room, if you will.

And I guess another comment I would make is if you very superficially took the first quarter burn rate of $5.7 million and you happen to just very simplistically multiply that by four, what you would see is a number that's much lower than the guidance that we gave at the beginning of the year.

Now we don't want to frequently be changing that guidance around.

But I think we are trying to do everything we can to make sure that the guidance we have given is in our mind conservative.

And in fact our strategy is to try to bring in more resources through partnering.

And we have multiple assets that are sort of in play to help us pull that off.

But you have no as of early May 2009, you have no degree of comfort that anything might happen this year?

No, I wouldn't phrase it that way.

I think we would say we always hate putting a timetable on when we are going to do deals because we feel like all you are doing is setting yourself up negatively.

Because then not only Wall Street but potential partners feel like, oh, they said they were going to do a deal by such and such a date and as the clock gets closer they feel like they have some leverage over you.

So we never want to put ourselves in that position.

We could do multiple deals this year.

But we are a little uncomfortable being too precise on the timing of any of these transactions.

Thank you.

Thank you, Mr.

DeSeibert.

We now have a question from Neil Gagnon with Gagnon Securities.

I have a question for Matt.

Of the $5.7 million cash loss, how much was severance costs which is -- might not be repeated?

Well, from a negative standpoint you are saying, let me see if I follow your question or try to answer it.

How much was severance cost in the first quarter?

Well we accrued about a little over $400,000.

The actual cash use was small number like $25,000.

So about in April the other $400,000 went out the door.

Now the offset to that is how much do we reduce our future salaries and benefits and all the associated employees costs.

And I don't think we want to say that, but 25% of your head count makes that a reasonably large number.

Matt, normally you would put $100,000 a person, 41 people, that's $4 million plus probably a little higher in your case.

So I'd think that your spending would go down at least that much.

I think that's an annualized figure and depends on the mix of the employees, but your logic is not radically off.

I follow the kind of thing you are trying to do.

And that's reasonable.

It's not unreasonable.

Say it that way.

Good.

Thanks .

Thank you we have a question from Dave Windley with Jefferies & Company.

Thanks for taking the follow-up.

Just wanted to come back to TRANSDUR-Sufentanil the -- I kind of knew a lot of what you said but the one thing that jumped out at me was rights not transferred until I believe it was August.

And I wondered why the delay?

That actually is a very good question.

It has just a legal aspect with regard to the agreement.

The product has already been transferred.

But the -- or the rights are back to us.

But there is a tail on the agreement that allows us to make sure that we get all the data and all the information we need and that was a six month tail.

So that extends into August.

So they have that amount of time to gather data and get it back to you?

It's just a transition period.

It's kind of like an --

It's meant for both parties.

And it's just because you can't transfer overnight in one day.

But it has -- I would not read anything into it.

They have been very professional and cooperative in transferring everything back.

I mean they have been really wonderful to work with.

We pretty much have almost everything in right now.

But there will be a few other pieces that we will get in.

I guess what I'm thinking about is do you have to wait or -- not have to, but would you be hindered from having further partnering discussions because you didn't have everything in hand until August?

That's a great question but that's not the case.

We have a electronic data [remardi] in place and it's populated with data from the various clinical trials and the like.

And the information is there.

We are in active discussions with people, but as you know, these things take a long time to close.

They sure do.

Thanks.

Thank you.

It does not appear that there are any further questions at this time.

Okay.

Like to thank you all for participating in the interest and take care and we look forward to communicating with you in the future.

Take care.

Bye.