DURECT Corp (DRRX) 2010 Q1 法說會逐字稿

Thank you for holding, everyone.

Welcome to the DURECT's first quarter earnings conference call.

Just a quick reminder, today's call is being recorded.

At this time I'll turn things over to our host, Mr.

Matt Hogan.

Matt, please go ahead.

Okay, thank you.

Good afternoon.

Welcome to our first quarter 2010 earnings conference call.

This is 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 our business.

We'll 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 and developments, 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 10-K and our 10-Qs under the heading Risk Factors.

Let me now turn to our financials.

Total revenue was $7.7 million in the first quarter of 2010, which compares to $6.2 million in the first quarter of 2009.

Revenue from our R&D collaborations was $3.8 million in the first quarter this year, as compared to $3.7 million in the first quarter last year.

Revenue from this source always fluctuates 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, LACTEL polymers and certain excipients to King increased by approximately $1.4 million, or 59%, from $2.4 million in the first quarter of last year to $3.9 million in the first quarter this year.

Our gross margin on these product was around 64% in the first quarter.

These businesses continue to be strongly cash flow positive for us.

R&D expense was $9.4 million in the first quarter this year, as compared to $9.9 million in the first quarter last year.

Now these figures included stock-based compensation of $1.3 million in the first quarter this year and $2.3 million in the first quarter last year.

So if we exclude stock-based comp, R&D expense increased by about $522,000.

SG&A expenses were $3.5 million in the first quarter, as compared to $4.3 million in the first quarter last year.

These figures included $669,000 of stock-based compensation in the first quarter this year and $1.2 million of stock-based compensation in the first quarter last year.

Excluding the stock-based compensation, SG&A expense declined by about $253,000.

Our net loss for the first quarter was $6.6 million, compared to a net loss of $8.7 million for the same period last year.

Probably a more relevant financial metric for us than our net loss was net cash consumed during the quarter, that was figure was $5.8 million.

So at March 31, we had cash and investments of $35.8 million compared with cash and investments of $41.6 million at December 31.

Thanks again for joining the call and I'll now turn it over to Jim for non-financial discussion.

Thank you, Matt.

The first quarter was a strong one for DURECT.

With regard to POSIDUR, we started BESST, the pivotal US Phase III study.

Nycomed continued their phase II studies in Europe, and we amended our licensing agreement with Nycomed to separate funding and control of development for the US and EU markets.

For Remoxy, we continue to support King's progress towards resubmission of the NDA in the fourth quarter this year.

ELADUR started a large Phase II study in chronic lower back pain, and we continued activity on the licensing front with multiple programs.

Let's now go through our major programs in a little more detail.

Starting with Remoxy.

Remoxy, is a 12-hour extended release and tamper-resistant form of oxycodone.

Our ORADUR technology is resistant to snorting, smoking, injecting, high heat exposure and dissolving in drinks.

Regulatory history on this product shows us that the NDA was submitted in June of 2008 and it was granted priority review.

However a complete response letter was received in December of 2008.

King then assumed control of the NDA from Pain Therapeutics in March of last year and King met with the FDA in July of 2009, and they stated after that meeting that they had established a path to address the FDA's comments.

King expects to resubmit the NDA in the fourth quarter of this year, with an expected PDUFA date six months after resubmission.

When you look at the potential financial impact of Remoxy to DURECT, it is significant.

The Oxycontin sales in 2009 were $3.2 billion and DURECT will receive a royalty on King sales that start at 6% and go to 11.5% with the 11.5% being close to about $1 billion.

So if we take and make some assumptions here and assume that the Remoxy annual sales are somewhere in the range of $500 million to $900 million, that would represent about a 16% to 28% market penetration.

DURECT would yield royalties that would range between $36 million and $72 million.

That will make a big difference to a Company that has an average burn rate of the last five years of $14 million.

Now I'd like to change and talk about POSIDUR.

POSIDUR is a first-in-class opportunity.

That is the first injectable product available to surgeons designed to control pain locally for up to three days post-surgery.

In 120 patient Phase IIb hernia study with POSIDUR, we demonstrated a 30% better pain control versus the placebo group taking all the narcotics that they desired, and on top of that, we reduced the use of narcotics as compared to placebo by threefold.

We have had an extensive Phase I-II clinical program for this product, with 12 studies completed, two additional ones in progress involving multiple surgical models, including hernia, hysterectomy, appendectomy and shoulder.

In fact over 400 patients have been exposed to this product with no significant clinical safety concerns being observed.

In the first quarter we announced the initiation of the POSIDUR Phase III program BESST.

BESST stands for Bupivacaine Effectiveness and Safety in SABER Trial.

It's a multi-center randomized double blind control trial in various surgical proceeds.

We expect to dose about 300 patients in BESST, and we anticipate completion of enrollment in the first half of 2011.

To give you a quick update today, enrollment, we believe, is on track for both the first half 2011 completion as well as for an estimated early 2012 NDA filing for BESST.

We anticipate the NDA filing to include data from more than 600 patients receiving POSIDUR.

A bit of a descriptor on BESST.

BESST involves three cohorts.

The first two cohorts are active comparators, that is testing positor against bupivacaine hydrochloride solution.

First cohort is in laparotomy surgeries and the second cohort is in laparoscopic cholecystectomy, or removal of the gallbladder.

The third cohort is a placebo control.

We'll be testing POSIDUR versus SABER placebo after laparoscopically-assisted cholectomies.

There are two co-primary endpoints in cohort 3.

The first is mean pain intensity on movement area under the curve during the first 0 to 72 hours post-dose.

The second is mean total morphine equivalent of opioid dose for supplemental analgesia during the first 0 to 72 hours post-dose.

As a reminder, with regard to our Nycomed collaboration, we received $14 million up front in this deal, another $8 million for the Phase IIb hernia data that I described earlier.

We still have $181 million in potential milestones coming in this program.

With royalties that range from 15% to 40% on blended that move up as sales move up, we also get a manufacturing mark-up.

DURECT retains all of the commercial rights for this product for the the US, Canada, and Japan.

Nycomed had the commercialization rights in Europe, the former Soviet states and other countries around the world, including China, where they are responsible for sales, marketing and launch costs in these territories.

Now we'll change gears and talk about ELADUR, our transdermal bupivacaine pain patch.

This is a differentiated therapy for acute local pain.

ELADUR provides three days of extended pain relief, as compared to the current market leader, Lidoderm, which is 12 hours on, 12 hours off, with associated break-through pain.

As a comparator, ELADUR is thinner with a breathable backing, has potential for less irritation and is, in my opinion, more patient-friendly, and that is one can exercise with it, take a shower with it.

The market opportunity for this product is quite large with over $730 million market size and a best-in-class opportunity here for us.

We have a partnership for ELADUR with King Pharmaceuticals to receive $20 million up front, the potential for $243 million in potential additional milestones spread across multiples indications and worldwide territories.

DURECT receives royalties on net sales, reimbursement for development expenses.

King is responsible for the remaining product development, sales, marketing, manufacturing and launch costs.

In April, King commenced a 260-patient Phase IIb study in chronic lower back pain for this product.

Now an update with regard to our TRANSDUR-Sufentanil pain patch.

This is a potential best-in-class pain therapy for the treatment of chronic pain.

It provides seven days of therapy versus two to three days for Fentanil patches or twice daily oral opioids, and offers advantages to the patients as well as to the healthcare system.

For the patients, the advantages are uninterrupted delivery of pain relief; a smaller size, about one-fifth the size of Duragesic, about the size of a postage stamp; potential for less irritation; potential for side effect advantages over both Fentanil patches and oral oxycodone.

As far as the healthcare system advantages are, it's REMS initially, less potential for divergence, only four patches per month versus 10 or more patches with the other systems, or 60 pills; potential for reduced cost of therapy, as well, with fewer interventions and lower costs of goods; and finally, potential for reducing break-through meds, because of more consistent delivery.

To look at the potential commercial opportunity for TRANSDUR-Sufentanil Duragesic revenues in 2009 for J&J were still over about $900 million and the extended-release oral opioid market in general -- sorry, not just oral, but also with patches, is over $4 billion.

We have an opportunity to capture a significant market share, not only from the fentanyl patches but as well from oral extended release opioids.

This product has already had a successful end-of-Phase II meeting in 2009 and is Phase III ready with a 505(b)2 pathway to approval.

We own the worldwide rights to this product and we are currently in licensing discussions.

Our next step is to get a partner and resume the clinical program.

Brief update with regard to other R&D activities, our earlier stage programs.

Our SABER injectable depot technology, here our opportunity is to create BioBetters.

The goal here is to create small-volume injectable products, that is a quarter of a CC to half a CC that would allow these proteins to be injected once every week to once a month, and we have multiple feasibility programs ongoing.

With regard to our oral earlier activities, here we are taking our ORADUR technology and building on what we've done with Remoxy.

Our ORADUR technology not only allows for extended release of oral products but also tamper resistance.

And the ADHD products are the second largest category and most widely-abused prescription drugs.

In fact in 2009, ADHD drug sales were over $4 billion.

We are currently working with Orient Pharma to develop an ORADUR ADHD product with them for selected Asian and South Pacific countries, where DURECT holds the rest of the world rights for this product.

Orient Pharma will fund the Phase I studies as well as the first Phase II study.

We expect the first Phase I study to start this year.

In summary, we have a number of potential key drivers for DURECT over the next 12 to 18 months.

For Remoxy, it's resubmission of the NDA by King in the fourth quarter, with an expected PDUFA date six months after resubmission and a potential launch in 2011.

For POSIDUR, it's conducting BESST, our US Phase III program, with completion projected for the first half of next year.

Potential new collaborations for POSIDUR in the US, Canada, and Japan.

For the Sufentanil patch, it's worldwide, as well as other undisclosed programs.

For ELADUR, it's conducting the Phase IIb by King.

For TRANSDUR-Sufentanil, it's establishing a partnership and restarting clinical activities.

As well, we look forward to advancing our other programs, the other ORADUR opioids and ADHD products, the biotech feasibility programs and as yet, our undisclosed projects.

We'd now like to take an questions you may have.

(Operator Instructions).

We'll go first this afternoon to David Amsellem with Piper Jaffray.

Please go ahead, David.

Hey, thanks.

Just a couple of quick oes.

On the BESST study for POSIDUR, can you just remind us why you are expecting a lengthy enrollment period?

I'll think I'll let Joe take that one.

Joe, the question is why do we expect that the enrollment period is going to take as long as we expect it to take.

Sue, understood.

This is Joe Stauffer, the Chief Medical Officer.

This trial is unlike any other trial that's been done up until now.

There is extensive cardiac monitoring that's done with this trial.

All of the patients are kept in-house for three days during their operation.

There is also extensive pharmaco kinetic blood draws for all these patients as well, and we're doing this because we want to establish the safety profile of the drug.

And typically you do not see this kind of monitoring done for trials like this for bunionectomy or other types of post-surgical trials, in say hemorrhoids or other smaller procedures.

This is a larger procedure, and in enrolling these types of patients, who tend to be sicker and older, with all of this extensive monitoring, that's why it takes typically longer than what you might have seen in regular shorter post-operative situations.

Okay.

That's helpful.

And then one additional question on partnership discussions on POSIDUR, particularly for the US partners.

Are you looking at a deal primarily after you have Phase III data in hand, or are you open to a transaction if one should -- if there is a possibility of one prior to data?

We're at a lucky point with this product.

There is a lot of interest in it.

And so certainly the longer you can keep a product, the greater value you create, and if we go all the way to NDA you have tremendous values on the market, that kind of thing.

But where we are right now with that, there is a lot of hint interest and so we are talking to potential partners continuously, and we will strike a deal when we think we have one that makes the most sense for DURECT.

All right.

Thanks.

And, gentleman, we'll take our next question now from Andrew Hilgenbrink from Jefferies and Company.

Thanks for the question, guys.

Anything in particular contribute to the higher rev -- product revenue during the quarter?

It seems like it's been higher than the past year or two.

Well briefly on the product revenue side, we have these relatively smaller businesses where we sell ALZET pumps and LACTEL polymers, and those businesses are actually on a very nice positive trend.

And in addition, during the quarter we had some additional sales of excipients to King that relate to Remoxy, so that boosted the revenue.

On the collaboration side it was about flat year-over-year, so it was mostly on the product revenue side that we saw the growth.

And is it product revenue besides the excipients, is there a price increase that was taken or is it just higher value, or is it a combination of both?

In particular on the Lactel side we're seeing nice volume increase, and we think that that's not a short-term phenomenon, we think that is longer-term trend.

That business is really developing nicely.

And then change in topic, then.

Without a partner on POSIDUR for US currently, do you expect the burn rate to increase above the $5 million or $6 million of recent quarters?

No, I think it's about on path with what our budget was.

And no reason to change our cash burn guidance that we gave before for the year.

And then are you guys -- can you say any rough number of how many patients have enrolled in the BESST trial?

We can say that, however we do not disclose those numbers right now.

The goal is to finish the trial by the first half of next year.

I think that answers my questions.

Thanks.

(Operator Instructions).

We'll go now to Jim Molloy with Caris & Company.

Hi, guys.

Thanks for taking my question.

On the TRANSDUR-Sufentanil patch, one of the concerns back when this product came back from was, and maybe there was more to the FDA meeting than perhaps obviously can be disclosed, and here we are almost a year in and still waiting on a partner.

Is there any way to characterize or allay fears that's there was more said or worse things said at the FDA meeting that really would bar this product from moving forward, or how would you characterize the partner in discussions or the clinical trial plans?

Joe wasn't here with DURECT at that time, but he certainly has pored over those FDA minutes.

So I'll let him answer that.

Hi, Jim, in reviewing those FDA minutes, there is nothing spooky in there, if that's what you are looking for.

It's a typical interaction -- end-of-Phase II interaction between NDA and at the time.

I think they got very straightforward advice from the industry, all of which is easily doable in a Phase III program.

It was definitely ready for Phase III, it's ready now.

And there are clearly people that are interested in it.

I think at the time, not related to FDA and the Company, but just more to REMS in general, at that time REMS was an unknown and really a dark horse.

People weren't sure what it was going to mean.

I think that's been pretty much flushed out now.

There are drugs in the market now with REMS and beta, other long-acting opioids that are on the market and we fully anticipate tat the the TRANSDUR would have a very similar REMS, so it is not going to be complicated from that perspective.

So it's really about finding the right partner who really is motivated to work with the C2 opioid in this space and those partners are out there, and the good news for us is we know what the clinical development plans look like.

They are actually pretty boilerplate.

We would pretty much follow what we had to do for Embeda.

So we know what to do, just find the right partner is all we really need to do at this point.

The only thing I would add to that is from a REM standpoint, Joe, we only have four patches a month to worry about versus some of the others.

That's right.

That's an important piece Jim brought up earlier in his discussions.

One of the issues with REM, how much product is in the supply chain, and one of the advantages of TRANSDUR is that you just have so much fewer patches in the supply chain.

Just by its high potency, it's really about volume of patches that are there and access to diversion.

That's one of the nice advantages for TRANSDUR.

Nevertheless it will still follow a boilerplate REMS.

Thank you for that.

I appreciate that.

I agree.

It seems like TRANSDUR has significant advantages over current products in the market, I guess the only concern it was March of 2009 you started talking with partners and obviously -- and will it be March of 2011 before a partner is signed or is there any timeframe on that?

Jim, we never do.

But we're talking actively to people.

We'll make some progress.

Do not worry.

Thank you, gentlemen, for taking the questions.

(Operator Instructions).

We have a question now from Jeffrey DeSeibert with KB Advisors.

Please go ahead, Jeffrey.

Good afternoon, gentlemen.

A quick question with your burn rate of $5 million to $6 million a quarter and $35 million in cash as of March 31.

Can you tell us what your thoughts are about the need to raise additional capital?

Well, Jeffrey, I don't think our strategy has particularly changed.

We -- our preferred strategy for funding the Company is to stick with our model of partnering programs, so we're actively talking to potential partners around TRANSDUR-Sufentanil, which would be a worldwide deal; POSIDUR, which would be a US-Canada and possibly also a Japan deal, and then some other programs that we haven't really fully disclosed.

So that's our preferred funding strategy.

And as we go along we constantly have to judge things like where the stock price is and where we are in BD and things like that.

So our strategy really hasn't changed.

We obviously constantly monitor our cash position and our funding options.

All right.

Well as a follow-on, could you give us a sense of your feeling of confidence that you'll be able to fund internally rather than via the capital markets this is year?

Well, obviously we feel pretty good about where we are.

So we'll have to see.

All right.

Thank you.

Gentlemen, it appears we have no further questions this afternoon.

Okay.

I'd like to thank everyone for participating.

And if you have questions, please feel free to call the Company.

Thanks a lot.

That will conclude today's conference call.

We thank you all for joining us and We wish you all a great afternoon.

Goodbye.