DURECT Corp (DRRX) 2011 Q3 法說會逐字稿

Welcome to the Durect third quarter earnings meeting.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Matt Hogan.

Thank you, Mr Hogan, you may begin.

Good afternoon and welcome to our third quarter earnings call.

This is Matt Hogan, the 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 will then open up the call for a Q&A session.

Before beginning, I would like to remind you of our Safe Harbor statement.

During the course of this call we may make forward-looking statements regarding Durect's products and development, expected product benefits, our development plans, future clinical trials or projected financial results.

These forward-looking statements involve risks and uncertainties that 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-Q, under the heading risk factors.

Let me now turn briefly to our financials.

Total revenue was $8.1 million in the third quarter this year, about flat basically with the third quarter last year.

Revenue from our R&D collaborations was $5.2 million in the third quarter this year, as compared to $5.7 million in the third 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 excipients involved in Remoxy was $2.9 million in the third quarter this year, as compared to $2.4 million in the third quarter last year.

The ALZET and LACTEL product lines had basically flat revenue during these periods.

Our gross margin on these products was around 55% in the third quarter.

The ALZET and LACTEL product lines continue to be strongly cash flow positive for us.

R&D expense was $8.5 million in the third quarter this year, as compared to $8.1 million in the third quarter last year.

That increase was mostly due to higher development costs for POSIDUR and Relday, partially offset by lower expenses on most of our other programs.

SG&A expenses were $3.4 million in the third quarter 2011, as compared to $3.8 million in the third quarter last year.

That decrease was mostly due to lower patent-related expenses and stock-based compensation expenses.

So, our net loss for the third quarter this year was $5 million, compared to a net loss of $4.6 million for the same period last year.

At September 30, 2011, we had cash and investments of $35.1 million, which compares with cash and investments of $37.5 million at June 30 and $49.6 million at December 31, 2010.

We have essentially no debt other than normal liabilities associated with running the business.

Our net cash consumed during the third quarter was $2.4 million.

This benefited from the fact that we signed as a general collaboration in the third quarter and received the $2.5 million upfront license fee, partially offset by the timing of some payments associated with the POSIDUR Phase III trial and payments related to our newly outfitted facility in Alabama supporting LACTEL growth.

As we stated in the press release, we expect our burn rate for all of 2011 will be about $19 million.

This compares favorably to our guidance early in the year of a burn rate of approximately $23 million to $27 million.

While we haven't gone through our formal budgeting cycle for 2012, we'd expect the burn rate to be lower next year than in 2011 with a burn rate likely to be about $15 million to $17 million.

This assumes our current thoughts on R&D spending, but no milestone payments and no new BD deals.

This drop reflects, primarily, the reduction in POSIDUR related expenses due to the completion of BESST.

We will refine that guidance more carefully as we complete our formal budgeting process.

Thanks again for joining the call and I will now turn it over to Jim to discuss other matters in greater detail.

Thank you, Matt and hello, everyone.

I will now provide an update with regard to our most significant events from this quarter.

Starting with Remoxy, our commercial -- which we have commercially partnered with POSIDUR.

They received a complete response letter for this product on June 23 of this year and we are working with them to resolve the issues and Pfizer is committed to the program.

For POSIDUR, we completed the enrollment in BESST, the pivotal US Phase III trial, and we expect to have top line data in the fourth quarter.

If the data are positive, we expect to submit to NDA in the first half of 2012.

For ELADUR, our main focus going forward is post-herpetic neuralgia and Pfizer is reviewing this program accordingly.

We also announced this quarter the deal with Zogenix for Relday, our first feasibility program to advance to a development agreement.

We have also continued activity on a number of other fronts.

I would like to now go through these major programs in greater detail.

Beginning with Remoxy.

Remoxy is based on our ORADUR platform technology.

It is an ORADUR version of oxycodone.

It allows for 12 hours of extended release and, as well, tamper-resistant.

Our ORADUR technology products are designed to be tamper-resistant to a number of forms of potential abuse; those include snorting, smoking, injecting, as well as dissolving in drinks.

We stated earlier, Pfizer received a complete response letter for this product in June 23 of this year.

It is largely surrounding a CMC matter.

Pfizer is committed to the program.

This program couldn't be in better hands than Pfizer and they have the manufacturing experts to resolve the remaining questions.

We here at Durect are working directly with them as appropriate given our formulation expertise.

In Pfizer's second quarter call, their CEO, Ian Read said, and I quote, on Remoxy, we see it as a when, not if.

In Pfizer's third quarter call, Ian Read stated that they are continuing to make progress on Remoxy and they face several key decision points over the next several months that will determine the timing and nature of their response to the complete response letter.

We want to remind you that in the end, this remains a huge commercial opportunity for Pfizer and Durect.

In fact, if we look at oxycodone sales in 2010 on a worldwide basis, they are $3.7 billion.

And US oxycontin sales in 2010 were $3 billion.

Durect's blended royalty on sales starts at 6% and goes to 11.5%, with the 11.5% being around $1 billion.

We also get about another 0.5 basis point for the exipients that we provide.

So, if we look at percent market penetration that Pfizer might be able to achieve, if they are able to achieve somewhere between 30% to 50% of the 2010 US market, for Durect that would mean a royalty check somewhere between $70 million to $140 million.

I want to change gears and talk about POSIDUR, our post-op pain product.

This product offers a new paradigm for post-op pain control.

It's designed to control pain locally for three full days post surgery.

In two Phase II trials against placebo, one in shoulder and one in hernia, POSIDUR demonstrated a statistically significant improvement in pain control and reduction in opioid use over three full days.

In a Phase II-B hernia trial, POSIDUR demonstrated a 30% improvement in pain control versus placebo, as well as a three-fold reduction in the use of systemic narcotics.

We are currently completing -- we have completed enrollment, but we are completing the clean up of the data and getting ready to unblind the data with regard to our BESST pivotal Phase III trial.

BESST stands for the Bupivacaine Effectiveness and Safety In SABER trial.

It is a multi-center, randomized, double blind, placebo control trial in various abdominal surgical procedures using 5 mL of POSIDUR.

In April 2010 we received FDA correspondence which increased our confidence in the BESST design and overall NDA strategy.

305 patients were dosed in BESST.

The pooled and blinded interim analysis suggested no need to increase the size of the study and we expect top line data this year.

POSIDUR offers a big commercial opportunity driven by reducing the need for opioids after surgery and their associated side effects.

It's better for patients and, as well, has the potential to have a significant reduction in healthcare savings.

There are over 70 million surgical procedures in the US for which this product could be applicable and our market research has identified 10 million to 20 million procedures as a potential available market at the initiation.

The pricing is yet to be determined, but our market research suggests that $250 or more per procedure would be justified based on the opioid reduction use and also side effect reduction.

Because of the significant reduction in opioids and pain for the full three days, it's an easy product concept for the surgeons, anesthesiologists, and payers to get behind.

With regard to partners for POSIDUR, we have Hospira in the US and Canada.

Hospira, of course, is a leader in hospital based products.

We have Nycomed in Europe and other countries around the world.

They are a leading specialty pharmaceutical company which has recently been purchased by Takeda.

We have cumulative up fronts and milestones received to date of $49.5 million.

We have future potential milestones of over $365 million with strong double digit royalties.

Japan offers another opportunity for us.

We have yet to partner with Japan and we are currently in partnering discussions with multiple parties pending positive Phase III data.

Now a few thoughts with regard to Pacira's recent approval.

EXPAREL received approval just in the last week here and it shows that the FDA is open to this type of product, which we are very pleased to see.

We are studying their data and approval and we expect to learn from their experience.

It's clearly a big market opportunity, big enough that there will be room for more than one product to do well commercially.

When they launch next year they will spend on marketing and spread their product concept, then hopefully, we will come along later with Hospira and data to demonstrate we have a superior product.

That is, a true three-day product, easier to apply, and easier to transport and store.

In terms of comparing the products at this point, it's hard to do an apple-to-apples comparison.

We first off, tested different surgical models.

Here at Durect we tested POSIDUR in hernia and major abdominal surgeries.

Whereas Pacira tested EXPARAL in hemorrhoid and bunion surgery for their Phase III.

We measure pain on movement, while they measure pain at rest.

Our duration is clearly different.

They have a product that requires refrigeration, while our product is stable at room temperature.

And compared to POSIDUR, they have a much lower dose product at 266 milligrams given, whereas we dosed 660 milligrams.

In fact, their 266, one can compare to -- you can actually give 175 milligrams [naked] bupivicaine or if you give naked bupivacaine or marcaine with epinephrine, you can give 225 milligrams.

We have an opportunity for a significant improvement over Pacira's product in two main ways.

First is with duration of effect, and second is side effect profile driven by a greater reduction in opioid use.

With regard to greater duration, we deliver bupivicaine for a full three days.

With POSIDUR we saw a statistically significant reduction in pain scores and narcotics reduction for three days in our shoulder and our hernia trials.

For example, in our hernia trial, we saw more than a 3.5 fold reduction in the narcotic use for day three alone.

To be clear, that is the day 48 to 72 hours after dosing.

Regarding side effect profiles, in the prescribers information for EXPAREL, the side effects typically seen with EXPAREL were associated with those you see with narcotic use, i.e., nausea, vomiting and constipation, and were similar in rate to those seen in placebo groups.

In POSIDURs hernia trial, we saw clinically meaningful reduction in narcotic associated side effects such as nausea, vomiting, and constipation as compared to placebo.

With POSIDUR we are metering out the 660 milligrams we are giving over three days with a similar peak systemic plasma concentration of bupivicaine to what Pacira has seen with there does of 266 milligrams.

We think we will compete effectively and are certainly pleased with our data to-date in the hernia and shoulder studies where we showed reductions in pain scores and opioid use for the full three days.

We are also pleased to have Hospira as our marketing partner, given their expertise in the hospital market.

We view having them as our partner as a major competitive advantage.

Now I want to change gears and talk about the ELADUR.

This is our TRANSDUR three day bupivacaine patch.

It's a differentiated therapy for acute local pain and goes into a $750 million-plus market opportunity where we think we have a chance to be a best in class product.

Our partner for ELADUR is now Pfizer.

Pfizer assumed the rights to this program when they acquired King Pharmaceuticals.

The chronic lower back pain study that King undertook didn't show a statistical difference from placebo, although we saw a nice reduction in the pain scores.

The next step for this product is if Pfizer is assessing the program with the original development plan for this product in mind.

That is, mainly targeting neuropathic pain such as post-herpetic neuralgia.

They are assessing the program very carefully.

The easy thing for them to do would have been to return the product to us right after the chronic lower back pain study, and they may still yet decide to do so, but they are giving it a thorough review which speaks to the fact that this is an attractive potential product.

Just a brief reminder of what we like about this product.

First, it is three days versus the 12 hours for Lidoderm, which is not just a convenience matter, but also may lead to less breakthrough pain.

We have a patient friendly design with wearability.

It is thinner, it is lighter, you can shower with it, you can exercise with it.

It doesn't dry out like Lidoderm.

It has a safety profile at the low end of the risk spectrum, not a lot of systemic bupivicaine is absorbed.

We have orphan drug advantages.

That is, no filing fees, six months to review and seven years of data exclusivity, with the potential to be a best in class patch going into a large market as been demonstrated by Lidoderm's $780 million in sales last year.

Briefly, with regard to our TRANSDUR-Sufentanil pain patch.

Here we have recently held discussions with the FDA, as well with several major European regulatory agencies about the future studies that would be required to gain approval for various pain indications for this product.

And we are in discussions with potential partners.

But, for now, we are electing to keep our cash burn rate down rather than initiate additional clinical work without a partner.

For other R&D activities, with regard to our ORADUR, here we are building on our efforts for Remoxy.

Our ORADUR technology allows for extended release oral products that are tamper-resistant in the second largest category of widely abused prescription drugs is that for the stimulants associated with treating attention deficit disorder.

In fact, ADHD drug sales in 2010 were $5.8 billion, up 16% over 2009.

We're working with Orient Pharma with regard to an ADHD opportunity and Orient Pharma will fund the Phase I, as well as the first Phase II studies, to which they will have the rights in Southeast Asia with the royalty back to us and we have the rest of world.

We have done two Phase I studies in multiple formulations and we are now focusing in on an optimized formulation.

Relday is a once a month needle free injection of risperidone.

This product is going into a large market with significant growth potential to treat schizophrenia and bipolar disorders.

These are lifelong treatment diseases and they are fairly underserved.

That is, about 50% of schizophrenic patients, for example, aren't well served with their current medications.

The anti psychotic market is a large one, over $16 billion, and the single largest injectable product in this market space is long-acting Risperdal, a product called Risperdal Consta, which is $1.5 billion in sales.

This is an inter-muscular, quite a painful product to have injected into you, from what I understand, and lasts for two weeks.

It's also got some challenges from a kinetic stand point in that once you inject you, you have to wait two weeks for it to take effect.

We have a potential to be a best in class product in this space.

We offer longer duration.

That is, we will be the first once a month risperidone product out there.

We are patient friendly, it's needle free, it's a bit like the Star Trek injection.

It's something the physician can do in the office.

A psychiatrist can do right in the office.

It will be the first needle free, continuous release product that will be out there versus the 21 gauge IM needle.

We think there are some nice advantages to this program.

The collaboration with Zogenix offered us $2.25 million up front with another $103 million in additional milestones.

Zogenix will fund all the development and we will get a royalty back here at Durect.

Zogenix has SUMAVEL which is an injectable product containing sumatriptan to treat migraine headaches through their DosePro needle free injector which was approved by the FDA in 2009 and was launched in January of 2010.

We expect to start the Phase I work for Relday in the first part of 2012.

So, if we look at Durect in summary, the potential key drivers over the next 12 to 18 months are for Remoxy, it support Pfizer to complete activities required for a timely resubmission of the complete response letter, and if approved, launched by Pfizer.

For POSIDUR, it's completion of BESST with top line data this quarter and if BESST is successful, then submit the NDA in the first half of 2012.

For ELADUR, it is review the development strategy by Pfizer and Durect and getting the program back into the clinic for neuropathic pain.

For TRANSDUR-Sufentanil, it is establishing a commercialization and development strategy and a potential partnership.

For Relday, it is initiation of Phase I work in early 2012.

And we have also the potential for new collaborations, POSIDUR in Japan and Korea, Sufentanil on a worldwide basis, and our ORADUR ADHD, as well as other undisclosed programs.

Finally, we are continuing to advance our other programs here at Durect, the other ORADUR ADHD programs, as well as a potential for ORADUR opioids, and our biotech feasibility projects and other undisclosed programs.

Any questions you might have.

(Operator Instructions) Our first question is from David Amsellem.

Please proceed.

To start with a question on Remoxy, Pfizer remarked that there was a decision points coming up related to the timing and nature of the response to the FDA.

Any color on what that could mean?

The other part of the question is, how optimistic are you that a response can be submitted in a relatively near-term timeframe?

The timing we are not going to speculate on that, we will have to let Pfizer to do that.

As far as being able to answer the questions that are there, I feel confident that we will be able to do that.

it's just a matter of time and we will, obviously, have to have Pfizer be the lead at communicating that information.

Any color on -- I think you commented earlier on pain therapeutics and also commented that the issue was with the assay.

Remind us what their initial thoughts were on that and if there are any other new issues that have emerged since then?

I think the issues we are dealing with are the same we were dealing with before and we are making significant progress, but as I said, I think I really have to let Pfizer take the lead with regard to communicating information on it.

Just to say, we really enjoy working with those guys, significant progress, great team to work with, that kind of thing.

And last question on POSIDUR, Pacira had communicated that they are looking at a price per injection of around $250 or north of that.

I know that this might be a better question for Hospira, but I'll run it by you.

What are your thoughts on pricing of this product and do you think that makes sense?

Do you think it's excessive and how do you see POSIDUR coming in vis-a-vis EXPAREL pricing?

I do think we have a superior product to them, in particular with regard to effect.

We have shown, as I said earlier, a three-fold reduction in narcotics on day three.

I think we've got a better duration of effect than them, but I am pleased to see the pricing that they have at $250.

We have done two different pricing studies.

The first was a price floor study where we looked at dropping the price and looking at the impact on market penetration and dropping below $250 had no impact on penetration.

So, I applaud them for making a $250 floor.

We then also show with our product, and I can't say the same for theirs because I don't know their data, but we show with our product that we are saving, if you assume a $1,200 a day hospital bed, saving about $620 per patient.

When we shared those data, those pharmacoeconomic data with the third-party payers, like Blue Cross Blue Shield and the like, they came back and reflected their price that they would be willing to pay in a range of $400.

I think that's the kind of thing I would love to see for POSIDUR.

I don't know what EXPAREL can command.

I think that's something they'll have to define in the marketplace.

That's all I had, thanks.

(Operator Instructions) Mr Hogan, we have no further questions at this time.

I would now like to turn the floor back over to you for closing comments.

For those who were able to participate live, thank you.

If people have questions after the call, as you know call at any time and we would be happy to try to respond to your questions.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation and have a wonderful day.