DURECT Corp (DRRX) 2011 Q4 法說會逐字稿

Greetings.

Welcome to the DURECT fourth quarter earnings conference call.

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

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

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matt Hogan, Chief Financial Officer for DURECT.

Thank you, Mr.

Hogan.

You may begin.

Okay, good afternoon.

Welcome to our year-end 2011 earnings call.

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

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

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

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

These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements.

Further information regarding these and other risks are included in our SEC filings including our 10-K under the heading Risk Factors.

Let me now turn to our financials.

Total revenue grew to $8.9 million in the fourth quarter of 2011 from $8.5 million in the fourth quarter of 2010.

Revenue from our R&D collaborations was $6.5 million in the fourth quarter 2011, as compared to $5.9 million in the fourth quarter of 2010.

Revenue from this source always fluctuates from quarter to quarter depending on the stated development under the various programs, and our role in those programs.

Product revenue from the sale of ALZET pumps and LACTEL polymers decreased by approximately 95,000, or around 4%, from $2.6 million in the fourth quarter 2010 to $2.5 million in the fourth quarter of 2011.

This slight decline was mostly at LACTEL, and had to do with the timing of some shipments that were subsequently made in January.

Our gross margin on these products was about 63% in the fourth quarter.

These product lines do continue to be strongly cash flow positive for us.

Just to highlight this for a second our total revenue for the year from these two product lines was $10.6 million, and then generated $6.2 million in gross margin for gross profit.

R&D expense was $7 million in the fourth quarter this year as compared to $9.4 million in the fourth quarter last year.

SG&A expenses were $3.2 million in the fourth quarter 2011, as compared to $4 million in the fourth quarter 2010.

As a result of the above, our net loss for the fourth quarter declined to $2.1 million, compared to a net loss of $5.3 million for the same period in 2010.

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

That figure was $4.3 million.

For all of 2011, our cash consumption was $18.8 million, as compared to our guidance at the beginning of the year of $23 million to $25 million, so we used about 22% less than the mid-point of our earlier guidance.

At December 31st, 2011 we had cash and investments of $30.8 million compared to cash and investments of $49.6 million at December 31, 2010, and we have essentially no debt other than normal liabilities associated with running the business.

Over the last seven years during which we invested in building and advancing our pipeline and late stage products, our bring rate has averaged out to around $11 million per year.

In large part this has been a function of our success in corporate licensing activities, as well as the fact that we have been cautious in our spending.

Let me now turn to financial guidance for 2012.

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

While we anticipate entering into new collaborations in 2012 and beyond, we think it is more conservative to give financial guidance based on an assumption of no new collaborations and no milestones.

Last fall we gave guidance that we thought our burn rate in 2012 would be about $15 million to $17 million.

We have recently taken steps to moderate our burn rate in 2012, such that we now anticipate net cash consumption this year of about $12 million.

That is a cut of about 25% from the mid-point of our earlier guidance.

Some of the actions we have taken include a reduction in head count.

We currently have a total head count of 106 employees, that is down about 15% from the end of the year, and about 18% if you exclude the employees associated with ALZET and LACTEL, which are cash flow positive.

No cash bonuses were paid across the Company this year, nor were there any salary increases for those at the Director level and above.

Six Vice Presidents and above volunteered to reduce their salary in lieu of which they received some options that vest quarterly over the coming year.

That totaled about $250,000 from the senior management team.

We also terminated a lease early from what was our headquarters in Cupertino, and consolidated into our other facilities down the road.

And lastly, we reviewed all outside expenses and reduced our spending across multiple areas.

I would note we had multiple programs that may potentially be partnered over the next 12 to 18 months.

These include transfers to fentanyl worldwide rights, POSIDUR for Japan and other non-US/Canada territories.

ELADUR worldwide, ORADUR-ADHD for Europe and the US, and various feasibility studies that we hope may mature into development agreements much like Relday did last year.

With that, let me turn it over to Jim to discuss nonfinancial matters in greater detail.

Thank you Matt, and hello everyone.

I am going to start with a brief summary of DURECT.

DURECT as most of you know is a specialty pharmaceutical company with two late stage programs, and a number of earlier stage ones.

As Matt outlined earlier we have a moderate cash consumption, about $11 million per year over the last seven years.

We have two small product lines that are positive in cash flow contributing a gross profit of over $6 million a year.

We have recently reduced our cash burn by about 20% through staff and facility reductions, leaving us with about 2.5 years or more cash in the bank.

We will work with our partners towards the potential approval of our late stage programs, while continuing the focused efforts on selected earlier stage programs that are supported in whole or in part by external funding.

Now an update on our programs starting with REMOXY.

Our commercial partner Pfizer continues to move REMOXY forward.

We are working with them to aid them in resolving the issues at hand.

Pfizer has become much more specific in describing their plans, which include an FDA meeting in the third quarter of this year.

At the JPMorgan Conference in January of this year, I went to the break out session there and Ian Read, who is the CEO of Pfizer, was asked a question about REMOXY, and he stated that with regard to REMOXY they will get it over on the goal line.

It is just a matter of when.

And in their fourth quarter earnings call, Olivier Brandicourt, who is Pfizer's President and General Manager of their primary care business, gave a statement with regard to a question on REMOXY, and I will paraphrase.

What he said was, they now have a much better understanding of the formulation, the manufacturing controls, and what they need as analytical tests.

They will conduct two viability studies during the second quarter, and they anticipate meeting with the FDA during the third quarter of this year to discuss next steps.

As a reminder of the potential of REMOXY, and what it means to DURECT from a financial standpoint and from a patient standpoint, Oxycontin is about a $3.6 billion product on a worldwide basis, with about $3 billion of sales in the US.

We think we will be able to offer to the patients advantages of two, twice a day dosing, a multiplicity of the use deterrent characteristics that are inherent within the order technology.

DURECT's royalty on these sales are between 6% and 11.5%.

If Pfizer can achieve about a third of this US market, that would mean a royalty payment to DURECT of around $80 million, and if they can get half the market, it is $140 million.

Now changing over to POSIDUR, here we are pulling together the integrated summary of efficacy and safety for this program.

We are targeting a pre-NDA meeting in the middle of this year, and pending the outcome of that meeting, we expect to submit the NDA during 2012.

Now changing over to POSIDUR Now safety for this program.

We are targeting a pre NDA meeting in the middle of the year.

Pending the outcome we plan to submit to NDA in 2012.

POSIDUR is our post-op pain control product it is designed to control pain locally for three days after surgery.

It has the added potential benefit of being able to reduce narcotics and their associated side affects, which has the potential for earlier hospital discharge.

We are taking a 505b2 filing strategy for this product, which requires establishing the safety for the product, and having one well controlled efficacy trial.

Additionally we will be leveraging off a long issue of use of reducing pain.

We have two well controlled trials that demonstrate efficacy for POSIDUR.

First is our hernia trial.

Where we have a statistically significant 30% reduction in pain as demonstrated on day one, on day two, and on day three separately post-surgically.

We also have a statistically significant three-fold reduction in our narcotic usage trial, also seen on day one, day two, as well as on the third day.

Additionally we have a shoulder trial that was conducted in the EU.

This was a 107 patient trial and this is the first time that we are sharing a little more specifics with regard to this trial.

In that shoulder study we saw a significant 19% reduction in the pain on movement for the three days after surgery.

We also saw statistically significant 67% reduction in narcotic use for the three days after surgery.

Once again this is a three-fold reduction in narcotic use.

To summarize our POSIDUR efficacy in just a few points, POSIDUR has demonstrated a statistically significant reduction in pain and narcotic use in two surgical models, that is hernia and shoulder.

POSIDUR has demonstrated statistically significant pain reduction in laproscopic surgery.

POSIDUR has demonstrated a statistically significant reduction in pain against Bupivacaine as an active comparator in the cohorts 1 and 2 from our BESST trial.

POSIDUR has demonstrated a positive statistically significant reduction in pain of movement in a variety of surgical pain models.

Lastly POSIDUR has demonstrated a significantly significant reduction in pain and narcotic use on not only day one, but also on day 2 and 3, demonstrating that we have a true three-day effective product.

As well, POSIDUR has a positive pharmacoeconomics.

If we look at the hernia trial in particular, and apply a dischargability index comparator to that, we are seeing that on average we are able to get patients out of the hospital about a half day earlier, and if one assumes a $1,200 a day hospital bed, we are saving about $620 per patient.

The next step for this product will be the pre-NDA meeting, and the three main objectives of POSIDUR at the pre-NDA meeting are as follows, first to get the agency agreement that our two proposed pivotal studies are acceptable for a 505b2 NDA submission.

Second, to get the agency agreement that our safety database of over 1,000 surgical patients studied is adequate for their assessment of the benefit risks of POSIDUR.

And third, to ensure that the structure and format of the data presentations are acceptable to the agency.

Pending that meeting we are planning to submit the NDA this year.

The logic for moving forward with these strategies and with the data that we have in hand, are that we believe the overall program shows a positive risk benefit ratio for POSIDUR, and qualifies under the 505b2 guidelines.

At this point we don't see systemic safety issues.

Bupivacaine is a well-established agent with a long history of use.

With respect to efficacy we have shown in multiple models evidence of a reduction of pain scores over three days.

We would plan to position our hernia and/or shoulder trials as pivotal efficacy studies, and these will be supported by the trends of efficacy in BESST and our other trials.

Our view is that this body of evidence in multiple surgical models is compelling, and may be the basis for possible approval.

Having said all of that though we need to explore this with the agency.

POSIDUR remains a large commercial opportunity, and it is largely driven by reducing the opiate use after surgery, and their associated side affects.

It is better for patients and potentially can offer large healthcare savings opportunity.

There are over 70 million surgical procedures every year in the United States, and we estimate that between 10 million to 20 million of these procedures offer the potential market for POSIDUR.

The pricing is yet to be determined, but our market research suggests that $250 or more per procedure would be based on the reduction of the narcotic use and side affects associated with that.

We have a partnership with Hospira in the US and Canada.

We selected Hospira because they are a leader in hospital-based products.

We received $27.5 million up front with regard to this product and we have potential future milestones of over $185 million.

We also received strong double-digit royalties for this product.

We are into discussions now in Japan with regard to potential partnering opportunities, and we also are pursuing partnerships for Europe and other territories around the globe.

Now an update on ELADUR.

Earlier this week we learned from Pfizer that they were be returning the rights to ELADUR back to DURECT.

Our strategy is to seek approval for this product for Post-Herpetic Neuralgia pain.

This is an indication for which we have orphan drug status, and we have a 60-patient Phase 2b study with some nice efficacy data.

We will be seeking a new partner for ELADUR.

Now an update with regard to Relday.

Relday is our first feasible inter program to advance to a development agreement.

We have a partner here in Zogenix.

It is a large opportunity with the anti-schizophrenic market over $16 billion.

And the injectable product that is a leader there is Risperdal Consta which is $1.5 billion for J&J.

Relday would be the first month to month product for Risperidone.

Its patient and physician-friendly treatment offers a nice advantage with regard to this kind of therapy.

It is a needle free injector, subcutaneous delivery, versus an IM injection with a 21-gauge needle, once a month versus every two weeks.

So a much simplified dosing regime.

We are getting closer to submitting the IND and expect to have the Phase 1 conducted this year.

Brief update with regard to our ORADUR-ADHD program with Orient Pharma.

Here we have conducted multiple Phase 1 studies, and we think we are getting closer to selecting the lead formulation that we will take into Phase 2 and Phase 3 trials.

This formulation will hopefully be selected later this year.

This is a deal in which Orient Pharma will be paying for the clinical efforts here through the first Phase 2 study, after which we will be either taking it forward ourselves or seeking a partner.

And this is one where Orient Pharma have the rights to southeast Asia, with a royalty back to ,us and we have the rest of the world free and clear.

To summarize the potential key drivers for DURECT over the next 12 to 18 months for REMOXY is to support Pfizer to complete the activities required for a timely resubmission to the complete response letter, and if approved, launched then by Pfizer.

For POSIDUR, it is the pre-NDA meeting with the FDA, and depending on the FDA feedback submission of the NDA in this year.

For ELADUR it is seeking a new partner and refocusing the development on the original post-herpetic neuralgia strategy.

For TRANSDUR-Sufentanil it is establishing the commercial and development strategy and a potential partnership.

For Relday it is initiating the Phase 1.

And with potential of numerous new collaborations POSIDUR in Japan and the rest of the world, outside the US and Canada for Sufentanil patches worldwide, ELADUR worldwide, and the ORADUR-ADHD also for the US and Europe, as well as other undisclosed programs.

We are also looking forward to advancing our other programs, that is of course the other ORADUR opioids with Pfizer, the ORADUR-ADHD program, and our biotech feasibility projects, and other undisclosed projects.

With that, I would like to open it up for questions.

Thank you.

(Operator Instructions).

Our first question comes from the line of Edward Nash.

Please proceed with your question.

Hi, good afternoon, guys.

Thank you for taking my question.

I wanted to ask with regard to POSIDUR, so when you have your pre-NDA meeting with the FDA, and let's say the FDA comes back and wants you to run additional clinical trials, can you let us know, is there any obligation for Hospira to burden any of that cost?

And if so what would that be?

And if not, is this something you guys could potentially do on your own in case Hospira decides to bow out, and if they decide to not to go ahead and pay for this second trials here, would they still be able to be your partner and be able to reimburse you after the results?

What exactly are the negotiations with respect to that with Hospira?

There aren't specific negotiations with regard to that.

Post the meeting should the FDA require another Phase 3 trial, then we would look to conduct such a trial.

The way our partnership is currently structured with Hospira, they would be truly our partner there and pay for half of that trial.

Should they be not interested and bow out then we would bear the full burden of that, and they would no longer be our partner.

That is basically the way it would work.

Okay.

So pretty straightforward.

And with regard to ELADUR, is there any additional color?

Is there just a reprioritization?

Why Pfizer would return the rights to it?

They are a big, complex organization.

I think they took their time which makes me feel somewhat good about the product.

I know it went very deep into their review process and into their budget process for this year.

But it didn't go all of the way through.

They had other priorities they chose to spend their effort on.

Nonetheless it is a wonderful asset, shows great efficacy for post-herpetic neuralgia.

We think it has great advantages over Lidoderm out there, less breakthrough pain.

Potential you can wear it in the shower and exercise, and all of the things that we liked about it initially that lead to the deal we did with Alpharma.

And at that time just to remind you, I think we had at the peak point about a half a dozen large pharma companies looking at this product.

So I think it is a good opportunity, and we will have to see where it goes from here.

Great.

My last question is what was their up front money?

Was there any up front money they had given you on that program?

Yes, Alpharma had paid us $20 million up front.

Great, thank you very much, guys.

Sure, you are welcome.

Our next question comes from the line of [Geoffrey de Siebert].

Please proceed with your question.

Good afternoon.

So coming back to POSIDUR again, could you give us a little more color on where you are in the process of putting together your safety and efficacy studies, and when you think these might be complete, and what information you may be prepared to share with us?

Sure, actually what I will do is I will introduce Dave Ellis.

Dave is a colleague of ours, who is our Chief Medical Officer here.

He has many, many years of experience an MD, PhD, has been associated with seven different NDAs.

Dave is the quarterback on this.

I will let Dave speak on that.

We are essentially complete with our integrated safety analysis plan, and the data management group we are working with is actually starting to generate integrated adverse event tables, and so on.

That is pretty far along.

For the integrated efficacy summary, we have come to an agreement between ourselves and Hospira, which trials we will include as pivotal and how the combined studies will be structured.

And this information has gone to our data management group, who are in the process of finalizing the analysis plan for efficacy.

And for all of our data both for our most recently completed trials, as well as our pivotals and other legacy trials, they already have the fully structured analysis files and databases so that is all ready to go as soon as we get our analysis plan finalized.

I suspect in the next month or so that will all be complete, and we will actually start generating data before we go to our meeting with the FDA.

Thanks, Dave.

(Operator Instructions).

Gentlemen, there are no further questions in the queue.

I would like to hand it back over to you for closing comments.

Well, if there are no further questions, at this time --

We did just get another question, I am sorry.

It is a follow-up question from the line of Geoffrey de Siebert.

Please proceed with your question.

Sorry about that.

I dropped out on the question queue there.

So as a follow-up to the comment on POSIDUR, can we take it that as far as the safety plan now that data are complete, there are no adverse affects, and as far as that section of the submission, you feel very good about it?

That is correct.

Certainly the systemic adverse events are there is really no difference between that and our control agents either.

Our SABER placebo or Bupivacaine hydrochloride itself, so the systemic is clean.

Alright, thank you.

And so you think you might have the comparable data out of the efficacy study by the end of March?

Geoffrey, I think this is where given that we are working with Hospira I don't think we can't get too specific with regard to those things.

But I think Dave has given you a lot of color with where we are.

I think we are on track for a mid-year pre-NDA meeting.

Probably safe to say that.

Alright.

And as a further follow-up, you had indicated that some of your degree of comfort with the main thesis of why a POSIDUR NDA could be submitted based on what you currently have, you went out to some thought leaders in the industry.

Can you put some more color on that, and share with us who some of these people are, and why they have given you the level of comfort you believe you have?

We won't be able to share the names with you, but the why is they reviewed the data just as we do, and they sit down with us and our partner Hospira.

And we look at all of the efficacy, and the information that we have from these various trials.

And that is where we have drawn the conclusion that Dave was just outlining to you.

That we are going to submit to the FDA both the hernia and shoulder trial as pivotal trials.

We haven't quite defined the strategy, but we may be kind of soft tissue-hard tissue, that kind of thing.

We are still nailing that down.

It will probably be along that vein.

Alright.

And could you on a different subject, could you comment as to where you feel you are in terms of any other potential collaborations that might evolve into something like the Zogenix transaction?

The feasibility deals maturing to development deals.

I think we always have a number of feasibility deals ongoing, and because they are researched you can never project for sure.

I think we have certainly an opportunity for one that may well mature that far this year.

Can't say absolutely, but I think it has got a shot.

And of course now with the development programs that we have, we have a number of opportunities there as well.

So I think there is a good chance that we can bring some BD money in this year, and take that $12 million that Matt talked to you about down.

That would be certainly our objective.

Thank you very much, gentlemen.

Sure, thank you.

Now there are no further questions in the queue, gentlemen.

Okay, well as always, if people think of additional questions later, or just want to ask it one on one, feel free to call management, and we would be happy to spend time with you.

Thanks again for participating.

Ladies and gentlemen, this does concludes today's teleconference.

Thank you for your participation.

You may disconnect your lines at this time, and have a wonderful day.