DURECT Corp (DRRX) 2012 Q1 法說會逐字稿

Greetings, and welcome to DURECT's first-quarter 2012 earnings conference call.

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 is now my pleasure to introduce your host, Matt Hogan.

Thank you, sir.

You may begin.

Okay, good afternoon.

Welcome to our first-quarter 2012 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 the business.

We'll 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 in development, expected product benefits, our development plans, future clinical trials, or projected financial results.

These Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those of 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 turn to our financials briefly.

Our total reported revenue according to GAAP was $41.2 million in the first quarter of 2012, as compared to $8.6 million in the first quarter of 2011.

However, that figure reflects the accelerated recognition of $35.4 million in deferred revenue associated with previously paid up-front payments from terminated agreements.

A better figure probably would be that our revenue excluding this deferred revenue would have been $5.8 million in the quarter.

And the rest of my discussion is going to exclude this $35.4 million, which is a nonrecurring and non-cash recognition of deferred revenue.

Excluding all deferred revenue recognized for up-front fees from our agreements, revenue from our R&D collaborations was $2.9 million in the first quarter of 2012, as compared to $3.5 million in the first quarter of 2011.

And revenue from that source is always going to fluctuate from quarter to quarter depending on the state of development under the various programs and what role we play in those programs.

Product revenue from the sale of ALZET pumps, LACTEL Polymers, and Excipient's used in REMOXY were approximately $2.9 million, as compared to $3.1 million in the first quarter last year.

Our gross margin on these products was around 49% in the first quarter of 2012, and these product lines continue to be strongly cash-flow positive for us.

R&D expense was $5.6 million in the first quarter 2012, as compared to $9.9 million in the first quarter 2011.

SG&A expenses were $3.3 million in the first quarter this year, as compared to $3.7 million in the first quarter last year.

And as a result of the above, our net loss for the first quarter 2012, again excluding that $35.4 million recognition of deferred revenue, declined to $4.6 million, compared to a net loss of $6.4 million for the same period last year.

Our net cash consumed during the quarter was $4.4 million, so that at March 31, 2012, we had cash and investments of $26.4 million.

This is pretty much on par with our budget for the year, and we have essentially no debt other than normal liabilities associated with running the business.

I'd note we have multiple programs that may potentially be partnered over the next 12 to 18 months.

These include TRANSDUR-Sufentanil, POSIDUR, ELADUR, ORADUR-ADHD for the US and Europe, and various feasibility studies we hope may mature into development agreements, much like Relday did last year.

Just one other thing I would like to mention.

We have a universal shelf registration statement in place that is due to expire in May.

This was originally put in place three years ago, and it provided for potential financings of up to $75 million.

These shelf registrations automatically expire after three years.

As we don't think it makes sense for any public company not to have an effective shelf in place, we'll be filing a new shelf registration statement for up to $50 million at the same time as when we file our 10-Q, basically to replace the existing expiring shelf.

I wouldn't infer from that action that we have any intentions in the near term to do a financing.

It's just a standard tool to have in our arsenal as a public company.

Thanks again for joining the call, and I'll now turn it over to Jim for other matters.

Thank you, Matt, and hello, everyone.

I'll now provide an update with regard to our most significant recent events.

Starting with REMOXY, here we are continuing to work with our commercial partner, Pfizer, and they are committed to moving the program forward.

This quarter, they gave some detail on their action plan for REMOXY, including a planned FDA meeting in the third quarter.

We announced today that we received important patent issuances that protect REMOXY and the other ORADUR-based opioids out through at least 2025.

With regard to POSIDUR, we're pulling together the integrated summaries of safety and efficacy for this program.

We've scheduled a pre-NDA meeting for this summer, and pending a positive outcome from that meeting, we expect to submit the NDA this year.

Now let's go into a little more detail with regard to these programs.

REMOXY, as you know, is an ORADUR formulation of oxycodone that allows for 12 hours of extended release and as well, tamper resistance.

Our ORADUR technology products are designed to be tamper resistant to multiple mechanisms of potential abuse, such as snorting, smoking, injecting, or trying to dissolve them in drinks such as alcohol.

The most recent Pfizer communication with regard to REMOXY was from Olivier Brandicourt, who's the President and General Manager of Pfizer's Primary Care business.

This was on January 31 of this year during their fourth-quarter earnings call, where he stated that they now had a much better understanding of the formulation, the manufacturing controls, and what they needed with regard to analytical tests.

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

Today, we announced the issuance of four ORADUR patents.

Three of these were composition of matter or formulation patents, and one regards the methods of making an opioid-containing formulation.

Coverage from these patents goes out at least until 2025.

We have other pending applications that could go out to 2028.

And additionally, we may be eligible for patent-term adjustments and extensions for these four patents that we described today.

In Europe, we have issued patents that go out through at least 2023.

While we always had confidence that these most recent applications would issue, it is significant that we now have coverage for such an extended period of time.

Just as a brief reminder with regard to potential financial impact of REMOXY to DURECT, one looks at the worldwide OxyContin sales.

They're on an annual basis around $3.7 billion, with about $3 billion being inside the United States.

We will receive between 6% to 11.5% of sales that Pfizer will achieve with this product, with the 11.5% being right around $1 billion in sales.

So if Pfizer is able to achieve somewhere between 30% and 50% of this current market opportunity, it would mean to DURECT somewhere between $70 million and $130 million a year.

Just as a reminder, as a Company, we have consumed over the last eight years about $11 million a year.

As a Company over our whole history of 14 years, about $13 million a year as a Company.

A brief update with regard to our other ORADUR opioids.

We have three other narcotics within the alliance with Pfizer and Pain Therapeutics.

Those products are Hydrocodone, Hydromorphone and Oxymorphone.

Two of these product candidates have been in Phase I, and the third has an IND filed.

The overall opportunity for these is quite large.

The market opportunity here is probably in excess of $1 billion, and they have, of course, the order features that we attribute to this technology and that is the extended-release dosing, as well as the tamper resistance.

Additionally, we have an ORADUR-ADHD program with our partner, Orient Pharma.

In this program, they are funding the program through the completion of the first Phase II trial.

They will have the rights to the product with a royalty back to us for southeast Asia.

We would retain the rights for the rest of the world, including Europe and the US.

This is a quite large opportunity, probably in the range of around $4 billion market size.

Features are, of course, the once-a-day dosing and the tamper resistance.

We're currently conducting Phase I studies and plan to select our formulation for Phase II this year.

Now I want to talk about POSIDUR.

POSIDUR is a post-op pain-control product.

It offers a new paradigm for post-op pain control.

It's designed to locally deliver Bupivacaine for three days post-surgically.

It has the added potential benefit of reducing narcotic use, as well as the associated side effects and costs and the potential for earlier hospital discharge.

Our regulatory strategy for this product is a 505(b)(2).

Here, we're leveraging off a long history of use of Bupivacaine, and the 505(b)(2) strategy requires establishment of safety, as well as one well-controlled efficacy trial.

For POSIDUR, we have a very nice, well-controlled trial in our hernia trial that was conducted down in Australia.

It was a 120-patient trial.

Here we have a 30% improvement in pain score for three days.

We have a 70% reduction in opioid use over these three days, including looking at hours 24 to 48 and 48 to 72 separately.

You can see very nice 70% plus reduction in narcotic use.

Both of these, the pain reduction and the narcotic reduction, are statistically significant as compared to placebo.

We had intersections with the FDA with regard to this hernia trial, and just to give you some feedback with regard to that, this was about a year and a half, probably over two years ago now.

A good trial, but they felt it was mostly in young, otherwise healthy men.

Before they would want to see an NDA submitted, what they wanted us to do was to test the product in more women, as well as in older and sicker patients, and explore the safety of the product in larger wound sizes, as well to establish the cardiac safety at this dose.

That was really a lot of the design around BESST with regard to safety, including the 300 patients that all wore Holter monitors and the like, that was all built around this, as well as the selection of the models within BESST, where all these patients, the [lapsed] patients, actually had wounds that were up to 12 inches in length.

This led to our clinical-trial designs, as I just recently stated, with regard to BESST, as well as other trials.

That as a whole, this program now has over 1,000 patients involved in our trials, with over 680 being dosed with POSIDUR in multiple surgical models.

While BESST was being conducted, we completed a shoulder trial in the EU.

And this trial demonstrated a 19% improvement in pain scores over three days, as well as a 67% reduction in opioid use over the three days.

Those are both statistically significantly versus placebo.

For our next steps with this program, what we're going to be doing is finalizing our integrated safety and efficacy reports that will tie together the entire body of work we have conducted with POSIDUR.

We will be holding a pre-NDA meeting with the FDA this summer, and pending a positive outcome from that meeting, we plan to submit the NDA in 2012.

The logic for this submission is first off, we believe that the overall program shows a positive risk-benefit ratio for POSIDUR and qualifies under the 505(b)(2) status.

At this point, we don't see any 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 reduction of pain scores for over three days.

We will position our hernia and shoulder trials as well-controlled efficacy studies, and these will be supported by the trends towards efficacy from BESST and our other trials.

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

Having said that, we still need to explore this with the FDA.

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

It's better for patients, with potentially a large healthcare savings cost.

We have estimated, in fact, by looking at a discharge-ability index from our hernia trial, that assuming a $1,200-a-day hospital bed, we'll be saving about $620 per day per patient using POSIDUR.

There are over 70 million surgical procedures per year in the United States.

We have estimated that 10 million to 20 million procedures might be the potential available market for POSIDUR.

Our pricing is yet to be determined, but our market research suggests $250 or more per procedure based on the reduction in opioid use and side effects.

Because of the potential for a significant reduction in opioids and pain for three days, it's an exciting product concept for the surgeons, the anesthesiologist' s, as well as the payers.

Additionally, we recently had patents issued for POSIDUR that go out at least 2025 for both the US and the European markets.

Now I want to talk about our two patch programs, starting with our TRANSDUR-Sufentanil program.

This is a very wonderful product.

The market opportunity for this product is probably over $1 billion.

It is for treating chronic pain.

We have a number of advantages over the market leader here.

Here we have seven days versus two to three days for the Fentanyl patches.

We're about one-fifth of the size of the Fentanyl patches, and we have sufentanil as an active agent versus Fentanyl.

Sufentanil is about one-tenth the dose, so it's a much more potent molecule, but the other side of it is it has a very wide therapeutic index as compared to Fentanyl.

And we have seen some of this evidence the -- suggested with regard to some efficacy and some side-effect profiles that we have had from a number of different trials that have been conducted.

In fact, there was a head-to-head trial done with Fentanyl patients and OxyContin patients that had been converted over to our patch, and we saw an actually statistically significant improvement in pain over a month after conversion.

So this program is poised to move into late-stage development.

Over 300 patients have been dosed in 10 different trials, and we here at DURECT retain the worldwide rights, although we are in licensing discussions with regard to this product.

With regard to ELADUR, this is a Bupivacaine three-day patch.

The market opportunity here is again substantial, in excess of $700 million, $750 million.

It's for local neuropathic pain.

Here the advantages we have would have over the market leader, in this case it's LIDODERM, would be that we are a 3-day product versus 12 hours.

We hopefully won't have the break-through pain that one sees with the 12-hour products.

We have a much more patient-friendly design.

That is, one can wear our patch while exercising, in the shower, going for a swim, that kind of thing.

As well, we have orphan drug designation for this product, for PHN, or post-herpetic neuralgia.

Programs in Phase II, about 300 patients have been dosed as well.

And we've retained worldwide rights and just starting a business conversations with regard to that product.

With regard to earlier-stage programs, our injectable depots and our feasibility work, here we are looking to create some biobetters.

We're looking to deliver injectable proteins and peptides for up to a month from small-gauge needles through the subcutaneous injections, with volumes in the range of 250 microliter's to an ml.

We have multiple feasibility programs ongoing.

One feasibility program that matured into a full-blown program last year is our Relday product.

This is one that is partnered with Zogenix.

This is a once-a-month Risperidone product.

It's a needle-free, once-a-month product that we think offers a nice opportunity versus the market-leading injectable product today, which is about $1.5 billion in sales.

And that is a 21-gauge needle that has to be delivered IM.

So just to summarize, the potential key drivers for DURECT over the next 12 to 18 months.

For REMOXY is to support Pfizer to complete activities that were required for the re-submission of the NDA.

If approved, of course, launch by Pfizer.

For POSIDUR, it's a pre-NDA meeting with the FDA this summer, and depending on the FDA feedback, submission of the NDA this year.

For ELADUR and TRANSDUR-Sufentanil, it's seeking new partners and resuming development.

For Relday, it's initiation of Phase I this year.

For the ORADUR-ADHD, it's selection of the Phase II formulation this year.

Then we have a number of potential areas where we could establish new collaborations, that is in the area of POSIDUR, the sufentanil patch, and ELADUR on a worldwide basis, and the ORADUR-ADHD programs in Europe and the US, as well as there is the potential that one or two of these feasibility programs may mature into full development program.

With that, we would like to close the formal presentation and open the floor up for any questions you may have.

Thank you.

We will now be conducting a question-and-answer question.

(Operator Instructions)

Jim Molloy.

Thanks for taking my question.

I wondered if you could share with us -- I know Pfizer didn't mention REMOXY on their first-quarter call, and there may be limited information that Pfizer would let you talk about.

But is there any further communication that you can share with us on the outside about the REMOXY program?

I don't think we can at this point in time.

I think their first-quarter call, from what we can discern, was pretty well dominated by their recent financial maneuverings and their sale of the nutraceuticals business.

Yes, the only thing about it we can say is just to reiterate that the bio availability states are ongoing now, and we look forward to the FDA meeting in the third quarter.

And hopefully they will communicate more after that.

I expect that they will.

Okay, great.

And then perhaps if you could talk to -- your clinical program -- the programs in development.

As you are looking at outlicensing or what have you, is there a way that from the outside one might rank which may more likely than another, or which looks better, on a outlicensing basis than another?

It's interesting.

We -- it's always -- I never want to project one deal versus another, because you never know as we're running it.

But there is one particular program that we are -- we have a lot of conversations around right now.

That is one of our patch programs, and it has been out there for a while.

But there is a lot of interest, and so I'll just leave it at that.

But I would not guarantee anything unless we get a deal.

That certainly makes sense.

Thank you very much for taking the questions.

[Jeffrey DeSiebert].

Several questions for you.

Couple of questions first for Matt.

Matt, $4.4 million cash burn in the first quarter.

I think that the idea was to try and bring 2012 back towards a $12 million cash burn.

Can you give us any color as to whether you think that is still going to be an achievable number for 2012?

Yes, we think it is.

I think that the first -- you can't take $4.4 million and multiply by four as the real run rate.

We always knew the first quarter would be highest, and there are two reasons for that in particular.

The first is we had some invoices that are carryover from the Phase III for POSIDUR, and those had to be paid in the first quarter, but now that is behind us.

And then the second thing is, as you know, we did a reduction in force and reduced headcount during February, but you don't get the real benefit of that until the following quarter.

Because in the quarter you did it, a, it happened part way through the quarter, and B, you have severance payments and things like that, so you don't really see it until the second quarter.

My answer is we do expect the second-quarter burn rate would be lower than the first quarter, and we think we can do about approximately $12 million.

That is about the right number.

Again, always assuming no new milestones, no new business development deals, of course.

Right.

Thank you, Matt.

The next question, tell us on the ALZET, et cetera line, do you think that's still got some growth potential in it?

It seems like recently growth has slowed down and margins have deteriorated a bit.

Can you share any thoughts with us on that?

From the top-line perspective it's always -- the scale of both of these is relatively small.

It is really easy to get a lumpy quarter, either in your favor or against your favor, but you shouldn't necessarily extrapolate from that.

The first quarter happened to be a little bit soft revenue-wise for ALZET in Europe.

But we don't think that is a long-term trend.

And in a previous quarter once, we had some softness with LACTEL, and it was purely because they didn't ship.

They weren't in a position to ship some orders, and then the following quarter they were able to ship them, and then it counts as revenue.

So I think the answer to your question is from a top-line perspective, I wouldn't read much into the little dip in the quarter.

The main growth out of all those is going to be LACTEL, probably more than ALZET.

With respect to your gross margin question, the ALZET business inherently has a higher gross margin.

To the extent that its sales dip a little bit, that'll bring the overall gross margin down, if you follow me.

But again, I don't think there's a long-term trend there.

And I think the LACTEL margins, while inherently a little bit lower at this point in time, as their revenues grow, because more of their costs are fixed, then the gross margin within that product line will expand that, too.

All right.

Thank you.

Turning to Jim.

Jim, coming on to POSIDUR, right?

So after the surprising news of the Hospira decision, and the -- all of a sudden you now have essentially worldwide rights to the product, did the phones ring, or it's nobody seemed to really care, and your business development people are going to have to roll up their sleeves and pound on doors?

Can you give us any color on that?

Yes, I can give you a little color.

We have had some conversations with people, but I think both we and potential partners are looking forward to getting the feedback from the FDA meeting.

I think getting too serious before that doesn't make a lot of sense, because post-that, we'll have a good -- I hope a good road map as to what that NDA looks like and the timing of it all.

And so then one can look at the relative time to potentially launch of the product, or approval, and can start to discern the potential values and look to possibly putting a deal in place.

So, short answer is yes, there are a number of companies interested.

And we're going to hold our powder dry for just a few months here while we go through this regulatory process.

All right.

Thank you.

I certainly follow that line of thought.

I was just curious whether if the fact that the worldwide rights were available had triggered people to pick up the phone and say listen, this is interesting.

If the FDA conversation goes well, we would really like to sit down with you and talk in detail, or was it a big yawn?

No, I think definitely there is some interest in the product.

I think it will also, with Pacira being launched just this past month, I think people will be looking at that and seeing how does that product do, although we think we have significant advantages over them nonetheless.

They'll be looking at this because it will be the first product in its category out there.

And then as well, internationally, there's -- we have had numerous conversations as well, because there are some markets that won't wait for an FDA approval.

So there are some other markets that we're exploring the possibility of looking at putting in the distribution deal sooner rather than later and trying to exploit the product, even prior to approval in the US if that is possible.

There have been the perennial discussions with the Japanese for the last X years.

Yes.

Yes, Japan is not a fast-to-market kind of company -- country, sorry.

The first kind of new thing we heard that, your answer to that previous question, a little bit of activity on the patch side.

Was this a discussion that you have quietly been working on for a long time, or is it somebody who kind of came up out of the blue and said hey, we would like to talk to you about this?

We have actually been talking to a number of partners for quite a long time.

What we have been doing with regard to the programs, in particular the sufentanil program, really our focus has been to define the regulatory strategy, both in the US and outside the US, and we have done, I think, a really good job of that last year.

As we have achieved greater clarity, one can start to assign what is the cost in timing of making this a commercial reality.

And so that becomes, I think, a very meaningful piece to this whole puzzle.

All right.

And on your biobetter pipeline, earlier this year, you had expressed some hope that there might be another -- something that might stick it head above the parapet in a Zogenix-type deal.

Do you still have that sense of hope that something looks like it might mature?

I do, but you can never tell with these things.

They are earlier-stage programs.

So one month it looks like this, and then it looks like that.

One really has to keep working away at these things, and so I don't want to give too much hope for all this.

I think we have a number of these programs ongoing, and at some point in time in the future, one of them -- the next one will mature just as the Zogenix product did.

All right.

Thank you very much for answering my questions.

[Nick Farwell].

Thank you.

I have a quick question.

Matt, to what degree did the RIF, I think it was in February, reduce the collaborate research revenue potential for the balance of the year?

Another way to ask that is with $3 million in revenues for this first quarter, is that a run rate that we should anticipate roughly for the full year because of the RIF, or is that just some timing issues?

I think the RIF is disconnected from revenues.

The revenue arises if a partner is working on a program and there is a body of work that our scientists are supposed to do as part of the overall program.

Yes.

If that happens, we will have the people to put on it, and we'll generate the revenue.

If there is another part of the program where we don't have to be very involved, then we won't have the revenue.

That doesn't mean the program is not going forward.

It just means that they're doing a lot of the work instead of us.

Correct.

I understand that.

I don't think the RIF affects our revenue going forward, and it is going to fluctuate every quarter.

Right.

Because as I say, some programs were heavily involved for a period of time, and then other times were kind of --

We have done our bit, and it is up to somebody else.

So they're kind of disconnected.

Is there is some range that you would feel as a projected internal range of some kind that you think seems reasonable for this year versus the 22 last year?

I don't have anything in my fingertips.

I'd want to think about it before I said something and then felt bad about what I answered.

We've built our budget, which is bottoms-up, of course.

Yes.

Right.

Program-driven.

And it is our best guess of what the revenues will be for different projects, and we try to make sure that a certain portion of our R&D folk are covered, if you will, by partners.

Right.

And that is all consistent with the overall burn rate guidance we gave of about $12 million.

Okay.

Thank you.

(Operator Instructions)

It appears we have no further questions at this time.

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

Okay, we appreciate everyone's interest in the Company.

And if you have further questions, please do feel free to call any time.

Thank you.

Bye.

This concludes today's teleconference.

You may now disconnect your lines at this time, and thank you for your participation.