DURECT Corp (DRRX) 2012 Q2 法說會逐字稿

Greetings and welcome to the second quarter earnings 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 Mr. Hogan, you may begin.

Good afternoon and welcome to our second quarter 2012 earnings conference call.

This is Matt Hogan, Chief Financial Officer of 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 question-and-answer 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 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 in such forward-looking statements.

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

Let me now turn to our financials.

Total revenue was $4.8 million in the second quarter of 2012 as compared to $7.8 million in the second quarter of 2011.

Excluding all deferred revenue recognized for upfront fees from our agreements, revenue from our R&D collaborations was $2.1 million in the second quarter 2012 as compared to $3.2 million in the second quarter of last year.

Revenue from that 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 [occipiants] used in REMOXY were approximately $2.6 million in Q2 2012 and about the same in the quarter the previous year.

Our gross margin on these products was around 56% in the second quarter 2012 and these product lines continue to be strongly cash flow positive for us.

R&D expense was $5 million in the second quarter 2012 as compared to $8.7 million in the second quarter last year.

SG&A expenses were $3 million in the second quarter this year as compared to $3.3 million in the second quarter of last year.

So as a result of the above, our net loss for the second quarter 2012 declined to $4.3 million compared to net loss of $5.2 million for the same period in 2011.

Our net cash consumed during the quarter was $2.7 million.

So at June 30, 2012 we had cash and investments of $23.7 million compared to $26.4 million at March 31 and $30.8 million at December 31, 2011.

This is pretty much on par with their budget for the year.

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

And I note we have multiple programs that may potentially be partnered over the next 12 to 18 months including transfers to fentanyl where we have worldwide rights, POSIDUR, where we have worldwide rights, ELADUR, where we have worldwide rights, ORADUR-ADHD, where we have US and Europe rights, and various feasibility studies that we hope may mature into development agreements much like Relday did last year.

On one other minor note, since I've gotten a couple of phone calls on this matter, Curaxis, which was formerly known as Voyager, apparently declared bankruptcy last week.

We had a collaboration years ago with Voyager in the field of Alzheimer's.

In a news story that came out from North Carolina somewhere, DURECT was apparently reported as being a creditor in the amount of $1.7 million.

For some reason on their books they may have shown that figure as deferred revenue which is a liability but we have never booked it as debt owed to us or something we expected to receive back.

So our balance sheet is unaffected and we have no write-down associated with it and in summary the bankruptcy has no financial impact on us.

Thanks again for joining the call and I'd like to turn it over to Jim to discuss other matters in more detail.

Thank you Matt, and good afternoon everyone.

I'd like to update you now with regard to the most significant recent events for DURECT.

Regarding REMOXY, we are working with our commercial partner Pfizer and they are committed to moving the program forward.

They recently gave an update on REMOXY which I'll comment on it a moment.

For POSIDUR, we have had pre-NDA communications with the FDA and based on that input, we're planning to submit the NDA late this year or early next year.

For Relday, they started the Phase I recently.

Now let's go through these major programs in greater detail.

Beginning with REMOXY.

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

DURECT's ORADUR products are designed to be tamper resistant to multiple mechanisms of abuse, such as snorting, smoking, injecting, and/or dissolving in drinks.

John Young, the President and General Manager of the Primary Care business at Pfizer had their second quarter earnings call on July 31 made the following statements with regard to REMOXY, and I'm quoting him here.

"Based on the work completed by our technical team over the past several months, we remain cautiously optimistic we will be able to bring REMOXY to the marketplace.

We have preliminary results from two bioavailability studies that are currently being analyzed along with data from experiments designed to optimize the formulation composition and analytical methods.

Upon completion of these analyses, we will determine the timing of the nature of our engagement with the FDA to address the Complete Response Letter.

At this time we are certainly hoping to meet with the FDA in the fourth quarter of 2012."

This is a slight delay from the prior goal of meeting with the FDA in third quarter.

It looks like it took them a little longer to complete the second BA study, and that moved into August.

I don't think Pfizer wants to have any FDA interaction until they are fully prepared with the data in hand and can put their best foot forward.

Just as a reminder with regard to the potential financial impact of REMOXY on DURECT, the worldwide OxyContin sales for Purdue are north of $3.6 billion with over $3 billion being in the US.

DURECT will receive a blend of royalty on sales that starts at 6% and goes to 11.5%.

So if we look back at the 2010 market opportunity for OxyContin sales in the US alone, if Pfizer is able to achieve somewhere between a 30% to a 50% market penetration, it would mean in the range of between $70 million and $140 million royalty check to DURECT.

There are three other ORADUR-based opiates that are in the Pfizer collaboration.

The opportunity for these in total is most likely in excess of $1 billion.

The features are of course the extended-release dosing and the tamper resistant.

These three narcotics are hydrocodone, hydromorphone, and oxymorphone.

Two of these candidates have had Phase I work and the third has had an IND filed.

We look forward to Pfizer starting to develop and to work on the second narcotic within this alliance once REMOXY has been advanced.

As far as the ORADUR-ADHD program, here we're looking at a very large market opportunity probably over $4 billion total market.

Features we're looking at for this product is once-daily dosing with tamper resistant.

We have yet to disclose the API here.

Here, we're working with Orient Pharma; they're funding the product through the first Phase II study and the US and European rights are retained by DURECT.

This program is currently in Phase I.

Now, I want to talk about POSIDUR, our post-op pain control product.

Here with POSIDUR, we're offering a new paradigm for post-op pain control.

It is designed to control pain locally for three full days after surgery.

It has got the added potential benefit of reducing narcotic use and associated side effects and cost with potential earlier hospital discharge.

I'd like to give a little more color now with regard to our recent pre-NDA interaction with the FDA.

As we previously discussed our goal was to have a pre-NDA meeting with the FDA this summer.

In advance of this meeting, we sent to the FDA a three-volume briefing package containing our proposed ISS and ISE plans -- that's the plans for the integrated summary of safety and the integrated summary of efficacy.

These included preliminary data analyzed and our tables and listings and the like.

We also included the final reports for our two pivotal trials for hernia and shoulder surgery as well as a lot of other information.

And then we asked the FDA a series of detailed questions covering various chemistry, nonclinical, clinical pharmacology, clinical, and statistical topics.

Prior to the meeting we received back from the FDA a written preliminary response to those questions as well as some specific additional comments that the FDA had pertaining to the NDA.

When we reviewed the FDA's preliminary response to our questions, they addressed all of our questions at least to the extent that the FDA is willing to at this point.

For example, for a number of the items, the FDA determined that the item would be, in quotes, "a matter for review." Which means, they require a full review of all the data as part of the NDA before they can commit to a decision.

There were only couple of items that required further clarification so we set them a written response to their response.

When we received back their second written response, we felt like we'd received sufficient clarification to move forward with the NDA submission.

We thought their input and guidance was thoughtful and will be very helpful to our NDA.

Given the FDA's guidance we've received, our team is now focusing on finalizing the NDA based on all the data generated throughout our POSIDUR development program.

We will be pursuing a 505(b)(2) filing strategy which enables us to leverage the long history of Bupivacaine.

We think the data we generated is compelling, but it's the FDA that is the ultimate arbiter of the benefit-risk ratio of POSIDUR.

After the submission the FDA has up to 75 days to accept the NDA submission.

And if accepted, the NDA would then assign a PDUFA date to our application that would be approximately 10 months from the filing date, which is to say about the end of the year 2013.

As a reminder, any NDA submission is subject to a whole range of review of approval risks and POSIDUR will be no exception.

Just as a reminder with regard to the commercial opportunity for POSIDUR, we believe it's a large commercial opportunity driven by reducing the need for opioids after surgery and their associated side effects.

It's better for patients and potentially offers large healthcare savings.

There are over 70 million surgical procedures a year in the United States alone and our market research suggests that 10 million to 20 million of these procedures would be potentially procedures for which POSIDUR would be applicable.

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

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

Now I want to talk briefly about Relday.

Relday offers quite a large opportunity, over $1 billion market opportunity.

What our product offers is the first once-a-month Risperidone product.

It's a very patient-friendly and physician-friendly treatment for schizophrenia.

It's a needle-free and subcutaneous versus a 21 gauge IM injection which is the $1.6 billion product out there today.

We offer a more simplified dosing regime, that is the current product has to be injected every two weeks doesn't start working for two weeks.

Our product is once-a-month, sub-Q, needle-free, that's given once in the office and that's it till the next month; it start's working immediately.

Here we partnered with Zogenix.

The Phase I was started in July, the data are expected by year-end.

It's a single-centered, open-label, safety and PK trial that will enroll approximately 30 patients with chronic stable schizophrenia.

We're excited to have this program moving forward in the clinic and look forward to data this year.

I want to summarize with regard to key drivers over the next 12 to 18 months for DURECT.

For REMOXY, which Pfizer's planning to meet with the FDA in the fourth quarter of this year, we will continue to support Pfizer to complete the activities required for resubmission of the Complete Response Letter.

Once it's been resubmitted, it would be a six-month review by the FDA, and if approved, would then be launched by Pfizer.

For POSIDUR, it's submission to the NDA in late 2012 or early 2013, and a potential PDUFA date in late 2013.

For Relday, now that we have the Phase I initiated this past July, we look forward to data 2012 as well as Zogenix advancing the program.

We have the potential for new collaborations with POSIDUR, the Sufentanil patch, ELADUR, and ORADUR-ADHD -- for the first three, on a global basis, for the ADHD program, certainly in the US and Europe.

We have numerous feasibility projects and other undisclosed programs as well that we look forward to advancing.

We will now take any questions that you may have.

Thank you.

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

(Operator Instructions)

[Jeffrey DeSeibert. ]

Several questions Jim.

First of all, on the subject of REMOXY, I think those of us who have been following the story for a while and indeed the arrival of Pfizer will probably have been somewhat concerned by Mr. Young's use of the expression cautiously optimistic.

Is there anything that you are aware of in recent activities with regards to REMOXY that lead you to be less confident that you have been in the past about the ability to overcome the CMC issues described in the June 2011 letter.

That's my first question.

Thank you, Jeffrey.

I would say absolutely not.

I think it's important not to parse the words too finely here.

Pfizer is a big company and as they get closer to the FDA interaction on REMOXY, it's our suspicion that their lawyers and people from the regulatory side would prefer not to make any statements that are more definitive.

It's clear with us that they're working diligently and making really good progress with regard to compiling the data package for this FDA meeting.

I'll just use the EMBEDA case as an example.

They stated in their 10-Q from the first quarter this year that they had intentions to meet with the FDA with regard to EMBEDA in the second quarter.

I haven't seen the Q for this quarter so I don't know whether they met with the FDA or not but having made that statement they did say that they were confident post -- and my assumption here is that they have met with the FDA -- post that interaction, they made the public statement they're confident about resubmitting EMBEDA to the FDA in the first half of next year.

So it's our hope that post this FDA meeting that they would have the confidence to express more detail with regard to REMOXY.

Thank you.

And if I could follow up with a couple of questions on POSIDUR.

Certainly.

First of all, could you give us a little bit of color in terms of your interaction with the FDA?

I think you've said as much as you probably can, but in terms of the impact of preparing the NDA on the organization we saw a big decline in cash burn.

Is it likely that over the next six months the fact that you are going ahead with an NDA will change that situation, are you going to have to gear up or use more external consultants?

No, we've been flying at a pretty high pace, actually, with regard to POSIDUR so I expect that the burn will probably stay about the same.

Matt, if you want to speak --

That's our objective.

Yes.

I don't see that.

We've gotten really good feedback and I think we now have our marching plans in order.

All right and it's reasonable to read your prognosis as if things go well and you get lucky on a few things you will get it in before Christmas; if not it will be early in the new year.

Yes.

We are working at a very hard clip right now.

And just going to depend how things go.

We are, as you would suspect with a smaller-sized company, working a lot with outside vendors.

And the group, for example, that is putting together the electronic component of this NDA, once they receive the very final report they need an entire month to put that in place and then we of course want to quality check everything they put in place.

So even though you get down near the end time can slip away a little bit.

As a follow-up on POSIDUR again.

You've shared with us in the past that you've been having -- certainly discussions with prospective partners for Japan for some time.

Of course there has been the feeling that based on Phase III that might allow you to accelerate discussions.

Do you feel that this decision you've made to proceed with an NDA submission will help in terms of bringing forward any possible partnership discussions in Japan or elsewhere or on the contrary do you think this is now going to push -- give people incentive to just wait until the FDA gives you a decision?

I've had numerous inquiries from senior people in various companies both domestically and internationally as well with regard to this product.

Once we have certainly our understanding of the minutes that we sent off to the FDA, we'll get the final minutes back.

Those will be included in the electronic data room so any potential partners will be able to look at that input.

I would expect that there will be -- there continues to be, but there will be a lot of interest in this product from a potential business partnership standpoint.

Having said all that, that's one piece of it.

There are also markets around the world that don't require an NDA approval.

We spoke a little about this last quarter but there certainly are some nice markets outside the US that we are, after this NDA is done, going to be pursuing as well.

And if that would be the case then we may well be able to submit in those markets and then find a local distributor to be able to commercialize the product for us.

All right.

Thank you.

I'll return the floor to other participants who might have a question.

(Operator Instructions)

Nick Farwell.

Matt, the question may have been asked earlier but for some reason I couldn't hear it and that is, can you comment a little about what you think your cash burn may be in the third and fourth quarter relative to the 27 in the second quarter?

Typically, Nick, we don't go into every quarter what the burn rate guidance is.

At the beginning of the year we said we thought we would burn approximately $12 million for the year.

And that assumes we do not sign any new partnerships, for example.

Certainly in the second quarter we burned a little under $1 million per month, so we are consistent with that if we can maintain it for the rest of the year.

We don't see it really going up because of POSIDUR expenses.

But it's something we are going to have to stay vigilant on.

And I guess the last comment I guess I would make is if we could maintain it at about $1 million a month, and you take a look at our ending cash position at the end of June, it's approximately 24 months' worth of cash.

And if you have a burn rate at that level you can feel a little bit more comfortable living with less cash than you otherwise might.

So I don't want to be too granular but our objective is to remain pretty fiscally cautious in how we spend so I don't think we want to see the burn rate ramp up.

Thank you.

I appreciate it.

Hank Beinstein.

Jim, I have just one question.

You gave us the royalty range when REMOXY is approved at between 6% and 11% based on volume.

Are there any remaining progress payments that are due once the REMOXY is approved?

We do receive a very small milestone payment on approval, but it is quite small.

But the royalty rates, just to repeat, they start at 6%; they go to about 11.5% which is right around $1 billion.

They're annualized and we also manufacture a couple of the key ingredients for this product and those add about another 0.5% as well.

So the effective royalty rate, or effective payments back to direct for sale on this product would probably be, fair to say, 6.5% to about 12%.

Very good.

Thank you so much.

Nick Farwell.

Jim, assuming you obtain FDA approval for POSIDUR, what are your current thoughts regarding commercialization?

That's a really good question.

At this point in time, as I said earlier, we are talking to potential partners.

We have the good fortune now of owning a very late-stage asset.

We could have a case where we have an NDA submitted and don't at that point in time have a partner to help commercialize that and there are very few assets like that around especially for products that have the potential this product has.

Three days of pain control.

Remember, both in the hernia trial and in the shoulder trial we showed about a 66% or nearly a three-fold reduction in narcotics.

The hernia data are very clear even on day three, a three-fold reduction in narcotics.

And with regard to the shoulder study, about a 90% reduction is pain; hernia, about a 30% reduction in pain, all statistically significant.

It's a very meaningful product we think.

I think there will be a lot of interest, there already is a lot of interest for people wanting to help us commercialize this product.

And so my guess is that we will have some type of distribution partnership, some type of commercialization partnership in place.

That would be my guess.

There are too few of these assets out there in the pharmaceutical world and there are too many companies looking for assets.

To what degree does the FDA, have they stated that reduced opioid use is a strategic objective in terms of drug development?

You can't get approval for a product by making another product be used less, that kind of thing.

So we won't get any claims on our label and nor are we asking for any with regard to narcotic reduction.

We will be able to, upon approval, be able to put the actual data in there and if we have statistically significant data, those will be included in the package insert.

So people who use the product will be able to see, for example, from the hernia trial, on day three a statistically significant reduction in narcotics by whatever that is.

I don't know, Dave.

Do you remember the number?

62% overall.

62%, so that's a pretty impressive number, on the third day.

Thank you.

(Operator Instructions)

Mr. Hogan, there are no further questions at this time.

If that's the case would just like to thank people for participating and if you do have questions subsequent to this, please feel free to give us a call.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.