DURECT Corp (DRRX) 2012 Q4 法說會逐字稿

Greetings and welcome to the fourth quarter 2012 earnings call.

I would now like to turn the floor over to Mr. Matt Hogan.

Please go ahead, sir.

Hi, good afternoon.

Welcome to our fourth-quarter and year-end 2012 earnings conference 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 the 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 in development, expected product development benefits, our development plans, future clinical trials or projected financial results.

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

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

Let me now turn to our financial.

Our total revenue was $3.3 million in the fourth quarter 2012 compared to a $8.9 million in the fourth quarter of 2011.

Excluding all deferred revenue recognized for upfront fees from our agreement, revenue from our R&D collaborations was about $700,000 in the fourth quarter of this year, as compared to $4.6 million in the fourth 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.

This drop was really driven by the fact that we largely finished our role in assisting Pfizer with respect to REMOXY, and we largely completed our role in to put Zogenix in position to run the Phase 1 study for Relday.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.4 million in the fourth quarter 2012, as compared to $2.5 million in the fourth quarter last year -- the previous year.

Our gross margin on these products was around 58% in the fourth quarter 2012.

These product lines continue to be strongly cash flow positive for us, and just to highlight that for a second, our total revenue for the year from these two product lines was $10.5 million and they generated $5.9 million in gross profit.

We also had a small amount of excipient sales in the fourth quarter that are reflected in product sales; more significant is that we had a larger shipment recently, which will show up as $270,000 in revenue in the first quarter of 2013.

R&D expense was for $4.9 million in the fourth quarter 2012 as compared to $7 million in the fourth quarter 2011.

SG&A expenses were $2.9 million the fourth quarter 2012 as compared to $3.2 million in the fourth quarter of 2011.

As a result of the above, our net loss for the fourth quarter of 2012 was $5.5 million compared to a net loss of $2.1 million for the same period in 2011.

Our net cash consumed during the quarter was $3.7 million, which was in line with our guidance during our Q3 earnings call.

As you know, in December, we did an equity offering, our first such financing in three years.

We issued 14 million shares to six institutional investors who knew DURECT quite well, and our net proceeds were approximately $11.6 million.

At December 31, 2012, we had cash and investments of $28.9 million compared to $30.8 million at December 31, 2011.

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

Let me now turn briefly to our financial guidance for 2013.

Our net cash consumption is heavily influenced by the timing and structure of new corporate collaboration, as well as outsourced pre-clinical and clinical expenses.

While we anticipate entering into new collaborations in the future, we think it's more conservative to give financial guidance based on an assumption of no new collaboration, no milestones and conservative assumptions of revenues coming from existing partner.

With those assumptions, our burn rate guidance is for approximately $14 million to $16 million for this year.

We hope to do better than that, but that seems like sensible guidance at the moment.

As a reminder, we have multiple programs that may potentially be partnered over the next 12 months to 18 months.

These includes transfers to fentanyl, where we have worldwide right; POSIDUR, where we have worldwide right; ELADUR with worldwide right; ORIDUR-ADHD, where we have US and European right; and various feasibility studies that we hope may mature into development agreements, much like Relday did last year.

One last comment, in an attempt to conserve cash, be conservative and have pay be aligned with performance, for the second year in a row, we did not pay cash bonuses at DURECT, and instead gave option, which, of course, only have value if we create shareholder value.

In addition, we had six vice presidents and [above], plus two other employees volunteer to take less salary for the coming year.

In return for which, they received options.

The six VPs I mentioned have done this last year, as well.

This year, also, each member of the Board of Directors volunteered to reduce their cash retainer by at least 50%, in return for which, they received option.

These actions collectively will save the Company around $380,000 this year, and about $630,000 if you count both years together, and we think it represents the Board and management of putting more skin in the game.

In addition, I just mentioned that last year, five officers or directors bought stock in the open market, which totaled over 380,000 shares.

With that, let me turn the call over to Jim Brown for a greater discussion of the rest of -- (technical difficulty).

Thank you, Matt, and good afternoon, everyone.

I am going to provide an update with regard to our most significant recent events.

With regard to REMOXY, we are working towards -- working with our commercial partner, Pfizer, and they are committed to moving the program forward.

Their meeting with the FDA is on track for late March.

For POSIDUR, we are working toward submitting the NDA near the end of March, and for Relday, Zogenix reports -- reported this quarter positive Phase 1 results in January, and then expanded that Phase 1 study to include a higher dose.

I'd like to look for a moment at recent developments in the [pain state].

We see new pain formulations that are using the 505(b)(2) process for regulatory submission add significant value to their respective company.

The first is with regard to MAP Pharmaceuticals; they have developed a new migraine formulation of an older drug, and the PDUFA date for that product is in the middle of April this year.

And they are being acquired by Allergan for over $950 million.

Additionally, Pacira have a new bupivacaine formulation that's getting on the formularies at about $285 per dose, and that product speaks the benefits of long acting local anesthetic for post-surgical pain.

Pacira currently has a market cap of over $700 million.

As well, the abuse of opioids remains a major public health care concern.

The FDA has issued guidelines now for tamper resistant [claims] for narcotics, as well, the FDA has held hearings on hydrocodone products and [scheduled].

In REMOXY, we have a tamper-resistant formulation of oxycodone with multiplicity of tamper-resistant quality.

And in POSIDUR, we have the benefits of reducing opioids after surgery, and this is substantial; what we're seeing with POSIDUR is 40% to 70% reduction in our two pivotal trials of narcotics when compared to the standard of care.

And our hope is that that would relate to -- translate to fewer narcotic prescriptions being written, as well.

But to get back to REMOXY; REMOXY is an order formulation of oxycodone that allows for 12 hours of extended release and tamper-resistant.

DURECT's order products are designed to be tamper-resistant, resistant to multiple mechanisms to abuse, whether one choose to snorting, or smoking, or injecting or trying to extract with a drink such as alcohol, we have a capacity to be able to resist these.

The status of REMOXY is one that we are working with Pfizer, and they are working to resubmit this product.

We have good confidence -- absolute confidence, quite frankly, in Pfizer; we believe they have a world class team working on REMOXY with expertise in manufacturing, quality assurance and regulatory affairs.

This program is in good hands to resolve the remaining issues that remain within the Complete Response letter.

Their approach puts an emphasis on thoroughness and interactions with the FDA that are as compelling and comprehensive as possible.

Pfizer remains on track for their late March FDA meeting to discuss the re-submission plan.

They don't want any surprises after submission, so they are reviewing their plan in advance with the FDA.

Based on feedback that Pfizer received from the FDA at that meeting, Pfizer will subsequently determine the next steps and/or required timing to respond to the Complete Response letter.

We don't know precisely when Pfizer will update after that FDA meeting, but at some point, perhaps the next earnings call, we expect them to do so.

We remain optimistic about getting REMOXY approved and launched, and that's what our sights are set on.

Just to put in perspective what this would mean to DURECT, oxycontin sales on a global base are over $3 billion.

DURECT receives royalties that start at 6% and go to 11.5%, with the 11.5% being around $1 billion.

So if Pfizer are able to achieve somewhere in the 30% or 50% market penetration, that we mean somewhere between $70 million to $140 million royalty to DURECT.

Pfizer also has the rights to three other narcotic drugs that would be delivered with our ORIDUR platform.

These products -- or these drugs are hydrocodone, hydromorphone and oxymorphone.

Two of these candidates have had Phase 1 work done, and our third has an IND filed.

Together, we think they represent an opportunity greater than $1 billion.

As well, DURECT is pursuing an ORIDUR-ADHD opportunity; certainly, the market for ADHD drugs is huge, probably in excess of $4 billion.

Our product would allow for once daily dosing, with all of our tamper-resistant characteristics that one finds with ORIDUR.

We have not yet disclosed what the API is, and here, we are working with Orient Pharma, and they are funding the product through the first Phase 2 study.

DURECT retains the US and European right for this product.

Currently, this product is in the Phase 1 trial, and the next step would be choosing the formulation for Phase 2 that we hope will occur this year.

Now, I want to talk about POSIDUR.

POSIDUR is really a new paradigm for post-operative pain control, in that it provides pain control and narcotic reduction locally for three days.

It's got the added potential benefits to reduce narcotic use and associated (technical difficulty) -- and the potential for earlier hospital discharge.

In fact, we have seen the potential for substantial reduction noted in our hernia trial, where applying a dischargability index, we were able to show about a $620 savings per patient by assuming a $1,200 a day hospital charge.

The next steps for POSIDUR are that our team is focused on submitting to the NDA near the end of March.

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

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

After submission, the FDA essentially has up to 75 days to accept the NDA submission, and if accepted, the FDA would then assign a PDUFA date that would be 10 months after the acceptance date, which is to say about a year after submission.

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

POSIDUR remains a large commercial opportunity, which is driven by the desire to reduce the use of narcotics after surgery and their associated side effects.

It is better for patients, has potentially large healthcare savings opportunity and it also has potential of addressing the narcotic abuse issue by potentially reducing the number of narcotic prescriptions written post-surgically.

There are over the 70 million surgicals -- surgeries per year in the United States; we see somewhere between 10 million to 20 million of these procedures as being available market opportunities for POSIDUR.

Our pricing has yet to be determined, but our market research suggests the price at somewhere north of $250, based on the reduction in narcotic use and side effects.

Because of the significant reduction to opioids and pain for the full three days after surgery, it's an [easy] project concept for surgeons, anaesthesiologists and payers to get behind.

Now, I want to talk about our two patch products.

The first is our TRANSDUR-Sufentanil product; this is a nice product opportunity.

The market area is well in excess of $1 billion; it's for chronic pain.

The features of our product versus the market leader, which are the fentanyl patches, is that we are seven days versus two to three days.

We're about one-fifth the size; quite a small patch in relationship.

We've recently, over the past year, had significant -- or made significant progress with the issuance of patents that support this product, and that has been a very important milestone for the product.

We've had three issued US patents last year that protect this product out to 2025 and beyond, and one European patent that protects the product to 2025 and beyond.

The product's in Phase 2, the worldwide rights are held by DURECT, and we currently are in licensing discussions with regard to this product.

ELADUR is a three-day bupivacaine patch; the opportunity here is also quite large if one looks at the market leader here, Lidoderm, with sales with excess of $800 million.

The opportunity is local neuropathic pain.

The features that we have here is 3 days versus 12 hours and a very patient-friendly design, that is you can shower with our patch, go for a swim, exercise with it, it'll stay on.

We have got orphan drug designation for it, and most recently, in fact, as recently as December of last year, we have a US patent issued on this product that protects the product out to 2031 and beyond, and one European patent, also issued last year that protects us to 2027.

Also in Phase 2, with worldwide rights held by DURECT and we are also in live discussions for this product.

Relday is another nice opportunity for DURECT here; once again, a big market with the -- there's an injectable product for schizophrenia out there containing risperidone that is at $1.6 billion in sales.

And so what we would be offering would be a first once a month risperidone product here.

It's a patient and physician friendly opportunity to treat schizophrenia, and it's subcutaneous versus the market leader, which is [Dyam].

No drug reconstitution is required, and a simplified dosing regime, as it's once a month rather than every two weeks.

And having to wait for the product to actually take effect, our product works right away, right after injection.

This product has been partnered with Zogenix.

In January, we had a nice readout -- or Zogenix did from the Phase 1 trial.

It was a single-center, open label trial; the safety and PK trial that involved 38 patients with chronic stable schizophrenia.

The positive data from the trial showed a favorable safety and PK profile that was demonstrated with a 25 milligram and 50 milligram dose for once a month use.

Zogenix quickly then extended the trial to the 100 milligram dose, with the study expected to complete in the second quarter of this year.

This will enable evaluation of the [dose for] proportionality across the full range that would be anticipated to be used in clinical practice.

If the data are positive then from this extension of the Phase 1, the next step would be a multi-dose Phase 1 study, and then Phase 3. The timing, of course, for these depends on Zogenix.

So just in summary, with regard to REMOXY, Pfizer is holding a meeting with the FDA in late March to discuss re-submission.

We will be working to support Pfizer to complete activities required for the re-submission of the NDA.

Once re-submitted, there will be a six month review by the FDA of that NDA, and if approved, it would be launched by Pfizer.

For POSIDUR, submission of the NDA near the end of the first quarter of this year, so near the end of March, and potential for the PDUFA date there, first quarter of next year.

Relday, stated from the Phase 1 extension in the second quarter, and then we look forward to starting the multi-dose trial.

And the potential for new collaborations for other programs, that would include then POSIDUR, the fentanyl patch, ELADUR, the ORIDUR-ADHD program and other undisclosed projects.

With that, we would like to offer the -- open up the call to questions you might have.

Thank you.

Ladies and gentlemen, we will now be conducting a question-and-answer session.

(Operator Instructions)

One moment, please, while we poll for questions.

Our first question is coming from the line of Mr. Jason Napadono.

Your line is now open.

You may proceed with your question.

Hey, guys.

Thanks for taking the question.

Just a question on the terms of the Phase 1 PK study you did with ORADUR-ADHD.

What have you guys learned from those studies that you could help -- essentially help Pfizer with, with REMOXY, and is there anything that Pfizer has learned with their PKBA studies that you guys can apply to your ORADUR-ADHD study?

They are both ORADUR, so that would be -- I could understand you're asking the question, but the fact of the matter is, the REMOXY product is basically at the goal line.

And all of the kinetics and viability and all that is very well understood, and a lot of good efficacy trials have been done, so that's well in hand and well defined.

For the ORADUR-ADHD, in this case, we are actually working with the kinetics of it to get the kind of product profile that we are looking for.

We haven't disclosed what that is, but these are -- [we don't want today] products, and so what we want is get a product that we think will be really exciting to the clinicians, but that also have the tamper-resistance.

I don't know, Felix, if you want to speak anymore to that?

It is clear that the lessons of REMOXY are obviously plowed into the development of the ADHD program, but the kinetics are different.

Yes.

They are both unique (technical difficulties).

Got you, okay.

And then just as far as -- maybe this is more of a question for Pfizer, but just from your understanding, any thoughts on how long you think it will take Pfizer following that meeting in March to, number one, provide an update to the street.

Where then, if they did decide to move forward, when they would be in position to make that filing?

Yes, I think with regard to when the [ONF], that -- I think you've got two opportunities.

The most reliable one would be their next earnings call, but there might be an opportunity if they're speaking -- if one of the guys are speaking at a conference between then and now, they may update -- make it a question, I don't know.

So that would be the -- with regard to communication.

As far as what they are going to be communicating, that is still to be determined because they have to have the meeting with the FDA and the whole purpose of the meeting is to define what remains to respond to that -- (inaudible).

Got you.

Okay, guys, that's all I had.

Thank you.

Good, thank you.

Thank you.

Our next question is coming from the line of Mr. Jeffrey [Decebert].

Your line is now open.

You may proceed with your question.

Good afternoon.

Three different questions.

First of all, coming back to the REMOXY point, given the relevance of any positive outcome at the FDA meeting to DURECT and pain therapeutics relative to Pfizer.

Have you discussed with Pfizer's public relations team the fact that you might have to make a filing, which Pfizer wouldn't necessarily have to?

Well, in concept, Jeff, we've had that discussion in the past and they know that.

We haven't wanted to bug them before the meeting about exactly what's going to happen after the meeting.

We won't be at the meeting, so it's not like we would be in a position to make a disclosure anyway.

I think it's really going to depend on what and when Pfizer was to inform us.

Maybe they're going to want to wait for minutes after the meeting from the FDA, we just don't know.

So I think -- but we haven't wanted to be obnoxious, if you will, and bug them before the meeting.

We thought we would let the meeting take place, and then engage in those discussions with them.

Yes, and if they want to wait for minutes on the meeting, that could take as long as six weeks, actually, to turn those around.

All right, thank you.

Matt, you shared with us the fact that you had some excipients ship last quarter and a more significant amount of have shipped this quarter.

Can you tell us -- can you share with us whether the preponderance of those excipients were related to REMOXY, related to the Relday -- the ORIDUR Relday product, can you give us any color?

Well, there is really only two projects where we recognized revenue from shipping those excipients.

One is with an animal health product that you may remember we got approved a few years ago, and that --

Right.

-- that's a very small dollar figure, and that is actually what shipped last year.

Our other major customer here is Pfizer related to REMOXY, so that is where the other amount comes from.

All right, thank you.

Coming back to POSIDUR, you stated pretty clearly that you expect to file the NDA by the end of the quarter, which is in about four weeks.

So is it safe to assume that barring acts of God, you know what is going on and it's going to be filed?

Well, I think what we are doing is we have got the team working on overtime to get the NDA put together, and they are doing a great job, and we are working with consultants on the outside, as we're a relatively small company.

So all of that work, it looks like all of the horses will be in the barn, and that is why we used the term, near the end of the quarter because we expect that it will be done by then.

But if it's a day or two late, that's not going to be the end of the world, but if not -- if it is, it will be a day or two late or something like that.

Thank you.

So coming back to discussions you've had regarding potential POSIDUR partners, can you give us any color as to what the criteria -- what the key criteria that are driving the attractiveness of a potential partner?

I mean, I'm sure the first one is how big a check can they write, but also in terms of their distribution capabilities, etcetera.

What are the things that are driving your thought process in terms of who to talk to?

We first, of course, look for people that are already in the hospital space and that kind of thing; that's a logical place to look.

But this doesn't require a substantial build to move into the place, so one could certainly build a commercial team to get this done.

This is something we considered very seriously if REMOXY hadn't been delayed, that Direct would take this on.

So it's certainly something that can be built, as well.

We have seen it obviously, in spades with Pacira, right, I mean, they've taken on additional dilution and have 60 sales reps and they are doing quite well, and their market cap has doubled, if not, tripled in the last eighteen months.

There is a lot of value here, Jeffrey, so what we are trying to do, really, at this point in time, is to make sure that we capture as much value from this product as we can for our shareholders.

I think that's the number one focus, knowing that we can bring to bear and others, the capacity to commercialize this product.

We think there's going to be substantial differentiation between this product and Pacira's product, and that's of course, right out the gate, is the difference in narcotics pairing.

We're staving narcotics for the full three days, we're substantially -- statistically significantly reducing narcotics.

They aren't beyond, really, 24 hours, if they're doing that.

We have pain reduction for the full three days.

We're dosing with more drug, yet having less than or equal to systemic exposure, so we think we have got a lot of advantages.

We have done more challenging, larger surgeries than they have, so we think our sales force, or whoever is the sales force that sells our product, will have a good leg up and we want to make sure that our partner would also understand that and take that same approach.

So, as a follow-on, you obviously can't go into many details, but can you share with us whether you've found that over the last few months, the level of interest and excitement among prospective partners is rising?

Have you got people who really are engaged in the process and well down the pipeline, or is -- are you still very much at the early in exploratory phase?

We are at all phases.

We certainly have people that we've been talking to for a while.

There has been -- I think the excitement has really grown since the FDA meeting, and that has continued, so we have people at multiple layers -- at levels, I guess I should say.

And you never know, sometimes the first shall be last and the last shall be first kind of thing, right?

And we've seen that -- we saw that with ELADUR.

Where we had at that point in time, I think we had a half a dozen multi-nationals lining up for the product and little old Alpharma snuck in and offered a really nice deal.

And we really liked their commercial approach and the aggressiveness and the focus of their commercial team, and we ended up picking them.

Usually, as we get closer, we do kind of a beauty pageant kind of thing, where we'll have -- look at sales force approaches and that kind of thing to really start to determine the final selection.

And my last question, coming back to ELADUR and TRANSDUR, we've heard for quite a number of quarters that you're having discussions with the --

Sure.

Can you give us any color as to whether those really -- in either of those products, some life really is coming into the discussions and things are moving forward?

Yes, we wouldn't mention it if that wasn't the case.

If that wasn't the case, we'd just let them die quietly in the night, right?

The fact that we do bring them up and mention them means that we are in meaningful discussion.

I think it was important today to note the significant progress that was made with regard to patent, and that was all throughout probably the second half of last year, obviously culminating a year's worth of work.

But to have three patent issue for the Sufentanil patch that go to 2025 and beyond in the US and one in Europe, and to have 2031 and beyond for ELADUR, and 2027 for Europe, those are nice, nice pieces.

And it's nice to have a patented process, but it's way more important to have them actually issued and in hand, and that is what we are -- that's where we are now.

Also remembering the ELADUR patch, all of the data and all of the write didn't get back from Pfizer until late, late in the summer, so the process is relatively young there even though this feels like it has been stuck in limbo for a while.

Because it was with the acquisition of Alpharma by King, and then King by Pfizer, it has been kind of held up, unfortunately, in the card game there.

Thank you very much.

Sure.

Thank you.

Our next question is coming from the line of Mr. Nick Farwell.

Your line is now open.

You may proceed with your question.

I just have a quick follow-up question after Jeffrey, and that is can you give us the state of activity with the other three programs, order base platform programs at Pfizer?

Have they just focused all of their attention, at least initially on REMOXY, and because of other priorities perhaps not paid attention to these other products, or have they actually put some work behind determining whether they want to commercialize them or not?

Well, I think they do like the opportunities, and I think they're looking forward to commercializing.

But what their first and most important issue at hand is to resolve the issues around REMOXY and get that thing on the market as quickly as possible, so that's where they've put all of their efforts.

I think once that is done, then they'll be -- they look forward to looking at the other product, as well, but that's been their focus.

Even though they are a big company, and they are, they have everything compartmentalized just like everybody else, and they have budgets for this, that and the other thing, and they only have so many manufacturing and R&D people, as well.

And all of those resources that they have free in this area, they are putting to REMOXY.

Okay, thank you.

Sure.

Thank you.

(Operator Instructions)

It appears there are no further questions at this time.

I would like to turn the floor back over to Management for any closing comments.

Okay, and with that, I appreciate your participating in this call.

Obviously, as always, if you have questions, feel free to call us and we would be happy to chat with you further.

Take care.

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

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

Have a wonderful evening.