DURECT Corp (DRRX) 2013 Q1 法說會逐字稿

Welcome to the first-quarter 2013 earnings call.

Hello.

Good afternoon, and welcome to the first-quarter earnings call.

This is Matt Hogan, Chief Financial Officer, at DURECT.

This call, I 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 the call for a Q&A session.

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

During the course of this call, we may make forward-looking statements regarding DURECT's products and development, expected product benefits, our development plans, future clinical trials, our 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-Q under the heading Risk Factors.

Let me now turn to our financials.

Total revenue was $4.2 million in the first quarter of 2013 as compared to $5.8 million in the first quarter 2012 if one excludes the unusual non-cash revenue of $35.4 million recorded in the first quarter of 2012 that was related to terminated collaborations.

Excluding all deferred revenue recognized from upfront fees from our agreements, revenue from our R&D collaborations was $0.9 million in the first quarter 2013 as compared to $2.9 million in the first quarter last year.

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

This drop was driven by the fact that we had no revenue from Hospira, the fact that we had largely finished our role in assisting Pfizer with respect to REMOXY, and we had largely completed our role to put Zogenix in position to run the Phase I study for Relday, partially offset by an increase in revenue from various feasibility products.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $3 million in the first quarter 2013 as compared to $2.8 million in the first quarter last year.

Our gross margin on these products was around 52% in the first quarter 2013.

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

Also, in the first quarter 2013, we had product revenue of about $270,000 related to excipient sales.

R&D expense was $4.8 million in the first quarter 2013 as compared to $5.6 million in the first quarter last year.

SG&A expenses were $2.9 million in the first quarter this year as compared to $3.3 million in the first quarter last year.

As a result of the above, our net loss for the first quarter 2013 was $5.2 million compared to a net loss of $4.6 million for the same period in 2012 if we exclude the usual revenue item that occurred last year.

Our net cash consumed during the quarter was $3.4 million.

At March 31, 2013, we had cash and investments of $25.5 million compared to $28.9 million at December 31, 2012.

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

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

These include TRANSDUR-Sufentanil worldwide rights, POSIDUR worldwide rights, ELADUR with worldwide rights, ORADUR-ADHD where it is the US and Europe, and various feasibility studies that we hope may mature into development agreements much like Relday did last year.

With that, I'd like to turn it over to Jim for a bigger discussion of other programs at the Company.

Thank you, Matt, and good afternoon, everyone.

Now, I'll provide an update on some of the more significant recent events that occurred here for DURECT in the past quarter.

With regard to REMOXY, Pfizer is working on what is required for resubmission of the NDA, and they are committed to moving the program forward.

Their meeting with the FDA was held on March 28, and I will cover that in more detail in a moment.

For POSIDUR, we submitted the NDA in mid-April, and we would expect to hear if it is accepted for filing by the FDA in June.

That would lead to a PDUFA date in the first quarter of 2014.

For Relday, Zogenix reported positive Phase I results in January, and they then expanded that study to include a higher dose that they reported on today.

Let's now go through these major programs in greater detail.

Beginning with REMOXY.

On January 9, 2013, the FDA issued a draft guidance on abuse-deterrent opioids.

The FDA is looking for a demonstration of abuse-deterrent properties, how these studies will be evaluated, and what claims may be approved based on those studies.

The Deputy Director for the regulatory programs at CDER stated that while prescription opioids are important and an important component of pain management, abuse and misuse of these product have resulted in too many injuries and deaths across the United States.

On April the 16th, the FDA announced two actions.

They stated that one important step toward the goal of creating safer opioids, and one that it is a high public -- excuse me, a high public health priority for the FDA is to encourage the development of formulations of these drugs that deter their abuse.

They then described these two actions, and I quote -- we approved updated labeling for Purdue Pharma's reformulated version of OxyContin extended-release tablets.

The new labeling describes the product's abuse-deterrent properties.

This is the first time we have approved such language in an opiate drug label.

Our other action today was demonstrating that the original formulation of oxycontin ER, which Purdue Pharma stopped shipping in August of 2010 was removed from the market for reasons of safety or effectiveness.

This finding is important because it means that the FDA will not accept or approve any generic forms of the original OxyContin ER.

The new OxyContin label describes studies that have been conducted to show a decrease in abuse via two routes.

They have shown that they reduce snorting and injecting.

With DURECT's order technology -- and, in fact, I think there have been a couple of posters out there.

One, in particular, that showed snorting being reduced with the new OxyContin ER by about a 60% reduction.

With DURECT's order technology, we make snorting and injecting virtually impossible through our REMOXY product.

We can also deter abuse by reduction in chewing, smoking, and of course, mixing with drinks such as alcohol.

Pfizer has a world class team working on REMOXY with expertise in manufacturing, quality assurance, and regulatory affairs.

The program is in good hands to complete what is needed for resubmission of the NDA.

Pfizer met with the FDA on March 28 to discuss their resubmission plan.

And, in an answer to a question on their pain portfolio during their first quarter call, Pfizer stated the following.

That they had had a productive meeting with the FDA in March, that the guidance from the meeting will inform Pfizer on next steps in addressing the issues raised by the FDA in the complete response letter.

And lastly, Pfizer also stated they believe there is a path forward for REMOXY, and they will publicly communicate further details over the upcoming quarters.

At DURECT, we look forward to Pfizer completing the tasks in front of them and resubmitting the NDA.

Another important recent event for this program was the issuance of an additional US patent extending our coverage for REMOXY and our ORADUR technology out to at least 2031.

Just as a reminder for the potential financial impact to DURECT for REMOXY, our royalty on sales start at 6% and go to 11.5%, with the 11.5% being right around $1 billion.

The product sales in 2012 in the US, this is OxyContin sales, were about $2.8 billion.

So, if Pfizer are able to achieve somewhere in the range of a 30% to 50% penetration, assuming no growth of the marketplace, then we would be looking at a royalty revenue here at DURECT somewhere between $70 million and $130 million.

Pfizer also the rights to three other narcotic drugs in our ORADUR platform.

These are hydrocodone, hydromorphone, and oxymorphone.

Two of these drug product candidates have had Phase I studies already conducted, and the third has an IND filed.

Certainly, the opportunity for these, if you add them together, are quite large.

Additionally for ORADUR, we have our ADHD program going forward with our partner Orient Pharma where they are funding the program through the first Phase II study.

They have the rights in Southeast Asia with a royalty back to DURECT.

We have Europe and US and the rest of the world -- DURECT owns the rights there.

The feature of this product -- it is a once-a-day dose -- dosing product for ADHD.

It is tamper-resistant, of course, because it is our ORADUR technology, so you get the whole five methods of tamper resistance that is snorting, injecting, smoking, chewing, and then trying to mix it with various drinks such as alcohol and the like.

We continue to work with Orient Pharma.

Currently, the product is in Phase I, and the next step would be choosing the formulation to go into advanced development.

I wanted to turn to POSIDUR.

POSIDUR offers a new paradigm for post-operative pain control.

It is designed to control pain locally for three days post-surgically.

It's got the added potential benefit to reduce narcotic use and associated side effects and/or costs with the potential for earlier hospital discharge.

We submitted the NDA for POSIDUR in the middle of April.

We should know if the FDA accepts this NDA in June, and if so, the PDUFA date would be in the first quarter of 2014.

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

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

The benefits of this product are pain relief for a full three days after surgery.

Also, reduction in opioid use and their attendant side effects.

Our efficacy data are quite compelling for this product, and now I would like to review some of that data with you.

The first would be our two pivotal trials -- excuse me, our two efficacy trials for this program.

The first is our hernia trial.

The next is our shoulder trial.

Both of these trials that I will describe the pain reductions here.

These are all done with pain on movement, and the reason we did that is we felt it was more relevant to the healthcare system and to the patients, in general.

For my own personal experience, I had my appendix out about five years ago, and when I was sitting post-surgically in the bed reading a book, I was not in a particular amount of pain.

When I felt the pain is when I got to get up to go to the bathroom and moved around, and that is typically when patients will feel more pain and then ask for the narcotics and then start to go down that path.

With regard to the hernia trial, we saw a 31% reduction in pain on movement, for 0 to 72 hours.

This was statistically significant.

With regard to the shoulder trial, once again pain on movement.

The hernia trial, they are asked to do a sit-up.

The shoulder trial, they are asked to raise their arm up to -- from the -- starting with the elbow, raising up to their shoulder height.

Once again here, we saw a 21% reduction in pain, statistically significant over 0 to 72 hours.

As important with regard to this product is also the narcotic use and the reduction in the mean morphine equivalents.

For the hernia trial, we saw a statistically significant 80% reduction in the narcotics over 0 to 72 hours post-surgically.

And, for the shoulder trial, we saw a 67%, also statistically significant reduction in narcotics.

This is, of course, we hope going to be very meaningful going forward as far as pharmaco-economic advantage of this product.

Also, just to kind of reflect back to what we are attempting to do with REMOXY, and that is deal with the narcotics out there and the abuse of those.

I think POSIDUR also adds a wrinkle to that whole thing, and that is that if we look at the proportion of patients who didn't take any supplemental opioid between 0 and 72 hours in our trial.

In the hernia trial, we saw 21% more patients didn't take any opioids with our POSIDUR group versus the placebo group.

In the shoulder trial, we saw 24% more patients never taking any narcotics when you compare the POSIDUR group to the placebo group.

So, if we just take -- these are relatively common surgeries, and if you look at a range somewhere around 20%, fewer patients never taking any narcotics -- now, it doesn't take much to consider that this certainly might not -- there might be fewer prescriptions written as those patients leave the hospital or the surgery center.

The hope is that we would have fewer narcotics out there which also may help address some of this abuse issue.

I want to briefly also review what we have as part of the NDA, which is the integrated summary of efficacy, or the ISE.

Here, we combined together a number of the additional other trials that were done in our POSIDUR program.

We have combined here three orthopedic trials that were all shoulder trials.

Four soft tissue trials, which were two hernia trials, one hysterectomy, and one lap-assisted colectomy trial.

Then, we have three trials -- those seven trials I described as overall against placebo.

Then, we have three trials where we compared -- where we had a nice effect as well against hydrochloride Bupivacaine, HCl Bupivacaine.

Here, there was a shoulder trial, a laparotomy, and a lap-assisted cholecystecomy.

All groups showed statistically significant reduction in pain area under the curve for 0 to 72 hours as compared to control.

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

It is better for patients with potentially large healthcare cost savings.

We expect that there would be over 70 million surgical procedures in the US that could be applicable for this product, and we did a bottoms-up market research, talking to 275 doctors -- surgeons actually who were asked to look at their constellation of surgeries they do over a given month and reflect that back to this product.

We demonstrated that there would be somewhere between 10 million to 20 million surgical procedures would be the potential available market for this product.

Our pricing is yet-to-be-determined, but our market research suggests that a price north of $250 per procedure could be justified based on the reduction in the narcotic use and the associated side effects.

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

Now, I'm going to move to our two transdermal products.

The first one is a seven-day -- excuse me, Sufentanil patch, we call TRANSDUR-Sufentanil to treat chronic pain.

As well, we have a three-day ELADUR patch which is a treatment of Bupivacaine for three days.

Both of these products have had about 300 patients.

They're dosed in their Phase I and Phase II work here.

They are both primed to go into late-stage development.

Both quite large market opportunities between $800 million to $1 billion.

The TRANSDUR-Sufentanil product is for chronic pain.

Its features are seven days versus the market leader out there today which is two to three days.

It is about 20% the size of the Fenatanyl patches, and it has Sufentanil which is, we believe, a wider therapeutic index than the Fentanyl.

We have three US patents issued last year for this product that protects it out past 2025, and one European patent that also goes to 2025 or beyond.

Currently, the product is in late Phase II, and we own the worldwide rights, but we're talking to potential partners.

As well, we are talking to potential partners about our ELADUR three-day Bupivacaine patch.

It is for local, neuropathic pain.

Very nice efficacy demonstrated in a 60-patient PHN trial for this product.

It is meant to be used for three days.

It is a very patient-friendly design, a very thin, breathable backing that feels a little bit like an old cotton T-shirt one can wear.

You can wear it in the shower.

Go for a swim with it.

We have orphan drug designation with this product.

Once again, late Phase II, ready to advance to late stage development.

We have one US patent that was issued in December of last year that protects us out to 2031, and a European patent that goes out to 2027.

Now, I want to talk about Relday.

This is another potential, very large market opportunity for DURECT.

Certainly, could be in the blockbuster-size and market opportunity here.

What Relday is, is a once-a-month injectable for risperidone.

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

It is a subcutaneous injection versus IM, which all the control-release products out there right now -- be they two weeks or a month are IM.

We had no drug reconstitution required as compared to the market leader, and it is a very simplified dosing regime in that you give it, and it starts working right away.

This product has been partnered with Zogenix, and Zogenix reported positive data from the final cohort of their expanded Phase I trial today.

This was a single center, open label, safety and pharmaco-kinetic trial that enrolled 30 patients with chronic, stable schizophrenia.

What they saw was this was that the treatment levels were achieved on day 1 and maintained through day 30 after a subcutaneous injection.

So, we have favorable safety and PK profile demonstrated at the 25, 50, and 100 mg per day -- excuse me, for a month -- dosing.

The full range of doses that are expected to basically represent the market here.

With these positive data in hand, the next step would be to start a multi-dose, Phase I trial, and then, move on to Phase III.

The timing, of course, depends on Zogenix, and they've stated that they have started partnering discussions for this product.

If they do partner the product, we here at DURECT would be receiving a cut of the partnered fees that they generate.

Now, I'd just like to wrap up with regard to the potential key drivers that we see over the next 12 to 18 months for DURECT.

For REMOXY, Pfizer held their FDA meeting in late March to discuss the resubmission.

The FDA pronouncement in April with regard to abuse-deterrent labeling and the prevention of generic OxyContin ER products is, of course, very meaningful and very significant for this program.

Once resubmitted, REMOXY would then be associated with a six-month review by the FDA, and if approved, of course, would be launched by Pfizer.

For POSIDUR, we submitted the NDA in mid-April.

We expect to hear about acceptance in June of this year and with the potential PDUFA date in the first quarter of next year.

With Relday, positive Phase I data are now in hand, and the next step is dependent on Zogenix.

As Matt outlined earlier, we have the potential for new collaborations with our programs.

Certainly, we're talking to potential partners with regard to POSIDUR, with regard to the Sufentanil patch, the ELADUR patch, and as well, ORADUR-ADHD product.

We have, as always, a number of very interesting feasibility programs and undisclosed internal programs that could move to partnership as well.

With that, I think would like to take any questions you might have.

(Operator Instructions)

[Annabelle Samony].

Please proceed with your question.

Just wanted to ask a couple of things on POSIDUR.

It looks like you put together a pretty consolidated package of all of your clinical data.

And, what I wanted to know was, one, how does the FDA view the full package of a collection of your data as opposed to designating some as Phase II or Phase III.

And, the second thing is, how many patients collectively did you look at in all of this data?

The total number of patients, I think, was -- do you remember, Dave?

1,075 total patients in our safety database.

Right.

Of course, the two pivotal trials are the hernia trial and the shoulder trial for this program.

But the FDA, what they will do is they will look at those individually, and then they will look at all these studies collectively.

And their statisticians will cut the data five ways from Sunday and look at it in lots of ways in an integrated summary of efficacy like we did and in their own way as individual trials.

So, basically we submitted the reports for the hernia trial and the shoulder trial prior to our pre-NDA meeting actually last summer, and they reviewed those programs and then got back to us there.

And then, of course, they were again submitted in final form in the NDA itself.

As Matt said, they will have the capacity to cut the data any way they want.

Dave and his group certainly provided them with, I think, a very good starting point with our integrated summary of efficacy and our integrated summary of safety.

But, that can take it anywhere they'd like as they look at the data.

In terms of some of the things that you are doing during this review period, I guess one of the reasons for some of Pacira's success in launching had to do with some of the pre-approval work that they have done and maybe some marketing studies, work with hospitals to familiarize them with the product.

Are you doing anything ahead of the PDUFA date to increase the awareness of POSIDUR?

We are starting to do some work.

We are -- it is interesting, a lot of the work that they have done has been to demonstrate the benefit of opiate-sparing.

So, they have done a lot of paper studies looking at that.

They've done some studies where they have compared the use of ketorolac, which is -- excuse me, Toradol, the marketed name.

But, Toradol plus Exparel against morphine to show the benefits of not using morphine -- that kind of thing.

They are certainly doing that kind of work.

Right now, we are lining up and starting to work with thought leaders and the like as we do our market prep work.

If I can ask a question on REMOXY.

Obviously, Pfizer made their comments on the call, and you have essentially reiterated that.

But, have they had any discussions with you, and are you familiar what the gating factors are in terms of the next steps for the regulatory submission?

No, we as yet have not yet seen the minutes from the meeting.

I think they're still waiting to get those back from the FDA.

We haven't had any further conversations than what they've talked about publicly.

Sorry, go ahead.

I was going to move on to a different question, but if you've got something to add -- ?

No, that is fine.

Finally, with regard to your burn rate, it has been about around $15 million a year, and you had -- I think it was a net loss of about $5.2 million.

Do you have any kind of guidance for the burn rate for the year?

During our last call, we suggested for this year that we would burn in the range of $14 million to $16 million, assuming that we do not do any new partnerships around any programs.

As you can see, while our net loss was $5 million -- or $5.2 million -- the actual cash burn in the quarter was $3.4 million.

So, that is lower than the $14 million to $16 million range, but I think we would stick with that general guidance for the moment.

And, if you looked historically over the last eight years, our average burn rate has been about $11 million-point-something -- $11.6 million or something because we've been able to do various deals and the like.

We typically project -- we have historically projected much higher burns in the range of in the mid-$20 million, that kind of thing.

But, as the programs have matured and we've been enable to put various partnerships in place and the like, we have been able to change that.

Do you have any anticipation of a partnership this year?

I think we never guarantee one because the minute you do, you put yourself on the wrong side of the negotiating table, right.

I think between POSIDUR and the Sufentanil patch and the Bupivacaine patch, ELADUR, I think there's a good chance that we have good opportunity to do a partnership on one of those this year.

Jason Napodano.

Please proceed with your question.

With respect to excipient sales in the quarter, I think you mentioned roughly $200,000 in excipient sales, which is up from the fourth quarter.

Are you seeing any increased ramp in the orders of excipients from Pfizer, either to complete these studies, or any additional work that they are doing?

Or, do you have any kind of thoughts on where you think excipient sales will go here in the second quarter?

I think it will be a lumpy thing for a period of time until they are really launching -- or ready to launch.

I wouldn't infer that we have a trendline here, by any means.

I think it was encouraging and a good thing that they ordered in the first quarter, but I wouldn't try to extrapolate anything from that yet.

I won't be comfortable down the road trying to give any projections for excipient sales, I would almost rather -- I think it would be better for our relationship with Pfizer if after we end a quarter, we report historically what the sales were, if you follow me.

From a housekeeping standpoint.

With respect to the POSIDUR NDA, was the PDUFA fee waived?

Or did you pay the fee and now have to go back and ask for a refund?

It was waived.

As a small Company doing our first NDA, you can apply for a waiver, and that saves us a little under $2 million, I think.

Then, I am still always a little fuzzy on these new PDUFA rules.

I guess that you are assuming a 10-month review from the filing date -- is it because it is a 505 (b) (2)?

Is that correct?

Yes, but you are not alone in being confused.

We had to go back -- we did clarify with them.

In this case, it would be 10 months from when you submitted, so we weren't clear either.

Then, I don't know if you have made it available, but let's say Zogenix does do a deal on Relday.

I saw in their press release this morning, they mentioned that they hired a transaction advisory firm.

Remind us of the economics there.

If they do do something, or what the next financial milestone would be for you?

I think in total in the collaboration we get about $103 million in milestones, mixed between development-type milestones and sales milestones.

And typically sales milestones are larger than the development milestones.

I think our next one could happen in the next couple of years and be fairly meaningful for us.

In terms of a sub-license fee, if they sub-license to another firm, and they get an upfront payment, and then they get future stream of milestone payments, I think we get in the 10% to 20% range of what they get.

Robert of -- Jeffrey DeSiebert.

First of all, when is Pfizer going to refile the NDA?

(laughter) Call them.

You never know, you might slip on that.

Are you aware of any remaining technical issues for REMOXY?

Or, is it fair to say that now it is just a timeline issue?

We are not aware right now of any technical issues, I think it is more of what does the FDA want to see between now and the NDA resubmission.

Right, so it becomes a question -- this is doing to take three months, six months, 12 months, 18 months -- some period of time, but there are no technical issues outstanding that you are aware of that cause you any concern?

That is correct.

If we dial back a few years, there was a lot of concern about REMOXY being launched, and Purdue filing lawsuits under its patents.

Now that the original Purdue OxyContin patents have expired, are you aware of any legal basis that Purdue might have against REMOXY under its existing patents?

No, we aren't.

They certainly have their own patents protecting their PolyOx tamper-resistant technology, so they have that.

But, we are not, of course, anywhere near that because we have our own tamper-resistant or abuse-deterrent technology.

Their patent that you most recently referred to is not a composition of matter, it was a pharmaco-kinetic patent that just expired this past month.

And, we also, of course, felt -- at least the patent attorneys felt very comfortable with what we're doing going forward with our own release rates and the things associated with that.

No, we are not aware of any.

To a non-technical person -- originally one was concerned about their claims under extended release, right?

But, that is now expired, so all they are really protected by are their anti -- all their protection is substantially their anti-tamper characteristics?

Absolutely, and those allow their claims they just got expanded as well.

I think that is really great news for the market

It has taken the fear of generics off the table.

Now, of course, you just have to convince the Canadians to back off.

On a separate subject, on POSIDUR.

Will you be sharing the POSIDUR NDA with prospective partners?

And, in fact, have you already -- have any of them already asked for it?

What happens in -- when we are talking to partners is we have what we call an e-room set-up which allows for number of regulatory documents and clinical programs and non-clinical toxicity and all these pharmaceutical packages -- all that information is in there.

Our potential partners are active in the e-room, looking at all the data and correspondence and the like.

Could you give us a little more color on the pace and tempo of POSIDUR discussions?

Have you found with the NDA being filed -- I know that is recent, but we all knew you were coming up to it.

Has the tempo picked up?

Or, what color can you give us?

I'm not homeland security, so I don't want to give any colors on things.

But, I think that we have a number of potential partners that we are talking to, and a couple of different strategies that we are looking at.

One of the things that we are considering is with the wonderful success that Pacira has had with what we perceive as a lesser product in the marketplace as far as the value of their company and what they have been able to do over this past year, is that we are also not only looking at traditional partnerships but the potential for maybe putting together an entity around POSIDUR and maybe cash from the outside.

Where we'd get not only a royalty as we would from a traditional partnership and milestones, but maybe potentially equity in the new co-created.

So, we're looking at a number of different potential business approaches for POSIDUR.

(Operator Instructions)

Rajesh Patel.

Please proceed with your question.

I apologize.

I'm just looking for a little bit of clarity.

I understand you do not have the minutes from the FDA yet, but it seemed in Q3 of last year the big issue was that Pfizer said net go/no-go decision.

So, are you folks comfortable now that it is essentially a go decision, and there is some details to be worked out?

I think, John Young, when he gave us a quote that we used in our -- the call before last -- was trying to lay to rest of this idea that the Street had jumped on that this was some kind of go/no-go overall with regard to the product.

I do not believe that is what they were trying to communicate at that point in time.

Even though if you looked at our price of our stock in pain therapeutics, it would be hard not to think that.

Realistically, they've been working very diligently for this program going forward.

I think they use statements like we believe we have a path forward, and if you look at the tone of what they said and what they actually said, I think it is actually very positive for this product.

I also don't think they would have had the meeting itself if they weren't comfortable with the data that they received from that final bioavailability study they did in the November to January timeframe.

Nick Farwell.

Please proceed with your question.

Gentlemen, just a small nuance.

And that is, when I look at the trendline for your operating expenses, which of course in my -- what I'm looking at is purely research and development in G&A.

It has been trending relatively flat over the last couple of quarters.

Not knowing the dynamics of internally how you're allocating, or what your expectations are for, say specifically, R&D.

Could you give us some sense or some additional guidance on whether you see that aggregate number, or individually R&D in SG&A trending in either direction, looking at the balance of this year?

I think that they will be approximately like the run rate that we currently are experiencing.

We have a number programs, certainly POSIDUR as we are preparing for potential pre-approval inspections from the FDA and the like and wrapping up the NDA which is what you see this quarter.

Certainly, a lot of effort there.

We are interacting the way we once were with Pfizer as the REMOXY program has now matured -- is now in the hands of their manufacturing and regulatory groups.

So, that was work that we were being compensated for that has changed.

Those people have shifted over to other earlier stage programs that we have partnerships on and internal programs.

That is really what I was looking for, Jim, was some sense of whether you were going to see some additional focus on the part of either Pfizer for their other opioid programs?

Or, something else that would come in and influence either the R&D, or obviously pre-negotiations or legal costs associated with SG&A.

I do not think you will see much in the legal things.

It would be too small to see a difference there.

The other things -- there's this macro change from a lot of work at Pfizer up until probably the last quarter of last year, and then that shifted over.

A lot of work currently on -- excuse me, that was REMOXY.

A lot of work now on POSIDUR, but as that starts to change throughout the year.

[Regular] stage programs coming up.

A lot of new feasibility work has actually come in recently, so all of that is kind of a dynamic as Matt said.

So, I think to look at it as a net/net flat is probably a good way to look at it.

Is that true with respect to, as you see it now, R&D collaborations, looking at that specific line item, looking out over whatever point of visibility -- timeline you have in terms of visibility?

Your question started with R&D expense and SG&A expense.

Those two line items we're saying, about the current run rate.

We're definitely not hiring people, but we're keeping them about flat.

Then, the question is the top line, the revenue that comes in.

And, as I flagged before, last year we had more money coming in from a few partners, whether it was Zogenix because they were gearing up for the Phase I. Or, it was Pfizer working on REMOXY.

Now, those are more moderate, and the way we do our forecasting is to try to be conservative.

We have a lot of prospects for projects, but we'd rather not assume that we're going to get that revenue yet.

That is why, if you will, we are giving guidance for $14 million to $16 million for the year.

It's not because expenses are going up, it is just we think there is a little bit more moderate revenue coverage right at the moment.

I assumed that was the case, but I at least wanted to follow up on the question.

Michael Gottlieb.

Please proceed with your question.

Good afternoon.

I apologize -- .

Michael?

Probably pushed the wrong button.

Operator, are there any other questions?

(Operator Instructions)

Operator, I feel bad for Michael, but on the other hand, I know him.

And, I'm sure that he will call me back later.

Rather than have other people hang on while we wait, if there aren't any other questions, we will thank everybody as we usually do for their interest in the Company.

If you do have questions, please call us at any time.

Absolutely.

Thank you very much.

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