DURECT Corp (DRRX) 2013 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the third-quarter 2013 earnings conference call.

(Operator Instructions)

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

Thank you, sir, you may begin.

Okay.

Good afternoon, and welcome to the third-quarter earnings 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'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, potential product approvals, 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-Q under the heading Risk Factors.

Let me now turn to our financials.

Total revenue was $3 million in the third quarter 2013, as compared to $3.8 million in the third quarter of 2012.

Excluding all deferred revenue recognized for up front fees from our agreements, revenue from our R&D collaborations was $0.4 million in the third quarter of 2013, as compared to $1.1 million in the third 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.

And this drop was driven by the fact that we largely finished our role in assisting Pfizer with respect to REMOXY and we largely completed our role to put Zogenix in position to run the Phase 1 study for Relday, partially offset by an increase in revenue from various feasibility projects.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.6 million in the third quarter of 2013, as compared to $2.7 million in the third quarter of 2012.

That was down about 3.5%, but not indicative of any particular trend.

Our gross margin on these product lines was around 57% in the third quarter of 2013, and these product lines continue to be strongly cash flow positive for us.

R&D expense was $4.5 million in the third quarter of 2013, as compared to $4.7 million in the third quarter of 2012.

SG&A expenses were $3.1 million in the third quarter of 2013, as compared to $2.9 million in the third quarter of 2012.

As a result of the above, our net loss for the third quarter of 2013 was $6 million compared to a net loss of $4.8 million for the same period in 2012.

Our net cash consumed during the quarter was $3.9 million.

At September 30, 2013, we had cash and investments of $17.4 million, compared to $21.3 million at June 30, 2013, and $28.9 million at December 31, 2012.

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

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

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

With that, let me turn it over to Jim for a discussion of the business.

Thank you, Matt, and good afternoon, everyone.

I'd like to now -- I will be providing an update with regard to our most significant recent events.

For POSIDUR, we have submitted that NDA in the middle of April, and the FDA accepted it for filing in June.

The PDUFA date is for February 12, 2014, which is now a little bit less than three-and-a-half months away.

With regard to REMOXY, Pfizer had a productive meeting with the FDA on March 28 of this year.

In August, they posted a clinical study that the FDA requested at the March meeting with the new REMOXY formulation and that has been posted on clinicaltrials.gov.

In October, they confirmed that they are proceeding with the development and confirmed no change in their expected timing.

I'll start with an update on the pain space in general and then go through our major programs.

Recently, new pain formulations being developed under the 505-b2 strategy, or process, within the FDA have demonstrated significant value beginning with Pacira.

They have a new (inaudible) formulation for post-op pain and are getting it on formulators at a price of $285 per procedure.

They have a $1.7 billion market value, approximately 2 years after approval, and 1.5 years after launch.

Zogenix has a new hydrocodone product approved by the FDA.

The product has no abuse-deterrent features and restrictive REMS, but it is the first standalone hydrocodone product.

The approval followed by one day the FDA's proposal to reschedule combination hydrocodone projects to Schedule II.

MAP Pharmaceuticals was developing a new migraine formulation under a 505-b2 strategy and they were acquired by Allergan for $958 million prior to approval.

On April 16, 2013, the FDA communicated that abusive opioids remains a major public healthcare concern.

The FDA then issued guidelines allowing for tamper-resistant claims.

They also made a decision with regard to pulling the original OxyContin NDA for safety reasons, and thus, not allowing generics for this product.

On September 10, 2013, the FDA communicated safety and labeling changes and post-market study requirements for extended release opioids.

And on October 24 of this year, the FDA communicated that the abuse of opioids continues to remain a major public healthcare concern and they proposed the rescheduling of hydrocodone combination products to be more restrictive from Schedule III to Schedule II.

Why do I mention these FDA actions?

The abuse of opioids remains top-of-the-mind of the FDA and the pain division, a hot, important and highly visible topic.

DURECT's two lead programs each address this issue but in different ways.

We hope society and DURECT shareholders will ultimately benefit from the FDA's actions in this area.

We have REMOXY, which is a tamper-resistant formulation of hyrdocodone with five different mechanisms for abuse deterrence.

Of course, we have POSIDUR with the benefits of reducing opioid use after surgery.

We've seen with POSIDUR in our two pivotal trials a 67 % to 80% reduction in the narcotics used with an associated 20% more patients never taking narcotics after surgery.

In the interest of time and focus, I'm only going to talk about a few of our programs, but I will be starting with POSIDUR.

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

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

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

Status of the program is as follows.

We submitted the NDA in the middle of April; the FDA accepted the filing in June; the FDA mid-cycle review has been completed, and the PDUFA date is set for February 12, a little less than 3.5 months from today.

We are pursuing a 505-b2 filing strategy which enables us to leverage the long history of use of bupivicaine.

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 POSIDUR are pain relief for a full three days after surgery.

As well, we have the reduction in opioid use with their attendant side effects issues, and potentially fewer narcotic prescriptions being written after surgery.

Our efficacy data for this program is quite compelling, and let me review some of those data with you right now.

We have two pivotal trials for this NDA.

The first is a hernia surgery and the second is a shoulder surgery.

Both of these surgeries demonstrated a statistically significant reduction in [area under the curve] pain from zero to 72 hours and this is pain on movement measured.

We think it's a more meaningful measurement of associated pain after surgery.

Personally, I had my appendix out about five years ago.

When I was just looking at pain at rest, sitting in the hospital bed reading a book or looking at the television I didn't feel a lot of pain.

It was when I got up to go to the bathroom, that's when I felt it.

When I had to contract those muscles.

So to that end, we asked our hernia patients to do a sit-up and we assessed their pain to do a crunch, and for the shoulder surgery patients to raise their arm up.

In the hernia surgery, we saw a 31% reduction in pain, and in the shoulder surgery a 21% reduction in pain with our group compared to the placebo.

These were statistically significant.

As far as narcotic use is concerned, in our hernia trial we saw an 80% reduction; in our shoulder surgery, a 67% reduction in narcotics used.

Both of these were also statistically significant.

And just as an example with regard to the hernia trial, I think even on day three we had a statistically significant reduction of about 70%, or something like that, of narcotic use.

But you heard me talking a little earlier about the percentage of patients never taking narcotics.

I think this a very important point and I just want to emphasize that.

For the hernia surgery, we had 28% of the placebo patients never taking any narcotics after surgery, but for our active group, for the positive group, we had 49%.

That is 21% more patients never taking any narcotics after surgery.

For the shoulder, it went from 16% of the placebo to 40% on the active group, so we had 24% more.

So in both those studies we had more than 20%, more than one in five patients, not taking any narcotics after surgery.

So let's think about the importance of opioid sparing.

There are two main points to be made here.

First, the FDA is well aware of the adverse events that arise from opioids.

You've got the constipation, the nausea and vomiting and all the issues associated with things, even as far reaching as potentially post-operative pneumonia.

The FDA also knows that some percent of the population is predisposed to develop an addiction or other problem with if they are exposed at all to opioids.

This is why our data demonstrating roughly 20% fewer patients requiring a single opioid is so important.

This is one in five patients.

If we just take hernias in the US alone, there are 800,000 hernia surgeries in the United States alone.

If 100% of these patients, just for discussion's sake, were to be dosed with POSIDUR that would mean potentially 160,000 fewer opioid prescriptions being written annually.

And if you apply this across a greater number of the major surgeries, the results could be staggering.

However, we don't want to forget the fact that POSIDUR is intended to treat pain post-operatively.

The content of the integrated summary of efficacy, or ISE, for POSIDUR consists of three categories of clinical trials.

The first are our orthopedic trials and they include three shoulder surgeries.

The second ISE category is soft tissue trials, and this includes four trials; two of them are hernia trials, one hysterectomy trial and one lap-assisted colectomy trial.

And then the final category is POSIDUR against HCL bupivicaine or [naked] bupivicaine.

This includes three trials; one was shoulder, one laparotomy, and one lap-assisted cholecystectomy, or gallbladder removal.

All three of these categories of the ISE demonstrated a statistically significant reductions in pain for [area under the curve] for zero to 72 hours as compared to controls.

A brief review of the patent protection for POSIDUR.

We have two granted patent families in the US, with coverage out at least until 2025.

Its pharmaceutical composition and also a method providing a sustained local anesthesia.

We have one granted patent in Europe with coverage out to 2025 and a granted patent, also in Japan with coverage out to 2025.

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

At the end of the day, it is better for patients with potentially large healthcare cost savings.

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

We've done some research including a study involving 275 surgeons and identified a market opportunity for this product somewhere in the range of 10 million to 20 million procedures per year in the US.

Pricing is yet to be determined, but our market research suggests that a price of $250 or more per procedure based on the reduction of opioid use and side effects.

And in fact, if one looks just at our dischargeability data, in particular, at the hernia trail, we are seeing about a $620 savings per patient assuming a $1,200-a-day hospital bed, which isn't a tremendously large cost for a hospital bed.

And when we shared that with third-party payers, demonstrating that we could potentially save them $600, they basically got back to us and said if you could save me $600 I would be willing to pay as much as $400.

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

A few final comments on POSIDUR.

We view POSIDUR as a potentially extremely valuable asset for our Company.

In the last two quarters, we have considerably stepped up our competitive intelligence efforts and our pre-launch activities for this product.

These have only made us more enthused about the market potential for POSIDUR and our ability to complete effectively upon approval.

Without getting into too much detail, if approved, we would be only the Company to give enough drug to achieve true efficacy for more than 24 hours and have very compelling data on opioids bearing.

We've also done considerable ground work to understand in detail how we might launch POSIDUR ourselves, and have met with a number of financial groups to explore debt structures that would enable us to finance this strategy.

We are also engaged in active discussions with multiple potential partners for this product.

Given the value we perceive in POSIDUR, we will only entrust this asset to a partner if we are convinced they will do a great job of marketing it and return the right economics to DURECT and our shareholders.

All alternatives are open and being explored in parallel.

I'd like to switch gears now to REMOXY, our other late-stage asset.

REMOXY is our tamper-resistant oral ORADUR product containing oxycodone.

It is designed to be tamper-resistant on multiple fronts, that is reduction of potential for abuse; vis-a-vis injecting, snorting, smoking, dissolving it in drinks, and/or chewing it.

The issues of the complete response letter of June 2011 related primarily to manufacturing.

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

We understand that meeting provided a path forward which followed the outline that Pfizer had requested, that is, no need to redo the Phase 3 studies.

A pivotal [bioequivalent] study with a modified formulation can be used to bridge back to the data with the original formulation.

This would be similar to, but larger than the BA studies that Pfizer conducted last winter.

Pfizer will also conduct additional abuse liability studies with the modified formulation.

Data from this work may now potentially be used in the product label given the change that the FDA had made this spring.

We expect these studies to be posted on clinicaltrials.gov.

Pfizer posted a PK study on clinicaltrials.gov on August 14, 2013.

This study was recently updated to show that it is currently enrolling.

On October 22 of this year, Pfizer announced they are proceeding with REMOXY after achievement of technical milestones and a thorough review.

The resubmission remains targeted for the middle of 2015 and Pain Therapeutics also regained the rights to the three other opioid products under this contract with us.

PTI announced that no changes were made to their milestones or royalties associated with REMOXY, and DURECT also has made no changes to our milestones or royalties for REMOXY.

With regard to patent protection for REMOXY under our ORADUR technology, we have seven issued US patents covering our ORADUR technology platform, six composition of matter patents, and one covering methods of making opioid-containing formulations.

The US patent coverage goes out at least until 2031; the European patent coverage at least until 2023.

Other pending applications would go out to 2033 or 2034, plus any eligible patent term adjustments and extensions to these.

We have issued patents in hand that protect our REMOXY program for quite a long time.

As far as the potential financial impact to DURECT from this product, OxyContin sales for Purdue Frederick in 2012 were about $3 billion.

The royalties that DURECT would receive on Pfizer sales, final sales, start at 6% and go to 11.5%.

The 11.5% being around $1 billion.

The blended royalty up to the first $1 billion is about 8.5%.

So if Pfizer were able to achieve about 30% penetration into the 2012 opportunity, or 2012 sales, that OxyContin received, that would be about $72 million for DURECT.

And if they were able to achieve 50% of that market, this is assuming no growth by Pfizer in the market, with this really nice advance in abuse deterrence, it would be close to $140 million for us.

In October, Pain Therapeutics regained the rights to three other ORADUR-based opioids from Pfizer.

These opioids are hydrocodone, hydromorphone and oxymorphone.

The first two had Phase 1 work done in the past and all three have INDs on file.

This is a positive outcome as it allows PTI to now take one or more of these programs forward.

PTI has yet to say what they intend to do with these, to select one or more to advance into development or relicense them.

We think they now offer a nice opportunity going forward.

Further, we believe we can leverage off of the experience gained from REMOXY and DURECT's work from our ADHD programs to potentially move more quickly through the development cycles.

I now want to move to our ORADUR-Methylphenidate program.

We started this program because of the opportunity to potentially improve efficacy and reduce abuse of extended release Methlyphenidate products.

The US ADHD market in 2012 was 58 million scripts, up 9% over the previous year.

And the adult market grew 12%, the pediatric grew about 7%.

The US ADHD sales in 2012 were $8.4 billion, up 15% versus 2011, and the international sales added another $1.1 billion.

ADHD drugs are widely abused.

The 2010 National Survey on Drug Use and Health estimated 1.1 million Americans over the age of 12 were abusing these stimulants.

And the DEA has commented that the serious abusers often snort or inject the products, which is virtually impossible from our ORADUR technology.

We've now selected a lead ORADUR-Methylphenidate formulation.

And the feature this product has demonstrated in a recent Phase 1 study, demonstrate a rapid onset of action, a long duration with once a day dosing, smaller capsule size relative to the leading products in the market, and this is very important for children who tested as one of the strongest actually features here.

And as well, we have the tamper-resistant capacity due to our ORADUR technology.

Our partner with this product, Orient Pharma, will meet with the Taiwan FDA this year regarding the Phase 3 program for Taiwan, and they are developing plans for their Asian and South Pacific territories.

DURECT retains the US, European and Japanese rights, and we have initiated licensing discussions for these territories.

We intend to discuss this development program with the FDA with the goal to explore a NextWave type of development plan, and for those who followed NextWave, they were a private company who were able to get a product for ADHD approved with less than 100 patients.

The next program I want to update you on is Relday.

Relday is a once a month risperidone product to treat schizophrenia.

It has a large market potential, greater than $1 billion.

It would be the first once-a-month risperidone product.

It offers a patient and physician-friendly treatment for schizophrenia.

It is a subcutaneous injection, 1 cc or less, as compared to multiple ccs from IM injection for the market leader.

There's no drug reconstitution required as compared to the market leader.

It has got a simplified dosing regime which in our market research seems to test and resonate well with the prescribers.

This product has been partnered with Zogenix.

Zogenix reported positive final data from the expanded Phase 1 trial in May of this year.

This was a single center open label safety and PK trial that enrolled 30 patients with chronic stable schizophrenia.

It demonstrated a favorable safety and PK profile at the 25-, 50-, and 100-milligram dose for once a month, the full range of doses that we would expect to be able to take to market.

With these positive data in hand, the next step is a multiple dose Phase 1 study and then on to Phase 3. The timing of this program depends on Zogenix and they have stated they have started partnering discussions which will drive the timing to start the next trial.

If they do partner, DURECT will receive a cut of any partnering fees they generate.

As well, with their approval of Zohydro on October 25, we are hopeful that they will be in a better position now to be able move Relday forward.

With regard to our other injectable programs, we continue to add new feasibility projects and at the present we have, I believe, as many feasibility projects underway as we ever had in DURECT's history.

We see this as a large, long-term opportunity for DURECT.

And as a reminder, Relday started as a feasibility project which was then matured into a full development deal.

2013 has been a productive year for DURECT, and here are some of the highlights.

For POSIDUR, we had the NDA submitted in April, the NDA accepted by the FDA in June.

We're currently developing commercial plans, holding licensing discussions, and the PDUFA date is set for February 12, 2014.

For REMOXY, the FDA allowed abuse-deterrent claims with data in April.

Pfizer met with them regarding their resubmission path in March.

The food effects study was initiated in August, and in October, Pfizer completed their thorough assessment and is moving forward.

For the other programs, for Relday, we had a positive Phase 1 data with a full dose range.

The ORADUR-Methylphenidate formulation was selected in August.

The ALZET and LACTEL product lines are performing well.

We have multiple feasibility projects initiated and progressing.

We have licensing discussions underway on multiple fronts, and insiders continue to show commitment to DURECT.

Just to pick up on that last comment for a second, over 2012 and 2013 various officers and directors of DURECT Corporation have bought in the open market over 0.5 million shares of DURECT stock.

Over that time period, several members of senior management and outside directors volunteered to take salary reductions for which they took options to the tune of $725,000 in foregone cash payments.

We haven't paid cash bonuses in the last two years here.

Without belaboring the point, what I would like to make is that management's interests are aligned with shareholders.

Potential key drivers for the next 12 to 24 months, for POSIDUR it's PDUFA date set for February 12 of this year, it is a potential commercial partner and, of course, a potential launch of the product.

For REMOXY, it is Pfizer conducting the required studies, the BE and the abuse safety studies, and resubmission targeted for the middle of 2015 with a six-month review followed by the FDA.

For Relday, it is a positive Phase 1 data, partnering efforts underway by Zogenix and then starting that multi-dose trial.

Potential for new collaborations with our other programs, be that POSIDUR or ELADUR, the Sufentanil patch, our ORADUR-Methylphenidate program, or our feasibility projects, or undisclosed programs.

With that, we'd like to turn to any questions that you may have.

Thank you.

(Operator Instructions) Jason Napodano.

Hey, guys, how are you doing?

Good.

Thanks for taking the question.

I am looking back at the press release you guys put out in October, and on Pfizer moving forward, and I'm just looking to see what [Payne] said and it is pretty consistent, but [Remy] notes that he believes there will be a stream of technical milestones from now throughout, to 2015, and, I guess, I am just kind of wondering, as Pfizer is starting these trials, obviously, we're seeing them post on clinicaltrials.gov, but do you, or, do you think Payne will be reporting the results of these trials as they are completed?

Do you kind of expect Pfizer to make that information public, or do you think it's the kind of thing that they will just keep to themselves and the next thing you know in the middle of 2015 we will see an NDA filing?

I think they will -- the more likely scenario is the latter one.

I think you will have to track it with clinicaltrials.gov, and I don't think that they will talk publicly about the results.

Now as they get closer and closer, these are not major things that have to be done, and now it's getting more and more towards [physicianing] vis-a-vis Purdue and OxyContin TR.

So I can see them wanting to keep things as close to the vest as they can.

So I would expect that you will hear very little until you get the thing submitted, and they won't announce that until they absolutely have to because they don't want to let that competition know what is going on.

Got you, okay, that makes sense.

As far as the formulation work that they've done, you look on clinicaltrials.gov, and they've got formulations A through -- I don't even know where they ended up.

I know, I think Formulation K was one of the ones that they are moving forward, but what have you guys learned from their formulation work, and what has Payne learned from their formulation work that you think can be transferred over to some of these other (inaudible) opioid candidates like hydrocodone or hydromorphone?

First, I'd like to clarify, it was actually DURECT's formulation work.

We designed the dosage forms and we did all the work here, we own all the patents on it.

So that's a very important distinction.

We absolutely build on -- whenever we do deals here at DURECT, we do them on particular products, but we retain the IP with regard to the technology platform.

And that's important for us, so we can apply advances that we've learned to anything that we do, and we certainly have been able to do that, to help out this project from our ADHD work and back and forth.

So it is kind of a cross-pollination of all that.

Got you, yes, sorry for the mis-characterization there.

That's okay.

It's all right.

And then, just the last question, Orient Pharma meeting with the Taiwanese FDA.

Is there some kind of milestone that you guys get if they initiate a Phase 3 study?

No.

No.

It's a small market opportunity.

The real advantage that we've been able to have with working with them -- first of all, they are really good partners, good scientists and good business people.

And we really appreciate our relationship with them.

We, obviously, own the IP and could advance with anything that's been done, but they have paid for all the clinical work on this project which has been great for us from a financial standpoint, have been able to fund this program doing all the clinical work, and so that's been great for us.

Got you.

All right, guys, thanks a lot for the update.

Sure.

Thank you.

Our next question comes from the line of Annabel Samimy.

Please proceed with your question.

Hi, guys.

This is Daniel Cheng in for Annabel.

Hope you are doing well, and thanks for taking the call.

I had a few questions regarding POSIDUR.

Can you just describe some of your interactions with FDA, the types of questions they have been asking?

You did talk about the ISE with a lot of different types of studies that you've done in the package.

Are they focused in on any particular one of those studies?

Just if you could characterize those kinds of questions that would be great?

It is really difficult to characterize.

What we basically are doing is that as they come up with a question in their review process, we answer it and as quickly as we can and get back to them, and so far the process has been very smooth and we've been very comfortable with what we've been able to do.

So I can't give you a particular lot of light.

They have not focused on one given area more than another.

I think they sent it out to their various teams, that is evaluating their components, and so they been getting back as they have questions and we've been trying to respond in a timely manner.

Okay, great.

What are your thoughts on possible post-marketing studies should this product get approved in February?

Are there plans to start doing those and even a timeline for launch if it does get approved then?

Certainly, we have both of those plans laid out, and we certainly don't want to tip our hand at Pacira, so I won't be saying much about that.

I believe we have a superior product hands down, and I think -- it's not to say that there's not room for both products in the market place.

I am so pleased that they are out there because they are really teaching the world how important it is to try to reduce the narcotics.

They are not able to do it particularly well on their own.

They have to use these cocktails.

But, nonetheless, they are showing the importance of the (inaudible) advantage which we are happy to see, and so we can follow along with, I think, more meaningful surgeries and trials and show the world what it really can be.

We've known there's been a strong desire for this product.

They were out there with Skyepharma many years ahead of us when we first started, and we are coming.

Sounds good.

Regarding the partnership discussions, can you just talk about some of the key concerns that are coming up?

I think you mentioned something about debt structures.

To you, what would be the ideal type of partnership?

For us the debt structure is a different thing.

The debt structure is if we commercialize it ourselves, and Matt has done a good job of teeing up some opportunities for us to be able to fund this program ourselves.

It has always one that's very intriguing to want to do.

We've seen how well Pacira has done.

They went from ground zero to being quite successful from a corporate standpoint, and they are starting to get some sales which are nice to see, so I think they were up 30% quarter-over-quarter.

They were at $20 million last quarter, which is great.

So they are out there.

They're doing well.

And you can do it with 60 to 80 sales reps because it is a surgical suite sales force.

Matt has teed it up for us so we will be able to pull down debt structure against the potential revenue stream of this product on approval.

So should we decide to commercialize this product ourselves, we will be able to do that.

So the make-or-buy for us is what kind of value can we create for DURECT shareholders by virtue of hanging on to this product.

And there are very few products that come along during your career that have this kind of potential, that can be achieved without going to general practitioners and the like, where you can really grow and make a difference in the marketplace.

And we think we can be a fast follower with a superior product and that's a great place to be, and so that's one strategy.

The other strategies would be some kind of partnership, either a full-on where we just license it out to someone, or something where we do, after approval, or even maybe prior to approval, some kind of co-marketing thing where we have it out there.

When I was back at Alta, we did a couple of those kind of things where we did some -- did deals that slowly actually returned to the originator or vice versa.

So you can have these things go in either direction.

If you do end up launching yourself, what kind of up front debt do you think you would need, just to get?

I guess rather than answer it right now, we are still forming all those plans, but if you take a look at how much money Pacira spent in the first year, that's a good ballpark.

And just to clarify, what we have been doing is talking to a number of different financial groups who are interested in providing debt around a commercial launch.

They won't necessarily take regulatory risk, but they will assess and take commercialization risk, and so it's not like today we have something formally committed to, but we are in discussions with a whole number of groups that would provide that.

I guess I'm pretty darn confident that we could provide the funding for it with a debt structure.

And the only thing I would add to that is, if you look at their costs versus ours, the one advantage -- not one -- one of the advantages we have on the manufacturing side for them is we're a very simple solution.

Ours doesn't require cold [chain] a very stable, that kind of thing.

Theirs is a [liposomal] thing, so it has always been a challenge to make and ship and everything else.

And so we don't have that additional burden of a facility and cost of goods that they have, and so that's a nice advantage to us, kind of getting out of the gate.

And that, plus, hopefully, being able to learn where they tripped looking for that stone in the past, that kind of thing.

Great, well, thanks very much and good luck going into the PDUFA.

Thanks.

Thank you.

Our next question comes from the line of [Jeffrey DeSiebert].

Please proceed with your question.

Good afternoon, gentlemen.

Three questions on three different topics.

First of all, in the REMOXY area, can you comment, or do you have any color to give us on the FDA's approval of Zohydro?

And does that -- should that be causing any alarm bells to ring that a single drug, opioid, was approved without any abuse deterrence characteristics?

I wouldn't think that, Jeffrey.

The FDA has to follow the guidelines that are laid out there, and Zogenix did follow and did all the work they needed to gain approval for that product.

However, when the FDA did approve them, they are doing it with, you can see, a more strict classification of hydrocodone.

You now see it as a Schedule II versus a Schedule III and they have done that classwide.

They also put much more stringent REMS on the program, as well.

So, I guess, that's what I would say.

So you don't think the FDA has kind of opened the door that other groups might be able to slip through?

I don't think so.

I think what you will see -- I think if there is an abuse deterrent formulation out there, I would be quite surprised if the FDA were to approve a non-abusable form.

In this case -- I'm sorry.

This is the first hydrocodone --

Exactly.

Standalone --

Right.

That they have ever faced.

So for example, I would be quite shocked actually if the FDA were to approve an oxycodone without any abuse deterrence.

I don't think we'll see it.

We saw them already pull the original OxyContin for that, right.

So I think if somebody comes along with a hydrocodone product that is abuse deterrent, something we could possibly do with our ORADUR technology, then I think the question would be how much longer after approval, if you could show with Phase 4 work and post-marketing research that less abuse was occurring for that product versus the hydro, as an example, that well may be at risk.

All right, thank you.

And I guess the corollary to that, given that Zogenix is the Relday partner, do you believe that that is -- that the approval is material in terms of their ability to bring Relday forward, or you don't think it's actually relevant?

I think it's actually very material, and I'm hoping now that they have this behind them.

I was hoping for a decision one way or the other, right, and I am glad that they were able to get it approved, and now they hopefully can strengthen their company to the point where they can afford to take Zohydro forward -- I mean Relday forward.

All right, thank you.

Now turning to try to POSIDUR and coming back to ask questions I'm sure you'd prefer not be asked, but it in terms of your interaction with the FDA, and in light of the experience of David in terms of the process, can you talk a little bit more about whether there's anything you've seen so far, either at the mid-stage review, or I presume you have received the papers for the late-stage review, that is causing you undue concern as to -- ultimately, I think, many of us believe the biggest question mark will be around the ISE and the fact that the pivotal Phase 3 was not statistically significant.

Are you seeing questions around that that cause you concern?

First off, there isn't any list of questions for the final stage of review.

They ask questions as they come up.

From here on out, they come up with something and they will ask it.

As far as that [best] trial, we've laid that to rest starting at the pre-NDA meeting, actually over a year and a half ago, when we met with them and we described not that trial as our pivotal trial, but rather the hernia trial and the shoulder trial as our two pivotal trials.

And that's been our approach.

That's been what we have discussed with them, and that's been their approach in accepting the NDA, and that is the review that they are doing with the shoulder trial and the hernia trial as our pivotal trial.

Not to say the [best] is forgotten because it is not.

It's tremendously important for safety in particular.

We've got 300 and some odd patients with [holter] monitoring and shown the systemic safety components of that which are very favorable, and so that's all part of the story.

But then as I was breaking out the integrated summary of efficacy, that breakdown, you can see that we can take various components of that because remember, but for the way we selected to review those data, we could've had a statistically significant trial out of [best], but we picked the wrong end point.

That being said, when you do the ISE you can actually look and say, what does the data actually tell us, what do the data tell us.

And we were able to do that, and we saw, not only that we won on soft tissue and won on hard tissue, but then we've also been able to do something that Pacira has not been able to do and that is we beat [naked] bupivicaine in three trials.

And so that's very important.

And we think there will be a very important, obviously, post commercialization.

All right, thank you.

And then, coming back to the all-important question of money, and more specifically, being able to pay the bills, looking at your September 30 cash and the timeline you are looking at, can you give us a little bit more -- a little more color on the various discussions that are taking place?

And more specifically, in the last couple of calls you had expressed a reasonable degree of confidence that a deal of some type would get done -- or might get done in 2013.

We are less than 60 days from the end of the year.

Do you still have that same degree of optimism from amongst the various discussions that are, hopefully, at quite an advanced stage, something will mature this year?

Well, why don't I take a stab at that, and I'll start with that last part of the question first, and then work backwards.

I don't know what optimism we expressed at what call, but I think that we continue to talk to a number of parties about a number of programs, and, yes, it is still feasible that we might get a deal done this year.

That's also to say that we might not, but we are in discussions such that that is possible.

And those maybe everything from a large deal around POSIDUR to something more modest or on one of the earlier-stage programs.

In terms of financial strategy, I think a lot of the effort, as we talked about earlier in this call, was sort of trying to tee up post-approval options for us, which are a little bit more debt oriented.

And then I think the last part of the comment might be what we do as a Company constantly is juggle kind of where the stock price is, what our cash position is, what our burn rate is like, what future milestones in news flow is coming, and where we think these prospects on partners are, in sort of coming up with our funding strategy.

And while we are up maybe 60% or 65% year-to-date from a stock price standpoint, we are still sort of torn by the fact that when we look at REMOXY and POSIDUR it's kind of $150 million market value doesn't really excite us.

So we would be irresponsible to say we will never raise anymore money, but if we did do something, at these valuations, we would certainly be biased to make it small rather than large, that's for sure.

I don't know if that was helpful, but I tried to touch on all parts of your question.

So if I could just follow up with a question on debt strategy, obviously, if there were to be a favorable FDA decision on POSIDUR, which is less than 100 days away, that would be not just meaningful from a business viewpoint, but do you believe that that would give you access to this debt market, right, even if your inclination were not to go for launching the product, or that DURECT would launch the product on its own ala Pacira, but rather just to buy some breathing time so you could negotiate better deals, or explore other avenues?

Is that debt -- do you believe that debt market is only open to you if you're going to launch on your own, or do you think it's just generally open to you?

I follow your question.

Actually, I think today if we felt like pre-PDUFA date we wanted to put a debt structure in place for -- I'll pick a number -- $15 million or $20 million, we could easily do that.

Now if we are talking larger than that which would be what we might want to fund a real good commercial launch, that kind of debt structure would be something that's more dependent on post-approval.

But I think even today, if we felt like going to the group of people that are called -- known as venture debt investors, we could easily put $15 million or $20 million in place in a couple of weeks.

But I think if we went -- and the way those structures work is they are typically three- to four-year maturity.

If we wanted something that is more like seven-year maturity, and larger dollars involved, then that would be more the post-approval scenario.

Right, okay, well, that's very helpful because even a three-year maturity takes you comfortably beyond an approval date for REMOXY where, perhaps, we all have now have a greater degree of optimism on the outcome there, and by 2016 you might actually begin to see the first revenues, modest, but still some revenues coming in?

Absolutely.

All right, well, thank you very much.

Very helpful answers.

Thanks.

Thank you.

(Operator Instructions) Gentlemen, there appears there are no further questions at this time.

Do you have any closing comments?

Other than to thank you all for your continued support, and as you all know, if you have questions at any time, feel free to call the Company and we would be happy to get on the phone and talk things through.

Thank you very much.

Bye-bye.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.