DURECT Corp (DRRX) 2013 Q4 法說會逐字稿

Greetings and welcome to DURECT fourth-quarter 2013 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Matt Hogan.

Thank you, Mr. Hogan, you may now begin.

Good afternoon.

This call will begin with a brief review of our financial results, and then Jim Brown, or President and CEO, will provide an update on the business.

We'll then open up the call for a Q&A session.

Before beginning, I'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 and development, expected product benefits, our development plans, future clinical trials or 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-K, under the heading, Risk Factors.

Let me now turn to our financials.

Total revenue was $4.3 million in the fourth quarter of 2013, as compared to $3.3 million in the fourth quarter of 2012.

Excluding all deferred revenue, recognized for upfront fees of our agreements, revenue from our R&D collaborations was $1.4 million in the fourth quarter of 2013, as compared to $0.7 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.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.8 million in the fourth quarter 2013, as compared to $2.4 million in the fourth quarter 2012.

Our gross margin on these products was around 65% in the fourth quarter this year.

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

Just to highlight this for a second.

Our total revenue for the year from these two product lines was $11.4 million, and they generated $6.8 million in gross profit.

That represents year-over-year growth of about 8.5% revenue and 15% growth in gross profit.

So a solid year from these product lines.

R&D expense was $4.9 million in the fourth quarter, unchanged from the fourth quarter a year earlier.

SG&A expense was $3.5 million in the fourth quarter, as compared to $2.9 million in the fourth quarter of the year earlier.

As a result of the above, our net loss for the fourth quarter was $5.1 million, compared to a net loss of $5.5 million for the same period the year earlier.

Our net cash consumed during the quarter was $3.6 million, if we exclude the net proceeds from our equity financing that we completed in the fourth quarter.

That was very consistent with previous quarters, which have been running a little under $4 million a quarter.

In November we did a small equity offering.

We issued 8.2 million shares at $1.40 and our net proceeds were approximately $10.6 million.

So at December 31, 2013, we had cash and investments of $24.4 million, compared to $28.9 million at December 31, the year earlier.

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

As you know, we signed a collaboration with Impax in January 2014.

That $2 million upfront fee associated with the collaboration was received in January, but obviously not included in the cash position I just described.

As a reminder, we have multiple programs that may potentially be partnered over the next 12 months to 18 months, including POSIDUR, where we have worldwide rights; ORADUR-ADHD, where we have US and European rights; TRANSDUR-sufentanil and various feasibility studies that we hope may mature into development agreements, much like Relday did earlier.

With that, thanks for joining the call, and I'm going to turn it over to Jim to provide more of an update on our development programs.

Thank you, Matt, and hello, everyone.

As we just had an update with investors about two weeks ago, I'm going to try to be brief with regard to this summary, and then open it up for Q&A.

I'll begin with POSIDUR.

As you know, we received a Complete Response Letter on February 12 from the FDA, stating that they aren't ready to approve the NDA.

And the NDA does not contain sufficient information to demonstrate that POSIDUR is safe when used in the manner described in the proposed label.

The FDA has indicated that additional clinical safety studies need to be conducted.

DURECT is evaluating the issue and the recommendations described in the Complete Response Letter, and plans to have further discussions with the FDA.

The FDA had no comments regarding the cardiovascular safety concerns, the CMC section, non-clinical pharmacology or other sections of the NDA.

We believe the main issue the FDA felt was lacking was enough data for an apples to apples comparison of POSIDUR against a comparator other than SABER placebo.

SABER placebo seemed a good comparator for efficacy and cardiovascular safety purposes.

For a safety comparison, the FDA now wants additional data using another comparator, not SABER placebo.

They have suggested bupivacaine hydrochloride or some other placebo-like saline.

We believe they felt it was difficult to make safety conclusions given the mix of smaller studies that we did and the ability to combine these studies in an effective manner across all the various smaller-sized vaccine.

As a reminder, we have dosed 1,075 patients are included in our summary of safety database.

683 of these patients were exposed to POSIDUR.

268 received SABER placebo, and 124 patients received our bupivacaine hydrochloride as a control.

Since receiving the Complete Response Letter, we have recruited clinical regulatory consultants to add their perspective and guidance.

We will likely engage one or two more to assist our dialog with the agency.

On one hand, we would like to meet with the FDA as soon as we are able.

But on the other, we want the meeting to be as productive as possible.

Which means we need to take the time to pull together the studies that we might propose to address their issues, in order that we might get the most our of our meeting with the agency.

As a result, we don't yet have a target date for the meeting.

We've been asked by some investors how we plan to disclose the outcome of that meeting.

Our expectation is that we will wait until we receive the FDA's response from our meeting minutes to make sure we're on the same page.

We have a number of other programs here creating value at DURECT, and I'll review them now, and then we'll take the questions that you might have.

Let's start with REMOXY.

REMOXY is an abuse-deterrent formulation of oxycodone, which is a widely-used product for chronic pain.

Oxycodone does about $3 billion in sales, and it provides -- excuse me, Oxycontin does about $3 billion in sales, and it provides effective pain control relief for chronic pain patients.

But unfortunately Oxycontin products or oxycodone products in general have been misused at a rate that the FDA has repeatedly described as a major public healthcare concern.

Our ORADUR technology is what confers on REMOXY it's multiple layers of abuse resistance.

And that is, it's much more difficult, in fact, impossible to snort this REMOXY product, because it's got the viscosity of Vaseline inside of a gel-cap.

Injecting it becomes a contol-use injectible.

Inhaling it, chewing it, and mixing it with alcohol and other drinks, it's very difficult to tamper with.

We think these multiple layers of abuse resistance that are built into REMOXY make it a compelling pain product, and that Pfizer will do an impressive marketing job when it's approved.

Pfizer have a major presence in the pain space with Celebrex and Lyrica.

With REMOXY, Pfizer will have a product designed to be effective for legitimate pain patients, but with features designed to reduce abuse by illegitimate users.

Prescribing physicians can get the comfort of knowing it will be an effective pain product without having to worry about writing prescriptions that may lead to diversion and misuse.

Patients won't have the stigma of telling anyone that they are on Oxycontin, yet they'll get a, effective pain control product with true twice-a-day gel-cap.

With Pfizer's large sales force, they should do very well with this product, once launched.

I'd also like to note that we have multiple issued patents that go out at least until 2031, so there will be a long period for our shareholders to gain a return from REMOXY.

It's a late-stage asset, in that the safety and efficacy of REMOXY have been shown conclusively.

And the remaining tasks that is needed are to address manufacturing-related issues that led to the FDA giving REMOXY its latest Completed Response Letter.

In March of last year, Pfizer met with the FDA to share the extensive work they had been doing on REMOXY and to propose a path forward.

The FDA agreed to Pfizer's proposal, namely there was no need to replicate earlier Phase III work if a bridge back to the data is provided with a bio-equivalent study.

In October of last year, after a thorough review, Pfizer announced their decision to move forward with the next steps required to resubmit REMOXY and they are driving the program forward.

Specifically, there are two primary studies that are required for re-submission, an abuse potential study; and second, a pharmacokinetic bio-equivalent study.

The abuse potential study with the new formulation was started per clinicaltrials.gov in November of 2013.

This is listed as being a 60-subject study with a target completion date of June this year.

In a conference call that Pain Therapeutics held on February 4, they stated that they understood that roughly 18 to 20 subjects were enrolled at that point in the trial.

Finally in early February, Pfizer posted a study on clinicaltrials.gov that involved 60 subjects to equate the bio-equivalence of the modified formulation versus the original formulation of REMOXY, under immediate fact-fed conditions, and to estimate relative bio-availability under fasting conditions in healthy volunteers.

This study has a target completion date of April of this year.

We think the probability of success in these trials is high for multiple reasons.

First, a smaller bio-availability study has already been done by Pfizer, and the results of this trial support moving forward with a larger bio-equivalent study.

In other words, the bio-equivalent study is basically a larger form and more formal version of the bio-availability study that's already been completed to Pfizer's satisfaction.

Second, the changes to the formulations were extremely minor.

Hence, we wouldn't expect the abuse liability study to turn out any different from the study previously done by King Pharmaceuticals.

And that study met all of its endpoints.

Pfizer's stated re-submission date is no earlier than mid of 2015.

We believe that as the months tick by and the submission date gets closer, more and more investors will begin to factor this program more prominently into their thinking.

The discount we're currently seeing for this program will begin to decrease.

The review period for this product would be six months, so our expectation for approval is late 2015, with a launch shortly thereafter.

Pfizer gave an update on their ID pipeline on February 25, earlier this week, at the Citibank conference.

And REMOXY is listed as one of their key Phase III programs.

As a reminder of how impactful and transformative this product could be for DURECT, we receive a royalty of 6% to 11.5 % of REMOXY sales.

Hence, if Pfizer captures 30% of the roughly $3 billion market that exists today, and we don't think that's an unreason number, we'd expect to have a annual royalty stream of somewhere around $70 million.

I'd also like to note that we have over $250 million in NOLs built up, so when that royalty stream starts to kick in, we won't be paying taxes for quite a while.

Let's now move on to ELADUR.

We're pleased to start this year by announcing our collaboration with Impax and the resumption of the development of ELADUR.

As a reminder, ELADUR is a pain patch that we developed for post-herpetic neuralgia.

It's a 3-day patch versus the 12-hour lidocaine patch that's out there today.

This is more than just a convenience matter, as it's been reported that two out of three patients that have been dosed with the lidocaine patch suffer break-through pain during the 12 hours when the lidocaine patch id off.

So this could be a meaningful patient benefit and efficacy advantage.

In addition, ELADUR is a very patient-friendly design that contours to the skin and won't fall off easily.

So a patient can exercise with it, go for a swim, or take shower.

The terms of our collaboration with Impax are that we receive $2 million up front, $31 million in development milestones, the next which is the start of Phase III, $30 million in sales-based milestones.

Impax funds all the development and commercialization.

DURECT gets a share of the sub-license fees received by Impax, if they choose to sub-license the product.

We also receive a tiered royalty that starts in the mid single-digits and then goes to lower double-digit royalties.

In terms of next steps with regard to the program, Impax wants to do a short proof-of-concept study, followed by a meeting with the FDA to discuss the structure and design of a proposed Phase III program.

Their hope is to start the Phase III program later this year.

As a reminder, we have an orphan drug designation for ELADUR for post-herpetic neuralgia, and we have an issued patent in the US that goes out 2031, and in Europe out to 2027.

We're pleased that ELADUR is back in development with Impax and we have another attractive asset that could potentially be in Phase III this year.

The next program I'll update on is Relday.

THis is a large commercial opportunity.

This product features a once-a-month injection of risperidone.

It's very patient-friendly designed and also physician-friendly, as an opportunity for treating schizophrenia.

It's a smaller subcutaneous injection versus the market leader out there, which is a 5cc IM injection.

We have positive single-dose Phase I data, with full dose range that is expected for clinical practice.

This product is partnered with Zogenix.

They plan to initiate a multi-dose clinical trial in the second half of this year.

As a reminder of our collaboration with Zogenix, we receive $2.25 million up front.

We have another $103 million of potential milestones, $28 million of which are development-based and $75 million are sales-based.

DURECT gets a share of any sub-license fees that are received by Zogenix.

And Zogenix funds all the development.

Our royalty back to DURECT are sales-based and they start in the mid single-digits and go to the lower double-digits.

With regard to our other ORADUR opioids, in late October of this past year, Pain Therapeutics regained the rights from Pfizer to develop three other opioids with our ORADUR technology.

These are hydrocodone, hydromorphone and oxymorphone.

All three of these products have active INDs in place, and work has been done in the past with hydrocodone and hydromorphone.

Future development of these will depend on Pain Therapeutics' decisions going forward, but we certainly will be able to benefit from our REMOXY experience.

Pain Therapeutics hasn't stated that they've made a formal decision about or out-licensing these assets.

But they did make some comments in their early February earnings conference call, and I would like to describe those comments now.

First, they seem to prefer hydrocodone and hydromorphone over oxymorphone.

Second, they mentioned that they may be able to have one or two of these in Phase III at about the time when REMOXY is submitted, about middle of 2015.

They went on to mention that they are considering an approach for hydromorphone that might not require a Phase III trial.

We, of course, would have to vet that strategy with the FDA.

We are in active dialog with Pain Therapeutics about these programs and have begun to do some work.

If Pain Therapeutics commits the resources, we think these programs have the potential to move quickly, and that they represent a value stream that could grow over time as they advance in development.

As a reminder, we get the same economics from these products as we do from REMOXY.

That is, a royalty that starts at 6%, goes up to $11.5%.

Pain Therapeutics would pay for all the development expenses.

And we also receive about $6.1 million in pre-sales milestones that are spread across the three programs.

The final program I'll update is our ORADUR ADHD program.

Here, the lead formulation demonstrated the following in a Phase I study last year:

A nice rapid onset of action.

A longer duration that would allow for once-a-day dosing.

It also has a smaller capsule size relative to the leading product on the market.

And it's tamper resistant due to our ORADUR technology.

Our partner for Southeast Asia is Orient Pharma.

They met with the Taiwanese FDA to outline the Phase III program in Taiwan, and they're developing plans for their Asian and South Pacific territories.

DURECT retains the US, European and Japanese rights for this product.

And now that we have a formulation in hand with supporting PK data, we've initiated licensing discussions for this product.

Let's now review in summary the potential key drivers for DURECT over the next 12 to 24 months.

For POSIDUR, it's to meet with the FDA to clarify and address the questions they have in the Complete Response Letter.

And then it's pursuing development and commercialization of the POSIDUR program, including a potential licensing deal.

For REMOXY, it's Pfizer conducting the required studies, that is the BE and BEs potential studies, and re-submission with a target date of middle of 2015, followed by a six-month review by the FDA.

And then product launch.

for ELADUR, it's initiation of Phase 3 by Impax later this year, which would trigger a milestone payment for us.

And for Relday, it's initiation of a multi-dose trial by Zogenix in the second half of this year.

We have the potential for a PTI order of program advancing into late-stage development.

Potential for new collaborations around POSIDUR, our sufentanil patch, the ORADUR methylphenidate program, or one of our feasibility programs.

Additionally, there's the potential for a new program to enter clinical development this year.

With that, I would like to thank you for joining our call, and we'll now take any questions you have.

(Operator Instructions)

Jason Napodano.

A question, and this may be better for pain, but can you give me a sense, Jim, of what the path forward would be for a hydromorphone product that wouldn't require a Phase III?

You certainly should take that up with them, but my suspicion would be that they would be trying to do some kind of pharmacokinetic comparison to the product that's already out there, and try to link in that way.

That would be the only way you would be able to do that.

Okay.

By showing that you're bio-equivalent.

But then the question is how can you do that and also have the abuse deterrence?

And that, I think, is the question.

Okay.

Maybe I'll take that up with them.

It stood out as interesting, though.

Yes, I think it's an interesting strategy.

We can certainly make a product that will do that.

But then, can you get the claims on the abuse deterrence, that's the question from a regulatory standpoint.

That's all I had, guys.

Thanks.

Okay, sure.

(Operator Instructions)

[Rajesh Patel].

Hi, guys, thanks for taking the question.

I was just wondering, the language that you put out in the press release for the POSIDUR CRL said that the FDA said couldn't be approved for the label that you requested.

Do you sense that there is any possibility of a modified, maybe more narrow label, that possibly could be approved right now without additional studies?

I think that is the way the sentence was written, and it begs the question and we'll certainly probe that with the agency.

I wouldn't hold out tremendous hope for that at this point in time.

I think we need to sit down with them and address any concerns they have.

Okay, and then one other question on the POSIDUR.

As far as the CRL not having issues regarding the efficacy and (multiple speakers), is it basically the absence of that is what informs you that they don't have issues with that?

Or does it specifically state that we're okay with everything else?

Well, they typically -- I think if you look at the way a Complete Response Letter is supposed to work, it's supposed to be literally that, a Complete Response Letter.

So they are meant to give you all the issues that they have with the package.

And it was relatively short.

It was all around these safety components that I discussed before, the things like duritis and somnolence and things like that, the discoloration, that kind of stuff.

Okay, great.

That's really helpful.

Sure.

(Operator Instructions)

Thank you.

We have no further questions in the queue at this time.

Would you like to make some closing comments?

Well, I guess given that we did a call about two weeks ago, it's not surprising we don't have too many new questions.

(laughter)

Regardless, if people think about it and you do generate some questions, please feel to call any of us at the Company when you want.

And with that, thank you very much.

This concludes today's health conference.

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