DURECT Corp (DRRX) 2017 Q1 法說會逐字稿

Greetings, and welcome to the DURECT Corporation First Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matt Hogan, Chief Financial Officer, DURECT Corporation.

Thank you.

Mr. Hogan, you may begin.

Okay.

Well, good afternoon.

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'll then open up the call for 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 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 and 10-Qs under the heading Risk Factors.

So now let me turn to a brief review of our financials.

Total revenue was $4.6 million in the first quarter of 2017 compared to $3.6 million in the first quarter last year.

Revenue from our R&D collaborations was basically flat quarter-over-quarter at approximately $400,000.

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, largely from the sale of ALZET pumps and LACTEL polymers, was $4.1 million in the first quarter of 2017 as compared to $3.2 million in Q1 2016.

This increase was largely driven by strong demand for our LACTEL polymers.

And based on their backlog, our LACTEL product line should have a record year in 2017.

Our gross margin -- profit margin on these 2 product lines was 63% in the first quarter of 2017, and these product lines continue to be strongly cash flow positive for us.

R&D expense was $7.5 million in the first quarter 2017 as compared to $6.6 million in the first quarter last year.

SG&A expenses were $3 million in Q1 2017 as compared to $3.1 million in the first quarter last year.

And so our net loss for the first quarter 2017 was $8.1 million as compared to $7.9 million in the first quarter last year.

At March 31, 2017, we had cash and investments of $16.8 million, which compares to $25.2 million at December 31, 2016.

But as mentioned in the press release, we expect to close our Sandoz agreement this quarter, in which case our pro forma cash would be more like $36.1 million, reflecting the receipt of the $20 million upfront payment from Sandoz.

There are also $43 million in development milestones we could earn under this agreement, of which an amount nearly as large as our upfront payment could be earned in the next 3 quarters and pre-approval of POSIMIR, with all of it potentially achievable in the next roughly 18 months.

With that, thanks again for joining the call, and I'll turn it over to Jim to discuss the rest of the business in greater detail.

Thank you, Matt, and hello, everyone.

This is an exciting time for DURECT, with very positive developments in both the POSIMIR and DUR-928 programs.

Regarding POSIMIR, we have now established a major commercial partnership for the U.S. market with Sandoz, a division of Novartis, and we are going to complete enrollment in the PERSIST trial ahead of schedule.

I'll begin with POSIMIR and our U.S. collaboration with Sandoz, a division of Novartis.

POSIMIR is our investigational postoperative pain relief depo that utilizes our patented SABER technology and is intended to deliver bupivacaine to provide up to 3 days of pain relief after surgery.

After a competitive process, we had a number of fine companies in the running, and we thank them all for their time and efforts.

We're delighted to be working with Sandoz as our commercialization partner for the United States.

With Sandoz, we get the best of both worlds.

As a division of Novartis, Sandoz brings the benefit of a large pharmaceutical company with the resources to support commercialization.

And within the Sandoz division, we get a dedicated team of institutional sales professionals focused on the U.S. hospital market, where they have a significant presence.

The economic terms are as follows: We received a $20 million upfront payment and $43 million in development and regulatory milestones, which can potentially be earned over the next 18 months.

One meaningful milestone could be achieved in 2017, with the second early in 2018.

We also received $230 million in sales-based milestones.

While we can't break these out, these milestones are structured to be reasonably achievable and several have the potential to be achieved in the first few years after launch.

Finally, we received double-digit tiered royalty on sales.

Regarding the responsibilities.

DURECT will complete PERSIST, resubmit the NDA and is in charge of this process through approval.

We intend to utilize the expertise and talent of the Sandoz Novartis team to aid us in this process.

Sandoz is responsible for and will pay for all commercial activities in the United States.

Regarding the timing of this deal.

Getting Sandoz involved now allows their commercial team time to prepare for a successful launch, which includes KOL development, messaging preparation, medical affairs preparation, Phase IV planning and additional activities.

This fits into Sandoz' strategy for growing their hospital presence with proprietary 505(b)(2) products.

The Sandoz team has vast experience and relationships in contracting and selling within hospitals with relationships and the expertise to get on the formularies and to ensure these surgeons have access to the product.

As an integrated pharmaceutical company, Sandoz resources -- Sandoz has resources available within Novartis to support the POSIMIR launch, including a very large medical affairs and medical communications organization.

These are quite important functions for a product such as POSIMIR.

Regarding the market opportunity.

There's a large and relatively untapped market with room to grow.

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

We think a realistic available market for a product like POSIMIR is in the range of about 30 million surgical procedures per year.

Our competitor has forecast $290 million to $310 million in sales this year, which suggests about 1 million procedures or approximately 3% market penetration.

This leaves a substantial opportunity for Sandoz to do well with POSIMIR in this underpenetrated market.

What are -- some of the key competitive features for POSIMIR.

POSIMIR has the opportunity to be best-in-class non-opioid pain relief product for post-surgical pain.

Given the known side effects of opiates plus concerns about overuse and abuse of narcotics, treating pain with non-opioid alternatives clearly has medical benefit.

As a result of these concerns, there is a trend toward treating pain after surgery with a multimodal approach.

And POSIMIR, if approved, can play a central role in these strategies.

Regarding opioids in our society.

According to the CDC website on prescription drug abuse, in 2015, approximately 15,000 people died of prescription drug overdose.

That's more than 41 people a day in the United States.

In our pivotal POSIMIR shoulder and hernia trials, the POSIMIR treated groups had more than 20% fewer patients taking narcotics after surgery.

POSIMIR also provides a potential for duration of activity of up to 3 days, which is driven by the amount of medicine that we give and also by the location.

We deliver about 2.5x more bupivacaine than the competing product, and yet we never have higher plasma concentrations if one looks at the amounts in our NDA versus theirs, which means that we've got to be meeting ours out 2.5x longer.

POSIMIR offers an administration technique that is simple and rapid and enables continuous release of bupivacaine into the wound next to where the nerves have been affected.

If approved, the POSIMIR label will include data from well-controlled studies in such common and important surgical procedures as hernia, shoulder and laparoscopic gallbladder removal.

The next steps for POSIMIR.

The dosing in PERSIST is ahead of schedule.

And today, we are updating our guidance.

We now expect to dose the last patient of PERSIST this quarter, in the second quarter of 2017, whereas our prior guidance had been for third quarter of this year.

As a reminder, in a previous clinical trial of 50 patients in this same surgical model, which is gallbladder removal, POSIMIR was compared with the active control bupivacaine hydrochloride, against which POSIMIR demonstrated in a post hoc analysis an approximate 25% reduction in pain intensity on movement for the first 3 days after surgery, using the same statistical methodology that we will be utilizing in PERSIST.

We expect to have top line data in the fourth quarter of this year and resubmit the NDA shortly thereafter.

With a 6-month review by the FDA, this could set up for a commercial launch of POSIMIR in 2018.

One last point I want to make is that the upfront and near-term milestones from our Sandoz deal and assuming a positive PERSIST trial with eventual FDA approval will provide a stream of financing that will put us in a position to drive our DUR-928 initiatives forward.

In the longer term, I'd like to emphasize how the sales-based milestones and royalties from POSIMIR could provide an enormous return for our shareholders with any reasonable commercial success.

And bearing that in mind, all of those revenues would basically fall to the bottom line with no associated costs.

Now on to DUR-928, the lead product candidate in our Epigenetic Regulator Program.

DUR-928 is an endogenous, small molecule, new chemical entity, which may have broad applicability in several metabolic diseases such as nonalcoholic steatohepatitis, or NASH, and other disorders of the liver; in acute organ injuries, such as acute kidney injury; and in autoimmune/inflammatory skin disorders, such as psoriasis.

We are developing DUR-928 in 3 different routes of administration: orally for chronic metabolic disorders, by injection for acute organ injury and topically for localized dermatologic conditions.

Since our last earnings call, there have been 2 poster presentations at scientific meetings and 1 scientific publication describing some of the important activities of DUR-928.

First off, a poster describing the results from 2 STAM, that's S-T-A-M model, NASH mouse model studies were presented at the American Association for the Study of Liver Disease Emerging Trends in Non-Alcoholic Fatty Liver Disease conference in Washington, D.C., which was held on March 17 of this year.

This STAM model is a proprietary model run by a CRO in Japan, in which a majority of the compounds that are currently being evaluated clinically in the NASH field have been tested.

DUR-928 was tested in 2 phases in this model.

In the first phase, DUR-928 demonstrated a reduction in the NASH score and in developing fibrosis.

In the second phase of this model, DUR-928 demonstrated a reversal of hepatocyte ballooning and a trend for reversal of fibrosis.

In addition, it greatly reduced the number and size of precancerous hepatocellular nodules that formed in these mice.

This last point is particularly important as 100% of the mice in this model developed hepatocellular carcinoma at only 16 weeks of age.

This poster can be found on our website.

Dr. Ren, the scientist and physician who discovered DUR-928, recently had a paper published in the journal, Metabolism.

This paper described the molecule's capability to protect from endotoxin shock in an animal model.

There are few things one can glean from this paper.

First, the reduction of mortality by DUR-928 in this model is striking.

Only 10% of the animals survived in 96 hours without DUR-928 versus 90% survival with the DUR-928; second, the potential utility of DUR-928 for the treatment of multi-organ injury; third, the potential anti-inflammatory effect of DUR-928.

This is shown by the significant reduction of cytokines and inflammatory cell infiltration in the tissues.

Lastly, this paper also demonstrated the differences between sulfated oxysterol versus just oxysterol in general.

The effect in this same model by the latter, oxysterol, was reported in Volume 84 of a science paper in 2014.

On April 22, we were pleased to present a poster at the European Association for the Study Liver Disease, or EASL, meeting in Amsterdam, detailing the results from our first Phase Ib NASH study.

The data presented in this poster were from our first patient trial utilizing DUR-928.

This study was an open-label, single-ascending dose, safety and PK trial in liver function-impaired NASH patients and matched control subjects.

These patients were either confirmed cirrhotic or non-cirrhotic NASH patients.

This study was conducted in Australia, and it evaluated single-dose levels, first, a low dose, then a high dose, of orally administered DUR-928 in successive cohorts.

20 subjects with NASH and 12 matched control subjects received DUR-928.

Although this study was not designed to assess efficacy, we observed a dose-dependent reduction of certain biomarkers after a single oral dose of DUR-928.

And the highlights of these observations are noted in the following: First, in the high-dose cohort of the NASH patients, we observed a 5% and 12% reduction on the averages of IL-18 and high-sensitivity C-Reactive Protein, respectively.

IL-18 is an inflammatory mediator implicated in both liver and kidney disease; and CRP is a marker of inflammation.

These changes were observed at 12 hours after a single-dose.

We also observed full-length CK-18, which is a generalized cell death marker, was decreased 33% on average in the NASH patients in the low-dose cohort and 41% on average in the high-dose cohort.

These changes were observed at 12 hours post-dosing.

Cleaved CK-18, which is a marker of apoptosis, was decreased 37% on average in the low-dose NASH group and 47% on average in the high dose.

These changes were also observed at 12 hours post-dosing.

The reduction of both CK-18 cleaved and full length was even greater among the cirrhotic NASH patients.

At the EASL meeting, researchers from biopharmaceutical companies, clinics and universities working in the field of NASH were quite impressed with the magnitude of the reductions in both full-length and cleaved CK-18 after just a single dose of DUR-928 in these patients.

The magnitude of these changes also compares very favorably to results reported by other companies with compounds in development after dosing for much longer durations.

Total bilirubin, which is a liver function impairment marker, at 12 hours after dosing in the NASH patients was decreased by 27% on average in the low dose and 31% on average on the high-dose cohort.

Elevated bilirubin levels in plasma is an important indicator of liver dysfunction.

The clinicians, some who are leading hepatologists, who came by our poster were very impressed with the effect of DUR-928 in bilirubin reduction and told us they did not know of any other therapeutic agent that could produce such a reduction in only 12 hours.

Typically, bilirubin reduction is seen as a secondary effect over time as liver function is improved.

Patients with more severe liver disease, who have liver cirrhosis or elevated bilirubin levels, showed larger responses to DUR-928 with greater reductions in the full and cleaved CK-18 and bilirubin.

This poster from EASL can also be found on our website.

So what are the next steps for our DUR-928 program?

For the oral program, we're working to initiate a Phase II study in primary sclerosing cholangitis later this year.

For the injectable program, we're working to initiate a Phase II study in acute organ injury this year.

And for the topical program, we're developing topical formulations for testing in a Phase II psoriasis study early -- to be initiated early in 2018.

I'll now review the oral program in a little more detail.

We are actively working towards a Phase II trial in primary sclerosing cholangitis, or PSC, with orally administered DUR-928.

PSC is a chronic liver disease characterized by a progression of cholate stasis that is a decrease in bile flow over time with inflammation and fibrosis of the bile ducts.

It's an orphan medical condition for which there is no established medical treatment.

DURECT is working with PSC patient advocacy groups to facilitate the study of DUR-928 in this important orphan disease.

We anticipate initiating a Phase II study of DUR-928 in PSC patients later -- in the United States later this year.

For the injectable program of DUR-928, our third Phase Ib study with DUR-928, which is being conducted in Australia, is an open-label, single-ascending dose, safety, PK study in patients with impaired kidney function, these are patients who have stage 3 and 4 chronic kidney disease, are matched -- and also matched control subjects with normal kidney function.

This study is being conducted in successive cohorts evaluating a low-dose and a high-dose of IM-injected DUR-928.

Both cohorts will consist of 6 kidney function-impaired patients and 3 matched control subjects.

Data from the low-dose cohort showed the PK parameters between the kidney function-impaired patients and those subjects with normal kidney function were comparable.

After a PK, safety review of this cohort, patients are now being enrolled in the high-dose cohort, utilizing a dose 4x larger than the low-dose cohort.

And we expect to complete this study shortly.

We are currently working closely with expert advisers to design Phase II trials in 1 or 2 more indications with an injectable formulation of DUR-928 and expect to begin Phase IIs in the United States later this year.

And lastly, for our topical program for DUR-928.

As previously disclosed, we completed a Phase Ib trial on psoriasis patients, utilizing a microplaque assay with intralesional injection of DUR-928.

This study demonstrated a promising activity, which we believe warrants further investigation.

And we are currently developing topical formulations of DUR-928, which will be evaluated in a Phase II psoriasis trial.

We believe there is a large unmet medical need for new drugs to treat skin inflammatory diseases, such as psoriasis or atopic dermatitis, since many currently available treatments are either dissatisfactory or are associated with unwanted side effects.

In summary, the results of these studies evaluating the effects of DUR-928 are impressive even with just a single dose.

This molecule is highly conserved across all 7 mammalian species we have studied to date.

There are no toxic signals observed in any of our GLP tox studies even when we dosed to extremely high levels.

Not surprisingly, all healthy volunteers, now more than 100, tolerated DUR-928 very well even when plasma concentrations in some subjects were greater than 1,000x their endogenous levels.

Yet when DUR-928 is given at low doses, in more than 10 different animal disease models, the beneficial effects have been striking.

Similarly, the biological activities we saw after a single-dose of DUR-928, as shown in our Phase Ib study results, have been impressive in both NASH and psoriasis patients.

The more data we generate, the more we are convinced that DUR-928 may represent a new class of therapeutics that has the potential to treat a range of important indications.

I want to thank you and will now take any questions you may have.

(Operator Instructions) The first question is from François Brisebois.

All right.

So I had a couple here.

So in terms of DUR-928, why is it that you guys chose PSC for your first trial in that -- for DUR?

WeiQi, I'll let you answer that one if you like.

Well, first of all, the reason we chose PSC is based on some of our animal studies.

And our animal studies in bile duct ligation animal model, which is a representative of a cholestatic liver injury, diseases in human, and clearly showed that DUR-928 is highly beneficial in the cholestatic liver injury.

And in comparison with competitive compounds, our compound clearly showed, first of all, it's -- the effect is very quick, very rapid, just as our Phase Ib study in the NASH patient shown; and secondly, the important markers to show in the cholestatic liver injury was significantly reduced.

So that's why we believe that the 928 will be super effective in a way in these cholestatic liver injury.

And then for the NASH, on the other hand, unless you do a long-term study on using biopsy to confirm the efficacy, right now, there is no noninvasive biomarkers allow you to measure the efficacy of any drugs.

But in contrast, for the PSC, you have well-accepted biomarkers, which is noninvasive, so you can look at the results much more quickly and much more in a timely fashion.

Yes.

I think that's very true.

I think we see reductions in these markers of cell death, the CK-18 full and cleaved, which we'll be tracking in these patients.

The enzymes have longer half-lives, so they wouldn't come up after a single-dose, but we'll be able to track those over time.

And we've seen these various enzymes drop in these animal models, so we'd expect to see similar results in humans, and as well the bilirubin.

We saw it going down in only 12 hours in these patients.

We saw it down statistically significantly in these animal models with occluded bile ducts.

And so these are all very important pieces.

And talking to the patients, one of the things they are really drawn to is what we saw out of our STAM model, where we saw reduction in these precancerous lesions of liver cancer because a number of these PSC patients eventually do develop cancer, and so they're very excited about the possibility of it helping there as well.

So we have a number reasons why we think it makes sense, and so we're excited about it.

Great.

That makes a lot of sense.

And then in terms of bilirubin, that's very interesting that clearly the medical community came up at EASL.

Why is it that they think -- why is it that -- what's their opinion on the fact that it's so underappreciated right now or no one else is hitting that kind of reduction in bilirubin?

I think that bilirubin typically, like Jim mentioned, typically, you wouldn't see the reduction of bilirubin until it's very low or secondary effect of the therapy.

And when the liver function finally recovers, then the bilirubin start to drop.

But in this case, with the DUR-928, because we believe it acts on the lipid homeostasis, inflammation and the cells act all simultaneously.

That's why you are able to see the effect much more rapidly, much more potently.

And then it's just acting directly improving -- acting on directly improving the liver functions.

Okay, great.

And then one last one, if I could here.

In terms of POSIMIR, the Sandoz deal is -- all those milestones and opportunities are in the U.S. How should we think about POSIMIR's opportunity ex U.S.?

And are you guys trying to partner that for ex U.S?

Yes.

I'll let Mike Arenberg, who's our Head of Strategic and Corporate Development, speak to that.

Yes.

We have a lot of interest in the product ex U.S., as you can imagine.

I think we see several markets outside the U.S. as very attractive for this product as well, where there's a big unmet need.

But in this case, we wanted to focus on getting a U.S. partner in place first, and then we'll move on to discussions with ex U.S. partners now.

The next question is from Yasmeen Rahimi.

It's Yasmeen Rahimi.

Coming out of EASL, I mean, the data is so remarkable.

I mean, the fact that you're hitting robust changes in many of the inflammatory markers within a couple of hours.

So talking to KOLs at EASL, what was the perception when they came on and saw the data, if you could comment on that.

And then I have 2 follow-up questions.

Okay.

Yes.

Well, they were very impressed.

We had -- as I said, we had thought leaders who were from academia, we had thought leaders who were investigators who run clinics that do these studies and then we had a lot of people, as you would expect, from industry, and they were all quite impressed.

I think the more research -- I think that's the best way, research kind of focused people were more focusing on CK-18, both cleaved and the full length.

And the fact that we had such a dramatic reduction in such a short time, that was very impressive to them.

And then the people who are more clinically focused, that saw more patients, they were drawn to the bilirubin, I think.

And all of them liked the fact that the inflammatory markers are down, and they thought that was very important and that, that should continue over time and continue to improve the outcome of the patients.

But I would say that's kind of the way it broke down.

The researchers are more CK-18 in full and cleaved; and clinicians, more bilirubin.

Yes.

Yes, I would like to add that at one of our clinical advisers meeting and all of our clinical advisers who have world-leading hepatologists, they were extremely impressed with the CK-18 data and especially with the reduction we saw in such a quick time and then with a single dose.

And if you -- I believe at EASL that there were several companies, they are presenting their results on the CK-18 data, but that's all after multi-months of daily oral dosing of the drugs.

Then they see either full-length CK-18 or cleaved CK-18.

Only one company showed both CK-18's reduction.

We were able to show more favorably the reduction by a single dose in several hours.

Yes.

And that advisory panel that WeiQi is referring to actually had 4 past presidents of AASLD, and they were very impressed with this 4 various acute organ damage programs that we're actually evaluating for our injectable program.

Yes, we think it's going to be a very important -- those will be very important markers for us going forward in the clinic.

Absolutely.

I mean, with 41% reduction in full length CK-18...

47%.

And it was even greater in the -- anyway, it's really pretty nice.

Anyway, sorry.

Go ahead.

Well, that's fantastic.

So -- and then the next question is more tailored to your Phase II that you're planning for PSC.

So maybe can you guide us in terms of the size and the design and what the primary endpoint would be?

I think, it's probably a little...

Well, we are still working with our clinical advisers at this time to draft out the protocol.

So we are planning on submitting the IND when we are ready.

Yes, it's not too far away but just a little bit early for us to talk about it.

But we are also -- we're involving the patient advocacy groups, and we had a good chance to meet with a number of them from different countries around the world at the EASL meeting.

Excellent.

And then one last question.

Maybe any timing or catalyst for the injectable program and the topical that you could maybe share a little bit more in detail with us for this year?

Sure.

The nearest catalyst for the injectable program will be from the kidney patients.

Now we have to take this in its stride because these are chronic kidney patients.

And to my knowledge, there's really nothing out there one can give to a chronically damaged kidney and make any difference.

So if we happen to see any of these biomarkers move like in CAMERA, one of these, I doubt.

But if we did, that would be -- you'd have to bar the door.

That would be amazing, I think, from that standpoint, from a biological standpoint and a medical standpoint.

But we want to demonstrate that we can go safely in patients with damaged kidneys.

And that's what we're looking to do from this trial.

And then post that, it'll be the IND, start starting the Phase II trials -- IND, starting the Phase II trials.

And for topical, we now are actually screening formulations.

And so we are on track to start that trial very early in 2018.

That will be a Phase II trial in psoriasis, topically applied in the United States.

(Operator Instructions) We have a question from Geoffrey de Sibert.

A couple of very practical questions.

Matt, could you give us an idea again of what you expect cash utilization -- or well, what was cash utilization in Q1?

And how do you see it going forward over the next 3 quarters?

Sure.

In the first quarter, our basic burn rate was about $9.1 million.

We don't think it'll be that high in the next quarter or 2. One of the implications of the more rapid enrollment with the POSIMIR trial is that short term, your expenses go up.

But of course, if you can finish a trial 1 or 2 or 3 months earlier than you expected, the total cost of trial go down.

So some of this is kind of acceleration of the expenses associated with the PERSIST trial.

Beyond that, I don't think we give too much guidance.

But we think that was kind of a high watermark, the first quarter burn rate.

I guess, maybe I'll transition to one more comment, which I kind of made in my remarks earlier.

Besides the upfront payment from Sandoz, which is obviously considerable, we have these other $43 million in development-based milestones.

And they're structured so that we would hope and expect to receive another such -- another payment this year, followed by another payment, pre-approval and then, of course, a nice milestone on full approval of the product.

And all of that could start to come in this year and be -- and completely in, in roughly 18 months or so.

So we think that's another important source of funding for us.

As far as the royalty levels, you've just alluded to double digit.

Could you comment perhaps a touch more how do -- how would you say the royalties on POSIMIR under this agreement would compare with the previous Hospira agreement or possibly the Pfizer REMOXY royalty levels?

Could you give us a little bit of sense of what you might look for?

I could sort of try.

It starts double digit.

Therefore, it's much higher than any royalty we would have gotten from REMOXY.

And it's structured so that it goes up in multiple tiers, so as many of these deals do.

So this is -- but as an example, from 0 to $100 million, you get a certain percentage; from $100 million to $200 million, you get a higher percentage, et cetera.

So if we were to get to some modest assumption of $300 million in revenues for POSIMIR alone, which is what a competing product is supposed to do this year, we'd be looking at a royalty stream that's $35 million to $40 million or more per year.

And we have no costs associated with that.

So it can become quite meaningful.

I think that's about as much granularity as we can give, unfortunately.

In a similar comment, those sales-based milestones were meant to be structured to be very achievable.

You often hear about bio box, where you have milestones that, in candor, you never think you're going to achieve because they kick in at $1 billion and above.

But this has many different tiers of sales-based milestones that are meant to kick in at very reasonable levels.

So in the first couple of years after launch, we'd expect to achieve some of those.

Okay.

If I could follow-up on that.

So if we were thinking of what the highest tier you might have to achieve under this agreement, would it be a sub-billion revenue that you'd be at the peak of potential royalties?

Yes.

Okay.

That's very helpful.

One final question.

It's likely that dealing with a group like Novartis, you had to share a great deal of detailed information as part of this agreement.

Is there anything in your agreement that provides any kind of a standstill for their ability to buy part of the company or all of the company given the very close look they've had on the product?

Is there anything in agreement that protects DURECT from an unwanted hostile action?

No, that would be pretty non-typical for a deal like this.

And they have no -- they've not received -- this was just a POSIMIR deal.

So they haven't -- we haven't opened the books into any other programs?

But I think to take your question at a slightly different direction, Geoffrey, you don't do a licensing deal of this magnitude with a blue-chip major pharmaceutical company without them doing extensive due diligence on your product.

You'd have to expect, as they did, that they came in and reviewed all of our clinical data associated with the program, all of our regulatory correspondence with the FDA, manufacturing issues, the patent portfolio and then they presumably did their own market research and assessment.

And it's pretty unlikely they'd want to in-license a product like this if they thought the commercial opportunity was modest.

Why bother?

So this process that we went through with them, you've got to assume they did all of that.

If I was a shareholder, I'd take some level of comfort from that.

I think also one can assume they looked at the competition and the like because they certainly have the size to do whatever they wanted, whether products on the market or not.

So I think the fact that they are our partner speaks well for the product and its potential.

By all means, and congratulations to the team on an outstanding deal.

It's just that $150 million market cap for large pharmas who have limitless resources, one wonders whether they've acquired enough information to make them take certain strategic decisions.

But you've answered my question.

We have a question from Len Yaffe.

I had 2 disparate questions.

The first is on an old friend, REMOXY.

The opioid epidemic is becoming so great in this country that even the Institute for Clinical and Economic Review is -- has issued a draft, evidence report and is undertaking a hearing on it in a couple months to discuss the abuse-deterrent drugs that are available out there.

And I was just wondering, and I know it's been long road, if you can give us any updates that you might be able to share as it relates to REMOXY; and as of your last understanding, how you think it compares with some of the abuse-deterrent products that are out there on the market.

And then my second question goes back to DUR-928.

And what I'm wondering there is I can appreciate you're looking at PSC, for switches in orphan indication.

But obviously, the extremely huge market potentially is the NASH indication.

And the data from the KOLs continues and their opinions continue to suggest that fibrosis is the determining factor, the effect on that in terms of the efficacy of the drug and not some of the -- in my opinion I'll say, and not some of the drugs that are much earlier on in the treatment paradigm.

And I was just wondering if you could discuss DUR-928 as it relates to action on fibrosis/stellate cells.

And also even though it would require greater resources and you do have to do liver biopsy, there are 7 or so drugs currently in Phase II or III clinical trials that have the patients that are willing to undergo those probably because of the severity of their disease.

So could you give us some time frame when you think you'll start to pursue the NASH indication more aggressively?

So maybe Jim you want to tackle REMOXY.

Yes, yes, I'll go after REMOXY.

First of all, it's my opinion that REMOXY is, from an abuse-deterrent standpoint, really the superior product -- potential product that's out there.

I mean, we have shown 5 different ways by which we can reduce abuse from snorting, from injection, from mixing with alcohol, what, I'm going to say inhaling and I'm blanking -- chewing.

Thank you.

Chewing.

Okay.

So we've got all of those.

And we've shown it in various different studies and the like.

So clearly, it's got a nice opportunity.

As far as the timing of it all, that's entirely up to Pain Therapeutics.

I think the last thing I heard is they were looking at the end of this year.

Is that...

Yes.

They have to do 2 other abuse studies, which they've said they think they can complete by the end of the year and that they had talked about the outline of those studies extensively with the FDA.

So hopefully, they're very much in line with what the FDA wants to receive.

So they'll get that data hopefully by the end of the year and then they're going to have a pre-NDA meeting as we understand it with the FDA and then resubmit.

And you would certainly hope that the political winds are in our favor.

It's almost tragic that this isn't available for patients.

I would agree.

And then likewise, POSIMIR fits, I think, so nicely in there because of the percent of patients who are not taking any narcotics.

We're seeing, on our 2 pivotal trials, 1 in 5 patients not taking any.

And if you apply that, even a small fraction of a penetration in that marketplace, the potential for reduced prescriptions and reduced narcotics on the street is dramatic.

And also, there's a certain percentage of people who have this predisposition when exposed first to narcotics and end up with problems later on.

And so by never being exposed, that maybe saved their lives and their families with the problem.

I was at a conference in San Francisco 1.5 years or so ago that it was very eye-opening on prescription drug abuse and the like.

And there were some parents there talking about their children who had just been exposed because they hurt a shoulder and some sport -- high school sports or something and were into huge problems.

And I'll never forget this one mom talking about how -- she had her 20-something year old son who had become addicted after surgery -- shoulder surgery.

And she said she went to sleep every night praying that she wouldn't get that call and waking up every morning thanking God she didn't.

And I just think it's really something that is very important to all of us.

And so we're hoping that both REMOXY and POSIMIR can help.

As far as reducing fibrosis, we do -- we've seen this kind of stuff with our molecule.

We know the mechanism of action by which it work.

And maybe WeiQi can speak...

Yes.

In fact, for the fibrosis, about half of our patients in the Phase Ib trial, those NASH patients, are either severe fibrosis or advanced fibrosis or cirrhosis.

So that's just a single dose, we were able to see these biological activities.

As a matter of fact, these patients with cirrhosis or advanced fibrosis or severe fibrosis, they responded greater than regular NASH patients.

So we clearly see -- and in addition, in the animal studies, we saw the strong anti-fibrotic activities of DUR-928.

So we strongly believe that DUR-928 certainly would have -- that, that -- what that demonstrate, anti-fibrotic activities in the NASH trial.

In time, we certainly would do NASH trial.

And it's just -- because right now, as we know, there's -- first of all, there is no noninvasive measurement for NASH therapeutic effects.

So in other words, you have to do relatively longer term of clinical trial in order to see the efficacy.

And if you do a relatively shorter trial, it's just not justifiable to do biopsy in these patients.

And then second of all, there are multiple noninvasive diagnostic tools are being developed at this time, such as MRI or Fibroscan or MREs.

However, all these methods as well as our biomarkers are still being validated if not fully accepted by the greater society.

So in other words, we would rather wait until -- when these methods are available because we believe DUR-928 can be effective in NASH patients in a relatively shorter time frame than most other therapeutics testing in the trials.

So in the shorter time, it's just not reasonable to do the biopsy if we can use the noninvasive method.

And in the interim, as a smaller company, we can really make a lot of progress moving the ball down the field, and one of these indications which may achieve approval much faster than a NASH approval.

And that would make a big difference to our shareholders and to the patients by which we serve.

There are no further questions at this time.

I'd like to turn the floor back over to management for closing remarks.

Okay.

We would just like to thank you all for participating.

And of course, if people have questions after this, they're always free to call us, and we'd be happy to talk to you.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.