DURECT Corp (DRRX) 2018 Q1 法說會逐字稿

Greetings, and welcome to the DURECT Corporation First Quarter 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, the 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, good afternoon.

Welcome to our first quarter earnings call.

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

We'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 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 and our upcoming 10-Q under the heading Risk Factors.

So with that, a few financial comments.

Total revenue was $3.5 million in the first quarter of 2018 compared to $4.6 million in the first quarter of 2017.

If one excludes all deferred revenue from upfront fees already received by the company, then revenue from our R&D collaborations was up by approximately $0.8 million in the first quarter of 2018 compared to the first quarter of 2017.

Product revenue from the sale of ALZET pumps and LACTEL polymers was $2.4 million in the first quarter 2018 as compared to $4.1 million in the first quarter 2017.

Q1 2017 had been far and away the strongest quarter for LACTEL polymer shipments in our history, so that set up a tough comparison.

The gross margin for the combined ALZET and LACTEL product lines was 51% in the first quarter 2018, and these product lines continue to be strongly cash flow positive for us.

R&D expense was $7 million in the first quarter 2018 as compared to $7.5 million in the first quarter 2017, primarily due to lower R&D costs associated with POSIMIR, partially offset by higher costs for DUR-928.

SG&A expenses were $3.2 million in the first quarter of 2018 as compared to $3 million in the first quarter of 2017.

And at March 31, 2018, we had cash and investments of $44.3 million, which compares to $36.9 million at the end of the year.

We had an underlying cash burn rate of $6.3 million in the first quarter of 2018, which compares to $7.3 million in the fourth quarter 2017 and $9.1 million in the first quarter 2017.

And these figures exclude any licensing deals or equity financing activities other than proceeds from option exercises.

In the first quarter 2018, we raised $13.7 million net of expenses by selling around 8.2 million shares using our ATM facility at an average price of $1.73.

I'd also mentioned that we raised a further $3.1 million net of expenses that settled in early Q2 by selling around 1.5 million shares at an average price of $2.22.

We stopped using the ATM facility in early April.

If you add the April settlements to our March 31 cash position, then we have proforma cash at the end of the quarter of $47.4 million, which we feel good about.

I also want to briefly comment on our proxy that's been filed in anticipation of our annual meeting on June 19.

One item in the proxy is a request to increase our authorized common share from 200 million to 350 million.

It's not prudent for a company to be in a position where it has inadequate authorized shares available for future use in connection with raising money by selling equity or equity-linked securities or the issue options or if a potential acquisition came along that we wanted to use equity partially for.

The timing of the request is driven by the dates for our proxy in our annual meeting, and we view it as normal corporate housekeeping.

But to give a little bit of history, in 2000, we had 110 million authorized shares.

In 2010, we increased that by 90 million shares to 200 million, which is to say an 82% increase.

Now 8 years later, we're proposing to increase it by another 150 million, which is to say a 76% increase.

This doesn't mean we intend to use these authorized shares under any defined timetable.

The timing request is driven by the annual meeting date.

And in considering the number of shares to request, we engaged a consulting firm, which has insight into how ISS regard such request when they decide whether to recommend shareholders should vote for against a proposal.

And according to that consulting firm, ISS would support a doubling of the authorized shares, so we could have asked for another 200 million shares.

We talked about it at a recent board meeting and thought we would just ask for 75% of that figure.

With that, thanks, again, for joining the call.

And I'll turn it over to Jim to talk about some other matters in greater detail.

Thank you, Matt, and hello, everyone.

We are about 4 months into the New Year, so let's briefly review what we've accomplished.

We started 2 Phase II trials for DUR-928 for 2 different indications and a third is on track to start in the third quarter.

And we now have PDUFA dates for 2 product candidates that this year: one in July and the other one in August.

Each of these product candidates could generate milestone payments and set up future royalty and earn-out streams.

I'll now update on the programs in greater detail beginning with DUR-928.

DUR-928 is a lead product candidate in our Epigenetic Regulator Program, with a regulatory role in mammalian lipid metabolism, inflammatory responses in cell survival.

It's an endogenous, first-in-class small molecule, which may have broad applicability in several hepatic and renal diseases, including nonalcoholic steatohepatitis or NASH and other disorders of the liver, such as Primary Sclerosing Cholangitis, or PSC, in acute organ injury such as acute liver and kidney injury and in inflammatory skin disorders, such as psoriasis and atopic dermatitis.

928 has demonstrated positive results in more than 10 different animal models and has achieved reductions in important biomarkers or other signals of potential clinical activity in Phase Ia single-dose studies in NASH, psoriasis and chronic kidney disease patients.

We now have 2 INDs opened with 2 phase IIa studies underway investigating DUR-928 in PSC and acute alcoholic hepatitis.

With the help of life science advisers, we recently held 2 thought leader calls to inform our investors of diseases -- of the diseases that we're investigating in our first Phase II trial for DUR-928.

The first of these calls was held on February 26 with Dr. Keith Lindor discussing PSC and the second was on April 5 with Dr. Paul Kwo discussing alcoholic hepatitis.

The key messages from -- the call with Keith Lindor on PSC was the prognosis for patients with PSC is not good.

It leads to severe complications such as cirrhosis, hepatocellular carcinoma and liver failure.

He noted that liver transplant rates for PBC, which is primary biliary cirrhosis, have been declining in recent decades, but the same rate is flat for PSC, due to no improved treatment options.

PSC may be under diagnosed and he discussed one study that suggested that about 7.4% of irritable bowel or IBD patients were found to have PSC-like lesions and 65% of those 7.4% had not been previously diagnosed with PSC.

So if there were a shift to using more imaging, it may increase the size of the addressable market for PSC.

Lastly, he noted that there were currently no recommended therapies for PSC and the treatment landscape remains wide open.

The key messages from the Paul Kwo phone conversation on alcoholic hepatitis or that excessive alcoholic use is prevalent and leads to liver disease, alcoholic hepatitis is a major cause of morbidity and mortality with enormous associated health care costs.

In fact, alcoholic-related liver disease has now surpassed hepatitis C as the most common indication for liver transplantation.

Severity of alcoholic liver disease, including alcoholic hepatitis is typically assessed by tests, such as the M-E-L-D or MELD score and the Lille model, both of which we will be monitoring in our Phase II trial and both of which include bilirubin and serum creatinine, which we've impacted in prior Phase Ia studies.

The current treatment options are inadequate basically being able to help patients with alcoholic hepatitis and this has been demonstrated in the STOPAH trial, which looked at the effective steroid and pentoxifylline treatment in over a 1,000 alcoholic hepatitis patients.

If you like a copy of the transcript from this call, please contact Matt Hogan here at DURECT.

The Phase II trial for PSC is a randomized, open label study with 2 cohorts dosing at 10 and 50 milligrams of orally administered DUR-928.

Each of these cohorts will dose between 15 to 20 patients over a 4-week period with a follow-up for an additional 4 weeks.

The objectives of this study include safety, pharmacokinetics and pharmacodynamic markers, including the percentage change of baseline of serum alkaline phosphatase and other biomarkers.

As this is an open label study, we expect to generate data in 2018.

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

And DUR-928 has been granted orphan drug designation to treat patients with PSC.

The Phase II trial for alcoholic hepatitis is an open label dose escalation study that will be conducted in 2 parts.

Part A includes patients with moderate alcoholic hepatitis as determined by the Model of End Stage Liver Disease or MELD score of less than 20.

MELD is common scoring system used to assess the severity and prognosis of AH patients.

Part B will include patients with severe alcoholic hepatitis that have MELD scores of between 20 to 30.

This study is being conducted using 3 intravenous doses of DUR-928, and those will be 30, 90 and 150 milligrams in Part A with sequential dose escalation that will follow the review of safety and pharmacokinetic results from the prior dose level.

The dose may be adjusted in Part B based on the findings from Part A.

The trial is expected to enroll at multiple clinical sites in the United States, and we are targeting between 24 to 36 AH patients to complete the study.

The objectives of this study include safety, pharmacokinetics and pharmacodynamic signals as is determined by the improvement in liver biochemistry, MELD and Lille scores and other biomarkers.

As this is an open label study, we expect to generate data in 2018.

Alcoholic hepatitis is a syndrome of progressing inflammatory liver injury associated with long-term heavy intake of alcohol and involves a spectrum that ranges from mild injury to severe life-threatening liver damage.

The prevalence of AH has been accurate -- excuse me, has not been accurately determined, but is believed to occur in somewhere between 10% to 35% of heavy drinkers.

There were over 320,000 hospitalizations related to alcoholic hepatitis in 2010 and the result in hospitalization costs of nearly $50,000 per patient.

Pharmacodynamic data from the use of 928 in animal models of acute organ injury support the potential to improve the outcome of AH patients.

The data generated from this trial will also have the potential to be relevant to other liver and acute organ injuries.

I'm now going to move to the topical DUR-928 program.

We've developed a topical formulation of 928 because of the promising results we achieved in an exploratory Phase Ib study in psoriasis patients utilizing intralesional injections of DUR-928.

We are working with advisers to finalize the study protocol for a Phase II proof-of-concept study with topically applied DUR-928.

We've had pre-IND interactions with the FDA and are completing the last nonclinical study requested by the FDA prior to our planned IND submission later this quarter.

We expect to initiate this study in the third quarter of 2018.

There is a sizable market opportunity for new topical drugs in inflammatory skin diseases, such as psoriasis and atopic dermatitis.

Now onto POSIMIR.

We continue to work with our partner, Sandoz, regarding the next steps for this POSIMIR program.

And we will update further when a final decision has been made with regard to the program.

Next to RBP-7000.

RBP-7000 is a near-term opportunity for direct shareholders and is the closest to market with a PDUFA date now that is less than 3 months away.

The RBP-7000 product opportunity for DURECT is the result of a patent deal with Indivior.

It is Indivior's investigational once-monthly injectable risperidone product candidate for the treatment of schizophrenia.

The PDUFA date for this program is July 28 of this year.

The Phase III and long-term safety study data from RBP-7000 demonstrates that the product had good once-a-month dosing, had a rapid onset of action, no loading dose with the initiation of treatment was required, no supplemental dosing was required during treatment.

It demonstrated clinical efficacy and safety in schizophrenia.

Overall, it was well tolerated.

There was a measurable quality of life and medication satisfaction benefit seen for the product.

And according to Indivior, RBP-7000 is the first once-monthly subcutaneous form of risperidone to demonstrate safety and durability of effect and a long term that is 12-month clinical trial.

Last year, DURECT received an upfront nonrefundable payment of $12.5 million from Indivior, and we have a potential $5 million milestone payment upon NDA approval.

Indivior will also make quarterly earn-out payments based on single-digit percentage of U.S. product net sales.

These payments extend until the expiration date of the patents covered by this agreement, and that is until 2026.

Indivior recently stated and I quote, "We believe RBP-7000, if approved, will meet key patient needs with risperidone, principally a rapid onset of action with consistent plasma levels of risperidone over the entire monthly dosing interval."

They also went on to say that they have established a new behavioral health business unit and that has required an investment in new sales and marketing capabilities with expertise in this disease space in order to enable a successful launch of RBP-7000, if approved, with an anticipated launch in the fourth quarter of this year.

They also reiterated their peak sales projection of between $200 million to $300 million.

The final product I will update on today is REMOXY ER.

Based on our ORADUR technology, the investigational drug REMOXY ER is a unique long-acting formulation of oxycodone designed to be dosed twice a day and to discourage common methods of tampering associated with opioid misuse and abuse.

In March, Pain Therapeutics announced that the NDA for REMOXY ER had been accepted for review and the PDUFA date was set for August 7. Later that same month, they announced that the advisory committee meeting for REMOXY ER has been set for June 26.

The epidemic of opioid abuse continues to be a national crisis, yet the need for these agents to treat patient's pain remains and the market for extended-release oxycodone remains close to $2 billion a year.

REMOXY ER has the potential to provide multiple means of tamper-resistance, plus 2 twice a day dosing and the only 5-milligram dosage strength to this market.

As a reminder, DURECT would receive $1.5 million milestone on approval and a royalty on sales that ranges from 6% to 11.5%.

In summary, with RBP-7000 and REMOXY ER, in roughly the next 3 months, we have the potential to have 2 NDAs approved.

Each of these products could offer differentiating features that may benefit patients and the health care system in large and important markets.

Most importantly, we have DUR-928, an endogenous stress hormone that has demonstrated profound effects in various animal models and in single-dose studies in human patients with what appears to be a wide safety margin.

We're dosing in 2 Phase II trials with a third Phase II trial lined up for initiation in the third quarter.

During 2018, we could have 2 NDAs approved and data from Phase II studies with DUR-928.

With that, we'd like to take any questions that you might have.

(Operator Instructions) Our first question comes from the line of François Brisebois.

A couple here.

I was just wondering what the mentality is the strategies behind the revelation of data here with the interim looks as these are open label drugs?

The rationale -- I guess, the timing.

Is that kind of what you're looking at?

Yes.

I'm just saying, are you thinking right off the bat?

Or is this something you want to wait and put as much data as you have together?

Well, I think we want to make sure that we have an update that is meaningful.

In other words, you can't look at 1s and 2s and 3s and 4s kind of thing.

I think everyone has a substantial number of patients.

And also a lot of these assays that we're conducting, a lot of the biochemical assays aren't the kind of things you do one-off.

Usually, you batch those together because they're more complex assays and are run in groups.

So it will be something that we're looking at.

I think in the latter part of this year, it's not going to be on a monthly basis kind of thing.

Okay.

And then on the AH Phase IIa Part A and Part B trials.

Are these trials -- are these Part A, Part B staggered?

And how much time should we expect between each?

I know the dose is ranging?

So in order to get the right dose between data and the start of the next one, should we expect Part B to potentially start in 2018?

It is our hope to complete both Part A and Part B this year so that's the goal.

Okay.

Okay.

Okay.

And then the time in terms of the proof of concept for psoriasis study, how long should we expect that to take?

It will obviously -- if it starts third quarter, we're not going to update it this year, I don't think, but we may finish enrollment this year.

That's possible, I think.

So I think that would -- we look at that and then have data sometime in the earlier part of next year.

Okay.

And then just lastly here.

In terms of the data for oral and IV for PSC and AH, you mentioned that this could be relevant for other liver injuries and conditions.

Can you elaborate more on that?

And how it could potentially be relevant to NASH for instance?

I think AH in particular because if you look at NASH, what NASH is nonalcoholic steatohepatitis, okay, versus PSC.

PSC is an orphan disease of cholestasis, which has some -- certainly some conditioning -- some circumstances are the same.

You get fibrosis and you can get those kind of things.

But in -- if you look at NASH and ASH, one is basically a steatosis of the liver caused by simply overeating and too many calories in play and the other is ASH, separately, is just purely due to toxin and the toxic effects of alcohol.

But in reality, the majority of Americans fit somewhere in between.

If you had bell-shaped curve of America, I'd say 60% to 70% of the people who have chronic liver damage due to taking things into their bodies, it would be a combination of alcohol and too much alcohol and too much food or in some range.

And that's the patients that we are actually looking at.

There are a very few patients who are just straight up, just pure NASH patients, just like there are very few patients and the population is straight up pure ASH patients.

And so in this case, we're looking at patients who have acute hepatitis generated by an alcoholic circumstance, but the actual acute hepatitis syndrome as it were is -- that we're looking to treat is more relatable to just an acute liver damage over time.

And so it can be related back to other inciting causes.

I know it's a long-winded way, but I don't know if I -- we have WeiQi and Myriam here.

Either of you guys want to add to that or -- Okay...

(inaudible)

Okay.

No, no, that's very helpful.

And then lastly, this is probably more for Matt.

In terms of the collaboration R&D revenue going forward, you mentioned are there onetime things in there?

Or should we expect this rate to kind of keep going or little less?

That's a reasonable number for the moment.

There's nothing extraordinary in the first quarter.

Our next question comes from the line of Adam Walsh.

This is Neil on for Adam.

For the PSC Phase IIa study, are there any efficacy endpoints that you guys look at.

I see there is no control arm in the study?

Are you looking for anything beyond what you've listed?

And then I just got a follow-up on the cash flow guidance.

No.

Sure.

I think we're going to be looking at various biomarkers and the like.

And one of the things we're looking at is the -- is alkaline phosphatase, which is associated with looking at the severity of the disease.

So the drop in that will be something we will be looking at.

Okay.

And then, obviously RBP-7000 approval will provide you some cash.

Can you guys just talk to me about -- I don't know if you want to provide guidance or just how you're thinking about your current balance sheet situation?

I know you're running -- or you're going to be running 3 Phase II studies during this year.

Can you just talk to me about how you're thinking about your current situation?

Well, I think we can talk directionally even though we don't give specific numbers.

These Phase II studies, as a reminder, are relatively modest in size, the total number of people we're going try to enroll.

And they're fairly straight forward, so they're not that expensive, in truth.

So I think our burn rate has moderated it, and should stay at a relatively even keel here.

I think that our balance sheet now, as I mentioned, we kind of have proforma cash at the end of the quarter of $47.4 million.

That's a decent number.

So I think we feel pretty well situated to fund the trials.

And of course, it would all be great if we get some of these other products approved, RBP-7000 and REMOXY, then we get milestone income.

And if both those get approved, it's a total $6.5 million.

And furthermore, then you'd be looking at a future stream of income, whether that's royalties or earn-outs as well that we could then do something with.

So hopefully that was helpful.

Our next question comes from the line of Len Yaffe.

Two questions.

First off, Matt, could you kindly review the ATM amounts raised and the number of shares that were issued in both of those?

And then secondly, on the clinical side, was there anything that was presented at the EASL conference in Paris recently as it relates to NASH that made you feel better about the pathway that you've chosen in terms of DUR-928 and how it acts through actually multiple pathways as you look at NASH, hopefully, further down the road?

Let me answer your first question to give my colleagues time to think.

In the first quarter, we raised $13.7 million net of expenses that entailed selling about 8.2 million shares at an average price of $1.73.

And then the early April settlements were raised $3.1 million net of expenses.

That was about 1.5 million shares at an average price of $2.22.

By the way, we're going to file -- we expect to file of our 10-Q tomorrow so you'll see that in writing tomorrow.

Okay.

And as a follow-on that, how is that done those shares sales?

So the way that an ATM facility works is you actually -- the company can dictate how much I want to sell and at what different prices they'd be willing to sell, which is kind of an attractive feature.

And I think the execution actually was quite good.

If the contrast is you wanted to do a discrete underwritten financing, you're looking at a fee of 5% to 6% and a discount that's typically 10% to 15% or maybe slightly more.

And in that case, the true cost of the company of raising the money is 15% or 20% or maybe more.

With the ATM, we're literally selling the stock kind of at the market without a discount and there's a fee of 3%.

And I guess as another comment, if you actually look at the period when we were selling from January to early April, we can track what the volume-weighted average prices every day and then compare that to the execution on the ATM sales.

And actually what we found was our ATM sales were at an 8% premium to the VWAP during that period.

So we weren't selling it at all at a discount, in truth.

And I guess the other comment I'd make is, the sales had no impact on holding back an increase in our stock price during that period when we were selling.

And while our stock has softened a little bit in the last couple of weeks, that was not when we were selling under the ATM at all.

So I guess, maybe that was a long winded answer, but hopefully answers your question.

And now to your second part, which I'll defer to my colleagues.

Yes.

Can you actually -- Len, I'm sorry, can you repeat exactly what you were thinking.

Yes.

Sure.

At EASL, there were numerous presentations as it relates to NASH and the various drugs that are being looked at.

And I was wondering if any of the either data flow or ways of trying to treat NASH pathways and all that, anything presented by any of the KOLs gave you greater comfort in the way that DUR-928 acts potentially in NASH, so when you go into clinical studies, even though we don't know as of now if it's going to work for NASH, do you have greater confidence in the likelihood that it will in addition to data that you've learned from workaholic hepatitis?

Yes.

Maybe I'll start and then if WeiQi wants to jump, she can.

I think when I look at what's going on, it is somewhat disappointing, I think so far in general.

I'd have to say over the last couple of years if you look at the data that have been generated and what's going on.

You see things that act as stimulants do and cause changes in metabolic rates, reducing fat.

And there are few people doing that.

And so they're reducing the lipid load on the liver, and then they're secondarily reducing some inflammation and the like.

So you've seen from Phase II data that The Street has been really excited about, particularly to me, it's no different than taking an extra cup of coffee or walking around the block and eating less.

So I don't see that as a major medical breakthrough, quite frankly.

So I think the important thing is, if we look at the way 928 works, we know that it works by virtue of working on the metabolic component of it all, working on the inflammatory side and then lastly on cell survival.

And I think those are the -- those 3 everyone knows -- I shouldn't say everyone.

People believe that one needs to be involved in all 3 of those areas to have an effect.

And to my knowledge, we're the only molecule that has that standard.

And so the more I see out there the data that's been generated, it's supportive and that there's a little bit of some of the metabolic effect.

There's a little bit of some of the anti-inflammatory benefit, and there's some of the cell survival stuff that helps, right.

You see a little bit of all those from these companies that are testing, but I don't think combination products putting all 3 together.

And I don't see products that can bring to the table what we bring.

So I think -- as far as I'm concerned, the field is still open for us.

I don't know.

WeiQi?

No.

I think that the consensus right now is that for the NASH, you'll require combination therapy.

And the combination therapy because NASH's pathogenesis process is so complicated.

It's like -- if you'd talk to [Dr.

Jacobson] or you talk to whoever the leader like -- for example if you talk to VCU's Dr. Arun Sanyal.

So everyone agrees it's a combination therapy because NASH involves cell death.

It involves -- that's why FXR LXR alone -- that's why the [amorexin], that's why the ASK1 inhibitors, that's why -- and then metabolic pathways, then you have ACC1 inhibitors and then you have SREBP-1 inhibitors.

But it's involving multiple pathways.

So you'll need a combination therapy.

If you look at most compounds if you have Gilead's ACC1 inhibitor or you have Gilead's ASK1 inhibitor.

That's -- what their approach is to put all these together to tackle NASH.

So for our 928, I think I can reasonably say, if you look at the mechanism of how 928 works and then based on the most recent published article in hepatology this past February, there is a chart of mechanism of action of pharmaceutical agent.

And then, if you put out 928 on the chart, you can see multiple pathways.

928 is everywhere.

So that's where I think it comes.

Yes.

I think in a way she's got that pathway up in our office, and just checked off all the places where 928 hits, and it's pretty impressive.

We have no further questions at this time.

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

Okay.

Well, we just like to thank you all for listening in.

If anyone does have questions after this call, as always, feel free to call us, and we'd be happy to chat with you.

Take care.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.