DURECT Corp (DRRX) 2018 Q3 法說會逐字稿

Greetings, and welcome to the DURECT Q3 2018 Earnings Call.

Today's call is being recorded.

(Operator Instructions) It is now my pleasure to introduce your host, Mike Arenberg for DURECT.

Thank you.

Mr. Arenberg, you may begin.

Good afternoon, and welcome to our third quarter earnings call.

This is Mike Arenberg, Chief Financial Officer of DURECT Corporation.

I will provide a brief overview of our financial results and then Jim Brown, our President and CEO, will provide a business update.

We will then open the call for questions and answers.

Before beginning, I would like to remind you of our safe harbor statement.

During the course of this call, we may make forward-looking statements regarding DURECT's products 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 of Risk Factors.

Let me now turn to our financials.

Total revenue was $8 million in third quarter of 2018 compared to $20.7 million in third quarter of 2017.

The third quarter of 2018 included a $5 million milestone payment from Indivior for the approval of PERSERIS.

The third quarter of 2017 included a $12.5 million upfront payment from Indivior.

If one excludes all deferred revenue from upfront fees already received by the company, then the revenue from our R&D collaborations was down approximately $267,000 for Q3 2018 compared to Q3 2017.

Product revenue from the sale of ALZET pumps and LACTEL polymers was $2.3 million in Q3 2018 compared to $2.6 million in Q3 2017.

The gross margin for the combined ALZET and LACTEL product lines was 61% in Q3 2018.

These product lines continue to be strongly cash flow positive.

R&D expense was $6.5 million in Q3 2018 compared to $8.4 million in Q3 2017, primarily due to lower R&D costs associated with POSIMIR, partially offset by higher cost of DUR-928.

SG&A expenses were $2.9 million in Q3 2018 as compared to $3.1 million in Q3 2017.

Cash and investments as of September 30, 2018, was $41.5 million compared to $42.5 million at June 30, 2018, and $36.9 million at December 31, 2017.

We had an underlying cash burn rate of $6 million in Q3 2018 compared to $9.5 million in Q3 2017.

These figures exclude any licensing deals, milestone payments or equity financing activities.

After the end of the quarter, we signed an amendment to our debt agreement with Oxford Finance.

Principal payments that were scheduled to start on December 1 of this year are now pushed back by an additional 18 months to June 1, 2020, and the final maturity date is moved back by 30 months to November 1, 2022.

So this amendment is essentially like entering into a new loan that has an 18-month interest-only period and a 4-year final maturity.

The interest rate and final payment remain unchanged, although the timing of that final payment has also moved up by 30 months, unless we were to prepay the loan.

And we paid Oxford an amendment fee of $900,000.

The amended terms essentially maintained a similar internal rate of return for Oxford as they would have if we had not amended the loan.

We appreciate the continued support from Oxford, we have been working with since June 2014.

I'd also like to mention that we will be presenting at the Stifel Health Care conference in New York City at 11:45 a.m.

Eastern time on Wednesday, November 14.

A live webcast will be available.

With that, thanks again for joining our call, and I will now turn things over to Jim to discuss nonfinancial matters in greater detail.

Thank you, Mike, and hello, everyone.

I'd like to briefly review what's been accomplished through October this year.

We started 2 Phase II trials with DUR-928 for 2 different indications, and a third is in process to start early in 2019.

Today, you'll learn about the strategy we have taken to accelerate the DUR-928 alcoholic hepatitis trial into the severe patients.

We have completed manufacturing of DUR-928 at a large scale, which is an important milestone for this program.

We are preparing to initiate a study of DUR-928 in NASH patients in the first half of 2019.

We also had 2 products approved through corporate deals.

The first is Indivior's PERSERIS, which was approved in the United States as a once-a-month injectable product for schizophrenia; and the second is Orient Pharma's Methydur Sustained Release Capsules, which were approved in Taiwan for the treatment of ADHD.

On the finance front, Mike has hit the ground running.

One of his first tasks was to amend our existing $20 million term loan with Oxford Finance.

We now have a 4-year loan at the same interest rate that starts with an interest-only period of 4 -- of 18 months.

Congratulations on Mike on extending our runway in advance of numerous potential milestones in 2019.

I will now update on the programs in greater detail, beginning with DUR-928.

DUR-928 is the lead product candidate in our Epigenetic Regulator Program.

DUR-928 plays a regulatory role in lipid metabolism, inflammatory responses and cell survival.

It's an endogenous, first-in-class small molecule which may have broad applicability in a number of disease states, including several liver and kidney disease states such as nonalcoholic steatohepatitis or NASH and other disorders of the liver including primary sclerosing cholangitis or PSC, and acute organ injury such as alcoholic hepatitis and acute kidney injury and in inflammatory skin disorders such as psoriasis and atopic dermatitis.

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

We have 2 Phase IIa studies underway in the United States: one in -- the first investigating 928 in alcoholic hepatitis; and the second in PSC, with a third Phase II trial planned to begin dosing in psoriasis patients during the first quarter of 2019; and a fourth trial, which will be in NASH patients, to begin in the first half of 2019.

First, the alcoholic hepatitis trial update.

DURECT is conducting a Phase IIa clinical trial with intravenously administered DUR-928 in patients with AH.

This is an open-label, dose-escalation, multi-study -- a multicenter study in the United States.

This originally was designed to be conducted in 2 sequential parts.

Part A includes patients with moderate alcoholic hepatitis as determined by the Model of End-Stage Liver Disease or MELD scores, which is a common scoring system used to assess the severity and prognosis of AH patients; and Part B, which will include patients with severe AH.

3 dose levels, that being 30, 90 and 150 milligrams, are planned for testing in Part A. Dose escalation occurs following review of safety and pharmacokinetic results prior to -- of the prior dose level by the Dose Escalation Committee, or DEC.

The targeted number of patients per study group is 4 to 6 patients.

The objectives of this study include safety, pharmacokinetics and pharmacodynamic signals, including liver biochemistry and biomarkers.

We recently completed dosing for the low-dose 30 milligram cohort which is an [anapor] of Part A with the moderate alcoholic hepatitis patients.

After completing the safety and PK review by the Dose Escalation Committee, we plan to commence the next cohort, which is the 90-milligrams dose in moderate AH patients.

We are pleased today to be able to announce a strategy to accelerate the testing of DUR-928 in the patients with severe alcoholic hepatitis.

We have amended the protocol so that after the DEC completes its review of the low-dose 30-milligram moderate patient data, we will advance the trial by going directly into Part B of the study and begin enrolling severe AH patients, dosing them initially with 30 milligrams of DUR-928.

We believe this protocol amendment can improve the enrollment rate because in the trial to date, the clinical sites have encountered many severe AH patients who may have qualified for Part B but were deemed screen failures due to their MELD scores being too high for Part A.

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

The prevalence of AH is estimated to occur in 10% to 35% of heavy drinkers.

According to an article in the Journal of Clinical Gastroenterology in June 2015, there were over 320,000 hospitalizations related to alcoholic hepatitis in 2010, resulting in hospitalization costs of nearly $50,000 per patient.

Now for the primary sclerosing cholangitis trial update.

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

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

We are currently conducting a Phase IIa trial in PSC.

This trial is a randomized open-label study with 2 cohorts, 10-milligram or 50-milligram of orally administered DUR-928.

Each of these cohorts will have between 15 to 20 patients who will receive daily oral DUR-928 for 4 weeks with a follow-up of an additional 4 weeks.

The objectives of this study are to evaluate the safety, the pharmacokinetics and pharmacodynamic signals of DUR-928, including the percentage change from baseline of serum alkaline phosphatase and other biomarkers.

To date, 5 PSC patients have been dosed and, as such, we are not able to provide a meaningful interim data at this time point.

To put this enrollment rate into perspective, we have estimated enrollment rates using publicly available data from 8 PSC trials; 7 were Phase II and 1 was a Phase III trial.

These trials were conducted by academic centers and companies such as Shire, Intercept, NGM, Gilead and Tobira Allergan.

Our enrollment rate is similar to the average enrollment rate for PSC patients in these trials.

Our plan is to continue enrolling patients and to provide an update when we feel the enrollment has reached a critical mass for data analysis.

Now for the psoriasis trial update.

We are working toward initiating dosing at a Phase IIa proof-of-concept trial with topical DUR-928 in patients with mild to moderate plaque psoriasis beginning in the first quarter of 2019.

This will be a multicenter, randomized, double-blind, vehicle-controlled trial that will be conducted in the United States.

Approximately 20 subjects will be enrolled to obtain about 15 evaluable subjects in the study.

DUR-928 will be applied topically once daily for 4 weeks.

Patients will serve as their own control, as each patient will have similar contralateral plaques.

What that means is they will be testing plaques in the lower part of the arm so that means on their left arm and on their right arm they will have plaques of similar size.

DUR-928 will be applied to 1 plaque and the vehicle control will be applied to the other arm, or the contralateral plaque, daily for 4 weeks.

Patients will be followed for an additional 4 weeks, and the primary efficacy endpoint will be improvement in local psoriasis scores in the DUR-928-treated plaque as compared to the vehicle-treated plaque.

We observed activity of DUR-928 in a Phase Ib trial utilizing intralesional injections of DUR-928 into psoriasis patients.

In support of the oncoming trial, we have completed multiple, nonclinical safety studies for the topically applied DUR-928.

Skin inflammatory disorders such as psoriasis or atopic dermatitis affect approximately 7.5 million and 32 million Americans, respectively.

Most currently available topical treatments used -- which are used typically as first-line therapy either slow down the excessive skin cell proliferation or reduce the inflammation.

Steroids are the most commonly used topical anti-inflammatory agents because they reduce the swelling and the redness of the lesions.

I'll now move to the nonalcoholic steatohepatitis program.

We've been excited about the potential of DUR-928 to aid in the treatment of NASH for some time.

DUR-928 has yielded impressive results in multiple NASH models.

Additionally, 928's overall safety profile, when combined with the biomarker data from our Phase Ib NASH trial, provided biological plausibility for a potential therapeutic effect of DUR-928 in NASH.

There is also considerable overlap between the genes that are regulated by DUR-928 and the sites that are being targeted by the leading companies in the NASH space.

One of the important milestones for us in 2018 has been the scale-up of manufacturing of DUR-928.

We now plan to conduct a clinical trial in NASH patients with orally administered DUR-928 beginning in the first half of 2019.

Further details on study design and timing will be provided as we get closer to initiation.

In our previous Phase Ib NASH study, which was reported at the European Association for Study of Liver Disease in April 2017, we observed a reduction in certain biomarkers after a single dose of DUR-928.

Exploratory biomarker analysis indicated that a single dose of DUR-928 in NASH patients resulted in statistically significant reductions from baseline of both full and cleaved cytokeratin 18, these are markers of cell death; and bilirubin, a marker of functionality of the liver; as well as 2 inflammatory markers and that was C-reactive protein and IL-18.

I think it's important to note that these were seen at both dose groups.

And one was a 50-milligram dose group, and the other one was a 200-milligram dose group.

And they were dosed 2 months apart and yet almost the exact same response was seen, which is quite impressive.

As a last update on the program, I want to provide some additional information.

During the first 10 months of 2018, the DURECT team has presented 5 posters on DUR-928 at scientific meetings.

In March, at the Society of Toxicology annual meeting, we presented a poster on the [ADMI of] DUR-928.

This study identified that biliary excretion was the primary route of elimination of the drug and its metabolites, and highlighted the preferential uptake of DUR-928 in selected target organs which included the liver, the intestines and the kidney.

In September at the American College of Clinical Pharmacology meeting, we presented a poster of the drug-drug interaction study.

This study demonstrated that DUR-928, when administered by either injection or the oral route, had no effect on the safety and pharmacokinetics of midazolam, a drug that is primarily metabolized by the enzyme CYP3A4.

This enzyme is commonly involved in clinically relevant drug-drug interactions.

In October at the American Society for Nephrology Kidney Week meeting, we presented a poster on the safety and pharmacokinetics of DUR-928 in patients with chronic kidney disease or CKD.

This study showed that injection of DUR-928 was well tolerated at both the low and high doses in the CKD patients and the matched control subjects.

The pharmacokinetic parameters between the kidney function impaired patients and the matched control subjects were comparable.

While the number of subjects was small, those with elevated baseline levels of bilirubin or CK-18 saw reductions at 12 hours after dosing.

This was consistent with what we observed in the NASH Phase Ib study.

At the same ASN meeting, we presented another poster on the renal ischemic re-perfusion injury in rats with DUR-928.

This study demonstrated that administration of DUR-928 significantly reduced the serum creatinine at blood urea nitrogen levels and alleviated the kidney injury in a renal ischemic re-perfusion rat model.

Finally, just this week at the American College of Society's annual meeting, we presented a poster on a toxicology and toxicokinetic study of IV-infused DUR-928.

What was of particular interest in this study was the complete lack of toxicity observed at all levels tested with DUR-928.

These posters were presented in order to expand the understanding of DUR-928 in the scientific community.

We give our thanks to the scientists who conducted these studies and put these posters together.

These posters can be viewed at durect.com.

I want to now move to PERSERIS.

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

PERSERIS is the first once-monthly subcutaneous risperidone-containing long-acting injectable for the treatment of schizophrenia in adults.

Treatment adherence is a big challenge for these patients, which is why the long-acting injectable market in the United States is over $3 billion and growing.

Risperidone is a well-established treatment for schizophrenia.

PERSERIS provides sustained levels of risperidone over 1 month.

The initial peak of risperidone level occurs within 4 to 6 hours of dosing, and are due to an initial release of the drug during the depot formation process.

PERSERIS may have product attributes which will be attractive to patients and physicians and could eliminate the product -- excuse me, could enable the product to become a valuable addition to the large and growing long-acting injectable antipsychotic market.

For example, the fact that you don't need a loading dose or any supplemental oral risperidone when a patient is first put on PERSERIS I think is an important component.

We would encourage you to review the PERSERIS prescribing information that can be found on indiviormedia.com.

Under the terms of our agreement with Indivior, they made an upfront, nonrefundable payment of DURECT of $12.5 million in September last year.

In July 2018, the FDA approved the NDA for PERSERIS, and we received a $5 million milestone payment in August this year.

In addition, we will receive quarterly earn-out payments that are based on a single-digit percentage of U.S. net sales for certain product covered by the patent rights we licensed to them, including PERSERIS.

The patent rights include granted patents extending through at least 2026.

On November 1, 2018, Indivior stated that they are preparing a full promotional launch of PERSERIS with a field force of 40 to 60 representatives.

This is contingent upon the preliminary injunction against Dr. Reddy's laboratory for generic Suboxone film, that being upheld by the United States Courts of Appeals for the federal court.

Indivior further stated that they will be making PERSERIS available in the U.S. this quarter of 2018, fourth quarter, to begin generating product awareness and trial use.

For more information on PERSERIS, please see Indivior's earnings press release which was dated November 1, 2018.

U.S. sales of long-acting injectables to treat schizophrenia were in excess of $3 billion in 2017.

Indivior have stated in the past that their peak sales projections for the product is between $200 million to $300 million a year.

I now want to move to POSIMIR.

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

In May, we amended our U.S. license agreement with Sandoz.

The agreement between the companies remains in full force and effect except as expressly covered in this amendment.

We continue to evaluate and considered the potential next steps for the program, and we will provide an update when a decision has been made and the future of the program is set.

The final product I will talk about today is Orient Pharma's Methydur Sustained Release Capsules.

Methydur Sustained Release Capsules are based on our ORADUR technology.

In September 2018, Orient Pharma informed DURECT that they had obtained marketing authorization from the Ministry of Health and Welfare in Taiwan for Methydur Sustained Release capsules.

This milestone marks approval of the first ORADUR product.

Methydur Sustained Release Capsules are indicated for the treatment of attention deficit hyperactivity disorder, or ADHD, and will be available in 3 strengths: that is 22, 33 and 44 milligrams in Taiwan.

Orient Pharma has also stated that it expects to have Methydur Sustained Release Capsules commercially available in Taiwan in 2019.

They are seeking a partner in China, and pursuing regulatory approvals in selected other countries where they have commercialization rights and commercialization presence.

As a reminder, DURECT changed the rights to North America, Europe, Japan and all other countries that are not specifically licensed to Orient Pharma.

DURECT is entitled to receive a royalty on sales of the Methydur Sustained Release Capsules by Orient Pharma.

We are currently seeking commercial partners for Methydur Sustained Release Capsules for territories under our control.

In summary, the approval of PERSERIS and Methydur Sustained Release Capsules allow us to add these revenue streams to our existing ALZET and LACTEL product lines.

Of course, these new payments will flow straight to the bottom line when they begin next year.

The most important component of DURECT's future potential is DUR-928, an endogenous small molecule 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.

Today, we announced that we are accelerating the AH trial into severe patients and continue dosing in the PSC trial.

The psoriasis trial is poised to begin dosing the first quarter of 2019.

We have completed scale of our manufacturing of DUR-928, an important milestone for the program.

We have also initiated activities to enable dosing in a NASH trial in the first half of 2019.

A positive signal from any one of these studies could be transformational for DURECT, and 2019 is positioning to be a pivotal year for our company.

Last, by virtue of the newly structured 4-year loan with Oxford Finance, we have significantly extended our runway to be able to pursue these developments milestones.

With that, we now would like to take any questions you might have.

(Operator Instructions) And we'll take our first question from Adam Walsh.

It's Neil Carnahan on for Adam.

Just 2 questions.

Can you provide any clarity on readouts for the AH and PSC trials at this point in time?

And then just on your cash runway, is that sufficient to see through readouts from the ongoing trials?

And then the plans when you have in psoriasis and NASH?

I'll let Mike address the cash flow, now that I think we're in good shape there.

With regard to the other 2 trials, we're progressing them along.

As I said with regard to PSC, we're going to wait until we enroll more patients to be able to have a critical mass to make some statements.

With regard to the AH, it's kind of the same thing.

We have completed the first cohort, and that'll be reviewed very shortly.

In fact, the AASL meeting's in town here in San Francisco so we're going to have the DSC meeting over the weekend and hopefully progresses into severe patients in the near future.

Mike, I'll let you...

Sure, Neal.

Yes, on the cash question, we have $41.5 million as of the end of last quarter.

And our burn rate's about $6 million per quarter.

So we certainly have enough to get through next year when we'll be getting readouts on these things that Tim has mentioned.

I think we'll kind of still be opportunistic about if we decide to raise more money at some point.

But right now, we have enough cash to certainly get through next year and achieve some of these milestones.

Yes, I think that was an important part of a getting that loan redone and really congratulate Mike on doing that because that definitely does extend out our runway significantly.

And we'll take our next question from François Brisebois.

Just a couple.

So in terms of psoriasis, is that delayed to start at first quarter?

Or was that kind of always planned just as a start?

Well, it's always at the end of the year these things are always -- you hope, right, to get it done in 1 month and things always change to another.

So it is a little bit delayed but it's not dramatically delayed.

And I think the team's done a great job.

I -- we took the time to go back to some thought leaders to make sure that the protocol was set up just the way we would like it and I really do like that a lot, actually.

We're working with some phenomenal dermatologists on it and I believe -- I think the design is quite compelling.

I mean, given that these -- this is where there are important plaques and they tend to be of similar size.

If you think -- I have had family members with psoriasis and often times you get these plaques right above or right around the elbow, right, for example.

And so if you got one on your left arm and your right arm, you'll be treating one with placebo and one with active.

And so we'll have a good chance to evaluate the results.

Okay.

Okay, great.

And then in terms of cost for the NASH trial, I know you're going to give more details on the plan of it later on.

But in terms of cost, do you have an idea in terms of enrollment and numbers?

Yes.

It's not going to be particularly expensive, I don't think overall that's what I would give.

But we'll update more later.

Okay.

And then -- so when was it that you guys decided to put moderate and severe for AH together?

When was the decision taken?

Why was it taken?

Was this happening a lot that these patients were too severe and couldn't get into Part A?

And then for the readouts, is it still just going to just be Part A is going to read out?

And then Part B is going to read out?

That doesn't change at all for those?

No.

It's actually -- it really dramatically changes.

I think that's -- it's something that seems subtle but I think we should maybe expand on it a little bit.

We definitely had a lot more severe patients coming in.

That's just the reality of alcoholic hepatitis.

There aren't many moderate patients that decide to go to the hospital.

And so we saw -- I don't know what the actual numbers were, but it was a multiple of severe patients compared to moderates that were coming in.

That's one piece.

As far as the readouts are concerned, the readouts will be coming now simultaneously because we can move, for example, to the next dose level in the moderate patients at the same time as we're starting in the severe patients.

And then as that advances, eventually, potentially maybe the severe patients just take over the entire trial and we would discontinue the moderate patients.

But it's definitely an acceleration of the entire process.

We were hoping to be able -- to be into severe patients by the end of the year and it's always -- trials always start slower than I would like.

If I look at our actual enrollment rates for this trial, they're right in line with the industry enrollment rates.

As we see with PSC, the same thing is with the AH trials.

So the strategy, which I give a lot of credit to the team for coming up with, allows us to kind of leap frog forward into the severe patients, right, as we close the year out.

So can you just explain a little more on the -- so to start Part B, you have to have it reviewed for -- is that for all doses of part -- yet the smallest dose of Part A?

No, no, no.

What we're doing now is we're taking the 30-milligram cohort from moderate patients and that'll be reviewed by the DSC -- by that committee.

And what they will do is if -- what we are going to talk about and what we believe the strategy is but what we think we'll do is we'll simply be able to go now and start dosing severe patients with 30 milligrams.

At the same time, we can start to enroll patients at the next level within the moderate patients.

In other words, we can dose-escalate in the moderate patient.

But for that 30 milligrams dose, it's been shown to be safe and effective or not, whatever, safe and pharmacokinetics and the like with regard to the moderate patients, then one can now move those into the severe patients.

Maybe I can add on and clarify that a little bit.

The way to think about it is once we have this Dose Escalation Committee reviewing the initial 30-milligram dosing, we're going to start the severe patients at that same low dose and then essentially, the 2 -- the severe and the moderates are going to run in parallel, and not be contingent on anything happening in the other one.

So if the severe one is ready to dose-escalate, the committee will review that and then we'll dose-escalate.

If the moderate one's ready to dose-escalate, the committee will review that and then we'll dose-escalate that one.

Yes, thanks, Mike.

Okay.

Okay, now that's very helpful.

So is it unlikely that we see steady interim look with before year end?

Or is there still a chance for that -- for both AH and PSC?

I would say -- I think the update we're giving now is going to be the update since there's only 1 month or so left in the year.

Right.

Okay.

And then just in terms of PERSERIS and ORADUR, can we -- can you give any -- I guess you guys aren't giving any guidance but they're going to launch in the fourth quarter here.

And any impact on top line that you guys are kind of expecting?

Or are you just thinking to -- they're talking about a peak revenue $200 million to $300 million and single-digit royalty?

How much color can you give there?

Yes.

I would say I would stay with their estimates and with that royalty.

This -- they're making it available now.

I think it's more for thought leaders and to kind of fill the pipeline and such.

They're planning on their launch being now in the first quarter.

It's all contingent upon what happens with the Dr. Reddy's and the court.

But at some point in time, it's an asset that makes sense for them to launch.

So I'm sure it'll get out there but I don't know.

The particular timing's all up to them.

Understood.

And then for ORADUR for the ADHD?

That's up to Orient Pharma, and they've just given us a 2019 numbers so I think that one's going to have to wait and see.

I can tell you that the market in Taiwan is rather small, so I don't think we can expect substantial monies coming in from that.

I think the largest potential opportunity for Orient Pharma's markets is really in China, where the world is changing dramatically with -- as people become more successful, families become more wealthy and children and things change, then I think the market there is growing and, of course, the population's huge.

And so -- I think that's our greatest market opportunity.

And I know they're talking to potential partners about that market.

(Operator Instructions) We'll take our next question from Ed Arce.

I joined quite a bit late so I apologize if you've already gone over this.

But I just wanted to ask for some clarification on a couple items, the alcoholic hepatitis trial acceleration.

I know you just discussed some of the dose escalation schedule and what that looks like.

But just so that I'm clear, is the 30-milligram cohort is the top dose of that multiple ascending schedule?

No.

The dosing schedule for the moderate patients has been planned at 30, 90 and 150.

And we have completed the 30-milligram dose of the moderates.

The Dose Escalation Committee's going to meet in the next few days and our hope is that at that meeting, we will then be able to advance to the next dose level in the moderate patients.

At the same time, we're doing this acceleration and what this acceleration allows us to do is kind of leap directly into the severe patients starting at the 30-milligram dose.

And so then we would begin dosing in parallel the next dose level at moderate patients, the 30-milligram dose and the severe patients.

And then given the presentation rate of the severe patients, it's more likely than not that the next severe group will actually close out before the next moderate group.

And when that occurs, then we would go back to the DSC and review the data and determine if we go the next level and what that next level would be.

Okay.

I understand.

I got it.

So it's a stagger design but because of the severes' rapid progression, you expect that to kind of catch up?

Right.

And at the end of the day, we're pleased to be able to dose in the severe patients because that's really where the drug can have its greatest effect.

I mean, we're hoping that this drug can be lifesaving.

In order to be lifesaving, we have to have the higher MELD scores.

Because remember, when you get to a MELD score of 25, you've got a greater than 30% chance of mortality in the next 90 days.

And it goes up to get a MELD score of 30 that going up to 60% to 70% versus if you have a MELD score of 18, it's like 15%.

So it's a dramatic difference.

It's kind of a very steep curve.

And so being in -- the severe patients' MELD score are 21 or higher so those are the patients that, at the end of the day, for a lack of better term, would probably need the drug more, should the drug work.

Okay.

That's helpful.

The other main question I had was I followed you for a while and know that you've been sort of looking at NASH for some time and its generated earlier data but have, at least for a little while, put that to the side because of the cost and complication and everything else.

And so I'm glad to hear that you're deciding to move forward with that and I just -- I know you probably reviewed this earlier but if you could just recap what you've said so far on moving forward with that next year.

Well, we haven't given a lot of detail.

We will as we get closer to starting the study, and obviously when we start the study we'll have tons of detail.

We'll do some kind of call the way we did last year when we started the PSC and the AH trial.

We'll probably do that for psoriasis as well.

So we'll have thought leader call and then we'll really lay out the strategy.

But the thought is to start a NASH trial with 928 in the first half of next year.

That's all we're saying at this point in time.

We're excited about that because if you look -- and I know, Ed, you know the NASH base really well.

But if you look at the targets, at the enzymatic targets and the specific activities that the various leaders in the space are looking at.

Gilead's obviously looking to attack 2 or 3 different targets; most companies are pursuing 1. We have the great opportunity with 928 as an epigenetic regulator that it inhibits a great number, a large number of these targets.

And so we think we have the potential either as monotherapy or in combination to make a difference here.

And then as Mike points out, it's important not to forget that with [diornatate], we really haven't seen much in the way of side effects so far.

So the potential to have a broad therapeutic index and to be able to wade into the space and change things.

I mean, if you look at our animal model data, it's very impressive.

It's hardly -- hard for me to find another molecule that's had anything close to what we've seen.

And then you look at the data in the NASH patients.

We dose these patients at 50 milligrams.

We saw statistically significant reductions -- and that wasn't planned -- in bilirubin in CK-18, in cleave in CK-18 full length, markers of cell death, in interleukin-18 and then c-reactor protein, these are inflammatory markers.

And then 2 months later, dosed a group of patients and saw almost the exact -- it's almost like a fingerprint of the responses, slightly larger responses because they were 200 milligrams dose versus 50.

But the reproducibility of that, I think it's quite impressive.

And so what we're hoping to do is to get into more patients for a longer period of time and replicate some of that.

Great.

And then one last question, actually for Mike, just as you discussed and announced just very recently the loan modification that you completed.

What can we expect in terms of the impact to the P&L going forward on that?

Well, the terms are essentially the same.

So interest rate's the same.

The only impact would be the $900,000 that we paid as a loan modification fee in the short term.

That's the only impact on the P&L.

And of course, no principal payments for the next 18 months.

I really look at it as just extending the runway to allow us to look at some of these data coming from these trials.

And we'll take our next question from Len Yaffe.

Welcome, Mike.

I was wondering, you had talked several times earlier this year about having alcoholic hepatitis data available before the end of the year for us.

And I was just wondering how the change in the scheduling with the severe patients now coming sooner changes the likelihood of us getting any data on the Phase IIa AH studies?

I think, Len, with that trial, it will accelerate our time to data because of the availability.

Just the fact that there are more severe AH patients who present at hospitals, so we should be able to enroll more rapidly going forward in the severe group so I think we'll get to data faster.

But we're not going to have, I don't think, enough patients to have additional data to report out in the next 6 weeks or so.

I think we're looking at a next year event.

Okay.

And then given that the patients that you'll initially be starting severe are going to be 30 milligrams, what are you looking at?

Because they would probably be more likely to need a higher dose in order to go to a -- I guess, is the next highest dose the 90-milligram cohort?

Are you just looking at safety on those patients?

Are you expecting any kind of efficacy at that level of dose?

I don't know, Len.

We don't know what will be effective in these patients.

Quite frankly, 30 milligrams may be awesome.

We don't know.

The things that we're going to be looking at is, as you know, are our MELD scores and LDL scores and various other markers and the like.

And the MELD score's made up of bilirubin, creatinine and the clotting time.

And we have shown bilirubin down in rat models.

We've shown it down in these NASH patients.

We've shown it down in the chronic kidney disease patients that had elevations so whether by oral or injectable in humans, we've seen the drops in bilirubin.

In rats, we've seen in this ischemic kidney model that was presented last -- whatever it was, a couple of weeks ago at the kidney meeting, we saw a reduction -- a dramatic reduction in the serum creatinine rise seen in this model.

So the opportunity is there to be able to change these markers and make a difference to these patients.

So I don't know at this point whether 30 milligrams will be enough.

But we have left it open in the severe patients.

So in the moderates we say kind of 30, 90, 150 kind of things which we're trying to dictate a little or more, but it's all speculation as you go into any of these trials.

But so if -- after we've dosed into 30, we'll have a look and see what kind of response we get and then the DSC will look at it.

And I don't know what the next dose may be.

It may be 40 or 50 or it may be 90 or 100.

It'll just depend on the kind of responses we're seeing.

Okay, great.

And then lastly, a financial question.

Were there any shares sold in your [Athemoney] facility during the quarter?

And if so, how many shares?

And how much money did it bring in?

We did not sell any shares during the quarter.

And we'll take a follow-up question from François Brisebois.

Sorry, just one more here, Jim.

I was just wondering, so it turns out the Part A, Part B of the AH, obviously these patients are very, very different.

You've talked about log scale increase in terms of MELD score for severity.

In terms of their reaction to drug, is it -- do you guys expect the MELD scores to be easier to be improved on the more severe patients?

Or is there something that you're just kind of going in a little bit blinded here and we'll see how they react?

We're definitely learning as we go.

But being my optimistic self, I'm always hoping for that, right?

I mean, we've seen -- now I'm going over to NASH patients and it's always difficult to jump from 1 type of patient to another.

But in the more cirrhotic NASH patients, we saw a more dramatic response with the CK-18s were down more, they were higher to start with, then they were down more dramatically.

And we've seen that even in the chronic kidney disease injectable patients.

The patients that had the higher bilirubins had the more dramatic reduction.

So we think that this molecule functions a little bit as a stress hormone, so it's possible that under more stress, we could see the conditions and then it may not be it.

So it remains to be seen, but I think that's a possibility.

I was just -- they certainly need something.

And if I was there with almost no liver disease, just a very, very mild thing, and you dosed, you probably wouldn't see much of anything.

I don't know, WeiQi, do you want to add to that or...

I think at this study, the program -- primary objective of this study is safety PK.

That's the key.

Right.

Yes.

So for dose escalation, actually it solely based on the safety and the PK review.

So then at the same time, of course, we will look at all the biomarkers and biochemistry of patients.

Yes.

Yes.

The MELD scores.

Yes.

So we'll be learning some dynamic stuff as we learn kinetic stuff, both.

So we'll be learning about some of the biochemistry and the effects on that, at the same time we're learning the pharmacokinetics.

Excellent.

Okay.

I was just thinking at NASH, it's that way, so I was wondering if it was -- it's always hard to compare from diseases.

Mr. Arenberg, as there are no further questions at this time, I'd like to turn the floor back over to you for closing comments.

Thank you to everyone for joining.

And we're available by phone anytime you would like to reach out and talk.

We're happy to talk.

So take care, and look forward to seeing some of you at the Stifel conference next week.

All right.

Bye.

That concludes today's call.

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