DURECT Corp (DRRX) 2019 Q2 法說會逐字稿

Greetings and welcome to the DURECT's second quarter earnings conference call. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Arenberg, Chief Financial Officer. Please go ahead.

Good afternoon and welcome to our second quarter 2019 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief review of our financial results, and then Jim Brown, our President and CEO, will provide a business update. We will then open up the call for a question-and-answer session.

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 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 can be found in our SEC filings, including our 10-K and 10-Qs under the heading Risk Factors.

Let me now turn to our financials. Total revenues were $4.0 million for the second quarter of 2019 compared to $3.4 million in the second quarter of 2018. Collaborative R&D revenue, largely from feasibility projects, was up about $1 million or 154% in Q2 2019 compared to Q2 2018. Product revenue, largely from the sale of ALZET pumps and LACTEL Polymers, was $2.3 million in Q2 2019 as compared to $2.8 million in Q2 2018. The gross margin for the combined ALZET and LACTEL product lines was 63% in Q2 2019. These product lines continue to be strongly cash flow positive.

R&D expenses were $6.6 million in Q2 2019 as compared to $6.1 million in Q2 2018 primarily due to higher costs for DUR-928 and our Depot injectable programs, which are largely covered by our revenue from feasibility partners and partially offset by lower R&D costs associated with POSIMIR.

SG&A expenses were $3.3 million in Q2 2019 compared to $2.8 million in Q2 2018.

During Q2, we raised approximately $15.4 million through the sale of equity in a discrete shelf down plus some small use of the ATM. Our underlying burn rate during the quarter was $6.1 million, excluding the equity raises.

At June 30, 2019, we had cash and investments of $38.1 million compared to $34.5 million at December 31, 2018. Of course, subsequent to quarter-end, we received a $25 million upfront payment associated with our Gilead license agreement. So on a pro forma basis, adding that $25 million to our quarter-end cash position would result in a cash position of $63.1 million.

With that, thanks again for joining our call. I will now turn the call over to Jim for an update on our programs.

Thank you, Mike, and hello, everyone.

The second quarter and early third quarter have been very positive for DURECT. We continued to advance our flagship DUR-928 program on all fronts with announcement of the impressive preliminary data from the first 10 alcoholic hepatitis patients dosed with DUR-928, with completion of the 90-milligram cohort in severe AH patients and the announcement that the response in those 90-milligram dose patients was consistent with those -- with the response from the first 10 patients with initiation of the 150-milligram dose cohort in the severe AH patients and with all 3 DUR-928 clinical trials remaining on track to report out data this year.

We also submitted a response to the POSIMIR Complete Response Letter and have received a user fee goal date of December 27.

We signed a major license agreement with Gilead, and we substantially strengthened our balance sheet with the addition of $40 million.

While the Gilead deal and the POSIMIR filing are significant positive achievements, DURECT's primary focus remains on our Epigenetic Regulator Program and the lead compound, DUR-928.

DUR-928 is a naturally occurring, first-in-class small molecule that plays an important regulatory role in the vital functions of lipid homeostasis, inflammation and cell survival. It may have broad applicability in acute organ injuries such as alcoholic hepatitis and acute kidney injury, in chronic liver diseases such as NASH and inflammatory skin disorders such as psoriasis and atopic dermatitis.

We are developing DUR-928 currently in 3 initial indications: alcoholic hepatitis, or AH, by injection; nonalcoholic steatohepatitis, or NASH, by oral dosing; and psoriasis by a topical wrap. I will begin with our alcoholic hepatitis program.

We are conducting a Phase IIa, open-label dose-escalation clinical study testing 30-, 90- and 150-milligram doses of DUR-928. It's a multicenter U.S. study that includes patients with moderate and severe AH as determined by their initial MELD score. Escalation to each subsequent dose level requires approval by the Dose Escalation Committee following its review of the safety and pharmacokinetic results from the prior dose level.

The target number of patients for the study is 4 moderate and 4 severe patients per dose. The study objectives include assessment of safety, pharmacokinetics and pharmacodynamic signals, including liver chemistry and biomarkers.

AH represents a significant unmet medical need with no approved therapies, and the mortality rate for AH is around 20% for moderate and 40% for severe patients. In May, together with our key -- or with some key opinion leaders, we announced preliminary data from the first 10 patients treated in our Phase IIa DUR-928 AH study. The Lille, bilirubin and MELD data from these first 10 AH patients were impressive. The data from these patients demonstrated statistically significant reductions from baseline of serum bilirubin levels and MELD scores and statistically significantly lower Lille scores as compared to historical controls. In addition, DUR-928 was well tolerated, and the pharmacokinetic parameters were not influenced by the severity of the disease.

Lille scores are used in clinical practice to help determine the prognosis of AH patients after 7 days of treatment. Patients with a Lille score below 0.45 have an 85% 6-month survival rate, and those with Lille scores above 0.45 have only a 25% 6-month survival rate. The lower the Lille score, the better the prognosis is for the AH patient.

In our preliminary data, the median Lille score for the 9 AH patients that -- who were treated with 928 and who returned for their day-7 visit was 0.04 with a range of 0.01 to 0.19. The median Lille score among a cohort of 15 patients treated with either supportive care or supportive care and corticosteroids in the historical control group from the University of Louisville study was 0.41.

The Lille scores in the DUR-928 patients were statistically significantly lower than that from the Louisville patients with a p-value of 0.002 by Wilcox rank-sum test.

One of the major components of Lille score as well as other prognostic scores is the serum bilirubin level in our alcoholic hepatitis patients. In our preliminary data as compared to baseline, the median reductions in total bilirubin in the DUR-928-treated patients was 16% at day 7 and 41% at day 28 as compared to 3% at day 7 and 35% at day 28 in the standard of care group from the University of Louisville patients. The reductions of total serum bilirubin in the DUR-928-treated AH patients at both day 7 and day 28 were statistically significant. In contrast, there were no statistically significant reductions in the University of Louisville control patients at either day 7 or day 28.

The Model of End-Stage Liver Disease, or MELD score, is another scoring system used to assess the severity and prognosis of AH patients. Patients with MELD scores of 11 to 20 are classified as having moderate AH and patients with 21 to 30 severe AH. As with Lille scores, the lower the MELD score, the better the prognosis is for the AH patient. In our preliminary data, the median reduction from baseline prior -- that is prior to treatment for the DUR-928-treated patients was 4% at day 7 and 21% at day 28, the latter of which, the day 28 data, was significantly -- statistically significant. In the UL control patients, there was a 4% reduction of the MELD on day 7 and a 6% reduction on day 28. Neither was statistically significant.

In June, we completed dosing in the 90-milligram severe cohort, and we announced the preliminary data from the 90-milligram severe patients was consistent with the preliminary data I just described from the initial 10 patients. We are currently enrolling moderate AH patients at the 90-milligram cohort level and severe patients in the 150-milligram cohort. We hope to present data from this trial at the AASLD meeting in Boston this November.

In parallel with our ongoing AH trial, we are supporting Dr. Craig McClain from the University of Louisville in his efforts to initiate an NIH-funded study of DUR-928 in AH patients at the University. AH 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 is somewhere between 10% to 35% of heavy drinkers. According to an article in the Journal of Clinical Gastroenterology, there were over 320,000 hospitalizations related to alcoholic hepatitis in the United States in 2010, resulting in hospitalization costs of nearly $50,000 per patient, and the cost of a liver transplant exceeds $800,000.

In summary, AH represents a significant unmet medical need with near-term mortality rates of 20% to 40%. The positive preliminary clinical data from our first 10 AH patients dosed with DUR-928 demonstrate serum bilirubin and MELD reductions and low Lille scores. Results from the 90-milligram severe AH patients were consistent with the results from the first 10 patients. We are enrolling in the 150-milligram cohort of the trial, which is the final group of 4 severe AH patients. Once the trial has been completed, we will meet with the FDA to discuss the path to approval. We hope to present the data from this trial at the AASLD meeting in Boston this coming November. We believe that the data from the DUR -- excuse me, we believe that DUR-928 has the potential to be lifesaving in AH patients and therefore may be eligible for an accelerated path to market. And we expect the next step would be a Phase IIb trial, which would be initiated next year.

I'll now move to our nonalcoholic steatohepatitis, or NASH, program.

In March, we began enrolling patients in a Phase Ib randomized and open-label clinical study being conducted in the United States to evaluate the safety, pharmacokinetics and signals of biological activity of DUR-928 in NASH patients with stage 1 to 3 fibrosis. In this study, we're evaluating 928 at doses of 50 milligrams or 150 milligrams once a day or 300 milligrams twice a day. 928 is being administered orally for 28 consecutive days. There will be approximately 20 patients per dose group for a total of about 60 patients in the trial.

The key endpoints in this study include safety and pharmacokinetics, clinical chemistry and biomarkers, with examples being bilirubin, lipids, liver enzymes, CK-18s and inflammatory cytokines. As well, we will be measuring MRI-PDFF imaging for liver fat. We maintain our expectations to announce initial data from this study in the second half of this year.

Now to our psoriasis program for DUR-928.

We are conducting a Phase IIa, randomized, double-blind, vehicle-controlled, proof-of-concept clinical trial in which DUR-928 is applied topically once daily for 4 weeks in patients with mild to moderate plaque psoriasis. The trial is being conducted at multiple clinical sites in the United States. 20 patients are planned to be enrolled to obtain approximately 15 evaluable patients. Each patient serves as their own control, applying DUR-928 to the plaque on one arm and vehicle to a similar plaque on the other arm. After the treatment period, patients are followed for an additional 4 weeks. The primary efficacy endpoint is the change in local psoriasis scores from baseline in the DUR-928-treated plaques as compared to that in the vehicle-treated plaques. We began enrolling patients in March and maintain our expectation to announce top line data from this study in the second half of this year.

Psoriasis is an inflammatory skin disease with immune-mediated condition that causes the body to replace skin cells in days rather than weeks. Psoriasis affects an estimated 7.5 million Americans. And according to the International Federation of Psoriasis Association, nearly 3% of the world's population or about 125 million people have some form of psoriasis. Psoriasis causes itchiness and irritation and may be painful. There is no cure, but currently approved treatment can ease the symptoms. Approximately 80% of the patients with psoriasis have localized disease, which can be treated with topical therapies. And as a result, topical agents remain the mainstay of psoriasis treatment.

Now to our drug delivery business, where we recently had 2 important announcements, the most recent being the Gilead HIV, hepatitis B deal.

Last Monday, we announced that we signed a development and commercialization deal with Gilead. We received $125 million upfront license fee and are eligible to receive an additional $145 million in milestones from this first product. This deal was the culmination of a substantial amount of feasibility work with Gilead on long-acting injectable anti-HIV formulations.

A long-acting injectable product like this makes a lot of sense. Patients with HIV typically take multiple pills multiple times a day, and compliance can become a problem. Just think about the last time you were prescribed an antibiotic to be taken multiple times a day for a number of days. How good a job did you do in remembering to take your meds? Noncompliance leads to inconsistent blood levels and the potential for resistance to develop, not to mention frequent dosing is a constant reminder of the disease.

Another issue with frequent daily dosing of anti-HIV meds is the potential for interactions with other medications such as blood pressure or statin. They can lead to complication and a complicated day of dosing. Having an extended-release injectable to treat HIV would free the patient from the daily reminder of their disease as well as allow for greater flexibility in taking other required medications.

These potential benefits may lead to a significant portion of the HIV treatment market shifting to long-acting injectable products when they become available.

We've been working together with Gilead for about 2 years on this program as a feasibility project. We are delighted that based on our progress together, they chose to advance this effort into a formal development program.

Gilead is a global leader in products to treat HIV and hepatitis B virus. In fact, Gilead sold $14.6 billion in products directed to treat HIV last year. They've been treating HIV patients for many years, and we are proud to be able to help them in this mission.

Under the terms of this agreement, we granted Gilead the exclusive worldwide rights to develop and commercialize a long-acting injectable HIV investigational product utilizing our SABER technology. Gilead made an upfront payment to DURECT of $25 million with the potential for up to an additional $75 million in development and regulatory milestones, an additional $70 million in sales-based milestones and tiered royalties on product sales. DURECT and Gilead will collaborate on specific development activities and Gilead -- with Gilead controlling and funding the development program -- programs.

Gilead also receives exclusive access to the SABER platform for HIV and hepatitis B with an exclusive option to license additional SABER-based products directed to HIV and hepatitis B. DURECT will receive an additional $150 million in upfront, development and regulatory milestones as well as a sales-based tiered royalties for each new product.

Our SABER technology, which is sucrose acetate isobutyrate extended release, is a patented technology that is designed to provide sustained release for long-acting injectable products. As a reminder, SABER technology is also the basis of our POSIMIR product.

Speaking of that, I'll now update on POSIMIR. POSIMIR is an investigational postoperative pain relief depot product that utilizes our patented SABER technology. It is designed to be administered directly into the surgical site to deliver bupivacaine for up to 3 days after surgery. POSIMIR has not been approved by the FDA for marketing in the United States for any indication. In June, we announced that we had submitted a response to the POSIMIR Complete Response Letter. Just 20 days later, on July 17, we announced the FDA had agreed to file our submission as a complete Class 2 NDA resubmission and assigned a user fee goal date of December 27 this year. The submission is intended to address the issues raised in the CRL and seeks FDA approval of POSIMIR based on what we and our advisers believe is an adequate evidence of both safety and efficacy. We commissioned Dr. Lee Simon to evaluate the adequacy of the existing POSIMIR package to address the issues raised in the FDA correspondence including the CRL and then to lead our efforts to submit the response to the CRL. Dr. Simon is a physician and research scientist who served as the FDA's Division Director of the Analgesic, Anti-inflammatory and Ophthalmologic Drug Products from 2001 to 2003 and is now a principal at SDG LLC, an FDA advisory firm.

As a reminder, in 2 adequate and well-controlled clinical trials conducted in patients undergoing inguinal hernia repair and subacromial decompression or shoulder surgery, POSIMIR demonstrated a significant decrease in pain and opioids consumed over the 0- to 72-hour period following surgery as compared to placebo. We believe these trials support the safety and adequacy of POSIMIR in the postoperative pain space and meet the requirements to be considered pivotal clinical trials.

In all, the company has completed 16 clinical trials in the POSIMIR program involving over 1,400 patients with over 850 of whom received POSIMIR and the remainder are our control groups. We believe this is a sufficiently sized safety database.

The current FDA submission includes extensive new data and analyses that were not included in the original NDA such as the PERSIST trial that adds an additional 380 patients. We believe that with sufficient safety data from the PERSIST trial included, there are now sufficient data to address the FDA's issues raised in the Complete Response Letter.

Regarding the opportunity for POSIMIR. Insufficient postoperative pain control remains a significant problem with studies indicating that approximately 65% of patients experience moderate to extreme pain after surgery. New, non-opioid pain products are much needed in the postoperative pain setting, and we believe that POSIMIR could be an important contributor if approved. Upon approval, we would plan to license POSIMIR to a partner with excellent commercial capabilities in the hospital space. Given the potential value of POSIMIR, we believe the deal could garner significant economic returns.

Next is Indivior and PERSERIS. Under our agreement with Indivior, in addition to the $17.5 million in upfront and milestone payments we previously received, we've also received and are receiving quarterly earn-out payments based on a single-digit percentage of U.S. net sales for PERSERIS, which is a long-acting injectable antipsychotic. The product was launched at the end of February this year by Indivior with a field force of 50 representatives and, as one might expect for products so early in its launch, has generated modest earn-out payments so far. But we're encouraged by some of the early launch metrics, as stated by Indivior. For example, they've already achieved over 70% of the managed care coverage nationally, which is at parity with the established long-acting injectable antipsychotics. Indivior further stated that they are receiving positive patient and health care provider feedback and that their revenue is in line with their expectations. They have previously announced that they expect peak annual revenue to reach between $200 million to $300 million per year.

In summary, preliminary data from the DUR-928 AH Phase IIa trial is compelling, and the drug may be lifesaving in this disease state. The Lille scores when compared to historical controls are most impressive. We look forward to completing the 150-milligram severe patient cohort and potentially presenting the trial data at the AASLD meeting in November. Once the AH trial is complete, we plan to meet with the FDA to define the path to approval. We are thankful for the support and strong encouragement from our expert advisers and clinical investigators for this product.

The DUR-928 28-day NASH trial remains on track to yield initial data by the end of the year. The DUR-928 Phase IIa topical proof-of-concept trial in psoriasis remains on track to have top line data by the end of this year.

We are excited to be working with Gilead on a long-acting injectable HIV investigational product as well as the prospect of additional SABER products with them directed to HIV and hepatitis B.

We look forward to December 27 and the potential approval of the POSIMIR NDA and a potential commercial partnership.

Lastly, Indivior's launch of PERSERIS seems to be going well.

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

(Operator Instructions) Your first question comes from Adam Walsh, Stifel.

Yes. I got it, sorry. I've got a couple of questions on alcoholic hepatitis. Given those data look good, have you given any thought to the Phase IIb trial yet with the similar endpoints to what you're evaluating beyond those studies? And then would you also design this study in line to (inaudible)?

Those are great questions. Just it was -- I had a hard time understanding, so I'll just repeat it for everyone. The first one was what might be the clinical endpoints for the next trial for AH. And would we see that trial as -- could it potentially be a single trial, a pivotal trial? And so both of those would be amazed to be seen, I guess, would be my answer. But the -- if one looks at the endpoints, we are looking at the same endpoints in this trial as we would in a pivotal trial. We'll be looking at survival. We'll be looking at these prognostic indicators of survival, such as Lille and MELD, and looking at the biomarkers such as bilirubin and the like. So all those same endpoints will be used and very similar to the ones that Gilead used and Vital Therapeutics (sic) [Vital Therapies] and the like. So there's a track record of companies that have studied this disease state. It's a very challenging disease state, obviously. So I think we -- and we are right in the process right now of actually laying out what that protocol will look like with our clinical and regulatory advisers.

As far as the path forward, we have to define that with the FDA. This is a circumstance where the product could potentially be lifesaving. We're certainly seeing indications of that. The mortality rate is as high as -- and near-term mortality rate is as high as any cancer product out there. So I think that's a very important component of all this. So if we have an opportunity to be in there and to be lifesaving, then that would be something that we would certainly like to do, is try to get out there and help these patients as rapidly as possible. So to that end, we will be having that conversation with the FDA and need to define that as we go forward.

Got it. Okay. And then I got one follow-up -- and then I have one follow-up. I'm sorry if my line is all choppy. You guys used your SABER technology as a centerpiece of the Gilead deal to really bolster your balance sheet. Is there the possibility to use this technology in other indications with other companies to strike a similar deal? And then like is this -- is that type of deal something you guys actively seek out or is something that other companies generally come to you with?

It's interesting. Generally, what happens with us is that -- drug delivery has changed dramatically over the years, and there aren't that many places left that really specialize in it. And I would say people who come to us with their problems have already exhausted every opportunity they can have elsewhere. So they've tried their own technologies. They've gone around and talked to other shops. And so they come to us with their most difficult problem. And that being said, we do have some other feasibility projects ongoing right now. We have some really great scientists here, and I think we have a fabulous technology with what we're doing with SABER and CLOUD and some of the other things here. So -- anyway, I -- so generally, people come to us, and then we see if we can help them through the feasibility time frame. And if we can, then it will mature to a development project.

Your next question comes from Ed Arce from H.C. Wainwright & Co.

Jim and Mike, congrats as well from me on all the recent progress.

Thanks, Ed.

A few questions on AH. So I guess this is a little different than the previous question. But these 3 measures, these prognostic measures beyond, obviously, 28-day survival have been used, as you mentioned, in other studies, the Lille, MELD and bilirubin. What is your sense of what needs to happen with the data to be deemed positive? Is this just something that you still need to work out in consultation with the agency?

Well, I think you can't draw tremendous conclusions from uncontrolled trials we have now. We can only look at historical trials. But as I look at those historical control data, I'm very encouraged by what we've seen. I think it's substantial. That being said, we have to prove out what we're seeing now, a similar kind of response against an active -- excuse me, against a positive -- against a control group, not a positive control. Look, there's no positive drug out there, and there's no drug that really helps. So we'll go against standard of care, which will be with or without steroids depending on the state of the patient, whether or not they respond to it would be my guess.

The trial will be similar to the other trials that have been conducted and unfortunately haven't worked in this patient population. My sense is now the -- there have been a couple of consortium meetings with the FDA, and it looks like they might be leaning more towards the 90-day survival rather than 6-month survival because at some point in time, you get beyond the effect of the drug and the therapy, and you're just trying to get into now the social circumstances of a given patient and that's not really what we're looking to try and evaluate. And so that would be my hope and our desire would be to have something like a 90-day study comparing 928 against a placebo group in these patients, looking for the same measures that we're currently discussing: looking at Lille, looking at MELD, looking at bilirubin and looking eventually at survival as well.

Okay.

Yes. Ed, let me just add to that. I mean if you -- I know you had a chance to listen to the KOL call we had where we had the 3 doctors on. We had [Paul Cole] from Stanford, and we had Steven Flamm from Northwestern and Dr. Hassanein from UC San Diego. And I think you could tell from that call that they consider the data that we're already seeing to be extremely positive. So I think your question was what do you need to see -- what kind of data do you need to see something positive. And I think they repeated -- they view the existing preliminary data that we already talked about as very, very positive and very exciting given that they feel like there's not much available for them to help these patients now and that they're seeing good things from these patients compared to their experiences and the historical control data that we have access to.

No. I think that's right. If we can simply repeat what we're seeing right now in the next trial, I think we'll be able to help these patients.

Okay. The data that you expect to present or hope to present at AASLD, that will be across both moderate and severe, across the 3 different dose cohorts, the complete top line on those, correct?

Yes. It'll be the data from this trial as it exists today, which will be however many -- what we're going to do is we're going to dose until we finish the 150-milligram severe patients. And as you know, the severe patients enroll much more rapidly than the moderates. And so if we finish the 90-milligram cohort of moderates, that's wonderful. If we don't, we're still going to end the trial once we finish the 150 milligrams. So we're -- because that is really where the rubber meets the road with these severe patients. They have the most severe disease, and that's where one can really discern an effect for the drug. And so to that end, that's what we're looking at. And then we'll present those data or we won't, but one of our thought leaders will be presenting or maybe a couple of them depending on how it works out, will be presenting data, hopefully, at that meeting.

Okay. And then just a couple of follow-ups, if I may, switching gears to POSIMIR. Just given the PDUFA that you have now as people begin to do the work and look at the opportunity here in front of you, what do you see as -- what do you assume as the loss of exclusivity for POSIMIR? How far out do you model that internally? And what do you regard as the addressable market? I know that this is being viewed as -- for these various procedures, but I just -- maybe a little more granularity around that would be helpful.

Sure. Let me take this one. In terms of the duration of exclusivity, we have patents that go into 2025 in the U.S. We have patent that goes through 2026 ex U.S. and is pending in the U.S. We have additional patents that -- and strategies that could extend that beyond the existing patents. So -- and then in terms of the addressable market, we've done market research that shows about 30 million procedures that are addressable with POSIMIR, which is consistent with the kind of numbers you hear from other companies that are in the space. And certainly, if you look at the size of the addressable market compared to the penetrated market by the product that's on the market now, there's a lot of room for growth.

Yes. I think that Mike's absolutely right. I think we feel that the market is less than 10% penetrated. So there's a huge unmet need here. And the ease of application with our product, simply squirting it on the wound versus injecting it around the wound is much quicker, saving surgeons time. And if one looks at patent opportunities beyond the issued patents, we could potentially have 20 years from this year depending on how successful we are with those strategies.

Okay. Great. Final housekeeping question from me, if I may. Given your pro forma now with the cash infusion from Gilead is probably around $63 million, what do you regard as your cash runway?

Well, we don't like to give cash burn forecast. But if you look historically for them pretty consistently over the last year or so, we've been burning about $6 million a quarter. So with that kind of math, that would be just -- the cash would be over 2 years.

Your next question comes from François Brisebois from Laidlaw.

Just a couple here. I was wondering on the AH side, is -- can you talk about the competitive landscape a little bit? Obviously, it's an unmet medical need. But I was wondering, since the first data that you started showing, have you heard of anything that's in development? Or what's basically being used right now?

Unfortunately, there -- what's being used right now, they've shown with the STOPAH trial, which was, I think, 1,100 patients out of the U.K. that those drugs really aren't helping. And it's pentoxifylline and prednisolone. Those are the 2 drugs that are currently being -- have been used. But most of the hepatologists don't use them today or they use them very rarely with fear of infections with -- and kind of lack of response to the steroids is a big thing there; and pentoxifylline, I don't think they're finding it helps much at all.

And as far as things on the horizon, I don't know of anything else. There have been a number of strategies that have failed. And so I think we have an opportunity to be the first one out there with this.

Yes. I'll just add a little to that, François. The -- one thing that -- Gilead did a trial last year, a large Phase II trial looking at this. So obviously, they believe there's a nice market there. And at that time, they were kind of at the lead. And now I think we are. If you look on ClinTrials (sic) [ClinicalTrials] at alcoholic hepatitis, you'll find almost entirely academic studies looking at drugs that are already on the market for other indications being sort of tried for this just because they're desperately looking for something and trying different doses and different dosing regimens of various things to see if that helps. But I think at this point, we're kind of in a position where we probably are the lead company that's focusing on this space, which is a really great opportunity for us.

Yes. And that was the point made by our advisers also in our May call. Yes.

Okay. That makes sense. But can you -- what was -- and was there something specific that kept happening for others that have tried in AH that led to the failure? Or was it a whole bracket of different kind of, I guess, reasons for not working out?

I think it's primarily the biology of the disease. The disease is very complex. You've got the liver under assault from chronic and then acute and chronic alcohol toxicity. But it's not just the liver. You end up with the kidneys being damaged, the lung being damaged, the gut becoming leaky and sending endotoxins into it. So you've got this multi-organ failure is oftentimes the case. And in fact, most of the hepatologist that I've met with tell you that -- or have told me that you can tell a lot by the potential -- survival potential of a patient by looking at their creatinine and their kidney function that they have remaining because that's a marker not only of how much kidney capacity is left but also how bad is that liver that is throwing toxins to the kidney to the point that it -- that kidney is going under.

And so with 928, we've shown, starting with the animal data -- remember we showed those animal studies where we tested against endotoxins, and Dr. Ren did this work and it was published in the Molecular Pharmacology, that showed that 928 protected not only the liver but also the kidney and the lungs, and he has histologic data in all 3 of those organs showing that it's protective. I think that's part of the reason why we're able to see what we see, is this is a naturally occurring, in my opinion, a stress hormone that's able to help shore up these organs that are in a bad way and allow the body to heal itself.

Understood. And then in terms of just the moderate to severe, obviously, in NASH, it's been a little complicated. Sometimes exactly where a patient stands through diagnosis and such. Is it -- how do you compare the moderate to severe? Is this a little bit like pain, where you'd expect to have easier to show an impact in the severe population? Or can you just help us understand that distinction with what we've learned from the NASH space?

Yes. It's very different from the NASH space. In this, you'll just need a blood draw to tell you the difference. And so your blood work will tell you what your MELD score is. And that MELD score is your blood clotting time, your bilirubin, your creatinine. So it's kind of kidney and liver and -- 2 measures on liver, which is the bilirubin and the blood clotting time. And so that sets the stage for your stage of severity. And so if you're above 21, you're a severe patient. And there are different -- obviously different categories of those patients, but that's a pretty easy line of demarcation. And so we haven't defined what the low end of a patient that we'll be exacting, but it'll probably be in and around that. They might slip down a little bit, but it'll be in the range of maybe the high teens to the low 20s and then we'll have an upper level as well on the MELD. So that will define the type of patients that we're looking for.

And MELD is already used widely, and it's already sort of what is used to prioritize patients for liver transplants as well. So it's commonly used as a way to stage, the severity and the patient's liver life.

And that's why we used that in our -- in the May data when we kind of looked at these -- well, how could we come up with a way to describe how our product was working versus how the patient started. So if you look at the x axis of those graphs we showed in May, we -- and we've shown in our corporate presentation, you'll see that the x axis is showing the initial MELD and then the y axis being the resulting Lille score at 7 days. So what is their prognostic survival projection based on where they started? And so that's the way we do it.

As far as being more severe and being able to show a signal better in severe, that's typically the case with most drugs and certainly seems to be an opportunity here as well as -- especially as other organs are drawn into the fight, and the 928 opportunity, I think, ever strengthens.

And just lastly, I guess, can you talk about the potential -- I know you don't like mentioning guidance on the burn, but the difference in costs of AH versus a NASH trial or just how much less they -- it could kind of be and how it -- in terms of how much quicker and less?

It's a lot -- yes, it would be a lot less. As far as quicker, I mean, there's going to be less competition, obviously. And then there is -- there -- but there are more NASH patients and the like. But we'll have to put up a number of centers. I think Gilead did 100 patients in about 18 months, something like that. So we would expect our enrollment to be hopefully in that same kind of range. But we'll see.

As far as costs go, they -- it won't be near the cost of what we'd see for a NASH Phase II trial.

Okay. Understood. And then for the Sandoz, is there any chance with POSIMIR that if everything works out with the resubmission, that -- is Sandoz allowed to come back in and to help out or is, I think, long gone?

I'll let Mike actually.

Well, I mean, the agreement with them is terminated. And if they wanted to come back, that would be an interesting conversation, yes. They do have nice hospital sales.

Your next question comes from Doug Adams, Tocqueville Asset Management.

I had a couple of questions. The first, the Gilead upfront fee, is that -- will that be booked on the revenue line in the third quarter? How is that accounting handling, that license fee?

No. It won't be booked all at once. It'll be deferred revenue. Some of it will be deferred revenue across the -- essentially the time period where we have obligations to perform activities under the agreement. And the exact accounting is -- will be finalized before the next Q.

Okay. And then on the AH trial compared to the University of Louisville cohort, I had a couple of questions. You said the last 2 90-milligram dose patients had results that were consistent with the results that had previously been reported on the first 10. Looking at your slide presentation, the 2 90-milligram patients in -- that were reported as part of the 10, both of those had 0 Lille scores. So are these additional 2 patients consistent with that? Or are they consistent with the 0.04 Lille score?

We haven't broken it all out. And in fact, actually we dosed -- we only -- only 1 of those 2 90-milligram patients we reported on in early May was severe. The other was moderate. So we dosed 3 more severe patients. And so what we were doing is looking at those 4 severe patients as compared to the rest of the group, and we see that their results are very similar. And that's why we're saying they're consistent. We haven't broken it out. We're trying not to because we want to keep as much powder dry as we can for the AASLD meeting. So that's why we're being a little bit -- and also, we don't want to report on every single patient we dose, right? So...

Well, for issues, that would be inappropriate. The other question I have has to do with the cost -- potential cost-benefit of your treatment. Do you have any data in terms of the average hospital stay for that University of Louisville control group that you're using versus the average hospital stay or the duration of the stay for your patients?

No. I don't have it for them. We know for ours. Now in talking to physicians who treat these patients, they're oftentimes in the hospital for multiple days, sometimes a week to 10 days. Sometimes, they're there 3 or 4 weeks depending on if they're liver recovers. Some of these livers just don't recover very rapidly, and the patients are around for a long time. And sometimes, they never recover, hence the mortality rate that you see.

As far as our patients, in the first 10 patients, we had 2 patients -- I mean, the protocol is set up such that they get injected -- an injection on the first day, and then they can receive another injection on day 4 after -- 3 days after that first day. We've only had 2 patients that stayed in the hospital long enough to get that second injection. The other 8 went home sooner. So that certainly seems quicker. We are -- I can tell you we're looking to add into the next trial some quality-of-life measurements and the like to understand a little more about the pharmacoeconomics of all this because there certainly appears that above and beyond the life-saving potential, there might be some pharmacoeconomic advantages early on as well.

We have a follow-up question from Ed, H.C. Wainwright & Co.

So in the AH patient population, as you look forward to the data and conversations around a more fulsome Phase II study next year, I know you've given just some broad data around hospitalizations of over $300,000 per year and the cost of about $50,000 per hospitalization -- or per patient. How can -- what can we look at that could be helpful in terms of thinking about the addressable market and also ultimately pricing for the drug?

Sure. So I'll start with the addressable market first. You gave that -- the $320,000 number. That's based on diagnosis codes. So we're still doing the work now to sort of understand how many of those are repeat customers and what other diagnosis codes are associated with those. But it's a good starting point. And from a pricing standpoint, I think what Jim was mentioning -- and you were mentioning with the $50,000 per visit and the cost of transplants being as high as they are, but any time you're able to prove that you're reducing mortality, we believe reimbursement will be there. And certainly, there are some pharmacoeconomics that are relatively straightforward to figure out here. We're not ready to give a specific sort of number on what we think the cost or the price would be, but we are just early stages of doing that work.

There are no further questions at this time. I would like to hand back to Mike for closing comments.

Great. Well, thank you, everyone. It's an exciting time for us, and we appreciate you calling in and the good questions. Have a nice day.

Thank you very much. Bye.