DURECT Corp (DRRX) 2021 Q4 法說會逐字稿

Greetings and welcome to the DURECT Corporation Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to our host, Mike Arenberg, Chief Financial Officer. Thank you, sir. You may begin.

Good afternoon and welcome to our fourth quarter 2021 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation.

Before beginning, I would like to remind you 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. You will no doubt have seen the 8-K filed last week describing that I will be leaving DURECT as of March [17th] to pursue another opportunity. So I just wanted to say a few words on that.

Without getting into too many details, I will be taking an opportunity as Chief Operating and Business Officer at an oncology company. This will be an expanded role, it will be -- will take my career down a different path. This was not an easy decision because I sincerely believe that DURECT has a stellar team and an incredible asset in larsucosterol. I have the utmost confidence in the potential of larsucosterol to save lives and transform the company and I am more than grateful for the many opportunities I have had working at DURECT.

I also want to note that Matt Hogan, the company's former Chief Financial Officer from 2006 to 2018, who has served as corporate finance adviser to the company since 2018, will continue to support the company during the search for a new Chief Financial Officer. Further, Jian Li, who has been our VP of Finance and Corporate Controller for the last 19 years will be our Interim Principal Accounting Officer.

With that said, let me now turn the call over to Matt, who will provide a brief review of our financial results and then Jim Brown, our President and CEO, will provide an update on our programs. We will then open up the call for a question-and-answer session.

Thanks, Mike. Let me now turn to our financials. The noteworthy accounting events in Q4 was the licensing of US POSIMIR rights to Innocoll. The deal was signed on December 21st, 2021 and all the material deliverables to allow Innocoll to benefit from the agreement were completed before year-end. So revenue was recognized in 2021.

Upon signing, Innocoll agreed to pay us a $4 million nonrefundable upfront fee and $1.3 million primarily to cover manufacturing supplies and excipients, used in the manufacturing of POSIMIR and certain equipment at the manufacturing sites that they acquired from us. Our balance sheet at December 31st, 2021 reflects that $5.3 million as accounts receivable. Innocoll then paid us that full amount in January 2022.

In terms of revenues in Q4, $4.1 million was recorded in collaborative R&D and other revenue, $1.1 million from the sale of manufacturing supplies and excipients was recorded in product revenue and the remaining roughly $100,000 for the equipment was not recorded as revenue, but was reflected as a reduction in equipment on our balance sheet. As a result of this, total revenues in Q4 2021 were $7.3 million compared to $2.2 million in Q4 2020.

Collaborative R&D revenue increased by approximately $4.3 million year-over-year, essentially due to the Innocoll revenue. Product revenue from the Innocoll transaction and the sale of ALZET pumps increased from $1.9 million in Q4 2020 to $2.7 million in Q4 2021. R&D expense was $8.4 million in Q4 of 2021 as compared to $6.7 million in Q4 2020. The increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for DUR-928.

SG&A expenses were $4.5 million in Q4 2021 as compared to $3.4 million in Q4 2020. $750,000 of this increase was a transaction fee related to the Innocoll deal. Our underlying burn rate during the quarter was $10.9 million. And at December 31st, 2021, we had cash and investments of $70 million as compared to $56.9 million at December 31, 2020. Again, if you consider that this cash figure did not include the payments from Innocoll, net of transaction fees, the cash figure would have been more like $74.6 million.

With that, let me turn the call over to Jim for an update on our programs.

Thank you, Matt. Hello, everyone. Thank you for joining us today for our 2021 fourth quarter update. DURECT is conducting what we believe could be an NDA-enabling trial of larcucosterile for the treatment of alcohol-associated hepatitis or AH. AH is the definition of unmet medical need. In the United States, there are approximately 137,000 hospitalizations per year for AH, with a 90-day mortality rate of 30% and with no approved therapy.

In our larsucosterol Phase 2a trial, we saw a 100% survival at 28-days compared to a 20% to 26% historical 28-day mortality rate. No drug-related serious adverse event and the mechanism of action aligns with AH epigenetic dysregulation. We are making great progress in AHFIRM. AHFIRM is a Phase 2b 300-patient, double glide placebo-controlled trial on three continents. Our robust survival benefit may support NDA filing, with a potential to be the first approved treatment for AH and the FDA has granted the program Fast Track designation.

Now to update on recent events. We are pleased with the enrollment rate in AHFIRM, our Phase 2b study of lacucosterile in patients with severe alcohol-associated hepatitis. We made excellent progress in opening clinical sites with the addition of 15 new clinical sites since our last earnings call. We now have 51 sites enrolling for AHFIRM and we are nearing completion of our goal of 60 or more sites for the trial. We have 41 sites in the United States, five sites in Australia and five sites up and running in Europe and the UK.

Last week, we announced the first patient was dosed in Europe and we announce today that we have dosed more than 100 patients in AHFIRM. We estimate the completion of enrollment remains on track for the middle of 2023. We presented a poster at the liver meeting near the end of 2021, showing increased hospitalizations for AH in the United States. Those AH patients who died during their hospital stay had significant comorbidity and cost of over $150,000. During the fourth quarter of 2021, we signed an exclusive US licensing agreement for POSIMIR, with Innocoll Pharmaceuticals.

Under the agreement, DURECT will receive up to $136 million in upfront and milestones in addition to low to mid double-digit royalties. Innocoll remains on track for launching POSIMIR during the second quarter of this year. On a personal front, we wish Mike Arenberg all the best in his future endeavors. We thank Matt Hogan for his continued support and we've engaged a search firm to recruit for a new CFO.

We strengthened our Board of Directors with the appointment of Pete Garcia, a seasoned financial executive of extensive biopharmaceutical industry experience. We also welcome Dorothy Engelking as our VP of Regulatory Affairs. She is a regulatory executive with more than 25 years of experience.

Let's now move to larsucosterol, our development program for alcohol-associated hepatitis and the AHFIRM trial. AHFIRM is our ongoing Phase 2b efficacy and safety trial. It is a placebo-controlled double-blind multinational study targeting 300 patients. It is our belief that if AHFIRM demonstrates a statistically significant improvement in 90-day survival, this trial should support the NDA filing of larsucosterol for the treatment of AH. The FDA has granted Fast Track designation for the development of larsucosterol in the treatment of AH.

AHFIRM has three treatment arms: 30 milligram and 90 milligram of larsucosterol and a placebo arm. As with the Phase 2a trial, patients in the AHFIRM trial receive an infusion of larsucosterol or placebo on day 1 and if they are still in the hospital on day 4, they receive a second infusion. The primary endpoint for the trial is 90-day survival. We have 51 clinical sites open, which represent 15 more sites since our last quarter update. We plan to have between 60 and 65 clinical sites total for this international study.

Last week, we enrolled our first patient in Europe and now have sites opened in the United States, Australia, the UK and the EU. We are pleased with the enrollment rate. We have now dosed more than 100 patients in the trial and expect the study will complete enrollment in the middle of 2023. With COVID-19 reducing its burden on the hospital system, we anticipate that we may see acceleration of patient enrollment. The main focus of the company is to execute on this trial to the highest level of quality and in a timely fashion. AHFIRM is the highest priority in the company.

In 2019, it was reported that were approximately 137,000 hospitalizations per year in the United States for AH. What physicians have available to them today primarily involves aspirant and supportive care, which includes nutrition and hydration. Corticosteroids are used in some cases that have shown no survival benefit in 90 days or one year. There is no approved treatment for AH. Retrospective analysis, the 77 studies published between 1971 and 2016, which included data from a total of 8,184 patients, show the overall mortality from AH was 26% at 28 days, 29% at 90 days and 44% at 180 days.

A subsequent global study published in December of 2021 which included 85 tertiary centers in 11 countries across three continents, prospectively enrolled 2,581 AH patients, with a median MELD score of 23.5. This study reported mortality of 20% at 28 days and 31% at 90 days. Prior to the COVID-19 pandemic, the incidence of AH was increasing in younger patients and during the pandemic, alcohol consumption in the United States has increased by about 30%. This has led to a dramatic increase in hospitalizations for AH, as well as many more AH patients being listed for liver transplant. This has been described in the literature including an article in JAMA Network Open.

This particular paper notes approximately 6% of severe AH patients are listed for liver transplant. This percentage has nearly tripled since the beginning of the pandemic. AH has a significant economic cost for the health care system. The average hospital stay for an AH patient in the United States is approximately 1 week, with many staying significantly longer. The average hospitalization cost for an AH patient is approximately $56,000 for patients who survive the first 9 days and approximately $151,000 for those who do not.

Alcohol-associated liver disease is becoming a leading cause of liver transplants in the United States with the average cost of liver transplant exceeding $875,000. At this time, we are not ready to discuss pricing for larsucosterol. However, if larsucosterol is successful in saving the lives of AH patients and if one assume the price of only half of the low end of these costs, it could be a multibillion-dollar opportunity and could save the health care system substantial costs.

Let's review why we are so optimistic about the use of larsucosterol in the treatment of patients with severe AH. AH patients face a 90-day mortality of approximately 30% and there is no approved treatment. In the first trial of larsucosterol and AH patients, all 19 of the patients, including the 12 severe AH patients survived. Additionally, 14 of the 19 patients were discharged in less than four days after receiving only one IV infusion of larsucosterol. The prognostic score for the AH patients in this trial, including real and MELD scores, bilirubin and other biomarkers were improved as compared to baseline.

Larsucosterol was also well tolerated by all the patients and at all the doses evaluated in the Phase 2a trial. There were no serious drug-related adverse events reported in this trial. Dr. McClain from the University of Louisville conducted a comparative analysis of the 8 severe AH patients treated with larsucosterol in the 30 and 90 milligram cohorts from our Phase 2a trial with 13 severe AH patients from a Louisville study.

And it's important to note that the 30 and 90 milligram cohorts are the doses that we are testing in AHFIRM. The Louisville patients received supportive care, including steroids. Both groups had similarly high MELD scores and high Maddrey's discriminate function scores. The larsucosterol treated patients had substantially lower real scores as compared to the Louisville group. And all of the larsucosterol patients survived a 28-day follow-up period, while three of the Louisville patients did not survive past 28 days and a fourth patient died at day 30. This analysis was presented by Dr. Craig McClain at the 2019 AASLD Liver Meeting. A slide of this comparison can be seen in our corporate deck on the DURECT website.

In addition to the clinical trial results, we also have supporting data from numerous in vivo animal models that demonstrate larsucosterol's potential against multi-organ failure, which can occur in AH patients. Larsucosterol mechanism of action helps us better understand the remarkable results that we saw in the treatment of AH patients. Larsucosterol is an endogenous epigenetic regulator. It binds to and inhibits the activity of DNMT1 3a and 3b. DNMTs are epigenetic regulating enzymes that add methyl groups to DNA in a process called DNA methylation.

Treatment with larsucosterol and stressed liver cell led to decreased DNA hypermethylation and modulated expression of more than 1,000 genes that were associated with multiple crucial cellular signaling pathways. In July of 2019, our JAMA at all published a study in Nature Communications. In this study, the gene transcription patterns of patients with severe AH were distinctly different from control subjects and patients with other liver diseases.

In the AH patients, there was DNA hypermethylation, ultra transcriptomics and liver cell dysfunction. The expression of DNMT1 and DNMT 3a were found to be profoundly increased in the AH patients are not in the control subjects or patients with other liver diseases.

The authors of this study suggested that inhibition of DNMT could be a novel therapeutic approach for AH. Larsucosterol binds to and inhibits the DNMT, which add to the strong rationale for evaluating larsucosterol as a therapeutic agent for patients with AH.

In conclusion, there is a huge unmet need in AH. There is no approved therapy today for AH patients and the 90-day mortality is approximately 30%. AH cost the US healthcare system billions of dollars per year and is rapidly becoming a leading cause of liver transplant.

We are optimistic regarding the potential for success of the AHFIRM trial because of results from our Phase 2a study, the comparative analysis with the Louisville severe AH patient data, in vivo animal model results against multi-organ damage and the association of larsucosterol mechanism of action with the epigenetic dysregulation seen in patients with severe AH.

Given the high unmet need for hospitalized AH patients, lack of current treatment options and the high mortality rate, we believe a robust survival benefit in the AHFIRM trial would support an NDA filing. In addition, the FDA has granted Fast Track designation for larsucosterol in the treatment of AH.

Lastly, 42% of new drugs launched in the United States in 2018 were approved based on a single trial. The FDA issued a draft guidance in December 2019 that supports an NDA filing should a trial like AHFIRM be successful. This document is titled demonstrating substantial evidence of effectiveness for human drug and biological products guidance for industry.

Page 11 states that a single trial "can establish effectiveness" by showing "marked improvement in survival compared to a control group". If it is also supported by natural history data demonstrating, "a very limited median survival time". We believe 30% mortality at 90 days represents a limited median survival time. We will have to wait for the AHFIRM data regarding the improvement in survival.

Next, an update on potential indications for larsucosterol beyond AH. One of the indications we are considering is NASH. We have completed Phase 1a and 1b trials in more than 70 patients that demonstrated reduced liver enzymes, fibrosis markers and by imaging liver fat, stiffness and elasticity, reducing circulating fats, including triglycerides, reduce cell death marker, improved insulin resistance and a good safety profile.

Other potential additional indications for larsucosterol that are supported by preclinical data are acute kidney injury, pancreatitis, metabolic syndrome, stroke, sepsis and others. We are currently planning our next indication for larsucosterol.

Next to POSIMIR. POSIMIR is a novel non-opioid sustained-release local anesthetic that is approved to produce postsurgical pain analgesia for up to 72 hours following arthroscopic subacromial decompression.

Late last year, we licensed the development and commercialization rights for POSIMIR in the United States to Innocoll pharmaceutical. We selected Innocoll as our commercial partner because of their strong commercial team, including a 60-plus hospital sales force, a medical affairs team and a marketing access team and because they are already focused on the postsurgical pain market.

Lou Pascarella, their CEO served as Novo Nordisk US Head of Commercial Operations; and Anthony Galdi, their Chief Commercial Officer, led the US Surgical business for Ethicon, Inc., a part of Johnson & Johnson medical device companies.

With POSIMIR and Innocoll surgical implant, Innocoll is the first company to have two sustained release bupivacaine products to offer the postsurgical pain market. We believe there is a strong commercial synergy between the products that will help both grow and succeed in the marketplace.

Innocoll remains on track to launch POSIMIR in the United States during the second quarter of this year. DURECT will receive a $2 million payment upon first commercial sale, with the potential for up to $130 million in additional commercial, regulatory and intellectual property milestone payment, as well as tiered low to mid-double-digit royalties on net product sales in the United States.

During the fourth quarter, we added Pete Garcia to our Board of Directors. Pete has worked as a Chief Financial Officer in the lifescience industry for more than 25 years and raised more than $2 billion in capital during that period. He is currently the Chief Financial Officer of ALX Oncology since joining them in January of 2020 and led their IPO in July of that year and a follow-on on offering in December.

Prior to ALX Oncology, he served as the CFO from 2013 to 2019 at PDL BioPharma, an enquirer of royalties and pharmaceutical assets. Before joining PDL, Mr. Garcia served as CFO for a number of biotechnology companies. Pete began his life science career at Amgen, where he served in a number of financial roles of increasing responsibility. Mr. Garcia holds an MBA from the University of California, Los Angeles and a BA in Economics and Sociology from Stanford University. Pete is a wonderful addition to our Board and his experience, guidance and perspective is greatly appreciated.

Last week, we welcomed Dorothy Engelking as our VP of Regulatory Affairs. Dorothy most recently served as VP of Regulatory Affairs, Quality and Pharmacovigilance for Adamis Pharmaceuticals into their acquisition by Supernus Pharmaceuticals. Her career stands more than 25 years and multiple product approvals. We are bringing her on board now in planning for success with the AHFIRM trial and in preparation for potential FDA and European submissions.

In summary, we are making great strides with AHFIRM. We have 51 clinical sites up and running out of the 60-plus we have planned. We've added 15 clinical sites since our last quarter's call. We dosed our first patient in Europe and now have clinical sites open in the United States, Australia, the UK and the EU. We are pleased with the patient enrollment rate and now have dosed more than 100 patients in AHFIRM. We expect AHFIRM will complete enrollment in the middle of 2023.

Elevated DNMT expression and DNA hypermethylation reported in the liver samples of AH patients fits with larsucosterol's mechanism of action and helps to explain the efficacy signals, including survival of patients observed in our Phase 2a AH trial. Since the pandemic, alcohol consumption has increased by about 30% in the United States and the percentage of AH patients waiting for and receiving liver transplants have increased substantially. We have fast track designation by the FDA for our AH program. We expect that we achieve a robust survival benefit, this study would support an NDA filing.

Our partner Innocoll plans to launch POSIMIR in the United States during the second quarter of this year. DURECT will receive a $2 million payment upon first commercial sale with the potential of up to $130 million in additional commercial regulatory and intellectual property milestone payments, as well as tiered low to mid-double-digit royalties on net product sales in the United States.

We will use the proceeds from this partnership to help fund our epigenetic program and our flagship product, larsucosterol for the treatment of AH. Beyond AH, the mechanism of action for larsucosterol provides further scientific rationale for developing treatments for other acute, organ injury and chronic diseases. We would now like to take any questions that you might have.

Thank you. (Operator Instructions) Our first question comes from Kristen Kluska with Cantor Fitzgerald.

Thanks for taking the questions and Mike best wishes to you at your new opportunity.

Thank you. Thanks.

So I saw very much hot off the press last week. There was a study by Mayo Clinic, which -- what they did is they looked at different variables that have typically correlated with the greatest risk of mortality from historical data over a number of years. And they pointed out age, blood, urea, nitrogen, albumin and bilirubin.

So wanted to ask you -- I don't know if you've read the paper, of course, but from your diligence and some of the work you've looked out in some of these historical factors, what do you believe are the greatest correlative factors to mortality and how these findings might also further support larsucosterol for the Phase 2a finding?

That's a great question and I'll just start and then hand it over to I think both WeiQi and Norman should speak to this. But when you look at the reasons for people dying, typically it's because of multi-organ failure, multiple organs to shut down. And certainly kidney function and liver function are two key components and both ones that we've shown with our super sterile that we can help with. But maybe I'll start with it WeiQi.

Sure. I had to unmute first. So, yeah, I think have manufacturers that the study certainly they had a very -- made a very interesting observation. And one prognostic market, of course, is the MELD score has been pointed out, which is particularly the Phase 1 MELD score, which was particularly being pointed to highly protective of the mortality of these patients as (inaudible).

You know WeiQi, I lost you here might be my reception, but you said something about initial MELD than I lost you. Could you repeat that?

So the MELD score at a baseline level, which has been pointed out among all the other prognostic scores as the predictive scoring system that can predict the 90-day mortality. And then after, the 7-day Lille score has been continuously used actually has relatively high specificity and the sensitivity in looking at the treatment responses of these patients. So for MELD score, it's of course, at a baseline level as a static score, but then the new score is a dynamic score, as we all know looking at the change of the bilirubin levels.

So both MELD score and Lille score they incorporate multiple markers of the organ function markers, such as bilirubin still at every both scores clearly stand out with serum bilirubin levels and also creatinine levels bilirubin included. So that's actually pointing to that paper that you just mentioned, these markers are important, but then you put them together, you have to look at them as a whole, like Jim has pointed out when patients die, they frequently die from multi-organ failure with the liver -- the kidney failure being in addition to the liver failure, that additional important market, that's why both scores incorporate that creatinine levels as well. So I hope that is that the question?

I think that's -- yeah I think so, WeiQi, thank you for that and Norman what would you add, anything to that?

Yes, I think WeiQi has said everything. The dynamic model Lille score, even though on their area on their own accrued looked as it could lower has really withstood the test of time. And so it's depending on the cohort, different papers have suggested one might be slightly better than other, but they generally give you very similar information. The addition of age and underlying cirrhosis, you probably have a major effect. But when we talk about recoverable disease, I feel very confident of the little data.

Thank you.

Yeah, I think it's important to remind our listeners that we had the larsucosterol had such a profound effect on reducing the real scores as compared to Dr. McClain's patients which were equivalent in their starting characteristics to ours, we had 4x -- a fourfold reduction in real comparative real scores. So...

Okay. Thank you for that color. And I know you're very much laser-focused on this AH opportunity, but you did note in your prepared remarks that you're currently planning the next indication to evaluate. So obviously, the list that you gave for us, for some examples is quite extensive.

So wanted to ask, maybe if you could talk about what are some of the specific criteria you might consider? And then on that, no, I believe we're hitting the 1-year mark of the publication of the mechanism of action. So just curious, like in terms of the conversations and now that you've been able to share more with the scientific community, how that might determine next steps as well?

Yeah, both really good questions. I think with regard to the first question and the next indication for larsucosterol, we are taking a hard look at the potential indications and we did give quite a long list and quite frankly that isn't the entirety of it. We have others that we didn't mention. The way we're going to select the next indication is going to be based on certainly the animal data, the preclinical data that we have, but also on the unmet need.

And so we're looking in areas where there really just isn't a good therapy. For example, we selected AH because there's nothing really out there that can help these patients and it's a huge problem. And so we're looking to try and fit larsucosterol and where it can fill a void that's there for the healthcare system. And we'll start with these very high need indications and eventually we'll roll out to the -- to some of the others as well.

As far as the mechanism of action, it certainly is exciting and it is amazing how fast time goes by, you're right. There has been just about a year since that paper was published. Unfortunately, in the area of epigenetics as it applies to this type of epigenetics, not an anticancer kind of circumstance, but in circumstance we're looking to improve the epigenetic function of a cell.

There really hasn't been much new in the area. Certainly, people that we've talked to are very excited about what we're doing. We're really at the forefront. So we're kind of at the very cutting edge of the science there, but it's a great place to be, lot of exciting information.

Okay. Thanks. And my last question is just on the patient enrollment and guidance here. Just wondering if you could give a little bit more color about this mid-2023 trial completion, specifically as you add more sites and look at the cadence that's been occurring, albeit during the pandemic. Help us understand a little bit more how you're coming up with this time line? And then for future earnings releases, should we expect that the company will either reiterate this guidance or update it if necessary based on what you see throughout the months?

Yeah, my guess is we probably -- it's so important to us, we'll end up giving some kind of update on the guidance. And we have selected the mid-23 date based on where we are now, everything we understand about the non-rate sites we have up and the like, we're not really taking into account future sites, although we're excited about getting them up and running as well. But just looking at how things go forward, that's our most reasonable guess at this point in time. And so that's where we are.

Certainly, the team strives every day to improve and on any timelines. And I'd have to say that they're doing a bang-up job. I don't know, Norman, if you want to add anything.

No. I think -- we can't obviously pivot really slowed a lot of sites down. So there were lot of interruptions. We will have to see if that changes once it's completely diminished, its role is diminished. And I think as Jim says, we would offer guidance if we feel that we're making more progress. But I think for right now, we're comfortable sticking with our original estimation.

Perfect, thank you. Thanks, Kristen.

Our next question comes from Francois Brisebois with Oppenheimer.

And my congrats and best of luck, Matt, great to hear from you. All right. Thanks. So yeah, I'll just move forward with a couple of questions. So just on enrollment, I think that's very important here. The goal -- the total number for a number of sites, has that changed at all? And based on the clinical trial design, if enrollment completes in mid-'23, can you just help us understand maybe how to think about when top line data would come out afterwards?

Sure. We did early on over a year ago when we saw that the pandemic was having the effect that it was, we added more sites and that's where we got to the 60 plus where we are now. And that diversity and geography across the United States and that's (technical difficulty) world has really helped a lot because we have a circumstance where the pandemic would be burning hottest. And when you have the pandemics on the rage, then you've got sometimes coordinators not allowed into the hospital, beds aren't available, nursing staff is reduced, all these kind of things.

And so that's been our -- really our foundation and has really allowed us to maintain the time line that we have. And so if one considers then the timing that you've suggested and looking at a mid '23 completion if the last patient is enrolled in the mid of '23, then that last patient last visit would occur then three months later. And then some months later after that, the data would be cleaned up, the data base would be locked and then we would have top line data. As to how long that would be hard to say.

I think at this point, I'd like to let that become defined, but it's going to be certainly a good amount of time. And we're doing a great time keeping up real time with the data coming in, but still in my experience, it always takes months to do that. So I would just -- we'll have to see, but it will probably be my, I don't know for sure yet, I hesitate to give a time because I just want to let the team determine that. Norman, would you incur with that, anything you want to add?

I don't think I could add much to that. Obviously, this is something that occupies my thinking every day is the time line. We're keeping up with -- as we're kidding up with data as we go in. So we're trying to make sure that when the trial comes to an end, we're as close to having a complete handle on the data as possible.

But there is a period of finalizing, getting the last patient be in and then making sure that we have -- have covered all of the bases and all of the eventualities before we look at before we do an unlock because any decisions, any less decisions we make are better made, while it's still blended.

Okay. Now that's helpful. And then obviously, the pandemic has been difficult, but especially with maybe trial sites ex-US here, any impact that we're seeing based on geopolitical issues?

No, our hearts go out to what's happening in Ukraine and to Europe. I mean it's a horrible circumstance. And I'm hoping that somehow that can be solved and save from the death and destruction that's occurring there. But we made a decision early on, even though there certainly is a lot of -- there's a big problem for alcohol-associated hepatitis in Eastern Europe, we made a decision just because it can be challenging to get the quality of data that you would like out of sites there, not to use any Eastern European side.

So I think as far east as we go is Germany. And so that's -- so it won't impact AHFIRM, but it certainly impacts all of us just our heart, right? I mean it's horrible.

Okay. No, yeah, obviously. And okay, that's helpful. And then in terms of the launch of POSIMIR, can you just maybe help frame for us for the listeners, the market opportunity and come second quarter, it seems like that's still the time line for launch. In terms of the mid- to double-digit royalties here, what we can maybe expect here or just maybe the size of the market? And if you can give any color on their thoughts about updating the label?

Yes, I can't give any color on updating the label yet, that's entirely in their control. And I know their focus right now is on the launch and they're adding some great new people, I don't know I probably can't talk about it yet or them, it's their news, but they've already got a great team and they're adding they've been -- more great people to it.

So I think it's -- we're really excited about what that can -- what Lou and his team can do. I think if we look at the market in the US, it's about somewhere little north of 600,000 shoulder surgeries per year and for which this could potentially be applicable and then there are subcategories and all the like of that.

So it's -- we're really looking forward to it. It's nice after all those years of hard work to think about that being out there helping the patient, right? We all know what a problem narcotic abuse is and getting exposed to narcotics after surgery is unfortunately one of the leading causes we're getting people into that horrible cycle.

So we're hoping that POSIMIR can be out there helping patients with shoulder surgery and eventually expanded as just suggested to other indications as well, we're looking forward to sharing some sidelines as they take that on and we think...

All right. Great, congrats on progress.

Thank you. Sure. Thank you.

And our next question comes from Ed Arce with H.C. Wainwright.

Congrats on the recent progress, let me add best of luck, Mike. Really appreciate the time here. And also good to hear from you as well, Matt and glad that you're helping out.

So first question is I just wanted to drill down a bit on -- a little bit further on the continuing acceleration of enrollment that you see. You mentioned that right now you have 51 sites up out of a total of nine -- or excuse me, 60 that you hope to have in total. So you're looking at adding nine more from what you have now. First patient was dosed in late January right now in March, you have just over 100 over 13 or 14 months.

So what I'm looking at is, as you target mid-2023 is to get another nearly 200 patients in about 15 or 16 months or thereabouts. So clearly a significant acceleration from what you've done over the first year. And so with that, I just wanted to ask you to be as specific as you can in terms of the barriers to accelerating that enrollment that you have seen and perhaps expect to see over the next year and a half and how you're mitigating them, obviously, beyond the additional sites that you've done.

I think it's -- thank you for the question, Ed. I think it's important to actually talk about the last part first and that is the number of sites, because if you look back over the prior 12, 13 months, we started with just three or four or five sites right? And then we would get to seven sites and then eight sites and then nine and 11 and 12. So you start calling as you start any clinical trial.

By the time you get to near the finality of the number of sites and we'll be perhaps a few more than 60, but somewhere between 60 and 65 or something. Once we've got the full complement of sites up and running, you can enroll imagine as compared to if we had 60 sites going as compared to when we had end sites were at 6x, just the enrollment right patient per sector month is the same.

So that's why every clinical trial has ever been associated with, you always see this hockey stick of enrollment, right? And there often is the case that it takes about as long to enroll the first third as it does to complete the entire rest of the trial. And so that's kind of what one sees. I don't know that this will be any different, I don't expect that it might be any different than that other than we do have on top of that the melting away of the pandemic, which may speed it up a little bit more as well. So that would be my assessment.

Norman, what are your thoughts? You might maybe unmute.

One moment.

We lost you, okay.

Can you hear me now?

Now, we can. Yeah.

Okay. Sorry about that. So I think you hit the nail on the head. It's really -- we started out with a very small number of sites and we've been building them. And so that explains why we have this accelerated, we're on an accelerated path now. But I think the early phase was simply a question of having so few sites.

Okay. Fair enough. I was just perhaps wondering if there was beyond the clear acceleration in the number of sites themselves, anything in terms of logistical or operational issues at the site level that may have to have work through to accelerate enrollment, that's what I was getting at?

Yeah, so I think the -- in general, most -- I would say all of the sites we've chosen have the skill to do this. We've chosen them carefully for that reason. COVID had a major impact on how hospitals will run, some of them had nurses quick because of vaccine mandates, some of them wouldn't allow non-essential personnel in, so some of them had to close a number of beds. So there were lot of issues, a lot of them were full for periods of time.

We try to mitigate that by spreading the sites over a very wide geographic area, so that no one site would be a dead stop for everyone, but it definitely impacted this and other -- my colleagues in other studies have said the same thing that it had a major impact. So hopefully, this is finally clearing the decks and that we will start to see more sort of normalization of hospital operations.

Okay. Great. Thanks for that. Second question is around your plans to give us all an update on larsucosterol in NASH and perhaps other indications. In particular, do you have some sort of a time line where we could expect some news? And I noticed you touched upon this before, but there's number of potential indications you discussed or mentioned in your prepared remarks. I grant that there's a couple of things that you mentioned in terms of the criteria, such as the preclinical data and the unmet medical need. But just wondering if you could perhaps give us a little more details around what would help you lead decision one way or the other? Thanks again.

Yeah, sure. I think that's a really good question and that is a part of the business of running any biopharmaceutical company, right? It's where do you take your next step? And it really does help if you have some options, most companies don't. Most companies have something that is -- it's a square peg and it's got to go on a square hole and that's it. But larsucosterol, we have this thing that has great flexibility and capacity to help across a huge broad list of disease circumstances.

And so then when you've got that kind of freedom, which we do have with larsucosterol, then we have the chance to take a step back and way she's done an amazing drop at the science, look at and where these things might sit? And so we can look and say, where -- in some cases, we did even understand the -- it's hypomethylation in issue. So you can get down to the -- some of the more basic components of the science there.

And then certainly look at animal models and models of the disease and cell lines and the like and give some sense of whether or not we might be able to have a positive impact. And then we look at the overall pharmacoeconomic circumstances. Are there already reasonable therapies out there? So we're going to have to go out there and knock off somebody who's already got a beachhead and is doing well.

That's not where we want to go. What we want to do with the molecule is cutting edge and as amazing as what our larsucosterol could be is go where others can't, witness AH, right? Nobody has been able to make it go.

We've got monoclonal antibodies to get into immune system, they've got tested steroids, they've tested kind of everything you can possibly think of it against it. And unfortunately nothing has shown that it really helps.

And so -- but we've shown in that 2A that it might well save lives. And so that's the kind of place where we'd like to go with our next indication in some place where there isn't -- there's such an unmet need that it's -- we can step in and really make a big difference and that's what we want to do. So -- that's what we're trying to do.

Fantastic. All right. The final question for me then is on POSIMIR. You mentioned Innocoll is on track to launch -- commercial launch the drug next quarter. And you would expect a $2 million milestone payment on that first commercial sale, so...

Exactly, yeah.

Would you expect that payment if not to be recognized at least booked or earned I should say in the second quarter? And then just the broader question, just in terms of your expectations in terms of the economics that you could derive from this going forward?

As far as the timing goes, when that first sale occurs, then they will owe us the milestone as far as the timing of when that comes. I don't know, Matt or Mike, one of you guys, I don't know how that -- that's usually -- there's a lag there always with every contract that we have, right?

Well, if they have first sale, we will immediately recognize the $2 million as revenue and then we'll have to invoice some and then sometime after that, we'll receive payment. I don't remember what the payment terms are, but it would follow shortly thereafter.

Yeah, I think that's right, that's exactly right. Okay. And then as far as the magnitude, which is your question, what do we expect the magnitude of their sales and then our associated double-digit royalties might be? We want to let that unfold as it should.

Certainly, when we've looked at this market for such a very long time, there is a huge unmet need out there. There's so much pain that occurs after surge, especially a surgery like shoulder surgery. I mean, if you have a friend or if you've had it yourself, you know how painful that can be.

And we did -- our study was raising your shoulder pain or movement kind of thing. And so to be able to make a difference there, it's going to make a huge difference to the patients, not taking narcotics is a huge potential for helping the patients themselves because you can get away from not having 5% or 6%, 7% of the population has a predisposition to abuse. So you don't expose into it, they don't have to worry about that piece.

And then there's another layer to all of this and that is two more layers. One is having less pain when it's known locally allows you to move it -- that mobility is really important. If you've had family members had a knee or hip replaced now, they get them up right away, right and start moving them very quickly. And it's because when you can get up and be mobile, you can reduce a lot of other morbidities up in is pneumonia.

And getting up and moving around is important to keep for reducing that, also not taking the narcotics because when you're on narcotics, you lose that stimulus to breathe deeply, that's just one of the side effects of narcotics. And so by virtue of having that, we think there are lot of positive outcomes for the patients themselves. But as far as giving actual number what the sales might be, I -- at this point in time, I couldn't do that. I think you have to wait and see how things go, but we certainly think that it's teed up to do well.

Great. Thanks so much for the commentary. Really appreciate it.

Sure.

And that's all the time we have for questions. I'll now turn it back to Jim Brown for closing remarks.

Okay. Well, with that, I just want to thank all of you for your time. And as always, if you have any questions, please reach out and we'd love to talk, already. Thanks a lot, and take care. Bye.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.