DURECT Corporation
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Greetings, and welcome to the DURECT Corporation First Quarter 2020 Results Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mike Arenberg, Chief Financial Officer. Thank you, Mr. Arenberg, you may begin.

[Michael Arenberg:]

Thank you. Good afternoon, and welcome to our first quarter 2020 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 an update on our programs. 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 revenue in Q1 2020 was $2.8 million compared to $4.1 million in Q1 2019. The net revenue associated with our Gilead agreement in Q1 2020 was negative $268,000, which primarily relates to the way that one has to account for the recognition of deferred revenue associated with the $35 million of upfront license fee plus milestone payments we received in 2019. I this is a technical accounting matter that has no impact on cash and for a more complete explanation on how this works according to GAAP, please see our 10-Q. Excluding the recognition of deferred revenue, collaborative revenue for Q1 2020 was down about $1.1 million or 71% compared to Q1 2019 due to reduced development work on the Gilead project and on a paid feasibility project with another company. Product revenue, largely from the sale of ALZET pumps and LACTEL polymers, was $2.8 million in Q1 2020 as compared to $2.6 million in Q1 2019.I should note that late in the quarter and continuing into the second quarter, we saw a drop in ALZET revenue compared to historic levels as many of our customers using ALZET mini pumps saw their operations affected by the coronavirus. The gross margin for these combined product lines was 56% in Q1 2020. These product lines continue to be strongly cash flow positive. R&D expense was $7.7 million in Q1 2020 as compared to $6.3 million in Q1 2019, primarily due to higher clinical trial expenses for DUR-928 as well as higher costs associated with POSIMIR to prepare for the advisory committee meeting. SG&A expenses were $3.4 million in Q1 2020 as compared to $3.5 million in Q1 2019. Our underlying burn rate during the quarter was $12.3 million. This was an unusually high quarter as there were a number of cash outlays that fell during the quarter, including upfront payments associated with the upcoming AH trial. Payment of 2019 employee cash bonuses, a loan modification fee that extended the interest-only period for our loan was Oxford by 18 months.Consultant fees related to the POSIMIR Ad Comm in January and payments related to manufacturing DUR-928 that happened to fall during the quarter. These items accounted for over $5 million of nonroutine payments that happened to fall during the quarter. At March 31, 2020, we had cash and investments of $52.5 million compared to $64.8 million at December 31, 2019. With that, thanks again for joining our call, and I will now turn the call over to Jim for an update on certain of our programs.

[James Brown:]

Thank you, Mike. Hello, everyone. Thank you for joining us today. I hope that you and your families are all doing well during this unprecedented time. At DUERCT, we're very fortunate to have an amazing and dedicated group of employees. Because DURECT is an essential business, we've been able to keep our laboratories, manufacturing and accounting offices open. A large portion of our employees began working from home two months ago.And during this time, we've been functioning at the highest level. We announced today that we began working -- excuse me, that we have been working with the FDA on the design of a proof-of-concept Phase II trial in hospitalized COVID-19 patients with acute liver or kidney injury. We also continue making progress on preparations for our planned Phase IIb alcohol hepatitis trial, completed enrollment in our NASH trial, and we responded to several informational requests from the FDA as they continue their review of the POSIMIR NDA. I'll begin with the DUR-928 trial in hospitalized COVID-19 patients. This protocol was developed with feedback from consultants who work for or collaborate with groups that are at the forefront of fighting this pandemic. We are fortunate to be also working with the same division of the FDA that is working on our AH indication.First, let's review the rationale for investigating the potential of DUR-928 to aid in the treatment of hospitalized COVID-19 patients. The Phase IIa clinical evidence in patients who have acute alcoholic hepatitis and preclinical evidence in acute multiorgan endemol suggests that DUR-928 may be beneficial in COVID-19 patients with acute liver or kidney injury. Organ injury resulting from immune overreaction to coronavirus infection or other complications may contribute to poor outcomes in patients with COVID-19. Acute liver or kidney injury in addition to lung injury, is an additional factor for poor outcomes in COVID-19 patients. Many of these patients are often excluded from ongoing antiviral COVID-19 clinical trial. DUR-928 is a naturally occurring agent with tremendous potential to treat acute organ injury, including injury to the kidneys, the liver and the lungs, caused by infection with COVID 19. from a safety perspective, DUR-928 has been well tolerated in more than 280 subjects, both healthy volunteers and patients in multiple Phase I and II studies, and no serious events have been associated with the drug. Most relevant to COVID-19 are the results from our recently completed Phase IIa study in acute alcoholic hepatitis patients.All of the 19 patients dosed with DUR-928 survived the 28-day study, while the 1-month mortality in AH patients is on average 26%. The main causes of death in these AH patients, similar to patients with COVID-19, are

[Operator:]

[Operator Instructions]. First question is from Ellie Merle, Cantor Fitzgerald.

[Unidentified Analyst:]

Hi, everyone. This is Alberto on for Eli. First of all, congratulations on the quarter. So some particulars that we were wondering about is, if you could give us more color on the information request from the FDA during the review of POSIMIR. Like what info did you give the FDA in response to these questions? And what are you thinking lately about the potential time frame for a decision?

[James Brown:]

I'm sorry, I couldn't hear the latter part of that question. I understand you were looking for what the IR questions were about. What was the statement right after that?

[Unidentified Analyst:]

What are you thinking as far as a time frame for a potential decision?

[James Brown:]

Okay. Yes. So the content, I mean they kind of vary all the place. They ask questions as they always do for an NDA. As far as timing, it's impossible to say, really. They have not given us any PDUFA date. The original one was December, and then they obviously missed that because of establishing the Ad Comm that they wanted to have in January. And since that time, they had not given us the new one. So we're simply just answering questions that they have and waiting. So we don't have any -- I can't give any more perspective than that.

[Unidentified Analyst:]

Got it. And then if you could accommodate one more, just for the COVID-19 study, how should we think about the time frame where we could start to see some data?

[James Brown:]

Well, that's an interesting one. The agency has been amazingly forthright in coming back to us so quickly and with really good guidance and help. I really have to tell you the consultants and the sites we work with in the agency have all worked together in a very collaborative way. So my sense is the trial will start soon rather than later. I can't give an exact date, but we are getting close. And then your question is, when would we have data? It will depend how rapidly we enroll. Right now, we're seeing -- we might be moving soon towards 2,000 deaths a day. So there certainly are a lot of patients who are still very ill. We're looking at centers in some of the cities that are the hardest hit and others that might be coming on to that. As the company -- the country opens up more, we might see other pockets start to be created in the south and other places, but it kind of remains to be seen. So my guess is as good as yours as to when. I think we'll have a better sense once the trial has started. We're in good shape to be able to start the trial as quickly as possible. So everything is teed up well, and it will just depend how rapidly do the patients enroll. I would expect that we should complete it this year, but I wouldn't want to say anything more than that.

[Operator:]

Next question is from Ed Arce, H.C. Wainwright.

[Antonio Arce:]

Congratulations on starting this new work on COVID-19. And like -- guys have been busy and very collaborative with a number of partners as well as the agency. So first question for me is, I know you just went over sort of the -- your best guess as to this trial start and when data could come and all that. But I wanted to ask about, I know you went into some depth already in your prepared remarks around the rationale. But as I see the data to date with 928, in particular, the Phase IIa in AH and some of the preclinical organ injury study data that you have across kidney, lung and liver. And I know that there's just multiple areas where the drug is effective, including inflammation and cell injury and death. My question is, as you have consulted with the agency, what areas in particular are they indicating they would like to see, perhaps areas where they might be particularly interested in elucidating the mechanism and effect of 928, in particular, in COVID-19 patients.

[James Brown:]

It's a great question. That really hasn't been so much of their focus. I mean, they've got two categories of drugs. They've got drugs we're looking at which are antiviral, right? And they've got drugs that are somehow looking to modulate the immune system response. And we've seen the anti-arthritic monoclonal antibodies go out there, which kind of hit 1 prong of a, if I use an analogy, I don't know if it's a good one, if you consider an 8-legged spider. And if you've got a monoclonal antibody, gets 1 ablution system, then you're taking one leg of the spider. But if you've ever chased a 7-legged spider around your house, if they're not easy to catch, right? And with 928, we have an opportunity to be able to approach the whole thing in a different way.I can tell you we've had, from the very beginning of this, in early March, we've had a huge number of thought leaders who have worked with us on 928, and these guys are experts, many women of kidney and liver and other organ systems in the body who have exposure and understand 928. Mechanisms and the way it has worked in animals and in humans have come forward and said you need to test this. This really needs to be tested in these patients. And so it's been something that we've been looking on here. I think it has -- it's a very complex disease. The more -- we're just learning really, how this virus works. Originally was thought it's primarily a pulmonary thing that we're seeing much more endothelial activity of it in general and so the disease is shifting as our understanding is shifting, I think, more than anything else that goes forward. So -- but it's definitely -- so the FDA, I don't think is parsing it more closely than antiviral or to try and help the body's overall response.But what I think gives us a great chance and us -- the promise of being able to help is protecting against the multi-organ damage, regardless of the cause. It could be from ischemia, which you get. It could be from an inflammatory component, which you get it. Could be from a regenerative process that we can support, which you get with 928, a lot of those kind of things. I don't know, ], would you just want to add anything to that?

[WeiQi Lin:]

Not really. I think that was pretty good.

[James Brown:]

Okay.

[Antonio Arce:]

Great. Thanks, Jim. That's quite helpful. And then perhaps this is more for Mike, just given that all of this is pretty new over the last couple of months or so. I wasn't sure if this was mentioned at all in the prepared remarks, but given that you're doing significant work now on this and ramping up towards a Phase II study in multiple sites. Can you, at least in broad terms, quantify what this could mean to your cost structure this year and perhaps any impact to the cash runway?

[Michael Arenberg:]

Sure. With regards to the COVID trial, we think the total cost is going to be around $3 million in outside costs. Of course, that depends on how long it ends up taking and the final details of everything, but that's just to give you a ballpark. So it's not it's not a huge impact to the cost structure for the company. In addition, I'd add that there's a lot of potential government funding for this area, obviously, that we're exploring as well. So it could be that we are able to get a grant to pay for the trial, for example. That obviously would be helpful as well.

[Antonio Arce:]

I would assume that's something that you're actively pursuing, then?

[Michael Arenberg:]

Yes.

[Antonio Arce:]

Okay. Great. And then just 1 last 1 for me, if I may. Clearly, we've been waiting for some word on POSIMIR for a number of months now. And clearly, the FDA has a higher priority at the moment, with a lot of things being put a little bit on the back burner for now. Perhaps you could just give us a bit more detail on the kinds of interactions that you're having most recently with the agency. In particular, if they are the kinds of things, like labeling discussions and so forth that would lead you to believe that you're getting close to the finish line.

[James Brown:]

I don't want to predict. It's a good question, but I don't want to project. And we've had questions from a variety of different areas, and we've answered them as quickly as we can. But I think, to start to get speculation on this, I don't think helps. I think it's just -- we'll have to wait and see. I think it's best to do that.

[Operator:]

We have a question from François Brisebois, Laidlaw.

[François Brisebois:]

Just quickly, I was just wondering, with the COVID situation right now, you guys have gone from mid- to second half to start on the alcoholic hepatitis trial. So not much there in terms of delay. Is there any -- can you help us understand what it was about the COVID situation that's the hardest? Is it, in your case, the fact that patients, when they kind of have this issue, this is an acute -- a very severe issue with a high mortality rate within the first month, is it going to be like, is the difficulty here to enroll people because hospitals are overwhelmed right now? And how hard is it to just get the patients in time to make sure that you can have the right patients for the trial?

[Michael Arenberg:]

That's a great question. Now I think with regard to the alcoholic hepatitis trial, that type of trial will continue, as I think almost not be impacted hardly at all by the COVID pandemic, other than possibly accelerating the number of patients because the alcohol consumption per capita is up in the United States during the shelf on price time. So there's more alcohol being consumed. If one develops alcoholic hepatitis, you have to go to very soon. If you don't, you're going to die. So you have no options. You're so severely ill that that's your only option. And so we can be there to be able to help these patients when this trial is ready to go. Very different from a metabolic study is something where it's more at the patient's discretion.Is it, am I going to go in for this dermatologic condition, or this metabolic condition or something. It's a very different trial to try and conduct during a time like this. But in an emergency room circumstance, like we have with AH patients, that is one that's not going to be denied, unfortunately. So -- and as we look at getting this trial underway, it's really more time about just being able to visit the sites and get things going in a much more virtual circumstance. But we'll get there on that. I think once when it's up and running -- it's going to be up and running, I think. I don't know, I don't want to project the clip, but I think there'll be patients out there to help.

[Operator:]

[Operator Instructions]. We have a question from Len Yaffe, Stoc*Doc Partners.

[Len Yaffe:]

Jim, I was curious if you could talk a little bit more about the COVID-19 trial design in that if it's placebo-controlled, with standard of care, if any of the patients, which is becoming, I think, increasingly common, happen beyond remdesivir. The issue with remdesivir is it, by itself, has been shown to cause increased liver enzymes, liver injury, possibly kidney injury, so would patients be allowed to be on remdesivir in your trial and therefore looking at it, then could you be able to show not only benefit versus non-pharmacotherapy standard of care, but also being able to reverse some of the potentially harmful effects of what looks like it's becoming the first drug adopted treating critically ill -- or not quickly moderately to severely ill patients, which would be a major advance in having the dual regimen?

[James Brown:]

Sure. Yes. I think when we look at this trial, we're seeking to have it such that we can test 928 in patients if they are on an antiviral like remdesivir or not. So if they were, that would be okay. I had heard early on, and I don't know if this is continuous or not, that some of the patients who had pre-existing renal issues, for example, were able to go onto remdesivir, that makes change now. I don't know lately. I haven't heard them the last couple of weeks. But anyway, we would -- we'd be looking forward to helping any patients that we can, including those on the antivirals.

[Operator:]

We have questions from Mayank Mamtani, B. Riley FBR. .

[Mayank Mamtani:]

I apologize if this question was asked before, but I just wanted to sort of ask about the NASH data coming up, any ideas that you're guiding towards? Can you just remind us, on the animal model, I think STAM model is definitely something you've worked on. But just curious if you could lay out other models that you may have had and sort of not just liver enzymes and the bilirubin, what other work that you may have done that could inform some of the metabolic parameters that you may see in the NASH readout?

[James Brown:]

Yes. I think the most compelling data that are out there, I think the best model out there, from my personal perspective, is the STAM model, that patented model from Japan. Those people who don't -- aren't familiar with that model, is that's a model of young mice treated basically converted to being diabetic and then they're fed a high-fat diet. And they go through a process that we humans go through over many, many years in a very short time, and they unfortunately develop NAFLD, NASH and then eventually hepatocellular carcinoma, and they die very young. With 928, we were able to demonstrate a reversal of hepatocyte ballooning fibrosis. And I think most impressively in this model, was a reduction in -- a substantial reduction in the number of precancerous lesions. The hyperplasia that occurs prior to the hepatocellular carcinoma. So I think that's, from my perspective, that's the 1 that really speaks so clearly as to that there might be an opportunity for this drug in this disease.We've done a number of other fatty liver models here and there, and we've shown improved glucose tolerance and various other things and reduction of circulating lipids or lipids in the livers and things like that. But at the end of the day, it will be the data in humans. So that's why we're really looking forward to getting whatever data we can get from this. It's going to be a 28-day study, so we can't do biopsies or anything like that, but we'll get a sense of what need to go on. We'll look at liver enzymes, we'll look at imaging, not much imaging has been shown at anything at a month. I think most people are looking at 12 weeks or more. But we'll see what we can get at a month, that will give us a hint. Really -- and remember, we were doing the study to get a sense of what kind of doses make sense going forward. We tested quite a broad range of dosage from 15 milligrams a day to 300 milligrams twice, which is 680 days. So there's a tenfold difference, a 12-fold difference there.

[Mayank Mamtani:]

Great. That's super helpful. And then just on the basis of your discussions with the agency, I believe the cardiorenal group. Could you just kind of remind me where you are with some of the discussions, obviously around AH, but also I think the chronic oxide data that you may have to date. And sort of any level of content you may have to be able to get any kind of breakthrough designation, if at all possible?

[James Brown:]

Well, a couple of things. The chronic oxide data would be for the chronic indication like a NASH kind of thing. And we finished that last year. So that's done. And we now can dose for as long a duration as we want. So that's a separate piece. The breakthrough indication or some kind of fast track or accelerated review, would be for a life-threatening kind of circumstance like for AH. And so that's something that one can explore in that regard. And the same thing would be true if we showed something in COVID, because it would be a life-saving, and hopefully, a life-saving aid in that circumstance as well. So both of those, I would put together, one could look at basically viral induced pneumonias and acute organ injury, and AH would be kind of two different camps, similar kind of circumstances though, and they're both being run through the--

[Mayank Mamtani:]

Sorry, go ahead. Sorry, go ahead.

[James Brown:]

They're both being run through the hepatic division within the FDA.

[Operator:]

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

[James Brown:]

Okay. Mike?

[Michael Arenberg:]

Thanks, everyone, for joining our call. I appreciate good participation and good questions. So as always, Jim and I are available to talk if you need further discussion. Thanks.

[James Brown:]

Thanks a lot.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.