DURECT Corporation
Q3 2019 Earnings Call Transcript

Published: 5 Nov 2019

[Operator:]

Greetings, and welcome and to the DURECT's Third Quarter Conference Call. [Operator Instructions]. Please note this conference is being recorded.It is now my pleasure to introduce your host, Mike Arenberg, Chief Financial Officer of DURECT. Please go ahead.

[Michael Arenberg:]

Good afternoon and welcome to our Third Quarter 2019 Earnings Conference Call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief overview of our financial results and then Jim Brown, our President and CEO, will provide 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 those 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 Q3 2019 was $10.8 million compared to $8.0 million in Q3 2018. Q3 2019 revenue included $6.2 million recognized from our deferred revenue associated with the Gilead license agreement. And Q3 2018 included the $5 million milestone payment Indivior paid us upon NDA approval for PERSERIS.Adjusting for those, total revenue was $4.6 million in Q3 2019 versus $3.0 million in Q3 2018. Product revenue, largely from the sale of ALZET Pumps and LACTEL polymers, was $3.0 million in Q3 2019 compared to $2.3 million in Q3 2018. The gross margin on our product revenue was 76% in Q3 2019. These products continue to be strongly cash flow positive.R&D expense was $7.9 million in Q3 2019 as compared to $6.5 million in Q3 2018, primarily due to higher cost of DUR-928 and our depot injectable programs, which are largely covered by revenue from partners, partially offset by lower costs associated with POSIMIR. SG&A expenses were $3.8 million in Q3 2019 as compared to $2.9 million in Q3 2018. Our underlying burn rate during the quarter was $6.0 million. At September 30, 2019, we had cash and investments of $57.1 million compared to $34.5 million at December 31, 2018. Of course, subsequent to quarter end, we received a $10 million development milestone associated with our Gilead license agreement, so including that, our pro forma cash position would be $67.1 million.With that, thanks again for joining our call, and I will now turn it over to Jim for an update on certain of our programs.

[James Brown:]

Thank you, Mike, and good afternoon, everyone. The third quarter was a strong one for DURECT. We continued to advance our flagship DUR-928 program on all fronts. We completed the DUR-928 Phase IIa, alcoholic hepatitis trial and announced impressive data on important endpoints, including bilirubin, MELD and Lille scores. The study results were selected for an oral late-breaking presentation and for inclusion in the Best Of The Liver Meeting summary slide deck for the 2019 American Association for the Study of Liver Disease or AASLD meeting.In addition, a comparative analysis of the trial results with a historic control trial has been accepted as opposed to presentation. We announced completion of enrollment in the psoriasis Phase IIb trial for DUR-928 and that the Phase Ib DUR-928 NASH trial had passed the halfway point of enrollment. The FDA agreed to file our POSIMIR NDA -- as an NDA submission and scheduled an advisory committee meeting for January 16, 2020. In addition, we signed a deal with Gilead for the development and commercialization of a long-acting injectable HIV investigational product. We also earned the first milestone payment and received $10 million to go along with the $25 million upfront payment that we received during the quarter.DURECT's primary focus, though, remains on our epigenetic regulator program and the lead molecule, 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, cell survival and tissue regeneration. It may have broad applicability in acute organ injuries, such as alcoholic hepatitis and acute kidney injuries and chronic liver diseases, such as NASH and inflammatory skin disorders, such as psoriasis and atopic dermatitis. We are developing DUR-928 for 3 initial indications

[Operator:]

[Operator Instructions]. Our first question comes from Juliana Merle with Cantor Fitzgerald.

[Eliana Merle:]

This is Ellie Merle from Cantor. Congrats on all the progress. Just on DUR-928, can you give us a little bit more color on what endpoints or aspects of the data we'll learn more about at AASLD, I guess, versus what was in the top line release? And then secondarily, I guess, just in terms of the data, what are the endpoints that you think physicians will be most focused on in this detailed data path?

[James Brown:]

There's a lot of good data that's been put together and calculated, and I don't want to jump the gun as far as -- I guess, we're so close to having that release in the embargo kind of thing. But with regard to that, you will see comparative data for the -- comparing the AAR, alcoholic hepatitis trial data as compared to the Louisville control. And then we'll also get a good analysis, the breakdown of the various doses and how they performed, and also, the severity of the liver disease that the people came in with as compared. So you can look at average scores, different levels of bilirubin coming in and/or MELD scores and helping to keep. So that's the kind of thing we'll be looking at. And as far as the clinicians and what they might be looking at, I'm a veterinarian, but if I were there looking at this stuff, I'd be looking at bilirubin, and I'd be looking at Lille. I don't know, WeiQi, if you would add anything to that.

[WeiQi Lin:]

Yes. I think the early change of -- or early reduction of bilirubin is very, very important, particularly for this group of patients. And of course, Lille, although it's developed for looking at a response rate of the patients to steroids, but then it's a still -- it's a response to the treatment. And then -- so that's why it's also using a large part of the early change, the dynamic value of bilirubin, that's the most critical parameter.

[James Brown:]

True. And then, I think, about the prognostic indicators, they also take into account other things like creatinine for kidney and other functionalities of the liver as well. So all those things add up.

[Eliana Merle:]

Got it. Looking forward to the data.

[James Brown:]

Thank you. We are, too.

[Operator:]

And our next question comes from Adam Walsh with Stifel.

[Adam Walsh:]

I appreciate all the detail and the update. Just a couple of questions. First one is on the DUR-928 in psoriasis, with those data coming by the end of the year. Can you help us understand what you would need to see, kind of given the treatments that are out there for psoriasis? What would, in your mind, be a go-forward set of data, more of the parameters kind of thresholds that you're looking for there? And then a quick one on POSIMIR. I know that you had said in your press release that Dr. Lee Simon was helping to prepare for the Ad Com. Will -- as a consultant, will he also be presenting on behalf of the company at the Ad Com?

[James Brown:]

I'll take the last one first. He'll definitely be at the Ad Com. I don't know whether he'll be presenting data or not. That's hard to say, but he's definitely as he's working with the team constantly, doing mock meetings and all that. So he's guiding the process, for sure. As far as the psoriasis, more than 80% of patients who have psoriasis just simply have -- not simply, it's horrible if they've got it, but they've got these local lesions. They don't have systemic disease to the point where they need to go on immune modulators, and yet, they have disease that definitely is disruptive. And to that end, the best thing they've got today are the topical agents, and there really hasn't been anything new in that arena for more than 50 years, I would say. It's been steroids and coal tar. And so what 928 offers is a potential new opportunity for those patients to be able to treat themselves locally, perhaps without some of the issues that those things cause. And so we'll see how it goes. We're looking at the local severity index of these. And I don't know, Michael, WeiQi, you want to add something to add a bit?

[Michael Arenberg:]

Yes, I can add a little bit. Your question was what would we need to see from the trial to consider it as a successful trial. And we were able to get some feedback from multiple people in the derm space, companies that would be potential partners, prior to starting this. And just to confirm that there was strong interest in a topical for psoriasis and to understand what they would want to see. And so we tried to design the trial to make sure that if it was successful, it would be providing those potential partners with what they would be looking for, which is statistically significant win on the local severity indexes.

[Operator:]

[Operator Instructions]. Our next question comes from Ed Arce with H.C. Wainwright.

[Antonio Arce:]

I have a few on AH. And I guess, before I start, just congratulations on the early data. It does truly look like a breakthrough from the previous data we've seen.

[James Brown:]

Thanks. Yes, I'm very happy.

[Antonio Arce:]

So first, as we look at the late-breaker abstract that's now been out for a couple of weeks, all 18 patients achieved the Lille score, including the severe patients, those that're around 30 or 90. Could you comment, perhaps, on the four patients on the 150 dose? And what your thoughts are there?

[James Brown:]

Well, I think -- I don't want to jump the gun with regard to the presentations that are coming next week. So I will just say, we -- definitely, we've looked at 30 and 90 and 150, and we have seen somewhat of a dose response, which is impressive considering you only have 4 patients per group. It's very difficult to get anything like that out of such a small number of patients. But we definitely see something. I think it's interesting biologically. And from this, we can pick 2 doses, and we have, but we won't talk about that until next week. But we definitely can select 2 doses that we're going to take forward into the Phase IIb trial next year, for sure. So we've learned a lot, and the drug has performed, to a large extent, as we would have expected. And it's been safe at all levels and shown an effect at all levels. So it's been impressive.

[Antonio Arce:]

Yes. Perhaps a follow-up on that. Given the recent meeting on alcoholic liver disease, AH recently...

[James Brown:]

Chicago meeting, yes.

[Antonio Arce:]

Yes, exactly. What -- after that, what are your thoughts, perhaps, on what the regulators might think on using historical controls and how that might play into designs of future study?

[James Brown:]

They did talk about using historic controls. It's challenging because what you need is -- because the practice of medicine evolves like everything else in life. And so you have to -- they would like, if you were to use the historic control that you have concurrently conducted trial. So patients were conducted with the state-of-the-art for today as close as possible. And that you -- obviously, we want to match enrollment criteria that patients will be the same patients as much as possible. And then you have to have a very powerful statistically significant difference between that. You have to have enough patients to show it.And so to that end, we actually match a lot of stuff, quite frankly, but I don't think that one could go with just 12 patients, just -- such a small number of patients and trying to achieve a conditional approval. I'm pretty certain we're going to have to conduct another trial, and that is what I expect we will be doing next year. But it certainly gives us strength in evaluating the doses and the response that we've seen going into the next trial. I think that's a very important piece. So I think we can use those data -- these historical control data as a way to help gauge that we're on the right track with the dose and the kind of trial that we want to conduct and the things we want to evaluate. I don't know, WeiQi, do you want to add anything?

[WeiQi Lin:]

No, that's clear.

[Antonio Arce:]

So last question for me, if I may. Jim is just coming out of this. I know you hope to schedule a follow-up meeting with the agency and discuss next steps, especially given such standout data. Could you perhaps just give us your thoughts on what preliminary Phase IIb design might look like? And is there potential for the Phase IIb to represent a pivotal 1 or 1 of -- or 2 pivotal studies that might be required?

[James Brown:]

Well, at the end of the day, we'll be certainly interacting with the FDA as we design this trial. And we're working on the trial as we speak. And we have been for quite a while. The trial will be designed and powered to demonstrate superiority over the placebo. That's the most important thing. And we would expect that all the patients will be given the standard of care and then either 928 or a placebo on top of it. The exact design and size of the study hasn't been finalized. We know that Gilead conducted a trial that they talked about last year at the AASLD meeting in San Francisco, and they used 50 patients per group for that. They compared their ASK1 inhibitor against standard of care. And so -- unfortunately, that trial didn't work, but it -- that gives you some sense maybe. And at the end of the day, if -- would this trial be adequate for approval? I think the data will dictate. If what we have seen with this current trial continues, if that -- so in other words, if we see those same kind of responses that we have seen, then I think there is a potential there that -- for an opportunity for conditional approval because there's an opportunity for this drug to be saving lives in the immediate future. So that would be -- if we -- at the end of the day, I'm trying to say, we'll let the data dictate. If the data are good enough, then we will look to submit, and we'll obviously be happy to work with the FDA. But that'll drive it. The information will drive it.

[Operator:]

Thank you. I would now like to turn the floor over to Mike for closing comments.

[Michael Arenberg:]

Okay. Well, thanks everyone for joining our call, and we look forward to seeing many of you over the weekend and early next week at the AASLD meeting. So exciting times. And thanks, again, for joining the call.

[James Brown:]

Thank you. Bye.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.