DURECT Corporation (NASDAQ:DRRX) Q4 2022 Earnings Call Transcript

DURECT Corporation (NASDAQ:DRRX) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Greetings, and welcome to the DURECT Corporation Fourth Quarter 2022 Earnings Call. . I will now turn the conference over to our host, Tim Papp, Chief Financial Officer. Thank you. You may begin.

Timothy Papp: Good afternoon, and welcome to DURECT Corporation’s Fourth Quarter 2022 Earnings Conference Call. This is Tim Papp, Chief Financial Officer of DURECT. Before we begin, 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.

To begin, I would like to review our fourth quarter and full year 2022 financial results. Total revenues in 2022 were $19.3 million compared with $14 million in 2021. 2022 revenues included $10 million of milestone payments related to our POSIMIR agreement with Innocoll, while 2021 included approximately $5.2 million of revenue attributed to an upfront license payment and sale of manufacturing supplies and excipients. Innocoll commercially launched POSIMIR in September 2022. For the fourth quarter of 2022, revenues were $3.3 million compared with $7.3 million for the prior year. This decrease is due to the Innocoll upfront license revenue we recorded in Q4 2021. R&D expense was $36.9 million in 2022 as compared to $31.8 million for the prior year and $10 million for the fourth quarter compared with $8.4 million for the prior year.

The increases were primarily due to higher clinical trial expenses for our ongoing AHFIRM trial, contract manufacturing expenses for larsucosterol and employee and benefit costs, partially offset by a decline in R&D spending on POSIMIR. SG&A expenses were $15.9 million as compared to $14.4 million for the prior year, primarily due to higher employee benefit costs and patent expenses. For the fourth quarter, SG&A revenues were $4.3 million compared with $4.5 million for the prior year, so relatively flat. As of December 31, 2022, we had cash and investments of $43.6 million as compared to $70 million at December 31, 2021, and our cash burn for 2022 was $26.4 million. We also completed a registered direct offering in February 2023, raising $8.8 million in net proceeds, bringing our pro forma cash to $52.4 million.

We believe our cash on hand is sufficient to fund operations into the first quarter of 2024. Now I would like to turn the call over to Jim for an update on certain of our programs.

James Brown: Thank you, Tim. Hello, everyone. Thank you for joining us today for our fourth quarter 2022 update. The fourth quarter was a strong one, with consistent forward progress on our AHFIRM trial. We are excited to remain on track to announce top line results from our Phase IIb AHFIRM trial in the second half of this year. Enrollment continues to progress nicely. We have now dosed more than 260 patients out of our target of 300. We continue to expect completion of enrollment in the second quarter of 2023. If successful, we believe AHFIRM has the potential to support an NDA filing. Our goal is to advance larsucosterol as quickly as possible to approval in AH, an indication for which there are no approved therapeutics. The primary focus of the company is on completing enrollment in our Phase IIb AHFIRM trial for larsucosterol and patients hospitalized with severe AH.

AHFIRM is a 300-patient placebo-controlled, double-blind, multinational study with two active dosing arms and a placebo arm of 100 patients each. We currently have over 60 sites open, including leading hospitals in the United States, Australia, the E.U. and the U.K. We are working with renowned liver centers and some of the world’s preeminent thought leaders in AH. The FDA has granted our larsucosterol AH program Fast Track designation, and a positive result in AHFIRM could support an NDA filing. With this in line, larsucosterol has the potential to be the first FDA-approved treatment for AH, where there is a substantial unmet need for patients. As a reminder, AH is a lethal and costly disease that represents an unmet medical need with no approved therapy.

AH results in about 158,000 hospitalizations per year in the United States, and hospitalized patients have a 90-day mortality rate of approximately 30%. This suggests over 40,000 deaths in the United States each year from AH. We estimate that in the U.S. alone, on average, more than 100 people die every day from this disease. Our goal as a company is to bring a safe and effective treatment to these patients to help alleviate the suffering and save lives. AH continues to represent a significant cost burden to both patients and the health care system. For the vast majority not receiving a transplant, the average cost of treating a hospitalized AH patient can range from approximately $50,000 to approximately $150,000. For those patients who receive a liver transplant, the average cost is approximately $875,000 per transplant in the United States, and these patients are subject to a lifetime of immunosuppression.

Larsucosterol represents a potential multibillion-dollar opportunity in the U.S. alone, while simultaneously providing substantial overall cost savings to the health care system. AH is also a global concern, allowing larsucosterol the potential to serve ex-U.S. AH patients and their health care systems. These ex-U.S. markets represent additional attractive market opportunities. Our confidence that the AHFIRM trial will be successful is driven by our compelling Phase IIa study data, the mechanism of action of larsucosterol, which ties directly into the biology of AH, and our multiple preclinical animal studies, where we observed a profound survival benefit in multiple relevant acute organ injury models. In summary, we continue to make great strides with AHFIRM and have enrolled more than 260 patients to date and have over 60 clinical sites open.

We are on track to complete dosing the last patient in the AHFIRM trial in the second quarter of this year, which would enable reporting of top volume results in the second half of this year. If successful, we believe AHFIRM has the potential to support an NDA filing. We would now like to take any questions you may have.

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Q&A Session

Operator: . Our first question comes from Francois Brisebois with Oppenheimer.

Francois Brisebois: Congrats on staying on track here. I was just wondering, in terms of the potential of the data to have an NDA filing, what gives you that confidence that you wouldn’t need another trial before filing?

James Brown: It comes from a couple of directions. But the primary one is that there are no approved therapies today for this disease and the mortality rate is so high. The 90-day mortality is 30%. And depending on your MELD score, it can be even higher. If it’s up, I’ll let Norman speak to this as well, but I think it’s north of 25 MELD, it gets significantly higher. So you’ve got a very high mortality and no therapy out there. That being said, we’ve had some communications with the FDA that have indicated as well the potential for that, but they will never commit to anything until they have the data in hand. Quite frankly, until they have the submission in hand, but that’s where we sit right now, both with the FDA and the EMA. Norman, would you want to add anything to that?

Norman Sussman: No, I think — Hello, Frank. I think that covers it all. It is one of the FDA regulations. It’s a specific — that — sorry, that topic is specifically addressed, and the FDA confirmed that it does qualify under the circumstances that Jim just mentioned.

Francois Brisebois: And maybe a second one here, Norman, on — in terms of the eligibility of patients here for getting a liver transplant, can you just maybe discuss the percentage of patients with age that aren’t even eligible just because of how recently they have been consuming alcohol?

Norman Sussman: So it’s a moving target because until a few years ago, there was an absolute rule that was observed by most centers that people had to be abstinent for 6 months. That started to fall away and centers increasingly have dropped the requirement — the abstinent requirement for 6 months. And so even the ASLD changed their guidance to say you could consider it in a severe patient. Having said that, it’s never going to be a solution to the problem because there are only about 9,000 transplants available, half of those are for things other than alcohol. If you see 4,500 transplants and 160,000 admissions, it is a huge imbalance. We’ll never be able to solve it through transplant. The time factor has become less rigid, it comes down more now to numerous social factors and behavioral factors.

Francois Brisebois: Understood. And then — go ahead, Jim.

James Brown: No, I was just going to say Norman already mentioned it, the social factors, whether or not you have the insurance, whether you can pay for it also comes to play, unfortunately.

Francois Brisebois: And is there a percentage of people that you expect would be insured to be treated here?

James Brown: Well, we — patients who have AH, there’s over 85% or so have insurance, but one needs that in order to get a transplant pretty much.

Francois Brisebois: Right. Yes, yes.

Norman Sussman: The trial, there are a lot of experts who work in transplant centers, but a lot of patients get admitted to places where transplant isn’t an option, unless the patient gets transferred out of there.

Francois Brisebois: Got you. Okay. And then lastly, just as we’re — this is the year where the data is coming here. So it’s very exciting for, I guess, the old DUR-928 larsucosterol now. But any thoughts on commercialization? It’s just — in terms of the U.S., you talked about the ex-U.S. opportunity as well, which is unfortunately a large opportunity. But I was just wondering any thoughts about maybe the amount of reps or is just a commercial build that would be necessary if able to file off this data in order to get ready just to get a better feel for what will be necessary to take this on your own? And are the thoughts to take it commercial on your own in the E.U. or in the U.S.? Or just any color on commercial thoughts would be helpful.

James Brown: Yes. First off, yes, ex-U.S., we would expect that we would have a partnership in place. And so that’s a process that’s ongoing. Within the U.S., we look forward to doing it ourselves. And there are some long-tail things that Keith Lui, who is our Head of Commercial here at DURECT, and Business Development as well is already half underway, and he can speak to some of his initiatives.

Keith Lui: Yes, it’s a good question. Thanks, Francois. I would say as far as commercial activities at this point in the development process, we’re certainly looking into the market access aspect of things, given that this is likely going to be delivered under the inpatient system and under DRG. We’ve done a lot of landscaping work on current status of care and those processes. As far as marketing strategy, we have various launch readiness review processes already underway to ensure that all of our cross-functional teams are aligned on the same plan going into top line results and as soon as we turn that card. So I can’t give you specifics on sales force sizing and all that work is ongoing right now. But surely, by the time we get the top line results, I think we’re in the right preparation state of mind and at the right level to be able to move very quickly upon positive results.

James Brown: Yes, I think it’s safe to say it would be under 100 reps.