DURECT's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Durect Corporation (DRRX)


Q4 2012 Earnings Call

February 28, 2013 4:30 pm ET


Matthew J. Hogan – Chief Financial Officer

James E. Brown – President & Chief Executive Officer


Jason Napodano – Zacks Investment Research Inc.


Greetings and welcome to the Fourth Quarter 2012 Earnings Call. I would now like to turn the floor over to Mr. Matt Hogan. Please go ahead, sir.

Matthew J. Hogan

Good afternoon and welcome to our fourth quarter and year-end 2012 earnings conference call. This is Matt Hogan, the CFO of DURECT. This call will begin with a brief review of our financial results, and then Jim Brown, our President and CEO will provide an update on the business. We’ll then open up the call for a Q&A 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 development group benefits, our development plans, future clinical trials, or projected financial results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements.

Further information regarding these and other risks are included in our SEC filings, including our 10-K and 10-Qs under the heading Risk Factor.

Let me now turn to our financial. Our total revenue was $3.3 million in the fourth quarter of 2012, compared to $8.9 million in the fourth quarter of 2011. Excluding all deferred revenue recognized for upfront fees from our agreement, revenue from our R&D collaborations was about $70,000 in the fourth quarter this year, as compared to $4.6 million in the fourth quarter last year.

Revenue from the source always fluctuates from quarter-to-quarter depending on the state of development under the various programs and our role in those programs. This drop was really driven by the fact that we largely finished our role in assisting Pfizer with respect to REMOXY. Simply, largely completed our role to put Zogenix in position to run a Phase 1 study for Relday.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.4 million in the fourth quarter 2012, as compared to $2.5 million in the fourth quarter last year, the previous year. Our gross margin on these products was around 58% in the fourth quarter of 2012. These product lines continue to be strongly cash flow positive for us and just to highlight that for a second, our total revenue for the year from these two product lines was $10.5 million and they generated $5.9 million of gross profit.

We also had a small amount of excipient sales in the fourth quarter that are reflected in product sales, more significant is that, we had a larger shipment recently, which will show up as approximately $270,000 in revenue in the first quarter of 2013.

R&D expense was $4.9 million in the fourth quarter of 2012, as compared to $7 million in the fourth quarter 2011 and SG&A expenses were $2.9 million in the fourth quarter 2012 as compared to $3.2 million in the fourth quarter of 2011. As a result of the above, our net loss for the fourth quarter of 2012 was $5.5 million, compared to a net loss of $2.1 million for the same period in 2011.

Our net cash consumed during the quarter was $3.7 million, which was in line with our guidance during our Q3 earnings call. As you know in December, we did an equity offering, our first such financing in three years. We issued 14 million shares to six institutional investors who knew DURECT quite well and our net proceeds were approximately $11.6 million.

At December 31, 2012, we had cash and investments of $28.9 million, compared to $30.8 million at December 31, 2011. We have essentially no debt other than normal liabilities associated with running business.

Let me now turn briefly to our financial guidance for 2013. Our net cash consumption is heavily influenced by the timing and structure in new corporate collaboration, as well as outsourced preclinical and clinical expenses. While we anticipate entering into new collaborations for the future, we think it’s more conservative to give financial guidance based on our assumption of no new collaboration, no milestones, and conservative assumptions of revenues coming from existing partners. With those assumptions, our burn rate guidance is for approximately $14 million to $16 million for this year. We hope to do better than that to present things like sensible guidance at the moment.

As a reminder, we have multiple programs that may potentially be partnered over the next 12 to 18 months. These include TRANSDUR-Sufentanil where we have worldwide right, POSIDUR where we have worldwide right, ELADUR with worldwide right, ORADUR-ADHD where we have U.S. and European right, and various feasibility studies that we hope may mature into development agreements, much like Relday did last year.

And one last comment, in an attempt to conserve cash be conservative and have paid the aligned with performance. For the second year in a row, we did not pay cash bonuses of DURECT, instead gave option, which of course only have value for create shareholder value. In addition, we had six Vice President’s and above plus two other employees, volunteer to take less salary for the coming year in return for which they received options. These six VPs I mentioned had done this last year as well. This year also each Member of the Board of Directors volunteered to reduce our cash retainer by at least 50%, in return for which they received option. These actions collectively will save the company around 380,000 this year and about 630,000 if you count both years together. And we think it represents the Board management putting more skin in the game.

In addition, I just mentioned that last year five officers or directors bought stock in the open market, which totaled over 380,000 shares.

With that let me turn the call over to Jim Brown for greater discussion of the rest of the business.

James E. Brown

Thank you, Matt, and good afternoon everyone. I am here to provide an update with regard to our most significant recent events. With regard to REMOXY, we’re working with our commercial partner Pfizer, and they are committed to moving the program forward.

They’re meeting with the FDA is on track for late March. POSIDUR we’re working toward submitting the NDA near the end of March. And for Relday Zogenix reported this quarter positive Phase 1 results in January, and then expanded that Phase 1 study to include a higher growth. Like to look for a moment at recent developments in the pain state, we see new paint formulations that are using the 505(b)(2) process for regulatory submission, add significant value to their respective companies.

The first is with regard to MAP Pharmaceuticals, they’ve developed a new migraine formulation of an older drug and the PDUFA date for that product is in the middle of April this year and they are being acquired by Allergan over $950 million.

Additionally, Procera have new specific formulation, that’s getting on formularies at about $285 per dose and that product speaks to the benefits of long-acting local anesthetic for post-surgical pain. Procera coming at the market capital of over $700 million.

As well the abuse of opiods remained a major public health care concern. The FDA had issued guidelines now for tamper resistant client, for narcotic as well. The FDA has held hearing on hydrocodone products and schedule. In REMOXY, we have a tamper-resistant formulation of oxycodone with multiplicity of tamper resistant quality. And in POSIDUR, we have the benefit of reducing opiod after surgery and this is substantial what we’re seeing with POSIDUR is 40% to 70% reduction in our two pivotal trials of narcotics when compared to the standard of care. And our hope is that that would relate to translate to fewer narcotic prescriptions being written as well.

Let’s get back to REMOXY. REMOXY is an older formulation of oxycodone that allows for 12 hours of extended release and tamper resistant. DURECT’s order products are designed to be tamper resistant, resistant to multiple mechanisms to produce. Whether it wants to distorting or smoking or injecting or trying to extract with the drinks such as alcohol. We have capacity to be able to resist it.

The status of REMOXY is one that we’re working with Pfizer and they’re working to resubmit this product. We have good confidence, absolute confidence by frankly in Pfizer. We believe they have a world-class team working on REMOXY with expertise in manufacturing, quality assurance and regulatory affairs. This program is in good hands to resolve the remaining issues that remain within the complete response letter. Their approach puts an emphasis on thoroughness interactions with the FDA that are as compelling and comprehensive as possible.

Pfizer remains on track for their late March FDA meeting, to discuss their resubmission plan. They don’t want any surprises after submissions so they are reviewing their plan in advance with the FDA.

Based on feedbacks that Pfizer received from the FDA that meaning Pfizer will subsequently determine the next steps and or require timing to respond to the complete response letter. We don’t know precisely when Pfizer will update after that FDA meeting, but at some point, perhaps the next earnings call, we expect them to be so.

We remain optimistic about getting REMOXY approved and launched and that’s what our sight is set on. Just to put in perspective, what does remain to DURECT on a global basis are over $3 billion. DURECT receives royalties that start at 6% or 11.5%, with the 11.5% being around a billion dollars. So if Pfizer is able to achieve somewhere in the 30% to 50% market penetration that would need somewhere between $70 million to $140 million royalty to DURECT.

Pfizer also has the rights to three other narcotic drugs that would be delivered with our order platform. These drugs are Hydrocodone, Hydromorphone, and Oxymorphone. Two of these candidates have had Phase 1 worked on and the third has an IND file. Together, we think they represent an opportunities greater than $1 billion. As well, DURECT is pursuing an order ADHD opportunity. Certainly, the market for ADHD drugs is huge, probably in excess of $4 billion.

Our product would allow for once daily dosing, with all of our tamper resistant characteristics that one finds with order. We’ve not yet disclosed what the API is and here we are working with Orient Pharma and they are funding the product through the first Phase II study. DURECT retains the U.S. and European right for this product. Currently this product is in Phase I trial and the next step would be choosing the formulation for Phase II that we hope will occur this year.

Now, I want to talk about POSIDUR. POSIDUR is really a new paradigm for post-operative pain control, in that it provides pain control and narcotic reduction locally for three days.

We got the added potential benefit to reduce narcotic use and associated defects in cost, and the potential for earlier hospital discharge. In fact, we have seen the potential for substantial reduction noted in our Hernia Trial, where applying a dischargeability index, we were able to show about a $620 savings per patient by assuming a $1,200 a day hospital charge.

The next steps for POSIDUR are that our team is focused on submitting the NDA near the end of March. We will be pursuing a 505(b)(2) filing strategy, which enables us to leverage the long history of – we think the data we are generating are compelling. But it’s the FDA that’s the ultimate arbiter of the benefit-risk ratio depositor.

After submission, the FDA especially has up to 75 days to accept NDA submission. And if accepted, the FDA would then assign a PDUFA date that would be 10 months after the acceptance date, which is to say about a year after submission. As a reminder, any NDA submission is subject to a full range of review and approval risks, and POSIDUR will be no exception.

POSIDUR remains a large commercial opportunity, driven by the desire to reduce the use of narcotics after surgery and their associated side effects, it’s better for patients. Has potentially large healthcare saving opportunities and also has potential of addressing the narcotic abuse issue by potentially reducing the number of narcotic prescriptions written post-surgically.

There are over 70 million surgical – surgeries per year in the United States. We see somewhere between 10 million to 20 million – being available market opportunity for POSIDUR. Our pricing is yet to be determined, but our market research expects the price somewhere north of $250 million based on the reduction in narcotic use and side effects.

Because of the significant reduction to opioids than pain for the full three days after surgery, it’s a needy project concept for surgeon, anesthesiologist and payers to get behind.

Now, I want to talk about our two patch products. The first is our TRANSDUR-Sufentanil product, which is a nice product opportunity. The market here is well in excess of $1 billion, it’s for chronic pain. The features of our product versus the market leader, which are the Bentyl patch, is that were seven days versus two to three days or about one-fifth a size by the small patch in relationship.

We recently, over the past year, had significant or made significant progress with the issuance of patent that supports this product, and that’s been a very important milestone for the product. We’ve had three issued U.S. patents last year that protect this product out to 2025 and beyond, and one European patent that protects the product to 2025 and beyond.

Products in Phase II, the worldwide rights are held by DURECT, and we’re currently in licensing discussion with regard to the product. ELADUR is a three day bupivacaine patch the opportunity here is also quite large. If one looks at the market leader here, Lidoderm sales of excess of $800 million. The opportunity is local neuropathic pain, the features that we have here is three days versus 12 hours, every patient friendly design that is can take a shower without patch, can go for swim, exercise with that stay on, but Orphan Drug Designation for it and most recently, in fact, as recently as December of last year, we have a U.S. patent issued on this product and protects the product out to 2031 and beyond. And one European patent also issued last year that protects up to 2027. Also in Phase II, with worldwide rights held by DURECT and we also are in by discussions for this product.

Relday is another nice opportunity for DURECT here. Once again a big market and the - there’s an injectable product for schizophrenia out there containing risperidone that $1.6 billion in sale. And so what we would be offering would be a first once a month risperidone product here, the patient and physician-friendly, opportunity to treat schizophrenia and the subcutaneous versus the market leader which is down.

No drug reconstitution is required and a simplified dosing regime as it is one month that of every two weeks and having to wait for the product to actually take effect, our product works right away, right after injection.

This product has been partnered with Zogenix. In January, we had a nice read out. Zogenix did from the Phase I trial, it was a single-center, open label trial. The safety and PK trial that involve 30 patients with chronic stable schizophrenia.

The positive data from the trial has showed a favorable safety and PK profile that was demonstrated with the 25 milligram and 50 milligram dose for once a month use. Zogenix quickly then extended the trial to the 100 milligram dose, with the study expected to complete in the second quarter of this year. This would enable evaluation of the dose proportionality across the full range that would be anticipated to be used in clinical practice.

If the data are positive than from this extension of the Phase I, the next step would be a multi-dose Phase I study and then Phase III. The timing of course would be depend Zogenix.

So just in summary, with regard to REMOXY, Pfizers holding a meeting with the FDA in late March to discuss three submission. We will be working to support Pfizer to complete activities required for the recent mission of the NDA. Once we submitted, there’ll be a six month review by the FDA then NDA, and if approved that will be launched by Pfizer.

For POSIDUR submission of the NDA near the end of first quarter of this year, it’s some near the end of March and potential for the PUDUFA date their first quarter of next year. Relday stated from the Phase I extension in the second quarter and then we look forward to starting the multi-dose trial and the potential for new collaboration for our other program that would include POSIDUR, the Sufentanil patch, ORADUR ADHD program and other in these both projects.

With that, we’d like to offer the – open up the call to your questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question is coming from the line of Mr. Jason Napodano. Your line is now open. You may proceed with your question.

Jason Napodano – Zacks Investment Research Inc.

Hey, guys. Thanks for taking the question, just a question on in terms of the Phase I, PK study that you did with ORADUR-ADHD. What have you guys learned from those studies that you could help – potentially help Pfizer with REMOXY and has there anything that Pfizer has learned with their PK, BA studies that you guys can apply to your ORADUR-ADHD study.

Matthew J. Hogan

You know what, they’re both ORADUR. Excuse me, I just got frog in my throat, they both ORADUR. So that would be – I could understand your kind of asking the question. But back to the matter is, the REMOXY product is basically at the go-line, and all of the kinetics and viability all that are very well understood. A lot of good efficacy trials have been done. So that’s well-handed and well-defined. For the ORADUR-ADHD, in this case, we’re actually working with the kinetics of it to get the kind of product profile that we’re looking for. We haven’t disclosed what that is, but these are, once a day products. And so what we want is to get a product that we think will be really exciting to the commissions that also have a tamper-resistant (inaudible) do you want to speak in more detail?

James E. Brown

It’s clear though, the lessons of REMOXY are obviously flowered into the development of ADHD program. But the kinetics are different and they are both unique to us.

Jason Napodano – Zacks Investment Research Inc.

Got you, okay. And then just as far as, you know, maybe this is more of a question for Pfizer. But just from your understanding, any thoughts on how long you think it’ll take Pfizer following that meeting in March to, I guess, number one, can it provide an update to the street, more than if they did decide to move forward when they would kind of be in position to make that filing.

Matthew J. Hogan

Yeah. I think with regard to when they’ll announce it, I think you’ve got two opportunities. The most reliable one would be their next earnings call. But there might be an opportunity if they’re speaking – if one of the guys are speaking at a conference between in and out may update, they get a question on, I don’t know, so that would be with regard to communication. As far as what they’re going be communicating, that’s still needs to be determined because they haven’t had a meeting with the FDA and the whole purpose of the meeting is to define what remains to respond to that quick spot list.

Jason Napodano – Zacks Investment Research Inc.

Got you, okay, guys. That’s all I had. Thank you.

Matthew J. Hogan

Great, thank you.


Thank you. Our next question is coming from the line of Mr. Jeffrey Seibert. Your line is now open. You may proceed with your question.

Unidentified Analyst

Hi, good afternoon. Three different questions, first of all, coming back to the REMOXY point, given the relevance of any positive outcome at the FDA meeting to DURECT and in therapeutics relative to Pfizer, have you discussed with Pfizer’s public relations team, the fact that you might have to make a filing, which Pfizer wouldn’t necessarily have to?

Matthew J. Hogan

Well, in concept Jeff, we’ve had that discussion in the past and they know that. We have – we wanted to bug some before the meeting, about exactly what’s going to happen after the meeting. We won’t be at the meeting. So it’s not like we’d be in a position to make the disclosure. Anyway, I think it really is going to depend on what and when Pfizer wants to inform us, maybe they’re going to wait for a minute after the meeting from the FDA, we just don’t know. But we never wanted to be kind of obnoxious if you will, and bug them before the meeting; it’s always let the meeting take place, and then engage in those discussions with them.

Matthew J. Hogan

And if they want to wait for minutes of the meeting, that could take as long as six weeks actually to turn those around.

Unidentified Analyst

All right. Thank you. Matt, you shared with us the fact that you had some excipients shipped last quarter, and a more significant amount have shipped this quarter. Can you share with us whether the preponderance of those excipients were related to REMOXY, related to the Relday – the ORADUR, Relday product? Can you give us any color?

Matthew J. Hogan

There’s really only two projects where we recognize revenue from shipping those excipients. One is with an animal health product, that you may remember we got approved a few years ago, that’s a very small dollar figure, and that’s actually what shipped last year. Our other major customer here is Pfizer, related to REMOXY. So that’s where the other amount comes from.

Unidentified Analyst

All right, thank you. And then coming back to POSIDUR, you stated pretty clearly that you expect to file the NDA by the end of the quarter, which is in about four weeks. So is it safe to assume that barring acts of God, you know what’s going on, and it’s going to be filed?

Matthew J. Hogan

Well, I think what we’re doing is, we’ve got the team working on over time to get the NDA put together, and they’re doing a great job, and we’re also working with consultants on the outside as we’re a relatively small company. So all of that work, it looks like all the horses will be in the barn. And that’s why we use the term nearing the end of the quarter, because we expect that it will be done by then. But if it’s a day or two late, we know that’s not going to be the end of the world, but it’s not, if it is it will be a day or two later or something like that.

Unidentified Analyst

Thank you. So coming back to discussions you had regarding potential POSIDUR partners, can you give us any color as to what the criteria, the key criteria that are driving the attractiveness of a potential partner? I mean, I’m sure the first one is, how big a check in they write, but also in terms of their distribution capabilities, et cetera. What are the things that are driving your thought process in terms of who to talk to?

Matthew J. Hogan

We first of course look for people who are already in the hospital space in that kind of thing, that’s a logical place to look, but this doesn’t require a substantial build to move into the place. So one could generally build a commercial team to get this done, which is something we consider very seriously if REMOXY had been delayed to directly take us on.

So it’s certainly something that can be built as well. We’ve seen it obviously in states with Pacira. I mean, they’ve taken on additional dilution, and have 60 sales reps and they’re doing quite well, and their market cap has doubled if not tripled in the last 18 months. And so there’s a lot of value here, Jeffrey.

And so what we’re trying to do really at this point in time is to make sure that we capture as much value from this product as we can for our shareholders, I think that’s the number one focus, knowing that we can bring to bear and others the capacity to commercialize this product.

We think there’s going be substantial differentiation between this product and Pacira’s product, and that’s of course right off the gate as the difference in narcotics spend. When we were saving narcotics for the full three days we’re substantially statistically significantly due to the narcotics, they are beyond really 24 hours if they’re doing that.

We have pain reduction for the full three days, we’re dosing with more drug, yet having less than or equal to systemic exposure. So we think we got a lot of advantages. We’ve done more challenging larger surgeries than they have. So we think our sales force or whoever – sales force that sells our product will have a good leg up, and we want to make sure that our partner would also understand that, and take same approach.

Unidentified Analyst

So, as a follow-on, you obviously can’t go in to many details, but can you share whether you found and over the last few months the level of interest and excitement among prospective partners is rising. Have you got people who really are engaged in the process and well down the pipeline or are you still very much at the kind of early and exploratory phase?

Matthew J. Hogan

We are at all phases, we certainly have people that we’ve been talking to for a while, there has been, I think the excitement is really grown since the FDA meeting. And that’s continued and so that we have people had multiple levels, I guess I should say. And you never know, sometimes the first shall be last, and last shall be first kind of thing, right? And we steam that, we saw that with ELADUR where we had, at that point I don’t think we had half a dozen multi-national lining up for the product and Alpharma snuck in and offered a really nice deal, and we really liked their commercial approach, and the aggressiveness and the focus of their commercial team, and we ended up picking them.

Usually as we get closer, we do kind of a beauty pageant kind of thing where we’ll have to look at sales force approaches and that kind of thing to really start to determine the final selection.

Unidentified Analyst

And my last question, coming back to ELADUR and TRANSDUR, we’ve heard for quite a number of quarters that you are having discussions with these?

Matthew J. Hogan

Sure, sure.

Unidentified Analyst

Can you give us any color as to whether those really in either of those products, some life really is coming into the discussions, and things are moving forward?

Matthew J. Hogan

Yeah. We wouldn’t mention if that wasn’t the case. If that wasn’t the case, we just let them die quietly in the night, right? The fact that we do bring them up to mention it means that we are in meaningful discussions. I think it was important today to note the significant progress that was made with regard to patents, and that was all throughout – right in second half of last year, obviously coming in years worth of work.

But to have three patent issued for the Sufentanil patch, they go to 2025 and beyond in U.S. and one in Europe. And to have 2031 and beyond for ELADUR, and 2027 for Europe, those are nice, nice pieces.

It was nice to have patents in process, but it’s way more important to have them actually issued in hand and that’s what we are. That’s what we are now. Also remembering the ELADUR patch, all the data and all the right thing, get back to Pfizer until late in the summer

So the process is relatively young there even though it feels like it’s back and there for a while because it was with the This feels like it’s been stuck in limbo for a while because it was with the acquisition of Alpharma by King, and then King by Pfizer. It’s been kind of held up unfortunately in the card gate there.

Unidentified Analyst

Thank you very much.

Matthew J. Hogan



Thank you. Our next question is coming from the line of Mr. Nick Farwell. Your line is open. You may proceed with your question?

Unidentified Analyst

I just have a quick follow-up question after Jeffrey. And that is, can you give us the state of activity with the other three programs, order-based platform programs at Pfizer? Have they just focused all their attention at least initially on REMOXY, and because of other priorities, perhaps not paid attention to these other products or have they actually put some work behind determining whether they want to commercialize them or not?

Matthew J. Hogan

Well, I think they do like the opportunities, and I think they’re looking forward to commercializing. But their first and most important issue at hand is to resolve all the issues around REMOXY, and get that thing on the market as quickly as possible. So that’s where they put all of their efforts.

I think once that is done, then they look forward to looking at the other products as well, so that’s been their focus. Even though they’re big company, and they are, they have everything compartmentalized just like everybody else, and they have budgets for this, that and the other thing. And they only have so many manufacturing and R&D people as well, and all those resources that they have free in this area, they’re putting to REMOXY.

Unidentified Analyst

Okay, thank you.

Matthew J. Hogan



Thank you. (Operator Instructions) It appears there are no further questions at this time. I’d like to turn the floor back over to management for any closing comments.

James E. Brown

Okay. And with that, I appreciate your participating in this call. Obviously, as always if you have questions, feel free to call us, and we’ll be happy to chat with you further.


Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you very much for your participation. Have a wonderful evening.

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