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DURECT Corporation (NASDAQ:DRRX)

Q1 2013 Earnings Call

May 2, 2013 4:30 PM ET

Executives

Matt Hogan – CFO

Jim Brown – President and CEO

Analysts

Annabel Samimy

Rajesh Patel

Michael Gottlieb

Operator

Welcome to the first quarter 2013 earnings call.

Matt Hogan

Hi good afternoon and welcome to the first quarter earnings call. This Matt Hogan, Chief Financial Officer at DURECT. This call begin with a brief review of our financial results and then Jim Brown, our President and CEO will provide an update on our business. We’ll then open up the call for 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 benefits, our development plans, future clinical trials or projected financial results. These forward-looking statements involved risks and uncertainties that can cause actual results to differ materially from those and such forward looking statements. Further information regarding these and other risks are including in our SEC filings including our 10-Q under the heading risk factors.

Let me now turn to our financials. Total revenue was $4.2 million in the first quarter of 2013 as compared to $5.8 million in the first of 2012 if one excludes the unusual non-cash revenue of $35.4 million recorded in the first quarter of 2012 that was related to terminated collaborations.

Excluding all deferred revenue recognized from upfront fees from our agreements, revenue from our R&D collaborations was $0.9 million in the first quarter of 2013 as compared to $2.9 million in the first quarter of last year. Revenue from the source always fluctuates from quarter-to-quarter depending on the state of development and under the various programs and our role in those programs.

And this drop was driven by the fact that we had revenue from Hospira the fact that we largely finished our role in assisting Pfizer with respect to Remoxy. And we largely completed our role to put Zogenix in position to run the Phase 1 study for Relday partially offset by an increase in revenue from various feasibility projects.

Product revenue from the sale of ALZET pumps LACTEL polymers who are approximately $3 million in the first quarter of 2013 as compared to $2.8 million in the first quarter of last year. Our gross margin on these products was 52% in the first quarter of 2013. These product lines continue to be strongly cash flow positive for us.

Also in the first quarter of 2013, we had product revenue of about 270,000 we did to excipients sales. R&D expense was $4.8 million in the first quarter of 2013 as compared to $5.6 million in the first quarter of last year.

SG&A expenses were $2.9 million in the first quarter of this year as compared to the $3.3 million in the first quarter of last year. So as a result of the above our net loss for the first quarter of 2013 was $5.2 million compared to a net loss of $4.6 million for the same period in 2012, if we exclude the unusual revenue item that occurred last year.

Our net cash consumed during the quarter was $3.4 million, so at March 31, 2013 we had cash in investments of $25.5 million compared to $28.9 million at December 31, 2012. We have essentially no debt other than normal liabilities associated with running the business.

As a reminder we have multiple programs and they potentially be partner in the next 12 to 18 months, it includes TRANSDUR-Sufentanil worldwide rights, POSIDUR worldwide right, ELADUR with worldwide rights, ORADUR-ADHD where it’s the U.S. and Europe and various feasibility study, so we hope they mature under development agreements much like well they did last year.

With that, I would like to turn it over to Jim for greater discussion of other programs of the company.

Jim Brown

Thank you, Matt and good afternoon everyone. I would now provide an update on some of the most – more significant recent events that occurred here for DURECT in the past quarter. With regard to REMOXY Pfizer is working on what is required for resubmission of the NDA and they are committed to moving the program forward. Their meeting with the FDA was held on March 28th and I’ll cover that in more detail in a moment.

For POSIDUR we submitted the NDA in mid-April and we would expect to hear if it is accepted for filing by the FDA in June and that would lead to PDUFA date in the first quarter of 2014.

For Relday, Zogenix reported positive Phase 1 results in January and they then expanded their study to include a higher dose that reported on today. Let’s now go through these major programs in greater detail, beginning with ROMOXY.

On January 9, 2013 the FDA issued a draft guidance on abuse-deterrent opioids. The FDA is looking for a demonstration of abuse-deterrent properties, how these studies will be evaluated and what claims maybe be approved based on those studies. The Deputy Director for the Regulatory Programs at CDER stated that well our prescription opioids are important and an important component of pain management abuse and misuse of these products have resulted in too many injuries and death across the United States.

On April the 16th, the FDA announced two actions, they stated that one important step towards the goal of creating safer opioids and one that is a high public excuse me a high public health priority for the FDA is to encourage the development of formulations of these drugs that deter their abuse.

They then described these two actions and I quote we approved updated labeling for Purdue Pharmas reformulated version of OxyContin extended released tablets. The new labeling describes the products abused to turn properties. This is the first time we have approved such language and an opioid drug label.

Our other action today was demonstrating that the original formulation of OxyContin ER which Purdue Pharmas stop shipping in August of 2010 was removed from the market for reasons of safety or effectiveness. This finding is important because it means that the FDA will not accept or approve any generic forms of the original OxyContin ER. The new OxyContin label describe studies that have been conducted just show a decrease and abuse via two routes.

They’ve been shown that they reduce snorting and injecting with DURECT’s ORADUR technology and in fact I think they have been couple of posters out there one in particular that showed snorting been reduced with a new OxyContin ER by about 60% reduction. With DURECT’s ORADUR technology we make snorting and injecting virtually impossible through our REMOXY product. We can also deter abuse by a reduction in chewing, smoking and of course mixing with drinks such as alcohol.

Pfizer has a world class team working on REMOXY with expertise in manufacturing quality assurance and regulatory affairs. The program is in good hands to complete what is needed for resubmission of the NDA. Pfizer met with the FDA on March 28 to discuss their resubmission plan. And in an answer to a question on their pain portfolio during their first quarter call Pfizer stated the following.

That they had a productive meeting with the FDA in March that the guidance on the meeting will inform Pfizer our next steps in addressing the issues raised by the FDA in the Complete Response Letter. And lastly Pfizer also stated they believe there is a path forward for REMOXY and they will publicly communicate further details over the upcoming quarters.

At DURECT we look forward to Pfizer completing the test in front of them and resubmitting the NDA. Another important recent event of this program was the issuance of an additional U.S patent extending the coverage for REMOXY and our ORADUR technology out to at least to 2031.

Just as a reminder for the potential financial impact to DURECT for REMOXY our royalty on sales started 6% and go to a 11.5% with a 11.5% being right around $1 billion the product sales in 2012 in the U.S this is OxyContin sales were about $2.8 billion.

So as Pfizer are able to achieve somewhere in the range of 30% to 50% penetration assuming no growth for the market place then we’d be looking at a royalty revenue here at DURECT somewhere between $70 million and $130 million.

Pfizer also has the rights to three other narcotics drugs in our ORADUR platform. These are hydrocodone, hydromorphone and oxymorphone. Two of these drug are product candidates have had Phase I studies already conducted and the third as an IND file certainly the opportunity for these few add them to together are quite large. Additionally for ORADUR we have our ADHD program going forward with our partner Orient Pharma with they are funding the program through the first Phase II study. They have the rights in Southeast Asia with the royalty back to DURECT we have Europe and U.S and the rest of the world DURECT owns the rights there.

The feature of this product are it’s a once-a-daily dosing product for ADHD it’s tamper-resistant in the course because it’s our ORADUR technology so the whole five methods of tamper-resistant that is snorting, injecting, smoking, chewing and then trying to mix it with various drinks such as alcohol and like.

We continue to work with Orient Pharma the currently the product is in Phase I and the next step would be choosing the formulation to go into advanced development. Now I want to turn to POSIDUR. POSIDUR offers a new paradigm for post-operative pain control. It’s designed to control pain locally for three days for surgically.

Got the added potential benefit to reduce narcotic use and associated side effects and our costs with the potential for earlier hospital discharge. We submitted the NDA for POSIDUR in the middle of April. We should know if the FDA accepts this NDA in June and they saw the PDUFA date would be in the first quarter of 2014.

We are facilitating a 505(b)(2) filing strategy which enables us to leverage the long history of use bupivacaine. As a reminder any NDA submission is subject to a whole range of review and approval of this in POSIDUR will be no exception. The benefits of this product are pain relief for a full three days after surgery. Also reduction in opioid use and their attended side effects.

Our efficacy data are quite compelling for this product and I would like to review some of that data with you. The first would be our two pivotal trials excuse me our two efficacy trials for this program. The first is our hernia trial and the next is our shoulder trial both of these trials I’ll described the pain reductions here these are both done with pain on movement and the reason we did that is we thought it was more relevant to the health care system and to the patients in general from my own personal experience I had my appendix out about five years ago when I was sitting post surgically in the bed reading a book I was not in a particular amount of pain.

When I felt the pain is when I got to get up to go to bathroom moved around and that’s typically when patients will feel more pain and then ask for the narcotics and then start to go down their path.

With regard with the hernia trial we saw a 31% reduction in pain on movement for zero to 72 hours. This was statistically significant with regard to the shoulder trial once again pain on movement the hernia trial they ask you to sit up the shoulder trial thereafter raise their arm up to a raise their arm from the sorry with the elbow raising up to their shoulder height. Once again here we saw 21% reduction in pain statistically significant over zero to 72 hours.

As important with regard to this product is also the narcotic use. And the reduction in the mean morphine equivalents. For the hernia trial we saw a statistically significant 80% reduction in the narcotics over zero to 72 hours post surgically. And for the shoulder trial we saw a 67% also statistically significant reduction in narcotics.

This is a course we hoped and going to be very meaningful going forward as far as pharmacoeconomic advantage of this product. And also just to kind of reflect that to what we are attempting to do with REMOXY and that is a deal with the look narcotics out there and abuse of those. I think POSIDUR also adds a wrinkle to that whole thing and that is if we look at the proportion of patient we didn’t take any supplemental opioids between zero and 72 hours in our trial.

In the hernia trial we saw 21% more patients didn’t take any opioids with our POSIDUR group versus the Placebo group and in the shoulder trail we saw 24% more patients never taking any narcotics when you compare the POSIDUR group to the Placebo group.

So if we just take these are relatively common surgeries and if you look at a range somewhere around 20% fewer patients never taking any narcotics doesn’t take much to consider that this certainly may not, there might be fewer prescriptions written as those patients leave the hospital of the surgery center.

And so the hope is that we have fewer narcotics out there which also may help address some of this abuse issue. I want to briefly also review what we have as far as the NDA which is the integrated summary of efficacy or the ISE. Here we combined together a number of the additional other trials that were done in our POSIDUR program we combined, we have three orthopedic trials that were all shoulder trials, four soft tissue trials which were two hernia trials one is toracotomia and one lap-assisted colectomy trial. Then we have three trails those seven trials that I described overall against Placebo and we have three trials where we compared where we had a nice effect as well against hydrochloride bupivacaine HCL bupivacaine here there was a shoulder trial laparotomia and lap-assisted colectomy all groups showed statistically significant reduction at pain area end of the curve is zero to 72 hours is compared to control.

POSIDUR offers the potential for a large commercial opportunity driven by reducing the need for opioids after surgery and they are associated side effects. It’s better for patients with potentially large health care cost savings. We expected that there will be over 70 million surgical procedures in the U.S that could be applicable for this product and we did born with that market research stock and 275 doctors, surgeons actually who are asked to look at their consultation surgeries they do over a given month and reflect that back to this product we demonstrated that there would be somewhere between 10 to 20 million surgical procedures would be the potential available market for this product.

Our pricing is yet to be determined but our market research to be adjusted our price north of $250 for procedure could be justified based on the reduction in the narcotic use and the associated side effects. Because of the significant reduction of both opioids and pain for a full three days it’s an easy product concept for surgeons and anesthesiologist and payors to get by.

Now I’m going to move to our two transdermal products the first one is a seven day excuse me sufentanil patch we called Transdur-Sufentanil to treat chronic pain as well we have a three day ELADUR patch which is a treatment of Bupivacaine for three days both of these product have had about 300 patients dosed in their Phase I and Phase I work here they are both timed to going into late stage development both quite large market opportunities between $800 million to $1 billion. The TRANSDUR-Sufentanil product is for chronic pain it’s features are seven days persist the market leader out there today which is two to three days, it’s about one fifth the size of the fentanyl patches and it has two fentanyl which is we believe a wider therapeutic index in the fentanyl. We have three U.S. patents issued last year for this product to protect it out past 2025 and one European patent that also goes to 20 25 or beyond.

Currently the product is in late Phase 2 and we’re on the rise, but we are talking to potential partners. As well we’re talking with potential partners with our ELADUR three day bupivacaine patch it’s for local neuropathic pain, very nice efficacy demonstrated in 60 patient PHN, trial for this product is meant to be used for three days it’s a very patient friendly design, a very thin reasonable backing the fields a little bit like an old cotton t-shirt once in wear, you can wear it in the shower, go for swim with it, we have orphan drug designation with this product, once again late Phase 2 ready to advance in the late stage development we have one U.S. patent that was issued at December of last year that protects out to 2031 and the European patent that goes out to 2027.

Now I want to talk about Relday. This is another potential very large market opportunity for DURECT certain could be in the blockbuster size and market opportunity here. What Relday is it, it’s a once month injectable risperidone to patient and physician friendly treatment for Schizophrenia. It’s a subcutaneous injection versus IM which all the (inaudible) products out there right now are been a two weeks or a month or IM. We have no drug reconstitution required as compared to the market leaders and it’s a very simplified dosing regimen and that you give it and it starts working right away.

This product has been partnered with Zogenix. Zogenix reported positive data from the file cohort their expanded Phase 1 trial today. This was a single center open label safety and pharmacokinetic trial that involve 30 patients with chronic stable Schizophrenia. And what they saw with this was that the treatment levels were achieved and they want to maintain through day 30 after a subcutaneous injection.

So we have favorable safety and profile demonstrated at the 25, 50 and 100 milligram per day, excuse me for month dosing, the full range of doses that are expected to basically represent the market here. With these positive data in hand the next step would be to start a multi-dose Phase 1 trial and then move on to Phase 3.

The timing of course depends on Zogenix and they stated that they have started partnering discussions with this product, if they do part of the product we hear directly, receiving a cut up the partnered fees that they generate.

Now I’d just like to wrap up with regard to potential key drivers that we see over the next 12 to 18 months DURECT, for REMOXY Pfizer helped our FDA meeting at late March to discuss the resubmission. The FDA pronouncement in April with regard to abuse- deterrent labeling and the prevention of generic OxyContin products of course very meaningful and very significant for this program.

Once resubmitted REMOXY will then be associated with a six month review by the FDA and if approved of course it would be launched by Pfizer. The POSIDUR, we submitted the NDA in mid April w expect to hear about acceptance in June of this year and with potential PDUFA date in the first quarter of next year.

With Relday positive Phase 1 data now in hand and the next step depend on Zogenix, as Matt outlined earlier we have the potential for new collaborations with our programs certainly we’re talking to potential partners with regard to POSIDUR with the sufentanil patch, the ELADUR patch and as well as our ORADUR-ADHD and we have as always a number of very interesting feasibility programs and underscores internal programs that could move to partnership as well.

So with that, I think we’d like to take any questions you might have.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions).

Our first question comes from the line of Annabel Samimy. Please proceed with your question.

Annabel Samimy

Hi, guys, and thanks for taking my question. Just want to ask a couple of things on POSIDUR it looks like you put together a pretty consolidated package of all your clinical data and what I want to know is one how does the FDA review just the full package of collection of your data the first two, designating some of the Phase 2 or Phase 3? And the second thing is how – how many patients collectively did you look at in all of this data?

Jim Brown

Well the total number of patients I think was, do you remember Dave?

Matt Hogan

1075 total patients in our safety data base.

Jim Brown

Right. And the – of course the two pivotal trials are the hernia trial and the shoulder trial for this program.

Annabel Samimy

Okay.

Matt Hogan

But the FDA what they’ll do is, they will look at those individually and they will look at all these studies collectively in their statistics and will cut the data five ways from Sunday.

Jim Brown

That’s right.

Matt Hogan

And look at it, and lots of ways and integrated summary of efficacy like we did and in their way as individual trials.

Jim Brown

So, we basically we submitted the reports for hernia trial and the shoulder trial prior to our pre-NDA meeting actually last summer and they reviewed those programs and then got back to us there then of course they were again submitted in the final form in the NDA itself. And as Matt said they will have the capacity to cut the data anyway they want, Dave and his group certainly provided they are almost like think a very good starting point with a integrated summary of efficacy, integrated summary of safety, but taken any way they like if you look at the data.

Annabel Samimy

Okay. And in terms of some of the things that you are doing during this review period, it’s I guess one of the reasons for some of the sure success in launching how to do with some of the pre-approval work that they’ve done and maybe some marketing studies work with hospitals to familiarize, then with the product, are you doing anything ahead of the PDUFA date to sort of increase the awareness of POSIDUR?

Jim Brown

We are starting to do some work, we are its interesting a lot of the work that they have done has been to demonstrate the benefit of opioids bearings, they’ve done a lot of paper kind of studies looking at that they’ve done some studies where they’ve compared the use of ketorolac which mostly Toradol, they market it name by Toradol plus Exeril against morphine to show the benefits of not using morphine that kind of thing. So they are certainly doing that kind of work, we’re right now lining up and starting to work with thought leaders and the like as we do our market prep work.

Annabel Samimy

Okay. And if I can ask a question on REMOXY obviously Pfizer made their comments on the call and you’ve essentially reiterated that, but have they had any discussions with you, you’re familiar what the gating factors are in terms of the next steps for the regulatory commission.

Jim Brown

No we have not seen the minutes from the meeting, I think they are still waiting to get those – batch from the FDA, but so we haven’t had any further conversation with them, well they talk about publicly.

Annabel Samimy

Okay. And then – sorry go ahead.

Jim Brown

No it’s all right, go ahead.

Annabel Samimy

I was going to move on to different question, but if you had something add.

Jim Brown

Sure, no it’s fine.

Annabel Samimy

Okay. And then finally with regard to your burn rate, it’s been about I guess around $15 million a year and you had, I guess, I think it was a net loss for that 5.2 so do you have any kind of guidance for the burn rate for the year?

Matt Hogan

When we did our last call we suggested for this year that we would burn in the range of $14 million to $16 million, assuming that we don’t do any new partnerships around any programs, as you can see well our net loss was $5 million or $5.2 million, the actual cash burn in the first quarter was 3.4.

Annabel Samimy

Okay.

Matt Hogan

So that’s lower than the 14 to 16 range, but I think we would sort of just sort of stick with that general guidance for them.

Jim Brown

And if you look historically over the last, I think eight years our average burn rates went about 11 point something, $11.6 million or something, because we’ve been able to do various deals in the like. We typically project, we have historically projected much higher brands in the range of – in the mid 20s that kind of thing. But as the programs are matured and we’ve been able to put various partnerships in place and like that we can able to change that.

Annabel Samimy

Do you have any anticipation with partnership this year.

Jim Brown

I think we never guarantee anything, because the many you do, you put yourself on the wrong side of the negotiating table, right. But I think between POSIDUR and sufentanil patch and the bupivacaine patch over there I think there is a good chance, we have good opportunity to do a partnership on one of those this year.

Annabel Samimy

Okay, great thank you.

Jim Brown

Sure.

Operator

Thank you. Our next question comes from the line of Jason (inaudible). Please proceed with your question.

Unidentified Analyst

Hi guys thanks for taking the question, with respect to excipients sales in the quarter, I think you mentioned roughly 200,000 in excipients sales, which is up from the fourth quarter are you guys seeing any kind of increased ramp in the orders of excipients from Pfizer, either to complete these studies or any additional work that they are doing and or do you have any kind of thoughts on where you think excipients sales will go here in the second quarter?

Matt Hogan

I think that it’s a – it will be a lumpy thing for a period of time, until they are really launching or ready to launch. So, I wouldn’t infer that we have a trend line here by any means. I think it was encouraging and a good think that they ordered in the first quarter. But I wouldn’t try to extrapolate anything from that yet, and I won’t be comfortable down the road trying to give any projections for excipients sales out of most rather I think it will be better for our relationship with Pfizer if after we end the quarter we kind of report historically what the sales or if you follow them.

Unidentified Analyst

Okay. Fair enough. Just a from a housekeeping stand point with respect to the POSIDUR NDA. Was the PDUFA C waived or did you pay the fee and now have to go back and ask for a refund.

Matt Hogan

It was waived as a small company doing our first NDA you can apply for a waiver and let’s say just a little under 2 million I think.

Unidentified Analyst

Okay. And then I’m still always a little fussy on the new PDUFA rules I guess the you guys are assuming a 10 month review from the filing day because it’s a 505(b)(2) is that correct?

Matt Hogan

Yes, but you aren’t alone and being confused. We had to go back and we did clarify with them in this case it would be 10 months from when you submitted. So

Unidentified Analyst

Okay.

Matt Hogan

So we weren’t clear either.

Unidentified Analyst

Gotcha. Okay. And then I don’t know if it’s as if you made available by that let’s say Zogenix does do a deal on Relday I saw in their press releases this morning they mentioned that they hired a transaction advisory firm. Remind us some of the economics there if they do something or what they maybe the next financial milestone would be for you guys?

Matt Hogan

I think in total in the collaboration we get about 103 million of milestones mixed between development type milestones and sales milestones. And typically sales milestones are larger than the development milestones. I think our next one could happen in the next couple of years and it will be fairly meaningful for us. In terms of a sublicense fee if they sublicense to another firm and they get an upfront payment and they get feature stream of milestone payments. I think we get in the kind of 10% to 20% range of what they get.

Unidentified Analyst

Okay. Gotcha. Okay. Alright that’s all I had. Thanks guys.

Matt Hogan

Thank you.

Operator

Thank you our next question comes from the line of Robert of Jeffery (inaudible). Please proceed with your question.

Unidentified Analyst

Good afternoon Matt and Jim. Well first of all so when did Pfizer is going to re-file the NDA?

Matt Hogan

Call them.

Unidentified Analyst

While you know maybe might slipped on that. So are you aware of any remaining technical issues for REMOXY. Or is it fair to say that now it’s just a timeline issue?

Jim Brown

I would say we are not aware right now of any technical issues I think it’s more of what does the FDA want to see between now and the NDA research.

Unidentified Analyst

Right. So it’s becomes discretion okay is it going to take three months, six months, 12 months, 18 months some period of time but there are no technical issues outstanding that you are aware of it cause you any concern?

Jim Brown

That’s correct.

Unidentified Analyst

Okay. So if we dial back a few years there was a lot of concern about REMOXY being launched and Purdue filing lawsuits under its patents. Now that the original Purdue OxyContin patents have expired. Are you aware of any legal basis you know that Purdue might have against REMOXY under its existing patents.

Jim Brown

No way they certainly have their own patents protecting their Polyoxin tamper-resistant technology. So they have that but we aren’t of course anyway near that because we have our own tamper-resistant or abuse-deterrent technology. There are probably your most recently you referred to is not as composition of matter was pharmacokinetic patent exist expired this past month and we also of course to help at least the patent attorneys felt very comfortable with what we were doing going forward with our own release rate and associated with that. So no, we are not aware of any.

Unidentified Analyst

Okay. Thank you. Right to a non-technical person and original one was concerned about that claims under extended release right but that’s now expired. So all they are really protected buy or their anti all their or their protection is substantially there anti tamper characteristics?

Jim Brown

Absolutely and those allowed their claims they just got extended as well. So it’s good I think that’s really great news for the market.

Unidentified Analyst

Well certainly they’ve taken the fear of generics off the table. Now of course you just have to convince the Canadians to back off. On a separate subject on POSIDUR will you be sharing the POSIDUR NDA with perspective partners and in fact have you already have any of them already asked for it?

Jim Brown

What happens and when we are talking to partners as we have what we call e-room setup which allows for a number of regulatory documents in clinical programs and non-clinical toxicity and all these different pharmaceutical packages all that information is in there. And so the potential partners are in active in the e-room looking at all the data and correspondence you know like.

Unidentified Analyst

Okay. And could you give us a little more color on the pace and tamper of POSIDUR discussions I mean have you found with the NDA being filed I know that’s recent but as part of your we all know you are coming up with has that tempo picked up or what color can you give us?

Jim Brown

I think I don’t I’m not Homeland Security so I don’t want to give any color on things but I think, I think that we have a number of potential partners that we are talking to and a couple of different strategies that we are looking at. One of the things that we are considering is with the wonderful success that POSIDUR have had with what we perceive as a lesser product in the market place as far as the value of the company what they’ve been able to do over this past year is that we also not only looking at traditional partnerships but the potential for maybe putting together an entity around POSIDUR and maybe cash from the outside and where we get not only a royalty as we would from a traditional partnership and milestones but maybe potentially equity in the new call created. So we are looking at a number of different potential business approaches for POSIDUR.

Unidentified Analyst

Alright. Thank you. That’s it from me.

Jim Brown

Thank you.

Operator

(Operator Instructions). Our next question comes from the line of Rajesh Patel. Please proceed with your questions.

Matt Hogan

Raj maybe you are on mute still.

Rajesh Patel

I apologize sorry about that. Can you hear me now?

Matt Hogan

Yes.

Rajesh Patel

Okay. Yeah, so I guess I just looking for a little bit of clarity I understand you guys don’t have the minutes from the FDA yet but it seemed in Q3 last year that the big issue was that the if I just had net go, no go decision. So are you folks comfortable now that it is essentially a go decision and there is just some details to be worked out?

Jim Brown

Yeah I would think, I think John Young when he gave us a quote that we used in our call before last was trying to kind of lay the rest of this idea that the street had jumped on that this was some kind of go, no go overall with regard to the product. I don’t believe that’s what they were trying to communicated that point in time. Even though if you look at our price of our stock and pain therapeutics it would be hard do not think that. Realistically they’ve been working very diligently for this program going forward I think they use statements like we believe we have a path forward and you know that all that if you look at the tone what they said and what they actually said I think it’s actually very positive for this product. I also don’t think they would have had the meeting itself if they weren’t comfortable with the data that they received from that final bioavailability study they did in kind of November to January timeframe.

Rajesh Patel

Great. Okay that’s very helpful. Thank you.

Jim Brown

Sure.

Operator

Thank you. Our next question comes from the line of Nick (inaudible). Please proceed with your question.

Unidentified Analyst

Gentlemen just a small no one’s on that as when I look at the trend line for your operating expenses which of course in my what I am looking at it is purely research and development and G&A they’ve been trending relatively flat over the last couple of quarters. Not knowing the dynamics of internally how you are allocating of what you are expectations are for say specifically R&D. Could you give us some sense or some additional guidance on whether you see that aggregate number or individually R&D and SG&A trending in either direction looking at the balance of this year?

Jim Brown

I think that they will be approximately like the run rate that we currently are experiencing. We have a number of programs certainly POSIDURs were preparing for potential pre-approval inspections in the FDA and like and disrupting up the NDA which is what you see this quarter.

Unidentified Analyst

Right.

Jim Brown

Certainly have a lot of effort there. We are interacting the way we once where with Pfizer has their REMOXY program has now matured is now in the hands of their manufacturing regulatory groups. So that was work that we were being complicated for that it’s changes so these people have shifted over to other earlier stage programs that we have partnerships on and internal programs.

Unidentified Analyst

Yeah that’s really what I was looking for Jim, was there some sense or whether you’re going to see some additional focus on the part of these are Pfizer for their the other opioid programs or something else that would come in and influence is the R&D or obviously pre-negotiations or legal costs associated with SG&A?

Jim Brown

And I don’t think you’ll see much in the legal things or would be too small to see the difference there. And the other things were they’re just this kind of macro change from a lot and lot of work at Pfizer up until probably the last quarter of last year then that shifted over a lot of work currently on I think that was REMOXY a lot of work now are positive but is that such a change throughout the year late-stage programs coming up lot of new feasibility works actually coming recently so that’s kind of a dynamic as Matt said. So I think if you look at it as kind of a net at flat is probably a good rate to occur.

Unidentified Analyst

Is that true with respect to that you see it now or decollaborations within that specific line item looking out over or whatever point of visibility timeline you have in terms of visibility?

Matt Hogan

So your, your questions started with R&D expense and SG&A expense.

Unidentified Analyst

Correct.

Matt Hogan

Those two line items were saying about the current run rate or either we’re definitely not hiring people but we’re keeping a box flat and so then the question is the top line the revenue that comes in and as that kind of flat before last year we had more money coming in from a few partners but there who was Jack because they were being up for the Phase I or with Pfizer work it on REMOXY now those are more modern and the way we do our forecasting is to try to just be conservative with a lot of prospects or projects but we’d rather not assume that we’re going to get that revenue yet.

So that is why if you will, for sort of giving guidance for $14 million to $16 million for the year it’s not because expenses are going up it’s just we think there is a little bit more moderate revenue coverage right at the moment.

Unidentified Analyst

Right, okay that I assume that was the case but at least wanted to follow up the question.

Matt Hogan

No problem.

Unidentified Analyst

Okay, thank you very much I appreciate the perspective.

Matt Hogan

Sure.

Operator

Thank you. Our next question comes from the line of Michael Gottlieb. Please proceed with your question.

Michael Gottlieb

Hi, good afternoon and I apologize that.

Jim Brown

Oh Michael? Probably just pressed the wrong button probably.

Matt Hogan

Yeah.

Jim Brown

May be operator we can, is there any other questions in the call maybe he can so go back in.

Operator

(Operator Instructions) One moment please while we re-prompt for questions.

Matt Hogan

Well operator I feel bad for Michael but on the other hand I know him and I’m sure he’ll call me back with us. And rather than have other people hang on while we wait if there are any other questions we’ll thank everybody as we usually do for their interest in the company and if we do have questions please call us at anytime absolutely. Thank you very much.

Operator

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

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