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DURECT Corporation (NASDAQ:DRRX)

Q2 2013 Earnings Conference Call

August 06, 2013 4:30 p.m. ET

Executives

James E. Brown – President and Chief Executive Officer

Matthew J. Hogan – Chief Financial Officer

Analysts

Annabel Samimy – Stifel Nicolaus

Jason Napodano – Zack's Investment Research

Michael Gottlieb

Operator

Greetings and welcome to the DURECT Second Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Matt Hogan. Thank you, sir. You may begin.

Matthew Hogan

Thank you. Good afternoon. Welcome to our second quarter 2013 earnings conference call. This is Matt Hogan, the CFO at DURECT. The call will begin with the 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 a Q&A session.

Before beginning, I’d like to remind of our Safe Harbor statements. 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 are included in our SEC filings including our 10-Q under the heading risk factors.

Let me now turn to our financials. Total revenue was $3.9 million in the second quarter of 2013, as compared to $4.8 million in the second quarter of 2012. Excluding all deferred revenue recognized for upfront fees from our agreements, revenue from our R&D collaborations was $0.8 million in the second quarter 2013, as compared to $2.1 million in the second 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. And this drop was driven by the fact that we had no revenue from Hospira, the fact that we’d 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 and LACTEL polymers were approximately $3 million in the second quarter of 2013, as compared to $2.6 million in the second quarter of 2012. That was up about 17%, driven by a strong quarter shipping LACTEL polymers. Our gross margin on these product lines was around 66% in the second quarter of 2013 and these product lines continue to be strongly cash flow positive for us.

R&D expense was $4.8 million in the second quarter 2013, as compared to $5 million in the second quarter 2018. SG&A expenses were $3.2 million in the second quarter 2013, as compared to $3 million in the second quarter last year. As a result of the above, our net loss for the second quarter 2013 was $5.1 million, compared to a net loss of $4.3 million for the same period in 2012.

Our net cash consumed during the quarter was $4.2 million. So at June 30th 2013, we had cash and investments of $21.3 million, compared to $25.5 million at the end of the first quarter 2013 and $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 that may potentially be partnered over the next 12 to 18 months. These include POSIDUR where we have worldwide rights, ELADUR with worldwide rights, ORADUR-ADHD where we have U.S. And European rights, TRANSDUR -Sufentanil with worldwide rights and various feasibility studies we hope may maturing to development agreements much like Relday did last year.

With that, let me turn it over to Jim Brown for more discussion of our business.

James Brown

Thank you, Matt, and good afternoon everyone. I'll now provide an update with our most significant events from this past quarter. For POSIDUR, we submitted the NDA in mid-April and it was accepted for filing by the FDA in June. The PDUFA date is set for February 12, 2014 which is about six months away from now. Regarding REMOXY, Pfizer met with the FDA in March the 28th and I'll cover that in a few minutes. For Relday, Zogenix reported positive Phase 1 result in January and then again in May with a higher dose. And based on these data, they are now seeking a non-U.S. partner. For ORADUR-ADHD, we picked a lead formulation which I'll describe shortly.

Let me now go through these major programs, beginning with POSIDUR. POSIDUR is a new paradigm for post-operative pain control and that is designed to control pain locally for three days post-surgery, with an added potential benefit of reducing narcotic use and associated side effects and cost and the potential and earlier hospital discharge. We submitted the NDA for POSIDUR in the middle of April and the FDA accepted this filing in June. The PDUFA date is now set for February 12, which as I said earlier is about six months from now. We are pursuing a 505(b)(2) filing strategy, which enables us to leverage the long history of use for bupivacaine. As a reminder, any NDA submission is subject to a whole range of review and approval risks and POSIDUR will be no exception to this. The benefits of POSIDUR are first off that it provides pain relief for a full three days after surgery. As well, we have nice reduction in opioid use with their attendant side effect issues. Our efficacy data are quite compelling.

Let's go over a quick review of some of those data, starting with our two pivotal trials for this program. The first is the hernia surgery and the second is the shoulder surgery and I'll be looking at right now just describing briefly the pain associated with these two surgeries. And what we have seen is a reduction in the pain on movement and we believe that pain on movement is a more clinically relevant component from my own personal experience. I had my appendix out about five years ago and when I was just sitting in the hospital bed reading a book or watching television, I was fine. It’s when I got up to go to the bathroom, moving in that way that I really could feel the pain from the surgery. And so as such for our hernia patients, we ask them to assess their pain by virtually doing a sit-up. And for our shoulder patients, it’s actually raising your arm up to a parallel level to the floor, raising your shoulder up. And so what we saw with this is the hernia surgery demonstrated about a 31% -- the positive group, about a 31% reduction in pain and the shoulder surgery patients saw about a 21% reduction in pain. These were both statistically significant.

Next, with regard to narcotic use in these two trials, for the hernia surgery we saw an 80% reduction, almost a threefold reduction in narcotics use and the shoulder surgery a 67%. So about a 2.5 times to 3 times reduction in narcotic use as well. These are both statistically significant. So, somewhere between 67% and 80% reduction in narcotics use over the three days. Of note also is the proportion of patients not taking any supplemental opioid during 0 to 72 hours. I think this is an important point to make, especially when you consider the overall environment that we're in right now from a regulatory standpoint and the problems we've got in United States with regards to narcotic abuse.

In our hernia trial, we saw 21% of our patients on the positive group, 21% of these patients not taking any narcotics after hernia surgery and for the shoulder surgery we saw 24%. So what we've got between those two surgeries is basically 20%, one-fifth of the patients waking up from surgery, major surgery here and not ever taking a narcotic. And it’s our hope that that would eventually lead to fewer scripts being written in, potentially taking some of the pressure off narcotic abuse as well.

Lastly, I want to describe the integrated summary of efficacy as was -- this is a section that as part of the NDA that was submitted to the FDA. And our integrated summary of efficacy for POSIDUR was consisted of three categories of clinical trials. The first ISE category is one that we termed orthopedic trial and that included three shoulder studies. The second category is soft tissue trials and this includes four trials. Two of these trials were hernia, one was hysterectomy and one was lap-assisted colectomy. And the final category was POSIDUR against bupivacaine hydrochloride or what I term the naked bupivacaine, the standard of care that's out there today. And this includes three trials. One was a shoulder, one was a laparotomy and one was lap-assisted cholecystectomy or gallbladder removal. It's important to note that all three of these categories showed a statistically significant reduction in pain area under the curve for zero to 72 hours as compared to controls.

POSIDUR offers the potential for a large commercial opportunity, driven by reducing the need for opioids after surgery and their associated side effects. It’s better for patients with potentially large healthcare cost savings. We estimate there are over 70 million surgical procedures per year in the United States. We've identified somewhere between 10 million to 20 million procedures that could be potentially an up-market opportunity for POSIDUR. Our pricing is yet to be determined, but our market research suggests that we should be able to price this product for north of $250 per procedure, based on the reduction of narcotic use and their associated side effects. Because of this significant reduction of both the opioids and pain for the full three days, we think it’s an easy product concept for surgeons and anesthesiologists and payers to get behind.

And now I'd like to move over to REMOXY. The REMOXY NDA received a complete response latter. On June the 23rd 2011, the issues raised in that complete response letter related primarily to manufacturing. Pfizer met with the FDA on March the 28th of this year to discuss their resubmission plan. We understand that the meeting was productive and provided a path forward, which followed the outline that Pfizer had requested. They will have no need to redo the Phase 3 studies. That's a very important piece. A pivotal bioequivalent study with the modified formulation will be used to bridge back to the Phase III data that were conducted with the original formulation. This BE study would be similar to, but larger than the bioequivalent study that have already been conducted by Pfizer, the last of which was conducted in December to January this year.

Pfizer will also be conducting additional abuse liability studies with the modified formulation, and such data may now potentially be used to enable product label claims. We would expect those studies to be posted on clinicaltrials.gov when they are initiated. There’s really nothing new to report since the last update from Pfizer on May the 9th for REMOXY. Pfizer is considering our options with respect to REMOXY and we think they’ll decide this fall. If they continue development of REMOXY, they do not expect to submit the NDA before the middle of 2015. Pfizer has also sent a letter to Pain Therapeutic seeking a confidential discussion relating to the contractual terms in the current agreement. Our understanding is that the working team as moving the program forward. Just as with any collaboration, our partner could decide at any point to stop development. But we keep coming back to the fact that there is a clear path forward now, both technically and in terms of guidance from the FDA. The future investment to resubmission is not particularly significant.

The market need and opportunity is large and is not going away and REMOXY is a truly differentiated product with multiple levels of abuse deterrent features. We have seven issued U.S. patents covering our order technology platform that are associated with REMOXY as well and this U.S patent coverage covers us out to at least till 2031. We have also European patent coverage at least till 2023. Additionally, we have newer pending applications that have been submitted that would protect this protect this program out to 2033 to 2034, plus any eligible patent term adjustments and extensions. From the potential financial impact of this program for direct OxyContin sales of approximately about $3 billion in the U.S. Our royalties on sales are blended royalty. Started 6%, going up to about 11.5%, a little over $1 billion. If Pfizer are able to achieve somewhere between 30% to 50% of market penetration of the 2012 U.S market, that would mean somewhere between $70 million to $130 million to DURECT.

Now I want to provide an update for our order methylphenidate program. Methylphenidate is the API that we've chosen for our lead ADHD program. We started this program because we saw a large commercial opportunity to potentially improve efficacy and additionally reduce abuse in this area. The U.S ADHD market in 2012 was about 58 million prescriptions, up 9% over the previous year. And the adult market grew about 12% and the pediatric market grew about 7%. U.S ADHD sales in 2012 were $8.4 billion, up about 15% versus 2011 and international sales were another $1.1 billion. The ADHD drugs are widely abused. A 2010 National Survey on Drug Use and Health estimated 1.1 million Americans over the age of 12 are abusing these stimulants. The DEA has commented that serious abusers often snort and or inject the products, which is virtually impossible with DURECT’S ORADUR technology.

We've now picked a lead formulation and this formulation selected based on its rapid onset of action, its long duration and once daily dosing, its small capsule size as compared to the leading products in the marketplace, and this is a big deal for kids, the smaller capsule size, and of course the inherent tamper resistance that is due to our ORADUR technology. Our partner for the Southeast Asia for this program is Orient Pharma and they will meet with the Taiwan FDA later this year regarding the Phase 3 program in that territory. And they are developing plans for their Asian and South Pacific territories. Now that we have the formulation in hand and the supporting PK data, DURECT is initiating licensing discussions for the U.S, European and Japanese rights for this program. We also intend to discuss the development program with the FDA to investigate following a similar development plan to the one carried out by NextWave which was able to seek -- to achieve proven with less than a 100 patients.

Now I’d like to move on to Relday. This is again a large opportunity commercially, over $1 billion market opportunity for this type of product. The advantages of Relday are that it features a once a month -- opportunity for a once-a-month injectable for risperidone. It's got a patient and physician-friendly treatment opportunity for schizophrenia here. It starts working right after injection. It's subcutaneous versus IM. There is no drug we reconstitution required as compared with the market leader. It's got a simplified dosing regime, which market research tells us resonate very well with prescribers. This program has been partnered with Zogenix.

Zogenix reported positive final data from the expanded Phase I trial in May. This was a single center, open-label safety and PK trial that enrolled 30 patients with chronic stable schizophrenia. This study demonstrated favorable safety and PK profiles with the 25 to 50 and 100 milligram once monthly dosing, the full range of doses that they'd expect to use and to take to the market. With this positive data in-hand, the next step would be a multiple dose Phase I and then a Phase III program. The timing depends on Zogenix who have stated that they’re initiating partner discussions which will drive the timing for the next study. If they do partner, DURECT will receive a cut of any partnering fees as they generate.

Now to wrap up, just looking forward to the next 12 to 24 months, for POSIDUR we look forward to the PDUFA date of February 12, 2014 and the potential for a commercialization partner for this program. For REMOXY, Pfizer held that meaning with the FDA in March regarding resubmission and no additional Phase IIIs are required. We expect a Pfizer decision on the internal approval to move forward sometime this fall. The next steps would be conducting required studies that is the bio-equivalents and abuse safety studies, with a resubmission targeted for the middle of 2015 and with follow-up with a six month review by the FDA.

For the Relday program, with positive Phase I data in hand, partnering efforts are now underway by Zogenix. We also, as Matt stated earlier, have the potential for new collaborations with regard to our POSIDUR program, our ELADUR program, our Sufentanil patch program, our ORADUR-methylphenidate program. And as well, we continue to work on feasibility projects and undisclosed internal programs.

We now like to take any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Annabel Samimy. Please proceed with your question.

Annabel Samimy – Stifel Nicolaus

I had a few questions actually. First I want to better understand the difference between the upcoming bioequivalent study that the FDA is requiring Pfizer to conduct relative to the other bioequivalent studies that they had already conducted. What is the difference between the two of them and specifically why they need to do yet another one?

James Brown

Sure. The only real difference between them at all is the size. The bioavailability studies that they’ve conducted to date are typically say 15 to 20 patient trials. And the bio-equivalents, what you want to do is do enough that you have absolute statistical significance. So they’re typically larger numbers. So in there you're talking about 80, maybe 80 plus patients. But there are still in volunteers. They still are conducted and they’re enrolled fairly quickly, that kind of thing.

Annabel Samimy – Stifel Nicolaus

And they haven't yet stated whether they've made a commitment to conduct those studies, correct?

James Brown

That's right. But they've not made that. Presumably they would make their decision and announce it to the world before they start those. But if they continue to delay with regard to making that decision, then one of the ways one can understand what's going on with the program would be to check clinicaltrials.gov and if you see these trials coming up then you'll have a better sense.

Annabel Samimy – Stifel Nicolaus

Let me move on from REMOXY and just talk a little bit more broadly. Well it seems it is that the fact that all of your programs are essentially dependent on some partnership activity. Is there anything that you can take into your own hands and drive forward at this point? Or is there anything that you're willing to do at this point to build value on some of these programs? So it seemed to have been at the same stage for quite a while other than POSIDUR, which obviously has been filed. For example for POSIDUR , could you potentially start conducting some marketing studies, the way Pacira has done to build interest for knowledge or awareness, education in the medical community to essentially start driving interest.

James Brown

Absolutely. I think that’s -- I appreciate that and I’ll just start with POSIDUR, because I think that is a very important program that we actually can and we actually are adding value right now in the commercial side. We've recently hired a vice president to help us with regard to the commercial space. She’s a person with 27 years’ experience in the industry on commercializing such products. And so we are starting to line up our thought leaders and do that work. And it is very fortunate for us that we have POSIDUR out there in front of us. They’ve done I think a phenomenal job of setting up the market with what I believe is quite frankly and this is my opinion, an inferior product, with little over 24 hours of true pain control and not a lot of narcotic reduction.

We think if we can come behind them with our product and build on the good work that they’ve done, we can add to that commercial opportunity and add to the patients pain control, building. And there’ll be a space for both products, believe me. But we think that we'll be able to be out there in the more significant surgeries, making a difference to these patients. And we're really enjoying working with the thought leaders and laying down the ground work. However, this product is commercialized and we have a number of opportunities.

We could end up partnering this product. We could end up co-promoting this product. We could end up setting up a new entity and seek -- bring in funding from the outside to commercialize it. So there are a number of different routes that we could take to commercialize POSIDUR and adds tremendous value to our shareholders. The other side of this -- the other program that recently we just had a breakthrough on was the methylphenidate ADHD program. So this is one that has been working just very diligently our partner, Orient Pharma to create the pharmacokinetic profile we're looking at where we think this can be an efficaciously meaningful product into the marketplace, but then having that advantage of our order abused deterrents and then of course the small capsule size as well. And so we think that serves the space well additionally.

Annabel Samimy – Stifel Nicolaus

Just to go back or two POSIDUR for a minute. Now I guess there’s a general view that there may have to be another confirmatory trial at some point. Even though you have a wealth of data in totality, there is a possibility of a confirmatory trial that will be necessary. So would it be worth to consider what that trial should be and whether you shoulder start that trial now? Because if that's the case, then if that trial started now, then you've saved yourself a certain amount of time so that you don't move another two years until commercialization.

James Brown

That is always one can consider that. But efficacy of bupivacaine in wound pain control has never been really the issue. If one looks at the history of the POSIDUR product, you can find a number of failed Phase III trials that they had and they were able to get a general surgical claim. Nonetheless they failed in all the major surgeries they conducted with a hemorrhoid trial and a bunion trial. And we have submitted two pivotal trials. We’ve asked the FDA in our pre-NDA meeting to review. We actually sent them the final reports prior to that pre-NDA meeting to review these and tell us whether or not they would look at these as our pivotal trial. They said that they would review those as part of the NDA. And so I think we’ve got of good efficacy around POSIDUR. I briefly outlined the integrated summary of efficacy as well which demonstrated not only the efficacy in soft tissue and hard tissue, but also against making bupivacaine, something POSIDUR has never done. They failed every time they've tried a comparison and I think it's because the kinetics of theirs are too close with that 20 to 24 hour duration versus the naked bupivacaine which is 6 to 10 hour.

And so all that I think we’re in pretty good shape. I think the main questions that have been around, if one looks at it from a regulatory standpoint, what’s the FDA’s looked at for us is can you safely deliver what we're delivering, which is 660 milligrams of bupivacaine. And I think we've shown that dramatically well in our best trial. And that was constructed primarily to be able to demonstrate that. All 300 of those patients wore halter monitors for three days and we saw no difference at all in any of the cardiovascular CNS function between those patients and control patients and the ones with the active. And so I think that's a very important piece of it all. There is certainly lot of support of efficacy into that, but just primarily if you look at it from a safety study, that's a very important piece. And we actually think at the end of the day that you need for these larger surgeries, you need 660 milligrams, that 100 or 200 is probably not going to cut it.

And we define that amount of drug not only from our own dose response work, but also from work that was done with the eye flow pump. You remember that pump? And there has been a number of studies out there that have showed how many milligrams per hour or what are the release rates that gave you efficacy in these various studies And that's the way we designed our dosage trial to be able to deliver that over three days and it's interesting. Even though we're delivering 2.5 times more drug than POSIDUR is, we never have higher, in fact we always have equal to or less plasma concentrations than they do. That tells you that the only thing it can be doing is going out over time. So I think we've got a good opportunity.

Matthew Hogan

I think just two other real quick comments. I think part of our logic and not just presumptively starting another trial as you're inviting the FDA to just say oh, that's interesting. We're going to wait on a PDUFA date. We'd like to see the results of that. So you take away any chance that you could get approved next February because they’re just going to want to wait and look at it. And you're also presuming that that’s their issue and you don't know if that's the case. The second comment I would make to your question was, we have thought about it, if we have to do another trial what might it be. In all likelihood we would just pick gall bladder because the results there were quite positive actually from the Phase III.

And we think it wouldn't be that lengthy or painful to recruit in that case because we wouldn't need to use all the cardiac monitoring we had when we did the trial before. There are a lot of gall bladder procedures. We go back to a number of the investigators who were in the Phase III and they’re already used to the protocol. And we think in general terms it would probably take around a year to run that study and it’d probably cost $10 million or $12 million roughly. So we have thought about it in advance, but I think the current strategy is that we think we have a legitimate shot at getting approved and we want to go for that.

James Brown

We think we’re giving the right amount of drug. We're giving it to the right place, right in the wound, not injecting away from the wound where half the drug diffuses away. And lastly, we're there for the right amount of time. We're there for the full three days. And we can see that with our narcotic reduction.

Annabel Samimy – Stifel Nicolaus

One last question I swear. The ORADUR deal that you do with Orient Pharma, are there any funds associated with that, any upfront fees we are tied to that?

Matthew Hogan

No. It was one of these deals where we each paid for our own scientists and they in fact funded the Phase I studies that were done. They in turn, what they got were certain Southeast Asian territories with a royalty back to us. But they have no rights to Europe or the U.S which of course are really the big commercial markets. So at this point I think the main take-home message from it is we now have a lead formulation with Phase I data around it. We’re not going to talk to partners in the U.S and Europe which are the major markets around trying to license that.

Operator

Our next question comes from the line of Jason Napodano. Please proceed with your questions.

Jason Napodano – Zack's Investment Research

Can you give me a little insight into the number of prescriptions for generic methylphenidate in the U.S?

Matthew Hogan

I don't think we have the data for the number of generics. I think we know that CONCERTA is still doing over a $1 billion in sales, and the generic that are out there I think are fairly high priced. But I don't have the actual script data.

Jason Napodano – Zack's Investment Research

I can probably find that. In looking at CONCERTA, the reason I think it was able to do $1 billion in sales as I understand that it's got this immediate release outer coating and then a slow release inner core. So my question is, what release characteristics can you get with ORADUR? Because it seems like that dual release formulation is really what drove uptake of that drug versus the standard release of methylphenidate.

James Brown

Methylphenidate – there’s also, there are three methylphenidate test drugs to look at. The first is CONCERTA. As Matt said it's about $1 billion. Then there is the methylphenidate ER with Actavis, which is about $800 million. And then most recently there’s this Quillivant which was -- now it’s Pfizer, was NextWave which is in a liquid version. And so all three of those combined are obviously doing quite well. We looked at the release rate kinetics of CONCERTA. Actually a number of us were at ALTA and a number of the guys here were associated with actually -- in fact Felix invented the ORADUR technology, which is CONCERTA. And so we truly understand their pharmacokinetics very well and that ascending dose profile and all those pieces.

And we felt after looking and speaking with consultants that there was a space where we could define an efficacy window that might well be able to improve over the market leader and that was our hope. And the reason this program seems to have taken probably a bit longer than people would like is because we've been trying to define and discern and get that profile. And now we think we have that release. On top of that we have our ORADUR technology, which can be snorted or injected in any way that's reasonable at all. And if you mix it with alcohol it doesn't really come out. And so we think we can offer abuse deterrents which really isn't out there today in this space. And so we think we have something that the market may well like.

Jason Napodano – Zack's Investment Research

That's interesting. When I look at some of the uptake of these drugs and Vyvance, I think one of the reasons why it’s being used so much is because of their abuse deterrents and I don't think that matches the ORADUR technology. So that that's interesting.

James Brown

Well yeah. Jason, did you know the Vyvance one actually works in rats, but it doesn't -- that's because humans have the enzyme that's able to cleave that peptide off of there. It actually is not abuse deterrent to people, but it is a patented entity and that's what gives them strength.

Jason Napodano – Zack's Investment Research

Interesting. With respect to POSIDUR, it looks like Pacira is doing a fine job of driving sales of Exparel. I'm wondering what you guys thing is like the real driving force behind that uptake? There are patients out there that are contraindicated for epinephrine. I'm wondering if that is a sizable opportunity or if it's just the lack of desire of patients and physicians to use opioids.

James Brown

Jason, having had two of my family members have major surgery this year, I can tell you the narcotics side effects are really a challenge. And it’s things people -- you think about the constipation and the nausea and vomiting and all that. Then as you get into older family members, there is the potential for refer actually inducing post-operative pneumonia. But it's the only thing you can do. If you’ve got somebody with major surgery who’s older, they need the narcotics to control the pain today. But if you overdose on narcotics, you end up dying of suffocation. You lose the desire to breath. And so when you’re in the hospital bed on narcotics, you're numbing your head rather than the local pain. So we think that the reason POSIDUR has done so well is because there is so much pent-up demand. There is so much of a desire.

There is not a surgeon I’ve ever spoken to when I explain what we’re doing with POSIDUR that isn't turned on, doesn't like the idea. So the desire is out there for long-acting bupivacaine, absolutely. And I think Pacira has taken -- normal product lasts six to 10 hours. I think Pacira has been able to take it to 24 and we’re taking it to three days with the associated narcotics side effects, actually narcotic reduction statistically significant. And so I think that they’ll continue to do well. They’ve done very nice Phase IV studies where they compare a product that I was associated with back at Syntex called Toradol. And they use Toradol plus Exparel plus IV acetaminophen against morphine and they show that lo and behold, they reduce the narcotic side effects, that their group doesn't take the narcotics. But nonetheless they can show the benefit and they're controlling the pain. And so there are a number of ways as you get out to be able to define and set up success in the marketplace. And we're really happy for them and want them to continue to be successful until we get out there and then we'll battle it out.

Jason Napodano – Zack's Investment Research

And then just correct me if I’m wrong, but I don't believe they had an advisory committee for Exparel. So I don't want to assume you guys are expecting one.

James Brown

They did not have one and so far in our communications with the FDA we haven't had -- they haven't mentioned that so far. That’s not the case.

Operator

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

Michael Gottlieb

What sounds a little different is that we’re actually going to get a fall decision from Pfizer on REMOXY, a go or no go decision. What do we think that decision is going to be dependent upon? And are we actually going to get some sort of statement from them or are we just going to start to see studies filed on (inaudible)? And then who to we think is making that decision at Pfizer? They've done a restructuring and it's not quite clear where REMOXY fits in or who is in charge of it any more.

James Brown

All good questions and I don't really have any good answers unfortunately. John Young has been the person we've dealt with up to this time. And I don't know as yet whether John will continue to have this under his group or not. It may go under Gino’s group. So we’re waiting to hear back from them with regard to that. This is obviously new news with regard to their restructuring, although it sounds like it’s going to take a long time. And they’re not a company that moves – they’re very cautious and they do things in a very controlled way. And so I think they’ll -- however they go through this process, they'll do it with their eyes open. It may well be that the next thing you see are these trials starting and they still may not have said anything. Although my feeling is that this point in time, that sometime this fall they’ll come out and make a statement that they're going forward. But that does mean that two months much later they might not say again, oh, we don't know for sure what we're going to do and when we're going to do it.

Any partnership as I said earlier, there is not a program that I’ve ever been associated with, and I don’t think anyone has, where the partners can't get out of a product development if they want to. And so I just think we have to just take it. I really go more by what the team is doing. And I see the project team working very diligently to move this project forward and to get the work done that needs to be done. And I’m really happy that they had the meeting they had with the FDA, where they’ve defined they don't need any additional Phase IIIs. All they have to do is a BE study which is less than a 100 patients and abuse deterrent studies which are even smaller numbers of patients in that. And that's going really be setting them up to be able to differentiate from the OxyContin abuse deterrent version that's out there. And so I think they’re in a really good position should they choose to take this product forward to be quite successful. And I think in their hands they would do really well. This product would do quite well, but we will see.

Michael Gottlieb

Could it be something as simple as a rather large production run that they’re happy with and then they decide to go forward with it? They haven't really produced it in massive qualities yet, have they?

James Brown

They've produced it at scale already, but it could be something like that. It could be something like that. It could be -- I actually don't know. I'd be clearly speculating. I honestly don't know why they even chose to tell the world that they're still thinking about it. Why not just do what you're going to do and --

Michael Gottlieb

Yeah. That didn’t make much sense. Rather positive comments on their call and then sent a letter but --

James Brown

I have no idea. So I've given our try trying to second guess Pfizer. We’ll just work with them and we help them as best we can. Quite frankly we don't work that closely with them right now, really since last fall when we did the final work on this new formulation. They took over in November timeframe. Since that time it’s been more just them updating us periodically.

Operator

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

Matthew Hogan

We’d just like to thank you all for participating and if you do have questions as you think about things more, please feel free to call us at any time. Thank you.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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