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DURECT Corporation (NASDAQ:DRRX)

Q1 2014 Earnings Conference Call

May, 1 2014 4:30 PM ET

Executives

Matt Hogan – CFO

Jim Brown – President and CEO

Analysts

Annabel Samimy – Zack's Research

Jason Napodano – Zack's Research

Nick Farwell – Arbor Group

Jeffrey DeSeibert – KB Advisors

Rajesh Patel – Red Acre Investments

Operator

Greetings, and welcome to the DURECT First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow with the formal presentation. (Operator Instructions)

I would now like to turn the conference over to your host, Matt Hogan. Thank you. You may begin.

Matt Hogan

Okay. Good afternoon. Welcome to our first quarter 2014 earnings conference call. This call begins 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 Q&A session.

Before beginning, I'd 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, our 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-K and our 10-Q fused under the heading 'Risk Factors.'

Let me briefly turn our financials. Total review was $6.3 million in the first quarter of 2014 as compared to $4.2 million in the first quarter of 2013. If you exclude all differed revenue recognized for fees from our agreement, like Zogenix and Impax, revenue from our R&D collaborations was $4.4 million in the first quarter 2014 as compared to $0.9 million in the first quarter last year. And revenue from this source always fluctuates from quarter-to-quarter, depending on the state of development under the various programs and what our role is in those programs.

Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.8 million in the first quarter of 2014, as compared to $3 million in the first quarter 2013. Our gross margin on these products was around 62% in the first quarter of 2014. These product lines continue to be strongly cash flow positive for us.

R&D expense was $5.5 million in the first quarter 2014 as compared to $4.8 million in the first quarter last year. SG&A expenses were $3.4 million in Q1 2014 as compared to $2.9 million in the first quarter of 2013. And as a result of the above, our net loss for the first quarter of 2014 was $3.6 million compared to a net loss of $5.2 million for the same period in 2013. Our net cash consumed during the quarter was $2.6 million.

In March 31, 2014, we had cash and investments of $21.8 million, which compares to $24.4 million at the end of 2013. And we have essentially no debt other than normal liabilities associated with running the business. As a brief reminder, we have multiple programs and they potentially be partner over the next 12 to 18 months. This include POSIDUR where we have worldwide rights, TRANSDUR-Sufentanil, ORADUR-ADHD and various feasibility studies that we hope may mature into development deals, agreements much like Relday did.

With that, thanks for joining the call and I'll it over to Jim.

Jim Brown

Thank you, Matt, and hello everyone.

When investors think of DURECT, they inevitably think of REMOXY and POSIDUR, our two late stage product candidates that address large market opportunities in the field of clean management. On April 29th, Margaret Hamburg, the commissioner of the FDA made the following statement, and I quote, "Let me say, in no uncertain terms: the prevention of prescription opioid abuse is the highest priority for the FDA. Nothing can erase the tragedy so many people have had to face as a result of abuse, addiction, or misuse of opioids. But we may make meaningful progress to reduce and prevent our nation's prescription drug crisis. The FDA is committed to reducing abuse of opioids and ensuring appropriate access to pain medications for patients in need."

REMOXY and POSIDUR address this major medical needs, but in very different ways. REMOXY is designed to provide effective opioid treatment for chronic pain sufferers and an abuse-deterrent formulation. We believe our technology makes REMOXY far more resistant and the most common method of tampering (ph), that is, snoring, injecting, smoking, chewing and dissolving in drinks.

In the case of POSIDUR, we have developed an extended release pain product covering the first full three days after surgery, and it may significantly reduce additionally the need for opioids with their associated risk and side effects. There is not a similar product in the market today that provides local anaesthesia beyond the first day after surgery. We believe that by also controlling pain locally between 24 to 72 hours post-surgically, POSIDUR has the potential to fulfil a meaningful unmet medical need in this important patient setting.

Many investors considering DURECT don't look beyond this two programs, but we're not just a two-product company. There's much more here at DURECT that can create value for us overtime. Understanding the true value of DURECT requires a real-look at the sum of the parts. Our pipeline of differentiated products and development, our earlier stage research programs which we anticipate will yield additional product candidates and partnerships in our ALZET and LACTEL production line which today are strongly cash flow positive.

Our pipeline of product is protected by an extensive patent portfolio that provides patent protection in large market jurisdictions to at least 2025 and in several cases beyond 2030.

I'll now go a brief update on our programs and then open it up to questions and answers. I'll begin with POSIDUR. POSIDUR is a simple and easy product to use. It's applied topically into the surgical wound effectively put it where it hurts. It takes seconds to apply and works for up to 72 hours after surgery.

Our two pivotal trials demonstrated a 20% to 30% reduction in pain which can accommodate 60% to 80% reduction in narcotic use. In our two trials, our two pivotal trials, 20% more patients were narcotic free after surgery. One of those trials was hernia trial. So if we just take a look just for a moment and think about hernia surgeries in the United States. There are 800,000 hernia surgeries annually in the United States.

A 20% reduction of patients taking narcotics would mean 160,000 potential fewer narcotic prescriptions being written each year. This is for hernia alone. But the rate of abuse in the general population being what it is today, that could potentially mean thousands of fewer families having to deal with a heartbreak of abuse.

As is to be expected, in narcotics clinical program, a mixture of various surgically related side effects was seen. Some of these side effects were numerically lower and some were numerically higher with the POSIDUR versus the competitor.

Except for transient wound discoloration, none of these side effects occur at a rate higher than is typically seen by our surgical consultant or in the literature, and all of these side effects resolve overtime. As you know, we receive a complete response letter on February 12 from the FDA. The completed response letter was not with regard to our pivotal trial efficacy, nor to cardiovascular safety concerns, nor the CMC section, nor versus a chemistry manufacturing control, nor the non-clinical or pharmacology.

The FDA stated that they aren't ready to approve the NDA and that the NDA does not contain sufficient information to demonstrate depository safe when used in a manner and prescribed in the proposed label. The FDA has indicated that additional clinical safety studies need to be conducted.

We have been working extensively with clinical and regulatory consultants to gain their perspective and guidance in addressing the complete response letter. Just receiving this letter, we've had some interactions with the FDA and the next step is a formal face-to-face meeting.

We're planning to put in our request for that meeting next week with an expectation that the meeting will be held this summer. We will disclose the outcome of the face-to-face meeting after we have received the FDA's response to administer (ph) meeting.

While we're preparing for this FDA interaction, we are stepping up our medical communications activity around POSIDUR. For example, we have had four posters that were presented at the 39th Annual American Society of Regional Anaesthetic and Pain Medicine Meeting in April.

In addition, we have a number of POSIDUR abstracts that we expect to present at the following annual fall congresses. The American Society of Anaesthesiology meeting on October in New Orleans, which quickly draws about 13,000 attendees, and the American College of Surgeons Meeting in October in San Francisco. That is expected to draw around 9,000 attendees.

We've generated a lot of compelling data in our POSIDUR development program and we intend to continue our educational efforts to the medical community. As a reminder, we own the worldwide rights depositor, which puts us in an enviable position for this late-stage asset. Investors often asked us about a strategic plans for commercializing depositor.

The short answer is that we're pursuing a dual track process and we're committed to doing what is right for our shareholders. We're taking and talking to multiple parties about potential licensing, potentially licensing the commercialization rights depositor. We're also preparing to be in a position to commercialize the product ourselves. Both of these options are viable and could create tremendous value for us overtime.

Once we have clarity on the path forward with the FDA, we will weight our partnership opportunities against the alternative of marking it ourselves. There's also the possibility that we will do some type of hybrid, a co-marketing arrangement of some sort.

Now I'd like to return to REMOXY. REMOXY is an abuse-deterrent formulation of oxycodone, which is a widely used chronic pain product. Oxycodone does about $3 billion in sales in a form of OxyContin and provides effective pain relief for chronic pain patients. But unfortunately, it has been misused at rate the FDA has described as "a major public healthcare concern."

Our ORADUR technology is what confers to REMOXY. Its multiple layers of abuse resistance, it's in fact impossible to snort because when you cut off one of our gel cap, it's got the viscosity of Vaseline. Injections makes a control its injectable. It can't be inhaled or -- without creating irritation. Chewing doesn't work nor mixing with alcohol. It basically comes out at the same rate and the same range as a product was intended to deliver.

We think the multiple layers of abuse assistance built into REMOXY make it a compelling pain product, and that Pfizer will do an impressive marketing job when it's approved. They have a major presence in the pain space with CELEBREX and LYRICA. With REMOXY, Pfizer has a product designed to be effective for legitimate pain patients but with features designed to reduce abuse of illegitimate users. Prescribing physicians get the comfort of knowing it will be an effective pain product without having to worry about writing prescriptions for a product that is more easily diverted and misused.

Patient won't have the stigma of telling anyone they're on OxyContin, yet they'll get an effective pain relief and able to achieve effective pain relief with a true twice a day gel cap. With Pfizer's large sales force, they should do very well once this product is launched.

I'd also like to note, we have multiple issued patents that go out at least until 2031. So there should be a long period for our shareholders to gain a meaningful return from REMOXY. It's a late stage asset and that the safety and efficacy of REMOXY have been shown conclusively and the remaining cash is to address the manufacturing related issues that led to the FDA giving REMOXY its latest complete response letter.

In March of 2013, Pfizer met with the FDA to share the extensive work that they've been doing on REMOXY and to propose a path forward. The FDA agreed to Pfizer's proposal. Namely that there is no need to replicate earlier Phase 3 work if a bridge back to the data is provide with a bioequivalent study.

In October of last year, after a thorough review, Pfizer announced their decision to move ahead with the steps required to resubmit REMOXY and they're driving the program forward.

Specifically, there are two primary clinical studies that are required for resubmission. The first is an abuse potential study and the second is a pharmacokinetic bioequivalent study. The abuse potential study with the new formulation we've started for clinicaltrials.gov in November of 2013. This is listed as being a 60 subject study with a target completion date of June of this year.

In February of this year, Pfizer posted a study on clinicaltrials.gov that involves 60 subjects to evaluate the bioequivalence of the modified formulation of REMOXY versus the original formulation under immediate fact-fed conditions and to estimate relative bioavailability under fasting conditions and in healthy volunteers. This study has a target complete date of April of 2014.

We think the probability of success in these studies is high for multiple reasons. First, a smaller bioavailability study has already been done by Pfizer, and those results supported moving forward with the bioequivalent study. In other words, the bioequivalent study is basically a larger form and more formal version of the bioavailability study that's already been completed by Pfizer to their satisfaction.

And second, the changes to the formulation were extremely minor. Hence, we don't expect the abuse liability study to turnout any differently from the study previously done by King Pharmaceuticals and that study met all of its endpoints.

We are now about a year away from Pfizer's resubmission of REMOXY. We believe that as the months tick by and the resubmission gets closer, more and more investors will begin to factor this program into their thinking. The review period of six months, to our expectation is for an approval in late 2015 and launch shortly thereafter. Pfizer gave an update on their R&D programs in February 25th of this year at the Citibank Conference and REMOXY is listed as one of their key Phase III programs.

As a reminder of how transformative this product could be for DURECT, we received a royalty of 6% to 11.5% of REMOXY sales. Therefor if Pfizer captures just 30% of the roughly $3 billion OxyContin market, which is about $900 million, we would have an annual royalty stream about $72 million, and that's a strong free cash flow that would go straight to our bottom line.

I'd also like to note that we have over $250 million NOLs built up. So when that royalty stream starts to kick in, we won't be paying taxes for some time.

I'll now move on to ELADUR. This is our three-day bupivacaine patch. We are pleased to start the year by announcing our collaboration with Impax and the resumption of the development of ELADUR. As a reminder, ELADUR is a pain patch that we're developing for post-herpetic neuralgia. It's a three-day patch. It's designed to compete with the 12 hour lidocaine patches. This is more than a convenience matter, as it's been reported that two out of three patients on lidocaine have breakthrough pain during the 12 hours when their patch is off. So this could be a meaningful patient benefit and efficacy advantage for us.

In addition, ELADUR has a very patient friendly design. It contours to the skin and won't fall off easily. So patient can exercise with it or take a shower with it. The trends of our collaboration with Impax are as follows: we receive $2.5 million upfront, we have $31 million in development milestones. The next of which is at the beginning of Phase III. We have $30 million in sales based milestones. Impax funds all the development and commercialization for the product. DURECT gets a share of sublicense fees that are received if Impax decide to sublicense the product. The royalty start at mid-single digit and go to lower double-digit.

In terms of next steps with the program, Impax is conducting a short proof of concept study followed by a meeting with the FDA to discuss the structure and design of the proposed Phase III program and their plan is to start the Phase III program late this year.

As a reminder, we have orphan drug designation for ELADUR for post-herpetic neuralgia and we have an issued patent in the U.S. going to 2031 and issued European patent going out at least 2027. We're pleased that ELADUR is back in development with Impax and that we may have another attractive program with Phase III this year, late this year.

Now I'd like to move to Relday. Relday is a large commercial opportunity. It features the first the once a month risperidone product. It's a patient and physician friendly treatment for schizophrenia. It's a subcutaneous injection versus the market leader today, which is IM. We have positive single dose Phase I data with a full dose range expected for clinical practice.

This product has been partnered with Zogenix and they plan to initiate a multi-dose clinical trial in the fourth quarter of 2014. This is a reminder of our collaboration with Zogenix. We received $2.25 million upfront. We have $103 million and potential milestones from the program of $28 million, our development based and $75 million are sales based milestones. DURECT gets a share of any sublicensing fees that are received by Zogenix and Zogenix is responsible in funding the full development and commercialization of the product. The royalties that DURECT received start at the mid-single digit and go to low double digit.

I can move now to our other ORADUR opioid products. Pain Therapeutics has the right to develop three other opioids with our ORADUR technology. These products are hydrocodone, hydromorphone and oxymorphone. All three of these product have active INDs in place at the FDA and Phase I work has been done in the past with hydrocodone and hydromorphone.

Future development of these will definitely benefit from our REMOXY experiences. Pain Therapeutics has made the following comments during the February earnings call. They came to prefer hydrocodone and hydromorphone over oxymorphone. And second, they mentioned that they may be able to have one or two of these products in Phase III at about the time when REMOXY submitted, middle of 2015. And they went on to mention that they are considering an approach for the hydromorphone project that might not require a Phase III trial. But they, of course, will have to vet that strategy with the FDA.

We are now working with Pain Therapeutics on these programs under approved work plans. If Pain Therapeutics commit to resources, we think these programs have the potential to move quickly and represent a nice value stream as they advance in development.

As a reminder, we get the same economics on these programs as we do for REMOXY, that is 6% to 11.5% royalty. PTI pays for all the development and commercialization cost. There are also about $6.1 million increase sales milestones spread across the three programs that we could earn.

Now, we're moving on to our ORADUR-ADHD program. The methylphenidate formulation demonstrated the following Phase I study: rapid onset of action, long duration for once-a-day dosing, a smaller capsule size when compared to leading products in the market, and of course the tamper resistance due to our ORADUR technology.

Orient Pharma, our partner in Southeast Asia met with the Taiwanese FDA to outline their Phase III program and they developing plans for their other Asian and South Pacific territories. In the U.S. and Europe and Japan the rights are retained by DURECT. Now that we have the formulation in hand with supporting PK data, we are initiating licensing discussions. Our ORADUR technology could be and could have utility for a number of potential ADHD products, which is maybe the basis for future licensing opportunities.

Let's review financial key drivers for DURECT over the next 12 to 24 months. For POSIDUR we've been meeting with the FDA to determine the next steps to addressing the complete response letter and then pursuing development and commercialization of POSIDUR and the program including a potential licensing deal. For REMOXY, it's Pfizer conducting the required studies in completing the BE and abuse-potential studies and then with the resubmission targeting the middle of 2015 and followed by a six month review of the FDA. And then once approved, the product launch.

For ELADUR, its initiation of Phase III by Impax in late 2014, which also triggers a milestone payment for us. And for Relday, its initiation of a multi-dose trial by Zogenix in the fourth quarter of 2014, potential for PTI ORADUR program advancing into late stage development in this timeframe. Also, the potential for new collaborations around POSIDUR, our Sufentanil Patch, the ORADUR-ADHD program or from our feasibility programs.

We as well have the potential to move a new program into development this year. With that, I'd like to thank you again for joining our call and we'll now 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)

Thank you. Our first question is from Annabel Samimy.

Annabel Samimy – Zack's Research

Hi. Thanks for taking my question. I just want to get a little bit more color on -- you said you have some further communications of the FDA regarding the safety issues on POSIDUR. Honestly, other than the imbalance between the bupivacaine arm and the POSIDUR arm that you've cited before, which seems pretty minor discoloration. I think it was from pruritus. It seems unusual that given the urgency that the FDA is under the deal with this whole narcotics issue and reduce this narcotics that they would make such an issue out of this small points. Is there any more color around some of the safety issues that we're talking about through your discussions? Unless you have any better idea about the timeline you could always state about that, that would be great.

Jim Brown

Yeah. I don't really have any more color on the safety issues. We're still obviously preparing ourselves for the face-to-face meeting. We just wanted to get some further clarification with regard to the way the letter was constructed, and the like, and we did get back a very positive feedback actually from them.

So we're going forward into this with our eyes open. And I totally agree with what you said given what Dr. Hamburg had said and given the whole focus of the agency. It seems that a product by which in two clinical trials, in the hernia trials which have 21% patients being opioid free and a shorter trial which is more painful trial cured 24 more patients. So if we can look at those and say, the potential is here for at least in those two studies. One in five patients aren't taking any narcotics. That's a huge difference. I have some friends who work for drug enforcement, and the like, and I don't know what -- you can look at different trials or different studies and get the percentage of people who have that predisposition for abuse.

But it's in that range of kind of mid-single digits, let's say, 4% to 6% kind of thick of the population. And if we can talk about maybe hundreds of thousands of patients not having to get a script written, the potential there is, I think, really strong and really requires cost consideration.

As far as the timing goes, we're going to submit the request next week for a meeting this summer. And I don't know, Matt will be confirming--

Matt Hogan

After that, we'll be able to communicate more about the longer term timing. I mean, we sort of sense a little bit of frustration here because these issues don't seem us to be life-threatening. But nonetheless, the arbiter is the FDA. So until we have that meeting, it's hard for us to say much more.

Jim Brown

And we feel like we have a substantial leg up over what POSIDUR has with their product. They have really nothing beyond 24 hours in true reduction of pain and substantial narcotic reduction. And we think we can fit that on that need with their 24 to 72 hours. And so that's going to be part of what we focus on.

Operator

Thank you. The next question comes from Jason Napodano.

Jason Napodano – Zack's Research

Hey guys, thanks for taking the question. If you go to clinicaltrials.gov, again you see the two studies that you mentioned. But there's two other smaller studies on there. I think those proportionality study and then a small food effect study. All of these are going to have data soon. I think three of them say June and one of them says April or May.

I'm just curious as to -- if Pfizer has given any clue to you guys on how they will present that data? Will we see it? Will you see it? When would investors kind of get a good sense of how these four trials turned out?

Jim Brown

Unfortunately, I don't have any insight into it in Pfizer's communication. They are their own masters for sure. We do have the right to understand the clinical data that comes out. But to that end, I think that they'll be giving that to us when they see fit. And so the time we have will be I think later rather than sooner. So I think we'll be waiting along with the rest of the world to kind of see when they decide to present this data.

They may hold off on a lot of this until just -- I mean if it was me and I were Pfizer, I would wait until right when I'm ready to launch the product and then I'd be out of the congress talking about the abuse potential reduction, and all of those kind of things. But until then, why start to talk.

Matt Hogan

I think in chatting with our colleagues, the Pain Therapeutics, their kind of phrases that (indiscernible) is good news. They really don't expect Pfizer to say much. But as long as they're moving forward with things, the (indiscernible) is actually probably a positive.

Jim Brown

Yeah.

Operator

The next question comes from Nick Farwell.

Nick Farwell – Arbor Group

Matt, I unfortunately missed what you said the differed revenue recognized in the quarter was so that we can determine exactly what research and development revenues were.

Matt Hogan

So I don't think I can give you the differed revenue number. But if you strip it out, you'll either kind of call it the real revenue was from collaborations was $1.4 million compared to…

Nick Farwell – Arbor Group

Yes, go on.

Matt Hogan

We talked about half a million from the first quarter of 2013. Were you able to hear that, Nick?

Operator

I’m sorry, sir. The next question is now from Jeffrey DeSeibert.

Jeffrey DeSeibert – KB Advisors

Good afternoon. Coming back to POSIDUR, can you share with us a little bit what the reaction in the consultants we gather you've been working with since the CRL? And what kind of feedback you've gotten from them in terms of the somewhat should pricing areas the FDA chose to focus on in the CRL? I mean for those of us who are not intangibly involved with this kind of activity, it'd be very helpful to get a little bit of feedback as to what the experts had told you.

Jim Brown

Yes. I think in general, not even general, to a person, they've been very supportive. And along the lines of what you have suggested, somewhat surprised and somewhat feeling like the rates -- I think I said this in my talk. The rates of which you see the side effects is really no different in their hands as it was in this trials or as one can see in the literature. And so, this is the information that we're pulling together.

Jeffrey DeSeibert – KB Advisors

All right. And following on the POSIDUR topic, we certainly have the feeling that over the last months in leading -- we're certainly leading into the POSIDUR day that you are involved in a number of discussions with perspective partners for POSIDUR.

Can you give us any sense of the level of intensity of interest in a possible deal? I mean we're sensing from your comments that at the moment you're looking at two possible roads to borrow from Mr. Frost (ph). But which one you travel, we don't know yet. But the face is one of them is the partner path.

And I guess apart from my question is, are you getting very much a sense of, "Well, we'll talk to you once the FDA is applying. This is something maybe later this year, early next year we can talk about"? Or are you finding a more active level of engagement?

Jim Brown

I think you see the full gambit. There are a number that -- we're actually engaged in talking to a number of people, post of the letter. But the letter does provide and it does have some clarity. The market opportunity, I think, is substantial for this. We see that with Fisera (ph). I think they announced this year that their first quarter sales were $34 million, up 13%. After being up 50% to two previous quarters. So a nice continued momentum there.

So they were the product that is a 12 to 20-hour product can achieve an access of $100 million and maybe an excess of $150 million on an annual basis. We should be able to do better than that. It's easier to apply and it's simpler and no risk of injections intravenously and all that kind of stuff.

So we feel like we've got a safer product. And so, the decision will be one that we'll be making overtime. And we certainly have the partners there and we're doing all of our work as if we were going to launch ourselves. Hence, we work for the posters and all of the abstracts they're working on to continue to pay that runway and prepare for this product.

So we hope at the end of the day, whatever decision we make, it will make all the difference, Jeffrey.

Operator

Thank you. The next question comes from Rajesh Patel.

Rajesh Patel – Red Acre Investments

Hi guys. Thanks for taking the question. I would just ask about ALS II which is their other abuse resistance to Oxycodone. And so what I'm wondering is have you guys, either from Pain or from Pfizer have any color about how (indiscernible)?

Jim Brown

Pfizer doesn't share their strategic thinking with us. Their product ALS II has been around a long time. The technology has been around a long time. And in fact, it's been a real challenge. If you look at (indiscernible) it was withdrawn voluntarily, I think, a number of times taken off the market because of issues of manufacturing and leakage of the antagonist.

I think the whole concept of giving what is effectively a physiological qualities and along with the medicine that you might give to my grandmother is I find it actually disturbing to say the least. There are patients who have been product risk who work from this kind of technology all to prevent somebody from abusing it.

When an alternative is out there, such as our order technology, which is something makes it more difficult to extract and much more difficult to abuse from that perspective in much more difficult to abuse from that perspective without having to put any additional risk.

So I think that Pfizer has that to deal with if they want to consider that. I think they're just moving all the facts forward. This was a program, as I said, was underway by O Pharma. King kind of continued it and Pfizer has kicked up the effort.

The other side of it is from a pure business standpoint. Purdue Pharma actually control the patent space here and King had to get a license from Purdue in order to launch the morphine product in beta. They didn't. Purdue did not give them a license for oxycodone. And so, Pfizer would still have to deal with that as well prior to launching that product.

Rajesh Patel – Red Acre Investments

That's helpful. Thanks.

Jim Brown

Sure.

Operator

The next question comes from Michael Gottlieb.

Hi gentlemen. I have a couple of questions about the timeline for REMOXY also. If the bioequivalence study is done in April and three more other studies are done in June, what else does Pfizer have planned in terms of -- we don't know?

Jim Brown

We do know. They actually have committed the update that they are doing. In fact, they are in the middle of a stability trial which is basically -- it's under ICH guidelines. So I wonder if you make any changes formulation you have to setup a new stability trial. And they're running those samples for a full year and those are setup kind of around the end of the year. And so they meets the one year point at the end of this year and they have to write those reports up and I think that's how they're getting to the mid next year.

I think the potential exist that they might be able to do it quicker. But in my experience, Pfizer doesn't do much quickly. I think they quite deliver it and quite precise. And so I would expect that in the middle of the year is when they'll be resubmitting if they do it better, that's awesome. But I think the most important part is you can feel that it'll be completed and in bullet proof by the time that they submit.

Michael Gottlieb – Analyst

Okay. Thank you.

Operator

And the final question comes from Nick Farwell.

Nick Farwell – Arbor Group

Matt, I got cut off. I was just curious. I noted that R&D sequentially gained. The first quarter was up 600,000 bucks. I'm curious, as I recall, and I'm not sure if it's accurate that you include all expense under R&D. Does that include only company R&D or does that include company plus collaborative and then submit it out up above?

Matt Hogan

Fair point. It's both. So to some extent, as we would have geared up some activities with Pain Therapeutics around those other opioids.

Nick Farwell – Arbor Group

Yes.

Matt Hogan

Or with Zogenix on Relday so that they can get ready to start the multi-dose study in the fourth quarter, that R&D expense does go into R&D.

Nick Farwell – Arbor Group

Right. If they repay you, it would have show up above under revenues.

Matt Hogan

Correct.

Nick Farwell – Arbor Group

Okay. So to show a 600,000 dollar delta, first -- I'm sorry, towards the first quarter, suggest you ramping up on something in terms of…

Matt Hogan

Yeah, those are two items. And then I think with respect to POSIDUR, even though we don't have trials underway, we're spending a fair amount of money, medical affairs falls into that bucket and various consultants we're working with prepared and don't have this FDA meeting, all that falls into R&D.

Jim Brown

And also, we were preparing for the potential launch as well. So there's certain amount of effort that's associated with that.

Nick Farwell – Arbor Group

Okay. And secondarily, I think I misinterpret what you were saying, Jim. There are three orders of programs. Has Pain actually committed to proceed with one or two of them yet or they're still thinking about committing to proceed?

Jim Brown

It's hard to say at the end of it all. But they have actually. We have plans in place. I'd say they have committed to at least once.

Nick Farwell – Arbor Group

Okay. That's what I was curious at. Okay. Thank you very much.

Jim Brown

Sure. Okay. I think the operator had mentioned that was the last call. We're always happy to take other questions, if you just call us directly at the company. And we thank you for your participation in this call.

Thank you.

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