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Presentation

DURECT Corporation beats earnings expectations. Reported EPS is $-0.12, expectations were $-0.17.

Operator: Ladies and gentlemen, welcome to the DURECT Corporation Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Tim Papp. Thank you. You may begin.

Tim Papp: Good afternoon, and welcome to DURECT Corporation’s Second Quarter 2024 Earnings Conference Call. This is Tim Papp, Chief Financial Officer of DURECT. Before we begin, I would like to remind you of our safe harbor statement. During the course of this call, we may make forward-looking statements regarding DURECT’s products and development, expected product benefits, our development plans, future clinical trials or projected financial results. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Further information regarding these and other risks can be found in our SEC filings including our 10-K and 10-Qs under the heading Risk Factors.

To begin, I would like to review our second quarter 2024 financial results. Total revenues in the second quarter of 2024 were $2.2 million, compared to $2.1 million in 2023. 2024 revenues were slightly higher due to a small increase in revenue from collaborations. R&D expense was $2.2 million in the second quarter of 2024, compared to $7.9 million for the prior year. The decrease was primarily due to lower clinical trial-related expenses, facility and lower employee-related costs. SG&A expenses were $3 million in the first quarter of 2024, compared to $3.8 million for the prior year. The decrease was primarily due to lower employee facility, market research and professional services expenses. As of June 30, we had cash and investments of $15.8 million and our cash burn for the second quarter was $5.8 million.

We believe our cash on hand is sufficient to fund operations through the end of 2024. Now, I would like to turn the call over to Jim for a business update.

Jim Brown: Thank you, Tim. Hello, everyone. Thank you for joining us today. I’m excited to share an update on our progress towards initiating our confirmatory Phase III clinical trial for larsucosterol in alcohol-associated hepatitis. As I mentioned on previous calls, we have been in discussions with the FDA about our proposed clinical trial design, and I’m happy to say that the dialogue with the agency has been positive. The FDA has confirmed that a single pivotal trial would be sufficient to support an NDA filing in AH. They also clearly recognize the unmet need in AH and the strong results of larsucosterol and our Phase IIb trial AHFIRM. Both doses of larsucosterol and AHFIRM reduced mortality by nearly 60% in the U.S. patients who represented 76% of the total number of patients in the trial.

As a result of the AHFIRM data, we were granted breakthrough therapy designation for larsucosterol in May. Breakthrough Therapy designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically meaningful endpoint. Breakthrough status allows us to have more intensive interaction with the FDA, including senior managers throughout the development process. Under this distinctive designation in July, we had a very productive and positive Type B meeting with the FDA to discuss our trial design. In fact, this meeting was the most productive interaction I’ve had with the FDA in my 30-plus-year career in drug development.

We are awaiting the written minutes from this meeting and look forward to sharing more details about our proposed protocol in the near future once we receive those minutes. In the meantime, I can share a bit more about the expected time line for conducting our Phase III trial. We’ve already undertaken significant actions to prepare to initiate the trial and subject to obtaining adequate funding, we are preparing to start the trial before the end of the year. We expect this would enable us to report top line data from our Phase III trial in the second half of 2026. Our ultimate design for the trial will be based on the strong clinical data we generated in AHFIRM and feedback from our discussions with the FDA. We have submitted a number of abstracts for posters and a presentation for the AASLD meeting this fall.

We look forward to sharing additional data analyses and the details of the protocol in an update after we receive the written minutes from our in-person Type B meeting. We are also excited that the AHFIRM data was presented for the first time at an oral late-breaker presentation at the EASL conference in June. We remain encouraged by the policy reception from hepatology thought leaders and key opinion leaders for the AHFIRM results and their continuing support for larsucosterol’s potential to provide a clinically meaningful survival benefit in AH patients. As a brief reminder, AHFIRM was a placebo-controlled, double-blind, multinational study with 2 active dosing arms of 30 milligrams and 90 milligrams of larsucosterol and a placebo arm of approximately 100 patients each.

In total, we randomized 307 patients with severe AH from a global network of clinical types. Our sites included renowned liver centers in the United States, Australia, the EU and the U.K. And we had the honor of working with some of the world’s preeminent thought leaders in AH. The top line results in the key secondary endpoint of mortality at 90 days showed a 41% reduction with the 30-milligram dose of larsucosterol and a 35% reduction with the 90-milligram dose of larsucosterol as compared with placebo. Even more impressive results were observed in the U.S. population, which comprised 3/4 of the total enrollment in AHFIRM that was 232 out of the 307 patients. In the U.S. patients, we saw reductions in the 90-day mortality of 57% and 58% for the 30 and 90-milligram arms, respectively, as compared with placebo.

Although not part of the original trial statistical analysis plan, the p-values for these results were both approximately 0.01. Very importantly, larsucosterol exhibited an excellent safety profile with no serious adverse events in either arm and greater than 20% reductions in the number of treatment-emergent adverse events for both active arms when compared with the placebo group in these severely ill patients. Ultimately, these clinically meaningful reductions in mortality, coupled with the reduction in adverse events in these severely ill patients reinforce the compelling risk/reward proposition of larsucosterol. We continue to believe that the AHFIRM data provide compelling evidence that larsucosterol could represent a safe and effective therapy with life-saving potential for AH patients.

There are no approved therapies for AH today. Therefore, if larsucosterol meets our expectations in Phase III and we gain approval, it would likely be the first FDA-approved treatment for this disease and establish a new standard of care. AH is the cause of more than 160,000 hospitalizations each year in the U.S. and with a 90-day mortality rate of approximately 30% is responsible for tens of thousands of deaths each year. In addition to this high mortality rate, AH represents a significant cost to the U.S. health care system. Hospitalizations attributed to AH incurred charges of $67,000 to $180,000 per patient. The total charge to hospitals of approximately $10 billion annually. As a result, larsucosterol represents a potential blockbuster opportunity in the U.S. alone that could simultaneously provide overall cost savings to the health care system.

With that, we’d now like to take any questions you may have.

Operator: [Operator Instructions] The first question comes from François Brisebois with Oppenheimer.

François Brisebois: I was just wondering, is there — you gave us a little bit of guidance in terms of time lines to start the trial, but is it fair to assume that the next kind of update to the investing community would be around the meeting minutes? And in general, if the meeting was in July, how long does it usually take to get the minutes back and then potentially disclose whatever you can disclose from that?

Jim Brown: Yes, sure, Frank. Yes, the — we’re still waiting to hear back. The meeting was held fairly recently, actually near the end of July. And typically, it’s 4-plus weeks before you get those back, and we’ll be able to give an update at that point in time. We feel pretty comfortable about the time line, because we’ve got a good handle on the powering of the trial and the like, but we just want to get confirmation from the agency before we discuss that further.

François Brisebois: And then have you seen or have you disclosed any of the maybe differences that you saw between the EU and U.S. sites in the trial, they just — there’s such a difference probably in terms of the data? What have you disclosed publicly there? And maybe just remind us of how this works? How does the patient come in when he is severe and how much time do you have to treat him? Just any color there that might explain the difference between the EU and the U.S. would be helpful.

Jim Brown: Yes. We’ll definitely provide more color on that as the year unfolds. We have some potential posters and presentations coming up on that. And WeiQi is here with me, so maybe WeiQi, you can briefly describe the patients experience when they come in.

WeiQi Lin: Well we actually prescreened thousands of patients and then screened basically almost 300 or some patients and then finally, enrolled 307 patients.

Jim Brown: Yes. But — and there were definitely more differences around the world recently. We know just, for example, in the Franco-Belgian region, they would only dose on Mondays, because they didn’t want to have their employees, their study coordinators and like coming in over the weekend and drawing blood. And so — and they also required biopsies first, which took 4 to 7 days. So if that patient didn’t get the results back on a Monday, they had to wait until the next Monday. So certainly, the patient journeys and experiences were different. And even at times the — not just the presentation, but anyway, there certainly are some regional differences that we will share going forward, and they would absolutely in my mind explain why we’re seeing the differences that we do. But nonetheless, the drug looks very good.

WeiQi Lin: Yes. More data will be —

François Brisebois: Okay. Perfect. And sorry, can you remind us where AASLD is this year? And maybe on that note, has there — so we talked about the sites, but has there been an analysis or if you can’t share, you can’t share yet. But has there been any more color on that impact of the endpoint of being mortality or transplant, liver transplant?

Jim Brown: Yes, there certainly is — there is — I mean, transplant is not going to be a major factor for this disease simply because there aren’t enough liver to go around. I mean that’s kind of the end result of it. And also transplant is administered based on many different factors, a number of which are actually socioeconomic. It’s — if you’re at a regional hospital with a certain insurance level, your odds of getting a transplant are 0 basically. And if you’re at one of these tertiary centers in, say, your area in Boston or out here at UC SF or Stanford, you’re in a very different circumstance if you’ve got the insurance and the potential for transplant goes way up. That being said, there are 160,000 hospitalizations per year for this disease, and there are only about 8,500 liver transplants conducted in the U.S., 1/4 or so of those go to these patients.

So only about 2,000 or so livers are available to well north of 130 or so thousand patients. And so 98% of these patients will never see an opportunity at a liver transplant. So at the end of the day, it really comes down to mortality, and that’s been our focus. And the agency understands that as well. So we’re feeling pretty good about the opportunity going forward for the Phase III.

François Brisebois: And I can quickly Google this, but where is AASLD this year?

Jim Brown: Oh, sorry, it’s in San Diego. So, yes. 15th to the 19th of November. And so it’s — this one is going to be easier for us than for you, Frank.

Operator: The next question is from Ed Arce with H.C. Wainwright.

Ed Arce: Jim, congrats on the progress and especially the Breakthrough Therapy designation. Yes. Just had a couple of questions around your upcoming meeting minutes. I know that’s important to get it straight documented. What further details that you’re withholding now? Could we expect to be announced once you’ve had a chance to review those meeting minutes? In particular, I’m wondering about the confirmation around the primary endpoint of empowering of the trial and perhaps the number of patients?

Jim Brown: Yes, I think it will be those kind of things. Obviously, you have to wait till the minutes to come back to get — to be able to finalize it, but that’s the type of thing one’s looking for. And I do think we are very fortunate to have the Breakthrough designation, and it’s also, I think, very impressive. We all know that this drug missed its primary endpoint, but showed a dramatic reduction in mortality, not only globally but also in particular, in the U.S. And the agency recognized that and granted us Breakthrough which, as I said in my talk, I mean, it’s wonderful to be able to have face-to-face meetings again to be able to sit down with them and have open conversations. They’ve got highly experienced hepatologists on their team, who are very aware of the impact and the fact there’s really nothing to help their patients out there and they see this as an opportunity.

So they’re very excited about that. We’re not excited. I guess they’re very encouraged and working with us on the potential for this drug.

Ed Arce: I know we’ve had discussions around the endpoint before, especially the differences between the U.S. and ex-U.S. Is it your intention for the Phase III to be only 90-day mortality as the primary?

Jim Brown: I want to wait for the minutes to finalize that conversation. But certainly, as I was suggesting that with the prior questions, we have learned a lot about this disease. And I think ours was, I would say, the most comprehensive controlled study done on this disease in many, many years. And so we really did — we understand a lot more now about how to construct this trial and how to conduct it, and the type of patients to enroll, when to enroll patients and the like. And so I’m extremely confident personally that this trial has a very good chance of success.

Ed Arce: Maybe just a couple of final questions then from me. First, is it your intention, again, given the results and the bifurcation from AHFIRM, is it your intention to conduct the Phase III only in U.S. sites? And then what is the overall cost that you expect for the Phase III trial?

Jim Brown: Yes, we think right now we are comfortable to say that we’re looking at the U.S. right now. It’s not that we don’t believe it’s a great opportunity outside the U.S., but it is I think it’s just simpler. We know that there’s continuity in the U.S. health care system and the diagnosis of these patients and the presentation of these patients, all of those things. And we’re treating the U.S. patients first. I mean our average age in the United States for these patients was 44 years old. And we had about almost a 28% mortality in these patients. And we’re talking 28% out of 160,000 hospitalizations die at average age of 44. That’s more people that die in automobile accidents. That’s in the same range as die from breast cancer. Only 20 years younger. It’s a horrible circumstance for us, and it is different outside the U.S. So that’s absolutely the case. As far as the cost, I’ll let Tim speak to that. So yes, go ahead, Tim.

Tim Papp: Yes, Ed. The expected outside cost for the trial are around $25 million and then we’ll also have to fund the G&A to operate the company alongside that. If you look at our most recent quarter, we reported a burn of about $5.8 million, $2.1 million of that was debt service. So that leaves between — about $3.5 million, $4 million of G&A, we think that can come down or be roughly consistent from where it is. So that kind of gives you a sense of how much we’re expecting the total spend to be over the life of the trial, which we expect to report data in the second half of ’26.

Operator: The next question is from Carl Byrnes with Northland Capital Markets.

Carl Byrnes: Congratulations on your progress. Most of my questions have been answered. But just I’m wondering what guidance, if any, you might be able to give us on the third and fourth quarter, second half of the year in terms of OpEx?

Tim Papp: Yes, Carl, it’s Tim. So second half of the year, again, I think we would expect our operating expenses to be roughly the same in that kind of $3.5 million, $4 million a quarter range, and that’s before we pay down the Oxford term loan. No reason to expect that goes up significantly. The majority of the incremental expense in the Phase III will be external costs. We feel like we have the appropriate staffing to conduct the Phase III.

Operator: We have a follow-up question from François Brisebois with Oppenheimer.

François Brisebois: Tim, can you just quickly remind us of the terms on that Oxford loan?

Tim Papp: Yes. It’s a straightforward term loan. We make monthly amortization payment of about $720,000. It’s interest-bearing at low-teens interest rate. The final payment date is September of 2025 and there is $2 million final payment as well.

Operator: As there are no further questions, I would now like to hand the conference over to Jim Brown for closing remarks.

Jim Brown: I’d like to thank you for your time today. And as always, if you have any follow-up questions, please feel free to reach out to us here, and we look forward to talking to you. Thank you, and take care.

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