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Operator: Greetings! And welcome to the DURECT Corporation Third Quarter 2024 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, Tim Papp. Thank you, you may begin.

Tim Papp: Good afternoon, and welcome to DURECT Corporation’s third 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 third quarter 2024 financial results. Total revenues in the third quarter were $1.9 million compared to $1.7 million in 2023. 2024 revenues were higher primarily due to an increase in product sales partially offset by a decrease in revenue from collaborations. R&D expense was $2.2 million in the third quarter of 2024 compared to $7.2 million for the prior year. The decrease was primarily due to lower clinical trial-related expenses and lower employee-related costs. SG&A expenses were $3.2 million in the third quarter of ‘24 compared to $3.8 million for the prior year. The decrease was primarily due to lower employee, professional services, and legal expenses. As of September 30, 2024, we had cash and investments of $10.5 million, and our cash utilization in the third quarter was $5.3 million.

We believe our cash on hand is sufficient to fund operations through the first quarter of 2025. Lastly, Innocoll has notified us that they are terminating the licensing agreement related to POSIMIR. We are in the process of evaluating our options for POSIMIR, but given that we have not been receiving royalties in recent quarters, we do not expect that this will have a material financial impact for DURECT. Now, I would like to turn the call over to Jim for a business update.

Jim Brown : Thank you, Tim. Hello, everyone, and thank you for joining us today. DURECT’s priority continues to be initiation of the confirmatory Phase 3 clinical trial of larsucosterol an alcohol-associated hepatitis or AH. And I’m excited to share an update on our progress. As we finalize preparations for the trial, we continue to have positive dialogue with the FDA, utilizing the advantages offered under our Breakthrough Therapy Designation. During the quarter, we held a Type B meeting with the FDA and reached an agreement on key aspects of our planned Phase 3 trial design. The Phase 3 trial is designed as a randomized, double-blind, placebo-controlled, multi-center study that will be conducted in patients with severe AH in the US.

We plan to enroll approximately 200 patients who will be randomized one-to-one to either 30 milligrams of larsucosterol or placebo. The primary outcome measure will be a 90-day survival endpoint. We are conducting this trial at U.S. sites to avoid the variability we observed in healthcare provision at ex-U.S. sites in the prior AHFIRM study. For example, we observed a difference across regions of the world in the time to treat patients in the AHFIRM trial. These data will be presented in an oral presentation at the AASLD meeting this weekend. The dosing regimen in Phase 3 is consistent with AHFIRM, with patients receiving the first dose on day one and if still hospitalized a second dose on day four. This trial design leverages the data from our Phase 2b AHFIRM trial and the feedback we received from the FDA through our Type B meeting held under the Breakthrough Designation.

As a reminder, in AHFIRM, both doses of larsucosterol reduced mortality by nearly 60% in the U.S. patients, who represented 76% of the total number of patients in the trial. The FDA has confirmed that a single pivotal trial would be sufficient to support an NDA filing in AH and with Breakthrough therapy, we have the opportunity to submit the NDA on a rolling basis. We are preparing to initiate the trial as soon as we can, subject to obtaining sufficient capital, and our goal is to have top-line data within two years of initiation. We remain committed to attaining approval for larsucosterol in AH as expeditiously as possible and ultimately bringing this potentially life-saving therapeutic to patients with no effective treatment options today.

We have already undertaken important steps to prepare for initiating the trial, including starting the process of onboarding clinical sites and selecting a CRO to help manage the trial. We expect to report top-line data within two years of initiating the trial. We continue to analyze the AHFIRM data and will have additional data presented at the AASLD meeting during the next week. We have an oral presentation of the time-to-treatment data that I mentioned previously. We also have two poster presentations, one on liver transplants and the other on drinking behavior of patients who participated in the AHFIRM trial. We remain encouraged by the strong interest from hepatology thought leaders and key opinion leaders for the AHFIRM results and their continued support for larsucosterol’s potential to provide a clinically meaningful survival benefit in AH patients.

As a brief reminder, our Phase 2b AHFIRM trial was a placebo-controlled, double-blind, multinational study with two active 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 sites. Our sites included renowned liver centers in the United States, Australia, the EU, and the UK, 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 a 30 milligram dose of larsucosterol and a 35% reduction with a 90 milligram dose of larsucosterol as compared with placebo. Even more impressive results were observed in the U.S. population, which comprised three-quarters of the total enrollment in AHFIRM.

That was 232 out of 307 patients. In the U.S., we saw reductions in 90-day mortality of 57% and 58% for the 30 milligram and 90 milligram arms, respectively, 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 total number of treatment emergent adverse events for both active arms when compared with the placebo group in the severely ill patients. Ultimately, these clinically meaningful reductions in mortality, coupled with the reduction in adverse events in the severely ill patients, reinforced 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, so if larsucosterol meets our expectation in the Phase 3 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 its high mortality rate, AH represents a significant cost to the U.S. healthcare system. Hospitalizations attributed to AH incur charges between $67,000 to $180,000 per patient, a total charge to hospitals of approximately $10 billion annually.

As a result, larsucosterol could potentially save thousands of lives each year while representing a potential blockbuster opportunity in the U.S. alone, and could simultaneously provide overall cost savings to the healthcare system. We would now like to take any questions you may have.

Operator: Thank you. [Operator Instructions]. The first question we have is from François Brisebois of Oppenheimer. Please go ahead.

Unidentified Analyst : Hi, this is Dan on for Francois. Thanks for taking our questions. At this time, are you sharing anything about your strategy for the onboarding of sites? Would you be targeting the same sites in the U.S. as in the AHFIRM trial? Were there any sites that were fast for enrolling sites, any color there?

Jim Brown : Yeah, we definitely are going to be using a number of the same sites, and we’ve been spending this time actually putting in place confidentiality agreements and putting in place the agreements, because when starting any clinical trial it’s the paperwork, the legal component of it all that takes the longest from starting it. But WeiQi is on the line. I will let her also speak to that. WeiQi, any thoughts on the specific approach you are taking with these U.S. sites?

WeiQi Lin: Yes. We actually will include at least 60%, 70% of the AHFIRM trial sites in the U.S. for our Phase 3 trial.

Unidentified Analyst : Thanks for that. And with respect to, you highlighted that there were some time to treatment differences around the world. I am wondering if there were any geographical differences within the U.S. or was this mostly a U.S. versus ex-U.S. phenomenon?

Jim Brown : Once again, I will let Weiqi speak to that first. Go ahead, Weiqi.

WeiQi Lin: Yeah. There were huge differences of time to treat of the regional differences for the time to treat, which we are going to present at the AASLD meeting on the 18th of November. Within U.S., of course, there might be site-to-site variations, which we did observe that. But however, because the N numbers from U.S. region is much bigger, so it more or less overcomes the other variation because of smaller sample size from ex-U.S. regions, so that’s further exaggerating that time to treat variations. That’s why this Phase 3 trial will be focusing on U.S., at least for now, for the Phase 3.

Unidentified Analyst : That makes sense. Thanks for taking my questions.

Jim Brown : Sure.

Operator: The next question we have is from Ed Arce of H.C. Wainwright. Please go ahead.

Thomas Yip: Hello, everyone. Good afternoon. This is Thomas Yip asking a couple of questions for Ed. Thank you for taking the questions. So first, besides funding, what are some other preparations that are needed for the sequence there into the Phase 3?

Jim Brown : Well, the funding obviously is the most important piece. Once that’s in place, we feel like we can complete the trial from about two years from when we established, you know start of the trial. The things we’re doing now are things that do have a long lead time and can be done with very little money, and those are putting in place the legal relationships and contracts between ourselves and the various clinical sites as well. We have selected our CLO, which always takes a bit of time, so that’s been done. And so we’re just doing everything we can in preparation to start the trial as quickly as possible once we have the funding in place.

Thomas Yip: I see. So, it sounds like pretty much everything’s ready to go, yeah, but just waiting for the funding.

Jim Brown : Exactly.

Thomas Yip: And then, so as opposed to the issue of funding, can you give a four-part figure of how much the Phase 3 study is estimated to cost, especially given the relatively short initiation to readout timeline that they point out in about two years?

Jim Brown : Yes. I don’t know, Tim, do you want to maybe speak to that?

Tim Papp: Sure. Yes, as Jim mentioned, we’ve been working with CROs, and we’ve had a competitive bid process to get their estimates for what the Phase 3 trial would cost from an external cost perspective, and that’s in the $20 million to $25 million range. And then obviously, on top of that comes the G&A associated with running the business here at DURECT. So, we think our burn is probably in the $3 million to $4 million a quarter range once we are scaled to start the trial.

Thomas Yip: Got it. Thank you again for taking the questions, and looking forward to additional progress.

Jim Brown : Thank you, Thomas. Good talking to you.

Operator: The next question we have is from Karl Burns of Northland Capital Markets. Please go ahead.

Karl Burns : Thanks for the question. Actually, most of my questions related to the trial have been answered, so can we moving over just a bit. Were there any royalty revenue recognized in a call in the third quarter? And if so, can you quantify that? Thanks.

Jim Brown : Sure. I’ll let Tim speak to it.

Tim Papp: Yes, they were now.

Karl Burns: Okay, great. Thank you.

Jim Brown : Sure.

Operator: At this time, we have no further questions, and I would like to hand the floor back over to Jim Brown for any closing remarks.

Jim Brown : Well, I want to thank you for your time today. We all do. And as always, if you have any further questions, please reach out to us. We look forward to catching up. Thank you so much, and take care.

Operator: Ladies and gentlemen, that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.