Q3 2021 DURECT Corp Earnings Call

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Greetings and welcome to the direct Corporation third quarter, 2020 one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.

This conference is being recorded I will now turn the conference over to Mike I Remember Chief Financial Officer. Thank you you may begin.

Good afternoon, and welcome to our third quarter 2021 earnings Conference call. This is Mike Amburgey, Chief Financial Officer of direct Corporation.

I'll provide a brief review of our financial results and then Jim Brown, our president and CEO will provide an update on our programs.

We will then open up the call for a question and answer session.

Before beginning I would like to remind you of our safe Harbor statement.

During the course of this call we may make forward looking statements regarding direct 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 could 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.

Let me now turn to our financials.

Total revenues in Q3, 2021 were $2 2 million compared to $1 8 million in Q3 2020.

Collaborative R&D revenue increased by approximately 137000 year over year.

Product revenue essentially from the sale of all of that pumps increased from $1 5 million in Q3, 'twenty 'twenty $1 7 million in Q3 2021.

Gross margin of 79%.

Product revenue continues to be strongly cash flow positive.

R&D expense was $8 million in Q3, 2021 as compared to $6 9 million in Q3 2020.

Increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for EUR 19 eight.

SG&A expenses were $3 2 million in Q3, 2021.

Third to $3 4 million in Q3 2020.

Our underlying burn rate during the quarter was $7 6 million.

At September 30th 'twenty, 'twenty, one we had cash and investments of $80 9 million as compared to $56 9 million at December 31 2020.

With that thanks again for joining our call and I will now turn the call over to Jim for an update on certain of our programs.

Thank you Mike Hello, everyone. Thank.

Thank you for joining us today for our 2021 third quarter update.

We're proud of the enrollment rate in our phase <unk> study or do you are 19 patients with severe alcohol associated hepatitis.

We made excellent progress in opening additional clinical sites with the addition of 10, new clinical sites since our last earnings call.

We now have 36 sites enrolling for firm, which represents more than 50% of our goal.

Several of these new sites are in Australia, and we are closing in on getting clinical sites up and running in Europe and in the U K.

With strong interest from U S and ex U S thought leaders to join the trial.

Have decided to expand the number of clinical trial sites to 60 or more.

The United States adopted names Council Usain has approved loss secret sterile as the non proprietary or a generic name for do you are 19 right.

We are making good progress and are positive or partnering negotiations.

Do you are naturally what's also the topic of our podcast on regenerative medicine, and the epigenome with Moira got from N. P. R Tech nation.

The link to this podcast can be found on technician radio podcast episodes.

<unk> 21 37, the title is one way streets in Pompeii.

We're the third segment of this podcast and the direct interviews starts at 38 minutes 42 seconds.

Let's now move to our most important program.

Do you are not doing alcohol or secret sterile and alcohol associated hepatitis or a H and the FERC trial.

The firm is our ongoing phase <unk> efficacy and safety study.

It is a placebo controlled double blind multinational study targeting 300 patients.

There are three treatment arms, 30 milligrams and 90 milligrams of life's Chico's stare at all and a placebo arm.

As with the Phase Iia trial patients in the FERC trial receive an infusion of luxottica sterile or placebo on day, one and if they are still in the hospital on day four we received a second infusion.

The primary endpoint for the trial is 90 day survival.

We have been enrolling patients at the end of January we have been continuously adding new clinical trial sites.

We now have opened 36 sites, which represents more than 50% 60 plus sites. We had planned for this international study.

We now have sites opened in Australia and are closing in on getting clinical sites up and running in Europe and in the U K.

During the quarter, we expanded the target number of clinical trial sites to more than 60.

This was due to interest from U S and ex U S thought leaders to participate in the trial.

We continue to be pleased with the enrollment rate, we expect the overall rate to accelerate as newer sites that described.

We look forward to providing an update to our expected completion date. Once this latest wave of COVID-19 passes in the hospital environment at our clinical trial sites stabilizes for a few months.

Based on enrollment so far we are hopeful, but we will be in a position to guide to a shorter timeline to trial completion.

Yeah.

The main focus of the company is to execute this trial to the highest level of quality and in a timely fashion.

<unk> is the highest priority in the company.

There are approximately 132000 hospitalizations per year in the United States for a H and there is no approved treatment.

What physicians have available to them today, primarily involves abstinence and supportive care, which includes nutrition and hydration.

Corticosteroids are used in some cases that had been shown to have no survival benefit at 90 days or one year.

The average overall mortality for a H Cros clinical trial is 26% and 28, 829% at 90 days and 44% at 180 days and has not improved in the last 50 years.

Unfortunately prior to the COVID-19 pandemic the incidents of a H was increasing in younger patients and during the pandemic alcohol consumption in the United States.

Creased by about 30%.

This is led to a dramatic increase in hospitalizations for a H as well as many more H patients being listed for a liver transplant.

This dilemma has been described in the literature, including a recent article in Jama network open.

This paper notes approximately 6% that's severe a H patients are listed for liver transplant.

During the pandemic the percentage of patients waiting for a transplant due to a eight increased from one 4% to two 4%.

This represents a 71% increase.

The percentage of patients who receive a deceased donor liver transplant increased from one 6% to 3%. This represents an 88% increase.

H has a significant economic cost to the health care system.

The average hospital stay for HAE H patients is approximately one week with many staying significantly longer.

Average hospitalization cost per day, each patient has more than $50000 in the first year.

Alcoholic liver disease is becoming a leading cause of liver transplant in the United States and the cost of a liver transplant exceeds $875000.

Let's now review why we are so optimistic about the use of blood glucose theyre all in the treatment of patients with severe a H.

And our first trial of luxury co stir all eight patients all 19 patients, including the 12 severe each patients survive.

Additionally, 14 of the 19 patients were discharged in less than four days after receiving only one IV infusion unless you called sterile.

The prognostic scores from the a H patients in this trial, including the Lille meld bilirubin and other biomarkers were improved compared to baseline.

Our CECO sterile was also well tolerated by all the patients and at all of the doses evaluated in the phase Iia trial.

There were no serious drug related adverse events reported in this trial.

Dr. Mcclain from the University of Louisville, or UL conducted a comparative analysis of the eight severe a H patients treated with our superstar all in the 30 and 90 milligram cohorts from the Phase Iia trial with 13 severe <unk> patients from the U L. Scott.

The U L patients receive supportive care, including steroids.

Both groups at similarly high initial meld scores and high moderate discriminate function scores.

Well, our sucrose Gerald treated patient at substantially lower legal scores as compared to the U L group and all of them are sequel Sterol patients survived. The 28 day follow up period, while three of the UL patients did not survive past 28 days.

This analysis was presented by Dr. Craig Mcclain at the 2019, a S. L D liver meeting.

On slide of this comparison can be seen in our corporate deck on the direct website.

In addition to the clinical trial results. We also have numerous in vivo animal models supporting data that demonstrates our superstar holds potential against multi organ failure, which can occur in a H patients.

<unk> mechanism of action helped us to better understand the remarkable results we saw in the treatment of H.

Our CECO sterile is an endogenous epigenetic regulator it binds to and inhibits the activity of DMT, one three a M <unk>.

D N M. Ts are epigenetic regulator enzymes that add methyl groups to DNA in a process called DNA methylation.

Treatment with our CECO sterile and stress liver cells and lead to decreased DNA hyperventilation and modulate it expression of more than 1000 genes that are associated with multiple crucial cellular signaling pathway.

In July of 2019 are Jeremy at all published a study in nature Communications.

In this study the gene transcription patterns of H patients were found to be distinctly different from the control subjects and patients with other liver diseases.

And the a H patients there was DNA methylation, altra transcript telmex and liver cell dysfunction.

The expression of D. N M T. One N D N M. T. Three eight were found to be profoundly increased and a H patients, but not in control subjects or patients with other lipid diseases.

Our superstar all binds to and inhibits these D N N T, which adds to the strong rationale for evaluating our CECO sterile as a therapeutic agent for patients with H.

The results of the study suggests that inhibition of <unk> T could be a novel therapeutic approach for a H.

In conclusion, the results from our Phase Iia study.

The comparative analysis with the U L severe <unk> patient data.

The depot animal model results and the correlation of Marsico sterols mechanism of action with the epigenetic Dysregulation CAH patients.

Altogether make us optimistic regarding the potential for the affirmed trial.

Given the high unmet need for hospitalized a H patients the lack of current treatment options and the high mortality rates, we believe our robust survival benefit in the first trial will support an NDA filing.

In addition, the FDA has granted fast track designation for luxury co sterile and the treatment of H H.

42% of new drugs launched in the United States in 2018 were approved based on a single trial.

Next I will update on the lawsuit Costar All Nash program.

In 2020, we reported positive results from our 28 day Phase one B trial do you are 90, 865 Nash patients with stage one to three fibrosis.

This was a randomized open label multi center study of our Super sterile Nash patients conducted in the United States.

Marsico sterile treatment in this trial resulted in a reduction from baseline of liver enzymes liver fat by imaging, the stiffness by imaging and biomarker serum lipid and insulin resistance.

Many of these reductions were statistically significant.

A statistically significant 24% reduction from baseline of plasma triglycerides or T. G was seen at 16 patients who had baseline TG level above 200 milligrams per deciliter.

<unk> was well tolerated at all three doses evaluated there were no serious adverse events reported during the study.

The clinical results, we've observed with our superstar all the Nash patients together with the continued safety profile in patients with severe chronic liver disease and its mechanism of action all support further evaluation of our Super sterols potential in Nash.

We are planning our next steps for Nash.

Next to the pause in the program.

<unk> is a novel non opioid sustained release local Nash study that is approved to produce post surgical analgesia for up to 72 hours following arthroscopic Subacromial decompression.

Plasma contains more bupivacaine than any other approved single dose sustained released bupivacaine product. We believe this may be an important differentiator in the marketplace.

Another potential differentiator for Posner is the ease of application.

Supply directly into the surgical wound the primary source of post surgical pain at the end of surgery costumers administered into the Subacromial space under direct arthroscopic visualization, where it continuously releases bupivacaine for 72 hours or more.

FDA approval is based on the pivotal trial in arthroscopic Subacromial decompression surgery with an attack rotator cuff.

The primary outcome measures would mean pain intensity and total opioid rescue analgesia administered.

Both evaluated over the first 72 hours after surgery versus placebo.

The opioid epidemic and our country is responsible for approximately 200 desk every day.

The objective of the plasma program is to give healthcare providers and in turn their patients a non opioid alternative for post operative pain control.

Or at a minimum a way to reduce the amount of opioids required to reduce post surgical pain.

Subacromial decompression.

So the surgery that it's used to treat impingement syndrome common repetitive use injury that causes pain when the arm has raised over the head.

There are over 600000 surgeries involve an arthroscopic subacromial decompression performed each year in United States.

We view Subacromial decompression as a beachhead to get part of them are on the market and we believe the opportunity to expand the label to cover a broader group of surgical procedures represent significant upside.

I was at Merck partnering discussions are advancing nicely and we are on track to license the United States' rights to a partner with an existing hospital sales force.

Our plan is to use the proceeds from this partnership to help fund RFP genetic program and our flagship product our super sterile and the treatment of alcohol associated hepatitis.

In summary, we are making great strides with a firm we have 36 sites up and running we are pleased with the patient enrollment rate.

The 36 sites recruiting patients. We now have opened more than half of the 60 plus sites planned for the trial.

We have sites now open in Australia and remain on track to initiate sites in the U K and Europe.

Elevated D N N T expression and DNA, Hi, congratulation reported in the liver samples of a H patients fits with our Super sterile mechanism of action and helps to explain the efficacy signals, including the survival of patients observed in our phase Iia H trial.

Since the pandemic alcohol consumption has increased by 30% in the United States and the percentage of eight H patients waiting for and receiving the liver transplants have increased substantially.

We have fast track designation by the FDA Cor H program.

We expect that if we achieve a robust survival benefit this trial would support an NDA filing.

The commercial partnership process for plasma has advanced and we are on track to put a partnership in place.

The United States adopted names council or use him as approved our CECO sterile has the non proprietary or a generic name for <unk> 98.

Do you are 98 was the topic of a podcast on regenerative medicine, and the epigenome with more of a gun from N P. R Tech nation.

Beyond H the mechanism of action for the secrecy Theyre all provides for further scientific rationale for developing treatments for other acute organ injury and chronic diseases.

With that I'd like to take any questions you might have.

If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you really three move your question friendly Q and.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing asked Archie.

Our first question comes from Christian.

Scott with Cantor Fitzgerald. Please proceed.

Hi, good afternoon, everyone. Thanks for taking my questions sure How're you doing.

Good thank you.

First one you noted there was strong demand from Herpetologist to join this study, which was one reason for expanding the number of sites, but I wanted to ask it would be interesting to hear more about this particularly how they've learned about the program are these physicians who were aware of the progress being made particularly in.

In light of the late breaker at <unk> two years ago, and then what did you say that the increased rates on some of these publications, including the one you cited are making physicians starting to look more at the drawing board in light of this heightening demand.

Well there certainly is more awareness of the disease in the general population.

And and there is no. Unfortunately, good therapy out there today, but I think it's more just kind of grassroots people either we're at to talk or have heard about it and listen to it but I'll, let Norman since he's the one who fielding these calls address that.

Yeah, Hi, Kristen this is normal sussman.

I think the the.

<unk> 2019 was really a turning point in <unk>.

Extremely well attended one of the most popular sessions at the meeting and the.

The presentation that Doctor Hassanein did was was really well received and generated a lot of interest.

Secondly, today is actually my one year anniversary, it's starting to mature.

But a lot of a lot of those people.

I know personally having been herpetologist and worked in the field for many years and so a few of them.

Cold, but they were all aware and sort of the combination of a personal contact and <unk>.

The awareness of the program along with it.

A real lack of efficacious therapies has spurred a lot of interest in time, we have had practically no body.

Who didn't want to be in the trial and a lot of unsolicited calls for people wanting to get it.

Thank you for that and with the updated guidance today that you're looking at 60, plus total sites could you. Please break down or are you able to comment on how this split is going to be amongst the three continents.

Give a range of it.

Yeah.

Yeah, Yeah sure. So the the vast majority are in the U S. Because we started here earlier and we've had a lot of run time to get them up.

We have.

We are planning.

I would say eight to 10 in Australia, and somewhere between 14 and 18 in the U K and.

Europe.

Okay. Thanks, and then the last question for me and some of your prepared remarks, you noted that you're hopeful you could potentially be in a position to have a shorter timeline to trial completion is this based off of how you kind of internally you've thought about the guidance.

Especially in light of some of these uncertainties with COVID-19 or are you, perhaps looking at it from the standpoint of what was done in some of these other late stage trials.

I think it's a bit of both I mean, we set our initial.

Patient per site per month estimates based on our own experience in the phase Iia trial and some of the work of Gilead and others have done, but then certainly COVID-19 has had an effect as we all know because it's.

Taken study coordinators out of hospitals, not being considered essential and it's.

Reduced or eliminated transfer of patients between hospitals and the likes so it's definitely changed the environment, which is now starting to change back more towards normal. So I think it's it's.

Really both.

I don't know if normal do you want to comment further.

It's sort of a mixed a mixed response because.

Alcohol consumption increased but the because of the pandemic made in London hospitals, especially.

Research the research sites are researches, sometimes considered less essential.

In addition to which many hospitals wouldn't allow coordinators into the hospital. So you have sort of a higher demand.

So the limitation on the supply side that is improving and we're starting to see.

A lot more sites coming back into into what I would call normal normal.

Ah study maintenance.

Yeah.

Great. Thank you.

Sure.

Our next question is from Francoise prison Buzz with Oppenheimer and company. Please proceed.

Alright, thanks for taking the question.

I was just wondering in terms of the improvement of the pandemic situation coming back to normal on the more sites can you just help us.

Figure out a little bit what would give you confidence to give us more of a precise.

Study completion time or data rollout of times. It just the pandemic or as these more sites or just any color on when you say potentially shorter with more sites what were the prior expectations and how does that get impacted by more sites versus the pandemic slowing down.

Well the prior expectation was the September 23 in the fall of 'twenty three but she is a member the date season, we have up.

Yeah.

<unk> Dot Gov site, and and so we're always saying whether or not we can't move that date back to the left and get it done sooner.

As we've always said and it's still true I think we have to wait for a number of months.

Post Delta now.

To clear through the hospital to really get a good sense of it.

Do they bring back who what staff has been vaccinated versus not we've seen some of these kind of things and all of that.

Come to pass so we know.

Get a sense of what is a reasonable estimate of the patient per site per month that plus.

Some of the newest sites, who are adding on them you.

You know me well accelerated.

We want to wait until we have that experience before we make that projection.

Okay No that's helpful and then.

In terms of the timeline just on the polymer side, you said continued progression.

Just a question there is kind of twofold.

Is the you know the.

The potential money that can come in from that are you speaking more on the royalty side or is this a strong focus on an upfront payment.

And with that money just help with the firm or is there are certain.

Money, let's say that could help you go after other acute indications wister nine to it. Thank you.

But I'll, let Mike speak to that for me.

The money coming in will be.

Not selling shares which is always a natural way to bring money into a company and so that would be our preference to be able to do that to look to.

Drive forward the epigenetic program.

Certainly for our firm, but hopefully it potentially for others as well, but Mike if you want to speak to that more specifically.

Sure.

So thank you first question was related to the timeline.

Yeah.

Yeah, and just the timeline and are you mostly focused on an upfront or more on a royalty kind of side.

With a potential partnership.

So with regard to the deal structure, we don't want to comment too much in the middle of negotiations.

But I would expect it will have an upfront payments and milestones and royalties.

And I don't really want to get into the how much money to expect.

From the deal.

Understood. Thank you.

As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Ed.

I see with H C. Wainwright. Please proceed.

Yes.

Hello, everyone. This is Thomas Yip asking a couple of questions for at a Congress.

Congratulations on your progress this quarter.

Perhaps first question regarding to your firm you mention 10 their sites.

Can you tell us what are some approximate a geographical breakdown of the remaining 25 sites.

Hum.

Litigation activities against potential Covid delays as Asher mentioned that Delta search.

I think northern kind of laid that out, but I think what we're saying that she's initial sites are in Australia, and we're getting closer in the UK and Europe I think he said between 2014 to 18 in the U K and Europe.

And some additional sites.

Another five to seven or so maybe in Australia.

And.

I guess the second part of your question does it.

The effect of Delta on the enrollment.

What are some mitigation measures.

Mitigating measures.

Oh.

Troy.

Norman.

Any mitigating basis that one could put in place and you know it.

So what we tried to do right from the beginning is having a very broad cover.

<unk> wide range of spikes in cities and states. So that if there was a surge in one place it might be offset by.

Lower LOE.

Yes.

Cause problem in others.

Offshore.

Obviously, we can't control any of that but we're constantly working with the sites.

One site is temporarily and locked down and then we just have to focus on others, but in general.

Things are.

Improving there is.

Especially in some of the biggest cities is more more control and more confidence over there for us to get the patients in it.

<unk> been a bit of an issue and but I don't think there's much we can do about it.

It's honestly.

Yeah.

Jimmy I wish we had more control but.

But I have to admit we try to roll.

Our goal our focus to places that have less of a problem until you have until the problem places open up.

Understood, perhaps switching gears to our electrical Spiro a perpetual in Nash.

Can you go over some what are some possibilities.

And the indication.

When.

You hope to.

Like a profession.

Yeah, well that's the.

Exercise we are undertaking right now is looking at.

We have the.

The the nice position in the race at this point being able to see those in front of us where they stumbled and and so we can get a good a better sense I think of which patient populations to look at I think the nice thing.

Really strong think about 90% of it is this breadth of activity not only.

Attacks the <unk>.

Accumulation of lipids in the distribution of liquids, where some are focusing but it also deals with the inflammation and fibrosis.

And allows for regeneration till it gets kind of across the board in a very safe way.

And so we've tested it in the sickest of.

Patients from a labor standpoint, and that's an.

Issues. There. So I think we've got an open field with regard to how we might want to approach mash and now we're working with thought leaders to get more specific on that.

Hum.

Good luck, maybe ask norm into a wait and see if you guys would like to comment further on that.

Yeah, I would just say it team it's a work in progress at the moment as Jim says.

Everyone is aware that there have been a lot of.

A lot of drugs that have.

Going into testing and failed and so we're learning from those and where.

We are assessing.

Everyone knows it's a big market. The question is what can what segment of it he is going to work and what segments, it's actually drug a bull.

The other major advantage, we have is the safety profile and a number of drugs have proven to have some safety issues and as far as we can tell even and as Jim mentioned very very sick patients.

The safety profile of EUR 928, luxury cristero seems to be very favorable.

Got it.

Thank you so much for taking my questions and looking forward to progress coming.

How many months.

Sure. Thank you.

Our next question is from Jeffrey Silber with Kb Advisors. Please proceed.

Good afternoon, and thank you for taking my call and congratulations on a lot of progress and.

And also thank you very much for the very timely regular updates to clinical trials dot Gov.

It's very helpful.

I have a few questions on U K Europe.

You've shared with those data.

The number of hospitalizations in the U S. Do you have any data on the number of age hospitalizations in the U K and the EU I guess there are two different.

I have two different entities, given Brexit, but do you have any data you could share with us how many people in the U K or the U R hospitalized for this.

We are gathering it at this point I don't see.

We're confident enough to be able to share much beyond we believe that the market is similar in size. If you put the two together.

Perhaps nowhere in based on your years of experience in the field could you and certainly I can tell you Jeffrey we are working with.

The absolute top of the top thought leaders both in the U K and in Europe. They are very excited about being able to work with us and have been for a while with this with our super scale.

And I would congratulate you because I see you've got the hospital, where the Lille score was.

Was invented as one of your size as well as the King's College, which is Europe's largest liver transplant hospitals. So so congratulations and I'm just curious.

Is there the possibility that that you could be looking at almost a parallel process using the UK XI lap in the EMEA as prime programs for accelerated consideration.

It is possible we are.

We're thinking of them in terms of being able to help patients and save the health care system dollars in.

Be able to.

They have an opportunity for durect shareholders as nearly equivalent in size actually.

And Youre absolutely right, we do have thought leaders from both those sites they are well published and very well respected.

Normally so perhaps next quarter you might have some information you could share with you a little bit more.

The market information you might share with us.

Oh, it's perhaps market research comes with it as it comes I don't know, Mike maybe you can speak to that when do you think I don't know if you want to set expectations, but we are working on it.

Definitely working on at Jeffrey and it's.

It's.

They were early in figuring that out in terms of the size of the market in those other territories, but I think your point is well taken and that we could potentially be able to leverage the affirmed trial with patients being.

Dose into all of those countries too if the trial is successful it could potentially.

Be able to file in those territories as well.

Yes that is our hope is to be able to do the submission in parallel should the trial be successful.

Alright, thank you.

Youre welcome.

That is all the time, we have for questions and answers today I would like to turn the conference back over to management for closing remarks.

Well I just wanted to thank you all we all wanted to thank you for your time today and as always if you have any further questions. Please reach out to US we look forward to catching up with you take care Bye bye.

Thank you. This does concludes today's conference you may disconnect. Your lines at this time and thank you for your participation.

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