Q2 2022 DURECT Corp Earnings Call

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At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Papp, Chief Financial Officer. Thank you, Mr. Papp. You may begin. Welcome to the Sven sitting GMUZ sided organization, which join us in informing you of their hiring rather than crowning. We myauditize hear from Participants who are pretty engaged in systems of Analysis. The

Good afternoon and welcome to our second quarter 2022 earnings conference call. This is Tim Papp, Chief Financial Officer of Direct Corporation. Before beginning, I would like to remind you of our State Parvastatement. During the course of this call, we may make forward-looking statements regarding directs product 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 that differ materially from those in such forward-looking.

the increase was primarily due to higher clinical trial expenses for a firm and higher employee benefit costs partially offset by lower contract manufacturing costs for L'OCCI-Gosterol. SG&A expenses were $4 million in the second quarter of 2022, as compared to $3.2 million for the prior year, primarily due to higher employee benefit costs, patent expenses, and consulting expenses.

At June 30th, we had cash and investments of 54.3 million as compared to 70 million at December 31st, 2021. And our cash burn during Q2 was 10.1 million. With that, let me turn the call over to Jim for an update on certain of our programs. For an update on certain of our programs.

Thank you, Tim. Hello, everyone. Thank you for joining us today for our second quarter, 2022 update. I want to take this opportunity to welcome Tim to the Direct Team.

It's a pleasure having Tim on board, and he's hit the ground running since joining as our CFO just last month. Tim brings more than 20 years of investment-baking experience to direct with more than 15 years of that focused in biotechnology.

This is going to busy time for direct. Our primary focus of direct is on completing the phase 2B affirmed clinical trial of a large sucosterol of the treatment of alcohol associated hepatocitis or AH. The treatment of alcohol associated hepatocitis or AH.

We continue to add sites and enroll patients at a strong pace in a firm and have now reached the milestone of enrolling 370 out of the 300 patients planned for the study.

Through a type C meeting, we proposed and the FDA agreed to a modified primary endpoint for the affirmed trial that we believe better reflects the current state of care for AAH patients. The primary reflects the current state of care for AAH patients.

Just this week we were issued a new patent covering Pozmer out to 2041. Under our agreement with Inacol, this triggers an $8 million milestone from Inacol to Direct.

As I mentioned, we're primarily focused on completing enrollment in our phase 2B Aferne 12 for La Suca Stirl and hospitalized patients with severe A-H.

A firm is a placebo controlled, double blind, multinational study targeting 300 patients with two dosing arms and a placebo arm of a 100 patients each.

We are pleased with our progress on enrollment and have now reached the milestone of 170 480 doses that range from the beating dose to the handful suicides and sentiment.

Our pace enrollment continues to accelerate with more patients being enrolled in the second quarter of this year than in any prior quarter. We currently have over 60 sites open, including leading hospitals in the United States, Australia, the EU and the UK.

We continue to expect to complete enrollment in the middle of 2023, which will allow us to report top-fly data from a firm in the second half of 2023. In the second half of 2023.

The FDA has granted our La Suco Stereo A-H program fast track designation.

and a positive result in a firm could support an NDA filing.

With this in mind, our SQL sterile has the potential to be the first FDA approved treatment for AH, where there is a substantial unmet need for patients.

Today, we announce that following a type C meeting, the FDA has concurred with directs proposal to modify our primary endpoint in the affirmed trial. The updated primary endpoint will be the difference in outcomes, either death or liver transplant, between the treated and control patients at day 90. And we can discuss the specifics.

We believe this primary endpoint, which now includes liver transplantation, in addition to mortality, better reflects the ability of a therapeutic such as Larcuco sterile to improve upon the current state of care for AH patients.

As a reminder, AH is a lethal and costly disease that represents an unmet medical need with no approved therapy. AH results in about 137,000 hospitalizations per year in the United States, and hospitalized patients have a 90-day mortality rate of approximately 30% of approximately 30%

While AH patients who are fortunate enough to receive a liver transplant generally see a survival benefit, a liver transplant also represents a serious medical event for patients. Transplanted patients face significant health consequences, including the need for immunosuppressive drugs for the rest of their lives.

Therefore, we believe that including transplanted patients as well as mortality in the primary endpoint better reflects the most severe outcomes for A.H. patients.

As the landscape for liver transplant has evolved, due in part to improved treatment of HCV reducing the need for liver transplantation in these patients, we have seen some impact on the state of care for severe AH patients in recent years to include more liver transplants.

Even so, there are fewer than 10,000 liver transplants performed annually in the United States, with the majority going to patients with other ailments, meaning that only a small fraction of the 137,000 AH patients who are hospitalized annually in the United States are able to receive a liver transplant. These numbers starkingly highlight the continued unmet need for treatment options in AH.

AH continues to represent a significant cost burden to both the patients and the healthcare system. For those selected few patients who receive a liver transplant, the average cost is $875,000 per transplant in the United States.

For the vast majority, not receiving the transplant, the average cost of treating a hospitalized A-H patient can range from 53,000 to 147,000 dollars. The patient can range from 53,000 to 147,000 dollars.

With this in mind, Larsugo-Sterelle represents a potential multi-billion dollar opportunity in the United States, while simultaneously providing substantial cost savings to the overall healthcare system. The overall healthcare system. The overall healthcare system.

Now let's review why we are so optimistic about the use of larcicosterol in the treatment of patients with severe AH.

As I mentioned before, AH patients face a 90-day mortality rate of approximately 30% and there is no approved treatment for this disease. Therefore, we were excited by the data from our phase 2A trial of Leccikosterol in moderate to severe AH patients.

All 19 patients, including the 12 severe age patients, survived. Additionally, 14 of the 19 patients were discharged in less than four days after receiving only a single IV infusion with less equals sterile. The prognostic scores from age patients in this trial, including Leo and Mel scores, Bill Arruvant and other biomarkers were approved of comparative baseline.

Varsucostere was also well tolerated by all of the patients at all of the doses evaluated in the Phase 2a trial.

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

In addition to the clinical trial results, we've generated supporting preclinical data from numerous in vivo animal models that demonstrates our sucral sterols protection against multi organ failure which is the primary driver of mortality in AH patients.

Our Suco-Stereal Mechanism of Action as an endogenous, epigenetic regulator helps us to better understand the remarkable results we've observed in its impact on AH patients. In its impact on AH patients.

Larcicosterol binds to and inhibits the activity of three DNA methyltransferases, BNMT1, 3A, and 3B.

These three enzymes regulate the epigenome by adding methyl groups to DNA in a process called DNA methylation.

In one example, stressed liver cells, whose DNA was hyper-metallated, had methylation levels of the DNA returned closer to those observed in healthy liver cells after being treated with a single scale.

Furthermore, prior studies of AH patients published in the medical literature have demonstrated that these DNMTs are elevated in AH patients, suggesting a mechanistic path for larcicosterols' potential benefit for these patients.

And now I'd like to move on to Pausem Bar, one of our last remaining legacy products.

POSIMER is a novel, non-opioid, sustained-release local anesthetic that is FDA-approved to provide post-surgical analgesia for up to 72 hours following arthroscopic subacromial decompression.

We announced last year that we licensed the development and commercialization rights of POSM are in the United States to intercall pharmaceuticals. We selected intercall as our commercial partner because of their strong commercial team and because they are focused on post-surgical pain.

On August the 2nd, we were issued a new patent by the U.S. Patent Office, extending our U.S. Patent coverage of POSMOR to 2041.

Under our agreement with Nicole, this triggers an $8 million milestone to direct.

We also receive a $2 million payment upon first commercial sale, which we believe is approaching.

Following these two payments and the initial $4 million upfront payment, direct is eligible for up to $122 million in additional commercial regulatory and intellectual property milestone payments, as well as tiered low to mid double digit royalties on net product sale in the United States.

In summary, we continue to make great strides with Affirm and have reached the milestone of 170 patients dosed with over 60 clinical sites up and running. We are on track to complete dosing the last patient in Affirm in the middle of 2023, which would enable reporting of top-line results in the second half of 2023. Our confidence that the Affirm trial will be successful is driven by our compelling Phase IIa study data, the mechanism of action of largely goes to our which ties directly into the biology of AH.

are multiple preclinical animal studies where we observe the profound survival benefit in multiple relevant acute organ injury models.

We expect that if we achieve a positive outcome in the firm trial, this could support an NDA final.

Beyond AH, the mechanism of action for larcicosterol provides further scientific rationale for developing larcicosterol for other acute and chronic diseases.

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

Thank you. We will now be conducting a question to answer session.

If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

You may press start too if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.

One moment please while we poll for questions.

Our first question comes from Kristin Kluska with Cantor Fitzgerald. Please proceed with your question.

Good afternoon. This is Rick on for Kristin. Thank you for taking our questions. Given all the KOL diligence your team has done in the AH space, what can you say about how the addition of liver transplant endpoint fits in with what you've heard from physicians in the space? How do you think physicians in the space think about the kind of relative importance of the mortality and liver transplant aspects?

That's a very good question. I appreciate that. And as you can imagine, we did spend a lot of time talking with our KOLs about that. And I think I'll just let Norman address that question.

Yes, thanks very much for that question. As Jim said, we spent a lot of time with a lot of KOL, so discussing it, and then we eventually came to the conclusion that patients that are doing very poorly, say in the convent, you neither are, who would then be arrested by transplant.

looking purely at 90-day mortality gives you an artificial sense of the value of the treatment. And so we were pleased when FDA agreed with that viewpoint, and I would say the majority of our KOLs agreed with it.

Yeah, that was it. I would second that.

Understood. And maybe one more. So on your last call, you talked about increasing the total site target in a firm 270 sites from 60 to 65 with the original guidance, I believe, due to the availability of certain US sites that were appearing to be available. Could you give us an update on these specific US sites that you were talking about here, the decision to look at those and kind of where are they in the process of being up and running.

One of them I would think is probably a matter of a week's away, a few of the others will take a little bit longer. But they're going to come on board fairly soon and we think that they'll be very productive science.

Yeah, these are excellent practices. And, fortunately, most of them are at universities and larger centers. And, you know, the process, the legal process just takes it from time.

Understood. Maybe just one more really quick one about the $8 million milestone from Anna Call. We'd be thinking about that being recognized in 3Q.

I can, I let you address that.

Yeah, that's right. We would expect that to be included in our revenue in the next quarter.

Great, that's all we have. Thank you very much.

Thank you.

Our next question comes from François, who's a boy with often high mara please, proceed with your question.

Thanks for taking the questions. Just a couple from me. The primary end point amendment.

Firstly, just based on your conversations with KOLs, is there any concern about whether these endpoints are correlated in any way? And as a follow-up, you know, the question is, if the trial is successful and approvable, is it either or endpoints, or is it both endpoints have to hit for it to be successful and approvable?

Well, both endpoints are the same. The endpoint, it's an event. And the event would be either death or transplant. So we're considering transplant to be equivalent to death, because if a patient is, you're going to be a patient. Because if a patient is, you're going to be a patient.

you know, if they're transplanted, then the probability of them living for the next year or so is very, very high, 90, 90, whatever it is, you know, very high percentage. And so we wanted to make sure we were able to capture that for patients who were transplanted, who otherwise might have died. And I should also let you know that in the United States, it's a more common practice to do this transplant. You know, this trial, we are conducting it globally and in Europe , there are many fewer.

of these patients' friends, but even though in the United States, not many of these patients get trapped, anyway, just because the availability of livers and the cost of their thing. So maybe normally if you want to add anything to that.

Now I agree, we consider the two points equivalent. In other words, people don't usually get a transplant if they're doing better. So the typical practice is the patient comes in, is doing poorly, there's a serious concern that the patient will die and therefore gets transplanted. And so that's why I think transplant is equivalent to death. So so you know, we will also analyze.

death as a single endpoint as a secondary analysis.

Okay, let's make some.

And just as one more question for my end, are you able to provide any update on the timeline of when the first commercial sale of PASMA will be?

We just know that it's getting close, but we can't provide anything more than that. So we'll expect it soon, but that's all I can say at this point.

Thank you. Thanks for taking the questions.

Our next question is from Ed Arce with HC Wainwright. Please proceed with your question.

Hi everyone, this is Thomas Yip asking conversions for at with very happy to see student content with

So first question as...

It was just updated today in addition to death and let us have fun.

As we all know, legal score improvement was shown with the sequester earlier. What are your thoughts on this potential use in regular progress either with the FDA or with other agencies that are ex-US and perhaps what are some potential use for legal score improvement?

it's a good prognostic indicator, but for this trial, where we're looking at 90-day survival or transplant and the difference between that event occurring versus between the treatment groups and...

and the placebo group. So I think Leo will be something we look at, but it won't be a primary driver of approval. But it won't be a primary driver of approval.

Got it. I don't know if that answers your question. Yeah.

Yes, it does. Yeah, that's a really live transplant and that's a person for most most useful indicators. So, for a firm and a gel line, we'll be continuing your addition of new sites globally. What are your thoughts on your commercial approach perhaps for the XUX market? So, what are some top markets?

and you feel for now.

You know, it's a very good question. There are, you know, large number of patients in Europe , probably equivalent to maybe a bit larger than the US. So certainly is a problem on a global basis. And so it's more likely than not, we both be commercializing ourselves outside the US. So we are exploring the possibilities there as well as we get closer certainly.

Perhaps one final question from us. Can you give us an update on the U.S. launch? What's the latest progress by Interco there? When should we expect that revenue to be a meaningful contribution to your top line?

Well, I think the launch is getting close. As far as the contribution, all pharmaceutical sales, most of them, I've had a couple products in my career that go fast, but most of them are kind of a hockey step kind of growth. And then there's a trailing return. So it'll start slow and build over time. So it'll start slow and build over time.

I don't know.

What more to add to than that? I think Tim would you anything to that? I would just say that we don't really have any guidance from in a call on what their revenue projections look like and they are a private company. So I'm not sure we'll have a lot of visibility to their expected revenue.

and how it translates into our oil dis.

But the nice thing is we do have milestones on sales and we have royalties as well that start in the low double digits and go to the mid-double digits. So as the sales increase, then our return will certainly be doing the same.

Right, understood. It's only a good way as you guys are focused primarily on the firm for now. To that end, we look forward to progress in coming months and with the complete enrollment.

And next year. Oh, thank you. Well, thank you so much. Thank you.

Thank you.

There are no further questions at this time. I would now like to turn the floor back over a Jim Brown for closing comments. I would like to ask you to turn the floor back over a Jim Brown for closing comments.

Okay, with that, I just want to thank you all for your time today. And as always, if you have any questions, please feel free to give us a call. Thank you all and take care.

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

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