DURECT Corporation (DRRX) Q4 2007 Earnings Call Transcript

Matthew J. Hogan - Chief Financial Officer James E. Brown - President, Chief Executive Officer & Director

Elliott Wilbur – Oppenheimer David Lickrish - Broadpoint Capital, Inc. E. Russell McAllister from Merriman, Curhan, Ford & Co. David H. Windley – Jefferies & Company, Inc.

Hello and welcome to the DURECT 2007 earnings call. We are now ready to begin. Here’s your host, Matt Hogan. Go ahead, Matt. Matthew J. Hogan: Good morning and welcome to our fourth quarter 2007 earnings conference call. It’s Matt Hogan, CFO at DURECT. This call will begin 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 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 are included in our SEC filings including our 10-K under the heading Risk Factors. Let me now turn to our financials. Total revenue was $6.6 million in the fourth quarter 2007 as compared to $5.4 million in the fourth quarter 2006. Revenue from our R&D collaborations was $4.6 million in the fourth quarter 2007 as compared to $3.5 million in the fourth quarter 2006 which is an increase of about $1.1 million or 29%. Revenue from this source will always fluctuate from quarter-to-quarter depending on the state of development under the various programs and our role in those programs. Product revenue from the sale of Alzet pumps and Lactel polymers increased by approximately $100,000 from $1.9 million in the fourth quarter 2006 to $2 million in the fourth quarter 2007. Our gross margin on these products was 60% in the fourth quarter 2007. R&D expense was $9.5 million in the fourth quarter 2007 as compared to $11.6 million in the fourth quarter 2006. These figures included stock-based compensation of $1 million in the fourth quarter 2007 and $800,000 in the fourth quarter 2006. About half of the $2.1 million decrease in the fourth quarter 2007 was due to the fact that the fourth quarter 2006 included $1 million in expense related to the up-front fee paid to EpiCept in connection with a license agreement. In addition we had lower clinical trials and contract manufacturing expenses incurred in the fourth quarter 2007 compared with the fourth quarter 2006 as well as lower net third-party research expenses during the period as a result of R&D reimbursement from Nycomed on POSIDUR. Selling, general and administrative expenses were $3.3 million in the fourth quarter 2007 as compared to $2.9 million in the fourth quarter 2006 an increase of about $400,000. These figures contained $553,000 of stock-based compensation in the fourth quarter 2007 and $420,000 stock-based compensation in the fourth quarter 2006. Excluding the stock-based compensation increase the rest of the increase was due to higher patent and marketing expenses. The fourth quarter 2007 net loss included $495,000 death conversion expense associated with the induced conversion of $9.5 million of our convertible bonds during the quarter. Our outstanding balance on the conversion has been reduced from $37.3 million at the end of 2006 to $23.6 million at the end of 2007. Our net loss for the fourth quarter 2007 was $7.2 million compared to a net loss of $9.8 million for the same period in 2006. Probably a more relevant financial metric for us than our net loss was net cash consumed during the quarter. That figure was $4.6 million. Early in 2007 DURECT provided guidance for the anticipated net cash consumption of about $32 to $36 million. Upon release in our second quarter 2007 financials we decreased our cash burn guidance to approximately $25 to $27 million. We’re pleased that the final decrease in cash year-over-year was actually $19.6 million. At December 31, 2007 we had cash and investments of $62 million compared with cash and investments of $81.6 million at the end of 2006. These figures included $1 million in restricted investments in 2007 and $1.3 million in restricted investments in 2006. Let me now turn to our financial guidance for 2008. Our net cash consumption is heavily influenced by the timing and structure of new corporate collaborations as well as outsourced pre-clinical and clinical expenses. While we anticipating entering into new collaborations in 2008 and beyond we believe it’s more conservative to give financial guidance based on an assumption of no new collaborations, no milestones and aggressive funding of our R&D programs many of which are in clinical development. Based on those key assumptions we anticipate net cash consumption in 2008 of approximately $32 to $36 million. I would note that we have multiple late-stage programs that we may potentially partner over the next 12 to 18 months. These include ELADUR, TRANSDUR-Sufentanil for Europe and Asia, POSIDUR for Asia as well as various internal programs we haven’t discussed publicly yet. Thanks again for joining the call and I’ll turn it over to Jim to discuss non-financial matters in more detail. James E. Brown: Hello everyone. 2007 was indeed a very strong year for DURECT. We had significant clinical data from three separate programs, we reduced our convertible notes and all of this was accomplished while burning 40% less cash than we had anticipated. 2008 is positioned to be the year for the coming to fruition of DURECT’s technology, our project selection process and investment. In 2008 we should see the validation of our business model. Over the next 12 to 18 months we expect to see our first NDA file, a number of development programs move into Phase III and we are well positioned to potentially achieve a variety of business development deals with a number of programs. As I said earlier we accomplished a great deal in 2007. Remoxy met the primary endpoint in its pivotal Phase III study conducted under a special protocol assessment. POSIDUR reported statistically significant improvements in pain control while at the same time meaningfully reducing the narcotic use in 122 patient Phase IIB hernia study. The remaining Phase II studies are now under way with regard to our seven-day TRANSDUR-Sufentanil patch and ELADUR showed improved pain control versus placebo over the three-day treatment period in a Phase IIA study. We achieved this progress while burning considerably less cash than we had initially forecast. We originally projected that we would burn $32 to $36 million in 2007; however, we were able to achieve these results as outlined above while burning only $19.6 million. I’ll now review our lead programs. I’ll start with Remoxy. Remoxy is based on our ORADUR(TM) technology which provides twice daily form of Oxycodone in a more difficult to abuse formulation. Oxycodone is widely used by patients suffering from chronic pain. Oxycontin and Oxycodone oral product sales were over $1.2 billion in 2006 in the United States. That figure reflects the presence of generics which were on the market in 2006. These generics were removed from the market in 207 and as a result we believe that 2007 sales will be over $1.5 billion. Potential future market growth may be driven by the aging population, the increased focus on treating of pain as well as improved deterrents features that reduce a physician’s concern regarding abuse. While Oxycontin and other Opioids are effective pain relievers abuse and misuse of these medicines represents a major area of concern for the health care community and society. Data shows that over 12 million Americans use prescription pain relievers for non-medical use in 2007, many of them children. This problem is well understood by Congress and the FDA. In fiscal year 2006 a House Appropriations Committee report noted that – and I quote – “Providers and patients alike will benefit from the expedited review of safer drugs as well as the provision of information that accurately differentiates abuse-resistant formulations.” That National Center for the Addiction and Substance Abuse stated – and I quote – “The FDA should require pharmaceutical companies manufacturing controlled drugs to formulate or reformulate the drugs where possible to minimize abuse. Pharmaceutical companies should be required to demonstrate in their application materials for FDA approval of new drugs that they have made every effort to formulate the drug in such a way that avoids or at least minimizes the drug’s potential for abuse.” DURECT’s order technology is our response to this national problem. When a product such as Remoxy which is Oxycodone and a formulation of our ORADUR(TM) technology, when this type of product is crushed the long-acting matrix is preserved, preventing a rapid release of the active drug. This formulation is also resistant to common methods of abuse such as injection, snorting, thermal extraction and the rapid dissolution from a wide variety of liquids and solvents. In December it was announced that the pivotal Phase III clinical trials for Remoxy successfully met its primary endpoint. That was prospectively defined by the FDA during a special protocol assessment process. In addition the study achieved statistically significant results in the secondary endpoints such as quality of analgesia and global assessment. All of these endpoints had statistical P-values of less than 0.01. No drug-related safety issues were noted in the study. Our partner Pain Therapeutics has stated that they expect to file the NDA for Remoxy in the second quarter of 2008. Time to market is extremely important and it is useful to reflect back for a moment on the timeline for this project. We signed our initial collaboration with Pain Therapeutics covering Remoxy and we commenced formulation work in early 2003. At the end of 2007 we had successfully completed the full clinical development program and are now months away from filing our first NDA. That five-year timeline exemplifies one of the advantages of applying drug delivery technologies to established compounds as opposed to pursuing new chemical entities. Namely we can produce products with blockbuster potential in about half the development time and for about one-tenth the development cost. King Pharmaceuticals will be our commercialization partner for Remoxy and DURECT will receive royalties on sales that start at 6% and scale up to 11.5%. As well we receive a manufacturing markup on selected key [excipients] that we will supply. We are hopeful that given the product features of an abuse-deterrent form of Oxycodone and true twice-a-day dosing that King’s roughly 700-person sales force will be successful with Remoxy. Now I’d like to update with regard to POSIDUR. POSIDUR has the wonderful opportunity of being a first-in-class therapy, the first injectible product available to surgeons that is designed to control pain at the site of surgery for two to three days. We specifically designed POSIDUR to cover pain for a two to three day period based on focus group meetings with surgeons. Their feedback was that for the various types of surgeries that we envision covering this was the critical time period for post-surgical pain and in fact they wouldn’t want substantially longer pain coverage for fear that we might be masking some medical issue that the presence of pain would flag. 2007 was a critical year in the development of POSIDUR. In 2007 POSIDUR demonstrated a 30% improvement in pain control versus placebo over the first three days after surgery in a Phase IIB hernia trial. This improvement in post-operative pain control was achieved even though the placebo group took over three times more narcotics than the POSIDUR patient group. This three-fold increase in medication taken by the placebo group was seen on day one, day two and day three, post-surgery. Now why does this matter? Well, there are a number of studies that have been conducted demonstrating the health care cost savings which can be achieved by reducing narcotic side effects including potentially reducing the length of hospital stays. These data from the Phase IIB study enabled DURECT to receive an $8 million payment from our European partner Nycomed. The results from this trial will be presented at the American Hernia Society Meeting which will be held March 12th and 16th of this year in Scottsdale, Arizona. We believe POSIDUR will be a first-in-class therapy because it works to control pain locally, at the site of the surgical wound in contrast to post-operative pain medications available today such as systemic narcotics which control pain by inhibiting transmission of the pain single to the central nervous system or as I like to say, we want to control the pain without numbing the brain. With regard to safety in our overall Phase II program for POSIDUR over 450 patients were tested. Of these approximately 300 patients were dosed with the active POSIDUR. We’ve seen comparable safety profiles when we compare the patient groups to the placebo groups and the drug administration was well tolerated. In the Phase IIB study the side effects commonly observed with regard to Opioid medication were less frequent in the POSIDUR treatment group as you would expect given that significantly less narcotics are being used. Where are with regard to the clinical program? As you know we have held the end-of-Phase II meeting with the FDA and we are now in dialog with the Agency regarding the Phase III program. When these discussions are complete we’ll be in a position to describe the execution of the Phase III program and get it under way. I’d also like to note that Hospira, our contract manufacturer for POSIDUR, produced supplies for our ICH stability studies, validation and Phase III clinical trials during 2007. So these time critical components are well in hand. As a reminder Nycomed became our partner for this program in the fourth quarter of 2006. Nycomed is a privately-held specialty pharmaceutical company that has grown to become the 25th largest pharmaceutical company in the world. They have a strong presence throughout Europe, Russia and the Commonwealth of Independent States as well as selected territories where we licensed them the commercialization rights to POSIDUR. They have a major hospital-based sales force with access to the surgical suite and pain management is one of their core therapeutic areas. They sell several products in the suite for the control of homeostasis and multiple pain products including transdermal Fentanyl and Nsaids. As part of the deal Nycomed will assign a dedicated sales force to promote POSIDUR in their territories. They feed us a $14 million up-front payment as well as the additional $8 million for the first milestone that we recently referred to and we have the potential for an additional $180 million in milestones to come. Nycomed will commercialize the product in Europe and other defined territories paying us royalties on their sales that begin at 15% and go to 40%. Nycomed also pays one-half the development cost of this program for Europe and US. We’ve retained all the commercialization rights for the US market, the Canadian market as well as Asia. Since this is a surgical suite sale we think POSIDUR provides a unique opportunity to cover the US market with a specialty sales force of between 100 to 150 sales reps and we believe this will provide DURECT with a launching pad to become a specialty pharmaceutical company. And now we’ll update with regard to ELADUR. ELADUR is a transdermal patch containing Bupivacaine that is designed to provide three days of pain relief versus the existing market leading patch which is indicated for 12 hours of wear. ELADUR is very thin and has an elegant design for superior wearability. In December of 2007 we reported positive results for ELADUR from a 60 patient Phase IIA clinical trial in patients suffering from post-herpetic neuralgia. We showed improved pain control versus placebo during the three days of continuous treatment period. In addition ELADUR appeared well tolerated overall and patients treated with ELADUR and the placebo exhibited similar safety profiles. We will be presenting detailed results from this study in two posters at the American Pain Society Annual Meeting in May of 2008. As a reminder we own full rights to this product. We have received considerable interest from a number of companies about partnering this product driven no doubt by the commercial success of LIDODERM which generated about $700 million in sales in 2007. Given that this product will require a large sales force to fully exploit it is likely we will partner this program. We are continuing to advance ELADUR in 2008. We plan to conduct scale up and processing studies for Phase III supplies. We are also developing our clinical and regular based strategy and moving forward. The last product I’ll update on today is the TRANSDUR-Sufentanil program. Our Sufentanil patch targets chronic pain users. The market for the Duragesic and other Fentanyl patches was over $1.4 billion in 2006. Our TRANSDUR-Sufentanil patch seeks to provide seven days of therapy versus the existing patches which deliver for three days. This enhances patients’ compliance and convenience and essentially entails a lower manufacturing cost over a comparable treatment cycle. Existing Fentanyl patches like Duragesic are about the size of a dollar bill folded in half which means that during [inaudible] the patient has to find 10 rather large sites around their body to rotate these patches around. In contrast our largest size system is about one-fifth the size of Duragesic or about the size of a postage stamp and during a month only four such small sites need to be found. Our partner for the US and Canada product is Endo Pharmaceuticals and their success with LIDODERM has demonstrated their ability to sell patches used to treat pain. Now that we’ve provided technology transfer to 3M our role is largely a supportive one to Endo for process optimization and general CMC support. Endo Pharmaceuticals have publicly disclosed that they are continuing to conduct Phase II studies of TRANSDUR-Sufentanil and these studies are designed to evaluate the conversion of patients on oral Opioids over to TRANSDUR-Sufentanil. Over the next 12 to 18 months we look forward to continued progress with our programs in clinical development. For POSIDUR it’ll be finalized in the Phase III program and commencing these studies. For Remoxy it’ll be filing the NDA in the second quarter. For the Sufentanil patch it’ll be execution of the Phase II studies by Endo and initiation to the Phase III program by Endo. For ELADUR it’ll be scale up and processing work and manufacturing of Phase III chemical supplies as well as the continuation of the clinical development program building on the positive data from our Phase IIA study. In conclusion DURECT has a rich pipeline consisting of four products in Phase II or III and one product with positive Phase I results. These products are all addressing large market opportunities primarily in the underserved pain management field. Each of these products has differentiating features that constitute the meaningful improvement over existing therapies. We’ve made considerable progress in 2007 in de-risking and advancing our development products. We have products now advancing through the various stages of development moving from Phase II to Phase III and from Phase III to NDA filing. We have collaborations in place with Nycomed and King Pharmaceuticals in pain therapeutics that provide considerable development funding and solid economics upon commercialization. Yet we’ve maintained a pathway to becoming a specialty pharmaceutical company, a company that will be able to commercialize our products in the surgical suite in the United States. We have the potential for future business development deals with ELADUR with the Sufentanil patch in Europe and Asia, with POSIDUR in Asia as well as other programs we’ve yet to disclose. I want to thank you for your time and support and we now look forward to taking any questions you might have.

(Operator Instructions) Our first question comes from Elliott Wilbur from Oppenheimer. Elliott Wilbur – Oppenheimer: Question for you, Jim, with respect to the POSIDUR Phase III program, end-of-Phase II meeting. I understand that you don’t want to give us a lot of details, or can’t give us a lot of details at this point, but I guess in terms of just maybe the progression of discussions. When do you expect to be in a position to give us a little bit more detail about the actual clinical development program, the Phase III development program, in terms of the pain models and the like and I guess anything come out of the Phase II discussions that you consider either to be a positive surprise or potentially a negative surprise? And then do you really expect the clinical programs themselves to be the gating factor in the development program or is there maybe something on the safety side that you would actually to be more in the gating factor in terms of when you could actually file the NDA? James E. Brown: Was that all around POSIDUR? Elliott Wilbur – Oppenheimer: All around POSIDUR. James E. Brown: With regard to POSIDUR first off, I do expect that the clinical program will be the critical path component, in other words, the critical timing aspect with regard to the activities we have to accomplish between now and the NDA filing. We have held the end-of-Phase II meeting as we have been talking about. We aren’t going into any more detail with regard to the Phase II program because we haven’t finished our discussions with the FDA. They continue and it’s a very active dialog as you know. We started this near the end of last year and the Agency becomes quite involved with the filings that come through based on [PADUF] and the other things that are associated and so for programs such as the stage of POSIDUR it has to basically move in its place in line. But now that we’re in the new year I look forward to communicating as soon as we’ve reached clarity with them. Our strategy’s going forward with regard to the Phase III. So it’s an answer that’s not a tremendous additional information other than just to know that we just turned the arrow, we’re now in the new year and look forward to communicating this as soon as we reach resolution. Elliott Wilbur – Oppenheimer: I just had two follow-up questions for Matt as well. With respect to your net cash burn guidance, $32 to $36 million, outside of potential strategic transaction, are there any other potential swing factors there in terms of milestones or the like that you haven’t included that could potentially positively impact that? Matthew J. Hogan: Yeah, we specifically exclude any milestones from the guidance that we gave and we would anticipate getting milestone payments this year. Almost don’t want to quantify them but you saw the kind of milestones we got last year and that kind of order of magnitude is conceivable this year. Elliott Wilbur – Oppenheimer: Could you maybe just hint as to what specific programs are more likely to generate those without discussing magnitude? Matthew J. Hogan: Certainly Remoxy would be one but really all of the partnered programs have a series of milestone payments associated with them. We haven’t gone into detail with what triggers them but with Endo we’re eligible for potentially another $35 million in milestones, with Nycomed another $180 million. So out of all those programs we would anticipate getting some milestone income but because it’s lumpy we’d prefer to give the guidance excluding that. So it’s all kind of gravy if it happens. Elliott Wilbur – Oppenheimer: And that leads me to the second part of my question really. I guess with the cash on the balance sheet and then the net cash burn guidance assuming no milestones, it would suggest that you might have to return to the capital markets sometime around year end. I’m trying to get a sense for that and sort of what the potential degree of deferral in a capital market funding is based on milestone activity. Matthew J. Hogan: I think that it really comes down to our success on the business development front and on the milestone front because if those come through the way that we’re hopeful, we may well not have to go back to the markets for quite a long time. But it really depends on those factors. And I think there we’ve kind of tried to articulate that we have multiple shots on goal on the business development front. We’re in active discussions on ELADUR. The Sufentanil patch Europe and Asia are two other separate possibilities for transactions. POSIDUR in Asia is a possibility and then there are some programs that we really don’t talk about too much that also could yield cash flow for us. So I think it really comes down to those factors. The way we’re presenting the cash burn guidance in a sense is meant to be a highly conservative approach to things. I don’t want to say worse case, because you can always be worse, but a really conservative way because it doesn’t include the milestone income and it doesn’t include business development income.

Our next question comes from David Lickrish from Broadpoint Capital. Go ahead, David. David Lickrish - Broadpoint Capital, Inc.: Couple of quick questions, Matt, I guess for you just to start. What do you think the share count will look like at the end of 2008 assuming those converts do go into equity? What sort of number should we be using there? Matthew J. Hogan: Okay, so we enter the year with 74.1 million shares, and underlying the remaining convert is another 7.5 million shares. So if you add that in you get 81.6 and then there’s always some small per quarter increase in the shares outstanding because of the exercise of some options or our employee stock purchase plan, but those amount to a couple hundred thousand a quarter. Let’s say we end the year about 82 million shares out. David Lickrish - Broadpoint Capital, Inc.: Okay, just want to make sure that we’re on the same page there. And then as you know Endo does not disclose a lot of detail with regard to the Sufentanyl program. My question I guess to you because they won’t say anything until they move into Phase III, have they had any concerns about the formulation or have they sent it back to you to be reformulated or tweaked? Matthew J. Hogan: That’s a good question, but no. What we’ve been doing is working with 3M to basically take what was developed here through a Phase II process and do the tech transfer and so that process of scale up and tech transfer has occurred and now 3M are making actually the clinical Phase II supplies that are being used right now in the clinic. As you know because our partner is Endo they don’t like to share much but I can tell you the product is well positioned to be able to move forward in a timely manner from a CMC standpoint. David Lickrish - Broadpoint Capital, Inc.: Okay, so then just based on some of the prior clinical studies we can extrapolate what the length of time is required to complete those Phase II studies and then try and anticipate an announcement from them with regard to a Phase III program. I guess my other question is just with regard to the other product under development, the ELADUR program. You’re talking about doing some scale up just with regard to Phase III is that something that you’re not going to contemplate but hopefully on a business development front would move forward with a partner at this point in time? And if you don’t see something materialize in the next quarter or two, is it something that you would be motivated to move forward on your own? James E. Brown: That’s a great question but basically we keep our projects moving forward regardless of partnering. We have huge interest in this product and I think Matt’s referred to that and that’s why we’re trying to have the words that we have around the potential burn rate as we laid out, but I think the important piece here is to note ELADUR is moving forward full steam ahead, there are a lot of people who would love to help us with this product and as the year unfolds we’ll see how that shakes out. But yeah, right now we’re doing the scale up work, getting ready to be able to make the Phase III supplies for that.

Our next question comes from Russ McAllister from Merriman, Curhan, Ford & Co. Go ahead, Russ. E. Russell McAllister from Merriman, Curhan, Ford & Co.: Most of my pipeline questions have already been asked and answered but I was wondering if you could briefly revisit the other Remoxy programs, PTI 202, etcetera? Sort of where those are and if any significant progress is being made. Matthew J. Hogan: It’s a good question. The second product in the alliance completed Phase I a little while ago now. If you’ve been following the King story what Brian Markison has said is they’ve really been focusing their effort to get the Remoxy out and we’re very pleased with the timeline and are looking forward to that NDA being filed this year. The other projects now that that’s pretty well in hand, the other projects are moving to the forefront and as I said, we continue to work actually on all four of them at this point in time. They’re all in various stages of moving forward. We do have diligence components built into our agreements and they are all taken into account. E. Russell McAllister from Merriman, Curhan, Ford & Co.: Jim, any sense of when we might hear news on those or just that they’re moving forward? James E. Brown: That would have to come from King most likely. As you know they have been very quiet about what the active agents are and so that hasn’t been disclosed either. I would assume at some point in time when they feel it makes the most sense then they’ll describe where the products are in development and perhaps what the agents are.

Our next question comes from Dave Windley from Jefferies & Company. Go ahead, Dave. David H. Windley – Jefferies & Company, Inc.: My first question is on ELADUR and you talked about the high level of interest from potential partners for that product and potentially those partners being of the larger variety. I guess I was wondering if you have gotten to a point in those discussions or your internal evaluation that would lead you to a more clear view as to whether this would be, I’ll call it a big pharmastrategy, where the partner would pursue a lot of the what are off-label uses for LIDODERM on label for ELADUR or pursue more of a straightforward PH in strategy? If that’s become more clear in your internal analysis at this point? Matthew J. Hogan: We have done a lot of analysis around the entire development strategy for this product as our potential partners have. But I think it would be very presumptuous of me to say one or the other. We are talking to a number of companies actively here. I would say on average they are the much larger companies which generally can take a more broad stroke approach. That’s probably the about best I can give at this point, Dave. David H. Windley – Jefferies & Company, Inc.: Are you – this is sort of off the beaten path, but since a couple of your partnered products are in the controlled substance arena, we certainly aren’t aware of any trend but know of a data point or two where some companies have had trouble getting quota for controlled substances. Have you run into anything like that with the DEA? James E. Brown: You can run into that problem with the DEA if you don’t plan and lay things out pretty well. The DEA are a – their mechanism and their efforts are really all around policing the use of these controlled substances and so one needs to make sure that you’ve got the control procedures in place internally as well as order in advance, next year’s needs. And so I can see where let’s say a company who’s getting into this may have – let’s say they want to do a new program for narcotic X and they would have go back then to the DEA and ask for an increased allotment for product X. Maybe they never even had in their allotment for the given year. So that can be an issue if you don’t look out far enough, but right now we’re in good shape. David H. Windley – Jefferies & Company, Inc.: On the POSIDUR program, I think Elliott asked a couple questions around that, but I guess looking at some of your prior comments, my question is very directly is this program timing, in terms of your start of Phase III, is it slipping? We thought that in some prior comments you had indicated that you hoped to start Phase III in early 08 and now you’re saying more toward mid-year and I just wondered if I’m reading that correctly, what specifically are the issues that are slowing that down? James E. Brown: We haven’t gotten into that and we won’t with regard to the details of our conversations and I think yes, we’ve had some changing and some slippage as far when this actually starts but the culmination of the discussions may well lead to a strategy that enables things to move faster. So you never know until you’re done with the discussions. I think we have to wait until we’re done with these and we see what the Phase III program looks like. It’s not about when you start, it’s about when you finish. David H. Windley – Jefferies & Company, Inc.: Moving on then, the TRANSDUR-Sufentanil program you commented on David’s question, but I wondered if the leadership change at Endo has any impact on the progression of that program? Matthew J. Hogan: That’s an interesting question. I think what we have at Endo is a project team that we’re working with that hasn’t changed. They’ve had some change at the top. We’re looking forward to the progress that can be made with this program looking forward and working forward. Now I think that 3M is in place we feel that it’s well positioned to be able to quite frankly move into Phase III. So we’ll see how the future unfolds. David H. Windley – Jefferies & Company, Inc.: My last question, I promise. I could have sworn that as I was reading the press release I saw an allusion to earlier stage programs that you have consistently talked about working on. I wondered if you might provide some detail around how many of those there are or when we might see more elaboration on what is in the pipeline say behind ELADUR and behind the second King pain therapeutics collaborative compound? Matthew J. Hogan: That’s actually a good question. At any one given moment in time we probably have around a half a dozen feasibility programs percolating at direct. Some are with internal funding, some are with bio-tech companies and some are with pharmaceutical companies. The example I just stated is ELADUR. One year a couple years back gave the statement that we would announce what this product by the end of the year and so we had everybody waiting, waiting, waiting and then when we wanted to complete Phase I and start Phase II and so we described it right at the beginning of 2007. Rather than do that kind of thing in the future what we’ll do is just say here’s the project and here’s where it is in the clinic. We typically like to advance our programs a little farther along before we talk about them just because we want to secure any IP that we can and make the progress that we can. Also quite frankly if people aren’t interested in investing in direct with the four lead products that we have now, I think we’ve got phenomenal products, they aren’t going to be particularly interested in a Phase I program kind of thing.

We have no further questions at this time. Matthew J. Hogan: Thank you all for participating and we’ll look forward to updating you next quarter if not earlier. Thank you.