DURECT Corporation (DRRX) Q3 2013 Earnings Call Transcript

James E. Brown - President and Chief Executive Officer Matthew J. Hogan - Chief Financial Officer

Jason Napodano - Zack’s Research Daniel Chang - Stifel Nicolaus Jeffrey DeSeibert

Greetings, ladies and gentlemen, and welcome to the Third Quarter 2013 Earnings Conference Call. Once we go to Q&A, anyone can ask questions. It is now my pleasure to introduce your host, Mr. Matt Hogan. Thank you, sir. You may begin. Matthew J. Hogan: Thank you. Good afternoon. Welcome to the third quarter earnings call. This is Matt Hogan, the 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 a 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, potential product approvals 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-Q under the heading 'Risk Factors'. Let me now turn to our financials. Total revenue was $3 million in the third quarter of 2013 as compared to $3.8 million in the third quarter of 2012. Excluding all deferred revenue recognized for upfront fees from our agreements, revenue from our R&D collaborations was $0.4 million in the third quarter 2013 as compared to $1.1 million in the third quarter last year. Revenue from this source always fluctuates from quarter-to-quarter depending on the state of development under the various programs and our role in those programs, and this drop was driven by the fact that we had largely finished our role in assisting Pfizer with respect to REMOXY, and we largely completed our role to put Zogenix in position to run the Phase 1 study for Relday, partially offset by an increase in revenue from various feasibility projects. Product revenue from the sale of ALZET pumps and LACTEL polymers were approximately $2.6 million in the third quarter 2013 as compared to $2.7 million in the third quarter of 2012. That was down about 3.5% but not indicative of any particular trend. Our gross margin on these product lines was around 57% in the third quarter 2013 and these product lines continue to be strongly cash flow positive for us. R&D expense was $4.5 million in the third quarter 2013 as compared to $4.7 million in the third quarter 2012. SG&A expenses were $3.1 million in the third quarter 2013 as compared to $2.9 million in the third quarter 2012. As a result of the above, our net loss for the third quarter 2013 was $6 million compared to a net loss of $4.8 million for the same period in 2012. Our net cash consumed during the quarter was $3.9 million. At September 30, 2013, we had cash and investments of $17.4 million compared to $21.3 million at June 30, 2013 and $28.9 million at December 31, 2012. We have essentially no debt other than normal liabilities associated with running the business. As a reminder, we have multiple programs that may potentially be partnered over the next 12 to 18 months. These include POSIDUR where we have worldwide rights, ELADUR with worldwide rights, ORADUR-ADHD where we have U.S. and Europe [pretty clear] [ph], TRANSDUR-Sufentanil with worldwide rights, and various feasibility studies that we hope may mature into development agreements much like Relday did last year. With that, let me turn it over to Jim for a discussion of the business. James E. Brown: Thank you, Matt, and good afternoon, everyone. I'd like to now – I will be providing an update with regard to our most significant recent events. For POSIDUR, we submitted the NDA in the middle of April and the FDA accepted it for filing in June. The PDUFA date is set for February 12, 2014 which is now a little bit less than 3.5 months away. With regard to REMOXY, Pfizer had a productive meeting with the FDA in March 28th of this year. In August, they posted a clinical study that the FDA requested at the March meeting with the new REMOXY formulation, and that has been posted on clinicaltrials.gov. In October, they confirmed that they are proceeding with the development and confirmed no change in their expected timing. I'll start with an update on the pain space in general and then go to our major programs. Recently, new pain formulations being developed under the 505(b)(2) strategy process within the FDA have demonstrated significant value, beginning with Pacira. They have a new bupivacaine formulation for post-op pain and they are getting our [formulators] [ph] at a price of $285 per procedure. They have a $1.7 billion market value approximately two years after approval and 1.5 years after launch. Zogenix have a new hydrocodone product approved by the FDA. The product has no abuse deterrent features and restrictive REMS but it is the first standalone hydrocodone product. The approval followed by one day of the FDA's proposal to reschedule combination hydrocodone projects to Schedule II. MAP Pharmaceuticals was developing a new migraine formulation under a 505(b)(2) strategy and they were acquired by Allergan for $958 million prior to approval. On April 16, 2013, the FDA communicated that abuse of opioids remains a major public healthcare concern. The FDA then issued guidelines allowing for tamper resistant claims. They also made a decision with regard to pulling the original OxyContin NDA for safety reasons, and thus not allowing generics for this product. On September 10, 2013, the FDA communicated safety and labelling changes and post-market study requirements for extended-release opioids. And on October 24 of this year, the FDA communicated that the abuse of opioids continues to remain a major public healthcare concern and they proposed the rescheduling of hydrocodone combination products to be more restrictive from Schedule III to Schedule II. Why do I mention these FDA actions? The abuse of opioids remains top of the mind of the FDA and the pain division, a hot, important and highly visible topic. DURECT's two lead programs each address this issue but in different ways. We hope society and direct shareholders will ultimately benefit from the FDA's actions in this area. We have REMOXY which is a tamper-resistant formulation of hydrocodone with five different mechanism for abuse deterrence. Of course we have POSIDUR with the benefits of reducing opioid use after surgery. We've seen with POSIDUR on the two pivotal trials 67% to 80% reduction in the narcotics use with an associated 20% more patients never taking narcotics after surgery. In the interest of time and focus, I'm only going to talk about a few of our programs, and I'll be starting with POSIDUR. POSIDUR offers a new paradigm for post-op pain control. It's designed to control pain locally for three days after surgery. It has the added potential benefit of reducing narcotic use and associated side effects and cost with the potential for earlier hospital discharge. Status of the program is as follows. We submitted the NDA in the middle of April, the FDA accepted the filing in June, the FDA mid-cycle review has been completed, and the PDUFA date is set for February 12, little less than 3.5 months from today. We are pursuing a 505(b)(2) filing strategy, which enables us to leverage the long history of use for bupivacaine. As a reminder, any NDA submission is subject to a whole range of review and approval risks and POSIDUR will be no exception. The benefits of POSIDUR are pain relief for a full three days after surgery. As well, we have a reduction in opioid use with their attendant side effect issues, and potentially fewer narcotic prescriptions being written after surgery. Our efficacy data for this program is quite compelling and let me review some of those data with you right now. We have two pivotal trials for this NDA. The first is a hernia surgery and the second is a shoulder surgery. Both of these surgeries demonstrated a statistically significant reduction in area under the curve pain for zero to 72 hours and this is pain on movement measured. We think it's a more meaningful measurement of associated pain after surgery. I personally had my appendix out about five years ago when I was just looking at pain at rest sitting in the hospital bed reading a book or looking at the television, I didn't feel a lot of pain. It’s when I got up to go to the bathroom, that's when I felt it and I’d then contract those muscles. So to that end, we asked our hernia patients to do a sit-up and we assessed their pain to do a crunch, and for the shoulder surgery patients to raise their arm up, and in the hernia surgery we saw a 31% reduction in pain and in the shoulder surgery a 21% reduction in pain. With our group compared to the placebo, these were significant. As far as narcotic use is concerned, in our hernia trial, we saw an 80% reduction, in our shoulder surgery a 67% reduction in narcotics use. Both of these were also statistically significant. And just as an example with regard to the hernia trial, I think even on day three we had a statistically significant reduction of about 70% or something without the narcotic use. But you heard me talking a little earlier about the percentage of patients never taking narcotics, and I think it's a very important point and I just want to emphasize that. For the hernia surgery, we had 28% of the placebo patients never taking any narcotics after surgery, but for our active group, for the positive group we had 49%. That's 21% more patients never taking any narcotics after surgery. For the shoulder it went from 16% of the placebo to 40% on the active group. So we had 24% more. So in both those studies, we had more than 20%, more than one in five patients, not taking any narcotics after surgery. So let's think about the importance of opioid sparing. There are two main points to be made here. First, the FDA is well aware of the adverse events that arise from opioids. You've got the constipation, the nausea and vomiting and all the issues associated with things, even as far-reaching as potentially postoperative pneumonia. The FDA also knows that some percent of the population is predisposed to develop an addiction or other problem if they are exposed at all to opioids. This is why our data demonstrating roughly 20% fewer patients requiring a single opioid is so important. This is one in five patients. If we just take hernias in U.S. alone, there are 800,000 hernia surgeries in the United States alone. If 100% of these patients, just for discussion sake, were to be dosed with POSIDUR, that would mean potentially 160,000 fewer opioid prescriptions being written annually. And if you apply this across greater number of the major surgeries, the results could be staggering. However, we don’t want to forget the fact that POSIDUR is intended to treat pain post-operatively. The content of the integrated summary of efficacy or ISE for POSIDUR consist of three categories of clinic trials. The first are our orthopedic trials and they include three shoulder surgeries. The second ISE category is soft tissue trials and this includes four trials, two of them are hernia trials, one hysterectomy trial and one lap-assisted colectomy trial. And then the final category is POSIDUR against HCL bupivacaine or naked bupivacaine. This includes three trials, one with shoulder, one laparotomy and one lap-assisted cholecystectomy or gallbladder removal. All three of these categories of the ISE demonstrated a statistically significant reduction in pain for area under the curve for zero to 72 hours as compared to controls. Brief review of the patent protection for POSIDUR, we have two granted. First one was in the U.S. with coverage out at least until 2025, its pharmaceutical composition and also a method providing sustained vocal anesthesia. We have one granted patent in Europe with coverage out to 2025 and a granted patent also in Japan with coverage out to 2025. POSIDUR represents a large commercial opportunity and it's driven by reducing the need for opioids after surgery and their associated side effects. At the end of the day, it's better for patients with potentially large healthcare cost savings. There are over 70 million surgical procedures per year in the United States. We've done some research including a study involving 275 surgeons and identified a market opportunity for this product somewhere in the range of 10 million to 20 million procedures per year in U.S. Pricing is yet to be determined but our market research suggests that a price of $250 or more per procedure based on the reduction of opioid use and side effects, and in fact if one looks just at our discharge ability data, in particular at the hernia trial we're seeing about $620 savings per patient assuming a $1,200 a day hospital bed which isn't a tremendously large cost for hospital bed. And when we share that with the third-party payers demonstrating that we could potentially save them $600, they basically get back to us and say, if you could save me $600, I'd be willing to pay as much as $400. Because of this significant reduction of opioids and pain for the full three days, it's an easy product concept for surgeons, anaesthesiologists and payers to get behind. The final comments on POSIDUR, we view POSIDUR as a potentially extremely valuable asset for our Company. In the last two quarters, we have considerably stepped up our competitive intelligence efforts and our prelaunch activities with this product. These have only made us more enthused about the market potential for POSIDUR and our ability to compete effectively upon approval. Without getting into too much detail, if approved we would be the only company to give enough drug to achieve true efficacy for more than 24 hours and have very compelling data on opioid sparing. We've also done considerable groundwork to understand in detail how we might launch POSIDUR ourselves and have met with a number of financial groups to explore debt structures that will enable us to finance this strategy. We are also engaged in active discussions with multiple potential partners for this product. Given the value we perceive in POSIDUR , we will only entrust this asset to a partner if we are convinced they will do a great job of marketing it and return the right economics to DURECT and our shareholders. All alternatives are open and being explored in parallel. I'd like to switch gears now to REMOXY, our other late-stage asset. REMOXY is our tamper-resistant oral order product containing oxycodone. It's designed to be tamper resistant on multiple fronts, that is, reduction of potential for abuse vis-a-vis injecting, snorting, smoking, dissolving in drinks and/or chewing it. The issues of the Complete Response Letter of June 2011 related primarily to manufacturing. Pfizer met with the FDA on March 28 of this year to discuss their resubmission plan. We understand that meeting provided a path forward which followed the outline that Pfizer had requested, that is no need to redo the Phase 3 stage. A pivotal bioequivalent study with a modified formulation can be used to bridge back to the data with the original formulation. This would be similar to but larger than the BA studies that Pfizer conducted last winter. Pfizer will also conduct additional abuse liability studies with the modified formulation. Data from this work may now potentially be used in the product label given the change that the FDA has made this spring. We expect these studies to be posted on clinicaltrials.gov. Pfizer posted a PK study on clinicaltrials.gov on August 14, 2013. This study was recently updated to show that it is currently enrolling. On October 22 of this year, Pfizer announced they are proceeding with REMOXY after achievement of technical milestones and a thorough review. The resubmission remains targeted for middle of 2015 and Pain Therapeutics also regained the rights to three other opioid products under this contract with us. PK right now, that no changes were made to their milestones or royalties associated with REMOXY and DURECT also has made no changes to our milestones or royalties for REMOXY. With regard to patent protection for REMOXY and our order technology, we have seven issued U.S. patents covering our order technology platform, six composition of matter patents, and one covering methods of making opioid containing formulations. The U.S. patent coverage goes out at least until 2031, the European patent coverage at least until 2023. Other pending applications would go out to 2033 or 2034 plus any eligible patent term adjustments and extensions to these. So we have issued patents in-hand that protects our REMOXY program for quite a long time. As far as the potential financial impact to DURECT from this product, OxyContin sales for [indiscernible] 2012 were about $3 billion. The royalties that DURECT will receive on Pfizer final sales start at 6%, go to 11.5%, the 11.5% being around $1 billion. The blended royalty after the first $1 billion is about 8.5%. So if Pfizer were able to achieve about 30% penetration to the 2012 sales that OxyContin received, that would be about $72 million for DURECT since they were able to achieve 50% of that market. This is assuming no growth by Pfizer in the market. With this really nice advance in these deterrents, it would be clearly close to $140 million for us. In October Pain Therapeutics regained the rights to three other order based opioids from Pfizer. These opioids are hydrocodone, hydromorphone and oxymorphone. The first two had Phase 1 work done in the past and all three have INDs on file. This is a positive outcome as it allows PTI to now take one or more of these programs forward. PTI has yet to say what they intend to do with these, to select one or more to advance in development or re-licence them, but we think they now offer a nice opportunity going forward. Further, we believe we can leverage off of the experience gained from REMOXY and DURECT's work from our ADHD program to potentially move more quickly through the development cycle. And now I want to move to our order methylphenidate program. We started this program because of the opportunity to potentially improve efficacy and reduce abuse of extended-release methylphenidate products. The U.S. ADHD market in 2012 was 58 million scrips, up 9% over the previous year, and the adult market grew 12%, the pediatric grew about 7%. The U.S. ADHD sales in 2012 were $8.4 billion, up 15% versus 2011, and the international sales added another $1.1 billion. ADHD drugs are widely abused. The 2010 National Survey on Drug Use and Health estimated 1.1 million Americans over the age of 12 were abusing these stimulants and the DEA has commented that the serious abusers often snort or inject the products, which is virtually impossible from our order technology. We've now selected a lead order methylphenidate formulation, and the features this product has demonstrated in the recent Phase 1 study demonstrate a rapid onset of action, a long duration with once a day dosing, smaller capsule size relative to the leading products in the market, and this is very important for children, they are tested as one of the strongest features here, and as well we have the tamper resistant capacity due to our order technology. Our partner with this product are Orient Pharma. We'll meet with the Taiwan FDA this year regarding the Phase III program for Taiwan and they are developing plans for their Asian and South-Pacific territories. DURECT retains the U.S., European and Japanese rights and we have initiated licensing discussions with these territories. We intend to discuss this development program with the FDA with a goal to explore a Nextwave type of development plan, and for those who hadn't followed Nextwave, they were a private company who were able to get a product for ADHD approved with less than 100 patients. The next program I'll update on is Relday. Relday is a once a month risperidone product to treat schizophrenia. It's a large market potential, greater than $1 billion. It would be the first once-a-month risperidone product. It offers a patient and physician friendly treatment for schizophrenia. It's a subcutaneous injection, 1 CC or less, as compared to multiple CCs from IM injection for the market leader. There is no drug reconstitution required as compared to the market leader. It's got a simplified dosing regime which in our market research seems to test and resonate well with the prescribers. This product has been partnered with Zogenix. The Zogenix reported positive final data from the expanded Phase I trial in May of this year. This was a single center open label safety and PK trial that enrolled 30 patients with chronic stable schizophrenia. They demonstrated favorable safety and PK profile at the 25, 50 and 100 mg dose for once-a-month, the full range of doses that we'd expect to be able to take to market. With these positive data in hand, the next step is a multiple dose Phase I study and then on to Phase III. The timing of this program depends on Zogenix and they've stated that they've started partnering discussions which will drive the timing to start the next trial. If they do partner, drug will receive a cut of any partnering fees they generate. As well with their approval of Zohydro on October 25, we're hopeful that they'll be in a better position now to be able to move Relday forward. With regard to our other injectable programs, we continue to add new feasibility projects and at the present we have I believe as many feasibility projects underway as we've ever had in DURECT's history. We see this as a large, long-term opportunity for DURECT. And as a reminder, Relday started as a feasibility project which was then matured into a full development deal. 2013 has been a productive year for DURECT and here are some of the highlights. For POSIDUR, we had the NDA submitted in April and the NDA accepted by the FDA in June. We're currently developing commercial plans, holding licensing discussions, and the PDUFA date is set for February 12, 2014. For REMOXY, the FDA allowed [indiscernible] claims with data in April. Pfizer met with them regarding the resubmission path in March. A [field effect] (ph) study was initiated in August and in October Pfizer completed their thorough assessment and is moving forward. For the other programs, for Relday, we had a positive Phase I data with the full dose range. The order methylphenidate formulation was selected in August. The ALZET and LACTEL product lines are performing well. We have multiple feasibility projects initiated and progressing. We have licensing discussions underway on multiple fronts and insiders continue to show commitment to DURECT. Just to pick up on that last comment for a second, over 2012 and 2013, various officers and directors of DURECT Corporation have bought in the open market over 0.5 million shares of DURECT's stock. Over that time period, several members of senior management and outside directors volunteered to take salary reductions for which they took options to the tune of $725,000 in foregone cash payments. We haven't paid cash bonuses in the last two years here. Without belabouring, the point what I'd like to make is that management's interest are aligned with shareholders. The key drivers for the next 12 to 24 months, for POSIDUR, its PDUFA date set for February 12 this year, the potential commercial partner and of course the potential launch of the product. For REMOXY, it's Pfizer conducting the required studies of [BE] (ph) and the abuse safety studies and resubmission targeted for middle of 2015 with a six month review followed back by the FDA. For Relday it's positive Phase I data, partnering efforts underway by Zogenix and then starting that multi-dose trial. Potential for new collaborations with our other programs, be that POSIDUR or ELADUR, the Sufentanil patch, our order methylphenidate program, or our feasibility projects or undisclosed programs. With that, we'd like to turn to any questions that you may have.

(Operator Instructions) Our first question comes from the line of Jason Napodano. Please proceed with your question. Jason Napodano - Zack’s Research: I'm looking back at the press release you guys put out in October and on Pfizer moving forward and I'm just looking to see what Pain said, and it's pretty consistent but [Remy] (ph) notes that he believes there will be a stream of technical milestones from now throughout into 2015, and so I guess I'm just kind of wondering, as Pfizer is starting these trials, obviously we're seeing them post on clinicaltrials.gov but do you think Pain will be reporting the results of these trials as they are completed, do you kind of expect Pfizer to make that information public or do you think it's the kind of thing that they'll just keep to themselves and the next thing you know, in the middle of 2015 we'll see an NDA filing? James E. Brown: I think the more likely scenario is the latter one. I think you'll have to track it with clinicaltrials.gov and I don't think that they will talk publicly about the results. Now as they get closer and closer to this, these are not major things that have to be done and now it's getting more and more to its positioning vis-a-vis Purdue and OxyContin TR. So I can see them wanting to keep things as close to the vest as they can and so I would expect that you'll hear very little until you get the thing submitted and they won't announce that until they absolutely have to because they don't want to let their competition know what's going on. Jason Napodano - Zack’s Research: Got you. Okay, that makes sense. As far as like the formulation work that they've done, you look on clinicaltrials.gov, and they've got formulations A through, I don't even know where they ended up, I know I think formulation K, I think was one of the ones that they are moving forward but what have you guys learned from their formulation work and what has Pain learned from their formulation work that you're thinking be transferred over to some of these other ORADUR-Opioid candidates like hydrocodone or hydromorphone? James E. Brown: First I'd like to clarify, it was actually DURECT's formulation work. We designed the dosage forms and we did all the work here, we own all the patents on it. So that's a very important distinction. And we absolutely build on whenever we do deals here direct, we do them on particular products but we retain the IP with regard to the technology platform, and that's important for us so we can apply advances that we've learnt with anything that we do. We've certainly been able to do that to help this project from our ADHD work and back and forth. So it's kind of a cross-colonization of all that. Jason Napodano - Zack’s Research: Got you. Sorry for the mischaracterization there. And then just the last question, Orient Pharma meeting with the Taiwanese FDA, is there some kind of milestone that you guys get if they initiate a Phase III study? James E. Brown: No, it's a small market opportunity. The real advantage that we've been able to have with working with them is just first of all they are really good partners, good scientists and good business people and we really appreciate our relationship with them. We obviously own the IP and could advance with anything that's been done but they have paid for all the clinical work on this project which has been great for us from a financial standpoint. We've been able to fund this program doing all the clinical work and so that's been great for us. Jason Napodano - Zack’s Research: Alright, guys, thanks a lot for the update.

Our next question comes from the line of Annabel Samimy. Please proceed with your question. Daniel Chang - Stifel Nicolaus: This is Daniel Chang in for Annabel. Had a few questions regarding POSIDUR and can you just describe some of your interactions with FDA, the types of questions they've been asking? You did talk about the ISE with a lot of different types of studies that you've done in the package. Are these focused in on any particular one of those studies, just if you could characterize those kinds of questions it's be great? James E. Brown: It's really difficult to characterize. What we basically are doing is as they come up with the question in their review process, we answer it as quickly as we can to get back to them and so far the process has been very smooth and we've been very comfortable with what we've been able to do. So I can't give you in particular lot of light. They did not focus on one given area more than another. I think they have, they send it out to their various teams that is evaluating their components and so they've been getting back if they have questions and we've been trying to respond in a timely manner. Daniel Chang - Stifel Nicolaus: Okay, great. What are your thoughts on possible post-marketing study, should this product get approved in February? Are there plans to start doing those and any timeline for launch if those get approved then? James E. Brown: Certainly we have both of those plans laid out and we simply don't want to tip our hand to Pacira, so I won't be saying much about that. I believe we have a superior product hands down and I think we'll – but it's not to say there's not room for both products in the marketplace. I think I am so pleased that they are out there because they're really teaching the world how important it is to try to reduce the narcotics, they aren't able to do it particularly well on their own, they have to use cocktails, but nonetheless they are showing the importance of the pharmacokinetic advantage which we are happy to see. And so we can call fall along with I think more meaningful surgeries and trials and show the world what it really can be. We've known there's been a strong desire for this product. They were out there with Skyepharma many years ahead of us which we first started, but we're coming. Daniel Chang - Stifel Nicolaus: Okay. Regarding that partnership discussions, can you just talk about some of the key concerns that are coming up, and I think you mentioned something about debt structures, to you what would be the ideal type of partnership? James E. Brown: So for us, the debt structure is a different thing. The debt structure is if we commercialise it ourselves and Matt's done a good job of teeing up some opportunities for us to be able to fund this program ourselves. It's always been one that's very intriguing to want to do. We've seen how well Pacira has done it; it went from ground zero to being quite successful from a corporate standpoint and starting to get some sales which are nice to see. So I think they were up 30% quarter-over-quarter. They were $20 million last quarter which is great. So they are out there, they are doing well, and you can do it with 60 to 80 sales reps because it's [surgical suite] [ph] sales force. Matt's teed it up for us so we will be able to pull that debt structure against the potential revenue stream of this product on approval. So should we decide to commercialize this product, we will be able to do that. And so the make or buy for us is, what kind of value can we create for direct shareholders by virtue of hanging on to this product, and there are very few products that come along during your career that have this kind of potential that can be achieved without going to general practitioners and the like where you can really grow and make a difference in the marketplace, and we think we're going to be a fast follower with a superior product and that's a great place to be. And so that's one strategy. The other strategies would be some kind of partnership, either a full-on where we just license it out to someone, or something where we do after approval, or even maybe prior to approval, some kind of co-marketing thing where we have it as when I was back at ALZA we did a couple of things where we did the [inaudible] slowly actually returned to the originator or vice versa. So you can have these things going either direction. Daniel Chang - Stifel Nicolaus: If you do end up launching yourself, what kind of upfront debt would you think you would need? Matthew J. Hogan: I guess rather than answer it right now, we're still forming all those plans, but if you take a look at how much money Pacira spent in the first year, that's a good ballpark. And just to clarify I mean what we've been doing is talking to a number different financial groups who are interested in providing debt around a commercial launch that won't necessarily take regulatory risk but they will assess and take commercialization risk, and so it's not like today we have something formally committed to but we're in discussions with a whole number of groups that would provide that and I guess I'm pretty darn confident that we could provide the funding for it with the debt structure. James E. Brown: And the only thing I would add to that is, if you look at their cost versus ours, the one advantage – not one but one of the advantages we have on the manufacturing side for them is we're very simple solution, ours doesn't require [inaudible] or a very stable that kind of thing. Theirs is a liposomal thing, those have always been a challenge to make and ship and everything else. So we don't have that additional burden of a facility and cost of goods that they have, and so that's a nice advantage to us kind of getting out of the gate, and that's what's hopefully being able to learn where they tripped looking for that stone in the path, that kind of thing. Daniel Chang - Stifel Nicolaus: Great, thanks very much, and good luck going into the PDUFA.

Our next question comes from the line of [Jeffrey DeSeibert] (ph). Please proceed with your question.

Three questions on three different topics. First of all in the REMOXY area, can you comment or do you have any color to give us on the FDA's approval of Zohydro and should that be causing any alarm bells to ring that a single drug opioid was approved without any abuse deterrents characteristics? Matthew J. Hogan: No I wouldn't say that, Jeffrey. The FDA has to follow the guidelines that are laid out there and Zogenix did follow and did all the work they needed to, to get approval for that product. However when the FDA did approve them, they are doing it with as you can see a more strict classification of hydrocodone. You now see it as a Schedule II versus a Schedule III and they've done that class-wide. They also have put much more stringent REMS on the program as well. So I guess that's what I would say.

So you don’t think the FDA has kind of opened a door that other groups might slip through? Matthew J. Hogan: I don't think so. I think what you'll see is – I think if there's an abuse deterrent formulation out there, I would be quite surprised if the FDA were to approve non-abusable form. James E. Brown: This is the first hydrocodone standalone they've ever faced. Matthew J. Hogan: Exactly, right. So for example I'd be quite shocked actually if the FDA were to approve an oxycodone without any abusive deterrent. I don't think we'll see it. We saw them already toll the original oxycodone for that, right. And I think if somebody comes along with a hydrocodone product that is abuse deterrent, something we could possibly do with our order technology, then I think the question would be how much longer after approval you could show a Phase IV work and post-marketing research that will less abuse with the [indiscernible] product versus the Zohydro as an example. They may well be under at risk.

Alright, thank you. And I guess the corollary to that, given that Zogenix is a Relday partner, do you believe that the approval is material in terms of their ability to bring Relday forward or you don't think it's actually relevant? Matthew J. Hogan: I think it's actually very material and I'm hoping now that they have this behind them. I was hoping for a decision one way or the other, right, and I'm glad that they were able to get it approved and now they hopefully can strengthen their company to the point where they can afford to take Zohydro forward, I mean Relday forward.

Alright, thank you. Now turning to POSIDUR and then coming back to ask questions, I'm sure you'd prefer not to be asked, but in terms of your interaction with the FDA and in light of the experience of [indiscernible] in terms of the process, can you talk a little bit more about whether there is anything you have seen so far either at the mixed-stage review or I presume you've received the papers for the late-stage review that is causing you undue concern as to – ultimately I think many of us believe the biggest question mark will be around ISE and the fact that the pivotal Phase III was not statistically significant, are you seeing questions around that that cause you concern? James E. Brown: First off, there isn't a list of questions for the final stage of review. They just ask questions as they come up with it. From here on now, it's kind of if they come up with something then they'll ask it. As far as that [best] (ph) trial, we've laid that to rest starting at the pre-NDA meeting actually over a year and a half ago when we met with them and we described not that trial as our pivotal trial but rather the hernia trial and the shoulder trial as our two pivotal trials. And that's been our approach, that's been what we discuss with them and that's been their approach in accepting the NDA and that is their – the review that they are doing is with the shoulder trial and the hernia trial as our pivotal trials. Not to say that [best] (ph) is forgotten because it's not. It's tremendously important for safety in particular. We've got 300 somewhat patients with whole monitoring and showing the systemic safety components of that which are very favorable and so that's all part of the story. But then as I was breaking out the integrated summary of efficacy that breaks down, you can see that we can take various components of that because we've never – but for the way we select it to review those data, we could have had a distinctly significant trial out of this but we picked the wrong endpoint. That being said, when you do the ISE, you can actually look and say, what does the data actually tell us, what did the data tell us and we were able to do that and we saw not only that we won on soft tissue and won on hard tissue but then we've also been able to do something that placebo has not been able to do, and that is we beat naked bupivacaine in three trials. And so that's very important and we think they will be very important obviously post commercialization.

Alright, thank you. And then coming back to the all important question of money and more specifically being able to pay the bills, looking at your September 30th cash and the timeline you're looking at, can you give us a little bit more of color on the various discussions that are taking place, and more pacifically in the last couple of calls you had expressed a reasonable degree of confidence that a deal of some type would get done or might get done in 2013, we're less than 60 days from the end of the year, do you still have that same degree of optimism from amongst the various discussions that are hopefully at quite an advanced stage something will mature this year? James E. Brown: Why don't I take a stab at that, I'll start with that last part of the question first and then work backwards. I don't know what optimism we expressed at what call but I think that we continue to talk to a number of parties about a number of programs, and yes, it's still feasible that we might get a deal done this year. That's also to say we might not. But we're in discussions such that that is possible, and those may be everything from a large deal around POSIDUR to something more modest around one of the other earlier-stage programs. In terms of financial strategy, I think a lot of the effort as we talked about earlier in this call was sort of trying to tee-up post approval options for us which are a little bit more debt oriented. And then I think the last part of the comment might be, what we do as a company constantly is juggle kind of where the stock price is , what our cash position is, what our firm rate is like, what future milestones and news flow is coming, and where we think these prospects are and partners are in sort of coming up with our funding strategy. And while we're up maybe 60% or 65% year-to-date from a stock price standpoint, we're still sort of torn by the fact that when we look at REMOXY and POSIDUR, it's kind of a hard $50 million market value doesn't really excite us. So it would be irresponsible to say we'll never raise any more money, but if we did do something at this valuation, we would certainly be biased to make it small rather than large, that's for sure. So I don’t know if that was helpful but I tried to touch on all parts of your question.

So if I could just follow-up with a question on debt strategies, I mean obviously if there were to be a favorable FDA decision on POSIDUR, which is less than 100 days away, that would be not just meaningful from a business viewpoint but do you believe that that would give you access to this debt market like even if your inclination were not to go for launching the product or to directly launch the product on June [indiscernible] but rather just to buy some breathing time so you could negotiate better deals or explore other avenues, do you believe that debt market is only open to you if you're going to launch on your own or you think it's just generally open to you? James E. Brown: I follow your question. Actually I think today if we felt like pre-PDUFA date we wanted to put a debt structure in place for, I'll pick a number, $15 million or $20 million, we could easily do that. Now if we are talking larger than that which would be what [indiscernible] want to fund our real good commercial launch, that kind of debt structure would be something that's more dependent on post-approval. But I think even today if we felt like going to the group of people that are known as venture debt investors, we could easily put $15 million or $20 million in place in a couple of weeks. So I think if we went – but the way those structures work is there is typically a three to four year maturity. If we wanted something that's more like seven year maturity and larger dollars involved, then that would be more than post approval scenario.

Right, okay that's very helpful because even a three year maturity takes you comfortably beyond that approval date for REMOXY where perhaps we all have now a greater degree of optimism on the outcome there and by 2016 you might actually begin to see the first revenues, I mean modest but still some revenues, coming in? James E. Brown: Yes, absolutely.

Alright, thank you very much, very helpful answers.

(Operator Instructions) It appears there are no further questions at this time. Do you have any closing comments? James E. Brown: Other than to thank you all for your continued support, and as you all know, if you have questions at any time feel free to call the Company and we'd be happy to go on the phone and talk things through. Thank you very much. Bye-bye.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.