DURECT Corporation (DRRX) Q4 2024 Earnings Call Transcript

Greetings, and welcome to the DURECT Corporation Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please signal an operator by pressing *0. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Papp, Chief Financial Officer.

Good afternoon, and welcome to DURECT Corporation's fourth quarter 2024 earnings conference call. This is Timothy Papp, Chief Financial Officer of DURECT Corporation. Before we begin, I would like to remind you of our Safe Harbor statement. During the course of this call, we may make forward-looking statements regarding DURECT Corporation's product development, expected product benefits, our development plans, future clinical trials, or projected financial results. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Further information regarding these and other risks can be found in our SEC filings, including our 10-Ks and 10-Qs under the heading Risk Factors. To begin, I would like to review our fourth quarter and full year 2024 financial results. The following financial information relates solely to our continuing operations and therefore does not include the operations of our Allset product line, which we sold in the fourth quarter of 2024. Total revenues in 2024 were $2 million compared with $2.6 million in 2023, the prior year, and $0.5 million for the fourth quarter of 2024 compared to $0.9 million for the prior year. 2024 revenues were lower due to lower earn-out revenue from Indivior, lower revenue recognized from feasibility agreements with other companies, and lower sales of excipients. R&D expense was $10.4 million in 2024 as compared to $29.4 million for the prior year, and $1.9 million for the fourth quarter compared with $5.6 million for the prior year, 2023. The decreases were primarily due to lower clinical trial-related expenses following completion of the Affirm trial. We also experienced lower contract manufacturing expenses and other external expenses as well as lower employee-related costs. SG&A expenses were $10 million in 2024 as compared to $12.7 million for the prior year, and $2 million for the fourth quarter of 2024 compared with $2.2 million for the prior year. These decreases were primarily due to lower employee expenses, as well as lower consulting, patent, and audit-related expenses. As of the end of 2024, we had cash and investments of $12 million as compared to $29.8 million at December 31, 2023. We believe our cash on hand is sufficient to fund operations through the third quarter of 2025. As I previously mentioned, we completed the sale of the Allset product line during the fourth quarter of 2024. We used a portion of the proceeds to repay the remainder of our term loan and are now debt-free. This transaction both strengthened our balance sheet and was consistent with our corporate strategy of streamlining our operations to focus on developing larsucosterol for alcohol-associated hepatitis. We are continuing to explore all options for funding the clinical development of larsucosterol, including strategic partnerships and financing through the capital markets. Now I would like to turn the call over to Jim Brown for a business update.

Thank you, Tim. And hello, everyone. Thank you for joining us today for our fourth quarter 2024 update. I would like to use our call today to provide some context for the rare opportunity we have here at DURECT Corporation. Our lead asset, larsucosterol for the treatment of alcohol-associated hepatitis, has shown life-saving potential for a disease with no approved therapy. About 30% of the 164,000 US patients hospitalized due to AH will die within 90 days of hospitalization. This means AH is responsible for greater than 40,000 deaths each year in the US, more than 100 people each day. This is roughly equivalent to the number of deaths from breast cancer or car accidents. But the awareness of this disease remains limited. We believe we have a potential solution that can save a large portion of these patients. In our Phase 2b trial, we saw nearly 60% reductions in mortality with both doses of larsucosterol compared with placebo in the 232 US patients. This represents approximately 75% of the total patients enrolled in the study. These results have garnered significant attention in the medical and scientific community, highlighted by the FDA granting larsucosterol breakthrough therapy designation, The New England Journal of Medicine's publication of our Phase 2b results in NEJM Evidence, and the late-breaker presentation of our top-line data at EASL last year. We are committed to developing larsucosterol to provide hope for our patients, for their families and loved ones, and for the medical professionals who have no effective treatments to offer these patients. Our sole focus as a company is to advance our Phase 3 trial. Whether through financing or business development, with such funding, we are ready to initiate our Phase 3 trial. And once underway, we expect to be able to report top-line data in approximately two years. We firmly believe that larsucosterol represents the best hope for a breakthrough in the treatment of AH and look forward to the opportunity to demonstrate this in our Phase 3 trial. We would now like to take any questions that you may have.

Our first question comes from the line of François Brisebois with Oppenheimer and Company. Please proceed. François Brisebois: Alright. Thanks, guys. Just a couple of quick ones here. Just wondering if you have an idea or you can share how much you think this trial will cost you. And then I will have a follow-up.

Sure. Yeah. I think we right now, we are estimating it would be about $20 million. There are some things that we are considering that might take it a little bit under that, but that is approximately what it would cost. François Brisebois: And two years to data, is that what you are saying?

Right. Yep. François Brisebois: Okay. Great. And then is there any just a quick chance for you to kind of elaborate a little bit more maybe on the variations in time from hospitalization to first dose that were highlighted in the recent article in the New England Journal of Medicine? So just anything there that kind of totally makes sense where you know, the issue might have been ex-US here. And that is it for me.

Yeah. You know, it does totally make sense because this is an acute assault based on chronic conditioning of the liver. So I kind of think about it that looks like a heart attack for the liver. So it is hepatitis, right? It is acute inflammation of the liver. And so time to intervention is very important. We certainly learned that in this trial. We are fortunate on the call to have both Norman Sussman and WeiQi Lin, and I think I will ask both of them in their turn to kind of speak to that and also how we are looking to address that in the Phase 3. Maybe Norman, you could start and then WeiQi can follow on.

Hi, François. The previous trials, there has been no active, there has been no effective therapy. And so time was never a factor, and that steroids, the time to dosing did not make any difference. But if you have an effective therapy in acute evolving disease, it really makes sense that it would be effective. And, you know, you saw the graphs in the New England Journal article. They are quite impressive that it clearly appears to be an effect of early dosing or dosing within the, you know, first in this case, nine days.

Yeah. WeiQi, do you want to add anything to that?

Oh, I think Jim and Norman have both answered very well about this time to treat. The importance of that. And then I think it is certainly critical to control the time to treat in this particular patient population. But I just want to add on top of Jim and Norman is that time to treat indeed contributes a large part to the differences between US and the ex-US patient population, what the difference we saw in the results. But it is just one of those. Although it is a very important factor, it is one of the multiple factors. So that is what I would like to add.

Yeah. I think that is an important point. And in the US, typically, patients were treated within four days or so. In the poorest performing region, the Franco-Belgian region, it was two weeks. So there is a substantial difference if you have got an acute circumstance to wait two weeks before you do much. And so we are really excited about what this might mean for Phase 3 because we intend to dose everyone within nine days or so in the Phase 3 trial, which will eliminate the longer-term duration. In fact, most of the patients will probably be treated very quickly based on what we have learned and anticipate that we should even, you know, possibly have a stronger signal if that is only what is the case when we look at these data. François Brisebois: Thank you.

Thanks.

The next question comes from the line of Karl Burns with Northland Capital Markets. Please proceed.

Thanks for the question. I am wondering if you can share any updates on potential strategic partnerships or business development discussions that you might be having that would support the Phase 3 study, whether it is a co-development or regional licensing or other non-dilutive opportunities? Thanks.

Yeah. Certainly. We have been, you know, in that process and we continue in that process, but I think I will let, maybe Tim since you are leading the effort, want to maybe have a comment here.

Yeah. Karl, you know, we certainly have ongoing efforts to explore the full range of possibilities to take this product forward. You know, as you can appreciate, I am sure we cannot comment on specifics or give a sense of what the timing would be, but we have been very active over the past couple of quarters certainly in having discussions, and we are optimistic that we will be able to find a solution despite the challenges of the capital markets these days.

Understood. Thanks so much.

And the next question comes from the line of Ed Arce with H.C. Wainwright. Hi. This is asking a couple of questions for us. Thank you so much for taking my questions. So first question, hi, Jim. Given the statistical significance of the 90-day mortality reduction observed in your patients in the Phase 2b Affirm study, is there a possibility to seek funding for a smaller, but more rigorous Phase 2b study to generate new data to confirm larsucosterol under tighter settings in the US market?

It is an interesting question. We actually, what we are looking at right now with our Phase 3 is a very tight study. What we are looking at here is we are taking advantage of the fact that this trial can be conducted entirely in the US where the healthcare system is more uniform than what one sees. The disease is diagnosed and patients are presented in a more timely manner as they are in the US versus ex-US. So that is the first thing that could be US. And then the next piece we are going to do is we are going to randomize by site versus central randomization. And that will hopefully eliminate any regional biases that we certainly saw with the ex-US group. And you know, we did not see nearly as much of that in the US, but when we have now with randomization. So if you have a site in New York, let us say you will, you know, you are going to receive a kit of four, two will be placebo, two will be active. And when you go burn through that, then you get another kit of four. And so we will keep the randomization balanced across the various sites. And then lastly, we are going to control that time to dose that we spoke about earlier, and that is going to be very important. So everyone using the trial will be dosed within nine or ten days or earlier, probably much earlier since it is based in the US. But to conduct another Phase 2b trial, you know what? You would have to have about 200 patients to show, you know, a reasonable signal. And by the time you have done that, you have done the Phase 3. And so I think at this point, it is faster and more cost-effective for us simply to do a Phase 3 trial rather than an underpowered Phase 2b, which might still leave you guessing. I do not know. I mean, Norman, do you have any thoughts on that?

Well, what I would say is the other trial says first of all, it was a three-arm trial that there were two doses. So we really had two active arms, and they gave nearly identical results. So in my mind, that was the equivalent of two Phase 2 trials. Also, with FDA's enthusiasm for the product, and with their saying if you have a good result in another trial, we would consider that sufficient. I do not know why we would not just move to the Phase 3 trial. It is, as Jim says, a very compact and streamlined trial.

Got it. Yeah. And this is the rationale there. And then what about opportunities? Would there be opportunities for non-funded funding in ex-US countries, just really generate new data? Perhaps in a country, you know, you mentioned trial count outs. You know, in countries with rigorous control in place. Would that be possible? They do some work outside the US.

Certainly, we could. There are obviously numerous other indications one could pursue as well, but what we are doing right now is just focusing entirely on AH. But the possibility of doing a regional study with an ex-US partner is certainly something that we would consider.

So that might indeed be, yeah. There are certain markets that like to have that for sure, and I can see it in their population. So I see. Thank you again for the questions.

Sure. Thank you.

Ladies and gentlemen, there are no further questions at this time. I would like to turn the call back to Jim Brown for closing remarks.

Thank you. And we thank you all for your time today and look forward to catching up if you have any further questions, just please reach out.

Thank you all, and take care. This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.