DURECT Corporation (DRRX)

Q1 2010 Earnings Call Transcript

May 10, 2010 4:30 pm ET

Executives

Matt Hogan – CFO

Jim Brown – President and CEO

Joe Stauffer – Chief Medical Officer

Analysts

David Amsellem – Piper Jaffray

Andrew Hilgenbrink – Jefferies & Co.

Jim Molloy – Caris & Co.

Jeffrey DeSeibert – KB Advisors

Presentation

Operator

Thanks so much for holding, everyone. Welcome to the DURECT first quarter earnings conference call. Just as a reminder, today's call is being recorded. Now at this time, I will turn things over to our host, Mr. Matt Hogan. Matt, please go ahead.

Matt Hogan

Okay, thank you. Good afternoon. Welcome to our first quarter 2010 earnings conference call. This is 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 our business. We will then open up the call for a Q&A session.

Before beginning, I would like to remind you of our Safe Harbor statement. During the course of this call, we may make forward-looking statements regarding 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 including in our SEC filings, including our 10-K and our 10-Qs under the heading Risk Factors.

Let me now turn to our financials. Total revenue was $7.7 million in the first quarter of 2010, which compares to $6.2 million in the first quarter of 2009. Revenue from our R&D collaborations was $3.8 million in the first quarter this year, as compared to $3.7 million in the first 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.

Product revenue from the sale of ALZET pumps, LACTEL Polymers, and certain excipients to King increased by approximately $1.4 million or 59%, from $2.4 million in the first quarter last year to $3.9 million in the first quarter this year. Our gross margin on these products was around 64% in the first quarter. These businesses continue to be strongly cash flow positive for us.

R&D expense was $9.4 million in the first quarter this year, as compared to $9.9 million in the first quarter last year. Now these figures included stock-based compensation of $1.3 million in the first quarter this year, and $2.3 million in the first quarter last year. So if we exclude stock-based comp, R&D expense actually increased by about $522,000.

SG&A expenses were $3.5 million in the first quarter, as compared to $4.3 million in the first quarter last year. These figures included $669,000 of stock-based compensation in the first quarter this year and $1.2 million of stock-based compensation in the first quarter last year. Excluding the stock-based compensation, SG&A expense declined by about $253,000.

Our net loss for the first quarter was $6.6 million, compared to a net loss of $8.7 million for the same period last year. Probably a more relevant financial metric for us than our net loss was net cash consumed during the quarter; that figure was $5.8 million. So at March 31, we had cash and investments of $35.8 million, compared with cash and investments of $41.6 million at December 31.

Thanks again for joining the call and I will now turn it over to Jim for a non-financial discussion.

Jim Brown

Thank you, Matt. The first quarter was a strong one for DURECT. With regard to POSIDUR, we started BESST, the pivotal U.S. Phase III study. Nycomed continued their Phase II studies in Europe, and we amended our licensing agreement with Nycomed to separate funding and control of development for the U.S. and EU markets.

For REMOXY, we continue to support King's progress towards resubmission of the NDA in the fourth quarter this year. ELADUR started a large Phase II study in chronic lower back pain, and we continued activity in the licensing front with multiple programs.

Let us now go through our major programs in a little more detail.

Starting with REMOXY. REMOXY is a 12-hour extended release and tamper-resistant form of oxycodone. Our ORADUR technology is resistant to snorting, smoking, injecting, high-heat exposure, and dissolving in drinks. Regulatory history on this product shows us that the NDA was submitted in June of 2008 and it was granted priority review. However, a Complete Response letter was received in December of 2008. King then assumed control of the NDA from Pain Therapeutics in March last year and King met with the FDA in July of 2009, and they stated after that meeting that they had established a path to address the FDA's comments. King expects to resubmit the NDA in the fourth quarter of this year, with an expected PDUFA date six months after re-submission.

If you look at the potential financial impact of REMOXY to DURECT, it is significant. The oxycodone sales in 2009 were $3.2 billion, and DURECT will receive a royalty on King sales that start at 6% and go to 11.5%, with the 11.5% being close to about $1 billion. So, we take and make some assumptions – we assume that the REMOXY annual sales are somewhat in the range of $500 million to $900 million. That would represent about 16% to 28% market penetration. DURECT would yield royalties that would range between $36 million and $72 million. That will make a big difference to a company that has an average burn rate over the last five years of $14 million.

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