DURECT Corporation

Good afternoon, and welcome to our first quarter 2022 earnings conference call. This is Matt Hogan from Direct Corporation. 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 Direct'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 can be found in our SEC filings, including our 10-K and 10-Qs under the heading Risk Factors. Let me now turn to our financials, which were pretty uneventful in the first quarter. Total revenues in the first quarter of 2022 were $1.9 million compared to $2.2 million in the first quarter of 2021. R&D expense was $8.2 million in Q1 2022, as compared to $8 million in Q1, 2021. The increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for Larsukosterol. SG&A expenses were $3.7 million in the first quarter of 2022, as compared to $3.5 million in Q1, 2021, primarily due to higher patent expenses and higher consulting and market research expenses. At March 31, 2022, we had cash-in investments of $64.4 million, as compared to $70 million at December 31, 2021. That decrease was only $5.6 million, but we benefited from receiving around $4.6 million from INICOL related to the POSIMIR deal, net of our fee to the investment bank that assisted in the transaction. If you exclude this, our underlying burn rate during the quarter was $10.2 million. With that, let me turn the call over to Jim for an update on certain of our programs.

Thank you, Matt. Hello, everyone, and thank you for joining us today for our first quarter 2022 update. Our primary focus at Direct is on the affirmed trial of Larsuclosterol for the treatment of alcohol-associated hepatitis, or AH. AH is a lethal and costly disease. that is an unmet medical need with no approved therapy that results in about 137,000 hospitalizations per year in the United States and a 90-day mortality rate of approximately 30%. The average cost of treating a hospitalized AH patient can range from $56,000 to $151,000, with many patients requiring a liver transplant, which can cost upwards of $875,000. The FDA has granted our Lorsuclosterol AH program fast-track designation. A robust 90-day survival benefit in AFIRM could support an NDA filing, and Lorsuclosterol has the potential to be the first FDA-approved treatment for AH. Now let's move to our development program of Lorsuclosterol for the treatment of AH and the AFIRM trial. AFFIRM is a direct Phase IIb study of leucoclosterol in patients with severe AH. It is a placebo-controlled, double-blind, multinational study targeting 300 patients. We are pleased with the progress of enrollment in our AFFIRM trial. We have dosed more patients in the AFFIRM trial during the first quarter of 2022 than in any prior quarter, and if April's enrollment rate continues, the second quarter will be even better. It's our belief that if a firm demonstrates a statistically significant improvement in 90-day survival, it could be the pivotal study for larsuclosterol in the treatment of AH and support an NDA submission. We have now dosed patients in Australia, France, and Belgium. We made excellent progress in opening new clinical sites in the two months since our last earnings call. We are constantly working to improve site performance Since our last call, we've opened nine new sites and closed three non-performing sites for a net of six. We now have 57 sites open and are enrolling at leading hospitals in the United States, Australia, the UK, and the EU. We are nearing the completion of our goal of approximately 70 sites for the trial. We are expanding the number of sites for this trial because a handful of highly respected U.S. clinical sites became available due to the discontinuation of an NIH trial for AH. At the pace of enrollment achieved in the first quarter of 2022, we would complete dosing the last patient in the affirmed trial in the mid of 2023. We expect the pace of enrollment will improve through our clinical site expansion, clinical trial management activities, and the continued lessening of the impact of COVID on the hospitals participating in affirmed. AFIRM is a placebo-controlled trial that has three treatment arms, 30 milligrams and 90 milligrams of leucocosterol and a placebo arm. As with the Phase IIa trial, patients in the AFIRM trial receive an infusion of leucocosterol or placebo on day one, and if they are still in the hospital on day four, they receive a second infusion. The primary endpoint for this trial is 90-day survival. The main focus of the company is to execute this trial to the highest level of quality and in a timely fashion. In 2019, it was reported that there were 137,000 hospitalizations per year in the United States for AH. What physicians have available to them today primarily involves abstinence and supportive care, which includes nutrition and hydration. Corticosteroids are used in some cases but have shown no survival benefit at 90 days or at one year. There is no approved treatment for AH. A global study published in December of 2021, which included 85 tertiary centers in 11 countries across three continents, prospectively enrolled 2,581 AH patients with a median MELD score of 23.5. This reported mortality rates of 20% at 28 days, and 31% at 90 days. AH has a significant economic cost to the healthcare system. The average hospital stay for an AH patient in the United States is approximately one week, with many staying significantly longer. The average hospitalization cost for an AH patient is approximately $56,000 for patients who survive the first nine days, and approximately $151,000 for those who do not survive. Alcohol-associated liver disease is becoming a leading cause of liver transplants in the United States, with the average cost of a liver transplant exceeding $875,000. With this in mind, Larsuco sterol represents a potential multibillion-dollar opportunity that could save the healthcare system substantial costs. The REC's medical affairs team has substantially increased our AH market outreach and educational efforts to amplify our suprasteril awareness and facilitate affirmed enrollment efforts. We recently hosted the first of multiple regional affirmed study update meetings with our investigators and site study coordinators. It was held in San Francisco and was attended by 14 individuals from eight hospitals. Our upcoming meeting in Chicago is expected to have 25 individuals from 16 hospitals. We recently exhibited at three liver-focused congresses, including well-attended meetings at the Scripps Institute and at Scottsdale, Arizona. We have also retained a medical communications agency to broaden awareness of AH, the affirmed trial, and larsucosterol. Let's review why we are so optimistic about the use of larsucosterol in the treatment of patients with severe AH. AH patients face a 90-day mortality rate of approximately 30%, and there is no approved treatment. In our Phase IIa trial for leucocosterol in AH patients, all 19 patients, including the 12 severe AH patients, survived. Additionally, 14 out of the 19 patients were discharged in less than four days after receiving only one IV infusion of leucocosterol. The prognostic scores from the AH patients in this trial, including LEAL and MELD scores, bilirubin, and other biomarkers were improved compared to baseline. Lorsuclosterol was well-tolerated by all the patients at all the doses evaluated in the Phase IIa trial. There were no serious drug-related adverse events reported in this trial. In addition to the clinical trial results, we also have supporting data from numerous in vivo animal models that demonstrates lorsuclosterol's activity against multi-organ failure, which can occur in AH patients. Lorsuclosterol is an endogenous epigenetic regulator. It binds to and inhibits the activity of DNMT1, 3A, and 3B. DNMTs are epigenetic regulating enzymes that add methyl groups to DNA in a process called DNA methylation. Treatment with our sucrasterol and stressed liver cells can lead to decreased DNA hypermethylation and modulated expression of more than 1,000 genes that are associated with multiple crucial cellular signaling pathways. In July of 2019, Argemi et al. published a study in Nature Communications. In this study, the gene transcription patterns of patients with severe AH demonstrated DNA hypermethylation, altered transcriptomics, and liver cell dysfunction. The expression of DNMT1 and DNMT3A were found to be profoundly increasing in these AH patients, but not in control subjects or patients with other liver diseases that were studied. Larch sucral sterol binds to and inhibits these DNMTs. This adds to the strong rationale for evaluating Larch sucral sterol as a therapeutic agent for patients with AH. In summary, there is a huge unmet need in AH. There is no approved therapy today for AH patients, and the 90-day mortality rate is approximately 30%. AH costs the U.S. healthcare system billions of dollars per year. We are optimistic regarding the potential for success of the affirmed trial due to the results from our Phase IIa study, in vivo animal model results against multi-organ damage, and the association of large sucral sterols mechanism of action with the epigenetic dysregulation seen in patients with severe AH. We have fast-track designation for low sucral sterol in the treatment of AH. Given the high unmet need for hospitalized AH patients, the lack of current treatment options, and the high mortality rates, we believe a robust survival benefit in the affirmed trial would support an NDA filing. Next, an update on potential indications for losucosterol beyond AH. One of the indications we are considering is NASH. We've completed a phase 1A and 1B trial in more than 70 NASH patients that demonstrated reduced liver enzymes, fibrosis markers, and liver fat stiffness and elasticity, reduced circulating fats, including triglycerides, reduced cell death markers, improved insulin resistance, and a good safety profile. Other potential additional indications for leucocosterol that are supported by the preclinical data are acute kidney injury, pancreatitis, stroke, sepsis, and others. We are currently carefully planning our next indication for Larsuco sterile. Next to Posimer. Posimer is a novel, non-opioid, sustainably leased local anesthetic that is approved to produce post-surgical analgesia for up to 72 hours following arthroscopic subacromial decompression. We license the development and commercialization rights for Posimer in the United States to Intercall Pharmaceuticals. We selected Inacol as our commercial partner because of their strong commercial team and because they are focused on the post-surgical pain market. Inacol remains on track to launch POSMRI in the United States during the second quarter of this year. The direct will receive a $2 million payment upon first commercial sale with a potential of up to $130 million in additional commercial, regulatory, and intellectual property milestone payments, as well as a tiered low- to mid-double-digit royalties on net product sales in the United States. In summary, we continue to make great strides with Affirm. We have 57 clinical sites up and running. In the last two months, we've added a net of six sites. We now have clinical sites open in the United States, Australia, the UK, and the EU. At the pace of enrollment achieved in the first quarter of 2022, we would complete dosing the last patient in the Affirm trial in the middle of 2023. We expect the patient enrollment will improve through our clinical site expansion, clinical trial engagement activities, and with the continued lessening of the impact of COVID on the hospitals participating in AFFIRM. Our confidence that the AFFIRM trial will be successful is driven by our compelling Phase IIa study, the mechanism of action of larcicosterol which ties directly into AH, and our multiple preclinical animal studies where we saw a profound survival benefit in relevant acute organ injury models. We have fast-track designation by the FDA for our AH program. We expect that if we achieve a robust survival benefit, this study would support an NDA filing. Beyond AH, the mechanism of action for losucosterol provides further scientific rationale for developing treatments for other acute organ injury and chronic diseases. We would now like to take any questions that you might have.

Okay, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Again, to ask a question, press star 1 on your telephone keypad. And I'll just give it a few moments for the queue to build. Okay, our first question is coming from Kristin Kluska with Cantor Fitzgerald. Kristin, your line is open.