DURECT Corporation

Greetings and welcome to the Direct Corporation fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to our host, Tim Papp, Chief Financial Officer. Thank you. You may begin.

Good afternoon and welcome to Direct Corporation's fourth quarter 2022 earnings conference call. This is Tim Papp, Chief Financial Officer of Direct. 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 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. To begin, I would like to review our fourth quarter and full year 2022 financial results. Total revenues in 2022 were $19.3 million compared with $14 million in 2021. 2022 revenues included $10 million of milestone payments related to our POSIMR agreement with Inacol, while 2021 included approximately $5.2 million of revenue attributed to an upfront license payment and sale of manufacturing supplies and excipients. Inacol commercially launched POSIMR in September 2022. For the fourth quarter of 2022, revenues were $3.3 million compared with $7.3 million for the prior year. This decrease is due to the INICOL upfront license revenue we recorded in Q4 2021. R&D expense was $36.9 million in 2022 as compared to $31.8 million for the prior year and $10 million for the fourth quarter compared with $8.4 million for the prior year. The increases were primarily due to higher clinical trial expenses for our ongoing Affirm trial, contract manufacturing expenses for Larcico Sterol, and employee benefit costs partially offset by a decline in R&D spending on Posimer. SG&A expenses were $15.9 million as compared to $14.4 million for the prior year, primarily due to higher employee benefit costs and patent expenses. For the fourth quarter, SG&A revenues were $4.3 million compared with $4.5 million for the prior year, so relatively flat. As of December 31st, 2022, we had cash and investments of $43.6 million as compared to $70 million at December 31st, 2021, and our cash burn for 2022 was $26.4 million. We also completed a registered direct offering in February 2023, raising $8.8 million in net proceeds, bringing our pro forma cash to $52.4 million. We believe our cash on hand is sufficient to fund operations into the first quarter of 2024. Now, I would like to turn the call over to Jim for an update on certain of our programs.

Thank you, Tim. Hello, everyone. Thank you for joining us today for our fourth quarter 2022 update. The fourth quarter was a strong one with consistent forward progress on our affirmed trial. We are excited to remain on track to announce top line results from our Phase IIb AFIRM trial in the second half of this year. Enrollment continues to progress nicely. We have now dosed more than 260 patients out of our target of 300. We continue to expect completion of enrollment in the second quarter of 2023. If successful, we believe AFIRM has the potential to support an NDA filing. Our goal is to advance losuclosterol as quickly as possible to approval in AH, an indication for which there are no approved therapeutics. The primary focus of the company is on completing enrollment in our Phase IIb AFIRM trial for losuclosterol in patients hospitalized with severe AH. AFIRM is a 300-patient, placebo-controlled, double-blind, multinational study with two active dosing arms and a placebo arm of 100 patients each. We currently have over 60 sites open, including leading hospitals in the United States, Australia, the EU, and the UK. We are working with renowned liver centers and some of the world's preeminent thought leaders in AH. The FDA has granted our Larcico-Sterile AH Program Fast-Track designation and a positive result in a firm could support an NDA filing. With this in mind, losucosterol has the potential to be the first FDA-approved treatment for AH, where there is a substantial unmet need for patients. As a reminder, AH is a lethal and costly disease that represents an unmet medical need with no approved therapy. AH results in about 158,000 hospitalizations per year in the United States, And hospitalized patients have a 90-day mortality rate of approximately 30%. This suggests over 40,000 deaths in the United States each year from AH. We estimate that in the U.S. alone, on average, more than 100 people die every day from this disease. Our goal as a company is to bring a safe and effective treatment to these patients to help alleviate the suffering and save lives. AH continues to represent a significant cost burden to both patients and the healthcare system. For the vast majority not receiving a transplant, the average cost of treating a hospitalized AH patient can range from approximately $50,000 to approximately $150,000. For those patients who receive a liver transplant, the average cost is approximately $875,000 per transplant in the United States, and these patients are subject to a lifetime of immunosuppression. Our sucrosterol represents a potential multi-billion dollar opportunity in the U.S. alone, while simultaneously providing substantial overall cost savings to the healthcare system. AH is also a global concern, allowing our sucrosterol the potential to serve ex-U.S. AH patients and their healthcare systems. These ex-U.S. markets represent additional attractive market opportunities. Our confidence that the affirmed trial will be successful is driven by our compelling Phase IIa study data, the mechanism of action of larciclosterol, which ties directly into the biology of AH, and our multiple preclinical animal studies, where we observed a profound survival benefit in multiple relevant acute organ injury models. In summary, We continue to make great strides with Affirm and have enrolled more than 260 patients to date and have over 60 clinical sites open. We are on track to complete dosing the last patient in the Affirm trial in the second quarter of this year, which would enable reporting of top-quality results in the second half of this year. If successful, we believe Affirm has the potential to support an NDA filing. We would now like to take any questions you may have.