DURECT Corporation

Greetings and welcome to the Direct Corporation first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Tapp, Chief Financial Officer. Thank you, Tim. You may begin.

Good afternoon and welcome to Direct Corporation's first quarter 2023 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 10K and 10Qs under the heading Risk Factors. To begin, I would like to review our first quarter 2023 financial results. Our total revenues in the first quarter were $2.1 million, compared to $1.9 million for the prior year. This increase was due primarily to an increase in collaborative R&D revenue. R&D expense was $8.6 million for the first quarter compared with $8.2 million for the prior year. The increases were primarily due to higher clinical trial expenses for our ongoing affirmed trial and contract manufacturing expenses for Lursucosterol. For the first quarter, SG&A expenses were $4.1 million compared with $3.7 million for the prior year. This increase was primarily due to higher market research expenses, higher audit related expenses, as well as higher employee expenses. As of March 31st, 2023, we had cash and investments of $44.4 million as compared to $43.6 million at December 31st, 2022. We completed a registered direct offering in February 2023, raising $8.8 million in net proceeds. Excluding the proceeds from the financing, our cash burn in the first quarter was approximately $8 million. We believe our cash on hand is sufficient to fund operations into the first quarter of 2024. Lastly, I would like to highlight that we will be hosting a KOL event in New York City on May 16th. We are pleased to be hosting Dr. Paul Gaglio from the Columbia University Department of Medicine and Dr. Brett Fortune from the Albert Einstein College of Medicine Department of Medicine and Division of Hepatology. Dr. Gaglio and Dr. Fortune are both renowned hepatologists with a wealth of experience treating alcohol-associated hepatitis, or AH. We look forward to hearing their insights about the current treatment paradigm for AH and the unmet medical need in this highly lethal disease. Several members of our leadership team will join Drs. Gaglio and Fortune to discuss the ongoing development and commercial landscape for Lorsuca sterol NAH in advance of the top-line readout from Affirm. You can find the details for the webcast of the event in our press release from April 27th on our website. Now, I would like to turn the call over to our CEO, Jim Brown, for an update on certain of our programs.

Thank you, Tim. Hello, everyone. Thank you for joining us today for our first quarter 2023 update. We're excited about the continued progress for our lead clinical program, Low Sucosterol for the Treatment of Alcohol-Associated Hepatitis. 2023 is poised to be a significant year for Direct, as we look forward to completing our FIRM trial and reporting top-line data by the end of the year. If successful, we believe a FIRM has the potential to support an NDA filing. Our primary focus as a company remains gaining approval for lisucosterol in AH and bringing this potentially life-saving therapeutic to patients with no effective treatment options today. We are nearing our enrollment target of 300 patients in our phase 2B affirmed trial with more than 285 patients dose to date. We continue to expect completion of enrollment by the end of this quarter. As a reminder, 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're enrolling patients with severe AH, which are patients with male scores ranging from 21 to 30 and moderately discriminated function scores greater than or equal to 32. The primary endpoint for AFIRM is reduction in mortality or liver transplant at 90 days. We've enrolled patients in Affirm through a global network of clinical sites, including leading hospitals in the U.S., Australia, EU, and the U.K. Our sites include renowned liver centers, and we are working with some of the world's preeminent thought leaders in AH. The FDA has granted our leucicosterol AH program fast-track designation, and we are hopeful that a positive result in Affirm could support an NDA filing. With this in mind, Larciclosterol has the potential to be the first FDA-approved treatment for AH where there is a substantial unmet need for these patients. We designed Affirm to be a potentially pivotal trial based on our Phase IIa data. In our open-label Phase IIa trial, all 19 patients survived at 28 days, an encouraging result, giving that approximately 26% of hospitalized AH patients die within 28 days based on historical data. In April, we announced that our Phase IIa data had been published online by the American Journal of Gastroenterology. This peer-reviewed article includes cross-study comparisons with well-matched severe AH patients from a contemporaneous trial conducted by the Defeat Alcohol Steal Hepatitis or DASH Consortium. While the sample sizes were small and these patients were not part of a controlled study, these comparisons indicate that severe AH patients treated with either 30 milligrams or 90 milligrams of leucocosterol has statistically significantly lower allele scores compared to the patients treated with the standard of care, including steroids. In addition, liver enzyme levels decreased rapidly in the leucocosterol-treated patients, including statistically significant reductions in ALT. We believe these results provide further evidence of the potential for leucocosterol as a treatment for AH. Our confidence that the AFIRM trial will be successful is driven by our compelling Phase IIa study data, including the recently published comparisons, the mechanism of action of Lusheco sterol, which ties directly into the biology of AH, and our multiple preclinical animal studies, where we observed the profound survival benefit in multiple relevant acute organ injury models. I'd like to briefly turn to the market opportunity for AH. In addition to this high mortality rate, AH represents a significant cost to the U.S. healthcare system, with over 150,000 hospitalizations attributed to AH at a cost of between $50,000 to $150,000 each. As a result, our Ciclosterol represents a potential multibillion-dollar opportunity in the United States alone and could simultaneously provide substantial overall cost savings to the healthcare system. We will discuss the economic opportunity for leuciclosterol further during our upcoming KOL event. We've begun to lay the groundwork for potentially commercializing leuciclosterol in the U.S. and believe we can effectively launch the product through a modestly sized hospital-focused sales force. We are also continuing to build awareness around the role of epigenetic regulators in acute diseases like AH. AH is also a global concern, allowing LarcicoSterile the potential to serve ex-US AH patients and their healthcare system. These ex-US markets represent additional attractive market opportunities. Because we enroll patients from a global site network, we believe a positive result from a firm may support regulatory filings in the EMA and other regions. In summary, We continue to make great strides with Affirm and have enrolled more than 285 patients to date. We are on track to complete dosing the last patient in the Affirm trial this quarter, which would enable reporting of top line results in the second half of this year. If successful, we believe Affirm has the potential to support an NDA filing. With that, we now like to take any questions you may have.