DURECT Corporation

Greetings and welcome to the Durex Corporation second quarter earnings conference 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 Papp, Chief Financial Officer. Thank you, sir. You may begin.

Good afternoon and welcome to Direct Corporation's second 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 the development of Larzucosterol, expected product benefits, market potential, clinical trial results, regulatory approval, and the company's financial projections. These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements, including the risk that Larzucosterol does not meet the endpoints in the affirmed trial. 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 second quarter 2023 financial results. Our total revenue in the second quarter were $2.1 million, similar to the prior year. R&D expenses were $7.9 million compared with $8.8 million for the prior year. The decrease was primarily due to lower employee-related costs and contract research expenses partially offset by higher costs associated with the affirmed trial and higher contract manufacturing costs. SG&A expenses were $3.8 million compared with $4 million for the prior year. This decrease was primarily due to lower patent expenses and recruiting costs. As of June 30, 2023, we had cash and investments of $34.9 million, as opposed to $43.6 million at December 31, 2022. Subsequent to the end of the quarter, in July 2023, we completed a registered direct offering, raising $13.8 million in net proceeds. Our cash burden in the second quarter was approximately $10.1 million, excluding proceeds from sales under our ATM program, and we believe our cash on hand is sufficient to fund operations through mid-2024. Now, I would like to turn the call over to our CEO, Jim Brown, for an update on our programs.

Thank you, Tim. Hello, everyone. Thank you for joining us today for our second quarter 2023 update. We had a productive second quarter during which we achieved a significant milestone on our journey toward completing the AFIRM Phase 2B clinical trial for Lorsucosterol and alcohol-associated hepatitis. In June, we announced that we had completed enrollment for AFIRM, and we continue to be on track to report top-line data in the fourth quarter of this year. We are eagerly anticipating this event, which we believe has the potential to be transformative for direct and our shareholders. Our primary focus as a company remains gaining approval for Losucosterol and AH and bringing this potentially life-saving therapeutic to patients with no effective treatment options today. Assuming a positive outcome from the firm, we plan to review the results with the FDA in the first quarter of 2024. If approved, Larsuclosterol would be the first FDA-approved treatment for AH, and we look forward to the possibility of bringing this potentially life-saving therapeutic to patients with no effective therapies available today. Furthermore, during the second quarter, the American Journal of Gastroenterology published clinical data from our Phase IIa trial in AH, and we held an AH-focused KOL event. Lastly, we're excited to announce the expansion of our epigenetic modulator platform into the field of oncology. By leveraging our expertise in epigenetic modulation, we have internally developed multiple new chemical entities that we think have attractive properties for the potential treatment of both solid and liquid tumor types. I'll come back to our new oncology program in a few minutes. But first, I'd like to provide a quick refresher on our AH program. as we get closer to the upcoming data readout. As I mentioned, we completed enrollment in our FIRM trial in June of this year. We follow these patients for 90 days, so our last patient last visit will be in early September, which puts us on track to report top-line data in the fourth quarter. As a reminder, FIRM is a placebo-controlled, double-blind, multinational study with two active dosing arms and a placebo arm of approximately 100 patients each. In total, we randomized and dosed 301 patients with severe AH, which are patients with MELD scores ranging from 21 to 30 and moderate discriminant function scores greater than or equal to 32. The primary endpoint for AFIRM is the difference in mortality or liver transplant at 90 days between marsucosterol treatment and placebo. We enroll patients in Affirm through a global network of clinical sites, including leading hospitals in the United States, Australia, the EU, and the UK. 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 Leucocosterol AH program fast-track designation, and we are hopeful that a positive result in Affirm could support an NDA filing. With this in mind, leucoclosterol has the potential to be the first FDA-approved treatment for AH where there is a substantial unmet need for patients. Our confidence that the affirmed trial will be successful is supported by our compelling Phase IIa study data, including the recently published comparisons, the mechanism of action of leucoclosterol, 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. We designed AFIRM 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 given that based on historical data, approximately 26% of hospitalized AH patients are expected to die within 28 days. We also observed consistent improvements and key biochemical markers, including bilirubin level, MELD score, and legal scores across patients and doses. In the second quarter, the data from our Phase IIa trial were published in 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 Steatohepatitis, or DASH, consortium. While the sample sizes were small, and these were not part of a controlled study, these comparisons indicate that severe AH patients treated with either 30 milligrams or 90 milligrams of leucicosterol had statistically significant lower LEEL scores compared to patients treated with the standard of care, including steroids. LEEL scores, as a reminder, are a predictor of mortality in liver disease. In addition, liver enzymes levels decreased rapidly in the lasucosterol-treated patients, including a statistically significant reduction in the liver enzyme ALT. We believe these results provide further evidence of the potential for lasucosterol as a treatment for AH. In May, we hosted a KOL event for investors to provide physician perspectives on this devastating disease. We were pleased to be joined by Dr. Paul Gaglio from Columbia Presbyterian and Dr. Brett Fortune from Montefiore Agitai. They were able to draw from their wealth of experience treating AH patients and share their views on the unmet need in AH and the potential role Leucocesterol could play to transform the treatment of this highly lethal disease. The slides and audio from this presentation are available on our website. During our KOL event, we shared additional information on the commercial opportunity for Leucocesterol. and if we attain approval, our approach to building for a successful launch. In addition to its 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, in addition to the potential saving of patients' lives, Leuciclosterol represents a potential multibillion-dollar opportunity in the United States alone. It could simultaneously provide overall cost savings to the healthcare system. We've begun to lay the groundwork for potentially commercializing varicosterol in the United States and believe we can launch the product effectively through a moderately sized hospital-focused sales force. We also continue to build awareness around the role of epigenetic regulation in acute diseases like AH. As one of these initiatives, we launched a new disease education website that you can find at www.exploreahepigenetics.com to elucidate the role of the epigenome in AH. AH is also a global concern, allowing marsucosterol the potential to serve ex-US AH patients and their healthcare system. These ex-US markets represent additional attractive commercial opportunities. Because we enroll patients from a global site network We believe a positive result from Affirm may support regulatory filings in the EMA and other regions. We are also pleased to announce the expansion of our epigenetic modulation platform into the field of oncology. Our mission at Direct is to be a global leader in the emerging field of epigenetic medicine, and this latest development is a significant step towards achieving that goal. Aberrant DNA methylation has been shown to play an important role in the development of tumors. As a result, we believe DNMT inhibitors have significant potential as a drug class for the treatment of cancer. Building on our knowledge of epigenetic regulation and our unique understanding of DNMTs, we have focused on a novel approach to DNMT inhibition. The inhibition of DNMTs is a well-established and highly desired target in oncology. Working with teams of experienced chemists and biologists, we have created a large complement of internally developed novel small molecule DNFT inhibitors that exhibit broad spectrum activity against multiple liquid and solid tumor types. We currently have multiple new chemical entities that are in preclinical development for a variety of oncology applications. These compounds display unique and desirable physicochemical properties and pharmacokinetic profiles, as well as favorable tolerability. By the end of 2023, we intend to select a product candidate to advance into clinical trials in cancer patients. Our goal for this program is to be prepared to initiate clinical trials by the end of 2024. We completed a firm enrollment in the second quarter and are on track to report top-line results in the fourth quarter of 2023. If a firm is successful, we intend to review the results with the FDA in the first quarter of 2024. We are leveraging our knowledge of epigenetic regulation to the field of oncology and look forward to selecting a lead product candidate from our NCE development program and advancing into the clinic. We would now like to take any questions you may have.