DURECT Corporation

Good afternoon, everyone, and welcome to the Direct Corporation third quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your touch-tone telephone. To withdraw your questions, you may press star and two. As you also know, today's event is being recorded, and at this time, I'd like to turn the floor over to Tim Papp, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, and welcome to Direct Corporation's third quarter 2023 earnings conference call. Before we begin, I would like to remind everyone of our forward-looking statement. During the course of this call, we will make forward-looking statements regarding the results and clinical data from the AFIRM trial, development plans for Larsuco sterol, expected product benefits, market potential, regulatory plans, potential 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 future trials of Lirsucosterol do not confirm the results from the affirmed trial. 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 third quarter 2023 financial results. Our total revenues in the second quarter or third quarter were 1.7 million compared with 12 million for the third quarter of 2022. This difference was largely due to the recognition of $10 million of milestone revenue related to our licensing deal within a call that we recognized in 2022. R&D expenses were $7.2 million compared with $9.9 million for the prior year. The decrease was primarily due to lower clinical trial and contract manufacturing expenses for Larsuka sterol and the elimination of feasibility programs, offset partially by an increase in spending on other R&D projects. SG&A expenses were $3.8 million compared with $3.9 million for the prior year, so essentially unchanged year over year. As of September 30, 2023, We had cash in investments of $39.1 million compared with cash in investments of $43.6 million at December 31st, 2022. During the third quarter, we completed a registered direct offering raising $13.9 million in net proceeds. Our cash burn in the third quarter was approximately $9.7 million, excluding proceeds from the offering. We believe our cash on hand is sufficient to fund operations through at least the middle of 2024. Now, I would like to turn the call over to our CEO, Dr. Jim Brown, for an update on our programs.

Thank you, Jim. Hello, everyone. Thank you for joining us today for our third quarter 2023 update. Last week, we announced the unprecedented top-line results from our Affirm Phase 2B clinical trial, which evaluated their sucrosterol and alcohol-associated hepatitis. The affirmed results showed a clinically meaningful reduction in the key secondary endpoint of 90-day mortality for larsucosterol compared with standard of care. To my knowledge, no previously controlled trial has demonstrated an improvement in mortality of this magnitude in this devastating disease. We also saw an encouraging safety profile for larsucosterol with a low number of adverse events for the active arms as compared with the standard of care. We've reviewed the AFFIRM data with many renowned hepatologists and AAH thought leaders. These physicians are excited by the compelling reduction in mortality at 90 days in the Larseco sterile arms. They were especially impressed with the data from the US patients and the safety data from the trial. Our Phase IIb AFFIRM trial was a placebo-controlled, double-blind, multinational study with two active arms dosing 30 milligrams and 90 milligrams of larcicosterol and a standard of care arm of approximately 100 patients each. By comparing against the standard of care, we allowed the physicians to utilize their standard practice for treating AH patients, which allowed for the use of corticosteroids in addition to supportive care such as fluids, nutritional support, and antibiotics for infection. In total, we randomized 307 patients with severe alcohol-associated hepatitis. These were patients with MEL scores ranging from 21 to 30 and moderate discriminant function scores greater than or equal to 32. We enrolled patients in Affirm through a global network of clinical sites, including leading hospitals in the United States, Australia, EU, and the UK. Our sites included renowned liver centers and we had the honor of working with some of the world's preeminent thought leaders in AH. The top-line results in the key secondary endpoint of mortality at 90 days showed a 41% reduction with a 30-milligram dose of larcicosterol and a 35% reduction with a 90-milligram dose of larcicosterol as compared with the standard of care. We also reported a numerical improvement in the primary endpoint, a reduction in mortality or liver transplant at 90 days, though neither the primary or secondary, key secondary endpoint, achieved results that were statistically significant. Impressive results were found in the U.S. population, which comprised three-quarters of the total enrollment in a firm. That was 232 out of 307 patients. In the U.S. patients, we saw reductions of mortality at 57% and 58% for the 30 and 90 milligram arms, respectively, compared with the standard of care. Although not a part of the original trial statistical analysis plan, the p-values for these results were both approximately 0.01. Very importantly, larcicosterol exhibited an excellent safety profile with no serious adverse events in either arm and greater than 20% reductions in the number of treatment-emergent adverse events for both active arms of these severely ill patients when compared with the standards of care. Ultimately, these clinically meaningful reductions in mortality coupled with the reduction in adverse events in these severely ill patients reinforce the compelling risk-reward proposition for the continued advancement of Larchicosterol as the first approved treatment for AH. We look forward to meeting with the FDA in the first quarter of 2024 to discuss the affirmed data and the path forward to seek approval of Larchicosterol in AH, including design for a potential registrational Phase III trial using mortality as the primary endpoint. As a reminder, the FDA has granted our lasucosterol AH program fast-track designation. AH is a cause of more than 158,000 hospitalizations each year in the United States, with a 90-day mortality rate of approximately 30%, and is responsible for tens of thousands of deaths each year. There are no effective treatments for AH. If we were able to gain approval for lasucosterol it would likely be the first FDA-approved treatment for this disease. In addition to its high mortality rate, AH represents a significant cost to the U.S. healthcare system. Hospitalizations attributed to AH incur costs of $62,000 to $167,000 each, a total cost to hospitals of approximately $10 billion annually in the United States. As a result, Larcicosterol represents a potential multi-billion dollar opportunity in the U.S. alone and could simultaneously provide overall cost savings to the healthcare system. We look forward to the possibility of bringing this potential life-saving therapeutic to patients with no effective therapies available today. We attended the AASLD conference in Boston, this is the U.S. liver meeting, over the weekend. and had the opportunity to discuss the top-line results with many of our investigators from Affirm and with more than a dozen influential KOLs. The reaction of this physician community has been overwhelmingly positive and enthusiastic about Larsukosterol's prospects. These physicians expressed their frustration with the lack of effective treatment. They recognized that the type of mortality benefit and safety profile suggested by Larsukosterol from our Affirm data would potentially bring a major advancement in the standard of care for these severely ill patients. We now like to take any questions you might have.