DURECT Corporation

Greetings and welcome to the Direct Corporation Fourth Quarter and Full Year 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 then 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, Tim. You may begin.

Good afternoon and welcome to Direct Corporation's fourth 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 10-K and 10-Qs under the heading Risk Factors. To begin, I would like to review our fourth quarter and full year 2023 financial results. Total revenues in 2023 were $8.5 million compared to $19.3 million in 2022. 2023 revenues were lower primarily because 2022 revenues included $10 million of milestone payments related to our POSIMR agreement with INICOL. For the fourth quarter of 2023, revenues were 2.7 million compared to 3.3 million for the prior year. This decrease is due to lower revenue from collaborations in 2023. R&D expense was 29.4 million in 2023 as compared to 36.9 million for the prior year and 5.6 million for the fourth quarter compared with $10 million for the prior year. The decreases were primarily due to lower clinical trial-related expenses as we substantially completed the affirmed trial, lower contract manufacturing expenses, and lower employee-related costs. SG&A expenses were $14.4 million in 2023 as compared to $15.9 million for the prior year and $2.7 million for the fourth quarter compared with $4.3 million for the prior year. These decreases were primarily due to lower patent expenses as well as lower employee expenses. As of December 31st, 2023, we had cash and investments of $29.8 million as compared to $43.6 million at December 31st, 2022. And our cash burn for 2023 was $38.1 million, excluding net proceeds from financings. We believe our cash on hand is sufficient to fund operations through the end of 2024. Now, I would like to turn the call over to Jim Brown, our Chief Executive Officer, for a business update.

Thank you, Tim. Hello, everyone. Thank you for joining us today for our fourth quarter 2023 update. Last November, we announced top-line results from our Affirmed Phase 2B clinical trial, which evaluated larsucosterol and alcohol-associated hepatitis. The key takeaway from these results is that patients treated with Lercucosterol had lower mortality at 90 days compared with patients that received placebo. We're excited about the result and believe they show the potential for Lercucosterol to provide a clinically meaningful survival benefit in these severe AH patients. To our 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 leucoclosterol with a lower number of adverse events for the active arms as compared with placebo. We are in ongoing communications with the FDA about the design for a potential confirmatory phase three trial that could serve as the basis for an NDA filing. We expect to provide a further update in the second quarter. We continue to be encouraged by the overwhelming support of AH thought leaders and the broader hepatology community who have had no effective therapy for these patients. Our Phase IIb-affirmed trial was a placebo-controlled, double-blind, multinational study with two active arms of 30 milligrams and 90 milligrams of leucococcal and a placebo arm of approximately 100 patients each. We allowed physicians to utilize their standard practice for treating AH. which allowed for the use of corticosteroids in addition to supportive care, such as fluids and nutritional support, as well as antibiotics for infection. In total, we randomized 307 patients with severe AH from a global network of clinical sites, including leading hospitals in the United States, Australia, the 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 mg dose of leucocosterol and a 35% reduction with a 90 mg dose of leucocosterol when compared with placebo. We also reported a numerical improvement in the primary endpoint of reduction in mortality or liver transplant at 90 days, though neither the primary or key secondary endpoint results achieved statistical significance. Even more impressive results were observed in the U.S. population, which comprised three-quarters of the total enrollment in a firm. That was 232 out of the 307 patients. In the U.S. patients, we saw reductions in mortality of 57% and 58% for the 30 and 90 milligram arms, respectively, as compared with placebo. Although not part of the original 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 in the severely ill patient. Ultimately, these clinically meaningful reductions in mortality coupled with the reduction in adverse events in the severely ill patients reinforced the compelling risk-reward proposition for Larcicosterol. We are in active communication with the FDA about the design of a confirmatory phase three trial in AH. We continue to believe that the affirmed data provide compelling evidence that Lorsucosterol could represent a safe and effective therapy with life-saving potential for AH patients. As a reminder, AH is the cause of more than 150,000 hospitalizations each year in the U.S., and with a 90-day mortality rate of approximately 30%, is responsible for tens of thousands of deaths each year. There are no effective treatments for AH. If Flarsucosterol meets our expectations in phase three and we are able to gain approval, 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 US healthcare system. Hospitalizations attributed to AH typically incur costs ranging from $60,000 to over $160,000. This results in a total cost to hospitals of approximately $10 billion annually. As a result, Varsicosterol represents a potential multibillion-dollar opportunity in the United States alone and could simultaneously provide overall cost savings to the healthcare system. We would now like to take any questions you may have.