DURECT Corporation

Ladies and gentlemen, welcome to the Direct Corporation Second Quarter 2024 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 and zero on your telephone keypad. As a reminder, this conference has been recorded. I will now turn the call over to Tim Papp. Thank you. You may begin.

Good afternoon, and welcome to Direct Corporation's second quarter 2024 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 second quarter 2024 financial results. Total revenues in the second quarter of 2024 were $2.2 million compared to $2.1 million in 2023. 2024 revenues were slightly higher due to a small increase in revenue from collaborations. R&D expense was $2.2 million in the second quarter of 2024 compared to $7.9 million for the prior year. The decrease was primarily due to lower clinical trial related expenses, facility and lower employee related costs. SG&A expenses were $3 million in the first quarter of 2024 compared to $3.8 million for the prior year. The decrease was primarily due to lower employee facility market research and professional services expenses. As of June 30th, we had cash in investments of $15.8 million, and our cash burn for the second quarter was $5.8 million. 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 for a business update.

Thank you, Tim. Hello, everyone. Thank you for joining us today. I'm excited to share an update on our progress towards initiating our confirmatory phase three clinical trial for larsucosterol and alcohol-associated hepatitis. As I mentioned on previous calls, we have been in discussions with the FDA about our proposed clinical trial design, and I'm happy to say that the dialogue with the agency has been positive. The FDA has confirmed that a single pivotal trial would be sufficient to support an NDA filing in AH. They also clearly recognize the unmet need in AH and the strong results of Lercicosterol in our Phase IIb trial affirmed. Both doses of Lercicosterol in affirmed reduced mortality by nearly 60% in the U.S. patients, who represented 76% of the total number of patients in the trial. As a result of the affirmed data, we were granted breakthrough therapy designation for Lercicosterol in May. Breakthrough therapy designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically meaningful endpoint. Breakthrough status allows us to have more intensive interaction with the FDA, including senior managers, throughout the development process. Under this distinctive designation, in July, we had a very productive and positive Type B meeting with the FDA to discuss our trial design. In fact, this meeting was the most productive interaction I've had with the FDA in my 30-plus year career in drug development. We are awaiting the written minutes from this meeting and look forward to sharing more details about our proposed protocol in the near future once we receive those minutes. In the meantime, I can share a bit more about the expected timeline for conducting our Phase III trial. We've already undertaken significant action to prepare to initiate the trial. And subject to obtaining adequate funding, we are preparing to start the trial before the end of the year. We expect this would enable us to report top-line data from our Phase III trial in the second half of 2026. Our ultimate design for the trial will be based on the strong clinical data we generated in Affirm and feedback from our discussions with the FDA. We have submitted a number of abstracts for posters and a presentation for the AASLD meeting this fall. We look forward to sharing additional data analyses and the details of the protocol in an update after we've received the written minutes from our in-person Type B meeting. We're also excited that the affirmed data was presented for the first time at an oral late-breaker presentation at the EASL conference in June. We remain encouraged by the positive reception from hepatology thought leaders and key opinion leaders for the affirmed results and their continuing support for Leucicosterol's potential to provide a clinically meaningful survival benefit and AH patients. As a brief reminder, Affirmed was a placebo-controlled, double-blind, multinational study with two active dosing arms of 30 mg and 90 mg of garcicosterol and a placebo arm of approximately 100 patients each. In total, we randomized 307 patients with severe AH from a global network of clinical sites. Our sites included renowned liver centers in the United States, Australia, the EU, and the UK. 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 as compared with placebo. Even more impressive results were observed in the U.S. population, which comprised three-quarters of the total enrollment in the firm. That was 232 out of the 307 patients. In the U.S. patients, we saw reductions in the 99 mortality of 57% and 58% for the 30 and 90 milligram ARBs, respectively, as compared with placebo. Although not part of the original trial statistical analysis plan, the p-values for these results were both approximately 0.01. Very importantly, our suco-sterile 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 when compared with a placebo group in these severely ill patients. 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 of leucicosterol. We continue to believe that the affirmed data provide compelling evidence that leucicosterol could represent a safe and effective therapy with life-saving potential for AH patients. There are no approved therapies for AH today. Therefore, if farcicosterol meets our expectations in Phase III and we gain approval, it would likely be the first FDA-approved treatment for this disease and establish a new standard of care. AH is the cause of more than 160,000 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. In addition to this high mortality rate, AH represents a significant cost to the U.S. healthcare system. Hospitalizations attributed to AH incur charges of $67,000 to $180,000 per patient, a total charge to hospitals of approximately $10 billion annually. As a result, Larcico-Stero represents a potential blockbuster opportunity in the U.S. alone that could simultaneously provide overall cost savings to the healthcare system. With that, we'd now like to take any questions you might have.