DURECT Corporation

Greetings and welcome to the Direct Corporation fourth quarter and full year 2024 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone shall require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Papp, Chief Financial Officer.

Good afternoon and welcome to Direct Corporation's fourth 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 10K and 10Qs under the heading Risk Factors. To begin, I would like to review our fourth quarter and full year 2024 financial results. The following financial information relates solely to our continuing operations and therefore does not include the operations of our all set product line, which we sold in the fourth quarter of 2024. Total revenues in 2024 were $2 million compared with 2.6 million in 2023 and half a million for the fourth quarter of 24 compared to 0.9 million for the prior year. 2024 revenues were lower due to lower earn out revenue from Indivior, lower revenue recognized from feasibility agreements with other companies, and lower sales of excipients. R&D expense was 10.4 million in 2024 as compared to 29.4 million for the prior year, and 1.9 million for the fourth quarter compared with 5.6 million for the prior year, 2023. The decreases were primarily due to lower clinical trial related expenses following completion of the affirmed trial. We also experienced lower contract manufacturing expenses and other external expenses as well as lower employee-related costs. SG&A expenses were $10 million in 2024 as compared to $12.7 million for the prior year and $2 million for the fourth quarter of 24 compared with $2.2 million for the prior year. These decreases were primarily due to lower employee expenses as well as lower consulting, patent, and audit-related expenses. As of the end of 2024, we had cash in investments of $12 million as compared to 29.8 million at December 31st, 2023. We believe our cash on hand is sufficient to fund operations through the third quarter of 2025. As I previously mentioned, we completed the sale of the AllZap product line during the fourth quarter of 2024. We used a portion of the proceeds to repay the remainder of our term loan and are now debt free. This transaction both strengthened our balance sheet and was consistent with our corporate strategy of streamlining our operations to focus on developing Lirsucosterol for alcohol-associated hepatitis. We are continuing to explore all options for funding the clinical development of Lirsucosterol, including strategic partnerships and financing through the capital markets. Now, I would like to turn the call over to Jim for a business update.

Thank you, Tim. And hello, everyone. Thank you for joining us today for our fourth quarter 2024 update. I'd like to use our call today to provide some context for the rare opportunity we have here at Direct. Our lead asset, Larcicosterol, for the treatment of alcohol-associated hepatitis, has shown life-saving potential for a disease with no approved therapy. About 30% of the 164,000 US patients hospitalized due to AH will die within 90 days of hospitalization. This means AH is responsible for greater than 40,000 deaths each year in the U.S., more than 100 people each day. This is roughly equivalent to the number of deaths from breast cancer or car accidents, but the awareness of this disease remains limited. We believe we have a potential solution that can save a large portion of these patients. In our phase 2B trial, we saw nearly 60% reductions in mortality with both doses of varicosterol compared with placebo in the 232 U.S. patients. This represents approximately 75% of the total patients enrolled in this study. These strong results have garnered significant attention in the medical and scientific community. Highlighted by the FDA granting varicosterol breakthrough therapy designation, the New England Journal of Medicine's publication of our phase 2B results in NEJM evidence, and the late-breaker presentation of our top-line data at EASL last year. We are committed to developing Lorsuclosterol to provide hope for our AH patients, for their families and loved ones, and for the medical professionals who have no effective treatments to offer these patients. Our sole focus as a company is to secure the funding to complete our phase three trial, whether through financing or business development. With such funding, we are ready to initiate our Phase III trial, and once underway, we expect to be able to report top-line data in approximately two years. We firmly believe that Larcico-Sterol represents the best hope for a breakthrough in the treatment of AH, and look forward to the opportunity to demonstrate this in our Phase III trial.

We would now like to take any questions that you may have.

Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of Francois Dersaquois with Oppenheimer & Company. Please proceed.

All right, thanks, guys. Just a couple quick ones here. I was just wondering if you have an idea or you can share how much you think this trial will cost you, and then I'll have to follow up.

Sure.

Yeah, I think right now we're estimating it would be about $20 million. There are some things that we are considering that might make it a little bit under that, but that's approximately what it would cost us.

And two years to data, is that what you're saying?

Right, right, yeah.

Okay, great. And then is there any, just a quick chance for you to kind of elaborate a little bit more maybe on the variations in time from hospitalization to first dose that were highlighted in kind of the recent, in the article and New England Journal evidence here. So just anything there that kind of totally makes sense where you know, the issue might have been XUS here. And that's it for me.

Yeah, you know, it does totally make sense. It makes intuitive sense because this is an acute, you know, acute assault based on chronic conditioning of the liver. So I kind of think about it almost like a heart attack for the liver. So it's hepatitis, right? It's acute inflammation of the liver. And so time to intervention is very important. And we certainly learned that in this trial. We're fortunate enough on the call to have both Norman and Weiqi and I think I'll ask both of them in their turn to kind of speak to that and also how we're looking to address that in the phase three. So maybe Norman you can start and then Weiqi can follow on.

Hi Frank. So the previous, there's been no effective therapy and so So time was never a factor. And steroids, time to dosing didn't make any difference. But if you have an effective therapy in acute evolving disease, it really makes sense that it would be effective. And, you know, you saw the graphs in the New England Journal article. They're quite impressive. It clearly appears to be an effect of early dosing or dosing within the First, in this case, nine days.

Yeah. Weiqi, do you want to add anything to that?

I think Jim and Norman have both answered very well about this time to treat importance of that. And then I think it's certainly critical to control the time to treat in this particular patient population. But I just want to add on top of Jim and Norman is that time to treat indeed contributes a large part to the differences between US and ex-US patient population, what the difference we saw in the results. but it's just one of those. Although it's a very important factor, but it's one of the multiple factors. So that's what I would like to add.

Yeah, I think that's an important point. And in the U.S., typically patients are treated within four days or so. And in the poorest performing region, the Franco-Belgian region, it was two weeks. So that's a substantial difference if you've got an acute circumstance to wait two weeks before you do much. Um, and so we're, we're really excited about the, uh, what this might mean for our phase three, because we intend to dose everyone within, uh, nine days or so in the, uh, in the phase three trial, which will eliminate, uh, the longer term duration. In fact, most of the patients will probably be treated very quickly based on what we've learned. And, uh, we anticipate that, uh, we should even, you know, possibly have a stronger signal.

That certainly was the case when we looked at these data. Thank you. Thanks.

The next question comes from the line of Carl Burns with Northland Capital Markets. Please proceed.

Thanks for the question. I'm wondering if you can share any updates on potential strategic partnerships or business development discussions that you might be having that would support the phase three study, whether it's a co-development or regional licensing or other non-dilutive opportunities? Thanks.

Yeah, certainly. We've been in that process and we continue in that process, but I think I'll let maybe Tim, since you're leading the effort, maybe have a comment here.

Yeah, Carl, we certainly have ongoing efforts to explore the full range of possibilities to take this product forward. As you can appreciate, I'm sure we can't comment on specifics or give a sense of what the timing would be, but we have been very active over the past couple of quarters, certainly, in having discussions, and we're optimistic that we'll be able to find a solution that despite the challenges of the capital markets these days.

Understood. Thanks so much.

And the next question comes from the line of Ed Arce with H.C. Wainwright. Please proceed.

Hi, this is Tom. You're asking a couple of questions for Ed. Thank you so much for asking the questions. So first question, hi, Jim. Given the statistical significance 90-day mortality reduction observed in U.S. patients in the base-to-BFM study, is there a possibility to seek funding for a smaller but more rigorous base-to-BFM study to generate new data to confirm less of the sterile and the tighter setting in the U.S. market?

It's an interesting question. We actually... What we're looking at right now with our phase three is a very tight study. What we're looking at here is we're taking advantage of the fact that this trial can be conducted entirely in the U.S. where the healthcare system is more uniform than what one sees. The disease is diagnosed and patients are presented in a more timely manner as they are in the U.S. versus ex-U.S. So that's the first thing is going to be U.S. The next piece we're going to do is we're going to We're going to centralize by, or excuse me, we're going to randomize by site versus central randomization. And that will hopefully eliminate any regional biases that we certainly saw with the XUS group. And, you know, we didn't see nearly as much of that in the U.S. when we have now randomization. So if you have a site in New York, let's say, you know, you're going to receive a kit of four, two will be placebo, two will be active. And when you burn through that, then you get another kit of four. And so we'll keep the randomization balanced across the various sites. And then lastly, we're going to control that time to dose that we spoke about earlier, and that's going to be very important. So everyone who's in the trial will be dosed within 9 or 10 days or earlier, probably much earlier since it's based in the U.S. But to conduct another Phase IIb trial, You'd have to have about 200 patients to show a reasonable signal. And by the time you've done that, you've done the phase three. And so I think at this point, it's faster and more cost effective for us simply to do a phase three trial rather than an underpowered phase two B, which might still leave you guessing. I don't know. I mean, Norma, do you have any thoughts on that?

Well, what I would say is the other trial was a patient trial, but there were two doses. So we really had two active arms and they gave nearly identical results. So in my mind, that was the equivalent of two phase two trials. Also with FDA's enthusiasm for the product and for their saying, if you have a good result in another trial, we would consider that sufficient. I don't know why we wouldn't just move to the phase three trial. It is, as Jim says, a very compact and streamlined trial.

Got it.

Yeah, I understood the rationale there. And then what about opportunities? Would there be opportunity for non-valuable funding in S6US countries to regenerate new data? Perhaps in a country, you know, you mentioned trial conducts, you know, in countries with rigorous control in place, would that be possible?

Could we do some work outside the U.S.? Certainly we could. There are obviously numerous other indications one could pursue as well, but what we're doing right now is just focusing entirely and the entirety of our effort on A.H., but the possibility of doing a regional study with an ex-US partner is certainly something that we would consider. So that might indeed be. There are certain markets that like to have that for sure. They like to see it in their population.

I see. Thank you again for the kind of questions. Sure. Thank you.

Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to Jim Brown for closing remarks.

Thank you. And we thank you all for your time today and look forward to catching up. If you have any further questions, just please reach out. Thank you all and take care.

This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.