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DRRX: Focus will be Shifted to DUR-928 Programs

11/02/2017
By Grant Zeng, CFA

NASDAQ:DRRX

Update on Third Quarter Financials 

The company (NASDAQ:DRRX) recorded a total revenue of $20.7 million in the third quarter ended September 30,2017, compared to $3.7 million in the third quarter of last year. 

Revenue from R&D collaborations was $5.6 million in third quarter 2017, compared to $0.4 million in third quarter 2016. A large portion of that increase related to the recognition of deferred revenue from upfront fees already received by the company. Per the conference call, management indicated that even if taking out the deferred revenue, collaborative revenue increased by about $0.7 million during the current quarter compared to the third quarter last year. 

Product revenue, largely from the sale of ALZET pumps and LACTEL polymers, was $2.6 million in the third quarter 2017, as compared to $3.4 million in the third quarter 2016. Almost half of that difference related to some excipient sales in the third quarter 2016 and there were no similar sales in the third quarter 2017. The business of ALZET and LACTEL continue to be strongly cash flow positive for the company.

The company had a new line item in revenue this quarter, which recorded $12.5 million upfront fee received from Indivior in connection with the patent agreement signed during the third quarter of 2017. We will discuss this deal later.  

Cost of product sales was $3.1 million in the third quarter 2017, this was impacted by a charge of around $2 million related to the company’s excipients. The company took this charge given the negative POSIMIR Phase III results. But the company did not get rid of any of these materials. If the company is able to sell these excipients later, then at that time, the company would have revenue, but no associated cost of goods sold.

R&D expense was $8.4 million in the third quarter 2017, compared to $6.8 million in the third quarter 2016, driven primarily by a large increase in POSIMIR Phase III trial expenses. 

SG&A expenses were $3.1 million in the third quarter 2017, compared to $3 million in the third quarter 2016. 

The company reported net income of $6.1 million in the third quarter 2017, as compared to a net loss of $8.8 million in the third quarter of 2016.

At September 30, Durect had cash and investments of $41.8 million, which compared to a $33.6 million at June 30, 2017, and $25.2 million at December 31, 2016.

Update on POSIMIR® 

On Oct. 19, 2017, DURECT reported that PERSIST, the Phase III clinical trial for POSIMIR® (SABER®-Bupivacaine), did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl.  While results trended in favor of POSIMIR versus the comparator, they did not achieve statistical significance.  

The Posimir (SABER®-Bupivacaine) Program

The company completed the enrollment of patients in PERSIST, a POSIMIR Phase III clinical trial consisting of patients undergoing laparoscopic cholecystectomy (gallbladder removal) surgery in June 2017.

In a previous clinical trial of 50 patients in the same surgical model (laparoscopic cholecystectomy), POSIMIR was compared with the active control bupivacaine HCl, against which POSIMIR demonstrated in a post hoc analysis an approximately 25% reduction in pain intensity on movement for the first 3 days after surgery (p=0.024) and for the first 2 days after surgery (p=0.0198), using the same statistical methodology specified for the current trial. 

POSIMIR is the company’s investigational post-operative pain relief depot that utilizes the company’s patented SABER technology and is intended to deliver bupivacaine to provide 3 days of pain relief after surgery. 

In May, 2017, Durect announced a development and commercialization agreement with Sandoz AG, a division of Novartis (NVS), to develop and market in the United States Durect’s POSIMIR® (SABER®-Bupivacaine). Under the terms of the agreement, Sandoz will make an upfront payment to DURECT of $20 million, with the potential for up to an additional $43 million in development and regulatory milestones, up to an additional $230 million in sales based milestones, as well as a tiered double digit royalty on product sales in the United States. 

The company and Sandoz, the company’s licensee for commercialization rights for POSIMIR in the United States, will be working to understand the trial results more fully in the coming weeks.     

With the failure of the Phase III trial, we believe Durect will terminate the development of POSIMIR and shift its focus to the company’s epigenetic program DUR-928.

Focus will Be Shifted to DUR-928 Development Program

Among Durect’s multiple candidates, DUR-928 may be the most promising one in our view because this compound has the potential to target multiple indications including NAFLD/NASH and acute kidney injury. 

Durect is working with its clinical advisors to design several Phase II studies and is planning to submit INDs which are required to enable these studies to take place in the United States in 2017. 

Oral Administration: 
The company is actively working towards initiating a Phase II trial in primary sclerosing cholangitis (PSC) with orally administered DUR-928. The protocol has been reviewed by the FDA and IND is now open. Clinical trial site preparation is underway, and the company is targeting dosing the first patient by the end of 2017. Durect has received orphan drug designation for DUR-928 to treat patients with PSC. PSC is a chronic liver disease characterized by a progressive cause of cholestasis (decrease in bile flow) with inflammation and fibrosis of bile ducts. It is an orphan medical condition for which there is no established medical treatment.

Injectable Administration:
Durect now has an open IND for an initial Phase II trial of injectable DUR-928. The company is currently finalizing the protocol based on detailed input received in October 2017 from AASLD. This Phase II study will be conducted in patients with moderate and severe acute liver function impairment to assess the safety and pharmacokinetics of several doses of DUR-928.

At AASLD poster presentation, DUR-928 demonstrated dose-dependent effect in stabilizing mitochondrial membranes, which is an important factor in cell viability and prevention of cell death. In this poster, DUR-928 demonstrated 90% survival vs. 10% survival on placebo, when the toxicity was caused by injected acetaminophen. This poster also demonstrated the pharmacological effect of DUR-928 in animal models of both endotoxin and drug induced multiple organ injuries, including the liver, the kidney and the lungs. 

Topical Administration:
The company has had pre-IND interactions with the FDA and is incorporating FDA's comments in its upcoming IND while the company is actively working with expert advisors to finalize the study protocol for a Phase II proof-of-concept study. The company expects to initiate this study in the first half of 2018. 

Large Market Opportunity for DUR-928 

Although DUR-928 may have broad applications in many indications, we believe the initial focus will be in NAFLD/NASH and acute kidney injury. 

Non-alcoholic fatty liver disease (NAFLD) is the build-up of extra fat in liver cells that is not caused by alcohol. It is normal for the liver to contain some fat. However, if more than 5% - 10% percent of the liver’s weight is fat, then it is called a fatty liver (steatosis). The more severe form of NAFLD is called non-alcoholic steatohepatitis (NASH). NASH causes the liver to swell and become damaged. 

NAFLD affects about 30% of adults and 10% of children in the US, among which 10-30% will develop NASH. 25-40% NASH patients will develop progressive liver fibrosis, while 20-30% NASH patients with advanced fibrosis will develop cirrhosis, which could lead to liver cancer. 

Currently there are no FDA approved medicines for the treatment of NAFLD/NASH. 

Acute kidney injury (AKI) is defined as an abrupt or rapid decline in renal filtration function. This condition is usually marked by a rise in serum creatinine concentration or by azotemia (a rise in blood urea nitrogen [BUN] concentration). 

Per Medscape, in the United States, approximately 1% of patients admitted to hospitals have AKI at the time of admission. The estimated incidence rate of AKI during hospitalization is 2-5%. AKI develops within 30 days postoperatively in approximately 1% of general surgery cases and arises in up to 67% of intensive care unit (ICU) patients. Approximately 95% of consultations with nephrologists are related to AKI. The appropriate nephrologist referral rate is approximately 70 cases per million populations. 

The current treatment for AKI is mainly supportive in nature. No therapeutic modalities to date have shown efficacy in treating the condition. Therapeutic agents (eg, dopamine, nesiritide, fenoldopam, mannitol) are not indicated in the management of AKI and may be harmful for the patient.

Certainly, there are highly unmet medical needs in the NAFLD/NASH and acute kidney injury fields. The unique mechanism of action and the compelling animal and human data so far make DUR-928 a highly promising candidate for the management of NAFLD/NASH and kidney injury. 

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