Hey, hi everyone. Thanks for joining the Oppenheimer Healthcare Conference. My name is Frank Brisebois. I'm one of the biotech analysts at Oppenheimer. The next company presenting here is DURECT Corporation. DURECT, we've been covering for a bit here. It's been an interesting story. I think understanding what's been going on and just clarifying everything is useful here. From the company, we're lucky enough to have CEO and CFO Jim Brown and Tim Papp presenting. In terms of format, we'll do a fireside chat. Feel free to send questions in the Q&A tab. If not, on my email, and I'll do my best to get to them. Thank you, Jim and Tim, for joining. Maybe just for those that aren't familiar with the story, just a little background on the story and where we stand right now. Thank you, Frank, first of all, for having us. Really appreciate it. Yeah, DURECT, what we're doing is we're developing epigenetic therapies. The first disease that we are developing a therapy for is alcohol-associated hepatitis. The drug we're using is called larsucosterol. Alcohol-associated hepatitis is a huge problem in the United States. It's responsible for 160,000 hospitalizations. The average age of the people in our trial with this disease was 44 years old, and 30% of them die within 90 days. In our trial, the placebo group had a death rate of 28%. We're looking at 30,000-40,000 deaths of relatively young people in the United States every year, and there's no therapy out there today. It's a problem associated with alcohol use disorder, but it's an acute hepatitis. It's not chronic cirrhosis or not acute alcohol poisoning. It's actually a different category of disease. We estimate that it costs the healthcare system in the US, on top of the deaths, somewhere north of $10 billion a year and is responsible for about a quarter of the liver transplants. Okay, great. I think, you know, just by background, the product that you have right now, your drug is called larsucosterol. Just a little bit more on the history of the molecule and its attributes. Yeah, sure. It's something that we licensed from Virginia Commonwealth University. We have shown some interesting effects in a number of different diseases. We've done more than a dozen nonclinical studies and shown that it works in things like sepsis and stroke and acute kidney disease and acetaminophen toxicity, things like that. We also have shown in humans in a one-month study some very impressive results in NASH, where we showed an improvement in HOMA-IR at just 28 days, improvements in liver elasticity, and a host of other markers that showed interesting effects of disease, including lowering lipids like triglycerides and things like that. We approached this drug initially for this acute indication because there's no therapy out there today, because so many people are dying from it, and because it's a very complex disease. Alcohol-associated hepatitis has had the same death rate for more than 40 years. A number of large companies have pursued things like various monoclonal antibodies against parts of the immune system. They've tried steroids. They've tried ASK1 inhibitors, you know, inhibitors of apoptosis, things like that, and to no avail. Yet we showed in our phase II-B some pretty impressive results both on a global basis and in particular in the U.S., where we showed globally 30%-40% reductions in mortality and in the U.S., 57% and 58% reductions in mortality. On top of that, a safer patient journey with fewer treatment-emergent adverse events by about 20%. Okay, you mentioned people have tried a bunch of different things, but what right now are patients taking if they have alcoholic hepatitis? I'm sorry, what was that, Frank? What is the standard of care for patients? Yeah, the standard of care today is really supportive care. About a good percentage of the patients, about 40% of the patients in the United States do receive corticosteroids. Unfortunately, it's been shown time and time again in control studies that they do not work. There was a large trial called STOPAH out of the U.K. about seven years ago now that showed in 1,100 patients that steroids did not improve long-term survival in these patients. There's also been a rather large, about 8,000-patient study put together on a global basis that also showed steroids really don't work. It's tough. It's supportive care, and that's it. To have something where you can step into this disease and make a difference is huge. Okay, you had the phase II-A that read out well, and then the phase II-B was fairly recent. Can you just, you mentioned some of the data previously here, but can you just help us understand what happened and what are the changes you plan on making in the phase III? Yeah. The most important piece in the phase II-B trial that we showed is we showed in a 307-patient trial a nice reduction in mortality. The unfortunate thing is we conducted this trial during the pandemic, and we went outside the U.S. to keep the enrollment pace up, and about 24% of the patients were enrolled outside the U.S. The disease is treated differently out there. Healthcare systems are different, and the patients are older and just different from the U.S. patients, generally speaking. We ended up with less of a response from the countries where we did the work outside the U.S. I say the term less of a response. We still saw about 41% reduction in one dose and 35% reduction in mortality in another dose. We saw a really nice reduction in mortality, but the way we conducted the trial is we randomized the patients centrally. We ended up with a disproportionate number of treated patients in parts of the world where the healthcare system is kind of lined up against these patients. They were generally older patients, about 14 years older than the U.S. patients, and their time to treat was dramatically different. It was about 14 days versus four days in the United States. Those kind of things led to the differences that we saw. If we focus just on the U.S., which was 76% of the population, 232 of those 307 patients, we saw really quite remarkable data where we saw substantial reductions in mortality, 57%, highly statistically significant in one dose group, and 58% also highly statistically significant in another group. Because of that, the FDA, even though we had failed on our composite primary endpoint based on the global data, did grant us breakthrough designation for the drug and have said that if a single trial replicates what we saw in the U.S. in our phase II-B, then that would be all that would be needed for approval. In terms of mortality on the endpoint side, did you have a different endpoint as well in terms of liver transplant here? We did. We did a composite where we put liver transplant together in the same category as death. Liver transplant, especially in these patients, is not equivalent to death. Because we have breakthrough designation, we were able to have face-to-face meeting with the FDA, a Type B meeting, and they communicated that to us as well that with these patients, there is a complex set of circumstances around each transplant. It is highly driven by pharmacoeconomic circumstances, what hospital you are in. You know, unfortunately, in our system, you know, it is what are your means and those kind of things can lead to it. A drug can have a circumstance where it actually supports the patient, allows them to live longer, and then have a match to get a transplant. In that case, then it would actually be a positive thing because you'd have typically patients who could transplant and live. All that being said about transplant, though, there just aren't that many. There are a little bit less than 10,000 transplants per year, liver transplants in the United States. There are 160,000 hospitalizations for this disease alone. That represents, we think, about 130,000 patients. About a quarter of those, approximately 10,000 liver transplants, go to these patients. There are about 2,500 liver transplants available for over 130,000 patients. Very few ever will have a chance at a transplant, and nobody at a regional or county hospital will. They have to be, excuse me, at a tertiary center such as Mayo or Stanford or U CS F or someplace like that to be able to actually get a liver. It is not typically the way it is. We have now are going to move in our phase III to simply having survival at 90 days be the primary endpoint. From, you know, hopefully this phase III, do you guys talk about when you expect to start and how long you expect it to take? Yes. Yeah, we expect we'll start as soon as we have secured the financing. We expect that it will take about two years from when we start the trial to get the data readout. The lessons that we've learned from the phase II-B that we're applying to this trial are first that we are going to conduct the trial in the U.S. where healthcare system is more uniform and these patients are, you know, the type of patients we're looking for. They are people with this acute hepatitis, not an older cirrhotic patient with acute-on-chronic disease. It's not to say that it may not help those patients. It's just easier to get a signal out of what we're looking for. We are looking at to connect it in the U.S. We're going to randomize by site in order to reduce variability that one can see from site to site in the recruitment of patients and the treatment of patients and supportive care and the like. That's something we didn't do in the first trial. We randomized centrally. We had a lot of variable distribution across these global sites. Lastly, we're going to dose within nine days or so. That's important to note because in the first trial, the U.S., all these patients were dosed within about four days. That's an important piece when you're talking about an acute disease. Outside the U.S., especially in the regions where patients didn't do very well, they weren't dosed until like two weeks out. That made, unfortunately, a big difference. If you think about it, if you have this, I equate this to like having a heart attack of the liver. If you've got an acute assault on your liver, to wait two weeks before you dose a patient, they're either going to pull out of it or not, you know, and the drug doesn't have as much of a chance to intervene. Okay, great. How hard is it to run a trial like this? In terms of, you know, how does the patient show up with—if he's going to the hospital, I assume that means it's not mild here. Like, what does the patient feel to want to have to go to the hospital or to be rushed to the hospital? Once you have them there, how do you run a trial? How hard is it to run a trial where you have to get the patient? They have—you have to treat them in a certain amount of time. You know, is that the complexities that kind of happened in Europe that made it difficult or? No, in Europe, it was more just hospital systems set up. This trial required that you do a blood supply, a blood draw after they were dosed. They did not want to have their staff come in over the weekend to draw blood. They would only dose on a Monday. They oftentimes would require a biopsy first. If the biopsy results did not come back until, you know, prior to the next Monday, they would wait until the following Monday. The patient journey themselves, the patients were much older. They were 56, 57, 58 in that range versus U.S. 44. I think almost all of them were cirrhotic. They were more near the end stage of alcohol use disorder. In the U.S., what we see typically are younger patients. Certainly, a number of them have cirrhosis, but they're not typically at the very end of the disease. They have more of an inflammatory component. To answer your question about how hard it is to conduct this disease, unfortunately, these patients do commit at a very frequent rate. We're talking 160,000 hospitalizations per year. These are seriously ill patients. They come in, they're jaundiced, they have flu-like symptoms, they're not, they're feeling bad. They're either brought in by their family or they came in on their own. They are very sick and they're looking for some help and they're being hospitalized. If we are at the center with our drug, actually the recruitment's been pretty good. We have a huge list of thought leaders because there are so many people that die from this disease every year. You know, it kills people at a rate of 30%. That's as bad as at three months as the most horrific cancers we can think of. To have something out there, and the physicians now know because of our recent publication in the New England Journal of Medicine Evidence, you know, and a lot of them knew the results already, though, that we have a drug that has shown almost a 60% reduction in this mortality in the U.S. and fewer adverse events. The patient's journey through the hospital is actually, you know, less issues. You put those two things together. That's why we got the breakthrough designation. That's why, you know, a single trial, if it repeats this, should enable an approval. Okay, great. You talked about, you just alluded to very quickly here the New England Journal Evidence. Can you just touch on that publication that happened recently? Yeah, no, that was, I was very happy to see that. You know, it's nice to get the data out there. So now physicians can reference it. It's always, you know, you can talk, you can be at conferences, you can go to liver meetings and be there, but it's nice to have a publication that people can just pick up and read, right? It's obviously a wonderful journal to be part of. I am very proud of the team's work to be able to get into that. I am so thankful for all of the physicians and for all the patients and their families that have contributed to enable this. That really is our focus, to get this therapy out there to see if we can't help these people. I mean, if you think about 30,000-40,000 deaths a year, we lose about 40,000, 42,000 people every year to breast cancer and automobile accidents. We are talking about the same number of deaths as those two horrible circumstances. We have something that might reduce the mortality by more than 50% and have fewer adverse events. That is pretty remarkable. Okay. Maybe, Tim, on the, there's been some moves on the balance sheet to kind of clean everything up here. Can you just remind us, is there any more partnership money kind of coming in or whatnot? Any debt? How does the balance sheet look right now? Yeah, in the fourth quarter of last year, we completed the sale of our ALZET business. It was an osmotic pump line that was non-core to our operations, provided some cash flow to us, but we were able to sell that to a private equity-backed firm. In doing that, we repaid the entirety of our outstanding term loan with Oxford. We are now a debt-free balance sheet. That was the majority of what we had coming in on the revenue side. We still have a few small line items that contribute, but they're not particularly meaningful at this point. We're really focused on larsucosterol. Great. Maybe, you know, in the last five minutes, I just really want to hit on this story. People have been, you know, it was unfortunate to see what happened with the readout. At the same time, there was clearly some serious promise here. You get breakthrough therapy, you know, the endpoints and U.S. ex-U.S. complications, people have seen this before. It happens. Just to make this more homogeneous versus the variability that was kind of in the trial, the endpoints and stuff. What do you think when people look at the story now, they've had time to digest it? What do you think may be the most, you know, misunderstood or what are people struggling to get over the hump? Is it just that it's been a tough biotech tape? If things aren't squeaky clean, people have struggled to wrap their heads around. Yeah, Tim, maybe I'll let you approach that one first. Sure. I mean, my speculation is it's simply a matter of our balance sheet. It's clear that we need additional capital to run this trial. That's what's needed to unlock the value is making progress on the clinical front. Once we're able to do that, we think that there will be a really compelling risk-reward profile for investors in DURECT. We think that has the potential to really unlock what the intrinsic value is of this drug and, you know, the likelihood that it has the potential to be the first treatment approved for alcohol-associated hepatitis. You know, we would, you know, no other company is really even close, no drug is close to where we are in the clinic. If we are approved, we will be the only, we'll be the only therapeutic available. In fact. Oh, sorry, go ahead, Jim. I was just going to say it's such a horrible problem, but I was just kind of reflecting back as you were asking that question. The results from this, it's a 300-patient trial, this phase II-B trial are actually quite impressive to have, you know, you're looking at dose, you're looking at dose ranging and all the rest of these kind of things as you do a phase II, right, and confirm in phase III. These are pretty remarkable phase II results. I think a lot of it is unfortunately just being in the microcap space. You mentioned two years to data. Do you talk about how much you think this trial will cost you? Yeah, we estimate it's about $20 million to conduct the trial. We will need obviously additional money to keep the company going at that time. We are looking at potential partnerships, working with various groups as well as potential to raise money. Yep. Anything in the New England Evidence publication that's kind of new that helps with KOLs maybe, you know, opine on the data or anything like that? I think it's the first time people were really, as you look at the attachments, you'll really be able to get into the data in great detail. I think that that is a critical piece. You can look at things like understand better the time to dose, the US data, the ex-U.S. data, all the rest of it. I think it's very well laid out, which I think is a very important thing to be able to do so people can truly have a reference point. Okay. Okay, great. Is there anything that I just want to give you guys a chance to, you know, have the mic here? Anything that you want to end on that I, you know, should have asked and did not have time to ask? I'll pass it over to Tim. What do you think, Tim? No, I think this has covered our situation very well. We are excited about the prospect of running the phase III trial and think we have a very good likelihood of being successful in doing so. The biggest question mark for us right now is just the capital need. Yeah, I would, I totally second that. From my perspective, I've been doing this a long time. I've never had an opportunity to work on a drug that has this kind of potential, just these kind of results. I mean, this is a horrible problem that is just not being addressed because it's so complex. You do need the epigenetic regulation, which this provides. Excellent. All right. Thank you. Good work on the execution and everything. Hopefully we can get this phase III going here. I appreciate the time. Thank you so much, Frank. It's good to see you. Thank you, Frank.