DURECT - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was a transitional quarter: reported revenue fell to $0.45M as the ALZET product line was sold and reclassified to discontinued operations, while net income turned positive ($7.75M; $0.24 diluted EPS) driven by discontinued ops gains and warrant liability fair value changes.
• Versus S&P Global consensus, DRRX materially missed on revenue (Actual $0.45M vs $1.61M consensus) and on “Primary EPS” (Actual -$0.09 vs -$0.02 consensus), while GAAP diluted EPS was positive due to discontinued operations; Street models appear to focus on continuing operations EPS, creating an optics gap versus reported GAAP EPS (see Estimates Context) [GetEstimates]*.
• Balance sheet de-risking: the ALZET sale delivered $17.5M cash and enabled full repayment of the Oxford term loan; management now guides cash runway through Q3 2025 and is debt‑free, improving flexibility as the company seeks funding/partners for the Phase 3 program in AH.
• Clinical/regulatory momentum remains intact: NEJM Evidence publication of AHFIRM Phase 2b (Jan 2025) and FDA BTD support the plan for a U.S. Phase 3 with 90‑day survival as the primary endpoint; timing to dose will be tightly controlled to address ex‑U.S. variability observed in AHFIRM.

What Went Well and What Went Wrong

• What Went Well

  • Balance sheet: Sold ALZET for $17.5M and repaid the entire term loan; “we…are now debt-free,” per CFO, extending runway and strategic optionality.
  • Clinical credibility: AHFIRM Phase 2b results published in NEJM Evidence (Jan 2025), reinforcing medical interest and informing Phase 3 design.
  • Operating discipline: R&D and SG&A trended lower YoY and QoQ as AHFIRM completed (Q4 R&D $1.85M vs $5.62M prior-year; SG&A $1.99M vs $2.22M prior‑year).
  • Quote: “In our Phase IIb trial, we saw nearly 60% reductions in mortality…in the 232 U.S. patients” — CEO James Brown.

• What Went Wrong

  • Topline miss: Q4 revenue was $0.45M vs $1.61M S&P consensus; Street EPS (“Primary EPS”) missed as well (Actual -$0.09 vs -$0.02 consensus). GAAP diluted EPS was +$0.24 due to discontinued ops, creating modeling dissonance [GetEstimates]*.
  • Funding overhang: Phase 3 initiation remains contingent on financing/BD; management is “explor[ing] all options,” but provided no timeline for a deal.
  • Commercial headwinds: Q4 revenues declined YoY ($0.45M vs $0.89M), reflecting lower Indivior earn‑out, feasibility and excipient revenue; product revenue fell sharply with ALZET exit.

Transcript

Operator (participant)

Greetings and welcome to the DURECT Corporation Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Tim Papp, Chief Financial Officer.

Tim Papp (CFO)

Good afternoon and welcome to DURECT Corporation's Fourth Quarter 2024 Earnings Conference Call. This is Tim Papp, Chief Financial Officer of DURECT. 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 DURECT'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 2024 Financial Results.

The following financial information relates solely to our continuing operations and therefore does not include the operations of our ALZET 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 $500,000 for the fourth quarter of 2024 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 AHFIRM 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 2024 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 and investments of $12 million as compared to $29.8 million at December 31, 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 ALZET 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 larsucosterol for alcohol-associated hepatitis. We are continuing to explore all options for funding the clinical development of larsucosterol, including strategic partnerships and financing through the capital markets. Now, I would like to turn the call over to Jim for a business update.

Jim Brown (CEO)

Thank you, Tim. 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 DURECT. Our lead asset, larsucosterol, 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 U.S. 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 II-B trial, we saw nearly 60% reductions in mortality with both doses of larsucosterol 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 larsucosterol breakthrough therapy designation, the New England Journal of Medicine's publication of our phase II-B results in NEJM Evidence, and the late-breaker presentation of our top-line data at EASL last year. We are committed to developing larsucosterol to provide hope for our 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 III 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 larsucosterol represents the best hope for 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.

Operator (participant)

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

François Brisebois (Analyst)

All right. Thanks, guys. Just a couple of 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 a follow-up.

Jim Brown (CEO)

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.

François Brisebois (Analyst)

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

Jim Brown (CEO)

Right. Right. Yeah.

François Brisebois (Analyst)

Okay. Great. Is there 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 article in New England Journal Evidence here? Just anything there that kind of totally makes sense where the issue might have been ex-U.S. here. That's it for me.

Jim Brown (CEO)

Yeah. It does totally make sense. It makes intuitive sense because this is an acute assault based on chronic conditioning of the liver. I kind of think about it almost like a heart attack for the liver. It is hepatitis, right? It is acute inflammation of the liver. Time to intervention is very important. We certainly learned that in this trial. We are fortunate on the call to have both Norman and Weiqi, and I think I will ask both of them in their turn to kind of speak to that and also how we are looking to address that in the phase III. Maybe Norman, you could start, and then Weiqi can follow on.

Norman Sussman (Chief Medical Officer)

Hi, Frank. Previously, there's been no effective therapy. Time was never a factor. Steroids, time to dosing didn't make any difference. If you have an effective therapy in an acute evolving disease, it really makes sense that it would be effective. You saw the graphs in the New England Journal article. They're quite impressive. There clearly appears to be an effect of early dosing or dosing within the first, in this case, nine days.

Operator (participant)

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

WeiQi Lin (Executive VP of Research and Development)

I think Jim and Norman have both answered very well about this time to treat, the importance of that. I think it's certainly critical to control the time to treat in this particular patient population. 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 UX and XUS patient population, the difference we saw in the results. It's just one of those. Although it's a very important factor, it's one of the multiple factors. That's what I would like to add.

Jim Brown (CEO)

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

François Brisebois (Analyst)

Thank you.

Jim Brown (CEO)

Thanks.

Operator (participant)

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

Carl Byrnes (Analyst)

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 III study, whether it's co-development or regional licensing or other non-dilutive opportunities. Thanks.

Jim Brown (CEO)

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

Tim Papp (CFO)

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. We have been very active over the past couple of quarters, certainly, in having discussions. We are optimistic that we'll be able to find a solution despite the challenges of the capital markets these days.

Carl Byrnes (Analyst)

Understood. Thanks so much.

Operator (participant)

The next question comes from the line of Ed Arce with HC Wainwright. Please proceed.

Hi. This is Tom. You're asking a couple of questions for Ed. Thank you so much for giving up questions.

Sure. Thank you.

First question. Hi, Jim. Given the statistical significance, 90-day mortality reduction observed in U.S. patients in the phase II-B AHFIRM study, is there a possibility to seek funding for a smaller but more rigorous phase II-B study to generate new data to confirm larsucosterol under a tighter setting in the U.S. market?

Jim Brown (CEO)

It's an interesting question. Actually, what we're looking at right now with our phase III 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. That is the first thing, it is going to be U.S. The next piece we're going to do is we're going to centralize by—excuse me—we're going to randomize by site versus central randomization. That will hopefully eliminate any regional biases that we certainly saw with the ex-U.S. group. We did not see nearly as much of that in the U.S., but now we have randomization.

If you have a site in New York, let's say, you're going to receive a kit of four. Two will be placebo. Two will be active. When you burn through that, you'll get another kit of four. We'll keep the randomization balanced across the various sites. Lastly, we're going to control that time to dose that we spoke about earlier. That's going to be very important. 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. To conduct another phase II-B trial, you'd have to have about 200 patients to show a reasonable signal. By the time you've done that, you've done the phase III.

I think at this point, it's faster and more cost-effective for us simply to do a phase III trial rather than an underpowered phase II-B, what might still leave you guessing. I don't know. I mean, Norman, do you have any thoughts on that?

Norman Sussman (Chief Medical Officer)

What I would say is the other trial, the other patient trial, but there were two doses. We really had two active arms, and they gave nearly identical results. In my mind, that was the equivalent of two phase II trials. Also, with FDA's enthusiasm for the product and what they're 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 III trial. It is, as Jim says, a very compact and streamlined trial.

Yeah. Got it. Yeah. Understood the rationale there. What about opportunities? Would there be opportunity for non-dilutive funding in ex-U.S. countries just really to generate new data, perhaps in a country? You mentioned trial comes out in countries with rigorous control in place. Would that be possible?

Jim Brown (CEO)

To do some work outside the U.S.? Certainly, we could. There are obviously numerous other indications one could pursue as well. What we're doing right now is just focusing entirely and the entirety of our effort on, but the possibility of doing a regional study with an ex-U.S. partner is certainly something that we would consider. That might indeed be good. 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.

Operator (participant)

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.

Jim Brown (CEO)

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

Operator (participant)

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