Sign in

You're signed outSign in or to get full access.

DC

DURECT CORP (DRRX)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue rose 10.5% year over year to $1.93M but fell sequentially from $2.17M; net loss widened to $(4.29)M with diluted EPS of $(0.14) versus $(0.12) in Q2 and $(0.14) in Q3’23 .
  • Operating mix improved YoY as R&D expense declined ~70% to $2.16M (winding down Phase 2b and pre-Phase 3 activities), and SG&A decreased to $3.22M; however, product gross margin contracted sequentially (67% vs 77% in Q2) due to higher cost of product revenues .
  • Strategic update: FDA alignment on a single U.S. Phase 3 for larsucosterol (90‑day survival primary endpoint); management targets initiation “as soon as possible, subject to funding” with topline data within two years of start .
  • Liquidity and funding are near‑term swing factors: cash and investments were $10.5M at 9/30/24; management guides runway through Q1’25; estimated Phase 3 external cost $20–$25M with $3–$4M quarterly burn when scaled .
  • Additional update: Innocoll will terminate the POSIMIR license effective May 2025; no royalties were recognized in Q3, so limited financial impact near term; DURECT evaluating next steps for POSIMIR .

What Went Well and What Went Wrong

What Went Well

  • Significant cost discipline: R&D down to $2.16M from $7.20M YoY; SG&A to $3.22M from $3.79M YoY, supporting a smaller operating loss despite modest revenue growth .
  • Regulatory clarity and momentum: “We remain focused on preparations for the Phase 3 trial... Our goal is to begin the trial as soon as possible, subject to obtaining sufficient funding,” with FDA agreeing a single Phase 3 may support an NDA and recognizing a clinically meaningful 90‑day survival endpoint .
  • Strong AHFIRM subset signal underpinning Phase 3: “In AHFIRM both doses of larsucosterol reduced mortality by nearly 60% in the U.S. patients,” bolstering the U.S.‑only Phase 3 design and expected readout within two years of initiation .

What Went Wrong

  • Sequential revenue softness and margin compression: Total revenue declined to $1.93M from $2.17M in Q2; product gross margin fell to 67% from 77% in Q2 (higher cost of product revenues) .
  • Larger net loss vs prior year due to other income swing and higher costs of product revenues: Q3 net loss $(4.29)M vs $(3.02)M YoY; diluted EPS $(0.14) vs $(0.14) YoY .
  • POSIMIR uncertainty: Innocoll terminating the POSIMIR U.S. license in May 2025; while no Q3 royalties were recognized, DURECT must determine commercialization plans, creating an incremental execution item .

Financial Results

P&L Summary (oldest → newest)

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Total Revenues ($M)1.744 1.827 2.171 1.927
Net Loss ($M)(3.015) (7.643) (3.700) (4.285)
Diluted EPS ($)(0.14) (0.25) (0.12) (0.14)
R&D Expense ($M)7.199 4.119 2.247 2.164
SG&A Expense ($M)3.790 3.136 2.972 3.217

Revenue Breakdown (oldest → newest)

Metric ($M)Q3 2023Q1 2024Q2 2024Q3 2024
Product Revenue, net1.238 1.331 1.565 1.558
Collaborative R&D and Other0.506 0.496 0.606 0.369
Total Revenues1.744 1.827 2.171 1.927

Product Gross Margin % (calculated)

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Product Revenue ($M)1.238 1.331 1.565 1.558
Cost of Product Revenues ($M)0.312 0.289 0.356 0.513
Gross Margin %74.8% 78.3% 77.3% 67.1%

KPIs and Liquidity (point‑in‑time; oldest → newest)

KPIQ1 2024 (3/31)Q2 2024 (6/30)Q3 2024 (9/30)
Cash, Cash Equivalents & Investments ($M)21.6 15.8 10.5
Debt ($M)14.6 12.5 10.5
Quarterly Cash Utilization ($M)——5.3
Cash Runway Guidance——Through Q1 2025

Note: “—” denotes not disclosed in cited documents.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Phase 3 initiation for larsucosterol (AH)Program timingInitiate in 2024, topline 2H 2026 (subject to funding) Begin “as soon as possible, subject to funding”; topline within two years of initiation Timing now linked to financing; topline framed relative to start
Trial design/registration pathwayPhase 3 / NDASingle Phase 3 could support NDA (pending FDA) FDA agreed a single Phase 3 may be sufficient; rolling NDA possible under BTD Increased regulatory clarity/validation
Cash runwayLiquidity—Sufficient through Q1 2025 New disclosure
POSIMIR license statusU.S. commercializationLicensed to Innocoll Innocoll terminating license effective May 2025; DURECT evaluating next steps License termination

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
FDA interactions and pathwayQ1: FDA feedback supports single pivotal Phase 3 . Q2: Breakthrough Therapy Designation; Type B meeting held .Agreement on key Phase 3 elements; single trial may support NDA; rolling NDA possible Positive regulatory momentum
Phase 3 design and executionQ2: Planning U.S.‑centric registrational design; aim to initiate 2024, topline 2H26 (funding‑dependent) .U.S.‑only trial, ~200 patients, 90‑day survival primary endpoint; CRO selected; 60–70% of AHFIRM U.S. sites to participate; start “asap” pending funding Execution readiness rising; funding overhang remains
Clinical data positioningQ1/Q2: AHFIRM data highlighted; late‑breaking at EASL (June) .AASLD oral/posters (time‑to‑treatment, transplant, drinking behavior); emphasize ~60% U.S. mortality reduction in AHFIRM Reinforcing clinical rationale
Liquidity and funding—Cash & investments $10.5M; runway through Q1’25; Phase 3 external cost $20–$25M; burn $3–$4M/qtr when scaled Funding critical path item
POSIMIR commercializationQ2: Licensed to Innocoll in U.S. .Innocoll terminating license (May 2025); no Q3 royalties recognized Transition risk; limited near‑term P&L impact

Management Commentary

  • “We remain focused on preparations for the Phase 3 trial for larsucosterol... Our goal is to begin the trial as soon as possible, subject to obtaining sufficient funding... If successful, the FDA has agreed that a single Phase 3 trial may be sufficient to support a New Drug Application (NDA).” — James E. Brown, CEO .
  • “In AHFIRM both doses of larsucosterol reduced mortality by nearly 60% in the U.S. patients... The FDA has confirmed that a single pivotal trial would be sufficient to support an NDA filing in AH.” — James E. Brown, CEO .
  • “As of September 30, 2024, we had cash and investments of $10.5 million... We believe our cash on hand is sufficient to fund operations through the first quarter of 2025.” — Timothy Papp, CFO .
  • “Phase III trial [external cost] is in the $20 million to $25 million range... our burn is probably in the $3 million to $4 million a quarter range once we are scaled to start the trial.” — Timothy Papp, CFO .
  • “Innocoll has notified us that they are terminating the licensing agreement related to POSIMIR... we do not expect that this will have a material financial impact... we have not been receiving royalties in recent quarters.” — Timothy Papp, CFO .

Q&A Highlights

  • Site strategy: Company plans to include 60–70% of prior AHFIRM U.S. sites in Phase 3; paperwork and agreements are underway to accelerate start‑up .
  • Geography and trial conduct: Time‑to‑treatment variability ex‑U.S. influenced the decision to run Phase 3 in the U.S.; data to be presented at AASLD .
  • Funding status and readiness: CRO selected; legal/contracting prep largely done; team ready to start quickly once financing is secured .
  • Cost envelope: Phase 3 external cost estimated at $20–$25M; ongoing company burn expected at $3–$4M per quarter during the trial .
  • POSIMIR royalties: None recognized in Q3; termination of Innocoll license effective May 2025 .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q3 2024 revenue and EPS was unavailable via our S&P Global connection at the time of this analysis (daily request limit exceeded). As a result, we cannot quantify beats/misses vs consensus for this quarter [GetEstimates error].
  • Given the lack of estimates, we recommend investors focus on sequential/YoY trends and the funding/timing path to Phase 3 initiation as the primary near‑term valuation drivers .

Key Takeaways for Investors

  • Funding is the gating catalyst: Phase 3 start and timeline to topline depend on securing ~$20–$25M external trial funding; management indicates readiness to initiate quickly post‑financing .
  • Regulatory de‑risking: FDA alignment on a single U.S. registrational trial with a clinically meaningful endpoint, plus BTD and potential rolling NDA, improves probability and speed to approval if successful .
  • Clinical rationale intact: Strong U.S. AHFIRM mortality reductions support the U.S.‑only design; additional AASLD analyses (time‑to‑treatment, transplant) may shape site operations and subgroup expectations .
  • Liquidity watch: $10.5M cash/investments and runway through Q1’25 heighten urgency to raise capital; expect financing or strategic alternatives to be a stock catalyst .
  • Operating mix improving but margin volatility persists: R&D and SG&A trended lower YoY, yet product gross margin contracted sequentially; monitor cost of product revenues and product mix near term .
  • POSIMIR transition: Innocoll license termination adds an execution task but limited immediate P&L impact given no Q3 royalties; potential optionality if DURECT re‑commercializes or re‑partners .
  • Trading setup: Near‑term moves likely tied to financing clarity and Phase 3 initiation milestones; medium‑term thesis hinges on executing Phase 3 with clean U.S. operations and preserving cash runway to readout .