Earnings call transcript: Durect’s Q4 2024 revenue drops as focus shifts to key drug

Durect Corporation’s recent earnings call revealed a significant decline in revenue for the fourth quarter of 2024, alongside strategic shifts towards developing its lead drug candidate, Larcicosterol. The company’s financial performance showed a marked decrease in both annual and quarterly revenues, reflecting broader strategic realignments and market challenges. According to InvestingPro data, the company’s market capitalization stands at $25.23 million, with a relatively stable beta of 0.91, indicating moderate market sensitivity.

Key Takeaways

• Durect’s Q4 2024 revenue fell to $500,000 from $900,000 in the same quarter of the previous year.
• The company has become debt-free after repaying its entire term loan.
• Durect is focusing on its promising drug, Larcicosterol, for alcohol-associated hepatitis (AH).
• The company anticipates its current cash reserves will sustain operations through Q3 2025.

Company Performance

Durect Corporation experienced a notable downturn in revenue, both annually and quarterly. Total revenues for 2024 declined to $2 million from $2.6 million in 2023, while Q4 2024 revenues were $500,000, down from $900,000 in the prior year. This decline is attributed to the company’s strategic pivot towards the development of Larcicosterol, its lead drug candidate for alcohol-associated hepatitis, which has shown promising results in clinical trials. InvestingPro analysis reveals concerning metrics, including weak gross profit margins and rapid cash burn. Subscribers can access 8 additional ProTips for deeper insights into Durect’s financial health.

Financial Highlights

• Revenue: $500,000 in Q4 2024, down from $900,000 in Q4 2023
• Total revenue for 2024: $2 million, down from $2.6 million in 2023
• R&D expenses: Reduced to $10.4 million in 2024 from $29.4 million in 2023
• SG&A expenses: Reduced to $10 million in 2024 from $12.7 million in 2023
• Cash and investments: $12 million, down from $29.8 million at the end of 2023

Outlook & Guidance

Durect is preparing for a Phase 3 trial for Larcicosterol, with an estimated cost of $20 million. The company is exploring funding options, including strategic partnerships and capital market financing, to support this initiative. Despite the current financial challenges, Durect remains optimistic about its future, driven by the potential of Larcicosterol to address a critical unmet medical need. InvestingPro analysts have set price targets ranging from $5 to $8.50, suggesting significant upside potential if the company executes successfully. For comprehensive analysis of Durect’s valuation and growth prospects, investors can access the detailed Pro Research Report, available exclusively to subscribers.

Executive Commentary

Jim Brown, CEO of Durect, emphasized the company’s commitment to addressing alcohol-associated hepatitis, stating, "We are committed to developing Larcicosterol to provide hope for our AH patients." CFO Tim Papp reassured stakeholders about the company’s financial health, noting, "We believe our cash on hand is sufficient to fund operations through the third quarter of 2025."

Risks and Challenges

• Funding for Phase 3 trials: The company needs to secure additional financing to proceed with its plans.
• Market competition: While Durect holds a unique position with Larcicosterol, the competitive landscape in biopharmaceuticals remains dynamic.
• Regulatory hurdles: Obtaining FDA approval for new drugs is a complex and uncertain process.
• Cash flow management: With reduced revenues and high R&D costs, managing cash flow effectively is critical.

Durect’s strategic focus on Larcicosterol positions it as a potential leader in treating alcohol-associated hepatitis, yet the company faces significant challenges in funding and regulatory approval. As it navigates these hurdles, Durect’s emphasis on innovation and targeted therapies remains central to its long-term strategy. The company’s current ratio of 0.71 and negative EBITDA of $19.39 million underscore the importance of successful execution in its development programs.

Full transcript - Durect Corporation (DRRX) Q4 2024:

Conference Operator: Greetings, and welcome to the Direct Corporation Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Papp, Chief Financial Officer.

Jim Brown, Chief Executive Officer, Direct Corporation: Good afternoon, and welcome to Direct Corporation’s fourth quarter twenty twenty four 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 Durex 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 ks and 10 Qs under the heading Risk Factors.

Tim Papp, Chief Financial Officer, Direct Corporation: To begin, I would like to review our fourth quarter and full year ’20 ’20 ’4 financial results. The following financial information relates solely to our continuing operations and therefore does not include the operations of our ALLZET product line, which we sold in the fourth quarter of twenty twenty four. Total revenues in 2024 were $2,000,000 compared with $2,600,000 in 2023 and $500,000 for the fourth quarter of twenty twenty four compared to $900,000 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 and D expense was $10,400,000 in 2024 as compared to $29,400,000 for the prior year and $1,900,000 for the fourth quarter compared with $5,600,000 for the prior year 2023.

The decreases were primarily due to lower clinical trial related expenses following completion of the AFFIRM trial. We also experienced lower contract manufacturing expenses and other external expenses as well as lower employee related costs. SG and A expenses were $10,000,000 in 2024 as compared to $12,700,000 for the prior year and 2,000,000 for the fourth quarter of twenty twenty four compared with $2,200,000 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 twenty twenty four, we had cash and investments of $12,000,000 as compared to $29,800,000 at 12/31/2023.

We believe our cash on hand is sufficient to fund operations through the third quarter of twenty twenty five. As I previously mentioned, we completed the sale of the Allstate product line during the fourth quarter of twenty twenty four. 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 larcutosterol for alcohol associated hepatitis. We are continuing to explore all options for funding the clinical development of LARSUKOSTERIL, 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, Chief Executive Officer, Direct Corporation: Thank you, Jim, and hello, everyone. Thank you for joining us today for our fourth quarter twenty twenty four 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 thirty of the one hundred and sixty four thousand U.

S. Patients hospitalized due to Ah will die within ninety days of hospitalization. This means Ah is responsible for greater than forty thousand deaths each year in The U. S, more than one hundred 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 sixty percent reductions in mortality with both doses of larcucosterol compared with placebo in the two thirty two U. S. Patients. This represents approximately seventy five percent 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 LASUKOSTERAL 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 larcukosterol 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 three trial and once underway, we expect to be able to report top line data in approximately two years. We firmly believe that larcicosterol represents the best hope for breakthrough in the treatment of Ah and look forward to the opportunity to demonstrate this in our Phase three trial.

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

Conference Operator: And our first question comes from the line of Francois Bourgeault with Oppenheimer and Company. Please proceed.

Norman, Medical/Scientific Advisor, Direct Corporation: 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

Jim Brown, Chief Executive Officer, Direct Corporation: follow-up. Sure. Yes, I think right now we’re estimating it would be about $20,000,000 There are some things that we are considering that might take it a little bit under that, but that’s approximately what it would cost.

Norman, Medical/Scientific Advisor, Direct Corporation: And two years to data, is that what you’re going to say?

Jim Brown, Chief Executive Officer, Direct Corporation: Right, right.

Tom Yip, Analyst Representative, H.C. Wainwright: Yes.

Norman, Medical/Scientific Advisor, Direct Corporation: 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 the issue might have been ex U. S. Here.

And that’s it for me.

Jim Brown, Chief Executive Officer, Direct Corporation: Yes. It does totally make sense. It makes intuitive sense because this is an acute assault based on chronic conditioning of the liver. So I kind of think about it that it’s 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 on the call to have both Norman and Wei Chi 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 Wei Chee can follow on.

Norman, Medical/Scientific Advisor, Direct Corporation: Hi, Frank. So previously there’s been no active there’s been no effective therapy. And so time was never a factor and steroids, time to dosing didn’t make any difference. But if you have an effective therapy in an acute evolving disease, it really makes sense that it would be effective. And you saw the graphs in the New England Journal article.

They’re quite impressive. There’s clearly appears to be an effect of early dosing or dosing within the first, in this case, nine days.

Jim Brown, Chief Executive Officer, Direct Corporation: Yes. Wei Qi, would you want to add anything to that?

Wei Qi, Scientific Advisor, Direct Corporation: 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 for 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 U. S. And ex U.

S. Patient population, what the difference we saw in the results. But it’s just one of those. But although it’s a very important factor, but one of the multiple factors. So that’s what I would like to add.

Jim Brown, Chief Executive Officer, Direct Corporation: Yes, 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 Belgium region, it was two weeks. So there’s a substantial difference if you’ve got an acute circumstance to wait two weeks before you do much.

And so we’re really excited about the what this might mean for our Phase three because we intend to dose everyone within nine days or so in the Phase three trial, which will eliminate the longer term duration. In fact, most of the patients will probably treated very quickly based on what we’ve learned and anticipate that we should even possibly have a stronger signal. That certainly was the case when we looked at these data.

Norman, Medical/Scientific Advisor, Direct Corporation: Thank you.

Jim Brown, Chief Executive Officer, Direct Corporation: Thanks.

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

Carl Burns, Analyst, Northland Capital Markets: 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.

Jim Brown, Chief Executive Officer, Direct Corporation: Yes, 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, why don’t you maybe have a comment here?

Tim Papp, Chief Financial Officer, Direct Corporation: Yes. Carl, we certainly have ongoing efforts on 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.

Carl Burns, Analyst, Northland Capital Markets: Understood. Thanks so much.

Conference Operator: And the next question comes from the line of Ed Parsley with H. C. Wainwright. Please proceed.

Tom Yip, Analyst Representative, H.C. Wainwright: Hi, this is Tom Yip asking a couple of questions for Ed. Thank you so much for taking my questions. So first question, hi, Jim. Given the statistical significance ninety day mortality reduction observed in U. S.

Patients in the Phase IIVIA firm study, is there a possibility to seek funding for a smaller, but more rigorous Phase IIbA study to generate new data to confirm less adversarial under a tighter setting in The U. S. Market?

Jim Brown, Chief Executive Officer, Direct Corporation: 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

Tom Yip, Analyst Representative, H.C. Wainwright: to be U. S. With that, the next piece we’re going to

Jim Brown, Chief Executive Officer, Direct Corporation: 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 ex U. S. Group. And we didn’t see nearly as much of that in The U. S.

But when we have now randomization. So 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. And when you go burn through that, then you’ll 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 nine or ten days or earlier, probably much earlier based since it’s based in U. S. But to conduct another Phase IIb trial, you’d have to have about 200 patients to show reasonable signal. And by the time you’ve done that, you’ve done the Phase III. And so 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 IIb, what might still leave you guessing.

Conference Operator: I don’t know.

Jim Brown, Chief Executive Officer, Direct Corporation: I mean, Norman, do you have any thoughts on that?

Norman, Medical/Scientific Advisor, Direct Corporation: Well, what I would say is the other

Conference Operator: trial, first

Norman, Medical/Scientific Advisor, Direct Corporation: of all, was a three inpatient trial, but there were two doses. So we really had two active arms and they gave nearly identical results.

Jim Brown, Chief Executive Officer, Direct Corporation: So in my mind, that was the

Norman, Medical/Scientific Advisor, Direct Corporation: 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.

Tom Yip, Analyst Representative, H.C. Wainwright: Got it. Yes, understood the rationale there. And then what about opportunities, would there be opportunity for non dilutive funding in six U.

Carl Burns, Analyst, Northland Capital Markets: S.

Tom Yip, Analyst Representative, H.C. Wainwright: Countries just really to generate new data perhaps in a country you mentioned trial count outs in countries with rigorous control in place, would that be possible?

Jim Brown, Chief Executive Officer, Direct Corporation: 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 Ah. But the possibility of doing a regional study with an ex U.

S. Partner is certainly something that we would consider. So that might indeed be there are certain markets that like to have that for sure that I can see it in their population.

Tom Yip, Analyst Representative, H.C. Wainwright: I see. Thank you again for the kind of questions.

Conference Operator: Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the call back to Jim Brown for closing remarks.

Jim Brown, Chief Executive Officer, Direct Corporation: Thank you. And 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.

Conference Operator: This concludes today’s conference. You may disconnect your lines at this time. Enjoy the rest of

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