Michael Arenberg - Chief Financial Officer James Brown - President and Chief Executive Officer Su IL Yum - Distinguished Fellow, Research and Development.

Neil Gagnon - Stifel Francois Brisebois - Laidlaw & Company Ed Arce - H.C. Wainwright Len Yaffe - StockDoc Partners.

Greetings, and welcome to DURECT Q3 2018 Earnings Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, I would now like to turn the conference over to your host, Mike Arenberg for DURECT.

Thank you Mr. Arenberg, you may begin..

Good afternoon, and welcome to our third quarter earnings call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief overview of our financial results and then Jim Brown, our President and CEO will provide a business update. We'll then open the call for questions and answers.

Before beginning, I'd 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, our 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 are included in our SEC filings, including our 10-K and 10-Q's under the heading of Risk Factors. Let me now turn to our financials.

Total revenue was $8 million in the third quarter of 2018, compared to $20.7 million in the third quarter of 2017. The third quarter of 2018 included a $5 million milestone payment from Indivior for the approval of PERSERIS, the third quarter of 2017 included a $12.5 million upfront payment from Indivior.

It excludes all deferred revenue from upfront fees already received by the company then the revenue from our R&D collaborations was down approximately $267,000 for Q3 2018 compared to Q3 2017. Product revenue from the sale of ALZET pumps and LACTEL polymers was $2.3 million in Q3 2018 compared to $2.6 million in Q3 2017.

The gross margin for the combined all ALZET and LACTEL product lines was 61% in Q3 2018. These product lines continue to be strong cash flow positive. R&D expense was $6.5 million in Q3 2018 compared to $8.4 million in Q3 2017, primarily due to lower R&D costs associated with POSIMIR, partially offset by higher costs for DUR-928.

SG&A expenses were $2.9 million in Q3 2018 as compared to $3.1 million in the Q3 2017. Cash and investments as of September 30th, 2018 was $41.5 million compared to $42.5 million at June 30th, 2018 and $36.9 million at December 31 2017. We had an underlying cash burn rate of $6 million in Q3 2018 compared to $9.5 million in Q3 2017.

These figures exclude any licensing deals, milestone payments or equity financing activities. After the end of the quarter, we signed an amendment to our debt agreement with Oxford Finance.

Principal payments that were scheduled to start on December 1 of this year are now pushed back by an additional 18 months to June 1 of 2020 and the final maturity date is moved back by 30 months to November 1 2022. So this amendment is essentially like entering into a new loan that has an 18 month interest only period and a 4 year final maturity.

The interest rate and final payment remain unchanged, although the timing of that final payment is also moved up by 30 months unless we were to prepay the loan and we paid Oxford an amendment fee of $900,000. The amended terms essentially maintain a similar internal rate of return for Oxford as they would have if we had not amended a loan.

We appreciate the continued support from Oxford we have been working with since June of 2014. I'd also like to mention that we will be presenting at the Stifel Healthcare Conference in New York City at 11.45 am Eastern Time on Wednesday November 14. A live webcast will be available.

With that thanks again for joining our call and I will now turn things over to Jim to discuss non-financial matters in greater detail..

Thank you, Mike, and hello, everyone. Let's briefly review what's been accomplished through October of this year. We started two Phase II trials with DUR-928 for two different indications and a third is in process to start early in 2019.

Today you'll learn about the strategy we have taken to accelerate the DUR-928 alcoholic hepatitis trial into the severe patients. We've completed manufacturing of DUR-928 at large scale which is an important milestone for this program. We are preparing to initiate a study of DUR-928 in NASH patients in the first half of 2019.

We also had two products approved through corporate deals. The first is in Indivior's PERSERIS which was approved in the United States for as a once a month injectable product for schizophrenia. And the second is Orient Pharma's Methydur Sustained Release Capsules which were approved in Taiwan for the treatment of ADHD.

On the finance front, Mike has hit the ground running. One of his first task was to amend our existing $20 million term loan with Oxford Finance. We now have a 4 year loan at the same interest rate that started with an interest only period of 18 months. Congratulations on Mike on extending our runway in advance of numerous potential milestones in 2019.

I'll now update on the programs in greater detail beginning with the DUR-928. DUR-928 is the lead product candidate in our Epigenomic Regulator Program. DUR-928 plays a regulator program role in lipid metabolism, inflammatory responses and self-survival.

It's an endogenous first in class small molecule, which may have brought applicability in a number of disease states including several liver and kidney disease stages, such as nonalcoholic steatohepatitis of NASH and other disorders of liver including Primary Sclerosing Cholangitis or PSC and acute organ injury such as alcoholic hepatitis and acute kidney injury and an inflammatory skin disorder, such as psoriasis and atopic dermatitis.

DUR-928 is demonstrated positive results in more than a dozen different animal models and has achieved reductions in important biomarkers or other signals of potential clinical activity in Phase Ib single dose studies in NASH, psoriasis and chronic kidney disease patients. We have two Phase IIa studies underway in the United States.

One, the first investigating 928 alcoholic hepatitis and the second in PSC with a third Phase II trial plan to begin dosing in psoriasis patients during the first quarter of 2019 and a fourth trial which will be in NASH patients to begin in the first half of 2019. First, the alcoholic hepatitis trial update.

DURECT is conducting a Phase IIa clinical trial with intravenously administered DUR-928 in patients with AH. This is an open label dose escalation multi-center study in the United States. It's originally was designed to be conducted in two sequential parts.

Part A includes patients with moderate alcoholic hepatitis as determined by the model of end stage liver disease or MELD scores, which is a common scoring system used to assess the severity and prognosis of AH patients. And Part B which will include patients with severe AH.

Three dose levels that being 30, 90 and 150 milligrams are planned for testing in Part A. Dose escalation occurred follow review of safety and pharmacokinetic results prior dose level by the Dose Escalation Committee or DEC. The targeted number of patients per study group is 4 to 6 patients.

The objectives of this study include, safety, pharmacokinetics and pharmacodynamic signals including liver biochemistry and biomarkers. We recently completed dosing for the low dose 30 milligram cohort which of Part A with the moderate alcoholic hepatitis patient.

After completing the safety and PK review by the Dose Escalation Committee, we plan to commence the next cohort which is the 90 milligram dose in moderate AH patients. We are pleased today to be able to announce a strategy to accelerate the testing of DUR-928 into patients with severe alcoholic hepatitis.

We have amended the protocol so that after the DEC completes its review of the low dose 30 milligram moderate patient data, we will advance the trial by going directly into Part B of the study and begin it rolling severe AH patients dosing them initially with 30 milligrams of DUR-928.

We believe this protocol amendment can improve the involvement rate because in the trial to date, the clinical sites have encountered many severe AH patients who may have qualified for Part B but were deemed screen failures due to their MELD scores being too high for Part A.

Alcoholic hepatitis is a syndrome of progressive inflammatory liver injury associated with long-term heavy intake of alcohol intake and encompasses a spectrum that ranges from mild injury to severe, life threatening liver damage. The prevalence of AH is estimated to occur in 10% to 35% of heavy drinkers.

According to an article in the Journal of Clinical Gastroenterology in July of 2015, there were over 320,000 hospitalizations related to alcoholic hepatitis in 2010, resulting in hospitalization costs of nearly $50,000 per patient. Now for the Primary Sclerosing Cholangitis trial update.

As a reminder, PSC is a chronic liver disease characterized by a progression of cholestasis that is decrease in bile flow with inflammation and fibrosis of bile ducts. DUR-928 has been awarded orphan drug designation for the PSC indication. We are conducting a Phase IIa trial in PSE.

This trial is a randomized open label study with two cohorts 10 milligram or 50 milligrams of orally minister DUR-928. Each of these cohorts will have between 15 to 20 patients who will receive daily oral DUR-928 for 4 weeks with a follow-up of an additional 4 weeks.

The objectives of this study are to evaluate the safety, pharmacokinetics and pharmacodynamic signals of DUR-928 including the percentage change from baseline of serum alkaline phosphatase and other biomarkers. To date 5 PSC patients have been dose and as such we're not able to provide a meaningful interim data at this point.

To put this enrollment rate into perspective, we have estimated enrollment rates using publicly available data from 8 PSC trials, 7 was Phase II and one was a Phase III trial. These trials were conducted by academic centers and companies such as Shire, Intercept, NGM, Gilead and Tobira.

Our enrollment rate is similar to the average enrollment rate for PSC patients in these trials. Our plan is to continue growing patients and to provide an update when we feel enrollment has reached a critical mass for data analysis. Now for the psoriasis trial update.

We are working toward initiating dosing and a Phase IIa proof-of-concept trial with topical DUR-928 in patients with mild to moderate plaque psoriasis beginning in the first quarter of 2019. This will be a multicenter, randomized, double-blind, vehicle-controlled clinical trial that will be conducted in the United States.

Approximately 20 subjects will be enrolled to obtain about 15 evaluable subjects in the study. DUR-928 will be applied topically once-daily for four weeks. Patients will serve as their own controls, as each patient will have similar contralateral plaques.

What that means is they will be testing plaques in the lower part of the arm, so that means on their left arm and on the right arm, they will have plaques as similar size. DUR-928 will be applied to one plaque and the vehicle control will be applied to the other arm, the contralateral plaque daily for four weeks.

Patients will be followed for an additional four weeks and the primary efficacy endpoint will be improvement in local psoriasis scores in the DUR-928-treated plaque as compared to the vehicle-treated plaque. We observed activity of DUR-928 in Phase 1b trial utilizing intralesional injections of DUR-928 into psoriasis patients.

In support of the upcoming study, we have completed multiple non-clinical safety studies for topically applied DUR-928. Skin inflammatory disorders, such as psoriasis or atopic dermatitis affect approximately 7.5 million and 32 million Americans, respectively.

Most currently available topical treatments, which are used typically as first line therapy, either slow down the excessive skin cell proliferation or reduce inflammation. Steroids are the most commonly used topical anti-inflammatory agents because they reduce the swelling and redness of the lesions.

I'll now move to the Non-Alcoholic Steatohepatitis program. We've been excited about the potential of DUR-928 to aid the treatment of NASH for some time. DUR-928 has yielded impressive results in multiple NASH models.

Additionally, 928's overall safety profile when combined with the biomarker data from our Phase Ib HASH trial provided biological possibility for a potential therapeutic effect of DUR-928 in NASH.

There is also considerable overlap between the genes that are regulated by DUR-928 and the sites that are being targeted by the leading companies in the NASH space. One of the important milestones for us in 2018 has been scale up manufacturing of DUR-928.

We now plan to conduct a clinical trial in NASH patients with orally-administered DUR-928 beginning in the first half of 2019. Further details on study design and timing will be provided as we gets closer to initiation.

In our previous Phase 1b NASH study, which was reported at the European Association for the Study of the liver disease in the April of 2017, we absorbed a reduction of certain biomarkers after a single oral dose of DUR-928.

Exploratory biomarker analysis indicated that a single oral dose of DUR-928 in NASH patients resulted in statistically significant reductions from baseline of both full and cleaved cytokeratin-18 is a markers of cell death, and bilirubin, a marker of functionality of the liver as well as two inflammatory markers and that was C-reactive protein and IL-18.

I think it's important to note that these were seeing at both those groups and one was a 50 milligrams goes group and other was a 200 milligram dose group and they were dosed 2 months apart and yet almost the exact same response was seen, which is quite impressive. As the last update on the program, I want to provide some additional information.

During the first 10 months of 2018, the direct team has presented 5 posters on DUR-928 at scientific meetings. In March at the Society of Toxicology Annual Meeting, we presented a poster on the add me of DUR-928.

This study identified that biliary excretion was the primary route of elimination of the drug and its metabolite and highlighted the preferential uptake of DUR-928 in selected target organs which included the liver, the intestines and the kidney.

In September, at the American College of Clinical Pharmacology Meeting, we presented a poster of the drug-drug interaction study. This study demonstrated that DUR-928 when administered by either injection or the oral route had no effect on the safety at pharmacokinetics of midazolam, a drug that is primary metabolized by the enzyme CYP 3A4.

This enzyme is commonly involved in clinically relevant drug-drug interactions. In October, at the American Society for Nephrology Kidney Week meeting, we presented a poster on the safety in pharmacokinetic of DUR-928 in patients with chronic kidney disease or CKD.

This study showed that injection of DUR-928 was well tolerated at both the low and high doses in the CKD patients and the mass control subjects. The pharmacokinetic parameters between the kidney function impaired patients and a mass control subjects were comparable.

While the number of subjects was small, those with elevated baseline levels of bilirubin or CK-18 saw reductions at 12 hours after dosing. This was consistent with what we observed in the NASH Phase 1B study. At the same ASN meeting, we presented another poster on the renal ischemic reperfusion injury in rats with DUR-928.

This study demonstrated that administration of DUR-928 significantly reduced the serum creatinine of blood urea and nitrogen levels and alleviated the kidney injury in a renal ischemic reperfusion rat model.

Finally, just this week at the American College of Society's Annual Meetings, we presented a poster on a toxicology and toxicokinetic study of IV infused DUR-928. What was a particular interest in this study with a complete lack of toxicity observed at all levels tested with DUR-928.

These posters were presented in order to expand the understanding of the DUR-928 in the scientific community. We give our thanks to the scientists who conducted these studies and put these posters together. These posters can be viewed at durect.com. I want to now move to PERSERIS.

PERSERIS is Indivior's once monthly injectable risperidone product for the treatment of schizophrenia. PERSERIS is the first once monthly subcutaneous risperidone-containing long-acting injectable for the treatment of schizophrenia in adults.

Treatment adherence is a big challenge for these patients, which is why the long-acting injectable market in the United States is over $3 billion in growing. Risperidone is a well-established treatment for schizophrenia. PERSERIS provides sustained levels of risperidone on over one month.

The initial peak of risperidone on level occurs within 46 hours of dosing and are due to an initial release of the drug during the depo formation process.

PERSERIS may have product attributes that will be attractive to patients and physicians and could enable the product to become a valuable addition to the large and growing long-acting injectable antipsychotic market.

For example, the fact that you don't need a loading dose or any supplemental oral risperidone when the patient is first put on PERSERIS, I think it's an important component. We encourage you to review the PERSERIS prescribing information that can be found on indiviormedia.com.

Under the terms of our agreement with Indivior, they made an upfront nonrefundable payment to direct $12.5 million in September of last year. In July of 2018, the FDA approved the NDA for PERSERIS and we received $5 million milestone payment in August of this year.

In addition, we will receive quarterly earn-out payments that are based on a single-digit percentage of U.S. net sales for certain products covered by the patent rights we license to them, including PERSERIS. The patent rights include granted patents extending through at least 2026.

On November 1, 2018, Indivior stated that they are preparing a full promotional launch of PERSERIS with a field force of 40 to 60 representatives. This is contingent upon the preliminary injunction against Dr. Reddy's laboratory for generic Suboxone film that being upheld by the United States courts of appeal for the federal court.

Indivior further stated that they will be making PERSERIS available in the U.S. this quarter of 2018, fourth quarter to begin generating product awareness and trial use. For more information on PERSERIS, please see Indivior's earnings press release which was dated November 1, 2018. U.S.

sales of long acting injectables to treat schizophrenia were in excess of $3 billion in 2017. Indivior have stated in the past that their peak sales projections for the product is between $200 million to $300 million a year. And now I want to move to POSIMIR.

POSIMIR is our investigational post-operative pain relief depot that utilizes our patented SABER technology and is designed to deliver bupivacaine to provide up to 3 days of pain relief after surgery. In May, we amended our U.S. license agreement with Sandoz.

The agreement between the two companies remains in full force and effect except as expressly covered in this amendment. We continue to evaluate and considered the potential next steps for the program and we will provide an update when a decision has been made and the future of the program is set.

The final product I'll talk about today is Orient Pharma's Methydur Sustained Release Capsules. Methydur Sustained Release Capsules are based on ORADUR technology. In September 2018, Orient Pharma informed DURECT that it had obtained marketing authorization from the Ministry of Health and Welfare in Taiwan for Methydur Sustained Release Capsules.

This milestone marks approval of the first order product. Methydur Sustained Release Capsules are indicated for the treatment of attention deficit hyperactivity disorder or ADHD and will be available in three strengths that is 22 mg, 33 mg and 44 mg in Taiwan.

Orient Pharma also has stated that it expects to have Methydur Sustained Release Capsules commercially available in Taiwan in 2019. They are seeking a partner in China and pursuing regulatory approvals in selected other countries where they have commercialization rights and commercial presence.

As a reminder, directly change the rights to North America, Europe, Japan and all other countries that are not specifically licensed to Orient Pharma. DURECT is entitle to receive a royalty on sales of the Methydur Sustained Release Capsules by Orient Pharma.

We are currently seeking commercial partners for Methydur Sustained Release Capsules for territories under our control. In summary, the approval of PERSERIS and Methydur Sustained Release Capsules allow us to add these revenue streams to our existing ALZET and LACTEL product lines.

Of course, these new payments will flow straight to the bottom line when they begin next year. The most important component DURECT's future potential is DUR-928, an endogenous small molecule that is demonstrated profound effects in various animal models and in single dose studies in human patients with what appears to be a wide safety margin.

Today, we announce that we are accelerating the AH trial into severe patients and continue dosing in the PSC trial. This is trial is poised to begin dosing in first quarter of 2019, we have completed scale up manufacturing of the DUR-928, an important milestone for the program.

We have also initiated activities to enable dosing in NASH trail in the first half of 2019. A positive single from any one of these studies could be transformational for DURECT and 2019 is positioning to be a pivotal year for our company.

Last, by virtue of the newly structured 4 your loan with Oxford Finance, we have significantly extended our runway to be able to pursue these development milestones. With that, we now like to take any questions you might have..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And we'll take our first question from Adam Walsh..

Hey guys, this is Neil Gagnon on for Adam. Just two questions. Can you provide any clarity on readouts for the AH and PSC trials at this point in time? And then just on your cash runway, is that sufficient to see through readouts from the ongoing trials and the plans when you have in psoriasis and NASH? Thanks..

I'll let Mike address the cash, I think we're in good shape there. With regard to the other two trials, we're progressing along. As I think with regard to PSC, we're going to wait until we enroll more patients to be able to have a critical mass to make some statements.

With regard to AH, it's kind of the same thing we have completed the first cohort and that will be reviewed very shortly in fact the AH of the meetings in town here in San Francisco, so we're going to have the DSC meeting over the weekend and hopefully progressing to distribute patients in the near future. Mike, I'll let you..

Sure, Neil. Yeah, on the cash question, we have $41.5 million as of the end of last quarter and our burn rates about $6 million per quarter. So we certainly have enough to get through next year when we'll be reading readouts on these things.

That Jim has mentioned, I think we'll kind of still be opportunistic about if we decide to raise more money at some point. But right now we have enough cash to certainly get through next year and achieve some of these milestones..

And I think that was an important part of getting that that loan we done and really congratulate Mike and doing that because they definitely does extend out our runway significantly..

Great, guys. Thank you for the time..

Sure..

And we'll take our next question from Francois Brisebois.

Hey, guys, thanks for taking the questions. Just a couple.

So in terms of psoriasis is that delayed the start of first quarter or was that kind of always planned just as a start?.

Well, so it's at the end of the year, the thing is always you know you hope right to get it done in one month and things always change for another. So it is a little bit delayed but it's not dramatically delayed. And I think the team has done a great job.

We took the time to go back to some thought leaders to make sure that the protocol was set up just the way we like it and I really do like that a lot actually working with some phenomenal dermatologists on it and I really I think the design is quite compelling, I mean given that this is where the important plaques and they tend to be of similar size, if you think.

I've have had family members with psoriasis and oftentimes you get these plaques right above it right around the elbow, right for example. And so if you've got one on your left arm or your right arm, you will be treating one with placebo and one with active. And so we'll have a good chance to evaluate the result..

Okay. Great.

And then in terms of cost for the NASH trial, I know you're going to give more details on the plan of it, later on, but in terms of cost, you have an idea in terms of enrollment en numbers?.

Yeah, it's not going to be expensive, I don't think overall, that's what I would give, but we will update more later..

Okay.

And then, so when was that you guys decided to put moderate and severe for AH together, when was the decision taken? Why was it taken? Was it happening a lot that these patients were too severe and couldn't get into Part A? And then for the readouts, is it still going to just be Part A is going to readout and then Part B is going to readout that doesn't change at all for those?.

No. It's actually, it really dramatically changes. I think it's something that change sudden but I think we should maybe expand out of a little bit. We definitely had a lot more severe patients coming in. That's just the reality of alcoholic hepatitis. There are many patients that decide to go to the hospital.

And so we saw, I don't know what the actual numbers were but it was a multiple of severe patients compared to moderates that were coming in. That's one piece.

As far as the readouts are concerned, the readouts will be coming now simultaneously because we can move for example to the next dose level in the moderate patients, at the same time as we're starting in the severe patients.

And then as that advances eventually pretentiously maybe the severe patient should take over the entire trial and we would discontinue the moderate patients. But it is definitely acceleration of the entire process. We were hoping to be into severe patients by the end of the year. It's always, trials always start slower than I would like.

If I look at our actual enrollment rates for this trial, they're right in line with the industry enrollment rates as we see the same things with the AH trials. So this strategy which I give a lot of credit to the team for coming up with allows us to kind of leapfrog forward into the severe patients, right as we close the year out..

Can you just explain a little more on the - so to start Part B, you have to have it reviewed for, is that for all doses of Part A, the smallest dose are Part A?.

No. What we're doing now is we're taking the 30 milligram cohort from moderate patients, and that'll be reviewed by the DSC, that by that committee.

And what they will do is, as what we're going to talk about what we believe what the strategy is, but what we think we'll do is we'll simply be able to go now and start dosing severe patients with 30 milligrams.

At the same time, we can start to enroll patients at the next level within the moderate patients otherwise we could dose escalate in the modern patients.

But for that 30 milligram dose, it's been shown to be safe and effective or not whatever that safe and pharmacokinetics and the like with regard to the moderate patients, then one can now move those into the severe patients..

Maybe I can add on and clarify that a little bit. The way to think about it is once we have this dose escalation committee reviewing the initial 30 milligram dosing, we're going to start the severe patients at that same low dose.

And then as essentially the two the severe and the moderates are going to run in parallel and not be contingent on anything happening in the other one. So if the severe ones ready to dose escalate the committee will review that and then we'll dose escalation.

If that moderate one is ready to dose escalate the committee will review that and then what does escalate that one..

Yeah, thanks, Mike..

Okay. Now that's very helpful. Thank you.

And then, so is it unlikely that we see any interim look before year-end, there is still a chance for that for both AH and PSC?.

I would say unlike, I think what the update we're giving out could be the update because there's only a month or so left in the year..

Right. Okay.

And then just in terms of PERSERIS and order, can you give any I guess you guys aren't given any guidance but they're going to launch in the fourth quarter here and any impact on top line that you guys are kind of expecting or are you just stick into to they're talking about a peak revenue or 200 or 300 and single-digit royalty, how much color can you give there?.

Yeah I would say, I would stay with their estimates and with that royalty. They're making it available now, I think it's more for thought leaders and to kind of feel the pipeline as such, they're planning on their launch being right now in the first quarter, it's all contingent upon what happens with the Dr. Reddy's and the court.

But at some point time, it's an asset that makes sense for them to launch. So I'm sure it will get out there but I don't know the particular timing, it's all up to them..

Understand.

And for order for the ADHD?.

That's up to Orient Pharma and they've just given us 2019 numbers, so I think that we have to wait and see. I can tell that the market in Taiwan is rather small, so I don't think we can expect substantial monies coming in from that.

I think the largest potential opportunity for Orient Pharma's markets is really in China, where the world is changing dramatically with as people become more successful, families become more wealthy and children and things change and I think the market there is growing and of course the population is huge and so I think that's a greatest market opportunity and I know they're talking to potential partners about that market..

Okay. Excellent. So there was a lot of questions there but thank you very much and congrats on the quarter..

Thanks..

[Operator Instructions] We'll take our next question from Ed Arce..

Hi, Jim. Thanks for taking my questions. I joined quite a bit late so I apologize if you've already gone over this. But I just wanted to - for some clarification on a couple items. The alcoholic hepatitis trial acceleration, I know you just discussed some of the dose escalation schedule and what that looks like.

But just so that I am clear, is the 30 milligram cohort is the top dose of that multiple ascending schedule?.

No, the dosing schedule for the moderate patients has been planned at 30, 90, and 150. And we have completed the 30 milligram dose of the moderate. The dose escalation committee is going to meet in the next few days. And our hope is that if that meeting we will be then able to advance to the next dose level in the moderate patients.

At the same time, we're doing this acceleration. What this acceleration allows us to do is kind of leap directly into the severe patients, starting at the 30 milligram dose and so then we would begin dosing in parallel. The next dose level at moderate patients, the 30 milligram dose in the severe patients.

And then given the presentation rate of the severe patients, it's more likely than not that the next severe group will actually close out before the next moderate group. And when that occurs then we would go back to the DSC and we review the data and we go to next level and what that next level would be..

Okay. I understand. I got it. So it's a staggered design but because of the severe rapid progression you expect that the kind of catch up. Okay..

Right, and we - at the end of the day, we're pleased to be able to dose in the severe patients because that's really where the drug can have its greatest effect. I mean we were hoping that this drug can be lifesaving to be lifesaving. In order to be lifesaving, you have to have the higher MELD scores.

Because remember when you get to a MELD score of 25, you've got a greater that 30% chance of mortality in the next 90 days and it goes up due to MELD score 30% of that going up to 60% to 70% versus your MELD score of 18%, it's like 15%. So it's a dramatic difference, it's kind of a very steep curve.

And so being the severe patients the MELD score is 21 or higher, so those are the patients that at the end of the day for lack of better term, we would probably need the drug more should the drugs work..

Okay. That's helpful. The other main question I had was I followed you for a while and know that you've been sort of looking at NASH, and for some time and it generated earlier data, it's a little while with that to the side because of the cost and complication and everything else and.

So on throughout the year that you were deciding to move forward with that and I just, I know you probably you reviewed the surlier, but if you could just recap what you've said so far on moving forward with that next year?.

Well we haven't given a lot of detail. We will as we get closer to starting the study and obviously when we start to study, well tons of detail. We'll do some kind of call the way we did last year when we started the PSC and AH trial. We will probably do that for psoriasis as well.

So we'll have thought leader call and then we'll really lay out the strategy. But the thought is to start a NASH trial with 928 in the first half of next year, that's all we're saying at this point in time. We're excited about that because if you look, I know Ed you know the NASH plays very well.

But if you look at the targets at the end targets and the specific activities that the various leaders in the space are looking at, I'm still going to attack 2 or 3 different targets most companies are pursuing one, we have a great opportunity with 928 as an Epigenetic Regulator that inhibits a great number, a large number of these targets.

And so we think we have the potential either as monotherapy or in combination to make a difference here. And then as Mike points out, it's important not to forget that with DUR, we really haven't seen much in the way of side effects so far. So the potential to have brought therapeutic index and to be able to wade into the space and change things.

I mean if you look at our animal model data, it's very impressive. It's hard for me to find another molecule that's had anything close to what we've seen. And then you look at the data in the NASH patients, we dose these patient to 50 milligrams. We saw statistically significant reductions although wasn't planned in bilirubin.

In CK-18 full length, the markers of cell death and in to Interleukin-18 and in C-reactive protein in inflammatory markers. And then too much later dosed a group of patients and saw almost the exact, it's like a fingerprint of the responses slightly larger responses because they were 200 milligrams dose versus 50.

But the reproducibility of that, I think it's quite impressive. And so what we're hoping to do is to get into more patients for a longer period of time and replicate some of that..

Great. Thanks for that. And then one last question actually for Mike.

Just as you discussed and announced just very recently the loan modification that you completed, what can we expect in terms of the impact to the P&L going forward on that?.

Well the terms are essentially the same so the interest rate the same. The only impact would be the $900,000 that we paid as a loan modification fee in the short term. That's the only impact on the P&L, and of course no principal payments for the next for the next 18 months..

I really look at it as a just extending the runway to allow us to look at some of these data coming from these trials..

All right. Great. Thank again..

And we'll take our next question from Len Yaffe..

Many thanks, and welcome Mike. I was wondering, you had talked several times earlier this year about having alcoholic hepatitis data available before the end of the year.

And I was just wondering how the change in scheduling with the severe patients now coming sooner, changes the likelihood of getting any data on the Phase II AH studies?.

I think Len, with that trial, it will accelerate our time to data because of the availability just the fact that there are more severe AH patients are present in hospitals. So we should be able to enroll more rapidly going forward in the severe groups.

I think we'll get the data faster, but we're not going to have I don't think enough patients to have additional data to report out in the next you know 6 weeks or so. I think we're looking at a next year that..

Okay. And then given that the patients that you will initially be starting, they're going to be 30 milligrams.

What are you looking at because they would probably be more likely to need a higher dose in order to go to a I guess the next highest dose to 90 milligram cohort, are you just looking at safety on those patients or you expecting any kind of efficacy at that level of dose?.

I don't know Len. We don't know what will be effective in these patients, quite frankly 30 milligram maybe awesome, we don't know. The things we're going to be looking at as you know our MELD scores and various other markers. And the MELD scores made up of bilirubin creatinine and clotting time.

And we have shown bilirubin down in rat models, we've shown it now and in these NASH patients, we showed down in the chronic kidney disease patients that had elevations so whether by oral or injectable in humans, we've seen a drop in bilirubin.

In rats, we've seen in the ischemic kidney model that was presented last whatever it was a couple weeks ago at the kidney meeting, we saw a reduction, a dramatic reduction in the serum creatinine rise seen in this model. So the opportunity is there to be able to change these markers and make a difference patient.

So I don't know at this point whether 30 milligrams will be enough, we have left it open in the severe patient. So the moderates we say kind of 30, 90 and 150 kind of things are trying to dictate or more. That it's all] speculation is going to any of these trials.

But so if - after we've dosed in the 30, we'll have a look and see what kind of response we get, and then the DSC will look at it and I don't know what the next dose maybe, it maybe 40 or 50 or it may be 90 or 100, it'll just depend on the kind of responses we're seeing..

Great. And then lastly, financial question.

Were there any shares sold in your after money during the quarter and if so how many shares and how many share or how much money did it bring in?.

We did not sell any shares during the quarter..

Great. Thank you so very much thanks..

Thanks, Len..

And we'll take a follow-up question from Francois Brisebois..

Hey, sorry, just one more here Jim. I was just wondered so it terms of the Part A, Part B of the AH, obviously these patients are very, very different, you've talked about the log scale increase in terms of MELD score for severity.

In terms of their reaction to drug, is it - do you guys expect the MELD scores to be easier to be improved on the more severe patients or is this something that you're just kind of going in a little bit blinded here and we'll see how they react?.

We're definitely learning as we go, but being my optimistic self, I'm always hoping for that right.

I mean we've seen, now I'm going with the NASH patients and it's always difficult to jump from one type of patient to another, but in the more cirrhotic NASH patients, we saw a more dramatic response, with the CK-18 we're down more, they were higher to start with and they were down more dramatically.

And we've seen that even in the chronic kidney disease injectable patients, the patients that the higher bilirubin had the more dramatic reduction. So we think that this molecule functions a little bit as a stress hormone so it's possible that under more stress we could see the conditions.

And that it may not be, so it remains to be seen but I think that's a possibility. I would just - they certainly need something. And if I was there with almost no liver disease just a very, very mild thing and you dose, you probably wouldn't see much of anything.

I don't know, Su, you want to add to that?.

I think of this study, the primary objective of this study is safety PK, that the keys. So for those escalation actually is a solely based on the safety and the PK review. So then at the same time, of course we'll look at all other markers and biochemistry in patient, yes..

So we'll be learning some dynamic stuff as we learn the kinetic stuff both. So learning about some of the biochemistry and effects on that at the same time we're learning the pharmacokinetics..

Excellent. Okay. I was just thinking in NASH, it's that way so I was wondering it's always hard to compare from diseases, but it is. Okay. It's now, that's it. That's it for me thank you very much..

Sure..

Mr. Arenberg, there are no further questions at this time. I would like to turn the floor back over to you for closing comments..

Thank you everyone for joining. And we are available by phone anytime you would like to reach out, we're happy to talk. So take care and look forward to seeing some of you at the Stifel Conference next week. Bye..

This concludes today's call. Thank you for your participation. You may now disconnect..