Greetings and welcome to the DURECT Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Arenberg, Chief Financial Officer. Please go ahead..

Good afternoon and welcome to our second quarter 2019 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I will provide a brief review of our financial results and then Jim Brown, our President and CEO, will provide a business update. We will then open up the call for a question-and-answer session.

Before beginning, 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 in 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 under the heading Risk Factors. Let me now turn to our financials.

Total revenues were $4.0 million for the second quarter of 2019 compared to $3.4 million in the second quarter of 2018.Collaborative R&D revenue largely from feasibility projects was up about $1 million or 154% in Q2 2019 compared to Q2 2018.

Product revenue, largely from the sale of ALZET pumps and LACTEL Polymers was $2.3 million in Q2 2019 as compared to $2.8 million in Q2 2018. The gross margin for the combined ALZET and LACTEL product lines was 63% in Q2 2019.These product lines continue to be strongly cash flow positive.

R&D expenses were $6.6 million in Q2 2019 as compared to $6.1 million in Q2 2018, primarily due to higher cost for DUR-928 and our depot injectable programs, which are largely covered by revenue from feasibility partners and partially offset by lower R&D costs associated with POSIMIR.

SG&A expenses were $3.3 million in Q2 2019 compared to $2.8 million Q2 2018. During Q2 we raised approximately $15.4 million through the sale of equity in a discrete shutdown for some small use of the ATM. Our underlying burn rate during the quarter was $6.1 million excluding the equity raises.

At June 30, 2019, we had cash and investments of $38.1 million compared to $34.5 million at December 31, 2018. Of course, subsequent to quarter end we received the $25 million upfront payment associated with our Gilead license agreement.

So on a pro forma basis adding that $25 million to our quarter end cash position would result in a cash position of $63.1 million. With that, thanks again for joining our call. I will now turn the call over to Jim for an update on our programs..

Thank you, Mike and hello everyone. The second quarter and early third quarter have been very positive for DURECT.

We continue to advance our flagship DUR-928 program on all fronts with announcement of the impressive preliminary data from the first 10 alcoholic hepatitis patients dosed with DUR-928 with completion of the 90 milligram cohort in severe AH patients and the announcement that the response in those 90 milligram dose patients was consistent with those --with the response from the first 10 patients.

With initiation of the 150 milligram dose cohorts in the severe AH patients and with all three DUR-928 clinical trials remaining on track to report our data this year.

We also submitted a response to the POSIMIR complete response letter and have received a user free goal date of December 27.We signed a major license agreement with Gilead and we substantially strengthened our balance sheet with the addition of $40 million.

While the Gilead deal on the POSIMIR filing are significant positive achievements, DURECT’s primary focus remains on our epigenetic regular program and lead compound DUR-928.

DUR-928 is a naturally occurring first-in -class small molecule that plays an important regulatory role in the vital functions of lipid homeostasis, inflammation and cell survival.

It may have broad applicability and acute organ injuries such as alcohol hepatitis and acute kidney injury and chronic liver diseases such as NASH and inflammatory skin disorders such as psoriasis and atopic dermatitis.

We are developing DUR-928 currently in three initial indications; alcoholic hepatitis, or AH by injection, non-alcoholic steatohepatitis or NASH by oral dosing and psoriasis by topical route. I will begin with our alcoholic hepatitis program.

We're conducting a Phase 2aopen-label dose escalation clinical study testing 30, 90 and 150 milligram doses of DUR-928. Its a multicenter U.S. study that includes patients with moderate and severe AH as determined by their initial meld score.

Escalation to each subsequent dose level requires approval by the dose escalation committee following it’s review of the safety and pharmacokinetic results from the prior dose level. The target number of patients for the study is four moderate and four severe patients per dose.

The study objectives include assessment of safety, pharmacokinetics and pharmacodynamics signals, including liver chemistry and biomarkers. AH represents a significant unmet medical need with no approved therapies and the mortality rate for AH is around 20% for moderate and 40% for severe patients.

In May together with our key -- with some key opinion leaders we announced preliminary data from the first 10 patients treated in our Phase 2a DUR-928 AH study. The Lille, Bilirubin and MELD data from these first 10 AH patients were impressive.

The data from these patients demonstrated statistically significant reductions from baseline, a serum bilirubin levels and MELD scores and statistically significantly lower Lille scores as compared to historical control. In addition,DUR-928 was well-tolerated and pharmacokinetic parameters were not influenced by the severity of the disease.

Lille scores are used in clinical practice to help determine the prognosis of AH patients after seven days of treatment. Patients with a Lille score below 0.45 have an 85% six month survival rate and those with Lille scores above 0.45 have only a 25% six month survival rate. The lower the Lille score, the better the prognosis is for the AH patient.

In our preliminary data the median Lille score for the nine AH patients that were treated with 928 and who return for their day seven visit was 0.04 with a range of 0.01 to 0.19.The median Lille score among a cohort of 15 patients treated with either supportive care or supportive care and corticosteroid in the historical control group from the University of Millville study was 0.41 The Lille scores in the DUR-928 patients were statistically significantly lower than that from the Louisville patients with the P value of 0.002 by Wilcox rank sum test.

One of the major components of Lille score as well as other prognostic scores is the serum bilirubin level in our alcoholic hepatitis patients.

In our preliminary data as compared to baseline the median reductions in total bilirubin in the DUR-928 treated patients was 16% at day seven and 41% at day 28 as compared to 3% at day seven and 35% at day 28 in the standard of care group from the University of Louisville patients.

The reduction of total serum bilirubin in DUR-928 treated AH patients at both day seven and day 28 were statistically significant. In contrast there were no statistically significant reductions in the University of Louisville to control patients at either day seven or day 28.

The model of end-stage liver disease or MELD score is another scoring system used to assess the severity and prognosis of AH patients. Patients with MELD scores of 11 to 20 are classified as having moderate AH and patients with 21 to 30 severe AH. As Lille scores lower the MELD score the better the prognosis is for the AH patient.

In our preliminary data the median reduction from baseline prior – that is prior to treatment for the DUR-928 treated patients was 4% at day seven and 21% at day 28 the latter of which the day 28 data was significantly – statistically significant.

In the UL control patients there was a 4% reduction of the MELD on day seven and a 6% reduction on day 28 neither was statistically significant.

In June, we completed dosing in the 90 milligram severe cohort and we announced the preliminary data from the 90 milligram severe patients was consistent with the preliminary data I just described from the initial 10 patients.

We are currently enrolling moderate AH patient at the 90 milligram cohort level and severe patients in the 150 milligram cohort. We hope to present data from this trial at the AASLD meeting in Boston this November. In parallel with our ongoing AH trial we are supporting Dr.

Craig McClain from the University of Louisville in his efforts to initiate an NIH funded study of DUR-928 in AH patients at the University. AH is a syndrome of progressive inflammatory liver injury associated with long-term heavy alcohol intake and it encompasses a spectrum that ranges from mild injury to severe life-threatening liver damage.

The prevalence of AH is estimated to occur is somewhere between 10% to 35% of heavy drinkers.

According to an article in the Journal of Clinical Gastroenterology there were over 320,000 hospitalizations related to our alcoholic hepatitis in the United States in 2010 resulting in hospitalization cost of nearly $50,000 per patient and the cost of liver transplant exceeds $800,000.

In summary, AH represents a significant unmet medical need with near-term mortality rates of 20% to 40%. The positive preliminary clinical data from our first 10 AH patients dosed for DUR-928 demonstrate serum bilirubin and MELD reductions and low Lille scores.

Results from the 90 milligram severe AH patients were consistent with the results from the first 10 patients. We are enrolling in the 150 milligram cohort of the trial which is the final group of four severe AH patients. Once the trial has been completed, we will meet with the FDA to discuss the path to approval.

We hope to present the data from this trial at the AASLD meeting in Boston this coming November. We believe that DUR-928 has the potential to be lifesaving in age patients and therefore may be eligible for an accelerated path to market. And we expect the next step could be Phase 2b trial which would be initiated next year.

I’ll now move to our nonalcoholic steatohepatitis or NASH program. In March, we began enrolling patients in a Phase Ib randomize an open label clinical study being conducted in the United States to evaluate the safety pharmacokinetics and signals of biological activity of DUR-928 in NASH patients with stage 1 to 3 fibrosis.

In this study, we're evaluating 928 at doses of 50 milligrams or 150 milligrams once a day or 300 milligrams twice a day. 928 is being administered orally for 28 consecutive days. There will be approximately 20 patients per dose group for a total of about 60 patients in the trial.

The key endpoints from this study includes safety and pharmacokinetics, clinical chemistry and biomarkers with examples being bilirubin, lipids, liver enzymes, CK-18 and inflammatory cytokines as well we will be measuring MRI-PDFF imaging for liver fat.

We maintain our expectation is to announce initial data from this study in the second half of this year. Now to our psoriasis program for DUR-928.

We are conducting a Phase IIa randomized double-blind, vehicle-control, proof-of-concept clinical trial in which DUR-928 is applied topically once daily for 4 weeks in patients with mild to moderate plaque psoriasis. The trial is being conducted at multiple clinical sites in the United States.

20 patients are planned to be enrolled to obtain approximately 15 evaluable patients. Each patient serves as their own control, applying DUR-928 to the plaque on one arm and vehicle to a similar plaque on the other arm. After the treatment period, patients are followed for an additional 4-week.

The primary efficacy endpoint is the change in local psoriasis scores from baseline in the DUR-928-treated plaques as compared to that in vehicle-treated plaques. We began enrolling patients in March and maintain our expectation to announce topline data from this study in the second half of this year.

Psoriasis is an inflammatory skin disease with immune-mediated condition that causes the body to replace skin cells in days rather than weeks. Psoriasis affects an estimated 7.5 million Americans.

And according to the International Federation of Psoriasis Associations, nearly 3% of the world's population, or about 125 million people have some form of psoriasis. Psoriasis causes itchiness and irritation and may be painful. There is no cure, but currently approved treatment can ease the symptoms.

Approximately 80% of patients with psoriasis have localized disease, which can be treated with topical therapies. And as result topical agents remain the mainstay of psoriasis treatment. Now to our drug delivery where he recently had two important announcements, the most recent being the Gilead HIV hepatitis B deal.

Last Monday, we announced that we signed a development and commercialization deal with Gilead. We received $125 million upfront license fee and are eligible to receive an additional 145 million in milestones from this – first product.

This deal was the combination of a substantial amount of feasibility work with Gilead on long-acting injectable anti-HIV formulations. A long-acting injectable product like this makes a lot of sense. Patients with HIV typically take multiple pills multiple times a day and compliance can become a problem.

Just think about the last time you were prescribed an antibiotic to be taken multiple times a day for number of days how good a job that you do in remembering to your meds. Noncompliance leased to inconsistent blood levels and the potential for resistance to develop. Not to mention frequent dosing is a constant reminder of the disease.

Another issue of frequently daily dosing of anti-HIV meds is the potential for interactions with other medications such as blood pressure or statin that can lead to complication and a complicated day of dosing.

Having an extended release injectable to treat HIV would free the patient from the daily reminder of their disease as well as allow for greater flexibility in taking other required medication. These potential benefits may lead to a significant portion of the HIV treatment market shifting to long-acting injectable products when they become available.

We've been working together with Gilead for about two years on this program as a feasibility project. We are delighted that based on our progress together they chose to advance this effort into a formal development program. Gilead is a global leader in products to treat HIV and hepatitis B virus.

In fact Gilead sold $14.6 billion in products directed to treat HIV last year. They have been treating HIV patients for many years and we're proud to be able to help them in this mission.

Under the terms of this agreement we granted Gilead the exclusive worldwide rights to develop and commercialize a long-acting injectable HIV investigational product utilizing our SABER technology. Gilead made an upfront payment to DURECT $25 million with the potential for up to an additional 75 million in development and regulatory milestones.

An additional $70 million in sales-based milestones and tiered royalties on product sales directing Gilead will collaborate on specific development activities with Gilead controlling and funding the development programs.

Gilead also receives exclusive access to the SABER platform for HIV and hepatitis B with an exclusive option to license additional SABER-based products directed to HIV and hepatitis B. DURECT will receive an additional 150 million in upfront development and regulatory milestones as well as sales-based tiered royalties for each new product.

Our SABER technology which is Sucrose Acetate Isobutyrate Extended Release is a patented technology that is designed to provide sustained release for long-acting injectable products. As a reminder SABER technology is also the basis of our POSIMIR product. Speaking of that, I’ll now update on POSIMIR.

POSIMIR is an investigational postoperative pain relief depot product that utilizes our patented SABER technology. It is designed to be administered directly to the surgical site to deliver bupivacaine for up to three days after surgery. POSIMIR is not been approved by the FDA for marketing in the United States for any indication.

In June, we announced that we had submitted our response to the POSIMIR complete response letter. Just 20 days later on July 17, we announced the FDA had agreed to file our submission as a complete Class 2 NDA resubmission and assigned a user fee goal date of December 27 this year.

, 2019 to NDA resubmission and find a user fee goal date of December 27 this year. The submission is intended to address the issues raised in the CRL and seeks FDA approval of POSIMIR based on what we and our advisors believe is and adequate evidence about safety and efficacy. We commissioned Dr.

Lee Simon to evaluate the adequacy of the existing POSIMIR package to address the issues raised in the FDA correspondence including the CRL and then to lead our efforts to submit the response to the CRL. Dr.

Simon is a physician and research scientists who served as the FDA's division Director of the analgesic anti-inflammatory and ophthalmologic drug products from 2001 to 2003 and is now a principal at SDG LLC and FDA advisory firm.

As a reminder, in two adequate and well-controlled clinical trial conducted in patients undergoing inguinal hernia repair and subacromial decompression or shoulder surgery. POSIMIR demonstrated a significant decrease in pain and opioids consumed over the 0 to 72 hour period following surgery as compared to placebo.

We believe these trials support the safety and efficacy of POSIMIR in the postoperative pain space and which require to be considered pivotal clinical trials. In all the company has completed 16 clinical trials in the POSIMIR program involving over 1,400 patients with over 850 of whom received POSIMIR and the remainder are our control groups.

We believe this is a sufficiently sized safety database. The current FDA submission includes extensive new data and analyses that were not included in the original NDA such as the PERSIST trial – that adds an additional 380 patients.

We believe that with sufficient safety data from the PERSIST trial included there are now sufficient data to address the FDA's issues raised in the complete response letter. Regarding the opportunity for POSIMIR insufficient postoperative pain control remains a significant problem.

The study is indicating that approximately 65% of patients experienced moderate-to-extreme pain after surgery. New non-opioid pain products are much-needed in the postoperative pain setting and we believe that POSIMIR could be an important contributor if approved.

Upon approval, we would plan to license file to a partner with excellent commercial capabilities in the hospital space. Given the potential value of POSIMIR, we believe the deal could garner significant economic returns.

Next is Indivior and PERSERIS, under our agreement with Indivior in addition to the $17.5 million in upfront in milestone payment as we previously received. We’ve also received and receiving quarterly earn-out payments based on a single-digit percentage of U.S. net sales for PERSERIS which is a long-acting injectable antipsychotic.

The product was launched at the end of February this year by Indivior with a field force of 50 representatives and as one might expect for products so early in its launch has generated modest earn-out payment so far. We’re encouraged by some of the early launch metrics and statements by Indivior.

For example they've already achieved over 70% of the managed care coverage nationally which is at parity with the established long-acting injectable antipsychotics. Indivior further stated that they are receiving positive patient and healthcare provider feedback and that their revenue is in line with their expectations.

They have previously announced that they expect peak annual revenue to reach between $200 million to $300 million per year. In summary, preliminary data from the DUR-928 AH Phase IIa trial is compelling and the drug maybe lifesaving in this disease state. The Lille scores when compared to historical controls are most impressive.

We look forward to completing 150 milligrams severe patient cohort and potentially presenting the trial data at the AASLD meeting in November. Once the AH trial is complete, we plan to meet with the FDA to define the path to approval.

We are thankful for the support and strong encouragement from our expert advisers and clinical investigators for this product. The DUR-928 28 day NASH trial remains on track to yield initial data by the end of the year. The DUR-928 Phase IIa topical proof-of-concept trial in psoriasis remains on track to have topline data by the end of this year.

We are excited to be working with Gilead on our long-acting injectable HIV investigational product as well as their prospect of additional SABER products with them DURECT to HIV and hepatitis B. We look forward to December 27 and the potential approval of the POSIMIR NDA and a potential commercial partnership.

Lastly Indivior's launch to POSIMIR seems to be going well. With that, we’d like to take any questions you might have..

[Operator Instructions] Your first question comes from Adam Walsh, Stifel. Go ahead please..

[indiscernible]?.

So a great question. I had a hard time understanding I’ll just repeat it for everyone. The first was what might be the clinical endpoints for the next trial for AH and would we see that trial could it potentially be a single trial, pivotal trial.

And the both of those are remains to be seen I guess would be my answer but if one looks at the endpoints we are looking at the same endpoints in this trial as we would in a pivotal trial.

We will be looking at survival, we will be looking at these prognostic indicators of survival such as Lille and MELD and looking at the biomarkers such as bilirubin and like.

So all those same endpoints will be used in a very similar to once the Gilead used in final therapeutics and like, so there is a -- there's a track record of companies that have studied this disease state, it’s a very challenging disease state obviously.

So I think we, and we are right in the process right now we’re actually laying out with that protocol will look like with our clinical and regulatory advisors. As far as the pass forward we have to define that with the FDA. This is a circumstance where the product could potentially be lifesaving, for some are seeing indications of that.

The mortality rate is as high as -- in near term mortality rate is as high as any cancer product out there. So I think that's a that's a very important component of all this.

So if we have an opportunity to be in there and to be lifesaving than that would be something that we would certainly like to do is try gathered and help these patients as rapidly as possible. So that and we will be you having that conversation with the FDA and need to define that as we go forward..

Okay. And then I got one follow-up. And then I have one follow-up. I am sorry, if my little choppy.

You guys, you just shaped your technology as a center piece of the Gilead deal to really bolster your balance sheet, is the possibility to use this technology in other indications with other companies to strike a similar deal and then is this is that type of deal something you guys actively seek out or something that other companies generally come to you with?.

Interesting, generally what happens with us is that the drug delivery has changed dramatically over the years and there are that many places like that that really specialize in it and I would say people who come to us with their problems have already exhausted every opportunity they have elsewhere.

So they try their own technologies, they've gone around and talk to other shop and so they come to us with their most difficult problems.

And that being said, we do have some other feasibility projects ongoing right now, we have some really great scientists here and I think we have a fabulous technology with what we’re doing with SAP and cloud and some of the other things here So anyway, so in generally people come to us and then we feel if we can help them through the feasibility timeframe and if we can then it will mature to development project..

Your next question comes from Ed Arce from H.C. Wainwright and Co. Go ahead please..

Hi, Jim and Mike, congrats as well for me on all the recent progress. The few questions on a trigger this a little different than the previous question but these three measures, these prognostic measures beyond obviously 28 day survival have been used as you mentioned in other study, the Lille and MELD and Bilirubin.

What is your sense of what needs to -- needs to happen with the data to be deemed positive, is this just something that you still need to work out in consultation with the agency?.

Well, I think you know, you can't draw tremendous conclusions from an uncontrolled trials we have now we can only look at historic control data. As I look at those historical control data I very encouraged by what we see and I think it’s substantial.

That being said, we have to prove out what we’re seeing now a similar kind of response against an active compare – against some positive -- against a control group not a positive control group. there is no positive drug out there and there’s no drug really helps.

So we’ll go get standard of care, which will be with or without steroids depending on the state of the patient whether or not they respond would be my guess. The trial will be similar to the other trial that have been conducted and unfortunately haven't worked in this patient population.

My sense is now the -- there have been a couple of consortium meetings with the FDA and it looks like they might be leaning more toward the 90-day survival rather than six months survival, because at some point in time you get beyond the effect of the drug and the therapy is trying to get into now the social circumstances of a given patient and that's not really what we’re looking to try and evaluate.

And so that would be my hope and our desire would be to have something like a 90-day study comparing 928 against a placebo group in these patients looking for the same measures that we’re currently discussing looking at Lille, looking at MELD, looking at bilirubin and looking eventually at survival as well..

Ed, let me just add to that. I know you had a chance to listen to the KOL call we had. We had the three doctors, we had Paul Kwo from Stanford and we had Steven Flamm from Northwestern and Dr. Hassanein from UC San Diego. And I think you could tell from that call that they consider the data that we’re already seeing to be extremely positive.

I think your question was what do you need to see -- what kind of data do you need to see positive.

And I think page repeatedly existing preliminary data that we already talked about is very, very positive and I am very exciting given that they feel like there's not much available for them to help these patients now and that they are seeing good things from these patients compared to their experiences and the historical control data that we have access too..

I think that’s right. I think we can simply repeat what we are seeing right now. In the next trial I think we will be able to help these patient..

The data that you expect to present or hope to present at AASLD that will be across both moderate and severe cost of three different dose cohorts, the complete top line on those?.

Yes, it will be the data from this trial that exist today, which will be. What we are going to do? We’re going to dose until we finished the 150 milligrams severe patients and as you know that the severe patients they know much more rapidly than the moderates.

And so, if we finished the 90 milligram cohort of moderate that’s wonderful, if we don't we’re still going to end the trial once we finished 150 milligram severe, that -- that is really where the rubber meets the road with these severe patients.

They have the most severe disease and that's where one can really discern an effect for the drug and so to that end that’s what we’re looking at and then we'll present those data or that one of our thought leaders will be presenting or maybe a couple of them depending on how it works out. We’ll be representing data hopefully at that meeting..

And then just a couple of follow-ups if I may switching gears to POSIMIR. Just given the PDUFA Date you have now begin to do the work and look at the opportunity here in front of you. What do you see -- what do you assume as the loss of exclusivity for POSIMIR, how far out do you model that internally and what you regarded as the addressable market.

I know this is being viewed as the four off these various procedures, but - maybe a little more granularity around that would be helpful? Thank you..

Sure, let me take this one. In terms of the duration of exclusivity, we have patents that go on into 2025 in the U.S. We have patents that goes to 2026 ex-U.S. and is pending in the U.S. We have additional patents that - and strategies that could extend that beyond the existing patent.

So and then in terms of the addressable market, we've done market research that shows about 30 million procedures that are addressable with POSIMIR and which is consistent with the kind of numbers you hear from other companies that are in the space And certainly if you look at the size of the addressable market compared to the penetrated market by the product that’s on the market now, there is a lot of room for growth..

Yes. I think that Mike is actually right. I think we feel that the market is less than 10% penetrated. So there is a huge unmet need here - the ease of application with our products simply squirting in the wound versus injecting it around the wound is much quicker saving surgeon’s time.

And Ed looks at patent opportunities beyond the issued patents we could potentially have 20 years from this year depending on how successful we are with those strategies..

Final housekeeping question from me if I may. Given your pro forma now with the cash infusion from Gilead its probably around 63 million.

What do you regard as your cash runway?.

We don’t like to give cash burn forecast, but if you look historically for the pretty consistently over last year or so we've been burning about 6 million a quarter. So with that kind of math that would be just the cash would be over two years..

Your next question comes from François Brisebois from Laidlaw. Go ahead please..

Just a couple here, I was wondering on AH side, can you talk about the competitive landscape a little bit obviously it’s an unmet medical need but I was wondering since the first data that you started showing have you heard of anything that's in development or what basically being used right now?.

Unfortunately, what’s being used right now they have shown with the STOPAH trial which I think a 1,100 patients at U.K. that those drugs really aren't helping. There is pentoxifylline and prednisolone those are two drugs that are currently being - have been used. But most of the hepatologists don't use them today or they use them very rarely.

With fear of infections within and kind of lack of response to the steroids being thing there and pentoxifylline I don't think they're finding it helps much at all.

And as far as things on the horizon, I don't know of anything else there been a number of strategies that have failed, and so I think we have an opportunity to be the first one out there with this..

Yes, I’ll just add a little to that François. One thing the Gilead did a trial last year large Phase II trial looking at this so obviously they believe there's a nice market there. And at that time they were kind of at a lead and now I think we are.

If you look on CLIN trials and at alcoholic hepatitis you’ll find almost entirely academic studies looking at drugs that are already on the market for other indications being sort of tried for this just because they're desperately looking for something and trying different doses in different dosing regimens of various things to see if that helps, but I think at this point we’re kind of in a position where we probably are the lead company that's focusing on this space which is really great opportunity for us..

Yes, and that was the point made our advisers also in our May call yes..

But can you - was there something specific that kept happening for others that have tried in AH that led to the failure or was it a whole bracket of different kind of I guess reasons for not working out..

I think it’s primarily the biology of the disease. The disease is very complex, you've got the liver under assault from chronic and then acute on chronic alcohol toxicity, but it's not just the liver you end up with the kidneys being damaged, the lung being damaged, the gut becomingly leaky and sending endotoxins into it.

So you got this multi-organ failure is often times the case.

In fact most of the hepatologists that I've met with tell you - told me that you can tell a lot by the potential survival, potential of a patient by looking at their creatine and their kidney function that they have remaining because that’s a marker not only of how much kidney capacity is left, but also how bad is that liver that is throwing toxins to the kidney to the point that kidney is going under.

And so with 928 we've shown starting with the animal data remember we showed those animal studies where we tested against endotoxins and Dr.

Ren did this work and it was published in the molecular pharmacology that showed that 928 protected not only the liver, but also the kidney in the lungs and histologic data in all three of those organs showing that that is protected. I think that's part of the reason why we're able to see what we see is.

This is a naturally occurring in my opinion a stress hormone is able to help show up these organs that are in a bad way and allow the body to heal itself..

And then in terms of just a moderate to severe obviously in NASH it’s been a real complicated sometimes exactly where a patient stand to diagnosis and such is it how do you compare the moderate to severe is a this a little bit like pain where you would expect to have easier to show an impact in the severe population or can you just help us understand that distinction with what we learned from the NASH space?.

Yes, it's very different from the NASH space and this you can just need a blood draw to tell you the difference. And so your blood work will tell you what your MELD score is and MELD score is your blood clotting time, your bilirubin, your creatine so it’s kind kidney and liver and two measures on liver which is a bilirubin and a blood clotting time.

And so, that sets the stage for your stage of severity. And so, if you are above 21 you’re severe patient and then different obviously different categories of those patients but that’s a pretty easy line of demarcation.

And so, we haven't to find what the low end of a patient that will be affecting but it will probably be in around that it might slip down a little bit. But it will be in the range of maybe the high teens to the low 20s and then we will have upper-level as well on the MELD. So that will define the type of patients that that we’re looking for..

And Meld is already used widely and it’s already sort of what is used to prioritize patients for liver transplant as well. So it’s commonly used as a way to stage the severity of the patient's liver right..

And that’s why use that in the May data when we kind of looked at these where how could come up with a way to describe how our product was working versus how the patient started.

So if you look at the x-axis of the grass we showed in May and we shown our corporate presentation you see that the x-axis is showing the initial MELD and then the y-axis being the resulting Lille score at 7 days. So what is there prognostic survival projection based on where they started. And so that's the way we do it.

As far as being more severe you know being able showed a single veteran severe that’s typically the case with most drugs and certainly seems to be an opportunity here as well. Especially as other organs are drawn into the fight and the 928 opportunity I think ever strengthens..

And just lastly I guess can you talk about the potential I know you don't like mentioning guidance on burn, but difference in cost of AH versus a NASH trial or how much less they kind of be and how much quicker and less?.

Yes, it would be a lot less as far as quicker I mean there is going to be less competition obviously then there is, but there are more NASH patients and the like. But you know we’ll have to put up a number of centers. I think Gilead did 100 patients in about 18 months something like that.

So we expect our normal to be hopefully in that same kind of range but we’ll see. As far as cost go it won’t be near the cost of what would see for NASH Phase II trial..

And then for the Sandoz is there any chance with POSIMIR that if everything works out with the resubmission that if Sandoz is allowed to come back in to help out are they long gone?.

Yes, I’ll let Mike..

I mean the agreement with them is terminated and if they wanted to come back that would be an interesting conversation..

Your next question comes from Doug Adams, Tocqueville Asset Management. Go ahead please..

I had a couple of questions, the Gilead upfront fee is that will that be booked on the revenue line in the third quarter how is that accounting handling that license fee?.

No it won’t be booked all at once. It'll be deferred revenue, some of it will be deferred revenue across essentially the time period where we have obligations to perform activities under the agreement and the exact accounting is will be -- will be finalized before the next Q..

And then on the AH trial compared to the University of Louisville Cohort, I had a couple of questions. You said the last 290-milligramdose patient had results that were consistent with the results that had previously been reported on the first 10.

Looking at your slide presentation the 290-milligrampatients in that were reported as part of the 10, both of those had zero Lille score, so are these additional two patients consistent with that of if they consistent with the 0.04 Lille score?.

We haven't broken it all out and in fact actually be dosed, only one of those 290-milligram patients we reported on in early May was a severe, the other was moderate.

So we dose three more severe patients and so then what we're doing is looking at those four severe patients as compared to the rest of the group and we see that their results are very similar and that's what we’re seeing they are consistent.

We haven't broken out, we're trying not to because we want to keep as much powder dry as we can for the AASLD meeting. So that’s’ why we’re being a little bit and also we don't want to report on every single patient we dose, right..

The forces that would be at corporative. The other question I have has to do with the cost -- potential cost benefit of your treatment.

Do you have any data in terms of the average hospital stay for that University of Louisville control group that you’re using versus the average hospital stay or the duration of the stay eight for your patience?.

I don't have it for them. We know for ours In talking to physicians to treat these patients, there often times in the hospital for multiple days, sometimes a week to 10 days, sometimes there are three or four weeks depending on if their liver recovers.

Some of these livers just don't recover very rapidly and the patients around for a long time and sometimes they never recover hence the mortality rate that you see.

As far as our patients, in the first 10 patients, we had two patients really the protocol set such that they get injected -- injection on the first day and they can receive another injection on day four three days after that first day.

We've only had two patient that stayed in the hospital long enough to get their second injection, the other eight went home sooner. So that certainly seems a quicker we are.

I can tell you we’re looking to add into the next trial some quality of life measurements and the like to understand a little more about Pharmacoeconomics of all this, because there’s certainly appears that above and beyond the lifesaving potential there might be some Pharmacoeconomic advantage as early on as well..

We have a follow up question from Ed Arce, H.C. Wainwright and Co. Go ahead please..

So in the AH patient population, as you look or to the data and conversation that are around a more fulsome Phase 2 study next year, I know you've given just some broad data around hospitalizations of over 300,000 per year and cost of about 50,000 per hospitalization or per patient.

How can -- what can we look at that could be helpful in terms of thinking about adjustable market and also ultimately pricing for the drug? Thanks..

Sure. I’ll start with the addressable market first. You know, you gave that the 320,000 number that's based on diagnosis codes. So we are still doing the work now to sort of understand how many of those are repeat customers and what other diagnosis codes are associated with those but it's a good starting point.

And from a pricing standpoint I think what Jim was mentioning and you're mentioning with the 50,000 per visit and the cost of transplanting as high as they are that any time you are able to prove that you're reducing mortality, we believe reimbursement will be there and certainly there's some Pharmacoeconomic that are relatively straightforward to figure out here.

We’re not ready to give a specific sort of number on what we think the cost or the price would be but we are just early stages of doing that work..

Thank you. There are no further questions at this time. I would like to hand back to Mike for closing comments..

Well, thank you everyone and exciting time for us and we appreciate you calling in and with your questions. Have a nice day..

Thank you very much. Bye..