Greetings and welcome and to the DURECT Corporation fourth quarter and fiscal year-end 2019 earnings conference call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Arenberg, Chief Financial Officer. Thank you. You may begin..

Good afternoon and welcome to our fourth 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 an update on our programs. 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 and 10-Qs under the heading, Risk Factors. Let me now turn to our financials.

Total revenue in Q4 2019 was $10.7 million compared to $3.6 million in Q4 2018. Q4 2019 included $6.1 million recognized from our deferred revenue associated with the Gilead license agreement. Adjusting for this, total revenue was $4.6 million in Q4 2019 versus $3.6 million in Q4 2018.

Excluding the recognition of deferred revenue, collaborative revenue for Q4 2019 was up about $350,000 or 45% compared to Q4 2018. Product revenue, largely from the sale of ALZET pumps and LACTEL polymers was $3.4 million in Q4 2019 as compared to $2.9 million in Q4 2018. This 20% increase was driven by LACTEL polymer sales.

For the year as a whole, product revenues from ALZET and LACTEL were $11.4 million as compared to $10.4 million in 2018. The gross margin for the combined product lines was 59% in Q4 2019. These product lines continue to be strongly cash flow positive.

R&D expense was $9.5 million in Q4 2019 as compared to $5.9 million in Q4 2018, primarily due to higher clinical trial expenses for DUR-928 as well as higher costs associated with POSIMIR to prepare for Advisory Committee meeting. SG&A expenses were $3.8 million in Q4 2019 as compared to $3.5 million in Q4 2018.

Our underlying burn rate during this quarter was $5.3 million, although it should to be recognized that this benefited from $1.7 million in proceeds from option exercises. At December 31, 2019, we had cash and investments of $64.8 million compared to $34.5 million at December 31, 2018.

With that, thanks again for joining our call and I will now turn the call over to Jim for an update on certain of our programs..

Thank you Mike and hello everyone. The fourth quarter of 2019 was a strong one for DURECT and capped off a very good year for the company. The following are highlights from the fourth quarter.

Based on the impressive data from our DUR-928 Phase 2a alcoholic hepatitis or AH trial, the American Association for Study of Liver Disease or AASLD granted an oral late-breaking slot to present the trial results at their annual conference known commonly as The Liver Meeting. Dr.

Tarek Hassanein who was one of our principal investigators presented the trial results, including impressive data on important endpoints like bilirubin, Lille and MELD scores. A large audience attended the presentation and the data was well received.

These study results were also honored with inclusion in the Best of The Liver Meeting summary slide deck in the alcohol-related liver disease category. In addition, Dr.

Craig McClain from the University of Louisville presented a poster at The Liver Meeting showing that severe AH patients treated with DUR-928 in our study has significantly better outcomes as compared to similarly severe AH patients treated with corticosteroids in a contemporaneous study.

We also made good progress with enrollment in the 28-day NASH study in the fourth quarter. So much so, that today we announced that we have achieved the goal of the study by enrolling 60 patients. In fact, we will end up with more than 60 patients with the last patient scheduled to be dosed next week.

We also announced data from the psoriasis trial and although the active did not outperform the placebo group, interestingly both group showed significant improvement over baseline.

With regard to POSIMIR, based on our interactions with the FDA since our Advisory Committee meeting in January, we believe the FDA is actively conducting their review of our pending application. And one last point, we ended the year with $64.8 million in cash which is almost twice the cash with which we started the year.

All that being said, our primary focus remains on our epigenetic regulator program and the 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, cell survival and tissue regeneration.

It may have broad applicability in acute organ injuries such as alcoholic hepatitis and in chronic liver diseases such as NASH. We are currently developing DUR-928 for alcoholic hepatitis by injection and for non-alcoholic steatohepatitis or NASH by oral dosing. I will begin with an update on our alcoholic hepatitis program.

AH represents a significant unmet medical need with no approved therapies. AH is an acute form of alcoholic liver disease or ALD. It's associated with long term heavy intake of alcohol and often occurs after a recent period of increased alcohol consumption. AH is typically characterized by recent onset of jaundice and liver failure.

An analysis of 77 studies published between 1971 and 2016, which included data from more than 8,000 patients, showed that on average the one month mortality from AH was 26%. According to the most recent data provided by the Agency for Healthcare Research and Quality or AHRQ, a part of the U.S.

Department of Health and Human Services, there were 117,000 hospitalizations for patients with AH in 2016.

And a recent publication analyzing the mortality and costs associated with alcoholic hepatitis estimated that the cost per patient was over $50,000 in the first year and ALD is also one of the leading causes of liver transplants in the United States, which costs in excess of $800,000.

Last year, we completed a 19 patient Phase 2a open label dose escalation clinical study evaluating the safety and pharmacokinetics of 30, 90 and 150 milligram doses of DUR-928 in patients with moderate and severe AH. This study used MELD to determine the AH severity and was a multi-center study conducted in the United States.

In this trial, patients with moderate and severe AH were treated with one or two doses of intravenously administered DUR-928. Study objectives included assessment of safety, pharmacokinetics and pharmacodynamic signals including liver chemistry, biomarkers and prognostic scores such as Lille and MELD.

The trial results were presented as a late-breaker in a podium presentation. Dr. Hassanein, one of the trial principal investigators presented the results. In a separate poster presentation, Dr.

McClain presented additional comparative data from the Phase 2a clinical trial of DUR-928 with a control group of eight severe AH patients treated with corticosteroids in a contemporaneous AH study conducted at the University of Louisville.

This poster showed that Lille scores from the severe AH patients treated with 30 and 90 milligram of 928 was significantly lower than those from the 13 severe patients treated with corticosteroids.

Additionally, the DUR-928 AH results were selected for inclusion in the Best of The Liver Meeting 2019 summary slide deck in the alcohol-related liver disease category.

The inclusion in this slide deck is considered to be a singular honor and indicate the high level with which the American Association for the Study of Liver Diseases review committee regarded this research. All 19 patients treated with 928 in this trial survived the 28-day follow-up period and there were no drug-related serious adverse events.

Patients treated with DUR-928 had a statistically significant reduction from baseline in bilirubin at day seven and 28 and a model of end-stage liver disease or MELD score at day 28. Lille scores are used in clinical practice to help determine the responses and prognosis of AH patients after seven days of treatment.

The lower the Lille score, the better the prognosis or probability of survival for an AH patient. Patients with a Lille score below 0.45 have a six-month survival rate of 85% as compared to those with Lille scores above 0.45, who have a six-month survival rate of only 25%.

When compared with a historical control group consisting of 15 AH patients with similar severity of AH at the beginning of the study from a contemporaneous University of Louisville AH trial, the DUR-928 treated patients had statistically significantly lower Lille scores.

In the 928 study, the mean Lille score for the 18 AH patients treated with 928 who returned for their seven-day visits was 0.10. This compares to a median Lille score of 0.41 for the patients in the Louisville study. Additionally, 89% of the 928 treated patients had a Lille score below 0.45 as compared to 53% of the Louisville patients.

In addition to having statistically significantly lower Lille scores than those from a well matched control group of patients from the contemporaneous trial Louisville study, the 928 treated patients also had been statistically significant lower Lille scores as compared to historically published controlled groups.

74% of all 928 treated patients and 67% of those with severe AH were discharged from the hospital within four days after receiving a single dose of 928. The patient population typically remains in the hospital, this type of patient population, for extended period of time.

928 was well-tolerated in all patients at all doses treated and there were no seriously related adverse events associated with any dose level. After being discharged on day two, one patient did not return for the scheduled day seven or day 28 follow-up visits. Therefore the Lille, bilirubin and MELD data I just reported are based on 18 patients.

As stated earlier, all 19 patients treated with 928, including the one that did not return for the follow-up visits survived the 28-day follow-up period. By contrast, two of the 15 patients from the Louisville historical control group died in the first month.

We are working with the FDA and our advisors to finalize the Phase 2b protocol, This Phase 2b trial will be a multi-center international randomized, double-blind, placebo-controlled study in severe AH patients.

We are planning to initiate the trial in the middle of this year and based on our current working assumptions related to trial design, number of clinical sites and enrollment rates, we anticipate topline data from this trial in 2022. The next program I will update is the 928 NASH program.

Today, we announced that we had exceeded our 60 patient enrollment target for this multi-center U.S. NASH trial with the final patient scheduled to be dosed next week. The trial is a Phase 1b randomized open label clinical study evaluating the safety, pharmacokinetics and biological activity of 928 in NASH patients with stage 1 to 3 fibrosis.

In this study, we are evaluating 928 at doses of 50 milligram and 150 milligram once-a-day and 300 milligram twice-a-day. Patients in the trial take 928 orally for 28 consecutive days and are followed afterwards for 28 days.

We have already enrolled approximately 20 patients per dose group and we will end up with a few more than 60 patients after the final patients initiate their dosing next week. Key endpoints for this study includes safety and pharmacokinetics, clinical chemistry and biomarkers as well as liver fat and stiffness by imaging.

We remain on schedule to have all patients complete their dosing and follow-up visits in the first half of 2020 and expect to announce topline data in the middle of this year. Non-alcoholic fatty liver disease or NAFLD is one of the most common forms of liver disease in both children and adults.

It's estimated that NAFLD affects about 30% to 40% of adults and about 10% of children in the United States. NASH, a more severe and progressive form of NAFLD, is one of the most common chronic liver diseases worldwide, with an estimated prevalence of 3% to 5% globally. No drug is currently approved for NAFLD or for NASH.

And now to the 928 psoriasis program. In January 2020, we announced the results from the Phase 2a clinical trial in patients with mild to moderate plaque psoriasis. 22 patients completed the study, applying 928 topically to the plaque on one arm and the vehicle to a similar plaque on the other arm for 28 days.

DUR-928 did not demonstrate a benefit over vehicle based on the investigator's global assessment or IGA, which was the scoring system for the primary analyses or in any of the secondary analyses.

However, at the end of the four week application period, patients in both the 928 and vehicle treatment group experienced significant improvement over baseline in both IGA and Local Psoriasis Severity Index or LPSI scores. The improvement was observed as soon as one week after dosing.

In fact, 90% of the patients in both groups had at least a one point reduction in LPSI score after the four week daily application period. Daily topical application of 928 was well tolerated with no meaningful differences in adverse events between the treatment and the vehicle groups.

Based on the topline data, we do not plan to continue development of topical 928 in psoriasis at this time and we will focus on near-term development activities on AH and NASH. Now to our legacy drug delivery business, beginning with POSIMIR.

POSIMIR is an investigational post-operative pain relief depot product that utilizes our patented SABER technology. It is designed to be administered directly into the surgical site to deliver bupivacaine for up to three days after surgery.

A comprehensive review of the POSIMIR program in light of the issues raised by the FDA in our communications with them, including the complete response letter, was prepared and submitted as a response to the complete response letter.

The FDA initially assigned a user fee goal date of December 27 of last year but then scheduled an Advisory Committee meeting for January 16 of this year and a new user fee goal date has not been assigned.

In a split vote, six Advisory Committee members voted to recommend that the efficacy, safety and overall risk-benefit profile of POSIMIR support approval, while six did not support approval based on the information presented.

Although the FDA considers the recommendations of the Advisory Committee when they make a decision, the recommendations of the panel is not binding. The effort to evaluate the program, develop the strategy for filing the response and prepare the response has been under the direction of Dr.

Lee Simon, who was formerly the FDA's Division Director of the Analgesic, Anti-inflammatory and Ophthalmologic Drug Products. Dr. Simon also led our preparation efforts for the Advisory Committee meeting. Subsequent to the Advisory Committee meeting, we continue to interact with the FDA as they continue their review.

As a reminder, in two adequate and well-controlled clinical trials 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 zero 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 and meet the requirements to be considered a pivotal clinical trial. In all, the company has completed 16 clinical trials in the POSIMIR program, involving over 1,400 patients, with over 850 of who received POSIMIR and the remainder are control groups.

Insufficient postoperative pain control remains a significant problem with studies indicating that approximately 65% of patients experience moderate to severe 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.

If approved, we would plan to license POSIMIR to a partner with excellent commercial capabilities. Given the potential value of POSIMIR, we believe the deal could garner significant economic terms. Now to the Gilead deal.

In July, we signed a license agreement with Gilead to develop and commercialize a long-acting injectable HIV investigational product utilizing our SABER technology. We received $35 million in upfront and milestone fees plus R&D funding since signing the deal.

The product is currently being reformulated and will undergo additional preclinical development work. The final product I will update on today is PERSERIS. Under our agreement with Indivior, we receive quarterly earnout payments based on a single-digit percentage of U.S. net sales for PERSERIS, a long-acting injectable antipsychotic.

The product was launched at the end of February in 2019 by Indivior and they have given guidance for this year of between $15 million to $25 million in sales. As it's still early in the launch, we have received modest earnout payment so far.

In summary, data from the DUR-928 AH Phase 2a trial is compelling and compared to historical data suggest that the drug may be life-saving for patients who have no good therapeutic option in a condition with a high mortality rate.

The AASLD granted us an oral late-breaking slot to present the trial results at their annual conference known as The Liver Meeting. Dr. Hassanein, who was one of the principal investigators, presented the trial results, including impressive data on important endpoints like bilirubin, Lille and MELD scores.

The study results were also honored with inclusion into the Best of The Liver Meeting summary slide deck in the alcohol-related liver disease category. In addition, Dr.

McClain from the University of Louisville presented a poster at The Liver Meeting showing that severe AH patients treated with 928 in our study had significantly better outcomes as compared to similarly severe AH patients treated with corticosteroids in a contemporaneous study.

We believe that DUR-928 has the potential to be lifesaving in AH patients and we plan to start a Phase 2b placebo-controlled AH trial in the middle of this year. We announced today that we have already exceeded the 60 patient enrollment goal in our DUR-928 28-day NASH trial and remain on track to report data in the middle of this year.

Post the Advisory Committee meeting, we continue to interact with the FDA as they continue their review of POSIMIR. We look forward to potential approval of POSIMIR and a potential commercial partnership. Most of all, we are looking forward to what DUR-928 may be able to do to help patients with devastating condition such as alcoholic hepatitis.

With that, we would now like to take any questions that you may have..

[Operator Instructions]. Our first question comes from Eli Merle of Cantor Fitzgerald..

Hi guys. Thanks so much for taking the question and congrats on all the progress.

Just in terms of this NASH study, can you talk a little bit more about what you are hoping to see, particularly after the one month time point? Are there particular biomarkers that you are most focused on as being predictive of activity? And then since you added the higher dose level versus the last Phase 1b, what's your expectation for the dose relationship that you will see? And you expect to see greater activity at the 300 mg BID dose? Thanks..

Sure. This is WeiQi Lin. I will answer the questions from Eliana. So I think for this NASH study, we will certainly look at all the clinical chemistry data as well as biomarkers. Remember that we did a Phase 1b single-dose trials in Australia several years earlier.

In those patents, including cirrhotic patients, we saw some significant reductions following the single dose of bilirubin and also CK-18, both cleaved CK-18 and the full-length CK-18, as well as a couple of inflammatory markers were down at 12 to 24 hours.

So for this repeated dosing, because it's a daily oral dosing for 28 days, we will see what other markers, maybe CK-18s or other inflammatory markers, similarly will be affected following repeating dosing. Of course, these patients are F1 to F3. They are not including F4 patients as we did in the single dose.

However, all the clinical chemistry, including ALT, AST and then bilirubin and the biomarkers including CK-18, inflammatory markers like interleukin as well as the imaging data to look at the liver fat and stiffness.

So well basically, it's like casting the net, we will see how much it will influence, what kind of biological signals we are going to achieve following repeat daily dosing even though it's only one month. Then the study results can help us to design the next phase NASH trial. With regard to the dose response, we don't know. We will have to see.

We did cast out a very wide dose range from 50 to 600 milligrams per day. So at this wider range, following daily administration of the drug, we will have to see what markers are primarily what does levels. So in other words, the daily dosing maybe or maybe not acting the same way as the single dose.

That would give us clue that what our next dose, we all know for the NASH, it's a long term administration of the drug. So it's not like AH trial with a single or two doses at most. So after repeating dosing what kind of markers will move and then do we need a lower dose or do we need a higher dose in terms of for the NASH patient population.

I hope that helps..

Yes. I think that's important to note. We did cast the net very wide. As WeiQi said, there is a tenfold difference between the low and high. And the concept behind that was to get a sense of where we going to go because we don't know what dose to go forward with.

So we are going to be circling the lower end and exploring around there or the higher end or did we find the bracket and is there something in between. So that's where we are going to go..

Thanks so much..

Our next question comes from Mayank Mamtani of FBR..

Hi team. Good afternoon. Congrats on the progress and thanks for taking my question. Very impressive data on AH, indeed. Very quickly, can you dig a little deep based on your dialogue with the agency on some of these working assumptions? The timeline seems a little, I was thinking more of 2021, but it seems like 2022.

And like could you maybe talk to the longer term survival endpoint also, like what you are thinking there? Is it three month versus six month? And what you are hearing from KOLs around that?.

Sure. Yes. We are working with the KOLs, a lot of them actually, as you can imagine. But we had a team that was at the -- there was a meeting that's been -- they have had two of these meetings and the last one was in October of last year.

And it was a meeting of the European and American Association for the Study of Liver Disease, so it was AASLD and it was EASL from Europe and the FDA. And these three groups got together, particularly around alcoholic liver disease in general and focusing a lot on alcoholic hepatitis because it's such a horrific problem.

There's really no good answer out there. And so a lot of time was spent talking about endpoints and the like.

And so coming away from that meeting, we believe the duration that we will be pursuing, in fact the duration we have suggested in the trial, we will see what the feedback is at the end of it all, but it looks to be a 90-day follow-up for 90-day mortality and we will be looking at Lille as well on prognostic side and then obviously all the other indicators in between.

But that's the thought. As far as how long does it take to do this study, we are basing our estimates now on what we can glean from what's been done before. And there has really not been a successful trial yet.

With the trial done by Gilead where they enrolled 100 patients in 18 months, they followed on for six months and they used I think more than 40 centers, something like that?.

50 centers..

50 centers, yes. So we are going to have a lot of centers. We will have centers in the U.S. and in the EU. Certainly, if we can conduct a trial more rapidly, we will. We are doing everything we can but we are trying to be realistic to the point of even maybe a little on the conservative side saying 2022, just to --.

Our trial will be certainly bigger than the other trials..

Right..

Where most likely we will enroll more patients than the other trials..

Yes, right..

So I think two years is very reasonable for this..

Right, yes..

Okay. Great. And then I had a follow up on NASH.

Is there any reference point you could guide to how to think about the ALT market in particular or even the liver fat, when you think about the epigenetic modulator mechanism?.

Yes. You know what, I will WeiQi further, if she wants to add up behind me. There haven't been, as you know, because I know you follow this space very closely, there aren't any really good biochemical markers. That's why people use biopsy, right, to really define NASH.

And so you collect everything you can and try to get read the tea leaves, as it were, from all of the data coming from these patients. We will be gathering imaging data from MRI-PDFF for liver fat and FibroScan for stiffness at a month. But that's not something that's typically done, if people look at month for these things.

So you know, if we see some changes, we would be wondrously excited to see that but it will be more difficult to put that in relationship to others since most other, everyone else does 12 week or longer studies.

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

Yes. I think that's correct. And then with a four week daily treatment --.

Yes..

We will certainly look at all the markers change. Of course, the tough target will be the PDFF change in the liver fat content -.

Right..

And the stiffness change following --.

Such a short time..

Treatment. Yes. But certainly, we will look at all of these markers..

Yes. To see if we see any trends and give us -- what we are trying to do with this -- remember, we are trying to scout out what range to be able to take to go forward into the next study..

All right. Okay. And the high dose and also learnings some the AH in an acute injury model should definitely help to see some of that. Just one more, if I may, on POSIMIR.

When you say active review with the agency, would you be able go into any more detail? If it's about labeling? Or if it's about any other additional requirements? Any other color you might be able to give there? Because obviously the user goal date is not there to work with there?.

Yes. Mayank, we can't really give any more guidance about what the nature of the interactions have been. We just want to say and convey that there is activity going on because without the PDUFA date and after the AdCom, we just want people to be aware it seems that the FDA is continuing their review actively. So that's really all we can say, though..

Okay. And last thing with you, Mike, the spend, how to think about? Obviously NASH is a big swing factor whether you do go ahead with a bigger study on the back half of year.

But just, your runway, are you not giving any guidance to where this takes you?.

Well, we don't give guidance on future cash spend because there is a lot of factors that we will be reviewing in real time that will decide that. But our historical burn rate has pretty consistently been $6 million a quarter. it will probably go up a little bit this next year, given the advancing stage of some of the trials we are doing.

But beyond that, I don't want to give any specific numbers..

Okay. Thanks for taking the question. Congrats again on the progress..

Yes. Thanks..

Our next question comes from Francois Brisebois of Craig-Hallum..

Hi guys. Thanks for taking the questions.

Just quickly, can you remind us a little bit what the reasons were given maybe by Gilead for why they struggled in AH and why it might be different with you guys?.

It's really the mechanism of the drug is very different. We know, 928 is an epigenetic regulator and there is dysregulation in the liver and in the number of diseases and certainly for alcoholic hepatitis.

And we know from some papers that have been published which part of the epigenome is dysregulated and we know 928 interacts there and so can -- there is a good mechanistic reason for why. And then we have all the good animal data that suggest that. And the trial that Gilead did was an ASK1 inhibitor. So it really is just hitting one component.

If you look at multiple pathways 928 is associated with, it would be one out of, I don't even know, a dozen or so. And so it really probably didn't have the breadth of reach to be able to do something for the patients. And certainly the results from 928 reflect that outcome.

I don't know, WeiQi, would you add?.

Yes. Actually there is a very good publication just recently came out in 2019. It was published by Argemi and the others, a bunch of authors and then the lead author is Professor Bataller from the University Of Pittsburgh and then they actually studied patient samples of some alcoholic hepatitis.

They found that patients with alcoholic hepatitis, they have lot of master regulators were dysregulated in the hepatocytes and then which causes epigenetic dysregulation. So it's a very good article and a very detailed study on what went wrong with alcoholic hepatitis patients.

So from that article, actually one can take a look at it why some drugs, if they have a singular target, may not work but then the drug with a multiple target and then particularly acting at a very higher upper level of master regulators might work well, which is the case of DUR-928..

Excellent. Thank you. That's very helpful.

And then lastly, why did you include, as we are trying to figure out a little bit the NASH space and what F1, what F2, what F3 really is and how to differentiate the different stages, why did you include F1s in the repeat dose? And why exclude F4, I guess?.

Yes. While we would have loved to include the F4, but in Australia we were able to, but we hadn't done this study in severely damaged patients in F4 patients with 928 for the U.S. So they didn't allow that. I can tell you in the interim, we are doing that work now. And so, we will be free to dose any patient going forward.

But that was the reason why and so we included the earlier stage patients, which when you think about the potential of 928, it's not it might be able to help these patients, but it really is if you look at what it's doing in AH patients. It's really a drug, I think that I am looking forward to being able to help the severely ill.

I don't know if WeiQi has something..

So FDA required, before you go into the liver diseased patients, so you have to go into the mild, moderate and then severe hepatic impaired patients. So that's how we actually did mild hepatic impaired patients at the time when we initiated the NASH study. We haven't started moderate and then severe hepatic impaired patients.

Although in our AH patients, we have a lot of severe hepatic function impaired patients..

It's true..

But then these are by injection, regardless they reached the drug level reached a much higher plasma concentrations. However because it's different dose route, so we still have to do the oral route of administration in the moderate and the severe hepatic impaired patients before the agency would allow us to move into the F4 patients in the U.S..

So last year while we were finishing up a long term talks to allow for unlimited dosing, at the same time, we are doing this other work. So now we will be in position, post this 28 day NASH trial, to be able to have the freedom to dose the patients that we would like and think we can help through the durations that make sense..

Understood..

We will have some sense of dose range, too. Sorry..

Okay. WeiQi, your answer is great. Very helpful for what to expect when you are looking at biomarkerwise for the repeat dose. But is there any chance, obviously single dose, repeat dose, these are different trials.

Is there any reason that it will be difficult to see a real read through between the data on the single dose and the repeat dose?.

If you look at DUR-928, because it's a first-in-class epigenetic regulator, so there is no similar to us like that previously. So the single dose and a multi dose, they could be different because the mechanism of action because it regulate at the epigenetic level and then working on the master regulator.

So the repeat dosing and the single dose sometimes these epigenetic regulators, they could have a long-lasting effect and then depends on the disease state and then depends on individual patient.

And then when you give repeat dosing, if some effect are long-lasting and then in fact are short-lasting, so in other words, the single dose versus the repeat dosing can be different.

So that's why we have to look at, we are not saying, well, we won't look at a single dose data, in fact we will have to incorporate all the data we achieved so far, including the AH patient data to consolidate and then get a sense of what the repeating dosing for the even longer term, longer than one month daily dosing will be like..

Yes. I mean there will be things that we will need to understand, including dose regimens going forward. For AH witness that we are dosing on day one and then again three days later.

We are not dosing every day because you get -- it's really a master regulator, master switch changing and so you have that kind of thing occurring, these effects can last for a while. So to determine the frequency with which to modulate that switch is something that needs to be also understood as we go forward..

All right. Thank you. That's it for me. Congrats on all the progress..

Yes. Thanks..

[Operator Instructions]. Our next question comes from Adam Walsh of Stifel..

Hi. Thanks for taking our questions. This is Edwin, on for Adam. I have a follow-up question on AH Phase 2b design.

So what your working assumptions on the total patient enrollment? How many patients are you going to enroll? And how many drug arms in the trial? And also do you have any change regarding the patient inclusion or exclusion criteria compared to the Phase 2a? Thanks..

Those are great questions. Yes, I will start with the last one first. Yes, in this trial, we are not going to including moderates. We are looking to severe patients because these are the ones that really need our help, not that the moderates don't have or aren't very ill and their livers aren't severely damaged.

But the severe ones are the ones where you can see the greatest opportunity to see a difference. And so, we are going to be looking at patients with higher MELD and higher, what they call Maddrey's Discriminant Function scores. And far as the dose level is concerned, they will be severe patients, yes, that's one quick answer.

And then with regard to the dose groups, right now we are looking at 30 milligram and 90 milligram of 928 as compared to a placebo. And so those are the three arms that we are looking for. I don't have final numbers now. We are estimating maybe 50 patients per group, is what we are thinking currently..

Thank you so much..

You are welcome..

Our next question comes from Ed Arce of H.C. Wainwright..

Hi guys. Thanks for taking my questions and congrats on the recent progress with 928 in both AH and NASH..

Sure..

So some of my questions have been asked already but I did want to ask a couple here. First to confirm in the NASH study that you are about fully enrolled now. Could you remind us again, I didn't quite get it earlier when you spoke about the range of doses and how many of those doses? I think it went from 60 to 600 milligram.

But I just wanted to be sure..

Yes. Well, there are three different dose groups and they will each have 20 patients per group, a couple more because we have enrolled more than 60 by the time the trial was completed.

But we are looking at dosing, we have dosed 50 milligram once-a-day and 150 milligram once-a-day and then 300 milligram twice-a-day for a total daily dose in that last group of 600 milligram. So the range is more than tenfold daily exposure between the 50 milligram group single dose and the 300 BID. So that's the dose range..

Okay. Great. And then just turning to the design that you are working on for the Phase 2b AH study later this year. I understand that you are setting a precedent here and you don't really have much to go on and it is a bigger trial than Gilead.

But just thinking about the timeline that may go into 2022 before we get a readout, just wondering if there are any plans for any sort of an interim look or any sort of advance look into either safety or efficacy?.

Yes. We certainly have safety always be monitored. But as you start to look to have a peek at efficacy, you get into these Bayesian statistical analyses and all the rest, that kind of stuff. It becomes quite complex and can weaken the power of your study. And so it's not something that we are embracing right now.

We are looking to be more straight up and just to evaluate those three dose groups that I described earlier in a head-to-head-to-head trial basically. And that being said, we will have to see how the enrollment goes. I think we are being realistic. I think WeiQi and the team are being realistic in their estimate right now.

And if we get fortunate, maybe things happen more rapidly. But you can't bank on it. I think we should just consider it is what it is. You have to remember the differences.

If the difference at the end of that, let's say it does takes two years, but at the end of that, we will have, if it works, as it has before in the other 19 patients, we will have a therapy that can be lifesaving in a condition that affects more than 120,000 people this year.

Hospital presentations every year for this disease state, that's their quoted for that, very costly, $50,000 or more per. Some end up going to liver transplant. So the cost on the healthcare system and the potential to save lives is dramatic.

But the value it will have for the healthcare system, for the patient and for shareholders of DURECT is dramatic. It's absolutely just dramatically different from where we are today, where we sit today on the value of the company and the prospect. So it's two years. Two years always go by, right.

And at the end of that, we can be in a very different spot..

And just to confirm, well, I think this is still to be seen, but there is the prospect that if the result are clearly positive, as they were in the earlier 19 patients study, that this Phase 2b could pose the potential of being one of two confirmatory pivotal studies..

It might be enough by itself. If the data are good enough, it may be adequate for approval. That's something that we will just have to see as we go forward. But the data will dictate.

If the data are, as you just suggested, as good as we have seen or close to that, then that would be, I would think would hope, would be enough to be able to get it out there to save lives because you are talking a lot of people dying every year that might not need to die, if this drug were available for them..

And then just one last follow-up for me, Jim. And that is, on your release today, one of the milestones you mentioned was the new potential licensing collaboration agreement. Could you just expand on that a little bit for us? Thank you..

Yes. You know, I really can't expand beyond what -- we have these things what we call feasibility agreements that we always have as an underlying component where we have people on our drug delivery side of the business here are working on. And occasionally, one of those things matures to the point where you put in place a development deal.

This happened with Santen with the ophthalmologic project. It happened with Gilead with the HIV product. And it has happened with others over time. But we always get the difficult projects.

And so they are and that's why we don't talk about every feasibility deals because for every half a dozen that we work on, maybe one goes forward, maybe for every 10, one goes forward. So they are always difficult projects.

But if you are successful, it's tremendously valuable for the healthcare system and the patients and ourselves and our partners, potentially..

Okay. Thanks very much and congrats again..

Sure..

This concludes the question-and-answer session. I would like to turn the floor back over to management team for closing comments..

Thanks again everyone for joining. And we are at a time where we are excited about the progress we are making and look forward to a great 2020..

Thank you so much. Bye..

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..