Greetings and welcome to the DURECT Corporation Second Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Mr.

Mike Arenberg, Chief Financial Officer. Please, go ahead, sir. .

Good afternoon and welcome to our second quarter 2020 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. I'll provide a brief review of our financial results; and then Jim Brown, our President and CEO, will provide an update on our program. 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 and development, expected product benefits, our product development plans, future clinical trials or projected financial results.

These forward-looking statements involve risks and uncertainties that could 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 Q2, 2020, was $25.8 million, compared to $4 million in Q2, 2019. Q2 included the recognition of $23.1 million in deferred revenue from the $35 million upfront fee and initial milestone payment associated with the termination notice of our Gilead agreement. This $23.1 million in revenue is nonrecurring and has no cash flow impact.

Excluding the recognition of deferred revenue, collaborative R&D and other revenue for Q2, 2020, was down $1.4 million compared to Q2, 2019, primarily due to reduced development work on the Gilead project. Product revenue from the sale of ALZET pumps and LACTEL polymers was $2.5 million in Q2, 2020, compared to $2.3 million in Q2, 2019.

I should note that we saw a drop-off in ALZET revenue in April and May compared to historic levels, as many of our ALZET customers saw their operations affected by the coronavirus. But then June was a more normal month. The gross margin for the combined product lines was 61% in Q2, 2020. These product lines continue to be strongly cash flow positive.

R&D expense was $6.7 million in Q2, 2020, as compared to $6.6 million in Q2, 2019, primarily due to higher expenses for the DUR-928 program, partially offset by lower expenses in most other programs. SG&A expenses were $3.4 million in Q2, 2020, as compared to $3.3 million in Q2, 2019. Our underlying burn rate during the quarter was $7.4 million.

In Q2, we raised $6.2 million net of expenses from using our ATM facility, by selling 2.6 million shares at an average price of $2.45. Subsequent to the end of the second quarter we have raised an additional $2.2 million net of expenses under our ATM facility, by selling about 1 million shares at an average price of $2.30.

At June 30, 2020, we had cash and investments of $51.3 million compared to $52.5 million at March 31, 2020, and $64.8 million at December 31, 2019. 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. Hello, everyone. Thank you for joining us today. I hope that you and your families are all doing well. At DURECT, we are very fortunate to have an amazing and dedicated group of employees who continue to advance our programs and keep our businesses functioning at the highest level.

During the quarter, we made progress on a number of fronts. We continue to advance the DUR-928 Phase IIb AH trial and are poised to initiate dosing in the coming months of this year.

We received approval from the FDA to conduct a Phase II trial of DUR-928 in hospitalized COVID-19 patients with acute liver or kidney injury and we reported positive topline data from our 65 patient 4-week NASH study with DUR-928. Lastly, we continue to work with the FDA on the POSIMIR NDA.

DUR-928 is an epigenetic regulator that modulates the expression of multiple clusters of master gene that are involved in many important cell signaling pathways.

DUR-928 up and down regulates more than 1000 genes involving functions that include stabilizing mitochondria, reducing lipotoxicity, regulation of inflammatory or stress responses and promoting cell survival. I will begin with an overview of the opportunity for DUR-928 in alcoholic hepatitis or AH.

There are 117,000 hospitalizations per year in the U.S. for AH. There are no approved therapies for AH. We had 100% survival at day 28 in our Phase IIa AH trial in the historical 28-day mortality rate for AH is 26%. We now plan to initiate DUR-928 Phase IIb AH placebo-controlled efficacy trial in the coming months of this year.

The primary endpoint will be survival which could enable an accelerated regulatory pathway. We have the potential to submit the NDA after this Phase IIb AH trial if the study demonstrates a robust survival benefit. Approval after a single trial is not uncommon.

In fact 37% of new drug approvals between 2005 and 2012 were based on a single pivotal trial and 42% of new drugs launched in the United States in 2018 were approved based on a single trial. AH is an acute form of alcoholic liver disease. It is characterized by long-term heavy intake of alcohol.

A recent period of increased alcohol consumption or binge drinking; jaundice, fever, fatigue, weakness, nausea or vomiting loss of appetite and a depressed or negative mental state are all associated with AH. The American Association for the Study of Liver Disease Guidelines provides the following criteria for the diagnosis of AH.

The onset of jaundice within the past eight weeks, ongoing consumption for at least six months of more than 40 grams of alcohol a day for a woman or 60 grams of alcohol a day for a man, also less than 60 days of abstinence before the onset of jaundice.

They also typically have elevated liver enzymes and bilirubin greater than three milligrams per deciliter. To put this type of alcohol consumption into perspective; this means.

approximately three standard drinks per day for a woman and four for man for the last six months, a 12-ounce beer, a glass of wine, or 1.5 ounces of spirits is one standard drink. If you think this disease does not affect people you know you're wrong.

One of our thought leaders who is a liver specialist in New York City told me a large portion of his AH patients work for investment banks. Additionally about 20% of AH population are in their 20s and 30s and may not have cirrhosis. 89% of hospitalized AH patients have insurance. As I said earlier, there are no approved treatments for AH.

What physicians are -- have available to them today is supportive care, which primarily involves estimates, nutrition and hydration. An analysis of 77 studies published between 1971 and 2016, which included data from more than 8,000 patients, showed the overall mortality from AH was 26% at 28 days.

This high one-month mortality rate is equivalent to AML or advanced breast and pancreatic cancers. Steroids may be used according to the AASLD guidance. However, steroids have shown only minimal benefit in clinical studies and may increase the infection rates in AH patients.

In the STOPAH trial or STOPAH, a study of more than 1,000 AH patients steroids significantly increased the infection rate. The STOPAH trial also convincingly demonstrated that steroids did not improve survival over supported care at 90 days or at one year. Many AH patients are not eligible for steroids.

In fact, according to one recent study, less than half of the severe AH patients are eligible for steroid use. We've been conducting market research on AH. And one gastroenterologist gave a followed quote regarding the use of corticosteroids in AH and I quote. There is a clear lack of treatment options out there. Private zone doesn't work.

We're still giving it because that's what we've been talking to do. I want to see something that works that isn't a steroid, doesn't cause infection and doesn't need to be taken every day. Regarding the pharmacoeconomics of AH, hospitalization costs of AH are more than $50,000 per patient in the first year.

Alcoholic liver disease is becoming a leading cause of liver transplant in the U.S. The cost of deliver transplant exceeds $800,000 and as I mentioned earlier, 89% of hospitalized AH patients are insured. Regarding hospital stay in AH, AH patients are discharged when they no longer have critical conditions that require inpatient care.

In the DUR-928 Phase IIa AH trial, 14 of our 19 patients were discharged in less than four days after receiving only a single IV infusion of DUR-928. In our Phase IIa study of DUR-928 in patients with AH, all of the 19 patients in the study survived through the 28-day follow-up period of the trial.

12 of these 19 patients were classified as severe based on their MELD scores and 15 of the 19 were classified as ever based on a scoring system that is specific to AH. This is the Madri Discriminate Function score. DUR-928 was well tolerated by all the patients at all the doses evaluated in the study including the severe AH patients.

There were no serious drug-related events reported. AH patients have greatly elevated severe bilirubin level. The new bilirubin level being diagnosed with AH is three which is nearly three times the upper limit of normal. The patients in our trial had an average bilirubin of over 14.

Significant early that is by day seven, reductions in bilirubin levels from a baseline are a critical factor in determining a patient's prognosis. AH patients treated with DUR-928 in our study had significant day seven reduction in bilirubin.

Prognostic scores including LEO and MELD as well as serum creatinine levels and INR were also improved in this study.

Based on our successful Phase IIa AH trial, where we saw 100% survival of the AH patients and early hospital discharge, despite the high historical mortality rate, we are advancing toward what we hope will be a pivotal trial in severe AH patients.

We are finalizing the protocol and preparing to initiate this Phase IIb trial of DUR-928 in severe AH patients. This will be a double-blind randomized, placebo controlled multicenter international Phase IIb clinical trial. Patients in the trial will be randomized to receive 30 milligrams or 90 milligrams of DUR-928 or placebo.

The primary endpoint will be survival. We plan to initiate dosing in the coming months of this year. We expect that if we achieve a robust survival benefit this study may support the NDA filing. Further details of the trial design, including the size of the trial and the details on the various endpoints will be provided when we initiate the trial.

Next I will update on the DUR-928 Phase II trial in hospitalized COVID-19 patients with acute liver or kidney injury. Let's review the rationale for investigating the potential of DUR-928 in the treatment of hospitalized COVID-19 patients. DUR-928 is not an antiviral agent.

It is a naturally occurring epigenetic regulator that has tremendous potential to treat acute organ injury including the systemic inflammatory responses that lead to septic.

Phase IIa clinical evidence in patients with acute alcoholic hepatitis and preclinical evidence in multi-organ injury models, which demonstrate protection of the lungs, liver and kidneys, suggest DUR-928 may be beneficial to COVID-19 patients.

Patients with severe COVID-19 can develop in addition to lung injury and acute respiratory distress syndrome or ARDS, multiple organ injury including acute kidney, liver and/or cardiac injury resulting from the viral infection, immune overreaction to the infection or other complications.

These may contribute to poor outcomes in patients with COVID 19. Studies have reported that more than 60% of hospitalized patients with COVID-19 have acute liver injury and more than 36% of acute kidney injury. DUR-928 has the potential to treat the injury to kidneys, liver and lungs caused by the infection with COVID-19.

From a safety perspective, DUR-928 has been well tolerated in nearly 300 subjects, both healthy volunteers and patients in multiple Phase I and II studies. Most relevant to COVID-19 are the results from our Phase IIa study of DUR-928 in AH patients.

As I described earlier, all 19 patients treated with DUR-928 survived the 28-day study, while the one on mortality in AH patients is on average 26%. The size multi-organ injury, one of the main complications associated with the death of AH patients similar to patients with COVID-19 is septic.

Therefore, if acute organ injury could be effectively treated or prevented in hospitalized patients with COVID-19 lives could potentially be saved. This Phase II trial is a double-blind, placebo-controlled multi-center study to evaluate the safety and efficacy of DUR-928 in COVID-19 patients with acute liver or kidney injury.

This study is intended to be an 80-patient trial with a 3:1 ratio of active to placebo. The dose of DUR-928 will be 150 milligrams by intravenous infusion on day one and four. The primary efficacy endpoint is a composite of survival and being free of acute organ failure at day 28.

It is our hope that DUR-928 in combination with the standard of care will be able to help COVID-19 patients with acute liver or kidney injury, which if successful ultimately can save the lives of some of these patients.

We are starting up clinical sites in New York, New Jersey, Chicago, Detroit, Southern California and other sites around the country where the disease is spreading. Next, I'll provide an update on the DUR-928 NASH program.

In May of this year, we reported positive top-line results from our Phase Ib trial on DUR-928 in NASH patients with stage one to three fibrosis. This was a randomized and open-label study of DUR-928 in NASH patients, and it was conducted in the United States.

DUR-928 was dosed orally for 28 consecutive days at 50 milligrams or 150 milligrams once-a-day or 300 milligrams twice a day, and followed up for an additional 28 days. A total of 65 patients completed the study and there were at least 20 patients per dose group.

Key endpoints included safety and pharmacokinetics, clinical chemistry and biomarkers as well as liver fat content and liver stiffness by imaging. This includes MRI-PDFF, and FibroScan. DUR-928 in this trial resulted in a global reduction in baseline of liver enzyme, liver fat and stiffness as measured by imaging and serum lipid.

Many of these reductions were statistically significantly. Our statically significant 24% reduction of triglycerides working in the 16 patients who had baseline triglycerides level above 200 milligram daily, 43% of the patients in this trial had at least 10% reduction in liver fat as measured by MRI-PDFF.

In this group of patients, liver fat, liver stiffness, liver enzymes and serum lipid were statistically significantly reduced. For additional detail on the result of this study, I encourage you to review our press release. DUR-928 was well tolerated at all three doses evaluated. There were no serious adverse events reported during the study.

Pharmacokinetic parameters after repeat dosing were comparable to those after a single dose from a prior study, indicating no accumulation after repeat dosing. Also, drug exposure was pending.

We believe having multiple important parameters all moving in a positive direction are particularly impressive, when you consider the patients are only dosed for one month. Also, the fact that a number of the improvements were statistically significant was impressive, given that they were only a little over 20 patients for dose groups.

Additional result including biomarker data, are still being analyzed. They are delayed because of the pandemic. We hope to present these additional results and the data analysis at an upcoming scientific meeting.

These results achieved over a short course of treatment, together with the continued safe profile of DUR-928 a promising indicated of DUR-928 potential in NASH. Next to the POSIMIR program.

POSIMIR is our investigational post-operative pain relief depot that uses the our patented SABER technology and is designed to deliver bupivacaine to provide up to three days of pain relief after surgery.

Since the Anesthetic and Analgesic Drug Products Advisory Committee meeting in January this year, we have continued to interact with the FDA, as they continue their review of the POSIMIR NDA. If approved, we plan to license POSIMIR to a partner for commercialization in the United States.

We expect this deal would include a meaningful upfront license fee and royalties based on product sales. In summary, the company continues to function well in this new environment. We are finalizing the protocol for the Phase IIb DUR-928 trial in severe AH patients and are on track to start in the second half of this year.

Based on the results from the Phase IIa trial we are optimistic that, if we are able to demonstrate a robust survival benefit in this trial it may support an NDA filing. We are adding clinical sites into the DUR-928 Phase 2 trial in COVID-19 patients with acute liver or kidney injury and the trial is poised to start dosing.

We reported topline results from our Phase 1b trial of DUR-928 in NASH patients. Liver enzymes, liver fat and stiffness as well as plasma lipids all moving in the right direction are particularly impressive when you consider the patients were only dosed for one month.

The fact that a number of these improvements were statistically significant is impressive given that there were only 21 to 23 patients per dose group. When you combine these impressive results with the safety profile of DUR-928, we believe it has a chance to be an important player in the NASH space.

We look forward to additional results from the NASH trial being presented at an upcoming scientific meeting. During the quarter, we continued to answer the FDA's information request regarding the POSIMIR NDA. We look forward to potential approval of POSIMIR and a potential commercial partnership.

For most of all, we look forward to how DUR-928 may be able to help patients with devastating conditions like alcoholic hepatitis and COVID-19. With that, we'd now like to take any questions you might have..

Thank you. [Operator Instructions] Your first question comes from the line of Ellie Merle with Cantor Fitzgerald. Please proceed with your question..

Hey, guys. Thanks so much for taking my question, and congrats on all the projects..

Hey, Ellie..

Thanks..

Just in terms of the COVID-19 study, could you help us think about the timing in terms of potential data readouts, or maybe the cadence of enrollment that you've seen so far as you open up the initial sites? Just curious your expectations around what we could see data from the study? And then my second question in terms of NASH.

Now that you've had some more time to digest the data, I'm curious your latest thoughts on next potential steps in NASH. What a potential study could look like when you plan to speak with the FDA about a potential sort of path forward in NASH? And just any combination approaches that you think make particular sense given the biology? Thanks..

Sure. So to start with the COVID. What we're doing right now is we're actually setting up the site. We originally set up sites in the areas of the country we're looking at were New York, New Jersey, Detroit, Chicago where there was the most active going on as far as infection rates and hospitalizations.

And as we all know those areas except for maybe Chicago have quieted down a tough now they're picking up again. And so in the interim, we have also now been setting up sites across places that I mentioned during the talk and that would be Southern California, Texas, and other areas around the country where the infections are much, much higher.

What we've been doing as I said is getting these sites set up as far as we are poised to, but we haven't dosed the first patient yet but we're right on the cusp of being able to do that.

As far as how long it will take to enroll, I think that's really going to depend on a number of things, but primarily really on how the infection rates go within the areas where we're set up, because it takes a number of months from when you identify a site and they're able to get drug there and get going just from a logistics standpoint.

So we're staying active and poised in the New York, New Jersey and some of these other areas where most likely will pick up in the fall and maybe even sooner, and we'll be able to be there to help some of those patients. So it's difficult to predict right now when we would have data.

My expectation is that it depend for sure on the infection rates, but it's something where we'll be getting data over the next year and I can't give any more firm line other than that. Unfortunately we see that compliance with mass buying isn't that great in the United States.

And so these infections will continue even if there’s -- and hopefully there will be a vaccine coming out maybe at the end of the year. There'll still be a lot of people who don't want to be vaccinated or won't comply or be taking a while to come in that kind of thing.

So I think the infections will be going on for a while and we'll have an opportunity to help some of the most severely ill patients and that's what we're looking forward to being able to do, and to get a read outs for other ICU indications beyond alcoholic hepatitis for DUR-928.

As far as NASH and next steps, what we've shown so far is pretty remarkable if you consider that after 28-day study and we only had about 20 patients per group to have statistically significant measurements out of the smaller number for that smaller time I think is pretty impressive.

And once again the drug has shown to have this very wide safety margin, but we're not seeing a lot with regard to really anything as far as side effects are concerned. So if we've got a drug then with a wide safety margin and apparently and then -- and it's got such a breadth of activity. It's difficult to say what drugs it might be used with.

It could probably be used with a lot of drugs especially bugs that cause issues that may be circulating lipids to go up that kind of thing. But I think it remains to be seen.

It may end up being a good model there, because we saw not only the liver lipid is down but we also saw circulating lipids down, we saw the LDLs down, the HDLs down and triglyceride down. It's pretty impressive to see those information.

And I think also to see FibroScan improvements to statistically significant FibroScan improvement at four weeks, it's really nice to see. So our next step would be though to advance it into Phase 2. That would be the next step for the NASH program.

But I see the ICU uses of 928 in alcoholic hepatitis and COVID and potentially other ICU uses as being much faster to market than NASH.

Doesn't mean that NASH isn't a great opportunity or possibly other chronic uses for 928 aren’t great opportunities, but it's just the time to market and the impact of those ICU’s can be -- they can rival NASH and come much soon..

Got it. Thanks so much..

Sure..

Your next question comes from the line of Mayank Mamtani with B. Riley. Please proceed with your question..

Good afternoon, Jim and thanks for taking question, and congrats on pipeline progress across almost all stages of development here. Maybe we can start with POSIMIR.

Any color you could provide on the nature of these information requests if any of these starting to feel like labeling this guidance?.

It's still -- I don't want to give any color beyond it. They still continue. There is still -- the kind of questions that one would ask is you're reviewing an NDA. So, I don't want to shade anyone left or right on this thing. I think it's better just to be patient and see what comes of it.

We have -- we think that this drug can be a benefit hopefully in the postoperative space should it be approved. It certainly has shown in the clinical trials. It does a reasonably good job at being able to control pain and reduce product use. So, I'm hoping it has an opportunity to get out there and help patients.

I don't know Mike do you want to add anything to that?.

Yes. I think it's just -- we don't want to try to handicap what we think is happening. FDA is hard enough to predict and we'll see what happens when they make their decision. But we just want people to understand that there is an active review happening that they're asking questions and we're answering them.

And beyond that, we don't really want to provide color on what the nature of the questions are. .

Great. Thanks for taking that. And then on the COVID-19 hospitalized patient status. I'm just curious the dose selection there 150 mg your relative to the -- I think the AH study had a pretty good effect at 90 mg dose. So, if you could comment on that.

And also what sort of background therapies given this is a very different sort of study relative to the anti-inflammatory drugs or the antiviral drugs what are some of the background therapies you're including or excluding?.

We're pretty much including most drugs. I don't think we have an issue with pretty much anything but I'll let WeiQi speak to the dose in two concomitant therapies.

So, WeiQi?.

Sure. While I think that for the COVID-19, we did sell-out at 150-milligram dose. So, number one is we did the test in AH trial, 150 milligrams is well-tolerated in the most severe -- in those very severe alcoholic hepatitis patients. So, the safety and PK data we have already generated for this particular dose.

And then now come down to the COVID patients, they are different from the alcoholic hepatitis patients. For the latter, they mostly -- the injury mostly focused on the liver and then for this drug, it's sure enough it's mostly concentrated in the liver.

So -- but for COVID-19 patients not only they have liver injury maybe some of them do, but most importantly, they have severe lung injuries. And now also they have on top of that because our population of the patients while also selecting those patients having the kidney injury or the liver injury.

So, in other words, you want to have the drug to be targeting to the lungs, to the kidneys, and in addition to the liver. So, that's why the dose calculation we worked out based on the DMPK data we have done in the past that the drug distribution information we need to give 150-milligram doses. So, that's how we selected dose in the COVID-19 patients.

So, they will be treated differently as the alcoholic hepatitis patients naturally. .

How about….

What about concomitant meds WeiQi, any statement on that?.

No, we allow basically on the concomitant considered standard-of-care to be used for this group of patients, so which currently now we know it includes remdesivir as well as dexamethasone. So dexamethasone will be at the six-milligram doses for six days or 10 days, and then of course remdesivir. So we don't have any concern about the DDI issues..

Yes. That's great. So we'll be able to see a very direct comparison against standard-of-care with 928 on top of that. That's great. And then on NASH very quickly, obviously, had a very short timeframe. I mean, the biomarkers across the board move very consistently.

Just curious about your thoughts on as you know NASH studies are shortening in terms of how we are looking at biopsies. So, any color? I know you talked about next steps and you're still working through that.

How are you thinking about the length of this next study that you might have?.

WeiQi, why don't you answer that one. .

Yes. So we haven't really gave out details about our next study. So, however, now we have the reason we did this one month study is because we -- at the time when we initiated the study we didn't have long-term top study, but now we do. We have the long-term study available.

So in other words, we could potentially conduct a length of the study and length we would like to look at. But the next study will roll out the design of the next study when the time comes. But then at this moment we are discussing with our KOLs.

We are trying to lay out, and more importantly, as Jim mentioned earlier, we still are waiting for some of the important biomarker data. So once we have all the data in our hands, we'll look at all the data.

And then we discuss with our KOLs and design the next phase study for NASH and determining the dose, determined dose regimen, determine the duration of the treatment. Then we will communicate by then. .

Thank you, WeiQi. Thank you, Jim..

Sure..

Your next question comes from the line of Francois Brisebois with Laidlaw. Please proceed with your question..

Sorry, not with Laidlaw, with Oppenheimer, but the -- so what I just wanted to ask here was in terms of the PK rationale to go with 150 and I understand what you were saying about the COVID patients are quite different.

But when you look at the PK was there a rationale there that made sense that the 60, 90 I know it's small numbers, but might have had better survival 100% survival in the AH versus the 150.

Any things that we've learned since?.

No. I think -- and I'll let WeiQi follow-up, but -- first of all, all the 150s, the 90s and the 30s all surviving AH. So they all did well and their MELD scores are all down on day 28. So they all not only survive, but they all improved over the months, which is very important. As WeiQi was describing when you look at what's going on in COVID versus AH.

With AH you get multi-organ damage for sure and some patients die -- a number of the patients dies, okay. But in COVID, they've all got multi-organ damage.

And when we dose 928 systemically in the COVID patients we wanted to be assured that we could base the lungs and the kidneys in enough drug to be effective and we base this on everything from water the concentrations in vitro, all the way up through the animal models and then to the human. So WeiQi maybe... .

Sure. So for the alcoholic hepatitis patients as Jim said, first of all, all of our 19 patients survived the 28 days including those two with yields go higher than clinic 0.5 which is the response cut off number for the low score. So however, you do see in the high dose they will be -- have two patients higher than this response for.

So the one thing, I would like to say based on what we understand of the drug it's not unexpected. And also based on the many other drugs on the market they have multiple targets and also they have a very broad therapeutic index. It's not uncommon as well.

So I think for alcoholic hepatitis, we actually based on our understanding maybe someday, we will disclose what is drug act like than we actually it's not unexpected. For us maybe the lower dose did work well.

And on top of that alcoholic hepatitis patients they have very severe hepatic inflammation and cholestasis as well as many of them have cirrhosis because of the long-term consumption of alcohol. But for the COVID patients, they liver may not be as injured as the alcoholic hepatitis and that kind of extreme situation.

But then the most important is we want to target the lungs.

We also want to target the kidneys, so that's how based on when we put all the data we have together, we look at the alcoholic hepatitis trial, we look at our DMPK drug distribution PK and then that's how we determined that a dose for the alcoholic hepatitis possibly work better at a lower dose level at least based on our data so far we have 100% response rate and at the two lower doses.

And then -- but then for the COVID, we want to use the safe, but then maybe the most effective dose for that. .

I think that's an important point just to emphasize for a second because I think 14 of those patients where trial PC and then talking about the AH patients now. So their livers were not functioning normally by any stretch and so this drug is excreted through the bile.

So there are 150 in a patient like that is very different from 150 and you're even severely critical most to really on critically on COVID patients. So you get different exposures based on the conditions of the body. .

Okay. No, that's great. And I apologize in terms of the survival, I meant the high or low score of patients. But so and in terms of the AH patients you mentioned about 117,000 hospitalizations. How often do you hear of AH patients that are hospitalized survive and are hospitalized again.

Is this a recurring thing where the same patient might be back in the hospital the same year?.

It does depend. There are some patients where that's the case. The mortality is quite high though in that population. So by the time you get to the point where you're being hospitalized that historic rate would tell us that alcoholic hepatitis patients have a 28-day mortality of about 25%, 26% right so 1/4 of those patients.

So -- and a number of those patients are really come to grips with the issue they're dealing with by virtue of being so ill. So if they don't pass away they -- a lot of them will change what's going on, but some won't and go through it. But as to the actual numbers were repeated I don't know that we have that from the data.

Mike do you call the specifics of that?.

Yes that's actually something that we're looking at various data sources right now to try to get our arms around what the repeat rate is. It's not super high within a year, but we're going to dig those numbers out.

But from an opportunity perspective, if somebody went to the hospital and got treated and then came back 9 months later and got treated again that would just be a separate incident of the same acute condition. And they would -- we don't see the reason why they wouldn't be treated again. .

So we believe the drug will be affected the second time around as well. .

Okay. Great. And then just lastly if I can get one more in. The -- I was wondering you mention the reimbursement I think – or in terms of insurance of these patients that, I understand they can be from all walks of life.

So I'm just wondering is it 89% that you mentioned there on the insurance?.

Yes. So it was 89% of the life patients have insurance. .

Okay, great. Thank you very much. That’s it for me..

Sure, thank you..

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

Hey Jim and Mike thanks for taking my question and congrats on the progress through several programs here with 928. Some of my questions have been answered, but I did want to go back to AH for a couple of questions.

Firstly, you made the point at least a couple of times that you really do think that this study, if subtly is positive could represent a sole pivotal study and the basis for an NDA.

I remember I think on the first quarter call that while that was as well the case then, your feeling about it was a bit more conservative a bit more cautious on that possibility.

And I'm just wondering, if there has been any sort of change from your perspective, has there been any discussions or input that has led you to feel incrementally more positive about that possibility. .

Well we certainly don't have any new data, but we do gather as much information as we can from all different sources.

And at the end of the day, it comes down to especially in the first quarter, I think we are still thinking that possibility of maybe doing biomarkers versus survival, but now we are definitely going to do survival as our primary endpoint.

So if one has as shown -- is able to show a substantial improvement in survival over placebo in an environment where there is no therapy today, there’s no approved therapy, then that puts us in a position more in line with what one might see in these oncology indications and others.

And we did speak to the number of programs since 2,000 -- early -- really 2010 on up where just a single trial and has been enough to be able to achieve approval. So it's more learning more and then focusing on survival as the primary endpoint, I'd say..

Right, right. Okay. That's helpful. And then, staying with AH, I'm just wondering if there -- as you think about the enrollment and I realize, you're looking to dose here in the coming months.

But as you look towards the sites that you're speaking to and thinking about the issues, particularly in the ICU and the hospitals in this particular COVID-19 environment, do you anticipate any sort of other issues around enrollment, other than just getting through the COVID-19 and --.

I think, yes. Sorry..

And when -- one night you think you might be in a position to report data?.

I think if we look at enrollment in a pandemic, this circumstance actually unfortunately, it probably will enhance our enrollment for this trial and the reason being, because people are sheltering in place as much as they can. And they are board and they're around house more, more stressed, that kind of thing.

Alcohol consumption is up in the United States.

And whenever we're talking to many, many centers around the United States, as we're preparing setting up sites for the COVID trial and a number of them are liver and kidney specialists and when we talk to them they -- just the liver specialist in particular will come on and say, okay, I wish you had that AH trial.

I've got three patients in right now. And I'm seeing X number a week. So they are, I believe, I don't have any firm evidence, I haven't done a market research, but been talking to people and observing that alcohol consumption is up. It appears as if there is more AH right now than there was a year ago.

And if that is indeed the case, then that puts us in a position to be able to help those patients, because if you've got AH, you've got -- you can't stay home. This is not an elective circumstance. If you stay home, a good chance you might die.

And so, you've got to get to the hospital and be seen and hopefully we'll be able to be there with our drug and help some of these patients..

Okay. And then, just one other question related to the termination of the deal with Gilead recently. I don't know if you care to expound on anything there with your former partner, in terms of what led to that decision.

But also kind of related to that, if you could perhaps share with us how things are continuing with other potential partners around the SABER technology? Thanks..

Sure. We continue -- we always have this baseline of work that we do with our legacy technologies and we had that with -- and we continue to have those kind of -- we call them feasibility deals. And we have a number of few feasibility deals ongoing right now and the Gilead relationship was one of those.

And it made progress, but there are always -- the programs that we sign up to help people with are always extremely difficult because there are so many drug delivery technologies out there today that are available on a more generic form that people – they run through all of those first with their internal chemist before they ever come see us, because we're expensive but we have something that can possibly deliver.

And so to that end, we received $25 million upfront from Gilead and nearly $10 million quickly in the milestone for $35 million. There was an opportunity, we believe, our chemists believe to be able to be successful at least an opportunity for that going forward with that but Gilead elected not to do that and that is their choice.

And that's always the drug business is a difficult one because of that. You're always at the win of whatever partner you have and that's why I'm so pleased that the direct is – that no longer are a major part of our business. So we talk about it and consider it really on legacy here.

There is a component of it as a basal level of what we are and who we are. And POSIMIR gets approved and we can partner it that will be wonderful. And we're very happy to have the Indivior revenue stream coming in and other feasibility things going on.

But the real reason to be interested in DURECT is what 928 affords and to be able to help patients with this wonderful molecule and others in the family..

Thanks so much..

Sure..

[Operator Instructions] Your next question comes from the line of Len Yaffe with Stocdoc Partners. Please proceed with your question..

Jim, I think the limited data suggest that the 30-day rehospitalization rate for AH is about 23%, which in some patients depending on their coverage 928 is successful could be very significant from a reimbursement level because reimbursements depending on the coverage one has tend to be different, if you're rehospitalized for the same disease state within 30 days.

And if it's longer than 30 days, so it could be a significant positive for DUR-928?.

It speaks well to getting the patients out quicker which we are able to as well because that would start to clock on that as well. So....

Exactly and for them not coming back yet. I was wondering in the past obviously NASH has been a focus before AH became important potentially and obviously the COVID-19 epidemic.

Can you say when you would expect to start the next clinical – what year the next clinical study for NASH? And if you're in fact committed to it, or is this being deemphasized because of the tremendous opportunity in the other indications?.

We do have a wonderful opportunity with AH and with COVID both. And should COVID be effective in helping these patients it could be to market sooner than AH. And so I think the potential on that open to then for AKI and for pneumonia is a sepsis and a whole bunch of other ICU utility.

Disease states that don't really have much to help them with today and so we really are very excited and looking forward to being able to see what we'd be able to do with 928 in that setting. Well that being said though, we are not going to put NASH on the shelf.

We're still looking at NASH and we're evaluating as WeiQi said, we're working with our thought leaders. It's given everything it's probably not best right in the middle of aging pandemic to say we're going to start this X study for NASH right now. I think it probably is difficult because one doesn't know, where this fire is going to burn.

I think of it as a fire and of course it's jumping around. And so you might be fine in this canyon today, but tomorrow it might be raging. And so, you could go -- I'm going to go to this rule setting. I'm going to get some NASH patients down there and they may be -- they're used maybe full of COVID patients in two months.

So, I think that we're doing our homework, we're doing our work, which is the right thing to do right now, while we're working on the ICU uses and then we'll bring forward NASH at the right time, but it's not on the shelf by any stretch..

Okay.

And on the Phase IIb AH study, is that a 24-month study?.

Well, each patient is going to be only dosed for one or two doses and then we'll follow them up. We basically follow them up for a certain amount of time and we haven't even given that out yet, but we will soon when we start the trial. But it will just be a number of months that will follow-up each patient.

So, when you talk about the duration, the duration will be then how fast can we enroll patients and set up centers. We're setting up centers already now, both in the U.S. and in Europe. It will be a multinational trial. As I said, there is more alcohol being consumed here. I don't have the numbers in Europe, but I guess it's not down there.

I can't imagine. It's probably gone up as well. So, we'll give more information on the duration -- expected duration of the study once we're into it and getting sites up and running and seeing how enrollment is going..

Great. Thank you, very much..

Sure..

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Jim Brown for closing remarks..

Okay. With that, I just want to -- we want to thank you all for your time today and hope that you and your family stay safe and look forward to speaking with any of you in the future. If you have any calls -- questions, please feel free to give us a call. Thanks a lot. Take care. .

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..