Greetings, and welcome to the DURECT Corporation Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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. Than you, you may begin..

Good afternoon, and welcome to our fourth quarter 2020 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 of 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 and development, expected product benefits, our development plans, future clinical trials or projected financial results.

These forward-looking statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Further information regarding these and other risks can be found in the SEC filings, including our 10-K and 10-Qs under the heading Risk Factors.

Before I get into the financial results, it will be helpful if I explain how the sale of the LACTEL product line is reflected in our financials. We sold the product line to Evonik for what we feel was an attractive price of $15 million in cash, resulting in a gain on the sale of approximately $12.8 million.

This gain is reflected in net income for the fourth quarter, a net loss for the full year. As of December 31, the $15 million was shown on the balance sheet as cash held in escrow, and it was released after a few days.

Operating results related to the LACTEL product line have been excluded from the continuing operations, and presented as discontinued operations in the relevant financial statements for all periods presented. Our total revenue in Q4, 2020 was $2.2 million, compared to $9 million in Q4, 2019.

Q4, 2019 included the recognition of $6.1 million in deferred revenue from an upfront fee and milestone payments. From excluding that the comparison was$2.2 million versus $2.9 million. Product revenue now largely from the ALZET pumps was $1.9 million in Q4, 2020 as compared to $1.7 million in Q4, 2019.

Our gross margin from product revenue was 78% in Q4, 2020. Product revenue continues to be strong in the cash flow positive. R&D expense was $6.7 million in Q4, 2020, compared to $9.3 million in Q4, 2019, primarily due to lower expenses for the DUR-928 at plasma-related expenses.

SG&A expenses were $3.4 million in Q4, 2020 as compared to $3.7 million in Q4, 2019. Our underlying burn rate during the quarter was $7.9 million. At December 31, 2020, we had cash, cash in escrow and investments of $56.9 million as compared to $64.8 million in December 31, 2019.

In Q1, 2021, we strengthened our balance sheet by raising net proceeds of $47.8 million from an underwritten public offering and sales under our ATM program. 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, and thank you for joining us today. Since the start of the fourth quarter, we've made tremendous progress. Most importantly, we initiated patient dosing in AHFIRM, our Phase 2b study of DUR-928 in patients with severe AH. We have been steadily adding clinical sites for AHFIRM.

We currently have more than a dozen sites up and running with a plan to have 40 to 50 sites in total. The FDA granted DUR-928 fast track designation for the treatment of AH. We presented biomarker data from our NASH trial at the AASLD meeting that further supports the potential of DUR-928 for this indication.

The FDA approved POSIMIR for post-surgical analgesia for up to 72-hours, after arthroscopic subacromial decompression. We appointed two highly successful and experienced biopharmaceutical executives to our board. We sold the LACTEL Absorbable Polymers product line to Evonik for $15 million.

And in February, we further strengthened our financial position, through an equity offering that raised $47.8 million. Now let's move to our programs. I'll begin with the opportunity for DUR-928 in the treatment of alcohol associated hepatitis or AH.

DUR-928 is an endogenous sulfated oxysterol that acts as an epigenetic regulator that modulates the expression of multiple clusters, the master genes 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. We announced earlier this year that we are dosing patients in the AHFIRM trial. AHFIRM is our 300 patient Phase 2b efficacy and safety trial.

It is a placebo controlled double blind multinational study. The primary endpoint is 90-days survival. There are over 122,000 hospitalizations per year in the United States for AH. There was no approved therapy for AH. We demonstrated 100% survival at 28-days in our DUR-928 Phase 2a AH trial. The average historical 28-day mortality rate for AH is 26%.

And the 90-day mortality rate is 29%. Based on the results from the Phase 2a AH trial and the fact that survival is the primary endpoint for the AHFIRM trial, we are optimistic that we were able to demonstrate a robust survival benefit in this trial, it may support an NDA filing. Approval based on a single trial is not uncommon.

In fact, 37% of the new drug approvals between 2005 and 2012 were based on a single pivotal trial, and 42% of the new drugs launched in the United States in 2018, were approved based on just a single trial. AH is an acute form of alcoholic liver disease or ALD.

It is characterized by long-term heavy intake of alcohol, recent period of increased alcohol consumption or binge drinking, as well as jaundice, fever, fatigue, weakness, nausea, vomiting, loss of appetite, and a depressed or negative mental state.

While the majority of AH patients are between 40 and 60-years old, and also have liver cirrhosis, approximately 20% of the age population are in their 20s and 30s, and may not have cirrhosis.89% of hospitalized AH patients have insurance. Unfortunately, during the pandemic alcohol consumption in the United States has increased.

And in the conversations with physicians who treat this disease, they've told me the incidence of AH has also increased. According to many of these doctors, they are also seeing a larger number of younger AH patients. As I said earlier, there is no approved treatment for AH.

But physicians have available to them today primarily involves abstinence and supportive care, which includes nutrition and hydration. An analysis of 77 studies, published between 1971 and 2016, which included data from more than 8,000 patients showed the average overall mortality for AH was 26% in 28-days, and 29% at 90-days, and 44% at six months.

A high one month mortality rate from the time of diagnosis is similar to some ferocious cancers such as, AML and advanced breast or pancreatic cancers. According to the AASLD guidance, steroids may be used in certain patients with severe AH. However, steroids have shown only minimal effect and may increase infection rates with AH patients.

In the STOPAH trial, a study of more than 1,000 AH patients steroids significantly increased the infection rate. STOPAH trial also convincingly demonstrated that steroids did not improve the survival rate over placebo 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 severe AH patients are eligible for steroid use. Hospitalization cost for AH are more than 50,000 per patient in the first year. I'll call it liver disease is becoming a leading cause of liver transplants in the United States. And the cost of a liver transplant exceeds $875,000.

The average hospital stay for an AH patient is approximately 7-days, but many staying significantly longer. In our DUR-928 Phase 2a trial, 14 of the 19 patients were discharged in less than 4-days after receiving only one I.V. infusion of DUR-928. All of the 19 patients in our Phase 2a trial survived through 28-day follow-up period of that trial.

12 of these 19 patients were classified as severe based on the MELD scores. Also, 15 of the 19 were classified as severe based on a scoring system that is specific to a AH, called Maddrey’s Discriminant Function score.

Prognostic scores including Lille and MELD, as well as the Bilirubin serum creatinine levels and INR were all improved in this Phase 2a trial. DUR-928 was well tolerated by all these patients at all doses that were evaluated in this trial, including in all of the severe AH patients.

There were no serious drug related adverse events reported in this trial. To summarize the DUR-928 AH program, we have initiated dosing in the AHFIRM file for patients with severe AH. The AHFIRM trial has a 300 patient double blind, randomized placebo controlled multinational trial.

The AHFIRM trial will evaluate three treatment arms, 30-milligrams, and 90-milligrams of DUR-928 and a placebo arm. As with the Phase 2a trial, patients in the AHFIRM trial will receive an infusion of DUR-928 or placebo on day one. And if they were still in the hospital on day four, they will receive a second infusion.

The primary endpoint of the AHFIRM trial will be 90-day survival. We have more than dozen clinical sites actively recruiting patients. We expect to have approximately 30-clinical sites in the United States and 20-sites in Europe and Australia. In December, we were granted Fast Track designation by the FDA for our AH program.

We expect that if we achieve a robust survivor benefit, this study may support an NDA filing. Next to COVID-19. Today, we announced that we are discontinuing our clinical trial for DUR-928 in critically ill COVID-19 patient.

Because of the rapidly evolving state of the pandemic, we were not able to expand beyond the original three clinical sites or enroll a meaningful number of patients in this trial. As a comparison, we have more than four times the number of clinical sites up and running for our AHFIRM trial.

The people and resources that we are using to support COVID-19 trial are now being redirected to support the AHFIRM trial. Next, I will update on the DUR-928 NASH program. In May of 2020, we reported positive top-line results from our Phase 1b trials of DUR-928 in NASH patients with stage 1 to 3 fibrosis.

This was a randomized open label and multicenter study of DUR-928 in NASH patients 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 both MRI-PDFF and FibroScan.

DUR-928 treatment in this trial resulted in reductions from baseline of liver enzymes, liver fat, liver stiffness, as measured by imaging and serum lipids. Many of these reductions were statistically significant.

A statistically significant 24% reduction of plasma triglycerides was seen in 16-patients, who had baseline triglyceride levels above 200-milligrams per deciliter. 43% of the patients in this trial had at least a 10% reduction in liver fat, as measured by MRI-PDFF.

In this group of patients, liver fat, liver stiffness, liver enzymes and serum lipids were statistically significantly reduced from baseline. DUR-928 was well tolerated all three doses evaluated. There were no serious adverse events reported during the study.

Pharmacokinetic parameters at repeat dosing were comparable to those after a single dose from our prior NASH study, indicating no simulation after repeat dosing. Also, drug exposure was dose dependent. A poster reviewing additional data from this trial was presented at last November's AASLD conference.

This poster showed reduction in biomarkers from baseline including, full and cleaves cytokeratin, C-reactive protein, plasminogen activator inhibitor one, interleukin one beta, interleukin six, interleukin 17, interleukin 18, tumor necrosis factor, and at a protectant.

These biomarkers moved in concert with reduction of liver enzymes, liver stiffness and serum lipids. This is particularly impressive when you consider the patients were only dosed for four weeks. These results together with the continued safety profile of DUR-928 supports further evaluation of DUR-928's potential in NASH.

We are currently planning our next steps for NASH. Next to the POSIMIR program. This quarter also marked the FDA approval of POSIMIR. POSIMIR is a novel non-opioid sustained release local analgesic that is approved to produce post-surgical analgesia for up to 72-hours following arthroscopic subacromial decompression.

This approval provides an important new option to orthopedic surgeons in their effort to minimize opioid use, while managing acute pain for up to 72-hours after this painful surgery. We are in discussions with potential commercial partners for POSIMIR.

Our plan is to use the proceeds from the partnership to help fund our epigenetic program and our flagship product DUR-928 for the treatment of alcohol associated hepatitis. POSIMIR is the only approved sustained release bupivacaine product indicated for up to 72-hours of post-surgical analgesia from the single administration.

Infusion pumps were the first systems to enable sustained delivery of bupivacaine within a surgical wound to treat post-operative pain. The infusion pump literature indicates that the minimal bupivacaine exposure needed to maintain sustain postoperative analgesia is approximately 10-milligrams per hour.

Based on this, the product we need to contain approximately 720-milligrams of bupivacaine hydrochloride in order to provide up to 72-hours of post-surgical pain relief. POSIMIR contains 650-milligrams of bupivacaine base, which is equivalent to 743-milligrams of bupivacaine hydrochloride.

We believe this is enough bupivacaine to provide sustained analgesia for up to three days without the need for a pump and catheter system. And POSIMIR was indeed approved for post-surgical pain reduction for up to 72-hours following surgery. POSIMIR contains more bupivacaine than any other approved single dose sustained relief bupivacaine product.

We believe this may be an important differentiator in the market. Another potential differentiator for POSIMIR is the ease of application. At the end of surgery POSIMIR is administered into the subacromial space under direct arthroscopic visualization, where it continuously releases bupivacaine for 72-hours or more.

POSIMIR is applied directly into the surgical room, the primary source of post-surgical pain. The FDA approval is based on positive data from randomized placebo controlled clinical trial in patients undergoing arthroscopic subacromial decompression surgery, with an intact rotator cuff.

The primary outcome measures were mean pain intensity and total opioid rescue analgesia administered, both evaluated over the first 72-hours after surgery versus placebo. POSIMIR demonstrated a statistically significant improvement in both primary outcome measures. A 1.3 point reduction in mean pain intensity on a zero to 10 point pain scale.

This represents a 20% reduction in pain and it's statistically significant at 0.01. This trial also demonstrated a 67% reduction in I.V. morphine equivalent rescue opioid use, from the median of 12-milligrams in the placebo group to 4-milligrams in the plasma group. This is also statistically significant to 0.01.

When we started the postoperative pain control program that led to POSIMIR, we did so because of the opioid epidemic. Stories of the families impacted by this epidemic are heartbreaking. Unfortunately, the opioid epidemic in our country has not improved over the years. It has gotten much worse.

Within the United States approximately 200 people die every day due to opioid abuse. The objective of the plasma program is to give healthcare providers and in turn their patients a non-opioid alternative for post-operative paying control, or at a minimum way to reduce the amount of opioids required to reduce post-surgical pain.

POSIMIR is a product that can provide up to 72-hours of pain relief, and in the pivotal trial demonstrated a statistically significant reduction of both pain and the use of opioids. Subacromial decompression is a shoulder surgery used to treat impingement syndrome, a common repetitive use injury that causes pain when the arm is raised over the head.

The procedure is typically performed arthroscopically, meaning to several small infusions are made in the skin and muscle of the shoulder, through which a camera lens called arthroscope and surgical instruments are inserted during surgery.

Arthroscopic subacromial decompression is generally considered outpatient surgery, and most patients go home within a few hours of surgery. The recovery period may extend from weeks to months, but the most intense pain typically occurs during the first three days after surgery, and is often managed with oral opioid.

There are over 600,000 surgeries involving arthroscopic subacromial decompression performed each year in the United States. We view subacromial decompression as a beachhead to get POSIMIR on the market, and we believe the opportunity to expand the label to cover a broader group of surgical procedures represents significant upside.

To summarize, we believe there are a number of product features that have the potential to differentiate POSIMIR in the market. POSIMIR is the only sustained relief bupivacaine product indicated for up to 72-hours of post-surgical analgesia from a single application.

POSIMIR contains more bupivacaine than any other approved single dose sustained release bupivacaine product. And according to investigators in our clinical study, POSIMIR’s ease of application will be a welcome benefit.

In addition to these attractive features, we believe there are a number of potential avenues available to extend the label to include more surgical indications going forward. Regarding the business development process, we have multiple interested parties and the process is underway.

We are working to put a deal in place in time for our partner to launch in the second-half of this year, and expect that the deal would include an upfront license fee and royalty. Moving on to other accomplishments. This quarter, we also appointed to two members to our board of directors.

Gail Maderis, MBA, and Mohammad Azab, MD, Master of Science and MBA. These two senior industry veterans bring extensive drug development, clinical research and medical affairs experience. Their addition to our board is part of the evolution of DURECT.

In summary, since our last quarter's call, we initiated dosing in AHFIRM, our Phase 2b study of DUR-928 in patients with severe AH. The FDA granted fast track designation for the use of DUR-928 in the treatment of AH.

Based on the results from the Phase 2a AH trial, the survival as the primary endpoint for AHFIRM, we are optimistic that if we are able to demonstrate a robust survival benefit in this trial, it may support an NDA filing.

We presented biomarker data from our NASH trial at the AASLD meeting that further supports the potential of DUR-928 for this indication. As coming on board in November, our new CMO, Dr.

Norman Sussman, and his team have greatly expanded the number of clinical sites for the AHFIRM trial in the United States, and are on track to initiate sites in Europe this year. The FDA approved POSIMIR for post-surgical analgesia for up to 72-hours after arthroscopic subacromial decompression.

We appointed two highly experienced biopharmaceutical board members. We sold the LACTEL absorbable polymers product line to Evonik for $15 million, which we believe was a very attractive price.

And in February, to further strengthen our financial position by raising $47.8 million in equity, so we now have a strong balance sheet as we focus on the AHFIRM trial. With that, we now like to take any questions that you may have..

Thank you, guys on the quarter. Thanks for taking the question. My first question here was just you guys have mentioned in the past submitting a manuscript for publication, maybe to help us understand a little bit the mechanism of action of DUR-928.

I'm just wondering, any updates on that and or we're just obviously still waiting? And can you share any color, I guess, on what to be expected on the mechanism? Or is this -- there's so many signaling pathways that might be accepted here? So just any color there would be helpful? Thank you..

Sure. And yes, absolutely. And, hello. So first off, yes, we're getting close, very close. But as you know, these things they have their own time. So, we're still waiting. I do believe that, there'll be quite a bit of clarity by virtue of knowing what we do know, and what's in the within the manuscript.

But as with any epigenetic interactions, there's a lot of information there are a lot of master switches involved and genes involved. But, it'll be, I think, a very interesting conversation with you, and with a number of other knowledgeable people in the area. I don't know, WeiQi would you add something to the timeline or to the subsequent..

Sure. Actually we ourselves, are checking every day to see if that stuff is there, as impressed. So, it's effective and then we are just waiting for any moments to be impressed. So, it will show up online. But then certainly, there are a couple of review articles out there, you might get a hint of the mechanism of action.

Of course, this particular manuscript that have been affected, it will present a lot of data to show what genes and what pathways might be affected with a treatment of 928. Just like every study there are limitations for each study.

So, we open up the doors to let the world see that what the 928 affects which pathway at what your target, but then there will be more questions I'm sure you would have for the exact mechanism of action.

So ultimately, we look at the function of 928, what does it do in patients or in the disease state?.

Excellent. Okay..

Again, just one of the thing, Francois. I think the other piece of it all is, there is a nice connection between the literature out there of what is dis-regulated in AH patients and in NASH patients. And it makes the data that we see, I think, much more logical. It's kind of a logical sequence to that. Sorry..

Okay. No, great, that's helpful. And then, in terms of AHFIRM, obviously started dosing here. But you just remind us, sometimes you've compared to help us with the timeline a little bit, you've compared it to the Gilead trial, that you ran a few years ago.

And can you just help us kind of compare and contrast the differences in the trial with Gilead and the time it took them to help us understand the potential timing?.

Yes. I think, we're in a different environment, now that we're just coming as we get through this last wave, hopefully, of the pandemic, we think things will open up and we do have a number of sites, a good number of sites actually have been running now and writing more all the time.

But if one looks at that, the SD1 inhibitor trial, that Gilead did, they dosed 200 patients, and they invoked that number of patients in about 18-months to finish the entire trial. But that was a six month follow-up from dosing till the end of the patient development, and then also beat three months.

So, one could then take three months off of that, so instead of 18-months, it would be 15-months. And the other aspect of that is they require a biopsy of all their patients.

And biopsy typically effective will restrict the number of patients available and enrollment rates, just because it's a dangerous thing and a lot of patients don't want to do that. And on top of that, they also required that all of their patients use corticosteroids.

And we know from the literature that only about 33% of age patients are eligible for corticosteroids. And so, you basically cut your patient population in half again. So you can look at it being able to add these multiple together and get a sense that we have an opportunity to do hopefully, more rapid enrollment than they have.

The other side of it is, we are now in the hospital just coming out of being overwhelmed with COVID. But the reality of it is COVID also unfortunately dramatically increased the alcohol consumption and the incidence of AHS will probably follows the [Indiscernible] physicians. So I think all that points to probably more rapid enrollment.

But we will be in a better position to project once we have some of them to add belt here in a more normal society..

Okay. And just lastly here in order to try to figure out a little bit. It's difficult, but it's our job to try to project things sometimes and think about what's going to happen here.

But on the POSIMIR side, can you help us understand the label, the subacromial decompression in terms of its percentage versus the surgeries in the U.S.? And obviously, some of the other drugs in the market weren't always approved for specific surgeries like this.

But I guess can you help us understand the size of the market of the subacromial decompression space? And why any news from the FDA or anything on why not include hernia in it?.

Well, I'll take the first one first. Anyway. So with regard to patient numbers, there are over 600,000 subacromial decompression surgeries a year that we think for which POSIMIR could be used. And so you've got that as a starting case, which is a very good number of patients in surgeries.

And we saw 67% fewer narcotics taken, 20% less pain, both statistically significant. So we think and quite easy to use, you just simply squirt it in. So it takes seconds for the surgeon’s time at the end of surgery.

And so all of those things we think are going to be advantages, and it lasts the full 72-hours, which is what the surgeons are looking for. When we first started the POSIMIR program way back when we had meeting with, it was more than a dozen surgeons in a room.

I remember we sat down talking to them about what kind of duration are we looking for because we can go kind of 24-hours to five days. And they felt like 72-hours three days was really what they were looking for.

Beyond three days they want to know whether or not a patients in normal or has more pain than they expected, then they could be coming to some other challenges. And so that's why we designed it, as we did for the three days and we're thankfully able to get that approval.

As far as why not hernia? That's certainly is a regulatory question that that will be answered as we go forward. And we and/or potential partners as well, we'll be investigating that, because we certainly got some really nice data from the hernia trial that we reported on. So we'll have to see what happens in the future on that..

Okay. Thank you very much..

Our next question comes from the line of Kristen Kluska with Cantor Fitzgerald. Please proceed with your question..

Hi, everyone, thanks for taking my question. So the first one I have here is, thanks for your comments related to the increased alcohol liver disease hospitalizations we've seen during the pandemic.

But I wanted to ask based on your conversations with the centers and physicians whether they might expect this trend to continue once the world starts to return to be a little bit more normal, while patients may not be as isolated anymore, their daily structures and job status still might be unchanged? So anything, you've heard about the long-term outlook there.

And then secondly this is a large orphan market.

But do you think from an awareness standpoint, that that's grown as well, especially considering a lot of these hospitals are citing 30% to 50% increases in hospitalizations over the last year?.

I think that we're very fortunate to have Dr. Sussman, who recently left the clinic and can speak to that. Because he was working at a transplant center for almost 20-years. So Norman, maybe you can address that question..

Yes, thanks.

Can you hear me okay?.

Perfectly, yes..

Okay. So, that is a very interesting question. Of course, we don't know what will happen. We had seen a significant surge in alcohol especially among young people, even before the pandemic. So there's been a lot of press on increasing a number of the -- late press has had multiple articles on this.

So yes, it has been more obvious, but this really preceded the pandemic and it may fall off a little. It's impossible for us to say, but there was such a need, even before the pandemic. Kristen, I'm sorry, I forgot your second question..

The second question was just that given it is a large orphan market, whether generally speaking from the increased hospitalization since the pandemic, from an awareness standpoint, if you're feeling that maybe physician too in the past hadn't seen as many of these patients, or were less familiar with the indication whether that knowledge base has grown in light of what we've seen this past year?.

Yes. I think, well, I can't point to any specific literature on that.

So most of these people -- I shouldn't say most, a lot of these people end up as a transplant center, because if you are very ill and you have liver failure, for whatever reason, even if the other than, if the outside hospital doesn't recognize the cause, they would prefer to have that patient managed by an expert, and most smaller hospitals don't have a liver expert on staff.

So, they end up coming, if possible, they end up coming to transplant centers. I do think that there is also a growing awareness and a lot of societies are reaching out to their membership, and encouraging conversations with community providers because of this unrecognized disease.

Many times they just say the patient has hepatitis, and it turns out to be alcohol. So, I think there's generally a strong push by the professional societies to increase awareness. We are also participating in this. We the company, but also, through several charitable organizations are trying to increase awareness through community outreach..

Okay. Thanks. And then my last question is, as you noted that the demographics are starting to change a little bit, particularly more young people are developing AH. So with that basis, based off of different metabolisms and other factors, and particularly we've seen the difference between men and women, and hence, the number of drinks per person.

But do you anticipate any changes with the drug? Or do you think there's like a patient population who might benefit more based off of kind of these understandings?.

Yes. That's an excellent question. I think, I don't really know. We know that there are certain populations is this genetic aspects to why some people are more sensitive. There are obviously people who drink a lot and may have mild or even moderate or severe fatty liver, but don't get AH.

And the actual transition from just fatty liver to AH, is not really very well understood. Some recent work suggests some epigenetic regulators. And as Jim mentioned, some of those are possibly going to be reversed by the mechanism of action of DUR-928. So, it's a lot of conjecture, but we're getting, people are getting closer to finding the answer.

There's more interest in epigenetic regulation. And we're certainly interested on the back end as a therapeutic..

Great. Thank you, everybody, for taking the questions..

Thank you..

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

Hi, team. Good afternoon, this is Sahil Kazmi on for Mayank. Thanks for taking our questions. Just a couple of brief ones from us. Noting that the focus seems to be on AH, and look forward to incremental updates there.

We did see that you made the decision to discontinue the COVID-19 program and just wondering if there's any opportunities, you're thinking about leveraging some of the data generated on acute organ injury, if there are other indications that might be pursued? And maybe on the same train of thought if you could discuss kind of where else might pose a mere be applied? And is that something that, you aim to do with a partner in the future in terms of indications beyond the subacromial depression? Thank you..

Sure. With regard to DUR-928, we have done a huge number of studies in modeling and in vivo modeling, and we've shown potential in everything from stroke to sepsis to pancreatitis, acute pancreatitis, the number of acute kidney injury, a lot of interesting opportunities. And that still, certainly those opportunities are there.

We want to, as a company, focus on AH right now, because it's such an important thing to be able to help these people. It's a huge problem from a societal standpoint, from a medical system standpoint. And these patients causing a minimum kind of 50,000, if they need a transplant, they go up close to $900,000 or more.

So it's a huge cost and burden to our health care system that cause the families and the patients’ lives. Look, the three month mortality of almost 30%. So if we can make a difference there, we want to make sure that we have a chance to be able to help those patients.

That being said, that we are investigating other opportunities for the use of DUR-928. I've always said if this molecule were in the hands of a larger company, we'd probably have seven Phase 2s ongoing right now, because there's just so much potential outside of where we are. And once you see the mechanism of action, you can start to investigate.

How that interplay with various genes of various syndromes, and you'll see that there are multiple potential opportunities. So that is definitely certainly an opportunity going forward.

As far as POSIMIR is concerned, as it was mentioned earlier, we do have some nice data from hernia, and so we would certainly hope at some point in time, POSIMIR would eventually be able to be approved for use in a general surgical way. So, it would be taken as applied that way. This has been shown to have the potential as well.

So that is something we will be investigating with our commercial partners..

Great. Thank you. And then maybe just one more brief one. Could you give us a bit more color on how you're thinking about the enrollment mix for AHFIRM in terms of the U.S. versus ex-U.S.

split?.

Yes, it's a great question. Right now, we're expecting about 30-sites in the United States and then another 20-plus between Europe and Europe would be then UK and the EU. And also we're investigating Australia as well. So, we'll end up with probably around 50-sites in total, not quite a 50-50 split U.S., ex-U.S. we're pretty close to that..

Great. Thanks for taking our questions and congrats on all the progress..

Sure. Thank you..

Our next question comes from the line of Michael Morabito with Chardan Capital Markets. Please proceed with your question..

Hi, Jim. Thanks for taking the questions. You mentioned that the current survival rate at 90-days is 29%, I believe you said.

Well, the size of the AHFIRM study, how large of an improvement in that 90-day survival rate is the study powered to see? And then I was hoping to just give us a little bit of thought on how you expect R&D expense to grow throughout the year as AHFIRM opens more sites? And how that might be countered by any OpEx savings that you are getting from discontinuing the COVID trial?.

Sure. So I don't want to lose any of these things. So first of all, the COVID trial wasn't a particularly expensive trial. But maybe, Mike, you want to speak to as you look at the calendar year budget wise with AHFIRM adding more sites every month..

Sure. Yes, I'll take that one first. As you saw the Q4 number for DUR-928, it was down a little bit and now it'll start ramping up as the enrollment ramps up. But overall, as you said, there's an offset there from stopping the COVID trial.

And overall, it's not going to be a huge change from where we've been in terms of the overall burn rate when you mix everything together..

Yes. We projected that the trial is about a $30 million total external expense, so that'll just be enrolling as it goes. And then as far as the power calculation, we certainly have worked that in spades for sure. I guess, Norman or WeiQi, whoever wants to -- who spoke with the statistician's most recently..

About every day. So without giving the exact calculation, we're finalizing some of the numbers. But we've given somewhat pessimistic view to the DUR and a somewhat optimistic view to the control. So that is we've underestimated deaths in the control over estimated, we think, over estimated in the DUR to give ourselves 82% of probability..

Yes. And that's with 100 patients..

And just wanted to see, and forgive me, if you mentioned on this in the call.

Do you have any expectations for timing of when you may take the next step at NASH? Or when you might expect to make an announcement on POSIMIR licensing?.

Yes, the POSIMIR licensing is something we're working on right now. And our hope is that we would have a partnership in place to launch this year. So that would mean that the deal would come prior to that. So certainly, that's something to be looking for as the month unfolds. As far as next steps for NASH, we're looking at it.

It's an interesting place where we are right now, because we've got Phase 1b data that are pretty impressive. I mean, we've got everything moving in the same direction and a positive direction.

We've got liver fat, and liver stiffness and liver enzymes and circulating enzymes and biomarkers of cell death, and biomarkers of inflammation and other categories all moving, as you would expect. And then with clean profile that we've been fortunate to be able to have with 928 from a safety standpoint.

And so it certainly speaks well to something that can help in this patient population.

But then we see the NASH environment changing, right, and so it'll be interesting to see kind of, we're trying to select the place to enter where we can have the most impact and learn from those who are in front of us, who are kind of out there in the water trying to swim across that that channel.

I didn't give an answer yet, because we're still doing the work, but we will be announcing it as we get closer..

Okay. Thank you very much..

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

Hi, Jim. Thanks for taking my question. Congrats on all the progress recently, especially with the approval of POSIMIR..

Sure. Thanks..

So a few for me. First question, just wondering on AHFIRM. It looks like in the U.S. you just started a few months ago enrolling. Obviously, it is a pretty specific subgroup of severe AH patients seems like enrollment in the U.S. with the sites and the number of subjects is going pretty well.

I know, you've mentioned before how the particular dynamic of the severe patients in the hospital actually sidesteps largely a lot of the issues that other companies have with COVID. I'm wondering if that dynamic has shifted at all lately.

And if you're seeing the same sort of perspective in Europe as well, now that you're ramping up enrollment there..

Well, we haven't started cycling Europe yet. We're still going through all the paperwork and all -- everything you have to do to get going there. So Europe is a number of months still away. But certainly in the U.S., we are signing up a good number of sites. And normally the team are really cranking.

I don't know, Norman, what would you say specifically to that?.

I'm sorry, would you just -- I'm not sure I understood exactly the question..

Sure. So the enrollment of these severe AH patients into the hospital amid the pandemic, in other sorts of trials involving hospital admittance, obviously, there's been trouble in getting patients enrolled in these sorts of studies. But I think the dynamic that has been discussed previously, that's expected would in many ways sidestep that issue.

I'm wondering if you had already a few patients enrolled, if you're seeing that or if there's anything different from what you've --.

Yes, I get it. So the dynamic is, you're correct in that they're competing for bid space to some extent with COVID patients, but then that's true old very old patients. The entire enrollment process is patients already admitted with a certain level of severity.

We've chosen a range that is to be sure that we can differentiate between people in control and people who get therapy. So the trial is built on a model that says, you have this level of illness, you will have this expected mortality. And we are hoping to see a difference in that outcome at 90-days. The thing is, these patients are ill.

And so by and large, if someone like that goes to a doctor's office, they're most likely going to be admitted. And so then they're there. So, I think you're correct in that. We don't expect a big change in the frequency. We are very obviously being very strict on the entry criteria to keep the study clean..

Okay, great. Thank you. That's helpful. Next question is around POSIMIR. Again, congrats on finally getting that across the finish line. It's been a long time coming. You mentioned the commercial partnership discussions that you're having. Obviously, you can't really talk about any of those details.

But I was just wondering, if you think that the prior Janssen commercialization collaboration, stands now as a good proxy for the scale of economics that you might expect from a new partner?.

Well, I think, it's always, every deal and every time has always this, its own place in time. But the opportunity is still is a very valuable one, for sure. And we are talking to put the deal in place, I would expect that they'll be very valuable deal for DURECT and also a valuable deal for our partner.

And I think we've been able to over the years, the history of DURECT has been able to do good deals and have a potential for both parties to do well. And I would expect that would be the case here, without getting into any granularity..

Sure. Okay. Understood. And then final question. Again, you mentioned, you're pursuing potential next steps with partners and moving forward with DUR-928 in NASH. And again, there, I realized that there's little that you can discuss about those, until there's something actually signed and done.

However, I'm wondering if, as you go through this speedy process, if there's any specific criteria that you're considering, or perhaps any sorts of scenarios that you would outright exclude?.

I think as we look at any business development opportunity, we always -- we don't exclude it or anything unless something just is not unreasonable. But I think if we think about NASH right now, we are in early days in NASH. We just have Phase 1b data. They are remarkable data, especially considering one month, and the safety profile.

So when you look at that, you say, okay, there's something there. But I think what the industry is trying to figure out is, what is -- where does NASH fit and how does it fit into the healthcare environment and system and what is the appropriate type of therapy to develop.

Because you've got on one side things that simply just weight loss, exercise, diet and things like that things that assist with that can certainly help to the far side, you've got, fibrosis, cirrhosis, people dying of liver failure, and maybe there's nothing that can help and there's this gradation in between.

So, the interesting thing about nitrate is it probably can help across the board, probably greater potential to help, the farther along you are in the disease process. So, it's exciting to me to think about, but at this point in time, it's very early days on all of it.

I do think, eventually, we will see 928 out there helping people who are damaged metabolically from a number of fronts. But right now, we're really focusing on AHFIRM and on the first acute news, which is in helping the patient say, AH, and then ongoing other acute use opportunities to help patients with as well..

Got it. Thanks, Jim, for your perspectives..

Sure. Thank you..

There are no further questions in the queue. I'd like to hand the call back to the CEO, Jim Brown..

Okay. Well, with that, I just want to thank you all for your time. And if you do have any further questions, please feel free to give us a call and take care. Talk to you all later..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..