Greetings. And welcome to the DURECT Corporation Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to our host, Mike Arenberg, Chief Financial Officer. Thank you, sir. You may begin..

Good afternoon. And welcome to our fourth quarter 2021 earnings conference call. This is Mike Arenberg, Chief Financial Officer of DURECT Corporation. 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 our SEC filings, including our 10-K and 10-Qs under the heading Risk Factors.

You will no doubt have seen the 8-K filed last week describing that I will be leaving DURECT direct as of March 17th to pursue another opportunity. So I just wanted to say a few words on that. Without getting into too many details, I will be taking an opportunity as Chief Operating and Business Officer at an oncology company.

This will be an expanded role. It will be -- it will take my career down a different path. This was not an easy decision, because I sincerely believe that DURECT has a stellar team and an incredible asset in larsucosterol.

I have the utmost confidence in the potential of our larsucosterol to save lives and transform the company and I am more than grateful for the many opportunities I have had working at DURECT.

I also want to note that Matt Hogan, the company’s former Chief Financial Officer from 2006 to 2018 who has served as corporate finance adviser to the company since 2018 will continue to support the company during the search for a new Chief Financial Officer.

Further, Jian Li, who has been our VP of Finance and Corporate Controller for the last 19 years, will be our Interim Principal Accounting Officer. With that said, let me now turn the call over to Matt, who 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..

Thanks, Mike. Let me now turn to our financials. The noteworthy accounting event from Q4 was the licensing of U.S. POSIMIR rights to Innocoll. The deal was signed on December 21, 2021, and all the material deliverables to allow Innocoll to benefit from the agreement was completed before the year end. So revenue was recognized in 2021.

Upon signing, Innocoll agreed to pass a $4 million nonrefundable upfront fee and $1.3 million primarily to cover manufacturing supplies and excipients used in the manufacturing of POSIMIR and certain equipment at the manufacturing site that they acquired from us.

Our balance sheet at December 31, 2021, reflects that $5.3 million as accounts receivable. Innocoll then paid us that full amount in January 2022.

In terms of revenues in Q4, $4.1 million was recorded in collaborative R&D and other revenue, $1.1 million from the sale of manufacturing supplies and excipients was recorded in product revenue and the remaining roughly $100,000 for the equipment was not recorded as revenue, but was reflected as a reduction in equipment on our balance sheet.

As a result of this, total revenues in Q4 2021 were $7.3 million, compared to $2.2 million in Q4 2020. Collaborative R&D revenue increased by approximately $4.3 million year-over-year essentially due to the Innocoll revenue.

Product revenue from the Innocoll transaction in the sale of ALZET pumps increased from $1.9 million in Q4 2020 to $2.7 million in Q4 2021. R&D expenses $8.4 million in Q4 2021, as compared to $6.7 million in Q4 2020. The increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for DUR-928.

SG&A expenses were $4.5 million in Q4 2021, as compared to $3.4 million in Q4 2020. $750,000 of this increase was a transaction fee related to the Innocoll deal. Our underlying burn rate during the quarter was $10.9 million and at December 31, 2021, we had cash and investments of $70 million, as compared to $56.9 million at December 31, 2020.

Again, if you consider that this cash figure did not include the payments from Innocoll net of transaction fees, cash figure would have been more like $74.6 million. With that, let me turn the call over to Jim for an update on our programs..

Thank you, Matt. Hello, everyone. Thank you for joining us today for our 2021 fourth quarter update. DURECT is conducting what we believe could be an NDA enabling trial of larsucosterol for the treatment of alcohol-associated hepatitis or AH. AH is the definition of unmet medical need.

In the United States, there are approximately 137,000 hospitalizations per year for AH, with a 90-day mortality rate of 30% and with no approved therapy. In our larsucosterol Phase 2a trial, we saw 100% survival at 28 days, compared to a 20% to 26% historical 28-day mortality rate.

No drug related serious adverse events and the mechanism of action aligns with AH epigenetic dysregulation. We are making great progress in AHFIRM. AHFIRM is a Phase 2b 200-patient, double-blind, placebo-controlled trial on three continents. A robust survival benefit may support NDA filing.

With the potential to be the first approved treatment for AH and the FDA has granted the program Fast Track Designation. Now to update on recent events, we are pleased with the enrollment rate in AHFIRM, our Phase 2b study of larsucosterol in patients with severe alcohol associated hepatitis.

We have made excellent progress in opening clinical sites with the addition of 15 new clinical sites since our last earnings call. We now have 51 sites enrolling for AHFIRM and we are nearing completion of our goal of 60 or more sites for the trial.

We have 41 sites in the United States, five sites in Australia and five sites up and running in Europe and the U.K. Last week we announced the first patient was dosed in Europe and we announced today that we have dosed more than 100 patients in AHFIRM. We estimate the completion of enrollment remains on track for the middle of 2023.

We presented a poster at The Liver Meeting near the end of 2021, showing increased hospitalizations for AH in the United States. Those AH patients who died during their hospital stay had significant co-morbidities and costs of over $150,000. During the fourth quarter of 2021, we signed an exclusive U.S.

licensing agreement for POSIMIR with Innocoll Pharmaceuticals. Under the agreement, DURECT will receive up to $136 million in upfront and milestones, in addition to low-to-mid double-digit royalties. Innocoll remains on track for launching POSIMIR during the second quarter of this year.

On a personal front, we wish Mike Arenberg all the best in his future endeavors. We thank Matt Hogan for his continued support and we have engaged a search firm to recruit for a new CFO. We strengthen our Board of Directors with the appointment of Pete Garcia, a seasoned financial executive with extensive biopharmaceutical industry experience.

We also welcome Dorothy Engelking as our VP of Regulatory Affairs. She’s a regulatory executive with more than 25 years of experience. Let’s now move to larsucosterol, our development program for alcohol associated hepatitis and the AHFIRM trial. AHFIRM is our ongoing Phase 2b efficacy and safety trial.

It is a placebo-controlled, double-blind multi-national study targeting three patients. It is our belief that AHFIRM demonstrates a statistically significant improvement in 90 day survival. This trial should support the NDA filing of larsucosterol for the treatment of AH.

The FDA has granted fast-track designation for the development of larsucosterol in the treatment of age. AHFIRM has three treatment arms, 30 milligram and 90 milligram of larsucosterol and a placebo arm. As with the Phase 2a trial, patients in the AHFIRM trial receive an infusion of larsucosterol or placebo on day one.

And if they are still in the hospital on day four, they receive a second infusion. The primary endpoint for the trial is 90-day survival. We have 51 critical sites open, which represents 15 more sites since our last quarter update. We plan to have between 60 and 65 clinical sites total for this international study.

Last week, we enrolled our first patient in Europe and now have sites open in the United States, Australia, the U.K. and the EU. We are pleased with the enrollment rate. We have now dosed more than a 100 patients in the trial and expect the study will complete enrollment in the middle of 2023.

With COVID-19 reducing its burden on the hospital system, we anticipate that we may see acceleration of patient enrollment. The main focus of the company is to execute on this trial to the highest level of quality and in a timely fashion. AHFIRM is the highest priority in the company.

In 2019, it was reported that we are approximately 137,000 hospitalizations per year in the United States for AH. What physicians have available to them today primarily involves abstinence and supportive care, which includes nutrition and hydration. Corticosteroids are used in some cases, but have shown no survival benefit in 90 days or one year.

There is no approved treatment for AH. Retrospective analysis of 77 studies published between 1971 and 2016, which included data from a total of 8,184 patients showed the overall mortality from AH was 26% at 28 days, 29% at 90 days and 44% at 180 days.

A subsequent global study published in December of 2021, which included 85 tertiary centers in 11 countries across three continents, prospectively enrolled 2,581 AH patients, with a median MELD score of 23.5. This study reported mortality of 20% at 28 days and 31% at 90 days.

Prior to the COVID-19 pandemic, the incidence of AH was increasing in younger patients, and during the pandemic, alcohol consumption in the United States had increased by about 30%. This has led to a dramatic increase in hospitalizations for AH, as well as many more AH patients being listed for a liver transplant.

This has been described in the literature, including an article in JAMA Network Open. This particular paper notes approximately 6% of severe AH patients are listed for liver transplant. This percentage has nearly tripled since the beginning of the pandemic. AH has a significant economic cost to the healthcare system.

The average hospital stay for an AH patient in the United States is approximately one week, with many staying significantly longer. The average hospitalization cost for a patient is approximately $56,000 for patients who survived the first nine days and approximately $151,000 for those who do not.

Alcohol associated liver disease is becoming a leading cause of liver transplants in the United States, with the average cost of liver transplant exceeding $875,000. At this time, we are not ready to discuss pricing for larsucosterol.

However, if larsucosterol is successful in saving the lives of AH patients, and if one assumed the price of only half of the low end of these costs, it could be a multibillion dollar opportunity and could save the healthcare system substantial costs.

Let’s review why we are so optimistic about the use of larsucosterol in the treatment of patients with severe AH. AH patients face a 90-day mortality of approximately 30% and there is no approved treatment. In the first trial of larsucosterol in AH patients, all 19 of the patients, including the 12 severe AH patients survived.

Additionally, 14 of the 19 patients were discharged in less than four days after receiving only one IV infusion of larsucosterol. The prognostic score for the AH patients in this trial including Lille and MELD scores, bilirubin and other biomarkers were improved as compared to baseline.

Larsucosterol was also well tolerated by all the patients and at all the doses evaluated in the Phase 2a trial. There were no serious drug related adverse events reported in this trial. Dr.

McClain from the University of Louisville conducted a comparative analysis of the eight severe AH patients treated with larsucosterol in the 30 milligram and 90 milligram cohorts from our Phase 2a trial with 13 severe AH patients from the Louisville study.

And it’s important to note that these 30 milligram and 90 milligram cohorts are the doses that we are testing in AHFIRM. The Louisville patients received supportive care including steroids. Both groups had similarly high MELD scores and high Maddrey’s Discriminant Function scores.

The Larsucosterol treated patients had substantially lower Lille scores as compared to the Louisville group and all of the larsucosterol patients survived the 28-day follow-up period, while three of the Louisville patients did not survive past 28 days and a fourth patient dies at day 30. This analysis was presented by Dr.

Craig McClain at the 2019 AASLD Liver Meeting. A slide of this comparison can be seen in our corporate deck on the DURECT website. In addition to the clinical trial results, we also have supporting data from numerous in vivo animal models that demonstrates larsucosterol’s potential against multi-organ failure, which can occur in AH patients.

Larsucosterol mechanism of action helps us better understand the remarkable results that we saw in the treatment of AH patients. Larsucosterol is an endogenous epigenetic regulator. It binds to and inhibits the activity of DNMT-1, 3a and 3b. DNMTs are epigenetic regulating enzymes that add methyl groups to DNA in a process called DNA methylation.

Treatment with larsucosterol and stressed liver cells lead to decreased DNA hypermethylation and modulated expression of more than a 1,000 genes that were associated with multiple crucial cellular signaling pathways. In July of 2019, Argemi et al published a study in Nature Communications.

In this study, the gene transcription patterns of patients with severe AH were distinctly different from control subjects than patients with other liver diseases. In the AH patients, there was DNA hypermethylation, alter transcriptomics and liver cell dysfunction.

The expression of DNMT-1 and DNMT-3a were found to be profoundly increased in AH patients, but not in control subjects or patients with other liver diseases. The authors of this study suggested that inhibition of DNMT could be a novel therapeutic approach for AH.

Larsucosterol binds to and inhibits the DNMT, which adds to the strong rationale for evaluating larsucosterol as a therapeutic agent for patients with AH. In conclusion, there is a huge unmet need in AH. There is no approved therapy today for AH patients and the 90-day mortality is approximately 30%. AH costs the U.S.

healthcare system billions of dollars per year and is rapidly becoming a leading cause of liver transplant.

We are optimistic regarding the potential for success of the AHFIRM trial because of results from our Phase 2a study, the comparative analysis with the Louisville severe AH patient data, in vivo animal model results against multi-organ damage and the association of larsucosterol mechanism of action with the epigenetic dysregulation seen in patients with severe AH.

Given the high unmet need for hospitalized AH patients, lack of current treatment options and the high mortality rate, we believe a robust survival benefit in the AHFIRM trial would support an NDA pilot. In addition, the FDA has granted Fast Track Designation for larsucosterol in the treatment of AH.

Lastly, 42% of new drugs launched in the United States in 2018 were approved based on a single trial. The FDA issued a draft guidance in December 2019 that supports an NDA filing should a trial like AHFIRM be successful.

This document is titled Demonstrating Substantial Evidence of Effectiveness for human drug and biological products guidance for industry. Page 11 states that a single trial quote can establish effectiveness, unquote, by showing quote marked improvement in survival compared to a control group, unquote.

If it is also supported by natural history data demonstrating, quote, a very limited median survival time, unquote. We believe 30% mortality at 90 days represents a limited median survival time. We will have to wait for the AHFIRM data regarding the improvement in survival. Next, an update on potential indications for larsucosterol beyond AH.

One of the indications we are considering is NASH.

We have completed Phase 1a and Phase 1b trials in more than 70 patients that demonstrated reduced liver enzymes, fibrosis markers and by imaging liver fat stiffness and elasticity, reducing circulating fat, including triglycerides, reduce cell death marker, improved insulin resistance and a good safety profile.

Other potential additional indications for larsucosterol that are supported by preclinical data are acute kidney injury, pancreatitis, metabolic syndrome, stroke, sepsis and others. We are currently planning our next indication for larsucosterol. Next to the POSIMIR.

POSIMIR is a novel, non-opioid, sustained-release, local anesthetic that is approved to produce post-surgical pain analgesia for up to 72 hours following arthroscopic subacromial decompression. Late last year, we licensed the development and commercialization rights for POSIMIR in the United States to Innocoll Pharmaceuticals.

We selected Innocoll as our commercial partner because of their strong commercial team, including a 60 plus hospital sales force, a medical affairs team and a marketing executive, and because they are already focused on the post-surgical pain market.

Louis Pascarella, their CEO served as Novo Nordisk’s US Head of Commercial Operations; and Anthony Galdi, their Chief Commercial Officer, led the U.S. surgical business for Ethicon Inc., a part of Johnson & Johnson medical device company.

With POSIMIR and XARACOLL, Innocoll’s surgical implant, Innocoll is the first company to have two sustained release bupivacaine products to offer in the post-surgical pain market. We believe there is a strong commercial synergy between the products that will help both grow and succeed in the marketplace.

Innocoll remains on track to launch POSIMIR in the United States during the second quarter of this year.

DURECT will receive a $2 million payment upon first commercial sale with the potential for up to $130 million in additional commercial, regulatory and intellectual property milestone payments, as well as tiered low-to-mid double-digit royalties on net product sales in the United States.

During the fourth quarter, we added Pete Garcia to our Board of Directors. Pete has worked as a Chief Financial Officer in the life science industry for more than 25 years and raised more than $2 billion in capital during that period.

He is currently the Chief Financial Officer of ALX Oncology, since joining them in January of 2020 and led their IPO in July of that year and a follow-on offering in December. Prior to ALX Oncology, he served as CFO from 2013 to 2019 at PDL BioPharma, an acquirer of royalties and pharmaceutical assets. Before his time at PDL, Mr.

García served as CFO for a biotechnology companies. Pete began his life science career at Amgen, where he served in a number of financial roles of increasing responsibility. Mr. García holds an MBA from the University California, Los Angeles and a B.A. in Economics and Sociology from Stanford University.

Pete is a wonderful addition to our Board and his experience, guidance and perspective is greatly appreciated.

Last week, we welcomed Dorothy Engelking as our VP of Regulatory Affairs, Dorothy most recently served as the VP of Regulatory Affairs, Quality and Pharmacovigilance for Adamas Pharmaceuticals and through their acquisition by Supernus Pharmaceuticals. Her career spans more than 25 years in multiple product approvals.

We are bringing her on-board now and planning for success with the AHFIRM trial and in preparation for potential FDA and European submissions. In summary, we are making great strides with AHFIRM. We have 51 clinical sites up and running out of the 60-plus we have planned, we have added 15 clinical sites since our last quarter’s call.

We dosed our first patient in Europe and now have political sites open in the United States, Australia, the U.K. and the EU. We are pleased with the patient enrollment rate and now have dosed more than a 100 patients in AHFIRM. We expect AHFIRM will complete enrollment in the middle of 2023.

Elevated DNMT expression and DNA hypermethylation reported in the liver samples of AH patient’s fits with larsucosterol’s mechanism of action and helps to explain the efficacy signals, including survival of patients observed in our Phase 2a AH trial.

Since the pandemic, alcohol consumption has increased by about 30% in the United States and the percentage of AH patients waiting for and receiving liver transplants have increased substantially. We have Fast Track Designation by the FDA for our AH program. We expect that if we achieve a robust survival benefit, this study would support an NDA pilot.

Our partner Innocoll plans to launch POSIMIR in the United States during the second quarter of this year.

DURECT will receive a $2 million payment upon first commercial sale, with the potential of up to $130 million in additional commercial, regulatory and intellectual property milestone payments, as well as tiered low-to-mid double-digit royalties on net product sales in the United States.

We will use the proceeds from this partnership to help fund our epigenetic program and our flagship product, larsucosterol, for the treatment of AH. Beyond AH, the mechanism of action for larsucosterol provides further scientific rationale for developing treatments for other acute, organ injuries and chronic diseases.

We would now like to take any questions that you might have..

Thank you. [Operator Instructions] Our first question comes from Kristen Kluska with Cantor Fitzgerald. Please state your question..

Hi. Good afternoon, everybody. Thanks for taking the questions, and Mike, best wishes to you at your new opportunity..

Thank you. Oh! Great. Thanks..

So I saw very much hot off the press last week. There was a study by Mayo Clinic, which what they did as they looked at different variables that have typically correlated with the greatest risk of mortality from historical data over a number of years and they pointed out age, blood urea, nitrogen, albumin and bilirubin.

So wanted to ask you, I don’t know if you have read the paper, of course, but from your diligence and some of the work you have looked at and some of these historical factors, what do you believe are the greatest correlative factors to mortality and how these findings might also further support larsucosterol for the Phase 2A findings?.

That’s a great question and I will just start and then handed over to, I think, Dr. WeiQi and Norman should speak to this. But when you look at the reasons for people dying, typically it’s because multi-organ failure lead multiple organs to shut down.

And certainly kidney function and liver function are two key components in both ones that we have shown with our larsucosterol that we can help with, but maybe I will start with WeiQi.

Sure. I had to unmute first. So, yeah, I think, I have many factors that are studied certainly at the valley made a very interesting observation.

And one prognostic marker, of course, is the MELD score has been pointed out, which is particularly the Phase 1 MELD score, which was particularly being pointed to the highly predictive of the mortality of these patients….

Dr. WeiQi I’d -- I lost you here. It might be my reception, but you said something about initial MELD and then I lost you.

Could you repeat that?.

Oh! So the MELD score at a baseline level, which has been pointed out among all the other prognostic scores as the predictive scoring system that can predict 90-day mortality.

And then after that, the seven-day Lille score has been continuously used actually has a relatively high specificity and the sensitivity in looking at the treatment responses of these patients. So for MELD score, it’s of course as a baseline level as static scores.

But then the Lille score is that dynamic scores, we all know looking at the change of something a little bilirubin levels.

So both MELD score and the Lille score, they incorporate multiple markers of the organ function markers such as bilirubin still at both scores clearly standout with a CRM bilirubin level, and also creatnine levels, albumin included. So that’s actually pointing to that paper that you just mentioned. These markers are important.

But then you put them together, you have to look at them as a whole. Like, Jim has pointed out when patient dies, they frequently die from multi-organ failure with the liver and the kidney failure being in addition to the liver failure. That’s additional important marker. That’s why both scores incorporate the creatinine levels as well.

So I hope that -- is that question..

I think so, WeiQi. Yeah. Thank for that..

Yeah. Yeah..

And then, Norman, what would you add anything to that..

Yeah. I think WeiQi has said everything. The dynamic model at zero score even though on their area -- on their own accrued looked as it approved lower, has really re-stood the test of time. And so it’s -- depending on the cohorts, different tapers have suggested one might be slightly better than others.

But they generally give you very similar information. The addition of age and underlying cirrhosis probably has a major effect. But when we are talking about recoverable disease, I feel very confident of the little data..

Thank you. Thank you both..

Okay..

Yeah. I think….

Yeah..

… let me confirm that, Kristen just to remind our listeners that we had that larsucosterol has such a profound effect on reducing the Lille score. It’s compared to Dr. McLean’s patients word which were equivalent in their in their starting characteristics to ours, we had four times a fourfold reduction in Lille comparative Lille scores, so..

Okay. Thank you for that color. And I know you are very much laser focused on this AH opportunity, but you didn’t know in your prepared remarks that you are currently planning the next indication to evaluate. So, obviously, the list that you gave for us for some examples is quite extensive. So wanted to ask….

Okay..

… maybe if you could talk about what are some of the specific criteria you might consider and then on that note, I believe we are hitting the one year mark of the publication of the mechanism of action.

So just curious like in terms of the conversations and now that you have been able to share more with the scientific community, how that might determine next steps as well..

Yeah. They are both really good questions. I think with regard to the first question in the next indication, for larsucosterol we are taking a hard look at the potential indications and we did give quite a long list, and quite frankly, that isn’t the entirety of it. We have others said that we didn’t mention.

The way we are going to select the next indication is going to be based on certainly the animal data, the preclinical data that we have, but also on the unmet need and so we are looking in areas where there really just isn’t a good therapy.

For example, we think we selected AH, because there’s nothing really out there that can help these patients and it’s a huge problem. And so we are looking to try and fit larsucosterol and where it can fill a void that’s there for the healthcare system.

And I -- and we will start with these very high need indications and eventually will roll out to the some of the others as well. As far as the mechanism of action, it certainly is exciting and it is amazing how fast time goes by. You are right, it has been just about a year since that paper was published.

Unfortunately, in the area of epigenetics, as it applies to this type of epigenetics, not an anti-cancer kind of circumstance, but a circumstance where you are looking to improve the epigenetic function of a cell, there really hasn’t been much new in the area, certainly people that we have talked to are very excited about what we are doing, where we are really at the forefront.

So we are kind of at the very cutting edge of the science there. But it’s a great place to be around a lot of lot of exciting information..

Okay. Thanks. And my last question is just on the patient enrollment and guidance here.

Just wondering if you could give a little bit more color about this mid-2023 trial completion, specifically as you add more sites and look at the cadence that’s been occurring, albeit during the pandemic, help us understand a little bit more how you are coming up with this timeline? And then for future earnings releases, should we expect that the company will either reiterate this guidance or update it if necessary, based on what you see throughout the month?.

Yeah. My guess is we probably, it’s so important to us. We will end up giving some kind of update on the guidance. And we have selected the mid-2023 date based on where we are now.

Everything we understand about the in-home rates sites we have up and like we are not going to take into account future sites, although we are excited about getting them up and running as well. But just looking at how things go forward, that’s our most reasonable guess at this point in time and so that’s where we are.

Certainly the team strives every day to improve and on any timelines, and I’d have to say that that they are doing a bang up job.

I don’t know Norman if you want to add anything?.

No. I think, we can’t -- obviously, COVID really slowed a lot of sites down. So they were a lot of interruptions. We will have to see if that changes once it’s completely diminished, its role is diminished. And I think, as Jim says, we would offer guidance if we feel that we are making more progress.

But I think for right now, we are comfortable sticking with our original estimation..

Perfect. Thank you. Thanks, Kristen..

Okay. Thanks..

Our next question comes from Francois Brisebois with Oppenheimer. Please state your question..

Hi. Thanks for taking the questions and Mike congrats and best of luck. Matt, great to hear from me. All right. Thanks. So, yeah, I will just move forward with a couple of questions here, just on enrollment, I think, that’s very important here.

The goal -- the total number, for a number of sites, has that changed at all? And based on the clinical trial design, if enrollment completes in mid-2003, can you just help us understand maybe how to think about when topline data would come out afterwards?.

Sure. We did early on, over a year ago, when we saw that the pandemic was having the effect that it was, we added more sites and that’s what we got to be the 60 plus where we are now.

And that diversity in geography across the United States and that’s entire world has really helped a lot, because we have a circumstance where the pandemic would be burning hottest.

And when you have the pandemic on the raids, then you have got sometimes coordinators not allowed into the hospitals, beds aren’t available, nursing staff is reduced, all these kind of things and so that -- that’s been really our foundation and has really allowed us to maintain the timeline that we have.

And so, if one considers then the timing that you have suggested and looking at the mid-2023 completion, if the last patient is enrolled in the mid of 2023, then that last patient last visit would occur, then three months later and then.

Some months later, after that, the data would clean up, the database would be locked, and then we would have topline data. And so how long that would be, hard to say.

I think at this point I’d like to let that become defined, but it’s going to be certainly a good amount of time and we are doing a great time keeping up real time with the data coming in. But still, in my experience, it always takes months to do that. So I’d just we will have to see, but it will probably be Mike I don’t know for sure yet.

I hesitate to give it time because I just want to let the team determine that.

Norman would you concur with that or anything do you want to add to add?.

I don’t think I could add much to that. Obviously this is something that occupies my thinking every day as we fix the timeline where we are keeping up with as -- we are keeping up with data as go in. So we are trying to make sure that when the trial comes to an end, we are as close to having a complete handle on the data as possible.

But there is a period of something you are finalizing getting the last patient in. And then making sure that we have covered all of the basis and all of the eventualities before we -- look before we do -- it unlocks because any decisions, any last minute decisions we make are better made while it’s still blinded..

Okay. No. That’s helpful. And then, obviously, the pandemic has been difficult, but especially with maybe trial sites ex-U.S.

here, any impact that we are seeing based on geopolitical issues?.

No. And our hearts go out to what’s happening in Ukraine and to Europe. I mean, it’s a horrible, horrible circumstance and I am hoping that somehow that can be solved and saved from the death and destruction that’s occurring there.

But we made a decision early on, even though there certainly is a lot of there’s a big problem with alcohol associated hepatitis in Eastern Europe. We made a decision just because it can be challenging to get the quality of data that you would like out of sites there, not to use any Eastern European site.

So I think as Far East as we go is Germany and so that’s -- so it won’t impact AHFIRM, but it certainly impacts all of us, just our hearts, right? I mean, it’s horrible..

Okay. No. Yeah. Obviously, and okay, that’s helpful. And then in terms of the launch of POSIMIR, can you just maybe help frame for us -- for the listeners the market opportunity.

And come second quarter, it seems like that’s still the timeline for launch in terms of the mid to double-digit royalties here, what we can maybe expect here or just maybe the size of the market and if you can give any color on their thoughts about updating the label?.

Yes. I can’t give any color on the updating the label yet that’s entirely in their control and I know their focus right now is on the launch and they are adding some great new people. I don’t know I probably can’t talk about yet with them, it’s their news but they already got a great team, they are adding even more great people to it.

So I think it’s -- and we are really excited about what that can -- what Lou and his team can do. I think if we look at the market in the U.S., it’s about somewhere a little north of 600,000 shoulder surgeries per year and for which this could potentially be applicable and then there are subcategories and all the like of that.

So it’s -- we are really looking forward to, it’s nice after all those years of hard work to think about that being out there helping the patients, right? We all know what a problem narcotic abuse is and getting exposed to narcotics after surgery is unfortunately one of the leading causes for getting people in into that horrible cycle.

So we are hoping that POSIMIR can be out there helping patients with shoulder surgery and eventually expand it, as you suggested to other indications as well. We are looking forward to sharing from the sidelines as they take that on and….

All right. Great. Well, congrats on the progress. Thank you..

Thank you. Sure. Thank you..

Thank you. And our next question comes from Ed Arce with H.C. Wainwright. Please state your question..

Hi, everyone. Thanks for taking my questions..

Hi, Ed. Sure..

Congrats on the recent progress. Let me add best of luck, Mike, really appreciate the time here and also good to hear from you as well, Matt, and glad that you are helping out. The first question is, I just wanted to drill down a bit on a little bit further on the continuing acceleration of enrollment that you see.

You mentioned that right now you have 51 sites up out of a total of nine, excuse me, of 60 that you hope to have in total. So you are looking at adding nine more from what you have now. First patient was dosed in late January. Right now, in March you have just over 100 over 13 months or 14 months.

So what I am looking at is as you, as you target mid-2023 is to get another nearly 200 patients in about 15 months or 16 months or thereabouts..

Right..

So, clearly a significant acceleration from what you have done over the first year.

And so, with that I just wanted to ask you to be as specific as you can in terms of the barriers to accelerating that enrollment that you have seen and perhaps expect to see over the next year and a half and how you are mitigating them, obviously, beyond the additional sites that you have done?.

I think it’s -- thank you for the question.

I think it’s important to actually talk about the last part first and that is the number of sites, because if you look back over the prior 12 months, 13 months, we started with just, you know, three or four or five sites, right? And then we would get to seven sites and then eight sites and then nine and 11 and 12.

So, you start crawling as you start any clinical trial. By the time you get to near the finality of the number of sites and will be, perhaps, a few more than 60, but somewhere between 60 and 65 or something.

Once we have got the full complement of sites up and running, you can enroll, imagine, as compared to -- if we had 60 sites going as compared to one, we had 10 sites where it’s 6x just at the enrollment rate patient perspective month is the same. So that’s why on every clinical trial I have ever been associated with.

You always see this hockey stick of enrolment, right? And it often is the case that it takes about as long to enroll the first third as it does to complete the entire rest of the trial. And so that’s kind of what, what one sees, I don’t know that this will be any different.

I don’t expect that it might be any different than that other than we do have on top of that, the melting away of the pandemic, which may which may speed it up a little bit more as well. So that would be my assessment. Norman, what are your thoughts? You might maybe unmuted..

One moment..

Hello..

Go ahead, sir..

Yeah. We lost. Okay..

Yeah.

Can you hear me now?.

Now, we can. Yeah..

Okay. Sorry about that. So, yeah, I think, you hit the nail on the head. It’s really we started out in the very small number of sites and we have been building them and so that’s explained why we have this accelerated. We are on an accelerated path now. But I think the early phase was simply a question of having so few sites..

Okay. Fair enough. I was just perhaps wondering if there was beyond the clear acceleration in the number of sites themselves. Anything in terms of logistical or operational issues at the site level that may have work through to accelerate enrollment. That’s what I was getting at..

Yeah. So I think the in general most, I would say, all of the sites we have chosen to have the skill to do this. We have chosen them carefully for that reason. COVID had a major impact on how hospitals were run. Some of them had nurses quit because of vaccine mandates. Some of them wouldn’t allow nonessential personnel in.

Some of them had to close the number of beds. So there were there were a lot of issues. A lot of them were full for periods of time. We try to mitigate that by spreading to the sites over a very wide geographic area so that no one site would be a dead stop for everyone.

But it definitely impacted this and other my colleagues in other studies have said the same thing that had a major impact. So hopefully this is finally clearing the decks and that we will start to see more normalization of hospital operations..

Okay. Great. Thanks for that. Second question is around your plans to give us all an update on larsucosterol in NASH, and perhaps, other indications.

In particular, do you have some sort of a timeline where we could expect some news and I know this, you touched upon this before, but there’s a number of potential indications you discussed or mentioned in your prepared remarks.

I grant that there’s a couple of things that you mentioned in terms of the criteria, such as the preclinical data and the unmet medical need. But just wondering if you could perhaps give us a little more details around what would help you lead decision one way or the other? Thanks again..

Yeah. It’s a -- sure. And I think that’s a really good question and that is part of the business of running any biopharmaceutical company, right? And so where do you take your next step? And it really does help if you have some options. Most companies don’t.

Most companies have something that is, it’s a square peg and it’s got to go on a square hole and that’s it. With our super sterile, we have this thing that has great flexibility and capacity to help across a huge broad list of disease circumstances.

And so then when you have got that kind of freedom, which we do have with our superstore, then we have the chance to take a step back and WeiQi has done an amazing job at the science to look at and where are these things might fit and so we can look and say, where, in some cases we didn’t even understand it’s hypermethylation and issues, so you can get down to the some of the more basic components of the science there.

And then certainly look at animal models and models of the disease and cell lines and the like and get some sense of whether or not we might be able to have a positive impact. And then we look at the overall clinical economic circumstances.

Are there already reasonable therapies out there? So we are going to have to go out there and knock off somebody who’s already got a beachhead and is doing well. That’s not where we want to go. What we want to do with our molecule is cutting edge and as amazing as what larsucosterol could be, is go where or others can’t.

Witness AH, right? Nobody has been able to make it go. We have got the monoclonal antibodies against the immune system. They have got tested steroids. They have tested kind of everything you can possibly think of against it, and unfortunately, nothing has shown that it really helped.

And so that we have shown in 2a that it might well save lives and so that’s the kind of place where we would like to go with our next indication is someplace where there isn’t -- there’s such an unmet need that we can step in and really make a big difference and that’s what we want to do. So that’s what we are trying to do..

Fantastic. All right. The final question for me then is on POSIMIR. You mentioned Innocoll is on track to launch -- commercial launch the drug next quarter and you would expect $2 million milestone payment on that first commercial sale….

Exactly. Yeah..

Would you expect that payment if not to be recognized, at least booked or earned I should say in the second quarter? And then just the broader question, just in terms of your expectations, in terms of the economics that you could derive from this going forward?.

As far as the timing goes, when that first sale occurs, then they will owe milestone. As far as the timing of when that comes, I don’t know, Matt or Mike, one of you guys, I don’t know how that that’s usually a there’s a lag there, always with every contract that we have, right..

Well, if they have first sale, we will immediately recognize the $2 million as revenue and then we will have to invoice them and then sometime after that we will receive payment. I don’t remember what the payment terms are, but you know it would follow….

Yeah..

…shortly thereafter..

Yeah. Thank you. That’s right. That’s exactly right. Okay. Then as far as the magnitude which is a question I get what are the expected magnitude of their sales and then our associated double-digit royalties might be. We want to let that unfold as it should.

Certainly when we look at this market for such a very long time, there is a huge unmet need out there. There are -- there’s so much pain that occurs after surgery, especially a surgery like shoulder surgery.

I mean, if you have a friend or if you have had it yourself, you know how painful that can be and we did our study with raising your shoulder pain or movement kind of thing. And so to be able to make a difference, there is going to make a huge difference to the patients.

Not taking narcotic is a huge potential for helping the patients themselves, because you can get away from not having 5% or 6%, 7% of the population has a predisposition to abuse. So you don’t expose them to it. They don’t have to worry about that piece. And then there’s another layer to all of this, and that is two more layers.

One is having less pain when it’s numbed locally allows you to move it. That mobility is really important. If you have had family members had a knee or hip replaced now, they would get them up right away, right, and start moving very quickly. And it’s because when you can get up and be mobile, you can reduce a lot of other morbidity.

Second is pneumonia and getting up and moving around is important for reducing that. Also not taking the narcotics, because when you are in narcotics, you lose that stimulus to breathe deeply, that’s just one of the side effects of narcotics. And so by virtue of having that, we think there are a lot of positive outcomes for the patients themselves.

But as far as giving an actual number what the sales might be, I -- at this point in time I couldn’t do that, I think, we will just have to wait and see, how things go but we certainly think that it’s teed up to do well..

Great. Thanks so much for the comments. I really appreciate it..

Sure..

Thank you. And that’s all the time we have for questions. I will now turn it back to Jim Brown for closing remarks..

Okay. Well, with that, I just want to thank all of you for your time and as always if you have any questions, please reach out and we would love to talk. All right. Thanks a lot and take care. Bye..

Thank you. This concludes today’s conference. All parties may disconnect. Have a great day..