Good afternoon, and welcome to our First Quarter 2022 Earnings Conference Call. This is Matt Hogan, from DURECT Corporation. Before beginning, I'd 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.

Let me now turn to our financials, which were pretty uneventful in the first quarter. Total revenues in the first quarter of 2022 were $1.9 million, compared to $2.2 million in the first quarter 2021. R&D expense was $8.2 million in Q1 2022, as compared to $8 million in Q1 2021.

The increase was primarily due to higher clinical trial expenses and higher contract manufacturing costs for larsucosterol. SG&A expenses were $3.7 million in the first quarter of 2022, as compared to $3.5 million in Q1 2021, primarily due to higher patent expenses and higher consulting and market research expenses.

At March 31, 2022, we had cash and investments of $64.4 million, as compared to $70 million at December 31, 2021. That decrease was only $5.6 million, but we benefited from receiving around $4.6 million from Innocoll related to the POSIMIR deal, net of our fee to the investment bank that assisted in the transaction.

If you exclude this, our underlying burn rate during the quarter was $10.2 million. With that, let me turn the call over to Jim for an update on certain of our programs..

our compelling Phase IIa study; the mechanism of action of larsucosterol which ties directly into AH; and our multiple preclinical animal studies where we saw a profound survival benefit in relevant acute organ injury models. 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 filing. Beyond AH, the mechanism of action for larsucosterol provides further scientific rationale for developing treatments for other acute organ injury and chronic diseases. We would now like to take any questions that you might have..

[Operator Instructions]. Our first question is coming from Kristen Kluska, with Cantor Fitzgerald..

This is Rick on for Kristen. We've got 2 for you today. A recent global study in the American Journal of Gastroenterology concluded that MELD score was better at predicting mortality in AH versus MDF.

With findings like this in mind, how are you thinking about how the field might assess the totality of data in the AHFIRM trial, including endpoints such as MELD, for larsucosterol?.

I think that's a great question, Rick. Thank you. And I would note that in our Phase IIa trial, the MELD scores, the average MELD score, median MELD score, was 24.5. But I think the best person from our team to answer that would be Norman..

Thanks. It is a great question. The [indiscernible], that has a very specific meaning. It was the score at enrollment. And you'll recall that the study we're doing, the endpoint is no longer a soft endpoint, like Lille score or MELD score. It's actually survival. So it's designed as a pivotal trial with a hard endpoint.

That said, most trials still include MDF, Maddrey discriminant function, as an enrollment criterion because it is a pure liver measure; whereas, MELD score includes creatinine and a number of other scores include other factors. So they all contribute to the ability of a score to predict survival from an acute episode.

But really, what we're interested in is the actual survival at the end of 90 days..

I think -- and it's also interesting from the literature that's been published more recently, one can get further affirmation of the relationship between a given MELD and survival at 90 days, as well, which is also I think a good point to take in..

Excellent. Maybe just one more. You mentioned the activities ongoing with the medical communications agency that you've contracted.

Could you talk about the specific goals you're looking at when it comes to education in the space? Do you view talking to physicians about sort of the lack of efficacy from steroids in AH as a main goal? Do you plan on kind of talking about the clinical results for larsucosterol to date? Or are you kind of looking at an all-of-the-above approach?.

I think we're definitely looking at all of the above to help kind of enhance awareness of this therapy as it approaches. Although I would -- from most of the thought leaders we've spoken to, people are already -- there's an awareness of it.

But Norman, having in the not-too-distant past, a couple of years ago, been one of those thought leaders out in practice, what would you say to that?.

So at the moment, our focus is actually on getting patients enrolled. So this is not an unknown. This is a very well recognized entity among hepatologists. Among liver doctors and transplant physicians, this is very well known.

What we're trying to do is educate people who refer to transplant centers and hepatologists so that they send the patients with ease. A lot of times, these people are seen as patients with a poor prognosis, nothing to be done. The old data on not being transplant candidates is still lingering.

So a lot of people that are out of the field just view these patients as being hopeless and may not consider transferring them. So we're trying to reach out and say, "There is something that can be done. This trial is ongoing.

So if you have a patient like this, please refer to one of the centers" And as Jim mentioned, we have centers essentially across the country. So I think in nearly every major city, we have a center. So that's the focus of our education.

In terms of our outreach to our investigators, they are very sophisticated, but our meetings with them are really focused on what are the best practices, what are the techniques that are helping them get patients enrolled in the study.

The enrollment in a study is always somewhat different from the actual numbers seen because the entry criteria are quite strict and we're maintaining those for the clinical trial..

Our next question is going to come from Francois Brisebois, with Oppenheimer..

Just in terms of enrollment here, is it fair to say that this might be a little ahead of expectations based on the prior discussion about completing enrollment in mid-'23 and now maybe having the last patient dosed in mid-'23? And if you do have the last patients dosed in mid-'23, can you just remind us what that means for a potential timeline to read out?.

First off, I'll start with the latter part first. If we enroll that last patient in the middle of the year, from that last patient being dosed, there's a clock of 90 days. And so, post that, it will be the last patient, last visit.

And then we'll be cleaning up the data, which we are doing real-time right now, but there will be a finalization of cleaning up of the database before locking. And then an analysis, which will take some amount of time.

I don't want to project at this point in time, but I do know that Norman and the team are working in real time to ensure that the time from that last visit to when we can break code and analyze the data, it's going to be as short as possible.

And I don't want to come out and project anything other than the middle of next year at this point in time, but just to have you know that we are certainly optimistic and hoping that we can do better than that, and the team is striving towards that every day.

And so far, it looks like the winds might be blowing in that direction, but we'll have to wait and see.

Norman, would you add something to that?.

No. I think that's exactly right. The clinical team is working very hard. We have a phenomenal completion rate in terms of paperwork for the patients. We're trying to make sure that when we get to the end, there is a minimum delay between the data wrap, data lock and the final analysis..

Okay. Great. So just to be clear, changing the language from complete enrollment in mid-'23 to last patient dosed in mid-'23 is pretty similar. It's not necessarily too much ahead of -- it's kind of in line; if anything, maybe a little incremental, but nothing major here..

Right now we are holding to our original timeline, but with the potential of doing better..

Our next question is going to come from Edward Arce, with HC Wainwright..

This is Thomas Yip, asking a couple of questions for Ed. Perhaps first, for AHFIRM study enrollment. As you outlined, last patient dosing expected mid-'23, as previously discussed. Based on pace of enrollment in the first quarter 2022, it sounds a quite positive pace.

I wonder if you could provide specific, more quantifiable number of patients enrolled in the quarter and perhaps what is the rough percentage progress of the AHFIRM study enrollment so far..

We gave an update last time, saying we had hit 100 patients, because it was 1/3 of the way through. We don't want to be giving at such frequent levels because you're going to have changes in a weekly or monthly rate. But that's why we try to give as much color as we could within the bounds of what seems reasonable.

And so we stated that that first quarter was our best quarter yet, and the second quarter is starting off to be even better. So that is what we can say at this point in time. When we hit -- and that's what we consider our next major milestone in enrollment, and I think we'll make that announcement at that time.

But I think that's the best we can do for clarity right now..

Got it. That's great. I understand that. Perhaps another question for enrollment. As you pointed out, the first patients have been enrolled in Australia.

I just wonder, based on your experience with the oldest site so far, do you observe any seasonality trend in new cases, [indiscernible] patient enrollment, given Australia's [indiscernible] winter months?.

It's a good question. I don't know. Norman, you're closer to it than I am.

Are you seeing some seasonality or some things associated around holidays, that kind of thing?.

That's an interesting question. We haven't actually seen seasonality. There is quite a lot of variation week-to-week and month-to-month, but I haven't noticed that it's particularly seasonal. So you're thinking people may drink more in certain holidays at certain times of either lower stress or more [indiscernible]. We haven't really seen that.

We have seen a major effect of COVID that seems to be easing up a little. And so we're -- there was a tremendous block in getting patients to hospitals that seems to be easing. So I think that will have more of an effect than the seasonal effects..

I think that's a very good point. We note some of our investigators, in fact, almost all of them, have described circumstances where the hospitals were challenged during COVID. Maybe Norman can give a little more light as to what it was like and what it's -- how it's changing..

So we had -- with COVID, they were, especially, early last year, a lot of hospitals wouldn't allow nonessential staff in. So the coordinators weren't allowed to come in. Then when they came back, what we noticed is that patients were delaying coming to the hospital.

So if someone is drinking and saying, "I'm not feeling very good, maybe I should go to the hospital" but they're afraid, they may stay at home and drink longer. And then by the time they come in, they're much more ill and outside of the criteria for this study. So we had a lot of that. We had some hospitals that just blocked transfers for a while.

And so one of our really excellent sites for a while just couldn't accept any patients. And a lot of this trial is driven and a lot of hepatology, for that matter, is driven by referrals from peripheral hospitals through these major centers..

It looks like we have another question from Francois Brisebois, with Oppenheimer..

Just an extra one here. You talked about the goal maybe. I think it was over 60%, and now it's around 70% based on the NIH trial that stopped for AH.

Anything that was publicly disclosed there as to why it might have stopped? Is it anything to do with enrollment difficulties? Or any color there?.

No. I don't want to give any additional information, other than it was unfortunately stopped for not being effective..

Our next question is going to come from Geoffrey de Sibert, with KB Advisors..

I have two questions. Jim, you told us that you might give us an update when the next major benchmark or hurdle might be reached in the trial. You shared with us at the 100, the 1/3, marker. What's that next hurdle going to be? Is it the halfway mark? I think that's a reasonable question..

That's an excellent question, but I think I'd just wait and see when we get there. But yes, you're not too far off of thinking in those kind of terms. If you look at a -- you're filling up your tank with gas or whatever, you look at various increments. So that's not unreasonable. But yes, something like that..

All right. Second question, a little more of an administrative one, but one that impacts shareholders. It's been a while since the direct share price has been under $1.

Can you remind us what your timelines are in terms of having to take some action either to get the share price above $1 through reverse split or through market action before there would be any de-listing issues?.

We're -- unfortunately, that -- we still have a reasonable market cap, but just the unfortunate thing is we have, because of the long history of the company, a great number of shares out there. And so our price is where it is in this current market. But we feel very comfortable where we are from a financial standpoint at this point in time.

With regard to the -- there's a point at 6 months, which I think comes in the mid of this year, a little bit past the mid of the year, and then you have another 180-day grace period.

I don't know, Matt, do you want to speak to that in a little more detail?.

Yes, just briefly. I think if the stock price goes over $1 for 10 consecutive days before August 8, then we're kind of out of the penalty box. If not, as Jim mentioned, we have another 6 months to get there. And one other way of getting there would be to seek shareholder approval to do a reverse stock split.

The NASDAQ would accept that if you have to go that route. So we are working on initiatives and things to hopefully not allow that to happen, but one never knows..

Right. So August 8, I think you said, is kind of the first penalty box date. So we've got quite a bit of time between now and then..

Yes..

Yes. And even then, there's solutions..

Okay. And unfortunately, we are out of time for questions..

Okay. Well, thank you, Lisa, and thank you for everyone listening. And as always, if you have additional questions, please feel free to reach out. And we look forward to talking to you all soon. Take care. Bye, bye..

Okay. This concludes your call. You may now disconnect..