DURECT (DRRX) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's total assets significantly increased to $116.1 million by March 2021 due to financing, while net loss remained comparable at $10.1 million for the quarter, with $51.0 million provided by financing activities Condensed Balance Sheets Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $57,545 | $21,312 | | Short-term investments | $39,538 | $19,421 | | Total current assets | $104,811 | $63,061 | | Total assets | $116,055 | $75,641 | | Liabilities & Equity | | | | Total current liabilities | $11,704 | $10,703 | | Term loan, non-current portion, net | $18,062 | $19,936 | | Total liabilities | $34,332 | $35,526 | | Total stockholders' equity | $81,723 | $40,115 | | Total liabilities and stockholders' equity | $116,055 | $75,641 | Condensed Statements of Comprehensive Loss Condensed Statements of Comprehensive Loss Highlights (in thousands, except per share amounts) | Account | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Total revenues | $2,212 | $1,595 | | Research and development | $7,975 | $7,587 | | Selling, general and administrative | $3,531 | $3,431 | | Loss from operations | $(9,646) | $(9,819) | | Net loss | $(10,134) | $(9,948) | | Net loss per common share, basic and diluted | $(0.05) | $(0.05) | | Weighted-average shares outstanding | 217,537 | 195,745 | Condensed Statements of Cash Flows Condensed Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,709) | $(12,860) | | Net cash (used in) provided by investing activities | $(4,106) | $9,753 | | Net cash provided by financing activities | $51,048 | $760 | | Net increase (decrease) in cash | $36,233 | $(2,347) | Notes to Condensed Financial Statements Notes detail the company's biopharmaceutical R&D focus, significant accumulated deficit, liquidity risks, and recent $45.4 million equity offering - The company's business is focused on two R&D categories: new chemical entities from its Epigenetics Regulator Program and Proprietary Pharmaceutical Programs improving existing drugs[24] - The company has an accumulated deficit of $499.9 million as of March 31, 2021, and expects to continue incurring negative cash flows, requiring substantial future funding for R&D and clinical trials[28] - In December 2020, the company sold its LACTEL Absorbable Polymer product line to Evonik for approximately $15 million. The results of the LACTEL line are presented as discontinued operations[26][62] - In February 2021, the company completed an underwritten public offering, raising net proceeds of approximately $45.4 million. An additional $2.4 million was raised through its sales agreement with Cantor Fitzgerald[61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the progress of lead candidate DUR-928 and FDA-approved POSIMIR, noting a $10.1 million net loss for Q1 2021 and a significant liquidity boost from a $45.4 million equity financing Overview DURECT, a biopharmaceutical company, focuses on lead candidate DUR-928 for AH and NASH, with recent FDA approval for POSIMIR and ongoing revenue from other programs - The lead candidate is DUR-928, an epigenetic regulator being evaluated in a Phase 2b trial (AHFIRM) for severe alcohol-associated hepatitis (AH)[69] - POSIMIR, a post-surgical pain product, was approved by the FDA in February 2021 for use in arthroscopic subacromial decompression[69] - The company receives single-digit earn-out payments from Indivior's U.S. net sales of PERSERIS and royalties from Orient Pharma's sales of Methydur in Taiwan[72] Epigenetic Regulator Program (DUR-928) The DUR-928 program is progressing with a Phase 2b trial for acute alcohol-associated hepatitis (AH) and a Phase 1b trial for chronic liver disease (NASH) showing promising results - DUR-928 is an endogenous sulfated oxysterol and an epigenetic regulator that inhibits DNA methyltransferases (DNMTs), which may lead to improved cell survival and reduced inflammation[74] Acute Organ Injury Program (AH) The AH program, targeting a high-mortality condition, showed promising Phase 2a results with 100% patient survival and significant bilirubin reductions, leading to a Phase 2b trial initiation - In the Phase 2a trial for AH, all 19 patients treated with DUR-928 survived the 28-day follow-up period, with no drug-related serious adverse events[82] - Patients treated with DUR-928 showed statistically significant reductions from baseline in bilirubin at day 7 and 28, and in MELD score at day 28[82] Lille Score Responder Rate (Lille < 0.45) in Phase 2a AH Trial | AH Patient Category | n | Responders (Lille<0.45) | | :--- | :-: | :--- | | All Patients | 18 | 89% | | 30 or 90 mg DUR-928 | 14 | 100% | | Severe AH (DF ≥ 32) | 15 | 87% | | Severe AH (MELD 21-30) | 12 | 83% | - A Phase 2b study (AHFIRM) was initiated in January 2021 to evaluate DUR-928 in approximately 300 patients with severe AH, with the primary outcome being 90-day survival rate[98] Chronic Liver Disease Program (NASH) The NASH program's Phase 1b study demonstrated DUR-928's tolerability and significant reductions in liver enzymes, stiffness, and lipids, with 43% of patients showing reduced liver fat - In a Phase 1b NASH study, DUR-928 was well tolerated with no serious adverse events or discontinuations[106] Topline Efficacy Signals from Phase 1b NASH Trial (Day 28 vs Baseline) | Metric | 50 mg QD | 150 mg QD | 300 mg BID | | :--- | :--- | :--- | :--- | | Serum ALT | -16%* | -10% | -17%*** | | Liver Stiffness (FibroScan) | -10%** | -9% | -1% | | Serum Triglycerides | -13%* | -3% | -2% | | LDL-C | -6% | -11%* | -7% | *p < 0.05, **p < 0.01, ***p < 0.001 - 43% of patients across all dose groups showed a ≥10% reduction in liver fat as measured by MRI-PDFF at day 28[105] Results of Operation Q1 2021 total revenues increased to $2.2 million, while net loss was $10.1 million, with R&D expenses rising to $8.0 million due to the DUR-928 program Revenue Breakdown (in thousands) | Revenue Source | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Collaborative R&D and other revenue | $574 | $(30) | | Product revenue, net | $1,638 | $1,625 | | Total revenues | $2,212 | $1,595 | - Collaborative R&D revenue was $574,000 in Q1 2021, compared to a negative revenue of $(30,000) in Q1 2020, which included a revenue reversal related to the terminated Gilead agreement[128] Research & Development Expenses by Program (in thousands) | Program | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | DUR-928 | $5,516 | $4,991 | | POSIMIR | $1,674 | $1,691 | | Depot injectable programs | $262 | $177 | | Gilead | $65 | $447 | | Others | $458 | $281 | | Total R&D Expenses | $7,975 | $7,587 | - The increase in R&D expenses was primarily driven by higher costs for the DUR-928 program, which rose to $5.5 million in Q1 2021 from $5.0 million in Q1 2020[132][134] Liquidity and Capital Resources Liquidity significantly improved with cash and investments reaching $97.2 million by March 2021, driven by $51.0 million in financing, including a $45.4 million public offering - Cash, cash equivalents, and investments increased to $97.2 million at March 31, 2021, from $56.9 million at December 31, 2020[141] - Financing activities provided $51.0 million in cash during Q1 2021, mainly from an underwritten public offering that raised approximately $45.4 million in net proceeds[142][143] - Management believes existing cash and investments are sufficient to fund planned operations for at least the next 12 months from the filing date[144] - The COVID-19 pandemic may cause delays in patient enrollment for the DUR-928 Phase 2b trial and disruptions in supplies, which could increase overall development costs[144] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no significant changes in its market risks since the disclosures made in its Annual Report on Form 10-K for the year ended December 31, 2020 - There were no significant changes in market risks during the three months ended March 31, 2021, as compared to the disclosures in the 2020 Form 10-K[148] Item 4. Controls and Procedures Based on an evaluation as of March 31, 2021, the company's principal executive and financial officers concluded that disclosure controls and procedures were effective. There were no significant changes in internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[148] - No significant changes were made to the company's internal control over financial reporting during the most recently completed fiscal quarter[148] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[151] Item 1A. Risk Factors The company faces significant risks including dependency on DUR-928's success, COVID-19 impacts on trials, need for additional capital, reliance on third-party collaborators, challenges in commercializing POSIMIR, and substantial debt - The company is highly dependent on the success of DUR-928, which may never receive regulatory approval or be successfully commercialized[153][157] - The COVID-19 pandemic has adversely impacted and will continue to pose challenges to the business, particularly in conducting clinical trials[153][159] - The company is in discussions with potential licensees for POSIMIR but may be unable to enter into a commercialization agreement[153][163] - The company has a significant amount of debt, and failure to comply with covenants could lead to acceleration of repayment obligations[153][168] - Additional capital will be required in the future, and the company may have difficulty raising it[153][169] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act[209]