Durect Corporation (DRRX) focuses on the development and commercialization of pharmaceutical systems that enhance treatment capabilities associated with chronic pain, cardiovascular diseases, and central nervous system disorders. The company uses six technology platforms:
SABER: A controlled-release technology that utilizes an injectable biodegradable gel for administration of small peptides, proteins, or small molecules.
ORADUR: A sustained-release oral gel-cap technology similar to the SABER platform.
TRANSDUR: a technology that provides compatible and functional trans-dermal formulations, resulting in thin solid state trans-dermal products that can deliver drugs, through intact skin, at a controlled rate up to one week.
DURIN: A biodegradable (drug-loaded) implant technology that can be formulated to release an active ingredient, locally or systemic, over a period of days to months.
MICRODUR: A biodegradable (drug-loaded) injectable microsphere technology that offers improved rate of duration and drug release characteristics.
DUROS: An osmotic implant technology that offers precise constant drug delivery of potent molecules and acts as a miniature drug-dispensing subcutaneous pump for therapies requiring systemic or site-specific administration of drug.
Durect Corporation has entered into several collaborative agreements with other pharmaceutical companies to develop and market products in exchange for milestone and future royalty payments. Most noteworthy are those with Pain Therapeutics, Inc., Endo Pharmaceuticals, Nycomed, and Voyager Pharmaceutical Corporation. Currently, DRRX has two products in the market: Alzet (osmotic pumps) and Lactel (biodegradable polymers). The company earns its revenue from both product sales and collaborative agreements. In 2006, DRRX generated about $21.9 million through these two sources, primarily derived from the domestic market. Based in Cupertino, CA, the company employs about 170 people.
The company has five product candidates in phase II/III clinical trials. We are optimistic about an injectable sustained release local anesthetic product being developed with the SABER technology called Posidur (formerly known as SABER-bupivacaine). The product is designed to deliver up to 72 hours of site specific post-operative pain relief. In April 2006, the company reported results from its phase II Australian clinical study in hernia patients. The trial was conducted to evaluate safety, pharmacokinetics, pain intensity, pain relief among other parameters. Posidur demonstrated good safety and pharmacokinetics. In the patients with intermediate doses, Posidur also demonstrated better pain relief, lower pain intensity and reduced supplemental analgesic usage compared with the patients using commercial bupivacaine, the current standard of care, as measured during the first 4 days after treatment. In July 2007, Durect reported positive results from a placebo-controlled phase IIb trial conducted on hernia patients. Posidur showed statistically significant reductions in pain and total consumption of supplemental opioid analgesic medications compared to placebo. Posidur demonstrated a 30% better pain control versus placebo. Besides this, patients on Posidur used three times less narcotics compared to patients receiving placebo. The company will present these results at the American Hernia Society meeting in March 2008.
Management is conducting several phase II trials in the U.S. and in other countries in a variety of soft-tissue and orthopedic surgery models for the purpose of selecting the optimal dose and the pain models to be used for pivotal trials. Durect has completed enrollment in the majority of these trials. Data collection is underway in the trials that have completed enrollment. Following positive results from the phase IIb trial of Posidur, Durect is planning to move into phase III trials and is currently in discussions with the FDA regarding the phase III design. The successful phase IIb results triggered an $8 million milestone payment from Nycomed, Durect's development partner outside the U.S. We expect to see results from the other ongoing phase II trials later in 2007. Positive results from these trials will result in additional milestone payments from Nycomed, significantly reducing Durect's cash burn. Despite only having rights to the drug in the EU, Nycomed is paying 50% of the development costs associated with the program. We believe that Posidur may offer an improved tolerability and side-effect profile over oral opiate and non-opiate analgesics, as well as a longer duration of action than site-injectable local anesthetics. The company estimates that every year, about 32.5 million (107 million worldwide) surgery cases requiring the use of products like Posidur are conducted in the U.S. A 30% share in the U.S. market at a treatment cost of approximately $250 per procedure represents a significant commercial opportunity for the company. Durect plans to commercialize the product on its own in the U.S. and estimates that a specialty sales force of 100-150 reps will be sufficient for this purpose. We hope to learn more about the commercialization plans for Posidur in 2008.
Outside the U.S., Durect will rely on Nycomed. The duo signed a $202 million collaboration agreement in November 2006. Durect received $14 million upfront and $8 million so far for the completion of the phase IIb program. The potential exists that Durect can still earn $180 million as part of the collaboration. The balance will be due on the achievement of defined development, regulatory and sales milestones. Once the product is commercialized, Durect will receive blended royalties on sales in the defined territory of 15-40% depending on annual sales. We were pleased to hear about the collaboration agreement as it not only validated Durect's SABER technology, it will also help the company significantly reduce the cash burn associated with the development of Posidur. Moreover, Nycomed has an extensive hospital-based sales force and Posidur fits in well with Nycomed's existing portfolio of pain management and hospital products. Durect also entered into a long term manufacturing and supply agreement with Hospira Worldwide, Inc. for clinical and commercial supplies of Posidur on a worldwide basis. Hospira has provided the company with supplies needed for the phase III trials.
The collaboration with Pain Therapeutics, Inc. to develop and market long-acting oral opioid products using the ORADUR technology is also progressing well. As per the terms of the agreement, Durect will receive royalties based on net sales of Remoxy and other licensed ORADUR products of between 6.0% to 11.5% (depending on sales volume) and a manufacturing mark-up on key product excipients, in addition to payments upon achievement of development milestones and reimbursement of its development costs. The first product developed under the collaboration, Remoxy (an oral long-acting oxycodone capsule), should offer strong efficacy with the potential for reducing drug abuse, a problem that has plagued the U.S. for decades. In September 2005, Pain Therapeutics reported positive results from a phase III trial on Remoxy, which was conducted on more than 209 osteoarthritic patients suffering from moderate-to-severe pain. We were pleased to see the results which showed that patients on Remoxy experienced a statistically significant reduction in pain as compared to patients on placebo.
In February 2006, Durect reported the completion of a Special Protocol Assessment (SPA) with the FDA for Remoxy. The candidate is currently in a pivotal phase III trial, which was initiated in the first quarter of 2006. Enrollment of patients (n=400) was completed in July 2007. The randomized, double-blinded, placebo-controlled, multi-center trial is being conducted with patients suffering from moderate-to-severe osteoarthritic pain. Following a titration period, patients will be randomized to either Remoxy (10-80 mg daily) or placebo for 12 weeks. The primary endpoint is reduction in pain scores over three months compared to baseline. The SPA agreement will speed the development progress of Remoxy. As per the terms of the SPA agreement, only one pivotal phase III trial will be required for the NDA filing. Top-line results from this trial should be available in December 2007 and King remains on track to file an NDA for Remoxy in the first half of 2008. We believe Remoxy will have significant demand on approval.
We were also pleased to hear about the collaboration between Pain Therapeutics and King Pharmaceuticals, Inc (KG) for the development and commercialization of Remoxy and three other abuse-resistant opioids. All these opioids are being developed using Durect's ORADUR technology. We view this agreement as a positive development for Durect as it recognizes the commercial potential of the ORADUR technology. In November 2006, Durect reported positive phase I results on a second abuse-resistant opioid under this collaboration. The drug candidate, whose active pharmaceutical ingredient is yet to be disclosed, was found to be safe and well-tolerated. The company reported that the candidate's release profile appeared to be well suited for use with a chronic pain population. No unexpected adverse events were reported.
Durect signed a collaboration agreement with Voyager Pharmaceutical Corporation to develop a product for Alzheimer's disease utilizing the company s DURIN technology. The candidate, Memryte (leuprolide acetate), has been demonstrating effectiveness in slowing disease progression. We see this alliance as a positive development, and believe it should contribute to revenue growth going forward. Around 4-5 million Americans suffer from Alzheimer's disease (AD), creating a market potential of over $10 billion. Voyager conducted a phase II proof-of-concept trial using Memryte, and moved the candidate into pivotal phase III trials. However, in October 2006, Voyager ended the phase III trials earlier in order to get an earlier look at potential efficacy from over 600 patients. According to data presented by Voyager in May 2007, positive outcome trends were observed among women, but no positive effect was observed in men. Durect has not independently verified the data from the truncated phase III trial. Voyager now intends to focus its efforts on developing Memryte for the treatment of Alzheimer's disease in women and on seeking a potential partner for the program. As a reminder, two randomized, double-blind, placebo controlled trials were being conducted to evaluate the use of Memryte with acetyl cholinesterase inhibitors (ACIs) for the treatment of mild-to-moderate AD. Our model currently does not include any estimates for Memryte. A potential partner for the program coupled with greater clarity on the future development of Memryte will, therefore, present upside to the story. Durect also amended its agreement with Voyager. Under the amended agreement, Durect's royalty rate was increased to 10-14% of net sales of Memryte. Moreover, Durect will receive 10% of any upfront, milestone and other fees received by Voyager on any sublicenses for Memryte.
Perhaps the biggest potential we see at Durect is a transdermal sufentanil patch. Sufentanil is similar to Johnson & Johnson's billion-dollar transdermal patch Duragesic, but may offer distinct advantages in terms of size and length of application. The candidate is 1/5th the size, and could potentially be used for 7 days versus only 3 for Duragesic. This is definitely something to keep an eye on as development into later-stage trials progresses. Durect reported positive preliminary results from a phase II study in December 2005. Results showed that patients currently on Duragesic can switch over to sufentanil without experiencing any clinically relevant serious adverse events. The product also demonstrated rapid onset of action. Although we believe Sufentanil may offer big advantages over J&J's Duragesic, we are concerned that when patients and physicians are confronted with the price/size issue, price may weigh out. Duragesic is now becoming a widely available generic, and the price of these generic (bioequivalent) alternatives will be far less than Durect's product. Additionally, Duragesic comes in a number of sizes, and is not considered too big to begin with. Besides, many other companies are working on transdermal pain patches. We are concerned that pricing pressure and heavy competition may slow the uptake of Durect's product after its launch.
In June 2007, Endo Pharmaceuticals, Inc. (ENDP) commenced its phase II clinical program designed to evaluate the conversion of patients being treated with various opioids to Sufentanil patches utilizing Durect's Transdur technology. As a reminder, Durect entered into an agreement with ENDP (in March 2005) whereby ENDP will be responsible for the development of the product in the U.S. and Canada. According to the agreement, Durect received a $10 million upfront payment from ENDP and is entitled to receive additional milestone payments of $35 million going forward. This is a positive development for the company as it has helped reduce concerns about the company's cash burn rate. Meanwhile, Durect will be responsible for international development of the product and is currently working on a plan. We believe that the company will seek to enter into a licensing deal for this product in ex-U.S. territories.
Durect recently moved another candidate into phase II trials. Eladur (also known as TRANSDUR-Bupivacaine or DUR-843) is a transdermal pain patch which is being developed for patients suffering from Post-Herpetic Neuralgia (post-shingles pain or PHN). The product is intended to provide continuous delivery of bupivacaine for up to 3 days from a single application, as compared to a wearing time limited to 12 hours with currently available lidocaine patches. Results from a phase I trial were announced in December 2006. The candidate demonstrated good safety, tolerability and drug release for up to 3 days. A randomized, multi-center, double-blind, placebo controlled, two-way crossover phase IIa trial (n=50) is currently underway to assess the safety as well as the magnitude, duration and characteristics of analgesic activity of the candidate in patients with PHN. Patient enrollment was completed recently and data should be out by year-end. Durect has a long term manufacturing and supply agreement with Corium International, Inc., whereby the latter will provide clinical and commercial supplies of TRANSDUR-Bupivacaine on a worldwide basis. Corium conducted manufacturing development activities during the first quarter of 2007. We believe that Durect will seek to partner this product.
Finally, Durect's Chronogesic Pain therapy System (based on the DUROS technology) is being developed for patients suffering from chronic pain that is stable and opioid responsive and results from a variety of causes. Chronogesic consists of a small osmotic pump that is designed to deliver Sufentanil for a period of up to three months from a single application. If approved, Chronogesic will provide an alternative to current therapies for the treatment of chronic pain such as pills and patches, as well as providing the potential advantages of physician controlled dosing, improved patient compliance and convenience and reduced potential for opioid abuse. Chronogesic was in phase III trials when Durect announced its decision to stop all clinical testing of the product. The decision was based on findings from an animal study which showed that the premature shutdown problem (stop in the delivery of drug before the intended full duration of delivery) had not been resolved. Management stated that it was working on the system design and hoped to resume clinical trials in 2005. But so far the company has been unable to finalize the system design and resume the phase III trial.
The company is still working on bringing the product back into the clinic. We are optimistic about the Chronogesic candidate, but our visibility is limited on when Durect will resume the phase III trials. Company shares were punished hard on the delay, but have recovered most of the loss. We caution investors that Chronogesic may still be over two years from commercialization. Durect has licensed the product to Endo Pharmaceuticals in the U.S. and Canada.