DURECT Corporation (NASDAQ:DRRX) is a biopharmaceutical company advancing novel and potentially lifesaving investigational therapies derived from its Epigenetic Regulator Program. The company's lead candidate, larsucosterol, has shown promising results in clinical trials for the treatment of alcohol-associated hepatitis (AH), a severe and life-threatening liver condition with no approved therapies.

Business Overview

DURECT is focused on developing larsucosterol, an endogenous, orally bioavailable small molecule that has demonstrated an important regulatory role in lipid metabolism, stress and inflammatory responses, and cell death and survival. The company is primarily advancing larsucosterol for the treatment of AH, a condition characterized by severe liver inflammation and dysfunction that often leads to high mortality rates.

In a recently completed Phase 2b clinical trial called AHFIRM, larsucosterol exhibited a compelling efficacy signal, with both the 30 mg and 90 mg doses demonstrating clinically meaningful trends in reducing mortality at 90 days compared to placebo. Notably, the reductions in 90-day mortality were even more pronounced in the U.S. patient population, which comprised 76% of the total enrollment. In the U.S. cohort, the 30 mg and 90 mg larsucosterol arms showed 57% and 58% reductions in 90-day mortality, respectively, versus placebo.

Larsucosterol also demonstrated an excellent safety profile, with fewer treatment-emergent adverse events in the active arms compared to placebo. These results reinforce the compelling risk/reward proposition of larsucosterol and its potential to become the first FDA-approved treatment for this devastating disease.

Financial Overview

For the full year 2023, DURECT reported annual revenue of $8.5 million and a net loss of $27.6 million. The company's annual operating cash flow was -$34.4 million, and its annual free cash flow was -$34.5 million. These financial results reflect the company's continued investment in the development of larsucosterol and other pipeline programs.

In the first quarter of 2024, DURECT generated total revenues of $1.8 million, down from $2.1 million in the same period of 2023. The decrease was primarily due to lower revenues from feasibility agreements and lower product sales. Research and development expenses were $4.1 million in Q1 2024, down from $8.6 million in Q1 2023, as the company reduced clinical trial-related expenses following the completion of the AHFIRM trial. Selling, general, and administrative expenses also decreased to $3.1 million in Q1 2024 from $4.1 million in the prior-year quarter, driven by lower market research, patent, and employee costs.

As of March 31, 2024, DURECT had cash, cash equivalents, and investments of $21.6 million, down from $29.8 million at the end of 2023. The company's cash burn for the first quarter of 2024 was $8.9 million, excluding net proceeds of approximately $650,000 from at-the-market (ATM) financing activities.

Larsucosterol Development and Regulatory Pathway

DURECT is currently working on the design of a planned registrational Phase 3 clinical trial for larsucosterol in AH, based on the FDA's feedback and the results from the completed AHFIRM trial. The company aims to initiate the Phase 3 trial as soon as possible, given the high unmet need and mortality rates associated with AH.

During a recent Type C meeting with the FDA, the agency provided guidance that a single successful Phase 3 trial could be sufficient to support a New Drug Application (NDA) filing for larsucosterol in AH. This represents an important milestone and validation of the drug candidate's potential.

The AHFIRM data has also been accepted for an oral late-breaker presentation at the upcoming European Association for the Study of the Liver (EASL) conference in June 2024. This will be DURECT's first opportunity to share the compelling AHFIRM results with the broader medical community, further building momentum for the larsucosterol development program.

Geographic and Revenue Breakdown

DURECT's revenues are primarily derived from two sources: collaborative research and development activities, as well as product sales. In the first quarter of 2024, the company's collaborative research and development and other revenue was $496,000, down from $643,000 in the same period of 2023. This decrease was mainly due to lower revenue recognized from feasibility agreements with other companies.

Product revenue, net, was $1.3 million in Q1 2024, compared to $1.4 million in Q1 2023. The slight decrease was attributable to lower sales of DURECT's ALZET osmotic pump product line and certain excipients included in other products.

Geographically, DURECT's revenues in the first quarter of 2024 were primarily derived from the United States ($973,000), Europe ($543,000), Japan ($147,000), and other regions ($164,000).

Liquidity and Capital Resources

As of March 31, 2024, DURECT had cash, cash equivalents, and investments of $21.6 million, down from $29.8 million at the end of 2023. The company's cash burn for the first quarter of 2024 was $8.9 million, excluding net proceeds of approximately $650,000 from ATM financing activities.

DURECT has concluded that substantial doubt exists about its ability to continue as a going concern for a period of at least 12 months from the date of issuance of its financial statements. The company will require additional financing to fund its operations, including the planned Phase 3 trial for larsucosterol in AH. DURECT is evaluating various financing options, such as public equity offerings, private equity financings, collaborative arrangements, and asset sales, to secure the necessary capital.

Risks and Outlook

DURECT's ability to continue as a going concern is dependent on its success in obtaining additional financing. Failure to raise sufficient capital could force the company to significantly curtail or discontinue its operations, which would have a material adverse effect on its business, financial condition, and prospects.

Despite the challenges, DURECT remains focused on advancing larsucosterol through the regulatory process. The compelling efficacy and safety data from the AHFIRM trial, coupled with the FDA's feedback on the potential path to NDA filing, position larsucosterol as a promising candidate to become the first approved treatment for AH, a disease with significant unmet medical need and a large commercial opportunity.

As DURECT works to initiate the Phase 3 trial for larsucosterol in AH, the company will continue to provide updates on the study design, timelines, and financing plans. The upcoming EASL presentation will also be a key milestone, as the company shares the AHFIRM data with the broader medical community. With the potential to transform the treatment landscape for AH patients, larsucosterol remains a key focus for DURECT and a promising investment opportunity for shareholders.