DURECT Corporation (DRRX) is a late-stage biopharmaceutical company at the forefront of developing innovative epigenetic therapies to address a wide range of serious and life-threatening conditions. The company's leading drug candidate, larsucosterol, has shown promising results in clinical trials for the treatment of alcohol-associated hepatitis (AH), a severe liver condition with no approved therapies and high mortality rates.
Business Overview and History
DURECT was incorporated in the state of Delaware on February 6, 1998, starting out as a biopharmaceutical company focused on developing novel and proprietary pharmaceutical products. Over the years, the company has established itself as a pioneer in the field of epigenetics, a rapidly advancing area of science that focuses on the regulation of gene expression without altering the underlying DNA sequence. The company's core expertise lies in developing novel small-molecule epigenetic regulators, with larsucosterol as its lead program.
In its early years, DURECT developed POSIMIR, a novel post-surgical pain product that utilizes the company's SABER platform technology to enable continuous sustained delivery of bupivacaine, a local anesthetic, over three days in adults. POSIMIR received FDA approval in February 2021 for post-surgical pain reduction for up to 72 hours following arthroscopic subacromial decompression.
Throughout its history, DURECT has also developed and marketed ALZET osmotic pumps for animal research and certain key excipients that were included in other pharmaceutical products. The company has continued to manufacture and sell these product lines, though it does not plan to significantly increase its investments or efforts in these areas, as the company's core focus remains on developing and commercializing new pharmaceutical products.
DURECT has faced its share of challenges over the years, including a history of operating losses. As of September 30, 2024, the company had accumulated a deficit of $604.6 million. DURECT's research and development expenses have been significant as it has worked to advance its product candidates, including larsucosterol, through clinical trials. The company has had to navigate the regulatory landscape and has faced uncertainties related to future preclinical and clinical study results, as well as challenges associated with securing necessary funding to support its operations and drug development programs.
Larsucosterol and Clinical Trials
Larsucosterol, DURECT's lead drug candidate, is an endogenous, orally bioavailable small molecule that has demonstrated important regulatory functions in lipid metabolism, stress and inflammatory responses, and cell death and survival. The company is primarily focused on developing larsucosterol for the treatment of AH, a life-threatening acute liver condition with no approved therapies and a 90-day mortality rate of approximately 30%.
In November 2023, DURECT announced positive topline results from its Phase 2b AHFIRM trial, which evaluated the safety and efficacy of larsucosterol in 307 patients with severe AH. The trial showed clinically meaningful reductions in 90-day mortality of 41% and 35% for the 30mg and 90mg doses of larsucosterol, respectively, compared to placebo. Even more impressive results were observed in the U.S. patient population, which made up 76% of the trial enrollment, with 90-day mortality reductions of 57% and 58% for the 30mg and 90mg doses, respectively.
Encouraged by these positive results, DURECT plans to initiate a Phase 3 registrational trial for larsucosterol in AH as soon as it can secure sufficient funding. The company has already held a productive Type B meeting with the FDA under the Breakthrough Therapy Designation granted to larsucosterol, during which key aspects of the Phase 3 trial design were agreed upon. The proposed trial will enroll approximately 200 patients in the U.S. and use a 90-day survival endpoint as the primary outcome measure. DURECT aims to initiate the Phase 3 trial and present topline results within two years.
Other Products and Partnerships
In addition to its work on larsucosterol, DURECT previously developed POSIMIR, a novel non-opioid analgesic that utilizes the company's SABER platform technology to enable continuous sustained delivery of bupivacaine, a local anesthetic, over three days in adults. In December 2021, DURECT entered into a licensing agreement with Innocoll Pharmaceuticals to commercialize POSIMIR in the United States, but on November 8, 2024, the company received notice that Innocoll is terminating the agreement. DURECT is now evaluating next steps with respect to the commercialization of POSIMIR.
Financial Performance
DURECT operates through two main product segments: collaborative research and development/other revenue and product revenue.
For the fiscal year ended December 31, 2023, DURECT reported total revenues of $8.55 million, with a net loss of $27.62 million. The company's annual operating cash flow was negative $34.41 million, and its annual free cash flow was negative $34.47 million.
In the most recent quarter (Q3 2024), DURECT reported revenue of $1.93 million, up from $1.74 million in Q3 2023, representing a year-over-year growth of 11.5%. The increase was primarily due to higher product sales. The net loss for Q3 2024 was $4.29 million, compared to $3.02 million in Q3 2023.
Breaking down the revenue segments for the three months ended September 30, 2024:
1. Collaborative Research and Development/Other Revenue: This segment generated $369,000, down from $506,000 in the same period of 2023. The decrease was primarily due to lower earn-out revenue recognized from Indivior's sales of PERSERIS, partially offset by higher royalty revenue from Orient Pharma's sales of Methydur.
2. Product Revenue: This segment, which includes sales of ALZET osmotic pumps and certain excipients, generated $1.6 million, up from $1.2 million in the same period of 2023. The increase was primarily due to higher unit sales and higher pricing for the ALZET product line, as well as higher sales of the excipients.
Cost of product revenues for Q3 2024 was $513,000, up from $312,000 in Q3 2023, due to higher unit sales and higher inventory reserve recorded for the ALZET product line, as well as higher sales of the excipients.
Research and development expenses decreased significantly to $2.2 million in Q3 2024 from $7.2 million in Q3 2023, primarily due to lower clinical trial costs and employee-related expenses for larsucosterol as DURECT completed the AHFIRM trial.
Selling, general and administrative expenses also decreased to $3.2 million in Q3 2024 from $3.8 million in Q3 2023, primarily due to lower employee, audit, and patent expenses.
Liquidity
As of September 30, 2024, DURECT had cash, cash equivalents, and investments totaling $10.5 million, compared to $29.8 million as of December 31, 2023. The decrease was primarily due to cash used in ongoing operating activities and principal and interest payments on the company's term loan, partially offset by net proceeds from the sale of common stock under the 2021 Sales Agreement.
DURECT's financial position raises concerns about its ability to continue as a going concern. The company's debt-to-equity ratio stood at 11.29 as of December 31, 2023. DURECT has a $20 million secured term loan with Oxford Finance, of which $10.47 million was outstanding as of September 30, 2024. The current ratio and quick ratio as of September 30, 2024, were 0.71 and 0.60, respectively, indicating potential liquidity challenges.
The company will require additional financing to fund its operations and continue development of its product candidates, particularly the planned Phase 3 trial for larsucosterol. DURECT estimates that the Phase 3 trial will cost $20 million to $25 million in external costs, with an additional $3 million to $4 million per quarter in internal costs. The ability to secure adequate funding will be crucial for DURECT to advance its lead program and other pipeline assets.
Risks and Challenges
DURECT faces several key risks and challenges that investors should be aware of:
1. Dependence on larsucosterol: DURECT's success is heavily dependent on the successful development and commercialization of larsucosterol. Failure to obtain regulatory approval or demonstrate the expected clinical benefits of this lead asset would significantly impact the company's prospects.
2. Funding and liquidity concerns: DURECT's current cash position raises substantial doubt about its ability to continue as a going concern. The company's ability to raise additional capital on favorable terms, or at all, is critical to its future operations and pipeline development.
3. Competitive landscape: The AH market is highly competitive, and DURECT may face challenges from other therapies in development or potential future approvals, which could limit larsucosterol's commercial potential.
4. Regulatory and clinical trial risks: The company's clinical development programs, including the planned Phase 3 trial for larsucosterol, are subject to regulatory approval and the successful completion of clinical trials, both of which carry inherent risks and uncertainties.
5. Reliance on third-party collaborations: DURECT's ability to commercialize some of its products, such as POSIMIR, is dependent on successful partnerships and collaborations, the termination of which could adversely affect the company's financial performance and prospects.
Future Outlook and Guidance
DURECT is focused on advancing its lead drug candidate, larsucosterol, through clinical development. The company plans to initiate a confirmatory Phase 3 clinical trial of larsucosterol for the treatment of alcohol-associated hepatitis (AH) as soon as sufficient capital can be obtained. This randomized, double-blind, placebo-controlled, multi-center study will be conducted in the U.S. and enroll approximately 200 patients. Patients will be randomized 1-to-1 to receive either 30 mg of larsucosterol or placebo, with 90-day survival as the primary outcome measure.
The company expects to report top-line data from the Phase 3 trial within two years of initiating the trial. This timeline aligns with DURECT's strategy to rapidly advance larsucosterol towards potential regulatory approval and commercialization.
The AH market represents a significant opportunity for DURECT, with an estimated 160,000 hospitalizations per year in the U.S. and a 90-day mortality rate of approximately 30%. If approved, larsucosterol could potentially establish a new standard of care for AH patients, addressing a critical unmet medical need.
Conclusion
DURECT Corporation is a late-stage biopharmaceutical company pioneering the development of innovative epigenetic therapies, with a focus on its lead drug candidate, larsucosterol, for the treatment of alcohol-associated hepatitis. The promising results from the Phase 2b AHFIRM trial have set the stage for the planned Phase 3 registrational study, which the company aims to initiate as soon as it can secure the necessary funding.
While DURECT's financial position and liquidity concerns remain a significant challenge, the potential of larsucosterol to address the high unmet medical need in AH, coupled with the company's expertise in epigenetics, make it a compelling investment opportunity for those willing to navigate the inherent risks. The success of the upcoming Phase 3 trial and the company's ability to secure adequate funding will be critical factors in determining DURECT's future trajectory.
Investors should closely monitor DURECT's progress in securing funding, advancing its clinical programs, and capitalizing on the promising outlook for larsucosterol and its broader pipeline. The next two years will be crucial for DURECT as it seeks to validate larsucosterol's potential in a larger clinical trial and potentially establish a new standard of care in the treatment of alcohol-associated hepatitis.