JM: Sure. I've had the pleasure of covering DURECT Corp. (DRRX:NASDAQ) for a number of years. It's one of those names that has gotten caught in the derisking (market decline), and for valid reasons. The company has been around for a long time, and it has yet to get a drug across the finish line. It has hit multiple roadblocks at the FDA, and when that happens, people tend to sell first and ask questions later. But on Wall Street, things can go too far in one direction—both on the positive side and the negative side.
People are looking at DURECT's past, and that is obscuring what could be a transformative 2016/early 2017. The company's key asset, Remoxy (oxycodone), represents $2.50, or more than half, of our $4/share valuation for the company. It's an abuse-deterrent opioid product. I think investors, possibly for good reason based on the past history of Remoxy, are discounting this product, but perhaps too much at this point. Remoxy has been to the FDA and been rejected a couple of times. It's going back to the FDA for a third time in Q1/16. Remoxy is partnered with Pain Therapeutics Inc. (PTIE:NASDAQ), which is running the filing process. Our understanding is that Pain Therapeutics will get Remoxy filed in March, followed by a six-month response time. Pain Therapeutics plans to partner this product with a larger pharma. It is not going to launch Remoxy itself.
"More sentiment on the Street leans toward the belief that the worst may be behind us."
It's not unusual for products to get dinged, and that's particularly true for abuse-resistant products when they go to the FDA. This was one of the first abuse-resistant products that went to the agency. I was covering DURECT back then, and I remember there were questions about whether Remoxy's abuse resistance was even something wanted in the marketplace. The winds have shifted almost 180 degrees now—in fact, the FDA put out a public statement saying if you submit an opioid without abuse resistance, it is going to call a panel and figure out whether that should be approved. The winds are blowing in Remoxy's favor this go-around.
TLSR: It's interesting to note that DURECT is up ~35% over the past four weeks, which is phenomenal. The relative strength is far above the biotech indices, which are also strong right now. But I didn't see any particular news that moved these shares. Has a catalyst spurred DURECT over the past month?
JM: I think the increase was driven by word getting out that Pain Therapeutics was going to file the Remoxy new drug application (NDA). It's a near-term event now, and caught people by surprise.
TLSR: In your financial model, more than half of the company's implied valuation is attributed to Remoxy. But the company seems to be positioning its small molecule epigenetic inhibitor, DUR-928 for metabolic disorders, as a growth driver. Will DUR-928 be the market-moving candidate from this point on?
JM: DUR-928 certainly represents the nearest data we can expect. We're looking for multiple-ascending-dose Phase 1 data in Q1/16. We're also looking for Phase 1b data for DUR-928 in a nonalcoholic steatohepatitis in H2/16, and we expect initiation of a Phase 1b in acute kidney injury, with data, in H2/16. Some active data points will be coming around.
But DUR-928 is only $0.25 of our $4/share price target. It's a smaller part mostly because it will be a long time before this program sees the light of day in pivotal development. While it could be a dramatic growth driver for the company, there are other, nearer-term catalysts that are worth more to investors.
TLSR: If you look at the company's pipeline on its web page, DUR-928 is the first program listed, even with a couple of nearer-term NDAs in the wings. Do you have any thoughts on the emphasis the company seems to be giving this molecule?
JM: CEO Jim Brown likes to talk about DUR-928. There's not much new to say on Remoxy, which is really out of the company's hands now. Posimir (SABER-bupivacaine) for post-surgical pain is in Phase 3, so until those data come out, there's not really much news on that either.
"Larger pharmas stepping in to make acquisitions of smaller biotechs at these depressed levels would tip us off to a bottom in the space."
That said, the market potential for Posimir has been demonstrated by Pacira Pharmaceuticals' (PCRX:NASDAQ) Exparel (bupivacaine liposome injectable suspension), which has driven Pacira to more than a $1.7 billion ($1.7B) valuation, with $240 million ($240M) in sales last year. Before this market-derisking period, Pacira had more than a $3.5B valuation. Posimir could be a better product. It is not a liposomal formulated product like Exparel. It is not injected or infiltrated into the surgical wound; it is squirted on the wound. The analgesic effect could last for a couple of days, versus Exparel's duration of about 24 hours. Posimer could reduce the amount of narcotics patients are given after surgery. Those are points DURECT has been making all along, but nothing has really changed the valuation dramatically.
The newest change in its portfolio is DUR-928, and so the company is trying to get that word out to people. It is something new to talk about.
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