DURECT Corporation Announces Third Quarter 2010 Financial Results

Business Highlights:

•

REMOXY.  Our understanding is that King anticipates that in the fourth quarter of 2010 it will resubmit the NDA for REMOXY intended to address all FDA comments in the Complete Response Letter.  In July 2009, King met with the FDA to discuss the Complete Response Letter received in December 2008 regarding the REMOXY NDA.  Assuming Pfizer completes its acquisition of King, Pfizer will assume the development and commercialization rights and obligations to REMOXY.

REMOXY, an investigational drug, is a unique long acting oral formulation of oxycodone intended to treat moderate to severe pain. Based on DURECT's ORADUR® technology, which is covered by issued patents and pending patent applications owned by us, REMOXY is designed to resist common methods of prescription drug misuse and abuse.

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POSIDUR (SABER™-Bupivacaine) Post-Operative Pain Relief Depot.  In June 2010, we entered into an agreement with Hospira covering the development and commercialization of POSIDUR in the U.S. and Canada.  Under terms of the agreement, Hospira made an upfront payment to us of $27.5 million, with the potential for up to an additional $185 million in performance based milestone payments based on the successful development, approval and commercialization of POSIDUR.  For the U.S. and Canada, the two companies will jointly direct and equally fund the remaining development costs for POSIDUR, while Hospira will have exclusive commercialization rights with sole funding responsibility for commercialization activities.  In addition, if commercialized, Hospira will pay DURECT a royalty on product sales.

In the third quarter of 2010, we continued to enroll patients in our U.S. pivotal Phase III clinical study known as BESST (Bupivacaine Effectiveness and Safety in SABER Trial).  We expect to complete enrollment of BESST, comprising approximately 300 patients, in the first half of 2011.

POSIDUR is our post-operative pain relief depot that utilizes our patented SABER technology to deliver bupivacaine to provide up to three days of pain relief after surgery. POSIDUR is licensed to Hospira for commercialization in the U.S. and Canada, and to Nycomed for commercialization in Europe and other defined countries. We have retained commercialization rights in Japan and all other countries not subject to the Nycomed and Hospira licenses.

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ELADUR (TRANSDUR™-Bupivacaine).  In October 2008, worldwide rights to this program were licensed to Alpharma, which was acquired by King Pharmaceuticals in December 2008.  In April 2010, King Pharmaceuticals initiated a Phase IIb trial evaluating the safety and efficacy of ELADUR in patients with chronic low back pain.  King expects to enroll approximately 260 patients in this study and we expect to receive top-line results from that study in the first half of 2011.  Assuming Pfizer completes its acquisition of King, Pfizer will assume the development and commercialization rights and obligations to ELADUR.

ELADUR is our proprietary transdermal patch intended to deliver bupivacaine for a period of up to three days from each application.

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TRANSDUR-Sufentanil.  In February 2009, a successful end-of-Phase II meeting with the FDA was conducted for this program outlining a potential regulatory pathway for the Phase III program and NDA submission. During 2009, we transitioned the program back to our control.  We are in discussions with potential partners regarding licensing development and commercialization rights to this program to which we hold worldwide rights.

TRANSDUR-Sufentanil is our proprietary transdermal patch intended to deliver sufentanil to chronic pain sufferers for a period of up to seven days from a single application.

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ORADUR-ADHD Program.  In July 2010, we commenced a Phase I clinical trial in this program with multiple formulations. ORADUR-ADHD applies our proprietary ORADUR technology to a leading active pharmaceutical ingredient for the treatment of attention deficit disorder (ADHD). Under an agreement with Orient Pharma, we are collaborating to perform a clinical development program through a Phase II study intended to produce a data package that will support later stage development of the drug candidate and subsequent licensing by DURECT. We are responsible for formulation and study design of the pre-defined clinical program, which Orient Pharma will fund and execute.

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Therapeutic Discovery Tax Grant.  In October 2010, DURECT was notified that we have been awarded grants totaling $733,438 under the Patient Protection and Affordable Care Act of 2010 for three qualifying therapeutic discovery projects; we expect to receive this funding in the fourth quarter of 2010.

DURECT CORPORATION

STATEMENT OF OPERATIONS DATA

(in thousands, except per share amounts)

(Unaudited)

Three months ended

Nine months ended

September 30,

September 30,

2010

2009

2010

2009

Collaborative research and development and other revenue

$              5,689

$              3,027

$       14,162

$          9,545

Product revenue, net

2,427

5,351

8,933

10,037

Total revenues

8,116

8,378

23,095

19,582

Operating expenses:

Cost of product revenues (1)

859

2,834

3,098

4,495

Research and development (1)

8,142

7,598

26,767

25,534

Selling, general and administrative (1)

3,806

3,554

10,892

11,588

Total operating expenses

12,807

13,986

40,757

41,617

Loss from operations

(4,691)

(5,608)

(17,662)

(22,035)

Other income (expense):

Interest and other income

46

82

105

367

Interest and other expense

(2)

(9)

(25)

(31)

Net other income

44

73

80

336

Net loss

$            (4,647)

$            (5,535)

$     (17,582)

$      (21,699)

Net loss per share, basic and diluted

$              (0.05)

$              (0.07)

$         (0.20)

$          (0.26)

Shares used in computing basic and diluted net loss per share

86,892

82,781

86,832

82,317

(1) Includes stock-based compensation related to the following:

Cost of product revenues

$                   83

$                   91

$            253

$             286

Research and development

1,151

1,665

3,718

5,273

Selling, general and administrative

691

785

2,023

2,820

Total stock-based compensation

$              1,925

$              2,541

$         5,994

$          8,379

DURECT CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

As of

As of

September 30, 2010

December 31, 2009 (1)

(unaudited)

ASSETS

Current assets:

   Cash and cash equivalents

$                                         12,138

$                                           8,287

   Short-term investments

34,518

32,834

   Short-term restricted investments

66

-

   Accounts receivable

3,311

1,700

   Inventories

2,964

2,799

   Prepaid expenses and other current assets

1,676

1,433

Total current assets

54,673

47,053

Property and equipment, net

2,114

3,808

Goodwill

6,399

6,399

Intangible assets, net

76

108

Long-term investments

5,908

-

Long-term restricted Investments

367

431

Other long-term assets

288

352

Total assets

$                                         69,825

$                                         58,151

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

   Accounts payable

$                                              599

$                                           1,019

   Accrued liabilities

4,709

5,337

   Contract research liability

1,310

990

   Deferred revenue, current portion

8,079

4,703

   Other short-term liabilities

218

208

Total current liabilities

14,915

12,257

Deferred revenue, noncurrent portion

36,868

17,543

Other long-term liabilities

344

508

Stockholders' equity

17,698

27,843

Total liabilities and stockholders' equity

$                                         69,825

$                                         58,151

(1)  Derived from audited financial statements.