UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-31615 DURECT CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3297098 (State or other jurisdiction of inc ...

DURECT Corporation (NASDAQ:DRRX) Q3 2024 Earnings Conference Call November 13, 2024 4:30 PM ET Company Participants Jim Brown - Co-Founder, Chief Executive Officer, President, Director Tim Papp - Chief Financial Officer WeiQi Lin - Executive Vice President of Research and Development, Principal Scientist Conference Call Participants Thomas Yip - H.C. Wainwright Karl Burns - Northland Capital Markets Operator Greetings! And welcome to the DURECT Corporation Third Quarter 2024 Earnings Conference Call. At th ...

Durect (DRRX) came out with a quarterly loss of $0.14 per share versus the Zacks Consensus Estimate of a loss of $0.17. This compares to loss of $0.40 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 17.65%. A quarter ago, it was expected that this specialty pharmaceutical company would post a loss of $0.17 per share when it actually produced a loss of $0.12, delivering a surprise of 29.41%.Over the last four quarters, the comp ...

Exhibit 99.1 DURECT Corporation Reports Third Quarter 2024 Financial Results and Provides Business Update - Seeking to initiate Phase 3 registrational trial for larsucosterol with topline results expected within two years of initiation - Webcast of Earnings Call Today, November 13 at 4:30 p.m. ET CUPERTINO, Calif., November 13, 2024 /PRNewswire / -- DURECT Corporation (Nasdaq: DRRX) today announced financial results for the three months ended September 30, 2024 and provided a business update. "We remain foc ...

-     Seeking to initiate Phase 3 registrational trial for larsucosterol with topline results expected within two years of initiation-     Webcast of Earnings Call Today, November 13 at 4:30 p.m. ETCUPERTINO, Calif., Nov. 13, 2024 /PRNewswire/ -- DURECT Corporation (Nasdaq: DRRX) today announced financial results for the three months ended September 30, 2024 and provided a business update."We remain focused on preparations for the Phase 3 trial for larsucosterol in severe alcohol-associated hepatitis (AH), ...

CUPERTINO, Calif., Nov. 6, 2024 /PRNewswire/ -- DURECT Corporation (Nasdaq: DRRX), a late-stage biopharmaceutical company pioneering the development of epigenetic therapies to transform the treatment of serious and life-threatening conditions, including acute organ injury, today announced that the company will report its third quarter financial results on Wednesday, November 13, 2024. Management will also host a conference call and webcast with investors to discuss financial results and provide a corporate ...

CUPERTINO, Calif., Oct. 17, 2024 /PRNewswire/ -- DURECT Corporation (Nasdaq: DRRX), a late-stage biopharmaceutical company pioneering the development of epigenetic therapies to transform the treatment of serious and life-threatening conditions such as acute organ injury, today announce that it will deliver an oral and two poster presentations at The Liver Meeting 2024, organized by the American Association for the Study of Liver Diseases (AASLD), to be held November 15-19, 2024 in San Diego, California. The ...

- Type B meeting with FDA held under Breakthrough Therapy designation resulted in agreement on key aspects of Phase 3 trial design - Single Phase 3 trial designed to enroll 200 U.S. patients with a 90-day survival primary endpoint; topline results expected within two years of trial initiation - Protocol for Phase 3 trial builds on data from the AHFIRM Phase 2b trial; 30 mg and 90 mg doses of larsucosterol reduced 90-day mortality in U.S. patients by 57% and 58%, respectively, compared with placebo CUPERTINO ...

Core Insights - DURECT Corporation is a late-stage biopharmaceutical company focused on developing epigenetic therapies for serious conditions like acute organ injury and cancer [3] - The company will participate in the H.C. Wainwright 26th Annual Global Investment Conference from September 9-11, 2024, in New York City [1][2] Company Overview - DURECT's lead drug candidate, larsucosterol, targets dysregulated DNA methylation and is in clinical development for alcohol-associated hepatitis (AH) and metabolic dysfunction-associated steatohepatitis (MASH) [3] - Larsucosterol has received Fast Track and Breakthrough Therapy designations from the FDA for the treatment of AH [3] - POSIMIR®, a non-opioid analgesic developed using the SABER® platform technology, is FDA-approved and licensed to Innocoll Pharmaceuticals for distribution in the U.S. [3] Future Outlook - The company is exploring the potential of larsucosterol for various indications, with ongoing clinical trials [4]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents DURECT Corporation's unaudited condensed financial statements and related disclosures for the periods ended June 30, 2024 [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents DURECT Corporation's unaudited condensed financial statements for the periods ended June 30, 2024, and December 31, 2023, including balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes on significant accounting policies, strategic agreements, financial instruments, and other financial commitments [Condensed Unaudited Balance Sheets](index=5&type=section&id=Condensed%20Unaudited%20Balance%20Sheets) This section details DURECT Corporation's financial position, including assets, liabilities, and equity, as of June 30, 2024, and December 31, 2023 | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (vs. Dec 31, 2023) | | :---------------------------------- | :----------------------------- | :------------------------------- | :------------------------ | | Cash and cash equivalents | $15,646 | $28,400 | -$12,754 | | Short-term investments | - | $1,280 | -$1,280 | | Total current assets | $19,950 | $34,671 | -$14,721 | | Total assets | $29,854 | $45,189 | -$15,335 | | Accounts payable | $394 | $1,777 | -$1,383 | | Accrued liabilities | $4,670 | $5,966 | -$1,296 | | Term loan, current portion, net | $12,545 | $16,663 | -$4,118 | | Warrant liabilities | $3,020 | $1,224 | +$1,796 | | Total current liabilities | $21,928 | $27,011 | -$5,083 | | Stockholders' equity | $5,037 | $14,783 | -$9,746 | | Total liabilities and stockholders' equity | $29,854 | $45,189 | -$15,335 | [Condensed Unaudited Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Unaudited%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section outlines DURECT Corporation's revenues, expenses, and net loss for the three and six months ended June 30, 2024 and 2023 | Metric (in thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $2,171 | $2,081 | $3,998 | $4,135 | | Cost of product revenues | $356 | $359 | $645 | $747 | | Research and development | $2,247 | $7,946 | $6,366 | $16,539 | | Selling, general and administrative | $2,972 | $3,827 | $6,108 | $7,922 | | Loss from operations | $(3,404) | $(10,051) | $(9,121) | $(21,073) | | Net loss | $(3,700) | $(11,181) | $(11,343) | $(23,168) | | Basic Net loss per share | $(0.12) | $(0.46) | $(0.37) | $(0.96) | | Diluted Net loss per share | $(0.12) | $(0.46) | $(0.37) | $(0.96) | [Condensed Unaudited Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Unaudited%20Statements%20of%20Stockholders'%20Equity) This section details changes in DURECT Corporation's stockholders' equity, including common shares and accumulated deficit, for the six months ended June 30, 2024 | Metric (in thousands) | Balance at Dec 31, 2023 | Balance at June 30, 2024 | Change | | :-------------------------------------------------- | :---------------------- | :----------------------- | :----- | | Common Shares | 30,334 | 31,039 | +705 | | Additional Paid-In Capital | $603,780 | $605,370 | +$1,590 | | Accumulated Deficit | $(589,006) | $(600,349) | -$11,343 | | Total Stockholders' Equity | $14,783 | $5,037 | -$9,746 | [Condensed Unaudited Statements of Cash Flows](index=9&type=section&id=Condensed%20Unaudited%20Statements%20of%20Cash%20Flows) This section presents DURECT Corporation's cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(10,432) | $(18,606) | +$8,174 (less cash used) | | Net cash provided by (used in) investing activities | $1,313 | $(3,083) | +$4,396 (shift to provided) | | Net cash (used in) provided by financing activities | $(3,635) | $9,966 | -$13,601 (shift to used) | | Net decrease in cash, cash equivalents, and restricted cash | $(12,754) | $(11,723) | -$1,031 (larger decrease) | | Cash, cash equivalents, and restricted cash, end of period | $15,796 | $31,910 | -$16,114 | [Notes to Condensed Unaudited Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Unaudited%20Financial%20Statements) This section provides detailed explanations of DURECT Corporation's significant accounting policies, strategic agreements, and financial instrument valuations [Note 1. Summary of Significant Accounting Policies](index=9&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines DURECT Corporation's business operations, financial statement presentation basis, liquidity concerns, and key accounting practices [Nature of Operations](index=9&type=section&id=Nature%20of%20Operations) This section describes DURECT Corporation's focus on biopharmaceutical development for acute organ injury and chronic liver diseases, and its commercial products - DURECT Corporation is a biopharmaceutical company focused on acute organ injury and chronic liver diseases by advancing novel therapies based on its endogenous epigenetic regulator program[12](index=12&type=chunk) - Larsucosterol, the Company's lead drug candidate, is in clinical development for alcohol-associated hepatitis (AH) (FDA Fast Track and Breakthrough Therapy Designation) and metabolic dysfunction-associated steatohepatitis (MASH/NASH)[12](index=12&type=chunk) - The Company also commercializes POSIMIR® (bupivacaine solution) for post-surgical pain, licensed to Innocoll Pharmaceuticals for U.S. commercialization, and manufactures ALZET osmotic pumps and certain excipients[12](index=12&type=chunk) [Basis of Presentation](index=10&type=section&id=Basis%20of%20Presentation) This section clarifies that the condensed financial statements adhere to SEC rules and U.S. GAAP, with interim results not indicative of full-year performance - Condensed financial statements are prepared in accordance with SEC rules and U.S. GAAP, reflecting normal recurring adjustments[13](index=13&type=chunk) - Interim results are not necessarily indicative of results expected for any other interim period or the full fiscal year[13](index=13&type=chunk) [Liquidity and Need to Raise Additional Capital](index=10&type=section&id=Liquidity%20and%20Need%20to%20Raise%20Additional%20Capital) This section highlights DURECT Corporation's accumulated deficit and negative cash flows, indicating a need for additional capital to continue operations - As of June 30, 2024, the Company had an accumulated deficit of **$600.3 million** and negative cash flows from operating activities[14](index=14&type=chunk) - The Company does not have sufficient cash resources to meet its plans for the next twelve months, raising substantial doubt about its ability to continue as a going concern[14](index=14&type=chunk) - Management plans to seek additional collaborative agreements and financing activities (public/private offerings of common stock, preferred stock, debt)[14](index=14&type=chunk) [Inventories](index=10&type=section&id=Inventories) This section details the composition of DURECT Corporation's inventories, including raw materials, work in process, and finished goods, as of June 30, 2024 | Inventory Type (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Raw materials | $170 | $165 | | Work in process | $1,335 | $1,164 | | Finished goods | $969 | $890 | | Total inventories | $2,474 | $2,219 | [Leases](index=12&type=section&id=Leases) This section describes DURECT Corporation's accounting for operating leases, including right-of-use assets and liabilities, and the weighted-average remaining lease term - The Company recognizes an operating lease right-of-use asset and corresponding operating lease liability for its leased properties in accordance with ASC 842[17](index=17&type=chunk) - As of June 30, 2024, the weighted-average remaining lease term was **3.10 years**[17](index=17&type=chunk) [Revenue Recognition](index=12&type=section&id=Revenue%20Recognition) This section explains DURECT Corporation's policies for recognizing product revenue and collaborative research and development revenue, including regional breakdowns - Product revenue, net, is generated from ALZET osmotic pumps and certain excipients, recognized when the customer obtains control, typically upon shipment[18](index=18&type=chunk) - Collaborative research and development and other revenue stems from license agreements, including upfront fees, development cost reimbursements, milestone payments, manufacturing supply services, and royalties/earn-outs[19](index=19&type=chunk) | Region | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $1,182 | $1,143 | $2,155 | $2,421 | | Europe | $644 | $613 | $1,187 | $1,044 | | Japan | $140 | $112 | $287 | $282 | | Other | $205 | $213 | $369 | $388 | | **Total** | **$2,171** | **$2,081** | **$3,998** | **$4,135** | [Prepaid and Accrued Clinical Costs](index=15&type=section&id=Prepaid%20and%20Accrued%20Clinical%20Costs) This section details DURECT Corporation's methodology for estimating and accruing costs for unbilled third-party clinical services - The Company estimates costs for unbilled third-party clinical services by reviewing contract terms, purchase orders, and discussing with internal clinical personnel and service providers[22](index=22&type=chunk) [Prepaid and Accrued Manufacturing Costs](index=15&type=section&id=Prepaid%20and%20Accrued%20Manufacturing%20Costs) This section details DURECT Corporation's methodology for estimating and accruing costs for unbilled third-party manufacturing services - The Company estimates costs for unbilled third-party manufacturing services based on contract terms, purchase orders, and discussions with internal personnel and service providers[23](index=23&type=chunk) [Research and Development Expenses](index=15&type=section&id=Research%20and%20Development%20Expenses) This section outlines the components of DURECT Corporation's research and development costs, which are expensed as incurred - Research and development costs are expensed as incurred, primarily comprising salaries, benefits, overhead, facility costs, preclinical/non-clinical development, clinical trial costs, and contract services[24](index=24&type=chunk) [Comprehensive Loss](index=15&type=section&id=Comprehensive%20Loss) This section clarifies that DURECT Corporation's other comprehensive loss components are solely from unrealized gains and losses on available-for-sale securities - Components of other comprehensive loss are entirely comprised of unrealized gains and losses on the Company's available-for-sale securities[25](index=25&type=chunk) [Common Stock Warrants](index=15&type=section&id=Common%20Stock%20Warrants) This section explains DURECT Corporation's accounting treatment for common stock warrants as current liabilities, including valuation methods - Common stock warrants and pre-funded warrants are accounted for as current liabilities if they fail equity classification criteria under ASC 480 and ASC 815[26](index=26&type=chunk) - These warrants are initially recorded at fair value and remeasured at each balance sheet date, with adjustments recorded in the statements of operations[26](index=26&type=chunk) - Valuation is performed using the Black-Scholes option pricing model or Monte-Carlo simulation model[26](index=26&type=chunk) [Net Loss Per Share](index=15&type=section&id=Net%20Loss%20Per%20Share) This section presents DURECT Corporation's basic and diluted net loss per share calculations, including the impact of anti-dilutive securities | Metric (in thousands, except per share) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(3,700) | $(11,181) | $(11,343) | $(23,168) | | Weighted average shares outstanding - basic | 31,038 | 24,508 | 30,838 | 24,140 | | Net loss per share - basic | $(0.12) | $(0.46) | $(0.37) | $(0.96) | | Weighted average shares used to compute diluted net loss per share | 31,038 | 24,508 | 30,838 | 24,377 | | Net loss per share - diluted | $(0.12) | $(0.46) | $(0.37) | $(0.96) | - Options to purchase approximately **3.8 million** and **3.9 million** shares of common stock were excluded from diluted net loss per share calculations for the three and six months ended June 30, 2024, respectively, as they were anti-dilutive[29](index=29&type=chunk) - Common warrants to purchase **3.6 million** shares were excluded from diluted net loss per share calculations for both the three and six months ended June 30, 2024, as they were anti-dilutive[29](index=29&type=chunk) [Recent Accounting Pronouncements](index=16&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses DURECT Corporation's evaluation of new accounting standards related to segment reporting and income taxes - The Company is evaluating the impact of ASU 2023-07 (Segment Reporting), effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024[30](index=30&type=chunk) - The Company is evaluating the impact of ASU 2023-09 (Income Taxes), effective for annual periods beginning after December 15, 2024[30](index=30&type=chunk) [Note 2. Strategic Agreements](index=16&type=section&id=Note%202.%20Strategic%20Agreements) This note details DURECT Corporation's key licensing and patent agreements, including revenue streams and recent developments - Collaborative research and development and other revenues were **$606,000** and **$1.1 million** for the three and six months ended June 30, 2024, respectively, compared to **$508,000** and **$1.2 million** for the corresponding periods in 2023[31](index=31&type=chunk) - Revenue included earn-out from Indivior (PERSERIS), feasibility programs, R&D activities funded by collaborators, and royalty revenue from Orient Pharma (Methydur)[31](index=31&type=chunk) [Agreement with Innocoll](index=18&type=section&id=Agreement%20with%20Innocoll) This section outlines DURECT Corporation's exclusive licensing agreement with Innocoll Pharmaceuticals for POSIMIR® and potential milestone payments - The Company granted Innocoll Pharmaceuticals an exclusive license to develop, manufacture, and commercialize POSIMIR® in the United States[32](index=32&type=chunk) - The Company receives tiered royalties on net product sales of POSIMIR in the U.S. and may earn up to **$122.0 million** in additional milestone payments[32](index=32&type=chunk) - No revenues were recognized related to the Innocoll Agreement for the three and six months ended June 30, 2024 and 2023[32](index=32&type=chunk) [Patent Purchase Agreement with Indivior](index=18&type=section&id=Patent%20Purchase%20Agreement%20with%20Indivior) This section describes DURECT Corporation's patent assignment to Indivior for PERSERIS and the associated earn-out payments, now impacted by discontinuation - The Company assigned certain patents for PERSERIS to Indivior in 2017, receiving **$17.5 million** in upfront and milestone payments[33](index=33&type=chunk) - The Company receives quarterly earn-out payments based on a single-digit percentage of U.S. net sales of PERSERIS into 2026[33](index=33&type=chunk) - Indivior announced discontinuation of sales and marketing for PERSERIS in July 2024 due to market competition[33](index=33&type=chunk) [Note 3. Financial Instruments](index=18&type=section&id=Note%203.%20Financial%20Instruments) This note describes DURECT Corporation's financial instruments, including fair value hierarchy and available-for-sale securities [Fair Value Hierarchy](index=18&type=section&id=Fair%20Value%20Hierarchy) This section explains DURECT Corporation's classification of financial instruments into a three-level fair value hierarchy based on input observability - The Company uses a fair value hierarchy with three levels of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[34](index=34&type=chunk) - Money market funds are classified as Level 1; certificates of deposit, commercial paper, municipal bonds, corporate debt securities, and U.S. Government agency securities are classified as Level 2[34](index=34&type=chunk) [Available-for-Sale Securities](index=20&type=section&id=Available-for-Sale%20Securities) This section provides a breakdown of DURECT Corporation's available-for-sale securities by amortized cost and fair value, noting unrealized losses | (in thousands) | Amortized Cost (June 30, 2024) | Estimated Fair Value (June 30, 2024) | Amortized Cost (Dec 31, 2023) | Estimated Fair Value (Dec 31, 2023) | | :-------------------------- | :----------------------------- | :----------------------------------- | :---------------------------- | :---------------------------------- | | Money market funds | $1,165 | $1,165 | $951 | $951 | | Certificates of deposit | $150 | $150 | $150 | $150 | | Commercial paper | $12,821 | $12,814 | $24,896 | $24,882 | | **Total** | **$14,136** | **$14,129** | **$25,997** | **$25,983** | - Unrealized losses on available-for-sale investments are considered temporary and not attributed to credit risk, with the Company believing investments will be held until maturity or recovery of cost basis[37](index=37&type=chunk) [Warrant Liabilities](index=20&type=section&id=Warrant%20Liabilities) This section details the fair value and changes in DURECT Corporation's warrant liabilities from February and July 2023 issuances | (in thousands) | Fair Value at June 30, 2024 | Fair Value at Dec 31, 2023 | | :-------------------------------------------------- | :-------------------------- | :------------------------- | | February 2023 issuance (Common warrants) | $714 | $312 | | July 2023 issuance (Common warrants) | $2,306 | $912 | | **Total fair value at end of period** | **$3,020** | **$1,224** | [February 2023 Warrants](index=21&type=section&id=February%202023%20Warrants) This section details the exercise status and remaining outstanding common warrants from DURECT Corporation's February 2023 issuance - All **300,000** pre-funded warrants issued in February 2023 were exercised in November 2023, resulting in zero outstanding as of June 30, 2024[40](index=40&type=chunk) - **1,400,000** common warrants issued in February 2023 were exercised in September 2023 via cashless exercise, with **600,000** shares remaining outstanding as of June 30, 2024, at an adjusted exercise price of **$0.51** per share[42](index=42&type=chunk)[43](index=43&type=chunk) [July 2023 Warrants](index=23&type=section&id=July%202023%20Warrants) This section details the outstanding common warrants from DURECT Corporation's July 2023 issuance and the change in their estimated fair value - **2,991,027** common warrants issued in July 2023 remain outstanding as of June 30, 2024, with an exercise price of **$4.89** per share, and no exercises have occurred to date[46](index=46&type=chunk) - The estimated fair value of these common warrants increased by **$1.4 million** for the six months ended June 30, 2024[61](index=61&type=chunk) [Note 4. Accrued Liabilities](index=23&type=section&id=Note%204.%20Accrued%20Liabilities) This note provides a breakdown of DURECT Corporation's accrued liabilities, including contract research, manufacturing, and compensation costs | Accrued Liability (in thousands) | June 30, 2024 | December 31, 2023 | | :------------------------------------------ | :------------ | :---------------- | | Accrued contract research and manufacturing costs | $2,899 | $2,340 | | Accrued compensation and benefits | $1,056 | $1,320 | | Accrued clinical costs | $68 | $1,578 | | Others | $647 | $728 | | **Total** | **$4,670** | **$5,966** | [Note 5. Stock-Based Compensation](index=23&type=section&id=Note%205.%20Stock-Based%20Compensation) This note details DURECT Corporation's stock-based compensation expenses across various functional areas for the reported periods | (in thousands) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of product revenues | $4 | $5 | $8 | $9 | | Research and development | $164 | $301 | $376 | $593 | | Selling, general and administrative | $266 | $353 | $559 | $659 | | **Total stock-based compensation** | **$434** | **$659** | **$943** | **$1,261** | - No stock options were granted to employees for the three and six months ended June 30, 2024[49](index=49&type=chunk) [Note 6. Term Loan](index=25&type=section&id=Note%206.%20Term%20Loan) This note describes DURECT Corporation's secured term loan, its interest rate, principal payments, and reclassification to current liabilities due to liquidity concerns - The Company has a **$20.0 million** secured term loan with Oxford Finance LLC, maturing on September 1, 2025, with a floating interest rate of **12.74%** as of June 30, 2024[52](index=52&type=chunk) - Principal payments of **$2.1 million** and **$4.3 million** were made for the three and six months ended June 30, 2024, respectively[52](index=52&type=chunk) - The term loan is classified as a current liability due to repayment obligations, recurring losses, liquidity concerns, and a subjective acceleration clause[53](index=53&type=chunk) | Future Maturities (in thousands) | Amount | | :------------------------------------------ | :----- | | Six months ending December 31, 2024 | $4,286 | | 2025 | $8,428 | | **Total minimum payments** | **$12,714** | [Note 7. Commitments (Operating Leases)](index=26&type=section&id=Note%207.%20Commitments%20(Operating%20Leases)) This note outlines DURECT Corporation's operating lease arrangements for facilities and future minimum payment obligations - The Company has lease arrangements for facilities in Cupertino, CA (office, laboratory, manufacturing) and Vacaville, CA (manufacturing), with lease expirations in 2027 and 2028, respectively[56](index=56&type=chunk) - Rent expenses were **$345,000** and **$805,000** for the three and six months ended June 30, 2024, respectively, compared to **$478,000** and **$957,000** for the corresponding periods in 2023[56](index=56&type=chunk) | Future Minimum Payments (in thousands) | Operating Leases | | :------------------------------------------ | :--------------- | | Six months ending December 31, 2024 | $683 | | 2025 | $1,401 | | 2026 | $1,443 | | 2027 | $432 | | 2028 | $227 | | **Total** | **$4,186** | [Note 8. Stockholders' Equity](index=27&type=section&id=Note%208.%20Stockholders'%20Equity) This note details DURECT Corporation's equity transactions, including registered direct offerings and ATM financings, and their impact on capital [Registered Direct Offerings](index=27&type=section&id=Registered%20Direct%20Offerings) This section details DURECT Corporation's February and July 2023 registered direct offerings, including shares issued, warrants, and net proceeds - In February 2023, the Company issued **1,700,000** common shares, pre-funded warrants for **300,000** shares, and common warrants for **2,000,000** shares, generating net proceeds of approximately **$8.8 million**[58](index=58&type=chunk) - Pre-funded and common warrants were classified as current liabilities due to potential cash settlement features and anti-dilution provisions[58](index=58&type=chunk) - In July 2023, the Company issued **2,991,027** common shares and accompanying common warrants for **2,991,027** shares, generating net proceeds of approximately **$13.9 million**[60](index=60&type=chunk) - Common warrants from the July 2023 offering were classified as current liabilities due to features protecting holders against stock price reductions in fundamental transactions[61](index=61&type=chunk) [ATM Financings](index=31&type=section&id=ATM%20Financings) This section describes DURECT Corporation's "at-the-market" financing activities, including common stock sales and available capacity under SEC rules - During the six months ended June 30, 2024, the Company raised net proceeds of approximately **$648,000** from the sale of **702,090** common shares in the open market[62](index=62&type=chunk) - As of August 9, 2024, **$72.7 million** of common stock is available for sale under the 2021 Sales Agreement, but limited to approximately **$18.1 million** due to SEC's "baby shelf" rules[62](index=62&type=chunk)[84](index=84&type=chunk) [Note 9. Subsequent Events](index=31&type=section&id=Note%209.%20Subsequent%20Events) This note confirms that DURECT Corporation reported no significant subsequent events after the balance sheet date - No significant subsequent events were reported[62](index=62&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on DURECT Corporation's financial condition and results of operations for the three and six months ended June 30, 2024. It highlights the company's focus on its Epigenetic Regulator Program, particularly larsucosterol for alcohol-associated hepatitis (AH), and discusses revenue streams, operating expenses, and liquidity challenges, including the substantial doubt about its ability to continue as a going concern [Overview](index=32&type=section&id=Overview) This section provides a high-level summary of DURECT Corporation's biopharmaceutical focus, lead drug candidate larsucosterol, and commercial products - DURECT is a biopharmaceutical company advancing investigational therapies from its Epigenetic Regulator Program, with larsucosterol as the lead candidate for acute organ injury and chronic liver diseases[63](index=63&type=chunk) - Larsucosterol's Phase 2b AHFIRM trial for alcohol-associated hepatitis (AH) showed clinically meaningful trends in 90-day mortality reduction: **41%** (p=0.068) in the 30mg arm and **57%** (p=0.014) in U.S. patients[63](index=63&type=chunk) - The FDA granted Breakthrough Therapy Designation (BTD) to larsucosterol for AH in May 2024, and the Company plans to initiate a Phase 3 trial in 2024, subject to funding, with topline results expected by H2 2026[63](index=63&type=chunk) - POSIMIR®, an FDA-approved post-surgical pain product, is exclusively licensed to Innocoll Pharmaceuticals for U.S. commercialization, and the Company receives earn-out payments from Indivior's PERSERIS® (sales discontinued in July 2024) and royalties from Orient Pharma's Methydur[63](index=63&type=chunk) [Critical Accounting Estimates](index=34&type=section&id=Critical%20Accounting%20Estimates) This section identifies DURECT Corporation's key accounting estimates, such as revenue recognition and warrant valuation, noting no material changes - Significant accounting estimates include revenue recognition, prepaid and accrued clinical costs, prepaid and accrued manufacturing costs, and valuation of warrant liabilities[68](index=68&type=chunk) - There have been no material changes to critical accounting estimates compared to the Annual Report on Form 10-K for the year ended December 31, 2023[68](index=68&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section analyzes DURECT Corporation's financial performance, including revenue, cost of product, and operating expenses, for the reported periods - The Company reported net losses of **$3.7 million** and **$11.3 million** for the three and six months ended June 30, 2024, respectively, compared to **$11.2 million** and **$23.2 million** for the corresponding periods in 2023, reflecting reduced operating expenses[67](index=67&type=chunk) - Accumulated deficit reached **$600.3 million** as of June 30, 2024, with expectations of continuing losses and negative cash flows[67](index=67&type=chunk) [Collaborative Research and Development and Other Revenue](index=34&type=section&id=Collaborative%20Research%20and%20Development%20and%20Other%20Revenue) This section analyzes changes in DURECT Corporation's collaborative R&D and other revenue, noting impacts from strategic agreements - Collaborative R&D and other revenue increased to **$606,000** for the three months ended June 30, 2024 (from **$508,000** in 2023) due to higher earn-out from Indivior and royalty from Orient Pharma[69](index=69&type=chunk) - For the six months ended June 30, 2024, this revenue decreased to **$1.1 million** (from **$1.2 million** in 2023) primarily due to lower revenue from feasibility agreements, partially offset by Indivior earn-out and Orient Pharma royalty[69](index=69&type=chunk)[70](index=70&type=chunk) - This revenue is expected to decrease in the near term due to Indivior's discontinuation of PERSERIS sales and marketing[69](index=69&type=chunk) [Product Revenue, Net](index=35&type=section&id=Product%20Revenue,%20Net) This section analyzes DURECT Corporation's net product revenues, primarily from ALZET osmotic pumps and excipients, for the reported periods - Net product revenues were **$1.6 million** for the three months ended June 30, 2024 (approximately stable year-over-year)[71](index=71&type=chunk) - For the six months ended June 30, 2024, net product revenues decreased to **$2.9 million** (from **$3.0 million** in 2023) due to lower ALZET osmotic pump sales, partially offset by higher excipient sales[71](index=71&type=chunk) [Cost of Product Revenues](index=35&type=section&id=Cost%20of%20Product%20Revenues) This section analyzes DURECT Corporation's cost of product revenues, primarily influenced by ALZET product line unit sales - Cost of product revenues was **$356,000** for the three months ended June 30, 2024 (approximately stable year-over-year)[72](index=72&type=chunk) - For the six months ended June 30, 2024, cost of product revenues decreased to **$645,000** (from **$747,000** in 2023) primarily due to lower ALZET product line unit sales[72](index=72&type=chunk) [Research and Development](index=35&type=section&id=Research%20and%20Development) This section analyzes the significant decrease in DURECT Corporation's R&D expenses, primarily due to reduced larsucosterol clinical trial costs and employee-related expenses - Research and development expenses decreased significantly to **$2.2 million** (3 months) and **$6.4 million** (6 months) for June 30, 2024, from **$7.9 million** and **$16.5 million** in 2023, respectively[73](index=73&type=chunk) - The decrease was primarily due to lower clinical trial-related expenses for larsucosterol following the completion of the AHFIRM trial and reduced employee-related costs across all programs[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - The number of R&D employees decreased from **38** as of June 30, 2023, to **18** as of June 30, 2024[73](index=73&type=chunk) [Larsucosterol](index=36&type=section&id=Larsucosterol) This section details the decrease in R&D expenses for DURECT Corporation's lead drug candidate, larsucosterol, following clinical trial completion - R&D expenses for larsucosterol decreased to **$2.2 million** (3 months) and **$6.3 million** (6 months) for June 30, 2024, from **$7.2 million** and **$14.7 million** in 2023, respectively[76](index=76&type=chunk) - Decreases were primarily due to lower clinical trial-related expenses following the completion of the AHFIRM trial and reduced employee-related costs[76](index=76&type=chunk) [Depot injectable programs](index=36&type=section&id=Depot%20injectable%20programs) This section details the significant decrease in R&D expenses for DURECT Corporation's depot injectable programs due to lower costs - R&D expenses for depot injectable programs decreased to **zero** (3 months) and **$2,000** (6 months) for June 30, 2024, from **$3,000** and **$319,000** in 2023, respectively[77](index=77&type=chunk) - Decreases were primarily due to lower employee-related costs and outside expenses[77](index=77&type=chunk) [Other DURECT research programs](index=36&type=section&id=Other%20DURECT%20research%20programs) This section details the decrease in R&D expenses for DURECT Corporation's other research programs due to reduced costs - R&D expenses for other programs decreased to **$26,000** (3 months) and **$98,000** (6 months) for June 30, 2024, from **$768,000** and **$1.5 million** in 2023, respectively[78](index=78&type=chunk) - Decreases were primarily due to lower employee-related costs and outside expenses[78](index=78&type=chunk) [Selling, General and Administrative](index=36&type=section&id=Selling,%20General%20and%20Administrative) This section analyzes the decrease in DURECT Corporation's SG&A expenses, primarily driven by lower employee and audit-related costs - Selling, general and administrative expenses decreased to **$3.0 million** (3 months) and **$6.1 million** (6 months) for June 30, 2024, from **$3.8 million** and **$7.9 million** in 2023, respectively[78](index=78&type=chunk) - The decreases were primarily due to lower employee expenses, audit-related expenses, and market research expenses[78](index=78&type=chunk) - The number of SG&A employees decreased from **24** as of June 30, 2023, to **22** as of June 30, 2024[78](index=78&type=chunk) [Other Income (Expense)](index=36&type=section&id=Other%20Income%20(Expense)) This section analyzes DURECT Corporation's other income and expenses, including interest income, interest expense, and changes in warrant liabilities - Net other expense was **$296,000** (3 months) and **$2.2 million** (6 months) for June 30, 2024, compared to **$1.1 million** and **$2.1 million** for the corresponding periods in 2023[78](index=78&type=chunk) [Interest and other income](index=36&type=section&id=Interest%20and%20other%20income) This section analyzes the decrease in DURECT Corporation's interest income due to lower cash and investment balances - Interest income decreased to **$227,000** (3 months) and **$548,000** (6 months) for June 30, 2024, from **$511,000** and **$1.0 million** in 2023, primarily due to lower cash, cash equivalents, and investments balances[78](index=78&type=chunk) [Interest expense](index=36&type=section&id=Interest%20expense) This section analyzes the decrease in DURECT Corporation's interest expense, primarily due to reduced principal balances on the term loan - Interest expense decreased to **$445,000** (3 months) and **$974,000** (6 months) for June 30, 2024, from **$749,000** and **$1.5 million** in 2023, primarily due to lower principal balances on the term loan[79](index=79&type=chunk) [Change in fair value of warrant liabilities](index=36&type=section&id=Change%20in%20fair%20value%20of%20warrant%20liabilities) This section details the non-cash losses recorded by DURECT Corporation due to changes in the fair value of its common stock warrants - For the three months ended June 30, 2024, a non-cash loss of **$42,000** was recorded for February 2023 common warrants and a non-cash loss of **$36,000** for July 2023 common warrants[80](index=80&type=chunk) - For the six months ended June 30, 2024, a non-cash loss of **$402,000** was recorded for February 2023 common warrants and a non-cash loss of **$1.4 million** for July 2023 common warrants[81](index=81&type=chunk) [Issuance cost for warrants](index=38&type=section&id=Issuance%20cost%20for%20warrants) This section notes that DURECT Corporation incurred no issuance costs for warrants during the current reporting periods - Issuance cost for warrants was **zero** for both the three and six months ended June 30, 2024, compared to **$1.2 million** for the six months ended June 30, 2023[81](index=81&type=chunk) [Loss on issuance of warrants](index=38&type=section&id=Loss%20on%20issuance%20of%20warrants) This section notes that DURECT Corporation recorded no loss on the issuance of warrants during the current reporting periods - Loss on issuance of warrants was **zero** for both the three and six months ended June 30, 2024, compared to **$2.0 million** for the six months ended June 30, 2023[81](index=81&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses DURECT Corporation's cash position, cash flow trends, and the substantial doubt about its ability to continue as a going concern - Cash, cash equivalents, and investments totaled **$15.8 million** at June 30, 2024, a decrease from **$29.8 million** at December 31, 2023[82](index=82&type=chunk) - The decrease was primarily due to cash used in operating activities and principal/interest payments on the term loan, partially offset by **$648,000** from common stock sales[82](index=82&type=chunk) - The Company does not have sufficient cash resources for its planned operations and commitments for the next 12 months, raising substantial doubt about its ability to continue as a going concern[85](index=85&type=chunk) [Cash Flows](index=38&type=section&id=Cash%20Flows) This section analyzes DURECT Corporation's cash flow changes across operating, investing, and financing activities for the six months ended June 30, 2024 - Net cash used in operating activities decreased to **$10.4 million** for the six months ended June 30, 2024, from **$18.6 million** in 2023, primarily due to lower R&D and SG&A costs[83](index=83&type=chunk) - Net cash provided by investing activities was **$1.3 million** for the six months ended June 30, 2024, a shift from **$3.1 million** used in 2023, due to increased maturities and decreased purchases of available-for-sale securities[83](index=83&type=chunk) - Net cash used in financing activities was **$3.6 million** for the six months ended June 30, 2024, a shift from **$10.0 million** provided in 2023, due to no cash proceeds from registered direct financings and higher term loan principal payments[83](index=83&type=chunk) [Shelf Registration Statement](index=38&type=section&id=Shelf%20Registration%20Statement) This section details DURECT Corporation's common stock sales under its ATM financing and the remaining capacity under its shelf registration - The Company raised approximately **$648,000** from common stock sales under the 2021 Sales Agreement during the six months ended June 30, 2024[83](index=83&type=chunk) - As of June 30, 2024, **$222.7 million** of securities were available under the 2021 Registration Statement, but only approximately **$18.1 million** of common stock is available for sale due to SEC's "baby shelf" rules[84](index=84&type=chunk) [Term Loan](index=40&type=section&id=Term%20Loan) This section describes DURECT Corporation's secured term loan, its interest rate, and its reclassification to current liabilities due to going concern issues - The **$20.0 million** secured term loan with Oxford Finance, maturing September 1, 2025, has a floating interest rate of **12.74%** as of June 30, 2024[84](index=84&type=chunk) - The term loan was reclassified to current liabilities due to recurring losses, liquidity concerns, and a subjective acceleration clause in the Loan Agreement[84](index=84&type=chunk) [Going Concern](index=40&type=section&id=Going%20Concern) This section highlights the substantial doubt about DURECT Corporation's ability to continue as a going concern and management's plans to raise capital - Substantial doubt exists about the Company's ability to continue as a going concern for one year from the issuance of financial statements due to insufficient cash resources and recurring losses[85](index=85&type=chunk) - Management plans to raise additional capital through public/private equity/debt financings, collaborative arrangements, or asset sales[85](index=85&type=chunk)[86](index=86&type=chunk) - Inability to obtain required funding could materially adversely affect operations and strategic development, potentially leading to cessation of operations[87](index=87&type=chunk) [Human Capital](index=42&type=section&id=Human%20Capital) This section provides a breakdown of DURECT Corporation's employee count across different functional areas as of August 9, 2024 - As of August 9, 2024, the Company had **47** employees: **18** in research and development, **8** in manufacturing, and **21** in selling, general and administrative[88](index=88&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that DURECT Corporation's market risk exposure, particularly interest rate risk, remains materially unchanged since December 31, 2023 - The Company's exposure to market risk, particularly related to changes in interest rates, has not materially changed since December 31, 2023[90](index=90&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of DURECT Corporation's disclosure controls and procedures and the absence of significant internal control changes - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2024[91](index=91&type=chunk) - There were no significant changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter[91](index=91&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes DURECT Corporation's legal proceedings, updated risk factors, other information, and exhibits for the reporting period [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The Company is not a party to any material legal proceedings[93](index=93&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section updates and supplements previously disclosed risk factors, emphasizing the significant challenge of raising capital to continue as a going concern. The company's recurring losses, negative cash flows, and insufficient cash for the next 12 months create substantial doubt about its operational viability, necessitating additional financing which may be difficult to obtain and could lead to operational curtailment or cessation - The Company will require and may have difficulty or be unsuccessful in raising needed capital in the future to continue to operate as a going concern[94](index=94&type=chunk) - Recurring losses from operations, negative cash flows, and insufficient cash for the next twelve months raise substantial doubt about the Company's ability to continue as a going concern[94](index=94&type=chunk) - The ability to raise capital is limited by factors such as general capital markets conditions, investor views, and SEC "baby shelf" rules, which restrict sales under a shelf registration statement to one-third of the public float if it is less than **$75 million**[94](index=94&type=chunk) - Failure to obtain sufficient additional funding could lead to a significant curtailment or discontinuation of operations, and any new funding may be dilutive to existing stockholders or require relinquishing rights to technologies[94](index=94&type=chunk)[96](index=96&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) No directors or officers reported the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2024 - No directors or officers reported the adoption or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended June 30, 2024[97](index=97&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and the financial statements formatted in Inline XBRL - Includes certifications of the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[99](index=99&type=chunk) - The financial statements (Condensed Unaudited Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and Notes) are formatted in Inline XBRL (Exhibit 101)[100](index=100&type=chunk) [Signatures](index=48&type=section&id=Signatures) The report is officially signed by James E. Brown, Chief Executive Officer, and Timothy M. Papp, Chief Financial Officer, on behalf of DURECT Corporation, dated August 14, 2024 - The report is signed by James E. Brown, Chief Executive Officer, and Timothy M. Papp, Chief Financial Officer, on August 14, 2024[102](index=102&type=chunk)