DURECT (US:DRRX)2025-08-13 21:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements Provides the company's unaudited condensed financial statements and related notes for the specified reporting periods Condensed Unaudited Balance Sheets Balance sheets show a decrease in total assets and stockholders' equity as of June 30, 2025, driven by reduced cash and short-term investments | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Cash and cash equivalents | $6,502 | $11,011 | | Short-term investments | $— | $792 | | Total current assets | $7,772 | $13,175 | | Total assets | $12,482 | $18,349 | | Total current liabilities | $7,893 | $7,710 | | Stockholders' equity | $3,483 | $9,131 | | Total liabilities and stockholders' equity | $12,482 | $18,349 | Condensed Unaudited Statements of Operations and Comprehensive Loss The company reported a reduced net loss for both the three and six months ended June 30, 2025, primarily due to lower operating expenses and favorable warrant liability fair value changes | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total revenues | $447 | $646 | $768 | $1,142 | | Total operating expenses | $3,250 | $4,840 | $7,710 | $11,641 | | Loss from operations | $(2,803) | $(4,194) | $(6,942) | $(10,499) | | Other income (expense), net | $538 | $149 | $514 | $(1,248) | | Net loss | $(2,265) | $(3,700) | $(6,497) | $(11,343) | | Net loss per common share (basic) | $(0.07) | $(0.12) | $(0.21) | $(0.37) | Condensed Unaudited Statements of Stockholders' Equity Stockholders' equity decreased significantly from December 31, 2024, to June 30, 2025, primarily due to net loss, partially offset by stock-based compensation | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :----------------------------------- | :------------------------------- | :--------------------------- | | Total Stockholders' Equity | $9,131 | $3,483 | | Accumulated Deficit | $(597,330) | $(603,827) | | Stock-based compensation expense (6 months ended June 30) | $921 (2024) | $849 (2025) | Condensed Unaudited Statements of Cash Flows Cash used in operating activities decreased in H1 2025, with investing activities providing cash and no financing activities after the late 2024 term loan payoff | Cash Flow Activity | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(5,305) | $(10,432) | | Net cash provided by investing activities | $796 | $1,313 | | Net cash used in financing activities | $— | $(3,635) | | Net decrease in cash, cash equivalents, and restricted cash | $(4,509) | $(12,754) | | Cash, cash equivalents, and restricted cash, end of period | $6,652 | $15,796 | Notes to Condensed Unaudited Financial Statements Notes provide critical context to financial statements, detailing biopharmaceutical focus, accounting policies, going concern doubt, strategic agreements, and ALZET reclassification Note 1. Summary of Significant Accounting Policies Outlines the company's epigenetic therapy focus, accumulated deficit, going concern doubt, and the sale and reclassification of the ALZET product line - DURECT Corporation is a biopharmaceutical company focused on developing epigenetic therapies, with larsucosterol as its lead candidate for alcohol-associated hepatitis (AH) and metabolic dysfunction-associated steatohepatitis (MASH). The company also manufactures and sells excipients27106 - As of June 30, 2025, the company had an accumulated deficit of $603.8 million and negative cash flows from operating activities, indicating insufficient cash resources for the next twelve months and raising substantial doubt about its ability to continue as a going concern30126 - The ALZET product line was sold in November 2024 for $17.5 million, and its operating results have been reclassified as discontinued operations for all periods presented3257103 | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss (in thousands) | $(2,265) | $(3,700) | $(6,497) | $(11,343) | | Weighted average shares outstanding - basic (in thousands) | 31,042 | 31,038 | 31,042 | 30,838 | | Net loss per share - basic | $(0.07) | $(0.12) | $(0.21) | $(0.37) | | Net loss per share - diluted | $(0.07) | $(0.12) | $(0.21) | $(0.37) | Note 2. Strategic Agreements Details collaborative revenue, the pending Bausch Health acquisition, termination of the POSIMIR license, and discontinuation of PERSERIS sales | Revenue Type | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Collaborative R&D and other revenue | $428 | $606 | $749 | $1,100 | - Bausch Health Companies Inc. announced a definitive agreement to indirectly acquire DURECT for $1.75 per share in cash, plus potential contingent value rights (CVRs) up to $350 million based on larsucosterol net sales. The transaction is expected to close in Q3 202561112115 - Innocoll Pharmaceuticals Limited terminated the exclusive license agreement for POSIMIR on May 6, 2025. DURECT is evaluating new partners for commercialization, with no material financial impact expected62119 - Indivior announced the discontinuation of sales and marketing for PERSERIS in July 2024 due to market competition. DURECT does not expect a material financial impact from this discontinuation63120 Note 3. Financial Instruments Details fair value measurement of financial instruments, showing decreases in available-for-sale securities and warrant liabilities due to market changes - The company classifies its financial instruments using a fair value hierarchy, with money market funds as Level 1 and certificates of deposit and commercial paper as Level 26466 | Available-for-Sale Securities | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | | :---------------------------- | :--------------------------------------- | :------------------------------------------ | | Money market funds | $552 | $688 | | Certificates of deposit | $150 | $150 | | Commercial paper | $4,735 | $8,913 | | Total | $5,437 | $9,751 | | Warrant Liabilities | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | | :-------------------------- | :--------------------------------------- | :------------------------------------------ | | February 2023 issuance | $396 | $414 | | July 2023 issuance | $826 | $1,134 | | Total fair value | $1,222 | $1,548 | - The fair value of common stock warrants decreased, resulting in non-cash gains of $446k for the three months and $326k for the six months ended June 30, 2025, compared to losses in the prior year14917 Note 4. Accrued Liabilities Accrued liabilities slightly increased at June 30, 2025, driven by higher contract research and manufacturing costs, offset by decreased compensation | Accrued Liability Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------- | :------------------------------- | | Accrued contract research and manufacturing costs | $2,966 | $2,841 | | Accrued compensation and benefits | $441 | $850 | | Accrued legal expenses | $585 | $522 | | Accrued clinical costs | $180 | $204 | | Other | $688 | $354 | | Total | $4,860 | $4,771 | Note 5. Stock-Based Compensation Stock-based compensation expense decreased for the six months ended June 30, 2025, with most allocated to selling, general, and administrative functions | Expense Category | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Research and development | $92 | $164 | $225 | $376 | | Selling, general and administrative | $305 | $260 | $624 | $545 | | Total stock-based compensation | $397 | $424 | $849 | $921 | Note 6. Term Loan The company fully repaid its term loan agreement with Oxford Finance LLC in November 2024 - All remaining obligations under the term loan agreement with Oxford Finance LLC were paid off in November 202481 Note 7. Commitments Operating lease expenses decreased for the six months ended June 30, 2025, with future minimum payments primarily extending through 2026 | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :---------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Rent expenses | $284 | $345 | $568 | $805 | | Future Minimum Payments (in thousands) | Operating Leases | | :------------------------------------- | :--------------- | | Six months ending December 31, 2025 | $578 | | 2026 | $1,185 | | 2027 | $166 | | Total | $1,929 | - The weighted-average remaining lease term for the company's leased properties was 1.64 years as of June 30, 202583 Note 8. Stockholders' Equity Details shelf registration statements, 2023 direct offerings, accounting for common stock warrants, and limited securities availability under SEC rules - The company filed a new shelf registration statement (Form S-3) in August 2024 for up to $250.0 million of securities. However, due to SEC 'baby shelf' rules, only approximately $19.6 million of securities are currently available for sale8586100158 - In February 2023, the company issued common warrants to purchase 2,000,000 shares, with 600,000 shares outstanding at June 30, 2025, at an exercise price of $0.51 per share. These warrants are accounted for as current liabilities878972 - In July 2023, the company issued common warrants to purchase 2,991,027 shares, all of which were outstanding at June 30, 2025, at an exercise price of $4.89 per share. These warrants are also accounted for as current liabilities949698 - No sales of common stock occurred in the open market during the three and six months ended June 30, 2025. In the six months ended June 30, 2024, $648,000 was raised from the sale of 702,090 shares99 Note 9. Discontinued Operations Details the sale of the ALZET product line for $17.5 million and its reclassification as discontinued operations, with no reported revenue in H1 2025 - The ALZET product line was sold to ALZET, LLC in November 2024 for $17.5 million, leading to the reclassification of its operating results as discontinued operations102103104 | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total revenues | $— | $1,525 | $— | $2,856 | | Income (loss) from discontinued operations | $— | $345 | $(69) | $404 | Note 10. Segment Information The company operates as a single reportable segment focused on pharmaceutical R&D and manufacturing, with the CEO as CODM - The company operates in one reportable segment: the research, development, and manufacturing of pharmaceutical products, primarily focusing on epigenetic therapies like larsucosterol106107 - The Chief Executive Officer (CODM) assesses operating performance and makes resource allocation decisions based on net loss, cash on-hand, cash flows, product development timelines, and cash balances108 Note 11. Subsequent Events Details the definitive merger agreement with Bausch Health, including the tender offer for DURECT's common stock and CVRs tied to larsucosterol sales milestones - On July 28, 2025, DURECT entered into a definitive merger agreement with Bausch Health Americas, Inc. (Parent) and BHC Lyon Merger Sub, Inc. (Merger Sub)110 - Merger Sub commenced a tender offer on August 12, 2025, to acquire all outstanding DURECT common shares for $1.75 per share in cash, plus one non-tradeable Contingent Value Right (CVR)112 - The CVRs represent the contractual right to receive pro rata portions of two potential net sales milestone payments totaling up to $350 million, contingent on larsucosterol achieving specific worldwide annual net sales targets before December 31, 2045, or the 10-year anniversary of its first commercial sale in the US112 - DURECT's Board of Directors unanimously approved the merger and recommended that stockholders accept the Offer. The transaction is expected to close in the third quarter of 2025, subject to customary closing conditions114115 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of financial condition and operations, covering biopharmaceutical focus, larsucosterol status, pending acquisition, revenue/expense trends, liquidity, and going concern uncertainty Overview DURECT is a late-stage biopharmaceutical company developing epigenetic therapies, with larsucosterol as its lead candidate, and has seen recent changes in license agreements and product sales - DURECT is a late-stage biopharmaceutical company pioneering epigenetic therapies, with larsucosterol as its lead candidate for alcohol-associated hepatitis (AH) and metabolic dysfunction-associated steatohepatitis (MASH)118106 - Larsucosterol received Breakthrough Therapy Designation (BTD) from the FDA for AH. The Phase 2b AHFIRM trial showed a compelling efficacy signal in reducing 90-day mortality, particularly in U.S. patients (57% reduction in 30mg arm, 58% in 90mg arm)118 - The license agreement for POSIMIR was terminated by Innocoll Pharmaceuticals Limited on May 6, 2025, and Indivior UK Limited discontinued sales and marketing for PERSERIS in July 2024. Neither event is expected to have a material financial impact119120 - Collaborative research and development revenue primarily comes from earn-out payments (e.g., from Indivior for PERSERIS) and royalty revenue (e.g., from Orient Pharma for Methydur). Product revenue is generated from the sale of excipients122123124 Operating Results The company has a history of operating losses, with an accumulated deficit of $603.8 million, and expects continued losses, raising substantial doubt about its going concern ability - As of June 30, 2025, the company had an accumulated deficit of $603.8 million126 | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :---------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net loss | $(2,265) | $(3,700) | $(6,497) | $(11,343) | - The company expects to incur continuing losses and negative cash flows from operations for the foreseeable future, leading to substantial doubt about its ability to continue as a going concern126 Recent Developments DURECT entered a merger agreement with Bausch Health on July 28, 2025, with a tender offer commencing August 12, 2025, unanimously recommended by the Board and subject to customary closing conditions - On July 28, 2025, DURECT entered into a merger agreement with Bausch Health Americas, Inc. and its subsidiary, Merger Sub127110 - Merger Sub commenced a tender offer on August 12, 2025, to acquire all outstanding DURECT common shares128112 - DURECT's Board of Directors unanimously approved the merger and recommended that stockholders accept the offer and tender their shares129114 - The offer is conditioned on a majority of outstanding shares being tendered and not withdrawn, along with other customary closing conditions, including no Company Material Adverse Effect and absence of prohibitive laws or legal proceedings130131 Critical Accounting Estimates Management identifies revenue recognition, prepaid/accrued clinical/manufacturing costs, and warrant liability valuation as significant accounting estimates - The most significant accounting estimates and assumptions relate to revenue recognition, prepaid and accrued clinical costs, prepaid and accrued manufacturing costs, and valuation of warrant liabilities134 Results of Operations (Comparison of three and six months ended June 30, 2025 and 2024) Provides a detailed comparison of financial performance for the three and six months ended June 30, 2025, versus 2024, covering revenue, operating expenses, and other income/expense Revenue Collaborative R&D revenue decreased due to lower Indivior earn-out, and product revenue declined after the ALZET product line sale | Revenue Type | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Collaborative R&D and other revenue | $428 | $606 | $749 | $1,100 | | Product revenue, net | $19 | $40 | $19 | $40 | - The decrease in collaborative research and development and other revenue was primarily due to lower earn-out revenue recognized from Indivior137 - The decrease in product revenue was due to the sale of the ALZET product line in November 2024138 Operating Expenses R&D and SG&A expenses decreased significantly in H1 2025, mainly due to lower employee-related costs and reduced larsucosterol development expenses | Expense Category | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Research and development | $1,176 | $2,247 | $3,059 | $6,366 | | Selling, general and administrative | $2,067 | $2,566 | $4,644 | $5,246 | - The decrease in R&D expenses was primarily due to lower contract manufacturing expenses and employee-related costs for larsucosterol. R&D employees decreased from 18 to 4 YoY140142 - The decrease in SG&A expenses was primarily due to lower employee costs. SG&A employees decreased from 16 to 9 YoY145146 Other income (expense) Other income increased for both periods ended June 30, 2025, driven by a non-cash gain from warrant liabilities, despite decreased interest income | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Other income (expense), net | $538 (income) | $149 (income) | $514 (income) | $(1,248) (expense) | | Interest and other income | $93 | $227 | $188 | $548 | | Change in fair value of warrant liabilities | $446 (gain) | $(78) (loss) | $326 (gain) | $(1,796) (loss) | - Interest income decreased due to lower balances in cash, cash equivalents, and investments148 Liquidity and Capital Resources Cash, cash equivalents, and investments decreased to $6.7 million at June 30, 2025, raising substantial doubt about going concern due to insufficient cash and expected losses - Cash, cash equivalents, and investments totaled $6.7 million at June 30, 2025, down from $12.0 million at December 31, 2024150160 - Substantial doubt exists about the company's ability to continue as a going concern for the next 12 months due to insufficient cash resources to fund planned operations and existing commitments, coupled with expected continuing losses152161162 | Cash Flow Activity | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(5,305) | $(10,432) | | Net cash provided by investing activities | $796 | $1,313 | | Net cash used in financing activities | $— | $(3,635) | - The company has up to $19.6 million of securities available for sale under its 2024 shelf registration statement, limited by SEC 'baby shelf' rules. However, sales are restricted while the merger is pending157158159 - As of August 8, 2025, the company had 13 employees, with 4 in research and development and 9 in selling, general and administrative165 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's exposure to market risk has not materially changed since December 31, 2024 - The company's exposure to market risk has not materially changed since December 31, 2024166 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2025, with no significant changes in internal control over financial reporting during the quarter - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2025167 - There were no significant changes in the company's internal control over financial reporting during the most recently completed fiscal quarter168 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not a party to any material legal proceedings170 Item 1A. Risk Factors Updates risk factors, focusing on uncertainties and adverse impacts related to the pending Bausch Health merger, including conditions, termination fees, business disruptions, CVRs, and FDA disruptions - The consummation of the merger is subject to various conditions, including the tender of over 50% of outstanding shares, absence of a Company Material Adverse Effect, and regulatory approvals. Failure to meet these conditions could delay or prevent the merger172173 - If the merger is not completed, DURECT could be required to pay a $3.5 million termination fee, incur significant transaction costs, and face adverse effects on its business, financial results, and stock price due to ongoing uncertainties and contractual restrictions174178179 - Stockholders may not receive any payment on the contingent value rights (CVRs) if larsucosterol does not achieve the specified worldwide annual net sales milestones ($500 million and $1 billion) within the defined timeframe (earlier of 10 years from first commercial sale in US or December 31, 2045)183185 - Disruptions at the FDA, potentially caused by funding shortages or policy changes from a new administration, could hinder timely reviews and approvals of new products, negatively impacting the company's business186187 Item 5. Other Information This section reports no insider trading arrangements during the quarter and confirms that the company has regained compliance with Nasdaq's minimum bid price requirement Insider Adoption or Termination of Trading Arrangements No directors or officers reported adopting or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No directors or officers informed the company of 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, 2025188 Nasdaq Minimum Bid Price Requirement The company regained compliance with Nasdaq Listing Rule 5550(a)(2) on August 12, 2025, after its common stock maintained a closing bid price of $1.00 or greater for at least 10 consecutive business days - DURECT regained compliance with Nasdaq Listing Rule 5550(a)(2) (Minimum Closing Bid Price Requirement) on August 12, 2025, after its common stock traded at or above $1.00 per share for at least 10 consecutive business days190191 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including the Merger Agreement, its amendment, CEO/CFO certifications, and Inline XBRL financial statements - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Amendment No. 1 to the Merger Agreement (Exhibit 2.2), CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and Inline XBRL financial statements (Exhibits 101, 104)192194 Signatures The report is duly signed by the Chief Executive Officer, James E. Brown, and the Chief Financial Officer, Timothy M. Papp, on August 13, 2025 - The report was signed by James E. Brown, Chief Executive Officer, and Timothy M. Papp, Chief Financial Officer, on August 13, 2025197