DURECT (US:DRRX)2022-11-02 16:00PART I. FINANCIAL INFORMATION Financial Statements This section presents DURECT Corporation's unaudited condensed financial statements for Q3 and YTD September 30, 2022, including balance sheets, operations, equity, and cash flows Condensed Balance Sheets Total assets decreased to $68.5 million from $92.0 million, primarily due to reduced cash and investments, while equity declined from $57.8 million to $34.9 million Condensed Balance Sheet Data (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $50,394 | $49,844 | | Short-term investments | $1,499 | $19,966 | | Total current assets | $59,346 | $81,737 | | Total assets | $68,472 | $91,990 | | Liabilities & Equity | | | | Total current liabilities | $13,357 | $10,056 | | Term loan, non-current portion, net | $17,928 | $20,632 | | Total liabilities | $33,618 | $34,208 | | Total stockholders' equity | $34,854 | $57,782 | Condensed Statements of Operations and Comprehensive Loss Q3 2022 revenues significantly increased to $12.0 million, reducing net loss to $2.5 million, and YTD revenues doubled to $16.0 million, narrowing net loss to $24.9 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $11,977 | $2,165 | $15,968 | $6,680 | | Collaborative revenue | $10,585 | $443 | $11,686 | $1,752 | | Product revenue, net | $1,392 | $1,722 | $4,282 | $4,928 | | Research and development | $9,881 | $8,023 | $26,909 | $23,431 | | Loss from operations | $(2,132) | $(9,458) | $(23,584) | $(27,761) | | Net loss | $(2,471) | $(9,977) | $(24,864) | $(29,257) | | Net loss per share (basic) | $(0.01) | $(0.04) | $(0.11) | $(0.13) | Condensed Statements of Cash Flows Net cash used in operating activities improved to $17.9 million for nine months ended Sep 30, 2022, with investing activities providing $18.4 million and financing activities providing minimal cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,869) | $(26,200) | | Net cash provided by investing activities | $18,360 | $9,919 | | Net cash provided by financing activities | $59 | $50,381 | | Net increase in cash | $550 | $34,100 | Notes to Condensed Financial Statements Notes detail accounting policies, strategic agreements, and financial instruments, confirming sufficient cash for 12 months, significant POSIMIR® milestone revenue, and term loan specifics - The company believes its existing cash, cash equivalents, and investments are sufficient to fund its operating cash flow requirements for a period greater than 12 months from the date of issuance of these financial statements29 - In Q3 2022, the company recognized $10.0 million in milestone revenue from its agreement with Innocoll for POSIMIR® This included an $8.0 million payment for a new patent issuance and a $2.0 million payment for the first commercial sale47 - The company has a $20.0 million term loan with Oxford Finance, with interest-only payments through June 1, 2023, and a final maturity date of September 1, 2025 The interest rate was 9.86% as of September 30, 202259 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A reviews DURECT's business, focusing on larsucosterol and commercial partnerships, detailing increased collaborative revenue, reduced net loss, and confirming sufficient liquidity for the next 12 months Overview DURECT focuses on larsucosterol, a lead candidate in a Phase 2b trial for AH, and generates revenue from partnerships for POSIMIR®, PERSERIS™, and Methydur - The lead candidate, larsucosterol, is in a ~300-patient Phase 2b clinical trial (AHFIRM) for alcohol-associated hepatitis (AH) The company anticipates dosing the last patient in the second quarter of 202369 - In Q3 2022, DURECT received an $8.0 million milestone payment from Innocoll for a new POSIMIR® patent and a $2.0 million milestone for the first commercial sale of POSIMIR® in the U.S. The company is also entitled to low double-digit to mid-teen royalties on net sales69 - The company receives single-digit sales-based earn-out payments from Indivior's PERSERIS™ and single-digit royalties from Orient Pharma's Methydur72 Results of Operation Q3 2022 collaborative revenue surged to $10.6 million due to Innocoll milestones, while R&D expenses increased to $9.9 million driven by the larsucosterol program Revenue Breakdown (in thousands) | Revenue Source | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Collaborative & Other | $10,585 | $443 | $11,686 | $1,752 | | Product Revenue, Net | $1,392 | $1,722 | $4,282 | $4,928 | R&D Expenses by Program (in thousands) | Program | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Larsucosterol | $9,321 | $6,879 | $24,683 | $18,350 | | POSIMIR | $27 | $619 | $517 | $3,078 | | Depot injectable programs | $367 | $341 | $1,173 | $1,044 | | Total R&D | $9,881 | $8,023 | $26,909 | $23,431 | Liquidity and Capital Resources As of September 30, 2022, the company held $52.0 million in cash and investments, with management confirming sufficient capital for at least 12 months and a $250.0 million shelf registration - Cash, cash equivalents and investments totaled $52.0 million at September 30, 2022, down from $70.0 million at December 31, 2021124 - The company believes its existing cash and investments will be sufficient to fund planned operations, debt, and capital expenditures through at least the next 12 months from September 30, 2022126 - A shelf registration statement on Form S-3 is effective, allowing the company to offer up to $250.0 million of securities, including up to $75.0 million of common stock through a sales agreement with Cantor Fitzgerald126 Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure, primarily related to interest rates on investments and its floating-rate term loan, has not materially changed since December 31, 2021 - As of September 30, 2022, the company's exposure to market risk has not changed materially since December 31, 2021129 Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2022, 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 are effective as of the end of the quarter130 - No significant changes were made to the company's internal control over financial reporting during the most recently completed fiscal quarter130 PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings133 Risk Factors This section details key risks including heavy dependence on larsucosterol, potential COVID-19 related trial delays, reliance on third-party collaborators, significant debt, future capital needs, and Nasdaq listing compliance - The company is highly dependent on the success of its lead product candidate, larsucosterol, for which the path to regulatory approval is uncertain135138 - The company's stock price does not currently meet the minimum bid price for continued listing on Nasdaq, which could lead to delisting and adversely affect liquidity and capital raising ability137179 - The COVID-19 pandemic has impacted and may continue to adversely impact business operations, including causing delays in clinical trial enrollment and manufacturing135145 - The company has a significant amount of debt, and failure to comply with repayment obligations or covenants could lead to acceleration of the debt135149 Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and financial statements in Inline XBRL format