DURECT (DRRX) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported a net loss for the three and six months ended June 30, 2021, primarily due to decreased collaborative revenue, with assets increasing from equity financings Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $56,073 | $21,312 | | Total current assets | $95,356 | $63,061 | | Total assets | $106,267 | $75,641 | | Total current liabilities | $8,218 | $10,703 | | Total liabilities | $32,804 | $35,526 | | Total stockholders' equity | $73,463 | $40,115 | Condensed Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,303 | $24,498 | $4,515 | $26,093 | | Research and development | $7,433 | $6,567 | $15,408 | $14,154 | | Selling, general and administrative | $3,168 | $3,337 | $6,699 | $6,768 | | Net (loss) income | $(9,146) | $14,338 | $(19,280) | $4,390 | | Net (loss) income per share, basic | $(0.04) | $0.07 | $(0.09) | $0.02 | Condensed Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,841) | $(21,640) | | Net cash provided by (used in) investing activities | $3,104 | $(2,945) | | Net cash provided by financing activities | $50,498 | $8,107 | | Net increase (decrease) in cash | $34,761 | $(16,478) | Notes to Condensed Financial Statements Notes detail accounting policies, strategic agreements, and capital structure, highlighting the Gilead agreement termination, LACTEL sale, and $47.8 million in equity financings - The company's business is focused on two main categories: new chemical entities from its Epigenetics Regulator Program and Proprietary Pharmaceutical Programs applying formulation expertise to existing active ingredients[24] - The company believes its existing cash, cash equivalents, and investments are sufficient to fund operating cash flow requirements for more than 12 months from the financial statement issuance date. However, it has an accumulated deficit of $509.1 million and expects continued negative cash flows[28] - In June 2020, Gilead terminated its license agreement, leading to the recognition of all remaining deferred revenue from a $35.0 million upfront fee and milestone payment received in 2019. This resulted in a significant year-over-year decrease in collaborative revenue for 2021[43] - In February 2021, the company completed an underwritten public offering, raising net proceeds of approximately $45.4 million. An additional $2.4 million was raised through its sales agreement with Cantor Fitzgerald & Co. in the first six months of 2021[60] - On December 31, 2020, the company sold its LACTEL Absorbable Polymers product line to Evonik for approximately $15 million. The results of this product line are now presented as discontinued operations[61] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the focus on lead candidate DUR-928 and FDA-approved POSIMIR, noting decreased revenue due to the Gilead agreement termination and increased R&D, with liquidity bolstered by $51.2 million in equity financings - The company's lead candidate is DUR-928, an epigenetic regulator being evaluated in a Phase 2b trial (AHFIRM) for severe alcohol-associated hepatitis (AH). A successful trial may support an NDA filing[69] - POSIMIR, a post-surgical pain product, received FDA approval in February 2021 for use in arthroscopic subacromial decompression. The company is in discussions with potential licensees for commercialization rights[69][115] - The COVID-19 pandemic has negatively impacted the business, causing delays in clinical trial site initiations and patient enrollment. While ALZET product orders have recovered in 2021, the future impact remains uncertain[73] Revenue Comparison (in thousands) | Revenue Source | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Collaborative & Other | $735 | $23,347 | $1,309 | $23,317 | | Product Revenue, Net | $1,568 | $1,151 | $3,206 | $2,776 | | Total Revenues | $2,303 | $24,498 | $4,515 | $26,093 | Research & Development Expenses by Program (in thousands) | Program | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | DUR-928 | $5,955 | $5,192 | $11,471 | $10,183 | | POSIMIR | $785 | $597 | $2,459 | $2,288 | | Depot injectable programs | $441 | $271 | $703 | $448 | | Gilead | $0 | $369 | $65 | $816 | | Others | $252 | $138 | $710 | $419 | | Total R&D | $7,433 | $6,567 | $15,408 | $14,154 | - The company's cash, cash equivalents, and investments increased to $88.6 million at June 30, 2021, from $56.9 million at December 31, 2020, primarily due to net proceeds of $51.2 million from equity financings in H1 2021[143][144] Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes in the company's market risks since the disclosures in its 2020 Annual Report on Form 10-K - There have been no significant changes in market risks as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[151] Controls and Procedures Disclosure controls and procedures were deemed effective, with no significant changes to 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 period covered by the Form 10-Q[152] - No significant changes in the Company's internal control over financial reporting occurred during the most recently completed fiscal quarter[152] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not a party to any material legal proceedings[155] Risk Factors Key risks include dependence on DUR-928's clinical success, COVID-19 impacts, challenges with POSIMIR commercialization, significant debt, future capital needs, and reliance on third-party suppliers - The company's business is substantially dependent on the successful development and commercialization of DUR-928, which faces an uncertain regulatory approval path[161] - The COVID-19 pandemic has disrupted operations, delayed the AHFIRM Phase 2b clinical trial for DUR-928, and may continue to adversely impact business, including clinical trial enrollment and supply chains[166] - The company is seeking a commercial licensee for POSIMIR and may be unable to enter an agreement. The product's approved indication is limited, which may restrict its market potential[169] - The company has a significant amount of debt with Oxford Finance, and failure to comply with covenants could lead to acceleration of repayment obligations[174] - The company will require additional capital in the future and may have difficulty raising it. A history of operating losses is expected to continue[175][186] - Reliance on a limited number of suppliers for key components of products and product candidates, such as DUR-928 and POSIMIR, poses a risk of supply shortages or interruptions[189] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None[216] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[216] Mine Safety Disclosures This item is not applicable to the company - Not applicable[216] Other Information The company reports no other information for this item - None[216] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Interactive Data Files (Inline XBRL) - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[216] - Interactive Data Files (Inline XBRL) are included as exhibits[216]