DURECT (US:DRRX)2024-05-14 20:03PART I. FINANCIAL INFORMATION This section provides DURECT Corporation's unaudited condensed financial statements and management's discussion for Q1 2024 and 2023 Item 1. Financial Statements This section presents DURECT Corporation's unaudited condensed financial statements for Q1 2024 and 2023, including balance sheets, statements of operations, cash flows, and detailed notes on accounting policies and financial instruments Condensed Balance Sheets This section provides a summary of DURECT Corporation's financial position as of March 31, 2024, and December 31, 2023 Condensed Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change (vs. Dec 31, 2023) | | :-------------------------- | :------------- | :---------------- | :------------------------ | | Cash and cash equivalents | $19,252 | $28,400 | -$9,148 | | Total current assets | $26,085 | $34,671 | -$8,586 | | Total assets | $36,221 | $45,189 | -$8,968 | | Total current liabilities | $24,739 | $27,011 | -$2,272 | | Stockholders' equity | $8,300 | $14,783 | -$6,483 | Condensed Statements of Operations and Comprehensive Loss This section details DURECT Corporation's financial performance and net loss for the three months ended March 31, 2024, and 2023 Condensed Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change (YoY) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Collaborative R&D and other revenue | $496 | $643 | -$147 | | Product revenue, net | $1,331 | $1,411 | -$80 | | Total revenues | $1,827 | $2,054 | -$227 | | Cost of product revenues | $289 | $388 | -$99 | | Research and development | $4,119 | $8,593 | -$4,474 | | Selling, general and administrative | $3,136 | $4,095 | -$959 | | Total operating expenses | $7,544 | $13,076 | -$5,532 | | Loss from operations | $(5,717) | $(11,022) | $5,305 | | Other income (expense), net | $(1,926) | $(965) | -$961 | | Net loss | $(7,643) | $(11,987) | $4,344 | | Basic net loss per share | $(0.25) | $(0.50) | $0.25 | | Diluted net loss per share | $(0.25) | $(0.52) | $0.27 | Condensed Statements of Stockholders' Equity This section outlines changes in DURECT Corporation's stockholders' equity for the three months ended March 31, 2024, and 2023 Stockholders' Equity Changes (in thousands) | Item | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance at beginning of period (Dec 31, 2023 / Dec 31, 2022) | $14,783 | $24,985 | | Issuance of common stock (2021 Sales Agreement) | $647 | — | | Issuance of common stock (February 2023 offering) | — | — | | Stock-based compensation expense | $509 | $2,338 | | Net loss | $(7,643) | $(11,987) | | Net change in unrealized loss on available-for-sale securities | $4 | $6 | | Balance at end of period (March 31, 2024 / March 31, 2023) | $8,300 | $15,342 | Condensed Statements of Cash Flows This section summarizes DURECT Corporation's cash inflows and outflows from operating, investing, and financing activities for Q1 2024 and 2023 Condensed Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Net cash used in operating activities | $(6,766) | $(9,263) | $2,497 | | Net cash used in investing activities | $(887) | $(4,924) | $4,037 | | Net cash (used in) provided by financing activities | $(1,495) | $10,000 | -$11,495 | | Net decrease in cash, cash equivalents, and restricted cash | $(9,148) | $(4,187) | -$4,961 | | Cash, cash equivalents, and restricted cash, end of period | $19,402 | $39,446 | -$20,044 | Notes to Condensed Financial Statements This section provides detailed disclosures on DURECT Corporation's significant accounting policies, strategic agreements, financial instruments, and other financial information Note 1. Summary of Significant Accounting Policies This note outlines DURECT Corporation's business, going concern status, revenue recognition, and other key accounting policies - DURECT Corporation is a biopharmaceutical company focused on acute organ injury and chronic liver diseases, with lead candidate Larsucosterol for alcohol-associated hepatitis (AH) and metabolic dysfunction-associated steatohepatitis (MASH)26 - The Company has an accumulated deficit of $596.6 million as of March 31, 2024, and negative cash flows from operating activities, raising substantial doubt about its ability to continue as a going concern for the next twelve months29 - Management plans to seek additional collaborative agreements and financing activities (public/private offerings of stock, debt issuances) to meet operating cash flow requirements29 Inventories (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :-------------- | :------------- | :---------------- | | Raw materials | $173 | $165 | | Work in process | $1,060 | $1,164 | | Finished goods | $1,165 | $890 | | Total inventories | $2,398 | $2,219 | - The Company recognizes product revenue from ALZET osmotic pumps and certain excipients upon customer obtaining control, typically at shipment3435 - Collaborative R&D and other revenue includes upfront license fees, development cost reimbursements, milestone payments, manufacturing supply services, and royalties/earn-outs38 Total Revenue by Geographic Region (in thousands) | Region | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :------------ | :-------------------------------- | :-------------------------------- | | United States | $973 | $1,278 | | Europe | $543 | $431 | | Japan | $147 | $170 | | Other | $164 | $175 | | Total | $1,827 | $2,054 | - Research and development expenses are expensed as incurred and include salaries, benefits, preclinical/clinical costs, and contract services49 - Common stock warrants and pre-funded warrants are classified as current liabilities and are re-measured at fair value each balance sheet date, with adjustments recorded in the statement of operations5152 Net Loss Per Share (in thousands, except per share amounts) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(7,643) | $(11,987) | | Weighted average shares outstanding - basic | 30,637 | 23,767 | | Net loss per share - basic | $(0.25) | $(0.50) | | Net loss per share - diluted | $(0.25) | $(0.52) | Note 2. Strategic Agreements This note details DURECT Corporation's collaborative research and development agreements and related revenue streams Collaborative R&D and Other Revenue (in thousands) | Period | Collaborative R&D and Other Revenue | | :----- | :---------------------------------- | | Q1 2024 | $496 | | Q1 2023 | $643 | - The Company licensed POSIMIR to Innocoll Pharmaceuticals for U.S. commercialization, receiving tiered royalties and potential milestones up to $122.0 million No revenue was recognized from this agreement in Q1 2024 or Q1 20235960 - The Company receives quarterly earn-out payments from Indivior UK Limited based on U.S. net sales of PERSERIS, which were immaterial for Q1 2024 and Q1 202361 Note 3. Financial Instruments This note describes DURECT Corporation's financial instruments, including available-for-sale securities and warrant liabilities, and their fair value measurements - The Company classifies financial instruments using a fair value hierarchy (Level 1, 2, 3) Money market funds are Level 1, while certificates of deposit and commercial paper are Level 262 Available-for-Sale Securities (in thousands) | Category | March 31, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :---------------- | :-------------------------- | :----------------------------- | | Money market funds | $62 | $951 | | Certificates of deposit | $150 | $150 | | Commercial paper | $17,703 | $24,882 | | Total | $17,915 | $25,983 | - Unrealized losses on available-for-sale investments are considered temporary and not attributed to credit risk65 Warrant Liabilities Fair Value (in thousands) | Warrant Type | March 31, 2024 | December 31, 2023 | Change (vs. Dec 31, 2023) | | :------------------------------------ | :------------- | :---------------- | :------------------------ | | February 2023 Common Warrants | $672 | $312 | $360 | | July 2023 Common Warrants | $2,270 | $912 | $1,358 | | Total fair value at end of period | $2,942 | $1,224 | $1,718 | - The fair value of February 2023 common warrants increased by $360,000 in Q1 2024, and July 2023 common warrants increased by $1.4 million, contributing to a non-cash loss in the statement of operations6698108 - All pre-funded warrants from the February 2023 issuance were exercised by November 2023, resulting in zero outstanding as of March 31, 20246899 Note 4. Accrued Liabilities This note provides a breakdown of DURECT Corporation's accrued liabilities as of March 31, 2024, and December 31, 2023 Accrued Liabilities (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------------- | :------------- | :---------------- | | Accrued compensation and benefits | $1,534 | $1,320 | | Accrued contract research and manufacturing costs | $2,704 | $2,340 | | Accrued clinical costs | $78 | $1,578 | | Others | $789 | $728 | | Total | $5,105 | $5,966 | Note 5. Stock-Based Compensation This note details DURECT Corporation's stock-based compensation expense and the valuation methods used for equity awards Stock-Based Compensation Expense (in thousands) | Category | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of product revenues | $4 | $4 | | Research and development | $212 | $292 | | Selling, general and administrative | $293 | $306 | | Total stock-based compensation | $509 | $602 | - The Company uses the Black-Scholes option pricing model for stock options and employee stock purchase plan shares76 Note 6. Term Loan This note describes DURECT Corporation's term loan, its interest rate, repayment schedule, and reclassification as a current liability - The Company's $20.0 million term loan with Oxford Finance has a floating interest rate (12.73% as of March 31, 2024) and requires principal and interest payments through September 1, 202581 - The term loan was reclassified as a current liability due to repayment timing, recurring losses, liquidity concerns, and a subjective acceleration clause84 Future Term Loan Maturities (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Nine months ended December 31, 2024 | $6,429 | | 2025 | $8,429 | | Total minimum payments | $14,858 | Note 7. Commitments This note outlines DURECT Corporation's operating lease commitments for its facilities and future minimum payments - The Company has operating lease arrangements for its facilities in Cupertino, CA (office, lab, manufacturing, expires 2027) and Vacaville, CA (manufacturing, expires 2028)87 Future Minimum Operating Lease Payments (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Nine months ended December 31, 2024 | $1,032 | | 2025 | $1,401 | | 2026 | $1,443 | | 2027 | $432 | | 2028 | $227 | | Total | $4,535 | Note 8. Stockholders' Equity This note details DURECT Corporation's equity offerings, common stock issuances, and available securities under its shelf registration statement - In July 2021, the Company filed a shelf registration statement (Form S-3) allowing it to offer up to $250.0 million of securities, including up to $75.0 million of common stock via a sales agreement89 - In February 2023, the Company completed a registered direct offering, issuing common stock, pre-funded warrants, and common warrants, generating approximately $8.8 million in net proceeds90 - In July 2023, another registered direct offering of common stock and common warrants generated approximately $13.9 million in net proceeds101 - During Q1 2024, the Company raised approximately $648,000 in net proceeds from selling 702,090 shares of common stock in the open market under the 2021 Sales Agreement110 - As of May 9, 2024, $222.7 million of securities are available under the 2021 Registration Statement, with $72.7 million of common stock available under the 2021 Sales Agreement, though limited by 'baby shelf' rules to $12.4 million111153 Note 9. Subsequent Events This note reports on any significant events occurring after DURECT Corporation's balance sheet date of March 31, 2024 - There were no significant subsequent events reported after March 31, 2024112 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses DURECT Corporation's financial condition and operating results for Q1 2024 and 2023, covering drug pipeline, revenues, expenses, liquidity, and going concern issues Overview This section provides an overview of DURECT Corporation's biopharmaceutical focus, lead candidate larsucosterol, and other revenue-generating products - DURECT is a biopharmaceutical company focused on acute organ injury and chronic liver diseases, with its lead candidate, larsucosterol, in clinical development for alcohol-associated hepatitis (AH)115 - Topline data from the Phase 2b AHFIRM trial for larsucosterol in AH showed compelling efficacy signals in reducing 90-day mortality, particularly in U.S. patients (57% reduction in 30mg arm, 58% in 90mg arm) The company is designing a Phase 3 trial based on FDA feedback115 - The Company also developed POSIMIR, an FDA-approved post-surgical pain product, licensed to Innocoll Pharmaceuticals for U.S. commercialization116 - Additional revenue streams include earn-out payments from Indivior's PERSERIS and royalties from Orient Pharma's Methydur, as well as sales of ALZET osmotic pumps117 Collaborative Research and Development and Other Revenue This section analyzes the trends and drivers of DURECT Corporation's collaborative R&D and other revenue streams for Q1 2024 and 2023 Collaborative R&D and Other Revenue (in thousands) | Period | Revenue | | :----- | :------ | | Q1 2024 | $496 | | Q1 2023 | $643 | - The decrease in collaborative R&D and other revenue in Q1 2024 was primarily due to lower revenue from feasibility agreements with other companies125 Product Revenues This section examines the changes in DURECT Corporation's net product revenues, primarily from ALZET osmotic pumps, for Q1 2024 and 2023 Net Product Revenues (in thousands) | Period | Revenue | | :----- | :------ | | Q1 2024 | $1,331 | | Q1 2023 | $1,411 | - The decrease in net product revenues in Q1 2024 was mainly due to lower sales of ALZET osmotic pumps and reduced revenue from certain excipients used in Methydur and an animal health product126 Operating Results This section summarizes DURECT Corporation's overall operating performance, including net loss and expected expense trends, for Q1 2024 and 2023 - The Company reported a net loss of $7.6 million for Q1 2024, an improvement from $12.0 million in Q1 2023, primarily due to reduced research and development expenses121 - Research and development expenses and selling, general and administrative expenses are expected to decrease in the near future due to the completion of the AHFIRM trial, staff reductions, and evaluation of spending plans121 Critical Accounting Estimates This section highlights DURECT Corporation's key accounting estimates, such as revenue recognition and warrant valuation, and any material changes - Key accounting estimates include revenue recognition, prepaid and accrued clinical/manufacturing costs, and valuation of warrant liabilities No material changes to these estimates were reported122 Results of Operations (Three months ended March 31, 2024 and 2023) This section provides a detailed comparative analysis of DURECT Corporation's revenues and expenses for the three months ended March 31, 2024, and 2023 Cost of product revenues This section analyzes the changes in DURECT Corporation's cost of product revenues, primarily linked to ALZET sales, for Q1 2024 and 2023 Cost of Product Revenues (in thousands) | Period | Cost of Product Revenues | | :----- | :----------------------- | | Q1 2024 | $289 | | Q1 2023 | $388 | - The decrease in cost of product revenues was primarily due to lower units sold from the ALZET product line127 Research and development This section details DURECT Corporation's R&D expenses, focusing on larsucosterol and employee-related costs, for Q1 2024 and 2023 Research and Development Expenses (in thousands) | Program | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Larsucosterol | $4,045 | $7,515 | | Depot injectable programs | $2 | $316 | | Others | $72 | $762 | | Total R&D expenses | $4,119 | $8,593 | - Total R&D expenses decreased by $4.5 million (52%) in Q1 2024, mainly due to lower clinical trial expenses for larsucosterol after the AHFIRM trial completion and reduced employee-related costs across programs130132133134 - The number of R&D employees decreased from 40 as of March 31, 2023, to 26 as of March 31, 2024, and further to 18 as of May 9, 2024130163 Selling, general and administrative This section reviews DURECT Corporation's SG&A expenses, including market research, patent, and employee costs, for Q1 2024 and 2023 Selling, General and Administrative Expenses (in thousands) | Period | SG&A Expenses | | :----- | :------------ | | Q1 2024 | $3,136 | | Q1 2023 | $4,095 | - SG&A expenses decreased by $959,000 (23%) in Q1 2024, primarily due to lower market research, patent, and employee costs137 - The number of SG&A employees decreased from 25 as of March 31, 2023, to 23 as of March 31, 2024, and further to 22 as of May 9, 2024138163 Other income (expense) This section analyzes DURECT Corporation's net other income and expense, including interest and warrant fair value changes, for Q1 2024 and 2023 Other Income (Expense) (in thousands) | Category | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest and other income | $321 | $517 | | Interest and other expenses | $(529) | $(726) | | Change in fair value of warrant liabilities | $(1,718) | $2,477 | | Issuance cost for warrants | — | $(1,200) | | Loss on issuance of warrants | — | $(2,033) | | Other income (expense), net | $(1,926) | $(965) | - Net other expense increased to $1.9 million in Q1 2024 from $965,000 in Q1 2023, primarily due to a non-cash loss from the change in fair value of warrant liabilities139142 - Interest income decreased due to lower cash and investment balances, while interest expense decreased due to a lower principal balance on the term loan140141 Liquidity and Capital Resources This section assesses DURECT Corporation's cash flows, capital resources, and ability to fund operations, highlighting going concern issues Cash, Cash Equivalents and Investments (in thousands) | Period | Amount | | :----- | :----- | | Mar 31, 2024 | $21,600 | | Dec 31, 2023 | $29,800 | - The decrease in cash and investments was primarily due to cash used in operating activities and term loan payments, partially offset by proceeds from common stock sales145 - The Company does not have sufficient cash resources to fund planned operations for the next 12 months and its auditors have issued a going concern opinion147160 Cash Flows This section details DURECT Corporation's cash flows from operating, investing, and financing activities for Q1 2024 and 2023 - Net cash used in operating activities decreased to $6.8 million in Q1 2024 from $9.3 million in Q1 2023, mainly due to lower R&D and SG&A costs148 - Net cash used in investing activities decreased significantly to $887,000 in Q1 2024 from $4.9 million in Q1 2023, primarily due to decreased net purchases of available-for-sale securities149 - Net cash used in financing activities was $1.5 million in Q1 2024, a substantial change from $10.0 million provided in Q1 2023, due to no registered direct financing proceeds and higher term loan principal payments150 Shelf Registration Statement This section describes DURECT Corporation's shelf registration statement and its limitations for future securities offerings - The Company's 2021 shelf registration statement allows for up to $250.0 million in securities offerings, with $75.0 million specifically for common stock under the 2021 Sales Agreement, expiring in August 2024151 - Due to SEC 'baby shelf' rules, the Company is currently limited to selling no more than one-third of its public float (up to $12.4 million) in any 12-month period under the 2021 Registration Statement151153 Term Loan This section outlines DURECT Corporation's term loan, its terms, security, and reclassification as a current liability - The $20.0 million term loan with Oxford Finance has a floating interest rate (12.73% as of March 31, 2024) and requires monthly principal and interest payments through September 2025155 - The loan is secured by substantially all Company assets, excluding intellectual property, and contains customary covenants and events of default156157 - The term loan was reclassified to current liabilities due to recurring losses, liquidity concerns, and a subjective acceleration clause157 Going Concern This section addresses the substantial doubt about DURECT Corporation's ability to continue as a going concern and management's plans - Substantial doubt exists about the Company's ability to continue as a going concern for one year from the financial statements' issuance date due to insufficient cash resources and recurring losses159160 - Management plans to raise additional capital through public/private equity, debt financings, collaborative arrangements, or asset sales, but there is no assurance of obtaining such funding on favorable terms161 - Failure to secure additional funding could lead to significant curtailment or discontinuation of operations, delays in product development, and adverse effects on business and financial condition161 Human Capital This section provides an overview of DURECT Corporation's employee count across R&D, manufacturing, and SG&A functions - As of May 9, 2024, the Company had 48 employees: 18 in R&D, 8 in manufacturing, and 22 in SG&A163 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's exposure to market risk, particularly related to changes in interest rates, has not materially changed since December 31, 2023 - Market risk exposure has not materially changed since December 31, 2023164 Item 4. Controls and Procedures The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024, and no significant changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024165 - No significant changes in internal control over financial reporting occurred during the most recently completed fiscal quarter166 PART II. OTHER INFORMATION This section includes DURECT Corporation's legal proceedings, risk factors, other information, and exhibits filed with the quarterly report Item 1. Legal Proceedings The Company is not currently a party to any material legal proceedings - The Company is not involved in any material legal proceedings168 Item 1A. Risk Factors This section supplements previously disclosed risk factors, emphasizing the Company's critical need for additional capital to continue operations as a going concern, the difficulties in raising such capital, and the potential adverse impacts of insufficient funding - The Company's business does not generate sufficient revenues to meet capital requirements and will require substantial funds for R&D and clinical testing of larsucosterol170 - Recurring losses and negative cash flows raise substantial doubt about the Company's ability to continue as a going concern, and additional financing is required171 - The ability to raise capital is limited by factors including general market conditions, investor perception, and SEC 'baby shelf' rules, which restrict offerings to one-third of the public float171 - Failure to obtain sufficient funding could lead to significant curtailment or discontinuation of operations, delays in product development, and adverse effects on business and financial condition171173 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024 - No insider trading arrangements (Rule 10b5-1 or non-Rule 10b5-1) were adopted or terminated by directors or officers during Q1 2024174 Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and financial statements formatted in Inline XBRL - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and financial statements formatted in Inline XBRL (101, 104)176 SIGNATURES The report is duly signed on behalf of DURECT Corporation by its Chief Executive Officer, James E. Brown, and Chief Financial Officer, Timothy M. Papp, on May 14, 2024 - The report was signed by James E. Brown (CEO) and Timothy M. Papp (CFO) on May 14, 2024181