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, 2022

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 incorporation or organization)	(I.R.S. Employer Identification No.)

10260 Bubb Road

Cupertino, California 95014

(Address of principal executive offices, including zip code)

(408) 777-1417

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $0.0001 par value per share	DRRX	The NASDAQ Stock Market LLC (The Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by a check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2022, there were 227,859,838 shares of the registrant’s common stock outstanding.

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Balance Sheets as of September 30, 2022 and December 31, 2021	5
	Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	6
	Condensed Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	7
	Condensed Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	8
	Notes to Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 6.	Exhibits	57
Signatures		59

2

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this Quarterly Report on Form 10-Q, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “could,” “potentially” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations and beliefs. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. Forward-looking statements made in this report include, but are not limited to, statements about:

•the clinical trial plans and timelines for larsucosterol;

•potential uses and benefits of larsucosterol to treat alcohol-associated hepatitis (also called “alcoholic hepatitis” or “AH”), non-alcoholic steatohepatitis, or other conditions;

•the results and timing of clinical trials, the ability to enroll patients in clinical trials in a timely and cost-effective manner;

•the likelihood of future clinical trial results of larsucosterol being positive and/or similar to results from previous trials, the possible commencement of future clinical trials, enrollment rates and timing of announcements of the results from our clinical trials;

•the possibility of filing for marketing approval for larsucosterol for the treatment of AH if the AH to evaluate saFety and effIcacy of laRsucosterol treatMent (AHFIRM) trial is successful and the likelihood of the U.S. Food and Drug Administration (“FDA”) or other regulatory bodies granting such marketing approval;

•our intention to seek, and ability to enter into and maintain strategic alliances and collaborations;

•the potential benefits and uses of our products, product candidates and technologies, including larsucosterol, POSIMIR, and our SABER and CLOUD technologies;

•the potential milestone and royalty payments we may receive from Innocoll related to POSIMIR, earn-out payments we may receive from Indivior UK Limited (“Indivior”) related to the commercialization of PERSERIS, and milestone, sub-license fees and royalty payments we may receive from Orient Pharma Co., Ltd. (“Orient Pharma”);

•the progress of our third-party collaborations, including estimated milestones;

•responsibilities of our third-party collaborators, including the responsibility to make cost reimbursement, milestone, royalty and other payments to us, and our expectations regarding our collaborators’ plans with respect to our products and product candidates and continued development of our products and product candidates;

•our responsibilities to our third-party collaborators, including our responsibilities to conduct research and development, clinical trials and/or manufacture excipients, products or product candidates;

•market opportunities for product candidates in our product development pipeline;

•potential regulatory filings for or approval of larsucosterol or any of our or any third parties’ other product candidates;

•the progress and results of our research and development programs and our evaluation of additional development programs;

•requirements for us to purchase pre-clinical, clinical trial and commercial supplies of product candidates and/or products, as well as raw materials or active pharmaceutical ingredients from third parties, and the ability of third parties to provide us with our requirements for such supplies and raw materials;

•conditions for obtaining regulatory approval of our product candidates;

•submission and timing of applications for regulatory approval and timing of responses to our regulatory submissions;

•the impact of FDA, European Medicines Agency (“EMA”) and other government regulation on our business;

•our ability to obtain, assert and protect patents and other intellectual property rights, including intellectual property licensed to our collaborators, as well as avoiding the intellectual property rights of others;

•products and companies that will compete with our products and the product candidates we develop and/or license to third-party collaborators;

3

•the possibility we may commercialize our own products and build up our commercial, sales and marketing capabilities and other required infrastructure;

•the possibility that we may develop additional manufacturing capabilities;

•our employees, including the number of employees and the continued services of key management, technical and scientific personnel;

•our future performance, including our anticipation that we will not derive meaningful revenues from our products and product candidates in development for at least the next twelve months, potential for future inventory write-offs and our expectations regarding our ability to achieve profitability;

•sufficiency of our cash resources, anticipated capital requirements and capital expenditures, our ability to comply with covenants of our term loan, and our need or desire for additional financing, including potential sales under our shelf registration statement;

•our expectations regarding research and development expenses, and selling, general and administrative expenses;

•the composition of future revenues; and

•accounting policies and estimates.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of such forward looking statements and the potential risks and uncertainties that may impact upon their accuracy, see the “Risk Factors” section and “Overview” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements reflect our view only as of the date of this report. We undertake no obligations to update any forward-looking statements. You should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DURECT CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

(unaudited)

	September 30, 2022			December 31, 2021
A S S E T S
Current assets:
Cash and cash equivalents	$	50,394		$	49,844
Short-term investments		1,499			19,966
Accounts receivable, net		3,229			6,477
Inventories, net		2,269			1,870
Prepaid expenses and other current assets		1,955			3,580
Total current assets		59,346			81,737
Property and equipment, net		211			227
Operating lease right-of-use assets		2,340			3,446
Goodwill		6,169			6,169
Long-term restricted investments		150			150
Other long-term assets		256			261
Total assets	$	68,472		$	91,990
L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y
Current liabilities:
Accounts payable	$	2,139		$	1,311
Accrued liabilities		6,240			6,799
Deferred revenue, current portion		—			98
Term loan, current portion, net		3,106			—
Operating lease liabilities, current portion		1,872			1,848
Total current liabilities		13,357			10,056
Deferred revenue, non-current portion		812			812
Operating lease liabilities, non-current portion		639			1,824
Term loan, non-current portion, net		17,928			20,632
Other long-term liabilities		882			884
Commitments and contingencies
Stockholders’ equity:
Common stock		23			23
Additional paid-in capital		585,752			583,818
Accumulated other comprehensive loss		(8	)		(10	)
Accumulated deficit		(550,913	)		(526,049	)
Stockholders’ equity		34,854			57,782
Total liabilities and stockholders’ equity	$	68,472		$	91,990

The accompanying notes are an integral part of these condensed financial statements.

5

DURECT CORPORATION

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Collaborative research and development and other revenue	$	10,585		$	443		$	11,686		$	1,752
Product revenue, net		1,392			1,722			4,282			4,928
Total revenues		11,977			2,165			15,968			6,680
Operating expenses:
Cost of product revenues		345			364			1,073			1,075
Research and development		9,881			8,023			26,909			23,431
Selling, general and administrative		3,883			3,236			11,570			9,935
Total operating expenses		14,109			11,623			39,552			34,441
Loss from operations		(2,132	)		(9,458	)		(23,584	)		(27,761	)
Other income (expense):
Interest and other income		284			34			465			110
Interest and other expenses		(623	)		(553	)		(1,745	)		(1,606	)
Net other expense		(339	)		(519	)		(1,280	)		(1,496	)
Net loss		(2,471	)		(9,977	)		(24,864	)		(29,257	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		17			3			2			7
Total comprehensive loss	$	(2,454	)	$	(9,974	)	$	(24,862	)	$	(29,250	)
Net loss per share
Basic	$	(0.01	)	$	(0.04	)	$	(0.11	)	$	(0.13	)
Diluted	$	(0.01	)	$	(0.04	)	$	(0.11	)	$	(0.13	)
Weighted-average shares used in computing net loss per share
Basic		227,774			227,499			227,735			224,191
Diluted		227,774			227,499			227,735			224,191

The accompanying notes are an integral part of these condensed financial statements.

6

DURECT CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(unaudited)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital			loss			Deficit			Equity
Balance at December 31, 2021		227,680	$	23	$	583,818		$	(10	)	$	(526,049	)	$	57,782
Issuance of common stock upon exercise of stock options		14		—		8			—			—			8
Stock-based compensation expense from stock options and ESPP shares		—		—		678			—			—			678
Net loss		—		—		—			—			(10,842	)		(10,842	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—			(19	)		—			(19	)
Balance at March 31, 2022		227,694	$	23	$	584,504		$	(29	)	$	(536,891	)	$	47,607
Issuance of common stock upon exercise of stock options		70		—		27			—			—			27
Stock-based compensation expense from stock options and ESPP shares		—		—		617			—			—			617
Net loss		—		—		—			—			(11,551	)		(11,551	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes									4			—			4
Balance at June 30, 2022		227,764	$	23	$	585,148		$	(25	)	$	(548,442	)	$	36,704
Issuance of common stock upon equity financings, net of issuance costs of $506		30		—		25			—			—			25
Stock-based compensation expense from stock options and ESPP shares						579									579
Net loss		—		—		—			—			(2,471	)		(2,471	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—			17			—			17
Balance at September 30, 2022		227,794	$	23	$	585,752		$	(8	)	$	(550,913	)	$	34,854
Balance at December 31, 2020		203,533	$	20	$	529,884		$	(5	)	$	(489,784	)	$	40,115
Issuance of common stock upon exercise of stock options		2,502		1		3,262			—			—			3,263
Issuance of common stock upon equity financings, net of issuance costs of $269		21,315		2		47,784			—			—			47,786
Stock-based compensation expense from stock options and ESPP shares		—		—		702			—			—			702
Net loss		—		—		—			—			(10,134	)		(10,134	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—			(9	)		—			(9	)
Balance at March 31, 2021		227,350	$	23	$	581,632		$	(14	)	$	(499,918	)	$	81,723
Issuance of common stock upon exercise of stock options, ESPP purchases and other		146		—		163			—			—			163
Stock-based compensation expense from stock options and ESPP shares		—		—		710			—			—			710
Net loss		—		—		—			—			(9,146	)		(9,146	)
Unrealized gain on available-for-sale securities, net of tax		—		—		—			13			—			13
Balance at June 30, 2021		227,496	$	23	$	582,505		$	(1	)	$	(509,064	)	$	73,463
Issuance of common stock upon equity financings, net of issuance cost of $126		—		—		(126	)		—			—			(126	)
Issuance of common stock upon exercise of stock options		10		—		11			—			—			11
Stock-based compensation expense from stock options and ESPP shares		—		—		653			—			—			653
Net loss		—		—		—			—			(9,977	)		(9,977	)
Change in unrealized loss on available-for-sale securities, net of tax		—		—		—			3			—			3
Balance at September 30, 2021		227,506	$	23	$	583,043		$	2		$	(519,041	)	$	64,027

The accompanying notes are an integral part of these condensed financial statements

7

DURECT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine months ended September 30,
	2022			2021
Cash flows from operating activities
Net loss	$	(24,864	)	$	(29,257	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization