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, 2021 

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 October 28, 2021, there were 227,505,811 shares of the registrant’s Common Stock outstanding.

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Balance Sheets as of September 30, 2021 and December 31, 2020	3
	Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020	4
	Condensed Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	5
	Condensed Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	6
	Notes to Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	63
Signatures		64

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DURECT CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

	September 30, 2021			December 31, 2020
	(unaudited)			(Note 1)
A S S E T S
Current assets:
Cash and cash equivalents	$	55,412		$	21,312
Cash held in escrow		—			14,979
Short-term investments		25,384			19,421
Accounts receivable (net of allowances of $20 at September 30, 2021 and $72 at    December 31, 2020)		946			940
Inventories		2,270			1,864
Prepaid expenses and other current assets		3,238			4,545
Total current assets		87,250			63,061
Property and equipment, net		343			251
Operating lease right-of-use assets		3,789			4,749
Goodwill		6,169			6,169
Long-term investments		—			1,000
Long-term restricted investments		150			150
Other long-term assets		261			261
Total assets	$	97,962		$	75,641
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	$	1,894		$	1,678
Accrued liabilities		5,741			5,801
Contract research liabilities		95			545
Term loan, current portion, net		—			884
Operating lease liabilities, current portion		1,835			1,795
Total current liabilities		9,565			10,703
Deferred revenue, non-current portion		812			812
Operating lease liabilities, non-current portion		2,190			3,202
Term loan, non-current portion, net		20,496			19,936
Other long-term liabilities		872			873
Commitments and contingencies
Stockholders’ equity:
Common stock		23			20
Additional paid-in capital		583,043			529,884
Accumulated other comprehensive income (loss)		2			(5	)
Accumulated deficit		(519,041	)		(489,784	)
Stockholders’ equity		64,027			40,115
Total liabilities and stockholders’ equity	$	97,962		$	75,641

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

3

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,
	2021			2020			2021			2020
Collaborative research and development and other revenue	$	443		$	306		$	1,752		$	23,623
Product revenue, net		1,722			1,504			4,928			4,280
Total revenues		2,165			1,810			6,680			27,903
Operating expenses:
Cost of product revenues		364			339			1,075			988
Research and development		8,023			6,870			23,431			21,024
Selling, general and administrative		3,236			3,429			9,935			10,197
Total operating expenses		11,623			10,638			34,441			32,209
Loss from operations		(9,458	)		(8,828	)		(27,761	)		(4,306	)
Other income (expense):
Interest and other income		34			84			110			477
Interest expense		(553	)		(546	)		(1,606	)		(1,690	)
Net other expense		(519	)		(462	)		(1,496	)		(1,213	)
Loss from continuing operations		(9,977	)		(9,290	)		(29,257	)		(5,519	)
(Loss) income from discontinued operations		—			(42	)		—			577
Net loss		(9,977	)		(9,332	)		(29,257	)		(4,942	)
Net change in unrealized gain (loss) on available-for-sale securities, net of reclassification adjustments and taxes		3			(53	)		7			21
Total comprehensive loss	$	(9,974	)	$	(9,385	)	$	(29,250	)	$	(4,921	)
Net (loss) income per share
Basic and diluted
Loss from continuing operations	$	(0.04	)	$	(0.05	)	$	(0.13	)	$	(0.03	)
(Loss) income from discontinued operations	$	—		$	(0.00	)	$	—		$	0.00
Net loss per common share, basic and diluted	$	(0.04	)	$	(0.05	)	$	(0.13	)	$	(0.02	)
Weighted-average shares used in computing net income (loss) per share, basic and diluted		227,499			201,877			224,191			198,176

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

4

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			Income (loss)			Deficit			Equity
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	)
Unrealized loss on available-for-sale securities,    net of tax		—		—		—			(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
Balance at December 31, 2019		195,257	$	19	$	512,046		$	(3	)	$	(489,202	)	$	22,860
Stock-based compensation expense from stock options and ESPP shares		577		—		761			—			—			761
Fully vested options issued to settle accrued liabilities		—		—		416			—			—			416
Net loss		—		—		—			—			(9,948	)		(9,948	)
Unrealized loss on available-for-sale securities, net of tax		—		—		—			(15	)		—			(15	)
Balance at March 31, 2020		195,834	$	19	$	513,223		$	(18	)	$	(499,150	)	$	14,074
Issuance of common stock upon equity financings, net of issuance costs of $192		2,610		—		6,202			—			—			6,202
Issuance of common stock upon ESPP purchases		1,119		—		1,145			—			—			1,145
Stock-based compensation expense from stock options and ESPP shares		—		—		494			—			—			494
Net income		—		—		—			—			14,338			14,338
Unrealized gain on available-for-sale securities, net of tax		—		—		—			89			—			89
Balance at June 30, 2020		199,563	$	19	$	521,064		$	71		$	(484,812	)	$	36,342
Issuance of common stock upon equity financings, net of issuance costs of $188		2,698		—		6,080			—			—			6,080
Issuance of common stock upon exercise of stock options		914		1		1,024			—			—			1,025
Stock-based compensation expense from stock options and ESPP shares		—		—		636			—			—			636
Net loss		—		—		—			—			(9,332	)		(9,332	)
Change in unrealized loss on available-for-sale securities, net of tax		—		—		—			(53	)		—			(53	)
Balance at September 30, 2020		203,175	$	20	$	528,804		$	18		$	(494,144	)	$	34,698

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

5

DURECT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine months ended September 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(29,257	)	$	(4,942	)
Adjustments to reconcile net loss to net cash used in by operating activities:
Depreciation and amortization		92			219
Stock-based compensation		2,065			1,540
Amortization of debt issuance cost		330			338
Net amortization on investments		(80	)		(212	)
Changes in operating lease liabilities		(12	)		5
Changes in assets and liabilities:
Accounts receivable		(6	)		821
Inventories		(406	)		(240	)
Prepaid expenses and other assets		1,307			(828	)
Accounts payable		216			(1,003	)
Accrued and other liabilities		1			(1,436	)
Contract research liabilities		(450	)		(1,907	)
Deferred revenue		-			(22,679	)
Total adjustments		3,057			(25,382	)
Net cash used in operating activities		(26,200	)		(30,324	)
Cash flows from investing activities
Purchases of property and equipment		(184	)		(179	)
Purchases of available-for-sale securities		(44,812	)