SEC Form 10-Q filed by DURECT Corporation

 

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 June 30, 2024

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.)

10240 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 check mark whether the registrant is 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 August 9, 2024, there were 31,039,381 shares of the registrant’s common stock outstanding.

 

 

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INDEX

 

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Unaudited Balance Sheets as of June 30, 2024 and December 31, 2023	5
	Condensed Unaudited Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023	6
	Condensed Unaudited Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023	7
	Condensed Unaudited Statements of Cash Flows for the six months ended June 30, 2024 and 2023	8
	Notes to Condensed Unaudited Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

 

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on 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 or elsewhere by management from time to time, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “could,” “potentially,” “possibility,” and similar expressions are forward-looking statements. Such forward-looking statements contained herein 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:

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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 “Overview” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations herein and Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2024 and any additional risk factors that may be described herein or in our subsequent filings with the SEC “Risk Factors” section. 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 SEC.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DURECT CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

(unaudited)

		June 30, 2024				December 31, 2023
A S S E T S
Current assets:
Cash and cash equivalents		$	15,646			$	28,400
Short-term investments			-				1,280
Accounts receivable, net			1,012				1,261
Inventories, net			2,474				2,219
Prepaid expenses and other current assets			818				1,511
Total current assets			19,950				34,671
Property and equipment, net			67				91
Operating lease right-of-use assets			3,390				3,980
Goodwill			6,169				6,169
Long-term restricted investments			150				150
Other long-term assets			128				128
Total assets		$	29,854			$	45,189
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		$	394			$	1,777
Accrued liabilities			4,670				5,966
Term loan, current portion, net			12,545				16,663
Operating lease liabilities, current portion			1,299				1,381
Warrant liabilities			3,020				1,224
Total current liabilities			21,928				27,011
Operating lease liabilities, non-current portion			2,220				2,702
Other long-term liabilities			669				693
Commitments and contingencies
Stockholders’ equity:
Common stock			23				23
Additional paid-in capital			605,370				603,780
Accumulated other comprehensive loss			(7	)			(14	)
Accumulated deficit			(600,349	)			(589,006	)
Stockholders’ equity			5,037				14,783
Total liabilities and stockholders’ equity		$	29,854			$	45,189

 

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

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DURECT CORPORATION

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2024				2023				2024				2023
Collaborative research and development and other revenue		$	606			$	508			$	1,102			$	1,151
Product revenue, net			1,565				1,573				2,896				2,984
Total revenues			2,171				2,081				3,998				4,135
Operating expenses:
Cost of product revenues			356				359				645				747
Research and development			2,247				7,946				6,366				16,539
Selling, general and administrative			2,972				3,827				6,108				7,922
Total operating expenses			5,575				12,132				13,119				25,208
Loss from operations			(3,404	)			(10,051	)			(9,121	)			(21,073	)
Other income (expense):
Interest and other income			227				511				548				1,028
Interest and other expenses			(445	)			(749	)			(974	)			(1,475	)
Change in fair value of warrant liabilities			(78	)			(892	)			(1,796	)			1,585
Issuance cost for warrants			—				—				—				(1,200	)
Loss on issuance of warrants			—				—				—				(2,033	)
Other income (expense), net			(296	)			(1,130	)			(2,222	)			(2,095	)
Net loss			(3,700	)			(11,181	)			(11,343	)			(23,168	)
Net change in unrealized gain on available-for-sale securities, net of reclassification adjustments and taxes			3				1				7				7
Total comprehensive loss		$	(3,697	)		$	(11,180	)		$	(11,336	)		$	(23,161	)
Net loss per share
Basic		$	(0.12	)		$	(0.46	)		$	(0.37	)		$	(0.96	)
Diluted		$	(0.12	)		$	(0.46	)		$	(0.37	)		$	(0.96	)
Weighted-average shares used in computing net loss per share
Basic			31,038				24,508				30,838				24,140
Diluted			31,038				24,508				30,838				24,377

 

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

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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, 2023			30,334			$	23			$	603,780			$	(14	)		$	(589,006	)		$	14,783
Issuance of common stock pursuant to the 2021 Sales Agreement, net of issuance costs of $13			702				—				648				—				—				648
Stock-based compensation expense from stock options and ESPP shares			—				—				508				—				—				508
Net loss			—				—				—				—				(7,643	)			(7,643	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes			—				—				—				4				—				4
Balance at March 31, 2024			31,036			$	23			$	604,936			$	(10	)		$	(596,649	)		$	8,300
Issuance of common stock upon exercise of stock options and from the ESPP			3				—				3				—				—				3
Stock-based compensation expense from stock options and ESPP shares			—				—				431				—				—				431
Net loss			—				—				—				—				(3,700	)			(3,700	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes			—				—				—				3				—				3
Balance at June 30, 2024			31,039			$	23			$	605,370			$	(7	)		$	(600,349	)		$	5,037
Balance at December 31, 2022			22,785			$	23			$	586,357			$	(13	)		$	(561,382	)		$	24,985
Issuance of common stock in the February 2023 registered direct offering			1,700				—				—				—				—				—
Stock-based compensation expense from stock options and ESPP shares			—				—				2,338				—				—				2,338
Net loss			—				—				—				—				(11,987	)			(11,987	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes			—				—				—				6				—				6
Balance at March 31, 2023			24,485			$	23			$	588,695			$	(7	)		$	(573,369	)		$	15,342
Issuance of common stock pursuant to the 2021 Sales Agreement, net of issuance costs of $13			118				—				658				—				—				658
Issuance of common stock upon exercise of stock options and from the ESPP			6				—				23				—				—				23
Stock-based compensation expense from stock options and ESPP shares			—				—				657				—				—				657
Net loss			—				—				—				—				(11,181	)			(11,181	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes															1				—				1
Balance at June 30, 2023			24,609			$	23			$	590,033			$	(6	)		$	(584,550	)		$	5,500

 

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

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DURECT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Six months ended June 30,
		2024				2023
Cash flows from operating activities
Net loss		$	(11,343	)		$	(23,168	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and accretion			49				78
Stock-based compensation			943				1,261
Change in fair value of warrant liabilities			1,796				(1,585	)
Loss on issuance of warrants			—				2,033
Other			150				237
Changes in assets and liabilities:
Accounts receivable			249				2,119
Inventories			(258	)			(150	)
Prepaid expenses and other assets			693				796
Accounts payable			(1,383	)			(2,126	)
Accrued liabilities			(1,328	)			1,721
Deferred revenue			—				178
Total adjustments			911				4,562
Net cash used in operating activities			(10,432	)			(18,606	)
Cash flows from investing activities
Purchases of property and equipment			—				(39	)
Purchases of available-for-sale securities			(887	)			(3,044	)
Proceeds from maturities of short-term investments			2,200				—
Net cash provided by (used in) investing activities			1,313				(3,083	)
Cash flows from financing activities
Payments on equipment financing obligations			—				(1	)
Payments on term loan principal			(4,286	)			(714	)
Net proceeds from issuances of common stock pursuant to the 2021 Sales Agreement			648				658
Net proceeds from issuance of common stock upon exercise of stock options and from the ESPP			3				23
Proceeds from issuances of warrants and common stock			—				10,000
Net cash (used in) provided by financing activities			(3,635	)			9,966
Net decrease in cash, cash equivalents, and restricted cash			(12,754	)			(11,723	)
Cash, cash equivalents, and restricted cash, beginning of the period (1)			28,550				43,633
Cash, cash equivalents, and restricted cash, end of the period (1)		$	15,796			$	31,910

(1) Includes restricted cash of $150,000 included in long-term restricted investments on the condensed balance sheets at June 30, 2024 and December 31, 2023 and short-term restricted investments on the condensed balance sheets June 30, 2023, respectively.

 

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

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DURECT CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2024 should be read in conjunction with (i) our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024 as well as Part I, Item 1A., “Risk Factors” section included therein and any additional risk factors that may be described herein or in our subsequent filings with the SEC. References to the “Company,” “DURECT,” “we,” “us” and “our” refer to DURECT Corporation.

Overview

We are a biopharmaceutical company advancing novel and potentially lifesaving investigational therapies derived from our Epigenetic Regulator Program. Larsucosterol, a new chemical entity in clinical development, is the lead candidate in our Epigenetic Regulator Program. An endogenous, orally bioavailable small molecule, larsucosterol has been shown in both in vitro and in vivo studies to play an important regulatory role in lipid metabolism, stress and inflammatory responses, and cell death and survival. We are developing larsucosterol for alcohol-associated hepatitis (“AH”), a life-threatening acute liver condition with no approved therapeutics and a 28-Day and 90-Day historical mortality rate of 20%-26% and 29%-31%, respectively. After completing a Phase 2a trial in which 100% of AH patients treated with larsucosterol survived the 28-Day study period, we conducted a double-blind, placebo-controlled Phase 2b clinical trial called AHFIRM (trial in AH to evaluate saFety and effIcacy of laRsucosterol treatMent). Through our AHFIRM trial, we evaluated larsucosterol’s potential to reduce mortality or liver transplantation compared to a placebo with or without steroids at the investigators’ discretion. In total, we enrolled 307 patients at leading hospitals in the U.S., Australia, E.U. and U.K. In November 2023, we announced topline data from the AHFIRM trial that showed a compelling efficacy signal in favor of larsucosterol in the key secondary endpoint of mortality at 90 days. Both the 30 mg and 90 mg larsucosterol doses demonstrated clinically meaningful trends in reduction of mortality at 90 days with mortality reductions of 41% (p=0.068) in the 30 mg arm and 35% (p=0.124) in the 90 mg arm compared with placebo. The numerical improvement in the primary endpoint of mortality or liver transplant at 90 days did not achieve statistical significance for either dose of larsucosterol. Both doses of larsucosterol in AHFIRM showed a more pronounced reduction in mortality in patients enrolled in the U.S., representing 76% of patients enrolled in the trial. The reductions in mortality at 90 days were 57% (p=0.014) in the 30 mg arm and 58% (p=0.008) in the 90 mg arm compared with placebo in the U.S. Larsucosterol was safe and well tolerated. There were fewer treatment-emergent adverse events ("TEAEs") in the larsucosterol arms compared with placebo. In May 2024, we announced that the FDA granted Breakthrough Therapy Designation ("BTD") to larsucosterol for the treatment of AH. In July 2024, we held a Type B meeting with the FDA to discuss the design of our planned Phase 3 clinical trial of larsucosterol in AH that, if successful, could support a potential New Drug Application filing. We plan to provide additional details of the Phase 3 trial design following receipt of the written minutes from this meeting. Our goal is to initiate the Phase 3 clinical trial in 2024, subject to obtaining sufficient funding, with topline results expected by the second half of 2026. We have also investigated larsucosterol in patients with metabolic dysfunction-associated steatohepatitis (“MASH”), also known as non-alcoholic steatohepatitis or NASH with encouraging results in a Phase 1b clinical trial and may consider further development of larsucosterol for this and other indications.

In addition to our Epigenetic Regulator Program, we developed a novel and proprietary post-surgical pain product called POSIMIR® that utilizes our innovative SABER® platform technology to enable continuous sustained delivery of bupivacaine, a non-opioid local analgesic, over three days in adults. In February 2021, POSIMIR received FDA approval for post-surgical pain reduction for up to 72 hours following arthroscopic subacromial decompression. In December 2021, we entered into a license agreement (the “Innocoll Agreement”) with Innocoll Pharmaceuticals Limited (“Innocoll”), pursuant to which the Company granted to Innocoll an exclusive, royalty-bearing, sublicensable right and license to develop, manufacture and commercialize POSIMIR in the United States. In September 2022, Innocoll launched POSIMIR in the U.S.

As a result of the assignment of certain patent rights, we also receive single digit sales-based earn-out payments from U.S. net sales of Indivior UK Limited (“Indivior”)’s PERSERIS® (risperidone) drug for schizophrenia and single-digit royalties from net sales of Orient Pharma Co., Ltd. (“Orient Pharma”)’s Methydur Sustained Release Capsules (“Methydur”) for the treatment of attention deficit hyperactivity disorder (“ADHD”) in Taiwan. We also manufacture and sell ALZET® osmotic pumps used in laboratory research. In July 2024, Indivior announced discontinuation of sales and marketing for PERSERIS due to the highly competitive market and impending changes that are expected to intensify payor management in the treatment category in which PERSERIS participates.

NOTE: POSIMIR is a trademark or registered trademark of Innocoll Pharmaceuticals, Ltd. in the U.S. and a trademark or registered trademark of DURECT Corporation in countries other than the U.S. SABER, ALZET, DURECT, and the DURECT logo are trademarks or registered trademarks of DURECT Corporation in the U.S. and other countries. Other trademarks referred to belong to their respective owners. Full prescribing information for POSIMIR, including BOXED WARNING and Medication Guide can be found at www.posimir.com. Full prescribing information for PERSERIS, including BOXED WARNING and Medication Guide can be found at www.perseris.com.

 

 

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Collaborative Research and Development and Other Revenue

Collaborative research and development and other revenue consists of three broad categories: (a) the recognition of upfront license payments over the period of our continuing involvement with the third party, (b) the reimbursement of qualified research expenses by third parties, (c) milestone payments in connection with our collaborative agreements and (d) royalties and earn-out payments from our agreements with third parties.

Product Revenues

We also currently generate product revenue from the sale of two product lines:

Because we consider our core business to be developing and commercializing pharmaceuticals, we do not intend to significantly increase our investments in or efforts to sell or market any of our existing product lines. However, we expect that we will continue to make efforts to increase our revenues related to collaborative research and development by entering into new collaborations.

Operating Results

Since our inception in 1998, we have generally had a history of operating losses. At June 30, 2024, we had an accumulated deficit of $600.3 million. Our net losses were $3.7 million and $11.3 million for the three and six months ended June 30, 2024, respectively, compared with $11.2 million and $23.2 million for the corresponding periods in 2023. These losses have resulted primarily from costs incurred to research and develop our product candidates and, to a lesser extent, from selling, general and administrative costs associated with our operations and product sales. We expect our research and development expenses in the near future to be comparable to the second quarter of 2024. We expect our selling, general and administrative expenses in the near future to be comparable to the second quarter of 2024. We expect to incur continuing losses and negative cash flows from operations for the foreseeable future. As disclosed in the “Liquidity and Capital Resources” section, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant accounting estimates and assumptions relate to revenue recognition, prepaid and accrued clinical costs, prepaid and accrued manufacturing costs and valuation of warrant liabilities. Actual amounts could differ significantly from these estimates. There have been no material changes to our other critical accounting estimates as compared to the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.

Results of Operations

Three and six months ended June 30, 2024 and 2023

Collaborative research and development and other revenue

We recognize revenue from collaborative research and development activities and service contracts. We expect our collaborative research and development and other revenue to decrease in the near term due to Indivior’s discontinuation of sales and marketing of PERSERIS.

The collaborative research and development and other revenue associated with our collaborators or counterparties were $606,000 and $1.1 million for the three and six months ended June 30, 2024, respectively, compared with $508,000 and $1.2 million for the corresponding periods in 2023. The collaborative research and development and other revenue included (a) amounts related to earn-out revenue from Indivior with respect to PERSERIS net sales; (b) feasibility programs and research and development activities funded by our collaborators and (c) royalty revenue from Orient Pharma with respect to Methydur net sales.

The increase in collaborative research and development and other revenue in the three months ended June 30, 2024 compared with the corresponding period in 2023 was primarily due to higher earn-out revenue recognized from Indivior and royalty revenue recognized from Orient Pharma. The decrease in collaborative research and development and other revenue in the six months ended June 30, 2024 compared with the corresponding period in 2023 was primarily due to lower revenue recognized from the feasibility

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agreements with other companies, partially offset by higher earn-out revenue recognized from Indivior and royalty revenue recognized from Orient Pharma.

Product revenue, net

A portion of our revenues is derived from product sales, which include our ALZET osmotic pump product line and certain excipients that are included in POSIMIR, Methydur and in a marketed animal health product. Net product revenues were $1.6 million and $2.9 million for the three and six months ended June 30, 2024, respectively, compared with $1.6 million and $3.0 million for the corresponding periods in 2023. Net product revenues were approximately the same in the three months ended June 30, 2024 compared with the corresponding period in 2023. The decrease in the six months ended June 30, 2024 was primarily attributable to lower revenue from our ALZET osmotic pump product line as a result of lower units sold, partially offset by higher revenue from certain excipients that are included in Methydur and in a marketed animal health product compared to the corresponding period in 2023.

Cost of product revenues

Cost of product revenues was $356,000 and $645,000 for the three and six months ended June 30, 2024, respectively, compared with $359,000 and $747,000 for the corresponding periods in 2023. Cost of product revenues were approximately the same in the three months ended June 30, 2024 compared with corresponding period in 2023. The decrease in the six months ended June 30, 2024 was primarily due to lower units sold from our ALZET product line, partially offset by higher units sold of certain excipients that are included in Methydur and in a marketed animal health product compared to the corresponding period in 2023. Stock-based compensation expense recognized related to cost of product revenues was $4,000 and $8,000 for the three and six months ended June 30, 2024, respectively, compared to $5,000 and $9,000 for the corresponding periods in 2023.

As of June 30, 2024, we had 8 manufacturing employees compared with 10 as of June 30, 2023. We expect the number of employees involved in manufacturing will remain consistent in the near future.

Research and development

Research and development expenses are primarily comprised of salaries, benefits, stock-based compensation and other compensation costs associated with research and development personnel, overhead and facility costs, preclinical and non-clinical development costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs.

Research and development expenses were $2.2 million and $6.4 million for the three and six months ended June 30, 2024, respectively, compared to $7.9 million and $16.5 million for the corresponding periods in 2023. We incurred lower research and development costs associated with larsucosterol, the depot injectable programs as well as other research programs in the three and six months ended June 30, 2024 compared to the corresponding periods in 2023, as more fully discussed below. Stock-based compensation expense recognized related to research and development personnel was $164,000 and $376,000 for the three and six months ended June 30, 2024, respectively, compared to $301,000 and $593,000 for the corresponding periods in 2023. As of June 30, 2024, we had 18 research and development employees compared with 38 as of June 30, 2023. We expect the number of employees involved in research and development will remain consistent in the near future and that research and development expenses in the near future will be comparable with the second quarter of 2024.

Research and development expenses associated with our major development programs were as follows (in thousands):

 

		Three months ended June 30,								Six months ended June 30,
		2024				2023				2024				2023
Larsucosterol		$	2,221			$	7,175			$	6,266			$	14,690
Depot injectable programs			—				3				2				319
Others			26				768				98				1,530
Total research and development expenses		$	2,247			$	7,946			$	6,366			$	16,539

 

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Larsucosterol

Our research and development expenses for larsucosterol were $2.2 million and $6.3 million in the three and six months ended June 30, 2024, respectively, compared to $7.2 million and $14.7 million for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower clinical trial related expenses as we completed the AHFIRM trial and lower employee-related costs for this drug candidate compared with the corresponding periods in 2023.

Depot injectable programs

Our research and development expenses for depot injectable programs were zero and $2,000 in the three and six months ended June 30, 2024, respectively, compared to $3,000 and $319,000 for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower employee-related costs and lower outside expenses for these programs compared with the corresponding periods in 2023.

Other DURECT research programs

Our research and development expenses for all other programs were $26,000 and $98,000 in the three and six months ended June 30, 2024, respectively, compared to $768,000 and $1.5 million for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower employee-related costs and lower outside expenses associated with these programs compared with the corresponding periods in 2023.

Our research and development programs may span as many as ten years or more, and estimation of completion dates or costs to complete are highly speculative and subjective due to numerous risks and uncertainties associated with developing pharmaceutical products, including significant and changing government regulation, uncertainties of future preclinical and clinical study results, uncertainties with our collaborators’ commitment to and progress in the programs and uncertainties associated with process development and manufacturing as well as sales and marketing. In addition, with respect to our development programs subject to third-party collaborations, the timing and expenditures to complete the programs are subject to the control of our collaborators. Therefore, we cannot reasonably estimate the timing and costs of the efforts necessary to complete the research and development programs. For additional information regarding these risks and uncertainties, see Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024, and any additional risk factors that may be described herein or in our subsequent filings filed with the SEC.

Selling, general and administrative. Selling, general and administrative expenses are primarily comprised of salaries, benefits, stock-based compensation and other compensation costs associated with finance, legal, business development, sales and marketing and other administrative personnel, overhead and facility costs, and other general and administrative costs.

Selling, general and administrative expenses were $3.0 million and $6.1 million in the three and six months ended June 30, 2024, respectively, compared to $3.8 million and $7.9 million for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower employee expenses, lower audit related expenses and lower market research expenses compared to the corresponding periods in 2023. Stock-based compensation expense recognized related to selling, general and administrative personnel was $266,000 and $559,000 for the three and six months ended June 30, 2024, respectively, compared to $353,000 and $659,000 for the corresponding periods in 2023.

We had 22 selling, general and administrative employees as of June 30, 2024 compared with 24 as of June 30, 2023. We expect selling, general and administrative expenses in the near future to be comparable to the second quarter of 2024.

Other income (expense). Other expense was $296,000 and $2.2 million in the three and six months ended June 30, 2024 , respectively, compared to $1.1 million and $2.1 million for the corresponding periods in 2023.

Interest and other income

Interest income was $227,000 and $548,000 in the three and six months ended June 30, 2024, respectively, compared to $511,000 and $1.0 million for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower balances in our cash, cash equivalents and investments compared with the corresponding periods in 2023.

Interest expense

Interest expense was $445,000 and $974,000 in the three and six months ended June 30, 2024, respectively, compared to $749,000 and $1.5 million for the corresponding periods in 2023. The decreases in the three and six months ended June 30, 2024 were primarily due to lower principal balances on our term loan compared with the corresponding periods in 2023.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities during the three months ended June 30, 2024 was comprised of a non-cash loss of $42,000 for the common warrants issued in February 2023 and a non-cash loss of $36,000 for the common warrants issued in July 2023. The change in fair value of warrant liabilities during the six months ended June 30, 2024 was comprised of a non-cash loss of

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$402,000 for the common warrants issued in February 2023 and a non-cash loss of $1.4 million for the common warrants issued in July 2023.

Issuance cost for warrants

The issuance cost for warrants was zero in both the three and six months ended June 30, 2024. The issuance cost for warrants was zero and $1.2 million in the three and six months ended June 30 2023, respectively.

Loss on issuance of warrants

Loss on issuance of warrants was zero in both the three and six months ended June 30, 2024. Loss on issuance of warrants was zero and $2.0 million in the three and six months ended June 30, 2023, respectively.

Liquidity and Capital Resources

We had cash, cash equivalents and investments totaling $15.8 million at June 30, 2024 compared to cash, cash equivalents, and investments of $29.8 million at December 31, 2023. These balances include $150,000 of interest-bearing marketable securities classified as restricted investments on our balance sheets as of June 30, 2024 and December 31, 2023. The decrease in cash, cash equivalents and investments was primarily due to cash used in ongoing operating activities and principal and interest payments on the term loan, partially offset by net proceeds of $648,000 from the sale of our common stock in the open market pursuant to the 2021 Sales Agreement (as described below) and payments received from collaboration partners and customers. For more information on our registered direct offerings that took place in February and July 2023, see Note 8 “Stockholders’ Equity—Registered Direct Offerings” to our unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.

Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers.

As discussed below, we do not have sufficient cash resources to fund our planned operations, existing debt and contractual commitments and planned capital expenditures. Our auditors have issued a going concern opinion. Unless we secure funding from collaborations, additional equity or debt financing, of which there can be no assurance, we may not be able to continue operations.

Cash Flows

We used $10.4 million of cash in operating activities for the six months ended June 30, 2024 compared to $18.6 million for the corresponding period in 2023. The decrease in cash used in operating activities was primarily due to lower costs incurred to research and develop our product candidates and, to a lesser extent, from selling, general and administrative costs associated with our operations and product sales, partially offset by lower payments from our collaborators. The cash used in operations was primarily to fund operations as well as our working capital requirements. We anticipate that cash used in operating activities in the near future will be comparable to the second quarter of 2024.

We received $1.3 million of cash from investing activities for the six months ended June 30, 2024 compared to using $3.1 million of cash in investing activities for the corresponding period in 2023. The increase in cash provided by investing activities was primarily due to an increase in net proceeds from maturities of available-for-sale securities and a decrease in purchases of available of available-for-sale securities for the six months ended June 30, 2024 compared with the corresponding period in 2023.

We used $3.6 million of cash in financing activities for the six months ended June 30, 2024 compared to receiving $10.0 million of cash from financing activities for the six months ended June 30, 2023. The decrease in cash received from financing activities was primarily due to no cash proceeds received from registered direct financings and higher principal payments on the term loan with Oxford Finance LLC ("Oxford Finance") during the six months ended June 30, 2024 compared with the corresponding period in 2023.

Shelf Registration Statement

In July 2021, we filed a shelf registration statement on Form S-3 with the SEC (the “2021 Registration Statement”) (File No. 333-258333), which upon being declared effective in August 2021 allowed us to offer up to $250.0 million of securities from time to time in one or more public offerings, inclusive of up to $75.0 million of shares of our common stock which we may sell, subject to certain limitations, pursuant to the 2021 Sales Agreement. The 2021 Registration Statement expires on August 16, 2024. In addition, due to the SEC’s “baby shelf” rules, which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period, we are currently only able to issue a limited number of shares under our 2021 Registration Statement, which aggregate to no more than one-third of our public float.

During the six months ended June 30, 2024, we raised net proceeds (net of commissions) of approximately $648,000 from the sale of our common stock in the open market under the 2021 Sales Agreement.

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As of June 30, 2024, we had up to $222.7 million of our securities available for sale under the 2021 Registration Statement, of which $72.7 million of our common stock are available pursuant to the 2021 Sales Agreement. However, due to the SEC’s “baby shelf” rules discussed above, only up to approximately $18.1 million of our securities are available for sale under the 2021 Registration Statement, all of which are available for sale as common stock pursuant to the 2021 Sales Agreement.

Any material sales in the public market of our common stock, under the 2021 Sales Agreement or otherwise under the 2021 Registration Statement, could adversely affect prevailing market prices for our common stock.

Term Loan

In July 2016, we entered into a Loan and Security Agreement (as amended, the "Loan Agreement") with Oxford Finance, pursuant to which Oxford Finance provided a $20.0 million secured single-draw term loan to us with an initial maturity date of August 1, 2020. The term loan was fully drawn at close and the proceeds were used for working capital and general business requirements. Following five amendments, we made interest only payments under the amended Loan Agreement until June 1, 2023, and are making consecutive monthly payments of principal and interest in arrears to be paid through September 1, 2025, the final maturity date of the term loan. The Loan Agreement provides for a floating interest rate (7.95% initially and 12.74% as of June 30, 2024) based on an index rate plus a spread and an additional payment equal to 10% of the principal amount of the term loan, which is due when the term loan becomes due or upon the prepayment of the facility. If we elect to prepay the term loan, there is also a prepayment fee between 0.75% and 2.5% of the principal amount of the term loan depending on the timing of prepayment. Our debt repayment obligations under the Loan Agreement may prove a burden to the Company as they become due, particularly following the expiration of the interest-only period.

The term loan is secured by substantially all of our assets, except that the collateral does not include any intellectual property (including licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain assets; engage in any business other than the businesses currently engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; and make payments on any subordinated debt.

The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain obligations under the 2016 Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the term loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by us under the 2016 Loan Agreement, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement. As a result, the term loan was reclassified to current liabilities from non-current liabilities on our balance sheet as of June 30, 2024 and December 31, 2023 due to recurring losses, liquidity concerns and a subjective acceleration clause in the Loan Agreement.

Going Concern

As of June 30, 2024, we had cash, cash equivalents and investments totaling $15.8 million compared to cash, cash equivalents, and investments of $29.8 million at December 31, 2023. In the six months ended June 30, 2024, we raised net proceeds (net of commissions) of approximately $648,000 from the sale of our common stock in the open market under the 2021 Sales Agreement.

In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), our management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Based on our evaluation, substantial doubt exists regarding our ability to continue as a going concern for a period of one year from the issuance of our financial statements.

Presently, we do not have sufficient cash resources to fund our planned operations, existing debt and contractual commitments and planned capital expenditures through at least the next 12 months from issuance of these financial statements. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We expect to incur continuing losses and negative cash flows from operations for the foreseeable future.

We may decide to raise additional capital through a variety of sources in the short-term and in the long-term, including but not limited to:

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There can be no assurance that we will enter into additional collaborative agreements or maintain existing collaborative agreements, will earn collaborative revenues or that additional capital will be available on favorable terms to the Company, if at all. If adequate funds are not available, we may be required to significantly reduce or re-focus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain of our products, technologies or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders (assuming convertible debt securities were converted into shares). These factors raise substantial doubt regarding our ability to continue as a going concern. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations.

As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2023.

During the six months ended June 30, 2024, there were no significant changes in our commercial commitments and contractual obligations as compared with the information presented in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 28, 2024.

Human Capital

As of August 9, 2024, we had 47 employees, including 18 in research and development, 8 in manufacturing and 21 in selling, general and administrative.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2024, our exposure to market risk has not changed materially since December 31, 2023. For more information on financial market risks related to changes in interest rates, reference is made to Part II, Item 7A., “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures: The Company’s principal executive and principal financial officers reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s principal executive and principal financial officers concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q the Company’s disclosure controls and procedures are effective at ensuring that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting: There were no significant changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material legal proceedings.

Item 1A. Risk Factors.

You should carefully consider the factors discussed in Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024, which could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. The risk factor set forth below supplements and updates the risk factors previously disclosed and should be read together with the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and with any risk factors we may include in subsequent filings with the SEC.

We will require and may have difficulty or be unsuccessful in raising needed capital in the future to continue to operate as a going concern

Our business currently does not generate sufficient revenues to meet our capital requirements and we do not expect that it will do so in the near future. We have expended and will continue to expend substantial funds to conduct the research, development, manufacturing and clinical testing of larsucosterol.

Presently, we do not have sufficient cash resources to meet our plans for the next twelve months from the issuance of the financial statements included herein. Our recurring losses from operations, negative cash flows and need for additional capital raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2023. We will require additional financing to fund our operations or we will have to significantly curtail or discontinue our operations to conserve our capital resources. Additional funds may not be available on acceptable terms, if at all, and such availability will depend on a number of factors, some of which are outside of our control, including general capital markets conditions and investors’ view of our prospects and valuation. In addition, our ability to raise capital in the public capital markets, including through the 2021 Sales Agreement, may be limited by, among other things, SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 for primary offerings of securities. Based on our public float, as of the date of the filing of this Quarterly Report on Form 10-Q, we are only permitted to utilize the shelf registration statement subject to Instruction I.B.6. to Form S-3, which is referred to as the “baby shelf” rule. For so long as our public float is less than $75 million, we may not sell more than the equivalent of one-third of our public float during any 12 consecutive months pursuant to the baby shelf rules. Although alternative public and private transaction structures may be available, these may require additional time and cost, may impose operational restrictions on us, and may not be available on attractive terms. Further, investors’ perception of our ability to continue as a going concern may make it more difficult for us to obtain financing, or necessitate that we obtain financing on terms that are more favorable to investors, and could result in the loss of confidence by investors, suppliers and employees. Our continued operations are contingent on our ability to raise additional capital or license or otherwise monetize our assets. If we do not acquire sufficient additional funding or alternative sources of capital to meet our working capital needs, we will have to substantially curtail or discontinue our operations, resulting in delays in the development of larsucosterol and in generating revenue.

Our actual capital requirements will depend on many factors, including:

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We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. For example, we do not currently have sufficient capital resources to conduct a Phase 3 trial of larsucosterol. We may seek to raise additional funds through equity or debt financings, convertible debt financings, collaborative arrangements with corporate collaborators or other sources, which, in each case, may be dilutive to existing stockholders and may cause the price of our common stock to decline. In addition, in the event that additional funds are obtained through arrangements with collaborators or other sources, we may have to relinquish rights to some of our technologies, products or product candidates that we would otherwise seek to develop or commercialize ourselves.

Item 5. Other Information

Insider Adoption or Termination of Trading Arrangements

During the fiscal quarter ended June 30, 2024, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

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Item 6. Exhibits

 

Exhibit Number			Exhibit Name
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, formatted in Inline XBRL: (i) Condensed Unaudited Balance Sheets, (ii) Condensed Unaudited Statements of Operations and Comprehensive Loss, (iii) Condensed Unaudited Statements of Changes in Stockholders’ Equity, (iv) Condensed Unaudited Statements of Cash Flows and (v) Notes to Condensed Unaudited Financial Statements, tagged as blocks of text and including detailed tags.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included as Exhibit 101).

* Filed herewith.

** Furnished, not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DURECT CORPORATION
	By:		/S/ JAMES E. BROWN
			James E. Brown Chief Executive Officer
Date: August 14, 2024
	By:		/S/ TIMOTHY M. PAPP
			Timothy M. Papp Chief Financial Officer (Principal Accounting Officer)
Date: August 14, 2024

 

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