UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
For the transition period from to
Commission file number: 000-31615
DURECT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3297098
(I.R.S. Employer
Identification No.)
10260 Bubb Road
Cupertino, CA 95014
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (408) 777-1417
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock $0.0001 par value per share
Trading Symbol(s)
DRRX
Name of Each Exchange on Which Registered
The NASDAQ Capital Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 of the Act. YES
NO
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 than 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, 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
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES
NO
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $169,632,305 as of June 30, 2020 based upon the closing sale price on
The Nasdaq Global Market reported for such date. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been
excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
There were 227,201,863 shares of the registrant’s Common Stock issued and outstanding as of March 1, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive Proxy Statement for the 2020 annual meeting of stockholders, which is expected to be filed not later than 120
days after the Registrant’s fiscal year ended December 31, 2020.
DURECT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
PART I
ITEM 1.
Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4.
Mine Safety Disclosures
Page
1
26
58
58
58
58
ITEM 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 59
PART II
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
PART III
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accountant Fees and Services
ITEM 15. Exhibits, and Financial Statement Schedules
PART IV
Exhibit Index
ITEM 16. Form 10-K Summary
Signatures
61
76
78
112
112
113
113
113
113
113
113
114
119
120
121
Item 1.
Business.
Overview
PART I
We are a biopharmaceutical company advancing novel and potentially lifesaving investigational therapies
derived from our Epigenetic Regulator Program. DUR 928, a new chemical entity in clinical development, is
the lead candidate in our Epigenetic Regulator Program. An endogenous, orally bioavailable small molecule,
DUR-928 has been shown in preclinical studies to play an important regulatory role in lipid homeostasis,
inflammation, and cell survival. Alcohol-associated hepatitis (AH) is a life-threatening acute liver condition with
no approved therapeutics and a 28-day historical mortality rate of 26%. After completing a Phase 2a trial
where 100% of AH patients treated with DUR-928 survived the 28-day study period, we are now conducting a
double-blind, placebo-controlled Phase 2b clinical trial called AHFIRM, in which we are evaluating DUR-928’s
life saving potential compared to the current standard of care in patients with severe AH. If the AHFIRM trial is
successful, it may support an NDA filing, and we may decide to develop our own commercial, sales and
marketing organization. DUR-928 is also being investigated in patients with nonalcoholic steatohepatitis
(NASH).
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 3 days in adults. In February 2021, we
announced that the U.S. Food and Drug Administration (FDA) approved POSIMIR for infiltration use in adults for
administration into the subacromial space under direct arthroscopic visualization to produce post-surgical
analgesia for up to 72 hours following arthroscopic subacromial decompression. The approval was based on
positive data from a randomized, multicenter, assessor-blinded, placebo controlled clinical trial in patients
undergoing arthroscopic subacromial decompression surgery with an intact rotator cuff. The primary outcome
measures were mean pain intensity and total opioid rescue analgesia administered, both evaluated over the
first 72 hours after surgery versus placebo. POSIMIR demonstrated a statistically significant improvement in
both primary outcome measures: a 1.3 point, or 20%, reduction in mean pain intensity on a 0-10 point pain
scale (p=0.01), and a 67% reduction in intravenous morphine-equivalent rescue opioid use, from a median of
12 mg in the placebo group to 4 mg in the POSIMIR group (p=0.01). We are in discussions with potential
licensees regarding commercialization rights to POSIMIR, for which we hold worldwide rights.
As a result of the assignment of certain patent rights, DURECT also receives single digit sales-based earn-
out payments from U.S. net sales of Indivior’s PERSERIS™ (risperidone) drug for schizophrenia, which was
launched commercially in the U.S. February 2019. In addition, in September 2020, our licensee, Orient
Pharma informed us that it had launched Methydur Sustained Release Capsules (Methydur) for the treatment of
attention deficit hyperactivity disorder (ADHD) in Taiwan. We receive a single digit royalty on sales of Methydur
by Orient Pharma. We also manufacture and sell ALZET osmotic pumps used in laboratory research and have
several early-stage development programs with corporate collaborators on terms which typically call for our
collaborator to fund all or a substantial portion of future development costs of the program and make
milestone payments to us based on specific development or commercial achievements and royalty payments
on product sales.
NOTE: POSIMIR®, SABER®, CLOUDTM, ORADUR™ and ALZET ® are trademarks of DURECT Corporation.
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.
1
Epigenetic Regulator Program and New Chemical Entities
Epigenetic regulation involves biochemical modification of either DNA itself or proteins that are
intimately associated with DNA. These modifications lead to changes in gene expression that facilitate
downstream biological effects.
DURECT’s Epigenetic Regulator Program involves a multi-year collaborative effort with the Department of
Internal Medicine at Virginia Commonwealth University (VCU), the VCU Medical Center and the McGuire VA
Medical Center. The knowledge base supporting this program is a result of more than 30 years of lipid research
by Shunlin Ren, M.D., Ph.D., Professor of Internal Medicine at the VCU Medical Center. The lead compound
from this program, DUR-928, is an endogenous, orally bioavailable small molecule that modulates the gene
expression of various nuclear receptors that play important regulatory roles in lipid homeostasis,
inflammation, and cell survival. Under a license with VCU, we hold the exclusive royalty-bearing worldwide
right to develop and commercialize DUR-928 and related molecules discovered in the program.
The biological activity of DUR-928 has been demonstrated in over a dozen different animal disease
models involving three animal species. Some of these models represent acute organ injuries (e.g., endotoxin
shock, acute oxidative stress, ischemic-reperfusion injury in the kidney and brain) and several represent
chronic metabolic disorders involving hepatic lipid accumulation and dysfunction (e.g., NASH and NAFLD).
Our major product research and development efforts for DUR-928 are in the following table:
In pharmacokinetic (PK) and toxicology studies conducted in mice, hamsters, rats, rabbits, dogs, minipigs
and monkeys, DUR-928 has been found to be tolerable and safe by all routes of administration tested to date.
These results support the use of DUR-928 in completed, ongoing and planned human safety, PK, proof-of-
concept, and efficacy trials. The chronic toxicity of DUR-928 was further assessed in a 6-month oral study in
rats and in a 9-month oral study in dogs. These studies were completed successfully and support long duration
human clinical trials of DUR-928.
2
Acute Organ Injury Program with Injectable DUR-928
Market Opportunity. Alcohol-associated hepatitis (also called alcoholic hepatitis or AH), an acute form of
alcohol-associated liver disease (ALD), is associated with long-term heavy intake of alcohol and often occurs
after a recent period of increased alcohol consumption. AH is typically characterized by recent onset jaundice
and hepatic failure. An analysis of 77 studies published between 1971 and 2016, which included data from a
total of 8,184 patients, showed the overall mortality from AH was 26% at 28 days and 29% at 90 days.
According to the most recent data provided by the Agency for Healthcare Research and Quality (AHRQ), a part
of the US Department of Health and Human Services (HHS), there were 122,000 hospitalizations for patients
with AH in 2017. From a recent publication analyzing the mortality and costs associated with AH, the cost per
patient is estimated at over $50,000 in the first year. ALD is one of the leading causes of liver transplants in the
US, each of which cost over $875,000.
Clinical Program. In 2019, we completed a Phase 2a clinical trial evaluating intravenously infused DUR-
928 in patients with moderate and severe AH. This was an open label, dose escalation (30, 90 and 150 mg),
multi-center U.S. study, originally designed to be conducted in two sequential parts. Part A included patients
with moderate AH and Part B included patients with severe AH. Severity of AH was determined by the Model of
End-Stage Liver Disease (MELD) scores, a common scoring system to assess the severity and prognosis of AH
patients; moderate was defined as MELD 11-20 and severe as MELD 21-30.
In this Phase 2a trial, dose escalation was permitted following review of safety and pharmacokinetic (PK)
results of the prior dose level by a Dose Escalation Committee. The target number of patients for the study was
4 per dose group. Final enrollment included 19 patients with moderate and severe AH, who were administered
DUR-928 intravenously at three different doses. Eight patients (four moderate and four severe) were dosed at
30mg, seven patients (three moderate and four severe) were dosed at 90mg and four patients (all severe) were
dosed at 150mg. After being discharged on day two, one patient did not return for the scheduled day seven
and day 28 follow-up visits; therefore Lille, bilirubin and MELD data reported below are based on 18 patients.
The objectives of this study included assessment of safety, PK and pharmacodynamic (PD) signals, including
liver biochemistry, biomarkers, and prognostic scores, including the Lille score, following DUR-928 treatment.
In November 2019, the results from this Phase 2a clinical trial of DUR-928 in alcoholic hepatitis (AH) were
presented as a late-breaking oral presentation at The Liver Meeting®. The study results were also selected for
inclusion in the ‘Best of The Liver Meeting’ summary slide presentation in the alcohol-related liver disease
category.
All 19 patients treated with DUR-928 in this trial survived the 28-day follow-up period and there were no
drug-related serious adverse events. Using an alternative measure of AH severity to MELD, Maddrey’s
Discrimination Function (DF), 15 of the 19 patients had DF scores of 32 or greater, indicating that they had
severe AH. Patients treated with DUR-928 had a statistically significant reduction from baseline in bilirubin at
day 7 and 28 and MELD at day 28. Lille scores, described below, were also statistically significantly lower than
those from a well-matched group of patients in a contemporary ongoing trial as well as several published
historical controls. 74% of all DUR-928 treated patients and 67% of those with severe AH were discharged
from the hospital within four days of receiving a single dose of DUR-928.
Lille
Lille scores are used in clinical practice to help determine the prognosis and response of AH patients after
seven days of treatment. The lower the Lille score, the better the prognosis. Patients with a Lille score below
0.45 have a six-month survival rate of 85% compared to those with Lille scores above 0.45, who have only a
25% six-month survival rate. The chart below shows the Lille scores for individual AH patients treated with
DUR-928 plotted as a function of their baseline MELD scores. In our study, the median Lille score for patients
treated with DUR-928 was 0.10. The median Lille score among a cohort of 15 patients treated with standard of
care at the University of Louisville (UL) was 0.41 (shown as historical control).
3
The chart below shows individual patient Lille scores plotted as a function of their baseline MELD scores.
1) Our advisor, Dr. Craig McClain from the University of Louisville (UL), shared anonymized data from
his study, in which 15 AH patients with initial MELD scores ranging from 15-30 received either
supportive care alone (n=8 moderate AH patients) or supportive care with corticosteroids (n=7 severe
AH patients). Two of the UL control patients died by day 28.
2) One patient in the DUR-928 group did not return for the day 7 or 28 visit. All 19 patients, including
this one, treated with DUR-928 in this trial survived the 28-day follow-up period.
3) Lille scores in the DUR-928 group were significantly lower than that of the UL patients (p=0.01;
Wilcoxon's Rank Sum Test).
4
As shown below, 100% of patients in the 30 mg and 90 mg DUR-928 dosing groups were treatment
responders based on their Lille scores. 89% of the overall DUR-928 patient population were treatment
responders based on Lille. Patients with severe AH, as defined by Maddrey’s Discriminant Function (DF) ≥32 or
MELD 21-30, and baseline serum bilirubin above 8 mg/dL, had similarly high response rates to DUR-928
treatment.
AH Patient Category
All Patients2
30 or 90 mg DUR-9283
DF≥32 (SAH)2, 4
30 or 90 mg DUR-9283
MELD 21-302
30 or 90 mg DUR-9283
Baseline bilirubin >8mg/dl2
30 or 90 mg DUR-9283
n1
18
14
15
11
12
8
11
8
Responders
Lille
(Lille<0.45)
Median (Quartile)
89%
100%
87%
100%
83%
100%
82%
100%
0.10 (0.04, 0.20)
0.05 (0.04, 0.19)
0.19 (0.05, 0.22)
0.12 (0.05, 0.19)
0.19 (0.11, 0.25)
0.19 (0.10, 0.19)
0.10 (0.05, 0.20)
0.10 (0.05, 0.19)
1) One patient did not return for Day 7 and 28 visits;
2) Including patients receiving 30, 90 and 150 mg of DUR-928;
3) Excluding patients receiving 150 mg of DUR-928.
4) Maddrey’s Discriminant Function (MDF or DF) is calculated using the patient’s prothrombin time and
serum bilirubin level. DF was introduced in 1978 as a predictor of significant mortality risk for AH
patients. A DF≥32 identified AH patients with a 30-day mortality rate of ≥50%.
The Lille scores of patients treated with DUR-928 in this trial were also significantly lower than several
selected published historical studies (Hepatology 2007, 45:1348-1354; Gut 2011, 60:255-260), in which
patients had similar baseline bilirubin, albumin, creatinine, prothrombin time and DF scores, and were treated
with standard of care with or without corticosteroids. Of course, due to the historical nature of these studies,
such comparisons should be taken cautiously.
A sub-group analysis was conducted to compare severe AH patients in the 30 mg and 90 mg dosing
groups (n=8) with well-matched severe AH patients (n=13) who received corticosteroids for 28 days in a
contemporaneous study at the University of Louisville (UL). Patients shown below in the UL steroid group had
a mean baseline MELD of 24.46 and mean baseline Maddrey’s DF score of 62.98. The 8 patients in the DUR-
928 group had baseline mean MELD of 24.50 and mean baseline Maddrey’s DF score of 61.25. All patients
treated with DUR-928 survived the 28-day follow up period, while 3 of the 13 patients (23%) in the UL steroid
group died within the first 28 days.
5
The steroid group in the above graph includes the 7 severe AH patients treated with steroids from the UL group
shown in the MELD vs Lille graph above plus an additional 6 severe AH patients subsequently treated in the UL
study.
Bilirubin
Bilirubin is formed by the breakdown of red blood cells in the body. The level of total bilirubin in the
blood is an indication of how the liver is functioning. High bilirubin levels are associated with liver dysfunction
and disease. In this trial, patients treated with DUR-928 had a significant early reduction from baseline in
bilirubin by day 7. Patients with more elevated bilirubin at baseline (serum bilirubin >8 mg/dL) had a median
reduction from baseline of 25% by day 7 and 48% by day 28.
*p<0.05 compared to baseline (Wilcoxon's Signed Rank Test)
MELD is another common scoring system used to assess the severity and prognosis of AH
patients. Patients with MELD scores of 11-20 are classified as having moderate AH and patients with MELD
scores of 21-30 are classified as having severe AH. As with Lille scores, the lower the MELD score, the better
the prognosis for the AH patient. In this study (shown in the chart below), the median reduction from baseline
in MELD among all DUR-928 treated patients was >2 points and among those with baseline bilirubin levels >8
mg/dL was 5 points by day 28.
6
*p<0.05 compared to baseline (Wilcoxon's Signed Rank Test)
MELD is calculated based on (a) bilirubin, (b) serum creatinine (sCr), and (c) International Normalized Ratio (INR),
which is a measure of prothrombin time.
Safety and Pharmacokinetics
In the Phase 2a study of DUR-928 in AH, DUR-928 was well tolerated at all doses tested. There were no
drug-related serious adverse events and only three adverse events designated as possibly or probably related
to DUR-928: one occurrence of moderate generalized pruritus, one mild rash and one grade two alkaline
phosphatase elevation. There were no discontinuations, early withdrawals or termination of study drug or
study participation due to adverse events. All patients treated with DUR-928 survived through the 28-day
follow-up period. Drug exposures were dose proportional and were not affected by the severity of the disease.
In December 2020, we announced that the FDA had granted DUR-928 Fast Track Designation for the
treatment of AH. The FDA grants Fast Track Designation to facilitate development and expedite the review of
therapies with the potential to treat a serious condition where there is an unmet medical need. A therapeutic
that receives Fast Track Designation can benefit from early and frequent communication with the agency in
addition to a rolling submission of the marketing application, with the objective of getting important new
therapies to patients more quickly.
In January 2021, we announced the dosing of the first patient in our Phase 2b study in subjects with AH
to evaluate saFety and effIcacy of DUR-928 treatMent (AHFIRM). AHFIRM is a randomized, double-blind,
placebo-controlled, international, multi-center Phase 2b study to evaluate the safety and efficacy of DUR-928 in
approximately 300 patients with severe AH. The study is comprised of three arms targeting approximately 100
patients each: (1) Placebo plus standard of care (SOC, which may include the use of methylprednisolone, a
corticosteroid, at the discretion of the treating physician); (2) DUR-928 (30 mg); and (3) DUR-928 (90 mg).
Patients receive an intravenous (IV) dose of DUR-928 or placebo (sterile water) on day 1 and a second IV dose
on day 4 if they are still hospitalized. The primary outcome measure will be the 90-day survival rate for
patients treated with DUR-928 compared to those treated with placebo plus SOC. Secondary endpoints include
28-day survival, the rate of adverse events, Lille and MELD (prognostic scores), and time in the intensive care
unit. We are targeting 40-50 clinical trial sites in the United States, Europe and Australia.
Phase 1 trials of DUR-928 administered through injection have supported the development of DUR-928
in AH. The initial Phase 1 trial in healthy subjects was a single-site, randomized, double-blinded, placebo-
controlled, single-ascending-dose study that evaluated the safety, tolerability and PK of intramuscular (IM)
injected DUR-928. The 24-subject study (16 healthy volunteers on the drug and 8 on
7
placebo) of four escalating dose levels resulted in dose proportional systemic exposure of DUR-928 with peak
plasma concentrations greater than 1000-fold higher than endogenous levels. DUR-928 was well-tolerated at
all dose levels, with no serious treatment-related adverse events reported. We also conducted a multiple-dose
study involving 10 healthy subjects, in which participants received IM-injected DUR-928 for 5 consecutive days
(8 subjects on the drug, 2 on placebo) using the next to highest dose from the single dose study. No serious
treatment related adverse events were reported, no subjects withdrew from the study, no accumulation in
plasma concentrations were observed with repeat dosing, and the pain scores and injection site reactions were
minimal. We also conducted a single-ascending dose intravenous (IV) infusion study with 16 healthy subjects
and observed no treatment-related serious adverse events. The systemic exposure following IV infusion was
dose proportional.
A Phase 1 drug-drug interaction study conducted in healthy subjects demonstrated that neither orally
administered nor intravenously injected DUR-928 at doses tested affected the safety and PK of midazolam, a
drug metabolized by CYP3A4, which is one of the important enzymes associated with clinically relevant drug-
drug interactions.
We have also conducted a Phase 1b study with injected DUR-928 in patients with impaired kidney
function (stage 3 and 4 chronic kidney disease (CKD)) and matched control subjects (MCS), matched by age,
body mass and gender with normal kidney function. This study was a single-site, open-label, single-ascending-
dose study in two successive cohorts (first a low dose of 30 mg and then a high dose of 120 mg) evaluating
safety and PK of intramuscular injected DUR-928. The low dose cohort consisted of 6 patients with CKD and 3
MCS; the high dose cohort consisted of 5 CKD patients and 3 MCS. In this trial, DUR-928 was well tolerated
among all subjects and the PK parameters between the kidney function impaired patients and the MCS were
comparable. The results of this Phase 1b trial were presented at Kidney Week 2018 in San Diego.
COVID-19 Program with Intravenous DUR-928
Since we initiated our clinical trial of DUR-928 in patients with COVID-19, several vaccines and
therapeutics for COVID-19 have been approved and are being deployed worldwide. Treatment regimens for
patients with COVID-19 have also evolved, the disease landscape has changed and additional therapies have
entered clinical trials. Consequently, there have been a limited number of patients eligible or willing to enroll in
our trial, and we have elected to discontinue the trial.
Chronic Liver Disease Program with Orally Administered DUR-928
Market Opportunity. Non-alcoholic fatty liver disease (NAFLD) is the most common form of chronic liver
disease in both children and adults. It is estimated that NAFLD affects approximately 30% to 40% of adults
and 10% of children in the United States. Non-alcoholic steatohepatitis (NASH), a more severe and progressive
form of NAFLD, is one of the most common chronic liver diseases worldwide, with an estimated prevalence of
3-5% globally. No drug is currently approved for treatment of NAFLD or NASH. Moreover, alcoholic fatty liver
disease (AFLD), including its more advanced stage, alcoholic steatohepatitis (ASH), develops in approximately
90% of individuals who drink more than 60 grams/day of alcohol, but may occur in individuals who drink less,
and is a major contributor to the global burden of liver cirrhosis. In addition to these liver diseases, there are a
number of orphan liver diseases for which we may seek to develop DUR-928.
Clinical Program. In 2020, we completed a Phase 1b randomized, multi-center, and open-label clinical
study in the United States to evaluate safety, PK and signals of biological activity of DUR-928 in NASH patients
with stage 1-3 fibrosis. DUR-928 (at doses of 50 mg QD, 150 mg QD and 300 mg BID) was administered orally
for 28 days with 20 patients or more per dose group for a total of 65 patients in the trial as shown below. Key
endpoints included safety and PK, clinical chemistry and biomarkers (e.g., ALT, AST, GGT, triglycerides, Non-
HDL-C, CK-18s, inflammatory cytokines) as well as liver fat content and liver stiffness by imaging (e.g., MRI-
PDFF and FibroScan®).
8
In May 2020, we reported positive topline results from this Phase 1b clinical study of orally
administered DUR-928 in NASH patients. In November 2020, we presented additional safety data and efficacy
signals at the The AASLD Liver Meeting Digital Experience™ (TLMdX).
A total of 65 patients completed the study, in which DUR-928 was orally administered daily for 4
weeks at 50 mg (n=23), 150 mg (n=21), or 600 mg (300 mg BID (n=21)) and followed up for an additional 4
weeks. Both the 50 mg and 600 mg dose groups showed a statistically significant median reduction at day 28
from baseline of serum alanine aminotransferase (ALT) levels at -16% and -17%, respectively. The 600 mg dose
group also showed statistically significant median reductions at day 28 from baseline of serum aspartate
aminotransferase (AST) (-18%) and gamma-glutamyl transferase (GGT) (-8%), and the 50 mg dose group had a
statistically significant reduction at day 28 from baseline in liver stiffness as measured by Fibroscan (-10%).
Patients in the 50 mg or 150 mg dose groups also had statistically significant median reduction at day
28 from baseline of serum triglycerides (-13% in the 50 mg group) or LDL-C (-11% in the 150mg group).
Patients with elevated baseline triglycerides (≥200 mg/dL; n=16) across all dose groups had a median reduction
at day 28 from baseline of -24% (p <0.01).
At day 28, 43% of patients in all three dose groups showed ≥ 10% liver fat reduction from baseline as
measured by magnetic resonance imaging - proton density fat fraction (MRI-PDFF). In this subgroup, there was
a significant reduction from baseline in median liver fat content (-18%, -19%, and -23%, in the 50 mg, 150 mg
and 600 mg groups respectively). The reduction of liver fat content was accompanied by a significant median
reduction from baseline of serum ALT (-21%, -19%, and -32%, in the 50 mg, 150 mg and 600 mg groups
respectively), as well as both CK-18, M30 and M65 in the 50 mg and 600 mg groups. We may report additional
efficacy signals of this trial at a future medical conference.
DUR-928 was well tolerated at all three doses evaluated. There were no serious adverse events
reported during the study, and no discontinuations, early withdrawals or termination of study drug or study
participation due to adverse events. PK parameters after repeat dosing were comparable to those after a single
dose (from a prior study), indicating no accumulation of the drug after repeat dosing.
9
Topline Data Summary (Day 28 vs Baseline)
Median at Day 28
* p < 0.05
** p < 0.01
*** p < 0.001
Liver
Enzymes
ALT
AST
GGT
MRI-PDFF
Imaging
All Subjects
Patients with ≥ 10% Reduction in
MRI-PDFF
50 mg QD
(n=21-23)
150 mg QD
(n=20-21)
300 mg BID
(n=20-21)
50 mg QD
(n=9)
150 mg QD
(n=8)
300 mg
BID
(n=9)
-16%*
-10%
-17%***
-21%**
-19%*
-32%***
-14%
-6%
-7%
FibroScan
-10%**
LDL-C
Non-HDL-C
-6%
-8%
Triglycerides
-13%*
-9%
-1%
-7%
-9%
-11%*
-5%
-3%
-18%**
-24%**
-21%
-39%***
-8%*
-13%***
-16%*
-14%
-4%
-1%
-7%
-1%
-2%
-18%***
-19%***
-23%***
-7%
-7%
-10%
-9%
-9%**
-11%
-8%*
0%
-9%
-8%*
-12%*
-8%
CK-18, M30
-14.6%
-8.6%
-16.1%
-22.8%***
-3.8%
-42.1%*
CK-18, M65
-18.1%
-9.9%
-35.0%
-28.1%***
-8.7%
-55.8%*
Serum
Lipids
Biomarkers
ALT (alanine aminotransferase); AST (aspartate aminotransferase); GGT (gamma-glutamyl transferase); MRI-
PDFF (Magnetic Resonance Imaging - Proton Density Fat Fraction) is a non-invasive measure of the proportion
of liver tissue which is composed of fat; FibroScan is a specialized ultrasound machine that measures the
stiffness of liver tissue. LDL-C ( Low-Density Lipoprotein – Cholesterol); Non-HDL-C (Total cholesterol excluding
High-Density Lipoprotein-Cholesterol); QD (once a day); BID (twice a day); CK-18 (cytokeritin 18)
We have completed multiple Phase I trials in healthy subjects with orally administered DUR-928. These
included single-ascending-dose and multiple-ascending-dose studies as well as a food effect study. In all of
these studies DUR-928 was well-tolerated at all dose levels, with no serious treatment-related adverse events
reported. Dose related increases in plasma concentrations were observed and no accumulation in plasma
concentrations or food effects were observed with repeat dosing.
We also conducted a Phase 1b trial in cirrhotic and non-cirrhotic NASH patients and matched control
subjects (MCS) (matched by age, body mass index and gender with normal liver function) utilizing orally
administered DUR-928. This was an open-label, single-ascending-dose safety and PK study conducted in
Australia in two successive dose cohorts (first a low dose of 50 mg and then a high dose of 200 mg). Both
cohorts consisted of 10 NASH patients and 6 MCS. Data from this study was presented at the International Liver
Congress™ 2017 organized by the European Association for the Study of the Liver (EASL) in Amsterdam in April
2017. All patients and MCS in this study tolerated DUR-928 well. One patient (with a prior history of
arrhythmia and an ongoing viral infection) in the high dose cohort experienced a serious adverse event
(shortness of breath), which occurred without unusual
10
biochemical changes and resolved without intervention but was considered possibly treatment related by the
physician due to its temporal association with dosing. In both low and high dose cohorts, the PK parameters
were comparable between the NASH patients and the MCS. In addition, the systemic exposure following the
low and high doses of DUR-928 was dose dependent.
While this study was not designed to assess efficacy, we observed statistically significant reductions from
baseline of several biomarkers after both doses of DUR-928. A single oral dose of DUR-928 significantly
reduced the levels of both full-length (M65) and cleaved (M30) cytokeratin-18 (CK-18), bilirubin, hsCRP, and IL-
18 in these subjects. The mean decrease of full-length CK-18 (a generalized cell death marker) at the measured
time point of greatest effect (12 hours after dosing) was 33% in the low dose cohort and 41% in the high dose
cohort. The mean decrease of cleaved CK-18 (a cell apoptosis marker) at the measured time point of greatest
effect (12 hours after dosing) was 37% in the low dose cohort and 47% in the high dose cohort. The mean
reduction of total bilirubin (a liver function marker) at the measured time point of greatest effect (12 hours after
dosing) was 27% in the low dose cohort and 31% in the high dose cohort. The mean decrease of high
sensitivity C-Reactive Protein (hsCRP) (a marker of inflammation) at the measured time point of greatest effect
(24 hours after dosing) was 8% in the low dose cohort and 13% in the high dose cohort. The mean decrease of
IL-18 (an inflammatory mediator) at the measured time point of greatest effect (8 hours after dosing) was 4% in
the low dose cohort and 8% in the high dose cohort.
Collectively, the biological signals observed in NASH patients plus results from our animal and cell culture
studies suggest potential therapeutic activity of DUR-928 for patients with liver diseases. However, additional
studies are required to evaluate the safety and efficacy of DUR-928, and there is no assurance that these
biomarker, clinical chemistry and liver imaging effects will be associated with clinically relevant benefits, or that
DUR-928 will demonstrate safety or efficacy in treating liver diseases in our ongoing or future trials.
We have also conducted a Phase 1b safety and PK study in subjects with moderate and severe hepatic
function impairment (Child-Pugh Class B (n=10) and C (n=7) and matched control subjects (n=10)) following a
single oral dose of DUR-928 to support potential inclusion of patients with advanced fibrosis (f4) and cirrhosis
in future clinical trials. DUR-928 was well tolerated by these subjects with no drug-related serious adverse
events reported in this trial. We plan to report results of this trial at a future medical conference.
11
Approved and Commercial Pharmaceutical Products
POSIMIR® (bupivacaine solution)
POSIMIR (bupivacaine solution) for infiltration use is a novel and proprietary product that combines the
strength of 660 mg of bupivacaine base with the innovative SABER® platform technology, enabling continuous
sustained delivery of a non-opioid local analgesic over 3 days in adults, which we believe coincides with the
time period of the greatest need for post-surgical pain control in most patients. POSIMIR contains more
bupivacaine than any other approved single-dose sustained-release bupivacaine product. At the end of
surgery, POSIMIR is administered into the subacromial space under direct arthroscopic visualization, where it
continuously releases bupivacaine for 72 hours or more. We are in discussions with potential licensees
regarding commercialization rights to POSIMIR, for which we hold worldwide rights.
In February 2021, the U.S. Food and Drug Administration (FDA) approved POSIMIR for infiltration use in
adults for administration into the subacromial space under direct arthroscopic visualization to produce post-
surgical analgesia for up to 72 hours following arthroscopic subacromial decompression. The approval was
based on positive data from a randomized, multicenter, assessor-blinded, placebo controlled clinical trial in
patients undergoing arthroscopic subacromial decompression surgery with an intact rotator cuff. The primary
outcome measures were mean pain intensity and total opioid rescue analgesia administered, both evaluated
over the first 72 hours after surgery versus placebo. POSIMIR demonstrated a statistically significant
improvement in both primary outcome measures: a 1.3 point, or 20%, reduction in mean pain intensity on a 0-
10 point pain scale (p=0.01), and a 67% reduction in I.V. morphine-equivalent rescue opioid use, from a
median of 12 mg in the placebo group to 4 mg in the POSIMIR group (p=0.01). In connection with this approval,
we or our licensee, will be required to conduct two postmarketing non-clinical studies. Full Prescribing
Information, including the Boxed Warning, is available at www.POSIMIR.com.
12
Market Opportunity. Arthroscopic Subacromial Decompression (ASD) Shoulder Surgery
Subacromial decompression is a type of shoulder surgery used to treat impingement syndrome, a
common repetitive-use injury that causes pain when the arm is raised over the head. The procedure is typically
performed arthroscopically, meaning that several small incisions are made in the skin and muscle of the
shoulder through which a camera lens (arthroscope) and surgical instruments are inserted during surgery.
Arthroscopic subacromial decompression is generally considered outpatient surgery, and most patients go
home within a few hours of surgery. The recovery period may extend from weeks to months, but the most
intense pain typically occurs during the first 3 days after surgery and is often managed with oral opioids. There
are over 600,000 surgeries involving arthroscopic subacromial decompression performed each year in the U.S.
While ASD is the first approved indication for POSIMIR, there may be opportunities to expand the
indication and addressable patient population based on existing data or data generated from additional
POSIMIR trials. According to data published by the Center for Disease Control and Prevention, there are
approximately 72 million ambulatory and inpatient surgical procedures performed annually in the U.S.
Insufficient postoperative pain control remains a significant problem, with studies indicating that roughly 65%
of patients experience moderate-to-extreme pain after surgery. The current standard of care for post-surgical
pain includes a variety of opiate and non-opiate analgesics and muscle relaxants. While systemic opioids can
effectively reduce post-surgical pain, they commonly cause side effects including drowsiness, constipation,
nausea and vomiting, and cognitive impairment, and have the potential for addiction and abuse. Post-surgical
pain also can be treated effectively with local anesthetics; however, their usefulness often is limited by their
short duration of action.
PERSERIS™(risperidone)
In September 2017, we entered into an agreement with Indivior, under which we assigned to Indivior
certain patents that may provide further intellectual property protection for PERSERIS, Indivior’s extended-
release injectable suspension for the treatment of schizophrenia in adults. In consideration for such
assignment, Indivior has made non-refundable upfront and milestone payments to DURECT of $17.5
million. Under the terms of the agreement with Indivior, DURECT receives quarterly earn-out payments that
are based on a single digit percentage of U.S. net sales of PERSERIS into 2026. Indivior commercially launched
PERSERIS in the U.S. in February 2019.
ORADUR-ADHD Program
In collaboration with Orient Pharma (OP), we developed a drug candidate based on our ORADUR
technology for the treatment of ADHD. This drug candidate is intended to provide once-a-day dosing. In August
2009, we entered into a development and license agreement, as amended, with OP, a diversified multinational
pharmaceutical, healthcare and consumer products company with headquarters in Taiwan, under which we
granted to OP development and commercialization rights in certain defined Asian and South Pacific countries
to ORADUR-Methylphenidate ER. We retain rights to North America, Europe and all other countries not
specifically licensed to OP.
OP has informed us that they launched Methydur commercially in Taiwan in September 2020. Methydur
is indicated for the treatment of ADHD and is available in three strengths (22 mg, 33 mg and 44 mg) in Taiwan.
They may seek a partner in China and pursue regulatory approvals in selected other countries in Southeast Asia
where OP has commercialization rights and a commercialization presence. We receive a single digit royalty on
sales of Methydur by OP and retain rights to this product in markets not specifically licensed to OP.
13
Drug Delivery Technologies and Programs
Our drug delivery technologies are designed to deliver the right drug to the right place, in the right
amount and at the right time to treat a variety of chronic, acute and episodic diseases and conditions. We aim
to improve therapy for a given disease or patient population by controlling the rate and duration of drug
administration. In addition, if advantageous for the therapy, our technologies can target the delivery of the
drug to its intended site of action.
Our technologies are suitable for providing long-term drug therapy because they can often store highly
concentrated, stabilized drugs in a small volume and protect the drug from degradation by the body. This, in
combination with the ability to continuously deliver desired doses of a drug, can extend the therapeutic value
of a wide variety of drugs, including, in some cases, those which would otherwise be ineffective, too unstable,
too potent or cause adverse side effects. In some cases, delivering the drug directly to the intended site of
action can improve efficacy while minimizing unwanted side effects elsewhere in the body, which often limit
the long-term use of many drugs. Our technologies may thus provide better therapy for chronic diseases or
conditions, or for certain acute conditions where longer drug dosing is required or advantageous, by replacing
multiple injection therapy or oral dosing, improving drug efficacy, reducing side effects and ensuring dosing
compliance. Our technology may thereby improve patients’ quality of life by eliminating more repetitive
treatments, reducing dependence on caregivers and allowing patients to lead more independent lives.
We currently have several active drug delivery technology platforms:
The SABER and CLOUD Bioerodible Injectable Depot Systems
Our bioerodible injectable depot systems include our SABER and CLOUD platform technologies. SABER
uses a high viscosity base component, such as sucrose acetate isobutyrate (SAIB), to provide controlled release
of a drug. When the high viscosity SAIB is formulated with drug, biocompatible excipients and other additives,
the resulting formulation is easily injectable with standard syringes and needles. After injection of a SABER
formulation, the excipients diffuse away over time, leaving a viscous depot which provides controlled
sustained release of drug. CLOUD is a class of bioerodible injectable depot technology which generally does
not contain SAIB but includes various other release rate modifying excipients and/or bioerodible polymers to
achieve the delivery of drugs for periods of days to months from a single injection.
The SABER technology is the basis of POSIMIR (described above). The SABER technology is also utilized in
our ophthalmic program with Santen Pharmaceutical Co., Ltd. (Santen), as well as in feasibility programs.
The SABER technology is also the basis for SucroMate™ Equine, an injectable animal health drug utilizing
our SABER technology to deliver the peptide deslorelin. This was the first FDA approved SABER injectable
product when it was launched in 2011 by CreoSalus, Inc.
Sustained Release Gel Cap Technology
We believe that our ORADUR sustained release technology can transform short-acting oral capsule
dosage forms into sustained release oral products. Products based on our ORADUR technology can take the
form of an easy to swallow capsule that uses a high-viscosity base component such as sucrose acetate
isobutyrate (SAIB) to provide controlled release of active ingredients for an extended period of time. Oral
dosage forms based on the ORADUR gel-cap may also have the added benefit of being less prone to abuse
(e.g., by crushing and then snorting, smoking, injecting or extracting by mixing with alcohol or water). These
properties have the potential to make ORADUR-based products an attractive option for pharmaceutical
companies that seek to develop abuse-deterrent oral products.
The ORADUR technology is the basis of our ORADUR-Methylphenidate ER program (described above).
14
DURECT Strategy
Our objective is to develop multiple pharmaceutical products that address significant unmet medical
needs and improve patients’ quality of life. To achieve this objective, our strategy includes the following key
elements:
Focus on Areas with the Potential for Significant Value Creation. We view patients, physicians, the
healthcare system, payers, and strategic partners, as all being important stakeholders in our company. We
believe that developing the products in our pipeline, which may address significant unmet medical needs and
may create value for our stakeholders, also has the potential to create value for our shareholders.
Apply our Drug Development Expertise to New Chemical Entities Derived from our Epigenetic Regulator
Program. We have assembled a core team of employees with considerable experience in drug development,
and it is our intent to leverage their capabilities by developing pharmaceuticals derived from our Epigenetic
Regulator Program. We believe that these new chemical entities may have utility in acute organ injuries such as
AH, in various orphan diseases, and for several metabolic diseases such as NASH. We believe that these
product candidates may be of interest to other pharmaceutical companies and that it may be possible to
license the rights to certain products, formulations, indications or territories from this program while retaining
the rights to other product candidates, formulations, indications or territories for either our own development
and commercialization or for licensing at a later stage of development. The sale of the LACTEL product line to
Evonik in the fourth quarter of 2020 has streamlined the company and sharpened our focus on developing
DUR-928, the lead product candidate in our Epigenetic Regulator Program.
Focus on Certain Acute Indications, Chronic Debilitating Medical Conditions and Certain Local Pain
Conditions. Many of the diseases and disorders that present great challenges to medicine include acute organ
injury, metabolic disorders, pain management, CNS disorders, cardiovascular disease, ophthalmic conditions
and other acute and chronic conditions. Our current efforts focus on exploiting our Epigenetic Regulator
Program through which we have identified new chemical entities that may have utility in conditions such as
acute organ injuries and chronic metabolic/lipid disorders and on using our versatile drug delivery platform
technologies to develop products that improve current treatment options.
Diversify Risk by Pursuing Multiple Programs in Development. In order to reduce the risks inherent in
pharmaceutical product development, we have diversified our product pipeline such that, we are pursuing
multiple indications with our lead epigenetic regulator, DUR-928, and we have several early-stage programs
being developed in collaboration with partners. Between our own programs and those where we have
collaborated, we have multiple programs with the potential to generate significant value. We believe that
having multiple indications and programs in development helps mitigate the negative consequences to us of
any setbacks or delays in any one of our indications or programs.
Enable Product Development Through Strategic Agreements. We believe that entering into selective
strategic collaborations and other arrangements with respect to our product development programs and
technology can enhance the success of our product development and commercialization, leverage and
exploiting the value of our intellectual property portfolio, mitigate our risk and enable us to better manage our
operating costs. Additionally, such collaborations and arrangements enable us to leverage investment by third
parties and reduce our net cash burn, while retaining significant economic rights.
Build Our Own Commercial Organization. In the future, we may elect to build our own commercial,
sales and marketing capability in order to capture more of the economic value of certain products that we may
develop. If we choose to enter into third-party collaborations to commercialize our pharmaceutical product
candidates, we may in the future enter into these alliances under circumstances that allow us to participate in
the sales and marketing of these products.
15
Strategic Agreements
We have entered into the following strategic collaboration and other key agreements:
Virginia Commonwealth University Intellectual Property Foundation. We have entered into an exclusive
in-license and research and development agreement with the Virginia Commonwealth University Intellectual
Property Foundation regarding certain new chemical entities under development through our Epigenetic
Regulator Program, including DUR-928. Under this licensing arrangement, we have agreed to undertake certain
efforts to bring licensed products to market, pay for prosecution of related patents and report on progress to
VCU. In addition, we are obligated to pay low single-digit percentage patent royalties on net sales of licensed
products, subject to annual minimum payments and additional milestone payments. This license includes
rights to nine patent families. We may terminate this agreement at any time by written notice, and VCU may
terminate this agreement by written notice if there is an uncured material breach.
Indivior UK Ltd. In September 2017, we entered into a patent purchase agreement (the “Indivior
Agreement”) with Indivior. Pursuant to the Indivior Agreement, we assigned to Indivior certain patents that
may provide further intellectual property protection for PERSERIS, Indivior’s once-monthly injectable
risperidone product for the treatment of schizophrenia. In consideration for such assignment, Indivior made
an upfront and milestone non-refundable payment to us of $12.5 million, and also agreed to make an
additional $5 million payment to us contingent upon FDA approval of PERSERIS, as well as quarterly earn-out
payments based on a single digit percentage of U.S. net sales for certain products covered by the assigned
patent rights, including PERSERIS. The assigned patent rights include granted patents extending into at least
2026. We also receive a non-exclusive right under the assigned patents to develop and commercialize certain
risperidone-containing products and products that do not contain risperidone or buprenorphine. The
agreement contains customary representations, warranties and indemnities of the parties. We received the
non-refundable payment of $12.5 million from Indivior in September 2017 and recognized this amount as
revenue from sale of intellectual property rights in the year ended December 31, 2017 as we did not have any
continuing obligations under the purchase agreement. In July 2018, Indivior announced that the FDA had
approved the NDA for PERSERIS thereby triggering the $5.0 million payment, which was received by DURECT in
August 2018. Indivior launched PERSERIS in the U.S. in February 2019.
Santen Pharmaceutical Co., Ltd. In December 2014, we and Santen entered into a definitive agreement
(the “Santen Agreement”). Pursuant to the Santen Agreement, we have granted Santen an exclusive worldwide
license to our proprietary SABER formulation platform and other intellectual property to develop and
commercialize a sustained release product utilizing our SABER technology to deliver an ophthalmology drug.
Santen controls and funds the development and commercialization program, and the parties have established
a joint management committee to oversee, review and coordinate the development activities of the parties
under the Agreement.
In connection with the license agreement, Santen paid us a non-refundable upfront fee of $2.0 million in
cash and agreed to make contingent cash payments to us of up to $76.0 million upon the achievement of
certain milestones, of which $13.0 million are development-based milestones (none of which has been
achieved as of December 31, 2020), and $63.0 million are commercialization-based milestones including
milestones requiring the achievement of certain product sales targets (none of which has been achieved as of
December 31, 2020). Santen will also pay for certain of our costs incurred in the development of the licensed
product. If the product is commercialized, we would also receive a tiered royalty on annual net product sales
ranging from single-digit to the low double digits, determined on a country-by-country basis. Santen may
terminate the Agreement without cause at any time upon prior written notice, and either party may terminate
the Agreement upon certain circumstances including a material uncured breach. As of December 31, 2020, the
cumulative aggregate payments received by us under this agreement were $3.3 million. In January 2018, we
were notified by Santen that due to a shift in priorities, Santen has elected to reallocate research and
development resources and put our program on pause until further notice. While the main program is on
pause, the parties are working together on a limited set of research and development activities funded by
Santen.
16
Commercial Product Lines
ALZET
The ALZET product line consists of miniature, implantable osmotic pumps and accessories used for
research in mice, rats and other laboratory animals. These pumps are neither approved nor intended for
human use. ALZET pumps continuously deliver drugs, hormones and other test agents at controlled rates from
one day to six weeks without the need for external connections, frequent handling or repeated dosing. In
laboratory research, these infusion pumps can be used for systemic administration when implanted under the
skin or in the body. They can be attached to a catheter for intravenous, intracerebral, or intra-arterial infusion
or for targeted delivery, where the effects of a drug or test agent are localized in a particular tissue or organ.
The wide use and applications of the ALZET product line is evidenced by the more than 20,000 scientific
references that now exist.
LACTEL® Absorbable Polymers
On December 31, 2020, we closed an Asset Purchase Agreement with Evonik Corporation (Evonik),
pursuant to which Evonik purchased certain assets related to our LACTEL Absorbable Polymers product line.
Under the terms of the Asset Purchase Agreement, Evonik paid us approximately $15 million subject to certain
adjustments, and also agreed to assume certain liabilities with respect to the transferred assets and assembled
workforce.
Marketing and Sales
Historically, we have established strategic distribution and marketing alliances for our product candidates
to leverage the established sales organizations that certain pharmaceutical companies have in markets we are
targeting. In the future, we may elect to build our own commercial, sales and marketing capability in order to
capture more of the economic value of certain products that we may develop. If we choose to enter into third-
party collaborations to commercialize our pharmaceutical product candidates, we may in the future enter into
these alliances under circumstances that allow us to participate in the sales and marketing of these products.
We will continue to pursue strategic alliances and collaborators from time to time consistent with our strategy
to leverage the established sales organizations of third-party collaborators.
We market and sell our ALZET product line through a direct sales force in the U.S. and through a network
of distributors outside of the U.S.
Suppliers
We purchase the DUR-928 drug substance from a third-party manufacturer and DUR-928 clinical trial
materials from another third party manufacturer. As needed, we purchase sucrose acetate isobutyrate, a raw
material for our ORADUR and SABER-based pharmaceutical systems, including Methydur, POSIMIR, and
SucroMate, from Eastman Chemical Company. We expect that we will continue to be able to obtain sufficient
supply of these raw materials to meet our needs for the foreseeable future. We do not have in place long term
supply agreements with respect to all of the components of any of our pharmaceutical product candidates,
however, and are subject to the risk that we may not be able to procure all required components in adequate
quantities with acceptable quality, within acceptable time frames or at reasonable cost.
Customers
Our product revenues principally are derived from sales of the ALZET product line to academic and
pharmaceutical industry researchers, and from the sale of certain key excipients that are included in Methydur
Sustained Release Capsules, SucroMate and other products. Until such time that we are able to bring our
pharmaceutical product candidates to market, if at all, we expect these to be our principal sources of product
revenue. We also receive revenue from collaborative research and development arrangements with our third-
party collaborators. In 2020, 2019, and 2018, Gilead accounted for 76%, 68% and 33% or our total revenues,
respectively, pursuant to an agreement that has been terminated, and in 2018, Indivior accounted for 17% of
our total revenues.
17
Manufacturing
The process for manufacturing our pharmaceutical product candidates is technically complex, requires
special skills, and must be performed in qualified facilities. We have entered into development and commercial
manufacturing agreements with third parties for the manufacture of DUR-928 and POSIMIR. In addition, we
have a small multi-discipline manufacturing facility in California that we have used to manufacture research
and clinical supplies of several of our pharmaceutical product candidates under GMP, including DUR-928
dosage forms and POSIMIR. In the future, we may develop additional manufacturing capabilities for our
pharmaceutical product candidates and components to meet our demands and those of our third-party
collaborators by contracting with third party manufacturers and by potentially constructing additional
manufacturing space at our current facilities in California. We manufacture our ALZET product line and certain
key components for POSIMIR and Methydur at one of our California facilities.
Patents and Proprietary Rights
Our success depends in part on our ability to obtain patents, to protect trade secrets, to operate without
infringing upon the proprietary rights of others and to prevent others from infringing on our proprietary rights.
Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign
patent applications related to our proprietary molecules and technology, inventions and improvements that
are important to the development of our business. As of March 1, 2021, we owned or exclusively in-licensed
over 35 unexpired issued U.S. patents and over 145 unexpired issued foreign patents (which include granted
European patent rights that have been validated in various EU member states). In addition, we have over 55
pending U.S. patent applications and over 145 foreign applications pending in Europe, Australia, Japan, Canada
and other countries.
The patent status of our most advanced drug candidates is as follows:
Our Epigenetic Regulator Program includes nine in-licensed patent families and four patent families
solely owned by us. Three patent families each include at least one granted patent that could provide
protection until 2026, 2032, and 2034, respectively. The other patent families include pending patent
applications, which if granted, could result in patents expiring in 2033, 2035, 2037, 2037, 2037, 2040, 2040,
2041, 2041 and 2041, respectively. Patent terms are potentially subject to terminal disclaimers as well as
patent term adjustments and extensions. Of the thirteen patent families covering DUR-928 and/or other
molecules in the Epigenetic Regulator Program, two were only filed in the United States, and the other eleven
have been filed or likely will be filed both in the U.S. and internationally. Since DUR-928 is an endogenous
molecule, patent claims directed to DUR-928 compositions of matter may be more difficult to maintain or
enforce in the United States under Myriad Genetics and other recent court decisions. One of the U.S. patents
issued before Myriad Genetics, and seven of the DUR-928 U.S. patents issued after Myriad Genetics. The
granted claims in the U.S. include both composition of matter and method of treatment claims. There can be
no assurance that the pending patent applications will be granted. Further, there can be no assurance that VCU
will not attempt to terminate their license to us, which termination could result in the loss of our rights to these
patent families.
In the United States, POSIMIR is covered by four patent families. One patent family includes granted
patents that could provide protection until 2025. The other three patent families include pending patent
applications, which if granted, could result in patents expiring in 2026, 2041, and 2042, respectively. In Europe,
POSIMIR is covered by four granted patents with two that could expire in 2025 and two that could expire in
2026. The families that could provide protection until at least 2041 and 2042, respectively, will likely be filed
in Europe.
In the United States, our ORADUR-Methylphenidate ER patent portfolio includes four patent families. Two
patent families include granted patents that could provide protection until at least 2023 and 2029, respectively.
The other patent families include pending patent applications, which if granted, could provide protection until
2026 and 2037, respectively. There can be no assurance that the pending patent applications will be granted.
Proprietary rights relating to our planned and potential products will be protected from unauthorized use
by third parties only to the extent that they are covered by valid and enforceable patents or are
18
effectively maintained as trade secrets. Patents owned by or licensed to us may not afford protection against
competitors, and our pending patent applications now or hereafter filed by or licensed to us may not result in
patents being issued. In addition, the laws of certain foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the U.S.
The patent positions of biopharmaceutical companies involve complex legal and factual questions and,
therefore, their enforceability cannot be predicted with certainty. Our patents or patent applications, or those
licensed to us, if issued, may be challenged, invalidated or circumvented, and the rights granted thereunder
may not provide proprietary protection or competitive advantages to us against competitors with similar
technology. Furthermore, our competitors may independently develop similar technologies or duplicate any
technology developed by us. Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that, before any of our products can be commercialized, any related
patent may expire or remain in existence for only a short period following commercialization, thus reducing
any advantage of the patent, which could adversely affect our ability to protect future product development
and, consequently, our operating results and financial position.
Because patent applications in the U.S. are typically maintained in secrecy for at least 18 months after
filing and since publication of discoveries in the scientific or patent literature often lag behind actual
discoveries, we cannot be certain that we were the first to make the inventions covered by each of our issued
or pending patent applications or that we were the first to file for protection of inventions set forth in such
patent applications.
Our planned or potential products may be covered by third-party patents or other intellectual property
rights, in which case we would need to obtain a license to continue developing or marketing these products.
Any required licenses may not be available to us on acceptable terms, if at all. If we do not obtain any required
licenses, we could encounter delays in product introductions while we attempt to design around these patents,
or could find that the development, manufacture or sale of products requiring such licenses is foreclosed.
Litigation may be necessary to defend against or assert such claims of infringement, to enforce patents issued
to us, to protect trade secrets or know-how owned by us, or to determine the scope and validity of the
proprietary rights of others. In addition, interference, derivation, post-grant oppositions, and similar
proceedings may be necessary to determine rights to inventions in our patents and patent applications.
Litigation or similar proceedings could result in substantial costs to and diversion of effort by us, and could
have a material adverse effect on our business, financial condition and results of operations. These efforts by
us may not be successful.
We may rely, in certain circumstances, on trade secrets to protect our technology. However, trade secrets
are difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality
agreements with our employees and certain contractors. There can be no assurance that these agreements will
not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not
otherwise become known or be independently discovered by competitors. To the extent that our employees,
consultants or contractors use intellectual property owned by others in their work for us, disputes may also
arise as to the rights in related or resulting know-how and inventions.
Government Regulation
The Food and Drug Administration. The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the development, manufacture
and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate
research and development activities and the testing, manufacture, quality control, safety, effectiveness,
labeling, storage, distribution, record keeping, approval, advertising and promotion of our products. We
believe that our products in development will be regulated as drugs by the FDA rather than as biologics or
devices.
19
The process required by the FDA under the new drug provisions of the Federal Food, Drug and Cosmetics
Act (the Act) before our products in development may be marketed in the U.S. generally involves the following:
•
•
•
•
preclinical laboratory and animal tests;
submission of an Investigational New Drug (IND) application which must become effective before
clinical trials may begin;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed
pharmaceutical products candidates in their intended uses; and
FDA approval of a new drug application.
Section 505 of the Act describes three types of new drug applications: (1) an application that contains full
reports of investigations of safety and effectiveness (section 505(b)(1)); (2) an application that contains full
reports of investigations of safety and effectiveness but where at least some of the information required for
approval comes from studies not conducted by or for the applicant and for which the applicant has not
obtained a right of reference (section 505(b)(2)); and (3) an application that contains information to show that
the proposed product is identical in active ingredient, dosage form, strength, route of administration, labeling,
quality, performance characteristics and intended use, among other things, to a previously approved product
(section 505(j)). We expect that our drug candidates deriving from our Epigenetic Regulator Program will be
evaluated for approval after submission of a new drug application under section 505(b)(1).
The testing and approval process require substantial time, effort, and financial resources, and we cannot
be certain that any approval will be granted on a timely basis, if at all. Even though several of our
pharmaceutical products candidates utilize active drug ingredients that are commercially marketed in the
United States in other dosage forms, we need to establish safety and effectiveness of those active ingredients in
the formulation and dosage forms that we are developing.
Preclinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as
well as animal studies to assess the potential safety and efficacy of the pharmaceutical product candidate. We
then submit the results of the preclinical tests, together with manufacturing information and analytical data, to
the FDA as part of an IND, which must become effective before we may begin human clinical trials. Each
subsequent new clinical protocol must also be submitted to the FDA under the IND. An IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises
concerns or questions about the conduct of the trials as outlined in the IND and imposes a clinical hold. In such
a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.
Our submission of an IND may not result in FDA authorization to commence clinical trials. Further, an
independent Institutional Review Board at each medical center proposing to conduct the clinical trials must
review and approve any clinical study as well as the related informed consent forms and authorization forms
that permit us to use individually identifiable health information of study participants.
Human clinical trials are typically conducted in three sequential phases which may overlap:
•
•
•
Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for
safety, dosage tolerance, absorption, metabolism, distribution and excretion.
Phase 2: Involves clinical trials in a limited patient population to identify possible adverse effects
and safety risks, to determine the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
Phase 3: When Phase 2 clinical trials demonstrate that a dosage range of the product is effective
and has an acceptable safety profile, Phase 3 clinical trials are undertaken to further evaluate dosage,
clinical efficacy and to further test for safety in an expanded patient population, at multiple,
geographically dispersed clinical study sites.
In the case of products for severe diseases, such as chronic pain, or life-threatening diseases such as
cancer, the initial human testing is often conducted in patients with disease rather than in healthy
20
volunteers. Since these patients already have the target disease or condition, these studies may provide initial
evidence of efficacy traditionally obtained in Phase 2 trials, and thus these trials are frequently referred to as
Phase 1/2 clinical trials or Phase 1b trials. We cannot be certain that we will successfully complete Phase 1,
Phase 2 or Phase 3 clinical trials of our pharmaceutical products in development within any specific time
period, if at all. Furthermore, the FDA or the Institutional Review Board or the sponsor may suspend clinical
trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk. During the clinical development of products, sponsors frequently meet and consult
with the FDA in order to ensure that the design of their studies will likely provide data both sufficient and
relevant for later regulatory review; however, no assurance of approvability can be given by the FDA.
The results of product development, preclinical studies and clinical studies are submitted to the FDA as
part of a new drug application, or NDA, for approval of the marketing and commercial shipment of the product.
Submission of an NDA may require the payment of a substantial user fee to the FDA, and although the agency
has defined user fee goals for the time in which to respond to sponsor applications, there can be no assurance
that the FDA will act in any particular timeframe. The FDA may deny a new drug application if the applicable
regulatory criteria are not satisfied or may require additional clinical trials be conducted. Even if such data is
submitted, the FDA may ultimately decide that the new drug application does not satisfy the criteria for
approval. Once issued, the FDA may withdraw product approval if compliance with regulatory standards is not
maintained or if safety problems occur after the product reaches the market. Requirements for additional
Phase 4 studies (post approval marketing studies) to confirm safety and effectiveness in a broader commercial
use population may be imposed as a condition of marketing approval. In addition, the FDA requires
surveillance programs to monitor approved products which have been commercialized, and the agency has the
power to require changes in labeling or to prevent further marketing of a product based on the results of these
post-marketing programs. Any comparative claims comparing a product to other dosage forms or competitive
products typically need to be supported by two adequate and well-controlled head-to-head clinical trials.
Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies
typically takes several years and the actual time required may vary substantially, based upon the type,
complexity and novelty of the pharmaceutical product. Government regulation may delay or prevent
marketing of potential products for a considerable period of time and impose costly procedures upon our
activities. We cannot be certain that the FDA or any other regulatory agency will grant approval for any of our
pharmaceutical products under development on a timely basis, if at all. Success in preclinical or early stage
clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical
activities is not always conclusive and may be susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. Evolving safety concerns can result in the imposition of new requirements for
expensive and time-consuming tests, such as for QT interval cardiotoxicity testing. Even if a product receives
regulatory approval, the approval may be significantly limited to specific indications. Further, even after
regulatory approval is obtained, any problems associated with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. Any pharmaceutical products that we
may develop and obtain approval for would also be subject to adverse findings of the active drug ingredients
being marketed in different dosage forms and formulations. Delays in obtaining, or failures to obtain
regulatory approvals would have a material adverse effect on our business. Marketing our pharmaceutical
products abroad will require similar regulatory approvals and is subject to similar risks. In addition, we cannot
predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.
There are several FDA programs intended to help facilitate the development of new drugs that meet
certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a
serious or life- threatening condition and demonstrate the potential to address unmet medical needs for the
condition. Fast Track designation applies to the combination of the product and the specific indication for
which it is being studied. The sponsor of a new drug may request the FDA to designate the drug as a Fast Track
product at any time during the clinical development of the product. Under a Fast Track designation, the FDA
may consider for review sections of the marketing application on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for the submission of the sections of the
application, the FDA agrees to accept sections of the application and determines that the
21
schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the
application.
A product is eligible for priority review if it has the potential to provide safe and effective therapy where
no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or
prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to
the evaluation of an application for a new drug or biological product designated for priority review to facilitate
the review.
A product that is being studied for safety and effectiveness in treating serious or life-threatening illnesses
and provides meaningful therapeutic benefit over existing treatments may receive accelerated approval, which
means that it may be approved on the basis of adequate and well-controlled clinical trials establishing that the
product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the
basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval,
the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-
controlled post-marketing clinical trials. In addition, the FDA currently requires pre-approval of promotional
materials as a condition for accelerated approval, which could adversely impact the timing of the commercial
launch of the product.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare
disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in
the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the
regulatory review and approval process. If a product that has orphan drug designation subsequently receives
FDA approval for the disease for which it has such designation, the product is entitled to orphan product
exclusivity, which means that the FDA may not approve any other applications to market the same drug for the
same disease, except in limited circumstances, for seven years. These circumstances are an inability to supply
the drug in sufficient quantities or a situation in which a new formulation of the drug has shown superior
safety or efficacy or a major contribution to patient care. This exclusivity, however, could also block the
approval of our products for seven years if a competitor obtains earlier approval of the same drug for the same
indication.
A product may also be eligible for receipt of a Breakthrough Therapy designation. The Breakthrough
Therapy designation is intended to expedite the FDA’s review of a potential new drug for serious or life-
threatening diseases where “preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development.” The designation of a drug as a Breakthrough Therapy
provides the same benefits as are available under the Fast Track program, as well as intensive FDA guidance on
the product’s development program. Fast Track designation, priority review, accelerated approval and
Breakthrough Therapy designation do not change the standards for approval, but they may expedite the
development or approval process.
Any pharmaceutical products manufactured or distributed by us pursuant to FDA approvals are subject to
pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting of
adverse experiences with the product or the active pharmaceutical ingredient or other components of the
product. The FDA may also require post-approval clinical or non-clinical trials. Drug manufacturers and their
subcontractors are required to register their establishments with the FDA and state agencies, and are subject to
periodic unannounced inspections by the FDA and state agencies for compliance with good manufacturing
practices, which impose procedural and documentation requirements upon us and our third party
manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the
GMP regulations and other FDA regulatory requirements.
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The Federal Food, Drug, and Cosmetic Act strictly regulates drug product marketing, prohibits
manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples.
The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses, and
federal and state authorities are also actively litigating against sponsors who promote their drugs for
unapproved uses under various fraud and abuse and false claims act statutes. We and our products are also
subject to a variety of state laws and regulations in those states or localities where our products are or will be
marketed. Any applicable state or local regulations may hinder our ability to market our products in those
states or localities. We are also subject to numerous federal, state and local laws relating to such matters as
safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal
of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and
regulations now or in the future.
The FDA’s policies may change and additional government regulations may be enacted which could
prevent or delay regulatory approval of our product candidates. Moreover, increased attention to the
containment of health care costs in the U.S. and in foreign markets could result in new government regulations
that could have a material adverse effect on our business. We cannot predict the likelihood, nature or extent of
adverse governmental regulation that might arise from future legislative or administrative action, either in the
U.S. or abroad. The Drug Enforcement Administration. The Drug Enforcement Administration (DEA) regulates
chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present
the highest risk of substance abuse and Schedule V substances the lowest risk. Certain active ingredients in
ORADUR-Methylphenidate are listed by the DEA as Schedule II under the Controlled Substances Act of 1970.
Consequently, their manufacture, research, shipment, storage, sale and use are subject to a high degree of
oversight and regulation. For example, all Schedule II drug prescriptions must be signed by a physician,
physically presented to a pharmacist and may not be refilled without a new prescription. Furthermore, the
amount of Schedule II substances we can obtain for clinical trials and commercial distribution is limited by the
DEA and our quota may not be sufficient to complete clinical trials or meet commercial demand. There is a risk
that DEA regulations may interfere with the supply of the drugs used in our clinical trials, and, in the future, our
ability to produce and distribute our products in the volume needed to meet commercial demand, which could
negatively impact us and our collaborators.
Other Healthcare Laws. In addition to FDA and DEA restrictions on the marketing of pharmaceutical
products, other foreign, federal and state healthcare regulatory laws restrict business practices in the
pharmaceutical industry. These laws include, but are not limited to, federal and state anti kickback, false
claims, data privacy and security, and physician payment and drug pricing transparency laws.
The U.S. federal Anti Kickback Statute prohibits, among other things, any person or entity from
knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or
indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or
recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in
part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been
broadly interpreted to include anything of value. The Anti Kickback Statute has been interpreted to apply to
arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers,
purchasers, formulary managers and beneficiaries on the other hand. Although there are a number of statutory
exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions
and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended
to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the
requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a
particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal
under the U.S. federal Anti Kickback Statute. Instead, the legality of the arrangement will be evaluated on a
case by case basis based on a cumulative review of all its facts and circumstances. Several courts have
interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving
remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In
addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it
in order to have committed a violation. Moreover, a claim including items or services resulting from a violation
of the U.S. federal Anti Kickback Statute
23
constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states
also have anti kickback laws, which establish similar prohibitions and in some cases may apply to items or
services reimbursed by any third party payor, including commercial insurers.
In addition, there has been a recent trend of increased federal and state regulation of payments made to
physicians and certain other healthcare providers. The Affordable Care Act imposed, among other things, new
annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for
certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership
and investment interests held by physicians and their immediate family members. Failure to submit timely,
accurately and completely the required information for all payments, transfers of value and ownership or
investment interests may result in civil monetary penalties. Covered manufacturers must submit reports by the
90th day of each subsequent calendar year and the reported information is publicly made available on a
searchable website. In addition, certain states require implementation of compliance programs and compliance
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government, impose restrictions on marketing practices and/or require the
tracking and reporting of marketing expenditures and pricing information as well as gifts, compensation and
other remuneration or items of value provided to physicians and other healthcare professionals and
entities. Finally, the Physician Self-Referral (Stark) Law prohibits physicians from referring Medicare or
Medicaid patients to providers of “designated health services” with whom the physician or a member of the
physician’s immediate family has an ownership interest or compensation arrangement, unless a statutory or
regulatory exception applies.
Competition
We may face competition from other companies in numerous industries including pharmaceuticals,
medical devices and drug delivery.
Competition for DUR-928, if approved, will depend on the specific indications for which DUR-928 is
approved. 89Bio, AbbVie, Afimmune, Akero Therapeutics, Ascletis, AstraZeneca, BMS, Cirius Therapeutics,
CytoDyn, Dr. Falk Pharma, Eli Lilly, Enanta, ENYO Pharma, Galectin, Galmed, Genentech, Genfit, Gilead, Hanmi,
HighTide Biopharma, Intercept, Inventiva Pharma, Ionis Pharmaceuticals, Inc., Isotechnika, Kowa, LifeMax,
Lipidio, Lipocine, Madrigal, MediciNova, MedImmune, Mitsubishi Tanabe, NGM Biopharmaceuticals, Nimbus,
NorthSea Therapeutics, Novartis, Novo Nordisk, Pfizer, PharmaKing, Poxel, Promethera Biosciences, Seal Rock
Therapeutics, Terns Pharmaceutical, Thera Technologies, Viking, and others have development plans for
products to treat NAFLD/NASH, AH or other liver diseases. Some of these competitors may be addressing the
same therapeutic areas or indications as we are. Our current and potential competitors may succeed in
obtaining patent protection or commercializing products before us. Many of these entities have significantly
greater research and development capabilities than we do, as well as substantially more marketing,
manufacturing, financial and managerial resources. These entities represent significant competition for us.
Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase such competitors’ financial, marketing, manufacturing and other resources.
POSIMIR will compete with currently marketed oral opioids, transdermal opioids, injectable local
anesthetics, implantable materials containing local anesthetics, local anesthetic patches, implantable and
external infusion pumps which can be used for infusion of opioids and local anesthetics. Products of these
types are marketed by Pacira, Purdue Pharma, AbbVie, Janssen, Actavis, Medtronic, Endo, AstraZeneca, Pernix
Therapeutics, Tricumed, Halyard Health, Cumberland Pharmaceuticals, Acorda Therapeutics, Mallinckrodt,
Inspirion Delivery Technologies, Mylan, Shire, Johnson & Johnson, Eli Lilly, Pfizer, Novartis, Zyla Life Sciences,
Teva Pharmaceuticals, Collegium Pharmaceutical and others. Additional competition for POSIMIR may come
from Heron Therapeutics if their product candidate, HTX-011, is approved, or from Innocoll if their recently
approved product candidate, XARACOLL® is commercially launched. PERSERIS competes with currently
marketed or approved products by Johnson & Johnson, Eli Lilly, Otsuka, Alkermes, Merck, Allergan, Novartis,
and others. Methydur competes with currently marketed or approved products by Shire, Johnson & Johnson,
UCB, Novartis, Noven, Eli Lilly, Pfizer and others. Many of these entities have significantly greater research and
development capabilities than we
24
do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities
represent significant competition for us.
Competition for our ALZET product line primarily consists of customers choosing to utilize delivery
methods for their research projects other than an osmotic pump. We also face competition for our ALZET
product line from other companies including low cost foreign competitors.
Any pharmaceutical products we develop will compete in highly competitive markets. Many of our
potential competitors in these markets have greater development, financial, manufacturing, marketing, and
sales resources than we do and we cannot be certain that they will not succeed in developing products or
technologies which will render our technologies and products obsolete or noncompetitive. In addition, many of
those potential competitors have significantly greater experience than we do in their respective fields.
Corporate History, Headquarters and Website Information
We were incorporated in Delaware in February 1998. Our principal executive offices are located at 10260
Bubb Road, Cupertino, California 95014. Our telephone number is (408) 777-1417, and our website address is
www.durect.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to these reports available free of charge on our website as soon as reasonably
practicable after we file these reports with the Securities and Exchange Commission (SEC). The SEC maintains an
internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC. The SEC’s website to access all of this information is www.sec.gov. Our
Code of Ethics can be found on our website.
Human Capital Resources
We consider our ability to recruit, retain and motivate our employees to be critical to our success. We are
an equal opportunity employer and we are fundamentally committed to creating and maintaining a work
environment in which employees are treated with respect and dignity. All human resources policies, practices
and actions related to hiring, promotion, compensation, benefits and termination are administered in
accordance with the principal of equal employment opportunity, meaning that they are made on the basis of
individual skills, knowledge, abilities, job performance and other legitimate criteria and without regard to race,
color, religion, sex, sexual orientation, gender expression or identity, ethnicity, national origin, ancestry, age,
mental or physical disability, genetic information, any veteran status, any military status or application for
military service, or membership in any other category protected under applicable law.
As of March 1, 2021, we had 81 employees, including 46 in research and development, 10 in
manufacturing and 25 in selling, general and administrative. At least 41 of our employees have advanced
degrees of some sort (e.g., MD, PhD, DVM, JD, MBA). Of our employees, 40% are male and 60% are
female. From time to time, we also employ independent contractors to support our research, development
and administrative organizations. None of our employees are represented by a collective bargaining unit, and
we have never experienced a work stoppage. We consider our relations with our employees to be good.
Executive Officers of the Registrant
Our executive officers and their ages as of March 1, 2021 are as follows:
Name
James E. Brown, D.V.M.
Michael H. Arenberg, J.D., M.B.A.
Norman L. Sussman, M.D.
Judy R. Joice
Age
64
51
68
64
Position
President, Chief Executive Officer and Director
Chief Financial Officer
Chief Medical Officer
Senior Vice President, Operations and Corporate Quality
Assurance
25
James E. Brown, D.V.M. co-founded DURECT in February 1998 and has served as our President, Chief
Executive Officer and a Director since June 1998. He previously worked at ALZA Corporation as Vice President
of Biopharmaceutical and Implant Research and Development from June 1995 to June 1998. Prior to that,
Dr. Brown held various positions at Syntex Corporation, a pharmaceutical company, including Director of
Business Development from May 1994 to May 1995, Director of Joint Ventures for Discovery Research from
April 1992 to May 1995, and held a number of positions including Program Director for Syntex Research and
Development from October 1985 to March 1992. Dr. Brown holds a B.A. from San Jose State University and a
D.V.M. (Doctor of Veterinary Medicine) from the University of California, Davis where he also conducted post-
graduate work in pharmacology and toxicology.
Michael H. Arenberg was appointed Chief Financial Officer effective October 2018. Mr. Arenberg has
been with DURECT since 1999, most recently serving as Senior Vice President, Corporate and Business
Development, where he negotiated and closed over 50 collaborations, including several important in-licensing
transactions. Mr. Arenberg earned his undergraduate degree from the University of Colorado, his law degree
from the University of Denver, his MBA from the Leavy School of Business at Santa Clara University.
Norman L. Sussman, M.D., FAASLD, joined DURECT as Chief Medical Officer in November 2020. He has
extensive clinical experience and expertise in the field of liver disease and brings over 30 years of clinical
research and development experience in academia and industry. Prior to joining DURECT he was an Associate
Professor of Medicine and Surgery at Baylor College of Medicine and a faculty member of Baylor College of
Medicine intermittently since 1985. During that time, he served as a Principal Investigator for research focused
on the assessment and management of acute liver failure and artificial liver support. Dr. Sussman gained
leadership experience in industry as the founder and Vice President of both Amphioxus Cell Technologies from
1995 to 2003 and Hepatix, Inc from 1993 to 1995. Most recently, he has also served in senior leadership roles
as a member of the Baylor Faculty Senate and as Director of the telehealth program, Project ECHO®, at Baylor
St. Luke’s Medical Center. Dr. Sussman received his MBBCh from the University of the Witwatersrand in
Johannesburg, South Africa. He then completed his residency at St. Louis University Hospital and his post-
doctoral fellowship at Washington University. He is Board Certified in Internal Medicine, Gastroenterology, and
Transplant Hepatology. Dr. Sussman is also a Fellow of the American Association of the Study of Liver Disease,
which is a designation that recognizes his superior level of professional achievement in the field of hepatology.
Judy R. Joice has served as our Senior Vice President, Operations and Corporate Quality Assurance since
March 2014 and as our Vice President, Operations and Corporate Quality Assurance since April 2011.
Previously, Ms. Joice served as our Vice President, Corporate Quality Assurance since July 2008 and as our
Executive Director, Quality Assurance from July 2007 to July 2008. She has over 30 years’ experience in the
pharmaceutical industry with such companies as Nektar Therapeutics, Oread, Roche Pharmaceuticals, and
Syntex Research. During her career, Ms. Joice has gained broad experience in CMC development activities
including novel excipients, new chemical entities, devices, and combination products. She has developed,
implemented and managed all aspects of company-wide quality systems and compliance functions, ranging
from drug development through commercial manufacturing. Ms. Joice has a B.S. in Chemistry from California
State University, Hayward.
Item 1A.
Risk Factors.
In addition to the other information in this Form 10-K, a number of factors may affect our business and
prospects. These factors include but are not limited to the following, which you should consider carefully in
evaluating our business and prospects. If any of the following risks actually occur, our business, financial
condition, results of operations and growth prospects may be materially and adversely affected.
Summary
26
• We are dependent on the success of DUR-928 and we cannot be certain that it will ever receive regulatory
•
•
•
•
•
•
approval or be successfully commercialized and the path to regulatory approval is uncertain
Fast Track Designation for DUR-928 in AH may not actually lead to faster FDA review or an approval
Indications of activity from completed DUR-928 clinical trials may not predict efficacy in future trials
Open-label design of completed trials of DUR-928 have inherent limitations
Ongoing and planned clinical trials for DUR-928 may not demonstrate efficacy or safety
Clinical trial delays could increase expenses, delay clinical data and delay or prevent approvals
The COVID-19 outbreak has and will adversely impact our business, including posing challenges to
conducting clinical trials.
• We are in discussion with potential commercialization partners for POSIMIR and may be unable to enter an
•
•
agreement
The approved indication for POSIMIR may limit its market, and we or a commercialization partner may not
be able to expand the label to include additional indications
In connection with the approval of POSIMIR, we are required to conduct two postmarketing non-clinical
studies. If the results from either of these studies are unfavorable, the FDA may require additional studies,
or may take actions that are adverse to the regulatory status, commercial prospects and market
acceptability of POSIMIR
• We have a significant amount of debt. Compliance with repayment obligations and other covenants may
be difficult; failure to fulfill our obligations may cause the repayment obligations to accelerate
• We will require and may have difficulty raising needed capital in the future
•
For certain of our product candidates, we depend on third-party collaborators, and we have limited or no
control over their development, regulatory strategy or potential commercialization
Cancellation of collaborations may adversely affect potential economic benefits
Our revenues may decrease and losses may increase due to the sale of the LACTEL product line
Our business strategy includes entering into additional collaborative agreements to support development,
clinical trials, manufacturing and commercialization of product candidates. We may not be able to
successfully negotiate or enter into acceptable collaboration agreements
•
•
•
• We and our third-party collaborators may not be able to manufacture sufficient quantities of our product
candidates and components at an acceptable cost or in compliance with applicable government
regulations, and we have limited manufacturing experience
Failure to comply with governmental regulations could materially harm our business
•
• We have a history of operating losses, expect to continue to have losses and may never achieve
profitability; and we may not successfully manage our company through varying business cycles
• We may develop our own sales force and commercial group to market future products but we have limited
•
sales and marketing experience and may not be able to do so effectively
Key product candidate components are provided by limited numbers of suppliers, and supply shortages or
loss of these suppliers could result in interruptions in supply or increased costs
• Write-offs related to impairment of goodwill, long-lived assets, inventories and other non-cash charges
may adversely impact profitability and cause cash flows to differ from reported revenues
Global credit and financial market conditions could negatively impact the value of our investments
•
• We depend upon key personnel who may terminate their employment with us at any time, and we may
•
•
•
not be able to attract and retain sufficient qualified personnel
Cyber-attacks or other failures in telecommunications or information technology systems could result in
information theft, data corruption and significant disruption of our business operations
Our corporate headquarters, certain manufacturing facilities and personnel are located in a seismically
active area near wildfire zones; Our business also involves environmental risks and risks related to
handling regulated substances
As a non-accelerated filer, we are not required to comply with auditor attestation requirements of the
Sarbanes-Oxley Act and, consequently, investors may find our common stock less attractive
27
•
If we are unable to protect, maintain or enforce our IP rights or secure rights to third-party IP, we may lose
valuable assets, lose market share or incur costly litigation or our third-party collaborators may choose to
terminate their agreements with us, which may depend on our IP
• We may be sued by third parties claiming that our product candidates infringe on their IP rights,
particularly because there is substantial uncertainty about the validity and breadth of medical patents
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Competitive products or technologies could impair our ability to maintain or grow our business
• We could be exposed to significant product liability claims and we are subject to healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages and
reputational harm
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Healthcare reform measures could hinder or prevent our product candidates’ commercial success
• Market acceptance of our product candidates is uncertain, and failure to achieve market acceptance or
adequate reimbursement from third-party payers will harm our future revenues and profitability
Inability to train physicians to use our products may prevent market acceptance of our products
Risks related to actions on trade by the U.S. and foreign governments, new accounting pronouncements
and legislative actions could adversely affect the Company's results of operations and financial condition
Our operating history makes evaluating our stock difficult, the price of our stock may be volatile
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Investors may experience substantial dilution of their investment
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Our ability to use net operating losses and other tax attributes is uncertain and may be limited
• We have broad discretion over the use of our cash and investments, which may not always yield a
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favorable return
Our certificate of incorporation, bylaws and Delaware law could discourage an acquisition of us
Having Delaware as the exclusive forum for substantially all disputes between us and our stockholders
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
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Risks Related To Our Business
We are dependent on the success of DUR-928 and we cannot be certain that it will receive regulatory
approval or be commercialized
Our business depends substantially on the successful development of DUR-928, which has completed a
Phase 1b clinical trial in NASH and a Phase 2a clinical trial in AH, and is currently recruiting patients for a Phase
2b clinical trial (AHFIRM) in patients with severe AH. Ongoing and future clinical trials will need to establish
clinically and statistically significant proof of efficacy, and/or sufficient evidence of safety to support filing for
regulatory approval and/or additional clinical trials and ultimately regulatory approval. DUR-928 will require
additional development, including more clinical trials as well as further preclinical studies, including those
designed to evaluate its dosage, dosing regimen, toxicology, carcinogenicity, pharmacokinetics and other non-
clinical parameters, as well as regulatory clearances before it can be commercialized. Positive results obtained
during early development do not necessarily mean later development will succeed or that regulatory
clearances will be obtained. Our drug development efforts may not lead to commercial drugs, for several
reasons such as if DUR-928 fails to be shown to be safe and effective or if we do not have adequate financial or
other resources to advance DUR-928 through the pre-clinical and clinical development and approval processes.
We consider DUR-928 to be our lead and most important asset. If DUR-928 fails to demonstrate safety or
efficacy at any time or during any phase of development, we would experience potentially significant delays in,
or be required to abandon, development of DUR-928, any of which would materially harm our business. Even
if the Phase 2b AHFIRM trial successfully demonstrates a survival benefit over placebo, (1) additional clinical
trial(s) may be required to support an NDA filing and ultimately to support approval by FDA and/or other
regulatory bodies; and (2) accelerated regulatory pathways (such as an FDA priority review designation) may
not be available.
We do not anticipate that DUR-928 will be eligible to receive regulatory approval from the FDA or
comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we
ultimately receive regulatory approval for DUR-928, we or our potential future partners, if any, may be unable
to commercialize it successfully for a variety of reasons. These include, for example, the availability of
alternative, potentially superior or less expensive treatments or vaccines, lack of cost-effectiveness, the lack of
favorable access and/or commercial pricing, the cost or technical challenges of manufacturing the product on a
commercial scale and competition with other drugs or vaccines. The success of DUR-928 may also be limited
by the prevalence and severity of any adverse side effects, including mortality. If we fail to commercialize DUR-
928, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial
condition and stock price may decline.
Fast Track designation of DUR-928 by the FDA may not actually lead to a faster development or regulatory
review or approval process
The FDA grants Fast Track designation to therapies that are considered capable of addressing unmet
medical needs and possess the potential to treat serious or life-threatening disease conditions in order to
facilitate its development and expedite the review procedure. Even though DUR-928 has received Fast Track
designation for the treatment of alcoholic hepatitis, we may not experience a faster development process,
review or approval, or receive FDA approval at all, in that indication or any other compared to conventional
FDA procedures. A Fast Track designation does not change the standards for approval. The FDA may also
withdraw Fast Track designation if it believes that the designation is no longer supported by data from our
clinical development program.
Early indications of activity from Phase 1 and 2 clinical trials of DUR-928 may not predict therapeutic
efficacy
Although Phase 1 and Phase 2 clinical trials of DUR-928 have shown positive initial data in AH patients,
including reductions in bilirubin and MELD scores from baseline and promising Lille scores, and demonstrated
that DUR-928 can lead to the reduction from baseline in liver enzymes, liver stiffness and serum lipids as well
as certain biomarkers, such initial results, indications of activity and biomarker
29
changes may ultimately not be correlated with treatment or improvement in the associated disease, and there
is a risk that DUR-928 may not demonstrate therapeutic efficacy in larger controlled trials, despite encouraging
initial data and improvements in biomarker levels in smaller, early trials. The failure of DUR-928 to show
efficacy in one indication may negatively affect its perceived value in other indications, and the emergence of
safety signals in ongoing or future clinical trials would significantly harm our business.
Open-label trials of DUR-928 in NASH and AH have inherent limitations
The most recently completed NASH and AH trials of DUR-928 are open-label trials with no control groups.
Open label trials have inherent risk of bias given that the patients and physicians know that they received
active study drug, which can lead to placebo effects. Trials without control groups have an inherent risk in that
the comparisons used to determine the study drug’s effect and side effect profile are based on comparisons
with baseline (pre-treatment) levels (for blood chemistry and biomarker endpoints) and/or with historical
controls, which may not have been conducted under similar enough conditions to make accurate comparisons
and/or draw accurate conclusions from those comparisons. Any initial data collected from these open-label
trials also cannot be meaningfully analyzed or relied upon until after the completion of the trials due to the
limited number of patients involved, open-label nature and lack of control groups. Additionally, larger
controlled clinical trials will be required to evaluate the safety and efficacy of DUR-928 to treat any indication,
including AH and NASH. There can be no assurance that ongoing or future studies will demonstrate the safety
or efficacy of DUR-928 in a statistically significant or clinically meaningful manner.
The COVID-19 outbreak has impacted and will adversely impact our business
The global COVID-19 pandemic has disrupted our operations and delayed our clinical trials. In particular,
the COVID-19 pandemic delayed the initiation of our AHFIRM Phase 2b clinical trial to evaluate the safety and
efficacy of DUR-928 in severe alcohol-associated hepatitis (AH) patients, and it may delay the pace of
enrollment in this trial and other clinical trials. As a result of the COVID-19 pandemic, there are also supply
shortages of components needed for commercialization supplies of POSIMIR, which has delayed and may
further delay availability of commercial supplies of POSIMIR and may adversely affect the timing for the
commercial launch of POSIMIR, and there has been reduced demand for our ALZET products, which are used in
scientific and pre-clinical research. In addition, COVID-19 may have an adverse impact on the economies and
financial markets of many countries, resulting in a severe and prolonged global economic downturn that could
continue to affect demand for our ALZET product lines and POSIMIR and impact our operating results. We also
need to raise additional capital to provide sufficient funding to continue our product development efforts,
including clinical trials. COVID-19 initially had an adverse impact on the capital markets and could again, which
would make it more difficult for companies such as ours to access capital. The extent to which the coronavirus
impacts our operations will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the duration and severity of the outbreak, and the actions that may be
required to contain the coronavirus or treat its impact. As a result of the COVID-19 pandemic, we may continue
to experience disruptions that could severely impact our business, preclinical studies and clinical trials
including:
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delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site
investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of
hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical
trials;
interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations
on travel imposed or recommended by federal or state governments, employers and others or
interruption of clinical trial subject visits and study procedures, which may impact the integrity of
subject data and clinical study endpoints, the ability to collect, ship and analyze biological samples
from clinical trial patients due to concerns about potential contamination of samples and/or
exposure of clinical staff to patients with the COVID-19;
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interruption or delays in the operations of the FDA or other regulatory authorities, which may impact
review and approval timelines;
disruption or delays in manufacturing of clinical and commercial supplies due to issues experienced
by our contract manufacturing organizations and/or shortages and delays in obtaining raw materials
and supplies required in the manufacturing processes;
interruption of, or delays in receiving, supplies of our product candidates from our contract
manufacturing organizations due to staffing shortages, production slowdowns or stoppages,
prioritization of pandemic-related activities over ours and disruptions in delivery systems;
interruptions in preclinical studies due to restricted or limited operations at laboratory facilities;
limitations on employee resources that would otherwise be focused on the conduct of our preclinical
studies and clinical trials, including because of sickness of employees or their families or the desire of
employees to avoid contact with large groups of people; and
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material delays and complications with respect to our research and development programs.
We may not successfully manage our company through varying business cycles, including the COVID-19
pandemic
Our success will depend on properly sizing our company through growth and contraction cycles caused
in part by changing business conditions, which places a significant strain on our management and on our
administrative, operational and financial resources. For example, in connection with the COVID-19 pandemic,
we asked most of our personnel, including all of our administrative employees, to work remotely, restricted
on-site staff to only those personnel who must perform activities that must be completed on-site, implemented
social distancing on-site, and closed certain of our offices temporarily. Our increased reliance on personnel
working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our
business. In addition, this could increase our cyber security risk, create data accessibility concerns, and make
us more susceptible to communication disruptions, any of which could adversely impact our business
operations or delay necessary interactions with the FDA, manufacturing sites, research or clinical trial sites. To
manage through such cycles, we may expand or contract our facilities, our operational, financial and
management systems and our personnel. If we were unable to manage growth and contractions effectively our
business would be harmed.
Ongoing and planned clinical trials for DUR-928 in AH may be delayed and may not demonstrate efficacy or
safety in the indications tested
The Phase 2b AHFIRM trial of DUR-928 in patients with AH is subject to potential delays resulting from
COVID-19 as well as timing of entering contracts with clinical sites and contract research organizations,
obtaining institutional review board approvals and delays in other activities that need to be put in place prior to
clinical trial initiation at each clinical trial site. Given uncertainty of COVID-19-related impacts on clinical trial
sites, the timing of availability of top-line data from this trial cannot be predicted with certainty. There can be
no assurance that the trial will enroll as anticipated if at all, and delays in enrollment could add to the costs and
expenses of this trial and harm our business. There can also be no assurance that biological activity
demonstrated in previous animal disease models or earlier clinical trials of DUR-928 will also be seen in
ongoing trials or future clinical trials, or that any clinically relevant biological activity will be observed, or that
enrollment rates will be favorable or that these additional trials will not identify safety issues. Failure of the
AHFIRM trial to achieve desired results in its anticipated timeframe would negatively impact our business and
ability to raise additional capital.
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The path to regulatory approval of DUR-928 is uncertain
DUR-928 is in clinical development for the potential treatment of AH; NASH is also being explored. We
are currently developing DUR-928 in several indications, including AH and NASH. In AH and NASH, there are no
currently approved drugs. Accordingly, as the treatment landscape changes, we will have to interact with the
FDA and other regulatory agencies regarding important aspects of the clinical development program,
potentially including the size of clinical trials, the specific primary and secondary endpoints for the clinical
trials, inclusion and exclusion criteria, stopping rules, duration of follow up, size of the safety databases,
statistical analysis plans and other matters. This uncertainty may make it difficult to predict the timing or
expense required to obtain regulatory approval for DUR-928. We also may need to revise our clinical
development plans after trials have commenced or been completed, which could add to the time and expense
associated with the clinical development of DUR-928. If we are unable to reach agreement with the FDA or
other regulatory agencies regarding clinical development plans for DUR-928, we may curtail or limit our
development activities for this product candidate.
We are in discussions with potential commercialization partners for POSIMIR and may be unable to enter an
agreement
We are in discussions to license POSIMIR to a third party for commercialization. There can be no
assurance that we will be able to enter into an agreement with a third party for the commercialization of
POSIMIR at all, or that any agreement we enter into will result in material payments to us. If we are not able to
enter into such an agreement we may not commercially launch POSIMIR, or if such agreement does not result
in material payments to us, our financial prospects may be harmed.
The approved indication for POSIMIR may limit its market, and we or a commercialization partner may not
be able to expand the label to include additional indications
The FDA approval for POSIMIR is limited to use in arthroscopic subacromial decompression surgery and
contains a Boxed Warning about risks of intravenous administration. We or a commercialization partner
cannot currently promote POSIMIR for use in other indications, and the Boxed Warning may deter physicians
from using it, which may limit the market opportunity for POSIMIR. While we intend to seek approval from
FDA for POSIMIR in additional indications, there is no assurance that we or a commercialization partner will be
able to do so, in which case sales of POSIMIR may be limited.
In connection with the approval of POSIMIR, the Company is required to conduct two postmarketing non-
clinical studies. If the results from either of these studies are unfavorable, the FDA may require additional
studies, or may take actions that are adverse to the regulatory status, commercial prospects and market
acceptability of POSIMIR
In connection with the approval of POSIMIR, we are required to conduct two postmarketing non-clinical
studies to determine the ultimate impact of the drug product and fate of the vehicle if it is inadvertently
administered into the intravascular space and to assess the potential serious risk of POSIMIR-induced Local
Anesthetic Systemic Toxicity (LAST) following inadvertent intravenous route of administration and the ability of
lipid infusions to treat the clinical manifestations of LAST. We will need to reach agreement with the FDA on
the appropriate protocols for these non-clinical studies, complete them and submit final reports to the FDA by
September 2023.
The FDA may require us to update POSIMIR’s labeling with the results from these studies, including any
positive or negative results, which could have adverse impact on POSIMIR’s commercial prospects and market
acceptability. We may be unable to complete our postmarketing studies in accordance with the required
timeline, if at all. For example, it may not be feasible to assess the risk of LAST following inadvertent
intravenous route of administration and the ability of lipid infusions to treat the clinical manifestations of LAST.
If the FDA determines the study cannot be completed as designed, but the study objectives remain important,
the FDA may require one or more new postmarketing studies with new commitments and schedules. The FDA
may also amend the labeling or take other actions that are adverse to POSIMIR’s regulatory status. If there are
delays in completing the postmarketing studies,
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the FDA may post information about the delayed status on its website. Any of the above FDA actions could
adversely affect us or POSIMIR’s commercial prospects, or have other collateral effects, such as making it more
difficult for us to find a third-party licensee to commercialize POSIMIR. In POSIMIR clinical studies, no
inadvertent intravascular injections were observed.
If we experience delays or difficulties in the enrollment of subjects in clinical trials, our product development
expenses may increase, clinical trial data could be delayed and receipt of necessary regulatory approvals
could be delayed or prevented
Successful and timely completion of clinical trials will require that we enroll a sufficient number of
subjects and/or patients. Enrollment, a significant factor in the timing of clinical trials, is affected by many
factors including the size and nature of the patient population, our ability to recruit clinical sites and the ability
of clinical sites to successfully recruit subjects to participate in clinical trials. Initiation of and enrollment in
many clinical trials is being adversely affected by COVID-19, which has caused many institutions to stop
enrolling patients, has created a large number of clinical trial proposals for potential clinical trial sites to review
and consider, and has caused many individuals to avoid contact with hospitals or other healthcare
providers. Additionally, some of the patients in our clinical trials, including AH patients, are hospitalized and
concerns about exposure to COVID-19 limit clinical trial staff’s access to patients, the frequency of interactions
between patients and staff, the ability to obtain blood draws and other biological sample collection, and may
limit the ability to ship samples to outside laboratories for analysis. In areas heavily impacted by COVID-19,
there may be limited hospital staff available for clinical trial activities due to staff becoming infected or due to
deprioritization of clinical trial activities. Trials may be subject to delays as a result of patient enrollment taking
longer than anticipated or patient withdrawal. We may not be able to initiate or continue clinical trials for DUR-
928 if we are unable to sign sufficient clinical sites, locate and enroll a sufficient number of eligible patients to
participate in these trials as required by the FDA or similar regulatory authorities outside the United States or if
we are unable to collect and analyze biological samples required for trial endpoints. It is possible that the
inclusion and exclusion criteria for patients to be included in these trials or COVID-19-related issues may make
the trials more difficult to conduct or may significantly extend the time required for enrollment and the cost of
these trials.
We cannot predict how successful we will be at enrolling patients in our clinical trials. Enrollment is
affected by other factors including:
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the eligibility criteria for the trial in question;
the prevalence and incidence of the conditions being studied in the clinical trials;
COVID-19-related challenges with patient access, hospital prioritization, clinical trial staff availability,
ability to collect, ship and analyze patients’ biological samples, availability of personal protective
equipment (PPE), swabs, reagents and other materials and supplies;
the perceived risks and benefits of our product candidates;
clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being
studied in relation to other available therapies, including any new drugs or therapeutic biologics that
may be approved for the indications we are investigating;
the efforts to facilitate timely enrollment in clinical trials;
competition for clinical sites and patients from other clinical trials;
the willingness of potential clinical trial patients to provide informed consent to participate in the
trial;
the patient referral practices of physicians;
the ability to monitor patients adequately during and after treatment; and
the proximity and availability of clinical trial sites for prospective patients.
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Our inability to sign up sufficient clinical trial sites and/or enroll a sufficient number of patients for
clinical trials would result in significant delays and could require us to abandon one or more clinical trials
altogether. Enrollment delays in these clinical trials may result in increased development costs for our drug
candidates or delays in regulatory filings and progression, which would cause the value of our company to
decline and limit our ability to obtain additional financing.
The FDA may require more information or clinical studies for all of our product candidates, and our product
candidates may never be approved
The failure to adequately demonstrate the safety and effectiveness of a pharmaceutical product candidate
under development to the satisfaction of FDA and other regulatory agencies will result in delays to the
regulatory approval or non-approvability of our product candidates, and could materially harm our business.
Clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite
regulatory approvals for our product candidates, or may require such significant numbers of patients or
additional costs to make it impractical to satisfy the FDA’s requirements, and thus our product candidates may
not be approved for marketing. During the review process, the FDA may request more information regarding
the safety of our product candidates, as they did in their Complete Response Letter for POSIMIR, and answering
such questions could require significant additional work and expense, and take a significant amount of time,
resulting in a material delay of approval or the failure to obtain approval or lead the company to abandon the
development of that product candidate. During the review process, the FDA may also request more
information regarding the chemistry, manufacturing or controls related to our product candidates, and
answering such questions could require significant additional work and expense, and take a significant amount
of time, resulting in a material delay of approval or the failure to obtain approval or abandonment of the
product candidate. Additionally, even if our product candidates receive FDA approval, the FDA may require that
we conduct additional clinical or non-clinical studies after such approval, place limitations on the use of our
products in applicable labels, require marketing under a REMS program, include commercially unattractive
language in the approved product label, delay approval to market our products or limit the indicated use of our
products, which may harm our business and results of operations.
We currently have a significant amount of debt. Compliance with repayment obligations and other
covenants may be difficult, and failure by us to fulfill our obligations under the applicable loan agreements
may cause the repayment obligations to accelerate
In July 2016, we entered into a Loan and Security Agreement (the Loan Agreement) with Oxford Finance
LLC (Oxford Finance), pursuant to which Oxford Finance provided a $20 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
may be used for working capital and general business requirements. The term loan repayment schedule
provided initially for interest only payments for the first 18 months, followed by consecutive monthly
payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity
date of August 1, 2020. Following three amendments, we make interest only payments under the amended
Loan Agreement until December 1, 2021 and the final maturity date of the loan is May 1, 2024. The Loan
Agreement provides for a floating interest rate (7.95% initially and 7.95% as of December 31, 2020) 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
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, as
amended, may prove a burden to the Company as they become due, particularly following the expiration of
the interest-only period.
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The Loan Agreement contains customary events of default, including, among other things, our failure to
fulfill certain of our obligations under the Loan Agreement and the occurrence of 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 loan, the failure to deliver an unqualified audit report and board approved
financial projections within time periods set forth in the Loan Agreement, 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 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, which could harm our business, operations and financial condition.
In addition, the term loan is secured by substantially all of our assets, except that the collateral does not
include any equity interests in the Company, any intellectual property (including all 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 of our 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; make payments on any subordinated debt; and enter into transactions with any of
our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same. Complying
with these covenants may make it more difficult for us to successfully execute our business strategy.
We will require and may have difficulty raising needed capital in the future
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 complete the research, development and clinical testing of our product candidates. We will require
additional funds for these purposes, to establish additional clinical- and commercial-scale manufacturing
arrangements and facilities, and to provide for the marketing and distribution of our product candidates.
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. If adequate funds are unavailable from operations or additional
sources of financing, we may have to delay, reduce the scope of or eliminate one or more of our research or
development programs which would materially harm our business, financial condition and results of
operations.
We believe that our cash, cash equivalents and investments and anticipated revenues will be adequate to
satisfy our capital needs for at least the next 12 months from the date the financial statements are filed.
However, our independent auditors may not agree with this assessment, and our actual capital requirements
will depend on many factors, including:
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success in entering into collaboration agreements and achieving milestones under such agreements;
the continuation of our collaborative agreements that provide financial funding for our activities;
regulatory actions with respect to our and our collaborators’ product candidates;
continued progress and cost of our research and development programs;
progress with preclinical studies and clinical trials;
the time and costs involved in obtaining regulatory clearance;
costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
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costs of developing sales, marketing and distribution channels and our ability and that of our
collaborators to sell our products, products we have a financial interest in and eventually, product
candidates;
costs involved in establishing manufacturing capabilities for pre-clinical, non-clinical, clinical and
commercial quantities of our product candidates;
competing technological and market developments;
• market acceptance of our products, products we have a financial interest in and, eventually, product
candidates;
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any failure to comply with the covenants in our debt instruments that results in acceleration of
repayment obligations;
impacts of the COVID-19 crisis;
costs for recruiting and retaining employees and consultants; and
unexpected legal, accounting and other costs and liabilities related to our business.
We may consume available resources more rapidly than currently anticipated, resulting in the need for
additional funding. We may seek to raise additional funds through equity or debt financings, convertible debt
financings, collaborative arrangements with corporate collaborators or other sources, which 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 or pharmaceutical product candidates that we would otherwise
seek to develop or commercialize ourselves. If adequate funds are not available, we may be required to
significantly reduce or refocus our product development efforts, resulting in delays in generating future
product revenue.
We do not control the commercialization of PERSERIS or Methydur
We rely on Indivior for the commercialization of PERSERIS. Indivior has stated that it launched PERSERIS
in February 2019 in the United States. There can be no assurance that Indivior will obtain market acceptance
and meaningful sales. If Indivior does not successfully commercialize PERSERIS, the earn-out payments we
receive under our agreement with them may be limited. We rely on Orient Pharma for the commercialization
of Methydur in the territories licensed to Orient Pharma. If Orient Pharma does not successfully commercialize
Methydur throughout their territory, the royalty payments we receive under our agreement with them may be
limited. The sales of both of these products may be negatively impacted by the COVID-19 pandemic.
Development of our pharmaceutical product candidates is not complete, and we cannot be certain that our
product candidates will be able to be commercialized
To be profitable, we or our third-party collaborators must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our pharmaceutical product candidates
under development. For each product candidate that we or our third-party collaborators intend to
commercialize, we must successfully meet a number of critical developmental milestones for each disease or
medical condition targeted, including:
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with respect to each product candidate based on a new chemical entity, determining appropriate
indication(s);
with respect to our Proprietary Pharmaceutical Programs based on our drug delivery technologies,
selecting and developing a drug delivery technology to deliver the proper dose of drug over the
desired period of time;
determining the appropriate route of administration and drug dosage for each product candidate in
each indication;
developing product candidates that will be tolerated, safe and effective;
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demonstrating each product candidate will be chemically and physically stable for commercially
reasonable time periods;
demonstrating through clinical trials that each product candidate is safe and effective in patients for
the intended indication at an achievable dose and that the product candidate’s benefits outweigh its
risks; and
completing the manufacturing development and scale-up to permit manufacture of the product
candidate in commercial quantities and at acceptable cost.
The time frame necessary to achieve these developmental milestones for any individual product
candidate is long and uncertain, and we may not successfully complete these milestones for any of our product
candidates in development. Except for marketing authorization for POSIMIR in the U.S. for post-surgical pain
reduction for up to 72 hours following arthroscopic subacromial decompression (ASD), PERSERIS by Indivior in
the U.S. and for Orient Pharma’s approval of Methydur in Taiwan, development is incomplete for all product
candidates in our development programs, including DUR-928. We may not be able to finalize the design or
formulation of any of our product candidates. In addition, we may select components, solvents, excipients or
other ingredients to include in our product candidates that have not been previously approved for use in
pharmaceutical products, which may require us or our collaborators to perform additional studies and may
delay clinical testing and regulatory approval of our product candidates. Even after we complete the design of a
product candidate, the product candidate must still complete required clinical trials and additional safety
testing in animals before approval for commercialization. We are continuing testing and development of our
product candidates and may explore possible design or formulation changes to address issues of safety,
manufacturing efficiency, stability and performance. We or our collaborators may not be able to complete
development of any product candidates that will be safe and effective and that will have a commercially
reasonable treatment and storage period. If we or our third-party collaborators are unable to complete
development of DUR-928 or other product candidates, we will not be able to earn revenue from them, which
would materially harm our business.
For certain of our product candidates, we depend to a large extent on third-party collaborators, and we have
limited or no control over the development, sales, distribution and disclosure for those product candidates
which are the subject of third-party collaborative or license agreements
Our performance for certain of our product candidates depends to a large extent on the ability of our
third-party collaborators to successfully develop and obtain approvals for certain of our pharmaceutical
product candidates. We have entered into agreements with Indivior, Santen and Orient Pharma under which
we granted such third parties the right to develop, apply for regulatory approval for, market, promote or
distribute certain product candidates, subject to payments to us in the form of product royalties, earn-out and
other payments. We have limited or no control over the expertise or resources that any collaborator may
devote to the development, clinical trial strategy, regulatory approval, marketing or sale of these product
candidates, or the timing of their activities. Any of our present or future collaborators may not perform their
obligations as expected. These collaborators may breach or terminate their agreement with us or otherwise fail
to conduct their collaborative activities successfully and in a timely manner. Enforcing any of these agreements
in the event of a breach by the other party could require the expenditure of significant resources and consume
a significant amount of management time and attention. Our collaborators may also conduct their activities in
a manner that is different from the manner we would recommend or would have chosen, had we been
developing such product candidates ourselves. Further, our collaborators may elect not to develop or
commercialize product candidates arising out of our collaborative arrangements or not devote sufficient
resources to the development, clinical trials, regulatory approval, manufacture, marketing or sale of these
product candidates. If any of these events occur, we may not recognize revenue from the commercialization of
our product candidates based on such collaborations. In addition, these third parties may have similar or
competitive products to the ones which are the subject of their collaborations with us, or relationships with our
competitors, which may reduce their interest in developing or selling our product candidates. We may not be
able to control public disclosures made by some of our third-party collaborators, which could negatively
impact our stock price.
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Cancellation of collaborations regarding our product candidates may adversely affect potential economic
benefits
Third-party collaboration agreements typically allow the third party to terminate the agreement (or a
specific program within an agreement) at will by providing notice. Termination can result from failure of the
collaboration to achieve anticipated milestones, for changes in strategy of the other party or for other reasons.
In these cases, the product rights revert to us or certain rights of the partner to use our proprietary technology
are terminated. If there have been payments under such agreements that are being recognized over time,
termination of such agreements (or programs) can lead to a near-term increase in our reported revenues
resulting from the immediate recognition of the balance of such payments. Termination deprives us of
potential future economic benefits under such agreements, and may make it more difficult or impossible to
enter into agreements with other third parties for use of the assets and/or technologies that were subject to the
terminated agreement. For example, termination of our agreements with Santen or Orient Pharma could have
negative effects on the Company.
A significant component of our revenues resulted from collaboration agreements with other companies that
have terminated
Our revenues have been based to a significant extent on collaborative arrangements with third parties,
pursuant to which we receive payments based on our performance of research and development activities set
forth in these agreements. For example, approximately 58% of our total revenues were derived from our
collaboration agreement with Gilead in 2019. In June 2020, Gilead notified us that they were terminating this
collaboration. In addition, we have seen periodic fluctuations in revenues associated with our other
collaboration agreements, which reflect the current development stage of the product candidates subject to
those agreements, and our collaborator’s needs for our services. Long-term growth of our collaboration
revenues requires us to enter into new collaboration agreements, and there can be no assurance that we will
do so. Even if we enter into new collaboration agreements, we may not be able to fulfill our obligations or
attain milestones set forth in any specific agreement, which could cause our revenues and/or cash flows to
fluctuate or be less than anticipated and may expose us to liability for contractual breach. In addition, these
agreements may require us to devote significant time and resources to communicating with and managing our
relationships with such collaborators and resolving possible issues of contractual interpretation which may
detract from time our management would otherwise devote to managing our operations. Such agreements are
generally complex and contain provisions that could give rise to legal disputes, including potential disputes
concerning ownership of intellectual property under collaborations. Such disputes can delay or prevent the
development of potential new product candidates, or can lead to lengthy, expensive litigation or arbitration. In
general, our collaboration agreements, including our agreements with Orient Pharma with respect to Methydur
and Santen with respect to an investigational ophthalmic product may be terminated by the other party at will
or upon specified conditions including, for example, if we fail to satisfy specified performance milestones or if
we breach the terms of the agreement. Acquisitions of our collaborators or strategic changes or re-
organizations or re-prioritizations of our collaborators can lead to turnover of program staff, a review of
development programs and strategies by the acquirer, and other events that can disrupt a program, resulting
in program delays or discontinuations.
If we do not enter into new collaboration agreements, our anticipated revenues and/or cash flows will be
reduced relative to periods of increased R&D revenues, such as occurred in 2020.
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Our cash flows are likely to differ from our reported revenues
Our revenues will likely differ from our cash flows from revenue-generating activities. Upfront payments
received upon execution of collaborative agreements are recorded as deferred revenue and generally
recognized over the period of our performance obligations with the third-party collaborator pursuant to the
applicable agreement. The period of performance obligations may also be revised on a prospective basis. As of
December 31, 2020, we had $812,000 of deferred revenue which will be recognized in future periods and may
cause our reported revenues to be greater than cash flows from our ongoing revenue-generating activities.
Assumptions related to revenue recognition of deferred revenue are reviewed in each accounting period and
changes are recorded in the current period. In certain circumstances, changes in assumptions related to the
timing and amount of work required to complete a performance obligation tied to deferred revenue can result
in negative revenue for an accounting period or the accelerated recognition of non-cash revenue.
Our revenues may decrease and our losses may increase compared to prior years as a result of the sale of
the LACTEL® polymer product line
In December 2020 we completed the sale of our LACTEL polymer product line to Evonik for
approximately $15 million subject to certain adjustments. Sales of LACTEL polymers contributed to our product
revenues and earnings, and the loss of these revenues and earnings will decrease our future period product
related revenues and operating results.
Our business strategy includes the entry into additional collaborative agreements. We may not be able to
enter into additional collaborative agreements or may not be able to negotiate commercially acceptable
terms for these agreements
Our current business strategy includes the entry into additional collaborative agreements for the
development and commercialization of our product candidates, including, but not limited to POSIMIR, DUR-
928 and others. The negotiation and consummation of these types of agreements typically involve
simultaneous discussions with multiple potential collaborators and require significant time and resources from
our officers, business development, legal, and research and development staff. In addition, in attracting the
attention of pharmaceutical and biotechnology company collaborators, we compete with numerous other third
parties with product opportunities as well as the collaborators’ own internal product opportunities. We may
not be able to consummate additional collaborative agreements, or we may not be able to negotiate
commercially acceptable terms for these agreements. If we do not consummate additional collaborative
agreements, we may have to consume money more rapidly on our product development efforts, defer
development activities or forgo the exploitation of certain opportunities, abandon development of certain
product candidates or indications for certain product candidates, any of which could have a material adverse
effect on our business.
We and our third-party collaborators may not be able to manufacture sufficient quantities of our
pharmaceutical product candidates and components to support the non-clinical, clinical and commercial
requirements of our collaborators and ourselves at an acceptable cost or in compliance with applicable
government regulations, and we have limited manufacturing experience
We or our third-party collaborators to whom we have assigned such responsibility must manufacture our
product candidates, and components (including active ingredients and excipients) in non-clinical (e.g.,
toxicology), clinical and commercial quantities, either directly or through third parties, in compliance with
regulatory requirements and at an acceptable cost. The manufacturing processes associated with our product
candidates are complex. We and our third-party collaborators, where relevant, have not yet completed
development of the manufacturing process for any of our product candidates or components that are in pre-
clinical or clinical development, including DUR-928. If we and our third-party collaborators, where relevant, fail
to timely complete the development of the manufacturing process for our product candidates, we and our
third-party collaborators, where relevant, will not be able to timely produce supplies for non-clinical, clinical
trials and commercialization of our product candidates. We have also committed to manufacture and supply
product candidates or components under a number of our collaborative agreements with third-party
companies. We have limited experience manufacturing pharmaceutical products, and we may not be able to
timely accomplish these tasks. If we and our third-
39
party collaborators, where relevant, fail to develop manufacturing processes to permit us to manufacture a
product candidate or component at an acceptable quality and cost, then we and our third-party collaborators
may not be able to develop or commercialize that product candidate or we may be in breach of our supply
obligations to our third-party collaborators.
Our manufacturing facility in Cupertino is a multi-disciplinary site that we have used to manufacture only
research and clinical trial supplies of several of our product candidates, including DUR-928 and POSIMIR. If we
experience delays or technical difficulties in developing acceptable manufacturing processes or scaling up the
manufacturing of our product candidates, it could result in delays or added cost in our development programs.
We have not manufactured commercial quantities of any of our product candidates at our Cupertino facility. In
the future, we may develop additional manufacturing capabilities for our product candidates and components
to meet our demands and those of our third-party collaborators by contracting with third-party manufacturers
and/or by potentially constructing additional manufacturing space at our facilities in California or elsewhere.
We have limited experience building and validating manufacturing facilities, and we may not be able to
accomplish these tasks in a timely or cost-effective manner.
If we and our third-party collaborators, where relevant, are unable to manufacture our product
candidates or components in a timely manner or at an acceptable cost, quality or performance level, and are
unable to attain and maintain compliance with applicable regulations, the non-clinical and clinical trials and the
commercial sale of our product candidates and those of our third-party collaborators could be delayed or
never occur. Additionally, we may need to alter our facility design or manufacturing processes, install
additional equipment or do additional construction or testing in order to meet regulatory requirements,
optimize the production process, increase efficiencies or production capacity or for other reasons, which may
result in additional cost to us or delay production of product needed for the non-clinical trials, clinical trials,
chemistry, manufacturing and controls (CMC) and commercial launch of our product candidates and those of
our third-party collaborators.
If we or our third-party collaborators cannot manufacture our pharmaceutical product candidates or
components in time to meet the clinical or commercial requirements of our collaborators or ourselves or at an
acceptable cost, our operating results will be harmed.
Failure to comply with ongoing governmental regulations for our pharmaceutical product candidates could
materially harm our business in the future
Developing, manufacturing, marketing or promoting a drug is subject to very strict regulations and
controls. Furthermore, clearance or approval may entail ongoing requirements for post-marketing studies. The
manufacture and marketing of drugs are subject to continuing FDA and foreign regulatory review and
requirements that we update our regulatory filings. Later discovery of previously unknown problems with a
product, manufacturer or facility, or our failure to update regulatory files, may result in restrictions, including
withdrawal of the product from the market. Any of the following or other similar events, if they were to occur,
could delay or preclude us from further developing, marketing or realizing full commercial use of our product
candidates, which in turn would materially harm our business, financial condition and results of operations:
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failure to obtain or maintain requisite governmental approvals;
failure to meet GMP, GLP and/or other governmental requirements for drug development;
failure to obtain approvals for clinically intended uses of our pharmaceutical product candidates
under development; or
FDA required product withdrawals or warnings arising from identification of serious adverse side
effects in our product candidates.
Manufacturers of drugs must comply with the applicable FDA good manufacturing practice (GMP)
regulations, which include production design controls, testing, quality control and quality assurance
requirements as well as the corresponding maintenance of records and documentation. Compliance with
current GMP regulations is difficult and costly. Manufacturing facilities are subject to ongoing periodic
inspection by the FDA and corresponding state and in some cases, foreign agencies, including unannounced
inspections, and must be licensed before they can be used for the commercial manufacture
40
of our product candidates. We and/or our present or future suppliers and distributors may be unable to
comply with the applicable GMP regulations and other FDA and/or foreign regulatory requirements. If we, our
third-party collaborators or our respective suppliers do not achieve compliance for our product candidates we
or they manufacture, the FDA or foreign equivalents may refuse or withdraw marketing clearance, put our or
our partner’s clinical trial on hold, withdraw or reject an investigational new drug (IND) application or require
product recall, which may cause interruptions or delays in the development, manufacture and sale of our
product candidates.
We have a history of operating losses, expect to continue to have losses in the future and may never achieve
or maintain profitability
We have incurred significant operating losses since our inception in 1998 and, as of December 31, 2020,
had an accumulated deficit of approximately $489.8 million. We expect to continue to incur significant
operating losses over the next several years as we continue to incur significant costs for research and
development, clinical trials, manufacturing, sales, and general and administrative functions. Our ability to
achieve profitability depends upon our ability, alone or with others, to successfully complete the development
of our proposed product candidates, obtain the required regulatory clearances, and manufacture and market
our proposed product candidates. Development of pharmaceutical product candidates is costly and requires
significant investment. In addition, we may choose to license from third parties either additional drug delivery
platform technology or rights to particular drugs or other appropriate technology and/or intellectual property
rights for use in our product candidates. The license fees for these technologies or rights would increase the
costs of our product candidates.
To date, we have not generated significant revenue from the commercial sale of our pharmaceutical
product candidates and do not expect to do so in the near future. Our current revenues are from the ALZET
product line, from certain excipient sales, from earn-out payments from Indivior related to sales of PERSERIS,
from royalty payments from Orient Pharma related to sales of Methydur in Taiwan, and from payments under
collaborative research and development agreements with third parties. We do not expect our product revenues
to increase significantly in the near future, and we do not expect that collaborative research and development
revenues will exceed our actual operating expenses in the near future. We do not anticipate meaningful
revenues to derive from the commercialization and marketing of our product candidates in development in the
near future, and therefore do not expect to generate sufficient revenues to cover expenses or achieve
profitability in the near future.
We may develop our own sales force and commercial group to market future products but we have limited
sales and marketing experience with respect to pharmaceuticals and may not be able to do so effectively
We have a small sales and marketing group focused on our ALZET product line. We may choose to
develop our own sales force and commercial group to market products that we have developed or may
develop in the future, including POSIMIR and/or DUR-928, if approved. Developing a sales force and
commercial group would require substantial expenditures and the hiring of qualified personnel. We have
limited sales and marketing experience, and may not be able to effectively recruit, train or retain sales and
marketing personnel. If we are not able to put in place an appropriate sales force and commercial group for
our products in development, we may not be able to effectively launch these products. We may not be able to
effectively sell our product candidates, if approved, and our failure to do so could limit or materially harm our
business.
We and our third-party collaborators may not sell our product candidates effectively
We and our third-party collaborators compete with many other companies that currently have extensive
and well-funded marketing and sales operations. Our marketing and sales efforts and those of our third-party
collaborators may be unable to compete successfully against these other companies. We and our third-party
collaborators, if relevant, may be unable to establish a sufficient sales and marketing organization on a timely
basis, if at all. We and our third-party collaborators, if relevant, may be unable to engage qualified distributors.
Even if engaged, these collaborators and distributors may:
•
•
fail to satisfy financial or contractual obligations to us;
fail to adequately market our product candidates;
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cease operations with little or no notice to us;
offer, design, manufacture or promote competing product lines;
fail to maintain adequate inventory and thereby restrict use of our product candidates; or
build up inventory in excess of demand thereby limiting future purchases of our product candidates
resulting in significant quarter-to-quarter variability in our sales.
The failure of us or our third-party collaborators to effectively develop, gain regulatory approval for, sell,
manufacture and market our product candidates will hurt our business, prospects, financial results and may
impact our access to capital.
We rely heavily on third parties to support development, clinical testing and manufacturing of our
product candidates
We rely on third-party contract research organizations, consultants, service providers and suppliers to
provide critical services to support development, clinical testing, and manufacturing of our product candidates.
For example, we currently depend on third-party vendors to manage and monitor most of our clinical trials.
We rely on third-parties to manufacture or perform manufacturing steps relating to our product candidates or
components. We anticipate that we will continue to rely on these and other third-party contractors to support
development, clinical testing, and manufacturing of our product candidates. These third parties may not
execute their responsibilities and tasks competently in compliance with applicable laws and regulations or in a
timely or cost-effective fashion. Failure of these contractors to provide the required services in a competent or
timely manner or on reasonable commercial terms could materially delay the development and approval of
our product candidates, increase our expenses and materially harm our business, financial condition, results of
operations and access to capital.
Key components of our product candidates are provided by limited numbers of suppliers, and supply
shortages or loss of these suppliers could result in interruptions in supply or increased costs
Certain components and drug substances used in our and our collaborators’ products and product
candidates, including DUR-928, POSIMIR, Methydur, and PERSERIS, are currently purchased from a single or a
limited number of outside sources. In particular, Eastman Chemical is the sole supplier of our requirements of
sucrose acetate isobutyrate, a necessary component of POSIMIR and certain other pharmaceutical product
candidates we have under development. A third-party manufacturer is our sole supplier for future commercial
supplies of POSIMIR. Another third- party manufacturer is our sole supplier for future non-clinical, clinical and
commercial supplies of DUR-928. The reliance on a sole or limited number of suppliers could result in:
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delays associated with redesigning a pharmaceutical product candidate due to a failure to obtain a
single source component;
delays associated with finding and contracting with a new supplier (if we can find one capable of
replacing the old supplier and negotiate commercially reasonable terms) and then transferring the
technology required to perform the services to the new supplier;
an inability to obtain an adequate supply of required product candidate, active pharmaceutical
ingredient or excipients or other components; and
reduced control over pricing, quality and delivery time.
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While we have entered into contract manufacturing agreements with multiple vendors for DUR-928, we
currently have a third-party sole supplier for GMP supplies of DUR-928. This third party is our sole source for
the drug product required for development and commercialization of this drug candidate. There can be no
assurance that we will receive sufficient quantities of DUR-928 to commence and conduct the non-clinical
trials, clinical trials and CMC activities we are planning, and delays in supply could delay development of DUR-
928. In addition, certain of our third-party manufacturers and suppliers may be experiencing delays as a result
of the COVID-19 coronavirus pandemic or have otherwise encountered delays in providing their services. As a
result, we may not be able to manufacture our product candidates for our clinical trials and conduct other
research and development operations and maintain current clinical and pre-clinical timelines. In addition, if
additional third parties in our supply chain are adversely impacted by restrictions resulting from
the coronavirus pandemic, including staffing shortages, raw material shortages, production slowdowns and
disruptions in delivery systems, our supply chain may be disrupted in other ways, further limiting our ability to
manufacture our product candidates for our clinical trials and conduct our research and development
operations.
We have entered into a commercial manufacturing and packaging agreement with a third-party
manufacturer for future supply of POSIMIR. This third party is our sole source for the drug product required for
commercialization of this drug candidate. There may be technical risks associated with establishing an
alternative commercial manufacturer that could entail delays in supply, quality issues or delays in the possible
regulatory approval of POSIMIR. Furthermore, we and our contract manufacturer may also need or choose to
subcontract with additional third-party contractors to perform manufacturing steps of POSIMIR or supply
required components for POSIMIR. Where third party contractors perform manufacturing services for us, we
will be subject to the schedule, expertise and performance of third parties as well as incur significant additional
costs. Failure of third parties to perform their obligations could adversely affect our operations, development
timeline and financial results. If we proceed with the commercialization of POSIMIR, we expect to put in place
in the future second source supply arrangements, which may be costly and time consuming.
We have supply agreements in place for certain components of our pharmaceutical product candidates,
but do not have in place long term supply agreements with respect to all of the components of any of our
products or product candidates. Therefore, the supply of a particular component could be terminated at any
time without penalty to the supplier. In addition, we may not be able to procure required components or drugs
from third-party suppliers at a quantity, quality, cost and timing acceptable to us. In addition, certain of our
suppliers may be experiencing delays as a result of the COVID-19 coronavirus pandemic or have otherwise
encountered delays in providing their services. Any interruption in the supply of single source components
(including active pharmaceutical ingredients, excipients, or components like vials, stoppers, filters and the like)
or product candidates, could cause us to seek alternative sources of supply or manufacture these items
internally if feasible. Furthermore, in some cases, we are relying on our third-party collaborators to procure
supply of necessary components. If the supply of any components for our product candidates is interrupted,
components from alternative suppliers may not be available in sufficient volumes or at acceptable quality
levels within required timeframes, if at all, to meet our needs or those of our third-party collaborators. This
could delay our ability to complete development and obtain approval for commercialization and marketing of
our product candidates, causing us to lose sales, incur additional costs, delay new product introductions and
could harm our reputation and make access to capital more difficult, expensive or impossible. The spread of
COVID-19 has and is likely to continue to affect the manufacturing and shipment of goods globally. Many
countries have imposed or are imposing certain restrictions on the movement of people and goods and may
continue to lift and reimpose such restrictions as needed. Any delay in production or delivery of the
components and drug substances used in our product candidates due to an extended closure of our suppliers’
plants as a result of efforts to limit the spread of COVID-19 could adversely impact our business and hinder our
growth.
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Write-offs related to the impairment of our goodwill, long-lived assets, inventories and other non-cash
charges, as well as stock-based compensation expenses may adversely impact or delay our profitability
We may incur significant non-cash charges related to impairment write-downs of our long-lived assets,
including goodwill. We are required to perform periodic impairment reviews of our goodwill at least annually.
The carrying value of goodwill on our balance sheet was $6.2 million at December 31, 2020. To the extent
these reviews conclude that the expected future cash flows generated from our business activities are not
sufficient to recover the cost of our long-lived assets, we will be required to measure and record an impairment
charge to write-down these assets to their realizable values. We completed our last review during the fourth
quarter of 2020 and determined that goodwill was not impaired as of December 31, 2020. However, there can
be no assurance that upon completion of subsequent reviews a material impairment charge will not be
recorded. If future periodic reviews determine that our assets are impaired and a write-down is required, it will
adversely impact or delay our profitability.
Inventories, in part, include certain excipients that are sold to customers and included in product
candidates in development. These inventories are capitalized based on management’s judgment of probable
sale prior to their expiration date which in turn is primarily based on management’s internal estimates. The
valuation of inventory requires us to estimate the value of inventory that may become expired prior to use. We
may be required to expense previously capitalized inventory costs upon a change in our judgment, due to,
among other potential factors, a denial or delay of approval of a product by the necessary regulatory bodies,
changes in product development timelines, or other information that suggests that the inventory will not be
saleable.
Global credit and financial market conditions could negatively impact the value of our current portfolio of
cash equivalents, short-term investments or long-term investments and our ability to meet our financing
objectives
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of
90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable
debt securities with original maturities of greater than 90 days from the date of purchase but remaining
maturities of less than one year from the balance sheet date. Our long-term investments consist primarily of
readily marketable debt securities with maturities in one year or beyond from the balance sheet date. While, as
of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration
in the fair value of our cash equivalents, short-term investments or long-term investments since December 31,
2020, no assurance can be given that deterioration in conditions of the global credit and financial markets
would not negatively impact our current portfolio of cash equivalents, short-term investments or long-term
investments or our ability to meet our financing objectives.
We depend upon key personnel who may terminate their employment with us at any time, and we may
need to hire additional qualified personnel
Our success will depend to a significant degree upon the continued services of key management,
technical and scientific personnel. In addition, our success will depend on our ability to attract and retain other
highly skilled personnel, particularly as we develop and expand our Epigenetic Regulator Program. Competition
for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often
lengthy. We may be unable to recruit such personnel on a timely basis, if at all. Our management and other
employees may voluntarily terminate their employment with us at any time. The loss of the services of key
personnel, or the inability to attract and retain additional qualified personnel, could result in delays to product
development or approval, loss of sales and diversion of management resources as well as difficulties or
inability to raise sufficient capital to fund the Company’s operations.
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Our business involves environmental risks and risks related to handling regulated substances
In connection with our research and development activities and our manufacture of materials and
product candidates, we are subject to federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain
materials, biological specimens and wastes. Although we believe that we have complied with the applicable
laws, regulations and policies in all material respects and have not been required to correct any material
noncompliance, we may be required to incur significant costs to comply with environmental and health and
safety regulations in the future. Our research and development involves the use, generation and disposal of
hazardous materials, including but not limited to certain hazardous chemicals, solvents, agents and
biohazardous materials. The extent of our use, generation and disposal of such substances has increased
substantially when we started manufacturing and selling biodegradable polymers. Although we believe that our
safety procedures for storing, handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury
from these materials. We currently contract with third parties to dispose of these substances generated by us,
and we rely on these third parties to properly dispose of these substances in compliance with applicable laws
and regulations. If these third parties do not properly dispose of these substances in compliance with
applicable laws and regulations, we may be subject to legal action by governmental agencies or private parties
for improper disposal of these substances. The costs of defending such actions and the potential liability
resulting from such actions are often very large. In the event we are subject to such legal action or we
otherwise fail to comply with applicable laws and regulations governing the use, generation and disposal of
hazardous materials and chemicals, we could be held liable for any damages that result, and any such liability
could exceed our resources.
Cyber-attacks or other failures in telecommunications or information technology systems could result in
information theft, data corruption and significant disruption of our business operations
We utilize information technology, systems and networks to process, transmit and store electronic
information in connection with our business activities. As use of digital technologies has increased, cyber
incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and
networks, have increased in frequency and sophistication. These threats pose a risk to the security of our
systems and networks and the confidentiality, availability and integrity of our data, and may cause a disruption
in our operations, harm our reputation, cause us to pay to retrieve our data if it becomes infected or otherwise
subject to ransomware and increase our stock trading risk. There can be no assurance that we will be
successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no
assurance that our third-party collaborators, distributors and other contractors and consultants will be
successful in protecting our clinical and other data that is stored on their systems. Any cyber-attack or
destruction or loss of data could have a material adverse effect on our business and prospects. In addition, we
may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or other
data security breaches and may incur significant additional expense to implement further data protection
measures.
Our corporate headquarters, certain manufacturing facilities and personnel are located in a geographical
area that is seismically active and near wildfire zones
Our corporate headquarters, certain manufacturing facilities and personnel are located in a geographical
area that is known to be seismically active and prone to earthquakes, as well as wildfires and related power
outages or power shortages. Should such a natural disaster occur or power outage or power shortage, our
ability to conduct our business could be severely restricted, and our business and assets, including the results
of our research, development and manufacturing efforts, could be harmed or destroyed.
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As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the
Sarbanes-Oxley Act and, consequently, some investors may find our common stock less attractive
We are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and as such, are not
required to provide an auditor attestation of management’s assessment of internal control over financial
reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley
Act. Therefore, our internal controls over financial reporting will not receive the level of review provided by the
process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor
attestation requirements. Because we are not required to have our auditors provide an attestation of our
management’s assessment of internal control over financial reporting, a material weakness in internal control
may remain undetected for a longer period. In addition, we cannot predict if investors will find our common
stock less attractive because we are not required to comply with the auditor attestation requirements. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our
common stock and the trading price for our common stock may be negatively affected.
Risks Related to Our Intellectual Property
If we are unable to adequately protect, maintain or enforce our intellectual property rights or secure rights
to third-party patents, we may lose valuable assets, experience reduced market share or incur costly
litigation to protect our rights or our third-party collaborators may choose to terminate their agreements
with us
Our ability to commercially exploit our products will depend significantly on our ability to obtain and
maintain patents, maintain trade secret protection and operate without infringing the proprietary rights of
others.
As of March 1, 2021, we owned or exclusively in-licensed over 35 unexpired issued U.S. patents and over
145 unexpired issued foreign patents (which include granted European patent rights that have been validated
in various EU member states). In addition, we have over 55 pending U.S. patent applications and over 145
foreign applications pending in Europe, Australia, Japan, Canada and other countries.
There can be no assurance that the pending patent applications will be granted. Further, there can be no
assurance that VCU will not attempt to terminate their license to us, which termination could result in the loss
of our rights to these patent families
The patent positions of pharmaceutical companies, including ours, are uncertain and involve complex
legal and factual questions. In addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, our patent applications or those that are licensed to us may
not issue into patents, and any issued patents may not provide protection against competitive technologies or
may be held invalid if challenged. Our competitors may also independently develop products similar to ours or
design around or otherwise circumvent patents issued to us or licensed by us. In addition, the laws of some
foreign countries may not protect our proprietary rights to the same extent as U.S. law.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop
and maintain our competitive position. We require our employees, consultants, advisors and collaborators to
execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements
typically provide that all materials and confidential information developed or made known to the individual
during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances, and that all inventions arising out of the individual’s relationship with
us will be our exclusive property. These agreements may be breached, and in some instances, we may not
have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may
independently develop substantially equivalent proprietary information and techniques, reverse engineer our
information and techniques, or otherwise gain access to our proprietary technology.
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We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-
patented technology. We may have to resort to litigation or arbitration to protect our intellectual property
rights, or to determine their scope, validity or enforceability. In addition, interference, derivation, post-grant
oppositions, and similar proceedings may be necessary to determine rights to inventions in our patents and
patent applications. Enforcing or defending our proprietary rights is expensive, could cause diversion of our
resources and may be unsuccessful. Any failure to enforce or protect our rights could cause us to lose the
ability to exclude others from using our technology to develop or sell competing products.
Our collaboration agreements may depend on our intellectual property
We are party to collaborative agreements with Orient Pharma and Santen among others. Our third-party
collaborators have entered into these agreements based on the exclusivity that our intellectual property rights
confer on the products being developed. The loss or diminution of our intellectual property rights could result
in a decision by our third-party collaborators to terminate their agreements with us. In addition, these
agreements are generally complex and contain provisions that could give rise to legal disputes, including
potential disputes concerning ownership of intellectual property and data under collaborations. Such disputes
can lead to lengthy, expensive litigation or arbitration requiring us to devote management time and resources
to such dispute which we would otherwise spend on our business.
We may be sued by third parties claiming that our product candidates infringe on their intellectual property
rights, particularly because there is substantial uncertainty about the validity and breadth of medical patents
We or our collaborators may be exposed to future litigation by third parties based on claims that our
product candidates or activities infringe the intellectual property rights of others or that we or our collaborators
have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and
breadth of claims covered in medical technology, pharmaceutical and biotechnology patents and the breadth
and scope of trade secret protection involve complex legal and factual questions for which important legal
principles are unresolved. Any litigation or claims against us or our collaborators, whether or not valid, could
result in substantial costs, could place a significant strain on our financial resources and could harm our
reputation. We also may not have sufficient funds to litigate against parties with substantially greater
resources. In addition, pursuant to our collaborative agreements, we have provided our collaborators with the
right, under specified circumstances, to defend against any claims of infringement of the third-party intellectual
property rights, and such collaborators may not defend against such claims adequately or in the manner that
we would do ourselves. Intellectual property litigation or claims could force us or our collaborators to do one
or more of the following, any of which could harm our business or financial results:
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•
cease selling, incorporating or using any of our product candidates that incorporate the challenged
intellectual property, which would adversely affect our revenue;
obtain a license from the holder of the infringed intellectual property right, which license may be
costly or may not be available on reasonable terms, if at all; or
redesign our product candidates, which would be costly and time-consuming.
Risks Related To Our Industry
The markets for our pharmaceutical product candidates and for our ALZET product line are rapidly changing
and competitive, and new products or technologies developed by others could impair our ability to maintain
or grow our business and remain competitive
The pharmaceutical industry is subject to rapid and substantial technological change. Developments by
others may render our product candidates under development or technologies noncompetitive or obsolete, or
we may be unable to keep pace with technological developments or other market factors. Technological
competition in the industry from pharmaceutical and biotechnology companies, universities, governmental
entities and others diversifying into the field is intense and is expected to increase.
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We may face competition from other companies in numerous industries including pharmaceuticals,
biotechnology, medical devices and drug delivery. Competition for DUR-928, if approved, will depend on the
specific indications for which DUR-928 is approved. 89Bio, AbbVie, Afimmune, Akero Therapeutics, Ascletis,
AstraZeneca, BMS, Cirius Therapeutics, CytoDyn, Dr. Falk Pharma, Eli Lilly, Enanta, ENYO Pharma, Galectin,
Galmed, Genentech, Genfit, Gilead, Hanmi, HighTide Biopharma, Intercept, Inventiva Pharma, Ionis
Pharmaceuticals, Inc., Isotechnika, Kowa, LifeMax, Lipidio, Lipocine, Madrigal, MediciNova, MedImmune,
Mitsubishi Tanabe, NGM Biopharmaceuticals, Nimbus, NorthSea Therapeutics, Novartis, Novo Nordisk, Pfizer,
PharmaKing, Poxel, Promethera Biosciences, Seal Rock Therapeutics, Terns Pharmaceutical, Thera
Technologies, Viking, and others have development plans for products to treat NAFLD/NASH, AH or other liver
diseases.
POSIMIR, if commercially launched, will compete with currently marketed oral opioids, transdermal
opioids, local anesthetic patches, implantable and external infusion pumps which can be used for infusion of
opioids and local anesthetics. Products of these types are marketed by Pacira, Purdue Pharma, AbbVie, Janssen,
Actavis, Medtronic, Endo, AstraZeneca, Pernix Therapeutics, Tricumed, Halyard Health, Cumberland
Pharmaceuticals, Acorda Therapeutics, Mallinckrodt, Inspirion Delivery Technologies, Mylan, Shire, Johnson &
Johnson, Eli Lilly, Pfizer, Novartis, Zyla Life Sciences, Teva Pharmaceuticals, Collegium Pharmaceutical and
others. Additional competition for POSIMIR may come from Heron Therapeutics if their product candidate,
HTX-011, is approved or from Innocoll if their recently approved product candidate, XARACOLL® is
commercially launched. PERSERIS competes with currently marketed or approved products by Johnson &
Johnson, Eli Lilly, Otsuka, Alkermes, Merck, Allergan, Novartis, and others. Orient Pharma’s Methydur
competes with multiple ADHD products in Taiwan.
Numerous companies are applying significant resources and expertise to the problems of drug delivery
and several of these are focusing or may focus on delivery of drugs to the intended site of action, including
Pacira, Heron Therapeutics, Alkermes, Immune Pharmaceuticals, Innocoll, Nektar, Acorda Therapeutics, Flamel,
Alexza, Mallinckrodt, Pfizer, Cumberland Pharmaceuticals, Zyla Life Sciences, Acura, Elite Pharmaceuticals,
Phosphagenics, Intellipharmaceutics, Collegium Pharmaceutical, Charleston Laboratories, Daiichi Sankyo and
others. Some of these competitors may be addressing the same therapeutic areas or indications as we are. Our
current and potential competitors may succeed in obtaining patent protection or commercializing products
before us. Many of these entities have significantly greater research and development capabilities than we do,
as well as substantially more marketing, manufacturing, financial and managerial resources. These entities
represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or
biotechnology companies by large corporations could increase such competitors’ financial, marketing,
manufacturing and other resources.
Competition for our ALZET product line primarily consists of customers choosing to utilize delivery
methods for their research projects other than an osmotic pump. We may also face competition for our ALZET
product line from other companies including low cost foreign competitors.
We are engaged in the development of novel therapeutic technologies. Our resources are limited and we
may experience technical challenges inherent in such novel technologies. Competitors have developed or are in
the process of developing technologies that are, or in the future may be, the basis for competitive products.
Some of these products may have an entirely different approach or means of accomplishing similar therapeutic
effects than our product candidates. Our competitors may develop products that are safer, more effective or
less costly than our product candidates and, therefore, present a serious competitive threat to our product
offerings.
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The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our
product candidates even if commercialized. Post-operative pain is currently being treated by oral medication,
transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery
devices which will be competitive with our product candidates. Many of these treatments are widely accepted
in the medical community and have a long history of use. The established use of these competitive products
may limit the potential for our product candidates to receive widespread acceptance if commercialized.
Our relationships with customers and third-party payers will be subject to applicable anti-kickback, fraud
and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished profits and future earnings
Healthcare providers, physicians and third-party payers will play a primary role in the recommendation
and prescription of POSIMIR and any additional product candidates for which we obtain marketing approval.
Our future arrangements with third-party payers and customers may expose us to broadly applicable fraud
and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we may market, sell and distribute our products. As a
pharmaceutical company, even though we do not and may not control referrals of healthcare services or bill
directly to Medicare, Medicaid or other third-party payers, federal and state healthcare laws and regulations
pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. These regulations
include:
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the Federal Healthcare Anti-Kickback Statute, which prohibits, among other things, persons from
knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly,
in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the
purchase, order or recommendation of, any good or service, for which payment may be made under
a federal healthcare program such as Medicare and Medicaid, and which will constrain our marketing
practices and the marketing practices of our licensees, educational programs, pricing policies, and
relationships with healthcare providers or other entities;
the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits
physicians from referring Medicare or Medicaid patients to providers of “designated health services”
with whom the physician or a member of the physician’s immediate family has an ownership interest
or compensation arrangement, unless a statutory or regulatory exception applies;
federal false claims laws that prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other
government reimbursement programs that are false or fraudulent, and which may expose entities
that provide coding and billing advice to customers to potential criminal and civil penalties, including
through civil whistleblower or qui tam actions, and including as a result of claims presented in
violation of the Federal Healthcare Anti-Kickback Statute, the Stark Law or other healthcare-related
laws, including laws enforced by the FDA;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes
criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also
created federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering
up a material fact or making any materially false statements in connection with the delivery of or
payment for healthcare benefits, items or services, and which as amended by the Health Information
Technology for Economic and Clinical Health Act, or HITECH, also imposes obligations, including
mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
federal physician sunshine requirements under the Affordable Care Act, which requires
manufacturers of drugs, devices, biologics and medical supplies to report annually to HHS
49
information related to payments and other transfers of value to physicians, other healthcare
providers, and teaching hospitals, and ownership and investment interests held by physicians and
other healthcare providers and their immediate family members and applicable group purchasing
organizations;
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the Federal Food, Drug, and Cosmetic Act, which, among other things, strictly regulates drug product
marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the
distribution of drug samples; and
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws, which may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non- governmental third-party payers, including private insurers,
state laws requiring pharmaceutical companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government and which may require drug manufacturers to report information related to payments
and other transfers of value to physicians and other healthcare providers or marketing expenditures,
and state and foreign laws governing the privacy and security of health information in specified
circumstances, many of which differ from each other in significant ways and often are not preempted
by federal laws such as HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare
laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude
that our business practices may not comply with current or future statutes, regulations or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject
to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from
government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring
of our operations. If any physicians or other healthcare providers or entities with whom we expect to do
business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or
administrative sanctions, including exclusions from government funded healthcare programs.
Healthcare reform measures could hinder or prevent our product candidates’ commercial success
In the United States and some non-U.S. jurisdictions, there have been, and we expect there will continue
to be, a number of legislative and regulatory changes to the healthcare system that could prevent or delay
marketing approval of our product candidates, restrict or regulate post-approval activities, affect our ability to
profitably sell any product candidates for which we obtain marketing and otherwise affect our future revenue
and profitability and the future revenue and profitability of our collaborators or potential collaborators.
For example, in March 2010, the Affordable Care Act was enacted in the United States to broaden access
to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud
and abuse, add new transparency requirements for healthcare and health insurance industries, impose new
taxes and fees on the health industry and impose additional health policy reforms. The law appears likely to
continue the downward pressure on the pricing of medical items and services, especially under the Medicare
program, and increased the industry’s regulatory burdens and operating costs.
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The previous U.S. presidential administration signed two Executive Orders designed to delay the
implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the
requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has
considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While
Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain
taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a
provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the
Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a
year that is commonly referred to as the “individual mandate.” As legislative and regulatory developments are
ongoing, we cannot predict the ultimate content, timing or effect of healthcare reform legislation or the impact
of potential legislation on our business.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was
enacted. These changes include reductions to Medicare payments to providers of up to 2% per fiscal year that
will remain in effect through 2027; the American Taxpayer Relief Act of 2012, which, among other things,
further reduced Medicare payments to several types of providers and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. More recently, there
has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products, which has resulted in several Congressional inquiries and proposed bills designed to,
among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for
pharmaceutical products. For example, the marketing, pricing and sale of the Company’s products are subject
to regulation, investigations and legal actions including under the Medicaid Drug Rebate Program under the
Affordable Care Act, which has increased the statutory minimum rebates a manufacturer must pay under the
program as well as a new methodology by which rebates are owed for drugs that are inhaled, infused, instilled,
implanted or injected. We are also subject to federal and state false claims acts, as well as federal and state
antitrust and consumer protection laws. Increased scrutiny of health care industry business practices in recent
years by government agencies and state attorneys general in the U.S., and any resulting investigations and
prosecutions, carry risk of significant civil and criminal penalties including, but not limited to, debarment from
participation in such government healthcare programs.
Individual states in the United States have also become increasingly aggressive in passing legislation and
implementing regulations designed to control pharmaceutical product and medical device pricing, including
price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing. For example, in October 2017, California passed a new law, effective in January
2019, which requires transparency from biopharmaceutical companies regarding price increases for
prescription drugs. In addition, regional healthcare authorities and individual hospitals are increasingly using
bidding procedures to determine what pharmaceutical products and medical devices to purchase and which
suppliers will be included in their prescription drug and other healthcare programs.
We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted
in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional
downward pressure on the price that we receive for any approved or cleared product. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors. We cannot predict the likelihood, nature or extent of government regulation that may
arise from future legislation or administrative action, either in the United States or abroad. If we are slow or
unable to adapt to new requirements or policies, or if we are not able to maintain regulatory compliance, our
products and product candidates may lose any regulatory approval that may have been obtained and we may
not achieve or sustain profitability, or be able to enter attractive collaboration agreements, which would
adversely affect our business.
We could be exposed to significant product liability claims which could be time consuming and costly to
defend, divert management attention and adversely impact our ability to obtain and maintain insurance
coverage
The testing, clinical development, manufacture, marketing and sale of our product candidates involve an
inherent risk that product liability claims will be asserted against us. Although we are insured against such risks
up to an annual aggregate limit in connection with clinical trials and commercial sales of our product
candidates, our present product liability insurance may be inadequate and may not fully cover the costs of any
claim or any ultimate damages we might be required to pay. Product liability
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claims or other claims related to our product candidates, regardless of their outcome, could require us to
spend significant time and money in litigation or to pay significant damages. Any successful product liability
claim may prevent us from obtaining adequate product liability insurance in the future on commercially
desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient
amounts or at an acceptable cost. An inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of
our product candidates. A product liability claim could also significantly harm our reputation and delay market
acceptance of our product candidates.
Acceptance of our pharmaceutical product candidates in the marketplace is uncertain, and failure to achieve
market acceptance will delay our ability to generate or grow revenues
Our future financial performance will depend upon the successful introduction and customer acceptance
of our product candidates in research and development, including DUR-928, and our FDA approved product,
POSIMIR, if commercially launched, and including Indivior’s PERSERIS and Orient Pharma’s Methydur. Even if
approved for marketing, these products and product candidates may not achieve market acceptance. The
degree of market acceptance will depend upon a number of factors, including:
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the receipt of regulatory clearance of marketing claims for the uses that we are developing;
the approved product labeling;
pricing, reimbursement and formulary access;
the establishment and demonstration in the medical community of the safety and clinical efficacy of
our products and their potential advantages over existing therapies; and
pricing and reimbursement policies of government and third-party payors such as insurance
companies, health maintenance organizations, hospital formularies and other health plan
administrators.
Physicians, patients, payers or the medical community in general may be unwilling to accept, utilize or
recommend any of our products. If we are unable to obtain regulatory approval, commercialize and market
our current and future products when planned and achieve market acceptance, we will not achieve meaningful
revenues.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new
restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve
meaningful revenues
The continuing efforts of government and insurance companies, health maintenance organizations and
other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and
profitability, and the future revenues and profitability of our potential customers, suppliers and third-party
collaborators and the availability of capital. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United States, recent federal and state
government initiatives have been directed at lowering the total cost of health care, and the U.S. Congress and
state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals
and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative
or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially
harm our business, financial condition and results of operations.
The successful commercialization of our product candidates will depend in part on the extent to which
appropriate reimbursement levels for the cost of our product candidates and related treatment are obtained
from governmental authorities, private health insurers and other organizations, such as HMOs. Third-party
payers often limit payments or reimbursement for medical products and services. Also, the trend toward
managed health care in the United States and the concurrent growth of organizations such as HMOs, which
could control or significantly influence the purchase of health care services and products, as well as legislative
proposals to reform health care or reduce government insurance programs, may limit reimbursement or
payment for our products. The cost containment measures that health care payers and providers are instituting
and the effect of any health care reform could materially harm our ability to operate profitably and access
capital.
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If we or our third-party collaborators are unable to train physicians to use our pharmaceutical product
candidates to treat patients’ diseases or medical conditions, we may incur delays in market acceptance of
our products
Broad use of certain of our product candidates, such as POSIMIR, will require extensive training of
numerous physicians on their proper and safe use. The time required to begin and complete training of
physicians could delay introduction of our products and adversely affect market acceptance of our products.
We or third parties selling our product candidates may be unable to rapidly train physicians in numbers
sufficient to generate adequate demand for our product candidates. Any delay in training would materially
delay the demand for our product candidates and harm our business and financial results. In addition, we may
expend significant funds towards such training before any orders are placed for our products, which would
increase our expenses and harm our financial results.
Potential new accounting pronouncements and legislative actions are likely to impact our future financial
position or results of operations
Future changes in financial accounting standards may cause adverse, unexpected fluctuations in the
timing of the recognition of revenues or expenses and may affect our financial position or results of
operations. New pronouncements and varying interpretations of pronouncements have occurred with
frequency and may occur in the future and we may make changes in our accounting policies in the future.
Compliance with changing regulation of corporate governance and public disclosure may result in additional
expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002, new SEC regulations, PCAOB pronouncements and NASDAQ rules,
are creating uncertainty for companies such as ours and insurance, accounting and auditing costs are high as a
result of this uncertainty and other factors. Compliance with evolving corporate governance and public
disclosure standards may result in increased general and administrative expenses and a diversion of
management time and attention from value-creating activities to compliance activities.
Risks related to actions on trade by the U.S. and foreign governments could adversely affect the Company's
results of operations and financial condition
The U.S. government under the previous administration indicated its intent to adopt a new approach to
trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multilateral
trade agreements. It also initiated the imposition of tariffs on certain foreign products. Changes in U.S. trade
policy have resulted in, and could continue to result in, one or more U.S. trading partners adopting responsive
trade policy making it more difficult or costly for us to export our products to those countries. These measures
could also result in increased costs for goods imported into the United States. This in turn could require us to
increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in
lowering our margin on products sold.
There is also a concern that the imposition of additional tariffs by the United States could result in the
adoption of tariffs by other countries. A potential resulting trade war could have a significant adverse effect on
world trade and the world economy. We cannot predict future trade policy or the terms of any renegotiated
trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the
occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has
the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the
U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.
Risks Related To Our Common Stock
Our operating history makes evaluating our stock difficult
Our quarterly and annual results of operations have historically fluctuated and we expect will continue to
fluctuate for the foreseeable future. We believe that period-to-period comparisons of our operating results
should not be relied upon as predictive of future performance. Our prospects must be considered in light of
the risks, expenses and difficulties encountered by companies with a limited number of approved
pharmaceutical products, particularly companies in new and rapidly evolving markets such as
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pharmaceuticals and biotechnology. To address these risks, we must, among other things, obtain regulatory
approval for and commercialize our product candidates, which may not occur. We may not be successful in
addressing these risks and difficulties. We may require additional funds to complete the development of our
product candidates and to fund operating losses to be incurred in the next several years.
Investors may experience substantial dilution of their investment
In order to raise capital and for other purposes, we may in the future offer and issue additional shares
of our common stock or other securities convertible into or exchangeable for our common stock, and the price
per share at which we sell additional shares of our common stock or other securities convertible into or
exchangeable for our common stock in future transactions may be higher or lower than the price per share at
which investors in our common stock bought their shares. In August 2018, we filed a shelf registration
statement on Form S-3 with the SEC that allows us to offer up to $175 million of securities from time to time in
one or more public offerings, inclusive of up to $75.0 million of additional shares of common stock which the
Company may sell, subject to certain limitations, under the 2015 Sales Agreement through Cantor Fitzgerald,
acting as agent. Through several financings between 2019 and March 1, 2021, and through our 2015 Sales
Agreement with Cantor Fitzgerald during this period, we have raised an aggregate of $79.4 million, so that we
may sell an additional $95.6 million under our existing shelf registration statement. We may also file a new
shelf registration statement on Form S-3 for the potential sale of additional securities. Any additional sales in
the public market of our common stock, under our 2015 Sales Agreement with Cantor Fitzgerald, in other
offerings under the shelf registration statement or otherwise, could adversely affect prevailing market prices
for our common stock. In addition, as of December 31, 2020, 27,274,439 shares of our common stock were
issuable upon exercise of stock options outstanding under our stock option plans at a weighted average
exercise price of $1.45 per share, 7,599,531 additional shares of common stock were reserved for potential
future issuance under our stock option plan, and an aggregate of 497,270 shares of common stock were
reserved for potential future issuance under our 2000 Employee Stock Purchase Plan. Investors will incur
dilution from the sale of any additional shares or upon the issuance of any shares pursuant to such plans, or
upon exercise of any outstanding options.
Our stock price has in the past and may in the future not meet the minimum bid price for continued listing
on Nasdaq. Our ability to continue operations or to publicly or privately sell equity securities and the
liquidity of our common stock could be adversely affected if we are delisted from Nasdaq
In several instances in the past, including as recently as December 2018, we received written notification
from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30
consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for
continued listing on Nasdaq under Nasdaq Marketplace Rules. Each time, we were given a period of 180 days
from the date of the notification and in one case an extra 180-day period to regain compliance with Nasdaq’s
listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for
at least 10 consecutive trading days.
While we have regained compliance within the applicable time periods in the past, if our shares again no
longer comply with the minimum closing bid price requirement for continued listing on the Nasdaq Capital
Market under Nasdaq Marketplace Rule 5550(a)(2) and we do not regain compliance within the applicable 180-
day time period, Nasdaq will notify us that our securities will be subject to delisting. One strategy to regain
compliance in such circumstances would be to implement a reverse stock split. The Company may appeal
Nasdaq’s determination to delist its securities to a Hearings Panel. During any appeal process, shares of our
common stock would continue to trade on the Nasdaq Capital Market.
There can be no assurance that we will maintain compliance with the requirements for listing our
common stock on the Nasdaq Capital Market. Delisting from Nasdaq would constitute an event of default
under our loan facility with Oxford, entitling Oxford to accelerate our obligations under such facility, among
other actions. Under such circumstances, we could be required to renegotiate the repayment terms of our loan
facility, on terms which would not be as favorable to the Company as our current terms, or we could be
required to take other actions, such as discontinuing some or all of our operations, selling assets, or other
action. Delisting could also adversely affect our ability to raise additional financing through the
54
public or private sale of equity securities, would significantly affect the ability of investors to trade our
securities and would negatively affect the value and liquidity of our common stock. Delisting could also have
other negative results, including the potential loss of confidence by employees, the loss of institutional investor
interest and fewer business development opportunities.
Our ability to use net operating losses and certain other tax attributes is uncertain and may be limited
Our ability to use our federal and state net operating losses to offset potential future taxable income and
related income taxes that would otherwise be due is dependent upon our generation of future taxable income
before the expiration dates of the net operating losses, and we cannot predict with certainty when, or whether,
we will generate sufficient taxable income to use all of our net operating losses. In addition, utilization of net
operating losses to offset potential future taxable income and related income taxes that would otherwise be
due is subject to annual limitations under the “ownership change” provisions of Sections 382 and 383 of the
Internal Revenue Code of 1986, as amended (Internal Revenue Code) and similar state provisions, which may
result in the expiration of net operating losses before future utilization. In general, under the Code, if a
corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its
equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating losses
and other pre-change tax attributes (such as research and development credit carryforwards) to offset its post-
change taxable income or taxes may be limited. Our equity offerings and other changes in our stock
ownership, some of which are outside of our control, may have resulted or could in the future result in an
ownership change. If an ownership change limitation were to apply, utilization of our domestic net operating
losses and tax credit carryforwards could be limited in future periods and a portion of the carryforwards could
expire before being available to reduce future income tax liabilities.
The price of our common stock may be volatile
The stock markets in general, and the markets for pharmaceutical stocks in particular, have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our common stock.
Price declines in our common stock could result from general market and economic conditions and a
variety of other factors, including:
•
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•
•
•
•
•
•
adverse results (including adverse events or failure to demonstrate safety or efficacy) or delays in our
clinical and non-clinical trials of DUR-928 or other product candidates;
announcements of FDA non-approval of our product candidates, approvals with commercially
limiting labels, or delays in the FDA or other foreign regulatory agency review process;
adverse actions taken by regulatory agencies or law enforcement agencies with respect to our
product candidates, clinical trials, manufacturing processes, accounting practices or sales and
marketing activities, or those of our third-party collaborators;
announcements of technological innovations, patents, product approvals or new products by our
competitors;
failure of third-party collaborators to continue development or commercialization of the respective
product candidates they are developing or commercializing;
regulatory, judicial and patent developments in the United States and foreign countries;
any lawsuit or arbitration involving us or our product candidates including intellectual property
infringement or product liability suits;
announcements concerning our competitors, or the biotechnology or pharmaceutical industries in
general;
55
•
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•
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developments concerning our strategic alliances or acquisitions or termination of such alliances;
actual or anticipated variations in our operating results;
changes in recommendations by securities analysts, misstatements or mischaracterizations in analyst
reports or dropping or lack of analyst coverage;
negative press coverage or online misinformation about the Company or its partners or their
respective products or personnel;
deviations in our operating results from the estimates of analysts;
sales of our common stock by our executive officers or directors or sales of substantial amounts of
common stock by us or others;
potential failure to meet continuing listing standards from The Nasdaq Capital Market;
loss or disruption of facilities due to natural disasters;
acceleration of our debt obligations due to a determination by our lender that a material adverse
change has occurred;
changes in accounting principles; or
loss of any of our key scientific or management personnel.
The market price of our common stock may fluctuate significantly in response to factors which are
beyond our control. The stock market in general has recently experienced extreme price and volume
fluctuations. For example, the outbreak of the COVID-19 coronavirus, oil price volatility and other factors have
caused broad stock market and industry fluctuations. In addition, the market prices of securities of technology
and pharmaceutical companies have also been extremely volatile, and have experienced fluctuations that often
have been unrelated or disproportionate to the operating performance of these companies. These broad
market fluctuations could result in extreme fluctuations in the price of our common stock, which could cause a
decline in the value of our common stock.
In the past, following periods of volatility in the market price of a particular company’s securities,
litigation has often been brought against that company. If litigation of this type is brought against us, it could be
extremely expensive, particularly if we were to lose the lawsuit and have to pay damages, and divert
management’s attention and our company’s resources.
We have broad discretion over the use of our cash and investments, and their investment may not always
yield a favorable return
Our management has broad discretion over how our cash and investments are used and may from time
to time invest in ways with which our stockholders may not agree and that do not yield favorable returns.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that could discourage
another company from acquiring us
Provisions of Delaware law, our certificate of incorporation and bylaws may discourage, delay or prevent
a merger or acquisition that stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. These provisions include:
•
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•
•
authorizing the issuance of “blank check” preferred stock without any need for action by
stockholders;
providing for a classified board of directors with staggered terms;
requiring supermajority stockholder voting to effect certain amendments to our certificate of
incorporation and bylaws;
eliminating the ability of stockholders to call special meetings of stockholders;
56
•
•
prohibiting stockholder action by written consent; and
establishing advance notice requirements for nominations for election to the board of directors or
for proposing matters that can be acted on by stockholders at stockholder meetings.
Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for
substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or employees
Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any
derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of the Company, any action asserting a claim
arising pursuant to any provision of the General Corporation Law of Delaware or our Certificate of
Incorporation or bylaws or any action asserting a claim governed by the internal affairs doctrine. The choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us
and our directors, officers and other employees.
Alternatively, if a court were to find the choice of forum provision contained in our certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
57
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
The following chart indicates the facilities that we lease, the location and size of each such facility and
their designated use.
Location
Cupertino, CA
Approximate
Square Feet
30,149 sq. ft.
Operation
Office, Laboratory
and Manufacturing
Expiration
Lease expires 2024 (with an option to renew
for an additional five years)
Cupertino, CA
20,100 sq. ft.
Office and Laboratory
Vacaville, CA
24,634 sq. ft.
Manufacturing
Lease expires 2024 (with an option to renew
for an additional five years)
Lease expires 2023 (with an option to renew
for an additional five years)
We believe that our existing facilities are adequate to meet our current and foreseeable requirements or
that suitable additional or substitute space will be available as needed.
Item 3.
Legal Proceedings.
We are not a party to any material legal proceedings.
Item 4.
Mine Safety Disclosures.
Not applicable.
58
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is traded on the NASDAQ Capital Market under the symbol “DRRX”.
As of March 1, 2021, there were approximately 101 holders of record of the common stock. This does
not include the number of persons whose stock is in nominee or “street name” accounts through brokers.
Dividend Policy
We have never paid cash dividends on our common stock. We currently intend to retain any future
earnings to fund the development and growth of our business. Therefore, we do not currently anticipate paying
any cash dividends in the foreseeable future.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data for our stock with the
cumulative return of (i) The NASDAQ Stock Market (U.S.) Index and (ii) the NASDAQ Biotechnology Index since
December 31, 2015. The graph assumes that $100 was invested on December 31, 2015. The stock price
performance on the following graph is not necessarily indicative of future stock price performance.
*
$100 Invested on 12/31/15 in stock or index—including reinvestment of dividends. Fiscal year ending
December 31.
59
DURECT CORPORATION
DURECT CORPORATION
NASDAQ STOCK MARKET (U.S.)
NASDAQ BIOTECHNOLOGY
12/31/15 12/31/16 12/31/17 12/31/18 12/31/2019 12/31/2020
93.67
100.00 60.63 41.63 21.72 171.95
100.00 107.50 137.86 132.51 179.19 257.38
100.00 78.32 94.81 85.97 106.95 134.42
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6.
Selected Financial Data.
Information under this item is omitted in compliance with recently adopted rules of the Securities and
Exchange Commission.
60
Item 7.
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 as of
December 31, 2020, 2019 and 2018 should be read in conjunction with our Financial Statements, including the
Notes thereto, and “Risk Factors” section included elsewhere in this Form 10-K. This Form 10-K 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 report or elsewhere by
management from time to time, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,”
“potential,” “possibility,” and similar expressions are forward-looking statements. Such forward-looking
statements contained herein are based on current expectations.
Forward-looking statements made in this report include, for example, statements about:
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•
the clinical trial plans for DUR-928;
potential uses and benefits of DUR-928 to treat alcohol-associated hepatitis (also called alcoholic
hepatitis or AH), non-alcoholic steatohepatitis (NASH), or other conditions, including acute kidney
injury (AKI), and nonalcoholic fatty liver disease;
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 DUR-928 being similar to results from previous
trials, the possible commencement of future clinical trials, enrollment rates and announcements of
the findings of our clinical trials;
the potential earn-out payments we may receive from Indivior related to the commercialization of
PERSERIS and milestone and royalty payments we may receive from Santen or Orient Pharma;
the progress of our third-party collaborations, including estimated milestones;
our intention to seek, and ability to enter into and maintain strategic alliances and collaborations,
including for the commercialization of POSIMIR;
POSIMIR’s commercial prospects, differentiating product attributes, potential for reimbursement and
formulary access, the timing of post-marketing commitments and timing of potential commercial
launch.
the potential benefits and uses of our product candidates and technologies, including POSIMIR and
our SABER and ORADUR technologies;
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 product candidates and continued development of our
product candidates;
our responsibilities to our third-party collaborators, including our responsibilities to conduct
research and development, clinical trials and manufacture products or product candidates;
• market opportunities for product candidates in our product development pipeline;
•
potential regulatory filings for or approval of DUR-928 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 supplies and raw materials from third parties, and the ability of
third parties to provide us with required 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, 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;
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61
•
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products and companies that will compete with the product candidates we develop and/or license to
third-party collaborators;
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 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.
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.
Overview
We are a biopharmaceutical company advancing novel and potentially lifesaving investigational therapies
derived from our Epigenetic Regulator Program. DUR 928, a new chemical entity in clinical development for
three different indications, is the lead candidate in our Epigenetic Regulator Program. An endogenous, orally
bioavailable small molecule, DUR-928 has been shown in preclinical studies to play an important regulatory
role in lipid homeostasis, inflammation, and cell survival. Alcohol-associated hepatitis (AH) is a life-threatening
acute liver condition with no approved therapeutics and a 28-day historical mortality rate of 26%. After
completing a Phase 2a trial where 100% of AH patients treated with DUR-928 survived the 28-day study
period, we are now conducting a double-blind, placebo-controlled Phase 2b clinical trial called AHFIRM, in
which we are evaluating DUR-928’s life saving potential compared to the current standard of care in patients
with severe AH. If the AHFIRM trial is successful, it may support an NDA filing and we may decide to develop
our own commercial, sales and marketing organization. DUR-928 is also being investigated in patients with
nonalcoholic steatohepatitis (NASH).
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 3 days in adults. In February 2021, the U.S. Food
and Drug Administration (FDA) approved POSIMIR for infiltration use in adults for administration into the
subacromial space under direct arthroscopic visualization to produce post-surgical analgesia for up to 72 hours
following arthroscopic subacromial decompression. The approval was based on positive data from a
randomized, multicenter, assessor-blinded, placebo controlled clinical trial in patients undergoing arthroscopic
subacromial decompression surgery with an intact rotator cuff. The primary outcome measures were mean
pain intensity and total opioid rescue analgesia administered, both evaluated over the first 72 hours after
surgery versus placebo. POSIMIR demonstrated a statistically significant improvement in both primary
outcome measures: a 1.3 point, or 20%, reduction in mean pain intensity on a 0-10 point pain scale (p=0.01),
and a 67% reduction in intravenous morphine-
62
equivalent rescue opioid use, from a median of 12 mg in the placebo group to 4 mg in the POSIMIR group
(p=0.01). We are in discussions with potential licensees regarding commercialization rights to POSIMIR, for
which we hold worldwide rights.
As a result of the assignment of certain patent rights, DURECT also receives single digit sales-based earn-
out payments from U.S. net sales of Indivior’s PERSERIS (risperidone) drug for schizophrenia, which was
launched commercially in the U.S. in February 2019. In addition, in September 2020, our licensee, Orient
Pharma informed us that it had launched Methydur (Methydur) for the treatment of attention deficit
hyperactivity disorder (ADHD) in Taiwan. We receive a single digit royalty on sales of Methydur by Orient
Pharma. We also manufacture and sell osmotic pumps used in laboratory research and have several early-
stage development programs with corporate collaborators on terms which typically call for our collaborator to
fund all or a substantial portion of future development costs and then pay us milestone payments based on
specific development or commercial achievements plus royalties on product sales.
Recent Developments
The COVID-19 global pandemic poses a significant life-threatening and economic risk throughout the
world. The rapid spread of the disease has resulted in a pandemic with over 100 million of confirmed cases
and millions of deaths worldwide. While most cases result in mild symptoms, including fever, cough and
shortness of breath, some rapidly progress into Acute Respiratory Distress Syndrome (ARDS), multi-organ
failure, and death. Many of these patients may experience severe systemic inflammation that leads to acute
injuries in multiple organs including the liver and the kidney.
We continue to actively advance all of our research and development programs, we are assessing on an
ongoing basis the impact of COVID-19 on our clinical trials, product candidate testing, expected timelines and
costs.
COVID-19 has also had a negative impact on our business. In light of recent developments relating to the
COVID-19 global pandemic, the focus of healthcare providers and hospitals has been on the prioritization of
healthcare resources toward fighting the virus and clinical site initiations. As a result, patient enrollment and
activities that require visits to clinical sites, including data monitoring, have been and may continue to be
delayed. We are also evaluating the impact of the COVID-19 on orders for our ALZET product line. In addition,
in response to the spread of COVID-19, other than laboratory and manufacturing employees, many of our
other employees are working from home, and, in keeping with social distancing requirements, we have limited
the number of staff in our facilities. This partial disruption, although expected to be temporary, may impact our
operations and overall business by delaying the progress of our research and development programs,
including our planned preclinical studies and clinical trials. The impact of COVID-19 is evolving rapidly and its
future effects are uncertain. Given the uncertainty of the situation, the duration of the disruption and related
financial impact cannot be reasonably estimated at this time. We will continue to evaluate the impact of the
COVID-19 pandemic on our business and expect to reevaluate the timing of our anticipated preclinical and
clinical objectives as we learn more and the impact of COVID-19 on our industry becomes clearer.
For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A.
Risk Factors included in this report.
Collaborative Research and Development and Other Revenues
Collaborative research and development and other revenues consist 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 and (c) milestone payments in connection
with our collaborative agreements. During the last three years, we generated collaborative research and
development revenues from collaborative agreements with Gilead, Sandoz, Santen and others.
63
Product Revenues
We also currently generate product revenue from the sale of two product lines:
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ALZET® osmotic pumps which are used for animal research; and
certain key excipients that are included in Methydur and one excipient that is included in a marketed
animal health product.
In December 2020, we completed the sale of its LACTEL Absorbable Polymers product line to Evonik
Corporation. Under the terms of the Asset Purchase Agreement, Evonik paid us approximately $15 million
subject to certain adjustments, and also agreed to assume certain liabilities with respect to the transferred
assets and assembled workforce. LACTEL product line is reflected as a discontinued operation in our
statements of operations and comprehensive loss and balance sheets. Our financial information discussed in
the Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes the
impact of LACTEL product line.
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 additional research and development agreements
with third-party collaborators to develop product candidates based on our drug delivery technologies.
Operating Results
Since our inception in 1998, we have generally had a history of operating losses. At December 31, 2020,
we had an accumulated deficit of $489.8 million. Our net losses were $582,000, $20.6 million and $25.3
million for the years ended December 31, 2020, 2019 and 2018, respectively. 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 to increase in 2021 compared to 2020 as we experience higher research
and development expenses related to DUR-928. We expect our selling, general and administrative expenses to
increase in 2021 compared to 2020. We do not anticipate meaningful revenues from our products in
development, should they be approved, for at least the next twelve months. Therefore, we expect to incur
continuing losses and negative cash flows from operations for the foreseeable future.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with 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 estimates and
assumptions relate to inventories and purchase commitments, revenue recognition, contract research
liabilities, and stock-based compensation. Actual amounts could differ significantly from these estimates.
Revenue Recognition
Product Revenues, Net
We manufacture and sell ALZET osmotic pumps used in laboratory research, and manufacture and sell
certain excipients for use as raw materials in certain products, including an animal health product and
Methydur.
Revenues from product sales are recognized when the customer obtains control of our product, which
occurs at a point in time, typically upon shipment to the customer. We expense incremental costs of obtaining
a contract as and when incurred if the expected amortization period of the asset that we would have
recognized is one year or less.
64
Trade Discounts and Allowances: We provide certain customers with discounts that are explicitly stated
in our contracts and are recorded as a reduction of revenues in the period the related product revenues are
recognized.
Product Returns: Consistent with industry practice, we generally offer customers a limited right of return
for products that have been purchased from us. We estimate the amount of our product sales that may be
returned by our customers and record this estimate as a reduction of revenues in the period the related
product revenues is recognized. We currently estimate product return liabilities using our own historical sales
information. We expect product returns to be minimal.
Collaborative Research and Development Revenues
We enter into license agreements under which we license certain rights to our product candidates to third
parties. The terms of these arrangements typically include payment to us of one or more of the following: non-
refundable, up-front license fees; reimbursement of development costs incurred by us under approved work
plans; development, regulatory and commercial milestone payments; payments for manufacturing supply
services we provide through our contract manufacturers; sales-based milestones and royalties on net sales of
licensed products. Each of these payments results in collaborative research and development revenues, except
for revenues from royalties or earn-out payments on net sales of licensed products, which are classified as
other revenues.
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under
each of our agreements, we perform the following steps: (i) identification of the promised goods or services in
the contract; (ii) determination of whether the promised goods or services are performance obligations,
including whether they are distinct in the context of the contract; (iii) measurement of the transaction price,
including the constraint on variable consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the
accounting for these arrangements, we must develop assumptions that require judgment to determine the
stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to
determine the stand-alone selling price, which may include forecasted revenues, development timelines,
reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.
We expect to recognize revenue for the variable consideration currently being constrained when it is probable
that a significant revenue reversal will not occur.
Licenses of intellectual property: If the license to our intellectual property is determined to be distinct
from the other performance obligations identified in the arrangement, we recognize revenues from non-
refundable, up-front fees allocated to the license when the license is transferred to the customer and the
customer is able to use and benefit from the license. For licenses that are bundled with other promises, we
utilize judgment to assess the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We
evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance
and related revenue recognition.
Milestone Payments: At the inception of each arrangement that includes development milestone
payments, we evaluate whether the milestones are considered probable of being reached and estimate the
amount to be included in the transaction price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated milestone value is included in the transaction
price. Milestone payments that are not within the control of us or the licensee, such as regulatory approvals,
are not considered probable of being achieved until those approvals are received. The transaction price is then
allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize
revenue as or when the performance obligations under the contract are satisfied. At the end of each
subsequent reporting period, we re-evaluate the probability of achievement of such development milestones
and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up
65
basis, which would affect collaborative research and development revenues and net income (loss) in the period
of adjustment.
Manufacturing Supply Services: Arrangements that include a promise for future supply of drug product
for either clinical development or commercial supply at the customer’s discretion are generally considered
options. We assess if these options provide a material right to the customer and if so, they are accounted for
as separate performance obligations. If we are entitled to additional payments when the customer exercises
these options, any additional payments are recorded in collaborative research and development revenues
when the customer obtains control of the goods, which is upon delivery.
Royalties and Earn-outs: For arrangements that include sales-based royalties or earn-outs, including
milestone payments based on the level of sales, and the license is deemed to be the predominant item to
which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the
performance obligation to which some or all of the royalty or earn-out has been allocated has been satisfied (or
partially satisfied). To date, we have not recognized material royalty revenue resulting from our collaborative
arrangements or material earn-out revenue from our patent purchase agreement with Indivior.
Prepaid and Accrued Contract Research Expenses
We incur significant costs associated with third party consultants and organizations for pre-clinical
studies, clinical trials, contract manufacturing, validation, testing, regulatory advice and other research and
development-related services. We are required to estimate periodically the cost of services rendered but
unbilled based on management’s estimates of project status. If these good faith estimates are inaccurate, actual
expenses incurred could materially differ from our estimates.
Stock-Based Compensation
Employee stock-based compensation is estimated at the date of grant based on the employee stock
award’s fair value using the Black-Scholes option-pricing model and is recognized as expense ratably over the
requisite period.
We estimate the volatility of our common stock at the date of grant based on the historical volatility of
our common stock. We base the risk-free rate that we use in the Black-Scholes option valuation model on the
implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with equivalent
remaining terms. We have never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero
in the Black-Scholes option valuation model. We estimated forfeitures at the time of grant and revised those
estimates in subsequent periods if actual forfeitures differ from those estimates. We used historical data to
estimate pre-vesting option forfeitures and recorded stock-based compensation expense only for those awards
that are expected to vest. Upon the adoption of ASU 2016-09, we account for forfeitures as they occur and
record stock-based compensation expense only for those awards that vest. We amortize the fair value of
options granted on a straight-line basis. All options are amortized over the requisite service periods of the
awards, which are generally the vesting periods. We may elect to use different assumptions under the Black-
Scholes option valuation model in the future, which could materially affect our net income or loss and net
income or loss per share.
Results of Operations
Comparison of years ended December 31, 2020, 2019 and 2018
Collaborative research and development and other revenues
We recognize revenues from collaborative research and development activities and service contracts.
Collaborative research and development revenue primarily represents reimbursement of qualified expenses
related to collaborative agreements with various third parties to research, develop and commercialize potential
products using our drug delivery technologies, and revenue from the recognition of upfront fees and milestone
payments in connection with our collaborative agreements.
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We expect our collaborative research and development and other revenues to fluctuate in future periods
pending our efforts to enter into potential new collaborations, our existing third-party collaborators’
commitment to and progress in the research and development programs, and any royalty or earn-out revenue
recognized from collaborators or counterparties. The collaborative research and development and other
revenues associated with our major collaborators or counterparties are as follows (in thousands):
Year ended December 31,
2020
2019
2018
Collaborator/Counterparty
Gilead (1)
Other (2)
Total collaborative research and development and other
revenue
$ 22,879 $ 17,133 $
996
1,062
2,542
5,665
$ 23,941 $ 18,129 $
8,207
(1)
(2)
Amounts related to recognition of upfront fees and milestone payments were $22.7 million, $12.3
million and zero for the twelve months ended December 31, 2020, 2019 and 2018, respectively. We
signed a license agreement with Gilead on July 19, 2019 and received a nonrefundable upfront license
fee and a milestone payment totaling $35.0 million in 2019 which was being recognized as revenue as
our obligation was being satisfied using the cost-to-cost input method (see Note 2 Strategic Agreements -
Agreement with Gilead Sciences, Inc. in the financial statements). In June 2020, we received notice that
Gilead was terminating the License Agreement and a related R&D agreement between Gilead and us. As a
result, we recognized all our remaining deferred revenue as there were no remaining substantive
performance obligations to be provided to Gilead by the Company as of the date when the termination
notice was received. Amounts recognized as revenue during each of the twelve months ended December
31, 2020, 2019 and 2018 also included our reimbursable collaborative research and development
services performed under our agreement with Gilead.
Includes: (a) amounts related to earn-out revenue from Indivior UK Limited (Indivior) with respect to
PERSERIS net sales; (b) feasibility programs; (c) research and development activities funded by Santen
Pharmaceutical Co. Ltd. (Santen) and (d) royalty revenue from OP Pharma with respect to Methydur net
sales. Note that in January 2018, we were notified by Santen that due to a shift in priorities, Santen had
elected to reallocate research and development resources and put our program on pause until further
notice. While the main program is on pause, the parties are working together on a limited set of research
and development activities funded by Santen.
The increase in collaborative research and development revenues in 2020 compared with 2019 was
primarily due to higher revenue recognized from our agreement with Gilead and higher revenue recognized
from our agreements with Indivior, Santen and feasibility agreements with other companies.
The increase in collaborative research and development revenues in 2019 compared with 2018 was
primarily due to higher revenue recognized from our agreement with Gilead, partially offset by lower revenue
recognized from our agreements with Indivior, Santen and feasibility agreements with other companies.
We received a $25.0 million upfront fee in connection with the license agreement signed with Gilead in
July 2019 and in October 2019, we also received a $10 million milestone payment from Gilead for further
development of the product candidate. Through December 31, 2020, all these amounts had been recognized
as revenue as there were no remaining substantive performance obligations to be provided to Gilead by the
Company as of the date when the termination notice was received.
We received a $2.0 million upfront fee in connection with the license agreement signed with Santen in
December 2014. The $2.0 million upfront fee was being recognized as collaborative research and development
revenue over the term of our continuing involvement with Santen. At December 31, 2020, $1.2 million of the
$2.0 million upfront fee had been recognized as revenue.
As of March 1, 2021, we had potential milestones of up to $76.0 million that we may receive in the future
under our collaborative arrangements, of which $13.0 million are development-based milestones
67
and $63.0 million are sales-based milestones. Within the category of development-based milestones, $2.0
million are related to early stage clinical testing (defined as Phase 1 or 2 activities), $3.0 million are related to
late stage clinical testing (defined as Phase 3 activities), $3.0 million are related to regulatory filings, and $5.0
million are related to regulatory approvals. No payments were received between December 31, 2020 and
March 1, 2021, and we do not anticipate receiving any of these milestone revenues within the next twelve
months, if at all.
Product revenues
In December 2020, we completed the sale of our LACTEL Absorbable Polymers product line to Evonik
Corporation. Revenue from LACTEL product line, related cost of product revenues, associated research and
development and selling, general and administrative has been reclassified to discontinued operations for all
periods presented.
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 Methydur and in a marketed animal health product. Net product
revenues were $6.2 million, $6.9 million, and $7.1 million in 2020, 2019 and 2018, respectively.
The decrease in product revenues in 2020 was primarily attributable to lower revenue from our ALZET
osmotic pump product line as a result of lower units sold compared to 2019. The unit sales of this product line
were particularly impacted when the effects of COVID-19 noticeably impacted our customers’ ability to conduct
their research and development activities and therefore the demand for our osmotic pumps during the first
three quarters of 2020.
The decrease in product revenues in 2019 was primarily attributable to slightly lower revenue from our
ALZET osmotic pump product line as a result of lower units sold compared to 2018.
Cost of product revenues
Cost of product revenues was $1.4 million, $1.3 million and $1.6 million in 2020, 2019 and 2018,
respectively. Cost of product revenues includes the cost of product revenue from our ALZET product line, and
certain excipients that are included in several products in development, Methydur and a marketed animal
health product.
Excluding a one-time settlement credit of $500,000 related to certain excipients that are included in
Methydur and in a currently marketed animal health product in 2019, cost of product revenue in 2020 was
slightly lower primarily due to lower cost of goods sold related to our ALZET product line arising from lower
units sold compared to the corresponding period in 2019.
Excluding the one-time settlement credit of $500,000 related to certain excipients that are included in
Methydur and in a marketed animal health product, cost of product revenue in 2019 increased primarily due to
higher manufacturing costs for our ALZET product line compared to the corresponding period in 2018.
Stock-based compensation expense related to cost of product revenues was $13,000, $13,000, and
$13,000, in 2020, 2019, and 2018, respectively.
As of December 31, 2020, 2019, and 2018, we had 9 manufacturing employees, respectively.
Research and development. Research and development expenses are primarily comprised of salaries,
benefits, stock-based compensation and other compensation cost 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 $27.7 million, $29.6 million, and $25.0 million in 2020, 2019, and 2018, respectively. Stock-based
compensation expense recognized related to research and development personnel was $981,000, $746,000,
and $1.5 million in 2020, 2019, and 2018, respectively. We expect our research and development expenses to
increase in 2021 compared to 2020 as we expect to incur higher research and development expenses related
to DUR-928.
68
Research and development expenses decreased by $1.9 million in 2020 compared to 2019. The decrease
in 2020 was primarily attributable to lower research and development costs associated with POSIMIR and the
Gilead program, partially offset by higher research and development costs associated with DUR-928, depot
injectable and other research programs compared to 2019, as more fully discussed below.
Research and development expenses increased by $4.6 million in 2019 compared to 2018. The increase
in 2019 was primarily attributable to higher research and development costs associated with DUR-928 and the
Gilead program, partially offset by lower research and development costs associated with POSIMIR, depot
injectable and other research programs compared to 2018, as more fully discussed below.
Research and development expenses associated with our major development programs after the
removal of the effects of our sale of the LACTEL product line were as follows (in thousands):
Year Ended December 31,
DUR-928
POSIMIR
Gilead program (1)
Depot injectable programs
Other
Total research and development expenses
2018
2020
2019
$ 21,319 $ 20,088 $ 14,817
6,628
2,239
697
632
$ 27,709 $ 29,640 $ 25,013
3,656
1,011
862
861
4,609
3,844
599
500
(1)
See Note 2 Strategic Agreements in the financial statements for more details about our agreements with
Gilead.
DUR-928
Our research and development expenses for DUR-928 increased to $21.3 million in 2020 from $20.1
million in 2019, primarily due to higher contract manufacturing expenses and higher employee related costs
for this drug candidate compared with 2019.
Our research and development expenses for DUR-928 increased to $20.1 million in 2019 from $14.8
million in 2018, primarily due to higher clinical trial expenses incurred.
It is too early to assess the full impact of the COVID-19 outbreak on our business, including our ongoing
DUR-928 Phase 2b trial in alcoholic hepatitis, but COVID-19 may delay enrollment and data analysis for our
DUR-928 clinical trials.
POSIMIR
Our research and development expenses for POSIMIR decreased to $3.7 million in 2020 from $4.6
million in 2019, primarily due to lower outside expenses as well as lower employee-related expenses for
POSIMIR.
Our research and development expenses for POSIMIR decreased to $4.6 million in 2019 from $6.6
million in 2018, primarily due to lower outside expenses as well as lower employee-related expenses for
POSIMIR.
It is possible that the COVID-19 pandemic will adversely impact our efforts to out-license POSIMIR
commercial rights and the timing of potential commercialization of POSIMIR.
Gilead Program
Our research and development expenses for the Gilead program decreased to $1.0 million in 2020 from
$3.8 million in 2019, primarily due to lower employee-related costs and outside costs devoted to the program.
In 2020, Gilead terminated the Gilead Agreement and a related R&D agreement between us.
Our research and development expenses for the Gilead program increased to $3.8 million in 2019 from
$2.2 million in 2018, primarily due to higher employee-related costs and outside costs for the program.
69
Depot injectable programs
Our research and development expenses for depot injectable programs increased to $862,000 in 2020
from $599,000 in 2019 primarily due to higher employee-related costs and higher outside expenses for these
programs.
Our research and development expenses for depot injectable programs decreased to $599,000 in 2019
from $697,000 in 2018 primarily due to lower employee-related costs and lower research supplies expenses
for these programs.
Other DURECT research programs
Our research and development expenses for all other research activities increased to $871,000 in 2020
from $500,000 in 2019, primarily due to higher employee-related costs incurred for these programs.
Our research and development expenses for all other research activities decreased to $500,000 in 2019
from $632,000 in 2018, primarily due to lower employee-related costs incurred for these programs.
As of December 31, 2020, 2019, and 2018, we had 46, 43, and 45 research and development employees,
respectively.
We cannot reasonably estimate the timing and costs of our research and development programs due to
the risks and uncertainties associated with developing pharmaceuticals as outlined in the “Risk Factors” section
of this report. The duration of development of our research and development programs may span as many as
ten years or more, and estimation of completion dates or costs to complete would be highly speculative and
subjective due to the numerous risks and uncertainties associated with developing pharmaceutical products,
including significant and changing government regulation, the uncertainties of future preclinical and clinical
study results, uncertainties related to the COVID-19 outbreak, the uncertainties with our collaborators’
commitment to and progress in the programs and the 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 “Risk Factors” above.
Selling, general and administrative. Selling, general and administrative expenses are primarily
comprised of salaries, benefits and stock-based compensation associated with finance, legal, business
development, sales and marketing (including sales and marketing expenses for our ALZET product line) and
other administrative personnel, overhead and facility costs, and other general and administrative costs. Selling,
general and administrative expenses were $13.6 million, $14.1 million, and $12.3 million in 2020, 2019, and
2018, respectively. Stock-based compensation expense recognized related to selling, general and
administrative personnel was $1.1 million, $1.3 million, and $1.4 million in 2020, 2019 and 2018,
respectively. We expect our selling, general and administrative expenses to increase in 2021 compared to
2020.
Selling, general and administrative expenses decreased by $504,000 in 2020 compared to 2019,
primarily due to lower stock-based compensation expenses related to selling, general and administrative
personnel as well as lower legal and patent expenses in 2020 compared with 2019. Selling, general and
administrative expenses increased by approximately $1.9 million in 2019 compared to 2018, primarily due to
higher legal and patent expenses in 2019 compared with 2018.
As of December 31, 2020, 2019, and 2018, we had 26, 22, and 22 selling, general and administrative
personnel, respectively.
Other income (expense). Interest and other income was $517,000, $1.1 million, and $870,000 in 2020,
2019, and 2018, respectively. The decrease in interest and other income in 2020 compared to 2019 was
primarily the result of lower interest income generated as a result of lower interest rates associated with our
cash and investments in 2020 compared with 2019. The increase in interest and other income in 2019
compared to 2018 was primarily the result of higher interest income generated as a result of higher average
investment balances in 2019 compared with 2018.
Interest expense was $2.2 million, $2.5 million and $2.6 million in 2020, 2019, and 2018, respectively.
The decrease in interest expense in 2020 compared to 2019 was primarily due to lower interest rates
associated with the term loan with Oxford Finance in 2020 compared to 2019. The decrease
70
in interest expense in 2019 compared to 2018 was primarily due to lower interest rates associated with the
term loan in 2019 compared to 2018.
Income taxes. As of December 31, 2020, we had net operating loss (NOL) carryforwards for federal
income tax purposes of approximately $344.7 million, of which approximately $306.3 million will expire in the
years 2021 through 2037, and approximately $38.5 million will not expire. As of December 31, 2020, we had
federal research and development tax credits of approximately $15.6 million, which expire at various dates
beginning in 2021 through 2040, if not utilized. As of December 31, 2020, we had NOL carryforwards for state
income tax purposes of approximately $219.1 million, which expire in the years 2021 through 2040, and state
research and development tax credits of approximately $16.7 million, which do not expire. Utilization of the
net operating losses may be subject to a substantial annual limitation due to federal and state ownership
change limitations. The annual limitation may result in the expiration of net operating losses and credits before
utilization.
As of December 31, 2020 and 2019, we had net deferred tax assets of $114.3 million and $117.2 million,
respectively. Deferred tax assets reflect the net tax effects of net operating loss and credit carryforwards and
the temporary differences between the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully
offset by a valuation allowance.
Because realization of such tax benefits is uncertain, we provided a 100% valuation allowance as of
December 31, 2020 and 2019. Utilization of the NOL and R&D credits carryforwards may be subject to a
substantial annual limitation due to ownership change limitations that have occurred previously or that could
occur in the future provided by Sections 382 and 383 of the Internal Revenue Code of 1986, as well as similar
state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credits
carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an
ownership change is defined as a greater than 50% change (by value) in its equity ownership over a three-year
period, the corporation’s ability to use its pre-change net operating losses and other pre-change tax attributes
(such as research and development credit carryforwards) to offset its post-change taxable income or taxes may
be limited. Since our formation, we have raised capital through the issuance of capital stock on several
occasions which, combined with the purchasing shareholders’ subsequent disposition of those shares, may
have resulted in a change of control, as defined by Section 382, or could result in a change of control in the
future upon subsequent disposition. We issued $60.0 million of convertible notes in 2003 and subsequently all
of these notes had been converted as of December 31, 2008 into approximately 19.0 million shares of our
common stock. We also issued approximately 4.4 million shares of our common stock to an institutional
investor in connection with an equity financing in September 2009. In December 2012, November 2013, April
2016, June 2019 and February 2021, we completed underwritten public offerings in which we sold an
aggregate of approximately 14.0 million, 8.2 million and 13.8 million, 29.0 million and 20.4 million shares,
respectively, of our common stock pursuant to effective registration statements. In 2016, 2017, 2018, 2019,
2020 and the first two months of 2021, we issued approximately 5.2 million, 8.9 million, 9.6 million, 2.3
million, 5.3 million and 950,000 shares, respectively, of our common stock in the open market through
Controlled Equity Offering sales agreements with Cantor Fitzgerald pursuant to effective registration
statements. These transactions may also have resulted in a change of control as defined by Section 382 or
could result in a change of control in the future upon the subsequent disposition of the shares.
We have not currently completed a study to assess whether a change in control has occurred or whether
there have been multiple changes of control since our formation due to the significant complexity and cost
associated with such a study and the fact that there could be additional changes in the future. If we have
experienced a change of control at any time since our formation, utilization of our NOL or R&D credits
carryforwards would be subject to an annual limitation under Sections 382 and 383 which is determined by
first multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-
exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in
expiration of a portion of our NOL or R&D credits carryforwards before utilization. Tax years 1998 to 2020
remain subject to future examination by the major tax jurisdictions in which we are subject to tax.
71
Liquidity and Capital Resources
We had cash, cash equivalents, cash held in escrow and investments totaling $56.9 million and $64.8
million at December 31, 2020 and 2019, respectively. This includes $150,000 of interest-bearing marketable
securities classified as restricted investments on our balance sheets as of December 31, 2020 and 2019, which
primarily serve as collateral for a letter of credit securing a leased facility in California. The letter of credit for
our leased facility in California will expire in February 2024. In February 2021, we raised net proceeds of $47.8
million from an underwritten public offering and other sales of equity under the Controlled Equity Offering
program with Cantor Fitzgerald.
We used $38.8 million and $19.8 million of cash in operating activities in the years ended December 31,
2020 and 2018, respectively, and generated $11.1 million of cash in operating activities in the year ended
December 31, 2019. The cash provided by or used for operations was primarily to fund operations as well as
working capital requirements. Our cash provided by or used in operating activities differs from our net loss in
part due to the timing and recognition of up-front payments under collaborative agreements. Depending on
the nature of the upfront payments received upon execution of collaborative agreements, which can either be
recognized as revenue upfront in full or primarily recorded as deferred revenue and generally recognized over
the period using a basis that best reflects the satisfaction of our performance obligations with the third-party
collaborator pursuant to the applicable agreement. The increase in cash used in operating activities in 2020
compared to 2019 was primarily due to lower payments received from collaboration partners and customers,
partially offset by the changes in accounts receivable, prepaid expenses and other assets, and accrued and
other liabilities. The generation of $11.1 million of cash from operating activities in 2019 was primarily due to
the receipt of $35.0 million in payments from Gilead, partially offset by the changes in accounts receivable,
inventories, prepaid expenses and other assets, and accrued and other liabilities compared to $19.8 million of
cash used in operating activities in 2018.
We generated $24.5 million and $4.5 million of cash from investing activities in the years ended
December 31, 2020 and 2018, and used $27.3 million of cash in investing activities in the year ended
December 31, 2019, respectively. The increase in cash received from investing activities in 2020 was primarily
due to cash received in escrow from the sale of the LACTEL product line in 2020 compared to 2019. The
decrease in cash received from investing activities in 2019 was primarily due to a decrease in proceeds from
maturities of available-for-sale securities in 2019 compared to 2018. We anticipate incurring capital
expenditures of approximately $100,000 over the next 12 months. The amount and timing of these capital
expenditures will depend on, among other things, our research and development activities and needs, and the
need for equipment replacements.
We generated $15.7 million, $19.5 million, and $17.5 million of cash from financing activities in the
years ended December 31, 2020, 2019 and 2018, respectively. The decrease in cash received from financing
activities in 2020 was primarily due to lower net proceeds received from issuances of common stock in 2020
compared to 2019. The increase in cash received from financing activities in 2019 was primarily due to higher
net proceeds received from issuances of common stock in 2019 compared to 2018. In 2020, we raised net
proceeds of approximately $12.3 million from the sale of 5,308,002 shares of the Company’s common stock in
the open market at a weighted average price of $2.39 per share pursuant to the October 2019 registration
statement. In June 2019, we entered into a privately negotiated transaction to sell 29,000,000 shares of our
common stock to certain investors in a registered offering at a price of $0.52 per share, raising total net
proceeds to us of approximately $15 million. In 2019, we also raised net proceeds (net of commission) of
approximately $3.5 million from the sale of 2.3 million shares of common stock at a weighted average price of
$1.55 per share in the open market through our Controlled Equity Offering sales agreement with Cantor
Fitzgerald.
In November 2015, we entered into the 2015 Sales Agreement with Cantor Fitzgerald, acting as agent. As
of December 31, 2018, approximately 24.6 million registered shares of common stock were sold through the
2015 Sales Agreement for total net proceeds (net of commissions) of approximately $38.3 million. In August
2018, we filed a shelf registration statement on Form S-3 with the SEC, which upon being declared effective in
October 2018 and allowed us to offer up to $175.0 million of securities from time to time in one or more
public offerings, inclusive of up to $75.0 million of additional shares of common stock which we may sell,
subject to certain limitations, under the 2015 Sales Agreement through
72
Cantor Fitzgerald, acting as agent. Any additional sales in the public market of our common stock, under the
Controlled Equity Offering program with Cantor Fitzgerald or otherwise under the October 2018 shelf
registration statement, could adversely affect prevailing market prices for our common stock.
In February 2021, we completed an underwritten public offering of 20,364,582 shares of its common
stock at a price of $2.2386 per share pursuant to an underwriting agreement with Cantor Fitzgerald & Co.,
raising total gross proceeds to us of approximately $45.6 million before deducting estimated offering expenses
payable by us. Total stock issuance costs related to this financing were approximately $195,000. After
deducting estimated offering expenses payable by us, the net proceeds to us were approximately $45.4
million. From January 1, 2021 to March 1, 2021, we also raised net proceeds (net of commissions) of
approximately $2.4 million from the sale of 950,009 shares of our common stock in the open market at a
weighted average price of $2.60 per share pursuant to the October 2018 registration statement. As of March 1,
2021, we had up to approximately $56.2 million of common stock available for sale under the Controlled
Equity Offering program and approximately $45.3 million of common stock available for sale under our shelf
registration statement.
In July 2016, we entered into a Loan and Security Agreement (the Loan Agreement) with Oxford Finance
LLC (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 may be used for working capital and general business requirements. The term loan repayment
schedule provided initially for interest only payments for the first 18 months, followed by consecutive monthly
payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity
date of August 1, 2020. Following three amendments, we make interest only payments under the amended
Loan Agreement until December 1, 2021 and the final maturity date of the loan is May 1, 2024. The Loan
Agreement provides for a floating interest rate (7.95% initially and 7.95% as of December 31, 2020) 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
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, as
amended, 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.
73
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 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, that portion of the term
loan that was due more than 12 months after December 31, 2020 was classified within non-current liabilities.
Cash used in our operating activities is heavily influenced by the timing and structure of new corporate
collaborations. While one feature of our business strategy is seeking new corporate collaborations, assuming
no new collaborations and no milestone payments, we anticipate that cash used in operating activities will
increase in the near term.
The COVID-19 pandemic is impacting our business in several ways. Sales of our ALZET product line were
negatively impacted in 2020 by COVID-19 and the future impact on sales of our ALZET product line are
uncertain. For DUR-928, we may experience delays and increased expenses in the recruitment and running of
the ongoing Phase 2b clinical trial in patients with AH, and some patients who completed dosing of the Phase
1b clinical trial in NASH were not able to complete their follow up visits. These losses, delays and additional
expenses will increase our expenses. Additional volatility in capital markets and/or clinical trial delays resulting
from the impacts of COVID-19 may also limit our ability to raise capital on acceptable terms, if at all.
We believe that our existing cash, cash equivalents and investments including proceeds received from
our February 2021 stock offering will be sufficient to fund our planned operations, existing debt and
contractual commitments and planned capital expenditures through at least the next 12 months from the date
the financial statements are filed. We may consume available resources more rapidly than currently
anticipated, resulting in the need for additional funding. Additionally, we do not expect to generate significant
revenues from our pharmaceutical products currently under development for at least the next twelve months,
if at all. Depending on whether we enter into additional collaborative agreements in the near term and the
extent to which we earn revenues from our collaborative agreements, we may decide to raise additional capital
through a variety of sources, including:
•
•
•
•
the public equity markets;
private equity financings;
collaborative arrangements; and/or
public or private debt.
There can be no assurance that we will enter into additional collaborative agreements or maintain
existing collaborative agreements in the near term, will earn collaborative revenues or that additional capital
will be available on favorable terms, if at all. If adequate funds are not available, we may be required to
significantly reduce or refocus 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).
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.
74
In 2020, there were no significant changes in our commercial commitments and contractual
obligations. In aggregate, we are required to make future payments pursuant to our existing contractual
obligations as follows (in thousands):
Contractual Obligations
Term loan (1)
Operating lease obligations
Total contractual cash obligations
2021
2022
2023
2024
Total
$
$
2,941 $
1,933
4,874 $
9,208 $
1,991
11,199 $
8,563 $
1,970
10,533 $
4,712 $
275
4,987 $
25,424
6,169
31,593
(1)
Includes principal, interest payments and final payments and assumes no acceleration of obligations.
Recent Accounting Pronouncements
In December 2019, as part of its initiative to reduce complexity in the accounting standards, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for
calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis
differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The
standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020, with early adoption permitted. The Company early adopted ASU 2019-12 on January 1, 2020, and
this adoption had no material impact on our financial position or results of operations.
In November 2018, the Financial Accounting Standards Board (the FASB) issued ASU No. 2018-
18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (ASU
2018-18). ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants
should be accounted for as revenue under Topic 606 when the counterparty is a customer for a distinct good
or service (i.e., a unit of account). For units of account that are in the scope of Topic 606, all of the guidance in
Topic 606 should be applied, including the guidance on recognition, measurement, presentation and
disclosure. ASU 2018-18 also adds a reference in Topic 808 to the unit of account guidance in ASC 606 and
requires that it be applied only to assess whether transactions in a collaborative arrangement are in the scope
of Topic 606. ASU 2018-18 will preclude entities from presenting amounts related to transactions with a
counterparty in a collaborative arrangement that is not a customer as revenue from contracts with customers.
ASU 2018-18 is effective for the Company for all interim and annual reporting periods beginning after
December 15, 2019. The adoption of this standard did not have a material effect on the Company’s financial
statements.
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value
Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities,
requires public entities to disclose certain new information and modifies some disclosure requirements. This
standard is effective for fiscal years beginning after December 15, 2019, including interim reporting periods
within those years. The adoption of this standard did not have a material effect on the Company’s financial
statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, (ASU 2017-04). ASU 2017-04 eliminated Step 2 from the
goodwill impairment test. Instead, under the amendments in ASU 2017-04, an entity should perform its
annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An entity should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax
deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. ASU 2017-04 is effective for all interim and annual reporting periods beginning after
December 15, 2019. The adoption of this standard did not have a material effect on the Company’s financial
statements.
75
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Financial
Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires
measurement and recognition of expected credit losses for financial assets. This standard is effective for fiscal
years beginning after December 15, 2022 for small reporting companies, including interim reporting periods
within those years and must be adopted using a modified retrospective approach, with certain exceptions.
Early adoption is permitted. The Company does not expect the adoption of this standard to have a material
effect on its financial statements.
Off-Balance Sheet Arrangements
We have not utilized “off-balance sheet” arrangements to fund our operations or otherwise manage our
financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio
and to our term loan. Fixed rate securities and borrowings may have their fair market value adversely
impacted due to fluctuations in interest rates, while floating rate securities may produce less income than
expected if interest rates fall and floating rate borrowings may lead to additional interest expense if interest
rates increase. Due in part to these factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates. Our interest expense on the term loan may rise if the interest
rates increase.
Our primary investment objective is to preserve principal while at the same time maximizing yields
without significantly increasing risk. Our portfolio includes money markets funds, certificates of deposit,
commercial paper, corporate debt, and U.S. government agencies. The diversity of our portfolio helps us to
achieve our investment objectives. As of December 31, 2020, 97.5% of our investment portfolio was composed
of investments with original maturities of one year or less and approximately 48.8% of our investment
portfolio matures less than 90 days from the date of purchase.
The following table presents the amounts of our cash equivalents and investments that may be subject to
interest rate risk and the average interest rates as of December 31, 2020 by year of maturity (dollars in
thousands):
Cash equivalents:
Fixed rate
Average fixed rate
Variable rate
Average variable rate
Short-term investments:
Fixed rate
Average fixed rate
Long-term investments:
Fixed rate
Average fixed rate
Restricted investments:
Fixed rate
Average fixed rate
Total investment securities
Average rate
76
2021
$
522
0.01%
$
19,097
0.20%
$
19,421
0.23%
$
1,000
0.23%
150
0.02%
$
$
40,190
0.20%
The following table presents the amounts of our cash equivalents and investments that may be subject to
interest rate risk and the average interest rates as of December 31, 2019 by year of maturity (dollars in
thousands):
Cash equivalents:
Fixed rate
Average fixed rate
Variable rate
Average variable rate
Short-term investments:
Fixed rate
Average fixed rate
Restricted investments:
Fixed rate
Average fixed rate
Total investment securities
Average rate
2020
$
524
1.53%
$
31,837
1.97%
$
29,750
1.97%
150
1.39%
$
$
62,261
1.93%
As of December 31, 2020, the fair value of our term loan was estimated to be $20.8 million. The term
loan repayment schedule provides for interest only payments until December 1, 2021, followed by consecutive
monthly payments of principal and interest in arrears continuing through the maturity date of the term loan of
May 1, 2024. The term loan also provides for a floating interest rate (7.95% as of December 31, 2020) based on
an index rate plus a spread and an additional payment equal to 9.25% of the principal amount of the term
loan, which has been accrued over the life of the term loan and is due when the term loan becomes due or
upon the prepayment of the facility. If the Company elects to prepay the 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.
The obligation under the term loan is subject to interest rate risk because the interest rates under the obligation
may exceed current interest rates.
77
Item 8.
Financial Statements and Supplementary Data.
DURECT CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations and Comprehensive Loss
Statement of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
78
Page No.
79
81
82
83
84
85
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of DURECT Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of DURECT Corporation (the Company) as of December 31, 2020 and
2019, and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the
Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Prepaid and accrued contract research expenses
Description of the Matter
During the year ended December 31, 2020, the Company incurred $27,709 thousand in research
and development related expenses, of which $545 thousand was accrued as of December 31,
2020. The Company also has $2,829 thousand in prepaid clinical expenses as of December 31,
2020. As described in Note 1 of the financial statements, the Company records accruals for its
estimated costs of research and development activities, including contract services for clinical
trials and related clinical manufacturing costs. Clinical trial activities performed by third parties
are recorded based upon estimates of the proportion of work completed over the life of the
individual clinical trial and patient enrollment rates in accordance with agreements established
with third-party consultants and organizations. Estimates are determined by reviewing
contracts, vendor agreements and purchase orders, and through detailed discussions with
internal clinical personnel and external service providers as to the progress or stage of
completion of trials or services and then applying these estimates of completion to previously
agreed-upon rates and fees to be paid for such services.
Auditing management’s accounting estimates for both prepaid and accrued contract research
expenses was especially challenging as evaluating the nature, progress, and stage of completion
of the activities being performed under the Company’s research and development agreements
is dependent upon the accumulation of a high volume of information from internal clinical
personnel and third-party service providers.
79
How We Addressed the Matter
in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the accounting for prepaid and accrued research and development expenses,
including controls over management’s review of clinical trial progress and manufacturing
activities in comparison to budgets and invoices received from third parties.
Among others, our audit procedures included obtaining supporting evidence of the research
and development activities performed for significant clinical trials and attending internal clinical
trial and project status meetings with accounting personnel and clinical project managers to
corroborate the status of significant research and development activities. We also obtained and
read significant agreements and agreement amendments with the Company’s third-party
consultants and contract research organizations, examined the Company’s documentation of
trial timelines and future projections of trial progress and compared them to the Company’s
calculation of the estimated accrual or prepaid, and selected a sample of agreements and
confirmed directly with the third parties the expenses incurred and the completeness of the
terms of the arrangement. We also inspected invoices received after the balance sheet date to
determine whether the services were performed prior to or after the balance sheet date and
were properly recorded.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1998.
Redwood City, California
March 5, 2021
80
DURECT CORPORATION
BALANCE SHEETS
(in thousands, except per share amounts)
Current assets:
A S S E T S
Cash and cash equivalents
Cash held in escrow
Short-term investments
Accounts receivable (net of allowances of $72 at December 31, 2020
and $27 at December 31, 2019)
Inventories, net
Prepaid expenses and other current assets
Discontinued operations, current portion
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Long-term investments
Long-term restricted investments
Other long-term assets
Discontinued operations, non-current portion
Total assets
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
Accrued liabilities
Contract research liabilities
Deferred revenue, current portion
Term loan, current portion, net
Operating lease liabilities, current portion
Discontinued operations, current portion
Total current liabilities
Deferred revenue, non-current portion
Operating lease liabilities, non-current portion
Term loan, non-current portion, net
Other long-term liabilities
Discontinued operations, non-current portion
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000 shares authorized; none issued
and outstanding
Common stock, $0.0001 par value: 350,000 shares authorized; 203,533
and 195,257 shares issued and outstanding at December 31, 2020
and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Stockholders’ equity
December 31,
2020
2019
$
21,312 $
14,979
19,421
940
1,864
4,545
—
63,061
251
4,749
6,169
1,000
150
261
—
$
75,641 $
$
1,678 $
5,801
545
—
884
1,795
—
10,703
812
3,202
19,936
873
—
34,924
—
29,750
1,516
1,919
1,424
2,296
71,829
159
5,866
6,399
—
150
1,085
532
86,020
1,982
5,940
3,653
22,679
—
1,742
772
36,768
812
4,356
20,262
705
257
—
—
20
529,884
(5)
(489,784)
40,115
19
512,046
(3)
(489,202)
22,860
86,020
Total liabilities and stockholders’ equity
$
75,641 $
The accompanying notes are an integral part of these financial statements.
81
DURECT CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
Collaborative research and development and other revenue
Product revenue, net
$
Total revenues
Operating expenses:
Cost of product revenues
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest and other income
Interest expense
Net other income (expense)
Loss from continuing operations
Income from discontinued operations (Note 10)
Net loss
Net change in unrealized gain on available-for-sale
securities, net of tax
Total comprehensive loss
Net income (loss) per share
Basic and diluted
Loss from continuing operations
Income from discontinued operations
Net loss per common share, basic and diluted
Year ended December 31,
2020
2019
2018
23,941 $
6,170
30,111
1,406
27,709
13,611
42,726
18,129 $
6,945
25,074
1,263
29,640
14,115
45,018
8,207
7,068
15,275
1,640
25,013
12,262
38,915
(12,615)
(19,944)
(23,640)
517
(2,237)
(1,720)
(14,335)
13,753
(582)
1,074
(2,501)
(1,427)
(21,371)
793
(20,578)
870
(2,573)
(1,703)
(25,343)
21
(25,322)
(2)
(3)
1
$
(584) $
(20,581) $
(25,321)
$
$
$
(0.07) $
0.07 $
(0.00) $
(0.12) $
0.00 $
(0.12) $
(0.16)
0.00
(0.16)
Weighted-average shares used in computing net income (loss) per
share, basic and diluted
199,457
178,042
159,834
The accompanying notes are an integral part of these financial statements.
82
DURECT CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Additional
Paid-In
Accumulated
Other
Comprehensive
Accumulated
Total
Stockholders’
Shares
Amount
Capital
Income (loss)
Deficit
Equity
150,837 $
15 $ 465,246 $
(1) $ (443,772) $
21,488
Balance at December 31, 2017
Issuance of common stock upon exercise of stock
options and purchases of ESPP shares
Issuance of common stock upon equity
financings,
net of issuance costs of $566
Issuance of fully vested options to settle accrued
liabilities
Stock-based compensation expense from stock
options and ESPP shares
Net loss
Change in unrealized gain on available-for-sale
securities, net of tax
Adjustment due to changes in accounting policies
1,594
—
1,725
—
—
1,725
9,629
1
16,779
—
—
16,780
—
—
1,860
—
—
1,860
—
—
—
—
2,998
—
—
—
—
(25,322)
2,998
(25,322)
—
—
—
1
—
470
1
470
Balance at December 31, 2018
Issuance of common stock upon exercise of stock
options and purchases of ESPP shares
Issuance of common stock upon equity
financings,
net of issuance costs of $356
Issuance of fully vested options to settle accrued
liabilities
Stock-based compensation expense from stock
options and ESPP shares
Net loss
Change in unrealized gain on available-for-sale
securities, net of tax
Balance at December 31, 2019
Issuance of common stock upon exercise of stock
options and purchases of ESPP shares
Issuance of common stock upon equity
financings,
net of issuance costs of $380
Stock-based compensation expense from stock
options and ESPP shares
Net loss
Change in unrealized loss on available-for-sale
securities, net of tax
162,060 $
16 $ 488,608 $
— $ (468,624) $
20,000
1,847
—
1,979
—
—
1,979
31,350
3
18,357
—
—
18,360
—
—
994
—
—
994
—
—
—
—
2,108
—
—
—
—
(20,578)
2,108
(20,578)
—
—
—
(3)
—
(3)
195,257 $
19 $ 512,046 $
(3) $ (489,202) $
22,860
2,968
0
3,381
—
—
3,381
5,308
1
12,282
—
—
12,283
—
—
—
—
2,175
—
—
—
—
(582)
2,175
(582)
—
—
—
(2)
—
(2)
Balance at December 31, 2020
203,533 $
20 $ 529,884
$
(5) $ (489,784) $
40,115
The accompanying notes are an integral part of these financial statements.
83
DURECT CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
Stock-based compensation
Inventory write-down
Amortization of debt issuance cost
Net accretion/amortization on investments
Changes in operating lease liabilities
Gain on sale of LACTEL product line
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Contract research liability
Deferred revenue
Total adjustments
Net cash (used in) provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Purchases of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Net cash provided by (used in) investing activities
Cash flows from financing activities
Payments on equipment financing obligations
Net proceeds from issuances of common stock upon exercise of
stock options, and purchases of ESPP shares
Net proceeds from issuances of common stock in connection with
equity financings
Term loan amendment cost
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash, cash equivalents, and restricted cash, beginning of the
period (1)
Cash, cash equivalents, and restricted cash, end of the period (1)
Supplemental disclosure of cash flow information
Cash paid for interest
Year ended December 31,
2020
2019
2018
$
(582)
$
(20,578)
$
(25,322)
297
2,170
194
453
(313)
(61)
(12,845)
389
(249)
(2,178)
(241)
49
(3,108)
(22,679)
(38,122)
(38,704)
(208)
(45,066)
54,706
9,432
291
2,108
255
369
87
215
—
(556)
(217)
786
520
2,894
2,248
22,679
31,679
11,101
(155)
(31,866)
4,697
(27,324)
254
2,998
291
149
84
—
—
619
(549)
(15)
69
1,594
571
(493)
5,572
(19,750)
(93)
(9,588)
14,218
4,537
(4)
(7)
(9)
3,381
1,979
1,725
12,283
—
15,660
(13,612)
18,360
(829)
19,503
3,280
35,074
21,462 $
31,794
35,074 $
16,780
(1,014)
17,482
2,269
29,525
31,794
1,678 $
1,942 $
1,886
$
$
Supplementary disclosure of non-cash investing and financing information
$
Cash held in escrow
Fully vested options issued to settle accrued liabilities
$
Operating lease right-of-use assets obtained in exchange for
operating lease obligations (2)
(1) Includes restricted cash of $150,000 (presented as long-term restricted investments) on the balance sheets at each of December 31, 2020, 2019
and 2018.
(2) Amounts for the twelve months ended December 31, 2019 include the transition adjustment for the adoption of Accounting Standards Update
("ASU" No. 2016-02, Leases ("Topic 842").
14,979 $
— $
— $
994 $
7,329 $
— $
—
1,860
$
—
The accompanying notes are an integral part of these financial statements.
84
DURECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Nature of Operations
DURECT Corporation (the Company) was incorporated in the state of Delaware on February 6, 1998. The
Company is a biopharmaceutical company with research and development programs broadly falling into two
categories: (i) new chemical entities derived from our Epigenetics Regulator Program, in which the Company
attempts to discover and develop molecules which have not previously been approved and marketed as
therapeutics, and (ii) Proprietary Pharmaceutical Programs, in which the Company applies its formulation
expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have
previously been established but which the Company aims to improve in some manner through a new
formulation. The Company has several products under development by itself and with third party
collaborators. The Company also manufactures and sells osmotic pumps used in laboratory research, and
manufactures certain excipients for certain clients for use as raw materials in their products. In addition, the
Company conducts research and development of pharmaceutical products in collaboration with third party
pharmaceutical and biotechnology companies.
Basis of Presentation and Use of Estimates
The Company’s financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP). The preparation of the accompanying Financial Statements conforms to
accounting principles generally accepted in the U.S. which requires management to make judgments, estimates
and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and
related disclosures. On an ongoing basis, management evaluates its estimates including, but not limited to,
those related to revenue recognition, the period of performance, identification of deliverables and evaluation
of milestones with respect to our collaborations, the amounts of revenues, recoverability of inventory, certain
accrued liabilities including accrued clinical trial liability, and stock-based compensation. The Company bases
its estimates on historical experience and on various other market-specific and other relevant assumptions that
the Company believes to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ materially from those estimates.
Discontinued Operations
In December 2020, the Company announced its decision to sell its LACTEL Absorbable Polymer (LACTEL)
product line to Evonik, which was completed on December 31, 2020. The accompanying financial statements
have been recast for all periods presented to reflect the assets, liabilities, revenue and expenses related to the
Company’s LACTEL product line as discontinued operations (see Note 10). The Company believes this format
provides comparability with its previously filed financial statements.
Liquidity and Need to Raise Additional Capital
As of December 31, 2020, the Company has an accumulated deficit of $489.8 million as well as negative
cash flows from operating activities.
The Company generally has had negative cash flows from operating activities and expects its negative
cash flows to continue. The Company will continue to require substantial funds to continue research and
development, including clinical trials of its product candidates. Management’s plans in order to meet its
operating cash flow requirements beyond the next 12 months from the date the financial statements are filed,
may include seeking additional collaborative agreements for certain of its programs and achieving revenue
from its collaboration and licensing agreements as well as financing activities such
85
as public offerings and private placements of its common stock, preferred stock offerings, issuances of debt
and convertible debt instruments.
There are no assurances that such additional funding will be obtained and that the Company will succeed
in its future operations. If the Company cannot successfully raise additional capital when needed and
implement its strategic development plan, its liquidity, financial condition and business prospects will be
materially and adversely affected.
The Company believes its existing cash, cash equivalents, cash held in escrow, investments and
subsequent equity fund raising completed in February 2021 (see Note 11) are sufficient to fund its operating
cashflow requirements for a period greater than 12 months from the date of issuance of these financial
statements.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with maturities of 90 days or less from the date of
purchase to be cash equivalents. Investments with original maturities of greater than 90 days from the date of
purchase but less than one year from the balance sheet date are classified as short-term investments, while
investments with maturities in one year or beyond one year from the balance sheet date are classified as long-
term investments. Management determines the appropriate classification of its cash equivalents and
investment securities at the time of purchase and re-evaluates such determination as of each balance sheet
date. Management has classified the Company’s cash equivalents and investments as available-for-sale
securities in the accompanying financial statements. Available-for-sale securities are carried at fair value, with
unrealized gains and losses reported as a component of accumulated other comprehensive loss. Realized gains
and losses are included in interest income. There were no material realized gains or losses in the periods
presented. The cost of securities sold is based on the specific identification method.
The Company invests in debt instruments of government agencies, corporations, and money market
funds with high credit ratings. The Company has established guidelines regarding diversification of its
investments and their maturities with the objectives of maintaining safety and liquidity, while maximizing yield.
Total cash held in escrow (related to the sale of the LACTEL product line) was $15 million as of December
31, 2020; the $15 million which was released from escrow in January 2021.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of interest-
bearing investments and trade receivables. The Company maintains cash, cash equivalents and investments
with various major financial institutions. The Company performs periodic evaluations of the relative credit
standing of these financial institutions. In addition, the Company performs periodic evaluations of the relative
credit quality of its investments.
Pharmaceutical companies and academic institutions account for a substantial portion of the Company’s
trade receivables. The Company provides credit in the normal course of business to its customers and
collateral for these receivables is generally not required. The risk associated with this concentration is limited to
a certain extent due to the large number of accounts and their geographic dispersion. The Company monitors
the creditworthiness of its customers to which it grants credit terms in the normal course of business. The
Company maintains reserves for estimated credit losses and, to date, such losses have been immaterial in all
periods presented.
86
Customer and Product Line Concentrations (excluding the LACTEL product line)
A portion of the Company’s revenue is derived from its ALZET osmotic pump product line, and the sale of
certain excipients for Methydur and one excipient that is included in a marketed animal health product.
Revenue from the sale of products from the ALZET product line accounted for 20%, 27% and 46% of total
revenue for 2020, 2019 and 2018, respectively.
Gilead accounted for 76% and 68% of the Company’s total revenue for 2020 and 2019, respectively. In
2018, Indivior and Gilead accounted for 33% and 17% of the Company’s total revenues, respectively.
Total revenue by geographic region for the years 2020, 2019 and 2018 are as follows (in thousands):
United States
Europe
Japan
Others
Total
Year ended December 31,
2020
2019
2018
$
$
26,894 $
1,386
1,174
657
30,111 $
21,957 $
906
1,472
739
25,074 $
7,058
6,476
975
766
15,275
Revenue by geography is determined by the location of the customer.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-
out basis. The Company may be required to expense previously capitalized inventory costs upon a change in
management’s judgment due to new information that suggests that the inventory will not be saleable. If the
Company is able to subsequently sell products made with raw materials that were previously written down, the
Company will report an unusually high gross profit as there will be no associated cost of goods for these
materials.
The Company’s inventories consisted of the following (in thousands):
Raw materials
Work in-process
Finished goods
Total inventories
Property and Equipment
December 31,
2020
2019
$
$
136 $
796
932
1,864 $
163
709
1,047
1,919
Property and equipment are stated at cost less accumulated depreciation, which is computed using the
straight-line method over the estimated useful lives of the assets, which range from three to five years.
Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the
assets, or the terms of the related leases, whichever are shorter.
Goodwill
Goodwill is periodically assessed and evaluated for impairment. The Company operates in one operating
segment and also has only one reporting unit, which is the research, development and manufacturing of
pharmaceutical products. The Company assesses the impairment of goodwill at least annually and whenever
events or changes in circumstances indicate that the carrying value may not be
87
recoverable. Factors the Company considers important which could trigger an impairment review include the
following:
•
•
•
•
•
•
significant decline in our stock price for a prolonged period;
our market capitalization relative to net book value;
new information affecting the commercial value of the asset;
significant underperformance relative to historical or projected future operating results;
significant changes in the manner of our use of the acquired assets or the strategy for the Company’s
overall business; and
significant negative industry or economic trends.
As of December 31, 2020, the carrying value of goodwill was approximately $6.2 million compared with
$6.4 million as of December 31, 2019 and 2018. As a result of the sale of the LACTEL product line,
approximately $229,000 of the carry value of goodwill was allocated to the LACTEL product line upon its
disposition. The Company evaluates goodwill for impairment at least annually. In 2020, 2019 and 2018,
goodwill was evaluated and no indicators of impairment were identified. To date, the Company has not
recorded any impairment charge related to goodwill.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, intangible assets, and other
long-term assets, for impairment whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable.
An impairment loss would be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any,
is calculated as the amount by which an asset’s carrying value exceeds its fair value, typically using discounted
cash flows to determine fair value. Through December 31, 2020, there have been no material impairment
losses.
Leases
The Company leases administrative, manufacturing and laboratory facilities under operating leases.
Lease agreements may include rent holidays, rent escalation clauses and tenant improvement allowances.
Prior to the adoption of Accounting Standards Update ("ASU" No. 2016-02, Leases, and the related
amendments ("Topic 842"), the Company recognized scheduled rent increases on a straight-line basis over the
lease term beginning with the date the Company took possession of the leased space. The Company recorded
tenant improvement allowances as deferred rent liabilities and amortized the deferred rent over the terms of
the lease to rent expense on the statements of operations and comprehensive loss.
Effective January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition
method approach with a cumulative-effect adjustment as of January 1, 2019. Other prior period amounts are
not adjusted and continue to be reported in accordance with our historic accounting under previous lease
guidance, ASC Topic 840: Leases (Topic 840). The Company elected the package of practical expedients
permitted under the transition guidance within the new standard, which among other things, allowed the
Company to carry forward the historical lease classification of those leases in place as of January 1, 2019.
The adjustments due to the adoption of Topic 842 primarily related to the recognition of an operating
lease right-of-use asset and corresponding operating lease liability for the Company’s leased properties. The
Company’s operating lease right-of-use asset and liability were recognized at the adoption date of ASC 842
based on the present value of lease payments over the remaining lease term at the adoption date. In
determining the net present value of lease payments, we used our incremental borrowing
88
rate of 13.8% based on the information available, including remaining lease term, at the adoption date of ASC
842. As of December 31, 2020, the weighted-average remaining lease term was 2.99 years for the Company’s
leased properties.
There was no effect from the adoption of Topic 842 on the Company’s Statement of cash flows.
Stock-Based Compensation
The Company accounts for share-based payments using a fair-value based method for costs related to all
share-based payments, including stock options and stock issued under the Company’s employee stock
purchase plan (ESPP). The Company estimates the fair value of share-based payment awards on the date of
grant using an option-pricing model. See Note 8 for further information regarding stock-based compensation.
Revenue Recognition
The Company enters into license and collaboration agreements under which the Company may receive
upfront license fees, research funding and contingent milestone payments and royalties. Effective January 1,
2018, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. In
accordance with ASC 606, the Company changed certain characteristics of its revenue recognition accounting
policy as described below. ASC 606 was applied using the modified retrospective method, where the
cumulative effect of the initial application was recognized as an adjustment to opening retained earnings at
January 1, 2018. The Company recorded a net decrease to opening accumulated deficit of $470,000 with an
offset entry to reduce deferred revenue as of January 1, 2018 due to the cumulative impact of adopting Topic
606, with the impact relating to the Company’s deferred collaborative research and development revenues.
Product Revenue, Net
The Company sells osmotic pumps used in laboratory research, and manufactures certain excipients for
pharmaceutical clients for use as raw materials in their products.
Revenues from product sales are recognized when the customer obtains control of the Company’s
product, which occurs at a point in time, typically upon shipment to the customer. The Company expenses
incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset
that the Company would have recognized is one year or less.
Trade Discounts and Allowances: The Company provides certain customers with discounts that are
explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the
related product revenue is recognized.
Product Returns: Consistent with industry practice, the Company generally offers customers a limited
right of return for products that have been purchased from the Company. The Company estimates the amount
of its product sales that may be returned by its customers and records this estimate as a reduction of revenue
in the period the related product revenue is recognized. The Company currently estimates product return
liabilities using its historical sales information. The Company expects product returns to be minimal.
Collaborative Research and Development and Other Revenue
The Company enters into license agreements, under which it licenses certain rights to its product
candidates to third parties. The terms of these arrangements typically include payment to the Company of one
or more of the following: non-refundable, up-front license fees; reimbursement of development costs incurred
by the Company under approved work plans; development, regulatory and commercial milestone payments;
payments for manufacturing supply services the Company provides through its contract manufacturers; and
royalties on net sales of licensed products. Each of these payments results in collaborative research and
development revenues, except for revenues from royalties on net sales of licensed products, which are
classified as other revenues.
89
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each
of its agreements, the Company performs the following steps: (i) identification of the promised goods or
services in the contract; (ii) determination of whether the promised goods or services are performance
obligations including whether they are distinct in the context of the contract; (iii) measurement of the
transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to
the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each
performance obligation. As part of the accounting for these arrangements, the Company must develop
assumptions that require judgment to determine the stand-alone selling price for each performance obligation
identified in the contract. The Company uses key assumptions to determine the standalone selling price, which
may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount
rates and probabilities of technical and regulatory success. The Company expects to recognize revenue for the
variable consideration currently being constrained when it is probable that a significant revenue reversal will
not occur.
Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be
distinct from the other performance obligations identified in the arrangement, the Company recognizes
revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the
customer and the customer is able to use and benefit from the license. For licenses that are bundled with other
promises, the Company utilizes judgment to assess the nature of the combined performance obligation to
determine whether the combined performance obligation is satisfied over time or at a point in time and, if over
time, the appropriate method of measuring progress for purposes of recognizing revenue from non-
refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if
necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are
recorded on a cumulative catch-up basis, which would affect collaborative research and development revenues
and net income (loss) in the period of adjustment.
Milestone Payments: At the inception of each arrangement that includes development milestone
payments, the Company evaluates whether the milestones are considered probable of being reached and
estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur, the associated milestone value is included in the
transaction price. Milestone payments that are not within the control of the Company or the licensee, such as
regulatory approvals, are not considered probable of being achieved until those approvals are received. The
transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis,
for which the Company recognizes revenue as or when the performance obligations under the contract are
satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of
achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which
would affect collaborative research and development revenues and net income (loss) in the period of
adjustment.
Manufacturing Supply Services: Arrangements that include a promise for future supply of drug product
for either clinical development or commercial supply at the customer’s discretion are generally considered as
options. The Company assesses if these options provide a material right to the customer and if so, they are
accounted for as separate performance obligations. If the Company is entitled to additional payments when the
customer exercises these options, any additional payments are recorded in collaborative research and
development revenue when the customer obtains control of the goods, which is upon delivery.
90
Royalties and Earn-outs: For arrangements that include sales-based royalties or earn-outs, including
milestone payments based on the level of sales, and the license is deemed to be the predominant item to
which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii)
when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or
partially satisfied). To date, the Company has not recognized material royalty revenue resulting from the
Company’s collaborative arrangements or material earn-out revenue from the Company’s patent purchase
agreement with Indivior.
The Company receives payments from its customers based on development cost schedules established in
each contract. Up-front payments are recorded as deferred revenue upon receipt or when due, and may
require deferral of revenue recognition to a future period until the Company performs its obligations under
these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration
is unconditional. The Company does not assess whether a contract has a significant financing component if the
expectation at contract inception is such that the period between payment by the customer and the transfer of
the promised goods or services to the customer will be one year or less.
Prepaid and Accrued Contract Research Expenses
The Company incurs significant costs associated with third party consultants and organizations for pre-
clinical studies, clinical trials, contract research and manufacturing, validation, testing, regulatory advice and
other research and development-related services. The Company is required to estimate periodically the cost of
services rendered but unbilled based on management’s estimates of project status. If these good faith
estimates are inaccurate, actual expenses incurred could materially differ from these estimates.
Research and development expenses are primarily comprised of salaries and benefits 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 costs are expensed as incurred. Research and development costs paid to third parties under
sponsored research agreements are recognized as the related services are performed. In addition,
reimbursements of research and development expenses incurred by the Company’s partners are recorded as
collaborative research and development revenue.
Comprehensive Loss
Components of other comprehensive loss are comprised entirely of unrealized gains and losses on the
Company’s available-for-sale securities for all periods presented. Total comprehensive loss has been disclosed
in the Company’s Statements of Comprehensive Loss.
Segment Reporting
The Company operates in one operating segment, which is the research, development and manufacturing
of pharmaceutical products.
91
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of
common shares outstanding. Diluted net loss per share is computed using the weighted-average number of
common shares outstanding and common stock equivalents (i.e., options to purchase common stock)
outstanding during the period, if dilutive, using the treasury stock method for options.
The numerators and denominators in the calculation of basic and diluted net loss per share were as
follows (in thousands except per share amounts):
Numerators:
Net loss
Denominators:
Weighted average shares used to compute
basic
net loss per share
Effect of dilutive securities:
Dilution from stock options
Dilution from ESPP
Dilutive common shares
Weighted average shares used to compute
diluted
net loss per share
Net loss per share:
Basic
Diluted
Year Ended December 31,
2020
2019
2018
$
(582) $ (20,578) $ (25,322)
199,457 178,042 159,834
—
—
—
—
—
—
—
—
—
199,457 178,042 159,834
$
$
(0.00) $
(0.12) $
(0.00) $
(0.12) $
(0.16)
(0.16)
The computation of diluted net loss per share for 2020, 2019 and 2018 excludes the impact of options to
purchase 7.5 million, 21.4 million and 16.6 million shares of common stock outstanding at December 31,
2020, 2019 and 2018, respectively, as such impact would be antidilutive.
Shipping and Handling
Costs related to shipping and handling are included in cost of revenues for all periods presented.
Recent Accounting Pronouncements
In December 2019, as part of its initiative to reduce complexity in the accounting standards, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for
calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis
differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The
standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020, with early adoption permitted. The Company early adopted ASU 2019-12 on January 1, 2020, and
this adoption had no material impact on the Company’s financial position or results of operations.
In November 2018, the Financial Accounting Standards Board (the FASB) issued ASU No. 2018-
18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (ASU
2018-18). ASU 2018-18 clarifies that certain transactions between collaborative arrangement
92
participants should be accounted for as revenue under Topic 606 when the counterparty is a customer for a
distinct good or service (i.e. a unit of account). For units of account that are in the scope of Topic 606, all of the
guidance in Topic 606 should be applied, including the guidance on recognition, measurement, presentation
and disclosure. ASU 2018-18 also adds a reference in Topic 808 to the unit of account guidance in ASC 606 and
requires that it be applied only to assess whether transactions in a collaborative arrangement are in the scope
of Topic 606. ASU 2018-18 will preclude entities from presenting amounts related to transactions with a
counterparty in a collaborative arrangement that is not a customer as revenue from contracts with customers.
ASU 2018-18 is effective for the Company for all interim and annual reporting periods beginning after
December 15, 2019. The adoption of this standard did not have a material effect on the Company’s financial
statements.
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value
Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities,
requires public entities to disclose certain new information and modifies some disclosure requirements. This
standard is effective for fiscal years beginning after December 15, 2019, including interim reporting periods
within those years. The adoption of this standard did not have a material effect on the Company’s financial
statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, (ASU 2017-04). ASU 2017-04 eliminated Step 2 from the
goodwill impairment test. Instead, under the amendments in ASU 2017-04, an entity should perform its
annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An entity should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax
deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. ASU 2017-04 is effective for all interim and annual reporting periods beginning after
December 15, 2019. The adoption of this standard did not have a material effect on the Company’s financial
statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Financial
Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires
measurement and recognition of expected credit losses for financial assets. This standard is effective for fiscal
years beginning after December 15, 2022 for small reporting companies, including interim reporting periods
within those years and must be adopted using a modified retrospective approach, with certain exceptions.
Early adoption is permitted. The Company does not expect the adoption of this standard to have a material
effect on its financial statements.
2.
Strategic Agreements
The collaborative research and development and other revenues associated with the Company’s major
third-party collaborators are as follows (in thousands):
Year ended December 31,
2020
2019
2018
Collaborator/Counterparty
Gilead (1)
Other (2)
Total collaborative research and development and other
revenue
$ 22,879 $ 17,133 $
996
1,062
2,542
5,665
$ 23,941 $ 18,129 $
8,207
93
(1)
(2)
Amounts related to recognition of upfront fees and milestone payments were $22.7 million, $12.3
million and zero for the twelve months ended December 31, 2020, 2019 and 2018, respectively. The
Company signed a license agreement with Gilead on July 19, 2019 and received a nonrefundable upfront
license fee and a milestone payment totaling $35.0 million in 2019 which was being recognized as
revenue as its obligation was being satisfied using the cost-to-cost input method (see Note 2. Strategic
Agreements - Agreement with Gilead Sciences, Inc. in the financial statements). In June 2020, the
Company received notice that Gilead was terminating the License Agreement and a related R&D
agreement between Gilead and the Company. As a result, the Company recognized all its remaining
deferred revenue as there were no remaining substantive performance obligations to be provided to
Gilead by the Company as of the date when the termination notice was received. Amounts recognized as
revenue during each of the twelve months ended December 31, 2020, 2019 and 2018 also included the
Company’s reimbursable collaborative research and development services performed under its
agreement with Gilead.
Includes: (a) amounts related to earn-out revenue from Indivior UK Limited (Indivior) with respect to
PERSERIS net sales; (b) feasibility programs; (c) research and development activities funded by Santen
Pharmaceutical Co. Ltd. (Santen); and (d) royalty revenue from OP Pharma with respect to Methydur net
sales. Note that in January 2018, the Company was notified by Santen that due to a shift in priorities,
Santen had elected to reallocate research and development resources and put the Company’s program
on pause until further notice. While the main program is on pause, the parties are working together on a
limited set of research and development activities funded by Santen.
As of December 31, 2020, the Company had potential milestones of up to $76.0 million that the
Company may receive in the future under its collaborative arrangements, of which $13.0 million are
development-based milestones and $63.0 million are sales-based milestones. Within the category of
development-based milestones, $2.0 million are related to early stage clinical testing (defined as Phase 1 or 2
activities), $3.0 million are related to late stage clinical testing (defined as Phase 3 activities), $3.0 million are
related to regulatory filings, and $5.0 million are related to regulatory approvals.
Agreement with Gilead Sciences, Inc.
On July 19, 2019, the Company entered into a license agreement (the “Gilead Agreement”) with Gilead
Sciences, Inc. (“Gilead”). Pursuant to the Gilead Agreement, the Company granted Gilead the exclusive
worldwide rights to develop and commercialize a long-acting injectable HIV product utilizing DURECT’s SABER®
technology. Gilead also received exclusive access to the SABER platform for HIV and Hepatitis B Virus (HBV)
and the exclusive option to license additional SABER-based products directed to HIV and HBV.
Under the terms of the Gilead Agreement, Gilead made a non-refundable upfront payment to DURECT of
$25 million, and in October 2019, the Company also received a $10 million milestone payment from Gilead for
further development of the product candidate.
During the twelve months ended December 31, 2019, the upfront and milestone consideration of $35
million received in 2019 associated with the Primary Services was being recognized as revenue when the first
performance obligation was being satisfied using the cost-to-cost input method, which the Company believes
best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of
progress towards completion is measured based on the ratio of actual costs incurred to the total estimated
costs. Revenue is recorded as a percentage of the transaction price based on the extent of progress towards
completion. The estimate of the Company’s measure of progress, which can include additional Primary
Services, if any, and the estimate of any additional consideration for those additional Primary Services, are
included in the transaction price which is updated at each reporting date, and revenue is recognized on a
cumulative catchup basis. As such, management applies a certain amount of judgment in estimating both the
Primary Services and the corresponding timeline to through
94
completion of the first performance obligation, which are key inputs when using the cost-to-cost input method.
During the twelve months ended December 31, 2019, the Company recognized $12.3 million of the
deferred revenue within collaborative research and development and other revenues. The Company also
recognized $4.8 million from Gilead during the twelve months ended December 31, 2019 from feasibility
related collaborative research and development services.
In June 2020, Gilead terminated the Gilead Agreement and a related R&D agreement between Gilead and
the Company. As a result, the Company recognized $22.7 million as revenue during the year ended December
31, 2020, which represented all of the remaining upfront fee and milestone payment that had previously been
deferred as there were no remaining substantive performance obligations to be provided to Gilead by the
Company as of the date when the termination notice was received.
The following table presents changes in the Company’s contract assets and liabilities for the twelve
months ended December 31, 2020 and 2019 (in thousands):
Balance Sheet
Assets
Accounts receivable
Total contract asset
Liabilities
Deferred revenue, current portion
Total contract liabilities
Balance Sheet
Assets
Accounts receivable
Total contract asset
Liabilities
Deferred revenue, current portion
Total contract liabilities
Balance at
January 1,
2019
Additions Deletions
Balance at
December 31,
2019
— $
— $
39,812 $
(39,318) $
39,812 $
(39,318) $
494
494
— $
— $
35,000 $
(12,321) $
35,000 $
(12,321) $
22,679
22,679
Balance at
January 1,
2020
Additions Deletions
Balance at
December 31,
2020
494 $
494 $
200 $
200 $
(694) $
(694) $
22,679 $
9,174 $
(31,853) $
22,679 $
9,174 $
(31,853) $
—
—
—
—
$
$
$
$
$
$
$
$
Patent Purchase Agreement with Indivior
On September 26, 2017, the Company entered into a Patent Purchase Agreement (the “Indivior
Agreement”) with Indivior. Pursuant to the Indivior Agreement, the Company assigned to Indivior certain
patents that may provide further intellectual property protection for PERSERIS™ (risperidone), Indivior’s
extended-release injectable suspension for the treatment of schizophrenia in adults. In consideration for such
assignment, Indivior made an upfront non-refundable payment to the Company of $12.5 million. Indivior also
agreed to make an additional $5.0 million payment to the Company contingent upon NDA approval of
PERSERIS, as well as quarterly earn-out payments that are based on a single digit percentage of U.S. net sales
for certain products covered by the assigned patent rights, including PERSERIS. The assigned patent rights
include granted patents extending through at least 2026. The Company also received a non-exclusive right
under the assigned patents to develop and
95
commercialize certain risperidone-containing products and products that do not contain risperidone or
buprenorphine. The Indivior Agreement contains customary representations, warranties and indemnities of
the parties. The Company received the payment of $12.5 million from Indivior in September 2017 and
recognized the $12.5 million as revenue from sale of intellectual property rights in 2017 as the Company did
not have any continuing obligations under the purchase agreement. In August 2018, the Company received the
payment of $5.0 million from Indivior for the FDA approval of PERSERIS. The Company recognized the $5.0
million as milestone revenue in 2018 as there was no further performance obligation associated with this
milestone payment. Amounts recognized to date related to earn-out revenues from PERSERIS have been
immaterial.
Agreement with Santen Pharmaceutical Co., Ltd.
On December 11, 2014, the Company and Santen Pharmaceutical Co., Ltd. (Santen) entered into a
definitive agreement (the Santen Agreement). Pursuant to the Santen Agreement, the Company granted Santen
an exclusive worldwide license to the Company’s proprietary SABER formulation platform and other intellectual
property to develop and commercialize a sustained release product utilizing the Company’s SABER technology
to deliver an ophthalmology drug. Santen controls and funds the development and commercialization
program, and the parties established a joint management committee to oversee, review and coordinate the
development activities of the parties under the Santen Agreement.
In connection with the Santen agreement, Santen paid the Company an upfront fee of $2.0 million in cash
and agreed to make contingent cash payments to the Company of up to $76.0 million upon the achievement of
certain milestones, of which $13.0 million are development-based milestones and $63.0 million are
commercialization-based milestones including milestones requiring the achievement of certain product sales
targets (none of which has been achieved as of December 31, 2020). Santen will also pay for certain Company
costs incurred in the development of the licensed product. If the product is commercialized, the Company
would also receive a tiered royalty on annual net product sales ranging from single-digit to the low double
digits, determined on a country-by-country basis. In January 2018, the Company was notified by Santen that
due to a shift in priorities, Santen elected to reallocate research and development resources and put the
Company’s program on pause until further notice. While the main program is on pause, the parties are working
together on a limited set of research and development activities funded by Santen. As of December 31, 2020,
the cumulative aggregate payments received by the Company under this agreement were $3.3 million.
Agreement with Sandoz AG.
In May 2017, the Company and Sandoz AG (“Sandoz”) entered into a license agreement to develop and
market POSIMIR in the United States. On January 2, 2019, the Company received written notice from Sandoz
that Sandoz terminated this agreement effective January 27, 2019. As a result of this termination, Sandoz
returned its exclusive commercialization rights to develop and market POSIMIR in the United States. The
parties are in dispute with regard to Sandoz’s obligation to pay a termination fee to the Company. The
Company has initiated a formal dispute resolution process related to the termination fee. The cumulative
aggregate payments received by the Company from Sandoz as of December 31, 2020 were $20.0 million
under this agreement.
96
3.
Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. The Company’s valuation techniques used
to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The
Company follows a fair value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value. These levels of inputs are the
following:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The Company’s financial instruments are valued using quoted prices in active markets or based upon
other observable inputs. The following table sets forth the fair value of the Company’s financial assets that
were measured at fair value on a recurring basis as of December 31, 2020 (in thousands):
Money market funds
Certificates of deposit
Commercial paper
Municipal bonds
U.S. Government agencies
Total
Level 1
Level 2
Level 3
Total
$
$
522 $
—
—
—
—
522 $
— $
150
32,213
6,305
1,000
39,668 $
— $
—
—
—
—
— $
522
150
32,213
6,305
1,000
40,190
The following table sets forth the fair value of our financial assets that were measured at fair value on a
recurring basis as of December 31, 2019 (in thousands):
Money market funds
Certificates of deposit
Commercial paper
U.S. Government agencies
Corporate debt
Total
Level 1
Level 2
Level 3
Total
$
$
524 $
—
—
—
—
524 $
— $
150
47,218
4,501
9,868
61,737 $
— $
—
—
—
—
— $
524
150
47,218
4,501
9,868
62,261
The Company’s financial instruments are valued using quoted prices in active markets or based upon
other observable inputs. Money market funds are classified as Level 1 financial assets. Certificates of deposit,
commercial paper, corporate debt securities, and U.S. Government agency securities are classified as Level 2
financial assets. The fair value of the Level 2 assets is estimated using pricing models using current observable
market information for similar securities. The Company’s Level 2 investments include U.S. government-backed
securities and corporate securities that are valued based upon observable inputs that may include benchmark
yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids,
offers and reference data including market research publications. The fair value of commercial paper is based
upon the time to maturity and discounted using the three-month treasury bill rate. The average remaining
maturity of the Company’s
97
Level 2 investments as of December 31, 2020 is less than twelve months and these investments are rated by
S&P and Moody’s at AAA or AA- for securities and A1 or P1 for commercial paper.
The following is a summary of available-for-sale securities as of December 31, 2020 and 2019 (in
thousands):
Money market funds
Certificates of deposit
Commercial paper
Municipal bonds
U.S. Government agencies
Reported as:
Cash and cash equivalents
Short-term investments
Long-term investments
Long-term restricted investments
Money market funds
Certificates of deposit
Commercial paper
U.S. Government agencies
Corporate debt
Reported as:
Cash and cash equivalents
Short-term investments
December 31, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair
Value
$
522 $
150
32,213
6,310
1,000
$
40,195 $
$
19,619 $
19,426
1,000
150
$
40,195 $
— $
—
2
—
—
2 $
1 $
1
—
—
2 $
— $
—
(2)
(5)
—
(7) $
(1) $
(6)
—
—
(7) $
522
150
32,213
6,305
1,000
40,190
19,619
19,421
1,000
150
40,190
December 31, 2019
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair
Value
$
524 $
150
47,221
4,500
9,869
$ 62,264 $
$ 32,364 $
29,750
— $
—
1
1
1
3 $
— $
3
— $
—
(4)
524
150
47,218
4,501
(2)
9,868
(6) $ 62,261
(3) $ 32,361
29,750
(3)
The following is a summary of the cost and estimated fair value of available-for-sale securities at
December 31, 2020, by contractual maturity (in thousands):
Mature in one year or less
Mature after one year through five years
December 31, 2020
Amortized
Cost
38,523 $
1,150
39,673 $
$
$
Estimated
Fair
Value
38,518
1,150
39,668
There were no securities that have had an unrealized loss for more than 12 months as of December 31,
2020.
As of December 31, 2020, unrealized losses on available-for-sale investments are not attributed to credit
risk and are considered to be temporary. The Company believes that it is more-likely-than-not that
98
investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the
investment. To date, the Company has not recorded any impairment charges on marketable securities related
to other-than-temporary declines in market value.
4.
Property and Equipment
Property and equipment consist of the following (in thousands):
Equipment
Leasehold improvements
Construction-in-progress
$
Less accumulated depreciation and amortization
$
Property and equipment, net
December 31,
2020
10,890 $
8,428
42
19,360
(19,109)
251 $
2019
10,740
8,422
74
19,236
(19,077)
159
Depreciation expense was $297,000, $291,000 and $254,000 in 2020, 2019 and 2018, respectively.
As of December 31, 2020, the Company has recorded $482,000 as a liability which was included in other
long-term liabilities on its balance sheet for asset retirement obligations associated with the estimated
restoration cost for its leased buildings.
5.
Restricted Investments
As of December 31, 2020 and 2019, the Company had $150,000 recorded as restricted investments,
which primarily served as collateral for letters of credit securing a leased facility in California.
6.
Commitments
Operating Leases
The Company has lease arrangements for its facilities in California and Alabama as follows.
Location
Cupertino, CA
Approximate
Square Feet
30,149 sq. ft.
Operation
Expiration
Office, Laboratory
and Manufacturing
Lease expires 2024 (with an option to renew
for an additional five years)
Cupertino, CA
20,100 sq. ft.
Office and
Laboratory
Lease expires 2024 (with an option to renew
for an additional five years)
Vacaville, CA
24,634 sq. ft.
Manufacturing
Lease expires 2023 (with an option to renew
for an additional five years)
Under these leases, the Company is required to pay certain maintenance expenses in addition to monthly
rent. Rent expense is recognized on a straight-line basis over the lease term for leases that have scheduled
rental payment increases. Rent expense under all operating leases, excluding the LACTEL product line, was $1.9
million, $1.9 million and $1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
99
Future minimum payments under these noncancelable leases are as follows (in thousands):
Year ending December 31,
2021
2022
2023
2024
Operating
Leases
1,933
1,991
1,970
275
6,169
$
Other Purchase Commitments
In 2005, the Company entered into a supply agreement with a vendor. The remaining minimum purchase
commitment under this agreement was $500,000 in 2018, which had been recorded as an accrued liability on
the Company’s Balance Sheet at December 31, 2018, and which was charged to cost of goods sold in the
Company’s Statements of Operations and Comprehensive Loss in 2017. In 2019, the Company recorded a one-
time settlement credit of $500,000 as a reduction to cost of goods sold upon signing a settlement and release
agreement with this vendor, and forgave the contractual right to receive inventory for the same amount that
was previously reserved for.
7.
Term Loan
In July 2016, the Company entered into a $20.0 million secured single-draw term loan with Oxford
Finance LLC (Oxford Finance). The Company and Oxford Finance entered into three subsequent amendments
to the Loan Agreement in February 2018, November of 2018 and December 2019, for which the Company
paid Oxford Finance loan modification fees of $100,000, $900,000 and $825,000 respectively. As amended,
the Loan Agreement provides for interest only payments for the first 18 months, followed by consecutive
monthly payments of principal and interest in arrears starting on December 1, 2021 and continuing through
the maturity date of the term loan of May 1, 2024. The Loan Agreement provides for a floating interest rate
(7.95% initially and 7.95% as of December 31, 2020) based on an index rate plus a spread. In addition, a
payment equal to 10% of the principal amount of the term loan is due when the term loan becomes due or
upon the prepayment of the facility. If the Company elects to prepay the loan, there is also a prepayment fee of
between 0.75% and 2.5% of the principal amount of the term loan depending on the timing of prepayment.
The $150,000 facility fee that was paid at the original closing, the loan modification fees and other debt
offering/issuance costs have been recorded as debt discount on the Company’s balance sheet and together
with the final $2.0 million payment are being amortized to interest expense using the effective interest method
over the revised term of the loan.
The term loan is secured by substantially all of the assets of the Company, except that the collateral does
not include any intellectual property (including licensing, collaboration and similar agreements relating
thereto), and certain other excluded assets. The 2016 Loan Agreement contains customary representations,
warranties and covenants by the Company, which covenants limit the Company’s ability to convey, sell, lease,
transfer, assign or otherwise dispose of certain assets of the Company; engage in any business other than the
businesses currently engaged in by the Company 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, the Company’s failure to fulfill certain obligations of the Company
under the Loan Agreement and the occurrence of a material adverse change which is defined as
100
a material adverse change in the Company’s business, operations, or condition (financial or otherwise), a
material impairment of the prospect of repayment of any portion of the 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
the Company under the Loan Agreement, the lender would be entitled to exercise its remedies thereunder,
including the right to accelerate the debt, upon which the Company may be required to repay all amounts then
outstanding under the Loan Agreement, which could harm the Company’s financial condition. The conditionally
exercisable call option related to the event of default is considered to be an embedded derivative which is
required to be bifurcated and accounted for as a separate financial instrument. In the periods presented, the
value of the embedded derivative is not material, but could become material in future periods if an event of
default became more probable than is currently estimated.
The fair value of the term loan approximates the carrying value. Future maturities and interest payments
under the term loan as of December 31, 2020, are as follows (in thousands):
2021
2022
2023
2024
Total minimum payments
Less amount representing interest
Gross balance of term loan
Less unamortized debt discount
Carrying value of term loan
Less term loan, current portion, net
Term loan, non-current portion, net
2,941
9,208
8,563
4,712
25,424
(3,646)
21,778
(958)
20,820
(884)
19,936
$
8.
Stockholders’ Equity
Common Stock
In November 2015, the Company filed a shelf registration statement on Form S-3 with the SEC, which
allowed the Company to offer up to $125.0 million of securities from time to time in one or more public
offerings of its common stock. In addition, the Company entered into a Controlled Equity Offering sales
agreement with Cantor Fitzgerald, under which the Company may sell, subject to certain limitations, up to $40
million of common stock through Cantor Fitzgerald, acting as agent. In August 2018, the Company filed a new
shelf registration statement on Form S-3 with the SEC, which upon being declared effective in October 2018,
terminated the November 2015 registration statement and allowed the Company to offer up to $175.0 million
of securities from time to time in one or more public offerings, inclusive of up to $75.0 million of additional
shares of common stock which the Company may sell, subject to certain limitations, under the 2015 Sales
Agreement through Cantor Fitzgerald, acting as agent.
In 2018, the Company raised net proceeds of approximately $16.8 million from the sale of
approximately 9.6 million shares of common stock in the open market through the Controlled Equity Offering
program with Cantor Fitzgerald at a weighted average price of $1.80 per share. In 2019, the Company raised
net proceeds of approximately $3.5 million from the sale of 2,349,820 shares of the Company’s common stock
in the open market at a weighted average price of $1.55 per share pursuant to the October 2018 registration
statement. On June 20, 2019, the Company entered into a transaction to sell 29,000,000 shares of our
common stock to certain investors in a registered offering at a price of $0.52 per share, raising total gross
proceeds to the Company of approximately $15.1 million. In 2020, the Company raised net proceeds of
approximately $12.3 million from the sale of 5,308,002 shares of the Company’s common stock in the open
market at a weighted average price of $2.39 per share pursuant to the October 2018 registration statement.
101
In February 2021, the Company completed an underwritten public offering of 20,364,582 shares of its
common stock at a price of $2.2386 per share pursuant to an underwriting agreement with Cantor Fitzgerald &
Co., raising total gross proceeds to the Company of approximately $45.6 million before deducting estimated
offering expenses payable by the Company. Total stock issuance costs related to this financing were
approximately $195,000. After deducting estimated offering expenses payable by the Company, the net
proceeds to the Company were approximately $45.4 million.
From January 1, 2021 to March 1, 2021, the Company also raised net proceeds (net of commissions) of
approximately $2.4 million from the sale of 950,009 shares of the Company’s common stock in the open
market at a weighted average price of $2.60 per share pursuant to the October 2018 registration statement.
Description of Stock-Based Compensation Plans
2000 Stock Plan (Incentive Stock Plan)
In January 2000, the Company’s Board of Directors and stockholders adopted the DURECT Corporation
2000 Stock Plan, under which incentive stock options and non-statutory stock options and stock purchase
rights may be granted to employees, consultants and non-employee directors. The 2000 Stock Plan was
amended by written consent of the Board of Directors in March 2000 and written consent of the stockholders
in August 2000.
In April 2005, the Board of Directors approved certain amendments to the 2000 Stock Plan. At the
Company’s annual stockholders meeting in June 2005, the stockholders approved the amendments of the
2000 Stock Plan to: (i) expand the types of awards that the Company may grant to eligible service providers
under the Stock Plan to include restricted stock units, stock appreciation rights and other similar types of
awards (including other awards under which recipients are not required to pay any purchase or exercise price)
as well as cash awards; and (ii) include certain performance criteria that may be applied to awards granted
under the Stock Plan.
At the Company’s annual stockholders meeting in June 2010, the stockholders approved amendments of
the 2000 Stock Plan to: (i) provide that the number of shares that remain available for issuance will be reduced
by two shares for each share issued pursuant to an award (other than an option or stock appreciation right)
granted on or after the date of the 2010 Annual Meeting; (ii) expand the types of transactions that might be
considered repricings and option exchanges for which stockholder approval is required; (iii) provide that shares
tendered or withheld in payment of the exercise price of an option or withheld to satisfy a withholding
obligation, and all shares with respect to which a stock appreciation right is exercised, will not again be
available for issuance under the Stock Plan; (iv) require that options and stock appreciation rights have an
exercise price or base appreciation amount that is at least fair market value on the grant date, except in
connection with certain corporate transactions, and that stock appreciation rights may not have longer than a
10-year term; (v) add new performance goals that may be used to provide “performance-based compensation”
under the 2000 Stock Plan; (vi) extend the term of the 2000 Stock Plan to the date that is ten (10) years
following the stockholders meeting; and (vii) expand the treatment of outstanding awards in connection with
certain changes of control of the Company to cover mergers in which the consideration payable to
stockholders is not solely securities of the successor corporation.
At the Company’s annual stockholders meeting in June 2011, June 2014, June 2016 and June 2018, the
stockholders approved amendments of the 2000 Stock Plan to increase the number of shares of the
Company’s common stock available for issuance by 5,500,000 shares, 4,000,000 shares, 5,000,000 shares and
7,500,000 shares, respectively, each of which had previously been approved by the Board of Directors.
102
At the Company’s annual stockholders meeting in June 2019, the stockholders approved amendments of
the 2000 Stock Plan to extend the term of the 2000 Stock Plan to the date that is ten (10) years following the
stockholders meeting.
A total of 49,955,639 shares of common stock have been reserved for issuance under this plan. The plan
expires in June 2029.
In April 2013, the Board of Directors approved certain amendments to the 2000 Stock Plan to: (i) increase
the number of stock options granted to a non-employee director on the date which such person first becomes
a director from 30,000 to 70,000 shares of common stock; each option shall have a ten-year term, become
exercisable in installments of one-third of the total number of options granted on each anniversary of the grant
and have a two-year period following termination of Director status in which the former director can exercise
the option; (ii) modify the exercise period for future option grants to a non-employee director in which a
former director can exercise the option following termination of Director status from a one year period to a
two-year period.
Options granted under the 2000 Stock Plan expire no later than ten years from the date of grant. Options
may be granted with different vesting terms from time to time not to exceed five years from the date of grant.
The option price of an incentive stock option granted to an employee or of a nonstatutory stock option granted
to any person who owns stock representing more than 10% of the total combined voting power of all classes of
stock of the Company (or any parent or subsidiary) shall be no less than 110% of the fair market value per
share on the date of grant. The option price of an incentive stock option granted to any other employee shall be
no less than 100% of the fair market value per share on the date of grant.
As of December 31, 2020, 7,599,531 shares of common stock were available for future grant and options
to purchase 27,274,439 shares of common stock were outstanding under the 2000 Stock Plan.
2000 Employee Stock Purchase Plan
In August 2000, the Company adopted the 2000 Employee Stock Purchase Plan. This purchase plan is
implemented by a series of overlapping offering periods of 24 months’ duration, with new offering periods,
other than the first offering period, beginning on May 1 and November 1 of each year and ending April 30 and
October 31, respectively, two years later. The purchase plan allows eligible employees to purchase common
stock through payroll deductions at a price equal to the lower of 85% of the fair market value of the Company’s
common stock at the beginning of each offering period or at the end of each purchase period. The initial
offering period commenced on the effectiveness of the Company’s initial public offering.
In April 2010, the Board of Directors approved certain amendments to the 2000 Employee Stock
Purchase Plan. At the Company’s annual stockholders meeting in June 2010, the stockholders approved the
amendments of the 2000 Employee Stock Purchase Plan to: (i) increase the number of shares of our common
stock authorized for issuance under the ESPP by 250,000 shares; (ii) extend the term of the ESPP to the date
that is ten (10) years following the stockholders meeting; (iii) provide for six-month consecutive offering
periods beginning on November 1, 2010; (iv) revise certain provisions to reflect the final regulations issued
under Section 423 of the Code by the Internal Revenue Service; and (v) provide for the cash-out of options
outstanding under an offering period in effect prior to the consummation of certain corporate transactions as
an alternative to providing for a final purchase under such offering period.
In March 2015, the Board of Directors approved certain amendments to the 2000 Employee Stock
Purchase Plan. At the Company’s annual stockholders meeting in June 2015, the stockholders approved the
amendments of the 2000 Employee Stock Purchase Plan to: (i) increase the number of shares of our common
stock authorized for issuance under the ESPP by 350,000 shares; and (ii) extend the term of the ESPP to the
date that is ten (10) years following the stockholders meeting. At each of the Company’s annual stockholders
meeting in June 2017 and in June 2020, the stockholders approved amendments of
103
the 2000 Employee Stock Purchase Plan to increase the number of shares our common stock authorized for
issuance under the ESPP by 350,000 shares, respectively, and to re-approve its material terms.
The plan expires in June 2030. A total of 2,900,000 shares of common stock have been reserved for
issuance under this plan. As of December 31, 2020, 497,270 shares of common stock were available for future
grant and 2,752,730 shares of common stock have been issued under the 2000 Employee Stock Purchase Plan.
As of December 31, 2020, shares of common stock reserved for future issuance consisted of the
following:
Stock options outstanding
Stock options available for grant
Employee Stock Purchase Plan
December 31,
2020
27,274,439
7,599,531
497,270
35,371,240
A summary of stock option activity under all stock-based compensation plans is as follows:
Weighted
Average
Exercise
Price Per Share
Weighted
Average Remaining
Contractual Term
(in Years)
Aggregate
Intrinsic
Value
(in millions)
Number of
Options
Outstanding at December 31, 2019
Options granted
Options exercised
Options forfeited
Options expired
Outstanding at December 31, 2020
29,803,766 $
2,702,860 $
(2,865,835) $
(389,471) $
(1,976,881) $
27,274,439 $
Exercisable at December 31, 2020
23,512,705 $
1.41
2.12
1.11
1.45
2.20
1.45
1.42
5.17 $
71.3
4.98 $
4.44 $
19.6
17.7
Vested and expected to vest at
December 31, 2020
27,274,439 $
1.45
4.98 $
19.6
The aggregate intrinsic value in the table above represents the total intrinsic value (i.e., the difference
between the Company’s closing stock price on the last trading day of 2020 and the exercise price, multiplied by
the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their in-the-money options on December 31, 2020. This amount changes based on the fair
market value of the Company’s common stock. The total intrinsic value of options exercised was $3.6 million,
$1.7 million and $1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
In lieu of providing cash bonuses to certain employees, in January 2019 and 2018, the Company granted
its employees stock options to purchase 2.3 million and 1.9 million shares, respectively, of the Company’s
common stock, which vested immediately on the grant date. The weighted-average grant-date fair value of all
options granted with exercise prices equal to fair market value was $0.43 in 2019 and $0.94 in 2018
determined by the Black-Scholes option valuation method. There were no options granted with exercise prices
lower than fair market value.
Expenses for non-employee stock options are recorded over the vesting period of the options, which
closely approximates the non-employee’s performance period, with the value determined by the Black-Scholes
option valuation method and remeasured over the vesting term.
104
As of December 31, 2020, the Company had three stock-based equity compensation plans, which are
described above. The employee stock-based compensation cost that has been included in the statements of
operations and comprehensive loss is shown as below (in thousands):
Cost of product revenues
Research and development
Selling, general and administrative
Year ended December 31,
2020
2019
2018
$
$
13 $
981
1,085
2,079 $
13 $
746
1,269
2,028 $
13
1,541
1,355
2,909
Because the Company had a net operating loss carryforward as of December 31, 2020, no excess tax
benefits for the tax deductions related to stock-based compensation expense were recognized in the statement
of operations. Additionally, no incremental tax benefits were recognized from stock options exercised during
2020, which would have resulted in a reclassification to reduce net cash provided by operating activities with
an offsetting increase in net cash provided by financing activities.
Determining Fair Value
Valuation and Expense Recognition. The Company estimates the fair value of stock options granted
using the Black-Scholes option valuation model. The Company recognizes the expense on a straight-line basis.
The expense for options is recognized over the requisite service periods of the awards, which is generally the
vesting period.
Expected Term. The expected term of options granted represents the period of time that the options are
expected to be outstanding. The Company determines the expected life using historical options experience.
This develops the expected life by taking the weighted average of the actual life of options exercised and
cancelled and assumes that outstanding options are exercised uniformly from the current holding period
through the end of the contractual life.
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based
on the historical volatility of the Company’s common stock.
Risk-Free Rate. The Company bases the risk-free rate that it uses in the Black-Scholes option valuation
model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with
substantially equivalent remaining terms.
Dividends. The Company has never paid any cash dividends on its common stock and the Company
does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an
expected dividend yield of zero in the Black-Scholes option valuation model.
105
The Company used the following assumptions to estimate the fair value of options granted (including
fully vested options issued in January 2019 and 2018) and shares purchased under its stock plans and
employee stock purchase plan for the years ended December 31, 2020, 2019 and 2018:
Stock Options
Risk-free rate
Expected dividend yield
Expected term (in years)
Volatility
Forfeiture rate (1)
Year ended December 31,
2020
2019
2018
0.5-1.4%
—
7.0-7.3
84-87%
1.5-2.7%
—
7.5-10.0
79-83%
2.7-3.1%
—
7.0-10.0
78-86%
0.0%
0.0%
0.0%
(1)
Effective January 1, 2017, the Company elected to account for forfeitures as they occur.
Employee Stock Purchase Plan
Risk-free rate
Expected dividend yield
Expected term (in years)
Volatility
Year ended December 31,
2020
2019
2018
0.1%
1.6-2.5%
—
0.5
—
0.5
78-124%
60-103%
1.3-2.5%
—
0.5
60-146%
There were 102,006, 111,909 and 119,097 shares purchased under the Company’s employee stock
purchase plan during the years ended December 31, 2020, 2019 and 2018, respectively. Included in the
statement of operations and comprehensive loss for the year ended December 31, 2020, 2019 and 2018 was
$86,000, $27,000 and $24,000, respectively, in stock-based compensation expense related to the recognition
of expenses related to shares purchased under the Company’s employee stock purchase plan.
106
As of December 31, 2020, $3.4 million of total unrecognized compensation costs related to nonvested
stock options is expected to be recognized over the respective vesting terms of each award through 2024. The
weighted average term of the unrecognized stock-based compensation expense is 2.6 years.
The following table summarizes information about stock options outstanding at December 31, 2020:
Options Outstanding
Options Exercisable
Number of
Options
Outstanding
143,750
2,878,012
3,561,267
2,761,642
2,608,933
2,869,328
40,000
2,755,496
5,068,694
4,587,317
27,274,439
Weighted-
Average
Remaining
Contractual Life
(In years)
Weighted-
Average
Exercise
Price
8.12 $
7.79 $
3.65 $
4.92 $
2.13 $
6.84 $
5.28 $
5.62 $
4.35 $
4.95 $
4.98 $
0.57
0.58
0.82
1.15
1.21
1.24
1.26
1.31
1.81
2.66
1.45
Number of
Options
Exercisable
50,418 $
2,165,967 $
3,549,297 $
2,706,954 $
2,606,683 $
2,457,142 $
40,000 $
2,527,036 $
4,610,445 $
2,798,763 $
23,512,705 $
Weighted-
Average
Exercise
Price
0.56
0.58
0.82
1.15
1.21
1.24
1.26
1.31
1.81
2.95
1.42
Range of
Exercise Price
$0.51 - $0.57
$0.58 - $0.58
$0.58 - $0.88
$0.93 - $1.20
$1.21 - $1.21
$1.24 - $1.24
$1.26 - $1.26
$1.31 - $1.31
$1.33 - $2.09
$2.10 - $3.61
$0.51 - $3.61
The Company received $3.2 million, $1.9 million and $1.6 million in cash from option exercises under all
stock-based compensation plans for the years ended December 31, 2020, 2019 and 2018, respectively.
9.
Income Taxes
The Company accounts for income taxes using the liability method under ASC 740, Income Taxes. Under
this method, deferred tax assets and liabilities are determined based on temporary differences resulting from
the different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. Additionally, the Company must assess the likelihood that deferred tax
assets will be recovered as deductions from future taxable income. The Company has provided a full valuation
allowance on the Company’s deferred tax assets because the Company believes it is more likely than not that
its deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets on
a quarterly basis. The Company recorded a deferred tax liability of $244,000 on its balance sheet at both
December 31, 2020 and 2019 that arose from tax amortization of an indefinite-lived intangible asset. The
Company also recorded a deferred tax expense of zero in the years ended December 31, 2020, 2019 and
2018, respectively. The Company recorded no tax expense in each of 2020, 2019 and 2018.
107
The reconciliation of income tax expenses (benefit) at the statutory federal income tax rate of 21%, to net
income tax benefit included in the statements of operations and comprehensive loss for the years ended
December 31, 2020, 2019 and 2018 is as follows (in thousands):
Year Ended December 31,
2020
2019
2018
U.S. federal taxes benefit at statutory rate
State taxes
Change in valuation allowance
Stock-based compensation
Research and development tax credits
Tax Reform change in tax rate and other
Expiring net operating losses
Other
$
(122) $
—
(2,022)
268
(1,132)
—
2,991
17
(4,321) $
—
3,142
879
(1,004)
—
1,252
52
Total income tax (benefit) provision
$
— $
— $
(5,318)
—
5,143
999
(999)
—
—
175
—
In 2020, 2019 and 2018, total income tax provision (benefit) expense was zero. Deferred tax assets and
liabilities reflect the net tax effects of net operating loss and research and other credit carryforwards and the
temporary differences between the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research and other credits
Deferred revenue
Stock-based compensation
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax liabilities - Right of use asset
December 31,
2020
2019
87,197 $
19,153
223
3,840
5,204
90,102
18,860
248
4,376
5,288
115,617
(114,323)
(1,538)
118,874
(117,245)
(1,873)
Net deferred tax assets and liabilities
$
(244) $
(244)
The Company recognizes deferred tax assets to the extent that the Company believes that these assets
are more likely than not to be realized. In making such a determination, all available positive and negative
evidence is considered, including future reversals of existing taxable temporary differences, projected future
taxable income, tax-planning strategies, and results of recent operations. If it is determined that the Company
would be able to realize deferred tax assets in the future in excess of their net recorded amount, the Company
would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for
income taxes. The recognition and measurement of tax benefits requires significant judgment. Judgments
concerning the recognition and measurement of tax benefit might change as new information becomes
available. Given the Company’s history of operating losses, the net deferred tax assets have been fully offset by
a valuation allowance. The valuation allowance decreased by $2.9 million during 2020 and increased by $4.6
million and $6.3 million during 2019 and 2018, respectively.
As of December 31, 2020, the Company had net operating loss carryforwards for federal income tax
purposes of approximately $344.7 million, of which approximately $306.3 million will expire in the years 2021
through 2037, and approximately $38.5 million which do not expire, and federal research and
108
development tax credits of approximately $15.6 million, which expire at various dates beginning in 2021
through 2040, if not utilized.
As of December 31, 2020, the Company had net operating loss carryforwards for state income tax
purposes of approximately $219.1 million, which expire in the years 2021 through 2040, if not utilized, and
state research and development tax credits of approximately $16.7 million, which do not expire.
Utilization of the net operating losses may be subject to a substantial annual limitation due to federal and
state ownership change limitations. The annual limitation may result in the expiration of net operating losses
before utilization.
At December 31, 2020 and December 31, 2019, the Company had unrecognized tax benefits of
approximately $10.9 million and $9.1 million, respectively (none of which, if recognized, would affect the
Company’s effective tax rate). The Company does not believe there will be any material changes in its
unrecognized tax positions over the next twelve months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
Balance at beginning of the year
$
Increase (decrease) related to prior year tax positions
Increase related to current year tax positions
9,078 $
1,136
674
Balance at end of the year
$
10,888 $
8,432
(73)
719
9,078
December 31,
2020
2019
Interest and penalty costs related to unrecognized tax benefits, if any, are classified as a component of
interest and other income, net in the Statements of Operations and Comprehensive Loss. The Company did not
recognize any interest and penalties expenses related to unrecognized tax benefits for the years ended
December 31, 2020, 2019 and 2018.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The
Company is subject to U.S. federal and state income tax examination for calendar tax years ending 1999
through 2019 due to unutilized net operating losses and research credits.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Securities Act (CARES
Act) was signed into law in the U.S. in March 2020. The CARES Act adjusted a number of provisions in the tax
code, including the calculation and eligibility of certain deductions and the treatment of net operating losses
and tax credits. The enactment of the CARES Act did not result in any material adjustments to the Company’s
income tax provision for the year ended December 31, 2020, or to its net deferred tax assets as of December
31, 2020.
The recently enacted Consolidated Appropriations Act, 2021 has expanded, extended, and clarified
selected CARES Act provisions, specifically on Paycheck Protection Program (PPP) loan and Employee Retention
Tax Credit, 100% deductibility of business meals as well as other tax extenders. The Consolidated
Appropriations Act is not expected to have a material impact on the Company’s tax provision.
California Assembly Bill 85 (AB 85) was signed into law in June 2020. The legislation suspends the use of
California Net Operating Loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a
limitation on the use of certain California Tax Credits for 2020, 2021, and 2022. The carryover periods for Net
Operating Loss deductions disallowed by this provision will be extended. Given the Company’s loss position in
the current year, the new legislation will not impact the current year
109
provision. The Company will continue to monitor possible California net operating loss and credit limitation in
future periods.
10.
Discontinued Operations
On December 31, 2020, the Company completed the sale of its LACTEL Absorbable Polymers product line
to Evonik. Under the terms of the Asset Purchase Agreement, Evonik paid DURECT approximately $15 million
subject to certain adjustments, and also agreed to assume certain liabilities with respect to the transferred
assets.
As a result of the sale of the LACTEL product line, the operating results from our LACTEL product line have
been excluded from continuing operations and presented as discontinued operations in the accompanying
Statements of Operations and Comprehensive Loss for all periods presented. During the twelve months ended
December 31, 2020, we recorded a gain on sale of the LACTEL product line of $12.8 million, upon the
completion of sale to Evonik. The results of operations and gain from discontinued operations presented below
include certain allocations that management believes fairly reflect the utilization of services provided to the
LACTEL product line. The allocations do not include amounts related to general corporate administrative
expenses or interest expense. Therefore, these results of operations do not necessarily reflect what the results
of operations would have been had the LACTEL product line operated as a stand-alone entity.
The components of income from discontinued operations as reported in the Company’s statement of
operations were as follows (in thousands):
Product revenue, net
Total revenues
Operating expenses:
Cost of product revenues
Research and development
Selling, general and administrative
Total costs and expenses
Income from discontinued operations
Other income:
Gain on sale of the LACTEL product line
Net income from discontinued operations
Net income per share
Basic and diluted
Year ended December 31,
2020
2019
2018
$ 4,918 $ 4,490 $ 3,289
4,918
4,490
3,289
3,019
476
515
2,880
569
248
2,623
488
157
4,010
3,697
3,268
908
793
12,845
—
$ 13,753 $
793 $
21
—
21
$
0.07 $
0.00 $
0.00
Weighted-average shares used in computing net income per share
basic and diluted
Basic and diluted
199,457 178,042 159,834
The following table presents information related to assets and liabilities reported as discontinued
operations in the Company’s balance sheet (in thousands):
Accounts receivable
Inventories, net
Prepaid expenses and other current assets
Discontinued operations – current portion
Property and equipment, net
110
December 31,
2020
2019
— $
—
—
— $
797
1,465
34
2,296
— $
310
$
$
$
Operating lease right-of-use assets
Goodwill
Other long-term assets
Discontinued operations – non-current portion
Accounts payable
Accrued liabilities
Operating lease liabilities, current portion
Discontinued operations – current portion
Operating lease liabilities, non-current portion
Other long-term liabilities
Discontinued operations – non-current portion
—
—
—
— $
— $
—
—
— $
— $
—
— $
200
—
22
532
127
344
301
772
161
96
257
$
$
$
$
$
The following table presents certain non-cash items related to discontinued operations, which are
included in the Company’s statement of cash flows (in thousands):
Depreciation
Stock-based compensation expense
Goodwill
Loss on disposal of property and equipment
Gain on sale of the LACTEL product line
Non-cash items, net
Years ended December 31,
2020
2019
$
$
$
$
198 $
91
229
129
647 $
12,845 $
(12,198) $
241
81
—
—
322
—
322
11.
Subsequent Events
In February 2021, the Company completed an underwritten public offering of 20,364,582 shares of its
common stock at a price of $2.2386 per share pursuant to an underwriting agreement with Cantor Fitzgerald &
Co., raising total gross proceeds to the Company of approximately $45.6 million before deducting estimated
offering expenses payable by the Company. Total stock issuance costs related to this financing were
approximately $195,000. After deducting estimated offering expenses payable by the Company, the net
proceeds to the Company were approximately $45.4 million.
From January 1, 2021 to March 1, 2021, the Company also raised net proceeds (net of commissions) of
approximately $2.4 million from the sale of 950,009 shares of the Company’s common stock in the open
market at a weighted average price of $2.60 per share pursuant to the October 2018 registration statement.
111
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.
Controls and Procedures.
Disclosure Controls and Procedures
As required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, DURECT’s management, including
our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period
covered by this report, of the effectiveness of DURECT’s disclosure controls and procedures as defined in
Exchange Act Rule 13a-15(e) and 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that DURECT’s disclosure controls and procedures were effective as of the end of
the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our
Chief Executive Officer and Chief Financial Officer and with the participation of our management, we conducted
an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020
based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework). Based on that evaluation, our management
concluded that our internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last
fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over
financial reporting.
112
Item 9B. Other Information.
None
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The names of the executive officers of the Company and their ages, titles and biographies as of the date
hereof are incorporated by reference from Part I, Item 1, above.
Information required by this item will be contained in our definitive proxy statement to be filed with the
Securities and Exchange Commission on Schedule 14A in connection with our 2020 Annual Meeting of
Stockholders (the Proxy Statement), which is expected to be filed not later than 120 days after the end of our
fiscal year ended December 31, 2020, under the headings “Election of Directors,” “The Board, Board
Committees and Meetings,” “Code of Ethics,” and “Section 16(a) Beneficial Ownership Reporting Compliance,”
and is incorporated herein by reference.
Item 11.
Executive Compensation
Information required by this item will be contained in the Proxy Statement under the headings “Executive
Compensation,” “Director Compensation,” and “Compensation Committee Report” and is incorporated herein
by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be contained in the Proxy Statement under the headings “Common
Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,”
and is incorporated herein by reference.
Item 13.
Certain Relationships, Related Transactions and Director Independence
Information required by this item will be contained in the Proxy Statement under the headings “Certain
Relationships,” “Other Transactions,” and “The Board, Board Committees and Meetings,” and is incorporated
herein by reference.
Item 14.
Principal Accountant Fees and Services
Information required by this item will be contained in the Proxy Statement under the heading “Fees Billed
for Services Rendered by Principal Accountant,” and is incorporated herein by reference.
113
Item 15.
Exhibits and Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
PART IV
(1) Financial Statements
See Item 8 of this Form 10-K
(2) Financial Statement Schedules
See Schedule II—Valuation and Qualifying Accounts, immediately following Item 16 of this Form
10-K
Schedules not listed above have been omitted because the information required to be set forth therein is
not applicable or is shown in the financial statements or notes thereto.
(3)
The list of exhibits filed as part of this report is set forth on the Exhibit Index immediately
preceding the signature page of this report and is incorporated herein by reference in this
Item 5(a)(3) or is filed in accordance with Item 601 of Regulation S–K.
Number
2.1
2.2
3.1
3.2
3.3
3.4
3.5
3.6
4.2
Description
Agreement and Plan of Merger dated April 18, 2001, among the Company, Target and Magnolia Acquisition
Corporation (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K (File No. 000-31615) filed
on May 15, 2001).
Agreement and Plan of Merger dated August 15, 2003, among the Company, Birmingham Polymers, Inc.,
Absorbable Polymer Technologies, Inc. and the Principal Shareholders of Absorbable Polymer Technologies, Inc.
(incorporated by reference to Exhibit 2.2 to our Registration Statement on Form S-3, as amended (File No. 333-
108396), initially filed on August 29, 2003).
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 to
our Registration Statement on Form S-1, as amended (File No. 333-35316), initially filed on April 20, 2000).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.4 to our Post-Effective Amendment No. 1 to our Registration Statement on
Form S-3, filed on July 1, 2010.
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of DURECT Corporation
(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
June 20, 2018).
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of DURECT
Corporation (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-3 (File No. 333-
128979) initially filed on October 13, 2005).
Certificate of Amendment to Certificate of Designation of Rights, Preferences and Privileges of Series A Participating
Preferred Stock of DURECT Corporation (incorporated by reference to Exhibit 3.7 to our Quarterly Report on Form
10-Q (File No. 000-31615) filed on August 5, 2010).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to our Current Report on
Form 8-K (File No. 000-31615), filed on December 17, 2014).
Description of Securities of the Registrant (incorporated by reference to Exhibit 4.2 to our annual report on Form
10-K (File No. 000-31615), filed on March 5, 2020).
114
Number
10.1+
10.2+
10.3+
10.4+
10.5
Form of Indemnification Agreement between the Company and each of its Officers and Directors (incorporated by
reference to Exhibit 10.1 to our Registration Statement on Form S-1, as amended (File No. 333-35316), initially filed
on April 20, 2000).
Description
2000 Stock Plan, as amended (incorporated by reference to Exhibit 10.2 to our annual report on Form 10-K (File No.
000-31615), filed on March 5, 2020).
2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to our Registration Statement on
Form S-1, as amended (File No. 333-35316), initially filed on April 20, 2000).
2000 Directors’ Stock Option Plan (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form
S-1, as amended (File No. 333-35316), initially filed on April 20, 2000).
Modified Net Single Tenant Lease Agreement between the Company and DeAnza Enterprises, Ltd. dated as of
February 18, 1999 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form S-1, as
amended (File No. 333-35316), initially filed on April 20, 2000).
10.6
Common Stock Purchase Agreement between the Company and ALZA Corporation dated April 14, 2000
(incorporated by reference to Exhibit 10.17 to our Registration Statement on Form S-1, as amended (File No. 333-
35316), initially filed on April 20, 2000).
10.7**
Development and License Agreement between the Company, Southern BioSystems, Inc., an Alabama corporation
and wholly-owned subsidiary of the Company (now merged into the Company), and Pain Therapeutics, Inc. dated
as of December 19, 2002 (incorporated by reference to Exhibit 10.34 to our Annual Report on Form 10-K (File No.
000-31615) filed on March 14, 2003).
10.8
Lease between the Company and Renault & Handley Employee Investments Co. with commencement date of
January 1, 2005 (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K (File No. 000-31615)
filed on March 11, 2004).
10.9**
Amendment dated December 21, 2005 to Development and License Agreement dated December 19, 2002 between
the Company and Pain Therapeutics, Inc. (incorporated by reference to Exhibit 10.45 to our Annual Report on
Form 10-K (File No. 000-31615) filed on March 16, 2006).
10.10
First Lease Extension between the Company and Renault & Handley Employee Investments Co. effective March 1,
2009 (incorporated by reference to Exhibit 10.54 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed on
May 7, 2009).
10.11
Second Amendment to Lease between De Anza Enterprises and the Company dated as of August 6, 2009
(incorporated by reference to Exhibit 10.56 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed on
November 2, 2009).
10.12
Lease between the Company and DRA/CLP Riverchase Center Birmingham, LLC dated as of October 19, 2010
(incorporated by reference to Exhibit 10.62 to our Annual Report on Form 10-K (File No. 000-31615) filed with the
SEC on March 3, 2011).
10.13
Third Amendment to Lease between De Anza Enterprises and the Company dated as of December 21, 2010
(incorporated by reference to Exhibit 10.63 to our Annual Report on Form 10-K (File No. 000-31615) filed with the
SEC on March 3, 2011).
10.14
Fourth Amendment to Lease between De Anza Enterprises and the Company dated as of August 20, 2013
(incorporated by reference to Exhibit 10.71 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with the
SEC on November 5, 2013).
10.15
Addendum II to Lease between the Company and Northwest Asset Management Company dated as of August 27,
2013 (incorporated by reference to Exhibit 10.72 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed
with the SEC on November 5, 2013).
115
Number
10.16
Second Amendment to Lease between Handley Management Corporation, as successor-by-merger to Renault &
Handley Employee Investments Co. and the Company dated November 11, 2013 (incorporated by reference to
Exhibit 10.73 to our Annual Report on Form 10-K (File No. 000-31615) filed with the SEC on February 27, 2014).
Description
10.17** License Agreement between the Company and Santen Pharmaceutical Co., Ltd. dated December 11, 2014
(incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K (File No. 000-31615) filed with the
SEC on March 3, 2015).
10.18** Exclusive License Agreement between the Company and Virginia Commonwealth University Intellectual Property
Foundation dated December 5, 2012 (incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-
K (File No. 000-31615) filed with the SEC on March 3, 2015).
10.19
Loan and Security Agreement between the Company and Oxford Finance LLC dated July 28, 2016. (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with the SEC on November
1, 2016).
10.20** Development and Commercialization Agreement between the Company and SANDOZ AG dated May 5, 2017.
(incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with the
SEC on August 9, 2017).
10.21** Patent purchase agreement between the Company and Indivior UK Limited dated as of September 26, 2017.
(incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with the
SEC on November 2, 2017).
10.22
First Amendment to Loan and Security Agreement between the Company and Oxford Finance LLC dated February
28, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 5,
2018).
10.23
Second Amendment to Loan and Security Agreement between the Company and Oxford Finance LLC dated
November 1, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
November 5, 2018).
10.24
Addendum III to Lease between the Company and Northwest Asset Management Company dated as of April 10,
2018 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with
the SEC on August 2, 2018).
10.25** First Amendment to the Development and Commercialization Agreement between the Company and SANDOZ AG
effective as of May 4, 2018 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q (File
No. 000-31615) filed with the SEC on August 2, 2018).
10.26
Fifth Amendment to Lease between De Anza Enterprises and the Company dated as of August 15, 2018
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
August 17, 2018).
10.27
10.28
10.29
Third Amendment to Lease between Handley Management Corporation, as successor-by-merger to Renault &
Handley Employee Investments Co. and the Company dated September 17, 2018 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on September 21, 2018).
Amendment No. 1 to Exclusive License Agreement between the Company and Virginia Commonwealth University
Intellectual Property Foundation dated July 2, 2015 (incorporated by reference to Exhibit 10.4 to our Quarterly
Report on Form 10-Q (File No. 000-31615) filed with the SEC on November 8, 2018).
Amendment No. 2 to Exclusive License Agreement between the Company and Virginia Commonwealth University
Intellectual Property Foundation dated March 6, 2018 (incorporated by reference to Exhibit 10.5 to our Quarterly
Report on Form 10-Q (File No. 000-31615) filed with the SEC on November 8, 2018).
116
Number
Description
10.30++ License Agreement between the Company and Gilead Sciences, Inc. dated July 19, 2019 (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-31615) filed with the SEC on November 5, 2019).
10.31
Third Amendment to Loan and Security Agreement between the Company and Oxford Finance LLC dated
December 31, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as
filed with the SEC on January 6, 2020).
10.32*++ Asset purchase agreement between the Company and Evonik Corporation dated December 4, 2020.
10.33*
Executive Change of Control Policy, as amended December 9, 2020.
23.1*
24.1*
31.1*
31.2*
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (see signature page of this Form 10-K).
Rule 13a-14(a) Section 302 Certification.
Rule 13a-14(a) Section 302 Certification.
32.1*** Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2*** Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because
XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
*
**
***
+
++
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Filed herewith.
Confidential treatment granted with respect to certain portions of this Exhibit.
Furnished, not filed.
Indicates a management contract or compensatory plan or arrangement.
Certain portions of this exhibit (indicated by “[***]”) have been omitted in accordance with the rules of the Securities and
Exchange Commission.
117
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2020, 2019 and 2018
(in thousands)
Allowance for doubtful accounts
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
Balance at
beginning
of the year
Additions
(Reductions) to
allowances
Deductions
Balance at
end of the
year
$
$
$
(27) $
(83) $
(69) $
(46) $
56 $
(14) $
1 $
— $
— $
(72)
(27)
(83)
118
EXHIBIT INDEX
Number
Description
10.32*++
Asset purchase agreement between the Company and Evonik Corporation dated December 4, 2020.
10.33*
Executive Change of Control Policy, as amended December 9, 2020.
23.1*
24.1*
31.1*
31.2*
32.1**
32.2**
101.INS
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (see signature page of this Form 10-K).
Rule 13a-14(a) Section 302 Certification.
Rule 13a-14(a) Section 302 Certification.
Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data
File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
**
++
Filed herewith.
Furnished, not filed.
Certain portions of this exhibit (indicated by “[***]”) have been omitted in accordance with the rules of
the Securities and Exchange Commission.
119
Item 16.
Form 10-K Summary.
The Company has elected not to include summary information.
120
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
DURECT CORPORATION
By:
/S/ JAMES E. BROWN
James E. Brown
President and Chief Executive Officer
Date: March 5, 2021
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints James E. Brown, his or her attorneys-in-fact, each with the power of substitution, for him or her in
any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JAMES E. BROWN
James E. Brown
/s/ MICHAEL H. ARENBERG
Michael H. Arenberg
/s/ MOHAMMAD AZAB
Mohammad Azab
/s/ SIMON X. BENITO
Simon X. Benito
/s/ TERRENCE F. BLASCHKE
Terrence F. Blaschke
/s/ GAIL M. FARFEL
Gail M. Farfel
/s/ DAVID R. HOFFMANN
David R. Hoffmann
/s/ GAIL J. MADERIS
Gail J. Maderis
/s/ ARMAND P. NEUKERMANS
Armand P. Neukermans
/s/ JUDITH J. ROBERTSON
Judith J. Robertson
/s/ JON S. SAXE
Jon S. Saxe
President, Chief Executive Officer and
Director (Principal Executive Officer)
March 5, 2021
Chief Financial Officer
(Principal Accounting Officer)
March 5, 2021
Director
Director
Director
Director
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
Director, Chairman of the Board
March 5, 2021
Director
Director
Director
Director
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March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021