Market Opportunity

Chronic pain, defined as lasting six months or longer, is usually the result of an ongoing condition or significant problem associated with chronic diseases, including cancer, various neurological and skeletal disorders and other ailments such as severe arthritis or a debilitating back injury. As the condition gets worse, the pain often gets worse. Also, long-lasting pain can affect the nervous system to the point where pain persists even if the condition that originally caused the pain is stabilized or improved. This is one reason patients often need stronger pain medication even if their underlying condition has been treated. Chronic pain affects as many as 34 million Americans annually. Worldwide opioid sales to treat chronic pain exceeded approximately $3.9 billion in 2004, of which OxyContin ® , a brand name narcotic painkiller, and Duragesic^®, a leading transdermal opioid product, accounted for approximately $1.8 billion and $2.1 billion in sales, respectively.

Product Concept

CHRONOGESIC, based on the DUROS technology, is intended for patients with chronic pain that is stable and opioid responsive and results from a variety of causes. CHRONOGESIC consists of a small titanium pump, about the size of a match stick, which is implanted under the skin of a patient in a simple out-patient procedure. Once implanted, CHRONOGESIC is designed to deliver sufentanil for period of up to three months from a single application. If approved for marketing and sale, CHRONOGESIC will provide an alternative to current therapies for the treatment of chronic pain such as pills and patches, as well as providing the potential advantages of physician controlled dosing, improved patient compliance and convenience, and reduced potential for opioid abuse. We intend to develop a family of dosage strengths, tailored to meet market needs. CHRONOGESIC is being developed for the U.S. and Canadian markets in collaboration with Endo Pharmaceutics, to which we have granted exclusive commercialization rights pursuant to a development, commercialization and supply license agreement entered into effective November 2002. We will receive from Endo milestone payments if specified development milestones are achieved, and, if commercialized, we will receive royalties based on sales of CHRONOGESIC in the U.S. and Canada.

Clinical Program

We have completed an initial Phase I clinical trial, a Phase II clinical trial, a pilot Phase III clinical trial and a pharmacokinetic trial for CHRONOGESIC. In September 2001, DURECT presented data from a Phase II trial that enrolled 66 patients experiencing chronic pain due to failed back surgery, cancer and other malignant and non-malignant causes. Patients were transitioned from their pre-study opioid medication to a six-week period of CHRONOGESIC therapy. In a post-study survey, 60% of patients indicated a preference for CHRONOGESIC over their pre-study medication and 35% of patients preferred their previous medication (5% of patients indicated no preference). CHRONOGESIC also demonstrated improvements in select side effects when compared to pre-study medication. In an 18 patient pilot Phase III study, the results of which were presented in March 2002, patients were successfully converted from the Duragesic® product, a 3-day transdermal fentanyl patch, to CHRONOGESIC without observing clinically-relevant side effects or adverse events.

In August 2002, the FDA requested that we delay enrolling new patients in our Phase III clinical trial initiated in June 2002 until the clinical trial protocol is revised and approved by the FDA to provide for additional patient monitoring and data collection. These requested protocol changes were not in response to any observed patient safety or adverse event. We subsequently discontinued all patients from the clinical trial at our discretion in September 2002. Independently from the FDA’s request for protocol changes, in October 2002, we started to implement manufacturing process enhancements to the CHRONOGESIC product to permit terminal sterilization of the product and system design enhancements to prevent a premature shutdown in the delivery of drug prior to the end of the intended three-month delivery period which was observed in a small fraction of units utilizing the previous system design. We are presently working to redesign the delivery system to address performance problems. We have stopped all clinical testing of CHRONOGESIC and will not resume clinical testing until the system design is completed.