DURECT Corporation Reports Third Quarter 2002 Financial Results

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CUPERTINO, Calif., Nov. 12 /PRNewswire-FirstCall/ —
DURECT Corporation (Nasdaq: DRRX) announced today financial results for the
three months ended September 30, 2002.

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DURECT’s net loss for the three months ended September 30, 2002 was
$9.1 million or 19 cents per share, compared to $8.9 million or 19 cents per
share for the same period in 2001. DURECT’s results for the three months
ended September 30, 2002 included non-cash charges for the amortization of
intangible assets and stock-based compensation of $688,000, compared to
$1.3 million for the same period in 2001.

“Yesterday we achieved a major milestone at DURECT with the agreement with
Endo Pharmaceuticals to collaborate on the development and commercialization
of our CHRONOGESIC(TM) product for the U.S. and Canada,” stated
Dr. James Brown, President and Chief Executive Officer of DURECT. “We
selected Endo as our partner because of their strong commitment to be a
focused leader in the pain field. They have built a team of sales and
marketing executives with established track records for successfully launching
new pharmaceutical products. We have developed a great relationship between
the two organizations and are confident that together with Endo we will add
substantial value for patients and shareholders of both our companies.”

“Today we also announced that we amended our development and
commercialization agreement with ALZA Corporation under which DURECT holds
exclusive rights to develop, commercialize and manufacture products using
ALZA’s patented DUROS(R) technology in selected fields of use,” stated
Dr. Felix Theeuwes, Chairman and Chief Scientific Officer of DURECT. “Under
the amended agreement, DURECT’s maintenance of exclusivity in our licensed
fields is no longer subject to minimum annual requirements for development
spending or the number of products we have under development. These changes
to the agreement align more closely the interests of DURECT and ALZA and
further strengthen the collaboration between the two companies. We are
focused on making progress on all of our development programs. We continue to
look for opportunities to collaborate with other biotech and pharmaceutical
companies to develop and commercialize innovative pharmaceutical system
products utilizing our platform drug delivery technologies in the areas of
chronic diseases.”

Research and development expenses were $7.6 million in the three months
ended September 30, 2002, compared to $7.2 million for the same period in
2001. The increase was primarily attributable to expanded research and
development activities, especially related to initiation of the company’s
pivotal Phase III clinical trial for its lead product, CHRONOGESIC in
June 2002. The clinical trials are temporarily on hold pending agreement
between DURECT and the Food and Drug Administration (FDA) regarding additional
monitoring and data collection. These protocol changes requested by the FDA
were not in relation to any observed safety issue or adverse event.
Independent from the adjustments to the protocol, DURECT is implementing some
necessary design and manufacturing enhancements to the CHRONOGESIC product.
DURECT anticipates that the changes to the existing clinical protocol, and the
implementation of these design and manufacturing enhancements, will delay the
restart of clinical trials until the second half of 2003. The increase in
research and development expenses was also attributable to continued research
and development of other pharmaceutical systems based on SABER and DURIN

Selling, general and administrative expenses were $2.2 million in the
three months ended September 30, 2002, compared to $2.3 million for the same
period in 2001. The slight decrease was primarily due to cost efficiency
achieved in existing corporate infrastructure.

At September 30, 2002, DURECT had cash, cash equivalents and investments
of $52.0 million, including $2.9 million in restricted investments.

DURECT expects its net loss for the fourth quarter of 2002 to be in the
range of $9.0 million to $9.5 million or 19 to 20 cents per share. DURECT’s
estimates include non-cash charges for the amortization of intangible assets
and stock-based compensation of approximately $600,000 for the fourth quarter
of 2002.

DURECT expects its net loss will range from $27.0 million to $29.0 million
or 54 to 58 cents per share for the fiscal year of 2003. DURECT’s estimates
include non-cash charges for the amortization of intangible assets,
stock-based compensation and depreciation of approximately $4.0 million for
the year of 2003. Total cash burn for 2003 is expected to be in the range of
$23.0 million to $25.0 million.

DURECT Corporation (www.www.durect.com) is pioneering the development and
commercialization of pharmaceutical systems for the treatment of chronic
debilitating diseases and enabling biotechnology-based pharmaceutical
products. DURECT’s goal is to deliver the right drug to the right site in the
right amount at the right time. In November 2001, DURECT completed a pilot
phase III program for the CHRONOGESIC(TM) (sufentanil) Pain Therapy System, a
3-month product for the treatment of chronic pain. DURECT owns three
proprietary drug delivery platform technologies, including the SABER(TM)
Delivery System (a patented and versatile depot injectable useful for protein
delivery), the MICRODUR(TM) Biodegradable Microparticulates (microspheres
injectable system) and the DURIN(TM) Biodegradable Implant (drug-loaded
implant system).

CHRONOGESIC(TM) is a trademark of DURECT Corporation. SABER(TM),
MICRODUR(TM) and DURIN(TM) are trademarks of Southern BioSystems, Inc., a
wholly owned subsidiary of DURECT Corporation. Other trademarks referred to
belong to their respective owners.

The statements in this press release regarding DURECT’s products in
development and product development plans and projected financial results, are
forward-looking statements involving risks and uncertainties that can cause
actual results to differ materially from those in such forward-looking
statements. Potential risks and uncertainties include, but are not limited
to, DURECT’s ability to complete the design, development, and manufacturing
process development of its products, manufacture and commercialize its
products, obtain product and manufacturing approvals from regulatory agencies,
manage its growth and expenses, finance its activities and operations, as well
as marketplace acceptance of DURECT’s products. Further information regarding
these and other risks is included in DURECT’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 filed with the SEC on March 28, 2002,
and other periodic reports filed with the SEC under the heading “Factors that
may affect future results.”

CHRONOGESIC is under development by DURECT and has not been submitted or
approved for commercialization by the US Food and Drug Administration or other
health authorities.

                              DURECT CORPORATION
                   (in thousands, except per share amounts)

                            Three months ended          Nine months ended
                               September 30,                September 30,
                              2002          2001         2002          2001
                        (unaudited)    (unaudited)  (unaudited)  (unaudited)

    Revenue, net            $1,783        $1,841       $5,179        $4,928

    Cost of goods
     sold (1)                  721           963        2,285         2,548

    Gross profit             1,062           878        2,894         2,380

    Operating expenses:
      Research and
       development           7,571         7,206       23,744        16,680
      Selling, general
       and administrative    2,225         2,305        6,989         6,339
      Amortization of
       intangible assets       335           555        1,005         1,290
       compensation (1)        338           750        1,375         2,605
      Acquired in-process
       research and
       development              --            --           --        14,030

    Total operating
     expenses               10,469        10,816       33,113        40,944

    Loss from operations   (9,407)       (9,938)     (30,219)      (38,564)

    Other income (expense):
      Interest income          428         1,096        1,737         3,960
      Interest expense        (71)          (92)        (232)         (238)
      Net other income         357         1,004        1,505         3,722

    Net loss              $(9,050)      $(8,934)    $(28,714)     $(34,842)

    Net loss per share,
     basic and diluted     $(0.19)       $(0.19)      $(0.60)       $(0.76)

    Shares used in
     computing basic
     and diluted net
     loss per share         48,161        46,906       48,006        46,120

    (1) Stock-based
     related to the

    Cost of goods sold         $15           $31          $61          $118
    Research and
     development               219           503          943         1,798
    Selling, general and
     administrative            119           247          432           807
    Total stock-based
     compensation             $353          $781       $1,436        $2,723

                              DURECT CORPORATION
                                (in thousands)

                                                   Sept. 30,       Dec. 31,
                                                      2002         2001 (1)

    Current assets:
      Cash, cash equivalents and short-term
       investments                                   $45,511        $55,204
      Inventories and other current assets             3,914          5,007
    Total current assets                              49,425         60,211

    Property and equipment, net                       12,242         13,136
    Goodwill                                           4,716          4,716
    Intangible assets, net                             4,456          5,462
    Long-term investments and other
     non-current assets                                6,514         21,418

    Total assets                                     $77,353       $104,943

    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued liabilities        $5,116         $5,065
      Long-term obligations, current portion             643            683
    Total current liabilities                          5,759          5,748

    Long-term obligations, noncurrent portion          1,848          2,147

    Stockholders' equity                              69,746         97,048

    Total liabilities and stockholders' equity       $77,353       $104,943

(1) Derived from audited financial statements.

DURECT Corporation

Schond L. Greenway, Senior Director, Investor Relations and
Strategic Planning of DURECT Corporation, +1-408-777-1417, or

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