DURECT Corporation Announces Third Quarter 2003 Financial Results

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CUPERTINO, Calif., Nov. 6 /PRNewswire-FirstCall/ — DURECT Corporation
(Nasdaq: DRRX) announced today its financial results for the three months
ended September 30, 2003.

(Photo: http://www.newscom.com/cgi-bin/prnh/20020717/DRRXLOGO )

DURECT’s net loss for the three months ended September 30, 2003 was
$6.4 million or 13 cents per share, compared to $9.1 million or 19 cents per
share for the same period in 2002. DURECT’s results for the three months ended
September 30, 2003 included non-cash charges for the amortization of
intangible assets and stock-based compensation of $217,000, compared to
$688,000 for the same period in 2002. Cash used in operating activities was
$4.3 million for the three months ended September 30, 2003, compared to
$6.0 million for the same period in 2002.

“With respect to our CHRONOGESIC(R) product, we are currently exploring
additional mechanisms to prevent a premature shutdown of the system, and have
already generated feasibility data relating to these mechanisms,” stated Dr.
James E. Brown, President and CEO of DURECT. “While we were disappointed with
the delay in the restart of our clinical trials, we remain committed to
bringing this product to commercialization. We believe that the market for
CHRONOGESIC continues to grow and remains very attractive. Additionally, in
previous clinical trials, patients using the CHRONOGESIC product showed an
improvement in pain scores, exhibited reduced side effects and preferred
CHRONOGESIC over their existing chronic pain medication. We are confident that
our CHRONOGESIC therapy, once approved, will be a significant improvement over
currently available long-term pain therapies on the market today.”

Dr. Brown added, “We also continue to make significant progress in the
development of our other products. Today, we are pleased to announce that we
have completed the first study in humans of our post-operative pain relief
depot product. This pain relief product is based on our patented SABER(TM)
delivery technology and is intended to provide local analgesia following
surgery for up to three days, which coincides with the period of the greatest
need for post surgical pain control in most patients. We were very pleased
with the good biocompatibility we observed with the SABER depot in this study.
In addition, the results from the study showed that the extent of absorption
of the drug was 100% and the rate of absorption of drug from the depot was
continuous for three days as intended. These data are promising with respect
to the development of our pain depot product and further increased our
confidence in the capabilities of the SABER technology platform.

“Finally, we are also pleased to report on a significant milestone with
respect to our collaboration with Pain Therapeutics using our SABER gel-cap
technology to deliver certain opioid drugs. Pain Therapeutics recently
announced a development program for a novel long-acting formulation of
oxycodone that utilizes our SABER gel-caps, targeted to decrease the potential
for oxycodone abuse.”

Total revenues were $3.0 million for the three months ended September 30,
2003, compared to $1.8 million for the same period in 2002. The increase in
total revenues was primarily attributable to higher collaborative research and
development revenue recognized from DURECT’s agreements with various strategic
partners as the Company continued to make progress on the collaboration
projects and higher net product sales from DURECT’s product lines.

Research and development expenses were $5.4 million for the three months
ended September 30, 2003, compared to $7.6 million for the same period in
2002. The decrease in the three months ended September 30, 2003 was primarily
attributable to the lower development costs related to DURECT’s lead product
CHRONOGESIC, partially offset by a slight increase in research and development
expenses under the Company’s collaborative arrangements and for our
post-operative pain product. DURECT incurred higher research and development
costs related to our Phase III clinical trial for CHRONOGESIC in the same
period in 2002. The decrease in the research and development expenses in the
three months ended September 30, 2003 was also the result of lower personnel
expenses due to the reduction in force in the fourth quarter of 2002.

Selling, general and administrative expenses were $2.1 million in the
three months ended September 30, 2003, compared to $2.2 million for the same
period in 2002. The decrease was primarily attributable to continued cost
savings in the existing corporate infrastructure to support all areas of
DURECT’s business.

At September 30, 2003, DURECT had cash and investments of $92.0 million,
including $3.3 million in restricted investments, compared with cash and
investments of $86.7 million at June 30, 2003. This increase was primarily due
to the net proceeds of approximately $9.5 million received in July 2003 from
the sale of additional $10.0 million aggregate principal amount of convertible
notes, offset by cash used in operating activities in the three months ended
September 30, 2003. At September 30, 2003, DURECT had $60.0 million in
aggregate principal amount of Convertible Notes due 2008.

DURECT expects its net loss for the fourth quarter of 2003 will range from
$7.0 million to $7.5 million or 14 to 15 cents per share. DURECT’s estimates
include non-cash charges for the amortization of intangible assets and
stock-based compensation of approximately $350,000 to $400,000 for the fourth
quarter of 2003.

About DURECT Corporation

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 addition to its rights to the CHRONOGESIC
product, 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).

of DURECT Corporation.

The statements in this press release regarding DURECT’s products in
development, 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, manage relationships with third parties,
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, 2002 filed with the SEC on March 14, 2003 and other periodic
reports filed with the SEC under the heading “Factors that may affect future

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,
                              2003         2002          2003          2002
    Product revenue, net    $1,723        $1,515       $4,945        $4,805
    Collaborative research
     and development and
     other revenue           1,227           268        3,786           374
        Total revenues       2,950         1,783        8,731         5,179

    Operating expenses:

      Cost of revenues         711           706        1,840         2,224
      Research and
       development           5,366         7,571       16,220        23,744
      Selling, general
       and administrative    2,141         2,225        6,603         6,989
      Amortization of
       intangible assets       339           335        1,009         1,005
       compensation(A)        (122)          353         (141)        1,436
        Total operating
         expenses            8,435        11,190       25,531        35,398
    Loss from operations    (5,485)       (9,407)     (16,800)      (30,219)

    Other income (expense):
      Interest income          123           428          732         1,737
      Interest expense      (1,068)          (71)      (1,371)         (232)
    Net other income
     (expense)                (945)          357         (639)        1,505
    Net loss               $(6,430)      $(9,050)    $(17,439)     $(28,714)
    Net loss per share,
     basic and diluted      $(0.13)       $(0.19)      $(0.35)       $(0.60)
    Shares used in
     computing basic and
     diluted net loss
     per share              50,624        48,161       50,347        48,006

    (A)  Stock-based compensation related to the following:
    Cost of revenues            $3           $15          $14           $61
    Research and
     development                34           219         (225)          943
    Selling, general
     and administrative       (159)          119           70           432
                             $(122)         $353        $(141)       $1,436

                              DURECT CORPORATION
                                (in thousands)
                                                  September 30, December 31,
                                                      2003           2002 (A)

    Current assets:
      Cash, cash equivalents and
       short-term investments                        $65,348        $42,800
      Inventories and other current assets             4,477          4,241
    Total current assets                              69,825         47,041

    Property and equipment, net                        9,602         11,625
    Goodwill                                           6,399          4,716
    Intangible assets, net                             3,327          4,121
    Long-term investments and
     other non-current assets                         29,965          5,468

    Total assets                                    $119,118        $72,971

    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable and accrued liabilities        $5,788         $4,568
      Long-term obligations, current portion             453            617
    Total current liabilities                          6,241          5,185

    Long-term obligations, noncurrent portion         62,621          1,604

    Stockholders' equity                              50,256         66,182

    Total liabilities and stockholders' equity      $119,118        $72,971

    (A)  Derived from audited financial statements.


Schond L. Greenway
Senior Director, Investor Relations and
Strategic Planning of DURECT Corporation
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