DURECT Corporation Announces Second Quarter 2004 Financial Results and Update on Its Development Programs

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CUPERTINO, Calif., July 21 /PRNewswire-FirstCall/ — DURECT Corporation
(Nasdaq: DRRX) announced today financial results for the three months ended
June 30, 2004 and an update on its development programs.

Our net loss for the three months ended June 30, 2004 was $7.4 million or
14 cents per share, compared to $5.1 million or 10 cents per share for the
same period in 2003. Our results for the three months ended June 30, 2004
included non-cash charges for the amortization of intangible assets and stock-
based compensation of $443,000, compared to $470,000 for the same period in
2003. Cash used in operating activities was $6.3 million for the three months
ended June 30, 2004, compared to $3.6 million for the same period in 2003.

“Over the last three years, we have developed several robust and patent-
protected platform technologies. Together with our collaborative partners
where applicable, we have steadily advanced a pipeline based on these
technologies including Remoxy(TM) (ORADUR(TM) oral oxycodone gel-cap), our
SABER(TM)-based post-operative pain depot, and a DURIN-based Alzheimer’s
disease treatment. These programs are either in the clinic or anticipated to
enter the clinic by the end of this year,” stated James E., Brown, DVM,
President and CEO of DURECT.

Dr. Brown added, “With regard to our CHRONOGESIC product, our plan had
been to resume clinical trials by the end of 2004. After a series of
promising results in vitro and in vivo with our most recent CHRONOGESIC system
design, we had initiated the process of clinical manufacturing.
Unfortunately, we have learned recently from an animal study that we have not
yet solved the pre-mature shutdown problem (stop in the delivery of drug
before the intended full duration of delivery). Therefore, based on this
information, we will not be resuming clinical trials with our CHRONOGESIC
product in 2004. We continue to work to address this issue in order to bring
this product to market. We have made significant investments into CHRONOGESIC
and our sufentanil infrastructure, and we plan to move forward with this

Dr. Brown continued, “DURECT has evolved as a company, with a breadth of
technologies and a pipeline that we believe provides diversification to
diminish development and commercial risk to build lasting shareholder value.”

    First Half 2004 Developments

    CHRONOGESIC(R) (sufentanil) Pain Therapy Product
    -- We expect a delay in the resumption of the CHRONOGESIC clinical program
       previously anticipated to begin during the second half of 2004.

    Post-Operative Pain Depot
    -- We are preparing for a Phase II clinical trial for our post-operative
       pain relief depot product, anticipated to begin by the end of the year.
       Our post-operative pain relief depot product is a sustained release
       injectible using the patented SABER(TM) delivery system and bupivicaine
       designed to provide 2-3 days of post-surgical pain relief.

    -- Our collaborative partner, Pain Therapeutics, Inc., recently announced
       positive Phase I pharmacokinetics and anti-abuse clinical results for
       Remoxy(TM), a novel long-acting oral formulation of oxycodone based on
       DURECT's ORADUR technology.
    -- Pain Therapeutics has announced their plans to initiate Phase III
       studies for Remoxy by year-end.

    Alzheimer's Disease Product
    -- Significant progress has been made with our on-going collaboration with
       Voyager Pharmaceutical Corporation to develop a treatment for
       Alzheimer's disease using our DURIN(TM) drug delivery platform, which
       is the subject of several pending patent applications on a worldwide
    -- During the first half of 2004, Voyager completed an interim analysis of
       a proof of concept clinical study that supported advancing the DURIN-
       based product further in development.
    -- Voyager plans to initiate Phase I clinical studies on the DURIN-based
       product by the end of the year.

    Tinnitus (Inner Ear Disorders) Treatment
    -- During the second quarter of 2004, we announced an exclusive license
       agreement for NeuroSystec Corporation to develop, market and sell
       products for the treatment of certain inner ear disorders including
       chronic tinnitus (ringing in the ears) based on our technologies. The
       first potential product is currently in pre-clinical development.  We
       will receive certain milestone payments related to the development and
       commercialization of products under this agreement, as well royalties
       based on product sales.

    Financial Results

Total revenues were $3.1 million for the three months ended June 30, 2004,
compared to $3.2 million for the same period in 2003. The slight decrease in
total revenues was primarily attributable to lower collaborative research and
development revenue recognized from our strategic partners, offset by higher
product sales from our product lines.

Research and development expenses were $6.0 million for the three months
ended June 30, 2004, compared to $5.3 million for the same period in 2003.
The increase in the three months ended June 30, 2004 was primarily
attributable to the higher development costs related to CHRONOGESIC, our SABER
post-operative pain depot product and other products under development.

Selling, general and administrative expenses were $2.3 million for the
three months ended June 30, 2004, compared to $2.2 million for the same period
in 2003. The increase was primarily attributable to higher expenses to comply
with the Sarbanes-Oxley Act.

Interest income was $289,000 for the three months ended June 30, 2004,
compared with $368,000 for the same period in 2003. The decrease in interest
income was primarily the result of lower yields in our cash and investments in
the three months ended June 30, 2004. Interest expense was $1.1 million for
the three months ended June 30, 2004 as compared to $179,000 for the same
period in 2003. The increase during the three months ended June 30, 2004 was
primarily the result of the interest expense on the $60.0 million convertible
notes we issued in June and July of 2003.

At June 30, 2004, we had cash and investments of $73.8 million, including
$2.8 million in restricted investments, compared with cash and investments of
$80.3 million at March 31, 2004.

We expect our net loss for the third quarter of 2004 will range from $7.0
million to $8.0 million or 14 to 16 cents per share. Our total cash burn for
the fiscal year 2004 is expected to be in the range of $25.0 million to $27.0
million, which includes interest payments of $3.8 million for the convertible
notes. We expect our net loss will range from $30.0 million to $32.0 million
or 58 to 62 cents per share for the fiscal year of 2004.

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.


CHRONOGESIC(R), SABER(TM), ORADUR(TM) and DURIN(TM) are trademarks of
DURECT Corporation. Remoxy(TM) is a trademark of Pain Therapeutics, Inc.

The statements in this press release regarding DURECT’s products in
development, product development plans, anticipated clinical trials 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, 2003 filed with the SEC on March 11, 2004, DURECT’s
Quarterly Report on Form 10-Q and other periodic reports filed with the SEC
under the heading “Factors that may affect future results.”

    CHRONOGESIC, our post operative pain product, Remoxy and other products
mentioned above are under development and have not been submitted or approved
for commercialization by the US Food and Drug Administration or other health

                              DURECT CORPORATION
                   (in thousands, except per share amounts)

                                         Three months ended   Six months ended
                                              June 30,            June 30,
                                          2004      2003      2004      2003

    Product revenue, net                 $1,760    $1,715    $3,125    $3,222
    Collaborative research and
     development and other revenue        1,320     1,485     3,340     2,559
      Total revenues                      3,080     3,200     6,465     5,781

    Operating expenses:
      Cost of revenues                      867       534     1,432     1,129
      Research and development            6,040     5,282    11,449    10,854
      Selling, general and administrative 2,339     2,219     4,563     4,462
      Amortization of intangible assets     308       335       643       670
      Stock-based compensation(1)           135       135       170       (19)
        Total operating expenses          9,689     8,505    18,257    17,096
    Loss from operations                 (6,609)   (5,305)  (11,792)  (11,315)
    Other income (expense):
      Interest income                       289       368       593       609
      Interest expense                   (1,113)     (179)   (2,224)     (303)
    Net other income (expense)             (824)      189    (1,631)      306
    Net loss                            $(7,433)  $(5,116) $(13,423) $(11,009)
    Net loss per common share, basic
     and diluted                         $(0.14)   $(0.10)   $(0.26)   $(0.22)
    Shares used in computing basic and
     diluted net loss per share          51,396    50,294    51,260    50,209

    (1) Stock-based compensation related
        to the following:
        Cost of revenues                    $(2)       $3        $1      $11
        Research and development            126       (23)      153     (259)
        Selling, general and
         administrative                      11       155        16      229
                                           $135      $135      $170     $(19)

                              DURECT CORPORATION
                                (in thousands)

                                                       June 30,   December 31,
                                                         2004       2003 (1)

    Current assets:
      Cash and cash equivalents                          $7,680      $21,203
      Short-term investments                             44,154       39,511
      Accounts receivable, net                            2,321        1,968
      Inventories                                         1,914        1,902
      Prepaid expenses and other current assets           1,340        1,480
    Total current assets                                 57,409       66,064

    Property and equipment, net                           8,250        9,316
    Goodwill                                              6,399        6,399
    Intangible assets, net                                2,351        2,994
    Long-term investments                                19,231       21,334
    Restricted investments                                2,782        3,119
    Other non-current assets                              2,929        3,181
    Total assets                                        $99,351     $112,407

    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable, accrued liabilities and
       deferred revenue                                  $4,568       $4,551
      Long-term obligations, current portion                463          463
    Total current liabilities                             5,031        5,014

    Long-term obligations, noncurrent portion            62,146       62,278

    Stockholders' equity                                 32,174       45,115

    Total liabilities and stockholders' equity          $99,351     $112,407

    (1) Derived from audited financial statements.


/CONTACT: Schond L. Greenway, Executive Director, Investor Relations and
Strategic Planning of DURECT Corporation, +1-408-777-1417/
/Web site: http://www.www.durect.com /

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