DURECT Corporation Announces Third Quarter 2005 Financial Results

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CUPERTINO, Calif., Oct. 13 /PRNewswire-FirstCall/ — DURECT Corporation
(Nasdaq: DRRX) announced today financial results for the three months ended
September 30, 2005.

DURECT’s net loss for the three months ended September 30, 2005 was $3.0
million or 6 cents per share, compared to a net loss of $7.3 million or 14
cents per share for the same period in 2004. DURECT’s results for the three
months ended September 30, 2005 included non-cash charges of $363,000 for the
amortization of intangible assets and stock-based compensation, compared to
$311,000 for the same period in 2004. Cash used in operating activities was
$1.1 million for the three months ended September 30, 2005, compared to $4.4
million for the same period in 2004.

“We had a productive third quarter and executed on our corporate
objectives. For our ORADUR(TM) sustained release oral gel-cap technology,
which is the basis for the Remoxy(TM) product candidate under development by
Pain Therapeutics, we announced that Pain Therapeutics has achieved positive
results in an initial Phase III study. The data from the first Phase III
clinical study for Remoxy reinforces our belief that our ORADUR technology is
maturing and has demonstrated a variety of benefits, including the potential
to reduce abuse when compared to current commercial long-acting dosage forms,
as well as sustained release capabilities. We also completed dosing of the
third and final cohort for our Phase II trial for our SABER-Bupivacaine
product candidate in Australia, which we believe has the potential to be a
significant advancement over the current commercial treatments for post-
surgical pain. We look forward to announcing the data from this third cohort
during an upcoming medical conference later this month,” stated James E.
Brown, DVM, President and CEO of DURECT.

Dr. Brown added, “We continue to make significant progress on our other
development programs, including our DURIN(TM)-based leuprolide program (the
Memryte(TM) implant) under development with Voyager Pharmaceuticals for the
treatment of Alzheimer’s disease. Voyager has completed an end of Phase II
meeting with the FDA and is currently recruiting patients for pivotal Phase
III clinical studies using Memryte as an adjunctive therapy with acetyl
cholinesterase inhibitors (ACIs) for the treatment of mild to moderate
Alzheimer’s disease.”

Total revenues were $8.6 million for the three months ended September 30,
2005, compared with $3.4 million for the same period in 2004. Total
collaborative research and development and other revenues were $5.4 million
for the three months ended September 30, 2005, compared with $1.6 million for
the same period in 2004. The increase in total revenues was primarily
attributable to higher collaborative research and development revenue
recognized from our agreements with Endo Pharmaceuticals, Inc. (TRANSDUR-
sufentanil), Voyager Pharmaceutical Corporation (Memryte), and Pain
Therapeutics, Inc. (Remoxy) and revenue of $1.6 million recognized in
connection with our assignment of certain intellectual property rights.

Research and development expenses were $7.0 million for the three months
ended September 30, 2005, compared with $6.6 million for the same period in
2004. The increase in the three months ended September 30, 2005 was primarily
attributable to the higher development expenses for SABER-Bupivacaine, DURIN-
Leuprolide and certain other product candidates, partially offset by lower
development expenses for CHRONOGESIC.

Selling, general and administrative expenses were $2.7 million for the
three months ended September 30, 2005, compared with $2.3 million for the same
period in 2004. The increase in the three months ended September 30, 2005 was
primarily due to higher external costs to support the operation of our
business and to comply with the Sarbanes-Oxley Act.

Net other expense was $1.0 million for the three months ended
September 30, 2005, compared with $796,000 for the same period in 2004. The
increase in net other expense in the three months ended September 30, 2005 was
primarily due to approximately $403,000 of non-cash debt conversion expense in
connection with the early conversion of a portion of our outstanding 6.25%
Convertible Subordinated Notes due 2008.

During the third quarter of 2005, we exchanged and cancelled approximately
$2.7 million in principal amount of our 6.25% Convertible Subordinated Notes
through conversions into our common stock. As of September 30, 2005, the
remaining principal balance of our 6.25% Convertible Subordinated Notes due
2008 was $57.3 million.

At September 30, 2005, DURECT had cash and investments of $59.2 million,
including $2.1 million in restricted investments, compared with cash and
investments of $61.8 million at December 31, 2004. We anticipate that our
December 31, 2005 cash and investments balance to be in the range of $48.0
million to $50.0 million.

About DURECT Corporation

DURECT Corporation is an emerging specialty pharmaceutical company focused
on the development of pharmaceutical systems based on its proprietary drug
delivery platform technologies that treat chronic or episodic diseases and
enable biotechnology products. These platform technologies include the
SABER(TM) Delivery System (a patented and versatile depot injectable useful
for protein and small molecule delivery), the ORADUR(TM) sustained release
oral gel-cap technology (an oral sustained release technology with several
potential abuse deterrent properties), the DURIN(TM) Biodegradable Implant
(drug-loaded implant system), the TRANSDUR(TM) transdermal technology and the
MICRODUR(TM) Biodegradable Microparticulates (microspheres injectable system).
DURECT also collaborates with pharmaceutical companies to develop and
commercialize proprietary and enhanced pharmaceutical products based on its
technologies. DURECT has five disclosed on-going development programs of which
four are in collaboration with pharmaceutical partners. Additional information
about DURECT is available at www.www.durect.com.

MICRODUR(TM) are trademarks of DURECT Corporation. Other referenced trademarks
belong to their respective owners.

DURECT Forward-Looking Statement

The statements in this press release regarding DURECT’s projected
financial results and DURECT’s and its collaborative partners’ products in
development, anticipated product benefits, and clinical trial results and
plans 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 (and that of its third-party collaborators’, where
applicable) abilities to successfully enroll and complete clinical trials,
complete the design, development, and manufacturing process development of the
product candidate, obtain product and manufacturing approvals from regulatory
agencies and manufacture and commercialize the product candidate, as well as
marketplace acceptance of the product candidate. Further information regarding
these and other risks is included in DURECT’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2005 filed with the SEC on October 13,
2005 under the heading “Factors that may affect future results.”

                              DURECT CORPORATION
                   (in thousands, except per share amounts)

                             Three months ended        Nine months ended
                                September 30,             September 30,
                               2005        2004         2005        2004
                           (unaudited) (unaudited)  (unaudited)  (unaudited)
    Product revenue, net      $1,653      $1,776       $5,299       $4,901
    Revenue from sale of
     intellectual property
     rights                    1,600          --        1,600           --
    Collaborative research
     and development and
     other revenue             5,369       1,589       15,896        4,929

            Total revenues     8,622       3,365       22,795        9,830

    Operating expenses:
        Cost of revenues         573         685        1,933        2,117
        Research and
         development           6,964       6,571       21,195       18,020
        Selling, general
         and administrative    2,699       2,262        8,015        6,825
        Amortization of
         intangible assets       303         303          909          946
         compensation(1)          60           8          453          178

            Total operating
             expenses         10,599       9,829       32,505       28,086

    Loss from operations      (1,977)     (6,464)      (9,710)     (18,256)
    Other income (expense):
        Interest and other
         income                  467         326        1,359          919
        Interest expense      (1,095)     (1,122)      (3,329)      (3,346)
        Debt conversion
         expense                (403)         --         (403)          --

    Net other income
     (expense)                (1,031)       (796)      (2,373)      (2,427)
    Loss before income
     taxes                    (3,008)     (7,260)     (12,083)     (20,683)
    Income tax provision           4          --            4           --

    Net loss                 $(3,012)    $(7,260)    $(12,087)    $(20,683)
    Net loss per share,
     basic and diluted        $(0.06)     $(0.14)      $(0.23)      $(0.40)
    Shares used in
     computing basic and
     diluted net loss per
     share                    52,786      51,670       52,240       51,397

    (1) Stock-based
     compensation related
     to the following:
    Cost of revenues             $--         $--         $ --           $1
    Research and
     development                  60           3          106          156
    Selling, general
     and administrative           --           5          347           21

                                 $60          $8         $453         $178

                                DURECT CORPORATION
                                  (in thousands)

                                                  September 30,   December 31,
                                                       2005         2004 (1)

    Current assets:
      Cash and cash equivalents, short term
       investments and restricted investments        $50,044        $41,797
      Accounts receivable                              5,770          2,481
      Inventories                                      2,124          1,929
      Prepaid expenses and other current assets        1,852          1,364
    Total current assets                              59,790         47,571

    Property and equipment, net                        7,263          7,112
    Goodwill                                           6,399          6,399
    Intangible assets, net                               835          1,745
    Long-term investments and restricted
     investments                                       9,196         20,016
    Other non-current assets                           2,061          2,625
    Total assets                                     $85,544        $85,468

    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable, accrued liabilities
       and deferred revenue                           $9,457         $5,006
      Long-term obligations, current portion             294            483
    Total current liabilities                          9,751          5,489

    Long-term obligations, noncurrent portion         64,912         61,589

    Stockholders' equity                              10,881         18,390

    Total liabilities and stockholders' equity       $85,544        $85,468

    (1) Derived from audited financial statements.



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

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