DURECT Corporation Announces Fourth Quarter and Year End 2006 Financial Results

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CUPERTINO, Calif., Feb. 8 /PRNewswire-FirstCall/ — DURECT Corporation
(Nasdaq: DRRX) announced today financial results for the three months and year
ended December 31, 2006. Total revenues were $5.4 million for the three months
ended December 31, 2006, compared to $5.8 million for the same period in 2005.
Net loss for the three months ended December 31, 2006 was $9.6 million,
compared to a net loss of $6.0 million for the same period in 2005. As a
result of the upfront license fee of $14 million received from our
collaboration with Nycomed related to POSIDUR(TM), cash provided by operating
activities was $7.0 million for the three months ended December 31, 2006,
compared to $5.6 million of cash used in operating activities for the same
period in 2005.

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For the fiscal year ended December 31, 2006, total revenues were $21.9
million, compared to $28.6 million for the same period in 2005. Net loss for
the year ended December 31, 2006 was $33.2 million, compared to a net loss of
$18.1 million for the same period in 2005. Cash used in operating activities
was $9.5 million for the year ended December 31, 2006, compared to $7.2
million of cash used in operating activities for the same period in 2005.

At December 31, 2006, DURECT had cash and investments of $81.6 million,
including $1.3 million in restricted investments, compared with cash and
investments of $74.3 million at September 30, 2006 and $91.0 million at
December 31, 2005.

“DURECT closed the year on a strong note and with considerable momentum,”
stated James E. Brown, D.V.M., President and CEO of DURECT. “DURECT currently
has 5 investigational drugs in Phase II or III, and an additional
investigational drug in Phase I. In the last three months, we signed a
landmark collaboration with Nycomed around POSIDUR, unveiled a new wholly-
owned Phase II program (TRANSDUR(TM)-Bupivacaine), and reported positive Phase
I results for our second ORADUR-opioid in development.”

Highlights for DURECT in Fiscal Year 2006 include:

  • POSIDUR Post-Operative Pain Relief Depot. Our POSIDUR program
    advanced on both a development and business front during 2006.

    • Development Progress. During 2006, our US IND was accepted,
      and we commenced multiple Phase II clinical trials in the U.S.
      and in other countries in a variety of soft-tissue and
      orthopedic surgeries for the purpose of selecting the optimal
      dosing and the surgical procedures for our pivotal Phase III

    • Business Progress. In November 2006, we signed a $202 million
      collaboration agreement with Nycomed, one of the top 25
      pharmaceutical companies in the world. Under the terms of the
      agreement, DURECT has licensed to Nycomed the exclusive
      commercialization rights to POSIDUR for the European Union
      (E.U.) and select other countries. Nycomed has paid DURECT an
      upfront license fee of $14 million, with future potential
      additional milestone payments of up to $188 million upon
      achievement of defined development, regulatory and sales
      milestones. The two parties will jointly direct and equally
      fund a development program for POSIDUR intended to secure
      regulatory approval in both the U.S. and the E.U. In addition,
      DURECT will manufacture and supply the product to Nycomed for
      commercial sale in the territory licensed to Nycomed. Nycomed
      will pay DURECT blended royalties on sales in the defined
      territory of 15-40% depending on annual sales, as well as a
      manufacturing markup. Nycomed has a strong surgical suite
      salesforce, along with excellent clinical and regulatory
      capabilities. DURECT has retained full commercial rights to
      POSIDUR in the U.S., Canada, Asia and other countries.
  • Remoxy(TM). Remoxy, an abuse-resistant long-acting form of
    oxycodone based on our ORADUR(TM) technology, completed a Special
    Protocol Assessment (SPA) with the United States Food and Drug
    Administration (FDA) and then commenced a pivotal Phase III trial in
    the first half of 2006 in accordance with that SPA. Remoxy is
    licensed to Pain Therapeutics, which has in turn sublicensed
    commercialization rights to King Pharmaceuticals.

  • TRANSDUR-Sufentanil. During 2006, our main activity under this
    program involved supply of product for on-going clinical and non-
    clinical studies conducted by Endo Pharmaceuticals. In addition, we
    were engaged in technology transfer to the commercial transdermal
    patch manufacturer (3M Company) contracted by Endo to produce
    additional Phase II supplies, Phase III supplies and then commercial

  • TRANSDUR-Bupivacaine. We announced that we had successfully
    completed Phase I clinical trials in December 2006 and announced the
    initiation of Phase II clinical studies in January 2007 for our
    TRANSDUR-Bupivacaine (DUR-843) drug candidate, a patch based on our
    proprietary TRANSDUR transdermal technology that is intended to
    provide continuous delivery of bupivacaine for up to three days from
    a single application, as compared to a wearing time limited to 12
    hours with currently available lidocaine patches. DURECT’s Phase II
    program for TRANSDUR-Bupivacaine has begun in the U.S. under an FDA-
    accepted Investigational New Drug (IND) application with a
    randomized, multi-center, double-blind, placebo controlled, two-way
    crossover trial in approximately 50 patients with Post-Herpetic
    Neuralgia (PHN or post-shingles pain). DURECT retains full
    commercial rights to this drug candidate.

  • Other ORADUR Products. During 2006, we worked with King and Pain
    Therapeutics on the development of a second ORADUR abuse-resistant
    opioid product. In August 2006, King and Pain Therapeutics
    announced the initiation of a Phase I clinical trial for a new
    ORADUR-based opioid investigational drug, and that the FDA had
    accepted the IND for this investigational drug. In November 2006,
    Pain Therapeutics announced positive results from that Phase I
    clinical trial.

Financial Guidance for 2007 and Major Potential Milestones Over the Next
12-18 Months

  • Financial Guidance. Our cash burn rate is heavily influenced by the
    timing and structure of new corporate collaborations. While we
    anticipate entering into new collaborations in 2007 and beyond,
    assuming no new collaborations and aggressive funding of our R&D
    programs, many of which are in clinical development, we anticipate
    cash burn in 2007 of approximately $32-36 million.

  • Business Development Activities. We have multiple programs that may
    potentially be partnered over the next 12-18 months. These include
    TRANSDUR-Bupivacaine, TRANSDUR-Sufentanil for Europe and for Asia,
    POSIDUR for Asia, as well as various internal programs which we have
    not described publicly in detail.

  • POSIDUR(TM) Post-Operative Pain Relief Depot. During the course of
    2007, we expect to provide data from our on-going Phase II trials.
    Pending the successful completion of our on-going Phase II trials
    and approval of regulatory authorities, we anticipate commencing our
    Phase III program in 2007.

  • Remoxy. Our partner, Pain Therapeutics, has stated that they
    believe that they remain on track to announce results of a Phase III
    trial with Remoxy in the first half of 2007, followed by an NDA
    filing for Remoxy three quarters after data release.

  • TRANSDUR-Sufentanil Patch. Based on public disclosures, Endo
    Pharmaceuticals has stated that it expects to conduct additional
    Phase II studies with the TRANSDUR-Sufentanil patch in the first
    half of 2007 with patches supplied from its contract manufacturer
    (3M Company).

  • TRANSDUR-Bupivacaine Patch. During the course of 2007, we
    anticipate announcing the results of our current Phase II clinical

  • Memryte(TM) Program. Our collaborator, Voyager Pharmaceutical, has
    informed DURECT that Voyager has truncated its Phase III clinical
    trial for Memryte for the treatment of Alzheimer’s Disease in order
    to get an early look at potential efficacy. Voyager anticipates
    that data from this truncated trial will be available in the first
    half of 2007.

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. The company is developing pharmaceutical
systems to deliver the right drug to the right place in the right amount at
the right time to treat chronic and episodic diseases and conditions. For more
information, please visit 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 products in
development, product development plans, anticipated regulatory, clinical and
development milestones and timing thereof, future clinical trial results,
anticipated future collaborative agreements, projected financial results and
DURECT’s emergence as a specialty pharmaceutical company 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 design, enroll,
conduct and complete clinical trials, complete the design, development, and
manufacturing process development of the product candidate, obtain product and
manufacturing approvals from regulatory agencies, enter into additional
collaborative agreements and manufacture and commercialize the product
candidate, as well as marketplace acceptance of the product candidate, manage
and obtain capital to fund its growth, operations and expenses. Further
information regarding these and other risks is included in DURECT’s Form 10-Q
on November 3, 2006 under the heading “Risk Factors.”

                              DURECT CORPORATION

                   (in thousands, except per share amounts)

                                    Three months ended       Year ended
                                       December 31,         December 31,
                                      2006       2005      2006      2005

    Collaborative research and
     development and other revenue   $3,522    $4,136    $13,786   $20,032
    Product revenue, net              1,919     1,640      8,108     6,939
    Revenue from sale of
     intellectual property rights         -         -          -     1,600
       Total revenues                 5,441     5,776     21,894    28,571

    Operating expenses:
       Cost of revenues (1)             981       882      3,246     2,815
       Research and development (1)  11,497     7,840     37,140    29,141
       Selling, general and
        administrative (1)            2,829     2,672     12,369    11,034
       Amortization of intangible
        assets                            8       300        424     1,209

    Total operating expenses         15,315    11,694     53,179    44,199

    Loss from operations            (9,874)   (5,918)   (31,285)  (15,628)

    Other income (expense):
       Interest and other income        991       911      3,832     2,270
       Interest expense               (717)   (1,034)    (3,436)   (4,363)
       Debt conversion expense            -         -    (2,287)     (403)
    Net other income (expense)          274     (123)    (1,891)   (2,496)

    Loss before income taxes        (9,600)   (6,041)   (33,176)  (18,124)
    Income tax provision                  -         -          -         4

    Net loss                       $(9,600)  $(6,041)  $(33,176) $(18,128)

    Net loss per common share,
     basic and diluted              $(0.14)   $(0.10)    $(0.50)   $(0.34)

    Shares used in computing basic
     and diluted net loss per share  68,980    58,201     65,961    53,719

    (1) Stock-based compensation
         related to the following:

    Cost of revenues                    $26        $-        $72        $-
    Research and development            699       131      2,784       237
    Selling, general and
     administrative                     372         7      1,384       354
                                     $1,097      $138     $4,240      $591

                                DURECT CORPORATION
                             CONDENSED BALANCE SHEETS
                                  (in thousands)

                                           December 31,        December 31,
                                               2006              2005 (1)
    Current assets:
     Cash and cash equivalents               $41,554             $65,542
     Short-term investments                   28,297              18,022
     Restricted investments                        -                 321
     Accounts receivable, net                  2,152               4,488
     Inventories                               2,052               2,047
     Prepaid expenses and other
      current assets                           1,744               3,659
    Total current assets                      75,799              94,079

    Property and equipment, net                7,451               7,304
    Goodwill                                   6,399               6,399
    Intangible assets, net                       111                 536
    Long-term investments                     10,472               5,459
    Restricted investments                     1,284               1,653
    Other long-term assets                       969               1,984

    Total assets                            $102,485            $117,414

    Current liabilities:
     Accounts payable                           $864              $1,835
     Accrued liabilities                       4,522               3,874
     Contract research liabilities             1,624               1,418
     Interest payable on convertible notes        97                 149
     Deferred revenue, current portion         5,348               2,367
     Equipment financing obligations
      and term loan, current portion              34                  34
     Bonds payable, current portion              210                 200
    Total current liabilities                 12,699               9,877

    Bonds payable, equipment financing
     obligations and term loan,
     noncurrent portion                          606                 702
    Convertible subordinated notes            37,337              57,337
    Deferred revenue, noncurrent portion      14,507               6,016
    Other long-term liabilities                  304                 130

    Stockholders' equity                      37,032              43,352

    Total liabilities and
     stockholders' equity                   $102,485            $117,414

    (1) Derived from audited financial statements.

CONTACT: Schond L. Greenway, Vice President, Investor Relations and
Strategic Planning of DURECT Corporation, +1-408-777-1417; or Jeremiah Hall,
Senior Vice President of Feinstein Kean Healthcare, +1-415-677-2700, or
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020717/DRRXLOGO
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Web site: http://www.www.durect.com

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