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

CUPERTINO, Calif., Oct. 25 /PRNewswire-FirstCall/ — DURECT Corporation
(Nasdaq: DRRX) announced today financial results for the three months ended
September 30, 2004 and an update on its development programs.

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

Our net loss for the three months ended September 30, 2004 was
$7.3 million or 14 cents per share, compared to $6.4 million or 13 cents per
share for the same period in 2003. Our results for the three months ended
September 30, 2004 included non-cash charges for the amortization of
intangible assets and stock-based compensation of $311,000, compared to
$217,000 for the same period in 2003. Cash used in operating activities was
$4.4 million for the three months ended September 30, 2004, compared to
$4.3 million for the same period in 2003.

“We are pleased with the strong progress we have made this quarter. We
currently have four developmental programs, using four different proprietary
delivery platforms — transdermal (sufentanil patch), oral (ORADUR(TM)-based
oxycodone), injectible (SABER(TM)-based post-operative pain depot) and
implantable (DURIN(TM)-based Alzheimer’s Disease product) — that are either
in the clinic or anticipated to enter clinical development by the end of 2004.

These accomplishments are due to the experience, ingenuity and hard work
of our employees who are committed to the development of much-needed products
to treat patients suffering from chronic debilitating diseases,” said
James E. Brown, President and CEO of DURECT. “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. We will continue
to exploit the value that we have created from our technologies and execute
upon the tasks necessary to move these programs forward to build lasting value
for shareholders.”

    Third Quarter 2004 Developments

    Transdermal Sufentanil Pain Product

— We announced the initiation of a Phase I clinical trial for a new
proprietary transdermal sufentanil product. The trial consists of a
pharmacokinetic study in normal, healthy volunteers in Europe. The objectives
of the clinical study are to determine the safety and tolerability of DURECT’s
transdermal sufentanil patch as well as evaluate the pharmacokinetics of
sufentanil following transdermal administration.

— Our transdermal sufentanil product is intended to provide extended
chronic pain relief for up to seven days, as compared to the three days of
relief provided with currently available opiate patches. Further, we
anticipate that the small size of our sufentanil patch (less than 1/5th the
size of currently marketed |ransdermal fentanyl patches for a therapeutically
equivalent dose) may offer improved convenience for patients.

Post-Operative Pain Depot

— We initiated a Phase II clinical study for our post-operative pain
relief depot (SABER-bupivacaine). Our post-operative pain relief depot product
is a sustained release injectable designed to provide 2-3 days of
post-surgical pain relief and is based on our patented SABER delivery system.

— We anticipate that the trial will enroll approximately 65 patients,
with an option to enroll an additional 30 patients, for a possible total
enrollment of 95 patients in the trial.

— The Phase II trial will be a dose escalation study, conducted in three
parts. All parts of the trial will be conducted in Australia as an open label
study for the treatment of pain in patients following repair of inguinal
hernia. Patients will be administered with SABER-bupivacaine at the
completion of surgery, and the trial will evaluate the safety and efficacy of
the injection.

— The primary end points for the trial will include a pharmacokinetic
evaluation of plasma bupivacaine levels, time to first supplemental analgesic,
analysis of the sum of pain intensity and analysis of total pain relief. The
information on dose response collected in this study will be used in future
Phase III trials to demonstrate the safety and efficacy of the
SABER-bupivacaine product.


— Our development and commercialization partner, Pain Therapeutics, Inc.
has announced their plan to initiate Phase III studies for Remoxy(TM) by the
end of 2004.

— Pain Therapeutics further announced this quarter that it has received
FDA clearance to conduct clinical trials in the U.S. with this product.

— Remoxy is a novel long-acting oral formulation of oxycodone based on
DURECT’s ORADUR(TM) technology, a proprietary oral sustained release
technology with several potential abuse deterrent properties.

CHRONOGESIC(R) (sufentanil) Pain Therapy Product

— We continue to work on the system design of our CHRONOGESIC(R) product
in order to resume clinical trials for this product.

— CHRONOGESIC is an osmotic implant that delivers sufentanil for the
treatment of chronic pain.

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.

— Voyager is currently conducting two proof of concept clinical studies
utilizing the intended active agent.

— Voyager plans to initiate the Phase I clinical program on the
DURIN-based product using the same active agent by the end of 2004.

Financial Results

Total revenues were $3.4 million for the three months ended
September 30, 2004, compared to $3.0 million for the same period in 2003. The
increase in total revenues was primarily attributable to higher collaborative
research and development revenue recognized from our strategic partners and
higher product sales from our ALZET(R) and polymer product lines.

Research and development expenses were $6.6 million for the three months
ended September 30, 2004, compared to $5.4 million for the same period in
2003. The increase in the three months ended September 30, 2004 was primarily
attributable to the higher development costs related to our SABER
post-operative pain depot product, transdermal patch product, CHRONOGESIC and
other partnered products under development.

Selling, general and administrative expenses were $2.3 million for the
three months ended September 30, 2004, compared to $2.1 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 $326,000 for the three months ended
September 30, 2004, compared with $123,000 for the same period in 2003. The
increase in interest income was primarily the result of higher yields in our
cash and investments in the three months ended September 30, 2004. Interest
expense was $1.1 million for the three months ended September 30, 2004 and
2003, which was primarily the result of the interest expense on the
$60.0 million convertible notes we issued in June and July of 2003.

At September 30, 2004, we had cash and investments of $69.3 million,
including $2.8 million in restricted investments, compared with cash and
investments of $73.8 million at June 30, 2004.

We expect our net loss for the fourth 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 $23.0 million to
$25.0 million, which includes interest payments of $3.8 million for the
convertible notes.

About DURECT Corporation

DURECT Corporation is a pharmaceutical company focused on the development
of pharmaceutical systems based on its proprietary drug delivery platform
technologies that treat chronic debilitating 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)
and the MICRODUR(TM) Biodegradable Microparticulates (microspheres injectable
system). DURECT also partners 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
three are in collaboration with pharmaceutical partners. Additional
information about DURECT is available at www.www.durect.com.

are trademarks of DURECT Corporation. Other referenced trademarks belong to
their respective owners.

The statements in this press release regarding DURECT’s products in
development, product development plans, anticipated clinical trials, potential
product benefits and markets, 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 and transdermal products, 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 authorities.

                              DURECT CORPORATION

                   (in thousands, except per share amounts)

                                 Three months ended      Nine months ended
                                     September 30,         September 30,
                                     2004        2003        2004       2003
    Product revenue, net           $1,776      $1,723      $4,901     $4,945
    Collaborative research
     and development and
     other revenue                  1,589       1,227       4,929      3,786
         Total revenues             3,365       2,950       9,830      8,731
    Operating expenses:
     Cost of revenues                 685         711       2,117      1,840
     Research and development       6,571       5,366      18,020     16,220
     Selling, general and
      administrative                2,262       2,141       6,825      6,603
     Amortization of
      intangible assets               303         339         946      1,009
      compensation(1)                   8        (122)        178       (141)
         Total operating
          expenses                  9,829       8,435      28,086     25,531

    Loss from operations           (6,464)     (5,485)    (18,256)   (16,800)
    Other income (expense):
      Interest income                 326         123         919        732
      Interest expense             (1,122)     (1,068)     (3,346)    (1,371)
    Net other expense                (796)       (945)     (2,427)      (639)
    Net loss                      $(7,260)    $(6,430)   $(20,683)  $(17,439)
    Net loss per common
     share, basic and
     diluted                       $(0.14)     $(0.13)     $(0.40)    $(0.35)
    Shares used in
     computing basic and
     diluted net loss per share    51,670      50,624      51,397     50,347

    (1) Stock-based
    related to the

    Cost of revenues                   $--          $3          $1       $14
    Research and
     development                         3          34         156      (225)
    Selling, general and
     administrative                      5        (159)         21        70
                                        $8       $(122)       $178     $(141)

                                DURECT CORPORATION
                                  (in thousands)
                                                  September 30,  December 31,
                                                      2004          2003 (1)

    Current assets:
     Cash and cash equivalents                        $18,245        $21,203
     Short-term investments                            31,043         39,511
     Accounts receivable, net                           2,512          1,968
     Inventories                                        1,841          1,902
     Prepaid expenses and other
      current assets                                    1,280          1,480
    Total current assets                               54,921         66,064

    Property and equipment, net                         7,189          9,316
    Goodwill                                            6,399          6,399
    Intangible assets, net                              2,048          2,994
    Long-term investments                              17,268         21,334
    Restricted investments                              2,788          3,119
    Other non-current assets                            2,779          3,181
    Total assets                                      $93,392       $112,407

    Liabilities and stockholders' equity
    Current liabilities:
       Accounts payable, accrued
        liabilities and deferred revenue               $5,741         $4,551
       Long-term obligations, current
        portion                                           473            463
    Total current liabilities                           6,214          5,014

    Long-term obligations, noncurrent portion          61,858         62,278

    Stockholders' equity                               25,320         45,115

    Total liabilities and stockholders' equity        $93,392       $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/
/Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020717/DRRXLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com/
/Web site: http://www.www.durect.com/

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