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EX-32.2 - EX-32.2 - DURECT CORPdrrx-ex322_8.htm
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EX-31.2 - EX-31.2 - DURECT CORPdrrx-ex312_6.htm
EX-31.1 - EX-31.1 - DURECT CORPdrrx-ex311_7.htm
EX-10.2 - EX-10.2 - DURECT CORPdrrx-ex102_388.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-31615

 

DURECT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-3297098

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

10260 Bubb Road

Cupertino, California 95014

(Address of principal executive offices, including zip code)

(408) 777-1417

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

Emerging growth company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 4, 2017, there were 146,998,596 shares of the registrant’s Common Stock outstanding.

 

 

 

 

 


INDEX

 

 

 

Page

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Condensed Balance Sheets as of June 30, 2017 and December 31, 2016

3

 

 

 

 

Condensed Statements of Comprehensive Loss for the three and six months ended June 30, 2017 and 2016

4

 

 

 

 

Condensed Statements of Cash Flows for the six months ended June 30, 2017 and 2016

5

 

 

 

 

Notes to Condensed Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 3.

Defaults Upon Senior Securities

51

 

 

 

Item 4.

Mine Safety Disclosures

51

 

 

 

Item 5.

Other Information

51

 

 

 

Item 6.

Exhibits

51

 

 

 

Signatures

52

 

 

2


PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

DURECT CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

 

 

 

June 30,

2017

 

 

December 31,

2016

 

 

 

(unaudited)

 

 

(Note 1)

 

A S S E T S

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,405

 

 

$

5,404

 

Short-term investments

 

 

3,055

 

 

 

19,600

 

Accounts receivable (net of allowances of $75 at June 30, 2017 and $73 at

   December 31, 2016)

 

 

1,385

 

 

 

1,154

 

Inventories

 

 

3,714

 

 

 

3,782

 

Prepaid expenses and other current assets

 

 

3,454

 

 

 

2,486

 

Total current assets

 

 

42,013

 

 

 

32,426

 

Property and equipment (net of accumulated depreciation of $21,600 and $21,376 at

   June 30, 2017 and December 31, 2016, respectively)

 

 

1,089

 

 

 

1,297

 

Goodwill

 

 

6,399

 

 

 

6,399

 

Long-term restricted investments

 

 

150

 

 

 

150

 

Other long-term assets

 

 

282

 

 

 

236

 

Total assets

 

$

49,933

 

 

$

40,508

 

L I A B I L I T I E S  A N D  S T O C K H O L D E R S’  E Q U I T Y (D E F I C I T)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,783

 

 

$

2,086

 

Accrued liabilities

 

 

4,103

 

 

 

5,060

 

Contract research liabilities

 

 

2,131

 

 

 

783

 

Deferred revenue, current portion

 

 

16,207

 

 

 

968

 

Term loan, current portion, net

 

 

3,273

 

 

 

19,853

 

Total current liabilities

 

 

27,497

 

 

 

28,750

 

Deferred revenue, non-current portion

 

 

5,617

 

 

 

1,879

 

Term loan, non-current portion, net

 

 

16,611

 

 

 

 

Other long-term liabilities

 

 

2,046

 

 

 

1,541

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

456,269

 

 

 

448,404

 

Accumulated other comprehensive income (loss)

 

 

(3

)

 

 

(3

)

Accumulated deficit

 

 

(458,118

)

 

 

(440,077

)

Stockholders’ equity (deficit)

 

 

(1,838

)

 

 

8,338

 

Total liabilities and stockholders’ equity (deficit)

 

$

49,933

 

 

$

40,508

 

 

The accompanying notes are an integral part of these financial statements.

3


DURECT CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Collaborative research and development and other revenue (see Note 2)

 

$

1,268

 

 

$

371

 

 

$

1,702

 

 

$

790

 

Product revenue, net

 

 

3,051

 

 

 

2,786

 

 

 

7,184

 

 

 

5,975

 

Total revenues

 

 

4,319

 

 

 

3,157

 

 

 

8,886

 

 

 

6,765

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

924

 

 

 

913

 

 

 

2,467

 

 

 

2,155

 

Research and development

 

 

9,079

 

 

 

7,852

 

 

 

16,627

 

 

 

14,477

 

Selling, general and administrative

 

 

3,681

 

 

 

2,888

 

 

 

6,724

 

 

 

5,950

 

Total operating expenses

 

 

13,684

 

 

 

11,653

 

 

 

25,818

 

 

 

22,582

 

Loss from operations

 

 

(9,365

)

 

 

(8,496

)

 

 

(16,932

)

 

 

(15,817

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

39

 

 

 

40

 

 

 

75

 

 

 

67

 

Interest expense

 

 

(601

)

 

 

(558

)

 

 

(1,184

)

 

 

(1,116

)

Net other income (expense)

 

 

(562

)

 

 

(518

)

 

 

(1,109

)

 

 

(1,049

)

Net loss

 

$

(9,927

)

 

$

(9,014

)

 

$

(18,041

)

 

$

(16,866

)

Net change in unrealized gain (loss) on available-for-sale securities, net of reclassification

   adjustments and taxes

 

 

2

 

 

 

7

 

 

 

 

 

 

24

 

Total comprehensive loss

 

$

(9,925

)

 

$

(9,007

)

 

$

(18,041

)

 

$

(16,842

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.07

)

 

$

(0.07

)

 

$

(0.13

)

 

$

(0.13

)

Diluted

 

$

(0.07

)

 

$

(0.07

)

 

$

(0.13

)

 

$

(0.13

)

Weighted-average shares used in computing net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

142,532

 

 

 

132,812

 

 

 

142,176

 

 

 

127,480

 

Diluted

 

 

142,532

 

 

 

132,812

 

 

 

142,176

 

 

 

127,480

 

 

The accompanying notes are an integral part of these financial statements.

4


DURECT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(18,041

)

 

$

(16,866

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

224

 

 

 

206

 

Stock-based compensation

 

 

1,228

 

 

 

1,407

 

Amortization of debt issuance cost

 

 

31

 

 

 

68

 

Net accretion/amortization on investments

 

 

(65

)

 

 

(107

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(231

)

 

 

367

 

Inventories

 

 

68

 

 

 

(241

)

Prepaid expenses and other assets

 

 

(1,013

)

 

 

540

 

Accounts payable

 

 

(303

)

 

 

31

 

Accrued and other liabilities

 

 

1,154

 

 

 

257

 

Contract research liabilities

 

 

1,348

 

 

 

(6

)

Deferred revenue

 

 

18,977

 

 

 

245

 

Total adjustments

 

 

21,418

 

 

 

2,767

 

Net cash provided by (used in) operating activities

 

 

3,377

 

 

 

(14,099

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(17

)

 

 

(22

)

Purchases of available-for-sale securities

 

 

 

 

 

(18,646

)

Proceeds from maturities of available-for-sale securities

 

 

16,610

 

 

 

18,661

 

Net cash provided by (used in) investing activities

 

 

16,593

 

 

 

(7

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payments on equipment financing obligations

 

 

(6

)

 

 

(12

)

Net proceeds from issuances of common stock

 

 

5,037

 

 

 

18,571

 

Net cash provided by financing activities

 

 

5,031

 

 

 

18,559

 

Net increase in cash and cash equivalents

 

 

25,001

 

 

 

4,453

 

Cash and cash equivalents, beginning of the period

 

 

5,404

 

 

 

3,583

 

Cash and cash equivalents, end of the period

 

$

30,405

 

 

$

8,036

 

Supplementary disclosure of non-cash financing information

 

 

 

 

 

 

 

 

Fully vested options issued to settle accrued liabilities

 

$

1,600

 

 

$

1,143

 

 

The accompanying notes are an integral part of these financial statements.

5


DURECT CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Nature of Operations

DURECT Corporation (the Company) was incorporated in the state of Delaware on February 6, 1998.  The Company is a biopharmaceutical company with research and development programs broadly falling into two categories: (i) new chemical entities derived from our Epigenetics Regulator Program, in which we attempt to discover and develop molecules which have not previously been approved and marketed as therapeutics, and (ii) Drug Delivery Programs, in which we apply our formulation expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have previously been established but which we aim to improve in some manner through a new formulation. The Company has several products under development by itself and with third party collaborators. The Company also manufactures and sells osmotic pumps used in laboratory research, and designs, develops and manufactures a wide range of standard and custom biodegradable polymers and excipients for pharmaceutical and medical device clients for use as raw materials in their products. In addition, the Company conducts research and development of pharmaceutical products in collaboration with third party pharmaceutical and biotechnology companies.

Basis of Presentation

The accompanying unaudited financial statements include the accounts of the Company. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and therefore do not include all the information and footnotes necessary for a complete presentation of the Company’s results of operations, financial position and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). The unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position at June 30, 2017, the operating results and comprehensive loss for the three and six months ended June 30, 2017 and 2016, and cash flows for the six months ended June 30, 2017 and 2016. The balance sheet as of December 31, 2016 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC.

The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Liquidity and Need to Raise Additional Capital

As of June 30, 2017, the Company had an accumulated deficit of $458.1 million as well as negative cash flows from operating activities. The Company will continue to require substantial funds to continue research and development, including clinical trials of its product candidates.  Management’s plans in order to meet its operating cash flow requirements include seeking additional collaborative agreements for certain of its programs and achieving milestone and other payments under its collaboration and licensing agreements as well as financing activities such as public offerings and private placements of its common stock, preferred stock offerings, issuances of debt and convertible debt instruments.

There are no assurances that such additional funding will be obtained and that the Company will succeed in its future operations. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventories, in part, include certain excipients that are sold to a customer for a currently marketed animal health product and included in several products in development or awaiting regulatory approval. These inventories are capitalized based on management’s judgment of probable sale prior to their expiration dates. The valuation of inventory requires management to estimate the value of inventory that may become expired prior to use. The Company may be required to expense previously capitalized inventory costs upon a change in management’s judgment due to, among other potential factors, a denial or delay of approval of a customer’s product by the necessary regulatory bodies, or new information that suggests that the inventory will not be saleable. In addition, these circumstances may cause the Company to record a liability related to minimum purchase agreements that the Company has in place for raw materials. As of June 30, 2017, the remaining carrying value of the excipients in the Company’s inventory was $626,000. In addition, the Company has remaining unrecorded future purchase commitments totaling $1.0 million through 2018. In the event that management determines that

6


the Company will not utilize all of these materials, there could be a potential write-off related to this inventory and a reserve for future purchase commitments.

The Company’s inventories consisted of the following (in thousands):

 

 

 

June 30,

2017

 

 

December 31,

2016

 

 

 

(unaudited)

 

 

 

 

 

Raw materials

 

$

687

 

 

$

745

 

Work in process

 

 

1,546

 

 

 

1,672

 

Finished goods

 

 

1,481

 

 

 

1,365

 

Total inventories

 

$

3,714

 

 

$

3,782

 

 

Revenue Recognition

Revenue from the sale of products is recognized when there is persuasive evidence that an arrangement exists, the product is shipped and title transfers to customers, provided no continuing obligation on the Company’s part exists, the price is fixed or determinable and the collectability of the amounts owed is reasonably assured. The Company enters into license and collaboration agreements under which it may receive upfront license fees, research funding and contingent milestone payments and royalties. The Company’s deliverables under these arrangements typically consist of granting licenses to intellectual property rights and providing research and development services. For multiple-element arrangements, each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control. The accounting standards contain a presumption that separate contracts entered into at or near the same time with the same entity or related parties were negotiated as a package and should be evaluated as a single agreement. Deferred revenue associated with a non-refundable payment received under a license and collaboration agreement for which the performance obligations are terminated will result in an immediate recognition of any remaining deferred revenue in the period that termination occurred provided that all performance obligations have been satisfied.

Research and development revenue related to services performed under the collaborative arrangements with the Company’s third-party collaborators is recognized as the related research and development services are performed. These research payments received under each respective agreement are not refundable and are generally based on reimbursement of qualified expenses, as defined in the agreements. Research and development expenses under the collaborative research and development agreements generally approximate or exceed the revenue recognized under such agreements over the term of the respective agreements. Deferred revenue may result when the Company does not expend the required level of effort during a specific period in comparison to funds received under the respective agreement.

Milestone payments under collaborative arrangements are triggered either by the results of the Company’s research and development efforts or by specified sales results by a third-party collaborator. Milestones related to the Company’s development-based activities may include initiation of various phases of clinical trials, successful completion of a phase of development or results from a clinical trial, acceptance of a New Drug Application by the FDA or an equivalent filing with an equivalent regulatory agency in another territory, or regulatory approval by the FDA or by an equivalent regulatory agency in another territory. Due to the uncertainty involved in meeting these development-based milestones, the development-based milestones are considered to be substantive (i.e., not just achieved through passage of time) at the inception of the collaboration agreement. In addition, the amounts of the payments assigned thereto are considered to be commensurate with the enhancement of the value of the delivered intellectual property as a result of the Company’s performance. The Company’s involvement is generally necessary to the achievement of development-based milestones. The Company would account for development-based milestones as revenue upon achievement of the substantive milestone events. Milestones related to sales-based activities may be triggered upon events such as the first commercial sale of a product or when sales first achieve a defined level. Under the Company’s collaborative agreements, the Company’s third-party collaborators will take the lead in commercialization activities and the Company is typically not involved in the achievement of sales-based milestones. These sales-based milestones would be achieved after the completion of the Company’s development activities. The Company would account for the sales-based milestones in the same manner as royalties, with revenue recognized upon achievement of the milestone. In addition, upon the achievement of either development-based or sales-based milestone events, the Company has no future performance obligations related to any milestone payments.

7


Comprehensive Income (Loss)

Components of other comprehensive income (loss) are comprised entirely of unrealized gains and losses on the Company’s available-for-sale securities for all periods presented. Total comprehensive loss has been disclosed in the Company’s Condensed Statements of Comprehensive Loss.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding. Diluted net loss per share is computed using the weighted-average number of common shares outstanding and common stock equivalents (i.e., options to purchase common stock) outstanding during the period, if dilutive, using the treasury stock method for options.

Options to purchase approximately 26.2 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for each of the three and six months ended June 30, 2017, respectively, as the effect would be anti-dilutive. Options to purchase approximately 20.8 million and 20.6 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for the three and six months ended June 30, 2016, respectively, as the effect would be anti-dilutive.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which amends the guidance in former ASC 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). The standard will be effective for the Company in the first quarter of 2018.  The Company is in the process of identifying revenue streams for analysis and has begun its analysis of a major collaboration under the new standard. However, the Company has not yet completed its final analysis of the impact of this guidance. To date, the Company’s revenues have been derived from product sales and from license and collaboration agreements. Based on the Company’s preliminary analysis, it does not currently anticipate a material quantitative impact on product revenue as the timing of revenue recognition for product sales is not expected to significantly change. For the Company’s license and collaboration agreements, the consideration the Company is eligible to receive under these agreements typically consists of upfront payments, research and development funding, milestone payments, and royalties. Each license and collaboration agreement is unique and will need to be assessed separately under the five-step process under the new standard. The Company continues to review the impact that this new standard will have on collaboration and license arrangements as well as on its financial statement disclosures.  The Company currently anticipates it will select the modified retrospective method to adopt the standard.

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. This ASU becomes effective for the Company in the first quarter of fiscal year 2019 and early adoption is permitted. This ASU is required to be applied with a modified retrospective approach and requires application of the new standard at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact that ASU 2016-02 will have on its financial statements.

8


Note 2. Strategic Agreements

The collaborative research and development and other revenues associated with the Company’s major third-party collaborators are as follows (in thousands):

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Collaborator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandoz AG (Sandoz) (1)

 

$

769

 

 

$

-

 

 

$

769

 

 

$

-

 

Pain Therapeutics, Inc. (Pain Therapeutics)

 

 

81

 

 

 

6

 

 

 

105

 

 

 

10

 

Santen Pharmaceutical Co. Ltd. (Santen) (2)

 

 

54

 

 

 

148

 

 

 

148

 

 

 

310

 

Zogenix, Inc. (Zogenix) (3)

 

 

42

 

 

 

195

 

 

 

86

 

 

 

441

 

Others

 

 

322

 

 

 

22

 

 

 

594

 

 

 

29

 

Total collaborative research and development and other

   revenue

 

$

1,268

 

 

$

371

 

 

$

1,702

 

 

$

790

 

 

(1)

Amounts related to ratable recognition of upfront fees were $769,000 for each of the three and six months ended June 30, 2017 respectively, compared to zero for the corresponding periods in 2016.

(2)

Amounts related to ratable recognition of upfront fees were $48,000 and $105,000 for the three and six months ended June 30, 2017 respectively, compared to $57,000 and $114,000 for the corresponding periods in 2016.

(3)

Amounts related to ratable recognition of upfront fees were $42,000 and $84,000 for the three and six months ended June 30, 2017 respectively, compared to $52,000 and $104,000 for the corresponding periods in 2016.

Agreement with Sandoz AG

In May 2017, the Company and Sandoz AG (“Sandoz”) entered into a license agreement to develop and market POSIMIR in the United States. Following expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), the agreement became effective in June 2017. POSIMIR is the Company’s investigational post-operative pain relief depot currently in Phase III clinical development in the United States that utilizes the Company’s patented SABER® technology to deliver bupivacaine to provide up to three days of pain relief after surgery. The Company retains commercialization rights in the rest of the world. Under terms of the agreement, Sandoz made an upfront payment of $20 million, with the potential for up to an additional $43 million in milestone payments based on successful development and regulatory milestones, and up to an additional $230 million in sales-based milestones.  DURECT will remain responsible for the completion of the ongoing PERSIST Phase 3 clinical trial for POSIMIR as well as FDA interactions through approval. DURECT also has certain manufacturing obligations under this agreement. Sandoz will have exclusive commercialization rights in the United States upon regulatory approval with sole funding responsibility for commercialization activities.  Sandoz will pay the Company a tiered double-digit royalty on product sales for a defined period, after which the license granted to Sandoz shall convert to a non-exclusive, fully paid, royalty-free, irrevocable and perpetual license. The term of the agreement shall be for the duration of Sandoz’s obligation to pay royalties for product sales under the Agreement. The agreement provides each party with specified termination rights, including the right of Sandoz to terminate at will after a specified period and each party to terminate the agreement upon material breach of the agreement by the other party. The agreement also contains terms and conditions customary for this type of arrangement, including representations, warranties and indemnities.

The Company evaluated the agreement under the accounting guidance for multiple element arrangements and identified three deliverables: the license to develop and market POSIMIR, the research and development services and the manufacturing services.  Given that the delivery of the manufacturing services by the Company is dependent upon approval of POSIMIR by the FDA, and that the fee to be received by the Company for these services, should they be delivered, is consistent with their estimated selling price, the Company considers the manufacturing services to be a contingent deliverable and has excluded them from the initial measurement and allocation of the arrangement consideration.  The Company evaluated the license deliverable and concluded that it did not have stand alone value separate from the research and development services and accordingly combined these deliverables into a single unit of accounting.  The Company allocated the arrangement consideration, which consists of the $20.0 million upfront payment, to this single unit of accounting and will recognize this revenue ratably over the term of its estimated performance period under the agreement, which is the term over which the research and development services are provided.  The effect of a change made to the estimated performance period, and the related ratably recognized revenue, would occur on a prospective basis in the period that the change was made. The Company considers the development and regulatory milestones to be substantive, and will recognize the associated milestone payments as revenue when the underlying milestone events are achieved.

Total collaborative research and development revenue recognized by the Company for Sandoz was $769,000 for each of the three and six months ended June 30, 2017 respectively, compared with zero for the corresponding periods in 2016. The cumulative aggregate payments received by the Company from Sandoz as of June 30, 2017 were $20.0 million under this agreement.

9


Agreement with Pain Therapeutics, Inc.

In December 2002, the Company entered into an exclusive agreement with Pain Therapeutics, Inc. (Pain Therapeutics) to develop and commercialize on a worldwide basis REMOXY ER and other oral sustained release, abuse deterrent opioid products incorporating four specified opioid drugs, using the ORADUR technology. This agreement currently covers only REMOXY ER.

Under the terms of this agreement, Pain Therapeutics paid the Company an upfront license fee of $1.0 million, with the potential for an additional $3.0 million in performance milestone payments based on the successful development and approval of REMOXY ER. Of these potential milestones, all $3.0 million are development-based milestones. There are no sales-based milestones under the agreement. As of June 30, 2017, the Company had received $1.5 million in cumulative milestone payments.

 In March 2016, Pain Therapeutics resubmitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA), and in September 2016, Pain Therapeutics received a Complete Response Letter from the FDA for REMOXY ER. Based on its review, the FDA has determined that the NDA cannot be approved in its present form and specifies additional actions and data that are needed for drug approval.

Total collaborative research and development revenue recognized for REMOXY-related work performed by the Company for Pain Therapeutics was $81,000 and $105,000 for the three and six months ended June 30, 2017, compared with $6,000 and $10,000 for the corresponding periods in 2016. The cumulative aggregate payments received by the Company from Pain Therapeutics as of June 30, 2017 were $40.3 million under this agreement.

The Company recognized no product revenue related to key excipients for REMOXY ER for each of the three and six months ended June 30, 2017 compared to zero and $279,000 for the corresponding periods in 2016. The associated cost of goods sold were zero for each of the three and six months ended June 30, 2017, compared to zero and $124,000 for the corresponding periods in 2016. Pursuant to the Company’s 2002 agreement with Pain Therapeutics, the Company is to be the exclusive supplier of certain defined excipients for products in the collaboration.

Agreement with Zogenix, Inc.

On July 11, 2011, the Company and Zogenix, Inc. (Zogenix) entered into a Development and License Agreement (the Zogenix Agreement). The Company and Zogenix had previously been working together under a feasibility agreement pursuant to which the Company’s research and development costs were reimbursed by Zogenix. Under the Zogenix Agreement, Zogenix was responsible for the clinical development and commercialization of a proprietary, long-acting injectable formulation of risperidone using the Company’s SABER controlled-release formulation technology potentially in combination with Zogenix’s DosePro® needle-free, subcutaneous drug delivery system. DURECT was responsible for non-clinical, formulation and CMC development activities. The Company was to be reimbursed by Zogenix for its research and development efforts on the product. In August 2017, the Company and Zogenix terminated the Zogenix Agreement.  Under the mutual termination agreement, Zogenix’s development and commercialization rights are returned to the Company, and Zogenix will transfer to the Company all regulatory filings and development information related to Relday.  

Zogenix paid a non-refundable upfront fee to the Company of $2.25 million in July 2011. The Company’s research and development services are considered integral to utilizing the licensed intellectual property and, accordingly, the deliverables are accounted for as a single unit of accounting. The $2.25 million upfront fee has been recognized as collaborative research and development revenue ratably over the term of the Company’s research and development involvement with Zogenix with respect to this product candidate.        

The Company granted to Zogenix an exclusive worldwide license, with sub-license rights, to the Company’s intellectual property rights related to the Company’s proprietary polymeric and non-polymeric controlled-release formulation technology to make and have made, use, offer for sale, sell and import risperidone products, where risperidone is the sole active agent, for administration by injection in the treatment of schizophrenia, bipolar disorder or other psychiatric related disorders in humans. The Company retained the right to supply Zogenix’s Phase III clinical trial and commercial product requirements on the terms set forth in the Zogenix Agreement. Zogenix was permitted to terminate the Zogenix Agreement without cause at any time upon prior written notice, and either party was permitted to terminate the Zogenix Agreement upon certain circumstances including written notice of a material uncured breach.

10


The following table provides a summary of collaborative research and development revenue recognized under the agreements with Zogenix (in thousands). The cumulative aggregate payments received by the Company as of June 30, 2017 were $20.1 million under these agreements.

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Ratable recognition of upfront payment

 

$

42

 

 

$

52

 

 

$

84

 

 

$

104

 

Research and development expenses reimbursable by Zogenix

 

 

-

 

 

 

143

 

 

 

2

 

 

 

337

 

Total collaborative research and development revenue

 

$

42

 

 

$

195

 

 

$

86

 

 

$

441

 

 

     Agreement with Santen Pharmaceutical Co., Ltd.

On December 11, 2014, the Company and Santen Pharmaceutical Co., Ltd. (Santen) entered into a definitive agreement (the Santen Agreement). Pursuant to the Santen Agreement, the Company granted Santen an exclusive worldwide license to the Company’s proprietary SABER formulation platform and other intellectual property to develop and commercialize a sustained release product utilizing the Company’s SABER technology to deliver an ophthalmology drug. Santen controls and funds the development and commercialization program, and the parties established a joint management committee to oversee, review and coordinate the development activities of the parties under the Santen Agreement.

In connection with the Santen agreement, Santen agreed to pay the Company an upfront fee of $2.0 million in cash and to make contingent cash payments to the Company of up to $76.0 million upon the achievement of certain milestones, of which $13.0 million are development-based milestones and $63.0 million are commercialization-based milestones including milestones requiring the achievement of certain product sales targets (none of which has been achieved as of June 30, 2017). Santen will also pay for certain Company costs incurred in the development of the licensed product. If the product is commercialized, the Company would also receive a tiered royalty on annual net product sales ranging from single-digit to the low double digits, determined on a country-by-country basis. As of June 30, 2017, the cumulative aggregate payments received by the Company under this agreement were $3.3 million.

The following table provides a summary of collaborative research and development revenue recognized under the Santen Agreement (in thousands).

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Ratable recognition of upfront payment

 

$

48

 

 

$

57

 

 

$

105

 

 

$

114

 

Research and development expenses reimbursable by Santen

 

 

6

 

 

 

91

 

 

 

43

 

 

 

196

 

Total collaborative research and development revenue

 

$

54

 

 

$

148

 

 

$

148

 

 

$

310

 

 

Note 3. Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company follows a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. These levels of inputs are the following:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

11


The Company’s financial instruments are valued using quoted prices in active markets or based upon other observable inputs. Money market funds are classified as Level 1 financial assets. Certificates of deposit, commercial paper, corporate debt securities, and U.S. Government agency securities are classified as Level 2 financial assets. The fair value of the Level 2 assets is estimated using pricing models using current observable market information for similar securities. The Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The fair value of commercial paper is based upon the time to maturity and discounted using the three-month treasury bill rate. The average remaining maturity of the Company’s Level 2 investments as of June 30, 2017 is less than twelve months and these investments are rated by S&P and Moody’s at AAA or AA- for securities and A1 or P1 for commercial paper.

The following is a summary of available-for-sale securities as of June 30, 2017 and December 31, 2016 (in thousands):

 

 

 

June 30, 2017

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Money market funds

 

$

579

 

 

$

 

 

$

 

 

$

579

 

Certificates of deposit

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Commercial paper

 

 

27,450

 

 

 

 

 

 

 

 

 

27,450

 

U.S. Government agencies

 

 

3,058

 

 

 

 

 

 

(3

)

 

 

3,055

 

 

 

$

31,237

 

 

$

 

 

$

(3

)

 

$

31,234

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,029

 

 

$

 

 

$

 

 

$

28,029

 

Short-term investments

 

 

3,058

 

 

 

 

 

 

(3

)

 

 

3,055

 

Long-term restricted investments

 

 

150

 

 

 

 

 

 

 

 

 

150

 

 

 

$

31,237

 

 

$

 

 

$

(3

)

 

$

31,234

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Money market funds

 

$

693

 

 

$

 

 

$

 

 

$

693

 

Certificates of deposit

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Commercial paper

 

 

4,947

 

 

 

 

 

 

 

 

 

4,947

 

Corporate debt

 

 

2,644

 

 

 

 

 

 

(1

)

 

 

2,643

 

U.S. Government agencies

 

 

14,461

 

 

 

1

 

 

 

(3

)

 

 

14,459

 

 

 

$

22,895

 

 

$

1

 

 

$

(4

)

 

$

22,892

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,142

 

 

$

 

 

$

 

 

$

3,142

 

Short-term investments

 

 

19,603

 

 

 

1

 

 

 

(4

)

 

 

19,600

 

Long-term restricted investments

 

 

150

 

 

 

 

 

 

 

 

 

150

 

 

 

$

22,895

 

 

$

1

 

 

$

(4

)

 

$

22,892

 

 

The following is a summary of the cost and estimated fair value of available-for-sale securities at June 30, 2017, by contractual maturity (in thousands):

 

 

 

June 30, 2017

 

 

 

Amortized

Cost

 

 

Estimated

Fair

Value

 

Mature in one year or less

 

$

30,658

 

 

$

30,655

 

Mature after one year through two years

 

 

 

 

 

 

 

 

$

30,658

 

 

$

30,655

 

 

There were no securities that have had an unrealized loss for more than 12 months as of June 30, 2017.

As of June 30, 2017, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until

12


maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Note 4. Stock-Based Compensation

In the first quarter of 2017, the Company elected to adopt ASU 2016-09, Improvement to Employee Share-based Payment, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as equity or liabilities, an option to recognize gross share compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company elected to account for forfeitures as they occur and therefore, share-based compensation expense for the six months ended June 30, 2017 has been calculated based on actual forfeitures, rather than the Company’s previous approach which was net of estimated forfeitures. The Company’s adoption of ASU 2016-09 in the first quarter of 2017 did not have a material impact on its financial statements.

As of June 30, 2017, the Company has three stock-based compensation plans. The stock-based compensation cost that has been included in the statements of comprehensive loss is shown as below (in thousands):

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of product revenues

 

$

28

 

 

$

26

 

 

$

56

 

 

$

53

 

Research and development

 

 

315

 

 

 

357

 

 

 

684

 

 

 

710

 

Selling, general and administrative

 

 

220

 

 

 

314

 

 

 

488

 

 

 

644

 

Total stock-based compensation

 

$

563

 

 

$

697

 

 

$

1,228

 

 

$

1,407

 

 

As of June 30, 2017 and December 31, 2016, $13,000 and $14,000 of stock-based compensation cost was capitalized in inventory on the Company’s balance sheets, respectively.

The Company uses the Black-Scholes option pricing model to value its stock options. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. The Company considered its historical volatility in developing its estimate of expected volatility.

The Company used the following assumptions to estimate the fair value of stock options granted and shares purchased under its employee stock purchase plan for the three and six months ended June 30, 2017 and 2016:

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free rate

 

2.0-2.3%

 

 

1.3-1.8%

 

 

2.0-2.5%

 

 

1.3-1.9%

 

Expected dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Expected life of option (in years)

 

6.8-10.0

 

 

7.0-10.0

 

 

6.8-10.0

 

 

6.5-10.0

 

Volatility

 

75-81%

 

 

76-81%

 

 

75-82%

 

 

76-83%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Employee Stock Purchase Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free rate

 

 

1.0%

 

 

 

0.4%

 

 

0.6-1.0%

 

 

0.3-0.4%

 

Expected dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Expected life of option (in years)

 

0.5

 

 

0.5

 

 

0.5

 

 

0.5

 

Volatility

 

 

44%

 

 

 

66%

 

 

44-81%

 

 

66-68%

 

 

 

Note 5. Term Loan    

In July 2016, the Company renegotiated the terms of its $20.0 million secured single-draw term loan with Oxford Finance LLC (Oxford Finance) with such renegotiated terms being formalized in a new Loan and Security Agreement (the “2016 Loan Agreement”). The 2016 Loan Agreement supersedes the 2014 Loan Agreement with Oxford Finance and the 2015 amendment to such agreement. The 2016 Loan Agreement provides for interest only payments for the first 18 months, followed by consecutive monthly payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity date of the term loan of

13


August 1, 2020. The 2016 Loan Agreement also provides for a floating interest rate (7.95% initially) based on an index rate plus a spread, a $150,000 facility fee that was paid at closing and an additional payment equal to 9.25% of the principal amount of the term loan, which is due when the term loan becomes due or upon the prepayment of the facility. If the Company elects to prepay the loan, there is also a prepayment fee between 1% and 3% of the principal amount of the term loan depending on the timing of prepayment. The facility fee and other debt offering/issuance costs have been recorded as debt discount on the Company’s balance sheet and together with the final $1.9 million payment and interest rate payments are being amortized to interest expense during the life of the term loan using the effective interest rate method.   

The term loan is secured by substantially all of the assets of the Company, except that the collateral does not include any intellectual property (including licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The 2016 Loan Agreement contains customary representations, warranties and covenants by the Company, which covenants limit the Company’s ability to convey, sell, lease, transfer, assign or otherwise dispose of certain assets of the Company; engage in any business other than the businesses currently engaged in by the Company or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; and make payments on any subordinated debt.

The 2016 Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, the Company’s failure to fulfill certain obligations of the Company under the 2016 Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in the Company’s business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by the Company under the 2016 Loan Agreement, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the 2016 Loan Agreement, which could harm the Company’s financial condition. The conditionally exercisable call option related to the event of default is considered to be an embedded derivative which is required to be bifurcated and accounted for as a separate financial instrument. In the periods presented, the value of the embedded derivative is not material, but could become material in future periods if an event of default became more probable than is currently estimated.

As of June 30, 2017, the Company was in compliance with all material covenants under the Loan Agreement and the Company believes that there have been no material adverse changes. In accordance with ASC 470-10-45-2, the term loan had been reclassified to a current liability from a non-current liability on the Company’s balance sheet as of December 31, 2016 due to recurring losses, liquidity concerns and a subjective acceleration clause in the Company’s 2016 Loan Agreement.  In May 2017, the Company signed an agreement with Sandoz whereby Sandoz will have the exclusive commercialization rights to POSIMIR (SABER-bupivacaine) in the United States.  Consequently, the Company has sufficient resources to meet its plans for the next twelve months following the issuance of these financial statements. As a result, that portion of the term loan that is due more than 12 months after June 30, 2017 has been reclassified to a non-current liability from a current liability as of June 30, 2017.

The fair value of the term loan approximates the carrying value. Future maturities and interest payments under the term loan as of June 30, 2017, are as follows (in thousands):

 

Six months ended December 31, 2017

 

$

813

 

2018

 

 

8,698

 

2019

 

 

8,724

 

2020

 

 

6,641

 

Total minimum payments

 

 

24,876

 

Less amount representing interest

 

 

(4,876

)

Gross balance of term loan

 

 

20,000

 

Less unamortized debt discount

 

 

(116

)

Carrying value of term loan

 

 

19,884

 

Less term loan, current portion, net

 

 

(3,273

)

Term loan, non-current portion, net

 

 

16,611

 

 

Note 6. Stockholders’ Equity

During the second quarter of 2017, the Company raised net proceeds (net of commissions) of approximately $4.1 million from the sale of 3,085,561 shares of the Company’s common stock in the open market at a weighted average price of $1.37 per share, through its Controlled Equity Offering sales agreement with Cantor Fitzgerald, entered into in November 2015 (Controlled Equity Offering).     

14


 

Note 7. Subsequent Events

    

In July 2017, Impax Laboratories, Inc. provided notice to DURECT that Impax is terminating their agreement with DURECT and returning its development and commercialization rights to ELADUR® (TRANSDUR®-Bupivacaine).  Licensed by DURECT to Impax in January 2014, ELADUR is an investigational transdermal patch intended to deliver bupivacaine, a local analgesic.  

 

In August 2017, DURECT and Zogenix mutually agreed to terminate their collaboration whereby Zogenix had the worldwide development and commercialization rights to Relday.  Licensed by DURECT to Zogenix in July 2011, Relday is an investigational long-acting formulation of risperidone, an atypical anti-psychotic agent. Under the mutual termination agreement, Zogenix’s development and commercialization rights are returned to DURECT, and Zogenix will transfer to DURECT all regulatory filings and development information related to Relday.  

 

From July 1, 2017 through August 4, 2017, the Company raised net proceeds (net of commissions) of approximately $2.8 million from the sale of 1,758,172 shares of the Company’s common stock in the open market through the Controlled Equity Offering program with Cantor Fitzgerald at a weighted average price of $1.63 per share. As of August 4, 2017, the Company had up to approximately $22.4 million of common stock available for sale under the Controlled Equity Offering program and approximately $67.8 million of common stock available for sale under its shelf registration statement.

 

 

15


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2017 and 2016 should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission and “Risk Factors” section included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this report, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “could,” “potentially” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations and beliefs. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors.

Forward-looking statements made in this report include, for example, statements about:

 

the planned completion of the PERSIST clinical trial and announcement of clinical trial results for POSIMIR, and clinical trial plans for DUR-928;

 

potential regulatory filings for or approval of POSIMIR, REMOXY ER, DUR-928 or any of our other product candidates;

 

the progress of our third-party collaborations, including estimated milestones;

 

our intention to seek, and ability to enter into and maintain strategic alliances and collaborations;

 

the potential benefits and uses of our products;

 

responsibilities of our third-party collaborators, including the responsibility to make cost reimbursement, milestone, royalty and other payments to us, and our expectations regarding our collaborators’ plans with respect to our products and continued development of our products;

 

our responsibilities to our third-party collaborators, including our responsibilities to conduct research and development, clinical trials and manufacture products;

 

our ability to protect intellectual property, including intellectual property licensed to our collaborators;

 

market opportunities for products in our product pipeline;

 

the progress and results of our research and development programs and our evaluation of additional development programs;

 

requirements for us to purchase supplies and raw materials from third parties, and the ability of third parties to provide us with required supplies and raw materials;

 

the results and timing of clinical trials, including for POSIMIR, DUR-928, REMOXY ER, or ORADUR-ADHD or other ORADUR-based product candidates, the possible commencement of future clinical trials and announcements of the findings of our clinical trials;

 

conditions for obtaining regulatory approval of our product candidates;

 

submission and timing of applications for regulatory approval;

 

the impact of FDA, DEA, EMEA and other government regulation on our business;

 

the impact of potential Risk Evaluation and Mitigation Strategies (REMS) on our business;

 

uncertainties associated with obtaining and protecting patents and other intellectual property rights, as well as avoiding the intellectual property rights of others;

 

products and companies that will compete with the products we license to third-party collaborators;

 

the possibility we may commercialize our own products and build up our commercial, sales and marketing capabilities and other required infrastructure;

 

the possibility that we may develop additional manufacturing capabilities;

 

our employees, including the number of employees and the continued services of key management, technical and scientific personnel;

 

our future performance, including our anticipation that we will not derive meaningful revenues from our products in development for at least the next twelve months, potential for future inventory write-offs and our expectations regarding our ability to achieve profitability;

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sufficiency of our cash resources, anticipated capital requirements and capital expenditures, our ability to comply with covenants of our term loan, and our need for additional financing, including potential sales under our shelf registration statement;

 

our expectations regarding marketing expenses, research and development expenses, and selling, general and administrative expenses;

 

the composition of future revenues; and

 

accounting policies and estimates, including revenue recognition policies.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of such forward looking statements and the potential risks and uncertainties that may impact upon their accuracy, see the “Risk Factors” section and “Overview” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements reflect our view only as of the date of this report. We undertake no obligations to update any forward-looking statements. You should also carefully consider the facto