We are an emerging specialty pharmaceutical company focused on the development of pharmaceutical products based on our proprietary drug delivery
technology platforms. We are developing pharmaceutical systems that will deliver the right drug to the right place in the right amount at the right time to treat chronic or episodic diseases and conditions. By integrating chemistry and engineering
advancements, we can achieve what drugs or devices alone cannot. Our pharmaceutical systems enable optimized therapy for a given disease or patient population by controlling the rate and duration of drug administration as well as, for certain
applications, placement of the drug at the intended site of action. Our proprietary drug delivery technology platforms include:
·
SABER ™ Delivery System—a patented and versatile depot injectable useful for small molecule and protein delivery that can be formulated for systemic or local administration. The advantages
of SABER may include reduced side effects, longer duration and smaller injection volume. Our first application is for controlled delivery of bupivacaine for post-operative pain relief (POSIDUR™), for which we have licensed commercialization
rights in Europe and other select countries to Nycomed Danmark APS (Nycomed) while retaining commercialization rights in the United States, Canada, Asia and other countries. POSIDUR is currently in Phase II clinical trials, and we expect to initiate
Phase III clinical trials in 2007.
·
ORADUR ™ —an oral sustained release gel-cap technology. We believe that ORADUR can transform short-acting oral capsule forms into oral sustained release technology products with the added
benefit of being less prone to abuse. Our first application is Remoxy™, a novel long-acting, abuse deterrent oral formulation of the opioid oxycodone, for which we have licensed worldwide rights to Pain Therapeutics, Inc. (Pain Therapeutics),
which has in turn sublicensed the commercialization rights to King Pharmaceuticals, Inc. (King). Remoxy is currently in a pivotal Phase III clinical trial.
·
TRANSDUR ™ Delivery System—a proprietary transdermal patch technology. The advantages of TRANSDUR may include less potential for abuse, longer use per patch and smaller patch size. Our first
application is for a transdermal sufentanil patch (TRANSDUR-Sufentanil) which we have licensed to Endo Pharmaceuticals for the U.S. and Canada. TRANSDUR-Sufentanil is currently in Phase II clinical trials. Our second application of TRANSDUR is for a
transdermal bupivacaine patch (TRANSDUR-Bupivacaine), for which we own all worldwide rights. TRANSDUR-Bupivacaine is currently in Phase II clinical trials.
·
DURIN ™ Biodegradable Implant—a proprietary biodegradable drug-loaded implant that is absorbed into the body. DURIN enables parenteral (injectable) delivery over a period of weeks or months
of both large and small molecules using our proprietary polymers. The advantages of DURIN may include small size, longer duration and constant rate of delivery. Our first application is Memryte™, a novel long-acting potential therapy for the
treatment of Alzheimer’s disease using leuprolide, for which we have licensed worldwide rights to Voyager Pharmaceutical Corporation (Voyager). Voyager has informed us that it has truncated its Phase III clinical trials for Memryte in order to
get an early look at potential efficacy.
·
DUROS ® System—an osmotic implant technology licensed to us for specified fields from ALZA Corporation, a Johnson & Johnson Company (ALZA). DUROS is a miniature drug-dispensing subcutaneous pump which
can be as small as a matchstick that can be used for therapies requiring systemic or site-specific administration of drug. The advantages of DUROS may include precise constant drug delivery of potent molecules. Our first application is
CHRONOGESIC ® , designed to deliver sufentanil for a
period of three months for treatment of chronic pain, which we have licensed to Endo Pharmaceuticals NOTE: POSIDUR ™ , SABER ™ , TRANSDUR ™ , ORADUR ™ ,
DURIN ™ , CHRONOGESIC ® , MICRODUR ™ , ALZET ® and LACTEL ® are trademarks of DURECT Corporation. Other trademarks referred to belong to their respective owners.
for the U.S. and Canada. CHRONOGESIC completed a pilot Phase III clinical trial. Clinical trials have been suspended pending system redesign.
·
MICRODUR ™ Biodegradable Microparticulates—a patented biodegradable microparticulate depot injectable. Sustained release from a few days to many months can be achieved through suitable choice
of polymers and processing. Our pharmaceutical systems combine engineering with proprietary small molecule
pharmaceutical and biotechnology drug formulation to yield proprietary delivery technologies and products. Through this combination, we are able to control the rate and duration of drug administration as well as target the delivery of the drug to
its intended site of action, allowing our pharmaceutical systems to meet the special challenges associated with treating medical conditions over an extended period of time. Our pharmaceutical systems can enable new drug therapies or optimize
existing therapies based on a broad range of compounds, including small molecule pharmaceuticals as well as biotechnology molecules such as proteins, peptides and genes.
Our pharmaceutical systems are suitable for providing long-term drug therapy because they store highly concentrated, stabilized drugs in a small volume and can protect the drug from degradation by the body. This, in
combination with our ability to continuously deliver precise and accurate doses of a drug, allows us to extend the therapeutic value of a wide variety of drugs, including those which would otherwise be ineffective, too unstable, too potent or cause
adverse side effects. In some cases, delivering the drug directly to the intended site of action can improve efficacy while minimizing unwanted side effects elsewhere in the body, which often limit the long-term use of many drugs. Our pharmaceutical
systems can thus provide better therapy for chronic diseases or conditions, or for certain acute conditions where longer drug dosing is required or advantageous, by replacing multiple injection therapy or oral dosing, improving drug efficacy,
reducing side effects and ensuring dosing compliance. Our pharmaceutical systems can improve patients’ quality of life by eliminating more repetitive treatments, reducing dependence on caregivers and allowing patients to lead more independent
lives.
In addition to developing our own proprietary products, we also collaborate with pharmaceutical and biotechnology companies to
develop and commercialize proprietary and enhanced pharmaceutical products based on our technologies.
Product Research and Development Programs
Our development efforts are focused on the application of our pharmaceutical systems technologies to potential products in a variety of
chronic and episodic disease areas including pain, central nervous system, or CNS, disorders, cardiovascular disease and other chronic diseases. Our ongoing product research and development efforts in these areas are set forth in the following
table:
Disease/Indication
Product
Collaborator
Technology Platform
Stage
Post Operative Pain
• Controlled release injection of bupivacaine (POSIDUR)
• Nycomed (Europe and other select territories); DURECT retains rights in U.S., Canada, Asia and other
countries
• SABER
• Phase II
Chronic Pain
• Transdermal sufentanil (TRANSDUR-Sufentanil)
• Endo (U.S. & Canada); DURECT retains rights in Europe, Asia and other countries
• TRANSDUR
• Phase II
Disease/Indication
Product
Collaborator
Technology Platform
Stage
Neuropathic Pain associated with Post-Hepetic Neuralgia (PHN)
• Transdermal bupivacaine (TRANSDUR-Bupivacaine)
• DURECT retains worldwide rights
• TRANSDUR
• Phase II
Chronic Pain
• Oral controlled release oxycodone (Remoxy)
• King/Pain Therapeutics (worldwide)
• ORADUR
• Phase III
Pain
• Oral controlled release opioid (active agent undisclosed)
• King/Pain Therapeutics (worldwide)
• ORADUR
• Phase I
Alzheimer’s Disease
• Controlled Release Leuprolide Implant (Memryte)
• Voyager (worldwide)
• DURIN
• Truncated Phase III
Chronic Pain
• Systemic sufentanil (CHRONOGESIC)
• Endo (U.S. & Canada) ; DURECT retains rights in Europe, Asia and other countries
• DUROS
• System redesign
Central Nervous System Disorders
• Various
• DURECT retains worldwide rights
• SABER/DUROS/DURIN
• Preclinical/Research Stage
Cardiovascular Disorders
• Various
• DURECT retains worldwide rights
• SABER/DUROS/DURIN
• Preclinical/Research Stage
Local Post-Operative Pain
Market Opportunity. According to data published by the Center for Disease Control and Prevention, there are approximately
72 million ambulatory and inpatient procedures performed in the United States. Epidemiological studies indicate that up to 100% of surgical patients experience postoperative pain, with 50-75% reporting inadequate pain relief. The current
standard of care for post-surgical pain includes oral opiate and non-opiate analgesics, transdermal opiate patches and muscle relaxants. While oral analgesics can effectively control post-surgical pain, they commonly cause side effects such as
drowsiness, constipation, cognitive impairment and other possible side effects. Effective pain management can be compromised if patients fail to adhere to recommended dosing regimens because they are sleeping or disoriented. Post-surgical pain can
be treated effectively with local anesthetics; however, the usefulness of current conventional medications is limited by their short duration of action.
Development Strategy. We are developing POSIDUR, a sustained-release formulation of bupivacaine, using our SABER delivery system for the treatment of post-surgical pain. Bupivacaine is a
local anesthetic agent currently used in the hospital for anesthesia and analgesia and for which the patent covering the chemical entity has expired. The physician would administer POSIDUR at the time of surgery to the surgical site. This
formulation is designed to provide sustained regional analgesia from a single dose. We believe that by delivering effective amounts of a potent analgesic to the location from which the pain originates, adequate pain control can be achieved with
minimal exposure to the remainder of the body, thus minimizing side effects. POSIDUR is intended to provide local analgesia for up to 3 days, which we believe coincides with the time period of greatest need for post-surgical pain control in most
patients. In November 2006, we entered into a collaboration agreement with Nycomed Danmark, APS. Under the terms of the agreement, we licensed to Nycomed the exclusive commercialization rights to POSIDUR for the European Union (E.U.) and select
other countries. Nycomed paid us 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. We will jointly direct and
equally fund with Nycomed a development program for POSIDUR intended to secure regulatory
approval in both the U.S. and the E.U. In addition, we will manufacture and supply the product to Nycomed for commercial sale in the territory licensed to
Nycomed. Nycomed will pay us blended royalties on sales in the defined territory of 15-40% depending on annual sales, as well as a manufacturing markup. We retain full commercial rights to POSIDUR in the U.S., Canada, Asia and certain other
countries.
Clinical Program. In January 2006, we announced the acceptance by the U.S. Food & Drug
Administration (FDA) of our investigational new drug application (IND) for POSIDUR. In April 2006, we announced the results from our first Phase II clinical study in hernia patients conducted in Australia. In the second quarter of 2006, we initiated
dosing in the first U.S. clinical trial, a Phase II, placebo-controlled trial in hernia patients and expanded the development of POSIDUR into multiple on-going 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 trials. During the course of 2007, we expect to announce data from our on-going Phase II trials. Pending the successful
completion of our on-going Phase II trials and input on our Phase III program by regulatory authorities, we anticipate commencing our Phase III program in 2007.
Chronic Pain (Systemic)
Market Opportunity. Chronic pain, defined as
lasting six months or longer, is usually the result of an ongoing condition or significant problem associated with chronic diseases, including cancer, various neurological and skeletal disorders and other ailments such as severe arthritis or a
debilitating back injury. As the condition gets worse, the pain often gets worse. Also, long-lasting pain can affect the nervous system to the point where pain persists even if the condition that originally caused the pain is stabilized or improved.
This is one reason patients often need stronger pain medication even if their underlying condition has been treated. Chronic pain affects as many as 50 million Americans annually. Worldwide opioid sales continue to grow and achieved projected
annual sales in 2006 of over $8.5 billion. Of this amount, OxyContin ® , a brand name oral oxycodone-based painkiller and generic oral oxycodone products together accounted for approximately $1.2 billion in sales, and Duragesic ® , a leading transdermal fentanyl product, together with generic fentanyl patches
accounted for approximately $1.2 billion in sales.
Development Strategy. We are developing several products
for the chronic pain market:
·
ORADUR-based oral sustained release, abuse deterrent opioid products, including Remoxy, licensed to Pain Therapeutics, which has in turn sublicensed the
commercialization rights of these products to King;
·
TRANSDUR-Sufentanil, our proprietary transdermal patch licensed to Endo Pharmaceuticals (Endo) in the U.S. and Canada that is intended to provide sufentanil for a
period of up to seven days from a single application;
·
CHRONOGESIC, a subcutaneous, implantable DUROS-based system licensed to Endo Pharmaceuticals in the U.S. and Canada that delivers sufentanil systemically at a
constant rate for three months. ORADUR-Opioid Products In Development
Remoxy (ORADUR-Oxycodone)
Remoxy is
an oral, long-acting oxycodone gelatin capsule under development with Pain Therapeutics, to which we have licensed exclusive, worldwide, development and commercialization rights under a development and license agreement entered into in December
2002. Subsequently, Pain Therapeutics has sublicensed the commercialization rights of Remoxy to King. Remoxy is formulated with our ORADUR technology and incorporates several abuse-deterrent properties with the convenience of twice-a-day dosing.
Oxycodone is also the active drug ingredient in OxyContin ® , a brand name oral painkiller, which together with generic oxycodone oral products, achieved annual sales of over $1.2 billion in 2006. We will receive payments if certain development and regulatory milestones are
achieved. We also receive reimbursement for our research and
development efforts on Remoxy and a manufacturing profit on our supply of key product excipients for use in Remoxy. In addition, if Remoxy is commercialized,
we will receive royalties for Remoxy of between 6.0% to 11.5% of net sales depending on the sales volumes.
Clinical
Program . Pain Therapeutics began the first Phase III clinical trial for Remoxy in December 2004 and in September 2005 announced positive results from this trial.
In February 2006, Pain Therapeutics and its sublicensee King reported that Remoxy had successfully completed a Special Protocol Assessment (SPA) with the
FDA. According to Pain Therapeutics and King, under the terms of the SPA for Remoxy, one pivotal Phase III trial is required to file a New Drug Application. The randomized, double-blinded, placebo-controlled, multi-center pivotal trial is intended
to enroll 400 patients with moderate-to-severe osteoarthritic pain in multiple U.S. clinical sites. Following a titration period, patients will be randomized to either Remoxy (10-80 mg daily) or placebo for 12 weeks. The primary endpoint is
reduction in pain scores over three months compared to baseline. The pivotal phase III trial is currently on-going for Remoxy.
Additional ORADUR-Opioid Products in Development
During 2006, we also worked with King and Pain Therapeutics on the
development of additional ORADUR abuse-resistant opioid drug candidates. In August 2006, King and Pain Therapeutics announced the initiation of a Phase I clinical trial for one of these drug candidates, and that the IND application for this drug
candidate had been accepted by the FDA. In November 2006, Pain Therapeutics announced positive results from that Phase I clinical trial.
TRANSDUR-Sufentanil Patch
Our transdermal sufentanil patch (TRANSDUR-Sufentanil) under development is based on our
proprietary TRANSDUR transdermal technology and is intended to provide continuous delivery of sufentanil for up to seven days from a single application, as compared to the three days of relief provided by currently available opioid patches.
Sufentanil is a highly potent opioid that is currently used in hospitals as an analgesic for which the patent covering the chemical entity has expired. We anticipate that the small size of our sufentanil patch (potentially as small as 1/5th the size
of currently marketed transdermal fentanyl patches for a therapeutically equivalent dose) and longer duration of delivery may offer improved convenience and compliance for patients. Worldwide sales for Duragesic ® , a leading transdermal fentanyl product, along with generic fentanyl patches exceeded
$1.2 billion in 2006.
In March 2005, we entered into an agreement with Endo granting Endo exclusive rights to develop, market and
commercialize TRANSDUR-Sufentanil in the U.S. and Canada. We have received an initial payment of $10 million, and we will receive up to $35 million in additional milestone payments if specified development and commercialization milestones are
achieved. If commercialized, we will also receive royalties based on the sale of TRANSDUR-Sufentanil in the U.S. and Canada. We have retained limited co-promotion rights to TRANSDUR-Sufentanil in the U.S. and Canada and full commercialization rights
in the rest of the world. We continued to perform development activities for Endo with respect to TRANSDUR-Sufentanil throughout 2006.
Clinical Program.
In February 2005, we commenced the first clinical trial of the Phase II program for TRANSDUR-Sufentanil
and announced positive preliminary results from this trial in December 2005.
Endo has entered into an agreement with a contract
manufacturer, 3M Company (3M), related to manufacturing process development and scale-up for TRANSDUR-Sufentanil. Endo 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 3M.
Chronic Pain (Local)
Market Opportunity. Neuropathic pain is pain resulting from a disturbance of the central nervous system (brain and spinal cord) or peripheral nervous system (nerves outside the brain and
spinal cord). There are a variety of conditions and diseases that produce neuropathic pain, including trauma and diseases such as multiple sclerosis and stroke. One form of neuropathic pain is a debilitating complication of herpes zoster referred to
as Post-Herpetic Neuralgia (PHN or post-shingles pain), which is usually defined as the presence of pain at the site of eruption that lasts more than a month after the onset of zoster eruption. Within the affected skin supplied by the nerve root,
patients have a variety of sensory abnormalities in addition to neuropathic pain. Pain can persist for months and occasionally years. The prevalence of persistent PHN (lasting more than one year) is reported to be approximately 125,000 people per
year in the U.S.
Development Strategy. We are developing a transdermal bupivacaine patch
(TRANSDUR-Bupivacaine) based on our proprietary TRANSDUR transdermal technology 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. We anticipate that TRANSDUR-Bupivacaine will have several potential differentiating attributes compared with currently marketed lidocaine patches, including extended duration of action, short onset time and potentially
deeper tissue penetration of bupivacaine versus lidocaine. We retain the worldwide commercialization rights to TRANSDUR-Bupivacaine.
Clinical Program . In December 2006, we announced that we had successfully completed Phase I clinical trials with TRANSDUR-Bupivacaine. We began a Phase II program for TRANSDUR-Bupivacaine 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 PHN to assess safety as well as the magnitude, duration and
characteristics of analgesic activity of TRANSDUR-Bupivacaine. We anticipate announcing the results of our current Phase II clinical trial in 2007.
Alzheimer’s Disease
Market Opportunity. Alzheimer’s disease is a progressive,
degenerative and ultimately terminal brain disorder that gradually destroys a person’s memory and ability to learn, reason, make judgments, communicate and carry out daily activities. There is currently no treatment that stops or materially
slows the progression of Alzheimer’s disease. It is estimated that Alzheimer’s patients and their families spend more than $200,000 on health care per patient and employers lose approximately $60 billion per year on lost productivity as
adult caregivers are forced to leave their jobs – either permanently or temporarily- to care for a family member with the disease. As a result, it is one of the world’s largest unmet medical needs. The global market for currently available
Alzheimer’s disease drugs is growing rapidly and has been estimated to be over $3.5 billion in 2006, growing 19% from 2005. It is estimated that 4.2 to 5.8 million Americans suffer from Alzheimer’s disease and this number could more
than triple by mid-century.
Development Strategy. We are developing Memryte for the treatment of
Alzheimer’s disease in collaboration with Voyager, to which we have licensed exclusive, worldwide development and commercialization rights under a development and license agreement entered into in July 2002 and subsequently amended. Memryte
uses our proprietary DURIN technology to provide sustained release of the peptide leuprolide acetate and is based on Voyager’s patented method of treatment of Alzheimer’s disease. Under the agreement, as amended, we will receive from
Voyager milestone payments if specified development milestones are achieved, and, if commercialized, royalties of between 10% to 14% of net sales depending on the sales volumes. In addition, we will receive 10% of any upfront, milestone and other
fees received by Voyager in the event that the product is sublicensed to a third party.
Clinical Program. In October 2005, Voyager initiated its Phase III program
for Memryte. In October 2006, Voyager informed us that it was truncating its Phase III clinical trials for Memryte 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; however, there can be no assurance that Voyager will be able to complete the data analysis from its Phase III trials to assess efficacy nor that the data from the study will indicate efficacy.
CHRONOGESIC
CHRONOGESIC, based on
the DUROS technology, is intended for patients with chronic pain that is stable and opioid responsive and results from a variety of causes. CHRONOGESIC consists of a small osmotic pump, about the size of a matchstick, which is implanted under the
skin of a patient in a simple out-patient procedure. Once implanted, CHRONOGESIC is designed to deliver sufentanil for period of up to three months from a single application. If approved for marketing and sale, CHRONOGESIC will provide an
alternative to current therapies for the treatment of chronic pain such as pills and patches, as well as providing the potential advantages of physician controlled dosing, improved patient compliance and convenience and reduced potential for opioid
abuse. We intend to develop a family of dosage strengths, tailored to meet market needs. CHRONOGESIC is being developed for the U.S. and Canadian markets in collaboration with Endo Pharmaceutics, to which we have granted exclusive commercialization
rights pursuant to a development, commercialization and supply license agreement entered into effective November 2002. We will receive from Endo milestone payments if specified development milestones are achieved, and, if commercialized, we will
receive royalties based on sale of CHRONOGESIC in the U.S. and Canada.
Clinical Program. We have completed
an initial Phase I clinical trial, a Phase II clinical trial, a pilot Phase III clinical trial and a pharmacokinetic trial for CHRONOGESIC. We are presently working to redesign the delivery system to address performance problems. We have
stopped all clinical testing of CHRONOGESIC and will not resume clinical testing until the system design is completed.
Central Nervous
System Disorders
Market Opportunity. Millions of people suffer from chronic diseases and disorders of the
central nervous system (CNS), including brain and spinal cord tumors, chronic pain, psychosis, epilepsy, spasticity, spinal meningitis, Parkinson’s disease, and multiple sclerosis.
It is estimated that each year there are over 200,000 Americans diagnosed with a primary or metastatic brain tumor. Current treatments for CNS tumors
include surgery, radiation therapy, and chemotherapy. In addition, at any stage of disease, patients may also have treatment to control pain and other symptoms of the cancer, to relieve side effects of therapy, and to ease emotional problems. The
cure rate for most brain tumors is significantly lower than that for many other types of cancer.
Schizophrenia, a disease of the brain
that manifests itself through multiple signs and symptoms involving thought, perception and behavior, is another CNS disorder estimated to affect about 2.2 million patients in the U.S.; worldwide, the incidence is about 51 million.
Patients typically begin exhibiting symptoms early in life and the illness is usually severe and long lasting, requiring lifelong treatment. Adherence to prescribed drug regimens is recognized as a significant treatment obstacle in the schizophrenic
population. It is estimated that the schizophrenia world market generated total revenues of nearly $12 billion in 2004 and that schizophrenia drugs generated $5 billion in sales in 2002. Opportunities exist to apply our pharmaceutical systems
for treatment of these and other CNS disorders.
Development Strategy. We are developing our platform
technologies for systemic and targeted delivery of drugs to treat select CNS disorders.
We are conducting preclinical research on a SABER-based injectable controlled release product to deliver
a potent antipsychotic agent systemically in a controlled fashion, with a goal to deliver medication for 30 days from a single injection. We view our research activities as a proof-of-concept application of our drug delivery technologies to treat
CNS disorders. Once we have demonstrated proof-of-concept, our long-term plan is to use our platform technologies with therapeutic agents to develop products for CNS disorders.
Cardiovascular Disease
Market
Opportunity. Over 79 million Americans have one or more forms of cardiovascular disease, including high blood pressure, coronary heart disease and/or stroke. Cardiovascular diseases causes one death every 34 seconds
in America, which accounts for one in every 2.8 deaths in America, more than cancer, accidents and HIV (AIDS) combined, and medical care costs for these conditions totaled more than $400 billion in 2006, including health care expenditures and lost
productivity from death and disability.
Ischemic heart disease, one of the major forms of cardiovascular disease, is the leading cause of
death worldwide. Existing treatments for ischemia, or insufficient blood flow to the heart muscle, include cardiovascular bypass, angioplasty and the use of cardiovascular stents and similar medical devices. While effective, these treatments are
invasive, and ischemia returns in a significant number of patients. There is a need for less invasive and more long lasting treatments for ischemic heart disease.
Development Strategy. In collaboration with the University of Maastricht in The Netherlands, we are working to develop methods for treating chronic cardiovascular diseases through
continuous delivery of drugs to the pericardial sac of the heart, a thin membrane that envelops the heart. Our previous research in animal models suggests that ischemic heart disease may be treated by the induction of new blood vessel growth as a
way of regenerating normal blood flow to the heart and thereby restoring function to the diseased heart. Our research data showed that the delivery of a proprietary angiogenic factor directly to the pericardial sac of a test animal resulted in the
growth of new blood vessels and increased bloodflow in the heart. Should we choose to develop and commercialize a pharmaceutical system using such proprietary angiogenic factor or other proprietary agent, we may be required to obtain a license to
use such agent in our pharmaceutical system. Any required licenses may not be available to us on acceptable terms, if at all. See “Risk Factors—We may be required to obtain rights to certain drugs.”
Programs with Biologics
The proteins
and genes identified by the biotechnology industry are large, complex, intricate molecules, and many are unsuitable as drugs. If these molecules are given orally, they are often digested before they can have an effect; if given by injection, they
may be destroyed by the body’s natural processes before they can reach their intended sites of action. The body’s natural elimination processes require frequent, high dose injections that may result in unwanted side effects. As a result,
the development of biotechnology molecules for the treatment of human diseases has been limited, and advanced drug delivery systems such as we possess are required to realize the full potential of many of these protein and peptide drugs. We have
active programs underway to apply our drug delivery systems to various biotechnology drugs and drug candidates, and have entered into a number of feasibility studies with biotechnology and pharmaceutical companies to test their products in our
systems.
Industry Background
Chronic Diseases and Conditions
Although the pharmaceutical, biotechnology and medical device industries have played key
roles in increasing life expectancy and improving health, many chronic, debilitating diseases continue to be inadequately addressed with current drugs or medical devices. Cardiovascular disease, cancer, neurodegenerative diseases, diabetes,
arthritis, epilepsy and other chronic diseases claim the lives of millions of Americans each year. These
illnesses are prolonged, are rarely cured completely, and pose a significant societal burden in mortality, morbidity and cost. The Centers for Disease
Control estimates that the major chronic diseases are responsible for approximately 1.7 million deaths or 70% of all deaths in the U.S. Chronic diseases cause major limitations in daily living for more 25 million Americans. These diseases
account for more than 70% of the $1 trillion spent on health care each year in America. Demographic trends suggest that, as the U.S. population ages, the cost of treating chronic diseases will increase.
Current Approaches to Treatment
Drugs are available to treat many chronic diseases, but harmful side effects can limit prolonged treatment. In addition, patients with chronic diseases commonly take multiple medications, often several times a day, for the remainder of
their lives. If patients fail to take drugs as prescribed, they often do not receive the intended benefits or may experience side effects, which are harmful or decrease quality of life. These problems become more common as the number of drugs being
taken increases, the regimen of dosing becomes more complicated, or the patient ages or becomes cognitively impaired. It is estimated that only half of prescribed medicines are taken correctly.
The Pharmaceutical Industry . The pharmaceutical industry has traditionally focused on the chemical structure of small
molecules to create drugs that can treat diseases and medical conditions. The ability to use these molecules as drugs is based on their potency, safety and efficacy. Therapeutic outcome and ultimately the suitability of a molecule as a drug depends
to a large extent on how it gets into the body, distributes throughout the body, reacts with its intended site of action and is eliminated from the body. However, small molecules can act in diverse tissues throughout the body resulting in unwanted
side effects.
Most drugs require a minimum level in blood and tissues to have significant therapeutic effects. Above a maximum level,
however, the drug becomes toxic or has some unwanted side effects. These two levels define the therapeutic range of the drug. With conventional oral dosing and injections, typically a large quantity of drug is administered to the patient at one
time, which results in high blood levels of drug immediately after dosing. Because of these high levels, the patient can be over-medicated during the period immediately following dosing, resulting in wasted drug and possible side effects. Due to
distribution processes and drug clearance, the blood level of drug falls as time elapses from the last dose. For some duration, the patient is within the desired therapeutic range of blood levels. Eventually, the blood level of drug falls
sufficiently such that the patient becomes under-medicated and experiences little or no drug effect until the next dose is administered.
The Biotechnology Industry . Over the past twenty-five years, the biotechnology revolution and the expanding field of genomics have led to the discovery of huge numbers of proteins and genes. Tremendous
resources have been committed in the hope of developing drug therapies that would better mimic the body’s own processes and allow for greater therapeutic specificity than is possible with small molecule drugs. Unfortunately, this huge effort
has led to only a limited number of therapeutic products. The proteins and genes identified by the biotechnology industry are large, complex, intricate molecules, and many are unsuitable as drugs. If these molecules are given orally, they are often
digested before they can have an effect; if given by injection, they may be destroyed by the body’s natural processes before they can reach their intended sites of action. The body’s natural elimination processes require frequent, high
dose injections that may result in unwanted side effects. As a result, the development of biotechnology molecules for the treatment of human diseases has been limited.
The Drug Delivery Industry . In the last thirty-five years, a multibillion dollar drug delivery industry has developed on the basis that medicine can be improved by delivering drugs to
patients in a precise, controlled fashion. Several commercially successful oral controlled release products, transdermal controlled release patches, and injectable controlled release formulations have been developed. These products demonstrate that
the delivery system can be as important to the ultimate therapeutic value of a pharmaceutical product as the drug itself. However, drug delivery products on the market today can still be improved, for example, by providing reduced abuse potential,
targeted delivery to minimize system effects and longer delivery durations where useful.
Furthermore, traditional drug delivery products are generally not capable of administering biotechnology agents such as proteins, peptides and genes.
The Medical Device Industry . Advances in the field of medical device technology have dramatically improved
device miniaturization and sophistication and allowed minimally invasive surgical access to remote locations within the body. For example, a coronary bypass patient can be treated with a stent in a procedure with a relatively short recovery, rather
than with major surgery. Most devices, however, apply only mechanical solutions, rather than delivering chemical or biological agents.
The DURECT
Solution: Pharmaceutical Systems
We are developing and commercializing pharmaceutical systems that will deliver the right drug to the
right place in the right amount at the right time to treat chronic and episodic diseases and conditions. By integrating chemistry and engineering advancements, we can achieve what drugs or devices alone cannot. Our pharmaceutical systems enable
optimized therapy for a given disease or patient population by controlling the rate and duration of drug administration. In addition, if advantageous for the therapy, our pharmaceutical systems can target the delivery of the drug to its intended
site of action.
·
The Right Drug: By precisely controlling the dosage or targeting delivery to a specific site, we can expand the therapeutic use of compounds that otherwise would be too potent to be
administered systemically, do not remain in the body long enough to be effective, or have significant side effects when administered systemically. This flexibility allows us to work with a variety of drug candidates including small molecules,
proteins, peptides or genes.
·
The Right Place: In addition to enabling systemic delivery, if advantageous for the therapy, with precise placement of our proprietary catheters or biodegradable drug delivery
formulations, we can design our pharmaceutical systems to deliver drugs directly to the intended site of action. This can ensure that the drug reaches the target tissue in effective concentrations, eliminate many side effects caused by delivery of
drug to unintended sites in the body, and reduce the total amount of drug administered to the body.
·
The Right Amount: Our pharmaceutical systems can automatically deliver drug dosages continuously within the desired therapeutic range for the duration of the treatment period, from
days to up to one year, without the fluctuations in drug levels associated with conventional pills or injections. This can reduce side effects, eliminate gaps in drug therapy, conveniently ensure accurate dosing and patient compliance, and may
reduce the total amount of drug administered to the body.
·
The Right Time: Our pharmaceutical systems technologies are designed to minimize the need for intervention by the patient or care-giver and enhance dosing compliance. In addition to
reducing the cost of care, continuous drug therapy frees the patient from repeated treatment or hospitalization, improving convenience and quality of life. Our systems are well-suited to deliver drug for the right period of time for the intended
indication, whether for hours or days for acute indications or months or years for treating chronic, debilitating diseases such as chronic pain, cancer, heart disease, and neurodegenerative diseases. We believe that it is more effective to treat
chronic diseases with continuous, long-term therapy than with alternatives such as multiple conventional injections or oral dosage forms that create short-term effects.
DURECT Pharmaceutical Systems Technology
DURECT’s pharmaceutical systems combine technology innovations from the drug delivery and medical device industries with proprietary pharmaceutical
and biotechnology drug formulations. These capabilities can enable new drug therapies or optimize existing therapies based on a broad range of compounds, including small molecule pharmaceuticals as well as biotechnology molecules such as proteins,
peptides and genes. We currently have six major technology platforms:
The SABER Delivery System
The SABER system is a patented controlled-release technology that can be formulated for systemic or local administration of active agents via the
parenteral or oral route. We are researching and developing a variety of controlled-release products based on the SABER technology. These include injectable controlled release products for systemic and local delivery and oral products. We believe
that our SABER system can provide the basis for the development of a state-of-the-art biodegradable, controlled-release injectable. The SABER system uses a high-viscosity base component, such as sucrose acetate isobutyrate (SAIB), to provide
controlled release of the drug. When the high viscosity SAIB is formulated with drug, a biocompatible solvent and other additives, the resulting formulation is liquid enough to inject easily with standard syringes and needles. After injection of a
SABER formulation, the solvent diffuses away, leaving a viscous depot. Depending on how it is formulated, the SABER system can successfully deliver therapeutic levels of a wide spectrum of drugs from one day to three months from a single injection.
Based on research and development work to date, our SABER technology has shown the following advantages:
·
Peptide/Protein Delivery —The chemical nature of the SABER system tends to repel water and body enzymes from its interior and thereby stabilizes proteins and peptides.
For this reason, we believe that the SABER system is well suited as a platform for biotechnology therapeutics based on proteins and peptides.
·
Less Burst —Typically, controlled release injections are associated with an initial higher release of drug immediately after injection (also called “burst”).
Animal and human studies have shown that injectables based on the SABER technology can be associated with less post-injection burst than is typically associated with other commercially available injectable controlled release technologies.
·
High Drug Concentration —Drug concentration in a SABER formulation can be as high as 30%, considerably greater than is typical with other commercially available
injectable controlled release technologies. As a result, smaller injection volumes are possible with this technology.
·
Ease of Administration —Prior to injection, SABER formulations are fairly liquid and therefore can be injected through small needles. Additionally, because of the higher
drug concentration of SABER formulations, less volume is required to be injected. Small injection volumes and more liquid solutions are expected to result in easier, less painful administration.
·
Strong Patent Protection —The SABER system, SABER-like materials, and various applications of this technology to pharmaceuticals, medical devices and drug delivery are
covered by United States and foreign patents. See “Patents, Licenses and Proprietary Rights” below.
·
Ease of Manufacture —Compared to microspheres and other polymer-based controlled release injectable systems, SABER is readily manufacturable at low cost.
The SABER Technology is the basis of POSIDUR, which is currently in Phase II clinical testing. In our clinical studies thus
far, SABER formulations have been observed to be safe and well-tolerated, and no significant side effects or adverse events were reported.
The TRANSDUR Transdermal Delivery System
Our TRANSDUR technology is a proprietary transdermal delivery system that enables delivery of drugs continuously for up to 7 days. The TRANSDUR technology
is the basis for TRANSDUR-Sufentanil, which is currently in Phase II testing and which we have licensed to Endo in the U.S. and Canada. The TRANSDUR technology is also the basis for TRANSDUR-Bupivacaine, which is currently in Phase II testing and
for which we have retained full commercialization rights.
The ORADUR Sustained Release Gel Cap Technology
We are developing ORADUR sustained release oral technology based on our SABER technology. We believe that ORADUR can transform short-acting oral capsule
dosage forms into sustained release oral products. Products based on our ORADUR technology (previously referred to as SABER oral gel cap technology) can take the form of an easy to swallow gelatin capsule that uses a high-viscosity base component
such as sucrose acetate isobutyrate (SAIB) to provide controlled release of active ingredients for a period of 12 to 24 hours of drug delivery. Oral dosage forms based on the ORADUR gel-cap may also have the added benefit of being less prone to
abuse (e.g., by crushing or alcohol or water extraction) than other controlled release dosage forms on the market today. ORADUR-based products can be manufactured by a simple process using conventional methods making them readily scalable. These
properties have the potential to make ORADUR-based products an attractive option for pharmaceutical companies that seek to develop abuse resistant oral products. The ORADUR Technology is the basis of Remoxy, a novel long-acting oral formulation of
the opioid oxycodone which is targeted to decrease the potential for oxycodone abuse currently under Phase III clinical testing by Pain Therapeutics and its commercialization sublicensee, King. We also have a second ORADUR abuse-resistant opioid
product in the Pain Therapeutics alliance, about which Pain Therapeutics has announced positive results from a Phase I clinical trial.
The DURIN Biodegradable Implant Technology
Our DURIN technology is a
proprietary biodegradable implant that enables parenteral delivery of drugs from several weeks to six months or more using our Lactel ® brand polymers and co-polymers of lactic and glycolic acid. The DURIN technology can deliver a wide variety of drugs including small and large molecule compounds. Our proprietary implant design allows
for a variety of possible delivery profiles including constant rate delivery. Because DURIN implants are biodegradable, at the end of its delivery life, what remains of the DURIN implant is absorbed by the body. DURECT is researching and developing
products based on the DURIN technology for a variety of chronic disease applications. The DURIN technology is the basis of Memryte for the treatment of Alzheimer’s disease currently under a truncated Phase III clinical trial by Voyager.
The DUROS Technology
The DUROS system is a miniature drug-dispensing pump which can be as small as a wooden matchstick. We have licensed the DUROS system for specified fields of use from ALZA, pursuant to a development and commercialization agreement entered
into effective April 1998. The potential of the DUROS technology as a platform for providing drug therapy was demonstrated by the FDA’s approval in March 2000 of ALZA’s VIADUR ® product (leuprolide acetate implant), a once-yearly implant for the palliative
treatment of prostate cancer, the first approved product to incorporate the DUROS implant technology. The DUROS system can be used for therapies requiring systemic or site-specific administration of drug. To deliver drugs systemically as in our
CHRONOGESIC product, the DUROS system is placed just under the skin, for example in the inner side of the upper arm, in an outpatient procedure that is completed in just a few minutes using local anesthetic. Removal or replacement of the product is
also a simple and quick procedure completed in the doctor’s office. To deliver drug to a specific site, we are developing proprietary miniaturized catheter technology that can be attached to the DUROS system to direct the flow of drug directly
to a target organ, tissue or synthetic medical structure, such as a graft. The DUROS system is the basis of CHRONOGESIC under development in collaboration with Endo in
the U.S. and Canada. Clinical trials have been suspended pending the redesign of the delivery system to address performance issues.
The MICRODUR Biodegradable Microparticulate Technology
Our MICRODUR technology is a patented biodegradable microparticulate depot injectable. We have
experience in microencapsulation of a broad spectrum of drugs using our Lactel ® brand
polymers and co-polymers of lactic and glycolic acid. In our MICRODUR process, both standard and proprietary polymers are used to entrap an active agent in solid matrices or capsules comprising particles generally between 10 and 125 microns in
diameter. Through suitable choice of polymers and processing, sustained release from a few days to many months can be achieved. As with the DURIN technology, MICRODUR particles degrade fully in the body after the active agent is released. Our range
of experience extends from manufacture of the polymer raw material to process and product development, scale up and cGMP manufacture.
DURECT Strategy
Our objective is to become a specialty pharmaceutical company by developing, and eventually commercializing pharmaceutical systems that
address significant medical needs and improve patients’ quality of life. To achieve this objective, our strategy includes the following key elements:
Focus on Chronic Debilitating Medical Conditions . Many of the diseases that present the greatest challenges to medicine are chronic, debilitating diseases such as chronic pain, central
nervous system disorders, cardiovascular disorders, cancer and degenerative neurological diseases. Our initial efforts will focus on using our versatile drug delivery platform technologies to develop products that address these diseases.
Minimize Product Development Risk and Speed Time-to-Market . Initially, we intend to minimize product development risk
and speed time-to-market by using our drug delivery platform technologies to administer drugs for which medical data on efficacy and safety are available. This strategy reduces much of the development risk that is inherent in traditional
pharmaceutical product discovery. We anticipate that we can expand the medical usefulness of existing well-characterized drugs in several ways:
·
expand uses or create new uses for existing drugs by delivering drugs continuously for convenient long dosing intervals;
·
create new uses for drugs which were previously considered to be too potent to be used safely by precisely controlling dosing or by delivering them directly to the site of action;
·
enhance drug performance by minimizing side effects; and
·
expand uses of drugs by delivering them to the target site.
We anticipate that our pharmaceutical systems can be more rapidly developed at lower cost than comparable products that are developed purely based on chemical solutions to the problems of efficacy, side effects, stability and delivery of
the active agent. We believe that our ability to innovate more rapidly will allow us to respond more quickly to market feedback to optimize our existing pharmaceutical systems or develop line extensions that address new market needs.
Enable the Development of Pharmaceutical Systems Based on Biotechnology and Other New Compounds . We believe there is a
significant opportunity for pharmaceutical systems to add value to therapeutic medicine by administering biologics, such as proteins, peptides and genes. We believe our technologies will improve the specificity, potency, convenience and
cost-effectiveness of proteins, peptides, genes and other newly discovered drugs. Our systems can enable these compounds to be effectively administered, thus allowing them to become viable medicines. We can address the stability and storage needs of
these compounds through our advanced formulation technology and package them in a suitable pharmaceutical
system for optimum delivery. Through continuous administration, the SABER, TRANSDUR, ORADUR, DURIN, DUROS and MICRODUR technology platforms may eliminate the
need for multiple injections of these drugs. In addition, through the use of our proprietary miniature catheter technology or by precise placement of our proprietary biodegradable drug formulations, proteins and genes can be delivered to specific
tissues for extended periods of time, thus ensuring that large molecule agents are present at the desired site of action and minimizing the potential for adverse side effects elsewhere in the body.
Diversify Risk by Pursuing Multiple Programs in Development. In order to reduce the risks inherent in pharmaceutical
product development, we have diversified our product pipeline such that we now presently have six different disclosed programs in clinical development, including two oral drugs, two transdermal patches and two injectable/implant drugs. We believe
that having multiple programs in development helps mitigate the negative consequences to us of any setbacks or delays in any of our programs.
Enable Product Development Through Strategic Collaborations. We believe that entering into selective collaborations with respect to our product development programs can enhance the success of our product
development and commercialization, diversify our product portfolio and enable us to better manage our operating costs. Additionally, such collaborations enable us to leverage investment by our collaborators and reduce our net cash burn, while
retaining significant economic rights.
Build Our Own Sales and Marketing Organization. Our goal is to become
a specialty pharmaceutical company where we commercialize products with significant market potential. To that end, we intend, over the course of a few years, to build up commercial, sales and marketing capability and other required infrastructure in
focused specialty areas. We may still choose to enter into strategic alliances from time to time consistent with our strategy to leverage the established sales organizations of third-party collaborators to achieve greater market penetration for some
of our products than we could on our own. If we choose to enter into third-party collaborations to commercialize our pharmaceutical systems, we believe we have the flexibility to enter into these alliances under circumstances that allow us to retain
greater economic participation because our pharmaceutical systems combine drugs for which medical data on efficacy and safety are available with proven technology platforms.
Third-Party Collaborations
We have entered into the following collaboration agreements:
Nycomed Danmark, APS. In November 2006, we entered into a collaboration agreement with Nycomed. Under the terms of the
agreement, we licensed to Nycomed the exclusive commercialization rights to POSIDUR for the European Union (E.U.) and select other countries. Nycomed paid us 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. We will jointly direct and equally fund with Nycomed a development program for POSIDUR intended to secure regulatory approval in both the U.S. and the
E.U. In addition, we will manufacture and supply the product to Nycomed for commercial sale in the territory licensed to Nycomed. Nycomed will pay us blended royalties on sales in the defined territory of 15-40% depending on annual sales, as well as
a manufacturing markup. We retain full commercial rights to POSIDUR in the U.S., Canada, Asia and certain other countries. The agreement shall continue in effect until terminated. The agreement provides each party with specified termination rights,
including the right of each party to terminate the agreement upon material breach of the agreement by the other party. In addition, Nycomed shall have the right to terminate the agreement after expiry of patents covering POSIDUR in all major market
countries in the E.U., for adverse product events and in the event that a specified clinical milestone is not met for POSIDUR. We have the right to terminate the agreement in the event that Nycomed pursues directly or indirectly any proceeding
seeking to have any of our POSIDUR related patents revoked or declared invalid, unpatentable or unenforceable.
Pain Therapeutics,
Inc. In December 2002, we entered into an exclusive agreement with Pain Therapeutics to develop and commercialize on a worldwide basis oral sustained release, abuse deterrent opioid
products incorporating four specified opioid drugs using our ORADUR technology. The agreement also provides Pain Therapeutics with the exclusive right to
commercialize products developed under the agreement on a worldwide basis. In connection with the execution of the agreement, Pain Therapeutics paid us an upfront fee. In November 2005, Pain Therapeutics sublicensed the commercialization rights to
products developed under the agreement to King. In December 2005, we amended our agreement with Pain Therapeutics in order to specify our obligations with respect to the supply of key excipients for use in the licensed products. Under the agreement,
as amended, we are responsible for formulation development, supply of selected key excipients used in the manufacture of licensed product and other specified tasks. We will receive additional payments if certain development and regulatory milestones
are achieved. We receive reimbursement for our research and development efforts on the licensed products and a manufacturing profit on our supply of key product excipients to Pain Therapeutics for use in the licensed products. In addition, if
commercialized, we will receive royalties for Remoxy and other licensed products which do not contain an opioid antagonist of between 6.0% to 11.5% of net sales of the product depending on the sales volumes. This agreement can be terminated by
either party for material breach by the other party and by Pain Therapeutics without cause.
Endo Pharmaceuticals Inc.
(TRANSDUR-Sufentanil) . On March 10, 2005, we entered into a license agreement with Endo under which we granted to Endo the exclusive right to develop, market and commercialize TRANSDUR-Sufentanil in the U.S. and
Canada. Under the terms of the agreement, Endo will assume all remaining development and regulatory filing responsibilities in the U.S. and Canada, including the funding thereof. We will perform all formulation development for Endo unless we default
on such obligations and we will be reimbursed for our fully allocated cost in performance of such work. Endo will also be responsible and pay for the manufacture, marketing, sales and distribution of TRANSDUR-Sufentanil in the U.S. and Canada. Endo
has paid us an upfront fee of $10 million, and we will receive additional payments of up to approximately $35 million in the aggregate if predetermined regulatory and commercial milestones are achieved. If commercialized, Endo will also pay us
product royalties based on the net sales of TRANSDUR-Sufentanil under the agreement. We have the right to co-promote TRANSDUR-Sufentanil under terms specified in the agreement. The agreement shall continue in effect until terminated. The agreement
provides each party with specified termination rights, including the right of each party to terminate the agreement upon material breach of the agreement by the other party. In addition, Endo shall have the right to terminate the agreement at any
time without cause subject to a specified notice period and due to adverse product events, legal impediment or the issuance of a final, non-appealable court order enjoining Endo from selling TRANSDUR-Sufentanil in the U.S. and Canada as a result of
an action for patent infringement by a third party, provided that in the latter instance, we will be required to pay Endo a termination fee ranging from $5 million to $10 million, depending on the date of termination. We have the right to terminate
the agreement in the event that Endo pursues directly or indirectly any proceeding seeking to have any of our TRANSDUR-Sufentanil related patents revoked or declared invalid, unpatentable or unenforceable.
Voyager Pharmaceutical Corporation . In July 2002, we entered into a development and commercialization agreement with
Voyager. Under the terms of the agreement, we will collaborate with Voyager to develop a product using our DURIN technology to provide sustained release of leuprolide based on Voyager’s patented method of treatment of Alzheimer’s disease.
The agreement also provides Voyager with the right to commercialize the resulting product on a worldwide basis. We are responsible for preclinical development, product manufacture and other specified tasks. We will receive payments if certain
development and regulatory milestones are achieved, and receive payments for our research and development efforts. If Memryte is commercialized, we will receive royalties based on product sales. This agreement can be terminated by either party for
material breach by the other party. Effective January 2007, we amended our agreement with Voyager. Under the amendment, among other changes to the Agreement, the royalty rate that we will receive on net sales of Memryte, if commercialized, is
doubled (to 10-14% of net sales after the amendment), and in addition, we will receive 10% of any upfront, milestone and other fees received by Voyager in the event that the product is sublicensed to a third party. In return, we paid Voyager $1
million in cash and forgave approximately $725,000 which was owed to us for previously provided services.
Endo Pharmaceuticals Inc. (CHRONOGESIC) . In November 2002, we entered into
a development, commercialization and supply license agreement with Endo under which the companies will collaborate on the development and commercialization of CHRONOGESIC for the U.S. and Canada. The agreement was amended in January 2004, in
November 2004 and again in January 2006 to take into account the increase in the CHRONOGESIC development program timeline due to DURECT’s implementation of necessary design and manufacturing enhancements. In connection with the execution of the
agreement in November 2002, Endo purchased 1,533,742 shares of newly issued common stock of DURECT at an aggregate purchase price of approximately $5.0 million. Under the terms of the agreement, as amended, we will be responsible for the CHRONOGESIC
product’s design and development. Endo shall not be responsible for any development costs for CHRONOGESIC prior to May 1, 2007. Commencing on May 1, 2007, unless the agreement is earlier terminated by Endo, Endo will fund 50% of the
ongoing development costs and will reimburse us for a portion of our prior development costs for CHRONOGESIC upon the achievement of certain milestones. Development-based milestone payments made by Endo under this agreement could total up to $52
million. Under the agreement, Endo has licensed exclusive promotional rights to CHRONOGESIC in the U.S. and Canada. Endo will be responsible for marketing, sales and distribution, including providing specialty sales representatives dedicated to
supplying technical and training support for CHRONOGESIC therapy and will pay for product launch costs. We will be responsible for the manufacture of CHRONOGESIC. If commercialized, we will share profits from the commercialization of CHRONOGESIC in
the U.S. and Canada with Endo based on the financial performance of CHRONOGESIC. Our agreement with Endo provides each party with specified termination rights. In particular, our agreement can be terminated by Endo in the event that (i) we have
not delivered to Endo on or before March 31, 2007 a written notice that a human pharmacokinetic trial had been completed with CHRONOGESIC, together with a full study report of the results of the trial or (ii) Endo, determines, in its sole
discretion, to terminate the agreement during the sixty-day period after our delivery of our notice, provided, that, in each case Endo delivers to us its written notice of termination prior to April 30, 2007. We will not complete the requisite
pharmacokinetic trial by March 31, 2007, which will give Endo the right to terminate this agreement.
ALZA
Corporation. On April 21, 1998, we entered into a Development and Commercialization Agreement with ALZA Corporation (presently a Johnson & Johnson company), which was amended and restated on April 28,
1999, April 14, 2000 and October 1, 2002. Pursuant to this agreement, ALZA granted to us exclusive, worldwide rights under ALZA intellectual property, including patents, trade secrets and know-how, to develop and commercialize
products using the DUROS drug delivery technology in the fields of the delivery of drugs by catheter (except for the sufentanil product) to the central nervous system to treat selected central nervous system disorders, the delivery of drugs by
catheter to the middle and inner ear, the delivery of drugs by catheter into the pericardial sac of the heart, the delivery of selected drugs by catheter into vascular grafts and the delivery of selected cancer antigens. As part of the amendments
made to the agreement in October 1, 2002, ALZA may obtain from us, for its own behalf or on behalf of one of its affiliates, the exclusive right to develop and commercialize a product in a field of use exclusively licensed to us, provided that
such product does not incorporate a drug in the same drug class and is not intended for the same therapeutic indication as a product which is then being developed or commercialized by us or for which we have made commitments to a third party. In the
event that ALZA or an affiliate commercializes such a product, ALZA or its affiliate will pay us a royalty on sales of such product at a specified rate. Under this agreement, we have the right to subcontract to third parties product development
activities including development of components of the DUROS system, provided that design of the DUROS system and other development activities relating to the DUROS system must be performed by ourselves or ALZA unless ALZA permits us to subcontract
out such development. We have the right to subcontract manufacturing activities relating to our products other than the assemblage of the components of the DUROS system itself. In the event of a change in our corporate control, including an
acquisition of us, our right to develop and manufacture the DUROS system would terminate, and ALZA would have the right to develop and manufacture DUROS systems for us for so long as ALZA can meet our specification and supply requirements following
such change in control. We also have the right to partner with third parties to commercialize our products on a product-by-product basis, provided that ALZA has options to distribute our cancer antigen products which do not incorporate proprietary
molecules owned by a third party
throughout the world. We must allow ALZA an opportunity to negotiate in good faith for commercialization rights to our products developed under the agreement
prior to granting these rights to a third party, other than products that are subject to ALZA’s option or products for which we have obtained funding or access to a proprietary drug from a third party to whom we have granted commercialization
rights prior to commencement of human clinical trials. Any inventions and related intellectual property rights developed by us or ALZA under the agreement which relate to the DUROS system or its manufacture or to any combination of the DUROS system
with other components, active agents, features or processes, shall be owned exclusively by ALZA. All other inventions and related intellectual property rights developed under the agreement, whether by us or ALZA, shall be owned exclusively by us. In
consideration for the rights granted to us under this agreement, ALZA received 5,600,000 shares of our Series A-1 Preferred Stock which was converted into 5,600,000 shares of our common stock concurrent with our initial public offering of common
stock. As additional consideration, ALZA is entitled to receive a royalty on the net sales of our DUROS-based products in an amount not less than 2.5% nor more than 5% of such net sales for so long as we sell the product. ALZA is also entitled to a
percentage of any up-front license fees, milestone or any special fees, payments or other consideration we receive from the sublicense of any of our DUROS-based products, excluding research and development funding, in an amount of 5% of such
payment. In connection with the amendment to the agreement made in April 2000, ALZA received 1,000,000 shares of our common stock and a warrant to purchase 1,000,000 shares of common stock at an exercise price of $12.00 per share. This warrant
expired in September 2004, which was the fourth anniversary after the warrant first became exercisable.
EpiCept
Corporation. On December 20, 2006, we entered into a license agreement with EpiCept Corporation (EpiCept) that provides us with the exclusive, worldwide rights to certain of EpiCept’s intellectual property for a
transdermal patch containing bupivacaine for the treatment of back pain. Pursuant to the agreement, we paid EpiCept $1 million upfront in December 2006 and, subject to our achievement of specified milestones, will pay EpiCept an additional $9
million in milestone payments as well as a royalty on net sales of any product covered by the license.
NeuroSystec
Corporation . In May 2004, we entered into an exclusive license agreement with NeuroSystec Corporation (NeuroSystec), a privately-held corporation founded by Al Mann, under which we granted to NeuroSystec exclusive
worldwide rights to develop and commercialize products designed for the treatment of tinnitus and to improve post-operative recovery and tolerance of surgical implantation of cochlear devices using specified DURECT proprietary drug treatment methods
and drug delivery technologies to deliver precise doses of appropriate medications directly to the middle or inner ear. The first development product is currently in early clinical development. We are responsible for formulation development of
products utilizing our drug delivery platforms and manufacture and supply of product components consisting of our drug delivery platforms. We will receive certain milestone payments if certain development and commercialization milestones are
achieved, as well as royalties based on product sales if products are commercialized under the agreement. This agreement can be terminated by either party for material breach by the other party and by NeuroSystec without cause. In connection with
the agreement, we received equity constituting a minority ownership interest in NeuroSystec.
Commercial Businesses
ALZET ®
We currently make and sell the ALZET product on a worldwide basis. We
market the ALZET product through a direct sales force in the U.S. and through a network of distributors outside the U.S.
The ALZET product
is a miniature, implantable osmotic pump used for experimental research in mice, rats and other laboratory animals. These pumps are neither approved nor intended for human use. ALZET pumps continuously deliver drugs, hormones and other test agents
at controlled rates from one day to four weeks without the need for external connections, frequent handling or repeated dosing. In laboratory research, these infusion pumps can be used for systemic administration when implanted under the skin or in
the body. They can
be attached to a catheter for intravenous, intracerebral, or intra-arterial infusion or for targeted delivery, where the effects of a drug or test agent are
localized in a particular tissue or organ.
We acquired the ALZET product and assets used primarily in the manufacture, sale and
distribution of this product from ALZA in April 2000. We believe that the ALZET business provides us with innovative design and application opportunities for potential new products.
Lactel ® AbsorbablePolymers
We currently design, develop and manufacture a wide
range of standard and custom biodegradable polymers based on lactide, glycolide and caprolactone under the LACTEL ® brand for pharmaceutical and medical device clients for use as raw materials in their products. These materials are manufactured and sold by us directly from our facility in Pelham,
Alabama and are used by us and our third-party customers for a variety of controlled-release and medical-device applications, including several FDA-approved commercial products. Until December 31, 2004, this business was conducted by our wholly
owned subsidiary, Absorbable Polymers International Corporation (API), formerly known as Birmingham Polymers Inc., an Alabama corporation. API was merged with and into DURECT on December 31, 2004.
Marketing and Sales
Historically, we have
established strategic distribution and marketing alliances for our pharmaceutical systems to leverage the established sales organizations that certain pharmaceutical companies have in markets we are targeting. However, our goal is to become a
specialty pharmaceutical company that commercializes its own products with significant market potential. To that end, we intend, over the course of a few years, to build up commercial, sales and marketing capability and other required infrastructure
in focused specialty areas although there can be no assurance that we will be able to do so. We may still choose to enter into strategic alliances from time to time consistent with our strategy to leverage the established sales organizations of
third-party collaborators to achieve greater market penetration for some of our products than we could on our own. If we choose to enter into third-party collaborations to commercialize our pharmaceutical systems, we believe we have the flexibility
to enter into these alliances under circumstances that allow us to retain greater economic participation because our pharmaceutical systems combine drugs for which medical data on efficacy and safety are available with proven technology platforms.
We market and sell our ALZET product in the U.S. through a direct sales force, and we have a network of distributors for this product
outside of the U.S.
Suppliers
We
purchase sucrose acetate isobutyrate, a raw material for our ORADUR and SABER-based pharmaceutical systems, including POSIDUR, Remoxy and other ORADUR-based opioid drug candidates licensed to Pain Therapeutics, pursuant to a supply agreement with
Eastman Chemical Company. We also purchase sufentanil for CHRONOGESIC and TRANSDUR-Sufentanil pursuant to a supply agreement with Mallinckrodt, Inc. We believe that these agreements will provide a sufficient supply of these raw materials to meet our
needs for the foreseeable future. We do not have in place long term supply agreements with respect to all of the components of any of our pharmaceutical systems, however, and are subject to the risk that we may not be able to procure all required
components in adequate quantities, within acceptable time frames or at reasonable cost.
Customers
A substantial portion of our product revenues is derived from sale of the ALZET product line. Until such time that we are able to bring our pharmaceutical
systems to market, if at all, we expect this trend to continue. We also receive revenue from collaborative research and development arrangements with our third-party collaborators. For the year ended December 31, 2006, revenues from our
collaborative agreements with Pain
Therapeutics and Endo (TRANSDUR-Sufentanil) represented 34% and 20% of our total collaborative research and development revenues, respectively. At
December 31, 2006, three customers accounted for 22%, 20% and 16% of our net accounts receivable. At December 31, 2005, three customers accounted for 27%, 26% and 23% of our net accounts receivable.
Manufacturing
The process for manufacturing our
pharmaceutical systems is technically complex, requires special skills, and must be performed in a qualified facility. Our manufacturing facility in Cupertino, CA is a functional multi-discipline site that we have used to manufacture research and
clinical supplies of several of our pharmaceutical systems under GMP, including POSIDUR, Memryte, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, Remoxy and CHRONOGESIC. In the future, we intend to develop additional manufacturing capabilities for our
pharmaceutical systems and components to meet our demands and those of our third party collaborators by contracting with third party manufacturers and by construction of additional manufacturing space at our current facilities in Cupertino, CA,
Vacaville, CA and Pelham, AL. We manufacture our ALZET product at our Vacaville, CA facility. We have entered into a long term supply agreement with Corium International, Inc. for clinical and commercial supplies of TRANSDUR-Bupivacaine and a long
term supply agreement with Hospira Worldwide, Inc. for clinical and commercial supplies of POSIDUR.
Patents, Licenses and Proprietary Rights
Our success depends in part on our ability to obtain patents, to protect trade secrets, to operate without infringing upon the
proprietary rights of others and to prevent others from infringing on our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to the development of our business. As of February 28, 2007, we held 28 issued U.S. patents and 72 issued foreign patents (which include granted European patent rights that have been
validated in various EU member states). In addition, we have 39 pending U.S. patent applications and have filed 55 patent applications under the Patent Cooperation Treaty, from which 110 national phase applications are currently pending in Europe,
Australia, Japan, Canada, Mexico, New Zealand, Brazil, Israel, India, Hong Kong and China. Our patents expire at various dates starting in the year 2012.
Proprietary rights relating to our planned and potential products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are effectively
maintained as trade secrets. Patents owned by or licensed to us may not afford protection against competitors, and our pending patent applications now or hereafter filed by or licensed to us may not result in patents being issued. In addition, the
laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S.
The
patent positions of biopharmaceutical companies involve complex legal and factual questions and, therefore, their enforceability cannot be predicted with certainty. Our patents or patent applications, or those licensed to us, if issued, may be
challenged, invalidated or circumvented, and the rights granted thereunder may not provide proprietary protection or competitive advantages to us against competitors with similar technology. Furthermore, our competitors may independently develop
similar technologies or duplicate any technology developed by us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized,
any related patent may expire or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent, which could adversely affect our ability to protect future product development and, consequently,
our operating results and financial position.
Because patent applications in the U.S. are maintained in secrecy for at least 18 months
after filing and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be
certain that we were the first to make the inventions covered by each of our issued or pending patent applications or that we were the first to file for
protection of inventions set forth in such patent applications.
Our planned or potential products may be covered by third-party patents or
other intellectual property rights, in which case we would need to obtain a license to continue developing or marketing these products. Any required licenses may not be available to us on acceptable terms, if at all. If we do not obtain any required
licenses, we could encounter delays in product introductions while we attempt to design around these patents, or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. Litigation may be necessary to
defend against or assert such claims of infringement, to enforce patents issued to us, to protect trade secrets or know-how owned by us, or to determine the scope and validity of the proprietary rights of others. In addition, interference
proceedings declared by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications. Litigation or interference proceedings could result in substantial costs to and diversion
of effort by us, and could have a material adverse effect on our business, financial condition and results of operations. These efforts by us may not be successful.
We may rely, in certain circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our proprietary technology and processes, in part, by
confidentiality agreements with our employees and certain contractors. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become
known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may also arise as to the rights in related or resulting
know-how and inventions.
Government Regulation
The Food and Drug Administration. The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture
and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution,
record keeping, approval, advertising and promotion of our products. We believe that our initial pharmaceutical systems will be regulated as drugs by the FDA rather than as biologics or devices, whereas later pharmaceutical systems may be regulated
as combination products with a device designation for all or some of the final product components.
The process required by the FDA under
the new drug provisions of the Federal Food, Drug and Cosmetics Act before our initial pharmaceutical systems may be marketed in the U.S. generally involves the following:
·
preclinical laboratory and animal tests;
·
submission of an IND application which must become effective before clinical trials may begin;
·
adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed pharmaceutical in our intended use; and
·
FDA approval of a new drug application.
The testing and
approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis, if at all. Even though several of our pharmaceutical systems utilize active drug ingredients
that are commercially marketed in the United States in other dosage forms, we need to establish safety and effectiveness of those active ingredients in the formulation and dosage forms that we are developing.
Preclinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the pharmaceutical system. We then submit the
results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective
before we may begin human clinical trials. Each subsequent new clinical protocol must also be submitted to the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises
concerns or questions about the conduct of the trials as outlined in the IND and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. Our submission of an IND
may not result in FDA authorization to commence clinical trials. Further, an independent Institutional Review Board at each medical center proposing to conduct the clinical trials must review and approve any clinical study as well as the related
informed consent forms and authorization forms that permit us to use individually identifiable health information of study participants.
Human clinical trials are typically conducted in three sequential phases which may overlap:
·
PHASE I: The drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion.
·
PHASE II: Involves studies in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for
specific targeted diseases and to determine dosage tolerance and optimal dosage.
·
PHASE III: When Phase II evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage, clinical efficacy and to further test for safety in an expanded patient population, at multiple, geographically dispersed clinical study sites.
In the case of products for severe diseases, such as chronic pain, or life-threatening diseases such as cancer, the initial human testing is often conducted in patients
with disease rather than in healthy volunteers. Since these patients already have the target disease or condition, these studies may provide initial evidence of efficacy traditionally obtained in Phase II trials, and thus these trials are frequently
referred to as Phase I/II trials. We cannot be certain that we will successfully complete Phase I, Phase II or Phase III testing of our pharmaceutical systems within any specific time period, if at all. Furthermore, the FDA or the Institutional
Review Board or the sponsor may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. During the clinical development of products, sponsors
frequently meet and consult with the FDA in order to ensure that the design of their studies will likely provide data both sufficient and relevant for later regulatory approval; however, no assurance of approvability can be given by the FDA.
The results of product development, preclinical studies and clinical studies are submitted to the FDA as part of a new drug application,
or NDA, for approval of the marketing and commercial shipment of the product. Submission of an NDA requires the payment of a substantial user fee to the FDA, and although the agency has defined user fee goals for the time in which to respond to
sponsor applications, we cannot assure you that the FDA will act in any particular timeframe. The FDA may deny a new drug application if the applicable regulatory criteria are not satisfied or may require additional clinical data. Even if such data
is submitted, the FDA may ultimately decide that the new drug application does not satisfy the criteria for approval. Once issued, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if safety problems
occur after the product reaches the market. Requirements for additional Phase IV studies to confirm safety and effectiveness in a broader commercial use population may be imposed as a condition of marketing approval. In addition, the FDA requires
surveillance programs to monitor approved products which have been commercialized, and the agency has the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs. Any
comparative claims that we would like to make for our products vis-à-vis other dosage forms or products will need to be substantiated generally by two adequate and well-controlled head-to-head clinical trials.
In addition to the drug approval requirements applicable through the Center for Drug Evaluation and
Research (CDER), the FDA, through its Office of Combination Products, may require an intercenter consultation review by the Center for Devices and Radiological Health (CDRH), in order to determine a product’s Primary Method of Action (PMOA).
This request for consultation may be based on the device-like nature of a number of aspects of the DUROS technology.
Satisfaction of FDA
requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon the type, complexity and novelty of the pharmaceutical product.
Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approval for
any of our pharmaceutical systems under development on a timely basis, if at all. Success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical activities is
not always conclusive and may be susceptible to varying interpretations which could delay, limit or prevent regulatory approval. Evolving safety concerns can result in the imposition of new requirements for expensive and time consuming tests, such
as for QT interval cardiotoxicity testing. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications. Further, even after regulatory approval is obtained, later discovery of previously unknown
problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Any pharmaceutical systems that we may develop and obtain approval for would also be subject to adverse findings of the
active drug ingredients being marketed in different dosage forms and formulations. Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse effect on our business. Marketing our pharmaceutical systems abroad will
require similar regulatory approvals and is subject to similar risks. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.
Any pharmaceutical systems manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic
unannounced inspections by the FDA and state agencies for compliance with good manufacturing practices, which impose procedural and documentation requirements upon us and our third party manufacturers. We cannot be certain that we or our present or
future suppliers will be able to comply with the GMP regulations and other FDA regulatory requirements.
The FDA regulates drug labeling
and promotion activities. The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses, and federal and state authorities are also actively litigating against sponsors who promote their drugs for unapproved
uses under various fraud and abuse and false claims act statutes. We and our pharmaceutical systems are also subject to a variety of state laws and regulations in those states or localities where our pharmaceutical systems are or will be marketed.
Any applicable state or local regulations may hinder our ability to market our pharmaceutical systems in those states or localities. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.
The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our potential
pharmaceutical systems. Moreover, increased attention to the containment of health care costs in the U.S. and in foreign markets could result in new government regulations that could have a material adverse effect on our business. We cannot predict
the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.
The Drug Enforcement Administration . The Drug Enforcement Administration
(DEA) regulates chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. Certain active ingredients in
TRANSDUR-Sufentanil, Remoxy and the other ORADUR-based opioid products licensed to Pain Therapeutics, and CHRONOGESIC are listed by the DEA as Schedule II under the Controlled Substances Act of 1970. Consequently, their manufacture, research,
shipment, storage, sale and use are subject to a high degree of oversight and regulation. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new
prescription. Furthermore, the amount of Schedule II substances we can obtain for clinical trials and commercial distribution is limited by the DEA and our quota may not be sufficient to complete clinical trials or meet commercial demand. There is a
risk that DEA regulations may interfere with the supply of the drugs used in our clinical trials, and, in the future, our ability to produce and distribute our products in the volume needed to meet commercial demand.
Competition
We may face competition from other
companies in numerous industries including pharmaceuticals, medical devices and drug delivery. POSIDUR, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, Remoxy and CHRONOGESIC, if approved, will compete with currently marketed oral opioids, transdermal
opioids, local anesthetic patches, and implantable and external infusion pumps which can be used for infusion of opioids and local anesthetics. Products of these types are marketed by Purdue Pharma, Knoll, Janssen, Medtronic, Endo Pharmaceuticals,
AstraZeneca, Arrow International, Tricumed, I Flow and others. Numerous companies are applying significant resources and expertise to the problems of drug delivery and several of these are focusing or may focus on delivery of drugs to the intended
site of action, including Alkermes, Atrix, Innocoll, Inovio, The Liposome Company, Focal, I-Flow and others. Some of these competitors may be addressing the same therapeutic areas or indications as we are. Our current and potential competitors may
succeed in obtaining patent protection or commercializing products before us.
If approved, Memryte will compete against the five drugs
currently approved for the treatment of Alzheimer’s disease. Four of the drugs are ACIs, including: Aricept, marketed by Pfizer, Inc. and Eisai Company, Ltd.; Exelon, marketed by Novartis AG; Reminyl, marketed by Shire Pharmaceuticals Group plc
and Janssen Pharmaceutical Products, LP; and Cognex, marketed by Sciele Pharma, Inc. The fifth drug, Namenda, marketed by Forest Pharmaceuticals, Inc., is an NMDA receptor antagonist. In addition, Memryte could face competition from other leuprolide
acetate products that are already on the market or may later be approved for other indications, if they are used or prescribed off label for Alzheimer’s disease.
Any products we develop using our pharmaceutical systems technologies will compete in highly competitive markets. Many of our potential competitors in these markets have greater development, financial, manufacturing,
marketing, and sales resources than we do and we cannot be certain that they will not succeed in developing products or technologies which will render our technologies and products obsolete or noncompetitive. In addition, many of those potential
competitors have significantly greater experience than we do in their respective fields.
Corporate History, Headquarters and Website Information
DURECT Corporation was incorporated in Delaware in February 1998. We completed our initial public offering on September 28, 2000.
Our principal executive offices are located at 2 Results Way, Cupertino, California, 95014. Our telephone number is (408) 777-1417, and our web site address is www.durect.com. We make our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports available free of charge on our web site as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission. Durect Corporation’s Code of
Ethics can be found on our website.
Employees
As of February 28, 2007 we had 170 employees, including 115 in research and development, 22 in manufacturing and 33 in selling, general and administrative. From time to time, we also employ independent contractors to support our
research, development and administrative organizations. None of our employees are represented by a collective bargaining unit, and we have never experienced a work stoppage. We consider our relations with our employees to be good.
Executive Officers of the Registrant.
The executive
officers of DURECT Corporation and their ages as of February 28, 2007 are as follows:
Name
Age
Position
Felix Theeuwes, D.Sc.
69
Chairman, Chief Scientific Officer and Director
James E. Brown, D.V.M.
50
President, Chief Executive Officer and Director
Matthew J. Hogan, M.B.A.
47
Chief Financial Officer
Peter J. Langecker, M.D., Ph.D
56
Chief Medical Officer
Jean I Liu, J.D., M.S.
38
Senior Vice President, General Counsel and Secretary
Paula Mendenhall, Pharm.D.
63
Executive Vice President, Operations and Administration
Su Il Yum, Ph.D.
67
Executive Vice President, Pharmaceutical Systems Research and
Development
Felix Theeuwes, D.Sc. co-founded DURECT in February 1998 and has served as our Chairman, Chief
Scientific Officer and a Director since July 1998. Prior to that, Dr. Theeuwes held various positions at ALZA Corporation, a pharmaceutical and drug delivery company which is an affiliate of us, including President of New Ventures from August
1997 to August 1998, President of ALZA Research and Development from 1995 to August 1997, President of ALZA Technology Institute from 1994 to April 1995 and Chief Scientist from 1982 to June 1997. Dr. Theeuwes is also a director of Inovio
Biomedical Corporation, a medical device company. Dr. Theeuwes holds a D.Sc. degree in Physics from the University of Leuven (Louvain), Belgium. He also served as a post-doctoral fellow and visiting research assistant professor in the
Department of Chemistry at the University of Kansas and has completed the Stanford Executive Program.
James E. Brown, D.V.M. co-founded
DURECT in February 1998 and has served as our President, Chief Executive Officer and a Director since June 1998. He previously worked at ALZA Corporation as Vice President of Biopharmaceutical and Implant Research and Development from June 1995 to
June 1998. Prior to that, Dr. Brown held various positions at Syntex Corporation, a pharmaceutical company, including Director of Business Development from May 1994 to May 1995, Director of Joint Ventures for Discovery Research from April 1992
to May 1995, and held a number of positions including Program Director for Syntex Research and Development from October 1985 to March 1992. Dr. Brown holds a B.A. from San Jose State University and a D.V.M. (Doctor of Veterinary Medicine) from
the University of California, Davis where he also conducted post-graduate work in pharmacology and toxicology.
Matthew J. Hogan, M.B.A.
has served as our Chief Financial Officer since September 2006. He was the Chief Financial Officer at Ciphergen Biosystems, Inc. from 2000 to 2006, and a consultant from March 2006. Prior to joining Ciphergen, Mr. Hogan was the Chief Financial
Officer at Avocet Medical, Inc. from 1999 to 2000. From 1996 to 1999, Mr. Hogan was the Chief Financial Officer at Microcide Pharmaceuticals, Inc. From 1986 to 1996, he held various positions in the investment banking group at Merrill
Lynch & Co., most recently as a Director focusing on the biotechnology and pharmaceutical sectors. Mr. Hogan holds a B.A. in economics from Dartmouth College and an M.B.A. from the Amos Tuck School of Business Administration.
Peter J. Langecker, M.D., Ph.D. has served as our Chief Medical Officer since May 2006. Prior to joining DURECT, Dr. Langecker served
as Chief Medical Officer and Vice President of Clinical Affairs at Intarcia
Therapeutics, Inc. from October 1999 to April 2006. Prior to that, Dr. Langecker was Vice President of Clinical Affairs at Sugen, Inc. from 1997 to
1999, Vice President, Clinical Research at Coulter Pharmaceuticals from 1995 to 1997 and Director of Clinical Research, Oncology, at Schering-Plough from 1992 to 1995. Previously, Dr. Langecker worked as a Project Physician—Central Medical
Advisor, Oncology at Ciby-Geigy (now Novartis) in Basel, Switzerland. He received his doctorate in medical sciences from the Ludwig-Maximilians University in Munich.
Jean I Liu, J.D., M.S. has served as our Senior Vice President and General Counsel since February 2003. She was appointed Secretary of the corporation in March 2004. She served as our Vice President of Legal and
General Counsel from February 1999 to February 2003. Previously, from October 1998, Ms. Liu served as our Vice President of Legal. Prior to that, Ms. Liu worked as an attorney at Venture Law Group, a law firm, from May 1997 to October
1998. Ms. Liu worked as an attorney at Pillsbury Madison & Sutro LLP, a law firm, from September 1993 to May 1997. Ms. Liu holds a B.S. in Cellular & Molecular Biology from University of Michigan, an M.S. in Biology from
Stanford University and a J.D. from Columbia University School of Law. Ms. Liu is a member of the State Bar of California and is admitted to practice before the United States Patent and Trademark Office.
Paula Mendenhall, Pharm.D. has served as our Executive Vice President of Operations and Administration since January 2007 and as Senior Vice President of
Operations since January 2005. Prior to joining DURECT, Dr. Mendenhall was an independent consultant for various pharmaceutical companies for in-house and outsourcing of pharmaceutical manufacturing, including development of manufacturing
strategies and plans and development and training of personnel. From 1997 to 2000, Dr. Mendenhall served as Vice President, Group Vice President and President of Oread Pharmaceutical Manufacturing at Oread Inc. From 1979 to 1997,
Dr. Mendenhall served in a variety of roles for Hoffmann-La Roche Inc./Syntex, including in the areas of manufacturing, quality assurance, finance, planning and facilities, as well as provided technical assistance and support to Syntex Global
Operations for marketed products and new product launches. Dr. Mendenhall received a Pharm D. degree from the University of California, San Francisco, and is a member of the American Association of Pharmaceutical Scientists (AAPS), the American
Pharmaceutical Association and the Society of Cosmetic Chemists.
Su Il Yum, Ph.D. has served as our Executive Vice President of
Pharmaceutical Systems Research and Development since January 2007 and as our Senior Vice President of Pharmaceutical Systems Research and Development since January 2006. Previously, Dr. Yum served as our Senior Vice President, Engineering
since December 2003 and as our Vice President of Engineering from December 1999 to December 2003. Prior to joining DURECT, Dr. Yum served as Senior Technical Advisor at Amira Medical in Scotts Valley, California, where he participated in the
development of a pain-free blood glucose detector called AtLast ® . Prior to joining Amira, he held a number of senior positions in project management and engineering at Alza Corporation for 27 years. Dr. Yum earned his Ph.D. degree in Chemical Engineering from the University of
Minnesota, and completed a Post-doctoral research in Biomedical Engineering at the University of Utah. Dr. Yum is a Fellow of the AAPS.
Item 1A.
Risk Factors.
In addition to the other information
in this Form 10-K, a number of factors may affect our business and prospects. These factors include but are not limited to the following, which you should consider carefully in evaluating our business and prospects.
Risks Related To Our Business
Development of our pharmaceutical systems is not complete, and we cannot be certain that our pharmaceutical systems will be able to be commercialized
To be profitable, we or our third-party collaborators must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market
and distribute our pharmaceutical systems under development. For each pharmaceutical system that we or our third-party collaborators intend to commercialize, we must successfully meet a number of critical developmental milestones for each disease or
medical condition targeted, including:
·
selecting and developing drug delivery platform technology to deliver the proper dose of drug over the desired period of time;
·
determining the appropriate drug dosage for use in the pharmaceutical system;
·
developing drug compound formulations that will be tolerated, safe and effective and that will be compatible with the system;
·
demonstrating the drug formulation will be stable for commercially reasonable time periods;
·
demonstrating through clinical trials that the drug and system combination is safe and effective in patients for the intended indication; and
·
completing the manufacturing development and scale-up to permit manufacture of the pharmaceutical system in commercial quantities and at acceptable prices. The time frame necessary to achieve these developmental milestones for any individual product is long and uncertain, and
we may not successfully complete these milestones for any of our products in development. Other than for Remoxy, we have not yet selected the drug dosages nor finalized the formulation or the system design of any of our pharmaceutical systems,
including POSIDUR, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, our second ORADUR-opioid, Memryte and CHRONOGESIC, and we have limited experience in developing such products. We may not be able to finalize the design or formulation of any of these
pharmaceutical systems. In addition, we may select components, solvents, excipients or other ingredients to include in our pharmaceutical systems that have not been previously approved for use in pharmaceutical products, which may require us to
perform additional studies and may delay clinical testing and regulatory approval of our pharmaceutical systems. Even after we complete the design of a pharmaceutical system, the pharmaceutical system must still complete required clinical trials and
additional safety testing in animals before approval for commercialization. We are continuing testing and development of our pharmaceutical systems and may explore possible design or formulation changes to address issues of safety, manufacturing
efficiency and performance. We may not be able to complete development of any pharmaceutical systems that will be safe and effective and that will have a commercially reasonable treatment and storage period. If we or our third-party collaborators
are unable to complete development of POSIDUR, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, Remoxy, our second ORADUR-opioid, Memryte, CHRONOGESIC or other pharmaceutical systems, we will not be able to earn revenue from them, which would materially
harm our business.
We or our third-party collaborators must conduct and satisfactorily complete required laboratory performance and
safety testing, animal studies and clinical trials for our pharmaceutical systems before they can be sold
Before we or our third-party
collaborators can obtain government approval to sell any of our pharmaceutical systems, we or they, as applicable, must demonstrate through laboratory performance studies and safety testing, preclinical (animal) studies and clinical (human) trials
that each system is safe and effective for human use for each targeted indication. The clinical development status of our publicly announced development programs is as follows:
·
POSIDUR—Multiple Phase II clinical trials on-going in the U.S. and other countries.
·
TRANSDUR-Sufentanil Patch—A Phase II clinical trial was completed by us in 2005. Our collaborator Endo is currently conducting the clinical program for
TRANSDUR-Sufentanil for the U.S. and Canadian markets.
·
TRANSDUR-Bupivacaine-A Phase II clinical trial is on-going in the U.S.
·
Remoxy—According to Pain Therapeutics, a pivotal Phase III trial is ongoing with Remoxy under an approved Special Protocol Assessment (SPA) with the FDA.
·
Second ORADUR-Opioid Drug Candidate under Pain Therapeutics/King Alliance— In November 2006, Pain Therapeutics announced positive results from a Phase I
clinical trial.
·
Memryte—In October 2005, Voyager commenced a Phase III clinical program using Memryte as an adjunctive therapy with acetyl cholinesterase inhibitors (ACIs) for
the treatment of mild to moderate Alzheimer’s disease. According to Voyager, the Phase III trial was truncated in October 2006 in order to get an early look at potential efficacy, and data collection and analysis is currently on-going. We are currently in the clinical, preclinical or research stages with respect to all our other pharmaceutical systems
under development. We plan to continue extensive and costly tests, clinical trials and safety studies in animals to assess the safety and effectiveness of our pharmaceutical systems. These studies include laboratory performance studies and safety
testing, clinical trials and animal toxicological studies necessary to support regulatory approval of development products in the United States and other countries of the world. These studies are costly, complex and last for long durations, and may
not yield the data required for regulatory approval. We may not be permitted to begin or continue our planned clinical trials for our potential pharmaceutical systems. If our trials are permitted, our potential pharmaceutical systems may not prove
to be safe or produce their intended effects. In addition, we may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our pharmaceutical systems which we have not planned or
anticipated that could delay commercialization of such pharmaceutical systems and harm our business and financial conditions.
The length
of clinical trials will depend upon, among other factors, the rate of trial site and patient enrollment and the number of patients required to be enrolled in such studies. We or our third-party collaborators may fail to obtain adequate levels of
patient enrollment in our clinical trials. Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have a material adverse effect on us. In addition, even if we or our third-party
collaborators enroll the number of patients we expect in the time frame we expect, such clinical trials may not provide the data necessary to support regulatory approval for the pharmaceutical systems for which they were conducted. Additionally, we
or our third-party collaborators may fail to effectively oversee and monitor these clinical trials, which would result in increased costs or delays of our clinical trials. Even if these clinical trials are completed, we or our third-party
collaborators may fail to complete and submit a new drug application as scheduled. The Food and Drug Administration (FDA) may not clear any such application in a timely manner or may deny the application entirely.
Data already obtained from preclinical studies and clinical trials of our pharmaceutical systems do not necessarily predict the results that will be
obtained from later preclinical studies and clinical trials. Moreover, preclinical and clinical data such as ours is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a pharmaceutical system under development
could delay or prevent regulatory clearance of the potential pharmaceutical system, resulting in delays to the commercialization of our pharmaceutical system, and could materially harm our business. Clinical trials may not demonstrate the sufficient
levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our pharmaceutical systems, and thus our pharmaceutical systems may not be approved for marketing.
We and our third-party collaborators may not be able to manufacture sufficient quantities of our
pharmaceutical systems and components to support the clinical and commercial requirements of our collaborators and ourselves at an acceptable cost or in compliance with applicable government regulations, and we have limited manufacturing experience
We or our third-party collaborators to whom we have assigned such responsibility must manufacture our pharmaceutical systems and
components in clinical and commercial quantities, either directly or through third parties, in compliance with regulatory requirements and at an acceptable cost. The manufacture processes associated with our pharmaceutical systems are complex. We
and our third-party collaborators, where relevant, have not yet completed development of the manufacturing process for any pharmaceutical systems or components including POSIDUR, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, Remoxy and a second
ORADUR-opioid, Memryte and CHRONOGESIC. If we and our third-party collaborators, where relevant, fail to timely complete the development of the manufacturing process for our pharmaceutical systems, we and our third-party collaborators, where
relevant, will not be able to timely produce product for clinical trials and commercialization of our pharmaceutical systems. We have also committed to manufacture and supply pharmaceutical systems or components under a number of our collaborative
agreements with third-party companies. We have limited experience manufacturing pharmaceutical products, and we may not be able to timely accomplish these tasks. If we and our third-party collaborators, where relevant, fail to develop manufacturing
processes to permit us to manufacture a pharmaceutical system or component at an acceptable cost, then we and our third-party collaborators may not be able to commercialize that pharmaceutical system or we may be in breach of our supply obligations
to our third-party collaborators.
Our manufacturing facility in Cupertino is a multi-disciplinary site that we have used to manufacture
only research and clinical supplies of several of our pharmaceutical systems under good manufacturing practices (GMP), including POSIDUR, TRANSDUR-Sufentanil, TRANSDUR-Bupivacaine, Memryte, Remoxy and a second ORADUR-opioid, and CHRONOGESIC. We have
not manufactured commercial quantities of any of our pharmaceutical systems. In the future, we intend to develop additional manufacturing capabilities for our pharmaceutical systems and components to meet our demands and those of our third-party
collaborators by contracting with third-party manufacturers and by construction of additional manufacturing space at our current facilities in Cupertino, CA, Vacaville, CA and Pelham, AL. We have limited experience building and validating
manufacturing facilities, and we may not be able to timely accomplish these tasks.
If we and our third-party collaborators, where
relevant, are unable to manufacture pharmaceutical systems or components in a timely manner or at an acceptable cost, quality or performance level, and attain and maintain compliance with applicable regulations, the clinical trials and the
commercial sale of our pharmaceutical systems and those of our third-party collaborators could be delayed. Additionally, we may need to alter our facility design or manufacturing processes, install additional equipment or do additional construction
or testing in order to meet regulatory requirements, optimize the production process, increase efficiencies or production capacity or for other reasons, which may result in additional cost to us or delay production of product needed for the clinical
trials and commercial launch of our pharmaceutical systems and those of our third-party collaborators. We have entered into a long term supply agreement with Corium International, Inc. for clinical and commercial supplies of TRANDUR-Bupivacaine and
a long term supply agreement with Hospira Worldwide, Inc. for clinical and commercial supplies of POSIDUR. We and our third-party collaborators, where relevant, may also need or choose to subcontract with additional third-party contractors to
perform manufacturing steps of our pharmaceutical systems or supply required components for our pharmaceutical systems. Where third party contractors perform manufacturing services for us, we will be subject to the schedule, expertise and
performance of third parties as well as