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

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

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

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

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

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

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

As of ~~October 27, 2017,~~November 13, 2023, there were ~~148,546,131~~29,828,891 shares of the registrant’s ~~Common Stock~~common stock outstanding.

September 30,
2017

December 31,
2016

(unaudited)

(Note 1)

A S S E T S

Current assets:

Cash and cash equivalents

$
35,287

$
5,404

Short-term investments

6,379

19,600

Accounts receivable (net of allowances of $94 at September 30, 2017 and $73 at
   December 31, 2016)

2,180

1,154

Inventories, net

3,155

3,782

Prepaid expenses and other current assets

2,877

2,486

Total current assets

49,878

32,426

Property and equipment (net of accumulated depreciation of $21,709 and $21,376 at
   September 30, 2017 and December 31, 2016, respectively)

1,045

1,297

Goodwill

6,399

6,399

Long-term restricted investments

150

150

Other long-term assets

282

236

Total assets

$
57,754

$
40,508

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

Current liabilities:

Accounts payable

$
2,058

$
2,086

Accrued liabilities

5,718

5,060

Contract research liabilities

728

783

Deferred revenue, current portion

16,002

968

Term loan, current portion, net

5,276

19,853

Total current liabilities

29,782

28,750

Deferred revenue, non-current portion

1,140

1,879

Term loan, non-current portion, net

14,623

—

Other long-term liabilities

2,170

1,541

Commitments and contingencies

Stockholders’ equity:

Common stock

15

14

Additional paid-in capital

462,031

448,404

Accumulated other comprehensive loss

—

(3
)
Accumulated deficit

(452,007
)

(440,077
)
Stockholders’ equity

10,039

8,338

Total liabilities and stockholders’ equity

$
57,754

$
40,508

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

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Collaborative research and development and other revenue

$
5,602

$
352

$
7,304

$
1,142

Product revenue, net

2,644

3,391

9,828

9,366

Revenue from sale of intellectual property rights

12,500

—

12,500

—

Total revenues

20,746

3,743

29,632

10,508

Operating expenses:

Cost of product revenues

3,105

2,180

5,572

4,335

Research and development

8,378

6,805

25,005

21,282

Selling, general and administrative

3,138

3,043

9,862

8,993

Total operating expenses

14,621

12,028

40,439

34,610

Income (Loss) from operations

6,125

(8,285
)

(10,807
)

(24,102
)
Other income (expense):

Interest and other income

605

45

680

112

Interest expense

(619
)

(592
)

(1,803
)

(1,708
)
Net other expense

(14
)

(547
)

(1,123
)

(1,596
)
Net income (loss)

$
6,111

$
(8,832
)

$
(11,930
)

$
(25,698
)
Net change in unrealized gain (loss) on available-for-sale securities, net of reclassification
adjustments and taxes

3

(4
)

3

20

Total comprehensive income (loss)

$
6,114

$
(8,836
)

$
(11,927
)

$
(25,678
)
Net income (loss) per share

Basic

$
0.04

$
(0.06
)

$
(0.08
)

$
(0.20
)
Diluted

$
0.04

$
(0.06
)

$
(0.08
)

$
(0.20
)
Weighted-average shares used in computing net income (loss) per share

Basic

147,213

137,933

143,873

130,990

Diluted

151,885

137,933

143,873

130,990

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

Nine months ended
September 30,

2017

2016

Cash flows from operating activities

Net loss

$
(11,930
)

$
(25,698
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Sale of intellectual property rights for non-operating purposes

(500
)

-

Depreciation and amortization

333

309

Stock-based compensation

1,929

2,023

Inventory write-down

2,176

642

Amortization of debt issuance cost

46

89

Loss on debt extinguishment

—

9

Net accretion/amortization on investments

(61
)

(172
)
Changes in assets and liabilities:

Accounts receivable

(1,026
)

973

Inventories

(50
)

(366
)
Prepaid expenses and other assets

(937
)

1,398

Accounts payable

(28
)

208

Accrued and other liabilities

1,897

583

Contract research liabilities

(55
)

(20
)
Deferred revenue

14,295

92

Total adjustments

18,019

5,768

Net cash provided by (used in) operating activities

6,089

(19,930
)
Cash flows from investing activities

Sale of intellectual property rights for non-operating purposes

500

-

Purchases of property and equipment

(81
)

(33
)
Purchases of available-for-sale securities

(5,248
)

(24,488
)
Proceeds from maturities of available-for-sale securities

18,533

26,734

Net cash provided by investing activities

13,704

2,213

Cash flows from financing activities

Payments on equipment financing obligations

(10
)

(16
)
Payment of additional issuance cost for long-term debt

—

(173
)
Payment of accrued final payment for long-term debt

—

(886
)
Net proceeds from issuances of common stock

10,100

20,572

Net cash provided by financing activities

10,090

19,497

Net increase in cash and cash equivalents

29,883

1,780

Cash and cash equivalents, beginning of the period

5,404

3,583

Cash and cash equivalents, end of the period

$
35,287

$
5,363

Supplementary disclosure of non-cash financing information

Fully vested options issued to settle accrued liabilities

$
1,600

$
1,143

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

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

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

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

As of September 30, 2017, the Company had an accumulated deficit of $452.0 million. Although the Company had positive cash flow in the three months ended September 30, 2017, primarily as a result of an upfront payment from Indivior for the assignment of certain patent rights, the Company historically has had negative cash flows from operating activities and expects its negative cash flows to continue. The Company will continue to require substantial funds to continue research and development, including clinical trials of its product candidates. Management’s plans in order to meet its operating cash flow requirements include seeking additional collaborative agreements for certain of its programs and achieving milestone and other payments under its collaboration and licensing agreements as well as financing activities such as public offerings and private placements of its common stock, preferred stock offerings, issuances of debt and convertible debt instruments.

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventories, in part, include certain excipients that are sold to a customer for a currently marketed animal health product and included in several products in development or awaiting regulatory approval. These inventories are capitalized based on management’s judgment of probable sale prior to their expiration dates. The valuation of inventory requires management to estimate the quantities of inventory that may become expired prior to use. The Company may be required to record a reserve for certain amounts of its inventory upon a change in management’s judgment due to, among other potential factors, a denial or delay of approval of a customer’s product by the necessary regulatory bodies, or new information that suggests that the inventory will not be saleable. In addition, these circumstances may cause the Company to record a liability related to minimum purchase agreements that the Company has in place for raw materials. In

~~October 2017, the Company announced that PERSIST, the Phase 3 clinical trial for POSIMIR~~^® ~~(SABER~~^®-Bupivacaine), did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. As a result, the Company wrote down certain lots of inventory which are no longer considered to be probable for use prior to expiration and prepaid inventory related to a minimum purchase agreement for an excipient. In addition, the Company recorded a liability related to a minimum purchase agreement for the same excipient. In the three and nine months ended September 30, 2017, the Company recorded charges to cost of goods sold of approximately $2.0 million, of which approximately $503,000 related to the write-down of the cost basis of inventory on hand, $500,000 related to the prepaid inventory for the minimum purchase commitment for this excipient, and $1.0 million related to the accrual of a liability for the remaining minimum purchase commitment for the same excipient. As of September 30, 2017, the remaining carrying value of the excipient in the Company’s inventory was $81,000. In the event that management determines that the Company will not utilize all of these materials, there could be a potential write-off related to this inventory in future periods.

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

From time-to-time, the Company also enters into sales of intellectual property rights under which it may receive upfront payments, contingent milestone payments and earn-outs from third party collaborators. The Company’s deliverable under these arrangements typically consists of sale of intellectual property rights, and does not contain any substantive continuing obligations subsequent to the transfer of the related rights, title, and interest to the buyer. The Company recognizes the upfront payment as revenue because such arrangement constitutes the Company's revenue-earning activities and is in line with its ordinary course of ongoing business operations.

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

Milestone payments under collaborative arrangements are triggered either by the results of the Company’s research and development efforts or by specified sales results by a third-party collaborator. Milestones related to the Company’s development-based activities may include initiation of various phases of clinical trials, successful completion of a phase of development or results from a clinical trial, acceptance of a New Drug Application by the FDA or an equivalent filing with an equivalent regulatory agency in another territory, or regulatory approval by the FDA or by an equivalent regulatory agency in another territory. Due to the uncertainty involved in meeting these development-based milestones, the development-based milestones are considered to be substantive (i.e., not

just achieved through passage of time) at the inception of the collaboration agreement. In addition, the amounts of the payments assigned thereto are considered to be commensurate with the enhancement of the value of the delivered intellectual property as a result of the Company’s performance. The Company’s involvement is generally necessary to the achievement of development-based milestones. The Company would account for development-based milestones as revenue upon achievement of the substantive milestone events. Milestones related to sales-based activities may be triggered upon events such as the first commercial sale of a product or when sales first achieve a defined level. Under the Company’s collaborative agreements, the Company’s third-party collaborators will take the lead in commercialization activities and the Company is typically not involved in the achievement of sales-based milestones. These sales-based milestones would be achieved after the completion of the Company’s development activities. The Company would account for the sales-based milestones in the same manner as royalties, with revenue recognized upon achievement of the milestone. In addition, upon the achievement of either development-based or sales-based milestone events, the Company has no future performance obligations related to any milestone payments.

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

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

~~The numerators and denominators in the calculation of basic and diluted net income (loss) per share were as follows:~~

Options to purchase approximately 20.0 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for the nine months ended September 30, 2017, as the effect would be anti-dilutive. Options to purchase approximately 16.9 million and 18.8 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for the three and nine months ended September 30, 2016, respectively, as the effect would be anti-dilutive.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which amends the guidance in former ASC 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). The standard will be effective for the Company in the first quarter of 2018. The Company is in the process of identifying revenue streams for analysis and has begun its analysis of a major collaboration under the new standard. However, the Company has not yet completed its final analysis of the impact of this guidance. To date, the Company’s revenues have been derived from product sales, from license and collaboration agreements and from sale of intellectual property rights. Based on the

Company’s preliminary analysis, it does not currently anticipate a material quantitative impact on product revenue as the timing of revenue recognition for product sales is not expected to significantly change. For the Company’s license and collaboration agreements, the consideration the Company is eligible to receive under these agreements typically consists of upfront payments, research and development funding, milestone payments, and royalties. For the Company’s agreements related to sale of intellectual property rights, the consideration the Company is eligible to receive under these agreements typically consists of upfront payments, milestone payments, and earn-outs. Each of the license and collaboration agreements and the agreements related to sale of intellectual property rights is unique and will need to be assessed separately under the five-step process under the new standard. The Company continues to review the impact that this new standard will have on its collaboration and license arrangements and intellectual property purchase agreements as well as on its financial statement disclosures. The Company will select the modified retrospective method to adopt the standard.

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

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

In May 2017, the Company and Sandoz AG (“Sandoz”) entered into a license agreement to develop and market POSIMIR in the United States. Following expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR), the agreement became effective in June 2017. POSIMIR is the Company’s investigational post-operative pain relief depot currently in Phase 3 clinical development in the United States that utilizes the Company’s patented SABER^® technology to deliver bupivacaine to provide up to three days of pain relief after surgery. The Company retains commercialization rights in the rest of the world. Under terms of the agreement, Sandoz made an upfront payment of $20 million, with the potential for up to an additional $43 million in milestone payments based on successful development and regulatory milestones, and up to an additional $230 million in sales-based milestones. DURECT is responsible for the completion of the ongoing PERSIST Phase 3 clinical trial for POSIMIR as well as FDA interactions through potential approval. If approved, DURECT also has certain manufacturing obligations under this agreement. Sandoz will have exclusive commercialization rights in the United States upon regulatory approval with sole funding responsibility for commercialization activities. Sandoz will pay the Company a tiered double-digit royalty on product sales for a

defined period, after which the license granted to Sandoz shall convert to a non-exclusive, fully paid, royalty-free, irrevocable and perpetual license. The term of the agreement shall be for the duration of Sandoz’s obligation to pay royalties for product sales under the Agreement. The agreement provides each party with specified termination rights, including the right of Sandoz to terminate at will after a specified period and each party to terminate the agreement upon material breach of the agreement by the other party. In October 2017, the Company announced that PERSIST, the Phase 3 clinical trial for POSIMIR, did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. The failure of the PERSIST trial for POSIMIR to achieve its primary endpoint gives Sandoz a right to terminate the Company’s agreement with them on thirty days’ notice, in addition to the rights they have to terminate for convenience on six months’ notice.

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

Total collaborative research and development revenue recognized by the Company for Sandoz was $3.8 million and $4.6 million for the three and nine months ended September 30, 2017 respectively, compared with zero for the corresponding periods in 2016. The cumulative aggregate payments received by the Company from Sandoz as of September 30, 2017 were $20.0 million under this agreement.

On September 26, 2017, the Company entered into a Patent Purchase Agreement (the “Agreement”) with Indivior UK Limited (“Indivior”). Pursuant to the Agreement, the Company has assigned to Indivior certain patents that may provide further intellectual property protection for RBP-7000, Indivior’s investigational once-monthly injectable risperidone product for the treatment of schizophrenia. In consideration for such assignment, Indivior has made an upfront non-refundable payment to DURECT of $12.5 million, and has also agreed to make an additional $5 million payment to DURECT contingent upon the achievement of a regulatory milestone, as well as quarterly earn-out payments that are based on a single digit percentage of U.S. net sales for certain products covered by the assigned patent rights, including RBP-7000. The assigned patent rights include granted patents extending through at least 2026. DURECT also receives a non-exclusive right under the assigned patents to develop and commercialize certain risperidone-containing products and products that do not contain risperidone or buprenorphine. The agreement contains customary representations, warranties and indemnities of the parties. The Company received the payment of $12.5 million from Indivior in September 2017 and recognized the $12.5 million as revenue from sale of intellectual property rights in the three months ended September 30, 2017 as the Company does not have any continuing obligations under the purchase agreement.

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

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

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

Total collaborative research and development revenue recognized for REMOXY-related work performed by the Company for Pain Therapeutics was $4,000 and $109,000 for the three and nine months ended September 30, 2017, compared with $153,000 and $163,000 for the corresponding periods in 2016. The cumulative aggregate payments received by the Company from Pain Therapeutics as of September 30, 2017 were $40.4 million under this agreement.

The Company recognized no product revenue related to key excipients for REMOXY ER for each of the three and nine months ended September 30, 2017 compared to $374,000 and $653,000 for the corresponding periods in 2016. The associated cost of goods sold were zero for each of the three and nine months ended September 30, 2017, compared to $92,000 and $216,000 for the corresponding periods in 2016. Pursuant to the Company’s 2002 agreement with Pain Therapeutics, the Company is to be the exclusive supplier of certain defined excipients for products in the collaboration.

On July 11, 2011, the Company and Zogenix, Inc. (Zogenix) entered into a Development and License Agreement (the Zogenix Agreement). The Company and Zogenix had previously been working together under a feasibility agreement pursuant to which the Company’s research and development costs were reimbursed by Zogenix. Under the Zogenix Agreement, Zogenix was responsible for the clinical development and commercialization of a proprietary, long-acting injectable formulation of risperidone using the Company’s SABER controlled-release formulation technology potentially in combination with Zogenix’s DosePro® needle-free, subcutaneous drug delivery system. DURECT was responsible for non-clinical, formulation and CMC development activities. The Company was to be reimbursed by Zogenix for its research and development efforts on the product. Zogenix paid a non-refundable upfront fee to the Company of $2.25 million in July 2011. The Company’s research and development services are considered integral to utilizing the licensed intellectual property and, accordingly, the deliverables are accounted for as a single unit of accounting. The $2.25 million upfront fee had been recognized as collaborative research and development revenue ratably over the term of the Company’s research and development involvement with Zogenix with respect to this product candidate.

The Company granted to Zogenix an exclusive worldwide license, with sub-license rights, to the Company’s intellectual property rights related to the Company’s proprietary polymeric and non-polymeric controlled-release formulation technology to make and have made, use, offer for sale, sell and import risperidone products, where risperidone is the sole active agent, for administration by injection in the treatment of schizophrenia, bipolar disorder or other psychiatric related disorders in humans. The Company retained the right to supply Zogenix’s Phase 3 clinical trial and commercial product requirements on the terms set forth in the Zogenix Agreement. Zogenix was permitted to terminate the Zogenix Agreement without cause at any time upon prior written notice, and either party was permitted to terminate the Zogenix Agreement upon certain circumstances including written notice of a material uncured breach.

In August 2017, the Company and Zogenix terminated the Zogenix Agreement. Under the mutual termination agreement, Zogenix’s development and commercialization rights are returned to the Company, and Zogenix will transfer to the Company all regulatory filings and development information related to Relday. As a result of the termination of the Zogenix agreement, the Company recognized revenue during the third quarter of 2017 for the remaining $750,000 of deferred revenue related to the upfront fee as the Company had no remaining performance obligations under the agreement; this recognition of revenue did not result in additional cash proceeds to the Company.

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

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

In connection with the Santen agreement, Santen agreed to pay the Company an upfront fee of $2.0 million in cash and to make contingent cash payments to the Company of up to $76.0 million upon the achievement of certain milestones, of which $13.0 million are development-based milestones and $63.0 million are commercialization-based milestones including milestones requiring the achievement of certain product sales targets (none of which has been achieved as of September 30, 2017). Santen will also pay for certain Company costs incurred in the development of the licensed product. If the product is commercialized, the Company would also receive a tiered royalty on annual net product sales ranging from single-digit to low double digits, determined on a country-by-country basis. The Company’s research and development services are considered integral to utilizing the licensed intellectual property and, accordingly, the deliverables are accounted for as a single unit of accounting. The $2.0 million upfront fee had been recognized as collaborative research and development revenue ratably over the term of the Company’s research and development involvement with Santen with respect to this product candidate. As of September 30, 2017, the cumulative aggregate payments received by the Company under this agreement were $3.3 million.

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

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

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

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

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

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

As of September 30, 2017, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

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

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

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

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

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

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Stock Options

Risk-free rate

2.0-2.3%

1.4-1.6%

2.0-2.5%

1.3-1.9%

Expected dividend yield

—

—

—

—

Expected life of option (in years)

6.8-10.0

7.0-10.0

6.8-10.0

6.5-10.0

Volatility

75-81%

76-82%

75-82%

76-83%

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Employee Stock Purchase Plan

Risk-free rate

1.0%

0.4%

0.6-1.0%

0.3-0.4%

Expected dividend yield

—

—

—

—

Expected life of option (in years)

0.5

0.5

0.5

0.5

Volatility

44%

66%

44-81%

66-68%

In July 2016, the Company renegotiated the terms of its $20.0 million secured single-draw term loan with Oxford Finance LLC (Oxford Finance) with such renegotiated terms being formalized in a new Loan and Security Agreement (the “2016 Loan Agreement”). The 2016 Loan Agreement supersedes the 2014 Loan Agreement with Oxford Finance and the 2015 amendment to such agreement. The 2016 Loan Agreement provides for interest only payments for the first 18 months, followed by consecutive monthly payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity date of the term loan of August 1, 2020. The 2016 Loan Agreement also provides for a floating interest rate (7.95% initially and 8.54% as of September 30, 2017) based on an index rate plus a spread, a $150,000 facility fee that was paid at closing and an additional payment equal to 9.25% of the principal amount of the term loan, which is due when the term loan becomes due or upon the prepayment of the facility. If the

Company elects to prepay the loan, there is also a prepayment fee between 1% and 3% of the principal amount of the term loan depending on the timing of prepayment. The facility fee and other debt offering/issuance costs have been recorded as debt discount on the Company’s balance sheet and together with the final $1.9 million payment are being amortized to interest expense during the life of the term loan using the effective interest rate method.

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

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

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

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

During the three months ended September 30, 2017, the Company raised net proceeds (net of commissions) of approximately $4.7 million from the sale of 2,984,660 shares of the Company’s common stock in the open market at a weighted average price of $1.64 per share, through its Controlled Equity Offering sales agreement with Cantor Fitzgerald, entered into in November 2015 (Controlled Equity Offering). During the nine months ended September 30, 2017, the Company raised net proceeds (net of commission) of approximately $9.6 million from the sale of 6.6 million shares of common stock at a weighted average price of $1.49 per share in the open market through the Controlled Equity Offering. As of October 27, 2017, the Company had up to approximately

~~$20.3 million of common stock available for sale under the Controlled Equity Offering program and approximately $67.8 million of common stock available for sale under its shelf registration statement.~~

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

Forward-looking statements made in this report include, ~~for example,~~but are not limited to, statements ~~about:~~about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of such forward looking statements and the potential risks and uncertainties that may impact upon their accuracy, see the “Risk Factors” section and “Overview” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements reflect our view only as of the date of this report. We undertake no obligations to update any forward-looking statements. You should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.

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

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

(1) Includes restricted cash of $150,000 included in long term restricted investments the condensed balance sheets at September 30, 2023 and December 31, 2022, respectively.

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

Note 1. Summary of Significant Accounting Policies

Nature of Operations

DURECT Corporation (the “Company”) was incorporated in the state of Delaware on February 6, 1998. The Company is a biopharmaceutical company committed to transforming the treatment of acute organ injury and chronic liver diseases by advancing novel and potentially lifesaving therapies based on its endogenous epigenetic regulator program. Larsucosterol (also known as "DUR-928"), the Company's lead drug candidate, binds to and inhibits the activity of DNA methyltransferases ("DNMTs"), epigenetic enzymes which are elevated and associated with ~~research~~hypermethylation found in alcohol-associated hepatitis ("AH") patients. Larsucosterol is in clinical development for the potential treatment of AH, for which FDA has granted a Fast Track Designation; non-alcoholic steatohepatitis ("NASH") is also being explored. In addition, POSIMIR® (bupivacaine solution) for infiltration use, a non-opioid analgesic utilizing the innovative SABER® platform technology, is FDA-approved and ~~development programs broadly falling into two categories: (i) new chemical entities derived from our Epigenetic Regulator Program,~~has been exclusively licensed to Innocoll Pharmaceuticals for commercialization in ~~which we attempt to discover~~the United States.The Company also manufactures and develop molecules which have not previously been approved and marketed as therapeutics, and (ii) Drug Delivery Programs, in which we apply our formulation expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have previously been established but which we aim to improve in some manner through a new formulation. We also manufacture and sellsells osmotic pumps used in laboratory research, and ~~design, develop and manufacture a wide range of standard and custom biodegradable polymers and~~manufactures certain excipients for ~~pharmaceutical and medical device~~certain clients for use as raw materials in their products. ~~In addition, we conduct research~~

Basis of Presentation

These condensed financial statements have been prepared in accordance with the rules and ~~development~~regulations of ~~pharmaceutical products~~the Securities and Exchange Commission (the “SEC”), and therefore do not include all the information and footnotes necessary for a complete presentation of the Company’s results of operations, financial position and cash flows in ~~collaboration~~conformity with ~~third party pharmaceutical and biotechnology companies.~~

~~A central aspect~~U.S. generally accepted accounting principles (“U.S. GAAP”). The unaudited condensed financial statements reflect all adjustments (consisting only of our business strategy involves advancing multiple product candidates at one time, which is enabled by leveraging our resources with those of corporate collaborators. Thus, certain of our programs are currently licensed to corporate collaborators on terms which typically call for our collaborator to fund all or a substantial portion of future development costs and then pay us milestone payments based on specific development or commercial achievements plus a royalty on product sales. At the same time, we have retained the rights to other programs,normal recurring adjustments) which are, in the ~~basis~~opinion of ~~future collaborations~~management, necessary for a fair presentation of the financial position at September 30, 2023, the operating results and ~~which over time may provide a pathway~~comprehensive loss, and stockholders’ equity for ~~us to develop our own commercial, sales~~the three and ~~marketing organization.~~

~~Additional details~~nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The balance sheet as of ~~these programs~~December 31, 2022 has been derived from audited financial statements at that date but does not include all of the information and ~~related strategic agreements are contained~~footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in ~~our~~conjunction with the Company’s audited financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, ~~2016~~2022 filed with the SEC.

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

Reverse Stock Split

On December 5, 2022, the Company effected a 1-for-10 reverse stock split of its outstanding common stock. The reverse stock split also affected the Company's outstanding stock options, purchase rights and equity incentive plans and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately.

For all financial statement periods presented, references to number of shares, net loss per share, stock price and exercise price have been conformed to reflect the effects of the Company’s 1-for-10 reverse stock split, effective December 5, 2022, unless otherwise specified herein.

Liquidity and Need to Raise Additional Capital

As of September 30, 2023, the Company had an accumulated deficit of $587.6 million as well as negative cash flows from operating activities. Presently, the Company does not have sufficient cash resources to meet its plans for the next twelve months following the issuance of these financial statements. The Company will continue to require substantial funds to continue research and development, including clinical trials of its product candidates. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management’s plans in order to meet its operating cash flow requirements include seeking additional collaborative agreements for certain of its programs as well as financing activities such as public offerings and private placements of its common stock, preferred stock offerings, issuances of debt and convertible debt instruments.

There are no assurances that such additional funding will be obtained and that the Company will succeed in its future operations. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations. As further described in Note 26, the Company classified the remaining balance of its term loan as a current liability on the Company’s balance sheet as of September 30, 2023 and December 31, 2022 due to the timing of repayment obligations and due to recurring losses, liquidity concerns and a subjective acceleration clause in the Company’s Loan Agreement. These financial statements have been

prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company capitalizes inventories produced in preparation for product launches after receiving regulatory approval on a product. The Company may be required to expense previously capitalized inventory costs upon a change in management’s judgment due to new information that suggests that the inventory will not be saleable. If the Company is able to subsequently sell products made with raw materials that were previously written down, the Company will report an unusually high gross profit as there will be no or little associated cost of goods for these materials.

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


	September 30, 2023		December 31, 2022

Raw materials	$	161	$	168
Work in process		1,252		1,151
Finished goods		1,108		794
Total inventories	$	2,521	$	2,113

Leases

ASC 842 requires the Company to recognize an operating lease right-of-use asset and corresponding operating lease liability for the Company’s leased properties. The Company’s operating lease right-of-use assets and liabilities are recognized under ASC 842 based on the present value of lease payments over the remaining lease term at the lease commencement date. In determining the net present value of lease payments, we estimate the incremental borrowing rate based on the information available, including remaining lease term. As of September 30, 2023, the weighted-average remaining lease term was 3.62 years for the Company’s leased properties.

Revenue Recognition

Product Revenue, Net

The Company manufactures and sells ALZET osmotic pumps used in laboratory research, and manufactures and sells certain excipients used by pharmaceutical companies as raw materials in certain of their products, including POSIMIR, a marketed animal health product and Methydur.

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less.

Trade Discounts and Allowances: The Company provides certain customers with discounts that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.

Product Returns: The Company generally offers customers a limited right of return for products that have been purchased. The Company estimates the amount of its product sales that are probable of being returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities primarily using its historical sales information. The Company expects product returns to be minimal.

Collaborative Research and Development and Other Revenue

The Company enters into license agreements, under which it licenses certain rights to its product candidates or products to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; reimbursement of development costs incurred by the Company under approved work plans; development, regulatory, intellectual property and commercial milestone payments; payments for manufacturing supply services the Company provides itself or through its contract manufacturers; and royalties on net sales of licensed products. Each of these payments results in collaborative research and development revenues, except for revenues from royalties on net sales of licensed products and earn-out revenues, which are classified as other revenues.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. For arrangements that are determined to include multiple performance obligations, the Company must develop assumptions that require

judgment to determine the estimated stand-alone selling price for each performance obligation identified. These assumptions may include: forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. The Company expects to recognize revenue for the variable consideration currently being constrained when it is probable that a significant revenue reversal will not occur.

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the transaction price allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For performance obligations comprised of licenses that are bundled with other promises, the Company utilizes its judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the Company applies an appropriate method of measuring progress for purposes of recognizing related revenues from the allocated transaction price. For performance obligations recognized over time, the Company evaluates the measure of progress each reporting period and recognizes revenues on a cumulative catch-up basis as collaborative research and development revenues.

Milestone Payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

Manufacturing Supply Services: Arrangements that include a promise for future supply of raw materials or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options. The Company assesses if these options provide a material right to the customer and if so, they are accounted for as separate performance obligations and allocated a portion of the transaction price based on the estimated standalone selling price of the material right. If the Company is entitled to additional payments when the customer exercises these options, the deferred transaction price and any additional payments are recorded in collaborative research and development revenue when the customer obtains control of the goods.

Royalties and Earn-outs: For arrangements that include sales-based royalties or earn-outs, including milestone payments based on first commercial sale or the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized material royalty revenue resulting from the Company’s collaborative arrangements or material earn-out revenues from any of the Company’s agreements.

Research and development services: Revenue from research and development services that are determined to represent a distinct performance obligation with the Company’s third-party collaborators is recognized over time as the related research and development services are performed using an appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and recognizes revenue on a cumulative catch-up basis, as collaborative research and development revenue. Research and development expenses under the collaborative research and development agreements generally approximate or exceed the revenue recognized under such agreements over the term of the respective agreements. Deferred revenue may result when the Company does not expend the required level of effort during a specific period in comparison to funds received under the respective agreement.

The Company receives payments from its customers based on development cost schedules established in each contract. Up-front payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Total revenue by geographic region based on customers’ locations for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
United States	$	883	$	10,433	$	3,304		11,185
Europe		525		1,246		1,569	$	3,851
Japan		124		136		406		502
Other		212		162		600		430
Total	$	1,744	$	11,977	$	5,879	$	15,968

Prepaid and Accrued Clinical Costs

The Company incurs significant costs associated with third party consultants and organizations for pre-clinical studies, clinical trials, contract research, regulatory advice and other research and development-related services. The Company is required to estimate periodically the cost of services rendered but unbilled based on management’s estimates. Estimates are determined each reporting period by reviewing the terms and conditions of the underlying contracts, reviewing open purchase orders and by having detailed discussions with internal clinical personnel and third-party service providers as to the nature and status of the services performed in relation to amounts billed. The costs for unbilled services are estimated by applying the rates and fees applicable in the underlying contracts. If these good faith estimates are inaccurate, actual expenses incurred could materially differ from these estimates.

Prepaid and Accrued Manufacturing Costs

The Company incurs significant costs associated with third party consultants and organizations for manufacturing, validation, testing and other research and development-related services. The Company is required to estimate periodically the cost of services rendered but unbilled based on management’s estimates. Estimates are determined each reporting period by reviewing the terms and conditions of the underlying contracts, reviewing open purchase orders and by having detailed discussions with internal personnel and third-party service providers as to the nature and status of the services performed in relation to amounts billed. The costs for unbilled services are estimated by applying the rates and fees applicable in the underlying contracts. If these good faith estimates are inaccurate, actual expenses incurred could materially differ from these estimates.

Research and development expenses

Research and development expenses are primarily comprised of salaries and benefits associated with research and development personnel, overhead and facility costs, preclinical and non-clinical development costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs. Research and development costs are expensed as incurred. Research and development costs paid to third parties under sponsored research agreements are recognized as the related services are performed. In addition, research and development expenses incurred that are reimbursed by the Company’s partners are recorded as collaborative research and development revenue.

Comprehensive Loss

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

Common Stock Warrants

The Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants.

The Company accounts for its common stock warrants in accordance with ASC 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging (“ASC 815”). Based upon the provisions of ASC 480 and ASC 815, the Company accounts for common stock warrants and pre-funded warrants as current liabilities if the warrant fails the equity classification criteria. Common stock warrants and pre-funded warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at each balance sheet date with the offsetting adjustments recorded in change in fair value of warrant liabilities within the statements of operations.

The Company values its pre-funded warrants and common stock warrants classified as liabilities using the Black-Scholes option pricing model or other acceptable valuation models, including the Monte-Carlo simulation model.

Net Loss Per Share

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

The numerators and denominators in the calculation of basic and diluted net loss per share were as follows (in thousands except per share amounts):


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Basic loss per share computation:
Net loss	$	(3,015	)	$	(2,471	)	$	(26,183	)	$	(24,864	)
Weighted average number of shares outstanding - basic		27,211			22,777			25,175			22,773
Net loss per share - basic	$	(0.11	)	$	(0.11	)	$	(1.04	)	$	(1.09	)

Diluted loss per share computation:
Net loss	$	(3,015	)	$	(2,471	)	$	(26,183	)	$	(24,864	)
Change in fair value of warrant liabilities		738			—			996			—
Net loss adjusted for change in fair value of warrant liabilities	$	(3,753	)	$	(2,471	)	$	(27,179	)	$	(24,864	)

Weighted average shares used to compute basic net loss per share		27,211			22,777			25,175			22,773
Dilutive effect of pre-funded warrants		300			—			258			—
Weighted average shares used to compute diluted net loss per share		27,511			22,777			25,433			22,773
Net loss per share - diluted	$	(0.14	)	$	(0.11	)	$	(1.07	)	$	(1.09	)

Options to purchase approximately 3.5 million and 3.4 million shares of common stock were excluded from the denominator in the calculation of diluted net loss share for the three and nine months ended September 30, 2023, respectively, as the effect would be anti-dilutive. Options to purchase approximately 2.6 million and 2.6 million shares of common stock were excluded from the denominator in the calculation of diluted net loss share for the three and nine months ended September 30, 2022, respectively, as the effect would be anti-dilutive. In addition, the dilutive effect of pre-funded warrants was 300,000 shares and 258,242 shares for the three and nine months ended September 30, 2023, respectively. Additional common warrants to purchase 4.0 million and 2.4 million shares were also outstanding during the three and nine months ended September 30, 2023, but were not included in the computation of diluted net loss per share because the effect would be anti-dilutive.

Recently Adopted Accounting Pronouncements

In August 2020, FASB issued Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) — Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU- 2020-06"), which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher stockholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. This ASU may be applied on a full retrospective of modified retrospective basis. For smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption of the ASU is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted this standard on January 1, 2023 and the adoption did not have any effect on the financial statements ~~included in Item~~as the Company did not have any such outstanding instruments as of January 1, ~~above.~~2023.

~~Epigenetic Regulator Program~~In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and ~~New Chemical Entities~~recognition of expected credit losses for financial assets. This standard is effective for fiscal years beginning after December 15, 2022 for small reporting companies, including interim reporting periods within those years and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted. The Company adopted the standard on January 1, 2023 and the adoption did not have a material effect on the financial statements.

Note 2. Strategic Agreements

~~DURECT’s Epigenetic Regulator Program involves a multi-year~~The collaborative ~~effort~~research and development and other revenues associated with the ~~Department~~Company’s collaborators or counterparties were $506,000 and $1.7 million for the three and nine months ended September 30, 2023, compared with $10.6 million and $11.7 million for the corresponding periods in 2022, respectively. The collaborative research and development and other revenues in the three and nine months ended September 30, 2022 included $8.0 million of ~~Internal Medicine at Virginia Commonwealth University (VCU)~~patent milestone revenue and $2.0 million of first commercial sale milestone revenue related to POSIMIR. The collaborative research and development and other revenue included (a) amounts related to earn-out revenue from Indivior UK Limited ("Indivior") with respect to PERSERIS net sales; (b) feasibility programs and research and development activities funded by our collaborators and (c) royalty revenue from Orient Pharma Co., Ltd. (“Orient Pharma”) with respect to Methydur net sales.

Agreement with Innocoll

On December 21, 2021, the ~~VCU Medical Center~~Company entered into a license agreement (the “Innocoll Agreement”) with Innocoll Pharmaceuticals Limited (“Innocoll”). Pursuant to the Innocoll Agreement, the Company has granted Innocoll an exclusive, royalty-bearing, sublicensable right and the McGuire VA Medical Center. The discoveries from this program are a result of more than 20 years of lipid research by Shunlin Ren, M.D., Ph.D., Professor of Internal Medicine at the VCU Medical Center and a recipient of multiple grants from the National Institutes of Health (NIH) for metabolic disease research. Epigenetic regulation does not change the DNA sequence but regulates the pattern of DNA expression and subsequent cellular functions. DUR-928 is our program’s lead product candidate. We hold the exclusive worldwide rightlicense to develop, manufacture and commercialize ~~DUR-928 and related molecules discovered in the program.~~

~~NOTE:~~

~~POSIMIR®, SABER®, CLOUD®, TRANSDUR®, ORADUR®, ALZET® and LACTEL® are trademarks of DURECT Corporation. Other trademarks referred to belong to their respective owners.~~

During the course of this program, a number of compounds have been identified that may have therapeutic utility for various uncommon (orphan and rare) and common diseases, disorders, or syndromes. The lead compound from this program (DUR-928) is an endogenous, orally available small molecule that modulates the activity of various nuclear receptors that play important regulatory roles in lipid homeostasis, inflammation, and cell survival.

The biological activity of DUR-928 has been demonstrated in over 10 different animal disease models involving three animal species. Several of these disease models represent chronic metabolic disorders of hepatic lipid accumulation and dysfunction (e.g., nonalcoholic fatty liver disease (NAFLD) and nonalcoholic steatohepatitis (NASH) associated with diabetes) and several represent acute organ injuries (endotoxin shock, ischemic-reperfusion kidney injury, acute liver failure, and stroke).

We are pursuing the development of DUR-928 through three programs for: (i) chronic metabolic disorders or liver diseases using oral administration, (ii) acute organ injury by injection or infusion, and (iii) local skin inflammatory disorders using topical application. We are also evaluating additional indications beyond these programs.

In pharmacokinetic and toxicity studies conducted in mice, hamsters, rats, rabbits, dogs and monkeys, DUR-928 has been found to be orally available, locally tolerable, and safe at all doses and routes tested to date. These non-clinical results have supported the initiation of DUR-928 into human safety/pharmacokinetics (PK)/proof-of-concept trials.

~~Chronic Metabolic Disease Program with Orally Administered DUR-928~~

~~Market Opportunity.~~ Non-alcoholic fatty liver disease (NAFLD) affects approximately 30% of adults and 10% of children (about 81 million individuals) in the United States. There are many mechanisms, but one phenotype of steatohepatitis. Non-alcoholic steatohepatitis (NASH), a more severe and progressive form of NAFLD, is one of the most common chronic liver diseases worldwide, with an estimated prevalence of more than 10% of adults in the United States, ~~Europe, Japan~~POSIMIR®, the Company’s FDA-approved post-surgical pain product, with respect to all uses and ~~other developed countries. No drug is currently approved for NAFLD or NASH. Moreover, alcoholic fatty liver disease (AFLD) develops~~applications in approximately 90% of individuals who drink more than 60 grams/day of alcohol (ASH), but may occur in individuals who drink less. Alcoholic hepatitis (AH), a more severe and inflammation form of AFLD, occurs in approximately 20% of patients with alcoholism. There is a growing appreciationhumans. The Innocoll Agreement provides for the pathological overlap between NASH and ASH. In addition to these large populations of patients with liver disease, there are a number of orphan liver diseases for which we intend to seek to develop DUR-928, such as primary sclerosing cholangitis (PSC).

~~Clinical Program.~~ The initial Phase 1 trial of DUR-928 was a single-site, randomized, double-blinded, placebo-controlled, single-ascending-dose study that evaluated the safety, tolerability and pharmacokinetics (PK) of orally administered DUR-928. The 30-subject study evaluated DUR-928 in five cohorts of healthy volunteers receiving DUR-928 (n=20 on drug, 10 on placebo) at escalating doses that resulted in peak plasma concentrations greater than 100-fold higher than endogenous levels. DUR-928 was well-tolerated at all dose levels, with no serious treatment-related adverse events reported. Dose related increases in plasma concentrations were observed with peak plasma concentration at approximately 2-6 hours after dosing. We subsequently conducted a Phase 1 multiple-ascending-dose, randomized, double-blinded, placebo-controlled, oral administration trial in 20 healthy subjects (n=16 on drug, 4 on placebo). Following multiple dosing, DUR-928 was well-tolerated at all doses, with no serious drug-related adverse events reported and no accumulation in plasma concentrations were observed with repeat dosing. We also conducted a food effect study with 8 healthy volunteers and observed no food effect on absorption.

Our first patient trial utilizing orally administered DUR-928 was an open-label, single-ascending-dose safety and PK Phase 1b trial in liver function impaired (NASH) patients and matched control subjects (MCS) (matched by age, body mass index and gender with normal liver function). This study was conducted in Australia in two successive dose cohorts (a low dose of 50 mg and then a high dose of 200 mg) and NASH patients were confirmed as either cirrhotic or non-cirrhotic. Both cohorts consisted of 10 NASH patients and 6 MCS. Data from this study was presented at the International Liver Congress™ 2017 organized by the European Association for the Studyassignment of the ~~Liver (EASL) in Amsterdam on April 22, 2017.~~

~~All patients~~Company’s supply agreement with its contract manufacturing organization to Innocoll and ~~MCS tolerated DUR-928 well. One patient (with a prior history of arrhythmia and an ongoing viral infection) in~~also provides Innocoll with the high dose cohort experienced a serious adverse event (shortness of breath) which occurred without unusually abnormal biochemical changes and resolved without intervention but was considered possibly treatment related by the physician due to its temporal association with dosing. In both the low and high dose cohorts, the PK parameters were comparable between the NASH patients and the matched control subjects. In addition, the systemic exposure following the low and high doses of DUR-928 was dose dependent.

While this study was not designed to assess efficacy, we observed a dose dependent reduction of certain biomarkers after a single oral dose of DUR-928. Exploratory biomarker analysis indicated that a single oral dose of DUR-928 resulted in statistically significant reductions from baseline in the levels of both full-length and cleaved cytokeratin-18 (CK-18), bilirubin, hsCRP and IL-18.

The mean decrease of full-length CK-18 (a generalized cell death marker) at the measured time point of greatest effect (12 hours after dosing) was 33% in the NASH patients in the low dose cohort and 41% in the high dose cohort. The mean decrease of cleaved CK-18 (a cell apoptosis marker) at the measured time point of greatest effect (12 hours after dosing) was 37% in the NASH patients in the low dose cohort and 47% in the high dose cohort. The mean reduction in total bilirubin (a liver function impairment marker) at the measured time point of greatest effect (12 hours after dosing) in the NASH patients was 27% in the low dose cohort and 31% in the high dose cohort. The mean decrease of high sensitivity C-Reactive Protein (hsCRP), a marker of inflammation, at the measured time point of greatest effect (24 hours after dosing) in the NASH patients was 8% on average in the low dose cohort and 13% in the high dose cohort. The mean decrease of IL-18, an inflammatory mediator implicated in both liver and kidney diseases, at the measured time point of greatest effect (8 hours after dosing) was 4% in the low dose cohort and 8% in the high dose cohort.

Collectively, the reduction of these biomarkers plus results from our animal and cell culture studies suggest potential therapeutic activity of DUR-928 for patients with liver diseases. However, additional studies are required to evaluate the safety and efficacy of DUR-928, and there is no assurance that these biomarker effects will be observed in a statistically significant manner, or that DUR-928 will demonstrate safety or efficacy in treating liver diseases in larger controlled trials.

We are actively working towards initiating a Phase 2 trial in PSC with orally administered DUR-928. Toward that end, our protocol has been reviewed by the FDA and our IND is now open. Clinical trial site preparation is underway, and we are targeting dosing our first patient by the end of 2017. The Phase 2 trial will be a randomized, open label study with two cohorts (a low dose cohort and a high dose cohort), in which patients (n = 40) will receive oral dosing of DUR-928 for 4-weeks with follow-up for an additional four-weeks. The objectives of this study include safety, PK, and PD markers, including the percent change from baseline of serum alkaline phosphatase (ALP) and other biomarkers. PSC is a chronic liver disease characterized by a progression of cholestasis (decrease in bile flow) with inflammation and fibrosis of bile ducts. Over time, PSC leads to liver failure, infections and tumors of the bile duct or liver, ultimately requiring liver transplant. There is no approved treatment for PSC at this time. We have received orphan drug designation for DUR-928 to treat patients with PSC. We believe that data generated from this trial will be relevant to other chronic liver inflammation, fibrosis, and cholestasis conditions.

~~Acute Organ Injury Program with Injectable DUR-928~~

~~Market Opportunity~~. Acute organ injury is another area of major unmet medical need for which effective pharmaceutical treatment is often lacking. Acute kidney injury (AKI) alone, for example, affects approximately 2.8 million patients per year inright, within the United States, ~~and is associated with increased mortality, prolonged hospital stays, and worsening~~to expand the approved indications of ~~chronic kidney disease and is a major cause~~POSIMIR. The Company retains, outside the United States, all of ~~mortality in acute liver injury. There are various forms~~the global rights to POSIMIR.

Upon execution of ~~acute organ injury, affecting~~ the ~~liver,~~Innocoll Agreement, Innocoll paid the ~~kidney, or multi-organs, for which we may seek to develop DUR-928.~~

~~Clinical Program~~. The initial Phase 1 trial with injectable administration was a single-site, randomized, double-blinded, placebo-controlled, single-ascending-dose study that evaluated the safety, tolerability and PK of intramuscular (IM) injected DUR-928. The 24-subject study (16 healthy volunteers on the drug and 8 on placebo) of four escalating dose levels resulted in dose proportionality of systemic exposure. DUR-928 was well-tolerated at all dose levels, with no serious treatment-related adverse events reported. We also conducted a multiple-dose study involving 10 healthy volunteers, in which participants received IM injected DUR-928 for 5 consecutive days (8 subjects on the drug, 2 on placebo) with the next to highest dose in the single dose study. No serious treatment related adverse events were reported, no subjects withdrew from the study, no accumulation in plasma concentrations were observed with repeat dosing, and the pain scores and injection site reactions were minimal. We also conducted a single-ascending-dose intravenous infusion (IV) study with 16 healthy volunteers and observed no treatment related serious adverse events. The systemic exposure following IV infusion was dose proportional.

Our second Phase 1b study with injected DUR-928, also conducted in Australia, was an open-label, single-ascending-dose study in patients with impaired kidney function (stage 3 and 4 chronic kidney disease (CKD)) and matched control subjects (matched by age, body mass and gender with normal kidney function). This study was conducted in two successive cohorts (first a low dose and then a high dose) evaluating safety and PK of single-dose intramuscular injected DUR-928. The low dose cohort consisted of 6 patients with chronic kidney disease and 3 matched control subjects; the high dose cohort consisted of 5 patients with chronic kidney disease and 3 matched control subjects. In this trial, DUR-928 was well tolerated among all subjects and the PK parameters between the kidney function impaired patients and the matched control subjects were comparable.

~~We have been working with our clinical advisors to design several Phase 2 studies for various acute organ injuries. We submitted~~Company an initial IND in late December 2016 for a proposed Phase 2 liver study. The FDA requested certain drug-drug interaction data and made suggestions for the proposed protocol. In response, we completed Phase 1 drug-drug interaction studies which demonstrated that neither orally administered nor intravenously injected DUR-928 had an effect on the safety and PKnonrefundable, upfront fee of midazolam, a drug for detecting potential drug-drug interactions via the enzyme CYP3A4. This enzyme is commonly associated with clinically relevant drug-drug interactions. We now have an open IND and are currently finalizing the protocol for an initial Phase 2 trial in a

~~population of patients with moderate and severe acute liver function impairment to assess the safety and pharmacokinetics of several doses of DUR-928.~~

~~Skin Inflammatory Disorder Program with Topical DUR-928~~

~~Market opportunity.~~ ~~Skin inflammatory disorders, such as psoriasis or atopic dermatitis, affect approximately 7.5~~$4.0 million and 32 million Americans, respectively. Most currently available topical treatments, typically as first line therapy, either slow down excessive skin cell proliferation or reduce inflammation. Steroids are the most commonly used topical anti-inflammatory agents because they reduce the swelling and redness of lesions.

~~Clinical program.~~ We have conducted an exploratory proof-of-concept (POC) Phase 1b trial in psoriasis patients (9 evaluable patients) in Australia. The decision to proceed with clinical testing was based on the anti-inflammatory activities of DUR-928, as well as a fee in the ~~results~~amount of ~~a psoriasis study~~$1.3 million primarily to cover the manufacturing supplies and excipients and certain equipment transferred to Innocoll pursuant to the terms of the Innocoll Agreement, and certain recently incurred Company expenses the parties negotiated for Innocoll to reimburse. The Innocoll Agreement includes customary representations and warranties on behalf of the Company and Innocoll, including representations as to the licensed intellectual property, regulatory matters and compliance with ~~DUR-928 in mice.~~applicable laws. The ~~double blinded~~Innocoll Agreement also provides for certain mutual indemnities for breaches of representations, warranties and ~~placebo controlled~~ ~~Phase 1b trial~~ ~~was conducted using a micro-plaque assay with intralesional injections~~covenants.

The Company also evaluated Innocoll’s future purchases of ~~DUR-928. We feel~~an excipient from the Company and concluded that the initial results were encouraging and warrant further investigation. As a result, we have developed and selected lead topical formulations of DUR-928 and have recently completed GLP skin irritation / sensitization studies in two species. We have had pre-IND interactions with the FDAthese purchases are option rights, and are ~~incorporating FDA’s comments in our upcoming IND while we are actively working with expert advisors~~at market rates, and do not constitute a material right performance obligation. As such, these future purchases have been excluded from the allocation of transaction price and the Company will account for them as separate contracts when and if Innocoll elects to ~~finalize our study protocol~~issue purchase orders for the excipient.

During December 2021, the upfront fee of $4.0 million as well as a ~~Phase 2 proof-of-concept study with topically applied DUR-928. We expect to initiate this study~~fee in the ~~first half~~amount of ~~2018.~~

~~POSIMIR~~^® ~~(SABER~~^®~~-Bupivacaine)~~

~~Our post-operative pain relief depot, POSIMIR, is a sustained release injectable using our SABER delivery system~~$1.2 million to ~~deliver bupivacaine, an off-patent pharmaceutical agent. SABER is a controlled drug delivery technology that is administered via~~cover reimbursed expenses, the ~~parenteral (i.e., injectable) route~~manufacturing supplies and excipients transferred to ~~deliver drugs that act systemically or locally. POSIMIR is designed~~Innocoll pursuant to ~~be administered to a surgical site at~~ the ~~end of surgery for post-operative pain relief and is intended to provide local analgesia for up to 3 days, which we believe coincides with the time period~~terms of the ~~greatest need~~Innocoll Agreement was recognized as revenue when the performance obligations were satisfied in December 2021 and $0.1 million was recorded as a net reduction in equipment in December 2021. At December 31, 2021, the Company included $5.3 million due from Innocoll in accounts receivable on its balance sheet; these funds were received in January 2022.

In August 2022, the Company was issued a new patent by the U.S. Patent and Trademark Office, extending U.S. patent coverage of POSIMIR to at least 2041, resulting in an $8.0 million milestone payment by Innocoll to the Company. In September 2022, Innocoll launched POSIMIR in the U.S., triggering a $2.0 million milestone payment to the Company for ~~post-surgical pain control in most patients. In May 2017, we signed an~~the first commercial sale of POSIMIR. Thus, the Company recognized $10.0 million of milestone revenue under the agreement with ~~Sandoz whereby Sandoz~~Innocoll during the three and nine months ended September 30, 2022. As the commercial launch of POSIMIR progresses, the Company will ~~have the exclusive commercialization rights~~receive tiered, low double-digit to mid-teen royalties on net product sales of POSIMIR in the United States. ~~DURECT retains~~The Company may earn additional milestone payments of up to $122.0 million in the development and commercialization rights to POSIMIR in all other countries. Closing of this transaction occurred in June 2017 upon the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

~~In April 2013, we submitted an NDA as a 505(b)(2) application, which relies in part~~aggregate, depending on the ~~FDA’s findings~~achievement of ~~safety~~certain regulatory, commercial, and ~~effectiveness of a reference drug. In February 2014, we received a Complete Response Letter from the FDA. Based on the Complete Response Letter and subsequent communications~~intellectual property milestones with ~~the FDA, we conducted a new POSIMIR Phase 3 clinical trial (the PERSIST trial) consisting of patients undergoing laparoscopic cholecystectomy (gallbladder removal) surgery~~respect to ~~further evaluate the benefits and risks of~~ POSIMIR. We began recruiting patients for this trial in November 2015 comparing POSIMIR to placebo. Based on advice from the FDA received subsequent to the start of the trial, in April 2016 we decided to amend the PERSIST trial. Starting in August 2016, we began implementing Part 2 of the PERSIST trial to evaluate POSIMIR against standard bupivacaine HCl rather than placebo as we had been doing initially in the study. Additionally, we switched the primary efficacy endpoint (pain reduction on movement) from 0-72 hours after surgery to 0-48 hours after surgery. Assessing pain reduction on movement from 0-72 hours became the key secondary efficacy endpoint and other efficacy endpoints, including 72-hour opioid use, remained the same. In June 2017, we completed enrollment of 296 patients in Part 2 of the PERSIST trial. In October 2017, we reported that the PERSIST trial did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. While results trended in favor of POSIMIR versus the comparator, they did not achieve statistical significance. We and Sandoz will be working to understand the trial results more fully in the coming weeks.

~~RBP-7000~~Patent Purchase Agreement with Indivior

In September 2017, we entered into an agreement with Indivior (the “Indivior Agreement”), under which we assigned to Indivior certain patents that may provide further intellectual property protection for ~~RBP-7000,~~PERSERIS, Indivior’s ~~investigational once-monthly~~extended-release injectable ~~risperidone product~~suspension for the treatment of ~~schizophrenia.~~schizophrenia in adults. In consideration for such assignment, Indivior ~~has~~ made annon-refundable upfront ~~non-refundable payment~~and milestone payments to DURECT totaling $17.5 million. Additionally, under the terms of ~~$12.5 million, and has also agreed to make an additional $5 million payment to DURECT contingent upon FDA approval of RBP-7000, as well as~~the agreement with Indivior, the Company receives quarterly earn-out payments into 2026 that are based on a single digit percentage of U.S. net sales of PERSERIS. Indivior commercially launched PERSERIS in the U.S. in February 2019. The Indivior Agreement contains customary representations, warranties and indemnities of the parties. Amounts recognized during the three and nine months ended September 30, 2023 and 2022 related to earn-out revenues from PERSERIS have been immaterial and are included in collaborative research and development and other revenue.

Note 3. Financial Instruments

•

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

•

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

•

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

The Company’s financial instruments are valued using quoted prices in active markets or based upon other observable inputs. Money market funds are classified as Level 1 financial assets. Certificates of deposit, commercial paper, municipal bonds, corporate debt securities, and U.S. Government agency securities are classified as Level 2 financial assets. The fair value of the Level 2 assets is estimated using pricing models using current observable market information for similar securities. The Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The fair value of commercial paper is based upon the time to maturity and discounted using the three-month treasury bill rate. The average remaining maturity of the Company’s Level 2 investments as of September 30, 2023 is less than twelve months and these investments are rated by S&P and Moody’s at AAA or AA- for securities and A1, A2, P1 or P2 for commercial paper.

The following is a summary of available-for-sale securities as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	1,022	$	—	$	—		$	1,022
Certificates of deposit		150		—		—			150
Commercial paper		34,742		—		(12	)		34,730
	$	35,914		—	$	(12	)	$	35,902
Reported as:
Cash and cash equivalents	$	35,764	$	—	$	(12	)	$	35,752
Long-term restricted investments		150		—		—			150
	$	35,914	$	—	$	(12	)	$	35,902


	December 31, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	633	$	—	$	—		$	633
Certificates of deposit		150		—		—			150
Commercial paper		40,478		—		(13	)		40,465
	$	41,261	$	—	$	(13	)	$	41,248
Reported as:
Cash and cash equivalents	$	41,111	$	—	$	(13	)	$	41,098
Long-term restricted investments		150		—		—			150
	$	41,261	$	—	$	(13	)	$	41,248

The following is a summary of the cost and estimated fair value of available-for-sale securities at September 30, 2023, by contractual maturity (in thousands):


	September 30, 2023
	Amortized Cost		Estimated Fair Value
Mature in one year or less	$	34,742	$	34,730
Mature after one year through five years		150		150
	$	34,892	$	34,880

There were no securities that have had an unrealized loss for more than 12 months as of September 30, 2023.

As of September 30, 2023, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Warrant Liabilities

The following table summarizes the activity of the Company’s Level 3 warrant liabilities during the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three months ended September 30,					Nine months ended September 30,
	2023			2022		2023			2022
Fair value at beginning of period - February 2023 issuance	$	10,448		$	—	$	—		$	—
Initial fair value at the original issuance date		—			—		12,033			—
Change in fair value during the period		(5,619	)		—		(7,204	)		—
Fair value of liability classified warrants exercised		(2,726	)		—		(2,726	)		—
Fair value at end of period - February 2023 issuance	$	2,103		$	—	$	2,103		$	—

Fair value at beginning of period - July 2023 issuance	$	—		$	—	$	—		$	—
Initial fair value at the original issuance date		5,788			—		5,788			—
Change in fair value during the period		(1,397	)		—		(1,397	)		—
Fair value of liability classified warrants exercised		—			—		—			—
Fair value at end of period - July 2023 issuance	$	4,391		$	—	$	4,391		$	—

Total Fair value at end of period	$	6,494		$	—	$	6,494		$	—

February 2023 Warrants

In February 2023, the Company issued pre-funded warrants to purchase an aggregate of 300,000 shares of common stock and common warrants to purchase an aggregate of 2,000,000 shares of common stock in a registered direct offering.

The pre-funded warrants are accounted for as current liabilities on the balance sheet and are adjusted to estimated fair value at period end through “other income (expense)” on the statement of operations. The estimated fair value of the outstanding pre-funded warrants was $1.7 million, $1.4 million, $1.5 million and $747,000 as of February 8, 2023 (i.e., the issuance date), March 31, 2023, June 30, 2023 and September 30, 2023, respectively. The Company calculated the estimated fair value of the pre-funded warrants using a Black-Scholes option pricing model with the following key assumptions:


	February 8, 2023 (issuance)			March 31, 2023			June 30, 2023			September 30, 2023
Common stock price	$	5.81		$	4.53		$	4.95		$	2.49
Exercise price per share	$	0.00001		$	0.00001		$	0.00001		$	0.00001
Expected volatility		86.60	%		86.20	%		89.10	%		89.50	%
Risk-free interest rate		3.82	%		3.65	%		4.22	%		4.65	%
Contractual term (in years)		5.00			4.90			4.60			4.40
Expected dividend yield		—	%		—	%		—	%		—	%

The common warrants are accounted for as current liabilities on the balance sheet and are adjusted to estimated fair value at period end through “other income (expense)” on the statement of operations. The estimated fair value of the outstanding common warrants was $10.3 million, $8.2 million, $9.0 million and $1.4 million as of February 8, 2023 (i.e., the issuance date), March 31, 2023, June 30, 2023 and September 30, 2023, respectively. In September 2023, 1,400,000 shares of the common warrants were exercised through the alternative cashless exercise provision in accordance with the financing agreement, resulting in a net issuance of 924,000 shares to the holder. The aggregate number of shares of our common stock issuable in such alternative cashless exercise equals the product of (x) the aggregate number of shares of our common stock that would be issuable upon exercise of the common warrant in accordance with the terms of such common warrant if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 0.66. The Company calculated the estimated fair value of the common warrants using a Monte Carlo simulation model with the following key assumptions. In all cases, the Company took the likelihood of achieving certain ~~products covered~~clinical events and related impact on the Company's common stock price into account.

The exercise price for the common warrants was adjusted down from $5.00 per share to $4.89 per share as a result of an anti-dilution provision in the common warrants issued in the February 2023 financing that was triggered by the ~~assigned patent rights, including RBP-7000.~~ July 2023 financing.


	February 8, 2023 (issuance)			March 31, 2023			June 30, 2023			September 30, 2023
Common stock price	$	5.81		$	4.53		$	4.95		$	2.49
Exercise price per share	$	5.00		$	5.00		$	5.00		$	4.89
Expected volatility		86.60	%		86.20	%		89.10	%		89.50	%
Risk-free interest rate		3.82	%		3.65	%		4.22	%		4.65	%
Contractual term (in years)		5.00			4.90			4.60			4.40
Expected dividend yield		—	%		—	%		—	%		—	%

July 2023 warrants

In ~~October 2017, Indivior disclosed~~July 2023, the Company issued common warrants to purchase an aggregate of 2,991,027 shares of common stock in a registered direct offering.



	July 21, 2023 (issuance)			September 30, 2023
Common stock price	$	3.05		$	2.49
Exercise price per share	$	4.89		$	4.89
Expected volatility		88.60	%		89.10	%
Risk-free interest rate		4.18	%		4.60	%
Contractual term (in years)		5.00			4.80
Expected dividend yield		—	%		—	%

Note 5. Stock-Based Compensation

As of September 30, 2023, the Company has two stock-based compensation plans. The stock-based compensation cost that ~~it submitted~~has been included in the statements of operations and comprehensive loss is shown as below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Cost of product revenues	$	4	$	5	$	13	$	15
Research and development		306		292		899		918
Selling, general and administrative		351		281		1,011		941
Total stock-based compensation	$	661	$	578	$	1,923	$	1,874

As of September 30, 2023 and December 31, 2022, $14,000 and $16,000 of stock-based compensation cost were capitalized in inventory on the Company’s balance sheets for each period, respectively.


	Three months ended September 30,					Nine months ended September 30,
	2023			2022		2023		2022
Stock Options
Risk-free rate		4.17	%	2.7-3.2%		3.96-4.17%		1.8-3.2%
Expected dividend yield		—			—		—		—
Expected life of option (in years)		7.5			7.3	7.0-7.5		7.0-7.3
Volatility		88	%	85-86%		87-88%		83-86%


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023		2022
Employee Stock Purchase Plan
Risk-free rate		5.14	%		1.49	%	4.58-5.14%		0.04-1.49%
Expected dividend yield		—			—			—		—
Expected life of option (in years)	0.5			0.5			0.5		0.5
Volatility		88	%		80	%	88-104%		56-80%

Note 8. Stockholders’ Equity

In July 2021, the Company filed a shelf registration statement on Form S-3 with the SEC (the “2021 Registration Statement”) (File No. 333-258333), which upon being declared effective in August 2021, allows the Company to offer up to $250.0 million of securities from time to time in one or more public offerings, inclusive of up to $75.0 million of shares of the Company’s common stock which the Company may sell, subject to certain limitations, pursuant to a sales agreement dated July 30, 2021 with Cantor Fitzgerald & Co. (the “2021 Sales Agreement”).

On December 5, 2022, the Company effected a 1-for-10 reverse stock split of its outstanding common stock. The reverse stock split also affected our outstanding stock options, purchase rights and equity incentive plans and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately.

Registered Direct Offerings

February 2023 Financing

On February 3, 2023, the Company entered into a securities purchase agreement with two institutional investors relating to the purchase and sale of an aggregate of (i) 1,700,000 shares of its common stock, par value $0.0001 per share, (ii) pre-funded warrants to purchase 300,000 shares of common stock, and (iii) accompanying common warrants, to purchase an aggregate of 2,000,000 shares of Common Stock, in a registered direct offering (the "February Offering"). The issuance date of the common stock, the pre-funded warrants and the accompanying common warrants was February 8, 2023. The aggregate net proceeds to the Company from the February Offering were approximately $8.8 million after deducting $1.2 million in placement agent fees and other offering expenses, which were included in loss on issuance of warrants on the statement of operations for the three months ended March 31, 2023 and nine months ended September 30, 2023.

The pre-funded warrants were exercisable immediately following the closing date of the February Offering and have an unlimited term and an initial exercise price of $0.00001 per share. The common warrants were immediately exercisable and have a five-year term and an initial exercise price of $5.00 per share, which was lowered to $4.89 per share as a result of an anti-dilution provision in the common warrants issued in the February Offering that was triggered by the July Offering (as defined below). The combined offering price was $5.00 per share and accompanying common warrant, or in the case of pre-funded warrants, $4.99999 per pre-funded warrant and accompanying common warrant. A holder (together with its affiliates) may not ~~requested~~exercise any portion of a pre-funded warrant or ~~recommended~~common warrant to the extent that the holder would own more than 4.99% (or, at the election of the holder 9.99%) of the Company’s outstanding common stock immediately after exercise.

The Company accounts for the pre-funded warrants and the common warrants as current liabilities based upon the guidance of ASC 480 and ASC 815. The Company evaluated the common and pre-funded warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815-40”) and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the pre-funded warrants could be settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of the Company’s common stock. Because a change of 50% or more of the Company’s common stock may not result in a change in control of the Company, the Company believes that the scope exception related to the occurrence of a fundamental transaction in ASC 815-40 is not met. The common warrants have the same characteristics as the pre-funded warrants related to the occurrence of a fundamental transaction, therefore the common warrants are also precluded from equity classification. In addition, the holder of the common warrants is permitted to receive the highest volume weighted average price ("VWAP") from the date of announcement of the fundamental transaction through the date the holder provides notice of repurchase, as a way to protect the holder against reductions in the stock price in a fundamental transaction, while allowing the holder to keep the benefits of an upside, which precludes the common warrants from being considered indexed to the Company’s stock. Since the common and pre-funded warrants meet the definition of derivatives under ASC 815, the Company records these warrants as current liabilities on the balance sheet at fair value, with subsequent changes in their respective fair values recognized in the statement of operations and comprehensive loss at each reporting date.

Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Because liability-classified financial instruments are initially and subsequently carried at fair value, the Company’s financial results will reflect the volatility in these estimate and assumption changes. Changes in estimated fair value are recognized as a component of other income (expense) in the statement of operations.

At the date of issuance, the Company valued the common warrants using a Monte-Carlo valuation model due to the presence of an alternative cashless settlement feature in the financing agreement that provides the warrant holders with an alternative settlement feature to receive a fixed percentage of the shares underlying the warrants for no consideration. Because this feature allows for the warrant holders to use an alternative mechanism to exercise their warrants in a manner that would yield different values, a Monte-Carlo valuation model was determined to be appropriate. The Monte-Carlo valuation resulted in an estimated fair value of the common warrants at issuance of $10.3 million. The pre-funded warrants were valued using the Black-Scholes option valuation model

which is a common valuation method that is generally used for valuing warrants that are for the exercise of a fixed number of shares at a fixed exercise price per share. The Black-Scholes method was determined to be appropriate for the pre-funded warrants given the lack of alternative mechanisms to settle the warrants in a manner that would yield different values, such as an alternative cashless settlement feature. The Black-Scholes valuation resulted in an estimated fair value of the pre-funded warrants at issuance of $1.7 million.

Since the estimated fair value of the warrants at issuance was greater than the gross proceeds of $10.0 million received, the Company recorded approximately $2.0 million (i.e., the difference of the estimated fair values of the warrants and the gross proceeds received) as a loss on issuance of warrants on the statement of operations at issuance.

In September 2023, 1,400,000 shares of the common warrants were exercised in connection with the alternative cashless exercise of the warrants, the Company issued 924,000 shares to the holder. The Company recorded a gain of $3.5 million resulting from the exercise of the warrants in the accompanying statements of operations for the three and nine months ended September 30, 2023 and recorded $2.7 million in additional-paid-in capital upon the issuance of the shares on the balance sheet as of September 30, 2023.

At September 30, 2023, the Company updated the estimated fair value of the outstanding common warrants using a Monte-Carlo valuation model resulting in an estimated fair value of $1.4 million, a decrease of $1.3 million from June 30, 2023; and updated the estimated fair value of the pre-funded warrants using the Black-Scholes option valuation model resulting in an updated estimated fair value of $747,000, a decrease of $738,000 from June 30, 2023. The gain of $2.1 million and $3.7 million resulting from the change in the estimated fair value of the liabilities for the warrants was recorded as a change in the estimated fair value of warrant liabilities in the accompanying statements of operations for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, common warrants to purchase 600,000 shares of the Company's common stock and pre-funded warrants to purchase 300,000 shares of the Company's common stock were outstanding.

The common warrant liability and the pre-funded warrant liability will be adjusted to estimated fair value at each balance sheet date until the warrants are settled. Changes in the estimated fair value of the warrant liabilities are recognized as a component of other income (expense), net in the statement of operations and comprehensive loss.

The Company also allocated the offering expenses of $1.2 million to warrant liabilities and expensed (within other expense, net) $1.2 million upon the closing of the February Offering.

July 2023 Financing

On July 19, 2023, the Company entered into a securities purchase agreement with several institutional investors relating to the purchase and sale of an aggregate of (i) 2,991,027 shares of its common stock, par value $0.0001 per share, and (ii) accompanying common warrants to purchase an aggregate of 2,991,027 shares of Common Stock, in a registered direct offering (the “July Offering”). The issuance date of the common stock and the accompanying common warrants was July 21, 2023. The aggregate net proceeds to the Company from the July Offering were approximately $13.9 million after deducting $1.1 million in placement agent fees and other offering expenses.

The common warrants were immediately exercisable and have a five-year term and an initial exercise price of $4.89 per share. The combined offering price was $5.015 per share and accompanying common warrant. A holder (together with its affiliates) may not exercise any portion of the common warrants to the extent that the holder would own more than 4.99% (or, at the election of the holder 9.99%) of the Company’s outstanding common stock immediately after exercise.

The common stock and common warrants are separate freestanding instruments. The estimated fair value of the common stock issued in the July Offering as of the date of issuance (i.e., July 21, 2023) was $9.1 million, which was the number of shares of 2,991,027 multiplied by the price per share as of the date of issuance of $3.05 per share. The common stock issued in the July Offering was classified as equity on the Company’s balance sheet. The Company allocated the offering expenses related to the July 2023 offering of $1.1 million based on the relative fair values of common stock and common warrants issued. The Company recognized an expense for the amount allocated to the common warrants of $427,000 (included within other expense, net) upon the closing of the offering in the three months ended September 30, 2023. The Company recorded the amount allocated to the common stock of $673,000 as a reduction in additional paid-in capital on its balance sheets as of September 30, 2023.

The Company accounted for the common warrants issued in the July Offering as current liabilities based upon the guidance of ASC 815. The Company evaluated the common warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815-40”) and concluded that they do not meet the criteria to be classified in stockholders’ equity. Upon a fundamental transaction, holders of the common warrants are permitted to settle warrants for a value determined using the Black Scholes formula that incorporates a leveraged common stock price. Specifically, for purposes of the calculation, the stock price is determined as the higher of the VWAP measured over the period from the date of announcement of the fundamental transaction through the date the holder provides notice of repurchase, and the value received by common stockholders in such fundamental transaction. This in effect

protects the holder against reductions in the stock price that may result from a fundamental transaction, while allowing the holder to keep the benefits of an upside. This feature precludes the common warrants from being considered indexed to the Company’s stock.

Since the common warrants meet the definition of derivatives under ASC 815, the Company recorded these warrants as current liabilities on the balance sheet at the estimated fair value, with subsequent changes in their respective estimated fair values recognized in the statement of operations and comprehensive loss at each reporting date.

Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Because liability-classified financial instruments are initially and subsequently carried at fair value, the Company’s financial results will reflect the volatility in these estimate and assumption changes. Changes in fair value are recognized as a component of other income (expense) in the statement of operations.

The Company valued the common warrants issued in the July Offering using the Black-Scholes option valuation model. The Black-Scholes method was determined to be appropriate given the lack of alternative mechanisms to settle the warrants in a manner that would yield different values, such as an alternative cashless settlement feature. The fair value of these warrants as of the issuance date and as of September 30, 2023 were $5.8 million and $4.4 million, respectively. The gain of $1.4 million resulting from the change in the fair value of the liability for these warrants was recorded as a change in estimated fair value of warrant liabilities in the accompanying statements of operations for the three and nine months ended September 30, 2023.

The common warrant liability will be adjusted to estimated fair value at each balance sheet date until the warrants are settled. Changes in the estimated fair value of the warrant liabilities are recognized as a component of other income (expense), net in the statement of operations and comprehensive loss.

As of September 30, 2023, none of the warrants issued in the July Offering have been exercised. Common warrants to purchase 2,991,027 shares of the Company's common stock were outstanding with an exercise price of $4.89 per share.

ATM Financings

During the three months ended September 30, 2023, the Company did not issue any shares pursuant to the 2021 Registration Statement and the 2021 Sales Agreement. During the nine months ended September 30, 2023, the Company raised net proceeds (net of commissions) of approximately $658,000 from the sale of 118,132 shares of the Company’s common stock in the open market at a weighted average price of $5.68 per share pursuant to the 2021 Registration Statement and the 2021 Sales Agreement.

As of November 13, 2023, the Company had up to $223.5 million of the Company’s securities available for sale under the 2021 Registration Statement, of which $73.5 million of the Company’s common stock are available pursuant to the 2021 Sales Agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2023 should be read in conjunction with (i) our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our annual report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) as well as Part I, Item 1A., “Risk Factors” section included therein and any additional risk factors that may be described herein or in our subsequent reports filed with the SEC. References to the “Company,” “DURECT,” “we,” “us” and “our” refer to DURECTCorporation.

We are a biopharmaceutical company advancing novel and potentially lifesaving investigational therapies derived from our Epigenetic Regulator Program. Larsucosterol (also known as “DUR‑928”), a new chemical entity in clinical development, is the lead candidate in our Epigenetic Regulator Program. An endogenous, orally bioavailable small molecule, larsucosterol has been shown in both in vitro and in vivo studies ~~prior~~ to ~~approval. King resubmitted~~play an important regulatory role in lipid metabolism, stress and inflammatory responses, and cell death and survival. We are developing larsucosterol for alcohol-associated hepatitis (“AH”), a life-threatening acute liver condition with no approved therapeutics and a 28-Day and 90-Day historical mortality rate of 20%-26% and 29%-31%, respectively. After completing a Phase 2a trial in which 100% of AH patients treated with larsucosterol survived the ~~NDA~~28-Day study period, we conducted a double-blind, placebo-controlled Phase 2b clinical trial called AHFIRM (trial in ~~December 2010.~~AH to evaluate saFety and effIcacy of laRsucosterol treatMent). Through our AHFIRM trial, we evaluated larsucosterol’s potential to reduce mortality or liver transplantation compared to a placebo with or without steroids at the investigators’ discretion. In June ~~2011, a Complete Response Letter~~2023 we announced that we had completed enrollment in the AHFIRM trial. In total, we enrolled 307 patients at leading hospitals in the U.S., Australia, E.U. and U.K. In November 2023, we announced topline data from the ~~FDA~~AHFIRM trial that showed a compelling efficacy signal in favor of larsucosterol in the key secondary endpoint of mortality at 90 days. Both the 30 mg and 90 mg larsucosterol doses demonstrated clinically meaningful trends in reduction of mortality, with reductions of 41% (p=0.070) in the 30 mg arm and 35% (p=0.126) in the 90 mg arm compared with standard of care ("SOC"). The numerical improvement in the primary endpoint of mortality or liver transplant at 90 days did not achieve statistical significance for either dose of larsucosterol. Both doses of larsucosterol in AHFIRM showed a more pronounced reduction in mortality in patients enrolled in the U.S., representing 76% of patients enrolled in the trial. The reductions in mortality at 90 days were 57% (p=0.014) for the 30 mg arm and 58% (p=0.008) for the 90 mg arm compared with SOC in the U.S. Larsucosterol was ~~received by Pfizer. The FDA’s June 2011 Complete Response Letter raised concerns related~~safe and well tolerated. There were fewer treatment-emergent adverse events ("TEAEs") in the larsucosterol arms compared with SOC. We intend to ~~among other matters, the Chemistry, Manufacturing, and Controls section~~have an End of the NDA for REMOXY ER. Pfizer undertook efforts to resolve these issues. In March 2016, Pain Therapeutics resubmitted the NDA for REMOXY ER to the FDA, and in September 2016, Pain Therapeutics received a Complete Response Letter. Based on its review, the FDA has determined that the NDA cannot be approved in its present form and specifies additional actions and data that are needed for drug approval. We understand from its public disclosures that Pain Therapeutics had aPhase 2 ("EOP2") meeting with ~~the~~ FDA ~~in February 2017~~ to discuss the ~~regulatory path forward for REMOXY ER.~~ ~~In March 2017, Pain Therapeutics announced that it plans to resubmit~~trial results and the REMOXY ER NDA after completing two additional studies regarding REMOXY ER based on guidance following the recent meeting with the FDA. The two studies are a clinical abuse potential study via the intranasal route of abuse and a non-clinical abuse potential study using household solvents. Pain Therapeutics stated in its public filings that it expects to complete these studies by year end 2017, after which they intend to have a pre-NDA meeting with the FDA followed by resubmission of the REMOXY NDA. In October 2017, Pain Therapeutics announced that there is a pre-NDA guidance meeting with the FDA planned for November 14, 2017. According to Pain Therapeutics, the purpose of a pre-NDA meeting is to acquaint FDA reviewers with the data to be submitted in the NDA, to uncover any major unresolved problems, including whether the NDA resubmission constitutes a complete response to the 2016 Complete Response Letter, and to discuss the best approach to the presentation and formatting of data in the NDA. ~~Pain Therapeutics also stated that it is planning a resubmission of the NDA~~Phase 3 registration trial design in the first quarter of ~~2018.~~ 2024. We have also investigated larsucosterol in patients with non-alcoholic steatohepatitis with encouraging results in a Phase 1b clinical trial and are considering further development of larsucosterol for this and other indications.

~~ORADUR-ADHD~~Building on our knowledge of epigenetic modulation, we have internally developed multiple novel small molecule DNMT inhibitors that exhibit broad spectrum activity against multiple hematologic and solid tumor types. These compounds display unique and desirable physiochemical properties and pharmacokinetic profiles, as well as favorable tolerability. We intend to select a product candidate by the end of 2023 to advance into clinical trials in cancer patients. Our goal is to be prepared to initiate clinical trials for this product candidate by the end of 2024.

In addition to our Epigenetic Regulator Program, we developed a novel and proprietary post-surgical pain product called POSIMIR that utilizes our innovative SABER® platform technology to enable continuous sustained delivery of bupivacaine, a non-opioid local analgesic, over three days in adults. In February 2021, POSIMIR received U.S. FDA approval for post-surgical pain reduction for up to 72 hours following arthroscopic subacromial decompression. In December 2021, we entered into a license agreement with Innocoll Pharmaceuticals Limited (“Innocoll”), pursuant to which the Company granted to Innocoll an exclusive, royalty-bearing, sublicensable right and license to develop, manufacture and commercialize POSIMIR in the United States. In September 2022, Innocoll launched POSIMIR in the U.S.

~~We are developing~~As a result of the assignment of certain patent rights, we also receive single digit sales-based earn-out payments from U.S. net sales of Indivior UK Limited’s PERSERIS® (risperidone) drug ~~candidates (ORADUR-ADHD) based on DURECT’s ORADUR Technology~~for schizophrenia and single-digit royalties from net sales of Orient Pharma Co., Ltd.’s Methydur Sustained Release Capsules (“Methydur”) for the treatment of ~~ADHD. These drug candidates are intended to provide once-a-day dosing, or immediate release dosing,~~attention deficit hyperactivity disorder in ~~each case with added tamper-resistant characteristics to address common methods~~Taiwan. We also manufacture and sell ALZET® osmotic pumps used in laboratory research.

NOTE: POSIMIR® is a trademark of ~~abuse~~Innocoll Pharmaceuticals, Ltd. in the U.S. and ~~misuse~~a trademark of ~~these types of drugs.~~

In August 2009, we entered into a development and license agreement with Orient Pharma Co., Ltd., a diversified multinational pharmaceutical, healthcare and consumer products company with headquarters in Taiwan, under which we granted to Orient Pharma development and commercialization rights in certain defined Asian and South Pacific countries to ORADUR-Methylphenidate. We retain rights to North America, Europe, Japan and all other countries not specifically licensed to Orient Pharma. In 2013, we and Orient Pharma selected a lead formulation based on its potential for rapid onset of action, long duration for once-a-day dosing and target pharmacokinetic profile as demonstrated in a Phase 1 trial. In addition, this product candidate is expected to utilize a small capsule size relative to the leading existing long-acting products on the market.

Orient Pharma conducted a Phase 3, multi-center, randomized, double-blind, placebo controlled, two-way cross-over study designed to observe the efficacy and safety of ORADUR-Methylphenidate ER in children and adolescents with ADHD age 6 to 18 years old. Conducted in Taiwan, there were 110 subjects enrolled in this study, of which 99 evaluable subjects completed the study. The primary efficacy measure in this study was to demonstrate the superiority of ORADUR-Methylphenidate ER over placebo using the Swanson, Nolan, and Pelham-IV (SNAP-IV) teacher form score. The SNAP-IV rating scale contains 26 questions, classified as three components of ADHD symptoms (inattention, hyperactivity/impulsivity and oppositional defiant disorder). For the primary efficacy endpoint, ORADUR-Methylphenidate ER was superior to placebo in a statistically significant manner (p=0.0044 for the intent to treat population and p=0.0032 for the per protocol population). There were no serious adverse events in this pivotal study. Orient Pharma’s analysis indicates that the incidence of adverse events was generally consistent with other ADHD products.

DURECT ~~intends to seek potential development and commercialization partners for major markets not licensed to Orient Pharma.~~

On July 11, 2011, we and Zogenix entered into a development and license agreement for the purpose of developing and commercializing Relday, a proprietary, long-acting injectable formulation of risperidone using our SABER-controlled release formulation technology potentially in combination with Zogenix’s DosePro^® ~~needle-free, subcutaneous drug delivery system. Risperidone is one~~Corporation outside of the ~~most widely prescribed medications used~~U.S. SABER® and ALZET® are trademarks of DURECT Corporation. Other trademarks referred to ~~treat the symptoms of schizophrenia~~belong to their respective owners. Full prescribing information for POSIMIR, including BOXED WARNING and ~~bipolar I disorder in adults~~Medication Guide can be found at www.posimir.com. Full prescribing information for PERSERIS, including BOXED WARNING and ~~teenagers 13 years of age and older. Under the agreement, we granted Zogenix worldwide development and commercialization rights to Relday.~~Medication Guide can be found at www.perseris.com.

In January 2013, Zogenix reported positive single-dose pharmacokinetic (PK) results from a Phase 1 clinical trial of Relday. According to Zogenix, adverse events in the Phase 1 trial in patients diagnosed with schizophrenia were generally mild to moderate and consistent with other risperidone products. The Phase 1 clinical trial for Relday was conducted as a single-center, open-label, safety and PK trial of 30 patients with chronic, stable schizophrenia or schizoaffective disorder. Per Zogenix, based on the favorable safety and PK profile demonstrated with the 25 mg and 50 mg once-monthly doses tested in the Phase 1 trial, Zogenix extended the study to include a 100 mg dose of the same formulation. In May 2013, Zogenix announced positive results with the 100 mg arm, demonstrating dose proportionality across the full dose range that would be anticipated to be used in clinical practice. In March 2015, Zogenix commenced a Phase 1b multi-dose parallel clinical trial, enrolling 60 subjects, for which Zogenix announced positive top line results in September 2015. According to Zogenix, the results for Relday demonstrated that risperidone plasma concentrations in the therapeutic range were achieved on the first day of dosing, reached steady state levels following the second dose and consistently maintained therapeutic levels throughout the four-month period. Also according to Zogenix, Relday was generally safe and well-tolerated, with results consistent with the profile of risperidone and the previous Phase 1 single-dose clinical trial.

In August 2017, we and Zogenix terminated the Zogenix Agreement. Under the mutual termination agreement, Zogenix’s development and commercialization rights are returned to us, and Zogenix will transfer to us all regulatory filings and development information related to Relday.

In addition to biologic drugs, many traditional small molecule drugs have to be given by frequent injections, which is costly, inconvenient and may result in either unwanted side effects or suboptimal efficacy. We have active programs underway to improve our depot injectable systems and to apply those systems to various 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. The Relday program with Zogenix and the ophthalmic program with Santen are two projects which started as depot injectable feasibility projects and then matured into development and license agreements.

Collaborative research and development and other revenue consists of three broad categories: (a) the recognition of upfront license payments over the period of our continuing involvement with the third party, (b) the reimbursement of qualified research expenses by third parties, (c) milestone payments in ~~Other Therapeutic Categories~~connection with our collaborative agreements and (d) royalties and earn out payments from our agreements with third parties. During the last two years, we generated collaborative research and development revenues from collaborative agreements with Innocoll and others.

We have underway a number of research programs covering medical diseases and conditions other than pain. Such programs include various diseases and disorders of the central nervous system, cardiovascular disease, ophthalmic conditions and metabolic disorders. In conducting our research programs and determining which particular efforts to prioritize for formal development, we employ a rigorous opportunity assessment process that takes into account the unmet medical need, commercial opportunity, technical feasibility, clinical viability, intellectual property considerations, and the development path including costs to achieve various critical milestones.

We also currently generate product revenue from the sale of ~~three~~two product lines:

Because we consider our core business to be developing and commercializing pharmaceuticals, we do not intend to significantly increase our investments in or efforts to sell or market any of our existing product lines. However, we expect that we will continue to make efforts to increase our revenue related to collaborative research and development by entering into additional research and development agreements with third-party collaborators to develop product candidates based on our drug delivery technologies.

Since our inception in 1998, we have generally had a history of operating losses. At September 30, ~~2017,~~2023, we had an accumulated deficit of ~~$452.0~~$587.6 million. ~~Although we had~~Our net ~~income of $6.1~~losses were $3.0 million and $26.2 million for the three ~~months ended September 30, 2017, primarily as a result of an upfront payment of $12.5 million from Indivior for the assignment of certain patent rights, our net loss was $11.9 million for the~~and nine months ended September 30, ~~2017. Our net losses were $34.5~~2023 compared with $2.5 million and ~~$22.7~~$24.9 million for the ~~years ended December 31, 2016 and 2015, respectively.~~corresponding periods in 2022. These losses have resulted primarily from costs incurred to research and develop our product candidates and to a lesser extent, from selling, general and administrative costs associated with our operations and product sales. We expect our research and development expenses in the near future to decrease compared to the third quarter of ~~2017~~2023 as we ~~experience lower~~complete the AHFIRM trial and evaluate our research and development ~~expenses related to POSIMIR.~~spending plans. We expect our selling, general and administrative expenses in the near future to be comparable to the third quarter of ~~2017.~~2023. We ~~do not anticipate meaningful revenues from our products in development, should they be approved, for at least the next twelve months. Therefore, we~~ expect to incur continuing losses and negative cash flows from operations for the foreseeable future.

In November 2023, we announced topline data from the AHFIRM trial that showed a compelling efficacy signal in favor of larsucosterol in the key secondary endpoint of mortality at 90 days. The AHFIRM trial did not achieve the primary endpoint of a statistically significant difference in 90-day mortality or liver transplant between both doses of larsucosterol versus standard of care. We intend to have an EOP2 meeting with FDA to discuss the trial results and the Phase 3 registration trial design in the first quarter of 2024.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to revenue recognition, ~~the recoverability of our long-lived assets, including goodwill~~prepaid and ~~other intangible assets,~~ accrued ~~liabilities,~~ contract research ~~liabilities, inventories~~expenses, and stock-based compensation. Actual amounts could differ significantly from these estimates. There have been no material changes to our other critical accounting ~~policies and~~ estimates as compared to the disclosures in our annual report on Form 10-K for the year ended December 31, ~~2016, except as noted below.~~2022.

Our inventories, in part, include certain excipients that are sold to a customer for a currently marketed animal health product and included in several products in development or awaiting regulatory approval. These inventories are capitalized based on management’s judgment of probable sale prior to their expiration dates. The valuation of inventory requires management to estimate the value of inventory that may become expired prior to use. We may be required to expense previously capitalized inventory costs upon a change in management’s judgment due to, among other potential factors, a denial or delay of approval of a customer’s product by the necessary regulatory bodies, or new information that suggests that the inventory will not be saleable. In addition, these circumstances may cause us to record a liability related to minimum purchase agreements that we have in place for raw materials. In October 2017, we announced that PERSIST, the Phase 3 clinical trial for POSIMIR, did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl. As a result, we wrote down certain lots of inventory which are no longer considered to be probable for use prior to expiration and prepaid inventory related to a minimum purchase agreement for an excipient. In addition, we recorded a liability related to a minimum purchase agreement for the excipient. In the three and nine months ended September 30, 2017, we recorded charges to cost of goods sold of approximately $2.0 million, of which approximately $503,000 related to the write-down of the cost basis of inventory on hand, $500,000 related to the prepaid inventory for the minimum purchase commitment for the excipient, and $1.0 million related to the accrual of a liability for the remaining minimum purchase commitment for the same excipient. As of September 30, 2017, the remaining carrying value of the excipient residing within our inventory was $81,000. In the event that management determines that we will not utilize all of these materials, there could be a potential write-off related to this inventory.

We recognize ~~revenues~~revenue from collaborative research and development activities and service contracts. Collaborative research and development and other revenue primarily represents reimbursement of qualified expenses related to collaborative agreements with various third parties to research, develop and commercialize potential products using our drug delivery technologies, and revenue ~~recognized~~ from ~~ratable~~the recognition of upfront fees and milestone payments in connection with our collaborative or license agreements.

We expect our collaborative research and development and other revenue to fluctuate in ~~the near~~ future periods pending our efforts to ~~remain comparable to the third quarter of 2017 excluding recognition of deferred~~enter into potential new collaborations, and any royalty or earn-out revenue recognized from collaborators or counterparties.

The collaborative research and development and other revenue associated with ~~upfront payments received under~~ our ~~collaborative agreements. Until we have more information~~major collaborators or counterparties were $506,000 and $1.7 million for the three and nine months ended September 30, 2023, compared with ~~respect to next steps with POSIMIR, we cannot predict how much of~~$10.6 million and $11.7 million for the ~~deferred revenue associated with the $20 million upfront payment from Sandoz will be recognized~~corresponding periods in ~~future quarters. The recognition of deferred revenue does not result in additional cash being received by us.~~2022. The collaborative research and development and other revenues ~~associated~~in the three and nine months ended September 30, 2022 included $8.0 million of patent milestone revenue and $2.0 million of first commercial sale milestone revenue under the agreement with Innocoll. The collaborative research and development and other revenue included (a) amounts related to earn-out revenue from Indivior UK Limited (Indivior) with respect to PERSERIS net sales; (b) feasibility programs and research and development activities funded by our ~~major~~ collaborators ~~are as follows (in thousands):~~and (c) royalty revenue from Orient Pharma with respect to Methydur net sales.

A portion of our revenues is derived from product sales, which include our ALZET ~~mini~~osmotic pump ~~product line, our LACTEL biodegradable polymer~~ product line and certain excipients that are included in ~~REMOXY ER~~POSIMIR, Methydur and in a ~~currently~~ marketed animal health product. Net product revenues were ~~$2.6~~$1.2 million and ~~$9.8~~$4.2 million for the three and nine months ended September 30, 2023 compared with $1.4 million and $4.3 million for the corresponding periods in 2022. The decreases in the three and nine months ended September 30, ~~2017, respectively, compared to $3.4 million and $9.4 million for the corresponding periods in 2016. The decrease in the three months ended September 30, 2017 was~~2023 were primarily attributable to lower product revenue from the sale of certain excipients included in REMOXY ER and in a currently marketed animal health product as well as lower revenue from our LACTEL product line and from our ALZET product line as a result of lower units sold from these product lines compared to the corresponding period in 2016. The increase in the nine months ended September 30, 2017 was primarily attributable to higher revenue from our LACTEL product line as a result of higher units sold, partially offset by lower product revenue from the sale of certain excipients included in REMOXY ER and in a currently marketed animal health product as well as lower product revenue from our ALZET mini pump product line as a result of lower units sold and lower revenue from certain excipients that are included in Methydur and in an animal health product compared to the corresponding period in 2016. We did not generate any product revenue from the sale of certain excipients included in REMOXY ER and in a currently marketed animal health product in the three and nine months ended September 30, 2017.

~~Revenue from sale of intellectual property rights was $12.5 million for both the three and nine months ended September 30, 2017 compared to zero for the corresponding~~ periods in 2016. We entered into a Patent Purchase Agreement with Indivior and received a non-refundable payment of $12.5 million in September 2017. We recognized the $12.5 million as revenue from sale of intellectual property rights in the three months ended September 30, 2017 as we do not have any substantive continuing obligations under the purchase agreement.2022.

Cost of product revenues ~~were $3.1 million~~was $312,000 and ~~$5.6~~$1.1 million for the three and nine months ended September 30, ~~2017, respectively,~~2023 compared ~~to $2.2 million~~with $345,000 and ~~$4.3~~$1.1 million for the corresponding periods in ~~2016. The increases in the cost~~2022. Cost of product revenue in the three and nine months ended September 30, 2017 were primarily the result of charges of approximately $2.0 million associated with the write-down of an excipient in light of the failure of PERSIST to achieve the primary endpoint, comparing with $926,000 associated with the write-down of the excipient included in REMOXY ER in light of the Complete Response Letter received

by Pain Therapeutics for REMOXY ER in the three and nine months ended September 30, 2016. Excluding the charges associated with the write-down of the excipient included in three months ended September 30, 2017 and 2016, respectively, the decrease in the cost of product revenuerevenues in the three months ended September 30, ~~2017 was primarily the result of lower cost of goods sold related to our LACTEL product line and ALZET product line arising from lower units sold~~2023 decreased compared to the corresponding period in ~~2016. Excluding the charges associated with the write-down of certain excipients included in nine months ended September 30, 2017 and 2016, respectively, the increase in the cost~~2022 primarily due to lower units sold from our ALZET product line. Cost of product ~~revenue~~revenues in the nine months ended September 30, 2017 was primarily the result of higher cost of goods sold related to our LACTEL product line arising from higher units sold, partially offset by lower cost of goods sold related to our ALZET product line arising from lower units sold and from lower cost of goods sold related to the sale of certain excipients included in REMOXY ER and another product compared2023 are comparable to the corresponding period in 2016. We did not generate any product revenue from the sale of certain excipients included in REMOXY ER and in a currently marketed animal health product in the three and nine months ended September 30, 2017. Cost of product revenues and gross profit margin will fluctuate from period to period depending upon the product mix in a particular period and unit volumes sold.2022. Stock-based compensation expense recognized related to cost of product revenues was ~~$27,000~~$4,000 and ~~$83,000~~$13,000 for the three and nine months ended September 30, ~~2017, respectively,~~2023 compared to ~~$27,000~~$5,000 and ~~$80,000~~$15,000 for the corresponding periods in ~~2016.~~2022.

As of September 30, ~~2017,~~2023, we had 229 manufacturing employees compared with 2010 as of September 30, ~~2016.~~2022. We expect the number of employees involved in manufacturing will remain ~~comparable~~consistent in the near future.

Research and development expenses are primarily comprised of salaries, benefits, stock-based compensation and other compensation ~~cost~~costs associated with research and development personnel, overhead and facility costs, preclinical and non-clinical development costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs.

Research and development expenses were ~~$8.4~~$7.2 million and ~~$25.0~~$23.7 million for the three and nine months ended September 30, ~~2017, respectively,~~2023 compared to ~~$6.8~~$9.9 million and ~~$21.3~~$26.9 million for the corresponding periods in ~~2016. The increase in~~2022. We incurred lower research and development costs associated with larsucosterol and the ~~three months ended September 30, 2017 was primarily attributable to~~depot injectable programs, partially offset by higher research and development costs associated with ~~POSIMIR, depot injectable programs and ORADUR-ADHD, partially offset by lower research and development costs associated with DUR-928, REMOXY ER, the Santen ophthalmic program, Relday and~~ other research programs ~~compared to~~in the ~~corresponding period in 2016, as more fully discussed below. The increase in the~~three and nine months ended September 30, 2017 was primarily attributable to higher research and development costs associated with POSIMIR and depot injectable programs, partially offset by lower research and development costs associated with Relday, REMOXY ER, the Santen ophthalmic program, DUR-928, ORADUR-ADHD and other research programs,2023 compared to the corresponding ~~period~~periods in ~~2016~~2022, as more fully discussed below. Stock-based compensation expense recognized related to research and development personnel was ~~$374,000~~$306,000 and ~~$1.1 million~~$899,000 for the three and nine months ended September 30, ~~2017, respectively,~~2023 compared to ~~$362,000~~$292,000 and ~~$1.1 million~~$918,000 for the corresponding periods in ~~2016.~~2022. As of September 30, ~~2017,~~2023, we had 5038 research and development employees compared with 5243 as of September 30, ~~2016.~~2022. We expect ~~our~~ research and development expenses in the near future to decrease compared to the third quarter of ~~2017~~2023 as we ~~experience lower~~complete the AHFIRM trial and evaluate our research and development ~~expenses related to POSIMIR.~~spending plans.

~~Research and development expenses associated with our major development programs approximate the following (in thousands):~~

Our research and development expenses for ~~POSIMIR~~larsucosterol were ~~$4.3~~$6.4 million and ~~$12.9~~$21.1 million in the three and nine months ended September 30, ~~2017, respectively,~~2022 compared to ~~$2.2~~$9.3 million and ~~$8.0~~$24.7 million for the corresponding periods in ~~2016.~~2022. The decreases in the three and nine months ended September 30, 2023 were primarily due to lower clinical trial related expenses as we completed patient follow-up in the AHFIRM trial, lower contract manufacturing expenses and lower employee-related costs for this drug candidate compared with the corresponding periods in 2022.

Our research and development expenses for depot injectable programs were zero and $319,000 in the three and nine months ended September 30, 2023 compared to $367,000 and $1.2 million for the corresponding periods in 2022. The decreases in the three and nine months ended September 30, 2023 were primarily due to lower employee-related costs and lower outside expenses for these programs compared with the corresponding periods in 2022.

Our research and development expenses for all other programs were $808,000 and $2.3 million in the three and nine months ended September 30, 2023 compared to $193,000 and $1.1 million for the corresponding periods in 2022. The increases in the three and nine months ended September 30, ~~2017 were primarily due to higher clinical trial expenses and other outside expenses for POSIMIR compared with the corresponding periods in 2016.~~

Our research and development expenses for DUR-928 were $3.2 million and $9.8 million in the three and nine months ended September 30, 2017, respectively, compared to $3.9 million and $10.0 million for the corresponding periods in 2016. The decrease in the three months ended September 30, 2017 was primarily due to lower contract manufacturing expenses and lower clinical trial expenses incurred for this drug candidate compared with the corresponding period in 2016. The decrease in the nine months ended September 30, 2017 was primarily due to lower contract manufacturing expenses, partially offset by higher clinical trial expenses and higher employee-related costs incurred for this drug candidate compared with the corresponding period in 2016.

Our research and development expenses for depot injectable programs were $760,000 and $1.7 million in the three and nine months ended September 30, 2017, respectively, compared to $299,000 and $1.1 million for the corresponding periods in 2016. The increases in the three and nine months ended September 30, 20172023 were primarily due to higher employee-related costs ~~for these programs compared with the corresponding periods in 2016.~~

~~Our research~~ and development expenses for REMOXY ER were $5,000 and $101,000 in the three and nine months ended September 30, 2017, respectively, compared to $179,000 and $479,000 for the corresponding periods in 2016. The decreases in the three and nine months ended September 30, 2017 was primarily due to lower employee-related costs for REMOXY ER compared with the corresponding periods in 2016.

Our research and development expenses for ORADUR-ADHD were $48,000 and $85,000 in the three and nine months ended September 30, 2017, respectively, compared to $13,000 and $155,000 for the corresponding periods in 2016. The increase in the three months ended September 30, 2017 were primarily due to higher employee-related costs for ORADUR-Methylphenidate ER compared with the corresponding period in 2016. The decrease in the nine months ended September 30, 2017 were primarily due to lower employee-related costs for ORADUR-Methylphenidate ER compared with the corresponding periods in 2016.

Our research and development expenses for the Santen ophthalmic program were $32,000 and $81,000 in the three and nine months ended September 30, 2017, respectively, compared to $62,000 and $321,000 for the corresponding periods in 2016. The decreases in the three and nine months ended September 30, 2017 were primarily due to decreased formulation development activities and lower employee-related costs associated with this drug candidate compared with the corresponding periods in 2016.

Our research and development expenses for Relday were $3,000 and $34,000 in the three and nine months ended September 30, 2017, respectively, compared to $13,000 and $452,000 for the corresponding periods in 2016. The decreases in the three and nine months ended September 30, 2017 were primarily due to decreased development activities and lower employee-related costs incurred for this drug candidate compared with the corresponding periods in 2016.

Our research and development expenses for all other programs were $80,000 and $370,000 in the three and nine months ended September 30, 2017, respectively, compared to $191,000 and $716,000 for the corresponding periods in 2016, respectively. The decreases in the three and nine months ended September 30, 2017 were primarily due to lower employee-related costs incurred as well as lower outside expenses associated with these programs compared with the corresponding periods in ~~2016.~~2022.

~~We expect our~~Our research and development expenses in the near future to decrease compared to the third quarter of 2017 as we experience lower research and development expenses for POSIMIR. The duration of development of our research and development

programs may span as many as ten years or more, and estimation of completion dates or costs to complete are highly speculative and subjective due to ~~the~~ numerous risks and uncertainties associated with developing pharmaceutical products, including significant and changing government regulation, ~~the~~ uncertainties of future preclinical and clinical study results, ~~the~~ uncertainties with our collaborators’ commitment to and progress toin the programs and ~~the~~ uncertainties associated with process development and manufacturing as well as sales and marketing. In addition, with respect to our development programs subject to third-party collaborations, the timing and expenditures to complete the programs are subject to the control of our collaborators. Therefore, we cannot reasonably estimate the timing and ~~estimated~~ costs of the efforts necessary to complete the research and development programs. For additional information regarding these risks and uncertainties, see Part I, Item 1A., “Risk Factors” ~~below.~~in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Selling, general and administrative. Selling, general and administrative expenses are primarily comprised of salaries, benefits, stock-based compensation and other compensation ~~cost~~costs associated with finance, legal, business development, sales and marketing and other administrative personnel, overhead and facility costs, and other general and administrative costs.

Selling, general and administrative expenses were ~~$3.1~~$3.8 million and ~~$9.9~~$11.7 million ~~for~~in the three and nine months ended September 30, ~~2017, respectively,~~2023 compared to ~~$3.0~~$3.9 million and ~~$9.0~~$11.6 million for the corresponding periods in ~~2016.~~2022. The ~~increase in selling, general and administrative expenses~~decrease in the three months ended September 30, ~~2017~~2023 was primarily due to ~~higher~~lower general legal expenses and lower recruiting expenses compared to the corresponding period in ~~2016.~~2022. The increase ~~in selling, general and administrative expenses~~ in the nine months ended September 30, ~~2017~~2023 was primarily due to higher market research expenses, higher audit related expenses as well as higher employee expenses compared to the corresponding period in ~~2016 was primarily due to an advisory fee related to the licensing of the Sandoz agreement which occurred in the second quarter of 2017.~~2022. Stock-based compensation expense recognized related to selling, general and administrative personnel was ~~$301,000~~$351,000 and ~~$789,000~~$1.0 million for the three and nine months ended September 30, ~~2017, respectively,~~2023 compared to ~~$227,000~~$281,000 and ~~$871,000~~$941,000 for the corresponding periods in ~~2016.~~2022.

~~As of September 30, 2017, we~~We had 2425 selling, general and administrative employees ~~compared with 24~~ as of September 30, ~~2016.~~2023 compared with 26 as of September 30, 2022. We expect selling, general and administrative expenses in the near future to be comparable to the third quarter of ~~2017.~~2023.

Other income (expense). ~~Interest and other~~Other income was ~~$605,000~~$6.5 million and $680,000 for the three and nine months ended September 30, 2017, respectively, compared to $45,000 and $112,000 for the corresponding periods in 2016. The increase in interest and other income was primarily the result of a gain of $500,000 from selling certain intellectual property rights$4.4 million in the three and nine months ended September 30, ~~2017~~2023 compared ~~with~~to other expense of $339,000 and $1.3 million for the ~~same~~corresponding periods in ~~2016. This transaction~~2022.

Interest and other income was ~~not part of our ordinary course of business~~$653,000 and ~~therefore was recorded as a gain from selling intellectual property rights in other income~~$1.7 million in the three and nine months ended September 30, ~~2017.~~

~~Interest expense was $619,000 and $1.8 million for the three and nine months ended September 30, 2017, respectively,~~2023 compared to ~~$592,000~~$284,000 and ~~$1.7 million~~$465,000 for the corresponding periods in ~~2016.~~2022. The increases ~~in interest and other expense~~ in the three and nine months ended September 30, ~~2017~~2023 were primarily due to higher interest ~~expenses recorded for the term loan refinanced in July 2016~~rates associated with our cash, cash equivalents and investments compared with the ~~same period~~corresponding periods in ~~2016.~~2022.

Interest and other expenses were $700,000 and $2.2 million in the three and nine months ended September 30, 2023 compared to $623,000 and $1.7 million for the corresponding periods in 2022. The increases in the three and nine months ended September 30, 2023 were primarily due to higher interest rates on our term loan compared with the corresponding periods in 2022.

Other income (expenses) for the three months ended September 30, 2023 also includes approximately $427,000 of issuance costs of common warrants and common stock that were issued in July 2023 in connection with a registered direct offering, which were offset by a $7.0 million non-cash gain associated with the change in fair value of the liability-classified warrants issued in connection with registered direct offerings that were made in February 2023 and July 2023 as well as the alternative cash exercise of common warrants associated with the February 2023 registered direct offering that occurred in the period. Other income (expenses) for the nine months ended September 30, 2023 also includes $1.6 million of issuance costs of these warrants as well as approximately $2.0 million

non-cash loss on the issuance of these warrants, which was offset by approximately $8.6 million in non-cash gain associated with the change in fair value of the February 2023 and July 2023 liability-classified warrants and the alternative cashless exercise of the warrants in the period.

We had cash, cash equivalents and investments totaling ~~$41.8~~$39.1 million at September 30, ~~2017~~2023 compared to ~~$25.2~~cash, cash equivalents, and investments of $43.6 million at December 31, ~~2016.~~2022. These balances include $150,000 of interest-bearing marketable securities classified as restricted investments on our balance sheets as of September 30, ~~2017~~2023 and December 31, ~~2016.~~2022. The ~~increase~~decrease in cash, cash equivalents and investments ~~during the nine months ended September 30, 2017~~ was primarily due to cash used in ongoing operating activities and principal and interest payments on the ~~receipt of the $20.0 million upfront fee from SANDOZ, the $12.5~~ ~~million upfront fee from Indivior, $10.1~~term loan, partially offset by approximately $22.7 million of ~~cash~~net proceeds received from the registered direct offerings in February 2023 and in July 2023, net proceeds of $658,000 from the sale of our common stock in the open market pursuant to the 2021 Sales Agreement (as defined and ~~from exercises of stock options~~described below) and ~~purchases under our employee stock purchase plan, and from~~ payments received from collaboration partners and ~~customers, partially offset~~customers. For more information on our registered direct offerings that took place in February and July 2023, see Note 8 “Stockholders’ Equity—Registered Direct Offerings” to our unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.

Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by ~~ongoing operating expenses~~investing excess cash in securities with different maturities to match projected cash needs and ~~interest payments.~~limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers.

As discussed below, we do not have sufficient cash resources to fund our planned operations, existing debt and contractual commitments and planned capital expenditures. Unless we secure additional equity or debt financing, of which there can be no assurance, we may not be able to continue operations.

We ~~received $6.1~~used $26.1 million of cash ~~from~~in operating activities for the nine months ended September 30, ~~2017~~2023 compared to ~~$19.9~~$17.9 million ~~used~~ for the corresponding period in ~~2016.~~2022. The increase in cash ~~received from~~used in operating activities was primarily due to ~~the receipt of the $20.0 million upfront fee~~lower payments from ~~SANDOZ and the $12.5 million upfront fee from Indivior, partially offset by~~our collaborators. The cash used in operations was primarily to fund operations as well as our working capital requirements, ~~and reflected a net loss of $10.2 million as well as~~partially offset by the changes in accounts receivable, ~~prepaid expenses and other assets,~~accounts payable and accrued ~~and other~~ liabilities.

We ~~received $13.7 million~~used $132,000 of cash ~~from~~in investing activities for the nine months ended September 30, ~~2017~~2023 compared to ~~$2.2~~$18.4 million provided by investing activities for the corresponding period in ~~2016.~~2022. The ~~increase~~decrease in cash ~~received from~~provided by investing activities was primarily due to a decrease in ~~purchases~~proceeds from maturities of ~~available-for-sale securities~~available-sale-securities for the nine months ended September 30, ~~2017~~2023 compared towith the corresponding period in ~~2016. We anticipate incurring capital expenditures of approximately $100,000 in 2017 to purchase research and development and other capital equipment.~~2022.

We received ~~$10.1~~$21.7 million of cash from financing activities for the nine months ended September 30, ~~2017~~2023 compared to ~~$19.5 million~~$59,000 for the corresponding period in ~~2016.~~2022. The ~~decrease~~increase in cash received from financing activities was primarily due to ~~lower~~

~~net~~cash proceeds received from ~~issuances~~the offerings that were completed in February 2023 and in July 2023 and from the sale of our common stock in the ~~nine months ended September 30, 2017 compared~~open market under the 2021 Sales Agreement, partially offset by principal payments on the term loan with ~~the corresponding period in 2016.~~ ~~During~~Oxford Finance LLC ("Oxford Finance") during the nine months ended September 30, 2017, we raised net proceeds (net of commission) of approximately $9.6 million from the sale of 6.6 million shares of common stock at a weighted average price of $1.49 per share in the open market through our Controlled Equity Offering sales agreement with Cantor Fitzgerald. During the nine months ended September 30, 2016, we raised net proceeds (net of commission) of approximately $4.2 million from the sale of approximately 2.6 million shares of common stock at a weighted average price of $1.63 per share in the open market through our Controlled Equity Offering sales agreement with Cantor Fitzgerald. In April 2016, we also completed an underwritten public offering in which we sold an aggregate of 13.8 million shares of our common stock pursuant to an effective registration statement at a price to the public of $1.25 and received net proceeds of approximately $16.1 million after deducting underwriting discounts and commissions and offering expenses from this public offering.2023.

As of October 27, 2017, we had up to approximately $20.3 million of common stock available for sale under the Controlled Equity Offering program and approximately $67.8 million of common stock available for sale under our shelf registration statement.

We anticipate that cash used in operating activities in the near future will increase compared to the ~~three~~third quarter of 2023 due to changes in working capital related to payments for accrued research and development expenses for larsucosterol and prepaid insurance premiums.

In July 2021, we filed a shelf registration statement on Form S-3 with the SEC (the “2021 Registration Statement”) (File No. 333-258333), which upon being declared effective in August 2021, terminated our registration statement filed in August 2018 (File No. 333-226518) and allowed us to offer up to $250.0 million of securities from time to time in one or more public offerings, inclusive of up to $75.0 million of shares of our common stock which we may sell, subject to certain limitations, pursuant to a sales agreement dated July 30, 2021 with Cantor Fitzgerald (the “2021 Sales Agreement”). The 2021 Sales Agreement replaced a prior 2015 Sales Agreement. From October 1, 2023 to November 13, 2023, we raised net proceeds (net of commissions) of approximately $803,000 from the sale of our common stock in the open market under the 2021 Sales Agreement.

As of November 13, 2023, we had up to $223.5 million of our securities available for sale under the 2021 Registration Statement, of which $73.5 million of our common stock are available pursuant to the 2021 Sales Agreement.

Any material sales in the public market of our common stock, under the 2021 Sales Agreement or otherwise under the 2021 Registration Statement, could adversely affect prevailing market prices for our common stock.

In July 2016, we entered into a Loan and Security Agreement (as amended, the "Loan Agreement") with Oxford Finance, pursuant to which Oxford Finance provided a $20.0 million secured single-draw term loan to us with an initial maturity date of August 1, 2020. The term loan was fully drawn at close and the proceeds may be used for working capital and general business requirements. The term loan repayment schedule provided initially for interest only payments for the first 18 months, ~~ended~~followed by consecutive monthly payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity date of August 1, 2020. Following five amendments, we make interest only payments under the amended Loan Agreement until June 1, 2023 and the final maturity date of the loan is September 1, 2025. The Loan Agreement provides for a floating interest rate (7.95% initially and 12.74% as of September 30, ~~2017~~2023) based on an index rate plus a spread and an additional payment equal to 10% of the principal amount of the term loan, which is due when the term loan becomes due or upon the prepayment of the facility. If we elect to prepay the loan, there is also a prepayment fee of between 0.75% and 2.5% of the principal amount of the term loan depending on the timing of prepayment. Our debt repayment obligations under the Loan Agreement, as amended, may prove a burden to the Company as they become due, particularly following the expiration of the interest-only period.

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

The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain obligations under the Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In the event of default by us under the Loan Agreement, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement. As a result, the term loan was classified as a current liability on our balance sheet as of September 30, 2023 and December 31, 2022 due to the ~~fact that we received~~timing of repayment obligations and due to recurring losses, liquidity concerns and a ~~$12.5 million upfront fee from Indivior~~subjective acceleration clause in the ~~third quarter~~Loan Agreement.

~~During the nine months ended~~ September 30, ~~2017, there have been no significant changes~~2023, we had approximately $39.1 million in ~~our commercial commitments and contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~We believe that our existing~~ cash, cash equivalents and investments ~~will be~~compared with $43.6 million as of December 31, 2022. In February 2023, we received approximately $8.8 million in net proceeds (net of placement agent fees and other offering expenses) from a registered direct offering. In June 2023, we raised net proceeds (net of commissions) of approximately $658,000 from the sale of our common stock in the open market under the 2021 Sales Agreement. In July 2023, we received approximately $13.9 million in net proceeds (net of placement agent fees and other offering expenses) from a registered direct offering.

In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), our management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Based on our evaluation, substantial doubt exists regarding our ability to continue as a going concern for a period of one year from the issuance of our financial statements.

Presently, we do not have sufficient cash resources to fund our planned operations, existing debt and contractual commitments and planned capital expenditures through at least the next 12 ~~months.~~months from issuance of these financial statements. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. ~~Additionally, we do not~~We expect to ~~generate significant revenues~~incur continuing losses and negative cash flows from ~~our pharmaceutical products currently under development~~operations for ~~at least~~ the ~~next twelve months, if at all. Depending on whether we enter into additional collaborative agreements in the near term and the extent to which we earn milestone revenues, we~~foreseeable future.

We may ~~be required~~decide to raise additional capital through a variety of sources ~~including:~~in the short-term and in the long-term, including but not limited to:

There can be no assurance that we will enter into additional collaborative agreements ~~in the near term,~~or maintain existing collaborative agreements, will earn ~~milestone~~collaborative revenues or that additional capital will be available on favorable terms to the Company, if at all. If adequate funds are not available, we may be required to significantly reduce or ~~refocus~~re-focus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain of our products, technologies or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders (assuming convertible debt securities were converted into shares). These factors raise substantial doubt regarding our ability to continue as a going concern. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations.

~~Our~~As a result of our recurring losses from operations, negative cash flows from operating activities and ~~investments policy emphasizes liquidity~~need to raise additional capital, our independent registered public accounting firm included an explanatory paragraph in its report on our audited financial statements for the year ended December 31, 2022 related to our going concern evaluation.

In September 2023, we signed an extension to a facility lease that extended the lease term to February 2027. Otherwise, there were no significant changes in our commercial commitments and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers.

~~As of September 30, 2017, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).~~

~~During~~contractual obligations during the nine months ended September 30, ~~2017, there have been no significant changes in market risks~~2023 as ~~disclosed~~compared with the information presented in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

As of September 30, 2023, our exposure to market risk has not changed materially since December 31, 2022. For more information on financial market risks related to changes in interest rates, reference is made to Part II, Item 7A., “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 8, 2023.

Evaluation of Disclosure Controls and Procedures: The Company’s principal executive and principal financial officers reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act ~~Rule~~Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s principal executive and principal financial officers concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q the Company’s disclosure controls and procedures are effective at ensuring that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting: There were no significant changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the Company’s most recently completed fiscal quarter that ~~has~~have materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

You should carefully consider the ~~other information~~factors discussed in ~~this~~Part I, Item 1A., “Risk Factors” in our Annual Report on Form ~~10-Q, a number of factors may~~10-K for the fiscal year ended December 31, 2022, which could materially affect our business, ~~and prospects. These factors include but~~financial position, or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, are not ~~limited~~the only risks we face. Additional risks and uncertainties not currently known to ~~the following, which you should consider carefully in evaluating our business and prospects. If any of the following risks actually occur,~~us or that we currently deem to be immaterial also may materially adversely affect our business, financial ~~condition,~~position, or future results of ~~operations~~operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. The risk factor set forth below supplements and ~~growth prospects~~updates the risk factors previously disclosed and should be read together with the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and with any risk factors we may ~~be materially and adversely affected.~~include in subsequent periodic filings with the SEC.

~~New chemical entities derived from our Epigenetic Regulator Program, which is in~~We are dependent on the ~~early stages~~success of ~~development, may require more time~~larsucosterol and ~~resources for development, testing and~~the path to regulatory approval ~~than our Drug Delivery Program product candidates,~~is uncertain; we cannot be certain that it will receive regulatory approval or be commercialized

Our business depends substantially on the successful development of larsucosterol, which has completed multiple clinical trials, including a Phase 2b clinical trial (AHFIRM) in patients with severe AH, topline results of which were announced in November 2023. The AHFIRM trial did not achieve the primary endpoint of a statistically significant difference in 90-day mortality or liver transplant between both doses of larsucosterol versus SOC. Accordingly, future clinical trials may be required to establish clinically and ~~may~~statistically significant proof of efficacy, and sufficient evidence of safety to support regulatory approval. We plan to meet with FDA regarding the next steps for advancing larsucosterol in AH. We will have to interact with the FDA and other regulatory agencies regarding important aspects of the program, potentially including the size and design of clinical trials, the specific primary and secondary endpoints for the clinical trials, inclusion and exclusion criteria, stopping rules, duration of follow up, size of the safety databases, statistical analysis plans and other matters. There is no assurance that future clinical trials will establish efficacy of larsucosterol to treat AH or will not result in ~~viable commercial products~~

~~Our Epigenetic Regulator Program is in the early stages~~unanticipated side effects. If larsucosterol fails to demonstrate safety or efficacy at any time or during any phase of development, ~~involves a novel therapeutic approach and new chemical entities, requires~~we would experience potentially significant ~~further research and development and regulatory approvals and is subject to the risks of failure inherent~~delays in, the development of products based on innovative approaches. New chemical entities derived from our Epigenetic Regulator Program are molecules that have not previously been approved and marketed as therapeutics, unlike product candidates in our Drug Delivery Programs, in which we apply our formulation expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have previously been established but which we aim to improve in some manner through a new formulation. As a result, the product candidates from our Epigenetic Regulator Program may face greater risk of unanticipated safety issues or other side-effects, or may not demonstrate efficacy. Further, the regulatory pathway for our new chemical entities may be more demanding than that for product candidates under our Drug Delivery Programs, for which we may be able to leverage existing data under Section 505(b)(2) of the Act to reduce development risk, time and cost. For example, we have yet to define the therapeutic dose or dosing regimen for DUR-928, the first drug candidate in our Epigenetic Regulator Program.

Also, because our Epigenetic Regulator Program is in early stages, we have not defined with precision those indications we wish to pursue initially, each of which may have unique challenges. If the first indications pursued do not show positive results, the credibility of any product candidate from this program may be tarnished, even if the molecule might be effective for other indications. Our decisions regarding which indications to pursue may cause us to fail to capitalize on indications that could have given rise to viable commercial products and profitable market opportunities.

~~Early indications of activity from Phase 1 clinical trials of DUR-928 may not predict the results of later trials~~

While Phase 1 clinical trials of DUR-928 have shown a dose dependent reduction of certain biomarkers after a single oral dose in patients with NASH, these trials are designed to assess the safety of DUR-928, and are not designed to evaluate its efficacy. Additional controlled Phase 2 and Phase 3 trials will be required to ~~evaluate the safety and efficacy~~abandon development of DUR-928 to treat any indication, including NASH. There can be no assurance that these studies will demonstrate the safety or efficacy of DUR-928 in a statistically significant manner. The failure of DUR-928 to show efficacy in Phase 2 or Phase 3 clinical trialslarsucosterol, which would ~~significantly~~materially harm our business.

~~Plans~~Larsucosterol may not be eligible to receive regulatory approval from the FDA or comparable foreign authorities and begin commercialization for ~~POSIMIR~~a number of years, if ever. This uncertainty may make it difficult to predict the timing or expense required to obtain regulatory approval for larsucosterol. If we are ~~uncertain following the failure of the PERSIST trial~~unable to ~~achieve its primary endpoint.~~

~~The failure of the PERSIST trial for POSIMIR to achieve its primary endpoint gives Sandoz a right to terminate our~~reach an agreement with ~~them on thirty days’ notice, in addition to~~ the ~~rights they have to terminate~~FDA or other regulatory agencies regarding next steps for ~~convenience on six months’ notice. If Sandoz terminates the agreement,~~larsucosterol’s clinical development, we ~~will not~~may curtail or limit our development activities for this product candidate. Even if we ultimately receive any milestone or royalty payments under the agreement and will be responsible for commercialization of POSIMIR in the United States, if approved. The decision whether to continue the development of POSIMIR and seek regulatory approval ~~will require further analysis~~for larsucosterol, we or our potential future partners, if any, may be unable to commercialize it successfully for a variety of reasons. These include, for example, the ~~PERSIST trial data~~future availability of alternative, potentially superior or less expensive treatments, lack of cost-effectiveness, the lack of favorable access and/or commercial pricing, the cost or technical challenges of manufacturing the product on a commercial scale and competition with other ~~clinical data for POSIMIR, as well as possible regulatory approval strategies. If we elect to continue with~~treatments. The success of larsucosterol may also be limited by the ~~program, it may require a larger investment on our part than previously planned~~prevalence and ~~may take longer to achieve FDA approval, and such approval may never occur.~~ severity of any adverse side effects, including mortality.

The FDA or other regulatory agencies may require more information or clinical studies for ~~all of~~ our product candidates, and our product candidates may never be ~~approved.~~approved

The AHFIRM trial did not achieve the primary endpoint of a statistically significant difference in 90-day mortality or liver transplant between both doses of larsucosterol versus SOC. The failure to adequately demonstrate the safety and effectiveness of ~~a pharmaceutical product candidate under development~~larsucosterol to the satisfaction of the FDA and other regulatory agencies will result in delays to the regulatory approval or non-approvability of ~~our product candidates, and could materially harm our business. Clinical~~larsucosterol. Future clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for ~~our product candidates,~~larsucosterol or may require such significant numbers of patients or additional costs to make it impractical to satisfy the ~~FDA’s~~regulatory agency’s requirements, and thus ~~our product candidates~~larsucosterol may not be approved for marketing. The recent Phase 3 PERSIST trial for POSIMIR did not meet its primary efficacy endpoint of reduction in pain on movement over the first 48 hours after surgery as compared to standard bupivacaine HCl, for example. In addition, duringDuring the review process, the FDA or other regulatory agencies may request additional information regarding the efficacy or safety of larsucosterol and providing such additional information could require significant additional work and expense, and take a significant amount of time, resulting in a material delay of approval or the failure to obtain approval or lead our Company to abandon the development of larsucosterol. Additionally, the FDA, or other regulatory agencies, may also request more information regarding the ~~safety of our product candidates, as they have in their Complete Response Letter for POSIMIR,~~chemistry, manufacturing or controls related to larsucosterol, and answering such questions could require significant additional work and expense, and take a significant amount of time, resulting in a material delay of approval or the failure to obtain approval. During the review process, the FDA may also request more information regarding the chemistry, manufacturing or controls related to our product candidates or to abuse deterrent properties of opioid product candidates, as they have in their Complete Response Letters for REMOXY ER, and answering such questions could require significant additional work and expense, and take a significant amount of time, resulting in a material delay of approval or abandonment of larsucosterol. Even if larsucosterol receives FDA or other regulatory agency approval, the ~~failure to obtain approval.~~

~~We currently have significant amount of debt. Compliance with repayment obligations and other covenants~~regulatory agency may ~~be difficult, and failure by us to fulfill our obligations under the applicable loan agreements may cause the repayment obligations to accelerate.~~

~~In July 2016,~~require that we entered into a Loan and Security Agreement (the “2016 Loan Agreement”) with Oxford Finance LLC (“Oxford Finance”), pursuant to which Oxford Finance provided a $20 million secured single-draw term loan to us with a maturity date of August 1, 2020. The 2016 Loan Agreement replaces a prior term loan agreement with Oxford Finance originally entered into in June 2014. The term loan was fully drawn at close and the proceeds may be used for working capital and general business requirements. The term loan repayment schedule provides for interest only payments for the first 18 months, followed by consecutive monthly payments of principal and interest in arrears starting on March 1, 2018 and continuing through the maturity date of August 1, 2020. The 2016 Loan Agreement provides for a floating interest rate (7.95% initially) based on an index rate plus a spread, a $150,000 facility fee that was paid at closing and anconduct additional ~~payment equal to 9.25% of the principal amount of the term loan, which is due when the term loan becomes due~~clinical or ~~upon the prepayment of the facility. If we elect to prepay the loan, there is also a prepayment fee between 1% and 3% of the principal amount of the term loan depending~~non-clinical studies after such approval, place limitations on the timing of prepayment. Our debt repayment obligations under the 2016 Loan Agreement may prove a burden to the Company as they become due, particularly following the expiration of the interest-only period.

The 2016 Loan Agreement contains customary events of default, including, among other things, our failure to fulfill certain of our obligations under the 2016 Loan Agreement and the occurrence of a material adverse change in our business, operations or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, the failure to deliver an unqualified audit report and board approved financial projections within time periods set forth in the Loan Agreement, or a material impairment in the perfection or priority of lender’s lien in the collateral or in the value of such collateral. In accordance with ASC 470-10-45-2, the term loan had been reclassified to a current liability from a non-current liability on our balance sheet as of December 31, 2016 due to recurring losses, liquidity concerns and a subjective acceleration clause in the 2016 Loan Agreement. In the event of default by us under the 2016 Loan Agreement, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the 2016 Loan Agreement, which could harm our business, operations and financial condition.

In addition, the term loan is secured by substantially all of our assets, except that the collateral does not include any equity interests in the Company, any intellectual property (including all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The 2016 Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt; and enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same. Complying with these covenants may make it more difficult for us to successfully execute our business strategy.

We have relied on Pain Therapeutics, King Pharmaceuticals, and Pfizer and its subsidiaries to devote time and resources to the development, manufacturing and commercialization of REMOXY ER. In October 2014, Pfizer notified Pain Therapeutics that Pfizer

had decided to discontinue development of REMOXY ER and that Pfizer would return all rights, including responsibility for regulatory activities, to Pain Therapeutics. There can be no assurance that Pain Therapeutics will continue development of REMOXY ER, or if Pain Therapeutics continues development of REMOXY ER, there can be no assurance that an NDA for REMOXY ER will ever be approved by the FDA. In September 2016, Pain Therapeutics received a Complete Response Letter for REMOXY ER; we are dependent on Pain Therapeutics to address this Complete Response Letter and there can be no assurance that an NDA for REMOXY ER will ever be approved by the FDA. Any further delay or discontinuation in the development of REMOXY ER will significantly harm our prospects and would be likely to have a negative effect on the price of our common stock.

We rely on Indivior for the development and commercialization of RBP-7000. There can be no assurance that Indivior will continue development of RBP-7000, or if Indivior continues development of RBP-7000 there can be no assurance that an NDA for RBP-7000 will ever be approved by the FDA. If Indivior does not continue development of or commercialize RPB-7000, we will not receive milestone or earn-out payments under our agreement with them.

~~Development of our pharmaceutical product candidates is not complete, and we cannot be certain that our product candidates 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 product candidates under development. For each product candidate 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:

~~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. We have not yet completed development of any of our product candidates, including DUR-928 or ORADUR-Methylphenidate ER. We may not be able to finalize the design or formulation of any of these product candidates. Further, although we believe our design and formulation of REMOXY ER and POSIMIR to be substantially complete, there can be no assurance that additional developments will not be required prior to any regulatory approval of these products. In addition, we may select components, solvents, excipients or other ingredients to include in our product candidates that have not been previously approved for use in pharmaceutical products, which mayapplicable labels, require us or our collaborators to perform additional studies and may delay clinical testing and regulatory approval of our product candidates. Even after we complete the design of a product candidate, the product candidate must still complete required clinical trials and additional safety testing in animals before approval for commercialization. We are continuing testing and development of our product candidates and may explore possible design or formulation changes to address issues of safety, manufacturing efficiency and performance. We or our collaborators may not be able to complete development of any product candidates 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 DUR-928, ORADUR-Methylphenidate ER, or RBP-7000, or other product candidates, we will not be able to earn revenue from them, which would materially harm our business.

We or our third-party collaborators must show the safety and efficacy of our drug candidates in animal studies and human clinical trials to the satisfaction of regulatory authorities before they can be sold; failure to obtain approvals for POSIMIR, RBP-7000, REMOXY ER, DUR-928 or our other product candidates would significantly harm our business, prospects and financial condition

Before we or our third-party collaborators can obtain government approval to sell any of our pharmaceutical product candidates, we or they, as applicable, must demonstrate through laboratory performance studies and safety testing, nonclinical (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 major development programs is as follows:~~

We are currently in the clinical, preclinical or research stages with respect to all of our product candidates 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 product candidates. 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 data supportive of the safety or efficacy of our drug candidates or required for regulatory approval.

Many of our drug candidates under development, including REMOXY ER are subject to mandatory Risk Evaluation and Mitigation Strategy (REMS) programs, which could delay the approval of these drug candidates, reduce demand for them, and increase the cost, burden and liability associated with their commercialization

~~For several years, FDA has required companies engaged in manufacturing and sales of opioid products to have~~ a Risk Evaluation and Mitigation Strategy ~~(REMS)~~program, include commercially unattractive

language in the approved product label, delay approval to ~~ensure that~~market our products or limit the benefits of the drugs continue to outweigh the risks. The affected opioid drugs include brand name and generic products and are formulated with the active ingredients fentanyl, hydromorphone, methadone, morphine, oxycodone, and oxymorphone. All manufacturers of long-acting and extended-release opioids must ensure that training is provided to prescribers of these medications and develop information that prescribers can use when counseling patients about the risks and benefits of opioid use. The FDA has also announced safety labeling changes and post-market study requirements for extended-

~~release and long-acting opioid analgesics (ER/LA opioids). The updated class-wide labeling changes state that ER/LA opioids are~~ indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. The updated indication further clarifies that, because of the risks of addiction, abuse, and misuse, even at recommended doses, and because of the greater risks of overdose and death, these drugs should be reserved for use in patients for whom alternative treatment options (e.g., non-opioid analgesics or immediate-release opioids) are ineffective, not tolerated, or would be otherwise inadequate to provide sufficient management of pain; ER/LA opioid analgesics are not indicated for as-needed pain relief. Recognizing that more information is needed to assess the serious risks associated with long-term use of ~~ER/LA opioids, the FDA is requiring the drug companies that make these~~our products, ~~to conduct further post-market studies~~which may harm our business and clinical trials. These changes may result in a decrease in prescriptions for this class of drugs and will increase the costs borne by manufacturers of ER/LA opioids. More recently, in February 2016, the FDA announced a comprehensive action plan to take concrete steps towards reducing the impact of opioid abuse on American families and communities. As part of this plan, the agency will review product and labelling decisions and re-examine the risk-benefit paradigm for opioids.

Many of our drug candidates including REMOXY ER are subject to the REMS requirement. The FDA’s REMS requirements have been evolving, and until the contours of required REMS programs are established by the FDA and understood by drug developers and marketers such as ourselves and our collaborators, and until the results of the FDA’s recently announced initiatives are known, there may be delays in marketing approvals for these drug candidates. In addition, there may be increased cost, administrative burden and potential liability associated with the marketing and sale of these types of drug candidates subject to the REMS requirement, as well as decreased demand resulting from new labeling requirements, which could negatively impact the commercial benefits to us and our collaborators from the sale of these drug candidates.operations.

We depend to a large extent on third-party collaborators, and we have limited or no control over the development, sales, distribution and disclosure for our pharmaceutical product candidates which are the subject of third-party collaborative or license agreements

Our performance depends to a large extent on the ability of our third-party collaborators to successfully develop and obtain approvals for our pharmaceutical product candidates. We have entered into agreements with Sandoz, Indivior, Pain Therapeutics, Santen, Orient Pharma and others under which we granted such third parties the right to develop, apply for regulatory approval for, market, promote or distribute POSIMIR, RBP-7000, REMOXY ER and other product candidates, subject to payments to us in the form of product royalties, earn-out and other payments. We have limited or no control over the expertise or resources that any collaborator may devote to the development, clinical trial strategy, regulatory approval, marketing or sale of these product candidates, or the timing of their activities. Any of our present or future collaborators may not perform their obligations as expected. These collaborators may breach or terminate their agreement with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Enforcing any of these agreements in the event of a breach by the other party could require the expenditure of significant resources and consume a significant amount of management time and attention. Our collaborators may also conduct their activities in a manner that is different from the manner we would have chosen, had we been developing such product candidates ourselves. Further, our collaborators may elect not to develop or commercialize product candidates arising out of our collaborative arrangements or not devote sufficient resources to the development, clinical trials, regulatory approval, manufacture, marketing or sale of these product candidates. If any of these events occur, we may not recognize revenue from the commercialization of our product candidates based on such collaborations. In addition, these third parties may have similar or competitive products to the ones which are the subject of their collaborations with us, or relationships with our competitors, which may reduce their interest in developing or selling our product candidates. We may not be able to control public disclosures made by some of our third-party collaborators, which could negatively impact our stock price.

~~Cancellation of collaborations regarding our product candidates may adversely affect potential economic benefits~~

Third-party collaboration agreements typically allow the third party to terminate the agreement (or a specific program within an agreement) by providing notice. For example, in July 2017 we were notified by Impax that they were terminating our agreement with respect to ELADUR, and in August 2017 we mutually agreed with Zogenix to terminate our agreement with respect to Relday; in both instances with product rights reverting to us. Sandoz also has the right to terminate our agreement with them for commercialization of POSIMIR after a specified notice period. If there have been payments under such agreements that are being recognized over time, such as the $20 million up-front payment received from Sandoz, termination of such agreements (or programs) can lead to a near-term increase in our reported revenues resulting from the immediate recognition of the balance of such payments. Termination deprives us of potential future economic benefits under such agreements, and may make it more difficult to enter into agreements with other third parties for use of the assets that were subject to the terminated agreement. Termination of our agreements with Sandoz, Pain Therapeutics, Santen or Orient Pharma could have similar effects.

Our revenues depend on collaboration agreements with other companies. If we are unable to enter into new agreements or meet our obligations or manage our relationships with our collaborators under these agreements our revenues may decrease. Acquisitions of our collaborators can be disruptive

Our revenues are based to a significant extent on collaborative arrangements with third parties, pursuant to which we receive payments based on our performance of research and development activities set forth in these agreements. We have seen recent declines in revenues associated with our existing collaboration agreements, which reflect the current development stage of the product candidates subject to those agreements, and our collaborator’s decreased needs for our services. We do not expect our collaboration revenues to increase unless we enter into new collaboration agreements, and there can be no assurance that we will do so. Even if we enter into new collaboration agreements, we may not be able to fulfill our obligations or attain milestones set forth in any specific agreement, which could cause our revenues to fluctuate or be less than anticipated and may expose us to liability for contractual breach. In addition, these agreements may require us to devote significant time and resources to communicating with and managing our relationships with such collaborators and resolving possible issues of contractual interpretation which may detract from time our management would otherwise devote to managing our operations. Such agreements are generally complex and contain provisions that could give rise to legal disputes, including potential disputes concerning ownership of intellectual property under collaborations. Such disputes can delay or prevent the development of potential new product candidates, or can lead to lengthy, expensive litigation or arbitration. In general, our collaboration agreements, including our agreements with Sandoz with respect to POSIMIR, Pain Therapeutics with respect to REMOXY ER, Orient Pharma with respect to ORADUR-Methylphenidate ER, and Santen with respect to an ophthalmic product may be terminated by the other party at will or upon specified conditions including, for example, if we fail to satisfy specified performance milestones or if we breach the terms of the agreement. Acquisitions of our collaborators can lead to turnover of program staff, a review of development programs and strategies by the acquirer, and other events that can disrupt a program, resulting in program delays or discontinuations.

If we do not enter into new collaboration agreements, and if any of our collaborative agreements are terminated or delayed, our anticipated revenues may be reduced or not materialize, and our products in development related to those agreements may not be commercialized.

Our revenues will likely differ from our cash flows from revenue-generating activities. Upfront payments received upon execution of collaborative agreements are recorded as deferred revenue and generally recognized on a straight-line basis over the period of our continuing involvement with the third-party collaborator pursuant to the applicable agreement. The period of continuing involvement may also be revised on a prospective basis. As of September 30, 2017, we had $17.1 million of deferred revenue which will be recognized in future periods and may cause our reported revenues to be greater than cash flows from our ongoing revenue-generating activities. Until we have more information with respect to next steps with POSIMIR, we cannot predict how much of the deferred revenue associated with the $20 million upfront payment from Sandoz will be recognized in future quarters.

Our revenues also depend on milestone payments based on achievements by our third-party collaborators. Failure of such collaborators to attain such milestones would result in our not receiving additional revenues

In addition to payments based on our performance of research and development activities, our revenues also depend on the attainment of milestones set forth in our collaboration agreements. Such milestones are typically related to development activities or sales accomplishments. While our involvement is generally necessary to the achievement of development-based milestones, the performance of our third-party collaborators is also generally required to achieve those milestones, and in the case of our agreement with Indivior, Indivior is solely responsible for the regulatory milestone as well. Under our third-party collaborative agreements, our third party collaborators will take the lead in commercialization activities and we are typically not involved in the achievement of sales-based milestones. Therefore, we are even more dependent upon the performance of our third-party collaborators in achieving sales-based milestones. To the extent we and our third-party collaborators do not achieve such development-based milestones or our third-party collaborators do not achieve sales-based milestones, we will not receive the associated revenues, which could harm our financial condition and may cause us to defer or cut-back development activities or forego the exploitation of opportunities in certain geographic territories, any of which could have a material adverse effect on our business.

Our business strategy includes the entry into additional collaborative agreements. We may not be able to enter into additional collaborative agreements or may not be able to negotiate commercially acceptable terms for these agreements

Our current business strategy includes the entry into additional collaborative agreements for the development and commercialization of our pharmaceutical product candidates, including ORADUR-Methylphenidate ER in markets not already licensed to Orient Pharma, including the United States and Europe. The negotiation and consummation of these types of agreements typically involve simultaneous discussions with multiple potential collaborators and require significant time and resources from our officers, business development, legal, and research and development staff. In addition, in attracting the attention of pharmaceutical and biotechnology company collaborators, we compete with numerous other third parties with product opportunities as well as the collaborators’ own internal product opportunities. We may not be able to consummate additional collaborative agreements, or we may not be able to negotiate commercially acceptable terms for these agreements. If we do not consummate additional collaborative agreements, we may have to consume money more rapidly on our product development efforts, defer development activities or forego the exploitation of certain geographic territories, any of which could have a material adverse effect on our business.

We will require and may have difficulty or be unsuccessful in raising needed capital in the future to continue to operate as a going concern

Our business currently does not generate sufficient revenues to meet our capital requirements and we do not expect that it will do so in the near future. We have expended and will continue to expend substantial funds to ~~complete~~conduct the research, development, manufacturing and clinical testing of larsucosterol and our ~~pharmaceutical~~other product ~~candidates. We will require additional funds for these purposes, to establish~~candidates, funding and establishing additional clinical- and commercial-scale manufacturing arrangements and ~~facilities, and~~facilities.

Presently, we do not have sufficient cash resources to ~~provide~~meet our plans for the ~~marketing~~next twelve months from the issuance of this quarterly report. Our recurring losses from operations, negative cash flows and ~~distribution~~need for additional capital raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of, and for the year ended, December 31, 2022. We will require additional financing to fund our ~~product candidates.~~operations or we will have to significantly curtail our operations to conserve our capital resources. Additional funds may not be available on acceptable terms, if at ~~all.~~all, and such availability will depend on a number of factors, some of which are outside of our control, including general capital markets conditions and investors’ view of our prospects and valuation. Further, investors’ perception of our ability to continue as a going concern may make it more difficult for us to obtain financing, or necessitate that we obtain financing on terms that are more favorable to investors, and could result in the loss of confidence by investors, suppliers and employees. Our continued operations are contingent on our ability to raise additional capital or license or otherwise monetize our assets. If ~~adequate funds are unavailable from operations~~we do not acquire sufficient additional funding or ~~additional~~alternative sources of ~~financing,~~capital to meet our working capital needs, we ~~may~~will have to ~~delay, reduce~~substantially curtail our operations, resulting in delays in the ~~scope~~development of ~~or eliminate one or more of our research or development programs which would materially harm our business, financial condition~~larsucosterol and ~~results of operations.~~other product candidates and in generating revenue.

~~We believe that our cash, cash equivalents and investments will be adequate to satisfy our capital needs for at least the next 12 months. However, our~~Our actual capital requirements will depend on many factors, including:

We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. For example, we do not currently have sufficient funding to complete a Phase 3 trial of larsucosterol, if required by the FDA. We may seek to raise additional funds through equity or debt financings, convertible debt financings, collaborative arrangements with corporate collaborators or other sources, which, in each case, may be dilutive to existing stockholders and may cause the price of our common stock to decline. In addition, in the event that additional funds are obtained through arrangements with collaborators or other sources, we may have to relinquish rights to some of our technologies, products or ~~pharmaceutical~~ product candidates that we would otherwise seek to develop or commercialize ourselves. ~~If adequate funds are not available, we~~

We contract with third parties for the manufacture of larsucosterol and expect to continue to do so for any required additional clinical trials as well as the commercialization of larsucosterol. Our reliance on third parties increases the risk that submissions

for regulatory approval of larsucosterol may be ~~required to significantly reduce~~delayed or ~~refocus our product development efforts, resulting in delays in generating future product revenue.~~

The audit report contained in our Annual Report on Form 10-K for the year ended December 31, 2016 contains an explanatory paragraph to the effect that there is doubt about our ability to continue as a going concern

~~At the time of filing our Form 10-K for the year ended December 31, 2016, we determined~~ that we ~~did~~will not have sufficient ~~cash resources~~quantities of larsucosterol available at an acceptable cost, which could delay, prevent or impair our development and commercialization efforts of larsucosterol

We currently rely on third-party contractors to ~~meet our plans~~manufacture, package, label and distribute clinical supplies of injectable larsucosterol, and we expect to establish supply agreements for ~~the next twelve months from the issuance~~commercial quantities of ~~those financial statements. Our recurring losses from operations, negative cash flows and need~~larsucosterol following approval for ~~additional capital raised substantial doubt about our ability~~marketing by applicable regulatory authorities. We also expect to ~~continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph~~rely on third-party contractors to manufacture larsucosterol for use in ~~its report on our financial statements as of, and for the year ended, December 31, 2016.~~future clinical trials. As of the filing date of this Quarterly Report on Form 10-Q, our third-party manufacturer has not established a final process for the ~~three months ended September 30, 2017,~~commercial supply of injectable larsucosterol and neither we nor our third-party manufacturer have ~~determined that we have sufficient cash resources~~completed stability testing required to ~~meet our plans~~submit and obtain regulatory approval for the ~~next twelve months from~~use of larsucosterol in the ~~issuance~~treatment of ~~those financial statements. Our continued operations are contingent~~AH. Reliance on third-party contractors entails risks including, but not limited to:

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 product candidates and those of our third-party collaborators.

We have entered into a commercial manufacturing and packaging agreement with a third party manufacturer for future supply of POSIMIR. This third party is our sole source for the drug product required for development and commercialization of this drug candidate. There may be technical risks associated with establishing an alternative commercial manufacturer that could entail delays in supply, quality issues orincur delays in the ~~possible~~ regulatory submissions or approval of ~~POSIMIR. Furthermore, we~~larsucosterol due to manufacturing process development and ~~our contract manufacturer may also~~stability testing, or from the need to identify or ~~choose to subcontract with additional~~qualify alternative third-party contractors to perform manufacturing steps of POSIMIR or supply required components for POSIMIR. Where third party contractors perform manufacturing services for us, we will be subject to the schedule, expertisemanufacturers. Our current and ~~performance of~~anticipated future dependence upon third parties ~~as well as incur significant additional costs. Failure~~for the manufacturing of ~~third parties to perform their obligations could~~larsucosterol may adversely affect our ~~operations, development timeline~~future profit margins and ~~financial results. We expect~~our ability to ~~put in place in the future second source supply arrangements, which may be costly and time consuming.~~

We have entered into contract manufacturing agreements with multiple vendors for DUR-928. There can be no assurance that we will receive sufficient quantities of DUR-928 to commence and conduct the clinical trials we are planning, and delays in supply could delay development of DUR-928.

~~If we or our third-party collaborators cannot manufacture our pharmaceutical product candidates or components in time to meet the clinical or commercial requirements~~commercialize any of our ~~collaborators or ourselves or at an acceptable cost, our operating results will be harmed.~~

~~Failure to comply with ongoing governmental regulations for our pharmaceutical product candidates could materially harm our business in the future~~

Marketing or promoting a drug is subject to very strict controls. Furthermore, clearance or approval may entail ongoing requirements for post-marketing studies. The manufacture and marketing of drugs are subject to continuing FDA and foreign regulatory review and requirements that we update our regulatory filings. Later discovery of previously unknown problems with a product, manufacturer or facility, or our failure to update regulatory files, may result in restrictions, including withdrawal of the product from the market. Any of the following or other similar events, if they were to occur, could delay or preclude us from further developing, marketing or realizing full commercial use of our product candidates, which in turn would materially harm our business, financial condition and results of operations:

Manufacturers of drugs must comply with the applicable FDA good manufacturing practice regulations, which include production design controls, testing, quality control and quality assurance requirements as well as the corresponding maintenance of records and documentation. Compliance with current good manufacturing practices regulations is difficult and costly. Manufacturing facilities are subject to ongoing periodic inspection by the FDA and corresponding state agencies, including unannounced inspections, and must be licensed before they can be used for the commercial manufacture of our development products. We and/or our present or future suppliers and distributors may be unable to comply with the applicable good manufacturing practice regulations and other FDA regulatory requirements. We have not been subject to a good manufacturing regulation inspection by the FDA relating to our product candidates. If we, our third-party collaborators or our respective suppliers do not achieve compliance for our product candidates we or they manufacture, the FDA may refuse or withdraw marketing clearance or require product recall, which may cause interruptions or delays in the manufacture and sale of our product candidates.

~~We have a history of operating losses, expect to continue to have losses in the future and may never achieve or maintain profitability~~

We have incurred significant operating losses since our inception in 1998 and, as of September 30, 2017, had an accumulated deficit of approximately $452.0 million. We expect to continue to incur significant operating losses over the next several years as we continue to incur significant costs for research and development, clinical trials, manufacturing, sales, and general and administrative functions. Our ability to achieve profitability depends upon our ability, alone or with others, to successfully complete the development of our proposed product candidates, obtain the required regulatory clearances, and manufacture and market our proposed product candidates. Development of pharmaceutical product candidates is costly and requires significant investment. In addition, we may choose to license from third parties either additional drug delivery platform technology or rights to particular drugs or other appropriate technology for use in our product candidates. The license fees for these technologies or rights would increase the costs of our product candidates.

To date, we have not generated significant revenue from the commercial sale of our pharmaceutical product candidates and do not expect to do so in the near future. Our current revenues are from the sale of the ALZET product line, the sale of the LACTEL product line and certain excipient sales, and from payments under collaborative research and development agreements with third parties. We do not expect our product revenues to increase significantly in the near future, and we do not expect that collaborative research and development revenues will exceed our actual operating expenses. We do not anticipate meaningful revenues to derive from the commercialization and marketing of our product candidates in development in the near future, and therefore do not expect to generate sufficient revenues to cover expenses or achieve profitability in the near future.

We may develop our own sales force and commercial group to market future products but we have limited sales and marketing experience with respect to pharmaceuticals and may not be able to do so effectively

~~We have a small sales and marketing group focused on our ALZET and LACTEL product lines. We may choose to develop our own sales force and commercial group to market~~ products that ~~we may develop in the future. Developing a sales force and commercial group will require substantial expenditures and the hiring of qualified personnel. We have limited sales and~~receive marketing experience, and may not be able to effectively recruit, train or retain sales personnel. If we are not able to put in place an appropriate sales force and commercial group for our products in development, we may not be able to effectively launch these products. We may not be able to effectively sell our product candidates, if approved, and our failure to do so could limit or materially harm our business.

~~We and our third-party collaborators may not sell our product candidates effectively~~

We and our third-party collaborators compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts and those of our third-party collaborators may be unable to compete successfully against these other companies. We and our third-party collaborators, if relevant, may be unable to establish a sufficient sales and marketing organizationapproval on a timely ~~basis, if at all. We~~ and ~~our third-party collaborators, if relevant, may be unable to engage qualified distributors. Even if engaged, these distributors may:~~competitive basis.

~~The failure of us or our third-party collaborators to effectively develop, gain regulatory approval for, sell, manufacture~~activity from completed Phase 1 and ~~market our product candidates will hurt our business, prospects and financial results.~~

~~We rely heavily on third parties to support development, clinical testing and manufacturing of our product candidates~~

We rely on third-party contract research organizations, consultants, service providers and suppliers to provide critical services to support development, clinical testing, and manufacturing of our product candidates. For example, we currently depend on third-party vendors to manage and monitor our2 clinical trials ~~and to perform critical manufacturing steps for our product candidates. These third parties~~of larsucosterol may not ~~execute their responsibilities~~predict safety, activity or therapeutic efficacy in future trials

Safety data and ~~tasks competently in compliance with applicable laws~~indications of activity from completed Phase 1 and ~~regulations~~2 clinical trials of larsucosterol, or ~~in a timely fashion. We rely on third-parties to manufacture~~from geographic or ~~perform manufacturing steps relating to our product candidates or components. We anticipate that we will continue to rely on these and~~ other third-party contractors to support development, clinical testing, and manufacturing of our product candidates. Failure of these contractors to provide the required services in a competent or timely manner or on reasonable commercial terms could materially delay the development and approval of our development products, increase our expenses and materially harm our business, financial condition and results of operations.

~~Key components of our product candidates are provided by limited numbers of suppliers, and supply shortages or loss of these suppliers could result in interruptions in supply or increased costs~~

Certain components and drug substances used in our product candidates, including POSIMIR, DUR-928 and REMOXY ER, are currently purchased from a single or a limited number of outside sources. In particular, Eastman Chemical is the sole supplier, pursuant to a supply agreement entered into in December 2005, of our requirements of sucrose acetate isobutyrate, a necessary component of POSIMIR, REMOXY ER and certain other pharmaceutical product candidates we have under development, and a third party manufacturer is our sole supplier for future clinical and commercial supplies of POSIMIR. The reliance on a sole or limited number of suppliers could result in:

~~We have supply agreements in place for certain components of our pharmaceutical product candidates, but do not have in place long term supply agreements with respect to all~~subset analyses of the ~~components of any of our product candidates. Therefore the supply of a~~

~~particular component could be terminated at any time without penalty to the supplier. In addition, we~~AHFIRM trial, may ultimately not be ~~able to procure required components~~correlated with treatment or ~~drugs from third-party suppliers at a quantity, quality and cost acceptable to us. Any interruption~~improvement in the supply of single source components could cause us to seek alternative sources of supply or manufacture these components internally. Furthermore, in some cases, we are relying on our third-party collaborators to procure supply of necessary components. If the supply of any components for our product candidates is interrupted, components from alternative suppliers may not be available in sufficient volumes or at acceptable quality levels within required timeframes, if at all, to meet our needs or those of our third-party collaborators. This could delay our ability to complete clinical trialsassociated disease, and ~~obtain approval for commercialization and marketing of our product candidates, causing us to lose sales, incur additional costs, delay new product introductions and could harm our reputation.~~

If we are unable to adequately protect, maintain or enforce our intellectual property rights or secure rights to third-party patents, we may lose valuable assets, experience reduced market share or incur costly litigation to protect our rights or our third-party collaborators may choose to terminate their agreements with us

Our ability to commercially exploit our products will depend significantly on our ability to obtain and maintain patents, maintain trade secret protection and operate without infringing the proprietary rights of others.

As of October 27, 2017, we owned or exclusively in-licensed over 60 unexpired issued U.S. patents and over 390 unexpired issued foreign patents (which include granted European patent rights that have been validated in various EU member states). In addition, we owned or exclusively in-licensed over 35 pending U.S. patent applications and over 100 foreign applications pending in Europe, Australia, Japan, Canada and other countries.

~~The patent status of our most advanced drug candidates, POSIMIR and REMOXY ER is as follows:~~

In the United States, POSIMIR is covered by two patent families. One patent family includes granted patents expiring in at least 2025. Another patent family includes a pending patent application, which if granted, could result in a patent expiring in 2026, plus any eligible patent term adjustments and extensions. In Europe, POSIMIR is covered by six granted patents with three expiring in 2025 and three expiring in 2026, plus any eligible patent term extensions.

In the United States, our REMOXY ER patent portfolio includes four patent families. Three patent families include granted patents expiring in at least 2025, 2031, and 2034, respectively. The patent family providing protection until at least 2025 includes eleven granted patents. The patent family providing protection until at least 2031 includes two granted patents. The patent family providing protection until at least 2034 includes two granted patents. The fourth patent family includes a pending patent application, which if granted, could result in a patent expiring in 2026, plus any eligible patent term adjustments and extensions. We currently have pending U.S. applications for each of these four patent families. There can be no assurance that the pending patent applications will be granted. In Europe, REMOXY ER is covered by five granted patents with two expiring in 2023 and three expiring in 2026, plus any eligible patent term extensions.

Our Epigenetic Regulator Program includes nine in-licensed patent families and one patent family solely owned by us. Two patent families each include two granted patents expiring in at least 2026 and 2032, respectively. The other patent families include pending patent applications, which if granted, could result in patents expiring in 2033, 2034, 2035, 2037, 2037, 2037, 2037 and 2038, respectively, plus any eligible patent term adjustments and extensions. Of the ten patent families covering DUR-928 and/or other molecules in the Epigenetic Regulator Program, two were only filed in the United States, and the other eight have been filed or likely will be filed both in the U.S. and internationally. Since DUR-928 is an endogenous small molecule, patent claims directed to DUR-928 composition of matter may be more difficult to maintain or enforce in the United States under ~~Myriad Genetics~~ ~~and other recent court decisions. One of the U.S. patents issued before~~ ~~Myriad Genetics, and three of the DUR-928 U.S. patents issued after~~ ~~Myriad Genetics~~. The granted claims in the U.S. include both composition of matter and method of treatment claims. There can be no assurance that the pending patent applications will be granted. Further, there can be no assurance that VCU will not attempt to terminate their license to us, which termination would result in the loss of our rights to these patent families.

The patent positions of pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, our patent applications or those that are licensed to us may not issue into patents, and any issued patents may not provide protection against competitive technologies or may be held invalid if challenged. Our competitors may also independently develop products similar to ours or design around or otherwise circumvent patents issued to us or licensed by us. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as U.S. law.

The patent laws of the United States have recently undergone changes through court decisions which may have significant impact on us and our industry. Decisions of the U.S. Supreme Court and other courts with respect to the standards of patentability, enforceability, availability of injunctive relief and damages may make it more difficult for us to procure, maintain and enforce patents. In addition, the America Invents Act was signed into law in September 2011, which among other changes to the U.S. patent laws, changed patent priority from “first to invent” to “first to file,” implemented a post-grant opposition system for patents and provided a prior user defense to infringement. These judicial and legislative changes have introduced significant uncertainty in the patent law landscape and may potentially negatively impact our ability to procure, maintain and enforce patents to provide exclusivity for our products.

We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances, and that all inventions arising out of the individual’s relationship with us will be our exclusive property. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology.

We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patented technology. We may have to resort to litigation to protect our intellectual property rights, or to determine their scope, validity or enforceability. In addition, interference, derivation, post-grant oppositions, and similar proceedings may be necessary to determine rights to inventions in our patents and patent applications. Enforcing or defending our proprietary rights is expensive, could cause diversion of our resources and may be unsuccessful. Any failure to enforce or protect our rights could cause us to lose the ability to exclude others from using our technology to develop or sell competing products.

We are party to collaborative agreements with Sandoz, Pain Therapeutics, Orient Pharma and Santen among others. Our third-party collaborators have entered into these agreements based on the exclusivity that our intellectual property rights confer on the products being developed. The loss or diminution of our intellectual property rights could result in a decision by our third-party collaborators to terminate their agreements with us. In addition, these agreements are generally complex and contain provisions that could give rise to legal disputes, including potential disputes concerning ownership of intellectual property and data under collaborations. Such disputes can lead to lengthy, expensive litigation or arbitration requiring us to devote management time and resources to such dispute which we would otherwise spend on our business. To the extent that our agreements call for future royalties to be paid conditional on our having patents covering the royalty-bearing subject matter, the decision by the Supreme Court in the case of ~~MedImmune v. Genentech~~ could encourage our licensees to challenge the validity of our patents and thereby seek to avoid future royalty obligations without losing the benefit of their license. Should they be successful in such a challenge, our ability to collect future royalties could be substantially diminished.

We may be sued by third parties claiming that our product candidates infringe on their intellectual property rights, particularly because there is substantial uncertainty about the validity and breadth of medical patents

We or our collaborators may be exposed to future litigation by third parties based on claims that our product candidates or activities infringe the intellectual property rights of others or that we or our collaborators have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in medical technology patents and the breadth and scope of trade secret protection involve complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us or our collaborators, whether or not valid, could result in substantial costs, could place a significant strain on our financial resources and could harm our reputation. We also may not have sufficient funds to litigate against parties with substantially greater resources. In addition, pursuant to our collaborative agreements, we have provided our collaborators with the right, under specified circumstances, to defend against any claims of infringement of the third party intellectual property rights, and such collaborators may not defend against such claims adequately or in the manner that we would do ourselves. Intellectual property litigation or claims could force us or our collaborators to do one or more of the following, any of which could harm our business or financial results:

~~Technologies and businesses which we acquire or license may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention~~

~~We may acquire technologies, products or businesses to broaden the scope of our existing and planned product lines and technologies. Future acquisitions expose us to:~~

Acquisitions may also result in the issuance of dilutive equity securities, the incurrence or assumption of debt or additional expenses associated with the amortization of acquired intangible assets or potential businesses. Acquisitions may not generate any additional revenue or provide any benefit to our business.

Some of our pharmaceutical product candidates contain controlled substances, the making, use, sale, importation and distribution of which are subject to regulation by state, federal and foreign law enforcement and other regulatory agencies

Some of our product candidates currently under development contain, and our products in the future may contain, controlled substances which are subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation and distribution. REMOXY ER, and certain other product candidates we may develop contain active ingredients which are classified as controlled substances under the regulations of the U.S. Drug Enforcement Agency. For our product candidates containing controlled substances, we and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation and distribution of controlled substances. These regulations are extensive and include regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas, record keeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of drug candidates including controlled substances. Failure to obtain and maintain required registrations or comply with any applicable regulations could delay or preclude us from developing and commercializing our product candidates containing controlled substances and subject us to enforcement action. In addition, because of their restrictive nature, these regulations could limit our commercialization of our product candidates containing controlled substances. In particular, among other things, there is a risk that ~~these regulations~~larsucosterol may ~~interfere with~~not demonstrate therapeutic efficacy in larger placebo-controlled trials. For example, the ~~supply~~AHFIRM trial did not achieve the primary endpoint of a statistically significant difference in 90-day mortality or liver transplant between both doses of larsucosterol versus SOC. The failure of larsucosterol to show efficacy in one indication may negatively affect its perceived value in other indications, and the ~~drugs used~~emergence of safety signals in ongoing or future clinical trials would significantly harm our business.

From time to time, we may publicly disclose preliminary or “topline” data from our clinical trials, which is based on a preliminary analysis of then-available data, and in the ~~future, our ability~~results and related findings and conclusions are subject to ~~produce and distribute our products in~~change following a more comprehensive review of the ~~volume needed to meet commercial demand.~~

~~Write-offs~~data related to the ~~impairment of long-lived assets, inventories~~particular trial. We also make assumptions, estimations, calculations and ~~other non-cash charges,~~conclusions as ~~well as stock-based compensation expenses may adversely impact or delay our profitability~~

~~We may incur significant non-cash charges related to impairment write-downs~~part of our ~~long-lived assets,~~analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report, including ~~goodwill. We are required to perform periodic impairment reviews of our goodwill at least annually. The carrying value of goodwill on our balance sheet was $6.4 million at September 30, 2017. To~~ the ~~extent these reviews conclude that the expected future cash flows generated~~preliminary Phase 2b clinical data for AHFIRM reported in November 2023, may differ from, ~~our business activities are not sufficient to recover the cost of our long-lived assets, we will be required to measure~~ and record an impairment charge to write-down these assets to their realizable values. We completed our last review during the fourth quarter of 2016 and determined that goodwill was not impaired as of December 31, 2016. However, there can be no assurance that upon completion of subsequent reviews a material impairment charge willmay not be ~~recorded. If~~indicative of, future ~~periodic reviews determine that our assets are impaired~~results of the same clinical trials, or different conclusions or considerations may qualify such topline results once additional data have been received and ~~a write-down is required, it will adversely impact or delay our profitability.~~

~~Inventories, in part, include certain excipients that are sold~~fully evaluated. Topline data also remain subject to ~~customers~~audit and included in products in development. These inventories are capitalized based on management’s judgment of probable sale prior to their expiration date which in turn is primarily based on management’s internal estimates. The valuation of inventory requires us to estimate the value of inventoryverification procedures that may become expired prior to use. We may be required to expense previously capitalized inventory costs upon a change in our judgment, due to, among other potential factors, a denial or delay of approval of a product by the necessary regulatory bodies, changes in product development timelines, or other information that suggests that the inventory will not be saleable. In addition, these circumstances may cause us to record a liability related to minimum purchase agreements that we have in place for raw materials. For example, we recorded charges to cost of goods sold of approximately $926,000, of which approximately $426,000 related to the write-down of the cost basis of inventory and approximately $500,000 related to the prepaid inventory for the minimum purchase commitment for an excipientresult in the ~~year ended December 31, 2016 as~~final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available and negative differences between preliminary or interim data and final data could materially adversely affect the prospects of ~~a change in~~any product candidate that is impacted by such data updates.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the ~~forecasted demand for the excipients after Pain Therapeutics received a Complete Response Letter from the FDA on its resubmission~~importance of ~~the NDA for REMOXY ER. In addition, we recorded charges to cost of goods sold of approximately $2.0 million, of~~data differently, which approximately $503,000 related to the write-down of the cost basis of inventory on hand, $500,000 related to the prepaid inventory for the minimum purchase commitment for the excipient, and $1.0 million related to the accrual of a liability for the remaining minimum purchase commitment for the excipient in the three and nine months ended September 30, 2017 after we announced that PERSIST, the Phase 3 clinical trial for POSIMIR, did not meet its primary efficacy endpoint.

~~Global credit and financial market conditions~~ could ~~negatively~~ impact the value of ~~our current portfolio of cash equivalents, short-term investments~~the particular

program, the approvability or ~~long-term investments and our ability to meet our financing objectives~~

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with original maturities of greater than 90 days from the date of purchase but remaining maturities of less than one year from the balance sheet date. Our long-term investments consist primarily of readily marketable debt securities with maturities in one year or beyond from the balance sheet date. While, ascommercialization of the ~~date of this filing, we are not aware of any downgrades, material losses,~~particular product candidate or ~~other significant deterioration in~~product and the ~~fair~~ value of our ~~cash equivalents, short-term investments~~company in general. In addition, the information we choose to publicly disclose regarding a particular study or ~~long-term investments since September 30, 2017, no assurance can~~clinical trial is typically a summary of extensive information, and others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be ~~given that deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents, short-term investments~~deemed significant with respect to future decisions, conclusions, views, activities or ~~long-term investments~~otherwise regarding a particular product, product candidate or our ~~ability to meet our financing objectives.~~

~~We depend upon key personnel who may terminate their employment with us at any time, and we may need to hire additional qualified personnel~~

~~Our success will depend to a significant degree upon~~business. If the continued services of key management, technical and scientific personnel. In addition, our success will depend on our ability to attract and retain other highly skilled personnel, particularly as we develop and expand our Epigenetic Regulator Program. Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable to recruit such personnel on a timely basis, if at all. Our management and other employees may voluntarily terminate their employment with us at any time. The loss of the services of key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to product development or approval, loss of sales and diversion of management resources.

Our success will depend on properly sizing our company through growth and contraction cycles caused in part by changing business conditions, which places a significant strain on our management and on our administrative, operational and financial resources. To manage through such cycles, we must expand or contract our facilities, our operational, financial and management systems and our personnel. If we were unable to manage growth and contractions effectively our business would be harmed.

~~Our business involves environmental risks and risks related to handling regulated substances~~

In connection with our research and development activities and our manufacture of materials and pharmaceutical product candidates, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believetopline data that we ~~have complied~~report differ from actual results, or if others, including regulatory authorities, disagree with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development involves the use, generation and disposal of hazardous materials, including but not limited to certain hazardous chemicals, solvents, agents and biohazardous materials. The extent of our use, generation and disposal of such substances has increased substantially since we started manufacturing and selling biodegradable polymers. Although we believe that our safety procedures for storing, handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We currently contract with third parties to dispose of these substances generated by us, and we rely on these third parties to properly

dispose of these substances in compliance with applicable laws and regulations. If these third parties do not properly dispose of these substances in compliance with applicable laws and regulations, we may be subject to legal action by governmental agencies or private parties for improper disposal of these substances. The costs of defending such actions and the potential liability resulting from such actions are often very large. In the event we are subject to such legal action or we otherwise fail to comply with applicable laws and regulations governing the use, generation and disposal of hazardous materials and chemicals, we could be held liable for any damages that result, and any such liability could exceed our resources.

~~Cyber-attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of our business operations~~

We utilize information technology, systems and networks to process, transmit and store electronic information in connection with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data, and may cause a disruption in our operations, harm our reputation and increase our stock trading risk. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that our third-party collaborators, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. Any cyberattack or destruction or loss of data could have a material adverse effect on our business and prospects. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection measures.

~~Our corporate headquarters, certain manufacturing facilities and personnel are located in a geographical area that is seismically active~~

Our corporate headquarters, certain manufacturing facilities and personnel are located in a geographical area that is known to be seismically active and prone to earthquakes. Should such a natural disaster occur, our ability to conduct our business could be severely restricted, and our business and assets, including the results of our research, development and manufacturing efforts, could be destroyed.

The market for our pharmaceutical product candidates is rapidly changing and competitive, and new products or technologies developed by others could impair our ability to grow our business and remain competitive

The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our product candidates under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

We may face competition from other companies in numerous industries including pharmaceuticals, medical devices and drug delivery. Competition for DUR-928, if approved, will depend on the specific indications for which DUR-928 is approved. Intercept, Gilead, Shire, Conatus Pharmaceuticals, Galectin Therapeutics, Genfit, Pfizer, Roche, Galmed Pharmaceuticals, Enanta Pharmaceuticals, Novo Nordisk, Takeda, Vital Therapies, Allergan, Akarna Therapeutics, Inventiva Pharma, Genkyotex, VBL Therapeutics, NGM Biopharmaceuticals, Gemphire Therapeutics, Albireo Pharma, CymaBay Therapeutics, Madrigal Pharmaceuticals, Viking Therapeutics, CohBar, FALK Pharma, Acorda, Albireo Pharma and others have development plans for products to treat NAFLD/NASH or other liver diseases. Ischemix, Thrasos Therapeutics, AM-Pharma, Complexa, AbbVie, AlloCure, Quark Pharmaceuticals and others have development plans for products to treat acute kidney injury. Bristol Myers Squibb, Novartis, Eli Lilly, Almirall, LEO Pharma, Pfizer, Janssen, Abbvie, Boerhinger-Ingelheim, Amgen, Sandoz, Astra-Zeneca, Valeant, Takeda, Merck, Idera Pharmaceuticals and others have development plans for products to treat psoriasis.

POSIMIR and REMOXY ER, if approved, will compete with currently marketed oral opioids, transdermal opioids, local anesthetic patches, 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, AbbVie, Janssen, Actavis, Medtronic, Endo, AstraZeneca, Pernix Therapeutics, Tricumed, Halyard Health, Cumberland Pharmaceuticals, Pacira, Acorda Therapeutics, Mallinckrodt, Inspirion Delivery Technologies, Mylan, Shire, Johnson & Johnson, Eli Lilly, Pfizer, Novartis, Egalet, Teva Pharmaceuticals, Collegium Pharmaceutical and others. Purdue Pharma, Sandoz, Actavis, Collegium Pharmaceutical, Pfizer, Elite Pharmaceuticals, Intellipharmaceutics, Egalet, Teva Pharmaceuticals and others have also announced regulatory approval or development plans for abuse deterrent opioid products. RBP-7000, if approved, will compete with currently marketed or approved products by Johnson & Johnson, Eli Lilly, Otsuka,

Alkermes, Merck, Allergan, Novartis, and others. Our ORADUR-ADHD product candidates, if approved, will compete with currently marketed or approved products by Shire, Johnson & Johnson, UCB, Novartis, Noven, Eli Lilly, Pfizer 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, Pacira, Immune Pharmaceuticals, Innocoll, Nektar, Kimberly-Clark, Acorda Therapeutics, Flamel, Alexza, Mallinckrodt, Hospira, Pfizer, Cumberland Pharmaceuticals, Egalet, Acura, Elite Pharmaceuticals, Phosphagenics, Intellipharmaceutics, Collegium Pharmaceutical, Heron Therapeutics, Charleston Laboratories, Daiichi Sankyo 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. Many of these entities have significantly greater research and development capabilities than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.

We are engaged in the development of novel therapeutic technologies. Our resources are limited and we may experience technical challenges inherent in such novel technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic effects than our product candidates. Our competitors may develop products that are safer, more effective or less costly than our product candidates and, therefore, present a serious competitive threat to our product offerings.

The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our product candidates even if commercialized. Chronic and post-operative pain are currently being treated by oral medication, transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery devices which will be competitive with our product candidates. These treatments are widely accepted in the medical community and have a long history of use. The established use of these competitive products may limit the potential for our product candidates to receive widespread acceptance if commercialized.

Our relationships with customers and third-party payers will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings

Healthcare providers, physicians and third-party payers will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we would market, sell and distribute our products. As a pharmaceutical company, even though we do not and may not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. These regulations include:

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

~~Healthcare reform measures could hinder or prevent our product candidates’ commercial success.~~

In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenue and profitability and the future revenue and profitability of our collaborators or potential collaborators. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which is intended to contain or reduce the costs of medical products and services. For example, in March 2010, the President signed one of the most significant healthcare reform measures in decades, the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which impact existing government healthcare programs and will result in the development of new programs. The Affordable Care Act, among other things:

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, automatic reductions to several government programs were enacted during “sequestration.” These reductions included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will

~~pay for healthcare products and services, which could result in reduced demand for our product candidates once approved or additional pricing pressures.~~

~~We could be exposed to significant product liability claims which could be time consuming and costly to defend, divert management attention and adversely impact~~conclusions reached, our ability to obtain approval for, and ~~maintain insurance coverage~~

The testing, manufacture, marketing and sale of our product candidates involve an inherent risk that product liability claims will be asserted against us. Although we are insured against such risks up to an annual aggregate limit in connection with clinical trials and commercial sales of our product candidates, our present product liability insurance may be inadequate and may not fully cover the costs of any claim or any ultimate damages we might be required to pay. Product liability claims or other claims related to our product candidates, regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant damages. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our product candidates. A product liability claim could also significantly harm our reputation and delay market acceptance of our product candidates.

~~Acceptance of our pharmaceutical product candidates in the marketplace is uncertain, and failure to achieve market acceptance will delay our ability to generate or grow revenues~~

Our future financial performance will depend upon the successful introduction and customer acceptance of our products in research and development, including POSIMIR, DUR-928 and REMOXY ER, if approved. Even if approved for marketing, our product candidates may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:

In addition, market adoption of POSIMIR may depend on what data from clinical studies is included in the product label and market adoption of REMOXY ER may depend on the extent to which the product label includes claims for abuse deterrence, and there can be no assurance as to what the final product labels will contain. Physicians, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our products. If we are unable to obtain regulatory approval, commercialize, ~~and market our future products when planned and achieve market acceptance, we will not achieve anticipated revenues.~~

If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues

The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and third-party collaborators and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, recent federal and state government initiatives have been directed at lowering the total cost of health care, and the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially harm our business, financial condition and results of operations.

The successful commercialization of our product candidates will depend in part on the extent to which appropriate reimbursement levels for the cost of our product candidates and related treatment are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payers often limit payments or reimbursement for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may limit reimbursement or payment for our products. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability to operate profitably.

If we or our third-party collaborators are unable to train physicians to use our pharmaceutical product candidates to treat patients’ diseases or medical conditions, we may incur delays in market acceptance of our products

Broad use of our product candidates will require extensive training of numerous physicians on the proper and safe use of our product candidates. The time required to begin and complete training of physicians could delay introduction of our products and adversely affect market acceptance of our products. We or third parties selling our product candidates may be ~~unable~~harmed.

Future clinical trials for larsucosterol may be delayed and may not demonstrate efficacy or safety

Future trials of larsucosterol in patients with AH are subject to ~~rapidly train physicians~~potential delays for several reasons, including without limitation:

There can also be no assurance that biological activity demonstrated in previous animal disease models or earlier clinical trials of larsucosterol will also be seen in future clinical trials, or that any clinically relevant biological activity will be observed, or that enrollment rates in future trials will be favorable or that these additional trials will not identify safety issues. Failure of future trials to achieve desired results in their anticipated timeframe could negatively impact our business and ability to raise additional capital.

Moreover, success in future research, preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical testing. Any future clinical trial process may fail to demonstrate that our potential drug candidates are safe for ~~our product~~humans and effective for indicated uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug candidates. Any delay in, ~~training would materially~~or termination of, future non-clinical testing or clinical trials will delay the ~~demand for~~filing of any future investigational new drug application and new drug application with the FDA or the equivalent applications with pharmaceutical regulatory authorities outside the United States and, ultimately, our ability to commercialize any potential drugs and generate product candidates and harm our business and financial results. In addition, we may expend significant funds towards such training before any orders are placed for our products, which would increase our expenses and harm our financial results.

~~Potential new accounting pronouncements and legislative actions are likely to impact our future financial position or~~revenues. The results of ~~operations~~

Future changes in financial accounting standards may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses and may affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency and may occur in the future and we may make changes in our accounting policies in the future. Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure,AHFIRM, including the ~~Sarbanes-Oxley Act~~topline data from our AHFIRM Phase 2b trial, may not be indicative of 2002, new SEC regulations, PCAOB pronouncements and NASDAQ rules, are creating uncertainty for companies such as ours and insurance, accounting and auditing costs are high as a result of this uncertainty and other factors. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.future results.

Our stock price has in the past and may in the future not meet the minimum bid price for continued listing on Nasdaq. Our ability to continue operations or to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from Nasdaq

~~On each of January 16, 2013 and December~~In several instances in the past, including as recently as February 9, ~~2014,~~2022, we received written ~~notification~~notifications from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days (the “Minimum Closing Bid Price Requirement”), our shares no longer complied with the ~~minimum closing bid price requirement~~Minimum Closing Bid Price Requirement for continued listing on ~~the~~ Nasdaq ~~Global Market~~ under Nasdaq Marketplace ~~Rule 5450(a)(1).~~Rules. Each time, we were given a period of 180 days from the date of the notification and in one case an extra 180-day period to regain compliance with Nasdaq’s listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for at least 10 consecutive trading days.

While we have regained compliance within the applicable time periods ~~as of February 1, 2013 and March 6, 2015, respectively,~~in the past, if our shares again no longer comply with the ~~minimum closing bid price requirement~~Minimum Closing Bid Price Requirement for continued listing on the Nasdaq ~~Global~~Capital Market under Nasdaq Marketplace Rule ~~5450(a)(1)~~5550(a)(2) and we do not regain compliance within the applicable 180-day time period, we may transfer our common stock listing to The Nasdaq Capital Market, provided that the Company (i) meets the applicable market value of publicly held shares requirement for continued listing and all other applicable requirements for initial listing on The Nasdaq Capital Market (except for the closing bid price requirement) based on the Company’s most recent public filings and market information and (ii) notifies Nasdaq of its intent to cure this deficiency. Following a transfer to The Nasdaq Capital Market, the Company would be afforded the remainder of an additional 180 calendar day grace period in order to regain compliance with the minimum closing bid price requirement of $1.00 per share under The Nasdaq Capital Market, unless it does not appear to Nasdaq that it would be possible for the Company to cure the deficiency.

~~If compliance is not demonstrated within the applicable compliance period,~~ Nasdaq will notify ~~the Company~~us that ~~its~~our securities will be subject to delisting. ~~The Company may~~For example, on November 7, 2023, the closing bid price of our common stock was below $1.00. One strategy to regain compliance in such circumstances would be to implement a reverse stock split. For example, we implemented such a strategy to regain compliance with the Minimum Closing Bid Price Requirement when we completed a 1-for-10 reverse stock split on December 5, 2022 (the “Stock Split”). We could also appeal Nasdaq’s determination to delist ~~its~~our securities to a Hearings Panel. During any appeal process, shares of ~~the Company’s~~our common stock would continue to trade on the Nasdaq ~~Global Market or Nasdaq~~ Capital ~~Market, as applicable.~~Market.

There can be no assurance that we will ~~maintain~~regain compliance with the requirements for listing our common stock on the Nasdaq ~~Global Market or if we were not in compliance, that our common stock would be eligible for transfer to the Nasdaq~~ Capital ~~Market and remain in compliance with the requirements for listing on that market.~~Market. Delisting from Nasdaq would constitute an event of default under our loan facility with Oxford, entitling Oxford to accelerate our obligations under such facility, among other actions. Under such circumstances, we could be required to renegotiate the repayment terms of our loan facility, on terms which would not be as favorable to ~~the~~our Company as our current terms, or we could be required to take other actions, such as discontinuing some or all of our operations, selling assets, or other action. Delisting could also adversely affect our ability to raise additional ~~financing~~capital through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect

the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

~~Our quarterly and annual results~~Additionally, there can be no assurance that the Stock Split will result in a per-share market price that will maintain compliance with the Minimum Closing Bid Price Requirement, that will attract institutional investors or investment funds or that such share price will satisfy investing guidelines of ~~operations have historically fluctuated and we expect will continue to fluctuate for~~institutional investors or investment funds. As a result, the ~~foreseeable future. We believe that period-to-period comparisons~~trading liquidity of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies with no approved pharmaceutical products, particularly companies in new and rapidly evolving markets such as pharmaceuticals, drug delivery and biotechnology. To address these risks, we must, among other things, obtain regulatory approval for and commercialize our product candidates, whichcommon stock may not ~~occur. We may not be successful in addressing these risks and difficulties. We may require additional funds to complete~~improve. Further, if the ~~development~~market price of our ~~product candidates and to fund operating losses to~~common stock declines, the percentage decline may be ~~incurred~~greater than would have occurred in the ~~next several years.~~absence of a reverse stock split.

~~Investors may experience dilution of their investment if we~~In order to raise capital ~~through~~and for other purposes, we may in the ~~sale~~future offer and issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock, and the price per share at which we sell additional ~~equity~~shares of our common stock or other securities convertible into or ~~convertible debt securities~~exchangeable for our common stock in future transactions may be higher or ~~grant additional~~lower than the price per share at which investors in our common stock ~~options to employees and consultants.~~bought their shares. In ~~November 2015,~~July 2021, we filed ~~a shelf registration statement on Form S-3 with~~ the ~~SEC that allows us~~2021 Registration Statement to ~~offer~~sell up to ~~$125~~$250 million of securities from time to time in one or more public offerings, ~~of our common stock. In addition, in November 2015, we entered into a Controlled Equity Offering sales agreement with Cantor Fitzgerald, under which we may sell, subject to certain limitations,~~including up to ~~$40~~$75.0 million of shares of common stock through Cantor Fitzgerald, acting as agent. In April 2016, we completed an underwritten public offering in which we raised net proceeds of $16.1 million (after deducting underwriting discounts and commissions and offering expenses) through the sale of an aggregate of approximately 13.8 million shares of our common stock pursuant to an effective registration statement at a price to the public of $1.25 per share. In 2016, we raised net proceeds (net of commissions) of approximately $7.6 million from the sale of approximately 5.2 million shares of our common stock in the open market through the Controlled Equity Offering program with Cantor Fitzgerald at a weighted average price of $1.50 per share. During the nine months ended September 30, 2017, we raised net proceeds (net of commissions) of approximately $9.6 million from the sale of 6.6 million shares of our common stock in the open market through the Controlled Equity Offering program with Cantor Fitzgerald at a weighted average price of $1.49 per share. As of October 27, 2017, we had up to approximately $20.3 million of common stock available for sale under the Controlled Equity Offering program and approximately $67.8 million of common stock available for sale under the shelf registration statement.2021 Sales Agreement. Any ~~additional~~ sales in the public market of our common stock, under the ~~Controlled Equity Offering program with Cantor Fitzgerald or otherwise~~2021 Sales Agreement, in offerings under ~~the~~our shelf registration statement or otherwise, could adversely affect prevailing market prices for our common stock. Through several financings between 2019 and 2022, and through our 2015 Sales Agreement, 2018 Sales Agreement and 2021 Sales Agreement with Cantor Fitzgerald during this period, we have raised an aggregate of $79.5 million. On February 3, 2023, we consummated a registered direct offering financing pursuant to which we sold an aggregate of 1,700,000 shares of our common stock, pre-funded warrants to purchase up to 300,000 shares of our common stock and common warrants to purchase up to 2,000,000 shares of our common stock. Each share of common stock and accompanying common warrant and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $5.00 per share and accompanying warrant or, in the case of pre-funded warrants, $4.99999 per pre-funded warrant and accompanying common warrant. In June 2023, we raised net proceeds (net of commissions) of approximately $658,000 from the sale of our common stock in the open market under the 2021 Sales Agreement. Additionally, on July 19, 2023, we consummated a registered direct offering financing pursuant to which we sold an aggregate of 2,991,027 shares of our common stock and common warrants to purchase up to 2,991,027 shares of our common stock. Each share of common stock and accompanying common warrant were sold together at a combined offering price of $5.015 per share and accompanying warrant. Investors could experience substantial dilution of their investment as a result of subsequent exercises of the outstanding warrants. In November 2023, we raised net proceeds (net of commissions) of approximately $803,000 from the sale of our common stock in the open market under the 2021 Sales Agreement. As of November 13, 2023, we had up to 223.5 million of our securities available for sale under the 2021 Registration Statement, of which $73.5 million of our common stock are available pursuant to the 2021 Sales Agreement.

In addition, as of September 30, 2023, 816,347 shares of our common stock were issuable upon exercise of stock options outstanding under our stock option plans at a weighted average exercise price of $9.44 per share, 4,197,120 additional shares of common stock were reserved for potential future issuance under our stock option plan, and an aggregate of 60,479 shares of common stock were reserved for potential future issuance under our 2000 Employee Stock Purchase Plan. At September 30, 2023, we had 150,000,000 authorized shares of common stock and, as such, we have the ability to issue significantly more shares and options in the future, which would result in substantial dilution to our stockholders, including investors in this offering.

The stock markets in general, and the markets for pharmaceutical stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

Price declines in our common stock have in the past and could in the future result from general market and economic conditions and a variety of other factors, including:

The market price of our common stock may fluctuate significantly in response to factors which are beyond our control. The stock market in general has ~~recently~~periodically experienced extreme price and volume fluctuations. For example, the COVID-19 pandemic, pronouncements by the Federal Reserve, inflation, outbreaks of war such as between Russia and Ukraine or Israel and Hamas, oil price volatility and other factors have caused broad stock market and industry fluctuations. In addition, the market prices of securities of technology and pharmaceutical companies have also been extremely volatile, and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could result in extreme fluctuations in the price of our common stock, which could cause a decline in the value of our common stock.

In the past, following periods of volatility in the market price of a particular company’s securities, litigation has often been brought against that company. If litigation of this type is brought against us, it could be extremely expensive, particularly if we were to lose the lawsuit and have to pay damages, and divert management’s attention and our ~~company’s~~Company’s resources.

During the ~~use~~fiscal quarter ended September 30, 2023, none of our ~~cash and investments, and their investment may not always yield~~directors or officers informed us of the adoption or termination of a ~~favorable return~~“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, except as described in the table below:

~~Our management has broad discretion over how our cash and investments are used and may from time~~

(1)

Except as indicated by footnote, each trading arrangement marked as a “Rule 10b5-1 Trading Arrangement” is intended to ~~time invest in ways with which our stockholders may not agree and that do not yield favorable returns.~~

~~Executive officers, directors and principal stockholders have substantial control over us, which could delay or prevent a change in our corporate control favored by our other stockholders~~

~~Our directors, executive officers and principal stockholders, together with their affiliates, have substantial control over us. The interests~~satisfy the affirmative defense of these stockholders may differ from the interests of other stockholders. As a result, these stockholders, if acting together, could have the ability to exercise control over all corporate actions requiring stockholder approval irrespective of how our other stockholders may vote, including:

~~the election of directors;~~

Rule 10b5-1(c), as amended (the “Rule”).

(2)

No securities were purchased or sold during the ~~amendment~~duration of ~~charter documents;~~

the Rule 10b5-1 Plan.

(3)

For additional details about the ~~approval~~material terms of ~~certain mergers and other significant corporate transactions, including a sale~~this arrangement, refer to the description under the heading “Insider Adoption or Termination of ~~substantially all~~Trading Arrangements” contained in Part II, Item 5. Other Information of our ~~assets; or~~

Quarterly Report on Form 10-Q for the ~~defeat of any non-negotiated takeover attempt that might otherwise benefit the public stockholders.~~

quarter ended June 30, 2023, which is incorporated herein by reference.

~~Our certificate of incorporation, our bylaws and Delaware law contain provisions that could discourage another company from acquiring us~~

Provisions of Delaware law, our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include:

~~authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;~~

~~providing for a classified board of directors with staggered terms;~~

~~requiring supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws;~~

~~eliminating the ability of stockholders to call special meetings of stockholders;~~

~~prohibiting stockholder action by written consent; and~~

~~establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.~~

5239

Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees

Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company, any action asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or our Certificate of Incorporation or bylaws or any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.Item 6. Exhibits

Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.


~~Item 2.~~Exhibit Number		Exhibit Name
4.1	Form of Warrant (July 2023) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 21, 2023).

10.1	~~Unregistered Sales of Equi~~ty Securities ~~and Use of Proceeds~~Purchase Agreement, dated July 19, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 21, 2023).

~~None~~

~~Item 3.~~
10.2*		~~Defaults Upon Senior Securities~~

~~None~~

~~Item 4.~~

~~Mine Safety Disclosures~~

~~Not applicable~~

~~Item 5.~~

~~Other Information~~

~~None~~

~~Item 6.~~

~~Exhibits~~

~~10.1+~~ ~~31.1~~		~~Patent purchase agreement~~Sixth amendment to Lease between the Company and ~~Indivior UK Limited~~De Anza Enterprises LLC dated as of September ~~26, 2017.~~ ~~Rule 13a-14(a) Section 302 Certification of James E. Brown.~~6, 2023.

~~31.2~~ 31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act as adopted pursuant to Section 302 ~~Certification~~ of ~~Matthew J. Hogan.~~the Sarbanes-Oxley Act of 2002.

~~32.1~~ 31.2*		~~Certificate~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002 of James E. Brown.~~2002.

~~32.2~~ 32.2**		~~Certificate~~Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002 of Matthew J. Hogan.~~2002.

~~101.INS~~101		~~XBRL Instance Document~~The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Comprehensive Income, (iv) Condensed Statements of Changes in Stockholders' Equity, (v) Condensed Statements of Cash Flows and (vi) Notes to Condensed Financial Statements, tagged as blocks of text and including detailed tags.

~~101.SCH~~104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL ~~Taxonomy Extension Schema Document~~(included as Exhibit 101).

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

* Filed herewith.

~~+ Confidential treatment has been requested with respect to portions of this exhibit. The redacted information has been filed separately with the SEC~~** Furnished, not filed.

5440

~~EXHIBIT INDEX~~

~~10.1+~~ ~~31.1~~		~~Patent purchase agreement between the Company and Indivior UK Limited dated as of September 26, 2017.~~ ~~Rule 13a-14(a) Section 302 Certification of James E. Brown.~~

~~31.2~~		~~Rule 13a-14(a) Section 302 Certification of Matthew J. Hogan.~~

~~32.1~~		~~Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of James E. Brown.~~

~~32.2~~		~~Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew J. Hogan.~~

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

SIGNATURES

~~+ Confidential treatment has been requested with respect to portions of this exhibit. The redacted information has been filed separately with the SEC~~

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DURECT CORPORATION

	By:	/S/ J~~AMES~~JAMES E. B~~ROWN~~BROWN
		James E. Brown Chief Executive Officer

Date: November ~~2, 2017~~14, 2023

	By:	/S/ M~~ATTHEW~~ ~~J. HOGAN~~TIMOTHY M. PAPP
		~~Matthew J. Hogan~~Timothy M. Papp Chief Financial Officer ~~and Principal~~ (Principal Accounting ~~Officer~~Officer)

Date: November ~~2, 2017~~14, 2023


Large accelerated filer	☐	Accelerated filer	☒☐
Non-accelerated filer	☒	Smaller reporting company	☒
~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐
Emerging growth company	☐

Three months ended December 31, 2017	$	406
2018		8,698
2019		8,724
2020		6,641
Total minimum payments		24,469
Less amount representing interest		(4,469	)
Gross balance of term loan		20,000
Less unamortized debt discount		(101	)
Carrying value of term loan		19,899
Less term loan, current portion, net		(5,276	)
Term loan, non-current portion, net	$	14,623


	September 30, 2023			December 31, 2022

A S S E T S
Current assets:
Cash and cash equivalents	$	38,985		$	43,483
Accounts receivable, net		883			3,423
Inventories, net		2,521			2,113
Prepaid expenses and other current assets		1,391			2,375
Total current assets		43,780			51,394
Property and equipment, net		127			188
Operating lease right-of-use assets		4,374			1,943
Goodwill		6,169			6,169
Long-term restricted investments		150			150
Other long-term assets		128			256
Total assets	$	54,728		$	60,100
L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y
Current liabilities:
Accounts payable	$	1,314		$	3,106
Accrued liabilities		8,539			7,896
Deferred revenue, current portion		178			—
Term loan, current portion, net		18,700			21,170
Operating lease liabilities, current portion		1,527			1,832
Warrant liabilities		6,494			—
Total current liabilities		36,752			34,004
Operating lease liabilities, non-current portion		2,927			260
Other long-term liabilities		643			851
Commitments and contingencies
Stockholders’ equity:
Common stock		23			23
Additional paid-in capital		601,960			586,357
Accumulated other comprehensive loss		(12	)		(13	)
Accumulated deficit		(587,565	)		(561,382	)
Stockholders’ equity		14,406			24,985
Total liabilities and stockholders’ equity	$	54,728		$	60,100


	September 30, 2023		December 31, 2022

Accrued compensation and benefits	$	3,076	$	3,970
Accrued clinical costs		1,828		1,966
Accrued contract research and manufacturing costs		2,182		861
Others		1,453		1,099
Total	$	8,539	$	7,896


Three months ended December 31, 2023	$	2,143
2024		8,571
2025		8,429
Total minimum payments		19,143
Less unamortized debt discount and accrued final payment		(443	)
Carrying value of term loan, net		18,700


		Page

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	35

	Condensed Balance Sheets asof September 30, ~~2017~~2023 and December 31, ~~2016~~2022	35

	Condensed Statements of Operations and Comprehensive ~~Income (Loss)~~ Loss for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022	46

	Condensed Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022	7

	Condensed Statements of Cash Flows for the nine months ended September 30, ~~2017~~2023 and ~~2016~~2022	58

	Notes to Condensed Financial Statements	69

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1724

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2931

Item 4.	Controls and Procedures	3031

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3132

Item 1A.	Risk Factors	3132

Item 2.5.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Other Information	5439

Item 3.6.	~~Defaults Upon Senior Securities~~Exhibits	5440

~~Item 4.~~	~~Mine Safety Disclosures~~	54

~~Item 5.~~	~~Other Information~~	54

~~Item 6.~~	~~Exhibits~~	54

Signatures		5641

	September 30, 2017			December 31, 2016
	(unaudited)			(Note 1)
A S S E T S
Current assets:
Cash and cash equivalents	$	35,287		$	5,404
Short-term investments		6,379			19,600
Accounts receivable (net of allowances of $94 at September 30, 2017 and $73 at December 31, 2016)		2,180			1,154
Inventories, net		3,155			3,782
Prepaid expenses and other current assets		2,877			2,486
Total current assets		49,878			32,426
Property and equipment (net of accumulated depreciation of $21,709 and $21,376 at September 30, 2017 and December 31, 2016, respectively)		1,045			1,297
Goodwill		6,399			6,399
Long-term restricted investments		150			150
Other long-term assets		282			236
Total assets	$	57,754		$	40,508
L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y
Current liabilities:
Accounts payable	$	2,058		$	2,086
Accrued liabilities		5,718			5,060
Contract research liabilities		728			783
Deferred revenue, current portion		16,002			968
Term loan, current portion, net		5,276			19,853
Total current liabilities		29,782			28,750
Deferred revenue, non-current portion		1,140			1,879
Term loan, non-current portion, net		14,623			—
Other long-term liabilities		2,170			1,541
Commitments and contingencies
Stockholders’ equity:
Common stock		15			14
Additional paid-in capital		462,031			448,404
Accumulated other comprehensive loss		—			(3	)
Accumulated deficit		(452,007	)		(440,077	)
Stockholders’ equity		10,039			8,338
Total liabilities and stockholders’ equity	$	57,754		$	40,508

	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Collaborative research and development and other revenue	$	5,602		$	352		$	7,304		$	1,142
Product revenue, net		2,644			3,391			9,828			9,366
Revenue from sale of intellectual property rights		12,500			—			12,500			—
Total revenues		20,746			3,743			29,632			10,508
Operating expenses:
Cost of product revenues		3,105			2,180			5,572			4,335
Research and development		8,378			6,805			25,005			21,282
Selling, general and administrative		3,138			3,043			9,862			8,993
Total operating expenses		14,621			12,028			40,439			34,610
Income (Loss) from operations		6,125			(8,285	)		(10,807	)		(24,102	)
Other income (expense):
Interest and other income		605			45			680			112
Interest expense		(619	)		(592	)		(1,803	)		(1,708	)
Net other expense		(14	)		(547	)		(1,123	)		(1,596	)
Net income (loss)	$	6,111		$	(8,832	)	$	(11,930	)	$	(25,698	)
Net change in unrealized gain (loss) on available-for-sale securities, net of reclassification adjustments and taxes		3			(4	)		3			20
Total comprehensive income (loss)	$	6,114		$	(8,836	)	$	(11,927	)	$	(25,678	)
Net income (loss) per share
Basic	$	0.04		$	(0.06	)	$	(0.08	)	$	(0.20	)
Diluted	$	0.04		$	(0.06	)	$	(0.08	)	$	(0.20	)
Weighted-average shares used in computing net income (loss) per share
Basic		147,213			137,933			143,873			130,990
Diluted		151,885			137,933			143,873			130,990

	September 30, 2017
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Money market funds	$	534	$	—	$	—	$	534
Certificates of deposit		150		—		—		150
Commercial paper		39,513		—		—		39,513
U.S. Government agencies		1,000		—		—		1,000
	$	41,197	$	—	$	—	$	41,197
Reported as:
Cash and cash equivalents	$	34,668	$	—	$	—	$	34,668
Short-term investments		6,379		—		—		6,379
Long-term restricted investments		150		—		—		150
	$	41,197	$	—	$	—	$	41,197

	December 31, 2016
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	693	$	—	$	—		$	693
Certificates of deposit		150		—		—			150
Commercial paper		4,947		—		—			4,947
Corporate debt		2,644		—		(1	)		2,643
U.S. Government agencies		14,461		1		(3	)		14,459
	$	22,895	$	1	$	(4	)	$	22,892
Reported as:
Cash and cash equivalents	$	3,142	$	—	$	—		$	3,142
Short-term investments		19,603		1		(4	)		19,600
Long-term restricted investments		150		—		—			150
	$	22,895	$	1	$	(4	)	$	22,892


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at December 31, 2022		22,785	$	23	$	586,357	$	(13	)	$	(561,382	)	$	24,985
Issuance of common stock in the February 2023 registered direct offering		1,700		—		—		—			—			—
Stock-based compensation expense from stock options and ESPP shares		—		—		2,338		—			—			2,338
Net loss		—		—		—		—			(11,987	)		(11,987	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—		6			—			6
Balance at March 31, 2023		24,485	$	23	$	588,695	$	(7	)	$	(573,369	)	$	15,342
Issuance of common stock pursuant to the 2021 Sales Agreement, net of issuance costs of $13		118		—		658		—			—			658
Issuance of common stock upon exercise of stock options and from the ESPP		6		—		23		—			—			23
Stock-based compensation expense from stock options and ESPP shares		—		—		657		—			—			657
Net loss		—		—		—		—			(11,181	)		(11,181	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes								1			—			1
Balance at June 30, 2023		24,609	$	23	$	590,033	$	(6	)	$	(584,550	)	$	5,500
Issuance of common stock in the July 2023 registered direct offering, net of issuance costs of $673		2,991		—		8,540		—			—			8,540
Issuance of common stock upon warrant exercises		924		—		2,726								2,726
Stock-based compensation expense from stock options and ESPP shares		—		—		661		—			—			661
Net loss		—		—		—		—			(3,015	)		(3,015	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—		(6	)		—			(6	)
Balance at September 30, 2023		28,524	$	23	$	601,960	$	(12	)	$	(587,565	)	$	14,406

Balance at December 31, 2021		22,768	$	23	$	583,818	$	(10	)	$	(526,049	)	$	57,782
Issuance of common stock upon exercise of stock options		1		—		8		—			—			8
Stock-based compensation expense from stock options and ESPP shares		—		—		678		—			—			678
Net loss		—		—		—		—			(10,842	)		(10,842	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—		(19	)		—			(19	)
Balance at March 31, 2022		22,769	$	23	$	584,504	$	(29	)	$	(536,891	)	$	47,607
Issuance of common stock upon exercise of stock options		7		—		27		—			—			27
Stock-based compensation expense from stock options and ESPP shares		—		—		617		—			—			617
Net loss		—		—		—		—			(11,551	)		(11,551	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes								4			—			4
Balance at June 30, 2022		22,776	$	23	$	585,148	$	(25	)	$	(548,442	)	$	36,704
Issuance of common stock upon equity financings, net of issuance costs of $506		3		—		25		—			—			25
Stock-based compensation expense from stock options and ESPP shares						579								579
Net loss		—		—		—		—			(2,471	)		(2,471	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—		17			—			17
Balance at September 30, 2022		22,779	$	23	$	585,752	$	(8	)	$	(550,913	)	$	34,854


Location	Approximate Square Feet	Operation	Expiration
Cupertino, CA	30,149 sq. ft.	Office, Laboratory and Manufacturing	Lease expires 2027 (with an option to renew for an additional five years)

Cupertino, CA	20,100 sq. ft.	Office and Laboratory	Lease expires 2024
Vacaville, CA	24,634 sq. ft.	Manufacturing	Lease expires 2028 (with an option to renew for an additional five years)


	Operating Leases
Three months ended December 31, 2023	$	496
2024		1,483
2025		1,401
2026		1,443
2027 and thereafter		659
	$	5,482


Name and Title	Date Adopted	Character of Trading Arrangement(1)	Aggregate Number of Shares of Common Stock to be Purchased or Sold Pursuant to Trading Arrangement	Duration	Other Material Terms	Date Terminated
James E. Brown President, Chief Executive Officer and Director	June 14, 2023	Rule 10b5-1 Trading Arrangement	Up to 80,000 shares to be Sold(2)	15 months	N/A	August 14, 2023(3)