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,~~August 3, 2022, there were ~~148,546,131~~227,764,019 shares of the registrant’s ~~Common Stock~~common stock outstanding.

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 Quarterly Report on Form 10-Q, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “could,” “potentially” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations and beliefs. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors.Forward-looking statements made in this report include, but are not limited to, statements 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.

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

	June 30, 2022			December 31, 2021

A S S E T S
Current assets:
Cash and cash equivalents	$	47,135		$	49,844
Short-term investments		6,977			19,966
Accounts receivable, net		1,204			6,477
Inventories, net		2,133			1,870
Prepaid expenses and other current assets		3,006			3,580
Total current assets		60,455			81,737
Property and equipment, net		222			227
Operating lease right-of-use assets		2,722			3,446
Goodwill		6,169			6,169
Long-term restricted investments		150			150
Other long-term assets		261			261
Total assets	$	69,979		$	91,990
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	$	3,230		$	1,311
Accrued liabilities		4,537			6,799
Deferred revenue, current portion		—			98
Term loan, current portion, net		950			—
Operating lease liabilities, current portion		1,876			1,848
Total current liabilities		10,593			10,056
Deferred revenue, non-current portion		812			812
Operating lease liabilities, non-current portion		1,039			1,824
Term loan, non-current portion, net		19,949			20,632
Other long-term liabilities		882			884
Commitments and contingencies
Stockholders’ equity:
Common stock		23			23
Additional paid-in capital		585,148			583,818
Accumulated other comprehensive loss		(25	)		(10	)
Accumulated deficit		(548,442	)		(526,049	)
Stockholders’ equity		36,704			57,782
Total liabilities and stockholders’ equity	$	69,979		$	91,990

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

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
Collaborative research and development and other revenue	$	606		$	735		$	1,101		$	1,309
Product revenue, net		1,470			1,568			2,890			3,206
Total revenues		2,076			2,303			3,991			4,515
Operating expenses:
Cost of product revenues		393			359			728			711
Research and development		8,817			7,433			17,028			15,408
Selling, general and administrative		3,952			3,168			7,687			6,699
Total operating expenses		13,162			10,960			25,443			22,818
Loss from operations		(11,086	)		(8,657	)		(21,452	)		(18,303	)
Other income (expense):
Interest and other income		127			39			181			76
Interest and other expenses		(592	)		(528	)		(1,122	)		(1,053	)
Net other expense		(465	)		(489	)		(941	)		(977	)
Net loss		(11,551	)		(9,146	)		(22,393	)		(19,280	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		4			13			(15	)		4
Total comprehensive loss	$	(11,547	)	$	(9,133	)	$	(22,408	)	$	(19,276	)
Net loss per share
Basic	$	(0.05	)	$	(0.04	)	$	(0.10	)	$	(0.09	)
Diluted	$	(0.05	)	$	(0.04	)	$	(0.10	)	$	(0.09	)

Weighted-average shares used in computing net loss per share
Basic		227,742			227,428			227,715			222,510
Diluted		227,742			227,428			227,715			222,510

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

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		loss			Deficit			Equity
Balance at December 31, 2021		227,680	$	23	$	583,818	$	(10	)	$	(526,049	)	$	57,782
Issuance of common stock upon exercise of stock options		14		—		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		227,694	$	23	$	584,504	$	(29	)	$	(536,891	)	$	47,607
Issuance of common stock upon exercise of stock options		70		—		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		227,764	$	23	$	585,148	$	(25	)	$	(548,442	)	$	36,704

Balance at December 31, 2020		203,533	$	20	$	529,884	$	(5	)	$	(489,784	)	$	40,115
Issuance of common stock upon exercise of stock options		2,502		1		3,262		—			—			3,263
Issuance of common stock upon equity financings, net of issuance costs of $269		21,315		2		47,784		—			—			47,786
Stock-based compensation expense from stock options and ESPP shares		—		—		702		—			—			702
Net loss		—		—		—		—			(10,134	)		(10,134	)
Net change in unrealized loss on available-for-sale securities, net of reclassification adjustments and taxes		—		—		—		(9	)		—			(9	)
Balance at March 31, 2021		227,350	$	23	$	581,632	$	(14	)	$	(499,918	)	$	81,723
Issuance of common stock upon equity financings		—		—		—		—			—			—
Issuance of common stock upon exercise of stock options, ESPP purchases and other		146		—		163		—			—			163
Stock-based compensation expense from stock options and ESPP shares		—		—		710		—			—			710
Net loss		—		—		—		—			(9,146	)		(9,146	)
Unrealized gain on available-for-sale securities, net of tax		—		—		—		13			—			13
Balance at June 30, 2021		227,496	$	23	$	582,505	$	(1	)	$	(509,064	)	$	73,463

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

	Six months ended June 30,
	2022			2021
Cash flows from operating activities
Net loss	$	(22,393	)	$	(19,280	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		69			60
Stock-based compensation		1,296			1,412
Amortization of debt issuance cost		238			209
Net amortization on investments		13			(77	)
Changes in operating lease liabilities		(33	)		(5	)
Changes in assets and liabilities:
Accounts receivable		5,273			124
Inventories		(264	)		(55	)
Prepaid expenses and other assets		574			353
Accounts payable		1,919			(592	)
Accrued liabilities		(2,234	)		(995	)
Deferred revenue		(98	)		5
Total adjustments		6,753			439
Net cash used in operating activities		(15,640	)		(18,841	)
Cash flows from investing activities
Purchases of property and equipment		(64	)		(20	)
Purchases of available-for-sale securities		—			(42,323	)
Proceeds from maturities of available-for-sale securities		12,961			30,468
Net proceeds from sale of LACTEL product line		—			14,979
Net cash provided by investing activities		12,897			3,104
Cash flows from financing activities
Payments on equipment financing obligations		(1	)		(1	)
Payment for long-term debt amendment fee		—			(713	)
Net proceeds from issuances of common stock		35			51,212
Net cash provided by financing activities		34			50,498
Net (decrease) increase in cash, cash equivalents, and restricted cash		(2,709	)		34,761
Cash, cash equivalents, and restricted cash, beginning of the period (1)		49,994			21,462
Cash, cash equivalents, and restricted cash, end of the period (1)	$	47,285		$	56,223

(1) Includes restricted cash of $150,000 (in long term restricted investments) included in the condensed balance sheets at June 30, 2022 and December 31, 2021.

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

DURECT Corporation (the ~~Company)~~“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~~the Company attempts to discover and develop molecules which have not previously been approved and marketed as therapeutics, and (ii) ~~Drug Delivery~~Proprietary Pharmaceutical Programs, in which ~~we apply our~~the Company applies its formulation expertise and technologies largely to active pharmaceutical ingredients whose safety and efficacy have previously been established but which ~~we aim~~the Company aims to improve in some manner through a new formulation. The Company has several ~~products~~product candidates 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~~certain excipients for ~~pharmaceutical and medical device~~certain 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 condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ~~(SEC)~~(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 conformity with U.S. generally accepted accounting principles ~~(U.S. GAAP)~~(“U.S. GAAP”). The unaudited condensed 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~~June 30, ~~2017,~~2022, the operating results and comprehensive ~~income (loss)~~loss, and stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. The balance sheet as of December 31, ~~2016~~2021 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~~2021 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~~June 30, ~~2017,~~2022, the Company had an accumulated deficit of ~~$452.0 million. Although the~~$548.4 million as well as negative cash flows from operating activities.

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~~generally 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~~In order to meet its operating cash flow requirements beyond the next 12 months from the date the financial statements are filed, management’s plans may include seeking additional collaborative agreements for certain of ~~its~~the Company’s programs, ~~and achieving milestone and other payments under its~~receiving funds from collaboration and licensing agreements as well as pursuing 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~~or that the Company will succeed in its future operations. If the Company cannot successfully raise additional capital when needed and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected.

The Company believes its existing cash, cash equivalents, and investments are sufficient to fund its operating cash flow requirements for a period greater than 12 months from the date of issuance of these financial statements.

Inventories are stated at the lower of cost or ~~market,~~net realizable value, with cost determined on a first-in, first-out basis. ~~Inventories,~~The Company capitalizes inventories produced in ~~part, include certain excipients that are sold to~~preparation for product launches after receiving regulatory approval on 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.product. The Company may be required to ~~record a reserve for certain amounts of its~~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~~If the Company is able to ~~record a liability related to minimum purchase agreements~~subsequently sell products made with raw materials that were previously written down, 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~~will report an unusually high gross profit as ~~compared to standard bupivacaine HCl. As a result, the Company wrote down certain lots of inventory which are~~there will be 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 toor little associated 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.~~materials.

The Company sells osmotic pumps used in laboratory research and manufactures certain excipients for pharmaceutical clients for use as raw materials in their products.

Revenues from ~~the sale of products is~~product sales are recognized when ~~there is persuasive evidence that an arrangement exists,~~ the ~~product is shipped and title transfers to customers, provided no continuing obligation on~~customer obtains control of the Company’s ~~part exists,~~product, which occurs at a point in time, typically upon shipment to the ~~price is fixed or determinable~~customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the ~~collectability~~expected amortization period of the ~~amounts owed~~asset that the Company would have recognized is ~~reasonably assured.~~ 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.

The Company enters into license ~~and collaboration~~ agreements, under which it ~~may receive upfront license fees, research funding and contingent milestone payments and royalties.~~licenses certain rights to its product candidates or products to third parties. The ~~Company’s deliverables under~~terms of these arrangements typically ~~consist~~include payment to the Company of ~~granting licenses to~~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 ~~rights~~ and ~~providing~~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 ~~services.~~revenues, except for revenues from royalties on net sales of licensed products, 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 ~~multiple-element~~ 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 ~~deliverable~~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 the transaction price associated with the license as revenues 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. 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 and net income (loss).

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 ~~multiple deliverable~~relative stand-alone selling price basis, for which the Company recognizes revenue ~~arrangement is~~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 ~~separate unit of accounting if both~~portion of the ~~following criteria are met: (1)~~transaction price based on the ~~delivered item or items have value~~estimated standalone selling price of the material right. If the Company is entitled to additional payments when the customer ~~on a standalone basis~~exercises these options, the deferred transaction price and ~~(2) for an arrangement that includes a general right of return relative to~~any additional payments are recorded in collaborative research and development revenue when the ~~delivered item(s), delivery or performance~~customer obtains control of the ~~undelivered item(s)~~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 ~~considered probable and substantially in~~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 ~~control. The accounting standards contain a presumption that separate contracts entered into at~~collaborative arrangements 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 ofmaterial earn-out revenues from 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.Company’s patent purchase agreements.

Research and development ~~revenue related~~services: Revenue from research and development services that are determined to ~~services performed under the collaborative arrangements~~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. These~~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 ~~payments received under each respective agreement are not refundable~~ and ~~are generally based on reimbursement of qualified expenses, as defined in the agreements.~~development revenues and net income (loss). 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~~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 ~~collaborative arrangements~~these arrangements. Amounts are ~~triggered either~~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 ~~results~~customer and the transfer of the ~~Company’s~~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 six months ended June 30, 2022 and 2021 are as follows (in thousands):

The Company incurs significant costs associated with third party consultants and organizations for pre-clinical studies, clinical trials, contract research and manufacturing, validation, testing, 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 of project status. If these good faith estimates are inaccurate, actual expenses incurred could materially differ from these estimates.

Research and development expenses are primarily comprised of salaries and benefits associated with research and development ~~efforts or~~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 ~~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~~partners are recorded as collaborative research and 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., notrevenue.

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)~~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 Operations and Comprehensive Loss.

Basic net ~~income (loss)~~loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding. Diluted net ~~income (loss)~~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)~~loss per share were as ~~follows:~~follows (in thousands except per share amounts):

	Three months ended September 30,					Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2017		2016			2017			2016			2022			2021			2022			2021
Numerators:
Net income (loss)		6,111		(8,832	)		(11,930	)		(25,698	)
Net loss												$	(11,551	)	$	(9,146	)	$	(22,393	)	$	(19,280	)
Denominator:
Weighted average shares used to compute basic net income (loss) per share		147,213		137,933			143,873			130,990
Weighted average shares used to compute basic net loss per share													227,742			227,428			227,715			222,510
Dilutive common shares from stock options and ESPP		4,672		-			-			-			0			0			0			0
Weighted average shares used to compute diluted net income (loss) per share		151,885		137,933			143,873			130,990
Net income (loss) per share:
Weighted average shares used to compute diluted net loss per share													227,742			227,428			227,715			222,510
Net loss per share:
Basic	$	0.04	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.05	)	$	(0.04	)	$	(0.10	)	$	(0.09	)
Diluted	$	0.04	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.05	)	$	(0.04	)	$	(0.10	)	$	(0.09	)

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 16.927.9 million and ~~18.8~~26.2 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, respectively, as the effect would be antidilutive. Options to purchase approximately 8.1 million and 7.9 million shares of common stock were excluded from the denominator in the calculation of diluted net loss per share for the three and six months ended June 30, 2021, respectively, as the effect would be anti-dilutive.

In ~~May 2014,~~June 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued Accounting Standards Update ~~2014-09, Revenue from Contracts with Customers~~No. 2016-13 (ASU ~~2014-09), which amends the guidance in former ASC 605, Revenue Recognition. The core principle~~2016-13) “Financial Instruments - Credit Losses: Measurement of ~~the guidance~~Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. This standard 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~~fiscal years beginning after December 15, 2022 for ~~analysis~~small reporting companies, including interim reporting periods within those years 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 tomust 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 withadopted using a modified retrospective approach, ~~and requires application of the new standard at the beginning of the earliest comparative period presented.~~with certain exceptions. Early adoption is permitted. The Company ~~is currently evaluating~~does not expect the ~~impact that ASU 2016-02 will~~adoption of this standard to have a material effect on its financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of the cessation of London Interbank Offered Rate (LIBOR), the amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this ASU are elective and are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this standard did not have a material effect on the Company’s financial statements.

The collaborative research and development and other revenues associated with the Company’s ~~major third-party~~ collaborators ~~are as follows (in thousands):~~or counterparties were $606,000 and $1.1 million for the three and six months ended June 30, 2022,

compared with $735,000 and $1.3 million for the corresponding periods in 2021, respectively. These amounts include: (a) amounts related to earn-out revenue from Indivior UK Limited (Indivior) with respect to PERSERIS net sales; (b) feasibility programs; (c) research and development activities funded by Santen Pharmaceutical Co. Ltd. (“Santen”); and (d) royalty revenue from Orient Pharma with respect to Methydur net sales. Since 2018, the parties from time to time have been working together on a limited set of research and development activities funded by Santen.

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Collaborator

Sandoz AG (Sandoz) (1)

$
3,846

$
-

$
4,615

$
-

Zogenix, Inc. (Zogenix) (2)

750

63

835

503

Santen Pharmaceutical Co. Ltd. (Santen) (3)

85

110

234

420

Pain Therapeutics, Inc. (Pain Therapeutics)

4

153

109

163

Others

917

26

1,511

56

Total collaborative research and development and other
revenue

$
5,602

$
352

$
7,304

$
1,142

~~In May 2017,~~On December 21, 2021, the Company ~~and Sandoz AG (“Sandoz”)~~ entered into a license agreement with Innocoll Pharmaceuticals Limited (“Innocoll”).

Pursuant to the Innocoll Agreement, the Company has granted Innocoll an exclusive, royalty-bearing, sublicensable right and license to develop, manufacture and ~~market~~commercialize in the United States, POSIMIR®, the Company’s FDA-approved post-surgical pain product, with respect to all uses and applications in humans. The Innocoll Agreement provides for the assignment of the Company’s supply agreement with its contract manufacturing organization to Innocoll and also provides Innocoll with the right, within the United States, to expand the approved indications of POSIMIR. The Company retains, outside the United States, all of the global rights to POSIMIR.

Upon execution of the Innocoll Agreement, Innocoll paid the Company an initial nonrefundable, upfront fee of $4.0

million as well as a fee in the amount of $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 DURECT expenses the parties negotiated for Innocoll to reimburse. The Company will also receive $2.0 million upon the first commercial sale of POSIMIR in the United States. ~~Following expiration~~The Company is eligible to receive additional milestone payments of up to $130.0 million in the ~~applicable waiting period under~~aggregate, depending on the ~~Hart-Scott-Rodino Antitrust Improvements Act~~achievement of ~~1976~~ (~~HSR),~~certain regulatory, commercial, and intellectual property milestones with respect to POSIMIR. In addition, upon commercialization, the ~~agreement became effective in June 2017.~~Company will earn low to mid double-digit royalties from net sales of POSIMIR ~~is the Company’s investigational post-operative pain relief depot currently in Phase 3 clinical development~~ in the United ~~States that utilizes~~States.

The Innocoll Agreement includes customary representations and warranties on behalf of the ~~Company’s patented SABER~~^® ~~technology~~Company and Innocoll, including representations as to ~~deliver bupivacaine to provide up to three days~~the licensed intellectual property, regulatory matters and compliance with applicable laws. The Innocoll Agreement also provides for certain mutual indemnities for breaches of ~~pain relief after surgery.~~ representations, warranties and covenants.

The Company ~~retains commercialization~~also evaluated Innocoll’s future purchases of an excipient from the Company and concluded that these purchases are option rights, and are 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 issue purchase orders for the excipient.

During December 2021, an upfront fee of $4.0 million as well as a fee in the ~~rest~~amount of $1.2 million to cover reimbursed expenses, the ~~world. Under~~manufacturing supplies and excipients transferred to Innocoll pursuant to the 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 ratablyInnocoll Agreement was 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~~performance obligations were satisfied in December 2021 and ~~development revenue recognized by~~$0.1 million was recorded as a net reduction in equipment in December 2021. At December 31, 2021, the Company ~~for Sandoz was $3.8~~included $5.3 million ~~and $4.6 million for~~due from Innocoll in accounts receivable on its balance sheet; these funds were received in January 2022. NaN revenues were recognized under the agreement with Innocoll during the three and ~~nine~~six months ended ~~September~~June 30, 2017 respectively, compared with zero for the corresponding periods in 2016. The cumulative aggregate payments received by the Company from Sandoz as of September 30, 2017 were $20.0 million under this agreement.2022.

In September ~~26,~~ 2017, ~~the Company~~we entered into ~~a Patent Purchase Agreement (the “Agreement”)~~an agreement with Indivior ~~UK Limited (“Indivior”~~(the “Indivior Agreement”)~~. Pursuant to the Agreement, the Company has~~, 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~~the agreement with Indivior, DURECT ~~contingent upon the achievement of a regulatory milestone, as well as~~receives quarterly earn-out payments into 2026 that are based on a single digit percentage of U.S. net sales ~~for certain products covered by~~of PERSERIS. Indivior commercially launched PERSERIS in the ~~assigned patent rights, including RBP-7000.~~U.S. in February 2019. 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 agreementIndivior 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~~Amounts recognized ~~the $12.5 million as revenue from sale of intellectual property rights~~ in the three and six months ended ~~September~~June 30, ~~2017 as the Company does not~~2022 and 2021 related to earn-out revenues from PERSERIS 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~~been immaterial 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~~are included 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.other revenue.

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)~~(“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~~(NaN of which ~~has~~have been achieved as of ~~September~~June 30, ~~2017)~~2022). Santen will also pay for certain Company costs incurred in the development of the licensed product. If the product is commercialized, the Company would also

receive a tiered royalty on annual net product sales ranging from single-digit to the low double digits, determined on a country-by-country basis. ~~The Company’s~~In January 2018, the Company was notified by Santen that due to a shift in near term priorities, Santen elected to reallocate research and development ~~services are considered integral to utilizing~~resources and put the ~~licensed intellectual property and, accordingly,~~Company’s program on pause until further notice. While the ~~deliverables are accounted for as~~main program is on pause, the parties periodically have been working together on a ~~single unit~~limited set 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.~~activities funded by Santen. As of ~~September~~June 30, ~~2017,~~2022, 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, 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~~June 30, ~~2017~~2022 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 P1P2 for commercial paper.

The following is a summary of available-for-sale securities as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 (in thousands):

	September 30, 2017								June 30, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	534	$	—	$	—	$	534	$	602	$	—	$	—		$	602
Certificates of deposit		150		—		—		150		150		—		—			150
Commercial paper		39,513		—		—		39,513		49,766		—		(25	)		49,741
U.S. Government agencies		1,000		—		—		1,000
	$	41,197	$	—	$	—	$	41,197	$	50,518	$	—	$	(25	)	$	50,493
Reported as:
Cash and cash equivalents	$	34,668	$	—	$	—	$	34,668	$	43,370	$	—	$	(4	)	$	43,366
Short-term investments		6,379		—		—		6,379		6,998		—		(21	)		6,977
Long-term restricted investments		150		—		—		150		150		—		—			150
	$	41,197	$	—	$	—	$	41,197	$	50,518	$	—	$	(25	)	$	50,493

	December 31, 2016									December 31, 2021
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	693	$	—	$	—		$	693	$	2,089	$	—	$	—		$	2,089
Certificates of deposit		150		—		—			150		150		—		—			150
Commercial paper		4,947		—		—			4,947		62,505		—		(10	)		62,495
Corporate debt		2,644		—		(1	)		2,643		1,293		—		—			1,293
U.S. Government agencies		14,461		1		(3	)		14,459
	$	22,895	$	1	$	(4	)	$	22,892	$	66,037	$	—	$	(10	)	$	66,027
Reported as:
Cash and cash equivalents	$	3,142	$	—	$	—		$	3,142	$	45,913	$	—	$	(2	)	$	45,911
Short-term investments		19,603		1		(4	)		19,600		19,974		—		(8	)		19,966
Long-term restricted investments		150		—		—			150		150		—		—			150
	$	22,895	$	1	$	(4	)	$	22,892	$	66,037	$	—	$	(10	)	$	66,027

The following is a summary of the cost and estimated fair value of available-for-sale securities at ~~September~~June 30, ~~2017,~~2022, by contractual maturity (in thousands):

There were no0 securities that have had an unrealized loss for more than 12 months as of ~~September~~June 30, ~~2017.~~2022.

As of ~~September~~June 30, ~~2017,~~2022, 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.

Accrued liabilities as of June 30, 2022 and December 31, 2021 were comprised as follows (in thousands):

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~~June 30, ~~2017,~~2022, the Company has ~~three~~two stock-based compensation plans. The stock-based compensation cost that has been included in the statements of comprehensive ~~income (loss)~~loss is shown as below (in thousands):

As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016, $13,000 and $14,000~~2021, $17,000 of stock-based compensation cost was capitalized in inventory on the Company’s balance sheets ~~respectively.~~for each period.

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~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:

	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2022		2021		2022		2021
Stock Options
Risk-free rate	2.0-2.3%		1.4-1.6%		2.0-2.5%		1.3-1.9%		2.9-3.0%		1.2-1.3%		1.8-3.0%		0.8-1.3%
Expected dividend yield		—		—		—		—		0		0		0		0
Expected life of option (in years)	6.8-10.0		7.0-10.0		6.8-10.0		6.5-10.0		7.0-7.3		7.0		7.0-7.3		7.0-7.3
Volatility	75-81%		76-82%		75-82%		76-83%		85-86%		86%		83-86%		74-86%

	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~~entered into a $20.0 million secured single-draw term loan (as amended, the “Loan Agreement”) with Oxford Finance LLC ~~(Oxford Finance) with such renegotiated terms being formalized in a new Loan and Security Agreement (the “2016 Loan Agreement”~~(“Oxford Finance”). The ~~2016~~Company and Oxford Finance entered into five subsequent amendments to the Loan Agreement ~~supersedes~~in February 2018, November 2018, December 2019, March 2021 and May 2021. For amendments 1-3 and 5, the ~~2014 Loan Agreement with~~Company paid Oxford Finance loan modification fees of $100,000, $900,000, $825,000 and $712,500, respectively. As amended, the ~~2015 amendment to such agreement. The 2016~~ Loan Agreement provides for interest only payments ~~for the first 18 months,~~through June 1, 2023, followed by consecutive monthly payments of principal and interest in arrears starting on ~~March~~June 1, ~~2018~~2023 and continuing through the maturity date of the term loan of ~~August~~September 1, ~~2020.~~2025. The ~~2016~~ Loan Agreement ~~also~~ provides for a floating interest rate (7.95% initially and ~~8.54%~~8.43% as of ~~September~~June 30, ~~2017)~~2022) based on an index rate plus a ~~spread,~~spread. In addition, a ~~$150,000 facility fee that was paid at closing and an additional~~ payment equal to ~~9.25%~~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 the

Company elects to prepay the loan, there is also a prepayment fee of between 1%0.75% and 3%2.5% of the principal amount of the term loan depending on the timing of prepayment. The $150,000 facility fee that was paid at the original closing, the loan modification fees and other debt offering/issuance costs have been recorded as debt discount on the Company’s balance ~~sheet~~sheets and together with the final ~~$1.9~~$2.0 million payment are being amortized to interest expense ~~during the life of the term loan~~ using the effective interest ~~rate method.~~ method over the revised term of the loan.

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.

The fair value of the term loan approximates the carrying value. Future maturities due under the term loan as of June 30, 2022, are as follows (in thousands):

As of ~~September~~June 30, ~~2017,~~2022, the Company was in compliance with all material covenants under the Loan Agreement and ~~the Company believes that~~ there ~~have~~had 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~~change.

The Company has lease arrangements for its facilities 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,~~follows.

Under these leases, the Company ~~signed an agreement with Sandoz whereby Sandoz will~~is required to pay certain maintenance expenses in addition to monthly rent. Rent expense is recognized on a straight-line basis over the lease term for leases that have scheduled rental payment increases. The lease expense includes 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 portionamortization of the ~~term loan that is due more than 12~~right-of-assets with the associated interest component estimated by applying the effective interest method. Rent expenses under all operating leases were $478,000 and $957,000 for both the three and six months ~~after September~~ended June 30, ~~2017 has been reclassified within non-current liabilities.~~2022 and 2021, respectively.

Future ~~maturities and interest~~minimum payments under ~~the term loan as of September 30, 2017,~~these noncancelable leases are as follows (in thousands):

In August 2018, the Company filed a shelf registration statement on Form S-3 with the SEC (the “2018 Registration Statement”) (File No. 333-226518), which upon being declared effective in October 2018 allowed the Company to offer up to $175.0 million of securities from time to time in one or more public offerings, inclusive of up to $75.0 million of the Company’s common stock which the Company could have sold, subject to certain limitations, pursuant to a sales agreement dated November 3, 2015 with Cantor Fitzgerald & Co. (the “2015 Sales Agreement”).

In February 2021, the Company completed an underwritten public offering of 20,364,582 shares of its common stock at a price of $2.2386 per share pursuant to an underwriting agreement with Cantor Fitzgerald & Co., raising total gross proceeds to the Company of approximately $45.6 million before deducting estimated offering expenses payable by the Company. Total stock issuance costs related to this financing were approximately $195,000. After deducting estimated offering expenses payable by the Company, the net proceeds to the Company were approximately $45.4 million.

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, terminated the 2018 Registration Statement and 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”). The 2021 Sales Agreement replaced the 2015 Sales Agreement.

The Company did not sell any shares of its common stock in the public market pursuant to the 2018 or 2021 Registration Statements and the 2015 or 2021 Sales Agreements during the three and six months ended June 30, 2022. During the three months ended ~~September~~June 30, ~~2017,~~2021, the Company did not issue any shares pursuant to the 2018 Registration Statement and the 2015 Sales Agreement. During the six months ended June 30, 2021, the Company raised net proceeds (net of commissions) of approximately ~~$4.7~~$2.4 million from the sale of ~~2,984,660~~950,009 shares of the Company’s common stock in the open market at a weighted average price of ~~$1.64~~$2.60 per share ~~through its Controlled Equity Offering sales agreement with Cantor Fitzgerald, entered into in November~~pursuant to the October 2018 registration statement and the 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. Sales Agreement.

As of ~~October 27, 2017,~~August 3, 2022, the Company had up to ~~approximately~~

~~$20.3~~$250.0 million of ~~common stock~~the Company’s securities available for sale under the ~~Controlled Equity Offering program and approximately $67.8~~2021 Registration Statement, of which $75.0 million of the Company’s common stock are available ~~for sale under its shelf registration statement.~~pursuant to the 2021 Sales Agreement.

On August 2, 2022, the Company was issued a new patent by the US Patent Office, extending US patent coverage for POSIMIR to at least 2041. Under the Company’s agreement with Innocoll, this triggers an $8.0 million milestone payment due to the Company.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016~~2022 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, ~~2016~~2021 filed with the Securities and Exchange Commission ~~and~~(“SEC”) as well as the “Risk Factors” section included elsewhere in Part II, Item IA of this Quarterly Report on Form 10-Q. ~~This Form 10-Q contains forward-looking statements within~~References to the ~~meaning of Section 21E of the Securities Exchange Act of 1934, as amended,~~“Company,” “DURECT,” “we,” “us” and Section 27A of the Securities Act of 1933, as amended. When used in this report, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “could,” “potentially” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations and beliefs. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors.“our” refer to DURECT Corporation.

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

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.

We are a biopharmaceutical company ~~with research~~advancing novel and ~~development programs broadly falling into two categories: (i) new chemical entities~~potentially lifesaving investigational therapies derived from our Epigenetic Regulator ~~Program,~~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 to 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 28-Day study period, we ~~attempt~~are now conducting a ~300-patient, double-blind, placebo-controlled Phase 2b clinical trial called AHFIRM (trial in AH to ~~discover~~evaluate saFety and effIcacy of laRsucosterol treatMent). Through our AHFIRM trial, we are evaluating larsucosterol’s potential to reduce mortality or liver transplantation compared to a placebo with or without steroids at the investigators’ discretion. Currently we anticipate dosing the last patient in the AHFIRM trial in mid-2023. If the AHFIRM trial is successful, it may support a New Drug Application (“NDA”) filing and we may decide to develop ~~molecules~~our own commercial, sales and marketing organization. We have also investigated larsucosterol in patients with nonalcoholic steatohepatitis (“NASH”) with encouraging results in a Phase 1b clinical trial and are considering further development for this and other indications.

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, pursuant to which ~~have not previously been approved~~the Company granted to Innocoll an exclusive, royalty-bearing, sublicensable right and ~~marketed as therapeutics, and (ii) Drug Delivery Programs, in which we apply our formulation expertise and technologies largely~~license 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~~develop, manufacture and commercialize POSIMIR in the United States. Under the agreement, DURECT will earn low to mid double-digit royalties from net sales of POSIMIR and is eligible to receive up to an additional $132 million in milestone payments.

NOTE: POSIMIR^® is a trademark of Innocoll Pharmaceuticals, Ltd. in the U.S. and a trademark of DURECT Corporation outside of the U.S. SABER^®, CLOUD^™, ORADUR^™and ALZET^® are trademarks of DURECT Corporation. Other trademarks referred to belong to their respective owners. Full prescribing information for POSIMIR, including BOXED WARNING and Medication Guide can be found at www.posimir.com. Full prescribing information for PERSERIS, including BOXED WARNING and Medication Guide can be found at www.perseris.com.

As a result of the assignment of certain patent rights, DURECT also receives single digit sales-based earn-out payments from U.S. net sales of Indivior UK Limited (“Indivior”)’s PERSERIS^™(risperidone) drug for schizophrenia and single-digit royalties from net sales of Orient Pharma Co., Ltd. (“Orient Pharma”)’s Methydur Sustained Release Capsules (Methydur) for the treatment of attention deficit hyperactivity disorder (ADHD) in Taiwan. We also manufacture and sell ALZET osmotic pumps used in laboratory research and design, develop and manufacture 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, we conduct research andhave several early-stage development ~~of pharmaceutical products in collaboration~~programs with ~~third party pharmaceutical and biotechnology companies.~~

A central aspect 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~~royalties on product sales. At the same time, we have retained the rights to other programs, which are the basis of future collaborations and which over time may provide a pathway for us to develop our own commercial, sales and marketing organization.

Additional details of these programs and related strategic agreements are contained in our annual report on Form 10-K for the year ended December 31, ~~2016~~2021 and in Note 2 of the financial statements included in Item 1 above.

Epigenetic regulation influences the expression of genes through the silencing or initiation of gene activity without modifying the DNA sequence. For instance, methylation of cytosine nucleotides in promoter regions of DNA, facilitated by DNMTs, will generally result in downregulation of gene expression, while demethylation generally results in upregulation. DNA methylation/demethylation can thus regulate the expression of relevant genes, especially clusters of master genes that further modulate crucial cellular activities.

DURECT’s Epigenetic Regulator Program involves a multi-year collaborative effort with the Department of Internal Medicine at Virginia Commonwealth University ~~(VCU)~~(“VCU”), the VCU Medical Center and the McGuire VA Medical Center. The ~~discoveries from~~knowledge base supporting this program ~~are~~is a result of more than 2030 years of lipid research by Shunlin Ren, M.D., Ph.D., Professor of Internal Medicine at the VCU Medical ~~Center and~~Center. The lead compound from this program, larsucosterol, is an endogenous sulfated oxysterol, which acts as an epigenetic regulator. Under 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. Welicense with VCU, we hold the exclusive royalty-bearing worldwide right to develop and commercialize ~~DUR-928~~larsucosterol and related molecules discovered in the program.

~~During~~In March 2021, a peer-reviewed research paper proposed mechanism of action of larsucosterol was published in The Journal of Lipid Research. The publication showed that larsucosterol (referred to in the ~~course~~paper as “25HC3S”) bound to and inhibited the activities of ~~this program, a number of compounds~~DNA methyltransferases (DNMTs) 1, 3a and 3b, enzymes that add methyl groups to DNA (a process called “DNA methylation”), as well as reduced DNA hypermethylation. DNMT1 and 3a have been ~~identified~~shown to be over-expressed in the livers of patients with severe AH. As such, by inhibiting DNMT activities, larsucosterol may inhibit DNA hypermethylation, thereby modulating the expression of genes and pathways that are involved in crucial cellular activities, including those associated with cell death, stress response, and lipid biosynthesis. These modulations may ~~have therapeutic utility for various uncommon (orphan and rare) and common diseases, disorders,~~lead to improved cell survival, reduced lipid accumulation 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,lipotoxicity, minimized inflammation, and ~~cell survival.~~enhanced liver regeneration, as has been observed in various in vivo animal models and in results from our completed clinical trials in AH and NASH patients.

The biological activity of ~~DUR-928~~larsucosterol has been demonstrated in over 10a dozen different animal disease models involving three animal species. ~~Several~~Some of these ~~disease~~ models represent acute organ injuries (e.g., LPS-induced endotoxin shock, drug-induced acute oxidative stress injury, ischemic-reperfusion-induced kidney and brain injury, and some represent chronic metabolic disorders ~~of hepatic lipid accumulation~~(e.g., diabetes-NASH and ~~dysfunction (e.g., nonalcoholic fatty liver disease (NAFLD)~~NAFLD).

Our major product research and ~~nonalcoholic steatohepatitis (NASH) associated with diabetes) and several represent acute organ injuries (endotoxin shock, ischemic-reperfusion kidney injury, acute liver failure, and stroke).~~development efforts for larsucosterol are described in the following table:

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 (“PK”) and ~~toxicity~~toxicology studies conducted in mice, ~~hamsters,~~ rats, rabbits, dogs, minipigs and monkeys, ~~DUR-928~~larsucosterol has been found to be ~~orally available, locally tolerable,~~well tolerated and safe atby all ~~doses and~~ routes of administration tested to date. These ~~non-clinical~~ results ~~have supported~~support the ~~initiation~~use of ~~DUR-928 into~~larsucosterol in completed and ongoing human ~~safety/pharmacokinetics (PK)/~~safety, PK, proof-of-concept, and efficacy trials. The chronic toxicity of larsucosterol was further assessed in a 6-month oral study in rats and in a 9-month oral study in dogs. These studies support the use of larsucosterol in long duration human trials.

Acute Organ Injury Program with ~~Orally Administered DUR-928~~Injectable larsucosterol

Market Opportunity. ~~Non-alcoholic fatty~~Alcohol-associated hepatitis (also called “alcoholic hepatitis” or “AH”), an acute form of alcohol-associated liver disease, ~~(NAFLD) affects~~is associated with long-term heavy intake of alcohol and often occurs after a recent period of increased alcohol consumption. AH is typically characterized by recent onset jaundice and hepatic failure. AH was associated with approximately ~~30%~~137,000 U.S. hospitalizations in 2019 according to the available data published for the year. A retrospective analysis of ~~adults~~77 studies published between 1971 and ~~10%~~2016, which included data from a total of ~~children (about 81 million individuals)~~8,184 patients, showed the overall mortality from AH was 26% at 28 days, 29% at 90 days and 44% at 180 days. A subsequent global study published in December 2021, which included 85 tertiary centers in 11 countries across 3 continents, prospectively enrolled 2,581 AH patients with a median MELD score of 23.5, reported mortality at 28 and 90 days of 20% and 30.9% respectively.

A Model of End-Stage Liver Disease (“MELD”) score is a commonly used scoring system to assess the severity and prognosis of AH patients. There are no FDA approved therapies for AH and stopping alcohol consumption is necessary, but frequently not sufficient for recovery in many moderate and severe patients. Corticosteroids do not improve survival at 90 days or one year, and have demonstrated an increased risk of infection. In addition, fewer than 50% of AH patients are eligible for corticosteroids. According to a recent study, the healthcare costs associated with treating hospitalized AH patients and their length of hospital stay are significant.

The rate of AH patients undergoing liver transplantation has been increasing in recent years, although the total number of such transplants is still relatively small. Average charges for a liver transplant exceed $875,000, and patients require lifelong immunosuppressive therapy to prevent organ rejection.

Clinical Program. In 2019, we completed a Phase 2a clinical trial evaluating safety and PK of intravenously infused larsucosterol in patients with moderate and severe AH. This was an open label, dose escalation (30 mg, 90 mg and 150 mg), multi-center U.S. study, designed to be conducted in two sequential parts. Part A included patients with moderate AH and Part B included patients with severe AH. Severity of AH was determined by MELD scores with moderate defined as MELD 11-20 and severe as MELD 21-30.

In this Phase 2a trial, dose escalation was permitted following review of safety and PK results of the prior dose level by a Dose Escalation Committee. The target number of patients for the study was 4 per dose group. Final enrollment included 19 patients with moderate (7 of 19) and severe AH (12 of 19), who received larsucosterol intravenously at 30 mg, 90 mg, or 150 mg doses. Eight patients (four moderate and four severe) were dosed at 30mg, seven patients (three moderate and four severe) were dosed at 90mg and four patients (all severe) were dosed at 150mg. After being discharged on Day 2, one patient did not return for the scheduled Day 7 and Day 28 follow-up visits; therefore Lille, bilirubin and MELD data reported below are based on 18 patients. The objectives of this study included assessment of safety, PK and pharmacodynamic signals, including liver biochemistry, biomarkers, and prognostic scores, including the Lille score, following larsucosterol treatment.

In November 2019, the results from this Phase 2a clinical trial of larsucosterol in AH were presented as a late-breaking oral presentation at The Liver Meeting^®. The study summary results were also selected for inclusion in the ~~United States. There are many mechanisms, but one phenotype~~‘Best of ~~steatohepatitis. Non-alcoholic steatohepatitis (NASH)~~The Liver Meeting’ presentation in the alcohol-related liver disease category.

In the ~~pathological overlap between NASH and ASH. In addition to these large populations~~Phase 2a study 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~~larsucosterol in AH, larsucosterol 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-toleratedwell tolerated at all doses ~~with~~tested. There were no drug-related serious ~~drug-related~~ adverse events ~~reported~~ and only three adverse events designated as possibly or probably related to larsucosterol: one occurrence of moderate generalized pruritus, one mild rash and one grade two alkaline phosphatase elevation. There were no ~~accumulation~~discontinuations, early withdrawals or termination of study drug or study participation due to adverse events. All patients treated with larsucosterol survived through the 28-Day follow-up period. Drug exposures were dose proportional and were not affected by the severity of the disease.

In December 2020, we announced that the FDA had granted larsucosterol Fast Track Designation for the treatment of AH. The FDA grants Fast Track Designation to facilitate development and expedite the review of therapies with the potential to treat a serious condition where there is an unmet medical need. A therapeutic that receives Fast Track Designation may benefit from early and frequent communication with the agency in ~~plasma concentrations were observed~~addition to a rolling submission of the marketing application, with ~~repeat dosing. We also conducted a food effect study with 8 healthy volunteers and observed no food effect on absorption.~~the objective of getting important new therapies to patients more quickly.

~~Our~~In January 2021, we announced the dosing of the first patient ~~trial utilizing orally administered DUR-928 was an open-label, single-ascending-dose safety and PK~~in our Phase ~~1b trial~~2b study 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 Study of the Liver (EASL) in Amsterdam on April 22, 2017.

All patients and MCS tolerated DUR-928 well. One patient (with a prior history of arrhythmia and an ongoing viral infection) in 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~~severe AH (AHFIRM). AHFIRM is a randomized, double-blind, placebo-controlled, international, multi-center Phase 2b study to evaluate the safety and efficacy of ~~DUR-928,~~larsucosterol in approximately 300 patients with severe AH. The study is comprised of three arms targeting approximately 100 patients each: (1) Placebo plus supportive care, with or without methylprednisolone capsules at the investigators’ discretion; (2) larsucosterol (30 mg); and ~~there is no assurance that these biomarker effects~~(3) larsucosterol (90 mg). Patients in the larsucosterol arms receive the same supportive care without steroids. In order to maintain blinding, patients in the two active arms receive matching placebo capsules if the investigator prescribes steroids. Patients receive an intravenous (IV) dose of larsucosterol or placebo (sterile water) on Day 1 and a second identical IV dose on Day 4 if they are still hospitalized. The primary outcome measure 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~~90-Day incidence 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 ductmortality or liver ~~ultimately requiring~~transplantation for patients treated with larsucosterol compared to those treated with placebo. Secondary endpoints include the difference in 90-Day mortality between patients treated with larsucosterol compared to those treated with placebo, the difference in 28-Day mortality or liver ~~transplant. There is no approved treatment~~transplantation for ~~PSC at this time.~~patients treated with larsucosterol compared to those treated with placebo, and the difference in mortality between patients treated with larsucosterol compared to those treated with placebo. We now have ~~received orphan drug designation for DUR-928 to treat patients with PSC. We believe that data generated from this~~over 60 clinical trial ~~will be relevant to other chronic liver inflammation, fibrosis, and cholestasis conditions.~~

~~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 insites across the United States, U.K., E.U. and ~~is associated with increased mortality, prolonged hospital stays, and worsening~~Australia.

Phase 1 trials of ~~chronic kidney disease and is a major cause~~larsucosterol administered through injection have supported the development of ~~mortality~~larsucosterol in ~~acute liver injury. There are various forms of acute organ injury, affecting the liver, the kidney, or multi-organs, for which we may seek to develop DUR-928.~~

~~Clinical Program~~.AH. The initial Phase 1 trial ~~with injectable administration~~in healthy subjects 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.~~larsucosterol. The 24-subject study (16 healthy volunteers on ~~the drug~~larsucosterol and 8 on placebo) of four escalating dose levels resulted in dose ~~proportionality~~proportional systemic exposure of ~~systemic exposure. DUR-928~~larsucosterol. Larsucosterol 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,~~subjects, in which participants received ~~IM injected DUR-928~~IM-injected larsucosterol for 5five consecutive days (8 subjects on ~~the drug,~~larsucosterol, 2 on placebo) ~~with~~using the next to highest dose infrom 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~~single-ascending dose intravenous (IV) infusion ~~(IV)~~ study with 16 healthy ~~volunteers~~subjects and observed no ~~treatment related~~treatment-related serious adverse events. The systemic exposure following IV infusion was dose proportional.

A Phase 1 drug-drug interaction study conducted in healthy subjects demonstrated that neither orally administered nor intravenously injected larsucosterol at doses tested affected the safety and PK of midazolam, a drug metabolized by CYP3A4, which is one of the important enzymes associated with clinically relevant drug-drug interactions.

~~Our second~~We have also conducted a Phase 1b study with injected ~~DUR-928, also conducted in Australia, was an open-label, single-ascending-dose study~~larsucosterol in patients with impaired kidney function (stage 3 and 4 chronic kidney disease (CKD)) and matched control subjects ~~(matched~~(MCS), matched by age, body mass and gender with normal kidney ~~function).~~function. This study was ~~conducted~~a single-site, open-label, single-ascending-dose study in two successive cohorts (first a low dose of 30 mg and then a high ~~dose)~~dose of 120 mg) evaluating safety and PK of ~~single-dose~~ intramuscular injected ~~DUR-928.~~larsucosterol. The low dose cohort consisted of 6 patients with ~~chronic kidney disease~~CKD and 3 ~~matched control subjects;~~MCS; the high dose cohort consisted of 5 CKD patients ~~with chronic kidney disease~~ and 3 ~~matched control subjects.~~MCS. In this trial, ~~DUR-928~~larsucosterol was well tolerated among all subjects and the PK parameters between the kidney function impaired patients and the MCS were comparable.

Market Opportunity. Non-alcoholic fatty liver disease (NAFLD) is the most common form of chronic liver disease in both children and adults. It is estimated that NAFLD affects approximately 30% to 40% of adults and 10% of children in the United States. 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 3-5% globally. No drug is currently approved for treatment of NAFLD or NASH. In addition to these liver diseases, there are a number of orphan liver diseases for which we may seek to develop larsucosterol.

Clinical Program. In 2020, we completed a Phase 1b randomized, multi-center, and open-label clinical study in the United States to evaluate safety, PK and signals of biological activity of larsucosterol in NASH patients with stage 1-3 fibrosis. Larsucosterol (at doses of 50 mg QD, 150 mg QD and 300 mg BID) was administered orally for 28 days with 20 patients or more per dose group for a total of 65 patients in the trial. Key endpoints included safety and PK, and clinical chemistry/efficacy signals, such as liver enzymes

(ALT, AST and GGT), serum lipids (e.g., triglycerides), biomarkers (e.g., CK-18s, inflammatory cytokines), and insulin resistance (i.e., HOMA-IR), as well as liver fat content and liver stiffness by imaging (e.g., MRI-PDFF (as defined below) and FibroScan^®).

Both the 50 mg and 600 mg dose groups showed a statistically significant median reduction at Day 28 from baseline of serum alanine aminotransferase (“ALT”) levels at -16% and -17%, respectively. The 600 mg dose group also showed statistically significant median reductions at Day 28 from baseline of serum aspartate aminotransferase (“AST”) (-18%) and gamma-glutamyl transferase (“GGT”) (-8%), and the 50 mg dose group had a statistically significant reduction at Day 28 from baseline in liver stiffness as measured by Fibroscan (-10%).

Patients in the 50 mg or 150 mg dose groups also had statistically significant median reduction at Day 28 from baseline of serum triglycerides (-13% in the 50 mg group) or LDL-C (-11% in the 150 mg group). Patients with elevated baseline triglycerides (≥200 mg/dL; n=16) across all dose groups had a median reduction at Day 28 from baseline of -24% (p <0.01). Furthermore, patients in the 50 mg and 150 mg groups had 22% and 18% median reductions (not statistically significant) of HOMA-IR from baseline respectively after 4 weeks of daily oral dosing of larsucosterol. The 600 mg group did not show a change in HOMA-IR.

At Day 28, 43% of patients in all three dose groups showed ≥ 10% liver fat reduction from baseline as measured by magnetic resonance imaging - proton density fat fraction (MRI-PDFF). In this subgroup, there was a significant reduction from baseline in median liver fat content (-18%, -19%, and -23%, in the 50 mg, 150 mg and 600 mg groups respectively). The reduction of liver fat content was accompanied by a significant median reduction from baseline of serum ALT (-21%, -19%, and -32%, in the 50 mg, 150 mg and 600 mg groups respectively), as well as both CK-18, M30 and M65 in the 50 mg and 600 mg groups.

Larsucosterol was well tolerated at all three doses evaluated. There were no serious adverse events reported during the study, and no discontinuations, early withdrawals or termination of study drug or study participation due to adverse events. PK parameters after repeat dosing were comparable to those after a single dose (from a prior study), indicating no accumulation of the drug after repeat dosing. We are working with a number of disease experts to determine next steps for larsucosterol in NASH.

We have completed multiple Phase 1 trials in healthy subjects with orally administered larsucosterol. These include single-ascending-dose and multiple-ascending-dose studies as well as a food effect study. In all of these studies larsucosterol was well-tolerated at all dose levels, with no serious treatment-related adverse events reported. Dose-related increases in plasma concentrations were observed and no accumulation in plasma concentrations or food effects were observed with repeat dosing.

We also conducted a Phase 1b trial in cirrhotic and non-cirrhotic NASH patients and matched control subjects (“MCS”) (matched by age, body mass index and gender with normal liver function) utilizing orally administered larsucosterol. This was an open-label, single-ascending-dose safety and PK study conducted in Australia in two successive dose cohorts (first a low dose of 50 mg and then a high dose of 200 mg). 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 Study of the Liver (EASL) in Amsterdam in April 2017. All patients and MCS in this study tolerated larsucosterol well. One patient (with a prior history of arrhythmia and an ongoing viral infection) in the high dose cohort experienced a serious adverse event (i.e., shortness of breath), which occurred without unusual biochemical changes and resolved without intervention but was considered possibly treatment related by the physician due to its temporal association with dosing. In both low and high dose cohorts, the PK parameters were ~~comparable.~~ comparable between the NASH patients and the MCS. In addition, the systemic exposure following the low and high doses of larsucosterol was dose dependent.

While this study was not designed to assess efficacy, we observed statistically significant reductions from baseline levels of several biomarkers after both doses of larsucosterol. A single oral dose of larsucosterol significantly reduced the levels of both full-length (M65) and cleaved (M30) cytokeratin-18 (CK-18), bilirubin, hsCRP, and IL-18 in these subjects. The mean reduction 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 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 low dose cohort and 47% in the high dose cohort. The mean reduction of total bilirubin (a liver function marker) at the measured time point of greatest effect (12 hours after dosing) 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) was 8% in the low dose cohort and 13% in the high dose cohort. The mean decrease of IL-18 (an inflammatory mediator) 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.

We have ~~been working~~also conducted a Phase 1b open-label, multi-center U.S. study to evaluate the safety, tolerability, and pharmacokinetics (PK) of larsucosterol in subjects with moderate (Child-Pugh B scores, n=10) and severe (Child-Pugh C scores, n=7) hepatic function impairment (HI), and MCS (n=10) with normal hepatic function. Each subject received a single oral dose of 200 mg larsucosterol. Results from this study were presented at the International Liver Conference 2021 (EASL). Larsucosterol was safe and well-tolerated by all moderate and severe HI subjects with no adverse events and no dose-limiting toxicity reported throughout the study. As expected, clearance of larsucosterol was decreased in HI subjects compared to MCS with normal hepatic function, resulting in a 4-10-fold higher drug exposure (Cmax and AUC) in HI subjects. Additionally, a single oral dose of 200 mg of larsucosterol in subjects with HI resulted in statistically significant median reductions from baseline of the apoptosis biomarker M30 (cCK-18) at 12 hours post-dose.

Collectively, the biological signals observed in NASH and HI patients plus results from our ~~clinical advisors~~animal models and cell culture studies suggest potential therapeutic activity of larsucosterol for patients with liver diseases. However, additional studies are required to design several Phase 2 studies for various acute organ injuries. We submitted 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 onevaluate the safety and PKefficacy of ~~midazolam, a drug for detecting potential drug-drug interactions via the enzyme CYP3A4. This enzyme~~larsucosterol, and there is ~~commonly~~no assurance that these biomarker, clinical chemistry and liver imaging effects will be 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~~benefits, or that larsucosterol will demonstrate safety or efficacy in a

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

~~Market opportunity.~~ ~~Skin inflammatory disorders, such as psoriasis~~diseases in our ongoing or atopic dermatitis, affect approximately 7.5 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. future trials.

~~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 the results of a psoriasis study with DUR-928 in mice. The double blindedApproved and ~~placebo controlled~~ ~~Phase 1b trial~~ was conducted using a micro-plaque assay with intralesional injections of DUR-928. We feel 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 FDA and are incorporating FDA’s comments in our upcoming IND while we are actively working with expert advisors to finalize our study protocol for a Phase 2 proof-of-concept study with topically applied DUR-928. We expect to initiate this study in the first half of 2018.Commercial Pharmaceutical Products

~~Our post-operative pain relief depot,~~ POSIMIR (bupivacaine solution) for infiltrationuse is a novel and proprietary product that combines the strength of 660 mg of bupivacaine base with the innovative SABER® platform technology, enabling continuous sustained ~~release injectable using our SABER~~ delivery ~~system to deliver bupivacaine, an off-patent pharmaceutical agent. SABER is~~of a controlled drug delivery technology that is administered via the parenteral (i.e., injectable) route to deliver drugs that act systemically or locally. POSIMIR is designed to be administered to a surgical site at the end of surgery for post-operative pain relief and is intended to providenon-opioid local ~~analgesia for up to 3~~analgesic over three days in adults, which we believe coincides with the time period of the greatest need for post-surgical pain control in most patients. POSIMIR contains more bupivacaine than any other approved single-dose sustained-release bupivacaine product. At the end of surgery, POSIMIR is administered into the subacromial space under direct arthroscopic visualization, where it continuously releases bupivacaine for 72 hours or more.

In ~~May 2017,~~February 2021, the FDA approved POSIMIR for infiltration use in adults for administration into the subacromial space under direct arthroscopic visualization to produce post-surgical analgesia for up to 72 hours following arthroscopic subacromial decompression.

In December 2021, we ~~signed~~entered into a license agreement (the “Innocoll Agreement”) with Innocoll. Pursuant to the Innocoll Agreement, we granted to Innocoll an ~~agreement with Sandoz whereby Sandoz will have the~~ exclusive, ~~commercialization rights~~royalty-bearing, sublicensable right and license to develop, manufacture and commercialize POSIMIR in the United States. The Innocoll Agreement provides for the assignment of our supply agreement with a contract manufacturing organization to Innocoll and also provides Innocoll with the right, within the United States, to expand the approved indications of POSIMIR. We retain, outside the United States, all of the global rights to POSIMIR. Innocoll paid us an initial non-refundable, upfront fee of $4.0 million as well as a fee in the amount of $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 DURECT ~~retains~~expenses the parties negotiated for Innocoll to reimburse. In the fourth quarter of 2021, we recognized $4.1 million as collaborative research and development and other revenue, $1.1 million as product revenue, and a reduction of $0.1 million in net equipment. At December 31, 2021, we included $5.3 million due from Innocoll in accounts receivable on our balance sheet; these funds were received in January 2022. On August 2, 2022, we were issued a new patent by the US Patent Office, extending US patent coverage for POSIMIR to at least 2041. Under our agreement with Innocoll, this triggers an $8.0 million milestone payment due to us. We will also receive $2.0 million upon the first commercial sale of POSIMIR in the United States. We are eligible to receive additional milestone payments of up to $130.0 million in the aggregate (including the $8.0 million patent milestone payment), depending on the achievement of certain regulatory, commercial, and intellectual property milestones with respect to POSIMIR. In addition, upon commercialization, we will receive tiered low to mid-double-digit royalty payments of net sales of

POSIMIR in the United States.Pursuant to the terms of the Innocoll Agreement, except as otherwise expressly provided in the Innocoll Agreement, Innocoll is responsible for expenses relating to the manufacturing, development and commercialization ~~rights to~~of 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 on the FDA’s findings of safety 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 with the FDA, we conducted a new POSIMIR Phase 3 clinical trial (the PERSIST trial) consisting of patients undergoing laparoscopic cholecystectomy (gallbladder removal) surgery to further evaluate the benefits and risks of POSIMIR.United States. 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 initiallybelieve Innocoll is currently 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 enrollmentfinal stages 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.commercial launch preparation.

In September 2017, we entered into an agreement with Indivior, 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~~the agreement with Indivior, DURECT ~~contingent upon FDA approval of RBP-7000, as well as~~receives 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. In October 2017,~~of PERSERIS into 2026. Indivior ~~disclosed that it submitted a New Drug Application (NDA) to~~commercially launched PERSERIS in the U.S. Food and Drug Administration on September 28, 2017 to seek marketing approval for RBP-7000. Indivior has stated that this NDA submission includes the results from a pivotal Phase 3 study assessing the efficacy and safety of RBP-7000 and an open-label, long-terms safety study. Indivior noted that in the pivotal randomized, double-blind, placebo-controlled study, RBP-7000 demonstrated statistically significant clinical improvement compared to placebo based on changes in mean Positive and Negative Syndrome Scale (PANSS) total and Clinical Global Impression-Severity of Illness (CGI-S) scores at 8 weeks.

In December 2002, we entered into an agreement with Pain Therapeutics, amended in December 2005, under which we granted Pain Therapeutics the exclusive, worldwide right to develop and commercialize selected long-acting oral opioid products using our ORADUR technology incorporating four specified opioid drugs. REMOXY ER, a novel long-acting oral formulation of the opioid oxycodone targeted to decrease the potential for oxycodone abuse, was developed under this agreement. Even where abuse deterrent properties exist, opioid drugs such as oxycodone still expose users to the risks of addiction, abuse and misuse. REMOXY ER is intended for patients who have pain serious enough to require daily, around-the-clock opioid treatment and for which alternative treatment options are inadequate. In November 2005, Pain Therapeutics and King Pharmaceuticals (King) entered into collaboration and license agreements for the development and commercialization of REMOXY ER by King. In February 2011, Pfizer acquired King and thereby assumed the rights and obligations of King with respect to REMOXY ER and to the other ORADUR-based opioids. Pfizer subsequently relinquished their rights to Pain Therapeutics.

Pain Therapeutics submitted an NDA for REMOXY ER to the FDA in June 2008, and in November 2008 the FDA accepted the NDA and granted priority review. In December 2008, Pain Therapeutics received a Complete Response Letter for its NDA for REMOXY ER in which the FDA determined that the NDA was not approved. According to Pain Therapeutics, the FDA indicated that additional non-clinical data would be required to support the approval of REMOXY ER, but the FDA had not requested or recommended additional clinical efficacy studies prior to approval. King resubmitted the NDA in December 2010. In June 2011, a Complete Response Letter from the FDA was received by Pfizer. The FDA’s June 2011 Complete Response Letter raised concerns related to, among other matters, the Chemistry, Manufacturing, and Controls section 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 a 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 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 in the first quarter of 2018.~~ 2019.

We ~~are developing~~developed a proprietary drug ~~candidates (ORADUR-ADHD) based on DURECT’s ORADUR Technology~~product for the treatment of ~~ADHD. These drug candidates are intended to provide once-a-day dosing, or immediate release dosing,~~ADHD called Methydur in ~~each case with added tamper-resistant characteristics to address common methods of abuse and misuse of these types of drugs.~~

~~In August 2009, we entered into a development and license agreement~~collaboration 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.~~Taiwan. We ~~retain~~have licensed worldwide Methydur rights to ~~North America, Europe, Japan~~OP and ~~all~~they launched Methydur commercially in Taiwan in September 2020. OP may seek commercialization partners in other countries ~~not specifically licensed~~throughout the world, including China and the U.S. We receive a single digit royalty on sales of Methydur by OP or its commercialization partners as well as potential milestones and sub-license fees.

Our drug delivery technologies are designed to ~~Orient Pharma.~~deliver the right drug to the right place, in the right amount and at the right time to treat a variety of chronic, acute and episodic diseases and conditions. We aim to improve therapy for a given disease or patient population by controlling the rate and duration of drug administration. In ~~2013, we and Orient Pharma selected a lead formulation based on~~addition, if advantageous for the therapy, our technologies can target the delivery of the drug to its ~~potential~~intended site of action.

Our technologies are suitable for ~~rapid onset of action, long duration for once-a-day dosing and target pharmacokinetic profile as demonstrated~~providing long-term drug therapy because they can often store highly concentrated, stabilized drugs in a ~~Phase 1 trial. In addition, this product candidate is expected to utilize a~~ small ~~capsule size relative to~~volume and protect the ~~leading existing long-acting products on~~drug from degradation by 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 potentiallybody. This, in combination with ~~Zogenix’s DosePro~~^® ~~needle-free, subcutaneous~~the ability to continuously deliver desired doses of a drug, delivery system. Risperidone is one of the most widely prescribed medications used to treat the symptoms of schizophrenia and bipolar I disorder in adults and teenagers 13 years of age and older. Under the agreement, we granted Zogenix worldwide development and commercialization rights to Relday.

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 incan extend the therapeutic ~~range were achieved on~~value of a wide variety of drugs, including, in some cases, those which would otherwise be ineffective, too unstable, too potent or cause adverse side effects. In some cases, delivering the ~~first day~~drug directly to the intended site 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~~action can improve efficacy while minimizing unwanted side effects elsewhere in the body, which may limit the long-term use of many drugs. Our technologies may thus provide better therapy for chronic diseases or ~~suboptimal efficacy.~~ conditions, or for certain acute conditions where longer drug dosing is required or advantageous, by replacing multiple injection therapy or oral dosing, improving drug efficacy, reducing side effects and ensuring dosing compliance. Our technology may thereby improve patients’ quality of life by eliminating more repetitive treatments, reducing dependence on caregivers and allowing patients to lead more independent lives.

We ~~have active programs underway~~currently focus our drug delivery technology efforts around our SABER and CLOUD Bioerodible Injectable Depot Systems. SABER uses a high viscosity base component, such as sucrose acetate isobutyrate (SAIB), to ~~improve our~~provide controlled release of a drug. When the high viscosity SAIB is formulated with drug, biocompatible excipients and other additives, the resulting formulation is easily injectable with standard syringes and needles. After injection of a SABER formulation, the excipients diffuse away over time, leaving a viscous depot which provides controlled sustained release of drug. CLOUD is a class of bioerodible injectable ~~systems and~~depot technology which generally does not contain SAIB but includes various other release rate modifying excipients and/or bioerodible polymers to ~~apply those systems~~achieve the delivery of drugs for periods of days to ~~various drugs and drug candidates, and have entered into~~months from a ~~number~~single injection.

The SABER technology is the basis of ~~feasibility studies with biotechnology and pharmaceutical companies to test their products~~POSIMIR (described above). The SABER technology is also utilized in our ~~systems. The Relday program with Zogenix and the~~ ophthalmic program with Santen ~~are two projects which started~~Pharmaceutical Co., Ltd. (Santen), as ~~depot injectable~~well as in feasibility ~~projects and then matured into development and license agreements.~~

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.programs.

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~~revenues related to collaborative research and development by extending and expanding our current collaborations as well as 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~~June 30, ~~2017,~~2022, we had an accumulated deficit of ~~$452.0~~$548.4 million. ~~Although we had~~Our net ~~income of $6.1~~losses were $11.5 million and $22.4 million for the three and six months ended ~~September~~June 30, ~~2017, primarily as a result~~2022

compared with net losses of ~~an upfront payment of $12.5~~$9.1 million ~~from Indivior for the assignment of certain patent rights, our net loss was $11.9~~and $19.3 million for the ~~nine months ended September 30, 2017. Our net losses were $34.5 million and $22.7 million for the years ended December 31, 2016 and 2015, respectively.~~corresponding periods in 2021. 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~~increase compared to the ~~third~~second quarter of ~~2017~~2022 as we ~~experience lower~~continue to incur research and development expenses related to ~~POSIMIR.~~larsucosterol. We expect our selling, general and administrative expenses in the near future to be comparable to the ~~third~~second quarter of ~~2017. We do not anticipate meaningful revenues from our products in development, should they be approved, for at least~~2022. Over the next twelve ~~months. Therefore,~~months, we anticipate a limited increase in revenues primarily from the launch of POSIMIR by our licensee, Innocoll. However, we expect to incur continuing losses and negative cash flows from operations for the foreseeable future.

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.~~

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.2021.

Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021

We recognize revenues 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 ~~revenue~~and other revenues to fluctuate in future periods pending our efforts to enter into potential new collaborations, our existing third-party collaborators’ commitment to and progress in the ~~near future to remain comparable to the third quarter of 2017 excluding recognition of deferred~~research and development programs, and any royalty or earn-out revenue associated with upfront payments received under our collaborative agreements. 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 paymentrecognized from ~~Sandoz will be recognized in future quarters. The recognition of deferred revenue does not result in additional cash being received by us.~~collaborators or counterparties. The collaborative research and development and other revenues associated with our major collaborators or counterparties are as follows (in thousands):

A portion of our revenues is derived from product sales, which include our ALZET mini pump product line, ~~our LACTEL biodegradable polymer product line~~ and certain excipients that are included in ~~REMOXY ER~~Methydur and in ~~a currently marketed~~an animal health product. Net product revenues were ~~$2.6~~$1.5 million and ~~$9.8~~$2.9 million infor the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared ~~to $3.4~~with $1.6 million and ~~$9.4~~$3.2 million for the corresponding periods in ~~2016.~~2021. The ~~decrease~~decreases in the three and six months ended ~~September~~June 30, ~~2017 was~~2022 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, partially offset by higher 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.2021.

Cost of product revenues were ~~$3.1 million~~$393,000 and ~~$5.6 million~~$728,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared ~~to $2.2 million~~with $359,000 and ~~$4.3 million~~$711,000 for the corresponding periods in ~~2016. The increases in the cost~~2021. Cost of product ~~revenue~~revenues in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were~~2022 increased slightly primarily ~~the result~~due to higher costs of ~~charges of approximately $2.0 million~~goods 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~~certain excipients that are included in ~~REMOXY ER~~Methydur and in ~~light of the Complete Response Letter received~~

an animal health product, partially offset 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 revenue in the three months ended September 30, 2017 was primarily the result of lower ~~cost of goods~~units sold ~~related to~~from our ~~LACTEL product line and~~ ALZET product line ~~arising from lower units sold~~ compared to the corresponding ~~period~~periods 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 of product revenue 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 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. 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.2021. Stock-based compensation expense recognized related to cost of product revenues was ~~$27,000~~$5,000 and ~~$83,000~~$10,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$27,000~~$6,000 and ~~$80,000~~$11,000 for the corresponding periods in ~~2016.~~2021.

~~As of September 30, 2017, we~~We had 2210 manufacturing employees ~~compared with 20 as~~in each of ~~September~~the six months ended June 30, ~~2016.~~2022 and 2021. We expect the number of employees involved in manufacturing will remain comparable in the near future.

Research and development expenses are primarily comprised of salaries, benefits, stock-based compensation and other compensation cost 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~~$8.8 million and ~~$25.0~~$17.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$6.8~~$7.4 million and ~~$21.3~~$15.4 million for the corresponding periods in ~~2016. The increase in the three months ended September 30, 2017 was primarily attributable to~~2021. We incurred higher research and development costs associated with ~~POSIMIR, depot injectable programs and ORADUR-ADHD,~~larsucosterol, partially offset by lower research and development costs associated with ~~DUR-928, REMOXY ER,~~POSIMIR, the ~~Santen ophthalmic~~depot injectable programs, a now-terminated Gilead program ~~Relday~~ and other research programs in the three months ended June 30, 2022 compared to the corresponding period in ~~2016,~~2021, as more fully discussed below. ~~The increase in the nine months ended September 30, 2017 was primarily attributable to~~We incurred higher research and development costs associated with ~~POSIMIR~~larsucosterol and the depot injectable programs, partially offset by lower research and development costs associated with ~~Relday, REMOXY ER,~~POSIMIR, the ~~Santen ophthalmic~~Gilead program ~~DUR-928, ORADUR-ADHD~~ and other research programs in the six months ended June 30, 2022 compared to the corresponding ~~period~~periods in ~~2016~~2021, as more fully discussed below. Stock-based compensation expense recognized related to research and development personnel was ~~$374,000~~$296,000 and ~~$1.1 million~~$626,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$362,000~~$320,000 and ~~$1.1 million~~$635,000 for the corresponding periods in ~~2016.~~2021. As of ~~September~~June 30, ~~2017,~~2022, we had 5043 research and development employees compared with 5245 as of ~~September~~June 30, ~~2016.~~2021. We expect ~~our~~ research and development expenses in the near future to ~~decrease~~increase compared to the ~~third~~second quarter of ~~2017~~2022 as we ~~experience lower~~expect to incur higher research and development expenses ~~related to POSIMIR.~~

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

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

POSIMIR

$
4,297

$
2,175

$
12,875

$
8,036

DUR-928

3,153

3,873

9,755

10,038

Depot injectable programs

760

299

1,704

1,085

REMOXY ER (1)

5

179

101

479

ORADUR-ADHD

48

13

85

155

Santen ophthalmic program (1)

32

62

81

321

Relday (1)

3

13

34

452

Others

80

191

370

716

Total research and development expenses

$
8,378

$
6,805
��

$
25,005

$
21,282

Our research and development expenses for ~~POSIMIR~~larsucosterol were ~~$4.3~~$8.1 million and ~~$12.9~~$15.4 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$2.2~~$6.0 million and ~~$8.0~~$11.5 million for the corresponding periods in ~~2016.~~2021. The increases in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were primarily due to higher clinical trial related expenses and ~~other outside expenses~~higher employee-related costs 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 tolarsucosterol, partially offset by lower contract manufacturing expenses ~~and lower clinical trial expenses incurred~~ for this drug candidate compared with the corresponding ~~period~~periods in ~~2016. The decrease~~2021.

We continue to assess the impact of the COVID-19 outbreak on our business, including our larsucosterol Phase 2b trial in ~~the nine months ended September 30, 2017 was primarily due~~alcohol-associated hepatitis; COVID-19 may affect our ability to ~~lower contract manufacturing expenses, partially offset by higher~~initiate and/or complete recruitment and data analysis for our clinical ~~trial expenses and higher employee-related costs incurred for this drug candidate compared with the corresponding period~~trials, including larsucosterol trials, in ~~2016.~~our planned timeframe.

Our research and development expenses for depot injectable programs were ~~$760,000~~$376,000 and ~~$1.7 million~~$806,000 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$299,000~~$441,000 and ~~$1.1 million~~$703,000 for the corresponding periods in ~~2016.~~2021. The ~~increases~~decrease in the three ~~and nine~~ months ended ~~September~~June 30, ~~2017 were~~2022 was primarily due to lower outside expenses for these programs compared with the corresponding period in 2021. The increase in the six months ended June 30, 2022 was primarily due to higher employee-related costs for these programs compared with the corresponding ~~periods~~period in ~~2016.~~2021.

Our research and development expenses for ~~REMOXY ER~~POSIMIR were ~~$5,000~~$154,000 and ~~$101,000~~$490,000 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$179,000~~$785,000 and ~~$479,000~~$2.5 million for the corresponding periods in ~~2016.~~2021. The decreases in the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2022 was primarily due to lower ~~employee-related~~manufacturing supplies and lower employee related costs for ~~REMOXY ER~~this program compared with the corresponding period in 2021. The decrease in the six months ended June 30, 2022 was primarily due to lower consulting expenses and employee related costs for this program compared with the corresponding periods in ~~2016.~~2021.

~~Our research and development expenses for ORADUR-ADHD were $48,000 and $85,000 in~~It is possible that COVID-19 will adversely impact 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.timing of potential commercialization of POSIMIR which is now controlled by Innocoll.

Our research and development expenses for the ~~Santen ophthalmic~~Gilead program were ~~$32,000 and $81,000~~zero in each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$62,000~~zero and ~~$321,000~~$65,000 for the corresponding periods in ~~2016.~~2021. The ~~decreases~~decrease in the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 were~~2022 was primarily due to ~~decreased formulation development activities and~~ lower employee-related costs ~~associated with this drug candidate~~devoted to the program compared with the corresponding ~~periods~~period in ~~2016.~~2021. In June 2020, Gilead provided notice that it was terminating our agreements with them.

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~~$183,000 and $370,000 in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$191,000~~$252,000 and ~~$716,000~~$710,000 for the corresponding periods in ~~2016, respectively.~~2021. The decreases in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were~~2022 was 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.~~

We ~~expect~~cannot reasonably estimate the timing and costs of our research and development ~~expenses~~programs due to the risks and uncertainties associated with developing pharmaceuticals as outlined in the ~~near future to decrease compared to the third quarter~~“Risk Factors” section of ~~2017 as we experience lower research and development expenses for POSIMIR.~~this report. 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, uncertainties related to COVID-19, 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 “Risk Factors” below.

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~~$4.0 million and ~~$9.9~~$7.7 million ~~for~~in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$3.0~~$3.2 million and ~~$9.0~~$6.7 million for the corresponding periods in ~~2016.~~2021. The ~~increase in selling, general and administrative expenses~~increases in the three and six months ended ~~September~~June 30, ~~2017 was~~2022 were primarily due to higher ~~general legal~~patent expenses as well as higher consulting and employee expenses compared to the corresponding ~~period~~periods in 2016. The increase in selling, general and administrative expenses in the nine months ended September 30, 2017 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 2017.2021. Stock-based compensation expense recognized related to selling, general and administrative personnel was ~~$301,000~~$317,000 and ~~$789,000~~$660,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$227,000~~$384,000 and ~~$871,000~~$766,000 for the corresponding periods in ~~2016.~~2021.

~~As of September 30, 2017, we~~We had 2425 selling, general and administrative employees as of June 30, 2022 compared with 24 as of ~~September~~June 30, ~~2016.~~2021. We expect selling, general and administrative expenses in the near future to be comparable to the ~~third~~second quarter of ~~2017.~~2022.

Other income (expense). Interest and other income was ~~$605,000~~$127,000 and ~~$680,000~~$181,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$45,000~~$39,000 and ~~$112,000~~$76,000 for the corresponding periods in ~~2016.~~2021. The ~~increase in interest and other income was primarily the result of a gain of $500,000 from selling certain intellectual property rights~~increases in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were primarily due to higher interest rates associated with our cash and investments compared with the ~~same~~corresponding periods in 2016. This transaction was not part of our ordinary course of business and therefore was recorded as a gain from selling intellectual property rights in other income in the three and nine months ended September 30, 2017.2021.

Interest and other expense was ~~$619,000~~$592,000 and ~~$1.8~~$1.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$592,000~~$528,000 and ~~$1.7~~$1.1 million for the corresponding periods in ~~2016.~~2021. The increases ~~in interest and other expense~~ in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were primarily due to higher interest ~~expenses recorded for the~~rates on our term loan ~~refinanced in July 2016~~ compared with the ~~same period~~corresponding periods in ~~2016.~~2021.

We had cash, cash equivalents and investments totaling ~~$41.8~~$54.3 million at ~~September~~June 30, ~~2017~~2022 compared to ~~$25.2~~cash, cash equivalents, cash held in escrow and investments of $70.0 million at December 31, ~~2016.~~2021. These balances include $150,000 of interest-bearing marketable securities classified as restricted investments on our balance sheets as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021. The ~~increase~~decrease in cash, cash equivalents and investments ~~during the nine months ended September 30, 2017~~ was primarily due to ~~the receipt of the $20.0 million upfront fee from SANDOZ, the $12.5~~ ~~million upfront fee from Indivior, $10.1 million of~~ cash ~~received from the sale of our common stock~~used in ongoing operating activities and ~~from exercises of stock options and purchases under our employee stock purchase plan, and from~~interest payments, partially offset by payments received from collaboration partners and ~~customers, partially offset by ongoing operating expenses and interest payments.~~customers. At December 31, 2021, we included $5.3 million due from Innocoll in accounts receivable on our balance sheet; these funds were received in January 2022.

We ~~received $6.1~~used $15.6 million of cash ~~from~~in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$19.9~~$18.8 million ~~used~~ for the corresponding period in ~~2016.~~2021. The ~~increase in~~ cash ~~received from operating activities~~used for operations was primarily ~~due to the receipt of the $20.0 million upfront fee from SANDOZ and the $12.5 million upfront fee from Indivior, partially offset by cash used~~ 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, and accrued and other liabilities.

We ~~received $13.7~~generated $12.9 million of cash ~~from~~in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$2.2~~$3.1 million for the corresponding period in ~~2016.~~2021. The increase in cash ~~received from~~provided by investing activities was primarily due to a decrease in net purchases of available-for-sale securities partially offset by a decrease in proceeds from maturities of available-sale-securities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared towith the corresponding period in ~~2016. We anticipate incurring capital expenditures~~2021. In addition, we received $15 million of ~~approximately $100,000~~cash from sale of the LACTEL product line in ~~2017 to purchase research and development and other capital equipment.~~the six months ended June 30, 2021.

We received ~~$10.1 million~~$34,000 of cash from financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$19.5~~$50.5 million for the corresponding period in ~~2016.~~2021. The decrease in cash received from financing activities was primarily due to our election not to sell shares under our shelf registration statement as well as lower

~~net~~ proceeds ~~received~~ from ~~issuances~~the exercise of ~~common~~ stock options in the ~~nin~~esix months ended ~~September~~June 30, ~~2017~~2022 compared with the corresponding period in ~~2016.~~ ~~During~~2021. In February 2021, we completed an underwritten public offering of 20,364,582 shares of our common stock at a price of $2.2386 per share pursuant to an underwriting agreement with Cantor Fitzgerald & Co., raising total gross proceeds of approximately $45.6 million before deducting estimated offering expenses. Total

stock issuance costs related to this financing were approximately $195,000, resulting in net proceeds of approximately $45.4 million. In the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we also raised net proceeds (net of ~~commission)~~commissions) of approximately ~~$9.6~~$2.4 million from the sale of ~~6.6 million~~950,009 shares of our common stock in the open market at a weighted average price of ~~$1.49~~$2.60 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~~the October 2018 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.~~

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.2015 Sales Agreement.

We anticipate that cash used in operating activities in the near future will increase compared to the ~~three months ended September~~second quarter of 2022 as we experience higher research and development expenses related to larsucosterol.

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, ~~2017 due~~2021 with Cantor Fitzgerald (the “2021 Sales Agreement”). The 2021 Sales Agreement replaced a prior 2015 Sales Agreement.

As of August 3, 2022, we had up to $250.0 million of our securities available for sale under the 2021 Registration Statement, of which $75.0 million of our common stock are available pursuant to the ~~fact that we received a $12.5 million upfront fee from Indivior~~2021 Sales Agreement.

Any material sales in the ~~third quarter~~public market of ~~2017.~~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.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, there ~~have been~~were no significant changes in our commercial commitments and contractual obligations as ~~disclosed~~compared with the information presented in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

The COVID-19 pandemic is continuing to impact our business in several ways. COVID-19 has had a negative impact on orders for our ALZET product line as many ALZET customers reduced their activities during the pandemic. For larsucosterol, we may continue to experience delays in patient enrollment in the Phase 2b AHFIRM clinical trial or disruptions in supplies of larsucosterol or other items required for clinical trials. Delays and potential disruptions would increase the overall costs of development of larsucosterol. We are actively monitoring the impact of COVID-19 and the possible effects on our financial condition, liquidity, operations, clinical trials, suppliers, industry and workforce. However, the full extent, consequences, and duration of COVID-19 and the resulting impact on the Company cannot currently be predicted. We will continue to evaluate the impact that these events could have on our operations, financial position, and the results of operations and cash flows. Additional volatility in capital markets and/or clinical trial delays resulting from the impacts of COVID-19 may also limit our ability to raise capital on acceptable terms, if at all.

We believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations, existing debt and contractual commitments and planned capital expenditures through at least the next 12 ~~months.~~months from June 30, 2022. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. ~~Additionally, we do not expect to generate significant revenues from our pharmaceutical products currently under development for at least~~Over the next twelve months, ~~if at all.~~ we anticipate a limited increase in revenues primarily from the launch of POSIMIR by Innocoll. However, we expect to incur continuing losses and negative cash flows from operations for the foreseeable future.

Depending on whether we enter into additional collaborative agreements in the near term and the extent to which we earn ~~milestone~~ revenues from our collaborative agreements, we may ~~be required~~decide to raise additional capital through a variety of sources in the short-term and in the long-term, including:

There can be no assurance that we will enter into additional collaborative agreements or maintain existing collaborative agreements in the near term, will earn ~~milestone~~collaborative revenues or that additional capital will be available on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus 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).

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 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.

We are experiencing certain operational and other challenges as a result of COVID-19, which could delay or halt our research and development programs or clinical programs. See Item 1A - Risk Factors for further discussion of the current and expected impact on our business and programs.

Our corporate website address is www.durect.com. We use the investor relations page of ~~September 30, 2017, we did~~our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and corporate governance practices. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The SEC's website, www.sec.gov, contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Quarterly Report on Form 10-Q is not ~~have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).~~incorporated by reference in this Form 10-Q unless expressly noted. Further, the Company’s references to website URLs are intended to be inactive textual references only.

~~During the nine months ended September~~As of June 30, ~~2017, there have been no significant~~2022, our exposure to market risk has not changed materially since December 31, 2021. For more information on financial market risks related to changes in ~~market risks as disclosed~~interest rates, reference is made to Item 7A. Quantitative and Qualitative Disclosures About Market Risk contained in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2021, filed with the SEC on March 8, 2022.

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 13a-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 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 materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the other information in this Quarterly Report on Form 10-Q, a number of factors may affect our business and prospects. These factors include but are not limited to the following, which you should consider carefully in evaluating our business and prospects. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects may be materially and adversely affected.

Those risk factors below denoted with a “*” are newly added or have been materially updated from our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 8, 2022.

~~New chemical entities derived from~~We are dependent on the success of larsucosterol and the path to regulatory approval 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 1b clinical trial in NASH and a Phase 2a clinical trial in AH, and is currently enrolling patients for a Phase 2b clinical trial (AHFIRM) in patients with severe AH. In AH and NASH, there are no currently approved drugs. Ongoing and future clinical trials will need to establish clinically and statistically significant proof of efficacy, and sufficient evidence of safety to support filing for regulatory approval and/or additional clinical trials and ultimately regulatory approval. Larsucosterol will require additional development, including completion of ongoing clinical trials and potentially additional clinical trials as well as potentially further preclinical studies, and other non-clinical parameters, to obtain regulatory clearances before it can be commercialized. We will have to interact with the FDA and other regulatory agencies regarding important aspects of the clinical development 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. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory clearances or approvals will be obtained. Changes to any of these aspects of our ~~Epigenetic Regulator Program, which is~~clinical trial design could result in the ~~early stages~~requirement for additional trials or delay development and approval of larsucosterol. Our drug development efforts may not lead to commercial drugs, for several reasons such as if larsucosterol fails to be shown to be safe and effective or if we do not have adequate financial or other resources to advance larsucosterol through clinical development and the approval processes. We consider larsucosterol to be our lead and most important asset. If larsucosterol fails to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of larsucosterol, which would materially harm our business. Even if the Phase 2b AHFIRM trial successfully demonstrates a reduction in mortality or liver transplantation over placebo plus standard of care, (1) additional clinical trial(s) may ~~require more~~be required to support an NDA filing and ultimately to support approval by FDA and/or other regulatory bodies; and (2) accelerated regulatory pathways (such as an FDA priority review designation) may not be available.

We do not anticipate that larsucosterol will be eligible to receive regulatory approval from the FDA or comparable foreign authorities and begin commercialization for 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. We also may need to revise our clinical development plans after trials have commenced or have been completed, which could add to the time and ~~resources~~expense associated with the clinical development of larsucosterol. If we are unable to reach an agreement with the FDA or other regulatory agencies regarding clinical development plans for larsucosterol, we may curtail or limit our development ~~testing and~~activities for this product candidate. Even if we ultimately receive regulatory approval ~~than~~for larsucosterol, we or our ~~Drug Delivery Program product candidates, and~~potential future partners, if any, may ~~not result in viable~~be unable to commercialize it successfully for a

variety of reasons. These include, for example, the availability of alternative, potentially superior or less expensive treatments, lack of cost-effectiveness, the lack of favorable access and/or commercial ~~products~~

~~Our Epigenetic Regulator Program is in~~pricing, the ~~early stages~~cost or technical challenges of development, involves a novel therapeutic approach and new chemical entities, requires significant further research and development and regulatory approvals and is subject to the risks of failure inherent 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,manufacturing the product ~~candidates from our Epigenetic Regulator Program~~on a commercial scale and competition with other treatments. The success of larsucosterol may ~~face greater risk~~also be limited by the prevalence and severity of ~~unanticipated safety issues or other side-effects, or may not demonstrate efficacy. Further, the~~any adverse side effects, including mortality. If we fail to obtain regulatory ~~pathway for our new chemical entities may be more demanding than that for product candidates under our Drug Delivery Programs, for which~~approval and successfully commercialize larsucosterol, we may be ~~able~~unable to ~~leverage existing~~raise sufficient capital or generate sufficient revenues to attain or maintain profitability, and our financial condition and stock price may decline.

The FDA’s Fast Track Designation of larsucosterol may not lead to a faster development or regulatory review or approval

The FDA grants Fast Track Designation to therapies that are considered capable of addressing unmet medical needs and possess the potential to treat serious or life-threatening disease conditions in order to facilitate its development and expedite the review procedure. Even though larsucosterol has received Fast Track Designation for the treatment of AH, we may not experience a faster development process, review or approval compared to conventional FDA procedures, or receive FDA approval at all, in that indication or any other. A Fast Track Designation does not change the standards for approval. The FDA may also withdraw Fast Track Designation if it believes that the designation is no longer supported by data ~~under Section 505(b)(2)~~from our clinical development program.

In addition, the statutes and regulations that define the timelines and criteria for approval of drugs and biologics are subject to change by Congress and the ~~Act to reduce development risk, time and cost.~~responsible administrative agencies. For example, wethe Prescription Drug User Fee Act (“PDUFA”) authorizes the FDA to collect fees and use them for the review of human drug applications and defines the review time targets for such applications. The current legislative authority for PDUFA expired in September 2017. New legislation will be required for the FDA to continue collecting prescription drug user fees in future fiscal years and for manufacturers to have ~~yet to define~~clarity regarding the ~~therapeutic dose or dosing regimen~~time the FDA will spend in review before granting regulatory approval. If PDUFA reauthorization is not completed, the review and approval times for ~~DUR-928, the first drug candidate in our Epigenetic Regulator Program.~~new drugs like larsucosterol could be significantly longer than currently expected, which could delay potential marketing approval and launch.

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 productsSafety data and ~~profitable market opportunities.~~

~~Early~~ indications of activity from completed Phase 1 and 2 clinical trials of ~~DUR-928~~larsucosterol may not predict ~~the results of later~~safety, activity or therapeutic efficacy in future trials

~~While~~Although Phase 1 and Phase 2 clinical trials of ~~DUR-928~~larsucosterol have shown ~~a dose dependent~~positive initial data in AH patients, including reductions in bilirubin and MELD scores from baseline and promising Lille scores, and demonstrated in NASH patients that larsucosterol may lead to the reduction offrom baseline in liver enzymes, liver stiffness and serum lipids as well as certain biomarkers, ~~after~~such initial results, indications of activity and biomarker changes as well as favorable tolerability may ultimately not be correlated with treatment or improvement in the associated disease, and there is a ~~single oral dose~~risk that larsucosterol may not demonstrate therapeutic efficacy in larger placebo-controlled trials such as AHFIRM, despite encouraging initial data and improvements in biomarker levels in smaller, early trials. The failure of larsucosterol to show efficacy in one indication may negatively affect its perceived value in other indications, and the emergence of safety signals in ongoing or future clinical trials would significantly harm our business.

The most recently completed NASH and AH trials of larsucosterol were open-label trials with no control groups. Open label trials have inherent risk of bias given that the patients and physicians know that the patients received active study drug, which can lead to placebo effects. Trials without control groups have an inherent risk in that the comparisons used to determine the study drug’s effect and side effect profile are based on comparisons with ~~NASH, these~~baseline (pre-treatment) levels (for blood chemistry and biomarker endpoints) and/or with historical controls, which may not have been conducted under similar enough conditions to make accurate comparisons and/or draw accurate conclusions from those comparisons. Additionally, larger placebo-controlled clinical 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 of ~~DUR-928~~larsucosterol to treat any indication, including AH and NASH. There can be no assurance that ~~these~~ongoing or future studies will demonstrate the safety or efficacy of ~~DUR-928~~larsucosterol in a statistically significant or clinically meaningful manner.

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

The Phase 2b AHFIRM trial of larsucosterol in patients with AH is subject to potential delays resulting from the COVID-19 pandemic as well as timing of entering contracts with clinical sites and contract research organizations (“CROs”), obtaining institutional review board approvals and delays in other activities that need to be put in place prior to clinical trial initiation at each clinical trial site. Given uncertainty of COVID-19-related impacts on clinical trial sites in the U.S., U.K., E.U. and Australia, the timing of availability of top-line data from this trial cannot be predicted with certainty. There can be no assurance that the trial will enroll as anticipated if at all, and delays in enrollment could add to the costs and expenses of this trial and harm our business. 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 ongoing trials or future clinical trials, or that any clinically relevant biological activity will be observed, or that enrollment rates will be favorable or that these additional trials will not identify safety issues. Failure of the AHFIRM trial to achieve desired results in its anticipated timeframe would negatively impact our business and ability to raise additional capital.

We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates

We may experience delays in completing our preclinical studies and initiating or completing clinical trials, and we may experience numerous unfavorable events during, or as a result of, any future clinical trials that we may conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination or clinical hold due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of ~~DUR-928~~the clinical trial operations or trial site by the FDA or other regulatory authorities, changes in clinical trial design, safety issues or adverse side effects, failure to ~~show~~demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.

Our product development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our future clinical trials will begin as planned, or whether any of our current or future clinical trials will need to be restructured or will be completed on schedule, if at all. Significant preclinical study or clinical trial delays, including those caused by the COVID-19 pandemic, also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. Any delays in our ongoing or future preclinical or clinical development programs may harm our business, financial condition and prospects significantly.

Key components of larsucosterol are provided by a limited number of suppliers, and supply shortages or loss of these suppliers could result in delays or interruptions in supply or increased costs

While we have entered into contract manufacturing agreements with multiple vendors for larsucosterol, we currently have a third-party sole supplier for GMP supplies of larsucosterol. This third party is our sole source for the drug product required for development and commercialization of this drug candidate.

There can be no assurance that we will receive sufficient quantities of larsucosterol to commence and conduct the non-clinical trials, clinical trials and CMC activities we are planning, and delays in supply could delay development of larsucosterol. In addition, certain of our third-party manufacturers and suppliers may be experiencing delays as a result of the COVID-19 pandemic or have otherwise encountered delays in providing their goods and services. As a result, we may not be able to manufacture our product candidates for our clinical trials and conduct other research and development operations and maintain current clinical and pre-clinical timelines. In addition, if additional third parties in our supply chain are adversely impacted by restrictions resulting from the pandemic, including staffing shortages, raw material shortages, production slowdowns and/or disruptions in delivery systems, our supply chain may be disrupted in other ways, further limiting our ability to manufacture our product candidates for our clinical trials and conduct our research and development operations.

We have supply agreements in place for certain components of our products and product candidates, but do not have in place long term supply agreements with respect to all of the components of any of our products or product candidates. Therefore, the supply of a particular component could be terminated without DURECT’s consent at any time without penalty to the supplier. In addition, we may not be able to procure required components or drugs from third-party suppliers at a commercially reasonable quantity, quality, cost and timing. In addition, certain of our suppliers may be experiencing delays as a result of the COVID-19 pandemic or have otherwise encountered delays in providing their services. Any interruption in the supply of single source components (including active pharmaceutical ingredients, excipients, or components like vials, stoppers, filters and the like), products or product candidates, could cause us to seek alternative sources of supply or attempt to manufacture these items internally if feasible. 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 products or 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 obtain commercial product supplies or complete development 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 and make access to capital more difficult, expensive or impossible. The COVID-19 pandemic has affected and is likely to continue to affect the manufacturing and shipment of goods globally. Many countries have imposed or are imposing certain restrictions on the movement of people and goods and may continue to lift and reimpose such restrictions as needed. Any delay in production or delivery of the components and drug substances used in our products or product candidates for any reason, including due to an extended closure of our suppliers’ plants as a result of efforts to limit the spread of COVID-19, could adversely impact our business and hinder our growth.

The COVID-19 pandemic has impacted and may adversely impact our business for the foreseeable future, including posing challenges to conducting clinical trials

The global COVID-19 pandemic has disrupted our operations and delayed our clinical trials. In particular, the COVID-19 pandemic delayed the initiation of our AHFIRM Phase 2b clinical trial to evaluate the safety and efficacy of larsucosterol in ~~Phase 2~~severe AH patients, and it has delayed and may in the future delay the pace of enrollment in this trial and other clinical trials. As a result of the COVID-19 pandemic, there have been and may continue to be longer lead times required for acquiring components and supplies used in manufacturing of larsucosterol, and there have been periods of reduced demand for our ALZET products, which are used in scientific and pre-clinical research. In addition, COVID-19 may have an adverse impact on the economies and financial markets of many countries, resulting in a severe and prolonged global economic downturn that could continue to affect demand for our ALZET product line and impact our operating results. The COVID-19 pandemic may also adversely impact our ability to raise additional capital to provide sufficient funding to continue our product development efforts, including clinical trials. COVID-19 initially had an adverse impact on the capital markets and could again, which would make it more difficult for companies such as ours to access capital. The extent to which the pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the pandemic, the impact of new variants of the virus, and the actions that may be required to contain the COVID-19 virus or ~~Phase 3~~treat its impact. As a result of the COVID-19 pandemic, we may continue to experience disruptions that could severely impact our business, preclinical studies and clinical trials including:

Delays or difficulties in the enrollment of subjects in clinical trials may increase our overall development expenses and delay clinical trial data and receipt of necessary regulatory approvals

Successful and timely completion of clinical trials will require that we enroll a sufficient number of subjects and/or patients within a reasonable period of time. Enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, our ability to recruit clinical sites and the ability of clinical sites to successfully recruit subjects to participate in clinical trials. Initiation of and enrollment in many clinical trials has been and is being adversely affected by COVID-19, which has at times caused some institutions to stop enrolling patients, has created a large number of clinical trial proposals for potential clinical trial sites to review and consider, and has caused many individuals to avoid contact with hospitals or other healthcare providers. Additionally, some of the patients in our clinical trials, including AH patients, are hospitalized and concerns about exposure to COVID-19 limit clinical trial staff’s access to patients, the frequency of interactions between patients and staff, the ability to obtain blood draws and other biological sample collection, and may limit the ability to ship samples to outside laboratories for analysis. In areas heavily impacted by COVID-19, there may be limited hospital staff available for clinical trial activities due to staff becoming infected or due to de-prioritization of clinical trial activities. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. We may not be able to initiate or continue clinical trials for larsucosterol if we are unable to sign and maintain sufficient clinical sites, locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities or if we are unable to collect and analyze biological samples required for trial endpoints. It is possible that the inclusion and exclusion criteria for patients to be enrolled in these trials or COVID-19-related issues may make the trials more difficult to conduct or may significantly extend the time required for enrollment and the cost of these trials.

We cannot predict how successful we will be at enrolling patients in our clinical trials. Enrollment is affected by many factors including:

Our inability to sign up and maintain sufficient clinical trial sites and/or enroll a sufficient number of patients for clinical trials would ~~significantly harm~~result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in these clinical trials may result in increased development costs for our ~~business.~~

~~Plans for POSIMIR are uncertain following~~drug candidates or delays in regulatory filings and approvals, which would cause the ~~failure~~value of ~~the PERSIST trial~~our company to ~~achieve its primary endpoint.~~decline and limit our ability to obtain additional financing.

The failure of the PERSIST trial for POSIMIR to achieve its primary endpoint gives Sandoz a right to terminate our agreement with them on thirty days’ notice, in addition to the rights they have to terminate for convenience on six months’ notice. If Sandoz terminates the agreement, we will not receive any milestoneFDA 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~~other regulatory approval will require further analysis of the PERSIST trial data and other clinical data for POSIMIR, as well as possible regulatory approval strategies. If we elect to continue with the program, it may require a larger investment on our part than previously planned and may take longer to achieve FDA approval, and such approval may never occur.

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

The failure to adequately demonstrate the safety and effectiveness of a pharmaceutical product candidate under development to the satisfaction of 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 trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our product candidates, 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 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 our product candidates, 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 the company to abandon the development of that product candidate. During the review process, the FDA, or other regulatory agencies, may also request more information regarding the ~~safety of~~chemistry, manufacturing or controls related to our product candidates, ~~as they have in their Complete Response Letter for POSIMIR,~~ 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~~approval or abandonment of the ~~review process, the FDA may also request more information regarding the chemistry, manufacturing or controls related to~~product candidate. Additionally, even if our product candidates receive FDA or other regulatory agency approval, the regulatory agency may require that we conduct additional clinical or non-clinical studies after such approval, place limitations on the use of our products in applicable labels, require marketing under a REMS program, include commercially unattractive language in the approved product label, delay approval to ~~abuse deterrent properties~~market our products or limit the indicated use of ~~opioid product candidates, as they have in their Complete Response Letters for REMOXY ER,~~our products, which may harm our business and ~~answering such questions could require significant additional work and expense, and take a significant amount~~results of ~~time, resulting in a material delay of approval or the failure to obtain approval.~~operations.

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

In July 2016, we entered into a Loan and Security Agreement ~~(the “2016 Loan~~(as amended, the “Loan Agreement”) with Oxford Finance LLC ~~(“Oxford Finance”)~~(Oxford Finance), pursuant to which Oxford Finance provided a $20 million secured single-draw term loan to us with aan initial 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~~provided initially 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. 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 ~~2016~~ Loan Agreement provides for a floating interest rate (7.95% ~~initially)~~initially and 8.43% as of June 30, 2022) 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%~~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. Any increases in prevailing interest rates could increase our expenses under the Loan Agreement. If we elect to prepay the loan, there is also a prepayment fee between 1%0.75% and 3%2.5% of the principal amount of the term loan depending on the timing of prepayment. Our debt repayment obligations under the ~~2016~~ Loan Agreement, as amended, may prove a burden to the Company as they become due, particularly following the expiration of the interest-only period. Increased payment requirements that would start after June 2023 would increase our cash expenditures and require us to raise additional capital or renegotiate or refinance the Loan Agreement. There can be no assurance that additional capital will be available on acceptable terms, if at all, or that we would be able to successfully renegotiate or refinance the Loan Agreement on acceptable terms, if at all. If our debt repayments increase, we may be required to scale back development programs or other operations, which could have an adverse effect on our business.

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 will require and may have difficulty or be unsuccessful in raising needed capital in the future

Our business currently does not generate sufficient revenues to meet our capital requirements and we do not ~~control development of REMOXY ER or RBP-7000~~

expect that it will do so in the near future. We have ~~relied on Pain Therapeutics, King Pharmaceuticals,~~expended and ~~Pfizer and its subsidiaries~~will continue to ~~devote time and resources~~expend substantial funds to conduct the research, 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 anytesting of our product candidates, ~~including DUR-928 or ORADUR-Methylphenidate ER.~~funding and establishing additional clinical- and commercial-scale manufacturing arrangements and facilities, and to provide for the pre-commercial and commercial activities associated with the marketing, sales and distribution of our products and product candidates. We will require additional funds for these purposes. Additional funds may not be ~~able to finalize the design or formulation~~available on acceptable terms, if at all, and such availability will depend on a number of ~~any~~factors, some 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 ~~may require us or our collaborators to perform additional studies and may delay clinical testing and regulatory approval~~are outside of our ~~product candidates. Even after we complete the design of a product candidate, the product candidate must still complete required clinical trials~~control, including general capital markets conditions and ~~additional safety testing in animals before approval for commercialization. We are continuing testing and development~~investors’ view of our ~~product candidates~~prospects and ~~may explore possible design~~valuation. If adequate funds are unavailable from operations or ~~formulation changes~~additional sources of financing or if our collaboration partners fail to ~~address issues of safety, manufacturing efficiency and performance. We~~pay us milestone payments, 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~~obtain adequate financing on a timely basis or to enter into agreements with collaboration partners, we may have to delay, reduce the scope of ~~DUR-928, ORADUR-Methylphenidate ER,~~ or ~~RBP-7000,~~eliminate one or ~~other product candidates, we will not be able to earn revenue from them,~~more of the above-mentioned activities which would materially harm our ~~business.~~business, financial condition and results of operations.

We orbelieve that our ~~third-party collaborators must show the safety~~cash, cash equivalents and ~~efficacy of our drug candidates in animal studies~~investments 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:~~

~~ORADUR-ADHD—Since 2010,~~We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. 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 product candidates that we would otherwise seek to develop or commercialize ourselves. If adequate funds are not available, we may be required to significantly reduce or refocus our product development efforts and ~~Orient Pharma, our licensee~~other activities, resulting in ~~defined Asian and South Pacific countries, conducted several Phase 1 studies to evaluate multiple formulations~~delays in generating future revenue.

We do not control the commercialization of ~~ORADUR-Methylphenidate. In 2013, we and Orient Pharma selected a lead formulation based~~POSIMIR, PERSERIS or Methydur

We rely 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. Orient Pharma recently completed 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 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 was superior to placebo in a statistically significant manner (p=0.0044Innocoll for the ~~intent to treat population~~commercialization of POSIMIR. The current approved labeling for POSIMIR is limited, and ~~p=0.0032~~Innocoll is responsible for completing post-marketing non-clinical studies and any additional studies required by FDA, and negative results from these studies could adversely affect commercialization of POSIMIR. Innocoll is also responsible for manufacturing POSIMIR. If Innocoll does not successfully launch and then grow POSIMIR sales, the royalty payments we receive under our agreement with them will be limited and we may not receive any milestone payments from them. We rely on Indivior for the ~~per protocol population). There were no serious adverse events in this pivotal study. Orient Pharma’s analysis indicates that the incidence~~commercialization of adverse events was generally consistent with other ADHD products. We have started a process of contacting potential development and commercialization partners for major markets not licensed to Orient Pharma.PERSERIS. There can be no assurance that PERSERIS sales will maintain current levels or grow materially. If Indivior does not successfully grow PERSERIS sales, future earn-out payments we receive under our agreement with them will be ~~able to~~limited. We rely on Orient Pharma for the commercialization of Methydur. If Orient Pharma does not successfully ~~develop ORADUR-Methylphenidate ER to obtain marketing approval~~grow Methydur sales, the royalty payments we receive under our agreement with them will be limited. The sales of each of these products may be negatively impacted by the Taiwan FDA or the U.S. FDA or other regulatory agencies, nor is there any assurance that we will be able to find a collaborator with respect to the development and commercialization of this drug candidate for the territories not currently licensed to Orient Pharma.COVID-19 pandemic.

~~We are currently in the clinical, preclinical or research stages with respect to all~~For certain 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) to ensure that 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 products to conduct further post-market studies 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.

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

Our performance for certain of our product candidates depends to a large extent on the ability of our third-party collaborators to successfully develop and obtain ~~approvals for our pharmaceutical product candidates.~~regulatory approvals. We have entered into agreements with ~~Sandoz,~~Innocoll, Indivior, ~~Pain Therapeutics,~~ Santen and 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~~certain products or 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 recommend or 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 products or 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 third-party 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) at will by providing notice. ~~For example,~~Termination can result from failure of the collaboration to achieve anticipated milestones, from changes 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 withstrategy of the other party or for other reasons. In these cases, the product rights ~~reverting~~revert to ~~us. Sandoz also has~~us or certain rights of the ~~right~~partner to ~~terminate~~use our ~~agreement with them for commercialization of POSIMIR after a specified notice period.~~proprietary technology are terminated. 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, unattractive or impossible to enter into agreements with other third parties for use of the assets and/or technologies that were subject to the terminated agreement. ~~Termination~~For example, termination of our agreements with ~~Sandoz, Pain Therapeutics,~~Innocoll, Santen or Orient Pharma could have ~~similar effects.~~negative effects on the Company.

~~Our revenues depend on collaboration agreements with other companies.~~ If we ~~are unable to~~do not enter into new ~~agreements or meet our obligations or manage our relationships with our collaborators under these~~collaboration agreements, our revenues ~~may decrease. Acquisitions of our collaborators can~~and/or cash flows will be ~~disruptive~~reduced relative to prior periods

Our revenues ~~are~~have been 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. WeFor example, approximately 58% of our total revenues in 2019 were derived from our collaboration agreement with Gilead. In June 2020, Gilead notified us that they were terminating this collaboration, resulting in accelerated recognition of $22.7 million in deferred revenue related to a nonrefundable upfront license fee and a milestone payment totaling $35.0 million that had previously been received. In addition, we have seen ~~recent declines~~periodic fluctuations in revenues associated with our ~~existing~~other 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~~Long-term growth of our collaboration revenues requires us 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 and/or cash flows 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.~~property. 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 or strategic changes or re-organizations or re-prioritizations 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~~and/or cash flows will be reduced ~~or not materialize,~~relative to periods of increased research and ~~our products~~development revenues, such as occurred in ~~development related to those agreements may not be commercialized.~~2020.

Our revenues will likely differ from our cash flows from revenue-generating activities. Upfront payments received upon execution of collaborative agreements ~~are~~may be recorded as deferred revenue, ~~and~~in which case they are generally recognized ~~on a straight-line basis~~ over the period of our ~~continuing involvement~~performance obligations with the third-party collaborator pursuant to the applicable agreement. The period of ~~continuing involvement~~performance obligations may also be revised on a prospective basis. As of ~~September~~June 30, ~~2017,~~2022, we had ~~$17.1 million~~$812,000 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~~Assumptions related to ~~next steps with POSIMIR, we cannot predict how much~~revenue recognition of ~~the~~ deferred revenue ~~associated with~~are reviewed in each accounting period and changes are recorded in the ~~$20 million upfront payment from Sandoz will be recognized~~current period. In certain circumstances, changes in ~~future quarters.~~

~~Our revenues also depend on milestone payments based on achievements by our third-party collaborators. Failure~~assumptions related to the timing and amount of ~~such collaborators~~work required to ~~attain such milestones would~~complete a performance obligation tied to deferred revenue can result in ~~our not receiving additional revenues~~

~~In addition to payments based on our performance~~negative revenue for an accounting period or the accelerated recognition 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.non-cash revenue.

Our business strategy includes ~~the entry into additional collaborative agreements. We may not be able~~relying on third parties to ~~enter into additional collaborative agreements or may not be able to negotiate commercially acceptable terms for these agreements~~support development, clinical testing, manufacturing and commercialization of our products and product candidates.

Our current business strategy includes reliance on third-party CROs, consultants, service providers and suppliers to provide critical services to support development, clinical testing, and manufacturing of our products and product candidates, including, but not limited to larsucosterol and others. For example, we currently depend on third-party vendors to manage and monitor most of our clinical trials. We rely on third-parties to manufacture or perform manufacturing steps relating to our products, product candidates and 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 products and product candidates. Third parties may not execute their responsibilities and tasks competently in compliance with their contractual obligations to us, applicable laws and regulations or in a timely or cost-effective fashion. Failure of these contractors to provide the ~~entry into additional collaborative agreements for~~required services in a competent or timely manner or on reasonable commercial terms could materially delay the development and approval of our product candidates or commercialization of our ~~pharmaceutical product candidates, including ORADUR-Methylphenidate ER in markets not already licensed to Orient Pharma, including the United States~~products, increase our expenses 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 raising needed capital in the future~~

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 the research, development and clinical testing of our pharmaceutical product candidates. We will require additional funds for these purposes, to establish additional clinical- and commercial-scale manufacturing arrangements and facilities, and to provide for the marketing and distribution of our product candidates. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable from operations or additional sources of financing, we may have to delay, reduce the scope of or eliminate one or more of our research or development programs which would materially harm our business, financial condition, ~~and~~ results of ~~operations.~~

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 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. We may seek to raise additional funds through equity or debt financings, convertible debt financings, collaborative arrangements with corporate collaborators or other sources, which 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 or pharmaceutical product candidates that we would otherwise seek to develop or commercialize ourselves. If adequate funds are not available, we may be required to significantly reduce 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 not have sufficient cash resources to meet our plans for the next twelve months from the issuance of those financial statements. Our recurring losses from operations, negative cash flows and need for additional capital raised 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, 2016. As of the filing of this Form 10-Q for the three months ended September 30, 2017, we have determined that we have sufficient cash resources to meet our plans for the next twelve months from the issuance of those financial statements. Our continued operations are contingent on our ability to enter into new collaborative agreements, achieve milestone and other payments under our collaboration and licensing agreements, raise additional capital and obtain financing and success in future operations. If we do not acquire sufficient additional funding or alternative sources of capital to meet our working capital needs, we may have to substantially curtail our operations and ~~business plan.~~

~~We and our third-party collaborators may not be able~~access to manufacture sufficient quantities of our pharmaceutical product candidates and components to support the clinical and commercial requirements of our collaborators and ourselves at an acceptable cost or in compliance with applicable government regulations, and we have limited manufacturing experience

We or our third-party collaborators to whom we have assigned such responsibility must manufacture our pharmaceutical product candidates and components in clinical and commercial quantities, either directly or through third parties, in compliance with regulatory requirements and at an acceptable cost. The manufacturing processes associated with our product candidates are complex. We and our third-party collaborators, where relevant, have not yet completed development of the manufacturing process for any product candidates or components, including POSIMIR, REMOXY ER and DUR-928. If we and our third-party collaborators, where relevant, fail to timely complete the development of the manufacturing process for our product candidates, we and our third-party collaborators, where relevant, will not be able to timely produce product for clinical trials and commercialization of our product candidates. We have also committed to manufacture and supply product candidates or components under a number of our collaborative agreements with third-party companies. We have limited experience manufacturing pharmaceutical products, and we may not be able to timely accomplish these tasks. If we and our third-party collaborators, where relevant, fail to develop manufacturing processes to permit us to manufacture a product candidate or component at an acceptable cost, then we and our third-party collaborators may not be able to commercialize that product candidate or we may be in breach of our supply obligations to our third-party collaborators.

Our manufacturing facility in Cupertino is a multi-disciplinary site that we have used to manufacture only research and clinical supplies of several of our pharmaceutical product candidates, including POSIMIR and REMOXY ER. If we experience delays or technical difficulties in scaling up the manufacturing of our product candidates, it could result in delays or added cost in our development programs. We have not manufactured commercial quantities of any of our product candidates. In the future, we intend to develop additional manufacturing capabilities for our product candidates and components to meet our demands and those of our third-party collaborators by contracting with third-party manufacturers and by potentially constructing additional manufacturing space at our facilities in California and Alabama. We have limited experience building and validating manufacturing facilities, and we may not be able to accomplish these tasks in a timely or cost effective manner.

If we and our third-party collaborators, where relevant, are unable to manufacture our pharmaceutical product candidates or components in a timely manner or at an acceptable cost, quality or performance level, and are unable to attain and maintain compliance with applicable regulations, the clinical trials and the commercial sale of our product candidates and those of our third-party collaborators could be delayed. Additionally, we may need to alter our facility design or manufacturing processes, install additional equipment or do additional construction or testing in order to meet regulatory requirements, optimize the production process, increase efficiencies or production capacity or for other reasons, which may result in additional cost to us or delay production of product needed for the clinical trials and commercial launch of our 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 or delays in the possible regulatory approval of POSIMIR. Furthermore, we and our contract manufacturer may also need or choose to subcontract with additional 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, expertise and performance of third parties as well as incur significant additional costs. Failure of third parties to perform their obligations could adversely affect our operations, development timeline and financial results. We expect 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 of our collaborators or ourselves or at an acceptable cost, our operating results will be harmed.capital.

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

~~Marketing~~Developing, manufacturing, marketing or promoting a drug is subject to very strict regulations and controls. Furthermore, clearance or approval may entail ongoing requirements for post-marketing ~~studies.~~studies or surveillance. 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~~value of our products or 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 (GMP) 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~~GMP regulations is difficult and costly. Manufacturing facilities are subject to ongoing periodic inspection by the FDA and corresponding state and in some cases, foreign agencies, including unannounced inspections, and must be licensed before they can be used for the commercial manufacture of our ~~development products.~~products and product candidates. We and/or our present or future suppliers and distributors may be unable to comply with the applicable ~~good manufacturing practice~~GMP regulations and other FDA and/or foreign 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 products or product candidates we or they manufacture, the FDA or foreign equivalents may refuse or withdraw marketing clearance or approvals, put our or our partner’s clinical trial on hold, withdraw or reject an investigational new drug application or require product recall, which may cause interruptions or delays in the development, manufacture and sale of our products and 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 and we may not successfully manage our company through varying business cycles

We have incurred significant operating losses since our inception in 1998 and, as of ~~September~~June 30, ~~2017,~~2022, had an accumulated deficit of approximately ~~$452.0~~$548.4 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.~~candidates and successfully commercialize our approved products. 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 and/or intellectual property rights for use in our products and product candidates. The license fees ~~for~~as well as the operating costs of using or developing these technologies or rights would increase the costs of our products and product ~~candidates.~~candidates as well as our operating costs generally.

To date, we have not generated significant revenue from royalties, earn-out payments, milestone payments or the commercial sale of our ~~pharmaceutical~~products or 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~~from certain excipient sales, from earn-out payments from Indivior related to sales of PERSERIS, from royalty payments from Orient Pharma related to sales of Methydur in Taiwan, 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.~~expenses in the near future. We do not anticipate meaningful revenues to derive from the commercialization and marketing of our products and product candidates ~~in development~~ in the near future, do not expect to receive meaningful royalties from POSIMIR until the product has been successfully launched and achieves meaningful sales (if ever) and therefore do not expect to generate sufficient revenues to cover expenses or achieve profitability in the near future.

40Our 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. For example, in connection with the COVID-19 pandemic, we required most of our personnel, including all of our administrative employees, to work remotely, restricted on-site staff to only those personnel who must perform activities that must be completed on-site, implemented social distancing on-site, and closed certain of our offices temporarily. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In

addition, this could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with the FDA, manufacturing sites, research or clinical trial sites. To manage through such cycles, we may expand or contract our facilities, our operational, financial and management systems and our personnel. If we are unable to manage growth and contractions effectively, our business would be harmed.

The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, on March 11, 2021, President Biden signed into law the “American Rescue Plan Act”, which included extenders to the refundable employee retention credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and limitations to executive compensation effective for tax years beginning after 2026. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations.

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.~~line. We may choose to develop our own sales force and commercial group to market larsucosterol, if approved, or other products that we may develop in the future. Developing a sales force and commercial group ~~will~~would require substantial expenditures and the hiring of qualified personnel. We have limited sales and marketing experience, and may not be able to effectively recruit, train or retain sales and marketing personnel. If we are not able to put in place an appropriate sales force and commercial group for our products in development and provide that commercial team with sufficient financial and other resources, we may not be able to effectively launch or commercialize these or any other products. We may not be able to effectively sell our products and 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 (including Innocoll, Indivior and Orient Pharma) 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,~~where applicable, may be unable to establish a sufficient sales and marketing organization on a timely basis, if at all. We and our third-party collaborators, ~~if relevant,~~where applicable, may be unable to engage qualified distributors. Even if engaged, these collaborators and distributors may:

The failure of us or our third-party collaborators to effectively develop, gain regulatory approval for, sell, manufacture and market our products and product candidates will hurt our business, prospects, financial results and may impact our access to capital.

Write-offs related to impairment of goodwill, long-lived assets, inventories and other non-cash charges may adversely impact profitability and cause cash flows to differ from reported revenues

We may incur significant non-cash charges related to impairment write-downs of our long-lived assets, 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 $6.2 million at June 30, 2022. To the extent these reviews conclude that the expected future cash flows generated 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 2021 and determined that goodwill was not impaired as of December 31, 2021. However, there can be no assurance that upon completion of subsequent reviews a material impairment charge will not be recorded. If future periodic reviews determine that our assets are impaired and a write-down is required, it will adversely impact or delay our profitability.

Inventories, in part, include certain excipients that are sold to customers and included in products and product candidates 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 inventory 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.

Global credit and financial ~~results.~~market conditions could negatively impact the value of our investments

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 of one year or beyond from the balance sheet date. While, as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents, short-term investments or long-term investments since June 30, 2022, no assurance can 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 or long-term investments or our ability to meet our financing objectives.

We ~~rely heavily~~depend upon key personnel who may terminate their employment with us at any time, and we may not be able to attract and retain sufficient qualified personnel on a timely basis, if at all

Our success will depend to a significant degree upon 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. The market for qualified personnel in the San Francisco Bay Area is very competitive and 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. Further, in 2021, the labor market in the U.S. began experiencing a significant increase in workers leaving their positions (often referred to as the “Great Resignation”), which has made the market to replace these individuals increasingly competitive and has resulted in significant wage inflation in response to labor shortages, and may further increase the challenge of employee attraction and retention for companies like ours. 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 as well as difficulties or inability to raise sufficient capital to fund the Company’s operations.

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, cause us to pay to retrieve our data if it becomes infected or otherwise subject to ransomware, 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 cyber-attack 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 seismically active area near wildfire zones

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, as well as wildfires and related power outages or power shortages. Should such a natural disaster or power outage or power shortage 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 harmed or destroyed.

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, products and 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 believe that we have complied 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. 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 ~~support development, clinical testing~~dispose of these substances generated by us, and ~~manufacturing of our product candidates~~

Wewe 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 our clinical trials and to perform critical manufacturing steps for our product candidates. Thesethese third parties ~~may~~to properly dispose of these substances in compliance with applicable laws and regulations. If these third parties do not ~~execute their responsibilities and tasks competently~~properly dispose of these substances in compliance with applicable laws and regulations, we may be subject to legal action by governmental agencies or inprivate 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.

As a ~~timely fashion.~~ non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act and, consequently, some investors may find our common stock less attractive

We ~~rely on third-parties~~are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and as such, are not required to ~~manufacture or perform manufacturing steps~~provide an auditor attestation of management’s assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley Act. Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. Because we are not required to have 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~~auditors provide an attestation of our ~~product candidates. Failure~~management’s assessment 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~~financial reporting, a material weakness in ~~place~~internal control may remain undetected for certain components of our pharmaceutical product candidates, but do not have in place long term supply agreements with respect to all 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.~~ longer period. In addition, weif investors may not be able to procure required components or drugs from third-party suppliers at a quantity, quality and cost acceptable to us. Any interruption 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,find our common stock less attractive because we are ~~relying on~~not required to comply with the auditor attestation requirements. If some investors find our ~~third-party collaborators to procure supply of necessary components. If the supply of any components~~common stock less attractive as a result, there may be a less active trading market 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~~common stock and the trading price for our ~~needs or those of our third-party collaborators. This could delay~~common stock as well as our ability to ~~complete clinical trials and obtain approval for commercialization and marketing of our product candidates, causing us~~raise capital may be negatively affected.

Risks Related to ~~lose sales, incur additional costs, delay new product introductions and could harm our reputation.~~Our Intellectual Property

If we are unable to ~~adequately~~ protect, maintain or enforce our intellectual property rights or secure rights to third-party ~~patents,~~intellectual property, we may lose valuable assets, ~~experience reduced~~lose 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,~~August 3, 2022, we owned or exclusively in-licensed over 6025 unexpired issued U.S. patents and over ~~390~~95 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~~have over 3525 pending U.S. patent applications and over ~~100~~180 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~~could result in the loss of our rights to certain of 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.if at all.

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~~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 or arbitration 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. In addition, in some circumstances our collaborators have the first right to enforce our patents against third party infringers, and such collaborators may not enforce such claims adequately or successfully or in the manner that we would do ourselves.

We are party to collaborative agreements with ~~Sandoz, Pain Therapeutics,~~Innocoll, 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~~disputes 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 products or product candidates infringe on their intellectual property rights, particularly because there is substantial uncertainty about the validity and breadth of ~~medical~~biopharmaceutical patents

We or our collaborators may be exposed to future litigation by third parties based on claims that our products, 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, pharmaceutical and biotechnology 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.~~reputation and business prospects. We also may not have sufficient funds to litigate, particularly 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~~third-party intellectual property rights, and such collaborators may not defend against such claims adequately or successfully 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 may interfere with the supply of the drugs used in our clinical trials, and in the future, our ability to produce and distribute our products in the volume needed to meet commercial demand.

~~Write-offs related to the impairment of long-lived assets, inventories and other non-cash charges, 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 of our long-lived assets, 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 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 will not be recorded. If future periodic reviews determine that our assets are impaired and a write-down is required, it will adversely impact or delay our profitability.

Inventories, in part, include certain excipients that are sold to customers 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 inventory 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 excipient in the year ended December 31, 2016 as a result of a change in the forecasted demand for the excipients after Pain Therapeutics received a Complete Response Letter from the FDA on its resubmission of the NDA for REMOXY ER. In addition, 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 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 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, as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents, short-term investments or long-term investments since September 30, 2017, no assurance can 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 or long-term investments 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 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 believe that we have complied 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~~markets for our pharmaceutical products, product candidates isand for our ALZET product line are rapidly changing and competitive, and new products or technologies developed by others could impair our ability to establish, maintain or grow our business and remain competitive

The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products, 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, biotechnology, medical devices and drug delivery. Competition for ~~DUR-928,~~larsucosterol, if approved, will depend on the specific ~~indications~~indication(s) for which ~~DUR-928~~larsucosterol is approved. 89Bio, AbbVie, Afimmune, Akaza Bioscience, Akero Therapeutics, Ascletis, AstraZeneca, Axcella Health, Bristol Myers Squibb, Cirius Therapeutics, CytoDyn, Dr. Falk Pharma, Eli Lilly, Enanta, ENYO Pharma, Evive Biotech, Galectin, Galmed,

Genentech, Genfit, Gilead, Hanmi, HighTide Biopharma, Intercept, ~~Gilead, Shire, Conatus~~Inventiva Pharma, Ionis Pharmaceuticals, ~~Galectin~~Isotechnika, Kowa, LifeMax, Lipidio, Lipocine, Madrigal, MediciNova, MedImmune, Mitsubishi Tanabe, NGM Biopharmaceuticals, Nimbus, NorthSea Therapeutics, ~~Genfit, Pfizer, Roche, Galmed Pharmaceuticals, Enanta Pharmaceuticals,~~Novartis, Novo Nordisk, ~~Takeda, Vital Therapies, Allergan, Akarna~~Pfizer, PharmaKing, Poxel, Promethera Biosciences, Seal Rock Therapeutics, ~~Inventiva Pharma, Genkyotex, VBL Therapeutics, NGM Biopharmaceuticals, Gemphire Therapeutics, Albireo Pharma, CymaBay Therapeutics, Madrigal Pharmaceuticals,~~Surrozen, Terns Pharmaceutical, Thera Technologies, Viking Therapeutics, ~~CohBar, FALK Pharma, Acorda, Albireo Pharma~~ and others have development plans for products to treat NAFLD/NASH, AH or other liver diseases. ~~Ischemix, Thrasos Therapeutics, AM-Pharma, Complexa, AbbVie, AlloCure, Quark Pharmaceuticals and others have development plans~~

Competition for ~~products~~our ALZET product line primarily consists of customers choosing 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 plansutilize delivery methods 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 havetheir research projects other than an osmotic pump. We 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 significantface competition for ~~us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology~~our ALZET product line from other companies ~~by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.~~including low cost foreign competitors.

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 products and product candidates. Our competitors may develop products that are safer, more effective or less costly than our products and product candidates and, therefore, present a serious competitive threat to our product candidates and product offerings.

The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products and product candidates ~~even~~ if commercialized. ~~Chronic and post-operative~~Post-operative pain ~~are~~is currently being treated by oral medication, transdermal drug delivery systems, such as drug patches, long-acting and short-acting injectable products and implantable drug delivery devices which will be competitive with our products and product candidates. ~~These~~Many of 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 products and product candidates to receive widespread acceptance if and when commercialized.

Our relationships with ~~customers~~physicians, patients and third-party payers ~~will be~~are subject to ~~applicable~~ anti-kickback, fraud and abuse, privacy 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 POSIMIR and any additional product candidates for which we obtain marketing approval. Our future arrangements with third-party payers and customers may expose us and our partners 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~~and our partners may 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 and privacy laws and regulations do and will in the future 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 or privacy 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.~~success

In the United States and some non-U.S. jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities, affect our ability to profitably sell any product or product candidates for which we obtain marketing and otherwise 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~~Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act(collectively, the Affordable Care Act), was enacted in the United States to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The law appears likely to continue the downward pressure on the pricing of medical items and services, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs.

The previous U.S. presidential administration signed ~~one~~several Executive Orders designed to delay or eliminate the implementation of ~~the most significant healthcare reform measures in decades,~~certain provisions of the Affordable Care Act. ~~It contains a number~~Concurrently, Congress considered legislation that would repeal or repeal and replace all or part of ~~provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all~~the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of ~~which impact existing government healthcare programs and will result in~~certain taxes under the ~~development of new programs. The~~ Affordable Care Act ~~among other things:~~

~~Other~~In addition, 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~~changes include reductions to Medicare payments to providers of up to 2% per fiscal year ~~which went into~~that will remain in effect onthrough 2031, except for a temporary suspension from May 1, 2020 through March 31, 2022 and limited reductions to 1% from April 1, ~~2013. On January 2, 2013, President Obama signed into law~~2022 through June 30, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. Further, the American Taxpayer Relief Act of 2012, ~~or the ATRA,~~ which, among other things, further reduced Medicare payments to several types of 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~~More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several presidential executive orders, Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. For example, the marketing, pricing and sale of the Company’s products are subject to regulation, investigations and legal actions including under the Medicaid Drug Rebate Program under the Affordable Care Act, which has increased the statutory minimum rebates a manufacturer must pay under the program as well as a new methodology by which rebates are owed for drugs that are inhaled, infused, instilled, implanted or injected. We are also subject to federal and state false claims acts, as well as federal and ~~federal~~state antitrust and consumer protection laws. Increased scrutiny of health care industry business practices in recent years by government agencies and state attorneys general in the U.S., and any resulting investigations and prosecutions, carry risk of significant civil and criminal penalties including, but not limited to, debarment from participation in such government healthcare programs.

Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product and medical device pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, in October 2017, California passed a law, effective in January 2019, which requires transparency from biopharmaceutical companies regarding price increases for prescription drugs. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in their prescription drug and other healthcare programs.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved or cleared product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. We cannot predict the likelihood, nature or extent of ~~which could limit~~government regulation that may arise from future legislation or administrative action, either in the ~~amounts that federal and state governments will~~

~~pay for healthcare~~United States or abroad. If we or our partners are slow or unable to adapt to new requirements or policies, or if we or our partners are not able to maintain regulatory compliance, our products and ~~services, which could result in reduced demand for our~~ product candidates ~~once approved~~may lose any regulatory approval that may have been obtained, which would reduce the likelihood that we may achieve or ~~additional pricing pressures.~~sustain profitability, or be able to enter attractive collaboration agreements, which would adversely affect our business.

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

The testing, clinical development, manufacture, marketing and sale of our products and 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 products and product candidates, our present product liability insurance may be inadequate and may not fully cover the costs of any ~~claim~~claim(s) or any ultimate damages we might be required to pay. Product liability claims or other claims related to our products and 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 products or product ~~candidates.~~candidates if and when approved. A product liability claim could also significantly harm our reputation and delay or prevent market acceptance of our products and product candidates.

~~Acceptance~~Market acceptance of our ~~pharmaceutical~~products or 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~~or products we have licensed to others, including larsucosterol, if approved, POSIMIR, if commercially launched, and ~~development,~~ including ~~POSIMIR, DUR-928~~Indivior’s PERSERIS and ~~REMOXY ER, if approved.~~Orient Pharma’s Methydur. Even if approved for marketing, ~~our~~these products and 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.~~the products we have developed. If ~~we are unable to obtain regulatory approval, commercialize and market our future~~these products ~~when planned and~~do not achieve widespread market acceptance, we will not achieve ~~anticipated~~meaningful revenues.

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

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, access and/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~~current and future products will depend in part on the extent to which appropriate reimbursement levels for the cost of our ~~product candidates~~products and related treatment are obtained byfrom governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payers often limit access, payments and/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 access, 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.~~profitably and access capital.

If we or our third-party collaborators are unable to train physicians to use our ~~pharmaceutical~~products and product candidates to treat patients’ diseases or medical conditions, we may ~~incur delays in~~not achieve market acceptance of our products

Broad use of certain of our ~~product candidates~~products or out-licensed products, such as POSIMIR, will require extensive training of numerous physicians on ~~the~~their proper and safe ~~use of our product candidates.~~use. The time required to ~~begin and complete training of~~train physicians could delay introduction of our products and adversely affect market acceptance of our products. We or third parties selling our ~~product candidates~~products may be unable to rapidly train physicians in numbers sufficient to generate adequate demand for our ~~product candidates.~~products. Any delay in training would materially delay the demand for our ~~product candidates~~products and harm our business and financial results. In addition, we or our partners 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 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, including the Sarbanes-Oxley Act of 2002, new SEC regulations, state and local laws and regulations, PCAOB pronouncements and ~~NASDAQ~~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~~Compliance with evolving corporate governance and public ~~disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving~~disclosure standards ~~and this investment~~ may result in increased general and administrative expenses and a diversion of management time and attention from ~~revenue-generating~~value-creating activities to compliance activities.

Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, increased manufacturing costs and clinical trial costs, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these mitigating actions impact our results of operations and when the cost inflation is incurred.

Risks related to actions on trade by the U.S. and foreign governments could adversely affect the Company's results of operations and financial condition

The U.S. government under the previous administration indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multilateral trade agreements. It also initiated the imposition of tariffs on certain foreign products. Changes in U.S. trade policy have resulted in, and could continue to result in, one or more U.S. trading partners adopting responsive trade policy making it more difficult or costly for us to export our products to those countries. These measures could also result in increased costs for goods imported into the United States. This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.

There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of additional tariffs by other countries. A potential resulting trade war could have a significant adverse effect on world trade and the world economy. We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade

agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition, access to capital and results of operations.

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 9, 2014, we received written notification from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for continued listing on the Nasdaq Global Market under Nasdaq Marketplace Rule 5450(a)(1). Each time, we were given a period of 180 days from the date of the notification 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 regained compliance within the applicable time periods as of February 1, 2013 and March 6, 2015, respectively, if our shares again no longer comply with the minimum closing bid price requirement for continued listing on the Nasdaq Global Market under Nasdaq Marketplace Rule 5450(a)(1) 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 that its securities will be subject to delisting. The Company may appeal Nasdaq’s determination to delist its securities to a Hearings Panel. During any appeal process, shares of the Company’s common stock would continue to trade on the Nasdaq Global Market or Nasdaq Capital Market, as applicable.

There can be no assurance that we will maintain 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. 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 favorable to the 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 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 of operations have historically fluctuated and we expect will continue to fluctuate for the foreseeable future. We believe that period-to-period comparisons 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 noa limited number of 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, which may not occur. We may not be successful in addressing these risks and difficulties. We ~~may~~expect to require additional funds to complete the development of larsucosterol or our other product candidates, and to fund operating losses to be incurred in the next several years.

~~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~~(the “2021 Registration Statement”) to ~~offer~~sell up to ~~$125~~$250 million of securities from time to time in one or more public offerings, including up to $75.0 million of ~~our~~shares of common ~~stock. In addition, in November 2015, we entered into a Controlled Equity Offering~~stock through an at the market sales agreement with Cantor Fitzgerald ~~under which we may sell, subject to certain limitations, up to $40 million of common stock through Cantor Fitzgerald, acting as agent. In April 2016, we completed an underwritten public offering~~(the “2021 Sales Agreement”). When the 2021 Registration Statement was declared effective in ~~which we raised net proceeds of $16.1 million (after deducting underwriting discounts and commissions and offering expenses) through~~August 2021, the ~~sale of an aggregate of approximately 13.8 million shares of our common stock pursuant to an effective registration statement at~~2021 Sales Agreement replaced 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 programprior similar 2015 Sales Agreement 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.Fitzgerald. Any ~~additional~~ sales in the public market of our common stock, under ~~the Controlled Equity Offering program with Cantor Fitzgerald or otherwise~~our 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 August 3, 2022, and through our 2015 Sales Agreement and 2018 Sales Agreement with Cantor Fitzgerald during this period, we have raised an aggregate of $79.4 million. As of August 3, 2022, we had up to $250.0 million of our securities available for sale under the 2021 Registration Statement, of which $75.0 million of our common stock are available pursuant to the 2021 Sales Agreement.

In addition, as of June 30, 2022, 27,955,547 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 $1.32 per share, 22,185,890 additional shares of common stock were reserved for potential future issuance under our stock option plan, and an aggregate of 313,408 shares of common stock were reserved for potential future issuance under our 2000 Employee Stock Purchase Plan. Further, our stockholders at our 2022 Annual Meeting of Stockholders held on June 15, 2022 approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 350,000,000 to 600,000,000 shares and approved an amendment to our 2000 Stock Plan to increase the number of shares of our common stock authorized for issuance thereunder by 18,000,000 shares. Since our stockholders approved these proposals, we will 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.

Our stock price has in the past and currently does 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

In several instances in the past and on February 9, 2022, we received written notification from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for continued listing on Nasdaq under Nasdaq Marketplace Rules. We have been given a period of 180 days from the date of the notification, just as we have in the past and in one previous case we received 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 in the past, we can provide no assurance that we will be able to once again regain the minimum closing bid price requirement for continued listing on the Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2). If we do not regain compliance within the applicable 180-day time period, Nasdaq will notify us that our securities will be subject to delisting. One strategy to regain compliance in such circumstances would be to implement a reverse stock split. The Company could appeal Nasdaq’s determination to delist its securities to a Hearings Panel. During any appeal process, shares of our common stock would continue to trade on the Nasdaq Capital 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 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 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 ability to use net operating losses and certain other tax attributes is uncertain and may be limited

Our ability to use our federal and state net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the net operating losses, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use any or all of our net operating losses. In addition, utilization of net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is subject to annual limitations under the “ownership change” provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (Internal Revenue Code) and similar state provisions, which may result in the expiration of net operating losses before future utilization. In general, under the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating losses and other pre-change tax attributes (such as research and development credit carryforwards) to offset its post-change taxable income or taxes may be limited. Our equity offerings and other changes in our stock ownership, some of which are outside of our control, may have resulted or could in the future result in an ownership change. If an ownership change limitation were to apply, utilization of our net operating losses and tax credit carryforwards could be limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax liabilities.

Because the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting company

We are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of any reduced disclosure obligations, it may make it harder for investors to analyze the Company’s results of operations and financial prospectus in comparison with other public companies.

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 could 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 outbreak of the COVID-19 coronavirus and its new variants, pronouncements by the Federal Reserve, inflation, outbreaks of war such as between Russia and Ukraine, 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 resources.

We have broad discretion over the use of our cash and investments, and their investment may not always yield a favorable return

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

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:

~~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.~~

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.

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.

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

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.

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

		Page

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	~~Condensed Balance Sheets~~ as~~of September 30, 2017 and December 31, 2016~~	3

	~~Condensed Statements of Comprehensive Income (Loss)~~ ~~for the three and nine months ended September 30, 2017 and 2016~~	4

	~~Condensed Statements of Cash Flows~~ ~~for the nine months ended September 30, 2017 and 2016~~	5

	Condensed Balance Sheets as of June 30, 2022 and December 31, 2021	5

	Condensed Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021	6

	Condensed Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	7

	Condensed Statements of Cash Flows for the six months ended June 30, 2022 and 2021	8

	Notes to Condensed Financial Statements	69

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2933

Item 4.	Controls and Procedures	3033

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3134

Item 1A.	Risk Factors	31

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	54

~~Item 3.~~	~~Defaults Upon Senior Securities~~	54

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

~~Item 5.~~	~~Other Information~~	5434

Item 6.	Exhibits	5458

Signatures		5659

	September 30, 2017		December 31, 2016		June 30, 2022		December 31, 2021
	(unaudited)
Raw materials	$	260	$	745	$	143	$	143
Work in process		1,665		1,672		872		712
Finished goods		1,230		1,365		1,118		1,015
Total inventories, net	$	3,155	$	3,782
Total inventories					$	2,133	$	1,870

	September 30, 2017
	Amortized Cost		Estimated Fair Value
Mature in one year or less	$	40,663	$	40,663
	$	40,663	$	40,663

	June 30, 2022		December 31, 2021

Accrued compensation and benefits	$	2,730	$	4,099
Accrued contract research and manufacturing costs		399		757
Accrued clinical costs		217		97
Others		1,191		1,846
Total	$	4,537	$	6,799

Six months ended December 31, 2022	$	-
2023		5,000
2024		8,571
2025		8,429
Total minimum payments		22,000
Less unamortized debt discount and accrued final payment		(1,101	)
Carrying value of term loan, net		20,899

Location	Approximate Square Feet	Operation	Expiration
Cupertino, CA	30,149 sq. ft.	Office, Laboratory and Manufacturing	Lease expires 2024 (with an option to renew for an additional five years)

Cupertino, CA	20,100 sq. ft.	Office and Laboratory	Lease expires 2024 (with an option to renew for an additional five years)
Vacaville, CA	24,634 sq. ft.	Manufacturing	Lease expires 2023

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

	Operating Leases
Six months ended December 31, 2022	$	990
2023		1,970
2024		275
	$	3,235


Each hospitalization episode with AH diagnosis for patients who:	Average length of stay	Average total charges during hospital stay
Died during the hospitalization	9 days	$147,000
Were discharged	6 days	$53,000
Marlowe, N., Lam, D., Krebs, W., Lin, W. & Liangpunsakul, S. (2022) Prevalence, co-morbidities, and in-hospital mortality of patients hospitalized with alcohol-associated hepatitis in the United States from 2015 to 2019. Alcoholism: Clinical and Experimental Research.

~~10.1+~~ Exhibit Number		Exhibit Name
~~31.1~~
3.1	~~Patent purchase agreement between~~Certificate of Amendment to the ~~Company~~Amended and ~~Indivior UK Limited dated~~Restated Certificate of Incorporation of DURECT Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as ~~of September 26, 2017.~~filed with the SEC on June 16, 2022).

10.1	~~Rule 13a-14(a) Section 302 Certification of James E. Brown.~~DURECT Corporation 2000 Stock Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on June 16, 2022).

~~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 June 30, 2022, 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 June 30, 2022, formatted in Inline XBRL ~~Taxonomy Extension Schema Document~~(included as Exhibit 101).

**	~~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~~Furnished, not filed.

~~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~~

	DURECT CORPORATION

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

Date: ~~November 2, 2017~~August 5, 2022

	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~~August 5, 2022