Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2025

DURECT Corporation (the “Company”) was incorporated in the state of Delaware on February 6, 1998. The Company is a biopharmaceutical company pioneering the development of epigenetic therapies that target dysregulated DNA methylation to transform the treatment of serious and life-threatening conditions, including acute organ injury. Larsucosterol is in clinical development for the potential treatment of alcohol-associated hepatitis (“AH”), for which FDA has granted Fast Track Designation and Breakthrough Therapy Designation; metabolic dysfunction-associated steatohepatitis (“MASH”), also known as non-alcoholic steatohepatitis or NASH is also being explored. The Company also manufactures and sells certain excipients for certain clients for use as raw materials in their products.

Basis of Presentation

These condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), and therefore do not include all the information and footnotes necessary for a complete presentation of the Company’s results of operations, financial position and cash flows in conformity with U.S. generally accepted accounting principles (“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 June 30, 2025, the operating results and comprehensive loss, and stockholders’ equity for the three and six months ended June 30, 2025 and 2024, and cash flows for the six months ended June 30, 2025 and 2024. The balance sheet as of December 31, 2024 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, 2024 filed with the SEC.

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

Liquidity and Need to Raise Additional Capital

As of June 30, 2025, the Company had an accumulated deficit of $603.8 million as well as negative cash flows from operating activities. Presently, the Company does not have sufficient cash resources to meet its plans for the next twelve months following the issuance of these financial statements. The Company will continue to require substantial funds to continue research and development, including clinical trials of its product candidates. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management’s plans in order to meet its operating cash flow requirements include seeking additional collaborative agreements for certain of its programs as well as financing activities such as public offerings and private placements of its common stock, preferred stock offerings, issuances of debt and convertible debt instruments.

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

In November 2024, the Company completed the sale of its ALZET product line to Lafayette Instrument Co. ("LIC"), a portfolio company of Branford Castle Partners II, L.P., a North-American focused private equity firm. Under the terms of the agreement, LIC paid the Company $17.5 million in exchange for certain assets and liabilities associated with the ALZET product line. Simultaneous with this transaction, the Company paid off all remaining obligations under the term loan agreement with Oxford Finance LLC.

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

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company may be required to expense previously capitalized inventory costs upon a change in management’s judgment due to new information that suggests that the inventory will not be saleable.

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


	June 30, 2025		December 31, 2024
Raw materials	$	9	$	10
WIP		214		—
Finished goods		68		96
Total inventories	$	291	$	106

Leases

ASC 842 requires the Company to recognize an operating lease right-of-use asset and corresponding operating lease liability for the Company’s leased properties. The Company’s operating lease right-of-use assets and liabilities are recognized under ASC 842 based on the present value of lease payments over the remaining lease term at the lease commencement date. In determining the net present value of lease payments, we estimate the incremental borrowing rate based on the information available, including remaining lease term. As of June 30, 2025, the weighted-average remaining lease term was 1.64 years for the Company’s leased properties.

Revenue Recognition

Product Revenue, Net

The Company manufactures and sells certain excipients used by pharmaceutical companies as raw materials in certain of their products, including Methydur and a marketed animal health product. Prior to the sale of the ALZET product line in November 2024, the Company also manufactured and sold ALZET miniature osmotic pumps used in laboratory research.

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

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

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

Collaborative Research and Development and Other Revenue

Royalties and Earn-outs: For the Company's arrangements that include sales-based royalties or earn-outs, including milestone payments based on first commercial sale or the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty or earn-out has been allocated has been satisfied (or partially satisfied).

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

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

Total revenue by geographic region based on customers’ locations for the three and six months ended June 30, 2025 and 2024 are as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2025		2024		2025		2024
Europe	$	324	$	512	$	496	$	934
United States		60		67		177		113
Other		63		67		95		95
Total	$	447	$	646	$	768	$	1,142

Prepaid and Accrued Clinical Costs

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

Prepaid and Accrued Manufacturing Costs

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

Research and Development Expenses

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

Comprehensive Loss

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

Segment Reporting

The Company operates in one operating segment, which is the research, development and manufacturing of pharmaceutical products.

Common Stock Warrants

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

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

Net Loss Per Share

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Certain warrants participate in distributions of the Company. The net loss

attributable to common stockholders is not allocated to the warrant holders as the holders of warrants do not have a contractual obligation to share in losses. Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding and common stock equivalents (i.e., options and warrants to purchase common stock) outstanding during the period, if dilutive, using the treasury stock method for options.

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


	Three months ended June 30,						Six months ended June 30,
	2025			2024			2025			2024
Basic loss per share computation:
Net loss	$	(2,265	)	$	(3,700	)	$	(6,497	)	$	(11,343	)
Weighted average number of shares outstanding - basic		31,042			31,038			31,042			30,838
Net loss per share - basic	$	(0.07	)	$	(0.12	)	$	(0.21	)	$	(0.37	)

Diluted loss per share computation:
Net loss	$	(2,265	)	$	(3,700	)	$	(6,497	)	$	(11,343	)
Change in fair value of common warrant liabilities		(42	)		—			—			—
Net loss adjusted for change in fair value of warrant liabilities	$	(2,307	)	$	(3,700	)	$	(6,497	)	$	(11,343	)

Weighted average shares used to compute basic net loss per share		31,042			31,038			31,042			30,838
Dilutive effect of common warrants		121			—			—			—
Weighted average shares used to compute diluted net loss per share		31,163			31,038			31,042			30,838
Net loss per share - diluted	$	(0.07	)	$	(0.12	)	$	(0.21	)	$	(0.37	)

Options to purchase approximately 3.9 million and 4.2 million shares of common stock were excluded from the denominator in the calculation of diluted net loss share for the three and six months ended June 30, 2025, respectively, as the effect would be anti-dilutive. Options to purchase approximately 3.8 million and 3.9 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, 2024, respectively, as the effect would be anti-dilutive.

The common warrants to purchase shares of common stock entitle the holders thereof to participate in dividends and other distributions of assets by the Company to its holders of common shares, but are not required to absorb losses incurred. As a result, the common warrants were excluded from basic net loss per share calculations for the three and six months ended June 30, 2025 and 2024, respectively. For diluted net loss per share purposes, the common warrants are included in the number of shares outstanding if the effect is dilutive. The dilutive effect of common warrants was 121,000 shares for the three months ended June 30, 2025. Additional common warrants to purchase 3.6 million shares were excluded from the denominator in the calculation of diluted net loss share for both the three and six months ended June 30, 2025 and 2024, respectively, as the effect would be anti-dilutive.

Discontinued Operations

In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component/s of an entity meets the criteria in paragraph 205-20-45-10. At the same time, the results of all discontinued operations, less applicable income taxes, shall be reported as components of net loss separate from the net loss of continuing operations.

The Company disposed of its ALZET product line, a component of its business, in November 2024 and met the definition of a discontinued operation as of December 31, 2024. Accordingly, the Company has classified the results of the ALZET product line as discontinued operations in its statements of operations and comprehensive loss for all periods presented. All amounts included in the notes to the financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 11, “Discontinued Operations” to the financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be adopted on a prospective or retrospective

basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its financial statements and related disclosures.