ThinkEquity LLC initiates coverage of Durect Corp: Buy Rating, $3 price target

1. March 22, 2012
Company Report
Initiation of Coverage
Durect Corp. DRRX: $0.78
Buy Price Target: $3.00 Specialty Pharmaceuticals
DRRX: Initiate Coverage With A Buy Rating And $3
Price Target
James Molloy
THINK ACTION:
While DRRX has had a bumpy road over the past few years in our view, we 617-778-9308, jmolloy@thinkequity.com
continue to see a compelling combination of large-pharma collaborations with an Changes Current Previous
undervalued pipeline that could provide potential upside surprise. DRRX’s lead Rating Buy
product is Remoxy, a less-abusable Oxycontin partnered with Pfizer (PFE), which Price Target $3.00
we believe could be potentially re-filed with the FDA by late 2013E. In 2H12, FY12E REV (M) $29.5E --
DRRX could file an NDA for the post-surgical pain injection Posidur, partnered FY13E REV (M) $25.4E --
with Hospira (HSP) and targeting 10M-20M US surgeries. Additionally, in our FY12E EPS ($0.12)E --
view, DRRX has a deep pipeline of earlier pain compounds. FY13E EPS ($0.14)E --
KEY POINTS: 52-Week High: $3.77
Remoxy: the primary value driver at DRRX, in our opinion. DRRX has 52-Week Low: $0.71
disclosed that they receive a 6%-11.5% sales royalty on sales of Remoxy, which Shares O/S-Diluted (M): 87.4
we estimate could reach 7%-12% on sales of Remoxy when COGS & mark Market Cap (M): $68.2
ups are included. While the path to NDA approval has been rocky in our view Average Daily Volume: 459,147
(2 complete response letters so far), partner PFE has publicly stated that they Short Interest: 2.8%
remain committed to getting this product FDA approved, which to us seems likely Debt/Total Cap: NA
given PFE’s demonstrated ability to get drugs approved by the FDA. Even a small Net Cash Per Share: $0.28
penetration into the ~$3B US Oxycontin market could drive substantial royalties P/E (12-month forward): NA
to DRRX over the next few years, and we believe with PFE behind the drug, a Est. Long-Term EPS Growth: NA
more substantial market penetration than our estimates could be possible. P/E/G: NM
Fiscal Year-End: Dec
Posidur: post-surgical pain injection could be NDA filed in 2H12. While the REV (M) $ 2011A 2012E 2013E
most recent phase 3 trial didn’t achieve statistical significance, DRRX plans to 8.6A 7.7E NA
Mar
meet with the FDA, and we believe could potentially submit an NDA for Posidur Jun 7.8A 7.2E NA
as early as 2H12 using positive data from earlier hernia & shoulder trials that did Sep 8.1A 7.4E NA
demonstrate statistically significant reductions in pain & narcotic usage over days Dec 8.9A 7.2E NA
1-3. Given that Pacira’s (PCRX) competing product Exparel was approved on FY 33.5A 29.5E 25.4E
similarly small-surgery models (bunionectomy & hemorrhoidectomy), we believe
FY P/S 2.0x 2.3x 2.7x
that this strategy has merit and could lead to a potential FDA approval by
late 2013 or early 2014. DRRX estimates that 10M-20M of 70M US surgeries EPS $ 2011A 2012E 2013E
are candidates for Posidur post-surgical pain treatment, which represents a Mar (0.07)A (0.04)E NA
significant market opportunity at ~$250/injection for Posidur. Jun (0.06)A (0.04)E NA
Sep (0.06)A (0.03)E NA
Pipeline assets offer potential upside. DRRX’s pipeline includes Relday, Dec (0.02)A (0.02)E NA
FY (0.21)A (0.12)E (0.14)E
partnered with Zogenix for a long-acting Risperidone for schizophrenia which
we expect to start phase 1 trials in 2013, and a pipeline of additional pain FY P/E NM NM NM
products that could potentially offer upside, should the company be able to re-
partner and re-start the development process. These include: Transdur, a more
powerful Duragesic for chronic severe pain; Eladur, a longer acting Lidoderm
for moderate to severe pain, and 2 additional undisclosed abuse resistant pain
products included in the PFE Remoxy partnership. We currently have a modest
value attributed to these pipeline compounds.
Initiate with a Buy rating and $3 price target. We value DRRX at $3/share
based on a sum-of-the-parts analysis. We value Remoxy at $1.50/share based
on a 5x multiple of 2017E royalties discounted back 5 years at 25% (to account
for the development risk to this program), Posidur at $1/share based on a 5x
multiple of 2017E royalties discounted back 5 years at 40% (to account for the
development risk to this program), and value the base business and cash (end
2012E) & technology value at $0.50/share.
Please see analyst certification (Reg. AC) and other important disclosures on pages 16-18 of this report.

2. March 22, 2012
Company Report
SUMMARY & INVESTMENT THESIS
We are initiating coverage on Durect Corp. (DRRX) with a Buy rating and a $3 price target. DRRX is a specialty
pharmaceutical company focused on improving the delivery of opioids and reducing the use and abuse of strong opioids.
DRRX is partnered with PFE on the development & sale of Remoxy, an abuse-resistant Oxycontin that PFE has stated
could be re-filed with the FDA in late 2012/early 2013. DRRX is partnered with Hospira (HSP) in the US for the
development & sale of Posidur, a long acting post-surgical delivery of bupivacaine for pain control. DRRX is also
developing Transdur, a strong-opioid patch similar to Duragesic for severe pain; Eladur, a transdermal bupivacaine patch
similar to Lidoderm for mild-to-moderate pain; and Relday, a needle free long-acting dose of risperidone for schizophrenia.
DRRX also has a legacy manufacturing business that is based on the Alzet osmotic pump for animal trials drug delivery,
and Lactel biodegradable polymer raw materials for drug & medical device development.
OUR TOP 4 REASONS TO OWN DRRX
1. Remoxy: the primary value driver at DRRX, in our opinion. DRRX has disclosed that they receive a 6%-11.5%
sales royalty on sales of Remoxy, which we estimate could reach 7%-12% on sales of Remoxy when COGS & mark ups
are included. While the path to NDA approval has been rocky in our view (2 complete response letters so far), partner
PFE has publicly stated that they remain committed to getting this product FDA approved, which to us seems likely given
PFE’s demonstrated ability to get drugs approved by the FDA. Even a small penetration into the ~$3B US Oxycontin
market could drive substantial royalties to DRRX over the next few years, and we believe with PFE behind the drug, a
more substantial market penetration than our estimates could be realistic.
2. Posidur: post-surgical pain injection could be NDA filed in 2H12. While the most recent phase 3 trial didn’t achieve
statistical significance, DRRX plans to meet with the FDA and we believe could submit the NDA for Posidur as early as
2H12 using positive data from earlier hernia & shoulder trials that did demonstrate statistically significant reductions in
pain & narcotic usage over days 1-3. Given that Pacira’s (PCRX) competing product Exparel was approved on similarly
small-surgery models (bunionectomy & hemorrhoidectomy), we believe that this strategy has merit and could lead to a
potential FDA approval by late 2013E/early 2014E. DRRX estimates that 10M-20M of 70M US surgeries are candidates
for Posidur post-surgical pain treatment, which represents a significant market opportunity at ~$250/injection for Posidur.
3. Pipeline assets offer potential upside. DRRX’s pipeline includes Relday, partnered with Zogenix for a long-acting
Risperidone for schizophrenia, which we expect to start phase 1 trials in 2013, and a pipeline of additional pain products
that could potentially offer upside, should the company be able to re-partner and re-start the development process. These
include: Transdur, a more powerful Duragesic for chronic severe pain; Eladur, a longer acting Lidoderm for moderate to
severe pain, and 2 additional undisclosed abuse resistant pain products included in the PFE Remoxy partnership. We
currently have a modest value attributed to these pipeline compounds.
4. DRRX has been a long, strange trip but we see value at current levels. DRRX’s has had a storied history of drug
development in our view, with key management members having split off from Alza long ago to form DRRX. Since then,
DRRX’s key asset and primary value driver - Remoxy - has been out-licensed to 1) Pain Therapeutics (PTIE) by DRRX; 2)
King Pharmaceuticals by PTIE; and 3) Pfizer (PFE) when PFE bought King in 2011. Over the past 2 years, we believe the
main driver of DRRX’s stock underperformance has been driven by the inability of these partners to get Remoxy through
the NDA process at the FDA, with the drug receiving back-to-back Complete Response Letters (CRL) from the FDA. Most
recently, DRRX’s second value driver, Posidur, failed in the large phase 3 BESST trial (Bupivacaine Effectiveness and
Safety in Saber Trial) which negatively impacted the stock price. While in our view these issues are a real impediment to
driving value to the stock unless they can be resolved, we believe that at current levels the risks to both programs are
more than adequately priced in. Should DRRX succeed in addressing either issue, or demonstrate a realistic path to FDA
approval, we believe the stock could react positively.
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3. March 22, 2012
Company Report
UPCOMING POTENTIAL CATALYSTS
EXHIBIT 1:
Event Expected Timing
FDA meeting on Posidur NDA filing 2Q12E
PFE meets FDA on Remoxy re-filing 3Q12E
Remoxy NDA re-filing by PFE 4Q12E/1Q13E
Posidur NDA filing 1H13E
Source: Company reports and ThinkEquity LLC estimates
VALUATION
We value DRRX at $3/share based on a sum-of-the-parts analysis. We value Remoxy at $1.50/share based on a 5x
multiple of 2017E royalties discounted back 5 years at 25% (to account for the development risk to this program), Posidur
at $1/share based on a 5x multiple of 2017E royalties discounted back 5 years at 40% (to account for the development
risk to this program), the base business and cash (end 2012E) & technology value of $0.50/share.
EXHIBIT 2:
Sum-of-the-parts valuation: DRRX
Segment Valuation Per share
(000's) value
Remoxy $150,344 $1.50
Posidur $116,027 $1.00
Base polymer business $24,430 $0.25
Cash (end-'12E) & tech $31,761 $0.25
SUM $322,562 $3.00
Shares out '12E (000) 109,205
Source: ThinkEquity LLC estimates
COMPANY DESCRIPTION
Durect is an emerging specialty pharmaceutical company located in Cupertino, California. The company focuses on the
development of pharmaceutical systems based on its proprietary drug delivery platform technologies that treat chronic
debilitating diseases and enable biotechnology products. These platform technologies include the Saber Delivery System
(a patented depot injectable that can be used for proteins, peptides and small molecule delivery), and the Oradur
sustained release oral gel-cap technology (an oral sustained release technology with several potential abuse deterrent
properties). DRRX also partners with pharmaceutical and biotechnology companies to develop and commercialize
proprietary and enhanced pharmaceutical products based on its technologies.
KEY PRODUCTS
To value a drug delivery company, we evaluate the potential of near-term, disclosed proprietary compounds and then add
in a subjective valuation for smaller products and a technology value. We combine these inputs for a sum-of-the-parts
analysis to value the company’s stock.
Exhibit 3: Remoxy gel-cap
Remoxy – Abuse-resistant Oxycontin- $1.50/share
Key issues: We see this as the main value driver for DRRX. Partnered with
PFE, the drug has faced hurdles at the FDA but since we believe that PFE
acquired KG primarily to get this drug we expect they should potentially get it
over the finish line at the FDA in the 2013-2014 time-frame.
Product
In collaboration with King Pharmaceuticals (acquired by PFE) & Pain
Therapeutics (PTIE), DRRX developed Remoxy, a controlled release
formulation of the opioid oxycodone (Oxycontin – a ~$3 billion US branded
Source: www.durect.com
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4. March 22, 2012
Company Report
market according to IMS) using the proprietary Oradur gel-cap technology. Remoxy is a twice-daily controlled release
formulation that is intended to match the pharmacokinetics (PK) of Oxycontin, but with enhanced abuse deterrence
properties due to the nature of DRRX’s Oradur technology.
The main concept hinges on putting oxycodone into a gel formulation such that it cannot be crushed and abused. The
technology involves entrapping the majority of its oxycodone inside DRRX’s Oradur sustained release oral gel-cap
technology. Oradur uses a sucrose acetate isobutyrate, a high viscosity, biodegradable liquid matrix that is formed into an
oral gel-cap to provide 12-24 hours of controlled release of oxycodone.
Clinical Data
PTIE conducted two anti-abuse studies in England. In the first study, five healthy volunteers received a 10mg oral dose of
Remoxy and five healthy volunteers consumed 10mg of Oxycontin. Each preparation was stirred for 10 minutes in vodka
and chased by a glass of water. Oxycontin released over 200% more drug than Remoxy (p=0.03). In the second study,
five healthy volunteers were instructed to chew a 10mg oral dose of Remoxy for five minutes and to swallow the resultant
slurry with a glass of water and five other volunteers chewed a 10mg oral dose of Oxycontin for five minutes and then
swallowed the resultant slurry with a glass of water. In the second study, Oxycontin released over 170% more drug than
Remoxy (p=0.03). These early studies demonstrate that similar manipulation of Remoxy leads to much lower substance
blood levels. The Remoxy formulation’s high viscosity capsule is also designed to make it difficult to inject intravenously or
to snort the drug, if crushed, which should also help with abuse deterrence. See details below.
EXHIBIT 4:
P h a s e 3 tria l: R e m o x y fo r o s te o a rth ritis
A im effica cy & sa fety o f 2 x/d a y o xyco d o n e fo r O A p a in
D esig n p h a se 3 , 1 2 w eek, ra n d o m , 2 x b lin d , p la ceb o co n tro lled , m u lti-cen ter stu d y. W a sh o u t fo llo w ed b y 2 w eek
titra tio n , th en ra n d o m ized to stu d y. 1 st 4 w eeks titra tio n to a n a lg esic effect, th en fixed d o se fo r 8 w eeks
to tria l en d
D o sin g 5 m g -2 0 m g B ID (1 0 m g -4 0 m g T D D ) fo r 1 2 w eeks
E n d p o in ts 1 ': d ecrea se in L ikert p a in sco res, 2 ': Q u a lity o f A n elg esia , g lo b a l a ssessm en t, W O M A C O A in d ex
d ecrea se & S F -1 2 H ea lth S u rvey
P a tien ts 4 1 2 m a le & fem a le p a tien ts w ith O A ; A ctive: 1 3 2 co m p leted , 7 5 ea rly term in a tio n ; P la ceb o : 1 3 1
co m p leted , 7 0 ea rly term in a ted
S a fety N o sa fety issu es, co m m o n o p io id sid e effects o b served
R esu lts 1 ': d ecrea sed p a in in ten sity o n L ikert sca le (p = 0 .0 0 7 ); Q o fA (p = 0 .0 0 4 ), G lo b a l a ssm n t (p = 0 .0 0 7 ),
W O M A C (p = 0 .0 2 3 ), S F -1 2 (p = 0 .0 0 3 )
S o u rce: C a ris & C o m p a n y estim a tes, C o m p a n y rep o rts
FDA Complete Response Letter and re-filing…and Complete Response Letter and re-filing…
King/PTIE initially filed Remoxy with the FDA on June 10, 2008 and it was accepted for priority (6 month) review on
th
August 12, 2008. On November 13 2008, an FDA panel unofficially voted 11 to 8 in favor of approving Remoxy. The
primary concern of the panel was apparently the distinction between “abuse-resistance”, a strong claim of non-abusability,
th
and “tamper-resistance”, a weaker claim. This concern was echoed by the FDA on December 11 2008 when it issued a
Complete Response Letter (CRL) to KG’s NDA filing saying that Remoxy’s NDA could not be approved in its present form.
The FDA has asked for additional non-clinical data to support
the approval of Remoxy.
Exhibit 5: Projected DRRX Remoxy royalty
King/PTIE re-filed Remoxy on 12/27/10 with a 6-month review
cycle, and subsequently King was acquired by PFE on 2/28/11.
We believe one of the key assets that induced PFE to purchase
th
King was the Remoxy abuse-resistant Oxycontin. On June 24
2011, the FDA issued yet another CRL for Remoxy and PFE
expects to conduct a bioavailability study in 2Q12 and then meet
with the FDA in 3Q12 to discuss the regulatory path forward for
Remoxy. We expect that the clinical trial and regulatory
Source: ThinkEquity LLC estimates
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5. March 22, 2012
Company Report
expertise of PFE behind the Remoxy re-submission will get this product across the finish line this time. We project a 1H13
re-submission, 6-month review, and a 2H13 potential NDA approval, with a potential 1Q14 launch. See our table “Branded
Drugs Trial Timelines” at the end of this report for more detail.
Competitive positioning
Purdue Pharmaceuticals (private) won approval for and launched an abuse-resistant version of Oxycontin in August 2010
called Oxycontin-CII. Other products include PFE’s Embeda (abuse-resistant once-daily morphine) that utilizes a
pharmacological approach to abuse deterrence by embedding spheres of naltrexone in the pill to block the release of
opioid if the pill is crushed for abuse.
Economics
Remoxy was originally licensed by DRRX to PTIE, who subsequently out-licensed the technology to King, who was
acquired by PFE 1Q11. PFE has exclusive US rights to develop and to commercialize Remoxy and certain other opioid
drugs formulated with DRRX's Saber technology. PFE controls any pre-clinical, clinical, commercial manufacturing and
sales/marketing activities for additional abuse-resistant opioids developed under this agreement. DRRX is reimbursed for
its expenses for formulation and other work performed under the contract and will receive payments based on the
achievement of certain technical, clinical or regulatory milestones, in addition to receiving royalties on product sales that
start at 6% and scale up to ~11.5%. We model in the following royalty rates: 8.7% in 2014, 9.5% in 2015, and 10% in
2016. We assume a COGS mark-up for delivering raw materials to KG for production.
EXHIBIT 6:
Remoxy timeline
Event Timing Valuation
PTIE licenses Remoxy from DRRX December 2002 Our DCF analysis indicates a Remoxy value of
KG licenses Remoxy from PTIE Novemer 2005 $1.50/share. Our key assumptions include estimates of
KG submits 1st Remoxy NDA June 2008 the company’s share of the Oxycontin market and price,
Complete Response Letter #1 received December 2008 and a 55% chance of ultimate approval, which we
PFE announces KG acquisition October 2010 believe is in line with the late-stage nature of the filing
KG re-submits Remoxy NDA December 2010 and the 2 prior CRLs. We model in pricing of $325,
PFE closes KG acquisition March 2011 which we believe will be in-line with branded Oxycontin
Complete Response Letter #2 received June 2011 prices by the time Remoxy potentially makes it to
PFE to conduct 2 bioavailability studies 2Q12E market. We view this as a niche product among
PFE to meet FDA on next steps 3Q12E practicing physicians at the outset, but believe that it
PFE expected to re-submit Remoxy 2H12E could gain wider acceptance if it ends up showing
clinically relevant decreases in abuse.
Source: Company Reports and ThinkEquity LLC estimates
Patent
We expect that the patent should last post-2015, but drug delivery patents can come under multiple legal challenges, and
there can be no guarantee that generics do not appear prior to this date. In particular, it is unclear to us how the drug
release profile of this product compares vs. Purdue Pharma’s regular Oxycontin. At the end of the day, in our view it is
effectively just a 2x/day Oxycontin product, abuse resistant or not. If the drug pharmacokinetic profile (PK curve ) is within
a 20% correlation of Oxycontin’s then it could be a violation of Purdue’s patents. Both King and PTIE have insisted in the
past that Remoxy’s PK profile is not similar to Oxycontin and does not violate Purdue’s patents, but this data has not been
made publicly available.
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6. March 22, 2012
Company Report
Posidur - saber bupivacaine for post-surgical pain - $1/share
Key issues: DRRX plans to meet with the FDA to discuss filing Posidur based on earlier phase 2b hernia & shoulder that
showed statistically significant reductions in pain & opioid use, in spite of the recent failed phase 3 BESST trial. If the F DA
agrees with DRRX’s strategy this product could have a potential 2013 PDUFA date.
Posidur is a long-acting local anesthetic being developed for the treatment of post-surgical pain. It is injected following
surgery adjacent to the incision, where it continuously releases bupivacaine in a controlled fashion, which can be adjusted
to provide up to 72 hours of local analgesia. We believe the advantage to Posidur is its longer duration, which can provide
full dosing over the post-surgical period without the need for re-dosing every 4-6 hours (the current indication for
bupivacaine). The market for this product is substantial, as there are over 70 million combined inpatient and outpatient
surgical procedures performed each year in the U.S. We believe that Posidur could be utilized in 33% of these procedures
(surgeries include: abdominal, orthopedic, hernia, among others).
Phase 3 BESST clinical trial data
DRRX announced on 1/5/12 that the phase 3 BESST (Bupivacaine Effectiveness and Safety in Saber Trial) trials that
Posidur had failed to reach statistical significance on either co-primary endpoint: pain intensity on movement 0-3 days
post-surgery or supplemental opioid use 0-3 days post-surgery.
Cohorts 1 and 2
Posidur vs commercially available Bupivacaine HCl solution after
Exhibit 7: Posidur gel
laparotomy and after laparoscopic cholecystectomy, respectively. Cohorts
1 and 2 were prespecified to be pooled due to their small sample size.
With respect to Cohorts 1 and 2 (pooled), the mean reduction in pain on
movement was approximately 20% (p=0.0111) for the POSIDUR group
compared to the patient group treated with bupivacaine HCl. In relation to
median total morphine-equivalent opioid dose for supplemental analgesia
during the period 0-72 hours post-dose for Cohorts 1 and 2 (pooled), the
patient group treated with POSIDUR reported approximately 18% less
opioids consumed compared to the bupivacaine HCl group (p=0.5455).
Cohort 3
Posidur versus Saber-Placebo, laparoscopically-assisted colectomy. With
respect to the co-primary efficacy endpoint of pain reduction as measured
by mean pain intensity on movement (normalized) Area Under the Curve
(AUC) during the period 0-72 hours post-dose, the patient group treated Source: www.durect.com.
with Posidur 5.0 mL (660 mg) reported a mean pain reduction in pain
scores of approximately 7% (p=0.1466). The statistical analysis plan included pain on movement as recorded at
scheduled times through an electronic diary plus pain scores reported whenever supplemental opioids were administered
with such scores attributed as if they were pain on movement. In the prespecified sensitivity analysis (which includes only
scheduled pain assessment on movement scores as collected on the electronic diary), the patient group treated with
Posidur 5.0 mL reported approximately 10% less pain versus placebo (p=0.0410). In relation to the co-primary efficacy
endpoint of median total morphine-equivalent opioid dose for supplemental analgesia during the period 0-72 hours post-
dose, the patient group treated with Posidur reported approximately 16% less opioids consumed versus the placebo group
(p=0.5897).
Overall, the Posidur groups showed a similar systemic safety profile as the patient groups treated with Saber-Placebo and
active comparator. There were no signs of systemic safety issues. Local site reactions were observed more frequently in
the Posidur and Saber-Placebo groups than in the active comparator groups; most of these observations were
discolorations, the majority of which resolved without treatment during the trial. No negative safety signal was seen in the
initial cardiac and neurologic safety assessment in BESST; however further analysis is underway. See table below for a
summary of the BESST trial data details.
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7. March 22, 2012
Company Report
EXHIBIT 8:
Phase 3 BESST trial: Posidur abdominal surgery - results 1/5/12
Aim Safety & efficacy of Posidur in reducing pain and opioid-related side effects following various
abdominal surgeries
Design multicenter, random, 2x-blind, parallel assignment. 3 cohorts: (1): 48 pts Posidur 5mL vs. placebo
after laparotomy, (2): 50 pts Posidur 5mL vs placebo after laproscopic cholecystectomy, (3): 207
pts Posidur 5mL vs placebo after laproscopically-assisted colectomy
Dosing 5mL Posidur directly onto wound post surgically
Endpoints co-1': pain intensity on movement AUC 0-3 days post, supplemental opioid use 0-3 days post;
2': mean pain on movement, time to 1st rescue meds, opioid side effects, pain at rest
Patients cohort 1 n=48; cohort 2 n=50; cohort 3=207
Safety no signs of systemic safety issues, local site reactions were observed more frequently
Results - 1/5/12 results trended positive for pain reduction & reduction of supplemental opioids days 0-3 post
surgery, but they did not reach statistical significance.
Source: Company reports
Phase 2b clinical trial data
DRRX presented Posidur phase 2b data in 3Q07 from an Australia & New Zealand trial that was designed to evaluate the
tolerability, activity, dose response and pharmacokinetics of Posidur in patients undergoing open inguinal hernia repair.
The study was a multi-center, randomized, double blind, placebo-controlled study in 122 patients. Study patients were
randomized into three treatment groups: patients that were treated with Posidur 2.5 mL (n=43), Posidur 5 mL (n=47) and
placebo (n=32). The co-primary efficacy endpoints for the study were Mean Pain Intensity on Movement area under the
curve (AUC), a measure of pain over a period of time, 1-72 hours post-surgery, and the proportion of patients requiring
supplemental opioid analgesic medication during the study. Secondary efficacy endpoints included Mean Pain Intensity on
Movement AUC over the period 1-48 hours post-surgery, mean total consumption of supplemental opioid analgesic
medication, and time to first use of supplemental opioid analgesic medication. The study hit on some Mean Pain Intensity
on Movement primary endpoints in the 5mL dose, but missed on the % of patients taking supplemental opioids. See
details below.
EXHIBIT 9:
Phase 2b trial: Posidur for Inguinal Hernia - results 7/17/07
Aim tolerability, activity, dose response & PK profile in patients undergoing inguinal hernia repair
Design Australia & NZ multi-center, random, 2x blind, placebo controlled; randomized to
Dosing 2.5ml or 5ml Posidur post-surgical
Endpoints 1': mean pain intensity on movement 1-72hrs, % of pts requiring supplemental opioids
2': mpiom 1-48hrs, total supplemental opioids, time to 1st supplemental opioid use
Patients 122 patients: 3 groups: Posidur 2.5ml (n=43), Posidur 5ml (n=47), placebo (n=32)
Safety comparable safety in 2.5ml/5ml groups to placebo
Results - 7/17/07 1': 5ml -31% mpiom 1-72hrs (p=0.0033), 2': 5ml -35% mpiom 1-48hr (p=0.0007)
1': 53% 5ml group took supp. opioids (vs. 72% placebo) (p=0.09, not sig.)
2.5ml dose showed trends but not stat sig. 5ml dose will be used in phase 3
Source: Company reports
Next steps for Posidur
DRRX anticipates meeting with the FDA in mid-2012 to discuss the potential path forward for Posidur. While the recent
phase 3 BESST trial was a failure, DRRX believes that there may be a legitimate path forward for Posidur utilizing the
2007 phase 2b Hernia study (data in exhibit above) and the phase 2 shoulder surgery study (data in exhibit below) that
apparently shows a reduction in pain scores and opioid use over 3 days. While DRRX has yet to publicly disclose the
details of the shoulder study due to prior requirements of former partner Nycomed, we expect that DRRX could disclose
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8. March 22, 2012
Company Report
the full shoulder study data set by the end of 1Q12. This data set would closely resemble the small-surgery model path to
approval that Pacira Pharmaceuticals (PCRX) followed in their 2011 approval for Exparel (DepoBupivacaine) where they
submitted data in hemorrhoid & bunion removal models (see Exparel data in below exhibits).
Assuming the FDA agrees with DRRX’s Posidur submission plan, we believe that Posidur could have an NDA filed by
1H13 with a potential 1H14 FDA approval & potential mid-2014 launch (see Branded drugs trial timelines chart at end of
report for more details).
EXHIBIT 10:
Phase 2b trial: Posidur for shoulder surgery - results 2/9/11
Aim Safety & efficacy of Posidur in reducing pain and opioid-related side effects vs placebo & active
comparator in arthroscopic shoulder surgery
Design 3 treatment groups: 1) 5mL Posidur; 2) bupivacaine HCI solution; 3) Saber-placebo
Dosing 5mL Posidur/comparator/placebo directly onto wound post surgically
Endpoints co-1': non-inferiority of Posidur to Saber-Placebo for pain intensity measured as an Area Under the
Curve (AUC) 1-72 hrs post-surgery; 2) Superiority of Posidur to placebo in use of rescue meds 0-
72 hrs post surgery
Patients N = 107
Safety comparable safety profile between the three groups and Posidur appeared well tolerated
Results - 2/9/11 1': stat sig pain intensity reduction and in opioid sparing vs Saber-placebo; No stat sig difference
Topline only compared to active comparator
Source: Company reports
EXHIBIT 11:
Phase 3 trial: Exparel (DepoBupivacaine) for bunionectomy - results 10/20/09
Aim Safety & efficacy of Exparel for prolonged postoperative analgesia in patients undergoing metatarsal
osteotomy (bunionectomy)
Design multicenter, random, 2x-blind, parallel-group, placebo controlled study; Pain intensity rated by patients
on 0-10 numeric rating scale (NRS) out to 72 hours. Rescue meds (5mg oxycodone/325mg
acetaminophen orally every 4-6 hrs as needed or ketorolac 15-30mg IV).
Dosing 106mg Exparel directly into wound at conclusion of surgery
Endpoints 1': cumulative area under the curve (AUC) of NRS pain intensity over 1st 24 hrs post surgical;
2': % pts pain free 8-48 hrs; % pts requesting & total amount rescue meds through 24hrs;
Patients N = 193
Safety Well tolerated, AE's similar to placebo; No SAEs
Results - 10/20/09 1': reduced NRS scores (p=0.0005) 24 hrs post-surgery;
2': % pts requesting rescue meds (1% vs 7% placebo; p<0.05), fewer opiods over 24 hrs post
(p=0.0077); pain free at 2,4,8,48 hrs post-surgery than placebo (p<0.05)
Source: Company reports
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9. March 22, 2012
Company Report
EXHIBIT 12:
Phase 3 trial: Exparel (DepoBupivacaine) for hemorrhoidectomy - results 12/1/09
Aim Safety & efficacy of Exparel for prolonged postoperative analgesia in patients undergoing
hemorrhoidectomy
Design multicenter, random, 2x-blind, parallel-group, placebo controlled study; Pain intensity rated by patients
on 0-10 numeric rating scale (NRS) out to 72 hours. Rescue meds (morphine sulfate 10mg IM every
4hrs as needed).
Dosing 266mg Exparel directly into wound at conclusion of surgery
Endpoints 1': cumulative area under the curve (AUC) of NRS pain intensity over 1st 72 hrs post surgical;
2': % pts opioid free; time to 1st opioid rescue; total opioid consumption through 72 hrs;
Patients N = 189
Safety Well tolerated, AE's similar to placebo; No SAEs
Results - 12/1/09 1': reduced NRS scores (p<0.0001);
2': % opioid free (p<0.0008); median time to rescue med (p<0.0001); total opioid consumption through
72 hrs (p=0.0006)
Source: Company reports
Competitive positioning
The primary competing therapy for Posidur (besides traditional Lidoderm post-surgical infusion) is PCRX’s Exparel, a long
acting bupivacaine that was approved in October 2011 for postsurgical analgesia and is expected to be launched in April
2012. PCRX has stated they expect to command a little over $250 per injection for Exparel.
Economics
In 2Q10, HSP paid DRRX $27.5M up-front with $185M in development & sales milestones with an undisclosed sales
royalty (we assume a tiered 14%-20% sales royalty). In 4Q06, Nycomed paid DRRX a $14M upfront for the European
rights to Posidur with a potential for up to $180M in development and
sales milestones. Following the 1H11 acquisition of Nycomed by
Japanese pharmaceutical company Takeda and the recent Exhibit 13: Alzet & Lactel
announcement of the failed phase 3 BESST trials, Nycomed returned
the EU rights to DRRX. US partner Hospira remains committed to the
continued US development of Posidur (at this point anyway) and while
we believe the Nycomed return likely slows EU development it also
opens the door to re-out licensing Posidur for the EU in the future.
Valuation
Our DCF analysis indicates a Posidur value of $1.00 per DRRX share.
Our key assumptions include estimates about the share of the U.S.
post-operative surgical market and price. We assume pricing of ~$300
per usage starting in 1H14E, which we believe will be in-line with
current treatment costs for acute post-operative pain. We expect the
competing product Exparel by PCRX to be priced around $250 per
treatment starting in 1H12E, which could reasonably be in the Source: www.durect.com.
~$300/dose range by 2014E. We have applied a 35% discount rate to
our valuation to account for the risks to approval for Posidur.
Alzet & Lactel – valuing the base business at DRRX - $0.25/share
Key issues: In our view this is the “backstop” program for DRRX and represents the basic valuation parameter for the
company. While not a high growth, high margin business, it does generate a consistent $12M-$13M annually for DRRX.
The Alzet implantable pump line consists of miniature, implantable osmotic pumps and accessories used for experimental
research in mice, rats and other lab animals. The pumps are not approved for, nor intended for human use. ALZET pumps
continuously deliver drugs, hormones and other test agents at controlled rates from one day to four weeks without the
need for external connections, frequent handling or repeated dosing. In laboratory research, these infusion pumps can be
used for systemic administration when implanted under the skin or in the body. They can be attached to a catheter for
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10. March 22, 2012
Company Report
intravenous, intracerebral, or intra-arterial infusion or for targeted delivery, where the effects of a drug or test agent are
localized in a particular tissue or organ. The Alzet product line is referenced in more than 12,000 scientific texts currently.
Lactel Absorbable Polymers are a range of standard or custom designed biodegradable polymers based on lactide,
glycolide and caprolactone for pharmaceutical and medical device manufacturers for use as raw materials in their
products. The polymers are manufactured and sold from DRRX’s Alabama facility and are used for a variety of controlled-
release and medical-device applications, including several (undisclosed) FDA-approved commercial products.
Both the Alzet and the Lactel products are sold through a direct sales force in the US and through a network of distributors
OUS.
Other assets – Eladur, Relday, Transdur
Key issues: Few of the following products are close to the market, or have experienced clinical trial failure or are otherwise
inexplicably halted. While there is little near-term benefit from this group it highlights the diverse applicability of DRRX’s
Saber drug delivery technology.
Eladur
DRRX is developing the transdermal bupivacaine patch Eladur utilizing the DRRX transdermal technology from Transdur
that is designed to provide continuous delivery of bupivacaine for up to three days from a single application. This
compares with a 12 hr. wear with ENDP’s Lidoderm. We expect Eladur to have many differentiating attributes from
Lidoderm including an extended duration of action and better wearability. In April 2011, DRRX reported top-line results
from a 263 patient phase 2 clinical trial in chronic low back pain for Eladur where Eladur failed to differentiate from
placebo for the endpoint of mean change in pain intensity scores from baseline to the mean of week 11 and week 12. PFE
recently returned Eladur back to DRRX, and the company is continuing to evaluate the recent study failure to determine
the next steps with this program and potential new partners for this program.
Relday
DRRX is partnered with Zogenix (ZGNX) for the clinical development and commercialization of Relday, a proprietary,
long-acting injectable formulation of risperidone using DRRX’s Saber controlled-release formulation technology in
combination with ZGNX’s DosePro needle-free, subcutaneous drug delivery system. The companies will also share non-
clinical development responsibilities. ZGNX expects to initiate clinical studies for Relday in patients with schizophrenia in
1H13 following filing of an Investigational New Drug (IND) application. ZGNX has made a $2.25M upfront payment to
DRRX, with an additional $103M in potential future clinical, regulatory and commercial milestone payments based upon
successful achievement of certain events. ZGNX will have exclusive global rights to commercialize Relday and will pay
DRRX an undisclosed royalty on Relday sales.
Transdur
One of the major class of drugs utilized to treat chronic pain is comprised of oral opioids, such as Oxycontin, a branded
extended-release oral oxycodone-based painkiller which accounted for over $3B in worldwide sales in 2010 according to
IMS. Another major class of drugs utilized to treat chronic pain is transdermally delivered opioids such as Duragesic, a
leading transdermal fentanyl product which accounted for approximately $750M in worldwide sales in 2010 according to
IMS. DRRX is developing a transdermal sufentanil patch (Transdur-sufentanil) for continuous delivery of sufentanil for up
to seven days from a single application, as compared to the two to three days of relief provided by currently available
Duragesic & generic Duragesic. DRRX has developed a smaller sufentanil patch (~1/5th the size of currently marketed
transdermal fentanyl patches for a therapeutically equivalent dose) with a longer duration of delivery that could offer
improved convenience and compliance for patients.
In 2008, ENDP successfully completed a phase 2 clinical trial for Transdur in which ENDP evaluated the conversion of
patients on oral and transdermal opioids to Transdur. The phase 2 trial met its primary and secondary objectives of
establishing a successful dose-titration regimen and dose potency relationships, demonstrating safety and tolerability at
the therapeutic dose, and achieving effective analgesic pain control. The phase 2 data, extensive non-clinical data that
had been generated by ENDP and a potential regulatory pathway for the phase 3 program were reviewed with the FDA at
an end-of-phase 2 meeting on February 19, 2009 and the program was returned by ENDP to DRRX. The current path
forward for Transdur remains muddled in our view given the lack of movement since the drug was returned in 2008.
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11. March 22, 2012
Company Report
EXHIBIT 14:
Drug Patent
Remoxy 2025
Posidur 2015; 1 pending patent to 2025
Source: Company reports
MANAGEMENT
James E. Brown, D.V.M. co-founder, President, CEO and Director. Prior to 1998, Dr. Brown worked at ALZA
Corporation as Vice President of Biopharmaceutical and Implant Research and Development from June 1995 to June
1998. Prior to that, Dr. Brown held various positions at Syntex Corporation, a pharmaceutical company, including Director
of Business Development from May 1994 to May 1995, Director of Joint Ventures for Discovery Research from April 1992
to May 1995, and held a number of positions including Program Director for Syntex Research and Development from
October 1985 to March 1992.
Matthew J. Hogan, CFO. Mr. Hogan joined Durect from Ciphergen Biosystems, Inc., where he was the Chief Financial
Officer from 2000 to 2006 and a consultant from March 2006. Prior to joining Ciphergen, Mr. Hogan was the Chief
Financial Officer at Avocet Medical, Inc. from 1999 to 2000. From 1996 to 1999, Mr. Hogan was the Chief Financial Officer
at Microcide Pharmaceuticals, Inc. From 1986 to 1996, he held various positions in the investment banking group at
Merrill Lynch & Co., most recently as a Director focusing on the biotechnology and pharmaceutical sectors. Mr. Hogan
holds a B.A. in economics from Dartmouth College and an M.B.A. from the Amos Tuck School of Business Administration.
Felix Theeuwes, D.Sc., Chairman, co-founder, and Chief Scientific Officer. Dr. Theeuwes was with ALZA Corporation
from 1970 until June 1999 holding positions directing research, technology development, and product development for a
variety of controlled drug delivery systems. His work led to the product introduction of the ALZET® mini osmotic pump
series for animal research, and the OROS® systems series of products. He directed research in transdermal research and
development, initiated the electrotransport/iontophoresis program, and initiated the DUROS® osmotic implant program.
He holds more than 210 U.S. patents covering these systems and published more than 80 articles and book chapters.
RISKS TO PRICE TARGET
Exogenous events could impact our outlook. We believe that pharmaceutical companies have the least control over
competitive, political, and regulatory risks. Although we have incorporated competitive assumptions into our forecasts,
there may be other risks beyond the scope of our analysis. Changes in the drug reimbursement system, as well as any
political or regulatory amendments, may significantly influence the earnings power of these companies.
Actual clinical results and the FDA’s conclusions may deviate from our expectations. Many of our assumptions are
based on a review of incomplete clinical trial data available in the public domain. Often our conclusions are drawn from
early-stage data, which may not be reflected by pivotal studies. Furthermore, the FDA’s conclusions may not coincide with
our own, materially changing our revenue and earnings assumptions.
Compliance issues, product recalls, and other mandates by regulatory authorities could materially change our
expectations. Regulatory compliance issues, ranging from accounting irregularities to defective manufacturing practices,
could materially change our assumptions and earnings outlook. Unanticipated product recalls and labeling changes could
also have adverse consequences on our earnings assumptions.
Legal risks could lead to additional liabilities and revenue loss. In addition to the expenses incurred by patent
challenges, product liability and other legal suits could occur and lead to additional liabilities and revenue loss, which
could substantially change our financial assumptions.
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12. March 22, 2012
Company Report
EXHIBIT 15:
Durect Corporation
Branded drugs trial timelines
2011A 2012E 2013E 2014E 2015E
1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE
Remoxy - less abusable OxyContin
KG re-files with the FDA 4Q10 - NDA accepted 1/27/11
FDA PDUFA #2 - June 23rd PDUFA - CR Letter #2 FDA 2
PFE to run 2 bioavailability studies BA's
Meet FDA meet
Refile NDA (3rd time) NDA 3
FDA PDUFA #3 - assume 6-mo review again FDA 3
PFE launch LAUNCH
Posidur (SABER-Bupivacaine injection for post-op. pain, partnered with Nycomed in EUR)
Phase 3 - FAILED PRIMARY ENDPOINT 1/5/12 phase 3 - US data
BESST Trial, 1H11 complete enroll
6/7/10 Partner with Hospira for US
Meet FDA to discuss filing plans meet
NDA filing & FDA approval (file shoulder & hernia trials) NDA FDA
Launch - US by Hospira LAUNCH
Nycomed 2 phase 2b's "Optesia" trade name in EU
hysterectomy - FAILED 6/16/10
Phase 2 shoulder - mixed data 2/9/11 data
Takeda (Nycomed) returns Posidur back to DRRX prtnr
Relday LA risperidone (for schizophrenia) with Zogenix
CMC pre-clinical development CMC activities
Phase 1 phase 1
Phase 2 & 3 timing uncertain additional trials
Specialty Pharmaceuticals
Source: Company reports and ThinkEquity LLC estimates Jim Molloy (617) 778-9308 | jmolloy@thinkequity.com
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13. March 22, 2012
Company Report
Durect Corporation
Quarterly income statement
2011A 2011A 2012E 2012E 2013E
($000 except per share) 1QA 2QA 3QA 4QA Year 1QE 2QE 3QE 4QE Year
Revenues
Product revenue, net $3,092 $2,645 $2,909 $2,481 $11,127 $3,371 $2,880 $3,039 $2,925 $12,215
Collab. R&D & other 5,512 5,188 5,206 6,454 22,360 4,322 4,322 4,322 4,322 17,287
Total revenues $8,604 $7,833 $8,115 $8,935 $33,487 $7,693 $7,201 $7,361 $7,247 $29,502
Expenses
COGS 1,401 1,085 1,300 927 4,713 1,154 1,080 1,104 1,087 4,425
Gross profits 7,203 6,748 6,815 8,008 28,774 6,539 6,121 6,257 6,160 25,077
Research & development 9,880 8,708 8,452 7,013 34,053 7,000 6,500 6,500 6,250 26,250
Selling, general & admin 3,716 3,327 3,377 3,154 13,574 3,000 2,750 2,750 2,750 11,250
Total operating expenses 14,997 13,120 13,129 11,094 52,340 11,154 10,330 10,354 10,087 41,925
Income (loss) from ops (6,393) (5,287) (5,014) (2,159) (18,853) (3,461) (3,129) (2,993) (2,840) (12,423)
Interest & other, net 36 42 (11) 21 88 20 20 20 20 80
Debt conversion expense
Earnings before taxes (6,357) (5,245) (5,025) (2,138) (18,765) (3,441) (3,109) (2,973) (2,820) (12,343)
Income tax provision 0 0 0 0 0 0 0 0 0 0
Net income (loss) (6,357) (5,245) (5,025) (2,138) (18,765) (3,441) (3,109) (2,973) (2,820) (12,343)
1x items, after tax
Net income ex-1x items
EPS ($0.07) ($0.06) ($0.06) ($0.02) ($0.21) ($0.04) ($0.04) ($0.03) ($0.02) ($0.12)
EPS ex-1x milestones
Weighted avg. shares (000) 87,270 87,404 87,450 87,514 87,410 87,614 87,714 117,814 117,914 102,764
Fully diluted shares (000) 96,270 108,557 108,855 108,919 108,710 109,019 109,119 139,219 139,319 124,169
Margin & expense analysis
Gross Profit 84% 86% 84% 90% 86% 85% 85% 85% 85% 85%
Operating margin -74% -67% -62% -24% -56% -45% -43% -41% -39% -42%
Net margin cont. ops. -74% -67% -62% -24% -56% -45% -43% -40% -39% -42%
Tax rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Year-over-year change
Total revenue 12% 7% 0% 5% 6% -11% -8% -9% -19% -12%
COGS 2% 26% 51% -21% 10% -18% 0% -15% 17% -6%
R&D 5% -5% 4% -26% -6% -29% -25% -23% -11% -23%
SG&A 6% -7% -11% -22% -9% -19% -17% -19% -13% -17%
Specialty Pharmaceuticals
Source: Company reports and ThinkEquity LLC estimates Jim Molloy (617) 778-9308 jmolloy@thinkequity.com
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14. March 22, 2012
Company Report
Durect Corporation
Annual income statement
($000 except per share) 2011A 2012E 2013E 2014E 2015E Comments
Revenues
Remoxy royalties $19,691 $44,750 Assume 2H13 approval
Posidur royalties 18,588 44,865 Hospira US partner, post op pain
Product revenue, net $11,127 $12,215 $12,766 13,344 13,951 Alzet & Lactel polymers
Collab. R&D & other revenue 22,360 17,287 12,603 5,600 5,600 amortized milestones here
Total revenues $33,487 $29,502 $25,369 $57,224 $109,166
Expenses
COGS 4,713 4,425 3,552 8,011 15,283
Gross profits 28,774 25,077 21,818 49,213 93,883
Research & development 34,053 26,250 27,000 29,750 33,500
Selling, general & admin 13,574 11,250 11,000 12,000 13,500 Headcount reduced in 1Q12
Total operating expenses 52,340 41,925 41,552 49,761 62,283
Inc (loss) from ops (18,853) (12,423) (16,182) 7,463 46,883 Guide: ~$12M burn in 2012
Interest & other net 88 80 50 46 180
Earnings before taxes (18,765) (12,343) (16,132) 7,509 47,063
Income tax provision 0 0 0 0 12,448 $400M NOL's & R&D credits
Net income (loss) (18,765) (12,343) (16,132) 7,509 34,615
EPS, fully diluted ($0.21) ($0.12) ($0.14) $0.05 $0.25
Weighted avg. shares (000) 87,410 102,764 118,164 118,564 118,964
Fully diluted shares (000) 108,710 124,169 139,664 140,064 140,464
Cash & equivalents $28,431 $24,730 $17,161 $32,549 $77,382 FY12 Guide: $12M burn rate
Margin & expense analysis
Gross Profit 86% 85% 86% 86% 86%
Operating margin -56% -42% -64% 13% 43%
Net margin cont. ops. -56% -42% -64% 13% 32%
Tax rate 0% 0% 0% 0% 26%
Year-over-year change
Total revenue 6% -12% -14% 126% 91%
COGS 10% -6% -20% 126% 91%
R&D -6% -23% 3% 10% 13%
SG&A -9% -17% -2% 9% 13%
Specialty Pharmaceuticals
Source: Company reports and ThinkEquity LLC estimates Jim Molloy (617) 778-9308 jmolloy@thinkequity.com
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15. March 22, 2012
Company Report
Durect Corporation
Balance sheet model
(values in 000's) 2010A 1Q11A 2Q11A 3Q11A 2011A 2012E 2013E 2014E 2015E
Assets
Cash & equiv. $10,437 $4,830 $5,486 $7,031 $8,896 $24,730 $14,731 $30,119 $74,952
ST investments 35,005 33,541 29,247 25,428 19,535
Total current assets 54,845 47,793 42,539 40,409 37,301 37,624 32,209 40,544 86,278
Net PP&E 1,776 1,752 2,204 3,412 3,124 22,750 30,000 30,000 32,500
Goodwill 6,399 6,399 6,399 6,399 6,399 6,399 6,399 6,399 6,399
Total assets 67,560 59,945 54,344 53,249 49,196 71,635 69,911 84,071 141,581
Liabilities
Total current liabilities 17,909 16,132 15,769 16,402 14,891 14,751 15,222 14,306 22,925
Total liabilities 53,073 49,285 46,935 48,334 45,719 44,751 47,722 48,306 59,675
Additional paid-in capital 351,679 353,766 355,757 357,504 359,006 394,736 406,173 412,240 458,379
Accumulated deficit (337,205) (343,135) (348,380) (353,405) (355,543) (367,886) (384,019) (376,510) (376,510)
Shareholders' equity 14,487 10,660 7,409 4,119 3,477 26,884 22,190 35,765 81,906
Total liab & net worth 67,560 59,945 54,344 52,453 49,196 71,635 69,911 84,071 141,581
Source: Company reports and ThinkEquity LLC estimates
Durect Corporation
Statement of cash flows model
(values in 000's) 2010A 1Q11A 2Q11A 3Q11A 2011A 2012E 2013E 2014E 2015E
Operating cash flow
Net loss ($22,898) ($6,357) ($11,602) ($16,627) ($18,765) ($12,343) ($16,132) $7,509 $34,615
Depreciation & amort. 2,214 284 519 735 1,176 1,033 888 1,717 3,275
Change in assets &
liabilities 1,302 (1,840) (533) 1,145 (1,222) (255) (554) 313 (1,558)
Cash from operations 7,763 (8,143) (12,139) (13,104) (17,386) (4,566) (8,799) 16,538 46,333
Investing cash flow
Purchase of PP&E (256) (256) (937) (2,328) (2,467) (2,000) (2,500) (2,500) (3,000)
Cash from investing (6,130) 1,811 6,177 8,718 14,734 (2,000) (2,500) (2,500) (3,000)
Financing cash flow
Common stock issuance 565 737 994 994 1,126 22,350 1,250 1,300 1,450
Cash from financing 517 725 1,011 980 1,111 22,400 1,300 1,350 1,500
Net change in cash 2,150 (5,607) (4,951) (3,406) (1,541) 15,834 (9,999) 15,388 44,833
Cash at beginning of period 8,287 10,437 10,437 10,437 10,437 8,896 24,730 14,731 30,119
Cash at end of period 10,437 4,830 5,486 7,031 8,896 24,730 14,731 30,119 74,952
Source: Company reports and ThinkEquity LLC estimates
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16. March 22, 2012
Company Report
Initiation of Coverage
COMPANIES MENTIONED IN THIS REPORT:
Company Exchange Symbol Price Rating
Endo Pharmaceuticals Holdings Inc. NASDAQ ENDP $35.98 Buy
Important Disclosures
Analyst Certification
I, James Molloy, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the
subject securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.
The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total
revenues, a portion of which is generated by investment banking activities. The analyst(s) also receive compensation in the form of a
percentage of commissions from trades made through the firm in the securities of the subject company of this report, although not for any
investment banking transactions with or involving the subject company.
ThinkEquity LLC makes a market in Durect Corp. and Endo Pharmaceuticals Holdings Inc. securities; and/or associated persons may sell
to or buy from customers on a principal basis.
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17. March 22, 2012
Company Report
Initiation of Coverage
Rating Definitions
Effective October 7, 2009, ThinkEquity LLC moved from a four-tier Buy/Accumulate/Source of Funds/Sell rating system to a three-tier Buy/
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Distribution of Ratings, Firmwide
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IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [B] 127 66.84 13 10.24
HOLD [H] 52 27.37 1 1.92
SELL [S] 11 5.79 0 0.00
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18. March 22, 2012
Company Report
Initiation of Coverage
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