Here's Why DURECT Corporation Is Tanking Today

By Markets

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What happened

Investors in DURECT Corporation(NASDAQ: DRRX), a specialty pharmaceutical company that develops anti-abuse drug technology, are having a rough start to the trading week. Shares are down by more than 32% as of 12:15 p.m. EDT after news broke that the Food and Drug Administration has rejectedPain Therapeutics' (NASDAQ: PTIE) application for Remoxy ER, which is a drug that utilizes Durect's technology.

So what

More than a decade ago, Pain Therapeutics licensed the rights to develop and commercialize Remoxy ER from Durect. The terms of the agreement called for Pain Therapeuticsto fund all development work and provideDurectwith development and regulatory milestone payments as they are achieved. Durectwould also be entitled to receive a royalty of up to 11.5% of net sales of Remoxy ER if it reached the market.

Unfortunately, it looks like shareholders will have a bit more waiting to do before they will learn if this agreement will ultimately bear fruit. Pain Therapeutics announced today that the FDA had rejected its NDA for Remoxy ER. The agency stated that they could not approve the application in its current form. Specifically, the FDA said that it wasn't satisfied with the drug'slabeling and abuse-deterrent properties.

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Pain Therapeutics said that they are evaluating the letter and are already planning for another round of studies that will address the FDA's concerns. However, coming up with the new data is expected to cost around $5 million and take a year to complete.

Given that this news delays Durect from pulling in revenue for at least another year, it is no surprise to see that Wall Street is dumping the company's sharestoday.

Now what

The only positive takeaway from this announcementis that the FDA did not seem to have any issues with the drug's clinical safety profile or efficacy. That hints that the problems with the application should be fixable.

However, the market's clearly are not happy about the delay and rightly so. Last quarter, Durect lost $9 million and it only held $34 million in cash on its books. If that burn rate persists, then another round of fundraising could be on the horizon.

With questions in the air surroundingRemoxy ER's future and a dwindling cash position, I think the smart move is to stay far away from Durect's shares.

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Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter where he goes by the handle@Longtermmindsetor connect with him on LinkedIn to see more articles like this.

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