1082038--3/13/2008--DURECT

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{product, candidate, development}

{product, liability, claim}

{acquisition, growth, future}

{control, financial, internal}

{stock, price, share}

{property, intellectual, protect}

{debt, indebtedness, cash}

{product, market, service}

{cost, regulation, environmental}

{regulation, change, law}

{personnel, key, retain}

{capital, credit, financial}

{investment, property, distribution}

{customer, product, revenue}

{condition, economic, financial}

{provision, law, control}

{tax, income, asset}

Development of our pharmaceutical systems is not complete, and we cannot be certain that our pharmaceutical systems will be able to be commercialized We or our third-party collaborators must conduct and satisfactorily complete required laboratory performance and safety testing, animal studies and clinical trials for our pharmaceutical systems before they can be sold Regulatory action or failure to obtain product approvals could delay or limit development and commercialization of our pharmaceutical systems and result in failure to achieve anticipated revenues We and our third-party collaborators may not be able to manufacture sufficient quantities of our pharmaceutical systems 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 Failure to comply with ongoing governmental regulations for our pharmaceutical systems could materially harm our business in the future We have a history of operating losses, expect to continue to have losses in the future and may never achieve or maintain profitability We may have difficulty raising needed capital in the future If we are required to repay our convertible subordinated notes due June 15, 2008, we may have to take steps to defer programs and costs, and raise additional financing from the sale of equity or debt securities or otherwise restructure our existing debt obligations We may be required to redeem our outstanding convertible subordinated notes before maturity, and we may not have sufficient funds to do so. The redemption rights in our outstanding convertible subordinated notes could discourage a potential acquirer Our near-term revenues depend on collaboration agreements with other companies. These agreements subject us to obligations which must be fulfilled and require us to manage complex relationships with third parties. If we are unable to meet our obligations or manage our relationships with our collaborators under these agreements or enter into additional collaboration agreements or if our existing collaborations are terminated, our revenues may decrease We depend to a large extent on third-party collaborators, and we have limited or no control over the development, sales, distribution and disclosure for our pharmaceutical systems which are the subject of third-party collaborative or license agreements Our business strategy includes the entry into additional collaborative agreements. We may not be able to enter into additional collaborative agreements or may not be able to negotiate commercially acceptable terms for these agreements We may develop our own sales force to market POSIDUR and to co-promote, along with Endo, TRANSDUR-Sufentanil in the United States but we have limited sales experience and may not be able to do so effectively We and our third-party collaborators may not sell our pharmaceutical systems effectively We rely heavily on third parties to support development, clinical testing and manufacturing of our pharmaceutical systems Key components of our pharmaceutical systems are provided by limited numbers of suppliers, and supply shortages or loss of these suppliers could result in interruptions in supply or increased costs If we are unable to adequately protect or enforce our intellectual property rights or secure rights to third-party patents, we may lose valuable assets, experience reduced market share or incur costly litigation to protect our rights or our third-party collaborators may choose to terminate their agreements with us KSR v. Telefex, EBay v. MercExchange MedImmune, Inc. v. Genentech, Inc. We may be sued by third parties which claim that our pharmaceutical systems infringe on their intellectual property rights, particularly because there is substantial uncertainty about the validity and breadth of medical patents We may be required to obtain rights to certain drugs Technologies and businesses which we have acquired may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. We may also acquire additional businesses or technologies in the future, which could have these same effects Some of our pharmaceutical systems 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 Write-offs related to the impairment of long-lived assets and other non-cash charges, as well as stock-based compensation expenses may adversely impact or delay our profitability Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives. We depend upon key personnel who may terminate their employment with us at any time, and we need to hire additional qualified personnel We may not successfully manage our growth Our business involves environmental risks and risks related to handling regulated substances Our corporate headquarters, manufacturing facilities and personnel are located in a geographical area that is seismically active The market for our pharmaceutical systems is rapidly changing and competitive, and new products or technologies developed by others could impair our ability to grow our business and remain competitive 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 Acceptance of our pharmaceutical systems in the marketplace is uncertain, and failure to achieve market acceptance will delay our ability to generate or grow revenues If users of our products are unable to obtain adequate reimbursement from third-party payors, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues If we or our third-party collaborators are unable to train physicians to use our pharmaceutical systems to treat patients diseases or medical conditions, we may incur delays in market acceptance of our products Legislative actions, potential new accounting pronouncements and higher insurance costs are likely to impact our future financial position or results of operations Our operating history makes evaluating our stock difficult Investors may experience substantial dilution of their investment We may choose to purchase a portion of our convertible subordinated notes in exchange for shares of our common stock or pay note holders to convert out notes. These transactions could dilute existing stockholders, increase the volatility of our stock and consume our existing cash The price of our common stock may be volatile We have broad discretion over the use of our cash and investments, and their investment may not always yield a favorable return 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

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1082038--3/13/2008--DURECT_CORP