We are optimistic about Durect Corporation's (DRRX) pipeline, and are pleased to see that the company filed a New Drug Application (NDA) for its abuse-deterrent painkiller, Remoxy, on schedule. We also expect Durect to enter into a partnership deal for the Eladur pain patch shortly. This year should be catalyst-filled for the company, and we rate the shares a Buy.

The approval of the Remoxy NDA by the Food and Drug Administration will be a significant milestone for Durect and we believe the product will have meaningful demand on approval. There could be significant upside to our estimates as our model does not include any potential milestone or upfront payments related to the signing of agreements or achievement of development milestones.

The company has been very active in entering into partnerships for the development of its pipeline candidates. We believe Durect has the potential to enter into further business development deals for other pipeline candidates including Sufentanil patch (for Europe and Asia) and Posidur anesthetic (for Japan / Asia).

We expect the company to make significant progress in 2008, on the partnership as well as development fronts, and believe that the recent weakness in share price represents an attractive entry point for investors. We recommend purchase up to the $7 level. Our $7 price target is based on 20.7x our calendar 2008 revenues forecast of $26.5 million.

Arpita Dutt, CA, contributed to this report.