We are maintaining our Buy rating on Durect Corp. (DRRX).

Durect has made significant progress with its pipeline and currently has three products in phase II development. These products are all addressing large market opportunities primarily in the pain management field. Importantly, the company filed its first NDA in June 2008. Another major positive for the company was the recent signing of a partnership agreement with Alpharma for the development and commercialization of Eladur.

Going forward, potential milestones include the approval of Remoxy and the initiation of phase III trials for Posidur. Another major catalyst for the company would be the signing of a business deal for its pipeline candidates. Durect already has agreements in place for the development of Transdur-Sufentanil (with Endo), Remoxy (with Pain Therapeutics and King Pharmaceuticals), Posidur (with Nycomed), Eladur (Alpharma), and Memryte (with Voyager).

We expect the company to make significant progress in 2008, on the partnership as well as development fronts, and we 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 the report.