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1 LAIDLAW & COMPANY London New York San Francisco Boston EQUITY RESEARCH Company Report March 2, 2018 Durect Corporation (DRRX - $1.32) DUR-928 Front and Center Stage in 2018 DRRX reported their 4Q17 last night after the close mostly in line with expectations after adjusting for non-cash items. While topline came in at $19.5M vs. our anticipated $3.5M, ~$15.4M was attributable to deferred revenue from the $20M upfront payment in the Sandoz agreement. DRRX ended FY17 with $36.9M in cash and investments, which should enable them to complete their three Phase 2 trials for their epigenetic regulator DUR-928. DRRX has initiated its Phase 2a oral DUR- 928 trial in primary sclerosing cholangitis (PSC) and expects to generate data by YE18 due to the open-label nature of the trial. On the injectable front, DRRX is conducting a two-part Phase 2a with DUR-928 in patients with alcoholic hepatitis (AH), which will also be open-label (data also expected prior to YE18). Finally, on the heels of positive results in their Phase 1b in psoriasis patients, DRRX expects to begin a Phase 2 proof-of-concept (poc) study with topically administered DUR- 928 in 3Q18. With potential approval of their less abusable oxycodone ER Remoxy (8/7/18 PDUFA) and RBP-7000 (7/28/18), we continue to view 2018 as a crucial year at DRRX. Posimir s disappointing results are now in the past and 2018 should be far from dull, in our opinion. As DRRX s DUR-928 plans gain clarity with catalysts around the corner, we continue to see DRRX as undervalued and reiterate our Buy rating and raise the price target from $2 to $2.50. Adjusted quarter in line with expectations, DUR-928 gaining ground. After adjusting for non-cash deferred revenue of $15.4M, EPS of ($0.05) came in mostly in line with our anticipated ($0.06). We see as a real positive DRRX s multiple open-label trials as two of their three Phase 2 DUR-928 trials should have data readouts prior to YE18. PDUFAs and read-outs, hard to overstate importance of 2018 at DRRX. With Remoxy and RBP-7000 PDUFAs set for 8/7/18 and 7/28/18, respectively as well as oral and injectable Phase 2a potential data readouts in PSC and AH prior to YE18; we see 2018 as far from dull. We are encouraged by the study designs and look forward to learning more about safety and PK/PD profile, as well as DUR-928 s effect on specific biomarkers to ultimately better understand its potential role in NASH. Reiterating Buy rating and increase PT from $2 to $2.50. Our price target is based on a sum-of-the-parts analysis with DUR-928 at $1.25/share, the Remoxy royalty at $0.50/share, and net cash (end- 18) tech & legacy polymer business valued at $0.75/share Earnings Estimates: (per share) (Dec) 1Q 2Q 3Q 4Q FY P/E FY-18E (0.06) (0.05) (0.02) (0.05) (0.18) NM FY-17E (0.06) (0.07) (0.09) (0.05) (0.26) NM FY-16A (0.06) (0.07) (0.06) (0.06) (0.27) NM FY-15A (0.04) (0.05) (0.05) (0.05) (0.19) NM Source: Company data and estimates Healthcare/Biotechnology Ticker: DRRX Rating: Buy Price Target: raise $2.50 Trading Data: Last Price (11/01/2017) 52 Week High (10/03/2017) 52 Week Low (05/03/17) Market Cap. (MM) Shares Out. (MM) Analyst Francois Brisebois, MSc (857) $x.xx $x.xx $x.xx $xxx.x xxx.x FOR ANALYST CERTIFICATION AND DISCLOSURES, PLEASE SEE DISCLOSURES SECTION AT THE END OF THIS REPORT. This report has been prepared by Laidlaw & Co (UK), Ltd. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices and consensus estimates are sourced from a reliable market source

2 Figure 1: Variance Analysis Durect Corporation Variance analysis (000's) 4Q16A 4Q17A 4Q17E Variance % Y/Y FY16A FY17A FY17E Variance % Y/Y Product revenue, net 2,779 3,265 3, % 12,145 13,093 12, % Collab. R&D & other , , % 1,880 23,577 7,804 15, % Total Revenue $3,517 $19,538 $3,532 $16, % $14,025 $49,170 $33,164 $16, % COGS 955 1,061 1,061 (0) 11% 5,290 6,633 6,633 (0) 25% Gross Profit 2,562 18,477 2,471 16, % 9,661 42,537 26,531 16, % SG&A Expense 2,832 3,303 3, % 11,825 13,165 12, % R&D Expense 7,992 6,604 7,500 (896) -17% 29,274 31,609 32,505 (896) 8% Operating Income (8,262) 8,570 (8,029) 16, % (32,364) (2,237) (18,836) 16,599-93% Interest Expense % % Int. & Inv. Income (580) (622) (550) (72) 7% (2,288) (2,425) (2,353) (72) 6% Pretax Income (8,811) 8,235 (8,539) 16, % (34,509) (3,695) (20,469) 16,774-89% Income Taxes NM NM Net Income (8,811) 8,235 (8,539) 16, % (34,509) (3,695) (20,469) 16,774-89% Wgtd Avg Shares (M) 139, , ,713 1,715 7% 133, , , % EPS ($0.06) ($0.05) ($0.06) $ % ($0.26) ($0.26) ($0.27) $0.01 1% Source: estimates Figure 2: Valuation Sum-of-the-parts valuation Segment Valuation Per share (000's) value DUR-928 platform $232,418 $1.25 Remoxy royalty $81,349 $0.50 Base polymer business $37,991 $0.25 Cash (end-'18e) & tech $91,925 $0.50 SUM $443,683 $2.50 Fully diluted shares out '18E (000) 179,316 Source: estimates. Durect Corporation Page 2 of 9 Francois Brisebois

3 Durect Corporation Page 3 of 9 Francois Brisebois Figure 3: Clinical trials timeline Durect Corporation Branded drugs trial timelines Remoxy - less abusable oxycodone ER PFE returns Remoxy rights to PTIE In-vitro work, validation testing, batch analysis, 2015A 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE in vitro PTIE refiles the REMOXY - 6 month review NDA ` FDA approval - 9/25/16 Complete Response Letter Additional clinical testing Remoxy re-filed - 6 month review FDA addtnl testing FDA approval & launch FDA LAUNCH Posimir (SABER-Bupivacaine injection for post-op. pain) CRL 2/12/14 due to safety concerns PERSIST - p3 trial in laparoscopic gall bladder removal phase 3 data Partner for ex-us launch of Posimur NDA filing - 6 month review FDA approval & launch 2016A 2017A NDA 2018E 2019E DUR-928 (epigenomic regulator of lipid homeostasis) Pre-IND meet & IND filing for NASH IND P1b oral dose - chronic NASH study p1 data p1b data P1 injectable dose p1 data P2a injectable dose in AH Part A and B p1b data p2a Part A data Pre-IND meet (end-sept) & IND filing for kidney Phase 2 PSC orphan drug trial p2a data IND p2a Part B Phase 2 topical psoriasis trial p1b data p2 poc data Additional phase 2 human trials additional phase 2 human trials data Source: Company reports; estimates.

4 Figure 4: Quarterly Income Statement Durect Corporation Quarterly income statement 2016A 2016A 2017A 2017A ($000 except per share) 1QA 2QA 3QA 4QA Year 1QA 2QA 3QA 4QA Year Revenues Product revenue, net $3,189 $2,786 $3,391 $2,779 $12,145 $4,133 $3,051 $2,644 $3,265 $13,093 Collab. R&D & other , ,268 5,602 16,273 23,577 Revenu from IP 12,500 12,500 Total revenues $3,608 $3,157 $3,743 $3,517 $14,025 $4,567 $4,319 $20,746 $19,538 $49,170 Expenses COGS 1, , ,290 1, ,105 1,061 6,633 Gross profits 2,366 2,244 2,489 2,562 9,661 3,024 3,395 17,641 18,477 42,537 Research & development 6,625 7,852 6,805 7,992 29,274 7,548 9,079 8,378 6,604 31,609 Selling, general & admin 3,062 2,888 3,043 2,832 11,825 3,043 3,681 3,138 3,303 13,165 Total operating expenses 10,929 11,653 11,102 11,779 46,389 12,134 13,684 14,621 10,968 51,407 Income (loss) from ops (7,321) (8,496) (7,359) (8,262) (32,364) (7,567) (9,365) 6,125 8,570 (2,237) Interest & other, net (531) (518) (547) (549) (2,145) (547) (562) (14) (335) (1,458) Debt conversion expense Earnings before taxes (7,852) (9,014) (7,906) (8,811) (34,509) (8,114) (9,927) 6,111 8,235 (3,695) Income tax provision Net income (loss) (7,852) (9,014) (7,906) (8,811) (34,509) (8,114) (9,927) 6,111 8,235 (3,695) EPS as reported ($0.06) ($0.07) ($0.06) ($0.06) ($0.26) ($0.06) ($0.07) $0.04 $0.05 ($0.03) EPS ex-1x items ($0.06) ($0.07) ($0.06) ($0.06) ($0.27) ($0.06) ($0.07) ($0.09) ($0.05) ($0.26) Weighted avg. shares (000) 122, , , , , , , , , ,273 Fully diluted shares (000) 145, , , , , , , , , ,823 Source: Bloomberg LP; Company reports; estimates. Durect Corporation Page 4 of 9 Francois Brisebois

5 Figure 5: Annual Income Statement Durect Corporation Annual income statement ($000 except per share) 2015A 2016A 2017A 2018E 2019E 2020E Revenues Remoxy royalties 2,325 11,590 Product revenue, net $11,292 $12,145 $13,093 $12,664 12,925 13,195 Collab. R&D & other 7,832 1,880 23,577 2,000 2,000 2,000 Total revenues $19,124 $14,025 $49,170 $19,664 $17,251 $26,785 Expenses COGS 3,905 5,290 6,633 4,432 4,136 4,222 Gross profits 15,219 9,661 42,537 15,231 13,114 22,563 Research & development 24,317 29,274 31,609 28,750 21,000 21,500 Selling, general & admin 11,566 11,825 13,165 13,000 14,000 14,000 Total operating expenses 39,788 46,389 51,407 46,182 39,136 39,722 Inc (loss) from ops (20,664) (32,364) (2,237) (26,519) (21,886) (12,937) Interest & other net (1,999) (2,145) (1,458) (2,000) (1,950) (2,000) Earnings before taxes (22,663) (34,509) (3,695) (28,519) (23,836) (14,937) Income tax provision (91) Net income (loss) (22,572) (34,509) (3,695) (28,519) (23,836) (14,937) 1x items, net tax (926) NI as reported (35,435) EPS as reported ($0.19) ($0.26) EPS ex-1x items ($0.19) ($0.27) ($0.26) ($0.18) ($0.14) ($0.08) Weighted avg. shares (000) 118, , , , , ,511 Fully diluted shares (000) 139, , , , , ,086 Source: Bloomberg LP; Company reports; estimates. Durect Corporation Page 5 of 9 Francois Brisebois

6 Major risks Exogenous events could impact our outlook. We believe 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 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. Durect Corporation Page 6 of 9 Francois Brisebois

7 DISCLOSURES: ANALYST CERTIFICATION The analyst responsible for the content of this report hereby certifies that the views expressed regarding the company or companies and their securities accurately represent his personal views and that no direct or indirect compensation is to be received by the analyst for any specific recommendation or views contained in this report. Neither the author of this report nor any member of his immediate family or household maintains a position in the securities mentioned in this report. EQUITY DISCLOSURES For the purpose of ratings distributions, regulatory rules require the firm to assign ratings to one of three rating categories (i.e. Strong Buy/Buy-Overweight, Hold, or Underweight/Sell) regardless of a firm's own rating categories. Although the firm s ratings of Buy/Overweight, Hold, or Underweight/Sell most closely correspond to Buy, Hold and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis against the analyst sector universe of stocks. An analyst's coverage sector is comprised of companies that are engaged in similar business or share similar operating characteristics as the subject company. The analysis sector universe is a sub-sector to the analyst's coverage sector, and is compiled to assist the analyst in determining relative valuations of subject companies. The composition of an analyst's sector universe is subject to change over time as various factors, including changing market conditions occur. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12-months relative to the analyst's sector universe. Additional information available upon request. # Laidlaw & Co (UK) Ltd. has not provided any investment banking services for the company (ies) mentioned in this report over the last 12 months. RATINGS INFORMATION Rating and Price Target Change History 3 Year Rating Change History 3 Year Price Change History * Previous Close3/1/2018 Source: Rating System* Strong Buy (SB) Expected to significantly outperform the sector over 12 months. Created by: Blue-Compass.net % of Companies Under Coverage With This Rating % of Companies for which has performed services for in the last 12 months Investment Banking Brokerage 0.00% 0.00% 0.00% Buy (B) Expected to outperform the sector average over 12 months % 26.92% 3.85% Hold (H) Sell (S) Expected returns to be in line with the sector average over 12 months. Returns expected to significantly underperform the sector average over 12 months. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% ADDITIONAL COMPANIES MENTIONED Sandoz (SAN Not Rated) ADDITIONAL DISCLOSURES As of the date of this report, neither the author of this report nor any member of his immediate family or household maintains an ownership position in the securities of the company (ies) mentioned in this report. This report does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Laidlaw & Co (UK), Ltd. recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in this report may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. This report is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. Durect Corporation Page 7 of 9 Francois Brisebois

8 Associated persons of Laidlaw & Co (UK), Ltd not involved in the preparation of this report may have investments in securities/instruments or derivatives of securities/instruments of companies mentioned herein and may trade them in ways different from those discussed in this report. While Laidlaw & Co (UK), Ltd., prohibits analysts from receiving any compensation. Bonus or incentive based on specific recommendations for, or view of, a particular company, investors should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. With the exception of information regarding Laidlaw & Co (UK), Ltd. this report is based on public information. Laidlaw & Co (UK), Ltd makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete and it should not be relied upon as such. Any opinions expressed are subject to change and Laidlaw & Co (UK), Ltd disclaims any obligation to advise you of changes in opinions or information or any discontinuation of coverage of a subject company. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Laidlaw & Co (UK), Ltd business areas. Laidlaw & Co (UK), Ltd associated persons conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices. market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject company's securities/instruments. Any trademarks and service marks contained in this report are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This report or any portion thereof may not be reprinted, sold or redistributed without the written consent of Laidlaw & Co (UK), Ltd. This report is disseminated and available primarily electronically, and, in some cases, in printed form. The information and opinions in this report were prepared by Laidlaw & Co (UK), Ltd. For important disclosures, please see Laidlaw & Co (UK), Ltd. s disclosure website at or contact your investment representative or Laidlaw & Co (UK), Ltd at 546 Fifth Ave, 5th Floor, New York, NY USA Laidlaw & Co. (UK), Ltd. Durect Corporation Page 8 of 9 Francois Brisebois

9 NOTES: Durect Corporation Page 9 of 9 Francois Brisebois