What happened

Durect Corporation (NASDAQ:DRRX) saw its shares rise by as much as 16% in pre-market trading today. The catalyst?

Durect's shares are responding positively to the news that Indivior's new drug application (NDA) for the once-monthly, injected schizophrenia drug Perseris was approved by the Food and Drug Administration (FDA). Perseris is a longer-acting formulation of the FDA-approved drug risperidone. The core concept here is that a once-monthly, injectable version of this drug may increase compliance in this hard-to-treat patient population. 

A person in a business attire drawing an upward trending curve with their index finger.

Image source: Getty Images.

Since the opening bell, Durect's shares have cooled off slightly, but were still up by a healthy 10.6% as of 10:34 a.m. EDT. 

So what

In September 2017, Indivior entered into a patent purchase agreement with Durect for Perseris' rights in the United States. Per the terms of the agreement, Indivior now owes Durect a milestone payment of $5 million following the NDA approval of Perseris. Durect is also eligible to receive single-digit percentage royalties from U.S. net sales of the drug. The patent rights covered in this agreement reportedly run all the way through to 2026. 

Now what

A $5 million milestone payment and a low-percentage royalty payout on a fairly minor drug aren't usually the types of catalysts that move biotech stocks by double digits. However, Durect is in dire need of cash, and every little bit helps at this point as the company advances in its own clinical pipeline. After all, the biotech exited the most recent quarter with a mere $44 million in cash.

Summing up, this sudden spike in Durect's share price will probably be short-lived, given the company's exceptionally weak financial position and clear need for additional capital soon. As such, investors may want to take a cautious approach with this surging biotech today.

 

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.