DURECT Corporation (NASDAQ:DRRX) was a major end of the week mover last week in the biotechnology space. The company put out data from an investigation into one of its lead development assets and, as per the results presented in the data, the drug hasn’t performed well against its predefined endpoints. On the back of the news, Durect has taken a substantial hit to its market capitalization and shares are set to enter this fresh week of trading at a considerable discount to the price at which they traded preannouncement last week.

So what happened, and what’s next?

For anybody new to this company, Durect is a biotechnology stock that designs and develops drug assets primarily in the pain management arena and, for the most part, these assets are based on already well-established active compounds that have been modified to add an additional feature (or, perhaps more accurately, benefit) to the established and already approved asset. An opioid treatment, for example, but with abuse-deterrent properties. Or a pain management asset but one that allows for extended-release and, by proxy, a reduced dose frequency necessity.

And this latter category is what was under investigation here.

Specifically, the company was trying to show that a drug called Posimir could provide extended and effective pain relief for patients that had just undergone surgery and that it can do so to a higher degree than the current standard of care in the space (localized pain management post-surgery), which is an oral pain management asset called bupivacaine.

The trial in question was a phase 3 study set up to compare Posimir directly to bupivacaine in patients, 48 hours after undergoing surgery.

Unfortunately, as it turned out, the drug wasn’t able to perform as expected and as early-stage trials suggested it might be able to. The primary endpoint of the study was relatively simple – better pain relief than standard of care – and the outcome was equally as simple – the drug failed to induce this better pain relief.

So what’s next?

Well, the company has been pretty quiet so far, with nothing but this press release on the wire to outline the data. Management suggested that Durect will spend the next few days looking at the data in a little more detail in the attempt to figure out exactly why the trial failed as it did, but this is a pretty standard sound-bite for this sort of situation and the suggestion that further analysis will reveal anything that could revitalize the program is a pretty far-fetched one. As such, it’s tough to see where this program goes from here, other than on the large pile of already failed pain management assets 2017 to-date.

This is a company that has a pretty robust pipeline, which – in a normal situation – would help to buffer the disappointment somewhat and, in turn, should limit the downside impact of this sort of development.

In this instance, however, there is an external factor that is not only failing to limit the downside impact but is, in fact, magnifying it, and doing so to a considerable degree.

Specifically, and as per this announcement back in August, Durect had teamed up with pharmaceutical giant Sandoz, which is a subsidiary of Novartis AG (VTX:NOVN), to carry Posimir through the final stages of development and into commercialization. Over the long-term, this deal was worth up to $293 million for Durect, with a large portion of this capital rooted in the successful outcome of the just announced phase 3 study.

With the study now failed, this close to $300 million in milestone-related capital is all but out of reach for the company and this is why the market response to the latest development has been so harsh. Not only are markets factoring in the loss of a potentially major revenue driver for the company in a pain management indication, but they are also discounting the now practically nonexistent potential for close to $300 million in development capital hitting the balance sheet over the coming 12 to 24 months.

At close of play on Friday, Durect went for a little over $0.77 a share, down more than 60% on its preannouncement market capitalization. Early-morning action on Monday has added around 1.5% to this, meaning the company will open the session at $0.79 apiece.