<PAGE>


                                                                   EXHIBIT 10.16

                        DURECT THERAPEUTICS CORPORATION

                             EMPLOYMENT AGREEMENT
                             --------------------

          This Employment Agreement (the "Agreement") is dated as of June 19,
                                          ---------
1998, by and between Thomas A. Schreck ("Employee") and Durect Therapeutics
                                         --------
Corporation, a Delaware corporation (the "Company").
                                          -------

          1.  Term of Agreement.  This Agreement shall commence on the date
              -----------------
hereof and shall have a term of three years (the "Original Term").  This
                                                  -------------
Agreement may be extended for an additional one year after the end of the
Original Term if the parties mutually agree in writing to such extension.

          2.  Duties.
              ------

              (a)   Position. Employee shall be employed as Chief Financial
                    --------
Officer of the Company, and as such will have responsibility for overseeing the
administration and operations of the Company, overseeing the accounting and
financing operations of the Company, arranging for facilities for the Company,
assisting with arranging funding for the Company (for which the Schreck Merchant
Group, of which Employee is a principal, will also provide services and receive
compensation), identifying and hiring key personnel, assisting in the
establishment and implementation of the Company's goals and objectives, and such
other duties that are consistent with the position of Chief Financial Officer,
as reasonably directed by the Board of Directors of the Company from time to
time. Employee will report to the Chief Executive Officer of the Company.

              (b)   Obligations to the Company. Employee agrees to the best of
                    --------------------------
his ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof. During the term of Employee's
employment relationship with the Company, and except as provided below, Employee
further agrees that he will devote all his business time and attention to the
business of the Company, the Company will be entitled to all of the benefits and
profits arising from or incident to all such work services and advice. Employee
will not render commercial or professional services of any nature to any person
or organization, whether or not for compensation; provided however, that the
Company acknowledges that, subject to the approval of the Board of Directors of
the Company and provided such services do not interfere with Employee's
performance of services for the Company, (i) Employee may perform services for
third parties during the term of this Agreement, and (ii) Employee will
determine the allocation of his working hours among such parties and the
Company. The Company agrees that Employee may, in Employee's discretion, serve
on boards of directors of other companies, with or without compensation.
Employee will comply with and be bound by the Company's operating policies,
procedures and practices from time to time in effect during the term of
Employee's employment, to the extent such policies, procedures and practices do
not conflict with the terms of this Agreement.
<PAGE>

     3.   Compensation. For the duties and services to be performed by Employee
          ------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 3.

          (a) Salary.  Employee shall receive a monthly salary of Eight Thousand
              ------
Three Hundred Thirty-Three and 33/100 Dollars ($8,333.33), which is equivalent
to One Hundred Thousand and No/100 Dollars ($100,000.00) on an annualized basis.
Employee's monthly salary will be payable pursuant to the Company's normal
payroll practices.  On the two-year anniversary of the commencement of the term
of this Agreement, Employee's monthly salary will be increased to Sixteen
Thousand Six Hundred Sixty-Six and 66/100 Dollars ($16,666.66)(which is
equivalent to an annual salary of Two Hundred and No/100 Dollars ($200,000.00)).
The Company acknowledges that Employee is a principal of the Schreck Merchant
Group, and that the Company has agreed to pay certain fees to the Schreck
Merchant Group pursuant to a separate financial advisory agreement with the
Schreck Merchant Group.  If the agreement between the Company and the Schreck
Merchant Group is terminated before the two-year anniversary of the commencement
of the term of this Agreement, then, concurrently with such termination,
Employee's monthly salary will be increased to Sixteen Thousand Six Hundred
Sixty-Six and 66/100 Dollars ($16,666.66)(which is equivalent to an annual
salary of Two Hundred Thousand and No/100 Dollars ($200,000.00)).  In the event
this Agreement is extended beyond the Original Term, the base salary shall be
reviewed at the time of such extension by the Board, and any increase will be
effective as of the date determined appropriate by the Board or its Compensation
Committee.

          (b) Stock Options and Other Incentive Programs.  Employee shall be
              ------------------------------------------
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.

          (c) Bonuses.  Employee's entitlement to incentive bonuses from the
              -------
Company is discretionary and shall be determined by the Board, its Compensation
Committee or the Chief Executive Officer of the Company in good faith based upon
the extent to which Employee's individual performance objectives and the
Company's profitability objectives and other financial and nonfinancial
objectives are achieved during the applicable bonus period.

          (d) Additional Benefits.  Employee will be eligible to participate in
              -------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law.  Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.

          (e) Reimbursement of Expenses.  Employee shall be authorized to incur
              -------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.

                                      -2-
<PAGE>

     4.   At Will Employment. The Company and Employee acknowledge that
          ------------------
Employee's employment is and shall continue to be at will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by Employee at any time for any or no reason and may be terminated by
the Company in accordance with the provisions of Section 5(a)(i), 5(a)(iii) and
5(a)(iv) of this Agreement. If Employee's employment terminates for any reason,
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, and the Company shall
have no right of repurchase with respect to Common Stock of the Company
purchased by Employee pursuant to that certain Common Stock Purchase Agreement,
dated April 2, 1998 by and between the Company and the Employee, except as
provided in such Common Stock Purchase Agreement.

     5.   Termination of Employment and Severance Benefits.
          ------------------------------------------------

          (a)  Termination of Employment.  This Agreement may be terminated
               -------------------------
during its Original Term (or any extension thereof) only upon the occurrence of
any of the following events:

               (i)    This Agreement may be terminated by the Company following
the Company's reasonable determination in good faith that it is terminating
Employee for good cause related to Employee's performance;

               (ii)   This Agreement may be terminated by Employee following a
change in Employee's status such that a Constructive Termination has occurred.
Constructive Termination shall be deemed to occur if (A)(1) there is a material
adverse change in Employee's position causing such position to be of materially
reduced stature or responsibility, or (2) Employee's refusal to relocate to a
facility or location more than 50 miles from the Company's current location; and
(B) within the 30-day period immediately following such material change or
reduction Employee elects to terminate employment.

               (iii)  This Agreement may be terminated without cause by the
Company following a reasonable determination by the Company's Board of Directors
that such termination would be in the reasonable best interests of the Company
("Termination Without Cause"); or
  -------------------------

               (iv)   Following Employee's death or Disability (as defined in
Section 7 below).

          (b)  Severance Benefits.  Employee shall be entitled to receive
               ------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):

               (i)    Involuntary Termination. If Employee's employment is
                      -----------------------
terminated under 5(a)(iii) above (such termination, an "Involuntary
                                                        -----------
Termination"), Employee will be entitled to receive payment of severance
-----------
benefits equal to Employee's regular monthly salary for the remainder of the
Original Term (the "Severance Period") which payments shall not limit Employee's
                    ----------------
rights against Company for any breach of this Agreement. Such payments shall be
made ratably over the Severance Period according to the Company's standard
payroll schedule. Employee will also be entitled to receive payment on the date
of termination of any

                                      -3-
<PAGE>

bonus payable under Section 4(c). Health insurance benefits with the same
coverage provided to Employee prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to
those in place immediately prior to the termination will be provided at the
Company's cost over the Severance Period.

          (ii)   Termination for Cause.  If Employee's employment is terminated
                 ---------------------
for cause (as described in Section 5(a)(i)), then Employee shall not be entitled
to receive payment of any severance benefits.  Employee will receive payment(s)
for all salary and unpaid vacation accrued as of the date of Employee's
termination of employment and Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with
applicable law.

          (iii)  Termination by Reason of Death or Disability.  In the event
                 --------------------------------------------
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined in Section 7 below), Employee or Employee's
estate or representative will receive all salary and unpaid vacation accrued as
of the date of Employee's death or Disability and any other benefits payable
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of death or Disability and in
accordance with applicable law.

          (iv)   Constructive Termination.  If the Employee terminates his
                 -------------------------
employment pursuant to this Agreement following a Constructive Termination, then
the Company shall (A) within five (5) days after such termination, pay to
Employee a lump sum equal to all salary payments that the Company would have
paid to Employee during the twelve-month period following such termination and
(B) provide health insurance benefits with the same coverage provided to
Employee prior to the termination for the twelve month period following such
termination.

          (v)    Survival. The Company's obligations to Employee pursuant to
                 --------
this Section 5 of the Agreement shall survive any termination of this Agreement.

     6.   [Reserved.]
           --------

     7.   Definition of Disability. For purposes of this Agreement, "Disability"
          ------------------------                                   ----------
shall mean that Employee has been unable to perform his duties hereunder as the
result of his incapacity due to physical or mental illness, and such inability,
which continues for at least 180 consecutive calendar days or 240 calendar days
during any consecutive twelve-month period, if shorter, after its commencement,
is determined to be total and permanent by a physician selected by the Company
and its insurers and acceptable to Employee or to Employee's legal
representative (with such agreement on acceptability not to be unreasonably
withheld).

     8.   Confidentiality Agreement.  Employee shall sign, or has signed, a
          -------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
--------------------------
Exhibit A, the terms of which Confidentiality Agreement must first be agreed to
---------
by Alza and the Company.  Employee hereby represents and warrants to the Company
that he has complied with all obligations under the Confidentiality

                                      -4-
<PAGE>

Agreement and agrees to continue to abide by the terms of the Confidentiality
Agreement and further agrees that the provisions of the Confidentiality
Agreement shall survive any termination of this Agreement or of Employee's
employment relationship with the Company.

     9.   Noncompetition Covenant. Employee hereby agrees that he shall not,
          -----------------------
during the term of his employment pursuant to this Agreement, do any of the
following without the prior written consent of the Company's Board of Directors:

          (a) Compete.  Carry on any business or activity (whether directly or
              -------
indirectly, as a partner, stockholder, principal, agent, director, affiliate,
employee or consultant) which is competitive with the business conducted by the
Company (as conducted now or during the term of Employee's employment), nor
engage in any other activities that conflict with Employee's obligations to the
Company.

          (b) Solicitation of Employees, Consultants and Other Parties.
              --------------------------------------------------------
Employee agrees that during the term of Employee's employment with the Company,
and for a period of twenty-four (24) months immediately following the
termination of Employee's employment with the Company for any reason, whether
with or without cause, Employee shall not solicit any of the Company's employees
or consultants to terminate their relationship with the Company or attempt to
solicit employees or consultants of the Company, either for Employee or for any
other person or entity.  Further, for a period of twenty-four (24) months
following termination of Employee's employment with the Company for any reason,
with or without cause, Employee shall not solicit any licensor to or customer of
the Company or licensee of the Company's products, in each case, that are known
to Employee, with respect to any business, products or services that are
competitive to the products or services offered by the Company or under
development as of the date of termination of Employee's employment with the
Company.

     10.  Conflicts. Employee has not, and will not during the term of this
          ---------
Agreement, enter into any other oral or written agreement in conflict with any
of the provisions of this Agreement. Employee further represents that he is
entering into or has entered into an employment relationship with the Company of
his own free will and that he has not been solicited as an employee in any way
by the Company.

    11.   Successors. Any successor to the Company (whether direct or indirect
          ----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

     12.  Miscellaneous Provisions.
          ------------------------

          (a) No Duty to Mitigate.  Employee shall not be required to mitigate
              -------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment

                                      -5-
<PAGE>

or in any other manner), nor, except as otherwise provided in this Agreement,
shall any such payment be reduced by any earnings that Employee may receive from
any other source.

          (b) Amendments and Waivers.  Any term of this Agreement may be amended
              ----------------------
or waived only with the written consent of the parties.

          (c) Notices.  Any notice required or permitted by this Agreement shall
              -------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.

          (d) Choice of Law.  The validity, interpretation, construction and
              -------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

          (e) Severability.  If one or more provisions of this Agreement are
              ------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith.  In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.

          (f) Counterparts.  This Agreement may be executed in counterparts,
              ------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

          (g) Arbitration.  Any dispute or claim arising out of or in connection
              -----------
with this Agreement will be finally settled by binding arbitration in San Jose,
California in accordance with the rules of the American Arbitration Association
by one arbitrator appointed in accordance with said rules.  The arbitrator shall
apply California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute.  Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.  Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this paragraph, without breach of this
arbitration provision.  This Section 12(g) shall not apply to the
Confidentiality Agreement.

          (h) Advice of Counsel.  EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
              -----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT.  THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

                                      -6-
<PAGE>

                            [Signature Page Follows]

                                      -7-
<PAGE>

     The parties have executed this Agreement the date first written above.

                              DURECT THERAPEUTICS CORPORATION


                              By:     /s/ Thomas A. Schreck
                                      -------------------------------------
                              Title:  President
                                      -------------------------------------

                              Address: ____________________________________

                                       ____________________________________

                                       ____________________________________




                              EMPLOYEE



                              Signature: /s/ Thomas A. Schreck
                                         ----------------------------------

                              Address: ____________________________________

                                       ____________________________________

                                       ____________________________________

                                      -8-
<PAGE>

                                   EXHIBIT A
                                   ---------

                         CONFIDENTIAL INFORMATION AND

                        INVENTION ASSIGNMENT AGREEMENT
<PAGE>

                               DURECT CORPORATION
                          CONFIDENTIAL INFORMATION AND
                         INVENTION ASSIGNMENT AGREEMENT

     As a condition of my becoming employed (or my employment being continued)
by or retained as a consultant (or my consulting relationship being continued)
by Durect Corporation, a Delaware corporation or any of its current or future
subsidiaries, affiliates, successors or assigns (collectively, the "Company"),
                                                                    -------
and in consideration of my employment or consulting relationship with the
Company and my receipt of the compensation now and hereafter paid to me by the
Company, I agree to the following:

     1.   Employment or Consulting Relationship.  I understand and acknowledge
          -------------------------------------
that this Agreement does not alter, amend or expand upon any rights I may have
to continue in the employ of, or in a consulting relationship with, or the
duration of my employment or consulting relationship with, the Company under any
existing agreements between the Company and me or under applicable law.  Any
employment or consulting relationship between the Company and me, whether
commenced prior to or upon the date of this Agreement, shall be referred to
herein as the "Relationship."
               ------------

     2.   At-Will Employment.  I understand and acknowledge that my Relationship
          ------------------
with the Company is and shall continue to be at-will, as defined under
applicable law, meaning that either I or the Company may terminate the
Relationship at any time for any reason or no reason, without further obligation
or liability.

     3.   Confidential Information.
          ------------------------

          (a) Company Information.  I agree at all times during the term of my
              -------------------
Relationship with the Company and thereafter, to hold in strictest confidence,
and not to use, except for the benefit of the Company, or to disclose to any
person, firm, corporation or other entity without written authorization of the
Board of Directors of the Company, any Confidential Information of the Company
which I obtain or create.  I further agree not to make copies of such
Confidential Information except as authorized by the Company.  I understand that
"Confidential Information" means any Company proprietary information, technical
 ------------------------
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, suppliers, customer lists and customers
(including, but not limited to, customers of the Company on whom I called or
with whom I became acquainted during the Relationship), prices and costs,
markets, software, developments, inventions, laboratory notebooks, processes,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, licenses, finances, budgets or other business
information disclosed to me by the Company either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment or created
by me during the period of the Relationship, whether or not during working
hours. I understand that "Confidential Information" includes, but is not limited
                          ------------------------
to, information pertaining to any aspects of the Company's business which is
either information not known by actual or potential competitors of the Company
or is proprietary information of the Company or its customers or suppliers,
whether of a technical nature or otherwise.  I further understand that
Confidential Information does not include any of the foregoing items which has
become publicly and widely known and made generally available through no
wrongful act of mine or of others who were under confidentiality obligations as
to the item or items involved.

          (b) Former Employer Information.  I represent that my performance of
              ---------------------------
all terms of this Agreement as an employee or consultant of the Company have not
breached and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by me in confidence or trust prior or
subsequent to the commencement of my Relationship with the Company, and I will
not disclose to the Company, or induce the Company

                                       10
<PAGE>

to use, any inventions, confidential or proprietary information or material
belonging to any previous employer or any other party.

          (c) Third Party Information.  I recognize that the Company has
              -----------------------
received and in the future will receive confidential or proprietary information
from third parties subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes.  I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.

     4.   Inventions.
          ----------

          (a) Inventions Retained and Licensed.  I have attached hereto, as
              --------------------------------
Exhibit A, a list describing with particularity all inventions, original works
---------
of authorship, developments, improvements, and trade secrets which were made by
me prior to the commencement of the Relationship (collectively referred to as
"Prior Inventions"), which belong solely to me or belong to me jointly with
-----------------
another, which relate in any way to any of the Company's proposed businesses,
products or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, I represent that there are no such
Prior Inventions.  If, in the course of my Relationship with the Company, I
incorporate into a Company product, process or machine a Prior Invention owned
by me or in which I have an interest, the Company is hereby granted and shall
have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license
(with the right to sublicense) to make, have made, copy, modify, make derivative
works of, use, sell and otherwise distribute such Prior Invention as part of or
in connection with such product, process or machine.

          (b) Assignment of Inventions.  I agree that I will promptly make full
              ------------------------
written disclosure to the Company, will hold in trust for the sole right and
benefit of the Company, and hereby assign to the Company, or its designee, all
my right, title and interest throughout the world in and to any and all
inventions, original works of authorship, developments, concepts, know-how,
improvements or trade secrets, whether or not patentable or registrable under
copyright or similar laws, which I may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to
practice, during the period of time in which I am employed by or a consultant of
the Company (collectively referred to as "Inventions"), except as provided in
                                          ----------
Section 4(e) below.  I further acknowledge that all inventions, original works
of authorship, developments, concepts, know-how, improvements or trade secrets
which are made by me (solely or jointly with others) within the scope of and
during the period of my Relationship with the Company are "works made for hire"
                                                           -------------------
(to the greatest extent permitted by applicable law) and are compensated by my
salary (if I am an employee) or by such amounts paid to me under any applicable
consulting agreement or consulting arrangements (if I am a consultant), unless
regulated otherwise by the mandatory law of the state of California.

          (c) Maintenance of Records.  I agree to keep and maintain adequate and
              ----------------------
current written records of all Inventions made by me (solely or jointly with
others) during the term of my Relationship with the Company.  The records may be
in the form of notes, sketches, drawings, flow charts, electronic data or
recordings, laboratory notebooks, and any other format.

                                       11
<PAGE>

The records will be available to and remain the sole property of the Company at
all times. I agree not to remove such records from the Company's place of
business except as expressly permitted by Company policy which may, from time to
time, be revised at the sole election of the Company for the purpose of
furthering the Company's business.

          (d) Patent and Copyright Rights.  I agree to assist the Company, or
              ---------------------------
its designee, at the Company's expense, in every proper way to secure the
Company's rights in the Inventions and any copyrights, patents, trademarks, mask
work rights, moral rights, or other intellectual property rights relating
thereto in any and all countries, including the disclosure to the Company of all
pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments, recordations, and all other
instruments which the Company shall deem necessary in order to apply for,
obtain, maintain and transfer such rights and in order to assign and convey to
the Company, its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto.  I further
agree that my obligation to execute or cause to be executed, when it is in my
power to do so, any such instrument or papers shall continue after the
termination of this Agreement until the expiration of the last such intellectual
property right to expire in any country of the world.  If the Company is unable
because of my mental or physical incapacity or unavailability or for any other
reason to secure my signature to apply for or to pursue any application for any
United States or foreign patents or copyright registrations covering Inventions
or original works of authorship assigned to the Company as above, then I hereby
irrevocably designate and appoint the Company and its duly authorized officers
and agents as my agent and attorney in fact, to act for and in my behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the application for, prosecution, issuance,
maintenance or transfer of letters patent or copyright registrations thereon
with the same legal force and effect as if originally executed by me.  I hereby
waive and irrevocably quitclaim to the Company any and all claims, of any nature
whatsoever, which I now or hereafter have for infringement of any and all
proprietary rights assigned to the Company.

          (e) Exception to Assignments.  I understand that the provisions of
              ------------------------
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention which qualifies fully under the provisions of California Labor
Code Section 2870 (attached hereto as Exhibit B).  I will advise the Company
                                      ---------
promptly in writing of any inventions that I believe meet such provisions and
are not otherwise disclosed on Exhibit A.
                               ---------

     5.   Returning Company Documents.  I agree that, at the time of termination
          ---------------------------
of my Relationship with the Company, I will deliver to the Company (and will not
keep in my possession, recreate or deliver to anyone else) any and all devices,
records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings, blueprints, sketches, laboratory notebooks, materials, flow charts,
equipment, other documents or property, or reproductions of any aforementioned
items developed by me pursuant to the Relationship or otherwise belonging to the
Company, its successors or assigns.  I further agree that to any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice.  In the
event of the termination of the Relationship, I agree to sign and deliver the
"Termination Certification" attached hereto as Exhibit C.
--------------------------                     ---------

                                       12
<PAGE>

     6.   Notification to Other Parties.
          -----------------------------

          (a) Employees.  In the event that I leave the employ of the Company, I
              ---------
hereby consent to notification by the Company to my new employer about my rights
and obligations under this Agreement.

          (b) Consultants.  I hereby grant consent to notification by the
              -----------
Company to any other parties besides the Company with whom I maintain a
consulting relationship, including parties with whom such relationship commences
after the effective date of this Agreement, about my rights and obligations
under this Agreement.

     7.   Solicitation of Employees, Consultants and Other Parties.  I agree
          --------------------------------------------------------
that during the term of my Relationship with the Company, and for a period of
twenty-four (24) months immediately following the termination of my Relationship
with the Company for any reason, whether with or without cause, I shall not
either directly or indirectly solicit, induce, recruit or encourage any of the
Company's employees or consultants to terminate their relationship with the
Company, or take away such employees or consultants, or attempt to solicit,
induce, recruit, encourage or take away employees or consultants of the Company,
either for myself or for any other person or entity.  Further, for a period of
twenty-four (24) months following termination of my Relationship with the
Company for any reason, with or without cause, I shall not solicit any licensor
to or customer of the Company or licensee of the Company's products, in each
case, that are known to me, with respect to any business, products or services
that are competitive to the products or services offered by the Company or under
development as of the date of termination of my Relationship with the Company.

     8.   Representations and Covenants.
          -----------------------------

          (a) Facilitation of Agreement.  I agree to execute promptly any proper
              -------------------------
oath or verify any proper document required to carry out the terms of this
Agreement upon the Company's written request to do so.

          (b) Conflicts.  I represent that my performance of all the terms of
              ---------
this Agreement will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to commencement of my
Relationship with the Company.  I have not entered into, and I agree I will not
enter into, any oral or written agreement in conflict with any of the provisions
of this Agreement.

          (c) Voluntary Execution.  I certify and acknowledge that I have
              -------------------
carefully read all of the provisions of this Agreement and that I understand and
will fully and faithfully comply with such provisions.

     9.   General Provisions.
          ------------------

          (a) Governing Law.  The validity, interpretation, construction and
              -------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

          (b) Entire Agreement.  This Agreement sets forth the entire agreement
              ----------------
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us.  No modification or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged.  Any
subsequent change or changes in my duties, obligations, rights or compensation
will not affect the validity or scope of this Agreement.

                                       13
<PAGE>

          (c) Severability.  If one or more of the provisions in this Agreement
              ------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.

          (d) Successors and Assigns.  This Agreement will be binding upon my
              ----------------------
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.

          (e) Survival.  The provisions of this Agreement shall survive the
              --------
termination of the Relationship and the assignment of this Agreement by the
Company to any successor in interest or other assignee.

          (f) ADVICE OF COUNSEL.  I ACKNOWLEDGE THAT, IN EXECUTING THIS
              -----------------
AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL
COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS
AGREEMENT.  THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF
THE DRAFTING OR PREPARATION HEREOF.



                           [Signature Page Follows]

                                       14
<PAGE>

     The parties have executed this Agreement on the respective dates set forth
below:

COMPANY:                                EMPLOYEE:

DURECT                                  THOMAS A. SCHRECK, an Individual:
CORPORATION

/s/ Thomas A. Schreck                   /s/ Thomas A. Schreck
---------------------------------       -----------------------------------
Signature                               Signature

By: _____________________________       ___________________________________
                                        Printed Name
Title: __________________________

Date: ___________________________       Date: _____________________________

Address: ________________________       Address: __________________________

_________________________________               ___________________________


                                       15
<PAGE>

                                   EXHIBIT A
                                   ---------

                           LIST OF PRIOR INVENTIONS
                       AND ORIGINAL WORKS OF AUTHORSHIP
                            EXCLUDED FROM SECTION 4


                                                      Identifying Number
        Title                       Date             or Brief Description
------------------------       --------------        --------------------









___ No inventions or improvements

___ Additional Sheets Attached

Signature of Employee/Consultant:_________________________

Print Name of Employee/Consultant:________________________

Date:_____________________________________________________
<PAGE>

                                   EXHIBIT B
                                   ---------
Section 2870 of the California Labor Code is as follows:

     (a)  Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:

          (1)  Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or

          (2)  Result from any work performed by the employee for the employer.

     (b)  To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>

                                   EXHIBIT C
                                   ---------

                           TERMINATION CERTIFICATION

     This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, laboratory
notebooks, flow charts, materials, equipment, other documents or property, or
copies or reproductions of any aforementioned items belonging to Durect
Corporation, its subsidiaries, affiliates, successors or assigns (together the
"Company").
--------

     I further certify that I have complied with all the terms of the Company's
Confidential Information and Invention Assignment Agreement signed by me,
including the reporting of any inventions and original works of authorship (as
defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.

     I further agree that, in compliance with the Confidential Information and
Invention Assignment Agreement, I will preserve as confidential all trade
secrets, confidential knowledge, data or other proprietary information relating
to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its
employees, clients, consultants or licensees.

     I further agree that for twenty-four (24) months from the date of this
Certificate, I shall not either directly or indirectly solicit, induce, recruit
or encourage any of the Company's employees or consultants to terminate their
relationship with the Company, or take away such employees or consultants, or
attempt to solicit, induce, recruit, encourage or take away employees or
consultants of the Company, either for myself or for any other person or entity.
Further, for a period of twenty-four (24) months from the date of this
Certificate, I shall not solicit any licensor to or customer of the Company or
licensee of the Company's products, in each case, that are known to me, with
respect to any business, products or services that are competitive to the
products or services offered by the Company or under development as of the date
of termination of my Relationship with the Company.

Date: __________________
                              ___________________________________________
                              (Employee's Signature)

                              ___________________________________________
                              (Type/Print Employee's Name)

                                      -2-