Depomed Braces For Upcoming AdCom Meeting Print E-mail
By Brian Wilson, Lead Contributor   
Wednesday, 27 February 2013 02:07
The California-based drug developer Depomed (NASDAQ: DEPO) has been seeing extraordinarily choppy trading ahead of an upcoming FDA advisory committee meeting for its menopausal hot flash drug Serada (Gabapentin GR).
The meeting, which is scheduled to occur on March 4th, will discuss the NDA (New Drug Application) that the company submitted for Serada in 2012. More specifically, we will see the panel weigh in on both the efficacy and safety profile of the drug based on the existing data and analysis that the company has submitted to the FDA for approval within the NDA. This gives us an early guess on what the FDA will ultimately think about the NDA when it comes time for the final decision.

This decision, which can be referred to as the "PDUFA action date", is scheduled to be Friday, May 31, 2013.

The market will often consider the outcome of an advisory committee meeting as a barometer of the FDA's eventually opinion on any NDA/BLA, although this is much more applicable when there is a consensus within the panel itself. If an advisory committee votes thirteen to one against the efficacy profile of a cancer drug, for instance, the market will consider this virtually equivalent to an FDA rejection and will almost assuredly drop the price of the related stock as soon as possible. If there were an eight to six vote in favor of the efficacy of the same cancer drug, the market would not have a clear opinion from the panel and would have to anticipate the FDA's decision on its own.

Since FDA decisions are binary events (it's either a yes or a no), I find that the most drastic moves are made following FDA approvals/denials on drugs/therapies that the market is conflicted about leading up to the PDUFA date.

Serada is a product based on Depomed's proprietary Acuform technology, which looks to enhance drug delivery through a controlled release mechanism that is based on the trapping of active ingredients (which are generic molecules) in a special polymer molecule that disintegrates gradually. Depomed's polymer also undergoes expansion during the early stages of the digestive process, which apparently traps the molecules in patients' stomachs and releases the active ingredient in the best possible GI location for absorption. While there are many companies that are developing extended release versions of generic drugs, Depofoam is targeting a niche market that has not seen much attention from many other companies and presumably reduces side effects relative to the standard of care treatment.

I think that the safety profile of Acuform has been well established at this point, and I have my doubts that the FDA advisory committee or the FDA will find any real safety concerns with Serada's polymers. The generic hormone replacement gabapentin on the other hand, has some potential correlation with breast cancer and cardiovascular disease. While Serada may reduce side effects associated with gabapentin therapy, it can do little to address these concerns at this time.

Due to this I'm anticipating mildly positive results from the advisory committee meeting, which will more-than-likely translate into an FDA approval later in the year. While nothing is a guarantee, I think Serada is a useful upgrade for patients suffering from hot flashes, and introduces no additional risk to patients in terms of breast cancer and cardiovascular risk when compared to the current standard of care.

Having said this, I think that anyone interest in DEPO should question just how well Serada would sell following its likely FDA approval due to the fact that it's basically a repackaged, generic molecule. Long term investors should also consider the production-related expenses that could be incurred, as well as the reimbursement landscape for hormone replacement therapies.

Depomed is trading at a valuation of roughly $350 million; Investors who wish to see DEPO to rise significantly should be estimating (with confidence) that Serada sales will exceed $75 million in annual revenue with a high enough price to bring Depomed into substantial profitability. Otherwise, DEPO could easily become another one of the many disappointing and capital-consuming biotech companies that can't extract financial value from their products.



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