Is Depomed Now Set to Soar? Print
By Patrick Crutcher   
Wednesday, 04 August 2010 07:15

Depomed Inc.(NASDAQ: DEPO) has now cleared some potential legal hurdles in their pipeline and investors are cheering.

After-hours on Tueday, the company released news confirming that Pfizer would not file a patent lawsuit against DEPO under the Hatch-Waxman Act, which would have initiated a 30-month stay on the FDA's ability to approve the DM-1796 NDA, has expired.

DM-1796 is an extended release, once-daily tablet formulation of gabapentin for post-herpetic neuralgia developed by Depomed. Abbott Products is obligated to pay the Company royalties of 14 to 20 percent of net product sales, depending on the level of product sales. Depomed is also eligible to receive milestone payments for acceptance and FDA approval of the NDA for DM-1796 for post-herpetic neuralgia , and sales milestone payments upon reaching certain sales milestones. The company noted that the acceptance of an NDA triggered a $10 million payment from their licensee Abbott Products.

Depomed, Inc. is a specialty pharmaceutical company with one product candidate through Phase 3 clinical development (DM-1796 with a NDA for post-herpetic neuralgia), another in Phase 3 clinical development (Serada for hot flashes), two approved products on the market (Glumetza for diabetes and Proquin XR for urinary tract infections) and other product candidates in its early stage pipeline. Depomed formulates its products and product candidates with its proven, proprietary Acuform® drug delivery technology, which is designed to improve existing oral medications, allowing for extended, controlled release of medications to the upper gastrointestinal tract.

We should note they are working on an SPA with the FDA for Serada, which we should news out on in the next 1-2 months. On June 29, 2010, the Company held a meeting with the FDA to discuss the FDA's further guidance received on April 30, 2010. Following the meeting, the Company resubmitted the protocol for Breeze 3 to the FDA pursuant to the SPA program. Because the resubmitted Breeze 3 protocol reflects the FDA's two prior reviews of the Breeze 3 protocol under the SPA program and guidance from the FDA received at the meeting, the Company does not anticipate any further comments from the FDA on the Breeze 3 protocol. Accordingly, the Company expects to receive a final assessment of the Breeze 3 protocol in August 2010 and begin enrolling patients in Breeze 3 trial in September 2010.

As an update on GLUMETZA 500 milligram recall that was announced in mid-June, Depomed has informed Santarus Inc(NASDAQ:SNTS), their partner for Glumetza, that they expect to recommence shipping GLUMETZA 500 milligram product by mid-August, assuming Depomed’s current testing and re-supply activities are successful. SNTS reports strong sales for Glumetza in the 2Q. SNTS expects to report total revenues of $125 million to $130 million for 2010.

With an anticipated $1.75 to $2.15 in cash before the end of the year there will be no dilution from additional stock offerings in the near future. That would translate to about 60% of its current CAP being cash by the end of the year. Q1 sales were up 56% to 15.4 M and sales should be at least $60 M over the next 12 months. DEPO pays SNTS 80% of gross margin of sales with a current annual run rate of $63m in sales and a net product margin of 13-14%. It has the greatest share of the market for metformin products. The company has illustrated a general timeline for how they will grow.

The DEPO business strategy of using its patented Acuform technology to modify existing drugs already approved by the FDA translates to a shorter and less expensive end run FDA approval rate.  This is a brilliant strategy that cuts down on the money and time necessary for approval of investigational drugs that most pharmaceutical companies encounter. More and more companies simply do not have the funds to pay for FDA approval of investigational drugs.   DEPO has more than enough capital to develop new drugs, because of its business strategy and Acuform technology.  Nevertheless, the company does believe in finding partners for development and marketing.

We should stress the potential for Glumetza.  This drug is an Acuform modification of Metformin, the drug of choice today of most physicians for the approximately 20 million Type 2 diabetics in America.  Because of the Acuform modification, Metformin in the form of Glumetza can now be tolerated in larger doses than previously.  The market potential for Glumetza is in the billions.  It is probably just a matter of time before Glumetza becomes the drug of choice for Type 2 diabetes.

This company is rated bullish. DEPO has a strong future ahead of them and are establish a great pipeline with products that are making sales.


Disclosure: No Positions

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