DEPO makes new deal and posts strong earnings Print E-mail
By Patrick Crutcher   
Friday, 06 August 2010 04:09

After the bell on Thursday, Depomed Inc. (Nasdaq:DEPO) announced that Janssen Pharmaceutica N.V. has licensed worldwide rights to Depomed's Acuform gastric retentive drug delivery technology

to be used for the non-exclusive development of a fixed dose combination formulation of canagliflozin, a Sodium Glucose Transport 2 (SGLT2) inhibitor, and extended-release metformin. Janssen Pharmaceutica has also been granted a right of reference to the GLUMETZA NDA and associated data for use in developing the combination product.

Under the terms of the service agreement, Depomed will formulate the fixed dose combination product. Janssen Pharmaceutica will have the commercialization rights for the combination product. Depomed will receive a $5 million upfront license fee, plus reimbursements for its formulation work on the project and an additional $5 million license fee following completion of Depomed's formulation work. Depomed is eligible for an additional milestone plus a royalty on potential future net sales.

Depomed - 2Q 2010 earnings

As we told investors on Wednesday, DEPO is going places. This is their third major pharmaceutical partnership (Biovail, Santarus, and J&J). Their great pipeline and strong intellectual property for their unique Accuform(tm) technology. DEPO’s business strategy is to use its patented Acuform technology to modify existing drugs already approved by the FDA so that they become extended release (XR) versions.  This strategy translates to a shorter and less expensive FDA approval rate and most importantly, a greater chance of success in obtaining FDA approval.

Additionally, they announced 2Q 2010 numbers. Revenue for the three months ended June 30, 2010 was $24.4 million compared to $11.6 million for the three months ended June 30, 2009. The 110% increase in revenue year-over-year was primarily attributable to receipt and recognition of the $10.0 million milestone payment from Abbott Products Inc. and a $3.4 million increase in GLUMETZA product sales.

Cash, cash equivalents and marketable securities were $76.9 million as of June 30, 2010 compared to $81.8 million as of December 31, 2009.

"We achieved important milestones in the second quarter. The FDA accepted for filing our licensee's New Drug Application for DM-1796 for post-herpetic neuralgia, which triggered a $10 million milestone payment to us. We now look forward to a potential NDA approval milestone of $35 - $60 million in the first quarter of next year. Also, preparations for Serada's Breeze 3 trial progressed well and we expect to begin enrolling patients later this quarter," said Carl A. Pelzel, president and chief executive officer of Depomed.

Investors have a lot to look forward to in this great small-cap company. They will be announcing news concerning an SPA for Serada with the FDA soon, recommencing shipments of GLUMETZA 500 milligram product by mid-August, FDA news on DM-1796 in 2011, and potentially news on early-stage product candidates. Depomed has what they call a “new opportunity assessment team” that meets every other week. They continually screen compounds that currently exist and that might benefit from AccuForm modification.

DEPO’s future potential is quite limitless. This might be a bit speculative, but DEPO is well positioned to be a merger and/or acquisition (M&A) candidate in the near future (1-2 years). They could see takeover offers from Pfizer, Abbott Laboratories that would have to pay about another $300 million upon approval of DM-1796 (milestones + future revenues), Covidien, and a host of other pharmaceutical companies that are aware of the AccuForm technology and its probable benefits to drugs already on their shelves. Exciting things are happening for DEPO and wise investors should take notice.

DISCLOSURE: No positions

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