Seeking Alpha
Profile| Send Message|
( followers)  

By Patrick Crutcher

We wanted to provide readers with an update on DepoMed Inc.(NASDAQ: DEPO). They have been busy making the rounds at a few investor conferences. CEO, President Carl A. Pelzel recently gave a presentation last week at the BioCentury's NewsMakers in the Biotech Industry Conference. Below is an overview of some of the topics he addressed.

Right now, DEPO is generating most of it’s revenue from sales of Glumetza. GLUMETZA (metformin hydrochloride extended release tablets) is indicated as an adjunct to diet and exercise to improve glycemic control in adult patients with type 2 diabetes. Currently, DEPO has a royalty ~17% on sales of Glumetza. In the presentation, Pelzel noted that they expect Glumetza 500mg resupply to take place in the 4th quarter. They’ve also done a study which showed that Glumetza can be tolerated at higher dosages and that it has showed lower potential for GI adverse events than those using previous metformin formulations.

This is the most important catalyst in the next 3 months for DEPO: PDUFA date of January 30th, 2011 for DM-1796. DM-1796 is an extended release, once-daily tablet formulation of gabapentin for the management of postherpetic neuralgia (PHN), or pain after shingles. If approved, DEPO expects Abbott to launch in Q2 2011 and Abbott will pay DEPO a milestone payment between $35-60M, depending upon the label. Pelzel said they are projecting somewhere in the middle, so roughly $45-50M. DEPO expects to receive favorable labeling as their Phase 3 study demonstrated a better side-effect profile. Additionally, they will have a 14% royalty each year going up to 20% and up to $300M in milestones.

4.89 - (0.00%)
Intraday | 3 Month | 6 Month | 1 Year
Quotes delayed at least 20 mins.
On the subject of the rest-of-world market, DM-1796 will require further studies in Europe and Japan, but not in South America and Asia where after a perfunctory 3 month period, US approval will be enough to support approval in these markets. The postherpetic neuralgia (PHN) market has been growing the past several years(~30%) and has continued uptake in prescriptions. Based on their figures, they have seen decreasing Lyrica sales(-11%) and increasing generic gabapentin sales. They believe DM-1796 has excellent potential to capture a portion of this $7B market. DM-1796 offers patients and doctors added convenience(once-daily vs 2-4 times) and a decreased side effects profile. They are still in discussions for sale of ex-US rights to DM-1796.

This drug was filed under the 505(b)(2) NDA, which means no additional carcinogenicity studies were required for the DM-1796 NDA because it will reference the same toxicology package that formed the basis of the approval of Neurontin® (gabapentin) for epilepsy and postherpetic neuralgia. Gabapentin has been around since 1993 and no toxicology has been seen in post-marketing with approximately 20 million prescriptions annually. If approved, they would be the first company to have an approved extended-release formulation of gabapentin. See Pre-NDA meeting notes for more on this.

DEPO also commented on some other items of interest. They expect Phase 1 results for DM-1992 to be available in Q1 2011. DM-1992 is their novel formulation of Levodopa/carbidopa, which is the gold standard treatment of Parkinson’s Disease but currently has significant limitations with inconsistent efficacy and inconvenient dosing (4-6 times daily). Levodopa/Carbidopa is available as a generic (Sinemet) and had $270 M in sales in the U.S. in 2006. They believe their AcuForm™ technology, could help patients using Levodopa/Carbidopa to achieve more consistent efficacy, as well as reduce dosing frequency. DEPO hopes to out-license this program soon after results are presented.

DEPO expects Merck (NYSE:MRK) to file the NDA for Janumet-XR sometime Q4 2010. Janumet-XR will be an extended release metformin to co-formulation along with its DPP-IV agent, Januvia (sitagliptin). Janumet tablets contain 2 prescription medicines: sitagliptin (JANUVIA®) and metformin. Depomed will earn an undisclosed milestone payment from Merck when FDA acceptance of the Janumet-XR NDA occurs. Januvia and Janumet posted sales of $1.9 billion and $650 million, in 2009. Janumet-XR would certainly occupy most of the Janumet current sales. Depomed likely has a single digit royalty on sales, which would still add plenty of cash to their operations.

Last week, they also announced a $5 million milestone payment from Janssen Pharmaceutica N.V. following the delivery of a prototype of one of four formulations of a fixed dose combination of canagliflozin, a Sodium Glucose Transporter 2 (SGLT2) inhibitor, and extended-release metformin. Pezel also noted that their gastroesophageal reflux disease (GERD) or acid reflux disease product, DM-3458, will likely be out-licensed in 2011. Again this will utlilize their patented AcuForm technology to develop a controlled-release formulation of omeprazole, a generic proton pump inhibitor (PPI).

On a final note, DEPO will be announcing 3Q 2010 results on Monday, November 1st. Based on Pezel’s comments, Glumetza 1000mg sales have been going well, so you can expect to see good numbers posted on this front. DEPO expects to have roughly $59-65M in cash by year’s end. Again, DEPO has no intentions of raising capital since they have multiple revenue streams and several catalytic events that could increase their cash position by 100%. CEO Carl Pelzel also noted that a very well-know analyst had recently visited the company, so we could be hearing a report from this analyst in the future. We feel that DM-1796 will likely be approved based on the data at hand and their side effect profile should lend itself to very favorable labeling with the FDA. Investors can be assured that DEPO has many forthcoming positive events that will fuel an appreciation in share price.


Disclosure: Long DEPO

Read the full report.

Source: DepoMed: Positive Pipeline Should Fuel Share Price