Depomed (NASDAQ:DEPO), the small northern California drug delivery company, recently reported Phase 3 trial results for two separate compounds for the pain associated with shingles (post-herpetic neuralgia or PHN) and menopausal hot flashes.
Both drugs are extended versions of gabapentin, the generic equivalent of Pfizer’s (PFE) popular pain drug Neurontin. Depomed has a drug delivery technology they call Acuform that causes the pill to swell in the stomach and gradually release the active drug into the intestine, thereby substantially reducing the daily dosing and negative side effects while providing the same or greater efficacy.
{tiny;DEPO;1}Results for the two recent clinical trials were a mixed bag. DEPO’s DM-1796 for PHN pain achieved statistically significant results with once daily dosing and much lower side effects than Neurontin or Pfizer’s newer version of that drug, Lyrica. This is an enormous market with 35 million domestic annual prescriptions and sales in the billions of dollars. DEPO partnered its uniquely differentiated drug last year with Belgium’s Solvay (SOLB.BR) for North American distribution following a $25 million payment and future milestones that include $45-$70 million upon FDA acceptance and approval plus royalties of 14-20% on sales. The company plans to submit the New Drug Application to the FDA next quarter, with approval anticipated early in 2011 at the latest and sales beginning shortly thereafter. Foreign distribution rights are currently being discussed and could be extremely lucrative for DEPO—maybe even more so than the domestic partnership now that clinical trials are complete and successful. It’s possible that Abbott Laboratories (ABT), which is in the process of acquiring Solvay’s drug unit, may want to lock up the worldwide rights to the drug.
Disappointing, but not disastrous, were the results for Serada, DEPO’s drug for menopausal hot flashes. Prior trials for Serada had experienced very positive results for reducing the frequency and severity of hot flashes. The recent Phase 3 trial, actually two separate trials, saw an abnormally high placebo response and failed to achieve complete statistical significance. DEPO was further penalized from a statistical standpoint by testing two different doses of the drug. Had they only used the higher dose, seven of eight primary endpoints would have been achieved and the drug likely would have stood a good chance of obtaining FDA approval due to the huge unmet need of this market following the collapse of traditional hormone-replacement therapy. The company is meeting with the FDA in December to discuss how to proceed, and it’s likely that they will need to do another trial with just the one dose, delaying the launch of the drug by four to six quarters. (Ironically, something very similar happened in 2007 for their PHN drug, which now has a very high probability of being approved.) DEPO has chosen to go it alone with Serada and a future partnership, either before or after the next possible clinical trial, could also be a major game changer for shareholders as the first safe and effective non-hormonal, non-antidepressant solution in a multi-billion dollar market.
Following the disappointing news that Serada’s time to market would be pushed out, DEPO’s stock price was more than cut in half. While the company already has two approved drugs on the market, including the number one branded version of metformin for diabetes (Glumetza), it has seen its share of setbacks too over the years, and that has always kept the stock price at conservative levels. This time was no exception, even before the Serada news. However, the just prior good news for DM-1796 attracted a lot of fast money to the stock anticipating that they might bat 2-for-2 on the trials. When that didn’t happen, the flood gates opened and the stock tanked to absurd levels and is likely putting in a bottom now.
With roughly 52 million shares outstanding, Depomed currently sports a market cap of about $170 million. The company ended last quarter with $88 million in cash and debt of only $6 million. CEO Carl Pelzel has stated that they have no need for additional financing. Today’s enterprise value for the entire company is little more than the milestone payments that they will soon receive from Solvay/Abbott alone!
Partnerships negotiations are underway on numerous fronts. Most enticing are the foreign rights for DM-1796. They also recently licensed Glumetza, their extended version of metformin, to Merck (MRK) for a combination extended release version of its popular DPP-4 class diabetes drug, Januvia. It’s likely that many of the numerous other drugs in this class, over a dozen, will do the same. Licensing talks with the others are ongoing—as a benchmark, Merck paid $10 million upfront and will make additional payments upon approval and sales. Serada may be partnered after the upcoming meeting with the FDA. DEPO also has a novel approach for treating the nocturnal acid breakthrough associated with gastroesophageal reflux disease (GERD), another multi-billion dollar market. Partnership discussions are happening for that too at the moment. Additionally, the company has a pipeline that includes a promising drug for Parkinson’s disease, a development agreement for multiple compounds with Covidian (COV) and scores of drugs that could benefit from its Acuform technology.
The glass at Depomed is clearly half full. The numerous potentially positive developments combined with the upcoming approval and launch of DM-1796 make the stock a bargain at these levels for those with an investment horizon exceeding a few months. Expect the share price to swell to two or three times its current size in the next 12 to 18 months.
Disclosure: Long DEPO
Holger Berndt, CFA is a research consultant to the investment industry, author of the recently published novel Hedge Fund and a former hedge fund portfolio manager. He is also a Chartered Financial Analyst. We proudly welcome him as a contributor to the BioMedReports family.
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Glumetza is a long-acting, timed release, once daily version of the drug that now finally can take full advantage of the effects of Metformin to normalize blood sugar in patients with type II diabetes while minimizing the side-effects associated with Metformin. The drug works by reducing the amount of sugar produced in the liver, and the amount of sugar absorbed in the body. It also helps the body respond better to its own insulin, thereby reducing instances of damaging high levels of blood sugar. Think of Glumetza as a once-a-day wonder drug for the approximately 19 million people in the US suffering from adult-onset, or type II diabetes.
Since the FDA approved the drug early last year, it has slowly started to penetrate the marketplace. The small company behind the drug is Depomed (NASDAQ: DEPO) of Menlo Park, CA. Late summer last year, Depomed inked a deal with a larger company, Santarus (NASDAQ: SNTS) of San Diego, CA, to market and sell the drug in the US using its well established sales and marketing network.
In the deal, Santarus paid Depomed an up-front payment, while Santarus in turn will receive 75-80% of the gross margin from sales of Glumetza. Both companies were winners in this deal, as Depomed received much needed cash in the credit crunch and cash strong Santarus will have huge earnings potential as sales of Glumetza takes off. The market potential for Glumetza is so large that pharmaceutical companies are lining up to get a piece of the pie. Their technology has already been challenged by Bristol Myer Squibb (NYSE: BMY) and Ivax, a subsidiary of Teva Pharmaceuticals (NASDAQ: TEVA), and in recent news, Lupin Pharmaceuticals is again attempting to invalidate their patents.
I see little cause for concern as Depomed has already reached other agreements with both Ivax and Bristol Myer Squibb, and this market is big enough for multiple players. In the longer run, it is Santarus who stands to make the most from Glumetza of course. Santarus started marketing the drug in the fourth quarter of 2008, and after a year can now show a very promising growth in the sales of Glumetza with prescriptions currently at around 79,000 patients at the end of the third quarter, turning in a 20% growth over the second quarter of this year.
Most patients on the drug will be on it permanently, and since there are 19 million type II diabetes sufferers in the US, the room to grow here makes Glumetza a potential billion dollar blockbuster drug, and sales should continue to see exponential growth as the word gets out to physicians and patients across the country. Although the growth in sales is currently at a rate of doubling every year, it can become even more explosive at any moment as reimbursement for the drug is expected to become widespread. It is not a very expensive drug in the first place at about $4 per day, making the price about $1500 per patient per year depending on the dose, which is customized for each patient with help from their physician.
Depomed, Inc (NASDAQ:DEPO) announced that they have received a Paragraph IV certification notice from Lupin Limited advising Depomed of the filing of an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration for ...
The company which develops and commercializes products to stimulate the body’s natural tissue regenerative process and whose protein therapeutic-device combination products are used for the treatment of musculoskeletal injuries and conditions affecting bones, tendons, ligaments, and cartilage saw it's stock close at $13.08 +1.37 (11.70%) as the small-cap prepares for a presentation next week at the Orthopedic Trauma Association's Annual meeting (Oct. 8-10) and at the American Orthopaedic Foot & Ankle Society conference on Nov. 6-7.
Also among the winners was Elron Electronic Industries Ltd. (NASDAQ:ELRN) which closed up +0.56 (10.89%) to $5.70. This is a multi-faceted play that covers various sectors including healthcare beacuse it's technically a technology operational holding company that operates through its group companies. The company is engaged primarily in the fields of medical devices, information communications, technology, semiconductors and clean technology. Clean tech is being touted by many as the next big opportunity sector for investors.
NovaMed, Inc.(NASDAQ:NOVA) closed at $4.58+0.36 (8.53%) and saw nearly half it's gains for the day come in the closing minutes of the regular session. After hour trades were not unusual and didn't show any added volatility or price increase, however. NovaMed, Inc. is a health care services company and an owner and operator of ambulatory surgery centers (ASCs).
Leading the losers was MannKind Corporation (NASDAQ:MNKD). Shares of this biopharmaceutical company focused on the discovery, development and commercialization of therapeutic products for diseases, such as diabetes and cancer have plummeted over 31% on Tuesday to $6.31, after the company said it would be unable to conclude a partnership deal for its inhaled insulin product, AFRESA, by the end of the year.
DepoMed, Inc.(NASDAQ:DEPO) pulled back just a bit after Monday's big jump for the stock. The company announced top-line results from a Phase 3 clinical trial demonstrating DM-1796 (also referred to as gabapentin ER) achieved a statistically significant reduction in pain associated with postherpetic neuralgia (PHN) versus placebo using the baseline observation carried forward (BOCF) method required by FDA. The primary endpoint measured pain scores from baseline to the end of a ten-week treatment period using the numerical Likert pain scale. Some analysts are reiterating a positive rating for the stock and believe the market has yet to factor in the potential that this drug has in terms of delivering milestones and royalties to the company from partner Abbott Labs. As subscribers to our FDA and Clinical Trials Calendar know, up next for Depomed is the phase III Breeze data testing Serada in menopausal hot flashes. That data is expected to be out later this month and should help continue pushing shares upward.
For Wednesday, watch Vical Incorporated (Nasdaq:VICL) the company announced early this morning that the company's TransVax(TM) cytomegalovirus (CMV) vaccine continued to demonstrate an overall increase in cellular immune responses compared with placebo at the seven-month immunogenicity data point in an ongoing Phase 2 trial. Alain P. Rolland, Pharm.D., Ph.D., Vical's Executive Vice President of Product Development, presented the data today at the World Vaccine Congress (Lyon, France).
Here are the rest of Tuesday's Top Winners and Losers in healthcare:
Gainers (% price change)
Last Trade
Change
Mkt Cap
BioMimetic Therapeutics
BMTI
13.08
+1.37 (11.70%)
284.49M
Elron Electronic
ELRN
5.70
+0.56 (10.89%)
169.01M
NovaMed, Inc.
NOVA
4.58
+0.36 (8.53%)
105.56M
Hansen Medical, Inc.
HNSN
3.75
+0.28 (8.07%)
140.33M
Affymetrix, Inc.
AFFX
9.28
+0.67 (7.78%)
655.33M
Losers (% price change)
MannKind Corporation
MNKD
6.31
-2.90 (-31.49%)
654.65M
St. Jude Medical, Inc.
STJ
33.40
-4.84 (-12.66%)
11.62B
DepoMed, Inc.
DEPO
5.27
-0.34 (-6.06%)
271.98M
Amicus Therapeutics, Inc.
FOLD
5.26
-0.30 (-5.40%)
119.10M
Immunomedics, Inc.
IMMU
4.79
-0.20 (-4.01%)
360.03M
Most Actives (dollar volume)
St. Jude Medical, Inc.
STJ
33.40
-4.84 (-12.66%)
11.62B
Pfizer Inc.
PFE
16.78
+0.38 (2.32%)
113.25B
Johnson & Johnson
JNJ
60.29
+0.47 (0.79%)
166.15B
Wyeth
WYE
48.67
+0.42 (0.87%)
64.98B
Merck & Co., Inc.
MRK
32.51
+0.74 (2.33%)
68.56B
The Micros Report is the only LIVE IPTV feed dealing with financial news focused expressly on microcap investment analysis, and it streams to every area of the world. Hosted by Mike “the Analyst” Willingham and "Forex" Rick Wright, The Micros Report provides traders, brokers, investors, and market makers the necessary information to trade intelligently in the penny stock market.
Segment 1:
We talked about some of the movers from Monday, July 9, also what looked to be starting a move today, including: DEPO (DepoMed, Inc.) OBCI (Ocean Bio-Chem, Inc.) and RAVI (Raven Moon Entertainment)
Segment 2:
In our second segment, we discussed some of the stocks mentioned on yesterday's shows that moved, including: HPNN (Hop-on, Inc.), NWBO (Northwest Biotherapeutics, Inc.), MBIR (MobiClear, Inc.), CLXN (CLX Investment Company)
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