Why DepoMed Shares Crashed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty pharmaceutical company DepoMed (NASDAQ: DEPO  ) sank as much as 22% after being halted for the majority of the day following negative news from the FDA's advisory panel regarding its hot-flash drug, Sefelsa.

So what: DepoMed announced today that the Reproductive Health Drugs Advisory Committee recommended against approval of the drug by a vote of 2 for approval and 12 against. At the heart of the RHDAC's concerns was a list of side effects -- most notably, suicidal thoughts -- which did not provide enough benefit to outweigh the risks. DepoMed's CEO, Jim Schoeneck, commented that the company would cease all spending on Sefelsa until "there is a positive direction for Sefelsa," and is planning to focus its efforts on turning cash flow positive in the second half of 2013 based on royalties and its two marketed products, Gralise and Zipsor.

Now what: Not really a huge shock here that DepoMed's Sefelsa wasn't recommended by the RHDAC given that it took three trials over the course of a number of years for the company to get anywhere near the desired results. There could be value in DepoMed based on its existing drugs, but only so long as management holds to its word to abandon Sefelsa completely in the meantime and keeps costs under a tight lid.

Craving more input? Start by adding DepoMed to your free and personalized watchlist so you can keep up on the latest news with the company.

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