Why DepoMed Inc. Shares Temporarily Spiked Higher

DepoMed strikes a deal to protect the exclusivity of its best-selling drug. Is this cause for celebration?

Apr 14, 2014 at 1:01PM

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 DepoMed (NASDAQ:DEPO), a biopharmaceutical company developing therapies to treat pain and other central nervous system disorders, jumped as much as 11% after announcing settlements with two Gralise abbreviated new drug application filers. Shares have since given up a good chunk of their gains and are now up just shy of 5%.

So what: According to the early morning press release, DepoMed has settled with two of the three defendants in an ongoing patent infringement case surrounding the trio's attempt to file separate ANDA's to bring generic versions of Gralise, a treatment for pain following a bout of the shingles, to market. Under the terms of the deal, neither defendant can begin selling generic Gralise until Jan. 1, 2024. The two settlements were struck with privately held Zydus Pharmaceuticals and Incepta Pharmaceuticals, however, DepoMed still notes that its patent litigation against the third party, Actavis, is ongoing.

Now what: Today's move higher is all about sustaining exclusivity for DepoMed and Gralise. Although Gralise's total sales were just $36.2 million last year, Gralise is by far DepoMed's top-selling therapy, and it's rapid growth of 109% sheds promise that DepoMed's top-line could grow considerably over the coming years when combined with newly acquired Cambia and Lazanda. At roughly 30 times forward earnings DepoMed might still be a bit pricey for my blood, but the pace of sales growth for its newly acquired therapies and Gralise could change that.

DepoMed shares are up big today, but they'll likely be hard-pressed to keep pace with this top stock in 2014
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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