Depomed Plays Hot Potato

Pharmaceutical companies are usually scrambling to sign marketing deals for approved drugs. So it's interesting that so far in 2007, two drugmakers have returned the rights to marketed compounds back to drug-delivery firm Depomed (Nasdaq: DEPO  ) .

On Monday, King Pharmaceuticals (NYSE: KG  ) and Depomed terminated a marketing collaboration deal for its extended-release version of the already genericized diabetes treatment metformin. This followed disappointing sales numbers since the drug's FDA approval in 2005.

King had been co-promoting Depomed's extended-release metformin compound, dubbed Glumetza, since the third quarter of last year after it signed a collaboration deal with Depomed in June of 2006. Sales of the compound have been soft since its launch with Depomed -- just $3.8 million in sales and $1.6 million worldwide in license revenue from the drug were recorded in the first half of 2007.

The ending of the King deal comes on top of another marketing collaboration dissolution earlier in the year. In July, Depomed reacquired the rights to urinary tract infection treatment ProQuin XR from Esprit Pharma -- now part of Allergan (NYSE: AGN  ) . This happened after lackluster sales of the drug, not to mention a contentious collaboration with Esprit involving a squabble over a $10 million license fee that almost sent the drugmakers into arbitration.

In return for not having to market Glumetza anymore, King is paying Depomed $30 million. Depomed also received $17.5 million from Esprit when its marketing agreement was dissolved in July, although it did find another partner in Watson Pharmaceuticals (NYSE: WPI  ) to take over some marketing responsibilities for ProQuin.

It hasn't been a particularly good 2007 for Depomed. Shares are down 37% since the start of the year following disappointing sales from its lead drugs and poor clinical trial results from another. Nonetheless, Depomed might have discovered one of the more novel methods of growing its top line, if it can continue to get other drugmakers to pay up for not having to market its compounds.

The $47.5 million in combined payments from King and Esprit this year is more than six times Depomed's revenue from other sources in the first half of the year. Cheers to Depomed for one of the more innovative cash-generating strategies.


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