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Here's Why Depomed Inc Fell as Much as 13.8% Today

By Maxx Chatsko - Feb 28, 2018 at 3:40PM

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The company announced full-year 2017 earnings yesterday after the market closed.

What happened

Shares of specialty pharmaceuticals provider Depomed (ASRT 5.86%) fell nearly 14% today after the company released fourth-quarter and full-year 2017 results after Tuesday's closing bell. The company struggled last year and is currently in the midst of a much-needed turnaround strategy, which was only formally implemented in the final quarter of 2017. Investors were just reminded how long that might take.

Depomed reported total revenue of $381 million last year, to go along with a GAAP net loss of $102 million. While several restructuring moves contributed to the losses -- and their absence should allow for earnings improvement -- the company likely will be clawing its way to profitability in 2018 and beyond. 

As of 3:08 p.m. EST, the stock had settled to an 11.8% loss.

A finger pointing to a negative stock chart on a screen.

Image source: Getty Images.

So what

Wall Street can't exactly say it was surprised by anything in the recent earnings report. Depomed's struggles and turnaround strategy aren't news. And although the decisions that have been made in recent quarters haven't been easy or always well received, management appears to be doing the right thing to secure the long-term viability of the business.

In January of this year Collegium Pharmaceutical agreed to take control of the Nucynta franchise. That will downsize operations for Depomed and provide a minimum royalty stream of $135 million per year for the next four years. The company has also made moves to exit the opioid business to instead focus on specialty drugs with less legal, social, and ethical risks. A newer, smaller corporate headquarters will also help save expenses and refocus the organization. It expects to be fully operational in its new digs by the third quarter of 2018.

Additionally, Depomed announced that manufacturing of Nucynta ER should return to normal by mid-March. The drug is produced in Puerto Rico and has suffered from periodic supply shortages since the last Atlantic hurricane season devastated the island. In other words, all of the recent developments could provide reason for optimism among investors. 

Now what

All that said, even though the company is executing on its turnaround strategy and portfolio reshuffling, 2018 figures to be a rough year for Depomed stock. There's a high degree of uncertainty facing the business, especially surrounding the transition of the Nucynta franchise from direct sales to royalty stream, since it accounted for 63% of total revenue in 2017. Investors are probably better off keeping their distance from this stock until more traction is demonstrated.

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