What happened

After updating investors on its restructuring and boosting its full-year guidance, shares of Depomed Inc. (ASRT -1.92%) were up 23.2% on Thursday.

So what

Depomed is in the middle of a restructuring of its business that includes out-licensing its lead drug, Nucynta. In December, Collegium (COLL 1.02%) cut a licensing deal for Nucynta that guarantees Depomed $135 million in annual royalties, paid quarterly in arrears, for four years. If sales exceed $233 million per year, then Collegium Pharmaceutical will also pay Depomed a double-digit royalty on top of the minimum license fee. After four years, Depomed will receive double-digit royalties on all net Nucynta sales.

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The Collegium agreement became official in January, and as a result the impact of accounting for the agreement more than offset a deceleration in Nucynta revenue during the first quarter. Depomed's product sales were $44.4 million, down from $90.3 million one year ago, however, total revenue was $128.4 million, up from $90.3 million last year, because of $83.8 million in revenue tied to the Collegium deal. Specifically, commercialization rights and services provided to Collegium contributed $28.1 million to revenue and non-cash value assigned to inventory transferred to Collegium contributed $55.7 million to revenue.

Depomed also announced it's in-licensed a new dose of Cambia that it hopes to file for FDA approval next year, and it entered into a co-promotion deal with Allegis Pharmaceuticals for Zipsor, under which Allegis will add 30 sales people to market Zipsor to primary care doctors. Sales of Cambia and Zipsor were $6.4 million and $4.7 million, respectively, in Q1.

Additionally, Depomed improved its net loss guidance for 2018. It previously expected to lose between $72 million and $82 million, but now it expects to only lose between $23 million and $33 million this year.

Now what

Because its an opioid pain medicine, sales of Nucynta have been sliding since doctors are shying away from prescribing opioids due to the risk of abuse. Licensing Nucynta to Collegium provides Depomed with a predictable source of high-margin revenue it can use to refocus itself. 

As part of its strategy, the company's licensed rights to cosyntropin (synthetic ACTH depot), a drug that if approved in the U.S. could compete against the billion dollar rare disease treatment Acthar Gel (ACTH depot), which is owned by Mallinckrodt. Depomed says an FDA filing for approval of cosyntropin should happen by the end of this year.

It's good news that Depomed's making progress on its reorganization, but with an enterprise value of nearly $1 billion, the company's going to need a couple of more wins before I think investors ought to consider owning it.