Depomed (NASDAQ:ASRT) has relaunched the recently acquired opioid pain killer Nucynta with a steep price increase and a larger sales force. As a result, Depomed may be in a position to significantly grow its sales and earnings in the coming year. Because the company has a track record for successfully relaunching drugs, there may be an opportunity for upside in its shares that isn't fully appreciated by investors.

The back story
In 2012, Johnson & Johnson (NYSE: JNJ) licensed rights to Depomed technology for its extended release formulation of Nucynta, agreeing to pay Depomed $10 million upfront, as well as low single-digit royalties on Nucynta ER sales through 2021. Despite Nucynta ER winning FDA approval for patients requiring round-the-clock pain management, including those suffering from chronic pain and nerve damage caused by diabetes (a potentially large market given diabetes prevalence), sales never reached levels that would move the needle for J&J, which is one of the planet's biggest drugmakers.

As a result, the big pharma determined that Nucynta wasn't a core asset, allowing Depomed to step up and acquire it for $1.05 billion in January.

Kick-starting sales
Although Nucynta sales are a rounding error for Johnson & Johnson, they're potentially transformative for the far smaller Depomed. Prior to acquiring Nucynta, Depomed's sales came mostly courtesy of Gralise, an internally developed therapy for pain following shingles, with first-quarter sales of $17.3 million, up 59% year over year.

However, Depomed is also notching significant revenue growth from Lazanda, a breakthrough pain medicine, and Cambia, a migraine therapy, both of which the company acquired and has successfully relaunched. Sales of Lazanda and Cambia grew 369% and 16% year over year to $3.2 million and $5.4 million in Q1, respectively.

Now that Nucynta is officially part of Depomed's product line-up, the company can leverage relationships it's fostered with pain specialists from marketing Gralise, Lazanda, and Cambia to increase Nucynta's script volume. In order to effectively do that, Depomed has engaged a 275-person sales force that's triple the size of the contract sales force deployed for Nucynta by Johnson & Johnson.

If Depomed is right in believing that a larger sales team can allow Nucynta to capture more market share, then sales could go much higher. Currently, Nucynta ER's share of the $5.5 billion long-term opioid market is just 1.5%.

However, even if a larger sales force doesn't materially boost script count, Depomed could still enjoy significant growth in Nucynta sales this year because the company increased Nucynta's pricing by 44% to bring it in line with competitor oxycontin. Prior to Nucynta's price change, the wholesale acquisition cost of Nucynta was $12.80 per day, while the cost of oxycontin was $18.40 per day.

Looking ahead
Thanks to Nucynta, Depomed expects to nearly triple its sales this year to between $310 million and $335 million. The company also estimates that Nucynta will help lift its adjusted earnings to between $16 million and $28 million, but that could be just the start of Depomed's profit growth. Wall Street analysts think that sales growth could drive earnings per share from $0.29 in 2015 to $1.20 in 2016. That $1.20 forecast is up from $0.84 just 90 days ago, and it gives Depomed an arguably attractive forward P/E ratio of 18.4.

The fact that Depomed could enjoy significant top- and bottom-line growth from Nucynta, and trades at a reasonable valuation, is why this one is quickly becoming one of my favorite small-cap biotechnology stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.