Take Long View

Depomed's (NASDAQ:DEPO) strategy of acquiring flailing brands and reinvigorating them has attracted the unwanted attention of Horizon Pharmaceuticals (NASDAQ:HZNP), a biopharma with a similar business strategy. 

Last month, Horizon Pharmaceuticals offered $3 billion to acquire Depomed, an offer that was quickly rejected by Depomed's board as being too low, and that led to Depomed's shares soaring by 46.8% in July, according to data from S&P Capital IQ.

Horizon Pharmaceuticals interest in Depomed follows Depomed's outbidding it earlier this year for Johnson & Johnson's Nucynta.

In that deal, Depomed paid J&J $1.05 billion to get the rights to Nucynta, an opioid pain medication that Depomed thinks is under-marketed and under-prescribed.

According to Depomed, the market share for the original formulation of Nucynta stands at just 0.3% of the short-acting opioid market and market share for the longer-lasting Nucynta ER is just 1.5% of the long-acting opioid market.

During the second quarter, Depomed reports that Nucynta sales totaled $56.7 million, but Depomed thinks Nucynta revenue could head much higher following its official relaunch in June with a 275 person sales team .

Depomed also markets the shingles pain therapy Gralise, the breakthrough pain medication Lazanda, and the migraine drug Cambia and across all of the company's products, Depomed's total sales hit $94.3 million and adjusted EPS reached $0.27 in the second quarter.

Looking ahead
DepoMed values the short-term opioid market at $7.1 billion and the long-term opioid market at $5.5 billion annually, so even small gains in Nucynta market share could result in big revenue growth in the coming year.

That opportunity alongside growth for its other products has Depomed forecasting sales will reach between $320 million and $340 million this year, up from prior estimates for sales of between $310 million and $335 million. Depomed also recently upped its adjusted profit forecast for this year to between $40 and $50 million from between $16 million and $28 million.

The company's revenue and earnings growth projections suggest that there's plenty of reason for investors to consider owning this company, even if Horizon Pharmaceuticals fails to win over Depomed's board. For that reason, I think this company is one that small cap investors can consider socking away. 

 

Todd Campbell owns shares of DepoMed,. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.