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What happened

Following reports that its board of directors may be willing to entertain offers, DepoMed, Inc. (ASRT -4.05%) shares are rallying 12% at noon EST.

So what

Starboard Value LP investor Jeffrey Smith has been lobbying for DepoMed to put itself up for sale since acquiring a nearly 10% stake earlier this year, and it seems that only a year after rejecting a $33-per-share acquisition offer from Horizon Pharma (HZNP), the board is listening.

Interest in acquiring DepoMed will depend a lot on whether the company comes out the victor in an ongoing patent battle that could extend patent protection on its best-selling drug, Nucynta, deep into the next decade.

DepoMed acquired Nucynta, an opioid drug, from Johnson & Johnson in early 2015, and while J&J failed to make meaningful inroads against market-share leader Oxycontin, a new marketing plan instituted by DepoMed appears to be paying off in spite of an overall decline in the opioid prescription market.

Last quarter, DepoMed reported that Nucynta franchise sales reached a record $72 million and that during its first year promoting Nucynta, it generated $274 million in revenue, up 59% from the final year of sales under J&J.

The company also reported that prescriptions of Nucynta ER, the extended-release version, hit an all-time monthly high of 29,000 in June, up 26% year over year, and that Nucynta IR, the immediate-release version, has seen its year-over-year prescription volume begin growing again for the first time since 2011.

Nucynta's growth is particularly intriguing given that the broader opioid market has declined 4% this year because of rising concerns over opioid abuse.

Now what

A lot of DepoMed's value rests on Nucynta, and that poses a problem for investors. First, pushback because of opioid abuse is crimping the global market for pain medications, and there's no guarantee Nucynta will sidestep that trend forever. Second, an unfavorable patent outcome on Nucynta could shorten DepoMed's exclusivity on the drug from 2029 to 2023.

Having said that, DepoMed is successfully championing Nucynta as an alternative to drugs like Oxycontin, and if the patent decision goes its way, then it could add billions of dollars in sales to the calculations being done by potential suitors to determine DepoMed's value.

DepoMed has recently backed away from long-term projections for Nucynta, but in the past it's said that it could see $500 million in sales as soon as 2018, and that Nucynta could end up being a billion-dollar blockbuster someday.

Any acquirer would also gain a handful of other drugs including the shingles pain drug Gralise, with annualized sales of $96 million; the migraine drug Cambia, with $30 million in annualized sales; the fentanyl spray Lazanda, which is clocking in at an annualized $25 million pace; and the pain medicine Zipsor, which is also selling at a $25 million annualized rate.

Overall, DepoMed's second-quarter sales totaled $117 million, up 23% year over year, and its adjusted earnings per share came in at $0.27, a penny shy of last year.

Investors shouldn't buy DepoMed solely because there's a chance it gets acquired, but because of the opportunity for growth associated with its product lineup. I think the company can be profit-friendly to investors without a deal, so I'd view any acquisition upside as gravy.