The last few months have been volatile for some drugmakers. Small-drug developer Depomed (NASDAQ:DEPO) was especially busy and shares have fallen from over $5 a share all the way to under $2 at one point.

On Tuesday Depomed reported its second-quarter financial results. With two FDA-approved drugs and another in late-stage testing you'd think Depomed would have a market capitalization above $110 million. After all, it's not that many drugmakers that can even bring one compound successfully through the FDA regulatory process.

Unfortunately Depomed's lead drug Glumetza is an extended release formulation of long-genericized diabetes compound metformin. The drug hasn't experienced the kind of sales from partner King Pharmaceuticals (NYSE:KG) that investors were hoping for. Glumetza was approved for marketing in 2005 but despite this length of time on the market, sales in the second quarter were only $2.5 million.

Depomed's other approved product, urinary tract infection treatment Proquin XR, underwent a change in marketing partners in the past month. Depomed signed a co-promotion agreement with Watson Pharmaceuticals (NYSE:WPI) after taking back control of the compound from privately-held Esprit Pharma.

The big event for Depomed last month was the failed phase 3 study of potential pain treatment Gabapentin GR. On the conference call management reiterated that it believed that the study failed due to an excessive placebo effect seen by patients in the last four weeks of the study. The reality is that there were other issues with the drug as well.

Depomed stated on the conference call that a potential partnership deal with Gabapentin could be signed by the end of the year. This could reduce the company's cash burn significantly if it covered further development costs of the compound. How lucrative a deal Depomed inks remains to be seen, though.  

We'll find out in the coming months if Watson and King can turn sales of these two lead products around and if Depomed signs a cash burn-reducing development deal for Gabapentin. This will likely determine whether shares of Depomed are a distressed asset or just plain distressed and overvalued.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.