Stock Preacher

Depomed Inc. (NASDAQ: DEPO)

DepoMed Inc. (DEPO) is a specialty pharmaceutical company focused on the development and commercialization of differentiated products that are based on oral drug delivery technologies. DEPO has developed two commercial products: GLUMETZA (metformin hydrochloride extended release tablets), which is a once-daily treatment for adults with type 2 diabetes that it commercializes in the United States with Santarus, Inc. (Santarus); and ProQuin XR (ciprofloxacin hydrochloride extended release tablets), which is a once-daily treatment for uncomplicated urinary tract infections that DEPO commercializes in the United States with Watson Pharma (Watson).

DEPO sells its products to wholesalers and retail pharmacies. The Company’s products under development comprise DM-5689, a phase III clinical trial product for the treatment of menopausal hot flashes; DM-1796, a phase III clinical trial product for the treatment of postherpetic neuralgia, as well as is in phase II clinical trial for diabetic peripheral neuropathy; DM-3458, a phase I clinical trial product for the treatment of gastroesophageal reflux disease; and DM-1992, a phase I clinical trial product that targets Parkinson’s disease.

DEPO was founded in 1995 and is based in Menlo Park, California.

Source: http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=DEPO.W , http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=DEPO.W , http://investor.depomedinc.com/phoenix.zhtml?c=97276&p=irol-sec

Financial Summary

The increase in GLUMETZA product sales in the three and six months ended June 30, 2009, as compared to the three and six months ended June 30, 2008, is primarily attributable to price increases of the 500mg GLUMETZA, the introduction of the 1000mg GLUMETZA in June 2008, and the promotional efforts of Santarus. Beginning in the third quarter of 2008, DEPO began to recognize GLUMETZA product sales when title transfers to the customer, which is at the time the customer receives the product shipment; and DEPO provides for an estimate of future product returns at that time. Prior to the third quarter of 2008, the Company was unable to reasonably estimate expected returns of the product at the time of shipment, and therefore, deferred revenue on product shipments until the product was dispensed through patient prescriptions.

Cash provided by operating activities during the six months ended June 30, 2009, was approximately $3.5 million, compared to cash used in operating activities of approximately $1.7 million for the six months ended June 30, 2008. The increase in cash provided by operating activities for the six months ended June 30, 2009, as compared to cash used in operating activities six months ended June 30, 2008, was primarily due to an increase in deferred revenue as a result of the receipt of the $25.0 million upfront payment from Solvay in February 2009 offset by an increase in net loss for the six months ended June 30, 2009.

In June 2008, the Company entered into a loan and security agreement with General Electric Capital Corp., as agent (GECC), and Oxford Finance Corp. (Oxford) that provided the Company with a $15.0 million credit facility. The credit facility was available in up to three tranches. The first tranche of $3.8 million was advanced to the Company upon the closing of the loan agreement. The second tranche of $5.6 million was advanced to the Company in July 2008. The third tranche of $5.6 million was not drawn and is no longer available to the Company, and GECC and Oxford waived the 2% unused line fee related to the unused portion of the credit facility. The Company paid interest on the first tranche for the first six months at an interest rate of 11.59%. Beginning in January 2009, the Company is required to pay the principal on the first tranche, plus interest at such rate, in 30 equal monthly installments. The second tranche was interest-only through December 31, 2008, with principal and interest payable thereafter in 30 equal monthly installments at an interest rate of 11.59%. Interest expense, which includes amortization of debt issuance costs, was $0.3 million and $0.5 million for the three and six months ended June 30, 2009, respectively.

At June 30, 2009, the Company had $3.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option grants that will be recognized over an average vesting period of 1.9 years.

DEPO’s existing capital resources may not be sufficient to fund its operations until such time as it may be able to generate sufficient revenues to support Company operations. The Company has limited credit facilities and, except for the common stock purchase agreement with Azimuth, have no other committed sources of capital. To the extent that the Company’s capital resources are insufficient to meet its future capital requirements, it will have to raise additional funds through the sale of its equity securities or from development and licensing arrangements to continue development programs. DEPO may be unable to raise such additional capital on favorable terms, or at all. If the Company cannot raise additional capital by selling equity or convertible debt securities, the issuance of such securities could result in dilution of shareholders’ equity positions.

Source: http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=DEPO.W , http://investor.depomedinc.com/phoenix.zhtml?c=97276&p=IROL-secToc&TOC=aHR0cDovL2NjYm4uMTBrd2l6YXJkLmNvbS94bWwvY29udGVudHMueG1sP2lwYWdlPTY0NTY4NzImcmVwbz10ZW5r&ListAll=1

Analyst Consensus

This is the consensus forecast for DEPO among two polled investment analysts:

The one analyst offering a 12-month price target expects DEPO share price to fall to 5.00 in the next year from the last price of 5.61

Source: Financial Times.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=DEPO.W

Investment Highlights

DEPO recently announced top-line results from a phase III clinical trial demonstrating DM-1796 (also referred to as gabapentin ER) achieved a statistically significant reduction in pain associated with postherpetic neuralgia (PHN) versus placebo using the baseline observation carried forward (BOCF) method required by FDA. The primary endpoint measured pain scores from baseline to the end of a 10-week treatment period using the numerical Likert pain scale. DM-1796 is an investigational extended release, once-daily tablet formulation of gabapentin for the treatment of PHN. DEPO has licensed DM-1796 to Solvay Pharmaceuticals Inc. in the United States, Canada and Mexico for the treatment of pain.

DEPO announced that in its phase I pharmacokinetic study in Parkinson’s patients, DM-1992, the Company’s investigative novel gastric retentive extended-release formulation of levodopa/carbidopa, extended coverage above levodopa’s efficacious threshold and extended the time to peak levodopa concentration relative to currently available sustained release levodopa/carbidopa formulations. One of DEPO’s formulations in the study extended the median time point at which levodopa blood levels exceeded the efficacious threshold of 300 mg/mL to approximately nine hours, compared to approximately seven hours for the generic version of Sinemet CR tested in the study. The time to median peak levodopa blood levels in the study was extended to four hours, compared to 2.8 hours for the comparator. DM-1992 was well tolerated in the study.

In July, the Company announced that it provided a license to certain patents directed to metformin extended release technology to Merck & Co. Inc. to be used in developing fixed dose combinations of sitagliptin and extended release metformin. Under terms of the agreement, Merck will receive a non-exclusive license, as well as other rights to certain DEPO patents directed to metformin extended release technology. In exchange DEPO will receive a $10 million upfront fee. The Company is also eligible to receive a milestone payment upon filing of the New Drug Application (NDA) for the therapeutic candidate, as well as modest royalties on any net product sales for an agreed-upon period. Merck will also be granted a right of reference to the NDA covering DEPO’s GLUMETZA® (extended release metformin hydrochloride tablets) product in Merck’s regulatory filings covering fixed dose combinations of sitagliptin and extended release metformin. DEPO has no development obligations under the agreement.

Source: Scottrade.com, Reuters.com

Technical Analysis

Source: www.stockcharts.com

Moving Average Price Compare

DEPO is trading above its 50-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

MACD

The MACD for DEPO currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.
Comparative Analysis

Source: Reuter.com, Nasdaq.com,Yahoo.com

Insider Trading Activity

Net Share Purchase Activity

Data provided by Thomson Financial

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