Depomed, Inc. (DEPO)

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Depomed, Inc. (DEPO)

Q1 2010 Earnings Call Transcript

April 29, 2010 5:00 pm ET


Matt Gosling – IR

Carl Pelzel – President & CEO

Mike Sweeney – VP, R&D

Tammy Cameron – VP, Finance


Scott Henry – Roth Capital Partners

Jim Molloy – Caris & Company



Good day, and welcome to the Depomed first quarter 2010 financial results conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Matt Gosling. Please go ahead.

Matt Gosling

Good afternoon. This is Matt Gosling, with Depomed's Investor Relations department. With me today are Carl Pelzel, President and Chief Executive Officer of Depomed; Tammy Cameron, our Vice President, Finance; and Dr. Mike Sweeney, our Vice President, Research and Development.

At the close of market today, we issued our financial results for the first quarter ended March 31, 2010. They are available on our company website at

Before we begin, I would like to remind you that during this call we will be making forward-looking statements related to various aspects of our business, including statements related to clinical development, financial matters and commercialization of our marketed products. Actual results may differ materially from the results described. We encourage you to review the risk factors in our most recent Annual Report on Form 10-K.

I will now turn the call over to Carl Pelzel.

Carl Pelzel

Thank you, Matt. Good afternoon and thank you for joining us on the call. I am pleased to report that we have made significant progress in moving our high-value, late-stage programs forward, in controlling costs and progressing business development deals. Since last fall we have significantly reduced Depomed's investment risk profile by generating positive data in our DM-1796 program in PHN, completing and filing the NDA for DM-1796, defining our path forward with the FDA on our Serada program, and maintaining a significant cash balance.

The filing of the NDA for DM-1796 was an extraordinary accomplishment for Depomed. We are currently very engaged in manufacturing activities to build inventories of commercial material in support of the launch of DM-1796 in 2011. The market that this product will compete in is growing fast, and it is defined by just two products that appear to have an inferior commercial profile – generic gabapentin and Pfizer's LYRICA. Both products contribute to a market that generates over 35 million prescriptions per year, with profiles that expose patients to significant CNS side effects and the need to take numerous doses per day.

While LYRICA prescriptions are actually falling, the generic market is growing strongly, having grown by over $800 million in value at branded prices over just the past two years. We think this is a real indication that LYRICA has not been able to deliver a compelling product profile to physicians and managed care payers. We anticipate that physicians and patients will recognize the multiple benefits from DM-1796. Achieving even a 15% share of this market could result in sales of at least $1 billion at peak.

Our Phase 3 trial of Serada for menopausal hot flashes, called Breeze 3, is set to begin. We're awaiting confirmation from the FDA that our special protocol assessment has been agreed. We anticipate receiving that notification as soon as tomorrow. Assuming there are no changes to our protocol, we will proceed with the randomization of the first patient.

For reasons Mike Sweeney will explain in greater detail, we believe Breeze 3 will accurately measure Serada's excellent drug effect at one, three and six months, and that the placebo effect will be in line with that seen in other published hot flash trials. We anticipate that the trial will complete by the end of the first quarter of 2011 and we will be in a position to announce the results in the second quarter.

Serada's commercial prospects are excellent. We anticipate launching the first and only non-hormonal product for the treatment of hot flashes in 2012. The unmet need is acute and experienced by millions of patients who either cannot take hormones for their hot flashes or choose not to.

There are approximately 13 million women who seek medical attention for the management of their hot flashes every single year. Serada would reach $2 billion in sales if only 20% of them were to use Serada, assuming pricing consistent with antidepressants and 220 days of uses per year.

Now, while no specific mix of sales and marketing costs and activities have been determined at this point, and partnering decisions remain to be made, I make the point only to highlight the very significant opportunity that exists for Depomed and a primary care partner in this attractive commercial area. While we expect to achieve profitability before the launch of Serada in 2012, it will be the success of this product that has the potential to deliver the strong, consistent growth necessary to propel Depomed from a development story to an earnings and EPS story.

In addition to Serada, we have been very careful to establish a franchise of products that, once approved, can be promoted to women's health doctors. We would like to avoid the trap that many emerging companies fall into, that of having the cost of a sales and marketing effort supported by only one asset, no matter how attractive that asset may appear.

For example, in our deal with Covidien we have gained exclusive rights to the two opioid-acetaminophen combination products that we have formulated with our Accuform technology. The opioid market in the US is very large, with $6 billion in annual sales.

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