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Depomed, Inc. (DEPO)

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DepoMed, Inc. (DEPO)

Q1 2009 Earnings Call

May 4, 2009 5:00 pm ET

Executives

Matt Gosling – Investor Relations

Carl Pelzel – President and Chief Executive Officer

Tammy Cameron – Vice President, Finance

Dr. Mike Sweeney – Vice President, Research and Development

Analysts

Scott Henry – Roth Capital

John Borzilleri – GRT Capital

John Gordon – Deltec Asset Management

Presentation

Operator

Welcome to the DepoMed first quarter 2009 financial conference call. Just a quick note that today's conference is being recorded. With that, I would like to turn things over to Mr. Matt Gosling.

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, Vice President, Finance; and Dr. Mike Sweeney, Vice President, Research and Development. At the close of market today, we issued our financial results for the first quarter ended March 31, 2009. They can be accessed from our company website at www.depomed.com.

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

Good afternoon and thank you for joining us for DepoMed's first quarter earnings call. I’d like to start our call today by thanking all the clinical investigators, patients, and DepoMed employees involved in our Serada phase III clinical trial program in menopausal hot flashes. It was just over a year ago that we learned of the results of our phase II study for Serada, our investigational extended release formulation of gabapentin for hot flashes. The phase III program is now fully enrolled, and we look forward to reporting topline results in the fourth quarter of this year.

We feel the rapid enrollment in the phase II and phase III trial confirms the significant unmet need that exists for a non-hormonal treatment for hot flashes. Let me emphasize that we ended the first quarter of 2009 in a strong cash position with $94.1 million. Our substantial cash runway is the result of rigorously managing our expenses and leveraging our technology and portfolio to generate additional cash. Expenses in the first quarter were higher than in the third or fourth quarters of 2008 due to the fact that we had all three of our phase III trials enrolling in all geographies. This was anticipated and does not change our full year expense guidance for 2009.

2009 is a critical execution year for us. I will now review our progress to date toward achieving our goals. First on the clinical development front, we remain on track to report topline data later this year from all of our phase III clinical trials. Our Breeze 1 and Breeze 2 studies are fully enrolled, and our DM1796 study in PHN is on track to complete enrollment by August of this year. We are well on the way to completing our phase I study of DM1992 in Parkinson’s patients. We are also making good progress on completing two formulations for Covidien which will trigger modest milestone payments this year and more substantial pre-commercial payments as development progresses.

I’d like to spend a bit of time discussing how we manage our cash and runway, but also how we plan to become a profitable enterprise. We’re all well aware that these are challenging economic times, and our cash is among our most valuable asset. That really compels us to focus our cash expenditures primarily on investments in our late-stage clinical trial which are anticipated to achieve valuable milestones later this year. As the outcome of those trials is not yet known, we have implemented a budget that addresses any downside risk in our development activities, but more importantly ensures we have the necessary financial resources to pursue a path to profitability if we achieve positive phase III results.

The path we will take will depend on a variety of factors which will become clear over the next 12 months or so. Primary among these factors are the results of our phase III clinical trials, but others include business development deals, growth of Glumetza revenue, partnering options, milestones from Covidien, potential risk-sharing collaborations for Serada, and interest from parties desiring to license our emerging women’s health business. We plan to pursue the approach that the greatest probability of generating the most shareholder value in the near term.

I think it’s beneficial to provide some color on some of the financial resources that may become available if we achieve positive results in our trials and are successful in advancing sales of Glumetza. We believe that with positive results from our Serada phase III trial and NDA approval, Serada will be launched in 2011. Assuming we end 2009 with $57 to $62 in cash as we currently expect, we should be well positioned at the beginning of 2011 if both DM1796 and Serada are approved. We stand to receive up to $70 million in pre-commercial milestones in connection with DM1786 NDA acceptance and approval, which could come in by late 2010 or early 2011.

If Glumetza outperforms our conservative budget, we could receive additional profit share from that source. Meanwhile, we expect development of the Covidien product to advance through 2010 and our business development efforts to continue to be source of cash.

Let’s also assume for a moment that our total cash operating expenses in 2010 will be in the $30 to $40 million range, since we won’t have any ongoing late stage clinical trials. So going into 2011, we could have a healthy cash position with significant cash expected to be coming in DM1976 pre-commercial milestones and royalty, a profitable Glumetza business, and the potential for meaningful pre-commercial milestones from our Covidien transaction and possibly other business development deals.

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