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DepoMed, Inc. (DEPO)

Q2 2009 Earnings Call Transcript

July 30, 2009 5:00 pm ET

Executives

Matt Gosling – VP and General Counsel

Carl Pelzel – President and CEO

Mike Sweeney – VP, R&D

Tammy Cameron – VP, Finance

Analysts

Scott Henry – Roth Capital

Jason Napodano – Zacks Investment Research

Gary Hobbib – MultiTrade Securities

Presentation

Operator

Good day, ladies and gentlemen, welcome to the DepoMed second quarter 2009 financial conference call. Today's conference is being recorded.

At this time I would like to turn things over to Mr. Matt Gosling. Please go ahead, sir.

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.

After the close of market today, we issued our financial results for the second quarter ended June 30, 2009. It can be accessed from our company Web site 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 and our most recent quarterly report on Form 10-Q.

I will now turn the call over to Carl Pelzel.

Carl Pelzel

Thank you, Matt. Good afternoon and thank you for joining us for DepoMed's second quarter earnings call. I’m proud to announce that as of this quarter we completed enrollment for all three Phase III clinical trials in menopausal hot flashes and Post-Herpetic Neuralgia. I'd like to thank all of the clinical investigators, patients and DepoMed employees involved in our Phase III clinical trial.

I would like to extend our special thanks to the principal investigators in our two trials. Dr. Wolf Udian [ph], the principal investigator for the Phase II trial, and Dr. Reit Mcadian [ph] the principal investigator for the Phase I trial.

All clinical trials are progressing as scheduled; we don't expect any delays at this point. We look forward to reporting top-line results early in the fourth quarter of this year. Despite the expenses of running this Phase III trial we manage to end the quarter with 84 million in cash, which does not include the 10 million we will receive from Merck next month.

We have built up our cash through diligent expense management that provides the operational flexibility we think is necessary to achieve our goal to be a profitable, robust, specialty pharmaceutical company.

We intend to continue to generate cash by leveraging our technology to close deals such as the Merck and Covidien deals. In addition, we see opportunities to bring in additional cash through our business development efforts focused on our non-core GERD and Parkinson's programs.

Now going forward we expect milestone and royalty payments from Solvay for DM-1796 to provide the income stream necessary to finance our growth. If DM-1796 is approved we will receive up to 70 million in precommercial milestones alone. Serada would then form the foundation of our company's earnings power as a result of its significant market potential is the only approved Non-Hormonal Treatment for Menopausal Hot Flashes available.

As a consequence of the widespread fear of the risks linked to hormone therapy women have been using alternative OTC products that has not been shown to be effective. So we believe that is important for women to have a treatment option that is safe and effective.

What all this means is that Serada's market potential is large. We calculate that the market size is up to $5 billion at branded prices, given that approximately 60 million hormone strips have been lost after the women’s health initiative trial since 2001. Now even if just 20% of these lost prescriptions go to Non-Hormonal alternatives we will be looking at a billion dollar market.

It is important to recognize that this is not a traditional marketing situation, where the new product being introduced as to aggressively take share from well-established, well-financed competitors. In that situation the battle to gain share at the expense of others is an expensive exercise in how many sales reps, samples and promotion you can bring to bear against your weakest competitor.

In the case of Serada, we will not be competing against hormones rather we will introduce Serada as the only approved Non-Hormone therapy to physicians and patients who are currently without alternatives. We thus avoid going against any entrenched competitor. This means that the use of promotional resources to generate revenue will be much more efficient than most pharmaceutical product launches. If approved we expect Serada will be well received by physicians and patients.

When we presented Serada's target product profile to physicians in our third-party conducted market research more than three quarters of physicians rated their overall impression as “favorable” to “extremely favorable” while two-thirds are more rated their likelihood to prescribe as “likely” to “extremely likely.” In a separate patient market research study more than half the patients who were presented Serada's target product profile indicated that they would likely request Serada as a therapy from their physicians.

Now as a result our preliminary internal and third-party external analysis indicated there is a significant market opportunity with the launch of a proprietary specialty sales force targeting the most profitable segment of high prescribing OBGYN physicians.

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