DEPO

Depomed, Inc. (DEPO)

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DepoMed (DEPO)

Q2 2013 Earnings Call

August 07, 2013 5:00 pm ET

Executives

August J. Moretti - Chief Financial Officer and Senior Vice President

James A. Schoeneck - Chief Executive Officer, President and Director

Michael Sweeney - Chief Medical Officer and Vice President of Research & Development

Jack Anders

Analysts

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Jason N. Butler - JMP Securities LLC, Research Division

Jason Napodano - Zacks Investment Research Inc.

James F. Molloy - Janney Montgomery Scott LLC, Research Division

John Rousmaniere Gordon - Deltec Asset Management, LLC

Presentation

Operator

Good day, and welcome to the Depomed Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. August Moretti, Chief Financial Officer and Senior Vice President. Please go ahead, sir.

August J. Moretti

Thank you, operator. Good afternoon, everyone, and welcome to our Second Quarter 2013 Financial Results and Business Update Conference Call. With me today are Jim Schoeneck, President and Chief Executive Officer of Depomed; Matt Gosling, Senior Vice President and General Counsel; Mike Sweeney, our Chief Medical Officer; and Jack Anders, Senior Director of Finance.

I'd like to remind you that the matters discussed on this call will contain forward-looking statements that involve risks and uncertainties, including those relating to the commercialization of our 3 products, Gralise, Zipsor and Lazanda, and Glumetza and related intellectual property matters, as well as our projected revenue, expense and year-end cash for 2013. Actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance. These and other risk factors are more fully discussed in our annual report on Form 10-K and in our quarterly report on Form 10-Q that we will file with the SEC this week, most particularly under the caption Risk Factors.

Depomed disclaims any obligation to update or revise any forward-looking statement made on this call as a result of new information or future developments. And as a reminder, Depomed's policy is to provide financial guidance and guidance on corporate goals for the current fiscal year and to update or confirm its guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document or providing such information on a publicly available Investor Conference Call.

References to current cash, cash equivalents and investments are based upon balances as of June 30, 2013. All other guidance, including guidance relating to the company's expected revenues, expenses, year-end cash and corporate goals is as of today, August 7, 2013.

I'll now turn the call over to Jim Schoeneck.

James A. Schoeneck

Thanks, Augie, and thank you, all, for joining us today. We've been saying since last year that 2013 would be a breakthrough year for Depomed. Today's milestone earnings report demonstrates that this year is shaping up as expected. Over the past few years, we have steadily been building towards profitability from our ongoing operations. And in the second quarter 2013, we have accomplished that feat. We achieved an operating profit from ongoing operations for the first time in our history. Yes, it's only $0.01 a share, but we believe we are well-positioned for continued top and bottom line growth, and we expect it will be the first of many profitable quarters.

In the past, Depomed has accomplished profitable quarters and even profitable years as a result of our technology and development expertise, plus our astute deal making in licensing and related transactions. For the second quarter 2013, we had net income of approximately $0.5 million. We were also cash flow positive for the quarter. We had an excellent quarter on all fronts with total revenues of $30 million, 112% more than last year's second quarter. Product sales and royalties, both increased significantly year-over-year, while maintaining control of our operating expenses.

Operationally, Depomed continues to make excellent progress toward becoming a sustainably profitable growth oriented specialty pharmaceutical company. Last Monday, we announced 2 important developments that advanced the company and are the result of the great work that's built the foundation of the company and the commitment to growing the company through acquisition.

First, our partner, Mallinckrodt, announced acceptance of the NDA for MNK-795 with priority review. The product uses our Acuform technology licensed to Mallinckrodt in 2008. The event triggers a $5 million milestone to Depomed and more importantly, could bring this drug to market by early 2014. Upon NDA approval, we will earn $10 million approval milestone and then receive high single-digit royalties on sales of the product. Later that day, we announced the acquisition of Lazanda Nasal Spray, our fentanyl product for breakthrough cancer pain in opioid-tolerant adult patients that I'll discuss in more detail shortly.

We believe our first quarter sales force realignment and other Gralise initiatives are having an impact. Gralise product sales in the second quarter grew to $8.6 million. That's a 167% increase year-over-year and a 40% increase over first quarter of this year. Prescriptions increased to 58,000, 15% over first quarter. Gralise tablet dispensed increased 17% over the first quarter so at a even higher rate than prescriptions. This reflects an increase in the average size of a Gralise prescription.

We continue to work diligently to expand our managed care coverage for Gralise, with a particular focus on Medicare Part D plans. We also continue to prosecute our litigation against the 3 remaining Gralise ANDA filers over our 9 Orange Book patents for Gralise. In June, we had a Markman claim construction hearing. We were pleased with the result with the hearing and expect a ruling sometime this quarter.

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