Markets

What Caused DepoMed's Shares to Skyrocket 20.9% In April

SOURCE: FLICKR USER STOCKMONKEYS.COM.

What: After activist investor Starboard Value LP took a nearly 10% stake in DepoMed , the company's shares soared 20.9% last month, according to data from S&P Global Market Intelligence .

So what: Starboard Value L.P. believes that DepoMed's board was incorrect to shun a takeover offer last year. Horizon Pharma initially offered $29.25 per share to buy DepoMed, but later increased that offer to $33. Given that shares in DepoMed have been cut in half since then, Starboard Value may have a point.

Starboard Value is run by Jeffrey Smith, who gained notoriety in late 2014 when he won a proxy contest, and ousted the board of directors of Darden Restaurants while owning less than 10% of its stock. Since that victory, Smith reorganized the board and C-suite, and investors have been handsomely rewarded with a 29% return.

Smith has now turned his sights on DepoMed, a much-smaller company than Darden that has accumulated a product portfolio of pain medicines. According to filings with the SEC, Smith's Starboard Value has acquired nearly 6 million shares in DepoMed, giving him a 9.8% stake in the company.

Now what: Smith's interest in DepoMed could stem from one DepoMed drug, in particular. Early last year, DepoMed orchestrated a $1 billion deal to buy Nucynta, an under-performing competitor to Oxycodone, from Johnson & Johnson .

Since acquiring Nucynta, DepoMed has tripled the drug's sales force, and repriced it to bring its cost into parity with Oxycodone. Those moves appear to be paying off. In Q4, Nucynta's sales were $68 million, and in February, prescription volume for the extended-release version of Nucynta was 22% higher than a year ago. Nucynta's early success has DepoMed projecting that it could one day deliver sales of $1 billion per year.

Nucynta's peak sales potential has Smith thinking that DepoMed should be valued much higher than it is today -- especially because the company also markets the shingles pain drug Gralise, with annualized sales of $86 million, the migraine drug Cambia, with $32 million in annualized sales, and the fentanyl spray Lazenda, which is clocking in at an annualized $21 million pace. All three of those drugs delivered year-over-year sales growth of at least 25% in the fourth quarter.

Smith is calling for DepoMed's board to be replaced. While its unclear if he'll be as successful with DepoMed as he was with Darden, investor interest in this stock is understandable. DepoMed is already profitable -- it's expected to deliver EPS of $1.28 this year -- and it's growing -- revenue increased 200% last year thanks to Nucynta.

This iSecret stock could make this pop look tiny

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article What Caused DepoMed's Shares to Skyrocket 20.9% In April originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him on Twitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

HZNP

Other Topics

Stocks

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More