First Quarter is seasonally weak as many patients are slow to tap their deductibles. Although there was alot of noise about opioid abuse last month, Nucynta sales were up 22% in March and appear to be gaining market share. A $3 million royalty payment is due to Archimedes for Lazanda which will knock off 5 cents in earnings for the Q. Lots of legal expenses on the patent case. No surprises here. This is one reason why short interest is so high.
However, guidance is more important than trailing expenses. The outcome of the patent case is even more important and DEPO has already won the Markman hearing. I find it strange that Smith will launch his diatribe a day before earnings when the biotechs and overall market are weak. Looks like he's either shooting himself in the foot or perhaps his allies want to buy on the cheap.
He's also upset about the usurious interest paid on the loan and said that DEPO lacks experience with Phase 3 studies. DEPO had no choice but to go to hard money lenders if they wanted to win the bid for Nucynta. They prepaid 100MM in April and can refinance the rest next year. Who in his right mind would want to pay 11% interest plus prepayment penalties? If you're a small company dealing with JNJ, you'd better have cash in escrow to be taken seriously and this is the best they could do under time pressure. The lender, Deerfield, also has a big position in HZNP, so I'm sure they loved sticking it to them after HZNP lost the bid. There were only a few lenders for such a high risk deal available at the time and this was probably the best they could do,
Regarding the other argument about their lack of experience with Phase 3 trials. DEPO has already developed two products on their own through FDA approval: Glumetza, which was licensed to the Company that was acquired by VRX and Gralise, which they market themselves. Glumetza went through 2 phase 3 trials. Both products are based on the internally developed Accuform drug delivery technology.
The phase 3 trial for Cepranopodol will be a collaboration between the drug developer, Grunenthal and Depomed. Grunenthal has successfully developed Nucynta and other products. Nucynta is a leading pain medication in Europe. It appears to me that Smith is grasping at straws.
The only remaining issue I have with DEPOMED's Board refers to executive compensation. Although lots of companies issue restricted stock, I find it to be of no benefit to shareholders.
He is still upset about DEPO unwillingness to be acquired by Horizon last year. IMHO, He is losing credibility in his proxy fight for two reasons: a) DEPO's share price is currently higher than HZNP and is not facing countless class action lawsuits and b) DEPO and HZNP have settled their disagreements and there will be no merger prior to 2020.
DEPO's Board cleverly defused two of his main arguments. They cancelled their reincorporation plans (in Delaware) and allowed him to call a Special Meeting of Shareholders within 30 days. Why he is beating a horse to death with the HZNP argument is ridiculous as it isn't going anywhere.
Moreover, he has yet to assemble a slate of directors (aside from the temporary slate of his in-house investment bankers).
I would be ok with giving him a Board seat due to his 10% position. He may have something to add about relations with the investment community. However, beyond that, he is causing unnecessary expenses on both sides without any clear vision for the Company.