By Jason Napodano, CFA
We continue to be positive on the Depomed (DEPO) story. Recent prescriptions of Gralise show a potential uptrend in sales coming in the fourth quarter 2012. Likewise, we see some stabilization in the Zipsor product and believe it could be a nice contributor to the top-line in 2013. Upside to the story comes from potentially monetizing the Glumetza royalties, the approval of Serada, or another Acuform licensing deal that brings a handsome upfront payment. Our rating is Buy with a $9 price target.
We have an updated research report available for investors that analyzes the company's third quarter financial results. Below is a snippet from our 10-page report:
Financial Results & Comments
On November 5, 2012, Depomed reported financial results for the third quarter 2012. Total revenues in the quarter were $33.3 million, nicely above our estimate of $31.2 million based on higher product sales of both Gralise and Zipsor, higher royalties on Glumetza, and full recognition of milestone payments in the licensing and collaborative line. Revenues increased by 101% from the third quarter 2011. Below are the key line items that account for the total revenues at Depomed.
Net loss for the third quarter 2012 was $1.5 million, or $0.03 per share. This was nicely above our forecast for an EPS loss of $0.08 per share on higher revenues and generally in-line operating expenses. Depomed spent $26.8 million on SG&A and $5.3 million on R&D during the third quarter 2012.
The company exited the third quarter 2012 with $87.7 million in cash and investments. We find this to be sufficient to fund operations for the foreseeable future. In fact, management believes the company can be cash flow positive in the second half of 2013, which is heavily dependent on a ramp in Gralise sales. Current guidance is for cash at the end of 2012 between $75 and $80 million. Our model forecasts cash of $82.5 million at the end of the year.
The report contains updates on each revenue line item, including Gralise, Zipsor, and Glumetza royalties, along with an analysis of Serada and DM-1992 and the licensing and collaborative business. Our report also includes a full model on the last page outlining our expectations for the fourth quarter 2012 and the full years 2013 and 2014.