Depomed, World's Loneliest Drug Firm, Signs Deal With Solvay

Depomed, the Menlo Park, Calif., drug company that had only one Wall Street analyst on its Q3 conference call — hello, Scott Henry of Roth Capital! — finally has another friend. It signed a deal with Solvay Pharmaceuticals to market an extended release version of gabapentin. The deal potentially gives Depomed $405 million in various milestone payments; in return Solvay gets the right to market Depomed’s long-acting version of generic Neurontin, first marketed by Parke-Davis/Pfizer. Depomed and Solvay believe the anti-seizure med has an application for pain.

The deal is not without its risks:

A previous Phase III study of DM-1796 in PHN missed statistical significance, which [CEO Carl] Pelzel explained likely resulted from a “huge” placebo effect. He noted that the ongoing trial includes more patients and is powered to detect a smaller difference in pain reduction with a less stringent statistical hurdle.

That aside,  Roth’s Henry got an unusually intimate Q&A with Pelzel on the Q3 conference call, when he was the only analyst who asked questions. Henry is apparently psychic (or at least has good sources), in that his questions appeared to anticipate the deal:

Scott Henry – Roth Capital: I guess the final question is somewhat subjective, I guess this is the extra final question, and I don’t know that you’ll answer it Carl but I’m going to ask it anyway. The question is, I understand not wanting to disclose specifics on anyone’s negotiations for competitive reasons, but if you look over the next six months … how would you – would you consider it a high likelihood of having a partnership …?

Carl Pelzel: Yes, I appreciate the question. I appreciate you framing it so it gives me a little bit of leeway in answering it. Yes, if you’re asking about anyone of those or even ones that we haven’t talked about, I think there is a very high likelihood that we will close something in the near-term without giving any indication of which of those where undisclosed ones we’re talking about.

Scott Henry: Well I certainly appreciate that and I will compliment you on your execution. So far you have gotten a lot of the things down that you have targeted. Thank you again for taking the questions.

About three weeks later the deal was sealed.

Henry has his work cut out for him in keeping tabs on Depomed. Take a look at Depomed’s Q3 results. It noted a loss of $533,000 this quarter, down from a profit of $43 million in the period a year before — revenues were equally volatile.