Bay Area's Depomed Pink Slips 40% of Staff and Looks to Move HQ

Nine months after a new leadership team was put in place at Depomed, Inc., the company is looking to relocate its headquarters from the Bay Area after inking a deal with Collegium Pharmaceutical, Inc. to commercialize its best-selling drug Nucynta.

Depomed said the decision to leave California for an as-yet undetermined location in the Midwest or somewhere on the East Coast is part of a new business model that requires less square-footage. With the commercialization of Nucynta under control of Collegium, Depomed said it will not require the same level of staff. As it moves the headquarters, the company will slash staff by 40 percent to about 70 employees. With a smaller staff, Depomed said its new headquarters will only need to be about half the size of its current space in the Bay Area. The move is expected to take place sometime by the middle of 2018 and will save the company about $10 million annually, Depomed said in its announcement.

Arthur Higgins, president and chief executive officer of Depomed, said the move is necessary to “right-size the organization” as it executes a new business strategy. The decision to cut employees and relocate will provide additional financial and strategic benefits, he said.

“We are looking at locations that will provide us with improved access to top-tier pharmaceutical talent that will build Depomed into a leading specialty pharmaceutical company. I would like to sincerely thank all of the employees impacted by this restructuring for their dedicated and loyal service to Depomed,” Higgins said in a statement.

Investors seem pretty happy with Higgin’s decision for Depomed. This morning, shares are up nearly 12 percent in early trading from Monday’s close of $7.15 to $8.

Higgins was tapped as the CEO of Depomed in March following a battle among investors for control of the company. Prior to Depomed, Higgins served as CEO of Bayer HealthCare. He also held a role as chairman and CEO of Enzon, and served president of Abbott Laboratories ’ Pharmaceuticals Division. Most recently he was senior advisor to The Blackstone Group.

In its deal with Collegium, Depomed has turned over commercialization of two formulations of Nucynta, the extended release and immediate release. As part of the deal, Depomed will receive a royalty rate on all revenues from Nucynta. In the first four years of the deal, Depomed will receive a minimum royalty of $135 million per year. After the fourth year, the royalty deal remains, but without the minimum, the company said. With Nucynta moving to Collegium in early 2018, Depomed will terminate its sales force associated with the drug and cease all brand spending on the drug.

Depomed acquired the U.S. rights to Nucynta from Janssen Pharmaceuticals in 2015 for $1.05 billion.

Higgins said the dynamics of the opioid market was a key reason for the deal with Collegium, particularly with that company’s focus on pain treatments.

“Strategically, this transaction supports the growth of Nucynta, allows for new investment into our Neurology and Specialty businesses, and transforms Depomed into a leaner, more nimble specialty pharmaceutical company poised for growth,” Higgins said.

Collegium CEO Michael Heffernan said that company views Nucynta as a best-in-class immediate-release product.