September 16, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Inside sources are reporting that Newark, Calif.-based Depomed is making plans to put itself up for sale. Part of the rationale revolves around an ongoing power struggle between Depomed and hedge fund Starboard Value.
Starboard Value, which owns about 10 percent of Depomed shares, is attempting to overturn Depomed’s board. At one point in April, Depomed proposed moving its incorporation to Delaware, which would make a hostile takeover more difficult, even though it stated that its primary reason was “the prominence and predictability of Delaware corporate law.”
Starboard accused Depomed of intentionally trying to change its corporate status to protect its board, and essentially lying about why it had changed its mind. “We remain highly concerned by Depomed’s continued apparent willingness to mislead shareholders about its true intentions with regard to the Reincorporation Proposal.” Starboard then called for a complete change of the Depomed board.
Starboard has a history of doing this. In 2014, Starboard succeeded in overturning the board at Darden Restaurants Inc., which owns the Olive Garden chain of restaurants. It has also partially replaced Yahoo’s board of directors.
The Starboard-Depomed feud escalated in August, when Jeffrey Smith, managing member of Starboard, sent a letter to Depomed shareholders saying it had a lot of success in replacing boards and bringing in more value, primarily because of what he did with Darden Restaurants (DRI).
It has been pointed out, however, that a biotech company is not a restaurant. Depomed focuses on pain treatment and other central nervous system disorders. It markets Gralise (gabapentin) for Postherpetic Neuralgia, Cambia (diclofenac potassium for oral solution) for acute migraines, Zipsor (diclofenac potassium) liquid filled capsules for mild to moderate acute pain, and Lazanda (fentanyl) nasal spray CII for breakthrough pain in cancer patients. It also sells a drug-delivery technology called Acuform.
The unidentified sources indicate that Depomed plans to begin negotiations with possible buyers soon after a court decision about the patent exclusivity of its drug, Nucynta, is made. Nucynta is an opiate that is prescribed to treat severe, chronic pain. The patent decision is expected by the end of this month.
In addition, in 2015, Depomed fended off a hostile takeover bid by Horizon Pharma . When asked if it was considering another shot at Depomed, Horizon indicated it was not.
Starboard, in May, indicated it planned to hold a special meeting to overturn Depomed’s board. By law, it can set the special meeting between September 24 and November 17.
According to CNBC, “Newark, California-based Depomed acquired Nucynta in early 2015 from Janssen Pharmaceuticals for just over $1 billion. Its plan was to use its large sales force to scale up Nucynta’s revenue to more than $500 million by 2018.” Janssen is a Johnson & Johnson company.
However, sales of Nucynta haven’t met expectations, in part because of concerns by insurers and regulators over what is being called an opioid epidemic.
Depomed is currently trading for $21.24.
Mizuho, a securities firm, rates Depomed as a “buy” with a price target of $23. In an analysis report, Mizuho wrote, “We like how Depomed management may have opted to run a process to avoid a contentious shareholder vote to replace its Board later in the year. This initiative should generate an optimal outcome for shareholders, in our view. The timing also suggests to us that the company is nearing a Nucynta/ER legal decision, which will allow prospective buyers to better value the stock.”
