West Coast Editor

Awaiting Phase III data due in the second half of this year with extended release for post-herpetic neuralgia, Depomed Inc. pulled down $20 million through the sale of 5.3 million shares to a pair of institutional investors at about $3.77 per share.

Gabapentin GR already has proven strong in a Phase II trial against diabetic peripheral neuropathy. The sleeper indication, though, could be menopausal hot flashes, for which Depomed has submitted an investigational new drug application to start Phase II trials.

The firm went after extended-release PHN first because of the clear regulatory path paved by Pfizer Inc., of New York, which sells the immediate-release form, called Neurontin.

Researchers discovered by accident that gabapentin works against hot flashes, said John Fara, president and CEO of Menlo Park, Calif.-based Depomed, who pegged the market - once dominated by estrogen replacement - at $2 billion.

In 2002, the Women's Health Initiative unveiled research linking estrogen replacement to cardiovascular events. "Within six months of that publication, $1 billion in the market disappeared," Fara recalled, noting that estrogen also has been linked to breast cancer. "Clearly, women want an alternative," and the only choices so far have been anti-depressants and herbal medicine.

Depomed's AcuForm delivery technology deploys standard excipients to devise oral, longer-acting forms of existing drugs. Rights to a patent covering Gabapentin GR for the hot-flash indication are sublicensed from Rochester, N.Y.-based PharmaNova Inc. Stephen Dunn, analyst with Dawson James Securities in Boca Raton, Fla., urged caution. "I would say it's a high-risk, high-reward [project]," he told BioWorld Today. "There is certainly a door open for any non-hormone replacement therapy," but work with Gabapentin GR, which works on GABA receptors in the brain, for hot flashes is still early.

A likely scenario is approval of the drug for PHN, with off-label use in diabetic neuropathy and, possibly, hot flashes. Meanwhile, Depomed is making money with approved Glumetza, the once-daily form of metformin, for adults with Type II diabetes. From Glumetza, commercialized in the U.S. with Bristol, Tenn.-based King Pharmaceuticals Inc., Depomed in 2006 recognized $526,000 in revenue, net of estimated costs (the product was launched in September). Biovail Corp., of Toronto, paid Depomed $109,000 in royalties on Glumetza sales in Canada last year.

Also Monday, Depomed filed a prior-approval supplement with the FDA, asking clearance for the 1,000-mg tablet of Glumetza. The firm expects a decision before the end of the third quarter of this year. Biovail was formulating the tablet when Depomed acquired rights to Glumetza in late 2005, and the supplement is backed by data showing the 1,000-mg tablet is equivalent to two 500-mg tablets given under single-dose fed conditions.

High-dose Glumetza might be another sleeper, Dunn said, pointing to a 24-week trial with the drug at 2,000 mg, which included no patient dropouts. Metformin in the usual form is limited to 1,500 mg daily.

Depomed's ProQuin XR (ciprofloxacin), the once-daily therapy for urinary tract infections, is marketed by Esprit Pharma Inc., of East Brunswick, N.J., in the U.S., which paid Depomed a $10 million license fee late last year, leading Depomed to take back its notice of breach and demand for arbitration related to the deal. The agreement gave Depomed co-promotion rights, too. (See BioWorld Today, July 29, 2005.)

Esprit, a start-up busy with other compounds, has failed to adequately promote ProQuin XR, with its much-improved side-effect profile over regular ciprofloxacin, said John Hamilton, chief financial officer. "The message simply hasn't been delivered by Esprit," he said.

Net sales of ProQuin XR by Esprit last year and the year before did not reach levels that would require Esprit to pay more than the minimum royalty obligation, so Depomed collected through January of this year only $4.6 million in royalties for the previous two years.

"At the outset, there was a major issue in getting the product stocked in pharmacies," Fara said. ProQuin XR came in a 50-count bottle - 16 prescriptions, at three tablets each - at a cost of $8.50 per tablet, so pharmacists had to spend more than $400 up front and would "think twice about breaking the seal before scrips were coming in," he said.

Depomed came up with a blister pack of three tablets, launched in the middle of last year, but Esprit still is not promoting the drug well, Fara said.

"We're going down the path of discussions to see if another partner may come on board, or Esprit wants to give up the product entirely," and Depomed expects to have answers "hopefully in the next couple of quarters," he said. "In the right hands, it could do very well."

Esprit's minimum royalty obligation for 2007 is $5 million, and in subsequent years the same amount, subject to annual increases in the consumer price index starting in 2008. The partner owes Depomed another $10 million in July. Madaus GmbH, of Koln, Germany, holds European rights, and a regulatory application is pending in Sweden.

Dunn said his research found ProQuin most often in pharmacies near the elderly. He phoned drugstores near retirement communities and found them more likely to have the compound in stock. ProQuin's tendency not to cause nausea may have landed the drug in "a niche of a niche," he said. "It should have done better."

Analyst Adnan Butt with ThinkEquity Partners in New York pegged Depomed as a winner in 2007, and in January put the 12-month price target at $12. Gabapentin GR alone is worth between $4.33 and $5.81 to the share price, he wrote in a research report.

Shares of Depomed (NASDAQ:DEPO) closed Monday at $3.98, up 3 cents.

Behind Gabapentin GR, Depomed has an undisclosed compound at the Phase IIa proof-of-concept stage for gastroesophageal reflux disease.

Proton pump inhibitors such as London-based AstraZeneca plc's "purple pill" Nexium (esomeprazole) enjoyed total sales of about $10 billion last year, but "the big problem is getting the patient through the nighttime," Fara said, and Depomed's product will be a variation on the technology. "We're just filing patents now," he said.

The firm has two more, undisclosed candidates at the preclinical stage. One is partnered with Supernus Pharmaceuticals Inc., of Rockville, Md., and the other is partnered with Radford, Va.-based New River Pharmaceuticals Inc., which Shire plc, of Basingstoke, UK, is buying for $2.6 billion in cash. (See BioWorld Today, Feb. 21, 2007.)

Depomed had about $33.5 million in cash, cash equivalents and marketable securities, and the latest stock sale took place pursuant to a shelf registration.

Hamilton said the money on hand - assuming no new financial events (such as the $10 million due from Esprit this summer, and/or increased Glumetza sales) - is enough to carry the firm "well into the middle of next year."

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