Company Update (NASDAQ:DEPO): Depomed Inc Comments on Recent Reports Regarding Horizon Pharma’s Business Model

Depomed Inc (NASDAQ:DEPO) issued the following statement in response to numerous recent reports surrounding Horizon Pharma plc’s (NASDAQ:HZNP) business model, in particular concerns raised about aggressive drug pricing practices and Horizon’s use of specialty pharmacies:

Depomed’s Board unanimously rejected Horizon Pharma’s unsolicited exchange offer on September 11, 2015. In Depomed’s Schedule 14D-9 filed with the SEC on September 14, 2015, the Company highlighted the Board’s reservations about Horizon’s business model and strategy, while observing that the nature of Horizon’s business model had the potential to lead to significant volatility in the price of Horizon stock. Importantly, numerous reports in the past days – from major media outlets to the firm that establishes one of the largest drug formularies – have reiterated and validated these serious concerns.

For example:

  • A September 23, 2015 note issued by Express Scripts, one of the largest managers of drug formularies, to its clients criticizes Horizon’s price increases, comparing Horizon to Turing Pharmaceuticals, and notes that Horizon, after purchasing the rights to Vimovo and with its own product, Duexis, “soon increased the prices on these older products more than tenfold. This isn’t innovation. Akin to a spike in gas and plywood prices just ahead of a hurricane, this is profiteering.”
  • An October 19, 2015 article in The New York Times discusses significant concerns about Horizon’s Prescriptions Made Easy (“PME”) program and notes that Duexis is “a combination of two old drugs, the generic equivalents of Motrin and Pepcid”, which “if prescribed separately… would cost no more than $20 or $40 a month”, however “Duexis, which contains both in a single pill, costs about $1,500 a month.”

As noted in Depomed’s September 14, 2015 letter to shareholders:

  • We believe the frequency and magnitude of Horizon’s price increases are unsustainable: Horizon has implemented dramatically high price increases across most of its product portfolio, including increases of over 1,500% for Rayos® and nearly 1,200% for Vimovo® since those products were acquired or launched in 2012 and 2013, respectively. We do not believe these pricing strategies are conducive to building a stable and sustainable company that will create and deliver long-term value for its shareholders.
  • Many of Horizon’s drugs have recently been removed from the largest PBMs: Due to Horizon’s dramatic price increases and what, in our view, is a lack of meaningful product differentiation, many of Horizon’s drugs have recently been removed from the largest PBM drug formularies and remain on the exclusion lists of the two largest PBMs through 2016.
    We believe that as Horizon continues to increase the prices of its products well beyond the prices of competitive products, the trend of Horizon products being excluded from drug formularies may accelerate, posing further risks to Horizon’s business and long-term prospects.
  • In our view Horizon’s Prescriptions Made Easy (“PME”) drug discount program has caused significant deterioration to Horizon’s realized net sales as a percentage of gross sales (“gross to net”): Horizon’s drug formulary exclusions have resulted in millions of patients not having access to Horizon products through their health insurance plans. Through Horizon’s PME drug discount program, Horizon covers up to 100% of the cost of its products that are not covered by such plans. Although Horizon believes that the continued expansion of its PME program will allow it to mitigate the impact of the drug formulary exclusions, we believe that Horizon’s reliance on PME discounts to generate growth in prescription volumes has caused significant deterioration in Horizon’s gross to net for many of its products. For example, the net sales as a percent of gross sales for each of Rayos and Pennsaid® 2% dropped from 60% to 45% and 36% to 27%, respectively, from the first quarter of 2015 to the second quarter of 2015.

Importantly, and in contrast to Horizon’s standard business practices, Depomed believes that each of our products has strong drug formulary access, demonstrates value to insurers as brands to secure coverage and not to be excluded, all while offering patients affordable co-pay access and are priced in line with market leading, branded competitors. In addition, unlike Horizon, less than 2% of the sales volume for Depomed’s products, excluding Lazanda, were dispensed through specialty pharmacies. The Company’s cancer pain product Lazanda and all other similar drugs are often dispensed through specialty pharmacies in order to secure managed care payment authorization for these highly potent and restricted drugs.

The Company also notes that had Depomed’s Board allowed Horizon to proceed with its hostile offer, and with the haste insisted upon by Horizon, Depomed shareholders today would be receiving only about $14.00 for each share of Depomed stock.

Morgan Stanley & Co. LLC and Leerink Partners LLC are serving as financial advisors to Depomed and Baker Botts L.L.P. and Gibson, Dunn & Crutcher LLP are serving as legal counsel. (Original Source)

Shares of Depomed closed yesterday at $16.12. DEPO has a 1-year high of $33.74 and a 1-year low of $14. The stock’s 50-day moving average is $22.66 and its 200-day moving average is $25.05.

On the ratings front, Depomed has been the subject of a number of recent research reports. In a report released yesterday, RBC analyst Randall Stanicky reiterated a Hold rating on DEPO, with a price target of $26, which implies an upside of 61.3% from current levels. Separately, on October 20, Janney Montgomery Scott’s Ken Trbovich assigned a Buy rating to the stock and has a price target of $35.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Randall Stanicky and Ken Trbovich have a total average return of 6.9% and 33.0% respectively. Stanicky has a success rate of 53.3% and is ranked #750 out of 3795 analysts, while Trbovich has a success rate of 28.6% and is ranked #899.

DepoMed Inc is a specialty pharmaceutical company focused on pain and other conditions and diseases of the central nervous system.

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