Depomed Investors Approach Probable Rejection For Serada NDA

The specialty pharmaceutical company Depomed (DEPO) has yet to fully recover from its drop back in March 2013 which was made after an FDA Reproductive Health Drugs Advisory Committee (RHDAC) overwhelmingly rejected the NDA that the company submitted for the drug Serada (gabapentin ER) for the menopausal “hot flashes” indication. Gabapentin is an analog of the neurotransmitter GABA (gamma-Aminobutyric acid), and has historically been used as an epilepsy and pain treatment, although companies are looking to use it in other specific patient populations.

Although the Advisory Committee outcome wasn’t much of a surprise to the bears who doubted the efficacy of the drug based on the Phase III data, the market seemed disappointed that the vote was so skewed towards a negative opinion (the final vote was 2-12 against the NDA). The vote was so one-sided that the company actually cancelled a conference call that was supposed to be held after the meeting to discuss the results, probably because it would be hard to make a defense of Serada after such a disaster.

Now, investors are waiting for the PDUFA goal date on the Serada NDA, which is scheduled to be tomorrow (May 31st, 2013). The consensus is that the FDA will follow the advice of the Advisory Committee and issue a CRL tomorrow, asking that the company performs another late stage trial to establish the efficacy of Serada in the menopausal hot flash indication.

Note that the two Phase III trials BREEZE-1 and BREEZE-2 that constitute the Serada NDA missed their primary endpoints based on statistical significance, so expect the company to have problems with the drug’s approval until a successful and reasonably designed trial is held.

In the very unlikely event that the FDA approves Serada tomorrow, expect a dramatic reversal to the upside in DEPO closer to the $7 per share level that the stock was trading near at the start of the year. Otherwise, I think that the market will not have much of a reaction to a much anticipated rejection.

Worth noting is that Depomed already markets a gabapentin tablet called Gralise as a once-daily treatment for postherpetic neuralgia (PHN) – a long term pain that occurs after a shingles infection. Also marketed is an NSAID drug called Zipsor (diclofenac potassium) for the treatment of general pain, along with a number of products that are commercialized by other companies (where Depomed receives royalty revenues).

It’s because of these other programs that Depomed is able to easily retain its $324 M market capitalization. These also help to offset the development costs of Serada and any other programs that Depomed is looking to develop, so investors should realize that the company should have a large “safety cushion” against the potential failure of the Serada program – probably at a market capitalization of $300 M (or ~$5.30 per share). Again, note that the PDUFA date for Serada (gabapentin ER) is scheduled as May 31st 2012.