Depomed Reports Third Quarter 2009 Financial Results

http://www.businesswire.com/news/home/20091029006060/en

MENLO PARK, Calif.--(Business Wire)--
Depomed, Inc. (NASDAQ: DEPO) today reported financial results for the third
quarter ended September 30, 2009.

Revenue for the three months ended September 30, 2009 was $23.0 million compared
to $14.1 million for the three months ended September 30, 2008. Revenue for the
three months ended September 30, 2009 included a $10.0 million license payment
from Merck & Co. Inc. related to the Company`s license arrangement with Merck
for fixed dose combinations of sitagliptin and extended release metformin
entered into in July 2009. Revenue for the three months ended September 30, 2008
included a one-time recognition of $6.3 million in product sales of GLUMETZA
related to previously deferred revenue, resulting from a change in the Company`s
accounting for GLUMETZA product sales.

Operating expenses for the three months ended September 30, 2009 were $20.2
million. Operating expenses for the third quarter of 2009 included $6.7 million
in promotion fee expense related to the Company`s promotion agreement for
GLUMETZA® with Santarus due to increased GLUMETZA product sales. Operating
expenses for same period in 2008 were $12.2 million and included $5.6 million in
promotion fee expense. The increases in operating expenses in 2009 were due to
the increased Santarus promotion fees and increased expenses related to the
Company`s Phase 3 clinical trials for SeradaTM for the treatment of menopausal
hot flashes and DM-1796 for postherpetic neuralgia. Stock-based compensation
expense was $0.8 million for the three months ended September 30, 2009 as
compared to $0.7 million for the three months ended September 30, 2008.

Net income for the three months ended September 30, 2009 was $1.4 million, or
$0.03 per share, compared to a net loss of $0.3 million, or $0.01 per share, for
the three months ended September 30, 2008. Net income for the three months of
2009 was primarily attributable to the one-time $10.0 million license payment
received from Merck, which resulted in a profitable quarter. Net loss for the
third quarter of 2008 included a one-time recognition of $6.3 million in product
sales of GLUMETZA related to previously deferred revenue, which had the effect
of reducing net loss by $5.3 million.

Cash, cash equivalents and marketable securities were $88.6 million as of
September 30, 2009 compared to $82.1 million as of December 31, 2008.

"We achieved a number of significant milestones in the third quarter and early
fourth quarter. We completed a transaction with Merck that resulted in a
profitable quarter and an even stronger balance sheet, GLUMETZA prescriptions
reached all-time highs, and we completed all three of our Phase 3 studies. We
are very pleased with the positive results in our Phase 3 postherpetic neuralgia
study with DM-1796, and look forward to working with our partner Solvay to
complete the NDA for the product. We believe that the commercial potential of
DM-1796 is significant, as DM-1796 targets a very large neuropathic pain market.
Our Phase 3 results demonstrated that DM-1796 has the potential to address unmet
needs of current treatments with its once-daily dosing and lower side effects,
and thus is highly clinically differentiated," commented Carl Pelzel, Depomed`s
president and chief executive officer. "As we move DM-1796 forward with Solvay,
we are also continuing to analyze the mixed results in our Phase 3 menopausal
hot flash program with Serada to determine the best path forward toward
approval," Mr. Pelzel added.

Third Quarter 2009 and Recent Highlights

* Licensed patents covering metformin extended-release technology to Merck &
Co., Inc. on a non-exclusive basis for a $10 million upfront fee, a milestone
payment upon filing of the NDA, and modest royalties on net product sales (July
2009)
* Announced results of Phase 1 clinical program in Parkinson`s patients for
DM-1992, Depomed`s proprietary extended release formulation of
levodopa/carbidopa (August 2009)
* Announced positive results of Phase 3 clinical program for DM-1796 in
post-herpetic neuralgia (October 2009)
* Announced results of Phase 3 clinical program for Serada in menopausal hot
flashes (October 2009)
* Announced completion of the 1st formulation under collaboration with Covidien
(October 2009)

Conference Call

Depomed will host a conference call today, Thursday, October 29, beginning at
5:00 p.m. ET, 2:00 p.m. PT to discuss its results. The conference call will be
available via a live webcast on the investor relations section of Depomed`s
website at http://www.depomed.com. Access the website 15 minutes prior to the
start of the call to download and install any necessary audio software. An
archived webcast replay will be available on the Company`s website for three
months.

About Depomed

Depomed, Inc. is a specialty pharmaceutical company with one product candidate
through Phase 3 clinical development, another in Phase 3 clinical development,
two approved products on the market and other product candidates in its early
stage pipeline. Product candidate DM-1796 has completed Phase 3 clinical
development and has been licensed to Solvay Pharmaceuticals. A New Drug
Applications for DM-1796 is expected to be filed with the FDA in the first
quarter of 2010. Product candidate SeradaTM is in Phase 3 clinical development
for menopausal hot flashes. GLUMETZA(R) (metformin hydrochloride extended
release tablets) is approved for use in adults with type 2 diabetes and promoted
by Santarus, Inc. in the United States. Depomed formulates its products and
product candidates with its proven, proprietary Acuform(R) drug delivery
technology, which is designed to improve existing oral medications, allowing for
extended, controlled release of medications to the upper gastrointestinal tract.
Benefits of Acuform-enhanced pharmaceuticals include the convenience of
once-daily administration, improved treatment tolerability and enhanced
compliance and efficacy. Additional information about Depomed may be found on
its website, www.depomed.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.

The statements that are not historical facts contained in this release are
forward-looking statements that involve risks and uncertainties including, but
not limited to, those related to our business strategy; potential business
development transactions; our research and development efforts, including
pre-clinical and clinical testing; regulation by the FDA and other government
agencies; the timing of regulatory applications and product launches; and other
risks detailed in the company`s Securities and Exchange Commission filings,
including the company`s Annual Report on Form 10-K and most recent Quarterly
Report on Form 10-Q. You are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

DEPOMED, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Revenues:
Product sales $ 9,859 $ 13,011 $ 25,107 $ 23,756
Royalties 464 516 1,457 1,060
License and collaborative revenue 12,691 584 17,930 1,311
Total revenues 23,014 14,111 44,494 26,127

Costs and expenses:
Cost of sales 1,367 2,396 3,628 4,567
Research and development 9,300 6,998 29,345 17,748
Selling, general and administrative 10,931 5,250 29,878 16,998
Gain on litigation settlement - - - (7,500 )
Total costs and expenses 21,598 14,644 62,851 31,813

Income (loss) from operations 1,416 (533 ) (18,357 ) (5,686 )

Other income (expense):
Interest and other income 181 515 731 1,871
Interest expense (240 ) (249 ) (788 ) (254 )
Total other income (expense) (59 ) 266 (57 ) 1,617

Net income (loss) before income taxes 1,357 (267 ) (18,414 ) (4,069 )

Provision for income taxes 16 (4 ) 17 (4 )

Net income (loss) 1,373 (271 ) (18,397 ) (4,073 )

Deemed dividend on preferred stock - (183 ) - (538 )

Net income (loss) applicable to common stock shareholders $ 1,373 $ (454 ) $ (18,397 ) $ (4,611 )

Basic net income (loss) applicable to common stock shareholders per common share $ 0.03 $ (0.01 ) $ (0.36 ) $ (0.10 )
Diluted net income (loss) applicable to common stock shareholders per common share $ 0.03 $ (0.01 ) $ (0.36 ) $ (0.10 )

Shares used in computing basic net income (loss) per common share 51,598,316 48,123,668 51,357,924 48,011,004
Shares used in computing diluted net income (loss) per common share 52,459,484 48,123,668 51,357,924 48,011,004

DEPOMED, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share amounts)

September 30, December 31,
2009 2008
(Unaudited) (1)
ASSETS
Current assets:
Cash and cash equivalents $ 17,650 $ 22,127
Marketable securities 53,338 59,932
Accounts receivable 5,042 3,099
Unbilled accounts receivable 441 576
Inventories 2,154 2,849
Prepaid and other current assets 972 5,404
Total current assets 79,597 93,987
Marketable securities 17,660 -
Property and equipment, net 1,033 900
Other assets 197 197
$ 98,487 $ 95,084
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities:
Accounts payable $ 2,853 $ 559
Accrued compensation 1,879 2,601
Accrued clinical trial expense 2,242 661
Other accrued liabilities 9,739 9,027
Deferred product sales 1,604 1,702
Deferred license revenue 10,684 4,362
Other current liabilities 103 110
Current portion of long-term debt 3,636 3,356
Total current liabilities 32,740 22,378
Deferred license revenue, non-current portion 43,977 33,209
Long-term debt, non-current portion 3,149 5,775
Other long-term liabilities 510 569
Commitments
Shareholders` equity:
Preferred stock, no par value, 5,000,000 shares authorized; Series A convertible preferred stock, 25,000 shares designated, 18,158 shares issued, and zero shares outstanding at September 30, 2009 and December 31, 2008 - -
Common stock, no par value, 100,000,000 shares authorized; 51,751,099 and 51,171,377 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 186,526 183,196
Accumulated deficit (168,591 ) (150,194 )
Accumulated other comprehensive gain 176 151
Total shareholders` equity 18,111 33,153
$ 98,487 $ 95,084

________________

(1) Derived from the audited financial statements included in the Company`s
Annual Report on Form 10-K for the year ended December 31, 2008.

Depomed, Inc.
Sheilah Serradell, 650-462-5900
sserradell@depomed.com

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