UPDATE 2-Depomed recalls 52 lots of diabetes drug

Thu Jun 17, 2010 10:33am EDT

* Recalls 52 lots of Glumetza 500 mg bottles

* Says recall not to impact drug's 1000 mg packs

* Recall due to presence of traces of a chemical

* Sees recall-related costs up to $2 mln

* Drug revenue to be hit in Q2, Q3 (Adds details, analyst comments; updates stock movement)

June 17 (Reuters) - Drug developer Depomed Inc (DEPO.O) said it will recall 52 lots of its diabetes drug Glumetza due to the presence of traces of a certain chemical in the tablet's 500 mg bottle.

The recall followed an investigation of a single product complaint of a smell and taste consistent with the chemical, the company said in a regulatory filing.

The chemical compound, 2,4,6-tribromoanisole (TBA), can cause temporary, non-serious gastrointestinal upset when present in amounts detectable by smell, the company said.

The recall does not impact the 1,000 mg formulation, which currently constitutes about 40 percent of total Glumetza net product sales, Depomed said.

This is the second such TBA-related drug recall this year, after Johnson & Johnson (JNJ.N) recalled more than 53 million bottles of over-the-counter products on complaints of "an unusual odor" in January. The company came under sharp criticism from U.S. health regulators. [ID:nN15208591].

Depomed said the presence of TBA may have been resulted from the breakdown of a chemical sometimes applied to wood in pallets previously used to transport Glumetza product bottles to its contract manufacturer in Puerto Rico.

The company said it suspended product shipments of 500mg Glumetza to its customers pending further investigation and was in discussion with the U.S. Food and Drug Administration (FDA) on the recall.

It expects to resume shipments in four to eight weeks. The recall is currently being carried out at the wholesaler level, the company said.

REVENUE HIT

Depomed expects recall-related costs of up to $2.0 million and sees the supply disruption to adversely affect Glumetza product revenues in the second and third quarters.

Santarus Inc SNTS.O, the company's promotion partner for the drug in the U.S., in a separate regulatory filing, said it also expects its promotion revenue to be affected in the second and third quarters, sending its shares down as much as 12 percent.

Roth Capital Partners analyst Scott Henry said Glumetza remained only a modest part of his valuation for the company and the income statement will take only a minor hit over the next two quarters, but little thereafter.

The analyst has a "buy" rating on the stock.

Santarus said it plans to focus its promotional efforts on Glumetza 1000 mg until the supply of Glumetza 500 mg is resumed.

As per the agreement between the two companies, Depomed is required to reimburse Santarus for the costs incurred in connection with the recall, Santarus said.

Santarus shares were down 7 percent at $2.55. They touched a low of $2.42 earlier the session. Depomed shares were down 5 percent at $2.93 in morning trade Thursday on Nasdaq. (Reporting by Krishnakali Sengupta in Bangalore; Editing by Gopakumar Warrier)

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