UPDATE 2-Depomed says Abbott reluctant to market its pain drug

Tue Jan 18, 2011 6:21pm EST

* Says will engage in mediation process with Abbott

* Drug faces FDA review date of Jan. 30

* Drug has FDA orphan drug status

* Depomed shares down 19 pct (Adds conference call details, background)

Jan 18 (Reuters) - Depomed Inc (DEPO.O) said its marketing partner Abbott Laboratories (ABT.N) has informed that it does not believe it is obligated to launch and market Depomed's pain drug.

Depomed shares were down 19 percent at $5.33 in after-hours trade. They closed at $6.58 on Tuesday on Nasdaq.

The experimental drug, DM-1796, which is awaiting regulatory decision by Jan. 30 on its use to treat neuropathic pain, was developed by Depomed and is licensed to Abbott Products, an Abbott unit, in the United States, Canada and Mexico.

On a conference call with analysts, Depomed said it learned of Abbott's reluctance last week, through a letter.

Depomed said it will engage in a mediation process with Abbott Products and believed the license agreement clearly imposes the marketing of the drug on Abbott.

The company said it expects Abbott to pay milestone payments associated with the regulatory approval of the drug, expected by the end of this month.

Depomed said the deal can earn it about $85-$135 million, depending on the ultimate product labeling.

"We are perplexed by Abbott's reluctance to adhere to their contract obligations given the in-depth market research previously undertaken regarding this product," Depomed's Chief Executive Carl Pelzel said in a statement.

If the drug's rights are offered back to Depomed during the mediation talks, it will agree to that only if Abbott provides adequate funding for the launch, Pelzel said.

"At this time, we expect to launch the drug at the same time as Abbott would have, unless some other delay occurs," the company said on the call.

Abbott assumed the rights to the drug through its acquisition of Solvay SA's (SOLB.BR) pharmaceuticals business, which was Depomed's original partner on the drug.

DM-1796 has an orphan drug designation, granted by the U.S. Food and Drug Administration to drugs that treat a condition affecting less than 200,000 Americans. It grants a marketing exclusivity of seven years in the United States upon approval. (Reporting by Esha Dey in Bangalore; Editing by Maju Samuel)

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