Depomed wins Nucynta patent fight, but does that harm or help in proxy battle?

Depomed

Depomed has insisted it would be unfair for activist investor Starboard Value to force a special meeting over future control of the company until patent litigation for its key drug, the pain med Nucynta, was resolved. Well, that time is here: A court has ruled in favor of Depomed on its patents.

The California drugmaker said that a federal judge ruled against all three challengers--Teva's ($TEVA) Actavis unit, Alkem Laboratories and Roxane Laboratories--on three patents for the Nucynta franchise, and that it expects to retain exclusivity until 2025. On one of the three patents, covering Nucynta ER, the judge said two of the three challengers did not infringe it. Depomed said it will appeal that decision.

With the patent battle aside, the fight over the drugmaker's future is next. Depomed and Starboard Value, which owns 9.9% of the company, have been locked in a contest for months over control of the company.

Starboard has pushed for a special meeting where it will try to take control of the board and potentially set the company on a path for sale. The investor has argued that Depomed is undervalued and has criticized its corporate governance. Starboard has also pointed to how the board frustrated an earlier buyout attempt by Horizon ($HZNP)--and to the plunge in share price since. Starboard accused the board of being more interested in entrenching itself than taking care of shareholders.  

But analysts were mixed on how today’s decision on the Nucynta patents will affect the proxy battle that is set to play out next month. Leerink Partners' Jason Gerberry said in a note to investors that with the court ruling, Depomed can structure favorable patent settlements that will make it “an attractive M&A takeout target.”

RBC Capital Markets analyst Randall Stanicky told his clients that the patent ruling gives potential buyers a better idea about the upside of a deal. But he said he thinks the matter “will likely go to a vote despite recent media headlines suggesting potential for a sale.” Either way, shareholders can expect Depomed shares to trade at higher levels with the patent win, he said. 

Starboard has suggested a slate of directors that would include the fund’s CEO Jeffrey Smith; former Endo ($ENDP) leader Peter Lankau; Robert Savage, former worldwide chairman for Johnson & Johnson’s ($JNJ) pharma group; and James Tyree, former EVP of pharma products at Abbott Labs ($ABT). The special meeting is set for Nov. 15.

- read the Depomed release

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