Activist pressure spurs CEO switch, more boardroom edits at troubled Depomed

Depomed
Bayer Healthcare and Abbott Labs vet Arthur Higgins has taken up the top spot at California's Depomed.

Depomed switched up its board last October to appease activist Starboard Value. But Starboard didn’t stop there, and the new wave of changes it’s spurred involves the drugmaker’s CEO.

Tuesday afternoon, the California company announced that Arthur Higgins, a 35-year pharma industry vet, had taken the chief exec reins—and a boardroom seat—from Jim Schoeneck, who had stepped down.

But that was far from the only tweak to Depomed’s director slate. The company also added former Barr Pharmaceuticals CFO William McKee and Starboard Value partner Gavin Molinelli to the mix, while bidding farewell to Samuel Saks and David Zenoff. James Fogarty, the one-time Lehman Brothers Holdings COO, will take over as chairman; he joined the group last October alongside Robert Savage, former worldwide chairman for Johnson & Johnson’s pharma group, and James Tyree, former EVP of pharma products at Abbott Laboratories.

Starboard—which has accused Depomed of "egregiously manipulating the corporate machinery to entrench management and the board"—was quick to tout the pharma experience of Higgins, who has served as both the CEO of Bayer Healthcare and the president of Abbott’s pharma division over his long industry tenure. “We are excited to have found such a qualified leader for the company,” Molinelli said in a statement, adding that the addition of McKee would “add valuable industry experience to the boardroom.” 

While “a next move by Starboard did not come as a surprise” to industry-watchers, the timing of the management and board shakeup did, RBC Capital Markets analyst Randall Stanicky wrote in a Tuesday note to clients. While many had expected “potential action” after standstill restrictions from the October settlement expired earlier this month, “the move by Depomed ahead of time to announce a new CEO and chairman” and board overhaul “was not expected.”

The new governing group at Depmed will certainly have its work cut out for it, with the drugmaker also Tuesday pre-announcing a Q1 revenue miss—and its intent to revise its guidance in May. The company now expects its top-line tally to hit between $95 million and $100 million, falling below the $115 million analysts expected. The reasons? “Continued weakness” in opioid markets, wholesaler inventory scalebacks in Q1, and ongoing sales force issues that left “a significant number of openings” in the field last quarter.

While the changes could pave the way for a sale, to Stanicky, the “key questions from here” are whether there’s a “viable” buyer for the company out there—and what that buyer will pay. Depomed’s stock is down 21% so far for the year, he noted, and the company has already reportedly teamed up with Morgan Stanley to scout opportunities. “It is far from clear whether there is any interest in the asset,” he wrote, noting that “we are a long way” from the offers failed hostile suitor Horizon Pharma put forth back in 2015.