Depomed is selling off the franchise that was once the center of its growth hopes, and plenty of the company's employees are leaving with it.
Less than three years after shelling out $1.05 billion to acquire Nucynta ER and XR from Johnson & Johnson, the California drugmaker has licensed the meds to Collegium Pharmaceutical for just $10 million upfront. For the first four years of the pact, Depomed will receive a minimum of $135 million in royalties each year, and after that, that minimum will disappear.
According to Depomed, it made the move based on opioid market dynamics. “We concluded that a broader portfolio of products would more effectively compete and meet the needs of patients, physicians and payers,” CEO Arthur Higgins said in a statement.
The switch will also save the company some cash, though: It’s slashing its pain salesforce and all brand spending on the franchise, taking SG&A costs down by $70 million each year. The transaction will also “improve” Depomed’s 2018 earnings outlook, it said, though “details are unclear,” RBC Capital Markets analyst Randall Stanicky wrote in a note to clients.
That's not the only cost-saving move Depomed is making. In addition to the Nucynta news, the company Monday also unveiled a headquarters relocation plan that will save $10 million but put 40% of its employees out of a job. Depomed, which will field a workforce of about 70 staffers going forward, is currently scouting locations in the Midwest and on the East Coast, it said.
After nabbing the franchise from J&J in 2015, Depomed touted Nucynta as the face of its future. Throughout a hostile takeover attempt from Horizon, Depomed claimed it was being seriously undervalued, pointing to Nucynta’s expansion potential as proof.
But Nucynta hasn’t lived up to its billing, and in the meantime, proxy brawlers have had their way at the company. Last October, Depomed struck a deal with activist Starboard Value that added three new faces to the company’s board, and in March, more activist pressure put Higgins in the CEO’s chair as a replacement for Jim Schoeneck.