UBS Steps To Sidelines on Depomed, Citing Limited Upside; Stock Sinks ~6%

Depomed Inc (NASDAQ: DEPO) shares have surged about 25 percent since mid-February, and UBS’ Ami Fadia believes there is limited upside going forward.

Fadia downgraded the rating on the company from Buy to Neutral, with a price target of $20.

Limited Upside

The analyst believes there could be risk to the 2016 sales guidance of $490–$520 million, as well as the consensus expectation of $495 million, given that the base business has underperformed the estimates and continued strength in Nucynta would not be sufficient to offset this weakness.

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“We no longer believe there is sig. upside to consensus sales numbers over the next 2–3 years. Nucynta ER prescriptions have been strong since Depomed re-launched it in mid-2015, and while we believe it can still get to >$400 million by 2018, we no longer see upside to consensus of $434 million,” Fadia mentioned.

In addition, although there could be upside of about $2 for each year that the company can extend the life of Nucynta beyond 2023, Fadia stated there was limited visibility into the court decision expected by September 30 or the potential for a settlement.

Estimates Revised

The 2016 and 2018 sales estimates for Gralise and Nucynta ER have been lowered, as has the R&D estimate for 2015, following discussions with management.

The overall sales estimate for 2016 for Depomed has been lowered from $496 million to $480 million, while the EPS estimate has been lowered from $1.30 million to $1.18 million.

At time of writing, Depomed had dropped 5.6 percent on the day to $19.40.