Depomed Unfairly Slammed for Serada Phase III Results

(MoneyWatch)  Under-the-radar drug delivery firm Depomed doesn't deserve the heat it's been taking on mixed results from two Phase III trials of hot flash drug Serada.

The Street claimed Depomed "tried to put a good face on the results" and "didn't specify which endpoints Serada failed to achieve and which it did." In Jim Cramer's words:

This is one of those companies that simply has existed on hype for years. if you read the release it is pathetic. They put an aggressive positive spin on it which is why it is so hard to figure out. So typical of this sector...

Depomed's stock dropped 37 percent on Monday and another 7 percent on Tuesday.

But here's why the bad press ?€" and maybe even the investor exodus ?€" isn't warranted:

1. The claim that Depomed didn't provide endpoint specifics is just plain wrong. The company's two Phase III trials had 16 co-primary endpoints, so the press release didn't go into detail on each and every one. But it did tell investors how many endpoints were hit and how many were missed, and Depomed's conference call included a handy-dandy chart outlining data for each endpoint, including p-values. Yes, the chart should have been incorporated into the press release, but all the details were publicly available to those who wanted them.
2. Depomed's spin was pretty straightforward. CEO Carl Pelzel said during the conference call, "Would we like to file [for FDA approval] with what we have? Sure we would. But I wouldn't give that a high probability, to be completely transparent." Pelzel acknowledged the FDA might ask for another Phase III trial ?€" which the company has enough cash on hand to fund and which would only set the launch back by 18 months.
3. Analysts are still bullish. Merriman Curhan Ford's Mike King said the trials were "within a hair's breadth of success" and maintained that Serada can still achieve blockbuster status, albeit later than planned. Roth Capital's Scott Henry said the fact that the missed endpoints were due to a high placebo effect and trial design problems "likely means that the drug has a future."
4. Depomed has been here before and survived. Serada is an extended-release formulation of gabapentin (Pfizer's Neurontin). Depomed also is developing the drug for postherpetic neuralgia (PHN). The first Phase III PHN trial failed because of a complex trial design and large placebo effect, exactly like the hot flash trials. But a confirmatory, better designed PHN trial succeeded ?€" so there's no reason to think the hot flash indication won't follow suit.

Plenty of folks dislike drug delivery firms on principal for trying to make big bucks by repurposing cheap generic drugs. And in a healthcare system increasingly driven by pharmacoeconomics, drug delivery players may have a hard time justifying high prices with marginal differentiation (usually more convenient dosing or slightly lower side effects). Those issues may be cataclysmic to a company like Depomed--but the Serada data is not.

Disclosure: In my past life (years ago) as a PR agency hack, I worked on Depomed's account, but I don't hold shares or have any current ties to the company.