I wrote up a piece about Depomed, not sure when it will be published by Seeking Alpha, but here it is....

"Several weeks ago, Depomed (NASDAQ:DEPO), a specialty pharmaceutical company, announced positive phase 3 trial results for the treatment of Post Herpetic Neuralgia (‘PHN’) with DM1796. But Depomed’s news of success was soon eclipsed. Only one week later, the company announced that Serada didn’t meet its primary endpoints in two pivotal Phase 3 clinical trials for the treatment of vasomotor symptoms, more commonly known as hot flashes. Since the upsetting trial data, Depomed’s stock price has tanked over 50%, yet not one majority-shareholder has sold any shares. Could it be that “smart money” sees something that the ‘market’ doesn’t see?

Obviously, the ‘BREEZE’ trials failed to meet their primary endpoints, delaying Serada’s time-to-market, at least, by another year. But does that justify a 50% reduction in stock price?

Careful examination of the ‘BREEZE’ trial results reveals several positives. For example, the efficacy of Serada seems strong, especially at the higher of the two doses that were tested. The most significant issue that led to trial failure was risky trial design which called for two treatment arms instead of one. This additional treatment arm imposed more stringent clinical outcomes necessary for statistical significance. In fact, if the trial was repeated using only the higher dose, it would meet 7 out of 8 primary endpoints needed for trial success. Furthermore, it seems highly likely that Depomed will implement certain tweaks to trial design to limit the two confounding factors that led to trial failure; a high placebo response, and regression-toward-the-mean.

First, management has indicated that they may lengthen the “run-in” period before enrollment which could provide more time to ascertain each patient’s baseline hot flash frequency and severity. This modification, by itself, may minimize the placebo response and limit regression towards the mean. Furthmore, Depomed may add an exclusion criteria that “caps” the number of hot flashes per day. Let's say, for example, a patient was enrolled that is experiencing 80 hot flashes per day, but then a week later doesn’t experience any hot flashes at all. Clearly, a patient like that would not be typical for the average post-menopausal patient who experiences months-to-years of 10, or so, hot flashes per day. If for example, even one patient with such a presentation was introduced into a placebo arm, it could seriously disturb results. In fact, in a recent conference call Depomed’s chief medical officer implied that this may have occurred in one of their failed trials.

So what does that all mean? It means that there is a very high likelihood of clinical success if Depomed were to repeat the Serada trial, but this time, impose a “cap”, use one treatment arm and extend the run-in period."

... more on next post...