UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`FORM 10-K
`
`(Mark one)
`    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
`For the fiscal year ended December 31, 2006
`OR
` Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
`For the transition period from: to
`Commission File Number: 000-23267
`DEPOMED, INC.
`(Exact Name of Registrant as Specified in its Charter)
`94-3229046
`California
`
`(I.R.S. Employer Identification No.)
`(State or other jurisdiction of incorporation or
`organization)
`1360 O’Brien Drive, Menlo Park, California
`(Address of principal executive offices)
`
`
`
`
`
`94025
`(Zip Code)
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`
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`Registrant’s telephon e number, including area code: (650) 462-5900
`Securities registered pursuant to Section 12(b) of the Act:
`Common Stock, no par value
`Securities registered pursuant to Section 12(g) of the Act:
`None
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
`Yes No 
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
`Yes No 
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
`months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
`Yes  No
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
`of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
`Form 10-K. 
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the
`Exchange Act.
`
`Large accelerated filer
`
`
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`Accelerated filer 
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`Non-accelerated filer
`
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
`Yes No 
`The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing price of Common Stock
`on the Nasdaq Stock Market on June 30, 2006 was approximately $209,545,000. Shares of Common Stock held by each officer and director and by each
`person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination
`of affiliate status is not necessarily a conclusive determination for other purposes.
`The number of shares outstanding of the registrant’s Common Stock, no par value, as of March 6, 2007 was 42,091,255.
`
`Documents Incorporated by Reference
`Portions of the registrant’s Proxy Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with
`the registrant’s 2007 Annual Meeting of Shareholders, expected to be held on or about May 31, 2007, are incorporated by reference in Part III of this Form 10-
`K.
`
`
`
`
`

`
`DEPOMED, INC.
`2006 FORM 10-K REPORT
`TABLE OF CONTENTS
`
`PART I
`
`Business
`Risk Factors
`Unresolved Staff Comments
`Properties
`Legal Proceedings
`Submission of Matters to a Vote of Security Holders
`
`PART III
`Directors, Executive Officers and Corporate Governance
`Executive Compensation
`Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
`Certain Relationships and Related Transactions, and Director’s Independence
`Principal Accountant Fees and Services
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`PART II
`Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
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`Selected Financial Data
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`Management’s Discussion and Analysis of Financial Condition and Results of Operations
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`Quantitative and Qualitative Disclosures about Market Risk
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`Financial Statements and Supplementary Data
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`Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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`Controls and Procedures
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`Other Information
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`Exhibits and Financial Statement Schedules
`Signatures
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`PART IV
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`2
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`Item 1.
`Item 1A.
`Item 1B.
`Item 2.
`Item 3.
`Item 4.
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`Item 5.
`Item 6.
`Item 7.
`Item 7A.
`Item 8.
`Item 9.
`Item 9A.
`Item 9B.
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`Item 10.
`Item 11.
`Item 12.
`Item 13.
`Item 14.
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`Item 15.
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`

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`NOTE REGARDING FORWARD-LOOKING STATEMENT
`Statements made in this Annual Report on Form 10-K that are not statements of historical fact are forward-looking statements within the
`meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of
`1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. Our actual
`results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are
`identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any
`statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
`Forward-looking statements include, but are not necessarily limited to, those relating to:
`• the commercial success and market acceptance of GLUMETZA™ (metformin hydrochloride extended release tablets) in the United
`States;
`• the success of our collaborative arrangement with King Pharmaceuticals, Inc. with respect to GLUMETZA;
`• results and timing of our clinical trials, including the results of our Gabapentin GR™ trials;
`• acceptance and approval of regulatory filings;
`• the results of our internal research and development efforts;
`• our ongoing patent litigation against IVAX;
`• our need for, and ability to raise, additional capital;
`• market acceptance of ProQuin
` XR (ciprofloxacin hydrochloride extended release tablets);
`• the efforts of Esprit Pharma, Inc. with respect to the commercialization of ProQuin XR;
`• our collaborative partners’ compliance or non-compliance with their obligations under our agreements with them;
`• our ability to obtain commercialization partners for our products and product candidates;
`• the efforts of our foreign collaborative partners with respect to the marketing of GLUMETZA in Canada and Korea;
`• our ability to obtain other commercialization partners for our products and product candidates; and
`• our plans to develop other product candidates.
`Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include
`those more fully described in “ ITEM 1A. RISK FACTORS ” and elsewhere in this Annual Report on Form 10-K. We disclaim any intent to
`update or revise these forward-looking statements to reflect new events or circumstances.
`
`®
`
`CORPORATE INFORMATION
`The address of our Internet website is http://www.depomedinc.com . We make available, free of charge through our website or upon
`written request, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other periodic SEC
`reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the reports with the SEC.
`Unless the context indicates otherwise, “Depomed”, “the Company”, “we”, “our” and “us” refer to Depomed, Inc. Depomed was
`incorporated in the State of California on August 7, 1995. Our headquarters are located in Menlo Park, California.
`Depomed
` and ProQuin
` are registered trademarks of Depomed. Gabapentin GR™ and AcuForm™ are trademarks of Depomed.
`®
`®
`GLUMETZA™ is a trademark of Biovail Laboratories International, s.r.l. exclusively licensed in the United States to Depomed. All other
`trademarks and trade names referenced in this Annual Report on Form 10-K are the property of their respective owners.
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`ITEM 1. BUSINESS
`COMPANY OVERVIEW
`
`PART I
`
`Depomed is a specialty pharmaceutical company focused on the development and commercialization of differentiated products that
`address large and growing markets and are based on proprietary oral drug delivery technologies. We have developed two commercial products.
`GLUMETZA™ (metformin hydrochloride extended release tablets) is a once-daily treatment for adults with type 2 diabetes that we jointly
`commercialize in the United States with King Pharmaceuticals, Inc. ProQuin XR (ciprofloxacin hydrochloride extended release tablets) is a
`once-daily treatment for uncomplicated urinary tract infections that Esprit Pharma, Inc. markets in the United States.
`
`We have a three-pronged approach to product development designed to optimize the use and value of our drug delivery technologies,
`while managing the costs and risks associated with developing and commercializing pharmaceutical products. We develop products for our
`own account that are designed to compete in large growing markets and that can be highly differentiated from immediate release versions of the
`compounds upon which they are based. Second, we selectively enter into collaborative partnerships with other companies where the unique
`capabilities of our technology can provide superior value to a partner’s compound, resulting in significantly greater value for Depomed than a
`traditional fee-for-service arrangement. Third, we enter into arrangements that enable our technology to be applied by other companies to a
`greater number of compounds than our infrastructure can support, so as to derive additional value from our technology. In the future, we plan
`to commercialize our proprietary products, relying on partners to cover the large primary care audiences, while maintaining co-promotion and
`distribution rights in order to be in a position to create our own sales force when appropriate, thereby increasing the value to us of our products,
`and our control over them.
`
`Our most advanced product candidate in development is Gabapentin GR™, an extended release form of gabapentin. With respect to
`Gabapentin GR, we have completed enrollment of a Phase 3 clinical trial for the treatment of postherpetic neuralgia, completed and announced
`positive results of a Phase 2 clinical trial for the treatment of diabetic peripheral neuropathy, and submitted an investigational new drug
`application, or IND, for a Phase 2 clinical trial for the treatment of menopausal hot flashes. Additionally, we have other product candidates in
`earlier stages of development, including a treatment for gastroesophageal reflux disease.
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`4
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`The following table summarizes our marketed products, and our product pipeline.
`
`Marketed Products
`Indication
`
`Product
`GLUMETZA™
`
`Type 2 diabetes
`
`(1)
`Status
`Currently sold in the United States, Canada and Korea.
`Canadian rights held by Biovail.
`Korean rights held by LG Life Sciences.
`Currently sold in the United States.
`US rights held by Esprit Pharma, Inc.
`Regulatory application pending in Sweden.
`European rights held by Madaus.
`
`ProQuin
`
`®
`
` XR
`
`Uncomplicated urinary tract infection
`
`
`
`Product Pipeline
`
`
`
`Gabapentin GR™
`
`
`
`Postherpetic neuralgia
`Diabetic peripheral neuropathy
`Menopausal hot flashes
`
`Undisclosed compound
`Undisclosed compound
`
`Gastroesophageal reflux disease
`(2)
`Confidential
`
`Undisclosed compound
`
`Confidential
`
`(2)
`
`Phase 3 enrollment complete.
`Phase 2 trial complete.
`IND for Phase 2 trial submitted to FDA.
`Rights to a patent covering gabapentin for this indication
`sublicensed from PharmaNova, Inc.
`Phase 2a proof of concept studies underway.
`Preclinical studies.
`Partnered with Supernus Pharmaceuticals, Inc.
`Partnered with New River Pharmaceuticals, Inc.
`
`(1) The section below entitled “Government Regulation” for additional information regarding the phases of drug development.
`(2) The compound and indication may not be disclosed pursuant to the collaboration agreement.
`
`SIGNIFICANT DEVELOPMENTS DURING 2006
`During 2006, among other things, we:
`• Jointly launched GLUMETZA in the United States with King Pharmaceuticals;
`• Completed a Phase 2 study and initiated a Phase 3 study with Gabapentin GR for the treatment of postherpetic neuralgia;
`• Completed a Phase 2 study with Gabapentin GR for the treatment of diabetic peripheral neuropathy;
`• Exclusively sublicensed rights to the use of gabapentin for the treatment of menopausal hot flashes under a University of Rochester
`patent;
`• Initiated an internal development program for a gastroesophageal reflux disease treatment;
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`• Established a collaboration arrangement with Patheon, Inc. designed to expand the breadth of our collaboration programs;
`• Entered into a collaboration arrangement with Supernus Pharmaceuticals (formerly Shire Laboratories) for a new product candidate;
`• Retained co-promotion rights on GLUMETZA under our promotion arrangement with King Pharmaceuticals, and obtained co-
`promotion rights on ProQuin XR from Esprit Pharma;
`• Received a $10 million license fee payment from Esprit Pharma for ProQuin XR; and
`• Established a $30 million equity line of credit.
`
`MARKETED PRODUCTS
`GLUMETZA ™
`General
`The 500mg strength of GLUMETZA is our internally developed once-daily metformin product for type 2 diabetes. The FDA approved
`GLUMETZA for marketing in the United States in June 2005. At that time, a subsidiary of Biovail Corporation, or Biovail, held US and
`Canadian marketing rights to GLUMETZA pursuant to a license agreement we entered into with the Biovail subsidiary in 2002. We reacquired
`the US rights to GLUMETZA from Biovail in December 2005. In June 2006, we entered into a promotion arrangement with King
`Pharmaceuticals related to GLUMETZA under which we and King jointly commercialize GLUMETZA in the United States. GLUMETZA was
`launched in the United States in September 2006. In February 2007, we obtained a waiver from the FDA of a Phase 4 pediatric study on
`GLUMETZA.
`In connection with the restructuring of our GLUMETZA agreements with Biovail in December 2005, we also acquired an exclusive US
`license to a 1000mg strength of GLUMETZA utilizing proprietary Biovail drug delivery technology that is a reformulated version of the
`1000mg GLUMETZA initially approved by the FDA for marketing in the United States along with the 500mg GLUMETZA. Biovail has
`completed the reformulation of the 1000mg GLUMETZA. We expect to submit to the FDA before the end of the first quarter of 2007, a
`supplemental New Drug Application to the FDA covering the 1000mg GLUMETZA seeking approval to market the product in the United
`States. If approved, we expect the 1000mg GLUMETZA to be available late in 2007, or in the first quarter of 2008.
`Our issued US patents covering the 500mg GLUMETZA expire between 2016 and 2020.
`The 500mg GLUMETZA has also been approved for marketing in Canada, where it is marketed by Biovail, and in Korea, where it is
`marketed by LG Life Sciences under the trade name Novamet GR.
`
`Diabetes
`Diabetes is a disease in which levels of glucose, a type of sugar found in the blood, are above normal. Diabetic patients do not produce
`insulin, a hormone produced in the pancreas, or do not properly use insulin, making it difficult for the body to convert food into energy. Type 2
`diabetes is the most common form of diabetes, accounting for 90 to 95 percent of all diabetes cases, according to the National Institute of
`Diabetes and Digestive and Kidney Diseases of the National Institutes of Health, or the NIDDK.
`The body breaks down food into glucose, and delivers glucose to cells through the bloodstream. Cells use insulin to help process blood
`glucose into energy. In the case of type 2 diabetes, cells fail to use insulin properly or the pancreas cannot make as much insulin as the body
`requires. That causes the amount of glucose in the blood to increase, while starving cells of energy. Over time, high blood glucose levels
`damage
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`nerves and blood vessels, which can lead to complications such as heart disease, stroke, blindness, kidney disease, nerve problems, gum
`infections, and amputation.
`
`Target Market
`According to the NIDDK, 20.8 million people in the United States, or seven percent of the US population, have diabetes. Of those, 14.6
`million are diagnosed, and all but 200,000 are at least 20 years old. The NIDDK estimates that in 2005 1.5 million new cases of diabetes were
`diagnosed in the United States in people aged 20 years or older. Among adults with diagnosed diabetes, 57 percent take oral medication only,
`and 12 percent take both insulin and oral medication, according to the 2001-2003 National Health Interview Survey of the Centers for Disease
`Control and Prevention. In 2006, the metformin market in the United States was approximately $1.4 billion in retail sales.
`GLUMETZA Collaboration and Licensing Arrangements
`King Pharmaceuticals. In June 2006, we entered into a promotion agreement with King Pharmaceuticals pursuant to which we granted
`King the co-exclusive right to promote GLUMETZA in the United States. Under the agreement, King is required to promote GLUMETZA to
`physicians in the United States through its sales force, to deliver a minimum number of annual detail calls to potential GLUMETZA
`prescribers, and to maintain a sales force of a minimum size. In consideration for its promotion of GLUMETZA, King receives a promotion fee
`equal to fifty percent of gross margin, which is defined in the agreement as sales of GLUMETZA, net of returns, discounts, rebates and
`chargebacks, minus cost of goods sold and certain adjustments (including the one percent royalty due to Biovail with respect to the 500mg
`GLUMETZA tablet). We share out-of-pocket marketing expenses with King at an agreed-upon ratio, in which Depomed’s share is lower than
`King’s.
`We have the right under the contract to promote GLUMETZA to physicians to whom King does not make detail calls, or does not make
`detail calls with sufficient regularity. Incremental sales generated by physicians called upon by us, over a baseline established prior to our
`promotion, are excluded from net sales for purposes of calculating the promotion fee payable to King.
`The 1000mg formulation of GLUMETZA to which we have rights to in the United States from Biovail will also be subject to the
`agreement, if that formulation is approved for marketing. The term of the promotion agreement with King is five years, with additional one
`year renewal periods if agreed upon by the parties. In September 2006, we launched the 500mg GLUMETZA in the United States.
`The agreement provided for a six-month option in favor of King to negotiate with us the terms of an exclusive license in the United States
`to our AcuForm drug delivery technology in combination with metformin hydrochloride and any other active pharmaceutical ingredient. King
`did not exercise that option and the option expired in December 2006.
`Biovail. We licensed US and Canadian rights to GLUMETZA to Biovail in 2002. We received a $25 million license fee payment from
`Biovail under our original license agreement following FDA approval of GLUMETZA. In December 2005, we and Biovail entered into an
`Amended and Restated License Agreement relating to GLUMETZA. The Amended and Restated License Agreement supersedes our April 27,
`2004 Amended License and Development Agreement with Biovail.
`Pursuant to the Amended and Restated License Agreement, Biovail has an exclusive license in Canada to manufacture and market the
`500mg GLUMETZA, and we receive royalties of six percent of Canadian net sales of the 500mg GLUMETZA. We will also receive payments
`from Biovail equal to one percent of Canadian net sales of the 1000mg GLUMETZA if that formulation is approved and marketed in Canada.
`The royalty payable by Biovail on net sales of the 500mg GLUMETZA may be increased to ten percent if regulatory approval in the United
`States of the 1000mg new formulation of GLUMETZA is not obtained by June 30, 2007, provided that we have complied with our obligations
`related to obtaining such regulatory approval.
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`In December 2005, we also entered into a Manufacturing Transfer Agreement and a Supply Agreement with Biovail related to the 1000mg
`GLUMETZA with Biovail. Under those agreements, we received an exclusive license to market the 1000mg GLUMETZA in the United
`States, and an exclusive license to the “GLUMETZA” trademark in the United States for the purpose of marketing GLUMETZA. We will
`purchase 1000mg GLUMETZA exclusively from Biovail under the Supply Agreement, subject to back-up manufacturing rights in our favor. If
`we exercise our back-up manufacturing rights, compensation to Biovail will change from a supply-based arrangement to royalties of six percent
`of net sales of the 1000mg GLUMETZA in the United States (or, if less, thirty percent of royalties and other similar payments from our
`licensees) under the Manufacturing Transfer Agreement. Also, we will pay Biovail royalties of one percent of net sales of the 500mg
`GLUMETZA in the United States (or, if less, five percent of royalties and other similar payments from our licensees). The Supply Agreement
`also includes provisions for the continued development of the 1000mg GLUMETZA in the event that the FDA does not approve the sNDA
`covering the 1000mg GLUMETZA.
`LG Life Sciences. In August 2004, we entered into a license and distribution agreement granting LG Life Sciences an exclusive license
`to the 500mg GLUMETZA in the Republic of Korea. LG Life Sciences launched the product, known as Novamet GR, in Korea in 2006.
`We received a $600,000 upfront license fee from LG in connection with entering into the agreement. In November 2006, we amended the
`agreement to provide for a $500,000 milestone payment from LG with respect to LG’s approval to market GLUMETZA in the Republic of
`Korea, rather than a $700,000 payment, as reflected in the original agreement. We received the $500,000 payment in November 2006, net of
`applicable Korean withholding taxes, and commenced negotiations to further amend the agreement to formally grant LG a license to
`manufacture the 500mg GLUMETZA in exchange for royalties on net sales of GLUMETZA in Korea, and to remove the provisions of the
`original agreement providing for the supply of 500mg GLUMETZA tablets by the Company to LG. In January 2007, we completed our
`negotiations with LG, and entered into an amended license agreement implementing the provisions.
`
`®
`
` XR
`ProQuin
`General
`ProQuin XR is a once-daily formulation of the antibiotic ciprofloxacin for uncomplicated urinary tract infections. We developed ProQuin
`XR, and the FDA approved it for marketing in the United States in May 2005. Esprit Pharma licensed marketing rights to ProQuin XR in the
`United States in July 2005, and launched the product in the United States in November 2005.
`Our issued US patents covering ProQuin XR expire between 2016 and 2020. We have additional US patent applications covering ProQuin
`XR pending.
`
`Uncomplicated Urinary Tract Infection
`A urinary tract infection, or UTI, is an infection in the urinary bladder. An uncomplicated UTI is a UTI that does not spread from the
`bladder to the kidney or the prostate. Common symptoms associated with UTIs include a frequent urge to urinate and a painful, burning feeling
`in the area of the bladder or urethra during urination, and an overall ill-feeling of malaise.
`Uncomplicated UTIs are very common in women between 20 and 50. The NIDDK reports that infections of the urinary tract are the
`second most common type of infection in the body, account for approximately 8.3 million doctor visits each year, with one woman in five
`developing a UTI during her lifetime. According to the NIDDK, nearly 20% of women who experience a UTI will experience another. 30% of
`women who experience a second UTI will have a third UTI, and 80% of women who have at least three UTIs, or approximately one woman in
`one hundred, will have recurrences.
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`Target Market
`Ciprofloxacin is a member of the family of drug compounds known as quinolones, which also includes levaquin. In 2006, there were
`approximately 8 million prescriptions for quinolones filled in the United States.
`
`ProQuin XR Collaboration and Licensing Arrangements
`Esprit Pharma. In July 2005, we entered into an exclusive license and marketing agreement with Esprit Pharma, Inc. pursuant to which
`we granted Esprit exclusive US marketing and distribution rights to ProQuin XR. The agreement obligates Esprit to pay us $50 million in
`license fees, of which $40 million has been paid. The remaining $10 million is due in July 2007. The agreement also provides for royalty
`payments to us of 15 percent to 25 percent of ProQuin XR net sales, based on escalating net sales, subject to minimum royalty obligations of
`$4.6 million in 2006, $5.0 million in 2007 and in subsequent years remains at $5.0 million, subject to annual increases in the consumer price
`index beginning in 2008. We also have a supply agreement with Esprit under which we provide Esprit with commercial quantities of ProQuin
`XR.
`In July 2006, we amended the license agreement with Esprit to, among other matters, extend to December 2006 the due date on the $10
`million license fee payment to Depomed that had been due in July 2006, to credit royalties paid to us for sales made in the fourth quarter of
`2005 of ProQuin XR against Esprit’s $4.6 million minimum royalty obligation in 2006, and to establish a joint marketing team to periodically
`review and discuss all aspects of the commercialization of ProQuin XR.
`
`Also in July 2006, we entered into a co-promotion agreement with Esprit in which we obtained co-promotion rights to market ProQuin
`XR. Under the terms of the co-promotion agreement, we have the right, but not the obligation, to promote ProQuin XR in the United States to
`up to 40,000 physicians, other than urologists and obstetricians/gynecologists, not called upon by Esprit. The agreement permits us to co-
`promote ProQuin XR directly or through third parties agreed upon by Esprit. If we exercise our co-promotion rights, we will receive a co-
`promotion fee of 18% on net sales generated by physicians called upon by us. The co-promotion agreement has a four-year term.
`
`In December 2006, we delivered a notice to Esprit regarding alleged breaches by Esprit of the license agreement. The alleged breaches
`related to Esprit’s failure to make a $10 million license fee payment due to the Company in December 2006, and to use commercially
`reasonable efforts to market ProQuin XR. In connection with the notice, we filed a demand for binding arbitration. Subsequent to the delivery
`of the notice and demand for arbitration, Esprit paid us the $10 million license fee payment in December 2006 and we withdrew without
`prejudice the notice and demand for arbitration. We also agreed to commence, in January 2007, discussions with Esprit toward a mutually
`agreeable, long-term restructuring of the license agreement. Those discussions began in January 2007 and are continuing. The agreement will
`remain in effect unless and until we and Esprit agree to any modifications to it.
`Madaus. In November 2005, we entered into a distribution and supply agreement for ProQuin XR in Europe with a privately owned
`specialty pharmaceutical company, Madaus S.r.l. Under the terms of the agreement, we granted an exclusive right to Madaus for the
`commercialization of ProQuin XR in Europe and agreed to supply Madaus with commercial quantities of ProQuin XR tablets in bulk form. In
`March 2006, Madaus filed a Marketing Authorization Application for ProQuin XR with the Medical Products Agency in Sweden, which is
`pending.
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`PRODUCT CANDIDATES
`Gabapentin GR for Neuropathic Pain
`General
`Gabapentin GR is our internally developed, extended release formulation of the compound gabapentin. Gabapentin is marketed by
`Pfizer Inc. for adjunctive therapy for epileptic seizures and postherpetic pain under the trade name Neurontin. It is also marketed by a number
`of other companies as a generic, immediate release drug.
`Postherpetic Neuralgia. Postherpetic neuralgia, or PHN, is a persistent pain condition caused by nerve damage during a shingles, or
`herpes zoster, viral infection. There are an estimated 600,000 to one million cases of shingles each year, according to the Centers for Disease
`Control and Prevention. The incidence of PHN increases in elderly shingles patients, in whom the incidence of PHN in shingles patients 50 to
`69 years old is 50 percent and increases to 75 percent in patients over 70 years old, according to WWMR, Inc., a pharmaceutical market
`research firm. Pain associated with PHN reportedly can be so severe that patients are unable to resume normal activities for months. Since there
`is no cure for PHN, treatments are focused on relieving pain.
`Diabetic Peripheral Neuropathy. Diabetic peripheral neuropathy, or DPN, is a peripheral nerve disorder caused by diabetes.
`Approximately 60 to 70 percent of the more than 20 million diabetics in the United States have mild to severe forms of nervous system
`damage, according to the National Institutes of Health. After a period of inadequate glycemic control, nerve damage may occur and may lead to
`a number of health problems, including indigestion, diarrhea or constipation, dizziness, bladder infections and impotence. DPN is often
`associated with numbness, pain, or tingling in the feet or legs and may lead to weakness in the muscles of the feet. Current treatment
`approaches for DPN involve providing options for pain relief and implementing glycemic control measures, including diet, exercise and
`medication, to prevent further tissue damage by bringing blood sugar levels under control.
`
`Target Market
`Approximately 2.6 million people are estimated to have suffered from moderate to severe neuropathic pain in 2004. The overall
`neuropathic pain market is expected to reach $3.5 billion in 2014, with an expected patient population of over three million, according to
`WWMR, Inc., a pharmaceutical market research firm.
`
`Clinical Program
`Phase 2 Postherpetic Neuralgia Study. We conducted a randomized, double-blind, placebo-controlled Phase 2 trial of 158 PHN patients.
`We reported the results of the study in January 2006. Patients were randomized into three treatment groups for four weeks of treatment:
`placebo, an 1800mg total daily dose of Gabapentin GR given once daily, and an 1800mg total daily dose of Gabapentin GR given twice daily.
`The primary objective of the study was to assess the relative efficacy of Gabapentin GR once-daily, twice-daily, and placebo in reducing PHN
`patients’ average daily pain scores from baseline to the end of a four-week treatment period on the basis of the Likert pain scale, and 11-point
`numerical rating scale used to assess pain intensity. Secondary objectives included assessments of changes from baseline in sleep interference,
`and additional patient and clinician assessments of pain.
`Reductions in average daily pain scores were statistically significant with twice-daily Gabapentin GR from week two to the end of
`treatment based on the Likert pain scale. Clinically significant improvements in the score were observed with mean change from baseline to
`study end of -2.24 compared to -1.29 for placebo (p= 0.014). The secondary endpoint of sleep interference was also statistically significantly
`different, with sleep i