UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-K
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`
`
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`
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`Annual Report Pursuant to Section 13 or 15(d) of the Securities
`Exchange Act of 1934
`
`
`Table of Contents
`
`(Mark
`One)
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` (cid:3)
`
`
`For the fiscal year ended December 31, 2009
`
`OR
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`Transition Report Pursuant to Section 13 or 15(d) of the Securities
`Exchange Act of 1934
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`
`For the transition period from: to
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`Commission File Number: 001-13111
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`DEPOMED, INC.
`(Exact Name of Registrant as Specified in its Charter)
`
`California
`(State or other jurisdiction of
`incorporation or organization)
`
`1360 O'Brien Drive, Menlo Park, California
`(Address of principal executive offices)
`
`
`
`
`
`
`
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`94-3229046
`(I.R.S. Employer Identification No.)
`
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`94025
`(Zip Code)
`
`Registrant's telephone number, including area code: (650) 462-5900
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`Securities registered pursuant to Section 12(b) of the Act:
`
`Title of each class
`Common Stock, no par
`value
`
`
`
`
`
`Name of each exchange on which
`registered
`The NASDAQ Stock
`Market LLC
`
`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 (cid:3)
`
` 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 (cid:3)
`
` 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 (cid:3) No
`
` Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
`
`

`

`Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
`12 months (or for such shorter period that the registrant was required to submit and post such files). 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. (cid:3)
`
` 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
`
`Accelerated filer (cid:3)
`
`
`Non-accelerated filer
`(Do not check if a smaller
`reporting company)
`
`Smaller reporting company
`
` Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No (cid:3)
`
` 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, 2009 was approximately $143,091,000. Shares of Common Stock held by
`each officer and director and by each person who owned 10% or more of the outstanding Common Stock as of June 30, 2009 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 5, 2010 was 52,330,443.
`
`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 2010 Annual Meeting of Shareholders, expected to be held on or about May 20, 2010, are
`incorporated by reference in Part III of this Form 10-K.
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`

`

`Table of Contents
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`
`
`Business
`Item 1.
`Item 1A. Risk Factors
`Item 1B. Unresolved Staff Comments
`Item 2.
` Properties
`Item 3.
` Legal Proceedings
`Item 4.
` Reserved
`
`
`
`DEPOMED, INC.
`
`2009 FORM 10-K REPORT
`
`TABLE OF CONTENTS
`
`PART I
`
`PART II
`
`
`
`Item 5.
`
`Item 6.
`Item 7.
`
`Market for the Registrant's Common Equity, Related Shareholder Matters and
`Issuer Purchases of Equity Securities
` Selected Financial Data
` Management's Discussion and Analysis of Financial Condition and Results of
`Operations
`Item 7A. Quantitative and Qualitative Disclosures about Market Risk
`Item 8.
` Financial Statements and Supplementary Data
`Item 9.
` Changes in and Disagreements with Accountants on Accounting and Financial
`Disclosure
`Item 9A. Controls and Procedures
`Item 9B. Other Information
`
`
`PART III
`
`
`
`Directors, Executive Officers and Corporate Governance
`Item 10.
`Item 11. Executive Compensation
`Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
`Shareholder Matters
`Item 13. Certain Relationships and Related Transactions, and Director's Independence
`Item 14. Principal Accountant Fees and Services
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`Item 15.
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`Exhibits and Financial Statement Schedules
` Signatures
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`PART IV
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` PAGE
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`Table of Contents
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`
`NOTE REGARDING FORWARD-LOOKING STATEMENTS
`
` 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:
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`regulatory filings and approval of DM-1796 for postherpetic neuralgia;
`
`the commercial success and market acceptance of DM-1796 if it is approved for marketing in the United States, and the efforts
`of Abbott Laboratories' subsidiary, Solvay Pharmaceuticals, Inc. (Solvay), with respect to the commercialization of DM-1796;
`
`results and timing of our clinical trials, including the results of our Serada™ Phase 3 trial for menopausal hot flashes;
`
`the commercial success and market acceptance of Serada if we receive approval to market Serada in the United States;
`
`the commercial success of GLUMETZA® (metformin hydrochloride extended release tablets) in the United States, and the
`efforts of Santarus, Inc. (Santarus) with respect to the commercialization of GLUMETZA;
`
`the results of our ongoing litigation against Lupin Limited (Lupin) related to Lupin's abbreviated New Drug Application
`(ANDA) to market generic GLUMETZA in the United States;
`
`the results of our research and development efforts;
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`submission, acceptance and approval of regulatory filings;
`
`our need for, and ability to raise additional capital;
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`our collaborative partners' compliance or non-compliance with their obligations under our agreements with them; 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 the " ITEM 1A. RISK FACTORS " section 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.depomed.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 principal executive offices are located at 1360 O'Brien Drive, Menlo Park,
`California 94025, and our telephone number is (650) 462-5900.
`
` Depomed®, Proquin®, and AcuForm® are registered trademarks of Depomed. Serada TM is a trademark of Depomed. GLUMETZA® is a
`registered trademark of Biovail Laboratories, 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.
`
`3
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`Table of Contents
`
`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. In 2009, we completed Phase 3 clinical trials
`for two product candidates. In October 2009, we announced that DM-1796, an extended release formulation of gabapentin for the treatment of
`postherpetic neuralgia that we have licensed to Abbott Laboratories' subsidiary, Solvay Pharmaceuticals, Inc. (Solvay) met its Phase 3 clinical
`trial primary endpoint with statistical significance. We anticipate a New Drug Application (NDA) for DM-1796 will be filed with the FDA in
`March 2010. Also in October 2009, we announced the results of Breeze 1 and Breeze 2, our Phase 3 clinical trials for Serada, our proprietary
`extended release formulation of gabapentin for the treatment of menopausal hot flashes. The higher dose formulation of Serada evaluated in the
`studies met five of eight co-primary endpoints across the two studies, while the lower dose formulation evaluated met four of eight co-primary
`endpoints. In December 2009, we met with the FDA to discuss the results of the Breeze 1 and Breeze 2 studies and any additional clinical
`development that may be required to obtain approval to market Serada in the United States. Based on guidance from the meeting with the FDA,
`we expect to initiate one additional Phase 3 trial for Serada by the end of April 2010.
`
` We seek to optimize the use and value of our product candidates and drug delivery technologies in three ways. First, we are seeking to
`assemble a number of pharmaceutical products that can be highly differentiated from immediate release versions of the compounds upon which
`they are based and may be promoted together within a specialty pharmaceutical field, such as women's health care providers. Our development
`of Serada, and our retention of co-promotion rights within the obstetrics/gynecology field in our commercialization arrangements with
`Covidien, Ltd. (Covidien) and Santarus, Inc. (Santarus), are examples of this aspect of our business strategy. Second, we out-license product
`candidates after we have increased their value through our formulation and clinical development efforts. Our DM-1796 license and
`development arrangement with Solvay is an example of this strategy. Third, we enter into collaborative partnerships with other companies
`where the unique capabilities of our technology can provide superior value to a partner's product candidate, resulting in greater value for
`Depomed than traditional fee-for-service arrangements. Our license and development arrangement with Covidien and our license agreement
`with Merck & Co., Inc. (Merck) are examples of this strategy.
`
` We have developed two products which have been approved by the FDA and are currently marketed. GLUMETZA is a once-daily
`treatment for adults with type 2 diabetes that we commercialize in the United States with Santarus. Proquin® XR (ciprofloxacin hydrochloride)
`is a once-daily treatment for uncomplicated urinary tract infections.
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`Table of Contents
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` The following table summarizes our product pipeline and marketed products.
`
`
`Status
`
`
`Product
`DM-1796
`
`
`Serada TM
`
`
`DM-3458
`
`DM-1992
`
`
`
`Indication
`
` Postherpetic neuralgia
`
`
`
`
`
`Menopausal hot flashes
`
`
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`
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`Gastroesophageal reflux disease
`
`Parkinson's disease
`
`
`GLUMETZA®
`
`
`
`
`
`Type 2 diabetes
`
`
`Proquin® XR
`
`
`
`
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`Uncomplicated urinary tract
`infections
`
`SIGNIFICANT DEVELOPMENTS DURING 2009
`
`Product Pipeline
`
`
` Phase 3 study completed.
`New Drug Application expected to be submitted to the FDA by March
`2010.
`Licensed to Solvay in the United States, Mexico and Canada.
`
`Phase 3 studies completed (Breeze 1 and Breeze 2).
`One additional Phase 3 study (Breeze 3) expected to be initiated in Q2
`2010.
`
`Proof of concept studies completed.
`
`Phase 1 study completed.
`Second Phase 1 study expected to be initiated in 2010.
`
`
`Marketed Products
`
`
`
`Currently sold in the United States and Canada.
`Co-promoted in the United States with Santarus.
`Canadian rights held by Biovail. Korean rights held by LG Life Sciences.
`
`Currently sold in the United States.
`European rights held by Rottapharm/Madaus.
`
`
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`
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`
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` Among the significant developments in our business during 2009 were the following:
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`In January 2009, our license agreement with Solvay related to DM-1796 became effective after clearance of the transaction
`under the HSR Antitrust Improvements Act of 1976. Pursuant to the agreement, Solvay paid us a $25.0 million upfront fee in
`February 2009.
`
`In February 2009 and in March 2009, we completed enrollment of our Breeze 1 and Breeze 2 Phase 3 clinical trials for Serada
`for the treatment of menopausal hot flashes.
`
`In February 2009, we dosed the first patient in a Phase 1 clinical trial for our DM-1992 program in Parkinson's disease.
`
`In June 2009, we completed enrollment of our Phase 3 clinical trial for DM-1796 for the treatment of postherpetic neuralgia.
`
`In May 2009, Shay Weisbrich was appointed as our Vice President, Marketing.
`
`In July 2009, we entered into a non-exclusive license agreement with Merck granting Merck a license to certain patents related
`to our metformin extended release technology to be used in developing fixed dose combinations of sitagliptin and extended
`release metformin. Pursuant to the agreement, Merck paid us a $10.0 million upfront fee in July 2009.
`
`In August 2009, we announced the results of our Phase 1 clinical trial for our DM-1992 program in Parkinson's disease.
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`In October 2009, we delivered the first formulation under our agreement with Covidien, which triggered a $0.5 million
`milestone payment to us.
`
`In October 2009, we announced the primary endpoint of reducing pain was met with statistical significance in our Phase 3
`clinical trial for DM-1796 for the treatment of postherpetic neuralgia.
`
`In October 2009, we announced the results of Breeze 1 and Breeze 2, our Phase 3 clinical trials for Serada for the treatment of
`menopausal hot flashes. The higher dose formulation of Serada (1800mg) evaluated in the studies met five of eight co-primary
`endpoints across the two studies, while the lower dose formulation (1200mg) evaluated met four of eight co-primary endpoints.
`
`In November 2009, William Callahan was appointed as our Vice President, Operations.
`
`In December 2009, we met with the FDA to discuss the results of the Breeze 1 and Breeze 2 studies and any additional clinical
`development that may be required to obtain approval to market Serada in the United States. Based on guidance from the FDA
`meeting, we plan to conduct one additional Phase 3 clinical trial for the 1800mg formulation of Serada.
`
`Total revenues for the year ended December 31, 2009 were $57.7 million, as compared to $34.8 million for the year ended
`December 31, 2008. Revenue for the year ended December 31, 2009 included recognition of $10.0 million associated with our
`license agreement with Merck. Revenue for the year ended December 31, 2008 included recognition of $6.3 million in
`previously deferred GLUMETZA product sales.
`
`Operating expenses for the year ended December 31, 2009 were $74.5 million, compared to operating expenses of $46.2 million
`for the year ended December 31, 2008. Operating expenses for 2008 included a $7.5 million gain on litigation related to the
`IVAX settlement, which had the effect of reducing operating expenses.
`
`Cash, cash equivalents and marketable securities were $81.8 million as of December 31, 2009, compared to $82.1 million as of
`December 31, 2008.
`
`RECENT PRODUCT DEVELOPMENTS AND TRANSACTIONS
`
`DM-1796 for Postherpetic Neuralgia
`
`General
`
` DM-1796 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.
`
` In November 2008, we entered into an Exclusive License Agreement with Solvay Pharmaceuticals, Inc. granting Solvay exclusive rights
`to develop and commercialize DM-1796 in the United States, Canada and Mexico for pain indications.
`
` 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 1 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.
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`Table of Contents
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`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 $5 billion in 2010, according to Datamonitor.
`
`Clinical Program
`
`2008/2009 Postherpetic Neuralgia Study .
`
` Study Design. In March 2008, we initiated dosing of the first patient in a Phase 3 clinical trial for DM-1796 for PHN. The study was a
`randomized, double-blind, placebo-controlled study of approximately 450 PHN patients. Patients in the study were randomized into two
`treatment arms: placebo, or 1800mg of DM-1796 dosed once daily. The study was conducted at sites in the United States, Russia and
`Argentina. In June 2009, the study was fully enrolled.
`
` The primary objective of the study was to assess the efficacy of DM-1796 in reducing the pain associated with PHN, measured from
`baseline pain scores to the end of a ten-week treatment period on the basis of the Likert pain scale. Secondary objectives were also evaluated,
`including assessments of sleep interference and quality of life.
`
` In October 2009, we announced that the primary endpoint was met with statistical significance.
`
` Efficacy. DM-1796 demonstrated a statistically significant reduction in pain associated with postherpetic neuralgia versus placebo using
`the baseline observation carried forward (BOCF) method required by FDA. The primary efficacy outcome observed in the study is set forth in
`the table below.
`
`Treatment Group
`1800mg
`placebo
`
`
`
`
`
`
`Reduction in pain score at 10 weeks
`-2.1 (p = 0.0125)
`-1.6
`
` Safety. DM-1796 was generally well tolerated in the study. The most common side effects observed in the study were somnolence and
`dizziness. The incidence of those side effects in each of the treatment groups for each study is set forth in the table below.
`
`Treatment Group
`1800mg
`placebo
`
`
`
`
`
`
`Somnolence (%)
`5
`3
`
`
`
`
`
`
`Dizziness (%)
`11
`2
`
` 2006/2007 Postherpetic Neuralgia Study. In May 2006, we initiated a Phase 3 clinical trial for DM-1796 for the treatment of PHN. The
`study was a randomized, double-blind, placebo-controlled study of approximately 400 PHN patients. The study was fully enrolled in early
`March 2007. Patients in the study were randomized into three treatment arms: placebo, a total daily dose of 1800mg of DM-1796 dosed once
`daily, and a total daily dose of 1800mg of DM 1796 dosed twice daily.
`
` The primary objective of the study was to assess the efficacy of DM-1796 in reducing the pain associated with PHN, measured from
`baseline pain scores to the end of a ten-week treatment period on the basis of the Likert pain scale. Secondary objectives include an assessment
`of changes from baseline in sleep interference, and additional patient and clinician assessments of pain and quality of life.
`
` In July 2007, we announced the primary endpoint was not achieved with statistical significance for either active treatment regimen, as
`compared to placebo, over the ten-week treatment period. The mean reductions in average daily pain scores from baseline to end of study were
`1.83 (once-daily), 1.72 (twice-daily) and 1.43 (placebo). However, statistical significance relative to placebo was achieved in
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`Table of Contents
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`each of the first seven weeks for the once-daily treatment arm and in each of the first four weeks for the twice-daily treatment arm.
`
` The secondary endpoints of sleep interference, Clinical Global Impression of Change (CGIC), a scale used by physicians for overall
`assessment of patient improvement, and Patient Global Impression of Change (PGIC), a scale used by patients to report their overall
`assessment of change, were all statistically significant for the once-daily treatment compared to placebo over the ten week study period. Sleep
`interference scores were reduced by 2.01 points with DM-1796 compared to -1.39 with placebo (p=0.014). Physicians reported that 48.0% of
`patients taking Gabapentin once-daily were "very much improved" or "much improved" compared to 27.1% of the patients who received
`placebo (p<0.001), as measured by the CGIC. Similar results were observed for the PGIC in the once-daily and placebo arms (p=0.009).
`
` Phase 2 Postherpetic Neuralgia Study. We conducted a randomized, double-blind, placebo-controlled Phase 2 trial of 158 PHN
`patients, and 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 DM-1796 given once daily, and an 1800mg total daily dose of DM-1796 given twice daily.
`The primary objective of the study was to assess the relative efficacy of DM-1796 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 DM-1796 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 interference scores reduced by -2.28 with DM-1796 compared to -1.16 with placebo (p=0.006).
`
` For once-daily DM-1796, there was an improvement in pain that did not reach statistical significance, with a reduction in mean daily pain
`score of -1.93 with DM-1796 compared to -1.29 with placebo (p= 0.089). Sleep Interference Scores were reduced by -1.94 compared to -1.16
`with placebo (p=0.048).
`
` There were no serious adverse events associated with DM-1796. The most common side effects observed were dizziness (22% in the
`once-daily arm, 11% in the twice-daily arm, and 10% in the placebo arm), and somnolence (9% in the once-daily arm, 8% in the twice-daily
`arm, and 8% in the placebo arm).
`
`Collaboration and Licensing Arrangements
`
` Solvay Pharmaceuticals, Inc. In November 2008, we entered into an exclusive license agreement with Solvay Pharmaceuticals, Inc.
`granting Solvay exclusive rights to develop and commercialize DM-1796 in the United States, Canada and Mexico for pain indications. The
`agreement became effective in January 2009, upon clearance of the transaction under the Hart-Scott-Rodino (HSR) Antitrust Improvements
`Act of 1976.
`
` Pursuant to the agreement, Solvay Pharmaceuticals paid us a $25 million upfront fee in February 2009. We are also eligible to receive
`aggregate milestone payments of up to $70 million for acceptance and FDA approval of the New Drug Application for DM-1796 for PHN, and
`up to $300 million in potential sales milestone payments. Solvay will pay us royalties of 14 to 20 percent of net product sales, depending on the
`level of net product sales.
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` We were responsible for completion of the Phase 3 clinical trial for DM-1796 in PHN, and are responsible for certain other regulatory
`support activities through NDA approval. Solvay will be responsible for NDA filing and has the option to develop DM-1796 in further pain
`indications other than PHN. If Solvay elects to develop DM-1796 in fibromyalgia, we have a right of first negotiation for co-promotion rights
`in the obstetrics/gynecology field upon fibromyalgia indication regulatory approval.
`
` We are responsible for the manufacture of DM-1796 for up to four years from the effective date of the License Agreement, pursuant to a
`supply agreement to be entered into by Depomed and Solvay in 2010. The License Agreement will expire with the last to expire of our patents
`covering DM-1796, subject to early termination in certain circumstances.
`
` Abbott Laboratories (Abbott) acquired the pharmaceutical business of Solvay in a transaction that closed in February 2010. Accordingly,
`Abbott is now responsible for our DM-1796 license arrangement, through its subsidiary, Solvay Pharmaceuticals, Inc.
`
`Serada™ for Menopausal Hot Flashes
`
`General
`
` We have an exclusive sublicense from PharmaNova, under United States Patent No. 6,310,098, held by the University of Rochester, to
`develop and commercialize in the United States a product that contains gabapentin as its active pharmaceutical ingredient, and is indicated for
`the treatment of menopausal hot flashes. We believe that Serada is an excellent non-hormonal product candidate for this indication, because our
`clinical study and numerous academic studies have demonstrated that gabapentin may be effective in treating hot flashes, and gabapentin has a
`long history of use in other indications.
`
`Hot Flashes
`
` A hot flash is a sudden flushing and sensation of heat caused by dilation of skin capillaries. Hot flashes are often associated with
`menopausal endocrine imbalance. The occurrence and frequency of hot flashes are unpredictable. Symptoms often associated with hot flashes
`include sweating, irritability and frustration.
`
` Hot flashes can begin early in menopause and are most common during the first few years after menopause begins. There are over
`40 million postmenopausal women more than 55 years old and about 2 million women enter menopause every year in the United States.
`Approximately 80% of those women suffer from hot flashes.
`
`Current Treatments; Target Market
`
` Currently, the leading prescription drug product for the treatment of hot flashes associated with menopause is hormone replacement
`therapy, or HRT, which involves the administration of the hormone estrogen, either alone or in combination with the hormone progestin. In
`2001, the HRT market represented more than $2 billion and in excess of 90 million prescriptions. In 2003, the Women's Health Initiative
`released the results of a clinical study that revealed an increased risk of blood clots, stroke, and breast cancer associated with HRT.
`Subsequently, in 2003, the HRT market decreased by more than $850 million and 34 million prescriptions relative to 2001. HRT prescriptions
`have declined to approximately 32 million prescriptions in 2008.
`
` Existing non-hormonal pharmaceutical alternatives to HRT for the treatment of hot flashes include off-label administration of anti-
`depressants. There is also a considerable market for dietary and herbal supplements for the treatment of hot flashes, although we are not aware
`of any clinical study demonstrating the safety and efficacy of any such treatment.
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`Table of Contents
`
`Clinical Program
`
` Phase 3 Study-Breeze 3 Clinical Trial. In December 2009, the Company met with the FDA regarding Serada for the treatment of
`menopausal hot flashes. Based on guidance reflected in the meeting minutes, Depomed plans to conduct a single additional pivotal Phase 3 trial
`evaluating Serada for the treatment of menopausal hot flashes. The company expects to initiate the trial, which will be known as Breeze 3, by
`the end of April 2010 and expects to complete the trial by the end of the first quarter of 2011. The FDA has agreed to review the proposed
`Breeze 3 study protocol under the FDA's Special Protocol Assessment (SPA) process.
`
` Study Design. Breeze 3 will be a randomized, double-blind, placebo-controlled study of up to 600 patients. Patients will be randomized
`into one of two treatment arms, with patients receiving either placebo or a total dose of 1800mg of Serada dosed 600mg in the morning and
`1200mg in the evening. The co-primary efficacy endpoints in the study will be reductions in the mean frequency of moderate-to-severe hot
`flashes, and the average severity of hot flashes, measured after four and 12 weeks of stable treatment. As in the prior Breeze 1 trial, the
`treatment duration of the study will be 24 weeks, to address the FDA's view that an effective drug should also show statistically significant
`persistence of efficacy at 24 weeks. The trial will also include a responder analysis to assess the clinical meaningfulness of any reduction in the
`frequency of hot flashes in the active arm relative to the placebo arm.
`
` Modifications to the design of Breeze 3 relative to Breeze 1 and 2 include: (i) a single active arm rather than two arms, and therefore a
`required statistical p value of .05 rather than .025 to achieve statistical significance; (ii) up to 65% more patients in the active treatment arm
`than in Breeze 1 and 2 (iii) a two-week run in period to prior to randomization, rather than one week, which is designed to reduce the regression
`to the mean observed in Breeze 1 and 2, resulting in a more stable baseline, and thereby potentially reducing the placebo effect; and (iv) an
`alternative statistical analysis method, known as a non-parametric analysis, that is designed to reduce the influence significant outliers can have
`on the achievement of efficacy endpoints.
`
`Phase 3 Study-Breeze 1 and 2 Clinical Trials.
`
` Study Design. We recently completed our Breeze 1 and 2 clinical trials evaluating Serada in menopausal