Leerink starts Depomed at outperform

Leerink Partners has initiated coverage of Depomed (NASDAQ:DEPO) with an “outperform” rating and $21 price target. The stock closed at $14.62 on Wednesday.

“Depomed’s Nucynta for chronic pain provides a differentiated and durable growth asset, and we expect shares to appreciate over the next 12 months, driven by a Nucynta patent settlement and continued acceleration of script trends,” writes analyst Jason Gerberry.

The market for opioid therapy (chronic pain) is crowded and increasingly competitive, but “we see Nucynta as well positioned for growth based on recent quarter script data, upsized sales force, and a compelling value proposition that includes reduced GI side effects and novel mechanism,” he added.

With Nucynta driving two-thirds of Mr. Gerberry’s 2016-to-2022 sales forecast, he views a patent settlement in late 2023 as an important catalyst, and views Nucynta’s composition-of-matter patent as strong.

Nucynta sales were $235-million in 2015 and the company is guiding to $500-million in sales by 2018, which presumes, among other things, that the drug takes share from market leading, OxyContin, and its passes along 7% to 8% year-over-year pricing growth, he added.

On constipation side effects, he said Nucynta reported lower comparative rates versus OxyContin, which is a big drawback to opioids.