Immediately after reporting that Collegium Pharmaceutical (NASDAQ: COLL) will get more than commercializing its top rated-selling drug, Nucynta, Depomed Inc. (NASDAQ: DEPO) shares rallied ten% yesterday. The pact is superior news for the organization due to the fact its earnings and profit have been slipping this year because of to waning demand for Nucynta. Does this offer make Depomed a acquire?

Exit, phase left

Depomed in all probability wishes it experienced a do-more than on Nucynta. It obtained the opioid painkiller from Johnson & Johnson (NYSE: JNJ) in 2015 for $one billion soon right before opioid prescription quantity fell off a cliff due to the fact of the opioid epidemic.

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When Depomed are not able to transform back the clock on attaining Nucynta, it announced nowadays that Collegium Pharmaceutical has agreed to license it from them.

Collegium Pharmaceutical will spend Depomed $ten million up entrance, as well as a minimum licensing fee of $a hundred thirty five million for every year for 4 decades, paid quarterly in arrears.

If Nucynta’s gross sales eclipse $233 million for every year, then Collegium Pharmaceutical will also spend Depomed a double-digit royalty on individuals gross sales on top rated of the minimum license fee. Immediately after 4 decades, Depomed will receive double-digit royalties on all internet gross sales.

The offer is anticipated to near in January 2018, and Collegium Pharmaceutical says it expects Nucynta will promptly incorporate to its earnings. The organization will market place Nucynta making use of its present gross sales power for Xtampza ER, an abuse-deterrent opioid medication.

A necessary choice

Immediately after it obtained Nucynta, Depomed touted it as an undermarketed agony reliever with billion-dollar blockbuster prospective. In reality, Depomed was so enamored with Nucynta’s prospective that it turned down a $33 for every share acquisition provide from Horizon Pharmaceutical (NASDAQ: HZNP) only months following outbidding Horizon for Nucynta.

Clearly, rejecting that provide was a blunder.

To begin with, Nucynta’s gross sales greater due to the fact Depomed developed up a committed gross sales power for it, but Nucynta’s gross sales have fallen in the earlier year as physicians have sought out options to opioid prescription drugs. Through the 1st nine months of 2017, Nucynta’s gross sales were being $183 million, down from $207 million in the identical interval of 2016. The decline has taken a toll on Depomed’s profitability, far too. The company’s year-to-day working reduction is $nine.five million, reversing a acquire of $6.6 million in the identical interval very last year.

What is the takeaway

In the small expression, licensing Nucynta to Collegium Pharmaceutical could be a win for Depomed due to the fact it provides it with higher-margin licensing earnings more than the upcoming 4 decades. It could also be a win for Collegium Pharmaceutical if Nucynta’s gross sales stabilize and it can productively leverage individuals gross sales from expenses it is really already expending to market place Xtampza ER.

In the long run, however, no matter whether this offer is a lengthier-expression achievements relies upon on how the market place for opioids alterations. You will find a big push to acquire agony relievers that really don’t pose the identical risk of abuse as opioids, and if individuals efforts final result in Fda approvals, Nucynta’s volume’s probable to continue to keep on slipping.

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Todd Campbell has no situation in any of the stocks mentioned. His clients may well have positions in the organizations mentioned. The Motley Fool owns shares of and endorses Johnson & Johnson. The Motley Fool has a disclosure coverage .

The views and thoughts expressed herein are the views and thoughts of the author and do not essentially reflect individuals of Nasdaq, Inc.

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