Soon after reporting that Collegium Pharmaceutical (NASDAQ: COLL) will just take more than commercializing its leading-selling drug, Nucynta, Depomed Inc. (NASDAQ: DEPO) shares rallied 10% yesterday. The pact is excellent information for the organization due to the fact its profits and financial gain have been slipping this 12 months thanks to waning need for Nucynta. Does this deal make Depomed a get?

Exit, stage still left

Depomed in all probability needs it had a do-more than on Nucynta. It acquired the opioid painkiller from Johnson & Johnson (NYSE: JNJ) in 2015 for $1 billion shortly right before opioid prescription volume fell off a cliff due to the fact of the opioid epidemic.

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Graphic Source: GETTY Pictures.

While Depomed can’t convert again the clock on acquiring Nucynta, it announced currently that Collegium Pharmaceutical has agreed to license it from them.

Collegium Pharmaceutical will shell out Depomed $10 million up front, moreover a bare minimum licensing cost of $135 million for each 12 months for four a long time, compensated quarterly in arrears.

If Nucynta’s profits eclipse $233 million for each 12 months, then Collegium Pharmaceutical will also shell out Depomed a double-digit royalty on all those profits on leading of the bare minimum license cost. Soon after four a long time, Depomed will get double-digit royalties on all net profits.

The deal is anticipated to shut in January 2018, and Collegium Pharmaceutical suggests it expects Nucynta will immediately add to its earnings. The organization will current market Nucynta using its existing profits drive for Xtampza ER, an abuse-deterrent opioid treatment.

A necessary choice

Soon after it acquired Nucynta, Depomed touted it as an undermarketed ache reliever with billion-greenback blockbuster prospective. In fact, Depomed was so enamored with Nucynta’s prospective that it rejected a $33 for each share acquisition give from Horizon Pharmaceutical (NASDAQ: HZNP) only months following outbidding Horizon for Nucynta.

Clearly, rejecting that give was a blunder.

To begin with, Nucynta’s profits enhanced due to the fact Depomed developed up a dedicated profits drive for it, but Nucynta’s profits have fallen in the earlier 12 months as medical practitioners have sought out possibilities to opioid remedies. Through the first 9 months of 2017, Nucynta’s profits were being $183 million, down from $207 million in the exact same period of 2016. The drop has taken a toll on Depomed’s profitability, way too. The company’s 12 months-to-day running reduction is $nine.five million, reversing a get of $six.six million in the exact same period final 12 months.

What is actually the takeaway

In the quick term, licensing Nucynta to Collegium Pharmaceutical could be a get for Depomed due to the fact it gives it with high-margin licensing profits more than the next four a long time. It could also be a get for Collegium Pharmaceutical if Nucynta’s profits stabilize and it can correctly leverage all those profits in opposition to fees it is really currently investing to current market Xtampza ER.

In the long run, having said that, whether this deal is a longer-term success depends on how the current market for opioids modifications. You can find a massive press to establish ache relievers that don’t pose the exact same hazard of abuse as opioids, and if all those initiatives outcome in Food and drug administration approvals, Nucynta’s volume’s likely to hold on slipping.

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Todd Campbell has no placement in any of the stocks talked about. His consumers might have positions in the firms talked about. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure plan .

The sights and opinions expressed herein are the sights and opinions of the author and do not automatically mirror all those of Nasdaq, Inc.

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