Depomed's Board of Directors Rejects Horizon Pharma plc's Unsolicited Exchange Offer
"Our Board of Directors unanimously concluded that Horizon's unsolicited exchange offer significantly undervalues
In reaching its recommendation that shareholders reject Horizon's exchange offer, the Depomed Board of Directors ("Depomed Board") considered numerous factors in consultation with
YOUR DEPOMED BOARD RECOMMENDS THAT YOU REJECT
Dear Depomed Shareholder,
As you may know, on
After a thorough review of Horizon's offer, your Board of Directors, in consultation with its financial and legal advisors, has unanimously determined that the offer significantly undervalues
Your Board Unanimously Recommends You NOT Tender Your Shares Into the Exchange Offer or Sign Any Proxy Cards Sent by Horizon.
Your Board's Solicitation / Recommendation Statement on Schedule 14D-9 details the reasons that formed the basis of your Board's recommendation regarding the exchange offer. We urge you to carefully review them, and the rest of the Schedule 14D-9.
WE STRONGLY BELIEVE THE HORIZON OFFER IS AN OPPORTUNISTIC EFFORT TO ACQUIRE YOUR DEPOMED SHARES AT AN INADEQUATE PRICE
The exchange offer recently commenced by Horizon is nothing but the latest step taken in a campaign by Horizon to buy your
- We believe Horizon disingenuously mischaracterizes the value of its offer: Based on the value of Horizon's shares on the last trading day prior to the commencement of its exchange offer on
September 8, its fixed exchange ratio offer had a value of $27.93. However, Horizon is telling you that its offer has a value of $33.00per share. It is clear to us, and should be to you, that such actions tell you everything you need to know about Horizon's objectives in this process, and the extent to which Horizon will go to put its own interests ahead of yours.
- In our view Horizon opportunistically timed its unsolicited takeover proposal: In April,
Depomedpublicly announced that we would re-launch our recently acquired NUCYNTA® franchise in June 2015. In fact, in June Depomed trained and deployed 275 sales specialists to sell NUCYNTA on behalf of the Company and resumed significant marketing and medical support for the brand. We believe that Horizon timed its acquisition proposal to preempt our expected positive impact on NUCYNTA prescription demand and revenue.
In addition, since the public announcement of Horizon's unsolicited proposal on
Depomedannounced record second quarter earnings results that exceeded analysts' expectations, increased its cash and cash equivalents by $55 millionover the first quarter of 2015, and raised its financial guidance for 2015.
- NUCYNTA ER prescriptions reached their highest level in almost three years for the week ended
September 4, 2015.
- NUCYNTA ER prescription growth has accelerated, growing by 15.5% year-over-year on a four-week rolling basis for the period ended
September 4, 2015compared to 3.6% on the same basis immediately prior to Depomed'sre-launch of NUCYNTA ER in June 2015(the week ended June 5, 2015).
- Analysts increased their projected annual revenue growth rate from the midpoint of 2015 guidance through 2018 for
Depomedto 26% as of September 11, 2015, which is significantly higher than Horizon's projected annual revenue growth rate of 17% from the midpoint of 2015 guidance through 2018 as of the same date.
- We received confirmation that all of
Depomed'sproducts will be covered by one or more of the major prescription benefit managers ("PBMs") in the U.S. through 2016.
- We do not believe the Offer appropriately reflects
Depomed'scontribution to the pro forma enterprise: Based on research analysts' current median estimates, Depomed'srevenue contributions in 2016, 2017, and 2018 would imply ownership of 32%, 33%, and 34%, respectively, of the combined company on a pro forma basis, not giving effect to any significant price increases that we believe Horizon would implement, consistent with its historical practice, across Depomed'sproducts., , , , 
However, based on Horizon's exchange offer,
- We believe that Horizon is improperly using
Depomed'shighly confidential information: Depomedhas filed a complaint against Horizon in the Superior Court of the State of Californiafor the County of Santa Claraalleging Horizon's acquisition proposal is predicated on Horizon's improper use of our highly confidential and proprietary information related to the NUCYNTA franchise that Horizon acquired in connection with its failed attempt to acquire the products. We believe Horizon's access to this information provides Horizon with unique insight into the value of the NUCYNTA franchise, including the strength of the patents covering the products as well as the commercial prospects for the NUCYNTA franchise. We believe that based on this information, Horizon quickly moved to attempt to acquire Depomedbefore we had the opportunity to (1) re-launch the franchise and (2) announce our record financial results for the second quarter of 2015, our first quarter distributing NUCYNTA and NUCYNTA ER.
WE BELIEVE DEPOMED WILL CONTINUE TO DELIVER TREMENDOUS VALUE TO SHAREHOLDERS
We strongly believe that
The following are only some of the other important milestones your Board and management team have achieved in their continuous effort to deliver value to you, our shareholders:
- We believe our financial performance is strong:
- At the midpoint of
Depomed'supdated 2015 guidance, Depomed'sproduct sales will achieve a compounded annual growth rate of 129% since 2012.
- We reported
$94.3 millionnet product sales in the second quarter of 2015, which is an all-time high, an increase of 234% compared to the second quarter of 2014 and 198% compared to the first quarter of 2015.
- Cash and marketable securities increased by
$55 millionin the second quarter of 2015 from the prior quarter.
- At the midpoint of
- We strongly believe we have successfully executed our acquisition and commercialization strategy: Most recently, in
April 2015, we acquired the U.S. rights to the NUCYNTA franchise, which we believe has the potential to exceed $1 billionin annual net sales. Net sales of NUCYNTA for the second quarter of 2015, our first quarter selling the products, were $56.7 million. NUCYNTA and NUCYNTA ER are the only products approved by the Food and Drug Administration(the " FDA") that contain tapentadol, the only new chemical entity approved in the Schedule II opioid drug class in the last 30 years. As another example, since launching our proprietary Gralise® product in the fourth quarter of 2011, we have grown quarterly net sales of Gralise to $20.9 million, an increase of approximately 38% compared to the second quarter of 2014. Gralise is the only FDA-approved once-daily formulation of gabapentin.
- We financed our commercial expansion and acquisitions with minimal equity dilution to our shareholders: We last sold shares of Common Stock in a
$20.9 millionequity financing completed in April 2007. Since then, we have earned more than $500 millionin payments in connection with our license and development transactions and intellectual property litigation, including $240.5 millionfrom the sale of our interests in royalty and milestone payments under our license agreements in the Type 2 diabetes therapeutic area to PDL BioPharma, Inc.
- We expect to execute further accretive transactions: We continue to actively pursue additional acquisitions, targeting products with lengthy exclusivity and future peak sales.
- The NUCYNTA franchise is, in our view, a transformational value driver for
Depomedthat will significantly increase Depomed'sEBITDA and cash flow in 2015 and beyond: The NUCYNTA franchise, our flagship products in the multi-billion dollar pain market, was officially re-launched by Depomedin mid-June 2015. Depomed'scommercialization strategy for the NUCYNTA franchise is focused on (i) significantly increased promotion and marketing efforts, (ii) revamped product positioning and messaging, (iii) optimized pricing and access, and (iv) educating physicians on proper dosing and titration of the products.
- We believe
Depomed'ssuccess defending and enforcing its intellectual property and product exclusivity rights is among the best in our industry and positions us to continue to deliver long-term value to shareholders: We expect lengthy periods of market exclusivity for our products. For example, the active pharmaceutical ingredient in NUCYNTA and NUCYNTA ER is tapentadol, a new chemical entity. The latest to expire of the Orange Book listed patents covering the products expire in June 2025and September 2028for NUCYNTA and NUCYNTA ER, respectively. We expect to receive an additional six-month pediatric extension of patent exclusivity for both NUCYNTA and NUCYNTA ER.
IN OUR VIEW THE URGENCY OF HORIZON'S ACTIONS IS DRIVEN BY CONCERNS WITH THE SUSTAINABILITY OF ITS BUSINESS MODEL
We believe that Horizon's urgency in launching its exchange offer evidences Horizon's concerns with the sustainability of its own risky business model and uncertain long-term growth prospects, which in turn contrasts significantly with what we believe to be a significantly more durable, sustainable business that
- We believe the frequency and magnitude of Horizon's price increases are unsustainable: Horizon has implemented dramatically high price increases across most of its product portfolio, including increases of over 1,500% for Rayos® and nearly 1,200% for Vimovo® since those products were acquired or launched in 2012 and 2013, respectively. We do not believe these pricing strategies are conducive to building a stable and sustainable company that will create and deliver long-term value for its shareholders.
- Many of Horizon's drugs have recently been removed from the largest PBMs: Due to Horizon's dramatic price increases and what, in our view, is a lack of meaningful product differentiation, many of Horizon's drugs have recently been removed from the largest PBM drug formularies and remain on the exclusion lists of the two largest PBMs through 2016.
We believe that as Horizon continues to increase the prices of its products well beyond the prices of competitive products, the trend of Horizon products being excluded from drug formularies may accelerate, posing further risks to Horizon's business and long-term prospects.
- In our view Horizon's Prescriptions Made Easy ("PME") drug discount program has caused significant deterioration to Horizon's realized net sales as a percentage of gross sales ("gross to net"): Horizon's drug formulary exclusions have resulted in millions of patients not having access to Horizon products through their health insurance plans. Through Horizon's PME drug discount program, Horizon covers up to 100% of the cost of its products that are not covered by such plans. Although Horizon believes that the continued expansion of its PME program will allow it to mitigate the impact of the drug formulary exclusions, we believe that Horizon's reliance on PME discounts to generate growth in prescription volumes has caused significant deterioration in Horizon's gross to net for many of its products. For example, the net sales as a percent of gross sales for each of Rayos and Pennsaid® 2% dropped from 60% to 45% and 36% to 27%, respectively, from the first quarter of 2015 to the second quarter of 2015.
- We believe Horizon faces significant risks with respect to its intellectual property: We believe that Horizon faces significant intellectual property risks with respect to its portfolio, including multiple Abbreviated New Drug Application ("ANDA") lawsuits and IPRs. By way of example, Horizon has filed a Notice of Opposition against a third party's European Patent (EP 2611457) covering compositions and methods for treating Friedrich's Ataxia with interferon gamma (e.g., Actimmune®). We note there is a corresponding US Patent application filed by such third party pending (US 20130156734 A1, titled "Compositions and Methods for Treating Friedreich's Ataxia with Interferon Gamma").
- We believe Horizon's business model leads to significant volatility in the price of Horizon stock: In our view the risks of Horizon's business model create significant volatility in the price of Horizon stock. By way of example, during the three-month period ended
September 11, 2015, Horizon's closing stock price has ranged between $27.37 and $38.45.
Based on the factors noted above, the Depomed Board believes Horizon has an urgent need to mitigate the significant business risks noted above.
In contrast to Horizon's business issues, we strongly believe in
We urge you to NOT Tender into the Horizon Exchange Offer or Sign any white or blue proxy card from Horizon. Please sign and return
Your Board of Directors and management team will continue to act in the best interests of
Thank you for your continued support.
James A. Schoeneck
Peter D. Staple
Chief Executive Officer
The statements that are not historical facts contained in this release are forward-looking statements that involve risks and uncertainties including, but not limited to, those related to
Important Additional Information
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities.
Certain Information Regarding Participants
Innisfree M&A Incorporated
 Based on published median metrics from selected analysts since each company revised its guidance (
 Equity ownership based on exchange ratio of 0.95 of an ordinary share of Horizon per
 Based on published median metrics from selected analysts since each company revised its guidance (
 Ownership percentage based on fully diluted shares outstanding using the Treasury Stock Method for options and net share settlement method for
 Ownership percentage for
 Includes make-whole on
 See endnotes 2, 3, 5 and 6.
 There can be no assurance that the anticipated results will be achieved.
 Exclusivity with respect to our specific drugs not necessarily assure sustained or increased revenue growth given the risk associated with competition from generic and non-generic products with similar treatment profiles.
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