Here's Why DepoMed (DEPO) Stock Is Falling Today
NEW YORK (TheStreet) -- DepoMed (DEPO) stock is lower by 3.44% to $20.48 in afternoon trading on Wednesday, as Express Scripts's (ESRX) decision to sever ties with specialty pharmacy Linden Care inflates concern about the relationship between drug makers and pharmaceutical companies.
Express Scripts decided to cut ties with the specialty pharmacy after discovering it sells drugs from Horizon Pharma (HZNP), which has been facing heightened scrutiny about its drug pricing practices.
On numerous occasions, DepoMed has rejected an unsolicited buyout offer from Horizon, and generates only 0.5% of its sales from Linden Care, Janney analyst Ken Trbovich said, according to Barron's.
Horizon generates upwards of 70% to 75% of its business by working with specialty pharmacies, Trbovich adds, Barron's reports. DepoMed generates less than 5% of its business through this distribution method.
"Today's sell off in DEPO is unwarranted given its limited exposure to the use of specialty pharmacies for distribution and even smaller exposure to Linden Care specifically," Trbovich said, Barron's notes.
Separately, TheStreet Ratings team rates DEPOMED INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate DEPOMED INC (DEPO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 39.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market on the basis of return on equity, DEPOMED INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 269.9% when compared to the same quarter one year ago, falling from $12.75 million to -$21.65 million.
- You can view the full analysis from the report here: DEPO
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.