Depomed Rejected Horizon Pharma's Takeout Bid, But Still Trades As If M&A Is Happening

In a report published Thursday, RBC Capital analyst Randall Stanicky downgraded the rating on Depomed, Inc. (NASDAQ: DEPO) from Outperform to Sector Perform, while raising the price target from $26 to $32. While the company reported strong 2Q results and raised its 2015 guidance, Depomed also formally reject the latest unsolicited stock offer from Horizon Pharma PLC (NASDAQ: HZNP).Although the risk/reward appears more balanced now, the stock has risen over 98 percent, year to date. The analyst believes that valuation could be a hurdle for other bidders, limiting upside to the stock.On the other hand, if Depomed continues as a standalone, the analyst believes that there could be downside risk of 25 percent, adding that "the process could be drawn out as DEPO clearly does not appear to be a willing seller in an equity based deal."With NUCYNTA scheduled to be re-launched, it would prove to be key to the value. The management sees "bockbuster" potential in the drug till the end of its patent, with 2020 revenue expected at $500 million.In addition, according to the RBC Capital report, "[T]he company suggested it is actively engaged in discussions to acquire additional products having looked at >60 deals in 1H2015 and that tax inversion opportunities would be on the table."