Shares of Depomed (DEPO) are plunging after the company reported weaker than expected second quarter results and lowered its guidance. Reacting to the announcement, Janney Capital and Morgan Stanley downgraded the stock to Neutral and Underweight, respectively.

RESULTS: Last night, Depomed reported second quarter earnings per share of 8c, which was below consensus of 9c, and announced revenue of $100M for the quarter, beating the expected $99.42M. The company also said it sees 2017 revenue of $400M-$415M, compared to consensus of $418M and the company's prior view of $410M-$430M issued in May.

MOVING TO THE SIDELINES: In a post-earnings note to investors, Janney Capital analyst Ken Trbovich downgraded Depomed to Neutral from Buy after another "disappointment." While the company had pre-released second quarter results just weeks ago and had reaffirmed its full year guidance, Depomed surprised by lowering its full-year outlook for revenues and raising its expense guidance, the analyst pointed out. Trbovich noted that the revised guidance seems to be an admission that the challenges facing its business are far greater to overcome than fixing the sales force realignment implemented by the prior CEO. Further, the analyst argued that the new CEO's hope for demonstrating separation for negative industry trends for opioids by year-end has been replaced by the possibility it happens sometime next year. He also cut his fair value estimate on the stock to $8 from $18.

SELL DEPOMED: Meanwhile, Morgan Stanley analyst David Risinger downgraded Depomed this morning to Underweight, a sell-equivalent rating, as he fears it will continue to underperform given pressures on the company's number one franchise, Nucynta, an opioid for pain. The analyst pointed out that opioid prescription market declines are driving lower Nucynta sales than expected, even though it has gained some market share. Government officials have been voicing increasing concerns about the opioid crisis in America, and they are intent on driving use down, Risinger said, adding that it appears that Nucynta will continue to be under pressure. Moreover, the analyst highlighted that IMS prescription market trends indicate that short-acting opioids are declining 8% year over year and long-acting opioids are declining 11% year over year. While saying it is unclear if new management appointed earlier this year and the company's board can unlock value, Risinger noted he learned that activist board member Gavin Molinelli of Starboard will shift from the Board Member seat he assumed in March 2017 to "Board Observer" on August 15. He also lowered his price target on Depomed's shares to $5 from $12.

OPIOID ENVIRONMENT: On June 8, Depomed and Insys Therapeutics (INSY) were under pressure after the Food and Drug Administration requested that Endo Pharmaceuticals (ENDP) remove its opioid pain medication, reformulated Opana ER, from the market. After careful consideration, the agency is seeking removal based on its concern that the benefits of the drug may no longer outweigh its risks, the FDA stated. This was the first time the agency has taken steps to remove a currently marketed opioid pain medication from sale due to the public health consequences of abuse.

PRICE ACTION: In morning trading, shares of Depomed have dropped $3.01, or 32.5%, to $6.22.