SiliconBeat

Depomed got a new major shareholder earlier this month when Kings Road Investments converted 18,158 shares of the company’s preferred stock it owned into 2.9 million shares of the Menlo Park developer of drug-delivery technology. The stake made the London-based investor Depomed’s third largest shareholder.

But the investors stake didn’t come cheap, despite the fact that Depomed shares have fallen more than 40 percent from a 52-week high of $4.52 in August, closing at $2.60 Wednesday, .

Kings Road ended up paying in effect a considerable premium for its shares.  The preferred shares it held were valued at about $18.2 million when they were converted into common stock at the pre-established conversion price of $6.50 a share, nearly twice what you or I could have paid for a share of Depomed on the open market the day the conversion took place.

Kings Road is might have paid even more had it not struck an agreement with Depomed back in 2004.

The preferred stock was originally issued in January 2000 with an original price for converting the shares into common stock at $12 a share. That was later reduced to $9.51 following financings the company arranged in 2002 and 2003. The conversion price was lowered again in December 2004 to $7.12 per share to clear up a “misunderstanding” about prior adjustments made in the conversion rate, according to an  SEC filing Wednesday. And that rate was to be reduced in effect by 4.8 percent per year until the agreement was to lapse this coming January.

Coincidentally, that’s the same month that Depomed’s chief executive is to get a fully vested 30,000-share stock award to compensate him for a more than 100 percent increase in the price of certain options he was granted last year when he was hired, that we posted on in February.

Depomed began a Phase III clinical trial last month for its extended-release version of a drug treatment for menopausal hot flashes.