* Raises offer from $29.25/shr to $32.25 to latest $33

* New offer could dissuade potential rival bidders-analyst

* Mulling options to add pressure on Depomed-Horizon CEO

* Depomed shares hit record high, Horizon shares up 1.5 pct (Adds Depomed response, updates shares)

By Vidya L Nathan

July 21 (Reuters) - Ireland-based Horizon Pharma Plc raised its offer to buy Depomed Inc for the second time in two months, pushing ahead with its hostile bid, now worth $1.97 billion, for the smaller drugmaker.

However, Horizon Pharma said its latest all-stock offer of $33 per share is contingent on Depomed starting takeover talks. Depomed has rejected the previous two offers and even adopted a poison pill to stave off a takeover.

Depomed said Horizon's latest offer did not reflect an increase in Depomed stockholders' total stake in the combined company and does not change the Horizon stock Depomed shareholders would receive.

The California-based company said it would evaluate the latest offer.

Depomed shares rose as much as 3 percent to a record of $33.74 on Tuesday. Horizon Pharma's shares fell 2 percent to $37.51, losing some of their earlier gains.

A deal with Depomed, which acquired Johnson & Johnson's pain drug portfolio Nucynta in January, is expected to nearly double Horizon's portfolio of marketed painkillers.

"We need to be disciplined and there is only so high we can go and still be comfortable with the valuation of the transaction," Horizon Pharma Chief Executive Timothy Walbert told Reuters. "So it is important that they engage at this price."

Horizon Pharma first offered to buy Depomed for $29.25 per share, or about $1.74 billion, on July 7 and later raised its offer to $32.25 per share.

"In the mid $30's, valuation is lofty and likely becoming a hurdle for other bidders," RBC Capital Markets' Randall Stanicky said. He had earlier modeled a $35 takeout price for Depomed and had expected Endo International Plc to make an offer.

CEO Walbert said Horizon Pharma was considering other options to pile pressure on Depomed's board to start talks if it rejected the latest offer. He declined to specify.

Walbert said Depomed's largest shareholders and its own shareholders strongly support the deal. He estimates that half of Horizon Pharma shareholders own about 25 percent of Depomed stock.

Horizon Pharma has drugs to treat genetic disorders related to immunity and metabolism and four pain treatments on the market. Depomed has five pain treatments, including its flagship product Nucynta.

The deal value was calculated based on the 59.6 million Depomed shares outstanding as of March 31.

(Additional reporting by Natalie Grover in Bengaluru; Editing by Savio D'Souza and Saumyadeb Chakrabarty)