Labopharm shareholders hoping Twice is Nice

Shareholders of Laval, Quebec’s Labopharm (TSX:DDS) have had a tough few years. Shares of the pharmaceutical company, which specializes in control-release technologies, soared to over (US) $9 in 2006 as the company entered the once daily tramadol market. Tramadol is opioid analgesic, and is used in treating moderate to severe pain. The drug was developed by German Grünenthal GmbH in the late 1970’s and began to gain traction in the 1990’s. By 2008, sales of tramadol related products reached US $650 million.

In 2008 Labopharm received approval for its once daily tramadol drug, Ryzolt. But by this time the growing space was gathering a crowd; even in Canada Valeant (formerly Biovail) had a tramadol product, Ralivia, for sale in the United States. Sales of Ryzolt have been disappointing, but the balance sheet’s chronic pain has been eased somewhat by Labopharm’s third drug, an antidepressant treatment called Oleptro. Sales for the third quarter of 2010, which ended September 30th, were $9.6-million compared with $6.6-million for the third quarter of 2009, and the increase was mainly due to Oleptro’s US launch.

But 2011 may prove to be the year in which Labopharm shareholders put aside the disappointment of Ryzolt for good, and the reason has nothing to do with Oleptro. In October, Labopharm was granted European Union approval for a twice-daily tramadol product. Management believes that the sustained release formulation will instantly set it apart from other tramadol products, which are immediate release and must be taken four to six times daily. At least one analyst covering the company believes this may be the start of something bigger. Immediately after the approval, Versant Partners Douglas Loe, an analyst who is consistently ranked at or near the top of all biotech and healthcare analysts in Canada, upgraded his target price on Labopharm to $1.80 from $1.25. Loe said the approval was clearly a “positive regulatory advance that we believe mitigates risk to approval in other niche markets”

If the twice daily tramadol treatment takes off for Labopharm, the timing will be fortunate. Continued losses have driven the company’s share price to the point where it now faces a NASDAQ delisting for not trading above $1. The company trades under the symbol DDSS on that exchange. NASDAQ has given Labopharm until until June 27th of this year to regain compliance with the minimum closing bid price requirement.

Labopharm has grown its revenue from (US) $15.87 million in 2006 to $24.57 in 2009, but is still losing significant amounts of cash. The Company’s most recent quarter, which ended September 30th 2010, showed a loss of $7.23-million. This past Friday, January 21st, Labopharm’s (US) market cap of $67.28 million was 2.4 times trailing four quarter sales of $27.81 million.