Labopharm reports results for second quarter fiscal 2007



    LAVAL, QC, Aug. 9 /CNW/ - Labopharm Inc. (TSX: DDS; NASDAQ:   DDSS) today
reported its results for the second quarter of fiscal 2007, ended June 30,
2007. All figures are in Canadian dollars unless otherwise stated.
    "While approval of our once-daily tramadol formulation in the U.S.
remains our top priority, we are clearly building momentum throughout the rest
of the world in pursuit of the global commercialization of our product," said
James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc.
"In the past several months, our product has been approved in Canada and we
have completed three additional licensing and distribution agreements for
important markets around the world, including an agreement for Canada and our
first agreement in Asia. We look forward to launching our product in these and
other countries, beginning with Canada in the fall of this year. While the
ramp up in sales in Europe to date has been somewhat slower than anticipated,
we are encouraged both by the success of the launches in certain markets, as
well as the refinements that are being made to the launch programs in others.
At the same time, we have taken significant strides in advancing other
opportunities in our pipeline, including our first tramadol combination
product and a twice-daily acetaminophen product."

    
    Recent Developments

    Once-Daily Tramadol

    -  Received Regulatory Approval for Canada - Labopharm received a Notice
       of Compliance (NOC) from the Therapeutic Products Directorate of
       Health Canada for 100 mg, 200 mg and 300 mg tablets of its once-daily
       formulation of tramadol for the management of pain of moderate
       severity in adults who require treatment for several days or more.

    -  Secured Marketing Partnership for Canada - Labopharm completed a
       licensing and distribution agreement for once-daily tramadol for
       Canada with Paladin Labs. Labopharm's product, which will become the
       flagship product in Paladin's analgesic portfolio, is expected to be
       launched in the Fall.

    -  Secured Marketing Partnerships for South Korea and Greece - Labopharm
       completed two licensing and distribution agreements: WhanIn
       Pharmaceutical Co., Ltd. for South Korea; and Lavipharm S.A. for
       Greece. The Company expects its once-daily tramadol product to be
       launched in these markets in 2008.

    -  Poster Presented at International Forum on Pain Medicine - Labopharm
       presented a poster discussing the dose titration of its once-daily
       formulation of tramadol at the 3rd International Forum on Pain
       Medicine in Montreal, Canada in June.

    -  Received Second Approvable Letter for Once-Daily Tramadol from FDA -
       Labopharm received a second Approvable Letter from the FDA for its
       once-daily formulation of tramadol stating that the Company has not
       demonstrated efficacy of the formulation because the statistical
       methods used to analyze data from its clinical trials did not
       adequately address missing data arising from subjects who dropped out
       of the trials. Subsequently, the Company met with the FDA to discuss
       the matters raised in the second Approvable Letter. The meeting with
       the FDA was productive. Labopharm and its advisors are evaluating the
       Company's options, including additional statistical analysis, an
       appeal of the FDA's decision and, potentially, the generation of new
       data through an additional Phase III clinical trial.
    

    Mr. Howard-Tripp said, "We continue to believe that the comprehensive
data generated by our global clinical trial program demonstrates the efficacy
and safety of our once-daily tramadol formulation. We will continue to
vigorously pursue approval with our existing data package."

    Pipeline

    Once-Daily Trazodone

    Labopharm began enrolling patients in its North American Phase III
clinical trial for its once-daily formulation of the antidepressant trazodone
(study 04ACL3-001) in June. Enrolment is progressing well and the Company
remains on track to report results from the study mid-2008. In addition to its
anti-depressive effects, trazodone has sedative effects that can improve
sleep. Labopharm's once-daily formulation has been specifically designed to
take advantage of trazodone's unique pharmacological properties, in addition
to offering the benefits of once-daily administration and potentially fewer
side effects generally associated with peak concentrations of drugs. Study
04ACL3-001 is a randomized, double-blind study that will compare the efficacy
and safety of the Company's once-daily formulation of trazodone to placebo in
patients with major unipolar depressive disorder. The study is being conducted
at more than 35 centers across the U.S. and Canada and is expected to include
more than 350 subjects. In 2006, the U.S. market for antidepressants reached
US$13 billion.

    Other Pain Products

    The first tramadol combination product that Labopharm will move forward
in developing is a twice-daily tramadol-acetaminophen formulation based on the
Company's proprietary Contramid(R) technology. The results of pharmacokinetic
studies to date have been positive with Labopharm's tramadol-acetaminophen
formulation demonstrating bioequivalence to a currently marketed
multiple-times daily tramadol-acetaminophen product. The Company plans to
initiate pivotal studies on its formulation in the fourth quarter of 2007.
Tramadol-acetaminophen combination products are currently available only in
immediate-release formulations. The positive pharmacokinetic studies for the
twice-daily tramadol-acetaminophen formulation demonstrated that the
acetaminophen component of the formulation rapidly achieved blood plasma
levels associated with efficacy in the currently-marketed product and
maintained those levels for the entire 12-hour dosing interval.
    As a result of the Company's success with the 12-hour acetaminophen
component, Labopharm will move forward with development of a twice-daily
formulation of acetaminophen. A twice-daily acetaminophen product represents a
significant potential market opportunity. The current market for acetaminophen
products in the U.S. alone is approximately US$1.4 billion.

    Board Appointment

    Labopharm also announced that Lawrence E. Posner, M.D. has been appointed
to the Company's Board of Directors. Dr. Posner brings to Labopharm 25 years
of diverse experience in the pharmaceutical industry. During his career,
Dr. Posner has held progressively senior roles at a number of leading
international pharmaceutical companies. Until July 31, 2007, Dr. Posner was
Senior Vice President and Special Medical Liaison to Bayer Pharmaceuticals
Corporation. Prior to that, he held the positions of Senior Vice President and
Head, U.S. Research and Development with Yamanouchi Pharmaceuticals U.S.A,
Inc. (now Astellas Pharma, Inc.), Senior Vice President and Worldwide Head,
Regulatory Affairs, Ethical Pharmaceuticals for Bayer A.G., Leverkuesen,
Germany, Senior Vice President and Head, U.S. Research and Development for
Bayer Corporation, West Haven, CT, and Senior Vice President, Medical Affairs,
Pharmaceutical Division, for Miles, Inc. He also held several management
positions with the Lederle Laboratories Division of the American Cynanamid
Corporation in Pearl River, N.Y. (now Wyeth Inc.).
    Prior to embarking on his career in the pharmaceutical industry,
Dr. Posner spent three years in private practice, specializing in medical
oncology and internal medicine. Dr. Posner currently serves as a partner in
Vedanta Capital of New York, NY and as a consultant to Point Biomedical, San
Carlos, California and to Polyphenon Pharma of New York, NY.

    Financial Results

    Revenue for the second quarter of fiscal 2007 increased to $5.9 million
from $3.1 million for the second quarter of fiscal 2006. Product sales
increased to $4.1 million from $0.9 million with the increase being primarily
the result of shipments of once-daily tramadol to ten markets in the second
quarter of fiscal 2007 compared to shipments to only three markets in the
second quarter of fiscal 2006. Product sales for the second quarter of fiscal
2007 consisted of follow-on shipments of once-daily tramadol to HEXAL AG for
distribution in Germany, to CSC Pharmaceuticals S.A. for distribution in the
Czech Republic and Slovakia, to sanofi-aventis and Grunenthal GmbH for
distribution in France, to Gruppo Angelini for distribution in Italy, to
Esteve S.A. for distribution in Spain and to Grunenthal GmbH for distribution
in Belgium, as well as initial shipments to CSC Pharmaceuticals S.A. for
distribution in Poland.
    Gross margin (as a percentage of product sales revenue), excluding a
$1.7 million provision for once-daily tramadol pre-launch inventory and
related deposits to manufacturers, for the second quarter of fiscal 2007 was
46% compared with 38% for the second quarter of fiscal 2006. This provision
was required as a result of the delay in the anticipated U.S. launch of the
Company's once-daily tramadol product following receipt of the second
approvable letter from the FDA and represents the Company's best estimate of
the loss based on its evaluation of the inventory, some of which may be sold
in other territories, or amounts which may be otherwise recovered. The
increase in adjusted gross margin compared to the second quarter of last year
was due to lower manufacturing costs, which were partially offset by lower
average selling prices per tablet resulting from launches in new markets and a
royalty expense paid to an affiliate of Purdue Pharma to avoid any potential
conflict with respect to patents registered in Europe.
    Licensing revenue for the second quarter of fiscal 2007 was $1.7 million
and represented a portion of licensing payments received from the Company's
licensing and distribution partners for once-daily tramadol. Licensing revenue
for the second quarter of fiscal 2006 was $2.2 million. The decrease in
licensing revenues was the result of the extension of the estimated term over
which the Company is recognizing the US$20 million up-front payment previously
received from Purdue Pharma.
    Research and development expenses before government assistance for the
second quarter of fiscal 2007 increased to $6.5 million from $4.5 million for
the second quarter of fiscal 2006. The increase was primarily due to the
Phase III clinical trial for once-daily trazodone that was initiated in the
second quarter of fiscal 2007, several pharmacokinetic and other studies for
other development programs and the general increase in the Company's research
and development activities. Government assistance (research and development
tax credits) for the second quarter of fiscal 2007 increased to $0.8 million
from $0.3 million for the corresponding quarter of fiscal 2006.
    Selling, general and administrative expenses for the second quarter of
fiscal 2007 increased to $6.1 million from $4.0 million for the second quarter
of fiscal 2006. The increase is due in part to higher non-cash stock-based
compensation expense (1.2 million for the second quarter of 2007 versus
0.7 million for the second quarter of 2006), as well as increased headcount
and related compensation expense, increased legal and patent consulting fees,
incremental costs related to the Company's NASDAQ listing, as well as
pharmacovigilance costs and other operational costs as the Company transitions
from a research and development company to a commercial operation.
    Net loss for the second quarter of fiscal 2007 was $11.0 million, or
$0.19 per share, compared with $5.5 million, or $0.11 per share, for the
second quarter of fiscal 2006.
    Cash, cash equivalents and marketable securities at June 30, 2007 were
$82.1 million compared with $94.1 million at March 31, 2007. The decrease was
primarily the result of the use of funds for operating activities.
    For the six-month period ended June 30, 2007, revenue increased to
$11.3 million from $7.4 million for the first six months of 2006. Product
sales increased to $7.5 million from $2.9 million with the increase being
primarily the result of shipments of once-daily tramadol to ten markets in the
first half of fiscal 2007 compared to shipments to only three markets in the
first half of fiscal 2006.
    Gross margin for the first six months of fiscal 2007, excluding the
second quarter pre-launch inventory provision, was 47%, unchanged from the
first six months of fiscal 2006.
    Licensing revenue for the first six months of fiscal 2007 was
$3.7 million, and represented a portion of licensing payments received from
the Company's licensing and distribution partners for once-daily tramadol.
Licensing revenue for the first six months of fiscal 2006 was $4.4 million.
The decrease in licensing revenues was the result of the extension of the
estimated term over which the Company is recognizing the US$20 million
up-front payment previously received from Purdue Pharma.
    Research and development expenses before government assistance for the
first six months of fiscal 2007 increased to $11.6 million from $10.9 million
for the first six months of fiscal 2006. The general increase in the Company's
research and development activities in 2007, were partially offset by lower
expenses related to the timing of our clinical trial programs in 2007.
    Selling, general and administrative costs for the first six months of
fiscal 2007 increased to $11.5 million from $7.0 million for the first six
months of fiscal 2006. The increase is due in part to higher non-cash
stock-based compensation expense ($2.3 million for the first six months of
2007 versus $1.1 million for the first six months of 2006), as well as the
other rationale provided for the quarter.
    Net loss for the first six months of fiscal 2007 was $17.5 million, or
$0.31 per share, compared to $12.3 million, or $0.26 per share for the first
six months of fiscal 2006.
    Labopharm continues to expect product sales to be variable from quarter
to quarter as its product is successively launched in European and other
markets. As a result of pipeline fill and the number of market launches in
first half of 2007, market dynamics and some challenges with certain partners
in larger markets, and the seasonal impact on European pharmaceutical sales in
the third quarter, the Company expects product sales in the second half of
fiscal 2007 to be lower than those for the first half of fiscal 2007.
Labopharm believes that the actions it is taking to address existing marketing
challenges in Europe, as well as additional product launches globally, will
result in quarter over quarter growth in product sales in 2008.

    Conference Call

    Labopharm will host a conference call today (Thursday, August 9, 2007 at
8:30 a.m. ET) to discuss its second quarter fiscal 2007 results. To access the
conference call by telephone, dial 416-644-3421 or 1-800-590-1817. Please
connect approximately five minutes prior to the beginning of the call to
ensure participation. The conference call will be archived for replay until
Thursday, August 16, 2007 at midnight. To access the archived conference call,
dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21240797
followed by the number sign. A live audio webcast of the conference call will
be available at www.labopharm.com. Please connect at least 15 minutes prior to
the conference call to ensure adequate time for any software download that may
be required to join the webcast. The webcast will be archived at the above web
site for 30 days.

    About Labopharm Inc.

    Labopharm is an emerging leader in optimizing the performance of existing
small molecule drugs using its proprietary controlled-release technologies.
The Company's lead product, a unique once-daily formulation of tramadol, is
being commercially launched in key markets globally and it has a robust
pipeline of follow-on products in both pre-clinical and clinical development.
For more information, please visit www.labopharm.com.

    This press release contains forward-looking statements, which reflect the
Company's current expectations regarding future events. The forward-looking
statements involve risks and uncertainties. Actual events could differ
materially from those projected herein and depend on a number of factors,
including the uncertainties related to the regulatory process in various
countries for the approval of the Company's products and the successful
commercialization of the products throughout the world if they are approved.
Investors should consult the Company's ongoing quarterly filings and annual
reports for additional information on risks and uncertainties relating to
these forward-looking statements. The reader is cautioned not to rely on these
forward-looking statements. The Company disclaims any obligation to update
these forward-looking statements.


    
    INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)

    For the:                      Three months ended        Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    (Thousands of Canadian
     dollars, except share
     and per share amounts)            $           $           $           $
    -------------------------------------------------------------------------

    REVENUE
    Product sales                  4,149         902       7,541       2,947
    Licensing                      1,707       2,217       3,728       4,443
    -------------------------------------------------------------------------
                                   5,856       3,119      11,269       7,390
    -------------------------------------------------------------------------

    EXPENSES
    Cost of goods sold
     (excluding amortization)      4,003         555       5,704       1,576
    Research and development
     expenses, net                 5,661       4,180       9,917       9,855
    Selling, general and
     administrative expenses       6,067       3,965      11,452       6,991
    Financial expenses               491         683       1,040       1,412
    Depreciation and amortization    500         418         972         846
    Interest income                 (925)       (798)     (1,897)     (1,006)
    Foreign exchange loss (gain)     393        (411)        387        (593)
    -------------------------------------------------------------------------
                                  16,190       8,592      27,575      19,081
    -------------------------------------------------------------------------
    LOSS BEFORE INCOME TAXES     (10,334)     (5,473)    (16,306)    (11,691)
    Provision for income taxes
      Current                        675         105       1,202         684
      Future                           -         (36)          -         (36)
    -------------------------------------------------------------------------
    NET LOSS FOR THE PERIOD      (11,009)     (5,542)    (17,508)    (12,339)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NET LOSS PER SHARE - BASIC
     AND DILUTED                   (0.19)      (0.11)      (0.31)      (0.26)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number
     of shares outstanding    56,795,490  52,171,020  56,784,151  46,729,289
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

    For the:                      Three months ended        Six months ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    (Thousands of Canadian
     dollars)                          $           $           $           $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net loss for the period      (11,009)     (5,542)    (17,508)    (12,339)
    Items not affecting cash:
      Depreciation of property,
       plant and equipment           442         363         856         730
      Amortization of
       intangible assets              58          55         116         116
      Amortization of deferred
       financing costs                 -          54           -         111
      Amortization of premium
       or discounts on
       marketable securities          76           -         150           -
      Non-cash financial expenses     36           -          77           -
      Unrealized foreign
       exchange loss (gain)          400        (374)        388        (473)
      Future income tax                -         (36)          -         (36)
      Stock-based compensation     1,393         824       2,899       1,365
    -------------------------------------------------------------------------
                                  (8,604)     (4,656)    (13,022)    (10,526)
    Net change in non-cash
     operating items              (1,060)     (4,781)        108      (9,667)
    -------------------------------------------------------------------------
                                  (9,664)     (9,437)    (12,914)    (20,193)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Acquisition of marketable
     securities                  (10,224)    (22,064)    (53,247)    (25,397)
    Proceeds from maturities
     of marketable securities      4,971      11,337      66,385      15,914
    Acquisition of property,
     plant and equipment            (326)       (370)     (1,146)       (581)
    Acquisition of intangible
     assets                          (49)       (602)       (123)       (665)
    -------------------------------------------------------------------------
                                  (5,628)    (11,699)     11,869     (10,729)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Repayment of capital
     lease obligations               (25)        (20)        (47)        (40)
    Repayment of long-term debt   (1,014)       (867)     (2,057)     (1,404)
    Proceeds from issuance of
     capital stock                   110     113,794         225     114,544
    Issuance costs of
     capital stock                     -      (7,784)          -      (7,784)
    -------------------------------------------------------------------------
                                    (929)    105,123      (1,879)    105,316
    -------------------------------------------------------------------------

    Foreign exchange gain (loss)
     on cash held in
     foreign currencies             (831)        (75)       (914)          3

    Net increase (decrease) in
     cash and cash equivalents
     during the period           (17,052)      83,912     (3,838)     74,397
    Cash and cash equivalents,
     beginning of period          26,936       10,767     13,722      20,282
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                 9,884       94,679      9,884      94,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows include
     the following items:
    Interest paid                    368          515        779       1,059
    Income taxes paid                  -           62          -         114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED BALANCE SHEETS
    (Unaudited)

                                                           As at       As at
                                                         June 30,    Dec. 31,
                                                            2007        2006
    (Thousands of Canadian dollars)                            $           $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                              9,884      13,722
    Available-for-sale marketable securities              72,232      85,747
    Accounts receivable                                    5,391       4,002
    Research and development tax credits receivable          994       1,869
    Income taxes receivable                                  430         939
    Inventories                                            3,272       5,287
    Prepaid expenses and other assets                      1,186       1,384
    -------------------------------------------------------------------------
    Total current assets                                  93,389     112,950
    -------------------------------------------------------------------------

    Restricted long-term investments                       1,273       1,280
    Property, plant and equipment, net                    10,839      10,909
    Intangible assets                                      3,392       3,205
    Deferred financing costs                                   -         156
    Future income tax asset                                  134         134
    -------------------------------------------------------------------------
                                                         109,027     128,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities               8,729       8,908
    Current portion of deferred revenue                    4,247       7,916
    Current portion of obligations under capital leases      121          94
    Current portion of long-term debt                      4,326       4,425
    -------------------------------------------------------------------------
    Total current liabilities                             17,423      21,343
    -------------------------------------------------------------------------

    Deferred revenue                                      18,121      16,593
    Obligations under capital leases                       5,744       5,746
    Long-term debt                                           794       3,396
    -------------------------------------------------------------------------
    Total liabilities                                     42,082      47,078
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares, no par value, unlimited shares
     authorized, 56,817,963 and 56,747,963 issued
     and outstanding as at June 30, 2007 and as
     at December 31, 2006, respectively                  241,955     241,588
    Contributed surplus                                   11,174       8,417
    Deficit                                             (185,957)   (168,449)
    Accumulated other comprehensive loss                    (227)          -
    -------------------------------------------------------------------------
    Total shareholders' equity                            66,945      81,556
    -------------------------------------------------------------------------
                                                         109,027     128,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: At Labopharm: Mark D'Souza, Chief Financial
Officer, Tel: (450) 686-0207; At The Equicom Group: Jason Hogan, Media and
Investor Relations, Tel: (416) 815-0700, jhogan@equicomgroup.com; French: Eric
Bouchard, Tel: (514) 208-5939, ebouchard@equicomgroup.com

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