Labopharm complete response letter not the end of the world

Labopharm might have failed to win US approval for its once-daily Trazodone depression pill straight off, but at this stage it appears the news could have been a lot worse.

The complete response letter from the FDA took issue with the facility that makes the active ingredient, operated by the company’s partner Gruppo Angelini. Encouragingly, the regulator did not question the safety or efficacy of the drug. The Italian group will respond by July 24 with an action plan, suggesting that Labopharm’s target of launching the drug early next year has not been completely blown out of the water.

Angelini told Labopharm that the issues were not critical, although the extent of the problems will become clearer once the FDA designates its response. If a Class 1 response is granted approval could still come before the end of the year. However, a six month Class 2 response would be more worrying.

Labopharm’s Canadian listed shares understandably fell on the news, dropping 10% to C$2.14. This suggests a fair amount of optimism exists that these issues can be resolved; the stock is a long way from a record low of 43 cents touched at the end of last year.

Breathing space

Labopharm stock has performed remarkably well in the last few months, ahead of this decision, closing at a 17-month high of C$2.95 at the beginning of July. As well as anticipation of approval for Trazodone OD, the company also managed to give itself some financial breathing space by renegotiating some credit lines.

Last month, the repayment date on a loan from Hercules Technology Growth Capital was pushed back by one year, to July 2010, and Labopharm agreed not to draw down the remaining $5m of the $25m facility. This lowered interest expenses. At the same time, a $2.6m credit facility with the National Bank of Canada was announced.

The company’s first product, a once-daily version of the painkiller Tramadol, sold by Purdue Pharma and branded Ryzolt, was launched in the US in May. Uptake is going to be closely watched this year, amid concerns about the size of the market for the product, as is the outcome of a patent challenge, a huge swing factor for the company, as EP Vantage discussed last week. (Event - Labopharm's reformulation model facing crucial tests, July 8, 2009)

Having another product on the market would have been a major boost for Labopharm. Approval would no doubt have helped partnership talks for Trazadone OD, which are currently ongoing. The company and its shareholders will be hoping this delay is short lived.

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