Labopharm seeking reward for sheer perseverance

Labopharm’s long and painful pursuit of FDA approval for its key painkiller drug Tramadol OD reaches another pivotal stage this month, with the regulator expected to announce its response to the company’s latest appeal to receive authorisation to market its most valuable product.

Weary investors in the Canadian specialty company have been here before of course, this being the fourth appeal lodged with the FDA in response to two approvable letters since the filing was made two and a half years ago. Whilst the FDA has consistently rebuked Labopharm’s application over a failure to demonstrate adequate efficacy, the group is hoping its latest statistical analysis, and sheer perseverance, will eventually win the day.

With first quarter results released today revealing widening losses on lower product revenues, sending the shares down 9%, a positive verdict from the US regulator is becoming ever more pressing. The shares could certainly do with a significant lift, having sunk to an all-time low of C$0.95 in December after a prolonged decline in the wake of the second approvable letter in May last year.

Latest statistical analysis

In April, Labopharm filed its latest response to the FDA’s refusal to accept its third appeal in January, in which John Jenkins, director for the Office of New Drugs, suggested the company conduct additional statistical analysis of the existing dataset. Whilst the group has now submitted this new analysis, rather than filing a Complete Response to the FDA’s second approvable letter, which would induce a six-month review, they are attempting to force the issue by escalating its appeal to the next supervisory level at the FDA and has requested a meeting with Dr. Janet Woodcock, the FDA's director, Center for Drug Evaluation and Research.

A negative outcome would deliver another blow and force the company to make a tough decision over whether to scrap the filing all together, or conduct fresh and costly phase III trials to deliver the answers the FDA is clearly still seeking, which the group has so far been reluctant to accept.

Technology platform

Labopharm’s entire strategy is based on applying its Contramid controlled release technology to current drugs in order to deliver a more convenient once-daily dose. This has been validated to some extent by the approval for Tramadol OD in the big European markets and South America, where it is sold for Labopharm by a number of marketing partners.

However, revenues to date from sales by these partners have amounted to a relatively modest $18m since 2005, a period in which the company has spent $53m on R&D costs alone. Therefore it is the US approval, which the company has consistently stated as being its primary focus, which is expected to really kick start revenue growth and drive the company towards profitability.

Purdue Pharma has already been signed up to sell Tramadol OD in the US, with analyst consensus forecasts from EvaluatePharma predicting sales of $184m by 2011, presenting Labopharm with decent revenues based on 20-25% royalties.

EvaluatePharma’s NPV Analyzer values Tramadol OD at $380m, representing 73% of the total product NPV of $518m, significantly ahead of the group’s latest market capitalisation of $117m. The market therefore appears to be discounting Tramadol OD completely from the company’s valuation.

Bright spot

The only positive bit of news in recent months was the encouraging phase III data announced in February for Trazodone OD, the company's once-daily formulation of Angelini's anti-depressant. Labopharm intend to file for FDA approval by the end of this year and hope to sign up a US marketing partner in the coming months.

Trazodone OD's current NPV sits at $100m, just about matching the company's market value. Investors will be desperately hoping this product is not forced to become the main fall-back plan.

EvaluatePharma's Calendar of Events: Labopharm events in 2008
Event Type Associations NPV  NPV as % of Mkt Cap     Event Event Status    Start Date     End Date   
Update on FDA Action Letter Tramadol OD (Labopharm) 380 325% Update on Appeal of FDA Non-Approvable Decision for Once-Daily Tramadol for Pain In-Play (25%) 01 May 2008 31 May 2008
US Product Filing Trazodone OD (Labopharm) 100 86% Expect US Filing for Once-daily Trazodone for Depression In-Play (13%) 01 Apr 2008 31 Dec 2008

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