Labopharm: More than meets the eye Print E-mail
By Nicholas DeCesare   
Thursday, 15 April 2010 03:00
When I wrote last, I suggested taking a serious look at both Depomed and Discovery Labs as a result of both stock prices being severely depressed. Discovery Labs is up over 8% since my article, while Depomed has soared over 40%. Another stock with serious potential in the near and long term is Labopharm Inc. (NasdaqGM: DDSS).
Labopharm is a specialty pharma company with headquarters in Canada, that develops drugs using a controlled release technologies. In February, they received approval for their anti-depressant drug Oleptro, which is their once-daily formulation of the antidepressant trazodone. When the news hit, the stock rocketed upward to almost $3 a share. However, since then, the stock has retreated to an almost unthinkable price of under $1.50.

In the days that followed the approval of Oleptro, the market seemed disappointed that Labopharm did not have a partner lined up and ready to market the drug. However, the decision came days early from the agency, and even caught Labopharm by surprise. However, the company has continually said they are currently in talks to finalize a partnership within days. CEO James Howard-Tripp plans an aggressive Oleptro launch by Q3 in an $11 billion dollar anti-depressant market in the United States alone. Investors have been eagerly awaiting the news of not only who the partner will be, but what kind of upfront payment and deal terms Labopharm will receive. Mr. Tripp has also made it very clear that Labopharm intends to play a huge role in the marketing and launch of their product to receive as much revenue as possible from sales.

Labopharm’s other major product is their once daily Tramadol, for the treatment of moderate to sever pain, which has already been on the United States market and world markets and is showing significant growth. In 2009, sales of Tramadol grew 27% compared to 2008, and more double digit growth is expected this year. The company has also begun the regulatory process in Europe for their third product, their twice-daily tramadol-acetaminophen. Through their partnership agreements, Labopharm’s Tramadol is being licensed and distributed in 17 countries worldwide creating a unique flow of revenue for the company.

As I examined the potential market for Oleptro and current market for Tramadol, it became even more obvious just how undervalued this company is. Assuming the market for Oleptro is anywhere from $500 million to $1 billion, which is 5 to 10% of the overall anti-depressant total (which keeps growing each year) and that a partnership would generate about 20-30% of revenues from the product for Labopharm, this could mean an approximate annual revenue for DDSS of over $200 million a year for Oleptro only. Revenue from the once daily Tramadol product were approximately $5 million per quarter last year. While the company believes that revenues will continue to be higher with this product, let’s be conservative and assume only $20 million per year added to the Oleptro revenue stream which should begin flowing in by the end of Q3. With a current market cap of just over $100 million and a stock price of under $1.50, I see Labopharm as being very undervalued and conservatively worth $2.75 a share based on possible revenue from Oleptro and current revenue from Tramadol. I invite you to do your own research on Labopharm.


Disclosure: long DDSS




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