Undervalued Labopharm To Update Shareholders Print
By Nicholas DeCesare   
Tuesday, 04 May 2010 02:30

A few weeks back, I brought reader’s attention to just how undervalued Labopharm Inc. (NasdaqGM: DDSS) was and continues to be.
When the article was published (See: Labopharm: More than Meets the Eye), the share price was just under $1.50.
It has since moved about 5% higher but still has a great room to run.

Questions have been asked in the past few months about whether or not a doctor would readily switch to Oleptro and if insurance companies would cover the costs of Oleptro if patients switched to it from a generic drug. CEO Howard Tripp has been posed these very same questions this past year. Actually, several weeks ago at the Cowen and Company Healthcare Conference he gave a great presentation outlining the benefits of the company, with a large focus on Olpetro. The presentation can be accessed here.

Mr. Tripp made it very clear that the company has done a tremendous amount of due diligence on their own product to see what the market reaction would be once Oleptro is rolled out. Labopharm is very pleased with the feedback they have received in regards to not only a doctor’s willingness to use the product, but also the willingness of insurance companies to pay for it. Keep in mind that on May 5th, the company will release their first quarter results and update shareholders on the marketing plan for Oleptro at the shareholder meeting. Just recently, Labopharm announced that they would be engaging in a joint venture with Angelini to market Oleptro in the United States. Angelini is an international group with branches in 18 countries and worldwide product distribution. In the Pharmaceutical sector, Angelini focuses mainly on pain relief, inflammation, CNS, pediatrics, cold and flu, oral care and sore throat, gynecology and disinfection. Angelini is one of the top four pharmaceutical companies in Italy by sales volume.

Guided by the President Francesco Angelini, the group employs about 3,500 people. In 2009 consolidated revenue was more than 1.2 billion Euros. Labopharm will be eligible to receive up to $92 million dollars, $52 million of which will be paid when the transaction between the two companies is complete which is expected to be in the next few weeks. Keep in mind that Labopharm’s market cap is a little over $100 million, so to say this deal is a large one would be an understatement.

For investors, Labopharm’s stock price has been ridiculously punished over the last 8-10 weeks because the day they announced their earlier than expected approval of Oleptro, in early February, they didn’t announce a partnership the same day. The company then decided to raise about $20 million in a public offering which led to further speculation they may not have a partner. Raising cash is not always such a bad idea for a company looking to gain leverage in partnership discussions, which in my opinion, is exactly what Labopharm was doing at the time. But the deal with Angelini is huge for a small company like Labopharm. Even though some investors were disappointed that Labopharm did not partner with traditional “big pharma” in the United States, the management team led by CEO Howard Tripp has managed to put together what could turn out to be a very lucrative joint venture with Angelini. Based on the press release, Oleptro may not be the only drug the two companies plan to bring to market in the near future. Labopharm continues to set its sights on filing their twice daily Tramadol application in the months ahead.

On Wednesday, Labopharm will update its shareholders on the progress of all of their drugs, but most importantly, on some of the final plans for Oleptro. Keep in mind that over 80% of the anti-depression drug market is for branded drugs, not generics, therefore, Oleptro should do very well in the market place and get its share of the $9 billion dollar branded anti-depression drug market. One thing is for sure, at a share price around $1.50, there is not much downside to a company that has a good revenue stream each year and intends to aggressively build on that stream. Labopharm has now secured a partnership and will be receiving a sizeable cash infusion in the coming days. With a market cap of around $113 million and a deal that could bring in $92 million, $1.50 share price doesn’t do the company much justice. If Oleptro is even modestly successful in the United States market, with the cash Labopharm will have on hand, the revenue from Tramadol around the world, and the current pipeline they have in place, I am expecting this stock to easily break $3 in the coming months. I encourage you to do your own research on Labopharm.

Disclosure: Long

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