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Labopharm Reports Results for Second Quarter Fiscal 2009
Date:8/7/2009

             - Quarter Marked by Launch of RYZOLT(TM) in U.S. -
           - Company to Submit Response to FDA for Novel Trazodone
                           Formulation Next Week -

LAVAL, QC, Aug. 7 /PRNewswire-FirstCall/ - Labopharm Inc. (TSX: DDS; NASDAQ: DDSS) today reported its financial results for the second quarter ended June 30, 2009. All figures are in Canadian dollars unless otherwise stated.

"The second quarter of 2009 was highlighted by the U.S. commercial launch of RYZOLT(TM) by our marketing partner, Purdue Pharma," said James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc. "We are encouraged by a number of aspects since the launch, including the growth of new prescriptions and the migration of patients to higher dosage strengths, which shows the product is being used as intended. However, the product was launched into a challenging market impacted by seasonality and a weakened U.S. economy. We continue to believe that RYZOLT offers physicians and patients an excellent option in the treatment of pain and are confident in the long-term prospects for our product in the U.S. market."

Added Mr. Howard-Tripp, "In Canada, our experience shows that with a strong marketing effort, our once-daily tramadol product performs well over time. In fact, in May and June of this year, our once-daily tramadol product was the best selling tramadol product in the country."

"We continue to prepare for commercialization of our novel trazodone formulation in the U.S.," concluded Mr. Howard-Tripp. "Following discussions with the U.S. Food and Drug Administration regarding its complete response letter and our API supplier's submission of its action plan to address deficiencies at its manufacturing facility, we intend to file our response with the FDA next week."

Financial Summary

Revenue for the second quarter of fiscal 2009 increased to $6.3 million from $4.9 million for the second quarter of fiscal 2008. Revenue from sales of the Company's once-daily tramadol product for the second quarter of fiscal 2009 increased to $4.8 million from $3.9 million for the second quarter of fiscal 2008 and was composed of product sales outside the U.S. of $3.0 million and product sales in the U.S. of $1.8 million. Royalty revenue recorded on sales of RYZOLT in the U.S. for the quarter was $0.1 million. Considering that RYZOLT was just recently launched in May 2009, Labopharm is recording its royalty earned for the quarter based on the sell-through method, under which revenue is recognized, for accounting purposes, upon dispensing of the product to the patient based on third-party prescription data. Licensing revenue for the second quarter of fiscal 2009 was $1.3 million compared with $1.1 million for the second quarter of fiscal 2008.

Adjusted gross margin for sales outside of the U.S. for the second quarter of fiscal 2009 was 66% compared with 56% for the second quarter of fiscal 2008. Research and development expenses, before research and development tax credits, for the second quarter of fiscal 2009 were $3.2 million compared with $7.0 million for the second quarter of fiscal 2008. Selling, general and administrative expenses for the second quarter of fiscal 2009 were $6.3 million compared with $6.2 million for the second quarter of fiscal 2008 and included an accrual of $1.3 million for the Company's share of litigation costs related to patent enforcement following approval of its once-daily tramadol product in the U.S. Net loss for the second quarter of fiscal 2009 was $4.9 million, or $0.09 per share, compared with $10.3 million, or $0.18 per share, for the second quarter of fiscal 2008.

Recent Developments

Once-Daily Tramadol

Product Launched in the United States - Labopharm's product was launched in the U.S. in May under the brand name RYZOLT by Purdue Pharma Products L.P., the Company's licensing and distribution partner. Although RYZOLT was launched into a challenging market, the Company remains confident in the prospects for its product in the U.S.

Product Achieves Number One Position in Canada in May and June - Labopharm's product (marketed under the brand name Tridural(TM) in Canada) ranked number one in Canada among tramadol products (excluding combination products) in terms of prescriptions in May and June 2009 with 39% and 42% market share, respectively. The number of prescriptions written for Labopharm's product in Canada for the second quarter of 2009 increased 24% compared to the first quarter of 2009.

In-Market Sales in Europe Continue to Grow - In-market sales of Labopharm's product in Europe(1) grew 7% for the first five months of 2009 compared to the same period of 2008.

    -------------------------------------
    (1) Includes France, Germany, the United Kingdom, Spain and Italy.

Novel Trazodone Formulation

Company to Submit Response to FDA - Following discussions with the U.S. Food and Drug Administration (FDA), Labopharm intends to submit its response to the Agency next week. As previously disclosed, the Company received a complete response letter from the FDA indicating that its new drug application (NDA) cannot be approved in its present form due to deficiencies following an FDA inspection of the active pharmaceutical ingredient (API) manufacturing facility. The API manufacturer submitted an action plan addressing the deficiencies on Friday, July 24, 2009.

Submitted Regulatory Application in Canada - Labopharm filed a new drug submission (NDS) with the Therapeutic Products Directorate (TPD) of Health Canada on August 4, 2009. Upon acceptance by Health Canada, the Company expects a response to its submission in the second quarter of 2010.

Corporate

Amended Debt Facility Agreement with Hercules - Labopharm amended its debt facility agreement with Hercules Technology Growth Capital, Inc. (NASDAQ: HTGC) to provide more favourable repayment terms by extending the date required to begin repaying the loan to July 1, 2010 from July 1, 2009. The maturity date of the loan has been extended to June 1, 2012 from December 1, 2011.

Entered into Credit Facility with National Bank - Labopharm entered into a three-year $2.6 million revolving credit facility with National Bank of Canada, which the Company drew down in full subsequent to quarter end. The facility is in furtherance of a previously announced agreement with National Bank of Canada to borrow an amount of up to 45% of the principal value of the notes issued to the Company in the context of the restructuring of the Canadian asset-backed commercial paper, which amount the Company can, under certain conditions, repay at maturity by delivering the notes to the bank.

Financial Results

Three-Month Period Ended June 30, 2009

Revenue for the second quarter of fiscal 2009 increased to $6.3 million from $4.9 million for the second quarter of fiscal 2008. During the second quarter, Labopharm shipped its first product to Purdue Pharma in advance of the launch of RYZOLT. Revenue from product sales in all territories for the second quarter of fiscal 2009 increased to $4.8 million from $3.9 million for the second quarter of fiscal 2008. Revenue from product sales to territories other than the U.S. was $3.0 million compared with $3.9 million for the second quarter of fiscal 2008. The decrease was the result of lower sales volumes due to the variable ordering pattern of the Company's licensing and distribution partners from period to period, which were partially offset by higher average selling prices per tablet in the second quarter of fiscal 2009. Product sales to the U.S. were $1.8 million.

Under its licensing and distribution agreement with Purdue for RYZOLT in the United States, Labopharm is entitled to royalty payments of 20% of Purdue's net sales of the product to distributors as defined in the agreement (up to 25% if Purdue achieves certain net annual sales levels). Royalty revenue recorded on sales of RYZOLT in the U.S. for the quarter was $0.1 million. Considering that RYZOLT was just recently launched in May 2009, Labopharm is recording its royalty earned for the quarter based on the sell-through method, under which revenue is recognized, for accounting purposes, upon dispensing of the product to the patient based on third-party prescription data.

Labopharm supplies finished packaged RYZOLT product at cost to Purdue Pharma, for which the Company records revenue from product sales that generate no gross margin. As a result, the adjusted gross margin figures discussed below exclude sales and cost of goods sold for product sold in the U.S. to provide a more meaningful understanding of the gross margin. Adjusted gross margin (as a percentage of revenue from product sales) for territories outside the U.S. for the second quarter of fiscal 2009 was 66% compared with 56% for the second quarter of fiscal 2008. Adjusted gross margin for territories outside the U.S. for the second quarter of fiscal 2009 excludes the reversal of $0.2 million of previously recorded write downs. The increase in adjusted gross margin was due primarily to a higher average selling price per tablet.

Licensing revenue for the second quarter of fiscal 2009 was $1.3 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 2008 was $1.1 million.

Research and development expenses, before research and development tax credits, for the second quarter of fiscal 2009 were $3.2 million compared with $7.0 million for the second quarter of fiscal 2008. The decrease was primarily the result of lower clinical trial costs in the second quarter of fiscal 2009. Research and development tax credits for the second quarter of fiscal 2009 were $0.3 million compared with $0.7 million for the second quarter of fiscal 2008, the result of a decrease in non-refundable Canadian federal tax credits due to a change in tax planning.

Selling, general and administrative expenses for the second quarter of fiscal 2009 were $6.3 million compared with $6.2 million for the second quarter of fiscal 2008. A significant portion of selling, general and administrative expenses for the second quarter of fiscal 2009 was the result of higher costs related to sales and marketing and the accrual for the Company's share of litigation costs incurred by Purdue Pharma to enforce certain of Purdue's U.S. patents related to Labopharm's once-daily tramadol product. These were partially offset by lower costs for consultants and professional services, a reduction in non-cash stock-based compensation and a reduction of tax on capital.

Net loss for the second quarter of fiscal 2009 was $4.9 million, or $0.09 per share, compared with $10.3 million, or $0.18 per share, for the second quarter of fiscal 2008. The decrease in net loss was primarily the result of lower research and development costs, higher gross margin on product sales and a higher foreign exchange gain, which were partially offset by lower interest income in the second quarter of fiscal 2009.

Cash, cash equivalents and marketable securities at June 30, 2009 were $27.9 million compared with $35.9 million at March 31, 2009. The cash, cash equivalents and marketable securities position at June 30, 2009 does not include the Company's Long-Term Notes, received in exchange of the Montreal Proposal ABCP, which have an estimated fair value of $2.9 million and that are recorded as a long-term investment. Subsequent to quarter end, the Company drew down the $2.6 million available under the credit facility established with the National Bank of Canada in June of this year.

Six-Month Period Ended June 30, 2009

Revenue for the first half of fiscal 2009 increased to $11.2 million from $8.1 million for the first half of fiscal 2008. Revenue from product sales in all territories for the first half of fiscal 2009 increased to $8.6 million from $6.0 million for the first half of fiscal 2008. Revenue from product sales to territories other than the U.S. was $6.8 million compared with $6.0 million for the first half of fiscal 2008. Product sales to the U.S. were $1.8 million. Royalty revenue for the first half of 2009 was $0.1 million.

Adjusted gross margin (as a percentage of revenue from product sales) for territories outside the U.S. for the first half of fiscal 2009 was 61% compared with 56% for the first half of fiscal 2008. Adjusted gross margin for territories outside the U.S. for the first half of fiscal 2009 excludes the reversal of $0.4 million of previously recorded write downs. The increase in adjusted gross margin was due primarily to a higher average selling price per tablet.

Licensing revenue for the first half of fiscal 2009 was $2.5 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 half of fiscal 2008 was $2.1 million. The increase was primarily due to the reduction in the third quarter of 2008 of the estimated term over which the Company is recognizing the up-front payment of US$20 million received from Purdue Pharma in 2005.

Net loss for the first half of fiscal 2009 was $12.8 million, or $0.23 per share, compared with $20.0 million, or $0.35 per share, for the first half of fiscal 2008. The decrease in net loss was primarily the result of lower research and development costs, higher gross margin on product sales and a higher foreign exchange gain, which were partially offset by higher selling, general and administrative expenses and lower interest income in the first half of fiscal 2009.

Conference Call

Labopharm will host a conference call today (Friday, August 7, 2009) at 8:30 a.m. ET to discuss its second quarter results. To access the conference call by telephone, dial 416-644-3427 or 1-800-588-4490. Please connect approximately five minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Friday, August 14, 2009 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21311012 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 now available in 17 countries around the world, including the U.S., Canada, major European markets and Australia. The Company's second product, a novel formulation of trazodone for the treatment of major depressive disorder, is under regulatory review in the U.S. by the FDA. The Company also has a robust pipeline of follow-on products in both pre-clinical and clinical development. Labopharm's vision is to become an integrated, international, specialty pharmaceutical company with the capability to internally develop and commercialize its own products. For more information, please visit www.labopharm.com.

RYZOLT(TM) is a trademark of Purdue Pharma Products L.P.

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.

    Labopharm Inc.
    INTERIM CONSOLIDATED BALANCE SHEETS
    (Unaudited)

                                                          As at        As at
                                                        June 30, December 31,
                                                           2009         2008
                                                                   (Restated)
    (thousands of Canadian dollars)                           $            $
    -------------------------------------------------------------------------
    ASSETS

    Current

    Cash and cash equivalents                            14,259        8,373
    Marketable securities                                13,641       36,520
    Accounts receivable                                   3,106        3,277
    Research and development tax credits receivable       1,874        1,274
    Income taxes receivable                                 363          474
    Inventories                                           2,876        1,760
    Prepaid expenses and other assets                     1,077          641
    -------------------------------------------------------------------------
    Total current assets                                 37,196       52,319
    -------------------------------------------------------------------------

    Restricted long-term investments                        144          141
    Long-term investment                                  2,901        3,178
    Property, plant and equipment                         9,448       10,213
    Intangible assets                                     1,761        1,791
    Future income tax assets                                137          145
    -------------------------------------------------------------------------
                                                         51,587       67,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

    Current

    Accounts payable and accrued liabilities             13,913       13,134
    Current portion of deferred revenue                   4,757        4,768
    Current portion of obligations under capital leases     289          271
    Current portion of long-term debt                         -        3,378
    -------------------------------------------------------------------------
    Total current liabilities                            18,959       21,551
    -------------------------------------------------------------------------

    Deferred revenue                                      7,096        9,094
    Obligations under capital leases                      5,193        5,342
    Long-term debt                                       21,678       20,265
    -------------------------------------------------------------------------
    Total liabilities                                    52,926       56,252
    -------------------------------------------------------------------------

    Shareholders' equity (deficiency)
    Share capital
      Common shares, no par value, unlimited
       authorized shares, 57,000,533 and
       56,826,063 issued as at June 30, 2009
       and December 31, 2008, respectively              242,282      241,967
    Warrants                                              1,163          751
    Contributed surplus                                  16,123       14,937
    Deficit                                            (260,363)    (247,515)
    Accumulated other comprehensive income (loss)          (544)       1,395
    -------------------------------------------------------------------------
    Total shareholders' equity (deficiency)              (1,339)      11,535
    -------------------------------------------------------------------------
                                                         51,587       67,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Labopharm Inc.
    INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)

                        For the three months ended: For the six months ended:
                              June 30,     June 30,     June 30,     June 30,
    (thousands of Canadian       2009         2008         2009         2008
     dollars, except share               (Restated)                (Restated)
     and per share amounts)         $            $            $            $
    -------------------------------------------------------------------------

    REVENUE
    Product sales               4,827        3,859        8,629        6,017
    Licensing                   1,318        1,064        2,473        2,125
    Royalties                     124            -          124            -
    -------------------------------------------------------------------------
                                6,269        4,923       11,226        8,142
    -------------------------------------------------------------------------

    EXPENSES
    Cost of goods sold
     (excluding
     depreciation
     and amortization)          2,604        1,683         3,997       2,634
    Research and
     development
     expenses, net              2,861        6,306         6,888      11,997
    Selling, general and
     administrative
     expenses                   6,310        6,209        13,034      11,116
    Financial expenses            983          709         1,997       1,420
    Impairment loss on
     long-term investment           -            -             -         691
    Depreciation and
     amortization                 453          490           916         975
    Interest income              (107)        (551)         (294)     (1,203)
    Foreign exchange gain      (1,961)         (20)       (2,464)       (292)
    -------------------------------------------------------------------------
                               11,143       14,826        24,074      27,338
    -------------------------------------------------------------------------
    Loss before
     income taxes              (4,874)      (9,903)      (12,848)    (19,196)
    Provision for
     income taxes
      Current                       -          350             -         800
    -------------------------------------------------------------------------
    Net loss for the period    (4,874)     (10,253)      (12,848)    (19,996)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per share -
     basic and diluted          (0.09)       (0.18)        (0.23)      (0.35)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average
     number of common
     shares outstanding    56,839,127   56,821,651    56,832,673  56,819,919
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Labopharm Inc.
    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

                        For the three months ended: For the six months ended:
                              June 30,     June 30,     June 30,     June 30,
                                 2009         2008         2009         2008
    (thousands of                        (Restated)                (Restated)
     Canadian dollars)              $            $            $            $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net loss for the period    (4,874)     (10,253)     (12,848)     (19,996)
    Items not affecting cash:
      Depreciation of property,
       plant and equipment        411          460          833          915
      Amortization of
       intangible assets           42           30           83           60
      Amortization of premiums
       and discounts on
       marketable securities       39           13           54           27
      Impairment loss on
       long-term investment         -            -            -          691
      Non-cash financial
       expenses                   148           92          290          187
      Unrealized foreign
       exchange gain           (1,643)         (20)        (835)        (261)
      Stock-based
       compensation               411          687        1,203        1,571
    -------------------------------------------------------------------------
                               (5,466)      (8,991)     (11,220)     (16,806)
    Net change in
     non-cash items              (291)        (213)      (2,336)         717
    -------------------------------------------------------------------------
                               (5,757)      (9,204)     (13,556)     (16,089)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Acquisition of
     marketable securities     (1,898)           -       (8,466)     (23,553)
    Proceeds from maturities
     of marketable securities   9,203       21,758       23,010       55,819
    Proceeds from disposals
     of marketable securities   1,600            -        6,020            -
    Acquisition of restricted
     long-term investment           -            -            -          (45)
    Acquisition of property,
     plant and equipment          (63)        (629)         (68)      (1,148)
    Acquisition of
     intangible assets            (37)         (32)         (53)         (39)
    -------------------------------------------------------------------------
                                8,805       21,097       20,443       31,034
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Repayment of obligations
     under capital leases         (67)         (47)        (131)         (72)
    Transaction costs            (354)        (118)        (354)        (118)
    Proceeds from issuance
     of share capital             152            3          161            5
    -------------------------------------------------------------------------
                                 (269)        (162)        (324)        (185)
    -------------------------------------------------------------------------
    Foreign exchange gain
     (loss) on cash held in
     foreign currencies          (614)        (175)        (677)         624

    Net increase in cash
     and cash equivalents
     during the period          2,165       11,556        5,886       15,384
    Cash and cash equivalents,
     beginning of period       12,094       21,001        8,373       17,173
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             14,259       32,557       14,259       32,557
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash
     flow information:
    Interest paid                 791          622        1,492        1,145
    Income taxes received           -           43           88           43
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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SOURCE Labopharm Inc.
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