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Labopharm Reports Results for Year End and Fourth Quarter Fiscal 2008
Date:2/26/2009

    - Quarter Highlighted by Regulatory Approval of Once-Daily Tramadol in
    the U.S and FDA Acceptance of NDA for Novel Treatment for Depression -

LAVAL, QC, Feb. 26 /PRNewswire-FirstCall/ - Labopharm Inc. (TSX: DDS; NASDAQ: DDSS) today reported its results for the fourth quarter and year ended December 31, 2008. All figures are in Canadian dollars unless otherwise stated.

"With our first product about to be rolled out in the world's largest pharmaceutical market, our second under consideration for regulatory approval by the FDA and our third undergoing a Phase III study, 2009 will be an eventful year with a series of value-driving milestones." said James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc.

    Labopharm's key milestone events in 2009 include:
      -  Launch of its once-daily tramadol product in the U.S. during the
         second quarter;
      -  The PDUFA date for its novel trazodone formulation on July 18; and
      -  Results of the Phase III clinical trial for its twice-daily
         tramadol-acetaminophen formulation during the first half of the
         year.

Financial Summary

Revenue from product sales of Labopharm's once-daily tramadol for the fourth quarter of fiscal 2008 increased to $3.3 million from $1.6 million for the fourth quarter of fiscal 2007. Adjusted gross margin for the fourth quarter of fiscal 2008 increased to 51.8% from 43.5% for the fourth quarter of fiscal 2007, primarily due to higher average selling prices. Research and development expenses, net of research and development tax credits, for the fourth quarter of fiscal 2008 were $5.2 million compared with $6.3 million for the fourth quarter of fiscal 2007. Selling, general and administrative expenses for the fourth quarter of fiscal 2008, were $10.6 million compared with $4.5 million for the fourth quarter of fiscal 2007 and included an accrual of $4.8 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 fourth quarter of fiscal 2008 was $14.7 million, or $0.26 per share, compared with $10.0 million, or $0.18 per share, for the fourth quarter of fiscal 2007.

Key Developments for the Fourth Quarter

Once-Daily Tramadol Product Approved in the U.S. - Labopharm's once-daily tramadol product received regulatory approval from the U.S. Food and Drug Administration (FDA) on December 30, 2008. The Company expects its product, which will be marketed under the brand name RYZOLT(R), to be launched by its marketing partner, Purdue Pharma L.P., in the second quarter of 2009.

NDA For Novel Trazodone Formulation Accepted For Review and Filed by FDA/Company in Ongoing Discussions for U.S. Marketing Partnership - Labopharm's New Drug Application (NDA) for its novel trazodone formulation was accepted for review and filed by the U.S. Food and Drug Administration (FDA) with an action date under the Prescription Drug User Fee Act (PDUFA) of July 18, 2009. The Company is in ongoing discussions with potential marketing partners towards establishing a licensing and distribution agreement for the United States.

Enrolment Completed for Phase III Clinical Trial for Twice-Daily Tramadol-Acetaminophen Formulation - Labopharm completed enrolment for its North American Phase III clinical trial for its twice-daily formulation of tramadol-acetaminophen (study 06CCL3-001). The Company expects to report the results of the study in the coming weeks. The Company is in discussion with potential marketing partners towards establishing licensing and distribution agreements for the U.S. and other key markets globally.

Other Recent Developments

Once-Daily Tramadol

Market Share in Canada Increases to 36% - Market share for Labopharm's product in Canada continued to grow, reaching 36% for the month of January 2009.

In-Market Sales in Europe Exhibit Strong Year-Over-Year Growth - In-market sales of Labopharm's product in major European markets(1) for 2008 grew 72% to more than 27 million standard units compared to 2007. Labopharm's product was the best selling once-daily tramadol product in these markets(1) in 2008 with 44% share of the market(2), up from a 30% share in 2007.

Product Launched in Israel - Labopharm's once-daily tramadol product was launched in Israel by its marketing partner for that country, Dexcel Pharma Technologies Ltd.

Established Marketing Partnerships for Three Additional Countries - Labopharm signed licensing and distribution agreements for three additional countries: Brazil, Denmark and Switzerland.

Abuse Deterrent Platform

Preparing to Initiate Clinical Studies for a Widely Misused Combination Pain Drug - Labopharm is preparing to enter the clinic in the first half of 2009 with an abuse deterrent formulation of a widely prescribed pain drug. The Company has completed pre-clinical, proof-of-principle studies of its platform using once-daily tramadol as a safe representative of the controlled-release opioid class of drugs. The positive results of the pharmacokinetic study demonstrated controlled-release characteristics and bioequivalence to once-daily tramadol and the in vitro studies demonstrated misuse and abuse deterrent characteristics.

    ----------------------------------
    (1) Includes France, Germany, the United Kingdom, Spain and Italy.
    (2) Labopharm's target market in Europe consists of the market for
        immediate-release, twice-daily, once-daily and drop formulations of
        tramadol.

Financial Results

Three-Month Period Ended December 31, 2008

Revenue for the fourth quarter of fiscal 2008 increased to $4.4 million from $2.6 million for the fourth quarter of fiscal 2007. Revenue from product sales increased to $3.3 million from $1.6 million for the fourth quarter of fiscal 2007. The increase in revenue from product sales was the result of higher sales volumes and higher average selling prices in the fourth quarter of fiscal 2008.

Adjusted gross margin (as a percentage of revenue from product sales) for the fourth quarter of fiscal 2008 increased to 51.8% from 43.5% for the fourth quarter of fiscal 2007. Adjusted gross margin for the fourth quarter of fiscal 2008 excludes the reversal of $150,000 of previously recorded write downs while adjusted gross margin for the fourth quarter of fiscal 2007 excludes the reversal of $390,000 of expenses previously recorded in 2007, primarily related to the U.S. pre-launch inventory. The increase in adjusted gross margin was due primarily to a higher average selling price.

Licensing revenue for the fourth quarter of fiscal 2008 was $1.2 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 fourth quarter of fiscal 2007 was $1.1 million.

Research and development expenses, before research and development tax credits, for the fourth quarter of fiscal 2008 were $4.2 million compared with $7.9 million for the fourth quarter of fiscal 2007. The decrease was primarily the result of lower costs related to clinical trial activity in the fourth quarter of fiscal 2008. Research and development tax credits for the fourth quarter of fiscal 2008 were negative $1.0 million, the result of the Company's change in tax planning strategy. Research and development tax credits for the fourth quarter of fiscal 2007 were $1.6 million.

Selling, general and administrative expenses for the fourth quarter of fiscal 2008 were $10.6 million compared with $4.5 million for the fourth quarter of fiscal 2007. The increase is primarily the result of the accrual of $4.8 million 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, which received U.S. regulatory approval on December 30, 2008. Payment of Labopharm's share of litigation costs will be made through deductions from quarterly royalty payments made by Purdue to Labopharm on sales of Labopharm's once-daily tramadol product, up to 50% of the amount of the royalty payment. Any outstanding amount due Purdue at December 31, 2010 or thereafter, if any, for such litigation costs will be due immediately. The increase in selling, general and administrative expenses was also the result of higher sales and marketing costs.

During the fourth quarter, the Company made an additional adjustment to the estimated fair value of its asset backed commercial paper (ABCP) investment and took an additional impairment charge of $0.2 million. The total impairment charge taken to date on the ABCP is $2.8 million. The initial ABCP investment was $5.6 million.

Net loss for the fourth quarter of fiscal 2008 was $14.7 million, or $0.26 per share, compared with $10.0 million, or $0.18 per share, for the fourth quarter of fiscal 2007.

Cash, cash equivalents and marketable securities at December 31, 2008 were $44.9 million, compared with $44.1 million at September 30, 2008. The cash, cash equivalents and marketable securities position at December 31, 2008 does not include the Company's ABCP investment with an estimated fair value of $3.2 million that was reclassified as a long-term investment in the third quarter of 2007. During the quarter, the Company drew down an additional US$5 million (Cdn$5.8 million) of its existing US$25 million term loan facility with Hercules Technology Growth Capital, Inc., bringing the total principal outstanding under the facility to US$20 million.

Twelve-Month Period Ended December 31, 2008

For fiscal 2008, revenue increased to $22.0 million from $19.0 million for fiscal 2007. Revenue from product sales increased to $13.2 million from $11.9 million for fiscal 2007. The significant growth in in-market sales for fiscal 2008 compared to fiscal 2007 is not reflected in product sales due to a large portion of 2007 shipments being composed of initial launch quantities and some marketing partners having entered 2008 with high inventory levels that delayed follow on orders, resulting in lower sales volumes. These were partially offset by higher average selling prices as a result of a more favourable product mix.

Adjusted gross margin (as a percentage of revenue from product sales) for fiscal 2008 increased to 56.9% from 50.4% for fiscal 2007. Adjusted gross margin for fiscal 2008 excludes a write off of inventory of $255,000 and a 2007 royalty provision reversal of $105,000, while adjusted gross margin for fiscal 2007 excludes a $1.4 million provision for once-daily tramadol pre-launch inventory and related deposits to manufacturers, net of adjustments of $341,000 with respect to the reversal of previously recorded accounts payable. The increase in adjusted gross margin was due primarily to lower packaging costs and higher average selling prices per tablet.

Licensing revenue for fiscal 2008 was $8.9 million and represented a portion of licensing payments received from the Company's licensing and distribution partners for once-daily tramadol. Licensing revenue for fiscal 2007 was $5.8 million. The increase was primarily due to the recognition of the balance of the licensing payments previously received from Recordati as a result of the Company reacquiring the sales and marketing rights to its once-daily tramadol product in the United Kingdom.

Net loss for fiscal 2008 was $40.5 million, or $0.71 per share, compared with $36.6 million, or $0.64 per share, for fiscal 2007. The increase in net loss was primarily the result of higher selling, general and administrative expenses related to the litigation costs due Purdue Pharma, as well as higher headcount and related compensation expenses and higher sales and marketing expenses.

Conference Call

Labopharm will host a conference call today (Thursday, February 26, 2009 at 8:30 a.m. ET) to discuss its fourth quarter and year end fiscal 2008 results. To access the conference call by telephone, dial 416-644-3416 or 1-800-732-9307. Please connect approximately five minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Thursday, March 5, 2009 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21295388 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 being commercially launched in key markets globally and its second product, a novel formulation of trazodone for the treatment of major depressive disorder, is under regulatory review by the FDA. The Company also has a robust pipeline of follow-on products in various stages of 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.

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.
    CONSOLIDATED BALANCE SHEETS
    (Thousands of Canadian dollars)

    As at December 31,                                     2008         2007
                                                              $            $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                             8,373       17,173
    Marketable securities                                36,520       54,726
    Accounts receivable                                   3,277        1,972
    Research and development tax credits receivable       1,274        1,197
    Income taxes receivable                                 474          161
    Inventories                                           1,760        2,875
    Prepaid expenses and other assets                       641        1,460
    -------------------------------------------------------------------------
    Total current assets                                 52,319       79,564
    -------------------------------------------------------------------------

    Restricted long-term investments                        141        1,277
    Long-term investment                                  3,178        4,329
    Property, plant and equipment                        10,213       10,800
    Intangible assets                                     3,855        3,453
    Future income tax assets                                145          116
    -------------------------------------------------------------------------
                                                         69,851       99,539
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities             13,134        8,719
    Current portion of deferred revenue                   4,768        4,325
    Current portion of obligations under capital leases     271          203
    Current portion of long-term debt                     3,378            -
    -------------------------------------------------------------------------
    Total current liabilities                            21,551       13,247
    -------------------------------------------------------------------------

    Deferred revenue                                      9,094       17,083
    Obligations under capital leases                      5,342        5,613
    Long-term debt                                       20,265       13,647
    -------------------------------------------------------------------------
    Total liabilities                                    56,252       49,590
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital
      Common shares, no par value, unlimited authorized
       shares, 56,826,063 and 56,817,963 issued as at
       December 31, 2008 and 2007, respectively         241,967      241,955
    Warrants                                                751          541
    Contributed surplus                                  14,937       12,527
    Deficit                                            (245,451)    (205,024)
    Accumulated other comprehensive income (loss)         1,395          (50)
    -------------------------------------------------------------------------
    Total shareholders' equity                           13,599       49,949
    -------------------------------------------------------------------------
                                                         69,851       99,539
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Thousands of Canadian dollars, except share and per share amounts)

    For periods of:               Three months ended     Twelve months ended
                                 Dec. 31,    Dec. 31,   Dec. 31,     Dec. 31,
                                    2008        2007        2008        2007
                                       $           $           $           $
    -------------------------------------------------------------------------

    REVENUE
    Product sales                  3,278       1,576      13,158      11,935
    Licensing                      1,155       1,060       8,856       5,846
    Research and development
     collaborations                    -           -           -       1,217
    -------------------------------------------------------------------------
                                   4,433       2,636      22,014      18,998
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EXPENSES
    Cost of goods sold
     (excluding amortization)      1,429         500       5,818       7,216
    Research and development
     expenses, net                 5,187       6,287      23,451      23,583
    Selling, general and
     administrative expenses      10,630       4,495      26,396      20,335
    Financial expenses               980         457       3,133       1,931
    Impairment loss on
     long-term investment            200         600       1,291       1,474
    Depreciation and
     amortization                    565         492       2,150       1,974
    Interest income                 (320)       (771)     (1,874)     (3,478)
    Foreign exchange loss (gain)   2,039        (243)      2,235          37
    -------------------------------------------------------------------------
                                  20,710      11,817      62,600      53,072
    -------------------------------------------------------------------------
    Loss before income taxes     (16,277)     (9,181)    (40,586)    (34,074)
    Income tax expense
     (recovery)                   (1,559)        855         (59)      2,501
    -------------------------------------------------------------------------
    Net loss for the period      (14,718)    (10,036)    (40,527)    (36,575)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per share
     - basic and diluted           (0.26)      (0.18)      (0.71)      (0.64)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number
     of common shares
     outstanding              56,826,063  56,817,963  56,822,506  56,801,196
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Thousands of Canadian dollars)

    For periods of:               Three months ended     Twelve months ended
                                 Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                    2008        2007        2008        2007
                                       $           $           $           $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net loss for the period      (14,718)    (10,036)    (40,527)    (36,575)
    Items not affecting cash:
      Depreciation of property,
       plant and equipment           451         425       1,837       1,729
      Amortization of
       intangible assets             114          67         313         245
      Amortization of premiums
       and discounts on
       marketable securities          20          48          53         255
      Impairment loss on
       long-term investment          200         600       1,291       1,474
      Non-cash financial expenses    135          24         423         131
      Unrealized foreign exchange
       loss (gain)                 1,682        (238)      2,068          44
      Future income taxes              -          82           -          18
      Stock-based compensation       433         679       2,414       4,252
    -------------------------------------------------------------------------
                                 (11,683)     (8,349)    (32,128)    (28,427)
    Net change in non-cash items   4,198         133      (1,708)      1,249
    -------------------------------------------------------------------------
                                  (7,485)     (8,216)    (33,836)    (27,178)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Acquisition of marketable
     securities                   (9,728)     (8,086)    (50,243)    (73,066)
    Proceeds from disposals
     of marketable securities      3,234       9,887       3,234      13,385
    Proceeds from maturities
     of marketable securities          -       4,085      67,019      85,961
    Acquisition of restricted
     long-term investment              -           -         (45)          -
    Acquisition of property,
     plant and equipment             (34)       (252)     (1,378)     (1,852)
    Acquisition of intangible
     assets                         (306)        (36)       (715)       (493)
    -------------------------------------------------------------------------
                                  (6,834)      5,598      17,872      23,935
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Repayment of obligations
     under capital leases            (65)        (25)       (203)        (96)
    Proceeds from issuance
     of common shares                  -           -           8         225
    Repayment of long-term
     debt                              -      (3,916)          -      (6,977)
    Proceeds from issuance of
     long-term debt                5,647      14,117       5,647      14,117
    Proceeds from issuance of
     warrants                        190         541         190         541
    Transaction costs                  -         (25)       (118)        (25)
    -------------------------------------------------------------------------
                                   5,772      10,692       5,524       7,785
    -------------------------------------------------------------------------

    Foreign exchange gain
     (loss) on cash held in
     foreign currencies            1,192          30       1,640      (1,091)
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalent
     during the period            (7,355)      8,104      (8,800)      3,451
    Cash and cash equivalents,
     beginning of period          15,728       9,069      17,173      13,722
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                 8,373      17,173       8,373      17,173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
    Interest paid                    696         655       2,473       1,762
    Income taxes paid (received)       -          52         267        (850)
    -------------------------------------------------------------------------


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SOURCE Labopharm Inc.
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