Labopharm second-quarter total revenue increases to $6.8 million

- OLEPTRO(TM) Launched in the U.S. Market -

Labopharm Inc. (TSX: DDS; NASDAQ: DDSS) today reported its financial results for the second quarter and first six months ended June 30, 2010. All figures are in Canadian dollars unless otherwise stated.

"The year to date is highlighted with a number of significant milestones, culminating with the U.S. launch of OLEPTRO(TM) earlier this week," said James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc. "With OLEPTRO(TM), we now have two commercial products in the market generating revenue for the Company, both based on our CONTRAMID(R) technology. As we move forward, we continue to focus on the development and commercialization of differentiated products using our three technology platforms - our proven CONTRAMID(R) platform, our promising abuse- and misuse-deterrent platform, INTELLITAB(TM), and our PNDS(TM) platform for the optimized delivery of water-insoluble drugs and, potentially, short interfering ribonucleic acid (siRNA), a rapidly emerging area of drug delivery."

OLEPTRO(TM) Launched in the U.S. Market

OLEPTRO(TM), a novel once-daily formulation of the antidepressant trazodone, has been launched in the U.S. by Labopharm's joint venture with Gruppo Angelini, Angelini Labopharm. OLEPTRO(TM) is a new therapeutic option in the treatment of major depressive disorder (MDD) in adults.

Regulatory Review of Once-Daily Trazodone in Canada Continues

Labopharm was advised that, due to backlog, Health Canada has not yet completed the Company's new drug submission (NDS) review for once-daily trazodone. Health Canada has not, however, advised the Company of any issues with the submission. Based on recent discussions with Health Canada, Labopharm now expects a decision to be rendered towards the end of 2010. In the meantime, Labopharm continues to hold discussions with potential marketing partners towards establishing a licensing and distribution agreement for Canada and to prepare for launch in the first half of 2011.

Review of Twice-Daily Tramadol-Acetaminophen in Europe Progressing

The Decentralized Procedure (DCP) regulatory approval process for a number of European countries is progressing for Labopharm's twice-daily tramadol-acetaminophen. The Company continues to expect a decision to be rendered before year end. In anticipation of possible approval, Labopharm's marketing partner, Grunenthal GmbH, is preparing to launch the product next year. The countries for which the DCP has been initiated represent more than 25% of the European market for tramadol-acetaminophen products.

Pursuing Opportunities to Partner INTELLITAB(TM) Technology and Products

In addition to developing its own products based on its abuse- and misuse-deterrent technology platform, INTELLITAB(TM) (the first of which is twice-daily oxycodone-acetaminophen), Labopharm is in discussion with potential partners to develop products for or with them, using the INTELLITAB(TM) technology under license.

Exploring Emerging Opportunities for Highly Differentiated Products Through Delivery of siRNA

As part of the evolution of its business strategy to develop highly differentiated products with greater potential returns on investment, Labopharm is exploring opportunities to apply its POLYMERIC NANO-DELIVERY SYSTEMS(TM) (PNDS(TM)) technology platform to the emerging field of therapeutics known as RNA (ribonucleic acid) interference (RNAi). RNAi consists of the use of short sequences of RNA to block or silence the effect of disease-related genes.

Financial Results

Three-Month Period Ended June 30, 2010

Total revenue for the second quarter of fiscal 2010 was $6.8 million compared with $6.3 million for the second quarter of fiscal 2009. Revenue from product sales for the second quarter of fiscal 2010 was $4.3 million compared with $4.8 million for the second quarter of fiscal 2009. Product sales for the second quarter of fiscal 2010 included $1.0 million (Labopharm's 50% proportionate share) for the initial shipments of OLEPTRO(TM) to Angelini Labopharm for launch in the U.S. market while product sales for the second quarter of fiscal 2009 included $1.8 million of initial shipments of once-daily tramadol product to Purdue Pharma for the launch in May 2009 of RYZOLT(TM) in the U.S. Excluding the initial shipment, higher once-daily tramadol product unit sales volumes in 2010 were offset primarily by an unfavourable year-over-year variance in the Euro relative to the Canadian dollar, as a significant portion of once-daily tramadol product sales in territories outside the U.S. is denominated in Euros. The lower Euro to Canadian dollar exchange rate in 2010 versus 2009 had an unfavourable impact on revenue for the second quarter of fiscal 2010 of $0.5 million compared to the corresponding period in fiscal 2009.

Both sales of RYZOLT(TM) to Purdue Pharma and sales of OLEPTRO(TM) to Angelini Labopharm for distribution in the U.S. market are transacted essentially at cost and therefore are excluded from the following gross margin discussion. Gross margin (as a percentage of revenue from product sales of once-daily tramadol for territories outside the U.S.) for the second quarter of fiscal 2010 was 56% compared with 72% for the second quarter of fiscal 2009. The decrease is primarily the result of lower average selling price per tablet in the second quarter of fiscal 2010 due to the aforementioned unfavourable year-over-year variance in the exchange rate, a $0.2 million reserve against revenue for future price adjustments recorded in the second quarter of fiscal 2010 and the reversals of a $0.3 million reserve against revenue and a $0.2 million inventory write-down recorded in the second quarter of fiscal 2009.

Licensing revenue for the second quarter of fiscal 2010 was $1.1 million and represented a portion of licensing payments received from the Company's licensing and distribution partners for its once-daily tramadol product, twice-daily tramadol-acetaminophen formulation, as well as a portion of the $27.2 million (US$26 million) resulting from the licensing of the OLEPTRO(TM) U.S. marketing rights to Angelini Labopharm. Licensing revenue for the corresponding quarter of fiscal 2009 was $1.3 million. The decrease is primarily the result of the extension of the term over which the balance of the US$20 million up-front payment received from Purdue Pharma in 2005 for RYZOLT(TM) (once-daily tramadol) will be recognized. Royalty revenue recorded on sales of RYZOLT(TM) for the second quarter of 2010 was $0.6 million compared with $0.1 million in the second quarter of 2009. Revenue from services and research and development collaborations was $0.8 million and included $0.6 million representing Labopharm's 50% proportionate share of the value of the various services provided by the Company to Angelini Labopharm under the joint venture agreement to support the launch of OLEPTRO(TM).

Research and development expenses, before government assistance, for the second quarter of fiscal 2010 were $2.4 million compared with $3.0 million for the second quarter of fiscal 2009. The decrease was primarily the result of lower clinical trial costs in the second quarter of fiscal 2010 as well as various cost-reduction initiatives. Estimated research and development tax credits were $0.3 million, unchanged from the corresponding quarter of fiscal 2009.

Selling, general and administrative expenses for the second quarter of fiscal 2010 were relatively unchanged at $6.5 million compared with the second quarter of fiscal 2009. A $2.2 million increase in selling, general and administrative expenses due to OLEPTRO(TM) launch activities (representing the Company's 50% share of the $4.4 million incurred by Angelini Labopharm during the second quarter), as well as a $0.6 million royalty payment to Gruppo Angelini were essentially offset by a $1.1 million reimbursement by Angelini Labopharm of certain OLEPTRO(TM) launch preparation costs incurred by Labopharm prior to the second quarter (after giving effect to the Company's 50% participation in the joint venture), lower accruals for the Company's share of litigation costs incurred by Purdue Pharma to enforce certain of its U.S. patents related to Labopharm's once-daily tramadol product, the elimination of the Company's pilot sales force in the United Kingdom, a reduction in non-cash stock-based compensation expense and other cost reductions.

Net loss for the second quarter of fiscal 2010 was $6.0 million, or $0.08 per share, compared with $4.9 million, or $0.09 per share, for the second quarter of fiscal 2009. The increase in net loss is primarily the result of the $0.8 million loss on foreign exchange in the second quarter of fiscal 2010 compared to a $2.0 million gain in the second quarter of fiscal 2009, which was partially offset by higher revenue and lower research and development expenses.

Cash, cash equivalents and marketable securities as at June 30, 2010 were $63.2 million (including $12.7 million representing Labopharm's proportionate share of the cash and cash equivalents held by Angelini Labopharm) compared with $43.3 million as at March 31, 2010. During the second quarter of fiscal 2010, the Company received a $27.2 million (US$26 million) payment from Angelini Labopharm under the terms of its license agreement for the commercialization of OLEPTRO(TM) in the U.S. Labopharm also received $1.1 million from Angelini Labopharm as reimbursement of certain OLEPTRO(TM) launch preparation costs incurred prior to the second quarter. The increase in cash was partially offset by cash used in operations.

During the second quarter of fiscal 2010, Hercules Technology Growth Capital, Inc. agreed to amend Labopharm's debt facility agreement, extending both the period of interest-only payments on the loan and the maturity date of the loan, which provides Labopharm with approximately $4.5 million in additional liquidity in 2010 and throughout 2011.

Six-Month Period Ended June 30, 2010

Total revenue for the first half of 2010 increased to $11.5 million from $11.2 million for the first half of fiscal 2009. Revenue from product sales for the first half of 2010 decreased to $7.5 million from $8.6 million for the first half of fiscal 2009. Similar to the quarter, the lower Euro to Canadian dollar exchange rate in 2010 versus 2009 had an unfavourable impact on revenue for the first half of fiscal 2010 compared to the corresponding period in fiscal 2009.

Gross margin (as a percentage of revenue from product sales for once-daily tramadol in territories outside the U.S.) for the first half of fiscal 2010 was 55% compared with 67% for the first half of fiscal 2009. The rationale for the decrease is similar to that discussed above for the quarter.

Licensing revenue for the first six months of fiscal 2010 was $1.7 million compared with $2.5 million for the first six months of fiscal 2009. The rationale for the decrease is similar to that discussed above for the quarter. Royalty revenue on sales of RYZOLT(TM) for the first half of 2010 was $1.2 million compared with $0.1 million for the first half of 2009. Revenue from services and research and development collaborations was $1.1 million for the first half of 2010.

Net loss for the first half of fiscal 2010 was $14.3 million, or $0.21 per share, compared with $12.9 million, or $0.23 per share, for the first half of fiscal 2009. The rationale for the increase in net loss is similar to that discussed above for the quarter.

SOURCE Labopharm Inc.

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