Labopharm third quarter total revenue increases to $9.6 million

- Company's Second Product Launched in U.S., Third Product Approved in Europe -

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

"Labopharm now has two products commercially available in the U.S. and our third - a twice-daily tramadol/acetaminophen product - is poised for launch in Europe late next year," said James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc.  "We are encouraged by the positive early trends in feedback and use of OLEPTRO™ since launch and continue to believe that OLEPTRO™ is a valued option in the treatment of depression."

Recent Developments

OLEPTRO™ Launched in the U.S. Market

OLEPTRO™, a novel once-daily formulation of the antidepressant trazodone, was launched in the U.S. by Angelini Labopharm, Labopharm's joint venture with Gruppo Angelini.

Canadian Regulatory Decision on Once-Daily Antidepressant Anticipated Before Year End

Based on discussions with Health Canada, Labopharm anticipates a decision on its New Drug Submission (NDS) for once-daily trazodone to be rendered by the end of 2010.  In the meantime, Labopharm continues to advance discussions with potential marketing partners towards establishing a licensing and distribution agreement for Canada.

Twice-Daily Tramadol/Acetaminophen Product Approved in Europe

Labopharm's twice-daily tramadol/acetaminophen received a positive opinion under the European Union Decentralized Procedure (DCP) in eight countries (Czech Republic, Iceland, Ireland, Poland, Portugal, Slovakia, Slovenia and Spain). Marketing Authorization (MA) will be granted in each country subject to the approval of translations of the Summary of Product Characteristics (SPC) and other labeling documents. Labopharm is working with its marketing partner, Grünenthal GmbH, towards launching the product in multiple European markets late next year.

Received $2 Million Milestone Payment From Once-Daily Tramadol Development and Marketing Partner for Japan

Established Marketing Partnership for Twice-Daily Tramadol/Acetaminophen Product in Africa

Subsequent to the end of the third quarter, Labopharm established an exclusive distribution and supply agreement for its twice-daily tramadol/acetaminophen with Paladin Labs Inc. for 13 countries in Sub-Saharan Africa, including South Africa.

Established First Marketing Partnerships for INTELLITAB™-Based Product

Also subsequent to the end of the third quarter, Labopharm established exclusive distribution and supply agreements for Canada and 13 Sub-Saharan African countries, including South Africa, with Paladin Labs Inc. for its misuse deterrent and tamper resistant INTELLITAB™ formulation of oxycodone/acetaminophen.  The agreements are the first marketing partnerships for Labopharm's INTELLITAB™ technology platform.

Financial Results

Three-Month Period Ended September 30, 2010

Total revenue for the third quarter of fiscal 2010 was $9.6 million compared with $6.6 million for the third quarter of fiscal 2009.  The increase was primarily the result of higher licensing revenue for the third quarter of fiscal 2010, as well as revenue from the provision of services related to the commercialization of OLEPTRO™ to Angelini Labopharm under the joint venture agreement with Gruppo Angelini.

Revenue from product sales for the third quarter of fiscal 2010 was $4.0 million compared with $5.2 million for the third quarter of fiscal 2009. Product sales for the third quarter of fiscal 2010 included $0.4 million (Labopharm's 50% proportionate share) for initial shipments of OLEPTRO™ to Angelini Labopharm for launch in the U.S. market, as well as Labopharm's 50% proportionate share of the initial sales of OLEPTRO™ by Angelini Labopharm to end users.  Labopharm's proportionate share of revenue from sales of OLEPTRO™ by Angelini Labopharm are recognized using the "sell-through" method under which revenue is recognized upon sale of the product to the end user customer.  Excluding the OLEPTRO™ launch shipments and initial end user sales, higher once-daily tramadol product unit sales volumes in the third quarter of 2010, for territories outside the U.S., were offset by the $0.4 million impact of an unfavourable year-over-year variance in the exchange rate of the Euro relative to the Canadian dollar, as well as a lower average selling prices in the third quarter of fiscal 2010 as a result of a less favourable product strength and country mix.

Both sales of RYZOLT™ to Purdue Pharma and sales of OLEPTRO™ 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 third quarter of fiscal 2010 was 60% compared with 65% for the third quarter of fiscal 2009.  The decrease is primarily the result of a lower average selling price per tablet in the third quarter of fiscal 2010 and the aforementioned unfavourable year-over-year variance in the exchange rate.

Licensing revenue for the third quarter of fiscal 2010 was $4.3 million compared with $1.2 million for the third quarter of fiscal 2009.  The increase is primarily the result of the recognition of a $2.3 million payment from the Company's marketing partner for once-daily tramadol in Japan related to a milestone achievement, as well as the recognition of $1.4 million of the deferred revenue resulting from the licensing of the OLEPTRO™ U.S. marketing rights.

Royalty revenue recorded on sales of RYZOLT™ for the third quarter of 2010 was $0.5 million compared with $0.2 million in the third quarter of fiscal 2009. Revenue from services and research and development collaborations was $0.7 million and included $0.5 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.

Research and development expenses, before government assistance, for the third quarter of fiscal 2010 were $2.4 million compared with $3.2 million for the third quarter of fiscal 2009.  The decrease was primarily the result of various cost-reduction initiatives, as well as lower clinical trial costs in the third quarter of fiscal 2010.  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 third quarter of fiscal 2010 were $11.2 million compared with $8.3 million for the third quarter of fiscal 2009.  The increase is primarily due to the Company's 50% proportionate share of Angelini Labopharm's sales and marketing expenses for the commercialization of OLEPTRO™ in the U.S.  This increase was partially offset by lower accruals in the third quarter of fiscal 2010 of $41,000, 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. 

Net loss for the third quarter of fiscal 2010 was $7.2 million, or $0.10 per share, compared with $6.9 million, or $0.12 per share, for the third quarter of fiscal 2009.

Cash, cash equivalents and marketable securities as at September 30, 2010 were $52.2 million (including $5.5 million representing Labopharm's proportionate share of the cash and cash equivalents held by Angelini Labopharm) compared with $63.2 million as at June 30, 2010.  Subsequent to quarter end, Labopharm was advanced $10 million from Paladin Labs Inc. as part of three licensing and distribution agreements that the Company established with Paladin.

Nine-Month Period Ended September 30, 2010

Total revenue for the first nine months of 2010 increased to $21.1 million from $17.9 million for the first nine months of fiscal 2009.  Revenue from product sales for the first nine months of 2010 was $11.6 million compared with $13.8 million for the first nine months of fiscal 2009.  Excluding the OLEPTRO™ launch shipments and initial end user sales, higher once-daily tramadol product unit sales volumes in the first nine months of fiscal 2010, for territories outside the U.S., were offset by the $1.2 million impact of an unfavourable year-over-year variance in the exchange rate of the Euro relative to the Canadian dollar, a $0.7 million reserve for future price adjustments associated with a customer's sampling program, as well as a lower average selling prices in the first nine months of fiscal 2010 as a result of a less favourable product strength and country mix.  The first nine months of 2009 included $2.5 million of sales of Ryzolt to Purdue Pharma.

Gross margin (as a percentage of revenue from product sales for once-daily tramadol in territories outside the U.S.) for the first nine months of fiscal 2010 was 57% compared with 66% for the first nine months of fiscal 2009.  The rationale for the decrease is similar to that discussed above for the quarter.

Licensing revenue for the first nine months of fiscal 2010 was $6.0 million compared with $3.7 million for the first nine months of fiscal 2009.  The rationale for the increase is similar to that discussed above for the quarter.  Royalty revenue on sales of RYZOLT™ for the first nine months of 2010 was $1.8 million compared with $0.3 million for the first nine months of 2009. Revenue from services and research and development collaborations was $1.7 million for the first nine months of 2010.

Net loss for the first nine months of fiscal 2010 was $21.5 million, or $0.31 per share, compared with $19.8 million, or $0.35 per share, for the first nine months of fiscal 2009.