Streamlines Operations to Focus on Nearer-Term Commercial Opportunities -

LAVAL, QC, Nov. 6 /CNW/ - Labopharm Inc. (TSX: DDS; NASDAQ: DDSS) today reported its financial results for the third quarter ended September 30, 2009. All figures are in Canadian dollars unless otherwise stated.

"We have made strong progress in recent months towards the commercialization of our novel trazodone formulation in both the United States and Canada," said James R. Howard-Tripp, President and Chief Executive Officer, Labopharm Inc. "In the U.S., with the matters raised in the Food and Drug Administration (FDA)'s complete response letter now resolved, we await the Agency's decision regarding approval of our formulation and continue to prepare for commercialization in the first half of 2010 pending such approval. In Canada, our new drug submission (NDS) has been accepted for review by Health Canada and we look forward to its response during the third quarter of next year."

Financial Summary

Revenue from sales of the Company's once-daily tramadol product for the third quarter of fiscal 2009 increased to $5.2 million from $3.9 million for the third quarter of fiscal 2008 and was composed of product sales outside of the U.S. of $4.5 million and product sales in the U.S. of $0.7 million. Total revenue for the third quarter of fiscal 2009 was $6.6 million compared with $9.4 million for the third quarter of fiscal 2008, which included non-recurring licensing revenue of $4.4 million.

Gross margin for sales outside of the U.S. for the third quarter of fiscal 2009 increased to 65% from 55% for the third quarter of fiscal 2008. Research and development expenses, before research and development tax credits, for the third quarter of fiscal 2009 were $3.5 million compared with $7.3 million for the third quarter of fiscal 2008. Selling, general and administrative expenses for the third quarter of fiscal 2009 were $8.0 million compared with $5.0 million for the third quarter of fiscal 2008 and included an accrual of $2.7 million for the Company's share of litigation costs for patent enforcement related to its once-daily tramadol product in the U.S. Net loss for the third quarter of fiscal 2009 was $6.9 million, or $0.12 per share, compared with $6.0 million, or $0.11 per share, for the third quarter of fiscal 2008.

Corporate Streamlining

The Company announced it is streamlining its operations, eliminating 35 positions. Following the action, Labopharm will have 124 employees, approximately 75 of which will be in research and development positions. The reduction in workforce is expected to result in annual cost savings of approximately $3 million.

"After careful consideration, Labopharm is today announcing measures that focus the organization to better support the full commercial potential of our products, our pipeline and our technologies," added Mr. Howard-Tripp.

The Company expects to incur a restructuring charge related to the reduction in workforce of approximately $1 million in the fourth quarter of 2009.

Key Developments

Novel Trazodone Formulation

New PDUFA Action Date Assigned by FDA/API Manufacturing Issues Resolved - Labopharm's response to the FDA's complete response letter was accepted as complete and designated as a Class 2 resubmission. The FDA assigned the Company a new Prescription Drug User Fee Act (PDUFA) action date of February 11, 2010. Subsequently, the Company was informed by Angelini, the manufacturer of the active pharmaceutical ingredient (API), that it had received a letter from the FDA stating that Angelini has appropriately addressed all deficiencies cited by the FDA following its inspection of the manufacturing facility in June and July of this year. The Company continues to prepare for commercialization of its novel antidepressant and, pending FDA approval, intends to launch in the U.S. in the first half of 2010.

NDS Accepted for Review by Health Canada - Labopharm's new drug submission (NDS) was accepted for review by the Therapeutic Products Directorate (TPD) of Health Canada. TPD has assigned a targeted action date of August 4, 2010.

Twice-Daily Tramadol-Acetaminophen Formulation

Completed Distribution and Supply Agreement with Grunenthal - Labopharm completed a distribution and supply agreement with Grunenthal GmbH for its twice-daily tramadol acetaminophen formulation for a number of countries in Europe. Under the terms of the agreement, Labopharm received 3.5 million Euros on signature and will receive up to 4 million Euros in milestone payments upon achievement of certain regulatory and product reimbursement approvals prior to the launch of the product.

Once-Daily Tramadol

Product Maintained Number One Position in Canada for Fifth Consecutive Month and Moved Into Number One Position for Year-to- Date - In September, Labopharm's product (marketed under the brand name Tridural(TM) in Canada) held the leading market share position among all tramadol products (excluding combination products) in Canada in terms of prescriptions for the fifth consecutive month. Labopharm's product also moved into the number one position in terms of market share for the 2009 year to date.

Financial Results

Three-Month Period Ended September 30, 2009

Revenue from product sales in all territories for the third quarter of fiscal 2009 increased to $5.2 million from $3.9 million for the third quarter of fiscal 2008. Revenue from product sales to territories other than the U.S. was $4.5 million compared with $3.9 for the third quarter of fiscal 2008. The increase was the result of higher sales volumes in the third quarter of 2009. Product sales to the U.S. were $0.7 million. Total revenue for the third quarter of fiscal 2009 was $6.6 million compared with $9.4 million for the third quarter of fiscal 2008.

Under its licensing and distribution agreement with Purdue Pharma Products L.P. for RYZOLT(TM) in the United States, Labopharm is entitled to royalty payments of 20% of Purdue's net sales of the product (up to 25% if Purdue achieves certain net annual sales levels). Royalty revenue recorded on sales of RYZOLT in the U.S., which is recognized for accounting purposes upon dispensing of the product to the patient based on third-party prescription data (the "sell-through" method), was $0.2 million for third quarter of 2009.

Labopharm supplies finished packaged RYZOLT product at cost to Purdue, for which the Company records revenue from product sales that generate essentially no gross margin. As a result, 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 those figures. Gross margin (as a percentage of revenue from product sales) for territories outside the U.S. for the third quarter of fiscal 2009 was 65% compared with 55% for the third quarter of fiscal 2008. The increase in gross margin was due to a more favourable product mix, certain cost reduction initiatives and manufacturing efficiencies, and lower inventory write-downs in the third quarter of 2009.

Licensing revenue for the third quarter of fiscal 2009 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 third quarter of fiscal 2008 was $5.6 million and included non-recurring licensing revenue of $4.4 million related to the Company's reacquisition of the rights to its once-daily tramadol product for the United Kingdom from its licensing and distribution partner.

Research and development expenses, before research and development tax credits, for the third quarter of fiscal 2009 were $3.5 million compared with $7.3 million for the third quarter of fiscal 2008. The decrease was primarily the result of lower clinical trial costs in the third quarter of fiscal 2009. Research and development tax credits for the third quarter of fiscal 2009 declined to $0.3 million from $1.0 million for the third quarter of fiscal 2008, the result of a deferral in the utilization of non- refundable Canadian federal tax credits due to a change in tax planning.

Selling, general and administrative expenses for the third quarter of fiscal 2009 were $8.0 million compared with $5.0 million for the third quarter of fiscal 2008. The increase is primarily the result of the accrual of $2.7 million for the Company's share of litigation costs incurred by Purdue to enforce certain of Purdue's U.S. patents related to Labopharm's once-daily tramadol product.