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Reality check: Reuter's article on DDSS brought by Dew DilligenceBUY OR SELL-Can Labopharm compete with generics? Fri Feb 5, 2010 1:04pm EST Stocks Labopharm Inc DDS.TO $2.06 +0.08+4.04% 10:18am EST * Labopharm shares down 10 percent in three sessions * Worries persist over pressure from generic drugs * Partnership potential leads analyst to recommend stock By Scott Anderson TORONTO, Feb 5 (Reuters) - Canadian drugmaker Labopharm Inc (DDS.TO) received U.S. approval for its once-daily antidepressant trazodone earlier this week, but its shares have fallen almost 10 percent since then on worries that it could face tough competition from generic versions of the formula. The approval clears the way for Labopharm, which will sell the drug under the brand name Oleptro, to launch it in the $11 billion U.S. market later this year. It also accelerates the company's need to find a marketing partner for the drug, which it must do before it can launch the treatment. But worries persist over whether it can gain sales traction given that the U.S. government's new healthcare reform proposed a switch to the cheaper generic products whenever possible. Will Labopharm's shares, which rose 40 percent since late August, partly on anticipation of a favorable ruling on once-daily trazodone, fall further or will it find a way to lift spirits? COMPETITIVE FIELD Paradigm Capital analyst Claude Camire sees Labopharm facing stiff competition from generic products for Oleptro, as well as its Rizolt pain remedy, given the U.S. government's push for cheaper drugs. "We think the approval is a great win for the firm but this may not be enough. We believe both products (Rizolt and Oleptro) are facing intense competition in the U.S. from substitute products and generics," he wrote in a note to clients. As Medicare and Medicaid are the largest buyers of generic drugs, Camire sees a U.S. reimbursement policy hindering Oleptro's success in the insured markets. Camire, who has a C$1.50 share target on the company, sees a peak revenue for Oleptro of between $20 million and $30 million per year. "For now, we think there are more challenges than opportunities under this new economic reality. As a consequence we think the company is overvalued at these levels given the current revenue and profit expectations." UPSIDE POTENTIAL David Martin, an analyst at Dundee Capital markets, sees a brighter scenario for the Montreal-based drugmaker, particularly if it signs a significant marketing agreement. "Labopharm is actively exploring several alternatives for the U.S. commercialization of Oleptro, including signing a distribution partner while retaining some co-promotion rights, or a full co-promotion arrangement where Labopharm would share the sales function," he wrote. "Optimally, we feel a partner should have sufficient marketing resources and an appropriate branding strategy that can shift perception of the drug away from a trazodone reformulation, towards a new product with unique attributes of improved sleep architecture, in addition to antidepressant efficacy." Martin, who raised his stock target price to C$3.10 from C$2.50, estimates a marketing agreement could bring Labopharm in between $10 million to $25 million per year depending on the milestone and royalty structure. ($1=$1.07 Canadian) (Reporting by Scott Anderson) After reading this article, people also read: * Study shows why it is so scary to lose moneyFeb 8, 2010 * CORRECTED - Big builders eye Woodside and its lots, get rebuffed | ReutersFeb 9, 2010 * Noble Corp board OKs doubling return to investors | ReutersFeb 8, 2010 * RPT-BAY STREET-Pressure on Canada's ag sector may be short-lived | ReutersFeb 8, 2010 |
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