Labopharm Down: FDA Creates Uncertainty Over Tramadol OK

Labopharm Inc. (DDSS) is down sharply reflecting uncertainty over the timing of final regulatory approval for the pharmaceutical company's once-daily tramadol, a pain treatment.

Earlier Friday, Labopharm said it had received an "approvable letter" from the U.S. Food and Drug Administration for the treatment, but final approval is conditional on the resolution of certain undisclosed issues.

This uncertainty and the lack of disclosure about the oustanding issues spooked investors, especially since the stock had moved higher earlier this week in anticipation of the treatment receiving final approval.

In Toronto Friday, the stock is down C$1.69, or 21%, to C$6.42 on 2.2 million shares. The stock was little changed Thursday at C$8.11, but had jumped 7.2% on Wednesday.

Merrill Lynch analyst Michael Pollard reduced his target for Labopharm to C$10 from C$10.50 to take into account the time it would take the company to address the issues raised by the FDA. He suggested in a note that it could take up to eight months for this process to be completed.

Merrill Lynch has received investment-banking fees from Labopharm, but the analyst doesn't own the stock.

Still, Pollard believes the stock's current weakness represents a buying opportunity for "patient investors," asserting in a note that the "long-term prospects for once-daily tramadol remain strong."

In the release, Labopharm said it believes that it can address the issues raised in the FDA letter without the need for additional data.

Labopharm Chief Executive James Howard-Tripp couldn't immediately be reached for comment to elaborate on the oustanding issues.

Dundee Securities analyst David Martin believes that, if a further clinical trial for the treatment was required, the stock would fall back to the C$3-C$4 range. However, "rapid resolution of the issues and an approval could put the stock in the C$12-$14 range," Martin wrote in the note.

Martin cut his target to C$7 from C$11 and placed his rating under review because of the uncertainty over the approavable letter. His previous rating was market outperform.