Jonathan Goodman, Ceo of Paladin Labs Inc. Photo by Pierre CharbonneauPierre Charbonneau/The Globe and Mail
Labopharm Inc., a once high-flying Montreal drug company with a share price to match., has reached the end of the road with a agreement to be taken over by Paladin Labs Inc.
The agreement will see Montreal-based Paladin pay about $20.4-million in cash, or just over 28 cents a share for each Labopharm share, a 68-per-cent premium to Tuesday's close but a far cry from the $11 the stock once commanded.
Labopharm was a stock market darling a decade ago, with a strategy similar to its rival Biovail Corp. – it created new, more-convenient versions of existing drugs by developing timed-release pills that needed to be taken only once a day.
The company went public in 1996, and in 2001 it was the top performer on the TSE 300 index, with a gain of more than 400 per cent, ending the year just over $11.
Despite predictions of dramatic growth, Labopharm hit many bumps in the road and has been losing money for years. Several years' delay in getting U.S. regulatory approval for its key once-a-day formulation of the pain killer tramadol was a major setback. The approval, expected in 2006, didn't come until the end of 2008. The tramadol product, which is sold around the world, is now one of the company's key products along with the anti-depressant Oleptro and a combination of tramadol and acetaminophen.
Several analysts who followed the company for years said Labopharm continued to pursue what had become an outdated strategy. By the end of the last decade, it didn't make sense to focus on improving existing drugs through the timed-release mechanism, the analysts said, because cost-conscious U.S. health insurance companies were not willing to pay a premium mainly for convenience. Biovail changed gears (and subsequently merged with U.S. drug maker Valeant Pharmaceuticals International Inc.), but Labopharm did not.
Early this year, Labopharm cut back its staff sharply, long-time CEO James Howard-Tripp resigned, and in March it began a "strategic review" that effectively put the company for sale.
In an interview, Labopharm chairman Santo Costa would not single out any particular reason for the company's decline as an independent entity, saying only that drug development "is a very challenging industry" that has encountered "a changing landscape." The deal with Paladin gets the best possible value for the company's shareholders, he said.
For Paladin, Labopharm brings with it substantial tax losses – about $80-million worth in Canada – and some new international drug distribution rights to add to its portfolio. Paladin already has the rights to sell tramadol in Canada.
Paladin chief financial officer Samira Sakhia said in an interview that the research and development work currently conducted by Labopharm may be spun off into a joint venture partnership. Paladin sells and markets drugs developed by other firms, but does not create its own new products.
Analyst Pooya Hemami of Desjardins Securities in Montreal said the Canadian tax losses are particularly attractive to Paladin, because it is a profitable company. The rights to sell tramadol in 15 countries outside of Canada should generate about $4-million to $6-million in additional revenue a year for Paladin, he said.
Labopharm's deal with Paladin needs the approval of two-thirds of Labopharm shareholders at a meeting set to take place in October.