Analysts cut Labopharm price targets on marketing deal

After weighing the pros and cons of Labopharm’s joint venture marketing accord with Italy’s Gruppo Angelini, Dundee Securities and Versant Partners cut their price targets on “buy-rated” Labopharm (TSX: DDS; NASDAQ: DDSS), with Dundee moving the target down to $2.40 from $3 and Versant down to $2.50 from $3.

Dundee analyst David Martin cited “increased risk and delayed reward” of the deal to distribute Labopharm’s Oleptro anti-depressant in the U.S.  He notes that it may have been “easier to gain traction with a new product had it been added to an existing portfolio of CNS products (the upside of this is that Oleptro will be the sole focus of the sales reps) and with no other products in the joint venture, there will be no distribution of expenses over existing revenue generators.”

Versant analyst Doug Loe writes that a joint venture “incurs greater execution risk than a conventional royalty-bearing alliance in our view and investors (were) likely looking for endorsement from a larger U.S.-based pharma firm.”  A joint venture “clearly requires greater infusion of capital than a royalty-bearing deal, both to fund working capital requirements and to fund sales force expansion, and we expect sales ramp to be slower than would be achievable by a larger pharma partner with well-established U.S. marketing infrastructure already in place,” he added.

Under the accord, Labopharm will receive an upfront payment of $26 million (U.S.) from Angelini, but will pay $14 million into the joint venture as will Angelini. Labopharm will be compensated for already incurred launch expenses and can receive additional milestone payments based on sales.

“This joint venture builds on the foundation of mutual trust and a track record of execution that underlies the co-development relationship we established with Angelini more than four years ago,” Labopharm CEO James Howard-Tripp said in a statement.