It's been a rough, rough year for Labopharm (DDSS) and its shareholders, as bad news has been compounded by more bad news, which leaves the current share price at a very unimpressive sixteen cents.
To follow up on all the discouraging news, the company announced that its joint venture with Italy's Gruppo Angelini will trim its sales force by half in an attempt to preserve cash as Labopharm looks towards reshaping the strategic future.
In an additional move to preserve resources, Labopharm is voluntarily delisting from the Nasdaq exchange. Given the substandard share price and lack of any potential short term catalysts, that "voluntarily" would have turned into being "given the boot" before long anyway.
The question that investors need answered now, however, is whether or not this company has a future, and, while trading for about a tenth of what this stock was trading for a year ago, is it worth buying for the speculative portfolio?
One positive that Labopharm has going for it is that there's still money coming in.
The most recently quarterly report showed OLEPTRO sales in Italy of nearly a million dollars, half of which goes to Labopharm, while the other half goes to Angelini. It's possible that the product could continue to gain market share over there, but the prospects for that happening at a rapid place might have taken a hit with the reduction in sales force.
The company has decided not pursuing OLEPTRO on the Canadian market, so count that out as a growth possibility.
On the bright side, product sales were four million for the first quarter of 2011, although matched with a nearly $13 million loss.
DDSS has over thirty million bucks in the war chest right now, so there is no immediate need for cash, and all these cash-saving measures might provide a little bit more of a cushion as the new strategic plan is unveiled.
The true value of the this company might be its drug delivery technology. The Intellitab, Contramid and Polymeric Nano-Delivery Sytem are what could propel the future for Labopharm, although significant success at commercializing the product has thus far proven unsuccessful.
Breaking it down, here's what we have with DDSS:
The Good:
- Products on the market.
- Growing sales.
- Solid drug-delivery technology.
- Cash in the bank.
- Cost-cutting measures that will preserve cash and resources.
The Bad:
- Cost-cutting measures include delisting from the Nasdaq. Some credibility will be lost moving to the OTCBB or the pinks.
- Sales growth is minimal.
- Sales staff in Italy drastically reduced due to lack of significant OLEPTRO growth.
The Ugly:
- The entire strategic plan of the past couple of years for Labopharm has been flushed right down the toilet.
- Share price has been in rapid decline for the past year.
- Plans to launch OLEPTRO in Canada have been cancelled.
- Plans to launch a twice-daily formulationof tramadol/acetaminophen in 2011 have been cancelled.
The Bottom Line: DDSS might be worth some 'night on the town', speculative money for those looking for an eventual recovery, but I'd call this one a watch list right now because there's relatively nothing good coming from the company right now to warrant a rebound.
Let's see if it hits the ten cent mark. At that point, I think that what potential is left with Labopharm could be had for a bargain at those prices. The technology is still sound, and if current sales growth continues to inch higher, then an eleven million market cap might make DDSS a tad undervalued.
That said, keep an eye on it, and look to see how much the losses have been trimmed by next quarter.
Disclosure: No position.
