Labopharm Inc. lost more than half its value Friday after suffering a second setback in its plan to get FDA approval for a once-daily formulation of the analgesic tramadol.

The FDA sent Labopharm a second approvable letter on its new drug application, this one saying the Laval, Quebec-based company failed to demonstrate efficacy due to faulty statistical methodology. Labopharm shares (NASDAQ:DDSS) fell 51.4 percent Friday, or $3.24, to close at $3.07.

The first approvable letter from the FDA came in late September. Labopharm in December said it submitted a complete response that included additional analysis of existing data, and that it believed it addressed all of the matters raised by the agency.

The new drug application originally was filed in November 2005. It included data from six Phase III studies and 12 pharmacokinetic studies.

The new letter, according to Labopharm, said, "the FDA stated that Labopharm has not demonstrated the efficacy of its once-daily formulation of tramadol because the statistical methods used to analyze data from Labopharm's clinical trials did not adequately address missing data relating to subjects who dropped out of the trials.

"The FDA did not provide guidance with respect to how the statistical methods were not adequate," Labopharm said. "The company will seek to clarify the issue with the FDA at the earliest possible opportunity."

The company said it was unclear if resolution of the issue could be done with existing data or would require new data to be generated. The company used very similar language when it received the first approvable letter. (See BioWorld Today, Oct. 2, 2006.)

Labopharm's version of the pain drug, its lead product, is formulated with its Contramid controlled-release technology, which is designed to allow for less-frequent dosing, as well as reduced side effects. Its tramadol formulation already is sold in Europe by various partners, including in the five largest markets.

Labopharm's marketing application filed last year in Canada is pending, and in the first quarter, it filed for approvals in Australia, Russia, Switzerland and Israel. The product already is approved in Mexico. Labopharm said it has marketing partnerships in place in 46 countries, and was in partnership discussions regarding Canada.

In the U.S., the once-daily tramadol formulation is partnered with Purdue Pharma LP, of Stamford, Conn., in a deal from August 2005 that was valued at up to $170 million. Labopharm got $20 million up front in that deal, and would have received $40 million if the product had gained FDA approval by April 1, said Mark D'Souza, chief financial officer at Labopharm.

The payment now would be $20 million if the FDA approved the product by Sept. 30, and would drop to $10 million if the product gained approval between then and Sept. 30, 2008, D'Souza said. Labopharm also would get royalties of 20 percent to 25 percent on U.S. sales, and it retained certain co-promotion rights. It also would remain entitled to sales-based milestone payments of up to $110 million.

D'Souza said company officials were not commenting on the news beyond what was in a press release.

In the release, James Howard-Tripp, president and CEO, said, "We are extremely disappointed by the FDA's assessment of our response to its initial approvable letter. We believe that we adequately addressed all of the matters raised by the FDA in its first approvable letter. Our top priority remains the final approval of our once-daily tramadol in the U.S."

In January 2004, Labopharm released data from two Phase III trials, one of which hit all primary endpoints and one that hit only one of three co-primary endpoints. It decided then to conduct another trial, the MDT3-005 study, comparing pain relief of the product to placebo in about 1,000 patients with osteoarthritis of the knee. Labopharm in April 2006 reported that the study demonstrated statistical significance.

Labopharm separately is developing line extensions of its Contramid-based once-daily tramadol product, and is developing a Contramid-based once-daily formulation of the widely prescribed antidepressant trazodone, for which Phase III trials were expected to begin this year. The company also is developing products based on both oral and intravenous versions of its Polymeric Nano-Delivery Systems technology, with a lead preclinical program in that area focused on a formulation of the anesthetic propofol.

Labopharm in the first quarter of this year reported revenues of C$5.4 million (US$5.1 million), with C$3.4 million of the total coming from tramadol product sales and C$2 million from license fees. Its net loss for the quarter was C$6.5 million. For all of 2006, the company had C$15.9 million in revenue and a net loss of C$23.9 million.

As of March 31, Labopharm had about C$94.1 million in cash and equivalents, with 56.8 million shares outstanding.

In December, when it filed its response to the first approvable letter, Labopharm appealed the FDA action through the agency's formal dispute resolution process. That allows a company to raise the matter with the supervisor of the employee who made the decision, and then up the chain of command at the agency as warranted.

Labopharm said that prior to the new approvable letter, the FDA said it would not proceed with the dispute resolution process while the response to the first approvable letter was under review. The company said it would evaluate whether to proceed with the resolution process going forward.