I got an email yesterday  from one of my members (Jeff D.) asking me my opinion on what happened to Labopharm, Inc. (DDSS).  Jeff was at a loss to explain why DDSS’ shares dropped so preciptiously after getting FDA approval on one of their signature drugs.  In some ways, so am I.

Headlines like this one:

Labopharm Receives FDA Approval For OLEPTRO(TM)

usually means that a drug stock will rocket upwards.  Not in DDSS’ case.  The stock lost 40% of its value in just a few days.   Read full release here

You can see from the chart here just what I am talking about:

Stocks dropping on news of approvals is not uncommon ( see BDSI, NRIFF, PK and others), but it is still unexpected.   DDSS, the company, actually has a lot going for it.  It has income (no profits), cash in the bank, good ratios, manageable debt….and a big payday coming some time this year.  I have read where DDSS is in talks with several larger pharmaceutical firms regarding the commercialization of their newest drug, Oleptro.  I can only imagine the frenzy at DDSS offices as they take this surprise announcement and try and turn it into revenues.

I am not terribly surprised at the drop given the rise in the share price in anticipation of approval.  And, I am betting that DDSS will come back and come back strong.  Since I am a technical analyst, I will share one last chart with readers that backs up my contention.

This chart shows how volatile the stock has been and I think it is illustrative of the recuperative powers of DDSS.  You can see that the stock is trading within normal ranges and has shown great historical elasticity.  I would not be too worried about this dip and, in fact, would see this as a buying opportunity.  Having said that, there is support at $1.75 and $1.40.  I don’t think it will drop to those levels, but…you never know.

DDSS is both a short-term and a long-term hold.  In the short-term, I could see the stock regaining much of its recent losses.  It certainly seems like the sellers are out.  In the long-term, DDSS could be a “gold mine”.  I will watch with great interest for news on how they will commercialize this and what the financial ramifications are for the company.

I didn’t spend any time in this blog on drug pipelines and other pharma standards.  I expect that my readers will do their own DD.  Here is DDSS’s website link for your own research.

Trade like you mean it!

Jeffrey Dean

Editor-in-Chief

Note on 2/12/10:  DDSS is getting hammered.  The market did not like the news of their $20MM  offering.   DDSS blew through the $1.75 support and is headed down to the $1.40 level.  MIght be best to take an EVEN more cautious approach to this one.