As Canadians become more comfortable with taking medication to treat depression and anxiety, the opportunities for pharmaceutical firms that specialize in reformulating existing antidepressant drugs couldn’t look more upbeat.

For the 12 months ended July 31, the number of prescriptions for antidepressants rose by 6% year-over-year to 33.4 million from 31.4 million, according to Montreal-based health-care research firm IMS Health Inc. More notably, this year’s figures are a whopping 176% higher than for the year ended Dec. 31, 1998, when the number of prescriptions totalled 12.1 million.

A reason for the growth in prescriptions is that the stigma around taking antidepressants is fading as more patients are willing to take pills to treat their chronic sadness, says Tania Maciver, an analyst with Vancouver-based Haywood Securities Inc.: “There is a lot more awareness [among] the public about the symptoms of depression as a disease. [It’s] not one of those closet diseases you want to keep hidden.”

And when you combine the growing number of prescriptions with price increases of 5%-10% a year on antidepressant medications, you have a very attractive market for reformulation potential, says Maher Yaghi, vice president and intellectual property analyst with Montreal-based Desjardins Securities Inc.

Unlike reformulating drugs with one main ingredient, such as those used to treat blood pressure or cholesterol, the combinations of molecules you can roll into a single antidepressant are endless, Yaghi says: “With antidepressants, you can make combinations of two different molecules or change a medication that needs to be taken three to four times a day to a once-a-day pill.”

With a side-effect profile that’s decades old, physicians have become more comfortable with such drugs, which in turn will keep prescription use increasing, Yaghi adds: “Doctors are having no issue prescribing antidepressants, even more so than before, because of their side effects and the fact that they are covered by insurers.”

A key player to watch on the antidepressant front, as well for opportunities in new drugs, is Mississauga, Ont.-based Biovail Corp. Sales of its patented drug Wellbutrin XL — a once-a-day pill used to treat depression and anxiety — made up almost 20% of the firm’s revenue for the second quarter ended June 30: of Biovail’s $191 million in total sales in Q2, sales of the drug were $37.1 million, compared with $30.4 million on revenue of $181.4 million in Q2 2008. For the six months ended June 30, Biovail’s revenue dropped to $366.9 million from $394.6 million in the same period a year ago.

Biovail’s net income for the six-month period, however, more than doubled to $63.1 million from $31.1 million in 2008. This was the result of a one-time unusual expense of $75 million in Q2 2008. Once that’s taken into account, earnings were pretty stable, says Claude Camiré, a senior health-care analyst with Toronto-based Paradigm Capital Inc., adding that the positive shift in attitudes toward antidepressants is critical to Biovail’s bottom line.

Although Biovail may be a top seller of antidepressants sold in Canada, according to IMS Health data, the company’s future is really rooted in developing new drug molecules, Yaghi says: “The business of reformulation for Biovail began in the 1980s to the 1990s and reached its peak in 2000, when a lot of research was pumped into maintaining that strategy at that time.”

However, Biovail hit a wall in 2003, when it realized it couldn’t reformulate enough drugs to replace its inventory on which patents were set to expire, Yaghi says. (Reformulating a drug extends its patent life by three years. So, to protect against generic competition, Biovail has to keep making alternations to its drugs.)

“[Biovail], along with other companies, realized you can’t grow a dependable business of just reformulating products, since you have to come up with something new every three years to replace expired products,” Yaghi says. In 2004, the firm began to steer away from reformulation and into developing new drugs for the central nervous system.

Another firm that’s set to benefit from this surge in antidepressant use is Laval, Que.-based Labo-pharm Inc. The company is currently in the process of getting approval from the U.S. Food and Drug Administration on a once-a-day version of trazodone. Once approved, this antidepressant should see success as it will be easy for patients to comply with the prescribed dosage, Camiré says: “A lot of times, patients may forget to take a pill that’s prescribed four or five times a day,” making a once-daily pill attractive in comparison.

@page_break@To capitalize on the new version of trazodone’s likely success, your clients should consider investing in Labopharm now before it gets final approval for the drug, Camiré says: “A lot of what people miss about investing in pharmaceutical companies is how critical timing is.”

A firm’s stock price can jump due to four events, Camiré adds: drug discovery, clinical trials, government approval and once the drug goes to market. “If the product has just been discovered,” he explains, “let’s say Company X is worth $10 a share. Then, the drug goes to clinical trials and shows significance, so now it’s worth $40 a share. When it works in clinical trials, it then gets approval by the government authorities. All of a sudden, its value goes to $80 a share. After that, the product goes to market and jumps to $100 a share.”

The key is for investors to get out when the drug’s patent expires, as Company X’s stock could plummet to $20 a share in Camiré’s example. So, with Labopharm in the government-approval stage, it’s crucial for investors to hang on to their shares until the new trazodone’s expected production date of Feb. 11, 2010.

However, there are no guarantees Labopharm will get FDA approval for the drug. “It had some manufacturing issues with the factory in China,” Maciver says. And, although she is positive the approval will come through, it’s a wait-and-see game with the drug’s performance once it hits the market: “You never know how well a drug is going to do until it’s out there and getting prescribed.”

Currently, Labopharm has seen its sales grow to $11.2 million for the six months ended June 30 from $8.1 million during the same period last year. However, the firm posted a loss of $12.9 million in the 2009 six-month period, a significant drop from a loss of $19.2 million in the same period the year prior.

When considering whether to invest in Labopharm or any other reformulation company, there’s also the issue of its sales partner to consider, Maciver adds. Many reformulation firms outsource sales to focus on research and development rather than having their own internal sales forces, and simply collect royalties from their partner. “The economics of a sales force don’t always make sense. That’s why Labopharm needs to pick a partner with a good sales reputation,” says Maciver, adding that an announcement should be coming later this year.

Another Canadian firm that is active in the antidepressant market is Montreal-based Paladin Labs Inc., which recently bought dexedrine, a drug used to increase wakefulness to treat depression, from U.S. pharmaceutical giant, GlaxoSmithKline Inc. The move resulted in Paladin adding $14 million in revenue to its top line.

Paladin has a business model of buying licences on products from other companies and then focusing on marketing. “It is not in the business of research and development,” Yaghi says. “It only specializes in marketing, which lowers the risk of failure significantly.”

For the six months ended June 30, Paladin generated $52 million in revenue, a 39% increase from the $37.5 million it generated in the same period a year prior. Its net income was $30.8 million, a significant increase from the $4.1 million in 2008. This was a result of realizing gains upon acquiring Edmonton-based Isotechnika Pharma Inc. IE