UPDATE 3-Labopharm antidepressant approved by U.S regulators

* FDA approves once-daily trazodone antidepressant

* Company seeking partnership for drug

* U.S. antidepressant market valued at $11 bln

* Shares drop 11 pct on competitive concerns (Adds analyst comments; in U.S. dollars unless noted)

TORONTO, Feb 3 (Reuters) - U.S. regulators on Wednesday approved Labopharm Inc's DDS.TO once-daily antidepressant on Wednesday, but its shares dropped as much as 11 percent on worries that it could face tough competition from generics.

The approval by the U.S. Food and Drug Administration clears the way for the Canadian biotechnology company to launch the once-daily version of trazodone on the U.S. market later this year.

Analysts had touted the announcement as a key development for the Canadian biotech sector this year. But on Wednesday they raised immediate concerns that the new formula would find it difficult to compete with generic versions of older formulations of the drug.

"This is a great win for Labopharm, but people have to realize that this product is going to be competing with quite a few dozen other products," said Claude Camire, an analyst at Paradigm Capital.

"You have this conflicting issue here. You have a very good product in terms of safety ... but will Labopharm be able to compete in this competitive pricing environment which may dictate lower margins and lower revenues for everyone?"

The stock plummeted on Wednesday after rising 40 percent since late August, partly on anticipation of a favorable ruling on once-daily trazodone, which patients are expected to find easier to use.

Labopharm Chief Executive James Howard-Tripp said the timing of the launch was contingent on the Montreal-based company finding a partner for the drug.

Howard-Tripp said Labopharm was studying several commercialization options for the once-daily trazodone, including licensing the drug to another company or a co-promotion deal.

Although Howard-Tripp said Labopharm was in discussions with what he called an international company, he declined to commit to a timeframe for striking a partnership deal.

"We prefer to go down the co-promotion route where we will have more of a role," he told Reuters. "This gives us a much higher degree of control of our own asset, and the financial return is significantly better."

Some 14 million adults in the United States suffer from major depression. The U.S. market for antidepressants is valued at more than $11 billion.

Howard-Tripp declined to set a yearly U.S. sales figure for the new formulation, but Camire sees sales for once-daily trazodone in the range of $20 million to $30 million a year.

A decision on the formulation stalled last year after the FDA raised concerns about the manufacturing process at an Italian plant that produced the drug's active ingredient.

Labopharm has also filed an application for approval with Canadian regulators and expects a decision sometime in August.

The U.S. approval of the once-daily trazodone is the second approval for the company in less than a year. Last year regulators gave their blessing to its tramadol-acetaminophen combination pain treatment.

Labopharm's shares on Wednesday were down 5.5 percent at C$2.58 on the Toronto Stock Exchange in mid-afternoon activity. Earlier in the session it touched a session high of C$3.16. ($1=$1.06 Canadian) (Reporting by Scott Anderson)