Paladin Labs Inc.
TSX : PLB

Paladin Labs Inc.

November 14, 2013 06:30 ET

Paladin Labs Reports Record Third Quarter 2013 Results

MONTREAL, CANADA--(Marketwired - Nov. 14, 2013) -

THIS MEDIA RELEASE IS NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Paladin Labs Inc. (TSX:PLB), a leading specialty pharmaceutical company, today reported its financial results for the quarter ended September 30, 2013.

2013 Third Quarter Highlights

Financial

  • Adjusted(2) revenues reached record $56.4 million, an increase of 11% over the same period last year
  • Adjusted(2) EBITDA(1) reached record $24.0 million, an increase of 15% over the same period last year

Product Developments

  • Entered into licensing agreement with Bioniche Life Sciences Inc. (TSX:BNC)(ASX:BNC) ("Bioniche") for Phase III bladder cancer product - Urocidin™ for Canada, South Africa and Mexico
  • Launched Emtrix®, a product indicated for the treatment of nail fungal infections

Corporate Developments

  • Issued secured loan of US $8 million and invested $0.5 million in the equity of Bioniche
  • Issued second tranche secured loan of $4 million to Nuvo Research Inc. ("Nuvo")
  • Acquired Allon Therapeutics Inc. ("Allon")
  • Increased investment in Litha Healthcare Group Limited (JSE:LHG) ("Litha") by 16.99% to 61.53%

Subsequent to the quarter

  • Acquisition of Paladin Labs Inc by Endo Health Solutions (NASDAQ:ENDP) ("Endo") in a stock and cash transaction valued at approximately $1.7 billion
  • Received notification from U.S. Food and Drug Administration ("FDA") that it is extending the Prescription Drug User Fee Act ("PDUFA") goal date for the new drug application ("NDA") for Impavido® from December 19, 2013 to March 19, 2014

"Our record revenues and EBITDA in the third quarter represent the culmination of our team's strategic choices and outstanding execution in the deployment of capital and product commercialization" said Mark Beaudet, interim President and CEO of Paladin Labs.

"Over the last 17 years the management and employees of Paladin, through their hard work and tenacious execution, have built a premier specialty pharmaceutical company. I am proud that this achievement is being recognized in the value that our shareholders are receiving as part of this transaction and can receive with the combined company" said Jonathan Ross Goodman, Chairman of Paladin Labs.

Financial Results

Adjusted2 revenues increased $5.7 million or 11% to a record $56.4 million for the third quarter of 2013 from $50.7 million for the same period in 2012. Paladin's revenues increased by $4.4 million or 12%, mostly due to the acquisition of Binotal® which contributed $3.2 million. Furthermore, Paladin's promoted products, including Tridural®, Trelstar®, Testim®, Abstral®, Digifab®, Glucagen®, Oralair®, Silenor® and Pollinex®-R combined increased by 11% for the quarter compared to the same period last year. Litha's adjusted revenues increased by $1.3 million or 10%, mainly due to the additional investment of Paladin in Litha, increasing Paladin's proportionate share of Litha's revenues from 44.54% to an average of 49.55%, during the quarter ended September 30, 2013. As at the end of Q3 2013, Paladin held a 61.53% interest in Litha.

Consolidated revenues for the quarter ended September 30, 2013 were a record $71.0 million, an increase of 6% over the same period last year. The increase is mostly attributable to the acquisition of Binotal and the sales growth of Paladin's promoted products. Litha's revenues decreased by $0.3 million or 1% for the quarter ended September 30, 2013 compared to the same period last year.

Third quarter 2013 adjusted2 EBITDA1 increased 15% to a record $24.0 million, compared to adjusted2 EBITDA1 of $20.9 million in the third quarter of 2012. Paladin's EBITDA increased by $3.2 million or 16% primarily due to the acquisition of Binotal and the growth of promoted products offset by increased costs associated with the launch of new products. Litha's adjusted EBITDA decreased by $0.1 million or 3% for the quarter ended September 30, 2013 compared to the same period last year.

Consolidated EBITDA1 reached a record $25.4 million, an increase of 12% over the consolidated EBITDA1 for the quarter ended September 30, 2012. The growth in Paladin's EBITDA was offset by a decrease in Litha's consolidated EBITDA of $0.4 million or 13% in the third quarter of 2013 when compared to the same period last year. The decrease in Litha's consolidated EBITDA1 is explained by lower gross income margins as a result of the mix of products sold in the quarter and the impact of the continued decline in the South African Rand.

Net income attributable to shareholders for the quarter was $13.6 million or $0.64 per fully diluted share, compared to net income attributable to shareholders of $24.9 million or $1.19 per fully diluted share the same quarter a year ago.

As at September 30 2013, Paladin's cash, cash equivalents and investments in marketable securities net of bank overdraft totaled $230.7 million.

Product Developments

During the third quarter of 2013, Paladin advanced its OTC portfolio with the launch of Emtrix which is indicated for the treatment of nail fungal infections (onychomycosis). Emtrix is a convenient option for the treatment of onychomycosis as it does not require a prescription, is not associated with significant side effects, and, is not contraindicated with other medications.

Furthermore, Paladin expanded its product pipeline with the in-licensing of Urocidin. Paladin entered into an exclusive license to market and sell Bioniche's phase III bladder cancer treatment Urocidin in Canada, South Africa and Mexico.

Subsequent to the quarter, Paladin announced that that the FDA had notified Paladin that it is extending the PDUFA goal date for its NDA for Impavido (miltefosine) for the treatment of cutaneous, mucosal, and visceral leishmaniasis from December 19, 2013 to March 19, 2014.

Corporate Developments

During the quarter, Paladin closed its strategic agreement with Bioniche announced on June 5, 2013. Under the terms of the agreement, Paladin made an equity investment of $0.5 million and issued a further US $8 million in secured debt to Bioniche, increasing the total debt outstanding to US $30 million. The loan bears an interest rate of 13.25% and will mature on July 1, 2014.

Paladin also amended its existing loan agreement with Nuvo and issued a second tranche of $4 million bearing an interest rate of 15%. The amendment includes a third $4 million tranche which may be drawn upon achieving certain conditions, the issuance of up to 100,000 warrants to acquire Nuvo common shares and the right to in-license WF10, Nuvo's immune modulation drug candidate, if certain conditions are met.

During the quarter, Paladin acquired Allon, a clinical-stage biotechnology company focused on developing and commercializing nervous system therapies. Allon has developed prototype compounds and expertise in drug development and will continue the development of these compounds in view of its continuous aim at bringing to market innovative central nervous system therapies.

Acquisition by Endo

Subsequent to the quarter, Paladin reached a definitive agreement to be acquired by Endo, a leading U.S.-based specialty pharmaceutical company, in a stock and cash transaction valued at approximately $1.7 billion. Pursuant to the acquisition, both Endo and Paladin will be acquired by a newly-formed Irish holding company ("New Endo"). Under the terms of the agreement, which has been unanimously approved by the boards of both companies, Paladin's shareholders will receive 1.6331 shares of New Endo stock and $1.16 in cash, subject to adjustment, for each Paladin share they own upon closing, pursuant to a plan of arrangement under Canadian law. In addition, Paladin's shareholders will receive one share of Knight Therapeutics Inc. ("Knight"), a newly- formed public company in Canada. Knight will own Impavido®, an approved Paladin product indicated for the treatment of leishmaniasis with international sales of approximately $2.5 million dollars, certain rights associated with that product and $1 million in cash. The transaction values each Paladin share at $77.00, based on the 5 day volume weighted average price of Endo shares and the 5 day average currency exchange rate calculated at close of market on Friday, November 1.

The transaction is expected to close in the first half of 2014, subject to certain conditions and approvals, including regulatory approvals in the U.S., Canada and South Africa, the approval of both companies' shareholders at special meetings, the approval of the Superior Court of Quebec, the registration and listing of New Endo shares and other customary closing conditions. Shareholders representing approximately 34% of Paladin's outstanding shares have agreed to vote in favor of the transaction. These shareholders have the right to terminate this voting agreement if Endo's volume weighted average share price declines more than 24% during an agreed reference period.

Paladin will continue to be led by Paladin's current management, will maintain its Montreal headquarters, and will operate in Canada under its current name, Paladin Labs Inc.

(1) EBITDA - Non-IFRS Financial Measures

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under International Financial Reporting Standards ("IFRS") and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, other expense (income), taxes, depreciation and amortization, foreign exchange gains (losses), share of net income (loss) in associates and joint venture and unusual items; such as write-downs and gains (losses) on intellectual property and investments. EBITDA is calculated and presented consistently from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under-noted items" on the consolidated statements of income. The Company believes EBITDA to be an important measurement that allows it to assess the operating performance of its ongoing business on a consistent basis without the impact of amortization expenses. The Company excludes amortization expenses because their level depends substantially on non-operating factors such as the historical cost of intangible assets. The Company's method for calculating EBITDA may differ from that used by other issuers and, accordingly, this measure may not be comparable to EBITDA used by other issuers.

(2) Adjusted - Non-IFRS Financial Measures

The term "adjusted" refers to the proportionate consolidation of Litha and Laboratorios Paladin SA's ("Paladin Mexico") results. Given that Litha and Paladin Mexico are being accounted for on a consolidated basis, the consolidated results include amounts attributable to minority shareholders. Consequently, adjusted results have been provided to highlight Paladin's 44.54% interest for the period from July 2012 to June 2013 and an average of 49.55% for the period from July 2013 to September 2013. Paladin's economic interest in Paladin Mexico is 50.01%.

Conference Call Notice

Paladin will host a conference call to discuss its third quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-749-1342 or 416-981-9000. The call will be audio-cast live and archived for 30 days at www.paladinlabs.com.

About Paladin Labs Inc.

Paladin Labs Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian and select international markets. With this strategy, a focused Canadian national sales team and proven marketing expertise, Paladin has evolved into one of Canada's leading specialty pharmaceutical companies. For more information, please visit the Company's web site at www.paladinlabs.com.

This press release may contain forward-looking statements and predictions. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which are beyond the control of the Company and its subsidiaries, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations, are discussed in the annual report as well as in the Company's Annual Information Form for the year ended December 31, 2012. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information or future events and except as required by law. For additional information on risks and uncertainties relating to these forward-looking statements, investors should consult the Company's ongoing quarterly filings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.

INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
(unaudited)
As at September 30, 2013 December 31, 2012
ASSETS
Current
Cash and cash equivalents 69,949 118,744
Marketable securities 165,723 146,258
Trade and other receivables 45,629 38,587
Inventories 47,601 37,441
Financial assets 31,762 -
Income tax receivable 271 5,479
Other current assets 1,586 1,661
Total current assets 362,521 348,170
Investment in associates 663 626
Interest in a joint venture 26,175 30,476
Loans receivable from a joint venture 10,831 11,661
Financial assets 12,896 4,561
Investment tax credits recoverable 22,699 24,840
Deferred income tax assets 18,091 25,402
Property, plant and equipment 8,092 9,754
Intangible assets 111,748 112,851
Goodwill 31,982 36,176
Total assets 605,698 604,517
LIABILITIES AND EQUITY
Current
Bank overdraft 4,945 7,044
Payables, accruals and provisions 62,974 50,165
Current portion of finance lease liability 728 796
Deferred revenue 2,129 2,734
Income tax payable 25,309 24,140
Other balances payable 1,125 2,000
Current portion of long-term liabilities 5,188 5,804
Total current liabilities 102,398 92,683
Finance lease liability 5,950 6,843
Deferred revenue 1,455 1,734
Deferred tax liability 20,022 24,415
Other balances payable 589 -
Long-term liabilities 22,124 28,327
Total liabilities 152,538 154,002
Equity
Share capital 179,693 172,282
Other paid-in capital 6,774 7,039
Other capital reserves (12,740 ) (4,076 )
Retained earnings 235,888 208,461
Attributable to shareholders of the Company 409,615 383,706
Non-controlling interests 43,545 66,809
Total equity 453,160 450,515
Total liabilities and equity 605,698 604,517
INTERIM CONSOLIDATED INCOME STATEMENTS
(In thousands of Canadian dollars except for share and per share amounts)
(unaudited)
Three months ended September 30 Nine months ended September 30
2013 2012 2013 2012
Revenues 70,993 66,899 207,169 142,592
Cost of sales 29,706 27,253 84,241 48,422
Gross income 41,287 39,646 122,928 94,170
Expenses (income)
Selling, general and administrative 16,057 16,817 48,817 33,505
Research and development 2,548 1,554 7,335 5,981
Interest income (2,722 ) (1,448 ) (6,106 ) (3,337 )
Earnings before under-noted items 25,404 22,723 72,882 58,021
Amortization of intangible assets 5,551 4,761 15,487 10,568
Depreciation of property, plant and equipment 321 206 968 257
Other finance expense (income) 468 (45 ) 1,251 850
Other income (13 ) (2,189 ) (562 ) (3,106 )
Foreign exchange loss 980 84 578 122
Interest expense 905 941 2,764 956
Share of net (income) loss from a joint venture (337 ) 771 522 771
Share of net loss (income) from associates 20 (31 ) (69 ) (980 )
Income before income tax and under-noted items 17,509 18,225 51,943 48,583
Gain on revaluation of investments - 12,294 - 12,294
Income before income tax 17,509 30,519 51,943 60,877
Provision for income taxes 3,870 5,784 13,347 13,942
Net income for the period 13,639 24,735 38,596 46,935
Attributable to:
Shareholders of the Company 13,643 24,938 38,043 47,138
Non-controlling interests (4 ) (203 ) 553 (203 )
Attributable to shareholders of the Company
Basic earnings per share 0.66 1.22 1.85 2.32
Diluted earnings per share 0.64 1.19 1.80 2.25
Weighted number of shares outstanding
Basic 20,645,543 20,390,981 20,556,584 20,329,409
Diluted 21,271,658 21,001,756 21,145,926 20,940,233
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(unaudited)
Three months ended September 30 Nine months ended September 30
2013 2012 2013 2012
Operating activities
Net income for the period 13,639 24,735 38,596 46,935
Adjustments reconciling net income to operating cash flows
Amortization of intangible assets 5,551 4,761 15,487 10,568
Deferred tax 3,128 4,316 7,258 11,617
Share-based compensation expense 743 923 2,485 2,250
Other finance expense 500 (50 ) 1,283 846
Unrealized foreign exchange loss (gain) 924 (201 ) (1,369 ) (324 )
Gain on revaluation of equity investment - (12,294 ) - (12,294 )
Other income (38 ) (2,118 ) (364 ) (2,835 )
Depreciation of property, plant and equipment 370 211 1,100 266
Share of net (income) loss from a joint venture (337 ) 771 522 771
Share of net loss (income) from associates 20 (31 ) (69 ) (980 )
24,500 21,023 64,929 56,820
Net change in non-cash balances related to operations (2,828 ) (1,639 ) (1,851 ) (10,913 )
Cash inflow from operating activities 21,672 19,384 63,078 45,907
Investing activities
Disposals and maturities of marketable securities 40,093 24,938 109,928 140,101
Dividends from an associate - 1,682 - 3,319
Proceeds from disposal of financial assets 9 36 76 835
Proceeds from disposal of intangible assets - - 50 717
Proceeds from disposal of property, plant and equipment 70 40 98 40
Acquisition of subsidiaries, net of cash acquired (26,208 ) (42,356 ) (26,199 ) (42,356 )
Purchases of marketable securities (45,800 ) (43,924 ) (129,530 ) (120,979 )
Purchases of financial assets (12,782 ) - (42,190 ) (4,000 )
Purchases of intangible assets (573 ) (82 ) (24,254 ) (107 )
Purchases of property, plant and equipment (283 ) (404 ) (643 ) (527 )
Payment of other balances payable - - - (995 )
Net cash outflow from investing activities (45,474 ) (60,070 ) (112,664 ) (23,952 )
Financing activities
Common shares issued for cash 2,060 181 5,481 1,351
Increase in loans and other balances payable - 700 - 700
(Decrease) increase in bank overdraft (628 ) 719 (1,355 ) 719
Repurchase of shares - - - (2,278 )
Extinguishment of finance lease - (3,366 ) - (3,366 )
Repayment of long-term liabilities (1,039 ) (536 ) (3,228 ) (536 )
Payment of obligation under finance lease - - - (500 )
Net cash inflow (outflow) from financing activities 393 (2,302 ) 898 (3,910 )
Foreign exchange rate (loss) gain on cash and cash equivalents (42 ) 491 (107 ) 425
(Decrease) increase in cash and cash equivalents during the period (23,451 ) (42,497 ) (48,795 ) 18,470
Cash and cash equivalents, beginning of period 93,400 133,082 118,744 72,115
Cash and cash equivalents, end of period 69,949 90,585 69,949 90,585
Paladin cash and cash equivalents 65,320 84,952
Paladin marketable securities 165,723 147,095
Paladin cash, cash equivalents and marketable securities 231,043 232,047
Litha cash and cash equivalents 4,269 5,634
Litha bank overdraft (4,945 ) (6,487 )
Litha cash and cash equivalents and bank overdraft (676 ) (853 )
Paladin Mexico cash and cash equivalents 360 -
Cash, cash equivalents and marketable securities net of bank overdraft 230,727 231,194

Reconciliation of the adjusted2 consolidated results from operations

Three months ended September 30, 2013 Paladin Litha &
Paladin
Mexico
Consolidated
results from
operations
Paladin Litha &
Paladin Mexico
(proportionate
consolidation)
Adjusted2
consolidated
results from
operations
$ $ $ $ $ $
Revenues 42,041 28,952 70,993 42,041 14,346 56,387
Cost of sales 11,234 18,472 29,706 11,234 9,153 20,387
Gross Income 30,807 10,480 41,287 30,807 5,193 36,000
EBITDA1 22,554 2,850 25,404 22,554 1,412 23,966
Net income before income taxes 17,422 87 17,509 17,422 43 17,465
Net Income (loss) 13,706 (67 ) 13,639 13,706 (34 ) 13,672
Net Income (loss) attributable to shareholders
13,706

(63
)
13,643

13,706

(63
)
13,643
Nine months ended September 30, 2013 Paladin Litha &
Paladin
Mexico
Consolidated
results from
operations
Paladin Litha &
Paladin Mexico
(proportionate
consolidation)
Adjusted2
consolidated
results from
operations
$ $ $ $ $ $
Revenues 121,077 86,092 207,169 121,077 39,797 160,874
Cost of sales 33,425 50,816 84,241 33,425 23,560 56,985
Gross Income 87,652 35,276 122,928 87,652 16,237 103,889
EBITDA1 62,367 10,515 72,882 62,367 4,821 67,188
Net income before income taxes 50,208 1,735 51,943 50,208 767 50,975
Net Income 37,570 1,026 38,596 37,570 444 38,014
Net Income attributable to shareholders
37,570

473

38,043

37,570

473

38,043

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