Paladin Labs Inc.
TSX : PLB

Paladin Labs Inc.

July 28, 2005 07:30 ET

Paladin Reports 2005 Second Quarter Results-Paladin Increases 2005 Revenue Guidance

MONTREAL, QUEBEC--(CCNMatthews - July 28, 2005) - Paladin Labs Inc. (TSX:PLB), a leading Canadian specialty pharmaceutical company, today reported its financial results for the three and six-month periods ended June 30, 2005. The Company also announced increased revenue guidance for fiscal 2005 as a result of stronger then expected sales with key promoted brands.



Second Quarter Highlights:

- Revenue totaled $7.9 million, an increase of 23% over the same
period last year
- Sales of key promoted brands, including Dostinex®, Estring®,
Oxytrol® and Plan B®, grew 60% compared to the corresponding
period a year ago
- National direct-to-consumer marketing campaign launched to support
Plan B® as a non-prescription product
- Exclusive Canadian marketing and supply agreement for Trelstar®
signed with Watson Pharmaceuticals, Inc.
- Subsequent to the second quarter, Paladin entered into a Canadian
marketing and supply agreement with Verus Pharmaceuticals, Inc., to
market Twinject™


"Paladin achieved record-breaking prescription volumes in the quarter on all four of our key promoted brands, including Dostinex®, Estring®, Oxytrol® and Plan B®. This strong performance in our business coupled with our strategic direction to internally develop new, late-stage innovative products is positioning Paladin for accelerated growth in the future. I look forward to providing an update to you as Paladin continues its search for innovative, promotion-sensitive brands to bring to Canada," said Jonathan Ross Goodman, President & CEO of Paladin Labs.

Financial Results

Revenue for the second quarter ended June 30, 2005 increased 23% to $7.9 million, compared to $6.4 million in the second quarter of 2004. Revenue for the six months ended June 30, 2005 increased 20% to $14.4 million, compared to $12.0 million in the first six months of 2004. Revenue from the Company's key promoted brands including, Dostinex®, Estring®, Oxytrol® and Plan B® increased by 50% in the first six months of 2005 compared to the same period a year ago and 60% in the second quarter of 2005 compared to the second quarter last year.

Paladin's earnings before interest, taxes, depreciation, and amortization (EBITDA(i)) remained healthy at $2.0 million for both the second quarter of 2005 and the second quarter of 2004. For the first half of 2005, Paladin's EBITDA increased 18% to $3.9 million, compared to EBITDA of $3.3 million in the first six months of 2004.

Net income for the second quarter was $585,000 or $0.04 per fully diluted share, compared to net income of $681,000 or $0.05 per fully diluted share in the second quarter a year ago. Net income remained steady at $0.07 per fully diluted share for both the six months ended June 30, 2005 and June 30, 2004.

Gross profit, as a percentage of revenues, for the second quarter and six months ended June 30, 2005 totalled 73% and 74% respectively, compared to 74% and 75% for both the second quarter and six months ended June 30, 2004, respectively.

Selling and marketing expense for the second quarter of 2005 increased to $3.1 million from $1.8 million in the second quarter of 2004. Selling and marketing expense for the first six months of 2005 increased to $5.2 million from $3.2 million in the first six months of 2004. This increase was primarily attributable to increased promotion activities associated with the launch of Oxytrol® and the re-launch of Plan B® as a non-prescription product.

At June 30, 2005, Paladin's cash, cash equivalents and investments in marketable securities totalled $44.0 million. From this strong cash position, Paladin continues to pursue product acquisition opportunities.

Product Developments

Paladin announced that Plan B®, a safe and effective "morning-after pill," is now available at Canadian pharmacies without a prescription. The decision by Health Canada is supported by 70 percent of Canadians and every leading medical organization in the country. Plan B® is 95 percent effective in preventing unintended pregnancy if taken within 24 hours of unprotected sex. "There has been a tremendous response in sales to our strong media plan of Plan B® since Health Canada's decision. Sales have increased 37% in the second quarter of 2005 compared to the first quarter of 2005 and 60% compared to the second quarter of 2004," said Mark Beaudet, Vice-President of Marketing and Sales of Paladin Labs.

The Company signed an exclusive Canadian marketing and supply agreement for Trelstar® with Watson Pharmaceuticals, Inc. Trelstar® is an injectable, luteinizing hormone-releasing hormone (LHRH) agonist indicated for the palliative treatment of advanced prostate cancer and for the treatment of endometriosis and is approved for sale in Canada. Paladin expects to launch Trelstar® in the first quarter of 2006. According to IMS Canada, the Canadian market for LHRH agonists for prostate cancer and endometriosis was over $125 million in 2004. Trelstar® compliments our established urology franchise with Oxytrol® and Vantas™ (Histrelin Hydrogel Implant), a unique, once-yearly LHRH agonist implant for the treatment of prostate cancer.

Paladin received a Notice of Non Compliance on June 16, 2005 by the Therapeutic Products Directorate (TPD) of Health Canada that it's New Drug Submission (NDS) for Vantas™ (Histrelin Hydrogel Implant) would not be approved at this time. The Company will submit a response to Health Canada's issues by September 15, 2005 and expects to obtain regulatory approval for Vantas™ during the first half of 2006.

Subsequent to the second quarter, the Company entered into a Canadian marketing and supply agreement with Verus Pharmaceuticals, Inc., to market Twinject™ (epinephrine). Twinject™ is a novel epinephrine auto-injector indicated for the emergency treatment of severe allergic reactions (anaphylaxis). Twinject™ comes in two dosages for self-administration - a 0.3 mg used for adults and a 0.15 mg used for children. According to IMS Canada, the anaphylaxis market was $25 million in 2004 and grew at a compounded annual growth rate of 22% since 2001.

Corporate Developments

Paladin announced that it has received regulatory approval from the Toronto Stock Exchange to carry out a normal course issuer bid effective February 22, 2005. Paladin has been authorized to purchase up to 630,000 of its common shares, or approximately 10% of its public float of 6,300,990 common shares, in the twelve-month period following the bid's effective date. To date, Paladin has purchased 107,500 shares for a total amount of $482,000.

2005 Revenue Guidance

Paladin is revising upwards its previously announced revenue guidance for fiscal 2005 from $25 million to $26 million generated in revenues to $29 million to $30 million generated in revenues, due to better than expected performance of its key promoted products. This forecast excludes the impact of acquisitions and/or new product launches that may be made by the Company between now and the end of 2005.

(i) EBITDA does not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) and therefore may not be comparable to similar measures presented by other public issuers. EBITDA performance and guidance is presented herein because Paladin management believes that, in addition to net income, EBITDA is a useful supplemental measure of the Company's performance.

Conference Call Notice

Paladin will host a conference call to discuss its second quarter results on Thursday, July 28, 2005, at 10:00 a.m. EST. The dial-in number for the conference call is 1-888-509-0081 or 416-695-5275. The call will be audio-cast live and archived for 90 days at www.paladinlabs.com.

About Paladin Labs

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

This news release may contain forward-looking statements or predictions. These statements represent our judgement as of this date and are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed in such forward-looking statements. Potential risks and uncertainties include, without limitation, those associated with product development, clinical trials, future revenues and profitability, and obtaining marketing approval and other factors. For additional information on risks and uncertainties related to the forward-looking statements, investors should consult the Company's ongoing quarterly filings, annual reports and Annual Information Form and other filings found on SEDAR at www.sedar.com.



BALANCE SHEET
(In thousands of Canadian dollars)

June 30 December 31
2005 2004
$ $
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(unaudited)

ASSETS
Current
Cash and cash equivalents 5,992 1,507
Short-term marketable securities 36,651 36,039
Accounts receivable 5,796 5,878
Inventories 2,347 2,718
Other current assets 442 735
Future income tax assets 1,054 600
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Total current assets 52,282 47,477

Long-term marketable securities 1,483 4,578
Property, plant and equipment 65 77
Intangible assets 9,961 11,065
Deferred charges 4,107 4,176
Investments 1,433 1,433
Future income tax credits recoverable 450 439
Future income tax assets 682 1,715
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70,463 70,960
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 4,870 4,723
Accounts payable to related parties 717 1,754
Income taxes payable 386 229
Balance of license agreements payable 464 1,062
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Total current liabilities 6,437 7,768
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Shareholders' equity
Capital stock 57,464 57,837
Other paid-in capital 741 554
Retained earnings 5,821 4,801
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Total shareholders' equity 64,026 63,192
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70,463 70,960
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STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands of Canadian dollars except for share and per share
amounts)
(unaudited)

Three-month period ended Six-month period ended
June 30 June 30
2005 2004 2005 2004
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$ $ $ $

Revenues 7,862 6,397 14,374 11,994
Cost of sales 2,153 1,634 3,802 2,952
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Gross profit 5,709 4,763 10,572 9,042
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Selling and marketing 3,058 1,784 5,185 3,217
General and
administrative 820 764 1,661 1,469
Research and development 282 500 613 1,678
Amortization of
intangible assets and
deferred charges 1,096 1,110 2,182 1,901
Interest income, net (325) (270) (627) (599)
Other Income (110) - (110) -
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Income before income
taxes 888 875 1,668 1,376
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Provision for income
taxes
Current - 25 - 50
Future 303 169 584 301
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303 194 584 351
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Net income 585 681 1,084 1,025
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Retained earnings,
beginning of period 5,300 1,906 4,801 1,562

Purchase of common
shares (64) - (64) -
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Retained earnings,
end of period 5,821 2,587 5,821 2,587
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Earnings per share
Basic 0.04 0.05 0.07 0.07
Diluted 0.04 0.05 0.07 0.07
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Weighted average
number of shares
outstanding
Basic 14,846,483 14,829,954 14,852,728 14,916,400
Diluted 14,856,774 14,935,709 14,862,999 14,908,438
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STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(unaudited)

Three-month period ended Six-month period ended
June 30 June 30
2005 2004 2005 2004
---------------------------------------------------------------------
$ $

Operating activities
Net income 585 681 1,084 1,025
Add items not affecting
cash
Amortization 1,111 1,125 2,212 1,933
Stock based
compensation expense 125 82 192 218
Future income taxes 302 75 567 150
Unrealized foreign
exchange (gain) loss (1) - (18) -
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2,122 1,963 4,037 3,326
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Net change in non-cash
balances relating to
operations (142) (1,411) 33 (5,222)
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Cash flows from (used
in) operating
activities 1,980 552 4,070 (1,896)
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Investing activities
Additions to
pharmaceutical product
licenses, rights,
intellectual property
and deferred charges (807) (519) (1,009) (1,942)
Acquisition of
property, plant and
equipment (12) (2) (19) (2)
Purchases of
short-term
marketable securities (18,722) (14,016) (19,918) (16,769)
Maturities of
short-term
marketable securities 21,112 21,173 24,384 29,605
Purchases of
long-term marketable
securities (1,483) (1,902) (1,983) (3,698)
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Cash flows from
investing activities 88 4,734 1,455 7,194
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Financing activities
Common shares issued
for cash 12 217 25 254
Accounts payable
related to the
acquisition of
intellectual property
and deferred charges (234) (1,039) (598) (2,483)
Repurchase of shares (482) - (482) -
Repayment of share
purchase loan 20 20 20 20
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Cash flows used
in financing
activities (684) (802) (1,035) (2,209)
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Effect of exchange
rate change on cash
and cash equivalents 3 - (5) -

Net change in cash
and cash equivalents
during the period 1,387 4,484 4,485 3,089

Cash and cash
equivalents,
beginning of period 4,605 596 1,507 1,991

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Cash and cash
equivalents,
end of period 5,992 5,080 5,992 5,080
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Cash and cash
equivalents 5,992 5,080
Short-term marketable
securities 36,651 30,801
Long-term marketable
securities 1,483 2,617
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44,126 38,498
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