Paladin Labs Inc.
TSX : PLB

Paladin Labs Inc.

February 17, 2011 07:30 ET

Paladin Reports Fifteenth Consecutive Year of Record Revenues

Eighth consecutive year of record EBITDA

MONTREAL, QUEBEC--(Marketwire - Feb. 17, 2011) - Paladin Labs Inc. (TSX:PLB), a leading Canadian specialty pharmaceutical company, today reported its financial results for the fourth quarter and year ended December 31, 2010. The Company has achieved its 15th consecutive year of record revenues and its 8th consecutive year of record EBITDA (1).

2010 Highlights

  • Revenues for 2010 totalled a record $128.0 million an increase of 17% over 2009

  • EBITDA(1) for 2010 increased 45% to a record $56.7 million compared to $39.2 million in 2009

  • Sales of Tridural®, Trelstar®, Testim®, Metadol® and Plan B® grew 36% in 2010 compared to 2009

  • Filed a new drug submission for Abstral®

  • Amended its existing agreements with Isotechnika Pharma Inc. (TSX:ISA) ("Isotechnika") giving Paladin full share of future net profits of the Isodiagnostika line of diagnostic products

  • Entered into a distribution agreement with Protherics Inc., for the exclusive Canadian rights to market and sell DigiFab™ (Digoxin Immune Fab (Ovine))

  • Completed a strategic investment in SpePharm Holding B.V., a rapidly-growing European specialty pharmaceutical company

  • Completed a strategic investment to acquire an initial 34.99% ownership interest in Pharmaplan (Pty) Ltd. ("Pharmaplan"), a leading privately owned specialty pharmaceutical company, based in South Africa

  • Obtained approval from Health Canada for Seasonique®

  • Expanded its commercial relationship with Labopharm Inc. (TSX:DDS)(NASDAQ:DDSS) through three licensing and distribution agreements and in conjunction advanced Labopharm a $10.0 million cash advance against future product supply of Tridural® to Paladin for distribution in Canada

  • Amended its existing agreement with Mission Pharmacal for the distribution of Urocit-K® to include South Africa and certain countries in Sub-Saharan Africa

  • Entered into an agreement with ProStrakan Group plc ("ProStrakan") (LSE:PSK) whereby Paladin was granted an exclusive license to ProStrakan's products for certain emerging territories and acquired, by way of assignment, ProStrakan's existing secured debt facility of $77.2 million with the addition of certain conversion rights

  • Filed a new drug submission for Voclera™ (voclosporin)

Subsequent to Fourth Quarter

  • Obtained approval from Health Canada for DigiFab™

  • Entered into an agreement with Bristol Myers Squibb to acquire the Tempra® line of products in Canada

  • Amended its existing agreements with Isotechnika to transfer to Isotechnika certain ownership and rights and also entered into an agreement with ILJIN Life Science Co., Ltd ("ILJIN") to sell 12,500,000 common shares of Isotechnika

  • Entered into a bought deal agreement pursuant to which certain underwriters have agreed to purchase 1,000,000 common shares issued at a price of $35.00 per common share with an over-allotment option for 150,000 additional common shares for total gross proceeds to Paladin of up to $40,250,000

"As we celebrate the close of our 15th consecutive year of record revenues, we are proud to have built such a dynamic, diverse and high performing business in multiple countries. We successfully expanded our business internationally while continuing to generate strong revenues and EBITDA growth. With almost $100 million in cash and virtually no debt we remain well poised to continue our strategy of growth through acquisition, both in the Canadian market and internationally." said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

For the quarter ended December 31, 2010, Paladin recorded revenues of $32.4 million compared to $29.3 million in the fourth quarter of 2009, an 11% year over year increase. Revenues increased $18.3 million or 17% to a record $128.0 million in 2010 from $109.7 million in 2009. The increase in revenues for the year and the quarter ended December 31, 2010 is mostly attributable to the sales growth of certain significant promoted products, including Tridural®, Trelstar®, Testim®, Metadol® and Plan B®, which combined increased by 36% and 29%, respectively, over the same period in the prior year.

EBITDA(¹) for the fourth quarter in 2010 increased 61% to $15.6 million compared to EBITDA(1) of $9.7 million in the fourth quarter 2009. In 2010, EBITDA(¹) increased 45% to a record $56.7 million compared to $39.2 million in 2009.

Net income before extraordinary gain for the fourth quarter 2010 was $14.0 million or $0.72 per fully diluted share compared to $934,000 or $0.05 per fully diluted share for the same period in 2009. Net income for the quarter ended December 31, 2009 was $4.4 million or $0.23 per fully diluted share. Net income before extraordinary gain in 2010 was $29.7 million or $1.54 per fully diluted share compared to $8.3 million or $0.48 per fully diluted share in 2009. Net income in 2009 was $37.7 million or $2.16 per fully diluted share.

Selling and marketing expense for the fourth quarter of 2010 decreased to $5.4 million compared to $7.2 million in the fourth quarter of 2009. Selling and marketing expense for 2010 decreased to $22.1 million compared to $26.0 million in 2009. Selling and marketing expense, as percentage of revenues, decreased to 17% for the quarter and the year ended December 31, 2010 compared to 24% for the quarter and the year ended December 31, 2009. The decrease in selling and marketing expenses is mainly the result of certain sales and marketing streamlining efforts including the reduction of promotional spend for certain products and the Company's growth in non-promoted product revenue.

Amortization expense for the fourth quarter 2010 decreased to $5.4 million from $6.6 million in the corresponding period a year ago. For 2010, amortization expense decreased to $22.8 million from $25.1 million in 2009. The decrease in amortization expense is the result of certain pharmaceutical product licenses and rights being fully amortized during the year.

As at December 31 2010, Paladin's cash, cash equivalents and investments in marketable securities totaled a record $139.4 million. Subsequent to the quarter, we dispensed $77.2 million to ProStrakan and will raise at least $35.0 million through a bought deal. From this strong cash position, Paladin continues to pursue acquisition opportunities.

Product Developments

During the first quarter of 2010, Paladin filed a new drug submission for Abstral® sublingual fentanyl. Abstral® is a novel, rapidly-disintegrating, sublingual (under the tongue) formulation of fentanyl, a well-established opioid used for the management of episodes of breakthrough pain experienced by cancer patients who are already receiving opioid analgesics for chronic pain. Paladin expects to obtain regulatory approval in the first half of 2011.

In April 2010, Health Canada approved Seasonique®, the next generation extended-cycle oral contraceptive for the prevention of pregnancy. Under the Seasonique® extended-cycle regimen, women take active tablets of 0.15 mg levonorgestrel/0.03 mg of ethinyl estradiol for 84 consecutive days, followed by seven days of a low dose of ethinyl estradiol (0.01 mg). The regimen is designed to reduce the number of withdrawal bleeding periods from thirteen to four per year. Paladin expects to launch, through it's co-promote partner Warner Chilcott, in the first half of 2011.

In October 2010, Paladin and Mission Pharmacal Company amended their distribution agreement for Urocit-K®. The terms of the original agreement granted Paladin exclusive rights for the sales and marketing of Urocit-K® in Canada. Under the terms of the new agreement, the territory covered is extended to include exclusive rights for sales and marketing in South Africa and Sub-Saharan Africa. Urocit-K® is indicated for the treatment of calcium and uric acid kidney stones.

In December 2010, Paladin filed a new drug submission for Voclera™ (voclosporin). Voclera™ is a novel immunosuppressive drug in the class of calcineurin inhibitors and is indicated for the treatment of moderate to severe psoriasis.

Corporate Developments

In February 2010, Paladin amended its existing agreements with Isotechnika giving Paladin the full share of future net profits of the Isodiagnostika line of diagnostic products in exchange for an undisclosed lump sum payable over the next twelve months.

Also during the first quarter of 2010, Paladin made two strategic international investments. The first strategic investment was in SpePharm Holding B.V., a rapidly-growing, European specialty pharmaceutical company. Under the terms of this agreement, Paladin invested €4 million through a secured convertible debenture. Full conversion of Paladin's interest-bearing debt into equity would provide Paladin with an approximate 10% ownership interest. The second strategic investment was in Pharmaplan (Pty) Ltd. of South Africa which marked Paladin's most significant corporate development initiative to date and signalled the commitment to expand internationally. Pharmaplan is South Africa's leading independent specialty pharmaceutical company dedicated to the execution of a search-acquire-commercialize business model in the South African and broader sub-Saharan African region. Under the terms of the agreement, Paladin acquired an initial 34.99% ownership interest and committed to increase its ownership position over time based on a formula linked to Pharmaplan's actual financial performance.

In September 2010, Paladin expanded its commercial relationship with Labopharm Inc. through three licensing and distribution agreements under which Paladin will distribute two of Labopharm's products in certain jurisdictions. As part of the agreements, Paladin advanced Labopharm $10 million against future product supply of Tridural® to Paladin for distribution in Canada.

In December 2010, Paladin entered into a new strategic relationship with ProStrakan Group plc whereby Paladin was granted an exclusive license to ProStrakan's products for certain emerging territories and acquired, by way of assignment, ProStrakan's existing secured debt facility of £50 million ($77.2) with the addition of certain conversion rights. Paladin will have the option to convert the outstanding principal debt into new ProStrakan shares at any point after the initial six months of the life of the amended agreement. Full conversion would provide Paladin with an approximate ownership interest of 18.3% in ProStrakan. 

Subsequent to Fourth Quarter

In January 2011, Paladin obtained approval from Health Canada for DigiFab™, a specialty product indicated for the treatment of patients with life-threatening or potentially life-threatening digoxin toxicity or overdose. Paladin acquired the exclusive Canadian rights to market and sell DigiFab™ from Protherics Inc., a wholly owned subsidiary of BTG plc (LSE:BGC), in February 2010 and launch is anticipated in the second half of 2011.

In February 2011, Paladin entered into an agreement with Bristol Myers Squibb to acquire the Tempra® line of products in Canada including both syrup and drop formulations. According to IMS Canada, the Tempra® line of products achieved sales of approximately $3 million in 2010 representing approximately 19% of the total sales in Canada of paediatric acetaminophen products.

In February 2011, Paladin further amended its existing agreements with Isotechnika in order to support the continued development of voclosporin for transplantation and autoimmune diseases. As a part of this agreement Paladin will transfer certain ownership and rights to Isotechnika for $1 million. In connection with this same deal Paladin also entered into an agreement with ILJIN to sell 12,500,000 common shares of Isotechnika for proceeds of 3.125 million.

Also in February 2011, Paladin entered into a bought deal agreement pursuant to which certain underwriters have agreed to purchase 1,000,000 common shares issued at a price of $35.00 per common share with an over-allotment option for 150,000 additional common shares for total gross proceeds to Paladin of up to $40,250,000.

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under Canadian GAAP and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, taxes, amortization, foreign exchange gains (losses), share of net income in companies subject to significant influence 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 and capital 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. 

Conference Call Notice

Paladin will host a conference call to discuss its fourth quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-909-4798 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. 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, 2009. 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 fillings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.

CONSOLIDATED BALANCE SHEETS

[In thousands of Canadian dollars]      

         
  December 31   December 31  
  2010   2009  
  $   $  
  (unaudited ) (audited(1 ))
ASSETS        
Current        
Cash and cash equivalents 96,295   31,227  
Marketable securities 43,094   74,142  
Accounts receivable 21,504   14,167  
Inventories 13,877   12,361  
Other current assets 5,125   2,668  
Income taxes receivable 17   4,630  
Investment tax credits recoverable   776  
Future income tax assets 8,042   6,196  
Total current assets 187,954   146,167  
         
Property, plant and equipment 221   691  
Pharmaceutical product licenses and rights 20,594   42,543  
Investments 38,574   62  
Investment tax credits recoverable 14,736   14,903  
Future income tax assets 22,378   31,029  
Total assets 284,457   235,395  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current        
Accounts payable and accrued liabilities 36,066   22,934  
Accounts payable to related parties 835   1,122  
Deferred revenues 1,939   1,776  
Income taxes payable 11,254   7,109  
Balance of sale payable 1,145   1,650  
Future income tax liabilities 26   252  
Total current liabilities 51,265   34,843  
         
Balance of sale payable 539   1,743  
Future income tax liabilities 4,066   4,007  
Total liabilities 55,870   40,593  
         
Shareholders' equity        
Capital stock 123,136   119,652  
Other paid-in capital 4,885   4,408  
Accumulated other comprehensive income 175   98  
Retained earnings 100,391   70,644  
Total shareholders' equity 228,587   194,802  
Total liabilities and shareholders' equity 284,457   235,395  

CONSOLIDATED STATEMENTS OF INCOME

[In thousands of Canadian dollars except for share and per share amounts]

  Three-month period ended December 31   Twelve-month period ended December 31  
  2010   2009   2010   2009  
  $   $   $   $  
  (unaudited ) (unaudited ) (unaudited ) (audited1 )
                 
Revenues 32,434   29,279   127,989   109,693  
Cost of sales 8,381   8,294   34,127   29,693  
Gross profit 24,053   20,985   93,862   80,000  
                 
Expenses (income)                
Selling and marketing 5,404   7,150   22,079   26,001  
General and administrative 1,826   2,184   8,417   8,419  
Research and development 2,202   2,360   9,094   7,229  
Interest income (945 ) (370 ) (2,380 ) (832 )
Earnings before under-noted items 15,566   9,661   56,652   39,183  
                 
Amortization of pharmaceutical product licenses and rights 5,357   6,610   22,844   25,063  
Unrealized gain on investments (6,347 )   (6,347 )  
Net loss (gain) on investments 16   416   9   (88 )
Other income (499 )   (540 ) (666 )
Foreign exchange loss 199   134   100   266  
Share of net income from a company subject to significant influence (43 )   (800 )  
Income before income taxes and extraordinary gain 16,883   2,501   41,386   14,608  
                 
Provision for income taxes                
Current 453   1,269   5,054   807  
Future 2,395   298   6,585   5,480  
  2,848   1,567   11,639   6,287  
Net income before extraordinary gain 14,035   934   29,747   8,321  
                 
Extraordinary gain (net of $nil taxes)   3,458     29,417  
Net income for the period 14,035   4,392   29,747   37,738  
                 
                 
                 
Earnings per share before extraordinary gain                
Basic 0.75   0.05   1.59   0.49  
Diluted 0.72   0.05   1.54   0.48  
                 
Earnings per share                
Basic 0.75   0.24   1.59   2.23  
Diluted 0.72   0.23   1.54   2.16  
                 
Weighted average number of shares outstanding                
Basic 18,790,704   18,538,147   18,700,808   16,933,229  
Diluted 19,509,230   19,100,064   19,362,892   17,432,898  
(1) Derived from the audited annual financial statements filed on SEDAR at www.sedar.com

CONSOLIDATED STATEMENTS OF CASH FLOWS

[In thousands of Canadian dollars]

  Three-month period ended December 31   Twelve-month period ended December 31  
  2010   2009   2010   2009  
  $   $   $   $  
  (unaudited ) (unaudited ) (unaudited ) (audited1 )
                 
Operating activities                
Net income for the period 14,035   4,392   29,747   37,738  
Add items not affecting cash                
  Extraordinary gain   (3,458 )   (29,417 )
  Amortization 5,435   6,892   23,407   25,555  
  Unrealized gain on investments (6,347 )   (6,347 )  
  Future income taxes 2,395   298   6,585   5,480  
  Stock-based compensation expense 286   450   1,661   2,022  
  Unrealized foreign exchange loss 274   8   135   196  
  Net accreted interest (income) expense (29 ) 30   (158 ) 127  
  Net realized loss (gain) on investments 16   416   9   (88 )
  Gain on disposal of pharmaceutical product licenses and rights       (666 )
  Share of net income from a company subject to significant influence (43 )   (800 )  
  16,022   9,028   54,239   40,947  
Net change in non-cash balances relating to operations 5,326   11,890   14,001   5,541  
Cash flows from operating activities 21,348   21,918   68,240   46,488  
                 
Investing activities                
Acquisition of equity investments (569 )   (17,234 ) (130 )
Acquisition of other investments (10,000 )   (18,630 )  
Repayment of balance of sale payable   (11,021 ) (1,650 ) (11,021 )
Additions to pharmaceutical product licenses and rights   (2,797 )   (8,273 )
Business acquisition       (7,594 )
Acquisition of property, plant and equipment (26 ) (205 ) (93 ) (429 )
Purchases of marketable securities (6,107 ) (9,499 ) (133,670 ) (95,244 )
Disposals and maturities of marketable securities 73,592   12,768   164,698   37,847  
Dividends from a company subject to significant influence 792     792    
Proceeds from disposal of investments 364     391   6,979  
Proceeds from disposal of pharmaceutical licenses       551  
Cash flows from (used in) investing activities 58,046   (10,754 ) (5,396 ) (77,314 )
                 
Financing activities                
Common shares issued for cash, net of issue costs 236   412   2,259   57,409  
Repurchase of shares       (72 )
Cash flows from financing activities 236   412   2,259   57,337  
                 
Foreign exchange rate on cash and cash equivalents (75 ) 126   (35 ) 70  
                 
Net change in cash and cash equivalents during the period 79,555   10,702   65,068   26,581  
                 
Cash and cash equivalents, beginning of period 16,740   20,525   31,227   4,646  
Cash and cash equivalents, end of period 96,295   31,227   96,295   31,227  
                 
Cash and cash equivalents 96,295   31,227          
Marketable securities 43,094   74,142          
  139,389   105,369          
                 

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