Paladin Labs Inc.

TSX : PLB


Paladin Labs Inc.

November 13, 2012 07:30 ET

Paladin Reports Record Third Quarter 2012 Results

MONTREAL, CANADA--(Marketwire - Nov. 13, 2012) - Paladin Labs Inc. (TSX:PLB), a leading specialty pharmaceutical company, today reported its financial results for the quarter ended September 30, 2012.

2012 Third Quarter Highlights

Financial

  • Adjusted(2) revenues reached a record $50.7 million, an increase of 38% over the same period last year

  • Adjusted(2) EBITDA(1) was a record $20.9 million, a 16% increase over the same period last year

Corporate Development

  • Announced closing of the 44.5% acquisition of Litha Healthcare Group ("Litha" - JSE:LHG) effective July 2, 2012

Subsequent to the Quarter

  • Entered into a licensing agreement with QRx Pharma Limited ("QRx" - ASX:QRX and OTCQX:QRXPY) for the exclusive rights to market and sell MoxDuo® in Canada
  • Entered into a licensing and distribution agreement with Dynamiclear Australia, an Australian-based natural healthcare company, under which Paladin received the exclusive rights to market and sell Dynamiclear Rapid™ in Canada

"In Q3 we expanded our pipeline and reported our best results to date, driven by record EBITDA in our Canadian business and the addition of incremental sales and EBITDA from our acquisition of Litha," said Mark Beaudet, interim President and CEO of Paladin Labs. "Looking forward, we look to build from this position by driving increased results in both the domestic and international segments of our business."

Financial Results

Adjusted(2) revenues increased $14.0 million or 38% to $50.7 million for the third quarter of 2012 from $36.7 million for the same period in 2011. The increase is mostly attributable to the proportionate consolidation of Litha's revenues of $13.0 million. In addition, revenues further increased as a result of incremental revenues from products acquired and/or launched by Paladin including corporate acquisitions since 2011, which contributed $2.7 million to the quarter ended September 30, 2012. The growth in the Canadian business was negatively impacted by the supply issues related to Twinject® and certain other products.

Consolidated revenues for the third quarter were $66.9 million, an increase of 82% over the same period last year. The increase is mostly attributable to the consolidation of Litha's revenues of $29.2 million.

Third quarter 2012 adjusted(2) EBITDA(1) increased 16% or $2.8 million to $20.9 million, compared to EBITDA(1) of $18.1 million in the third quarter of 2011. This increase is primarily due to the acquisition of Litha, which contributed $1.5 million to adjusted EBITDA(1). The increase in adjusted adjusted(2) EBITDA(1) for Paladin was driven by the strong sales performance of our promoted products, partially offset by increased costs associated with the launch of new products, including Oralair®. Litha's adjusted(2) EBITDA(1) includes certain integration and acquisition costs related to Pharmaplan as well as the impact of the decline in the South African Rand. In addition, Litha's adjusted(2) EBITDA(1) was negatively impacted by fair value adjustments on acquisition by Paladin.

Consolidated EBITDA(1) was $22.7 million, an increase of 25% over the consolidated EBITDA(1) for the quarter ended September 30, 2011. This increase is primarily due to the consolidation of Litha, which contributed $3.3 million in consolidated EBITDA(1) for the quarter.

Net income attributable to shareholders for the quarter was $24.9 million or $1.19 per fully diluted share, compared to net income attributable to shareholders of $9.5 million or $0.46 per fully diluted share in the same quarter a year ago.

As at September 30, 2012, Paladin's cash, cash equivalents and investments in marketable securities totaled $231.2 million. From this strong cash position, Paladin continues to pursue acquisition opportunities.

Corporate Developments

Effective July 2 2012, Paladin completed its most significant strategic investment to date through its investment in Litha, a JSE-listed, diversified healthcare company located in South Africa. Under the terms of the agreement, Paladin acquired the 55.01% of Pharmaplan which it did not previously own and sold 100% of the share capital of Pharmaplan to Litha in exchange for cash of and the issuance of 169,090,909 shares in Litha at ZAR2.75 per share. Paladin also acquired an additional 73,083,214 shares of Litha from third parties at ZAR2.75 per share. Paladin deployed $47.5 million in cash and issued 88,948 shares at $44.97 per share. As a result Paladin owns 44.5% of the outstanding shares of Litha and, through various shareholder agreements, effectively controls 58% of the outstanding shares of Litha.

This move into South Africa provides a stronger, more diversified platform from which Paladin is able to commercialize its South African and sub-Saharan portfolio of 10 products.

Subsequent to the quarter

Subsequent to the quarter, Paladin took steps to enrich both its over-the-counter and pain portfolios through two separate agreements.

In early October, Paladin entered into a licensing agreement with QRxPharma Limited, an Australian-based specialty pharmaceutical company, whereby Paladin received the exclusive rights to market and sell MoxDuo in Canada. MoxDuo is a novel, patented, immediate release, fixed dose formulation of morphine and oxycodone for the treatment of acute pain.

On October 18, 2012, Paladin entered into a licensing and distribution agreement with Dynamiclear Australia, an Australian-based natural healthcare company, under which Paladin received the exclusive rights to market and sell Dynamiclear Rapid in Canada. Dynamiclear Rapid is a novel, OTC product for the symptomatic treatment of cold sores. In addition, Paladin received an option to acquire the same territorial rights to Dynamiclear's antiviral formulation for Herpes Simplex Virus-2 infections which is currently under development.

(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 associate 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

The term "adjusted" refers to the proportional consolidation of Litha's results for the period beginning July 2, 2012. Given that Litha is 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 interest in Litha's results.

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 1-800-736-4594 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, 2011. 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)
As at September 30, 2012 December 31, 2011
ASSETS
Current
Cash and cash equivalents 87,304 72,115
Marketable securities 147,095 166,894
Trade and other receivables 40,605 20,208
Inventories 34,259 13,327
Income tax receivable 5,345 718
Other current assets 2,607 1,476
Total current assets 317,215 274,738
Restricted cash 3,281 -
Investment in associates 613 20,850
Interest in a joint venture 30,792 -
Loans to a joint venture 11,484 -
Financial assets 10,715 9,311
Investment tax credits recoverable 24,840 24,674
Deferred income tax assets 29,595 40,613
Property, plant and equipment 2,704 162
Intangible assets 117,205 27,565
Goodwill 36,345 -
Total assets 584,789 397,913
LIABILITIES AND EQUITY
Current
Bank overdraft 6,486 -
Payables, accruals and provisions 46,327 38,849
Finance lease liability - 984
Deferred revenue 2,008 2,999
Income tax payable 25,598 22,205
Loans and other balances payable 558 1,809
Short-term portion of the long-term liabilities 7,355 -
Total current liabilities 88,332 66,846
Finance lease liability - 5,745
Deferred revenue 1,645 2,099
Deferred tax liability 25,654 -
Loans and other balances payable 1,119 497
Long-term liabilities 28,205 -
Total liabilities 144,955 75,187
Equity
Share capital 172,126 166,681
Other paid-in capital 6,516 5,144
Other capital reserves (3,468 ) 553
Retained earnings 195,693 150,348
Attributable to equity holders of the Company 370,867 322,726
Non-controlling interests 68,967 -
Total equity 439,834 322,726
Total liabilities and equity 584,789 397,913
INTERIM CONSOLIDATED INCOME STATEMENTS
(In thousands of Canadian dollars except for share and per share amounts)
Three months ended September 30 Nine months ended September 30
Notes2012 2011 2012 2011
Revenues866,899 36,660 142,592 104,383
Cost of sales 27,253 10,249 48,422 27,751
Gross profit 39,646 26,411 94,170 76,632
Expenses (income)
Selling, general and administrative816,817 7,809 33,505 22,934
Research and development 1,554 1,849 5,981 6,145
Interest income (1,448)(1,361)(3,337)(6,207)
Earnings before under-noted items 22,723 18,114 58,021 53,760
Amortization of intangible assets 4,761 4,959 10,568 15,860
Depreciation of property, plant and equipment 206 15 257 117
Other finance (income) expense (45)(56)850 (8,617)
Other income (2,189)(97)(3,106)(97)
Foreign exchange loss (gain) 84 251 122 (204)
Interest expense 941 - 956 -
Share of net loss from a joint venture5771 - 771 -
Share of net income from associates4(31)(331)(980)(1,096)
Income before income tax and under-noted items 18,225 13,373 48,583 47,797
Gain on revaluation of equity investment 12,294 - 12,294 -
Income before income tax 30,519 13,373 60,877 47,797
Provision for income taxes 5,784 3,877 13,942 13,418
Net income for the period 24,735 9,496 46,935 34,379
Attributable to:
Equity holders of the Company 24,938 9,496 47,138 34,379
Non-controlling interests (203)- (203)-
Attributable to shareholders
Basic earnings per share 1.22 0.47 2.32 1.73
Diluted earnings per share 1.19 0.46 2.25 1.67
Weighted average number of shares outstanding
Basic 20,390,981 20,204,105 20,329,409 19,882,261
Diluted 21,001,756 20,864,049 20,940,233 20,595,223
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Three months ended September 30 Nine months ended September 30
2012 2011 2012 2011
Operating activities
Net income for the period 24,735 9,496 46,935 34,379
Adjustments reconciling net income to operating cash flows
Amortization of intangible assets 4,761 4,959 10,568 15,860
Deferred tax 4,316 (201 ) 11,617 3,721
Share-based compensation expense 923 385 2,250 1,508
Other finance (income) loss (50 ) (57 ) 846 (8,618 )
Unrealized foreign exchange (gain) loss (201 ) 182 (324 ) (832 )
Gain on revaluation of equity investment (12,294 ) - (12,294 ) -
Other income (2,118 ) - (2,835 ) -
Depreciation of property, plant and equipment 211 36 266 165
Changes in working capital and other non-cash balances (1,459 ) 10,296 (10,733 ) 10,885
Share of net income from an associate (31 ) (331 ) (980 ) (1,096 )
Share of net loss from a joint venture 771 - 771 -
Cash inflow from operating activities 19,564 24,765 46,087 55,972
Investing activities
Disposals and maturities of marketable securities 24,938 35,259 140,101 51,353
Dividends from an associate 1,502 640 3,139 891
Proceeds from disposal of financial assets 36 - 835 89,010
Proceeds from disposal of intangible assets - - 717 -
Proceeds from disposal of property, plant and equipment 40 - 40 -
Acquisition of subsidiaries, net of cash acquired (42,356 ) - (42,356 ) -
Purchases of marketable securities (43,924 ) (15,000 ) (120,979 ) (151,057 )
Purchases of financial assets - (2,937 ) (4,000 ) (88,873 )
Payment of loans and other balances payable - - (995 ) (250 )
Purchases of property, plant and equipment (404 ) (4 ) (527 ) (69 )
Additions to intangible assets (82 ) - (107 ) (7,617 )
Investment in an associate - - - (2,936 )
Net cash (outflow) inflow from investing activities (60,250 ) 17,958 (24,132 ) (109,548 )
Financing activities
Common shares issued for cash, net of issuance costs of $nil for the three-month and nine-month period (2011: $nil and $1,643, respectively) 181 177 1,351 41,038
Increase in loans and other balances payable 700 - 700 -
Increase in bank overdraft 719 - 719 -
Repurchase of shares - (321 ) (2,278 ) (321 )
Extinguishment of finance lease (3,366 ) - (3,366 ) -
Repayment of long-term liabilities (536 ) - (536 ) -
Payment of obligation under finance lease - - (500 ) -
Net cash (outflow) inflow from financing activities (2,302 ) (144 ) (3,910 ) 40,717
Foreign exchange rate gain (loss) on cash and cash equivalents 491 53 425 (105 )
Increase (decrease) in cash, cash equivalents and restricted cash during the period (42,497 ) 42,632 18,470 (12,964 )
Cash and cash equivalents, beginning of period 133,082 40,699 72,115 96,295
Cash, cash equivalents and restricted cash, end of period 90,585 83,331 90,585 83,331
Paladin cash and cash equivalents 81,671 83,331
Paladin restricted cash 3,281 -
Paladin marketable securities 147,095 143,369
Paladin cash, cash equivalents, restricted cash and marketable securities 232,047 226,700
Litha cash and cash equivalents 5,634 -
Litha bank overdraft (6,486 ) -
Litha cash, cash equivalents and bank overdraft (853 )
231,194 226,700
Reconciliation of the adjusted consolidated results from operations
Three months ended September 30, 2012 Paladin Litha 100% Consolidated results from operations Litha 44.54% Adjusted consolidated results from operations
$ $ $ $ $
Revenues 37,671 29,228 66,899 13,018 50,689
Cost of sales 10,920 16,333 27,253 7,275 18,195
Gross Income 26,751 12,895 39,646 5,743 32,494
Operating expenses 7,361 9,562 16,923 4,259 11,620
EBITDA(1) 19,390 3,333 22,723 1,485 20,875
Net income before income taxes 30,379 140 30,519 62 30,441
Net Income (loss) 24,892 -157 24,735 -70 24,822
Net Income attributable to shareholders 24,892 46 24,938 46 24,938
Nine months ended September 30, 2012 Paladin Litha 100% Consolidated results from operations Litha 44.54% Adjusted consolidated results from operations
$ $ $ $ $
Revenues 113,364 29,228 142,592 13,018 126,382
Cost of sales 32,089 16,333 48,422 7,275 39,364
Gross Income 81,275 12,895 94,170 5,743 87,018
Operating expenses 26,587 9,562 36,149 4,259 30,846
EBITDA(1) 54,688 3,333 58,021 1,485 56,173
Net income before income taxes 60,737 140 60,877 62 60,799
Net Income (loss) 47,092 -157 46,935 -70 47,022
Net Income attributable to shareholders 47,092 46 47,138 46 47,138

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