Paladin Labs Inc.
TSX : PLB

Paladin Labs Inc.

August 11, 2011 07:30 ET

Paladin Reports Second Quarter 2011 Financial Results: Achieves Record Quarterly Revenues and EBITDA

MONTREAL, CANADA--(Marketwire - Aug. 11, 2011) - Paladin Labs Inc. ("Paladin") (TSX:PLB), a leading Canadian specialty pharmaceutical company, today reported its second quarter 2011 financial results.

2011 Second Quarter Highlights

  • Revenues reached a record $36 million, an increase of 9% over the same quarter last year

  • Net income was $16.8 million, an increase of 245% over the same quarter last year

  • EBITDA1 was a record $18.3 million, an increase of 34% over the same quarter last year

  • Launched Seasonique®, a next generation extended-cycle oral contraceptive for the prevention of pregnancy

  • Out-licensed to Takeda Pharmaceutical Company Limited ("Takeda") (TSE:4502) an exclusive right to develop and commercialize fomepizole in Japan

  • Entered into a licensing and distribution agreement with Elan Drug Technologies (NYSE:ELN) to market and sell Elan's controlled release hydrocodone product in Canada

  • Received $88.4 million in repayment of its secured debt facility following the acquisition of ProStrakan Group plc by Kyowa Hakko Kirin Co., Ltd

  • Filed a new drug submission for Oralair™ with Health Canada

  • Received approval from the Toronto Stock Exchange to carry out a normal course issuer bid

  • Entered into an exclusive collaboration with Somaxon Pharmaceuticals, Inc. (NASDAQ:SOMX) to commercialize Silenor®

  • Launched Abstral®, a novel, rapidly-disintegrating, sublingual formulation of fentanyl

Subsequent to the second quarter

  • Acquired common shares of Afexa Life Sciences Inc. ("Afexa") (TSX:FXA) through market purchases on the Toronto Stock Exchange

  • Announced a take-over bid for any and all outstanding shares of Afexa

"In the second quarter we achieved record revenues and record EBITDA1. In addition, we helped lay the foundation for future near term organic growth with the launch of Seasonique® and Abstral®. Longer-term growth will be fueled by the launch of Oralair™, which was submitted for regulatory approval, and newly in-licensed Silenor® and Elan's hydrocodone product. Moreover, the repayment of the ProStrakan secured debt facility of $88.4 million contributes to the strength of our balance sheet and positions us well for the continued execution of our business strategy" said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

Revenues increased $3 million or 9% to a record $36 million for the second quarter of 2011 from $33 million for the same period in 2010. This increase is mostly attributable to the sales growth of Paladin's portfolio of products including certain significant promoted products, specifically, Tridural®, Trelstar®, Testim®, Metadol®, Plan B® and Abstral® which combined increased by 16% compared to 2010.

Second quarter 2011 EBITDA¹ increased 34% to a record $18.3 million, compared to EBITDA¹ of $13.6 million in the second quarter of 2010.

Net income for the quarter was $16.8 million or $0.80 per fully diluted share, compared to net income of $4.9 million or $0.25 per fully diluted share in the second quarter a year ago.

At June 30, 2011, Paladin's cash, cash equivalents and investments in marketable securities totalled $204 million.

Product Developments

During the quarter ended June 30, 2011, Paladin launched two new products in the Canadian market. In April 2011, Paladin launched Seasonique®, a new approach in oral contraceptives designed to reduce the number of periods a women experiences from 13 to 4 per year. Paladin also launched Abstral® (fentanyl citrate sublingual tablet) in June, 2011. Abstral® is a novel, rapidly-disintegrating, sublingual (under the tongue) formulation of fentanyl, a well-established opioid indicated for the management of breakthrough pain in opioid-tolerant patients with cancer. The launch of these two new products complements Paladin's existing Women's Health and Pain portfolios.

During the quarter, Paladin submitted Oralair™ for regulatory approval. Oralair™ is a sublingual grass pollen immunotherapy tablet for the treatment of grass pollen rhinitis with or without conjunctivitis for patients uncontrolled with current symptomatic medications. Paladin expects to obtain regulatory approval in the second half of 2012. Also during the quarter, Paladin and Elan Drug Technologies, a business unit of Elan Corporation plc, entered into a licensing and distribution agreement under which Paladin obtained the exclusive Canadian rights to market and sell Elan's controlled release hydrocodone product for the treatment of moderate to severe pain. Lastly, Paladin entered into an exclusive collaboration with Somaxon Pharmaceuticals, Inc. to commercialize Silenor® (doxepin) for the treatment of insomnia characterized by difficulty with sleep maintenance in Canada, South America and Africa. Paladin intends to submit Silenor® for regulatory approval in 2011.

In early May, Paladin and Takeda entered into a licensing and distribution agreement under which Paladin granted Takeda an exclusive right to develop and commercialize fomepizole (marketed and distributed by Paladin under the trademark Antizol® in Canada and the United States) for the treatment of ethylene glycol and methanol poisonings in Japan.

Corporate Developments

On May 17, 2011, Paladin received repayment of its secured debt facility including the receipt of a payment equivalent to the balance of interest payable for the first year together with a break free of £2 million ($3 million) in connection with the acquisition of ProStrakan Group plc by Kyowa Hakko Kirin Co., Ltd. A total of $88.4 million representing $77.2 million to reimburse the original debt facility, $2.8 million in earned interest and $8.4 million related to the early termination of the agreement was received.

On July 15, 2011, Paladin acquired 5,374,500 common shares of Afexa through market purchases on the Toronto Stock Exchange giving Paladin beneficial ownership of a total of 15,421,300 common shares of Afexa or approximately 14.94% of Afexa's total issued and outstanding common shares.

On August 10, 2011, Paladin made an offer to acquire any and all of the issued and outstanding shares of Afexa for $0.55 per share (the "Offer"). Under the Offer, Afexa shareholders will be entitled to elect to tender their shares for either $0.55 per share in cash or 0.013 of a Paladin share for each Afexa share. Paladin's Offer represents a 57% premium to the Afexa share closing price on July 14, 2011, the last trading day prior to Paladin's market purchases of Afexa shares announced on July 15, 2011, and a 45% premium to the volume weighted average trading price of Afexa shares over the 20 days up to and including July 14, 2011. Afexa's core product is COLD-FX®, Canada's leading over-the-counter cold and flu remedy. COLD-FX® is indicated in Canada to help reduce the frequency, severity and duration of cold and flu symptoms by boosting the immune system.

Paladin received regulatory approval from the Toronto Stock Exchange to carry out a normal course issuer bid to purchase up to 935,367 of its common shares effective May 30, 2011. To date Paladin has not purchased any shares under this normal course issuer bid.

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 finance (income) expense, taxes, amortization, foreign exchange gains (losses), share of net income in an associate 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.

Conference Call Notice

Paladin will host a conference call to discuss its second quarter results on Thursday, August 11, 2011, at 10:00 a.m. ET. The dial-in number for the conference call is 800-695-1004 or 416-359-3131. The call will be audio-cast live and archived for 30 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. With this strategy, a focused 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, 2010. 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]
June 30, 2011 December 31, 2010
ASSETS
Current
Cash and cash equivalents 40,699 96,295
Marketable securities 163,368 43,094
Trade and other receivables 20,131 21,912
Inventories 14,349 13,877
Income tax receivable 17
Other current assets 830 4,717
Total current assets 239,377 179,912
Investment in an associate 22,479 15,739
Financial assets 25,290 22,835
Property, plant and equipment 157 221
Pharmaceutical product licenses and rights 19,234 20,594
Investment tax credits recoverable 14,874 14,736
Deferred income tax assets 23,326 26,586
Total assets 344,737 280,623
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Payables, accruals and provisions 30,962 36,901
Income tax payable 16,656 11,254
Deferred revenue 534 1,939
Balances of sale payable 2,334 1,145
Total current liabilities 50,486 51,239
Balances of sale payable 1,024 539
Total liabilities 51,510 51,778
Shareholders' equity
Share capital 165,231 123,136
Other paid-in capital 4,821 4,892
Other capital reserves (2,350 ) 175
Retained earnings 125,525 100,642
Total shareholders' equity 293,227 228,845
Total liabilities and shareholders' equity 344,737 280,623
INTERIM CONSOLIDATED INCOME STATEMENTS
[In thousands of Canadian dollars except for share and per share amounts]
[unaudited]
Three months ended
June 30
Six months ended
June 30
2011 2010 2011 2010
Revenues 35,971 32,936 67,723 63,773
Cost of sales 9,462 9,245 17,502 18,025
Gross profit 26,509 23,691 50,221 45,748
Expenses (income)
Selling, general and administrative 8,188 7,839 15,228 15,916
Research and development 2,225 2,674 4,296 5,417
Interest income (2,177 ) (443 ) (4,846 ) (726 )
Earnings before under-noted items 18,273 13,621 35,543 25,141
Amortization of pharmaceutical product licenses and rights 5,571 6,071 10,901 12,341
Other finance income (9,134 ) (50 ) (8,561 ) (75 )
Foreign exchange (gain) loss (75 ) (87 ) (456 ) 207
Other income (41 ) (41 )
Share of net income from an associate (564 ) (335 ) (765 ) (466 )
Income before income tax 22,475 8,063 34,424 13,175
Provision for income taxes 5,692 3,200 9,541 5,170
Net income for the period 16,783 4,863 24,883 8,005
Attributable to shareholders
Basic earnings per share 0.83 0.26 1.26 0.43
Diluted earnings per share 0.80 0.25 1.22 0.42
Weighted average number of shares outstanding
Basic 20,136,525 18,668,015 19,718,663 18,632,017
Diluted 20,867,422 19,334,082 20,459,235 19,247,928
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[In thousands of Canadian dollars]
[unaudited]
Three months ended
June 30
Six months ended
June 30
2011 2010 2011 2010
Operating activities
Net income for the period 16,783 4,863 24,883 8,005
Adjustments reconciling net income to operating cash flows
Amortization of pharmaceutical product licenses and rights 5,571 6,071 10,901 12,341
Deferred tax 1,625 785 3,922 2,333
Share-based compensation expense 700 590 1,123 951
Other finance income (9,134 ) (50 ) (8,561 ) (75 )
Unrealized foreign exchange (gain) loss (527 ) (121 ) (1,014 ) 190
Depreciation of property, plant and equipment 24 208 129 427
Changes in working capital and other non-cash balances 2,842 3,100 589 1,788
Share of net income from an associate (564 ) (335 ) (765 ) (466 )
Cash inflow from operating activities 17,320 15,111 31,207 25,494
Investing activities
Purchases of financial assets (5,598 ) (383 ) (85,936 ) (9,013 )
Purchases of marketable securities (90,319 ) (48,517 ) (136,057 ) (92,305 )
Purchases of pharmaceutical product licenses and rights (50 ) (7,617 )
Investment in an associate (2,936 ) (15,982 )
Repayment of balances of sale payable (250 ) (1,650 )
Purchases of property, plant and equipment (10 ) (27 ) (65 ) (49 )
Proceeds from disposal of financial assets 85,666 89,010 27
Disposals and maturities of marketable securities 13,181 65 16,094 74,469
Dividends from an associate 251
Net cash inflow (outflow) from investing activities 2,870 (48,862 ) (127,506 ) (44,503 )
Financing activities
Common shares issued for cash, net of issue costs 859 639 40,861 1,410
Net cash inflow from financing activities 859 639 40,861 1,410
Foreign exchange rate gain (loss) on cash and cash equivalents 9 29 (158 ) 11
Increase (decrease) in cash and cash equivalents during the period 21,058 (33,083 ) (55,596 ) (17,588 )
Cash and cash equivalents, beginning of period 19,641 46,722 96,295 31,227
Cash and cash equivalents, end of period 40,699 13,639 40,699 13,639
Cash and cash equivalents 40,699 13,639
Marketable securities 163,368 91,899
204,067 105,538

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