Paladin Labs Inc.
TSX : PLB

Paladin Labs Inc.

November 03, 2011 08:00 ET

Paladin Reports Third Quarter 2011 Financial Results Achieves Record Quarterly Revenues

MONTREAL, CANADA--(Marketwire - Nov. 3, 2011) - Paladin Labs Inc. ("Paladin") (TSX:PLB), a leading Canadian specialty pharmaceutical company, today reported its third quarter 2011 financial results.

2011 Third Quarter Highlights

  • Revenues reached a record $36.7 million, an increase of 15% over the same period last year
  • Net income was $9.5 million an increase of 19% over the same period last year
  • EBITDA1 was $18.1 million, an increase of 14% over the same period last year
  • Entered into a definitive agreement to acquire all of the issued and outstanding common shares of Labopharm Inc. ("Labopharm")
  • Acquired common shares of Afexa Life Sciences Inc. ("Afexa") through market purchases on the Toronto Stock Exchange
  • Announced a take-over bid for any and all outstanding shares of Afexa and subsequently increased its offer to $0.81 per share
  • Entered into a distribution agreement with Common Sense Limited, a privately-owned Israeli company, under which Paladin received the exclusive rights to market and sell AL-SENSE OTC and VS-SENSE OTC in Canada, Latin America and Sub-Saharan Africa.

Subsequent to the quarter ended September 30, 2011:

  • Completed the acquisition of Labopharm following court and shareholder approval
  • Announced that it would not take up any shares of Afexa due to the non-fulfillment of a condition of its offer and tendered its shares in Afexa to Valeant Pharmaceuticals International Inc. ("Valeant") (NYSE:VRX)(TSX:VRX) resulting in a gain of over $5 million

"In the third quarter we continued our commitment to increasing shareholder value through disciplined deal-making. We entered into an agreement to acquire Labopharm which strengthens our top line and provides further opportunities to cultivate important international partnerships. We also tendered our shares of Afexa for a gain of $5.1 million after withdrawing our offer. With our strong, committed management team and our dedicated board of directors we continue to hold true to our values and progress towards our goal of becoming an international specialty pharmaceutical company," said Mark Beaudet, interim President and CEO of Paladin Labs.

Financial Results

Revenues increased $4.9 million or 15% to a record $36.7 million in the third quarter from $31.8 million for the same quarter last year. The increase in revenues for the third quarter of 2011 is attributable to the acquisition of Tempra® and the sales growth of certain significant promoted products, including Tridural®, Trelstar®, Testim®, Metadol®, Plan B® and Abstral® which combined increased by 11%.

Third quarter 2011 EBITDA¹ increased 14% to $18.1 million, compared to EBITDA¹ of $15.8 million in the third quarter of 2010.

Net income for the quarter was $9.5 million or $0.46 per fully diluted share, compared to net income of $8.0 million or $0.41 per fully diluted share in the third quarter a year ago.

At September 30, 2011, Paladin's cash, cash equivalents and investments in marketable securities totalled $226.7 million.

Product Developments

During the quarter ended September 30, 2011, Paladin entered into a distribution agreement with Common Sense Limited, a privately-owned Israeli company, under which Paladin received the exclusive rights to market and sell AL-SENSE OTC and VS-SENSE OTC in Canada, Latin America and Sub-Saharan Africa. AL-SENSE OTC is a novel diagnostic product that will provide women with a reliable diagnostic test to detect amniotic fluid leakage during pregnancy from the comfort of their own home. If undetected, this condition may cause complications for both the pregnant woman and her fetus. VS-SENSE OTC is a diagnostic product for the detection of bacterial vaginosis or trichomonas infection for women of reproductive age that affords women the option to self-test for potential vaginal infections.

Corporate Developments

On August 18, 2011, the Company announced that its President and CEO, Mr. Jonathan Ross Goodman, was involved in an accident and was hospitalized with serious injuries. As Mr. Goodman was unable to perform his duties as President and CEO, the Board of Directors of Paladin asked Mr. Mark Beaudet, Co-Founder, Director and Vice President Marketing and Sales of Paladin, to assume such duties on an interim basis. Mr. Goodman is pursuing a recovery and rehabilitation program. As a result, Mr. Goodman will remain absent from the Company for an indeterminate period of time. The Company will provide further updates on Mr. Goodman's condition only when a change in circumstance warrants same.

In early August, Paladin made an offer to acquire any and all of the issued and outstanding shares of Afexa for $0.55 per share (the "Offer"). On August 30, 2011, Paladin was advised that Valeant, through a subsidiary, had made an offer to acquire the issued and outstanding common shares of Afexa. Following this offer, on September 26, 2011, the Company increased its Offer to $0.81 per share. On September 30, 2011 Valeant announced it increased its bid to $0.85 per share. Subsequent to the third quarter, the Company announced it would not take up any shares under its Offer to acquire any and all of the issued and outstanding common shares of Afexa due to the non-fulfillment of a condition to the Offer. The Company tendered its shares to Valeant and recorded a gain of over $5 million.

On August 17, 2011, the Company entered into a definitive agreement pursuant to which the Company would acquire all of the issued and outstanding common shares of Labopharm at a price of $0.2857 per share in cash, representing a 57.4% premium over the volume-weighted average price of Labopharm's shares of $0.1815 for the 30 trading days prior to the August 17, 2011 announcement. On October 7, 2011, following Labopharm shareholder and court approval, Paladin completed the acquisition of Labopharm.

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 purchased 16,704 shares under this normal course issuer bid.

1EBITDA – 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 third quarter results on Thursday, November 3, 2011, at 10:00 a.m. ET. The dial-in number for the conference call is 800-694-6012 or 416-641-6670. 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]
September 30, 2011 December 31, 2010
ASSETS
Current
Cash and cash equivalents 83,331 96,295
Marketable securities 143,369 43,094
Trade and other receivables 18,572 21,912
Inventories 12,267 13,877
Income tax receivable 42 17
Other current assets 870 4,717
Total current assets 258,451 179,912
Investment in an associate 22,170 15,739
Financial assets 31,997 22,835
Property, plant and equipment 125 221
Pharmaceutical product licenses and rights 14,276 20,594
Investment tax credits recoverable 14,874 14,736
Deferred income tax assets 23,526 26,586
Total assets 365,419 280,623
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Payables, accruals and provisions 34,114 36,901
Income tax payable 20,478 11,254
Deferred revenue 619 1,939
Balances of sale payable 2,334 1,145
Total current liabilities 57,545 51,239
Balances of sale payable 1,024 539
Total liabilities 58,569 51,778
Shareholders' equity
Share capital 165,396 123,136
Other paid-in capital 5,156 4,892
Other capital reserves 1,522 175
Retained earnings 134,776 100,642
Total shareholders' equity 306,850 228,845
Total liabilities and shareholders' equity 365,419 280,623
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
2011 2010 2011 2010
Revenues 36,660 31,782 104,383 95,555
Cost of sales 10,249 7,721 27,751 25,746
Gross profit 26,411 24,061 76,632 69,809
Expenses (income)
Selling, general and administrative 7,824 7,315 23,051 23,231
Research and development 1,849 1,477 6,145 6,894
Interest income (1,361 ) (580 ) (6,207 ) (1,306 )
Earnings before under-noted items 18,099 15,849 53,643 40,990
Amortization of pharmaceutical product licenses and rights 4,959 5,146 15,860 17,487
Other finance income (56 ) (61 ) (8,617 ) (136 )
Foreign exchange loss (gain) 251 (322 ) (204 ) (115 )
Other income (97 ) (97 ) (41 )
Share of net income from an associate (331 ) (291 ) (1,096 ) (757 )
Income before income tax 13,373 11,377 47,797 24,552
Provision for income taxes 3,877 3,418 13,418 8,588
Net income for the period 9,496 7,959 34,379 15,964
Attributable to shareholders
Basic earnings per share 0.47 0.43 1.73 0.86
Diluted earnings per share 0.46 0.41 1.67 0.83
Weighted average number of shares outstanding
Basic 20,204,105 18,746,237 19,882,261 18,670,511
Diluted 20,864,049 19,406,637 20,595,223 19,303,642
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[In thousands of Canadian dollars]
[unaudited]
Three months ended September 30 Nine months ended September 30
2011 2010 2011 2010
Operating activities
Net income for the period 9,496 7,959 34,379 15,964
Adjustments reconciling net income to operating cash flows
Amortization of pharmaceutical product licenses and rights 4,959 5,146 15,860 17,487
Deferred tax (201 ) 1,633 3,721 3,966
Share-based compensation expense 385 391 1,508 1,342
Other finance income (57 ) (61 ) (8,618 ) (136 )
Unrealized foreign exchange loss (gain) 182 (329 ) (832 ) (139 )
Depreciation of property, plant and equipment 36 57 165 484
Share of net income from an associate (331 ) (291 ) (1,096 ) (757 )
Changes in working capital and other non-cash balances 10,296 6,893 10,885 8,681
Cash inflow from operating activities 24,765 21,398 55,972 46,892
Investing activities
Purchases of marketable securities (15,000 ) (35,257 ) (151,057 ) (127,562 )
Purchases of financial assets (2,937 ) (300 ) (88,873 ) (9,313 )
Purchases of pharmaceutical product licenses and rights (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 (4 ) (18 ) (69 ) (67 )
Proceeds from disposal of financial assets 89,010 27
Disposals and maturities of marketable securities 35,259 16,636 51,353 91,105
Dividends from an associate 640 891
Net cash inflow (outflow) from investing activities 17,958 (18,939 ) (109,548 ) (63,442 )
Financing activities
Common shares issued for cash, net of issue costs 177 613 41,038 2,023
Common shares repurchased (321 ) (321 )
Net cash (outflow) inflow from financing activities (144 ) 613 40,717 2,023
Foreign exchange rate gain (loss) on cash and cash equivalents 53 29 (105 ) 40
Increase (decrease) in cash and cash equivalents during the period 42,632 3,101 (12,964 ) (14,487 )
Cash and cash equivalents, beginning of period 40,699 13,639 96,295 31,227
Cash and cash equivalents, end of period 83,331 16,740 83,331 16,740
Cash and cash equivalents 83,331 16,740
Marketable securities 143,369 110,629
226,700 127,369

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