MISSISSAUGA, ON, Feb. 8 /PRNewswire-FirstCall/ - DRAXIS Health Inc. reported strong financial results for the fourth quarter and the year ended December 31, 2006. Higher product sales and improved margins drove fourth quarter and full year performance to record levels. Earnings and net operating cash flows exceeded 2006 targets. Both operating segments improved product sales and operating income in the fourth quarter and the full year 2006, compared to 2005. The Company finished the year with $21.5 million in cash and cash equivalents. All amounts are expressed in US dollars.
Highlights - Consolidated revenues for the fourth quarter of 2006 were $24.4 million, up 31% from the fourth quarter of 2005, and for the full year 2006 were $89.0 million, up 12% over 2005. Product sales of $23.1 million for the fourth quarter of 2006 were up 34% from the fourth quarter of 2005 with a product gross margin of 45% compared to 34% in the fourth quarter of 2005. - Operating income for the fourth quarter of 2006 was $4.3 million, substantially greater than the $1.0 million in the same quarter of 2005; operating income for the year 2006 was $15.0 million, a significant 53% improvement over the $9.8 million in 2005. Operating results in 2005 were negatively affected by an extended scheduled shutdown in the sterile products area of the contract manufacturing operations. - Net income for the fourth quarter of 2006 was $3.7 million (diluted EPS of 9 cents), triple the $1.1 million (diluted EPS of 3 cents) for the fourth quarter of 2005; for the year 2006 net income was $11.5 million (diluted EPS of 28 cents), up 48% from $7.8 million (diluted EPS of 18 cents) in 2005. - Net cash flows from operating activities were $5.7 million for the fourth quarter of 2006 compared to $5.9 million in the same period in 2005; net cash flows for the year 2006 were a record $16.5 million versus $9.7 million in 2005. - Cash and cash equivalents at December 31, 2006 were $21.5 million, up 73% from $12.4 million at December 31, 2005, despite expenditures of $3.3 million to buy back shares plus $5.7 million for capital expenditures to improve operating efficiencies, increase manufacturing capacity and upgrade infrastructure, particularly information technology and SAP platforms.
Comparisons with 2005 should take into account that in 2005 an extended scheduled shutdown severely constrained earnings in the third and fourth quarters, partially offset by a one-time contingent milestone payment that contributed approximately 1.4 cents to EPS for 2005. The inclusion of stock based compensation costs as a non-cash item for the first time in 2006 had the effect of lowering 2006 EPS by 2.3 cents relative to 2005 EPS.
“We had a strong fourth quarter from both our operating businesses with solid growth in product sales and continuing high margins that generated substantial double digit increases in operating income and cash flows, two of the key metrics we use to manage our businesses,” said Dr. Martin Barkin, President and CEO of DRAXIS Health. “Overall, 2006 has been a great year for the company, particularly in the second half where we were able to demonstrate that focusing on improving operational efficiencies has resulted in benefits to shareholders in the form of consistent and growing cash flows that directly impact valuation.”
Dr. Barkin also noted, “The new products being developed in our radiopharmaceutical unit are gaining recognition from the markets, our customers and potential partners. We intend to continue to allocate the appropriate resources to ensure their success and to identify appropriate partners for these projects. Our contract manufacturing unit is pursuing a number of opportunities to benefit from areas of unused capacity in our Montreal facility.”
------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (in thousands of U.S. dollars except share related data and in accordance with U.S. GAAP) For the Three Month Periods For the Years Ended December 31, Ended December 31, --------------------------- ------------------------ 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) REVENUES $ 23,106 $ 17,273 Product sales $ 83,545 $ 72,989 465 562 Royalty and licensing 2,121 3,143 Anipryl(R) deferred 825 825 revenues (Note 1) 3,301 3,301 ------------------------------------------------------------------------- $ 24,396 $ 18,660 $ 88,967 $ 79,433 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Research and development $ 392 $ 512 expense $ 2,372 $ 2,103 $ 10,446 $ 5,844 Product Gross Margin $ 36,462 $ 26,153 45.2% 33.8% Product Gross Margin % 43.6% 35.8% $ 4,289 $ 973 Operating income $ 14,952 $ 9,764 17.6% 5.2% Operating Margin % 16.8% 12.3% Cash and cash $ 21,446 $ 12,390 equivalents $ 21,446 $ 12,390 $ 0 $ 0 Total debt $ 0 $ 0 Cash flows from $ 5,734 $ 5,918 operating activities $ 16,450 $ 9,717 Cash flows used in (2,251) (825) investing activities (5,993) (4,380) $ 3,483 $ 5,093 $ 10,457 $ 5,337 ------------------------------------------------------------------------- $ 3,687 $ 1,067 Net income $ 11,547 $ 7,784 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 0.09 $ 0.03 Basic income per share $ 0.28 $ 0.19 $ 0.09 $ 0.03 Diluted income per share $ 0.28 $ 0.18 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note 1. As indicated previously, substantially all deferred revenues related to the amortization of previously received Anipryl(R) milestones terminated on December 31, 2006. The amortization of these deferred revenues has previously resulted in non-cash revenues of $0.8 million per quarter or $3.3 million per year, which has contributed approximately 7 cents of earnings per share per full year. Earnings per share adjusted for the exclusion of the Anipryl(R) deferred revenues were approximately 21 cents in 2006. The termination of this source of non-cash revenue and operating income has no effect on cash flows but will affect year-over- year comparisons of operating results going forward, including net income and EPS.
During the fourth quarter, the Company received approval from the Toronto Stock Exchange (TSX) to renew its Normal Course Issuer Bid to repurchase for cancellation up to 3,397,011 of its common shares, which represents 10% of the public float as of December 14, 2006. As at February 7, 2007, 788,800 shares had been repurchased and cancelled at an average price of $4.57 (CDN$5.21) since December 15, 2005.
Segment Highlights from Management’s Discussion and Analysis Contract Manufacturing - Revenues of $18.3 million for the fourth quarter of 2006 increased by $5.7 million or 45% over revenues in the fourth quarter of 2005. The increase in the quarter was driven by increased production of Hectorol(R) Injection for Genzyme Corporation (Genzyme) together with increases in lyophilized product production. For the year 2006 product sales increased $10.0 million compared to 2005, driven mainly by increased revenues related to the production of lyophilized products and increased demand for sterile products in general from existing customers. - Product gross margin increased dramatically to 39% for the fourth quarter of 2006 compared to 23% for the fourth quarter of 2005. The increase was driven by increased volumes of sterile and sterile lyophilized products in the 2006 fourth quarter relative to the 2005 fourth quarter. Product gross margin percentage was negatively affected by at least 5% in the fourth quarter of 2005 by the extended shutdown period in 2005. For the year 2006 product gross margin percentage increased to 36% from 27% in 2005 driven by a higher ratio of sterile to non-sterile product revenues and the dilutive impact of the 2005 extended shutdown on product gross margins. - Operating income for the fourth quarter of 2006 grew to $4.2 million (23% of revenues) from $0.7 million (5% of revenues) in the fourth quarter of 2005, driven by increased product sales and higher product gross margins, partially offset by higher selling, general and administrative expenses. Operating income for all of 2006 increased to $13.0 million (20% of revenues) compared to $6.4 million (12% of revenues) for the same period in 2005. - Depreciation and amortization of $1.0 million for the fourth quarter of 2006 was an increase of 20% over the fourth quarter of 2005 and for the year 2006 depreciation and amortization was $3.7 million, up 19% compared to 2005. These increases were due principally to capital projects completed in 2005 that increased lyophilization and autoclave capacity. Radiopharmaceuticals - Revenues for the fourth quarter of 2006 were up 14% to $5.6 million compared to the same period in 2005 (up over 20% after adjusting for the impact of the divestment of the brachytherapy product line in late 2005). The increase was primarily due to continued growth in radioiodine product sales, specifically Sodium Iodide I-131, including diagnostic capsules, as a result of greater U.S. market penetration. Revenues of $21.5 million for the year 2006 were 11% greater than 2005 revenues for the same reasons. - Product gross margin for the fourth quarter of 2006 increased to 61% compared to 60% for the same period in 2005 and to 63% for the full year 2006 compared to 60% for 2005. The increases reflect the positive impact of Sodium Iodide sales and the strategic focus on higher margin products which led to the divestment of the brachytherapy product line in late 2005. The increase in 2006 was tempered by the strengthening of the Canadian dollar for most of 2006 relative to 2005. - Operating income in the fourth quarter of 2006 was $1.6 million compared to operating income in the fourth quarter of 2005 of $0.6 million ($1.0 million after excluding $0.5 million of one-time costs related to the divestment of the brachytherapy product line in late 2005). In addition, operating income increased 47% to $5.6 million for all of 2006 compared to 2005. - In November 2006, DRAXIMAGE received approval from the U.S. Food and Drug Administration (FDA) to run two clinical trials using radioactive Iobenguane I-131 Injection (I-131 MIBG) to treat high- risk neuroblastoma, a rare form of cancer that affects mostly infants and young children. - On February 2, 2007 DRAXIMAGE announced it had submitted an Abbreviated New Drug Application (ANDA) to the FDA for its generic kit for the preparation of Tc-99m Sestamibi for injection (DRAXIMAGE(R) Sestamibi), a nuclear medicine imaging agent used in myocardial perfusion imaging (MPI) to evaluate blood flow to the heart in patients undergoing cardiac tests. Consolidated Guidance 2006 Guidance Achievements
The Company originally provided earnings per share guidance of between 23 and 27 cents for 2006. In conjunction with the release of the results for the third quarter of 2006, the Company then expected to achieve earnings per share closer to the higher end of its original guidance range. The final results for 2006 not only achieved the higher end of the guidance range but exceeded them by one cent. The Company was able to exceed the guidance range mainly due to strong fourth quarter production performance and the timing of customer demand in the contract manufacturing business as well as foreign exchange gains on U.S. dollar denominated monetary items. The stronger than anticipated volumes in 2006 due to the timing of requirements from our major customers, including Genzyme and GlaxoSmithKline, have resulted in lower preliminary volume forecasts from these customers for 2007 relative to 2006. These preliminary volume forecasts are considered in our guidance range for 2007. The actual volume requirements will be determined by the timing of end user demand and supply chain management decisions and can vary materially from preliminary forecasts. Both factors are outside of the Company’s control.
The Company also successfully achieved its net operating cash flows target of at least $15 million by attaining $16.5 million in net operating cash flows for 2006.
2007 Guidance
As indicated previously, substantially all revenues related to the amortization of previously received Anipryl(R) milestones terminated on December 31, 2006. The amortization of these deferred revenues has previously resulted in non-cash revenues of $0.8 million per quarter or $3.3 million per year. The termination of the amortization of deferred revenues had no effect on cash flows but had the impact of contributing 7 cents a share to 2006’s reported EPS.
As of February 7, 2007, the forecast information received by the Company from several major customers includes variable factors and assumptions, such as size of requirements and timing of regulatory approvals, that significantly impact overall forecast reliability to a degree that the Company is unable to provide reasonable revenue guidance. However, based on the current information available, earnings per share are expected to range between 23 cents and 27 cents for 2007 as compared with 21 cents in 2006 adjusted for the exclusion of the amortization of Anipryl(R) deferred revenues. This is the same guidance range we gave for 2006 but now excludes approximately 7 cents of EPS from Anipryl(R) deferred revenues.
While the Company does not plan to provide quantitative quarterly guidance, the Company expects the first quarter results for 2007 to be weaker compared to the fourth quarter 2006. The main reason is a delay in receiving component parts related to Hectorol(R) creating a production delay for this product. Due to sufficient customer inventory levels, the delay does not create any issues in the end user market. However, it will have an impact on short-term results of the Company and the contract manufacturing segment. This has been factored into our overall consolidated guidance range.
The Company’s formal contractual arrangements with Genzyme for the production of Hectorol(R) will terminate in March 2008. The Company expects continuing production of Hectorol(R) for Genzyme beyond this date. The actual volumes expected to be produced and shipped are dependent on the usual factors affecting end user demand including reimbursement policies and customer supply chain management practices. Accordingly, Hectorol(R) volumes are subject to a high degree of variability between now and 2009. While the Company may continue producing Hectorol(R) over a long-term period, the Company is planning for the eventual phase out of Hectorol(R) volumes over time in its long term plans with such capacity eventually filled by other products and customers.
Since the Anipryl(R) deferred revenues represent a non-cash source of earnings in 2006, net operating cash flow is a reasonable metric to measure growth on a year over year basis. Net operating cash flow is expected to be at least $20 million for 2007 subject, as always, to working capital requirements to support business growth.
Sources of Future Growth
The Company’s guidance for 2007 represents core growth in operations. Future additional growth for 2008 and beyond will come from the success of one or more of the many initiatives that have been developed over the past few years and which we continue to develop. The following opportunities do not include any potential merger and/or acquisition activities and are not listed in any particular order as the potential financial impact of each can vary materially over time:
- Conclusion of a strategic alliance with a commercial partner in Europe for the sales and marketing of the four product files currently under review by the European regulatory authorities. These are files for products currently sold in the U.S. or Canada. - The filing for approval of a generic form of Sestamibi in the U.S. and in Europe followed by its introduction into those marketplaces. - Completion of the development of proprietary technology for a second generation technetium generator and licensing it to others for distribution. - Clinical trials for a new formulation of INFECTON(R) targeted to orthopaedic indications subject to final analysis and recommendations of an expert panel. - Submission to the FDA for approval of an improved radiopharmaceutical (cold kit) product for bone scan imaging and introduction into the U.S. marketplace. - Completion of clinical trials for I-131 MIBG for the diagnosis and treatment of neuroblastoma and related malignancies and its subsequent sale and distribution in North America. - Completion of negotiations followed by product transfers for the manufacture of a new portfolio of non-sterile products. - Development and approval of additional generic imaging products that now or will shortly cease to be protected by patent. - Expansion of manufacturing capacity at the Montreal facility to accommodate new business opportunities. Interim Financial Report
This release includes by reference the 2006 fourth quarter and year-ended interim financial report incorporating the full Management’s Discussion & Analysis (MD&A) as well as unaudited financial statements for the quarter and the year-ended December 31, 2006 prepared in accordance with U.S. GAAP. The interim report, including the MD&A and unaudited financial statements, has been filed with applicable Canadian and U.S. securities regulatory authorities, is accessible on the Company’s website at www.draxis.com in the Investor Relations section under Financial Reports, through the databases of SEDAR (at www.sedar.com) and EDGAR (at www.sec.gov) and is available upon request by contacting DRAXIS Investor Relations at 1-877-441-1984.
Conference Call
DRAXIS has scheduled a conference call to discuss fourth quarter 2006 financial results on February 8, 2007 at 10:00 a.m. (ET). This call can be accessed by dialing 1 (800) 565-5442 and using Access Code 1384644, and will also be webcast live with access through the Company’s website at www.draxis.com. The conference call will also be available in archived format on the Company’s website for 30 days following the conference call.
About DRAXIS Health Inc.
DRAXIS Health, through its wholly owned operating subsidiary, DRAXIS Specialty Pharmaceuticals Inc., provides products in three categories: sterile products, non-sterile products and radiopharmaceuticals. Sterile products include liquid and freeze-dried (lyophilized) injectables plus sterile ointments and creams. Non-sterile products are produced as solid oral and semi-solid dosage forms. Radiopharmaceuticals are used for both therapeutic and diagnostic molecular imaging applications. Pharmaceutical contract manufacturing services are provided through the DRAXIS Pharma division and radiopharmaceuticals are developed, produced, and sold through the DRAXIMAGE division. DRAXIS Specialty Pharmaceuticals Inc. employs approximately 500 staff in its Montreal facility.
For additional information please visit www.draxis.com. Caution Concerning Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from such statements or from any future results or performance implied thereby. Factors which could cause the Company’s results or performance to differ materially from a conclusion, forecast or projection in the forward-looking statements include, but are not limited to: the achievement of desired clinical trial results related to the Company’s pipeline products; timely regulatory approval of the Company’s products; the ability to comply with regulatory requirements applicable to the manufacture and marketing of the Company’s products; the Company’s ability to obtain and enforce effective patents; the non-infringement of third party patents or proprietary rights by the Company and its products; factors beyond our control which could cause interruptions in our operations in our single manufacturing facility (including, without limitation, material equipment breakdowns); reimbursement policies related to health care; the establishment and maintenance of strategic collaborative and commercial relationships; the Company’s dependence on a small number of key customers; the disclosure of confidential information by our collaborators, employees or consultants; the preservation of healthy working relationships with the Company’s union and employees; the Company’s ability to grow the business; the fluctuation of our financial results and exchange and interest rate fluctuations; the adaptation to changing technologies; the loss of key personnel; the avoidance of product liability claims; the loss incurred if current lawsuits against us succeed; the volatility of the price of our common shares; and market acceptance of the Company’s products. For additional information with respect to certain of these and other factors and relating to the Company generally, reference should be made to the Company’s most recent Form 20-F filed with the United States Securities and Exchange Commission (available on EDGAR at www.sec.gov) and with Canadian securities regulators (available on SEDAR at www.sedar.com). The forward-looking statements contained in this document represent the Company’s expectations as at February 7, 2007. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
DRAXIS HEALTH INC. Consolidated Statements of Operations In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three-Month Periods For the Years Ended December 31, Ended December 31, --------------------------- ------------------------ 2006 2005 2006 2005 ----------- ----------- ----------- ----------- REVENUES $ 23,106 $ 17,273 Product sales $ 83,545 $ 72,989 Royalty and 1,290 1,387 licensing 5,422 6,444 ------------------------------------------------------------------------- 24,396 18,660 88,967 79,433 ------------------------------------------------------------------------- EXPENSES Cost of goods sold, excluding depreciation and 12,660 11,429 amortization 47,083 46,836 Selling, general and 5,672 4,526 administration 19,425 16,185 Research and 392 512 development 2,372 2,103 Depreciation and 1,383 1,220 amortization 5,135 4,545 ------------------------------------------------------------------------- 20,107 17,687 74,015 69,669 ------------------------------------------------------------------------- 4,289 973 Operating income 14,952 9,764 Financial income 228 - (expense), net 347 (29) Foreign exchange gain 522 40 (loss) 282 (398) ------------------------------------------------------------------------- 5,039 1,013 Income before income taxes 15,581 9,337 (1,352) 54 Income taxes (4,034) (1,553) ------------------------------------------------------------------------- $ 3,687 $ 1,067 Net income $ 11,547 $ 7,784 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 0.09 $ 0.03 Basic income per share $ 0.28 $ 0.19 ---------------------- Diluted income per ------------------ $ 0.09 $ 0.03 share $ 0.28 $ 0.18 ----- Weighted-average number of shares outstanding 41,544,683 41,626,094 - basic 41,592,507 41,471,798 41,654,103 42,323,702 - diluted 41,675,682 42,365,782 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the Consolidated Financial Statements. These interim financial statements should be read in conjunction with the annual Consolidated Financial Statements. DRAXIS HEALTH INC. Consolidated Balance Sheets In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) December 31, December 31, 2006 2005 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 21,446 $ 12,390 Accounts receivable 20,683 16,301 Inventories (Note 3) 7,590 7,629 Prepaid expenses 735 1,003 Deferred income taxes, net 3,179 2,750 ------------------------------------------------------------------------- Total current assets 53,633 40,073 Property, plant and equipment, net 46,292 45,652 Goodwill, net 753 754 Intangible assets, net 318 399 Other assets 407 475 Deferred income taxes, net 4,559 8,467 ------------------------------------------------------------------------- Total assets $ 105,962 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 11,756 $ 8,793 Current portion of deferred revenues 329 3,671 Customer deposits 576 649 ------------------------------------------------------------------------- Total current liabilities 12,661 13,113 Other liabilities 174 252 Deferred revenues 712 827 ------------------------------------------------------------------------- Total liabilities $ 13,547 $ 14,192 ------------------------------------------------------------------------- SHAREHOLDERS’ EQUITY Common stock, without par value of unlimited shares authorized $ 77,749 $ 77,313 Additional paid-in capital 15,475 15,370 Warrants - 916 Deficit (8,234) (19,781) Accumulated other comprehensive income 7,425 7,810 ------------------------------------------------------------------------- Total shareholders’ equity 92,415 81,628 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity $ 105,962 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the Consolidated Financial Statements. These interim financial statements should be read in conjunction with the annual Consolidated Financial Statements. DRAXIS HEALTH INC. Consolidated Statements of Changes in Equity and Comprehensive Income (Loss) In Accordance with U.S. GAAP ---------------
