MISSISSAUGA, ON, May 11 /PRNewswire-FirstCall/ - DRAXIS Health Inc. reported first quarter operating results for the three months ended March 31, 2006. Revenues and earnings were below the first quarter of 2005 but were an improvement over the immediately preceding fourth quarter of 2005. Net cash flows from operating activities were up substantially for the quarter. All amounts are expressed in U.S. dollars.
Highlights - Consolidated revenues of $19.1 million in the first quarter were down 16% from $22.8 million in the first quarter of 2005, but were up from $18.7 million in the fourth quarter of 2005. - Net income for the first quarter of 2006 was $1.7 million, compared to $3.3 million in the same quarter of 2005 and 59% ahead of the $1.1 million in the fourth quarter of 2005. - Basic and diluted EPS was 4 cents per share for the first quarter of 2006, down 4 cents per share compared to the first three months of 2005. Basic and diluted EPS was 3 cents for the fourth quarter of 2005. - Operating income for the first quarter of 2006 was $1.9 million, down $2.6 million from the first quarter of 2005, but nearly double the $1.0 million for the fourth quarter of 2005. - Net cash flows from operating activities increased substantially to $3.1 million for the first quarter of 2006, up 92% compared to $1.6 million for the same period in 2005. Operating cash flows in the fourth quarter of 2005 were $6.0 million.
Last year’s first quarter 2005 revenues included $0.9 million of contingent milestones received and earned in respect of product rights sold as part of the Company’s sale of its Canadian pharmaceutical sales and marketing business to Shire BioChem Inc. This added just over 1 cent to EPS in the first quarter of 2005.
“While our first quarter came in below the strong first quarter of 2005, the results show growth and improvement coming out of the challenging period during and shortly after the shutdown in late 2005,” said Dr. Martin Barkin, President and CEO of DRAXIS. “Our operational results are now trending back towards the performance we saw during the first half of 2005. In addition, operating cash flow levels continue to be robust and cash-on-hand is at levels unprecedented in the Company’s recent history.”
“The first quarter of 2006 was impacted by reduced production in the sterile products area of our contract manufacturing segment during the early part of the quarter. Full production of sterile liquid injectables, particularly Hectorol(R) Injection, did not reach normal levels until March. We do not believe that catch-up production will be required in subsequent quarters. Production of lyophilized products increased significantly this quarter, as we continue to bring the second lyophilizer on stream, but this increase did not fully offset the reduced output of other sterile products. Overall, lower sterile product volumes, coupled with non-sterile volumes that were below the unusually high levels in the first quarter of last year, impacted earnings by 2 - 2.5 cents per share compared to the first quarter of 2005.”
“Quarterly product sales in our radiopharmaceuticals business increased 10% compared to the corresponding period in 2005, excluding the brachytherapy products, which we stopped selling in late 2005. Product gross margins, in dollars, increased 10% and operating income increased 20% reflecting the positive impact of successful efforts to increase the penetration of our iodine-131 products into the U.S. market. During the quarter, the radiopharmaceutical business announced that it has realigned its priorities for the research and development of new radiopharmaceutical products that we believe will drive future growth. One key near term program is the development of Sestamibi, a lyophilized product widely used for Technetium-based cardiac imaging studies, a market segment not currently served by DRAXIMAGE. A second major opportunity being pursued is the production and distribution of a “next- generation” Technetium Generator, which is the source of Technetium in virtually every radiopharmacy worldwide. Both of these recently-announced major product opportunities are high priorities for the DRAXIMAGE division.”
FINANCIAL HIGHLIGHTS (in thousands of U.S. dollars except share related data and in accordance with U.S. GAAP) For the Three Month Periods Ended March 31, ------------------------------ 2006 2005 (unaudited) (unaudited) REVENUES Product sales $ 17,648 $ 20,506 Royalty and licensing 1,428 2,339 ------------------------------------------------------------------------- $ 19,076 $ 22,845 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Research and development expense $ 789 $ 567 Product Gross Margin $ 6,816 $ 7,446 Product Gross Margin % 38.6% 36.3% Operating income $ 1,899 $ 4,540 Operating Margin % 10.0% 19.9% Cash and cash equivalents $ 14,086 $ 7,342 Total debt $ 0 $ 0 Cash flows from operating activities $ 3,090 $ 1,606 Cash flows used in investing activities (794) (941) ------------------------------------------------------------------------- $ 2,296 $ 665 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income $ 1,692 $ 3,295 Basic and diluted income per share $ 0.04 $ 0.08 -------------------------------------------------------------------------
Cash and cash equivalents at March 31, 2006 were $14.1 million, up $6.7 million from a year ago and up $1.7 million from December 31, 2005, despite spending $0.6 million during the first quarter of 2006 to repurchase shares under the Company’s current Normal Course Issuer Bid.
On December 8, 2005 the Company initiated a Normal Course Issuer Bid to buy back for cancellation up to 3,522,530 of its common shares, representing up to 10% of the public float on December 6, 2005. As at May 10, 2006, 323,400 shares had been repurchased and cancelled at an average price of $4.44 (CDN$5.11).
As of May 10, 2006 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 2006. This includes a non-cash charge of 2 cents per share for stock- based compensation, according to new accounting rules effective January 1, 2006. Net operating cash flow in 2006 is expected to be at least $15 million.
Segment Highlights from Management’s Discussion and Analysis Contract Manufacturing - Revenues of $13.6 million for the first quarter of 2006 represented a decrease of $2.3 million or 14.3% versus the same period in 2005, but were $0.9 million ahead of the immediately preceding fourth quarter of 2005. - The decrease in product sales in the first quarter of 2006 was driven by lower volumes of sterile and non-sterile products, offset somewhat by higher output of lyophilized products compared to the first quarter of 2005. - Product gross margin percentage for the quarter was 29%, essentially unchanged from the 29% for the first quarter of 2005, but up from the 23% in the fourth quarter of 2005. - Operating income for the first quarter was $1.9 million, which was down from the $4.5 million for the first quarter of 2005, but was up substantially from the $1.0 million in the fourth quarter of 2005.
Production run rates for the first quarter of 2006 did not achieve the run rates that the Company was executing between January and July 2005 until March 2006. During the early part of the first quarter 2006 the Company invested in activities related to validating operating parameters for portions of the sterile manufacturing area to ensure on-going compliance with changing global regulations. However, by March 2006 production run rates in the sterile products area were back at levels expected for the contract manufacturing operations prior to the shutdown of late 2005.
Radiopharmaceuticals - Product sales of $4.9 million for the quarter represented a 10% increase over the first quarter of 2005, excluding the impact of the brachytherapy product line, which was divested in late 2005. - Product gross margin percentage was 63% for the first quarter of 2006 compared to 59% for the first quarter of 2005. - Operating income was $1.0 million for the first three months of 2006, versus $0.8 million in the same period in 2005. - On March 27, 2006 the Company announced that it had realigned its priorities for the research and development of new products that will drive future growth. The Company is now focused on: the development of Sestamibi, a widely used cardiac imaging agent; the development of an improved version of a Technetium Generator used in radiopharmacies to generate the radioactive isotope Technetium 99m; and the acceleration of efforts to obtain marketing approvals for existing products in Europe. - In January 2006, the Company received approval from the U.S. Food and Drug Administration (“FDA”) regarding its supplemental new drug application for Sodium Iodide I-131 Capsules USP, Diagnostic-Oral. This product is scheduled to be launched into the US market in the second quarter of 2006. Interim Financial Report
This release includes by reference the first quarter interim financial report incorporating the full Management’s Discussion & Analysis (MD&A) as well as financial statements for the quarter ended March 31, 2006, prepared in accordance with U.S. GAAP. The interim financial report, including the MD&A and financial statements, has been filed with applicable Canadian and U.S. securities regulatory authorities and is accessible on the Company’s website at www.draxis.com in the Investor Relations section under Financial Reports. It is also available, through the SEDAR and EDGAR databases or upon request by contacting DRAXIS Investor Relations at 1-877-441-1984.
Conference Call
DRAXIS has scheduled a conference call to discuss first quarter 2006 financial results at 10 a.m. (ET) on May 11, 2006. This call can be accessed by dialing 1 (800) 811-8845 (Access Code 1347226) 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 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, 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). 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.
Financial Tables Attached 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 Ended March 31, ------------------------------ 2006 2005 --------------- ------------- REVENUES Product sales $ 17,648 $ 20,506 Royalty and licensing 1,428 2,339 ------------------------------------------------------------------------- 19,076 22,845 ------------------------------------------------------------------------- EXPENSES Cost of goods sold, excluding depreciation and amortization 10,832 13,060 Selling, general and administration 4,361 3,640 Research and development 789 567 Depreciation and amortization 1,195 1,038 ------------------------------------------------------------------------- 17,177 18,305 ------------------------------------------------------------------------- Operating income 1,899 4,540 Financial income (expense), net 8 (11) Foreign exchange gain (loss) 45 (31) ------------------------------------------------------------------------- Income before income taxes 1,952 4,498 Income taxes (260) (1,203) ------------------------------------------------------------------------- Net income $ 1,692 $ 3,295 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic income per share $ 0.04 $ 0.08 Diluted income per share $ 0.04 $ 0.08 Weighted-average number of shares outstanding - basic 41,538,437 41,142,854 - diluted 41,743,180 42,150,678 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the interim 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) March 31, March 31, 2006 2005 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 14,086 $ 12,390 Accounts receivable 12,576 16,301 Inventories 8,720 7,629 Prepaid expenses 1,289 1,003 Deferred income taxes, net 3,077 2,750 ------------------------------------------------------------------------- Total current assets 39,748 40,073 Property, plant and equipment, net 44,963 45,652 Goodwill, net 751 754 Intangible assets, net 332 399 Other assets 460 475 Deferred income taxes, net 7,965 8,467 ------------------------------------------------------------------------- Total assets $ 94,219 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 6,957 $ 8,793 Current portion of deferred revenues 2,915 3,671 Customer deposits 635 649 ------------------------------------------------------------------------- Total current liabilities 10,507 13,113 Other liabilities 231 252 Deferred revenues 798 827 ------------------------------------------------------------------------- Total liabilities $ 11,536 $ 14,192 ------------------------------------------------------------------------- SHAREHOLDERS’ EQUITY Common stock, without par value of unlimited shares authorized $ 77,069 $ 77,313 Additional paid-in capital 15,303 15,370 Warrants 916 916 Deficit (18,089) (19,781) Accumulated other comprehensive income 7,484 7,810 ------------------------------------------------------------------------- Total shareholders’ equity 82,683 81,628 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity $ 94,219 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the interim 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 In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three Month Periods Ended March 31, ------------------------------ 2006 2005 --------------- ------------- Common Stock (Number of Shares) Balance, beginning of period 41,588,005 41,015,326 Exercise of options 3,333 289,062 Repurchased for cancellation (123,600) - ------------------------------------------------------------------------- Balance, end of period 41,467,738 41,304,388 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Common Stock Balance, beginning of period $ 77,313 $ 75,840 Exercise of options 11 758 Repurchased for cancellation (255) - ------------------------------------------------------------------------- Balance, end of period $ 77,069 $ 76,598 ------------------------------------------------------------------------- Additional Paid In Capital Balance, beginning of period $ 15,370 $ 15,546 Stock compensation expense 240 - Common shares purchased for cancellation (307) - ------------------------------------------------------------------------- Balance, end of period $ 15,303 $ 15,546 ------------------------------------------------------------------------- Warrants Balance, beginning of period $ 916 $ 916 ------------------------------------------------------------------------- Balance, end of period $ 916 $ 916 ------------------------------------------------------------------------- Deficit Balance, beginning of period $ (19,781) $ (27,565) Net income 1,692 3,295 ------------------------------------------------------------------------- Balance, end of period $ (18,089) $ (24,270) ------------------------------------------------------------------------- Accumulated Other Comprehensive Income Balance, beginning of period $ 7,810 $ 5,183 Other comprehensive loss (326) (256) ------------------------------------------------------------------------- Balance, end of period 7,484 4,927 ------------------------------------------------------------------------- Total shareholders’ equity $ 82,683 $ 73,717 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Comprehensive Income Foreign currency translation adjustments $ (326) $ (256) ------------------------------------------------------------------------- Other comprehensive loss (326) (256) Net income 1,692 3,295 ------------------------------------------------------------------------- Total comprehensive income $ 1,366 $ 3,039 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the interim Consolidated Financial Statements. These interim financial statements should be read in conjunction with the annual Consolidated Financial Statements. DRAXIS HEALTH INC. Consolidated Statements of Cash Flows In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars) (unaudited) For the Three Month Periods Ended March 31, ------------------------------ 2006 2005 --------------- ------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income $ 1,692 $ 3,295 Adjustments to reconcile net income to net cash from (used in) operating activities Amortization of deferred revenues (783) (1,050) Depreciation and amortization 1,195 1,038 Stock-based compensation 240 - Deferred income taxes 50 987 Other 270 261 Changes in operating assets and liabilities Accounts receivable 3,697 (667) Inventories (1,137) 1,003 Prepaid expenses (293) (206) Accounts payable and accrued liabilities (1,841) (3,309) Deferred revenues - 254 ------------------------------------------------------------------------- Net cash from (used in) operating activities 3,090 1,606 ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for property, plant and equipment (642) (794) Increase in intangible assets (174) (147) Proceeds from disposition of equipment 22 - ------------------------------------------------------------------------- Net cash from (used in) investing activities (794) (941) ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Decrease in customer deposits, net (11) (17) Exercise of options 11 758 Common shares purchased for cancellation (562) - ------------------------------------------------------------------------- Net cash from (used in) financing activities (562) 741 ------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash and cash equivalents (38) 10 ------------------------------------------------------------------------- Net increase in cash and cash equivalents 1,696 1,416 Cash and cash equivalents, beginning of period 12,390 5,926 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 14,086 $ 7,342 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Additional Information Interest paid $ - $ - Income taxes paid $ 110 $ 228 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the interim Consolidated Financial Statements. These interim financial statements should be read in conjunction with the annual Consolidated Financial Statements. DRAXIS HEALTH INC. Notes to the Consolidated Financial Statements In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) 1. Significant Accounting Policies These interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The functional currency of the Company is the Canadian dollar however its reporting currency is the U.S. dollar. For the current and prior
