MISSISSAUGA, ON, May 9 /PRNewswire-FirstCall/ - DRAXIS Health Inc. reported first quarter operating results for the three months ended March 31, 2007. Revenues and earnings for the first quarter of 2007 exceeded the same quarter last year, meeting the expectations that we set for this quarter and in keeping with the guidance for the year 2007. Net cash flows from operating activities were up substantially in the first quarter of 2007 compared to the same quarter in 2006 and were similar to those in the fourth quarter of 2006. All amounts are expressed in U.S. dollars.
Highlights - Consolidated revenues of $21.0 million in the first quarter of 2007 were up 10% compared to the first quarter of 2006. Product sales in the first quarter of 2007 were up 11% to $19.6 million with product gross margin of 38% versus 39% compared to the first quarter of 2006. Increased radiopharmaceutical product sales were a major contributor to growth. - Operating income for the first quarter of 2007 was $2.5 million, up 29% from the first quarter of 2006. - Net income for the first quarter of 2007 was $2.0 million (diluted EPS of 5 cents), up 19% compared to $1.7 million (diluted EPS of 4 cents) in the same quarter of 2006. - Net cash flows from operating activities increased substantially to $5.5 million for the first quarter of 2007 compared to $3.0 million for the same period in 2006 and $5.7 million in the fourth quarter of 2006. - Cash and cash equivalents at March 31, 2007 were $25.5 million versus $14.1 million one year ago, despite investments during the first quarter of 2007 to install and implement a new warehouse management system as part of the overall upgrade of the existing SAP platform and information technology infrastructure and for capital installations in preparation for new business opportunities, including potential non-sterile volumes.
“Our first quarter of 2007 came in well ahead of the first quarter of 2006,” said Dr. Martin Barkin, President and CEO of DRAXIS. “We are particularly pleased that core operating performance, after adjusting for non-recurring or unusual items (see table of Supplemental Information), shows adjusted operating income up by 55% confirming excellent performance across all our core operations. Net cash flows from operating activities were particularly strong at $5.5 million, increasing our cash on hand at the end of the quarter to $25.5 million.
Dr. Barkin continued, “Although sterile product volumes, including Hectorol(R), were down in the quarter in part because of component delays from a supplier, this did not create any issues in end user markets. In our radiopharmaceutical business, the filing of an Abbreviated New Drug Application (ANDA) for our generic DRAXIMAGE(R) Sestamibi, a cardiac imaging agent, was a significant milestone in our plan to aggressively move into this major segment of nuclear medicine.”
------------------------------------------------------------------------- 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, 2007 2006 (unaudited) (unaudited) REVENUES Product sales $19,630 $17,648 Royalty and licensing 1,318 603 Anipryl(R) deferred revenues 30 825 ------------------------------------------------------------------------- $20,978 $19,076 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Product Gross Margin $7,452 $6,816 Product Gross Margin % 38.0% 38.6% Operating income $2,446 $1,899 Operating Margin % 11.7% 10.0% Cash and cash equivalents $25,495 $14,086 Total debt $0 $0 Cash flows from operating activities $5,533 $3,045 Cash flows used in investing activities (2,954) (794) ------------------------------------------------------------------------- $2,579 $2,251 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income $2,010 $1,692 Basic income per share $0.05 $0.04 Diluted income per share $0.05 $0.04 -------------------------------------------------------------------------
Two significant non-recurring items in the first quarter of 2007 positively affected financial performance relative to the first quarter of 2006. The Company received a non-recurring milestone payment of $0.8 million from Shire BioChem Inc. (Shire) and an insurance payment of $0.5 million from a business interruption insurance claim related to the extended shutdown period in 2005. The impact of these items on operating income and earnings per share are included in the Schedule of Supplemental Information below.
During the fourth quarter of 2006, the Company received approval from the Toronto Stock Exchange (TSX) to renew its Normal Course Issuer Bid (NCIB) 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 May 8, 2007, no shares had been repurchased in accordance with this renewed NCIB.
Segment Highlights from Management’s Discussion and Analysis Contract Manufacturing - Product sales revenues for the first quarter of 2007 were $14.2 million or 5% over revenues in the first quarter of 2006 with the increase in the quarter driven by increased revenues from new product introduction activities. The result was weaker compared to the fourth quarter of 2006 due in part to a delay in receiving components for Hectorol(R) production, which resulted in reduced volumes manufactured during the quarter. - For the first quarter of 2007, sterile products represented approximately 78% of manufacturing revenues compared to 81% for the first quarter of 2006. - Product gross margin percentage decreased slightly in the first quarter of 2007 compared to 2006 from 29% to 27%. The decrease was driven by lower Hectorol(R) volumes manufactured in the quarter coupled with the investment in product introduction and process improvement activities in the quarter relative to 2006. Product gross margin benefited from the receipt of $0.5 million in insurance proceeds during the first quarter of 2007. - Operating income of $1.7 million for the first quarter of 2007 was relatively unchanged from the same period of 2006 despite insurance proceeds of $0.5 million in the first quarter of 2007 (included as a reduction in cost of goods sold). The benefit of the insurance proceeds was offset by lower Hectorol(R) volumes manufactured during the quarter and the increase in product introduction and process improvement activities. Radiopharmaceuticals - Product sales revenues for the first quarter of 2007 were up 18% to $5.8 million compared to the first quarter of 2006 as a result of increased sales to U.S. based customers of cold kits and radioiodine products, specifically Sodium Iodide I-131 including diagnostic capsules. - Product gross margins for the first quarter of 2007 were 62% compared to 63% for the same period in 2006. - Operating income in the first quarter of 2007 increased to $1.3 million compared to $1.0 million in the first quarter of 2006 as a result of volume increases. - As announced on February 2, 2007 DRAXIMAGE submitted an ANDA to the FDA for its generic kit for the preparation of Tc-99m Sestamibi for injection (DRAXIMAGE(R) Sestamibi), a nuclear medicine agent used in myocardial perfusion imaging to evaluate blood flow to the heart in patients undergoing cardiac tests. Outlook
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.
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.
The Company’s formal contractual arrangements with Genzyme for the production of Hectorol(R) were to terminate in March 2008 provided notification of termination was received prior to March 2007. Such notification of termination was not received and the contractual arrangement will remain in place until March 2009 and 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, the Company believes that 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.
The financial results of the first quarter of 2007 are consistent with our expectations and in line with our guidance for 2007 for both earnings per share and net operating cash flows.
Sources of Future Growth
The Company’s guidance for 2007 assumes core growth in operations. We expect that 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. Schedule of Supplemental Information ------------------------------------------------------------------------- Reconciliation from reported operating income and diluted EPS to adjusted operating income and diluted EPS (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, ----------------------------- 2007 2006 % Change Operating Income - Reported $2,446 $1,899 28.8% Adjustments: (a) Non-recurring Shire milestone receipt(2) (791) - (b) Insurance proceeds(3) (517) - (c) DSU expense (recovery)(4) 348 (137) (354.0%) Anipryl(R) deferred revenues (30) (825) (96.4%) ------------------------------------------------------------------------- Operating Income - Adjusted(1) $1,456 $937 55.4% ------------------------------------------------------------------------- Diluted EPS - Reported $0.05 $0.04 Adjustments: (a) Non-recurring Shire milestone receipt(2) (0.01) - (b) Insurance proceeds(3) (0.01) - (c) DSU expense (recovery)(4) 0.01 - Anipryl(R) deferred revenues - (0.01) ----------------------------------------------------------- Diluted EPS - Adjusted(1) $0.04 $0.03 ----------------------------------------------------------- ------------------------------------------------------------------------- (1) “Adjusted Operating Income” and “Adjusted Diluted EPS” are defined as reported operating income and diluted EPS excluding certain items. Management uses adjusted operating income, among other factors to set performance goals and to measure the performance of the overall company. The Company believes that investors’ understanding of our performance is enhanced by disclosing these measures. (2) The Company became entitled to and received non-recurring contingent milestone payments from Shire. (3) Insurance proceeds related to a business interruption claim filed resulting from equipment damage during 2005 shutdown period. (4) Reflects the change in the value of the Deferred Share Unit Plan based on the market price of the Company’s common stock. See Note 5 of the accompanying interim financial statements. 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, 2007, 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, on the SEDAR (at www.sedar.com) and EDGAR (at www.sec.gov) 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 2007 financial results at 10 a.m. (ET) on May 9, 2007. This call can be accessed by dialing 1 (800) 289-0533 (Access Code 3451437) 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 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 Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as contemplated under other applicable securities legislation. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “plan,” “intend,” “believe” or other similar words. These statements discuss future expectations concerning results of operations or financial condition or provide other forward-looking information. Our actual results, performance or achievements could be significantly different from the results expressed in, or implied by, those forward-looking statements. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made.
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 that 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 that 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; - market acceptance of the Company’s products; and - the risks described in “Item 3. Key Information - Risk Factors” in the Annual Report Form 20-F filed by the Company with the United States Securities and Exchange Commission and which is also filed as the Company’s Annual Information Form with Canadian securities regulators.
For additional information with respect to certain of these and other factors, and relating to the Company generally, reference is made to the Company’s most recent filings with the United States Securities and Exchange Commission (available on EDGAR at www.sec.gov) and the filings made by the Company with Canadian securities regulators (available on SEDAR at www.sedar.com). The forward-looking statements contained in this news release represent the Company’s expectations as at May 8, 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.
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, ----------------------------- 2007 2006 --------------- ------------- REVENUES Product sales $ 19,630 $ 17,648 Royalty and licensing 1,348 1,428 ------------------------------------------------------------------------- 20,978 19,076 ------------------------------------------------------------------------- EXPENSES Cost of goods sold, excluding depreciation and amortization (Note 3) 12,178 10,832 Selling, general and administration 4,184 4,361 Research and development 924 789 Depreciation and amortization 1,246 1,195 ------------------------------------------------------------------------- 18,532 17,177 ------------------------------------------------------------------------- Operating income 2,446 1,899 Financial income, net 186 8 Foreign exchange (loss) gain (108) 45 ------------------------------------------------------------------------- Income before income taxes 2,524 1,952 Income taxes (514) (260) ------------------------------------------------------------------------- Net income $ 2,010 $ 1,692 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic income per share $ 0.05 $ 0.04 ---------------------- Diluted income per share $ 0.05 $ 0.04 ------------------------ Weighted-average number of shares outstanding - basic 41,734,615 41,538,437 - diluted 41,889,281 41,743,180 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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) March 31, December 31, 2007 2006 ------------- ------------- ASSETS Current assets Cash and cash equivalents $ 25,495 $ 21,446 Accounts receivable 17,181 20,683 Inventories (Note 4) 7,199 7,590 Prepaid expenses 1,234 735 Deferred income taxes, net 3,918 3,179 ------------------------------------------------------------------------- Total current assets 55,027 53,633 Property, plant and equipment, net 48,294 46,292 Goodwill, net 760 753 Intangible assets, net 255 318 Other assets 501 407 Deferred income taxes, net 3,456 4,559 ------------------------------------------------------------------------- Total assets $ 108,293 $ 105,962 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 9,186 $ 10,940 Current portion of deferred revenues 170 329 Customer deposits 542 576 ------------------------------------------------------------------------- Total current liabilities 9,898 11,845 Other liabilities 763 990 Deferred revenues 682 712 ------------------------------------------------------------------------- Total liabilities $ 11,343 $ 13,547 ------------------------------------------------------------------------- SHAREHOLDERS’ EQUITY Common stock, without par value of unlimited shares authorized 79,202 77,749 Additional paid-in capital 15,756 15,475 Deficit (6,224) (8,234) Accumulated other comprehensive income 8,216 7,425 ------------------------------------------------------------------------- Total shareholders’ equity 96,950 92,415 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity $ 108,293 $ 105,962 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three Month Periods Ended March 31, ----------------------------- 2007 2006 ----------------------------- Common Stock (Number of Shares) Balance, beginning of period 41,522,138 41,588,005 Exercise of options 462,501 3,333 Repurchased for cancellation - (123,600) ------------------------------------------------------------------------- Balance, end of period 41,984,639 41,467,738 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Common Stock Balance, beginning of period $ 77,749 $ 77,313 Exercise of options 1,453 11 Repurchased for cancellation - (255) ------------------------------------------------------------------------- Balance, end of period 79,202 77,069 ------------------------------------------------------------------------- Additional Paid-In Capital Balance, beginning of period 15,475 15,370 Stock-based compensation 281 240 Common shares purchased for cancellation - (307) ------------------------------------------------------------------------- Balance, end of period 15,756 15,303 ------------------------------------------------------------------------- Warrants Balance, beginning of period - 916 -------------------------
