MONTREAL, May 9 /PRNewswire-FirstCall/ - DRAXIS Health Inc. reported first quarter financial results for the three months ended March 31, 2008. Revenues and earnings for the first quarter of 2008 were below those in the first quarter of 2007 as a result of lower sales of sterile products, the negative impact of a significantly stronger Canadian dollar relative to the first quarter of 2007, the inclusion in the first quarter of 2007 of non-recurring items and the inclusion in the first quarter of 2008 of the direct and indirect costs related to the potential sale of the Company. All amounts are expressed in U.S. dollars.
“The first quarter of 2008 continued to be impacted by lower revenues in contract manufacturing, particularly for sterile products,” said Dan Brazier, President and CEO of DRAXIS. “Product sales in contract manufacturing were down 11% but were close to plan for the radiopharmaceuticals business. Margins were negatively impacted this quarter relative to previous quarters due to the low volume of sterile production, which is generally a higher margin contributor in the overall product mix. In addition, margins and expenses in both our business units were adversely impacted by a much stronger Canadian dollar in the first quarter of 2008 compared to the same quarter of 2007.
Mr. Brazier continued, “Our key development projects remain on track. DRAXIMAGE(R) Sestamibi is under active review by the US Food and Drug Administration following our filing of an ANDA in February 2007. We established a marketing and distribution agreement for this product in December 2007 with GE Healthcare and are now in discussions with potential partners for markets outside North America. We are also making progress in developing strategic alliances for the commercialization of our MOLY-FILL(TM) Tc-99m Generator following a successful external evaluation in late 2007, as we prepare for the next step in that product’s regulatory review process. Discussions are ongoing with potential partners for the marketing and distribution of radiopharmaceutical products in Europe and we continue to receive country-specific approvals for our products. Product transfer activities under our expanded relationship with Johnson & Johnson Consumer are ongoing and are expected to increase throughout 2008. Construction of the new secondary packaging facility associated with this expanded relationship is on schedule toward completion during the second half of this year.”
Two significant non-recurring items included in the financial results of the first quarter of 2007 positively affected financial performance relative to the first quarter of 2008. During the first quarter of 2007, the Company received non-recurring milestone payments of approximately $0.8 million from Shire BioChem Inc. (Shire) and an insurance payment of $0.5 million from a business interruption insurance claim related to an 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.
Impact of Foreign Exchange on Comparison of Quarterly Results
The majority of the costs of the Canadian operations are denominated in Canadian dollars. As the level of revenues denominated in U.S. dollars and other foreign currencies increases relative to the underlying cost structure, the Company’s overall gross profit margins and selling, general and administration expenses are affected. Since the Company reports in $U.S., all income statement line items are translated at the appropriate exchange rate into $U.S for the quarterly reports. As at March 31, 2007, the Canadian dollar traded at $1.1546 Canadian per $1 U.S. By contrast, as at March 31, 2008, the Canadian dollar traded at $1.0265 Canadian per $1 U.S. The impact of the strong Canadian dollar in the first quarter of 2008 relative to its levels in the first quarter of 2007 materially impacts all line by line comparisons between the first quarter results of 2008 and 2007 resulting in an increase in all revenues and expense line items for 2008 relative to 2007. Accordingly, all explanations of variances between first quarter of 2008 results with the first quarter of 2007 exclude the impact of foreign exchange on financial reporting.
The Company continues to expect progressively improving financial results during 2008 compared to 2007 as a result of increased demand through new business opportunities, product introductions and additional contracts. This is expected to result in continuing year-over-year growth in revenues, operating income, and cash flows going forward, starting from a base in 2008. Net earnings per share for 2008 are expected to increase significantly over 2007. However, the extent to which the Company can reasonably predict the financial performance for 2008 is limited due to variables outside of the control of the Company. Accordingly, the Company does not plan to provide specific quantitative guidance given the anticipated period of expansion and significant growth that is expected to be accompanied by periods of increased forecast variability due to several factors, including the following:
This release incorporates by reference the first quarter Interim Report to Shareholders (“Q1 Report”), which includes the full Management’s Discussion & Analysis (MD&A) for the quarter ended March 31, 2008 as well as financial statements for such quarter, prepared in accordance with U.S. GAAP. The Q1 Report 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.
Annual and Special Meeting of Shareholders
The annual and special meeting (the “Meeting”) of shareholders of the Company is scheduled to be held at the offices of McCarthy Tetrault LLP, Suite 5300, TD Bank Tower, Toronto, Ontario, Canada on Friday, May 23, 2008 at 10:00 a.m. (Toronto time).
At the Meeting, shareholders will be asked to approve a plan of arrangement under the Canada Business Corporations Act, involving DRAXIS, its shareholders and Jubilant Acquisition Inc. (the “Purchaser”), an indirect wholly-owned subsidiary of Jubilant Organosys Ltd. The plan of arrangement will result in the acquisition by the Purchaser of all the outstanding common shares of DRAXIS for a consideration of U.S.$6.00 per common share.
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.
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:
For additional information with respect to certain of these and other factors, and relating to DRAXIS generally, reference is made to DRAXIS’ most recent filings with the United States Securities and Exchange Commission (available on EDGAR at www.sec.gov) and the filings made by DRAXIS with Canadian securities regulators (available on SEDAR at www.sedar.com). The forward-looking statements contained in this new release represent DRAXIS’ expectations as at May 8, 2008. Unless otherwise required by applicable securities laws, DRAXIS disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT: Investor Relations: Jerry Ormiston, DRAXIS Health Inc., Phone:
1-877-441-1984, Fax: (905) 677-5494
