Paladin Labs Inc. Reports Fourteenth Consecutive Year of Record Revenues

MONTREAL, QUEBEC--(Marketwire - February 25, 2010) - Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today reported its financial results for the fourth quarter and year ended December 31, 2009. The Company achieved record revenues for the fourth quarter of 2009 and has achieved its 14th consecutive year of record revenues.

2009 Highlights

 - Revenues for 2009 totaled a record $109.7 million, a 33% increase compared to 2008. - Sales of key promoted brands including: Tridural®, Twinject®, Plan B®, Metadol®, Testim® and Trelstar® grew 20% in 2009 compared to 2008. - EBITDA(1) in 2009 increased 35% to a record $39.2 million compared to $28.9 million in 2008. - Closed a $58.7 million financing to help fund future growth. - Acquired from Wyeth a portfolio of OTC products, including Anacin® (acetylsalicylic acid) and Anbesol® (benzocaine). - Restructured the Canadian Estring® agreement with Pfizer. - Announced a partnership with Isotechnika Pharma Inc. for the commercialization of voclosporin. - Announced Health Canada approval of GlucaGen®. 

Subsequent to Fourth Quarter

 - Received priority review status from Health Canada for Abstral® sublingual fentanyl, a well-established opioid used by cancer patients in the management of breakthrough pain. - Announced amendments to existing agreement with Isotechnika Pharma Inc. 

“We have just closed our 14th consecutive year of record revenues and have built a diversified specialty pharma business that is dynamic and high performing. We have over $100 million of cash, no debt and a business that generated $39 million of EBITDA last year. We are well positioned for growth and fully expect 2010 to mark our 15th consecutive year of record revenues,” said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

Revenues for the fourth quarter of 2009 increased 27% to a record $29.3 million compared to $23.1 million in the fourth quarter of 2008. Revenues from the Company’s key promoted brands including: Tridural®, Twinject®, Plan B®, Metadol®, Testim® and Trelstar® increased by 28% in the fourth quarter of 2009 compared to the same period a year ago. For the year ended December 31, 2009, revenues increased 33% to a record $109.7 million compared to $82.7 million in 2008.

EBITDA(1) for the fourth quarter in 2009 increased 29% to $9.7 million compared to EBITDA(1) of $7.5 million in the fourth quarter 2008. For the year ended December 31, 2009, EBITDA(1) increased 36% to a record $39.2 million compared to $29.0 million in 2008.

Net income before extraordinary gain for the fourth quarter 2009 was $934 thousand or $0.05 per fully diluted share compared to the same period in 2008 of $2.0 million or $0.14 per fully diluted share. Net income for the fourth quarter was $4.4 million or $0.23 per fully diluted share compared to net income of $6.1 million or $0.41 per fully diluted share in 2008. Net income before extraordinary gain for the year ended December 31, 2009 was $8.3 million or $0.48 per fully diluted share compared to $9.7 million or $0.65 per fully diluted share in 2008. Net income for the year ended December 31, 2009 was a record $37.7 million or $2.16 per fully diluted share, compared to net income of $13.8 million or $0.92 per fully diluted share in 2008.

Selling and marketing expense for the fourth quarter of 2009 increased to $7.2 million compared to $5.5 million in the fourth quarter of 2008. Selling and marketing expense for the year ended December 31, 2009 increased to $26 million compared to $22 million in 2008. Selling and marketing expense, as percentage of revenues, decreased to 24% for the year ended December 31, 2009 compared to 27% for the year ended December 31, 2008. The decrease in selling and marketing expenses as a percentage of revenues is primarily the result of the growth in non-promoted product revenue, including the acquisition of Dexedrine®.

Amortization expense for the fourth quarter 2009 increased to $6.6 million from $3.4 million in the corresponding period a year ago. For the year ended December 31, 2009, amortization expense increased to $25.1 million from $12.6 million in 2008. The increase in amortization expense is the result of the amortization related to the Company’s recently acquired pharmaceutical product licenses and rights, principally: Dexedrine®, Antizol®, Impavido®, Anacin®, Anbesol® and Auralgan®.

As previously disclosed in August 2008, Paladin had received notices of re-assessment from the Canada Revenue Agency (“CRA”) relating to the use of certain non-capital losses. Paladin filed a Notice of Objection through the CRA appeals process on October 23, 2008. Subsequent to year end, Paladin received notices of re-assessment from the CRA reversing its original position. Paladin has not received a notice from the Ontario Minister of Finance (“OMF”), however, the OMF has agreed to be bound by the decision of the CRA appeals process. As a result of Paladin’s success in the appeal process, an amount of $3.9 million was received from the CRA on January 20, 2010 representing a refund for the full amount of the deposit along with accrued interest.

As at December 31 2009, Paladin’s cash, cash equivalents and investments in marketable securities totaled a record $105 million. From this strong cash position, Paladin continues to pursue acquisition opportunities.

Product Developments

Subsequent to Fourth Quarter

In February 2010, Paladin received priority review status from Health Canada for Abstral® sublingual fentanyl, which provides for a 180 day review cycle. Abstral® is a novel, rapidly-disintegrating, sublingual (under the tongue) formulation of fentanyl, a well-established opioid used for the management of episodes of breakthrough pain experienced by cancer patients who are already receiving opioid analgesics for chronic pain. Abstral® complements Paladin’s growing pain portfolio (Tridural®, Metadol® and Pennsaid®), and is poised to fulfill an unmet need in the cancer care market.

Also in February 2010, Paladin announced that it had agreed to amend its existing agreements with Isotechnika Pharma Inc. (TSX: ISA) that would give Paladin the full share of future net profits of the Isodiagnostika line of diagnostic products.

Financial Outlook

In 2010, Paladin expects to generate at least $120 million in revenue. This forecast excludes the impact of acquisitions that may be made by the Company between now and the end of 2010.

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under Canadian Generally Accepted Accounting Principles (“GAAP”) and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, taxes, amortization, foreign exchange gains (losses), 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 statement 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 and capital 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 fourth quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-734-4208 or 416-981-9000. The call will be audio-cast live and archived for 31 days at www.paladinlabs.com.

About Paladin Labs Inc.

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 Canadian 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, 2008. 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 fillings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.

 CONSOLIDATED BALANCE SHEETS As at December 31 (In thousands of Canadian dollars) 2009 2008 $ $ ------------------------------------------------------------------- (unaudited) (audited(1)) ASSETS Current Cash and cash equivalents 31,227 4,646 Marketable securities 73,274 14,753 Accounts receivable 14,167 17,889 Inventories 12,361 8,643 Other current assets 2,668 2,567 Income taxes receivable 4,630 4,209 Investment tax credits recoverable 776 43 Future income tax assets 6,196 9,120 ------------------------------------------------------------------- Total current assets 145,299 61,870 Long-term marketable securities 868 1,943 Property, plant and equipment 691 594 Pharmaceutical product licenses and rights 42,543 58,152 Investments 62 4,792 Investment tax credits recoverable 14,903 - Future income tax assets 31,029 4,789 ------------------------------------------------------------------- Total assets 235,395 132,140 ------------------------------------------------------------------- ------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 22,934 16,464 Accounts payable to related parties 1,122 1,384 Deferred revenues 1,776 1,693 Income taxes payable 7,109 6,391 Balance of sale payable 1,650 10,429 Future income tax liabilities 252 90 ------------------------------------------------------------------- Total current liabilities 34,843 36,451 Balance of sale payable 1,743 - Future income tax liabilities 4,007 341 ------------------------------------------------------------------- Total liabilities 40,593 36,792 ------------------------------------------------------------------- Shareholders’ equity Capital stock 119,652 60,664 Other paid-in capital 4,408 3,155 Accumulated other comprehensive income (loss) 98 (1,420) Retained earnings 70,644 32,949 ------------------------------------------------------------------- Total shareholders’ equity 194,802 95,348 ------------------------------------------------------------------- Total liabilities and shareholders’ equity 235,395 132,140 ------------------------------------------------------------------- ------------------------------------------------------------------- (1) Derived from the audited annual financial statements filed on SEDAR at www.sedar.com CONSOLIDATED STATEMENTS OF INCOME (In thousands of Canadian dollars except for share and per share amounts) Three-month period Twelve-month period ended December 31 ended December 31 2009 2008 2009 2008 $ $ $ $ ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (audited(1)) Revenues 29,279 23,051 109,693 82,744 Cost of sales 8,294 5,311 29,693 20,150 ------------------------------------------------------------------------- Gross profit 20,985 17,740 80,000 62,594 ------------------------------------------------------------------------- Expenses (income) Selling and marketing 7,150 5,472 26,001 22,017 General and administrative 2,184 2,649 8,419 7,829 Research and development 2,360 2,578 7,229 5,527 Interest income (370) (410) (832) (1,720) ------------------------------------------------------------------------- Earnings before under-noted items 9,661 7,451 39,183 28,941 ------------------------------------------------------------------------- Amortization of pharmaceutical product licenses, rights and deferred charges 6,610 3,367 25,063 12,598 Unrealized net loss on derivative financial instruments - 536 - 531 Net loss (gain) on investments 416 - (88) 185 Foreign exchange loss (gain) 134 36 266 (80) Other income - - (666) (330) ------------------------------------------------------------------------- Income before income taxes and extraordinary gain 2,501 3,512 14,608 16,037 ------------------------------------------------------------------------- Provision for income taxes Current 1,269 1,234 807 4,977 Future 298 234 5,480 1,334 ------------------------------------------------------------------------- 1,567 1,468 6,287 6,311 ------------------------------------------------------------------------- Net income before extraordinary gain 934 2,044 8,321 9,726 ------------------------------------------------------------------------- Extraordinary gain (net of $nil taxes) 3,458 4,072 29,417 4,072 ------------------------------------------------------------------------- Net income for the period 4,392 6,116 37,738 13,798 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share before extraordinary gain Basic 0.05 0.14 0.49 0.66 Diluted 0.05 0.14 0.48 0.65 Earnings per share Basic 0.24 0.41 2.23 0.93 Diluted 0.23 0.41 2.16 0.92 Weighted average number of shares outstanding Basic 18,538,147 14,867,535 16,933,229 14,846,306 Diluted 19,100,064 15,066,475 17,432,898 15,071,283 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Three-month period ended Twelve-month period ended December 31 December 31 2009 2008 2009 2008 $ $ $ $ ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (audited(1)) Operating activities Net income for the period 4,392 6,116 37,738 13,798 Add items not affecting cash Extraordinary gain (3,458) (4,072) (29,417) (4,072) Amortization 6,892 3,447 25,555 12,814 Future income taxes 298 234 5,480 1,334 Stock-based compensation expense 450 351 2,022 1,400 Unrealized net loss on derivative financial instruments - 536 - 531 Net accreted interest expense (income) 30 (154) 127 (273) Net loss (gain) on investments 416 - (88) 185 Gain on disposal of pharmaceutical product licenses and rights - - (666) (200) ------------------------------------------------------------------------- 9,020 6,458 40,751 25,517 ------------------------------------------------------------------------- Net change in non-cash balances relating to operations 12,024 3,976 5,807 (365) ------------------------------------------------------------------------- Cash flows from operating activities 21,044 10,434 46,558 25,152 ------------------------------------------------------------------------- Investing activities Repayment of balance of sale payable (11,021) - (11,021) (531) Additions to pharmaceutical product licenses and rights (2,797) (15,227) (8,273) (34,562) Business acquisitions - (1,446) (7,594) (1,446) Acquisition of property, plant and equipment (205) (113) (429) (510) Investment in portfolio companies - - (130) (3,000) Purchases of short-term marketable securities (9,499) (8,059) (81,473) (37,082) Maturities of marketable securities 12,768 16,859 37,847 52,576 Purchases of long-term marketable securities - (78) (13,771) (1,973) Proceeds from disposal of investments - - 6,979 500 Proceeds from disposal of pharmaceutical licenses - - 551 200 ------------------------------------------------------------------------- Cash flows used in investing activities (10,754) (8,064) (77,314) (25,828) ------------------------------------------------------------------------- Financing activities Common shares issued for cash, net of issue costs 412 563 57,409 1,517 Repurchase of shares - - (72) (2,269) ------------------------------------------------------------------------- Cash flows from (used in) financing activities 412 563 57,337 (752) ------------------------------------------------------------------------- Net change in cash and cash equivalents during the period 10,702 2,933 26,581 (1,428) Cash and cash equivalents, beginning of period 20,525 1,713 4,646 6,074 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 31,227 4,646 31,227 4,646 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents 31,227 4,646 Short-term marketable securities 73,274 14,753 Long-term marketable securities 868 1,943 ------------------------------------------------------------------------- 105,369 21,342 ------------------------------------------------------------------------- -------------------------------------------------------------------------