Paladin Labs Inc. Reports Record Third Quarter 2009 Financial Results

MONTREAL, QUEBEC--(Marketwire - November 11, 2009) - Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today reported its third quarter 2009 financial results.

Third Quarter Highlights

- Revenues reached a record $28.4 million, an increase of 28% versus last year.

- EBITDA(1) reached $10.2 million, an increase of 12% over the same period last year.

- Announced sale of the T-ACT™ platform to IMBiotechnologies Ltd. and the AIT® antibody platform to Quest Pharmatech.

- Obtained regulatory approval for GlucaGen® from the Biologics and Genetic Therapies Directorate.

Subsequent to Third Quarter

- Amended the terms of the Estring® Agreement with Pfizer to assume more marketing responsibilities.

- Received a grant of US$100,000 from the Bill & Melinda Gates Foundation to initiate development of an anti-malaria vaccine using our proprietary Chimigen® platform technology.

“This was a strong quarter for Paladin reflecting growth from both promoted brands and new acquisitions. Our diverse and highly profitable product portfolio, combined with our strong balance sheet, provides us the strength to continue to execute our business strategy,” said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

Revenues for the third quarter of 2009 increased 28% or $6.2 million to a record $28.4 million, compared to $22.2 million in the third quarter of 2008. This increase is due to newly acquired products such as Dexedrine® and the strong performance from the Company’s key promoted products, including Tridural®, Twinject®, Plan B®, Pennsaid®, Metadol®, Trelstar®, and Testim® which increased by 10% in the third quarter of 2009 compared to the corresponding period a year ago. For the nine-month period ended September 30, 2009, revenues reached $80.4 million, an increase of 35% from $59.7 million for the same period last year.

Paladin’s 2009 third quarter earnings before interest expense, taxes, depreciation, amortization, and unusual items (EBITDA(1)) increased 12% to $10.2 million, compared to EBITDA(1) of $9.1 million in the third quarter of 2008. For the nine months of 2009, EBITDA(1) increased 37% to $29.5 million from $21.5 million.

Net income for the third quarter was $2.6 million or $0.13 per fully diluted share, compared to net income of $3.6 million or $0.24 per fully diluted share for the same period last year. For the first 9 months of 2009 net income was $33.3 million or $1.98 per fully diluted share, compared to the net income of $7.7 million or $0.51 per fully diluted share for the same period last year. Net income before extraordinary gain for the nine months ended September 30, 2009 was $7.4 million or $0.44 per fully diluted share compared to $7.7 million or $0.51 per fully diluted share for the same period last year.

Selling and marketing expense for the third quarter of 2009 increased 19% to 6.5 million compared to 5.4 million the third quarter of 2008. For the nine months of 2009, selling and marketing expenses were $18.9 million an increase of 14% from $16.5 million for the same period last year. The promotional activities driving selling and marketing expenses primarily relate to Paladin’s continued promotional activities for Tridural®, Trelstar®, Twinject®, Plan B®, Pennsaid®, Metadol® and Testim®.

At September 30, 2009, Paladin’s cash, cash equivalents and investments in marketable securities totaled $97.6 million or $5.12 per fully diluted share. From this strong cash position, Paladin continues to pursue product acquisition and development opportunities.

Product Developments

During the quarter, Paladin announced that the Biologics and Genetic Therapies Directorate of Health Canada had approved GlucaGen® (recombinant glucagon for injection). GlucaGen® is indicated for the treatment of severe hypoglycemia in diabetic patients being treated with insulin, and is the market leader in Europe. GlucaGen® is manufactured by Novo Nordisk A/S (NYSE: NVO), a healthcare company and a world leader in diabetes care. GlucaGen® will be an important player in the $8.8 million Canadian glucagon market. We look forward to bringing this product to Canadian patients in the first half of 2010.

Subsequent to the third quarter, Paladin announced an amendment of the Canadian Estring® agreement upon the close of Pfizer Inc.'s (NYSE: PFE) acquisition of Wyeth. Under the terms of the amended agreement, Paladin will take over all commercial responsibilities for the selling, marketing and distribution of Estring® in Canada.

Corporate Developments

During the quarter, Paladin announced the sale of T-ACT™ technology platform to IMBiotechnologies Ltd., a private biotechnology company based in Edmonton, Canada. Later in the quarter, Paladin also announced the sale of a portfolio of immunotherapeutic antibodies, related intellectual property, and other assets (the AIT® technology) to Quest PharmaTech (TSX VENTURE: QPT), an Edmonton-based biotechnology company that is developing new pharmaceutical products for oncology and other indications.

Subsequent to the third quarter, Paladin Biosciences division received a US$100,000 Grand Challenges Explorations grant from the Bill & Melinda Gates Foundation. The grant will support an innovative global health research project conducted by Dr. Rajan George, the Chief Technology Officer of Paladin Biosciences, titled “Dendritic cell receptor-targeted malaria vaccines”. Paladin Biosciences will use its proprietary Chimigen® Platform Technology to produce a malaria vaccine that targets the parasite at various stages of the infection, and test the vaccine in the laboratory for immunogenicity. Paladin Biosciences continues to develop its Chimigen® Platform Technology for Hepatitis B, Hepatitis C and other indications.

(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 third quarter results on Wednesday, November 11, 2009, at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-263-9158 or 416-641-6670. The call will be audio-cast live and archived for 30 days at www.paladinlabs.com.

About Paladin Labs

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 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 news release contains 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 Companies consider the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but caution that these assumptions regarding the future events, many of which are beyond the control of the Companies and their 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 reports, as well as in the Companies’ Annual Information Forms for the year ended December 31, 2008. The Companies disclaim any intention or obligation to update or revise any forward-looking statements whether a result of new information, future events, or except as required by law. For additional information on risks and uncertainties relating to these forward-looking statements, investors should consult the Companies’ ongoing quarterly filings, annual reports and Annual Information Forms and other filings found on SEDAR at www.sedar.com.

 CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) September 30 December 31 2009 2008 ------------------------------------------------------------------------- (unaudited) (audited(1)) ASSETS Current Cash and cash equivalents 20,525 4,646 Marketable securities 65,450 14,753 Accounts receivable 20,492 17,889 Inventories 11,352 8,643 Other current assets 2,350 2,531 Income taxes receivable 4,410 4,209 Investment tax credits receivable 56 36 Investment tax credits recoverable - 43 Future income tax assets 8,115 9,120 ------------------------------------------------------------------------- Total current assets 132,750 61,870 Long-term marketable securities 11,656 1,943 Property, plant and equipment 606 594 Pharmaceutical product licences and rights 46,056 58,152 Investments 540 4,792 Investment tax credits recoverable 15,721 - Future income tax assets 29,842 4,789 ------------------------------------------------------------------------- Total assets 237,171 132,140 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 19,382 16,464 Accounts payable to related parties 1,535 1,384 Deferred revenue - 1,693 Income taxes payable 6,193 6,391 Balance of sale payable 11,576 10,429 Future income tax liabilities - 90 ------------------------------------------------------------------------- Total current liabilities 38,686 36,451 Long-term Future income tax liabilities 4,259 341 Balance of sale payable 4,837 - ------------------------------------------------------------------------- Total liabilities 47,782 36,792 ------------------------------------------------------------------------- Shareholders’ equity Capital stock 119,009 60,664 Other paid-in capital 4,179 3,155 Accumulated other comprehensive (loss) income (51) (1,420) Retained earnings 66,252 32,949 ------------------------------------------------------------------------- Total shareholders’ equity 189,389 95,348 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity 237,171 131,799 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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) (unaudited) Three-month period Nine-month period ended September 30 ended September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenues 28,374 22,191 80,414 59,693 Cost of sales 7,676 5,442 21,399 14,839 ------------------------------------------------------------------------- Gross profit 20,698 16,749 59,015 44,854 ------------------------------------------------------------------------- Expenses (income) Selling and marketing 6,455 5,443 18,851 16,545 General and administrative 1,904 1,814 6,235 5,180 Research and development 2,348 828 4,869 2,949 Interest income, net (170) (406) (462) (1,310) ------------------------------------------------------------------------- Earnings before under-noted items 10,161 9,070 29,522 21,490 ------------------------------------------------------------------------- Amortization of pharmaceutical product licenses, rights and deferred charges 6,389 3,171 18,453 9,231 Unrealized net (gain) loss on derivative financial instruments - 59 (358) (4) Net (gain) loss on investments (11) 184 (145) 184 Foreign exchange net loss (gain) 128 (119) 132 (116) Other income (557) (200) (667) (330) ------------------------------------------------------------------------- Income before income taxes 4,212 5,975 12,107 12,525 ------------------------------------------------------------------------- Provision for income taxes Current 1,572 1,450 (462) 3,743 Future 76 908 5,182 1,100 ------------------------------------------------------------------------- 1,648 2,358 4,720 4,843 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income before extraordinary gain 2,564 3,617 7,387 7,682 ------------------------------------------------------------------------- Extraordinary gain (net of $nil taxes) - - 25,959 - ------------------------------------------------------------------------- Net income for the period 2,564 3,617 33,346 7,682 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share before extraordinary gain Basic 0.14 0.24 0.45 0.52 Diluted 0.13 0.24 0.44 0.51 Earnings per share Basic 0.14 0.24 2.03 0.52 Diluted 0.13 0.24 1.98 0.51 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of shares outstanding Basic 18,501,987 14,857,150 16,392,384 14,839,187 Diluted 19,059,385 15,065,359 16,866,256 15,072,712 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) (unaudited) Three-month period Nine-month period ended September 30 ended September 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Operating activities Net income 2,564 3,617 33,346 7,682 Add items not affecting cash Extraordinary gain - - (25,959) - Amortization 6,476 3,261 18,663 9,367 Future income taxes 76 908 5,182 1,100 Stock based compensation expense 483 340 1,572 1,049 Unrealized net (gain) loss on derivative financial instruments - 59 (359) (4) Net (gain) loss on investments (11) 184 (145) 184 Gain on disposal of pharmaceutical product licenses and rights (557) 200 (557) 200 Net accreted interest 98 (82) 97 (119) ------------------------------------------------------------------------- 9,129 8,087 31,840 19,059 ------------------------------------------------------------------------- Net change in non-cash balances relating to operations (3,051) (4,787) (6,216) (4,341) ------------------------------------------------------------------------- Cash flows from operating activities 6,078 3,300 25,624 14,718 ------------------------------------------------------------------------- Investing activities Additions to pharmaceutical product licenses and rights, and deferred charges - (10,468) (5,476) (19,335) Investments in portfolio company - (2,000) (130) (3,000) Acquisition of property, plant and equipment (115) (86) (224) (397) Purchases of short-term marketable securities (28,624) (3,895) (71,974) (29,023) Maturities of short-term marketable securities 13,781 9,546 25,079 35,717 Purchases of long-term marketable securities (2,567) (1,895) (13,771) (1,895) Proceeds from the disposal of investments - 500 6,979 500 Proceeds from the disposal of pharmaceutical product licenses and rights 442 200 442 200 Business acquisition - - (7,594) - Balance of sale payable - (531) - (531) ------------------------------------------------------------------------- Cash flows used in investing activities (17,083) (8,629) (66,669) (17,764) ------------------------------------------------------------------------- Financing activities Net proceeds on issuance of common shares 248 181 56,997 955 Repurchase of shares (72) (463) (72) (2,270) ------------------------------------------------------------------------- Cash flows from (used in) financing activities 176 (282) 56,925 (1,315) ------------------------------------------------------------------------- Net change in cash and cash equivalents during the period (10,829) (5,611) 15,880 (4,361) Cash and cash equivalents, beginning of period 31,354 7,324 4,645 6,074 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 20,525 1,713 20,525 1,713 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents 20,525 1,713 Short-term marketable securities 65,450 23,569 Long-term marketable securities 11,656 1,895 ------------------------------------------------------------------------- 97,631 27,177 ------------------------------------------------------------------------- -------------------------------------------------------------------------