Paladin Labs Inc. Reports Third Quarter 2010 Financial Results

MONTREAL, CANADA--(Marketwire - November 04, 2010) - Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today reported its third quarter 2010 financial results.

2010 Third Quarter Highlights

 -- Revenues reached $31.8 million an increase of 12% over the same period last year -- EBITDA (1) reached a record $15.9 million an increase of 56% over the same period last year 

Subsequent to the third quarter

 -- Paladin expanded its commercial relationship with Labopharm (TSX: DDS; NASDAQ: DDSS) to distribute two of Labopharm’s products in South Africa and Sub-Saharan Africa. -- Paladin amended its existing distribution agreement with Mission Pharmacal to include South Africa and Sub-Saharan Africa. 

“The third quarter boasts strong revenues, favourable operating leverage and record EBITDA (1). With the continued success of our key promoted products, we are well on our way to achieving our 15th consecutive year of record revenues,” said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

Revenue for the third quarter 2010 increased $3.4 million or 12% to $31.8 million compared to $28.4 million for the third quarter 2009. The increase in revenues is mostly attributable to the sales growth of certain significant promoted products, including Tridural®, Trelstar®, Testim®, Metadol® and Plan B®, which combined increased by 25% for the quarter.

EBITDA (1) for the third quarter 2010 increased 56% to a record $15.9 million, compared to EBITDA1 of $10.2 million in the third quarter of 2009. For the nine months ended September 30, 2010, EBITDA1 increased 39% to $41.1 million from $29.5 million for the nine months ended September 30, 2009. Paladin’s share of income from Pharmaplan was $291,000 for the quarter and $757,000 for the nine months ending September 30, 2010.

Net income for the third quarter 2010 was $8 million or $0.41 per fully diluted share, compared to net income of $2.6 million or $0.13 per fully diluted share for the same period one year ago. For the nine-month period ended September 30, 2010, net income before extraordinary gain was $15.7 million or $0.81 per fully diluted share versus net income before extraordinary gain of $7.4 million or $0.44 per fully diluted share for the nine-month period ended September 30, 2009. Net income for the nine months ended September 30, 2009 was $33.3 million or $1.98 per fully diluted share.

At September 30, 2010, Paladin’s cash, cash equivalents and investments in marketable securities totalled $127.4 million. From this strong cash position, Paladin continues to pursue product acquisition and development opportunities.

Corporate Developments

In September 2010, Paladin expanded its commercial relationship with Labopharm (TSX: DDS; NASDAQ: DDSS) through three licensing and distribution agreements. In the first agreement, Labopharm granted Paladin the exclusive right (subject to Labopharm’s co-promote right for Canada) to market and sell its INTELLITAB™-based twice-daily formulation of oxycodone-acetaminophen in Canada. In the second and third agreements, Labopharm granted Paladin the exclusive right to market and sell its INTELLITAB™-based oxycodone-acetaminophen and twice-daily tramadol-acetaminophen in South Africa and Sub-Saharan Africa. As part of the agreements, Paladin advanced Labopharm $10 million against future product supply of Tridural® (once-daily tramadol in Canada) to Paladin for distribution in Canada. Labopharm will repay the cash advance through partial credits against future product supplied to Paladin.

In October 2010, Paladin and Mission Pharmacal Company amended their distribution agreement for Urocit-K®. The terms of the original agreement granted Paladin exclusive rights for the sales and marketing of Urocit-K® in Canada. Under the terms of the new agreement, the territory covered is extended to include exclusive rights for sales and marketing in South Africa and Sub-Saharan Africa. Urocit-K® is indicated for the treatment of calcium and uric acid kidney stones.

(1) EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under Canadian 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), share of net income in companies subject to significant influence 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 statements 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 Thursday, November 4, 2010, at 10:00 a.m. ET. The dial-in number for the conference call is 800-954-0625 or 416-981-9000. 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 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, 2009. 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 filings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.

 CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) September 30 December 31 2010 2009 $ $ -------------------------------------------------------------------------- (unaudited) (audited (2)) ASSETS Current Cash and cash equivalents 16,740 31,227 Marketable securities 97,606 73,274 Accounts receivable 21,802 14,167 Inventories 13,281 12,361 Other current assets 5,634 2,668 Income taxes receivable - 4,630 Investment tax credits recoverable 147 776 Future income tax assets 8,975 6,196 -------------------------------------------------------------------------- Total current assets 164,185 145,299 Long-term marketable securities 13,023 868 Property, plant and equipment 261 691 Pharmaceutical product licences and rights 25,437 42,543 Investments 23,230 62 Investments tax credits recoverable 14,858 14,903 Future income tax assets 23,866 31,029 -------------------------------------------------------------------------- Total assets 264,860 235,395 -------------------------------------------------------------------------- -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 31,064 22,934 Accounts payable to related parties 436 1,122 Deferred revenue 2,258 1,776 Income taxes payable 10,782 7,109 Balance of sale payable 717 1,650 Future income tax liabilities 49 252 -------------------------------------------------------------------------- Total current liabilities 45,306 34,843 Long-term Balance of sale payable 1,402 1,743 Future income tax liabilities 4,057 4,007 -------------------------------------------------------------------------- Total liabilities 50,765 40,593 -------------------------------------------------------------------------- Shareholders’ equity Capital stock 122,784 119,652 Other paid-in capital 4,702 4,408 Accumulated other comprehensive income 253 98 Retained earnings 86,356 70,644 -------------------------------------------------------------------------- Total shareholders’ equity 214,245 194,802 -------------------------------------------------------------------------- Total liabilities and shareholders’ equity 264,860 235,395 -------------------------------------------------------------------------- -------------------------------------------------------------------------- (2) 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 periods Nine-month periods ended September 30 ended September 30 2010 2009 2010 2009 -------------------------------------------------------------------------- Revenues 31,782 28,374 95,555 80,414 Cost of sales 7,721 7,676 25,746 21,399 -------------------------------------------------------------------------- Gross profit 24,061 20,698 69,809 59,015 -------------------------------------------------------------------------- Expenses (income) Selling and marketing 5,473 6,455 16,675 18,851 General and administrative 1,865 1,904 6,591 6,235 Research and development 1,480 2,348 6,892 4,869 Interest income (641) (170) (1,435) (462) -------------------------------------------------------------------------- Earnings before under-noted items 15,884 10,161 41,086 29,522 -------------------------------------------------------------------------- Amortization of pharmaceutical product licenses and rights 5,146 6,389 17,487 18,453 Net gain on investments - (11) (7) (503) Foreign exchange (gain) loss (300) 128 (99) 132 Other income - (557) (41) (667) Share of net income in companies subject to significant influence (291) - (757) - -------------------------------------------------------------------------- Income before income taxes 11,329 4,212 24,503 12,107 -------------------------------------------------------------------------- Provision for income taxes Current 1,763 1,572 4,601 (462) Future 1,584 76 4,190 5,182 -------------------------------------------------------------------------- 3,347 1,648 8,791 4,720 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Net income before extraordinary gain 7,982 2,564 15,712 7,387 -------------------------------------------------------------------------- Extraordinary gain (net of $nil taxes) - - - 25,959 -------------------------------------------------------------------------- Net income for the period 7,982 2,564 15,712 33,346 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Earnings per share before extraordinary gain Basic 0.43 0.14 0.84 0.45 Diluted 0.41 0.13 0.81 0.44 Earnings per share Basic 0.43 0.14 0.84 2.03 Diluted 0.41 0.13 0.81 1.98 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Weighted average number of shares outstanding Basic 18,746,237 18,501,987 18,670,511 16,392,384 Diluted 19,406,637 19,059,385 19,303,642 16,866,256 -------------------------------------------------------------------------- -------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) (unaudited) Three-month periods Nine-month periods ended September 30 ended September 30 2010 2009 2010 2009 ---------------------------------------------------------------------------- Operating activities Net income 7,982 2,564 15,712 33,346 Add items not affecting cash Extraordinary gain - - - (25,959) Amortization 5,204 6,476 17,972 18,663 Future income taxes 1,584 76 4,190 5,182 Stock based compensation expense 416 483 1,375 1,572 Unrealized foreign exchange (gain) loss (329) 146 (139) 189 Net gain on investments - (11) (7) (504) Net accreted interest (income) expense (61) 98 (129) 97 Gain on disposal of pharmaceutical product licenses and rights - (557) - (557) Share of net income in companies subject to significant influence (291) - (757) - ---------------------------------------------------------------------------- 14,505 9,275 38,217 32,029 ---------------------------------------------------------------------------- Net change in non-cash balances relating to operations 6,893 (3,180) 8,675 (6,349) ---------------------------------------------------------------------------- Cash flows from operating activities 21,398 6,095 46,892 25,680 ---------------------------------------------------------------------------- Investing activities Acquisition of investments (300) - (25,295) (130) Repayment of balance of sale payable - - (1,650) - Additions to pharmaceutical product licenses and rights - - - (5,476) Business acquisition - - - (7,594) Acquisition of property, plant and equipment (18) (115) (67) (224) Purchases of short-term marketable securities (30,289) (28,624) (101,197) (71,974) Maturities of short-term marketable securities 16,637 13,781 91,106 25,079 Purchases of long-term marketable securities (4,969) (2,567) (26,366) (13,771) Proceeds from the disposal of investments - - 27 6,979 Proceeds from disposal of pharmaceutical product licenses and rights - 442 - 442 ---------------------------------------------------------------------------- Cash flows used in investing activities (18,939) (17,083) (63,442) (66,669) ---------------------------------------------------------------------------- Financing activities Net proceeds on issuance of common shares 613 248 2,023 56,997 Repurchase of common shares - (72) - (72) ---------------------------------------------------------------------------- Cash flows from financing activities 613 176 2,023 56,925 ---------------------------------------------------------------------------- Foreign exchange rate change on cash and cash equivalents 29 (17) 40 (56) Net change in cash and cash equivalents during the period 3,101 (10,829) (14,487) 15,880 Cash and cash equivalents, beginning of period 13,639 31,354 31,227 4,645 ---------------------------------------------------------------------------- Cash and cash equivalents, end of period 16,740 20,525 16,740 20,525 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash and cash equivalents 16,740 20,525 Short-term marketable securities 97,606 65,450 Long-term marketable securities 13,023 11,656 ---------------------------------------------------------------------------- 127,369 97,631 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------