FOR IMMEDIATE RELEASE

 

PALADIN ANNOUNCES SECOND QUARTER RESULTS

Montreal, Canada, July 31, 2003 -
Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today announced its financial results for the second quarter and the six-month period ended June 30, 2003. Paladin posted record revenues of $6.5 million in the second quarter and strong gross margins. Net income was negatively impacted by a $1.5 million write-down of the Company’s investment in Anthra Pharmaceuticals, Inc.

Second Quarter Highlights:

“We have made strong progress in executing on our plans of expanding our sales and marketing infrastructure,” said Jonathan Ross Goodman, President and CEO of Paladin Labs. “We look forward to achieving continued revenue growth by aggressively building our existing brands and acquiring new products for the Canadian market.”

Financial Results
Revenues for the second quarter increased 13% to $6.5 million compared to $5.7 million in the second quarter a year ago. For the six-month period ended June 30, 2003, revenues increased 4% to $11.5 million compared to $11.0 million in the corresponding period a year ago. Sales of the Company’s key promoted products including, Androderm®, Dostinex®, Dalacin®, Estring®, and Plan B™ grew by 65% for the quarter and over 40% for the six months compared to the corresponding periods in the prior year. The increase in revenues from these products was offset by a continued decline in Urispas® sales as a result of the product’s genericization, and a decline in sales of Valtaxin™ related to the manufacturing difficulties at Anthra Pharmaceuticals, Inc. Of note, Paladin has benefited from four months of increased sales activity from its expanded sales force of 48 representatives versus 14 representatives in the prior year.

Net income, excluding write-downs, was $1.4 million or $0.10 per share for the second quarter of 2003 and 2002. Net income, excluding write-downs, was $2.1 million or $0.14 per share for the first half of 2003 compared to net income of $2.8 million or $0.22 per share in the corresponding period last year.

Net loss for the second quarter was $83,000 or $0.01 per share. During the second quarter, the Company recorded a charge of $1.5 million related to its investment in Anthra Pharmaceuticals. The Company did not record a tax benefit related to this charge. In addition, during the second quarter Paladin recorded a gain on disposal of $226,000 related to the sale of its investment in Connetics Corporation. Net income for the six-month period ended June 30, 2003 was $589,000 or $0.04 per share. Net income for the six-months includes a gain on disposal of $504,000 related to the Company’s assignment and sale of certain over-the-counter products and the sale of its investment in Connetics Corporation.

During June 2003, Anthra Pharmaceuticals advised Paladin that it had disposed of virtually all its assets and remains incapable of determining when it will be able to resume production of Valtaxin™. At this time, Paladin has determined that there has been an impairment in the carrying value of its investment in Anthra Pharmaceuticals and has recorded a write-down of $1.5 million, representing the full amount of the carrying value of the investment.

Selling and marketing expense increased 73% to $2.7 million in the second quarter compared to $1.6 million in the same period a year ago. For the six-month period ended June 30, 2003, selling and marketing expense increased 80% to $5.4 million compared to $3.0 million for the six-month period ended June 30, 2002. This increase resulted from the expansion of the Company’s sales and marketing infrastructure supporting Androderm®, Dalacin®, Dostinex®, Estring®, Muse®, Oesclim®, and Plan B™.

Gross profit, as a percentage of revenues, in the second quarter improved to 76% from 73% in the second quarter of 2002. For the six-month period ended June 30, 2003, gross profit, as a percentage of revenues, improved to 76% from 71% for the six-month period ended June 30, 2002. This increase resulted primarily from a higher proportion of revenues from products for which the Company earns a distribution fee and consequently does not incur costs of sales related to these products.

At June 30, 2003, Paladin’s cash, cash equivalents and investments in both short-term and long-term marketable securities totalled $46.6 million, compared to $44.6 million as at June 30, 2002. From this strong cash position, Paladin is pursuing acquisitions of innovative products for the Canadian market that meet its disciplined investment criteria.

Product Developments
During the second quarter, Paladin announced that Health Canada has recommended the switch from prescription to non-prescription status for Plan BTM, the Company’s emergency contraceptive pill. Health Canada is now soliciting feedback from stakeholders to initiate the process required to change the regulations that will allow Plan BTM to be sold without a prescription across Canada. Plan BTM is currently available by prescription only.

Also during the second quarter, Paladin and InKine Pharmaceutical Company, Inc. announced that they had entered into a Canadian licensing agreement for Diacol®, the first patented sodium phosphate purgative in a tablet format. Diacol®, which is marketed in the U.S. under the name Visicol®, is used to cleanse the bowel prior to a colonoscopy. As consideration for the license, Paladin paid an undisclosed up-front license fee, with additional royalties due to InKine based on future net sales of Diacol®.

Corporate Developments
Paladin announced the appointments of Aldo R. Baumgartner, Ph.D., and Michael S. Cloutier to its Board of Directors. Prior to joining Paladin’s Board, Dr. Baumgartner was President and CEO of Wyeth Canada Inc. and Mr. Cloutier was President of Pharmacia Canada Inc.

Subsequent to the end of the quarter, Paladin announced the appointment of Mr. Mark Nawacki, CA, MBA, to the position of Vice President, Business Development, effective September 1, 2003. Prior to joining Paladin, Mr. Nawacki held senior leadership positions in business development and finance with Pharmacia Canada. As Vice President, Business Development, Mr. Nawacki will play a lead role in identifying and pursuing acquisition opportunities for new products to support Paladin’s continued growth within the Canadian specialty pharmaceutical market.

2003 Financial Guidance
The Company is revising its revenue target from $26 million to $23 million for 2003. This reduction is due to slower than forecasted growth in the androgen replacement market and the delays in the OTC switch for Plan B™. Paladin is revising its financial guidance for net income in 2003 from $2 million to $1 million, as a result of its write-down of its investment in Anthra Pharmaceuticals. This forecast excludes the impact of acquisitions that may be made by the Company between now and the end of 2003.


Conference Call Notice

Paladin will host a conference call to discuss its second quarter results on Thursday, July 31, 2003, at 10 a.m. EST. The dial-in number for the conference call is 1-800-387-6216 or 416-405-9328 (reference # 1461639). The call will be audio-cast live and archived for 90 days at www.financialdisclosure.ca and www.paladinlabs.com

About Paladin Labs Inc.
Paladin Labs Inc., headquartered in Montreal, Quebec, is a leading specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian market. With this strategy, a focused national sales team and proven marketing expertise, Paladin has evolved into one of Canada’s leading specialty pharmaceutical companies. Paladin’s shares trade on the Toronto Stock Exchange under the symbol PLB. For more information about Paladin, please visit the Paladin Web Site at www.paladinlabs.com.

This news release may contain forward-looking statements or predictions. These statements represent our judgement as of this date and are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed in such forward-looking statements. Potential risks and uncertainties include, without limitation, those associated with product development, clinical trials, future revenues and profitability, and obtaining marketing approval and other factors that are discussed in the Management Discussion and Analysis published in the Company's annual report.

For further information please contact:

Paladin Labs Inc.
Samira Sakhia
Chief Financial Officer
Paladin Labs Inc.
Tel: (514) 340-1112
E-mail: info@paladin-labs.com
Web Site: www.paladinlabs.com

The Equicom Group Inc.
Bruce Wigle
Investor Relations
Tel: (416) 815-0700 ext. 228
E-mail: bwigle@equicomgroup.com

BALANCE SHEET

[In thousands of Canadian dollars]

 

 

 

 

June 30

December 31

 

2003

2002

 

$

$

 

(unaudited)

 

ASSETS

 

 

Current

 

 

Cash and cash equivalents

1,431 

2,020 

Short-term marketable securities

43,950 

36,572 

Accounts receivable and other assets

2,621 

2,586 

Inventories

— 

21 

Income tax credits receivable

254 

325 

Future income tax assets

1,221 

1,221 

Total current assets

49,477 

42,745 

 

 

 

Long-term marketable securities

1,253 

7,020 

Property plant and equipment

92 

72 

Intangible assets

12,162 

12,703 

Deferred charges

2,148 

1,515 

Investments, at cost

2,403 

2,771 

Future income tax credits receivable

470 

470 

Future income tax assets

669 

1,359 

 

68,674 

68,655 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current

 

 

Accounts payable and accrued liabilities

3,464 

3,658 

Income taxes payable

107 

109 

Balance of sale payable

624 

597 

Deferred credit

650 

1,113 

Total current liabilities

4,845 

5,477 

 

 

 

Shareholders’ equity

 

 

Capital stock

57,396 

57,334 

Contributed surplus

87 

87 

Other paid-in capital

23 

23 

Retained earnings

6,323 

5,734 

Total shareholders’ equity

63,829 

63,178 

 

68,674 

68,655 

 

STATEMENTS OF INCOME

[In thousands of Canadian dollars except for share and per share amounts]

 

 

 

 

 

Three-month period ended

June 30

Six-month period ended

June 30

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

 

 

 

 

 

Revenues

6,453 

5,687 

11,518 

11,030 

Cost of sales

1,533 

1,539 

2,770 

3,148 

Gross profit

4,920 

4,148 

8,748 

7,882 

 

 

 

 

 

Selling and marketing

2,719 

1,570 

5,373 

2,989 

General and administrative

550 

529 

1,099 

1,174 

Research and development

145 

206 

482 

589 

Amortization

493 

423 

935 

846 

Interest income, net

(365)

(268)

(701)

(345)

Other income

(27)

— 

(381)

(695)

Gain on disposal of assets

(226)

— 

(504)

— 

Income before under noted items

1,631 

1,688 

2,445 

3,324 

Write down of long-term investment

(1,497)

— 

(1,497)

— 

Income before income taxes

134 

1,688 

948 

3,324 

 

 

 

 

 

Provision for income taxes

 

 

 

 

Current

30 

39 

60 

60 

Future

187 

209 

299 

423 

 

217 

248 

359 

483 

Net income

(83)

1,440 

589 

2,841 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

(0.01)

0.10 

0.04 

0.22 

Diluted

(0.01)

0.10 

0.04 

0.21 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

Basic

14,784,725 

13,820,655 

14,782,677 

13,188,718 

Diluted

14,800,111 

14,085,539 

14,791,495 

13,460,467 

 

 

 

 

 

 

STATEMENTS OF CASH FLOWS

[In thousands of Canadian dollars]

 

 

Three-month period ended

June 30

Six-month period ended

June 30

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

 

 

 

 

 

Operating activities

 

 

 

 

Net income

(83)

1,440 

589 

2,841 

Add items not affecting cash

 

 

 

 

Amortization

509 

429 

964 

856 

Write-down of long-term investment

1,497 

— 

1,497 

— 

Future income taxes

173 

175 

227 

(212)

Imputed interest on balance of sale

14 

13 

27 

26 

Gain on disposal of assets

(226)

— 

(504)

— 

 

1,884 

2057 

 2,800

3,511 

Net change in non-cash balances relating to operations

 

52 

 

(291)

 

(138)

 

78 

Cash flows from operating activities

1,936 

1,766 

2,662 

3,589 

 

 

 

 

 

Investing activities

 

 

 

 

Additions to pharmaceutical product licenses and rights and deferred charges

 

(569)

 

(663)

 

(1,087)

 

(2,752)

Accounts payable related to the acquisition of intellectual property

 

— 

 

— 

 

— 

 

1,179 

Investment in other companies

(1,434)

— 

(1,434)

— 

Acquisition of property plant and equipment

(24)

(5) 

(49)

(16)

Purchases of short-term marketable securities

(26,416)

(26,095)

(30,836)

(44,940)

Maturities of short-term marketable securities

18,564 

18,489 

30,478 

26,049 

Purchases of long-term marketable securities

(1,253)

— 

(1,253)

— 

Proceeds from disposal of assets

529 

— 

869 

— 

Cash flows used in from investing activities

(10,603)

(8,274)

(3,312)

(20,480)

 

 

 

 

 

Financing activities

 

 

 

 

Common shares issued for cash

31 

112

41

203 

Issuance of special warrants

— 

— 

— 

20,952 

Share issue costs, net of tax

— 

— 

— 

(1,057)

Repayment of share purchase loan

20 

20 

20 

20 

Cash flows from financing activities

51 

132 

61 

20,118 

 

 

 

 

 

Net change in cash and cash equivalents during the period

 

(8,616)

 

(6,376)

 

(589)

 

3,227 

Cash and cash equivalents, beginning of period

 

10,047 

 

11,581 

 

2,020 

 

1,978 

Cash and cash equivalents, end of period

1,431 

5,205 

1,431 

5,205 

 

 

 

 

 

Cash and cash equivalents

1,431 

5,205 

 

 

Short-term marketable securities

43,950 

39,362 

 

 

Long-term marketable securities

1,253 

— 

 

 

 

46,634 

44,567