FOR IMMEDIATE RELEASE

 

PALADIN REPORTS THIRD QUARTER RESULTS

Montreal, Canada, October 30, 2003 - Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today announced its financial results for the third quarter and the nine-month period ended September 30, 2003.

Third Quarter Highlights:

“While revenues declined both in the third quarter and first nine months, primarily as a result of supply interruptions for Valtaxin™ and Tapazole® and the genericization of Urispas®, we continue to achieve sales growth for our key promoted brands,” said Jonathan Ross Goodman, President and CEO of Paladin Labs. “We remain focused on increasing sales of our key brands and with more than $47 million in cash and marketable securities we are well positioned to acquire additional promotion-sensitive brands to drive further growth.”

Financial Results
Revenue for the third quarter decreased 11% to $5.4 million compared to $6.1 million in the third quarter a year ago. For the nine-month period ended September 30, 2003, revenue decreased 1% to $16.9 million compared to $17.1 million in the corresponding period in 2002. Sales of the Company’s key promoted brands including, Androderm®, Dostinex®, Dalacin®, Estring®, and Plan B™ increased by 38% for both the third quarter and nine-month period, compared to the corresponding periods in 2002. The increase in revenues from these products was offset by a continued decline in sales of Urispas® as a result of the product’s genericization, a decline in sales of Valtaxin™ related to the manufacturing difficulties at Anthra Pharmaceuticals, Inc., a decline in sales of Tapazole® due to a temporary interruption in supply, and a decline in sales of Oesclim® due to recent concerns relating to female hormone replacement therapies.

Net income for the third quarter was $381,000 or $0.03 per share, compared to net income of $1.5 million or $0.10 per share in the third quarter a year ago. Net income for the nine-month period ended September 30, 2003 was $970,000 or $0.07 per share compared to net income of $4.4 million or $0.32 per share for the nine-month period ended September 30, 2002. Net income for the first nine months of 2003 included a one-time charge of $1.5 million related to the Company’s write-down of its investment in Anthra Pharmaceuticals. Paladin’s decline in net income relative to the first nine months of 2002 reflects the Company’s increased sales and marketing expenses associated with its expanded sales and marketing infrastructure.

Selling and marketing expense increased 49% to $2.6 million in the third quarter compared to $1.7 million in the same period a year ago. For the nine-month period ended September 30, 2003, selling and marketing expense increased 69% to $7.9 million compared to $4.7 million for the nine-month period ended September 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, improved to 74% in the third quarter of 2003 up from 73% in the same quarter a year ago. For the nine-month period ended September 30, 2003, gross profit, as a percentage of revenues, improved to 75% from 72% for the nine-month period ended September 30, 2002. The year-to-date increase in gross profit as a percentage of revenues 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 September 30, 2003, Paladin’s cash, cash equivalents and investments in both short-term and long-term marketable securities totalled $47.7 million, compared to $45.6 million as at December 31, 2002. From this strong cash position, Paladin is actively pursuing acquisitions of innovative products for the Canadian market that meet its disciplined investment criteria.

Product Developments
During the third quarter, Paladin announced that it received orphan drug designation for Fidelin™ (DHEA / prasterone) for adrenal insufficiency in the United States and Europe. Orphan drug designation in the U.S. provides Fidelin™ with seven years of market exclusivity in the U.S. and 10 years of market exclusivity in Europe following regulatory approval. Paladin is developing Fidelin® for adrenal insufficiency, a rare chronic condition brought about by failure of the adrenal glands, which affects an estimated 100,000 patients in the U.S. and 115,000 patients in Europe.

Corporate Developments
During the third quarter, Paladin appointed Mr. Mark Nawacki, CA, MBA, to the position of Vice President, Business Development. In this position, 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. Prior to joining Paladin, Mr. Nawacki led all of Pharmacia Canada’s business development initiatives, including partnering, acquisitions, divestments, and prospecting of the Canadian biotech industry. Mr. Nawacki is a Chartered Accountant and holds an MBA from the University of Toronto, Rotman School of Business.

Subsequent to the third quarter, Michael S. Cloutier resigned as a member of the Board effective October 29, 2003 to pursue his new position as President of AstraZeneca Canada Inc. Paladin wishes to thank Mr. Cloutier for his contribution of service towards helping to build Paladin and wish him all the best in his new position at AstraZeneca Canada.


Conference Call Notice

Paladin will host a conference call to discuss its third quarter results on Thursday, October 30, 2003, at 10 a.m. EST. The dial-in number for the conference call is 1-800-273-9672 or 416-695-5806 (reference# 1490827). 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]

 

September 30

December 31

 

2003

2002

 

$

$

 

(unaudited)

 

ASSETS

 

 

Current

 

 

Cash and cash equivalents

1,533 

2,020 

Short-term marketable securities

39,432 

36,572 

Accounts receivable and other assets

2,751 

2,586 

Inventories

— 

21 

Income tax credits receivable

270 

325 

Future income tax assets

1,276 

1,221 

Total current assets

45,262 

42,745 

 

 

 

Long-term marketable securities

6,683 

7,020 

Property plant and equipment

83 

72 

Intangible assets

11,921 

12,703 

Deferred charges

2,465 

1,515 

Investments, at cost

2,403 

2,771 

Future income tax credits receivable

470 

470 

Future income tax assets

472 

1,359 

 

69,759 

68,655 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current

 

 

Accounts payable and accrued liabilities

4,283 

3,658 

Income taxes payable

103 

109 

Balance of sale payable

637 

597 

Deferred credit

515 

1,113 

Total current liabilities

5,538 

5,477 

 

 

 

Shareholders’ equity

 

 

Capital stock

57,407 

57,334 

Contributed surplus

87 

87 

Other paid-in capital

23 

23 

Retained earnings

6,704 

5,734 

Total shareholders’ equity

64,221 

63,178 

 

69,759 

68,655 

 

STATEMENTS OF INCOME

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

 

 

Three-month period ended

September 30

Nine-month period ended

September 30

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

 

 

 

 

 

Revenues

5,420 

6,087 

16,938 

17,117 

Cost of sales

1,418 

1,615 

4,188 

4,764 

Gross profit

4,002 

4,472 

12,750 

12,353 

 

 

 

 

 

Selling and marketing

2,573 

1,727 

7,946 

4,715 

General and administrative

556 

673 

1,655 

1,848 

Research and development

391 

203 

873 

791 

Amortization

442 

426 

1,377 

1,272 

Interest income, net

(412)

(365)

(1,113)

(710)

Other income

(11)

— 

(392)

(695)

Gain on disposal of assets

— 

— 

(504)

— 

Income before under noted items

463 

1,808 

2,908 

5,132 

Write down of long-term investment

— 

— 

1,497 

— 

Income before income taxes

463 

1,808 

1,411 

5,132 

 

 

 

 

 

Provision for income taxes

 

 

 

 

Current

15 

21 

75 

81 

Future

67 

254 

366 

677 

 

82 

275 

441 

758 

Net income

381 

1,533 

970 

4,374 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

0.03 

0.10 

0.07 

0.32 

Diluted

0.03 

0.10 

0.07 

0.31 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

Basic

14,789,827 

14,777,171 

14,785,069 

13,724,021 

Diluted

14,824,569 

15,052,244 

14,802,981 

13,956,901 

 

 

STATEMENTS OF CASH FLOWS

[In thousands of Canadian dollars]

 

 

Three-month period ended

September 30

Nine-month period ended

September 30

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(unaudited)

(unaudited)

 

 

 

 

 

Operating activities

 

 

 

 

Net income

381 

1,533 

970 

4,374 

Add items not affecting cash

 

 

 

 

Amortization

452 

433 

1,416 

1,289 

Stock purchase plan compensation expense

5 

— 

5 

— 

Write-down of long-term investment

— 

— 

1,497 

— 

Future income taxes

8 

227 

235 

15 

Imputed interest on balance of sale

13 

13 

40 

40 

Gain on disposal of assets

— 

— 

(504)

— 

 

859 

2,206 

3,659 

5,718 

Net change in non-cash balances relating to operations

 

664 

 

1,163 

 

526 

 

1,241 

Cash flows from operating activities

1,523 

3,369 

4,185 

6,959 

 

 

 

 

 

Investing activities

 

 

 

 

Additions to pharmaceutical product licenses and rights and deferred charges

 

(519)

 

(519)

 

(1,606)

 

(3,270)

Accounts payable related to the acquisition of intellectual property

 

— 

 

— 

 

— 

 

1,179 

Investment in other companies

— 

— 

(1,434)

— 

Acquisition of property plant and equipment

(2)

(16)

(51)

(33)

Purchases of short-term marketable securities

(8,382)

(19,818)

(39,219)

(64,760)

Maturities of short-term marketable securities

14,153 

19,207 

44,632 

55,041 

Purchases of long-term marketable securities

(6,683)

— 

(7,936)

(9,784)

Proceeds from disposal of assets

— 

— 

869 

— 

Cash flows used in from investing activities

(1,433)

(1,146)

(4,745)

(21,627)

 

 

 

 

 

Financing activities

 

 

 

 

Common shares issued for cash

12 

9 

53 

232 

Issuance of special warrants

— 

— 

— 

20,952 

Share issue costs, net of tax

— 

— 

— 

(1,057)

Repayment of share purchase loan

— 

— 

20 

— 

Cash flows from financing activities

12 

9 

73 

20,127 

 

 

 

 

 

Net change in cash and cash equivalents during the period

 

102 

 

2,232 

 

(487)

 

5,459 

Cash and cash equivalents, beginning of period

 

1,431 

 

5,205 

 

2,020 

 

1,978 

Cash and cash equivalents, end of period

1,533 

7,437 

1,533 

7,437 

 

 

 

 

 

Cash and cash equivalents

1,533 

7,437 

 

 

Short-term marketable securities

39,432 

32,953 

 

 

Long-term marketable securities

6,683 

7,020 

 

 

 

47,648 

47,410