FOR IMMEDIATE RELEASE

 

PALADIN REPORTS 2003 FOURTH QUARTER AND YEAR-END RESULTS

Montreal, Canada, February 5, 2004 - Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today announced its financial results for the fourth quarter and year ended December 31, 2003.

Highlights of 2003 include:



“In the second half of the year we made progress in expanding our product portfolio with the acquisition of five innovative marketed products and two late-stage development products. We remain committed to further strengthening our portfolio by acquiring additional promotion-sensitive brands and, in support of our longer-term growth, products in late-stage clinical development. With more than $44 million in cash and marketable securities, we have the financial strength to successfully execute our strategy,” said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results
Revenue for the fourth quarter of 2003 was a record $6.9 million, an increase of $684,000 or 11%, compared to $6.2 million in the fourth quarter a year ago. For the year ended December 31, 2003, revenue increased $504,000 to a record $23.9 million from $23.4 million in 2002.

Net loss for the fourth quarter of 2003 was $5.0 million or $0.34 per share compared to net income of $788,000 or $0.05 per diluted share in the same period a year ago. For the year ended December 31, 2003, Paladin recorded a net loss of $4.2 million or $0.28 per share compared to net income of $5.2 million or $0.36 per diluted share for the year ended December 31, 2002. The Company’s net loss for the fourth quarter and year was primarily attributable to one-time charges resulting from the write-down of the carrying value of certain assets and increased marketing and promotion expenses supporting key products.

During 2003, Paladin recorded impairment charges against earnings totalling $9 million. These included: a fourth quarter $7.0 million write-down of the carrying value of the Canadian distribution rights for a number of products in the Company’s portfolio due to the heightened risk of generic competition; a fourth quarter $526,000 write-down of the carrying value of a long-term investment in a publicly traded U.S. company; and a $1.5 million write-down of the Company’s investment in Anthra Pharmaceuticals. The 2003 income tax recovery includes the future tax benefit related to the write-down of intellectual property.

“We are confronting the increased risks of generic competition by focusing our acquisition strategy towards products that have patent protection and negotiating new distribution agreements to include compensation payments to Paladin should an acquired product come under generic threat,” said Samira Sakhia, CFO of Paladin Labs. “Moving forward, we intend to amortize the carrying value of all acquisitions over a significantly shorter period of time to mitigate financial risks associated with potential generic competition.”

Selling and administrative expenses for 2003 increased to $13.8 million from $9.3 million in 2002. This increase was primarily attributable to increased sales and marketing spending associated with new product launches and the expansion of the Company’s selling and marketing activities in support of key promotion sensitive brands during 2003. Amortization expense for 2003 increased to $1.9 million from $1.7 million in 2002. This increase reflects the impact of amortization expense related to the Company’s acquisition of licenses, rights and intellectual property during fiscal 2003.

At December 31, 2003, Paladin’s cash, cash equivalents and investments in marketable securities totalled $44.6 million. From this strong cash position, Paladin continues to pursue product acquisition opportunities.

2003 Product Developments
In the last twelve months, Paladin successfully concluded licensing and distribution agreements for five brand name pharmaceuticals and two late-stage development products.

In November 2003, Paladin entered into a distribution agreement with PanGeo Pharma Canada Inc. for a portfolio of prescription drug products consisting of Sandomigran®, Sintrom®, and Zaditen®. According to IMS Canada, these products had combined Canadian sales of $2 million in 2002. In addition, Paladin acquired the rights to Cortifoam®, a local anti-inflammatory therapy for the adjunctive treatment of ulcerative colitis and inflammatory bowel disease, from Meda AB. Canadian sales of Cortifoam® amounted to $1.5 million in 2002 valued by IMS Canada. In December, Paladin acquired the distribution and marketing rights to Darvon-N® from Eli Lilly and Company. Darvon-N® is an analgesic that is indicated for the relief of mild to moderate pain. According to IMS Canada, Canadian sales of Darvon-N® in 2002 totalled $1.4 million.

The Company also expanded its product pipeline with the acquisition of Diacol® and Oxytrol®, two late-stage development products. Paladin secured a Canadian licensing agreement with InKine Pharmaceutical Company, Inc. for Diacol® (Visicol® in the U.S.) in May. Visicol® is the first patented sodium phosphate purgative in tablet format available in the U.S. and is used to cleanse the bowl prior to a colonoscopy, a commonly used screening technique for colon cancer. According to IMS Canada, the total Canadian market for purgative agents was $5.1 million in 2002. Subsequent to the end of fiscal 2003, Paladin signed a Canadian licensing agreement with Watson Pharmaceuticals, Inc. to market Oxytrol®, a novel transdermal patch for the treatment of overactive bladder. IMS Canada estimates the total Canadian market for overactive bladder in 2003 exceeded $42 million.

In June 2003, Health Canada recommended the switch from prescription to non-prescription status for Plan B™, Paladin’s emergency contraceptive pill. The Canadian Ministry of Health is now in the process of adapting the regulations to allow Plan B to be sold without a prescription.

2004 Financial Guidance
Paladin expects to generate revenue of $26.5 million, earnings before interest, taxes, depreciation and amortization (EBITDA) of $9 million and net income of $3.6 million in fiscal 2004. This projection excludes the impact of acquisitions that may be made by the Company during the year.


Conference Call Notice

Paladin will host a conference call to discuss its fourth quarter and year-end results on Thursday, February 5, 2004, at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-273-9672 or 416-695-5806 and the reference number is 1526973.

The call will be audio-cast live and archived for 90 days at www.financialdisclosure.ca and www.paladinlabs.com A taped replay of the conference call will be available at 1-800-408-3053 or 416-695-5800, from Thursday, February 5th at noon until Thursday, February 12th at midnight.

About Paladin Labs Inc.
Paladin Labs Inc., headquartered in Montreal, Canada, 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]

 

 

 

 

December 31

December 31

 

2003

2002

 

$

$

 

(audited)

(audited)

ASSETS

 

 

Current

 

 

Cash and cash equivalents

1,991 

2,020 

Short-term marketable securities

42,556 

36,572 

Accounts receivable and other assets

2,789 

2,607 

Investment tax credits recoverable

256 

325 

Future income tax assets

1,969 

1,221 

Total current assets

49,561 

42,745 

 

 

 

Long-term marketable securities

— 

7,020 

Property plant and equipment

132 

72 

Intangible assets

12,359 

12,703 

Deferred charges

2,781 

1,515 

Investments

1,877 

2,771 

Future investment tax credits receivable

659 

470 

Future income tax assets

1,601 

1,359 

 

68,970 

68,655 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current

 

 

Accounts payable and accrued liabilities

4,546 

3,103 

Accounts Payable to related parties

170 

— 

Income taxes payable

85 

109 

Balance of license agreements payable

4,537 

555 

Balance of sale payable

— 

597 

Deferred credit

300 

1,113 

Total current liabilities

9,638 

5,477 

 

 

 

Shareholders’ equity

 

 

Capital stock

57,440 

57,334 

Contributed surplus

87 

87 

Other paid-in capital

243 

23 

Retained earnings

1,562 

5,734 

Total shareholders’ equity

59,332 

63,178 

 

68,970 

68,655 

 

STATEMENTS OF OPERATIONS

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

 

 

 

 

 

Three-month period ended

December 31

Twelve-month period ended

December 30

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(audited)

(audited)

 

 

 

 

 

Revenues

6,921 

6,237 

23,859 

23,355 

Cost of sales

1,976 

1,624 

6,164 

6,387 

Gross profit

4,945 

4,613 

17,695 

16,968 

 

 

 

 

 

Selling and marketing

3,196 

2,199 

11,142 

6,917 

General and administrative

790 

579 

2,627 

2,426 

Research and development

429 

292 

1,302 

1,084 

Amortization

569 

439 

1,946 

1,710 

Interest income, net

(299)

(355)

(1,412)

(1,065)

Other income

(28)

— 

(421)

(695)

Income before under noted items

288 

1,459 

2,511 

6,591 

 

 

 

 

 

Write-down of investments, net

526 

— 

1,798 

— 

Write-down of intellectual property

7,039 

474 

7,039 

474 

Gain on disposition of intellectual property

(80)

(47)

(358)

(47)

Income (loss) before income taxes

(7,197)

1,032 

(5,968)

6,164 

 

 

 

 

 

Provision (recovery) for income taxes

 

 

 

 

Current

13 

21 

88 

102 

Future

(2,250)

223 

(1,884)

900 

 

(2,237)

244 

(1,796)

1,002 

Net income (loss)

(4,960)

788 

(4,172)

5,162 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

Basic

(0.34)

0.05 

(0.28)

0.37 

Diluted

(0.34)

0.05 

(0.28)

0.36 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

Basic

14,795,732 

14,778,597 

14,787,733 

13,989,832 

Diluted

14,795,732 

14,795,212 

14,787,733 

14,160,630 

 

STATEMENTS OF CASH FLOWS

[In thousands of Canadian dollars]

 

 

Three-month period ended

December 31

Twelve-month period ended

December 31

 

2003

2002

2003

2002

 

$

$

$

$

 

(unaudited)

(unaudited)

(audited)

(audited)

 

 

 

 

 

Operating activities

 

 

 

 

Net income (loss)

(4,960)

788 

(4,172)

5,162 

Add items not affecting cash

 

 

 

 

Amortization

633 

445 

2,000 

1,733 

Write-down of intellectual property

7,039 

427 

7,039 

427 

Write-down of investments in other companies

526 

— 

2,023 

— 

Non-cash compensation expense

41 

— 

227 

— 

Future income taxes

(2,226)

179 

(1,991)

195 

Imputed interest on balance of sale

13 

13 

53 

53 

Gain on disposal of intellectual property

(80)

— 

(358)

— 

Gain on disposal of investments

— 

— 

(225)

— 

 

986 

1,852 

4,596 

7,570 

Net change in non-cash balances relating to operations

366 

(178)

848 

1,064 

Cash flows from operating activities

1,352 

1,674 

5,444 

8,634 

 

 

 

 

 

Investing activities

 

 

 

 

Additions to pharmaceutical product licenses and rights and deferred charges

(8,412)

(1,225)

(9,969)

(4,496)

Accounts payable related to the acquisition of intellectual property and deferred charges

4,560 

(2,910)

4,602 

(1,731)

Acquisition of property plant and equipment

(63)

(29)

(114)

(62)

Purchases of short-term marketable securities

(13,390)

(11,426)

(52,608)

(46,350)

Maturities of short-term marketable securities

16,948 

7,807 

61,580 

30,248 

Purchases of long-term marketable securities

— 

— 

(7,936)

(7,020)

Maturities of long-term marketable securities

— 

— 

— 

— 

Proceeds from disposal of pharmaceutical licenses

80 

639

420

639

Proceeds from disposal of investments

— 

— 

529 

— 

Investment in other companies

— 

— 

(1,433)

— 

Cash flows used in investing activities

(277)

(7,144)

(4,929)

(28,772)

 

 

 

 

 

Financing activities

 

 

 

 

Common shares issued for cash

33 

7 

86 

219 

Issuance of special warrants

— 

— 

— 

20,952 

Share issue costs, net of tax

— 

46 

— 

(1,011)

Repayment of share purchase loan

 

— 

20 

20 

Payment of balance of sale

(650)

— 

(650)

— 

Cash flows (used in) from financing activities

(617)

53 

(544)

20,180 

 

 

 

 

 

Net change in cash and cash equivalents during the period

458 

(5,417)

(29)

42 

Cash and cash equivalents, beginning of period

 1,533 

7,437 

2,020 

1,978 

Cash and cash equivalents, end of period

1,991 

2,020 

1,991 

2,020 

 

 

 

 

 

Cash and cash equivalents

1,991 

2,020 

 

 

Short-term marketable securities

42,556 

36,572 

 

 

Long-term marketable securities

— 

7,020 

 

 

 

44,547 

45,612