Paladin Labs Reports Second Quarter 2013 Results

Achieves Record EBITDA(1)

Marketwired

MONTREAL, CANADA--(Marketwired - Aug 14, 2013) - Paladin Labs Inc. (PLB.TO), a leading specialty pharmaceutical company, today reported its financial results for the quarter ended June 30, 2013.

2013 Second Quarter Highlights

Financial

  • Adjusted(2) revenues reached $52.3 million, an increase of 41% over the same period last year
  • Adjusted(2) EBITDA(1) reached $22.7 million, an increase of 32% over the same period last year

Product Developments

  • Acquired Binotal® from Bayer Pharma AG ("Bayer") for Latin America including Mexico, Brazil, Columbia, Ecuador and select countries in Central America
  • Launched Silenor® (doxepin hydrochloride) for the treatment and symptomatic relief of insomnia
  • Launched Amniosense™, Canada's first OTC amniotic fluid leak detection test
  • Submitted a new drug application ("NDA") to the U.S. Food and Drug Administration (FDA) for Impavido® (miltefosine) and received priority review status

Corporate Developments

  • Completed a strategic collaboration to refinance and increase Bioniche's debt for up to US $30 million, to provide new equity of up to $0.5 million, and to enter into a licensing agreement for Bioniche's Phase III bladder cancer product - Urocidin™ for Canada, South Africa and Mexico.
  • Amended a secured loan agreement with Nuvo Research Inc. ("Nuvo") to issue a second tranche of $4 million, add a potential third $4 million loan tranche and issue up to 100,000 warrants to acquire Nuvo common shares
  • Issued a combined balance of $4.2 million secured loans to two additional undisclosed pharmaceutical companies
  • Entered into license agreement with Altus Formulation Inc. ("Altus") for certain Labopharm Inc technology in exchange for a 35% equity ownership interest

Subsequent to the quarter

  • Closed the agreements related to Bioniche and Nuvo
  • Acquired Allon Therapeutics Inc. ("Allon")

"In the second quarter, Paladin posted record EBITDA(1) while continuing to invest in its product portfolio and pipeline. Paladin further expanded its Latin American footprint with the acquisition of Binotal for Latin America and select Central American countries. In addition, we expanded our product portfolio and pipeline with the launch of Silenor and Amniosense and the in-licensing of Phase III product Urocidin. Furthermore, we deployed nearly $40 million through secured strategic loans to four pharmaceutical companies" said Mark Beaudet, interim President and CEO of Paladin Labs.

Financial Results

Adjusted(2) revenues increased $15.2 million or 41% to $52.3 million for the second quarter of 2013 from $37.1 million for the same period in 2012. The increase is mostly attributable to the proportionate consolidation of Litha's revenues of $11.9 million for the quarter ended June 30, 2013. Paladin's promoted products, including Tridural®, Trelstar®, Testim®, Abstral®, Digifab®, Glucagen®, Oralair® and Pollinex®-R combined increased by 30% for the quarter compared to the same period last year.

Consolidated revenues for the quarter ended June 30, 2013 were $67.2 million, an increase of 81% over the same period last year. The increase is mostly attributable to the consolidation of Litha's revenues of $26.8 million for the quarter.

Second quarter 2013 adjusted(2) EBITDA(1) increased 32% to $22.7 million, compared to adjusted(2) EBITDA(1) of $17.2 million in the second quarter of 2012. This increase is primarily due to the strong sales performance of Paladin's promoted products, partially offset by increased costs associated with the launch of new products. Litha contributed $1.8 million to adjusted(2) EBITDA(1) which includes impact of higher gross income margins as a result of the mix of products sold in the quarter offset by the impact of the continued decline in the South African Rand.

Consolidated EBITDA(1) reached a record $24.9 million, an increase of 44% over the consolidated EBITDA(1) for the quarter ended June 30, 2012. This increase is primarily due to the consolidation of Litha, which contributed $4.0 million in consolidated EBITDA(1) for the quarter.

Net income attributable to shareholders for the quarter was $13.6 million or $0.64 per fully diluted share, compared to net income attributable to shareholders of $10.9 million or $0.52 per fully diluted share the same quarter a year ago.

As at June 30 2013, Paladin's cash, cash equivalents and investments in marketable securities net of bank overdraft totaled $247.7 million. From this strong cash position, Paladin continues to pursue business and corporate development opportunities.

Product Developments

During the second quarter of 2013, Paladin advanced its product portfolio and pipeline.

Paladin grew its international business with the acquisition of Binotal from Bayer for Latin America and select countries in Central America. Binotal is used for the systemic treatment of a wide range of bacterial infections. Binotal has a strong market position in the region and recorded sales in 2012 in excess of $11 million in Latin America with Mexico and Brazil generating two-thirds of the revenues. Bayer will provide certain distribution support services for an interim period.

During the quarter, Paladin added to its prescription and OTC portfolio with the launch of Silenor and Amniosense. Silenor is indicated for the treatment and symptomatic relief of insomnia and competes in the Canadian prescription sleep aid market which in 2012 was valued at over $90 million(3). In addition, Paladin's OTC portfolio was expanded with the launch of Amniosense, Canada's first and only OTC amniotic fluid leak detection test.

During the second quarter, Paladin expanded its product pipeline with the in-licensing of Urocidin and the NDA for Impavido. Paladin entered into an exclusive license to market and sell Bioniche's phase III bladder cancer treatment Urocidin in Canada, South Africa and Mexico. Furthermore, Paladin submitted a NDA to the FDA for Impavido and was granted priority review status. If approved, Paladin will be authorized to commercialize Impavido in the U.S. and will receive a priority review voucher through the FDA's tropical disease priority review voucher program.

Corporate Developments

During the quarter, Paladin entered into a strategic agreement with Bioniche to refinance and increase its debt for up to US $30 million, provide new equity of up to $0.5 million and license Urocidin. Paladin acquired Bioniche's existing secured debt facility with Capital Royalty Partners II L.P. and its affiliates for approximately US $22 million. In addition, Paladin and Bioniche entered into an amended secured loan transaction whereby Paladin provided an additional US $8 million loan to Bioniche, US $5 million of which was paid upon closing and the remaining US $3 million will be available upon meeting certain conditions. The loan bears an interest rate of 13.25% and will mature on July 1, 2014. Furthermore, Paladin was granted warrants to acquire up to 2 million common shares of Bioniche, in addition to another 1 million warrants which may be issued to Paladin under certain conditions.

Paladin also amended its existing loan agreement with Nuvo and issued a second tranche of $4 million bearing an interest rate of 15%. The amendment includes a third $4 million tranche which may be drawn upon achieving certain conditions, the issuance of up to 100,000 warrants to acquire Nuvo common shares and the right to in-license WF10, Nuvo's immune modulation drug candidate, if certain conditions are met.

During the second quarter, Paladin issued a combined balance of $4.2 million in secured loans to two additional unnamed pharmaceutical companies. Paladin also entered into a license agreement for certain intellectual property and related technology of Labopharm Inc. to Altus Formulation Inc. ("Altus") in exchange for a 35% equity ownership interest, option to in-license and royalty rights on future products developed by Altus.

Subsequent to the quarter, Paladin acquired Allon which was restructured under the Bankruptcy and Insolvency Act (Canada) and under the Canada Business Corporations Act. All pre-existing issued and outstanding shares and other securities of Allon were, pursuant to the Court Order, cancelled without payment or other consideration.

(1)EBITDA - Non-IFRS Financial Measures

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under International Financial Reporting Standards ("IFRS") and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, other expense (income), taxes, depreciation and amortization, foreign exchange gains (losses), share of net income (loss) in associates and joint venture 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 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.

(3) IMS Brogan - moving annual total for the 12 months ended December 31, 2012

(2)Adjusted

The term "adjusted" refers to the proportionate consolidation of Litha and Ativa's results. Given that Litha and Ativa are being accounted for on a consolidated basis, the consolidated results include amounts attributable to minority shareholders. Consequently, adjusted results have been provided to highlight Paladin's 44.54% and 50.01% economic interest in Litha and Ativa, respectively.

Conference Call Notice

Paladin will host a conference call to discuss its second quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-736-4610 or 416-981-9000. The call will be audio-cast live and archived for 30 days at www.paladinlabs.com.

About Paladin Labs Inc.

Paladin Labs Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian and select international markets. With this strategy, a focused Canadian 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, 2012. 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.

INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
As at June 30, 2013 December 31, 2012
ASSETS
Current
Cash and cash equivalents 93,400 118,744
Marketable securities 160,096 146,258
Trade and other receivables 42,934 38,587
Inventories 43,136 37,441
Financial assets 988 -
Income tax receivable 533 5,479
Other current assets 2,171 1,661
Total current assets 343,258 348,170
Investment in associates 696 626
Interest in a joint venture 26,860 30,476
Loans receivable from a joint venture 11,027 11,661
Financial assets 32,534 4,561
Investment tax credits recoverable 22,647 24,840
Deferred income tax assets 21,959 25,402
Property, plant and equipment 8,499 9,754
Intangible assets 119,764 112,851
Goodwill 33,314 36,176
Total assets 620,558 604,517
LIABILITIES AND EQUITY
Current
Bank overdraft 5,790 7,044
Payables, accruals and provisions 56,266 50,165
Current portion of finance lease liability 745 796
Deferred revenue 3,894 2,734
Income tax payable 24,780 24,140
Other balances payable 2,000 2,000
Current portion of long-term liabilities 5,349 5,804
Total current liabilities 98,824 92,683
Finance lease liability 6,201 6,843
Deferred revenue 1,502 1,734
Deferred tax liability 21,359 24,415
Other balances payable 714 -
Long-term liabilities 23,900 28,327
Total liabilities 152,500 154,002
Equity
Share capital 176,964 172,282
Other paid-in capital 6,860 7,039
Other capital reserves (10,069 ) (4,076 )
Retained earnings 232,861 208,461
Attributable to shareholders of the Company 406,616 383,706
Non-controlling interests 61,442 66,809
Total equity 468,058 450,515
Total liabilities and equity 620,558 604,517
INTERIM CONSOLIDATED INCOME STATEMENTS
(In thousands of Canadian dollars except for share and per share amounts)
Three months ended
June 30
Six months ended
June 30
2013 2012 2013 2012
Revenues 67,216 37,136 136,176 75,693
Cost of sales 26,127 9,981 54,535 21,169
Gross income 41,089 27,155 81,641 54,524
Expenses (income)
Selling, general and administrative 15,958 9,044 32,760 16,688
Research and development 2,162 1,879 4,787 4,427
Interest income (1,898 ) (993 ) (3,384 ) (1,889 )
Earnings before under-noted items 24,867 17,225 47,478 35,298
Amortization of intangible assets 4,884 2,903 9,936 5,806
Depreciation of property, plant and equipment 305 26 647 51
Other finance expense 841 340 783 895
Other income (36 ) (717 ) (549 ) (917 )
Foreign exchange (gain) loss (953 ) 192 (402 ) 38
Interest expense 818 14 1,859 16
Share of net (income) loss from a joint venture (157 ) - 859 -
Share of net income from an associates (98 ) (524 ) (89 ) (949 )
Income before income tax 19,263 14,991 34,434 30,358
Provision for income taxes 4,856 4,113 9,477 8,158
Net income for the period 14,407 10,878 24,957 22,200
Attributable to:
Shareholders of the Company 13,621 10,878 24,400 22,200
Non-controlling interests 786 - 557 -
Attributable to shareholders of the Company
Basic earnings per share 0.66 0.54 1.19 1.09
Diluted earnings per share 0.64 0.52 1.16 1.06
Weighted number of shares outstanding
Basic 20,574,460 20,331,736 20,511,366 20,308,241
Diluted 21,127,270 20,926,103 21,080,176 20,992,924
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Three months ended June 30 Six months ended June 30
2013 2012 2013 2012
Operating activities
Net income for the period 14,407 10,878 24,957 22,200
Adjustments reconciling net income to operating cash flows
Amortization of intangible assets 4,884 2,903 9,936 5,806
Deferred tax 773 2,985 4,130 7,358
Share-based compensation expense 1,197 746 1,741 1,327
Other finance expense 841 340 783 895
Other income (36 ) (717 ) (549 ) (717 )
Unrealized foreign exchange (gain) loss (2,292 ) 165 (2,188 ) 230
Depreciation of property, plant and equipment 353 29 730 56
Share of net income from associates (98 ) (524 ) (89 ) (949 )
Share of net (income) loss from a joint venture (157 ) - 859 -
19,872 16,805 40,310 36,206
Net change in non-cash balances related to operations (139 ) (5,165 ) 1,096 (9,683 )
Cash inflow from operating activities 19,733 11,640 41,406 26,523
Investing activities
Disposals and maturities of marketable securities 33,388 75,656 69,834 115,163
Dividends from an associate - 1,637 - 1,637
Proceeds from disposal of financial assets 33 799 68 799
Proceeds from disposal of intangible assets 50 717 50 717
Acquisition of subsidiaries, net of cash acquired - - 9 -
Purchases of marketable securities (31,736 ) (40,478 ) (83,731 ) (77,055 )
Purchases of financial assets (26,908 ) (4,000 ) (29,408 ) (4,000 )
Purchases of intangible assets (22,565 ) (25 ) (23,680 ) (25 )
Purchases of property, plant and equipment (167 ) (106 ) (332 ) (123 )
Payment of other balances payable - (995 ) - (995 )
Net cash (outflow) inflow from investing activities (47,905 ) 33,205 (67,190 ) 36,118
Financing activities
Common shares issued for cash 967 598 3,420 1,169
Increase (decrease) in bank overdraft 2,436 - (727 ) -
Repurchase of shares - (1,458 ) - (2,277 )
Repayment of long-term liabilities (1,070 ) - (2,188 ) -
Payment of obligation under finance lease - (250 ) - (500 )
Net cash inflow (outflow) from financing activities 2,333 (1,110 ) 505 (1,608 )
Foreign exchange rate loss on cash and cash equivalents (42 ) (55 ) (65 ) (66 )
(Decrease) increase in cash and cash equivalents during the period (25,881 ) 43,680 (25,344 ) 60,967
Cash and cash equivalents, beginning of period 119,281 89,402 118,744 72,115
Cash and cash equivalents, end of period 93,400 133,082 93,400 133,082
Paladin cash and cash equivalents 90,107 133,082
Paladin marketable securities 160,096 128,077
Paladin cash, cash equivalents and marketable securities 250,203 261,159
Litha cash and cash equivalents 2,846 -
Litha bank overdraft (5,790 ) -
Litha cash and cash equivalents and bank overdraft (2,944 ) -
Ativa cash and cash equivalents 447 -
Cash, cash equivalents and marketable securities net of bank overdraft 247,706 261,159

Reconciliation of the adjusted(2) consolidated results from operations

Three months ended June 30, 2013 Paladin Litha & Ativa Consolidated results from operations Paladin Litha & Ativa (proportionate consolidation) Adjusted(2) consolidated results from operations
$ $ $ $ $ $
Revenues 40,376 26,840 67,216 40,376 11,955 52,331
Cost of sales 11,348 14,779 26,127 11,348 6,583 17,931
Gross Income 29,028 12,061 41,089 29,028 5,372 34,400
EBITDA(1) 20,928 3,939 24,867 20,928 1,751 22,679
Net income before income taxes 17,803 1,460 19,263 17,803 645 18,448
Net Income 13,016 1,391 14,407 13,016 615 13,631
Net Income attributable to shareholders
13,016

605

13,621

13,016

605

13,620
Six months ended June 30, 2013 Paladin Litha & Ativa Consolidated results from operations Paladin Litha & Ativa (proportionate consolidation) Adjusted(2) consolidated results from operations
$ $ $ $ $ $
Revenues 79,036 57,140 136,176 79,036 25,451 104,487
Cost of sales 22,190 32,345 54,535 22,190 14,407 36,597
Gross Income 56,846 24,795 81,641 56, 846 11,044 67,890
EBITDA(1) 39,813 7,665 47,478 39,813 3,409 43,222
Net income before income taxes 32,786 1,648 34,434 32,786 724 33,510
Net Income 23,864 1,093 24,957 23,864 478 24,342
Net Income attributable to shareholders
23,864

536

24,400

23,864

536

24,400
Contact:
Samira Sakhia, MBA, CPA, CA
Chief Financial Officer
Paladin Labs Inc.
Tel: 514-669-5367
514-344-4675
Email: info@paladinlabs.com
Website: www.paladinlabs.com

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