MISSISSAUGA, ON, Feb. 8 /-/ - DRAXIS Health Inc. (TSX: DAX) (Nasdaq: DRAX) reported strong financial results for the fourth quarter and the year ended December 31, 2006. Higher product sales and improved margins drove fourth quarter and full year performance to record levels. Earnings and net operating cash flows exceeded 2006 targets. Both operating segments improved product sales and operating income in the fourth quarter and the full year 2006, compared to 2005. The Company finished the year with $21.5 million in cash and cash equivalents. All amounts are expressed in US dollars.
Highlights
- Consolidated revenues for the fourth quarter of 2006 were
$24.4 million, up 31% from the fourth quarter of 2005, and for the
full year 2006 were $89.0 million, up 12% over 2005. Product sales of
$23.1 million for the fourth quarter of 2006 were up 34% from the
fourth quarter of 2005 with a product gross margin of 45% compared to
34% in the fourth quarter of 2005.
- Operating income for the fourth quarter of 2006 was $4.3 million,
substantially greater than the $1.0 million in the same quarter of
2005; operating income for the year 2006 was $15.0 million, a
significant 53% improvement over the $9.8 million in 2005. Operating
results in 2005 were negatively affected by an extended scheduled
shutdown in the sterile products area of the contract manufacturing
operations.
- Net income for the fourth quarter of 2006 was $3.7 million (diluted
EPS of 9 cents), triple the $1.1 million (diluted EPS of 3 cents) for
the fourth quarter of 2005; for the year 2006 net income was
$11.5 million (diluted EPS of 28 cents), up 48% from $7.8 million
(diluted EPS of 18 cents) in 2005.
- Net cash flows from operating activities were $5.7 million for the
fourth quarter of 2006 compared to $5.9 million in the same period in
2005; net cash flows for the year 2006 were a record $16.5 million
versus $9.7 million in 2005.
- Cash and cash equivalents at December 31, 2006 were $21.5 million, up
73% from $12.4 million at December 31, 2005, despite expenditures of
$3.3 million to buy back shares plus $5.7 million for capital
expenditures to improve operating efficiencies, increase
manufacturing capacity and upgrade infrastructure, particularly
information technology and SAP platforms.
Comparisons with 2005 should take into account that in 2005 an extended scheduled shutdown severely constrained earnings in the third and fourth quarters, partially offset by a one-time contingent milestone payment that contributed approximately 1.4 cents to EPS for 2005. The inclusion of stock based compensation costs as a non-cash item for the first time in 2006 had the effect of lowering 2006 EPS by 2.3 cents relative to 2005 EPS.
"We had a strong fourth quarter from both our operating businesses with solid growth in product sales and continuing high margins that generated substantial double digit increases in operating income and cash flows, two of the key metrics we use to manage our businesses," said Dr. Martin Barkin, President and CEO of DRAXIS Health. "Overall, 2006 has been a great year for the company, particularly in the second half where we were able to demonstrate that focusing on improving operational efficiencies has resulted in benefits to shareholders in the form of consistent and growing cash flows that directly impact valuation."
Dr. Barkin also noted, "The new products being developed in our radiopharmaceutical unit are gaining recognition from the markets, our customers and potential partners. We intend to continue to allocate the appropriate resources to ensure their success and to identify appropriate partners for these projects. Our contract manufacturing unit is pursuing a number of opportunities to benefit from areas of unused capacity in our Montreal facility."
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FINANCIAL HIGHLIGHTS
(in thousands of U.S. dollars except share related data
and in accordance with U.S. GAAP)
For the Three Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- ------------------------
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES
$ 23,106 $ 17,273 Product sales $ 83,545 $ 72,989
465 562 Royalty and licensing 2,121 3,143
Anipryl(R) deferred
825 825 revenues (Note 1) 3,301 3,301
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$ 24,396 $ 18,660 $ 88,967 $ 79,433
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Research and development
$ 392 $ 512 expense $ 2,372 $ 2,103
$ 10,446 $ 5,844 Product Gross Margin $ 36,462 $ 26,153
45.2% 33.8% Product Gross Margin % 43.6% 35.8%
$ 4,289 $ 973 Operating income $ 14,952 $ 9,764
17.6% 5.2% Operating Margin % 16.8% 12.3%
Cash and cash
$ 21,446 $ 12,390 equivalents $ 21,446 $ 12,390
$ 0 $ 0 Total debt $ 0 $ 0
Cash flows from
$ 5,734 $ 5,918 operating activities $ 16,450 $ 9,717
Cash flows used in
(2,251) (825) investing activities (5,993) (4,380)
$ 3,483 $ 5,093 $ 10,457 $ 5,337
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$ 3,687 $ 1,067 Net income $ 11,547 $ 7,784
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$ 0.09 $ 0.03 Basic income per share $ 0.28 $ 0.19
$ 0.09 $ 0.03 Diluted income per share $ 0.28 $ 0.18
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Note 1. As indicated previously, substantially all deferred revenues
related to the amortization of previously received Anipryl(R) milestones
terminated on December 31, 2006. The amortization of these deferred
revenues has previously resulted in non-cash revenues of $0.8 million per
quarter or $3.3 million per year, which has contributed approximately
7 cents of earnings per share per full year. Earnings per share adjusted
for the exclusion of the Anipryl(R) deferred revenues were approximately
21 cents in 2006. The termination of this source of non-cash revenue and
operating income has no effect on cash flows but will affect year-over-
year comparisons of operating results going forward, including net income
and EPS.
During the fourth quarter, the Company received approval from the Toronto Stock Exchange (TSX) to renew its Normal Course Issuer Bid to repurchase for cancellation up to 3,397,011 of its common shares, which represents 10% of the public float as of December 14, 2006. As at February 7, 2007, 788,800 shares had been repurchased and cancelled at an average price of $4.57 (CDN$5.21) since December 15, 2005.
Segment Highlights from Management's Discussion and Analysis
Contract Manufacturing
- Revenues of $18.3 million for the fourth quarter of 2006 increased by
$5.7 million or 45% over revenues in the fourth quarter of 2005. The
increase in the quarter was driven by increased production of
Hectorol(R) Injection for Genzyme Corporation (Genzyme) together with
increases in lyophilized product production. For the year 2006
product sales increased $10.0 million compared to 2005, driven mainly
by increased revenues related to the production of lyophilized
products and increased demand for sterile products in general from
existing customers.
- Product gross margin increased dramatically to 39% for the fourth
quarter of 2006 compared to 23% for the fourth quarter of 2005. The
increase was driven by increased volumes of sterile and sterile
lyophilized products in the 2006 fourth quarter relative to the 2005
fourth quarter. Product gross margin percentage was negatively
affected by at least 5% in the fourth quarter of 2005 by the extended
shutdown period in 2005. For the year 2006 product gross margin
percentage increased to 36% from 27% in 2005 driven by a higher ratio
of sterile to non-sterile product revenues and the dilutive impact of
the 2005 extended shutdown on product gross margins.
- Operating income for the fourth quarter of 2006 grew to $4.2 million
(23% of revenues) from $0.7 million (5% of revenues) in the fourth
quarter of 2005, driven by increased product sales and higher product
gross margins, partially offset by higher selling, general and
administrative expenses. Operating income for all of 2006 increased
to $13.0 million (20% of revenues) compared to $6.4 million (12% of
revenues) for the same period in 2005.
- Depreciation and amortization of $1.0 million for the fourth quarter
of 2006 was an increase of 20% over the fourth quarter of 2005 and
for the year 2006 depreciation and amortization was $3.7 million, up
19% compared to 2005. These increases were due principally to capital
projects completed in 2005 that increased lyophilization and
autoclave capacity.
Radiopharmaceuticals
- Revenues for the fourth quarter of 2006 were up 14% to $5.6 million
compared to the same period in 2005 (up over 20% after adjusting for
the impact of the divestment of the brachytherapy product line in
late 2005). The increase was primarily due to continued growth in
radioiodine product sales, specifically Sodium Iodide I-131,
including diagnostic capsules, as a result of greater U.S. market
penetration. Revenues of $21.5 million for the year 2006 were 11%
greater than 2005 revenues for the same reasons.
- Product gross margin for the fourth quarter of 2006 increased to 61%
compared to 60% for the same period in 2005 and to 63% for the full
year 2006 compared to 60% for 2005. The increases reflect the
positive impact of Sodium Iodide sales and the strategic focus on
higher margin products which led to the divestment of the
brachytherapy product line in late 2005. The increase in 2006 was
tempered by the strengthening of the Canadian dollar for most of 2006
relative to 2005.
- Operating income in the fourth quarter of 2006 was $1.6 million
compared to operating income in the fourth quarter of 2005 of
$0.6 million ($1.0 million after excluding $0.5 million of one-time
costs related to the divestment of the brachytherapy product line in
late 2005). In addition, operating income increased 47% to
$5.6 million for all of 2006 compared to 2005.
- In November 2006, DRAXIMAGE received approval from the U.S. Food and
Drug Administration (FDA) to run two clinical trials using
radioactive Iobenguane I-131 Injection (I-131 MIBG) to treat high-
risk neuroblastoma, a rare form of cancer that affects mostly infants
and young children.
- On February 2, 2007 DRAXIMAGE announced it had submitted an
Abbreviated New Drug Application (ANDA) to the FDA for its generic
kit for the preparation of Tc-99m Sestamibi for injection
(DRAXIMAGE(R) Sestamibi), a nuclear medicine imaging agent used in
myocardial perfusion imaging (MPI) to evaluate blood flow to the
heart in patients undergoing cardiac tests.
Consolidated Guidance
2006 Guidance Achievements
The Company originally provided earnings per share guidance of between 23 and 27 cents for 2006. In conjunction with the release of the results for the third quarter of 2006, the Company then expected to achieve earnings per share closer to the higher end of its original guidance range. The final results for 2006 not only achieved the higher end of the guidance range but exceeded them by one cent. The Company was able to exceed the guidance range mainly due to strong fourth quarter production performance and the timing of customer demand in the contract manufacturing business as well as foreign exchange gains on U.S. dollar denominated monetary items. The stronger than anticipated volumes in 2006 due to the timing of requirements from our major customers, including Genzyme and GlaxoSmithKline, have resulted in lower preliminary volume forecasts from these customers for 2007 relative to 2006. These preliminary volume forecasts are considered in our guidance range for 2007. The actual volume requirements will be determined by the timing of end user demand and supply chain management decisions and can vary materially from preliminary forecasts. Both factors are outside of the Company's control.
The Company also successfully achieved its net operating cash flows target of at least $15 million by attaining $16.5 million in net operating cash flows for 2006.
2007 Guidance
As indicated previously, substantially all revenues related to the amortization of previously received Anipryl(R) milestones terminated on December 31, 2006. The amortization of these deferred revenues has previously resulted in non-cash revenues of $0.8 million per quarter or $3.3 million per year. The termination of the amortization of deferred revenues had no effect on cash flows but had the impact of contributing 7 cents a share to 2006's reported EPS.
As of February 7, 2007, the forecast information received by the Company from several major customers includes variable factors and assumptions, such as size of requirements and timing of regulatory approvals, that significantly impact overall forecast reliability to a degree that the Company is unable to provide reasonable revenue guidance. However, based on the current information available, earnings per share are expected to range between 23 cents and 27 cents for 2007 as compared with 21 cents in 2006 adjusted for the exclusion of the amortization of Anipryl(R) deferred revenues. This is the same guidance range we gave for 2006 but now excludes approximately 7 cents of EPS from Anipryl(R) deferred revenues.
While the Company does not plan to provide quantitative quarterly guidance, the Company expects the first quarter results for 2007 to be weaker compared to the fourth quarter 2006. The main reason is a delay in receiving component parts related to Hectorol(R) creating a production delay for this product. Due to sufficient customer inventory levels, the delay does not create any issues in the end user market. However, it will have an impact on short-term results of the Company and the contract manufacturing segment. This has been factored into our overall consolidated guidance range.
The Company's formal contractual arrangements with Genzyme for the production of Hectorol(R) will terminate in March 2008. The Company expects continuing production of Hectorol(R) for Genzyme beyond this date. The actual volumes expected to be produced and shipped are dependent on the usual factors affecting end user demand including reimbursement policies and customer supply chain management practices. Accordingly, Hectorol(R) volumes are subject to a high degree of variability between now and 2009. While the Company may continue producing Hectorol(R) over a long-term period, the Company is planning for the eventual phase out of Hectorol(R) volumes over time in its long term plans with such capacity eventually filled by other products and customers.
Since the Anipryl(R) deferred revenues represent a non-cash source of earnings in 2006, net operating cash flow is a reasonable metric to measure growth on a year over year basis. Net operating cash flow is expected to be at least $20 million for 2007 subject, as always, to working capital requirements to support business growth.
Sources of Future Growth
The Company's guidance for 2007 represents core growth in operations. Future additional growth for 2008 and beyond will come from the success of one or more of the many initiatives that have been developed over the past few years and which we continue to develop. The following opportunities do not include any potential merger and/or acquisition activities and are not listed in any particular order as the potential financial impact of each can vary materially over time:
- Conclusion of a strategic alliance with a commercial partner in
Europe for the sales and marketing of the four product files
currently under review by the European regulatory authorities. These
are files for products currently sold in the U.S. or Canada.
- The filing for approval of a generic form of Sestamibi in the U.S.
and in Europe followed by its introduction into those marketplaces.
- Completion of the development of proprietary technology for a second
generation technetium generator and licensing it to others for
distribution.
- Clinical trials for a new formulation of INFECTON(R) targeted to
orthopaedic indications subject to final analysis and recommendations
of an expert panel.
- Submission to the FDA for approval of an improved radiopharmaceutical
(cold kit) product for bone scan imaging and introduction into the
U.S. marketplace.
- Completion of clinical trials for I-131 MIBG for the diagnosis and
treatment of neuroblastoma and related malignancies and its
subsequent sale and distribution in North America.
- Completion of negotiations followed by product transfers for the
manufacture of a new portfolio of non-sterile products.
- Development and approval of additional generic imaging products that
now or will shortly cease to be protected by patent.
- Expansion of manufacturing capacity at the Montreal facility to
accommodate new business opportunities.
Interim Financial Report
This release includes by reference the 2006 fourth quarter and year-ended interim financial report incorporating the full Management's Discussion & Analysis (MD&A) as well as unaudited financial statements for the quarter and the year-ended December 31, 2006 prepared in accordance with U.S. GAAP. The interim report, including the MD&A and unaudited financial statements, has been filed with applicable Canadian and U.S. securities regulatory authorities, is accessible on the Company's website at http://www.draxis.com in the Investor Relations section under Financial Reports, through the databases of SEDAR (at http://www.sedar.com) and EDGAR (at http://www.sec.gov) and is available upon request by contacting DRAXIS Investor Relations at 1-877-441-1984.
Conference Call
DRAXIS has scheduled a conference call to discuss fourth quarter 2006 financial results on February 8, 2007 at 10:00 a.m. (ET). This call can be accessed by dialing 1 (800) 565-5442 and using Access Code 1384644, and will also be webcast live with access through the Company's website at http://www.draxis.com. The conference call will also be available in archived format on the Company's website for 30 days following the conference call.
About DRAXIS Health Inc.
DRAXIS Health, through its wholly owned operating subsidiary, DRAXIS Specialty Pharmaceuticals Inc., provides products in three categories: sterile products, non-sterile products and radiopharmaceuticals. Sterile products include liquid and freeze-dried (lyophilized) injectables plus sterile ointments and creams. Non-sterile products are produced as solid oral and semi-solid dosage forms. Radiopharmaceuticals are used for both therapeutic and diagnostic molecular imaging applications. Pharmaceutical contract manufacturing services are provided through the DRAXIS Pharma division and radiopharmaceuticals are developed, produced, and sold through the DRAXIMAGE division. DRAXIS Specialty Pharmaceuticals Inc. employs approximately 500 staff in its Montreal facility.
For additional information please visit http://www.draxis.com.
Caution Concerning Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from such statements or from any future results or performance implied thereby. Factors which could cause the Company's results or performance to differ materially from a conclusion, forecast or projection in the forward-looking statements include, but are not limited to: the achievement of desired clinical trial results related to the Company's pipeline products; timely regulatory approval of the Company's products; the ability to comply with regulatory requirements applicable to the manufacture and marketing of the Company's products; the Company's ability to obtain and enforce effective patents; the non-infringement of third party patents or proprietary rights by the Company and its products; factors beyond our control which could cause interruptions in our operations in our single manufacturing facility (including, without limitation, material equipment breakdowns); reimbursement policies related to health care; the establishment and maintenance of strategic collaborative and commercial relationships; the Company's dependence on a small number of key customers; the disclosure of confidential information by our collaborators, employees or consultants; the preservation of healthy working relationships with the Company's union and employees; the Company's ability to grow the business; the fluctuation of our financial results and exchange and interest rate fluctuations; the adaptation to changing technologies; the loss of key personnel; the avoidance of product liability claims; the loss incurred if current lawsuits against us succeed; the volatility of the price of our common shares; and market acceptance of the Company's products. For additional information with respect to certain of these and other factors and relating to the Company generally, reference should be made to the Company's most recent Form 20-F filed with the United States Securities and Exchange Commission (available on EDGAR at http://www.sec.gov) and with Canadian securities regulators (available on SEDAR at http://www.sedar.com). The forward-looking statements contained in this document represent the Company's expectations as at February 7, 2007. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
DRAXIS HEALTH INC.
Consolidated Statements of Operations
In Accordance with U.S. GAAP
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(in thousands of U.S. dollars except share related data)
(unaudited)
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- ------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
REVENUES
$ 23,106 $ 17,273 Product sales $ 83,545 $ 72,989
Royalty and
1,290 1,387 licensing 5,422 6,444
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24,396 18,660 88,967 79,433
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EXPENSES
Cost of goods sold,
excluding
depreciation and
12,660 11,429 amortization 47,083 46,836
Selling, general and
5,672 4,526 administration 19,425 16,185
Research and
392 512 development 2,372 2,103
Depreciation and
1,383 1,220 amortization 5,135 4,545
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20,107 17,687 74,015 69,669
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4,289 973 Operating income 14,952 9,764
Financial income
228 - (expense), net 347 (29)
Foreign exchange gain
522 40 (loss) 282 (398)
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5,039 1,013 Income before income taxes 15,581 9,337
(1,352) 54 Income taxes (4,034) (1,553)
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$ 3,687 $ 1,067 Net income $ 11,547 $ 7,784
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$ 0.09 $ 0.03 Basic income per share $ 0.28 $ 0.19
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Diluted income per
------------------
$ 0.09 $ 0.03 share $ 0.28 $ 0.18
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Weighted-average number
of shares outstanding
41,544,683 41,626,094 - basic 41,592,507 41,471,798
41,654,103 42,323,702 - diluted 41,675,682 42,365,782
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See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with
the annual Consolidated Financial Statements.
DRAXIS HEALTH INC.
Consolidated Balance Sheets
In Accordance with U.S. GAAP
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(in thousands of U.S. dollars except share related data)
(unaudited)
December 31, December 31,
2006 2005
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ASSETS
Current assets
Cash and cash equivalents $ 21,446 $ 12,390
Accounts receivable 20,683 16,301
Inventories (Note 3) 7,590 7,629
Prepaid expenses 735 1,003
Deferred income taxes, net 3,179 2,750
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Total current assets 53,633 40,073
Property, plant and equipment, net 46,292 45,652
Goodwill, net 753 754
Intangible assets, net 318 399
Other assets 407 475
Deferred income taxes, net 4,559 8,467
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Total assets $ 105,962 $ 95,820
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 11,756 $ 8,793
Current portion of deferred revenues 329 3,671
Customer deposits 576 649
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Total current liabilities 12,661 13,113
Other liabilities 174 252
Deferred revenues 712 827
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Total liabilities $ 13,547 $ 14,192
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SHAREHOLDERS' EQUITY
Common stock, without par value of unlimited
shares authorized $ 77,749 $ 77,313
Additional paid-in capital 15,475 15,370
Warrants - 916
Deficit (8,234) (19,781)
Accumulated other comprehensive income 7,425 7,810
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Total shareholders' equity 92,415 81,628
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Total liabilities and shareholders' equity $ 105,962 $ 95,820
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See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with
the annual Consolidated Financial Statements.
DRAXIS HEALTH INC.
Consolidated Statements of Changes in Equity and Comprehensive
Income (Loss)
In Accordance with U.S. GAAP
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(in thousands of U.S. dollars except share related data)
(unaudited)
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- -------------------------
2006 2005 2006 2005
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Common Stock
(Number of Shares)
Balance, beginning of
41,882,538 41,602,271 period 41,588,005 41,015,326
105,000 61,334 Exercise of options 647,333 648,279
Repurchased for
(465,400) (75,600) cancellation (713,200) (75,600)
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41,522,138 41,588,005 Balance, end of period 41,522,138 41,588,005
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Common Stock
Balance, beginning of
$ 78,355 $ 77,314 period $ 77,313 $ 75,840
379 154 Exercise of options 1,934 1,628
Repurchased for
(985) (155) cancellation (1,498) (155)
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$ 77,749 $ 77,313 Balance, end of period $ 77,749 $ 77,313
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Additional Paid In
Capital
Balance, beginning of
$ 16,432 $ 15,546 period $ 15,370 $ 15,546
Stock compensation
232 - expense 968 -
Common shares
purchased for
(1,189) (176) cancellation (1,779) (176)
- - Expiry of warrants 916 -
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$ 15,475 $ 15,370 Balance, end of period $ 15,475 $ 15,370
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Warrants
Balance, beginning of
$ - $ 916 period $ 916 $ 916
- - Expiry of warrants (916) -
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$ - $ 916 Balance, end of period $ - $ 916
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Deficit
Balance, beginning of
$ (11,921) $ (20,848) period $ (19,781) $ (27,565)
3,687 1,067 Net income 11,547 7,784
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$ (8,234) $ (19,781) Balance, end of period $ (8,234) $ (19,781)
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Accumulated Other
Comprehensive Income
(Loss)
Balance, beginning of
$ 10,910 $ 7,787 period $ 7,810 $ 5,183
Other comprehensive
(3,485) 23 (loss) income (385) 2,627
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7,425 7,810 Balance, end of period 7,425 7,810
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Total shareholders'
$ 92,415 $ 81,628 equity $ 92,415 $ 81,628
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Comprehensive (Loss)
Income
Foreign currency
translation
$ (3,485) $ 23 adjustments $ (385) $ 2,627
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Other comprehensive
(3,485) 23 (loss) income (385) 2,627
3,687 1,067 Net income 11,547 7,784
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Total comprehensive
$ 202 $ 1,090 income $ 11,162 $ 10,411
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See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with
the annual Consolidated Financial Statements.
DRAXIS HEALTH INC.
Consolidated Statements of Cash Flows
In Accordance with U.S. GAAP
-------------------------------------------------------------------------
(in thousands of U.S. dollars)
(unaudited)
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- -------------------------
2006 2005 2006 2005
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CASH FLOWS FROM (USED
IN) OPERATING
ACTIVITIES
$ 3,687 $ 1,067 Net income $ 11,547 $ 7,784
Adjustments to
reconcile net income
to net cash from
(used in) operating
activities
Amortization of
(1,044) (874) deferred revenues (3,477) (3,701)
Depreciation and
1,383 1,220 amortization 5,135 4,545
Stock-based
232 - compensation 968 -
1,236 (306) Deferred income taxes 3,227 765
640 (84) Incentive arrangement 965 166
(522) (40) Foreign exchange (282) 398
172 62 Other 662 261
Changes in operating
assets and liabilities
(4,944) 1,032 Accounts receivable (4,615) (1,903)
1,142 994 Inventories 44 2,786
493 496 Prepaid expenses 279 (263)
Accounts payable and
3,259 2,351 accrued liabilities 1,997 (1,506)
- - Deferred revenues - 385
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Net cash from (used in)
5,734 5,918 operating activities 16,450 9,717
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CASH FLOWS FROM (USED
IN) INVESTING
ACTIVITIES
Expenditures for
property, plant
(2,090) (825) and equipment (5,656) (4,619)
Increase in
(161) - intangible assets (359) (185)
Proceeds from
disposition of
- - equipment 22 -
- - Restricted cash - 424
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Net cash from (used in)
(2,251) (825) investing activities (5,993) (4,380)
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CASH FLOWS FROM (USED
IN) FINANCING
ACTIVITIES
Decrease from customer
(62) (4) deposits, net (73) (2)
379 154 Exercise of options 1,934 1,628
Common shares purchased
(2,174) (331) for cancellation (3,277) (331)
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Net cash from (used in)
(1,857) (181) financing activities (1,416) 1,295
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Effect of foreign
exchange rate changes
on cash and cash
(71) 129 equivalents 15 (168)
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Net increase in cash
1,555 5,041 and cash equivalents 9,056 6,464
Cash and cash
equivalents,
19,891 7,349 beginning of period 12,390 5,926
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Cash and cash
equivalents,
$ 21,446 $ 12,390 end of period $ 21,446 $ 12,390
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Additional Information
$ - $ - Interest paid $ - $ -
$ - $ 184 Income taxes paid $ 561 $ 804
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See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with
the annual Consolidated Financial Statements
DRAXIS HEALTH INC.
Notes to the Consolidated Financial Statements
In Accordance with U.S. GAAP
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(in thousands of U.S. dollars except share related data)
(unaudited)
1. Significant Accounting Policies
These interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") in
the United States of America.
The functional currency of the Company is the Canadian dollar however
its reporting currency is the U.S. dollar. For the current and prior
periods, the financial statements of the Company's operations whose
reporting currency is other than the U.S. dollar are translated from
such reporting currency to U.S. dollars using the current rate
method. Under the current rate method, assets and liabilities are
translated at the exchange rates in effect at the balance sheet date.
Revenues and expenses, including gains and losses on foreign exchange
transactions, are translated at average rates for the period. The
resulting unrealized translation gains and losses on the Company's
net investment in these operations, including long-term intercompany
advances, are accumulated in a separate component of shareholders'
equity, described in the consolidated balance sheets as accumulated
other comprehensive income.
The disclosures contained in these unaudited interim consolidated
financial statements do not include all requirements of GAAP for
annual financial statements. The unaudited interim consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31,
2005.
The unaudited interim consolidated financial statements are based
upon accounting principles consistent with those used and described
in the audited consolidated financial statements for the year ended
December 31, 2005, other than as noted herein.
The unaudited interim consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary to present fairly the
financial position of the Company as at December 31, 2006 and the
results of operations and cash flows for the three-month periods and
the years ended December 31, 2006 and 2005.
2. Change in Accounting Policy
In December 2004, the Financial Accounting Standards Board ("FASB")
published SFAS # 123R, Share-Based Payments. SFAS # 123R amends
SFAS # 123, Stock-Based Compensation issued in 1995 and supercedes
Accounting Principles Board Opinion ("APB") # 25 issued in 1972.
Beginning on January 1, 2006, the Company applied SFAS # 123R using
a modified version of the prospective application for the stock
options granted. Stock options are granted to employees and directors
at exercise prices equal to the fair market value of the Company's
stock at the dates of grant. Stock options generally vest over 3 or 7
years and have a term of 5 or 10 years. Under the transition method,
Compensation expense is generally recognized over the period during
which an employee is required to provide service in exchange for the
award (usually the vesting period). Compensation cost is recognized
beginning on the required effective date for the portion of
outstanding awards for which the requisite service has not yet been
rendered, based on the grant-date fair value of those awards
calculated under SFAS # 123 for either recognition or pro forma
disclosures. Expense recognized for the three-month period and the
year ended December 31, 2006 was $232 and $968, respectively. As of
December 31, 2006, the total remaining unrecognized compensation cost
related to non-vested stock options amounted to $1,708 which will be
amortized over the weighted-average remaining requisite service
period of 1.9 years. The intrinsic value of stock options exercised
was $125 and $111 for the three-month periods ended December 31, 2006
and 2005, respectively.
If this change in accounting policy had been applied to the previous
fiscal year, the Company's net income, basic income per share and
diluted income per share for the three-month period and the year
ended December 31, 2005 would have been reduced on a pro-forma basis
as follows:
For the Three-Month Period For the Year
Ended December 31, 2005 Ended December 31, 2005
-------------------------- ------------------------
$ 1,067 Net income, as reported $ 7,784
$ (209) Pro forma impact (839)
---------------------------------------------------------------------
$ 858 Pro forma net income $ 6,945
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic net income per
$ 0.03 share, as reported $ 0.19
Pro forma impact per
$ (0.01) share $ (0.02)
---------------------------------------------------------------------
Pro forma net income
$ 0.02 per share (Basic) $ 0.17
Pro forma net income
$ 0.02 per share (Diluted) $ 0.16
---------------------------------------------------------------------
---------------------------------------------------------------------
The estimated fair value of granted stock options for the three-month
periods and the years ended December 31, 2006 and 2005 using the
Black-Scholes option-pricing model with the following weighted-
average assumptions were as follows:
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- -------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
None granted 0.0% Dividend yield 0.0% 0.0%
None granted 55.0% Expected volatility 47.0% 58.0%
Risk-free interest
None granted 3.6% rate 3.9% 3.6%
None granted 8 yrs Expected option life 5 yrs 6 yrs
Fair value per
None granted CDN$3.31 option granted CDN$2.32 CDN$3.40
---------------------------------------------------------------------
---------------------------------------------------------------------
3. Inventories
December 31, December 31,
2006 2005
------------ ------------
Raw materials $ 3,682 $ 4,576
Work-in-process 1,094 1,285
Finished goods 2,814 1,768
---------------------------------------------------------------------
$ 7,590 $ 7,629
---------------------------------------------------------------------
---------------------------------------------------------------------
4. Shareholders' Equity
(a) Stock Option Plan
The following is a summary of common shares issuable pursuant to
outstanding stock options:
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- -------------------------
2006 2005 2006 2005
--------------------------- -------------------------
Balance, beginning
2,372,995 2,651,287 of period 2,652,620 2,753,232
Increase (decrease)
resulting from:
- 80,000 Granted 330,000 565,000
(105,000) (61,334) Exercised (647,333) (648,279)
(10,000) (17,333) Cancelled (26,667) (17,333)
- - Expired (50,625) -
---------------------------------------------------------------------
Balance, end of
2,257,995 2,652,620 period 2,257,995 2,652,620
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable at
1,310,495 1,501,898 December 31 1,310,495 1,501,898
Weighted-average
exercise price of
options:
Outstanding, end
CDN$4.23 CDN$3.94 of period CDN$4.23 CDN$3.94
Exercisable, end
CDN$4.30 CDN$3.65 of period CDN$4.30 CDN$3.65
- CDN$5.38 Granted CDN$5.06 CDN$5.79
CDN$4.14 CDN$2.96 Exercised CDN$3.41 CDN$3.07
CDN$6.65 CDN$5.06 Cancelled CDN$6.20 CDN$5.06
- - Expired CDN$3.33 -
The following table summarizes information about stock options
outstanding at December 31, 2006:
Options Outstanding Options Exercisable
---------------------------------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Contract- Average Number Average
Exercise Number ual Life Exercise Exercis- Exercise
Prices Outstanding (in years) Price able Price
---------------------------------------------------------------------
CDN$2.01 - $2.50 572,995 4.37 CDN$2.36 222,995 CDN$2.35
CDN$2.51 - $3.00 37,500 6.62 CDN$2.63 - -
CDN$3.01 - $3.50 40,000 1.84 CDN$3.25 26,667 CDN$3.25
CDN$3.51 - $4.00 352,500 0.29 CDN$3.88 352,500 CDN$3.88
CDN$4.01 - $4.50 125,000 2.00 CDN$4.30 125,000 CDN$4.30
CDN$4.51 - $5.00 200,000 3.36 CDN$4.70 113,333 CDN$4.70
CDN$5.01 - $6.65 930,000 4.21 CDN$5.50 470,000 CDN$5.49
---------------------------------------------------------------------
2,257,995 3.45 CDN$4.23 1,310,495 CDN$4.30
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Deferred Share Unit Plan
Under the Company's Deferred Share Unit Plan, members of senior
management can elect to receive up to 20% of base salary and up to
100% of any bonus payable in respect of that year in deferred share
units ("DSUs") in lieu of cash compensation. An election must be made
by December 1 of each year in respect of base salary and bonus for
the following year. The elected amount is converted to a number of
DSUs equal to the elected amount divided by the closing price of the
common shares on TSX or NASDAQ on December 31 of each year, based on
a purchase commitment as of December 1 of the prior year.
Participants are not entitled to redeem any DSUs until cessation of
employment with the Company for any reason. The value of DSUs
redeemable by the participants will be equivalent to the market value
of the common share at the time of redemption. The DSUs must be
redeemed no later than the end of the first calendar year commencing
after the date of cessation of employment. The DSU liability is re-
measured at the end of each reporting period based on the market
price of the Company's common stock. The net increase or decrease in
the value of the DSUs is recorded as compensation cost included in
selling, general and administration expense.
The following summarizes the number of DSUs issued and outstanding
and its impact on SG&A:
For the Three-Month Periods For the Years
Ended December 31, Ended December 31,
--------------------------- -------------------------
2006 2005 2006 2005
--------------------------- -------------------------
Balance, beginning
227,604 197,479 of period 199,868 190,313
2,843 2,389 Issued 30,579 9,555
- - Redeemed - -
---------------------------------------------------------------------
Balance, end of
230,447 199,868 period 230,447 199,868
--------------------------------------------------------------------
---------------------------------------------------------------------
DSU (recovery)
$135 ($46) expense ($32) ($117)
---------------------------------------------------------------------
---------------------------------------------------------------------
5. Segmented Information
Industry Segmentation
For purposes of operating decision-making and assessing performance,
management considers that it operates in three segments:
Radiopharmaceuticals, Manufacturing, and Corporate and Other.
Executive management assesses the performance of each segment based
on segment income. The segments, particularly operating segments, are
identified as reporting segments based on the distinct management
teams, customer base, production process and regulatory requirements
of each. The Corporate segment includes revenues earned via royalties
and milestones, inter-segment eliminations and corporate expenses.
The accounting policies used to determine segmented results and
measure segmented assets are the same as those described in the
summary of significant accounting policies in the 2005 annual
Consolidated Financial Statements.
For the Three Month
Periods For the Years
Ended December 31, Ended December 31,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
PRODUCT SALES REVENUES
$ 5,573 $ 4,890 Radiopharmaceuticals $ 21,508 $ 19,290
18,342 12,653 Manufacturing 64,731 54,743
(809) (270) Corporate and Other (2,694) (1,044)
---------------------------------------------------------------------
$ 23,106 $ 17,273 $ 83,545 $ 72,989
---------------------------------------------------------------------
ROYALTY AND LICENSING
REVENUES
$ (7) $ 9 Radiopharmaceuticals $ (3) $ 9
- - Manufacturing - -
1,297 1,378 Corporate and Other 5,425 6,435
---------------------------------------------------------------------
$ 1,290 $ 1,387 $ 5,422 $ 6,444
---------------------------------------------------------------------
TOTAL REVENUES
$ 5,566 $ 4,899 Radiopharmaceuticals $ 21,505 $ 19,299
18,342 12,653 Manufacturing 64,731 54,743
488 1,108 Corporate and Other 2,731 5,391
---------------------------------------------------------------------
$ 24,396 $ 18,660 $ 88,967 $ 79,433
---------------------------------------------------------------------
PRODUCT GROSS MARGIN
$ 3,402 $ 2,924 Radiopharmaceuticals $ 13,433 $ 11,593
7,111 2,937 Manufacturing 23,215 14,628
(67) (17) Corporate and Other (186) (68)
---------------------------------------------------------------------
$ 10,446 $ 5,844 $ 36,462 $ 26,153
---------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATION EXPENSE
$ 1,140 $ 1,548 Radiopharmaceuticals $ 4,380 $ 4,660
1,912 1,416 Manufacturing 6,487 5,086
2,620 1,562 Corporate and Other 8,558 6,439
---------------------------------------------------------------------
$ 5,672 $ 4,526 $ 19,425 $ 16,185
---------------------------------------------------------------------
RESEARCH AND
DEVELOPMENT EXPENSE
$ 392 $ 512 Radiopharmaceuticals $ 2,372 $ 2,103
- - Manufacturing - -
- - Corporate and Other - -
---------------------------------------------------------------------
$ 392 $ 512 $ 2,372 $ 2,103
---------------------------------------------------------------------
SEGMENT INCOME (LOSS)
$ 1,863 $ 873 Radiopharmaceuticals $ 6,678 $ 4,839
5,199 1,521 Manufacturing 16,728 9,542
(1,390) (201) Corporate and Other (3,319) (72)
---------------------------------------------------------------------
$ 5,672 $ 2,193 $ 20,087 $ 14,309
---------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION
$ 286 $ 293 Radiopharmaceuticals $ 1,110 $ 1,047
1,012 844 Manufacturing 3,688 3,105
85 83 Corporate and Other 337 393
---------------------------------------------------------------------
$ 1,383 $ 1,220 $ 5,135 $ 4,545
---------------------------------------------------------------------
OPERATING INCOME (LOSS)
$ 1,577 $ 580 Radiopharmaceuticals $ 5,568 $ 3,792
4,187 677 Manufacturing 13,040 6,437
(1,475) (284) Corporate and Other (3,656) (465)
---------------------------------------------------------------------
$ 4,289 $ 973 $ 14,952 $ 9,764
---------------------------------------------------------------------
---------------------------------------------------------------------
December December
31, 31,
IDENTIFIABLE ASSETS 2006 2005
--------- ---------
Radiopharmaceuticals $ 15,332 $ 12,340
Manufacturing 54,162 52,664
Corporate and Other 36,468 30,816
---------------------------------------------
$105,962 $ 95,820
---------------------------------------------
---------------------------------------------
Geographic Segmentation
For the Three Month
Periods For the Years
Ended December 31, Ended December 31,
--------------------- ---------------------
2006 2005 REVENUES(1) 2006 2005
--------- --------- --------- ---------
$ 10,759 $ 9,787 Canada $ 39,891 $ 39,026
13,336 8,616 United States 47,900 39,612
301 257 Other 1,176 795
---------------------------------------------------------------------
$ 24,396 $ 18,660 $ 88,967 $ 79,433
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Revenues are attributable to countries based upon the location
of the customer.
Long-Lived Assets
Substantially all of the Company's Property, Plant and Equipment,
Goodwill and Intangible Assets are located in Canada.
Expenditures for Property, Plant and Equipment
For the Three Month
Periods For the Years
Ended December 31, Ended December 31,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
$ 493 $ 105 Radiopharmaceuticals $ 1,434 $ 461
1,597 718 Manufacturing 4,222 4,119
- 2 Corporate and Other - 39
---------------------------------------------------------------------
$ 2,090 $ 825 $ 5,656 $ 4,619
---------------------------------------------------------------------
---------------------------------------------------------------------
Product Sales Revenues by Major Product Groups
For the Three Month
Periods For the Years
Ended December 31, Ended December 31,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
$ 5,573 $ 4,890 Radiopharmaceuticals $ 21,508 $ 19,290
Manufacturing -
14,132 9,549 Sterile 51,529 41,488
Manufacturing -
4,210 3,104 Non Sterile 13,202 13,255
36 110 Corporate and Other 295 499
Intercompany
(845) (380) eliminations (2,989) (1,543)
---------------------------------------------------------------------
$ 23,106 $ 17,273 $ 83,545 $ 72,989
---------------------------------------------------------------------
---------------------------------------------------------------------
Major Customers
The major customers disclosed in this table are included in the
Manufacturing segment results.
For the Three Month
Periods For the Years
Ended December 31, Ended December 31,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
23.0% 22.0% Customer A 23.0% 23.0%
22.0% 21.0% Customer B 23.0% 22.0%
11.0% 14.0% Customer C 10.0% 13.0%
---------------------------------------------------------------------
56.0% 57.0% 56.0% 58.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
6. Contingency
In July 2005, a claim was filed before the Ontario Superior Court of
Justice against the Company together with other defendants alleging
that Permax(R), a drug that the Company distributed in Canada for a
third-party manufacturer prior to July 2003, causes
"compulsive/obsessive behaviour, including pathological gambling".
The plaintiff is seeking to have this action certified as a class
action. The Company believes this claim against it is without merit
and intends to vigorously defend this proceeding and any motion for
certification.
7. Comparative Information
The Company has reclassified certain prior period's information to
conform with the current presentation format.
