MISSISSAUGA, ON, Aug. 10 /PRNewswire-FirstCall/ - DRAXIS Health Inc. reported financial results for the second quarter and the first six months ended June 30, 2006. Consolidated revenues and earnings for the quarter were up substantially over the second quarter of last year and results for the first six months of 2006 reflected a return to full production levels. All amounts are expressed in US dollars.
Highlights - Revenues for the second quarter were $24.3 million, up 19% from $20.5 million in the second quarter of 2005; revenues for the first six months were $43.3 million, unchanged from the first half of 2005. - Operating income for the second quarter of 2006 was $5.3 million compared to $2.6 million for the second quarter of 2005; operating income for the first six months of 2006 was $7.2 million, slightly ahead of $7.1 million in the first half of 2005. - Net income for the second quarter of 2006 was $3.6 million, up 52% from the second quarter of 2005; net income for the first six months of 2006 was $5.3 million compared to $5.6 million in the first half of 2005. - Basic and diluted EPS for the second quarter of 2006 were 9 cents versus 6 cents for the second quarter of 2005. Basic and diluted EPS for the first six months of 2006 were 13 cents compared to 14 cents and 13 cents respectively for the first half of 2005. - Net cash flows from operating activities were $1.8 million for the second quarter of 2006 and $4.9 million for the first half 2006, compared to net operating cash flows of $1.2 million and $2.8 million for the same periods respectively in 2005.
Note - results for the first half of 2005 included a milestone of $0.9 million received following a previous transaction with Shire BioChem Inc. and starting January 2006, as required, results for the first half of 2006 include non-cash charges related to stock based compensation plans. Excluding the impact of these two factors, EPS for the first half of 2006 exceeded EPS for the first half of 2005 by approximately 2 cents per share.
“The strong performance achieved in the second quarter of 2006 confirms that we are back to full production and on track to meet our targets for 2006 as we continue to work to achieve our long term growth trajectory going forward,” said Dr. Martin Barkin, President and CEO of DRAXIS Health. “We also achieved substantial margin improvement as a result of a better product mix favouring higher margin products in both business segments coupled with increased productivity in our operating facility. Continued positive net operating cash flows for this quarter and first half have provided us with a strong balance sheet, including cash-on-hand of nearly $15 million.”
“Production has been steady throughout this quarter in our contract manufacturing business, especially for sterile injectable and lyophilized products. Radiopharmaceutical product sales grew 13% for the second quarter, driven primarily by increased sales of Sodium Iodide I-131 products in the United States. The increase in consolidated operating margins was achieved despite the impact of the strengthening of the Canadian dollar during the second quarter of 2006. The divestment of the Brachytherapy product line in late 2005 has also had a positive impact on margins at DRAXIMAGE.”
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 Six-Month Periods Ended June 30, Ended June 30, --------------------------- ------------------------- 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) REVENUES $23,003 $19,176 Product sales $40,651 $39,682 1,262 1,295 Royalty and licensing 2,690 3,634 ------------------------------------------------------------------------- $24,265 $20,471 $43,341 $43,316 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Research and development $633 $552 expense $1,422 $1,119 $11,073 $7,204 Product Gross Margin $17,889 $14,650 48.1% 37.6% Product Gross Margin % 44.0% 36.9% $5,341 $2,594 Operating income $7,240 $7,134 22.0% 12.7% Operating Margin % 16.7% 16.5% $14,881 $7,989 Cash and cash equivalents $14,881 $7,989 $0 $0 Total debt $0 $0 Cash flows from operating $1,768 $1,206 activities $4,858 $2,843 Cash flows used in (1,523) (1,256) investing activities (2,317) (2,197) ------------------------------------------------------------------------- $245 ($50) $2,541 $646 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $3,564 $2,353 Net income $5,256 $5,648 $0.09 $0.06 Basic income per share $0.13 $0.14 $0.09 $0.06 Diluted income per share $0.13 $0.13 -------------------------------------------------------------------------
Cash and cash equivalents at June 30, 2006 were $14.9 million, up $6.9 million from a year ago and up $2.5 million from December 31, 2005, despite spending $1.1 million during the first half to repurchase shares under the Company’s current Normal Course Issuer Bid.
Results for the second quarter of 2006 are consistent with the Company’s expectations at the time guidance for 2006 was initially provided. The Company did not provide nor does it plan to provide quarterly guidance since results can be materially impacted by the quality control and product release process which is independent of when a quarter closes.
Based on the results of the first six months of 2006 combined with customer forecast information received to date, earnings per share are expected to range between 23 cents and 27 cents for 2006. This includes a non-cash charge of 2 cents per share for stock based compensation according to new accounting rules effective January 1, 2006. The Company expects to generate at least $15 million in net operating cash flow in 2006.
Segment Highlights from Management’s Discussion and Analysis Contract Manufacturing - Revenues of $18.3 million for the second quarter of 2006 were $3.7 million or 25% greater than the second quarter of 2005. Revenues for the first half of 2006 were $31.9 million, up slightly by $1.4 million or 5% over the same period in 2005. The increase was due primarily to increased sterile production in the quarter, including significant volume growth in the lyophilized product area. As a result, revenues related to lyophilization in the first six months of 2006 already match lyophilization revenues for all of 2005. - Product gross margin percentage for the second quarter was 42% versus 30% for the second quarter of 2005 and for the first six months was 37% compared to 30% for the first half of 2005. Since March 2006, manufacturing capacity utilization rates in the sterile area were back at levels expected prior to the shutdown issues of late 2005 and actually exceeded previous normalized levels, in part due to the contribution of the second lyophilization unit, which came on line in 2005. - Operating income for the second quarter was $4.9 million in 2006 versus $2.2 million in 2005. For the first six months of 2006 operating income was $6.6 million versus $5.3 million for the first half of 2005. The increases were driven by increased product sales and higher product gross margins as well as increased capacity utilization of sterile and lyophilized product operations. Radiopharmaceuticals - Product sales of $5.4 million for the second quarter of 2006 were 13% higher than sales in the second quarter of 2005 (closer to 20% after adjusting for the impact of the divestment of the Brachytherapy product line in late 2005). Revenues from product sales in the first six months of 2006 were $10.3 million, up 8% over the first half of 2005 primarily as a result of increased sales of radioiodine products, particularly Sodium Iodide I-131 products in the United States. - Product gross margin percentage for the second quarter of 2006 was 61% compared to 60% for the second quarter of 2005 and was 62% for the first six months of 2006 compared to 60% for the first half of 2005. These increases reflect the positive impact of sodium iodide sales and the strategic focus on higher margin products, which no longer includes the Brachytherapy product line that was divested in late 2005. - Operating income in the second quarter was $1.2 million in 2006 compared to $1.0 million in 2005 and for the first six months was $2.2 million in 2006 versus $1.9 million in 2005. These increases were achieved despite research and development expenditures that increased $0.1 million for the quarter and $0.3 million for the first half of 2006 versus 2005 due to the ramping up of product development activities, particularly activities related to Sestamibi and Technetium Generators. - During the first quarter of 2006 DRAXIMAGE received FDA approval for its Sodium Iodide I-131 Capsules USP, Diagnostic-Oral. These diagnostic Sodium Iodide I-131 capsules are intended to be used by physicians to perform radioactive iodide uptake tests to evaluate thyroid function prior to treatment with stronger therapeutic doses of Sodium Iodide I-131. The Company began to introduce the new diagnostic capsules into the U.S. marketplace during the second quarter of 2006 to qualified/approved nuclear physicians and/or radiopharmacists. Interim Financial Report
This release includes by reference the 2006 second quarter interim financial report incorporating the full Management’s Discussion & Analysis (MD&A) as well as financial statements for the quarter and the first six months ended June 30, 2006 prepared in accordance with U.S. GAAP. The 2006 second quarter interim report, including the MD&A and financial statements, has been filed with applicable Canadian and U.S. securities regulatory authorities, is accessible on the Company’s website at www.draxis.com in the Investor Relations section under Financial Reports, through the SEDAR and EDGAR databases 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 second quarter 2006 financial results at 10:00 a.m. (ET) on August 10, 2006. This call can be accessed by dialing 1(800) 565-5442 and using Access Code 2267043, and will also be webcast live with access through the Company’s website at 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 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 www.sec.gov) and with Canadian securities regulators (available on SEDAR at www.sedar.com). The forward-looking statements contained in this document represent the Company’s expectations as at August 9, 2006. 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.
Financial Tables Attached DRAXIS HEALTH INC. Consolidated Statements of Operations In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three-Month For the Six-Month Periods Periods Ended June 30, Ended June 30, ----------------------- ------------------------ 2006 2005 2006 2005 ----------- ----------- ------------ ----------- REVENUES $ 23,003 $ 19,176 Product sales $ 40,651 $ 39,682 1,262 1,295 Royalty and licensing 2,690 3,634 ------------------------------------------------------------------------- 24,265 20,471 43,341 43,316 ------------------------------------------------------------------------- EXPENSES Cost of goods sold, excluding depreciation 11,930 11,972 and amortization 22,762 25,032 Selling, general and 5,131 4,233 administration 9,492 7,873 633 552 Research and development 1,422 1,119 Depreciation and 1,230 1,120 amortization 2,425 2,158 ------------------------------------------------------------------------- 18,924 17,877 36,101 36,182 ------------------------------------------------------------------------- 5,341 2,594 Operating income 7,240 7,134 Financial income 46 3 (expense), net 54 (8) (283) 89 Foreign exchange (loss) gain (238) 58 ------------------------------------------------------------------------- 5,104 2,686 Income before income taxes 7,056 7,184 (1,540) (333) Income taxes (1,800) (1,536) ------------------------------------------------------------------------- $ 3,564 $ 2,353 Net income $ 5,256 $ 5,648 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ 0.09 $ 0.06 Basic income per share $ 0.13 $ 0.14 ---------------------- $ 0.09 $ 0.06 Diluted income per share $ 0.13 $ 0.13 ------------------------ Weighted-average number of shares outstanding 41,413,168 41,510,656 - basic 41,475,457 41,327,771 41,431,704 42,457,776 - diluted 41,587,096 42,305,243 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------ (in thousands of U.S. dollars except share related data) (unaudited) June 30, December 31, 2006 2005 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 14,881 $ 12,390 Accounts receivable 16,464 16,301 Inventories (Note 3) 9,615 7,629 Prepaid expenses 1,972 1,003 Deferred income taxes, net 3,313 2,750 ------------------------------------------------------------------------- Total current assets 46,245 40,073 Property, plant and equipment, net 47,135 45,652 Goodwill, net 786 754 Intangible assets, net 281 399 Other assets 435 475 Deferred income taxes, net 6,848 8,467 ------------------------------------------------------------------------- Total assets $ 101,730 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 7,488 $ 8,793 Current portion of deferred revenues 2,138 3,671 Customer deposits 664 649 ------------------------------------------------------------------------- Total current liabilities 10,290 13,113 Other liabilities 222 252 Deferred revenues 768 827 ------------------------------------------------------------------------- Total liabilities $ 11,280 $ 14,192 ------------------------------------------------------------------------- SHAREHOLDERS’ EQUITY Common stock, without par value, unlimited shares authorized $ 77,779 $ 77,313 Additional paid-in capital 16,184 15,370 Warrants - 916 Deficit (14,525) (19,781) Accumulated other comprehensive income 11,012 7,810 ------------------------------------------------------------------------- Total shareholders’ equity 90,450 81,628 ------------------------------------------------------------------------- Total liabilities and shareholders’ equity $ 101,730 $ 95,820 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three-Month Periods For the Six-Month Periods Ended June 30, Ended June 30, --------------------------- ------------------------- 2006 2005 2006 2005 --------------------------- ------------------------- Common Stock (Number of Shares) Balance, beginning of 41,467,738 41,304,388 period 41,588,005 41,015,326 328,250 295,416 Exercise of options 331,583 584,478 Repurchased for (124,200) - cancellation (247,800) - ------------------------------------------------------------------------- 41,671,788 41,599,804 Balance, end of period 41,671,788 41,599,804 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Common Stock Balance, beginning of $ 77,069 $ 76,598 period $ 77,313 $ 75,840 968 708 Exercise of options 979 1,466 Repurchased for (258) - cancellation (513) - ------------------------------------------------------------------------- $ 77,779 $ 77,306 Balance, end of period $ 77,779 $ 77,306 ------------------------------------------------------------------------- Additional Paid In Capital Balance, beginning of $ 15,303 $ 15,546 period $ 15,370 $ 15,546 248 - Stock compensation 488 - Common shares purchased (283) - for cancellation (590) - 916 - Expiry of warrants 916 - ------------------------------------------------------------------------- $ 16,184 $ 15,546 Balance, end of period $ 16,184 $ 15,546 ------------------------------------------------------------------------- Warrants Balance, beginning of $ 916 $ 916 period $ 916 $ 916 (916) - Expiry of warrants (916) - ------------------------------------------------------------------------- $ - $ 916 Balance, end of period $ - $ 916 ------------------------------------------------------------------------- Deficit Balance, beginning of $ (18,089) $ (24,270) period $ (19,781) $ (27,565) 3,564 2,353 Net income 5,256 5,648 ------------------------------------------------------------------------- $ (14,525) $ (21,917) Balance, end of period $ (14,525) $ (21,917) ------------------------------------------------------------------------- Accumulated Other Comprehensive Income Balance, beginning of $ 7,484 $ 4,927 period $ 7,810 $ 5,183 Other comprehensive 3,528 (1,055) income (loss) 3,202 (1,311) ------------------------------------------------------------------------- 11,012 3,872 Balance, end of period 11,012 3,872 ------------------------------------------------------------------------- Total shareholders’ $ 90,450 $ 75,723 equity $ 90,450 $ 75,723 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Comprehensive Income (Loss) Foreign currency translation $ 3,528 $ (1,055) adjustments $ 3,202 $ (1,311) ------------------------------------------------------------------------- Other comprehensive 3,528 (1,055) income (loss) 3,202 (1,311) 3,564 2,353 Net income 5,256 5,648 ------------------------------------------------------------------------- $ 7,092 $ 1,298 Total comprehensive income $ 8,458 $ 4,337 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Six-Month Periods Ended June 30, Ended June 30, --------------------------- ------------------------- 2006 2005 2006 2005 --------------------------- ------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ 3,564 $ 2,353 Net income $ 5,256 $ 5,648 Adjustments to reconcile net income to net cash from (used in) operating activities Amortization of (825) (952) deferred revenues (1,608) (2,002) Depreciation and 1,230 1,120 amortization 2,425 2,158 Stock-based 248 - compensation 488 - 1,325 228 Deferred income taxes 1,375 1,215 419 33 Other 689 325 Changes in operating assets and liabilities (3,281) (2,132) Accounts receivable 416 (2,799) (480) 677 Inventories (1,617) 1,680 (619) (905) Prepaid expenses (912) (1,111) Accounts payable and 187 734 accrued liabilities (1,654) (2,575) - 50 Deferred revenues - 304 ------------------------------------------------------------------------- Net cash from (used in) 1,768 1,206 operating activities 4,858 2,843 ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for property, plant and (1,523) (1,218) equipment (2,165) (2,012) Increase in intangible - (38) assets (174) (185) Proceeds from disposition of - - equipment 22 - -------------------------------------------------------------------------
