MISSISSAUGA, ON, Aug. 9 /PRNewswire-FirstCall/ -- DRAXIS Health
Inc. (TSX: DAX) (NASDAQ:DRAX) reported financial results for the
second quarter and the first six months ended June 30, 2007.
Consolidated revenues and earnings for the second quarter and the
first half of 2007 were down from the corresponding periods in
2006, but cash flows from operating activities were up
substantially in both periods compared to the second quarter and
first half of 2006. All amounts are expressed in U.S. dollars.
Highlights - Consolidated revenues for the second quarter of 2007
were $19.4 million versus $24.3 million in the second quarter of
2006; six month consolidated revenues were $40.4 million in 2007
and $43.3 million in 2006. Revenues in the quarter were negatively
impacted by lower sterile product sales due to production delays
and raw material supply problems that have since been resolved. -
Operating income for the second quarter of 2007 was $2.5 million
versus $5.3 million in the second quarter of 2006; operating income
for the first six months of 2007 was $5.0 million and in the first
half of 2006 was $7.2 million. - Net income for the second quarter
of 2007 was $1.6 million (diluted EPS of 4 cents) compared to $3.6
million (diluted EPS of 9 cents or 7 cents adjusted diluted EPS -
See Schedule of Supplemental Information) in the second quarter of
2006; net income for the first six months of 2007 was $3.6 million
(diluted EPS of 9 cents or 7 cents adjusted diluted EPS) versus
$5.3 million (diluted EPS of 13 cents or 9 cents adjusted diluted
EPS) in the first half of 2006. 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
earnings per share. - Cash flows from operating activities
increased 42% to $2.6 million for the second quarter and increased
77% to $8.1 million for the first half 2007, compared to operating
cash flows of $1.8 million and $4.6 million respectively for the
same periods in 2006. - Cash and cash equivalents at June 30, 2007
increased to $27.4 million compared to $14.9 million at June 30,
2006, notwithstanding investments during the second quarter and
first half of 2007 for capital projects, including a new warehouse
management system, information technology infrastructure
improvements and new installations to exploit new business
opportunities, particularly in the non-sterile product business
unit. "Our weaker than expected earnings in the second quarter of
2007 were the result of lower sterile product sales together with
other factors that impacted revenues and earnings, although we were
able to record increases in operating cash flows compared to the
second quarter of last year and we increased our cash balance to
over $27 million," said Dr. Martin Barkin, President and CEO of
DRAXIS Health. "The rapid strengthening of the Canadian dollar
versus the US dollar during the quarter adversely affected earnings
by slightly more than 1.5 cents per share. In addition, production
delays prevented the shipment of planned quantities at DRAXIS
Pharma and raw material supply problems meant that product volumes
at DRAXIMAGE were lower than expected." Dr. Barkin continued, "We
have made senior level organizational changes designed to further
streamline the leadership of the organization, with Jean-Pierre
Robert assuming the role of President of DRAXIS Specialty
Pharmaceuticals Inc., our operating subsidiary that encompasses
both our contract manufacturing and radiopharmaceuticals divisions.
Products scheduled and produced by DRAXIS Pharma but not shipped in
the second quarter will be shipped to customers in the third
quarter so we expect some recovery of earnings in that division.
The disruption in the availability of raw material that affected
DRAXIMAGE has been resolved and we have qualified an additional
supplier to avoid any similar raw material shortages in the future.
Prospects for long term growth continue to be favourable,
particularly since we have now filed applications for approval to
market DRAXIMAGE(R) Sestamibi with both US and European regulatory
authorities." FINANCIAL HIGHLIGHTS (in thousands of U.S. dollars
except share related data and in accordance with U.S. GAAP)
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For the Three-Month For the Six-Month Periods Ended June 30,
Periods Ended June 30, -----------------------
------------------------- 2007 2006 2007 2006 (unaudited)
(unaudited) (unaudited) (unaudited) REVENUES $19,048 $23,003
Product sales $38,678 $40,651 Royalty and 359 437 licensing 1,677
1,040 Anipryl(R) deferred 30 825 revenues 60 1,650
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$19,437 $24,265 $40,415 $43,341
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Product Gross $7,396 $11,073 Margin $14,848 $17,889 Product Gross
38.8% 48.1% Margin % 38.4% 44.0% $2,534 $5,341 Operating income
$4,980 $7,240 13.0% 22.0% Operating Margin % 12.3% 16.7% Cash and
cash $27,365 $14,881 equivalents $27,365 $14,881 $0 $0 Total debt
$0 $0 Cash flows from operating $2,570 $1,814 activities $8,103
$4,580 Cash flows used in investing (2,315) (1,523) activities
(5,269) (2,317)
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$255 $291 $2,834 $2,263
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$1,575 $3,564 Net income $3,585 $5,256 Basic earnings $0.04 $0.09
per share $0.09 $0.13 Diluted earnings $0.04 $0.09 per share $0.09
$0.13
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Two significant non-recurring items in the first half of 2007
positively affected financial performance relative to the first
half of 2006. During the first quarter of 2007, the Company
received a non-recurring milestone payment of $0.8 million from
Shire BioChem Inc. and an insurance payment of $0.5 million from a
business interruption insurance claim related to the extended
shutdown period in 2005. The impact of these items on operating
income and earnings per share are included in the Schedule of
Supplemental Information below. Segment Highlights from
Management's Discussion and Analysis Contract Manufacturing -
Revenues of $14 million for the second quarter of 2007 represented
a decrease of $4.7 million or 26% over the second quarter of 2006.
The decrease was due to lower sterile volumes, principally volumes
of Hectorol(R). During the second quarter of 2007, DRAXIS Pharma
experienced production delays that prevented the shipment of
planned quantities before the end of the quarter. Products
scheduled but not shipped in the second quarter of 2007 will be
shipped to customers in the third quarter. - Product gross margin
percentage decreased to 29% in the second quarter of 2007 and 28%
for the first six months of 2007 compared to 42% and 37%
respectively for the same periods of 2006. The decrease was driven
by lower sterile volumes impacting margins through lower plant
utilization and a lower percentage of sterile volumes as part of
the overall product mix. - Operating income of $2.2 million for the
second quarter of 2007 and $3.8 million for the first six months of
2007 were $2.7 million lower compared to the same periods of 2006,
due to lower sterile product volumes, partially offset by a
revaluation of incentive awards based on financial performance. -
Effective July 21, 2007, Mr. Jean-Pierre Robert assumed the role of
President of DRAXIS Specialty Pharmaceuticals Inc. (DSPI), the
Company's wholly owned operating subsidiary that provides products
in three categories: sterile products, non-sterile products and
radiopharmaceutical products. Previously responsible for the
radiopharmaceutical division of DSPI, Mr. Robert now also has
responsibility for the contract manufacturing division of DSPI. -
In May 2007, the Company announced it had received notification
from the U.S. Food and Drug Administration (FDA) that the Company's
manufacturing operations in Montreal continue to maintain their
classification as acceptable facilities following an extensive
inspection by the FDA in January 2007 of all six production and
quality systems for DRAXIS Pharma, the contract manufacturing
division of DSPI. - In May 2007, the Company announced the
appointment of Bruce DeChambre as Vice President Commercial and
Business Development for DRAXIS Pharma. Mr. DeChambre is charged
with identifying prospective customers and developing new business
opportunities. - The Company is in the final stages of securing
significant new non-sterile business. Final contractual
arrangements have yet to be signed but material activities are
underway in preparation for this new business, including capital
installation and product transfer activities with the approval of
the potential customer. The Company has recognized approximately $1
million of revenue related to agreed upon product transfer
activities completed in the second quarter of 2007 and has received
$1.2 million of customer financing in the quarter related to
capital expenditure activities for the project.
Radiopharmaceuticals - Product sales in the second quarter were
$5.9 million representing a 10% increase over the second quarter of
2006; for the first six months of 2007 product sales increased 13%
to $11.6 million, driven mainly by increased sales of Sodium Iodide
I-131 products to U.S. customers and increased cold kit sales. -
Product gross margins in the second quarter of 2007 were 59% of
sales compared to 61% for the second quarter of 2006 and for the
first six months of 2007 product gross margins were 60% versus 62%
for the same period in 2006, due in part to foreign exchange
pressures caused by a stronger Canadian dollar. - Operating income
was $1.2 million in the second quarter of 2007 compared to $1.2
million in the second quarter of 2006. For the first six months of
2007, operating income of $2.5 million represented an increase of
$0.2 million or 11% over the first six months of 2006, primarily
due to volume growth of sodium iodide products and increased cold
kit sales. - In July 2007, the FDA acknowledged the receipt and
acceptance for review of the Abbreviated New Drug Application
(ANDA) for DRAXIMAGE(R) Sestamibi, a generic kit for the
preparation of Tc-99m Sestamibi for Injection, which was submitted
in February 2007. - On July 25, 2007, the Company announced the
filing of DRAXIMAGE(R) Sestamibi with European regulatory
authorities. The filing marked another milestone in the
comprehensive plan to pursue major myocardial perfusion imaging
(MPI) markets globally. Outlook and 2007 Guidance As of August 8,
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. The
following factors have led to the revaluation of our guidance
targets for 2007 subsequent to the second quarter of 2007: - During
the first six months of 2007, the strengthening of the Canadian
dollar from $CDN1.165 per U.S. dollar as at December 31, 2006 to
$CDN1.065 per U.S. dollar as at the end of June 30, 2007 has
resulted in foreign exchange losses for the first six months of
2007 of approximately 1.5 cents per share. - During the second
quarter of 2007, a significant disruption in the availability of
I-131 raw material from the supplier impacted the earnings of the
Company by approximately 1 cent per share. - Based on the latest
information received from Genzyme Corporation (Genzyme), the
Company expects Hectorol(R) volumes in 2007 to be approximately $9
million lower compared with what they were in 2006 and lower than
what was originally forecasted for in 2007. It is our understanding
that these volumes could still vary materially either positively or
negatively as a result of customer demand. The lower than expected
volumes from Genzyme have offset the positive impact of increased
volumes related to new business activities taking place during 2007
within our contract manufacturing division. Due to the lower than
expected financial performance for 2007 resulting from factors
described above, the Company has revised its 2007 guidance
downwards from a range of 23 to 27 cents per share to 18 to 21
cents per share as compared with 21 cents in 2006 adjusted for the
exclusion of the amortization of Anipryl(R) deferred revenues.
Given the reduced underlying earnings, we now expect cash flows
from operating activities to be at least $18 million as compared
with our original target of at least $20 million for 2007. Our
financial performance in the second quarter of 2007 is not expected
to negatively impact the long term financial performance of the
Company. Significant key milestones have already been achieved in
2007 consistent with the sources of future growth detailed below.
The Company's formal contractual arrangements with Genzyme for the
production of Hectorol(R) were to terminate in March 2008, provided
that notification of termination was received by the Company prior
to March 2007. Such notification of termination was not received
and, consequently, the contractual arrangement will remain in place
until March 2009 and 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. Sources of Future Growth The Company's guidance for
2007 assumes core growth in operations. We expect that 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
potential 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 products
currently under review by the European regulatory authorities.
These products are currently sold in the U.S. or Canada. - The
review and 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. Schedule of Supplemental
Information
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Reconciliation from reported operating income and diluted EPS to
adjusted operating income and diluted EPS (in thousands of U.S.
dollars except share related data and in accordance with U.S. GAAP)
For the Three-Month Periods Ended June 30,
----------------------------- 2007 2006 % Change Operating Income -
Reported $2,534 $5,341 (52.6%) Adjustments: (a) Non-recurring Shire
milestone receipt(2) - - (b) Insurance proceeds(3) - - (c) DSU
expense (recovery)(4) (221) (45) 391.1% Anipryl(R) deferred
revenues (30) (825) (96.4%)
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Operating Income - Adjusted(1) $2,283 $4,471 (48.9%)
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Diluted EPS - Reported Adjustments: (a) Non-recurring Shire
milestone receipt(2) $0.04 $0.09 (b) Insurance proceeds(3) - - (c)
DSU expense (recovery)(4) - - Anipryl(R) deferred revenues - (0.02)
----------------------------------------------------------
---------------------------------------------------------- For the
six-Month Periods Ended June 30, ----------------------------- 2007
2006 % Change Operating Income - Reported $4,980 $7,240 (31.2%)
Adjustments: (a) Non-recurring Shire milestone receipt(2) (791) -
(b) Insurance proceeds(3) (517) - (c) DSU expense (recovery)(4) 127
(183) (169.4%) Anipryl(R) deferred revenues (60) (1,650) (96.4%)
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Operating Income - Adjusted(1) $3,739 $5,407 (30.8%)
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Diluted EPS - Reported $0.09 $0.13 Adjustments: (a) Non-recurring
Shire milestone receipt(2) (0.01) - (b) Insurance proceeds(3)
(0.01) - (c) DSU expense (recovery)(4) - - Anipryl(R) deferred
revenues - (0.04)
----------------------------------------------------------
Operating Income - Adjusted(1) $0.07 $0.09
---------------------------------------------------------- (1)
"Adjusted Operating Income" and "Adjusted Diluted EPS" are defined
as reported operating income and diluted EPS excluding certain
items. Management uses adjusted operating income, among other
factors to set performance goals and to measure the performance of
the overall Company. The Company believes that investors'
understanding of our performance is enhanced by disclosing this
measure. (2) The Company became entitled to and received
non-recurring contingent milestone payments from Shire BioChem Inc.
(3) Insurance proceeds related to a business interruption claim
filed resulting from equipment damage during 2005 shutdown period.
(4) Reflects the change in the value of Deferred Share Unit Plan
based on the market price of the Company's common stock. See Note 7
of accompanying interim financial statements. Interim Financial
Report This release includes by reference the second quarter
interim financial report incorporating the full Management's
Discussion & Analysis (MD&A) as well as financial
statements for the quarter ended June 30, 2007, prepared in
accordance with U.S. GAAP. The interim financial report, including
the MD&A and financial statements, has been filed with
applicable Canadian and U.S. securities regulatory authorities and
is accessible on the Company's website at http://www.draxis.com/ in
the Investor Relations section under Financial Reports. It is also
available, on the SEDAR (at http://www.sedar.com/) and EDGAR (at
http://www.sec.gov/) databases or upon request by contacting DRAXIS
Investor Relations at 1-877-441-1984. Conference Call DRAXIS has
scheduled a conference call to discuss second quarter 2007
financial results at 10 a.m. (ET) on August 9, 2007. This call can
be accessed by dialing 1 (800) 819-9193 (Access Code 7481512) 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 website for 30 days following
the conference call. About DRAXIS Health Inc. DRAXIS Health,
through its wholly owned operating subsidiary, DRAXIS Specialty
Pharmaceuticals Inc. (DSPI), 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 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 Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as
contemplated under other applicable securities legislation. These
statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue," "plan," "intend," "believe" or other
similar words. These statements discuss future expectations
concerning results of operations or financial condition or provide
other forward-looking information. Our actual results, performance
or achievements could be significantly different from the results
expressed in, or implied by, those forward-looking statements. You
should not place undue reliance on any forward-looking statement,
which speaks only as of the date made. 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 that 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 that 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; - market acceptance
of the Company's products; and - the risks described in "Item 3.
Key Information - Risk Factors" in the Annual Report Form 20-F
filed by the Company with the United States Securities and Exchange
Commission and which is also filed as the Company's Annual
Information Form with Canadian securities regulators. For
additional information with respect to certain of these and other
factors, and relating to the Company generally, reference is made
to the Company's most recent filings with the United States
Securities and Exchange Commission (available on EDGAR at
http://www.sec.gov/) and the filings made by the Company with
Canadian securities regulators (available on SEDAR at
http://www.sedar.com/). The forward-looking statements contained in
this new release represent the Company's expectations as at August
8, 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. Financial Tables Attached
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 For the Six-Month Periods Ended
June 30, Periods Ended June 30, -------------------------
------------------------- 2007 2006 2007 2006 -----------
------------ ----------- ------------ REVENUES $ 19,048 $ 23,003
Product sales $ 38,678 $ 40,651 Royalty and 389 1,262 licensing
1,737 2,690
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19,437 24,265 40,415 43,341
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EXPENSES Cost of goods sold, excluding depreci- ation and amortiz-
11,652 11,930 ation (Note 3) 23,830 22,762 Selling, general 3,151
5,131 and administratio 7,335 9,492 Research and 694 633
development 1,618 1,422 Depreciation and 1,406 1,230 amortization
2,652 2,425
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16,903 18,924 35,435 36,101
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2,534 5,341 Operating income 4,980 7,240 172 46 Financing income,
net 358 54 (882) (283) Foreign exchange loss (990) (238)
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Income before income 1,824 5,104 taxes 4,348 7,056 (249) (1,540)
Income taxes (763) (1,800)
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$ 1,575 $ 3,564 Net income $ 3,585 $ 5,256
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Basic earnings per $ 0.04 $ 0.09 share (Note 4) $ 0.09 $ 0.13
Diluted earnings $ 0.04 $ 0.09 per share (Note 4) $ 0.09 $ 0.13
Weighted-average number of shares outstanding 42,030,246 41,413,168
- basic 41,883,247 41,475,457 42,396,140 41,431,704 - diluted
42,143,527 41,587,096
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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) June 30, December 31, 2007 2006 -------------
------------- ASSETS Current assets Cash and cash equivalents $
27,365 $ 21,446 Accounts receivable 15,409 20,683 Inventories (Note
5) 8,383 7,590 Prepaid expenses 2,124 735 Deferred income taxes,
net 3,918 3,179
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Total current assets 57,199 53,633 Accounts receivable, long term
1,165 - Property, plant and equipment, net 52,859 46,292 Goodwill,
net 823 753 Intangible assets, net 208 318 Other assets 447 407
Deferred income taxes, net 4,103 4,559
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Total assets $ 116,804 $ 105,962
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LIABILITIES Current liabilities Accounts payable and accrued
liabilities (Note 6) $ 8,042 $ 10,940 Current portion of deferred
revenues 174 329 Customer deposits 361 576
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Total current liabilities 8,577 11,845 Other liabilities 242 990
Deferred revenues 653 712 Customer financing 1,200 -
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Total liabilities $ 10,672 $ 13,547
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SHAREHOLDERS' EQUITY Common stock, without par value of unlimited
shares authorized $ 79,588 $ 77,749 Additional paid-in capital
15,915 15,475 Deficit (4,649) (8,234) Accumulated other
comprehensive income 15,278 7,425
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Total shareholders' equity 106,132 92,415
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Total liabilities and shareholders' equity $ 116,804 $ 105,962
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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 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 Ended
June 30, Periods Ended June 30, -------------------------
-------------------------- 2007 2006 2007 2006
------------------------- -------------------------- Common Stock
(Number of Shares) Balance, beginning 41,984,639 41,467,738 of
period 41,522,138 41,588,005 Exercise of 72,999 328,250 options
535,500 331,583 Repurchased for - (124,200) cancellation -
(247,800)
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Balance, end of 42,057,638 41,671,788 period 42,057,638 41,671,788
-------------------------------------------------------------------------
Common Stock Balance, beginning $ 79,202 $ 77,069 of period $
77,749 $ 77,313 255 968 Exercise of options 1,708 979 Fair values
of 131 - options exercised 131 - Repurchased for - (258)
cancellation - (513)
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Balance, end of $ 79,588 $ 77,779 period $ 79,588 $ 77,779
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Additional Paid In Capital Balance, beginning $ 15,756 $ 15,303 of
period $ 15,475 $ 15,370 Stock-based 290 248 compensation 571 488
Fair values of (131) - options exercised (131) - Common shares
purchased - (283) for cancellation - (590) - 916 Expiry of warrants
- 916
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Balance, end of $ 15,915 $ 16,184 period $ 15,915 $ 16,184
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Warrants Balance, beginning $ - $ 916 of period $ - $ 916 - (916)
Expiry of warrants - (916)
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Balance, end $ - $ - of period $ - $ -
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Deficit Balance, beginning $ (6,224) $ (18,089) of period $ (8,234)
$ (19,781) 1,575 3,564 Net income 3,585 5,256
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Balance, end of $ (4,649) $ (14,525) period $ (4,649) $ (14,525)
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Accumulated Other Comprehensive Income Balance, beginning $ 8,216 $
7,484 of period $ 7,425 $ 7,810 Other comprehensive 7,062 3,528
income 7,853 3,202
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Balance, end 15,278 11,012 of period 15,278 11,012
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Total shareholders' $ 106,132 $ 90,450 equity $ 106,132 $ 90,450
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Comprehensive Income Foreign currency translation $ 7,062 $ 3,528
adjustments $ 7,853 $ 3,202 1,575 3,564 Net income 3,585 5,256
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Total comprehensive $ 8,637 $ 7,092 income $ 11,438 $ 8,458
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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
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(in thousands of U.S. dollars) (unaudited) For the Three-Month For
the Six-Month Periods Ended June 30, Periods Ended June 30,
----------------------- ------------------------- 2007 2006 2007
2006 ----------------------- ------------------------- CASH FLOWS
FROM (USED IN) OPERATING ACTIVITIES $ 1,575 $ 3,564 Net income $
3,585 $ 5,256 Adjustments to reconcile net income to net cash from
(used in) operating activities Amortization of (30) (825) deferred
revenues (60) (1,608) Depreciation and 1,406 1,230 amortization
2,652 2,425 Stock-based 290 248 compensation 571 488 19 1,325
Deferred income taxes 372 1,375 882 283 Foreign exchange 990 238
Deferred Share Unit expense (recovery) (221) (45) (Note 7) 127
(183) 178 227 Other 354 356 Changes in operating assets and
liabilities 3,147 (3,281) Accounts receivable 6,786 416 Accounts
receivable, (1,165) - long term (1,165) - (554) (480) Inventories
(102) (1,617) (762) (619) Prepaid expenses (1,246) (912) Accounts
payable and (1,629) 187 accrued liabilities (3,805) (1,654) (566) -
Other liabilities (798) - - - Deferred revenues (158) -
-------------------------------------------------------------------------
Net cash from (used in) 2,570 1,814 operating activities 8,103
4,580
-------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for
property, plant (2,315) (1,523) and equipment (5,095) (2,165)
Increase in - - intangible assets (174) (174) Proceeds from
disposition of - - equipment - 22
-------------------------------------------------------------------------
Net cash from (used in) (2,315) (1,523) investing activities
(5,269) (2,317)
-------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from 1,200
- customer financing 1,200 - Repayment of customer (97) - deposits
(135) (11) 255 968 Exercise of options 1,708 979 Common shares
purchased for - (541) cancellation - (1,103)
-------------------------------------------------------------------------
Net cash from (used in) 1,358 427 financing activities 2,773 (135)
-------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash and cash 257 77
equivalents 312 363
-------------------------------------------------------------------------
Net increase in cash 1,870 795 and cash equivalents 5,919 2,491
Cash and cash equivalents, 25,495 14,086 beginning of period 21,446
12,390
-------------------------------------------------------------------------
Cash and cash equivalents, end $ 27,365 $ 14,881 of period $ 27,365
$ 14,881
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional Information $ - $ - Interest paid $ - $ - $ - $ 450
Income taxes paid $ 203 $ 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
(in thousands of U.S. dollars except share related data)
(unaudited) 1. Significant Accounting Policy 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, 2006. 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,
2006, 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 June 30, 2007 and the results of
operations and cash flows for the six-month periods ended June 30,
2007 and 2006. 2. Change in Accounting Policy On January 1, 2007,
the Company adopted Financial Accounting Standards Board
Interpretation # 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 prescribes a minimum recognition threshold that
a tax position is required to meet before being recognized in the
financial statements and provides guidance on derecognition,
measurement classification, interest and penalties, accounting in
interim periods, disclosure and transition matters. The adoption of
FIN 48 did not impact the Company's consolidated financial
position, results of operations or cash flows. The Company's policy
is to recognize interest related to unrecognized tax benefits and
penalties as financial expense. There were no interest or penalties
accrued at June 30, 2007. As at January 1, 2007, the Company had
provided $1.0 million of valuation allowance in the deferred tax
asset accounts with respect to the tax filing position taken
related to the disposition of assets in prior years. The
uncertainty arises from the fact that the tax treatment taken is
subject to interpretation and it was more likely than not at the
time of filing that the position would be successfully challenged
by the taxation authorities. If the filing position is accepted by
the taxation authorities, the provision would be reversed into
income as a reduction in deferred income tax expense in the year of
acceptance. The Company expects this matter to be resolved during
2008. The Company has not recorded any increases and decreases in
unrecognized tax benefits as a result of tax positions taken during
the current period. The Company and its subsidiaries income tax
returns are subject to examination by tax authorities for the years
ending December 31, 1999 through December 31, 2006. There are no
other items of a material nature in accounts with respect to
uncertainty in income taxes. 3. Cost of Goods Sold In the first
quarter of 2007, DRAXIS received insurance proceeds of $517 in
settlement of business interruption losses related to the extended
shutdown in the third quarter of 2005. No accrual for insurance
proceeds had been previously recorded as the claim represented a
contingent gain. The proceeds were recognized as a reduction to
cost of goods sold in the first quarter of 2007. 4. Earnings per
Share Basic earnings per common share is calculated by dividing the
net income by the weighted-average number of the Company's common
shares outstanding during the period. Diluted earnings per common
share is calculated by dividing the net income by the sum of the
weighted- average number of common shares that would have been
outstanding if potentially dilutive common shares had been issued
during the period. The treasury stock method is used to compute the
dilutive effect of stock options. The calculation of diluted
earnings per common share excludes any potential conversion of
options that would increase earnings per share. The following table
sets forth the computation of basic and diluted earnings per share:
For the Three-Month For the Six-Month Periods Ended June 30,
Periods Ended June 30, -------------------------
------------------------- 2007 2006 2007 2006
------------------------- ------------------------- Numerator: $
1,575 $ 3,564 Net income $ 3,585 $ 5,256 Denominator:
Weighted-average number of common shares outstanding - 42,030,246
41,413,168 basic 41,883,247 41,475,457 Weighted- average effect of
dilutive securities - 365,894 18,536 stock options 260,280 111,639
---------------------------------------------------------------------
Weighted-average number of common shares outstanding - 42,396,140
41,431,704 diluted 42,143,527 41,587,096
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic earnings $ 0.04 $ 0.09 per share $ 0.09 $ 0.13 Diluted
earnings $ 0.04 $ 0.09 per share $ 0.09 $ 0.13
---------------------------------------------------------------------
---------------------------------------------------------------------
5. Inventories June 30, 2007 December 31, 2006
---------------------------------------------------------------------
Raw materials $ 3,932 $ 3,682 Work-in-process 591 1,094 Finished
goods 3,860 2,814
---------------------------------------------------------------------
$ 8,383 $ 7,590
---------------------------------------------------------------------
---------------------------------------------------------------------
6. Accounts Payable and Accrued Liabilities June 30, 2007 December
31, 2006
---------------------------------------------------------------------
Trade $ 4,181 $ 4,688 Accrued liabilities 1,119 905
Employee-related items 2,742 5,347
---------------------------------------------------------------------
$ 8,042 $ 10,940
---------------------------------------------------------------------
---------------------------------------------------------------------
7. Shareholders' Equity Stock Option Plan The following is a
summary of the number of common shares issuable pursuant to
outstanding stock options: For the Three-Month For the Six-Month
Periods Ended June 30, Periods Ended June 30,
------------------------ ------------------------- 2007 2006 2007
2006 ------------------------ ------------------------- Balance,
beginning of 2,215,494 2,922,120 period 2,257,995 2,652,620
Increase (decrease) resulting from: - - Granted 420,000 330,000
(72,999) (328,250) Exercised (535,500) (331,583) (6,667) -
Cancelled (6,667) (16,667) - (10,125) Expired - (50,625)
---------------------------------------------------------------------
Balance, end of 2,135,828 2,583,745 period 2,135,828 2,583,745
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable at 725,550 1,303,579 June 30 725,550 1,303,579 As of
June 30: Remaining unrecognized compensation cost related to
non-vested stock options $1,943 $2,241 Weighted-average remaining
requisite service period 2.0 years 2.4 years Weighted-average
exercise price of options: Outstanding, CDN$4.65 CDN$4.14 end of
period CDN$4.65 CDN$4.14 Exercisable, CDN$4.66 CDN$3.89 end of
period CDN$4.66 CDN$3.89 - - Granted CDN$5.69 CDN$5.06 CDN$3.87
CDN$3.38 Exercised CDN$3.70 CDN$3.39 CDN$4.70 - Cancelled CDN$4.70
CDN$5.93 - CDN$3.36 Expired - CDN$3.33 The following table
summarizes information about stock options outstanding at June 30,
2007: Options Outstanding
-------------------------------------------------- Weighted-
Average Remaining Weighted- Aggregate Contractual Average Intrinsic
Range of Exercise Number Life Exercise Value Prices Outstanding (in
years) Price ($000's) CDN$2.01-$2.50 454,994 4.73 CDN$2.35
CDN$1,821 CDN$2.51-$3.00 37,500 6.12 CDN$2.63 CDN$138
CDN$3.01-$3.50 15,000 1.35 CDN$3.25 CDN$46 CDN$3.51-$4.00 30,000
0.12 CDN$3.66 CDN$80 CDN$4.01-$4.50 125,000 1.51 CDN$4.30 CDN$251
CDN$4.51-$5.00 180,000 2.95 CDN$4.70 CDN$290 CDN$5.01-$6.65
1,293,334 4.11 CDN$5.57 CDN$958
-------------------------------------------------- 2,135,828 3.96
CDN$4.65 CDN$3,583
--------------------------------------------------
-------------------------------------------------- Options
Exercisable --------------------------------------------------
Weighted- Average Remaining Weighted- Aggregate Contractual Average
Intrinsic Range of Exercise Number Life Exercise Value Prices
Exercisable (in years) Price ($000's) CDN$2.01-$2.50 104,994 0.53
CDN$2.33 CDN$438 CDN$2.51-$3.00 - - - - CDN$3.01-$3.50 10,000 1.35
CDN$3.25 CDN$31 CDN$3.51-$4.00 30,000 0.12 CDN$3.66 CDN$80
CDN$4.01-$4.50 125,000 1.51 CDN$4.30 CDN$251 CDN$4.51-$5.00 100,000
2.12 CDN$4.70 CDN$161 CDN$5.01-$6.65 355,556 2.85 CDN$5.55 CDN$271
-------------------------------------------------- 725,550 2.05
CDN$4.66 CDN$1,232
--------------------------------------------------
-------------------------------------------------- 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 For the Six-Month
Periods Ended June 30, Periods Ended June 30,
------------------------ ------------------------- 2007 2006 2007
2006 ------------------------ ------------------------- Balance,
beginning 230,018 223,308 of period 230,447 199,868 - 2,148 Issued
- 25,588 - - Cancelled (429) -
---------------------------------------------------------------------
Balance, end of 230,018 225,456 period 230,018 225,456
---------------------------------------------------------------------
---------------------------------------------------------------------
DSU expense ($221) ($45) (recovery) $127 ($183)
---------------------------------------------------------------------
---------------------------------------------------------------------
8. 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 are identified as reporting segments based on the
distinct management teams, customer base, production process and
regulatory requirements of each. The Corporate and Other 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 2006 annual Consolidated
Financial Statements. For the Three-Month For the Six-Month Periods
Ended June 30, Periods Ended June 30, -------------------------
------------------------- 2007 2006 2007 2006
------------------------- ------------------------- PRODUCT SALES
REVENUES Radiopharmaceut- $ 5,877 $ 5,368 icals $ 11,634 $ 10,267
13,535 18,277 Manufacturing 27,770 31,854 Corporate and (364) (642)
Other (726) (1,470)
---------------------------------------------------------------------
$ 19,048 $ 23,003 $ 38,678 $ 40,651
---------------------------------------------------------------------
ROYALTY AND LICENSING REVENUES Radiopharmaceut- $ - $ (22) icals $
- $ 4 - - Manufacturing - - Corporate and 389 1,284 Other 1,737
2,686
---------------------------------------------------------------------
$ 389 $ 1,262 $ 1,737 $ 2,690
---------------------------------------------------------------------
TOTAL REVENUES LICENSING REVENUES Radiopharmaceut- $ 5,877 $ 5,346
icals $ 11,634 $ 10,271 13,535 18,277 Manufacturing 27,770 31,854
Corporate and 25 642 Other 1,011 1,216
---------------------------------------------------------------------
$ 19,437 $ 24,265 $ 40,415 $ 43,341
---------------------------------------------------------------------
PRODUCT GROSS MARGIN Radiopharmaceut- $ 3,448 $ 3,295 icals $ 7,031
$ 6,360 3,910 7,743 Manufacturing 7,754(1) 11,617 Corporate and 38
35 Other 63 (88)
---------------------------------------------------------------------
$ 7,396 $ 11,073 $ 14,848 $ 17,889
---------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRAT- ION EXPENSE Radiopharmaceut- $
1,290 $ 1,143 icals $ 2,378 $ 2,161 734 1,993 Manufacturing 2,031
3,345 Corporate and 1,127 1,995 Other(2) 2,926 3,986
---------------------------------------------------------------------
$ 3,151 $ 5,131 $ 7,335 $ 9,492
---------------------------------------------------------------------
RESEARCH AND DEVELOPMENT EXPENSE Radiopharmaceut- $ 694 $ 633 icals
$ 1,618 $ 1,422 - - Manufacturing - - Corporate and - - Other(2) -
-
---------------------------------------------------------------------
$ 694 $ 633 $ 1,618 $ 1,422
---------------------------------------------------------------------
SEGMENT INCOME (LOSS)(3) Radiopharmaceut- $ 1,464 $ 1,497 icals $
3,035 $ 2,781 3,176 5,750 Manufacturing 5,723(1) 8,272 Corporate
and (700) (676) Other (1,126) (1,388)
---------------------------------------------------------------------
$ 3,940 $ 6,571 $ 7,632 $ 9,665
---------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION Radiopharmaceut- $ 294 $ 285 icals $
567 $ 549 1,025 860 Manufacturing 1,916 1,708 Corporate and 87 85
Other 169 168
---------------------------------------------------------------------
$ 1,406 $ 1,230 $ 2,652 $ 2,425
---------------------------------------------------------------------
OPERATING INCOME (LOSS)(4) Radiopharmaceut- $ 1,170 $ 1,212 icals $
2,468 $ 2,232 2,151 4,890 Manufacturing 3,807(1) 6,564 Corporate
and (787) (761) Other (1,295) (1,556)
---------------------------------------------------------------------
$ 2,534 $ 5,341 $ 4,980 $ 7,240
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Includes $517 of insurance proceeds related to a business
interruption claim filed resulting from equipment damage during
2005 shutdown period. (2) Stock-based compensation expense was
recorded in SG&A in the amount of $290 in Q2, 2007 (Q2, 2006 -
$248). (3) Segment income (loss) before depreciation and
amortization, financing income, foreign exchange loss and income
taxes. (4) Segment income (loss) before financing income, foreign
exchange loss and income taxes. IDENTIFIABLE ASSETS Jun. 30,
December 31, 2007 2006 -------------- --------------
Radiopharmaceuticals $ 17,789 $ 15,332 Manufacturing 56,410 54,162
Corporate and Other 42,605 36,468
---------------------------------------------------------------------
$ 116,804 $ 105,962
---------------------------------------------------------------------
---------------------------------------------------------------------
Geographic Segmentation For the Three-Month For the Six-Month
Periods Ended June 30, Periods Ended June 30,
------------------------- ------------------------- 2007 2006 2007
2006 ------------------------- -------------------------
REVENUES(1) $ 9,225 $ 9,911 Canada $ 18,971 $ 18,895 9,466 14,073
United States 19,997 23,896 746 281 Other 1,447 550
---------------------------------------------------------------------
$ 19,437 $ 24,265 $ 40,415 $ 43,341
---------------------------------------------------------------------
---------------------------------------------------------------------
(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 For the Six-Month Periods Ended June
30, Periods Ended June 30, -------------------------
------------------------- 2007 2006 2007 2006
------------------------- -------------------------
Radiopharmaceut- $ 219 $ 463 icals $ 554 $ 692 2,096 1,060
Manufacturing 4,541 1,473 Corporate and - - Other - -
---------------------------------------------------------------------
$ 2,315 $ 1,523 $ 5,095 $ 2,165
---------------------------------------------------------------------
---------------------------------------------------------------------
Product Sales Revenues by Major Product Groups For the Three-Month
For the Six-Month Periods Ended June 30, Periods Ended June 30,
------------------------- ------------------------- 2007 2006 2007
2006 ------------------------- -------------------------
Radiopharmaceut- $ 5,877 $ 5,368 icals $ 11,634 $ 10,267
Manufacturing - 9,041 15,551 Sterile 20,160 26,503 Manufacturing -
4,494 2,726 Non Sterile 7,610 5,351 Corporate and 103 82 Other 330
259 Intercompany (467) (724) eliminations (1,056) (1,729)
---------------------------------------------------------------------
$ 19,048 $ 23,003 $ 38,678 $ 40,651
---------------------------------------------------------------------
----------------------------------------------------------------------
Major Customers The major customers disclosed in this table are
included in the Manufacturing segment results. For the Three-Month
For the Six-Month Periods Ended June 30, Periods Ended June 30,
------------------------- ------------------------- 2007 2006 2007
2006 ------------------------- ------------------------- 18.0%
31.0% Customer A 16.0% 24.0% 18.0% 21.0% Customer B 18.0% 23.0%
11.0% 7.0% Customer C 12.0% 9.0%
---------------------------------------------------------------------
47.0% 59.0% 46.0% 56.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
9. Contingency In July 2005, a claim was filed before the Superior
Court of Justice of Ontario 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. No amounts have been
accrued in the accounts pursuant to this claim. 10. Comparative
Information The Company has reclassified certain prior period's
information to conform with the current presentation format.
DATASOURCE: DRAXIS Health Inc. CONTACT: Investor Relations: Jerry
Ormiston, DRAXIS Health Inc., Phone: 1-877-441-1984, Fax: (905)
677-5494
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