DRAX Draxis Health (MM)

MISSISSAUGA, ON, Nov. 1 /PRNewswire-FirstCall/ -- DRAXIS Health Inc. (TSX: DAX); (NASDAQ:DRAX) reported financial results for the third quarter and the nine months ended September 30, 2007. Consolidated revenues and earnings for the third quarter and the first nine months of 2007 were down from the same periods in 2006 primarily due to factors affecting the contract manufacturing business including reduced demand as a result of inventory adjustments by customers, continued production delays in contract manufacturing that prevented the shipment of planned quantities before the end of the quarter and severance costs, compounded by the continued rapid strengthening of the Canadian dollar versus the U.S. dollar. All amounts are expressed in U.S. dollars. Highlights - Consolidated revenues for the third quarter of 2007 were $18.0 million, compared to $21.2 million in the third quarter of 2006; nine month consolidated revenues were $58.4 million in 2007 compared to $64.6 million in 2006. Revenues were down due to reduced short-term demand for selected products as customer inventory adjustments were addressed primarily in the third quarter. As a result, product sales for the third quarter of 2007 were $17.4 million versus $19.8 million for the third quarter of 2006. - Operating loss for the third quarter was $1.7 million in 2007 compared to operating income of $3.4 million in 2006; nine month operating income was $3.3 million in 2007 and $10.7 million in 2006. - For the third quarter of 2007 diluted EPS was negative 3 cents (or negative 2 cents adjusted diluted EPS - See Schedule of Supplemental Information) versus diluted EPS of 6 cents (or 4 cents adjusted diluted EPS) in the third quarter of 2006; for the first nine months of 2007 diluted EPS was 5 cents (or 4 cents adjusted diluted EPS) versus diluted EPS of 19 cents (or 14 cents adjusted diluted EPS) for the same period in 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 per share annually to 2006's reported earnings per share. - Cash flows from operating activities in 2007 were $2.1 million in the third quarter and $10.2 million for the first nine months, compared to operating cash flows of $5.9 million and $10.4 million respectively for the same periods in 2006. The decrease relates to lower cash earnings in the contract manufacturing segment. - Cash and cash equivalents at September 30, 2007 were $26.9 million compared to $19.9 million at September 30, 2006. Investments to date in 2007 have included capital projects such as a new warehouse management system, information technology and SAP platform upgrades and new installations related to a substantial non-sterile contract signed during the third quarter. "The third quarter was negatively impacted by continued poor performance at our contract manufacturing division, due to the previously disclosed decline in production volumes of sterile products, particularly Hectorol(R) Injection, but compounded as well by lower margins in our radiopharmaceuticals division and a short-term delay in orders for selected products as a result of new inventory management policies recently adopted by a key customer," said Dr. Martin Barkin, President and CEO of DRAXIS Health. "Results have also been significantly affected again this quarter by the continued and unprecedented strengthening of the Canadian dollar against the U.S. dollar. On a positive note, the signing of our significant contract with Johnson & Johnson Consumer Companies, Inc. bodes well for profitability growth in our contract manufacturing business. For this and the many other factors contributing to our long term growth, we continue to believe that 2007 and the first part of 2008 is a period when the Company will be in transition to be positioned for significant growth from late 2008 through to 2010 and 2011." Dr. Barkin also noted, "We have been proactive in addressing performance issues. Jean-Pierre Robert was appointed during the third quarter to head up DRAXIS Pharma as well as DRAXIMAGE. At DRAXIS Pharma, he has recently recruited a new head of quality operations and brought in a new head of engineering services. We have initiated a comprehensive realignment of accountabilities across the Company with the objective of reducing expenses associated with core operations to manage our cost structure in line with current revenue expectations and the rapidly accelerating value of the Canadian dollar. This includes a plan to reduce the number of corporate executives by one-third by the end of 2007. Many of these actions have already resulted in severance costs and will similarly impact results going forward, particularly the fourth quarter. When these initiatives are completed we expect that the Company will return to its historic levels of revenue and earnings growth." ------------------------------------------------------------------------- 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 Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) REVENUES $17,370 $19,788 Product sales $56,048 $60,439 558 617 Royalty and licensing 2,235 1,657 Anipryl(R) deferred 30 825 revenues 90 2,475 ------------------------------------------------------------------------- $17,958 $21,230 $58,373 $64,571 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $4,697 $8,127 Product Gross Margin $19,545 $26,016 27.0% 41.1% Product Gross Margin % 34.9% 43.0% ($1,661) $3,423 Operating income (loss) $3,319 $10,663 -9.2% 16.1% Operating Margin % 5.7% 16.5% $26,928 $19,891 Cash and cash equivalents $26,928 $19,891 $0 $0 Total debt $0 $0 Cash flows from operating $2,053 $5,858 activities $10,156 $10,438 Cash flows used in (2,965) (1,425) investing activities (8,234) (3,742) ------------------------------------------------------------------------- ($912) $4,433 $1,922 $6,696 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($1,376) $2,604 Net income (loss) $2,209 $7,860 Basic earnings (loss) ($0.03) $0.06 per share $0.05 $0.19 Diluted earnings (loss) ($0.03) $0.06 per share $0.05 $0.19 ------------------------------------------------------------------------- Two significant non-recurring items in the first nine months of 2007 positively affected financial performance relative to the first nine months 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 (loss) and diluted earnings (loss) per share are included in the Schedule of Supplemental Information below. Under the Company's current Normal Course Issuer Bid, which began December 20, 2006 and which ends no later than December 19, 2007, approximately $0.7 million has been returned to shareholders as of October 31, 2007 through the repurchase for cancellation of 130,100 common shares at an average price of $5.27 (CDN$5.21). Segment Highlights from Management's Discussion and Analysis Contract Manufacturing - Revenues for the third quarter of 2007 were $12.1 million or 17% lower than the third quarter of 2006. The decrease was due to significantly lower production volumes of Hectorol(R) in the third quarter of 2007, which is expected to be the low point of quarterly production for 2007. In addition, volumes in the third quarter of 2007 were $1 million below expectations due to the decision of a specific customer to reduce its supply chain inventory levels for 2007. This impact is expected to be a short-term reduction in production volumes for this customer's products with volumes returning to historical levels thereafter. - Product gross margin percentage declined to 13% in the third quarter of 2007 and 23% for the first nine months of 2007 compared to 31% and 35% respectively for the same periods of 2006. The decrease was driven by lower volumes of both sterile and non-sterile products and the resulting negative impact of decreased capacity utilization. The regular summer shutdown for maintenance in the third quarter was extended in the non-sterile area to accommodate new installations and facility expansions related to the new long-term contract with Johnson & Johnson Consumer Companies, Inc. - Operating loss for the third quarter of 2007 was $1.4 million and operating income for the first nine months was $2.4 million compared to operating income of $2.3 million and $8.9 million respectively for the same periods in 2006 due to lower sterile volumes and increased severance costs, partially offset by a revaluation of incentive awards. - During the third quarter the Company announced the successful signing of a new contract with Johnson & Johnson Consumer Companies, Inc. for non-sterile products that is expected to generate incremental revenues in excess of $120 million from commercial production during the period 2009 through 2013 plus approximately $6 to 8 million during 2007-2008 from product transfer activities. This new business is expected to significantly increase capacity utilization in the non-sterile area, provide a significant and stable revenue stream beginning in 2009 and add substantial production capabilities with little or no additional capital expenditures. This enhanced business relationship with a key client is expected to increase the probability of attracting new business as a result of increased exposure and credibility. Radiopharmaceuticals - Product sales of $5.8 million in the third quarter were up 3% over the third quarter of 2006 with the inclusion of freight charges in product sales revenues, which started April 1, 2007. Excluding freight charges, product sales in the third quarter of 2007 were down slightly due to the temporary suspension of production in the quarter of a private label product for one customer, pending possible future formulation changes. Nine month product sales for 2007 were up 10% to $17.5 million, primarily as a result of higher sales of Sodium Iodide I-131 products, increased cold kit sales and the inclusion of freight charges in revenues. - Product gross margins in the third quarter of 2007 were 54.1% of sales compared to 64.8% of sales for the third quarter of 2006; for the first nine months of 2007 product gross margins were 58.3% versus 62.9% for the same period in 2006, due to the dilutive impact of including freight charges billed back to customers in revenues and cost of goods sold, coupled with foreign exchange pressures caused by the stronger Canadian dollar. - Operating income in the third quarter of 2007 was $0.8 million compared to $1.8 million in the third quarter of 2006 as a result of pressures on margins from a strong Canadian dollar, regulatory filing fees and increased business development activities. For the first nine months of 2007, operating income of $3.3 million was 18% lower than the first nine months of 2006, primarily due to regulatory filing fees and increased research and development spending. - The FDA acknowledged in July 2007 the receipt and acceptance for review of the Abbreviated New Drug Application (ANDA) for DRAXIMAGE(R) Sestamibi that was submitted in February 2007. - In July 2007 DRAXIMAGE announced the filing of DRAXIMAGE(R) Sestamibi with European regulatory authorities, marking another milestone in the comprehensive plan to pursue major myocardial perfusion imaging (MPI) markets globally. - DRAXIMAGE filed an Abbreviated New Drug Submission (A/NDS) for DRAXIMAGE(R) Sestamibi with Health Canada in August, 2007 and was advised in October 2007 that this submission was found acceptable for review. - DRAXIMAGE is on track to obtain product registrations required to enter European markets during 2008. The MAA kit product for diagnostic lung perfusion studies, initially approved in the Netherlands in 2005, was recently approved in Germany, the United Kingdom and Luxembourg. The MDP kit product for diagnostic bone imaging has been approved in the Netherlands and in addition I-131 Sodium Iodide Capsules, for the treatment of thyroid cancer, was approved in Denmark during the third quarter of 2007. - In August 2007 DRAXIMAGE announced the establishment of a research collaboration with Med Discovery of Geneva, Switzerland to explore the combination of Med Discovery's targeted protein therapeutics with DRAXIMAGE radiopharmaceutical expertise for the assessment and possible development of agents for the detection of microtumors and the potential treatment of prostate cancer and a variety of other cancers. Outlook Guidance targets for 2007, which were revaluated subsequent to the second quarter of 2007, have been subsequently reassessed following the third quarter of 2007, taking into account the following factors: - Subsequent to the second quarter of 2007, an ongoing assessment of the Company's cost structure began with the appointment of Jean- Pierre Robert as head of both of the Company's operating units. In addition, a parallel review of the Company's corporate overhead structure was initiated to reduce overhead costs and eliminate redundancies Company wide. This is related to the higher cost burden associated with these costs as a result of the stronger Canadian dollar, the upgrade of our SAP systems and overall plans to achieve greater efficiencies. Severance costs in the third quarter of 2007 amounted to $0.6 million and are included in selling, general and administrative expenses. The Company expects further severance costs in the fourth quarter of 2007 which are expected to impact earnings per share by approximately 3 cents per share. - During the first nine months of 2007, the strengthening of the Canadian dollar from $CDN1.165 per U.S. dollar as at December 31, 2006 to $CDN0.995 per U.S. dollar as at the end of September 30, 2007 has resulted in foreign exchange losses for the first nine months of 2007 of approximately 3 cents per share or $1.6 million ($0.7 million in the third quarter alone). This foreign exchange loss resulted from the revaluation of U.S. dollar-denominated net monetary assets. - Since the vast majority of the Company's cost structure is in Canadian dollars and a larger portion of the Company's revenue streams is denominated in U.S dollars, the strengthening of the Canadian dollar has a significant negative impact on the Company's underlying gross profit margin and operating expenses. We estimate the strengthening of the Canadian dollar has reduced operating profitability by approximately 3 to 4 cents per share on an annual basis relative to 2006 assuming no further material changes to foreign exchange rates to the end of the year. - Volumes of radioactive products produced by the radiopharmaceutical operations were lower than expected during the third quarter due to a decision by a customer to cease production of a private label radioactive product ($350,000 in revenues per quarter) while the customer determines whether to continue to supply the market in the future pending possible formulation changes. - Based on the latest information from Genzyme, the Company expects Hectorol(R) production volumes in 2007 to be approximately $9 million lower than what they were in 2006 and significantly lower than what was originally forecasted for 2007. Production volumes in the third quarter of 2007 were particularly low due to reduced customer demand. It is our understanding that these volumes may still vary materially either positively or negatively in future quarters as a result of continued uncertainty in 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. - The successful product transfer of the IC-GREEN(TM) product during the third quarter of 2007, which is now being produced for Akorn, Inc., is one of several sterile products that DRAXIS Pharma is transferring in to begin to fill the gap resulting from declining Hectorol(R) volumes. We believe that the trend is for Hectorol(R) volumes to continue to decline and we are planning under the assumption that the manufacturing of this product by DRAXIS Pharma will ultimately be phased out by the end of 2009. - R&D expenses at DRAXIMAGE will remain steady and will continue to be allocated toward the successful filing and commercialization of high value products such as DRAXIMAGE(R) Sestamibi and the MOLY-FILL(TM) Tc-99m Generator. In addition, resources will be directed toward the establishment of additional external collaborations for the identification and co-development of innovative radiopharmaceutical products. Formulation development of INFECTON(R) targeting orthopaedic indications has to date not been successful and we will allocate the resources devoted to this product to other projects. Due to the expected financial performance for 2007 resulting from the factors described above, the Company expects earnings per share to be at least 7 cents lower than the most recent guidance of 18 to 21 cents per share for 2007 and net operating cash flows to be at least $3 million lower than the target of $18 million, subject to working capital fluctuations. Our financial performance in the third 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. Guidance for Future Years Beyond 2007, the Company no longer plans to provide specific quantitative guidance given an anticipated period of expansion and significant growth that is expected to be accompanied by periods of increased forecast variability. This growth will be driven by the following factors (not in any particular order): - The timing and ramping up of commercial production of non-sterile products under the new contract with Johnson & Johnson Consumer Companies, Inc. will be influenced by both the product transfer process and the receipt of manufacturing site transfer approvals from appropriate regulatory agencies. - Several potential new contract manufacturing business opportunities have been identified as a result of increased marketing and outreach activities initiated during 2007. However, the rate of conversion of such opportunities to new business contracts over the next several quarters has introduced increased forecasting variability. - The timing and extent of radiopharmaceutical product introductions to European markets is highly dependent on receiving timely regulatory approvals in several different countries plus the establishment of one or more appropriate marketing and distribution partnerships, which will influence the rate at which product sales will grow in the EU markets. - Revenue and earnings from the potential introduction of DRAXIMAGE(R) Sestamibi will depend on several factors including regulatory approvals, competitive activity, marketing and distribution partnerships and market acceptance following product launch. This is expected to be a significant product for the Company and the variability around its introduction alone is expected to impact the accuracy of future forecasts for 2008 and 2009. - The potential introduction of the MOLY-FILL(TM) technetium generator is expected to be a significant event given the limited product offerings current available and the forecast variability associated with this product is highly dependent on somewhat unpredictable factors including regulatory approvals, marketing and/or distribution agreements, pricing strategies and market penetration rates. - The timing of regulatory approval of the Company's improved radiopharmaceutical (cold kit) product for bone scan imaging and its potential introduction into the U.S. marketplace will be driven largely by the regulatory review and approval process. - The successful completion of clinical trials for I-131 MIBG for the diagnosis and treatment of neuroblastoma and related malignancies will determine the timing of its filing and approval by regulatory authorities. - The timing of the initiation and completion of planned expansions to our Montreal-based facilities will impact future forecast accuracy. Any and all of these factors will have an impact on the Company's future growth to a degree that small changes in timing could have important impacts on short-term earnings. Schedule of Supplemental Information ------------------------------------------------------------------------- Reconciliation from reported operating income (loss) and diluted EPS to adjusted operating income (loss) 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 For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 % Change 2007 2006 % Change Operating Income ($1,661) $3,423 (148.5%) (Loss) - Reported $3,319 $10,663 (68.9%) Adjustments: (a) Non-recurring Shire milestone - - receipt(2) (791) - (b) Insurance - - proceeds(3) (517) - (c) DSU (recovery) (245) 16 (1631.3%) expense(4) (119) (167) (28.7%) 592 - (d) Severance 592 - Anipryl(R) deferred (30) (825) (96.4%) revenues (90) (2,475) (96.4%) ------------------------------------------------------------------------- Operating Income (Loss) - ($1,344) $2,614 (151.4%) Adjusted(1) $2,394 $8,021 (70.2%) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted EPS - ($0.03) $0.06 Reported $0.05 $0.19 Adjustments: (a) Non-recurring Shire milestone - - receipt(2) (0.01) - (b) Insurance - - proceeds(3) (0.01) - (c) DSU (recovery) - - expense(4) - - 0.01 - (d) Severance 0.01 Anipryl(R) deferred - (0.02) revenues - (0.05) ---------------------------------------------------------------- Diluted EPS - ($0.02) $0.04 Adjusted(1) $0.04 $0.14 ------------------------------------------------------------------------- (1) "Adjusted Operating Income (Loss)" and "Adjusted Diluted EPS" are defined as reported operating income (loss) and diluted EPS excluding certain items. These terms do not have a standardized meaning prescribed by U.S. GAAP and therefore may not be comparable to similar measures used by other companies. Management uses adjusted operating income (loss), 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 these measures. (2) The Company became entitled to and received non-recurring contingent milestone payments from Shire. (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 2007 third quarter interim financial report incorporating the full Management's Discussion & Analysis (MD&A) as well as financial statements for the quarter and the nine months ended September 30, 2007 prepared in accordance with U.S. GAAP. The 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 http://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 third quarter 2007 financial results at 10:00 a.m. (ET) on November 1, 2007. This call can be accessed by dialing 1 (800) 819-9193 and using Access Code 4571610, 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 employs approximately 500 staff in its Montreal facility. For additional information please visit http://www.draxis.com/ Caution Concerning Forward-Looking Statements This MD&A 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; - factors described under "Outlook" above and the Company's MD&A for the quarter ended September 30, 2007; 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 document represent the Company's expectations as at October 31, 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 ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- REVENUES $ 17,370 $ 19,788 Product sales $ 56,048 $ 60,439 588 1,442 Royalty and licensing 2,325 4,132 ------------------------------------------------------------------------- 17,958 21,230 58,373 64,571 ------------------------------------------------------------------------- EXPENSES Cost of goods sold, excluding depreciation and amortization 12,673 11,661 (Note 3) 36,503 34,423 Selling, general 4,792 4,261 and administration 12,127 13,753 655 558 Research and development 2,273 1,980 Depreciation and 1,499 1,327 amortization 4,151 3,752 ------------------------------------------------------------------------- 19,619 17,807 55,054 53,908 ------------------------------------------------------------------------- (1,661) 3,423 Operating income (loss) 3,319 10,663 247 65 Financing income, net 605 119 (655) (2) Foreign exchange loss (1,645) (240) ------------------------------------------------------------------------- Income (loss) before (2,069) 3,486 income taxes 2,279 10,542 Income taxes (expense) 693 (882) recovery (70) (2,682) ------------------------------------------------------------------------- $ (1,376) $ 2,604 Net income (loss) $ 2,209 $ 7,860 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings (loss) --------------------- $ (0.03) $ 0.06 per share (Note 4) $ 0.05 $ 0.19 ------------------ Diluted earnings (loss) ----------------------- $ (0.03) $ 0.06 per share (Note 4) $ 0.05 $ 0.19 ------------------ Weighted-average number of shares outstanding 42,076,726 41,870,614 - basic 41,948,449 41,608,623 42,117,209 41,870,614 - diluted 42,135,463 41,683,049 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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) September 30, December 31, 2007 2006 ------------- ------------- ASSETS Current assets Cash and cash equivalents $ 26,928 $ 21,446 Accounts receivable 16,267 20,683 Inventories (Note 5) 9,308 7,590 Prepaid expenses 1,536 735 Deferred income taxes, net 4,139 3,179 ------------------------------------------------------------------------- Total current assets 58,178 53,633 Accounts receivable, long term 1,621 - Property, plant and equipment, net 57,787 46,292 Goodwill, net 882 753 Intangible assets, net 186 318 Other assets 393 407 Deferred income taxes, net 5,521 4,559 ------------------------------------------------------------------------- Total assets $ 124,568 $ 105,962 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities (Note 6) $ 10,251 $ 10,940 Current portion of deferred revenues 222 329 Customer deposits 368 576 ------------------------------------------------------------------------- Total current liabilities 10,841 11,845 Other liabilities 236 990 Deferred revenues 623 712 Customer financing 1,200 - ------------------------------------------------------------------------- Total liabilities $ 12,900 $ 13,547 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock, without par value of unlimited shares authorized $ 79,720 $ 77,749 Additional paid-in capital 16,142 15,475 Deficit (6,025) (8,234) Accumulated other comprehensive income 21,831 7,425 ------------------------------------------------------------------------- Total shareholders' equity 111,668 92,415 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 124,568 $ 105,962 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Common Stock (Number of Shares) Balance, beginning of 42,057,638 41,671,788 period 41,522,138 41,588,005 30,000 210,750 Exercise of options 565,500 542,333 Repurchased for (12,400) - cancellation (12,400) (247,800) ------------------------------------------------------------------------- 42,075,238 41,882,538 Balance, end of period 42,075,238 41,882,538 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Common Stock Balance, beginning of $ 79,588 $ 77,779 period $ 77,749 $ 77,313 104 576 Exercise of options 1,812 1,555 Fair values of options 58 - exercised 189 - Repurchased for (30) - cancellation (30) (513) ------------------------------------------------------------------------- $ 79,720 $ 78,355 Balance, end of period $ 79,720 $ 78,355 ------------------------------------------------------------------------- Additional Paid In Capital Balance, beginning of $ 15,915 $ 16,184 period $ 15,475 $ 15,370 Stock-based 319 248 compensation 890 736 Fair values of options (58) - exercised (189) - Common shares purchased (34) - for cancellation (34) (590) - - Expiry of warrants - 916 ------------------------------------------------------------------------- $ 16,142 $ 16,432 Balance, end of period $ 16,142 $ 16,432 ------------------------------------------------------------------------- Warrants Balance, beginning of $ - $ - period $ - $ 916 - - Expiry of warrants - (916) ------------------------------------------------------------------------- $ - $ - Balance, end of period $ - $ - ------------------------------------------------------------------------- Deficit Balance, beginning of $ (4,649) $ (14,525) period $ (8,234) $ (19,781) (1,376) 2,604 Net income (loss) 2,209 7,860 ------------------------------------------------------------------------- $ (6,025) $ (11,921) Balance, end of period $ (6,025) $ (11,921) ------------------------------------------------------------------------- Accumulated Other Comprehensive Income Balance, beginning of $ 15,278 $ 11,012 period $ 7,425 $ 7,810 Other comprehensive 6,553 (102) income (loss) 14,406 3,100 ------------------------------------------------------------------------- 21,831 10,910 Balance, end of period 21,831 10,910 ------------------------------------------------------------------------- Total shareholders' $ 111,668 $ 93,776 equity $ 111,668 $ 93,776 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Comprehensive Income Foreign currency translation $ 6,553 $ (102) adjustments $ 14,406 $ 3,100 (1,376) 2,604 Net income (loss) 2,209 7,860 ------------------------------------------------------------------------- Total comprehensive $ 5,177 $ 2,502 income $ 16,615 $ 10,960 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ (1,376) $ 2,604 Net income (loss) $ 2,209 $ 7,860 Adjustments to reconcile net income (loss) to net cash from (used in) operating activities Amortization of (30) (825) deferred revenues (90) (2,433) Depreciation and 1,499 1,327 amortization 4,151 3,752 319 248 Stock-based compensation 890 736 (1,013) 616 Deferred income taxes (641) 1,991 655 2 Foreign exchange 1,645 240 Deferred Share Unit (recovery) expense (245) 16 (Note 7) (118) (167) 162 348 Other 516 704 Changes in operating assets and liabilities 223 (87) Accounts receivable 7,009 329 Accounts receivable, (354) - long term (1,519) - (307) 519 Inventories (409) (1,098) 701 698 Prepaid expenses (545) (214) Accounts payable and 1,799 392 accrued liabilities (2,006) (1,262) (21) - Other liabilities (819) - 41 - Deferred revenues (117) - ------------------------------------------------------------------------- Net cash from (used in) 2,053 5,858 operating activities 10,156 10,438 ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for property, (3,002) (1,401) plant and equipment (8,097) (3,566) Increase in intangible 37 (24) assets (137) (198) Proceeds from disposition - - of equipment - 22 ------------------------------------------------------------------------- Net cash from (used in) (2,965) (1,425) investing activities (8,234) (3,742) ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from customer - - financing 1,200 - Repayment of customer - - deposits (135) (11) 104 576 Exercise of options 1,812 1,555 Common shares purchased (64) - for cancellation (64) (1,103) ------------------------------------------------------------------------- Net cash from (used in) 40 576 financing activities 2,813 441 ------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash and 435 1 cash equivalents 747 364 ------------------------------------------------------------------------- Net increase in cash (437) 5,010 and cash equivalents 5,482 7,501 Cash and cash equivalents, 27,365 14,881 beginning of period 21,446 12,390 ------------------------------------------------------------------------- Cash and cash equivalents, end $ 26,928 $ 19,891 of period $ 26,928 $ 19,891 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Additional Information $ - $ - Interest paid $ - $ - $ 400 $ 1 Income taxes paid $ 603 $ 561 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 September 30, 2007 and the results of operations and cash flows for the nine-month periods ended September 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 September 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 (loss) per Share Basic earnings (loss) 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 (loss) 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 (loss) 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 (loss) per share: For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Numerator: $ (1,376) $ 2,604 Net income (loss) $ 2,209 $ 7,860 Denominator: Weighted-average number of common shares 42,076,726 41,870,614 outstanding - basic 41,948,449 41,608,623 Weighted-average effect of dilutive securities 40,483 - - stock options 187,014 74,426 ------------------------------------------------------------------------- Weighted-average number of common shares 42,117,209 41,870,614 outstanding - diluted 42,135,463 41,683,049 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings (loss) $ (0.03) $ 0.06 per share $ 0.05 $ 0.19 Diluted earnings (loss) $ (0.03) $ 0.06 per share $ 0.05 $ 0.19 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. Inventories September 30, December 31, 2007 2006 --------------------------------------------------------------------- Raw materials $ 4,937 $ 3,682 Work-in-process 963 1,094 Finished goods 3,408 2,814 --------------------------------------------------------------------- $ 9,308 $ 7,590 --------------------------------------------------------------------- --------------------------------------------------------------------- 6. Accounts Payable and Accrued Liabilities September 30, December 31, 2007 2006 --------------------------------------------------------------------- Trade $ 6,291 $ 4,688 Accrued liabilities 914 905 Employee-related items 3,046 5,347 --------------------------------------------------------------------- $ 10,251 $ 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 Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Balance, beginning of 2,135,828 2,583,745 period 2,257,995 2,652,620 Increase (decrease) resulting from: - - Granted 420,000 330,000 (30,000) (210,750) Exercised (565,500) (542,333) (75,000) - Cancelled (81,667) (16,667) - - Expired - (50,625) ------------------------------------------------------------------------- 2,030,828 2,372,995 Balance, end of period 2,030,828 2,372,995 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Exercisable at 728,883 1,162,162 September 30 728,883 1,162,162 As of September 30: Remaining unrecognized compensation cost related to non-vested stock options $1,730 $1,998 Weighted-average remaining requisite service period 1.9 years 2.1 years Weighted-average exercise price of options: Outstanding, CDN$4.63 CDN$4.23 end of period CDN$4.63 CDN$4.23 Exercisable, CDN$4.67 CDN$4.09 end of period CDN$4.67 CDN$4.09 - - Granted CDN$5.69 CDN$5.06 CDN$3.66 CDN$3.07 Exercised CDN$3.70 CDN$3.26 CDN$5.52 - Cancelled CDN$5.45 CDN$5.93 - - Expired - CDN$3.33 The following table summarizes information about stock options outstanding at September 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 4.47 CDN$2.35 CDN$1,821 CDN$2.51 - $3.00 37,500 5.87 CDN$2.63 CDN$138 CDN$3.01 - $3.50 15,000 1.10 CDN$3.25 CDN$46 CDN$3.51 - $4.00 - - - - CDN$4.01 - $4.50 125,000 1.25 CDN$4.30 CDN$251 CDN$4.51 - $5.00 180,000 2.70 CDN$4.70 CDN$290 CDN$5.01 - $6.65 1,218,334 3.89 CDN$5.58 CDN$895 ------------------------------------------------------- 2,030,828 3.78 CDN$4.63 CDN$3,441 ------------------------------------------------------- ------------------------------------------------------- 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 0.28 CDN$2.33 CDN$438 CDN$2.51 - $3.00 - - - - CDN$3.01 - $3.50 15,000 1.10 CDN$3.25 CDN$46 CDN$3.51 - $4.00 - - - - CDN$4.01 - $4.50 125,000 1.25 CDN$4.30 CDN$251 CDN$4.51 - $5.00 150,000 1.86 CDN$4.70 CDN$242 CDN$5.01 - $6.65 333,889 2.60 CDN$5.56 CDN$250 ------------------------------------------------------- 728,883 1.85 CDN$4.67 CDN$1,227 ------------------------------------------------------- ------------------------------------------------------- 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 Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Balance, beginning of 230,018 225,456 period 230,447 199,868 - 2,148 Issued - 27,736 - - Cancelled (429) - ------------------------------------------------------------------------- 230,018 227,604 Balance, end of period 230,018 227,604 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($245) $16 DSU (recovery) expense ($118) ($167) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- PRODUCT SALES REVENUES $ 5,816 $ 5,668 Radiopharmaceuticals $ 17,450 $ 15,935 12,076 14,535 Manufacturing 39,846 46,389 (522) (415) Corporate and Other (1,248) (1,885) ------------------------------------------------------------------------- $ 17,370 $ 19,788 $ 56,048 $ 60,439 ------------------------------------------------------------------------- ROYALTY AND LICENSING REVENUES $ - $ - Radiopharmaceuticals $ - $ 4 - - Manufacturing - - 588 1,442 Corporate and Other 2,325 4,128 ------------------------------------------------------------------------- $ 588 $ 1,442 $ 2,325 $ 4,132 ------------------------------------------------------------------------- TOTAL REVENUES $ 5,816 $ 5,668 Radiopharmaceuticals $ 17,450 $ 15,939 12,076 14,535 Manufacturing 39,846 46,389 66 1,027 Corporate and Other 1,077 2,243 ------------------------------------------------------------------------- $ 17,958 $ 21,230 $ 58,373 $ 64,571 ------------------------------------------------------------------------- PRODUCT GROSS MARGIN $ 3,144 $ 3,671 Radiopharmaceuticals $ 10,175 $ 10,031 1,511 4,487 Manufacturing 9,265(1) 16,104 42 (31) Corporate and Other 105 (119) ------------------------------------------------------------------------- $ 4,697 $ 8,127 $ 19,545 $ 26,016 ------------------------------------------------------------------------- SELLING, GENERAL AND ADMINISTRATION EXPENSE $ 1,434 $ 1,079 Radiopharmaceuticals $ 3,812 $ 3,240 1,741 1,230 Manufacturing 3,772 4,575 1,617 1,952 Corporate and Other(2) 4,543 5,938 ------------------------------------------------------------------------- $ 4,792 $ 4,261 $ 12,127 $ 13,753 ------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT EXPENSE $ 655 $ 558 Radiopharmaceuticals $ 2,273 $ 1,980 - - Manufacturing - - - - Corporate and Other - - ------------------------------------------------------------------------- $ 655 $ 558 $ 2,273 $ 1,980 ------------------------------------------------------------------------- SEGMENT INCOME (LOSS)(3) $ 1,055 $ 2,034 Radiopharmaceuticals $ 4,090 $ 4,815 (230) 3,257 Manufacturing 5,493 11,529 (987) (541) Corporate and Other (2,113) (1,929) ------------------------------------------------------------------------- $ (162) $ 4,750 $ 7,470 $ 14,415 ------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION $ 249 $ 275 Radiopharmaceuticals $ 816 $ 824 1,159 968 Manufacturing 3,075 2,676 91 84 Corporate and Other 260 252 ------------------------------------------------------------------------- $ 1,499 $ 1,327 $ 4,151 $ 3,752 ------------------------------------------------------------------------- OPERATING INCOME (LOSS)(4) $ 806 $ 1,759 Radiopharmaceuticals $ 3,274 $ 3,991 (1,389) 2,289 Manufacturing 2,418 8,853 (1,078) (625) Corporate and Other (2,373) (2,181) ------------------------------------------------------------------------- $ (1,661) $ 3,423 $ 3,319 $ 10,663 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 $319 in Q3, 2007 (Q3, 2006 - $248) and $890 in YTD, 2007 (YTD, 2006 - $736). (3) Income (loss) before depreciation and amortization, financing income, foreign exchange loss and income taxes. (4) Income (loss) before financing income, foreign exchange loss and income taxes. September December IDENTIFIABLE ASSETS 30, 2007 31, 2006 ----------- ----------- Radiopharmaceuticals $ 19,509 $ 15,332 Manufacturing 63,672 54,162 Corporate and Other 41,387 36,468 --------------------------------------------- $ 124,568 $ 105,962 --------------------------------------------- --------------------------------------------- Geographic Segmentation For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 REVENUES(1) 2007 2006 ----------- ----------- ----------- ----------- $ 8,949 $ 10,237 Canada $ 27,920 $ 29,132 8,474 10,668 United States 28,471 34,564 535 325 Other 1,982 875 ------------------------------------------------------------------------- $ 17,958 $ 21,230 $ 58,373 $ 64,571 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- $ 294 $ 249 Radiopharmaceuticals $ 848 $ 941 2,705 1,152 Manufacturing 7,246 2,625 3 - Corporate and Other 3 - ------------------------------------------------------------------------- $ 3,002 $ 1,401 $ 8,097 $ 3,566 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Product Sales Revenues by Major Product Groups For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- $ 5,816 $ 5,668 Radiopharmaceuticals $ 17,450 $ 15,935 8,298 10,894 Manufacturing - Sterile 28,458 37,397 Manufacturing - 3,778 3,641 Non Sterile 11,388 8,992 157 - Corporate and Other 487 259 (679) (415) Intercompany eliminations (1,735) (2,144) ------------------------------------------------------------------------- $ 17,370 $ 19,788 $ 56,048 $ 60,439 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Major Customers The major customers disclosed in this table are included in the Manufacturing segment results. For the Three-Month Periods For the Nine-Month Periods Ended September 30, Ended September 30, --------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- 10.0% 19.0% Customer A 14.0% 23.0% 22.0% 22.0% Customer B 19.0% 23.0% 11.0% 11.0% Customer C 11.0% 9.0% 12.0% 10.0% Customer D 10.0% 9.0% ------------------------------------------------------------------------- 55.0% 62.0% 54.0% 64.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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: DRAXIS Health Inc., Jerry Ormiston, Executive Director, Investor Relations, Tel: 1-877-441-1984

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