DRAX Draxis Health (MM)

MONTREAL, Feb. 7 /PRNewswire-FirstCall/ -- DRAXIS Health Inc. (TSX: DAX); (NASDAQ:DRAX) reported financial results for the fourth quarter and the year ended December 31, 2007. Results for the fourth quarter of 2007 compared to the fourth quarter of 2006 were impacted by lower product sales in both the contract manufacturing and the radiopharmaceutical business segments, compounded by the significantly stronger Canadian dollar in the fourth quarter of 2007 relative to the same quarter in 2006. All amounts are expressed in U.S. dollars. Highlights - Consolidated revenues for the fourth quarter of 2007 were $20.5 million compared to $24.4 million in the fourth quarter of 2006; consolidated revenues for the full year 2007 were $78.9 million compared to $89.0 million in 2006. The revenue decline was largely due to lower product sales in contract manufacturing, primarily sterile products, plus the loss of the non-cash Anipryl(R) deferred revenue amortization in 2007. Radiopharmaceutical product sales were also impacted by industry shortages of medical isotopes and the temporary suspension of production of one customer's private label radioactive product. Product sales for the fourth quarter of 2007 were $20.0 million versus $23.1 million for the fourth quarter of 2006. - Operating loss for the fourth quarter was $1.2 million in 2007 compared to operating income of $4.3 million in 2006; full year 2007 operating income was $2.1 million in 2007 and $15.0 million in 2006. - For the fourth quarter of 2007, diluted EPS was negative 1 cent (or positive 2 cents adjusted diluted EPS excluding severance charges - See Schedule of Supplemental Information, including footnote 1) compared to diluted EPS of 9 cents (or 7 cents adjusted diluted EPS) in the fourth quarter of 2006; for the full year 2007, diluted EPS was 4 cents (or 5 cents adjusted diluted EPS) compared to diluted EPS of 28 cents (or 21 cents adjusted diluted EPS) for the same period in 2006. As previously indicated, 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 to reported earnings per share in 2006. - Cash flows from operating activities in the fourth quarter of 2007 were $2.4 million and $12.6 million for the year 2007, compared to operating cash flows of $5.7 million and $16.5 million respectively for the same periods in 2006. The decrease was related to lower cash earnings in the contract manufacturing segment. - Cash and cash equivalents at December 31, 2007 were $24.8 million compared to $21.4 million at December 31, 2006. The increase is attributable to the increasing cash earnings of the Company and proceeds from the exercise of stock options and customer financing, offset by capital expenditures for projects such as a new warehouse management system, information technology and SAP platform upgrades and new installations related to a substantial non-sterile contract with Johnson & Johnson Consumer Companies, Inc. (Johnson & Johnson Consumer) signed during the third quarter of 2007. - DRAXIS has received notification from the US Food and Drug Administration (FDA) that the company's manufacturing operations in Montreal, Quebec continue to maintain their classification as acceptable facilities following an extensive inspection by the FDA in October 2007. The successful inspection was conducted primarily with regard to two products manufactured on behalf of clients in the DRAXIS Pharma sterile lyophilization (freeze-drying) production facility and in DRAXIS Health's radiopharmaceutical business unit, DRAXIMAGE. There were no Form 483 Inspectional Observations issued during the FDA evaluation of DRAXIS' systems. - Subsequent to the end of the fourth quarter of 2007, the Board of Directors of DRAXIS appointed Mr. Dan Brazier as the new President and Chief Executive Officer effective January 1, 2008. In addition, the Board appointed Mr. Jean-Pierre Robert to the position of Chief Operating Officer of DRAXIS Health Inc. "The year 2007 has presented its fair share of challenges for the Company but as we proceed forward into 2008, we can see that the organizational and process changes we have instituted are beginning to have a positive impact," said Dan Brazier, President and CEO of DRAXIS Health Inc. "On an operating basis, net earnings for the fourth quarter of 2007 improved 4 cents over the third quarter of 2007, excluding severance charges in both quarters. We have taken steps to manage overhead costs and eliminate redundancies to better control our cost structure in the face of the rapid and unprecedented strengthening of the Canadian dollar against the U.S dollar in 2007. These moves include executive and staff reductions and the closure of our Mississauga offices in the first quarter of 2008. While external factors such as customer changes to the timing of product demand and delivery and a shortage of medical isotopes constrained profitability in the fourth quarter, these are short term factors that we believe will have minimal impact going forward." Mr. Brazier also noted, "For the longer term, 2007 saw the completion of all non-financial milestones that contributed to the progress of key initiatives that will drive long term growth beginning in 2008. We filed submissions for DRAXIMAGE(R) Sestamibi with three regulators globally. We established a significant new contract for non-sterile products with Johnson & Johnson Consumer and broke ground on a second facility in the Montreal area that will help us service this new contract. We met our 2007 internal target for new business as part of our plan to replace declining production of Hectotol(R) injection. We successfully completed three FDA inspections, including two in the fourth quarter. We successfully concluded an agreement with GE Healthcare, a leader in the nuclear medicine sector, naming them as exclusive distributor of DRAXIMAGE(R) Sestamibi for the United States. We concluded an external evaluation of our MOLY-FILL(TM) Tc-99m Generator as part of the product development plan and in preparation for the next step in that product's regulatory review and approval process. We also completed upgrades to the Company's IT and SAP systems, including the installation of a new warehouse management system. All of these initiatives accomplished in 2007 bode well for the long term viability and growth of the Company going forward." FINANCIAL HIGHLIGHTS (in thousands of U.S. dollars except share related data and in accordance with U.S. GAAP) For the Three-Month Periods For the Years Ended December 31, Ended December 31, --------------------------- ---------------------- 2007 2006 2007 2006 (unaudited)(unaudited) (unaudited)(unaudited) REVENUES $20,024 $23,106 Product sales $76,072 $83,545 433 465 Royalty and licensing 2,668 2,121 30 825 Anipryl(R) deferred revenues 120 3,301 ------------------------------------------------------------------------- $20,487 $24,396 $78,860 $88,967 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $6,909 $10,446 Product Gross Margin $26,454 $36,462 34.5% 45.2% Product Gross Margin % 34.8% 43.6% ($1,171) $4,289 Operating income (loss) $2,148 $14,952 -5.7% 17.6% Operating Margin % 2.7% 16.8% $24,796 $21,446 Cash and cash equivalents $24,796 $21,446 $0 $0 Total debt $0 $0 $2,395 $5,734 Cash flows from operating $12,551 $16,450 activities (5,160) (2,251) Cash flows used in investing (13,394) (5,993) activities ------------------------------------------------------------------------- ($2,765) $3,483 ($843) $10,457 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($551) $3,687 Net income (loss) $1,658 $11,547 ($0.01) $0.09 Basic and diluted earnings $0.04 $0.28 (loss) per share Two significant non-recurring items in 2007 positively affected financial performance relative to 2006. During the first quarter of 2007 the Company received a non-recurring milestone payment of $0.8 million from Shire BioChem Inc. (Shire) 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 Normal Course Issuer Bid, which began December 20, 2006 and which ended December 19, 2007, approximately $0.7 million has been returned to shareholders as of December 31, 2007 through the repurchase for cancellation of 130,100 common shares at an average price of $5.27 (CDN$5.21). On January 16, 2008 DRAXIS received approval from the Toronto Stock Exchange (TSX) for a new Normal Course Issuer Bid to purchase up to 4,072,054 common shares, which represent approximately 10% of the 40,720,539 common shares in the public float as at January 14, 2008. Purchases may begin on January 21, 2008 and the bid will end no later than January 20, 2009 or earlier if the Company purchases the maximum allowable number of shares. All shares will be purchased through the facilities of the TSX and will be cancelled. Segment Highlights from Management's Discussion and Analysis Contract Manufacturing - Revenues for the fourth quarter of 2007 were $15.1 million or 18% lower than the same quarter of 2006. The decrease was due to lower sterile volumes, principally related to Hectorol(R) for Genzyme. In addition, the fourth quarter of 2006 saw a one-time ramp up of volumes related to the GSK contract related to a specific market need at that time. Hectorol(R) volumes accounted for the majority of volume increases in the fourth quarter of 2007 compared to the significant lower levels of the third quarter of 2007. Nevertheless, as expected, Hectorol(R) volumes did not achieve the record levels of 2006 and in particular the fourth quarter of 2006. Included in this segment's revenues for the quarter are approximately $0.9 million ($2.6 million for 2007) in product transfer activities related to the Company's new Johnson & Johnson Consumer contract. - Product gross margin percentage decreased to 27% in the fourth quarter and to 24% for 2007 compared to 39% and 36%, 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 for the fourth quarter of 2007 was $0.2 million and for 2007 was $2.6 million compared to operating income of $4.2 million and $13.0 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 fourth quarter of 2007, the contract manufacturing division continued to implement procedures to reduce production delays that have in the past resulted in shipments not being released in a timely manner, impacting quarterly results for most of 2007. While the Company has made improvements in expediting the process times for orders, shifting customer shipment schedules and reprioritizing projects associated with organizational changes, the improvements have to date only partially removed the backlog of built-up demand. The procedures being put in place to remove the backlog of demand and to improve the product release cycle are expected to improve operating performance on a quarter by quarter basis. Radiopharmaceuticals - Product sales of $5.8 million in the fourth quarter increased 4% compared to the fourth quarter of 2006 with the inclusion of freight charges in product sales revenues, which began on April 1, 2007. Excluding freight charges, product sales in the fourth quarter of 2007 decreased slightly compared to the same period in 2006. The Company temporarily suspended production early in the third quarter of 2007 of a private label radioactive product for one customer. This product historically contributed $350,000 to quarterly revenues. The customer will either permanently withdraw this product from the market or make formulation changes and their decision is expected in the first half of 2008. Revenues for all of 2007 increased 8% from $21.5 million in 2006 to $23.2 million in 2007, driven by the inclusion of freight charges in revenues. The radiopharmaceutical segment was also impacted by an industry shortage of medical isotopes in December 2007 as a result of an extended shutdown at a global supplier of these radioactive isotopes.The Company has an alternative approved source of supply for its raw materials and was able to fill all customer orders but the shutdown affected the ability of radiopharmacies to carry out procedures resulting in lower than anticipated demand. - Product gross margins for the quarter ended December 31, 2007 were 49% compared to 61% for the fourth quarter of 2006, due to the dilutive impact of including freight charges billed back to customers in revenues and cost of goods sold beginning on April 1, 2007, coupled with foreign exchange pressures caused by a much stronger Canadian dollar relative to comparable periods in 2006. Product gross margin for 2007 decreased to 56% compared to 63% for 2006 due to inclusion of freight charges and foreign exchange pressures. - Operating income for the fourth quarter of 2007 was $0.8 million and $4.1 million for all of 2007 compared to $1.6 million and $5.6 million respectively for the same periods in 2006. The decrease for both periods in 2007 was due to decreased volumes, pressures on margins from a strong Canadian dollar, regulatory filing fees and increased business development activities. - On October 11, 2007, the Company was informed by Health Canada that an Abbreviated New Drug Submission ("A/NDS") for DRAXIMAGE(R) Sestamibi that had been filed by the Company on August 17, 2007 with Health Canada had been screened and found acceptable for review. - On December 20, 2007, DRAXIS announced that its radiopharmaceutical division had appointed GE Healthcare, an industry leader in nuclear medicine, as the exclusive distributor of DRAXIMAGE(R) Sestamibi in the United States. DRAXIMAGE has granted GE Healthcare the exclusive right to market, distribute and sell its generic DRAXIMAGE(R) Sestamibi in the U.S. market and through its U.S. and Canadian radiopharmacy network once the primary innovator patent expires and marketing authorizations are received from the U.S. Food and Drug Administration (FDA) and Health Canada. Furthermore, GE Healthcare has agreed to purchase Technetium 99m Sestamibi injection exclusively from DRAXIMAGE. The initial term of the distribution agreement is for a minimum of three years following FDA approval of the DRAXIMAGE product. - DRAXIMAGE is in discussions with potential marketing and manufacturing partners for its MOLY-FILL(TM) Technetium Generator. During the fourth quarter of 2007, the Company completed a field test evaluation of a prototype version of this product and the results of the evaluation will contribute to the continuing product development process. Outlook and Guidance Intentions Guidance targets for 2007, which were revaluated during the course of 2007 were not achieved as a result of 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 President of DSPI, thereby responsible for 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. During the course of 2007, the Company took severance cost provisions of $1.6 million in contract manufacturing and $0.7 million in its corporate segments as a result, including the decision to close its Mississauga office location in early 2008. - During 2007, the strengthening of the Canadian dollar from $CDN1.165 per U.S. dollar as at December 31, 2006 to $CDN0.991 per U.S. dollar as at December 31, 2007 has resulted in foreign exchange losses for all of 2007 of approximately 3 cents per share or $1.7 million. 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 stream 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. - Volumes of radioactive products produced by the radiopharmaceutical operations were lower than expected for the second half of 2007 due to a decision by a customer to cease production of a private label radioactive product (which historically represented $350,000 in revenues per quarter) while the customer determines whether to continue to supply the market in the future pending possible formulation changes. - During the course of 2007, two separate shortages for the supply of radioactive isotopes occurred which impacted the financial performance of the radiopharmaceutical segment. The first shortage resulted in the Company obtaining the approval of a secondary source of supply for the U.S. market. The second shortage created an industry wide decrease in demand in late 2007 for radioactive procedures due to a short supply in the market place of radioisotopes, being the key ingredient. - Hectorol(R) production volumes in 2007 were $9 million lower than what they were in 2006 and significantly lower than what was originally forecasted for 2007. 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. We believe that the trend is for Hectorol(R) volumes to ultimately be phased out during 2009. We also anticipate quarterly fluctuations in volume which may not be predictable. - The contract manufacturing segment began to implement procedures, including organizational changes, to reduce production delays that have in the past resulted in shipments not being released in a timely manner impacting quarterly results for most of 2007. While short-term financial performance for 2007 was below the Company's expectations, the Company did achieve significant key milestones consistent with the sources of future growth for the Company in future years. Guidance for Future Years The Company expects progressively improving financial results during 2008 compared to 2007 as a result of increased demand through new business opportunities, product introductions and additional contracts. This is expected to result in continuing year-over-year growth in revenues, operating income, and cash flows going forward, starting from a base in 2008. Net earnings per share for 2008 are expected to increase significantly over 2007. However, the extent to which the Company can reasonably predict the financial performance for 2008 is limited due to variables outside of the control of the Company. Accordingly, the Company does not plan to provide specific quantitative guidance given the anticipated period of expansion and significant growth that is expected to be accompanied by periods of increased forecast variability due to several factors, including the following: - The timing and ramping up of commercial production of non-sterile products under the new contract with Johnson & Johnson Consumer will be influenced by both the product transfer process and the receipt of manufacturing site transfer approvals from appropriate regulatory agencies. - We do expect revenue growth associated with product transfer activities for 2008 but, while such activities will generate positive margins, the margin percentage is expected to be dilutive to overall margins as we hire and train new personnel in anticipation of the commercial phase of the contract. - Several potential new 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, although additional approvals are expected during 2008, in several different countries. The Company is actively working to establish 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, manufacturing execution, 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 currently 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 Company will provide updates to the extent possible as these opportunities evolve and if possible quantify the potential impact of each factor as they become more transparent as to timing and quantum. 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 Years Ended December 31, Ended December 31, --------------------------- ---------------------- 2007 2006 % Change 2007 2006 % Change Operating Income ($1,171) $4,289 (127.3%) (Loss) - Reported $2,148 $14,952 (85.6%) Adjustments: - - (a) Non-recurring (791) - Shire milestone receipt(2) - - (b) Insurance (517) - proceeds(3) (265) 138 (292.0%) (c) DSU (recovery) (383) 245 (256.3%) expense(4) 1,719 - (d) Severance 2,311 - Anipryl(R) (30) (825) (96.4%) deferred revenues (120) (3,301) (96.4%) ------------------------------------------------------------------------- Operating Income $253 $3,602 (93.0%) - Adjusted(1) $2,648 $11,896 (77.7%) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted EPS - ($0.01) $0.09 Reported $0.04 $0.28 Adjustments: (a) Non-recurring Shire milestone - - receipt(2) (0.01) - (b) Insurance - - proceeds(3) (0.01) - (c) DSU (recovery) - - expense(4) (0.01) - 0.03 - (d) Severance 0.04 Anipryl(R) deferred - (0.02) revenues - (0.07) ---------------------------------------------------------------- Diluted EPS - $0.02 $0.07 Adjusted(1) $0.05 $0.21 ---------------------------------------------------------------- ---------------------------------------------------------------- (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 incorporates by reference the 2007 fourth quarter interim financial report, which includes financial statements for the quarter ended December 31, 2007, prepared in accordance with U.S. GAAP, as well as Management's Discussion & Analysis (MD&A) for the quarter. The interim report 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 and through the SEDAR and EDGAR databases and is also available upon request by contacting DRAXIS Investor Relations at 1-877-441-1984. Conference Call DRAXIS has scheduled a conference call to discuss fourth quarter and year end 2007 financial results at 10:00 a.m. (ET) on February 7, 2008. This call can be accessed by dialing 1-866-321-6651 and using Access Code 8659140, 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 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; - factors described under "Outlook and Guidance Intentions" above and the Company's MD&A for the quarter ended December 31, 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 February 6, 2008. 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 Years Ended December 31, Ended December 31, --------------------------- ----------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- REVENUES $ 20,024 $ 23,106 Product sales $ 76,072 $ 83,545 463 1,290 Royalty and licensing 2,788 5,422 ------------------------------------------------------------------------- 20,487 24,396 78,860 88,967 ------------------------------------------------------------------------- EXPENSES 13,115 12,660 Cost of goods sold, 49,618 47,083 excluding depreciation and amortization (Note 3) 6,680 5,672 Selling, general and 18,807 19,425 administration 173 392 Research and development 2,446 2,372 1,690 1,383 Depreciation and 5,841 5,135 amortization ------------------------------------------------------------------------- 21,658 20,107 76,712 74,015 ------------------------------------------------------------------------- (1,171) 4,289 Operating income (loss) 2,148 14,952 265 228 Financing income, net 870 347 (71) 522 Foreign exchange (1,716) 282 (loss) gain ------------------------------------------------------------------------- (977) 5,039 Income (loss) before 1,302 15,581 income taxes 426 (1,352) Income taxes recovery 356 (4,034) (expense) ------------------------------------------------------------------------- $ (551) $ 3,687 Net income (loss) $ 1,658 $ 11,547 ------------------------------------------------------------------------- ------------------------------------------------------------------------- $ (0.01) $ 0.09 Basic earnings (loss) $ 0.04 $ 0.28 per share (Note 4) --------------------- $ (0.01) $ 0.09 Diluted earnings (loss) $ 0.04 $ 0.28 per share (Note 4) ----------------------- Weighted-average number of shares outstanding 41,978,362 41,544,683 - basic 41,955,989 41,592,507 41,978,362 41,654,103 - diluted 42,096,250 41,675,682 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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) December 31, December 31, 2007 2006 ------------- ------------- ASSETS Current assets Cash and cash equivalents $ 24,796 $ 21,446 Restricted cash 1,326 - Accounts receivable 18,059 20,683 Inventories (Note 5) 9,620 7,590 Prepaid expenses 1,358 735 Deferred income taxes, net 1,608 3,179 ------------------------------------------------------------------------- Total current assets 56,767 53,633 Accounts receivable, long term 2,514 - Property, plant and equipment, net 58,494 46,292 Goodwill, net 885 753 Intangible assets, net 240 318 Other assets 310 407 Deferred income taxes, net 8,724 4,559 ------------------------------------------------------------------------- Total assets $ 127,934 $ 105,962 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities (Note 6) $ 11,904 $ 10,940 Current portion of deferred revenues 411 329 Customer deposits 385 576 ------------------------------------------------------------------------- Total current liabilities 12,700 11,845 Other liabilities 164 990 Deferred revenues 594 712 Customer financing 3,135 - ------------------------------------------------------------------------- Total liabilities $ 16,593 $ 13,547 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock, without par value of unlimited shares authorized $ 79,814 $ 77,749 Additional paid-in capital 15,984 15,475 Deficit (6,576) (8,234) Accumulated other comprehensive income 22,119 7,425 ------------------------------------------------------------------------- Total shareholders' equity 111,341 92,415 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 127,934 $ 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 (Loss) In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars except share related data) (unaudited) For the Three-Month Periods For the Years Ended December 31, Ended December 31, --------------------------- ----------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Common Stock (Number of Shares) Balance, beginning 42,075,238 41,882,538 of period 41,522,138 41,588,005 105,000 105,000 Exercise of options 670,500 647,333 Repurchased for (117,700) (465,400) cancellation (130,100) (713,200) ------------------------------------------------------------------------- 42,062,538 41,522,138 Balance, end of period 42,062,538 41,522,138 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Common Stock Balance, beginning $ 79,720 $ 78,355 of period $ 77,749 $ 77,313 246 379 Exercise of options 2,058 1,934 Fair values of options 136 - exercised 325 - Repurchased for (288) (985) cancellation (318) (1,498) ------------------------------------------------------------------------- $ 79,814 $ 77,749 Balance, end of period $ 79,814 $ 77,749 ------------------------------------------------------------------------- Additional Paid In Capital Balance, beginning $ 16,142 $ 16,432 of period $ 15,475 $ 15,370 312 232 Stock-based compensation 1,202 968 Fair values of options (136) - exercised (325) - Common shares purchased (334) (1,189) for cancellation (368) (1,779) - - Expiry of warrants - 916 ------------------------------------------------------------------------- $ 15,984 $ 15,475 Balance, end of period $ 15,984 $ 15,475 ------------------------------------------------------------------------- Warrants Balance, beginning $ - $ - of period $ - $ 916 - - Expiry of warrants - (916) ------------------------------------------------------------------------- $ - $ - Balance, end of period $ - $ - ------------------------------------------------------------------------- Deficit Balance, beginning $ (6,025) $ (11,921) of period $ (8,234) $ (19,781) (551) 3,687 Net income (loss) 1,658 11,547 ------------------------------------------------------------------------- $ (6,576) $ (8,234) Balance, end of period $ (6,576) $ (8,234) ------------------------------------------------------------------------- Accumulated Other Comprehensive Income (Loss) Balance, beginning $ 21,831 $ 10,910 of period $ 7,425 $ 7,810 Other comprehensive 288 (3,485) income (loss) 14,694 (385) ------------------------------------------------------------------------- 22,119 7,425 Balance, end of period 22,119 7,425 ------------------------------------------------------------------------- Total shareholders' $ 111,341 $ 92,415 equity $ 111,341 $ 92,415 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Comprehensive Income (Loss) Foreign currency translation $ 288 $ (3,485) adjustments $ 14,694 $ (385) (551) 3,687 Net income (loss) 1,658 11,547 ------------------------------------------------------------------------- Total comprehensive $ (263) $ 202 income (loss) $ 16,352 $ 11,162 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See the accompanying notes to the Consolidated Financial Statements. These interim financial statements should be read in conjunction with the annual Consolidated Financial Statements. DRAXIS HEALTH INC. Consolidated Statements of Cash Flows In Accordance with U.S. GAAP ------------------------------------------------------------------------- (in thousands of U.S. dollars) (unaudited) For the Three-Month Periods For the Years Ended December 31, Ended December 31, --------------------------- ----------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ (551) $ 3,687 Net income (loss) $ 1,658 $ 11,547 Adjustments to reconcile net income (loss) to net cash from (used in) operating activities Amortization of deferred (30) (868) revenues (120) (3,301) Depreciation and 1,690 1,383 amortization 5,841 5,135 312 232 Stock-based compensation 1,202 968 (675) 1,236 Deferred income taxes (1,316) 3,227 (319) (522) Foreign exchange 1,326 (282) Deferred Share Unit (265) 138 (recovery) expense (Note 7) (383) 245 119 34 Other 635 417 Changes in operating assets and liabilities (184) (4,944) Accounts receivable 6,825 (4,615) Accounts receivable, (982) - long term (2,501) - Proceeds from customer financing used in 1,535 - operations 1,535 - (283) 1,142 Inventories (692) 44 186 493 Prepaid expenses (359) 279 Accounts payable and 1,773 3,217 accrued liabilities (233) 2,280 28 682 Other liabilities (791) 682 41 (176) Deferred revenues (76) (176) ------------------------------------------------------------------------- Net cash from (used in) 2,395 5,734 operating activities 12,551 16,450 ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Expenditures for property, (2,228) (2,090) plant and equipment (10,325) (5,656) Increase in receivables related to property, (1,543) - plant and equipment (1,543) - Increase in intangible (63) (161) assets (200) (359) (1,326) - Restricted cash (1,326) - Proceeds from disposition - - of equipment - 22 ------------------------------------------------------------------------- Net cash from (used in) (5,160) (2,251) investing activities (13,394) (5,993) ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from customer 400 - financing 3,135 - Proceeds from customer financing used in - - operations (1,535) - 61 (62) Customer deposits, net (74) (73) 246 379 Exercise of options 2,058 1,934 Common shares purchased (622) (2,174) for cancellation (686) (3,277) ------------------------------------------------------------------------- Net cash from (used in) 85 (1,857) financing activities 2,898 (1,416) ------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash and 548 (71) cash equivalents 1,295 15 ------------------------------------------------------------------------- Net increase (decrease) in (2,132) 1,555 cash and cash equivalents 3,350 9,056 Cash and cash equivalents, 26,928 19,891 beginning of period 21,446 12,390 ------------------------------------------------------------------------- Cash and cash equivalents, $ 24,796 $ 21,446 end of period $ 24,796 $ 21,446 ------------------------------------------------------------------------- Additional Information $ - $ - Interest paid $ - $ - $ 207 $ - Income taxes paid $ 810 $ 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 December 31, 2007 and the results of operations and cash flows for the years ended December 31, 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 December 31, 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, 2000 through December 31, 2007. There are no other items of a material nature 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 Years For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- 2007 2006 2007 2006 ------------ ------------ ------------ ------------ Numerator: $ (551) $ 3,687 Net income (loss) $ 1,658 $ 11,547 Denominator: Weighted-average number of common shares outstanding 41,978,362 41,544,683 - basic 41,955,989 41,592,507 Weighted-average effect of dilutive securities-stock - 109,420 options 140,261 83,175 ------------------------------------------------------------------------- Weighted-average number of common shares 41,978,362 41,654,103 outstanding-diluted 42,096,250 41,675,682 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings $ (0.01) $ 0.09 (loss) per share $ 0.04 $ 0.28 Diluted earnings $ (0.01) $ 0.09 (loss) per share $ 0.04 $ 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. Inventories December 31, December 31, 2007 2006 --------------------------------------------------------------------- Raw materials $ 4,707 $ 3,682 Work-in-process 1,330 1,094 Finished goods 3,583 2,814 --------------------------------------------------------------------- $ 9,620 $ 7,590 --------------------------------------------------------------------- --------------------------------------------------------------------- 6. Accounts Payable and Accrued Liabilities December 31, December 31, 2007 2006 --------------------------------------------------------------------- Trade $ 6,575 $ 4,688 Accrued liabilities 2,313 905 Employee-related items 3,016 5,347 --------------------------------------------------------------------- $ 11,904 $ 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 Years Ended December 31, Ended December 31, ------------------------- ------------------------- 2007 2006 2007 2006 Balance, beginning 2,030,828 2,372,995 of period 2,257,995 2,652,620 Increase (decrease) resulting from: - - Granted 420,000 330,000 (105,000) (105,000) Exercised (670,500) (647,333) (50,000) (10,000) Cancelled (131,667) (26,667) - - Expired - (50,625) ------------------------- ------------------------- Balance, end of 1,875,828 2,257,995 period 1,875,828 2,257,995 ------------------------- ------------------------- ------------------------- ------------------------- Exercisable at 913,328 1,310,495 December 31 913,328 1,310,495 As of December 31: Remaining unrecognized compensation cost related to non-vested stock options $1,408 $1,708 Weighted-average remaining requisite service period 1.7 years 1.9 years Weighted-average exercise price of options: Outstanding, CDN$4.76 CDN$4.23 end of period CDN$4.76 CDN$4.23 Exercisable, CDN$5.21 CDN$4.30 end of period CDN$5.21 CDN$4.30 - - Granted CDN$5.69 CDN$5.06 CDN$2.33 CDN$4.14 Exercised CDN$3.49 CDN$3.41 CDN$4.70 CDN$6.65 Cancelled CDN$5.17 CDN$6.20 - - Expired - CDN$3.33 The following table summarizes information about stock options outstanding at December 31, 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 - $2.50 355,001 5.47 CDN$2.36 CDN$1,403 CDN$2.51 - $3.00 37,500 5.62 CDN$2.63 CDN$138 CDN$3.01 - $3.50 15,000 0.84 CDN$3.25 CDN$46 CDN$3.51 - $4.00 - - - - CDN$4.01 - $4.50 125,000 1.00 CDN$4.30 CDN$251 CDN$4.51 - $5.00 130,000 1.61 CDN$4.70 CDN$209 CDN$5.01 - $6.65 1,213,327 3.64 CDN$5.58 CDN$895 ------------------------------------------------------ 1,875,828 3.70 CDN$4.76 CDN$2,942 ------------------------------------------------------ ------------------------------------------------------ Options Exercisable ------------------------------------------------------ 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 5,001 0.62 CDN$2.30 CDN$20 CDN$2.51 - $3.00 - - - - CDN$3.01 - $3.50 15,000 0.84 CDN$3.25 CDN$46 CDN$3.51 - $4.00 - - - - CDN$4.01 - $4.50 125,000 1.00 CDN$4.30 CDN$251 CDN$4.51 - $5.00 130,000 1.61 CDN$4.70 CDN$209 CDN$5.01 - $6.65 638,327 2.67 CDN$5.52 CDN$507 ------------------------------------------------------ 913,328 2.26 CDN$5.21 CDN$1,034 ------------------------------------------------------ ------------------------------------------------------ Deferred Share Unit Plan Under the Company's Deferred Share Unit Plan, members of senior management can elect to receive up to 20% of base salary and up to 100% of any bonus payable in respect of that year in deferred share units ("DSUs") in lieu of cash compensation. An election must be made by December 1 of each year in respect of base salary and bonus for the following year. The elected amount is converted to a number of DSUs equal to the elected amount divided by the closing price of the common shares on TSX or NASDAQ on December 31 of each year, based on a purchase commitment as of December 1 of the prior year. Participants are not entitled to redeem any DSUs until cessation of employment with the Company for any reason. The value of DSUs redeemable by the participants will be equivalent to the market value of the common share at the time of redemption. The DSUs must be redeemed no later than the end of the first calendar year commencing after the date of cessation of employment. The DSU liability is re-measured at the end of each reporting period based on the market price of the Company's common stock. The net increase or decrease in the value of the DSUs is recorded as compensation cost included in selling, general and administration expense. The following summarizes the number of DSUs issued and outstanding and its impact on SG&A: For the Three-Month Periods For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- 2007 2006 2007 2006 ------------------------- ------------------------- Balance, beginning 230,018 227,604 of period 230,447 199,868 - 2,843 Issued - 30,579 - - Cancelled (429) - ------------------------------------------------------------------------- 230,018 230,447 Balance, end of period 230,018 230,447 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($265) $138 DSU (recovery) expense ($383) $245 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Years Ended December 31, Ended December 31, ----------------------- ----------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- PRODUCT SALES REVENUES $ 5,766 $ 5,573 Radiopharmaceuticals $ 23,216 $ 21,508 15,080 18,342 Manufacturing 54,926 64,731 (822) (809) Corporate and Other (2,070) (2,694) ------------------------------------------------------------------------- $ 20,024 $ 23,106 $ 76,072 $ 83,545 ------------------------------------------------------------------------- ROYALTY AND LICENSING REVENUES $ - $ (7) Radiopharmaceuticals $ - $ (3) - - Manufacturing - - 463 1,297 Corporate and Other 2,788 5,425 ------------------------------------------------------------------------- $ 463 $ 1,290 $ 2,788 $ 5,422 ------------------------------------------------------------------------- TOTAL REVENUES $ 5,766 $ 5,566 Radiopharmaceuticals $ 23,216 $ 21,505 15,080 18,342 Manufacturing 54,926 64,731 (359) 488 Corporate and Other 718 2,731 ------------------------------------------------------------------------- $ 20,487 $ 24,396 $ 78,860 $ 88,967 ------------------------------------------------------------------------- PRODUCT GROSS MARGIN $ 2,801 $ 3,402 Radiopharmaceuticals $ 12,976 $ 13,433 4,125 7,111 Manufacturing 13,390(1) 23,215 (17) (67) Corporate and Other 88 (186) ------------------------------------------------------------------------- $ 6,909 $ 10,446 $ 26,454 $ 36,462 ------------------------------------------------------------------------- SELLING, GENERAL AND ADMINISTRATION EXPENSE $ 1,570 $ 1,140 Radiopharmaceuticals $ 5,382 $ 4,380 2,590 1,912 Manufacturing 6,362 6,487 2,520 2,620 Corporate and Other(2) 7,063 8,558 ------------------------------------------------------------------------- $ 6,680 $ 5,672 $ 18,807 $ 19,425 ------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT EXPENSE $ 173 $ 392 Radiopharmaceuticals $ 2,446 $ 2,372 - - Manufacturing - - - - Corporate and Other - - ------------------------------------------------------------------------- $ 173 $ 392 $ 2,446 $ 2,372 ------------------------------------------------------------------------- SEGMENT INCOME (LOSS)(3) $ 1,058 $ 1,863 Radiopharmaceuticals $ 5,148 $ 6,678 1,535 5,199 Manufacturing 7,028 16,728 (2,074) (1,390) Corporate and Other (4,187) (3,319) ------------------------------------------------------------------------- $ 519 $ 5,672 $ 7,989 $ 20,087 ------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION $ 280 $ 286 Radiopharmaceuticals $ 1,096 $ 1,110 1,315 1,012 Manufacturing 4,390 3,688 95 85 Corporate and Other 355 337 ------------------------------------------------------------------------- $ 1,690 $ 1,383 $ 5,841 $ 5,135 ------------------------------------------------------------------------- OPERATING INCOME (LOSS)(4) $ 778 $ 1,577 Radiopharmaceuticals $ 4,052 $ 5,568 220 4,187 Manufacturing 2,638 13,040 (2,169) (1,475) Corporate and Other (4,542) (3,656) ------------------------------------------------------------------------- $ (1,171) $ 4,289 $ 2,148 $ 14,952 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 $312 in Q4, 2007 (Q4, 2006 - $232) and $1,202 in YTD, 2007 (YTD, 2006 - $968). (3) Income (loss) before depreciation and amortization, financing income, foreign exchange (loss) gain and income taxes. (4) Income (loss) before financing income, foreign exchange (loss) gain and income taxes. December 31, December 31, IDENTIFIABLE ASSETS 2007 2006 ---------------------------------- ------------- Radiopharmaceuticals $ 19,560 $ 15,332 Manufacturing 68,117 54,162 Corporate and Other 40,257 36,468 ------------------------------------------------ $ 127,934 $ 105,962 ------------------------------------------------ ------------------------------------------------ Geographic Segmentation For the Three-Month Periods For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- 2007 2006 REVENUES(1) 2007 2006 ------------ ------------ ------------ ------------ $ 8,141 $ 10,759 Canada $ 36,061 $ 39,891 11,865 13,336 United States 40,336 47,900 481 301 Other 2,463 1,176 ------------------------------------------------------------------------- $ 20,487 $ 24,396 $ 78,860 $ 88,967 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Revenues are attributable to countries based upon the location of the customer. Long-Lived Assets Substantially all of the Company's Property, Plant and Equipment, Goodwill and Intangible Assets are located in Canada. Expenditures for Property, Plant and Equipment For the Three-Month Periods For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- Expenditures for Property, Plant 2007 2006 and Equipment 2007 2006 ------------ ------------ ------------ ------------ $ 395 $ 493 Radiopharmaceuticals $ 1,243 $ 1,434 1,817 1,597 Manufacturing 9,063 4,222 16 - Corporate and Other 19 - ------------------------------------------------------------------------- $ 2,228 $ 2,090 $ 10,325 $ 5,656 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Product Sales Revenues by Major Product Groups For the Three-Month Periods For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- Product Sales Revenues 2007 2006 by major product groups 2007 2006 ------------ ------------ ------------ ------------ $ 5,766 $ 5,573 Radiopharmaceuticals $ 23,216 $ 21,508 10,162 14,132 Manufacturing - Sterile 38,620 51,529 4,918 4,210 Manufacturing - Non Sterile 16,306 13,202 199 36 Corporate and Other 686 295 Intercompany (1,021) (845) eliminations (2,756) (2,989) ------------------------------------------------------------------------- $ 20,024 $ 23,106 $ 76,072 $ 83,545 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Major Customers The major customers disclosed in this table are included in the Manufacturing segment results. For the Three-Month Periods For the Years Ended December 31, Ended December 31, ------------------------- ------------------------- 2007 2006 Major Customers 2007 2006 ------------ ------------ ------------ ------------ 18.0% 23.0% Customer A 15.0% 23.0% 18.0% 22.0% Customer B 19.0% 23.0% 9.0% 11.0% Customer C 11.0% 10.0% 10.0% 9.0% Customer D 10.0% 9.0% ------------------------------------------------------------------------- 55.0% 65.0% 55.0% 65.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- 9. Contingency On July 22, 2005 the Company announced that, together with other defendants, it had received a Statement of Claim filed before the Superior Court of Justice of Ontario wherein the plaintiff alleges that Permax(R), a drug that the Company distributed in Canada for a fourth-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. Prior to July 2003, Permax(R) was distributed in Canada by DRAXIS Pharmaceutica, the Canadian pharmaceutical sales and marketing division of the Company. In July 2003 the Company completed the divestiture of the DRAXIS Pharmaceutica division to Shire. On December 12, 2007 a hearing at the Superior Court of Justice of Ontario was held. The judge ordered the plaintiff to serve a certification motion and full motion record by February 29, 2008. On March 11, 2008, a status hearing will be held at the Superior Court of Justice. No provisions have been taken 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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