MONTREAL, CANADA--(Marketwire - Aug. 2, 2012) - Paladin Labs Inc. (TSX:PLB), a leading specialty pharmaceutical company, today reported its financial results for the quarter ended June 30, 2012. 

2012 Second Quarter Highlights

Financial

• Revenues reached $37.1 million, an increase of 3% over the same period last year
• Net income was $10.9 million, a 35% decline over the same period last year
• EBITDA¹ was $17.2 million, a 6% decline over the same period last year

Product Development 

• Entered into a license and supply agreement with Nuvo Research Inc ("Nuvo") (TSX:NRI) whereby Paladin acquired the Canadian rights to market and sell Synera® upon regulatory approval and agreed to loan Nuvo $8 million in two equal tranches
• Filed a Non-Traditional Product License Application (PLA) that was accepted for review by Health Canada for Travelan®, an over-the-counter product for the prevention of travellers' diarrhea

Corporate Development

• Appointed Mr. Jonathan Ross Goodman as Chairman of the Board of Directors of Paladin

Subsequent to the Quarter

• Announced that all of the conditions had been fulfilled relating to the strategic partnership transaction (the "Transaction") with the Litha Healthcare Group ("Litha") (JSE:LHG) and that the Transaction has been completed with effect from Monday, July 2, 2012

"In the second quarter, Paladin posted solid financial results and achieved several corporate milestones. We successfully completed the integration of Labopharm and moving forward have eliminated all targeted excess costs related to that acquisition. And most notably, we completed our strategic partnership with Litha, enhancing the competitive position of our African licensing platform. In Q3 we will be consolidating Litha's financial results and expect this transaction to be immediately accretive to EBITDA¹." said Mark Beaudet, interim President and CEO of Paladin Labs.

Financial Results

Revenues increased $1.1 million or 3% to $37.1 million for the second quarter of 2012 from $36.0 million for the same period in 2011. The increase is mostly attributable to incremental revenues from products acquired and/or launched including corporate acquisitions since 2011, which contributed $3.2 million to the quarter ended June 30, 2012, including $2.5 million resulting from the acquisition of Labopharm. The increase is also attributable to the sales growth of certain significant promoted products, including Tridural®, Trelstar®, Testim®, Metadol®, and Abstral®, which combined, increased by 4% for the quarter compared to 2011. This growth was negatively impacted by revenue recognized from international tenders during the second quarter of 2011.

Second quarter 2012, EBITDA¹ decreased 6% or $1 million to $17.2 million, compared to EBITDA¹ of $18.2 million in the second quarter of 2011. In 2011, EBITDA included $1.4 million in interest income related to loans to ProStrakan and Labopharm which were settled in 2011.

Net income for the quarter was $10.9 million or $0.52 per fully diluted share, compared to net income of $16.8 million or $0.80 per fully diluted share in the same quarter a year ago. 

As at June 30, 2012, Paladin's cash, cash equivalents and investments in marketable securities totaled a record $261.2 million. Subsequent to the quarter, in connection with the Litha Transaction, Paladin deployed $47.5 million. From this strong cash position, Paladin continues to pursue acquisition opportunities.

Product Developments

During the quarter ended June 30, 2012, Paladin demonstrated its continued commitment to growing its product portfolio by signing a license agreement with Nuvo for Synera® and by filing a PLA with Health Canada for Travelan®.

In late May, Paladin entered into a license and supply agreement whereby Paladin was granted the exclusive Canadian rights to market and sell Synera®, upon regulatory approval. Synera® is a topical patch that combines lidocaine, tetracaine and heat, using Nuvo's proprietary "Controlled Heat Assisted Drug Delivery" (CHADD) technology. In connection with this agreement, Paladin agreed to a loan of $8 million to Nuvo in two equal tranches of $4 million, which is secured by Nuvo's Pain assets.

In June 2012, Paladin filed a PLA that was accepted for review by Health Canada for Travelan®, an over-the-counter product for the prevention of travellers' diarrhea. Paladin obtained the exclusive rights to market and sell Travelan® in Canada, Latin America and Sub-Saharan Africa from Immuron in November 2011.

Corporate Developments

Effective July 2 2012, Paladin completed its most significant strategic investment to date through its investment in Litha, a JSE-listed, diversified healthcare company located in South Africa. Under the terms of the agreement, Paladin acquired the 55.01% of Pharmaplan which it did not previously own and sold 100% of the share capital of Pharmaplan to Litha in exchange for cash of and the issuance of 169,090,909 shares in Litha at ZAR2.75 per share. Paladin also acquired an additional 72,989,078 shares of Litha from the Blackstar Group at ZAR2.75 per share. In connection with the Transaction, Paladin deployed $47.5 million in cash and issued 88,948 shares at $44.97 per share. As a result of this Transaction, Paladin owns 44.5% of the outstanding shares of Litha and, through various shareholder agreements, effectively controls 58% of the shares outstanding of Litha. As a result, Paladin will be consolidating Litha's results beginning in the third quarter of 2012. 

During the last several years, Paladin has increasingly structured its license agreements to include select international territories including South Africa and Sub-Saharan Africa. As a result, Paladin has built a portfolio of over 12 products available for commercialization in the South African and Sub-Saharan markets. Through this partnership, Paladin has access to a stronger, more diversified platform on which to commercialize its international product portfolio in Sub-Saharan Africa. 

Updated Financial Outlook

As a result of the Transaction and a review of our revenue results to date, Paladin has revised its 2012 forecasts. For fiscal 2012, Paladin expects to generate in excess of $200 million in revenue, of which at least $55 million is attributable to the consolidation of Litha. This forecast does not give effect to the interest in Litha not owned by Paladin and excludes the impact of acquisitions and of product launches resulting from new regulatory approvals that may be made by the Company between now and the end of 2012.

⁽¹⁾ EBITDA - Non-IFRS Financial Measures

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under International Financial Reporting Standards ("IFRS") and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, other expense (income), taxes, amortization, foreign exchange gains (losses), share of net income in an associate and unusual items; such as write-downs and gains (losses) on intellectual property and investments. EBITDA is calculated and presented consistently from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under-noted items" on the consolidated statements of income. The Company believes EBITDA to be an important measurement that allows it to assess the operating performance of its ongoing business on a consistent basis without the impact of amortization expenses. The Company excludes amortization expenses because their level depends substantially on non-operating factors such as the historical cost of intangible assets. The Company's method for calculating EBITDA may differ from that used by other issuers and, accordingly, this measure may not be comparable to EBITDA used by other issuers. 

Conference Call Notice

Paladin will host a conference call to discuss its second quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-891-9945 or 416-981-9000. The call will be audio-cast live and archived for 30 days at www.paladinlabs.com.

About Paladin Labs Inc.

Paladin Labs Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian and select international markets. With this strategy, a focused Canadian national sales team and proven marketing expertise, Paladin has evolved into one of Canada's leading specialty pharmaceutical companies. For more information, please visit the Company's web site at www.paladinlabs.com.

This press release may contain forward-looking statements and predictions. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which are beyond the control of the Company and its subsidiaries, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations, are discussed in the annual report as well as in the Company's Annual Information Form for the year ended December 31, 2011. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information or future events and except as required by law. For additional information on risks and uncertainties relating to these forward-looking statements, investors should consult the Company's ongoing quarterly filings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.

INTERIM CONSOLIDATED BALANCE SHEETS
[In thousands of Canadian dollars]
As at	June 30, 2012		December 31, 2011
ASSETS
Current
Cash and cash equivalents	133,082		72,115
Marketable securities	128,077		166,894
Trade and other receivables	21,320		20,208
Inventories	16,604		13,327
Income tax receivable	2,033		718
Other current assets	3,501		1,476
Total current assets	304,617		274,738
Investment in an associate	18,480		20,850
Financial assets	11,416		9,311
Investment tax credits recoverable	24,838		24,674
Deferred income tax assets	33,148		40,613
Property, plant and equipment	229		162
Pharmaceutical product licenses and rights	21,415		27,565
Total assets	414,143		397,913
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Payables, accruals and provisions	34,962		38,849
Finance lease liability	1,035		984
Deferred revenue	2,903		2,999
Income tax payable	23,050		22,205
Balances of sale payable	480		1,809
Total current liabilities	62,430		66,846
Finance lease liability	5,189		5,745
Deferred revenue	1,653		2,099
Balances of sale payable	498		497
Total liabilities	69,770		75,187
Shareholders' equity
Share capital	167,871		166,681
Other paid-in capital	6,010		5,144
Other capital reserves	(263	)	553
Retained earnings	170,755		150,348
Total shareholders' equity	344,373		322,726
Total liabilities and shareholders' equity	414,143		397,913

INTERIM CONSOLIDATED INCOME STATEMENTS
[In thousands of Canadian dollars except for share and per share amounts]
	Three months ended June 30				Six months ended June 30
	2012		2011		2012		2011
Revenues	37,136		35,971		75,693		67,723
Cost of sales	9,981		9,462		21,169		17,502
Gross profit	27,155		26,509		54,524		50,221
Expenses (income)
Selling, general and administrative	9,071		8,188		16,739		15,228
Research and development	1,879		2,225		4,427		4,296
Interest income	(980	)	(2,177	)	(1,873	)	(4,846	)
Earnings before under-noted items	17,185		18,273		35,231		35,543
Amortization of pharmaceutical product licenses and rights	2,903		5,571		5,806		10,901
Other finance expense (income)	340		(9,134	)	895		(8,561	)
Other income	(717	)	-		(917	)	-
Foreign exchange loss (gain)	192		(75	)	38		(456	)
Share of net income from an associate	(524	)	(564	)	(949	)	(765	)
Income before income tax	14,991		22,475		30,358		34,424
Provision for income taxes	4,113		5,692		8,158		9,541
Net income for the period	10,878		16,783		22,200		24,883
Attributable to shareholders
Basic earnings per share	0.54		0.83		1.09		1.26
Diluted earnings per share	0.52		0.80		1.06		1.22
Weighted average number of shares outstanding
Basic	20,331,736		20,136,525		20,308,241		19,718,663
Diluted	20,926,103		20,867,422		20,992,924		20,459,235

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[In thousands of Canadian dollars]
		Three months ended June 30				Six months ended June 30
		2012		2011		2012		2011
Operating activities
Net income for the period		10,878		16,783		22,200		24,883
Adjustments reconciling net income to operating cash flows
	Amortization of pharmaceutical product licenses and rights	2,903		5,571		5,806		10,901
	Deferred tax	2,985		1,625		7,358		3,922
	Share-based compensation expense	746		700		1,327		1,123
	Other finance loss (income)	340		(9,134	)	895		(8,561	)
	Other income	(717	)	-		(717	)	-
	Unrealized foreign exchange loss (gain)	165		(527	)	230		(1,014	)
	Depreciation of property, plant and equipment	29		24		56		129
	Changes in working capital and other non-cash balances	(5,165	)	2,842		(9,683	)	589
	Share of net income from an associate	(524	)	(564	)	(949	)	(765	)
Cash inflow from operating activities		11,640		17,320		26,523		31,207
Investing activities
Disposals and maturities of marketable securities		75,656		13,181		115,163		16,094
Dividends from an associate		1,637		-		1,637		251
Proceeds from disposal of financial assets		799		85,666		799		89,010
Proceeds from disposal of pharmaceutical product licenses and rights		717		-		717		-
Purchases of marketable securities		(40,478	)	(90,319	)	(77,055	)	(136,057	)
Purchases of financial assets		(4,000	)	(5,598	)	(4,000	)	(85,936	)
Payment of balances of sale payable		(995	)	-		(995	)	(250	)
Purchases of property, plant and equipment		(106	)	(10	)	(123	)	(65	)
Purchases of pharmaceutical product licenses and rights		(25	)	(50	)	(25	)	(7,617	)
Investment in an associate		-		-		-		(2,936	)
Net cash inflow (outflow) from investing activities		33,205		2,870		36,118		(127,506	)
Financing activities
Common shares issued for cash		598		859		1,169		40,861
Repurchase of shares		(1,458	)	-		(2,277	)	-
Payment of obligation under finance lease		(250	)	-		(500	)	-
Net cash (outflow) inflow from financing activities		(1,110	)	859		(1,608	)	40,861
Foreign exchange rate (loss) gain on cash and cash equivalents		(55	)	9		(66	)	(158	)
Increase (decrease) in cash and cash equivalents during the period		43,680		21,058		60,967		(55,596	)
Cash and cash equivalents, beginning of period		89,402		19,641		72,115		96,295
Cash and cash equivalents, end of period		133,082		40,699		133,082		40,699
Cash and cash equivalents		133,082		40,699
Marketable securities		128,077		163,368
		261,159		204,067