DRAXIS Health Reports Third Quarter Results

Friday, November 2, 2007 General News
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MISSISSAUGA, ON, Nov. 1 /PRNewswire-FirstCall/ - DRAXIS Health Inc. (TSX:DAX); (Nasdaq: DRAX) reported financial results for the third quarter and thenine months ended September 30, 2007. Consolidated revenues and earnings forthe third quarter and the first nine months of 2007 were down from the sameperiods in 2006 primarily due to factors affecting the contract manufacturingbusiness including reduced demand as a result of inventory adjustments bycustomers, continued production delays in contract manufacturing thatprevented the shipment of planned quantities before the end of the quarter andseverance costs, compounded by the continued rapid strengthening of theCanadian dollar versus the U.S. dollar. All amounts are expressed in U.S.dollars.

"The third quarter was negatively impacted by continued poor performanceat our contract manufacturing division, due to the previously discloseddecline in production volumes of sterile products, particularly Hectorol(R)Injection, but compounded as well by lower margins in our radiopharmaceuticalsdivision and a short-term delay in orders for selected products as a result ofnew inventory management policies recently adopted by a key customer," saidDr. Martin Barkin, President and CEO of DRAXIS Health. "Results have also beensignificantly affected again this quarter by the continued and unprecedentedstrengthening of the Canadian dollar against the U.S. dollar. On a positivenote, the signing of our significant contract with Johnson & Johnson ConsumerCompanies, Inc. bodes well for profitability growth in our contractmanufacturing business. For this and the many other factors contributing toour long term growth, we continue to believe that 2007 and the first part of2008 is a period when the Company will be in transition to be positioned forsignificant growth from late 2008 through to 2010 and 2011."

Dr. Barkin also noted, "We have been proactive in addressing performanceissues. Jean-Pierre Robert was appointed during the third quarter to head upDRAXIS Pharma as well as DRAXIMAGE. At DRAXIS Pharma, he has recentlyrecruited a new head of quality operations and brought in a new head ofengineering services. We have initiated a comprehensive realignment ofaccountabilities across the Company with the objective of reducing expensesassociated with core operations to manage our cost structure in line withcurrent revenue expectations and the rapidly accelerating value of theCanadian dollar. This includes a plan to reduce the number of corporateexecutives by one-third by the end of 2007. Many of these actions have alreadyresulted in severance costs and will similarly impact results going forward,particularly the fourth quarter. When these initiatives are completed weexpect that the Company will return to its historic levels of revenue andearnings growth."

Two significant non-recurring items in the first nine months of 2007positively affected financial performance relative to the first nine months of2006. During the first quarter of 2007 the Company received a non-recurringmilestone payment of $0.8 million from Shire BioChem Inc. and an insurancepayment of $0.5 million from a business interruption insurance claim relatedto the extended shutdown period in 2005. The impact of these items onoperating income (loss) and diluted earnings (loss) per share are included inthe Schedule of Supplemental Information below.

Under the Company's current Normal Course Issuer Bid, which began December20, 2006 and which ends no later than December 19, 2007, approximately $0.7million has been returned to shareholders as of October 31, 2007 through therepurchase for cancellation of 130,100 common shares at an average price of$5.27 (CDN$5.21).

Guidance targets for 2007, which were revaluated subsequent to the secondquarter of 2007, have been subsequently reassessed following the third quarterof 2007, taking into account the followin

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