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DRAXIS Health Reports Fourth Quarter and Year End Results
Date:2/7/2008

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 ce 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%)

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Operating Income

$253 $3,602 (93.0%) - Adjusted(1) $2,648 $11,896 (77.7%)

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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)

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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 nts 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, In 2007 2006

----------- ----------- ----------- -----------

REVENUES

$ 20,024 $ 23,106 Product sales $ 76,072 $ 83,545

463 1,290 Royalty and licensing 2,788 5,422

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20,487 24,396 78,860 88,967

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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

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21,658 20,107 76,712 74,015

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(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

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(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

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$ (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

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See the accompanying notes to the Consolidated Financial Statements.

These interim financial statements should be read in conjunction with

the annual Consolidated Financial Statements.

DRAXIS HEALTH INC.

Consolidated Balance Sheets

In Accordance with U.S. GAAP

-------------------------------------------------------------------------

(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

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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

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Total assets $ 127,934 $ 105,962

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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

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Total current liabilities 12,700 11,845

Other liabilities 164 990

Deferred revenues 594 712

Customer financing 3,135 -

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Total liabilities $ 16,593 $ 13,547

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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

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Total shareholders' equity 111,341 92,415

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Total liabilities and shareholders' equity $ 127,934 $ 105,962

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See the accompanying notes to the Consolidated Financial Statements.

These interim financial statements should be read in conjunction with

the annual Consolidated Financial Statements.

DRAXIS HEALTH INC.

Consolidated Statements of Changes in Equity and Comprehensive Income

(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)

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42,062,538 41,522,138 Balance, end of period 42,062,538 41,522,138

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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)

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$ 79,814 $ 77,749 Balance, end of period $ 79,814 $ 77,749

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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

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$ 15,984 $ 15,475 Balance, end of period $ 15,984 $ 15,475

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Warrants

Balance, beginning

$ - $ - of period $ - $ 916

- - Expiry of warrants - (916)

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$ - $ - Balance, end of period $ - $ -

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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)

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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)

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22,119 7,425 Balance, end of period 22,119 7,425

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Total shareholders'

$ 111,341 $ 92,415 equity $ 111,341 $ 92,415

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Comprehensive Income (Loss)

Foreign currency

translation

$ 288 $ (3,485) adjustments $ 14,694 $ (385)

(551) 3,687 Net income (loss) 1,658 11,547

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Total comprehensive

$ (263) $ 202 income (loss) $ 16,352 $ 11,162

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See the accompanying notes to the Consolidated Financial Statements.

These interim financial statements should be read in conjunction with

the annual Consolidated Financial Statements.

DRAXIS HEALTH INC.

Consolidated Statements of Cash Flows

In Accordance with U.S. GAAP

-------------------------------------------------------------------------

(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)

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Net cash from (used in)

2,395 5,734 operating activities 12,551 16,450

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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

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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

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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. dollac. (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. Whilers 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

-------------------------------------------------------------------------

-------------------------------------------------------------------------

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.

-
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SOURCE DRAXIS Health Inc.
Copyright©2008 PR Newswire.
All rights reserved

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