DRAXIS Health Reports Fourth Quarter and Year End Results



    MONTREAL, Feb. 7 /CNW/ - 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 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
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 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 www.sec.gov) and the filings made by the
Company with Canadian securities regulators (available on SEDAR at
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 No. 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.
    

    %SEDAR: 00004049E




For further information:

For further information: DRAXIS Health Inc., Jerry Ormiston, Executive
Director, Investor Relations, Tel: 1-877-441-1984

Organization Profile

DRAXIS SPECIALTY PHARMACEUTICALS INC.

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