DRAXIS Health Reports Third Quarter Results



    MISSISSAUGA, ON, Nov. 1 /CNW/ - DRAXIS Health Inc. (TSX: DAX); (Nasdaq:  
DRAX) reported financial results for the third quarter and the nine months
ended September 30, 2007. Consolidated revenues and earnings for the third
quarter and the first nine months of 2007 were down from the same periods in
2006 primarily due to factors affecting the contract manufacturing business
including reduced demand as a result of inventory adjustments by customers,
continued production delays in contract manufacturing that prevented the
shipment of planned quantities before the end of the quarter and severance
costs, compounded by the continued rapid strengthening of the Canadian dollar
versus the U.S. dollar. All amounts are expressed in U.S. dollars.

    
    Highlights

    -   Consolidated revenues for the third quarter of 2007 were
        $18.0 million, compared to $21.2 million in the third quarter of
        2006; nine month consolidated revenues were $58.4 million in 2007
        compared to $64.6 million in 2006. Revenues were down due to reduced
        short-term demand for selected products as customer inventory
        adjustments were addressed primarily in the third quarter. As a
        result, product sales for the third quarter of 2007 were
        $17.4 million versus $19.8 million for the third quarter of 2006.

    -   Operating loss for the third quarter was $1.7 million in 2007
        compared to operating income of $3.4 million in 2006; nine month
        operating income was $3.3 million in 2007 and $10.7 million in 2006.

    -   For the third quarter of 2007 diluted EPS was negative 3 cents (or
        negative 2 cents adjusted diluted EPS - See Schedule of Supplemental
        Information) versus diluted EPS of 6 cents (or 4 cents adjusted
        diluted EPS) in the third quarter of 2006; for the first nine months
        of 2007 diluted EPS was 5 cents (or 4 cents adjusted diluted EPS)
        versus diluted EPS of 19 cents (or 14 cents adjusted diluted EPS) for
        the same period in 2006.

        As indicated previously, 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 per share annually to 2006's reported earnings
        per share.

    -   Cash flows from operating activities in 2007 were $2.1 million in the
        third quarter and $10.2 million for the first nine months, compared
        to operating cash flows of $5.9 million and $10.4 million
        respectively for the same periods in 2006. The decrease relates to
        lower cash earnings in the contract manufacturing segment.

    -   Cash and cash equivalents at September 30, 2007 were $26.9 million
        compared to $19.9 million at September 30, 2006. Investments to date
        in 2007 have included capital projects such as a new warehouse
        management system, information technology and SAP platform upgrades
        and new installations related to a substantial non-sterile contract
        signed during the third quarter.
    

    "The third quarter was negatively impacted by continued poor performance
at our contract manufacturing division, due to the previously disclosed
decline in production volumes of sterile products, particularly Hectorol(R)
Injection, but compounded as well by lower margins in our radiopharmaceuticals
division and a short-term delay in orders for selected products as a result of
new inventory management policies recently adopted by a key customer," said
Dr. Martin Barkin, President and CEO of DRAXIS Health. "Results have also been
significantly affected again this quarter by the continued and unprecedented
strengthening of the Canadian dollar against the U.S. dollar. On a positive
note, the signing of our significant contract with Johnson & Johnson Consumer
Companies, Inc. bodes well for profitability growth in our contract
manufacturing business. For this and the many other factors contributing to
our long term growth, we continue to believe that 2007 and the first part of
2008 is a period when the Company will be in transition to be positioned for
significant growth from late 2008 through to 2010 and 2011."
    Dr. Barkin also noted, "We have been proactive in addressing performance
issues. Jean-Pierre Robert was appointed during the third quarter to head up
DRAXIS Pharma as well as DRAXIMAGE. At DRAXIS Pharma, he has recently
recruited a new head of quality operations and brought in a new head of
engineering services. We have initiated a comprehensive realignment of
accountabilities across the Company with the objective of reducing expenses
associated with core operations to manage our cost structure in line with
current revenue expectations and the rapidly accelerating value of the
Canadian dollar. This includes a plan to reduce the number of corporate
executives by one-third by the end of 2007. Many of these actions have already
resulted in severance costs and will similarly impact results going forward,
particularly the fourth quarter. When these initiatives are completed we
expect that the Company will return to its historic levels of revenue and
earnings growth."

    
    -------------------------------------------------------------------------
                            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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
        2007        2006                                  2007        2006
    (unaudited) (unaudited)                           (unaudited) (unaudited)
                             REVENUES
       $17,370     $19,788     Product sales             $56,048     $60,439
           558         617     Royalty and licensing       2,235       1,657
                               Anipryl(R) deferred
            30         825      revenues                      90       2,475
    -------------------------------------------------------------------------
       $17,958     $21,230                               $58,373     $64,571
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        $4,697      $8,127   Product Gross Margin        $19,545     $26,016
         27.0%       41.1%   Product Gross Margin %        34.9%       43.0%

       ($1,661)     $3,423   Operating income (loss)      $3,319     $10,663
         -9.2%       16.1%   Operating Margin %             5.7%       16.5%

       $26,928     $19,891   Cash and cash equivalents   $26,928     $19,891

            $0          $0   Total debt                       $0          $0

                             Cash flows from operating
        $2,053      $5,858    activities                 $10,156     $10,438
                             Cash flows used in
        (2,965)     (1,425)   investing activities        (8,234)     (3,742)
    -------------------------------------------------------------------------
         ($912)     $4,433                                $1,922      $6,696
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       ($1,376)     $2,604   Net income (loss)            $2,209      $7,860

                             Basic earnings (loss)
        ($0.03)      $0.06    per share                    $0.05       $0.19
                             Diluted earnings (loss)
        ($0.03)      $0.06    per share                    $0.05       $0.19
    -------------------------------------------------------------------------
    

    Two significant non-recurring items in the first nine months of 2007
positively affected financial performance relative to the first nine months of
2006. During the first quarter of 2007 the Company received a non-recurring
milestone payment of $0.8 million from Shire BioChem Inc. 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 current Normal Course Issuer Bid, which began
December 20, 2006 and which ends no later than December 19, 2007,
approximately $0.7 million has been returned to shareholders as of October 31,
2007 through the repurchase for cancellation of 130,100 common shares at an
average price of $5.27 (CDN$5.21).

    Segment Highlights from Management's Discussion and Analysis

    
    Contract Manufacturing

    -   Revenues for the third quarter of 2007 were $12.1 million or 17%
        lower than the third quarter of 2006. The decrease was due to
        significantly lower production volumes of Hectorol(R) in the third
        quarter of 2007, which is expected to be the low point of quarterly
        production for 2007. In addition, volumes in the third quarter of
        2007 were $1 million below expectations due to the decision of a
        specific customer to reduce its supply chain inventory levels for
        2007. This impact is expected to be a short-term reduction in
        production volumes for this customer's products with volumes
        returning to historical levels thereafter.

    -   Product gross margin percentage declined to 13% in the third quarter
        of 2007 and 23% for the first nine months of 2007 compared to 31% and
        35% respectively for the same periods of 2006. The decrease was
        driven by lower volumes of both sterile and non-sterile products and
        the resulting negative impact of decreased capacity utilization. The
        regular summer shutdown for maintenance in the third quarter was
        extended in the non-sterile area to accommodate new installations and
        facility expansions related to the new long-term contract with
        Johnson & Johnson Consumer Companies, Inc.

    -   Operating loss for the third quarter of 2007 was $1.4 million and
        operating income for the first nine months was $2.4 million compared
        to operating income of $2.3 million and $8.9 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 third quarter the Company announced the successful signing
        of a new contract with Johnson & Johnson Consumer Companies, Inc. for
        non-sterile products that is expected to generate incremental
        revenues in excess of $120 million from commercial production during
        the period 2009 through 2013 plus approximately $6 to 8 million
        during 2007-2008 from product transfer activities. This new business
        is expected to significantly increase capacity utilization in the
        non-sterile area, provide a significant and stable revenue stream
        beginning in 2009 and add substantial production capabilities with
        little or no additional capital expenditures. This enhanced business
        relationship with a key client is expected to increase the
        probability of attracting new business as a result of increased
        exposure and credibility.

    Radiopharmaceuticals

    -   Product sales of $5.8 million in the third quarter were up 3% over
        the third quarter of 2006 with the inclusion of freight charges in
        product sales revenues, which started April 1, 2007. Excluding
        freight charges, product sales in the third quarter of 2007 were down
        slightly due to the temporary suspension of production in the quarter
        of a private label product for one customer, pending possible future
        formulation changes. Nine month product sales for 2007 were up 10% to
        $17.5 million, primarily as a result of higher sales of Sodium Iodide
        I-131 products, increased cold kit sales and the inclusion of freight
        charges in revenues.

    -   Product gross margins in the third quarter of 2007 were 54.1% of
        sales compared to 64.8% of sales for the third quarter of 2006; for
        the first nine months of 2007 product gross margins were 58.3% versus
        62.9% for the same period in 2006, due to the dilutive impact of
        including freight charges billed back to customers in revenues and
        cost of goods sold, coupled with foreign exchange pressures caused by
        the stronger Canadian dollar.

    -   Operating income in the third quarter of 2007 was $0.8 million
        compared to $1.8 million in the third quarter of 2006 as a result of
        pressures on margins from a strong Canadian dollar, regulatory filing
        fees and increased business development activities. For the first
        nine months of 2007, operating income of $3.3 million was 18% lower
        than the first nine months of 2006, primarily due to regulatory
        filing fees and increased research and development spending.

    -   The FDA acknowledged in July 2007 the receipt and acceptance for
        review of the Abbreviated New Drug Application (ANDA) for
        DRAXIMAGE(R) Sestamibi that was submitted in February 2007.

    -   In July 2007 DRAXIMAGE announced the filing of DRAXIMAGE(R) Sestamibi
        with European regulatory authorities, marking another milestone in
        the comprehensive plan to pursue major myocardial perfusion imaging
        (MPI) markets globally.

    -   DRAXIMAGE filed an Abbreviated New Drug Submission (A/NDS) for
        DRAXIMAGE(R) Sestamibi with Health Canada in August, 2007 and was
        advised in October 2007 that this submission was found acceptable for
        review.

    -   DRAXIMAGE is on track to obtain product registrations required to
        enter European markets during 2008. The MAA kit product for
        diagnostic lung perfusion studies, initially approved in the
        Netherlands in 2005, was recently approved in Germany, the United
        Kingdom and Luxembourg. The MDP kit product for diagnostic bone
        imaging has been approved in the Netherlands and in addition I-131
        Sodium Iodide Capsules, for the treatment of thyroid cancer, was
        approved in Denmark during the third quarter of 2007.

    -   In August 2007 DRAXIMAGE announced the establishment of a research
        collaboration with Med Discovery of Geneva, Switzerland to explore
        the combination of Med Discovery's targeted protein therapeutics with
        DRAXIMAGE radiopharmaceutical expertise for the assessment and
        possible development of agents for the detection of microtumors and
        the potential treatment of prostate cancer and a variety of other
        cancers.

    Outlook

    Guidance targets for 2007, which were revaluated subsequent to the second
quarter of 2007, have been subsequently reassessed following the third quarter
of 2007, taking into account 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 head of both of 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. Severance costs in the third quarter of 2007
        amounted to $0.6 million and are included in selling, general and
        administrative expenses. The Company expects further severance costs
        in the fourth quarter of 2007 which are expected to impact earnings
        per share by approximately 3 cents per share.

    -   During the first nine months of 2007, the strengthening of the
        Canadian dollar from $CDN1.165 per U.S. dollar as at December 31,
        2006 to $CDN0.995 per U.S. dollar as at the end of September 30, 2007
        has resulted in foreign exchange losses for the first nine months of
        2007 of approximately 3 cents per share or $1.6 million ($0.7 million
        in the third quarter alone). 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
        streams 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 assuming no further material changes to
        foreign exchange rates to the end of the year.

    -   Volumes of radioactive products produced by the radiopharmaceutical
        operations were lower than expected during the third quarter due to a
        decision by a customer to cease production of a private label
        radioactive product ($350,000 in revenues per quarter) while the
        customer determines whether to continue to supply the market in the
        future pending possible formulation changes.

    -   Based on the latest information from Genzyme, the Company expects
        Hectorol(R) production volumes in 2007 to be approximately $9 million
        lower than what they were in 2006 and significantly lower than what
        was originally forecasted for 2007. Production volumes in the third
        quarter of 2007 were particularly low due to reduced customer demand.
        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.

    -   The successful product transfer of the IC-GREEN(TM) product during
        the third quarter of 2007, which is now being produced for Akorn,
        Inc., is one of several sterile products that DRAXIS Pharma is
        transferring in to begin to fill the gap resulting from declining
        Hectorol(R) volumes. We believe that the trend is for Hectorol(R)
        volumes to continue to decline and we are planning under the
        assumption that the manufacturing of this product by DRAXIS Pharma
        will ultimately be phased out by the end of 2009.

    -   R&D expenses at DRAXIMAGE will remain steady and will continue to be
        allocated toward the successful filing and commercialization of high
        value products such as DRAXIMAGE(R) Sestamibi and the MOLY-FILL(TM)
        Tc-99m Generator. In addition, resources will be directed toward the
        establishment of additional external collaborations for the
        identification and co-development of innovative radiopharmaceutical
        products. Formulation development of INFECTON(R) targeting
        orthopaedic indications has to date not been successful and we will
        allocate the resources devoted to this product to other projects.
    

    Due to the expected financial performance for 2007 resulting from the
factors described above, the Company expects earnings per share to be at least
7 cents lower than the most recent guidance of 18 to 21 cents per share for
2007 and net operating cash flows to be at least $3 million lower than the
target of $18 million, subject to working capital fluctuations. Our financial
performance in the third quarter of 2007 is not expected to negatively impact
the long term financial performance of the Company. Significant key milestones
have already been achieved in 2007 consistent with the sources of future
growth detailed below.

    Guidance for Future Years

    Beyond 2007, the Company no longer plans to provide specific quantitative
guidance given an anticipated period of expansion and significant growth that
is expected to be accompanied by periods of increased forecast variability.
This growth will be driven by the following factors (not in any particular
order):

    
    -   The timing and ramping up of commercial production of non-sterile
        products under the new contract with Johnson & Johnson Consumer
        Companies, Inc. will be influenced by both the product transfer
        process and the receipt of manufacturing site transfer approvals from
        appropriate regulatory agencies.

    -   Several potential new contract manufacturing 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 in several different countries plus the establishment of
        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, 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 current 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 timing of regulatory approval of the Company's improved
        radiopharmaceutical (cold kit) product for bone scan imaging and its
        potential introduction into the U.S. marketplace will be driven
        largely by the regulatory review and approval process.

    -   The successful completion of clinical trials for I-131 MIBG for the
        diagnosis and treatment of neuroblastoma and related malignancies
        will determine the timing of its filing and approval by regulatory
        authorities.

    -   The timing of the initiation and completion of planned expansions to
        our Montreal-based facilities will impact future forecast accuracy.

    Any and all of these factors will have an impact on the Company's future
growth to a degree that small changes in timing could have important impacts
on short-term earnings.

    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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
      2007     2006  % Change                        2007     2006  % Change

                                Operating Income
    ($1,661)  $3,423  (148.5%)   (Loss) - Reported  $3,319  $10,663   (68.9%)
                                Adjustments:
                                  (a) Non-recurring
                                      Shire milestone
          -        -                  receipt(2)      (791)       -
                                  (b) Insurance
          -        -                  proceeds(3)     (517)       -
                                  (c) DSU (recovery)
       (245)      16 (1631.3%)        expense(4)      (119)    (167)  (28.7%)
        592        -              (d) Severance        592        -
                                  Anipryl(R) deferred
        (30)    (825)  (96.4%)     revenues            (90)  (2,475)  (96.4%)
    -------------------------------------------------------------------------
                                Operating Income
                                 (Loss) -
    ($1,344)  $2,614  (151.4%)   Adjusted(1)        $2,394   $8,021   (70.2%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                Diluted EPS -
     ($0.03)   $0.06             Reported            $0.05    $0.19
                                Adjustments:
                                  (a) Non-recurring
                                      Shire milestone
          -        -                  receipt(2)     (0.01)       -
                                  (b) Insurance
          -        -                  proceeds(3)    (0.01)       -
                                  (c) DSU (recovery)
          -        -                  expense(4)         -        -
       0.01        -              (d) Severance       0.01
                                  Anipryl(R) deferred
          -    (0.02)              revenues              -    (0.05)
    ----------------------------------------------------------------
                                Diluted EPS -
     ($0.02)   $0.04             Adjusted(1)         $0.04    $0.14
    -------------------------------------------------------------------------

    (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 includes by reference the 2007 third quarter interim
financial report incorporating the full Management's Discussion & Analysis
(MD&A) as well as financial statements for the quarter and the nine months
ended September 30, 2007 prepared in accordance with U.S. GAAP. The interim
report, including the MD&A and financial statements, has been filed with
applicable Canadian and U.S. securities regulatory authorities, is accessible
on the Company's website at www.draxis.com in the Investor Relations section
under Financial Reports, through the SEDAR and EDGAR databases and is
available upon request by contacting DRAXIS Investor Relations at
1-877-441-1984.

    Conference Call

    DRAXIS has scheduled a conference call to discuss third quarter 2007
financial results at 10:00 a.m. (ET) on November 1, 2007. This call can be
accessed by dialing 1 (800) 819-9193 and using Access Code 4571610, 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 MD&A 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" above and the Company's MD&A for
        the quarter ended September 30, 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 October 31, 2007. 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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             REVENUES
    $   17,370  $   19,788     Product sales          $   56,048  $   60,439
           588       1,442     Royalty and licensing       2,325       4,132
    -------------------------------------------------------------------------
        17,958      21,230                                58,373      64,571
    -------------------------------------------------------------------------
                             EXPENSES
                               Cost of goods sold,
                                excluding depreciation
                                and amortization
        12,673      11,661      (Note 3)                  36,503      34,423
                               Selling, general
         4,792       4,261      and administration        12,127      13,753
           655         558     Research and development    2,273       1,980
                               Depreciation and
         1,499       1,327      amortization               4,151       3,752
    -------------------------------------------------------------------------
        19,619      17,807                                55,054      53,908
    -------------------------------------------------------------------------
        (1,661)      3,423   Operating income (loss)       3,319      10,663
           247          65   Financing income, net           605         119
          (655)         (2)  Foreign exchange loss        (1,645)       (240)
    -------------------------------------------------------------------------
                             Income (loss) before
        (2,069)      3,486    income taxes                 2,279      10,542
                             Income taxes (expense)
           693        (882)   recovery                       (70)     (2,682)
    -------------------------------------------------------------------------
    $   (1,376) $    2,604   Net income (loss)        $    2,209  $    7,860
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Basic earnings (loss)
                             ---------------------
    $    (0.03) $     0.06    per share (Note 4)      $     0.05  $     0.19
                              ------------------

                             Diluted earnings (loss)
                             -----------------------
    $    (0.03) $     0.06    per share (Note 4)      $     0.05  $     0.19
                              ------------------

                             Weighted-average number
                              of shares outstanding
    42,076,726  41,870,614     - basic                41,948,449  41,608,623
    42,117,209  41,870,614     - diluted              42,135,463  41,683,049
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     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)

                                                  September 30,  December 31,
                                                          2007          2006
                                                  ------------- -------------
    ASSETS
    Current assets
      Cash and cash equivalents                    $    26,928   $    21,446
      Accounts receivable                               16,267        20,683
      Inventories (Note 5)                               9,308         7,590
      Prepaid expenses                                   1,536           735
      Deferred income taxes, net                         4,139         3,179
    -------------------------------------------------------------------------
    Total current assets                                58,178        53,633

      Accounts receivable, long term                     1,621             -
      Property, plant and equipment, net                57,787        46,292
      Goodwill, net                                        882           753
      Intangible assets, net                               186           318
      Other assets                                         393           407
      Deferred income taxes, net                         5,521         4,559
    -------------------------------------------------------------------------
    Total assets                                   $   124,568   $   105,962
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
      Accounts payable and accrued liabilities
       (Note 6)                                    $    10,251   $    10,940
      Current portion of deferred revenues                 222           329
      Customer deposits                                    368           576
    -------------------------------------------------------------------------
    Total current liabilities                           10,841        11,845
      Other liabilities                                    236           990
      Deferred revenues                                    623           712
      Customer financing                                 1,200             -
    -------------------------------------------------------------------------
    Total liabilities                              $    12,900   $    13,547
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
      Common stock, without par value of
       unlimited shares authorized                 $    79,720   $    77,749
      Additional paid-in capital                        16,142        15,475
      Deficit                                           (6,025)       (8,234)
      Accumulated other comprehensive income            21,831         7,425
    -------------------------------------------------------------------------
    Total shareholders' equity                         111,668        92,415
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity     $   124,568   $   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
    In Accordance with U.S. GAAP
    -------------------------------------------------------------------------
    (in thousands of U.S. dollars except share related data)
    (unaudited)

    For the Three-Month Periods                    For the Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             Common Stock
                              (Number of Shares)
                             Balance, beginning of
    42,057,638  41,671,788    period                  41,522,138  41,588,005
        30,000     210,750     Exercise of options       565,500     542,333
                               Repurchased for
       (12,400)          -      cancellation             (12,400)   (247,800)
    -------------------------------------------------------------------------
    42,075,238  41,882,538   Balance, end of period   42,075,238  41,882,538
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             Common Stock
                             Balance, beginning of
    $   79,588  $   77,779    period                  $   77,749  $   77,313
           104         576     Exercise of options         1,812       1,555
                               Fair values of options
            58           -      exercised                    189           -
                               Repurchased for
           (30)          -      cancellation                 (30)       (513)
    -------------------------------------------------------------------------
    $   79,720  $   78,355   Balance, end of period   $   79,720  $   78,355
    -------------------------------------------------------------------------
                             Additional Paid In
                              Capital
                             Balance, beginning of
    $   15,915  $   16,184    period                  $   15,475  $   15,370
                               Stock-based
           319         248      compensation                 890         736
                               Fair values of options
           (58)          -      exercised                   (189)          -
                               Common shares purchased
           (34)          -      for cancellation             (34)       (590)
             -           -     Expiry of warrants              -         916
    -------------------------------------------------------------------------
    $   16,142  $   16,432   Balance, end of period   $   16,142  $   16,432
    -------------------------------------------------------------------------
                             Warrants
                             Balance, beginning of
    $        -  $        -    period                  $        -  $      916
             -           -     Expiry of warrants              -        (916)
    -------------------------------------------------------------------------
    $        -  $        -   Balance, end of period   $        -  $        -
    -------------------------------------------------------------------------
                             Deficit
                             Balance, beginning of
    $   (4,649) $  (14,525)   period                  $   (8,234) $  (19,781)
        (1,376)      2,604     Net income (loss)           2,209       7,860
    -------------------------------------------------------------------------
    $   (6,025) $  (11,921)  Balance, end of period   $   (6,025) $  (11,921)
    -------------------------------------------------------------------------
                             Accumulated Other
                              Comprehensive Income
                             Balance, beginning of
    $   15,278  $   11,012    period                  $    7,425  $    7,810
                               Other comprehensive
         6,553        (102)     income (loss)             14,406       3,100
    -------------------------------------------------------------------------
        21,831      10,910   Balance, end of period       21,831      10,910
    -------------------------------------------------------------------------
                             Total shareholders'
    $  111,668  $   93,776    equity                  $  111,668  $   93,776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             Comprehensive Income
                               Foreign currency
                                translation
    $    6,553  $     (102)     adjustments           $   14,406  $    3,100
        (1,376)      2,604     Net income (loss)           2,209       7,860
    -------------------------------------------------------------------------
                             Total comprehensive
    $    5,177  $    2,502    income                  $   16,615  $   10,960
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             CASH FLOWS FROM
                              (USED IN) OPERATING
                              ACTIVITIES
    $   (1,376) $    2,604   Net income (loss)        $    2,209  $    7,860
                               Adjustments to
                                reconcile net income
                                (loss) to net cash
                                from (used in)
                                operating activities
                               Amortization of
           (30)       (825)     deferred revenues            (90)     (2,433)
                               Depreciation and
         1,499       1,327      amortization               4,151       3,752
           319         248     Stock-based compensation      890         736
        (1,013)        616     Deferred income taxes        (641)      1,991
           655           2     Foreign exchange            1,645         240
                               Deferred Share Unit
                                (recovery) expense
          (245)         16      (Note 7)                    (118)       (167)
           162         348     Other                         516         704
                             Changes in operating
                              assets and liabilities
           223         (87)    Accounts receivable         7,009         329
                               Accounts receivable,
          (354)          -      long term                 (1,519)          -
          (307)        519     Inventories                  (409)     (1,098)
           701         698     Prepaid expenses             (545)       (214)
                               Accounts payable and
         1,799         392      accrued liabilities       (2,006)     (1,262)
           (21)          -     Other liabilities            (819)          -
            41           -     Deferred revenues            (117)          -
    -------------------------------------------------------------------------
                             Net cash from (used in)
         2,053       5,858    operating activities        10,156      10,438
    -------------------------------------------------------------------------
                             CASH FLOWS FROM (USED IN)
                              INVESTING ACTIVITIES
                               Expenditures for property,
        (3,002)     (1,401)     plant and equipment       (8,097)     (3,566)
                               Increase in intangible
            37         (24)     assets                      (137)       (198)
                               Proceeds from disposition
             -           -      of equipment                   -          22
    -------------------------------------------------------------------------
                             Net cash from (used in)
        (2,965)     (1,425)   investing activities        (8,234)     (3,742)
    -------------------------------------------------------------------------
                             CASH FLOWS FROM (USED IN)
                              FINANCING ACTIVITIES
                               Proceeds from customer
             -           -      financing                  1,200           -
                               Repayment of customer
             -           -      deposits                    (135)        (11)
           104         576     Exercise of options         1,812       1,555
                               Common shares purchased
           (64)          -      for cancellation             (64)     (1,103)
    -------------------------------------------------------------------------
                             Net cash from (used in)
            40         576    financing activities         2,813         441
    -------------------------------------------------------------------------
                               Effect of foreign exchange
                                rate changes on cash and
           435           1      cash equivalents             747         364
    -------------------------------------------------------------------------
                               Net increase in cash
          (437)      5,010      and cash equivalents       5,482       7,501
                               Cash and cash equivalents,
        27,365      14,881      beginning of period       21,446      12,390
    -------------------------------------------------------------------------
                               Cash and cash
                                equivalents, end
    $   26,928  $   19,891      of period             $   26,928  $   19,891
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Additional Information
    $        -  $        -     Interest paid          $        -  $        -
    $      400  $        1     Income taxes paid      $      603  $      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 September 30, 2007 and the
        results of operations and cash flows for the nine-month periods ended
        September 30, 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 September 30, 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, 1999
        through December 31, 2006.

        There are no other items of a material nature in accounts 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 Three-Month Periods                    For the Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             Numerator:
    $   (1,376) $    2,604     Net income (loss)      $    2,209  $    7,860

                             Denominator:
                             Weighted-average
                              number of common shares
    42,076,726  41,870,614    outstanding - basic     41,948,449  41,608,623
                               Weighted-average
                                effect of dilutive
                                securities
        40,483           -      - stock options          187,014      74,426
    -------------------------------------------------------------------------
                             Weighted-average number
                              of common shares
    42,117,209  41,870,614    outstanding - diluted   42,135,463  41,683,049
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Basic earnings (loss)
    $    (0.03) $     0.06    per share               $     0.05  $     0.19

                             Diluted earnings (loss)
    $    (0.03) $     0.06    per share               $     0.05  $     0.19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  Inventories

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------

        Raw materials                                $   4,937     $   3,682
        Work-in-process                                    963         1,094
        Finished goods                                   3,408         2,814
        ---------------------------------------------------------------------
                                                     $   9,308     $   7,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  Accounts Payable and Accrued Liabilities

                                                  September 30,  December 31,
                                                          2007          2006
        ---------------------------------------------------------------------

        Trade                                        $   6,291     $   4,688
        Accrued liabilities                                914           905
        Employee-related items                           3,046         5,347
        ---------------------------------------------------------------------
                                                     $  10,251     $  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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             Balance, beginning of
     2,135,828   2,583,745    period                   2,257,995   2,652,620
                             Increase (decrease)
                              resulting from:
             -           -     Granted                   420,000     330,000
       (30,000)   (210,750)    Exercised                (565,500)   (542,333)
       (75,000)          -     Cancelled                 (81,667)    (16,667)
             -           -     Expired                         -     (50,625)
    -------------------------------------------------------------------------
     2,030,828   2,372,995   Balance, end of period    2,030,828   2,372,995
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                             Exercisable at
       728,883   1,162,162    September 30               728,883   1,162,162

                             As of September 30:
                             Remaining unrecognized
                              compensation cost related
                              to non-vested stock
                              options                     $1,730      $1,998
                             Weighted-average
                              remaining requisite
                              service period           1.9 years   2.1 years

                             Weighted-average
                              exercise price of
                              options:
                               Outstanding,
      CDN$4.63    CDN$4.23      end of period           CDN$4.63    CDN$4.23
                               Exercisable,
      CDN$4.67    CDN$4.09      end of period           CDN$4.67    CDN$4.09
             -           -     Granted                  CDN$5.69    CDN$5.06
      CDN$3.66    CDN$3.07     Exercised                CDN$3.70    CDN$3.26
      CDN$5.52           -     Cancelled                CDN$5.45    CDN$5.93
             -           -     Expired                         -    CDN$3.33


        The following table summarizes information about stock options
        outstanding at September 30, 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       454,994          4.47      CDN$2.35     CDN$1,821
    CDN$2.51 - $3.00        37,500          5.87      CDN$2.63       CDN$138
    CDN$3.01 - $3.50        15,000          1.10      CDN$3.25        CDN$46
    CDN$3.51 - $4.00             -             -             -             -
    CDN$4.01 - $4.50       125,000          1.25      CDN$4.30       CDN$251
    CDN$4.51 - $5.00       180,000          2.70      CDN$4.70       CDN$290
    CDN$5.01 - $6.65     1,218,334          3.89      CDN$5.58       CDN$895
                      -------------------------------------------------------

                         2,030,828          3.78      CDN$4.63     CDN$3,441
                      -------------------------------------------------------
                      -------------------------------------------------------


                                        Options Exercisable
                      -------------------------------------------------------
                                        Weighted-
                                         Average
                                        Remaining    Weighted-    Aggregate
                                       Contractual    Average     Intrinsic
    Range of Exercise      Number         Life       Exercise       Value
         Prices         Exercisable    (in years)      Price       ($000's)

    CDN$2.01 - $2.50       104,994          0.28      CDN$2.33       CDN$438
    CDN$2.51 - $3.00             -             -             -             -
    CDN$3.01 - $3.50        15,000          1.10      CDN$3.25        CDN$46
    CDN$3.51 - $4.00             -             -             -             -
    CDN$4.01 - $4.50       125,000          1.25      CDN$4.30       CDN$251
    CDN$4.51 - $5.00       150,000          1.86      CDN$4.70       CDN$242
    CDN$5.01 - $6.65       333,889          2.60      CDN$5.56       CDN$250
                      -------------------------------------------------------

                           728,883          1.85      CDN$4.67     CDN$1,227
                      -------------------------------------------------------
                      -------------------------------------------------------

        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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             Balance, beginning of
       230,018     225,456    period                     230,447     199,868
             -       2,148     Issued                          -      27,736
             -           -     Cancelled                    (429)          -
    -------------------------------------------------------------------------
       230,018     227,604   Balance, end of period      230,018     227,604
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

         ($245)        $16   DSU (recovery) expense        ($118)      ($167)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
                             PRODUCT SALES REVENUES
    $    5,816  $    5,668   Radiopharmaceuticals     $   17,450  $   15,935
        12,076      14,535   Manufacturing                39,846      46,389
          (522)       (415)  Corporate and Other          (1,248)     (1,885)
    -------------------------------------------------------------------------
    $   17,370  $   19,788                            $   56,048  $   60,439
    -------------------------------------------------------------------------
                             ROYALTY AND LICENSING
                              REVENUES
    $        -  $        -   Radiopharmaceuticals     $        -  $        4
             -           -   Manufacturing                     -           -
           588       1,442   Corporate and Other           2,325       4,128
    -------------------------------------------------------------------------
    $      588  $    1,442                            $    2,325  $    4,132
    -------------------------------------------------------------------------
                             TOTAL REVENUES
    $    5,816  $    5,668   Radiopharmaceuticals     $   17,450  $   15,939
        12,076      14,535   Manufacturing                39,846      46,389
            66       1,027   Corporate and Other           1,077       2,243
    -------------------------------------------------------------------------
    $   17,958  $   21,230                            $   58,373  $   64,571
    -------------------------------------------------------------------------
                             PRODUCT GROSS MARGIN
    $    3,144  $    3,671   Radiopharmaceuticals     $   10,175  $   10,031
         1,511       4,487   Manufacturing               9,265(1)     16,104
            42         (31)  Corporate and Other             105        (119)
    -------------------------------------------------------------------------
    $    4,697  $    8,127                            $   19,545  $   26,016
    -------------------------------------------------------------------------
                             SELLING, GENERAL AND
                              ADMINISTRATION EXPENSE
    $    1,434  $    1,079   Radiopharmaceuticals     $    3,812  $    3,240
         1,741       1,230   Manufacturing                 3,772       4,575
         1,617       1,952   Corporate and Other(2)        4,543       5,938
    -------------------------------------------------------------------------
    $    4,792  $    4,261                            $   12,127  $   13,753
    -------------------------------------------------------------------------
                             RESEARCH AND DEVELOPMENT
                              EXPENSE
    $      655  $      558   Radiopharmaceuticals     $    2,273  $    1,980
             -           -   Manufacturing                     -           -
             -           -   Corporate and Other               -           -
    -------------------------------------------------------------------------
    $      655  $      558                            $    2,273  $    1,980
    -------------------------------------------------------------------------
                             SEGMENT INCOME (LOSS)(3)
    $    1,055  $    2,034   Radiopharmaceuticals     $    4,090  $    4,815
          (230)      3,257   Manufacturing                 5,493      11,529
          (987)       (541)  Corporate and Other          (2,113)     (1,929)
    -------------------------------------------------------------------------
    $     (162) $    4,750                            $    7,470  $   14,415
    -------------------------------------------------------------------------
                             DEPRECIATION AND
                              AMORTIZATION
    $      249  $      275   Radiopharmaceuticals     $      816  $      824
         1,159         968   Manufacturing                 3,075       2,676
            91          84   Corporate and Other             260         252
    -------------------------------------------------------------------------
    $    1,499  $    1,327                            $    4,151  $    3,752
    -------------------------------------------------------------------------
                             OPERATING INCOME
                              (LOSS)(4)
    $      806  $    1,759   Radiopharmaceuticals     $    3,274  $    3,991
        (1,389)      2,289   Manufacturing                 2,418       8,853
        (1,078)       (625)  Corporate and Other          (2,373)     (2,181)
    -------------------------------------------------------------------------
    $   (1,661) $    3,423                            $    3,319  $   10,663
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 $319 in Q3, 2007 (Q3, 2006 - $248) and $890 in YTD, 2007 (YTD,
        2006 - $736).
    (3) Income (loss) before depreciation and amortization, financing income,
        foreign exchange loss and income taxes.
    (4) Income (loss) before financing income, foreign exchange loss and
        income taxes.


                                                       September    December
                                IDENTIFIABLE ASSETS     30, 2007    31, 2006
                                                      ----------- -----------
                                Radiopharmaceuticals  $   19,509  $   15,332
                                Manufacturing             63,672      54,162
                                Corporate and Other       41,387      36,468
                                ---------------------------------------------
                                                      $  124,568  $  105,962
                                ---------------------------------------------
                                ---------------------------------------------


    Geographic Segmentation

    For the Three-Month Periods                    For the Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006      REVENUES(1)                 2007        2006
    ----------- -----------                           ----------- -----------
    $    8,949  $   10,237      Canada                $   27,920  $   29,132
         8,474      10,668      United States             28,471      34,564
           535         325      Other                      1,982         875
    -------------------------------------------------------------------------
    $   17,958  $   21,230                            $   58,373  $   64,571
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
    $      294  $      249   Radiopharmaceuticals     $      848  $      941
         2,705       1,152   Manufacturing                 7,246       2,625
             3           -   Corporate and Other               3           -
    -------------------------------------------------------------------------
    $    3,002  $    1,401                            $    8,097  $    3,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


        Product Sales Revenues by Major Product Groups

    For the Three-Month Periods                    For the Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
    $    5,816  $    5,668   Radiopharmaceuticals     $   17,450  $   15,935
         8,298      10,894   Manufacturing - Sterile      28,458      37,397
                             Manufacturing -
         3,778       3,641    Non Sterile                 11,388       8,992
           157           -   Corporate and Other             487         259
          (679)       (415)  Intercompany eliminations    (1,735)     (2,144)
    -------------------------------------------------------------------------
    $   17,370  $   19,788                            $   56,048  $   60,439
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


        Major Customers

        The major customers disclosed in this table are included in the
        Manufacturing segment results.

    For the Three-Month Periods                    For the Nine-Month Periods
        Ended September 30,                            Ended September 30,
    ---------------------------                    --------------------------
          2007        2006                                  2007        2006
    ----------- -----------                           ----------- -----------
         10.0%       19.0%      Customer A                 14.0%       23.0%
         22.0%       22.0%      Customer B                 19.0%       23.0%
         11.0%       11.0%      Customer C                 11.0%        9.0%
         12.0%       10.0%      Customer D                 10.0%        9.0%
    -------------------------------------------------------------------------
         55.0%       62.0%                                 54.0%       64.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  Contingency

        In July 2005, a claim was filed before the Superior Court of Justice
        of Ontario against the Company together with other defendants
        alleging that Permax(R), a drug that the Company distributed in
        Canada for a third 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. No amounts have been accrued in the accounts 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.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890