DRAXIS Health Reports Second Quarter Results



    MISSISSAUGA, ON, Aug. 9 /CNW/ - DRAXIS Health Inc. (TSX: DAX)
(NASDAQ:   DRAX) reported financial results for the second quarter and the first
six months ended June 30, 2007. Consolidated revenues and earnings for the
second quarter and the first half of 2007 were down from the corresponding
periods in 2006, but cash flows from operating activities were up
substantially in both periods compared to the second quarter and first half of
2006. All amounts are expressed in U.S. dollars.

    
    Highlights

    -   Consolidated revenues for the second quarter of 2007 were
        $19.4 million versus $24.3 million in the second quarter of 2006;
        six month consolidated revenues were $40.4 million in 2007 and
        $43.3 million in 2006. Revenues in the quarter were negatively
        impacted by lower sterile product sales due to production delays
        and raw material supply problems that have since been resolved.

    -   Operating income for the second quarter of 2007 was $2.5 million
        versus $5.3 million in the second quarter of 2006; operating income
        for the first six months of 2007 was $5.0 million and in the first
        half of 2006 was $7.2 million.

    -   Net income for the second quarter of 2007 was $1.6 million (diluted
        EPS of 4 cents) compared to $3.6 million (diluted EPS of 9 cents or
        7 cents adjusted diluted EPS - See Schedule of Supplemental
        Information) in the second quarter of 2006; net income for the first
        six months of 2007 was $3.6 million (diluted EPS of 9 cents or
        7 cents adjusted diluted EPS) versus $5.3 million (diluted EPS of
        13 cents or 9 cents adjusted diluted EPS) in the first half of 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 a share to 2006's reported earnings per share.

    -   Cash flows from operating activities increased 42% to $2.6 million
        for the second quarter and increased 77% to $8.1 million for the
        first half 2007, compared to operating cash flows of $1.8 million
        and $4.6 million respectively for the same periods in 2006.

    -   Cash and cash equivalents at June 30, 2007 increased to $27.4 million
        compared to $14.9 million at June 30, 2006, notwithstanding
        investments during the second quarter and first half of 2007 for
        capital projects, including a new warehouse management system,
        information technology infrastructure improvements and new
        installations to exploit new business opportunities, particularly in
        the non-sterile product business unit.
    

    "Our weaker than expected earnings in the second quarter of 2007 were the
result of lower sterile product sales together with other factors that
impacted revenues and earnings, although we were able to record increases in
operating cash flows compared to the second quarter of last year and we
increased our cash balance to over $27 million," said Dr. Martin Barkin,
President and CEO of DRAXIS Health. "The rapid strengthening of the Canadian
dollar versus the US dollar during the quarter adversely affected earnings by
slightly more than 1.5 cents per share. In addition, production delays
prevented the shipment of planned quantities at DRAXIS Pharma and raw material
supply problems meant that product volumes at DRAXIMAGE were lower than
expected."
    Dr. Barkin continued, "We have made senior level organizational changes
designed to further streamline the leadership of the organization, with
Jean-Pierre Robert assuming the role of President of DRAXIS Specialty
Pharmaceuticals Inc., our operating subsidiary that encompasses both our
contract manufacturing and radiopharmaceuticals divisions. Products scheduled
and produced by DRAXIS Pharma but not shipped in the second quarter will be
shipped to customers in the third quarter so we expect some recovery of
earnings in that division. The disruption in the availability of raw material
that affected DRAXIMAGE has been resolved and we have qualified an additional
supplier to avoid any similar raw material shortages in the future. Prospects
for long term growth continue to be favourable, particularly since we have now
filed applications for approval to market DRAXIMAGE(R) Sestamibi with both US
and European regulatory authorities."

    
                             FINANCIAL HIGHLIGHTS
       (in thousands of U.S. dollars except share related data and in
                         accordance with U.S. GAAP)
    -------------------------------------------------------------------------

     For the Three-Month                                For the Six-Month
    Periods Ended June 30,                            Periods Ended June 30,
    -----------------------                        -------------------------
         2007          2006                             2007          2006
     (unaudited)   (unaudited)                      (unaudited)   (unaudited)
                                REVENUES
        $19,048       $23,003     Product sales        $38,678       $40,651
                                  Royalty and
            359           437      licensing             1,677         1,040
                                  Anipryl(R)
                                   deferred
             30           825      revenues                 60         1,650
    -------------------------------------------------------------------------
        $19,437       $24,265                          $40,415       $43,341
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Product Gross
         $7,396       $11,073    Margin                $14,848       $17,889
                                  Product Gross
          38.8%         48.1%      Margin %              38.4%         44.0%

         $2,534        $5,341   Operating income        $4,980        $7,240
          13.0%         22.0%     Operating Margin %     12.3%         16.7%

                                Cash and cash
        $27,365       $14,881    equivalents           $27,365       $14,881

             $0            $0   Total debt                  $0            $0

                                Cash flows from
                                 operating
         $2,570        $1,814    activities             $8,103        $4,580

                                Cash flows used in
                                 investing
         (2,315)       (1,523)   activities             (5,269)       (2,317)
    -------------------------------------------------------------------------
           $255          $291                           $2,834        $2,263
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

         $1,575        $3,564   Net income              $3,585        $5,256

                                Basic earnings
          $0.04         $0.09    per share               $0.09         $0.13

                                Diluted earnings
          $0.04         $0.09    per share               $0.09         $0.13
    -------------------------------------------------------------------------
    

    Two significant non-recurring items in the first half of 2007 positively
affected financial performance relative to the first half 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 and earnings per share are included in the Schedule of Supplemental
Information below.

    
    Segment Highlights from Management's Discussion and Analysis

    Contract Manufacturing

    -   Revenues of $14 million for the second quarter of 2007 represented a
        decrease of $4.7 million or 26% over the second quarter of 2006. The
        decrease was due to lower sterile volumes, principally volumes of
        Hectorol(R). During the second quarter of 2007, DRAXIS Pharma
        experienced production delays that prevented the shipment of planned
        quantities before the end of the quarter. Products scheduled but not
        shipped in the second quarter of 2007 will be shipped to customers in
        the third quarter.

    -   Product gross margin percentage decreased to 29% in the second
        quarter of 2007 and 28% for the first six months of 2007 compared to
        42% and 37% 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 of $2.2 million for the second quarter of 2007 and
        $3.8 million for the first six months of 2007 were $2.7 million lower
        compared to the same periods of 2006, due to lower sterile product
        volumes, partially offset by a revaluation of incentive awards based
        on financial performance.

    -   Effective July 21, 2007, Mr. Jean-Pierre Robert assumed the role of
        President of DRAXIS Specialty Pharmaceuticals Inc. (DSPI), the
        Company's wholly owned operating subsidiary that provides products in
        three categories: sterile products, non-sterile products and
        radiopharmaceutical products. Previously responsible for the
        radiopharmaceutical division of DSPI, Mr. Robert now also has
        responsibility for the contract manufacturing division of DSPI.

    -   In May 2007, the Company announced it had received notification from
        the U.S. Food and Drug Administration (FDA) that the Company's
        manufacturing operations in Montreal continue to maintain their
        classification as acceptable facilities following an extensive
        inspection by the FDA in January 2007 of all six production and
        quality systems for DRAXIS Pharma, the contract manufacturing
        division of DSPI.

    -   In May 2007, the Company announced the appointment of Bruce DeChambre
        as Vice President Commercial and Business Development for DRAXIS
        Pharma. Mr. DeChambre is charged with identifying prospective
        customers and developing new business opportunities.

    -   The Company is in the final stages of securing significant new
        non-sterile business. Final contractual arrangements have yet to be
        signed but material activities are underway in preparation for this
        new business, including capital installation and product transfer
        activities with the approval of the potential customer. The Company
        has recognized approximately $1 million of revenue related to agreed
        upon product transfer activities completed in the second quarter of
        2007 and has received $1.2 million of customer financing in the
        quarter related to capital expenditure activities for the project.

    Radiopharmaceuticals

    -   Product sales in the second quarter were $5.9 million representing a
        10% increase over the second quarter of 2006; for the first six
        months of 2007 product sales increased 13% to $11.6 million, driven
        mainly by increased sales of Sodium Iodide I-131 products to U.S.
        customers and increased cold kit sales.

    -   Product gross margins in the second quarter of 2007 were 59% of sales
        compared to 61% for the second quarter of 2006 and for the first six
        months of 2007 product gross margins were 60% versus 62% for the same
        period in 2006, due in part to foreign exchange pressures caused by a
        stronger Canadian dollar.

    -   Operating income was $1.2 million in the second quarter of 2007
        compared to $1.2 million in the second quarter of 2006. For the first
        six months of 2007, operating income of $2.5 million represented an
        increase of $0.2 million or 11% over the first six months of 2006,
        primarily due to volume growth of sodium iodide products and
        increased cold kit sales.

    -   In July 2007, the FDA acknowledged the receipt and acceptance for
        review of the Abbreviated New Drug Application (ANDA) for
        DRAXIMAGE(R) Sestamibi, a generic kit for the preparation of Tc-99m
        Sestamibi for Injection, which was submitted in February 2007.

    -   On July 25, 2007, the Company announced the filing of DRAXIMAGE(R)
        Sestamibi with European regulatory authorities. The filing marked
        another milestone in the comprehensive plan to pursue major
        myocardial perfusion imaging (MPI) markets globally.
    

    Outlook and 2007 Guidance

    As of August 8, 2007, the forecast information received by the Company
from several major customers includes variable factors and assumptions, such
as size of requirements and timing of regulatory approvals, that significantly
impact overall forecast reliability to a degree that the Company is unable to
provide reasonable revenue guidance.
    The following factors have led to the revaluation of our guidance targets
for 2007 subsequent to the second quarter of 2007:

    
    -   During the first six months of 2007, the strengthening of the
        Canadian dollar from $CDN1.165 per U.S. dollar as at December 31,
        2006 to $CDN1.065 per U.S. dollar as at the end of June 30, 2007 has
        resulted in foreign exchange losses for the first six months of 2007
        of approximately 1.5 cents per share.

    -   During the second quarter of 2007, a significant disruption in the
        availability of I-131 raw material from the supplier impacted the
        earnings of the Company by approximately 1 cent per share.

    -   Based on the latest information received from Genzyme Corporation
        (Genzyme), the Company expects Hectorol(R) volumes in 2007 to be
        approximately $9 million lower compared with what they were in 2006
        and lower than what was originally forecasted for in 2007. It is our
        understanding that these volumes could still vary materially either
        positively or negatively as a result of 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.
    

    Due to the lower than expected financial performance for 2007 resulting
from factors described above, the Company has revised its 2007 guidance
downwards from a range of 23 to 27 cents per share to 18 to 21 cents per share
as compared with 21 cents in 2006 adjusted for the exclusion of the
amortization of Anipryl(R) deferred revenues. Given the reduced underlying
earnings, we now expect cash flows from operating activities to be at least
$18 million as compared with our original target of at least $20 million for
2007. Our financial performance in the second 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.
    The Company's formal contractual arrangements with Genzyme for the
production of Hectorol(R) were to terminate in March 2008, provided that
notification of termination was received by the Company prior to March 2007.
Such notification of termination was not received and, consequently, the
contractual arrangement will remain in place until March 2009 and the Company
expects continuing production of Hectorol(R) for Genzyme beyond this date. The
actual volumes expected to be produced and shipped are dependent on the usual
factors affecting end user demand, including reimbursement policies and
customer supply chain management practices. Accordingly, Hectorol(R) volumes
are subject to a high degree of variability between now and 2009. While the
Company may continue producing Hectorol(R) over a long term period, the
Company is planning for the eventual phase out of Hectorol(R) volumes over
time in its long term plans, with such capacity eventually filled by other
products and customers.

    Sources of Future Growth

    The Company's guidance for 2007 assumes core growth in operations. We
expect that future additional growth for 2008 and beyond will come from the
success of one or more of the many initiatives that have been developed over
the past few years and which we continue to develop. The following potential
opportunities do not include any potential merger and/or acquisition
activities and are not listed in any particular order, as the potential
financial impact of each can vary materially over time:

    
    -   Conclusion of a strategic alliance with a commercial partner in
        Europe for the sales and marketing of the four products currently
        under review by the European regulatory authorities. These products
        are currently sold in the U.S. or Canada.

    -   The review and approval of a generic form of Sestamibi in the U.S.
        and in Europe followed by its introduction into those marketplaces.

    -   Completion of the development of proprietary technology for a second
        generation Technetium Generator and licensing it to others for
        distribution.

    -   Clinical trials for a new formulation of INFECTON(R) targeted to
        orthopaedic indications, subject to final analysis and
        recommendations of an expert panel.

    -   Submission to the FDA for approval of an improved radiopharmaceutical
        (cold kit) product for bone scan imaging and introduction into the
        U.S. marketplace.

    -   Completion of clinical trials for I-131 MIBG for the diagnosis and
        treatment of neuroblastoma and related malignancies and its
        subsequent sale and distribution in North America.

    -   Completion of negotiations followed by product transfers for the
        manufacture of a new portfolio of non-sterile products.

    -   Development and approval of additional generic imaging products that
        now or will shortly cease to be protected by patent.

    -   Expansion of manufacturing capacity at the Montreal facility to
        accommodate new business opportunities.


    Schedule of Supplemental Information
    -------------------------------------------------------------------------
        Reconciliation from reported operating income and diluted EPS
                 to adjusted operating income 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
                                           Ended June 30,
                                     -----------------------------
                                        2007           2006         % Change

    Operating Income - Reported           $2,534       $5,341         (52.6%)
    Adjustments:
      (a) Non-recurring Shire
           milestone receipt(2)                -            -
      (b) Insurance proceeds(3)                -            -
      (c) DSU expense (recovery)(4)         (221)         (45)        391.1%
    Anipryl(R) deferred revenues             (30)        (825)        (96.4%)
    -------------------------------------------------------------------------
    Operating Income - Adjusted(1)        $2,283       $4,471         (48.9%)
    -------------------------------------------------------------------------

    Diluted EPS - Reported
    Adjustments:
      (a) Non-recurring Shire
           milestone receipt(2)            $0.04        $0.09
      (b) Insurance proceeds(3)                -            -
      (c) DSU expense (recovery)(4)            -            -
    Anipryl(R) deferred revenues               -        (0.02)
    ----------------------------------------------------------
    ----------------------------------------------------------


                                      For the six-Month Periods
                                            Ended June 30,
                                     -----------------------------
                                         2007          2006         % Change

    Operating Income - Reported           $4,980       $7,240         (31.2%)
    Adjustments:
      (a) Non-recurring Shire
           milestone receipt(2)             (791)           -
      (b) Insurance proceeds(3)             (517)           -
      (c) DSU expense (recovery)(4)          127         (183)       (169.4%)
    Anipryl(R) deferred revenues             (60)      (1,650)        (96.4%)
    -------------------------------------------------------------------------
    Operating Income - Adjusted(1)        $3,739       $5,407         (30.8%)
    -------------------------------------------------------------------------

    Diluted EPS - Reported                 $0.09        $0.13
    Adjustments:
      (a) Non-recurring Shire
           milestone receipt(2)            (0.01)           -
      (b) Insurance proceeds(3)            (0.01)           -
      (c) DSU expense (recovery)(4)            -            -
    Anipryl(R) deferred revenues               -        (0.04)
    ----------------------------------------------------------

    Operating Income - Adjusted(1)         $0.07        $0.09
    ----------------------------------------------------------


    (1) "Adjusted Operating Income" and "Adjusted Diluted EPS" are defined as
        reported operating income and diluted EPS excluding certain items.
        Management uses adjusted operating income, 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 this measure.
    (2) The Company became entitled to and received non-recurring contingent
        milestone payments from Shire BioChem Inc.
    (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 second quarter interim financial
report incorporating the full Management's Discussion & Analysis (MD&A) as
well as financial statements for the quarter ended June 30, 2007, prepared in
accordance with U.S. GAAP. The interim financial report, including the MD&A
and financial statements, 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.
It is also available, on the SEDAR (at www.sedar.com) and EDGAR (at
www.sec.gov) databases or upon request by contacting DRAXIS Investor Relations
at 1-877-441-1984.

    Conference Call

    DRAXIS has scheduled a conference call to discuss second quarter 2007
financial results at 10 a.m. (ET) on August 9, 2007. This call can be accessed
by dialing 1 (800) 819-9193 (Access Code 7481512) 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 website for
30 days following the conference call.

    About DRAXIS Health Inc.

    DRAXIS Health, through its wholly owned operating subsidiary, DRAXIS
Specialty Pharmaceuticals Inc. (DSPI), 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; 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 new release
represent the Company's expectations as at August 8, 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.

    
                          Financial Tables Attached


    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                              For the Six-Month
      Periods Ended June 30,                          Periods Ended June 30,
    -------------------------                       -------------------------
       2007          2006                              2007          2006
    -----------  ------------                       -----------  ------------
                              REVENUES
    $   19,048    $   23,003    Product sales       $   38,678    $   40,651
                                Royalty and
           389         1,262     licensing               1,737         2,690
    -------------------------------------------------------------------------
        19,437        24,265                            40,415        43,341
    -------------------------------------------------------------------------
                              EXPENSES
                                Cost of goods sold,
                                 excluding depreci-
                                 ation and amortiz-
        11,652        11,930     ation (Note 3)         23,830        22,762
                                Selling, general
         3,151         5,131     and administratio      7,335         9,492
                                Research and
           694           633     development             1,618         1,422
                                Depreciation and
         1,406         1,230     amortization            2,652         2,425
    -------------------------------------------------------------------------
        16,903        18,924                            35,435        36,101
    -------------------------------------------------------------------------
         2,534         5,341  Operating income           4,980         7,240
           172            46  Financing income, net        358            54
          (882)         (283) Foreign exchange loss       (990)         (238)
    -------------------------------------------------------------------------
                              Income before income
         1,824         5,104   taxes                     4,348         7,056
          (249)       (1,540) Income taxes                (763)       (1,800)
    -------------------------------------------------------------------------
    $    1,575    $    3,564  Net income            $    3,585    $    5,256
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                              Basic earnings per
    $     0.04    $     0.09   share (Note 4)       $     0.09    $     0.13
                              Diluted earnings
    $     0.04    $     0.09   per share (Note 4)   $     0.09    $     0.13
                              Weighted-average
                               number of shares
                               outstanding
    42,030,246    41,413,168    - basic             41,883,247    41,475,457
    42,396,140    41,431,704    - diluted           42,143,527    41,587,096
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     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)

                                                     June 30,    December 31,
                                                       2007           2006
                                                  ------------- -------------

    ASSETS
    Current assets
      Cash and cash equivalents                    $    27,365    $   21,446
      Accounts receivable                               15,409        20,683
      Inventories (Note 5)                               8,383         7,590
      Prepaid expenses                                   2,124           735
      Deferred income taxes, net                         3,918         3,179
    -------------------------------------------------------------------------
    Total current assets                                57,199        53,633

      Accounts receivable, long term                     1,165             -
      Property, plant and equipment, net                52,859        46,292
      Goodwill, net                                        823           753
      Intangible assets, net                               208           318
      Other assets                                         447           407
      Deferred income taxes, net                         4,103         4,559
    -------------------------------------------------------------------------
    Total assets                                   $   116,804    $  105,962
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
      Accounts payable and accrued liabilities
       (Note 6)                                    $     8,042    $   10,940
      Current portion of deferred revenues                 174           329
      Customer deposits                                    361           576
    -------------------------------------------------------------------------
    Total current liabilities                            8,577        11,845
      Other liabilities                                    242           990
      Deferred revenues                                    653           712
      Customer financing                                 1,200             -
    -------------------------------------------------------------------------
    Total liabilities                              $    10,672    $   13,547
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
      Common stock, without par value of
       unlimited shares authorized                 $    79,588    $   77,749
      Additional paid-in capital                        15,915        15,475
      Deficit                                           (4,649)       (8,234)
      Accumulated other comprehensive income            15,278         7,425
    -------------------------------------------------------------------------
    Total shareholders' equity                         106,132        92,415
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity     $   116,804    $  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                              For the Six-Month
     Periods Ended June 30,                          Periods Ended June 30,
    -------------------------                      --------------------------
       2007          2006                              2007          2006
    -------------------------                      --------------------------
                              Common Stock
                               (Number of Shares)
                              Balance, beginning
    41,984,639    41,467,738   of period            41,522,138    41,588,005
                                Exercise of
        72,999       328,250     options               535,500       331,583
                                Repurchased for
             -      (124,200)    cancellation                -      (247,800)
    -------------------------------------------------------------------------
                              Balance, end of
    42,057,638    41,671,788   period               42,057,638    41,671,788
    -------------------------------------------------------------------------
                              Common Stock
                              Balance, beginning
     $  79,202     $  77,069   of period             $  77,749     $  77,313
           255           968    Exercise of options      1,708           979
                                Fair values of
           131             -     options exercised         131             -
                                Repurchased for
             -          (258)    cancellation                -          (513)
    -------------------------------------------------------------------------
                              Balance, end of
     $  79,588     $  77,779   period                $  79,588     $  77,779
    -------------------------------------------------------------------------
                              Additional Paid In
                               Capital
                              Balance, beginning
     $  15,756     $  15,303   of period             $  15,475     $  15,370
                                Stock-based
           290           248     compensation              571           488
                                Fair values of
          (131)            -     options exercised        (131)            -
                                Common shares
                                 purchased
             -          (283)    for cancellation            -          (590)
             -           916    Expiry of warrants           -           916
    -------------------------------------------------------------------------
                              Balance, end of
     $  15,915     $  16,184   period                $  15,915     $  16,184
    -------------------------------------------------------------------------
                              Warrants
                              Balance, beginning
          $  -        $  916   of period                  $  -        $  916
             -          (916)   Expiry of warrants           -          (916)
    -------------------------------------------------------------------------
                              Balance, end
          $  -          $  -   of period                  $  -          $  -
    -------------------------------------------------------------------------
                              Deficit
                              Balance, beginning
     $  (6,224)   $  (18,089)  of period             $  (8,234)   $  (19,781)
         1,575         3,564    Net income               3,585         5,256
    -------------------------------------------------------------------------
                              Balance, end of
     $  (4,649)   $  (14,525)  period                $  (4,649)   $  (14,525)
    -------------------------------------------------------------------------
                              Accumulated Other
                               Comprehensive Income
                              Balance, beginning
      $  8,216      $  7,484   of period              $  7,425      $  7,810
                                Other comprehensive
         7,062         3,528     income                  7,853         3,202
    -------------------------------------------------------------------------
                              Balance, end
        15,278        11,012   of period                15,278        11,012
    -------------------------------------------------------------------------
                              Total shareholders'
     $ 106,132     $  90,450   equity               $  106,132     $  90,450
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                              Comprehensive Income
                                Foreign currency
                                 translation
      $  7,062      $  3,528     adjustments          $  7,853      $  3,202
         1,575         3,564    Net income               3,585         5,256
    -------------------------------------------------------------------------
                              Total comprehensive
      $  8,637      $  7,092   income                $  11,438      $  8,458
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     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                                For the Six-Month
    Periods Ended June 30,                            Periods Ended June 30,
    -----------------------                         -------------------------
      2007          2006                                2007          2006
    -----------------------                         -------------------------

                            CASH FLOWS FROM
                             (USED IN) OPERATING
                             ACTIVITIES
    $  1,575      $  3,564  Net income                $  3,585      $  5,256
                              Adjustments to
                               reconcile net
                               income to net
                               cash from (used in)
                               operating activities
                              Amortization of
         (30)         (825)    deferred revenues           (60)       (1,608)
                              Depreciation and
       1,406         1,230     amortization              2,652         2,425
                              Stock-based
         290           248     compensation                571           488
          19         1,325    Deferred income taxes        372         1,375
         882           283    Foreign exchange             990           238
                              Deferred Share Unit
                               expense (recovery)
        (221)          (45)    (Note 7)                    127          (183)
         178           227    Other                        354           356
                            Changes in operating
                             assets and liabilities
       3,147        (3,281)   Accounts receivable        6,786           416
                              Accounts receivable,
      (1,165)            -     long term                (1,165)            -
        (554)         (480)   Inventories                 (102)       (1,617)
        (762)         (619)   Prepaid expenses          (1,246)         (912)
                              Accounts payable and
      (1,629)          187     accrued liabilities      (3,805)       (1,654)
        (566)            -    Other liabilities           (798)            -
           -             -    Deferred revenues           (158)            -
    -------------------------------------------------------------------------
                            Net cash from (used in)
       2,570         1,814   operating activities        8,103         4,580
    -------------------------------------------------------------------------
                            CASH FLOWS FROM
                             (USED IN) INVESTING
                             ACTIVITIES
                              Expenditures for
                               property, plant
      (2,315)       (1,523)    and equipment            (5,095)       (2,165)
                              Increase in
           -             -     intangible assets          (174)         (174)
                              Proceeds from
                               disposition of
           -             -     equipment                     -            22
    -------------------------------------------------------------------------
                            Net cash from (used in)
      (2,315)       (1,523)  investing activities       (5,269)       (2,317)
    -------------------------------------------------------------------------
                            CASH FLOWS FROM
                             (USED IN) FINANCING
                             ACTIVITIES
                              Proceeds from
       1,200             -     customer financing        1,200             -
                              Repayment of customer
         (97)            -     deposits                   (135)          (11)
         255           968    Exercise of options        1,708           979
                              Common shares
                               purchased for
           -          (541)    cancellation                  -        (1,103)
    -------------------------------------------------------------------------
                            Net cash from (used in)
       1,358           427   financing activities        2,773          (135)
    -------------------------------------------------------------------------
                              Effect of foreign
                               exchange rate
                               changes on cash
                               and cash
         257            77     equivalents                 312           363
    -------------------------------------------------------------------------
                              Net increase in cash
       1,870           795     and cash equivalents      5,919         2,491
                              Cash and cash
                               equivalents,
      25,495        14,086     beginning of period      21,446        12,390
    -------------------------------------------------------------------------
                              Cash and cash
                               equivalents, end
    $ 27,365     $  14,881     of period             $  27,365     $  14,881
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                            Additional
                             Information
    $      -     $       -    Interest paid          $       -     $       -
    $      -     $     450    Income taxes paid      $     203     $     560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

     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 June 30, 2007 and the results
        of operations and cash flows for the six-month periods ended June 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 June 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 per Share

        Basic earnings 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 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 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 per share:

          For the Three-Month                           For the Six-Month
         Periods Ended June 30,                       Periods Ended June 30,
        -------------------------                   -------------------------
            2007          2006                          2007          2006
        -------------------------                   -------------------------
                                  Numerator:
          $  1,575      $  3,564    Net income        $  3,585      $  5,256
                                  Denominator:
                                  Weighted-average
                                   number of common
                                   shares
                                   outstanding -
        42,030,246    41,413,168   basic            41,883,247    41,475,457
                                    Weighted-
                                     average
                                     effect of
                                     dilutive
                                     securities -
           365,894        18,536     stock options     260,280       111,639
        ---------------------------------------------------------------------
                                  Weighted-average
                                   number of common
                                   shares
                                   outstanding -
        42,396,140    41,431,704   diluted          42,143,527    41,587,096
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                  Basic earnings
          $   0.04      $   0.09   per share          $   0.09      $   0.13
                                  Diluted earnings
          $   0.04      $   0.09   per share          $   0.09      $   0.13
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    5.  Inventories

                                    June 30, 2007          December 31, 2006
        ---------------------------------------------------------------------

        Raw materials                    $  3,932                   $  3,682
        Work-in-process                       591                      1,094
        Finished goods                      3,860                      2,814
        ---------------------------------------------------------------------
                                         $  8,383                   $  7,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  Accounts Payable and Accrued Liabilities

                                    June 30, 2007          December 31, 2006
        ---------------------------------------------------------------------

        Trade                            $  4,181                   $  4,688
        Accrued liabilities                 1,119                        905
        Employee-related items              2,742                      5,347
        ---------------------------------------------------------------------
                                         $  8,042                   $ 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                          For the Six-Month
          Periods Ended June 30,                      Periods Ended June 30,
        ------------------------                    -------------------------
           2007          2006                          2007          2006
        ------------------------                    -------------------------
                                 Balance,
                                  beginning of
        2,215,494     2,922,120   period            2,257,995     2,652,620
                                 Increase
                                  (decrease)
                                  resulting from:
                -             -    Granted            420,000       330,000
          (72,999)     (328,250)   Exercised         (535,500)     (331,583)
           (6,667)            -    Cancelled           (6,667)      (16,667)
                -       (10,125)   Expired                  -       (50,625)
        ---------------------------------------------------------------------
                                 Balance, end of
        2,135,828     2,583,745   period            2,135,828     2,583,745
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                 Exercisable at
          725,550     1,303,579   June 30             725,550     1,303,579
                                 As of June 30:
                                 Remaining
                                  unrecognized
                                  compensation
                                  cost related
                                  to non-vested
                                  stock options        $1,943        $2,241
                                 Weighted-average
                                  remaining
                                  requisite
                                  service period    2.0 years     2.4 years

                                 Weighted-average
                                  exercise price
                                  of options:
                                   Outstanding,
         CDN$4.65      CDN$4.14     end of period    CDN$4.65      CDN$4.14
                                   Exercisable,
         CDN$4.66      CDN$3.89     end of period    CDN$4.66      CDN$3.89
                -             -    Granted           CDN$5.69      CDN$5.06
         CDN$3.87      CDN$3.38    Exercised         CDN$3.70      CDN$3.39
         CDN$4.70             -    Cancelled         CDN$4.70      CDN$5.93
                -      CDN$3.36    Expired                  -      CDN$3.33



        The following table summarizes information about stock options
        outstanding at June 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      4.73       CDN$2.35    CDN$1,821
          CDN$2.51-$3.00        37,500      6.12       CDN$2.63      CDN$138
          CDN$3.01-$3.50        15,000      1.35       CDN$3.25       CDN$46
          CDN$3.51-$4.00        30,000      0.12       CDN$3.66       CDN$80
          CDN$4.01-$4.50       125,000      1.51       CDN$4.30      CDN$251
          CDN$4.51-$5.00       180,000      2.95       CDN$4.70      CDN$290
          CDN$5.01-$6.65     1,293,334      4.11       CDN$5.57      CDN$958
                           --------------------------------------------------
                             2,135,828      3.96       CDN$4.65    CDN$3,583
                           --------------------------------------------------
                           --------------------------------------------------


                                           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     0.53       CDN$2.33      CDN$438
          CDN$2.51-$3.00              -        -              -            -
          CDN$3.01-$3.50         10,000     1.35       CDN$3.25       CDN$31
          CDN$3.51-$4.00         30,000     0.12       CDN$3.66       CDN$80
          CDN$4.01-$4.50        125,000     1.51       CDN$4.30      CDN$251
          CDN$4.51-$5.00        100,000     2.12       CDN$4.70      CDN$161
          CDN$5.01-$6.65        355,556     2.85       CDN$5.55      CDN$271
                           --------------------------------------------------
                                725,550     2.05       CDN$4.66    CDN$1,232
                           --------------------------------------------------
                           --------------------------------------------------

        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                           For the Six-Month
         Periods Ended June 30,                       Periods Ended June 30,
        ------------------------                    -------------------------
           2007          2006                           2007          2006
        ------------------------                    -------------------------

                                 Balance, beginning
          230,018       223,308   of period            230,447       199,868
                -         2,148    Issued                    -        25,588
                -             -    Cancelled              (429)            -
        ---------------------------------------------------------------------
                                 Balance, end of
          230,018       225,456   period               230,018       225,456
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                 DSU expense
            ($221)         ($45)  (recovery)              $127         ($183)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    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                          For the Six-Month
          Periods Ended June 30,                      Periods Ended June 30,
        -------------------------                   -------------------------
            2007          2006                          2007          2006
        -------------------------                   -------------------------
                                  PRODUCT SALES
                                   REVENUES
                                  Radiopharmaceut-
         $   5,877    $    5,368   icals             $  11,634     $  10,267
            13,535        18,277  Manufacturing         27,770        31,854
                                  Corporate and
              (364)         (642)  Other                  (726)       (1,470)
        ---------------------------------------------------------------------
         $  19,048    $   23,003                     $  38,678     $  40,651
        ---------------------------------------------------------------------
                                  ROYALTY AND
                                   LICENSING
                                   REVENUES
                                  Radiopharmaceut-
         $       -    $      (22)  icals                  $  -     $       4
                 -             -  Manufacturing              -             -
                                  Corporate and
               389         1,284   Other                 1,737         2,686
        ---------------------------------------------------------------------
         $     389    $    1,262                     $   1,737     $   2,690
        ---------------------------------------------------------------------
                                  TOTAL REVENUES
                                  LICENSING
                                   REVENUES
                                  Radiopharmaceut-
         $   5,877    $    5,346   icals             $  11,634     $  10,271
            13,535        18,277  Manufacturing         27,770        31,854
                                  Corporate and
                25           642   Other                 1,011         1,216
        ---------------------------------------------------------------------
         $  19,437    $   24,265                     $  40,415     $  43,341
        ---------------------------------------------------------------------
                                  PRODUCT GROSS
                                   MARGIN
                                  Radiopharmaceut-
          $  3,448     $   3,295   icals             $   7,031     $   6,360
             3,910         7,743  Manufacturing          7,754(1)     11,617
                                  Corporate and
                38            35   Other                    63           (88)
        ---------------------------------------------------------------------
          $  7,396     $  11,073                     $  14,848     $  17,889
        ---------------------------------------------------------------------
                                  SELLING, GENERAL
                                   AND ADMINISTRAT-
                                    ION EXPENSE
                                  Radiopharmaceut-
          $  1,290      $  1,143   icals              $  2,378     $   2,161
               734         1,993  Manufacturing          2,031         3,345
                                  Corporate and
             1,127         1,995   Other(2)              2,926         3,986
        ---------------------------------------------------------------------
          $  3,151      $  5,131                      $  7,335     $   9,492
        ---------------------------------------------------------------------
                                  RESEARCH AND
                                   DEVELOPMENT
                                   EXPENSE
                                  Radiopharmaceut-
            $  694        $  633   icals              $  1,618     $   1,422
                 -             -  Manufacturing              -             -
                                  Corporate and
                 -             -   Other(2)                  -             -
        ---------------------------------------------------------------------
            $  694       $   633                      $  1,618     $   1,422
        ---------------------------------------------------------------------
                                  SEGMENT INCOME
                                   (LOSS)(3)
                                  Radiopharmaceut-
          $  1,464      $  1,497   icals              $  3,035     $   2,781
             3,176         5,750  Manufacturing          5,723(1)      8,272
                                  Corporate and
              (700)         (676)  Other                (1,126)       (1,388)
        ---------------------------------------------------------------------
          $  3,940      $  6,571                      $  7,632     $   9,665
        ---------------------------------------------------------------------
                                  DEPRECIATION AND
                                   AMORTIZATION
                                  Radiopharmaceut-
            $  294        $  285   icals                $  567     $     549
             1,025           860  Manufacturing          1,916         1,708
                                  Corporate and
                87            85   Other                   169           168
        ---------------------------------------------------------------------
          $  1,406      $  1,230                      $  2,652     $   2,425
        ---------------------------------------------------------------------
                                  OPERATING INCOME
                                   (LOSS)(4)
                                  Radiopharmaceut-
          $  1,170      $  1,212   icals              $  2,468     $   2,232
             2,151         4,890  Manufacturing          3,807(1)      6,564
                                  Corporate and
              (787)         (761)  Other                (1,295)       (1,556)
        ---------------------------------------------------------------------
          $  2,534      $  5,341                      $  4,980     $   7,240
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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 $290 in Q2, 2007 (Q2, 2006 - $248).
        (3) Segment income (loss) before depreciation and amortization,
            financing income, foreign exchange loss and income taxes.
        (4) Segment income (loss) before financing income, foreign exchange
            loss and income taxes.


        IDENTIFIABLE ASSETS                        Jun. 30,      December 31,
                                                     2007            2006
                                              --------------   --------------
        Radiopharmaceuticals                   $     17,789     $     15,332
        Manufacturing                                56,410           54,162
        Corporate and Other                          42,605           36,468
        ---------------------------------------------------------------------
                                               $    116,804     $    105,962
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Geographic Segmentation

            For the Three-Month                         For the Six-Month
           Periods Ended June 30,                     Periods Ended June 30,
         -------------------------                  -------------------------
             2007          2006                         2007          2006
         -------------------------                  -------------------------
                                   REVENUES(1)
          $   9,225     $   9,911  Canada            $  18,971     $  18,895
              9,466        14,073  United States        19,997        23,896
                746           281  Other                 1,447           550
        ---------------------------------------------------------------------
          $  19,437     $  24,265                    $  40,415     $  43,341
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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                          For the Six-Month
          Periods Ended June 30,                      Periods Ended June 30,
        -------------------------                   -------------------------
            2007          2006                          2007          2006
        -------------------------                   -------------------------
                                  Radiopharmaceut-
          $    219       $   463   icals               $   554       $   692
             2,096         1,060  Manufacturing          4,541         1,473
                                  Corporate and
                 -             -   Other                     -             -
        ---------------------------------------------------------------------
          $  2,315       $ 1,523                       $ 5,095       $ 2,165
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Product Sales Revenues by Major Product Groups

           For the Three-Month                          For the Six-Month
          Periods Ended June 30,                      Periods Ended June 30,
        -------------------------                   -------------------------
            2007          2006                          2007          2006
        -------------------------                   -------------------------
                                  Radiopharmaceut-
          $  5,877      $  5,368   icals             $  11,634     $  10,267
                                  Manufacturing -
             9,041        15,551   Sterile              20,160        26,503
                                  Manufacturing -
             4,494         2,726   Non Sterile           7,610         5,351
                                  Corporate and
               103            82   Other                   330           259
                                  Intercompany
              (467)         (724)  eliminations         (1,056)       (1,729)
        ---------------------------------------------------------------------
         $  19,048     $  23,003                      $ 38,678     $  40,651
        ---------------------------------------------------------------------
        ----------------------------------------------------------------------

        Major Customers

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

           For the Three-Month                          For the Six-Month
          Periods Ended June 30,                      Periods Ended June 30,
        -------------------------                   -------------------------
            2007          2006                          2007          2006
        -------------------------                   -------------------------
              18.0%         31.0%  Customer A             16.0%         24.0%
              18.0%         21.0%  Customer B             18.0%         23.0%
              11.0%          7.0%  Customer C             12.0%          9.0%
        ---------------------------------------------------------------------
              47.0%         59.0%                         46.0%         56.0%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    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: Investor Relations: Jerry Ormiston, DRAXIS
Health Inc., Phone: 1-877-441-1984, Fax: (905) 677-5494

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DRAXIS SPECIALTY PHARMACEUTICALS INC.

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