Paladin Labs struggles to turn the corner
CEO confident that drug pipeline reflects hidden value

After a fourth quarter loss that wiped out most of Paladin Labs' retained earnings from its first eight years in business, you'd think that its Jonathan Goodman its CEO, would be mired in self-doubt. Think again.

"We took some write-downs. But we've got a lot of promising stuff in our pipeline," Goodman said, looking cool as a cucumber. "There's value in this company that is not reflected on the balance sheet."

On paper at least, Paladin looks solid. At the end of the year the company had $44 million of cash and marketable securities and no long-term debt.

That leaves Paladin well positioned to pursue its strategy of acquiring or licensing Canadian rights to pharmaceutical products that have been developed in the U.S. and Europe.

According to Goodman, bigger players are generally lukewarm about marketing drugs with less than $5 million in annual sales. That's where Paladin comes in. With its lower overhead and targeted expertise, the company can generally make a decent buck in niches that competitors couldn't be bothered with.

Unlike many other pharmaceutical players, Paladin is well diversified, with none of the 40 products that it markets accounting for more than $3 million in annual sales. Not bad, for a company that billed $23.9 million last year. But what has Goodman most optimistic are the projects in Paladin's pipeline.

The three most promising of these are Plan B, an emergency contraception drug, Oxytrol, which treats overactive bladders and Histrelin Hydrogel, a prostrate cancer treatment.

Although Plan B has been available for some time, the drug is currently available only by prescription, which according to Mark Nawacki, Paladin's vice-president (business development) makes no sense.

"This is an emergency drug that you take the next morning, (after a sexual encounter) to prevent conception," Nawacki said. "That simply doesn't leave you enough to make an appointment, go see your doctor and pick up the drug."

But Paladin filed a request with Health Canada to make Plan B available "behind the counter." Clients could then buy the product directly from the pharmacist, which would considerably increase its sales potential.

Nawacki estimates that Plan B's share at between 60 and 70 per cent of a $4 million Canadian market. But he estimated its sales would at least double once the product's regulatory status is loosened.

Nawacki is also exited about Oxytrol's potential. Paladin licensed the bladder treatment patch from Watson Pharmaceuticals earlier this year. Although the molecule is already sold generically, according to Nawacki, Oxytrol's patch delivery system gives it a leg up on the competition.

"If you take this product as a pill, one of the side effects is a dry mouth, which makes you want to drink more," Nawacki said. "But forcing someone with an overactive bladder to drink more is a bit of a contradiction."

According to IMS Health Canada, an agency that tracks industry spending, the Canadian market for overactive bladder products was estimated at more than $42 million last year. And Nawacki thinks that Oxytrol could eventually grab between a $15 million and $20 million share.

Another product in Paladin's pipeline that excites company officials is Histrelin Hydrogel, an implant that inhibits cancer cell growth in prostate cancer patients by depriving them of testosterone.

Histrelin Hydrogel, which was licensed from U.S.-based Valera Pharmaceuticals, stands out because the implant works for one year, while injections, --the most common alternate method - must be made every three or four months.

Paladin officials admit that the injection method will likely continue to dominate the $100 million market. But they remain optimistic that when the regulatory authorities approve Histrelin Hydrogel it will make a significant bottom line contribution.

But not everyone is as optimistic about the new products.

"At this time, investors appear to be paying nothing for any pipeline products," wrote Dimi Ntantoulis, an analyst at UBS Investment Research in a recent report initiating coverage on Paladin. "In fact at current levels, investors are paying for little more than the company's cash on hand."

But Goodman takes it all in stride.

"Analysts don't look beyond a two year time horizon," Goodman said. "We're in it for the long run."

Like his company, Goodman looks pretty good on paper too. His business card has more letters on it than the Japanese alphabet, including key groupings like MBA, L.L.B., and B.A.

But there's more to Goodman than credentials. There's also knowledge and contacts that can't be easily quantified.

He hails from one of Canada's foremost pharmaceutical industry families. His father Morris Goodman, founded and runs Pharmascience, one of the country's largest generic drug manufacturers.

And while they don't discuss Paladin's operations at the supper table, the Goodman family talks about the industry all the time.

"I eat sleep and breathe this business," Goodman said. "It's my life."

Photo caption: According to Jonathan Goodman, Paladin Labs competes in the tough Canadian pharmaceutical products industry by focusing on niches that the big players avoid.


Fact Box:
Company Name: Paladin Labs Inc.
Owner: Publicly traded, but controlled by the Goodman family
Products: 40 pharmaceutical products including Androderm, Statex and Plan B
Employees: 42
Sales: $23.9 million
Phone #: 514-340-5032


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