CEOCFO Current Issue
Cover Story Archives
Private Equity Review
CEOCFO Interview Index
This is a printer friendly page!
Draxis Health is now a leader in two
strong growth markets with a five-year track record of solid financial performance in
earnings growth, EBITDA and cash flow
Draxis Health Inc.
6870 Goreway Dr., Suite 200
Mississauga, ON Canada L4V 1P1
Dr. Martin Barkin
President and CEO
Interview conducted by:
Walter Banks, Publisher
March 24, 2005
President and Chief Executive Officer and Director
Dr. Barkin, MD, B.Sc. (MED.), MA, FRCSC, is the President and Chief Executive Officer of
the Company. He also serves on the Board of Viventia Biotech Inc. and the medical advisory
board of VenGrowth Investment Funds. Until April 30, 2004, he was a director of Bone Care
International Inc. and until June 30, 2003, he was Chairman of the Board of Sunnybrook
& Women's College Health Sciences Centre. Dr. Barkin came to the Company in 1992 from
KPMG where he was Partner and National Practice Leader for Health Care (1991-1992). Before
that, he was Deputy Minister of Health for the Province of Ontario (1987-1991). Dr Barkin
is a surgical specialist in Urology, a former Research Scientist at University of Toronto
and Division Chief at Sunnybrook Health Sciences Centre.
DRAXIS Health Inc. is a rapidly growing specialty pharmaceutical company providing
products in three categories. Sterile products include liquid and freeze-dried
(lyophilized) injectables plus sterile ointments and creams. Non-sterile products are
solid oral and semi-solid dosage forms. Radiopharmaceuticals produced by the company 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 Health employs over 500 staff in its Montreal facility.
CEOCFOinterviews: Mr. Barkin, will you give us an idea of how
long you have been at DRAXIS and any changes that have taken place since you have
been CEO that have made a difference in the company?
Dr. Barkin: I have been at DRAXIS since the mid
nineties. When I arrived, DRAXIS was a marketing and selling company, reselling others
products consigned to the Canadian marketplace. We have transformed DRAXIS into a
specialty pharmaceutical company that manufacturers both sterile pharmaceuticals,
non-sterile specialty pharmaceuticals and as well as radiopharmaceuticals.
CEOCFOinterviews: Do you
have your own sales and marketing team?
Dr. Barkin: No, we do not have big sales and marketing
team, in fact we are primarily a B-to-B company, and that is, we sell to others who have
marketing and sales operations. In the contract manufacturing operation for example, we
manufacture sterile and non-sterile products for Glaxo and Pfizer, to mention the larger
firms. We also manufacture to mid-size companies like Axcan and Bone Care and Mylan. In
the radiopharmaceutical operation, we supply the diagnostic kits for kidney, liver, lung,
and bone scans. We supply those to radiopharmacies in the United States including Cardinal
Healths chain of radiopharmacies.
CEOCFOinterviews: Do you
have many worldwide clients?
Dr. Barkin: We have many worldwide clients; in fact we
export manufactured products to 110 countries around the world. We sell small amounts in
Europe and elsewhere, however we will be entering Europe in a bigger way after the
approval of our first diagnostic kits, and we expect that imminently.
there any other markets that interest you?
Dr. Barkin: We think, ultimately, we will be in the
global marketplace. The products that we manufacture for other companies are now exported
to 110 countries around the world. In our nuclear medicine business, we have forty
products in our Canadian catalog. Only eight of these have entered the United States and
we are waiting for the approval for the first one of these in Europe. The transition of
the products as they move from the Canadian marketplace to the U.S. approved marketplace
to the rest of the world, sets out a transparent growth pattern for that division.
puts together the deals with the larger pharmaceutical companies?
Dr. Barkin: We do not have an expensive marketing
effort to the industry. Our reputation as a sterile manufacturer is well known and
recognized. Under most circumstances, the pharmaceutical companies come to us for sterile
manufacturing. We find ourselves in a favorable position in that we have significant
demand for our manufacturing capacity that comes at us much faster than we can bring it on
line. The prospects for future growth remain as strong as we have seen in the past and
perhaps even stronger as our plant capacity increases and as we bring on additional
working shifts. We are now working to approximately 50% of our shift capacity in the plant
and we are still recruiting and hiring, having just entered into a very stable five-year
agreement with our union for flexible production.
CEOCFOinterviews: Do you
have the facilities to manage growth?
Dr. Barkin: Yes we do. Our current manufacturing
facility has just under 250,000 square feet and we sit on a good amount of land. We
definitely have expansion possibilities there; we are exploring some of those now. The
increase in productive capacity has been extensive in the last few years. We have seen
significant growth in our manufacturing division over that period. When we acquired this
division back in 1998, we were doing less than $10 million U.S.; we are now doing just
under $50 million, which represents about a five fold increase in volume in five or six
years. EBITDA has also grown extraordinarily, particularly in the last three years; the
EBITDA was less than a million dollars in 2002, a little over a million dollars in 2003,
and $8.1 million in 2004. That is extraordinary growth and profitability as well as
most of your expenses in manufacturing and how does the margin shake out?
Dr. Barkin: "About two thirds of our business is in
contract manufacturing and about one third is in radiopharmaceuticals, and those two
account for 95% of our operating revenues. Five percent of our revenues come from royalty
streams and milestones from the pieces of the company that we previously divested. The
overall margin of the two divisions combined is in the mid 20%, range. Contract
manufacturing had an EBITDA margin that finished the year at around 20% and radio
pharmaceuticals had an EBITDA margin that finished the year around 25%.
you the leader in your product spaces?
Dr. Barkin: We have certainly become a leader in some
of our products. We have a number of product lines. We are a leader in the radioactive
iodine products in North America, which is the standard treatment for thyroid cancer. We
would have about a ninety-plus market share in Canada and probably around a 50% market
share in the United States; that market share is growing, as our variant of radioiodine
becomes the more popular and more frequently used variant by most of the radiopharmacies
in the U.S. The cold kits and I refer to them, as cold kits because they are not
radioactive when they leave us, are the kits for the liver, kidney, lung and bone scans.
We have a dominant position in those as well in North America, with probably a greater
than 50% market share in Canada and about a 30 to 60% market share in the U.S., depending
upon which product you are looking at.
sets you apart from your competition?
Dr. Barkin: Overall, it is customer service, high
quality operations and consistent FDA regulatory approvals without a hitch. This marks the
companys reputation in the market place. After that, it is a product-by-product
comparison. Our Iodine I-131 is now one of the few FDA approved kits for the preparation
of Iodine I-131 in the U.S. Our diagnostic kits for molecular imaging have the longest
stability certification of any competing products so most of the radiopharmacies tend to
prefer to use ours because of that stability. Overall, the big pharmaceutical companies
that used to be in this business do not find it very attractive; they do not find it
attractive because there are large regulatory hurdles, nuclear regulatory commission
hurdles, environmental protection hurdles. For all of those reasons, big pharmas tend not
to want to compete actively in the marketplace. We find our position in the marketplace is
your product developments a result of request from your customers or your own R&D
Dr. Barkin: We respond to our customers directly. The
Iodine-131 product was developed to respond directly to the needs established by one of
our largest customers; Cardinal Health and their chain of pharmacies. However, our own
R&D team is also developing many new products. We have a list of products that are
currently in our Canadain catalogue that we will be adapting and bringing to market in
other jurisdictions. We have our own original proprietary products, including FIBRIMAGE®,
a diagnostic agent for deep vein thrombosis and INFECTON®, a diagnostic agent to image
difficult to diagnose infections.
you be looking for partnering on that as well?
Dr. Barkin: We will be partnering these products as
soon as we have approval. We have the financial ability and the R&D horsepower to
bring both of these products to approval ourselves and then we will bring them to market
together with appropriate marketing partners. FIBRIMAGE® completed its Phase III studies
in Canada and we are just gearing up to file in Canada. We are still negotiating with the
FDA regarding the design of that study for the U.S., but we hope to complete that
negotiation before the end of the first half of 2005, and get that underway. INFECTON® is
in three Phase II clinical trials in Canada and the United States; all three study
protocols have been accepted by the both the FDA and the Canadian Regulatory Authority.
you look at the future of your company, do you see growth coming through expanded client
base or by selling more products?
Dr. Barkin: It is a bit of both. We see our growth
coming from expanding our extensive existing portfolio into new geographic territories
around the world. We also see new products added to that portfolio and we see the
proprietary products that I mentioned entering the marketplace in partnership with
somebody else. We see a huge demand for our sterile manufacturing capacity. We are bring
into commercial production this month, new capacity for sterile lyophilization and we
expect to have that fully committed within the next twelve to eighteen months as we go to
look to expand further.
There are many factors leading to the expansion of each part of our business. As you
can see from looking at the year-end report, this is the fourth consecutive year of
double-digit growth in revenues. When we started in 2000, our revenue base was about $30
million and we finished 2004 with a revenue base of $69 million. EBITDA in that same
period grew from $2.8 million to $14.3 million and earnings per share up from only a penny
a share in the year 2000 from continuing operations, to 20 cents last year. We have guided
for 2005 earnings per share from somewhere between 27 and 30 cents. There is a strong
pattern of double-digit growth in revenue and earnings. We think people should be looking
at how much free cash flow we generate as a result of that earnings production.
CEOCFOinterviews: Do you
have much float and are you looking to reach the investment community?
Dr. Barkin: We have a significant float, and that float
also has significant liquidity, which is good for the average investor. We trade on two
exchanges; the NASDAQ and the Toronto Stock Exchange. We trade about two to one on NASDAQ
over Toronto. Our average trading volume in the two exchanges taken together is somewhere
between 100,000 and 300,000 shares a day. The total number of shares outstanding is around
40 million and the float would be $35 million.
CEOCFOinterviews: Do you
do much reaching out to the investment community?
Dr. Barkin: Yes we do. We have a regular investor
program. We have an in-house full-time investor relations division that maintains an
investor-friendly website. We have US investor relations consultants. We currently use the
IRG Group out of New York. Some of the analysts that follow us are the North American
analysts. The five analysts that follow us are with CIBC World Markets, Scotia Capital, JM
Dutton, CTI Capital and Desjardins Securities.
closing, what would you like to say to potential investors?
Dr. Barkin: The fundamental message to the investors is
that we are now a leader in two strong growth markets. We now have a five-year track
record of solid financial performance in earnings growth, EBITDA and cash flow. We
continue to have a strongly positive outlook. We are not your usual small biotech company
where there is always a potential for a home-run but always the risk of striking out. This
is a much more stable company that sits on a solid core of business, yet has a pipeline of
innovative products that could add considerable value to a company that is growing in
value even from its core business.
Any reproduction or further distribution of this
article without the express written consent of CEOCFOinterviews.com is prohibited.