Paladin Labs Inc. (TSX:PLB), a leading specialty pharmaceutical company, today reported its financial results for the quarter ended September 30, 2012.

2012 Third Quarter Highlights

Financial


--  Adjusted(2) revenues reached a record $50.7 million, an increase of 38%
    over the same period last year 
    
    
--  Adjusted(2) EBITDA(1) was a record $20.9 million, a 16% increase over
    the same period last year 

Corporate Development


--  Announced closing of the 44.5% acquisition of Litha Healthcare Group
    ("Litha" - JSE:LHG) effective July 2, 2012 

Subsequent to the Quarter


--  Entered into a licensing agreement with QRx Pharma Limited ("QRx" -
    ASX:QRX and OTCQX:QRXPY) for the exclusive rights to market and sell
    MoxDuo® in Canada
    
--  Entered into a licensing and distribution agreement with Dynamiclear
    Australia, an Australian-based natural healthcare company, under which
    Paladin received the exclusive rights to market and sell Dynamiclear
    Rapid(TM) in Canada 

"In Q3 we expanded our pipeline and reported our best results to date, driven by record EBITDA in our Canadian business and the addition of incremental sales and EBITDA from our acquisition of Litha," said Mark Beaudet, interim President and CEO of Paladin Labs. "Looking forward, we look to build from this position by driving increased results in both the domestic and international segments of our business."

Financial Results

Adjusted(2) revenues increased $14.0 million or 38% to $50.7 million for the third quarter of 2012 from $36.7 million for the same period in 2011. The increase is mostly attributable to the proportionate consolidation of Litha's revenues of $13.0 million. In addition, revenues further increased as a result of incremental revenues from products acquired and/or launched by Paladin including corporate acquisitions since 2011, which contributed $2.7 million to the quarter ended September 30, 2012. The growth in the Canadian business was negatively impacted by the supply issues related to Twinject® and certain other products.

Consolidated revenues for the third quarter were $66.9 million, an increase of 82% over the same period last year. The increase is mostly attributable to the consolidation of Litha's revenues of $29.2 million.

Third quarter 2012 adjusted(2) EBITDA(1) increased 16% or $2.8 million to $20.9 million, compared to EBITDA(1) of $18.1 million in the third quarter of 2011. This increase is primarily due to the acquisition of Litha, which contributed $1.5 million to adjusted EBITDA(1). The increase in adjusted adjusted(2) EBITDA(1) for Paladin was driven by the strong sales performance of our promoted products, partially offset by increased costs associated with the launch of new products, including Oralair®. Litha's adjusted(2) EBITDA(1) includes certain integration and acquisition costs related to Pharmaplan as well as the impact of the decline in the South African Rand. In addition, Litha's adjusted(2) EBITDA(1) was negatively impacted by fair value adjustments on acquisition by Paladin.

Consolidated EBITDA(1) was $22.7 million, an increase of 25% over the consolidated EBITDA(1) for the quarter ended September 30, 2011. This increase is primarily due to the consolidation of Litha, which contributed $3.3 million in consolidated EBITDA(1) for the quarter.

Net income attributable to shareholders for the quarter was $24.9 million or $1.19 per fully diluted share, compared to net income attributable to shareholders of $9.5 million or $0.46 per fully diluted share in the same quarter a year ago.

As at September 30, 2012, Paladin's cash, cash equivalents and investments in marketable securities totaled $231.2 million. From this strong cash position, Paladin continues to pursue acquisition opportunities.

Corporate Developments

Effective July 2 2012, Paladin completed its most significant strategic investment to date through its investment in Litha, a JSE-listed, diversified healthcare company located in South Africa. Under the terms of the agreement, Paladin acquired the 55.01% of Pharmaplan which it did not previously own and sold 100% of the share capital of Pharmaplan to Litha in exchange for cash of and the issuance of 169,090,909 shares in Litha at ZAR2.75 per share. Paladin also acquired an additional 73,083,214 shares of Litha from third parties at ZAR2.75 per share. Paladin deployed $47.5 million in cash and issued 88,948 shares at $44.97 per share. As a result Paladin owns 44.5% of the outstanding shares of Litha and, through various shareholder agreements, effectively controls 58% of the outstanding shares of Litha.

This move into South Africa provides a stronger, more diversified platform from which Paladin is able to commercialize its South African and sub-Saharan portfolio of 10 products.

Subsequent to the quarter

Subsequent to the quarter, Paladin took steps to enrich both its over-the-counter and pain portfolios through two separate agreements.

In early October, Paladin entered into a licensing agreement with QRxPharma Limited, an Australian-based specialty pharmaceutical company, whereby Paladin received the exclusive rights to market and sell MoxDuo in Canada. MoxDuo is a novel, patented, immediate release, fixed dose formulation of morphine and oxycodone for the treatment of acute pain.

On October 18, 2012, Paladin entered into a licensing and distribution agreement with Dynamiclear Australia, an Australian-based natural healthcare company, under which Paladin received the exclusive rights to market and sell Dynamiclear Rapid in Canada. Dynamiclear Rapid is a novel, OTC product for the symptomatic treatment of cold sores. In addition, Paladin received an option to acquire the same territorial rights to Dynamiclear's antiviral formulation for Herpes Simplex Virus-2 infections which is currently under development.

(1) EBITDA - Non-IFRS Financial Measures

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning under International Financial Reporting Standards ("IFRS") and therefore may not be comparable to similar measures presented by other companies. The Company defines EBITDA as earnings before interest expense, other expense (income), taxes, depreciation and amortization, foreign exchange gains (losses), share of net income (loss) in associate and joint venture and unusual items; such as write-downs and gains (losses) on intellectual property and investments. EBITDA is calculated and presented consistently from period to period and agrees, on a consolidated basis, with the amount disclosed as "Earnings before under-noted items" on the consolidated statements of income. The Company believes EBITDA to be an important measurement that allows it to assess the operating performance of its ongoing business on a consistent basis without the impact of amortization expenses. The Company excludes amortization expenses because their level depends substantially on non-operating factors such as the historical cost of intangible assets. The Company's method for calculating EBITDA may differ from that used by other issuers and, accordingly, this measure may not be comparable to EBITDA used by other issuers.

(2) Adjusted

The term "adjusted" refers to the proportional consolidation of Litha's results for the period beginning July 2, 2012. Given that Litha is being accounted for on a consolidated basis, the consolidated results include amounts attributable to minority shareholders. Consequently, adjusted results have been provided to highlight Paladin's interest in Litha's results.

Conference Call Notice

Paladin will host a conference call to discuss its third quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-736-4594 or 416-981-9000. The call will be audio-cast live and archived for 30 days at www.paladinlabs.com.

About Paladin Labs Inc.

Paladin Labs Inc., headquartered in Montreal, Canada, is a specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian and select international markets. With this strategy, a focused Canadian national sales team and proven marketing expertise, Paladin has evolved into one of Canada's leading specialty pharmaceutical companies. For more information, please visit the Company's web site at www.paladinlabs.com.

This press release may contain forward-looking statements and predictions. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which are beyond the control of the Company and its subsidiaries, may ultimately prove to be incorrect. Factors and risks, which could cause actual results to differ materially from current expectations, are discussed in the annual report as well as in the Company's Annual Information Form for the year ended December 31, 2011. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information or future events and except as required by law. For additional information on risks and uncertainties relating to these forward-looking statements, investors should consult the Company's ongoing quarterly filings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com.


INTERIM CONSOLIDATED BALANCE SHEETS                                         
                                                                            
(In thousands of Canadian dollars)                                          
As at                                  September 30, 2012  December 31, 2011
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ASSETS                                                                      
Current                                                                     
Cash and cash equivalents                          87,304             72,115
Marketable securities                             147,095            166,894
Trade and other receivables                        40,605             20,208
Inventories                                        34,259             13,327
Income tax receivable                               5,345                718
Other current assets                                2,607              1,476
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Total current assets                              317,215            274,738
                                                                            
Restricted cash                                     3,281                  -
Investment in associates                              613             20,850
Interest in a joint venture                        30,792                  -
Loans to a joint venture                           11,484                  -
Financial assets                                   10,715              9,311
Investment tax credits recoverable                 24,840             24,674
Deferred income tax assets                         29,595             40,613
Property, plant and equipment                       2,704                162
Intangible assets                                 117,205             27,565
Goodwill                                           36,345                  -
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Total assets                                      584,789            397,913
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LIABILITIES AND EQUITY                                                      
Current                                                                     
Bank overdraft                                      6,486                  -
Payables, accruals and provisions                  46,327             38,849
Finance lease liability                                 -                984
Deferred revenue                                    2,008              2,999
Income tax payable                                 25,598             22,205
Loans and other balances payable                      558              1,809
Short-term portion of the long-term                                         
 liabilities                                        7,355                  -
----------------------------------------------------------------------------
Total current liabilities                          88,332             66,846
                                                                            
Finance lease liability                                 -              5,745
Deferred revenue                                    1,645              2,099
Deferred tax liability                             25,654                  -
Loans and other balances payable                    1,119                497
Long-term liabilities                              28,205                  -
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Total liabilities                                 144,955             75,187
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----------------------------------------------------------------------------
                                                                            
Equity                                                                      
Share capital                                     172,126            166,681
Other paid-in capital                               6,516              5,144
Other capital reserves                             (3,468)               553
Retained earnings                                 195,693            150,348
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Attributable to equity holders of the                                       
 Company                                          370,867            322,726
Non-controlling interests                          68,967                  -
----------------------------------------------------------------------------
Total equity                                      439,834            322,726
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Total liabilities and equity                      584,789            397,913
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INTERIM CONSOLIDATED INCOME STATEMENTS                                      
                                                                            
(In thousands of Canadian dollars except for share and per share amounts)   
                                                                            
                                  Three months ended      Nine months ended 
                                        September 30           September 30 
                          Notes      2012       2011       2012        2011 
----------------------------------------------------------------------------
Revenues                      8    66,899     36,660    142,592     104,383 
Cost of sales                      27,253     10,249     48,422      27,751 
----------------------------------------------------------------------------
Gross profit                       39,646     26,411     94,170      76,632 
----------------------------------------------------------------------------
Expenses (income)                                                           
Selling, general and                                                        
 administrative               8    16,817      7,809     33,505      22,934 
Research and                                                                
 development                        1,554      1,849      5,981       6,145 
Interest income                    (1,448)    (1,361)    (3,337)     (6,207)
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Earnings before                                                             
 under-noted items                 22,723     18,114     58,021      53,760 
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Amortization of                                                             
 intangible assets                  4,761      4,959     10,568      15,860 
Depreciation of                                                             
 property, plant and                                                        
 equipment                            206         15        257         117 
Other finance                                                               
 (income) expense                     (45)       (56)       850      (8,617)
Other income                       (2,189)       (97)    (3,106)        (97)
Foreign exchange                                                            
 loss (gain)                           84        251        122        (204)
Interest expense                      941          -        956           - 
Share of net loss                                                           
 from a joint                                                               
 venture                      5       771          -        771           - 
Share of net income                                                         
 from associates              4       (31)      (331)      (980)     (1,096)
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Income before income                                                        
 tax and under-noted                                                        
 items                             18,225     13,373     48,583      47,797 
----------------------------------------------------------------------------
Gain on revaluation                                                         
 of equity                                                                  
 investment                        12,294          -     12,294           - 
----------------------------------------------------------------------------
Income before income                                                        
 tax                               30,519     13,373     60,877      47,797 
Provision for income                                                        
 taxes                              5,784      3,877     13,942      13,418 
----------------------------------------------------------------------------
Net income for the                                                          
 period                            24,735      9,496     46,935      34,379 
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Attributable to:                                                            
Equity holders of                                                           
 the Company                       24,938      9,496     47,138      34,379 
Non-controlling                                                             
 interests                           (203)         -       (203)          - 
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Attributable to                                                             
 shareholders                                                               
Basic earnings per                                                          
 share                               1.22       0.47       2.32        1.73 
Diluted earnings per                                                        
 share                               1.19       0.46       2.25        1.67 
                                                                            
Weighted average                                                            
 number of shares                                                           
 outstanding                                                                
Basic                          20,390,981 20,204,105 20,329,409  19,882,261 
Diluted                        21,001,756 20,864,049 20,940,233  20,595,223 
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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS                               
                                                                            
(In thousands of Canadian dollars)                                          
                                                                            
                               Three months ended         Nine months ended 
                                     September 30              September 30 
                                2012         2011         2012         2011 
----------------------------------------------------------------------------
                                                                            
Operating activities                                                        
Net income for the                                                          
 period                       24,735        9,496       46,935       34,379 
Adjustments reconciling                                                     
 net income to operating                                                    
 cash flows                                                                 
  Amortization of                                                           
   intangible assets           4,761        4,959       10,568       15,860 
  Deferred tax                 4,316         (201)      11,617        3,721 
  Share-based                                                               
   compensation expense          923          385        2,250        1,508 
  Other finance (income)                                                    
   loss                          (50)         (57)         846       (8,618)
  Unrealized foreign                                                        
   exchange (gain) loss         (201)         182         (324)        (832)
  Gain on revaluation of                                                    
   equity investment         (12,294)           -      (12,294)           - 
  Other income                (2,118)           -       (2,835)           - 
  Depreciation of                                                           
   property, plant and                                                      
   equipment                     211           36          266          165 
  Changes in working                                                        
   capital and other                                                        
   non-cash balances          (1,459)      10,296      (10,733)      10,885 
  Share of net income                                                       
   from an associate             (31)        (331)        (980)      (1,096)
  Share of net loss from                                                    
   a joint venture               771            -          771            - 
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Cash inflow from                                                            
 operating activities         19,564       24,765       46,087       55,972 
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Investing activities                                                        
Disposals and maturities                                                    
 of marketable                                                              
 securities                   24,938       35,259      140,101       51,353 
Dividends from an                                                           
 associate                     1,502          640        3,139          891 
Proceeds from disposal                                                      
 of financial assets              36            -          835       89,010 
Proceeds from disposal                                                      
 of intangible assets              -            -          717            - 
Proceeds from disposal                                                      
 of property, plant and                                                     
 equipment                        40            -           40            - 
Acquisition of                                                              
 subsidiaries, net of                                                       
 cash acquired               (42,356)           -      (42,356)           - 
Purchases of marketable                                                     
 securities                  (43,924)     (15,000)    (120,979)    (151,057)
Purchases of financial                                                      
 assets                            -       (2,937)      (4,000)     (88,873)
Payment of loans and                                                        
 other balances payable            -            -         (995)        (250)
Purchases of property,                                                      
 plant and equipment            (404)          (4)        (527)         (69)
Additions to intangible                                                     
 assets                          (82)           -         (107)      (7,617)
Investment in an                                                            
 associate                         -            -            -       (2,936)
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Net cash (outflow)                                                          
 inflow from investing                                                      
 activities                  (60,250)      17,958      (24,132)    (109,548)
----------------------------------------------------------------------------
                                                                            
Financing activities                                                        
Common shares issued for                                                    
 cash, net of issuance                                                      
 costs of $nil for the                                                      
 three-month and nine-                                                      
 month period (2011:                                                        
 $nil and $1,643,                                                           
 respectively)                   181          177        1,351       41,038 
Increase in loans and                                                       
 other balances payable          700            -          700            - 
Increase in bank                                                            
 overdraft                       719            -          719            - 
Repurchase of shares               -         (321)      (2,278)        (321)
Extinguishment of                                                           
 finance lease                (3,366)           -       (3,366)           - 
Repayment of long-term                                                      
 liabilities                    (536)           -         (536)           - 
Payment of obligation                                                       
 under finance lease               -            -         (500)           - 
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Net cash (outflow)                                                          
 inflow from financing                                                      
 activities                   (2,302)        (144)      (3,910)      40,717 
----------------------------------------------------------------------------
Foreign exchange rate                                                       
 gain (loss) on cash and                                                    
 cash equivalents                491           53          425         (105)
Increase (decrease) in                                                      
 cash, cash equivalents                                                     
 and restricted cash                                                        
 during the period           (42,497)      42,632       18,470      (12,964)
Cash and cash                                                               
 equivalents, beginning                                                     
 of period                   133,082       40,699       72,115       96,295 
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Cash, cash equivalents                                                      
 and restricted cash,                                                       
 end of period                90,585       83,331       90,585       83,331 
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----------------------------------------------------------------------------
                                                                            
Paladin cash and cash                                                       
 equivalents                  81,671       83,331                           
Paladin restricted cash        3,281            -                           
Paladin marketable                                                          
 securities                  147,095      143,369                           
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Paladin cash, cash                                                          
 equivalents, restricted                                                    
 cash and marketable                                                        
 securities                  232,047      226,700                           
Litha cash and cash                                                         
 equivalents                   5,634            -                           
Litha bank overdraft          (6,486)           -                           
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Litha cash, cash                                                            
 equivalents and bank                                                       
 overdraft                      (853)                                       
----------------------------------------------------------------------------
                             231,194      226,700                           
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     Reconciliation of the adjusted consolidated results from operations    
                                                                            
Three months                                                        Adjusted
 ended                                Consolidated              consolidated
 September                            results from              results from
 30, 2012        Paladin   Litha 100%   operations Litha 44.54%   operations
                       $            $            $            $            $
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Revenues          37,671       29,228       66,899       13,018       50,689
Cost of sales     10,920       16,333       27,253        7,275       18,195
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Gross Income      26,751       12,895       39,646        5,743       32,494
Operating                                                                   
 expenses          7,361        9,562       16,923        4,259       11,620
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EBITDA(1)         19,390        3,333       22,723        1,485       20,875
Net income                                                                  
 before                                                                     
 income taxes     30,379          140       30,519           62       30,441
Net Income                                                                  
 (loss)           24,892         -157       24,735          -70       24,822
Net Income                                                                  
 attributable                                                               
 to                                                                         
 shareholders     24,892           46       24,938           46       24,938
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Nine months                                                         Adjusted
 ended                                Consolidated              consolidated
 September                            results from              results from
 30, 2012        Paladin   Litha 100%   operations Litha 44.54%   operations
                       $            $            $            $            $
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Revenues         113,364       29,228      142,592       13,018      126,382
Cost of sales     32,089       16,333       48,422        7,275       39,364
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Gross Income      81,275       12,895       94,170        5,743       87,018
Operating                                                                   
 expenses         26,587        9,562       36,149        4,259       30,846
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EBITDA(1)         54,688        3,333       58,021        1,485       56,173
Net income                                                                  
 before                                                                     
 income taxes     60,737          140       60,877           62       60,799
Net Income                                                                  
 (loss)           47,092         -157       46,935          -70       47,022
Net Income                                                                  
 attributable                                                               
 to                                                                         
 shareholders     47,092           46       47,138           46       47,138
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Contacts: Samira Sakhia Chief Financial Officer Paladin Labs Inc. Tel: 514-669-5367 514-344-4675 (FAX) Email: info@paladinlabs.com Website: www.paladinlabs.com