Paladin Reports Record 2006 Fourth Quarter and Year End Results

Company Provides 2007 Guidance

Paladin Labs Inc. (TSX: PLB), a leading Canadian specialty pharmaceutical company, today reported its financial results for the fourth quarter and year ended December 31, 2006. The Company achieved record revenues for the fourth quarter of 2006 and has achieved its 11th consecutive year of record revenues.

2006 Highlights

- Revenues for 2006 totalled a record $48.4 million, a 44% increase compared to 2005

- EBITDA(1) in 2006 increased 65% to a record $15.5 million compared to $9.4 million in 2005

- Sales of key promoted brands in 2006 including: Twinject®, Oxytrol®, Estring®, Plan B®, Trelstar®, and Pennsaid® grew 132% compared to 2005

- Expanded presence in the growing Canadian pain market through the addition of Metadol® and Vicoprofen®

"We achieved yet another year of record revenues. Not only did we grow our key product sales by 132% in 2006, we also expanded our product portfolio to include a new therapeutic area, Pain Management & Central Nervous System (CNS) disorders. We are well positioned for a successful 2007," said Jonathan Ross Goodman, President and CEO of Paladin Labs.

Financial Results

Revenues for the fourth quarter of 2006 increased 39% to a record $14.3 million compared to $10.3 million in the fourth quarter of 2005. Revenues from the Company's key promoted brands including: Twinject®, Oxytrol®, Estring®, Plan B®, Trelstar®, and Pennsaid® increased by 58% in the fourth quarter of 2006 compared to the same period a year ago. For the year ended December 31, 2006, revenues increased 44% to a record $48.4 million compared to $33.7 million in 2005.

EBITDA1 in the fourth quarter 2006 increased to $4.3 million compared to EBITDA(1) of $2.9 million in the fourth quarter 2005. For the year ended December 31, 2006, EBITDA1 increased to a record $15.5 million compared to $9.4 million in 2005.

Net income for the fourth quarter 2006 was $1.5 million or $0.10 per fully diluted share compared to net income of $1.4 million or $0.09 per fully diluted share in 2005. Net income for the year ended December 31, 2006 was a record $5.8 million or $0.38 per fully diluted share, compared to net income of $3.3 million or $0.22 per fully diluted share in 2005.

Selling and marketing expense for the fourth quarter of 2006 increased to $5.2 million compared to $3.9 million in the fourth quarter of 2005. Selling and marketing expense for the year ended December 31, 2006 increased to $16.2 million from $12.1 million in 2005. Increased selling and marketing expenses in 2006 have resulted primarily from the increased promotion activities behind newly launched brands.

Amortization expense for the fourth quarter 2006 increased to $2.1 million from $1.1 million in the corresponding period a year ago. For the twelve-month period ended December 31, 2006, amortization expense increased to $7.3 million from $4.6 million in 2005. Increased amortization expense in 2006 reflects the amortization of newly acquired assets.

As at December 31 2006, Paladin's cash, cash equivalents and investments in marketable securities totalled $36 million. From this strong cash position, Paladin continues to pursue product acquisition opportunities.

Product Developments

During the quarter, Paladin expanded its presence in the growing Canadian pain market through the addition of Vicoprofen® and Metadol® to its product line. Vicoprofen® will compete against products such as Tylenol #3 (codeine and aceptaminophen) which, according to IMS Canada, recorded $18.2 million in 2006 in Canada. Vicoprofen® has been approved by Health Canada and is expected to be launched by Paladin in the fourth quarter of 2007.

Metadol® contains methadone hydrochloride and is approved in Canada as an analgesic in acute cancer pain, palliative care and chronic pain disorders and for detoxification or maintenance treatment of opioid-dependent individuals. Metadol® will compete in the long acting oral opioid market valued by IMS in 2006 at $346 million. According to IMS Canada, for 2006 Metadol® sales were $4.0 million, up 31% versus 2005.

On December 1, 2006, Paladin assumed Canadian Pennsaid® (topical diclofenac) sales and marketing responsibilities from Solvay Pharma Inc. Paladin acquired the Canadian rights to Pennsaid® from Nuvo Research Inc. (TSX: NRI) which included a co-promotional agreement with Solvay Pharma Inc. Paladin will no longer have to share Pennsaid® Canadian revenues with Solvay. According to IMS Canada, sales in 2006 totalled $10.7 million.

Paladin entered into an exclusive Canadian distribution agreement with Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL) to market Testim®, a testosterone gel approved by Health Canada and indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone. Paladin expects to launch Testim® in the 2nd quarter of 2007.

Subsequent to the year end, Paladin and Stallergenes SA entered into a Canadian development, promotion and distribution agreement for Oralair(TM), Stallergenes' allergen extract immunotherapy sublingual tablets. Stallergenes and Paladin plan to submit the first product under this agreement, Oralair(TM) Grasses, for Canadian regulatory approval in 2007.

In addition, Paladin commercially launched PravASA®, an innovative, cost-effective product which combines pravastatin, a cholesterol-lowering medication, and delayed-release ASA, a platelet aggregation inhibitor, in a single package. PravASA® is a convenient combination package which, based upon a U.S. study, increases patient compliance. In addition, PravASA® offers excellent value for patients who are already being prescribed pravastatin and ASA separately, as PravASA® is priced the same as generic pravastatin. In essence, patients are receiving the benefit of the compliance package with the ASA at no additional cost.

Corporate Developments

In December Paladin received confirmation from Le Ministere du Revenu du Quebec that its common shares qualify for the SME Growth Plan and are registered by the Autorite des Marches Financiers. As a result, common shares of Paladin purchased on the secondary market to replace qualifying shares or securities sold by an individual qualify as valid shares for a "coverage" operation in accordance with the SME Growth Stock Plan.

Financial Outlook

For fiscal 2007, Paladin expects to generate $55 million to $56 million in revenue. This forecast excludes the impact of acquisitions that may be made by the Company between now and the end of 2007.

Conference Call Notice

Paladin will host a conference call to discuss its fourth quarter results today at 10:00 a.m. EST. The dial-in number for the conference call is 1-800-731-6941 or 416-644-3417. The call will be audio-cast live and archived for 31 days at www.paladinlabs.com.

(1) EBITDA does not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) and therefore may not be comparable to similar measures presented by other public issuers. EBITDA is defined as earnings before interest, taxes, depreciation, amortization and unusual items. EBITDA performance and guidance is presented herein because Paladin management believes that, in addition to net income, EBITDA is a useful supplemental measure of the Company's financial performance.

About Paladin Labs

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

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 subsidiary 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, 2005. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether a result of new information, future events, or 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 fillings, annual report and Annual Information Form and other fillings found on SEDAR at www.sedar.com

CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)

                                          December 31   December 31
                                                 2006          2005
                                                    $             $
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                                           (unaudited)   (audited(2))

ASSETS
Current
Cash and cash equivalents                       2,769         2,835
Marketable securities                          33,305        39,484
Accounts receivable                             9,495         8,128
Inventory                                       3,635         3,178
Other current assets                            1,306           865
Investment tax credits receivable                 831           827
Future income tax asset                         2,550         3,158
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Total current assets                           53,891        58,475

Property, plant and equipment                     151            96
Pharmaceutical product licenses and rights     21,482         9,135
Deferred charges                                3,476         3,908
Investments                                     3,217         1,433
Future investment tax credits recoverable           -           153
Future income tax asset                         3,634         4,479
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Total assets                                   85,851        77,679
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities        8,208         7,679
Accounts payable to related parties             1,274         1,044
Deferred revenue                                    -           903
Income taxes payable                              279           408
Balance of license agreements payable             231           698
Balance of sale payable                           227           227
Future income tax liability                     1,397             -
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Total current liabilities                      11,616        10,959

Balance of sale payable                           494           470
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Total liabilities                              12,110        11,429
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Shareholders' equity
Capital stock                                  58,807        57,378
Other paid-in capital                           1,223           933
Retained earnings                              13,711         7,939
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Total shareholders' equity                     73,741        66,250
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Total liabilities and shareholders' equity     85,851        77,679
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(2) Derived from the audited annual financial statements filed on
    SEDAR at www.sedar.com



CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars except for share and
 per share amounts)

                        Three-month periods    Twelve-month periods
                          ended December 31       ended December 31
                           2006        2005        2006        2005
---------------------------------------------------------------------
                              $           $           $           $
                     (unaudited) (unaudited) (unaudited) (audited(2))

Revenues                 14,282      10,318      48,357      33,689
Cost of sales             2,967       2,413      11,220       8,572
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Gross profit             11,315       7,905      37,137      25,117
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Selling and marketing     5,197       3,883      16,181      12,131
General and
 administrative             980         965       4,574       3,434
Research and development  1,266         387       2,396       1,666
Amortization of
 intangible assets
 and deferred charges     2,079       1,137       7,293       4,592
Interest income, net       (399)       (231)     (1,434)     (1,197)
Gain on disposal
 of investment             (173)          -        (173)          -
Other income                  -           -        (724)       (147)
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Income before
 income taxes             2,365       1,764       9,024       4,638
---------------------------------------------------------------------

Provision for
 income taxes
Current                      90         341         374         341
Future                      741          61       2,844       1,043
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                            831         402       3,218       1,384
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Net income                1,534       1,362       5,806       3,254
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Earnings per share
Basic                      0.10        0.09        0.39        0.22
Diluted                    0.10        0.09        0.38        0.22
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Weighted average
 number of
 shares outstanding
Basic                14,955,131  14,754,391  14,886,555  14,803,878
Diluted              15,304,223  14,909,607  15,176,437  14,865,096
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)

                        Three-month periods    Twelve-month periods
                          ended December 31       ended December 31
---------------------------------------------------------------------
                           2006        2005        2006        2005
                              $           $           $           $
                     (unaudited) (unaudited) (unaudited) (audited(2))

Operating activities
Net income                1,534       1,362       5,806       3,254
Add items not
 affecting cash
  Amortization            2,091       1,153       7,354       4,781
  Future income taxes       741          61       2,844       1,043
  Stock based
   compensation expense     100         121         551         387
  Other income                -           -        (724)          -
  Gain on disposal
   of investment           (173)          -        (173)          -
  Accreted interest
   on balance of
   sale payable               6           -          24           -
  Investment tax
   credits recoverable        -         286           -         286
  Unrealized foreign
   exchange loss (gain)       -           2           1         (15)
---------------------------------------------------------------------
                          4,299       2,985      15,683       9,736
---------------------------------------------------------------------
Net change in non-cash
 balances relating
 to operations             (534)        296      (2,397)        638
---------------------------------------------------------------------
Cash flows from
 operating activities     3,765       3,281      13,286      10,374
---------------------------------------------------------------------

Investing activities
Additions to
 pharmaceutical product
 licenses and rights,
 and deferred charges   (15,582)       (203)    (19,439)     (1,414)
Purchases of short-term
 marketable securities   (1,491)     (7,786)    (50,906)    (37,337)
Maturities of short-term
 marketable securities   12,162       5,166      57,086      40,453
Purchases of long-term
 marketable securities        -           -           -      (1,983)

Proceeds from the
 disposal of investments    515           -         515           -
Acquisition of property,
 plant and equipment        (77)        (55)       (117)        (78)
Acquisitions of
 investments               (901)          -      (1,401)          -
Business Acquisition          -           -           -      (7,748)
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Cash flows used in
 investing activities    (5,374)     (2,878)    (14,262)     (8,107)
---------------------------------------------------------------------

Financing activities
Accounts payable related
 to the acquisition of
 intellectual property
 and deferred charges         -         234        (234)       (364)
Common shares
 issued for cash            209          12       1,211          54
Repurchase or shares          -        (167)        (67)       (649)
Repayment of
 share purchase loan          -           -           -          20
---------------------------------------------------------------------
Cash flows from (used in)
 financing activities       209          79         910        (939)
---------------------------------------------------------------------

Net change in cash
 and cash equivalents
 during the period       (1,400)        482         (66)      1,328

Cash and cash
 equivalents,
 beginning of period      4,169       2,353       2,835       1,507

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Cash and cash
 equivalents,
 end of period            2,769       2,835       2,769       2,835
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash and cash
 equivalents              2,769       2,835
--------------------------------------------
Marketable securities    33,305      39,484
--------------------------------------------
                         36,074      42,319

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