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Management Report The accompanying consolidated financial statements of Paladin Labs Inc. and all of the information in this Annual Report are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The most significant of these accounting principles are described in Note 2 to the consolidated financial statements. The consolidated financial statements include some amounts that are based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly in all material respects. The Company’s accounting procedures and related systems of internal control are designed to provide reasonable assurance that its assets are safeguarded and its financial records are reliable. The financial information elsewhere in this Annual Report is consistent with the information presented in the consolidated financial statements. The Board of Directors has appointed an Audit Committee consisting of three outside directors. The committee meets periodically during the year to review with management and the external auditors any significant accounting, internal control and auditing matters. They review and finalize the annual consolidated financial statements of the Company along with the external auditors’ report prior to the submission of the consolidated financial statements to the Board of Directors for final approval. The Company’s external auditors, Ernst & Young LLP, Chartered Accountants, conduct an independent audit on behalf of the shareholders, in accordance with Canadian generally accepted auditing standards, and express their opinion on the consolidated financial statements. Their report outlines the scope of their audit and their opinion on the consolidated financial statements of the Company. The external auditors have full access to management and the Audit Committee of the Board. Montreal, Canada, February 5, 2010 (except for note 26 which is as of March 16, 2010) (signed) Jonathan Ross Goodman Jonathan Ross Goodman, BA, LLB, MBA President & CEO (signed) Samira Sakhia Samira Sakhia, CA, MBA Chief Financial Officer Auditors’ Report To the Shareholders of Paladin Labs Inc. We have audited the consolidated balance sheets of Paladin Labs Inc. as at December 31, 2009 and 2008 and the consolidated statements of income, cash flows, comprehensive income, accumulated other comprehensive income (loss) and retained earnings for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Montreal, Canada February 5, 2010 (except for note 26 which is as of March 16, 2010) 1 CA auditor permit no. 16652 34 — Paladin Annual Report 2009
Consolidated Balance Sheets As at December 31 [In thousands of Canadian dollars] 2009 2008 $ $ ASSETS Current Cash and cash equivalents 31,227 4,646 Marketable securities [note 4] 73,274 14,753 Accounts receivable [note 19] 14,167 17,889 Inventories [note 5] 12,361 8,643 Other current assets [note 6] 2,668 2,567 Income taxes receivable [note 16] 4,630 4,209 Investment tax credits recoverable 776 43 Future income tax assets [note 16] 6,196 9,120 Total current assets 145,299 61,870 Long-term marketable securities [note 7] 868 1,943 Property, plant and equipment [note 8] 691 594 Pharmaceutical product licenses and rights [note 9] 42,543 58,152 Investments [note 10] 62 4,792 Investment tax credits recoverable [note 16] 14,903 — Future income tax assets [note 16] 31,029 4,789 Total assets 235,395 132,140 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities 22,934 16,464 Accounts payable to related parties [note 14] 1,122 1,384 Deferred revenues 1,776 1,693 Income taxes payable 7,109 6,391 Balance of sale payable [notes 9, 13 and 14] 1,650 10,429 Future income tax liabilities [note 16] 252 90 Total current liabilities 34,843 36,451 Balance of sale payable [notes 9, 13 and 14] 1,743 — Future income tax liabilities [note 16] 4,007 341 Total liabilities 40,593 36,792 Shareholders’ equity Capital stock [note 11] 119,652 60,664 Other paid-in capital [note 12] 4,408 3,155 Accumulated other comprehensive income (loss) 98 (1,420) Retained earnings 70,644 32,949 Total shareholders’ equity 194,802 95,348 Total liabilities and shareholders’ equity 235,395 132,140 Commitments [note 18] See accompanying notes On behalf of the Board (signed) Jonathan Ross Goodman Jonathan Ross Goodman, Director (signed) Mark Beaudet Mark Beaudet, Director Consolidated Financial Statements —35
Page 1 and 2: Outstanding. 2009 Annual Report 1
Page 3 and 4: “There are many easy ways to make
Page 5 and 6: Standing up for patients. At Paladi
Page 7 and 8: Standing out with our products. We
Page 9 and 10: Standing with our partners. As we c
Page 11 and 12: • June 2009: We launched Twinject
Page 13 and 14: In closing There are many easy ways
Page 15 and 16: Table of Contents 01 Financial High
Page 17 and 18: Management’s Discussion and Analy
Page 19 and 20: Critical Accounting Estimates Palad
Page 21 and 22: Recently Adopted Accounting Standar
Page 23 and 24: Results of Operations Year ended De
Page 25 and 26: During the year ended December 31,
Page 27 and 28: Liquidity and Capital Resources The
Page 29 and 30: The results of Isotechnika’s oper
Page 31 and 32: Product revenues highlights for the
Page 33 and 34: Financial Instruments The Company
Page 35: Contractual Obligations and Commitm
Page 39 and 40: Consolidated Statements of Cash Flo
Page 41 and 42: Notes to Consolidated Financial Sta
Page 43 and 44: 2. Basis of Presentation and Signif
Page 45 and 46: 3. Changes in Accounting Policies R
Page 47 and 48: 9. Pharmaceutical Product Licenses
Page 49 and 50: 10. Investments [cont’d] Prior to
Page 51 and 52: 12. Other Paid-In Capital The chang
Page 53 and 54: 14. Related Party Transactions Jodd
Page 55 and 56: 16. Income Taxes [cont’d] 2009 20
Page 57 and 58: 17. Earnings Per Share The followin
Page 59 and 60: 19. Financial Instruments [cont’d
Page 61 and 62: 20. Supplemental Disclosure for Con
Page 63 and 64: Our Management Team Jonathan Ross G
Page 65 and 66: Licensing Advisory Board (Lab) Dr.
Page 67: Paladin Labs Inc. 6111 Royalmount A

Outstanding

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