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11. Capital Stock [cont’d] Additional information concerning stock options outstanding as at December 31, 2009 is as follows: Exercise price Options outstanding Options exercisable Number Weighted average months to expiry Weighted average exercise price $ Number Weighted average exercise price $ $4.19–$6.07 153,433 16 4.60 153,433 4.60 $6.60–$8.10 100,700 38 6.85 79,123 6.88 $9.90–$11.06 486,898 57 10.86 215,898 10.96 $11.10–$12.19 411,237 72 11.98 60,313 11.36 $16.55–$19.26 94,250 80 17.62 25,000 16.55 1,246,518 533,767 The Company recorded stock option compensation expense with a corresponding credit to other paid-in capital and determined the fair value of stock options under the Black-Scholes option pricing model using the following assumptions: 2009 2008 Stock-based compensation expense $2,022 $1,382 Weighted average fair value of options $6.17 $5.73 Weighted average risk-free interest rate 2.48% 3.32% Dividend yield Nil Nil Weighted average volatility factor 42% 47% Weighted average expected life 7 years 7 years Stock Purchase Plan The Company has a Stock Purchase Plan [“Purchase Plan”] allowing permanent employees to purchase up to 200,000 common shares at fair market value from treasury. During 2009, 11,851 [10,481 in 2008] shares were issued from treasury at fair market value under the Purchase Plan. As at December 31, 2009, 124,972 [2008 — 136,823] common shares reserved for stock purchase arrangements remain available under the Purchase Plan. Under the Purchase Plan, the Company will contribute 25% of employees’ contributions to a maximum of 6% of the employees’ salary in the form of common shares if the employee remains employed by the Company and has held the original shares for two years from the original purchase date. The Company’s contribution in common shares is calculated using the lesser of the original common share value at the original purchase date and the date of the Company’s contribution. During 2009, the Company issued 1,641 shares [1,391 in 2008] representing its 25% contribution and recorded a corresponding expense of $30 [$18 in 2008]. Share buyback On February 27, 2009, the Company received regulatory approval from the TSX to carry out a normal course issuer bid effective March 3, 2009. The Company has been authorized to purchase up to 811,548 of its common shares, or approximately 10% of its public float of 8,115,483 common shares as at February 18, 2009, in the twelve-month period following the bid’s effective date. The Company has an automatic share purchase plan with a broker in order to facilitate repurchases of its common shares under its normal course issuer bid. The Company’s broker may repurchase shares under the normal course issuer bid at any time including, without limitation, when the Company would ordinarily not be permitted to due to regulatory restrictions or self-imposed blackout periods. During the year ended December 31, 2009, under the terms of a normal course issuer bid approved in 2009, the Company repurchased and cancelled 4,500 shares at an average price of $16.00 for a cash consideration of $72 resulting in an excess of purchase price over stated capital of common shares $43 which was charged to retained earnings. During the year ended December 31, 2008, under the terms of a normal course issuer bid approved in 2008, the Company repurchased and cancelled 226,725 shares at an average price of $10.01 for a cash consideration of $2,269 resulting in an excess of purchase price over stated capital of common shares $1,357 which was charged to retained earnings. 48 — Paladin Annual Report 2009
12. Other Paid-In Capital The changes to other paid-in capital are as follows: 2009 2008 $ $ Balance, beginning of year 3,155 2,019 Amount related to stock-based compensation 2,022 1,382 Transfer to capital stock upon exercise of stock options (769) (246) Balance, end of year 4,408 3,155 13. Business Acquisitions 2009 — Isotechnika Inc. acquisition On June 18, 2009, the Company acquired all the issued and outstanding shares of Isotechnika Inc. [“Isotechnika”][TSX: ISA] in accordance with a court supervised Plan of Arrangement. As part of the transaction, the Company paid $7,594 in cash and Isotechnika entered into a collaborative research and development agreement with Isotechnika Pharma Inc. [“IsoPharma”] in exchange for supporting research and development services for the commercialization of voclosporin, Isotechnika’s next-generation calcineurin inhibitor, in Canada, Mexico, Central and South America, Israel and South Africa [“Paladin-acquired territories”]. The research and development services extend for a period of seven years and included an amount of $4,350 payable by the Company to IsoPharma over the next 12 months and expensed as incurred over this same 12 month period. Furthermore, the Research and Development Agreement in conjunction with the Company’s Licence Agreement for voclosporin in the Paladin acquired territories, contains certain other voclosporin research, development and commercialization payment arrangements including possible licensing and royalty revenue payments over the remaining period. During the year ended December 31, 2009, the Company has expensed $1,975 with respect to these research and development services. As part of the acquisition, the Company also received the international rights to a portfolio of products under development and a commercialized diagnostic product portfolio. The Company had also assumed an obligation to pay out certain future contractually pre-defined amounts relating to the commercialization of the diagnostic product portfolio over a period of seven years, estimated to amount to approximately $5,950 at the time of acquisition [the “contingent balance of sale payable”]. This estimated amount was determined based upon the historical sales of the products, current expenditure levels and market conditions and was payable over a seven-year period pursuant to its Research and Development Agreement and represented management’s best estimate of this liability at the time of acquisition. It was considered reasonably possible that changes in future conditions could require a material change in the recognized amount. As at December 31, 2009, the Company had applied $500 and disbursed $274 with respect to this balance of sale payable. On December 31, 2009, the Company entered into an Amended Agreement with IsoPharma to settle the contingent balance of sale payable for a total amount of $1,991, of which $1,650 is payable February 28, 2010 and the remainder in the amount of $341, representing the discounted present value, is payable on January 31, 2011 if certain conditions are met. This settlement resulted in an adjustment to the extraordinary gain in the amount of $3,458 which has been recorded in accordance with related party accounting standards [see Note 14 for additional information]. The Company had originally recorded an extraordinary gain in the amount of $25,959 upon the acquisition of Isotechnika which in conjunction with the settlement above results in an aggregate extraordinary gain of $29,417 for the year ended December 31, 2009. Isotechnika is an international biopharmaceutical company dedicated to the discovery, development and commercialization of novel immunosuppressive therapeutics for the treatment of autoimmune diseases and for use in the prevention of organ rejection in transplantation. In addition to the Company’s drug pipeline, Isotechnika also has commercialized diagnostic products. Isotechnika was subsequently wound up into the Company on October 1, 2009. Furthermore, as part of the purchase price, the Company received 24,921,312 common shares, representing a 19% interest in IsoPharma as at the date of acquisition, with an approximate value of $4,348 using the weighted average trading price of the common shares on the TSX for the 20 trading days pre and post acquisition. In connection with the acquisition, the Company had incurred transaction costs in the amount of $530 included in the purchase price below. Notes to Consolidated Financial Statements —49
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 and 36: Contractual Obligations and Commitm
Page 37 and 38: Consolidated Balance Sheets As at D
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: 10. Investments [cont’d] Prior to
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

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