<Page>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 20-F

     (Mark One)

            / /   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                                       OR

            /X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

            / /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     Commission File Number: 0-17434

                                   ----------

                               DRAXIS HEALTH INC.
             (Exact name of Registrant as specified in its charter)

                           PROVINCE OF ONTARIO, CANADA
                 (Jurisdiction of incorporation or organization)

       6870 GOREWAY DRIVE, 2nd FLOOR, MISSISSAUGA, ONTARIO, CANADA L4V 1P1
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

     TITLE OF EACH CLASS         NAME OF EACH EXCHANGE ON WHICH REGISTERED

           NONE                                    NONE

                                   ----------

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                                  COMMON SHARES
                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                   of the Act.

                                      NONE
                                (Title of Class)

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.

                      Shares - 36,613,434 (as of 12/31/01)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes X   No

     Indicate by check mark which financial statement item the Registrant has
elected to follow.

                             Item 17       Item 18 X

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<Table>
<S>                                                                                             <C>
Item 1.   Identity of Directors, Senior Management and Advisers..................................1

Item 2.   Offer Statistics and Expected Timetable................................................1

Item 3.   Key Information........................................................................1

Item 4.   Information on the Company............................................................10

Item 5.   Operating and Financial Review and Prospects..........................................50

Item 6.   Directors, Senior Management and Employees............................................66

Item 7.   Major Shareholders and Related Party Transactions.....................................83

Item 8.   Financial Information.................................................................85

Item 9.   The Offer and Listing.................................................................86

Item 10.  Additional Information................................................................87

Item 11.  Quantitative and Qualitative Disclosures About Market Risk............................98

Item 12.  Description of Securities Other Than Equity Securities................................98

Item 13.  Defaults, Dividends Arrearages and Delinquencies......................................98

Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds..........98

Item 17.  Financial Statements..................................................................98

Item 18.  Financial Statements..................................................................99

Item 19.  Exhibits..............................................................................99
</Table>

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Item 1.   Identity of Directors, Senior Management and Advisers

     Not Applicable

Item 2.   Offer Statistics and Expected Timetable

     Not Applicable

Item 3.   Key Information

     DRAXIS Health Inc. ("DRAXIS" or the "Company") is an integrated
pharmaceutical company focused in two specialty segments: the development,
production, marketing and distribution of radiopharmaceuticals through the
Company's subsidiary DRAXIMAGE Inc. ("DRAXIMAGE") and the provision of contract
pharmaceutical manufacturing services, specialising in liquid and freeze-dried
injectibles and other sterile products, through the Company's controlled
subsidiary DRAXIS Pharma Inc. ("DPI").

     We currently also engage in Canadian pharmaceutical sales and marketing
through DRAXIS Pharmaceutica ("DRAXIS Pharmaceutica"), which operates as a
division of DRAXIS. In January 2002, DRAXIS entered into a binding letter of
intent to sell substantially all of the assets of DRAXIS Pharmaceutica to Elan
Corporation, plc. Commencing with the quarter ended December 31, 2001, the
results of operations of DRAXIS Pharmaceutica have been reported as discontinued
operations, and all comparative periods presented have been restated.

     Our subsidiary Deprenyl Animal Health, Inc. ("DAHI") receives licensing and
royalty revenue related to Anipryl, a companion animal health product.

     Our registered and principal office is located at 6870 Goreway Drive, 2nd
Floor, Mississauga, Ontario, L4V 1P1.

     The selected data set forth in the following table are expressed in U.S.
dollars and in accordance with U.S. generally accepted accounting principles
("U.S. GAAP"). All data presented below should be read in conjunction with, and
is qualified in its entirety by, reference to the audited Consolidated Financial
Statements and Notes thereto for the year ended December 31, 2001.

                                       -1-
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<Table>
<Caption>
                                                                                    U.S. GAAP
                                                            (in thousands of U.S. dollars except share related data)
                                                       -------------------------------------------------------------------

                                                       -------------------------------------------------------------------
                                                          2001          2000            1999          1998         1997
                                                       -------------------------------------------------------------------
     <S>                                               <C>           <C>             <C>           <C>          <C>
     Operations
         Revenues                                      $   32,984    $   29,151      $   24,385    $   30,643   $   25,631
         Operating income (loss)                            1,261          (250)         (1,691)        5,124          665
         (Loss) income from continuing operations
         before cumulative effect of accounting            (1,368)          192            (890)        3,433          838
         change
         (Loss) income from discontinued operations
         - net of taxes                                      (216)         (630)         (4,580)          284          446
         Cumulative effect of accounting change -
         net of taxes                                          --       (19,900)             --            --           --
     ---------------------------------------------------------------------------------------------------------------------
         Net (loss) income                                 (1,584)      (20,338)         (5,470)        3,717        1,284
     ---------------------------------------------------------------------------------------------------------------------

     Earnings (loss) Per Share
         Basic                                              (0.04)        (0.56)          (0.16)         0.12         0.04

     Financial Position at December 31
         Cash and cash equivalents                          5,602         4,420           2,016         2,393       14,157
         Total assets                                      64,360        67,307          60,647        56,649       38,422
         Long-term debt                                     8,060         9,890          14,476        11,861        2,779
         Common shareholders' equity                       16,878        20,808          38,116        34,677       31,260
         Book value per common share                         0.46          0.57            1.07          1.07         1.01

     Share Information
           Number of shares outstanding at year end    36,613,434    36,565,102      35,557,366    32,280,524   31,035,861
           Weighted average number of shares           36,587,794    36,324,199      33,825,654    31,950,704   29,695,743
           outstanding - basic
</Table>

Overview

     This Annual Report (Form 20-F) contains forward-looking statements (within
the meaning of the Securities Exchange Act of 1934, as amended) and information
that are based on management's beliefs, as well as assumptions made by and
information currently available to management. When used in this Annual Report
(Form 20-F), the words "anticipate," "estimate," "believe," "expect,"
"potential," "intend," "designed" and "should" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements necessarily make numerous assumptions with respect to industry
performance, general business, economic and regulatory conditions, access to
markets and materials and other matters, all of which are inherently subject to
significant uncertainties and contingencies and many of which are beyond the
Company's control. Should one or more of these risks or uncertainties
materialise, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. The Company
believes that any of the following risk factors could cause the Company's actual
results to differ from those that may have been or may be projected in
forward-looking statements made by or on behalf of the Company from time to
time. The forward-looking statements in this Annual Report (Form 20-F) are
contained principally under Items 4 and 5.

                                       -2-
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                                  RISK FACTORS

     The following list of factors may not be exhaustive, as we operate in a
rapidly changing business, and new risk factors emerge from time to time. We
cannot predict such risk factors, nor can we assess the impact, if any, of such
risk factors on our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those projected
in any forward-looking statements. Accordingly, do not rely on forward-looking
statements as a prediction of actual results.

     The following summarizes the major risks and uncertainties facing us:

WE MAY NOT BE ABLE TO GET TIMELY REGULATORY APPROVAL FOR OUR PRODUCTS.

     Preclinical studies and clinical trials, as well as the manufacturing and
marketing of our existing and potential products, are subject to extensive
regulation by the Health Products and Food Branch of Health Canada ("HPF") and
other authorities in Canada and by numerous federal, state and local government
authorities in the United States, including the Food and Drug Administration
("FDA"). Similar regulatory requirements exist in Europe and other countries. To
the extent we choose to explore foreign markets, we may rely on foreign
licensees to obtain regulatory approvals in such countries. The
commercialization of certain of our products will be subject to rigorous
preclinical and clinical testing and other premarket approval requirements by
the FDA, HPF and similar authorities in other foreign countries. Any failure or
delay by us, our collaborators or licensees to comply with applicable
requirements or obtain regulatory approvals for our products could adversely
affect the marketing of products developed or licensed by us and our ability to
receive product or royalty revenue.

     The regulatory process, which includes preclinical studies and clinical
trials of each compound to establish its safety and efficacy, takes many years
and requires the expenditure of substantial resources. Moreover, if regulatory
approval of the drug is granted, such approval may entail limitations on the
indicated uses for which it may be marketed. Failure to comply with applicable
regulatory requirements can, among other things, result in suspension of
regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. Further, government policy may change,
and additional government regulations may be established that could prevent or
delay regulatory approvals for our products. In addition, a marketed drug and
its manufacturer are subject to continual review. Later discovery of previously
unknown problems with the product or manufacturer may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market.

     We manufacture, or expect to manufacture, many active pharmaceutical
ingredients and advanced pharmaceutical intermediates that are used in our
customers' drug products. The final drug products in which the pharmaceutical
ingredients and advanced pharmaceutical intermediates are used, however, are
subject to regulation for safety and efficacy by the FDA, HPF and other
jurisdictions, as the case may be. Such products must be approved by such
agencies before they can be commercially marketed. The process of obtaining
regulatory clearance for marketing is uncertain, costly and time consuming. We
cannot predict how long the necessary regulatory approvals will take or whether
our customers will ever obtain such approval for their products. To the extent
that our customers do not obtain the necessary regulatory approvals for
marketing new products, our product sales could be adversely affected.

WE MAY NOT BE ABLE TO OBTAIN AND ENFORCE EFFECTIVE PATENTS TO PROTECT OUR
PROPRIETARY RIGHTS FROM USE BY COMPETITORS, AND THE PATENTS OF OTHER PARTIES
COULD REQUIRE US TO STOP USING OR PAY TO USE CERTAIN INTELLECTUAL PROPERTY, AND
OUR COMPETITIVE POSITION AND PROFITABILITY COULD SUFFER AS A RESULT.

                                       -3-
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     Our success will depend, in part, on our ability to obtain, enforce and
maintain patent protection for our technology in Canada, the United States and
other countries. We cannot assure you that patents will issue from any pending
applications or that claims now or in the future, if any, allowed under issued
patents will be sufficiently broad to protect our technology. In addition, no
assurance can be given that any patents issued to or licensed by us will not be
challenged, invalidated, infringed or circumvented, or that the rights granted
thereunder will provide continuing competitive advantages to us. Our competitor
Ceva Sante Animale is opposing issued patents relating to our product Anipryl in
Europe; we are defending ourselves vigorously in this opposition. The patent
positions of pharmaceutical and biotechnology firms, including us, are generally
uncertain and involve complex legal and factual questions. In addition, we do
not know whether any of our current research endeavors will result in the
issuance of patents in Canada, the United States, or elsewhere, or if any
patents already issued will provide significant proprietary protection or will
be circumvented or invalidated. Since patent applications in the United States
and Canada are maintained in secrecy until patents issue, and since publication
of discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, we cannot be certain that we were the first to
create inventions claimed by pending patent applications or that we were the
first to file patent applications for such inventions. Certain patents related
to our products have expired. Loss of patent protection could lead to generic
competition for these products, and others in the future, which would materially
and adversely affect the financial prospects for these products and, to a lesser
extent, the Company.

     Our commercial success will also depend in part on our not infringing
patents or proprietary rights of others and not breaching the licenses granted
to us. The degree of patent protection afforded to pharmaceutical or
biotechnological inventions around the world is uncertain and varies
significantly between different countries. There can be no assurance that we
will be able to obtain a license to any third-party technology or patents that
we may require to conduct our business or that such technology or patents can be
licensed at a reasonable cost. Failure by us or our collaborators to obtain a
license to any technology or patents that we may need to commercialize our
technologies or products may result in delays in marketing our proposed products
or the inability to proceed with the development, manufacture or sale of
products requiring such licenses and may have a material adverse effect on us.

     We have been required to, and may continue to be required to, engage in
litigation and other patent proceedings to enforce patents issued to us, to
defend our right, title and interest to patents related to our products and to
determine the scope and validity of other parties' proprietary rights. These
proceedings can be costly, and if the outcome of any such proceedings is adverse
to us, we could lose the right to sell some of our products or could be required
to pay damages.

     We also rely on unpatented trade secrets, improvements and know-how to
develop and maintain our competitive position, which we seek to protect, in
part, by confidentiality agreements with our corporate partners, collaborators,
employees and consultants. These agreements could be breached, and we may not
have adequate remedies for any breach. Further, our trade secrets could
otherwise become known or be independently discovered by competitors.

IF OUR COLLABORATIVE AND COMMERCIAL RELATIONSHIPS WITH THIRD PARTIES ON WHOM WE
RELY ARE UNSUCCESSFUL, OUR BUSINESS MAY SUFFER.

     To be successful, we must continually establish and maintain strategic
relationships with leaders in a number of biotechnology and pharmaceutical
industry segments. This is critical to success because such relationships enable
us to extend the reach of our products and sales in various jurisdictions,
generate additional revenue and develop and deploy new products in various
marketplaces. Entering into strategic relationships is complicated as some of
our current and future strategic partners may decide to

                                       -4-
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compete with us in some or all of the markets or refuse to fulfil or honor their
contractual obligations to us.

     We have entered into a number of product in-licensing and out-licensing
arrangements in which our business and financial success is dependent on third
parties. In many of our product in-licensing arrangements, the product licensor
is responsible for developing a body of data upon which we can base a submission
to the HPF, FDA or other regulatory authority. The interests of the other party
to each of these agreements may not be or remain consistent with our interests,
and our collaborators may not succeed in developing a body of data that can form
the basis of regulatory approval. Should our collaborators fail to develop such
body of data to enable us to obtain the requisite regulatory approvals or
otherwise fail to honor their commitments to us or meet our expectations, our
business, financial condition and results of operations may be materially and
adversely affected. In addition, we cannot control the amount and timing of
resources our collaborators devote to the products to which they have rights or
to the subject matters of our agreements with them generally. The agreements may
be terminated by our collaborators in certain circumstances.

     To the extent we enter into product out-licensing arrangements for the
marketing or distribution of our own products with collaborative partners, any
revenues we receive will depend upon the efforts of third parties. There can be
no assurance that any third party will market our products successfully or that
any third-party collaboration will be on terms favorable to us. If any marketing
partner does not market a product successfully, our business might be materially
and adversely affected.

IF OUR COLLABORATORS, EMPLOYEES, OR CONSULTANTS DISCLOSE OUR CONFIDENTIAL
INFORMATION TO OTHERS DESPITE CONFIDENTIALITY AGREEMENTS IN PLACE, OUR BUSINESS
MAY SUFFER.

     Our practice is to require our employees, collaborators, consultants and
outside scientific advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships. These agreements provide
that all confidential information developed or made known to the individual
during the course of the individual's relationship with us is to be kept
confidential and not disclosed to third parties, subject to certain specific
limited exceptions. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be our exclusive property. These
agreements, however, may not provide meaningful protection for our trade secrets
or adequate remedies in the event of unauthorized use or disclosure of such
information.

WE ARE SUBJECT TO REGULATION BY GOVERNMENTS IN MANY JURISDICTIONS AND, IF WE DO
NOT COMPLY WITH HEALTHCARE, MANUFACTURING AND ENVIRONMENTAL REGULATIONS, OUR
EXISTING AND FUTURE OPERATIONS MAY BE CURTAILED, AND WE COULD BE SUBJECT TO
LIABILITY.

     The HPF, FDA and other governmental regulators have increased requirements
for drug purity and have increased environmental burdens upon the pharmaceutical
industry. Because pharmaceutical drug manufacturing is a highly regulated
industry, requiring significant documentation and validation of manufacturing
processes and quality control assurance prior to approval of the facility to
manufacture a specific drug, there can be considerable transition time between
the initiation of a contract to manufacture a product and the actual initiation
of manufacture of that product. Any lag time in the initiation of a contract to
manufacture product and the actual initiation of manufacture at our facilities
could cause us to lose profits or incur liabilities.

     Products manufactured by us will have to comply with the FDA's current Good
Manufacturing Practices ("cGMP") and other FDA, HPF or European guidelines and
regulations. Additionally, certain

                                       -5-
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of our customers may require us to adhere to additional manufacturing standards,
even if not required by the FDA. Compliance with cGMP regulations requires
manufacturers to expend time, money and effort in production, and to maintain
precise records and quality control to ensure that the product meets applicable
specifications and other requirements. The FDA and other regulators periodically
inspects drug-manufacturing facilities to ensure compliance with applicable cGMP
requirements. If we fail to comply with the cGMP requirements, we may become
subject to possible regulatory action and manufacturing at the facility could
consequently be suspended.

     The FDA may also require the submission of any lot of a particular product
for inspection. If the lot product fails to meet the FDA requirements, then the
FDA could take any of the following actions: (i) restrict the release of the
product; (ii) suspend manufacturing of the specific lot of the product; (iii)
order a recall of the lot of the product; or (iv) order a seizure of the lot of
the product.

     Canadian and United States federal, state, local and provincial regulations
govern extensively the use, manufacture, storage, handling and disposal of
hazardous material and associated waste products. Although we believe that the
operations at our facilities comply in all material respects with the applicable
environmental laws in Canada and the United States, we cannot completely
eliminate the risk of substantial environmental liabilities. Any failure by us
or any of our subsidiaries to comply with the present or future environmental
laws in Canada and the United States, or elsewhere, could result in any of the
following: (i) cessation of portions or all of our or our subsidiaries'
operations; (ii) imposition of fines; (iii) restrictions on our or our
subsidiaries' ability to carry on or expand our operations; (iv) significant
expenditures by us in order to comply with environmental laws and regulations;
or (v) liabilities in excess of our resources. Any of these sanctions could have
a material adverse effect on our business, financial condition and results of
operations.

     We have in place facilities and procedures designed to reduce and, to the
extent possible, eliminate the risk of environmental contamination resulting
from the processing of raw materials and, more specifically, from the
radiopharmaceutical business of our subsidiary DRAXIMAGE and the manufacturing
business of our subsidiary DPI. We also have in place a regular maintenance
program to ensure continued compliance with all applicable environmental
regulations.

COMPETITION FROM MANUFACTURERS AND MARKETERS OF GENERIC DRUGS MAY REDUCE OUR
REVENUE AND PROFITS.

     Our brand name drugs face competition from generic drugs, which can have
adverse effects upon sales. We have attempted to mitigate the impact of generic
competition by diversifying our product lines and entering into agreements to
share in the profits from the sales of generic versions of our products.
However, competition from generics could result in lower revenues and margins.

OUR BUSINESS COULD BE HARMED IF THERE WERE A DISPUTE OR DISRUPTION WITH OUR
UNIONISED EMPLOYEES.

     Although our subsidiary DPI currently has a good relationship with the
United Food & Commercial Workers International Union, Local 291 (AFL-CIO), there
can be no assurance that future labor difficulties will not arise. Should such
difficulties arise which lead to significant grievance issues and/or a labor
strike, such events might have a material adverse effect on our business.

FACTORS BEYOND OUR CONTROL COULD CAUSE INTERRUPTION IN OUR OPERATIONS, WHICH
WOULD ADVERSELY AFFECT OUR REPUTATION IN THE MARKETPLACE AND OUR RESULTS OF
OPERATIONS.

                                       -6-
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     To succeed, we must be able to operate our manufacturing facilities without
interruption. We could suffer an interruption caused by damage from a variety of
sources, many of which are not within our control, including, fire, flood and
other natural disasters, power loss and telecommunication failure, software and
hardware errors, failures or crashes and similar disruptions. Any significant
interruptions in our operations would damage our reputation in the marketplace
and have a negative impact on our results of operations.

ALTHOUGH WE CARRY INSURANCE, A SUCCESSFUL LIABILITY CLAIM COULD NEGATIVELY
IMPACT OUR BUSINESS.

     The use of any of our unapproved products under development and the sale of
any approved products may expose us to liability claims resulting from the use
of these products. Such claims might be made directly by consumers, healthcare
providers or by pharmaceutical companies or others selling such products. We
currently have liability insurance, but we cannot provide assurance that we will
be able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect us against losses due to this potential liability. We might
not be able to maintain or obtain additional commercially reasonable product
liability insurance for any products approved for marketing. A successful
product liability claim or a series of claims brought against us could have a
material adverse effect on our business, financial condition or results of
operations. Even unsuccessful product liability claims could result in the
expenditure of funds in litigation and the diversion of management time and
resources and could damage our reputation and impair the marketability of our
products.

IF THE MARKET DOES NOT ACCEPT OUR PRODUCTS, OUR BUSINESS COULD BE HARMED.

     There can be no assurance that any of our products in development or
products recently launched will achieve market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt of
regulatory approvals, the establishment and demonstration in the medical
community of the clinical efficacy and safety of the products, the establishment
and demonstration of the potential advantages over existing and new treatment
methods and the reimbursement policies of government and third-party payors.
There can be no assurance that physicians, patients, payors or the medical
community in general will accept and utilize any existing or new products that
may be developed by us.

     We anticipate that we will face increased competition in the future as new
products enter the market and advanced technologies become available. There can
be no assurance that existing products or new products developed by our
competitors will not be more effective, or be more effectively marketed and
sold, than any that may be developed or sold by us. Competitive products may
render our products obsolete and uncompetitive prior to recovering research,
development or commercialization expenses incurred with respect to any such
products.

     Many of our existing or potential competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than do we. In addition, many of these competitors have
significantly greater experience in undertaking research, preclinical studies
and human clinical trials of new pharmaceutical products, obtaining regulatory
approvals and manufacturing and marketing such products. Accordingly, our
competitors may succeed in commercializing products more rapidly or effectively,
which could have a material adverse effect on our business, financial condition
or results of operations.

FAILURE OF ONE OF OUR CURRENT OR FUTURE CLINICAL TRIALS COULD HAVE A MATERIALLY
NEGATIVE IMPACT ON OUR FUTURE PROSPECTS.

                                       -7-
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     The development of new products is subject to a number of significant
risks. Potential products that appear to be promising in various stages of
development may not reach the market for a number of reasons. Such reasons
include the possibilities that the potential product will be found ineffective
or unduly toxic during preclinical or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to market or not achieve market acceptance, or be precluded from
commercialization by proprietary rights of third parties. Certain products we
are attempting to develop have never been manufactured on a commercial scale,
and there can be no assurance that such products can be manufactured at a cost
or in a quantity to render such products commercially viable. Production of such
products may require the development of new manufacturing technologies and
expertise. The impact on our business in the event that new manufacturing
technologies and expertise would have to be developed is uncertain. Many of our
potential products will require significant additional research and development
efforts and significant additional preclinical and clinical testing, prior to
any commercial use. There can be no assurance that we will successfully meet any
of these technological challenges, or others that may arise in the course of
development.

     Before obtaining regulatory approval for the commercial sale of any product
under development, we must demonstrate through preclinical studies and clinical
trials that the product is safe and efficacious. The results from preclinical
studies and clinical trials may not be totally predictive of results obtained in
larger clinical trials, and there can be no assurance that our or any
collaborators' clinical trials will demonstrate safety and efficacy, achieve
regulatory approvals or result in marketable products. A number of companies in
the biotechnology and pharmaceutical industry have suffered significant setbacks
in advanced clinical trials, even after achieving promising results in earlier
trials. Failure to successfully complete clinical trials on a timely basis could
have an adverse effect on our future business, financial condition and results
of operations.

OUR PROFIT DEPENDS IN PART ON REIMBURSEMENT POLICIES AND REGULATIONS OF
GOVERNMENT HEALTH ADMINISTRATION AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER
ORGANISATIONS.

     The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third-party payors to
contain or reduce the costs of health care through various means. For example,
in certain markets, including Canada, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States there
have been, and we expect that there will continue to be, a number of federal and
state proposals to implement similar government controls. In addition, an
increasing emphasis on managed health care in the United States has increased
and will continue to increase the pressure on pharmaceutical pricing. While we
cannot predict whether such legislative or regulatory proposals will be adopted
or the effects such proposals or managed care efforts may have on our business,
the announcement and/or adoption of such proposals or efforts could have a
material adverse effect on our business and financial condition and that of our
current and prospective corporate partners. Accordingly, our ability to
establish strategic alliances may be adversely affected. In addition, in Canada,
the United States and elsewhere, sales of prescription pharmaceutical products
are dependent, in part, on the availability of reimbursement to the consumer
from third-party payors, such as government and private insurance plans.
Third-party payors are increasingly challenging the prices charged for medical
products and services. To the extent we succeed in bringing new products to
market, there can be no assurance that these products will be considered
cost-effective and reimbursement to consumers will be available or will be
sufficient to allow the sale of these products on a competitive basis. The
Patented Medicine Prices Review Board, which monitors and controls prices of
patented drug products marketed in Canada, may assert jurisdiction over our
products under development which may limit the prices that can be charged for
such products. We may not be able to obtain prices for our products under
development that will make them commercially viable.

                                       -8-
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OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO GROW, AND IF WE ARE UNABLE TO
MANAGE OUR GROWTH EFFECTIVELY, WE MAY INCUR UNEXPECTED EXPENSES AND BE UNABLE TO
MEET OUR CUSTOMERS' REQUIREMENTS.

     We will need to maintain, expand and upgrade our manufacturing facilities
and operations to execute current commercial obligations to customers, widen our
customer base and increase manufacturing efficiencies as well as to launch a
series of products into the Canadian marketplace over the next few years. We
cannot be certain that our employees, systems, procedures, controls and existing
space will be adequate to support expansion of its operations. Our future
operating results will depend on the ability of our officers and key employees
to manage changing business conditions and to implement and improve our
technical, administrative, financial control and reporting systems and
operational excellence in order to achieve established business objectives. An
unexpectedly large increase in the volume of manufacturing business or the
number of orders placed by customers may require us to expand and further
upgrade our facilities and the technology related to our manufacturing. We may
not be able to project the rate of timing of such increases or customer demands
accurately or to expand and upgrade our facilities and supporting systems and
infrastructure to accommodate such increases. Difficulties in managing any
future growth could have a significant negative impact on our business because
we may incur unexpected expenses and be unable to meet our customers'
requirements.

OUR FINANCIAL RESULTS MAY FLUCTUATE, AND OUR FUTURE REVENUE AND PROFITABILITY
ARE UNCERTAIN.

     Our ability to achieve and maintain profitability in the foreseeable future
depends on the commercial success of our products and services. Because we will
be launching or are in the process of launching new products in new markets,
revenues are difficult to predict and may fluctuate substantially from period to
period. In addition, product development programs will require substantial
additional investment, including the cost of clinical trials, obtaining
additional regulatory approvals, if necessary, and marketing and sales expenses
associated with potential new product introductions. Our manufacturing facility
will continue to require capital investment in order to maintain, upgrade and
expand its operations. The success of our subsidiaries DRAXIMAGE and DPI will
rely significantly on the ability of both companies to maintain and to increase
substantially their manufacturing capabilities to satisfy customer demand. There
can be no assurance that, or if so when, we will successfully develop, receive
regulatory approvals for, or manufacture or market, any new products for our own
marketing purposes, or for third parties. The research, development, production
and marketing of new products will require the application of considerable
technical and financial resources by us and our collaborators, while revenues
that are generated by such products, if successfully developed and marketed, may
not be realized for several years. We may not be able to sustain profitability.
We may require external financing to complete certain aspects of our strategic
plan, and external sources of capital may not be available at an acceptable
cost. Should Societe generale de financement du Quebec ("SGF") divest its
interest in DPI, or the shareholder relationship between us and SGF become
strained, there may be a negative effect on us and our manufacturing facility
operations.

IF WE CANNOT ADAPT TO CHANGING TECHNOLOGIES, OUR PRODUCTS AND SERVICES MAY
BECOME OBSOLETE AND OUR BUSINESS COULD SUFFER.

     Because the biotechnology and pharmaceutical industry is characterized by
rapid technology change and obsolescence, we may be unable to anticipate changes
in our current and potential customer requirements that could make our existing
technology obsolete. Our success will depend, in part, on our ability to
continue to enhance our existing products and services, develop new technology
that addresses the increasing sophistication and varied needs of our respective
customers, license leading technologies and respond to technological advances
and emerging industry standards and practices on a timely and

                                       -9-
<Page>

cost-effective basis. The development of our proprietary technology and
investing in certain niche markets entails significant technical and business
risks. We may not be successful in using our new technologies or exploiting our
niche markets effectively or adapting our businesses to evolving customer
requirements or emerging industry standards.

OUR COMMON SHARE PRICE HAS BEEN, AND IS LIKELY TO CONTINUE TO BE, VOLATILE.

     The market prices for the securities of pharmaceutical and biotechnology
companies, including ours, have historically been highly volatile, and the
market has, from time to time, experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in our operating results, announcements
of competing technological innovations or new therapeutic products by our
competitors, clinical trial results, governmental regulation, developments in
patent or other proprietary rights, public concern as to the safety of drugs
developed by us or others and general market conditions can have an adverse
effect on the market price of our shares. In particular, the realization of any
of the risks described herein could have a material adverse impact on such
market price. Sales of substantial amounts of our shares in the public market,
or the perception that such sales will occur, could also adversely affect the
market price of our shares and make it more difficult in the future for us to
raise funds through equity offerings.

IF WE LOSE THE SERVICES OF KEY PERSONNEL, WE MAY BE UNABLE TO REPLACE THEM, AND
OUR BUSINESS COULD BE NEGATIVELY AFFECTED.

     Our success depends on the retention of principal members of our management
and scientific staff and on our ability to continue to attract, motivate and
retain additional key personnel. The market for retaining and obtaining such key
personnel is intense and the loss of the services of key personnel or the
failure to recruit necessary additional personnel could materially and adversely
affect operations and our research and development efforts.

ALTHOUGH WE CONSIDER THE ACTIONS TO BE ENTIRELY WITHOUT MERIT, SHOULD CURRENT
LAWSUITS AGAINST US SUCCEED, WE COULD INCUR A SUBSTANTIAL LOSS.

     Although we believe the Knoll, Innovations Foundation and University of
Toronto proceedings are without merit (see "Legal/Arbitration Proceedings" under
Item 8), these disputes may not be resolved in our favor. It is possible that a
court or arbitration tribunal may find us to be infringing validly issued
patents of third parties or practicing the intellectual property of others. In
that event, in addition to the cost of defending the underlying proceedings, we
may have to pay license fees, additional royalties and/or damages, and may be
prohibited from conducting certain activities. Under such circumstances, we
could incur substantial loss and our business could be negatively affected.

Item 4.  Information on Company

     DRAXIS is an integrated pharmaceutical company focused in two specialty
segments: the development, production, marketing and distribution of
radiopharmaceuticals through DRAXIMAGE and the provision of contract
pharmaceutical manufacturing services, specialising in liquid and freeze-dried
injectables and other sterile products through DPI.

     DRAXIS also has a Canadian pharmaceutical sales and marketing division
which operates under the name DRAXIS Pharmaceutica. In January 2002 DRAXIS
entered into a binding letter of intent to divest substantially all of the
assets of DRAXIS Pharmaceutica and, accordingly, beginning with the quarter
ending December 31, 2001, the results of DRAXIS Pharmaceutica have been reported
as discontinued operations.

                                      -10-
<Page>

     In addition, DRAXIS has continuing financial interests from collaboration
agreements with respect to Anipryl and the SpectroPharm line of dermatology
products.

     The Company's consolidated operations are integrated across research,
development, manufacturing, sales and marketing, as well as the in-licensing and
commercial development of pharmaceutical products.

     DRAXIS is currently emerging from a transitional phase of its development.
To date, the Company has been reliant on income earned from Anipryl. For the
year ended December 31, 2001, the Company's collaboration agreement with respect
to Anipryl was the Company's primary source of operating income. In the near
term, however, the Company expects to lessen this reliance as it develops a
diversified profit base from its other business units. In particular, the
Company expects radiopharmaceuticals and contract manufacturing to become major
sources of longer-term revenue and earnings growth.

     The common shares of DRAXIS are listed on the Toronto Stock Exchange
(ticker symbol DAX) and on NASDAQ (ticker symbol DRAX).

     The Company's registered and head office is located at 6870 Goreway Drive,
2nd Floor, Mississauga, Ontario, Canada L4V 1P1. Telephone: (905) 677-5500. Fax:
(905) 677-5494.

     The Company's manufacturing facilities are located at 16751 Trans-Canada
Road, Kirkland, Quebec, Canada H9H 4J4.

     The Company's website is: www.draxis.com.

History and Development of the Company

     The Company was incorporated as Deprenyl Research Limited on October 13,
1987 under the Canada Business Corporations Act. The Company was founded
principally to engage in the marketing in Canada of prescription pharmaceuticals
discovered, developed or acquired by Chinoin Pharmaceutical and Chemical Works
Co., Ltd., the first of which was Eldepryl (l-selegiline), for the treatment of
Parkinson's disease.

     The Company completed an initial public offering of its common shares in
February 1988.

     Beginning in 1990, the Company expanded on its knowledge and experience
with l-selegiline by initiating directly on its own behalf, as well as through
contract research arrangements, studies designed to investigate the potential of
l-gelegiline for companion animal use. This initiative ultimately resulted in
the formation of its subsidiary DAHI, through which the Company developed and
commercialised a companion animal health product, Anipryl.

     In 1991 the Company began to invest in the applications of aminolevulinic
acid photodynamic therapy which resulted in the formation of a subsidiary, DUSA
Pharmaceuticals, Inc. ("DUSA"). Through a series of transactions from 1991 to
1996, the Company divested all of its interest in DUSA.

     By late 1992, the Company faced considerable uncertainty due to the
impending generalisation of Eldepryl which, at that time, still accounted for
almost 100% of the Company's revenues. Faced with this as well as other business
challenges, in 1992 the Company began the process of recruiting new senior
management to develop and implement a new strategic business plan for the
Company to (i) address the

                                      -11-
<Page>

generic threat to its lead drug by expanding and diversifying its established
Canadian franchise; (ii) strengthen the Company's financial position; and (iii)
diversify from its Canadian base through the acquisition of niche pharmaceutical
products or businesses with international growth potential.

     The Company changed its name to DRAXIS Health Inc. in May 1994 and between
1993 and 1999 completed the following key corporate development initiatives:

     Canadian Pharmaceuticals

          -    December 1993 - extension of the Company's Eldepryl franchise
               through an agreement with Novopharm Limited with respect to
               Novo-Selegiline, a generic version of Eldepryl. In September
               1998, this agreement was renewed for a further five-year period
               to September 2003.

          -    1993 to 1999 - acquisition and licensing of several prescription
               and non-prescription products for the Canadian market.

     Financial Position

          -    March 1996 - disposition of the Company's remaining interest in
               DUSA for net proceeds of $6.8 million.

          -    April 1996 - public offering of common shares generating net
               proceeds of $8.5 million.

     Diversification

          -    November 1996 - acquisition of the shares of DAHI that the
               Company did not previously own through a mandatory share exchange
               transaction valued at $17.4 million.

          -    July 1997 - $8.6 million acquisition of the Company's
               radiopharmaceutical business which began operations through
               DRAXIMAGE.

          -    December 1997 - licensing of Anipryl to Pfizer in return for
               milestone payments, royalties, a manufacturing supply agreement
               and a research collaboration. To December 31, 2001 $39.1 has been
               received in milestone payments, royalties and royalty-related
               payments from Pfizer.

          -    May 1998 - $11.1 million acquisition of the Company's
               pharmaceutical manufacturing facility in Kirkland, Quebec.

     Beginning in 1998 the Company embarked on a capital expansion plan directed
primarily toward construction of the Company's new lyophilization line and the
construction and subsequent expansion of radiopharmaceutical manufacturing
facilities.

     In 1999 and 2000, the Company undertook a strategic review of its
operations from the perspective of enhancing shareholder value. As a result of
this review, the Company resolved to focus its financial and management
resources on its radiopharmaceutical and manufacturing businesses.

     During 2000, the Company divested its dermatology product lines for
aggregate proceeds of $9.0 million. The largest transaction in this regard was
the sale of the SpectroPharm line of products to Block Drug Inc. (now part of
GlaxoSmithKline Consumer Healthcare).

                                      -12-
<Page>

     In February 2000, the Company established a strategic alliance with SGF
with the sale of a 34.1% equity interest in DPI to SGF and members of DPI's
management team.

     During 2001 the Company achieved a number of significant accomplishments,
including:

     -    Record financial results from continuing operations:

               -    Consolidated revenues of $33.0 million, 13.1% over 2000

               -    Consolidated earnings before interest, taxes, depreciation,
                    amortization, research and development and non-recurring
                    items ("EBITDARD") of $5.0 million, 41.0% over 2000

               -    Consolidated net income before non-recurring items of $1.9
                    million, or $0.05 per share

     -    Regulatory approvals of manufacturing facilities:

               -    U.S. and Canadian approvals of the recently expanded
                    radiopharmaceutical manufacturing facility

               -    FDA acceptance to manufacture sterile lyophilized and
                    sterile injectable products and the subsequent site-transfer
                    approval for the in-house production of the first
                    lyophilized radiopharmaceutical product

     -    Advances in BrachySeed, the Company's proprietary second-generation
          radioactive implant for the treatment of prostate cancer:

               -    U.S. and Canadian launches of BrachySeed I-125

               -    U.S. and Canadian approvals of BrachySeed Pd-103

     -    New long term supply agreements for:

               -    The manufacture of several established GlaxoSmithKline
                    products, predominantly sterile products for multiple
                    international markets

               -    The manufacture of Bracco Diagnostics Inc.'s sodium iodide
                    I-131 radiotherapy capsules for the U.S. market and the
                    commencement of shipments of this product in October 2001

     -    Commencement of Phase II clinical trials for Amiscan, a
          technetium-99m-based diagnostic radiopharmaceutical for the imaging of
          heart attacks

     -    Business development transactions consistent with the Company's
          strategic plan:

               -    In-licensing of INFECTON, a technetium-99m-based
                    radiopharmaceutical diagnostic for imaging infection

               -    Amending of the licensing agreement with Pfizer regarding
                    Anipryl resulting in a cash payment of $3.1 million

     In January 2002, DRAXIS announced it had entered into a binding letter of
intent with Elan Corporation, plc ("Elan") wherein Elan agreed to acquire
substantially all of the operations, product rights and other assets and
obligations of DRAXIS Pharmaceutica.

     In April 2002, the Company announced a three year, $12 million capital plan
at DPI, including a tripling of the Company's existing lyophilization capacity.

                                      -13-
<Page>

Business Strategy

The Company believes that both DRAXIMAGE and DPI have significant long-term
growth potential and has invested considerable financial and management
resources in developing these businesses including:

     -    $6.5 million of investments establishing the first of two sterile
          lyophilization (freeze-drying) units at DPI to provide in-house
          manufacturing of the Company's radiopharmaceutical imaging kits as
          well as third-party contract manufacturing services (a second unit
          announced in April 2002 will result in the tripling of lyophilization
          capacity);

     -    $4.7 million of investments in the construction and later expansion of
          DRAXIMAGE's radiopharmaceutical production facilities and
          capabilities, including its robotic manufacturing lines;

     -    $0.8 million of investments to enhance DPI's and DRAXIMAGE's
          capabilities and regulatory compliance;

     -    The continued development of the DRAXIMAGE product pipeline including:
          BrachySeed, Fibrimage, Amiscan, and INFECTON.

These initiatives are consistent with the Company's general business strategy
of:

     -    Focusing on specialty pharmaceutical markets in which the Company can
          develop and sustain competitive advantage;

     -    Developing new pharmaceutical products and services consistent with
          the Company's strengths and capabilities;

     -    Pursuing growth opportunities with international market potential; and

     -    Leveraging alliances with business partners, when appropriate.

     The Company's primary operational focus in 2002 will continue to be on: (i)
improving near-term financial and operational performance of its
radiopharmaceutical and manufacturing businesses through increasing sales of
existing products and services, improving manufacturing efficiency and
effectiveness, and obtaining regulatory approvals; and (ii) securing and
advancing its base for long-term growth through the development of its existing
product pipeline as well as identifying and capitalising on additional new
business opportunities that are consistent with the Company's capabilities and
that contribute to the long-term value of the Company.

     A description of the principal markets in which the Company operates and a
breakdown of total revenues by category of activity and geographic market for
the three most recent financial years is included in Note 24 of the Company's
Consolidated Financial Statements and Notes beginning on page F-1.

Radiopharmaceuticals (DRAXIMAGE INC.)

     Radiopharmaceuticals and radiotherapy devices are the focus of the
Company's radiopharmaceutical subsidiary, DRAXIMAGE. DRAXIMAGE discovers,
develops, manufactures, and markets diagnostic imaging and therapeutic
radiopharmaceutical products for the global marketplace. Products currently
marketed by DRAXIMAGE include a line of lyophilised technetium-99m kits used in
nuclear imaging procedures, a line of imaging and therapeutic products labelled
with a variety of isotopes including radioiodine, and BrachySeed, second
generation iodine-125 and palladium-103 brachytherapy implants. DRAXIMAGE also
has a number of products in late-stage development including three
technetium-99m-based diagnostic imaging products: Fibrimage for imaging deep
vein thrombosis

                                      -14-
<Page>

currently in Phase III, Amiscan for the early diagnosis of acute myocardial
infarct currently in Phase II, and INFECTON for imaging infection.

     Founded in 1950 as a division of Charles E. Frosst & Co., the predecessor
business to DRAXIMAGE pioneered and became a leader in the medical application
of nuclear technology after assuming the development function from Atomic Energy
of Canada Ltd. Following the 1965 acquisition of Charles E. Frosst & Co. by
Merck Inc. ("Merck"), the business continued operations as a division of Merck's
Canadian subsidiary, Merck Frosst Canada and Co. ("Merck Frosst"), until its
acquisition by DRAXIS in 1997. As part of the acquisition, the Company retained
all of the business's managers, scientists and employees as well as its existing
products and intellectual property.

     The acquisition of this business was consistent with the Company's strategy
of acquiring speciality pharmaceutical platforms with potential for expansion
into global markets. DRAXIMAGE is the only company that manufactures
radiopharmaceuticals in Canada.

     DRAXIMAGE and its predecessor have a long history of technological and
scientific progress in the field of radiopharmaceuticals. Notable achievements
include: the development of lyophilised kits for the in-situ preparation of
technetium-99m ("Tc-99m") radiopharmaceutical products for nuclear medical
imaging ("Tc-99m Kits"); the development of chelates for the indium/yttrium and
technetium/rhenium groups of metals; and development of stabilisers for use in
iodinated radiopharmaceuticals which resulted in DRAXIMAGE being one of the few
companies to market iodinated products that do not require refrigeration.

     Key business development transactions involving DRAXIMAGE have included:

          -    July 1997 - $8.6 million acquisition of the radiopharmaceutical
               division of Merck Frosst which began operations through
               DRAXIMAGE;

          -    June 1998 - establishment of a strategic alliance with Molecular
               Targeting Technology, Inc. ("MTTI") to develop, manufacture and
               market potential novel imaging agents. The first opportunity
               being pursued under this alliance is Amiscan, an agent for the
               imaging of acute myocardial infarct;

          -    October 1999 - licensing from Isogenic Science Ltd. ("Isogen") of
               the rights to Isogen's proprietary technology related to
               radioactive brachytherapy implants ("BrachySeed") for the
               treatment of various localised cancers;

          -    December 2000 - entering into license, distribution and supply
               agreements for BrachySeed for the U.S. market with Cytogen
               Corporation;

          -    March 2001 - licensing from British Technology Group ("BTG") of
               the rights to INFECTON, an agent for imaging infection; and

          -    October 2001 - Long-term manufacturing supply agreement to
               produce Bracco Diagnostics Inc.'s sodium iodide I-131
               radiotherapy capsules for the U.S. market.

     DRAXIMAGE's growth strategy is to leverage its history and experience in
the research, development, manufacture and distribution of radiopharmaceutical
products and services and to capitalise on its newly constructed and recently
expanded manufacturing capabilities. In particular, DRAXIMAGE's business
strategy includes:

                                      -15-
<Page>

          -    Increasing sales of its existing Tc-99m Kits facilitated by the
               increase in manufacturing capacity following regulatory approval
               of DPI's lyophilization manufacturing line;

          -    Increasing sales of other radioactive products, particularly in
               the U.S., facilitated by the recent expansion of its
               radiopharmaceutical manufacturing facility and the acceptance of
               that facility by U.S. regulatory agencies;

          -    Timely, cost-effective development of its portfolio of innovative
               imaging and therapeutic radiopharmaceutical products; and

          -    Identifying and capitalising on additional new business
               opportunities which are consistent with DRAXIMAGE's capabilities.

Overview of Radiopharmaceuticals

     The medical specialty of nuclear medicine involves the use of short-lived
radioisotopes for both diagnostic imaging and therapeutic applications.
Pharmaceutical products used in such applications are commonly called
radiopharmaceuticals.

     Frost and Sullivan, a pharmaceutical industry consulting firm, estimates
the 2000 worldwide radiopharmaceutical market at $2.0 billion, which represents
an increase of 11.5% over 1999. The U.S. represents approximately 50% of the
total market, while Asia/Pacific accounts for 23%, Europe 20%, Canada 1% and the
rest of the world at 6%. Frost and Sullivan forecasts the U.S.
radiopharmaceutical market will grow at a compound annual growth rate, from 1999
through 2006, of 9.1% to $1.6 billion.

     Imaging Applications

     The diagnostic imaging applications of nuclear medicine normally involve
the intravenous administration of a radiopharmaceutical consisting of a
targeting molecule, which has a particular binding affinity for a specific organ
or tissue, linked to a low intensity, gamma-emitting radioisotope such as
Tc-99m. Following administration, the radiopharmaceutical with its radioactive
isotope concentrates at the biological target which is then imaged using a
scanning device such as a gamma camera. A gamma camera consists of a
scintillation crystal which, when placed over a region of the body, is capable
of detecting gamma rays emitted by radionuclides in underlying tissues. This
imaging modality is also referred to as gamma scintigraphy. The gamma camera and
its associated computerised peripheral devices accurately measure the radiation
being emitted by the radioisotope and so provide both a visual picture of the
target as well as quantitative data concerning the distribution of
radioactivity.

     A nuclear medicine image provides both static and functional, or dynamic,
information about a biological target thereby revealing functional and
morphological information normally unobtainable by other imaging techniques such
as X-ray, magnetic resonance imaging, computer tomography, and ultrasound, all
of which provide primarily anatomical information.

     Nuclear medical imaging procedures are well-established and trusted medical
procedures with many years of safe and effective use. Most procedures are
non-invasive, are performed with a minimum of discomfort and inconvenience to
the patient and are normally less costly and involve less risk than alternative
techniques.

     In the U.S., it is estimated that one in three hospital stays involves at
least one nuclear medicine procedure, aggregating in excess of 40,000 such
procedures per day, 80 - 90 % of which involve the use of Tc-99m as the
radioactive isotope.

                                      -16-
<Page>

     Therapeutic Applications

     Increasingly, therapeutic radiopharmaceuticals are being used and new
products are being developed for the treatment of disease, particularly for the
treatment of various cancers. Examples of currently marketed therapeutic
radiopharmaceuticals, include:

          -    Brachytherapy implants for the treatment of prostate and other
               forms of localised cancer;

          -    Sodium iodide-131 for the treatment of thyroid cancer and
               hyperthyroidism;

          -    Phosphorous-32 for the palliation of bone pain for patients with
               advanced bone metastases;

          -    Sodium iodide-131 meta-iodobenzylguanidine for the treatment of
               neuroblastoma; and

          -    Adjunctive applications such as guided brachytherapy (e.g.
               ProstaScint from Cytogen).

     New generations of anti-cancer agents based on targeting molecules such as
peptides, proteins, metabolites and monoclonal antibodies that have binding
affinities to the surface of cancerous cells are being developed to be linked to
more potent, higher intensity, beta-emitting radioisotopes such as yttrium-90,
rhenium-186, holmiun-166 and lutetium-199. There is a growing body of scientific
evidence that molecules, thus bound, will permit the delivery of therapeutic
quantities of radiation directly to malignant cells.

     Proprietary technology and know-how within DRAXIMAGE are particularly
applicable to the discovery and development of the new generations of innovative
radiotherapeutic products. The Company is currently in pre-clinical development
of Somatostatin Therapy which is being developed for the treatment of
neuroendocrine tumours, lymphoma, carcinoid and small cell lung cancer.

Competition

     The radiopharmaceutical field is highly specialised, and there are
significant barriers to entry, especially in the therapeutic area. The barriers
include meeting pharmaceutical product and nuclear regulatory requirements,
having the ability to handle radioactive materials and establishing facilities
and procedures to manufacture in a sterile lyophilised or freeze-dried form,
which involves manufacturing standards higher than those typically employed for
most pharmaceutical products. In addition, manufacturing and distribution
logistics systems must be well-integrated and supportive to ensure that
radiopharmaceutical products can be produced rapidly and delivered to the
end-user in a timely manner with the prescribed level of strength.

     Companies with significant radiopharmaceutical operations include:
Bristol-Myers Squibb Company; Amersham plc; Tyco International Ltd.; Schering
AG; and Bracco SpA. In addition, there are a number of companies that are
developing and/or marketing other radiopharmaceutical products including:
Cytogen Corporation, Immunomedics, Inc., Theseus Imaging Corporation, IDEC
Pharmaceuticals Corporation and NeoRx Corporation.

     BrachySeed implants are sold into a competitive marketplace that includes
the established market leader, Amersham plc. Other competitors in the U.S.
market include: Theragenics Corporation, North American Scientific, Inc.,
UroCor, Inc., Implant Sciences Corporation, Syncor International Corporation and
Imagyn Medical Technologies, Inc.

                                      -17-
<Page>

Marketed Products

     DRAXIMAGE's products are divided into two groups: (i) radioactive products,
which are in a radioactive and ready-to-use form when shipped to customers, and
(ii) non-radioactive products (predominantly Tc-99m Kits), which are sold in
lyophilised (freeze-dried), non-radioactive form consisting of sterile,
pyrogen-free complexes of chemical and/or biological substances. Tc-99m Kits are
reconstituted and labelled with Tc-99m in the nuclear medicine laboratory of a
hospital or a unit-dose service supplier prior to use.

     Radioactive Products

     Radioactive products, which are shipped by DRAXIMAGE with the radioactive
isotope already incorporated, are distributed to the nuclear medicine
departments of hospitals or diagnostic clinics in a ready-to-use form.

     The following table summarises DRAXIMAGE's currently marketed radioactive
products:

                                      -18-
<Page>

<Table>
<Caption>
                                                                                                            Principle
                      Product                                           Indication                           Markets
                      -------                                           ----------                           -------
<S>                                                         <C>                                          <C>
IMAGING PRODUCTS

  (51)Cr-Chromic Chloride Solution                          Diagnosis of gastroenteropathy               Canada

  (57)Co-Cyanocobalamin Capsule USP                         Diagnosis of Vitamin-B12 malabsorption       Canada

  (57)Co-Cyanocobalamin Solution USP                        Diagnosis of Vitamin-B12 malabsorption       Canada

  (57)Co-Standard Cobalt Reference Solution                 Reference for (57)Co-Cyanocobalamin          Canada

  (111)In-Diethylene Triamine Pentacetic Acid Solution      Cisternography                               Canada

  (111)In-Indium Chloride Solution                          Labelling of white blood cells, peptides     Canada
                                                              and antibodies

  (131)I-Sodium Iodide Diagnostic Capsules and Solutions    Imaging of thyroid disorders                 Canada

  (131)I-metaIodobenzylguanidine                            Diagnosis of pheochromocytoma                Canada

  (131)I-Iodinated Human Serum Albumin USP                  Measurement of blood and plasma volume       Canada

  (131)I-Iodohippuric Acid Solution - USP                   Measurement of renal plasma flow             Canada

  (125)I-Iodinated Human Serum Albumin USP                  Measurement of blood and plasma volume       Canada

  (133)Xe-Xenon Gas                                         Lung ventilation studies                     Canada

THERAPEUTIC PRODUCTS

  (125)I BrachySeed                                         Treatment of various localized cancers       U.S./Canada/South America

  (103)Pd BrachySeed                                        Treatment of various localized cancers       U.S./Canada

  (131)I-Sodium Iodide Therapeutic Capsules and Solutions   Treatment of thyroid disorders               Canada

  (131)I-metaIodobenzylguanidine                            Treatment of neuroblastoma                   Canada/Europe

  (32)P-Sodium Phosphate Solution - USP                     Treatment of bone pain                       Canada

OTHER                                                                                                    CANADA

  (131)I-Sodium Iodine Solution - Chemical                  Radiochemical synthesis                      Canada

  (125)I-Sodium Iodide Solution - Chemical                  Radiochemical synthesis                      Canada
</Table>

     BrachySeed

     BrachySeed is a unique, second-generation radioactive brachytherapy implant
developed by DRAXIMAGE. The unique design of BrachySeed brings a high level of
accuracy, precision and safety to sealed source implant surgery. Each BrachySeed
is robotically manufactured at the DRAXIMAGE facility.

                                      -19-
<Page>

     In 2000, DRAXIMAGE received U.S. and Canadian regulatory approvals for
BrachySeed I-125, and the product was launched in both markets in 2001. Similar
U.S. and Canadian approvals for BrachySeed Pd-103, DRAXIMAGE's palladium
brachytherapy implant, were received in late 2001. BrachySeed is currently used
in the treatment of localised cancers, primarily prostate cancer, the second
most common cancer in males. BrachySeed regulatory approvals also make reference
to the suitability of BrachySeed for potential use in the treatment of other
localised tumours of the head, neck, lung, pancreas, breast and uterus.

     Of the nearly 200,000 men diagnosed with prostate cancer in 2000,
approximately 60%-70% will have localised disease (cancer confined to the
prostate gland). The most common treatment options for localised disease are
radical prostatectomy, the surgical removal of the prostate, or brachytherapy,
the implantation of small radioactive pellets or "seeds" into the prostate.

     Brachytherapy for the treatment of prostate cancer involves the permanent
implantation of approximately 100 to as many as 300 seeds into the patient's
prostate through specially designed needles guided by direct observation,
ultrasound and/or fluoroscopy. The seeds destroy cancer cells by delivering a
concentrated and defined radiation dose to the area immediately adjacent to the
seed.

     While brachytherapy has been available since the 1970s, it has only started
to gain prominence and greater acceptance within recent years, coinciding with
the development of advanced technologies to aid seed placement. Brachytherapy is
the fastest growing treatment for localised prostate cancer and offers a number
of potential benefits compared to alternative treatments including rapid patient
recovery, lower costs and reduced incidence of complications such as impotency
and incontinence. According to the 1999 Medical Data International Report, by
2003 it is estimated that approximately half of all newly diagnosed prostate
cancer patients will opt for brachytherapy, while radical prostatectomies will
be performed on less then 15% of patients.

     There are currently two radioisotopes used for brachytherapy implants:
iodine 125, which was the first radioisotope introduced, and palladium-103.
While not all brachytherapy manufacturers have both isotopes available,
DRAXIMAGE has incorporated both into its proprietary BrachySeed design.
BrachySeed I-125 and Pd-103 are identical in their design and appearance, are
implanted in the same manner and produce similar therapeutic effects. The
primary difference between the two radioisotopes is the rate at which they emit
their energy. Palladium gives up approximately 90% of its energy within two
months, while it takes approximately six months for iodine to release 90% of its
energy. The more energetic radiation from palladium-103 is believed to be
suitable for certain more aggressive forms of prostate cancer and is preferred
by some oncologists.

     Independent estimates place the current brachytherapy market at
approximately $220-$250 million in the U.S. and growing to greater than $350
million over the next three to four years. As reported by Cytogen, the Company's
United States distributor partner of BrachySeed, BrachySeed I-125 sales for the
launch year ended December 31, 2001 totalled $773,000. DRAXIMAGE and Cytogen
expect to introduce BrachySeed Pd-103 to the U.S. market in the second quarter
of 2002.

     In addition, DRAXIMAGE, in collaboration with Cytogen and others, is
developing BrachySeed product enhancements to support expanded sales of
BrachySeed. Examples of such value-added enhancements include: pre-sterilisation
of BrachySeed implants, delivery of BrachySeed in pre-loaded needles and
cartridges.

     DRAXIMAGE is one of only three companies that have both iodine-125 and
palladium-103 versions of its brachytherapy implants available. In the U.S.
marketplace, palladium-103 implants hold a premium position and price. With the
trend towards earlier diagnosis and treatment of prostate cancer,

                                      -20-
<Page>

brachytherapy is expected to gain an increasingly larger market share for the
treatment of localised prostate cancer, currently estimated at approximately
50-55%.

     DRAXIMAGE believes that BrachySeed offers important advantages over its
competitors including:

          -    a patented design resulting in a nearly spherical dispersion of
               the radiation field, delivering uniform doses of radiation to the
               affected area;

          -    double encapsulation of the radioisotope for additional patient
               safety;

          -    less then 3% variation between individual seeds in an order
               compared to the industry standard of 5 - 7%; and

          -    excellent visualisation by fluoroscopy because of an internal
               platinum/iridium marker.

     The nearly spherical dispersion of the radiation field provides a more
uniform dosymmetry to reduce "cold spots," areas within the target organ not
reached by the radiation. Such "cold spots" may occur when brachytherapy seeds
do not provide symmetrical and spherical fields of radiation. This also permits
the implantation of 8-10% fewer seeds to achieve the same dosimetry.

     Non-Radioactive Products

     DRAXIMAGE currently markets the following non-radioactive products:

<Table>
<Caption>
                                                                                                    Principle
                         Product                                    Indication                       Markets
                         -------                                    ----------                       -------
   <S>                                                <C>                                           <C>
   TC-99M KITS

     (99m)Tc-MarcoAggregated Albumin Kit ("MAA")      Measurement of lung perfusion                 U.S./Canada

     (99m)Tc-Diethylene TriaminePentacetic Acid       Imaging of kidney function, blood pool        U.S./Canada
     Kit ("DTPA") Stabilized with                     imaging and lung ventilation function
     p-Aminobenzoic Acid

     (99m)Tc-Calcium Glucoheptonate Kit               Imaging of kidney function                    U.S./Canada

     (99m)Tc-MethyleneDiphosphonic Acid Kit           Imaging of inflammatory and neoplastic bone   U.S./Canada
     ("MDP") Stabilized with p-Aminobenzoic           disease
     Acid

     (99m)Tc-Calcium Gluceptate Kit                   Imaging of kidney function and blood pool     Canada
                                                      imaging agent

   OTHER

     Stannous Gluconate                               Antibody labelling                            Canada

     Sodium Carbonate/Bicarbonate Solution            Antibody labelling                            Canada

     Acetic Acid/HCI Solution                         Antibody labelling                            Canada

     Sterile Empty Vial                               Antibody labelling                            Canada

     A-C-D Solution Special Formula                   Use with (51)Cr-Sodium Chromate               Canada
</Table>

                                      -21-
<Page>

<Table>
<Caption>
                                                                                                    Principle
                         Product                                    Indication                       Markets
                         -------                                    ----------                       -------
     <S>                                              <C>                                           <C>
     Intrinsic Factor Capsule                         Use with (57)Co-Cyanocobalamin                Canada

     Quality Control Kit                              Nuclear pharmacy quality control kit          Canada
</Table>

     DRAXIMAGE's major non-radioactive products are its MDP, DTPA and MAA Tc-99m
Kits. While these products would technically be classified as generic
pharmaceutical products, DRAXIMAGE's versions are proprietary and are sold under
the DRAXIMAGE trademark or that of its local distributors. All three of these
products have a reputation of high quality and enjoy a high degree of acceptance
with DRAXIMAGE's customers, in part due to a proprietary formulation that
provides additional shelf life following reconstitution compared to competitive
products.

     Due to production constraints prior to 2002, DRAXIMAGE was unable to
satisfy the market demand for its Tc-99m Kits in the U.S. Following FDA approval
of the Company's own lyophilization production facilities and the resulting
increased manufacturing capacity, the opportunity exists to increase sales
volumes of these products into existing markets as well as Europe and Asia,
territories where product approvals already are either in place or expected to
be in the near future.

     In 2001, DRAXIMAGE became the Canadian distributor of RadQual, a series of
cobalt-57 control sources and cobalt-57 and germanium-68 spot markers.

Products under Development

     DRAXIMAGE has the following products under development:

<Table>
<Caption>
             Product                  Status                        Indication
             -------                  ------                        ----------
     <S>                            <C>             <C>
     IMAGING PRODUCTS

       Fibrimage                    Phase III       Deep venous thrombosis imaging

       Amiscan                      Phase II        Myocardial infarct imaging

       INFECTON                     Preclinical     Infection imaging

       Somatoscan                   Preclinical     Imaging of neuroendocrine tumors,
                                                      lymphoma, carcinoid and small cell lung cancer

     THERAPEUTIC PRODUCTS

       Somatostatin Therapy         Preclinical     Treatment of neuroendocrine tumors,
                                                      lymphoma, carcinoid and small cell lung cancer
</Table>

     Fibrimage

     Description - Fibrimage is a Tc-99m Kit for the imaging of active thrombus
in deep vein thrombosis ("DVT"). In DVT, a blood clot (or thrombus) forms in the
veins, normally in the lower legs, thighs or pelvic areas. Patients with DVT are
at risk of pulmonary embolism, which occurs when a clot associated with DVT
breaks free and travels to the lungs obstructing blood flow. In North America,
it is estimated that there are over two million cases of DVT each year of which
approximately 600,000 result in pulmonary embolism.

                                      -22-
<Page>

     Mechanism of Action - Fibrimage is based on linking Tc-99m to the fibrin
binding domain ("FBD") of human fibronectin, a recombinant polypeptide with high
binding affinity for active fibrin dimer, the primary component of actively
forming venous thrombus. Fibrimage is thus able to positively image DVT and to
distinguish acute (i.e. active) thrombus from chronic (i.e. inactive) thrombus.

     Technology Partner - Recombinant FBD was developed by Bio-Technology
General Corp. and is licensed to DRAXIMAGE on an exclusive, world-wide basis.

     Regulatory Status - Fibrimage entered Phase III clinical trials in Canada
in early 2000 to assess diagnostic accuracy in symptomatic patients with either
an initial or recurrent episode of DVT. The phase III studies are designed to
address the accuracy, sensitivity, specificity and positive and negative
predictive values of Fibrimage compared to standard diagnostic tests. The Phase
III trials for Fibrimage have been hampered by the lack of availability of
clinical trial materials and by the need to revise the chemistry and
manufacturing sections of existing filings. Phase II studies of Fibrimage were
completed in July 1999 and interim results from the Phase II studies were
reported at the Society of Nuclear Medicine meeting held in Los Angeles in June
1999. Based on interim results of the investigators, lead by Dr. Raymond
Taillefer of the Centre Hospitalier du l'Universite du Montreal Hotel Dieu
Campus, observers concluded that Fibrimage is a new and very promising
radiopharmaceutical for the detection of DVT.

     Competing Modalities - Traditional approaches to the diagnosis of DVT have
included Doppler ultrasound and contrast venography.

     Potential Advantages Of Fibrimage - DRAXIMAGE believes that nuclear
medicine imaging with Fibrimage will offer a number of advantages over existing
imaging modalities including:

          -    The ability to image within two hours post injection;

          -    The ability to distinguish old stabilised (passive) thrombus from
               new active (life threatening) thrombus;

          -    High degree of sensitivity and specificity; and

          -    Lack of pain, degree of invasivesness and risk of side effect
               associated with venogaphy.

     Fibrimage is considered by DRAXIMAGE to be an attractive alternative to
Doppler ultrasound in diagnosing DVT in certain areas, such as below the knee
and in the pelvis, where ultrasound is less efficacious. DRAXIMAGE believes that
the only competitive radiopharmaceutical imaging product on the market at this
time is AcuTect, marketed by Berlex Laboratories, Inc. DRAXIMAGE believes that
Fibrimage will compete well against AcuTect because Fibrimage binds to fibrin
dimer, which comprises 75-80% of an actively forming blood clot whereas AcuTect
binds to platelets.

     Amiscan

     Description - Amiscan is a formulation of technetium glucarate that is
being developed as a sensitive indicator of acute myocardial infarct ("AMI").
AMI occurs when blood supply to a portion of the heart is reduced or completely
cut off due to an obstruction in one of the coronary arteries. As a result,
heart muscle is deprived of oxygen (hypoxic insult) and changes from fat
metabolism to carbohydrate metabolism, thus causing uptake of technetium
glucarate. Definitive diagnosis of AMI early in the process is often difficult
for clinicians. An imaging agent that will localise quickly and specifically in
areas of acute necrosis could provide critical diagnostic information. In North
America it is estimated

                                      -23-
<Page>

that there are over five million cases of suspected myocardial infarct every
year, of which approximately 20-25% are equivocal or difficult to diagnose,
15-20% of patients present to the emergency department with symptoms other than
chest pain and about 6-21% of patients with acute infarct have normal
electrocardiograms.

     Mechanism of Action - It has been shown in animal models and independent
human trials in Europe that Amiscan is selectively taken up in hypoxic heart
tissue. The exact mechanism of intracellular accumulation of the technecium
glucarate and the exact structure of the resulting radiolabelled compound are
not known. Subcellular distribution studies in experimental AMI have shown about
75% incorporation of technecium glucarate in nuclear fractions, the remainder in
cytosol and mitochondrial fractions and about 83% of nuclear-incorporated
material is associated with nucleoproteins (histones). The hypothesis has been
made that intracellular accumulation is simply associated with disruption of the
cell and nuclear membranes (an event occurring early after irreversible hypoxic
insult). This product is, therefore, configured as an infarct-avid radiolabelled
agent to permit detection and localisation of AMI within a few hours of onset
with minimal delay between injection and imaging.

     In 1999, the American Hospital Association (JAMA, Vol. 282, No. 23, 1999)
reported that nuclear imaging could help physicians determine whether patients
with suspected acute cardiac ischemia have normal cardiac blood flow and may
safely be sent home rather than admitted to hospital.

     Technology Partner - DRAXIMAGE developed Amiscan in conjunction with MTTI
pursuant to a strategic alliance established in June 1998. Under the terms of
that alliance it was contemplated that DRAXIMAGE and MTTI will co-market Amiscan
in the U.S.

     Regulatory Status - DRAXIMAGE filed an Investigational New Drug Application
for Amiscan with both the FDA and the Canadian HPF in May 2000. The Phase I
study was conducted by Dr. Raymond Taillefer of the Centre Hospitalier du
l'Universite du Montreal Hotel Dieu. In February 2001, DRAXIMAGE received
permission from the FDA and the HPF to initiate a Phase II clinical study for
Amiscan. The timely conduct of the Phase II trials has been hampered by the lack
of availability of clinical trial materials during 2001 and slow patient
enrolment. The Phase II study is currently being carried out at leading Nuclear
Medicine centres in North America, including the University of Montreal, the
University of Ottawa Heart Institute, Rhode Island Hospital, Brown University
School of Medicine, the University of Western Ontario (London Health Sciences
Centre), the University of Calgary (Foothills Hospital) and Lions Gate Hospital
in Vancouver, B.C.

     Competing Diagnostic Modalities - The Company is unaware of any currently
approved products which would compete directly with Amiscan's mechanism of
action. Current heart perfusion agents such as Cardiolite from Bristol-Myers
Squibb Company and Myoview from Amersham plc have the ability to distinguish
normally perfused tissue from hypoxic tissue but the images are not specifically
related to hypoxia, are limited to only imaging the absence of perfusion and may
require multiple scans.

     Potential Advantages Of Amiscan - Amiscan is expected to offer distinct
advantages in diagnosis of AMI. However, more extensive clinical trials are
required to confirm the preliminary results obtained with Amiscan in myocardial
imaging.

     INFECTON

     Description - INFECTON, a complex of Tc-99m and the anti-bacterial agent,
ciprofloxacin, is a novel agent for the specific imaging of infection. INFECTON
acts by binding directly to infecting organisms so is highly specific for
imaging infection. It is anticipated that INFECTON will be used to image a
number of serious medical conditions, including fever of unknown origin,
osteomyelitis (bone

                                      -24-
<Page>

infection), wound infection, abdominal abscess, pneumonia, appendicitis, and
tuberculosis. Many of these conditions are difficult to diagnose even by
invasive means, or by surgery.

     Technology Partner - INFECTON was discovered by Drs. Britton and Solanki at
St. Bartholomew's Hospital in London, England. In March 2001, DRAXIMAGE entered
into an agreement with BTG. The agreement gives DRAXIMAGE exclusive rights to
manufacture and sell INFECTON in the U.S., Canada, South America and Europe.

     Regulatory Status - INFECTON's proof of principle was established in a
clinical trial sponsored by the International Atomic Energy Agency involving
over 573 patients in which INFECTON displayed excellent results with sensitivity
of 88.3%, specificity of 86.5%, and an accuracy of 87.6%. The clinical study
showed that the agent achieves up to 96% specificity in detecting bacteria in
the lung, bones and tissues - areas where other diagnostics have failed in the
past.

     Competing Diagnostic Modalities - The most specific current procedure for
medical imaging of inflammation due to infection involves removing blood from
the patient, isolating white blood cells in the patient's blood, radiolabelling
the while blood cells with an isotope such as indium-111 or with technetium
coupled to a carrier molecule and then injecting the white blood cells back into
the patient. These white blood cells localise around the site of the infection
and emit radiation which can be detected using a gamma camera. White blood cells
are not highly specific and cannot readily distinguish infection from
inflammation.

     Potential Advantages of INFECTON - Preliminary investigations suggest the
possibility that INFECTON may be the first radiopharmaceutical capable of
distinguishing inflammation from infection.

     Somatoscan/Somatostatin Therapy

     Description - Somatoscan and Somatostatin Therapy are radiolabelled
somatostatin peptides derived from a synthetic peptide based on MK-678,
originally developed by Merck, which shows a high binding affinity for the
somatostatin receptors expressed in neuroendocrine tumours, lymphoma, carcinoid
and small cell lung cancer. This peptide is being developed as both a diagnostic
imaging agent (Somatoscan) and therapeutic product (Somatostatin Therapy) and
will permit the identification and treatment of primary tumours and the correct
diagnosis of metastatic lesions.

     Technology Partner - Somatoscan and Somatostatin Therapy are based on
innovative research by DRAXIMAGE and the University of Pennsylvania from which
DRAXIMAGE has an exclusive world-wide licence for development and
commercialisation.

     Regulatory Status - Preclinical evaluation of Somatoscan are in progress
toward the filing of an application to initiate clinical testing before the end
of 2002. A pilot study involving over 30 patients using an iodine-131-MK-678
demonstrated good uptake in all of the target tumour types. DRAXIMAGE's clinical
studies will be designed to confirm Somatoscan's earlier successful results
observed with the iodine-131 formulation. Additional preclinical studies to
establish a viable formulation of Somatostatin Therapy is currently being
conducted at DRAXIMAGE.

     Competing Products - There are two approved somatostatin-based imaging
products in the marketplace: OctreoScan from Tyco International Ltd. and NeoTect
from Berlex Laboratories Inc. Both of these molecules offer similar information
but OctreoScan is based on indium-111 and is more expensive than Tc-99m-based
NeoTect and must be delivered in radioactive form. The Company is also aware
that development work is also being done on other somatostatin-based cancer
therapy products that would compete with Somatostatin Therapy.

                                      -25-
<Page>

     Potential Advantages Of Somatoscan - DRAXIMAGE believes that by enabling
the same molecule to be used for both diagnosis and therapy, physicians will
have a greater ability to deliver therapeutic quantities of radiation
specifically to well-defined targets in the body.

     Other Products

     DRAXIMAGE holds an option to acquire Canadian marketing and global
manufacturing rights to Ovarex, an anti-ovarian cancer vaccine currently in late
stage clinical development by AltaRex Corp.

     DRAXIMAGE has also conducted pre-clinical development of atrial natriuretic
peptide ("ANP"). ANP is a natural peptide produced in the atrium of the heart
and is intended for development as an imaging agent for kidney structure and
function. Radio-labelled ANP has demonstrated high binding affinity to receptors
in both the lung and kidney. Experimental results in animals have shown that ANP
is effective in the detection of kidney dysfunction associated with such
diseases as diabetes, essential hypertension and reno-vascular hypertension
induced by the stenosis of renal arteries. ANP is based on innovative research
by DRAXIMAGE, the Clinical Research Institute of Montreal and the Research
Institute of Hotel Dieu de Montreal, from which DRAXIMAGE has an exclusive
world-wide licence.

Manufacturing

     Radioactive Products

     DRAXIMAGE manufactures its radioactive products in its own cGMP compliant
manufacturing facility supported by a full quality control department licensed
by regulatory agencies in Canada, the U.S. and the European Union.

     In 2001, DRAXIMAGE completed the expansion to its radiopharmaceutical
production area in anticipation of increasing sales volumes of its
radiopharmaceutical line in the U.S. market. This expansion has approximately
doubled the size of the original facility to 19,000 square feet.

     Most of the radioisotopes used to produce radiopharmaceuticals are supplied
under a long-term supply agreement to DRAXIMAGE primarily, but not exclusively,
by MDS Nordion, a subsidiary of MDS Inc. and the world's largest supplier of
chemical grade isotopes for use as medical radioisotopes.

     A key distinguishing characteristic of the radiopharmaceuticals business is
the requirement for a sophisticated logistics system. Radiopharmaceuticals, by
their nature, decay continually over time thereby losing their potency and
therefore manufacturing and product delivery systems must be well co-ordinated
to ensure that the level of radioactivity present in the product supplied to the
physician is correct at the time of administration.

     Lyophilised Products

     DRAXIMAGE's Tc-99m Kits are manufactured currently in the DPI
lyophilization facility which was accepted by the FDA in 2001. Subsequent
manufacturing site transfer approvals for the Tc-99m Kits were received during
the period December 2001 and March 2002.

     DPI's initial lyophiliser is expected to have the production capacity to
approximately double the supply of Tc-99m Kits to DRAXIMAGE as compared to the
previous outsourced manufacturer.

                                      -26-
<Page>

Sales and Marketing

     At the present time, DRAXIMAGE's products are marketed primarily in Canada
and the U.S. As many of the products marketed by DRAXIMAGE have global
approvals, it is expected that non-North American based revenues will gain
greater prominence in the future. The most active growth areas are expected to
be Europe and South America.

     United States

     DRAXIMAGE sells Tc-99m Kits in the U.S. through several distributors
including Syncor International Corporation, which operates the largest chain of
radiopharmacies (127 U.S. outlets servicing approximately 52% of the market),
Tyco International Ltd., Amersham plc, CIS bio international (a subsidiary of
Schering AG) and United Pharmacy Partners Inc.

     Tc-99m Kits sold in the U.S. are marketed under the DRAXIMAGE trademark
with the exception of Tc-99m Kits sold through Amersham plc and CIS bio
international, which carry the distributor's trade name.

     During the second half of 2001, DRAXIMAGE entered into a third-party
manufacturing contract to supply sodium iodide I-131 radiotherapy capsules for
Bracco Diagnostics Inc. for the U.S. market for the treatment of thyroid cancer
and hyperparathyroidism.

     BrachySeed is distributed in the U.S. on an exclusive basis by Cytogen.

     Because of its strategy of marketing its products through distributors,
DRAXIMAGE has not, to date, incurred significant marketing and selling expenses
on the sale of its products in the U.S.

     Canada

     In Canada, DRAXIMAGE currently markets most of its products directly to
end-users through a co-operative agreement with the Canadian subsidiary of
Bristol-Myers Squibb Company, pursuant to which the two companies' sales forces
promote the two companies' non-competitive product lines. This arrangement
allows for enhanced coverage of the Canadian market while reducing
administrative and shipping costs.

     DRAXIMAGE markets BrachySeed in Canada directly to hospitals and health
care buying groups through its own sales force.

     For many years, DRAXIMAGE has been the primary Canadian supplier of
iodine-131 and iodine-125 labelled radiopharmaceuticals, including solutions and
capsules used primarily for the treatment and diagnosis of thyroid gland
disorders and the diagnosis of kidney and lung dysfunction.

     Europe

     The radiopharmaceutical market in Europe is characterised by strong
regional fragmentation which gives the leading market share to the individual
manufacturer located in each one of the major countries (i.e. Amersham plc in
the UK, Sorin Radiofarmaci Srl in Italy and CIS bio in France). DRAXIMAGE's
marketing activities in Europe are presently limited to the distribution of some
of its products through Holland.

                                      -27-
<Page>

     With the realisation of increased capacity in 2001 for its lines of
radiopharmaceutical and Tc-99m Kit products, DRAXIMAGE is actively exploring
ways to provide broader coverage of the European market.

Research and Development

     DRAXIMAGE conducts both basic research on its own products and development
work on in-licensed products and technology developed by other firms,
predominantly in the biotechnology field. DRAXIMAGE applies its chelating
expertise and technologies to link these compounds with radioisotopes to create
innovative diagnostic and therapeutic radiopharmaceuticals.

     DRAXIMAGE also provides labelling technology for other companies for use
with monoclonal antibodies and peptides. The Company is also working on the
development of novel therapeutic uses of radioactivity.

     DRAXIMAGE personnel have extensive experience developing and optimising
formulations applicable to the lyophilization manufacturing processes, used in
the production of cold Tc-99m Kit products.

Employees

     As at December 31, 2001 DRAXIMAGE had 64 employees broken down as follows:
general management and administration (11), quality operations (13),
manufacturing (30), and research and development (10).

Patents

     Most of DRAXIMAGE's products are covered by patents held by either
DRAXIMAGE or licensed in from third parties. DRAXIMAGE has numerous patents
issued and allowed and patent applications pending in the United States, Canada,
Europe and other selected countries. For example, DRAXIMAGE has various U.S.
issued patents related to chelates for radiopharmaceutical applications, and
process patents for the preparation of certain radiopharmaceuticals. In
addition, DRAXIMAGE has licensed from licensors certain U.S. patents covering
its pipeline products and products already in the United States market, such as
BrachySeed.

     DRAXIMAGE also relies on trade secrets, know-how and other proprietary
information to protect its current products and technologies. To protect
DRAXIMAGE's rights in these areas, it requires all licensors, licensees and
significant employees to enter into confidentiality agreements. There could be
no assurance, however, that these agreements will provide meaningful protection
to DRAXIMAGE's patents, trade secrets, know-how or other proprietary information
in the event of any unauthorised use or disclosure of such patents, trade
secrets, know-how or other proprietary information.

Contract Manufacturing (DRAXIS Pharma Inc.)

     DPI is a contract pharmaceutical manufacturer with capabilities in a broad
range of dosage forms, specialising in liquid and lyophilised (freeze-dried)
injectables and other sterile products. Operating out of a cGMP-compliant
242,000 square-foot facility located in Montreal, Canada, DPI manufactures
pharmaceutical products for DRAXIMAGE, as well as for over 15 other
pharmaceutical clients for many international jurisdictions.

                                      -28-
<Page>

     Key business development transactions involving DPI have included:

          -    May 1998 - $11.1 million acquisition of DPI's pharmaceutical
               manufacturing facility;

          -    February 2000 - Sale of 34.1% equity interest to SGF and DPI
               senior management for net proceeds of $5.4 million;

          -    March 2000 - Signing of a five-year manufacturing supply
               agreement with Warner Lambert Consumer Healthcare, Division of
               Pfizer Canada Inc.; and

          -    December 2001 - Signing of a long-term manufacturing and supply
               agreement for the renewal and expansion of DPI's existing
               contract manufacturing relationship with GlaxoSmithKline ("GSK").

     In the four years since DRAXIS acquired DPI, DPI's revenues have risen from
$6.1 million for the eight month period ended December 31, 1998 to $20.5 million
for the year ended December 31, 2001.

     DPI's business goal is to become a leading supplier of high value-added,
high-margin contract manufacturing services. Key components of DPI's strategy to
achieve this goal include:

          -    obtaining and maintaining all required regulatory approvals for
               DPI's manufacturing facility;

          -    securing additional manufacturing contracts with existing and new
               customers;

          -    focusing on DPI's distinctive capabilities in sterile and
               lyophilised product manufacturing;

          -    providing manufacturing and related services to DRAXIS' other
               businesses; and

          -    focusing on operational excellence, including regulatory
               compliance, cost effectiveness and customer service.

     In April 2002, the Company announced a three-year, $12 million capital plan
at DPI including a tripling of the Company's existing lyophilization capacity.
The capital plan also includes new sterile manufacturing capabilities to support
recently announced contracts, improvements to production line efficiency, and
improvements to infrastructure and supporting systems to maintain the DPI
facility at the forefront of regulatory compliance.

Overview of Pharmaceutical Contract Manufacturing

     The world-wide pharmaceutical contract manufacturing industry has undergone
significant growth over the past five years with a market size estimated by
National Bank Financial at $5-8 billion annually and with an expected growth
rate of 10% annually (20% in the U.S.). The factors driving this growth include:

          -    continuing consolidation within the international pharmaceutical
               industry and resulting plant closures;

                                      -29-
<Page>

          -    growing propensity for pharmaceutical companies to focus on core
               skills such as drug development and to outsource supporting
               functions such as manufacturing; and

          -    the growing biotechnology sector and with it new generations of
               pharmaceutical products being developed by companies that lack
               sufficient technical, financial and human resources to engage in
               manufacturing in a timely manner.

     The Company believes that there is currently a significant global shortage
of sterile lyophilization capacity and that this sector offers significantly
higher margin growth potential for DPI due to its technical complexity and its
increasing demand as a favoured dosage form for, in particular, biotechnology
products.

     DPI believes that the key competitive factors in the contract manufacturing
industry include the reliability of supply, quality of product, strict
compliance with governmental regulations, capacity availability, competitive
pricing and the technical and manufacturing ability to produce a full range of
quantities - from small pilot batches often required for clinical trials to
larger commercial quantities.

Competition

     DPI competes with pharmaceutical companies with in-house manufacturing
capabilities as well as third-party contract manufacturers including: Abbott
Laboratories, Boehringer Ingelheim, Cardinal Health, Miza Pharmaceuticals Inc.,
Patheon Inc. and DSM Catalytica, Inc.

Manufacturing Capabilities

     DPI is a customer-driven pharmaceutical contract manufacturing company that
is positioned to manufacture a variety of dosage forms. DPI is one of a few
existing full-scale pharmaceutical contract manufacturing facilities in Canada
that has FDA-approved sterile manufacturing and sterile lyophilization
capabilities.

     Plant operations are organised into four manufacturing areas, supported by
packaging and warehousing and distribution functions.

     Sterile Lyophilization

     Lyophilization is a complex process of freeze-drying where the drug is
frozen under vacuum and all water is removed, leaving behind a stable dry
sterile powder that has a relatively long shelf life and is easily reconstituted
into a liquid form prior to use. Products delivered in a lyophilised dosage form
include injectable pharmaceuticals, vaccines, biotechnology proteins or peptides
and diagnostic products.

     DPI's existing sterile manufacturing capabilities were recently enhanced by
the addition of sterile lyophilization, which became fully operational and
approved by the FDA in the latter half of 2001. This fully automated line
includes a washer, depyrogenation tunnel, in-line filling machine, robot loaders
and unloaders, freeze-drier and capper. This first freeze-drier has a capacity
based on 11 square meters (120 square feet) of shelf space while the planned
second unit, at twice that capacity, will essentially triple overall capacity
once it is operational.

     This second lyophiliser, with 24 square metres (254 square feet) of
freeze-drying shelf space, will be incorporated into the existing lyophilization
facility, which currently houses the original highly automated, integrated
system. The specialised facility was originally designed to readily accommodate
this second lyophiliser at a cost significantly less than that of the initial
installation with minimal

                                      -30-
<Page>

disruption to ongoing production. Delivery and installation of the second unit
is scheduled for December 2002. The two units, both of which are supplied by BOC
Edwards, will provide total annual capacity equivalent to five to six million 10
mL-vials of lyophilised product.

     Other Sterile Products

     The Sterile Products Department ("SPD") includes preparation and
pharmaceutical areas with manufacturing, filling and inspection rooms for the
production of injectable liquids, topicals and sterile ophthalmic ointments.
DRAXIS believes that DPI possesses one of the most modern facilities of its kind
in Canada approved for the manufacture of sterile prescription pharmaceuticals
for Canada, the United States and other global markets.

     Including the new lyophilization line, SPD covers approximately 17,100
square feet and is designed for segregated operations complemented by secure
access controls.

     Computerised systems are utilised for both topical and automated ointment
lines in order to optimise process control. Both of these lines are closed-loop
systems to ensure sterile integrity. The sterile ointment system utilises a
patented automated system to place tubes on the fillers, thereby minimising
human intervention.

     The processes that are incorporated in the operation include aseptic
manufacturing and filling; terminal sterilisation; clean in place; and
sterilised in place. The dosage forms/product types manufactured include
solutions in ampoules and vials, suspensions in drop dose form and ointments in
tubes. The department currently has the capacity to fill vials ranging in size
from 5 ml to 30 ml, ampoules ranging in size from 1 ml to 10 ml and 3.5 g tubes.

     Ointments, Creams and Liquids

     The 16,000 square foot Ointments, Creams and Liquids ("OCL") Department
offers substantial flexibility in production scale. It utilises a gravity-fed
system and incorporates segregated wash and clean storage areas for equipment.

     OCL batch capability varies from 200 to 18,000 litres. Interconnecting
tanks can be utilised where required, thereby providing production flexibility.
Fully automatic validated clean-in-place systems ensure the purity of each
customer's product. OCL has four dedicated packaging lines. Product is pumped to
two of the packaging lines and gravity fed to the other two lines. Dosage
forms/product types manufactured include creams, ointments, lotions, syrups,
shampoos, gels, suspensions and mouthwashes.

     Solid Dosage

     The solid dosage department covers approximately 10,300 square feet of
space. Experienced operators work in one of two suites for granulating powders
prior to compression into tablets or caplets: the first is designed for large
batch blending, granulating and drying; while the second suite is equipped with
smaller scale equipment that can be used for small production or pilot batches.

     After granulation, the powder is transferred to one of four isolated
compression suites where tablets and caplets of various forms and sizes are
manufactured. Each suite has its own testing equipment and cleaning area. The
granulation and compression rooms are isolated and have purpose-built airflow
systems to contain powder.

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     Processes incorporated include wet granulation and direct compression.
Dosage forms/product types manufactured include tablets in bottles and blisters,
caplets in bottles and blisters, and powders.

     Packaging

     This department covers approximately 22,000 square feet and incorporates an
open space with movable separations that provide a flexible packaging area with
seven dedicated packaging lines. Segregated zones are defined for de-boxing,
filling and secondary packaging. Bar coding insures complete control of all
packaging components.

     The seven packaging lines consist of two lines for ointments and creams,
two lines for tablets (bottles and blisters) and a sterile product automatic
inspection and packaging line. An eighth packaging area is dedicated to
small-quantity tablet filling. The inspection of finished sterile products
includes automated inspection by a leak pinhole detector. An automatic
inspection machine has been validated to detect particles in sterile products
packaged in vials and ampoules. These products may also be inspected manually.

     Several product types can be accommodated, including: liquid filling, jars,
bottle filling (glass and plastic), blisters, topicals, tablet bottles, gravity
fed cream, ointment and liquid filling, vials, and ampoule packages.

     Warehousing and Distribution

     A five-tier pallet-racking warehouse has full height of 29 feet, covers
approximately 39,000 square feet of space and has six shipping and receiving
docks. The warehouse has separately locked areas including refrigeration units
to control sensitive raw materials and finished goods.

Regulatory

     DPI's manufacturing operations are conducted in accordance with appropriate
international regulatory standards, in particular cGMP requirements, and are
subject to regular inspection by government regulatory agencies and customer
inspection teams.

     Regulatory activities at DPI are under the direction of a Director of
Quality who reports directly to the President of DPI.

     In October 2001, subsequent to an inspection during mid-2001, DPI received
a letter of acceptance from the FDA to manufacture sterile lyophilised and
sterile liquid injectable products.

Customers

     Third-Party Contract Manufacturing

     DPI manufactures prescription and non-prescription pharmaceutical products
for more than 15 pharmaceutical companies (excluding the Company) pursuant to
manufacturing supply contracts. Currently, DPI's two major customers are
Warner-Lambert Consumer Healthcare, Division of Pfizer Canada Inc. and GSK.

     In March 2000, DPI entered into a five-year manufacturing and supply
agreement with Warner-Lambert Consumer Healthcare, Division of Pfizer Canada
Inc. covering several non-prescription products

                                      -32-
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for the Canadian market including, Polysporin, Sudafed, Actifed and Zincofax.
Manufacturing of these products commenced in early 2000.

     In December 2001, DPI entered into supply and related agreements with GSK
for the renewal and expansion of an existing contract manufacturing relationship
between the two companies. The agreements have an initial term to December 31,
2009 and cover all products currently manufactured for GSK plus several
additional established, predominately sterile, products currently marketed by
GSK in multiple international markets. Transfer activities related to the new
products have been under way since early 2001. Commercial production is
scheduled to be phased in during 2002 and 2003 as DPI receives regulatory
approvals for product-specific site transfers.

     Inter-Company

     Commencing in early 2002, DPI became the FDA-approved manufacturing site
for DRAXIMAGE's lyophilized Tc-99m Kits. In additional, it is intended that DPI
will become the manufacturing site for Anipryl, following regulatory approval.
DPI also provides warehousing, distribution and related services to DRAXIS
Pharmaceutica.

Employees

     As at December 31, 2001, DPI's employees consisted of: 21 managerial
employees, 90 salaried non-managerial employees and 103 unionised hourly
employees. The unionised hourly employees are represented by the United Food and
Commercial Workers International Union, Local 291P. The collective agreement
between DPI and the union was negotiated early in 1998 with an initial five year
term running from May 1, 1998 to April 30, 2003. DPI has a good relationship
with the union.

Equity Partners

     In February 2000, SGF and senior management of DPI acquired a
non-controlling equity interest through the subscription of treasury shares of
DPI for aggregate net proceeds of $5.4 million. As a result of this
subscription, the Company's equity interest in DPI was reduced to 65.9%.

     The shareholders of DPI are governed by the terms of a unanimous
shareholders agreement that contains provisions standard to an investment of
this nature, such as veto rights on certain decisions, restrictions on
disposition of shares, rights of first refusal, piggy back rights and put and
call provisions. The Company has call rights, which, if exercised, would assure
SGF, depending on the call right being exercised, the fair market value of its
shares or the greater of the fair market value of its shares plus a specified
premium and of a specified minimum return on its investment. SGF's put rights
are exercisable beginning in February 2005 or upon the occurrence of a hostile
take-over of the Company. If SGF were to exercise its put rights, it would be
entitled to the fair market value of its shares, as determined by an independent
business valuator.

     SGF's sole shareholder is the Government of Quebec. SGF makes equity
investments notably in the forest products, metals and minerals, chemicals,
petrochemicals and plastics, health, high technology, agri-food, industrial
logistics, machinery and equipment, transportation and recreational tourism
industries in the Province of Quebec. SGF does not seek to take control of
entities in which it invests but rather holds only minority interests.

     DPI's three year, $12 million capital plan will be financed through a
combination of up to $7.4 million from the Company, SGF and certain management
shareholders, up to $3.0 million in debt funding from Investissement Quebec and
the remaining portion from internally generated funds. Following

                                      -33-
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completion of the equity portion of the financing, it is expected that the
Company's equity interest in DPI will increase to 66.1% from 65.9%.

Other Collaboration Agreements

     The Company has continuing financial interests associated with its
collaboration agreements with Pfizer with respect to Anipryl and GlaxoSmithKline
Consumer Healthcare with respect to the SpectroPharm line of products.

     Anipryl

     Beginning in 1990, the Company expanded on its knowledge and experience
with l-selegiline by initiating directly on its own behalf, as well as through
contract research arrangements, studies designed to investigate the potential of
l-selegiline for companion animal use. This initiative ultimately resulted in
the formation of its subsidiary DAHI, through which the Company developed and
commercialised a companion animal health product, Anipryl.

     From March 1991 to November 1996, DAHI's common shares were publicly traded
on NASDAQ. In November 1996, the Company took DAHI private in a mandatory share
exchange transaction.

     In December 1997, the Company entered into an alliance with Pfizer whereby
Pfizer was granted a perpetual exclusive license to market, sell and distribute
Anipryl in exchange for non-refundable fees, royalties based on the worldwide
sales of Anipryl, a manufacturing and supply agreement and a research
collaboration.

     In December 1999, the Company and Pfizer Inc. amended the terms of the
alliance whereby $9.0 million of potential additional non-refundable fees were
eliminated in exchange for the Company receiving additional regulatory support
for a potential new indication and additional manufacturing data. These
potential additional non-refundable fees would have become payable if Pfizer had
exercised its rights to acquire product registrations following regulatory
approval of Anipryl in designated European countries.

     In April 2001, the Company received a payment of $1.5 million in respect of
minimum royalty entitlements for the first three year period ended December 31,
2000.

     In December 2001, the Company and Pfizer Inc. further amended the term of
the alliance (the "Second Amendment") whereby the Company received a payment of
$3.1 million in respect of minimum royalty entitlements for the second and third
three-year periods ended December 31, 2001 and 2002 and modifications to future
royalty entitlements. The Second Amendment also resulted in all rights to
Anipryl outside of North America reverting back to the Company, forfeiture of
any additional minimum royalty entitlements and the termination of any future
collaborative research on new indications or formulations for Anipryl.

     To December 31, 2001, the Company has received $28.1 million in
non-refundable fees and $11.0 million in royalties and royalty-related payments.

     Under the amended arrangement, the Company will not be entitled to receive
any additional non-refundable fees but will continue to earn royalties on
Pfizer's sales of Anipryl in the United States and Canada. The $28.1 million of
non-refundable fees already received from Pfizer have been deferred and are
being recognised as revenue on a straight-line basis over the period to December
31, 2006.

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     Anipryl is a selegiline product developed for use in veterinary
prescriptive applications, particularly for use in dogs. The two indications for
which Anipryl is currently approved are canine Cushing's disease and canine
cognitive dysfunction syndrome ("CDS").

     Cushing's syndrome refers to increased blood cortisol and the presence of
one or more typical clinical signs, such as change in appetite, obesity,
frequent urination, abdominal distension, loss of hair, lethargy and other
behavioural changes. Canine Cushing's disease is the form of the disorder that
is due to primary hyperfunction of the pituitary gland. Approximately 15,000
cases of Cushing's disease are diagnosed each year in Canada and 150,000 in the
United States.

     CDS, sometimes known as "Old Dog Syndrome," refers to the onset in elderly
dogs of behavioural problems unrelated to a generalised medical condition such
as neoplasia, infection, or organ failure. Typical signs of this disorder can
include: confusion, disorientation, decreased activity, changes in sleep/wake
cycles, loss of house training and loss of interest in or ability to interact
with its owner and environment. Approximately 150,000 older dogs in Canada and
1.5 million older dogs in the United States are diagnosed with CDS each year.

     The Company currently does not intend to pursue any additional or expanded
indications for Anipryl.

     Anipryl is currently approved for sale in the following jurisdictions:

     Canada - the Canadian Bureau of Veterinary Affairs ("BVA") approved Anipryl
for the control of clinical signs associated with canine Cushing's disease and
CDS in October 1995 and February 1997, respectively;

     United States - the FDA granted regulatory approval to market and sell
Anipryl in the United States for the treatment of canine Cushing's disease and
CDS in June 1997 and September 1997, respectively;

     Australia - In December 1998, the National Registration Authority granted
regulatory approval to market and sell Anipryl in Australia for the control of
clinical signs associated with canine Cushing's disease and CDS;

     New Zealand - In May 2000, the New Zealand Animal Remedies Board granted
regulatory approval to market and sell Anipryl in New Zealand for the control of
clinical signs associated with canine Cushing's disease and CDS; and

     Brazil - In October 2000, the Brazilian Ministerio da Agricultura e de
Abastecimento granted regulatory approval to market and sell Anipryl in Brazil
for the control of clinical signs associated with canine Cushing's disease and
CDS.

     In 1997, DAHI filed in Europe for regulatory approval of Anipryl by the
decentralised procedure. This procedure allows DAHI to file the Anipryl
submission in a country of its choice, and to designate five additional member
states of the European Union as the countries that will review and approve the
regulatory submissions. DAHI has chosen the United Kingdom as the country in
which to file the initial Anipryl applications. Following approval to market
Anipryl in the UK, filings will be made in the five member states. These five
member states normally have 90 days to respond to these submissions. Following
their approval of Anipryl, the UK Veterinary Medicine Directorate will act as
DAHI's advocate in this procedure.

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<Page>

     DRAXIS may continue to seek veterinary regulatory approvals for Anipryl in
other jurisdictions, as appropriate.

Sales and Marketing

     Under the terms of the amended arrangement, Pfizer will continue to market
and sell Anipryl in the United States and Canada.

     DRAXIS intends to seek Anipryl marketing partnerships for countries outside
North America.

Manufacturing

     DAHI's primary supplier of l-deprenyl for the production of Anipryl is
Chinoin, and DAHI purchases its supply of l-deprenyl under a supply agreement
with Chinoin dated October 1, 1990, as amended (the "Chinoin Supply Agreement").
The term of the Chinoin Supply Agreement ends on the earlier of (i) the tenth
anniversary of the date of the first arm's-length sale in the United States or
Canada of the product subsequent to obtaining regulatory approval, (ii) November
22, 2003, and (iii) an earlier date upon the occurrence of an event of force
majeure or certain other events. In 1995, DAHI announced that it had developed
the data required to qualify an alternative source of supply for l-deprenyl.
Both the BVA and the FDA have accepted the data.

     Under its supply agreement with Pfizer, DAHI is entitled to designate a
third-party supplier or to manufacture Anipryl itself in a qualified facility.

     Until recently, Anipryl was produced by a third-party contract
manufacturer. During 2000, Pfizer qualified one of its own facilities to
manufacture Anipryl for the North American marketplace.

     The Company intends to qualify DPI to manufacture Anipryl upon receipt of
regulatory approval. The process is expected to be completed during 2002.

Competition

     The animal health marketplace is served, generally, by veterinary,
agricultural or animal health divisions of large international pharmaceutical
and chemical companies that are involved in research and development activities.
Products resulting from their activities, may, in the future, compete directly
with Anipryl.

     The Company is not aware of any other HPF, BVA or FDA approved product
available at this time that competes directly with Anipryl. In the United
States, the 1988 generic animal drug law offers marketing protection from
veterinary generic applicants in the United States for a period of five years,
until 2002, in the case of Anipryl. However, that law does not prevent other
companies from repeating the full clinical New Drug Application process to seek
FDA approval for a bio-equivalent product, nor does it prohibit human generic
versions of Anipryl from being sold to veterinarians. Any such competitor,
including sellers of a human or veterinary generic selegiline, would be subject
to DAHI's United States and international patent rights.

     No significant competition for Anipryl from products approved for
veterinary or human use has been experienced to date in Canada or the United
States. However, there are two other treatments available that have not been
approved in Canada or the United States to treat canine Cushing's disease but
may be used off-label for canine Cushing's disease - Lysodren (mitotane) by
Bristol Myers Squibb Co.,

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which was approved for use in the treatment of human inoperable cancer of the
adrenal gland, and Nizoral (ketoconazole) by Johnson & Johnson Inc. These
competitive treatments work by selectively killing the outer layer of the
adrenal gland, thereby limiting production of corticosteroid. Notwithstanding
such off-label uses, the human generic version of Eldepryl is not approved for
the treatment of canine Cushing's disease or CDS in Canada, the United States or
elsewhere. The dosage required for dogs suffering from canine Cushing's disease
and CDS, in most cases, is much higher than the human 5mg dose for selegiline.
Veterinarians will have an incentive to prescribe the product actually approved
for veterinary use that can be dispensed from their offices. Lastly, patents for
the use of Anipryl for the treatment of dogs with conditions including canine
Cushing's disease and CDS have now issued in Canada, the United States and other
jurisdictions. DAHI is positioned to enforce its proprietary patent rights and
defend itself against infringement by other parties.

     Ceva Sante Animale S.A. ("Ceva") currently markets a veterinary selegiline
product under the brand name Selgian in certain European countries for treating
behavioural problems of emotional origin in dogs. The Company believes that
Ceva's product may infringe its patent rights in Europe. See Patents.

Patents

     In September 1992, the United States Patent and Trademark Office issued a
patent to DAHI entitled "Use of l-deprenyl for Retention of Specific
Physiological Functions." The patent claims specific uses of l-deprenyl for use
in treating dogs. Similar patents have also issued to DAHI in Australia, New
Zealand and at the European Patent Office. Six additional United States patents
have also issued to DAHI. These patents cover various veterinary pharmaceutical
uses of l-deprenyl. In March 1996, DAHI received from the United States Patent
and Trademark Office a Notice of Allowance covering Anipryl to extend the life
expectancy of dogs. DAHI has filed similar patent applications in Canada, Japan
and other jurisdictions. In February 1997, the Canadian Intellectual Property
Office issued a patent to the Company for the use of Anipryl in the treatment of
dogs with conditions including canine Cushing's disease and CDS. In March 1997,
the European Patent Office ("EPO") issued a patent to DAHI for the use of
Anipryl for retarding the normal age-dependent deterioration of the cognitive
process in dogs, also known as CDS.

     The European CDS patent is subject to an opposition procedure initiated by
Ceva. DAHI submitted its response to the opposition in the second quarter of
1998 and made further submissions in 1999 and 2000. In December 2001, the EPO on
oral hearing upheld DAHI's European CDS patent. Ceva has appealed this ruling.

     In August 1996, the United States Patent Office issued a patent to Ceva
relating to the use of selegiline for treating behavioural disorders with change
of mood in dogs and cats. A similar patent application was filed in 1994 with
the Canadian Intellectual Property Office. A similar patent application in
Europe was allowed in April 2000. Ceva's European patent is subject to an
opposition procedure by DAHI. In December 2001, the EPO upheld Ceva's patent.
DAHI has appealed this ruling.

     SpectroPharm Product Line

     In May 2000, the Company entered an arrangement with GlaxoSmithKline
Consumer Healthcare, formerly Block Drug Company (Canada) Limited, with respect
to the SpectroPharm line of non-prescription dermatology products, which
included the sale of product rights by the Company in exchange for a
non-refundable fee, the acquisition of inventory on hand, a supply agreement and
a technical services arrangement. The $8.2 million received by the Company in
respect of the SpectroPharm product rights has been deferred and is being
recognised as revenue on a straight-line basis over the period to January 31,
2005.

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Discontinued Operations (DRAXIS Pharmaceutica)

     In January 2002 the Company announced that it had entered into a binding
letter of intent to sell its Canadian sales and marketing division (DRAXIS
Pharmaceutica) to Elan for cash along with a participating interest based on
Canadian sales of selected products included in the transaction, the value of
acquired inventories and the assumption of certain liabilities. Under the
proposed agreement, Elan will acquire substantially all of the operations,
product rights and other assets and obligations of DRAXIS Pharmaceutica.
Commencing with the quarter ended December 31, 2001, DRAXIS Pharmaceutica has
been reported as a discontinued operation.

     DRAXIS Pharmaceutica markets and sells in-licensed pharmaceutical products
in Canada with a current focus in neurology.

     DRAXIS Pharmaceutica has focussed primarily on innovative pharmaceutical
products in specialty therapeutic areas where it can leverage its experience in
regulatory affairs, the management of clinical trials, interfacing with the
Patented Medicine Prices Review Board ("PMPRB"), private and public
reimbursement, and pharmaceutical marketing and sales.

     Key business development transactions involving DRAXIS Pharmaceutica have
included:

          -    July 1996 - $0.7 million acquisition of TICAN Pharmaceuticals
               Inc. and its portfolio of prescription and non-prescription
               dermatology products;

          -    February 1997 - $6.8 million acquisition of Spectro-Pharm Inc.
               including five non-prescription dermatology products;

          -    September 1997 - signing of a framework agreement with Mylan
               Pharmaceuticals Inc. ("Mylan") for an ongoing collaboration
               pursuant to which DRAXIS Pharmaceutica would introduce in Canada
               Mylan products identified by the parties from time to time that
               fit the Company's strategic niches. The first product under this
               arrangement was Mylan's formulation of the anti-cancer drug
               paclitaxel;

          -    May 1998 - renewal of an exclusive licensing agreement with Eli
               Lilly Canada Inc. ("Lilly") with respect to the Parkinson's drug
               Permax for a licensing fee of up to $6.1 million paid over a
               10-year period;

          -    June 1999 - licensing of the exclusive Canadian rights to eight
               neurology products from Elan Corporation plc for an up-front
               licensing fee of $12.0 million; and

          -    2000 - divestiture of the Company's dermatology product lines for
               aggregate net proceeds of $9.0 million including the sale of the
               SpectroPharm line of products to Block Drug Inc. (now part of
               GlaxoSmithKline Consumer Healthcare).

Overview of Canadian Pharmaceutical In-Licensing Market

     Due to financial and other considerations, multinational pharmaceutical
companies may elect not to market directly certain of their products in Canada.
In those situations, multinationals often choose to out-license their products
to local firms that in turn, engage in marketing and sales activities. DRAXIS
Pharmaceutica established its business to benefit from such out-licensing
activities.

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     DRAXIS Pharmaceutica competes in its niche markets with various integrated
and non-integrated pharmaceutical companies that license and distribute
prescription drugs in Canada. Companies with which DRAXIS Pharmaceutica may
directly compete for Canadian product rights include Biovail Corporation and
Paladin Labs Inc. Many of the division's competitors have significant financial
and other resources, experience and expertise in research and development,
manufacturing, testing, obtaining regulatory approvals, marketing and
distribution of pharmaceutical products in the Canadian marketplace.

Marketed Products

     The following products are marketed in Canada by DRAXIS Pharmaceutica:

            Product               Indication                 Licensing Partner
          Permax               Parkinson's disease              Lilly
          Alertec              Narcolepsy                       Lafon/Cephalon
          Zanaflex             Spasticity                       Elan
          Diastat              Epilepsy                         Xcel
          Mysoline             Anti-convulsant                  Elan
          Eldepryl             Parkinson's disease              Somerset
          Novo-Selegiline      Parkinson's disease              Novopharm

     Permax

     Description - Permax (pergolide mesylate) is a D1 and D2 dopamine receptor
agonist that is used either alone or as adjunctive therapy to levodopa in the
management of Parkinson's disease. In contrast to other available dopamine
agonists, Permax is the only long acting dopamine agonist that stimulates both
D1 and D2 receptors.

     Licensing Partner - In 1994, DRAXIS acquired an exclusive sublicense from
Lilly to market Permax in Canada. In May 1998, DRAXIS renewed its exclusive
sublicense with Lilly. Pursuant to the renewal, Lilly will continue to
manufacture Permax and to supply it exclusively to DRAXIS for marketing and
distribution in Canada for a further 10-year period expiring on December 31,
2008, with automatic yearly renewals thereafter.

     Alertec

     Description - Alertec (modafinil) is a non-amphetamine that improves
wakefulness without significant cardiovascular effects in patients with
narcolepsy. In numerous controlled clinical trials, which have been supported by
over two years of commercialisation in North America, Alertec has demonstrated a
high degree of clinical efficacy and an excellent safety profile. Narcolepsy is
a primary sleep disorder characterised by uncontrolled episodes of falling
asleep at unexpected times and under unexpected conditions. Prior to the 1999
approval of Alertec, no treatment for narcolepsy had been approved in Canada
since 1959. Alternative therapies for the treatment of narcolepsy, such as
amphetamine-like stimulants, may have undesirable side effects such as
overstimulation, nervousness and insomnia. In addition, such alternative
therapies also have proven abuse potential and the development of tolerance,
which results in increasing dosages to maintain therapeutic effectiveness. The
Notice of Compliance recommended that Alertec be considered a controlled drug.

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     Licensing Partner - In November 1992, DRAXIS entered into a license
agreement with Laboratoire L. Lafon ("Lafon") for the right to market in Canada
any product containing the compound modafinil. DRAXIS has agreed to purchase
from Lafon all quantities of modafinil that it may require during the term of
the agreement, and Lafon has agreed to supply such product or allow DRAXIS to
take over the manufacture of such product. The agreement terminates in Canada 15
years after the date of the last HPF approval obtained for a dosage form of
and/or a new indication for Alertec in Canada. In 2001, Lafon was acquired by
Cephalon, Inc.

     Zanaflex

     Description - Zanaflex (tizanidine hydrochloride) is a short-acting alpha-2
adrenergic agonist indicated for the management of spasticity. Spasticity, a
common complication of central nervous system disorders such as multiple
sclerosis, spinal cord injury, stroke, cerebral palsy and brain injury, is
characterised by abnormal increases in muscle tone (tension). The condition
causes stiffness or rigidity, restricting normal movement and produces painful
muscle spasms that are frequently debilitating. The Company estimates that there
are approximately 50,000 Canadians with multiple sclerosis and 30,000 with some
form of spinal cord injury of which 25% to 50% require medication to control
spasticity.

     Licensing Partner - Zanaflex is licensed from Elan for a term to December
31, 2008. Under the terms of the license agreement, Elan supplies the
manufactured product to DRAXIS and provides liaison assistance with respect to
regulatory and marketing issues for the Canadian market.

     Diastat

     Description - Diastat (diazepam rectal gel) is a unique formulation of
diazepam designed to control breakthrough epileptic seizures in the management
of selected refractory patients with epilepsy on stable regimes of anti-epilepsy
drugs who require intermittent use of diazepam to control bouts of seizure
activity. It is available in the form of a special prefilled, single-dose
delivery system that is administered rectally by a parent or caregiver. The
Company estimates that approximately 300,000 Canadians suffer from epilepsy or
seizure disorders and that approximately 30% of these patients do not obtain
satisfactory seizure control with current anti-convulsants.

     Licensing Partner - Diastat was originally licensed from Elan for a term to
December 31, 2008. In March 2001, Elan transferred, with the Company's consent,
the Canadian rights for Diastat to Xcel Pharmaceuticals, Inc., ("Xcel") a
speciality pharmaceutical company. Under the terms of this agreement, Xcel
assumed Elan's responsibility to supply the manufactured product to the Company
and provide liaison assistance with respect to regulatory and marketing issues
for the Canadian market.

     Mysoline

     Description - Mysoline (primidone) is an anti-convulsant drug to treat
epilepsy and seizure disorders. Epilepsy, the term used to describe a variety of
seizure disorders, is one of the most common disorders of the central nervous
system, affecting more than 300,000 Canadians. Characterised by the tendency to
have recurrent seizures, epilepsy is when the electrical balance in the brain is
disturbed. When this occurs, the corresponding physical reaction to the
increased electrical activity is the seizure.

     Licensing Partner - Mysoline is licensed from Elan and had previously been
marketed in Canada by another pharmaceutical company. DRAXIS assumed the
marketing and selling responsibility of Mysoline in Canada in January 2000.
Under the terms of the Elan agreement, Wyeth-Ayerst Canada, Inc. supplies
Mysoline to DRAXIS with Elan's liaison assistance with respect to regulatory and
marketing issues for the Canadian marketplace.

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     Eldepryl

     Description - Eldepryl (selegiline hydrochloride) is a selective monoamine
oxidase-type B ("MAO-B") inhibitor used in the treatment of Parkinson's disease.
MAO-B is an enzyme that degrades the structure of certain compounds, such as
dopamine, which regulate various physiological functions, including certain
aspects of central nervous system activity. Dopamine is a neurotransmitter that
facilitates movement, posture, balance and walking. Eldepryl has several common
or generic names, including selegiline hydrochloride, selegiline and l-deprenyl.

     Licensing Partner - Under a sublicense agreement dated February 9, 1988
(the "Somerset License") with Somerset Pharmaceuticals, Inc., DRAXIS acquired
the exclusive right to market Eldepryl in Canada. The Somerset License will
expire upon the expiration of Somerset's license with Chinoin, which expires on
November 22, 2003 and may be renewed for successive five-year terms with the
agreement of the parties thereto.

     Novo-Selegiline

     Description - Novo-Selegiline (selegiline hydrochloride) is a generic,
selective MAO-B inhibitor used in the treatment of Parkinson's disease and was
developed in partnership with Novopharm Limited ("Novopharm") (now beneficially
owned by Teva Pharmaceutical Industries Ltd.) in response to the generalisation
of the Canadian selegiline hydrochloride molecule. Novo-Selegiline competes for
selegiline prescriptions with Eldepryl(R) and five other generic selegiline
products. Including sales of Eldepryl, the Company estimates that DRAXIS has
approximately 65% of the Canadian selegiline market.

     Licensing Partner - In December 1993, DRAXIS entered into a five-year
distribution agreement with Novopharm with respect to the sale of
Novo-Selegiline. Under the agreement, DRAXIS currently records all sales of
Novo-Selegiline as revenues and retains 50% of the net profit therefrom. In
addition, Novopharm retains responsibility for all aspects of the Canadian
marketing and distribution of Novo-Selegiline as the Company's sole Canadian
distributor. In September 1998, Novopharm agreed to extend the agreement on the
same terms and conditions for a further five years from its expiry date in
December 1998.

Recently Approved Products

     DRAXIS currently has Canadian regulatory approval for, but has not yet
launched the following products:

              Product                  Indication              Licensing Partner
          Hectorol               Secondary hyperparathyroidism     Bone Care
          Levulan Kerastick      Actinic keratoses                 DUSA

     Hectorol

     Description - Hectorol (doxercalciferol, a synthetic D-hormone analogue
derived from Vitamin D2) is indicated for the reduction of elevated parathyroid
hormone ("PTH") levels in the management of secondary hyperparathyroidism in
patients undergoing chronic renal dialysis. The consequences of poor PTH
management are often severe, and in some long-term cases, life threatening.
Elevated PTH contributes directly to many of the pathophysiological conditions
seen in chronic renal failure patients.

                                      -41-
<Page>

Elevated PTH plays a role in the development of left ventricular hypertrophy,
myocardial fibrosis and abnormal lipid metabolism. Elevated PTH levels have also
the well-known negative effect on bone growth and turn over, conditions
collectively referred to as renal osteodystrophy.

     Recent Developments - In May 2001, DRAXIS obtained from the HPF a Notice of
Compliance approving the oral formulation of Hectorol in the treatment of
secondary hyperparathyroidism. This product is not included in the proposed sale
of DRAXIS Pharmaceutica to Elan. The Company is reviewing possible partnering
arrangements for the commercialisation of this product.

     Licensing Partner - In March 1990, Bone Care International, Inc. ("Bone
Care") granted to DRAXIS an exclusive Canadian license to market Hectorol for
treating osteoporosis. In March 1996, the license was extended to all other
metabolic bone diseases, including renal osteodystrophy and secondary
hyperparathyroidism. The license also covers all know-how developed by or on
behalf of Bone Care relating to the use of Hectorol for those indications. The
initial term of the license agreement expires on the expiration of the last of
all Canadian patent application and patents issuing therefrom which Bone Care
owns or controls related to Hectorol for all indications licensed to the
Company. The term renews automatically thereafter from year to year unless
terminated under certain conditions. Under its license agreement with Bone Care.
Bone Care is required to provide reasonable technical and other assistance,
including all data and information Bone Care submits to the FDA and any other
regulatory agency to support its request for such approval in the U.S. DRAXIS
has agreed to purchase its requirements of Hectorol from Bone Care.

     Levulan Kerastick

     Description - The information set forth in this paragraph and the third
paragraph below is derived from public information disclosed by DUSA. DUSA,
formerly an affiliate of DRAXIS, has the world-wide rights to make, have made,
use and sell products capable of producing protoporphyrin IX precursors,
including 5-aminolevulinic acid ("ALA") for administration with subsequent
exposure to controlled lights under a license (the "PARTEQ License") from PARTEQ
Research & Development Innovations, the licensing arm of Queen's University,
Canada. Under the terms of the PARTEQ License, DUSA assumed responsibility for
clinical development and regulatory submissions relating to commercial
exploitation of such products. In general, the methods and processes employing
ALA with light to treat or detect a variety of conditions are known as
photodynamic therapy ("PDT") or photodetection ("PD"). PDT/PD is a two-step
treatment. The first step involves the application of a drug (termed a
photosensitiser) that collects in specific cells. The second step involves the
activation of the photosensitiser by controlled exposure to a selective light
source. In PDT, energy from the light activates the photosensitiser, which
destroys or alters the sensitised cells. In PD, the activated photosensitiser
emits energy in the form of light, making the sensitised cells fluoresce, or
"glow." In PDT, the appropriate combination of drug and light can affect target
tissue with relatively minimal damage to surrounding tissue. See DUSA public
disclosure for current patent information.

     Recent Developments - In June 2001, DRAXIS obtained from the HPF an Notice
of Compliance granting approval to market Levulan Kerastick Photodynamic Therapy
(PDT) in Canada for the treatment of Actinic Keratoses.

     Licensing Partner - In October 1991, DUSA, PARTEQ and DRAXIS entered into
an agreement (the "Assignment Agreement") under which DUSA assigned to DRAXIS
its rights and obligations under the PARTEQ License insofar as they relate to
Canada. In addition, DUSA has agreed to disclose to DRAXIS, on an ongoing basis,
any technology available to DUSA and relating to the subject matter of the
PARTEQ License that would assist DRAXIS in developing the Canadian market. As of
March 11, 1998, DUSA and PARTEQ amended and restated the PARTEQ License (the
"Amended PARTEQ

                                      -42-
<Page>

License"). DUSA has the right to terminate the Amended PARTEQ License with or
without cause upon 90 days' notice. The Amended PARTEQ License is effective
through the expiration date of the latest United States patent made subject to
the Amended PARTEQ License. PARTEQ, DUSA and DRAXIS revised the Assignment
Agreement to conform its terms to the Amended PARTEQ License.

Products Under Development

     DRAXIS holds the Canadian rights to the following products currently under
development:

            Product                 Indication             Licensing Partner
          MYOBLOC          Cervical dystonia                    Elan
          Frovatriptan     Migraine                             Elan
          Ziconotide       Severe pain                          Elan
          Zonegran         Epileptic seizures                   Elan
          Zelapar          Parkinson's disease                  Elan
          Paclitaxel       Refractory breast and ovarian        Mylan
                           cancer

     MYOBLOC

     Description - MYOBLOC (botulinum toxin type B) is a treatment for cervical
dystonia, a painful chronic disorder caused by a group of muscles performing an
involuntary sustained contraction in the neck and shoulder region. Management
estimates that cervical dystonia affects 50,000 people in the United States and
about the same number of people in Europe. Although cervical dystonia can be
triggered by physical trauma, in most cases its causes are unknown. MYOBLOC
interrupts cholinergic transmission causing a relaxation in affected muscles and
thereby relieving involuntary muscle contraction and pain.

     Regulatory Status - MYOBLOC is approved for sale and is being marketed in
the U.S. by Elan. A New Drug Submission for MYOBLOC has been filed in Canada and
discussions with the HPF are ongoing.

     Licensing Partner - MYOBLOC is licensed from Elan for a term to December
31, 2008. Under the terms of the license agreement, Elan will supply the
manufactured product to DRAXIS and will provide liaison assistance with respect
to regulatory and marketing issues for the Canadian market.

     Frovatriptan

     Description - Frovatriptan is a 5 HT 1B/1D receptor agonist for the acute
treatment of migraine. There are approximately 3.2 million migraine sufferers in
Canada with a ratio of approximately three female suffers to every one male
sufferer.

     Regulatory Status - Frovatriptan is approved for sale and will be
co-promoted in the United States under the brand name Frovelan by Elan and UCB
Pharma, Inc. A New Drug Submission for Frovatriptan has been filed in Canada and
discussions with the HPF are ongoing.

     Licensing Partner - Frovatriptan is licensed from Elan for a term to
December 31, 2008. Under the terms of the license agreement, Elan will supply
the manufactured product to DRAXIS and will provide liaison assistance with
respect to regulatory and marketing issues for the Canadian market.

                                      -43-
<Page>

     Ziconotide

     Description - Ziconotide is a non-opiate novel N-type neuronal calcium
channel blocker being developed for the treatment of chronic intractable pain
such as for patients with cancer. Ziconotide will initially be used in Canada
for intra-thecal pump implant pain management.

     Regulatory Status - An FDA "approvable" letter was issued to Elan in June
2000 with respect to Ziconotide, which is referred to in the United States under
the brand name Prialt. The Company understands that additional data on Prialt is
required by the FDA as a pre-condition to US approval. In December 2000 a New
Drug Submission for Ziconotide was filed under the Priority Review Process of
the HPF and was subsequently withdrawn pending the provision of the additional
data requested by the FDA.

     Licensing Partner - Ziconotide is licensed from Elan for a term to December
31, 2008. Under the terms of the license agreement, Elan will supply the
manufactured product to DRAXIS Pharmaceutica and will provide liaison assistance
with respect to regulatory and marketing issues for the Canadian market.

     Zonegran

     Description - Zonegran is a novel anti-convulsant drug for the adjunct
treatment of epileptic seizures. The Company believes that in Canada there are
14,000 new cases of epilepsy diagnosed each year with 60% affecting young
children or the elderly. Zonegran's mechanism of action is accomplished through
the modulation of T-type calcium channels combined with a sodium channel
blocking effect. Zonegran is licensed by Elan from Dainippon Pharmaceutical
Corp., Ltd., and is currently the third-best-selling anti-convulsant drug in
Japan. As a result, there is a considerable body of safety and efficacy
information available regarding Zonegran.

     Regulatory Status - Zonegran is approved for sale and is being marketed in
the United States by Elan. A New Drug Submission for Zonegran has been filed in
Canada and discussions with the HPF are ongoing.

     Licensing Partner - Zonegran is licensed from Elan for a term to December
31, 2008. Under the terms of the license agreement, Elan will supply the
manufactured product to DRAXIS and will provide liaison assistance with respect
to regulatory and marketing issues for the Canadian market.

     Zelapar

     Description - Zelapar (selegiline hydrochloride) is a formulation of
selegiline hydrochloride formulated as a sublingual tablet that rapidly
dissolves in the mouth facilitating use for many Parkinson's disease patients.
Zelapar utilises Scherer's proprietary Zydis fast-dissolving technology,
designed for oral administration in a convenient formulation.

     Regulatory Status - Zelapar is in pre-New Drug Submission development in
Canada.

     Development Partner - Zelapar is licensed from Elan for a term to December
31, 2008. Under the terms of the license agreement, Elan will supply the
manufactured product to DRAXIS and will provide liaison assistance with respect
to regulatory and marketing issues for the Canadian market.

                                      -44-
<Page>

     Paclitaxel

     Description - Paclitaxel is a novel, anti-tumour agent referred to in some
scientific and medical literature as "taxol." Paclitaxel is currently marketed
under the brand name Taxol by Bristol-Myers Squibb Co. In June 1998, DRAXIS
filed with the HPF a New Drug Submission for paclitaxel and the HPF has
completed its review process. Prior to approval, DRAXIS must comply with
Canadian Patented Drugs Regulations in respect of generic competition. Mylan,
from whom DRAXIS licenses paclitaxel, is currently assessing the status of
patent infringement litigation in Canada regarding paclitaxel and the Company
has agreed to defer launch in Canada until such issues have been clarified. This
product is not included in the proposed sale of DRAXIS Pharmaceutica to Elan.

     Licensing Partner - In January 1997, DRAXIS acquired from Mylan the
exclusive Canadian marketing rights to the Mylan formulation of paclitaxel.
Under the agreement, Mylan will provide DRAXIS with all of its submissions to
the FDA as well as any additional clinical or other data relating to the
product. DRAXIS is responsible for obtaining HPF approval for the product and
for the marketing, distribution and sale of the product in Canada. DRAXIS and
Mylan will share the profits from marketing and selling paclitaxel in Canada
according to a formula agreed to between the parties. Mylan has obtained from
Phytogen Life Sciences Inc. of Vancouver, British Columbia, the exclusive right
to manufacture, market and distribute a formulated dosage form of paclitaxel in
Canada, the United States and Mexico, using bulk fine chemical paclitaxel
produced by Phytogen.

Principal Markets

     DRAXIS Pharmaceutica markets products in Canada only.

Employees

     As at December 31, 2001, DRAXIS Pharmaceutica had 18 employees broken down
as follows: general management and administration (3), new product development
(2), marketing (5), and sales (8).

Distribution

     DPI provides warehousing, distribution and related services to DRAXIS
Pharmaceutica.

Patents

     Patents have been issued, or applied for, in Canada covering many of the
products and technologies licensed from strategic partners, including those that
are under development. A number of the Company's strategic partners, including
Elan, have also filed numerous product patent applications in several other
countries in relation to the products marketed by DRAXIS Pharmaceutica.

Government Regulation

     The Company's business is governed by a variety of industry-specific
statutes and regulations in Canada, the United States and other countries.

                                      -45-
<Page>

Drug Approval Process

     Human Pharmaceuticals

     In Canada, pharmaceutical research, development and marketing activities
are regulated by the Food and Drugs Act (Canada) and the rules and regulations
made under that Act. The Food and Drugs Act (Canada) is administered under the
Therapeutic Products Programme of the HPF, which regulates the use and sale of
diagnostic and therapeutic products in Canada. Regulations imposed by federal
and local authorities in the United States, where regulation is carried out by
the FDA, also significantly regulate the Company's activities.

     In Canada, clinical trials of new pharmaceutical products involve three
phases, conducted under what is known as Investigational New Drug Submissions.
In Phase I, the product's safety is assessed during clinical trials involving
healthy volunteers. In Phase II, the product's efficacy, dosage and safety are
tested on a small number of patients with known disease. In Phase III,
controlled clinical trials are conducted in which the product is administered to
a larger number of patients with known disease, and in which further information
relating to the safety and efficacy is gathered. Further, in Phase III, the
effectiveness of the product is, in certain cases, compared to that of accepted
methods of treatment. If clinical studies establish that the product has value,
an applicant files a New Drug Submission with the HPF to obtain marketing
approval for the product. The New Drug Submission includes a comprehensive
summary and analysis of the results of the clinical trials, information relating
to proposed labelling and packaging materials, and data relating to the proposed
manufacturing and quality control procedures. If the New Drug Submission is
found to be satisfactory, the HPF issues a Drug Identification Number and a
Notice of Compliance permitting sale of the new product in Canada.

     In the United States, new drugs require FDA approval of a marketing
application (i.e., a New Drug Application or a Product License Application)
prior to commercial sale. To obtain marketing approval, data from adequate and
well-controlled clinical investigations, demonstrating to the FDA's satisfaction
a new drug's safety and effectiveness for its intended use, are required. Such
data is generated in studies conducted under an Investigational New Drug
Application. Clinical studies are characterised as Phase I, Phase II and Phase
III trials. In a marketing application, the applicant must also demonstrate the
identity, potency, quality and purity of the active ingredients of the product
involved and the stability of these ingredients. Further, the manufacturing
facilities, equipment, processes and quality controls for the new drug must
comply with prescribed cGMP for drugs or biologic products, both in a
pre-licensing inspection and in subsequent periodic inspections after licensing.
Failure to demonstrate that a drug can be commercially manufactured in
accordance with strict regulatory guidelines will preclude approval of the drug.
Regulatory approvals must be received before moving the production of a product
to a new manufacturing site, and such approvals may cause delays in the
production, supply and marketing of a product.

     The process of completing clinical trials and obtaining regulatory
approvals for a new drug will, in general, take a number of years and may
require the expenditure of substantial resources. Once a New Drug
Application/New Drug Submission or Product License Application is submitted,
there can be no assurance that the HPF or FDA will review and approve the
application in a timely manner. In certain limited circumstances, the HPF will
permit an New Drug Submission to be subject to a priority review. The HPF's
Priority Review Process allows for a faster review to make available promising
drug products for life-threatening or severely debilitating conditions for which
there are few effective therapies already on the market. Even after initial
approval has been obtained, further studies, including post-marketing studies,
may be required to provide additional data on safety necessary to gain approval
for the use of the product as a treatment for clinical indications other than
those for which the product was initially tested. The HPF and FDA may also
require post-marketing surveillance programs to monitor a product's side

                                      -46-
<Page>

effects. Results of post-marketing programs may limit or expand the further
marketing of products. A serious safety or effectiveness problem involving an
approved new drug may result in HPF or FDA action requiring withdrawal of the
product from the market and possible civil action.

     The Special Access Program of the Therapeutic Products Directorate of
Health Canada is responsible for authorising the sale of pharmaceutical,
biologic and radiopharmaceutical products that are not yet approved in Canada to
treat patients in emergencies who have a serious or life-threatening illness
when conventional therapies have failed or are unsuitable.

     Medical devices such as DRAXIMAGE's BrachySeed do not require the detailed
approval process for therapeutic drugs. If the device is "substantially
equivalent" to one currently marketed, as is the case with BrachySeed, then the
approval period can be as short as 90 days since no clinical trials are
required. In the United States this process is called a 510-K approval.

     Outside of Canada and the United States, the regulatory approval process
for the manufacture and sale of pharmaceuticals varies from country to country
and the time required may be longer or shorter than that required for HPF or FDA
approval. To the extent it chooses to explore foreign markets, the Company may
rely on foreign licensees to obtain regulatory approval for marketing its
products in foreign countries.

     Veterinary Pharmaceuticals

     The drug approval process for veterinary pharmaceuticals is similar to the
process for obtaining approvals for human pharmaceuticals. To receive regulatory
approval, a new animal drug must successfully complete a number of development
phases. The phases include establishing safety and efficacy in target species as
well as the establishment of manufacturing procedures and final product
labelling. The final phase of this process includes controlled clinical trials
in which the drug is administered to a larger number of such animals, and in
which further information relating to safety and efficacy is gathered. Following
the clinical trials, the drug sponsor submits an application to the appropriate
regulatory agency for marketing approval.

Drug Marketing

     Human Pharmaceuticals

     Prescription drug products generally are made known by manufacturers
through advertisements to health care professionals and visits to such
professionals known as "detailing." Product-specific advertising to the general
public is permitted, subject to certain regulations and industry guidelines.

     An increasing percentage of sales of prescription pharmaceuticals relate to
sales of products which are paid, in whole or in part, by government or private
insurance drug plans. Many governments have established regimes to control drug
pricing at the retail pharmacy level. In addition, there have been, and the
Company expects that there will continue to be, an increasing number of
proposals to implement government and other third-party payer restrictions upon
the pricing of prescription pharmaceuticals as a result of continuing efforts to
contain or reduce the costs of health care throughout North America. See Item 3:
Key Information - Risk Factors.

     In most provinces of Canada, there is a drug benefit formulary. A formulary
lists the drugs for which a provincial government will reimburse qualifying
persons and the prices at which the government will reimburse such persons.
There is not complete uniformity between provinces; however, provincial
governments generally will reimburse the lowest available price of the generic
versions of any drug listed

                                      -47-
<Page>

on the province's formulary list. The formularies can also provide for drug
substitution, even for patients who do not qualify for government reimbursement.
The effect of these provincial formulary regimes is to encourage the sale of
lower-priced generic versions of pharmaceutical products.

     Veterinary Pharmaceuticals

     In the case of new veterinary "prescription" pharmaceuticals, no sales may
be made by drug manufacturers directly to the public. Instead, a prescription
drug is initially available only through veterinarians who generally sell it
from their offices. Veterinary prescription drugs generally are promoted by
manufacturers through advertisements to veterinarians and sales visits to animal
health clinics. Product-specific advertising to the general public is permitted,
subject to certain regulations and industry guidelines.

     There are no government price controls or reimbursement plans in the
veterinary pharmaceutical marketplace. There are a few private pet insurance
plans; however, these plans do not represent a significant portion of the
veterinary market. Accordingly, the veterinary marketplace is not subject to the
cost containment measures that are prevalent in the human pharmaceutical market.

Patent Protection and Price Controls

     Companies that have invented human or veterinary drugs can apply for patent
protection virtually world-wide, subject to strict rules relating to timing,
subject matter and the scope of protection sought. Patents can cover many
aspects of a pharmaceutical product, including the drug itself, processes for
preparing the drug, delivery systems and new uses. Patents do not, however,
guarantee that the owner of the patent or its licensee can utilise the patented
invention because there may be pre-existing governing rights. While a patent
permits the owner or its licensee to prevent others from doing what is covered
by the patent, competitors are always free to market products that do not
infringe the particular patent, provided such competitors otherwise comply with
health regulatory requirements.

     Historically, pharmaceutical companies have relied heavily upon patents to
protect proprietary positions on drug products. The Company's policy is to
protect its technology, inventions and improvements by, among other things,
filing patent applications for technology it considers important to the
development of its business. The Company also relies upon trade secrets,
know-how and licensing opportunities to develop and maintain its competitive
position.

     Under United States patent law, with respect to inventions made prior to
January 1, 1996, a patent is issued to the person who made the invention first,
rather than to the first person to file an application thereafter, as is common
in other countries. In determining who is entitled to a United States patent on
a particular technology, events in the United States prior to January 1, 1996
may be important.

     The Patent Act (Canada) provides remedies for patent infringement. In
addition to the standard legal action for patent infringement, in 1993, the
Canadian government enacted Regulations under the Patent Act (Canada) whereby a
competitor proposing a generic version for a drug which has been marketed in
Canada under a Notice of Compliance must serve a Notice of Allegation on the
originator of the drug before the competitor may be granted a Notice of
Compliance in respect of its generic drug. The originator of the drug may apply
to the Federal Court of Canada for an order prohibiting the Minister of National
Health and Welfare from issuing a Notice of Compliance until the issue of patent
infringement has been resolved.

     The Canadian Government has also established the PMPRB, which monitors and
controls prices of patented drug products marketed in Canada by persons holding,
or licensed under, one or more patents

                                      -48-
<Page>

relating to drug products. For a patented drug product, the PMPRB will approve
an introductory price (based on a comparative analysis) and will require that
the price not be increased each year thereafter by more than the annual increase
of the Canadian Consumer Price Index. As such, the existence of one or more
patents relating to a drug product, while providing some level of proprietary
protection for the product, also triggers a governmental price control regime
which significantly impacts on the Canadian pharmaceutical industry's ability to
set pricing.

Drug Manufacturing

     Pharmaceutical companies are required to submit as part of their New Drug
Submission in Canada, or as part of their New Drug Application in the United
States, detailed descriptions regarding the proposed manufacturing and packaging
process and manufacturers in respect of a particular drug. As a result, a
decision to manufacture or package products in a facility other than that
originally approved under the New Drug Application or New Drug Submission (as
may be the case with contracting manufacturing outsourcing), can result in
significant delays in production.

     Pharmaceutical manufacturing facilities are subject to strict quality
control standards including cGMP. Production processes within a facility are
subject to one-time validation testing, as well as periodic review. In the case
of sterile product manufacturing, the standards are even higher than for the
manufacturing of ointments, creams and liquids. The manufacture of radioactive
drugs is subject not only to cGMP but also the environmental safety, handling
and transportation requirements of the Canadian Nuclear Safety Commission
("CNSC") and the United States Nuclear Regulatory Commission ("NRC"). There are
no issues with respect to radioactive waste disposal since all of the isotopes
used in Nuclear Medicine are short lived and can be easily stored on site until
decayed and then disposed of.

     The FDA, HPF, CNSC and NRC conduct regular audits of the Company's
facilities to ensure compliance with cGMP and other statutory requirements. See
Item 3: Key Information - Risk Factors.

Organizational Structure

     The following chart illustrates the corporate organisation and
jurisdictions of the Company and its significant affiliates as at December 31,
2001:

[CHART]

                               DRAXIS HEALTH INC.
                                    (CANADA)

<Table>
<S>           <C>               <C>                  <C>
                  65.9%
Draximage       Draxis              DAHI                DAHI
  Inc.          Pharma             Animal              Animal
(Canada)         Inc.              Health              Health
               (Canada)         (New Zealand)          (U.K.)
                                 Pty Limited          Limited
   Canadian Companies           (New Zealand)        (England)

                                   International Companies

                Deprenyl             DAHI
                Animal               LLC
                Health           (Delaware)
                 Inc.
              (Louisiana)

  DAHI          Draxis                 All companies are
 Nevada        U.S. Inc.               100% owned except
  Inc.        (Delaware)               as noted.
(Nevada)

    U.S. Companies

</Table>

                                      -49-
<Page>

Property, Plants and Equipment

     The Company's operating facility is its owned 242,000 square foot
pharmaceutical manufacturing facility which houses DRAXIMAGE and DPI. The
facility is located at 16751 Trans-Canada Road, Kirkland, Quebec, Canada, H9H
4J4.

     The Company believes all of the above noted properties are suitable and
adequate for its business purposes as presently contemplated.

     For information concerning the Company's capital expenditures and methods
of financing, please see Item 5: Operating and Financial Review and Prospects.

Item 5.   Operating and Financial Review and Prospects

     The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated audited financial statements and notes thereto for the year ended
December 31, 2001.

     All amounts referred to herein are expressed in U.S. dollars and are in
accordance with U.S. generally accepted accounting principles ("GAAP"), unless
otherwise indicated.

Overview

     DRAXIS is an integrated pharmaceutical company focused in two specialty
segments: the development, production, marketing and distribution of
radiopharmaceuticals through DRAXIMAGE Inc. ("DRAXIMAGE") and the provision of
contract pharmaceutical manufacturing services, specializing in liquid and
freeze-dried injectables and other sterile products through DRAXIS Pharma Inc.
("DPI").

     The Company believes that both its radiopharmaceutical and manufacturing
businesses have significant long-term growth potential and has invested
considerable financial and management resources in developing these businesses
including:

     -    $6.5 million of investments establishing sterile lyophilization
          (freeze-drying) capabilities at DPI to provide in-house manufacturing
          of the Company's radiopharmaceutical imaging kits as well as
          third-party contract manufacturing services;

     -    $4.7 million of investments in the construction and later expansion of
          DRAXIMAGE's radiopharmaceutical production facilities and
          capabilities, including its robotic manufacturing line;

     -    $0.8 million of investments to enhance DPI's and DRAXIMAGE's
          capabilities and regulatory compliance;

     -    The continued development of the DRAXIMAGE product pipeline including:
          BrachySeed, Fibrimage, Amiscan, and INFECTON.

     These initiatives are consistent with the Company's general business
strategy of:

     -    Focusing on specialty pharmaceutical markets in which the Company can
          develop and sustain competitive advantage;

                                      -50-
<Page>

     -    Developing new pharmaceutical products and services consistent with
          the Company's strengths and capabilities;

     -    Pursuing growth opportunities with international market potential; and

     -    Leveraging alliances with business partners, when appropriate.

     In 1999, the Company initiated a strategic review of its operations from
the perspective of enhancing shareholder value. Following completion of this
strategic review, the Company resolved to focus on its radiopharmaceutical and
manufacturing platforms, which has resulted in two corporate developments: the
divestiture of the Company's dermatology product lines in 2000 and the January
2002 announcement that the Company had entered into a binding letter of intent
to divest of substantially all of the assets of its Canadian prescription
pharmaceutical sales and marketing business ("DRAXIS Pharmaceutica").

     The Company achieved a number of significant accomplishments since the
beginning of fiscal 2001 including:

     -    Record financial results from continuing operations:

          -    Consolidated revenues of $33.0 million, an increase of 13.1% over
               2000, including a 19.1% increase in products sales

          -    Consolidated earnings before interest, taxes, depreciation,
               amortization, research and development and non-recurring items
               ("EBITDARD") of $5.0 million, an increase of 41.0% over 2000

          -    Consolidated net income before non-recurring items of $1.9
               million, or $0.05 per share

          -    Record financial results for both the radiopharmaceutical and
               manufacturing businesses

     -    Regulatory approvals of manufacturing facilities:

          -    U.S. and Canadian approvals of the recently expanded
               radiopharmaceutical manufacturing facility

          -    U.S. acceptance to manufacture sterile lyophilized and sterile
               injectable products and the subsequent site-transfer approval for
               the in-house production of the first lyophilized
               radiopharmaceutical product

     -    Advances in BrachySeed, the Company's proprietary second-generation
          radioactive implant for the treatment of prostate cancer:

          -    U.S. and Canadian launches of BrachySeed I-125

          -    U.S. and Canadian approvals of BrachySeed Pd-103

     -    New long term manufacturing supply agreements with:

          -    GlaxoSmithKline for several established, predominantly sterile,
               products for multiple international markets

          -    Bracco Diagnostics Inc. for sodium iodide I-131 radiotherapy
               capsules for the U.S. market and the commencement of shipments of
               this product in October 2001

                                      -51-
<Page>

     -    Commencement of Phase II trials for Amiscan, a technetium-99m-based
          radiopharmaceutical for the imaging of heart attacks

     -    Business development transactions consistent with the Company's
          strategic plan:

          -    In-licensing of INFECTON, a technetium-99m-based
               radiopharmaceutical for imaging infection from, British
               Technology Group

          -    The January 2002 agreement to divest DRAXIS Pharmaceutica

     Previously, the Company had indicated that in 2001 it expected consolidated
revenues to grow by 15-20% and to report positive net income from continuing
operations.

     Revenues for 2001 (including both continuing and discontinued operations)
totalled $40,083,000, an increase of 13.0% over $35,486,000 in 2000. Although
the Company reports its financial results in U.S. dollars, a substantial portion
of the Company's revenues are denominated in Canadian dollars. During 2001,
reported revenues were negatively affected as a result of the depreciation in
the value of the Canadian dollar relative to the U.S. dollar. Had the average
exchange rate in 2001 remained at 2000 levels, reported revenues in 2001 would
have grown at 18% over 2000.

     As compared to 2000, revenues in 2001 for the Company's core
radiopharmaceutical and manufacturing businesses increased 16.9% and 32.2%,
respectively.

     2001 net income, before the non-cash charge of $3,300,000 associated with
the revaluation of income tax assets, of $1,716,000, or $0.05 per share, was in
line with Company's expectations for the year.

Change in Accounting Convention and Reporting Currency

     The Company adopted U.S. GAAP and U.S. dollars as its primary financial
reporting convention, beginning with the first quarter of 2001. This change was
influenced by the Company's desire to better meet the needs of shareholders in
assessing the Company's financial performance by following accounting practices
which are consistent with the majority of its customers and peer companies.

Change in Accounting Policy

     Effective January 1, 2000, the Company changed its policy with respect to
revenue recognition of non-refundable fees received in connection with
collaboration agreements whereby such fees are deferred and recognized as
revenue ratably over the contract period. This new policy is consistent with the
guidelines contained in the U.S. Securities and Exchange Commission Staff
Accounting Bulletin #101, "Revenue Recognition in Financial Statements," dated
December 1999. In 2000, $19,900,000, or $0.55 per share, representing the
cumulative effect of this change in policy, was charged to earnings. Previously,
such fees had been recognized as revenue, based on contractual entitlements and
when receipt was reasonably assured.

Discontinued Operations

     On January 23, 2002, the Company announced that it had entered into an
agreement to divest of substantially all of the operations, product rights and
other assets and obligations which together constitute DRAXIS Pharmaceutica.

     Prior to the quarter ended December 31, 2001, DRAXIS Pharmaceutica's
operations had been included in the Company's Canadian Pharmaceuticals segment
along with deferred revenue and

                                      -52-
<Page>

amortization associated with the Company's collaboration agreement involving the
previously divested SpectroPharm line of products.

     Commencing with the quarter ended December 31, 2001, the results of
operations of DRAXIS Pharmaceutica have been reported as discontinued operations
and all comparative periods presented have been restated.

Definition of Segments

     In conjunction with the commencement of reporting the results of operations
of DRAXIS Pharmaceutica as a discontinued operation, the Company has modified
the definition of its business segments. Commencing in the fourth quarter of
2001, the Company's results of operations will be reported within three
segments: Radiopharmaceuticals, Manufacturing, and Corporate and Other.

Recent Pronouncements

     For a summary of recent pronouncements, see Note 28 to the Company's 2001
consolidated financial statements.

Non-GAAP Measures

     In order to provide more meaningful analysis of operating performance and
financial results, management uses measures of income such as EBITDARD, EBITDA
(pre-R&D), EBITDA and net income and earnings per share before non-recurring
items, which do not include certain charges. Such measures are used consistently
and explicitly defined, and excluded charges are clearly identified.

CONSOLIDATED RESULTS OF OPERATIONS1

<Table>
<Caption>
                                                                               Years Ended December 31,
                                                                 2001                2000                 1999
                                                                 ----                ----                 ----
                                                           (in thousands of U.S. dollars, except share related data)
                                                                                  (U.S. GAAP)
<S>                                                            <C>                <C>                  <C>
Revenues
         Product sales                                         $   26,232         $   22,019           $   22,047
         Royalty and licensing                                      6,752              7,132                2,338
-----------------------------------------------------------------------------------------------------------------
                                                                   32,984             29,151               24,385
-----------------------------------------------------------------------------------------------------------------
Cost of goods sold                                                (21,801)           (18,237)             (16,286)
SG&A                                                               (6,207)            (7,385)              (7,219)
-----------------------------------------------------------------------------------------------------------------
EBITDA(2) (pre-R&D)                                                 4,976              3,529                  880
R & D                                                              (1,279)            (1,027)                (748)
-----------------------------------------------------------------------------------------------------------------
EBITDA(2)                                                           3,697              2,502                  132
Depreciation and amortization                                      (2,436)            (2,318)              (1,823)
Non-Recurring Items:
Restructuring charges                                                  --               (434)                  --
Other income                                                           --                411                1,819
Cumulative effect of accounting change                                 --            (19,900)                  --
Revaluation of tax assets                                          (3,300)                --                   --
         Financial (net)                                              (25)              (637)                (919)
         Income tax recovery (provision)(3)                           410                330                  (99)
         Minority interest                                            286                338                   --
         Loss from discontinued operations                           (216)              (630)              (4,580)
-----------------------------------------------------------------------------------------------------------------
         Net loss                                              $   (1,584)        $  (20,338)          $   (5,470)
-----------------------------------------------------------------------------------------------------------------
         Net income (loss):
</Table>

                                      -53-
<Page>

<Table>
<Caption>
                                                                            Years Ended December 31,
                                                                 2001                2000                 1999
                                                                 ----                ----                 ----
                                                           (in thousands of U.S. dollars, except share related data)
                                                                                  (U.S. GAAP)
<S>                                                            <C>                <C>                  <C>
From  continuing  operations  before  revaluation of tax
assets and cumulative effect of accounting change              $    1,932         $      192           $     (890)
Revaluation of tax assets                                          (3,300)                --                   --
Cumulative effect of accounting change                                 --            (19,900)                  --
Loss from discontinued operations                                    (216)              (630)              (4,580)
-----------------------------------------------------------------------------------------------------------------
                                                               $   (1,584)        $  (20,338)          $   (5,470)
-----------------------------------------------------------------------------------------------------------------
         Basic income (loss) per share
From  continuing  operations  before  revaluation of tax
assets and cumulative effect of accounting change              $    0.053         $    0.005           $   (0.026)
Revaluation of tax assets                                          (0.090)                --                   --
Cumulative effect of accounting change                                 --             (0.548)                  --
Loss from discontinued operations                                  (0.006)            (0.017)              (0.135)
-----------------------------------------------------------------------------------------------------------------
                                                               $   (0.043)        $   (0.560)          $   (0.161)
=================================================================================================================
</Table>

(1)       Commencing with the fourth quarter of 2001, DRAXIS Pharmaceutica has
been accounted for as discontinued operations and comparative periods have been
restated accordingly.

(2)       Earnings from continuing operations before depreciation and
amortization, non-recurring items, interest, other income, income taxes and
minority interest.

(3)       Excludes revaluation of tax assets.

                                      -54-
<Page>

Comparison of 2001 to 2000

     Consolidated revenues from continuing operations for the year ended
December 31, 2001 of $32,984,000 were an annual record for the Company,
representing an increase of 13.1% over the $29,151,000 in 2000. A 19.1% increase
in product sales was partly offset by a 5.3% decline in royalty and licensing
revenue due to a decline in the amount of additional Anipryl minimum royalty
earned in 2001 as compared to the $1,456,000 earned in 2000.

     Cost of goods sold increased in 2001 to 83.1% of product sales from
continuing operations from 82.8% for the same period in 2000 due to a change in
revenue mix.

     Selling, general and administration expenses associated with continuing
operations of $6,207,000, or 23.7% of product sales from continuing operations,
in 2001 represented a substantial decline as compared to the $7,385,000, or
33.5% of product sales from continuing operations, in 2000.

     EBITDARD from continuing operations of $4,976,000 in 2001 was an annual
record for the Company, representing an increase of 41.0% compared to $3,529,000
in 2000.

     Research and development expenditures associated with continuing operations
increased to $1,279,000 in 2001 as compared to $1,027,000 in 2000 due to
increased development activity involving the Company's radiopharmaceutical
product pipeline and non-recurring charges totalling $196,000 associated with
license payments for INFECTON and BrachySeed.

     The only significant non-recurring item in 2001 was a $3,300,000 charge
associated with the revaluation of the Company's income tax assets.
Non-recurring items in 2000 included a $19,900,000 charge representing the
cumulative effect of the change in accounting policy, a $434,000 restructuring
charge related to the divestiture of the Company's dermatology product lines and
a $411,000 gain on the sale of dermatology product rights.

     Depreciation and amortisation expense associated with continuing operations
of $2,436,000 in 2001 increased 5.1% as compared to 2000, following the
commencement of depreciation charges on completed capital projects.

     Net financial items associated with continuing operations in 2001 were an
expense of $25,000 as compared to expense of $637,000 for 2000. 2001 results
were positively impacted by $378,000 in foreign exchange gains arising from the
stronger U.S. dollar relative to the Canadian dollar.

     Minority interest in 2001 contributed positively to net income by $286,000,
a $52,000 decline compared to 2000 due to the reduction in DPI's net losses.

     Revenues from discontinued operations of $7,099,000 in 2001 represented a
12.1% increase over 2000 and was the major factor contributing to a $414,000
improvement in the net loss from discontinued operations, from a loss of
$630,000 in 2000 to a loss of $216,000 in 2001.

     In 2001 the Company recorded an income tax expense associated with
continuing operations of $2,890,000 as compared to an income tax benefit of
$330,000 in 2000.

     In June 2001, the Governments of Canada and Ontario enacted legislation
implementing gradual reductions in their respective corporate income tax.
Following full implementation of the reductions, the effective tax rate
applicable to the Company's Canadian operations will decline to approximately
31%. Accordingly, in 2001, the Company recorded a non-cash charge of $3,300,000
to reduce the carrying

                                      -55-
<Page>

value of its deferred income taxes. Although this development caused the Company
to reduce the carrying value of its income tax assets, future periods will
benefit from a significant reduction in Canadian income tax rates.

     Excluding the $3,300,000 non-recurring charge, in 2001 the income tax
benefit would have been $410,000. The change in the effective tax rate from 2000
to 2001 is largely attributable to a change in the mix of income across tax
jurisdictions in which the Company operates and reconciling differences between
income for accounting and tax purposes.

     Net income from continuing operations, before the charge associated with
revaluation of tax assets, of $1,932,000, or $0.053 per share, for 2001
represents a $1,740,000, or $0.048 per share, improvement from income of
$192,000, or $0.005 per share, in 2000 before the charge associated with the
cumulative effect of the change in accounting policy.

     The weighted average number of common shares outstanding in 2001 increased
to 36,587,794, a 0.7% increase over 2000 due to the exercise of options.

Comparison of 2000 to 1999

     Consolidated revenues from continuing operations for the year ended
December 31, 2000 of $29,151,000 represented an increase of 19.5% over the
$24,385,000 in 1999. Product sales were largely unchanged year-over-year with
increases in radiopharmaceutical and manufacturing product sales offsetting the
decline in dermatology product sales following the sale of this product line in
2000. Royalty and licensing revenue increased from $2,338,000 to $7,132,000 as a
result of deferred revenue accounting for the May 2000 SpectroPharm transaction.
The net proceeds from this transaction were deferred and are being recognised as
revenue over the period to February 2005.

     Cost of goods sold increased in 2000 to 82.8% of product sales from
continuing operations, from 73.9% for the same period in 1999 due to a change in
revenue mix.

     Selling, general and administration expenses associated with continuing
operations of $7,385,000, or 33.5% of product sales from continuing operations,
compares with $7,219,000, or 32.7% of product sales from continuing operations,
in 1999.

     EBITDARD from continuing operations of $3,529,000 in 2000 compares to
$880,000 in 1999.

     Research and development expenditures associated with continuing operations
increased to $1,027,000 in 2000 as compared to $748,000 in 1999 due to increased
development activity involving the Company's radiopharmaceutical product
pipeline.

     Non-recurring items in 2000 included a $19,900,000 charge representing the
cumulative effect of the change in accounting policy, a $434,000 restructuring
charge related to the divestiture of the Company's dermatology product lines and
a $411,000 gain on the sale of dermatology product rights. The only significant
non-recurring item in 1999 was a gain of $1,819,000 arising from the disposition
of the Company's investment in Bone Care.

     Depreciation and amortisation expense associated with continuing operations
of $2,318,000 in 2000 increased from $1,823,000 as compared to 1999 due to the
commencement of depreciation charges on completed capital projects.

                                      -56-
<Page>

     Net financial items associated with continuing operations in 2000 declined
to an expense of $637,000 as compared to an expense of $919,000 for 1999.

     Following the issuance of shares in DPI to SGF and members of DPI's
management team in 2000, minority interest in 2000 contributed positively to net
income by $338,000 which represented 34.1% of DPI's net loss from February 1 to
December 31, 2000.

     Revenues from discontinued operations of $6,335,000 in 2000 represented a
24.7% increase over 1999 due to increased sales of its major neurology products
and new product launches in early 2000. The net loss from discontinued
operations in 2000 of $630,000 compares to a loss of $4,580,000 in 1999 which
included a $4,780,000 (after tax) charge representing acquired research and
development costs arising from the June 1999 acquisition of the exclusive
Canadian rights to eight neurology products from Elan.

     In 2000 the Company recorded an income tax benefit associated with
continuing operations of $330,000 as compared to an income tax expense of
$99,000 in 1999. The change in the effective tax rate from 1999 to 2000 is
largely attributable to a change in the mix of income across tax jurisdictions
in which the Company operates and reconciling differences between income for
accounting and tax purposes.

     Net income from continuing operations, before the charge associated with
the cumulative effect of the change in accounting policy, of $192,000, or $0.005
per share, for 2000 represents a $1,082,000, or $0.031 per share, improvement
from a loss of $890,000, or $0.026 per share, in 1999.

     The weighted average number of common shares outstanding in 2000 increased
to 36,324,199, a 7.4% increase over 1999 due to the full year effect of the 1999
share issuance to Elan, exercise of warrants and options and conversion of
employee participation shares, partly offset by the purchase for cancellation of
100,000 common shares under the Company's stock repurchase plan.

Radiopharmaceuticals

<Table>
<Caption>
                                                               Years Ended December 31,
                                                    --------------------------------------------
                                                        2001               2000             1999
                                                        ----               ----             ----
                                                            (in thousands of U.S. dollars)
                                                                     (U.S. GAAP)
          <S>                                       <C>                <C>              <C>
          REVENUES
                  Product sales                     $   6,763          $  5,951         $  5,762
                  Royalty and licensing                   192                 -                -
     -------------------------------------------------------------------------------------------
                                                        6,955             5,951            5,762
     -------------------------------------------------------------------------------------------

          EBITDARD                                      1,778             1,360            2,264
          Research and development                     (1,279)           (1,027)            (531)
     -------------------------------------------------------------------------------------------
          EBITDA                                          499               333            1,733
          Depreciation and amortization                  (623)             (547)            (478)
     -------------------------------------------------------------------------------------------
          (Loss) income from operations             $    (124)         $   (214)        $  1,255
     ===========================================================================================
</Table>

     Radiopharmaceuticals and radiotherapy devices are the focus of the
Company's radiopharmaceutical subsidiary, DRAXIMAGE. DRAXIMAGE discovers,
develops, manufactures and markets diagnostic imaging and therapeutic
radiopharmaceutical products for the global marketplace. Products currently
marketed by DRAXIMAGE include a line of lyophilised technetium-99m kits used in
nuclear imaging procedures, a line of imaging and therapeutic products labelled
with a variety of isotopes including radioiodine, and BrachySeed, second
generation iodine-125 and palladium-103 brachytherapy implants. DRAXIMAGE also
has a number of products in late-stage development including three

                                      -57-
<Page>

technetium-99m-based diagnostic imaging products: Fibrimage for imaging deep
vein thrombosis currently in Phase III, Amiscan for the early diagnosis of acute
myocardial infarct currently in Phase II, and INFECTON for imaging infection.

     During 2001, the Company's radiopharmaceutical business achieved a number
of important milestones:

     -    Record financial results:

          -    Revenues of $7.0 million, an increase of 16.9% over 2000

          -    EBITDARD of $1.8 million, an increase of 31.0% over 2000

     -    U.S. and Canadian regulatory approvals of the recently expanded
          radiopharmaceutical manufacturing facility including the FDA, the
          Canadian Therapeutic Products Directorate and the Canadian Nuclear
          Safety Commission

     -    Site transfer approval for the in-house production of the first
          lyophilized radiopharmaceutical product

     -    U.S. and Canadian launches of BrachySeed I-125

     -    U.S. and Canadian approvals of BrachySeed Pd-103 and preparations for
          the 2002 launch of this product

     -    New long-term manufacturing supply agreement for Bracco Diagnostics
          Inc. for sodium iodide I-131 radiotherapy capsules for the U.S. market
          and the commencement of shipments of this product in October 2001

     -    Commencement of Phase II trials for Amiscan, a technetium-99m-based
          radiopharmaceutical for the imaging of heart attacks

     -    In-licensing of INFECTON, a technetium-99m-based radiopharmaceutical
          for imaging infection, from British Technology Group

Comparison of 2001 to 2000

     Total revenues for the radiopharmaceutical segment in 2001 of $6,955,000
were an annual record representing an increase of 16.9% over the $5,951,000 in
2000. The 13.6% increase in product sales was primarily attributable to U.S.
sales of BrachySeed I-125 and sodium iodide I-131 radiotherapy capsules which
were launched in 2001 and increased sales of diagnostic imaging kits.

     Revenues in both 2000 and 2001 were negatively affected by supply
disruptions associated with the previously outsourced supply of the Company's
line of lyophilised diagnostic imaging products.

     EBITDARD for this segment of $1,778,000 for 2001 was an annual record,
representing an increase of $418,000, or 30.7%, compared to income of $1,360,000
in 2000.

     Research and development expenditures for this segment increased to
$1,279,000 in 2001 as compared to $1,027,000 in 2000 due to increased
development activity involving the Company's radiopharmaceutical product
pipeline and non-recurring charges totalling $196,000 associated with license
payments for INFECTON and BrachySeed.

                                      -58-
<Page>

     Depreciation and amortisation expense for this segment of $623,000 in 2001
increased 13.9% from $547,000 in 2000 following the commencement of depreciation
of the recently expanded radiopharmaceutical production facility.

Comparison of 2000 to 1999

     Total revenues for the radiopharmaceutical segment in 2000 of $5,951,000
represented an increase of 3.3% over the $5,762,000 in 1999. Revenues in both
2000 and 1999 were negatively affected by supply disruptions associated with the
previously outsourced supply of the Company's line of lyophilised diagnostic
imaging products.

     EBITDARD for this segment of $1,360,000 for 2000 represented a decrease of
$904,000, or 40.0%, compared to $2,264,000 in 1999 as a result of higher
production and operating costs, including the production cost of outsourced
lyophilised kits.

     Research and development expenditures for this segment increased to
$1,027,000 in 2000 as compared to $531,000 in 1999 due to increased development
activity involving the Company's radiopharmaceutical product pipeline.

     Depreciation and amortisation expense for this segment of $547,000 in 2000
increased 14.4% from $478,000 in 1999 due to the full year effect of
depreciation on DRAXIMAGE's radiopharmaceutical laboratories, the first phase of
which was completed in mid-1999.

Manufacturing

<Table>
<Caption>
                                                                 Years Ended December 31,
                                                    --------------------------------------------
                                                         2001              2000             1999
                                                         ----              ----             ----
                                                             (in thousands of U.S. dollars)
                                                                     (U.S. GAAP)
          <S>                                       <C>                <C>              <C>
          REVENUES
                  Product sales                     $  20,460          $ 15,477         $ 12,853
     -------------------------------------------------------------------------------------------

          EBITDA                                          149              (200)            (863)
          Depreciation and amortization                  (867)             (807)            (622)
     -------------------------------------------------------------------------------------------
          Loss from operations                      $    (718)         $ (1,007)        $ (1,485)
     ===========================================================================================
</Table>

     Manufacturing comprises the Company's manufacturing subsidiary, DPI, and
product sales of Anipryl to Pfizer Inc. DPI is a contract pharmaceutical
manufacturer with capabilities in a broad range of dosage forms, specialising in
liquid and lyophilised (freeze-dried) injectables and other sterile products.
Operating out of a cGMP-compliant 242,000 square-foot facility located in
Montreal, Canada, DPI manufactures pharmaceutical products for DRAXIMAGE, as
well as for over 15 other pharmaceutical clients for many international
jurisdictions.

     During 2001, the Company's contract manufacturing business achieved a
number of important milestones:

     -    Record financial results:

          -    Revenues of $20.5 million, an increase of 32.2% over 2000

          -    EBITDA of $0.1 million as compared to a loss of $0.2 million in
               2000

     -    New long-term manufacturing supply agreement with GlaxoSmithKline for
          several established, predominantly sterile, products for multiple
          international markets

                                      -59-
<Page>

     -    U.S. regulatory acceptance to manufacture sterile lyophilized and
          sterile liquid injectable products

     -    Site transfer approval for the in-house production of the first
          lyophilized radiopharmaceutical product

Comparison of 2001 to 2000

     Total revenues for the manufacturing segment in 2001 of $20,460,000 were an
annual record representing an increase of 32.2% over the $15,477,000 in 2000.
The increase was primarily attributable to increased volumes under established
contracts, new product introductions and increased service revenues associated
with new product introductions.

     EBITDA for this segment of $149,000 for 2001 was an annual record
representing an increase of $349,000 from a loss of $200,000 in 2000, in line
with increased revenues.

     Depreciation and amortisation expense for this segment of $867,000 in 2001
increased 7.4% from $807,000 in 2000 following the commencement of depreciation
charges on completed capital projects.

Comparison of 2000 to 1999

     Total revenues for the manufacturing segment in 2000 of $15,477,000
increased 20.4% over the $12,853,000 in 1999 due to new manufacturing contract
volumes coming on stream, including a long-term agreement signed with Pfizer
Consumer Group, Division of Pfizer Canada Inc., partially offset by lower sales
of Anipryl to Pfizer.

     EBITDA in 2000 for this segment improved by $663,000 over 1999, in line
with increased revenues. EBITDA in 2000 included $211,000 of government
assistance as compared to $278,000 in 1999.

     Depreciation and amortisation expense for this segment of $807,000 in 2000
increased 29.7% from $622,000 in 1999 as a result of depreciation charges
commencing for capital additions at DPI's manufacturing facility.

Corporate and Other

<Table>
<Caption>
                                                               Years Ended December 31,
                                                    --------------------------------------------
                                                        2001             2000            1999
                                                        ----             ----            ----
                                                                  (in thousands of U.S. dollars)
                                                                           (U.S. GAAP)
               <S>                                  <C>                <C>              <C>
               REVENUES
                       Product sales                $    (991)         $    591         $  3,432
                       Royalty and licensing            6,560             7,132            2,338
     -------------------------------------------------------------------------------------------
                                                        5,569             7,723            5,770
     -------------------------------------------------------------------------------------------

               EBITDARD                                 3,049             2,369             (521)
               Research and development                     -                 -             (217)
     -------------------------------------------------------------------------------------------
               EBITDA                                   3,049             2,369             (738)
               Depreciation and amortization             (946)             (964)            (723)
               Restructuring charges                        -              (434)               -
     -------------------------------------------------------------------------------------------
               Income (loss) from operations        $   2,103          $    971         $ (1,461)
     ===========================================================================================
</Table>

                                      -60-
<Page>

     Corporate and Other comprises deferred revenues, net of associated
expenses, from the Company's collaboration agreements with Pfizer Inc. with
respect to Anipryl and GlaxoSmithKline Consumer Healthcare with respect to the
SpectroPharm line of products, royalties and other forms of participating
interests, non-allocated corporate expenses and inter-segment eliminations.

     Corporate milestones achieved in 2001 included:

     -    Resolution of contract issues related to Anipryl resulting in the
          receipt of a cash payment of $3.1 million.

     -    The January 2002 agreement to divest DRAXIS Pharmaceutica

Comparison of 2001 to 2000

     Inter-segment sales in 2001 totalled $991,000. In 2000, dermatology product
sales, net of inter-segment sales, were $591,000. The Company did not record any
dermatology product revenues in 2001.

     Royalty and licensing revenue in this segment in 2001 of $6,560,000
represented a decrease of 8.0% as compared to $7,132,000 in 2000. The decrease
was attributable to a decline in the amount of additional Anipryl minimum
royalty earned in 2001 as compared to the $1,456,000 earned in 2000 partly
offset by the impact of deferred revenue accounting for the SpectroPharm
transaction. The net proceeds from the May 2000 sale of the SpectroPharm line of
products were deferred and are being recognised as revenue on a straight-line
basis over the period to February 2005.

     EBITDA for this segment, before non-recurring items, in 2001 increased
$680,000 over 2000 levels due to the net impact of the deferred revenue
accounting for the SpectroPharm transaction partially offset by the decline in
the amount of additional Anipryl minimum royalty earned in 2001 as compared to
the $1,456,000 earned in 2000.

     Non-recurring items in 2000 included a $434,000 restructuring charge
related to the divestiture of the Company's dermatology product lines.

     Depreciation and amortisation expense for this segment of $946,000 in 2001
was largely unchanged as compared to 2000.

Comparison of 2000 to 1999

     In 2000, dermatology product sales, net of inter-segment sales, declined to
$591,000 as compared to $3,432,000 in 1999 following the disposition of the
Company's dermatology product lines in 2000.

     Royalty and licensing revenue in this segment in 2000 of $7,132,000
represented an increase of $4,794,000 as compared to $2,338,000 in 1999. The
increase was attributable to the January 1, 2000 prospective adoption of
deferred revenue accounting for the Company's collaboration agreement with
Pfizer pertaining to Anipryl, the impact of deferred revenue accounting for the
SpectroPharm transaction in 2000 and $1,456,000 of additional Anipryl minimum
royalty earned in 2000, partially offset by a reduction in regular Anipryl
royalties.

     EBITDARD for this segment, before non-recurring items, in 2000 increased
$2,890,000 over 1999 levels largely due to the increase in revenues.

                                      -61-
<Page>

     There were no research and development expenditures in this segment in 2001
or 2000. In 1999, $217,000 was expensed on a collaborative development project
with Pfizer with respect to Anipryl.

     Non-recurring items in 2000 included a $434,000 restructuring charge
related to the divestiture of the Company's dermatology product lines.

     Depreciation and amortisation expense for this segment of $964,000 in 2000
increased $241,000 from $723,000 in 1999 largely due to aligning the
amortisation term for the residual goodwill associated with the SpectroPharm
product line with the period over which the SpectroPharm deferred revenue will
be recognised.

Critical Accounting Policies and Estimates

     The foregoing discussion and analysis of the financial condition and
results of operations is based upon the Company's consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The
preparation of consolidated financial statements requires the Company to make
estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates and
makes adjustments as appropriate. Actual results may differ from these estimates
under different assumptions or conditions.

     A summary of the significant accounting policies and methods used by the
Company in the preparation of its consolidated financial statements is included
in Note 2 to the 2001 consolidated financial statements. The Company believes
the following critical accounting policies affect its more significant
judgements and estimates used in the preparation of its consolidated financial
statements.

Recognition of Licensing Revenue

     License and other forms of non-refundable fees received pursuant to
collaboration agreements are accounted for according to the related contractual
agreements. In general, such fees are deferred and recognised on a straight-line
basis over the lesser of the contract period and the estimated term over which
contractual benefits are expected to be derived. If payment of such fees is
contingent upon future performance obligations of the Company or other future
events, revenue recognition of such amounts is deferred and recognised upon
completion of the specific event.

Deferred Tax Assets

     Realisation of the net deferred tax assets is dependent on the Company's
ability to generate sufficient taxable income in certain tax jurisdictions.
Management believes that it is more likely than not that the assets will be
realised, based on forecasted income. On a quarterly basis, the estimates and
assumptions underlying the forecasted income are reviewed by management to
determine whether additional valuation allowances are warranted.

                                      -62-
<Page>

Liquidity and Capital Resources

<Table>
<Caption>
                                                               Years Ended December 31,
                                                    --------------------------------------------
                                                   2001              2000               1999
                                                   ----              ----               ----
                                                          (in thousands of U.S. dollars)
                                                                    (U.S. GAAP)
  <S>                                               <C>                <C>              <C>
  Cash and cash equivalents                         $   5,602          $  4,420         $  2,016
  Non-financial working capital (net)(1)            $   8,106          $ 10,363         $  6,450
  Total debt                                        $   9,726          $ 11,225         $ 16,953
------------------------------------------------------------------------------------------------
</Table>

(1)  Excluding cash and cash equivalents, bank loan and current portions of
deferred revenues and long-term debt

     Cash and cash equivalents at December 31, 2001 totalled $5,602,000 as
compared with $4,420,000 as at December 31, 2000 and $2,016,000 as at December
31, 1999.

     The Company follows a policy of investing its surplus cash resources in
high quality, liquid, short-term commercial paper and government treasury bills
and money market mutual funds which invest in high quality short-term
securities. As at December 31, 2001 there were no restrictions on the flow of
these funds nor have any of these funds been committed in any way. As at
December 31, 2000, $341,000 was held as a deposit against representations
provided by the Company in connection with the SpectroPharm transaction and was
released in February 2001. There are certain standard financial liquidity ratio
requirements pursuant to DPI's term loan as well as terms of the DPI
shareholders' agreement that could restrict the free flow of funds from one
subsidiary of the Company to another.

     Cash flows used in continuing operations, before changes in working
capital, in 2001 were $2,290,000 as compared to $3,746,000 in 2000 and
$1,374,000 in 1999. Excluding the impact of non-recurring items, the change in
operating cash flows used in operations was attributable to changes in EBITDA,
net of amortisation of deferred revenues.

     Cash flows from discontinued operations in 2001 improved to $61,000 as
compared to $596,000 and $8,564,000 used in operations in 2000 and 1999,
respectively. The improvement in 2001 was largely attributable to improved
EBITDA from discontinued operations. The improvement in 2000 was due largely to
acquired product rights of $8,387,000 in 1999.

     The Company had $24,615,000 and $26,264,000 of deferred revenue as at
December 31, 2001 and December 31, 2000, respectively. The Company had no
deferred revenue as at December 31, 1999. The change in 2001 was attributable to
amortisation during the year partly offset by the addition of a portion of the
payment received in December 2001 regarding Anipryl. The increase in 2000 was
attributable to the January 1, 2000 prospective adoption of deferred revenue
accounting for the Company's collaboration agreement with Pfizer pertaining to
Anipryl and the impact of deferred revenue accounting for the SpectroPharm
transaction in 2000.

     Deferred revenue amortisation, which represents a source of non-cash
earnings for the Company, increased to $4,783,000 in 2001 as compared to
$4,234,000 in 2000 and $Nil in 1999. The increase in 2001 was largely due to the
full year effect of amortisation arising from the SpectroPharm transaction. The
increase in 2000 was attributable to the January 1, 2000 prospective adoption of
deferred revenue accounting for the Company's collaboration agreement with
Pfizer pertaining to Anipryl and the impact of deferred revenue accounting for
the SpectroPharm transaction in 2000.

                                      -63-
<Page>

     Non-financial working capital was $8,106,000 as at December 31, 2001 as
compared to $10,363,000 as at December 31, 2000 and $6,450,000 as at December
31, 1999. The decline in 2001 was due to lower inventories and accounts
receivable and higher accounts payable. The increase in 2000 was due to
increased inventories attributable to shipment timing issues and increased
accounts receivable largely attributable to the additional payment related to
Anipryl accrued in 2000 and received in April 2001.

     Cash flows used in investing activities, excluding changes in deferred
revenues, totalled $5,288,000, $384,000 and $8,815,000 in 2001, 2000 and 1999,
respectively.

     Capital expenditures in 2001 of $5,363,000 compare with $1,126,000 and
$8,255,000 in 2000 and 1999, respectively. The increase in 2001 was attributable
to increased spending in the Company's manufacturing and radiopharmaceutical
businesses. Expenditures were unusually high in 1999 and 1998 during the
construction of the Company's new lyophilization line and radiopharmaceutical
facilities and installation of its enterprise resource planning system.

     The Company did not make any acquisitions involving its continuing
operations in 2001, 2000 or 1999. Within its discontinued operations, in 1999,
the Company paid $12,000,000 for the acquisition of the exclusive Canadian
rights to eight neurology products from Elan.

     Net proceeds from the divestiture of the Company's dermatology product
lines in 2000 totalled $8,911,000, of which $8,169,000 was capitalised as
deferred revenue. In 1999, the Company realised $2,285,000 in proceeds from the
disposition of its investment in Bone Care.

     The Company has steadily reduced its financial leverage over the past three
years. Total debt at December 31, 2001 was $9,726,000 compared to $11,225,000 at
December 31, 2000 and $16,953, 000 at December 31, 1999.

     As at December 31, 2001, the Company's debt was comprised of two DPI bank
loans, a $5,295,000 term loan and a CDN$3,500,000 revolving credit facility, of
which $1,666,000 was drawn at December 31, 2001, and a $2,765,000 unsecured
obligation related to the in-licensing of Permax. In 2002, DPI's revolving
credit agreement is subject to renewal and $1,446,000 of other indebtedness is
scheduled for repayment. As at December 31, 2000, the Company's debt was
comprised of two DPI bank loans, a $6,418,000 term loan and a CDN$2,000,000
revolving credit facility of which $1,335,000 was drawn, and a $3,472,000
unsecured obligation related to the in-licensing of Permax.

     The Company was in compliance with all lending covenants as at December 31,
2001, 2000 and 1999.

     Proceeds from the issuance of treasury common shares by the Company
generated $83,000, $2,308,000 and $6,804,000 in 2001, 2000 and 1999,
respectively. These proceeds were attributable to the exercise of warrants and
options, other than Elan's 1999 share subscription, which generated $6,571,000.

     In 2000 the Company received net proceeds of $5,375,000 from the issuance
of treasury shares by DPI.

     In December 1999, the Company received regulatory approval from the Toronto
Stock Exchange for a stock repurchase plan to repurchase for cancellation up to
1.83 million common shares. During 2000, 100,000 shares were repurchased for
cancellation for total consideration of $262,000. No shares were acquired under
this plan in 2001. In December 2001 the plan was renewed and will now terminate
on the earlier of December 18, 2002 or when 1,830,671 common shares have been
acquired.

                                      -64-
<Page>

Commitments

     The following table summarises the Company's major contractual cash
obligations as of December 31, 2001:

<Table>
<Caption>
                                               Years Ended December 31,
                    ----------------------------------------------------------------------------
                       2002            2003            2004            2005            2006
                       ----            ----            ----            ----            ----
                                            (in thousands of U.S. dollars)
<S>                 <C>             <C>             <C>             <C>             <C>
Long-term debt      $   1,446       $    1,446      $      943      $     943       $      943
Operating leases    $   1,120       $      456      $      719      $     535       $      307
================================================================================================
</Table>

     In addition to the above, the Company is obligated to make certain royalty
payments based on related product sales and milestone payments based on the
achievement of certain specified events.

     The Company is party to a shareholders' agreement which granted SGF and
DPI's management shareholders the right to obligate the Company to purchase
their shareholdings in DPI under certain circumstances. Further details of this
commitment are included Note 25 to the 2001 consolidated financial statements.

Outlook

     The Company's primary operational focus in 2002 will continue to be on: (i)
improving near-term financial and operational performance of its
radiopharmaceutical and manufacturing businesses through increasing sales of
existing products and services, improving manufacturing efficiency and
effectiveness, and obtaining regulatory approvals; and (ii) securing and
advancing its base for long-term growth through the development of its existing
product pipeline as well as identifying and capitalising on additional new
business opportunities that are consistent with the Company's capabilities and
that contribute to the long-term value of the Company.

     In 2002 management expects continued growth in revenues and operating
earnings from continuing operations from all of its segments.

     The Radiopharmaceutical business is expected to experience increased
revenues and operating profitability in 2002 driven by increased sales of its
radiopharmaceutical diagnostic imaging kits, full-year sales of BrachySeed I-125
and sodium iodide I-131 radiotherapy capsules, and new product introductions,
including BrachySeed Pd-103, partly offset by an expected increase in research
and development costs.

     The Manufacturing segment is expected to have increasing revenues and
operating profitability due to increased third party manufacturing business and
the start-up of in-house manufacturing of lyophilised radiopharmaceutical
diagnostic imaging products, partly offset by higher depreciation expense.

     The Corporate and Other segment is expecting to have improved results due
to increased deferred revenue as a result of the Anipryl payment received in
December 2001 and the net effect of the proposed sale of DRAXIS Pharmaceutica,
including the commencement of recognising continuing participating interests on
the Canadian sales of three products included in the sale. Management also
expects to record a non-recurring gain on the completion of the proposed sale of
DRAXIS Pharmaceutica.

                                      -65-
<Page>

     Management expects operating cash flow, before changes in non-financial
working capital, to be positive in 2002. The investment in non-financial working
capital in 2002 is expected to decline following the sale of DRAXIS
Pharmaceutica, partially offset by the impact of the expected increase in
product sales.

     Capital expenditures in 2002 are expected to increase over 2001 levels
related to several projects associated with new business opportunities. The
Company has initiated discussions with respect to the financing of these
expenditures.

     With the Company's current cash balances, expected proceeds from the sale
of DRAXIS Pharmaceutica, reduced operating cash requirements and debt capacity
enhanced through debt reduction in 2000 and 2001, management expects to have
sufficient liquidity available to fund the Company's cash requirements in 2002.
Any investments or acquisitions of businesses, products or technologies may
require additional funding.

Item 6.   Directors, Senior Management and Employees

     The following is a list of the current directors and senior officers of the
Company, their municipalities of residence, their current position with the
Company and their principal occupations:

Martin Barkin          Toronto, ON     President, Chief Executive Officer & COO
Director since September 23, 1992 and employee of the Company since March, 1992.

Dr. Barkin, MD, B.SC. (MED.), MA, FRCSC, is the President and Chief Executive
Officer of the Company. He also serves on the Boards of Viventia Biotech Inc.,
MedcomSoft Inc. and Bone Care, and is Chairman of the Board of Sunnybrook &
Women's College Health Sciences Centre. Dr. Barkin came to the Company (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), Secretary of the Premier's Council on Health and Chair of
the Deputies' Cabinet Committee on Social Policy for the Province of Ontario. He
holds the rank of Professor in the Faculty of Medicine at the University of
Toronto in both the Departments of Surgery (1982 to date) and Health
Administration (1984 to date). Dr. Barkin was President and C.E.O. of Sunnybrook
Health Sciences Centre (1987), a 1400-bed teaching and research centre, at which
time he was also Vice-Chair of the Ontario Hospital Association and President of
the Ontario Council of Teaching Hospitals. He was a practising urologist and
Chief of the Division of Urology at Sunnybrook Health Sciences Centre
(1972-1984), and a researcher serving as Project Director at the Research
Institute of the Hospital for Sick Children (1968-1992), and a member of Grants
Review Committee of the Medical Research Council of Canada.

Brian M. King                         Calgary, AB     Chairman and Director
Director since May 26, 1994.

Mr. King is the former Chairman and Chief Executive Officer of Connaught
Biosciences, Inc. He is also a director of Onex Corporation, the VenGrowth
Investment Funds and the Health Care and Biotechnology Venture Fund.

Leslie L. Dan                         Toronto, ON     Director
Director since December 10, 1993.

Mr. Dan is Chairman of Novopharm, one of Canada's leading pharmaceutical
companies. Prior to April 5, 2000, Mr. Dan was Chairman and Chief Executive
Officer of Novopharm.

James P. Doherty                      Toronto, ON     Vice-Chairman and Director

                                      -66-
<Page>

Director since June 16, 1990.

Mr. Doherty is the former President and C.O.O. of the Company and was
Vice-President for Corporate Development from May 1993 to May 1995 for DUSA
Pharmaceuticals Inc. He served as President and General Manager of Schering
Canada and as Vice President of CDC Life Sciences and a director of Connaught
Laboratories.

George M. Darnell                  Coral Gables, FL        Director
Director since November 26, 1996.

Mr. Darnell is a former senior executive of Baxter Corporation, and has 35 years
of U.S. and international experience in the diagnostic industry.

Samuel Sarick                         Toronto, ON      Director
Director since March 31, 1989.

Mr. Sarick is President of Samuel Sarick Limited, a real estate development
corporation.

Stewart D. Saxe                       Toronto, ON      Director
Director since November 11, 1987.

Mr. Saxe is an international Partner with the law firm of Baker & McKenzie. He
is certified by the Law Society of Upper Canada as a specialist in labour law
and as a Human Resources Professional by the Human Resources Professionals
Association of Ontario.

John A. Vivash                        Toronto, ON      Director
Director since November 17, 1998.

Mr. Vivash was formerly President and Chief Executive Officer of CIBC Securities
Inc. (1990-1994). He also was President and Chief Executive Officer of Fidelity
Investments Canada Limited (1987-1989) and Manual Life Securities International
Ltd. (1995-1997). He is currently Corporate Director and President, Chief
Educational Officer, Tesseract Financial Inc. (formerly Vivash Consulting Inc.),
financial services consultancy.

Jim A.H. Garner                       Toronto, ON      Officer
Officer since September 1996.

Mr. Garner, CA, B. COMM., MBA, CBVA, joined DRAXIS in September 1996 and is
currently the Senior Vice President, Finance and Chief Financial Officer of the
Company. Immediately prior to joining DRAXIS, Mr. Garner was Director of Finance
at Algoma Steel Inc. Mr. Garner's other experience includes ten years in
investment banking with RBC Dominion Securities and Rothschild Canada. Mr.
Garner holds a B. Comm. from Queen's University and an MBA from IMD (Lausanne,
Switzerland). He is also a Chartered Accountant and a Chartered Business
Valuator.

Dan Brazier                        Stouffville, ON     Officer
Officer since August 1998.

Mr. Brazier, HON. B. COMM., joined DRAXIS in August 1998 as President of
SpectroPharm Dermatology and now holds the position of President of DRAXIS
Pharmaceutica. Prior to joining the Company, Mr. Brazier was the Director of
Skin Care at Allergan Inc. Mr. Brazier also held positions in Marketing
Management and Sales Management in his 10 years with Allergan. From 1980-1989,
Mr. Brazier held Marketing and Sales positions with Bausch & Lomb, Stafford
Foods and Canada Packers. Mr. Brazier holds an Honors B. Comm., majoring in
Marketing and Finance.

Jack A. Carter                     Toronto, ON         Officer

                                      -67-
<Page>

Officer since September 1998.

Mr. Carter, B.A., C.H.R.P., joined DRAXIS in September 1998 as Vice President
Human Resources following a lengthy relationship with the Company in a
Consultant capacity. Immediately prior to joining DRAXIS, Mr. Carter was the
President of a Human Resource Consulting firm, specialising in strategic human
resource issues within the Canadian Pharmaceutical Industry. Prior to this Mr.
Carter has gained significant experience as Vice President Human Resources for
Sterling Drug/Kodak, Director of Human Resources for the Baxter Corporation, and
Director of Human Resources for Johnson & Johnson. Mr. Carter also served on the
founding Board of Directors of the Human Resources Professionals Association of
Ontario, and was nominated to the "Council of Human Resource Executives" for The
Conference Board of Canada.

Roger Mailhot                      Oakville, ON        Officer
Officer since 1990

Dr. Mailhot, PH.D., M.SC.PHARM., B.SC.PHARM., BA, started the Department of
Scientific Affairs at DRAXIS in 1990 after having worked for Abbott
Laboratories, Syntex and DuPont Pharmaceuticals as Director of Clinical Research
and Regulatory Affairs. He is currently Vice President of Scientific &
Regulatory Affairs. In his current and previous positions he negotiated the
approval of eight New Drug Submissions and several Investigational New Drug
Submissions and Supplementary New Drug Submissions. During the same period he
conducted clinical studies with medical investigators from nine different
specialties of medicine. Dr. Mailhot has been an active participant within the
Pharmaceutical Association of Canada (PMAC) as member and Chairman of the
HPB-PMAC Liaison Committee for ten years and as member and Vice-Chairman of the
Medical R&D Section. For eight years he was a lecturer at the Faculty of
Pharmacy and School of Optometry of the University of Montreal in the field of
autonomic and anti-hypertensive pharmacology. In addition to his professional
career Dr. Mailhot is also involved in a number of community organisations.

Douglas M. Parker                  Toronto, ON         Officer
Officer since April 1999.

Mr. Parker, B.A., LL.B., joined DRAXIS as Director, Legal Affairs in April 1999
and became General Counsel & Secretary in June 2000. Prior to joining DRAXIS,
Mr. Parker was a corporate associate with the Toronto law firm of Beard, Winter.
Mr. Parker holds an Honours Bachelor of Arts from Trinity College, University of
Toronto and a law degree from Queen's University.

Richard Flanagan                   Montreal, QC        Officer
Officer since September 1997.

Dr. Flanagan, B.Sc., Ph.D., MCIC, is President of DRAXIMAGE. He has been with
the Company since its founding in July of 1997 and with the same division since
1980 when it was part of Merck. Dr. Flanagan served as Executive Vice President
of DRAXIMAGE until September 1, 2001 when he was named President. Prior to
joining Merck, Dr. Flanagan was an Adjunct Professor in the Faculty of Pharmacy
at the University of Alberta. Dr. Flanagan is the author of thirty scientific
papers and is listed as inventor on twelve patents. Dr. Flanagan obtained his
Ph.D. in Organic Chemistry from the University of Alberta and a B.Sc. from the
University College Dublin, Ireland. He is a Killam Fellow and received the Hugh
Ryan Memorial Gold Medal as an undergraduate. Dr. Flanagan has served as an
advisor to the International Atomic Energy Agency and has sat on grant review
committees in Canada and the United States.

Dwight Gorham                      Montreal, QC        Officer
Officer since May 1998.

                                      -68-
<Page>

Mr. Gorham, B.Sc. (MECH. ENG.) was appointed President of DPI in May 1998 when
DRAXIS acquired the Kirkland facility. Immediately prior to this he had been the
General Manager and Vice President of Manufacturing for Baker Cummins Inc. which
was also located within the Kirkland facility. Prior to this Mr. Gorham had
spent over eight years with GlaxoWellcome within a wide variety of operationally
focused assignments. He joined GlaxoWellcome after spending over ten years
within the consumer products industry with Playtex Ltd.

Jerry Ormiston                     Toronto, ON         Officer
Officer since May 2001.

Mr. Ormiston, B.SC., MBA, joined DRAXIS in May 2001 as Executive Director,
Investor Relations following a two-year stint as a senior consultant in a
Toronto investor relations firm working with small and mid-sized entrepreneurial
companies on capital markets communications strategies. Prior to that he was at
Allelix Biopharmaceuticals for 12 years - four as Manager of Investor Relations
and eight in the business development area. He has 25 years experience in the
healthcare industry in pharmaceuticals and biotechnology. His assignments over
those years have included positions in business development, marketing,
corporate communications, production management, quality assurance and
regulatory affairs.

     Terms of office as director and/or officer are for 1 year or until the next
Annual Meeting of the Shareholders and subsequent Meeting of the Board of
Directors, respectively.

     There is no family relationship between any of the executive officers.
Officers of the Company serve at the pleasure of the Board of Directors.

                                      -69-
<Page>

Summary Compensation Table

     The following table sets forth all annual and long term compensation for
services in all capacities to the Company and its subsidiaries for the fiscal
years ended December 31, 2001, 2000 and 1999 in respect of each of the
individuals who were, at December 31, 2001, the Chief Executive Officer or other
named executive officers (as defined in the Regulations to the Securities Act
(Ontario)) of the Company and who received salary and bonus in excess of
CDN$100,000 in the 2001 fiscal year.

<Table>
<Caption>
                              -----------------------------------------------------------------------------------------
                                                      Annual Compensation
                              -----------------------------------------------------------------------------------------
                                                                              Other Annual            Long-Term
                                     Salary                  Bonus          Compensation(1)(2)   Compensation Awards
-----------------------------------------------------------------------------------------------------------------------
                                                                                               Securities    Issuance
                                                                                                 Under       of EPSPP
                                             DSU                     DSU                        Options       Shares
   Name & Principal             Cash     Election(3)     Cash     Election(3)                   Granted     Series "C"
       Position        Year    (CDN$)       (CDN$)      (CDN$)      (CDN$)        (CDN$)        (#) (4)         (#)
-----------------------------------------------------------------------------------------------------------------------
<S>                    <C>     <C>         <C>         <C>          <C>          <C>             <C>           <C>
Martin Barkin, MD      2001    297,000     73,000      109,500         nil        32,490         120,000           nil
President & Chief      2000    298,083     66,917       75,000(5)   55,000        38,346         400,000           nil
Executive Officer      1999    365,000        nil       60,000         nil       120,426(6)          nil       245,000

-----------------------------------------------------------------------------------------------------------------------
Jim A.H. Garner        2001    180,000     20,000       45,000      15,000           nil          60,000           nil
Senior Vice            2000    163,334     36,667       16,000      16,000           nil          90,000           nil
President, Finance &   1999    200,000        nil       40,000         nil           nil             nil        75,000
Chief Financial
Officer

-----------------------------------------------------------------------------------------------------------------------
Roger Mailhot          2001    170,000        nil       34,850         nil           nil          60,000           nil
Vice President         2000    170,000        nil       24,500(5)      nil           nil          15,000           nil
Scientific &           1999    170,000        nil       35,000         nil           nil             nil        50,000
Regulatory Affairs

-----------------------------------------------------------------------------------------------------------------------
Dan Brazier            2001    165,000        nil       62,700         nil           nil             nil           nil
President, DRAXIS      2000    165,000        nil       59,400         nil           nil             nil           nil
Pharmaceutica          1999    165,000        nil       65,000         nil           nil             nil        25,000

-----------------------------------------------------------------------------------------------------------------------
Dwight Gorham (7)      2001    160,000        nil       64,000         nil           nil             nil           nil
President, DRAXIS      2000    141,040        nil        7,200         nil           nil             nil           nil
PHARMA INC.            1999    120,000        nil       65,000         nil           nil             nil           nil

-----------------------------------------------------------------------------------------------------------------------
</Table>

(1)  "Other Annual Compensation" does not exceed the lesser of CDN$50,000 or 10%
     of the annual salary and bonus for the fiscal year, except as noted.
(2)  This column excludes amounts related to subscription proceeds advanced by
     the Company in connection with the original 1995 issuance of Participation
     Shares, Series A (CDN$150,000 to Dr. Barkin and CDN$15,000 to Dr. Mailhot).
     On February 15, 2000 the Company's common share price had not achieved the
     specified threshold price for conversion of the Participation Shares,
     Series A, and accordingly any remaining outstanding shares were cancelled
     and the original subscription advances were deemed as income for Canadian
     tax purposes. See "Incentive Plans - Employee Participation Share Purchase
     Plan."
(3)  Amounts in these columns relate to the portions of salary and bonus elected
     to be received in the form of Deferred Share Units. See "Incentive Plans -
     Deferred Share Unit Plan."
(4)  Option grants in subsidiaries of the Company are reported under "Subsidiary
     Long-Term Incentive Plans."
(5)  These amounts include one-time special bonus awards to Dr. Barkin
     (CDN$75,000) and Dr. Mailhot (CDN$7,500) to offset a portion of the
     negative tax consequences experienced by participants in connection with
     the cancellation of the original 1995 issuance of Participation Shares,
     Series A.
(6)  This amount includes the aggregate value realised from the exercise of
     options in the amount of CDN$53,500 for 1999.
(7)  Since the commencement of his employment as President of the Company's
     subsidiary, DPI, effective June 22, 1998, Mr. Gorham's base salary has been
     CDN$160,000. For the period from June 22, 1998 to June 22, 2000, the amount
     of salary paid to Mr. Gorham was reduced to an annualised amount of
     CDN$120,000. In 1999, Mr. Gorham received a retention bonus of CDN$55,000,
     all of which would have been repayable under certain conditions had Mr.
     Gorham's employment been terminated prior to June 22, 2000.

                                      -70-
<Page>

Incentive Plans

  Philosophy

     The Company's philosophy is to link employee compensation to the success of
the Company and to emphasise "at risk" employee compensation. The Company does
not provide any form of pension program to its executive officers.

     The Company has implemented the following plans in an effort to achieve "at
risk" employee compensation.

  Stock Ownership Plan

     Intention - This plan was originally implemented in 1991, and subsequently
amended in 1998 and in 2001, to provide an incentive to all employees of the
Company by giving them a direct interest in the Company's growth and
development. In 2001, the Board of Directors replaced this plan for all
non-senior management employees with a registered retirement savings program.
Senior management participation in the plan will continue albeit at a lesser
entitlement (see below). No common shares were granted under the plan to
employees in 2001.

     Mechanism - With the assistance of the Company through the means of an
interest free loan mechanism (with recourse limited to the underlying shares),
each participant is granted annually from treasury a number of common shares of
the Company equal to 5% (reduced from 7% in 2001) of the participant's total
cash compensation, which vest and are released to the participant over five
years.

     Executive Participation - same basis as all other employees.

     Common Shares Purchased in 2001 - nil

     Common Shares Granted to Named Executive Officers in 2001 - nil

  Stock Option Plan

     Intention - This plan was approved by shareholders on February 3, 1988 to
permit the Board of Directors to grant options to purchase common shares to
directors, officers, employees and arm's-length consultants of the Company and
its subsidiaries so as to link corporate compensation to enhanced shareholder
value.

     Maximum Common Shares Issuable - The shareholders have authorised 7,500,000
common shares for issuance under this plan.

     Options Available for Future Grants - 1,555,361.

     Guideline - The Company has an established guideline limiting the aggregate
number of common shares that can be issued at any point in time, either through
the exercise of options or the conversion of Participation Shares, to 13% of the
Company's outstanding common shares. As at March 31, 2002, the number of common
shares so issuable was 9.3%.

     Percentage of Common Shares represented by unexercised options of Named
Executive Officers - 4.3%.

                                      -71-
<Page>

     Aggregate Option Grants to Named Executive Officers in 2001 - 240,000.

     The following table sets forth individual exercises of options by the
following named executive officers during the financial year ended December 31,
2001 and the financial year-end value of unexercised options:

<Table>
<Caption>
                                                                                             Value of Unexercised
                                                                 Unexercised Options at     in-the-Money Options at
                                                                    December 31, 2001          December 31, 2001
                            Securities                                     (#)                      (CDN$)
                            Acquired on       Aggregate Value         Exercisable/               Exercisable/
         Name                Exercise            Realised             Unexercisable              Unexercisable
         ----                --------            --------             -------------              -------------
<S>                               <C>                 <C>             <C>                        <C>
Martin Barkin                     nil                 Nil             475,958/386,667            747,130/435,200
Dan Brazier                       nil                 Nil                 100,000/nil                131,000/nil
Jim A.H. Garner                   nil                 Nil             325,000/120,000            120,800/131,800
Dwight Gorham                     nil                 Nil                 100,000/nil                166,000/nil
Roger Mailhot                     nil                 Nil               25,000/70,000              31,650/56,000
</Table>

  Employee Participation Share Purchase Plan

     Intention - This plan was approved by shareholders in June 1995 to provide
a mechanism for directors, officers and employees of the Company to have a
direct interest in our success. The Compensation Committee does not presently
intend to award any additional Participation shares.

     Mechanism - The Compensation Committee of the Company may grant to eligible
persons Participation Shares convertible into common shares at the fair market
value of common shares of the Company at the time of issuance of the
Participation Shares.

     Each Participation Share is equal to a fraction of a common share depending
on the performance of the common share from the date the Participation Share is
issued to the date of conversion of the Participation Share. To minimise
dilution to shareholders compared to a stock option plan, common shares are
issued only to the extent that the stock price has appreciated since the date
the Participation Shares are issued rather than on a per option exercise basis.
The value and subscription price of such common shares is determined with the
assistance of an independent valuator, and the subscription amount is loaned to
the participant on a non-recourse, interest free basis by the Company. Certain
restrictions on transferability apply and redemption rights are retained by the
Company. Participation Shares generally vest over a four-year period. The loaned
funds are repayable to the Company on conversion of vested Participation Shares.

     Convertibility Linked to Increase in Common Share Value - Vested
Participation Shares are only convertible into common shares of the Company if
the common shares increase in value by at least 25% from the date the
Participation Shares were issued.

                                      -72-
<Page>

     Formula for Conversion of Vested Common Shares

                                                            Amount that Fair
                                                            Market Value
                                                            ("FMV") of Shares at
      Number of Shares        =    Number of         X      date of conversion
      issuable on conversion       Participation            exceeds FMV of
                                   Shares held by           Shares at date
                                   participant              Participation Shares
                                                            issued

                                                            ----------------
                                                            FMV of  Shares  at
                                                            date of conversion

     Issuances of Participation Shares

          (1)  975,000 Participation Shares, Series A were issued on February
               16, 1995 for CDN$0.30 per Participation Share subscription price;
          (2)  555,000 Participation Shares, Series B were issued on December
               18, 1995 for CDN$0.30 per Participation Share subscription price;
               and
          (3)  470,000 Participation Shares, Series C were issued on May 12,
               1999 for CDN$0.50 per Participation Share subscription price.

     As at December 31, 2001, all Series A and B Participation Shares had been
either converted into common shares of the Company or cancelled by the Company.

     Guideline - The Company has an established guideline limiting the aggregate
number of common shares that can be issued at any point in time, either through
the exercise of options or the conversion of Participation Shares, to 13% of the
Company's outstanding common shares. As at March 31, 2002, the number of common
shares so issuable was 9.3%.

     Subscription Prices - The subscription price per Participation Share,
Series A and B of CDN$0.30 was based on opinions as to the fair market value of
each Participation Share obtained by the Board of Directors from KPMG. The
subscription price per Participation Share, Series C of CDN$0.50 was based on an
opinion as to the fair market value of each Participation Share obtained by the
Board of Directors from KPMG.

     The following table sets forth the 2001 financial year-end value of the
named executive officers' unconverted Participation Shares, on an aggregated
basis:

                                      -73-
<Page>

<Table>
<Caption>
                                                                                      Value of Unconverted
                                     Unconverted Participation                            in-the-Money
                                               Shares                                 Participation Shares
                                        at December 31, 2001                          at December 31, 2001
                                        --------------------                                  (CDN$)
                                                                                              ------
           Name                  Convertible           Unconvertible            Convertible            Unconvertible
           ----                  -----------           -------------            -----------            -------------
<S>                                 <C>                  <C>                       <C>                    <C>
Martin Barkin                       98,000               147,000                   60,760                 91,140
Roger Mailhot                       20,000                30,000                   12,400                 18,600
Jim A.H. Garner                     30,000                45,000                   18,600                 27,900
Dan Brazier                         10,000                15,000                    6,200                  9,300
</Table>

  Deferred Share Unit Plan

     Intention - To align further the interests of senior management with those
of shareholders by increasing management shareholdings at minimal cost to the
Company.

     Mechanism - Eligible participants in this plan are entitled to elect yearly
to receive up to 20% of base salary and up to 100% of any bonus paid in respect
of that year in Deferred Share Units in lieu of cash compensation. An election
must be made by December 1 of each year in respect of base salary and bonus for
the next year. The elected amount is converted to a number of Deferred Share
Units equal to the elected amount divided by the closing price of the common
shares on the Toronto Stock Exchange or The NASDAQ National Market System on
December 31 of each year in which the election is made, based on a purchase
commitment as of December 1 of the prior year. This plan is administered by the
Board of Directors of the Company.

     Participants - Members of senior management designated by the Compensation
Committee.

     Redemption of Deferred Share Units - Participants are not entitled to
receive any Deferred Share Units until cessation of employment with the Company
for any reason. The value of each Deferred Share Unit, redeemable by the
participant, will be equivalent to the market value of a common share at the
time of redemption. The Deferred Share Units must be redeemed no later than the
end of the first calendar year commencing after the date of cessation of
employment.

     Named Executive Officer Elections for 2000, 2001 and 2002 - The following
table summarises the elections under this plan by named executive officers:

<Table>
<Caption>
                                                                      DSU Elections
                                                                      -------------
                                     2000                                 2001                            2002
                                     ----                                 ----                            ----
                           Salary(1)            Bonus            Salary          Bonus            Salary         Bonus
                           ---------            -----            ------          -----            ------         -----
                        %      CDN$        %      CDN$        %      CDN$    %       CDN$       %     CDN$      %     CDN$
                        -      ----        -      ----        -      ----    -       ----       -     ----      -     ----
<S>                    <C>    <C>        <C>     <C>         <C>   <C>      <C>     <C>       <C>   <C>         <C>    <C>
 Martin Barkin         20     66,917     100.0   55,000      20    73,000   nil     nil        20   75,400      100    TBD
 Jim A.H. Garner       20     36,667      50.0   16,000      10    20,000    25     15,000    nil   nil          25    TBD
</Table>

          (1)  In respect of 2000, the election was provided for salary for the
               period February 1 to December 31, 2000.

                                      -74-
<Page>

     As at April 2, 2002, Dr. Barkin and Mr. Garner held 80,904 and 36,086 DSUs,
respectively.

  Equity Purchase Plan

     Intention - To align further the interests of senior management with those
of shareholders by giving management an incentive to increase its equity stake
in the Company at minimal expense to the Company.

     Mechanism - Eligible participants in this plan are entitled yearly to
purchase common shares of the Company equal to up to 40% of base salary, funded
by an interest bearing loan from the Company, such common shares to be acquired
by open market purchase by a trustee on behalf of the participants. The purchase
price is equal to the closing price of the common shares on the TSE or NASDAQ on
December 31 of each year, based on a purchase commitment as of December 1 of the
prior year.

     Participants - Members of senior management designated by the Compensation
Committee.

     Loan Terms - Participants in this plan are entitled yearly to receive a
full recourse loan from the Company to fund the acquisition of common shares.
Such loans carry an interest rate equal to Revenue Canada's prescribed rate with
interest payable annually in arrears and the principal repayable in full on the
earlier of: the fifth anniversary of the loan, the sale of common shares or
termination of the participant's employment, or at any time at the election of
the participant, subject to the hold periods described below. The security
provided to the Company for the loan to the participant is the common shares
purchased.

     Administration and Hold Periods - The Company has appointed a trustee to
administer this plan and to purchase the common shares in the market. The
trustee will release the common shares purchased by a participant with proceeds
of the loan to the extent of repayment of the loan following the first
anniversary of the purchase. In general, on termination of employment of the
participant prior to the first anniversary of the purchase, the loan will become
immediately due and payable and:

     i.   if the value of the common shares exceeds the principal amount of the
          loan, the excess value of the common shares shall be retained by the
          trustee for the purposes of this plan; and

     ii.  if the value of the common shares is less than the principal amount of
          the loan, the participant shall be responsible for payment of the
          shortfall to the trustee.

     Named Executive Officer Elections for 2000, 2001 and 2002 - The following
table summarises the elections under this plan by named executive officers:

<Table>
<Caption>
                                                            EPP Elections
                                                            -------------
                                 2000                            2001                           2002
                                 ----                            ----                           ----
                                                                Salary
                                                                ------
                        % of Salary       CDN$         % of Salary      CDN$          % of Salary      CDN$
                        -----------       ----         -----------      ----          -----------      ----
  <S>                      <C>          <C>               <C>         <C>                  <C>          <C>
  Martin Barkin            27.4         100,000           nil         nil                  nil          nil
  Jim A.H. Garner          25.0          50,000           12.5        25,000               nil          nil
</Table>

                                      -75-
<Page>

Subsidiary Long Term Incentive Plans

  DRAXIMAGE

     Intention - To align further the interests of senior management of the
Company's wholly-owned subsidiary, DRAXIMAGE, with increasing the value of the
subsidiary and therefore enhancing shareholder value of the Company as a whole.

     Mechanism - The terms of this plan provide that, subject to the achievement
of certain conditions, the Company will make payments to plan participants in
the form of cash and/or the Company's common shares, at the Company's option,
based on increases in the fair market value of DRAXIMAGE's equity in excess of
the Company's acquisition cost.

     Participants - Selected members of senior management of DRAXIMAGE as
designated by the Company. No named executive officer participates in this plan.

  DRAXIS Pharma Inc.

     Intention - To align further the interests of senior management of the
Company's subsidiary, DPI, with increasing the value of the subsidiary and
therefore enhancing shareholder value of the Company as a whole.

     Mechanism - Eligible participants in this plan subscribe for treasury
shares of DPI at a pre-determined initial subscription price. This initial
subscription price is funded 20% by participants and 80% by way of a loan by
DPI. The security for the loans are the DPI shares issued to the participants.
For each DPI share acquired by a participant, the participant receives a
ten-year share purchase warrant to purchase an additional DPI treasury share at
the original subscription price. These warrants only vest if certain
pre-established DPI earning hurdles are achieved.

     Loan Terms - Loans for the initial share subscription are interest free,
non-recourse to the participants and repaid after a two-year non-payment period
followed by amortisation on a quarterly basis over a ten-year period. The
security for the loans are the DPI shares issued to the participants pledged in
favour of DPI until re-payment is made in full, with standard events of default.

     Participants - Selected members of the senior management of DPI designated
by the shareholders of DPI. Mr. Gorham is the only named executive officer who
participates in this plan.

     Named Executive Officers Awards - Mr. Gorham received an award under this
plan in 2000 whereby he was loaned CDN$222,222 by DPI on February 18, 2001 to be
used by him for the purpose of paying in part for the purchase of 277,778 DPI
common shares. The loan to Mr. Gorham is re-payable in equal and consecutive
quarterly instalments of CDN$5,555, the first of which was made when due on
February 18, 2002 and the last of which is due on October 18, 2012.

Termination of Employment and Employment Contracts

     Commencing in 1988, as executive officers joined the Company, DRAXIS
entered into employment agreements with certain of these individuals. The
agreements provide for the compensation in the amounts set forth under
"Executive Compensation - Summary Compensation Table." In the event of his
termination of employment without cause, Dr. Barkin is entitled to receive a
payment equal to three times his annual remuneration. In the event of his
termination of employment following a change of control of the Company, Dr.
Barkin is entitled to receive a payment equal to five times his annual
remuneration. In the event of their termination of employment without cause, Mr.
Garner or Dr. Mailhot,

                                      -76-
<Page>

as the case may be, is entitled to receive a payment equal to two times his
annual remuneration. In the event of termination of employment following a
change of control of DRAXIS, Mr. Garner or Dr. Mailhot, as the case may be, is
entitled to receive a payment equal to three times his annual remuneration. In
the event of his termination of employment without cause, Mr. Brazier or Mr.
Gorham, as the case may be, is entitled to receive a payment equal to his annual
remuneration. In the event of his termination of employment following a change
of control of DRAXIS or DRAXIS Pharmaceutica, Mr. Brazier is entitled to receive
a payment equal to two times his annual remuneration. In the event of his
termination of employment following a change of control of DPI, Mr. Gorham is
entitled to receive a payment equal to two times his annual remuneration.

Compensation of Directors

     The compensation paid to each director of the Company is CDN$12,500 per
annum plus CDN$1,500 for each Board meeting attended in person and CDN$750 for
each Board meeting attended by telephone; CDN$750 for each meeting of a
committee of the Board of Directors attended in person and CDN$375 for each
meeting of a committee of the Board of Directors attended by telephone. An
annual retainer of CDN$1,500 is paid to the Chair of each committee of the Board
of Directors. Directors who are employees of the Company do not receive any
compensation in their capacity as directors. For the year ended December 31,
2001, Mr. Brian King received CDN$60,000 as non-executive Chairman of the Board.
He did not otherwise receive meeting fees as a director. In December 2001, under
the Company's Stock Option Plan, each of the current directors (excluding the
President and Chief Executive Officer) was awarded 15,000 options as partial
compensation for services rendered as directors. The Chairman was awarded an
additional 5,000 options. It is contemplated that an award of the same number of
options will occur annually on each January 1 based on the average price of the
common shares on the TSE for the five trading days immediately preceding January
1 in each year.

     From time to time, special committees of the Board of Directors are
appointed to consider special issues, in particular, issues which could
potentially involve related party transactions and the adequacy and form of the
compensation of Directors. Compensation for work on such committees is set based
on the amount of work involved.

     The directors, other than Dr. Barkin, do not have service contracts with
the Company or any of its subsidiaries providing for benefits upon termination
of employment.

     In 2001, the Board of Directors established a corporate policy requiring
each current and future Board member to acquire over the next three years shares
in the Company equal to five times his or her annual cash compensation.

Director shareholdings as of March 31, 2002

<Table>
<Caption>
            Director                              Shares Owned    % Owned of total issued and
            --------                              ------------    ---------------------------
                                                                   outstanding common shares
                                                                   -------------------------
            <S>                                    <C>                 <C>
            Martin Barkin                            560,848                  1.5
            Leslie Dan                                18,356           LESS THAN1
            George Darnell                            15,000           LESS THAN1
            James Doherty                             41,359           LESS THAN1
            Brian King                                50,391           LESS THAN1
            Sam Sarick                             1,033,404                  2.8
            Stewart Saxe                             136,485           LESS THAN1
            John Vivash                               15,000           LESS THAN1
            --------------------------------------------------------------------------
            Total                                   1,870,843                 5.1%
</Table>

                                      -77-
<Page>

Senior Management shareholdings as of March 31, 2002

<Table>
<Caption>
            Director                             Shares Owned     % Owned of total issued and
            --------                             ------------     ---------------------------
                                                                   outstanding common shares
                                                                   -------------------------
            <S>                                      <C>               <C>
            Martin Barkin                            560,848                  1.5
            Jim A.H. Garner                           75,863           LESS THAN1
            Dan Brazier                               15,949           LESS THAN1
            Roger Mailhot                              9,720           LESS THAN1
            Jerry Ormiston                               nil           LESS THAN1
            Jack A. Carter                             6,526           LESS THAN1
            Douglas M. Parker                          9,753           LESS THAN1
            Dwight Gorham                             13,834           LESS THAN1
            Richard Flanagan                          12,859           LESS THAN1
           -----------------------------------------------------------------------------------
            Total                                    705,352                  1.9%
</Table>

Director outstanding options as of April 30, 2002

<Table>
<Caption>
            Director                 # of Options      Exercise Price       Expiration Date
            --------                 ------------      --------------       ---------------
<S>                                     <C>              <C>             <C>
Martin Barkin                            40,000          CDN$3.05        August 12, 2003
                                         33,750           US$1.48        May 20, 2004
                                         33,750           US$1.85        September 20, 2004
                                        400,000          CDN$3.07        April 18, 2005
                                         10,125           US$3.02        June 13, 2006
                                        120,000          CDN$3.60        July 5, 2006
                                        225,000          CDN$4.00        February 5, 2007
--------------------------------------------------------------------------------------------
Leslie L. Dan                            10,000          CDN$4.42        December 31, 2002
                                         10,000          CDN$3.64        December 31, 2003
                                         10,000          CDN$1.63        December 31, 2004
                                         10,000          CDN$2.91        December 31, 2005
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
George M. Darnell                        10,000          CDN$4.42        December 31, 2002
                                         10,000          CDN$3.64        December 31, 2003
                                         10,000          CDN$1.63        December 31, 2004
                                         33,750           US$1.76        June 13, 2005
                                         10,000          CDN$2.91        December 31, 2005
                                         10,125           US$3.02        June 13, 2006
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
James P. Doherty                         10,000          CDN$4.42        December 31, 2002
                                         10,000          CDN$3.64        December 31, 2003
                                         10,000          CDN$1.63        December 31, 2004
                                         10,000          CDN$2.91        December 31, 2005
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
Brian M. King                            15,000          CDN$4.42        December 31, 2002
                                         15,000          CDN$3.64        December 31, 2003
                                         15,000          CDN$1.63        December 31, 2004
                                         15,000          CDN$2.91        December 31, 2005
                                         20,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
Samuel Sarick                            17,500          CDN$2.55        November 12, 2002
                                         10,000          CDN$4.42        December 31, 2002
                                         10,000          CDN$3.64        December 31, 2003
                                         10,000          CDN$1.63        December 31, 2004
                                         10,000          CDN$2.91        December 31, 2005
</Table>

                                      -78-
<Page>

<Table>
<S>                                   <C>                <C>             <C>
                                         10,125           US$3.02        June 13, 2006
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
Stewart D. Saxe                          17,500          CDN$2.55        November 12, 2002
                                         10,000          CDN$4.42        December 31, 2002
                                         10,000          CDN$3.64        December 31, 2003
                                         33,750           US$1.85        September 20, 2004
                                         10,000          CDN$1.63        December 31, 2004
                                         10,000          CDN$2.91        December 31, 2005
                                         10,125           US$3.02        June 13, 2006
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
John A. Vivash                           10,000          CDN$3.64        December 31, 2003
                                         10,000          CDN$1.63        December 31, 2004
                                         10,000          CDN$2.91        December 31, 2005
                                         15,000          CDN$4.19        December 31, 2006
--------------------------------------------------------------------------------------------
Total                                 1,395,500
</Table>

Senior Management outstanding options as of April 30, 2002

<Table>
<Caption>
        Senior Management             # of Options      Exercise Price       Expiration Date
        -----------------             ------------      --------------       ---------------
<S>                                    <C>                 <C>            <C>
Martin Barkin                             40,000           CDN$3.05       August 12, 2003
                                          33,750            US$1.48       May 20, 2004
                                          33,750            US$1.85       September 20, 2004
                                         400,000           CDN$3.07       April 18, 2005
                                          10,125            US$3.02       June 13, 2006
                                         120,000           CDN$3.60       July 5, 2006
                                         225,000           CDN$4.00       February 5, 2007
----------------------------------------------------------------------------------------------
Jim A.H. Garner                           40,000           CDN$3.40       May 19, 2002
                                          30,000           CDN$3.05       August 11, 2003
                                          40,000           CDN$2.49       February 8, 2005
                                          50,000           CDN$3.27       December 5, 2005
                                          60,000           CDN$3.60       July 5, 2006
                                         225,000           CDN$4.40       September 4, 2006
----------------------------------------------------------------------------------------------
Roger Mailhot                             20,000           CDN$3.05       August 11, 2003
                                          15,000           CDN$3.27       December 6, 2005
                                          60,000           CDN$3.60       July 5, 2006
----------------------------------------------------------------------------------------------
Dan Brazier                              100,000           CDN$3.05       August 11, 2003
----------------------------------------------------------------------------------------------
Jack A. Carter                            10,000           CDN$3.05       August 11, 2003
                                          15,000           CDN$3.27       December 6, 2005
                                          55,000           CDN$3.60       July 5, 2006
----------------------------------------------------------------------------------------------
Richard Flanagan                          10,000           CDN$3.95       September 30, 2002
                                          20,000           CDN$3.05       August 11, 2003
                                          70,000           CDN$3.60       July 5, 2006
----------------------------------------------------------------------------------------------
Dwight Gorham                            100,000           CDN$2.70       September 14, 2003
----------------------------------------------------------------------------------------------
Jerry Ormiston                            25,000           CDN$3.00       May 29, 2006
                                          50,000           CDN$3.15       June 19, 2006
                                          25,000           CDN$3.60       July 5, 2006
----------------------------------------------------------------------------------------------
Douglas M. Parker                          6,667           CDN$2.84       April 7, 2004
                                          30,000           CDN$3.37       May 11, 2005
                                          15,000           CDN$3.27       December 6, 2005
                                          20,000           CDN$3.60       July 5, 2006
----------------------------------------------------------------------------------------------
Total                                  1,954,292
----------------------------------------------------------------------------------------------
</Table>

                                      -79-
<Page>

Board Practices

     Statement of Corporate Governance Practices

     The Board of Directors of the Company believes that sound corporate
governance practices are essential to the well being of the Company and its
shareholders, and that these practices should be reviewed regularly to ensure
that they are appropriate. A description of the Company's corporate governance
practices follows. This Statement of Corporate Governance Practices has been
prepared by the Nominating and Corporate Governance Committee of the Board of
Directors and has been approved by the Board of Directors. In preparing the
Statement, the Board of Directors carefully considered the corporate governance
guidelines adopted by the Toronto Stock Exchange ("TSE Guidelines") and believes
that it is well aligned with the recommendations contained therein.

     Mandate of the Board

     The mandate of the Board of Directors is to supervise the management of the
business and affairs of the Company. In light of that responsibility, the Board
reviews, discusses and approves various matters related to the Company's
operations, strategic direction and organisational structure where required and
involves itself jointly with management in ensuring the creation of shareholder
value and the serving of the best interests of the Company. The Board of
Directors has responsibility for such matters as:

     (a)  the strategic planning process (including approval of strategic
          business plans);

     (b)  the identification of the principal risks of the Company's business
          and ensuring the implementation of appropriate systems to manage such
          risks;

     (c)  succession planning, including the appointing and monitoring of senior
          management;

     (d)  the review of the Company's communications policy;

     (e)  the integrity of the Company's internal control and management
          information systems; and

     (f)  the supervision of management of the Company's operations.

     There are five regularly scheduled meetings per year. However, the Board of
Directors also meets as frequently as the need arises to consider opportunities
or major transactions.

     There were nine meetings of the Board of Directors in 2001.

     Board Composition

     The Board of Directors has reviewed the composition of the Board to
determine which of the directors may be considered "unrelated" within the
meaning of that term as set out in the TSE Guidelines. A director who is free
from any interest and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with the director's ability to
act with a view to the best interests of the Company, other than interests
arising from shareholdings, is considered to be an unrelated director.

     The Board of Directors, currently composed of eight members, has considered
the relationship of each of the directors to the Company and has determined that
seven of the eight directors are unrelated to

                                      -80-
<Page>

the Company. Dr. Martin Barkin, the President and Chief Executive Officer of the
Company, is considered to be a related director since he is an employee of the
Company.

     The Board believes that Dr. Barkin is sensitive to conflicts of interest
and excuses himself from deliberations and voting in appropriate circumstances.
He brings a skill set and knowledge base that is beneficial to the Company and
his participation as a director contributes to the effectiveness of the Board of
Directors.

     Board Committees

     The Board of Directors has three standing committees: the Audit Committee,
the Compensation Committee and the Nominating and Corporate Governance
Committee. To maintain appropriate independence, no members of management sit on
any of the three standing committees.

     From time to time, special committees of the Board of Directors are
appointed to consider special issues, in particular, any issues which could
potentially involve related party transactions.

     Board committees and individual Board members engage independent
consultants and outside advisors at the expense of the Company, where reasonable
and appropriate, to assist them in discharging their responsibilities.

     Audit Committee

     The Audit Committee is responsible for reviewing the Company's financial
reporting procedures and internal controls. The Committee is also responsible
for reviewing quarterly financial statements and the annual financial statements
prior to their approval by the full Board of Directors and communicating
regularly with the Company's external auditors.

     The Committee is composed of four directors, all of whom are unrelated
directors. The current members of the Audit Committee are Messrs. Leslie Dan,
George Darnell, James Doherty and Samuel Sarick.

     Compensation Committee

     The Compensation Committee oversees overall corporate policy with respect
to compensation and benefits and makes recommendations to the Board of Directors
on, among other things, the compensation of senior executives. In assessing
compensation issues, the Committee reviews and examines in detail the
performance of senior management. Each of the three members of the Committee is
an unrelated director. The current members of the Compensation Committee are
Messrs. Brian King, Samuel Sarick and Stewart Saxe.

     Nominating and Corporate Governance Committee

     The Nominating and Corporate Governance Committee is responsible for
recommending annually the members of the Board proposed for election to the
Board of Directors, recommending new candidates for Board membership, monitoring
Board composition and suggesting appropriate changes. It seeks on behalf of
shareholders well qualified candidates to nominate as directors (individuals who
provide a balance in terms of their backgrounds and experience in different
industries and professions). It is also responsible for making recommendations
to the full Board with respect to developments in the area of corporate
governance and the practices of the Board.

                                      -81-
<Page>

     Each of the three members of the Committee is an unrelated director. The
current members of the Nominating and Corporate Governance Committee are Messrs.
George Darnell, Samuel Sarick and John Vivash.

     Decisions Requiring Board Approval

     In addition to those matters that must by law be approved by the Board of
Directors, certain other significant matters relating to the business and
affairs of the Company require prior approval of the Board. These matters are:

     (a)  the approval of the annual and quarterly financial statements;
     (b)  the approval of the Company's annual five-year strategic business
          plans;
     (c)  any related party transaction involving any officer or director,
          regardless of materiality, such as the approval of the Company's lease
          of its Goreway Drive premises; and
     (d)  any disposition or expenditure in excess of CDN$1,000,000.

     Orientation of New Directors

     In orienting new members to the Board of Directors, members are provided
with an opportunity to visit the Company's facilities and to meet with
management and other members of the Board to discuss and understand the
business. In addition, detailed documentation is provided relating to the
current business plan and current policies of the Company.

     Board Performance

     The Board of Directors discusses regularly the effectiveness of its
meetings and decision making process by considering and assessing from time to
time the performance of the Board relating to its effectiveness, size,
compensation policies and the assessment of management performance.

     CEO Performance

     On an annual basis, the Company's President and CEO circulates a strategic
plan which is discussed and, if appropriate, adopted by the Board of Directors.
This strategic plan forms the basis of the corporate objectives which the CEO is
responsible for meeting. The Compensation Committee of the Board of Directors
meets on an annual basis to assess the CEO's performance and to recommend, to
the Board as a whole, his compensation. Specifically, the Compensation
Committee's assessment of the CEO's performance considers matters such as the
development of appropriate strategic direction and action plans for the Company,
meeting key objectives, identification of significant issues and challenges
facing the Company and the development of appropriate solutions to address such
issues and challenges.

     Shareholder Feedback and Communication

     The Company maintains an investor relations department headed by an
Executive Director, Investor Relations, which reports directly to the President
and CEO of the Company. In addition, both U.S. and Canadian investor relations
experts are retained from time to time by the Company to advise on various
investor relations strategies. The Company communicates regularly with its
shareholders through annual and quarterly reports. At the Company's annual
meetings of shareholders, a full opportunity is afforded for shareholders to ask
questions concerning the Company's business. Each shareholder and investor
inquiry receives a prompt response from the investor relations department or an
appropriate officer of the Company. Information about the Company is also
available on the Company's Internet home page at www.draxis.com. In addition,
the Executive Director, Investor Relations, the Chief

                                      -82-
<Page>

Financial Officer and the CEO of the Company provide the opportunity for
investors in both Canada and the U.S. to pose questions to which they respond
through such forums as webcast conference calls for investors and analysts.

     Board Expectations of Management

     Management is responsible for the day-to-day operations of the Company and
is expected to implement the approved strategic business plan within the context
of authorised budgets and corporate policies and procedures. The information
which management provides to the Board of Directors is critical. Management is
expected to report regularly to the Board of Directors in a comprehensive,
accurate and timely fashion on the business and affairs of the Company. The
Board of Directors monitors the nature of the information requested by and
provided to the Board of Directors so that it can determine whether the Board of
Directors can more effectively identify issues and opportunities for the
Company.

     Employees

     As at December 31, 2001, the Company and its subsidiaries employed a total
of 313 employees. DPI is the largest employer with 214 employees, all located in
Montreal, Quebec, comprising 21 managerial employees, 90 salaried employees and
103 unionised employees. DRAXIMAGE employs 68 people all in Montreal, Quebec.
The Company itself employs 31 people, 2 in the Province of Quebec, 27 in
Toronto, Ontario, 1 in the Province of Nova Scotia and 1 in the Province of
British Columbia. At December 31, 2001 and 2000, the Company and its
subsidiaries had 313 and 256 employees, respectively.

Item 7.   Major Shareholders and Related Party Transactions

     The Company is not aware of any company or foreign government that owns or
controls the Company, directly or indirectly.

     To our knowledge, the following are the only persons who, as at March 31,
2002, beneficially own, directly or indirectly, or exercise control over our
common shares carrying more than five percent (5%) of the votes attached to all
of those shares. Also set forth below is the total amount of the Company's
shares owned by officers and directors as a group as of March 31, 2002:

<Table>
<Caption>
                        Identity of
                      Person or Group                       Amount Owned               Percent of Class
                      ---------------                       ------------               ----------------
         <S>                                                  <C>                           <C>
         Van Berkom and Associates Inc. (1)                   3,710,434                     10.1%

         Elan International Services, Ltd.                    3,043,996                      8.2%

         Novopharm Limited (2)                                2,352,940                      6.4%

         Welch Capital Partners LLC                           1,968,550                      5.4%

         Officers and Directors as a Group                    2,015,347                      5.5%
</Table>

----------
(1)  The Company understands, based on public disclosure documents, that Van
     Berkom and Associates Inc., a registered investment counsel and portfolio
     manager, maintains exclusive power to exercise investment control or
     direction over the shares listed in this table for its managed accounts as
     the beneficial owners. According to public disclosure documents, that
     number of shares represents the aggregate number of shares held by all
     managed accounts of Van Berkom and Associates Inc. as at March 31, 2002.

(2)  Novopharm Limited is beneficially owned by Teva Pharmaceutical Industries,
     Ltd.

                                      -83-
<Page>

     To our knowledge, there are no arrangements, the operation of which may, at
a subsequent date, result in a change in control.

     The building housing the Company's premises at 6870 Goreway Drive in
Mississauga, Ontario is owned 50% by Samuel Sarick Limited, a corporation wholly
owned by Mr. Sarick, a director of the Company. The original lease for the
premises was entered into on April 25, 1994 between Samuel Sarick Limited,
Kentlake Construction Limited and Anec Investments Limited, as landlord, and the
Company, as tenant. The lease renewal was negotiated between the Company and
Samuel Sarick Limited on an arm's-length basis with the assistance of Colliers
International retained by the Company and was renewed with Board approval
effective May 1, 1999 for a period of five years. The Company believes that the
lease terms are consistent with arm's-length comparables and that the annual
rent payable of CDN$169,735.68 is at fair market value.

     As of May 1, 2002, 17,982,933 common shares (48.6% of the outstanding
common shares) were held of record by 590 shareholders whose registered
addresses were in the United States. The Company has no knowledge of any other
Shares held beneficially in the United States.

     As of May 1, 2002, there were a total of 1,202 shareholders of record
holding 36,982,679 common shares issued and outstanding.

     The Company has made loans to certain key management personnel in
connection with its incentive plans and as inducements to enter into employment
agreements. Details of loans currently outstanding are set forth in the table
below.

<Table>
<Caption>
                             -------------------------------------------------------------------------------------
                                Largest Amount Outstanding During 2001              Amount Outstanding as at
                                             Fiscal Year                                 March 31, 2002
------------------------------------------------------------------------------------------------------------------
                                Fully Recourse      Other Employee Share      Fully Recourse         Other Employee
                               Interest Bearing     Participation Plans      Interest Bearing            Share
                                    (EPP)                  (CDN$)                 (EPP)           Participation Plans
  Name & Principal Position         (CDN$)                                        (CDN$)                 (CDN$)
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>                    <C>                   <C>
Martin Barkin, MD                  100,000                  221,782                100,000               175,769
President & Chief Executive
Officer

------------------------------------------------------------------------------------------------------------------
Jim A.H. Garner                     75,000                   92,106                 75,000                67,572
Senior Vice President,
Finance & Chief Financial
Officer

------------------------------------------------------------------------------------------------------------------
Dwight Gorham                          nil                  254,371                    nil               242,869
President, DRAXIS Pharma
Inc.

------------------------------------------------------------------------------------------------------------------
Dan Brazier                            nil                   49,349                    nil                37,247
President, DRAXIS
Pharmaceutica

------------------------------------------------------------------------------------------------------------------
</Table>

                                      -84-
<Page>

<Table>
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                       <C>                    <C>                   <C>
Jack A. Carter                     104,000                   22,905                    nil                15,566
Vice President, Human
Resources

------------------------------------------------------------------------------------------------------------------
Roger Mailhot                          nil                   69,889                    nil                49,682
Vice President Scientific &
Regulatory Affairs

------------------------------------------------------------------------------------------------------------------
Douglas M. Parker                   22,000                   12,353                 22,000                 8,961
General Counsel & Secretary
------------------------------------------------------------------------------------------------------------------
</Table>

     The above figures take into account indebtedness pursuant to the Employee
Stock Ownership Plan, the Employee Participation Share Purchase Plan, the Equity
Purchase Plan and the DPI Long Term Incentive Plan. Each of these plans is
described in Item 6: Incentive Plans. Loans under the Employee Stock Ownership
Plan, Employee Participation Share Purchase Plan and DPI Long Term Incentive
Plan are interest-free. Loans under the Equity Purchase Plan bear interest at
Revenue Canada's prescribed rate.

     A loan of CDN$10,000 was made in September 1999 to Mr. Carter. In addition,
a loan of CDN$20,000 was made in October 2001 to Mr. Carter. These loans bear
interest at Revenue Canada's prescribed rate with the principal repayable in 72
equal semi-monthly instalments, deducted from regular salary payments, and
interest payable quarterly.

     An interest free loan of CDN$15,000 was also made in April 1999 to Mr.
Parker as an incentive to enter into an employment agreement with the Company.
The loan is repayable in 72 equal semi-monthly instalments, deducted from
regular salary payments.

Item 8.   Financial Information

     The Company's Consolidated Financial Statements are attached as pages F-1
through F-21. There have been no significant changes since the date of the
financial statements.

Legal/Arbitration Proceedings

     From time to time, the Company becomes involved in legal proceedings and
claims which arise in the ordinary course of business. With the exception of the
two matters described below related to Anipryl, the Company considers that the
ultimate liability with respect to any known actions will not materially affect
the business, financial position, results of operations or cash flows of the
Company.

     In 1998 a Canadian legal proceeding was launched against the Company and
DAHI by a former consultant claiming royalty entitlements based on the net
profit from sales of Anipryl. The Company regards this claim to be without merit
and is vigorously defending itself.

     Since 2000, the Company and DAHI have been involved in U.S. and Canadian
legal proceedings with the University of Toronto and the University of Toronto
Innovations Foundation. One dispute relates to the terms of a 1992 license
agreement under which Innovations Foundation is claiming entitlement to a
portion of the consideration earned by DAHI with respect to Anipryl. The second
dispute relates to a 1990 contract research agreement under which the University
of Toronto is claiming damages related to the ownership of certain
Anipryl-related intellectual property. The Company considers all of

                                      -85-
<Page>

the claims made by the University of Toronto and the University of Toronto
Innovations Foundation to be without merit and is vigorously defending itself.

Item 9.   The Offer and Listing

     The Company's common shares are listed on The Toronto Stock Exchange (the
"TSE") under the symbol "DAX." The following table sets forth, in Canadian
dollars, the per share high and low sales prices on the TSE for the five most
recent full financial years:

<Table>
<Caption>
                     ------------------------------------------------------------------------
                                  Years                      High                  Low
                     ------------------------------------------------------------------------
                     <S>                                     <C>                  <C>
                     1997                                    $5.40                $2.75
                     ------------------------------------------------------------------------
                     1998                                     5.10                 2.30
                     ------------------------------------------------------------------------
                     1999                                     4.57                 1.41
                     ------------------------------------------------------------------------
                     2000                                     5.95                 2.05
                     ------------------------------------------------------------------------
                     2001                                     4.40                 2.11
                     ------------------------------------------------------------------------
</Table>

     The following table sets forth, in Canadian dollars, the per share high and
low sales prices on the TSE by fiscal quarter for 2001 and 2000.

<Table>
<Caption>
                     ------------------------------------------------------------------------
                                                             High                  Low
                     2001
                     ------------------------------------------------------------------------
                     <S>                                     <C>                  <C>
                     First Quarter                           $3.98                $2.70
                     ------------------------------------------------------------------------
                     Second Quarter                           3.90                 2.43
                     ------------------------------------------------------------------------
                     Third Quarter                            3.75                 2.11
                     ------------------------------------------------------------------------
                     Fourth Quarter                           4.40                 2.52
                     ------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                     ------------------------------------------------------------------------
                                                             High                  Low
                              2000
                     ------------------------------------------------------------------------
                     <S>                                     <C>                  <C>
                     First Quarter                           $5.95                $1.60
                     ------------------------------------------------------------------------
                     Second Quarter                           4.95                 2.45
                     ------------------------------------------------------------------------
                     Third Quarter                            5.90                 3.17
                     ------------------------------------------------------------------------
                     Fourth Quarter                           4.75                 2.70
                     ------------------------------------------------------------------------
</Table>

     The following table sets forth, in Canadian dollars, the per share high and
low sales prices on the TSE for the most recent six months:

<Table>
<Caption>
                     ------------------------------------------------------------------------
                     Last 6 months                           High                  Low
                     ------------------------------------------------------------------------
                     <S>                                     <C>                  <C>
                     November 2001                           $3.50                $2.85
                     ------------------------------------------------------------------------
                     December 2001                            4.40                 3.09
                     ------------------------------------------------------------------------
                     January 2002                             4.34                 3.70
                     ------------------------------------------------------------------------
                     February 2002                            4.15                 3.60
                     ------------------------------------------------------------------------
                     March 2002                               4.98                 3.75
                     ------------------------------------------------------------------------
                     April 2002                               5.15                 4.20
                     ------------------------------------------------------------------------
</Table>

     The common shares are quoted on the NASDAQ National Market System
("NASDAQ") in the United States under the symbol "DRAX." The following table
sets forth, in U.S. dollars, the per share high bid and low asked prices on
NASDAQ for the five most recent full financial years:

<Table>
<Caption>
                     -------------------------------------------------------------------------
                     Years                                    High                  Low
                     -------------------------------------------------------------------------
                     <S>                                     <C>                   <C>
                     1997                                    $3.75                 1.94
                     -------------------------------------------------------------------------
</Table>

                                      -86-
<Page>

<Table>
                     -------------------------------------------------------------------------
                     <S>                                     <C>                   <C>
                     1998                                    3.53                  1.56
                     -------------------------------------------------------------------------
                     1999                                    3.12                  0.97
                     -------------------------------------------------------------------------
                     2000                                    4.62                  1.03
                     -------------------------------------------------------------------------
                     2001                                    2.79                  1.45
                     -------------------------------------------------------------------------
</Table>

     The following table sets forth, in U.S. dollars, the per share high and low
asked prices on NASDAQ in U.S. dollars, by fiscal quarter for 2001 and 2000:

<Table>
<Caption>
                     -------------------------------------------------------------------------
                     2001                                     High                  Low
                     -------------------------------------------------------------------------
                     <S>                                     <C>                   <C>
                     First Quarter                           $2.63                 $1.69
                     -------------------------------------------------------------------------
                     Second Quarter                           2.55                  1.50
                     -------------------------------------------------------------------------
                     Third Quarter                            2.45                  1.45
                     -------------------------------------------------------------------------
                     Fourth Quarter                           2.79                  1.60
                     -------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                     -------------------------------------------------------------------------
                     2000                                     High                  Low
                     -------------------------------------------------------------------------
                     <S>                                     <C>                   <C>
                     First Quarter                           $4.63                 $1.03
                     -------------------------------------------------------------------------
                     Second Quarter                           3.50                  1.63
                     -------------------------------------------------------------------------
                     Third Quarter                            4.00                  2.13
                     -------------------------------------------------------------------------
                     Fourth Quarter                           3.25                  1.50
                     -------------------------------------------------------------------------
</Table>

     The following table sets forth, in U.S. dollars, the per share high and low
sales prices on NASDAQ for the most recent six months:

<Table>
<Caption>
                     -------------------------------------------------------------------------
                     Last 6 months                           High                  Low
                     -------------------------------------------------------------------------
                     <S>                                     <C>                   <C>
                     November 2001                           $2.20                 $1.81
                     -------------------------------------------------------------------------
                     December 2001                            2.79                  1.95
                     -------------------------------------------------------------------------
                     January 2002                             2.76                  2.35
                     -------------------------------------------------------------------------
                     February 2002                            2.60                  2.22
                     -------------------------------------------------------------------------
                     March 2002                               3.14                  2.34
                     -------------------------------------------------------------------------
                     April 2002                               3.00                  2.66
                     -------------------------------------------------------------------------
</Table>

Item 10.  Additional Information

Bylaws and Articles of Amalgamation

     The Company's Articles of Amalgamation are on file with the Corporations
Directorate of Industry Canada under Corporation Number 357288-9. The Articles
of Amalgamation do not include a stated purpose and do not place any
restrictions on the business that the Company may carry on.

     Directors

     The minimum number of directors of the Company is one (1) and the maximum
number is twelve (12). A director of the Company need not be a shareholder. In
accordance with the Company's bylaws and the Canada Business Corporations Act
(the "Act"), a majority of its directors must be residents of Canada. In order
to serve as a director, a person must be a natural person at least 18 years of
age, of sound mind and not bankrupt. Neither the Articles of Amalgamation,
bylaws, nor the Act, impose any mandatory retirement requirements for directors.

     A director who is a party to, or who is a director or officer of, or has a
material interest in, any person who is a party to a material contract or
transaction or proposed material contract or transaction

                                      -87-
<Page>

with the Company must disclose to the Company the nature and extent of his or
her interest at the time and in the manner provided by the Act. The Act
prohibits such a director from voting on any resolution to approve the contract
or transaction unless the contract or transaction:

          -    is an arrangement by way of security for money lent to or
               obligations undertaken by the director for the benefit of the
               Company or an affiliate;

          -    relates primarily to his or her remuneration as a director,
               officer, employee or agent of the Company or an affiliate;

          -    is for indemnity or insurance for director's liability as
               permitted by the Act; or

          -    is with an affiliate.

     The Board of Directors may, on behalf of the Company and without
authorisation of our shareholders:

          -    borrow money upon the credit of the Company;

          -    issue, reissue, sell or pledge debt obligations of the Company;

          -    give a guarantee on behalf of the Company to secure performance
               of an obligation of any person; and

          -    mortgage, hypothecate, pledge or otherwise create a security
               interest in all or any property of the Company, owned or
               subsequently acquired, to secure any obligation of the Company.

     The Act prohibits the giving of a guarantee to any shareholder, director,
officer or employee of the Company or of an affiliated corporation or to an
associate of any such person for any purpose or to any person for the purpose of
or in connection with a purchase of a share issued or to be issued by the
Company or its affiliates, where there are reasonable grounds for believing that
the Company is or, after giving the guarantee, would be unable to pay its
liabilities as they become due, or the realisable value of the Company's assets
in the form of assets pledged or encumbered to secure a guarantee, after giving
the guarantee, would be less than the aggregate of the Company's liabilities and
stated capital of all classes.

     These borrowing powers may be varied by the Company's bylaws or its
Articles of Amalgamation. However, the Company's bylaws and Articles of
Amalgamation do not contain any restrictions on or variations of these borrowing
powers.

     Share Capitalisation

     The Company's Articles of Amalgamation authorise the issuance of an
unlimited number of common shares (36,935,434 of which are outstanding as of
March 31, 2002), an unlimited number of preferred shares (none of which are
issued and outstanding), and an unlimited number of Employee Participation
Shares (2,000,000 of which have been issued and 470,000 remain outstanding as of
March 31, 2002). The Articles of Amalgamation do not authorise the issuance of
any other class of shares.

     Common Shares

                                      -88-
<Page>

     The holders of the common shares of the Company are entitled to receive
notice of and to attend all meetings of the shareholders of the Company and have
one vote for each common share held at all meetings of shareholders. The
directors are elected at each annual meeting of shareholders and do not stand
for re-election at staggered intervals.

     The holders of common shares are entitled to receive dividends and the
Company will pay dividends, as and when declared by the Board of Directors, out
of moneys properly applicable to the payment of dividends, in such amount and in
such form as the Board of Directors may from time to time determine, subject to
the rights of the holders of any other class of shares of the Company entitled
to receive dividends in priority to or rateably with the holders of the common
shares, and all dividends which the Board of Directors may declare on the common
shares shall be declared and paid in equal amounts per share on all common
shares at the time outstanding.

     In the event of the dissolution, liquidation or winding-up of the Company,
whether voluntary or involuntary, or any other distribution of assets of the
Company among its shareholders for the purpose of winding-up its affairs, the
holders of the common shares shall, subject to the rights of the holders of any
other class or shares of the Company entitled to receive the assets of the
Company upon such distribution in priority to or rateably with the holders of
the common shares, be entitled to participate rateably in any distribution of
the assets of the Company.

     Preferred Shares

     The preferred shares of the Company may at any time or from time to time be
issued in one or more series. No preferred shares of the Company have been
issued to date. Preferred shares shall be entitled to preference over the common
shares and any other shares of the Company ranking junior to the preferred
shares and the distribution of assets in the event of any liquidation and common
dissolution or winding-up of the Company, whether voluntary or involuntary, or
other distribution of the assets of the Company among its shareholders for the
purpose of winding-up its affairs. The preferred shares of each series shall
rank in parity with the preferred shares of every other series with respect to
priority in the payment of dividends and in the distribution of assets in the
event of liquidation, dissolution or winding-up of the Company.

     Subject to the provisions relating to any particular series, the Company
may redeem the whole or any part of the preferred shares on any one or more
series outstanding from time to time at such price or prices as may be
applicable to such series by given at least thirty (30) days' prior notice in
writing of the intention of the Company to redeem such shares to each person who
at the date of giving such notice is the registered holder of preferred shares
to be redeemed.

     Employee Participation Shares

     The participation shares may at any time or from time to time be issued in
one or more series. There may be only one issuance of each series of
participation shares. On February 16, 1995, the Board of Directors of the
Company authorised the issuance of 975,000 Series A Participation Shares; on
December 18, 1995, the Board of Directors of the Company authorised the issuance
of 555,000 Series B Participation Shares and on May 12, 1999, the Board of
Directors of the Company authorised the issuance of 470,000 Series C
Participation Shares. Pursuant to the terms of the Employee Participation Share
Purchase Plan (the "EP Plan"), the maximum number of participation shares
issuable pursuant to this plan is 2,000,000.

                                      -89-
<Page>

     Each participation share entitles the holder to receive cash dividends, if
any, as may from time to time be declared payable thereon, at the same time as
dividends, if any, are paid on the common shares of the Company, in an amount
for each participation share of a particular series which is equal to the
proportion of the amount of the dividend declared on each common share that the
subscription price of such participation share is of the fair market value at
the date of issuance of such participation share.

     In the event of a proposal, order or resolution for the liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary; or
on the "Automatic Conversion Date" (as defined in the Articles of Amalgamation
and the terms of the EP Plan); or at the option of the holder on a "Conversion
Date" (as defined in the Articles of Amalgamation and the terms of the EP Plan)
other than the "Automatic Conversion Date" (as defined in the Articles of
Amalgamation and the terms of the EP Plan), the participation shares will become
common shares, and the number of common shares a holder receives on conversion
is the number of common shares which is determined by multiplying the number of
participation shares held, or in the case of conversion on a Conversion Date
other than the Automatic Conversion Date, the number of participation shares
which the holder elects to convert, by a fraction:

   1.   the numerator of which shall be the "EP Share Value"(as defined in the
        Articles of Amalgamation and the terms of the EP Plan) of a
        participation share of a particular series as at the earlier of the
        "Automatic Conversion Date" and a "Conversion Date," as the case may be;
        and

   2.   the denominator of which shall be the "Fair Market Value of a Common
        Share" (as defined in the Articles of Amalgamation and the terms of the
        EP Plan) as at the earlier of the two dates described in 1; provided
        that no fraction common shares will be issued and no payment will be
        made in respect of fractional common shares.

Shareholder Rights Plan

     On May 16, 2002, the shareholders of the Company approved a Shareholder
Rights Plan Agreement (the "Rights Plan"), the principal terms of which are as
follows:

     Effective Date

     The Rights Plan became effective on April 23, 2002 (the "Effective Date")
and was approved by shareholders of the Company at its Annual and Special
Meeting of shareholders held on May 16, 2002.

     Term

     The term of the Rights Plan is ten years, subject to reconfirmation by
shareholders at every third annual meeting.

     Issue of Rights

     One right (a "Right") attaches to each outstanding common share.

     Rights Exercise Privilege

     The Rights will separate from the shares to which they are attached and
will become exercisable at the time (the "Separation Time") that is ten trading
days after the earlier of a person having acquired, or the commencement,
announcement or other date determined by the Board of Directors in respect of a
take-over bid to acquire, 20% or more of the common shares, other than by an
acquisition pursuant to a take-over bid permitted by the Rights Plan (a
"Permitted Bid").

                                      -90-
<Page>

     The acquisition of Beneficial Ownership (as defined in the Rights Plan) by
any person (an "Acquiring Person"), including others acting in concert, of 20%
or more of the common shares, other than by way of a Permitted Bid, is referred
to as a "Flip-in Event." Under the Rights Plan, there are certain exceptions to
that rule, including (i) the Company or a subsidiary of the Company, (ii) a
person who acquires 20% or more of the outstanding common shares through, among
other things, a share redemption or a Permitted Bid, (iii) an underwriter or
selling group member during the course of a public distribution; or (iv)
investment and fund managers, trust companies and other persons who are managing
investment funds, pension funds or plans, estates or accounts on behalf of
another person, provided they are not making, or are not part of a group making,
a take-over bid. Any Rights held by an Acquiring Person on or after the earlier
of the Separation Time or the first date of public announcement by the Company
or an Acquiring Person that an Acquiring Person has become such will become void
upon the occurrence of a Flip-in Event.

     Under the Rights Plan, a bidder is entitled to "lock up" any shareholder of
the Company without triggering the Rights Plan so long as the lock-up agreement
is a "soft" lock up, meaning the locked-up shareholder is entitled to tender to
a higher offer (so long as the higher offer is not required under the lock-up
agreement to be more than 7% higher than the first offer).

     Ten trading days after the occurrence of the Flip-in Event, the Rights
(other than those held by the Acquiring Person) will permit the holder to
purchase, for the exercise price of the Rights, common shares having a value
based on the then-prevailing market price) equal to twice such exercise price
(i.e., at a 50% discount). The exercise price of the Rights will be equal to
five times the prevailing market price at the Separation Time.

     The issue of the Rights is not initially dilutive. Upon a Flip-in Event
occurring and the Rights separating from the attached shares, reported earnings
per common share on a fully diluted or non-diluted basis may be affected.
Holders of Rights who do not exercise their Rights upon the occurrence of a
Flip-in Event may suffer substantial dilution.

     Certificates and Transferability

     Prior to the Separation Time, the Rights will be evidenced by a legend
imprinted on certificates for common shares issued from and after the Effective
Date. Rights are also attached to such shares outstanding on the Effective Date,
although share certificates issued prior to that date will not bear such a
legend. Prior to the Separation Time, Rights will not be transferable separately
from the attached shares. From and after the Separation Time, the Rights will be
evidenced by Rights certificates which will be transferable and traded
separately from the shares.

     Permitted Bid Requirements

     The requirements of a Permitted Bid include the following:

          -    the take-over bid must be made by way of a take-over bid circular
               to all holders of common shares;

          -    the take-over bid must not permit common shares tendered pursuant
               to the take-over bid to be taken up prior to the expiry of a
               period of not less than 60 days and only if at such time more
               than 50% of the common shares held by shareholders other than the
               bidder, its affiliates, associates and persons acting jointly or
               in concert with the bidder (the "Independent Shareholders") have
               been tendered pursuant to the take-over bid and not withdrawn;
               and

                                      -91-
<Page>

          -    if more than 50% of the common shares held by Independent
               Shareholders are tendered to the take-over bid within the 60-day
               period, the bidder must make a public announcement of that fact
               and the take-over bid must remain open for deposits of common
               shares for an additional 10 business days from the date of such
               public announcement.

     The Rights Plan allows a competing Permitted Bid (a "Competing Permitted
Bid") to be made while a Permitted Bid is in existence. A Competing Permitted
Bid must satisfy all the requirements of a Permitted Bid except that it may
expire on the same date as the Permitted Bid, subject to the requirement that it
be outstanding for a minimum period of 35 days.

     Waiver

     The Board of Directors may, prior to a Flip-in Event, waive the dilutive
effects of the Rights Plan in respect of a particular Flip-in Event (an "Exempt
Acquisition") that would result from a take-over bid made by way of a take-over
bid circular to all holders of common shares, provided that in such
circumstances the Board shall be deemed to have waived the application of the
Rights Plan to any other Flip-in Event occurring as a result of a take-over bid
made by way of a take-over bid circular to all holders of common shares prior to
the expiry of any take-over bid in respect of which the Rights Plan has been
waived. The Board of Directors may also waive the Rights Plan in respect of a
particular Flip-in Event that has occurred through inadvertence, provided that
the Acquiring Person that inadvertently triggered such Flip-in Event reduces its
beneficial holdings to less than 20% of the outstanding voting shares of the
Company within 14 days or such other period as may be specified by the Board of
Directors.

     Redemption

     At any time prior to the occurrence of a Flip-in Event, the Board of
Directors may with the prior approval of the holders of the common shares or the
Rights redeem all, but not less than all, of the outstanding Rights at a price
of CDN$0.000001 each. Rights will be deemed to have been redeemed by the Board
of Directors following completion of a Permitted Bid, Competing Permitted Bid or
Exempt Acquisition.

     Supplements and Amendments

     The Company is authorised to make amendments to the Rights Plan to correct
any clerical or typographical error or, subject to subsequent ratification by
shareholders or Rights holders, to maintain the validity of the Rights Plan as a
result of changes in law or regulation. Other amendments or supplements to the
Rights Plan may be made with the prior approval of shareholders or Rights
holders.

Action Necessary to Change Rights of Shareholders

     In order to change the rights of our shareholders, the Company would need
to amend its Articles of Amalgamation to effect the change. Such an amendment
would require the approval of holders of two-thirds of the common shares cast at
a duly called special meeting. For certain amendments such as those creating of
a class of preferred shares, a shareholder is entitled under the Act to dissent
in respect of such a resolution amending the Articles of Amalgamation and, if
the resolution is adopted and the Company implements such changes, demand
payment of the fair value of its common shares.

Meeting of Shareholders

                                      -92-
<Page>

     An annual meeting of shareholders is held each year for the purpose of
considering the financial statements and reports, electing directors, appointing
auditors and for the transaction of other business as may be brought before the
meeting. The Board of Directors has the power to call a special meeting of
shareholders at any time.

     Notice of the time and place of each meeting of shareholders must be given
not less than 21 days, nor more than 50 days, before the date of each meeting to
each director, to the auditor and to each shareholder who at the close of
business on the record date for notice is entered in the securities register as
the holder of one or more shares carrying the right to vote at the meeting.
Notice of meeting of shareholders called for any other purpose other than
consideration of the minutes of an earlier meeting, financial statements and
auditor's report, election of directors and reappointment of the incumbent
auditor, must state the nature of the business in sufficient detail to permit
the shareholder to form a reasoned judgement on and must state the text of any
special resolution or bylaw to be submitted to the meeting.

     The only persons entitled to be present at a meeting of shareholders are
those entitled to vote, the directors of the Company and the auditor of the
Company. Any other person may be admitted only on the invitation of the chairman
of the meeting or with the consent of the meeting. In circumstances where a
court orders a meeting of shareholders, the court may direct how the meeting may
be held, including who may attend the meeting.

Limitations on Right to Own Securities

     Neither Canadian law nor the Company's Articles of Amalgamation or bylaws
limit the right of a non-resident to hold or vote common shares of the Company,
other than as provided in the Investment Canada Act (the "Investment Act"), as
amended by the World Trade Organisation Agreement Implementation Act. The
Investment Act generally prohibits implementation of a direct reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a "Canadian," as defined in the
Investment Act (a "non-Canadian"), unless, after review, the minister
responsible for the Investment Act is satisfied that the investment is likely to
be of net benefit to Canada. An investment in the common shares of the Company
by a non-Canadian (other than a "WTO Investor," as defined below) would be
reviewable under the Investment Act if it were an investment to acquire direct
control of the Company, and the value of the assets of the Company were CDN$5.0
million or more (provided that immediately prior to the implementation of the
investment the Company was not controlled by WTO Investors). An investment in
common shares of the Company by a WTO Investor (or by a non-Canadian other than
a WTO Investor if, immediately prior to the implementation of the investment in
the Company was controlled by WTO Investors) would be reviewable under the
Investment Act if it were an investment to acquire direct control of the Company
(in 2001) and the value of the assets of the Company equalled or exceeded
CDN$209.0 million. A non-Canadian, whether a WTO Investor or otherwise, would be
deemed to acquire control of the Company for purposes of the Investment Act if
he or she acquired a majority of the common shares of the Company. The
acquisition of less than a majority, but at least one-third of the shares, would
be presumed to be an acquisition of control of the Company, unless it could be
established that the Company not controlled in fact by the acquirer through the
ownership of the shares. In general, an individual is a WTO Investor if he or
she is a "national" of a country (other than Canada) that is a member of the
World Trade Organisation ("WTO Member") or has a right of permanent residence in
a WTO Member. A corporation or other entity will be a "WTO Investor" if it is a
"WTO Investor-controlled entity," pursuant to detailed rules set out in the
Investment Act. The United States is a WTO Member. Certain transactions
involving the Company's common shares would be exempt from the Investment Act,
including:

                                      -93-
<Page>

     (a)  an acquisition of the shares if the acquisition were made in the
          ordinary course of that person's business as a trader or dealer in
          securities;
     (b)  an acquisition of control of the Company in connection with the
          realization of a security interest granted for a loan or other
          financial assistance and not for any purpose related to the provisions
          of the Investment Act; and
     (c)  an acquisition of control of the Company by reason of an amalgamation,
          merger, consolidation or corporate reorganization, following which the
          ultimate direct or indirect control in fact of the Company, through
          the ownership of voting interests, remains unchanged.

Material Contracts

     In November 1997 the Company entered into a global alliance with Pfizer and
granted Pfizer a perpetual exclusive license to market, sell and distribute
Anipryl in exchange for non-refundable fees, royalties based on world-wide sales
of Anipryl, a manufacturing and supply agreement and a research collaboration.
The terms of the alliance were amended in December 1999 and again in December
2001. See "Item 4: Other Collaboration Agreements" and "Item 18: Financial
Statements." The definitive agreements governing this global alliance are as
follows:

     -    Master Agreement dated November 12, 1997 between DRAXIS, DAHI and
          Pfizer (Exhibit 4.1);

     -    License Agreement dated November 12, 1997 between DAHI and Pfizer
          (Exhibit 4.2); and

     -    Letter agreement dated December 22, 1999 between DAHI and Pfizer
          (Exhibit 4.3); and

     -    Second Amendment dated December 18, 2001 between DRAXIS, DAHI and
          Pfizer (Exhibit 4.4).

     On October 18, 2000, the Company entered into an employment agreement with
Mr. Jack Carter, Vice President Human Resources of the Company. Pursuant to this
agreement, Mr. Carter is paid a gross salary of CDN$130,000 per annum and is
entitled to an annual discretionary bonus as determined by the Compensation
Committee. This agreement also has certain specific termination provisions. In
event of his termination of employment without cause, Mr. Carter is entitled to
receive a payment equal to his annual remuneration; in the event of Mr. Carter's
termination of employment following a change of control of the Company, Mr.
Carter is entitled to receive a payment equal to two (2) times his annual
remuneration. See "Item 6: Directors, Senior Management and Employees,
Termination of Employment Contracts." This agreement is Exhibit 4.23 to this
annual report.

     On October 11, 2000, an employment agreement was entered into between the
Company and Mr. Douglas Parker, General Counsel & Secretary of the Company.
Pursuant to this agreement, Mr. Parker is paid a gross salary of CDN$110,000 per
annum and is entitled to an annual discretionary bonus as determined by the
Compensation Committee. This agreement also has certain specific termination
provisions. In event of his termination of employment without cause, Mr. Parker
is entitled to receive a payment equal to his annual remuneration; in the event
of Mr. Parker's termination of employment following a change of control of the
Company, Mr. Parker is entitled to receive a payment equal to two (2) times his
annual remuneration. See "Item 6: Directors, Senior Management and Employees
Termination of Employment Contracts." This agreement is Exhibit 4.26 to this
annual report.

                                      -94-
<Page>

     On May 30, 2001, an employment agreement was entered into between the
Company and Mr. Jerry Ormiston, Executive Director, Investor Relations of the
Company. Pursuant to this agreement, Mr. Ormiston is paid a gross salary of
CDN$130,000 per annum and is entitled to an annual discretionary bonus as
determined by the Compensation Committee. This agreement also has certain
specific termination provisions. In event of his termination of employment
without cause, Mr. Ormiston is entitled to receive a payment equal to his annual
remuneration; in the event of Mr. Ormiston's termination of employment following
a change of control of the Company, Mr. Ormiston is entitled to receive a
payment equal to two (2) times his annual remuneration. See "Item 6: Directors,
Senior Management and Employees Termination of Employment Contracts." This
agreement is Exhibit 4.27 to this annual report.

     The shareholders of the Company approved at the May 16, 2002 Annual and
Special Meeting a shareholders rights plan for the Company as set out in a
Shareholder Rights Plan Agreement dated April 23, 2002 between the Company and
Computershare Trust Company of Canada as trustee. This plan is substantially
similar to one that has been in place at the Company since April 1997. This plan
is aimed at allowing more time for the Board of Directors to ensure that
shareholders are fully compensated for the value of their common shares in the
event of a take-over offer for the Company. See "Item 10: Additional
Information, Shareholder Rights Plan." This agreement is Exhibit 4.28 to this
annual report.

Exchange Controls

     Canada has no system of exchange controls. There are no exchange
restrictions on borrowing from foreign countries or on the remittance of
dividends, interest, royalties and similar payments, management fees, loan
repayments, settlement of trade debts or the repatriation of capital. There are
no limits on the rights of non-Canadians to exercise voting rights on their
common shares of the Company.

Taxation

     The following summary describes the principal Canadian federal income tax
considerations generally applicable under the Income Tax Act (Canada) (the
"ITA") to a holder of the Company's common shares who has never been resident or
deemed to have been resident in Canada for the purposes of the ITA and who holds
common shares as capital property and does not hold or use and is not deemed to
hold or use such common shares in or in the course of carrying on a business in
Canada. The summary is based on the current provisions of the ITA, the
regulations thereunder in force on the date hereof, all proposed amendments to
the ITA and regulations publicly announced by the Minister of Finance (Canada)
prior to the date hereof (the "Amendments"), and on the understanding of counsel
of the current published administrative and assessing practices of the Canada
Customs and Revenue Agency. This summary is not exhaustive of all possible
Canadian federal income tax considerations, and except as mentioned above, does
not take into account any prospective changes to the tax law of Canada, whether
occasioned by legislative, governmental, or judicial action. Further, the
summary does not take account of foreign or provincial tax legislation or
considerations that may vary from the Canadian federal income tax implications
described herein. This summary does not purport to be, nor should it be
construed as, legal or tax-related advice to any holder of common shares. Each
holder of common shares should consult his or her own tax advisor.

     Dividends on shares by shareholders who are not residents of Canada

     Dividends, including stock and cash dividends and certain distributions and
redemptions deemed to be dividends under the ITA, on the common shares paid to
non-residents of Canada will be subject to Canadian withholding tax at a rate of
twenty-five percent (25%). The applicable rate of withholding may, however, be
reduced by virtue of the terms of any applicable tax treaty. Under the terms of
the Canada-U.S. Income Tax Convention, 1980 (the "Treaty"), the rate which is
generally applicable to United States

                                      -95-
<Page>

resident individuals who are beneficial owners of common shares in respect of
which there is paid or credited or deemed by the ITA to be paid or credited
Canadian-source dividends is fifteen percent (15%); effective January 1, 1997,
in certain cases where the holder is a company owning more than ten percent
(10%) of the common shares, five percent (5%) for dividends paid. Under the
Treaty, certain tax-exempt entities that are resident in the United States may
be exempt from Canadian withholding taxes, including any withholding tax levied
in respect of dividends received on the common shares.

     Dividends on shares by shareholders who are residents of Canada

     Dividends, including stock and cash dividends and certain distributions and
redemptions deemed to be dividends under the ITA, on the common shares of the
Company paid to residents of Canada will be included in computing their income
and will be subject to the gross-up and dividend tax credit rules normally
applicable to taxable dividends paid by taxable Canadian corporations. A holder
that is a corporation may be liable to pay refundable tax under Part IV of the
ITA. However, a public corporation that is not controlled, whether because of a
beneficial interest in one or more trusts or otherwise, by or for the benefit of
an individual (other than a trust) or related group of individuals (other than
trusts) will not be liable to pay refundable tax under Part IV of the ITA.

     In the case of a holder of common shares of the Company that is a
corporation, the amount of any capital loss otherwise determined resulting from
the disposition of a common share of the Company may be reduced by the amount of
dividends previously received or deemed to have been received thereon. Any such
restriction will not occur where the corporate holder owned the common share of
the Company for 365 days or longer and such holder (together with any persons
with whom it did not deal with at arm's length) did not own more than five
percent (5%) of the shares of any class or series of shares at the time the
relevant dividends were received or deemed to have been received. Analogous
rules apply where a corporation is a member of a partnership or a beneficiary of
a trust, which owns common shares of the Company.

     Dispositions by shareholders who are not residents of Canada

     Capital gains arising as a consequence of the disposition of common shares
(other than to the Company) by a resident of the United States will normally be
exempt from taxation under the ITA except to the extent that such shares
constitute or are deemed to constitute taxable Canadian property ("TCP") (as
defined in the ITA), the gain on which would not otherwise be exempt under the
terms of the Treaty. In general, the common shares will not constitute TCP of a
non-resident holder unless (i) such holder holds the common shares as capital
property and uses them in carrying on a business in Canada, (ii) the holder is a
non-resident insurer who holds the common shares as capital property and holds
or uses such shares in the course of carrying on an insurance business in Canada
in a particular taxation year, or (iii) at any time in the five year period
immediately preceding the disposition, not less than twenty-five percent (25%)
of the issued shares of any class of the capital stock of the Company belonged
to such holder, to persons not dealing at arm's length with him or to such
holder and persons not dealing at arm's length with him. For the purposes of the
twenty-five percent (25%) test, a person holding an option to acquire common
shares or other securities convertible into or exchangeable for common shares,
or otherwise having an interest in common shares, will be considered to own such
shares. Special rules apply to deem certain partnership interests, where fifty
percent (50%) or more of the value of the underlying partnership's property is
represented by TCP, to be TCP. Consequently, a resident of the United States who
disposes of such partnership interests will be required to comply with certain
notification procedures, including obtaining a certificate from Canada Customs
and Revenue Agency in respect of the disposition.

     To the extent that the common shares do constitute TCP of the non-resident
holder and the disposition thereof results in a capital gain, such holder will
normally be obliged to recognise that gain

                                      -96-
<Page>

and pay tax thereon pursuant to the provisions of the ITA. However, the Treaty
will normally apply to exempt the United States resident holder of common shares
from such tax, provided that the value of such shares is not derived principally
from real property and/or interests therein situate in Canada at the time the
common shares are disposed of and provided such holder does not have and has not
had within the 12-month period preceding the disposition a permanent
establishment or fixed base available to such holder in Canada.

     Disposition by shareholders who are residents of Canada

     On a disposition or deemed disposition of a common share of the Company a
resident of Canada holder will receive a capital gain (or capital loss) equal to
the amount by which the proceeds of disposition for the common share exceeded
(or are less than) the aggregate of any cost of disposition and the adjusted
cost base to the holder of the common share of the Company immediately before
the disposition. Pursuant to the ITA, a holder of common shares of the Company
who is a resident of Canada will be required to include in income one-half (1/2)
of the amount of any capital gain and may deduct one-half (1/2) of the amount of
any capital loss against taxable capital gains realised by the holder in the
year of the disposition. Allowable capital losses in excess of taxable capital
gains may be carried back and deducted in any of the three proceeding years or
carried forward and deducted in any following year against taxable capital gains
realised in such years to the extent and under the circumstances described in
the ITA and the Amendments.

     A Canadian-controlled private corporation will also be subject to a
refundable tax of sixty-six and two-thirds percent (66 2/3%) on certain
investment income, including taxable capital gains realised on the disposition
of common shares of the Company, that will be refundable when the corporation
pays taxable dividends (at a rate of CDN$1.00 for every CDN$3.00 of taxable
dividend paid).

     A capital loss realised by a holder of common shares of the Company that is
a corporation, a partnership of which a corporation is a member or a trust of
which a corporation is a beneficiary may be reduced by the amount of dividends
received in certain circumstances. Capital gains received by an individual may
give rise to a liability for alternative minimum tax.

Documents on Display

     The Company is subject to the information requirements of the U.S.
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, the Company files reports and other information with the United
States Securities and Exchange Commission. These materials, including this
Annual Report and the exhibits thereto, may be inspected and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of the materials may be obtained from the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The public may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission in
the United States at 1-800-SEC-0330. The Commission also maintains a web site at
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the Commission. The
Company's annual reports and some of the other information submitted by the
Company to the Commission may be accessed through this web site. In addition,
material filed by the Company can be inspected at the offices of the NASDAQ at
9801 Washingtonian Blvd., Gaithersburg, MD 20878, and on the Canadian Securities
Administrators' electronic filing system, SEDAR, accessible at the web site
http://www.sedar.

                                      -97-
<Page>

Item 11.  Quantitative and Qualitative Disclosures About Market Risk

Market Risk

     We are exposed to financial market risks, including changes in foreign
currency exchange rates, interest rates on investments and debt obligations. We
do not use derivative financial instruments for speculative or trading purposes.

     Inflation has not had a significant impact on our results of operations.

Foreign Currency Risk

     We operate internationally, however a substantial portion of our revenue
and expense activities and capital expenditures are transacted in Canadian
dollars. We do not believe we have a material exposure to foreign currency risk
because of the relative stability of the Canadian dollar in relation to the U.S.
dollar. A 10% adverse change in foreign currency exchange rates would not have a
material effect on our consolidated results of operations, financial position,
or cash flows.

Interest Rate Risk

     The primary objective of our investment policy is the protection of
principal, and accordingly we invest in high-grade commercial paper and
government securities with varying maturities, but typically less than 90 days.
As it is our intent and policy to hold these investments until maturity, we do
not have a material exposure to interest rate risk. Therefore, a 100 basis-point
adverse change in interest rates would not have a material effect on our
investment portfolio.

     We are exposed to interest rate risk on borrowings from our term bank loan
facility and unsecured obligation. The term bank loan facility bears interest
based on Canadian dollar prime rate and the unsecured obligation bears interest
based on Bank of Canada rate. Based on projected advances under both facilities,
a 100 basis-point adverse change in interest rates would not have a material
effect on our financial position.

Item 12.  Description of Securities Other Than Equity Securities

     Not Applicable

                                    PART II.

Item 13.  Defaults, Dividends Arrearages and Delinquencies

     Not Applicable

Item 14.  Material Modifications to the Rights of Security Holders and Use of
          Proceeds

     Not Applicable

                                    PART III.

Item 17.  Financial Statements

     Not Applicable

                                      -98-
<Page>

Item 18.  Financial Statements

     The following financial statements are filed as part of this annual report
on Form 20-F.

<Table>
     <S>                                                                    <C>
     Management's Report....................................................F-1
     Report of Deloitte & Touche LLP........................................F-2
     Consolidated balance sheets............................................F-4
     Consolidated statements of operations and deficit......................F-5
     Consolidated statements of cash flows..................................F-7
     Notes to the consolidated financial statements.........................F-8
</Table>

Item 19.  Exhibits

       Exhibit No.                       Description

          1.1       Articles of Amalgamation of DRAXIS Health Inc. (incorporated
                    herein by reference to the Company's Annual Report on Form
                    20-F for the year ended December 31, 2000, filed on June 29,
                    2001 (SEC file no. 000-17434))
          1.2       By-law No. 1 of DRAXIS Health Inc. (formerly Deprenyl
                    Research Limited) (incorporated herein by reference to the
                    Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))
          4.1       Master Agreement dated November 12, 1997 among DRAXIS Health
                    Inc., Deprenyl Animal Health Inc. and Pfizer Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.2       License Agreement dated November 12, 1997 between Deprenyl
                    Animal Health Inc. and Pfizer Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.3       Letter Agreement dated December 22, 1999 between DRAXIS
                    Health Inc., Deprenyl Animal Health Inc. and Pfizer Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.4*      Second Amendment dated December 18, 2001 to the Master
                    Agreement, as amended December 22, 1999, License Agreement,
                    Research Agreement, U.S. and Canada Manufacturing and Supply
                    Agreement and International Manufacturing and Supply
                    Agreement between Pfizer Inc., Deprenyl Animal Health, Inc.
                    and DRAXIS Health Inc. dated November 12, 1997
          4.5       Asset Purchase Agreement dated May 3, 2000 by and among
                    DRAXIS Health Inc., Block Drug Company (Canada) Limited and
                    Block Drug Company, Inc. (incorporated herein by reference
                    to the Company's Annual Report on Form 20-F for the year
                    ended December 31, 2000, filed on June 29, 2001 (SEC file
                    no. 000-17434))
          4.6       License, Distribution and Supply Agreement dated June 17,
                    1999 between DRAXIS Health, Inc., Elan Pharma
                    (International) Limited and Elan Pharmaceuticals, Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))

* Confidential treatment requested as to a portion of this exhibit.

                                      -99-
<Page>

          4.7       Subscription Agreement dated February 18, 2000 among SGF
                    Sante Inc. and DRAXIS Pharma Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.8       Subscription Agreement dated March 28, 2002 among SGF Sante
                    Inc., DRAXIS Health Inc. and DRAXIS Pharma Inc.
          4.9       Amended and Restated Unanimous Shareholders' Agreement dated
                    March 28, 2002 among DRAXIS Health Inc., SGF Sante Inc.,
                    DRAXIS Pharma Inc., Dwight Gorham, Mohammed Barkat and
                    Michel Sauvageau
          4.10      Term Loan Agreement dated June 9, 1998 between National Bank
                    of Canada and DRAXIS Pharma Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.11      Credit Agreement dated February 18, 2000 between National
                    Bank of Canada and DRAXIS Pharma Inc. (incorporated herein
                    by reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.12      Amendment to Credit Facilities for DRAXIS Pharma Inc. dated
                    March 28, 2002 between National Bank of Canada and DRAXIS
                    Pharma Inc.
          4.13      Loan Agreement dated March 28,2002 among DRAXIS Pharma Inc.,
                    SGF Sante Inc. and DRAXIS Health Inc.
          4.14      Loan Agreement dated March 28, 2002 among DRAXIS Pharma
                    Inc., Investissement Quebec and DRAXIS Health Inc.
          4.15      Stock Option Plan of DRAXIS Health Inc., as amended, dated
                    August 26, 1998 (incorporated herein by reference to the
                    Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))
          4.16      DRAXIS Health Inc. Employee Stock Ownership Plan, amended
                    and restated, Effective December 1, 1998 (incorporated
                    herein by reference to the Company's Annual Report on Form
                    20-F for the year ended December 31, 2000, filed on June 29,
                    2001 (SEC file no. 000-17434))
          4.17      DRAXIS Health Inc. Employee Participation Share Purchase
                    Plan, Effective February 16, 1995 (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.18      DRAXIS Health Inc. Deferred Share Unit Plan for Employees
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.19      DRAXIS Health Inc. Equity Purchase Plan (incorporated herein
                    by reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.20      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Dr. Martin Barkin (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.21      Amendment dated June 14, 2000 to Employment Agreement dated
                    April 15, 1999 between DRAXIS Health Inc. and Dr. Martin
                    Barkin (incorporated herein by reference to the Company's
                    Annual Report on Form 20-F for the year ended December 31,
                    2000, filed on June 29, 2001 (SEC file no. 000-17434))

                                      -100-
<Page>

          4.22      Employment Agreement dated September 3, 1996 between DRAXIS
                    Health Inc. and James A. H. Garner (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.23      Employment Agreement dated October 18, 2000 between DRAXIS
                    Health Inc. and Jack A. Carter (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.24      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Roger Mailhot (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.25      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Dan Brazier (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.26      Employment Agreement dated October 11, 2000 between DRAXIS
                    Health Inc. and Douglas Parker (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.27      Employment Agreement dated May 14, 2001 between DRAXIS
                    Health Inc. and Jerry Ormiston
          4.28      Shareholder Rights Plan Agreement dated April 23, 2002
                    between DRAXIS Health Inc. and Computershare Trust Company
                    of Canada as trustee
          8.1       List of Subsidiaries (incorporated herein by reference to
                    the Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))

SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorised the undersigned
to sign this annual report on its behalf.

                                         DRAXIS HEALTH INC.

      Date:    May 20, 2002             By: /s/  JIM A.H. GARNER
                                            ------------------------
                                            Senior Vice President, Finance and
                                            Chief Financial Officer


                                        By: /s/  MARTIN BARKIN, M.D.
                                            ------------------------
                                            President and Chief
                                            Executive  Officer


                                      -101-
<Page>

                                  EXHIBIT INDEX
                               DRAXIS HEALTH INC.
                             Form 20-F Annual Report

        EXHIBIT NO.                       DESCRIPTION

          1.1       Articles of Amalgamation of DRAXIS Health Inc. (incorporated
                    herein by reference to the Company's Annual Report on Form
                    20-F for the year ended December 31, 2000, filed on June 29,
                    2001 (SEC file no. 000-17434))
          1.2       By-law No. 1 of DRAXIS Health Inc. (formerly Deprenyl
                    Research Limited) (incorporated herein by reference to the
                    Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))
          4.1       Master Agreement dated November 12, 1997 among DRAXIS Health
                    Inc., Deprenyl Animal Health Inc. and Pfizer Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.2       License Agreement dated November 12, 1997 between Deprenyl
                    Animal Health Inc. and Pfizer Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.3       Letter Agreement dated December 22, 1999 between DRAXIS
                    Health Inc., Deprenyl Animal Health Inc. and Pfizer Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.4*      Second Amendment dated December 18, 2001 to the Master
                    Agreement, as amended December 22, 1999, License Agreement,
                    Research Agreement, U.S. and Canada Manufacturing and Supply
                    Agreement and International Manufacturing and Supply
                    Agreement between Pfizer Inc., Deprenyl Animal Health, Inc.
                    and DRAXIS Health Inc. dated November 12, 1997
          4.5       Asset Purchase Agreement dated May 3, 2000 by and among
                    DRAXIS Health Inc., Block Drug Company (Canada) Limited and
                    Block Drug Company, Inc. (incorporated herein by reference
                    to the Company's Annual Report on Form 20-F for the year
                    ended December 31, 2000, filed on June 29, 2001 (SEC file
                    no. 000-17434))
          4.6       License, Distribution and Supply Agreement dated June 17,
                    1999 between DRAXIS Health, Inc., Elan Pharma
                    (International) Limited and Elan Pharmaceuticals, Inc.
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.7       Subscription Agreement dated February 18, 2000 among SGF
                    Sante Inc. and DRAXIS Pharma Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.8       Subscription Agreement dated March 28, 2002 among SGF Sante
                    Inc., DRAXIS Health Inc. and DRAXIS Pharma Inc.

* Confidential treatment requested as to a portion of this exhibit.

                                      -102-
<Page>

          4.9       Amended and Restated Unanimous Shareholders' Agreement dated
                    March 28, 2002 among DRAXIS Health Inc., SGF Sante Inc.,
                    DRAXIS Pharma Inc., Dwight Gorham, Mohammed Barkat and
                    Michel Sauvageau
          4.10      Term Loan Agreement dated June 9, 1998 between National Bank
                    of Canada and DRAXIS Pharma Inc. (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.11      Credit Agreement dated February 18, 2000 between National
                    Bank of Canada and DRAXIS Pharma Inc. (incorporated herein
                    by reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.12      Amendment to Credit Facilities for DRAXIS Pharma Inc. dated
                    March 28, 2002 between National Bank of Canada and DRAXIS
                    Pharma Inc.
          4.13      Loan Agreement dated March 28,2002 among DRAXIS Pharma Inc.,
                    SGF Sante Inc. and DRAXIS Health Inc.
          4.14      Loan Agreement dated March 28, 2002 among DRAXIS Pharma
                    Inc., Investissement Quebec and DRAXIS Health Inc.
          4.15      Stock Option Plan of DRAXIS Health Inc., as amended, dated
                    August 26, 1998 (incorporated herein by reference to the
                    Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))
          4.16      DRAXIS Health Inc. Employee Stock Ownership Plan, amended
                    and restated, Effective December 1, 1998 (incorporated
                    herein by reference to the Company's Annual Report on Form
                    20-F for the year ended December 31, 2000, filed on June 29,
                    2001 (SEC file no. 000-17434))
          4.17      DRAXIS Health Inc. Employee Participation Share Purchase
                    Plan, Effective February 16, 1995 (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.18      DRAXIS Health Inc. Deferred Share Unit Plan for Employees
                    (incorporated herein by reference to the Company's Annual
                    Report on Form 20-F for the year ended December 31, 2000,
                    filed on June 29, 2001 (SEC file no. 000-17434))
          4.19      DRAXIS Health Inc. Equity Purchase Plan (incorporated herein
                    by reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.20      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Dr. Martin Barkin (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.21      Amendment dated June 14, 2000 to Employment Agreement dated
                    April 15, 1999 between DRAXIS Health Inc. and Dr. Martin
                    Barkin (incorporated herein by reference to the Company's
                    Annual Report on Form 20-F for the year ended December 31,
                    2000, filed on June 29, 2001 (SEC file no. 000-17434))
          4.22      Employment Agreement dated September 3, 1996 between DRAXIS
                    Health Inc. and James A. H. Garner (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.23      Employment Agreement dated October 18, 2000 between DRAXIS
                    Health Inc. and Jack A. Carter (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))

                                      -103-
<Page>

          4.24      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Roger Mailhot (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.25      Employment Agreement dated April 15, 1999 between DRAXIS
                    Health Inc. and Dan Brazier (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.26      Employment Agreement dated October 11, 2000 between DRAXIS
                    Health Inc. and Douglas Parker (incorporated herein by
                    reference to the Company's Annual Report on Form 20-F for
                    the year ended December 31, 2000, filed on June 29, 2001
                    (SEC file no. 000-17434))
          4.27      Employment Agreement dated May 14, 2001 between DRAXIS
                    Health Inc. and Jerry Ormiston
          4.28      Shareholder Rights Plan Agreement dated April 23, 2002
                    between DRAXIS Health Inc. and Computershare Trust Company
                    of Canada as trustee
          8.1       List of Subsidiaries (incorporated herein by reference to
                    the Company's Annual Report on Form 20-F for the year ended
                    December 31, 2000, filed on June 29, 2001 (SEC file no.
                    000-17434))

                                      -104-
<Page>

Management's Report

     The Company's management is responsible for preparing the accompanying
consolidated financial statements in conformity with United States generally
accepted accounting principles ("GAAP"). In preparing these consolidated
financial statements, management selects accounting policies and uses its
judgement and best estimates, as appropriate in the circumstances. Management
has determined such amounts on a reasonable basis in order to ensure that the
financial statements are presented fairly, in all material respects.

     The Company maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that assets are safeguarded
and that transactions are executed and recorded in accordance with the Company's
policies. This system is supported by policies and procedures for key business
activities, by the hiring of qualified staff and by a continuous planning and
monitoring program.

     Deloitte & Touche LLP has been engaged by the Company's shareholders to
audit the consolidated financial statements. During the course of their audit,
Deloitte & Touche LLP reviewed the Company's system of internal controls to the
extent necessary to render their opinion on the consolidated financial
statements.

     The Board of Directors is responsible for ensuring that management fulfils
its responsibility for financial reporting and is ultimately responsible for
reviewing and approving the financial statements. The Board carries out the
responsibility principally through its Audit Committee. The members of the Audit
Committee are outside Directors. The Committee considers, for review by the
Board of Directors and approval by the shareholders, the engagement or
reappointment of the external auditors. Deloitte & Touche LLP has full and free
access to the Audit Committee.

     Management acknowledges its responsibility to provide financial information
that is representative of the Company's operations, is consistent and reliable,
and is relevant for the informed evaluation of the Company's activities.

     For the year ended December 31, 2001, the Company switched from Canadian
GAAP to U.S. GAAP as its primary reporting convention. Financial statements
prepared in accordance with Canadian GAAP are available to all shareholders.

       Martin Barkin, MD, FRCSC                 Jim Garner, CA
       President and Chief Executive Officer    Senior Vice President, Finance
                                                and Chief Financial Officer
       Mississauga, Ontario
       February 6, 2002

                                      -F-1-
<Page>

Independent Auditors' Report

To the Shareholders of
DRAXIS Health Inc.

     We have audited the consolidated balance sheets of DRAXIS Health Inc. as at
December 31, 2001 and 2000 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2001. 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 auditing standards generally
accepted in Canada and the United States of America. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. 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. We believe that our
audits provide a reasonable basis for the opinion expressed.

     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2001 and 2000 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2001 in accordance with
generally accepted accounting principles in the United States of America.

     As discussed in Note 23(f), the income tax effect of certain capital
transactions that occurred between 1991 and 1996 had been recorded as deferred
income tax assets rather than being charged to shareholders' equity.
Accordingly, the Company has restated its consolidated balance sheets for the
current and prior years to impact non-current deferred income tax asset,
additional paid-in capital, deficit and accumulated other comprehensive loss.

     On February 6, 2002, we reported separately to shareholders of the Company,
on our audits, where we expressed an opinion without reservation on the
financial statements for the same periods prepared in accordance with generally
accepted accounting principles in Canada.

/s/ Deloitte & Touche LLP

Chartered Accountants

Montreal, Quebec
February 6, 2002

                                      -F-2-
<Page>

     DRAXIS HEALTH INC.
     Consolidated Statements of Operations Years ended December 31

     (in thousands of U.S. dollars except share related data)

<Table>
<Caption>
                                                                         2001                2000             1999
                                                                         ----                ----             ----
<S>                                                                   <C>                <C>               <C>
     REVENUES
              Product sales                                           $    26,232        $    22,019       $   22,047
              Royalty and licensing                                         6,752              7,132            2,338
--------------------------------------------------------------------------------------------------------------------------
                                                                           32,984             29,151           24,385
--------------------------------------------------------------------------------------------------------------------------
                              EXPENSES

              Cost of goods sold                                           21,801             18,237           16,286
              Selling, general and administration                           6,207              7,385            7,219
              Research and development                                      1,279              1,027              748
              Depreciation and amortization                                 2,436              2,318            1,823
              Restructuring charges (Note 5)                                    -                434                -
--------------------------------------------------------------------------------------------------------------------------
                                                                           31,723             29,401           26,076
--------------------------------------------------------------------------------------------------------------------------
     Operating income (loss)                                                1,261               (250)          (1,691)
     Interest expense, net (Note 6)                                           (25)              (637)            (919)
     Other income (Note 7)                                                      -                411            1,819
--------------------------------------------------------------------------------------------------------------------------
Income (loss) before undernoted                                             1,236               (476)            (791)
     Income taxes (Note 8)                                                  2,890               (330)              99
     Minority interest                                                        286                338                -
--------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations before cumulative effect
   of accounting change                                                    (1,368)               192             (890)
     Loss from discontinued operations, net of taxes (Note 9)                (216)              (630)          (4,580)
     Cumulative effect of accounting change, net of taxes                       -            (19,900)               -
--------------------------------------------------------------------------------------------------------------------------
     Net loss                                                         $    (1,584)       $   (20,338)      $   (5,470)
==========================================================================================================================

     BASIC INCOME (LOSS) PER SHARE (NOTE 10)
              From continuing operations before cumulative
                   effect of accounting change                        $     (0.04)       $      0.01       $    (0.03)
              From discontinued operations                                  (0.00)             (0.02)           (0.13)
              From cumulative effect of accounting change                       -              (0.55)               -
--------------------------------------------------------------------------------------------------------------------------
                                                                      $     (0.04)       $     (0.56)      $    (0.16)
==========================================================================================================================

     DILUTED INCOME (LOSS) PER SHARE (NOTE 10)
              From continuing operations before cumulative
                   effect of accounting change                        $     (0.04)       $      0.01       $    (0.03)
              From discontinued operations                                  (0.00)             (0.02)           (0.13)
              From cumulative effect of accounting change                       -              (0.55)               -
--------------------------------------------------------------------------------------------------------------------------
                                                                      $     (0.04)       $     (0.56)      $    (0.16)
==========================================================================================================================
</Table>

APPROVED BY THE BOARD

/s/  Brian King......................Director

/s/ Martin Barkin, M.D...............Director

       See the accompanying notes to the Consolidated Financial Statements

                                      -F-3-
<Page>

     DRAXIS HEALTH INC.
     Consolidated Balance Sheets   December 31

     (in thousands of U.S. dollars except share related data)

<Table>
<Caption>
                                                                                            2001              2000
                                                                                            ----              ----
<S>                                                                                      <C>               <C>
     ASSETS

     CURRENT
              Cash and cash equivalents                                                  $     5,602       $    4,420
              Accounts receivable (Note 11)                                                    7,472            7,655
              Inventories (Note 12)                                                            5,272            6,269
              Prepaid expenses                                                                   570            1,113
              Deferred income taxes, net (Note 8)                                              2,917              804
--------------------------------------------------------------------------------------------------------------------------
                                                                                              21,833           20,261

     Property, plant and equipment, net (Note 13)                                             22,294           19,513
     Goodwill, net (Note 14)                                                                   3,086            4,252
     Intangible assets, net (Note 15)                                                          7,004            8,649
     Other assets                                                                                995            1,250
     Deferred income taxes, net (Note 8)                                                       9,148           13,382
--------------------------------------------------------------------------------------------------------------------------
                                                                                         $    64,360       $   67,307
==========================================================================================================================

     LIABILITIES

     CURRENT
              Bank loan (Note 16)                                                        $     1,666       $    1,335
              Accounts payable and accrued liabilities (Note 17)                               8,125            5,478
              Current portion of deferred revenues (Note 19)                                   6,476            4,901
              Current portion of long-term debt (Note 20)                                      1,446            1,268
--------------------------------------------------------------------------------------------------------------------------
                                                                                              17,713           12,982

     Deferred revenues (Note 19)                                                              18,139           21,363
     Long-term debt (Note 20)                                                                  6,614            8,622
     Customer deposits                                                                         1,966                -
     Minority interest                                                                         3,050            3,532
--------------------------------------------------------------------------------------------------------------------------
                                                                                         $    47,482       $   46,499
--------------------------------------------------------------------------------------------------------------------------
     Commitments and contingencies (Note 25)

     SHAREHOLDERS' EQUITY

     Common stock, without par value of unlimited shares authorized, 36,613,434 and
36,565,102 issued and outstanding at December 31, 2001 and 2000, respectively            $    59,781       $   59,698
     Additional paid in capital                                                               15,476           15,476
     Employee participation shares; 2,000,000 shares authorized (Note 23(c))                     166              166
              Less:  loans receivable                                                           (166)            (166)
     Warrants (Note 23(a))                                                                        74               74
     Deficit                                                                                 (50,869)         (49,285)
     Accumulated other comprehensive loss                                                     (7,584)          (5,155)
--------------------------------------------------------------------------------------------------------------------------
                                                                                              16,878           20,808
--------------------------------------------------------------------------------------------------------------------------
                                                                                         $    64,360       $   67,307
==========================================================================================================================
</Table>

       See the accompanying notes to the Consolidated Financial Statements

                                      -F-4-
<Page>

     DRAXIS HEALTH INC.
     Consolidated Statements of Shareholders' Equity   December 31

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

<Table>
<Caption>
                                                                          2001               2000             1999
                                                                          ----               ----             ----
<S>                                                                   <C>                <C>               <C>
     COMMON STOCK (NUMBER OF SHARES)
     Balance, beginning of year                                        36,565,102         35,557,366       32,280,524
              Issuance of common shares                                         -                  -        3,043,996
              Exercise of warrants                                              -            600,000                -
              Exercise of options                                          48,332            382,582          189,839
              Exercise of employee participation shares                         -            125,154           43,007
              Repurchased for cancellation                                      -           (100,000)               -
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                              36,613,434         36,565,102       35,557,366
--------------------------------------------------------------------------------------------------------------------------

     COMMON STOCK
     Balance, beginning of year                                       $    59,698        $    57,163       $   50,316
              Issuance of common shares                                         -                  -            6,614
              Exercise of warrants                                              -              1,883                -
              Exercise of options                                              83                787              213
              Exercise of employee participation shares                         -                  -               20
              Repurchased for cancellation                                      -               (135)               -
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $    59,781        $    59,698       $   57,163
--------------------------------------------------------------------------------------------------------------------------

     ADDITIONAL PAID IN CAPITAL
     Balance, beginning of year                                       $    15,476        $    14,099       $   14,099
              Gain on  reduction  of  ownership  in  subsidiary                 -              1,377                -
              (Note 21)
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $    15,476        $    15,476       $   14,099
--------------------------------------------------------------------------------------------------------------------------

     EMPLOYEE PARTICIPATION SHARES
     Balance, beginning of year                                       $       166        $       351       $      240
              Issuance of employee participation shares                         -                  -              137
              Exercise of employee participation shares                         -               (185)             (26)
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $       166        $       166       $      351
--------------------------------------------------------------------------------------------------------------------------

     EMPLOYEE PARTICIPATION SHARES-LOANS RECEIVABLE
     Balance, beginning of year                                       $      (166)       $      (351)      $     (240)
              Issuance of employee participation shares                         -                  -             (137)
              Exercise of employee participation shares                         -                185               26
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $      (166)       $      (166)      $     (351)
--------------------------------------------------------------------------------------------------------------------------

     WARRANTS
     Balance, beginning of year                                       $        74        $       437       $      363
              Issuance of warrants                                              -                  -               74
              Exercise of warrants                                              -               (363)               -
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $        74        $        74       $      437
--------------------------------------------------------------------------------------------------------------------------

     DEFICIT
     Balance, beginning of year                                       $   (49,285)       $   (28,819)      $  (23,349)
              Net loss                                                     (1,584)           (20,338)          (5,470)
              Common shares purchased for cancellation                          -               (128)               -
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                             $   (50,869)       $   (49,285)      $  (28,819)
--------------------------------------------------------------------------------------------------------------------------

     ACCUMULATED OTHER COMPREHENSIVE LOSS
     Balance, beginning of year                                       $    (5,155)       $    (4,764)      $   (6,752)
              Other comprehensive (loss) income                            (2,429)              (391)           1,988
--------------------------------------------------------------------------------------------------------------------------
     Balance, end of year                                                  (7,584)            (5,155)          (4,764)
--------------------------------------------------------------------------------------------------------------------------
</Table>

                                      -F-5-
<Page>

<Table>
     <S>                                                              <C>                <C>               <C>
--------------------------------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                       $    16,878        $    20,808       $   38,116
--------------------------------------------------------------------------------------------------------------------------

     COMPREHENSIVE INCOME (LOSS)
              Foreign currency translation adjustments                $    (2,429)       $      (391)      $    1,988
--------------------------------------------------------------------------------------------------------------------------
     Other comprehensive (loss) income                                     (2,429)              (391)           1,988
     Net loss                                                              (1,584)           (20,338)          (5,470)
--------------------------------------------------------------------------------------------------------------------------
     Total comprehensive loss                                         $    (4,013)       $   (20,729)      $   (3,482)
--------------------------------------------------------------------------------------------------------------------------
</Table>

       See the accompanying notes to the Consolidated Financial Statements

                                      -F-6-
<Page>

     DRAXIS HEALTH INC.
     Consolidated Statements Of Cash Flows   Years ended December 31

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

<Table>
<Caption>
                                                                         2001                2000             1999
                                                                         ----                ----             ----
 <S>                                                                  <C>                <C>               <C>
 CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
    Net (loss) income from continuing  operations before cumulative
     effect of accounting change                                      $    (1,368)       $       192       $     (890)

    Adjustments to reconcile net (loss) income from continuing
     operations to cash flow (used in) from operating activities
      Amortization of deferred revenues                                    (4,783)            (4,234)               -
      Depreciation and amortization                                         2,436              2,318            1,823
      Other income (Note 7)                                                     -               (411)          (1,819)
      Deferred income taxes                                                 1,239             (1,664)             (80)
      Minority interest                                                      (284)              (339)               -
      Other                                                                   470                392             (408)
      Changes in operating assets and liabilities
        Accounts receivable                                                  (991)            (1,192)          12,777
        Inventories                                                           675             (1,719)               -
        Income taxes                                                        1,592                (18)          (3,728)
        Prepaid expenses                                                      495               (912)            (262)
        Accounts payable and accrued liabilities                            1,850               (101)          (2,040)
        Current portion of deferred revenues                                1,629              1,686                -
--------------------------------------------------------------------------------------------------------------------------
                                                                            2,960             (6,002)           5,373
--------------------------------------------------------------------------------------------------------------------------
                 CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES

                  Expenditures for property, plant and equipment           (5,363)            (1,126)          (8,255)
                  Increase in other deferred charges, net                      75                  -             (413)
                  Acquisition of product rights (Note 22)                       -                  -           (2,432)
                  Proceeds from disposition of product rights, net
                   (Note 7)                                                     -                742                -
                  Increase in deferred revenues                             1,722              6,938                -
                  Proceeds from disposition of investment (Note 7)              -                  -            2,285
--------------------------------------------------------------------------------------------------------------------------
                                                                           (3,566)             6,554           (8,815)
--------------------------------------------------------------------------------------------------------------------------
         CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
                  Proceeds from bank loan (Note 16)                           434              1,381            4,041
                  Repayment of bank loan (Note 16)                              -             (2,522)          (1,619)
                  Proceeds from long-term debt                                  -                  -            2,550
                  Repayment of long-term debt                                (762)            (4,046)            (250)
                  Proceeds from customer deposits                           2,000                  -                -
                  Exercise of warrants and options                             83              2,308              213
                  Loan repayment upon exercise of participation shares          -                  -               20
                  Common share offering, net of related expenses                -                  -            6,571
                  Common shares purchased for cancellation                      -               (262)               -
                  Issue of common shares by subsidiary to minority
                   interest (Note 21)                                           -              5,375                -
--------------------------------------------------------------------------------------------------------------------------
                                                                            1,755              2,234           11,526
--------------------------------------------------------------------------------------------------------------------------
         Effect of foreign exchange rate changes on cash and cash
          equivalents                                                         (28)               214              103
--------------------------------------------------------------------------------------------------------------------------
         Net cash from continuing operations                                1,121              3,000            8,187
         Net cash (used in) from discontinuing operations                      61               (596)          (8,564)
--------------------------------------------------------------------------------------------------------------------------
         Net increase (decrease) in cash and cash equivalents               1,182              2,404             (377)
         Cash and cash equivalents, beginning of year                       4,420              2,016            2,393
--------------------------------------------------------------------------------------------------------------------------
         Cash and cash equivalents, end of year                       $     5,602        $     4,420       $    2,016
==========================================================================================================================
         ADDITIONAL INFORMATION
         Interest paid                                                $       634        $       676       $      618
         Income taxes paid                                            $       336        $     1,474       $    3,396
==========================================================================================================================
</Table>

       See the accompanying notes to the Consolidated Financial Statements

                                      -F-7-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

1.   Nature of Operations

          DRAXIS Health Inc. ("DRAXIS" or the "Company") is an integrated
     pharmaceutical company focused in two specialty segments: the development,
     production, marketing and distribution of radiopharmaceuticals through its
     wholly owned subsidiary DRAXIMAGE Inc. ("DRAXIMAGE") and the provision of
     contract pharmaceutical manufacturing services, specialising in liquid and
     freeze-dried injectables and other sterile products through its 65.9%-owned
     subsidiary DRAXIS Pharma Inc. ("DPI"). The Company's common shares are
     listed on NASDAQ and The Toronto Stock Exchange.

2.   Significant Accounting Policies

     (a) Basis of Presentation

          The Company has prepared these consolidated financial statements in
     U.S. dollars and in accordance with generally accepted accounting
     principles ("GAAP") in the United States.

          For the year ended December 31, 2001, the Company switched from
     Canadian GAAP to U.S. GAAP as its primary reporting convention.

          The change in reporting currency and GAAP was influenced by the
     Company's desire to better meet the needs of its shareholders by reporting
     in the currency of, and by applying accounting rules that are consistent
     with, the majority of its customers and peer companies.

          Consolidated financial statements prepared in U.S. dollars and in
     accordance with Canadian GAAP are available to shareholders and filed with
     various regulatory authorities.

     (b) Principles of Consolidation

          The consolidated financial statements include the accounts of the
     Company and its subsidiary companies with provision for minority interests.
     The Company's effective interest in the voting equity share capital of its
     principal subsidiaries is 100%, except for DPI which is 65.9% (2000-65.9%;
     1999-100%). All significant intercompany transactions and balances are
     eliminated on consolidation.

     (c) Minority Interest

          Minority interest represents the minority shareholders' proportionate
     share of equity and net income or loss of DPI.

     (d) Use of Estimates

          The preparation of the Company's consolidated financial statements
     requires management to make estimates and assumptions that affect the
     reported amounts of assets and liabilities and disclosures of contingent
     assets and liabilities at the date of the financial statements and the
     reported amounts of revenues and expenses during the reporting period.
     Actual results could differ from those estimates. Estimates are used when
     accounting for items and matters such as long-term contracts, allowance for
     uncollectible accounts receivable, inventory obsolescence, product
     warranty, amortization, employee benefits, taxes, provisions, acquired
     research and development and contingencies.

                                      -F-8-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     (e) Reporting Currency and Foreign Currency Translation

          The Company reports its consolidated financial statements in U.S.
     dollars. The financial statements of the parent company and its non-U.S.
     subsidiaries are translated into U.S. dollars in accordance with Statement
     of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
     Translation". Asset and liability accounts are translated at the rate of
     exchange prevailing at the balance sheet date. Shareholders' equity
     accounts are translated at the applicable historical rate. Revenue and
     expense accounts are translated at the average rate of exchange for the
     period. The cumulative foreign currency translation adjustment is reported
     as a component of accumulated other comprehensive loss in shareholders'
     equity. The net change in the cumulative foreign currency translation
     adjustment in the periods presented is primarily due to fluctuations in the
     exchange rates between the Company's reporting currency and the Canadian
     dollar.

          Foreign currency transaction gains and losses are included in net
     income (loss), and are immaterial for all periods presented.

     (f) Revenue Recognition

          Product Sales - The Company recognises revenue from product sales, net
     of trade discounts and allowances, upon shipment when all significant
     contractual obligations have been satisfied and collection is reasonably
     assured. In certain circumstances the Company allows customers to return or
     exchange products.

          Amounts received from customers as prepayments for products to be
     shipped in the future are reported as customer deposits.

          Service revenues are recognised at the time of performance or
     proportionately over the term of the contract, as appropriate.

          Royalty and Licensing - Royalty revenue is recognised on an accrual
     basis in accordance with contractual agreements when all significant
     contractual obligations have been satisfied, the amounts are determinable
     and collection is reasonably assured. Royalty revenue is net of amounts
     owing to sublicensees where the Company is simply acting as an agent for
     the sublicensee.

          License and other forms of non-refundable fees received pursuant to
     collaboration agreements are accounted for according to the related
     contractual agreements. In general, such fees are deferred and recognised
     on a straight-line basis over the lesser of the contract period and the
     estimated term over which contractual benefits are expected to be derived.
     If payment of such fees is contingent upon future performance obligations
     of the Company or other future events, revenue recognition of such amounts
     is deferred and recognised upon completion of the specific event.

     (g) Research and Development

          In accordance with SFAS No. 2, "Accounting for Research and
     Development Costs", research and development costs are expensed in the
     period in which they are incurred. Acquired research and development having
     no alternative future use is written off at the time of acquisition. The
     cost of intangibles that are purchased from others for a particular
     research and development project that have no alternative future use are
     written off at the time of acquisition.

                                      -F-9-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     (h) Income Taxes

          The liability method of accounting for income taxes is used in
     accordance with SFAS No. 109, "Accounting for Income Taxes". Under this
     method, deferred tax assets and liabilities are recognised for the
     differences between the financial statement and income tax bases of assets
     and liabilities, and for operating losses and tax credit carryforwards. A
     valuation allowance is provided for the portion of deferred tax assets
     which are more-likely-than-not to be unrealized. Deferred tax assets and
     liabilities are measured using the enacted tax rates and laws.

     (i) Cash and Cash Equivalents

          All highly liquid investments with original maturities of three months
     or less are classified as cash and cash equivalents. The fair value of cash
     and cash equivalents approximates the amounts shown in the financial
     statements.

     (j) Inventories

          Inventories are comprised of raw materials, work-in-process and
     finished goods, which are valued at the lower of cost and net realizable
     value, on a first-in, first-out basis. The costs of raw materials and
     acquired finished goods are the purchase price of the product and
     attributable direct costs, less trade discounts. The cost of manufactured
     inventory includes the purchase price of raw materials, direct labour, and
     the application of attributable overheads.

     (k) Property, Plant and Equipment

          Property, plant and equipment are reported at cost, less accumulated
     depreciation. The Company provides for depreciation using the following
     methods and applying rates estimated to amortize the cost over the useful
     life of the assets:

               Building      straight-line over 25 years
               Equipment     20%-30% diminishing balance and straight-line over
                             5-10 years

          Expenditures for construction of assets incurred prior to productive
     use are reflected as assets under construction. Depreciation commences when
     an asset is substantially completed and ready for productive use.

     (l) Goodwill and Intangible Assets

          Goodwill and intangible assets are reported at cost, less accumulated
     amortization. The Company provides for amortization on a straight-line
     basis on the following estimated useful lives:

               Goodwill                              10 years
               Patents and trademarks                10 years
               Licenses                              9 - 15 years

          In accordance with SFAS No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
     reviews long-lived identifiable assets and related goodwill for impairment
     whenever events or changes in circumstance indicate that the carrying
     amount of the assets may not be recoverable, by comparing the carrying
     amount to the related, estimated undiscounted future net cash flows.

     (m) Stock-based Compensation

          Under the provisions of SFAS No. 123, "Accounting for Stock
     Compensation", companies can either measure the compensation cost of equity
     instruments issued under

                                     -F-10-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     employee compensation plans using a fair value based method or can continue
     to recognise compensation cost using the intrinsic value method under the
     provisions of Accounting Principles Board Opinion ("APB") No. 25,
     "Accounting for Stock Issued to Employees". However, if the provisions of
     APB No. 25 are applied, pro forma disclosure of net income (loss) and
     earnings (loss) per share must be presented in the financial statements as
     if the fair value method had been applied. For all periods presented, the
     Company recognised compensation costs under the provisions of APB No. 25,
     and the Company has provided the expanded disclosure required by SFAS
     No. 123.

3.   Accounting Change

          Effective January 1, 2000, the Company changed its policy with respect
     to revenue recognition of non-refundable fees received in connection with
     collaboration agreements, whereby such fees are now deferred and recognised
     as revenue rateably over the contract period. This new policy is consistent
     with the guidelines contained in the U.S. Securities and Exchange
     Commission Staff Accounting Bulletin #101, "Revenue Recognition in
     Financial Statements", dated December 1999. In 2000, $19,900 or $0.55 per
     share, representing the cumulative effect of this change in policy, was
     charged to earnings. Previously, such fees had been recognised as revenue,
     based on contractual entitlements and when receipt was reasonably assured.

4.   Government Assistance

          During the year, the Company recognised government assistance of $Nil
     (2000-$211; 1999-$278) related to creation of permanent jobs by DPI. This
     assistance was recorded as a reduction of selling, general and
     administration expenses.

          The agreement governing the government assistance contains a
     contingency clause which would require repayment of funding if certain
     conditions are not met. The Company believes that it is compliant with
     these conditions.

5.   Restructuring Charges

<Table>
<Caption>
                                             2001         2000        1999
                                             ----         ----        ----
          <S>                                 <C>      <C>             <C>
          Severance                           $ -      $    434        $ -
     =========================================================================
</Table>

          During 2000, the Company recorded a restructuring charge to cover
     costs associated with the divestiture of its dermatology product lines.
     These restructuring activities were completed in 2000 and the full amount
     of the reserve was utilised. No costs in excess of the provision have been
     incurred in subsequent periods.

6.   Interest Expense

<Table>
<Caption>
                                              2001        2000          1999
                                              ----        ----          ----
          <S>                                <C>       <C>             <C>
          Interest income                    $ 164     $   397         $ 320
          Financing expense                   (567)     (1,013)         (994)
          Foreign exchange gain (loss)         378         (21)         (245)
     -------------------------------------------------------------------------
                                             $ (25)    $  (637)        $(919)
     =========================================================================
</Table>

                                     -F-11-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

7.   Other Income

<Table>
<Caption>
                                                   2001        2000       1999
                                                   ----        ----       ----

          <S>                                      <C>        <C>       <C>
          Gain on disposition of product rights    $  -       $ 411     $     -
          Gain on disposition of investment           -           -       1,819
     --------------------------------------------------------------------------
                                                   $  -       $ 411     $ 1,819
     ==========================================================================
</Table>

          Gain on Disposition of Product Rights

          During 2000, the Company disposed of rights to certain dermatology
     products for proceeds of $742 and realized a gain of $411 on this
     transaction.

          Gain on Disposition of Investment

          During 1999, the Company disposed of its investment in Bone Care for
     aggregate proceeds of $2,285 and realized an aggregate gain of $1,819 on
     this transaction.

                                     -F-12-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

8.   Income Taxes

<Table>
<Caption>
                                                    2001        2000       1999
                                                    ----        ----       ----
          <S>                                  <C>          <C>          <C>
          The components of income tax expense
          are as follows:

               Current                         $   1,651    $  1,334     $   179
               Deferred                            1,239      (1,664)        (80)

   ------------------------------------------------------------------------------
                                               $   2,890    $   (330)   $     99
   ==============================================================================
</Table>

     The reported income tax expense differs from the expected amount
     calculated by applying the Company's Canadian combined federal and
     provincial tax rate to income (loss) before income tax expense. The reasons
     for this difference and the related tax effects are as follows:

<Table>
<Caption>
                                                                         2001               2000              1999
                                                                         ----               ----              ----
     <S>                                                              <C>                <C>               <C>
          Income (loss) from continuing operations                    $     1,236        $      (476)      $     (791)
          Canadian combined federal and provincial
          tax rate                                                           37.5%              38.3%            32.5%
     -------------------------------------------------------------------------------------------------------------------
          Expected income tax expense (recovery of income taxes)              463               (182)            (257)

          Increase (decrease) resulting from:

                Foreign tax rate differences                                 (191)               (80)             129
                Effects on deferred income taxes from reduction
                in Canadian income tax rates                                3,300                  -                -
                Non-taxable portion of capital gains                            -               (107)            (195)
                Unrecognized income tax benefit of losses                    (870)              (607)            (387)
                Goodwill amortization                                         286                174              285
                Investment tax credits                                       (283)              (236)            (232)
                Other                                                         185                708              758
   ---------------------------------------------------------------------------------------------------------------------
                                                                      $     2,890        $      (330)      $       99
   =====================================================================================================================
</Table>

      DEFERRED INCOME TAX ASSETS HAVE BEEN PROVIDED AS FOLLOWS:

<Table>
<Caption>
                                                                                                2001            2000
                                                                                                ----            ----
              <S>                                                                        <C>               <C>
              Loss carryforwards and investment tax credits                              $     6,079       $    5,064
              Expenses not currently deductible for tax purposes                                 260              397
              Deferred revenue                                                                 3,474            4,648
              Tax value of property, plant and equipment in excess of net book value             526              (27)
              Tax value of intangible assets in excess of net book value                       4,499            6,083
              Other                                                                                -              137
   ---------------------------------------------------------------------------------------------------------------------
              Total deferred tax assets                                                       14,838           16,302
              Valuation allowance                                                             (2,773)          (2,116)
   ---------------------------------------------------------------------------------------------------------------------
              Net deferred tax assets                                                    $    12,065       $   14,186
   ---------------------------------------------------------------------------------------------------------------------

              Deferred income tax assets are classified as follows:
                     Current                                                             $     2,917       $      804
                     Non-current                                                               9,148           13,382
   ---------------------------------------------------------------------------------------------------------------------
                                                                                         $    12,065       $   14,186
   =====================================================================================================================
</Table>

     At December 31, 2001, the Company has accumulated tax losses of $10,205
     available for federal and provincial purposes in Canada, which expire from
     2004 to 2008. The Company also has $819 of unclaimed Canadian investment
     tax credits, which expire from 2004 to 2011. These losses and investment
     tax credits can be used to offset future years' taxable income.

                                     -F-13-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     The Company has accumulated tax losses of $6,283 for federal and state
     purposes in the U.S., which expire from 2010 to 2014. Subject to certain
     limitations, these losses can be used to offset future years' taxable
     income.

                                     -F-14-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

9.   Discontinued Operations

          In 2001, the Company adopted a formal plan to dispose of its Canadian
     sales and marketing division ("DRAXIS Pharmaceutica").

          On January 23, 2002, the Company announced that it had entered into a
     binding agreement to divest DRAXIS Pharmaceutica.

          DRAXIS Pharmaceutica's operations had previously been included in the
     Canadian Pharmaceutical segment, along with deferred revenue and
     amortisation associated with the Company's collaboration agreement
     involving the SpectroPharm product line (see Note 18(b)).

          Pursuant to APB No. 30, "Reporting the Results of Operations -
     Reporting the Effects of Disposal of a Segment of a Business, and
     Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
     the results of operations of DRAXIS Pharmaceutica have been reported as
     discontinued operations, and the consolidated financial statements and
     notes thereto for the year ended December 31, 2001 and all comparative
     periods presented have been restated.

          Interest expense directly attributable to license obligations included
     in the transaction has been allocated to the discontinued operations.

          The results of discontinued operations, presented in the accompanying
     Consolidated Statements of Operations, were as follows:

<Table>
<Caption>
                                                                  2001          2000          1999
                                                                  ----          ----          ----
<S>                                                             <C>           <C>           <C>
   Revenues                                                     $   7,099     $  6,355      $   5,081
   ---------------------------------------------------------------------------------------------------
   (Loss) income from discontinued operations, net of taxes          (216)        (630)           200
   Acquired research and development, net of taxes                      -            -         (4,780)
   ---------------------------------------------------------------------------------------------------
   Net loss from discontinued operations                        $    (216)    $   (630)     $  (4,580)
   ===================================================================================================
</Table>

10.  Earnings (Loss) per Share

          Earnings (loss) per share is based on the weighted average number of
     common shares outstanding (basic) adjusted, to the extent they are
     dilutive, for outstanding stock options and stock purchase warrants
     (diluted). The calculation of diluted earnings (loss) per share excludes
     any potential conversion of warrants, options and Participation Shares that
     would increase earnings per share or decrease a loss per share.

          The following table details the weighted average number of common
     shares outstanding for the years ended December 31:

<Table>
<Caption>
                                                                         2001           2000             1999
                                                                         ----           ----             ----
<S>                                                                   <C>            <C>              <C>
    Weighted average number of common shares outstanding - basic      36,587,794     36,324,199       33,825,654
    Weighted average effect of dilutive securities:
        Warrants                                                          23,133         38,087                -
        Stock option plan                                                      -        187,703                -
        Employee Participation Share Purchase Plan                             -         23,585          275,404
    --------------------------------------------------------------------------------------------------------------
    Weighted average number of common shares outstanding - diluted    36,610,927     36,573,574       34,101,058
    ==============================================================================================================
</Table>

                                     -F-15-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

11.  Accounts Receivable

<Table>
<Caption>
                                                                         2001               2000
                                                                         ----               ----
          <S>                                                         <C>                <C>
          Trade                                                       $     7,135        $     6,514
          Allowance for doubtful accounts                                    (132)               (80)
          Loans to employees                                                  469                479
          Income taxes                                                          -                742
   ---------------------------------------------------------------------------------------------------
                                                                      $     7,472        $     7,655
   ===================================================================================================
</Table>

12.  Inventories

<Table>
<Caption>
                                                                         2001               2000
                                                                         ----               ----
          <S>                                                         <C>                <C>
          Raw materials                                               $     2,526        $     3,547
          Work-in-process                                                     741                838
          Finished goods                                                    2,005              1,884
   ---------------------------------------------------------------------------------------------------
                                                                      $     5,272        $     6,269
   ===================================================================================================
</Table>

13.  Property, Plant and Equipment

<Table>
<Caption>
                                                                         2001               2000
                                                                         ----               ----
          <S>                                                         <C>                <C>
          Land                                                        $     1,732        $     1,839
          Building                                                         11,376              6,655
          Equipment                                                        11,524              7,321
          Assets under construction                                         2,033              7,269
   ---------------------------------------------------------------------------------------------------
                                                                           26,665             23,084
          Accumulated depreciation                                         (4,371)            (3,571)
   ---------------------------------------------------------------------------------------------------
                                                                      $    22,294        $    19,513
   ===================================================================================================
</Table>

          Depreciation of property, plant and equipment from continuing
     operations was $1,250, $1,168, and $898, for the years ended December 31,
     2001, 2000 and 1999, respectively.

14.  Goodwill

<Table>
<Caption>
                                                                         2001               2000
                                                                         ----               ----
          <S>                                                         <C>                <C>
          Goodwill                                                    $     6,692        $     7,102
          Accumulated amortization                                         (3,606)            (2,850)
   ---------------------------------------------------------------------------------------------------
                                                                      $     3,086        $     4,252
   ===================================================================================================
</Table>

          Amortization of goodwill from continuing operations was $946, $912,
     and $771, for the years ended December 31, 2001, 2000 and 1999,
     respectively.

                                     -F-16-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

15.  Intangible Assets

<Table>
<Caption>
                                                                     2001
                                             ---------------------------------------------------
                                                                 Accumulated         Net Book
                                                   Cost          Amortization         Value
                                                   ----          ------------         -----
<S>                                             <C>                 <C>              <C>
          Patents and trademarks                $      335          $     135        $    200
          Licenses                                  12,579              5,861           6,719
          Other                                        157                 71              86
   ---------------------------------------------------------------------------------------------
                                                $   13,071          $   6,067        $  7,004
   =============================================================================================
<Caption>
                                                                     2000
                                             ---------------------------------------------------
                                                                 Accumulated         Net Book
                                                  Cost          Amortization          Value
                                                  ----          ------------          -----

<S>                                             <C>               <C>                <C>
          Patents and trademarks                $     335         $     116          $     239
          Licenses                                 13,446             5,144              8,302
          Other                                       167                59                108
   ---------------------------------------------------------------------------------------------
                                                $  13,968         $   5,319          $   8,649
   =============================================================================================
</Table>

          Amortization of intangible assets from continuing operations was $240,
     $238, and $154, for the years ended December 31, 2001, 2000 and 1999,
     respectively.

16.  Bank Loan

          As at December 31, 2001, DPI was a party to a credit agreement with a
     Canadian chartered bank with respect to a revolving credit facility which
     provides for advances against eligible accounts receivable and inventories
     up to a maximum of CDN$3,500. The credit facility is secured by assets of
     DPI and bears interest at Canadian prime plus 0.75% (4.75% at December 31,
     2001).

          In conjunction with the acquisition of certain product rights (Note
     22), in July 1999 the Company entered into a credit agreement with a
     Canadian chartered bank pursuant to which the Company borrowed CDN$6,000.
     The borrowing was secured and bore interest at Canadian prime. In 2000, the
     remaining principal amount of this borrowing was repaid.

17.  Accounts Payable and Accrued Liabilities

<Table>
<Caption>
                                                           2001                2000
                                                           ----                ----
          <S>                                            <C>                <C>
          Trade                                          $   5,155          $    4,234
          Employee related items                             1,647               1,047
          Income taxes                                         864                   -
          Other                                                459                 197
   --------------------------------------------------------------------------------------
                                                         $   8,125          $    5,478
   ======================================================================================
</Table>

18.  Collaboration Agreements

     (a) BrachySeed

          In September 2000, the Company entered into a 10 year arrangement with
     Cytogen Corporation ("Cytogen") whereby Cytogen was granted an exclusive
     license to market, sell and distribute the Company's BrachySeed(TM) implant
     for the treatment of prostate cancer in the United States in exchange for
     non-refundable fees, royalties based on Cytogen's sales of BrachySeed(TM)
     and a supply agreement. Under the arrangement, the Company is entitled to
     receive up to $2,000 in non-refundable fees upon achievement of specified
     milestones of which $500 was received in 2001 (2000 - $500; 1999 - $Nil).
     Non-refundable fees received from Cytogen are deferred and recognized as
     revenue on a straight-line basis over the period to December 31, 2010.

                                     -F-17-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     (b) SpectroPharm Product Line

          In May 2000, the Company entered an arrangement with GlaxoSmithKline
     Consumer Healthcare ("GSK"), formerly Block Drug Company (Canada) Limited,
     with respect to the Company's SpectroPharm line of dermatology products
     which included the sale of product rights to GSK in exchange for a
     non-refundable fee, the acquisition of inventory on hand, a supply
     agreement and a technical services arrangement. As a result of the
     Company's ongoing obligations to GSK pursuant to this arrangement, the
     $8,169 of net proceeds from the sale of the product rights have been
     deferred and are being recognised as revenue on a straight-line basis over
     the period to January 31, 2005.

     (c) Anipryl

          In December 1997, the Company entered into an alliance with Pfizer
     Inc. ("Pfizer"), whereby Pfizer was granted a perpetual exclusive license
     to market, sell and distribute Anipryl in exchange for non-refundable fees,
     royalties based on the worldwide sales of Anipryl, a manufacturing and
     supply agreement and a research collaboration.

          In December 1999, the Company and Pfizer amended the terms of the
     alliance (the "First Amendment") whereby $9,000 of potential additional
     non-refundable fees were eliminated in exchange for the Company receiving
     additional regulatory support for a potential new indication and additional
     manufacturing data. These potential additional non-refundable fees would
     have become payable if Pfizer had exercised its right to acquire product
     registrations following regulatory approval of Anipryl in designated
     European countries.

          In December 2001, the Company and Pfizer further amended the terms of
     the alliance (the "Second Amendment") whereby the Company received a
     payment of $3,150 in respect of minimum royalty entitlements for the second
     and third three year periods ending December 31, 2001 and 2002 and
     modifications to future royalty entitlements. The Second Amendment also
     resulted in all rights to Anipryl outside of North America reverting back
     to the Company, forfeiture of any additional minimum royalty entitlements
     and the termination of any future collaborative research on new indications
     or formulations for Anipryl.

          Under the amended arrangement, the Company will not be entitled to
     receive any additional non-refundable fees. The $28,090 in non-refundable
     fees already received from Pfizer have been deferred and are being
     recognised as revenue on a straight-line basis over the period to December
     31, 2006.

          The portion of the $3,150 payment allocated to the modifications of
     future royalty entitlements has been deferred and is being recognised as
     revenue on a straight-line basis over the period to December 31, 2013.

          The portion of the $3,150 payment referable to the minimum royalty
     entitlement for the three year period ending December 31, 2001 was
     recognised as revenue in the fourth quarter of 2001. The portion referable
     to the third three year period ending December 31, 2002 has been deferred
     and is being recognised as revenue on a straight-line basis over the four
     quarters of 2002.

                                     -F-18-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

19.  Deferred Revenue

<Table>
<Caption>
                                                                          2001              2000
                                                                          ----              ----
          <S>                                                           <C>              <C>
          BrachySeed(TM)                                                $     872        $      462
          SpectroPharm product line                                         7,691             8,169
          Anipryl                                                          29,892            26,415
   ---------------------------------------------------------------------------------------------------
                                                                           38,455            35,046
          Less: accumulated amortization                                   13,840             8,782
   ---------------------------------------------------------------------------------------------------
                                                                           24,615            26,264
          Less: current portion                                             6,476             4,901
   ---------------------------------------------------------------------------------------------------
                                                                        $  18,139        $   21,363
   ===================================================================================================
</Table>

          Amortization of deferred revenue totaled $4,783, $4,234, and $Nil for
     the years ended December 31, 2001, 2000, and 1999, respectively.

20.  Long-Term Debt

<Table>
<Caption>
                                                                                    2001         2000
                                                                                    ----         ----
     <S>                                                                          <C>           <C>
          Term bank loan, secured by the assets of DPI and bearing interest at
     Canadian prime plus 0.75%.                                                   $  5,295      $ 6,418

          Unsecured obligation, bearing interest at the Bank of Canada rate          2,765        3,472
     -----------------------------------------------------------------------------------------------------
                                                                                     8,060        9,890
          Less: current portion                                                      1,446        1,268
     -----------------------------------------------------------------------------------------------------
                                                                                  $  6,614      $ 8,622
     =====================================================================================================
</Table>

          The annual aggregate amounts of maturities on long-term debt for the
     next five years are as follows:

<Table>
                                       <S>        <C>
                                       2002       $    1,446
                                       2003       $    1,446
                                       2004       $      943
                                       2005       $      943
                                       2006       $      943
                                   =============================
</Table>

          Interest expense on long-term debt from continuing operations totaled
     $398, $611, and $604 for the years ended December 31, 2001, 2000, and 1999,
     respectively.

          The fair value of the long-term debt is considered to be equivalent to
     its carrying value based upon consideration of borrowings with similar
     credit ratings and maturities.

21.  Minority Interest

          During 2000, the Company's wholly owned subsidiary, DPI issued
     6,733,660 common shares to Societe generale de financement du Quebec
     ("SGF") and members of DPI's management team. These issuances, which
     reduced the Company's ownership in DPI from 100.0% to 65.9%, yielded
     aggregate net proceeds of $5,375 and resulted in an aggregate gain on
     reduction of ownership in subsidiary of $1,377. This amount is reflected as
     an adjustment to the shareholders' equity.

22.  Acquisition of Product Rights

          In June 1999, the Company acquired the exclusive Canadian rights to
     eight neurology products from Elan Corporation plc. Under the terms of the
     license agreement, the Company paid a one-time fee of $12,000. An amount of
     $8,387 ($4,780, net of taxes) was charged to

                                     -F-19-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     earnings in 1999, representing acquired research and development costs, and
     is grouped with discontinued operations (Note 9).

23.  Shareholders' Equity

     (a) Warrants

     On April 19, 1995 the Company issued 500,000 warrants to Novopharm Limited,
each of which was exercisable to April 18, 2000 to purchase one common share of
the Company at CDN$2.09. The Company issued the warrants to Novopharm Limited in
exchange for Novopharm Limited's grant of a six month extension of a profit
sharing agreement between the two companies. In 2000, these warrants expired
unexercised.

     In connection with borrowings incurred related to the acquisition of the
radiopharmaceutical division of Merck Frosst Canada & Co. ("MFCC"), the Company
issued to a financial institution non-transferable warrants to purchase 750,000
common shares at CDN$3.70 per share on or before July 31, 2000. The number of
exercisable warrants was reduced to 600,000 as a result of the early repayment
of the related borrowings in 1997. In 1999, included as a component of
shareholders' equity and deferred financing charges, was $363, which represents
the fair value of the above warrants. The fair value of the warrants was
estimated at the date of issue using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%, expected volatility of 40%,
risk-free interest rate of 5.5%, and expected life of three years. As these
warrants were fully exercised in 2000, the value of the warrants was accounted
as cost of capital stock issued.

     On November 8, 1999, in connection with the engagement of a financial
advisor, the Company issued a non-assignable warrant to purchase 125,000 shares
at $1.65 per share on or before November 8, 2002. Included as a component of
shareholders' equity and deferred financing charges was $74, which represented
the fair value of the above warrant. The fair value of the warrant was estimated
at the date of issue using the Black-Scholes option-pricing model with the
following assumptions: share price at date of issue of $1.375, dividend yield of
0%, expected volatility of 65%, risk-free rate of 5.8%, and expected life of
three years.

     In aggregate, there were 125,000 and 125,000 warrants to purchase common
shares outstanding at December 31, 2001 and 2000, respectively.

     (b) Stock Option Plan

     The Board of Directors has adopted a stock option plan in order to provide
an incentive for directors, officers and employees. The plan provides that the
Board of Directors may, from time to time, at its discretion, grant to
directors, officers and employees, the option to purchase common shares. The
Board of Directors will determine the price per common share and the number of
common shares which may be allotted to each designated director, officer or
employee and all other terms and conditions of the option in accordance with the
applicable requirements of any relevant regulatory authority or stock exchange.
These options will be exercisable for a period not exceeding 10 years from the
date of the grant and generally options vest one third on each of the first,
second and third anniversaries of grant.

     On June 20, 2001, the Board of Directors received shareholder approval to
increase the maximum number of options for issuance under the stock option plan
from 5,500,000 to 7,500,000.

     The Board of Directors has adopted a guideline limiting the aggregate
number of common shares that can be issued at any point in time, either through
the exercise of options or the conversion of Employee Participation Shares, to
13% of the Company's outstanding common shares. As at December 31, 2001

                                     -F-20-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

the aggregate number of shares issuable pursuant to outstanding options and
Employee Participation Shares represented 9.3% of the outstanding common shares.

     The following is a summary of the maximum number of common shares issuable
pursuant to outstanding stock options and available for future issuance:

<Table>
<Caption>
                                                                                                                  Available
                                                                          Outstanding                                For
                                                     -----------------------------------------------------        Issuance
                                                               2001               2000                1999          2001
                                                               ----               ----                ----          ----
<S>                                                       <C>                <C>                 <C>              <C>
    Balance, beginning of year                            3,079,527          2,998,110           3,176,167          217,610
    Increase (decrease) resulting from:
      Approved for issuance                                       -                  -                   -        2,000,000
      Granted                                               581,500            611,500             164,200         (581,500)
      Exercised                                             (48,332)          (382,582)           (189,839)               -
      Cancelled                                             (63,001)           (66,751)           (152,418)         254,251
      Expired                                              (191,250)           (80,750)                  -                -
    -----------------------------------------------------------------------------------------------------------------------
    Balance, end of year                                  3,358,444          3,079,527           2,998,110        1,890,361
    =======================================================================================================================

    Exercisable (vested), end of year                     2,365,654          2,116,560           2,180,355
    ======================================================================================================

<Caption>
                                                               2001               2000                1999
                                                               ----               ----                ----
<S>                                                  <C>                <C>                 <C>
    Weighted average exercise price of options:
      Outstanding, end of year                             CDN$3.42           CDN$3.35            CDN$3.38
      Exercisable, end of year                             CDN$3.49           CDN$3.46            CDN$3.43
      Granted                                              CDN$3.44           CDN$3.10            CDN$2.49
      Exercised                                            CDN$2.64           CDN$3.01            CDN$1.59
      Cancelled                                            CDN$3.44           CDN$3.25            CDN$3.37

    Range of exercise price of options:
      Granted                                        CDN$2.91-$3.60     CDN$2.49-$3.27      CDN$1.63-$3.43
      Exercised                                      CDN$2.55-$3.05     CDN$2.18-$4.40      CDN$0.36-$3.30
      Cancelled                                      CDN$2.94-$3.95     CDN$2.55-$3.80      CDN$2.26-$4.23
    ======================================================================================================================
</Table>

          The following table summarises information about stock options
     outstanding at December 31, 2001:

<Table>
<Caption>
                                       Options Outstanding                          Options Exercisable (Vested)
                                       -------------------                          ----------------------------
                                        Weighted Average
                                            Remaining                                                Weighted
                                        Contractual Life       Weighted Average                      Average
     Exercise Price         Number         (In Years)           Exercise Price        Number      Exercise Price
     --------------         ------         ----------          ----------------      -------     ---------------
   <S>                   <C>                  <C>                 <C>              <C>             <C>
   CDN$1.63 - $2.00         75,000            3.00                CDN$  1.63          50,000       CDN$   1.63
   CDN$2.01 - $2.50         73,750            2.78                      2.43          47,083              2.39
   CDN$2.51 - $3.00        726,751            1.58                      2.69         646,195              2.66
   CDN$3.01 - $3.50        964,200            2.85                      3.11         527,800              3.09
   CDN$3.51 - $4.00        750,500            3.13                      3.68         326,333              3.79
   CDN$4.01 - $4.50        619,000            4.09                      4.35         619,000              4.35
   CDN$4.51 - $4.96        149,243            2.76                      5.17         149,243              5.17
   -------------------------------------------------------------------------------------------------------------
                         3,358,444            2.86                CDN$  3.42       2,365,654       CDN$   3.49
   =============================================================================================================
</Table>

                                     -F-21-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     (c) Employee Participation Share Purchase Plan

          On February 16, 1995, the Company established the Employee
     Participation Share Purchase Plan for the directors, officers and employees
     of the Company to tie employee compensation more closely to shareholder
     value. The Employee Participation Share Purchase Plan was approved by the
     shareholders on June 16, 1995. The Board of Directors has provided that it
     would be a condition to receiving any benefit from the Employee
     Participation Share Purchase Plan that the share price have appreciated at
     least 25% from the date of issuance of any Participation Shares. The
     maximum number of Participation Shares issuable pursuant to the Employee
     Participation Share Purchase Plan is 2,000,000.

          Vesting takes place over a four year period at the rate of 20%, 20%,
     20% and 40% commencing on the first anniversary of the issuance of the
     Participation Shares and for each of the three years thereafter, with the
     exception of 500,000 Participation Shares held by an officer of the
     Company, which vest at the rate of 10%, 20%, 30% and 40%. Vested
     Participation Shares are automatically convertible into shares of the
     Company at the election of the holder, provided that the shares have
     increased in value since the date of issuance of the vested Participation
     Shares by the aforementioned 25%. The number of common shares a Participant
     will receive when converting Participation Shares is determined by
     multiplying the number of Participation Shares held by a Participant by a
     fraction whose numerator is the amount by which the fair market value of a
     common share at the date of conversion exceeds the fair market value of a
     common share as at the date on which the Participation Shares were issued,
     and whose denominator is the fair market value of the common shares at the
     date of conversion. For purposes of the Employee Participation Share Plan,
     the fair market value of common shares at a particular time means the
     average of the daily high and low board lot trading prices on each of the
     five trading days on the Toronto Stock Exchange immediately preceding the
     valuation date.

          (i) Series A

          On February 16, 1995, the Board of Directors of the Company authorised
     the issuance of 975,000 Series A Participation Shares at a subscription
     price of CDN$0.30 each. The average of the daily high and low board lot
     trading prices on each of the five trading days on the Toronto Stock
     Exchange immediately preceding the issuance of the Series A Participation
     Shares was CDN$2.45. As at December 31, 2000 all Series A Participation
     Shares had been either converted into common shares or cancelled by the
     Company.

          (ii) Series B

          On December 18, 1995, the Board of Directors of the Company authorised
     the issuance of 555,000 Series B Participation Shares at a subscription
     price of CDN$0.30 each. The average of the daily high and low board lot
     trading prices on each of the five trading days on the Toronto Stock
     Exchange immediately preceding the issuance of the Series B Participation
     Shares was CDN$2.25. As at December 31, 2000 all Series B Participation
     Shares had been either converted into common shares or cancelled by the
     Company.

          (iii) Series C

          On May 12, 1999, the Board of Directors of the Company authorised the
     issuance of 470,000 Series C Participation Shares at a subscription price
     of CDN$0.50 each. The average of the daily high and low board lot trading
     prices on each of the five trading days on the Toronto Stock Exchange
     immediately preceding the issuance of the Series C Participation Shares was
     CDN$3.24.

          All outstanding Participation Shares have been issued and paid for by
     the employees through the issuance of a limited recourse promissory note
     and are secured against the shares.

                                     -F-22-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

          Information pertaining to Participation Shares for the years ended
     December 31, 2001, 2000 and 1999 is set forth in the following table:

<Table>
<Caption>
                                                              2001             2000              1999
                                                              ----             ----              ----
     <S>                                                     <C>             <C>              <C>
     Outstanding, beginning of year                          470,000         1,347,000        1,117,500
     Granted                                                       -                 -          470,000
     Exercised                                                     -          (292,000)         (97,500)
     Cancelled                                                     -                 -         (143,000)
     Expired                                                       -          (585,000)               -
     --------------------------------------------------------------------------------------------------
     Outstanding, end of year                                470,000           470,000        1,347,000
     ==================================================================================================

     Exercisable (vested), end of year                       188,000            94,000          997,500
     ==================================================================================================
</Table>

     (d) Stock-based Compensation Costs

          The Company has adopted the disclosure requirements of SFAS No. 123,
     "Accounting for Stock-based Compensation" ("SFAS 123"), and, as permitted
     under SFAS 123, applies Accounting Principles Board Opinion No. 25 and
     related interpretations in accounting for its plan. SFAS 123 requires
     disclosure of pro forma amounts to reflect the impact if the Company had
     elected to adopt the optional recognition provisions of SFAS 123 for its
     stock option plans and Employee Participation Share Purchase Plan.
     Accordingly, the Company's net loss applicable to common shares and loss
     per common share would have been increased to the pro forma amounts as
     indicated below:

<Table>
<Caption>
                                                                  2001             2000           1999
                                                                  ----             ----           ----
     <S>                                                       <C>             <C>             <C>
     Net loss applicable to common shares
                                                 -reported     $   (1,584)     $   (20,338)    $  (5,470)
                                                -pro forma         (2,546)         (21,129)       (6,239)

     Basic loss per common share
                                                 -reported     $    (0.04)     $     (0.56)    $   (0.16)
                                                -pro forma          (0.07)           (0.58)        (0.18)

     Diluted loss per common share
                                                 -reported     $    (0.04)     $     (0.56)    $   (0.16)
                                                -pro forma          (0.07)           (0.58)        (0.18)
     ====================================================================================================
</Table>

          The fair value of stock options used to compute pro forma net loss
     applicable to common shares and loss per common share disclosures is the
     estimated fair value at grant date using the Black-Scholes option-pricing
     model with the following assumptions as at December 31:

<Table>
<Caption>
                                                              2001           2000         1999
                                                              ----           ----         ----
     <S>                                                    <C>             <C>         <C>
     Dividend yield                                             0.0%           0.0%         0.0%
     Expected volatility                                      63-66%         65-68%       57-66%
     Risk-free interest rate                                5.2-5.6%       5.3-6.3%     4.6-6.3%
     Expected option life                                      5 yrs          5 yrs        5 yrs
     ===========================================================================================
</Table>

          The Black-Scholes option-pricing model was developed for use in
     estimating the fair value of traded options, which have no vesting
     restrictions and are fully transferable and which significantly differ from
     the Company's stock option awards. In addition, option-pricing models
     require the input of highly subjective assumptions including the expected
     price volatility. The Company uses expected volatility rates, which are
     based on historical volatility

                                     -F-23-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     rates trended into future years. Changes in the subjective input
     assumptions can materially affect the fair value estimate, and therefore
     the existing modes do not necessarily provide a reliable single measure of
     the fair value of the Company's stock options.

     (e) Stock Repurchase Program

          During 2001, under the stock repurchase program, the Company
     repurchased no common shares (2000-100,000; 1999-Nil) for cancellation at
     an average price of $Nil per share (2000-$2.62; 1999-N/A) for total
     consideration of $Nil (2000-$262; 1999-$Nil). The excess of $Nil
     (2000-$1.28; 1999-N/A) over the stated capital of the acquired shares was
     charged to deficit. The most recent issuer bid commenced on December 19,
     2001 and will terminate on the earlier of December 18, 2002 or when
     1,830,671 shares have been acquired.

     (f) Restatement of Prior Years

          During 2001, the Company discovered that the income tax effect of
     certain capital transactions that occurred between 1991 and 1996 had been
     recorded as deferred income tax assets rather than being charged to
     shareholders' equity. Accordingly, the consolidated balance sheets as at
     December 31, 2001 and 2000 reflect the restatement to reduce non-current
     deferred income tax assets, additional paid in capital and accumulated
     other comprehensive loss by $2,954, $2,701 and $1,076, respectively and to
     increase deficit by $1,329.

                                     -F-24-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

24.  Segmented Information and Major Customers

          Industry Segmentation

          For purposes of operating decision-making and assessing performance,
     management considers that it operates in three segments:
     Radiopharmaceuticals, Manufacturing, and Corporate and Other.

<Table>
<Caption>
                                                       2001               2000              1999
                                                       ----               ----              ----
          <S>                                     <C>                <C>               <C>
          Product Sales Revenues
                   Radiopharmaceuticals           $        6,763     $        5,951    $        5,762
                   Manufacturing                          20,460             15,477            12,853
                   Corporate and Other                      (991)               591             3,432
     ------------------------------------------------------------------------------------------------
                                                  $       26,232     $       22,019    $       22,047
     ------------------------------------------------------------------------------------------------

          Royalty and Licensing Revenues
                   Radiopharmaceuticals           $          192     $            -    $            -
                   Manufacturing                               -                  -                 -
                   Corporate and Other                     6,560              7,132             2,338
     ------------------------------------------------------------------------------------------------
                                                  $        6,752     $        7,132    $        2,338
     ------------------------------------------------------------------------------------------------

          Total Revenues
                   Radiopharmaceuticals           $        6,955     $        5,951    $        5,762
                   Manufacturing                          20,460             15,477            12,853
                   Corporate and Other                     5,569              7,723             5,770
     ------------------------------------------------------------------------------------------------
                                                  $       32,984     $       29,151    $       24,385
     ------------------------------------------------------------------------------------------------

          Segment Income (Loss)(1)
                   Radiopharmaceuticals           $          499     $          333    $        1,733
                   Manufacturing                             149               (200)             (863)
                   Corporate and Other                     3,049              1,935              (738)
     ------------------------------------------------------------------------------------------------
                                                  $        3,697     $        2,068    $          132
     ------------------------------------------------------------------------------------------------

          Depreciation and Amortization
                   Radiopharmaceuticals           $          623     $          547    $          478
                   Manufacturing                             867                807               622
                   Corporate and Other                       946                964               723
     ------------------------------------------------------------------------------------------------
                                                  $        2,436     $        2,318    $        1,823
     ------------------------------------------------------------------------------------------------

          Operating Income (Loss)(2)
                   Radiopharmaceuticals           $         (124)    $         (214)   $        1,255
                   Manufacturing                            (718)            (1,007)           (1,485)
                   Corporate and Other                     2,103                971            (1,461)
     ------------------------------------------------------------------------------------------------
                                                  $        1,261     $         (250)   $       (1,691)
     ------------------------------------------------------------------------------------------------

          Identifiable Assets
                   Radiopharmaceuticals           $       13,558     $        7,652    $        6,658
                   Manufacturing                          24,906             25,717            22,737
                   Corporate and Other                    25,896             33,938            31,252
     ------------------------------------------------------------------------------------------------
                                                  $       64,360     $       67,307    $       60,647
     ================================================================================================
</Table>

          (1) Segment income (loss) from continuing operations before
     depreciation and amortization, interest income (expense), other income,
     income taxes, minority interest and cumulative effect of accounting change.
          (2) Segment income (loss) from continuing operations before interest
     income (expense), other income, income taxes, minority interest and
     cumulative effect of accounting change.

                                     -F-25-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

<Table>
<Caption>
               Geographic Segmentation                 2001               2000              1999
                                                       ----               ----              ----
<S>                                               <C>                <C>               <C>
               REVENUES(3)
                        Canada                    $       23,388     $       19,534    $       13,623
                        United States                      9,596              9,617            10,762
     ------------------------------------------------------------------------------------------------
                                                  $       32,984     $       29,151    $       24,385
     ================================================================================================
               LONG-LIVED ASSETS(4)
                        Canada                    $       32,384     $       32,414    $       35,956
                        United States                          -                  -               165
     ------------------------------------------------------------------------------------------------
                                                  $       32,384     $       32,414    $       36,121
     ================================================================================================
</Table>

          (3) Revenues are attributable to countries based upon the location of
     the customer.
          (4) Represents property, plant and equipment, goodwill and intangible
     assets that are identified with each geographic region.

<Table>
<Caption>
               Major Customers                               Percentage of
               ---------------                               Total Revenue
                                            -------------------------------------------

                                               2001              2000              1999
                                               ----              ----              ----
               <S>                              <C>                <C>               <C>
               Customer A                       24%                21%                9%
               Customer B                       19                 14                16
     ----------------------------------------------------------------------------------
                                                43%                35%               25%
     ==================================================================================
</Table>

25.  Commitments and Contingencies

          Operating Leases

          The Company is committed under operating leases requiring minimum
     annual lease payments as follows:

<Table>
                       <S>         <C>
                       2002        $    1,120
                       2003               456
                       2004               719
                       2005               535
                       2006               307
                    -------------------------
                                   $    3,137
                    =========================
</Table>

          Agreement Pertaining to DRAXIS Pharma Inc.

          Coincident with DPI's issuance of shares in 2000 (Note 21), the
     Company entered into a shareholders' agreement which granted SGF the right
     to obligate the Company to purchase its shareholdings in DPI anytime after
     February 18, 2005 and DPI's management shareholders the right to obligate
     DPI to purchase their shareholdings in DPI anytime following the tenth
     anniversary of the initial subscription. The price to be paid is based on
     the fair market value of DPI at the time of exercise. Subject to certain
     conditions, at the Company's option up to 40% of the SGF purchase
     consideration may be made in the form of the Company's common shares.

          Legal Proceedings

          From time to time, the Company becomes involved in legal proceedings
     and claims which arise in the ordinary course of business.

                                     -F-26-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

          With the exception of the two matters described below related to
     Anipryl, the Company considers that the ultimate liability with respect to
     any known actions will not materially affect the business, financial
     position, results of operations or cash flows of the Company.

          (i) In 1998 a Canadian legal proceeding was launched against the
     Company and Deprenyl Animal Health, Inc. ("DAHI"), a wholly owned
     subsidiary of the Company, by a former consultant claiming royalty
     entitlements based on the net profit from sales of Anipryl. The Company
     regards this claim to be without merit and is vigorously defending itself.

          (ii) Since 2000, the Company and DAHI have been involved in U.S. and
     Canadian legal proceedings with the University of Toronto and the
     University of Toronto Innovations Foundation. One dispute relates to the
     terms of a 1992 license agreement under which Innovations Foundation is
     claiming entitlement to a portion of the consideration earned by DAHI with
     respect to Anipryl. The second dispute relates to a 1990 contract research
     agreement under which the University of Toronto is claiming damages related
     to the ownership of certain Anipryl-related intellectual property. The
     Company considers all of the claims made by the University of Toronto and
     the University of Toronto Innovations Foundation to be without merit and is
     vigorously defending itself.

26.  Related Party Transactions

          Significant transactions not otherwise disclosed in the accompanying
     financial statements were as follows:

<Table>
<Caption>
                                                                                         2001          2000          1999
                                                                                         ----          ----          ----
     <S>                                                                             <C>           <C>            <C>
          Net contribution from the sales of a product by a company which is a
     shareholder included in loss from discontinued operations (total revenues:
     2001 - $856; 2000 - $1,160; 1999 - $1,439)                                      $        176  $        303   $      363

          Rent paid to a company jointly controlled by a member of the Board of
     Directors included in selling, general and administration expenses              $        116  $        121   $      116
   =========================================================================================================================
</Table>

          The aforementioned transactions are in the normal course of operations
     and are measured at the exchange amount, which is the amount of
     consideration established and agreed to by the related parties.

          In 1999, the Company sold all of its shares in Stef International
     Corporation to an officer of the Company. In 2000, the Company reacquired
     these shares. Both transactions were valued at an identical nominal amount.

27.  Financial Instruments

          Risk Management

          The fair value of cash, accounts receivable, accounts payable and
     accrued charges are equivalent to their carrying value because of the
     short-term maturity of those instruments. The fair value of long-term
     investments is determined based on quoted market prices. The Company is not
     party to any derivative instruments.

          Credit Risk

          The Company is subject to credit risk through trade receivables and
     short-term cash investments. Credit risk with respect to trade receivables
     is limited given the creditworthiness of the counterparties. The Company
     invests its excess liquidity in high quality government

                                     -F-27-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     securities and short-term commercial paper, bank deposits and money market
     mutual funds which are invested in high quality short-term securities.

                                     -F-28-
<Page>

     DRAXIS HEALTH INC.
     Notes to the Consolidated Financial Statements

     (IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE RELATED DATA)

     Currency Risk

          The Company is subject to currency risk through its U.S. integrated
     foreign operations. Changes in the exchange rate may result in a decrease
     or increase in the foreign exchange gain or loss. The Company does not use
     derivative instruments to reduce its exposure to foreign currency risk.

28.  Recent Pronouncements

          The Financial Accounting Standards Board has approved for issuance
     SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other
     Intangible Assets". SFAS No. 141 requires that the purchase method of
     accounting be used for all business combinations initiated after June 30,
     2001 and that the use of the pooling-of-interest method is no longer
     allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill
     will cease and instead, the carrying value of goodwill will be evaluated
     for impairment on an annual basis. Identifiable intangible assets will
     continue to be amortized over their useful lives and reviewed for
     impairment in accordance with SFAS No. 121, "Accounting for the Impairment
     of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No.
     142 is effective for fiscal years beginning after December 15, 2001. The
     Company is evaluating the impact of the adoption of these standards and has
     not yet determined the effect of adoption on its financial position and
     results of operations.

29.  Comparative Information

          The Company has reclassified certain prior years' information to
     conform with the current presentation format.

                                     -F-29-