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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

[   ] 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:May 31, 2006
2008

or

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

or

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:0-31092001-31995

MEDICURE INC.
(Exact name of registrant as specified in its charter)

Canada
(Jurisdiction of incorporation or organization)

4 - 1200 Waverley Street, Winnipeg, Manitoba, Canada R3T 0P4
(Address of principal executive offices)

Dr. Albert D. Friesen, Tel: (204) 487-7412, Fax: (204) 488-9823
4 - 1200 Waverley Street, Winnipeg, Manitoba, Canada R3T 0P4
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:None

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

Common Shares, without par value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

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:

At May 31, 20062008 the registrant had 96,046,465130,307,552 common shares issued and outstanding

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes  ______[   ]     No X     [X]


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If this report is an annual or transition report, indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes  ______[   ]     No X     


2[X]

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
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  ______[X]    No[   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Exchange Act. (Check one):

Large Accelerated Filer ______[   ]         Accelerated Filer X     [X]       Non-Accelerated Filer ______[   ]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:

US GAAP [   ]International Financial ReportingOther [X]
Standards as issued by the International
Accounting Standards Board [   ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow:

Item 17 X     [X]    Item 18 No  ______[   ]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
Rule 12b-2 of the Exchange Act).
Yes  ______[   ]     No X     [X]

As of May 31, 2006,2008, the rate for Canadian dollars was US $0.9079$1.0070 for Cdn $1.00.


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TABLE OF CONTENTS

GLOSSARY5
FORWARD LOOKING STATEMENTS6
PART I6
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS6
A.Directors and Senior Management6
B.Advisers6
C.Auditors6
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE6
ITEM 3 - KEY INFORMATION6
A.Selected Financial Data6
B.Capitalization and Indebtedness9
C.Reasons for the Offer and Use of Proceeds9
D.Risk Factors9
ITEM 4 - INFORMATION ON THE COMPANY1920
A.History and Development of the Company1920
B.Business Overview2021
C.Organizational Structure2925
D.Property, Plants and Equipment3026
ITEM 4A - UNRESOLVED STAFF COMMENTS3026
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS3026
A.Operating Results3228
B.Liquidity and Capital Resources3532
C.Research and Development, Patents and Licenses, etc.etc3634
D.Trend Information3938
E.Off-balance Sheet Arrangements3938
F.Contractual Obligations4038
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES4140
A.Directors and Senior Management4140
B.Compensation4645
C.Board Practises.Practises4746
D.Employees5352
E.Share Ownership5352
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS5553
A.Major Shareholders5553
B.Related Party Transactions5554
C.Interests of Experts and Counsel5655
ITEM 8 - FINANCIAL INFORMATION5655
A.Consolidated Statements and Other Financial Information5655
B.Significant Changes5655
ITEM 9 - THE OFFERING AND LISTING5756
A.Offer and Listing Details5756
B.C.MarketsMarkets.57
ITEM 10 - ADDITIONAL INFORMATION58
A.Share Capital58
B.Memorandum and Articles of Association58
C.Material Contracts61
D.Exchange Controls61
E.Taxation6362
F.Dividends and Paying Agents72
G.Statement by ExpertsExperts.72
H.Documents on Display72
I.Subsidiary Information72


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ITEM11- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK72
ITEM12- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES7372
PART II7372
ITEM13- DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES7372
ITEM14- MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERSAND USE OF PROCEED73
ITEM 1515T -CONTROLS AND PROCEDURES73
ITEM16- RESERVED73
ITEM16A. AUDIT COMMITTEE FINANCIAL EXPERT73
ITEM16B. CODE OF ETHICS74
ITEM16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES74
ITEM16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDITCOMMITTEES74
ITEM16E.ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDPURCHASERS74
PART III75
ITEM17- FINANCIAL STATEMENTS75
ITEM18- FINANCIAL STATEMENTS97104
ITEM19- EXHIBITS97104


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GLOSSARY OF TERMS

The following words and phrases shall have the meanings set forth below:

"angina"means chest pain;

"angioplasty"means the surgical repair of a blood vessel;

"anti-hypertensive"means blood pressure reducing;

"arrhythmia" means irregular heart rhythm;

"bioavailability”means the degree to which a drug or other substance becomes available to the target in the body after administration;

“CABG”means coronary artery bypass graft;

"Computer Aided Drug Design" means a method for design of new therapeutic molecules using computer generated models of the drug and its molecular target;

"FDA"means the United States Food and Drug Administration;

"GCP"means Good Clinical Practices;

"GLP"means Good Laboratory Practice;Practices;

"GMP" means Good Manufacturing Practice;Practices;

"IND" means Investigative New Drug application to a regulatory authority for first human testing of a new drug;

"in-vitro" means test tube;

"in-vivo" means live animal;

"ischemia" means the lack of blood flow;

"myocardial infarction" means scarring and death to portions of the heart wall;

"myocardial ischemia" means blockages to parts of the heart muscle;

"NDA" means New Drug Application, which is a request made to the FDA for commencement of product sales and marketing;

"NDS" means New Drug Submission, which is a request made to the HPBTPD for commencement of product sales and marketing;

"NSAID" means non-steroidal anti-inflammatory drugs;

"pharmacodynamics" means the fundamental processes through which a drug(s) exerts its effects on living organisms;

"pharmacokinetics" means the uptake, biotransformation, distribution, metabolism and elimination of a drug(s) by the body, including both total amounts and tissue and organ concentrations;

"reperfusion" means the resumption of blood flow;

"TPD" means the Canadian Therapeutic Products Directorate, formerly the Canadian Health Protection Branch;


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As used in this annual report, the “Corporation” or “Company” refers to “Medicure Inc.”, the company resulting from the amalgamation of Medicure Inc. and Lariat Capital Inc., and “Medicure” refers to “Medicure Inc.” prior to its amalgamation with Lariat Capital Inc. Unless otherwise indicated, all references to dollar amounts in this annual report are to Canadian dollars.

FORWARD LOOKING STATEMENTS

Medicure Inc. cautions readers that certain important factors (including without limitation those set forth in this Form 20-F) may affect the Corporation’s actual results in the future and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F annual report, or that are otherwise made by or on behalf of the Corporation. For this purpose,This Annual Report contains forward-looking statements and information which may not be based on historical fact, which may be identified by the words “believes,” “may,” “plan,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions and the negative of such expressions. Such forward looking statements include, without limitation, statements regarding:

  • our intention to further advance our commercial operation and increase AGGRASTAT® product revenue;

  • our intention to raise capital through equity or debt financings, collaborative or other arrangements with third parties or through other sources of financing;

  • our ongoing corporate restructuring plan;

  • our intention to discover and develop new pharmaceuticals;

  • our intention to license the sale and distribution of any products we may commercialize to larger, international pharmaceutical companies;

  • our plan to move forward with a clinical development program for MC-1 in chronic indications;

  • our intention to build a pipeline of pre-clinical products over the next several years, including our drug product candidates currently at the discovery and preclinical stages of development;

  • our evaluation of other drug candidates for potential license with the objective of further broadening our product and patent portfolio; and

  • our licensing and research collaboration discussions, from time to time, with larger pharmaceutical firms and other biotechnology firms relating to the potential development and commercialization of our product candidates.

Such forward-looking statements containedand information involve a number of assumptions as well as known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements and information including, without limitation:

  • the ability to meet its debt obligations;

  • dependence on collaborative partners;

  • sufficient working capital to meet current obligations;

  • our ability to continue as a going concern;


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  • the competitive landscape in the annual reportmarkets which we compete, pricing and/or Medicare/Medicaid positioning for AGGRASTAT®;

  • the availability of capital on acceptable terms to pursue the commercialization of AGGRASTAT® and to carry on research and development programs related to MC-1 or other products;

  • unanticipated interruptions in our manufacturing operations;

  • significant changes in foreign exchange rate;

  • the impact of new discoveries and scientific information that are not statementsaffect the competitive positioning of historical fact may be deemed to be forward-looking statements. Without limiting AGGRASTAT® and/or its competitors;

  • the generalityimpact of competitive products and pricing;

  • the compliance with all long-term debt covenants and obligations;

  • the expense and outcome of certain legal and regulatory proceedings and expense thereto;

  • the nature of the market for MC-1 in the treatment of chronic cardiovascular and metabolic indications;

  • the regulatory approval process leading to commercialization;

  • fluctuations in operating results, and other risks as detailed from time to time in our filings with the SEC and the Canadian Securities Administrators;

  • our ability to anticipate and manage the risks associated with the foregoing, words such as “may,” “except,” “believe,” “anticipate,” “intend,” “could,” “estimate,”contractual disagreements with third parties;

  • the unpredictability of protection provided by our patents;

  • the results of continuing safety and efficacy studies by industry and government agencies;

  • the regulatory environment and decisions by regulatory bodies impacting our products, fees relating or “continue,” orour and the negative or other variationsfeasibility of comparable terminology, are intendedadditional clinical trials;

  • the company’s stage of development;

  • lack of product revenues;

  • the company’s limited marketing experience

  • additional capital requirements;

  • risks associated with the completion of clinical trials and obtaining regulatory approval to identify forward-looking statements.

    As used in this annual report,market the “Corporation” or “Company” refersCompany’s products;

  • the ability to “Medicure Inc.”,protect its intellectual property and

  • additional risks and uncertainties relating to the company resulting from the amalgamation of Medicure Inc.Company and Lariat Capital Inc., “Medicure” refers to “Medicure Inc.” prior to its amalgamation with Lariat Capital Inc. and “Lariat” refers to Lariat Capital Inc. prior to its amalgamation with Medicure Inc. Unless otherwise indicated, all references to dollar amounts in this annual report are to Canadian dollars.

    Additional information about the Corporation maybusiness can be found atwww.sedar.com.in the “Risk Factors” section of this Annual Report.

These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements and information. The Company disclaims any obligation to update any


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such factors or to publicly announce the result of any revisions to any of the forward-looking statements and information contained herein to reflect future results, events or developments, except as otherwise required by applicable law.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A. Directors and Senior Management

Not applicable

B. Advisers

Not applicable

C. Auditors

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The selected financial data of the Corporation as at May 31, 20062008 and 20052007 and for the fiscal years ended May 31, 2006,2008, 2007 and 2005 and 20042006 was extracted from the audited consolidated financial statements of the Corporation included in this annual report on Form 20-F. The information contained in the selected financial data is qualified in its entirety by reference to the more detailed consolidated financial statements and related notes included in Item 17 - - Financial Statements, and should be read in conjunction with such financial statements and with the information appearing in Item 5 - Operating and Financial Review and Prospects. The selected financial data as at May 31, 2004, 20032006, 2005 and 20022004 and for the fiscal years ended May 31, 20032005 and 20022004 was extracted from the audited financial statements of the Corporation not included in this annual report. Reference is made to Note 1014 of the consolidated financial statements of the Corporation included herein for a discussion of the material measurement differences between Canadian GAAP and U.S. GAAP, and their effect on the Corporation’s financial statements. Except where otherwise indicated, all amounts are presented in accordance with Canadian GAAP.


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To date, the Corporation has not generated sufficient cash flow from operations to fund ongoing operational requirements and cash commitments. The Corporation has financed its operations principally through the sale of its equity securities. Whilesecurities and the Corporation believes it has sufficient capital and liquidity to finance current operations, nevertheless, itsissuance of debt. The Corporation’s ability to continue operations is dependent on the ability of the Corporation to obtain additional financing. See “Item 3 - Key Information - D. Risk Factors.” Based on the Corporation’s current plans, the Corporation’s available working capital will be sufficient into the first quarter of fiscal 2008.


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Under Canadian Generally Accepted Accounting Principles (in Canadian dollars):

Balance Sheet May 31,  May 31,  May 31,  May 31,  May 31, 
Data 2006  2005  2004  2003  2002 
(as at period $  $  $  $  $ 
end)               
Balance Sheet Data May 31,  May 31,  May 31,  May 31,  May 31, 
 2008  2007  2006  2005  2004 
(as at period end) $  $  $  $  $ 
Current Assets 35,841,573  8,658,888  21,342,820  4,465,048  8,783,318  14,402,736  35,827,187  35,841,573  8,658,888  21,342,820 
Capital Assets 50,663  81,002  66,202  67,497  84,571  132,887  196,521  50,663  81,002  66,202 
Intangible Assets 2,921,841  1,332,969  976,690  763,464  508,902  8,353,610  23,412,131  2,921,841  1,332,969  976,690 
Other Assets 11,916,000  349,963  -  -  - 
Total Assets 38,814,077  10,072,859  22,385,712  5,296,009  9,376,791  34,805,233  59,785,802  38,814,077  10,072,859  22,385,712 
Total Liabilities 1,644,339  2,732,754  817,575  353,908  389,663  41,361,393  25,479,333  1,644,339  2,732,754  817,575 
Net Assets 37,169,738  7,340,105  21,568,137  4,942,101  8,987,128 
Capital Stock and 83,297,304  40,860,597  40,222,719  17,607,597  17,458,936 
Contributed               
Surplus               
Net Assets / (6,556,160) 34,306,469  37,169,738  7,340,105  21,568,137 
(deficiency)               
Capital Stock, 128,677,313  112,137,421  83,297,304  40,860,597  40,222,719 
warrants and               
Contributed Surplus               
Deficit                (135,233,473) (77,830,952) (46,127,566) (33,520,492) (18,654,582)
Accumulated               
During the               
Development Stage (46,127,566) (33,520,492) (18,654,582) (12,665,496) (8,471,808)
Statement of                              
Operations                              
(for the fiscal year                              
ended on)                              
Gross Revenue 299,737  394,784  445,461  241,281  183,912 
Loss from               
Continuing               
Product Sales 2,247,129  5,944,730  -  -  - 
Interest and Other 1,149,574  1,590,801  299,737  394,784  445,461 
Income               
Loss from Continuing               
Operations (12,607,074) (14,865,910) (5,989,086) (4,193,688) (3,875,087) (57,402,521) (31,703,386) (12,607,074) (14,865,910) (5,989,086)
Net Loss for the (12,607,074) (14,865,910) (5,989,086) (4,193,688) (3,875,087) (57,402,521) (31,703,386) (12,607,074) (14,865,910) (5,989,086)
Period                              
Basic and Diluted (0.17) (0.22) (0.11) (0.11) (0.14) (0.46) (0.30) (0.17) (0.22) (0.11)
Loss per Share                              
Weighted-Average                              
Number of                              
Common Shares 75,144,764  66,717,715  55,738,716  37,118,889  27,900,412  125,476,086  104,879,404  75,144,764  66,717,715  55,738,716 
Outstanding             (1)               


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Under U.S. Generally Accepted Accounting Principles (in Canadian dollars):

Balance Sheet Data May 31,  May 31,  May 31,  May 31,  May 31,  May 31,  May 31,  May 31,  May 31,  May 31, 
 2006  2005  2004  2003  2002  2008  2007  2006  2005  2004 
(as at Period end)   $    $  $  $  $          $ 
Current Assets 35,841,573  8,658,888  21,342,820  4,465,048  8,783,318  14,402,736  35,827,187  35,841,573  8,658,888  21,342,820 
Capital Assets 50,663  60,859  41,472  37,050  47,087  132,887  196,521  50,663  60,859  41,472 
Intangible Assets -  -  -  -  -  5,510,661  20,078,862  -  -  - 
Other Assets 14,470,081  349,963  -  -  - 
Total Assets 35,892,236  8,719,747  21,384,292  4,502,098  8,830,405  34,516,365  56,452,533  35,892,236  8,719,747  21,384,292 
Total Liabilities 1,644,339  2,732,754  817,575  353,908  389,663  43,915,123  25,479,333  1,644,339  2,732,754  817,575 
Net Assets / (9,398,758) 30,973,200  34,247,897  5,986,993  20,566,717 
(deficiency)               
Capital Stock, 144,921,967  128,382,255  99,542,135  57,105,431  56,459,161 
warrants and               
Contributed Surplus               
Deficit (154,320,725) (97,409,055) (65,294,238) (51,118,438) (35,892,444)
Statement of               
Operations               
Product Sales 2,247,129  5,944,730  -  -  - 
Interest and Other 1,149,574  1,590,801  299,737  394,784  445,461 
Income               
Loss from Continuing               
Operations (56,911,670) (32,114,817) (14,175,800) (15,225,994) (6,222,185)
Net Loss for the (56,911,670) (32,114,817) (14,175,800) (15,225,994) (6,222,185)
Period               
Basic and Diluted (0.45) (0.31) (0.19) (0.23) (0.11)
Loss per Share               
Weighted-Average               
Number of               
Common Shares 125,476,086  104,879,404  75,144,764  66,717,715  55,738,716 
Outstanding               


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Net Assets 34,247,897  5,986,993  20,566,717  4,148,190  8,440,742 
Capital Stock and 99,542,138  57,105,431  56,459,161  33,818,449  32,855,388 
Contributed Surplus               
Deficit Accumulated               
During the               
 Development Stage (65,294,241) (51,118,438) (35,892,444) (29,670,259) (24,414,646)
Statement of               
Operations               
Gross Revenue 299,737  394,784  445,461  241,281  183,912 
Loss from Continuing               
 Operations (14,175,800) (15,225,994) (6,222,185) (5,255,613) (4,319,237)
Net Loss for the (14,175,800) (15,225,994) (6,222,185) (5,255,613) (4,319,237)
Period               
Basic and Diluted (0.19) (0.23) (0.11) (0.14) (0.15)
Loss per Share               
Weighted-Average               
Number of               
 Common Shares 75,144,764  66,717,715  55,738,716  37,118,889  27,900,412 
Outstanding             (1)

Note 1: Includes 1,280,000 Class A common shares outstanding. On March 1, 2003 all of the Corporation’s issued and outstanding Class A common shares – totalling 1,280,000 shares – were converted into common shares of the Corporation on the basis of one common share for each Class A common shares in accordance with the Corporation’s Articles of Continuance. Prior to the conversion, the Class A common shares were identical in all respects to the common shares, except that the holders were eligible for the Manitoba Equity Tax Credit until February 28, 2003.

Comparability of Data

On November 22, 1999, Lariat acquired all of the issued and outstanding common shares of Medicure in consideration for the issuance of 9,500,000 common shares of Lariat. As control of Lariat passed to the former shareholders of Medicure resulting in a reverse acquisition, Medicure is deemed to be the acquirer for accounting purposes. Accordingly, the net assets of Medicure are included in the balance sheet at their book values and the deemed acquisition of Lariat is accounted for by the purchase method with the net assets of Lariat recorded at their fair value at the date of acquisition.

The selected financial data for the fiscal years ended May 31, 2008, 2007, 2006, 2005 2004, 2003 and 20022004 includes the operations of Medicure International Inc., a Barbados corporation (“Medicure International”), commencing June 1, 2000. The selected financial data for the year ended May 31, 2002 includes the operations of2000, and Medicure Pharma Inc., a United States corporation, and Medicure Europe Limited, a United Kingdom corporation, commencing SeptemberJune 1, 1999 combined with the activities of Lariat beginning on November 22, 1999, the effective date of the reverse takeover.2006.

Dividends

No cash dividends have been declared nor are any intended to be declared. The Corporation is not subject to legal restrictions respecting the payment of dividends except that they may not be paid to renderif the Corporation is, or would after the payment be, insolvent. Dividend policy will be based on the Corporation's cash resources and needs and it is anticipated that all available cash will be required to further the Corporation’s research and development activities for the foreseeable future.

Exchange Rates

Unless otherwise indicated, all reference to dollar amounts are to Canadian dollars. The following table sets out the exchange rates for one Canadian dollar expressed in terms of one U.S. dollar for the periods indicated. Rates of exchange are obtained from the Bank of Canada and believed by the Registrant to approximate closely the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank in New York.


911

May 31, 2006May 31, 2005May 31, 2004May 31, 2003May 31, 2002May 31, 2008May 31, 2007May 31, 2006May 31, 2005May 31, 2004
  
Period End0.90790.79670.73350.73070.65451.00700.93490.90790.79670.7335
Average0.85880.79780.74530.65690.63800.98570.87980.85880.79780.7453

 JuneMayAprilMarchFebruaryJanuary
 200620062006200620062006
       
High for      
Month(1)0.91220.91340.89590.88500.88090.8794
Low for      
Month(1)0.88570.88690.84960.85130.86100.8479
 AugustJulyJuneMayAprilMarchFebruary
 2008200820082008200820082008
 (Aug 1- 21)      
High for Period(1).93940.97820.97551.01791.00021.02411.0298
Low for Period(1).93320.97330.96900.97610.96820.97130.9805

Notes:
(1) Figures are extracted from daily exchange rates

As of June 30, 2006,August 21, 2008, the exchange rate to convert one Canadian dollar into the U.S. dollar was 0.8959..9579.

B. Capitalization and Indebtedness

Not applicable

C. Reasons for the Offer and Use of Proceeds

Not applicable

D. Risk Factors

The Corporation’s business entails significant risks. In addition to the usual risks associated with a business, the following is a general description of certain significant risk factors which are applicable to the Corporation.

WeGoing concern risk

The Company recorded a loss of $57,403,000 and negative cash flows from operations of $41,865,000 in the year ended May 31, 2008 and the Company reported an accumulated deficit of $135,233,000 as at May 31, 2008. In March 2008, the Company announced a significant corporate restructuring stemming from the unfavourable results of the Phase 3 MEND-CABG II trial. This restructuring included a significant reduction in numbers of staff and in resources allocated to certain programs. Based on the Company’s operating plan, its existing working capital is not sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements, long-term debt obligations and commitments beyond the end of the 2009 fiscal year without additional sources of cash and/or deferral, reduction or elimination of significant planned expenditures. The Company’s plan to address the expected shortfall of working capital is to secure additional funding within the next six months and to increase operating revenue and reduce operating expenses. There is no certainty that the Company will be able to obtain any sources of financing on acceptable terms, or at all, or that it will increase product revenue or reduce operating expenses to the extent necessary.


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The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which management believes will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements. There is no certainty that these and other strategies will be sufficient to permit the Company to continue as a going concern.

The Corporation has engaged in a restructuring program designed to reduce costs and conserve capital which may not be successful.

Following MC-1’s failure to achieve its endpoint as announced in February 2008, the Corporation engaged in a restructuring effort which led to the downsizing of 50 staff and consultants in order to reduce expenses and conserve capital. The restructuring may negatively impact the ability of the Corporation to retain qualified management, staff and consultants which may further limit the Corporation’s ability to continue its commercial operations as well as its ongoing research and development stage company and we expectactivities.

Prior to the acquisition of AGGRASTAT®, the Corporation had no products in commercial production or use. As such, the Corporation was considered to be a development-stage enterprise for accounting purposes prior to the acquisition. The Corporation expects to continue to incur substantial losses and may never achieve profitability, which in turn may harm ourits future operating performance and may cause the market price of ourits stock to decline.

With the exception of Aggrastat® (see Item 4(B))AGGRASTAT®, the Corporation’s products are in the development stage and accordingly, its business operations are subject to all of the risks inherent in the establishment and maintenance of a developing business enterprise, such as those related to competition and viable operations management.

The Corporation has incurred net losses every year since inception in 1997 and as of May 31, 2006, had an accumulated deficit of $46,127,566.1997. The Corporation incurred net losses of $57,402,521 for the year ended May 31, 2008, $31,703,386 for the year ended May 31, 2007, $12,607,074 for the year ended May 31, 2006, $14,865,910 for the year ended May 31, 2005, and $5,989,086 for the year ended May 31, 2004, $4,193,688 for the year ended May 31, 2003 and $3,875,087 for the year ended May 31, 2002. 2004.

The Corporation anticipates that its losses will not only continue for the foreseeable future but will increase significantly principally from expenditures relating to its research and development efforts and clinical trials.future. The long-term profitability of the Corporation’s operations is uncertain, and may never occur, andoccur. The Corporation’s long-term profitability will be directly related to the success of its research and development activities which dependability to develop a commercially viable drug product or products. This in turn depends on numerous factors, including the following:

a)

the success of the Corporation’s research and development activities, including the Corporation’sits drug discovery, preclinical and clinical development programs;

b)

obtaining Canadian and United States regulatory approvals to market MC-1 and MC-4232, the Corporation’sits lead products;

c)

the ability to contract for the manufacture of the Corporation’s products according to schedule and within budget, given that it has no experience in large scale manufacturing;



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d)

the ability to successfully prosecute and defend ourits patents and other intellectual property further to an overall commercially viable patent and intellectual property strategy;property; and

e)

the ability to successfully market the Corporation’s products including the Corporation’s launch of Aggrastat® InjectionAGGRASTAT® (tirofiban hydrochloride), given that it has nolimited experience in marketing;marketing.

If the Corporation does achieve profitability, it may not be able to sustain or increase profitability in the future.

Substantial cash payments may be required under the terms of the Corporation’s borrowings upon an event of default or change of control. Such cash payments may leave the Corporation with little or no working capital in the business or make the Corporation insolvent.

In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for a US$25 million up-front cash


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payment. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of AGGRASTAT® net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in AGGRASTAT® revenues, 17.5 percent on the next US$10 million, 15 percent on the next $5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual returns start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017, with minimum payments over the life of the agreement aggregating US$49.7 million.

In August 2006, the Corporation entered into a term loan financing facility with a syndicate of lenders, led by Merrill Lynch Business Financial Services Inc. (Merrill) (formerly Merrill Lynch Capital Canada Inc.), Silicon Valley Bank and Oxford Finance Corporation (the “Credit Facility”). As at May 31, 2008, the balance outstanding on the Credit Facility is US$12 million. Under the Credit Facility, the Corporation’s lenders may require that all or a portion of the principal amount of the Credit Facility be repaid in cash upon the occurrence of various customary events of default (subject to certain cure periods), including but not limited to:

  • the failure to pay principal, fees and/or interest due under the Credit Facility;

  • the suspension of the Corporation’s common shares from trading on both the TSX and AMEX;

  • the issuance of any judgments or orders against the Corporation for the payment of money (not paid or fully covered by insurance) in an aggregate amount in excess of US$375,000;

  • any material default under any indebtedness of the Corporation in an aggregate principal amount exceeding US$375,000;

  • any breach of any term of the credit and security agreement under which the Credit Facility was extended or in any other document delivered pursuant thereto;

  • a default under any guarantee of the Credit Facility;

  • an unpermitted payment by any obligor under the Credit Facility on account of any debt that has been subordinated to the Credit Facility and

  • the occurrence of any fact, event or circumstance that could reasonably be expected to result in a material adverse effect.

Upon the occurrence and during the continuance of an event of default, the interest rate on the Credit Facility will be increased by 1.5% . The lenders under the Credit Facility may also require all or a portion of the Credit Facility be redeemed in cash upon a change of control. Pursuant to an amendment to the Credit Facility agreement made as of September 17, 2007, the cash amount of US$12 million was deposited in a cash collateral reserve held by Merrill and to be applied against the Corporation’s obligations under the Credit Facility.

The Corporation’s substantial debt could impair its financial condition. The Corporation is highly leveraged and has substantial debt service obligations which it may not be able to meet in the ordinary course of business.

As of May 31, 2008, the Corporation had approximately US$36.2 million of future principal repayments on its long-term debt. This substantial indebtedness could have important consequences for the Corporation. For example, it could:

  • increase the Corporation’s vulnerability to general adverse economic and industry conditions, including increases to interest rates;

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  • impair the Corporation’s ability to obtain additional financing in the future for working capital needs, capital expenditures or general corporate purposes;

  • require the Corporation to dedicate a significant portion of its existing cash and proceeds from any future financing transactions to the payment of principal and interest on its debt, which would reduce the funds available for its operations;

  • limit the Corporation’s flexibility in planning for, or reacting to, changes in the business and the industry in which it operates; and

  • place the Corporation at a competitive disadvantage compared to its competitors that have less debt.

There is no guarantee that the Corporation will be able to meet its obligations under these facilities.

The Corporation may be exposed to short-term liquidity risk.

The Corporation currently relies on trade credit as well as cash from term debt and equity issues to provide the necessary short-term financing to conduct the Corporation’s research and development activities as well as its commercial operations. Should suppliers and other creditors decline to extend short-term credit to the Corporation in the future, it may have a material adverse effect on the Company’s business prospects, financial results and financial condition.

Despite current indebtedness levels and the terms of the Credit Facility, the Corporation may still be able to incur substantially more debt. This could further exacerbate the risks associated with the Corporation’s substantial leverage.

Despite current indebtedness levels and the terms of the Credit Facility, the Corporation may still be able to incur substantial additional indebtedness in the future. Under the Credit Facility, the Corporation is permitted to incur, among other types of indebtedness, indebtedness that is subordinate to the Credit Facility. If new debt is added to the Corporation’s current debt levels, the related risks that it now faces could increase.

The Corporation may never receive regulatory approval in Canada, the United States or abroad for any of ourits products developed. Therefore, the Corporation may not be able to sell any therapeutic products developed.

The Corporation’s failure to obtain necessary regulatory approvals to fully market ourits current and future therapeutic products in one or more significant markets may adversely affect ourits business, financial condition and results of operations. The procedure involved in obtaining regulatory approval from the competent authorities to market therapeutic products is long and costly and may delay product development. The approval to market a product may be applicable to a limited extent only or it may be refused entirely.

With the exception of Aggrastat®AGGRASTAT®, all of the Corporation’s products are currently in the research and development stages (see Item 4(B)).stages. The Corporation may never have another commercially viable drug product approved for marketing. To obtain regulatory approvals for the Corporation’sits products and to achieve commercial success, human clinical trials must demonstrate that the products are safe for human use and that they show efficacy. Even the Corporation’s most clinically advanced product, MC-1, has not entered critical Phase III clinical trials. Unsatisfactory results obtained from a particular study or clinical trial relating to one or more of the Corporation’s products may cause the Corporation to reduce or abandon its commitment to that program.

If the Corporation fails to successfully complete its clinical trials, the Corporationit will not obtain approval from the Canadian Therapeutic Products Directorate, formerly the Canadian Health Protection Branch (“TPD”), or from the U.S. Food and Drug Administration (“FDA”), to market ourits leading product, MC-1 or ourits second clinical candidate, MC-4232. Regulatory approvals also may be subject to conditions that could limit the


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market for MC-1 or MC-4232 or make either product or both products more difficult or expensive to sell than anticipated. Also, regulatory approvals may be revoked at any time, including the Corporation’sfor failure to comply with regulatory requirements or poor performance of MC-1 or MC-4232 in terms of safety and effectiveness.

The Corporation’s business, financial condition and results of operations may be adversely affected if the Corporationit fails to obtain regulatory approvals in Canada, the United States and abroad to market and sell MC-1 or MC-4232 or any current or future drug products, including any limitations imposed on the marketing of such products.

The Corporation may not be able to hire or retain the qualified scientific, technical and management personnel it requires.

The Company’s business prospects and operations depend on the continued contributions of certain of the Company’s executive officers and other key management and technical personnel, certain of whom would be difficult to replace.

The Corporation has a contract with CanAm Bioresearch Inc. (“CanAm”) and Clinical Development Research Institute Inc. (“CDRI”) to perform for it a significant amount of ourits research and development activities. Because of the specialized scientific nature of the Corporation’s business, the loss of services of CanAm or CDRI may require the Corporation to attract and retain replacement qualified scientific, technical and management personnel. Competition in the biotechnology industry for such personnel is intense and the Corporation may not be able to hire or retain a sufficient number of qualified personnel, which may compromise the pace and success of the Corporation’sits research and development activities.

Also, certain of the Corporation’s management personnel are officers and/or directors of other companies, some publicly-traded, and will only devote part of their time to the Corporation. The Corporation does not have key person insurance in effect in the event of a loss of any management, scientific or other key personnel. The loss of any suchthe services of one or more of the Company’s current executive officers or key personnel or the inability to continue to attract qualified personnel could pose serious challenges forhave a material adverse effect on the Corporation.


11Company’s business prospects, financial results and financial condition.

The Corporation faces substantial technological competition from many biotechnology companies with much greater resources, and it may not be able to effectively compete.

Technological and scientific competition in the pharmaceutical and biotechnology industry is intense. The Corporation competes with other companies in Canada, the United States and abroad to develop products designed to treat similar conditions. Many of these other companies have substantially greater financial, technical and scientific research and development resources, manufacturing and production and sales and marketing capabilities than the Corporation. Small companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Developments by other companies may adversely affect the competitiveness of the Corporation’s products or technologies or the commitment of the Corporation’sits research and marketing collaborators to its programs or even render its products obsolete.

The pharmaceutical and biotechnology industry is characterized by extensive drug discovery and drug research efforts and rapid technological and scientific change. Competition can be expected to increase as technological advances are made and commercial applications for biopharmaceutical products increase. The Corporation’s competitors may use different technologies or approaches to develop products similar to the products which the Corporationit is developing, or may develop new or enhanced products or processes that may be more effective, less expensive, safer or more readily available before or after the Corporation obtains approval of its products. The Corporation may not be able to successfully compete with its competitors or their products and, if the Corporationit is unable to do so, itsthe Corporation’s business, financial condition and results of operations may suffer.


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The Corporation may be unable to establish collaborative and commercial relationships with third parties.

The Corporation’s success of the Corporation will depend partly on its ability to enter into and to maintain various arrangements with corporate partners, licensors, licensees and others for the research, development, clinical trials, manufacturing, marketing, sales and commercialization of its clinical and preclinical products. These relationships will be crucial to the Corporation’s intention to license to or contract with larger, international pharmaceutical companies the manufacturing, marketing, sales and distribution of any products it may commercialize for production. To date, the Corporation has not entered into any such arrangements and may never be able to establish such arrangements on favourable terms. There can be no assurance that any licensing or other agreements will be established on favourable terms, if at all. The failure to establish successful collaborative arrangements with respect to certain products may negatively impact the Corporation'sCorporation’s ability to develop and commercialize thoseits products, and may adversely affect the Corporation’sits business, financial condition and results of operations.

The Corporation’s financing agreement with Birmingham Associates includes certain restrictive covenants on the corporations commercial and developmental products including intellectual property. The ability for the company to execute on portions of its business plan may be contingent on having collaborative relationships with Birmingham. The failure to establish or maintain this successful collaborative arrangement may negatively impact the Corporation.

The Corporation has licensed certain technologies relating to products under development and may enter into future licensing agreements. The Corporation'sCorporation’s current licensing agreements contain provisions allowing the licensors to terminate such agreements if the Corporationit becomes insolvent or breachesbreach the terms and conditions of the licensing agreement,agreements without rectifying such event of default in accordance with the agreement terms.

The Corporation is currently dependent on a single manufacturer of its sole commercial product, AGGRASTAT and on a single supplier of raw material used in the manufacture of AGGRASTAT.

The Corporation is reliant on a single supplier of the raw material for AGGRASTAT and a single third party manufacturer of the final product AGGRASTAT. If the supply of raw material or the manufacturing agreement for AGGRASTAT is terminated or interrupted and the Corporation was unable to obtain a replacement supplier or manufacturer, it could have a material adverse effect on the Company’s business prospects, financial results and financial condition.

The Corporation may fail to obtain acceptable prices or appropriate reimbursement for its products and the Corporation’sits ability to successfully commercialize its products may be impaired as a result.

Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians, medical device companies, drug companies, medical supply companies, and companies, such as the Corporation, that plan to offer various products in the United States and other countries in the future. The Corporation’s ability to earn sufficient returns on its products will depend in part on the extent to which reimbursement for the costs of such products, related therapies and related treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the United States, the Corporation’s ability to have its products and related treatments and therapies eligible for Medicare or private insurance reimbursement will be an important factor in determining the ultimate success of its products. If, for any reason, Medicare or the insurance companies decline to provide reimbursement for


12

the Corporation’s products and related treatments, the Corporation’s ability to commercialize its products would be adversely affected. There can be no assurance that the Corporation’s products and related treatments will be eligible for reimbursement.

There has been a trend toward declining government and private insurance expenditures for many healthcare items. Third-party payorspayers are increasingly challenging the price of medical products and services.

If purchasers or users of the Corporation’s products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products and related treatments, they may forgo or


17

reduce such use. Even if the Corporation’s products and related treatments are approved for reimbursement by Medicare and private insurers, of which there can be no assurance, the amount of reimbursement may be reduced at times, or even eliminated. This would have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, and there can be no assurance that adequate third-party coverage will be available.

Substantial cash payments may be required under the terms of our borrowings upon an event of default or change of control. Such cash payments may leave us with little or no working capital in our business or make us insolvent.

In August, 2006, we entered into a term loan financing facility totalling approximately US$15.84 million with a syndicate of lenders, led by Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation (the “Credit Facility”). Under the Credit Facility, our lenders may require that the principal amount of the Credit Facility or that all or a portion of such principal amount be repaid in cash upon the occurrence of various events of default (subject to certain cure periods), including but not limited to:

  • the failure to pay principal, fees and/or interest due under the Credit Facility;

  • the suspension of our common shares from trading on the TSX and Amex;

  • the issuance of any judgments or orders against us for the payment of money (not paid or fully covered by insurance) in an aggregate amount in excess of US$375,000;

  • any material default under any indebtedness of ours in an aggregate principal exceeding US$375,000;

  • any breach of any term of the credit and security agreement under which the Credit Facility was extended;

  • a default under any guarantee of the Credit Facility;

  • an unpermitted payment by any obligor under the Credit Facility on account of any debt that has been subordinated to the Credit Facility;

  • the occurrence of any fact, event or circumstance that could reasonably be expected to result in a material adverse effect; and

  • breach of certain financial covenants (including a requirement that a minimum additional working capital is required to be raised by the Corporation by March 31, 2007 through a collaborative partnership or equity issuance), including financial covenants the lenders deem the Corporation likely to fail under the Credit Facility for the next succeeding financial reporting period.

Upon the occurrence and during the continuance of an event of default, the interest rate on the Credit Facility will be increased by 1.5% . The lenders under the Credit Facility may also require all or a portion


13

of the Credit Facility be redeemed in cash upon a change of control. We have not established a sinking fund for payment of the Credit Facility, nor do we anticipate doing so.

Our substantial debt could impair our financial condition. We are highly leveraged and have substantial debt service obligations.

As of August 10, 2006, we had approximately US$15.84 million of principal indebtedness outstanding under the Credit Facility that bears interest at a floating rate. This substantial indebtedness could have important consequences for us. For example, it could:

  • increase our vulnerability to general adverse economic and industry conditions;

  • impair our ability to obtain additional financing in the future for working capital needs, capital expenditures or general corporate purposes;

  • require us to dedicate a significant portion of our existing cash and proceeds from any future financing transactions to the payment of principal and interest on our debt, which would reduce the funds available for our operations;

  • limit our flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; and

  • place us at a competitive disadvantage compared to our competitors that have less debt.

Despite current indebtedness levels and the terms of the Credit Facility, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

Despite current indebtedness levels and the terms of the Credit Facility, we may still be able to incur substantial additional indebtedness in the future. Under the Credit Facility, we are permitted to incur, among other types of indebtedness, indebtedness that is subordinate to the Credit Facility. If new debt is added to our current debt levels, the related risks that we now face could increase.

The Corporation does not have manufacturing or experience and has limited marketing experience and may never be able to successfully manufacture or market certain of its products.

The Corporation has no experience in large-scale manufacturing and has no experience in marketing or selling its products andexcept for limited experience marketing AGGRASTAT®. The Corporation may never be able to successfully manufacture and market certain of its products. If the TPD or FDA approves MC-1, MC-4232 or any other of its products, the Corporation’s products, itCorporation intends to contract with and rely on third parties to manufacture, and possible to market and sell its products. Accordingly, the quality, timing and ultimately the commercial success of such products may be outside of the Corporation’s control. Failure of or delay by a third party manufacturer of the Corporation’s products to comply with good manufacturing practices or similar quality control regulations or satisfy regulatory inspections may have a material adverse effect on the Corporation’sits future prospects. Failure of or delay by a third party in the marketing or selling of the Corporation’s products or failure of the Corporation to successfully market and sell such products likewise may have a material adverse effect on the Corporation’sits future prospects.

The Corporation has limited product liability insurance and may not be able to obtain adequate product liability insurance in the future.

The sale and use of products under development by the Corporation, and the conduct of clinical studies involving human subjects, may entail product and professional liability risks, which are inherent in the testing, production, marketing and sale of new drugs to humans. While the Corporation has taken, and will continue to take, what it believes are appropriate precautions, there can be no assurance that the Corporationit will avoid significant liability exposure. Although the Corporation currently carries product liability insurance for clinical trials, there can be no assurance that it has sufficient coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain insurance on economically feasible terms or to otherwise protect against potential product liability claims could inhibit or prevent the commercialization of products developed by the Corporation. The obligation to pay any product liability


14

claim or recall a product may have a material adverse effect on theits business, financial condition and future prospects of the Corporation.prospects. In addition, even if a product liability claim is not successful, adverse publicity and the time and expense of defending such a claim may significantly interfere with the Corporation’s business.

If the Corporation is unable to successfully protect its proprietary rights, the Corporation’sits competitive position will be adversely affected.

The Corporation’s success of the Corporation will depend partly on its ability to obtain and protect its patents and protect its proprietary rights in unpatented trade secrets.

The Corporation owns or jointly owns 1839 United States patents as at May 31, 2006.patents. The Corporation has additional pending United States patent applications. The Corporation’s pending and any future patent applications may not be accepted by the United States Patent and Trademark Office or any other jurisdiction in which applications may be filed. Also, processes or products that may be developed by the Corporation in the future may not be patentable.

The patent protection afforded to biotechnology and pharmaceutical companies is uncertain and involves many complex legal, scientific and factual questions. There is no clear law or policy involving the degree of protection afforded under patents. As a result, the scope of patents issued to the Corporation may not successfully prevent third parties from developing similar or competitive products. Competitors may develop similar or competitive products that do not conflict with the Corporation’s patents. Litigation may be commenced by the Corporation to prevent infringement of its patents. Litigation may also


18

commence against the Corporation to challenge the Corporation’sits patents that, if successful, may result in the narrowing or invalidating of such patents. It is not possible to predict how any patent litigation will affect the Corporation'sCorporation’s efforts to develop, manufacture or market its products. However, the cost of litigation to prevent infringement or uphold the validity of any patents issued to the Corporation may be significant, in which case the Corporation’sits business, financial condition and results of operations may suffer. Patents provide protection for only a limited period of time, and much of such time can occur well before commercialization commences.

Disclosure and use of the Corporation'sCorporation’s proprietary rights in unpatented trade secrets not otherwise protected by patents are generally controlled by written agreements. However, such agreements will not provide the Corporation with adequate protection if they are not honoured, others independently develop an equivalent technology, disputes arise concerning the ownership of intellectual property, or the Corporation'sits trade secrets are disclosed improperly. To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the Corporation, disputes may also arise as to the rights to related or resulting know-how or inventions.

Others could claim that the Corporation infringes on their proprietary rights, which may result in costly, complex and time consuming litigation.

The Corporation’s success of the Corporation will depend partly on its ability to operate without infringing upon the patents and other proprietary rights of third parties. The Corporation is not currently aware that any of its products or processes infringeinfringes the proprietary rights of third parties. However, despite theits best efforts, of the Corporation it may be sued for infringing on the patent or other proprietary rights of third parties at any time in the future.

Such litigation, with or without merit, is time-consuming and costly and may significantly impact the Corporation’s financial condition and results of operations, even if the Corporationit prevails. If itthe Corporation does not prevail, the Corporationit may be required to stop the infringing activity or enter into a royalty or licensing agreement, in addition to any damages the Corporationit may have to pay. The Corporation may not be able to obtain such a license or the terms of the royalty or license may be burdensome for the Corporation,it, which may significantly impair the Corporation’s ability to market its products and adversely affect its business, financial condition and results of operations.


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The Corporation is andsubject to stringent governmental regulation, in the future may become subject to additional stringent governmental regulations and if the Corporationit is unable to comply, with them, its business may be materially harmed.

Biotechnology, medical device, and pharmaceutical companies operate in a high-risk regulatory environment. The TPD, FDA, and other health agencies can be very slow to approve a product and can also withhold product approvals. In addition, these health agencies also oversee many other medical product operations, such as research and development, manufacturing, and testing and safety regulation of medical products. As a result, regulatory risk is normally higher than in other industry sectors.

The Corporation is or may become subject to various federal, provincial, state and local laws, regulations and recommendations. The Corporation is subject to various laws and regulations in Canada, relating to product emissions, use and disposal of hazardous or toxic chemicals or potentially hazardous substances, infectious disease agents and other materials, and laboratory and manufacturing practices used in connection with its research and development activities. If the Corporation fails to comply with these regulations, the Corporationit may be fined or suffer other consequences that could materially affect its business, financial condition or results of operations.

The Corporation is unable to predict the extent of future government regulations or industry standards. However, it should be assumed that government regulations or standards will increase in the future. New regulations or standards may result in increased costs, including costs for obtaining permits, delays or fines resulting from loss of permits or failure to comply with regulations.

The Corporation’s products may not gain market acceptance, and as a result it may be unable to generate significant revenues.


The19

Except with respect to AGGRASTAT®,the Corporation does not currently have the required clinical data and results to successfully market its clinical and preclinical product candidates in any jurisdiction; future clinical or preclinical results may be negative or insufficient to allow the Corporationit to successfully market any of its product candidates; and obtaining needed data and results may take longer than planned, and may not be obtained at all.

Even if the Corporation’s product candidatesproducts are approved for sale, they may not be successful in the marketplace. Market acceptance of any of the Corporation’s products will depend on a number of factors, including demonstration of clinical effectiveness and safety; the potential advantages of its products over alternative treatments; the availability of acceptable pricing and adequate third-party reimbursement; and the effectiveness of marketing and distribution methods for the products. Providers, payors or patients may not accept the Corporation’s products, even if they prove to be safe and effective and are approved for marketing by the TPD, the FDA and other regulatory authorities. The Corporation estimates that it may take up to threetwo years or longer before ourits initial products may be sold commercially. If the Corporation’s products do not gain market acceptance among physicians, patients, and others in the medical community, the Corporation’sits ability to generate significant revenues from its products would be limited.

The Corporation may not achieve its projected development goals in the time frames it announces and expects.

The Corporation sets goals for and makemakes public statements regarding timing of the accomplishment of objectives material to its success, such as the commencement and completion of clinical trials, anticipated regulatory approval dates, and time of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in the Corporation’s clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving product development, manufacturing or marketing milestones necessary to commercialize its products. There can be no assurance that the Corporation’s clinical trials will be completed, that it will make regulatory submissions or receive regulatory approvals as planned, or that it will be able to adhere to its current schedule for the scale-up of manufacturing and launch of any of ourits products. If the Corporation fails to achieve one or more of these milestones as planned, that could materially affect its business, financial condition or results of operations and the price of the Corporation’sits common shares could decline.


16

The Corporation’s business involves the use of hazardous material, which requires it to comply with environmental regulations.

AlthoughThe Corporation manufacturers Aggrastat in commercial quantities. In addition the Corporation does not currently manufacture commercial quantities of its products, we produce limited quantities of such products for the Corporation’s clinical trials. The Corporation’s research and development processes involve the controlled storage, use, and disposal of hazardous materials and hazardous biological materials. The Corporation is subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials and certain waste products. Although the Corporation believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Corporation could be held liable for any damages that result, and any such liability could exceed its resources. There can be no assurance that the Corporation will not be required to incur significant costs to comply with current or future environmental laws and regulations, or that its business, financial condition, and results of operations will not be materially or adversely affected by current or future environmental laws or regulations.

The Corporation’s insurance may not provide adequate coverage with respect to environmental matters.

Environmental regulation could have a material adverse effect on the results of the Corporation’s operations and its financial position.

The Corporation is subject to a broad range of environmental regulations imposed by federal, state, provincial, and local governmental authorities. Such environmental regulation relates to, among other things, the handling and storage of hazardous materials, the disposal of waste, and the discharge of


20

contaminants into the environment. Although the Corporation believes that it is in material compliance with applicable environmental regulation, as a result of the potential existence of unknown environmental issues and frequent changes to environmental regulation and the interpretation and enforcement thereof, there can be no assurance that compliance with environmental regulation or obligations imposed thereunder will not have a material adverse effect on the Corporation in the future.

The Corporation willis exposed to foreign exchange movements since the majority of its debt financing and its commercial sales operations are denominated in U.S. currency.

At May 31, 2008, the Corporation had US$36.2 million in debt offset by US$19.5 million in cash and cash equivalents. As well, the majority of the Corporation’s sales revenues and a substantial portion of its selling, general and administrative expenses are denominated in U.S. dollars. The Company does not utilize derivatives, such as foreign currency forward contracts and futures contracts, to manage its exposure to currency risk and as a result a change in the value of the Canadian dollar against the U.S. dollar could have a negative impact on the Company’s business prospects, financial results and financial condition.

The Corporation is exposed to changes in underlying interest rates on the portion of its debt financed based on floating interest rates.

The Company is exposed to interest rate risk on a portion of its debt financing and there are no financial contracts in place to offset this risk. An increase in underlying interest rates could have a negative impact on the Company’s financial results and financial condition.

The Corporation may need to raise additional capital through the sale of its securities, resulting in dilution to its existing shareholders. Such funds may not be available, or may not be available on reasonable terms, adversely affecting the Corporation’s operations.

The Corporation has not to date generated any revenues from sales. The timing of generation of any sales is uncertain. The Corporation has limited financial resources and has financed its operations through the sale of securities, primarily common shares. The Corporation has significant on-going cash expenses and nolimited ability to generate cash from operations. To meet its on-going cash needs the Corporation will need to continue its reliance on the sale of such securities for future financing, resulting in dilution to its existing shareholders. The Corporation’s long-term capital requirements may be notably significant and will depend on many factors, including continued scientific progress in its product discovery and development program, progress in its pre-clinical and clinical evaluation of products and product candidates, time and expense associated with filing, prosecuting and enforcing its patent claims and costs associated with obtaining regulatory approvals. In order to meet such capital requirements, the Corporation will consider contract fees, collaborative research and development arrangements, public financing or additional private financing (including the issuance of additional equity securities) to fund all or a part of particular programs.

The Corporation’s business, financial condition and results of operations will depend on its ability to obtain additional financing which may not be available under favourable terms, if at all. The Corporation’s ability of the Corporation to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as theits business performance of the Corporation.performance. If the Corporation’sits capital resources are exhausted and adequate funds are not available, itthe Corporation may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of its proposed products, or obtain funds through arrangements with corporate partners that require the Corporationit to relinquish rights to certain of its technologies or products.


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Future issuance of the Corporation’s common shares will result in dilution to its existing shareholders. Additionally, future sales of the Corporation’s common shares into the public market may lower the market price which may result in losses to the Corporation’sits shareholders.

As of May 31, 2006,2008, the Corporation had 96,046,465130,307,552, common shares issued and outstanding. A further 3,300,0284,614,383 common shares are issuable upon exercise of outstanding stock options and another 6,706,86016,065,381 common shares are issuable upon exercise of share purchase warrants, all of which may be exercised in


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the future resulting in dilution to the Corporation’s shareholders. The Corporation’s stock option plan allows for the issuance of stock options to purchase up to a maximum of 7,200,00010% of the outstanding common shares issued and outstanding as of May 31, 2006. Under the plan the Corporation is able to grant an additional 2,954,667 share options as at May 31, 2006.any time. The common shares to be issued upon exercise of the outstanding options and warrants will be freely tradable and not subject to any hold period when issued.

Sales of substantial amounts of the Corporation’s common shares into the public market, or even the perception by the market that such sales may occur, may lower the market price of its common shares.

The Corporation’s common shares may experience extreme price and volume volatility which may result in losses to the shareholders of the Corporation.its shareholders.

On May 31, 2006,2008, the Corporation’s common shares closed at a price of $1.70 (US$1.59CDN$0.07 on the Amex).TSX and US$0.06 on the AMEX. For the period from June 1, 20052007 to May 31, 2006,2008, the high and low trading prices of the Corporation’s common shares on the TSX were $2.37CDN$1.70 and $0.83,CDN$0.06, respectively, with a total trading volume of 71,417,100114,926,000 shares. For the period from June 1, 20052007 to May 31, 2006,2008, the high and low trading prices of the Corporation’s common shares on the AmexAMEX were US$2.071.65 and US$0.66,0.05, respectively, with a total trading volume of 21,498,300.61,259,600.

Daily trading volume on the TSX inof the Corporation’s common stockshares for the period from June 1, 20052007 to May 31, 20062008 has fluctuated, with a high of 4,283,00025,845,200 shares and a low of 12,300 shares,5,500shares, averaging approximately 283,401457,873 shares. Daily trading volume on the AmexAMEX in the Corporation’s common stockshares for the period from June 1, 20052007 to May 31, 20062008 has fluctuated with a high of 3,207,60010,301,400 and a low of nil,4,700, averaging approximately 85,311.243,094. Accordingly, the trading price of the Corporation’s common stockshares may be subject to wide fluctuations in response to a variety of factors including announcement of material events by the Corporation such as the status of required regulatory approvals for the Corporation’sits products, competition by new products or new innovations, fluctuations in theits operating results, of the Corporation, general and industry-specific economic conditions and developments pertaining to patent and proprietary rights. The trading price of the Corporation’s common shares may be subject to wide fluctuations in response to a variety of factors and/or announcements concerning such factors, including:

  • actual or anticipated period-to-period fluctuations in financial results;

  • litigation or threat of litigation;

  • failure to achieve, or changes in, financial estimates by securities analysts;

  • new or existing products or services or technological innovations by the Corporation or its competitors;

  • comments or opinions by securities analysts or major shareholders;

  • conditions or trends in the pharmaceutical, biotechnology and life science industries;

  • significant acquisitions, strategic partnerships, joint ventures or capital commitments;

  • results of, and developments in, the Corporation’s research and development efforts, including results and adequacy of, and developments in, its clinical trials and applications for regulatory approval;


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  • additions or departures of key personnel;

  • sales of the Corporation’s common shares, including by holders of the notes on conversion or repayment by the Corporation in common shares;

  • economic and other external factors or disasters or crises;

  • limited daily trading volume; and


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  • developments regarding the Corporation’s patents or other intellectual property or that of its competitors.

In addition, the securities markets in the United States and Canada have recently experienced a high level of price and volume volatility, and the market price of securities of biotechnology companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. In addition, because of the limited public float, there may be limited liquidity for the Corporation’s common shares. It is expected that such fluctuations in price and limited liquidity will continue in the foreseeable future which may make it difficult for a shareholder to sell shares at a price equal to or above the price at which the shares were purchased.

There may not be an active, liquid market for the Corporation’s common shares.

There is no guarantee that an active trading market for the Corporation’s common shares will be maintained on AmexAMEX or the TSX. Investors may not be able to sell their shares quickly or at the latest market price if trading in the Corporation’sits common shares is not active. On June 18, 2008, the Corporation announced its intention to file a Form 25 with the Securities and Exchange Commission in order to voluntarily delist its common shares from the Amex. The Corporation’s shares ceased trading on the Amex effective July 3, 2008.

If there are substantial sales of the Corporation’s common shares, the market price of theits common shares could decline.

Sales of substantial numbers of the Corporation’s common shares could cause a decline in the market price of theits common shares. Any sales by existing shareholders or holders of options or warrants may have an adverse effect on the Corporation’s ability to raise capital and may adversely affect the market price of theits common shares.

We may be unable to meet our obligations under our outstanding Credit Facility.

As of August 10, 2006, the Corporation had approximately US$15.84 million of principal indebtedness outstanding under the Credit Facility, which bears interest at one-month LIBOR plus 6.5 percent per annum. The term of the Credit Facility is over 42 months, with interest due and payable at commencement of the loan payable on the first day of the month. Commencing in June 2007, principal is payable monthly on a straight-line amortization schedule over 33 consecutive monthly instalments. There is no guarantee that the Corporation will have adequate resources to meet these obligations on a timely basis.

The Corporation has no history of paying dividends, does not intend to pay dividends in the foreseeable future and may never pay dividends.

Since incorporation, the Corporation has not paid any cash or other dividends on its common stockshares and does not expect to pay such dividends in the foreseeable future as all available funds will be invested to finance the growth of its business. The Corporation will need to achieve profitability prior to any dividends being declared, which may never happen.

The CorporationIf the Corporation’s is likely to be classified as a “passive foreign investment company” for United States income tax purposes, whichit could have significant and adverse tax consequences to United States holders of its common shares.

The Corporation does not believe that it was a passive“passive foreign investment company (“PFIC”) incompany” for the 2005 taxable year ended May 31, 2008, and the Corporation believes there is a significant likelihooddoes not expect that it will be classified as a PFIC in“passive foreign investment company” (PFIC) for the 2006


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taxable year ending May 31, 2009. (See more detailed discussion in Item 10 E – Taxation) However, there can be no assurance that the IRS will not challenge the determination made by the Corporation concerning its “passive foreign investment company” status or that the Corporation will not be a “passive foreign investment company” for the current taxable year or any subsequent taxable year. Accordingly, although the Corporation expects that it may be a QFC for the taxable year ending May 31, 2009, there can be no assurances that the IRS will not challenge the determination made by the Corporation concerning its QFC status, that the Corporation will be a QFC for the taxable year ending May 31, 2009 or any subsequent taxable year, or that the Corporation will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and possibly in subsequent years. Ourthe IRS.

The Corporation’s classification as a PFIC could have significant and adverse tax consequences for United States holders of the Corporation’sits common shares. It may be possible for United States holders of the Corporation’s common shares to mitigate these consequences by making a so-called “qualified electing fund” election. (See “Taxation” below.)


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The Corporation has adopted a shareholder rights plan.

The Corporation has adopted a shareholder rights plan. The provisions of such plan could make it more difficult for a third party to acquire a majority of the Corporation’s outstanding common shares, the effect of which may be to deprive itsthe Corporation’s shareholders of a control premium that might otherwise be realized in connection with an acquisition of theits common shares.

Risks associated with Material weaknesses within the Company’s financial reporting and review process

In connection with its review of the Company’s internal control over financial Reporting, KPMG, the Company’s external auditors, identified a martial weakness with the Company’s financial reporting and review process, involving the preparation and review of the reconciliation form Canadian GAAP to United States GAAP. Based on such determination, the Company’s management concluded that the Company’s internal control over financial reporting was not effective. The company either plans to ensure adequate personnel are available with the necessary training and expertise or reliance on a external third party to provided this control, any failure to remediate the material weakness, to implement the required new or improved control, or difficulties encountered in the implementation, could cause the Company to fail to meet its reporting obligations on a timely basis ore result in material misstatements in the annual or interim financial statements. Inadequate internal control over financial reporting could also cause investor to lose confidence in the Company’s reported financial information, which could cause the Company’s stock price to decline

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

On December 22, 1999, the Corporation was formed by the amalgamation of Medicure Inc. with Lariat was incorporated by Certificate of Incorporation issuedCapital Inc. pursuant to the provisions of theBusiness Corporations Act (Alberta) on June 3, 1997. On February 11, 1999, by Certificate of Amendment and Registration of Restated Articles, the Articles of Lariat were amended to remove the private company restriction. Lariat was formed as a Junior Capital Pool company, as defined by, and under the rules of the Alberta Stock Exchange with the expressed intent of acquiring a project or company through a reverse take over. With the exception of this intent and the associated search for potential acquisitions, Lariat had no substantial prior business activities.

Medicure was incorporated by Certificate of Incorporation issued pursuant to the provisions ofThe Corporations Act (Manitoba) on September 15, 1997. Medicure was continued from Manitoba to Alberta by Certificate of Continuance issued pursuant to the provisions of theBusiness Corporations Act(Alberta) on December 3, 1999. On December 22, 1999, Medicure and Lariat were amalgamated by Certificate of Amalgamation issued pursuant to the provisions of theBusiness Corporations Act (Alberta) as Medicure Inc.. The Corporation was continued from Alberta to the federal jurisdiction by Certificate of Continuance issued pursuant to the provisions of theCanada Business Corporations Acton February 23, 2000.

Medicure was formed as a private Manitoba company to advance the discoveries of Dr. Naranjan Dhalla of the University of Manitoba. Dr. Dhalla and Dr. Albert Friesen were the principal owners of the corporation as first formed, together with certain other individuals who contributed to the project. The first order of business was the completion of a licensing agreement to acquire the technology rights from the University of Manitoba, which owned the technology by virtue of the fact that it was invented by employees of the University. From that date until the merger with Lariat, the Corporation's primary focus was on the preclinical testing and development of the lead product, identified as MC-1. In 1998 other research involving synthesis and testing of other potential therapeutics was commenced through a research contract with the University of Manitoba. Various business activities were conducted in support of these primary research projects including but not limited to; (1) the application for and approval of government sponsored research awards, (2) the search for alternative sources of investment capital to fund operations, and (3) the ongoing search for other potential therapeutics. Business and administrative functions were handled by Genesys Venture Inc., a consulting corporation, that at the time, was owned entirely by Dr. Friesen. Operations and research, until the merger, were primarily funded by Dr. Friesen, with assistance from government grants. On November 22, 1999 Medicure was acquired by Lariat by way of a reverse takeover as Lariat’s “Major Transaction” as a Junior Capital Pool company within the meaning of the Alberta Securities Commission Rule 46-501, the Alberta Securities Commission Companion Policy 46-501CP and The Alberta Stock Exchange Circular 7. Pursuant to the terms of the Major Transaction, Lariat acquired all of the issued and outstanding shares of Medicure in exchange for 9,500,000 shares of Lariat, at a deemed price for securities regulatory purposes only of $0.20 per share for aggregate deemed value of $1,900,000. The Major Transaction was negotiated entirely at arm’s length. As a result of the share exchange, control of Lariat passed to the former shareholders of Medicure. This type of transaction is commonly referred to as a “reverse takeover”. Under reverse takeover accounting, for financial reporting purposes, the Corporation is considered to be a continuation of the operations formerly carried on by Medicure.


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The Corporation’s current legal and commercial name is Medicure Inc. and its current registered office is 30th Floor, 360 Main Street, Winnipeg, Manitoba, Canada, R3C 4G1.4G1, Phone (204) 487-7412 The Corporation’s head office is located at 4-1200 Waverley Street, Winnipeg, Manitoba, Canada, R3T 0P4.

The MC-1 technology was originally licensed to Genesys Pharma Inc. by the University of Manitoba, on August 18, 1997. Genesys Pharma Inc., which had made a small investment on some preliminary research, transferred the technology without cost, except for costs designated in the license, to Medicure Inc. on September 26, 1997. On August 30, 1999 Medicure Inc. completed a new license agreement with the University of Manitoba in order to slightly modify the terms of the original license agreement transferred from Genesys Pharma Inc., and to have the documentation properly prepared in the Corporation’s own name.

On June 1, 2000 the Corporation licensed the world-wide development and marketing rights (except for Canada) for MC-1, the Corporation’s lead product, to the Corporation’s wholly owned subsidiary, Medicure International Inc.. Medicure International Inc. then entered into a development agreement with CanAm to perform research and development on MC-1 and other compounds at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced. The parties to the development agreement have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of the agreement. CanAm is a private Canadian company owned by Marcus Enns, a former employee of the Corporation and Peter de Visser, a former director of the Corporation. Peter de Visser resigned as a director of the Corporation in December 2001.

On July 2, 2004, Medicure International Inc. also entered into a development agreement with CDRI to perform clinical development on MC-1 and other compounds at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced. The parties to the development agreement have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of the agreement. CDRI is a private Canadian company owned by Jim Charlton, a former employee of the Corporation.

In August 2006, the Corporation acquired the U.S. rights to its first commercial product, Aggrastat®AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, Virgin Islands and Guam) for US$19,000,000 plus inventory. To finance19,000,000.

In September 2007, the acquisition,Corporation monetized a percentage of its current and potential future commercial revenues by entering into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for proceeds of US$25 million. (See Item 5 B – Liquidity and Capital Resources)

In February 2008, the Company enteredannounced that its pivotal Phase III MEND-CABG II clinical trials with MC-1 did not meet the primary endpoint and as a result was not sufficient to support the filings. As a result of the study results, the Company announced a restructuring plan that resulted in the organization its head count by approximately 50 employees and full-time consultants. The restructuring and downsizing in March 2008 did conserve capital for ongoing operations. The Company continues to look for areas were it can reduce overhead and further conserve capital and will continue to do so into the Credit Facility totaling US$15.84 million with a syndicate2009 fiscal year. The company is also exploring various alternatives for further strengthening its financial position and will provide additional guidance as appropriate. The Company’s near term focus will be on


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its commercial asset AGGRASTAT®, the development of lenders, led by Merrill Lynch Capital, a divisionMC-1 for chronic cardiovascular and metabolic disease, and exploring further cost savings measures. The Company’s ability to continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of Merrill Lynch Business Financial Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation. The term of the Credit Facilitybusiness is over 42 months, with interest due and payable at commencement of the loan payabledependent on the first day of the month at one-month LIBOR plus 6.5 percent per annum. Commencing in June 2007, principal is payable monthly on a straight-line amortization schedule over 33 consecutive monthly installments. The Credit Facility is secured by a security interest in all existing and after-acquired assetsability of the Company including intellectual property.

Since its amalgamation, the Corporation, directlyto execute on these plans and through certain research contracts, has been engaged in the research and developmentsecure additional sources of human therapeutic drugs for cardiovascular disease. In certain instances, therapeutics developed by the Corporation may also provide benefit for other diseases. The Corporation’s lead product, MC-1, is based upon scientific discoveries led by Dr. Naranjan S. Dhalla of The Institute of Cardiovascular Sciences and the Department of Physiology, of the Faculty of Medicine, the University of Manitoba in Winnipeg, Manitoba, Canada. The Corporation’s focus is on the clinical development and commercialization of MC-1 for treatment of cardiovascular disease and on the discovery and development of other cardiovascular therapeutics. There is currently an aggregate of 39 full time scientific researchers and support staff who are retained as employees by CanAm and CDRI who are performing the Corporation’s scientific research pursuant to the development agreements.financing. (See Item 3 D – Risk factors)

B. Business Overview

Plan of Operation

The Corporation is a biopharmaceuticalpharmaceutical company focused on the discovery, development and developmentcommercialization of therapeutics for various large-market,large-markets, and in particular for unmet cardiovascular and cerebral vascular needs.


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The following table summarizes our clinical product candidates, their therapeutic focusIn fiscal 2008, the Company was focused on two major objectives; first and their stageforemost on the 3000 patient Phase III trial of development.

Product CandidateTherapeutic focusStage of Development
MC-1Coronary Artery BypassPhase II complete
Graft Surgery
MC-1Acute Coronary SyndromePhase II complete*
MC-1StrokePhase I complete
MC-4232Diabetes/HypertensionPhase II complete
MC-4262Metabolic Syndrome/HypertensionPhase I complete

* Completed MEND-1 angioplasty study, but intend to develop for relatedprotection of ischemic reperfusion injury during Coronary Artery By-pass Graft surgery (CABG), entitled MEND-CABG II and secondly on increasing the sales of AGGRASTAT®. In February 2008 the Company announced that the pivotal Phase III trial, MEND-CABG II, did not meet the primary end point and therefore would not file an application for regulatory approval of the use of MC-1, for this indication. It further announced that the MC-1 development for the acute indication of ACS.CABG, ACS and Stroke would be put on hold and the primary focus would shift to growing the AGGRASTAT® sales through itsCommercial business and that the Company’sResearch and Development activity would focus on exploring other clinical applications of MC-1.

As a result of the above, the Company announced a restructuring plan that resulted in the organization reducing its head count by approximately 50 employees and full-time consultants. The restructuring and downsizing in March enabled the Company to significantly conserve capital for ongoing operations. The Company continues to look for areas were it can reduce overhead and further conserve capital and will continue to do so into the 2009 fiscal year. The company is also exploring various alternatives for further strengthening its financial position and will provide additional guidance as appropriate. The Company’s near term focus will be on its commercial asset AGGRASTAT®, the development of MC-1 for chronic cardiovascular and metabolic disease, and exploring further cost savings measures. The Company’s ability to continue in operation for the foreseeable future and to realize its assets and discharge its liabilities and commitments in the normal course of business is dependent on the ability of the Company to execute on these plans and secure additional sources of financing.

Commercial:

In August 2006,fiscal 2007, the CorporationCompany acquired the U.S. rights to its first commercial product, Aggrastat®AGGRASTAT® Injection (tirofiban hydrochloride), in the United States and its territories (Puerto Rico, Virgin Islands, and Guam). Aggrastat®AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome (ACS) including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction (MI). Aggrastat® was not being actively promoted at the time of acquisition. The Corporation plans to launchCompany launched product sales and marketing efforts, with a targeted, dedicated cardiovascular sales force and medical science liaison organization induring the first halfsecond quarter of fiscal 2007. Aggrastat® is complimentaryThe acquisition of AGGRASTAT® initiated the commercial (sales and marketing) part of the business forming a base for revenue, the acquisition of other drugs that fit the commercial team and the potential to launch and market internally developed drugs.

Net product revenue from the sale of AGGRASTAT® for fiscal 2008 declined over the net product revenue for fiscal 2007. Many factors contributed to this including, but not limited to, the Corporation’s cardiovascular strategy and provides the Corporation with a presencelingering effects in the marketplace.market of previous sales efforts, or the lack thereof, the challenge of reversing a long term decline in sales, and the diversion of the commercial group’s effort by activities associated with the development and planned launch of MC-1 for CABG. It also took time for Medicure to change its initial sales execution strategy from a third party contract sales force to an internal sales force managed directly in house. Management believes the company has made significant strides in developing AGGRASTAT®’s place in the market and believes benefits will be seen in fiscal 2009. The Company


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also notes the successful quarter over quarter growth in revenues in each of the last three quarters of fiscal 2008.

Research and Development:

The following table summarizes the Corporation’s clinical product candidates, their therapeutic focus and their stage of development.

Product CandidateTherapeutic focusStage of Development
MC-1Coronary Artery Bypass Graft SurgeryPhase III – complete did not meet primary end point
MC-1Acute Coronary SyndromePhase II complete – on hold *
MC-1StrokePhase I complete – on hold
MC-1Chronic use to lower metabolic parametersPhase II studies - planning
MC-1Chronic use for neurological indicationsPhase II studies - planning
MC-4232Diabetes/HypertensionPhase II complete –on hold
MC-4262Metabolic Syndrome/HypertensionPhase I complete – on hold

* Completed MEND-1 angioplasty study, but intend to develop for related indication of ACS.

The Company’s research and development program is currently focused on the clinical development of the Corporation’sCompany’s lead clinical products,product, MC-1, and MC-4232,for new indications and the discovery and development of other drug candidates. MC-1 is a naturally occurring small molecule that in both preclinical and clinical studies has shown potential for treating various forms of cardiovascular disease.

MC-1, the Corporation’s lead product, iswas being developed as a treatment to reduce injury from blockages of blood to the heart (i.e. myocardial ischemia, associated with heart attacks, angina and arrhythmia) and the brain (i.e. ischemic stroke) and to prevent injury from ischemic reperfusion injury. Ischemic reperfusion injury occurs when blood flow to an organ is suddenly resumed following a stoppage, as occurs during medical procedures such as heart surgery. The results from the Phase II MEND-1 and MEND-CABG studies demonstrated the cardioprotective effects and safety of MC-1 in high-risk patients undergoing angioplasty and bypass surgery, respectively. The Phase III pivotal study of 3,023 patients in support of registration filings with major regulatory agencies, MEND-CABG II, did not meet its primary end points. Therefore, it will not be sufficient to support the filings and as a result of limited resources the program was put on hold.

In parallel to the development of MC-1 and MC-4232, the Corporation has a drug discovery program the objective of which is to discover and in-license new drug candidates for advancement into clinical development and commercialization for unmet cardiovascular market needs. One element of the program involves the synthesis and evaluation of compounds that are structurally related to MC-1. The Corporation has already produced several groups of candidate compounds using this approach and plans to build a pipeline of additional preclinical products over the next several years. Certain of the Corporation’s new compounds have shown positive effects in in vitro andin vivo efficacy studies and are currently being studied further to evaluate their commercial potential. Because of limited financial resources, the studies to further to evaluate their commercial potential have been put on hold. Some patents have been issued for these compounds and additional patent applications have been, and are expected to be filed for all novel candidate compounds, to the extent commercially and reasonably possible, protecting their composition of matter and use in a treatment of targeted cardiovascular and related diseases.

The Corporation is also evaluating other cardiovascular drug candidates for potential license with the objective of further broadening its product and patent portfolio.


The Corporation anticipates that no substantial material acquisition of equipment or facilities will take place in the coming year.26

It is the Corporation’s intention to actively search for a partnership with a large pharmaceutical company. Such a partnership would conceivablymay provide funding for Phase II and Phase III clinical trials, add experience to the product development process, and bring in overall marketing expertise. While the Corporation has had


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informal discussions with potential partners, no formal agreement, or letter of intent, has been entered into by the Corporation as of the date hereof.

The Corporation anticipates that no substantial material acquisition of equipment or facilities will take place in the coming year.

Potential Products in Development Stage

As previously stated, oneOne of the Corporation’s primary focuses is the clinical development and commercialization of its lead products, MC-1 and MC-4232.

The Corporation's lead product, MC-1, is a small molecule therapeutic that has a broad range of potential applications from treatment of acute cardiovascular events (such as ACS, CABG and heart attacks), to chronic conditions (such as hypertension and metabolic syndrome). as well as several other non-cardiovascular indications. MC-1 ishas been shown to be a cardioprotective drug that in both preclinical and clinical studies has shownwhich suggest the potential for treating various forms of CV diseases and stroke. MC-1 stands to be a major first-to-market product in a new class of drug.

The Corporation announced positive results from a MEND-1 Phase II clinical study in January 2003. The MEND-1 trial was a proof of principle study to establishthat suggested that MC-1 was safe and the efficacy and safety of the Corporation’s lead compound, MC-1potential as a cardioprotective treatment to reduce damage to the heart associated with acute ischemic and reperfusion injury. The trial enrolled a total of 60 high-risk patients undergoing percutaneous coronary intervention (PCI), and was conducted at four medical centres in Canada and the USA.

The primary endpoint, peri-procedural infarct size (as determined by area under the curve (AUC) of CK-MB within 24 hours following initiation of elective PCI) was significantly reduced by approximately 33% in the MC-1 treatment group. The results from the MEND-1 study provided the Corporation with the necessary positive data to proceed with larger, Phase II trial in Coronary Artery Bypass Graft (CABG) procedures.

The MEND-CABG study was a Phase II placebo controlled, double-blinded study of MC-1, designed to evaluate the potential of the Corporation's lead drug in reducing ischemic damage resulting from coronary artery bypass graft (CABG) procedures. The trial was conducted at 42 cardiac centres throughout Canada and the US and is managed by Montreal Heart Institute and Duke Clinical Research Institute (DCRI) and enrolled 901 patients. The Corporation reported positive top-line results up to post-operative day (POD) 30 in December 2005. The results showed that the 250 mg dose of MC-1 had a statistically significant reduction in the composite of events driven by a 46.9% reduction in non-fatal heart attacks (peak CK-MB ?????100ng/ml). Patients were also followed up to POD 90, which was 60 days after their last drug treatment. The treatment effect at POD 30 with MC-1 was maintained throughout the follow up period. The safety analysis from MEND-CABG also demonstrated MC-1 was safe and well tolerated.The Corporation plans on initiating the Phase III MEND-CABG II study in the first half of fiscal 2007.

Additional preclinicalPreclinical studies with MC-1 also suggest its potential value in treatment of stroke. During 2002, preclinical studies were carried out under the direction of Dr. Ashfaq Shuaib, Director of the Division of Neurology at the WC Mackenzie Health Sciences Centre of the University of Alberta. MC-1 reduced infarct size (damaged region) in the brain and preserved neurological function in an animal model. Preliminary studies also indicate that beneficial effects may even be obtained with treatment several hours after the onset of ischemia. A combination of MC-1 and TPA was also shown to be an effective treatment. There was no indication that MC-1 alone increased the incidence of hemorrhage, suggesting it would be a safe treatment for stroke patients. Medicure plans further research on stroke, hypertension and other potential uses.

The MEND-CABG study was a Phase II placebo controlled, double-blinded study of MC-1, designed to evaluate the potential of the Corporation's lead drug in reducing ischemic damage resulting from coronary artery bypass graft (CABG) procedures. The trial was conducted at 42 cardiac centres throughout Canada and the US and is managed by Montreal Heart Institute and Duke Clinical Research Institute (DCRI) and enrolled 901 patients. The Corporation reported positive top-line results up to post-operative day (POD) 30 in December 2005. The results showed that the 250 mg dose of MC-1 had a statistically significant reduction in the composite of events driven by a 46.9% reduction in non-fatal heart attacks (peak CK-MB ≥100ng/ml). Patients were also followed up to POD 90, which was 60 days after their last drug treatment. The treatment effect at POD 30 with MC-1 was maintained throughout the follow up period. The safety analysis from MEND-CABG also demonstrated MC-1 was safe and well tolerated. In the first half of fiscal 2007, the Corporation initiated a follow on Phase III study, MEND-CABG II to form the basis of registration applications to the major market regulatory agencies.

The Company conducted the Phase III MEND-CABG II trial at over 120 cardiac centres throughout North America and Europe. It was managed by Duke Clinical Research Institute (DCRI) and Montreal


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Heart Institute and enrolled 3,023 patients. Enrolment was completed in October 2007 and results were announced on February 23rd, 2008. The Phase III, MEND-CABG II trial did not meet it’s primary end point and therefore is not sufficient for registration filings for market approval. Because of lack of resources, the Company has put the further development of MC-1 for acute cardiovascular indications on hold.

Preclinical and clinical studies have shown that MC-1 has the potential to provide other clinical benefits to provide cardiovascular and non-cardiovascular indications.

With respect to other cardiovascular indications, MC-1 has been shown to have the potential to improve various metabolic parameters. The Company has been pursuing these potential opportunities with a plan to develop fixed dose combination pills with drugs already in use for improving aspects of metabolic parameters.

Medicure's first combination product is MC-4232, a drug that combines the cardio-protective benefit of MC-1 with the ACE Inhibitor, lisinopril, for the treatment of patients with co-existing diabetes and hypertension and related cardiovascular problems. The co-existing conditions of diabetes and hypertension present a major increase in risk of cardiovascular complications, including coronary artery disease, peripheral artery disease, retinopathy, nephropathy and stroke. In addition to cardioprotection, this product has also demonstrated potential to provide further blood pressure lowering effects, reduction in glycated hemoglobin (HbA1c), the primary measure of blood glucose control and reduction in triglyceride levels.


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In September 2005, the Corporation announced positive results from the Phase II MATCHED study. The MATCHED (MC-1 and ACE Therapeutic Combination for Hypertensive Diabetics) study evaluated MC-1 alone and in combination with an lisinopril encompassing 120 patients with co-existing diabetes and hypertension. MATCHED was a randomized, parallel group, cross-over, double-blind, placebo-controlled comparison of 100, 300 or 1000 mg of MC-1 alone and in combination with 20 mg of lisinopril. The results demonstrated the positive clinical effects of MC-4232 on important primary and secondary blood pressure and metabolic endpoints. The Corporation plans on initiatingis planning further clinical studies as a result of these positive results.

The Corporation hasCompany is also initiated the development program for its secondconsidering other combination product,products, such as MC-4262, a drug combining MC-1 and an Angiotensin Receptor Blocker (ARB), one of the world's ten largest pharmaceutical drug classes by revenue.. The patented new product, is beingcould be developed for use in the treatment of hypertension in patients whose condition is complicated with metabolic syndrome resulting in increased cardiovascular risk. A third combination product is MC-4252, a drug combining MC-1 and a lipid lowering statin, The patented new product could be developed for use in the treatment of patients with elevated lipids and other complicating metabolic syndromes.

The Company is also considering the use of MC-1 as monotherapy for the various metabolic syndrome indications. MC-1 has been shown to have potential to lower blood pressure, reduce HbA1c, lower LDL, lower triglycerides and CRP. With sufficient resources, the Company is considering follow-up clinical studies to support and strengthen previous data for these applications. With additional supportive data, MC-1 could have the potential for adjunctive therapy to drugs already in use for these indications.

The Company is also considering the use of MC-1 as monotherapy for non-cardiovascular chronic applications in neuroprotection.

While MC-1 and MC-4232for chronic development proceeds, the Corporation is seeking to develop or acquire additional cardiovascular therapeutics with commercial potential to meet a market need. The Corporation’s objective is to establish a pipeline of novel cardiovascular therapeutics to ensure the Corporation’s long-term growth and security. The Corporation is taking a two-pronged approach to this effort, combining the efforts of a drug discovery program with strategic licensing of promising new compounds from other research groups.

The Corporation’s drug discovery program has produced several families of new compounds that have shown promising effects inin vitro and/orin vivo studies. From these compounds, the Corporation has


28

thus far identified certain candidates as having potential for further development. These compounds, the chemical identities of which are being held confidential while patents are pending, will undergo furtherin vitro analysis andin vivo animal testing on disease models and for bioavailability.

According to theAmerican Heart Association, cardiovascular disease is the most prevalent serious disease in the United States, affecting approximately 71.379.4 million people.1According to theAmerican Heart Association, approximately one in three Americans havehas some form of cardiovascular disease. In 2003,2002, cardiovascular disease was the underlying or contributing causeincause in 58% of all deaths in the United States.21

The Corporation is focusing its initial drug discovery and development efforts on meeting unmet needs in the cardiovascular and stroke market. The Corporation is advancing its lead product, MC-1, through further clinical testing for a few chronic applications including cardiovascular and neurologic applications with the intention of commercializing itattracting partnerships for treatment of (1) ischemic reperfusion injury (associated with common procedures such as angioplasty and coronary bypass surgery and stroke); and (2) myocardial ischemia, including heart attacks, angina and other related disorders.further commercializing.

The Corporation has various compounds currently in early stage research screening. Compoundsand development.

The Corporation has developed by the chemistry group willa novel series of small molecule dual acting anticoagulant/antiplatelet compounds which may be advanced through the following stepsuseful in treating venous and arterial thrombosis. These novel compounds arepatented and based on their successful advancement through early stage screening; (1)a vitamin B6(pyridoxine) scaffold. A number of these compounds are active at nanomolar concentrations and selectively inhibit thrombin. In addition these compounds also inhibit platelet aggregation. These compounds are relatively simple to synthesize and can easily be chemically modified to obtain the desired ratio of anticoagulant/antiplatelet activity.

The dual acting anticoagulant/antiplatelet molecules have shown definite activity in vitro screening, (2)venous and arterial models of thrombosis. Preclinical studies show these compounds to have lesser bleeding tendencies as compared to currently used agents such as heparin. These compounds do not give rise to HIT antibodies, and a few analogs inhibit HIT-induced platelet aggregation. The HERG studies demonstrate a favourable safety profile in vivo screeningthe CanAm compounds. Acute toxicity studies in appropriate disease model, (3) in vivo toxicity screening, (4) dose response confirmation of efficacy testing in vivo, (5) preclinical, GLP toxicity and pharmacokinetics testing, (6) Phase I human testing, (7) Phase II human, (8) Phase III human, and (9) Filing of NDA in United States and NDS in Canadarats also demonstrate a favourable safety profile.

The company seeks to request the rightestablish a licensing arrangement or R&D collaboration to commercialize. At the present time the most advanced product is in stage 4 of this testing continuum, but no estimate can be made as to when a certain product may advance these compounds to the human clinical testing stage.clinic.

As at May 31, 2006,2007, the Corporation had 1839 issued United States patents: United States Patent No. 5,504,090, United States Patent No. 5,733,916, United States Patent No. 6,001,842, United States Patent No. 6,051,587, United States Patent No. 6,043,259, United States Patent No. 6,339,085, United States Patent No. 6,417,204, United States Patent No. 6,489,345, United States Patent No. 6,548,519, United

________________________________________
1
American Heart Association,Heart Diseasepatents (see Item 5 – Operating and Stroke Statistics - - 2006 Update.

2Health Canada,Heart DiseaseFinancial Review and Stroke in Canada, 1997, Chapter 2.1.


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States Patent No. 6,586,414, United States Patent No. 6,605,612, United States Patent No. 6,677,356, United States Patent No. 6,667,315, United States Patent No. 6,780,997, United States Patent No. 6,861,439, United States Patent No. 6,867,215, United States Patent No. 6,890,943Prospects – C. Research and United States Patent No. 6,897,228.Development, Patents and Licenses, Etc. below).

Competitors’ Current Products

The only commercial product the corporation currently has is sold in the United States of America.

There are numerous products on the market for treatment of cardiovascular disorders, most of which are marketed by large pharmaceutical companies.

It is recognized that cardiovascular treatments have been of great benefit in reducing mortality and morbidity from a range of conditions. The existing cardiovascular drugs can be categorized into several main drug classes, as distinguished by their mechanism of action. Some of the primary drug classes include: ACE Inhibitors (2003(2005 US sales estimated at US$2.82.2 billion), Angiotensin II Inhibitors (2003(2005 US sales estimated US$2.12.9 billion), oral anti-platelets (2003(2005 US sales estimated US$2.43.8 billion), Beta-Blockers (2003(2005 US sales estimated at US$1.62.1 billion), and Calcium Channel Blockers (2003(2005 US sales estimated at US$4.44.6 billion), each class has particular benefits as well as an array of alternative products.3

Cross-use of drugs between different types of cardiovascular disease categories makes it difficult to differentiate sales by the more specific market segment (such as for myocardial infarction, ischemic reperfusion injury, etc.).

_________________________________________________
1
American Heart Association,Heart Disease and Stroke Statistics - 2007 Update.


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Despite the development of various effective products, pharmaceutical companies carefully monitor developments in the field and continually attempt to bring in new major products. This is in part driven by the rise of generic products that substantially reduce profit margins for products as they come off patent. Competition is most intense in cardiovascular markets like hypertension where there are many treatment options. Large pharmaceutical companies are most interested in finding new treatment options for inadequately treated conditions such as those targeted by the Corporation.

Despite the number of cardiovascular products, the Corporation has identified certain remaining unmet therapy needs for certain forms of cardiovascular disease. For example, physicians recognize the current lack of effective products for reducing ischemic reperfusion injury. This is a very real clinical problem and a significant market is available for a product that would effectively protect against this injury that results from a variety of surgical procedures. Similarly, although current treatments are in many cases able to restore blood flow to the heart muscle following a heart attack (myocardial ischemia), there remains a need for products that reduce the amount of damage and scarring that results from the blockage. Other large cardiovascular markets targeted by the Corporation that require improved therapeutics are stroke and certain forms of hypertension.

Ischemic stroke is damage to the brain caused by a sudden reduction in blood supply, most often due to blood clots lodging in major arteries of the brain. Stroke ranks as the third leading cause of death in North America, behind diseases of the heart and cancer. It is also a leading cause, of long term disability in the U.S.

To date, the only FDA approved stroke therapeutic is tissue plasminogen activator (TPA), a treatment that helps dissolve arterial obstructions. Unfortunately, TPA is typically available to less than 10% of stroke patients due to the increased risk of hemorrhage and the narrow therapeutic time frame during which the drug can be applied.

Competitors’ Products in Development

As there remains unmet needs for treatmentMany companies, including large pharmaceutical and biotechnology companies, are conducting development of certain formsproducts that are intended to address a same or similar medical need. Many of cardiovascular diseasethese companies have much larger financial and stroke, management ofother resources than the Corporation believes there is room for an increased number of noveldoes, including those related to research products.

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3
Sales estimates provided byIMS Health Data, 2003.


25

ThePharmaceutical Researchers and Manufacturers of America have identified 146 separate productsdevelopment, manufacturing, and sales and marketing. The Corporation also faces competition in development for heart diseaserecruiting scientific personnel from colleges, universities, agencies, and stroke in their 2005 Survey: Medicines in Development for Heart Diseaseresearch organizations who seek patent protection and Stroke. A large proportion of products in development are modifications of existing therapeutic classes or new indications for drugs already on the market.

The Corporation’s clinical trials for MC-1 focus on ischemia and ischemic reperfusion injury for cardiovascular diseases and will also focus on stroke. The following tables provide an overview of many of the competitors’ products in development pertaining to Percutaneous Coronary Intervention (PCI) or angioplasty, CABG, ACS and stroke:

PCI: Products in Development4

Product NameSponsorDevelopment Status
CangrelorThe Medicines CompanyPhase III
DX9065aDaiichi PharmaceuticalPhase II
SCH 530348Schering-PloughPhase II

CABG: Products in Development5

Product NameSponsorDevelopment Status
Angiomax ® (bivalirudin)The Medicines CompanyPhase III
DX-88DyaxPhase I/II completed
Integrilin ® (eptifibatide)
Schering-Plough /
Millennium Pharmaceuticals
Phase II
MLN2222
Millennium Pharmaceuticals
/ XOMA
Phase I
TP-10
AVANT
Immunotherapeutics
Phase II

ACS: Products in Development6


Product NameSponsorDevelopment Status
Angiomax ® (bivalirudin)The Medicines CompanyPhase III
Arixtra ® (fondaparanix)GlaxoSmithKlinePhase III
AZD6140AstraZenecaPhase III
CangrelorThe Medicines CompanyPhase II
DX9065aDaiichi PharmaceuticalPhase II
PrasugrelEli Lilly / Sankyo PharmaPhase III
Ranexa ™ (Ranolazine)CV TherapeuticsPhase III
rNAPc2NuveloPhase II
SR123781Sanofi-AventisPhase IIb
VT-111Viron TherapeuticsPhase II
VX-702Vertex PharmaceuticalsPhase II
Vytorin ® (ezetimibe / simvastatin)Schering-Plough / MerckPhase III
XRP0673 (otamixaban)Sanofi-AventisPhase II

________________________________________
4
Pharmaceutical Researchers and Manufacturers of America,Survey: New Medicines in Development for HeartDisease and Stroke 2005; company websites.

5Pharmaceutical Researchers and Manufacturers of America,Survey: New Medicines in Development for HeartDisease and Stroke 2005; company websites.

6Pharmaceutical Researchers and Manufacturers of America,Survey: New Medicines in Development for HeartDisease and Stroke 2005; company websites.


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Stroke: Products in Development7

Product NameSponsorDevelopment Status
234551GlaxoSmithKline / Shionogi USAPhase I
737004 / S-0139GlaxoSmithKline / Shionogi USAPhase I
Dabigatran etexilateBoehringer IngelheimPhase III
DesmoteplaseForest Laboratories / PaionPhase II/III
LJP 1082La Jolla PharmaceuticalPhase I/II
ONO-2506Merck / ONO Pharma USAPhase II
ReoPro ® (abciximab)Centocor / Eli LillyPhase III
Viprinex ™ (ancrod)Neurobiological TechnologiesPhase III

Some of the products set forth above have the advantage of being further along in development than the Corporation’s products. However, market share for new products depends primarily upon the relative strengths of a product in areas such as safety, effectiveness, cost, and dose form.

It is noted that cardiovascular drugs are often prescribed together and therefore products do not necessarily compete for use on an individual patient. MC-1’s use in many indications is expected to be as adjunct therapy, that is, it will be given together with other therapeutics. Historically, the challenge of competing with earlier products has not acted as a significant barrier to entry for new products, provided that the new product has some advantage relative to earlier products.

The Corporation’s second clinical candidate, MC-4232, is being developedlicensing agreements for the treatment of diabetic patients with hypertension. The co-existing conditions of diabetes and hypertension present a major increase in risk of cardiovascular complications, including coronary artery disease, peripheral artery disease, retinopathy, nephropathy and stroke. To date, only one combination product has been developed to address both hypertension and a metabolic function. This product is Caduet ®, a combination of the calcium channel blocker Norvasc ® and the statin Lipitor ®. Caduet ® was approved in 2004. The Pharmaceutical Research and Manufacturers of America Survey of New Medicines in Development for Heart Disease and Stroke 2005 does not identify any other products in development that are taking this approach. While Caduet ® targets hypertension and lipid lowering (primarily LDL cholesterol lowering), it does not address specific metabolic dysfunctions (such as elevated HbA1C) faced by the diabetic population.

The market for management of high blood pressure is one of the largest in the pharmaceutical industry but is also one of the most competitive. Approximately 50 million Americans are affected by hypertension (American Heart Association).Decision Resources expects hypertension drug global sales to reach US $22 billion by 2008. The following table presents a list of competitors’ products on the market pertaining to hypertension.

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR HYPERTENSION8

ProductCompanyType of Drug
Accupril ® (quinapril hydrochloride)PfizerACE inhibitor
Aceon ® (perindopril erbumine)Solvay PharmaceuticalsACE Inhibitor
Altace ® (ramipril)Monarch (King)ACE Inhibitor
Capoten ® (captopril)Par PharmaceuticalsACE inhibitor
Lotensin ® (benazepril hydorchloride)NovartisACE inhibitor
Mavik ® (trandolopril)Abbott LaboratoriesACE inhibitor
Monopril ® (fosinopril sodium)Bristol-Myers SquibbACE inhibitor
Vasotec ® (enalapril maleate)MerckACE inhibitor

________________________________________
7
Pharmaceutical Researchers and Manufacturers of America,Survey: New Medicines in Development for HeartDisease and Stroke 2005; company websites.

8 Company websites.


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ProductCompanyType of Drug
Zestril ® (lisinopril)AstraZenecaACE inhibitor
Atacand ® (candesartan cilexetil)AstraZenecaARB
Avapro ® (irbesartan)Bristol-Myers SquibbARB
Benicar ® (olmesartan medoxomil)Forest LaboratoriesARB
Cozaar ® (losartan potassium)MerckARB
Diovan ® (valsartan)NovartisARB
Micardis ® (telmisartan)Boehringer IngelheimARB
Teveten ® (eprosartan mesylate)BiovailARB
Corgard ® (nadolol)King PharmaceuticalsBeta blocker
Inderal ® (propranolol hydrochloride)AstraZenecaBeta blocker
Lopressor ® (metoprolol tartrate)NovartisBeta blocker
Sectral ® (acebutolol hydrochloride)Dr. Reddy’s LaboratoriesBeta blocker
Tenormin ® (atenolol)AstraZenecaBeta blocker
Toprol-XL ® (metoprolol succinate)AstraZenecaBeta blocker
Covera-HS ® (verapamil hydrochloride)PfizerCalcium channel blocker
Norvasc ® (amlodipine besylate)PfizerCalcium channel blocker
Plendil ® (felodipine)AstraZenecaCalcium channel blocker
Procardia ® (nifedipine)PfizerCalcium channel blocker
Sular ® (nisoldipine)First HorizonCalcium channel blocker
Tiazac ® (diltiazem hydrochloride)Forest LaboratoriesCalcium channel blocker
Verelan ® (verapamil hydrochloride)Elan PharmaceuticalsCalcium channel blocker
Thalitone ® (chlorthalidone)King PharmaceuticalsDiuretic
Aldactone ® (spironolactone)PfizerDiuretic / antihypertensive
Aldactazide ® (spironolactone; hydrochlorothiazide)PfizerDiuretic / antihypertensive
Lexxel ® (enalapril maleate; felodipine)AstraZenecaCalcium channel blocker / ACE inhibitor
Lotrel ® (amlodipine; benazepril)NovartisCalcium channel blocker / ACE inhibitor
Tarka ® (trandolapril; verapamil hydrochloride)Abbott LaboratoriesCalcium channel blocker / ACE inhibitor
Accuretic ® (quinapril HCl; hydrochlorothiazide)PfizerACE inhibitor / diuretic
Lotensin HCT ® (benazepril hydrochloride; hydrochlorothiazide)NovartisACE inhibitor / diuretic
Monopril HCT ® (fosinopril sodium; hydrochlorothiazide)Bristol-Myers SquibbACE inhibitor / diuretic
Zestoretic ® (lisinopril; hydrochlorothiazide)AstraZenecaACE inhibitor / diuretic
Avalide ® (irbesartan; hydrochlorothiazide)Bristol-Myers SquibbARB / diuretic
Benicar HCT ® (olmesartan medoxomil; hydrochlorothiazide)Forest LaboratoriesARB / diuretic
Diovan HCT ® (valsartan; hydrochlorothiazide)NovartisARB / diuretic
Hyzaar ® (losartan potassium; hydrochlorothiazide)MerckARB / diuretic
Teveten HCT ® (eprosartan mesylate)BiovailARB / diuretic
Corzide ® (nadolol; bendroflumethiazide)King PharmaceuticalsBeta blocker / diuretic
Lopressor HCT ® (metoprolol tartrate; hydrochlorothiazide)NovartisBeta blocker / diuretic
Tenoretic ® (atenolol; chlorthalidone)AstraZenecaBeta blocker / diuretic

The market for oral diabetic drugs was $5 billion in the US for 2002 (IMS Health Data, Diabetes Therapy Report, 2004). This is the largest drug class within the diabetic market, and had the highest compound annual growth rate between 1998 and 2002.


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STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR TYPE 2 DIABETES9

ProductCompanyType of Drug
Glucophage ® (metformin hydrochloride)Bristol-Myers SquibbBiguanide
Riomet ® (liquid metformin hydrochloride)Ranbaxy LaboratoriesBiguanide
Starlix ® (nateglinide)NovartisMeglitinide
Prandin ® (repaglinide)Novo NordiskMeglitinide
Amaryl ® (glimepiride)Sanofi-AventisSulfonylurea
Glucotrol ® (glipizide)PfizerSulfonylurea
Diabinese ® (chlorpropamide)PfizerSulfonylurea
Orinase ® (tolbutamide)PfizerSulfonylurea
Glynase PresTab ® (micronized glyburide)PfizerSulfonylurea
Actos ® (pioglitazone hydrochloride)Takeda Pharmaceuticals / Eli LillyThiazolidinedione
Avandia ® (rosiglitazone maleate)GlaxoSmithKlineThiazolidinedione
Precose ® (acarbose)BayerAlpha-glucosidase inhibitor
Glyset ® (miglitol)BayerAlpha-glucosidase inhibitor
Byetta ® (exenatide)Amylin / Eli LillyIncretin mimetic
Symlin ® (pramlintide acetate)AmylinAmylin analog
Glucovance ® (metformin hydrochloride; glyburide)Bristol-Myers SquibbBiguanide / sulfonylurea
Metaglip ® (metformin hydrochloride; glipizide)Bristol-Myers SquibbBiguanide / sulfonylurea
Avandamet ® (metformin hydrochloride; rosiglitazone maleate)GlaxoSmithKlineBiguanide / thiazolidinedione

The market for drugs to manage hypertriglyceridemia includes fibric acid derivatives (total US sales of $0.7 billion in 2003), statins (total US sales of $13.7 billion in 2003), and niacin (total US sales of $0.3 billion in 2003) (IMS Health Data).

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR
HYPERTRIGLYCERIDEMIA
10

ProductCompanyType of Drug
TriCor ® (fenofibrate)Abbott LaboratoriesFibric acid derivative
Lopid ® (gemfibrozil)PfizerFibric acid derivative
Lipitor ® (atorvastatin calcium)PfizerStatin
Zocor ® (simvastatin)MerckStatin
Crestor ® (rosuvastatin calcium)AstraZenecaStatin
Niaspan ® (niacin)KOS PharmaceuticalsNiacin

The Corporation has recently purchased the U.S. sales and marketing rights to Aggrastat® Injection (tirofiban hydrochloride). Aggrastat® is a GP IIb/IIIa receptor antagonist which is approved for ACS. Recent figures indicate that U.S. sales of Aggrastat® Injection in the 12 months to May 2006 were $10.8 million (IMS Health Data). Other products currently on the market for the management of ACS are outlined in the table below:

________________________________________
9
American Diabetes Association,Position Statement: Standards of Medical Care in Diabetes, 2005; company websites.

10American Association of Clinical Endocrinologists,Medical Guidelines for Clinical Practice for the Diagnosis andTreatment of Dyslipidemia and Prevention of Atherogenesis, 2000.


29

STANDARD OF CARE PHARMACOLOGICAL TREATMENTS FOR ACS11

ProductCompanyType of Drug
NitroglycerinPfizerAnti-ischemic
Lopressor ® (metoprolol tartrate)NovartisBeta-blocker
Inderal ® (propanolol hydrocholride)AstraZenecaBeta-blocker
Tenormin ® (atenolol)AstraZenecaBeta-blocker
Covera-HS ® (verapamil hydrochloride)PfizerCalcium channel blocker
Aspirin (acetylsalicylic acid)BayerAntiplatelet
Plavix ® (clopidogrel bisulfate)Bristol-Myers Squibb / Sanofi-SynthelaboADP receptor antagonist
Ticlid ® (ticlopidine hydrochloride)RocheADP receptor antagonist
Lovenox ® (enoxaparin sodium)Sanofi-AventisAnticoagulant
Fragmin ® (dalteparin sodium)PfizerAnticoagulant
Integrilin ® (eptifibatide)Schering-Plough / Millenium PharmaceuticalsGP IIb/IIIa receptor antagonist
ReoPro ® (abciximab)Centocor / Eli LillyGP IIb/IIIa receptor antagonist

Due to new product developments and potential clinical and preclinical findings, the above tables may not be inclusive of all competitors’ products.technologies they develop.

Competitive Strategy and Position

As stated, theThe Corporation is primarily focusing on developingon:

1.Growing AGGRASTAT® sales in the United States. The present market for the class of drug GP IIb/IIIa, of which AGGRASTAT® is one of three in the USA market, is over $500 million per year. At present AGGRASTAT® has 1% to 2% of this market. AGGRASTAT® is recommended by the AHA and ACC Guidelines as one of the three GP IIb/IIIa drugs to be used for the treatment of ACS. AGGRASTAT® has been shown, in several clinical trials, to reduce mortality and morbidity post ACS by as much as 40%.

2.The development of MC-1 for myocardial ischemiachronic cardiovascular and reperfusion injury.other indications, such as neurological needs. The Corporation is focusing initially on these markets because of preclinical and clinical evidence supporting the product’s efficacy in these applications and, therefore, these applications have high potential for showing MC-1’s clinical benefit. The clinical need for a product with this activity will also be considered by regulatory authorities (principally the FDA and also the TPD). Although MC-1 shows potential for treatment of other cardiovascular diseases, these uses are not being addressed as a first priority due to factors including the cost of clinical trials and the more intense competitive nature of these markets.

It is the Corporation’s intention to secure a partnership with a large pharmaceutical company. Such a partnership would provide funding for clinical development, add experience to the product development process and provide market positioning expertise. While the Corporation has had informal discussions with potential partners in this regard, no formal agreement or letter of intent has been entered into by the Corporation as of the date hereof.


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C. Organizational Structure

Medicure International Inc., a wholly owned subsidiary of the Corporation, was incorporated pursuant to the laws of Barbados, West Indies, on May 23, 2000. Medicure International Inc.’s registered office is located at Whitepark House, White Park Road, Bridgetown, Barbados. Medicure International Inc.’s head office is located at 2nd Street, Holetown, St. James, Barbados.

Medicure Pharma Inc., a wholly owned subsidiary of the Corporation, was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30, 2005. Medicure Pharma Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808. Medicure Pharma Inc.’s head office is located at 200 Cottontail Lane, Somerset, NJ, 08873.

American Cardio Therapeutics Inc., a company that is 49% owned by Medicure Pharma Inc., was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30,

________________________________________
11
American College of Cardiology/American Heart Association,Guideline Update for the Management of Patientswith Unstable Angina and Non-ST-Segment Elevation Myocardial Infarction, 2002.


30

2005. American Cardio Therapeutics Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.

Medicure Europe Limited, a wholly owned subsidiary of the Corporation, was incorporated pursuant to the laws of the United Kingdom, on May 19, 2006. Medicure Europe Limited’s registered office is located at City House, 126-130 Hills Road, Cambridge, CB2 1RY.

As at May 31, 2006, Medicure Pharma Inc.,2008, American Cardio Therapeutics Inc. and Medicure Europe Limited werewas involved in no material transactions.

The following diagram illustrates the relationship between the Corporation and its subsidiaries:


D. Property, Plants and Equipment

Office Space

The Corporation has use of approximately 4,000 square feet of office space provided by Waverley Business and Science Centre Inc. as part of its business services contract. The office is located in Winnipeg, Manitoba.Manitoba, Canada.

Research Facilities

CanAm leases 10,700 square feet of office and laboratory space at a facility in Winnipeg, Manitoba. Biological, chemistry, and analytical research for the Corporation take place at that facility.

ITEM 4A. UNRESOLVED STAFF COMMENTS

The Corporation is an accelerated filer as defined in Rule 12b-2 under theSecurities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding the Corporation's periodic reports under that Act during the fiscal year ended May 31, 20062008 and there are no unresolved comments as of the date of the filing of this Annual Report with the Commission.


31

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This section contains forward-looking statements involving risks and uncertainties. The Corporation's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under part Item 3 - Key Information - D. Risk Factors. The following discussion of the financial condition, changes in financial conditions and results of operations of the Corporation for the years ended May 31, 2006,2008, May 31, 20052007 and May 31, 20042006 should be read in conjunction with the consolidated financial statements of the Corporation. The Corporation’s consolidated financial statements are presented in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) included under Item 17 to this annual report. Material measurement differences between Canadian and U.S. GAAP, as applicable to the Corporation, are set forth in note 1014 to the consolidated financial statements of the Corporation included herein.


31

Critical Accounting Estimates

The Corporation’s consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). A reconciliation of amounts to present in accordance with United States generally accepted accounting principles (“US GAAP”) is described in note 1014 to the audited consolidated financial statements for the year ended May 31, 2006.2008. These accounting principles require management to make certain estimates and assumptions. Management believes that the estimates and assumptions upon which the Corporation relies are reasonable based upon information available at the time these estimates and assumptions are made. Actual results could differ from these estimates. Future estimates and assumptions may lead to different judgments than those applied in the preparation of these consolidated financial statements. Areas of significant estimates include revenue recognition, research and development costs, clinical trial expenses, the assessment of net recoverable value of intangible assets, income taxes, stock-based compensation and stock-based compensation.accounting for warrants.

Revenue recognition
The Company recognizes product revenue when substantially all of the risks and rewards of ownership have transferred to the customer and collection is reasonably assured. Revenue is recognized upon product delivery and when no significant contractual obligations remain. As is common practice in the pharmaceutical industry, the Company’s sales are made to pharmaceutical wholesalers for further distribution to end consumers.

Net sales reflect reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, discounts, allowances for product returns, and other rebates. In determining the amounts of certain of these allowances and accruals, the Company uses estimates. The Company estimates chargebacks, discounts, and other rebates using the following factors: contract prices and terms with customers, estimated customer and wholesaler inventory levels, and average contractual chargeback rates.

Research and development costs
All costs of research activities are expensed in the period in which they are incurred. Development costs are charged as an expense in the period incurred unless a development project meets stringent criteria for cost deferral and amortization. The Corporation assesses whether these costs have met the relevant criteria for deferral and amortization at each reporting date. No development costs have been deferred to date.

Clinical trial expenses
Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.


32

Intangible assets
Costs incurred in obtaining patents are capitalized and amortized upon issuance on a straight-line basis over the remaining legal life of the respective patents, being approximately twenty years, or itstheir economic life, if shorter. The cost of servicing the Corporation’sCompany’s patents is expensed as incurred. Technology licenses, which include licenses and rights to technologies,Intangible assets are initially recorded at fair value based on consideration paidacquisition cost and are amortized on a straight-line basis overbased on the following estimated useful lives:

Technology license8 years
Patents5-20 years
Trademark10 years
Customer list10 years

The Company determines the estimated useful lives of intangible assets based on a number of factors, including: legal, regulatory or contractual limitations; known technological advances; anticipated demand; and the existence or absence of competition. A significant change in any of these factors could require a revision of the expected useful life of the underlying technologies. intangible asset, which could have a material impact on the Company’s results of operations through an increase to amortization.

On a regular basis, management reviews the valuation of intangible assets taking into consideration any events and circumstances which may impair their recoverable value including expected cash flows, the potential benefit the CorporationCompany expects to derive from the costs incurred to date and the Company’s ongoing development plans. Management has reviewedA change in any of these assumptions could produce a different fair value, which could have a material impact on the carrying valueCompany’s results of its intangibleoperations.

Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and no adjustment was madeliabilities are recognized for the future tax consequences attributable to differences between the capitalized costs.

Refundable investmentfinancial statement carrying amounts of existing assets and liabilities and their respective tax credits
The Corporation incurs researchbases. Future income tax assets and development expenditures,liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are eligible for refundable investment tax credits. The investment tax credits are based on management's estimates of amountsexpected to be recovered.recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of substantive enactment. Given the Company’s history of net losses and expected future losses, the Company is of the opinion that it is more likely than not that these tax assets will not be realized in the foreseeable future and therefore, a full valuation allowance has been recorded against these income tax assets. As a result, no future income tax assets or liabilities are recorded on the investment tax credits are subject to audit by the taxation authorities, the actual amounts received may vary materially from the estimate recognized. Any adjustments to amounts accrued are recognized as determinable.Company’s balance sheets.

Stock-based compensation
The Corporation has a stock option plan for its directors, management, consultants, and employees. Compensation expense is recorded for stock options issued to employees and non employees using the fair value method. The Corporation must calculate the fair value of stock options issued and amortize the fair value to stock compensation expense over the vesting period, and adjust the amortization for stock option forfeitures and cancellations. The Corporation uses the Black-Scholes model to calculate the fair value of stock options issued which requires that certain assumptions including the expected life of the option and expected volatility of the stock be estimated at the time that the options are issued. The Corporation amortizes the fair value using the accelerated method over the vesting period of the options, generally a period of three years. The factors included in the Black-Scholes model are reasonably likely to change from period to period due to changes in the Corporation’s stock price and external factors, as further stock options are issued and as adjustments are made to previous calculations for unvested stock option forfeitures and cancellations.

The stock-based compensation recorded by the Corporation is a critical accounting estimate because of the value of compensation recorded, the volume of the Corporation’s stock option activity, and the many assumptions that are required to be made to calculate the compensation expense. The Black-Scholes


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model is not the only permitted model to calculate the fair value of stock options. A different model, such as the binomial model, as well as any changes to the assumptions made may result in a different stock


33

compensation expense calculation. The Corporation recorded stock compensation expense in fiscal 2008 of $563,272 (2007 - $1,025,310; 2006 of $745,570 (2005 - $504,878; 2004 - $386,048)$745,570).

A. Operating Results

General

The Corporation has concentrated primarily on research and development and has yet to and may never derive any revenues from its general operations.clinical products. The Corporation has a limited operating history and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered with the establishment of a development stage companybusiness in a highly competitive industry, characterized by frequent new product introductions. The Corporation has historically incurred net losses and anticipates that such losses will increase as it continues its development and clinical trials and eventually seeks regulatory approval for the sale of its products.

The Corporation believes it has sufficient funds on hand to commence Phase III clinical trials involving MC-1. As discussed in Note 1 of the consolidated financial statements of the Corporation, however, the Corporation’s ability to continue as afinancial statements do not reflect adjustments that would be necessary if the going concern is dependent on its ability to obtain sufficient funds to conductassumption were not appropriate. If the remaindergoing concern basis was not appropriate for these financial statements then adjustments would be necessary in the carrying value of its clinical trialsassets and to successfully commercialize its products. Failure to obtain further financing may requireliabilities, the Corporation to reduce substantially or eliminate expenditures for researchreported revenues and development, testing including further clinical trials,expenses, and production and marketing of its proposed products.the balance sheet classifications used. Based on the Corporation’s current plans, the Corporation’s availableCompany’s operating plan, its existing working capital is not sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements, long-term debt obligations and commitments beyond the 2009 fiscal year without additional sources of cash and/or deferral, reduction or elimination of significant planned expenditures. The Company’s plan to address the expected shortfall of working capital is to secure additional funding within the next six months and to increase operating revenue and reduce operating expenses. There is no certainty that the Company will be sufficient intoable to obtain any sources of financing on acceptable terms, or at all, or that it will increase product revenue or reduce operating expenses to the first quarter of fiscal 2008.extent necessary.

Year Ended May 31, 20062008 Compared to the Year Ended May 31, 20052007

Net product sales for fiscal 2008 were $2,247,000, compared to $5,945,000 in fiscal 2007. Net product sales reflect reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, returns and discounts. The Company currently sells AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT® to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals. Net product sales are lower for the year ended May 31, 2008 as compared to fiscal 2007 for several reasons including a decline in purchases by hospitals, impacted in part by the reconfiguring of the Company’s commercial operations during the first quarter of fiscal 2008 which resulted in a transition from a contracted third-party direct sales force to a directly managed in-house sales force.

Cost of goods sold for fiscal 2008 were $606,000, compared to $388,000 in fiscal 2007. Cost of goods sold represents direct product costs associated with AGGRASTAT® and royalties due to Merck & Co., Inc. based on net sales of AGGRASTAT®. Amortization of the related acquired AGGRASTAT® intangible assets is separately discussed below. The calculation of royalties due was based on a sliding scale dependent on reaching certain net sales milestones. In January 2008, Merck & Co., agreed to terminate any future royalty payments on net sales of AGGRASTAT® as a result of its decision to divest its non-US commercial rights to AGGRASTAT®. The increase in cost of goods sold was due to a write-down of obsolete inventory of $ 428,822 which was offset by lower product sales during the year.

Selling, general, and administrative expenditures for fiscal 2008 were $12,073,000, compared to $11,048,000 in fiscal 2007. Selling, general, and administrative expenditures related to AGGRASTAT® were $6,782,000 in fiscal 2008, compared to $6,716,000 in fiscal 2007, despite the fact that expenses in 2007 only relate to the nine-month period following the acquisition of AGGRASTAT® in August 2006. Selling, general, and administrative expenditures for AGGRASTAT® are primarily related to field selling expenses, product promotion costs and administrative expenses. Other selling, general, and administrative expenditures in fiscal 2008 increased to $5,291,000 from $4,332,000 in fiscal 2007 mainly


34

due to costs associated with the structuring of the financing agreements entered into during the year and the activities resulting from the Company’s restructuring efforts along with increases in some regulatory and capital tax costs.

Research and development expenditures for fiscal 2008 were $28,660,000, compared to $23,336,000 in fiscal 2007, which is an increase of $5,324,000. Research and development expenditures were higher as compared to fiscal 2007 due to the advancement and completion of the Phase 3 MEND-CABG II study during fiscal 2008.

The MEND-CABG II Study: The Company initiated a single confirmatory Phase 3 study in patients undergoing CABG procedures during the second quarter of fiscal 2007. The Company completed enrolment of the 3,000 patients in September 2007 for the MEND-CABG II trial. Over 130 cardiac centres throughout North America and Europe participated in the study, which is managed by Duke Clinical Research Institute (DCRI) and Montreal Heart Institute. In February 2008, the Company announced that the study did not meet the primary endpoint. The key findings from the study were presented at the American College of Cardiology 57th Annual Scientific Session in April 2008. Based on the results, the Company does not plan on submitting an application for MC-1 marketing approval to the U.S. Food and Drug Administration for the CABG indication.

MEND-CABG II study costs incurred during the fiscal year related to regulatory activity, patient costs, monitoring costs, laboratory tests, manufacturing costs and administration costs. For the year ended May 31, 2008, total expenditures for the MC-1 CABG program were $26,262,000 as compared to $20,258,000 in fiscal 2007.

The MATCHED Study: The Phase 2 study evaluated MC-1 alone and in combination with an ACE inhibitor encompassing 120 patients with co-existing diabetes and hypertension. MATCHED was a randomized, parallel group, cross-over, double-blind, placebo-controlled comparison of 100, 300 or 1000 mg of MC-1 alone and in combination with 20 mg of lisinopril. The results demonstrated the positive clinical effects of MC-1 on important primary and secondary blood pressure and metabolic endpoints.

MATCHED study costs incurred during the current year related to data analysis and planning for future clinical development. For the year ended May 31, 2008, total expenditures for the MC-4232 program were $29,000 as compared to $113,000 in fiscal 2007.

During the year ended May 31, 2008, the Company determined that conditions had arisen which triggered the need to review certain of the Company’s long lived assets for impairment. In particular, during the quarter ending February 29, 2008, the Company announced that the results from the Phase 3 MEND-CABG II clinical trial did not meet its primary endpoint. Based on the results, the Company does not plan on submitting an application for MC-1 marketing approval to the U.S. Food and Drug Administration for the CABG indication. The Company has decided to discontinue at this time the development of MC-1 as a monotherapy for acute indications such as CABG and announced a corporate restructuring in March 2008. These factors, along with a lower than originally projected AGGRASTAT® product market share has triggered the need to review the Company’s intangible assets for impairment under CICA Handbook Section 3063 (“Section 3063”).

Section 3063,Impairment of Long-Lived Assets, requires that a long-lived asset is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized as the difference between fair value and carrying amount when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. As a result of unfavourable results of the MEND-CABG II Study and the resulting changes to the Company’s commercial plans as well as the continued decline in AGGRASTAT® product revenues, the Company has determined that the carrying value of patents, trademark, technology license, and customer list exceed their fair value based on discounted future cash flows and market prices for similar assets. Accordingly, the Company recorded a write-down of $884,000 relating to MC-1 and $12,173,000 relating to Aggrastat during the year.


35

Amortization for the year ended May 31, 2008 was $2,653,000, consistent with $2,289,000 in fiscal 2007. The majority of amortization expense in both periods relates the amortization of AGGRASTAT® intangibles.

Interest and other income for fiscal 2006 totaled $300,000 asthe year ended May 31, 2008 was $1,150,000, compared to $395,000 for$1,591,000 in fiscal 2005. Interest2007. The decrease in interest and other income in fiscal 20062008 is the result of lower than fiscal 2005 due to lower average cash and cash equivalents balance.balance and lower interest rates as compared to the prior fiscal year.

Interest expense for fiscal 2008 was $3,831,000, compared to $1,958,000 in fiscal 2007. The increase in interest expense in the year ended May 31, 2008 as compared to fiscal 2007 is primarily due to interest on the US$25 million in long-term debt that the Company secured in the second quarter of fiscal 2008.

The foreign exchange gain for the year ended May 31, 2008 was $79,000, compared to a $392,000 loss in fiscal 2007. The foreign exchange gain in fiscal 2008 is due to a decrease in the strength of the U.S. dollar relative to the Canadian dollar in the period. While the functional currency of the Company is the Canadian dollar, the Company is holding U.S. dollars to finance the U.S. dollar denominated clinical trial costs incurred as a result of the MEND-CABG II study, AGGRASTAT® expenses incurred in the U.S. and U.S. denominated long-term debt. To date the Corporation has not entered into any future or forward contracts, or other derivative instruments, for either hedging or speculative purposes to mitigate the impact of foreign exchange fluctuations on these costs.

For the year ended May 31, 2007, the Corporation recorded a consolidated net loss of $57,403,000 or $0.46 per share compared to a consolidated net loss of $31,703,000 or $0.30 per share for the year ended May 31, 2007. As discussed above, the consolidated net loss resulted mainly from the reduction in net product sales of AGGRASTAT, increased costs of the Company’s clinical development programs, primarily being the Phase 3 MEND-CABG II study, the write-down of MC-1 CABG and AGGRASTAT® intangible assets, rising selling, general and administrative expenses due to costsassociated with the structuring of the financing agreements entered into during the year and the activities resulting from the Company’s restructuring efforts along with increases in some regulatory and capital tax costs and increased net interest costs.

The weighted average number of common shares outstanding used to calculate basic and diluted loss per share increased to 125,476,086 for the year ended May 31, 2008 from 104,879,404 for the year ended May 31, 2007.

Year Ended May 31, 2007 Compared to the Year Ended May 31, 2006

Net product sales for fiscal 2007 were $5,945,000, compared to nil in fiscal 2006. Net product sales reflect reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, returns and discounts. The Company began recognizing revenue for AGGRASTAT® effective August 9, 2006, the date following its acquisition. The Company currently sells AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT® to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals. The Corporation anticipates that investment incomeonly began selling AGGRASTAT® in August 2006, and wholesaler buying patterns have sometimes been unpredictable.

Cost of goods sold for fiscal 2007 were $388,000, compared to nil in fiscal 2006. Cost of goods sold represents direct product costs associated with AGGRASTAT® and royalties due to Merck & Co., Inc. based on net sales of AGGRASTAT®. Amortization of the related acquired AGGRASTAT® intangible assets is separately discussed below. Royalties are payable to Merck & Co., Inc., based on net sales of AGGRASTAT® and commenced in January. The calculation of royalties due is based on a sliding scale dependant on reaching certain net sales milestones. Cost of goods sold will continuevary from quarter to fluctuatequarter, depending on the product mix, production costs, and sales levels.


36

Selling, general, and administrative expenditures for fiscal 2007 were $11,048,000, compared to $2,858,000 in relationfiscal 2006. Selling, general, and administrative expenditures increased during the 2007 fiscal year primarily as a result of the Company’s acquisition and launch of AGGRASTAT® during the first half of the year. Selling, general, and administrative expenditures related to cashAGGRASTAT® were $6,716,000 in fiscal 2007, compared to nil in fiscal 2006. Selling, general, and short term investment balancesadministrative expenditures for AGGRASTAT® are primarily related to field selling expenses, product promotion costs and interest yields.administrative expenses. Other selling, general, and administrative expenditures in fiscal 2007 were $4,332,000, compared to $2,858,000 in fiscal 2006. Other selling, general, and administrative expenditures are higher in the current fiscal year due to increased business development activities, employee payroll, and stock-based compensation expense.

Research and development expenditures decreasedfor fiscal 2007 were $23,336,000, compared to $10,219,000 in fiscal 2006, as compared to $13,564,000 for fiscal 2005 and represent 80%which is an increase of the Corporation’s total expenditures in fiscal 2006.128%. As expected, research and development expenditures were lowersignificantly higher as compared to the same periods in fiscal 20052006 due to the completioninitiation and commencement of enrolment of the Phase 3 MEND-CABG II clinical trial attributed to MC-1, called MEND-CABG and the Phase II MATCHED study with MC-4232 during fiscalin November 2006.

The MEND-CABG study was a Phase II placebo controlled, double-blinded study of MC-1, designed to evaluate the potential of the Corporation's lead drug in reducing ischemic damage resulting from CABG procedures.Study: The trial was conducted at 42 cardiac centres throughout Canada and the US and is managed by Montreal Heart Institute and Duke Clinical Research Institute (DCRI) and enrolled 901 patients. The Corporation reported positive top-line results up to post-operative day (POD) 30 in December 2005. Patients were also followed up to POD 90, which was 60 days after their last drug treatment. The treatment effect at POD 30 with MC-1 was maintained throughout the follow up period. The safety analysis from MEND-CABG also demonstrated MC-1 was safe and well tolerated.

The Corporation expects to initiateCompany initiated a single confirmatory Phase III3 study in patients undergoing CABG procedures induring the first halfsecond quarter of fiscal 2007. The Corporation plans to conductCompany conducted the MEND-CABG II trial at over 120 cardiac centres throughout North America and Europe and will bewas managed by Duke Clinical Research Institute (DCRI) and Montreal Heart Institute and will enrollenrolled up to 3,000 patients. The Company announced results in the second half of fiscal 2008.

Costs incurred during fiscal 2007 related to coordinating the MEND-CABG II study including costs associated with contract negotiating, IRB fees, regulatory activity, patient costs, monitoring costs, laboratory tests, manufacturing costs and administration costs. For the year ended May 31, 2006,2007, total expenditures for the MEND-CABGMC-1 CABG program were $6,116,000$20,258,000 as compared to $9,388,000$6,116,000 in fiscal 2005.2006.

The MATCHED (MC-1 and ACE Therapeutic Combination for Hypertensive Diabetics)Study: The study evaluated MC-1 alone and in combination with an ACE inhibitor encompassing 120 patients with co-existing diabetes and hypertension. The study was designed as a Phase II2 trial to determine the optimal dose and


33

endpoint for Phase III3 development of MC-4232. MATCHED was a randomized, parallel group, crossover,cross-over, double-blind, placebo-controlled comparison of 100, 300 or 1000 mg of MC-1 alone and in combination with 20 mg of lisinopril. The results demonstrated the positive clinical effects of MC-4232 on important primary and secondary blood pressure and metabolic endpoints.

Cost incurred during the current year related to data analysis and planning for future clinical development. For the year ended May 31, 2006,2007, total expenditures for the MATCHEDMC-4232 program were $1,768,000$113,000 as compared to $1,928,000 in fiscal 2005.

Research and development expenses are expected to increase significantly in fiscal 2007 as compared to fiscal 2006. This increase in expenditures is expected to result from the initiation of the Phase III MEND-CABG study in the first half of fiscal 2007.

General and administrative expenses include salaries and related costs for those employees not directly involved in research and development, but are required to support ongoing business development and corporate stewardship activities. The balance also includes professional fees such as legal, audit, investor and public relations and business development activities. General and administration expenses totaled $2,858,000 for the year ended May 31, 2006, as compared to $2,256,000 for the year ended May 31, 2005. The overall increase in costs during the fiscal year ended May 31, 2006 as compared to the same period in fiscal 2005 is primarily driven by increased business development and investor relations activities, professional fees and stock-based compensation expense. The Corporation expects higher levels of general and administrative expenditures in the fiscal year ending May 31, 2007 as compared to the same period$1,768,000 in fiscal 2006.

Refundable investment tax credits for fiscal 2006 totaled $478,000 as2007 were $172,000, compared to $553,000 for$478,000 in fiscal 2005. As Medicure is a public company, the federal investment tax credits (“ITCs”) for qualified Scientific Research and Experimental Development (“SR&ED”) expenditures are not refundable and are calculated at a rate of 20%. These ITCs can be applied to reduce future income taxes payable with a ten-year carry forward period. Certain eligible SR&ED expenditures incurred in Quebec qualify for Quebec refundable tax credits and are earned on payments made in Quebec for SR&ED labour, SR&ED contracts and to prescribed research centres.

2006. The recording of refundable ITCs is solely related to research and development spending in Quebec, which are eligible for refundable tax credits. The majority of the qualifying expenditures related to the MEND-CABG study.

Amortization for the year ended May 31, 2007 was $2,289,000, compared to $107,000 in fiscal 2006. The refundable ITCs recorded are based on management’s estimateincrease in amortization in fiscal 2007 compared to fiscal 2006 is the result of amounts expectedincreased amortization of intangible assets associated with the Company’s acquisition of AGGRASTAT® during the first quarter of fiscal 2007.

Interest and other income for the year ended May 31, 2007 was $1,591,000, compared to be recovered$300,000 in fiscal 2006. Interest and are subjectother income in fiscal 2007 is higher than fiscal 2006 due to audit by taxation authorities. These amounts have been recorded ashigher average cash and cash equivalents balance, largely due to the equity financings that the Company completed during the fourth quarter of fiscal 2006 and the third quarter of fiscal 2007.

Interest expense for fiscal 2007 was $1,958,000, compared to nil in fiscal 2006. The increase in interest expense in fiscal 2007 is the result of the Company securing a recovery in expenses inUS$15,840,000 term loan facility related to the statementacquisition of operations.AGGRASTAT® during the first quarter of fiscal 2007.


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Foreign exchange loss for fiscal 2006 totaled $200,000 asthe year ended May 31, 2007 was $392,000, compared to a gain of $64,000 for$200,000 in fiscal 2005.2006. The foreign exchange loss for fiscal year 20062007 is primarily a result of the weakening of the U.S. dollar relative to the Canadian dollar during this period.period, particularly in the fiscal fourth quarter. While the functional currency of the CorporationCompany is the Canadian dollar, the Corporation is holdingCompany has significant holdings of U.S. dollars in anticipation of the U.S. dollar denominated clinical trial costs for the Phase 3 MEND-CABG II study. This foreign exchange loss was partially offset by an unrealized foreign exchange gain incurred as a result of the MEND-CABG study.Company’s U.S. denominated term loan facility of US$15,840,000.

For the year ended May 31, 2006,2007, the Corporation recorded a consolidated net loss of $31,703,000 or $0.30 per share compared to a consolidated net loss of $12,607,000 or $0.17 per share compared to a consolidated net loss of $14,866,000 or $0.22 per share for the year ended May 31, 2005.2006. As discussed above, the consolidated net loss resulted mainly from the Corporation’s ongoingCompany’s clinical development programs.program, including the Phase 3 MEND-CABG II study. The CorporationCompany expects to incur a loss next year as it continues to invest in product research and development.

The weighted average number of common shares outstanding used to calculate basic and diluted loss per share increased to 104,879,404 for the year ended May 31, 2007 from 75,144,764 for the year ended May 31, 2006 from 66,717,715 for the year ended May 31, 2005.

Year Ended May 31, 2005 Compared to the Year Ended May 31, 2004

Interest and other income for fiscal 2005 totaled $395,000 as compared to $445,000 for fiscal 2004. Interest and other income in fiscal 2005 is slightly higher than fiscal 2004. Interest and other income in fiscal 2005 is lower than fiscal 2004 due to lower average cash and cash equivalents balance. The


34

Corporation anticipates that investment income will continue to fluctuate in relation to cash and short term investment balances and interest yields.

Research and development expenditures increased to $13,564,000 in fiscal 2005 as compared to $4,435,000 for fiscal 2004 and represent 89% of the Corporation’s total expenditures in fiscal 2005. As expected, research and development expenditures were higher as compared to the same periods in fiscal 2004 due to the ongoing Phase II/III Coronary Artery Bypass Graft (“CABG”) trial attributed to MC-1, called MEND-CABG and the Phase II MATCHED study with MC-4232.

The Corporation’s 900 patient, MEND-CABG trial reached full enrollment in July 2005. The MEND-CABG study is a Phase II/III placebo controlled, double-blinded study of MC-1, designed to evaluate the potential of the Corporation's lead drug in reducing ischemic damage resulting from CABG procedures. The Phase II portion of the trial is being conducted at approximately 40 cardiac centres throughout Canada and the US and is managed by Montreal Heart Institute and Duke Clinical Research Institute (“DCRI”). The study's primary efficacy parameter is the reduction in combined incidence of cardiovascular and cerebrovascular death, non-fatal myocardial infarction (heart attack) and non-fatal cerebral infarction (stroke), up to and including 30 days following CABG surgery. For the year ended May 31, 2005, total expenditures for the MEND-CABG trial were $8,788,000 as compared to $1,352,000 in fiscal 2004. The costs increased in direct relation to the increase in the number of clinical sites initiated in the study and the associated increase in the number of patients enrolled.

The Corporation will compile and analyze all efficacy and safety endpoints up to postoperative day 30 (“POD 30”), and plans on reporting these results in the fall of 2005. The secondary endpoint of postoperative day 90 (“POD 90”) will follow shortly thereafter.

The initiation of the MEND-CABG trial was based on the Phase II, MEND-1 trial, managed by Duke Clinical Research Institute, which showed that the Corporation's lead product, MC-1, reduces ischemic heart damage following angioplasty as determined by the release of the amount of the marker cardiac enzyme, CK-MB. The trial enrolled a total of 60 high-risk patients undergoing percutaneous coronary intervention (“PCI”), and was conducted at four medical centres in Canada and the USA.

The increase in research and development expenditures was also due to the clinical development program of MC-4232, a combination of MC-1 and an ACE Inhibitor. As part of the Phase II/III clinical development program of MC-4232, the Corporation is conducting the Phase II MATCHED study. The MATCHED study will evaluate MC-1 alone and in combination with an ACE inhibitor encompassing up to 120 patients with co-existing diabetes and hypertension. This study will assess effects on a variety of important parameters in diabetic hypertensive patients, including blood pressure and metabolic function. For the year ended May 31, 2005, total expenditures for the MATCHED trial were $1,731,000 as compared to $12,000 in fiscal 2004.

General and administrative expenses include salaries and related costs for those employees not directly involved in research and development, but are required to support ongoing business development and corporate stewardship activities. The balance also includes professional fees such as legal, audit, investor and public relations and business development activities. General and administration expenses totaled $2,256,000 for the year ended May 31, 2005, as compared to $1,958,000 for the year ended May 31, 2004. The overall increase in costs during the fiscal year ended May 31, 2005 as compared to the same period in fiscal 2004 is primarily driven by increased business development and investor relations activities, professional fees and stock-based compensation expense.

Foreign exchange gain for fiscal 2005 totaled $64,000 as compared to nil for fiscal 2005. The increase in the foreign exchange gain for the year ended May 31, 2005 is primarily a result of the strengthening of the U.S. dollar relative to the Canadian dollar during this period. While the functional currency of the Corporation is the Canadian dollar, the Corporation is holding U.S. dollars in anticipation of the significant U.S. dollar denominated clinical trial costs incurred as a result of the MEND-CABG study.

Refundable investment tax credits for fiscal 2005 totaled $553,000 as compared to nil for fiscal 2004. As Medicure is a public company, the federal investment tax credits (“ITCs”) for qualified Scientific Research and Experimental Development (“SR&ED”) expenditures are not refundable and are calculated


35

at a rate of 20%. These ITCs can be applied to reduce future income taxes payable with a ten-year carry forward period. Certain eligible SR&ED expenditures incurred in Quebec qualify for Quebec refundable tax credits and are earned on payments made in Quebec for SR&ED labour, SR&ED contracts and to prescribed research centres.

The recording of refundable ITCs is solely related to research and development spending in Quebec, which are eligible for refundable tax credits. The majority of the qualifying expenditures related to the MEND-CABG study. The refundable ITCs recorded are based on management’s estimate of amounts expected to be recovered and are subject to audit by taxation authorities. These amounts have been recorded as a reduction of research and development expenditures.

For the year ended May 31, 2005, the Corporation recorded a consolidated net loss of $14,866,000 or $0.22 per share compared to a consolidated net loss of $5,989,000 or $0.11 per share for the year ended May 31, 2004. As stated above, these results of operations were mainly attributable to the Corporation’s clinical development program and the increased business development activity required to support the program. The Corporation expects to incur a loss next year as it continues to invest in product research and development.

The weighted average number of common shares outstanding used to calculate basic and diluted loss per share increased to 66,717,715 for the year ended May 31, 2005 from 55,738,716 for the year ended May 31, 2004.2006.

B. Liquidity and Capital Resources

Since the Company’s inception, the Corporationit has financed its operations primarily from public and private sales of equity, debt financing, the exerciseissue of warrants and exercise of stock options, and interest income on excess funds available for investment and government grants and tax credits.held.

Cash used in operating activities for fiscal 2006 was $12,678,000,2008 increased $16.7 million to $41.9 million compared to $12,068,000$25.2 million for fiscal 2005. Cash used2007 as a result of a $3.7 million reduction in operating activities was composedsales, and increase in general and administrative expenses of $1.0 million, an increase in research and development expenses of $5.3 million, increased net loss, add-backs or adjustments not involving cashfinancing costs of $2.3 million and a net change$4.0 million decline in non-cashcash provided by working items, and amortization of prepaid expenses.capital compared to the prior year.

Cash provided by financing activities in fiscal 20062008 was $41,252,000,$22,586,000, compared to $133,000$45,021,000 in fiscal 2005.2007. The main sourcescash inflow during the current period resulted from two financings in September 2007. First, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of cashElliott Associates, L.P. for proceeds of US$25 million. Under the terms of the agreement, Birmingham will receive a return based on a percentage of AGGRASTAT® net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in fiscal 2006 were net proceeds from publicAGGRASTAT® revenues, 17.5 percent on the next US$10 million, 15 percent on the next $5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual returns start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017, with minimum payments over the life of the agreement aggregating US$49.7 million. The annual minimum payments have been reflected in the effective interest rate calculation of the debt. Second, the Company closed a private placement financings of $40,957,000, compared to $nil in fiscal 2005.

On August 19, 2005, the Corporation raised netwith investors raising gross proceeds of $4,139,000 through a private placement. The placement resulted inUS$16 Million. Under the issuance to investors of 5,205,500 common shares and warrants to purchase an additional 2,602,750 common shares. The purchase priceterms of the securities purchase agreements, the Company issued approximately 13.9 million common shares was $0.90 per share, and the warrants are exercisable for a period of five years at an exercise price of $1.18 per share.

On January 4, 2006, the Corporation raised net proceeds of $10,858,000 through a public offering. A total of 7,750,000 common shares of the Corporation were issued at $1.55 per share.

On May 9, 2006, the Corporation raised net proceeds of $25,960,000 through a private placement. The Corporation issued 16,000,000 common shares at a price of US$1.60, together with warrants to purchase 4,000,000approximately 4.37 million additional common shares.shares (the common shares and warrants comprise the Units), at a price of US$1.15 per Unit. The warrants have a five-yearfive year term and have an exercise price of US$2.10.

The Corporation also raised $252,000 from1.50 each. These inflows were offset by $11,916,000 that was placed under restriction during the exercise of stock options in fiscal 2006, compared to $133,000 in fiscal 2005.period as collateral for the Merrill Lynch Business Financial Services Inc. (formerly Merrill Lynch Capital Canada Inc.) term loan facility.

Cash used in investing activities in fiscal 20062008 was $1,244,000,$587,000, compared to $429,000$22,925,000 in fiscal 2005.2007. The increaselarge decrease in cash used in investing activities in fiscal 2008 from fiscal 2007 reflects the Company’s acquisition of $815,000 was mainly due to an increaseAGGRASTAT® in patent costs and intangible assets.the first quarter of fiscal 2007.

As at May 31, 2006,2008, the Corporation had cash and cash equivalents totaling $34,920,000totalling $11,905,000 as well as $11,916,000 of restricted cash to secure the Merrill Credit Facility, as compared with $7,591,000 at the previous year-end.


36

to $31,770,000 of cash and cash equivalents as of May 31, 2007. These funds are committed to short-term investments and as a


38

result management does not believe that the fair value of these investments would be adversely impacted to any significant degree by a fluctuation in market interest rates.

The total number of common shares issued and outstanding at May 31, 20062008 was 96,046,465130,307,552 as compared to 66,826,660116,314,509 at May 31, 2005.2007.

At May 31, 2008, the Corporation had net working capital of $5,242,262, compared to net working capital of $21,129,422 at May 31, 2007. During the period ended May 31, 2008, a total of 80,000 stock options were exercised for proceeds of $60,000. At May 31, 2007, the Corporation had net working capital of $21,129,422 compared to net working capital of $34,197,234 at May 31, 2006. During the period ended May 31, 2007, a total of 345,000 stock options were exercised for proceeds of $286,500.

The main purposeCorporation had long-term debt at May 31, 2008 of Phase III trialsUS$12 million with a syndicate of lenders, led by Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation. Interest is payable monthly at one-month LIBOR plus 6.5 percent per annum. The Corporation will not be required to obtain definitive statistical evidencemake any principal repayments on the term loan before the expiration of the efficacyterm loan on February 1, 2010, except that Merrill, at its option, can require the Company to immediately repay US$2.0 million after September 17, 2008.. The Company has deposited US$12 million in a cash collateral account to be held by Merrill, for the benefit of Merrill and safetythe lenders.

The Corporation also had long-term debt at May 31, 2008 of MC-1 and MC-4232US$24.2 million recorded in order to support an applicationon its financial statements relating to the TPD and FDA for commercial approval.Birmingham debt described in more detail above. The Company has imputed an effective interest rate of 13.3% .

If either MC-1 or MC-4232 is approved for marketing by the TPD and FDA, there will then potentially be follow-up studies (called Phase IV trials) that may need to be completed while the drug is being marketed, in order to adjust or extend product claims. It is not possible to estimate the scope and size of any such studies that may be required.

While MC-1 and MC-4232 progress through clinical trials,As at May 31, 2008 the Corporation will continuehad US$19.5 million in cash, cash equivalents and restricted cash to finance the drug development process. This process begins with initial product screening which should produce preliminary candidates for preclinical research. MC-5422U.S. denominated long-term debt as well U.S. denominated selling, general and MC-45308 are such candidates that have moved into the preclinical research stage. Once a drug candidate reaches this stage, it can cost in excess of $1,000,000 to advance it to the clinical trial stage. Ongoingadministrative expenses and research and development to find preliminary candidatescosts. The Corporation currently costshas no derivatives, such as foreign currency forward contracts and futures contracts, hedging the Corporation in excess of $1,000,000 per year.

Besides public or private financings, the other major financings are planned to be through up front and milestone payments from a large pharmaceutical company that has partnered with the Corporation for clinical development and or marketingbalance of the lead compound.U.S. denominated debt.

WhenIn March 2008, the Company announced a significant corporate restructuring stemming from the unfavourable results of the Phase 3 MEND-CABG II trial. This restructuring included the significant reduction in numbers of staff and in resources allocated to certain programs. Based on the Company’s operating plan, its existing working capital is not sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements, long-term debt obligations and commitments beyond the end of the 2009 fiscal year without additional funds are required, potentialsources of cash and/or deferral, reduction or elimination of significant planned expenditures. The Company’s plan to address the expected shortfall of working capital is to secure additional funding within the next six months and to increase operating revenue and reduce operating expenses. There is no certainty that the Company will be able to obtain any sources of financing on acceptable terms, or at all, or that it will increase product revenue or reduce operating expenses to the extent necessary.

Potential sources of financing include strategic relationships and public or private sales of the Corporation’s common shares. The Corporation does not have any committed sources of financing at this time and it is uncertain whether additional funding will be available when the need arises on terms that will be acceptable to the Corporation. If funds are raised by selling additional common shares, or other securities convertible into common shares, the ownership interests of the Corporation’s existing shareholders will be diluted. If the Corporation is unable to obtain financing when required, the Corporation wouldmay not be able to carry out its business plan, including further clinical trials of MC-1 and MC-4232. The Corporation would have to significantly limit its operations and business, and its financial condition and results of operations would be materially harmed.

At May 31, 2006,continue as a going concern. There is significant doubt about the Corporation had net working capital of $34,197,234 compared to net working capital of $5,926,134 at May 31, 2005. During the period ended August 10, 2006, a total of 55,000 stock options were exercised for proceeds of $47,000.

At May 31, 2005, the Corporation had net working capital of $5,926,134 compared to net working capital of $20,525,245 at May 31, 2004. During the period ended August 19, 2005, no additional stock options were exercised.

The Corporation had no long-term debt as of May 31, 2006. Subsequent to May 31, 2006, the Corporation entered into the Credit Facility totalling US$15.84 million with a syndicate of lenders, led by Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation. The termappropriateness of the Credit Facility is over 42 months, with interest accruing at one-month LIBOR plus 6.5 percent per annum. Commencing in June 2007, principal is payable monthly on a straight-line amortization schedule over 33 consecutive monthly installments. The Credit Facility is secured by a security interest in all existing and after-acquired assetsuse of the Corporation including intellectual property.going concern assumption because the company has experienced operating losses and cash outflows from operations since incorporation.

C. Research and Development, Patents and Licenses, Etc.

Research and Development


39

Drug development and design begins with an idea, or theoretical concept for treating a given disorder. The idea is advanced through the drug design process, resulting in preliminary candidates that have theoretical potential. Candidates are improved to achieve the optimal effectiveness with limited toxicity.


37

Following preclinical testing, products with the greatest potential become lead candidates and are advanced into clinical trials (human testing) with the intent of having them receive regulatory approval for marketing.

The Corporation has demonstrated the effectiveness of MC-1 in preclinicalin vivo models of cardiovascular disease and Phase I and Phase II clinical trials. Additional preclinical studies may also be performed in order to evaluate other potential uses of MC-1 and to gather other data as may be necessary to support future clinical objectives.

In vitro andin vivo laboratory experiments to date have been used to study MC-1 therapeutic activity in myocardial ischemia, ischemic reperfusion injury, and hypertension. These experiments involved internationally recognized models (including coronary artery ligation, Langendorff, reperfusion and hypertensive rat models), and analysis techniques (such as electrocardiogram and hemodynamic measurements, and electron microscopy).In vivo studies involve oral and/or intravenous administration of the drug dose.

While MC-1’s development proceeds, novel chemical compounds will be synthesized or in-licensed and entered into further testing to evaluate their commercial potential. As previously set forth, the Corporation’s drug discovery program is pursuing medicinal chemistry strategies with the objective of maximizing the probability of commercial potential. Novel chemical compounds are screened for commercial viability prior to advancement into preclinical testing. These studies are to determine bioavailability/distribution, safety and efficacy (on bothin vitro andin vivo models).

For the period from inception on September 15, 1997 to May 31, 2006, the Corporation has expended approximately $36,579,000 net of government assistance and investment tax credits, which aggregate approximately $1,482,000, on theCompany’s research and development program is currently focused on the clinical development of the Company’s lead clinical product, MC-1, MC-4232 and the discovery and development of other compounds.drug candidates. MC-1 is a naturally occurring small molecule that in both preclinical and clinical studies has shown potential for treating various forms of cardiovascular disease.

In February 2008, the Company announced that its pivotal Phase 3 MEND-CABG II clinical trial with MC-1 did not meet the primary endpoint and as a result were not sufficient to support the filings. This program has been put on hold due to the company’s limited resources at this time. At such time as the Company’s resources warrant a further review of this program the Company will do so and then make a determination as to what if any further investigation is warranted. The key findings from the study were presented at the American College of Cardiology 57th Annual Scientific Session in April 2008. The trial was designed to evaluate the effect of Medicure’s lead product MC-1, versus placebo, on the incidence of cardiovascular death or nonfatal myocardial infarction up to and including 30 days following coronary artery bypass graft (CABG) surgery. Based on the results, the Company does not plan, in the foreseeable future, on submitting an application for MC-1 marketing approval to the U.S. Food and Drug Administration for the CABG indication. However, the information and findings from the program could possibly assist and speed up the investigation of alternative applications of MC -1.

As outlined in Item 17, company-sponsored research and development expenditures for fiscal 2008 were $28,660,250 (2007 - $23,335,752; 2006 - $10,219,205).

Patents and Licenses

The Corporation has been issued 1839 patents from the United States Patent Office providing protection for certain uses of MC-1 and related compounds in treatment of cardiovascular diseases and other compounds for the use in cardiovascular disease. The Corporation has also filed 24 additional31 regular applications in the United States plus corresponding patent applications in other jurisdictions. The Corporation will continue to file patents to extend protection of MC-1 and for new compounds in development. The 1839 patents issued to the Corporation are as follows:

Patent NumberNumbeIssue DateTitle
5,292,756March 8, 1994

Novel Sulfonamide Fibrinogen Receptor Antagonists

5,504,090April 2, 1996

Compositions and methods for the prevention and treatment of ischemia-reperfusion organ injury

5,658,929August 19, 1997

Novel Sulfonamide Fibrinogen Receptor Antagonists

5,733,916March 31, 1998

Prevention and treatment of ischemia- reperfusionischemia-reperfusion and endotoxin-related injury using adenosine and purino receptor antagonists

5,733,919March 31, 1998

Compositions for Inhibiting Platelet Aggregation

5,814,643September 29, 1998

Novel Sulfonamide Fibrinogen Receptor Antagonists

5,880,136March 9, 1999

Novel Sulfonamide Fibrinogen Receptor Antagonists

5,965,581October 12, 1999

Compositions for Inhibiting Platelet Aggregation

5,972,967October 26, 1999

Compositions for Inhibiting Platelet Aggregation

5,978,698November 2, 1999

Angioplasty Procedure Using Nonionic Contrast Media

6,001,842December 14, 1999

Compositions and methods for use in ischemia-



40

reperfusion and endotoxin-related tissue injury

6,040,317March 21, 2000

Novel Sulfonamide Fibrinogen Receptor Antagonists

6,043,259March 28, 2000

Treatment of Cardiovascular and Related Pathologies

6,051,587April 18, 2000

Treatment of Age Related Hypertension

6,136,794October 24, 2000

Platelet Aggregation Inhibition Using Low Molecular Weight Heparin in Combination with a GP IIb/IIIa Antagonist

6,339,085January 15, 2002

Prodrugs of MC1

6,417,204July 9, 2002

5-AZA Analogues

6,489,345December 2, 2003

Treatment of Diabetes and Related Pathologies

6,538,112March 25, 2003

Anticoagulant Test

6,548,519April 15, 2003

5-AZA Analogues

6,586,414July 1, 2003

Methods of Treating Stroke

6,605,612August 12, 2003

Mimics of MC1

6,667,315December 23, 2003

Mimics of MC1

6,677,356January 13, 2004

Combination

6,667,3156,770,660December 23, 2003August 3, 2004Mimics of MC1

Method for Inhibiting Platelet Aggregation

6,780,997August 24, 2004

Cardioprotective Phosphonates and Malonates

6,861,439March 1, 2005

Treatment of Cerebrovascular Disease



38

6,867,215March 15, 2005

Cardioprotective Phosphonates and Malonates

6,890,943May 10, 2005

Pyridoxal Analogues and Methods of Treatment

6,897,228May 24, 2005

Pyridoxine and Pyridoxal Analogues: Cardiovascular Therapeutics

7,105,673September 12, 2006

Cardioprotective Phosphonates and Malonates

7,115,625October 3, 2006

Treatment of Cardiovascular and Related Pathologies

7,115,626October 3, 2006

Treatment of Cardiovascular and Related Pathologies

7,125,889October 24, 2006

Treatment of Cardiovascular and Related Pathologies

7,132,430November 7, 2006

Treatment of Cardiovascular and Related Pathologies

7,144,892December 5, 2006

Treatment of Cardiovascular and Related Pathologies

7,148,233December 12, 2006

Treatment of Cardiovascular and Related Pathologies

7,230,009June 12, 2007

Pyridoxal Analogues and Methods of Treatment

7,375,112May 20, 2008

Compounds and Methods for Reducing Triglyceride Levels

Patents 5,504,090, 5,733,916 and 6,001,842 are sublicensed by the Corporation from ENDACEA, Inc. ENDACEA, Inc. has the right to sublicense the Sublicensed Patents to the Corporation in accordance with an agreement with the Trustees at the University of Pennsylvania. Pursuant to a Sublicense Agreement dated April 11, 2006, ENDACEA sublicensed the exclusive worldwide use of the patents to the Corporation. Pursuant to the Sublicense Agreement, the Corporation has agreed to pay ENDACEA, Inc. a royalty payment on Net Sales of Sublicensed Products sold worldwide. The Sublicense Agreement commenced on April 11, 2006.

Patents 6,043,259, 6,051,587, 6,339,085, 6,890,943 and 6,339,0857,230,009 are jointly owned by the Corporation and the University of Manitoba. Pursuant to a Licence Agreement dated August 18, 1997, an Assignment Agreement dated September 26, 1997, and an ensuing newupdated License Agreement dated August 30, 1999 and a newly revised version executed November 24, 2006, which supersedes all previous versions, (the ‘‘Licence Agreement’’) the University of Manitoba licensed the exclusive worldwide use of the patents and the MC-1 technology to the Corporation. Pursuant to the License Agreement, the Corporation has agreed to


41

pay the University of Manitoba a royalty payment of up to 3% of net sales from any cardiovascular product derived from the MC-1 technology. The License Agreement commencedwas originally signed on August 30, 1999 and subsequently amended on November 24, 2006 and shall terminate:terminate if a patent or patents, domestic or foreign, are obtained prior to commercialization of a Licensed Product, the expiration date of the last to expire of any patents covered by the Patent Rights.

(i)

if a patent or patents are obtained prior to commercialization of a Licensed Product (as defined therein), on the expiration date of the last to expire of any patents covered by the Patent Rights (as defined therein); and

(ii)

if a patent is not obtained prior to commercialization of a Licensed Product (as defined therein), on August 30, 2009.

The MC-1 technology is derived from work done by employees of the Corporation and by two employees of the University of Manitoba, Dr. Naranjan Dhalla and Dr. Krishnamurti Dakshinamurti, Professor Emeritus, Department of Biochemistry.

Patents 5,292,756, 5,658,929, 5,733,919, 5,814,643, 5,880,136, 5,965,581, 5,972,967, 5,978,698, 6,040,317, 6,136,794, 6,538,112 and 6,770,660 were purchased by the Corporation from MGI GP, INC. (a Delaware corporation doing business as MGI PHARMA and its Affiliate, Artery, LLC). Pursuant to an Asset Purchase Agreement dated August 8, 2006, MGI GP, INC. sold the exclusive use of the patents to the Corporation in the specified territory (the United States of America including the Commonwealth of Puerto Rico; Guam; and the United States Virgin Islands). Pursuant to the Asset Purchase Agreement the Corporation agreed to pay MGI GP, INC. a one time fee for the procurement of the acquired assets. The 24Asset Purchase Agreement was executed August 8, 2006.

The Corporation entered into a second license with the University of Manitoba. This technology is unrelated to MC-1. The University of Manitoba has the right to license the technology to the Corporation in accordance with an Inter-institutional Agreement with The University and Ottawa Heart Institute Research Corporation. Pursuant to a license agreement dated December 8, 2006, the University of Manitoba licensed the exclusive worldwide use of the application to the Corporation. Pursuant to the License Agreement, the Corporation has agreed to pay on Net Sales of Licensed Products sold worldwide. The License Agreement commenced on December 8, 2006. No patents related to this technology have issued yet.

There are 46 pending regular and provisional United States patent applications, including those44 filed with the United States Patent Office as either regular or provisional applications, which are owned by the Corporation by virtue of their inventorship by employees of the Corporation and, subsequent to June 1, 2000, by CanAm Bioresearch Inc. The 2 remaining applications, 10/588,288 and 10/909,608 are from the University of Manitoba License Agreement of December 8, 2006 and the MGI Pharma Asset Purchase Agreement, respectively.

Much of the work, including some of the research methods, that is important to the success of the Corporation’s business is germane to the industry and may not be patentable. For this reason all employees, contracted researchers and consultants are bound by non-disclosure agreements.

Given that the patent applications for these technologies involve complex legal, scientific and factual questions, there can be no assurance that patent applications relating to the technology used by the Corporation will result in patents being issued, or that, if issued, the patents will provide a competitive advantage or will afford protection against competitors with similar technology, or will not be challenged successfully or circumvented by competitors.

The Corporation has filed patents in accordance with the Patent Cooperation Treaty (the ‘‘PCT’’). The PCT is a multilateral treaty that was concluded in Washington in 1970 and entered into force in 1978. It is administered by the International Bureau of the World Intellectual Property Organization (the ‘‘WIPO’’), headquartered in Geneva, Switzerland. The PCT facilitates the obtaining of protection for inventions where such protection is sought in any or all of the PCT contracting states (total of 104 at July 1999). It provides for the filing of one patent application (the ‘‘international application’’), with effect in several contracting states, instead of filing several separate national and/or regional patent applications. At the present time, an international application may include designation for regional patents in respect of contracting states party to any of the following regional patent treaties: The Protocol on Patents and Industrial Designs within the framework of the African Regional Industrial Property Organization, the


39

Eurasian Patent Convention, the European Patent Convention, and the Agreement Establishing the African Intellectual Property Organization. The PCT does not eliminate the necessity of prosecuting the


42

international application in the national phase of processing before the national or regional offices, but it does facilitate such prosecution in several important respects by virtue of the procedures carried out first on all international applications during the international phase of processing under the PCT. The formalities check, the international search and (optionally) the international preliminary examination carried out during the international phase, as well as the automatic deferral of national processing which is entailed, give the applicant more time and a better basis for deciding whether and in what countries to further pursue the application. Further information may be obtained from the official WIPO internet website (http://www.wipo.int).

On June 1, 2000 the Corporation entered into the Medicure International Licensing Agreement whereby it licensed the world-wide development and marketing rights for MC-1, except for Canada, to its wholly owned subsidiary, Medicure International Inc. As consideration for the grant of the license, Medicure International Inc. agreed to pay the Corporation a fee of $1.00 upon the completion of specified milestones in the development process, together with a variable royalty of 7% to 9% of net sales of MC-1 (if any sales are ever in fact made). The term of the Medicure International Licensing Agreement will expire on the date of expiration of the last to expire patent on MC-1, or in the absence of any such patent, on the 10th anniversary of the date of the first commercial sale of MC-1 in the country where it was last introduced (if it is ever so introduced). The Medicure International Licensing Agreement may be terminated under a number of circumstances and, in any event, by either party at any time by providing the other with at least 90 days prior written notice of its intention to terminate the Medicure International Licensing Agreement.

Medicure International Inc. subsequently entered into a development agreement with CanAm on June 1, 2000 and CDRIClinical Development Research Institute (CDRI) on July 2, 2004 to perform research and development of MC-1 and other compounds at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced. The parties to the development agreements have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of each agreement. The term of the development agreements is to expire on the completion of all research and development activities by CanAm and CDRI, and the written acknowledgment by CanAm, CDRI and Medicure International Inc. that no further research projects will be undertaken (see Item 6 - Directors, Senior Management and Employees - A. Directors and Senior Management)

The development agreements may be terminated under a number of circumstances and, in any event, by Medicure International Inc. at any time by providing CanAm or CDRI with at least 30 days prior written notice of its intention to terminate, or by CanAm or CDRI at any time by providing Medicure International Inc, with at least 90 days prior written notice of its intention to terminate the development agreement.

The agreements provide that all confidential information developed or made known during the course of the relationship with the Corporation is to be kept confidential except in specific circumstances.

D. Trend Information

Factors which contributed to the decline in AGGRASTAT® sales in 2008 included, but were not limited to, the lingering effects in the market of sales efforts, or lack thereof, prior to the Company’s acquisition of AGGRASTAT® in August 2006, the dilution of the commercial group’s energy by activities associated with the development and planned launch of MC-1 for CABG, which have since been suspended, and the impact of restructuring in 2008 of the Corporation’s sales execution strategy from a third party contract sales force to an internal sales force managed directly in-house. Management believes the Company has made significant strides in developing AGGRASTAT®’s place in the market and believes the benefits will be demonstrated in fiscal 2009 as indicated by the successful quarter over quarter growth in revenues in each of the last three quarters of fiscal 2008.

The Corporation is not aware of any other trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon the Corporation’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.


43

E. Off-balance Sheet Arrangements

As part of May 31, 2008 the Corporation’s ongoing business, itcompany does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities or SPE, which would have been established for the purpose of facilitatingany off-balance sheet arrangements, or other contractually narrow or limited purposes. As of May 31, 2006, the Corporation was not involved in any unconsolidated SPE transactions.


40than those disclosed below.

F. Contractual Obligations

The following tables set forth the Corporation’s contractual obligations as of May 31, 2006:2008:

 TotalLess than 1 year1-3 years
Operating Lease
Obligations
33,198
33,198
-
Purchase
Obligations*
3,700,225
3,700,225
-
Other Long-term
Obligations
66,000
66,000
-
Total3,799,4233,799,423-
 Contractual Obligations Payment Due By Period
(in thousands of
CDN$)
Total
2009
2010
2011
2012
2013
Thereafter
Long-term debt obligations2$36,741$1,986$9,930-$825$1,724$22,276
Purchase Agreement Commitments32,2331,600633----
Total$38,974$3,586$10,563             -$825$1,724$22,276

* The timing of expenditures and payments for research and developmentIn addition to the contractual obligations is largely atdisclosed above, the discretion of the Corporation and the agreements may be terminated at any time provided thirty (30) days notice is provided. The development agreements are described in more detail below.

The CorporationCompany and its wholly-owned subsidiary, Medicure International Inc.subsidiaries, have ongoing research and development agreements with third parties in the ordinary course of business. The agreements include the research and development of MC-1 and its related compounds. During the year ended May 31, 2006, the Corporation incurred an aggregate of $8,428,000 (2005 - $8,985,000) in expenditures under these agreements which is included in research and development expenses in the statement of operations. As at May 31, 2006, the Corporation is committed to fund a further $66,000 related to clinical research agreements with clinical research organizations (“CROs”) and clinical sites.

The contracts with the CROsclinical research organizations (CROs) are payable over the terms of the trials and the timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial-related activities. The Corporation is also liable forAs at May 31, 2008, the payment of certain pass through costs. As part of these trials, the Corporation also entered intoCompany has no further commitments related to clinical research agreements with the clinical sites participating in the trials. These agreements require payments over the course of the study based on various activities being completed by the site, such as patient visits and various testing and measurement activities required per the study protocol. A significant portion of the amounts due to the sites for these activities is not payable until after the completion of the trial. This “holdback” results in a significant accrual of trial-related expenses during the course of the study, as the expense is recognized for accounting purposes but the cash payment is not made until after the trial is completed. CROs.

In addition, the CorporationCompany has committed to fund a further $3,700,000$26,255,000 in research and development activities under two development agreements with contract research organizations. The timing of expenditures and payments is largely at the discretion of the CorporationCompany and the agreements may be terminated at any time provided thirty (30) days notice is provided. Subsequent to May 31, 2006, the Corporation amended development agreements with third parties such that a further $35,000,000 was committed to research and development expenditures. The commitment is not included in the table above.

The Corporation periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Corporation to compensate the other party for certain damages and costs incurred as a result of claims arising from

______________________________________________
2
In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for a US$25 million up-front cash payment. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of AGGRASTAT® net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in AGGRASTAT® revenues, 17.5 percent on the next US$10 million, 15 percent on the next $5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual returns start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement aggregate US$49.7 million.

Birmingham will also receive the option to convert its rights based on AGGRASTAT® to MC-1 within six months after MC-1’s commercialization, if achieved. The exact percentage of AGGRASTAT® or MC-1 revenue that Birmingham will receive is tiered and declines as certain revenue levels are achieved. Upon conversion to MC-1, Birmingham is entitled to a return of 10 percent on the first US$35 million in MC-1 revenues, 5 percent on the next US$40 million in MC-1 revenues and 3 percent thereafter. Birmingham shall also receive a minimum annual return of US$2.6 Million on MC-1 net sales, if approved until May 31, 2020. Birmingham will receive payments based on MC-1 revenues until December 31, 2024, unless a novel patent is obtained for MC-1, which could extend the period of payments.

During the 30 day period following the date on which the U.S. Food and Drug Administration shall have first approved MC-1 for sale to the public, the Company may elect to terminate AGGRASTAT® or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period of US$70 Million to Birmingham. In addition, upon the approval of MC-1 for a second indication, the Company may once again elect to terminate AGGRASTAT® or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period of US$120 Million to Birmingham.

3 In conjunction with the acquisition of AGGRASTAT®, the Company entered into manufacturing and supply agreements to purchase a minimum quantity of AGGRASTAT® from third parties.


44

research and development activities undertaken on behalf of the Corporation. In some cases, the potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Corporation has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with respect to these indemnification obligations.

The CorporationCompany has granted royalties to third parties based on future commercial sales of MC-1, aggregating up to 4.75%3.9% on net sales. To date, no royalties are due and/or payable.

No dividends have been declared or paidRoyalties were payable to Merck & Co., Inc., based on net sales of AGGRASTAT® beginning in January 2007. In January 2008, Merck & Co., agreed to terminate any sharesfuture royalty payments on net sales of the Corporation since its incorporation. There can be no assurance that the Corporation will ever declare any dividends on anyAGGRASTAT® as a result of its shares, or ifdecision to divest its non-US commercial rights to AGGRASTAT®.


41

declared, what the dividend amounts will be or whether such dividends, once declared, will continue for any future period.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Directors and Senior Management

The members of the board of directors and senior officers of the Corporation including a brief biography of each are as follows:

Dr. Albert D. Friesen, Winnipeg, Manitoba, Canada - Director, President, Chairman and Chief Executive Officer

The founder of Medicure Inc., Dr. Friesen holds a Ph.D. in protein chemistry from the University of Manitoba. Dr. Friesen played a key role in founding several health industry companies including Rh Pharmaceuticals (acquired by Cangene Inc.), ABI Biotechnology (acquired by Apotex Inc.), Viventia Biotech Inc., Genesys Pharma Inc. and KAM Scientific Inc. Dr. Friesen has experience in the establishment of pharmaceutical production facilities and has also managed and initiated the research and clinical development of several pharmaceutical candidates. Dr. Friesen is a founder of the Industrial Biotechnology Association of Canada (IBAC) and past Chairman of its board of directors and former member of the Industrial Advisory Committee to the Biotechnology Research Institute in Montreal. Dr. Friesen previously served as a senior executive of other publicly-traded companies, including a position as President of Viventia Biotech Inc. (formerly Novopharm Biotech Inc.) In addition to his role with the Corporation, Dr. Friesen is currently the President and Chairman of Genesys Venture Inc., a biotech incubator, based in Winnipeg. Dr. Friesen provides his services to the Corporation through A.D. Friesen Enterprises Ltd., his private consulting corporation. Dr. Friesen devotes substantially all of his time to the Corporation. Date of birth is May 19, 1947

Dr. Arnold Naimark, Winnipeg, Manitoba, Canada - Director

Arnold Naimark, O.C., O.M., M.D., L.L.D., F.R.C.P.(C), F.R.S.C.F.R.S.C, FCAHS,. has had a distinguished career withinin biomedical research, medicine and higher education. Dr. NaimarkHe is President Emeritus and Dean of Medicine Emeritus of the University of Manitoba, and is currently Director of the University of ManitobaUniversity’s Centre for the Advancement of Medicine,Medicine. He also serves as Chair of the Health Canada Science Advisory Board, Chair of Genome Prairie; as a director of CancerCare Manitoba and member of the Research Council of the Canadian Institute for Advanced Research and of the Alberta Cancer Board International Committee on Research. Dr. Naimark was the founding Chair of the Canadian Health Services Research Foundation and of the Canadian Biotechnology Advisory Committee a Director of Inspiraplex and of the Robarts Research Institute and is a member of the Research Council of the Canadian Institute for Advanced Research. Dr. Naimark served as Head of the Department of Physiology and later as Dean of the Faculty of Medicine at the University of Manitoba, following which he served as the University’s President and Vice-Chancellor (15 years). Dr. Naimark has served on many other committees and boards, in such positions as a Director of the Canadian Imperial Bank of Commerce, Chair of the International Review Panel for the Medical Research Council of Canada and President of the Association of Universities and Colleges of Canada. Dr. Naimark has also received several honouraryhonorary degrees and awards, including the Order of Canada.Canada and the Order of Manitoba. Date of birth is August24, 1933.


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Gerald P. McDole, Mississuaga, Ontario, Canada, MBA – Director

Mr. McDole is currently a director of several Canadian healthcare companies. Mr. McDole is Past President of AstraZeneca Canada Inc. He was named President and CEO of AstraZeneca Canada Inc.'s pharmaceutical operations in 1999 and immediately led the merger of Astra Pharma and Zeneca Pharma Inc. Prior to this, Mr. McDole was president and CEO of Astra Pharma Inc., a position he assumed in 1985 after having served as Executive Vice-President. Mr. McDole is a member of the Canadian Healthcare Marketing Hall of Fame, and has been recognized by Canadian Healthcare Manager Magazine with the Who's Who in Healthcare Award in the pharmaceutical category. In recognition of Mr. McDole's outstanding contributions to the biotech and pharmaceutical industries, the University of Manitoba recently established The Gerry McDole Fellowship in Health Policy and Economic Growth.


42 Date of birth is January 25, 1940.

Peter Quick, Mill Neck, New York, USA - Director

Mr. Quick currently serves on the Board of Directors for Reckson Associates, the Board of Directors for Fund For The Poor, the Board of Governors of St. Francis Hospital on Long Island, and the National Selection Committee for the Jefferson Scholars Program of the University of Virginia. Mr. Quick is past President and CEO of Quick & Reilly, Inc. and a former President of the American Stock Exchange. Mr. Quick has also served on the Board of Governors of the Chicago Stock Exchange and as Chairman of the Midwest Securities Trust Company. Mr. Quick received a bachelor's degree in engineering from the University of Virginia and attended Stanford University's Graduate School of Petroleum Engineering. He was a lieutenant in the United States Navy, and served four years active duty. Date of birth is February 11, 1956.

Kishore Kapoor, Winnipeg, Manitoba, Canada, CA – Director

Mr. Kapoor is the President of Wellington West Holdings Inc., a Corporate Director. Hespecialized financial services company. Mr. Kapoor is also presently a director of Manitoba Telecom Services Inc., a public company listed on the Toronto Stock Exchange. From November 2003 to June 2005, Mr. Kapoor was Executive Vice-President Corporate Development of Loring Ward International Ltd., which was formed to hold the U.S. operations of Assante Corporation. As one of the founders of Assante Corporation, Mr. Kapoor was its Executive Vice-President Corporate Development from March 1994 to November 2003. Prior to founding Assante Corporation, Mr. Kapoor was a tax partner with KPMG LLP. In his 14 years with KPMG LLP, he specialized in offering clients advice on tax, corporate finance, mergers and acquisitions, and development of corporate strategy in a wide range of industries, including those in the biotechnology sector. Date of birth February 7, 1957.

Moray W. Merchant, MBA - Vice-President, Business and Market DevelopmentDavid Banks, J.D. Toronto, Ontario, Canada – Director

Moray Merchant received his MBA in Pharmaceutical Marketing from Saint Joseph’s University in Philadelphia and holdsMr. Banks is presently a Bachelor’s Degree in Business Administration from the UniversityPrincipal of New Brunswick.Carlyle Banks & Company Inc, a Toronto-based investment banking firm. Mr. MerchantBanks has overnearly 20 years of industry experience at The Chase Manhattan Bank (now known as JPMorgan Chase), a leading the strategic planning, sales and marketing of pharmaceutical products. For 18 yearsglobal financial services firm, where he held several positionsvarious roles including Senior Vice President. Additionally, Mr. Banks has served as AT&T Capital Corporation’s Chief Executive Officer. AT&T Capital was the fifth largest leasing company in the world, operating in 26 countries. Prior to his current role at Carlyle Banks & Company, Mr. Banks held the position of Vice Chairman of Lawrence & Company Inc., a Toronto-based global asset management firm with DuPont Pharmainterests and investments in various sectors in Canada managingand throughout the sales and marketingworld. Date of their cardiovascular products, directing business development activities and establishing and leading their generics business. Beginning in 2001, he held the positions of Vice President, Sales and Vice President of Marketing for aaiPharma Inc., a U.S. based specialty pharmaceutical company. In these roles he was responsible for building the sales and marketing organizations and leading the promotion of their acquired portfolio of pharmaceutical products. Mr. Merchant holds the responsibility for identifying partnering opportunities, leading the strategic planning process and overseeing the commercialization of the Corporation’s cardiovascular products.birth is January 25, 1943.

Dawson Reimer, MAES - Vice-President, Operations

Dawson Reimer proceeded from a Master's Degree in Economic Development, University of Waterloo to be employed as a full-time consultant to the Federal Department of Western Diversification. In this capacity, he conducted entrepreneurship training and developed a business start-up training program. Beginning in 1996, he served as Business Development/Investor Relations with Genesys Pharma Inc. He was also project coordinator for the establishment of the Corporation's new research and pharmaceutical


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production facility. In 1997, he began conducting business activities for Genesys Venture Inc., a biotech business incubator, where he has assisted numerous biotechnology ventures in developing business plans, obtaining financing, and developing intellectual property protection. In this capacity, Mr. Reimer became actively involved in the Corporation at its inception and has been directly employed by the Corporation since 2001. Mr. Reimer is a son-in-law of Dr. Albert D. Friesen, Director, President, Chairman and Chief Executive Officer. Date of birth is May 7, 1971.

Dwayne Henley, CA – Chief Financial Officer

Mr. Henley joined Medicure in June 2008 from a private investment and management company where he held the position of Vice President of Finance. Prior to that Mr. Henley's was Vice-President Finance at Big Freight Systems Inc., a privately owned transportation company operating throughout North America. Other notable experience includes Assante Corporation where he held the position of Corporate Controller and Biovail Laboratories Inc. where he held the position of Manager, Finance and Administration. Date of birth is November 20, 1964

Mr. Henley replaced Derek G. Reimer, CA -as Chief Financial Officer and Secretary

Derek Reimer came to the Corporation from Deloitte & Touche LLP where he most recently served as a Senior Manager in the Assurance and Advisory Services group. In this role,June 2008 after Mr. Reimer dealt mainly with major corporate clients, including several TSX 100 companies, providing advice regarding complex accounting, regulatory, and compliance issues. His previous experience includes several years providing international accounting services to clients exclusively in the financial services industry. Mr. Reimer is a


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Chartered Accountant who also holds a Bachelor of Commerce (Hons.) degree in accountingresigned from the University of Manitoba. Mr. Reimer is responsible for managing financial systems, programs and processes to ensure the successful accomplishment of the Corporation’s business objectives.

Mr. Jan-Ake Westin - Vice-President, Clinical Development

Mr. Westin has worked as a managing director at two of Canada’s leading CROs: i3 Research and Innovus. In this capacity he has overseen the management of numerous large cardiovascular clinical trials. Mr. Westin spent over 20 years with Astra Pharma Inc., holding such positions as International Clinical Research Manager and Senior Clinical Research Scientist. Mr. Westin served in senior leadership positions with Pharmacia & Upjohn Inc. and Pfizer/Pharmacia Corporation, where he served as Director of Clinical Operations and as Director of Clinical Outsourcing, respectively. Mr. Westin received his M.Sc. (Social Pharmacy) from the University of Uppsala in Sweden. Mr. Westin provides his services through CDRI Inc, which conducts clinical development for Medicure through a dedicated development contract.

Dr. Charles Gluchowski – Vice-President, Research & Development

Dr. Gluchowski received his PhD. in organic chemistry from Texas A&M University. Dr. Gluchowski has been active in the life sciences industry for over 20 years, including extensive experience in both executive and senior scientific positions. His experience includes serving as President and Chief Scientific Officer at Ceretek, a drug discovery company focused on developing novel therapeutics targeting Lipid G-Protein Coupled Receptors (L-GPCRs). He also served as Director of Chemistry at Synaptic Pharmaceutical Corp. where he founded the Chemistry Department and led several drug discovery and development project teams including a Benign Prostatic Hyperplasia project in collaboration with Merck

& Co., Inc. He began his professional career at Allergan, Inc. where he initiated medicinal chemistry programs that led to the discovery and development of Alphagan® and Lumigan® for the treatment of glaucoma. The combined total sales for Alphagan® and Lumigan® in 2005 exceeded USD$400 million. He is the sole or co-inventor on over 75 patents issued in the U.S, and has published over 45 peer-reviewed articles and book chapters. Dr. Gluchowski provides his services to the Corporation’s research and development activities through a consulting contract with CanAm Bioresearch Inc.corporation.

Business Management

Dr. Albert D. Friesen - Chairman, President, Chief Executive Officer and Director: Dr. Friesen directs the overall business management of the Corporation (see “Directors and Senior Management” under this item).

Moray W. Merchant, MBA - Vice-President, Business and Market Development: Mr. Merchant holds the responsibility for identifying partnering opportunities, leading the strategic planning process and overseeing the commercialization of the Corporation’s cardiovascular products. (see “Directors and Senior Management” under this item).

Dawson Reimer - Vice-President, Operations:Mr. Reimer holds the responsibility of commercial operations and managing the internal operations andas well as certain other functional areas which include project management and strategic planning.areas. (See “Directors and Senior Management” under this item)

Derek G. Reimer,Dwayne Henley, CA - Chief Financial Officer and Secretary: Mr. Reimer participates inHenley is responsible for the Corporation’s financial management and accounting practices (see “Directors and Senior Management” under this item).

Heather Hlady – Director,Bonnie Zell, Senior Advisor, Sales and Marketing

Heather Hlady receivedMs. Zell, who provides her B. Sc. in Chemistry fromservices through a consulting agreement with the University of Alberta. Ms. HladyCorporation, is responsible for sales execution by Medicure’s hospital based sales team. She has over 1430 years of experience in the pharmaceutical management, sales and marketing experience. Ms. Hlady has spent her career with Jouveinal, Pfizer and most recently, Biovail. Her experience with Jouveinal brought a portfolio of eight different products, including the launch of two products to the market. In 1997, she moved to Pfizer Canadabiotech industry where she recently held the position as Vice President of Sales for Millennium Pharmaceuticals, Inc. Prior to Millennium, Ms. Zell was a District ManagerVice President of Sales for the cardiovascular portfolio. In her role as District


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Manager, she managed the sales and performance of the cardiovascular product budgets, marketing and promotion, andCOR Therapeutics, Inc., which was involvedacquired by Millennium. Ms. Zell was instrumental in the launch and growth of two productsINTEGRILIN®, the market leading GP IIb/IIIa inhibitor.

Hogan Mullally, Investor Relations

Mr. Mullally, who provides services through a consulting agreement with the Corporation, leads Medicure’s investor relations activities and also contributes extensively to the market. Ms. Hlady holds the responsibility for the launchBusiness Development initiatives of the sales and marketing teams for Aggrastat® in the US, the branding and marketing of Medicurecorporation. Until May 2008, Mr. Mullally served as a company, and for creating a dynamic and strategic plan for the extension of the product line.

Scientific Management

Dr. Naranjan S. Dhalla - Chief Scientific Officer

Dr. Dhalla participates in the scientific managementfull time employee of the Corporation, undermost recently in the title Chief Scientific Officer. The principal inventorcapacity of MC-1, Director of Business Development and Investor Relations.

Dr. Dhalla recently retired as Distinguished ProfessorGeorge Thomas - Director of Pharmacology

Dr. George R. Thomas received his Master in Pharmacy degree (1996) and Director,PhD (2002) from the Birla Institute of CardiovascularTechnology and Sciences, St. Boniface General Hospital Research Centre,Pilani, India. He received his post-doctoral training at the Faculty of Medicine, University of Manitoba. Dr. Dhalla is an internationally recognized cardiovascular researcher who has received 59 honours and awards including the Research Achievement Award of the Canadian Cardiovascular Society, The Upjohn Award of the Pharmacological Society of Canada, Honorary Professorship at several universities, the Order of the Buffalo Hunt from the Province of Manitoba, and the Order of Canada. Professionally, Dr. Dhalla has been actively promoting the scientific basis of cardiology for over 25 years.

Dr. Dhalla has served in senior positions such as Secretary General (17 years) and President (3 years) of the International Society for Heart Research, Editor-in-Chief (11 years) of the international journal ‘‘Molecular and Cellular Biochemistry’’ and is currently serving on the editorial boards of 11 other international journals. Since 1996, Dr. Dhalla has served as Executive Director of the International Academy of Cardiovascular Sciences. Dr. Dhalla has published 500 papers and 350 abstracts as well as edited or authored 31 books in the area of heart research. Dr. Dhalla has provided his services to the Corporation's research and development activities through a consulting contract with CanAm Bioresearch Inc.

Mr. Jan-Ake Westin - Vice-President, Clinical Development

Mr. Westin will be responsible for the design and management of clinical studies for Medicure’s lead compound, MC-1, and for the clinical aspects of other business development and research projects. Mr. Westin provides his services to the Corporation's research and development activities through a consulting contract with CDRI Inc. (see “Directors and Senior Management” under this item).

Dr. Charles Gluchowski – Vice-President, Research & Development

Dr. Gluchowski will be responsible for the preclinical development for Medicure’s lead preclinical compounds, including, MC-45302 and MC-5422, and for other research projects. Dr. Gluchowski provides his services to the Corporation’s research and development activities through a consulting contract with CanAm Bioresearch Inc. (see “Directors and Senior Management” under this item).

Dr. Ahmad Khalil – Medical Director

Dr. Khalil received his MD from the Medical Academy IP in Plovdiv, Bulgaria in 1986, and his M.Sc degree (1993) and PhD (1997) from The University of Montreal.Toronto. He has excellent basic researchover 13 years of experience in new drug discovery particularly in the areas of in vivo antithrombotic treatmentcardiovascular and ischemia reperfusion, as well as therapeutic approaches to coronary artery bypass graft surgery, much of whichmetabolic disorders. Dr. Thomas held senior executive positions at Torrent Pharmaceuticals Research Centre, where he was done during his tenure as researcherresponsible for setting up and lecturer at the renowned Montreal Heart Institute. In addition, Dr. Khalil has experience as a practicing surgeon in Europe


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managing several pharmacological, pharmacokinetic and toxicological studies. He has presented at numerous cardiovascular conventionsresearch competitions, conferences and published extensively.

Dr. Jim Diakur - Director of Chemistry

Dr. Diakur is an experienced medicinal chemist who was previously employed as Research Assistant Professor at the Noujaim Institute for Pharmaceutical Research in the Faculty of Pharmacy, University of Alberta. At the institute, Dr. Diakur’s group was focused on the development of carbohydrate-based


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pharmaceuticals for diabetes, cancer and inflammation and on carbohydrate-based drug carriers for targeted drug delivery. He also has over ten years of industrial research and management experience in the field of chemistry with Chembiomed Inc. and Biomira Inc. Among other achievements, Dr. Diakur managed a team of scientists responsible for the preclinical development of injectable carbohydrate-based immunotherapeutic agents. Dr. Diakur is employed by CanAm Bioresearch Inc. and works on the Corporation’s research and development pursuant to the Development Agreement.

Dr. Deborah Douglas – Director of Physiology

Dr. Douglas received her Ph.D. in Animal Science from McGill University, focusing on molecular biology related research. Her post-doctoral experience involved cell biology research at the Institute of Cell Biology, University of Manitoba, and the Jack Bell Research Centre, Vancouver General Hospital, University of British Columbia. Dr. Douglas developedin vitroandin vivo models to screen for human diseases as Chief of Compound Screening for Alviva Biopharmaceutical Inc. Dr. Douglas provides her services to Medicure through an employment agreement with CanAm Bioresearch Inc.

Dr. Marjorie Zettler – Director of Scientific Affairs

Dr. Zettler received her Ph.D. in Physiology from the University of Manitoba. Her research, which was carried out in the Division of Stroke and Vascular Disease at the St. Boniface Research Centre, focused on mechanisms of cardiovascular disease progression. Dr. Zettler has authored several peer-reviewed papers and is the recipient of numerous research awards. Dr. Zettler provides her services to Medicure through an employment agreement with CDRI Inc.

Dr. Paul Armstrong - Clinical Consultant

Dr. Armstrong, Chair of the Advisory Board, is Professor in the Department of Medicine, University of Alberta in Edmonton. Dr. Armstrong is an internationally recognized cardiologist and clinical investigator with extensive expertise in the design and conduct of clinical trials focused on acute ischemic syndromes and congestive heart failure. Dr. Armstrong has published widely and served as a senior advisor to major organizations and industry. Since June 1, 2000, Dr. Armstrong provides services to the Corporation’s research and development activities through a consulting contract with CDRI Inc.peer reviewed journals.

Scientific Advisory Board

The Corporation has established a Scientific Advisory Board to ensure continued and proper review of research activities and work plans. Although due to changes in the Company’s R&D activities there are at present no formal meetings planned, the Board has been kept in place and continues to provide input to the Corporation. The members of the Scientific Advisory Board and a brief biography of each are as follows:

Dr. Paul Armstrong - Chairperson

Dr. Armstrong, Chair of the Scientific Advisory Board, is Professor in the Department of Medicine, University of Alberta in Edmonton. Dr. Armstrong is an internationally recognized cardiologist and clinical investigator with extensive expertise in the design and conduct of clinical trials focused on acute ischemic syndromes and congestive heart failure. Dr. Armstrong has published widely and served as a senior advisor to major organizations and industry.

Dr. Stephen Hanessian

Dr. Hanessian is Professor, Department of Chemistry, University of Montreal. Dr. Hanessian is one of North America’s most renowned medicinal chemists with considerable experience in industry collaboration for the discovery of new pharmaceuticals.

Dr. Morris Karmazyn

Dr. Karmazyn is a Professor in the Department of Pharmacology and Toxicology at the University of Western Ontario in London, Ontario. Dr. Karmazyn is internationally recognized and has received


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numerous distinctions for his research in the field of myocardial ischemia and ischemic reperfusion injury.

Dr. John McNeill

Dr. McNeill is Professor and Dean Emeritus, Division of Pharmacology and Toxicology, Faculty of Pharmaceutical Sciences at the University of British Columbia in Vancouver. The recipient of numerous awards and distinctions, Dr. McNeill’s research is centered on the biochemical mechanism action of drugs on the heart.

Dr. Eldon Smith

Dr. Smith is a Professor at the University of Calgary Medical School in Alberta, where his past positions include Dean of the Faculty of Medicine, Head of the Department of Medicine and Head of the Division of Cardiology. A distinguished clinician and research scientist, Dr. Smith has considerable industry experience having served on the boards of several well-recognized companies.

Dr. Pierre Theroux

Dr. Theroux is Professor of Medicine at the University of Montreal and Chief of the Coronary Care Unit at the Montreal Heart Institute. Dr. Theroux’s innovative work is widely recognized and he has contributed extensively to the development of new treatments for acute ischemic heart disease.

Dr. Jeffrey Weitz

Dr. Weitz is Professor of Medicine and Haematology at McMaster University in Hamilton where he has contributed extensively to understanding the role of thrombosis and its treatment in cardiovascular disease. Dr. Weitz also brings a wealth of expertise in academic-industrial collaboration and development of new products.

Dr. Trevor Hassell

Dr. Hassell is Adjunct Professor of Medicine at the University of the West Indies, Barbados, and Consultant Physician and Cardiologist at the Queen Elizabeth Hospital, also in Barbados. He is President-Elect of the Inter-American Heart Foundation, former President of the Caribbean Cardiac Society and founder, President and member of the Board of Directors of the Heart Foundation of Barbados.

Dr. A. Michael Lincoff

Dr. Lincoff is an interventional cardiologist in the Cleveland Clinic Department of Cardiovascular Medicine and a staff cardiologist in the Joseph J. Jacobs Center for Thrombosis and Vascular Biology, Department of Molecular Cardiology at the Cleveland Clinic Research Institute. Dr. Lincoff’s specialty


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interests focus on high-risk and complex coronary angioplasty, preventing restenosis, treating acute coronary syndromes and acute myocardial infarction, and developing antithrombotic therapy during coronary intervention.

B. Compensation

No compensation of any kind was paid to the directors and executive officers of the Corporation during the year ended May 31, 2006,2008, except for stock-based compensation described in Item 6(E) below and as follows:

On October 1, 2001, a compensation agreement was entered into between the Corporation and A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen and subsequently amended on October 1, 2003, October 1, 2005, October 1, 2006, and October 1, 2005.2007. For the year ended May 31, 2006,2008, the Corporation paid A.D. Friesen Enterprises Ltd., $191,667$307,531 in consulting compensation.compensation, including bonuses. Dr. Friesen is also eligible for an annual bonus, if certain objectives of the Corporation are met, as determined by the Board of Directors.


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Moray Merchant serves the Corporation as Vice President, Market and Business Development and received a salary of $158,333 payable in equal semi-monthly instalments in fiscal 2006.

Dawson Reimer serves the Corporation as Vice President, Operations and received a salary of $84,167$120,417 payable in equal semi-monthly instalments in fiscal 2006.2008.

Derek G. Reimer serves the Corporation as Chief Financial Officer and Secretary and received a salary of of $108,333$148,333 payable in equal semi-monthly installments in fiscal 2006.2008.

During the year ended May 31, 2006,2008, the Corporation paid directors a total of Nil (Year ended May 31, 2007: Nil; Year ended May 31, 2006: Nil; Year ended May 31, 2005: Nil; Year ended May 31, 2004: Nil; Year ended May 31, 2003: Nil; Year ended May 31, 2002: Nil) for consulting fees.

Additionally, the Corporation provides its directors $1,500 for each quarterly board meeting they personally attend ($750 via telephone), and $750 for each quarterly executive compensation, nominating and corporate governance committee meeting or audit and finance committee meeting they attend. The Corporation does not provide any cash compensation for its directors who are also officers of the Corporation for their services as directors.

No pension, retirement fund and other similar benefits have been set aside for the officers and directors of the Corporation.

C. Board Practices

The Board of Directors presently consists of five directors. Threesix directors who were elected at the Corporation’s annual and specialgeneral meeting of the shareholders held on October 25, 2005.2, 2007. Each director holds office until the next annual general meeting of the Corporation or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the Articles of the Corporation, or with the provisions of theCanada Business Corporations Act. Dr. Albert D. Friesen has served as a director of the Corporation since September 1997. Dr. Arnold Naimark has served as a director of the Corporation since March 2000, Dr. William A. Cochrane has served as a director of the Corporation since October 2000 and resigned as of June 28, 2006.2000. Gerald McDole has served as a director of the Corporation since January 2004. On June 29, 2005, James G. Umlah resignedPeter Quick has served as a memberdirector of its boardthe Corporation since November 2005. Kishore Kapoor has served as a director of directors due to increasing business commitments. Peter Quickthe Corporation since June 2006. David Banks was appointed as a director of the Corporation on November 29, 2005December 3, 2007.

Audit and Kishore Kapoor was appointed on June 28, 2006, subject to regulatory approval.Finance Committee

Pursuant to Section 171 of theCanada Business Corporations Act (the “Act”), the Corporation is required to have an Audit Committee. As at the date hereof, the members of the Audit and Finance Committee is comprised of fourfive independent directors: Kishore Kapoor (Chair), Dr. Arnold Naimark, Gerald McDole, Peter Quick, and Peter Quick.David Banks. The relevant experience of each member is described above. (See “Item 6. Directors, Senior Management and Employees”) Section 171(1) of the Act requires the directors of a reporting corporation to elect from among their number a committee composed of not fewer than three directors, of


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whom a majority must not be officers or employees of the corporation or an affiliate of the corporation. Section 171(3) of the Act provides that, before financial statements are approved by the directors, they must be submitted to the audit committee for review. Section 171(4) of the Act provides that the auditor must be given notice of, and has the right to appear before and to be heard at, every meeting of the audit committee, and must appear before the audit committee when requested to do so by the committee. Finally, section 171(5) of the Act provides that on the request of the auditor, the audit committee must convene a meeting of the audit committee to consider any matters the auditor believes should be brought to the attention of the directors or members.

Under the Sarbanes-Oxley Act of 2002, the independent auditor of a public company is prohibited from performing certain non-audit services. The Audit and Finance Committee has adopted procedures and policies for the pre-approval of non-audit services, as described in the audit committee charter.

The charter of the Audit and Finance Committee is reproduced below and can be found on ourthe Corporation’s website atwww.medicure.com.


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AUDIT AND FINANCE COMMITTEE CHARTER

GENERAL FUNCTIONS, AUTHORITY, AND ROLE

The purpose of the Audit and Finance Committee is to oversee the accounting and financial reporting processes of the Corporation and the audits of its financial statements, and thereby assist the Board in monitoring (1) the integrity of the financial statements of the Corporation, (2) compliance by the Corporation with ethical policies and legal and regulatory requirements related to financial reporting, (3) the appointment, compensation, qualifications, independence and performance of the Corporation’s internal and external auditors, (4) the performance of the Corporation's independent auditors, and (5) performance of the Corporation's internal controls and financial reporting process.

The Audit and Finance Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities and personnel of the Corporation, its auditors and its legal advisors. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this charter, the Audit and Finance Committee has the authority to independently retain special legal, accounting, or other consultants to advise it, and may request any officer or employee of the Corporation, its independent legal counsel or independent auditor to attend a meeting of the Audit and Finance Committee or to meet with any members of, or consultants to, the Audit and Finance Committee. The Audit and Finance Committee has the power to create specific sub-committees with all of the power to conduct or authorize investigations into any matters within the scope of the mandate of the sub-committee, with full access to all books, records, facilities and personnel of the Corporation, its auditors and its legal advisors.

The Corporation's independent auditor is ultimately accountable to the Board of Directors and to the Audit and Finance Committee, who, as representatives of the Corporation's shareholders, have the authority and responsibility to evaluate the independent auditor, appoint and replace the independent auditor, and to determine appropriate compensation for the independent auditor. In the course of fulfilling its specific responsibilities hereunder, the Audit and Finance Committee must maintain free and open communication between the Corporation's independent auditors, Board of Directors and Corporation management. The responsibilities of a member of the Audit and Finance Committee are in addition to such member's duties as a member of the Board of Directors.

While the Audit and Finance Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Audit and Finance Committee to plan or conduct audits or to determine that the Corporation's financial statements are complete, accurate, and in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit and Finance Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Corporation’s Code of Ethics. Any responsibilities that the Audit and Finance Committee has the power to act upon, may be recommended to the Board to act upon.


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MEMBERSHIP

The membership of the Audit and Finance Committee will be as follows:

The Committee shall consist of a minimum of three members of the Board of Directors, appointed from time to time, each of whom is affirmatively confirmed as independent by the Board of Directors, with such affirmation disclosed in the Corporation's annual Information Circular.

The Board will elect, by a majority vote, one member as chairperson.

The members of the Audit and Finance Committee will meet all independence and financial literacy requirements of The American Stock Exchange, The Toronto Stock Exchange, Rule 10A-3 of the Securities Exchange Act of 1934, as amended, Multilateral Instrument 52-110 and the requirements of such other securities exchange or quotations system or regulatory agency as may from time to time apply to the Corporation.


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A member of the Audit and Finance Committee may not, other than in his or her capacity as a member of the Audit and Finance Committee, the Board of Directors, or any other Board committee, accept any consulting, advisory, or other compensatory fee from the Corporation, and may not be an affiliated person of the Corporation or any subsidiary thereof.

RESPONSIBILITIES

The responsibilities of the Audit and Finance Committee shall be as follows:

Frequency of Meetings

Meet quarterly or more often as may be deemed necessary or appropriate in its judgment, either in person or telephonically.

The Audit and Finance Committee will meet with the independent auditor at least quarterly, either in person or telephonically.

Reporting Responsibilities

Provide to the Board of Directors proper Committee minutes.

Report Committee actions to the Board of Directors with such recommendations as the Committee may deem appropriate.

Charter Evaluation

Annually review and reassess the adequacy of this Charter and recommend any proposed changes to the Board of Directors for approval.

Whistleblower Mechanism

Adopt and review annually a procedure through which employees and others can anonymously inform the Audit and Finance Committee regarding any concerns about the Corporation's accounting, internal accounting controls or auditing matters. The procedure shall include responding to and the retention of, any such complaints.

Legal Responsibilities

Perform such functions as may be assigned by law, by the Corporation's certificate of incorporation, memorandum, articles or similar documents, or by the Board of Directors.


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INDEPENDENT AUDITOR

Nominations

NominateNominates annually the independent auditor to be proposed for shareholder approval.

Compensation and Evaluation

Approve the compensation of the independent auditor, evaluate the performance of the independent auditor and, if so determined by the Committee, replace the independent auditor.

Approval in Advance of Related Party Transactions

Pre-approval of all “related party transactions,” which are transactions or loans between the Corporation and a related party involving goods, services, or tangible or intangible assets that are (1) material to the Corporation or the related party, or (2) unusual in their nature or conditions. A related party includes an affiliate, major shareholder, officer, other key management personnel or director of the Corporation, a company controlled by any of those parties or a family member of any of those parties.


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Engagement Procedures for Audit and Non-audit Services

Approve in advance all audit services to be provided by the independent auditor. Establish policies and procedures that establish a requirement for approval in advance of the engagement of the independent auditor to provide permitted non-audit services and to prohibit the engagement of the independent auditor for any activities or services not permitted by any of the Canadian provincial securities commissions, the SEC or any securities exchange on which the Corporation's shares are traded including any of the following ten types of non-audit services:

Bookkeeping or other services related to accounting records or financial statements of the Corporation;

Financial information systems design and implementation consulting services;

Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;

Actuarial services;

Internal audit outsourcing services;

Any management or human resources function;

Broker, dealer, investment advisor, or investment banking services;

Legal services;

Expert services related to the auditing service;

and Any other service the Board of Directors determines is not permitted.

Hiring Practices

Ensure that no individual who is, or in the past 3 years has been, affiliated with or employed by a present or former auditor of the Corporation or an affiliate, is hired by the Corporation as a senior officer until at least 3 years after the end of either the affiliation or the auditing relationship.

Independence Test


52

Take reasonable steps to confirm the independence of the independent auditor, which shall annually include:

Ensuring receipt from the independent auditor of a formal written statement delineating all relationships between the independent auditor and the Corporation, consistent with the Independence Standards Board Standard No. 1 and related Canadian regulatory body standards;

Considering and discussing with the independent auditor any relationships or services provided to the Corporation, including non-audit services, that may impact the objectivity and independence of the independent auditor; and

As necessary, taking, or recommending that the Board of Directors take, appropriate action to oversee the independence of the independent auditor and evaluate whether it is appropriate to rotate the independent auditor on a regular basis.

Audit and Finance Committee Meetings

Notify the independent auditor of every Audit and Finance Committee meeting and permit the independent auditor to appear and speak at those meetings.


51

At the request of the independent auditor, convene a meeting of the Audit and Finance Committee to consider matters the auditor believes should be brought to the attention of the directors or shareholders.

Keep minutes of its meetings and report to the Board for approval of any actions taken or recommendations made.

Restrictions

Confirm with management and the independent auditor that no restrictions are placed on the scope of the auditors' review and examination of the Corporation's accounts.

OTHER PROFESSIONAL CONSULTING SERVICES

Engagement Review

As necessary, consider with management the rationale and selection criteria for engaging professional consulting services firms.

Ultimate authority and responsibility to select, evaluate and approve professional consulting services engagements.

AUDIT AND REVIEW PROCESS AND RESULTS

Scope

Consider, in consultation with the independent auditor, the audit scope, staffing and planning of the independent auditor.

Review Process and Results

Consider and review with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, as the same may be modified or supplemented from time to time.

Review and discuss with management and the independent auditor at the completion of annual and quarterly examinations:

The Corporation's audited and unaudited financial statements and related notes;


53

The Corporation's MD&A and news releases related to financial results;

The independent auditor's audit of the financial statements and its report thereon;

Any significant changes required in the independent auditor's audit plan;

The appropriateness of the presentation of any non-GAAP related financial information;

Any serious difficulties or disputes with management encountered during the course of the audit; and

Other matters related to the conduct of the audit, which are to be communicated to the Audit and Finance Committee under generally accepted auditing standards.

Review the management letter delivered by the independent auditor in connection with the audit.

Following such review and discussion, if so determined by the Committee, recommend to the Board that the annual financial statements be included in the Corporation's annual report.


52

Review, discuss with management and approve annual and interim quarterly financial statements prior to public disclosure. The chairperson of the Audit and Finance Committee may represent the entire Audit and Finance Committee for purposes of this review.

Review and discuss with management and the independent auditor the adequacy of the Corporation's internal accounting and financial controls that management and the Board of Directors have established and the effectiveness of those systems, and inquire of management and the independent auditor about significant financial risks or exposures and the steps management has taken to minimize such risks to the Corporation.

Meet separately with the independent auditor and management, as necessary or appropriate, to discuss any matters that the Audit and Finance Committee or any of these groups believe should be discussed privately with the Audit and Finance Committee.

Review and discuss with management and the independent auditor the accounting policies which may be viewed as critical, including all alternative treatments for financial information within generally accepted accounting principles that have been discussed with management, and review and discuss any significant changes in the accounting policies of the Corporation and industry accounting and regulatory financial reporting proposals that may have a significant impact on the Corporation's financial reports.

Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the Corporation's financial statements.

Review with management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Corporation's financial statements or accounting policies.

Review with the Corporation's General Counsel legal matters that may have a material impact on the financial statements, the Corporation's financial compliance policies and any material reports or inquiries received from regulators or governmental agencies related to financial matters.

SECURITIES REGULATORY FILINGS

Review filings with the Canadian provincial securities commissions and the SEC and other published documents containing the Corporation's financial statements.

Review, with management and the independent auditor, prior to filing with regulatory bodies, the interim quarterly financial reports (including related notes and MD&A) at the completion of any review


54

engagement or other examination. The chairperson of the Audit and Finance Committee may represent the entire Audit and Finance Committee for purposes of this review.

RISK ASSESSMENT

Meet periodically with management to review the Corporation's major financial risk exposures and the steps management has taken to monitor and control such exposures.

Assess risk areas and policies to manage risk including, without limitation, environmental risk, insurance coverage and other areas as determined by the Board of Directors from time to time.

Review and discuss with management, and approve changes to, the Corporation's Corporate Treasury Policy.

ADOPTION OF AUDIT AND FINANCE COMMITTEE CHARTER

This charter was originally adopted by the Board of Directors on August 23, 2004 and is reviewed and amended as necessary on an annual basis.


53Executive Compensation, Nominating and Corporate Governance Committee

The Executive Compensation, Nominating and Corporate Governance Committee is responsible for determining the compensation of executive officers of the Corporation. The current members of the Committee are Dr. Arnold Naimark (Chair), Gerald McDole, Peter Quick, and Kishore Kapoor, and David Banks, none of whom is a current or former executive officer of the Corporation. The Committee meets at least once a year.

The Committee has developed a policy to govern the Corporation's approach to corporate governance issues and provides a forum for concerns of individual directors about matters not easily or readily discussed in a full board meeting, e.g., the performance of management. The Committee ensures there is a clear definition and separation of the responsibilities of the Board, the Committees of the Board, the Chief Executive Officer and other management employees. It also ensures there is a process in place for the orientation and education of new directors and for continuing education of the Board. The Committee also assesses the effectiveness of the Board and its committees on an ongoing ad hoc basis. It also reviews at least annually the Corporation's responsiveness to environmental impact, health and safety and other regulatory standards.

The Committee reviews the objectives, performance and compensation of the Chief Executive Officer at least annually and makes recommendations to the Board for change. The Committee makes recommendations based upon the Chief Executive Officer’s suggestions regarding the salaries and incentive compensation for senior officers of the Corporation. The Committee also reviews significant changes to compensation, benefits and human resources policies and compliance with current human resource management practices, such as pay equity, performance review and staff development. The Committee is responsible for reviewing and recommending changes to the compensation of directors as necessary.

The charter of the Executive Compensation, Nominating and Corporate Governance Committee can be found on ourthe Corporation’s website at www.medicure.com.

D. Employees

In addition to the individuals disclosed in Section A. Directors and Senior Management of this item, CanAm and CDRI have a combined staffthe Corporation has 29 employees, of 39 research scientists, technicians and staffwhich 7 employees are dedicated solely to the Corporation’s research and development activities.

E. Share Ownership


55

With respect to the persons referred to above in Section B.B, Compensation, the following table discloses the number of shares (each share possessing identical voting rights), stock options held and percent of the shares outstanding held by those persons at May 31, 2006.2007.

Title of ClassIdentity of Person or GroupAmount OwnedPercentage of ClassIdentity of Person or GroupAmount OwnedPercentage of Class
  
Common sharesDr. Albert D. Friesen(1)7,662,099(1)7.98%Dr. Albert D. Friesen(1)7,216,699(1)5.54%
Common sharesDr. Arnold NaimarkNilNilDr. Arnold NaimarkNilNil
Common sharesGerald P. McDole10,0000.01%Gerald P. McDole10,0000.01%
Common sharesPeter QuickNilNilPeter QuickNilNil
Common sharesKishore KapoorNilNilKishore KapoorNilNil
Common sharesDerek G. Reimer29,5000.03%David Banks969,5650.74%
Common sharesMoray MerchantNilNilDerek G. Reimer124,5000.10%
Common sharesDawson Reimer199,7350.20%Dawson Reimer199,7350.15%
Common sharesJan-Ake WestinNilNil
Common sharesDr. Charles GluchowskiNilNil

1)

Dr. Albert Friesen holds 427,900432,500 shares personally or in an RRSP, a Canadian individual retirement plan. The rest of the shares are held by ADF Family Holding Corp., a private company wholly- owned by Dr. Friesen, his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited Partnership Fund (the “Fund”). Dr. Friesen is the CEO of the Fund.



54

Incentive Stock Options

The following table discloses the stock options beneficially held by the aforementioned persons, as of May 31, 2006.2008. The stock options are for shares of Common Stock of the Corporation.



Name of Person
Number of
Shares
Subject to
Issuance
Exercise
Price per
Share


Expiry Date
Number of
Shares
Subject to
Issuance
Exercise
Price per
Share


Expiry Date
Dr. Albert D. Friesen
100,000
150,000
$1.63
$1.65
January 5, 2009
December 6, 2015
100,000
150,000
150,000
$1.63
$1.65
$1.63
January 5, 2009
December 6, 2015
October 14, 2016
Dr. Arnold Naimark

100,000
50,000
35,000
$1.10
$1.10
$1.65
December 15, 2007
August 12, 2008
December 6, 2015
50,000
35,000
110,000
$1.10
$1.65
$0.98
August 12, 2008
December 6, 2015
December 11, 2017
Gerald P. McDole
100,000
75,000
$1.63
$1.65
January 16, 2009
December 6, 2015
100,000
75,000
10,000
$1.63
$1.65
$0.98
January 16, 2009
December 6, 2015
December 11, 2017
Peter Quick100,000$1.65December 6, 2015100,000
50,000
10,000
$1.65
$1.54
$0.98
December 6, 2015
January 16, 2017
December 11, 2017
Kishore KapoorNilN/AN/A100,000
50,000
$1.83
$0.94
August 18, 2016
October 18, 2017
David Banks100,000$0.98December 11, 2017
Derek G. Reimer

90,000
30,000
45,000
$0.80
$1.63
$1.65
February 4, 2007
January 5, 2009
December 6, 2015
30,000
45,000
190,000
$1.63
$1.65
$1.63
January 5, 2009
December 6, 2015
October 14, 2016
Moray Merchant

100,000
100,000
25,000
$1.65
$1.12
$1.65
September 22, 2008
August 23, 2009
December 6, 2015
Dawson Reimer

20,000
30,000
65,000
$1.10
$1.63
$1.65
August 12, 2008
January 5, 2009
December 6, 2015
20,000
30,000
65,000
100,000
$1.10
$1.63
$1.65
$1.63
August 12, 2008
January 5, 2009
December 6, 2015
October 14, 2016
Jan-Ake WestinNilN/AN/A
Dr. Charles GluchowskiNilN/AN/A

The Corporation has established an Incentive Stock Option Plan (the ‘‘Plan’’) for its directors, key officers, employees and consultants. Options granted pursuant to the Plan will not exceed a term of ten years and are granted at an option price and on other terms which the directors determine is necessary to achieve the goal of the Plan and in accordance with regulatory requirements, including those of the TSX. Each option entitles the holder thereof to purchase one (1) Common Share of the Corporation on the


56

terms set forth in the Plan and in such purchaser’s specific stock option agreement. The option price may be at a discount to market price, which discount will not, in any event, exceed that permitted by any stock exchange on which the Corporation’s Common Shares are listed for trading.

The number of Common Shares allocated to the Plan, the exercise period for the options (not to exceed five years), and the vesting provisions for the options will be determined by the board of directors of the Corporation from time to time. The aggregate number of shares reserved for issuance under the Plan, together with any other employee stock option plans, options for services and employee stock purchase plans, will not exceed 7,200,000 of the issued and outstanding Common Shares. In addition, the aggregate number of shares reserved for issuance to any one person shall not exceed five percent (5%)10% of the issued and outstanding Common Shares.

The Common Shares issued pursuant to the exercise of options, when fully paid for by a participant, are not included in the calculation of Common Shares allocated to or within the Plan. Should a participant cease to be eligible due to the loss of corporate office (being that of an officer or director) or employment, the option shall cease for varying periods not exceeding 90 days. Loss of eligibility for consultants is regulated by specific rules imposed by the directors when the option is granted to the appropriate consultant. The Plan also provides that estates of deceased participants can exercise their options for a period not exceeding one year following death.


55

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of May 31, 2006,2008, the following table sets forth the beneficial ownership of the Corporation's common shares by each person known by the Corporation to own beneficially more than 5% of the issued and outstanding common shares of the Corporation. Information as to shares beneficially owned, directly or indirectly, by each nominee or over which each nominee exercises control or direction, not being within the knowledge of the Corporation, has been furnished by the respective nominees individually. CDS & Company, Toronto, Ontario is a brokerage clearing house that owns 74,214,997 (77.3%76,489,537 (58.7%) of common shares of the Corporation on behalf of beneficial owners. The Corporation does not know the majority of the ultimate beneficial owners of these common shares.

Title of ClassIdentity of Person or GroupAmount OwnedPercentage of Class
    
Common sharesDr. Albert D. Friesen(2)7,216,699(1)5.54%
 Winnipeg, Manitoba  
Common sharesDr. Lars Hoie20,018,23015.36%
 London, England  

Title of ClassNotes:Identity of Person or GroupAmount OwnedPercentage of Class

Common shares
Dr. Albert D. Friesen(2)
Winnipeg, Manitoba
7,662,099(1)
7.98%

Notes:

(1)

Amount of shares as of May 31, 2006.2008.

(2)

Dr. Albert Friesen holds 427,900432,500 shares personally or in an RRSP. The rest of the shares are held by ADF Family Holding Corp., a private company wholly-owned by Dr. Friesen, his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited Partnership Fund (the “Fund”). Dr. Friesen is the CEO of the Fund.

As of July 19, 2006,24, 2008, there were 1,1707,351 shareholders of record worldwide. As of this date there were 1,716 shareholders of record in the United States holding a total of 14,964,84029,803,667 common shares of the Corporation.

To the best of the Corporation's knowledge, it is not owned or controlled, directly or indirectly, by another company, by any foreign government or by any other natural or legal person severally or jointly.

As of May 31, 2006,2008, the total number of issued and outstanding common shares of the Corporation beneficially owned by the directors and executive officers of the Corporation as a group was 7,901,3348,520,499 (or 8.23%6.54% of common shares).


57

To the best of the Corporation's knowledge, there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Corporation.

The major shareholders do not have any special voting rights.

B. Related Party Transactions

Other than as set forth below, management of the Corporation is not aware of any material interest, direct or indirect, of any director or officer of the Corporation, any person beneficially owning, directly or indirectly, more than 10% of the Corporation’s voting securities, or any associate or affiliate of any such person in any transaction within the last three years or in any proposed transaction which in either case has materially affected or will materially affect the Corporation or its subsidiaries.

On October 1, 2001, a two-year consulting contract was entered into with A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen. This agreement, which was subsequently amended on February 1, 2002, paid A.D. Friesen Enterprises Ltd. an annual salary of $150,000 payable in monthly installments.instalments. On October 1, 2003 a new two year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $175,000. On October 1, 2005, a one-year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $200,000. On October 1, 2006, a two-year consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $250,000. On October 1, 2007, a consulting contract was entered into with A.D. Friesen Enterprises Ltd. for an annual salary of $275,000. The consulting contract expires on December 31, 2008. This salary is reviewed annually by the Board. Dr. Friesen is also eligible for grants of incentive stock options and bonuses, if certain objectives between the Board and Dr. Friesen are met, as determined by the Board. During the year ended May 31, 2008, the Corporation paid a total of $272,250 to A.D. Friesen Enterprises Ltd. During the year ended May 31, 2007, the Corporation paid a total of $289,333 to A.D. Friesen Enterprises Ltd. For the year ended May 31, 2006, the Corporation paid a total of $191,667 to A.D. Friesen Enterprises Ltd. During the year ended May 31, 2005, the Corporation paid a total of $175,000 to A.D. Friesen Enterprises Ltd. For the year ended May 31, 2004, the Corporation paid a total of $166,667 to A.D. Friesen Enterprises Ltd.


56

Dr. Friesen, a director, the Chairman, the President and the Chief Executive Officer of the Corporation also owns a leasing company, Waverley Business and Science Centre Inc. which entered into a lease with the Corporation as of March 1, 2002. The lease agreement was subsequently amended on March 15, 2005. Pursuant to this agreement, the Corporation leases approximately 4,000 square feet of office space from Waverley Business and Science Centre Inc. for minimum annual rental payments of $44,264, with additional overhead payable under the lease dependant on usage. During fiscal 2006, $25,7632008, $32,004 was paid in excess of minimum rental payments for overhead costs. The agreement is for a five year term, expiring on February 28, 2007.

Dr. Naranjan Dhalla, the Chief Scientific Officer of the Corporation, is the principal scientist responsible for discovering the cardiovascular benefits of MC-1. He is also a significant shareholder of the Corporation. As an employee of the University of Manitoba he will receive 25% of any royalties the university may receive in respect to the License Agreement. In addition, Dr. Dhalla entered into a consulting agreement with the Corporation effective January 18, 1998 wherein Dr. Dhalla agreed to perform certain consulting services to the Corporation and which contract remains in effect as at the date hereof. The Corporation is currently paying Dr. Dhalla $40,000 per annum for these services through a contract with CanAm Bioresearch Inc.

C. Interests of Experts and Counsel

Not applicable

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements or Other Financial Information

Financial Statements


Attached58

Included in Item 17 hereto are the consolidated financial statements of the Corporation for the years ended May 31, 2006, 20052008, 2007 and 2004.2006. The consolidated financial statements including related notes are accompanied by the report of ourthe Corporation’s independent registered public accounting firm, KPMG LLP.

Legal Proceedings

There are no legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Corporation’s financial position or profitability. There are no legal proceedings to which the Corporation is a party, nor to the best of the knowledge of the Corporation’s management are any legal proceedings contemplated.

Dividend Policy

The Corporation has not paid dividends in the past and it has no present intention of paying dividends on its shares as it anticipates that all available funds will be invested to finance the growth of its business. The directors of the Corporation will determine if and when dividends should be declared and paid in the future based upon the Corporation’s financial position at the relevant time. All of the Corporation’s Shares are entitled to an equal share of any dividends declared and paid.

B. Significant Changes

Since May 31, 2006, the date of the most recent financial statements, no significant changes have occurred with the exception of the following:

In August 2006, the Corporation acquired the rights to Aggrastat® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, Virgin Islands, and Guam) for total cash consideration of US$19 million plus inventory from MGI Pharma Inc. Aggrastat®, a glycoprotein (GP) IIb/IIIa inhibitor, is used for the treatment of acute coronary syndrome (ACS) including unstable angina and non-Q-wave myocardial infarction. To finance the acquisition, the Corporation entered into Credit Facility totaling


57

US$15.84 million with a syndicate of lenders, led by Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., and including Silicon Valley Bank and Oxford Finance Corporation. The term of the Credit Facility is over 42 months, with interest due and payable at commencement of the loan payable on the first day of the month at one-month LIBOR plus 6.5 percent per annum. Commencing in June 2007, principal is payable monthly on a straight-line amortization schedule over 33 consecutive monthly installments. The Credit Facility is secured by a security interest in all existing and after-acquired assets of the Corporation including intellectual property.

ITEM 9. THE OFFERING AND LISTING

A. Offer and Listing Details

The Corporation's common shares are listed and traded on The Toronto Stock Exchange (“TSX”) under the symbol “MPH” and The American Stock Exchange (“Amex”) under the symbol “MCU”. On June 18, 2008, the Corporation announced its intention to file a Form 25 with the Securities and Exchange Commission in order to voluntarily delist its common shares from the Amex. The Corporation’s shares ceased trading on the Amex effective July 3, 2008. The historical trading data for the common shares of the Corporation on the above-mentioned exchanges is set out below.

 TSXTSXAmex (1)Amex (1)
Fiscal Period/Year EndedHigh ($)Low ($)HighLow
   ($US)($US)
May 31, 20062.370.832.070.66
May 31, 20051.870.651.370.57
     
Fiscal Quarter Ended    
May 31, 20062.371.522.071.41
February 28, 20061.851.321.701.15
November 30, 20051.440.851.170.72
August 31, 20051.200.830.950.66
May 31, 20051.200.650.950.57
February 28, 20051.090.780.890.62
November 30, 20041.240.801.000.65
August 31, 20041.821.101.370.85
May 31, 20042.731.422.061.10
February 29, 20042.851.192.141.60
November 30, 20031.841.20N/AN/A
August 31, 20031.390.73N/AN/A
     
     
Month    
June 20061.791.271.601.20
May 20062.061.521.871.41
April 20062.191.761.911.55
March 20062.371.702.071.47
February 20061.791.541.571.34
January 20061.831.401.581.20
  TSXTSXAmex (1)Amex (1)
 Fiscal Period/Year EndedHigh ($)Low ($)HighLow
    ($US)($US)
 May 31, 20081.700.061.640.05
 May 31, 20071.881.101.700.91
 May 31, 20062.370.832.070.66
 May 31, 20051.870.651.370.57
 May 31, 20042.850.732.141.10

 Fiscal Quarter Ended    
      
 May 31, 20080.120.060.120.05
 February 29, 20081.050.101.110.08
 November 30, 20071.320.701.230.70
 August 31, 20071.701.121.641.05
 May 31, 20071.551.131.370.97
 February 28, 20071.641.101.430.91
 November 30, 20061.881.371.701.21
 August 31, 20061.881.271.701.20


Note:59

 Month    
      
 July 20080.040.03(2)(2)
 June 20080.060.040.090.03
 May 20080.090.060.080.06
 April 20080.120.070.120.06
 March 20080.100.060.110.05
 February 20081.020.101.040.08

Note:
(1)

The Corporation commenced trading on the American Stock Exchange on February 17, 2004.

(2)

The Corporation ceased trading on the American Stock Exchange on July 3, 2008.

B.C. Markets

The Corporation's common shares were listed on The Canadian Venture Exchange under the symbol “MPH”, from November 29, 1999 to March 14, 2002. The common shares and Class A common shares commenced trading on the Toronto Stock Exchange on March 15, 2002 and on the American Stock Exchange on February 17, 2004. On March 1, 2003 allJune 18, 2008, the Corporation announced its intention to file a Form 25 with the Securities and Exchange Commission in order to voluntarily delist its common shares from the Amex. The Corporation’s shares ceased trading on the Amex effective July 3, 2008.

Amex Corporate Governance

Section 110 of the Amex company guide permits Amex to consider the laws, customs and practices of foreign issuers in relaxing certain Amex listing criteria, and to grant exemptions from Amex listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Corporation’s governance practices differ from those followed by domestic companies pursuant to Amex standards is as follows:

Quorum Requirement: Section 123 of the Amex company guide requires that the quorum for meeting of shareholders of a listed company be not less than 33 1/3% of the issued and outstanding Classshares entitled to vote at a meeting of shareholders. The Corporation’s quorum requirement is specified in its By-laws. A common


58

shares – totalling 1,280,000 shares – were converted into common sharesquorum for a meeting of members of the Corporation onis one person present or represented by proxy and holding in all not less than 5% of the basisissued capital of one common share for each Class A common shares in accordancethe Corporation carrying voting rights.

The foregoing is consistent with the Corporation’s Articles of Continuance. The Class A common shares were identicallaws, customs and practices in all respects to the common shares, except that the holders were eligible for the Manitoba Equity Tax Credit until February 28, 2003.Canada.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable

B. Memorandum and Articles of Association

1. Objects and Purposes of the Corporation

The Memorandum of the Corporation places no restrictions upon the Corporation’s objects and purposes.

2. Directors

Under applicable Canadian law, the directors and officers of the Corporation, in exercising their powers and discharging their duties, must act honestly and in good faith with a view to the best interests of the Corporation. The directors and officers must also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.


60

Section 4.14 of By-Law No.1 of the Corporation (the “By-Law”) provides that a director shall not be disqualified by reason of his office from contracting with the Corporation or a subsidiary thereof. Subject to the provisions of theCanada Business Corporations Act(the “Act”), a director shall not by reason only of his office be accountable to the Corporation or its shareholders for any profit or gain realized from a contract or transaction in which he has an interest. Such contract or transaction shall not be voidable by reason only of such interest, or by reason only of the presence of a director so interested at a meeting, or by reason only of his presence being counted in determining a quorum at a meeting of the directors at which such a contract or transaction is approved, provided that a declaration and disclosure of such interest shall have been made at the time and in the manner prescribed by section 120 of the Act, and the director so interested shall have refrained from voting as a director on the resolution approving the contract or transaction (except as permitted by the Act) and such contract shall have been reasonable and fair to the Corporation and shall have been approved by the directors or shareholders of the Corporation as required by section 120 of the Act.

Section 4.01 of the By-Law states that the exact number of directors to form the board shall be determined from time to time by the directors of the Corporation entitled to vote at regular meetings. A quorum of the board shall be a majority of the board. No business shall be transacted at a meeting unless a quorum is present.

Section 3.01 of the By-Law states that the board may, without the authorization of the shareholders:

i)

borrow money upon the credit of the Corporation;

ii)

issue, reissue, sell or pledge debt obligations of the Corporation, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured;

iii)

subject to section 44 of the Act, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and

iv)

i) borrow money upon the credit of the Corporation;
ii) issue, reissue, sell or pledge debt obligations of the Corporation, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured;
iii) subject to section 44 of the Act, give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and
iv) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation.

The borrowing powers of the directors can be varied by amending the By-Law of the Corporation.

There is no provision in the By-Law imposing a requirement for retirement or non-retirement of directors under an age limit requirement.


59

Section 4.02 states that a director need not be a shareholder to be qualified as a director.

3. Shares

The Articles of the Corporation provide that the Corporation is authorized to issue an unlimited number of shares designated as Common Shares, Class A Common Shares and Preferred Shares. Except for meetings at which only holders of another specified class or series of shares of the Corporation are entitled to vote separately as a class or series, each holder of the Common and Class A shares is entitled to receive notice of, to attend and to vote at all meetings of the shareholders of the Corporation. Subject to the rights, privileges, restrictions and conditions attached to any other class of shares of the Corporation, the holders of the Common and Class A shares are also entitled to receive dividends if, as and when declared by the directors of the Corporation and are entitled to share equally in the remaining property of the Corporation upon liquidation, dissolution or winding-up of the Corporation.

The Preferred Shares may from time to time be issued in one or more series and, subject to the following provisions, and subject to the sending of articles of amendment in respect thereof, the directors may fix from time to time and before issue a series of Preferred Shares, the number of shares which are to comprise that series and the designation, rights, privileges, restrictions and conditions to be attached to that series of Preferred Shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion, and any sinking fund or other provisions.


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The Preferred Shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, rank on a parity with the Preferred Shares of every other series and be entitled to preference over the Common and Class A Common Shares and over any other shares of the Corporation ranking junior to the Preferred Shares. The Preferred Shares of any series may also be given other preferences, not inconsistent with these articles, over the Common Shares and Class A Common Shares and any other shares of the Corporation ranking junior to the Preferred Shares of a series as may be fixed in accordance with terms outlined above.

If any cumulative dividends or amounts payable on the return of capital in respect of a series of Preferred Shares are not paid in full, all series of Preferred Shares shall participate rateably in respect of accumulated dividends and return of capital.

Unless the directors otherwise determine in the articles of amendment designating a series of Preferred Shares, the holder of each share or a series of Preferred Shares shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided in the Act.

4. Rights of Shareholders

Under the Act, shareholders of the Corporation are entitled to examine, during its usual business hours, the Corporation’s articles and by-laws, notices of directors and change of directors, any unanimous shareholder agreements, the minutes of meetings and resolutions of shareholders and the list of shareholders.

Shareholders of the Corporation may obtain a list of shareholders upon payment of a reasonable fee and sending an affidavit to the Corporation or its transfer agent stating, among other things, that the list of shareholders will not be used by any person except in connection with an effort to influence the voting of shareholders of the Corporation, an offer to acquire shares of the Corporation or any other matter relating to the affairs of the Corporation.

Under the Act, shareholders of the Corporation may apply to a court having jurisdiction directing an investigation to be made of the Corporation. If it appears to the court that the formation, business or affairs of the Corporation were conducted for fraudulent or unlawful purposes, or that the powers of the directors were exercised in a manner that is oppressive or unfairly disregards the interests of the shareholders, the court may order an investigation to be made of the Corporation.


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To change the rights of holders of stock, where such rights are attached to an issued class or series of shares, requires the consent by a separate resolution of the holders of the class or series of shares, as the case may be, requiring a majority of 75%two-thirds of the votes cast.

The Corporation is organized under the laws of Canada. The Corporation’s directors, officers, and affiliates of the Corporation, as well as the experts named in this registration statement, are residents of Canada and, to the best of the Corporation’s knowledge, all or a substantial portion of their assets and all of the Corporation’s assets are located outside of the United States. As a result, it may be difficult for shareholders of the Corporation in the United States to effect service of process on the Corporation or these persons above within the United States, or to realize in the United States upon judgments rendered against the Corporation or such persons. Additionally, a shareholder of the Corporation should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against the Corporation or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Corporation or such persons predicated upon the U.S. federal securities laws or other laws of the United States.

Laws in the United States and judgments of U.S. courts would generally be enforced by a court of Canada unless such laws or judgments are contrary to public policy in Canada, are or arise from foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and are not in


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compliance with applicable laws in Canada regarding the limitation of actions. Further, a judgment obtained in a U.S. court would generally be recognized by a court of Canada, except under the following examples:

i)

the judgment was rendered in a U.S. court that had no jurisdiction according to applicable laws in Canada;

ii)

the judgment was subject to ordinary remedy (appeal, judicial review and any other judicial proceeding which renders the judgment not final, conclusive or enforceable under the laws of the applicable state) or not final, conclusive or enforceable under the laws of the applicable state;

iii)

the judgment was obtained by fraud or in any manner contrary to natural justice or rendered in contravention of fundamental principles of procedure; and

iv)

a dispute between the same parties, based on the same subject matter has given rise to a judgment rendered in a court of Canada or has been decided in a third country and the judgment meets the necessary conditions for recognition in a court of Canada.

5. Meetings

Subject to the provisions of the Act, the annual general meeting of the shareholders shall be on such date in each year as the board of directors may determine, and a special meeting of the shareholders may be convened at any time by order of the President or by the board on their own motion or on the requisition of shareholders as provided for in the Act. Notice of the time and place of each meeting of shareholders shall be given not less than 21 days nor more than 5060 days before the date of the meeting to each director and shareholder. A meeting of shareholders may be held without notice at any time and at any place provided a waiver of notice is obtained in accordance with section 136 of the Act. The quorum for the transaction of business at meetings of the shareholders shall consist of not less than one (1) shareholder present or represented by proxy and holding in all not less than five (5%) percent of the issued capital of the Corporation carrying voting rights. At any meeting of shareholders, every person shall be entitled to vote who, at the time of the taking of a vote (or, if there is a record date for voting, at the close of business on such record date) is entered in the register of shareholders as the holder of one or more shares carrying the right to vote at such meeting, subject to the provisions of the Act.

6. Ownership of Securities

There are no limitations on the right to own securities, imposed by foreign law or by the By-Law or other constituent document of the Corporation.


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7. Change in Control of Corporation

No provision of the Corporation’s articles of association, charter or By-Law would have the effect of delaying, deferring, or preventing a change in control of the Corporation, and operate only with respect to a merger, acquisition or corporate restructuring of the Corporation or any of its subsidiaries. The Corporation does have a shareholder rights plan as outlined in Item 3.D – Risk Factors.

8. Ownership Threshold

The Manitoba and OntarioSecurities Acts provide that a person that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of, and control or direction over, securities of the issuer carrying more than 10% of the voting rights attached to all the issuer's outstanding voting securities must, within 10 days of becoming an "insider", file an insider report in the required form effective the date on which the person became an insider, disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. The Manitoba and OntarioSecurities Acts also provide for the filing of a report by an "insider" of a reporting issuer who acquires or transfers securities of the issuer. This insider report must be filed within 10 days after the change takes place.

The U.S. rules governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the Exchange Act imposes reporting


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requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.

C. Material Contracts

The following are the material contracts of the Corporation, other than those mentioned elsewhere in this Form, to which the Corporation or any member of the group is a party, for the two years immediately preceding publication of this registration statement.

 a)

Development Agreement between Medicure International Inc. and Clinical Development Research Institute Inc. (CDRI) dated July 2, 2004, wherein CDRI agreed to conduct research and development activities for Medicure International.

b)

Amendment to Employment Agreement dated April 5, 2005October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Corporation.

 c)b)

Amendment to Employment Agreement dated April 5, 2005 between Moray Merchant and the Corporation.Amended Stock Option Plan approved October 2, 2007.

 d)

Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Corporation.

e)

Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Corporation.

f)

Amendment dated July 8, 2005 to the Development Agreement between Medicure International Inc. and CanAm Bioresearch Inc.

g)c)

Amendment to Employment Agreement dated October 1, 20052007 between A.D. Friesen Enterprises Ltd. and the Corporation.

 h)d)

Amendment to Development AgreementDebt financing agreement between Birmingham Associates Ltd. and the Corporation dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International Inc. dated July 4, 2006.September 17, 2007.

 i)e)

Amendment to DevelopmentEmployment Agreement with Dwayne Henley dated July 2, 2004 between Medicure International Inc. and Clinical Development Research Institute Inc. dated July 4, 2006.

j)

Amended Stock Option Plan approved October 25, 2005.June 10, 2008

D. Exchange Controls

There is no law or government decree of regulation in Canada that restricts the export or import of capital, or that affects the remittance of dividends, interest or other payments to a non-resident holder of Common


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Shares, other than withholding tax requirements. See "Item 7 Taxation."

There is no limitation imposed by Canadian law or by the articles or other charter documents of the Corporation on the right of a non-resident to hold or vote the Common Shares or the Class A common shares of the Corporation, other than as provided in the Investment Canada Act, as amended (the "Investment Act").

The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is a "non-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. If an investment by a non-Canadian is not a reviewable investment, it nevertheless requires the filing of a short notice which may be given at any time up to 30 days after the implementation of the investment.

An investment in Common Shares of the Corporation by a non-Canadian that is a "WTO investor" (an individual or other entity that is a national of, or has the right of permanent residence in, a member of the World Trade Organization, current members of which include the European Community, Germany, Japan, Mexico, the United Kingdom and the United States, or a WTO investor-controlled entity, as defined in the Investment Act) would be reviewable under the Investment Act if it were an investment to acquire direct control, through a purchase of assets or voting interests, of the Corporation and the value of the assets of the Corporation equalled or exceeded $184 million, the threshold established for 1999, as indicated on the financial statements of the Corporation for its fiscal year immediately preceding the implementation of the investment. In subsequent years, such threshold amount may be increased or decreased in accordance with the provisions of the Investment Act.

An investment in Common Shares of the Corporation by a non-Canadian, other than a WTO investor, would be reviewable under the Investment Act if it were an investment to acquire direct control of the Corporation and the value of the assets were $5.0 million or more, as indicated on the financial statements of the Corporation for its fiscal year immediately preceding the implementation of the investment.


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A non-Canadian, whether a WTO investor or otherwise, would acquire control of the Corporation for the purposes of the Investment Act if he, she or it acquired a majority of the Common Shares of the Corporation or acquired all or substantially all of the assets used in conjunction with the Corporation's business. The acquisition of less than a majority, but one-third or more of the Common Shares of the Corporation, would be presumed to be an acquisition of control of the Corporation unless it could be established that the Corporation was not controlled in fact by the acquirer through the ownership of the Common Shares.

The Investment Act would not apply to certain transactions in relation to Common Shares of the Corporation, including:

 (a)

an acquisition of Common Shares of the Corporation by any person 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 Corporation in connection with the realization of security 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 Corporation by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Corporation, through the ownership of voting interests, remains unchanged.



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E. Taxation

U.S. Federal Income Tax Consequences

The following is a summary of certainthe anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares of (“Common Shares acquired pursuant to this prospectus.Shares”).

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS,Internal Revenue Service (the “IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this prospectus.Annual Report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.

U.S. Holders


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For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S., or any state in the U.S., orincluding the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.

Non-U.S. Holders

For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax


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consequences (including the potential application of and operation of any income tax treaties) of the acquisition, ownership, and disposition of Common Shares.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code; (i) U.S. Holders who are U.S. expatriates or (i)former long-term residents of the United States.; or (j) U.S. Holders that own (directly, indirectly, or constructively)by attribution) 10% or more of the total combined voting power of all classes ofthe outstanding shares of the Corporation entitled to vote.Corporation. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisorsfinancial advisor, legal counsel or accountant regarding the U.S. federal income, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners.partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own tax advisorsfinancial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed

This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Consequences” above).


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U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares

Distributions on Common Shares

General Taxation of Distributions

Subject to the “passive foreign investment company” rules discussed below, aA U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Corporation. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Corporation, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).


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Reduced Tax Rates for Certain Dividends

For taxable years beginning before January 1, 2009,2011, a dividend paid by the Corporation generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Corporation is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date.”

The Corporation generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the Corporation is incorporated in a possession of the U.S., (b) the Corporation is eligible for the benefits of the Canada-U.S. Tax Convention, or (c)(b) the Common Shares are readily tradable on an established securities market in the U.S. However, even if the Corporation satisfies one or more of such requirements, the Corporation will not be treated as a QFC if the Corporation is a “passive foreign investment company” (as defined below) for the taxable year during which the Corporation pays a dividend or for the preceding taxable year. In 2003,

As discussed below, the U.S. Department of the Treasury (the “Treasury”) and the IRS announced that they intended to issue Treasury Regulations providing procedures for a foreign corporation to certifyCorporation does not believe that it is a QFC. Although these Treasury Regulations have not yet been issued, the Treasury and the IRS have confirmed their intention to issue these Treasury Regulations. It is expected that these Treasury Regulations will obligate persons required to file information returns to report a dividend paid by a foreign corporation as a dividend from a QFC if the foreign corporation has, among other things, certified under penalties of perjury that the foreign corporation was not a “passive foreign investment company” for the taxable year during which the foreign corporation paid the dividend or for the preceding taxable year.

As discussed below, the Corporation expectsended May 31, 2008, and does not expect that it will be a “passive foreign investment company” for its currentthe taxable year andending May 31, 2009. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). However, there can be no assurance that the IRS will not challenge the determination made by the Corporation expectsconcerning its “passive foreign investment company” status or that itthe Corporation will not be a “passive foreign investment company” for onethe current taxable year or moreany subsequent taxable years. (See “Additional Rules that May Apply to U.S. Holders—Passive Foreign Investment Corporation” below).year. Accordingly, although the Corporation does not expect toexpects that it may be a QFC for its currentthe taxable year andending May 31, 2009, there can be no assurances that the IRS will not challenge the determination made by the Corporation may notconcerning its QFC status, that the Corporation will be a QFC for the taxable year ending May 31, 2009 or any subsequent taxable years.year, or that the Corporation will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.

If the Corporation is not a QFC, a dividend paid by the Corporation to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the dividend rules.

Distributions Paid in Foreign Currency

The amount of a distribution received on the Common Sharespaid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or


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loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).

Dividends Received Deduction

Dividends receivedpaid on the Common Shares generally will not be eligible for the “dividends received deduction”.deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this summary,discussion, and a U.S. Holder that is a corporation should consult its own taxfinancial advisor, legal counsel, or accountant regarding the dividends received deduction.

Disposition of Common Shares

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any


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property received and (b) such U.S. Holder’s adjusted tax basis in the Common Shares sold or otherwise disposed of. Subject to the “passive foreign investment company” rules discussed below, anyAny such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules unless the gain is subject to tax in Canada and resourced as “foreign source” under the U.S.-Canada Tax Convention and the U.S. Holder elects to treat such gain as “foreign source”.

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

The amount realized on a sale or other disposition of Common Shares for an amount in foreign currency will generally be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date.

Foreign Tax Credit

A U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends receivedpaid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a taxable year.

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income (including “passive income,” “high withholding tax interest,” “financial services income,” “general income,” and certain other categories of income). Gain or loss recognizedincome. Dividends paid by a U.S. Holder on the sale or other taxable disposition of Common SharesCorporation generally will be treated as “U.S.constitute “foreign source” for purposes of applying the foreign tax credit rules. Dividends received on the Common Shares generally will be treated as “foreign source”income and generally will be categorized as “passive income” or, in the case of certain U.S. Holders, “financial services income” for purposes of applying the foreign tax credit rules. However, for taxable years beginning after December 31, 2006, the foreign tax credit limitation categories are reduced to “passive category income” and “general category income” (and the other categories of income, including “financial services income,income. are eliminated). The foreign tax credit rules are complex, and each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the foreign tax credit rules.

Information Reporting; Backup Withholding Tax

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, or proceeds arising from the sale or other taxable disposition of, Common Shares generally will be subject to


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information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS. Each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.

Additional Rules that May Apply to U.S. Holders

If the Corporation is a “passive foreign investment company” (as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to a U.S. HolderHolders of the acquisition, ownership, and disposition of Common Shares.


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Passive Foreign Investment Company

The Corporation generally will be a “passive foreign investment company” under Section 1297(a)1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of the gross income of the Corporation for such taxable year is passive income or (b) on average, 50% or more of the assets held by the Corporation either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if the Corporation is not publicly traded and either is a “controlled foreign corporation” or makes an election). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

For purposes of the PFIC income test and asset test described above, if the Corporation owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, the Corporation will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Corporation from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

TheIn addition, if the Corporation expectsis a PFIC and owns shares of another foreign corporation that italso is a PFIC, under certain indirect ownership rules, a disposition of the shares of such other foreign corporation or a distribution received from such other foreign corporation generally will be treated as an indirect disposition by a PFIC for its current taxable year, andU.S. Holder or an indirect distribution received by a U.S. Holder, subject to the Corporation expectsrules of Section 1291 of the Code discussed below. To the extent that it will be a PFIC for one or more subsequent taxable years. The determination of whether the Corporation will be a PFIC for a taxable year depends, in part,gain recognized on the applicationactual disposition by a U.S. Holder of complexCommon shares or income recognized by a U.S. Holder on an actual distribution received on Common Shares was previously subject to U.S. federal income tax under these indirect ownership rules, which aresuch amount generally should not be subject to various interpretations. In addition, whether the Corporation will be a PFIC for its current taxable and each subsequent taxable year depends on the assets andU.S. federal income of the Corporation over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this prospectus. Accordingly, there can be no assurance that the IRS will not challenge the determination made by the Corporation concerning its PFIC status or that the Corporation will not be a PFIC for any taxable year.

Default PFIC Rules Under Section 1291 of the Codetax.

If the Corporation is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Corporation as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”


A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Common Shares and (b) any excess distribution received on the Common Shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current taxable year) exceeds 125% of the average distributions received during the three preceding taxable years (or during a U.S. Holder’s holding period for the Common Shares, if shorter).69

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any excess distribution received“excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Shares (other than years prior to the first taxable year of the Corporation beginning after December 31, 1986 for which the Corporation was not a PFIC)generally will be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such prior year. A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year. Such a Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible. The amount of any such gain or excess distribution allocated to the current year of such Non-Electing U.S. Holder’s


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holding period for the Common Shares will be treated as ordinary income in the current year, and no interest charge will be incurred with respect to the resulting tax liability for the current year.

If the Corporation is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Common Shares, the Corporation will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Corporation ceases to be a PFIC in one or more subsequent taxable years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold on the last day of the last taxable year for which the Corporation was a PFIC.

QEF Election

The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election generally will be “timely” if it is made for the first year in a U.S. Holder’s holding period for the Common Shares in which the Corporation is a PFIC. In this case, a U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents with such U.S. Holder’s U.S. federal income tax return for such first year. However, if the Corporation was a PFIC in a prior year in a U.S. Holder’s holding period for the Common Shares, then in order to be treated as making a “timely” QEF Election, such U.S. Holder must elect to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if the Common Shares were sold on the qualification date for an amount equal to the fair market value of the Common Shares on the qualification date. The “qualification date” is the first day of the first taxable year in which the Corporation was a QEF with respect to such U.S. Holder. In addition, under very limited circumstances, a U.S. Holder may make a retroactive QEF Election if such U.S. Holder failed to file the QEF Election documents in a timely manner.

A QEF Election will apply to the taxable year for which such QEF Election is made and to all subsequent taxable years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent taxable year, the Corporation ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those taxable years in which the Corporation is not a PFIC. Accordingly, if the Corporation becomes a PFIC in another subsequent taxable year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any such subsequent taxable year in which the Corporation qualifies as a PFIC. In addition, the QEF Election will remain in effect (although it will not be applicable) with respect to a U.S. Holder even after such U.S. Holder disposes of all of such U.S. Holder’s direct and indirect interest in the Common Shares. Accordingly, if such U.S. Holder reacquires an interest in the Corporation, such U.S. Holder will be subject to the QEF rules described above for each taxable year in which the Corporation is a PFIC.

A U.S. Holder that makes a timely QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. For example, a U.S. Holder that makes a timely QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.

However, for each taxable year in which the Corporation is a PFIC, a U.S. Holder that makes a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net“net capital gaingain” of the Corporation, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the ordinary earnings“ordinary earnings” of the Corporation, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Corporation is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Corporation. However, a U.S. Holder that makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.

A U.S. Holder that makes a QEF Election generally (a) may receive a tax-free distribution from the Corporation to the extent that such distribution represents “earnings and profits” of the Corporation that


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were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election.

The Corporation currently intends to provide, for each taxable year that the Corporation is a PFIC, each U.S. Holder that has made a QEF Election with (a) a “PFIC Annual Information Statement” as described in Treasury Regulation Section 1.1295 -1(g) and (b) all additional information that such U.S. Holder is required to obtain in connection with maintaining such QEF Election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.

Mark-to-Market Election

A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. The Common Shares generally will be “marketable stock” if the Common Shares are regularly traded on a qualified exchange or other market. For this purpose, a “qualified exchange or other market” includes (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934 (the “Exchange Act”), or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, surveillance, and other requirements designed to prevent fraudulent and manipulative acts and practices, remove impediments to and perfect the mechanism of a free, open, fair, and orderly market, and protect investors (and the laws of the country in which the foreign exchange is located and the rules of the foreign exchange ensure that such requirements are actually enforced) and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If the Common Shares are traded on such a qualified exchange or other market, the Common Shares generally will be “regularly traded” for any calendar year during which the Common Shares are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.

A Mark-to-Market Election applies to the taxable year in which such Mark-to-Market Election is made and to each subsequent taxable year, unless the Common Shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.

A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, if aA U.S. Holder makesmay make a Mark-to-Market Election after the beginning of such U.S. Holder’s holding period foronly if the Common Shares and such U.S. Holder has not made a timely QEF Election, the rules ofare “marketable stock” (as defined in Section 12911296(e) of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares.

Code). A U.S. Holder that makes a Mark-to-Market Election will include in ordinarygross income, for each taxable year in which the Corporation is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s adjusted tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the lesser of (a) the excess, if any, of (i)(a) such U.S. Holder’s adjusted tax basis in the Common Shares over (ii)(b) the fair market value of such Common Shares as of the close of such taxable year.

The Corporation does not believe that it was a PFIC for the taxable year ended May 31, 2008, and, based on current operations and financial projections, does not expect that it will be a PFIC for the taxable year ending May 31, 2009. The determination of whether the Corporation was, or (b)will be, a PFIC for a taxable year depends, in part, on the excess, if any,application of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years.

A U.S. Holder that makes a Mark-to-Market Election generally will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years).


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Other PFIC Rules

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise be tax-deferred (such as gifts and exchanges pursuant to tax-deferred reorganizations under Section 368 of the Code). However, the specificcomplex U.S. federal income tax consequencesrules, which are subject to differing interpretations. In addition, whether the Corporation will be a U.S. Holder may vary basedPFIC for the taxable year ending May 31, 2009 and each subsequent taxable year depends on the manner in which Common Shares are transferred.

Certain additional adverse rules will apply with respect to a U.S. Holder ifassets and income of the Corporation isover the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge the determination made by the Corporation concerning its PFIC status or that the Corporation was not, or will not be, a PFIC regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made aany taxable disposition of such Common Shares.year.

The PFIC rules are complex, and each U.S. Holder should consult its own taxfinancial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

Canadian Federal Income Tax Considerations for United States Residents

The following, as of the date hereof, is a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Shares by a holder, (a) who for the purposes of the Income Tax Act (Canada) (the “Tax Act”) at all relevant times, is not resident, or deemed to be resident in Canada, deals at arm’s length and is not affiliated with usthe Corporation for the purpose of the Tax Act, holds the Common Shares as capital property and does not use or hold, and is not deemed to use or hold, the Common Shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of theCanada - United States Income Tax Convention(the “Convention”) at all relevant times, is a resident of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) Common Shares in connection with a permanent establishment or fixed base in Canada, and who otherwise qualifies for the


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full benefits of the Convention. Common Shares will generally be considered to be capital property to a holder unless such shares are held in the course of carrying on a business, or in an adventure or concern in the nature of trade. Holders who meet all the criteria in clauses (a) and (b) are referred to herein as a “U.S. Holder” or “U.S. Holders” and this summary only addresses the tax considerations to such U.S. Holders. The summary does not deal with special situations, such as the particular circumstances of traders or dealers, limited liability companies, tax exempt entities, insurers or financial institutions. Such holders should consult their own tax advisors.

This summary is based upon the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (“Regulations”), all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the current provisions of the Convention and the current administrative practices of the Canada Customs and Revenue Agency published in writing prior to the date hereof. This summary does not otherwise take into account or anticipate any changes in law or administrative practices whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of the U.S.United States or of any other jurisdiction outside Canada.

For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares must be converted into Canadian dollars based on the relevant exchange rate applicable thereto.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder and no representation with respect to the federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. The tax liability of a U.S. Holder will depend on the holder’s particular circumstances. Accordingly, U.S. Holders should consult with their own tax advisors for advice with respect to their own particular circumstances.


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Dividends

Amounts paid or credited or deemed to be paid or credited to a U.S. Holder as, on account or in lieu of payment, or in satisfaction of, dividends on Common Shares will be subject to Canadian withholding tax on the gross amount of the dividends. Under the Convention, the rate of Canadian withholding tax on dividends paid or credited by usthe Corporation to a U.S. Holder that beneficially owns such dividends is generally 15% unless the beneficial owner is a company which owns at least 10% of ourthe voting stock of the Corporation at that time in which case the rate of Canadian withholding tax is reduced to 5%.

Dispositions

A U.S. Holder will generally not be subject to tax under the Tax Act on any capital gain realized on a disposition of Common Shares, provided thatunless the shares do not constitute “taxable Canadian property” to the U.S. Holder at the time of disposition and the U.S. Holder is not entitled to relief under the Convention. Generally, Common Shares will not constitute taxable Canadian property to a U.S. Holder provided that such shares are listed on a prescribeddesignated stock exchange (which currently includes the TSX and Amex) at the time of the disposition and, during the 60-month period immediately preceding the disposition, the U.S. Holder, persons with whom the U.S. Holder does not deal at arm’s length, or the U.S. Holder together with all such persons has not owned 25% or more of the issued shares of any series or class of ourthe Corporation’s capital stock.

If the Common Shares constitute taxable Canadian property to a particular U.S. Holder, any capital gain arising on their disposition may be exempt from Canadian tax under the Convention if at the time of disposition the Common Shares do not derive their value principally from real property situated in Canada.

Canadian Federal Income Tax Consequences


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The following is a summary of the principal Canadian federal income tax considerations, as of the date hereof, generally applicable to Security holders who deal at arm's length with the Corporation, who, for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and any applicable tax treaty or convention, have not been and will not be resident or deemed to be resident in Canada at any time while they have held shares of the Corporation, to whom such shares are capital property, and to whom such shares are not "taxable Canadian property" (as defined in the Canadian Tax Act). This summary does not apply to a non-resident insurer.

Generally, shares of the Corporation will be considered to be capital property to a holder thereof provided that the holder does not use such shares in the course of carrying on a business or has not acquired them in one or more transactions considered to be an adventure in the nature of trade. All security holders should consult their own tax advisors as to whether, as a matter of fact, they hold shares of the Corporation as capital property for the purposes of the Canadian Tax Act.

Under the current provisions of the Canadian Tax Act, as modified by the Proposed Amendments (see below), one-half of capital gains (‘‘taxable capital gains’’) must be included in computing the income of a holder in the year of disposition. One-half of capital losses (‘‘allowable capital losses’’) may generally be deducted against taxable capital gains for the year of disposition subject to and in accordance with the provisions of the Canadian Tax Act.

Allowable capital losses in excess of a holder’s taxable capital gains of a taxation year may generally be carried back three years and carried forward indefinitely for deduction against taxable capital gains realized in those years, to the extent and under circumstances permitted under the Canadian Tax Act.

This discussion takes into account specific proposals to amend the Canadian Tax Act and the regulations thereunder publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments") and assumes that all such Proposed Amendments will be enacted in their present form. No assurances can be given that the Proposed Amendments will be enacted in the form proposed, if at all; however the Canadian federal income tax considerations generally applicable to


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security holders described herein will not be different in a material adverse way if the Proposed Amendments are not enacted.

Except for the foregoing, this discussion does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax considerations described herein.

Generally, shares of the Corporation will not be taxable Canadian property at a particular time provided that such shares are listed on a prescribed stock exchange (which exchanges currently include the Toronto Stock Exchange), the holder does not use or hold, and is not deemed to use or hold, the shares of the Corporation in connection with carrying on a business in Canada and the holder, persons with whom such holder does not deal at arm's length, or the holder and such persons, have not owned (or had under option) 25% or more of the issued shares of any class or series of the capital stock of the Corporation at any time within five years preceding the particular time.

A holder of shares of the Corporation that are not taxable Canadian property will not be subject to tax under the Canadian Tax Act on the sale or other disposition of shares.

While intended to address all material Canadian Federal Income Tax considerations, this summary is for general information purposes only, and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares. No opinion was requested by the Corporation, or is provided by its legal counsel and/or auditors. Additionally, this summary does not consider the effects of United States federal, state, local or foreign income tax consequences.


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Accordingly, holders and prospective holders of common shares should consult their own tax advisors about the consequences of purchasing, owning, and disposing of common shares of the Corporation.

F. Dividends and Paying Agents

Not applicable

G. Statement by Experts

Not applicable

H. Documents on Display

The documents described herein may be inspected at the head office of Corporation at 4 – 1200 Waverley Street, Winnipeg, Manitoba, Canada R3T 0P4, during normal business hours.

I. Subsidiary Information

Not applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The primary objective of the Corporation’s investment activities is to preserve principal by maximizing the income the Corporation receives from such activities without significantly increasing risk. Securities that the Corporation invests in are generally highly liquid short-term investments such as term deposits with terms to maturity of less than one year.


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Due to the short-term nature of these investments, the Corporation believes there is no material exposure to interest rate risk arising from such investments and accordingly, no quantitative tabular disclosure is required.

As disclosed above, subsequent to year-end the Corporation incurred significantentered into a debt agreement in connection with its acquisition of the rights of Aggrastat®AGGRASTAT® in the United States and its territories.territories in August 2006. At May 31, 2008, the outstanding principal amount of this debt is US$12 million. As this debt bears interest at a fluctuating rate,monthly LIBOR plus 6.5 percent per annum, the Corporation is now exposed to interest rate risk. A 1% change in the underlying LIBOR for fiscal 2008, would have impacted the loss for the year by 0.2% .

FOREIGN EXCHANGE RISK

The Corporation’s primary currency of operations is the Canadian dollar. However, the Corporation has expenditures and holds investments denominated in a foreign currency. In fiscal 2006,2008, it is estimated that approximately 15%53% of the Corporation’s expenditures were denominated in a foreign currency.currency, primarily being the US dollar. To date the Corporation has not entered into any future or forward contracts, or other derivative instruments, for either hedging or speculative purposes, to mitigate the impact of foreign exchange fluctuations on these costs.costs or on U.S. dollar denominated debt. A 10% change in foreign exchange rates for fiscal 2008 would have impacted loss for the year by 5%.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable


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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS ANDUSE OF PROCEEDS

Not applicable

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information that is required to be disclosed in prescribed filings and reports that are filed with the Canadian securities regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) as appropriate to allow timely decisions regarding required disclosure.

The CorporationCEO and CFO have evaluated the Company’s disclosure controls and procedures as of May 31, 2008 and have concluded that such controls and procedures were not effective to provide reasonable assurance that material information relating to the Company was reported as required because we identified a material weakness in our internal control over financial reporting as described below.

Management’s Annual Report on Internal Control over Financial Reporting

The Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting as required under applicable Canadian and U.S. securities regulatory requirements.

The Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation's management, including the Corporation'sCorporation’s chief executive officer and its chief financial officer, of the effectiveness of the design and operationCorporation’s internal control over financial reporting, as of May 31, 2008, based on the framework set forth in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.Treadway Commission (COSO). Based upon thaton its evaluation the Corporation's chief executive officer and its chief financial officerunder this framework, management concluded that the Corporation's disclosure controls and proceduresCorporation’s internal control over financial reporting is not effective as a result of a datematerial weakness described below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is within 90 daysa reasonable possibility that a material misstatement of the date of filing of this Form 20-F are effective in alerting,annual financial statements will not be prevented or detected on a timely basis,basis. In connection with management’s assessment of the internal control over financial reporting referred to above, management has identified the following material information relatingweakness in the Company internal control over financial reporting as of May 31, 2008:

The Company did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of United States GAAP. Specifically, there are insufficient personnel to allow for the independent preparation and review of the reconciliation from Canadian GAAP to United States GAAP as disclosed in Note 14 to the Corporationfinancial statements. This control deficiency resulted in adjustments to the disclosure in the financial statements prior to their issuance. This control deficiency results in a reasonable possibility that is toa material misstatement of the financial statements will not be publicly disclosed.prevented or detected on a timely basis.


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Attestation Report of the Registered Public Accounting Firm

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 20-F and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting . See Exhibit 15.1

Changes in Internal Control over Financial Reporting and Planned Remediation Activities

There have been no changes in the Corporation's internal controls over financial reporting identified in connection with the evaluation described in the preceding paragraph that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Corporation's internal controls over financial reporting.

Management has begun to address the material weaknesses discussed above. A determination as to requirements necessary to address this weakness is currently underway which includes considering either obtaining external third party assistance or ensuring adequate personnel are available with the necessary training and expertise.

Subsequent to May 31, 2008, the Chief Financial Officer resigned and was replaced.

ITEM 16. RESERVED

Not applicable

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As of May 31, 2006, Dr. William A. Cochrane,2008, Mr. Kishore Kapoor, a non-employee director, was a member of the audit committee of the Corporation. Dr. Cochrane resigned from the audit committee on June 28, 2006 and Mr. Kishore Kapoor, a non-employee director, was appointed to the committee on June 28, 2006. The board of directors of the Corporation has determined that both Dr. Cochrane and Mr. Kapoor (i) qualifyqualifies as an


74

audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F and (ii) areis independent as defined by Rule 121A of the Amex Company Guide and Rule 10A-3 of the Exchange Act. In addition, all members of the audit committee are considered financially literate under applicable Canadian laws.

ITEM 16B. CODE OF ETHICS

On August 23, 2004, the Corporation adopted a written Code of Business Conduct and Ethics (“Code of Ethics”) that applies to the Corporation’s principal executive officer, principal financial officer and to all its other employees. These standards are a guide to help ensure that all of the Corporation’s employees live up to high ethical standards. A copy of the Code of Ethics is maintained on the Corporation’s website at www.medicure.com.

The Corporation intends to disclose any amendment to or waiver from any provision in the Code of Ethics, that has occurred during the past fiscal year and that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, either in its Exchange Act annual report or on the Corporation’s Internet website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the chartered accountants, KPMG LLP, is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered that was approved through its pre-approval process.

(a) Audit fees20062005
 $54,835$26,240
(a) Audit fees 2008  2007 
 $187,285 $55,600 


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Audit fees consist of fees paidbilled for the audit of the Corporation’s annual financial statements.

(b) Audit-related fees20062005
$64,542$ -
(b) Audit-related fees 2008  2007 
 $26,285 $124,850 

Audit-related fees consist of fees paid for the review of the Corporation’s interim financial statements andbilled for services associated with the issuance of securities filings and prospectuses.

(c) Tax fees -No compensation was paid to KPMG for tax compliance, tax advice and tax planning in fiscal 20062008 or 2005.2007.

(d) All other fees20062005
 $71,292$13,200
(d) All other fees 2008  2007 
 $- $3,825 

All other fees consist of fees paidbilled for translation services and assistance with Sarbanes-Oxley compliance planning.

(e) Audit Committee’s Pre-approval Policies

All KPMG services and fees are approved by the Audit Committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDPURCHASERS

Not applicable


7576

PART III

ITEM 17. FINANCIAL STATEMENTS

The consolidated financial statements were prepared in accordance with Canadian GAAP and are presented in Canadian dollars. There are material measurement differences between United States and Canadian GAAP. A reconciliation of the consolidated financial statements to United States GAAP is set forth in Note 1014 of the notes to the consolidated financial statements.

The consolidated financial statements are in the following order:

 1.

Report of Independent Registered Public Accounting Firm;

 2.

Consolidated Balance Sheets;

 3.

Consolidated Statements of Operations and Deficit Accumulated During the Development Stage;Deficit;

 4.

Consolidated Statements of Cash Flows; and

 5.

Notes to Consolidated Financial Statements.



7677

 

 

 

 

Consolidated Financial Statements of

MEDICURE INC.
(A Development Stage Enterprise)

Years ended May 31, 2006, 20052008, 2007 and 20042006


7778

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of Medicure Inc.

We have audited the accompanying consolidated balance sheets of Medicure Inc. (a Development Stage Enterprise)("the Company") and subsidiaries as atof May 31, 20062008 and 20052007 and the related consolidated statements of operations and deficit accumulated during the development stagecomprehensive loss, shareholders’ equity (deficiency) and cash flows for each of the years in the three yearthree-year period ended May 31, 2006 and for the period cumulative from inception on September 15, 1997 to May 31, 2006.2008. These consolidated financial statements are the responsibility of the company'sCompany's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 our audit opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the companyCompany and subsidiaries as atof May 31, 20062008 and 20052007 and the results of itstheir operations and itstheir cash flows for each of the years in the three yearthree-year period ended May 31, 2006 and for the period cumulative from inception on September 15, 1997 to May 31, 2006,2008 in conformity with Canadian generally accepted accounting principles.

As discussed in note 2(f) to the consolidated financial statements, the company changed its method of accounting for stock-based compensation in fiscal 2004.

Canadian generally accepted accounting principles vary in certain significant respects from accounting principlesUS generally accepted in the United States of America.accounting principles. Information relating to the nature and effect of such differences is presented in note 10Note 14 to the consolidated financial statements.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has experienced operating losses and cash outflows from operations since incorporation that raise significant doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On June 1, 2007, the Company adopted retrospectively, without restatement, the new recommendations of CICA Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation and Section 3251, Equity. The effect of those changes is discussed in Note 2(q) to the consolidated financial statements.


79

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of May 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 26, 2008 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

(signed) “KPMG LLP”Signed “KPMG LLP


Chartered Accountants


Winnipeg, Canada

June 30, 2006, except as to note 11, which is
     as of August 9, 200626, 2008


7880

MEDICURE INC.
(A Development Stage Enterprise)

Consolidated Balance Sheets
(Expressed in Canadian dollars)

  May 31,  May 31, 
  2006  2005 
       
       
Assets      
       
Current assets:      
         Cash and cash equivalents$ 34,920,433 $ 7,590,918 
         Accounts receivable 458,424  469,766 
         Research advance (note 7) 200,000  200,000 
         Prepaid expenses 262,716  398,204 
  35,841,573  8,658,888 
       
Property and equipment (note 3) 50,663  81,002 
       
Intangible assets (note 4) 2,921,841  1,332,969 
       
 $ 38,814,077 $ 10,072,859 
       
       
Liabilities and Shareholders' Equity      
       
Current liabilities:      
         Accounts payable and accrued liabilities$ 1,644,339 $ 2,732,754 
       
Shareholders’ equity:      
         Capital stock (note 5):      
                   Authorized:      
                             Unlimited number of common voting shares      
                            ��Unlimited number of class A common voting shares      
                             Unlimited number of preferred shares      
                   Issued:      
                             96,046,465 common voting shares      
                                 (2005 - 66,826,660) 81,226,634  39,864,296 
         Contributed surplus [note 5(c)] 2,070,670  996,301 
         Deficit accumulated during the development stage (46,127,566) (33,520,492)
  37,169,738  7,340,105 
       
Nature of operations (note 1)      
Commitments and contingency (note 7)      
Subsequent events (notes 7 and 11)      
       
 $ 38,814,077 $ 10,072,859 

May 31, 2008 and 2007

  2008  2007 
       
Assets      
       
Current assets:      
         Cash and cash equivalents$ 11,904,930 $ 31,770,320 
         Accounts receivable (note 4) 884,343  2,048,260 
         Inventories (note 5) 316,359  640,004 
         Research advance (note 11) 200,000  200,000 
         Prepaid expenses 1,097,104  1,168,603 
  14,402,736  35,827,187 
       
Property and equipment (note 6) 132,887  196,521 
       
Restricted cash (note 3) 11,916,000   
       
Intangible assets (note 7) 8,353,610  23,412,131 
       
Deferred debt issue expenses (note 8)   349,963 
       
 $ 34,805,233 $ 59,785,802 
       
Liabilities and Shareholders' Equity (Deficiency)      
       
Current liabilities:      
         Accounts payable and accrued liabilities$ 7,174,474 $ 8,536,869 
         Current portion of long-term debt (note 8) 1,986,000  6,160,896 
  9,160,474  14,697,765 
       
Long-term debt (note 8) 32,200,919  10,781,568 
       
Shareholders’ equity (deficiency):      
         Capital stock (note 9) 116,014,623  109,102,397 
         Warrants 9,094,635   
         Contributed surplus 3,568,055  3,035,024 
         Deficit (135,233,473) (77,830,952)
  (6,556,160) 34,306,469 
       
Nature of operations - going concern (note 1)      
Commitments and contingencies (note 11)      
       
 $ 34,805,233 $ 59,785,802 

See accompanying notes to consolidated financial statements.

On behalf of the Board:

Signed “Dr. A.D. Friesen”DirectorSigned “Mr. Kishore Kapoor”Director


81

MEDICURE INC.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian dollars)

Years ended May 31, 2008, 2007 and 2006

  2008  2007  2006 
          
Revenue:         
         Product sales, net$ 2,247,129 $ 5,944,730 $ – 
          
Expenses:         
         Cost of goods sold, excluding amortization 605,623  387,803   
         Selling, general and administrative 12,072,596  11,047,769  2,858,443 
         Research and development (note 11) 28,660,250  23,335,752  10,219,025 
         Investment tax credits   (171,927) (478,473)
         Impairment of intangible assets (note 7) 13,056,697     
         Amortization 2,652,566  2,288,745  107,379 
  57,047,732  36,888,142  12,706,374 
          
Loss before the undernoted (54,800,603) (30,943,412) (12,706,374)
          
Other expenses (income):         
         Interest and other (1,149,574) (1,590,801) (299,737)
         Interest expense 3,830,838  1,958,380   
         Foreign exchange loss (gain), net (79,346) 392,395  200,437 
  2,601,918  759,974  (99,300)
          
Loss and comprehensive loss for the year$ (57,402,521)$ (31,703,386)$ (12,607,074)
          
Basic and diluted loss per share$ (0.46)$ (0.30)$ (0.17)
          
Weighted average number of common shares used in         
      computing basic and diluted loss per share 125,476,086  104,879,404  75,144,764 

See accompanying notes to consolidated financial statements.


7982

MEDICURE INC.
(A Development Stage Enterprise)

Consolidated Statements of Operations and Deficit Accumulated During the Development StageShareholders’ Equity (Deficiency)
(Expressed in Canadian dollars)

           Cumulative from 
           inception on 
  Year ended  Year ended  Year ended  September 15, 
  May 31,  May 31,  May 31,  1997 to 
  2006  2005  2004  May 31, 2006 
             
Revenue:            
         Interest and other income$ 299,737 $ 394,784 $ 445,461 $ 1,782,541 
             
Expenses:            
         General and administrative 2,858,443  2,256,499  1,958,222  10,867,414 
         Research and            
              development (note 7) 10,219,025  13,564,069  4,435,320  38,060,645 
         Research and development -            
              government assistance       (261,741)
         Research and development -            
               investment tax credits (478,473) (553,335)   (1,220,120)
         Amortization 107,379  57,874  41,005  327,885 
  12,706,374  15,325,107  6,434,547  47,774,083 
             
Other expenses (income):            
         Foreign exchange loss (gain) 200,437  (64,413)   136,024 
             
Loss for the period (12,607,074) (14,865,910) (5,989,086) (46,127,566)
             
Deficit accumulated during the            
   development stage,            
   beginning of period (33,520,492) (18,654,582) (12,665,496)  
             
Deficit accumulated during            
   the development stage,            
   end of period$ (46,127,566)$ (33,520,492)$ (18,654,582)$ (46,127,566)
             
Basic and diluted loss per            
   share$ (0.17)$ (0.22)$ (0.11)   
             
Weighted average number of            
   common shares used in computing            
   basic and diluted loss per share 75,144,764  66,717,715  55,738,716    

Years ended May 31, 2008, 2007 and 2006

  2008  2007  2006 
          
Capital stock:         
         Balance, beginning of year$ 109,102,397 $ 81,226,634 $ 39,864,296 
         Adoption of financial instrument standards         
             (note 2(q)) (6,425,336)    
         Exercise of options for cash 90,241  347,456  405,482 
         Private placement for cash on August 19, 2005, net         
             of share issue costs of $545,544     4,139,406 
         Public offering for cash on January 4, 2006, net of         
             share issue costs of $1,154,850     10,857,650 
         Private placement for cash on May 9, 2006, net of         
             share issue costs of $2,373,792     25,959,800 
         Private placement on October 5, 2007, net of         
             issue costs of $714,445 13,247,321     
         Private placements on December 22 and         
             December 28, 2006, net of issue costs of $2,366,056 –    27,528,307   
         Balance, end of year 116,014,623  109,102,397  81,226,634 
          
Warrants:         
         Balance, beginning of year      
         Adoption of financial instrument standards         
             (note 2(q)) 6,425,336     
         Warrants granted with long-term debt (note 8) 809,344     
         Private placement on October 5, 2007, net of         
             issue costs of $104,795 1,859,955     
         Balance, end of year 9,094,635     
          
Contributed surplus:         
         Balance, beginning of year 3,035,024  2,070,670  996,301 
         Placement agent’s warrants granted     42,758 
         Stock-based compensation 563,272  1,025,310  1,184,800 
         Options exercised - transferred to capital stock (30,241) (60,956) (153,189)
         Balance, end of year 3,568,055  3,035,024  2,070,670 
          
Deficit:         
         Balance, beginning of year (77,830,952) (46,127,566) (33,520,492)
         Loss and comprehensive loss for the year (57,402,521) (31,703,386) (12,607,074)
         Balance, end of year (135,233,473) (77,830,952) (46,127,566)
          
Shareholders’ equity (deficiency)$ (6,556,160)$ 34,306,469 $ 37,169,738 

See accompanying notes to consolidated financial statements.


8083

MEDICURE INC.
(A Development Stage Enterprise)

Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

           Cumulative from 
           inception on 
  Year ended  Year ended  Year ended  September 15, 
  May 31,  May 31,  May 31,  1997 to 
  2006  2005  2004  May 31, 2006 
             
Cash provided by (used in):            
             
Operating activities:            
         Loss for the period$ (12,607,074$ (14,865,910)$ (5,989,086)$ (46,127,566)
         Adjustments for:            
                   Amortization of property and            
                       equipment and intangible            
                       assets 107,379  57,874  41,005  327,885 
                   Write-off of property and equipment 17,212        17,212 
                   Stock-based compensation 745,570  504,878  386,048  1,741,871 
         Change in the following:            
                   Accounts receivable 11,342  (191,669) (198,553) (433,778)
                   Prepaid expenses 135,488  512,133  (855,289) (262,716)
                   Research advance       (200,000)
                   Investment tax credit receivable       35,770 
                   Accounts payable and            
                         accrued liabilities (1,088,415) 1,915,179  463,667  1,620,030 
  (12,678,498) (12,067,515) (6,152,208) (43,281,292)
             
Investing activities:            
         Acquisition of property and equipment (19,671) (42,796) (21,731) (219,320)
         Cash of acquired business at            
             acquisition       727,005 
         Intangible assets (1,224,223) (386,157) (231,205) (2,638,443)
  (1,243,894) (428,953) (252,936) (2,130,758)
             
Financing activities:            
         Issuance of common shares,            
             net of share issue costs 41,251,907  133,000  22,229,074  79,633,819 
         Change in due to related parties       698,664 
  41,251,907  133,000  22,229,074  80,332,483 
             
Increase (decrease) in cash and cash            
   equivalents 27,329,515  (12,363,468) 15,823,930  34,920,433 
             
Cash and cash equivalents, beginning            
   of period 7,590,918  19,954,386  4,130,456   
             
Cash and cash equivalents, end of            
   period$ 34,920,433 $ 7,590,918 $ 19,954,386 $ 34,920,433 
             
Non-cash transactions:            
         Interest paid during the period$ $ – $ – $ 10,306 
         Value assigned to shares issued            
             as consideration for acquisition            
             of Medicure, net of cash acquired            
             of $727,005       755,379 
         Value assigned to stock options            
             granted as consideration for            
             acquisition of intellectual property            
             from third party (note 4) 439,230      439,230 
         Value assigned to placement agent’s            
             stock-based compensation related            
             to August 19, 2005 private placement            
             [note 5(b)] 42,758      42,758 

Years ended May 31, 2008, 2007 and 2006

  2008  2007  2006 
          
Cash provided by (used in):         
          
Operating activities:         
         Loss for the year$ (57,402,521)$ (31,703,386)$ (12,607,074)
         Adjustments for:         
                   Amortization of property and equipment 78,222  41,187  32,797 
                   Amortization of intangible assets 2,574,344  2,247,558  74,582 
                   Amortization of deferred debt issue         
                       expenses 327,484  211,096   
                   Write-off of property and equipment     17,212 
                   Stock-based compensation 563,272  1,025,310  745,570 
                   Write-off of inventory 428,822     
                   Impairment of intangible assets 13,056,697     
                   Unrealized foreign exchange gain         
                       on long-term debt (1,258,804) (825,221)  
         Change in the following:         
                   Accounts receivable 1,163,917  (1,589,836) 11,342 
                   Inventories (105,177) (640,004)  
                   Prepaid expenses 71,499  (905,887) 135,488 
                   Accounts payable and accrued liabilities (1,362,395) 6,892,530  (1,088,415)
  (41,864,640) (25,246,653) (12,678,498)
          
Investing activities:         
         Acquisition of property and equipment (14,588) (187,045) (19,671)
         Acquisition of intangible assets (572,520) (22,737,848) (1,224,223)
  (587,108) (22,924,893) (1,243,894)
          
Financing activities:         
         Issuance of common shares and warrants,         
               net of share issue costs 15,167,276  27,814,807  41,251,907 
         Proceeds from issuance of long-term debt         
               and warrants 25,022,600  17,767,685   
         Repayments of long-term debt (3,959,616)    
         Debt issue expenses (1,727,902) (561,059)  
         Cash placed under restriction (11,916,000)    
  22,586,358  45,021,433  41,251,907 
          
Increase (decrease) in cash and cash equivalents (19,865,390) (3,150,113) 27,329,515 
          
Cash and cash equivalents, beginning of year 31,770,320  34,920,433  7,590,918 
          
Cash and cash equivalents, end of year$ 11,904,930 $ 31,770,320 $ 34,920,433 
          
Supplementary information:         
         Cash transactions:         
                   Interest paid$ 2,353,130 $ 1,574,209 $ – 
                   Interest received 1,023,347  1,596,616  207,718 
         Non-cash transactions:         
                   Value assigned to stock options granted         
                       as consideration for acquisition of         
                       intellectual property from third party         
                       (note 6)     439,230 
                   Value assigned to placement agent’s         
                       stock-based compensation related to         
                       August 19, 2005 private placement         
                       (note 8(c))     42,758 

See accompanying notes to consolidated financial statements.


8184

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

1.

Nature of operations:operations - going concern:

  

TheMedicure Inc. (the Company) is a biopharmaceutical company is engaged infocused on the discovery and development of therapeutics for various large-market, unmet cardiovascular therapeutics and is currently inneeds. The Company has the research and development phase of its lead products, MC-1 and MC-4232. To date, the company has no products currently in commercial production or use. Accordingly, the company is considered to be a development stage enterprise for accounting purposes. Since September 15, 1997, the date of inception of the company through to May 31, 2006, the company has expended approximately $36,579,000 net of government assistance and investment tax credits, which aggregate approximately $1,482,000, on the research and development of MC-1, MC-4232 and other compounds.

To date, the company has financed its cash requirements primarily through share issuances, investment tax credits, government grants and interest income. The success of the company is dependent on its ability to obtain sufficient funds to conduct its clinical trials and to successfully commercialize its products. Subsequent to May 31, 2006, the company acquired theU.S. rights to the commercial product, AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, U.S. Virgin Islands, and Guam). AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome (ACS) including unstable angina, which is characterized by chest pain when one is at rest, and non- Q-wave myocardial infarction.

The Company’s research and development program is currently focused on the clinical development of the Company’s lead clinical product, MC-1, and the discovery and development of other drug candidates.

These consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is significant doubt about the appropriateness of the use of the going concern assumption because the company has experienced operating losses and cash outflows from operations since incorporation.

The Company has experienced a loss of $57,402,521 and negative cash flows from operations of $41,864,640 in the year ended May 31, 2008, and the Company has accumulated a deficit of $135,233,473 as disclosedat May 31, 2008. In March 2008, the Company announced a significant corporate restructuring stemming from the unfavorable results of the Phase 3 MEND-CABG II trial. This restructuring included the significant reduction in note 11.numbers of staff and in resources allocated to certain programs. Based on the Company’s operating plan, its existing working capital is not sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements, long-term debt and commitments beyond the end of the 2009 fiscal year without additional sources of cash and/or deferral, reduction or elimination of significant planned expenditures. The Company’s plan to address the expected shortfall of working capital is to secure additional funding within the next six months and to increase operating revenue and reduce operating expenses. There is no certainty that the Company will be able to obtain any sources of financing on acceptable terms, or at all, or that it will increase product revenue or reduce operating expenses to the extent necessary.



85

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

1.

Nature of operations - going concern (continued):

The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on many factors, including, but not limited to the actions taken or planned, some of which are described above, which management believes will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements. There is no certainty that these and other strategies will be sufficient to permit the Company to continue as a going concern.

The financial statements do not reflect adjustments that would be necessary if the “going concern” assumption were not appropriate. If the “going concern” basis was not appropriate for these financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

   
2.

Significant accounting policies:

   
(a)

Basis of presentation:

   

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP). The measurement principles applied are also in conformity, in all material respects, with accounting principles generally accepted in the United States of America (U.S. GAAP) except as described in note 1014 to the consolidated financial statements.

   

These financial statements have been prepared on a consolidated basis to include the accounts of the companyCompany and its wholly-owned subsidiary,subsidiaries, Medicure International Inc., Medicure Pharma Inc., and Medicure Europe Limited. All significant inter-company transactions and balances have been eliminated.

   
(b)

Revenue recognition:

The Company recognizes product revenue when substantially all of the risks and rewards of ownership have transferred to the customer and collection is reasonably assured. Revenue is recognized upon product delivery, and when no significant contractual obligations remain. Net sales reflect reduction of gross sales at the time of initial sales recognition for estimated wholesaler chargebacks, discounts, allowances for product returns, and other rebates. Interest income is recognized as earned.



86

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

2.

Significant accounting policies (continued):

(c)

Inventories:

Inventories of raw materials and packaging materials are valued at the lower of cost and replacement cost. Inventories of finished goods are valued at the lower of cost and net realizable value. Cost is determined under the first-in, first-out method.

(d)

Cash and cash equivalents:

   

Cash and cash equivalents include cash on hand and balances with banks as well as highly liquid short-term investments.term deposits and commercial paper. The companyCompany considers all highly liquid short-term investmentsterm deposits and commercial paper with terms to maturity when acquired of three months or less to be cash equivalents.



82

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2006, 2005 and 2004

2.

Significant accounting policies (continued):

   
(c)(e)

Property and equipment:

   

Property and equipment are stated at cost. Amortization is recorded over the estimated useful life of the assets at the following rates:


AssetBasisAnnual Rate
   
Computer equipmentStraight-line25%
OfficeFurniture, fixtures and equipmentDiminishing balance20% to 25%
Scientific equipmentDiminishing balance20%
Leasehold improvementsStraight-line20%

 (d)(f)

Intangible assets:

   
 

Costs incurred in obtaining patents are capitalized and amortized upon issuance on a straight- line basis over the remaining legal life of the respective patents, being approximately twenty years, or their economic life, if shorter. The cost of servicing the company’sCompany’s patents is expensed as incurred. Technology licenses, which include licenses and rights to technologies, are initially recorded at fair value based on consideration paid and amortized on a straight-line basis over the estimated useful life of the underlying technologies.

   
 (e)

Intangible assets are recorded at acquisition cost and are amortized on a straight-line basis based on the following estimated useful lives:


Patents5 - 20 years
Trademark10 years
Technology license8 years
Customer list10 years


87

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

2.

Significant accounting policies (continued):

(g)

Deferred debt issue expenses:

Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to interest expense.

(h)

Impairment of long-lived assets:

   

On a regular basis, management reviews the valuationThe carrying amount of long-lived assets which includes property and equipment and intangible assets taking into consideration anyto be held and used is reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized when the carrying amount of an asset to be held and circumstancesused exceeds the projected undiscounted future net cash flows expected from its use and disposal, and is measured as the amount by which may impact recoverable value. Section 3063the carrying amount of the CICA Handbook,Impairment of Long-Lived Assets,prescribes rigorous principles for the recognition, measurement and disclosure of any impairment of long-lived assets. Management has reviewed the carrying value of the long-lived assets using this guidance and determined no impairment currently exists.asset exceeds its fair value.

   
(f)(i)

Stock-based compensation:

   

The companyCompany has a stock option plan [note 5(d)9(c)] for its directors, management, employees and consultants. The companyCompany uses the fair value method of accounting for stock options granted. The fair value of the options is expensed over their vesting period [note 5(d)].



83

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2006, 2005period. The Company estimates forfeitures for each grant and 2004

2.

Significant accounting policies (continued):incorporates this estimate into the calculation of compensation cost recorded each period.

   
(g)(j)

Government assistance and investment tax credits:

   

Government assistance toward current expenses is recorded as a reduction againstof the related expenses in the period theythe expenses are incurred. Government assistance towards property and equipment is deducted from the cost of the related property and equipment. The benefits of investment tax credits for scientific research and development expenditures (SR&ED) incurred directly by the Company are recognized in the period the qualifying expenditure is made, providing there is reasonable assurance of recoverability. InvestmentSR&ED investment tax credits receivable are recorded at their net realizable value.



88

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2008, 2007 and 2006

2.

Investment tax credits are only available on research and development expenditures incurred directly by the company.Significant accounting policies (continued):

   
(h)(k)

Research and development:

   

All costs of research activities are expensed in the period in which they are incurred. Development costs are charged as an expense in the period incurred unless a development project meets stringent criteria for cost deferral and amortization. No development costs have been deferred to date. Tangible and intangible assets acquired for use in research and development projects are accounted for as described in note 2(c)2(e) and (d)(f).

   
(i)(l)

Clinical trial expenses:

Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrollment, services provided, contractual terms, and prior experience with similar contracts.

(m)

Income taxes:

   

The companyCompany follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of substantive enactment. When realization of future income tax assets does not meet the more likely than not criterion, a valuation allowance is provided for the difference.



8489

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

2.

Significant accounting policies (continued):

   
(j)(n)

Net earnings (loss) per share:

   

Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the year including contingently issuable shares where the contingency has been resolved. The diluted per share amounts are calculated based on the weighted average number of common shares outstanding during the period, plus the effect of dilutive common share equivalents such as options and warrants. Thistreasury stock method requires that diluted per share amounts be calculated using the treasury stock method, as if all the common share equivalents, such as options and warrants where the average market price for the period exceeds the exercise price, had been exercised at the beginning of the reporting period or at the date of issue, if later, as the case may be, and that the funds obtained thereby were used to purchase common shares of the companyCompany at the average trading price of the common shares during the period. For all periods presented, all potential common sharesshare equivalents have been excluded from the calculation of dilutive loss per share as their effect is anti-dilutive.

   
(k)(o)

Foreign currency translation:

   

Current assets and current liabilities in foreign currencies have been translated into Canadian dollars at the rates of exchange in effect at the balance sheet date. Income and expense transactions are translated at actual rates of exchange during the year. Exchange gains and losses are included in loss for the period.

   
(l)

The operations of the Company’s foreign subsidiaries are considered to be integrated foreign operations and, accordingly, are converted to Canadian dollars using the temporal method. Under this method, monetary assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date, non-monetary assets and liabilities are translated at the rate in effect when the assets were acquired or liabilities were assumed and items included in the statements of operations at the average exchange rates in effect at the date of such transactions with resulting exchange gains or losses included in the determination of earnings.

(p)

Use of estimates:

   

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Estimates are used when accounting for items and matters such as revenue recognition and allowances for estimated returns and other rebates, inventory provisions, estimated useful lives of intangible assets and equipment, impairment assessments, taxes and related valuation allowances and provisions, share-based compensation and contingencies, and fair values assigned to warrants issued in connection with share and debt issuances. Actual results could differ from those estimates.

3.

Property and equipment:


      Accumulated  Net book 
 May 31, 2006 Cost  amortization  value 
           
 Computer equipment$ 91,629 $ 76,156 $ 15,473 
 Office equipment 43,199  14,303  28,896 
 Leasehold improvements 20,671  14,377  6,294 
           
  $ 155,499 $ 104,836 $ 50,663 


8590

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

3.2.

PropertySignificant accounting policies (continued):

(q)

Changes in accounting policy:

On June 1, 2007, the Company prospectively adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530,Comprehensive Income(Section 1530), CICA Handbook Section 3855,Financial Instruments - Recognition and equipmentMeasurement(Section 3855), CICA Handbook Section 3861,Financial Instruments - Disclosure and Presentation

(Section 3861), CICA Handbook Section 3865,Hedges(Section 3865), and CICA Handbook Section 3251,Equity(Section 3251). These new accounting standards, which apply to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied.

Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity resulting from transactions and other events from non-owner sources. The Company does not have any items that required separate recognition outside of net income; as a result, the adoption of this section did not have an impact on the Company’s financial statements.

Section 3855 and Section 3861 provide guidance on the recognition, measurement, presentation and disclosure of financial assets, financial liabilities and derivative financial instruments. These standards require financial assets and financial liabilities, including derivatives, to initially be recognized at fair value. Subsequent measurement is determined by the classification of each financial asset and liability.

Upon adoption of these new standards, the Company has made the following classifications:

Cash and cash equivalents are classified as held-for-trading. They are measured at fair value and the gains or losses resulting from re-measurement at the end of each period are recognized in net loss for the period.

Accounts receivable are classified as loans and receivables. They are measured at amortized cost using the effective interest rate method.

Accounts payable and accrued liabilities and long-term debt are classified as other financial liabilities. They are measured at amortized cost using the effective interest rate method.



91

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

2.

Significant accounting policies (continued):


      Accumulated  Net book 
 May 31, 2005 Cost  amortization  value 
           
 Computer equipment$ 75,737 $ 56,332 $ 19,405 
 Office equipment 41,398  8,048  33,350 
 Scientific equipment 63,822  43,679  20,143 
 Leasehold improvements 18,693  10,589  8,104 
           
  $ 199,650 $ 118,648 $ 81,002 

These new standards are to be applied without restatement of prior periods. Upon initial adoption, all adjustments to the carrying value of financial assets and financial liabilities shall be recognized as an adjustment to the opening balance of deficit or accumulated in other comprehensive income, depending on the classification of existing assets and liabilities. The above classifications had no material impact on the Company’s financial statements at the time of adoption.

Transaction costs that are directly attributable to the acquisition or issuance of financial assets or liabilities not classified as held-for-trading are accounted for as part of the respective asset or liability’s carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method.

Upon adoption of these new standards, the Company reallocated $6,425,336 for warrants issued in prior fiscal years from common shares based on their fair values under the Black- Scholes model.

Section 3865 establishes standards for when and how hedge accounting can be applied as well as disclosure requirements. The Company does not currently have a hedging program in place, so the adoption of this section did not have an impact on the Company’s financial statements.

(r)

Recent accounting pronouncements issued but not yet adopted:

The following accounting standards were issued recently by the CICA. The Company is currently evaluating the impact of these new standards on its consolidated financial statements:

(i)

Section 1535,Capital Disclosures(Section 1535), requires disclosure of an entity's objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital, whether the entity has complied with any capital requirements and, if it has not complied, the consequences of such non-compliance. This standard is effective for the Company for interim and annual financial statements beginning on June 1, 2008.

(ii)

Section 3862,Financial Instruments - Disclosure(Section 3862) and Section 3863,

Financial Statements - Presentation(Section 3863) replace Section 3861,Financial Statements - Disclosure and Presentation, revising and enhancing disclosure requirements. Section 3863 carries forward presentation related requirements of Section 3861. These standards are effective for the Company for interim and annual financial statements beginning on June 1, 2008.



92

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

2.

Significant accounting policies (continued):


(iii)

Section 3031,Inventories(Section 3031), supersedes existing guidance on inventories in Section 3030,Inventories.This standard introduces significant changes to the measurement and disclosure of inventories, including the requirement to measure inventories at the lower of cost and net realizable value, the allocation of fixed production overheads based on normal capacity, and the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories. Inventory policies, carrying amounts, amounts recognized as an expense, write-downs and the reversals of write-downs are required to be disclosed. This standard is effective for the Company for interim and annual financial statements beginning on June 1, 2008.

(iv)

Section 1400,General Standards of Financial Statement Presentation(Section 1400) was amended to change the guidance related to management’s responsibility to assess the ability of the entity to continue as a going concern. When preparing financial statements, management is required to make an assessment of an entity’s ability to continue as a going concern and should take into account all available information about the future, which is at least, but is not limited to, 12 months from the balance sheet date. Disclosure is required of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. These amendments are effective for the Company for interim and annual periods beginning on June 1, 2008.

(v)

Section 3064,Goodwill and Intangible Assets, amends the standards for recognition, measurement, presentation and disclosure of intangible assets for profit-oriented enterprises. These standards are effective for annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. Standards concerning goodwill are unchanged from previous standards.


3.

Restricted cash:

As at May 31, 2008, the Company has $11,916,000 (US$12,000,000) (May 31, 2007 - nil) in restricted cash, which is cash on deposit to secure the Merrill Lynch Financial Services Inc. (formerly Merrill Lynch Capital Canada Inc.) term loan facility (note 8). The term loan facility matures on February 1, 2010.



93

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

4.

Intangible assets:Accounts receivable:


      Accumulated  Net book 
 May 31, 2006 Cost  amortization  value 
 Technology license$ 1,162,780 $ 29,470 $ 1,133,310 
 Patents 1,935,502  146,971  1,788,531 
  $ 3,098,282 $ 176,441 $ 2,921,841 
 

 

 

         
      Accumulated  Net book 
 May 31, 2005 Cost  amortization  value 
 Patents$ 1,434,828 $ 101,859 $ 1,332,969 
   2008  2007 
        
 Trade accounts receivable$ 327,249 $ 1,164,386 
 SR&ED taxes receivable   408,927 
 Interest receivable 310,348  184,121 
 Other 246,746  290,826 
        
  $ 884,343 $ 2,048,260 

During the year endedAs at May 31, 2006,2008, the company acquired several U.S. and European patentstrade accounts receivable consists of amounts owing from a third party for purinoceptor antagonists and adenosine receptor antagonists for the treatmentthree customers which represent approximately 100 percent (May 31, 2007 - 98 percent) of ischemic reperfusion injury pursuant to a sub-licensing agreement. Terms of the agreement included a cash fee of US$500,000, stock options having an estimated fair value at the date of grant of $439,230 and a royalty on future sales of products claimed in the licensed patents.trade accounts receivable.

  
5.

Capital stock:Inventories:


   2008  2007 
 Raw materials and packaging materials$ 92,985 $ 366,796 
 Finished goods 223,374  273,208 
  $ 316,359 $ 640,004 

6.

Property and equipment:


      Accumulated  Net book 
 May 31, 2008 Cost  amortization  value 
           
 Computer equipment$ 151,565 $ 137,827 $ 13,738 
 Furniture, fixtures and equipment 184,896  65,747  119,149 
 Leasehold improvements 20,671  20,671   
           
  $ 357,132 $ 224,245 $ 132,887 

      Accumulated  Net book 
 May 31, 2007 Cost  amortization  value 
           
 Computer equipment$ 138,586 $ 102,396 $ 36,190 
 Furniture, fixtures and equipment 183,287  25,116  158,171 
 Leasehold improvements 20,671  18,511  2,160 
           
  $ 342,544 $ 146,023 $ 196,521 


94

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

7.

Intangible assets:


   Cost, net of  Accumulated  Net book 
 May 31, 2008 impairment  amortization  value 
           
 Patents$ 11,263,893 $ 4,021,700 $ 7,242,193 
 Trademark 1,534,440  589,736  944,704 
 Customer list 270,784  104,071  166,713 
           
  $ 13,069,117 $ 4,715,507 $ 8,353,610 

      Accumulated  Net book 
 May 31, 2007 Cost  amortization  value 
           
 Patents$ 20,244,953 $ 1,915,341 $ 18,329,612 
 Trademark 3,760,874  284,565  3,476,309 
 Technology license 1,166,619  173,876  992,743 
 Customer list 663,684  50,217  613,467 
           
  $ 25,836,130 $ 2,423,999 $ 23,412,131 

As described in note 8, certain intangible assets are pledged as security against long-term debt. During the year ended May 31, 2008, the Company determined that conditions had arisen which triggered the need to review certain of the Company’s long-lived assets for impairment. In particular, during the quarter ending February 29, 2008, the Company announced that the results from the Phase 3 MEND-CABG II clinical trial did not meet its primary endpoint. Based on the results, the Company does not plan on submitting an application for MC-1 marketing approval to the U.S. Food and Drug Administration for the CABG indication. The Company decided to discontinue the development of MC-1 as a monotherapy for acute indications such as CABG and announced a corporate restructuring in March 2008. These factors, along with a lower than originally projected AGGRASTAT® product market share has triggered the need to review the Company’s intangible assets for impairment under CICA Handbook Section 3063 (Section 3063).

Section 3063,Impairment of Long-Lived Assets, requires that a long-lived asset is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized as the difference between fair value and carrying amount when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The Company has determined that the carrying value of patents, trademark, technology license, and customer list exceed their fair value based on discounted future cash flows and market prices for similar assets. Accordingly, the Company recorded an impairment write-down of $883,784 relating to MC-1 and $12,172,913 relating to AGGRASTAT® in the third quarter of fiscal 2008.


95

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

8.

Long-term debt:


   2008  2007 
        
 Birmingham long-term debt (a)$ 22,460,084 $ – 
 Merrill Lynch Business Financial Services Inc. (formerly      
    Merrill Lynch Capital Canada Inc.) term loan facility (b) 11,726,835  16,942,464 
   34,186,919  16,942,464 
        
 Current portion of long-term debt (b)(iv) (1,986,000) (6,160,896)
        
  $ 32,200,919 $ 10,781,568 

Principal repayments to maturity by fiscal year are as follows:

     
 2009$ 1,986,000 
 2010 9,930,000 
 2011  
 2012 824,878 
 2013 1,723,675 
 Thereafter 22,276,447 
   36,741,000 
     
 Less deferred debt issue expenses (net of accumulated   
    amortization of $538,580) (2,554,081)
     
  $ 34,186,919 

(a)

In September 2007, the Company entered into a debt financing agreement with Birmingham Associates Ltd. (Birmingham), an affiliate of Elliott Associates, L.P. (Elliott) for proceeds of US$25 million. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of AGGRASTAT® net sales. Birmingham is entitled to a return of 20 percent on the first US$15 million in AGGRASTAT® revenues, 17.5 percent on the next US$10 million, 15 percent on the next US$5 million and 5 percent thereafter, subject to an escalating minimum annual return, until May 31, 2020. The minimum annual returns start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017. The total minimum payments over the life of the agreement aggregate US$49.7 million. The annual minimum payments have been reflected in the effective interest rate calculation of the debt.



96

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

8.

Long-term debt (continued):

As disclosed in note 9(d), the Company issued 1,000,000 warrants associated with the debt financing agreement. The warrants were valued at $809,344 based on the fair value of the options at the date of issue using the Black-Scholes option pricing model. The warrants have been recorded in shareholders’ equity. The Company recorded a long-term debt liability of $24,213,256, representing the residual value of the proceeds received under the debt agreement. The Company also incurred debt issuance costs of $1,727,902, which it has recorded as a discount on the debt. The Company has imputed an effective interest rate of 13.3 percent.

Birmingham has the option to convert its rights based on AGGRASTAT® to MC-1 within six months after MC-1’s commercialization, if achieved. Upon conversion to MC-1, Birmingham is entitled to a return of 10 percent on the first US$35 million in MC-1 revenues, 5 percent on the next US$40 million in MC-1 revenues and 3 percent thereafter, subject to a minimum annual return of US$2.6 million until May 31, 2020. Birmingham would receive payments based on MC-1 revenues until December 31, 2024, unless a novel patent is obtained for MC-1, which could extend the period of payments.

Birmingham’s participation rights are secured by a first security interest in the intellectual property rights of the Company in AGGRASTAT® and MC-1 (subject to certain specified MC-1 lien release terms), the proceeds derived from the commercialization of AGGRASTAT® and MC-1 (including without limitation any royalties receivable derived from any licensing of AGGRASTAT® and MC-1 to any third party and accounts receivable from the sale of AGGRASTAT® and MC-1 products), all intellectual, proprietary and other rights (including without limitation contractual promotion and licensing rights and benefits) associated with, or derived from, AGGRASTAT® and MC-1, as well as shares in Medicure Pharma Inc. and Medicure International Inc.

During the 30 day period following the date on which the U.S. Food and Drug Administration shall have first approved MC-1 for sale to the public, the Company may elect to terminate AGGRASTAT® or MC-1 Debt Payment rights with the payment, prior to the end of such 30 day period, of US$70 million to Birmingham.

In addition, upon the approval of MC-1 for a second indication, the Company may once again elect to terminate AGGRASTAT® or MC-1 debt payment rights with the payment, prior to the end of such 30 day period, of US$120 million to Birmingham. The termination options represent an embedded derivative as defined in CICA Handbook Section 3855 -Financial Instruments - Recognition and Measurement. As of May 31, 2008, the estimated fair value of the termination options is nil.


97

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

8.

Long-term debt (continued):

(b)

In August 2006, the Company obtained a term loan facility of US$15,840,000, maturing February 1, 2010, from Merrill Lynch Business Financial Services Inc. (Merrill) (formerly Merrill Lynch Capital Canada Inc.), Silicon Valley Bank and Oxford Finance Corporation. Interest is payable monthly at one-month LIBOR plus 6.5 percent per annum.

In conjunction with the Birmingham debt financing transaction described above, the Company agreed to amendments to certain of the covenants provided for in the credit agreement. The term loan facility lenders and the Company have agreed:

(i)

the Company will maintain a deposit of US$12 million in a cash collateral account to be held by Merrill, for the benefit of Merrill and the lenders (note 3).

(ii)

the Company will not be required to make any principal repayments on the term loan before maturity, except that the term loan lenders at their option, can require the Company to immediately repay US$2.0 million after September 17, 2008.

The term loan facility is secured by a subordinate security interest to Birmingham in the intellectual property rights of and related commercialization proceeds receivable by the Company in AGGRASTAT® and MC-1, the shares of Medicure Pharma Inc. and Medicure International Inc., and a first security interest in all remaining financial, physical, and intangible assets of the Company and its subsidiaries.

9.

Capital stock:

(a)

Authorized:

   

The companyCompany has authorized share capital of an unlimited number of common voting shares, an unlimited number of class A common shares and an unlimited number of preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued, the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares.



8698

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

5.9.

Capital stock (continued):


 (b)

Shares issued and outstanding are as follows:


   Number of shares  Amount 
        
 Common shares:      
        
 Balance at May 31, 2003 38,509,864 $ 17,502,222 
        
 Private placement for cash on June 26, 2003      
    net of share issue costs of $608,960 8,997,632  7,039,408 
 Exercise of warrants for cash 18,464,164  14,692,251 
 Exercise of options for cash 675,000  497,415 
 Balance at May 31, 2004 66,646,660  39,731,296 
        
 Exercise of options for cash 180,000  133,000 
 Balance at May 31, 2005 66,826,660  39,864,296 
        
 Private placement for cash on August 19, 2005,      
    net of share issue costs of $545,544 5,205,500  4,139,406 
 Public offering for cash on January 4, 2006,      
    net of share issue costs of $1,154,850 7,750,000  10,857,650 
 Private placement for cash on May 9, 2006      
    net of share issue costs of $2,373,792 16,000,000  25,959,800 
 Exercise of options for cash 264,305  405,482 
        
 Balance at May 31, 2006 96,046,465 $ 81,226,634 

Share issue costs include non-cash charges of $42,758 related to placement agent’s warrants granted as compensation for the August 19, 2005 private placement.

(c)

Contributed surplus:


Balance, May 31, 2003$ 105,375
Options granted386,048
Balance, May 31, 2004491,423
Options granted504,878
Balance, May 31, 2005996,301
Options granted1,184,800
Placement agent’s warrants granted42,758
Options exercised - transferred to capital stock(153,189)
Balance, May 31, 2006$ 2,070,670
  Number of shares    $ 
        
 Common shares:      
        
 Balance, May 31, 2005 66,826,660 $ 39,864,296 
        
 Private placement for cash on August 19, 2005      
    net of share issue costs of $545,544 5,205,500  4,139,406 
 Public offering for cash on January 4, 2006      
    net of share issue costs of $1,154,850 7,750,000  10,857,650 
 Private placement for cash on May 9, 2006      
    net of share issue costs of $2,373,792 16,000,000  25,959,800 
 Exercise of options for cash 264,305  405,482 
 Balance, May 31, 2006 96,046,465  81,226,634 
        
 Private placement for cash on December 22, 2006,      
    net of share issue costs of $1,866,177 15,615,392  21,541,766 
 Private placement for cash on December 28, 2006,      
    net of share issue costs of $499,879 4,307,652  5,986,541 
 Exercise of options for cash 345,000  347,456 
 Balance, May 31, 2007 116,314,509  109,102,397 
        
 Private placement for cash on October 5, 2007,      
    net of share issue costs of $714,445 13,913,043  13,247,321 
 Exercise of options for cash 80,000  90,241 
 Adoption of financial instruments standards (note 2(q))   (6,425,336)
        
 Balance, May 31, 2008 130,307,552 $ 116,014,623 


8799

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

5.9.

Capital stock (continued):

   
(d)(c)

Options:

   

The companyCompany has a stock option plan which is administered by the Board of Directors of the companyCompany with stock options granted to directors, management, employees and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum of 7,200,000ten percent of the outstanding common shares of the companyCompany at any time. The stock options generally are subject to vesting over a period up to three years and have a maximum term of ten years.

   

A summary of the company’sCompany’s stock options is as follows:


   2006  2005  2004 
     Weighted    Weighted    Weighted 
     average    average    average 
   Shares exercise price  Shares exercise price  Shares exercise price 
                 
 Balance, beginning               
    of year 2,372,333 $  1.17  2,307,033 $  1.11  2,137,033 $  0.85 
 Granted 1,308,000 1.76  1,075,000 1.18  935,000 1.44 
 Exercised (264,305)0.96  (180,000)0.74  (675,000)0.74 
 Cancelled or expired (116,000)1.32  (829,700)1.10  (90,000)1.18 
                 
 Balance, end of year 3,300,028 $  1.41  2,372,333 $  1.17  2,307,033 $  1.11 
                 
 Options exercisable,               
    end of year 1,709,685    977,334    1,327,032   
      2008     2007 
      Weighted     Weighted 
   Number of  average  Number of  average 
   Options  exercise price  Options  exercise price 
              
 Balance, beginning of            
      year 4,235,528 $ 1.52  3,300,028 $ 1.41 
 Granted 4,435,649  0.46  1,355,500  1.65 
 Exercised (80,000) 0.75  (345,000) 0.83 
 Cancelled or expired (1,873,494) 1.31  (75,000) 1.37 
              
 Balance, end of year 6,717,683 $ 0.87  4,235,528 $ 1.52 
              
 Options exercisable,            
    end of year 2,138,028     2,318,028    

  2006 2005 2004 
        
 Weighted average fair value per unit of      
    options granted during the year at      
    market value on grant date$  1.27 $  0.49 $  0.92 
 Weighted average fair value per unit of      
    options granted during the year at above      
    market value on grant date0.34 0.41  

The table above includes 355,000 (2005 - - 170,000; 2004 - 275,000) options granted to employees, of which $138,010 was charged to contributed surplus in fiscal 2006 (2005 -$36,763; 2004 - $97,790).

   2008  2007  2006 
           
 Weighted average fair value per unit         
    of options granted during the year at         
    market value on grant date$ 0.28 $ 1.07 $ 1.27 
 Weighted average fair value per unit         
    of options granted during the year at         
    above market value on grant date     0.34 
           


88100

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

5.9.

Capital stock (continued):

Options outstanding at May 31, 2008 consist of the following:

Options outstanding at May 31, 2006 consist of the following:


 Range of Weighted averageOptions outstanding 
 exerciseNumberremainingweighted averageNumber
 pricesoutstandingcontractual lifeexercise priceexercisable
      
 $    0.75 - 1.953,050,0284.9 years$    1.311,709,685
 2.20 - 2.75250,0004.1 years2.53
      
  3,300,028 $    1.411,709,685
Range of Weighted averageOptions outstanding 
exerciseNumberremainingweighted averageNumber
pricesoutstandingcontractual lifeexercise priceexercisable
     
$ 0.09 - 1.956,467,6838.3 years$ 0.821,888,028
1.99 - 2.48250,0002.0 years2.28250,000
     
 6,717,683 $ 0.872,138,028

The compensation expense related to stock options granted under the stock option plan during fiscal 20062008 aggregated $745,570 (2005$563,272 (2007 - $504,878; 2004 - $386,048)$1,025,310). The compensation expense was determined based on the fair value of the options at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

   2006  2005  2004 
           
 Expected option life 7.0 years  4.0 years  5.0 years 
 Risk-free interest rate 4.05%  3.61%  3.89% 
 Dividend yield      
 Expected volatility 72.70%  70.57%  77.30% 
           

  20082007
    
 Expected option life6.8 years6.5 years
 Risk-free interest rate3.99%4.10%
 Dividend yield
 Expected volatility63.19%66.96%
    

The cost of stock-based payments that are fully vested and non-forfeitable at the grant date is measured and recognized at that date. For awards that vest at the end of the vesting period, compensation cost is recognized on a straight-line basis over the vesting period. For awards that vest on a graded basis, compensation cost is recognized on a pro rata basis over the vesting period from the date of issuance. The company recognizes the effect of forfeitures on unvested options as they occur.

(e)

Warrants:


      Exercise     Granted     Granted    
 Issued Original  price  May 31,  (Exercised)  May 31,  (Exercised)  May 31, 
 (Expiry date) granted  per share  2004  (Cancelled)*  2005  (Cancelled)*  2006 
                       
 Private placements:                     
    629,834 units 629,834 $ 1.00  502,403    502,403  (502,403)*  
    (June 26, 2005)                     
    104,110 units 104,110  1.18        104,110  104,110 
    (August 19, 2008)                     
    2,602,750 units 2,602,750  1.18        2,602,750  2,602,750 
    (August 19, 2010)                     
    4,000,000 units 4,000,000  US 2.10        4,000,000  4,000,000 
    (May 9, 2011)                     


89101

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

5.9.

Capital stock (continued):

The warrants were all issued together with common shares either under prospectus offerings or private placements with the fair value of the consideration received under the offerings allocated to the common shares issued.


6.(d)

Income taxes:Warrants:


  Exercise Granted Granted 
IssueOriginalpriceMay 31,(Exercised)May 31,(Exercised)May 31,
(Expiry date)grantedper share2006(Cancelled)*2007(Cancelled)*2008
        
104,110 units       
(August 19, 2008)104,110$ 1.18104,110104,110               –104,110
        
2,602,750 units       
(August 19, 2010)2,602,7501.182,602,7502,602,750               –2,602,750
        
4,000,000 units       
(May 9, 2011)4,000,000US 2.104,000,0004,000,000               –4,000,000
        
3,984,608 units       
(December 22, 2011)3,984,608US 1.703,984,6083,984,608               –3,984,608
        
1,000,000 units       
(December 31, 2016)1,000,000US 1.261,000,0001,000,000
        
4,373,913 units       
(October 5, 2012)4,373,913US 1.504,373,9134,373,913
        

The warrants, with the exception of the warrants expiring on December 31, 2016, were issued together with common shares either under prospectus offerings or private placements with the net proceeds allocated to common shares and warrants based on their relative fair values using the Black-Scholes model. The warrants expiring on December 31, 2016 were issued with the debt financing agreement in September 2007, as disclosed in note 8(a).

  

Significant componentsThe warrants expiring on May 9, 2011, December 22, 2011, October 5, 2012, and December 31, 2016 may be exercised, upon certain conditions being met, on a cashless basis based on a formula described in the warrant agreements.

(e)

Shareholder rights plan:

The Company has a shareholder rights plan, the primary objective of which is to ensure, to the extent possible, that all shareholders of the company’s future tax assetsCompany are treated fairly in connection with any takeover offer for the Company and liabilities are as follows:to ensure that the Board of Directors is provided with sufficient time to evaluate unsolicited takeover bids and to explore and develop alternatives to maximize shareholder value.


   2006  2005 
        
 Future tax assets:      
        Research and development expenses deductible      
              in future periods for income tax purposes$ 1,486,000 $ 1,572,000 
        Investment tax credits 991,000  1,002,000 
        Share issue costs 1,215,000  234,000 
        Operating losses carried forward 2,818,000  1,340,000 
        Other 91,000  110,000 
   6,601,000  4,258,000 
        
          Less valuation allowance (6,601,000) (4,258,000)
        
  $ – $ – 

The reconciliation of the Canadian statutory rate to the income tax provision is as follows:

   2006  2005  2004 
           
 Loss for the year:         
          Canadian$ 2,951,941 $ 1,796,998 $ 1,633,921 
     ��    Foreign 9,655,133  13,068,912  4,355,165 
           
  $ 12,607,074 $ 14,865,910 $ 5,989,086 
           
 Canadian federal and provincial income taxes         
    recovery at 35% (2005 - 37.1%; 2004 -         
    37.1%)$ 4,412,000 $ 5,518,000 $ 2,223,000 
 Foreign tax rate differential (3,138,000) (4,524,000) (1,508,000)
 Permanent differences (265,000) (196,000) (150,000)
 Change in statutory rates (46,000) (68,000) (284,000)
 Valuation allowance (1,157,000) (730,000) (281,000)
 Other 194,000     
           
  $ – $ – $ – 


90102

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

6.10.

Income taxes:

Significant components of the Company’s future tax assets and liabilities are as follows:


   2008  2007 
        
 Future tax assets:      
          Research and development expenses deductible      
              in future periods for income tax purposes$ 2,136,000 $ 3,373,000 
          Share issue costs 1,065,000  1,440,000 
          Operating losses carried forward 5,429,000  2,419,000 
          Other 712,000  222,000 
   9,342,000  7,454,000 
        
          Less valuation allowance (9,342,000) (7,454,000)
        
  $ – $ – 

The reconciliation of the Canadian statutory rate to the income tax provision is as follows:

   2008  2007  2006 
           
 Loss for the year:         
          Canadian$ 5,111,984 $ 4,575,446 $ 2,951,941 
          Foreign 52,290,537  27,127,940  9,655,133 
           
  $ 57,402,521 $ 31,703,386 $ 12,607,074 
           
 Canadian federal and provincial income taxes         
    recovery at 27% (2007- 32.5%;         
    2006 - 35%)$ 15,499,000 $ 10,304,000 $ 4,412,000 
 Foreign tax rate differential (12,914,000) (7,947,000) (3,138,000)
 Permanent differences (126,000) (333,000) (265,000)
 Change in statutory rates (964,000) (374,000) (46,000)
 Valuation allowance (1,888,000) (1,650,000) (1,157,000)
 Other 393,000    194,000 
           
  $ – $ – $ – 

The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados (2.5 percent) and the United States (34 percent) that are applicable to losses incurred by the Company’s wholly-owned subsidiaries, Medicure International Inc. and Medicure Pharma Inc.


103

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

10.

Income taxes (continued):

   

The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rate (2.5 percent) in Barbados that is applicable to losses incurred by its wholly-owned subsidiary, Medicure International Inc.

At May 31, 2006,2008, the companyCompany has Canadian and Foreignforeign unutilized operating losses carried forward for income tax purposes of $5,498,135$10,876,162 and $35,746,132,$97,770,849, respectively. These losses are available to be applied against taxable income of future years up to fiscal 2016.2028. The Company also has scientific and development investment tax credits of $1,983,000 (2007 - $2,618,000) which can be applied against income taxes otherwise payable of future years up to fiscal 2028.

   
7.11.

Commitments and contingency:contingencies:

   
(a)

The company and its wholly-owned subsidiary, Medicure International Inc., have ongoing research and development agreements with third parties in the ordinary course of business. The agreements include the research and development of MC-1 and its related compounds. During the year ended May 31, 2006, the company incurred an aggregate of $8,427,566 (2005 - $8,984,509; 2004 - $3,953,118) in expenditures under these agreements which is included in research and development expenses in the statement of operations. Commitments:

As at May 31, 2006,2008 and in the company is committednormal course of business we have obligations to fund a further $66,019 (2005 - $2,047,682) relatedmake future payments, representing contracts and other commitments that are known and committed.


   Purchase 
   agreement 
   commitments 
     
 Contractual obligations payment due by fiscal period   
    ending May 31:   
     
 2009$ 1,600,000 
 2010 633,000 
     
  $ 2,233,000 

In conjunction with the acquisition of AGGRASTAT®, the Company entered into manufacturing and supply agreements to purchase a minimum quantity of AGGRASTAT® from a third party totaling a minimum of $2,233,000 over the term of the agreement, which expires in fiscal 2010.

As disclosed in note 8(a), in September 2007 the Company entered into a debt financing agreement for a US$25 million upfront cash payment. The minimum annual payments start at US$2.5 million in 2008 and escalate to US$6.9 million in 2017 and continue until May 31, 2020. The cumulative minimum annual payments (from 2008 to 2020) under the agreement aggregate US$49.7 million.


104

MEDICURE INC.
Notes to clinicalConsolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

11.

Commitments and contingencies (continued):

In addition to the contractual obligations disclosed above, the Company and its wholly-owned subsidiaries have ongoing research and development agreements with third parties in the ordinary course of business. The agreements include the research and development of MC-1 and its related compounds:

(i)

Contracts with clinical research organizations (CROs) and clinical sites. The contracts with the CROs are payable over the terms of the trials and timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial-related activities. The company is also liable forAs at May 31, 2008, the payment of certain pass through costs. As part of these trials, the company also entered intoCompany has no outstanding commitments related to clinical research agreements with CROs.

(ii)

As at May 31, 2008, the clinical sites participating in the trials. These agreements require payments over the course of the study based on various activities being completed by the site, such as patient visits and various testing and measurement activities required per the study protocol. A significant portion of the amounts due to the sites for these activities is not payable until after the completion of the trial. In addition, the companyCompany has committed to fund a further $3,700,225$26,255,128 in research and development activities under two development agreements with contract research organizations. The timing of expenditures and payments is largely at the discretion of the companyCompany and the agreements may be terminated at any time provided thirty (30)30 days notice is provided. Subsequent to May 31, 2006, the company amended the development agreements such that a further $35 million was committed in maximum direct research and development expenditures.

As at May 31, 2006,2008, the companyCompany has provided a research advance of $200,000 (2005(2007 - $200,000) to one of the third parties disclosed above,these organizations, which is non-interest bearing, unsecured and repayable on demand.



91

MEDICURE INC.
(A Development Stage Enterprise)(b)

Guarantees:

 
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 2005 and 2004

7.

Commitments and contingency (continued):


 

The companyCompany periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the companyCompany to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the company.Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the companyCompany from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the companyCompany has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying financial statements with respect to these indemnification obligations.

   
 (c)

Royalties:

The company has grantedCompany is obligated to pay royalties to third parties based on future commercial sales of MC-1, aggregating up to 4.753.9 percent on net sales. To date, no royalties are due and/or payable.



105

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2008, 2007 and 2006
(b)

11.

The company leases its premises under an operating lease. Minimum annual rental payments to the end of the lease term are as follows:Commitments and contingencies (continued):


     
 2007$ 33,198 
     

Royalties were payable to Merck & Co., Inc., based on net sales of AGGRASTAT® in the United States and its territories beginning in January 2007. The calculation of royalties due was based on a sliding scale dependant on reaching certain net sales milestones and ranges between 5 and 20 percent of net sales as defined in the license agreement. Royalties due under the license agreement are included in cost of goods sold in the period in which the related sale is recognized. In January 2008, Merck & Co., agreed to terminate any future royalty payments on net sales of AGGRASTAT® as a result of its decision to divest its non-US commercial rights to AGGRASTAT®.

The annual lease payments are exclusive of maintenance, property taxes, insurance and other operating costs.above royalty commitments exclude any obligations to Birmingham pursuant to the debt financing agreement (note 8).

8.12.

Related party transactions:

  

During the year ended May 31, 2006,2008, the companyCompany paid companies controlled by a director a total of $267,569 (2005$348,517 (2007 - $243,548; 2004$358,345; 2006 - $228,794)$267,569) for office rent, supplies, property and equipment supplies and consulting fees.

  

These transactions are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties.



92

MEDICURE INC.
(A Development Stage Enterprise)
 
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2006, 2005 and 2004

9.13.

Financial instruments:

  

The Company is exposed to market risks related to changes in interest rates and foreign exchange rates. The fair values of cash and cash equivalents, accounts receivable, research advance and accounts payable and accrued liabilities approximate their carrying values due to their short term to maturity. The fair value of the long-term debt approximates its carrying value as it has a variable interest rate and the borrowing arrangement is comparable to current market terms and conditions for similar debt. The Company has entered into no futures or forward contracts as at May 31, 2008.



106

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2008, 2007 and 2006
 

10.14.

Reconciliation of generally accepted accounting principles:

   

The companyCompany prepares its consolidated financial statements in accordance with Canadian GAAP, the measurement principles of which, as applied in these consolidated financial statements, conform in all material respects to U.S. GAAP, except as follows:

   
(a)

Intangible assets:

   

Under Canadian GAAP, the patent costs and acquired technologies which relate to products which are subject to research and development activities and have not yet received regulatory approval are included as an asset on the balance sheet. Under U.S. GAAP, amounts paid for intangible assets used solely in research and development activities with no alternative future use should be expensed as incurred. As a result of this difference in treatment, under U.S. GAAP, thecertain patent costs and acquired technologies would have been recorded as a component of research and development expense in the year of incurrence. The effect of this difference is that for the years ended May 31, 2006, 20052008, 2007 and 2004,2006, research and development expense would have increased by $1,663,453, $386,157$572,520, $618,330 and $231,205,$1,663,453, respectively. Under U.S. GAAP, the related reduction in amortization expense to be added back is $74,582$179,587 for the year ended May 31, 2008 (2007 - $206,899; 2006 (2005 - $29,878; 2004$74,582). During the year ended May 31, 2008, the Company wrote-down its patent asset related to MC-1 (note 7). This asset was expensed previously under U.S. GAAP, resulting in an adjustment of $883,784 (2007 - $17,979)nil, 2006 - nil).

   
(b)

Scientific equipment:Change in accounting policy:

   

Scientific equipment acquired solelyOn June 1, 2007, the Company adopted FASB Interpretation No. 48,Accounting for researchUncertainties in Income Taxes(FIN 48), an interpretation of FASB Statement 109,Accounting for Income Taxes (SFAS 109). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. The interpretation prescribes a recognition threshold and development activities has been capitalizedmeasurement attribute for the financial statement recognition and amortized over its useful life for Canadian GAAP purposes. Under U.S. GAAP, the costmeasurement of this equipment woulda tax position taken or expected to be charged to research and development expense as incurred as it does not have alternative future use. There were no additions to scientific equipment during the years ended May 31, 2006, 2005 and 2004. A total of $17,212 (2005 - nil; 2004 - nil) in scientific equipment was written off during the year under Canadian GAAP that was expensedtaken in a prior yeartax return. FIN 48 also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of tax positions under U.S. GAAP. AmortizationFIN 48 is a two-step process, whereby (i) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the scientific equipmentposition; and (ii) for Canadian GAAPthose tax positions that meet the more-likely-than-not recognition threshold, the Company would be added backrecognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the related tax authority.

The adoption of FIN 48 did not result in a change to the loss for the period for U.S. GAAP reconciliation purposes. The amortization to be added back for the years ended May 31, 2006, 2005 and 2004 is $2,933, $4,587 and $5,715, respectively.Company’s opening accumulated deficit as of June 1, 2007 nor did it impact fiscal 2008.



93107

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

10.14.

Reconciliation of generally accepted accounting principles (continued):

(c)

Stock options - stock-based compensation costs:

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The company had no amounts accrued for the payment of interest and penalties as of May 31, 2008.

The Company is subject to tax examinations in all major taxing jurisdictions in which it operates (namely Canada, the United States and Barbados). The Company’s tax years 2004 through 2008 remain open in Canada for regular examination and tax years 2001 through 2008 for transfer pricing purposes. Furthermore, taxation years 2000 through 2008 remain open for examination in other jurisdictions.

In accordance with SFAS 109, the Company reviews all available positive and negative evidence to evaluate the recoverability of the deferred tax assets. This includes a review of such evidence as the carry-forward periods of the significant tax assets, the Company’s history of generating taxable income in its significant tax jurisdictions (namely Canada, the United States and Barbados), the Company’s cumulative profits or losses in recent years, and the Company’s projections of earnings in its significant jurisdictions. On a jurisdictional basis, the Company is in a cumulative loss position in all of its significant jurisdictions. For all jurisdictions, the Company continues to maintain a valuation allowance against all of its deferred income tax assets.

Under Canadian GAAP, investment tax credits and other research and development credits are deducted from research and development expense for items of a current nature, and deducted from property and equipment for items of a capital nature. Under United States GAAP, these tax credits would be reclassified as a reduction of income tax expense.

For reconciliation purposes to U.S. GAAP, the company has elected to follow the fair value method in accounting for its employee, management and director stock options since inception of the company. Under U.S. GAAP, stock-based compensation to non-employees must be recorded at fair value of the options granted. For stock-based compensation granted to non- employees subsequent to June 1, 2002 and to employees, directors and management subsequent to June 1, 2003, the accounting is consistent under both Canadian GAAP and U.S. GAAP.

The company uses the Black-Scholes option pricing model to determine the fair value of all options granted. This compensation expense would be amortized over the appropriate vesting periods. For purposes of reconciliation to U.S. GAAP, the company would record an additional compensation expense for the years ended May 31, 2006, 2005 and 2004 of approximately nil, $8,392 and $25,588, respectively.

(d)

Escrowed common shares:

Under Canadian GAAP, common shares of the company under escrow arrangements are included in capital stock at the time of issuance based on the total number of shares issued and the issuance price. No additional compensation expense is recorded when the common shares are released from escrow. Under U.S. GAAP, the common shares of the company that were previously held in escrow on a time release basis are accounted for in the same manner as under Canadian GAAP. An increase to capital stock and a compensation expense, however, would be recorded under U.S. GAAP, upon eligibility for release of the escrowed common shares of the company, where the release is based on performance conditions being met. The compensation expense would be accounted for as the difference between the market value of the company’s common shares at the time the common shares are eligible for release from escrow and the price paid per common share at the time of issuance multiplied by the number of common shares released from escrow. To May 31, 2003, performance conditions on all of the common shares under escrow had been met with performance conditions on 1,825,537 of the common shares under escrow met during fiscal 2003. For purposes of reconciliation to U.S. GAAP, the company would record an additional compensation expense for the years ended May 31, 2006, 2005 and 2004 of nil.



94108

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

10.14.

Reconciliation of generally accepted accounting principles (continued):

   
(e)

Recent accounting pronouncements:

In December 2004, the FASB revised SFAS No. 123 to require companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expressed no preference for a type of valuation model (SFAS 123R). The way an award is classified will affect the measurement of compensation cost. Liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled. Equity-classified awards are measured at grant-date fair value and the grant-date fair value is recognized over the requisite service period. Such awards are not subsequently remeasured. SFAS 123R requires forfeitures be estimated at the time of grant.

In April 2005, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) to provide additional guidance regarding the application of SFAS 123R. SAB 107 permits registrants to choose an appropriate valuation technique or model to estimate the fair value of share options, assuming consistent application, and provides guidance for the development of assumptions used in the valuation process. Based upon SEC rules issued in April 2005, SFAS 123R is effective for fiscal years that began after June 15, 2005 and will be adopted by the company effective June 1, 2006. Additionally, SAB 107 discusses disclosures to be made under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in registrants’ periodic reports. The company has not yet determined the effect of this new standard on its consolidated financial position and results of operations.

In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections” (SFAS No. 154), which replaces Accounting Principles Board Opinions No. 20, Accounting Changes” and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements - an Amendment of APB Opinion No. 28. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, to the earliest practicable dates, as the required method for reporting a change in accounting principle and restatement with respect to the reporting of a correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005. Although the company will continue to evaluate the application of SFAS No. 154, the company does not currently believe that adoption will have a material impact on its results of operations, financial position or cash flows.



95

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2006, 2005 and 2004

10.

Reconciliation of generally accepted accounting principles (continued):

(f)(b)

Summary:

   

The impact of the measurement differences to U.S. GAAP on the consolidated statements of operations and deficit are as follows:


            Cumulative from 
   Year ended  Year ended  Year ended  inception on 
   May 31,  May 31,  May 31,  September 15, 1997 
   2006  2005  2004  to May 31, 2006 
              
 Loss for the period, Canadian            
    GAAP$(12,607,074)$ (14,865,910)$ (5,989,086)$ (46,127,566)
 Adjustments for the following:            
      Stock-based compensation (c)   (8,392) (25,588) (1,203,880)
      Intangible assets (a) (1,663,453) (386,157) (231,205) (3,077,733)
      Amortization of intangible            
            assets (a) 74,582  29,878  17,979  176,441 
      Scientific equipment (b) 17,212      (46,610)
      Amortization of scientific            
            equipment (b) 2,933  4,587  5,715  46,610 
      Escrowed common share            
           compensation (d)       (15,061,500)
              
 Loss for the period, U.S. GAAP$ (14,175,800)$ (15,225,994)$ (6,222,185)$ (65,294,238)
              
 Basic and diluted loss per share,            
    U.S. GAAP$(0.19)$ (0.23)$ (0.11)   
 Weighted average number of            
    common shares outstanding 75,144,764  66,717,715  55,738,716    
   Year ended  Year ended  Year ended 
   May 31,  May 31,  May 31, 
   2008  2007  2006 
           
 Loss for the period, Canadian GAAP$ (57,402,521)$ (31,703,386)$ (12,607,074)
 Adjustments for the following:         
      Intangible assets (a) (572,520) (618,330) (1,663,453)
      Amortization of intangible assets (a) 179,587  206,899  74,582 
      Scientific equipment      17,212 
      Amortization of scientific         
            equipment      2,933 
      Impairment of intangible assets (a) 883,784     
           
 Loss for the period, U.S. GAAP$ (56,911,670)$ (32,114,817)$ (14,175,800)
           
 Basic and diluted loss per share,         
    U.S. GAAP$ (0.45)$ (0.31)$ (0.19)
 Weighted average number of common         
    shares 125,476,086  104,879,404  75,144,764 

The impact of the measurement differences to U.S. GAAP on the consolidated statements of cash flows are as follows:

            Cumulative from 
   Year ended  Year ended  Year ended  inception on 
   May 31,  May 31,  May 31,  September 15, 1997 
   2006  2005  2004  to May 31, 2006 
              
 Operating activities$ (13,902,721)$(12,453,672)$ (6,383,413)$ (45,983,617)
 Investing activities (19,671) (42,796) (21,731) 571,567 
              
   Year ended  Year ended  Year ended 
   May 31,  May 31,  May 31, 
   2008  2007  2006 
           
 Operating activities$ (42,437,160)$ (25,864,983)$ (13,902,721)
 Investing activities (14,588) (22,306,563) (19,671)
 Financing activities 22,586,358  45,021,433  41,251,907 
           

The impact of the measurement differences to U.S. GAAP described above would result in the consolidated balance sheet items as follows:

   2008  2007 
        
 Deferred debt issue expenses$ 2,554,081 $ – 
 Long-term debt 36,741,000   
 Intangible assets 5,510,661  20,078,862 
 Capital stock and contributed surplus 144,921,967  128,382,255 
 Deficit (154,320,725) (97,409,055)
        


96109

MEDICURE INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
 
Years ended May 31, 2006, 20052008, 2007 and 20042006
 

10.14.

Reconciliation of generally accepted accounting principles (continued):

(c)

Recent accounting pronouncements:

The following accounting standards were issued recently by the FASB. The Company is currently evaluating the impact of these new standards on its consolidated financial statements.

In September 2006, the FASB approved SFAS No. 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP and enhances disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 until fiscal years beginning after November 15, 2008 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS 157 is effective for financial assets and liabilities for fiscal years beginning after November 15, 2007.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). Under the provisions of SFAS 159, companies may choose to account for eligible financial instruments, warranties and insurance contracts at fair value on a contract-by-contract basis. Changes in fair value will be recognized in earnings each reporting period. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is required to adopt the provisions of SFAS 159 effective June 1, 2008.

In June 2007, the Emerging Issues Task Force issued EITF Issue 07-03,Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development

(EITF 07-03). EITF 07-03 addresses the diversity which exists with respect to the accounting for the non-refundable portion of a payment made by a research and development entity for future research and development activities. Under EITF 07-03, an entity would defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the related services are performed. EITF 07-03 is effective for fiscal years beginning after December 15, 2007 and interim periods within those years.



110

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

14.

Reconciliation of generally accepted accounting principles (continued):

The impactIn November 2007, the Emerging Issues Task Force issued EITF Issue 07-01,Accounting for Collaborative Arrangements (EITF 07-01). EITF 07-01 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. Further, EITF No. 07-01 clarified that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue 01-9,Accounting for Consideration Given by a Vendor to a Customer. EITF 07-01 is effective for fiscal years beginning after December 15, 2008.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations (SFAS 141R). SFAS 141R will change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the measurement differencesfirst annual reporting period beginning on or after December 15, 2008.

In December 2007, the FASB issued SFAS No. 160,Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 revises the disclosure requirements for derivative instruments and hedging activities. SFAS 161 is effective for financial years beginning on or after November 15, 2008.

In May 2008, the FASB issued SFAS 162,The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to U.S. GAAP described above would resultbe used in consolidated balance sheet items as follows:the preparation of financial statements. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

   2006  2005 
        
 Property and equipment$ 50,663 $ 60,859 
 Capital stock and contributed surplus 99,542,138  57,105,431 
 Deficit accumulated during the development stage (65,294,238) (51,118,438)

111

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and 2006

11.14.

Subsequent event:Reconciliation of generally accepted accounting principles (continued):

In June 2008, the Emerging Issues Task Force issued EITF Issue No. 07-5,Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock (EITF 07-5).

The instruments affected by this issue may contain contract terms that call into question whether the instrument or embedded feature is indexed to the entity’s own stock. A derivative instrument or embedded derivative feature that is deemed indexed to an entity’s own stock may be exempt from the requirements of Statement 133 for derivatives. In addition, a freestanding instrument that is indexed to a company’s own stock remains eligible for equity classification under Issue 00-19.

The consensus addresses the following issues:

How an entity should evaluate whether an instrument (or embedded feature) is indexed to its own stock.

How the currency in which the strike price of an equity-linked financial instrument (or embedded equity-linked feature) is denominated affects the determination of whether the instrument is indexed to an entity’s own stock.

How an issuer should account for market-based employee stock option valuation instruments.

The consensus is effective for fiscal years and interim periods beginning after December 15, 2008. The consensus must be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is adopted as a cumulative-effect adjustment to the opening balance of retained earnings for that fiscal year. Early application is not permitted.

15.

Segmented information:

  

In August 2006,The Company considers that it operates in one business segment, the company acquiredbiopharmaceutical industry. Substantially all of the rights toCompany’s assets and operations are located in Canada, the United States and Barbados. During the year ended May 31, 2007, 100 percent of product revenues were generated from sales of AGGRASTAT® Injection (tirofiban hydrochloride) in the United States, which was to seven customers. Customer A accounted for 39 percent, Customer B accounted for 33 percent, Customer C accounted for 25 percent, and its territories (Puerto Rico, Virgin Islands,the remaining four customers accounted for 3 percent of revenues.



112

MEDICURE INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2008, 2007 and Guam) for total cash consideration of US$19 million plus inventory from MGI Pharma Inc. The transaction provides the company with an immediately marketable product to develop distribution channels in the United States marketplace. The company has secured US$15.84 million in a term loan facility with various lenders and financed the transaction through a combination of the facility and cash on hand. The term of the loan facility is over 42 months, with interest due and payable at commencement of the loan payable on the first day of the month at one-month LIBOR plus 6.5 percent per annum. Commencing in June 2007, principal is payable monthly on a straight-line amortization schedule over 33 consecutive monthly instalments.2006

15.

Segmented information (continued):

  
12.

Property and equipment and intangible assets are located in the following countries:


   2008  2007 
        
 Canada$ 205,904 $ 251,543 
 Barbados 8,184,642  23,233,236 
 United States 95,951  123,873 
        

16.

Comparative figures:

  

The comparative financial statements have been reclassified from statements previously presented to conform to the basis of presentation ofadopted in the current yearyear’s financial statements.



97113

Other Schedules

Information required pursuant to Schedule 21.12 -04 of Regulation S-X has been disclosed on page 5.6.See Item 3A – Selected Financial Information.

Information required pursuant to Schedule 21.12 -09 of Regulation S-X is not applicable.

ITEM 18. FINANCIAL STATEMENTS

Not applicable.

ITEM 19. EXHIBITS

The exhibits are in the following order:

NumberExhibit
 1.

Articles of Incorporation and Bylaws:

  

 i)1.1

Medicure’s Articles of Incorporation dated September 15, 1997 [1];

 
(a)1.2

Lariat’s Articles of Incorporation dated June 3, 1997 [1];

 
(b)1.3

Medicure’s Certificate of Continuance from Manitoba to Alberta dated December 3, 1999 [1];

 
(c)1.4

Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1];

 
(d)1.5

Medicure’s Certificate of Continuance from Alberta to Canada dated February 23, 2000 [1];

 
(e)1.6

Amended Certificate of Continuance and Articles of Continuance dated February 20, 2003 [3].;

1.7

Bylaws [5];

1.8

Bylaw No. 2 **

  
ii)

Bylaws [5].

 4.

Material Contracts and Agreements:

  

 a)4.1

License Agreement between Medicure and the University of Manitoba dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [1];

  

 b)4.2

Transfer Agency Agreement between Montreal Trust Company of Canada and the Corporation dated as of January 26, 2000, whereby Montreal Trust Company of Canada agreed to act as transfer agent and registrar with respect to the Shares [1];

  

 c)4.3

Medicure International Licensing Agreement between the Corporation and Medicure International Inc. dated June 1, 2000, wherein the Corporation granted Medicure International Inc a license with regard to certain intellectual property [1];

  

 d)4.4

Development Agreement between Medicure International Inc. and CanAm Bioresearch Inc. dated June 1, 2000, wherein CanAm Bioresearch Inc. agreed to conduct research and development activities for Medicure International [1];

  

 e)4.5

Amendment to the Consulting Services Agreement dated February 1, 2002 between A.D. Friesen Enterprises Ltd. and the Corporation whereby consulting services will be provided to the Corporation by Dr. Albert D. Friesen [2];

  

 f)4.6

Stock Option Plan approved February 4, 2002 [3];

  

 g)4.7

Employment Agreement with Derek G. Reimer dated February 4, 2002 [3];



114

 
h)4.8

Employment Agreement with Moray Merchant dated September 22, 2003 [3];



98

 i)
4.9

Amendment dated March 1, 2002 to the Development Agreement between Medicure International Inc. and CanAm Bioresearch Inc [5];

   
 j)4.10

Amendment dated August 7, 2003 to the Development Agreement between Medicure International Inc. and CanAm Bioresearch Inc [3];

   
 k)4.11

Amendment to the Consulting Services Agreement dated October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Corporation whereby consulting services will be provided to the Corporation by Dr. Albert D. Friesen [4];

   
 l)4.12

Employment Agreement with Dawson Reimer dated October 1, 2001 [4];

   
 m)4.13

Development Agreement between Medicure International Inc. and Clinical Development Research Institute Inc.(CDRI) dated July 2, 2004, wherein CDRI agreed to conduct research and development activities for Medicure International [4];

   
 n)4.14

Amendment to Employment Agreement dated April 5, 2005 between A.D. Friesen Enterprises Ltd. and the Corporation [5];

   
 o)4.15

Amendment to Employment Agreement dated April 5, 2005 between Moray Merchant and the Corporation [5];

   
 p)4.16

Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Corporation [5];

   
 q)4.17

Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Corporation [5];

   
 r)4.18

Amendment dated July 8, 2005 to the Development Agreement between Medicure International Inc. and CanAm Bioresearch Inc [5];

   
 s)4.19

Amendment to Employment Agreement dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Corporation **[6];

   
 t)4.20

Amendment to Development Agreement dated July 2, 2004 between Medicure International Inc. and Clinical Development Research Institute Inc. dated July 4, 2006 **[6];

   
 u)4.21

Amendment to Development Agreement dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International Inc. dated July 4, 2006 **[6];

   
 v)4.22

Amended Stock Option Plan approved October 25, 2005 [6];

4.23

Amendment to Employment Agreement dated October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Corporation [7];

4.24

Amended License Agreement between Medicure and the University of Manitoba dated November 24, 2006, originally dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [7];

4.25

Amendment to Employment Agreement dated October 1, 2007 between A.D. Friesen Enterprises Ltd. and the Corporation **;



115

4.26

Amended Stock Option Plan approved October 2, 2007 as filed on October 9, 2007 Form S-8 #333-146574

4.27

Employment Agreement with Dwayne Henley June 10, 2008 **

4.28

Debt financing agreement between Birmingham Associates Ltd. and the Corporation dated September 17, 2007 **.

  

 11.

Code of Ethics [4].

  

 12.12.1

a)

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.

  

 b)12.2

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.

  

 13.13.1

a)

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **.

  

 

[1]

Herein incorporated by reference as previously included in the Corporation’s Form 20-F registration statement filed on January 30, 2001.

  

 

[2]

Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on December 31, 2002.



99

[3]

Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on October 20, 2003.

  

[4]

[4] Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on September 15, 2004.

  

[5]

[5] Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on August 19, 2005.

[6] Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on August 10, 2006.

[7] Herein incorporated by reference as previously included in the Corporation’s Form 20-F annual report filed on August 22, 2007.

15.1

Report of Independent Registered Public Accounting Firm **

23.1

Consent of Independent Registered Pubic Accounting Firm **

** Filed Herewith



100116

SIGNATURE PAGE

Pursuant to the requirements of Section 12 of theSecurities Exchange Act of 1934, the Corporation certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated: August 10, 200627 2008


ON BEHALF OF THE CORPORATION,
MEDICURE INC.

per:
 
___________________________________________________
Albert D. Friesen, Ph.D.
Chairman, President & CEO


Albert D. Friesen, Ph.D.
Chairman, President & CEO