<Page>
VIA EDGAR CONFIDENTIAL TREATMENT
REQUESTED BY AXCAN PHARMA INC.
UNDER 17 C.F.R. Section 200.83
August 3, 2005
Securities and Exchange Commission
Judiciary Plaza
100 F Street, N.W.
Washington, DC 20549
Attention: Filing Desk
RE: AXCAN PHARMA
40-F FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
FILE NO. 000-30860
Dear Sirs,
Axcan Pharma Inc. ("Axcan" or the "the Company") is pleased to submit the
following reply to the comments raised in your July 6, 2005 letter (the "Comment
Letter") regarding Axcan's 40-F filing for the fiscal year ended September 30,
2004. The individual responses of the Company to each of the Commission's
comments are set forth below, together with the related comments. The headings
and numbers of the responses coincide with the headings and comment numbers set
forth in the Comment Letter.
As requested in your letter, we acknowledge that:
- - The Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
- - Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
- - The Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
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EXHIBIT 99.2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION, PAGE 33
1. WE BELIEVE THAT YOUR DISCLOSURE RELATED TO ESTIMATES THAT REDUCE GROSS
REVENUE SUCH AS PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER
DISCOUNTS AND ALLOWANCES COULD BE IMPROVED.
(a) TELL US THE NATURE AND AMOUNT OF EACH ACCRUAL AT THE BALANCE SHEET
DATE AND THE EFFECT THAT COULD RESULT FROM USING OTHER REASONABLY
LIKELY ASSUMPTIONS THAN WHAT YOU USED TO ARRIVE AT EACH ACCRUAL SUCH
AS A RANGE OF REASONABLY LIKELY AMOUNTS OR OTHER TYPES OF SENSITIVITY
ANALYSIS.
RESPONSE:
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S. DOLLARS.
We wish to mention that sub-questions a) to f) of question 1, each covers
different aspects of the same subject. We answer each sub-question separately
but some information related to one sub-question might be found within our
answer to another sub-question.
Contract rebates, product returns and accrued chargebacks included in Note 14 to
consolidated annual financial statements detail as follows:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C1] AS NOTED BY * IN THE TABLE
BELOW.
<Table>
<Caption>
2004 2003
------- -------
$ $
Product returns * *
Chargebacks * *
Contract rebates * *
------- -------
8,853 7,248
======= =======
</Table>
The accrual for discounts amounting to a $ CONFIDENTIAL TREATMENT REQUESTED BY
THE COMPANY [C2] as of September 30, 2004 and $ CONFIDENTIAL TREATMENT REQUESTED
BY THE COMPANY [C3] as of September 30, 2003 is reported in the balance sheet
separately from the other accruals listed above. The provisions for product
returns, chargebacks, contract rebates and discounts are based on estimates
derived from historical experience. Quarterly, the Company validates the ending
balance for each provision with an estimate based on historical experience and
updated to include the most recent transactions.
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CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C4], we consider historical
experience as the most reliable and therefore most appropriate information to
estimate product returns, chargebacks, contract rebates and discounts. Because
we believe our historical experience is our most reliable information at this
time, we believe that calculating the accruals using a different method or
assumptions could be misleading.
(b) EXPLAIN TO US THE FACTORS THAT YOU CONSIDER IN ESTIMATING EACH ACCRUAL
SUCH AS HISTORICAL RETURN OF PRODUCTS, LEVELS OF INVENTORY IN THE
DISTRIBUTION CHANNEL, ESTIMATED REMAINING SHELF LIFE, PRICE CHANGES
FROM COMPETITORS, AND INTRODUCTIONS OF GENERICS AND/OR NEW PRODUCTS.
RESPONSE:
Factors considered in estimating each accrual:
i) For product returns, CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY
[C5].
ii) Chargebacks are paid by Axcan to the wholesalers CONFIDENTIAL TREATMENT
REQUESTED BY THE COMPANY [C6].
iii) Contract rebates are issued CONFIDENTIAL TREATMENT REQUESTED BY THE
COMPANY [C7].
iv) The accrual for discounts is calculated using the assumption that
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C8].
(c) TO THE EXTENT THAT INFORMATION YOU CONSIDER IN (b) IS QUANTIFIABLE,
TELL US BOTH THE QUANTITATIVE AND QUALITATIVE INFORMATION AND DISCUSS
TO WHAT EXTENT INFORMATION IS FROM EXTERNAL SOURCES (E.G.,
END-CUSTOMER PRESCRIPTION DEMAND, THIRD-PARTY MARKET RESEARCH DATA
COMPARING WHOLESALER INVENTORY LEVELS TO END-CUSTOMER DEMAND). FOR
EXAMPLE, IN DISCUSSING YOUR ESTIMATE OF PRODUCT THAT MAY BE RETURNED,
TELL US BY PRODUCT AND IN TABULAR FORMAT, THE TOTAL AMOUNT OF PRODUCT
IN SALES DOLLARS THAT COULD POTENTIALLY BE RETURNED AS OF THE BALANCE
SHEET DATE AND DISAGGREGATED BY EXPIRATION PERIOD.
RESPONSE:
Most of the information used to establish the accruals is internal and based on
historical experience. Management considers such information to be the most
reliable available.
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C9].
(d) IF APPLICABLE, TELL US ABOUT ANY SHIPMENTS MADE AS A RESULT OF
INCENTIVES AND/OR IN EXCESS OF YOUR CUSTOMER'S ORDINARY COURSE OF
BUSINESS INVENTORY LEVEL. DISCUSS YOUR REVENUE RECOGNITION POLICY FOR
SUCH SHIPMENTS.
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RESPONSE:
As already discussed in our MD&A, "wholesaler buying patterns, including a
tendency to increase inventory levels prior to an anticipated or announced price
increase, affect Axcan's operating results by shifting revenue between quarters.
To maintain good relations with wholesalers, Axcan typically gives prior notice
of price increases."
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C10].
As mentioned in our MD&A, under "Revenue Recognition", revenue is recognized
when the product is shipped to the Company's customer, provided the Company has
not retained any significant risks of ownership or future obligations with
respect to the product shipped. Revenue from product sales is recognized net of
sales discounts, allowances, returns, rebates and chargebacks.
(e) PROVIDE US WITH A ROLL FORWARD OF THE ACCRUAL OF EACH ESTIMATE FOR
EACH PERIOD PRESENTED SHOWING THE FOLLOWING:
- BEGINNING BALANCE,
- CURRENT PROVISION RELATED TO SALES MADE IN CURRENT PERIOD,
- CURRENT PROVISION RELATED TO SALES MADE IN PRIOR PERIODS,
- ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE
IN CURRENT PERIOD,
- ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE
IN PRIOR PERIODS, AND
- ENDING BALANCE.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C11] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2004
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2003 Provision Returns / Cr Sep. 30, 2004
----------------------------------------------------------
$ $ $ $
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
----------------------------------------------------------
Accrual included in Note 14 7,248 * * 8,853
============= * * =============
Discounts and other allowances * * * *
----------
Deductions from gross revenue *
----------
</Table>
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CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C12] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2002 Provision Returns / Cr Sep. 30, 2003
---------------------------------------------------------------------
$ $ $ $
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
---------------------------------------------------------------------
Accrual included in Note 14 4,828 * * 7,248
===== =====
Discounts and other allowances * * * *
----------------
Deductions from gross revenue *
----------------
</Table>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C13] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2001 Provision Returns / Cr Sep. 30, 2002
---------------------------------------------------------------------
$ $ $ $
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
---------------------------------------------------------------------
Accrual included in Note 14 4,459 * * 4,828
===== = =====
Discounts and other allowances * * * *
----------------
Deductions from gross revenue *
----------------
</Table>
The current provision is established using a percentage based on historical
experience and applied to current sales. CONFIDENTIAL TREATMENT REQUESTED BY THE
COMPANY [C14].
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C15].
The "Ending Balance" is re-evaluated quarterly using historical experience
updated to include most recent actual transactions. CONFIDENTIAL TREATMENT
REQUESTED BY THE COMPANY [C16].
(f) IN YOUR DISCUSSION OF RESULTS OF OPERATIONS FOR THE PERIOD TO PERIOD
REVENUE COMPARISONS, TELL US THE AMOUNT OF AND REASON FOR FLUCTUATIONS
FOR EACH TYPE OF REDUCTION OF GROSS REVENUE, SUCH AS
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PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER DISCOUNTS AND
ALLOWANCES, INCLUDING THE EFFECT THAT CHANGES IN YOUR ESTIMATES OF
THESE ITEMS HAD ON YOUR REVENUES AND OPERATIONS.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C17] AS NOTED BY * IN THE TABLE
BELOW.
For the last three fiscal years, deductions from gross revenue detail as
follows:
<Table>
<Caption>
2004 2003 2002
------------ ---------- ------------
$ $ $
Product returns * * *
Chargebacks * * *
Contract rebates * * *
Discounts and other allowances * * *
------------ ---------- ------------
* * *
============ ========== ============
</Table>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C18] AS NOTED BY * IN THE TABLE
BELOW.
Deductions are expressed as a percentage of gross revenue in the table below:
<Table>
<Caption>
2004 2003 2002
------------ ------------ ------------
Product returns * * *
Chargebacks * * *
Contract rebates * * *
Discounts and other allowances * * *
------------ ------------ ------------
* * *
* * *
============ ============ ============
</Table>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C19].
The same method was used to estimate accruals for product returns, chargebacks,
contract rebates and discounts during the last three fiscal years, and changes
in our estimates of these items had a negligible impact on the company's
revenues and operations.
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(g) TELL US WHY YOU DID NOT PROVIDE THE ABOVE INFORMATION IN YOUR MD&A TO
GIVE INVESTORS INFORMATION ABOUT THESE CRITICAL ACCOUNTING ESTIMATES.
RESPONSE:
The Company disclosed in note 14 to consolidated financial statements the amount
of accrued contract rebates, product returns and chargebacks at year end. In
order to enhance the Company's disclosures, we will include in our next 40-F
filing a discussion on contract rebates, product returns and chargebacks
deducted against revenue, their fluctuations and basis of calculation. We do not
believe that the detailed information regarding the deductions from gross
revenue provided above is material, and consequently, we believe that providing
this level of detail is not useful to investors.
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GOODWILL AND INTANGIBLE ASSETS, PAGE 33
2. AS OF SEPTEMBER 30, 2004, YOUR TOTAL NET INTANGIBLE ASSETS APPROXIMATE 67%
OF TOTAL ASSETS. WE BELIEVE YOUR CRITICAL ACCOUNTING ESTIMATES ABOUT THESE
ASSETS COULD BE IMPROVED TO PROVIDE MORE TRANSPARENT, RELEVANT, AND USEFUL
DISCLOSURES, ESPECIALLY CONSIDERING THE SIGNIFICANCE OF THESE ASSETS TO
YOUR BALANCE SHEET AND OPERATIONS. PLEASE TELL US THE FOLLOWING AS IT
RELATES TO YOUR INTANGIBLES.
(a) BY SIGNIFICANT PRODUCT AND BY THERAPEUTIC CATEGORY IN THE CASE OF
INSIGNIFICANT PRODUCTS:
- THE GROSS CARRYING AMOUNT AND ACCUMULATED AMORTIZATION AS OF
YEAR-END;
- AMORTIZATION PERIOD USED;
- COMPARISON OF THE REMAINING PATENT LIFE FOR PATENTS UNDERLYING THE
TRADEMARKS, LICENSES, AND MANUFACTURING RIGHTS TO THAT OF THE
REMAINING ESTIMATED USEFUL LIFE USED TO AMORTIZE THE INTANGIBLE. IF
APPLICABLE, EXPLAIN THE REASON FOR DIFFERENCES;
- YOUR METHOD OF AMORTIZATION, SUCH AS STRAIGHT-LINE OR ACCELERATED.
IF YOU USE STRAIGHT-LINE, DISCLOSE THE BASIS FOR USING STRAIGHT-LINE
RATHER THAN AN ACCELERATED METHOD OF AMORTIZATION (E.G., CONSIDERING
THE LIKELY ENTRY OF GENERIC COMPETITION AND OTHER FACTORS);
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C20] AS NOTED BY * IN THE TABLE
BELOW
Trademarks, trademark licenses and manufacturing rights with a:
<Table>
<Caption>
Accumulated Balance as of Amortization Remaining Remaining patent
Cost Amortization SEPT. 30, 2004 Period years Life
-------- -------------- --------------- ---------------- ----------- ------------------
$ $ $ (Straight-line)
FINITE LIFE
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
---------------------------------------------
280,034 29,869 250,165
---------------------------------------------
INDEFINITE LIFE
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
* * * * * * *
---------------------------------------------
170,127 12,417 157,710
---------------------------------------------
450,161 42,286 407,875
=============================================
</Table>
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For most acquisitions of products already on the market, the trademark or brand
represented most of the value. Trademarks or brands are amortized over their
useful life on a straight-line basis, management re-evaluates the remaining
useful life annually and it is possible that the remaining life could be
reviewed.
In addition, management evaluates the value of intangible assets annually, by
comparing the carrying value to the future benefits of the company's activities
or the expected sales of pharmaceutical products. Should there be a permanent
impairment in value or if unamortized amount exceeds recoverable amounts, a
write-down will be recognized for the current year.
The Company choose to use straight-line amortization for the intangible assets
with a finite life because this method of amortization reflects, in the opinion
of the management, the pattern in which the intangible assets are used. See
comments in answer 2b) concerning the Company's products.
(b) PLEASE PROVIDE ANY OTHER QUANTITATIVE AND QUALITATIVE INFORMATION THAT
YOU BELIEVE WOULD BE APPROPRIATE TO HELP US UNDERSTAND YOUR DISCLOSURE
FOR THESE INTANGIBLE ASSETS; AND
RESPONSE:
The Company seeks well-established products that are not actively promoted by
larger pharmaceutical companies and that complement our existing portfolio or
could be used in conjunction with some of our existing products. For past
product acquisitions, intellectual property protection was limited and some
already had generic competition. The value of these products was more related to
our ability to maintain or increase sales focusing on gastroenterology, our main
market, leveraging our sales force, or adding a new indication or dosage form.
Therefore the remaining patent life was not a major criteria in the evaluation
of the useful life of the products.
(c) EXPLAIN TO US WHY YOU HAVE NOT PROVIDED THE ABOVE INFORMATION IN YOUR
MD&A TO GIVE INVESTORS INFORMATION ABOUT THESE CRITICAL ACCOUNTING
ESTIMATES.
RESPONSE:
The Company disclosed in note 11 to its consolidated financial statements the
amount of trademarks, trademark licenses and manufacturing rights with a finite
life and the amount of trademarks, trademark licenses and manufacturing rights
with an indefinite life. The Company disclosed also the annual amortization
expenses for fiscal years 2005 through 2009 and the weighted-average remaining
amortization period of approximately 18 years.
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As you can see in the table in answer 2 a), the information already disclosed
above gives the investors a fair view of the detailed information.
We did not include the more detailed information because we do not think that it
is material, and consequently, we believe that the inclusion of such information
is not useful to investors. We will however add a discussion on the choice of
the straight-line amortization method rather than the accelerated method of
amortization in our next annual financial statements.
Sincerely,
/s/ Jean Vezina
Jean Vezina
Vice President - Finance and
Chief Financial Officer