Exhibit 99.1
AXCAN PHARMA INC.
597, boul. Laurier
[AXCAN PHARMA LOGO] Mont-Saint-Hilaire (Quebec)
Canada J3H 6C4
Tel: (450) 467-5138
1 800 565-3255
Fax: (450) 464-9979
www.axcan.com
SOURCE: AXCAN PHARMA INC.
TSX SYMBOL (Toronto Stock Exchange): AXP
NASDAQ SYMBOL (NASDAQ National Market): AXCA
DATE: August 5, 2004
Press Release for immediate distribution
AXCAN REPORTS THIRD QUARTER 2004 RESULTS
REVENUE UP 32.3% TO $62.0 MILLION
MONT-SAINT-HILAIRE, QUEBEC - Axcan Pharma Inc. ("Axcan" or the "Company")
announced today operating results for the quarter ended June 30, 2004, the
Company's third quarter of the fiscal year ending September 30, 2004. The
Company reported revenue growth of 32.3% to $62.0 million. Net income was $12.6
million, or $0.25 per share (fully diluted), representing 98.0% growth in net
income and 78.6% growth in diluted income per share, as compared to third
quarter fiscal 2003. Excluding takeover bid expenses and related income taxes
from third quarter fiscal 2003 net income, net income for the fiscal quarter
ended June 30, 2004 rose by 43.5% and diluted income per share rose by
31.6%.(all amounts stated in U.S. dollars).
"Axcan's growth strategy is clearly working," stated Leon F. Gosselin, President
and Chief Executive Officer of Axcan. "Our revenue met our expectations and our
net income has increased proportionally compared to the third quarter a year
ago. This indicates that while we have increased the size of our sales force
both in the United States and in France, we have been able, nevertheless, to
absorb many of the operating expenses related to our recent acquisitions within
our current infrastructure, building real value for our shareholders."
INTERIM FINANCIAL REPORT
This release includes, by reference, the second quarter interim financial report
incorporating the financial statements in accordance with both U.S. and Canadian
GAAP as well as the full Management Discussion & Analysis ("MD&A") including the
reconciliation to Canadian GAAP of the U.S. GAAP presentation. The interim
report, including the MD&A and financial statements, is filed with applicable
U.S. and Canadian regulatory authorities.
RECENT DEVELOPMENTS
APPROVALS
URSO 500 MG TABLETS - NEW DOSAGE
In July 2004, Axcan received approval from the U.S. Food and Drug Administration
(`FDA') for the use of a new, double-strength tablet formulation of URSO
(ursodiol, URSO 500mg tablets). This new formulation simplifies the dosing
regimen used in the treatment of Primary Biliary Cirrhosis.
PHOTOBARR - European Union Market Authorization
In March 2004, the European Commission granted Axcan market authorization for
use in the European Union ("EU") of PHOTOBARR (porfimer sodium), its
photodynamic therapy ("PDT") for the ablation of High-Grade Dysplasia associated
with Barrett's Esophagus. PHOTOBARR was also granted orphan medical product
status at the time of its submission, which guarantees Axcan exclusive marketing
rights for PHOTOBARR in the European Union for a ten-year period from March
2004. This represents a significant milestone for Axcan, because this is its
first regulatory approval in Europe. The launch of PHOTOBARR in major EU markets
is expected near the end of the current fiscal year.
PENDING APPROVALS
MESALAMINE - NEW DOSAGE
In December 2003, Axcan submitted to the FDA a supplemental New Drug Application
("NDA") for a 1-gram mesalamine suppository dosage form for the treatment of
ulcerative proctitis. Axcan expects approval by the end of calendar year 2004.
HELIZIDE
The Company is in the process of qualifying a manufacturer of biskalcitrate
potassium (bismuth salt) a component of Helizide combination therapy for the
eradication of Helicobacter Pylori bacterium. Axcan anticipates FDA
re-submission by December 2004. Assuming approval, the Company expects to launch
the product in the second half of fiscal 2005.
SALOFALK 750 MG TABLETS
Axcan completed a Phase III trial, for the Canadian market, on the efficacy and
safety of a new 750-milligram mesalamine (5-ASA) tablet for the oral treatment
of ulcerative colitis. The Company filed a supplemental New Drug Submission for
approval in Canada in the first quarter of fiscal 2004. Axcan expects approval
in the first quarter of fiscal 2005 and expects to launch the product in Canada
soon thereafter.
RESEARCH AND DEVELOPMENT UPDATE
PHASE III STUDIES
ITAX
In May 2004, Axcan obtained the approval of the Therapeutic Products Directorate
(`TPD') of Health Canada and Investigational New Drug (`IND') clearance from the
Gastro-intestinal division of the FDA, required to initiate Phase III clinical
trials to demonstrate the safety and efficacy of ITAX in the treatment of
functional dyspepsia (also known as non ulcer dyspepsia). Axcan also plans to
study ITAX as a treatment for diabetic gastroparesis. As previously announced,
Axcan believes that, if approved by the FDA, ITAX has the potential to become
its highest selling product. Axcan expects to file an NDA in fiscal 2005. Two
large Phase III studies will be conducted; the North American clinical trial has
been initiated and the International Phase III study is presently in preparation
and should start in the fourth quarter of fiscal 2004.
CANASA / SALOFALK rectal gel
Axcan has recently completed Phase III studies to confirm the efficacy and
safety of a new mesalamine rectal gel in the treatment of distal ulcerative
colitis. Final results will be available in the second half of fiscal 2004.
Assuming the results of the Phase III studies are positive, the Company plans to
submit regulatory filings for approvals in the United
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States and Canada and hopes to launch the rectal gel in the United States and
Canada in late fiscal 2005 or early fiscal 2006.
PHOTOFRIN
PHOTOFRIN is approved in a number of countries for the treatment of different
forms of cancers. Axcan is currently investigating the use of PHOTOFRIN for the
treatment of cholangiocarcinoma, a serious bile duct (liver) cancer with a high
morbidity rate. The treatment under investigation combines PHOTOFRIN with PDT
and the stenting of the bile ducts. The proposed Phase III study will start in
the fourth quarter of fiscal 2004.
HEPENAX
L-Ornithine L-Aspartate salt ("LOLA"), which is known as HEPENAX, was developed
by Merz Pharmaceuticals GmbH in Germany and is licensed to Axcan. The Company
intends to further develop HEPENAX in North America and Europe for patients
suffering from Porto-Systemic Encephalopathy ("PSE"), a condition used to
describe the deleterious effects of liver failure on the central nervous system.
The Company will conduct a Phase II/III clinical development program for HEPENAX
and plans to seek approval of the intravenous formulation to treat the acute
symptoms of PSE. The Company initiated its clinical research program in the
third quarter of fiscal 2004 and expects to complete such studies in fiscal
2006.
PRE-CLINICAL, PHASE 1 AND PHASE II
NCX-1000
The FDA has accepted an Investigational NDA for NCX-1000, a patented, nitric
oxide derivative of ursodiol, for the treatment of portal hypertension, a
late-stage complication of chronic liver disease. The Phase I clinical
development program, which is designed to demonstrate the tolerability and
safety of NCX-1000, is almost completed. Phase II studies are planned to begin
during fiscal 2005. Completion of the entire clinical program is expected to
occur in calendar year 2006.
Ursodiol Disulfate
Axcan recently completed a proof of concept study in rats to evaluate the effect
of ursodiol disulfate on the development of colonic tumors. Axcan intends to
initiate animal toxicity studies in the fourth quarter of fiscal 2004, which
will be followed by clinical Phase I studies.
NMK 150
Axcan and Nordmark GmbH, a German pharmaceutical firm, have set up a
joint-venture, Norax, in order to develop NMK 150, a new high protease
pancrelipase preparation. This product will be developed for the relief of pain
in small duct chronic pancreatitis. It is expected that NMK 150 will enter
clinical development before the end of calendar year 2004.
NMK 250
Norax is also developing NMK 250, a bacterial lipase intended to correct
steatorrhea in patients suffering from diverse causes of pancreatic
insufficiency (e.g., following surgery for cancer or due to cystic fibrosis).
Norax expects to complete the formulation work before the end of calendar year
2004.
CONFERENCE CALL
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Axcan will host a conference call at 4:30 P.M. EDT, on August 5, 2004. The
telephone numbers to access the conference call are (800) 814-4861 (Canada and
United States) or (416) 640-4127 (international). A replay of the call will be
available until August 12, 2004. The telephone number to access the replay of
the call is (416) 640-1917 code: 21080166. Interested parties may also access
the conference call by way of webcast at www.axcan.com. The webcast will be
archived for 90 days.
ABOUT AXCAN PHARMA
Axcan is a leading specialty pharmaceutical company involved in the field of
gastroenterology. Axcan markets a broad line of prescription products sold for
the treatment of symptoms in a number of gastrointestinal diseases and disorders
such as inflammatory bowel disease, irritable bowel syndrome, cholestatic liver
diseases and complications related to cystic fibrosis. Axcan's products are
marketed by its own sales force in North America and Europe. Its common shares
are listed on the Toronto Stock Exchange under the symbol "AXP" and on the
NASDAQ National Market under the symbol "AXCA".
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995.
This release contains forward-looking statements, which reflect the Company's
current expectations regarding future events. To the extent any statements made
in this release contain information that is not historical, these statements are
essentially forward looking and are often identified by words such as
"anticipate," "expect," "estimate," "intend," "project," "plan" and "believe."
Forward-looking statements are subject to risks and uncertainties, including the
difficulty of predicting FDA and other regulatory approvals, acceptance and
demand for new pharmaceutical products, the impact of competitive products and
pricing, new product development and launch, reliance on key strategic
alliances, availability of raw materials, the regulatory environment,
fluctuations in operating results , the protection of our intellectual property
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission and the Canadian Multijurisdictional
Disclosure System.
The names ITAX, Photobarr, Salofalk, Hepenax, Urso, Photofrin and Canasa
appearing in this press release are trademarks of Axcan Pharma Inc. and its
subsidiaries.
Management Discussion and Analysis (MD&A), Financial Statements and Notes
Attached
INFORMATION: David W. Mims
Executive Vice President and Chief Operating Officer
Axcan Pharma Inc.
Tel: (205) 991-8085 ext. 3223
or Julie M. Thibodeau
Manager, Investor Relations
Axcan Pharma Inc.
Tel: (450) 467-2600 ext. 2062
Web: www.axcan.com
-30-
AXCAN PHARMA
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Management's discussion and analysis of financial condition and results of
operations
This discussion should be read in conjunction with the information contained in
Axcan's consolidated financial statements and the related notes thereto. All
amounts are in U.S. dollars.
Overview
Axcan is a leading specialty pharmaceutical company concentrating in the field
of gastroenterology, with operations in North America and Europe. Axcan markets
and sells pharmaceutical products used in the treatment of a variety of
gastrointestinal diseases and disorders. The Company seeks to expand its
gastrointestinal franchise by in-licensing products and acquiring products or
companies, as well as developing additional products and expanding indications
for existing products. Axcan's current products include ULTRASE, VIOKASE and
PANZYTRAT for the treatment of certain gastrointestinal symptoms related to
cystic fibrosis in the case of ULTRASE and PANZYTRAT; URSO 250 and DELURSAN for
the treatment of certain cholestatic liver diseases; SALOFALK and CANASA for the
treatment of certain inflammatory bowel diseases; and PHOTOFRIN for the
treatment of certain types of gastrointestinal cancers and other conditions. In
addition, as at June 30, 2004, Axcan had two products pending approval, one a
new formulation and the other a new dosage form for products currently marketed
in the United States. An approval was received in July, 2004 for the new dosage
form. Axcan also has a number of pharmaceutical projects in all phases of
development including ITAX for the treatment of functional dyspepsia. Axcan
reported revenue of $62.0 million and operating income of $19.4 million for the
three-month period ended June 30, 2004. For the nine-month period ended June 30,
2004, revenue was $182.8 million and operating income was $56.3 million.
Much of Axcan's recent sales growth is derived from sales in the United States
and from sales by its French subsidiary, following recent acquisitions. During
the first quarter of fiscal 2003, Axcan acquired the worldwide rights to the
PANZYTRAT enzyme product line from Abbott Laboratories ("Abbott") and the rights
to DELURSAN, an ursodiol 250 mg tablet, from Aventis Pharma S.A. ("Aventis") for
the French market. During the first quarter of fiscal 2004, Axcan acquired the
rights to a group of products from Aventis for a cash purchase price of $145.0
million. These products are CARAFATE and BENTYL for the U.S. market and
SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market (collectively, "AVAX"
product line). Revenue from sales of Axcan's products in the United States was
$123.8 million (67.7% of total revenue) for the nine-month period ended June 30,
2004, compared to $82.9 million (63.6 % of total revenue) for the same period of
fiscal 2003. In Canada, revenue was $20.5 million (11.2 % of total revenue) for
the nine-month period ended June 30, 2004, compared to $14.9 million (11.4 % of
total revenue) for the same period of fiscal 2003. In Europe, revenue was $38.3
million (21.0 % of total revenue) for the nine-month period ended June 30, 2004,
compared to $32.4 million (24.9 % of total revenue) for the same period of
fiscal 2003.
Axcan's revenue historically has been and continues to be principally derived
from sales of pharmaceutical products, to large pharmaceutical wholesalers and
large chain pharmacies. Axcan utilizes a "pull-through" marketing approach that
is typical of pharmaceutical companies. Under this approach, Axcan's sales
representatives demonstrate the features and benefits of its products to
gastroenterologists who may write their patients prescriptions for Axcan's
products. The patients, in turn, take the prescriptions to pharmacies to be
filled. The pharmacies then place orders with the wholesalers or, in the case of
large chain pharmacies, their distribution centres, to whom Axcan sells its
products.
Axcan's expenses are comprised primarily of selling and administrative expenses
(including marketing expenses), cost of goods sold (including royalty payments
to those companies from whom Axcan licenses its products), and research and
development expenses as well as depreciation and amortization.
AXCAN PHARMA
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Axcan's annual and quarterly operating results are primarily affected by three
factors: wholesaler buying patterns; the level of acceptance of Axcan's products
by gastroenterologists and their patients; and the extent of Axcan's control
over the marketing of its products. 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. The level of patient and physician acceptance of Axcan's
products, as well as the availability of similar therapies, which may be less
effective but also less expensive than some of Axcan's products, impact Axcan's
revenues by driving the level and timing of prescriptions for its products.
Critical Accounting Policies
Axcan's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP"), applied on a consistent basis. Axcan's critical accounting policies
include the use of estimates, revenue recognition, the recording of research and
development expenses and the determination of the useful lives or fair value of
goodwill and intangible assets. Some of our critical accounting policies require
the use of judgment in their application or require estimates of inherently
uncertain matters. Although our accounting policies are in compliance with U.S.
GAAP, a change in the facts and circumstances of an underlying transaction could
significantly change the application of our accounting policies to that
transaction, which could have an effect on our financial statements. Discussed
below are those policies that we believe are critical and require the use of
complex judgment in their application.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the recorded amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements and the disclosure of recognized amounts
of revenues and expenses during the year. Significant estimates and assumptions
made by management include the allowance for accounts receivable and
inventories, reserves for product returns, rebates and chargebacks, the
classification of intangible assets between finite and indefinite life, useful
lives of long-lived assets, expected cash flows used in evaluating long-lived
assets for impairment, contingency provisions and other accrued charges. These
estimates were made using the historical information available to management.
Actual results could differ from those estimates.
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. In certain circumstances, returns or exchanges of products are
allowed under the Company's policy and provisions are maintained accordingly.
Amounts received from customers as prepayments for products to be shipped in the
future are reported as deferred revenue.
Goodwill and Intangible Assets
Axcan's goodwill and intangible assets are stated at cost, less accumulated
amortization. Prior to October 1, 2001, goodwill and intangible assets were
amortized using the straight-line method based on their estimated useful lives
from 7 to 25 years. Since October 1, 2001, the Company no longer amortizes
goodwill and intangible assets with an indefinite life. Management evaluates the
value of the unamortized portion of goodwill and intangible assets annually, by
comparing the carrying value to the future benefits of the Company's activities
or the expected sale of pharmaceutical products. Should there be a permanent
impairment in value or if the unamortized balance exceeds recoverable amounts, a
write-down will be recognized for the current year. To
AXCAN PHARMA
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date, Axcan has not recognized any significant permanent impairment in value.
Intangible assets with finite life are still amortized over their estimated
useful lives.
Research and Development Expenses
Research and development expenses are charged to operations in the year they are
incurred. Acquired in-process research and development having no alternative
future use is written off at the time of acquisition. The cost of intangibles
that are acquired from others for a particular research and development project,
with no alternative use, are written off at the time of acquisition.
Acquisition of Products
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis. The acquired products are CARAFATE and BENTYL for the U.S. market
and SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market. The $145.0
million purchase price was paid out of Axcan's cash on hand.
On December 3, 2002, the Company acquired the worldwide rights to the PANZYTRAT
enzyme product line from Abbott for a cash purchase price of $45.0 million.
During a transition period, the seller in each of these acquisition transactions
acts as selling agent for the management of these products. For the nine-month
period ended June 30, 2004, sales of these products were still managed in part
by the sellers. Axcan includes in its revenue the net sales from such products
less corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the nine-month period
ended June 30, 2004 were $6,928,009, the Company only included in its revenue an
amount of $4,413,531 representing the net sales less cost of goods sold and
other seller related expenses.
AXCAN PHARMA
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Results of Operations
The following table sets forth, for the periods indicated, the percentage of
revenue represented by items in Axcan's consolidated statements of operations:
For the three-month For the nine-month
period ended June 30 period ended June 30
----------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- --------------- ---------------
% % % %
Revenue 100.0 100.0 100.0 100.0
- ---------------------------------------------------------------------------------------------------------------
Cost of goods sold 22.0 25.2 23.6 24.3
Selling and administrative expenses 31.5 33.4 31.7 35.4
Research and development expenses 8.4 8.4 7.2 7.2
Depreciation and amortization 6.9 4.2 6.7 4.6
- ---------------------------------------------------------------------------------------------------------------
68.8 71.2 69.2 71.5
- ---------------------------------------------------------------------------------------------------------------
Operating income 31.2 28.8 30.8 28.5
- ---------------------------------------------------------------------------------------------------------------
Financial expenses 2.7 3.8 2.8 2.0
Interest income (0.3) (1.1) (0.2) (0.8)
Loss (gain) on foreign exchange (0.7) (0.4) (0.1) 0.1
Takeover bid expenses -- 7.9 -- 2.8
- ---------------------------------------------------------------------------------------------------------------
1.7 10.2 2.5 4.1
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 29.5 18.6 28.3 24.4
Income taxes 9.2 5.1 8.9 7.7
- ---------------------------------------------------------------------------------------------------------------
Net income 20.3 13.5 19.4 16.7
===============================================================================================================
Periods ended June 30, 2004 compared to periods ended June 30, 2003
Revenue
Revenue increased $15.1 million (32.2%) to $62.0 million for the third quarter
ended June 30, 2004 from $46.9 million for the corresponding quarter of the
preceding fiscal year. For the nine-month period ended June 30, 2004, revenue
was $182.8 million compared to $130.3 million for the corresponding period of
the preceding fiscal year, an increase of 40.3 %. This increase in revenue
primarily resulted from $29.7 million in U.S. and Canadian sales of the AVAX
product line which was acquired in November 2003 and strong sales of CANASA and
ULTRASE in the U.S.. Revenues from sales made by the French subsidiary,
following the acquisitions of DELURSAN as well as the PANZYTRAT product line
also contributed to the increase.
Cost of goods sold
Cost of goods sold consists principally of costs of raw materials, royalties and
manufacturing costs. Axcan outsources most of its manufacturing requirements.
Cost of goods sold increased $1.8 million (15.3 %) to $ 13.6 million for the
quarter ended June 30, 2004 from $11.8 million for the corresponding quarter of
the preceding fiscal year. As a percentage of revenue, cost of goods sold for
the quarter ended June 30, 2004 decreased as compared to the corresponding
quarter of the preceding fiscal year from 25.2 % to 22.0 %. For the nine-month
period ended June 30, 2004, cost of goods sold was $43.2 million (23.6 % of
revenue) compared to $31.7 million (24.3 % of revenue) for the corresponding
period of the preceding fiscal year. These decreases in the cost of goods sold
as a percentage of revenue were due to the increase in sales of products with a
higher margin in the United States and an improved margin in France.
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Selling and administrative expenses
Selling and administrative expenses consist principally of salaries and other
costs associated with Axcan's sales force and marketing activities. Selling and
administrative expenses increased $ 3.9 million (25.0 %) to $19.5 million for
the quarter ended June 30, 2004 from $15.6 million for the corresponding quarter
of the preceding fiscal year. For the nine-month period ended June 30, 2004,
selling and administrative expenses increased $11.9 million (25.8 %) to $ 58.0
million from $46.1 million for the corresponding period of the preceding fiscal
year. This increase is mainly due to an increase in our sales force as a result
of the recent acquisition of additional products.
Research and development expenses
Research and development expenses consist principally of fees paid to outside
parties that Axcan uses to conduct clinical studies and to submit governmental
approval applications on its behalf as well as the salaries and benefits paid to
its personnel involved in research and development projects. Research and
development expenses increased $1.3 million (33.3 %) to $5.2 million for the
quarter ended June 30, 2004 from $3.9 million for the corresponding quarter of
the preceding fiscal year and $3.8 million (40.9 %) to $13.1 million for the
nine-month period ended June 30, 2004, from $9.3 million for the corresponding
period of the preceding fiscal year. These increases are mainly due to the
development of ITAX, acquired in August 2003, for the treatment of functional
dyspepsia.
Depreciation and amortization
Depreciation and amortization consists principally of the amortization of
intangible assets with finite life. Intangible assets include trademarks,
trademark licenses and manufacturing rights. Depreciation and amortization
increased $2.3 million (115.0 %) to $4.3 million for the quarter ended June 30,
2004 from $2.0 million for the corresponding quarter of the preceding fiscal
year and $6.2 million (103.3 %) to $12.2 million for the nine-month period ended
June 30, 2004 from $6.0 million for the corresponding period of the preceding
fiscal year. The increase is mainly due to the amortization of the AVAX product
line acquired from Aventis on November 18, 2003 and of TAGAMET which was
reclassified from intangible assets with an indefinite life to intangible assets
with a finite life on October 1, 2003.
Financial expenses
Financial expenses consist principally of interest and fees paid in connection
with money borrowed for acquisitions. Financial expenses decreased $0.1 million
to $1.7 million for the quarter ended June 30, 2004 from $1.8 million for the
corresponding quarter of the preceding fiscal year and increased $2.5 million to
$5.1 million for the nine-month period ended June 30, 2004 from $2.6 million for
the corresponding period of the preceding fiscal year. This increase is mainly
due to interest expense on the $125.0 million aggregate principal amount of 4
1/4% convertible subordinated notes due 2008 which were issued on March 5, 2003.
Income Taxes
Income taxes amounted to $5.7 million for the quarter ended June 30, 2004,
compared to $2.4 million for the quarter ended June 30, 2003. Income taxes
amounted to $16.3 million for the nine-month period ended June 30, 2004 compared
to $10.0 million for the corresponding period of the preceding fiscal year. The
effective tax rates were 31.6% for the nine-month period ended June 30, 2004 and
31.5% for the nine-month period ended June 30, 2003.
Net income
Net income was $12.6 million or $0.28 of basic income per share and $0.25 of
diluted income per share, for the quarter ended June 30, 2004, compared to $6.3
million or $0.14 of basic and diluted income per share for the corresponding
quarter of the preceding year. The weighted average number of common shares
outstanding used to establish the basic per share amounts increased from 44.9
million for the quarter ended June 30, 2003 to 45.4 million for the quarter
ended June 30,
AXCAN PHARMA
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2004, following the exercise of options previously granted pursuant to Axcan's
stock option plan. The weighted average number of common shares used to
establish the diluted per share amounts increased from 45.6 million for the
quarter ended June 30, 2003 to 55.3 million for the quarter ended June 30, 2004
as the convertible subordinated notes became dilutive because a trigger event
occurred during the second quarter of this fiscal year as a result of the stock
trading price exceeding 110 % of the conversion price.
Net income was $35.4 million or $0.78 of basic income per share and $0.72 of
diluted income per share, for the nine-month period ended June 30, 2004,
compared to $21.8 million or $0.49 of basic income per share and $0.48 of
diluted income per share for the corresponding period of the preceding year.
Net income (in thousands of dollars), basic income per share and diluted income
per share excluding takeover bid expenses and related income taxes for the same
periods were as follows:
For the three-month For the nine-month
period ended June 30 period ended June 30
----------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- --------------- ---------------
% % % %
Net income in accordance with U.S. GAAP 12,552 6,339 35,408 21,829
Plus: Takeover bid expenses -- 3,697 -- 3,697
Less: Related income taxes -- (1,290) -- (1,290)
- ---------------------------------------------------------------------------------------------------------------
Net income excluding takeover bid expenses
and related income taxes 12,552 8,746 35,408 24,236
===============================================================================================================
Income per common share excluding takeover
bid expenses and related income taxes
Basic 0.28 0.19 0.78 0.54
Diluted 0.25 0.19 0.72 0.53
This measure of net income, basic income per share and diluted income per share
excluding certain items is a non-GAAP measure that does not have a standardized
meaning and, as such, is not necessarily comparable to similarly titled measures
presented by other companies. This measure is provided to assist our investors
in assessing Axcan's operating performance. We believe the presentation of this
non-GAAP measure provides useful information because it eliminates certain
expenses unrelated to our operations and because it provides similar information
for period-to-period comparisons. Investors should consider this non-GAAP
measure in the contexte of Axcan's U.S. GAAP results of operations.
Excluding takeover bid expenses and related income taxes, net income for the
quarter ended June 30, 2004 was $12.6 million or $0.28 of basic income per share
and $0.25 of diluted income per share compared to $ 8.7 million or $0.19 of
basic and diluted income per share for the corresponding quarter of the
preceding year.
Excluding takeover bid expenses and related income taxes, net income for the
nine-month period ended June 30, 2004 was $35.4 million or $0.78 of basic income
per share and $0.72 of diluted income per share compared to $24.2 million of net
income or $0.54 of basic income per share and $0.53 of diluted income per share
for the nine-month period ended June 30, 2003.
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Canadian GAAP
The differences (in thousands of dollars) between U.S. and Canadian GAAP which
affect net income for the periods ended June 30, 2004 and 2003 are summarized in
the following table:
For the three-month For the nine-month
period ended June 30 period ended June 30
----------------------------- --------------------------------
2004 2003 2004 2003
------------- -------------- --------------- ---------------
% % % %
Net income in accordance with U.S. GAAP 12,552 6,339 35,408 21,829
Implicit interest on convertible debt (1,082) (990) (3,131) (1,284)
Amortization of new product acquisition costs (14) (14) (40) (40)
Income tax impact of the above adjustments 5 5 15 15
- ---------------------------------------------------------------------------------------------------------------
Net earnings in accordance with Canadian GAAP 11,461 5,340 32,252 20,520
===============================================================================================================
On March 5, 2003, the Company closed an offering of $125,000,000 aggregate
principal amount of 4 1/4% convertible subordinated notes due April 15, 2008. As
a result of the terms of the notes, under Canadian GAAP, an amount of
$24,238,899 was included in shareholders' equity as equity component of the
convertible debt and an amount of $100,761,101 was included in long-term debt,
as the liability component of the convertible notes. For the nine-month period
ended June 30, 2004, implicit interest in the amount of $3,131,424 was accounted
for and added to the liability component.
Under Canadian GAAP, research and development expenses are stated net of related
tax credits which generally constitute between 10% and 15% of the aggregate
amount of such expenses. Under U.S. GAAP, these tax credits are applied against
income taxes.
Under U.S. GAAP, acquired in-process research is included in operations as at
the date of acquisition if no alternative use is established. Under Canadian
GAAP, the acquired in-process research, including the new product acquisition
costs, is deferred and amortized from the date of commencement of commercial
production.
Liquidity and capital resources
Axcan's cash, cash equivalents and short-term investments decreased $121.0
million to $49.9 million at June 30, 2004 from $170.9 million at September 30,
2003. As of June 30, 2004, working capital was $75.0 million, compared to $174.8
million at September 30, 2003. These decreases are mainly due to the acquisition
of the rights to the AVAX product line for a total cash purchase price of $145.0
million plus transaction expenses. Total assets increased $53.2 million (9.8 %)
to $598.5 million as of June 30, 2004 from $545.3 million as of September 30,
2003. Shareholders' equity increased $45.4 million (13.7 %) to $376.4 million as
of June 30, 2004 from $331.0 million as of September 30, 2003.
Historically, Axcan has financed research and development, operations,
acquisitions, milestone payments and investments out of the proceeds of public
and private sales of its equity, cash flow from operating activities, and loans
from joint venture partners and financial institutions. Since it went public in
Canada in December 1995, Axcan has raised approximately $243.0 million from
sales of its equity and $125.0 million from the sales of convertible notes and
has borrowed from financial institutions to finance the acquisition of Axcan
Scandipharm Inc. and from Schwarz Pharma Inc., a former joint venture partner,
to finance the acquisition of Axcan URSO (these amounts have since been repaid).
AXCAN PHARMA
11
Axcan has credit facilities totalling $55.0 million with two Canadian chartered
banks. The facilities consist of a $15.0 million revolving operating facility
renewable annually and a $40.0 million 364-day, extendible revolving facility
with a three-year term-out option maturing on October 12, 2007.
The credit facilities are secured by a first priority security interest on all
present and future acquired assets of the Company and its material subsidiaries,
and provide for the maintenance of certain financial ratios. Cash dividends,
repurchase of shares (other than redeemable shares issued in connection with a
permitted acquisition) and similar distributions to shareholders are limited to
10 % of the Company's net income for the preceding fiscal year. As of June 30,
2004, Axcan was in compliance with all credit facilities' covenants.
The interest rate varies, depending on the Company's leverage between 25 basis
points and 125 basis points over Canadian prime rate or U.S. base rate, and
between 125 basis points and 225 basis points over the LIBOR rate or bankers
acceptances. The credit facilities may be drawn in U.S. dollar or in Canadian
dollar equivalent. As at June 30, 2004, there was no amount outstanding under
these credit facilities.
Cash Flows and Financial Resources
Cash flows from operating activities decreased $1.6 million (11.9 %) from $13.5
million of cash provided by operating activities for the three-month period
ended June 30, 2003 to $11.9 million for the three-month period ended June 30,
2004. Cash flows from financing activities for the three-month period ended June
30, 2004 were $1.8 million and cash flows used for investment activities for the
same period were $14.2 million. For the nine-month period ended June 30, 2004
cash flows from operating activities decreased $17.5 million (37.6 %) from $46.5
million of cash provided by operating activities for the nine-month period ended
June 30, 2003 to $29.0 million. This decrease is mainly due to the increase in
accounts receivable and inventories during this year following the increase in
sales and the acquisition of new products. Cash flows from financing activities
for the nine-month period ended June 30, 2004 were $3.7 million. Cash flows used
by investment activities for the nine-month period ended June 30, 2004 were
$36.4 million mainly due to the net cash used for the acquisition of intangible
assets with the proceeds from the disposal of short term investments.
Axcan's research and development spending totalled $12.1 million for fiscal
2003. Axcan believes that its cash and operating cash flows will be adequate to
support its existing ongoing operational requirements for at least 12 months.
However, Axcan regularly reviews product and other acquisition opportunities and
may therefore require additional debt or equity financing. Axcan cannot be
certain that such additional financing, if required, will be available on
acceptable terms, or at all.
Axcan believes that cash, cash equivalents and short-term investments, together
with funds provided by operations, will be sufficient to meet its operating cash
requirements, including the development of products through research and
development activities, capital expenditures and repayment of its debt. Assuming
regulatory approvals of future products and indications stemming from its
research and development efforts, Axcan believes that these will also
significantly contribute to the increase in funds provided by operations.
AXCAN PHARMA
12
Earnings coverage
The earnings coverage ratios are the following:
Under U.S. GAAP, for the twelve months ended June 30, 2004, our interest
requirements amounted to $5.8 million on a pro forma basis and our earnings
coverage ratio, defined as the ratio of earnings before interest and income
taxes to pro forma interest requirements, was 10.0 to one.
Under Canadian GAAP, for the twelve months ended June 30, 2004, our interest
requirements amounted to $10.4 million on a pro forma basis and our earnings
coverage ratio was 6.8 to one. The principal difference between the earnings
coverage ratios under Canadian GAAP and U.S. GAAP is attributable to the
inclusion of implicit interest of $4.5 million as required by Canadian GAAP.
Risk Factors
Axcan is exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Axcan does not use derivative
financial instruments for speculative or trading purposes. Axcan does not use
off-balance sheet financing or similar special purpose entities.
Inflation has not had a significant impact on Axcan's results of operations.
Foreign Currency Risk
Axcan operates internationally; however, a substantial portion of the revenue
and expense activities and capital expenditures are transacted in U.S. dollars.
Axcan's exposure to exchange rate fluctuation is reduced because, in general,
Axcan's revenues denominated in currencies other than the U.S. dollar are
matched by a corresponding amount of costs denominated in the same currency.
Axcan expects this matching to continue.
Interest Rate Risk
The primary objective of Axcan's investment policy is the protection of
principal. Accordingly, investments are made in high-grade government and
corporate securities with varying maturities, but typically, less than 180 days.
Therefore, Axcan does not have a material exposure to interest rate risk and a
100 basis-point adverse change in interest rates would not have a material
effect on Axcan's consolidated results of operations, financial position or cash
flows. Axcan is exposed to interest rate risk on borrowings under the credit
facilities. The credit facilities bear interest based on LIBOR, U.S. dollar base
rate, Canadian dollar prime rate, or Canadian dollar Bankers' Acceptances. Based
on projected advances under the credit facilities, a 100 basis-point adverse
change in interest rates would not have a material effect on Axcan's
consolidated results of operations, financial position, or cash flows.
Supply and Manufacture
Axcan depends on third parties for the supply of active ingredients and for the
manufacture of the majority of its products. Although Axcan looks to secure
alternative suppliers, Axcan may not be able to obtain the active ingredients or
products from such third parties, the active ingredients or products may not
comply with specifications, or the prices at which Axcan purchases them may
increase and Axcan may not be able to locate alternative sources of supply in a
reasonable time period, or at all. If any of these events occur, Axcan may not
be able to continue to market certain of its products and its sales and
profitability would be adversely affected.
AXCAN PHARMA
13
Volatility of Share Prices
The market price of Axcan's shares is subject to volatility. Deviations in
actual financial or scientific results, as compared to expectations of
securities analysts who follow our activities can have a significant effect on
the trading price of Axcan's shares.
Forward-looking Statements
This document contains forward-looking statements, which reflect the Company's
current expectations regarding future events. Forward-looking statements are
often identified by words such as "anticipate", "expect", "estimate", "intend",
"project", "plan" and "believe". These forward-looking statements include the
expected sales growth of the Company's products and the expected increase in
funds from operations resulting from the Company's research and development
expenditures. The forward-looking statements involve risks and uncertainties.
Actual events could differ materially from those projected herein and depend on
a number of factors, including, but not limited to, the successful and timely
completion of clinical studies, the uncertainties related to the regulatory
process, the commercialization of the drug or therapy after regulatory approval
is received, the difficulty of predicting acceptance and demand for
pharmaceutical products, the impact of competitive products and pricing, new
product development and launch, the availability of raw materials, the
protection of our intellectual property, and fluctuations in our operating
results. Investors should consult the Company's ongoing quarterly filings,
annual reports and 40-F filings for additional information on risks and
uncertainties relating to these forward-looking statements. The reader is
cautioned not to rely on these forward-looking statements. The Company disclaims
any obligation to update these forward-looking statements.
This MD&A has been prepared as of August 5, 2004. Additional information on the
Company is available through regular filings of press releases, quarterly
financial statements and Annual Information Form on SEDAR.
On behalf of Management,
(signed)
Jean Vezina
Vice President, Finance and Chief Financial Officer
AXCAN PHARMA
14
AXCAN PHARMA INC.
Consolidated Balance Sheets U.S. GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
June 30, September 30,
2004 2003
--------------- ------------------
(unaudited)
ASSETS $ $
Current assets
Cash and cash equivalents 34,234 37,773
Short-term investments available for sale 15,703 133,112
Accounts receivable 31,149 19,685
Income taxes receivable 7,483 5,294
Inventories (Note 3) 33,145 20,163
Prepaid expenses and deposits 3,545 2,794
Deferred income taxes 5,521 6,214
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 130,780 225,035
Investments 407 1,002
Property, plant and equipment, net 28,666 20,331
Intangible assets, net (Note 4) 405,391 265,423
Goodwill, net 27,550 27,550
Deferred debt issue expenses, net 3,372 4,233
Deferred income taxes 2,354 1,775
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 598,520 545,349
====================================================================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 48,601 43,418
Income taxes payable 4,608 4,821
Instalments on long-term debt 1,820 1,528
Deferred income taxes 729 494
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 55,758 50,261
Long-term debt 128,284 129,474
Deferred income taxes 38,030 34,603
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 222,072 214,338
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Series A preferred shares, without par value, shares authorized: 14,175,000; no shares issued.
Series B preferred shares, without par value, shares authorized: 12,000,000; no shares issued.
Common shares, without par value, unlimited shares authorized, 45,556,032 issued as at
June 30, 2004 and 45,004,320 as at September 30, 2003. 260,572 255,743
Retained earnings 99,042 63,634
Accumulated other comprehensive income 16,834 11,634
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 376,448 331,011
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 598,520 545,349
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
15
AXCAN PHARMA INC.
Consolidated Statements of Shareholders' Equity U.S. GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
---------------- ---------------- ---------------- --------------
Common shares (Number)
Balance, beginning of period 45,328,102 44,880,403 45,004,320 44,863,198
Exercise of options 227,930 108,944 551,712 126,149
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 45,556,032 44,989,347 45,556,032 44,989,347
====================================================================================================================================
$ $ $ $
Common shares
Balance, beginning of period 258,567 254,754 255,743 254,640
Exercise of options 2,005 857 4,829 971
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 260,572 255,611 260,572 255,611
====================================================================================================================================
Retained earnings
Balance, beginning of period 86,490 59,199 63,634 43,709
Net income 12,552 6,339 35,408 21,829
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 99,042 65,538 99,042 65,538
====================================================================================================================================
Accumulated other comprehensive
income (loss)
Balance, beginning of period 17,895 4,215 11,634 (3,562)
Foreign currency translation adjustments (1,061) 5,333 5,200 13,110
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 16,834 9,548 16,834 9,548
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 376,448 330,697 376,448 330,697
====================================================================================================================================
Comprehensive income
Foreign currency translation adjustments (1,061) 5,333 5,200 13,110
Net income 12,552 6,339 35,408 21,829
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 11,491 11,672 40,608 34,939
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
16
AXCAN PHARMA INC.
Consolidated Statements of Cash Flows U.S. GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
---------------- ---------------- ---------------- --------------
Operations $ $ $ $
Net income 12,552 6,339 35,408 21,829
Non-cash items
Non-controlling interest -- -- -- (103)
Amortization of deferred debt issue expenses 264 257 780 386
Other depreciation and amortization 4,276 1,975 12,195 6,011
Gain on disposal of assets (66) -- (26) --
Foreign currency fluctuation 624 (413) 504 (262)
Deferred income taxes 893 239 3,778 2,177
Share in net loss (income) of joint ventures (116) 36 (56) 124
Changes in working capital items
Accounts receivable (1,374) (2,262) (12,667) 2,705
Income taxes receivable (1,035) (1,998) (2,400) (2,634)
Inventories (5,284) (26) (13,457) 2,033
Prepaid expenses and deposits (263) (116) (893) (581)
Accounts payable and accrued liabilities 1,234 8,052 6,051 14,163
Income taxes payable 161 1,406 (249) 640
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 11,866 13,489 28,968 46,488
- ------------------------------------------------------------------------------------------------------------------------------------
Financing
Long-term debt 2,212 482 2,212 125,895
Repayment of long-term debt (2,419) (375) (3,369) (1,195)
Issue of shares 2,005 857 4,829 971
Deferred debt issue expenses -- (38) -- (4,538)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 1,798 926 3,672 121,133
- ------------------------------------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (17,588) (95,014) (17,588) (95,714)
Disposal of short-term investments 6,555 -- 134,945 60,740
Acquisition of investments -- (100) -- (100)
Disposal of investments 496 347 1,735 619
Acquisition of property, plant and equipment (4,560) (1,224) (11,074) (2,236)
Disposal of property, plant and equipment 19 -- 397 --
Acquisition of intangible assets (81) (2,003) (145,685) (73,938)
Disposal of intangible assets 917 -- 917 205
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investment activities (14,242) (97,994) (36,353) (110,424)
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held
in foreign currencies (25) 89 174 486
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (603) (83,490) (3,539) 57,683
Cash and cash equivalents,
beginning of period 34,837 161,150 37,773 19,977
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 34,234 77,660 34,234 77,660
====================================================================================================================================
Additional information
Interest received 70 511 354 1,019
Interest paid 2,653 27 6,091 150
Income taxes paid 2,917 3,724 14,290 9,246
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
17
AXCAN PHARMA INC.
Consolidated Statements of Operations U.S. GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- ---------------- --------------- ---------------
$ $ $ $
REVENUE 62,005 46,877 182,762 130,344
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 13,643 11,822 43,187 31,721
Selling and administrative expenses 19,543 15,626 57,953 46,133
Research and development expenses 5,182 3,936 13,106 9,290
Depreciation and amortization 4,276 1,975 12,195 6,011
- ------------------------------------------------------------------------------------------------------------------------------------
42,644 33,359 126,441 93,155
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 19,361 13,518 56,321 37,189
.....................................................................................................................................
Financial expenses 1,694 1,769 5,081 2,620
Interest income (160) (514) (406) (1,083)
Loss (gain) on foreign currency (459) (168) (111) 80
Takeover bid expenses -- 3,697 -- 3,697
- ------------------------------------------------------------------------------------------------------------------------------------
1,075 4,784 4,564 5,314
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 18,286 8,734 51,757 31,875
Income taxes 5,734 2,395 16,349 10,046
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME 12,552 6,339 35,408 21,829
====================================================================================================================================
Income per common share
Basic 0.28 0.14 0.78 0.49
Diluted 0.25 0.14 0.72 0.48
====================================================================================================================================
Weighted average number of common shares
Basic 45,376,423 44,917,035 45,193,880 44,887,388
Diluted 55,271,713 45,597,705 51,971,458 45,574,227
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
18
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
1. Significant Accounting Policies
The accompanying unaudited financial statements are prepared in accordance with
U.S. GAAP for interim financial statements and do not include all the
information required for complete financial statements. They are consistent with
the policies outlined in the Company's audited financial statements for the year
ended September 30, 2003. The interim financial statements and related notes
should be read in conjunction with the Company's audited financial statements
for the year ended September 30, 2003. When necessary, the financial statements
include amounts based on informed estimates and best judgements of management.
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. Consolidated financial
statements prepared in U.S. dollars and in accordance with Canadian GAAP are
available to shareholders and filed with regulatory authorities.
2. Product Acquisition
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis for a cash purchase price of $145,000,000. The acquired products
are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and
PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company acquired
the worldwide rights to the Panzytrat enzyme product line from Abbott.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the nine-month period ended June 30,
2004, a portion of the sales of these products is still managed by the sellers.
Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the nine-month period
ended June 30, 2004 were $6,928,009 ($10,311,585 in 2003), the Company only
included in its revenue an amount of $4,413,531 ($6,898,669 in 2003)
representing the net sales less cost of goods sold and other seller related
expenses.
3. Inventories
June 30, September 30,
2004 2003
------------- -------------
$ $
Raw materials and packaging material 10,001 8,441
Work in progress 1,490 1,466
Finished goods 21,654 10,256
- --------------------------------------------------------------------------------
33,145 20,163
================================================================================
AXCAN PHARMA INC.
19
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
4. Intangible Assets
June 30, 2004
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- -------------------------------------------------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 275,789 26,391 249,398
Indefinite life 168,411 12,418 155,993
- -------------------------------------------------------------------------------------------------------------------------------
444,200 38,809 405,391
===============================================================================================================================
September 30, 2003
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- -------------------------------------------------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 111,327 19,998 91,329
Indefinite life 186,512 12,418 174,094
- -------------------------------------------------------------------------------------------------------------------------------
297,839 32,416 265,423
===============================================================================================================================
The cost of the product TAGAMET has been transferred from intangible assets with
an indefinite life to intangible assets with a finite life following changes in
the regulatory rules applicable to this product and resulting in the
modification of its useful life. The net cost of this product as of October 1,
2003, which amounted to $21,852,859, is therefore amortized over a 15-year
period.
AXCAN PHARMA INC.
20
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
5. Segmented Information
The Company considers that it operates in a single reportable field of activity,
the pharmaceutical industry, since its other activities do not account for a
significant portion of segment assets.
The Company operates in the following geographic areas:
AXCAN PHARMA INC.
21
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- -------------- ---------------------
$ $ $ $
Revenue
Canada
Domestic sales 7,100 5,163 20,517 14,873
Foreign sales -- -- -- --
United States
Domestic sales 41,519 30,072 121,288 82,932
Foreign sales 1,137 -- 2,500 --
Europe
Domestic sales 10,147 10,716 34,669 29,127
Foreign sales 2,029 881 3,618 3,297
Other 73 45 170 115
- ------------------------------------------------------------------------------------------------------------------------------------
62,005 46,877 182,762 130,344
====================================================================================================================================
Operating income (loss)
Canada 651 (1,142) 3,101 (895)
United States 18,580 11,073 52,791 28,256
Europe 481 3,891 1,551 10,786
Other (351) (304) (1,122) (958)
- ------------------------------------------------------------------------------------------------------------------------------------
19,361 13,518 56,321 37,189
====================================================================================================================================
Depreciation and amortization
Canada 650 290 1,845 1,030
United States 841 944 2,786 2,835
Europe 2,493 484 6,684 1,376
Other 292 257 880 770
- ------------------------------------------------------------------------------------------------------------------------------------
4,276 1,975 12,195 6,011
====================================================================================================================================
June 30, September 30,
2004 2003
-------------- -------------------
$ $
Property, plant, equipment, intangible
assets and goodwill
Canada 40,085 14,622
United States 130,635 133,695
Europe 264,893 138,113
Other 25,994 26,874
- ------------------------------------------------------------------------------------------------------------------------------------
461,607 313,304
====================================================================================================================================
AXCAN PHARMA INC.
22
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
6. Financial Information Included in the Consolidated Statement of Operations
a) Financial expenses
a)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- -------------- ---------------------
$ $ $ $
Interest on long-term debt 1,390 1,490 4,119 2,163
Bank charges 31 22 109 71
Financing fees 9 -- 73 --
Amortization of deferred debt issue
expenses 264 257 780 386
- ------------------------------------------------------------------------------------------------------------------------------------
1,694 1,769 5,081 2,620
====================================================================================================================================
b) Other information
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- -------------- ---------------------
$ $ $ $
Non-controling interest -- -- -- (103)
Rental expenses 274 307 822 921
Depreciation of property, plant and
equipment 873 703 2,912 2,400
Amortization of intangible assets 3,403 1,272 9,283 3,611
Share in net loss (income) of joint ventures (116) 36 (56) 124
c) Income per common share
The following tables reconcile the numerators and the denominators of the basic
and diluted income per common share computations:
AXCAN PHARMA INC.
23
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- -------------- ---------------------
Net income $ $ $ $
Basic 12,552 6,339 35,408 21,829
Financial expenses relating to the
convertible subordinated notes 1,084 -- 2,157 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income on a diluted basis 13,636 6,339 37,565 21,829
====================================================================================================================================
Weighted average number of
common shares outstanding 45,376,423 44,917,035 45,193,880 44,887,388
Effect of dilutive stock options 971,177 445,237 849,883 448,602
Effect of dilutive balance of purchase price -- 235,433 -- 238,237
Effect of dilutive convertible subordinated
notes 8,924,113 -- 5,927,695 --
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 55,271,713 45,597,705 51,971,458 45,574,227
====================================================================================================================================
Number of common shares
outstanding as at July 31, 2004 45,561,736
====================================================================================================================================
The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The notes are convertible during any quarterly conversion period if the
closing price per share for at least 20 consecutive trading days during the 30
consecutive trading-day period ending on the first day of the conversion period
exceeds 110% of the conversion price in effect on that thirtieth trading day.
Since this trigger event occurred during the second and the third quarter of the
current fiscal year, the 8,924,113, common shares are included in the weighted
average number of common shares outstanding for these periods. The notes are
also convertible during the five business-day period following any 10
consecutive trading-day period in which the daily average of the trading prices
for the notes was less than 95% of the average conversion value for the notes
during that period.
Options to purchase 258,500 and 1,223,550 common shares were outstanding as at
June 30, 2004 and 2003 respectively but were not included in the computation of
diluted income per share for the nine-month periods ended June 30, 2004 and 2003
respectively because the exercise price of the options was greater than the
average market price of the common shares.
AXCAN PHARMA INC.
24
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
7. Stock Options
The estimated fair value of stock options at the time of grant using the
Black-Scholes option pricing model was as follows:
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- --------------- ---------------
Fair value per option $7.84 $5.07 $6.74 $5.29
Assumptions used in Black-Scholes
option pricing model
Expected volatility 44% 45% 44% 45%
Risk-free interest rate 3.96% 4.23% 4.18% 4.39%
Expected option life (years) 6 6 6 6
Expected dividend -- -- -- --
The Company's net income, basic income per share and diluted income per share
would have been on a pro-forma basis as follows:
For the For the For the For the
three-month three-month three-month three-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2004 June 30, 2003 June 30, 2003
--------------- --------------- --------------- ---------------
As reported Pro forma As reported Pro forma
--------------- --------------- --------------- ---------------
$ $ $ $
Net income 12,552 11,456 6,339 5,548
Basic income per share 0.28 0.25 0.14 0.12
Diluted income per share 0.25 0.23 0.14 0.12
For the For the For the For the
nine-month nine-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2004 June 30, 2003 June 30, 2003
--------------- --------------- --------------- ---------------
As reported Pro forma As reported Pro forma
--------------- --------------- --------------- ---------------
$ $ $ $
Net income 35,408 32,198 21,829 19,416
Basic income per share 0.78 0.71 0.49 0.43
Diluted income per share 0.72 0.66 0.48 0.43
AXCAN PHARMA INC.
25
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements U.S. GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
8. Summary of Differences Between Generally Accepted Accounting Principles in
the United States and in Canada
The consolidated interim financial statements have been prepared in accordance
with U.S. GAAP which, in the case of the Company, conform in all materials
respects with Canadian GAAP, except as set forth below:
Operations adjustments:
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- --------------- ---------------
$ $ $ $
Net income in accordance with U.S. GAAP 12,552 6,339 35,408 21,829
Implicit interest on convertible debt (1,082) (990) (3,131) (1,284)
Amortization of new product acquisition (14) (14) (40) (40)
costs
Income tax impact of the above adjustments 5 5 15 15
- -----------------------------------------------------------------------------------------------------------------------
Net earnings in accordance with
Canadian GAAP 11,461 5,340 32,252 20,520
=======================================================================================================================
Earnings per share in accordance with
Canadian GAAP
Basic 0.25 0.12 0.71 0.46
Diluted 0.25 0.12 0.70 0.45
AXCAN PHARMA INC.
26
Balance sheet adjustments:
June 30, 2004 September 30, 2003
--------------------------------- ---------------------------------
U.S. GAAP Canadian GAAP U.S. GAAP Canadian GAAP
-------------- ------------------ -------------- ------------------
$ $ $ $
Current assets 130,780 130,910 225,035 225,203
Investments 407 143 1,002 775
Property, plant and equipment 28,666 28,678 20,331 20,351
Intangible assets 405,391 417,765 265,423 277,837
Goodwill 27,550 29,342 27,550 29,342
Deferred debt issue expenses 3,372 3,403 4,233 4,233
Deferred income tax asset 2,354 2,354 1,775 1,775
Current liabilities 55,758 56,064 50,261 50,634
Long-term debt 128,284 109,468 129,474 107,527
Deferred income tax liability 38,030 39,154 34,603 35,742
Shareholders' equity
Equity component of convertible debt -- 24,239 -- 24,239
Capital stock 260,572 267,217 255,743 262,388
Retained earnings 99,042 95,463 63,634 63,211
Accumulated other comprehensive
income 16,834 20,990 11,634 15,775
AXCAN PHARMA INC.
27
AXCAN PHARMA INC.
Consolidated Balance Sheets Canadian GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
June 30, September 30,
2004 2003
-------------- -----------------
ASSETS (unaudited)
$ $
Current assets
Cash and cash equivalents 34,353 37,886
Short-term investments 15,703 133,112
Accounts receivable 31,122 19,665
Income taxes receivable 7,483 5,315
Inventories (Note 3) 33,145 20,163
Prepaid expenses and deposits 3,583 2,848
Future income taxes 5,521 6,214
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 130,910 225,203
Investments 143 775
Property, plant and equipment, net 28,678 20,351
Intangible assets, net (Note 4) 417,765 277,837
Goodwill, net 29,342 29,342
Deferred debt issue expenses, net 3,403 4,233
Future income taxes 2,354 1,775
- ----------------------------------------------------------------------------------------------------------------------------
612,595 559,516
============================================================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 48,907 43,791
Income taxes payable 4,608 4,821
Instalments on long-term debt 1,820 1,528
Future income taxes 729 494
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 56,064 50,634
Long-term debt 109,468 107,527
Future income taxes 39,154 35,742
- ----------------------------------------------------------------------------------------------------------------------------
204,686 193,903
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Equity component of convertible debt (Note 5) 24,239 24,239
Capital stock 267,217 262,388
Retained earnings 95,463 63,211
Accumulated foreign currency translation adjustments 20,990 15,775
- ----------------------------------------------------------------------------------------------------------------------------
407,909 365,613
- ----------------------------------------------------------------------------------------------------------------------------
612,595 559,516
============================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
28
AXCAN PHARMA INC.
Consolidated Balance Sheets Canadian GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- -------------- -------------- --------------
$ $ $ $
Operations
Net earnings 11,461 5,340 32,252 20,520
Non-cash items
Implicit interest on convertible debt 1,082 990 3,132 1,284
Non-controlling interest -- -- -- (103)
Amortization of deferred debt issue expenses 264 257 780 386
Other depreciation and amortization 4,292 1,992 12,241 6,059
Gain on disposal of assets (71) -- (31) --
Foreign currency fluctuation 624 (413) 504 (262)
Future income taxes 888 234 3,763 2,162
Changes in working capital items
Accounts receivable (1,515) (2,209) (12,696) 2,843
Income taxes receivable (1,035) (1,999) (2,379) (2,627)
Inventories (5,284) (26) (13,457) 2,039
Prepaid expenses and deposits (265) (152) (877) (615)
Accounts payable and accrued liabilities 1,336 8,139 5,984 14,234
Income taxes payable 161 1,406 (249) 640
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 11,938 13,559 28,967 46,560
- ------------------------------------------------------------------------------------------------------------------------------------
Financing
Long-term debt 2,212 482 2,212 101,656
Repayment of long-term debt (2,419) (375) (3,369) (1,195)
Equity component of convertible debt -- -- -- 24,239
Issue of shares 2,005 857 4,829 971
Deferred debt issue expenses -- (38) -- (4,538)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 1,798 926 3,672 121,133
- ------------------------------------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (17,588) (95,014) (17,588) (95,714)
Disposal of short-term investments 6,555 134,945 60,740
Acquisition of investments -- (100) -- (100)
Disposal of investments 496 324 1,735 596
Acquisition of property, plant and equipment (4,562) (1,224) (11,076) (2,236)
Disposal of property, plant and equipment 26 -- 404 --
Acquisition of intangible assets (81) (2,003) (145,685) (73,938)
Disposal of intangible assets 917 -- 917 205
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investment activities (14,237) (98,017) (36,348) (110,447)
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held
in foreign currencies (23) 89 176 486
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (524) (83,443) (3,533) 57,732
Cash and cash equivalents, beginning of period 34,877 161,180 37,886 20,005
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 34,353 77,737 34,353 77,737
====================================================================================================================================
Additional information
Interest received 73 511 357 1,019
Interest paid 2,653 27 6,091 150
Income taxes paid 2,917 3,724 14,290 9,246
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
29
AXCAN PHARMA INC.
Consolidated Earnings Canadian GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- -------------- -------------- --------------
$ $ $ $
REVENUE 61,931 46,908 182,859 130,830
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 13,643 11,828 43,187 31,736
Selling and administrative expenses 19,418 15,625 57,956 46,552
Research and development expenses 4,907 3,602 12,553 8,542
Depreciation and amortization 4,292 1,992 12,241 6,059
- ------------------------------------------------------------------------------------------------------------------------------------
42,260 33,047 125,937 92,889
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 19,671 13,861 56,922 37,941
.....................................................................................................................................
Financial expenses 2,776 2,770 8,219 3,922
Interest income (159) (514) (408) (1,083)
Loss (gain) on foreign currency (456) (168) (108) 80
Takeover bid expenses -- 3,697 -- 3,697
- ------------------------------------------------------------------------------------------------------------------------------------
2,161 5,785 7,703 6,616
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 17,510 8,076 49,219 31,325
Income taxes 6,049 2,736 16,967 10,805
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 11,461 5,340 32,252 20,520
====================================================================================================================================
Earnings per common share
Basic 0.25 0.12 0.71 0.46
Diluted 0.25 0.12 0.70 0.45
====================================================================================================================================
Weighted average number of common shares
Basic 45,376,423 44,917,035 45,193,880 44,887,388
Diluted 55,271,713 45,597,705 51,971,458 45,574,227
====================================================================================================================================
AXCAN PHARMA INC.
Consolidated Retained Earnings Canadian GAAP
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- ----------------- ---------------- -----------------
$ $ $ $
Balance, beginning of period 84,002 49,774 63,211 34,594
Net earnings 11,461 5,340 32,252 20,520
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 95,463 55,114 95,463 55,114
====================================================================================================================================
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
30
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
4. Significant Accounting Policies
The accompanying unaudited financial statements are prepared in accordance with
Canadian GAAP for interim financial statements and do not include all the
information required for complete financial statements. They are consistent with
the policies outlined in the Company's audited financial statements for the year
ended September 30, 2003. The interim financial statements and related notes
should be read in conjunction with the Company's audited financial statements
for the year ended September 30, 2003. When necessary, the financial statements
include amounts based on informed estimates and best judgements of management.
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. Consolidated financial
statements prepared in U.S. dollars and in accordance with U.S. GAAP are
available to shareholders and filed with regulatory authorities.
5. Product Acquisition
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis for a cash purchase price of $145,000,000. The acquired products
are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and
PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company acquired
the worldwide rights to Panzytrat enzyme product line from Abbott.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the nine-month period ended June 30,
2004, a portion of the sales of these products is still managed by the sellers.
Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the nine-month period
ended June 30, 2004 were $6,928,009 ($10,311,585 in 2003), the Company only
included in its revenue an amount of $4,413,531 ($6,898,669 in 2003)
representing the net sales less cost of goods sold and other seller related
expenses.
6. Inventories
June 30, September 30,
2004 2003
$ $
Raw materials and packaging material 10,001 8,441
Work in progress 1,490 1,466
Finished goods 21,654 10,256
- --------------------------------------------------------------------------------
33,145 20,163
================================================================================
AXCAN PHARMA INC.
31
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
7. Intangible Assets
June 30, 2004
- ------------------------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ------------------------------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 288,623 26,846 261,777
Indefinite life 168,406 12,418 155,988
- ------------------------------------------------------------------------------------------------------------
457,029 39,264 417,765
============================================================================================================
September 30, 2003
- ------------------------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ------------------------------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 124,157 20,414 103,743
Indefinite life 186,512 12,418 174,094
- ------------------------------------------------------------------------------------------------------------
310,669 32,832 277,837
============================================================================================================
The cost of the product TAGAMET has been transferred from intangible assets with
an indefinite life to intangible assets with a finite life following changes in
the regulatory rules applicable to this product and resulting in the
modification of its useful life. The net cost of this product as of October 1,
2003, which amounted to $21,852,859, is therefore amortized over a 15-year
period.
8. Equity Component of Convertible Debt
The Company issued convertible subordinated notes for $125,000,000 on March 5,
2003. According to the features of this debt, an amount of $24,238,899,
representing the estimated value of the right of conversion, was included in the
shareholders' equity as equity component of convertible debt and an amount of
$100,761,101 was included in the long-term debt as liability component of
convertible debt. As of September 30, 2003, implicit interest of 9.17% and
totalling $2,292,478 was accounted for and added to the liability component. For
the nine-month period ended June 30, 2004, implicit interest in the amount of
$3,131,424 ($1,284,298 in 2003) was accounted for and added to the liability
component.
AXCAN PHARMA INC.
32
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
9. Segmented Information
The Company considers that it operates in a single reportable field of activity,
the pharmaceutical industry, since its other activities do not account for a
significant portion of segment assets.
The Company operates in the following geographic areas:
AXCAN PHARMA INC.
33
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------- --------------- --------------- ----------------
$ $ $ $
Revenue
Canada
Domestic sales 7,100 5,163 20,517 14,873
Foreign sales -- -- -- --
United States
Domestic sales 41,519 30,072 121,288 82,932
Foreign sales 1,137 -- 2,500 --
Europe
Domestic sales 10,073 10,747 34,766 29,613
Foreign sales 2,029 881 3,618 3,297
Other 73 45 170 115
- -------------------------------------------------------------------------------------------------------------------------
61,931 46,908 182,859 130,830
=========================================================================================================================
Operating income (loss)
Canada 903 (796) 3,745 (131)
United States 18,566 11,059 52,751 28,216
Europe 553 3,902 1,548 10,814
Other (351) (304) (1,122) (958)
- -------------------------------------------------------------------------------------------------------------------------
19,671 13,861 56,922 37,941
=========================================================================================================================
Depreciation and amortization
Canada 650 290 1,845 1,030
United States 855 958 2,826 2,875
Europe 2,495 487 6,690 1,384
Other 292 257 880 770
- -------------------------------------------------------------------------------------------------------------------------
4,292 1,992 12,241 6,059
=========================================================================================================================
June 30 September 30
2004 2003
----------- --------------
Property, plant, equipment, intangible $ $
assets and goodwill
Canada 44,360 19,311
United States 131,009 133,695
Europe 265,303 138,530
Other 35,113 35,994
- -------------------------------------------------------------------------------------------------------------------------
475,785 327,530
=========================================================================================================================
AXCAN PHARMA INC.
34
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
10. Financial Information Included in the Consolidated Statement of Earnings
a) Financial expenses
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- --------------- --------------- ----------------
$ $ $ $
Interest on long-term debt 2,472 2,489 7,250 3,456
Bank charges 31 24 116 80
Financing fees 9 -- 73 --
Amortization of deferred debt issue
expenses 264 257 780 386
- -----------------------------------------------------------------------------------------------------------------------
2,776 2,770 8,219 3,922
=======================================================================================================================
b) Other information
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- --------------- --------------- ----------------
$ $ $ $
Non-controling interest -- -- -- (103)
Rental expenses 274 307 822 921
Depreciation of property, plant and
equipment 875 704 2,918 2,406
Amortization of intangible assets 3,417 1,288 9,323 3,653
Investment tax credits applied against
research and development expenses 322 346 644 764
c) Earnings per common share
The following tables reconcile the numerators and the denominators of the basic
and diluted earnings per common share computations:
AXCAN PHARMA INC.
35
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- --------------- --------------- ----------------
$ $ $ $
Net earnings
Basic 11,461 5,340 32,252 20,520
Financial expenses relating to the
convertible subordinated notes 2,135 -- 4,210 --
- -----------------------------------------------------------------------------------------------------------------------
Net earnings on a diluted basis 13,596 5,340 36,462 20,520
=======================================================================================================================
AXCAN PHARMA INC.
36
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
amounts in the tables are stated in thousands of U.S. dollars, except share
related data (unaudited)
7. Financial Information Included in the Consolidated Statement of Earnings
(Continued)
c) Earnings per common share (Continued)
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- --------------- --------------- ----------------
Weighted average number of common
shares outstanding 45,376,423 44,917,035 45,193,880 44,887,388
Effect of dilutive stock options 971,177 445,237 849,883 448,602
Effect of dilutive equity component of
purchase price -- 235,433 -- 238,237
Effect of dilutive convertible subordinated
notes 8,924,113 -- 5,927,695 --
- -----------------------------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 55,271,713 45,597,705 51,971,458 45,574,227
=======================================================================================================================
Number of common shares outstanding
at the end of the period 45,556,032 44,989,347
=======================================================================================================================
Number of common shares outstanding
as at July 31, 2004 45,561,736
=======================================================================================================================
The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The notes are convertible during any quarterly conversion period if the
closing price per share for at least 20 consecutive trading days during the 30
consecutive trading-day period ending on the first day of the conversion period
exceeds 110% of the conversion price in effect on that thirtieth trading day .
Since this trigger event occurred during the second and the third quarter of the
current fiscal year, the 8,924,113, common shares are included in the weighted
average number of common shares outstanding for these periods. The notes are
also convertible during the five business-day period following any 10
consecutive trading-day period in which the daily average of the trading prices
for the notes was less than 95% of the average conversion value for the notes
during that period.
Options to purchase 258,500 and 1,223,550 common shares were outstanding as at
June 30, 2004 and 2003 respectively but were not included in the computation of
diluted earnings per share for the nine-month periods ended June 30, 2004 and
2003 respectively because the exercise price of the options was greater than the
average market price of the common shares.
AXCAN PHARMA INC.
37
11. Stock Options
The estimated fair value of stock options at the time of grant using the
Black-Scholes option pricing model was as follows:
For the For the For the For the
three-month three-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- --------------- --------------- ----------------
Fair value per option $7.84 $5.07 $6.74 $5.29
Assumptions used in Black-Scholes
option pricing model
Expected volatility 44% 45% 44% 45%
Risk-free interest rate 3.96% 4.23% 4.18% 4.39%
Expected option life (years) 6 6 6 6
Expected dividend -- -- -- --
AXCAN PHARMA INC.
38
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
8. Stock Options (Continued)
The Company's net earnings, basic earnings per share and diluted earnings per
share would have been reduced on a pro-forma basis as follows:
For the For the For the For the
three-month three-month three-month three-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2004 June 30, 2003 June 30, 2003
--------------- --------------- --------------- ---------------
As reported Pro-forma As reported Pro-forma
--------------- --------------- --------------- ---------------
$ $ $ $
Net earnings 11,461 10,365 5,340 4,549
Basic earnings per share 0.25 0.23 0.12 0.10
Diluted earnings per share 0.25 0.23 0.12 0.10
For the For the For the For the
nine-month nine-month nine-month nine-month
period ended period ended period ended period ended
June 30, 2004 June 30, 2004 June 30, 2003 June 30, 2003
--------------- --------------- --------------- ---------------
As reported Pro-forma As reported Pro-forma
--------------- --------------- --------------- ---------------
$ $ $ $
Net earnings 32,252 29,042 20,520 18,107
Basic earnings per share 0.71 0.64 0.46 0.40
Diluted earnings per share 0.70 0.64 0.45 0.40
AXCAN PHARMA INC.
39