EXHIBIT 99.1
[AXCAN PHARMA LOGO] AXCAN PHARMA INC.
597, boul. Laurier
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: November 10, 2004
Press Release for immediate distribution
AXCAN REPORTS FOURTH QUARTER AND FISCAL 2004 RESULTS
REVENUE UP 36% TO $243.6 MILLION AND DILUTED EPS UP 34% TO $0.98
MONT-SAINT-HILAIRE, QUEBEC - Axcan Pharma Inc. ("Axcan" or the "Company")
announced today operating results for the fourth quarter and fiscal year ended
September 30, 2004 (all amounts stated in U.S. dollars). For the quarter and the
fiscal year ended September 30, 2004, the Company reported revenue growth of 25%
to $60.9 million and 36% to $243.6 million respectively compared to the same
periods in fiscal 2003. Net income was $13.3 million, or $0.26 per share (fully
diluted) and $48.7 million, or $0.98 per share (fully diluted) for the fourth
quarter and fiscal year 2004 respectively. Fiscal 2004 net income represents a
46% increase over fiscal 2003 net income before takeover-bid expenses, acquired
in-process research and related income taxes of $33.4 million (a non U.S. GAAP
measure as defined in the attached Management's Discussion and Analysis of
financial condition and results of operations), and fiscal 2004 earnings per
share (fully diluted) are 34% over fiscal year 2003 earnings per share (fully
diluted) excluding takeover-bid expenses, acquired in-process research and
related income taxes.
"During fiscal 2004, Axcan showed consistency and commitment in executing its
growth strategy, and this translated into strong financial performance," stated
Leon F. Gosselin, President and Chief Executive Officer of Axcan. "We are very
pleased to have met our corporate objectives for the year and believe we are now
poised to seize the tremendous opportunities that await Axcan as it enters a new
era of strong future growth."
HIGHLIGHTS OF THE QUARTER AND FISCAL 2004
Axcan's fourth quarter marks five full years of strong growth in revenue and
earnings. The Company continues to successfully develop its core
gastroenterology franchises by extending its product lines, maintaining market
share for its key products and increasing global market penetration. The Company
believes that it is currently well positioned for strong future growth with a
solid core of gastrointestinal franchises and a deep pipeline, including
potential blockbuster, ITAX (Itopride Hydrochloride).
PRODUCT SALES
In fiscal 2004, the revenue increase primarily resulted from $41.8 million in
U.S. and Canadian sales of the AVAX product line which was acquired in November
2003 and strong sales of CANASA 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.
Key sales figures for fiscal 2004 are as follows:
o Worldwide sales of pancreatic enzymes (ULTRASE, PANZYTRAT and VIOKASE)
remained relatively stable at $57.6 million compared to $57.9 million
in fiscal 2003. PANZYTRAT acquired in the first quarter of fiscal 2003,
accounted for $10.2 million of these sales in fiscal 2003 and $13.5
million in fiscal 2004;
o Worldwide sales of ursodiol (URSO 250, URSO DS and DELURSAN) increased
4% to $56.1 million. DELURSAN, which was acquired in the second quarter
of fiscal 2003, accounted for $6.9 million of these sales in fiscal
2003 and $ 10.8 million in fiscal 2004;
o Sales of mesalamine (CANASA and SALOFALK) amounted to $50.3 million, a
92% increase from the prior year;
o Sales of the AVAX product line amounted to $41.8 million. The AVAX
product line includes CARAFATE and BENTYL for the U.S. market and
SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market. These
products were acquired from Aventis in November 2003;
o Sales of PHOTOFRIN and other products in North America amounted to
$14.1 million, remaining stable compared to the prior year;
o Sales of other products in Europe, mainly LACTEOL and TAGAMET amounted
to $23.7 million, a 14% decrease over the prior year. This decrease is
mainly due to lower sales of TAGAMET following changes in the
regulatory rules applicable to this product.
RECENT DEVELOPMENTS
PRODUCT LAUNCHES
URSO FORTE(TM)
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. The product was
launched recently across the United States under the brand name URSO Forte(TM).
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 represented a significant milestone for Axcan, because this was its
first European regulatory approval.
AXCAN PHARMA INC.
APPROVALS
1-GRAM MESALAMINE SUPPOSITORY
November 5, 2004, Axcan received approval from the U.S. Food and Drug
Administration for the use of a new, 1-gram mesalamine suppository dosage form,
to be administered once-per-day, for the treatment of ulcerative proctitis.
PENDING APPROVALS
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.
HELIZIDE
The Company is in the process of qualifying a manufacturer of biskalcitrate
potassium (bismuth salt) a component of the Helizide combination therapy for the
eradication of Helicobacter Pylori bacterium. Axcan anticipates FDA
re-submission by the middle of calendar 2005. Assuming approval, the Company
expects to launch the product in the second half of fiscal 2006.
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 (itopride Hydrochloride)
in the treatment of functional dyspepsia (also known as non ulcer dyspepsia).
Enrollment for the Phase III studies, which are being conducted in North America
and Western Europe, is well underway and should be completed in the first half
of calendar year 2005. More recently, a cardiac safety study was completed, and
top-line data is expected to be released during the first quarter of fiscal
2005. Axcan expects to file an NDA during the first quarter of fiscal 2006.
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 largest selling product, and expects to launch this
product in the U.S., Canada, Germany, U.K. and France in early fiscal 2007.
CANASA / SALOFALK rectal gel
Axcan 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 are expected to be available in the first quarter of fiscal 2005.
Assuming the results of the Phase III studies are positive, the Company plans to
submit regulatory filings for approvals in the United States and Canada and
hopes to launch the rectal gel in the United States and Canada in the third
quarter of fiscal 2006.
AXCAN PHARMA INC.
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 plans 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 towards
the end of 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
mortality rate. The treatment under investigation combines PHOTOFRIN with PDT
and the stenting of the bile ducts. It is anticipated that the proposed Phase
III study will start in the first quarter of fiscal 2005.
PRE-CLINICAL, PHASE I AND PHASE II
NCX-1000
The FDA has accepted an Investigational New Drug Application ("IND) for
NCX-1000, a patented, nitric oxide derivative of ursodiol, for the treatment of
portal hypertension, a late-stage complication of chronic, advanced 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 2007.
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 initiated
animal toxicity studies in the fourth quarter of fiscal 2004, which will be
followed by clinical Phase I studies. Also, Axcan intends to pursue the
development of an intravenous ursodiol disulfate to be used in the domain of
liver transplant.
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 in the first half of calendar year 2005.
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 during the second quarter of
fiscal 2005.
AXCAN PHARMA INC.
INTERIM FINANCIAL REPORT
This release includes, by reference, the fourth 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, will be filed with
applicable U.S. and Canadian regulatory authorities.
CONFERENCE CALL
Axcan will host a conference call at 4:30 P.M. EST, on November 10, 2004.
Interested parties may also access the conference call by way of web cast at
www.axcan.com. The web cast will be archived for 90 days. The telephone numbers
to access the conference call are (800) 814-4941 (Canada and United States) or
(416) 850-1243 (international). A replay of the call will be available until
November 17, 2004. The telephone number to access the replay of the call is
(416) 640-1917 code: 21100317.
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.Actual results 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 difficulty of predicting FDA and
other regulatory approvals, the commercialization of a drug or therapy after
regulatory approval is received, 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 our 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
under the Canadian Securities Commissions. The Company disclaims any obligation
to update these forward-looking statements. The reader is cautioned not to rely
on these forward-looking statement.
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
www.axcan.com
AXCAN PHARMA INC.
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, PANZYTRAT and
VIOKASE for the treatment of certain gastrointestinal symptoms, related to
cystic fibrosis in the case of ULTRASE; 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
September 30, 2004, Axcan had one product pending approval, a new formulation
for a product currently marketed in the United States. Axcan also has a number
of other pharmaceutical projects in all phases of development including ITAX for
the treatment of functional dyspepsia. Axcan reported revenue of $60.9 million
and operating income of $20.5 million for the three-month period ended September
30, 2004. For the year ended September 30, 2004, revenue was $243.6 million and
operating income was $76.8 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
$166.7 million (68.4% of total revenue) for the year ended September 30, 2004,
compared to $113.9 million (63.6% of total revenue) for fiscal 2003. In Canada,
revenue was $28.0 million (11.5% of total revenue) for the year ended September
30, 2004, compared to $20.6 million (11.5% of total revenue) for fiscal 2003. In
Europe, revenue was$48.7 million (20.0 % of total revenue) for the year ended
September 30, 2004, compared to $44.5million (24.8 % of total revenue) for
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 PHARMA INC.
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 some of its products), research and
development expenses as well as depreciation and amortization.
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 charge-backs, the
classification of intangible assets between finite and indefinite life, useful
lives of long-lived assets, the 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. The Company reviews all significant estimates affecting the
financial statements on a recurring basis and records the effect of any
adjustments when necessary. 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
charge-backs. 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. Since October 1, 2001, the Company does not amortize goodwill and
intangible assets with an
AXCAN PHARMA INC.
indefinite life. However, 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 date, Axcan has not recognized any
significant permanent impairment in value. Intangible assets with finite life
are 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 year ended
September 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 year ended September
30, 2004 were $7,667,940, the Company only included in its revenue an amount of
$4,685,673 representing the net sales less cost of goods sold and other seller
related expenses.
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:
AXCAN PHARMA INC.
For the three-month For the year
period ended September 30 ended September 30
--------------------------- -------------------------
2004 2003 2004 2003
------------- ------------ ------------ ------------
% % % %
Revenue 100.0 100.0 100.0 100.0
- ------------------------------------------------------------------------------------------
Cost of goods sold 18.2 26.2 22.3 24.8
Selling and administrative expenses 30.2 34.8 31.3 35.2
Research and development expenses 11.1 5.8 8.2 6.8
Acquired in-process research -- 24.6 -- 6.7
Depreciation and amortization 6.8 4.2 6.7 4.5
- ------------------------------------------------------------------------------------------
66.3 95.6 68.5 78.0
- ------------------------------------------------------------------------------------------
Operating income 33.7 4.4 31.5 22.0
- ------------------------------------------------------------------------------------------
Financial expenses 3.0 3.4 2.8 2.4
Interest income (0.6) (1.1) (0.3) (0.9)
Loss (gain) on foreign exchange (0.3) -- (0.1) --
Takeover-bid expenses -- -- -- 2.1
- ------------------------------------------------------------------------------------------
2.1 2.3 2.4 3.6
- ------------------------------------------------------------------------------------------
Income before income taxes 31.6 2.1 29.1 18.4
Income taxes 9.7 6.0 9.1 7.3
- ------------------------------------------------------------------------------------------
Net income 21.9 (3.9) 20.0 11.1
- ------------------------------------------------------------------------------------------
Periods ended September 30, 2004 compared to periods ended September 30, 2003
Revenue
Revenue increased $12.2 million (25.1 %) to $60.9 million for the fourth quarter
ended September 30, 2004 from $48.7 million for the corresponding quarter of the
preceding fiscal year. For the year ended September 30, 2004, revenue was $243.6
million compared to $179.1 million for the preceding fiscal year, an increase of
36.0%. This increase in revenue primarily resulted from $41.8 million in U.S.
and Canadian sales of the AVAX product line, which was acquired in November 2003
and strong sales of CANASA in the U.S. Revenues from sales made by the French
subsidiary, following the acquisition 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 decreased $1.6 million (12.6%) to $11.1 million for the
quarter ended September 30, 2004 from $12.7 million for the corresponding
quarter of the preceding fiscal year. As a percentage of revenue, cost of goods
sold for the quarter ended September 30, 2004 decreased as compared to the
corresponding quarter of the preceding fiscal year from 26.1% to 18.2%. For the
year ended September 30, 2004, cost of goods sold was $54.2 million (22.2% of
revenue) compared to $44.5 million (24.8% of revenue) for 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 Europe.
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 $1.4 million (8.2%) to $18.4 million for the
quarter ended September 30, 2004 from $17.0 million for the
AXCAN PHARMA INC.
corresponding quarter of the preceding fiscal year. For the year ended September
30, 2004, selling and administrative expenses increased $13.3 million (21.1%) to
$ 76.4 million from $63.1 million for the preceding fiscal year. These increases
are mainly due to an increase in our sales force as a result of the recent
acquisition of additional product rights.
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. Excluding
acquired in-process research, research and development expenses increased $4.0
million (142.9 %) to $6.8 million for the quarter ended September 30, 2004 from
$2.8 million for the corresponding quarter of the preceding fiscal year and $7.8
million (64.5%) to $19.9 million for the year ended September 30, 2004, from
$12.1 million for the preceding fiscal year. These increases are mainly due to
the development of ITAX, acquired in August 2003, for the treatment of
functional dyspepsia.
Acquired in-process research
The acquired in-process research of $12.0 million for the year ended September
30, 2003 was a result of the acquisition of an exclusive license for North
America, the European Union and Latin America from Abbott to develop,
manufacture and market ITAX, a patented gastroprokinetic drug. Under the terms
of this license agreement, Axcan paid $10.0 million and assumed $2.0 million in
research liability. As this product had not reached technological feasibility
and had no known alternative use, it was considered to be acquired in-process
research and was expensed in the fourth quarter of the year ended September 30,
2003, the period of acquisition.
Depreciation and amortization
Depreciation and amortization consists principally of the amortization of
intangible assets with a finite life. Intangible assets include trademarks,
trademark licenses and manufacturing rights. Depreciation and amortization
increased $2.1 million (100.0%) to $4.2 million for the quarter ended September
30, 2004 from $2.1 million for the corresponding quarter of the preceding fiscal
year and $8.3 million (102.5%) to $16.4 million for the year ended September 30,
2004 from $8.1 million for the preceding fiscal year. These increases aremainly
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 increased $0.1 million
(5.9%) to $1.8 million for the quarter ended September 30, 2004 from $1.7
million for the corresponding quarter of the preceding fiscal year and increased
$2.6 million (60.5%) to $6.9 million for the year ended September 30, 2004 from
$4.3 million for the preceding fiscal year. The increase for the year ended
September 30, 2004 is mainly due to the Company recognizing a full year's worth
of 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 and
the amortization of deferred debt issue expenses.
AXCAN PHARMA INC.
Takeover-bid expenses
On April 10, 2003, Axcan made an unsolicited cash tender offer of $8.75 per
share for all of the outstanding shares of common stock of Salix Pharmacenticals
Inc. ("Salix"), which was subsequently increased to $10.50 per share. On June
27, 2003, the offer for all outstanding shares of Salix expired without
acceptance or extension. Total costs related to the offer were $3.7 million and
were expensed during the quarter ended June 30, 2003, thus reducing net income
by approximately $2.4 million, or $0.05 per share for the year ended September
30, 2003.
Income Taxes
Income taxes amounted to $5.9 million for the quarter ended September 30, 2004,
compared to $2.9 million for the quarter ended September 30, 2003. Income taxes
amounted to $22.3 million for the year ended September 30, 2004 compared to
$13.0 million for the preceding fiscal year. The effective tax rates were 31.4%
for the year ended September 30, 2004 and 39.5% for the year ended September 30,
2003. The acquired in-process research is deductible at a lower rate than most
operating expenses. As discussed below in "net income", excluding acquired
in-process research and takeover bid expenses, the effective tax rate was 31.4%
for the year ended September 30, 2003.
Net income
Net income was $13.3 million or $0.29 of basic income per share and $0.26 of
diluted income per share, for the quarter ended September 30, 2004, compared to
a net loss of $1.9 million or $0.04 of basic and diluted loss 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 45.0 million for the quarter ended September 30, 2003 to 45.6
million for the quarter ended September 30, 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 45.7 million for the quarter ended September 30, 2003 to 55.2
million for the quarter ended September 30, 2004 because the shares issuable
under the convertible subordinated notes are included because a trigger event
giving holders the right to convert their notes occurred in each of the second,
third and fourth quarter of this fiscal year as a result of the stock trading
price exceeding 110% of the conversion price of the convertible notes.
Net income was $48.7 million or $1.08 of basic income per share and $0.98 of
diluted income per share, for the year ended September 30, 2004, compared to
$19.9 million or $0.44 of both basic and diluted income per share for the
preceding year.
Net income (in thousands of dollars), basic income per share and diluted income
per share excluding takeover-bid expenses, acquired in-process research and
related income taxes for the periods ended September 30, 2004 and 2003 were as
follows:
AXCAN PHARMA INC.
For the three-month For the year
period ended September 30 ended September 30
-------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
$ $ $ $
Net income (loss) in accordance
with U.S. GAAP 13,320 (1,904) 48,728 19,925
Plus: Takeover-bid expenses -- -- -- 3,697
Acquired in-process research -- 12,000 -- 12,000
Less: Related income taxes -- (982) -- (2,272)
- ---------------------------------------------------------------------------------------------
Net income excluding takeover-bid
expenses, acquired in-process
research and related income taxes 13,320 9,114 48,728 33,350
=============================================================================================
Income per common share excluding
takeover- bid expenses, acquired
in-process research and related
income taxes
Basic 0.29 0.20 1.08 0.74
Diluted 0.26 0.20 0.98 0.73
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 context of Axcan's U.S. and Canadian GAAP results of operations.
Excluding takeover-bid expenses, acquired in-process research and related income
taxes, net income for the quarter ended September 30, 2004 was $13.3 million or
$0.29 of basic income per share and $0.26 of diluted income per share compared
to $9.1 million or $0.20 of basic and diluted income per share for the
corresponding quarter of the preceding year.
Excluding takeover-bid expenses, acquired in-process research and related income
taxes, net income for the year ended September 30, 2004 was $48.7 million or
$1.08 of basic income per share and $0.98 of diluted income per share compared
to $33.4 million of net income or $0.74 of basic income per share and $0.73 of
diluted income per share for the year ended September 30, 2003.
AXCAN PHARMA INC.
Canadian GAAP
The differences (in thousands of dollars) between U.S. and Canadian GAAP, which
affect net income for the periods ended September 30, 2004 and 2003, are
summarized in the following table:
For the three-month For the year ended
period ended September 30 September 30
----------------------- -----------------------
2004 2003 2004 2003
---------- ----------- ----------- -----------
$ $ $ $
Net income (loss) in accordance with U.S. GAAP 13,320 (1,904) 48,728 19,925
Implicit interest on convertible debt (1,103) (1,008) (4,234) (2,292)
Acquired in-process research -- 12,000 -- 12,000
Amortization of new product acquisition costs (14) (14) (54) (54)
Income tax impact of the above adjustments 5 (977) 20 (962)
- --------------------------------------------------------------------------------------------------
Net earnings in accordance with Canadian GAAP 12,208 8,097 44,460 28,617
==================================================================================================
On March 5, 2003, the Company closed an offering of $125million 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, $24,238,899 was
included in shareholders' equity as equity component of the convertible debt and
$100,761,101 was included in long-term debt, as the liability component of the
convertible notes. For the year ended September 30, 2004, implicit interest in
the amount of $4,233,768 ($2,292,478 in 2003) was recognized 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 results of
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 $133.0
million to $37.9 million at September 30, 2004 from $170.9 million at September
30, 2003. As of September 30, 2004, working capital was $87.7 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 $64.3 million (11.8%) to $609.6 million as of September
30, 2004 from $545.3 million as of September 30, 2003. Shareholders' equity
increased $61.1 million (18.5%) to $392.1 million as of September 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 and debt, cash flows 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 sales of convertible notes.
Furthermore, Axcan borrowed and since repaid funds from financial institutions
to finance the acquisition of Axcan Scandipharm Inc. and from Schwarz Pharma
Inc., a former joint venture partner, to finance the
AXCAN PHARMA INC.
acquisition of Axcan URSO.
Since September 22, 2004, the Company has had an amended credit facility with a
banking syndicate consisting of a $125 million 364-day extendible revolving
facility with a two-year term-out option maturing on September 22, 2007.
The credit facility is secured by a first priority security interest on all
present and future acquired assets of the Company and its material subsidiaries,
and provides for the maintenance of certain financial ratios. Among the
restrictions imposed by the credit facility is a covenant limiting cash
dividends, share repurchases (other than redeemable shares issued in connection
with a permitted acquisition) and similar distributions to shareholders to 10%
of the Company's net income for the preceding fiscal year. As of September 30,
2004, Axcan was in compliance with all covenants under the credit facility.
The interest rate under the credit facility varies, depending on the Company's
leverage between 25 basis points and 100 basis points over Canadian prime rate
or U.S. base rate, and between 125 basis points and 200 basis points over the
LIBOR rate or bankers acceptances. The credit facility may be drawn in U.S.
dollars or in Canadian dollar equivalents. As at September 30, 2004, there was
no amount outstanding under this credit facility.
Cash Flows and Financial Resources
Cash flows from operating activities decreased $10.6 million (212.0%) from $5.0
million of cash provided by operating activities for the three-month period
ended September 30, 2003 to $5.6 million of cash used by operating activities
for the three-month period ended September 30, 2004. Cash flows used for
financing activities for the three-month period ended September 30, 2004 were
$0.4 million and cash flows used for investment activities for the same period
were $6.3 million. For the year ended September 30, 2004 cash flows from
operating activities decreased $28.1 million (54.6 %) from $51.5 million of cash
provided by operating activities for the year ended September 30, 2003 to $23.4
million. This decrease is mainly due to the increase in accounts receivable and
inventories during this fiscal year following the increase in sales and the
acquisition of new products. Cash flows from financing activities for the year
ended September 30, 2004 were $3.3 million. Cash flows used by investment
activities for the year ended September 30, 2004 were $42.7 million mainly due
to the net cash used for the acquisition of intangible assets for $149.6 million
and property, plant and equipment for $13.4 million with the proceeds from the
disposal of short term investments.
Axcan's research and development expenses totaled $19.9 million for fiscal 2004.
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.
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 PHARMA INC.
Earnings coverage
Based on unaudited financial statements, the earnings coverage ratios are the
following:
Under U.S. GAAP, for the twelve months ended September 30, 2004, our interest
requirements amounted to $6.0 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 12.8 to one.
Under Canadian GAAP, for the twelve months ended September 30, 2004, our
interest requirements amounted to $10.6 million on a pro forma basis and our
earnings coverage ratio was 7.3 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 $4.6 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 our 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 capital.
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 INC.
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. To the extent that any statements
in this document contains information that is not historical, the statements are
essentially forward-looking and are often identified by words such as
"anticipate", "expect", "estimate", "intend", "project", "plan" and "believe".
These forward-looking statements include but are not limited to 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.
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 difficulty of predicting FDA or other regulatory approvals, the
commercialization of a 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, fluctuations in our operating results and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission and the Canadian Securities Commissions The reader is cautioned not
to rely on these forward-looking statements. The Company disclaims any
obligation to update these forward-looking statements.
On behalf of Management,
(signed)
Jean Vezina
Vice President, Finance and Chief Financial Officer
AXCAN PHARMA INC.
AXCAN PHARMA INC.
Consolidated Balance Sheets U.S. GAAP
- ----------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
September 30 September 30
2004 2003
--------------- -------------
ASSETS (unaudited)
$ $
Current assets
Cash and cash equivalents 21,979 37,773
Short-term investments available for sale 15,922 133,112
Accounts receivable 46,585 19,685
Income taxes receivable 9,196 5,294
Inventories (Note 3) 37,270 20,163
Prepaid expenses and deposits 3,494 2,794
Deferred income taxes 4,586 6,214
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 139,032 225,035
Investments -- 1,002
Property, plant and equipment, net 31,252 20,331
Intangible assets, net (Note 4) 407,875 265,423
Goodwill, net 27,467 27,550
Deferred debt issue expenses, net 3,088 4,233
Deferred income taxes 930 1,775
- ----------------------------------------------------------------------------------------------------------------------
Total assets 609,644 545,349
======================================================================================================================
LIABILITIES
Current liabilities
Accounts payable and accured liabilities 47,917 43,418
Income taxes payable 731 4,821
Instalments on long-term debt 1,778 1,528
Deferred income taxes 936 494
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 51,362 50,261
Long-term debt 127,916 129,474
Deferred income taxes 38,290 34,603
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 217,568 214,338
- ----------------------------------------------------------------------------------------------------------------------
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 of unlimited shares authorized; 45,562,336 issued as at
September 30, 2004 and 45,004,320 as at September 30, 2003. 260,643 255,743
Retained earnings 112,362 63,634
Accumulated other comprehensive income 19,071 11,634
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 392,076 331,011
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 609,644 545,349
======================================================================================================================
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.
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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
Common shares (number)
Balance, beginning of period 45,556,032 44,989,347 45,004,320 44,863,198
Exercise of options 6,304 14,973 558,016 141,122
- ------------------------------------------------------------------------------------------------------
Balance, end of period 45,562,336 45,004,320 45,562,336 45,004,320
======================================================================================================
$ $ $ $
Common shares
Balance, beginning of period 260,572 255,611 255,743 254,640
Exercise of options 71 132 4,900 1,103
- ------------------------------------------------------------------------------------------------------
Balance, end of period 260,643 255,743 260,643 255,743
- ------------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 99,042 65,538 63,634 43,709
Net income (loss) 13,320 (1,904) 48,728 19,925
- ------------------------------------------------------------------------------------------------------
Balance, end of period 112,362 63,634 112,362 63,634
- ------------------------------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss)
Balance, beginning of period 16,834 9,548 11,634 (3,562)
Foreign currency translation adjustments 2,237 2,086 7,437 15,196
- ------------------------------------------------------------------------------------------------------
Balance, end of period 19,071 11,634 19,071 11,634
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 392,076 331,011 392,076 331,011
======================================================================================================
Comprehensive income
Foreign currency translation adjustments 2,237 2,086 7,437 15,196
Net income (loss) 13,320 (1,904) 48,728 19,925
- ------------------------------------------------------------------------------------------------------
Total comprehensive income 15,557 182 56,165 35,121
======================================================================================================
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.
AXCAN PHARMA INC.
Consolidated Statements of Cash Flows U.S. GAAP
- ---------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited)
For the
three-month For the
period three-month For the For the
ended period ended year ended year ended
September September September September
30, 30, 30, 30,
2004 2003 2004 2003
----------- ------------ ----------- --------------
$ $ $ $
Operations
Net income (loss) 13,320 (1,904) 48,728 19,925
Non-cash items
Non-controlling interest -- -- -- (103)
Amortization of deferred debt issue
expenses 291 260 1,144 646
Other depreciation and amortization 4,164 2,052 16,359 8,063
Loss on disposal of assets 501 1,130 475 1,130
Foreign currency fluctuation (89) 567 342 305
Deferred income taxes 2,847 (329) 6,625 1,848
Share in net loss (income) of joint 31 (18) (25) 106
ventures
Changes in working capital items
Accounts receivable (15,128) 3,038 (27,795) 5,569
Income taxes receivable (1,373) (1,837) (3,773) (4,438)
Inventories (3,700) (2,312) (17,157) (417)
Prepaid expenses and deposits 190 (311) (703) (892)
Accounts payable and accured (2,860) 2,181 3,191 16,547
liabilities
Income taxes payable (3,802) 2,491 (4,051) 3,207
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (5,608) 5,008 23,360 51,496
- ---------------------------------------------------------------------------------------------------------------------
Financing
Long-term debt -- 169 2,212 126,064
Repayment of long-term debt (473) (3,492) (3,842) (4,687)
Deferred debt issue expenses -- (51) -- (4,589)
Issue of shares 71 132 4,900 1,103
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities (402) (3,242) 3,270 117,891
- ---------------------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (3,348) (37,398) (20,936) (133,112)
Disposal of short-term investments 3,129 -- 138,074 60,740
Disposal of investments 141 118 1,876 637
Acquisition of property, plant and (2,335) (2,055) (13,409) (4,291)
equipment
Disposal of property, plant and 8 -- 405 --
equipment
Acquisition of intangible assets (3,943) (2,360) (149,628) (76,093)
Disposal of intangible assets -- -- 917 --
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investment activities (6,348) (41,695) (42,701) (152,119)
- ---------------------------------------------------------------------------------------------------------------------
Foreign exchange gain on cash held
in foreign currencies 103 42 277 528
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (12,255) (39,887) (15,794) 17,796
Cash and cash equivalents,
beginning of period 34,234 77,660 37,773 19,977
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 21,979 37,773 21,979 37,773
=====================================================================================================================
Additional information
Interest received 690 1,019 1,035 1,427
Interest paid 31 192 6,122 342
Income taxes paid 9,330 3,171 23,620 12,417
=====================================================================================================================
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.
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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
$ $ $ $
REVENUE 60,872 48,740 243,634 179,084
- ------------------------------------------------------------------------------------------------------------
Cost of goods sold 11,060 12,738 54,247 44,459
Selling and administrative expenses 18,412 16,951 76,365 63,084
Research and development expenses 6,760 2,808 19,866 12,098
Acquired in-process research 12,000 12,000
Depreciation and amortization 4,164 2,052 16,359 8,063
- ------------------------------------------------------------------------------------------------------------
40,396 46,549 166,837 139,704
- ------------------------------------------------------------------------------------------------------------
Operating income 20,476 2,191 76,797 39,380
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Financial expenses 1,804 1,663 6,885 4,283
Interest income (350) (556) (756) (1,639)
Loss (gain) on foreign currency (202) 42 (313) 122
Takeover-bid expenses 3,697
- ------------------------------------------------------------------------------------------------------------
1,252 1,149 5,816 6,463
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 19,224 1,042 70,981 32,917
Income taxes 5,904 2,946 22,253 12,992
- ------------------------------------------------------------------------------------------------------------
NET INCOME(LOSS) 13,320 (1,904) 48,728 19,925
============================================================================================================
Income (loss) per common share
Basic 0.29 (0.04) 1.08 0.44
Diluted 0.26 (0.04) 0.98 0.44
============================================================================================================
Weighted average number of common shares
Basic 45,561,149 44,993,431 45,286,199 44,914,944
Diluted 55,214,113 45,714,290 52,787,964 45,607,992
============================================================================================================
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.
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. Products Acquisitions
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis Pharma S.A for a cash purchase price of $145,000,000. The products
acquired were 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
Laboratories.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the year ended September 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 year ended September 30, 2004 were $7,667,940
($14,255,979 in 2003), the Company only included in its revenue an amount of
$4,685,673 ($9,463,645 in 2003) representing the net sales less cost of goods
sold and other seller related expenses.
3. Inventories
September 30, September 30,
2004 2003
------------- --------------
$ $
Raw materials and packaging material 10,311 8,441
Work in progress 1,781 1,466
Finished goods 25,178 10,256
- --------------------------------------------------------------------------------
37,270 20,163
================================================================================
AXCAN PHARMA INC.
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
September 30, 2004
- ----------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ----------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 280,034 29,869 250,165
Indefinite life 170,127 12,417 157,710
- ----------------------------------------------------------------------------------------
450,161 42,286 407,875
========================================================================================
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 was 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.
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:
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------ ------------- ------------- -------------
$ $ $ $
Revenue
Canada
Domestic sales 7,485 5,682 28,002 20,555
Foreign sales -- -- -- --
United States
Domestic sales 41,522 30,943 162,810 113,875
Foreign sales 1,421 3,921
Europe
Domestic sales 9,161 10,844 43,830 39,971
Foreign sales 1,228 1,234 4,846 4,531
Other 55 37 225 152
- ---------------------------------------------------------------------------------------------------
60,872 48,740 243,634 179,084
===================================================================================================
September 30 September 30,
2004 2003
------------- -------------
$ $
Property, plant, equipment, intangible
assets and goodwill
Canada 40,401 14,622
United States 131,242 133,695
Europe 265,417 138,113
Other 29,534 26,874
- ---------------------------------------------------------------------------------------------------
466,594 313,304
===================================================================================================
AXCAN PHARMA INC.
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
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
$ $ $ $
Interest on long-term debt 1,495 1,177 5,614 3,340
Bank charges 18 226 127 297
Amortization of deferred debt issue
expenses 291 260 1,144 646
- ---------------------------------------------------------------------------------------------------
1,804 1,663 6,885 4,283
===================================================================================================
b) Other information
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
$ $ $ $
Non-controling interest -- -- -- (103)
Rental expenses 394 307 1,216 1,228
Depreciation of property, plant and
equipment 808 1,067 3,720 3,467
Amortization of intangible assets 3,356 985 12,639 4,596
Share in net income (loss) of joint ventures (31) 18 25 (106)
AXCAN PHARMA INC.
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)
c) Income (loss) per common share
The following tables reconcile the numerators and the denominators of the basic
and diluted income (loss) per common share computations:
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
Net income (loss) $ $ $ $
Basic 13,320 (1,904) 48,728 19,925
Financial expenses relating to the
convertible subordinated notes 1,012 -- 3,169 --
- ----------------------------------------------------------------------------------------------------------
Net income (loss) on a diluted basis 14,332 (1,904) 51,897 19,925
==========================================================================================================
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
Weighted average number of
common shares outstanding 45,561,149 44,993,431 45,286,199 44,914,944
Effect of dilutive stock options 728,851 548,067 820,872 472,599
Effect of dilutive balance of purchase price -- 172,792 -- 220,449
Effect of dilutive convertible subordinated
notes 8,924,113 -- 6,680,893 --
- ----------------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 55,214,113 45,714,290 52,787,964 45,607,992
==========================================================================================================
Number of common shares
outstanding as at November 9, 2004 45,562,336
==========================================================================================================
Options to purchase 283,000 and 754,100 common shares were outstanding as at
September 30, 2004 and 2003 respectively but were not included in the
computation of diluted income per share for the year ended September 30, 2004
and 2003 respectively because the exercise price of the options was greater than
the average market price of the common shares.
The $125 million aggregate principal amount of 4 1/4%, subordinated notes due
2008 are initially 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, third and fourth 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.
AXCAN PHARMA INC.
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. 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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
Fair value per option $8.12 $5.94 $6.80 $5.41
Assumptions used in Black-Scholes
option pricing model
Expected volatility 43% 45% 44% 46%
Risk-free interest rate 4.04% 4.07% 4.17% 4.43%
Expected option life (years) 6 6 6 6
Expected dividend -- -- -- --
The Company's net income (loss), basic income (loss) per share and diluted
income (loss) 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
September 30, September 30, September 30, September 30,
2004 2004 2003 2003
------------- ------------- ------------- --------------
As reported Pro forma As reported Pro forma
------------- ------------- ------------- --------------
$ $ $ $
Net income (loss) 13,320 12,244 (1,904) (2,707)
Basic income (loss) per share 0.29 0.27 (0.04) (0.06)
Diluted income (loss) per share 0.26 0.24 (0.04) (0.06)
For the For the For the For the
year ended year ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2004 2003 2003
------------- ------------- ------------- --------------
As reported Pro forma As reported Pro forma
------------- ------------- ------------- --------------
$ $ $ $
Net income 48,728 44,442 19,925 16,707
Basic income per share 1.08 0.98 0.44 0.37
Diluted income per share 0.98 0.90 0.44 0.37
AXCAN PHARMA INC.
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. 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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
$ $ $ $
Net income (loss) in accordance with
U.S. GAAP 13,320 (1,904) 48,728 19,925
Implicit interest on convertible debt (1,103) (1,008) (4,234) (2,292)
Acquired in-process research -- 12,000 -- 12,000
Amortization of new product acquisition
costs (14) (14) (54) (54)
Income tax impact of the above adjustments 5 (977) 20 (962)
- ----------------------------------------------------------------------------------------------------
Net earnings in accordance with
Canadian GAAP 12,208 8,097 44,460 28,617
====================================================================================================
Earnings per share in accordance with
Canadian GAAP
Basic 0.27 0.18 0.98 0.64
Diluted 0.26 0.18 0.96 0.63
Balance sheet adjustments:
September 30, 2004 September 30, 2003
------------------------------------------------------------
U.S. GAAP Canadian GAAP U.S. GAAP Canadian GAAP
------------- ------------- ------------- --------------
$ $ $ $
Current assets 139,032 139,054 225,035 225,203
Investments -- -- 1,002 775
Property, plant and equipment 31,252 31,265 20,331 20,351
Intangible assets 407,875 420,235 265,423 277,837
Goodwill 27,467 28,862 27,550 29,342
Deferred debt issue expenses 3,088 3,088 4,233 4,233
Deferred income tax asset 897 930 1,775 1,775
Current liabilities 51,362 51,430 50,261 50,634
Long-term debt 127,916 110,203 129,474 107,527
Deferred income tax liability 38,257 39,376 34,603 35,742
Shareholders' equity
Equity component of convertible debt -- 24,239 -- 24,239
Capital stock 260,643 267,288 255,743 262,388
Retained earnings 112,362 107,671 63,634 63,211
Accumulated other comprehensive
income 19,071 23,227 11,634 15,775
AXCAN PHARMA INC.
AXCAN PHARMA INC.
Consolidated Balance Sheets Canadian GAAP
- --------------------------------------------------------------------------------
in thousands of U.S. dollars
September 30 September 30
2004 2003
--------------- -------------
(unaudited)
ASSETS $ $
Current assets
Cash and cash equivalents 22,063 37,886
Short-term investments 15,922 133,112
Accounts receivable 46,518 19,665
Income taxes receivable 9,196 5,315
Inventories (Note 3) 37,270 20,163
Prepaid expenses and deposits 3,499 2,848
Future income taxes 4,586 6,214
- --------------------------------------------------------------------------------
Total current assets 139,054 225,203
Investments -- 775
Property, plant and equipment, net 31,265 20,351
Intangible assets, net (Note 4) 420,235 277,837
Goodwill, net 28,862 29,342
Deferred debt issue expenses, net 3,088 4,233
Future income taxes 930 1,775
- --------------------------------------------------------------------------------
623,434 559,516
================================================================================
LIABILITIES
Current liabilities
Accounts payable and accured liabilities 47,985 43,791
Income taxes payable 731 4,821
Instalments on long-term debt 1,778 1,528
Future income taxes 936 494
- --------------------------------------------------------------------------------
Total current liabilities 51,430 50,634
Long-term debt 110,203 107,527
Future income taxes 39,376 35,742
- --------------------------------------------------------------------------------
201,009 193,903
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Equity component of convertible debt (note 5) 24,239 24,239
Capital stock 267,288 262,388
Retained earnings 107,671 63,211
Accumulated foreign currency translation adjustments 23,227 15,775
- --------------------------------------------------------------------------------
422,425 365,613
- --------------------------------------------------------------------------------
623,434 559,516
================================================================================
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.
AXCAN PHARMA INC.
Consolidated Cash Flows Canadian GAAP
- ---------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited) For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- --------------
Operations $ $ $ $
Net earnings 12,208 8,097 44,460 28,617
Non-cash items
Implicit interest on convertible debt 1,102 1,008 4,234 2,292
Non-controlling interest -- -- -- (103)
Amortization of deferred debt issue expenses 291 260 1,144 646
Other depreciation and amortization 4,180 2,068 16,421 8,127
Loss on disposal of assets 506 1,130 475 1,130
Foreign currency fluctuation (89) 567 342 305
Future income taxes 2,834 648 6,597 2,810
Changes in working capital items
Accounts receivable (15,052) 3,053 (27,748) 5,750
Income taxes receivable (1,373) (1,837) (3,752) (4,459)
Inventories (3,700) (2,328) (17,157) (411)
Prepaid expenses and deposits 223 (311) (654) (942)
Accounts payable and accured liabilities (2,966) (4,818) 3,018 9,619
Income taxes payable (3,802) 2,491 (4,051) 3,207
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (5,638) 10,028 23,329 56,588
- ---------------------------------------------------------------------------------------------------------------------------
Financing
Long-term debt -- 169 2,212 101,825
Repayment of long-term debt (471) (784) (3,840) (1,979)
Equity component of convertible debt -- -- -- 24,239
Repayment of balance of purchase price -- (2,704) -- (2,704)
Deferred debt issue expenses -- (51) -- (4,589)
Issue of shares 71 132 4,900 1,103
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities (400) (3,238) 3,272 117,895
- ---------------------------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (3,348) (37,398) (20,936) (133,112)
Disposal of short-term investments 3,129 -- 138,074 60,740
Disposal of investments 141 141 1,876 637
Acquisition of property, plant and equipment (2,333) (2,066) (13,409) (4,302)
Disposal of property, plant and equipment 1 -- 405 --
Acquisition of intangible assets (3,943) (7,360) (149,628) (81,093)
Disposal of intangible assets -- -- 917 --
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investment activities (6,353) (46,683) (42,701) (157,130)
- ---------------------------------------------------------------------------------------------------------------------------
Foreign exchange gain on cash held
in foreign currencies 101 42 277 528
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (12,290) (39,851) (15,823) 17,881
Cash and cash equivalents, beginning of period 34,353 77,737 37,886 20,005
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 22,063 37,886 22,063 37,886
===========================================================================================================================
Additional information
Interest received 674 1,019 1,031 1,427
Interest paid 31 192 6,122 342
Income taxes paid 9,309 3,171 23,599 12,417
===========================================================================================================================
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.
AXCAN PHARMA INC.
Consolidated Earnings Canadian GAAP
- ---------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
-------------- --------------- -------------- ----------------
$ $ $ $
REVENUE 60,933 48,712 243,792 179,542
- ---------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 11,060 12,738 54,247 44,474
Selling and administrative expenses 18,618 16,909 76,574 63,461
Research and development expenses 6,088 3,096 18,641 11,638
Depreciation and amortization 4,180 2,068 16,421 8,127
- ---------------------------------------------------------------------------------------------------------------------------
39,946 34,811 165,883 127,700
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 20,987 13,901 77,909 51,842
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Financial expenses 2,912 2,668 11,131 6,590
Interest income (354) (559) (762) (1,642)
Loss (gain) on foreign currency (200) 48 (308) 128
Takeover-bid expenses 3,697
- ---------------------------------------------------------------------------------------------------------------------------
2,358 2,157 10,061 8,773
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 18,629 11,744 67,848 43,069
Income taxes 6,421 3,647 23,388 14,452
- ---------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 12,208 8,097 44,460 28,617
===========================================================================================================================
Earnings per common share
Basic 0.27 0.18 0.98 0.64
Diluted 0.26 0.18 0.96 0.63
===========================================================================================================================
Weighted average number of common shares
Basic 45,561,149 44,993,431 45,286,199 44,914,944
Diluted 55,214,113 45,714,290 52,787,964 45,607,992
===========================================================================================================================
AXCAN PHARMA INC.
Consolidated Retained Earnings Canadian GAAP
- ---------------------------------------------------------------------------------------------------------------------------
in thousands of U.S. dollars
(unaudited)
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
-------------- --------------- -------------- ----------------
$ $ $ $
Balance, beginning of period 95,463 55,114 63,211 34,594
Net earnings 12,208 8,097 44,460 28,617
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of period 107,671 63,211 107,671 63,211
===========================================================================================================================
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.
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
(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
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.
2. Products Acquisitions
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis Pharma S.A for a cash purchase price of $145,000,000. The products
acquired were 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 Laboratories.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the year ended September 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 year ended September 30, 2004 were $7,667,940
($14,255,979 in 2003), the Company only included in its revenue an amount of
$4,685,673 ($9,463,645 in 2003) representing the net sales less cost of goods
sold and other seller related expenses.
3. Inventories
September 30, September 30,
2004 2003
------------- -------------
$ $
Raw materials and packaging material 10,311 8,441
Work in progress 1,781 1,466
Finished goods 25,178 10,256
- --------------------------------------------------------------------------------
37,270 20,163
================================================================================
AXCAN PHARMA INC.
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. Intangible Assets
September 30, 2004
- ------------------------------------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- ------------------------------------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 292,863 30,338 262,525
Indefinite life 170,127 12,417 157,710
- ------------------------------------------------------------------------------------------------------------
462,990 42,755 420,235
============================================================================================================
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 was 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.
5. Equity Component of Convertible Debt
The Company issued for $125 million aggregate principal amount of its 4 1/4%
convertible subordinated notes 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. For the year ended
September 30, 2004, implicit interest of 9.17% and totalling $4,233,768
($2,292,478 in 2003) was accounted for and added to the liability component.
AXCAN PHARMA INC.
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)
6. 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:
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
$ $ $ $
Revenue
Canada
Domestic sales 7,485 5,682 28,002 20,555
Foreign sales -- -- -- --
United States
Domestic sales 41,522 30,943 162,810 113,875
Foreign sales 1,421 -- 3,921 --
Europe
Domestic sales 9,222 10,816 43,988 40,429
Foreign sales 1,228 1,234 4,846 4,531
Other 55 37 225 152
- ------------------------------------------------------------------------------------------------------------------------
60,933 48,712 243,792 179,542
========================================================================================================================
September 30, Septembre 30,
2004 2003
------------- ---------------
Property, plant, equipment, intangible $ $
assets and goodwill
Canada 44,676 19,311
United States 131,602 133,695
Europe 265,431 138,530
Other 38,653 35,994
- ------------------------------------------------------------------------------------------------------------------------
480,362 327,530
========================================================================================================================
AXCAN PHARMA INC.
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
a) Financial expenses
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
$ $ $ $
Interest on long-term debt 2,598 2,191 9,848 5,647
Bank charges 23 217 139 297
Amortization of deferred debt issue
expenses 291 260 1,144 646
- -----------------------------------------------------------------------------------------------------------------------
2,912 2,668 11,131 6,590
========================================================================================================================
b) Other information
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
$ $ $ $
Non-controling interest -- -- -- (103)
Rental expenses 394 307 1,216 1,228
Depreciation of property, plant and
equipment 810 1,071 3,728 3,477
Amortization of intangible assets 3,370 997 12,693 4,650
Investment tax credits applied against
research and development expenses 519 142 1,163 488
c) Earnings per common share
The following tables reconcile the numerators and the denominators of the basic
and diluted earnings per common share computations:
For the For the
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
$ $ $ $
Net earnings
Basic 12,208 8,097 44,460 28,617
Financial expenses relating to the
convertible subordinated notes 2,169 -- 6,379 --
- -----------------------------------------------------------------------------------------------------------------------
Net earnings on a diluted basis 14,377 8,097 50,839 28,617
========================================================================================================================
AXCAN PHARMA INC.
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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
Weighted average number of common
shares outstanding 45,561,149 44,993,431 45,286,199 44,914,944
Effect of dilutive stock options 728,851 548,067 820,872 472,599
Effect of dilutive equity component of
purchase price -- 172,792 -- 220,449
Effect of dilutive convertible subordinated
notes 8,924,113 -- 6,680,893 --
- -----------------------------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 55,214,113 45,714,290 52,787,964 45,607,992
========================================================================================================================
Number of common shares outstanding
at the end of the period 45,562,336 45,004,320
========================================================================================================================
Number of common shares outstanding
as at November 9, 2004 45,562,336
========================================================================================================================
Options to purchase 283,000 and 754,100 common shares were outstanding as at
September 30, 2004 and 2003 respectively but were not included in the
computation of diluted earnings per share for the years ended September 30, 2004
and 2003 respectively because the exercise price of the options was greater than
the average market price of the common shares.
The $125 million aggregate principal amount of 41/4% subordinated notes, due
2008, are initially 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, the third and fourth 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.
AXCAN PHARMA INC.
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements Canadian GAAP
- --------------------------------------------------------------------------------
in thousands of U.S. dollars, except share related data
(unaudited)
8. 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
three-month three-month For the For the
period ended period ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
Fair value per option $8.12 $5.94 $6.80 $5.41
Assumptions used in Black-Scholes
option pricing model
Expected volatility 43% 45% 44% 46%
Risk-free interest rate 4.04% 4.07% 4.17% 4.43%
Expected option life (years) 6 6 6 6
Expected dividend -- -- -- --
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
September 30, September 30, September 30, September 30,
2004 2004 2003 2003
--------------- ---------------- ---------------- ---------------
As reported Pro-forma As reported Pro-forma
--------------- ---------------- ---------------- ---------------
$ $ $ $
Net earnings 12,208 11,132 8,097 7,294
Basic earnings per share 0.27 0.24 0.18 0.16
Diluted earnings per share 0.26 0.24 0.18 0.16
For the For the For the For the
year ended year ended year ended year ended
September 30, September 30, September 30, September 30,
2004 2004 2003 2003
--------------- ---------------- ---------------- ---------------
As reported Pro-forma As reported Pro-forma
--------------- ---------------- ---------------- ---------------
$ $ $ $
Net earnings 44,460 40,174 28,617 25,399
Basic earnings per share 0.98 0.89 0.64 0.57
Diluted earnings per share 0.96 0.88 0.63 0.56
AXCAN PHARMA INC.