SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
PURSUANT to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the Month of August, 2003
Commission File Number 0-30860
Axcan Pharma Inc.
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(Exact Name of Registrant)
597, boul, Laurier, Mont-Saint-Hilaire (Quebec), Canada J3H 6C4
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F
X
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also hereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No
X
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This Form 6-K consists of: A press release issued by Axcan Pharma Inc. on August
7, 2003, entitled "Axcan Reports Results for Third Quarter of 2003 Revenue up
32% to $46.9 Million."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AXCAN PHARMA INC.
Date: August 12, 2003 By: /s/ Jean Vezina
------------------
Name: Jean Vezina
Title: Vice-President, Finance and
Chief Financial Officer
[AXCAN 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: August 7, 2003
Press Release for immediate distribution
AXCAN REPORTS RESULTS FOR THIRD QUARTER OF 2003
REVENUE UP 32% TO $46.9 MILLION
MONT-SAINT-HILAIRE, QUEBEC - Axcan Pharma Inc. ("Axcan" or the "Company")
announced today operating results for the third quarter of fiscal 2003 ended
June 30, 2003. (amounts are stated in U.S. dollars). The Company reported
revenue growth of 32% to $46.9 million and net income of $8.7 million, which
represents $0.19 per share prior to one-time costs and related income taxes
associated with the unsuccessful takeover bid for Salix Pharmaceuticals, Ltd.
("Salix"). Net income this quarter was $6.3 million or $0.14 per share (basic
income per share) after such costs are taken into account. Net income also
reflects a full quarter of interest expenses on the $125 million of convertible
debentures issued on March 5, 2003.
"Continued growth witnessed in this quarter enhances our confidence that Axcan
will meet or surpass the consensus estimates of revenues and net income per
share," said Leon F. Gosselin, President and Chief Executive Officer of Axcan.
"The strength of Axcan's balance sheet is such that we are in a position to
execute several product in-licensing or acquisition deals by the end of calendar
2003, " he concluded.
RESEARCH AND DEVELOPMENT UPDATE
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APPROVALS
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PHOTOFRIN was approved by the U.S. Food and Drug Administration for the ablation
of High-Grade Dysplasia in Barrett's Esophagus patients who do not undergo
esophagectomy. PHOTOFRIN was also granted orphan drug designation for this
indication, which guarantees a 7-year marketing exclusivity. PHOTOFRIN was also
approved earlier in the quarter in Canada, for the same indication.
PENDING APPROVALS
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PHOTOBARR has been filed in Europe for the ablation of High-Grade Dysplasia
associated with Barrett's Esophagus. Orphan drug designation has been granted
and approval is expected in the first half of fiscal 2004.
HELICIDE has been filed in the United States for the eradication of Helicobacter
pylori, a bacterium now recognized as being the main cause of gastric and
duodenal ulcers. All inspection-related issues at one of the five manufacturing
sites involved in the production of HELICIDE have now been solved. The Company
expects the FDA to reach a final decision by the end of fiscal 2003.
Phase III/IV
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CANASA 1 g suppositories. Axcan recently completed the clinical portion of a
100-patient Phase III trial in North America on a 1 g suppository formulation of
mesalamine for the treatment of ulcerative proctitis. This study was conducted
to demonstrate the efficacy and safety of a 1 g formulation of mesalamine
suppository administered once a day vs. the currently approved 500 mg
formulation administered twice a day. The study included an evaluation of the
induction of remission in ulcerative proctitis patients. Results have shown 1 g
suppositories are very safe and effective and are not different from 2 doses of
500 mg suppositories for the treatment of mild to moderate ulcerative proctitis.
Axcan expects to file for regulatory approval in the United States at the end of
the fourth quarter of fiscal 2003, and approval in the United States is
anticipated in the second half of fiscal 2004.
CANASA/SALOFALK rectal gel. Axcan presented results of a pilot study on the
efficacy of mesalamine rectal gel in distal ulcerative colitis. Results
confirmed that mesalamine rectal gel provided a clinically and statistically
significant improvement of distal ulcerative colitis, within 4 days. Exploratory
statistics by paired t tests showed a statistically significant difference
between baseline and end-of-treatment Disease Activity Index (p=0.0009)) and
these results support the conduct of Phase III studies to confirm the efficacy
and safety of the mesalamine rectal gel, the final results of which should be
available in the first half of fiscal 2004. The Company plans to submit
regulatory filings for approvals in the United States and Canada shortly
thereafter.
SALOFALK 750 mg tablets. Axcan recently completed a 114-patient Phase III trial,
for the Canadian market, on the efficacy and safety of a new 750 mg mesalamine
(5-ASA) tablet for the oral treatment of ulcerative colitis. Results showed
that, when given at a total daily dose of 3 g, 750 mg tablets are both equally
effective and safe for treatment of mild to moderate ulcerative colitis as the
500 mg tablets. Axcan plans to file a Supplemental New Drug Submission for
approval in Canada in the fourth quarter of fiscal 2003.
URSO DS. Axcan developed a new URSO DS formulation containing 500 mg of ursodiol
in each tablet and intends to file a Supplemental New Drug Application in the
United States in the fourth quarter of fiscal 2003 for the use of URSO DS in the
treatment of Primary Biliary Cirrhosis.
Pre-Clinical, Phase I and II
- ----------------------------
PHOTOFRIN. Axcan will support Phase II studies on the use of PHOTOFRIN
photodynamic therapy ("PDT") in the treatment of cholangiocarcinoma, an
aggressive cancer that grows in the ducts that carries bile from the liver to
the small intestine. Studies will also be conducted on the effect of repeated
administration and of liver insufficiency on Photofrin pharmacokinetics.
NCX-1000. The U.S. Food and Drug Administration has accepted an Investigational
New Drug Application for the clinical testing of NCX 1000, in development for
the treatment of portal hypertension, a late stage complication of chronic liver
disease. A Phase I clinical trial involving 16 subjects was successfully
completed, showing good tolerability and safety. Completion of the whole
clinical program development should occur in calendar year 2006.
Ursodiol disulfate. Axcan is currently conducting a proof of concept study in
rats to evaluate the effect of ursodiol disulfate on the development of colonic
tumors. This study was recently completed and results will be announced in the
fourth quarter of fiscal 2003. If positive trends are confirmed in the final
analysis, then Axcan intends to initiate animal toxicity studies, which will be
followed by Phase I studies.
Corporate Governance
Axcan is pleased to announce the appointment of Daniel Labrecque to its Board of
Directors. Mr. Labrecque is President and Chief Executive Officer of NM
Rothschild & Sons Canada Limited, an investment banking firm that was
established in Canada in 1990 and which is an affiliate of NM Rothschild & Sons
Limited of London, England, and Rothschild & Cie of Paris, France. As such, Mr.
Labrecque provides investment banking advisory services on mergers and
acquisitions, corporate finance, corporate and financial restructurings,
privatizations and corporate strategy and transactions.
Previously, Mr. Labrecque was Managing Director and Chief Operating Officer of
Lazard Canada, where he held responsibility for investment banking operations in
Canada and prior to that, Mr. Labrecque was Managing Director of Schroders
Canada. Mr. Labrecque holds an MBA from INSEAD, a Diploma in Public Accountancy
and Business Administration from Ecole des Hautes Etudes Commerciales,
University of Montreal and is a Certified Business Valuator.
Mr. Labrecque is Chairman of the Canadian INSEAD Foundation and member of the
International Council of INSEAD, as well as Director of the C.D. Howe Institute
and Director of La Fondation de l'Ecole Nationale de Cirque.
INTERIM FINANCIAL REPORT
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This release includes, by reference, the third quarter interim financial report
incorporating the full Management Discussion & Analysis (MD&A) as well as
financial statements under both U.S. and Canadian GAAP and the reconciliation to
U.S. GAAP of the Canadian GAAP presentation. The interim report, including the
MD&A and financial statements, has been filed with applicable Canadian and U.S.
regulatory authorities.
CONFERENCE CALL
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Axcan will host a teleconference and web cast at 4:30 p.m., Eastern Time, August
7, 2003. During the teleconference, Leon F. Gosselin, President and Chief
Executive Officer, David W. Mims, Executive Vice President and Chief Operating
Officer and Jean Vezina, Vice President, Finance and Chief Financial Officer
will discuss the financial results. To participate in the teleconference, please
dial the following number approximately 10 minutes prior to the start of the
teleconference: (800) 814-3911. A replay of the teleconference will be available
for one week (until August 14, 2003), commencing one hour after the end of the
teleconference. The instant replay number is (416) 640-1917 code: 21012573.
Interested parties may also access the conference call via web cast at
www.axcan.com. The web cast will be accessible for 90 days.
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
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1995.
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To the extent any statements made in this release contain information that is
not historical, these statements are essentially forward looking and are subject
to risks and uncertainties, including the difficulty of predicting FDA
approvals, acceptance and demand for new pharmaceutical products, the impact of
competitive products and pricing, new product development and launch, reliance
on key strategic alliances, availability of raw materials, the regulatory
environment, fluctuations in operating results and other risks detailed from
time to time in the company's filings with the Securities and Exchange
Commission.
The names CANASA, HELICIDE, PHOTOBARR, PHOTOFRIN, SALOFALK and URSO appearing in
this news release are registered 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. 223
or Isabelle Adjahi
Director, Investor Relations
Axcan Pharma Inc.
Tel: (450) 467-2600 ext. 2000
Web: www.axcan.com
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 and VIOKASE for
the treatment of certain gastrointestinal symptoms related to cystic fibrosis in
the case of ULTRASE; URSO 250 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
and other conditions. In addition, Axcan currently has two products pending
approval, one an additional indication in Europe for a currently marketed
product and the other, an indication for a new product. Axcan also has a number
of pharmaceutical projects in all phases of development. Axcan reported revenue
of $46.9 million and operating income of $13.5 million for the three-month
period ended June 30, 2003. For the nine-month period ended June 30, 2003,
revenue was $130.3 million and operating income was $37.2 million.
Much of Axcan's recent sales growth is derived from sales in the United States
and France, following recent acquisitions. During the first quarter of this
fiscal year, Axcan acquired the world wide rights to the PANZYTRAT enzyme
product line from Abbott Laboratories and the rights to DELURSAN, an ursodiol
250 mg tablet, from Aventis Pharma S.A. for the French market. Revenue from
sales of Axcan's products in the United States was $82.9 million (63.6% of total
revenue) for the nine-month period ended June 30, 2003, compared to $72.6
million for the same period of fiscal 2002. Revenue from Canada was $14.9
million (11.4% of total revenue) for the nine-month period ended June 30, 2003,
compared to $12.7 million for the same period of fiscal 2002. Revenue from
France, including domestic and foreign sales, amounted to $32.2 million, (24.7%
of total revenue) for the nine-month period ended June 30, 2003, compared to
$9.0 million for the same period of fiscal 2002.
Axcan's revenue historically has been and continues to be principally derived
from sales of pharmaceutical products for the treatment of gastrointestinal
diseases and disorders, 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 centers, to whom Axcan sells its products.
Axcan's expenses are comprised primarily of selling and administrative expenses
(including marketing expenses), cost of goods sold (including royalty payments
to those companies from whom Axcan licenses its products) and research and
development expenses.
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.
During December 2002, Axcan acquired the worldwide rights to the PANZYTRAT
enzyme product line from Abbott Laboratories ("Abbott") for a cash purchase
price of $45 million plus transaction expenses. The majority of PANZYTRAT sales
is in Europe. During the period of marketing authorization transfer, which may
be up to 18 months, Abbott acts as an agent for the management of the product
line sales. For the nine-month period ended June 30, 2003, Axcan reported
revenue of $6,898,669 representing the net sales from the product line less cost
of goods sold and other related expenses. At the end of the month of December,
Axcan acquired the rights to DELURSAN for the French market for a cash purchase
price of $22.8 million plus transaction expenses. The Company began to market
this product in the second quarter.
Critical Accounting Policies
The Company decided, for the year beginning October 1, 2002, to switch from
Canadian Generally Accepted Accounting Principles ("GAAP") to United States of
America ("U.S.") GAAP as its primary reporting convention. The change in GAAP
was influenced by the Company's desire to better meet the needs of its
shareholders by applying accounting rules that are consistent with the majority
of its customers and peer companies.
Axcan's consolidated financial statements are prepared in accordance with 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 useful lives or fair value of goodwill and
intangible assets.
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 and disclosure of contingent assets and liabilities as of
the date of the financial statements and recognized amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
Significant estimates made by the management include the calculation of reserve
for doubtful accounts, product returns, rebates and allowances, useful lives of
long-lived assets, fair value of goodwill and intangible assets, contingency
provision and other accrued charges. These estimates were made using the
historical information available.
Revenue Recognition
Revenue is recognized when 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 and allowances. 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 using the straight-line method based on their estimated useful
lives from 15 to 25 years until September 30, 2001. Since October 1, 2001, the
Company no longer amortizes its goodwill and intangible assets with infinite
life. Management evaluates the value of the unamortized portion of goodwill and
intangible assets annually, by comparing the carrying value to the future
benefits of the Company's activities or the expected sale of pharmaceutical
products. Should there be a permanent impairment in value or if the unamortized
balance exceeds recoverable amounts, a write-down will be recognized for the
current year. To date, Axcan has not recognized any permanent impairment in
value. Intangible assets with finite life are still amortized over their
estimated useful lives.
Research and Development Expenses
Research and development expenses are charged to operations in the year they are
incurred.
Acquisitions of Companies
On November 7, 2001, Axcan acquired all the outstanding shares of Laboratoires
Enteris S.A.S. ("Enteris"), a company specializing in the distribution of
gastrointestinal products in France. The acquisition cost, including transaction
expenses, amounted to $23.0 million and was paid in cash.
On April 17, 2002, Axcan acquired all of the outstanding shares and certain
related assets of Laboratoire du Lacteol du Docteur Boucard S.A. ("Lacteol").
This company is specialized in the manufacturing and distribution of
gastrointestinal products in France. The acquisition cost, including transaction
expenses, amounted to $13.1 million and was paid through the issuance of 365,532
common shares of the Company and $8.4 million in cash.
The acquisition costs for both transactions have been allocated to assets and
liabilities according to their estimated fair value at the acquisition dates.
The operating results relating to these acquisitions have been included in the
consolidated financial statements from the acquisition date.
Results of Operations
The following table sets forth, for the quarters indicated, the percentage of
revenue represented by items in Axcan's consolidated statements of earnings:
For the three-month For the nine-month
period ended June 30 period ended June 30
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2003 2002 2003 2002
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Revenue 100% 100% 100% 100%
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Cost of goods sold 25.2 26.6 24.3 25.6
Selling and administrative expenses 33.4 37.3 35.4 39.1
Research and development expenses 8.4 5.6 7.2 6.4
Amortization 4.2 5.4 4.6 5.7
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71.2 74.9 71.5 76.8
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Operating income 28.8 25.1 28.5 23.2
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Financial expenses 3.8 0.8 2.0 0.6
Loss (Gain) on foreign exchange (0.4) 0.1 0.1 0.3
Interest income (1.1) (1.1) (0.8) (0.6)
Takeover bid expenses 7.9 2.8
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10.2 (0.2) 4.1 0.3
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Income before income taxes 18.6 25.3 24.4 22.9
Income taxes 5.1 8.8 7.7 7.9
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Net income 13.5 16.5 16.7 15.0
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Periods ended June 30, 2003 compared to periods ended June 30, 2002
Revenue
Revenue increased $11.4 million (32.1%) to $46.9 million for the third quarter
ended June 30, 2003 from $35.5 million for the corresponding quarter of the
preceding fiscal year. For the nine-month period ended June 30, 2003, revenue
was $130.4 million compared to $94.5 million for the corresponding period of the
preceding fiscal year, an increase of 38.0%. This increase in revenue resulted
primarily from sales from France, following the acquisitions of Enteris and
Lacteol and the PANZYTRAT and DELURSAN product lines. Strong sales of URSO 250
in North America also contributed to the increase. Revenue from France,
including domestic and foreign sales, amounted to $11.6 million compared to $4.9
million for the quarter ended June 30, 2002 and $32.2 million compared to $9.0
million for the nine-month period ended June 30, 2002.
Cost of goods sold
Cost of goods sold consists principally of costs of raw materials, royalties and
manufacturing costs. Axcan outsources most of its manufacturing requirements.
Cost of goods sold increased $2.4 million (25.5%) to $11.8 million for the
quarter ended June 30, 2003 from $9.4 million for the corresponding quarter of
the preceding fiscal year. As a percentage of revenue, cost of goods sold for
the quarter ended June 30, 2003 decreased marginally as compared to the
corresponding quarter of the preceding fiscal year, at 25.2% and 26.6%,
respectively. For the nine-month period ended June 30, 2003, cost of goods sold
was $31.7 million (24.3% of revenue) compared to $24.2 million (25.6% of
revenue) for the corresponding period of the preceding fiscal year. The decrease
in the cost of goods sold expressed as a percentage of revenue is due in part to
the accounting treatment of the PANZYTRAT revenue during the transition period.
Since the acquisition of the PANZYTRAT rights in December 2002, Abbott is acting
as an agent for the management of the product line sales, until marketing
authorization transfers are completed. During the transition period, Axcan
includes in its revenue the net sales from PANZYTRAT less corresponding cost of
goods sold and other Abbott related expenses. Thus Axcan's cost of goods sold
does not include costs related to these PANZYTRAT sales.
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 $2.3 million (17.3%) to $15.6 million for the
quarter ended June 30, 2003 from $13.3 million for the corresponding quarter of
the preceding fiscal year. For the nine-month period ended June 30, 2003,
selling and administrative expenses increased $9.2 million (24.9%) to $46.1
million from $36.9 million for the corresponding period of the preceding fiscal
year. This increase is mainly due to the inclusion of $10.5 million of selling
and administrative expenses from Enteris and Lacteol for the nine-month period
ended June 30, 2003 compared to $5.6 million for the corresponding period of the
preceding year which represented two months of operations for Lacteol and eight
for Enteris.
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 and for salaries and benefits paid to its
personnel involved in research and development projects. Research and
development expenses increased $1.9 million (95.0%) to $3.9 million for the
quarter ended June 30, 2003 from $2.0 million for the corresponding quarter of
the preceding fiscal year and $3.2 million (52.5%) to $9.3 million for the
nine-month period ended June 30, 2003, from $6.1 million for the corresponding
period of the preceding fiscal year. The increase is primarily due to the fact
that Axcan is currently conducting two additional clinical studies on its new
CANASA rectal gel formulation in order to meet regulatory requirements. Also,
additional costs were incurred to address manufacturing issues at one of the
five manufacturing sites involved in the production of HELICIDE.
Amortization
Amortization consists principally of intangible assets with finite life.
Intangible assets include trademarks, trademark licenses and manufacturing
rights. Amortization increased $0.1 million (5.3%) to $2.0 million for the
quarter ended June 30, 2003 from $1.9 million for the corresponding quarter of
the preceding fiscal year and $0.6 million (11.1%) to $6.0 million for the
nine-month period ended June 30, 2003 from $5.4 million for the corresponding
period of the preceding fiscal year. The increases result mainly from
amortization of capital assets in France, for Enteris, since November 2001, and
Lacteol, since April 2002.
Financial expenses
Financial expenses consist principally of interest and fees paid in connection
with money borrowed for acquisitions. Financial expenses increased $1.5 million
to $1.8 million for the quarter ended June 30, 2003 from $0.3 million for the
corresponding quarter of the preceding fiscal year and $2.0 million to $2.6
million for the nine-month period ended June 30, 2003 from $0.6 million for the
corresponding period of the preceding fiscal year. These increases are mainly
due to interest expense on the convertible debenture of $125,000,000 issued on
March 5, 2003.
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, 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.
Income Taxes
Income taxes amounted to $2.4 million for the quarter ended June 30, 2003,
compared to $3.1 million for the quarter ended June 30, 2002. Income taxes
amounted to $10.0 million for the nine-month period ended June 30, 2003 compared
to $7.5 million for the corresponding period of the preceding fiscal year. The
effective tax rates were 31.5% for the nine-month period ended June 30, 2003 and
34.4% for the nine-month period ended June 30, 2002.
Net income
Net income (in thousands of U.S. dollars), basic income per share and diluted
income per share according to U.S. GAAP for the periods ended June 30, 2003 and
2002, were as follows:
For the three-month For the nine-month
period ended June 30 period ended June 30
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income in accordance
with U.S. GAAP $ 6,339 $ 5,848 $ 21,829 $ 14,196
========= ========= ========= =========
Income per common share
Basic $ 0.14 $ 0.13 $ 0.49 $ 0.35
Diluted 0.13 0.13 0.47 0.34
Net income (in thousands of U.S. dollars) basic income per share and diluted
income per share excluding takeover bid expenses and related income taxes for
the same periods were as follows :
For the three-month For the nine-month
period ended June 30 period ended June 30
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income in accordance
with U.S. GAAP $ 6,339 $ 5,848 $ 21,829 $ 14,196
Plus: Takeover
bid expenses 3,697 - 3,697 -
Less: Related income taxes (1,290) - (1,290) -
--------- -------- --------- ---------
Net income excluding
takeover bid expenses and related
income taxes $ 8,746 $ 5,848 $ 24,236 $ 14,196
========= ======== ========= =========
Income per common share
excluding takeover
bid expenses and related income
taxes
Basic $ 0.19 $ 0.13 $ 0.54 $ 0.35
Diluted 0.18 0.13 0.52 0.34
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. GAAP results of operations.
Net income was $6.3 million or $0.14 of basic income per share and $0.13 of
diluted income per share for the quarter ended June 30, 2003 compared to $5.8
million or $0.13 of both basic and diluted income per share for the
corresponding quarter of the preceding year. Excluding takeover bid expenses and
related income taxes, net income for the quarter ended June 30, 2003 was $8.7
million or $0.19 of basic income per share and $0.18 of diluted income per share
compared to $5.8 million or $0.13 of both basic and diluted income per share for
the corresponding quarter of the preceding year.
For the nine-month period ended June 30, 2003, net income was $21.8 million or
$0.49 of basic income per share and $0.47 of diluted income per share, compared
to $14.2 million or $0.35 of basic income per share and $0.34 of diluted income
per share for the corresponding period of the preceding year. Excluding takeover
bid expenses and related income taxes, net income for the nine-month period
ended June 30, 2003 was $24.2 million or $0.54 of basic income per share and
$0.52 of diluted income per share compared to $14.2 of net income or $0.35 of
basic income per share and $0.34 of diluted income per share for the nine-month
period ended June 30, 2002.
The basic weighted average number of common shares outstanding used to establish
the per share amounts increased from 44.6 million for the quarter ended June 30,
2002 to 44.9 million for the quarter ended June 30, 2003, following the
subscription of investors through private placements and the exercise of options
previously granted pursuant to Axcan's stock option plan.
Canadian GAAP
The differences (in thousands of U.S. dollars) between U.S. and Canadian GAAP
which affect net income for the periods ended June 30, 2003 and 2002 are
summarized in the following table:
For the three-month For the nine-month
period ended June 30 period ended June 30
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income in accordance with U.S. GAAP $ 6,339 $ 5,848 $ 1,829 $ 14,196
Prepaid advertising costs - (114) - (342)
Implicit interests on convertible debt (990) - (1,284) -
Amortization of new products acquisition costs (14) (14) (40) (40)
Income tax impact of the above adjustments 5 48 15 144
--------- -------- -------- ---------
Net earnings in accordance with Canadian GAAP $ 5,340 $ 5,768 $20,520 $ 13,958
========= ======== ======== =========
On March 5, 2003, the Company closed an offering of $125,000,000 aggregate
principal amount of 4 1/4% convertible subordinated notes due April 15, 2008. As
a result of the terms of the notes, under Canadian GAAP, an amount of
$24,238,899 was included in shareholders' equity as equity component of
convertible debt and an amount of $100,761,101 was included in the long-term
debt, as liability component of the convertible notes. At June 30, 2003,
implicit interest in the amount of $1,284,298 was accrued for and added to the
liability component.
Amortization expense under U.S. GAAP differs from Canadian GAAP due to the new
product acquisition costs identified upon the acquisition of subsidiaries, which
are deferred and amortized from the date of commencement of commercial
production under Canadian GAAP. Under U.S. GAAP, these costs, which represent in
process research and development, are included in earnings as of the date of
acquisition as no alternative future use has been established.
Until September 30, 2001, prepaid advertising costs were deferred and amortized
over a two-year period under Canadian GAAP. In 2002, the Company elected to
include in earnings its scientific symposium costs in the fiscal year when they
were incurred. Under U.S. GAAP these costs are included in earnings.
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.
Liquidity and capital resources
Axcan's cash, cash equivalents and short-term investments increased $92.7
million to $173.4 million at June 30, 2003 from $80.7 million at September 30,
2002. As of June 30, 2003, working capital was $178.7 million, compared to
$103.5 million at September 30, 2002. These increases are mainly due to the
issuance of convertible debentures which provided net proceeds of $120.5 million
and were partially offset by the acquisition of the rights to the PANZYTRAT
product line and DELURSAN for a total cash purchase price of $67.8 million plus
transaction expenses. Total assets increased $179.3 million (48.9%) to $546.3
million as of June 30, 2003 from $367.0 million as of September 30, 2002.
Shareholders' equity increased $35.9 million (12.1%) to $330.7 million as of
June 30, 2003 from $294.8 million as of September 30, 2002.
Historically, Axcan has financed research and development, operations,
acquisitions, milestone payments and investments out of the proceeds of public
and private sales of its equity, cash flow from operations, and loans from joint
venture partners and financial institutions. Since it went public in Canada in
December 1995, Axcan has raised approximately $242.0 million from sales of its
equity and has borrowed from financial institutions to finance the acquisition
of Axcan Scandipharm and from Schwarz to finance the acquisition of Axcan URSO
(these amounts have since been repaid).
On November 20, 2001, Axcan entered into a $55.0 million credit agreement with
two Canadian chartered banks. The credit agreement includes a $15.0 million
revolving operating facility and a $40.0 million 364-day, extendible revolving
facility with a three-year term-out option. On July 16, 2003, the $55.0 million
credit agreement has been extended for an additional 364-day period, from
October 14, 2003 to October 12, 2004. The interest rate varies between 25 basis
points to 125 basis points over prime rate and between 125 basis points to 225
basis points over the LIBOR rate or bankers acceptances depending on the
Company's leverage at such time. The facilities may be drawn in U.S. dollars or
in the Canadian dollar equivalent. Borrowings under these facilities are secured
by a security interest in favor of the lenders on all of the assets and
properties of Axcan. The credit agreement provides for customary covenants,
including compliance with certain financial ratios and negative covenants in
respect of prior ranking security, capital expenditures, acquisitions,
investments and divestitures. Cash dividends, repurchase of shares (other than
redeemable shares issued in connection with a permitted acquisition) and similar
distributions to shareholders are limited to 10% of Axcan's net income for the
preceding fiscal year. Currently, no amounts have been drawn under the credit
facilities, and Axcan is in compliance with all applicable terms thereof.
Cash Flows and Financial Resources
Cash flow from operating activities increased $15.2 million (48.6%) to $46.5
million for the nine-month period ended June 30, 2003, from $31.3 million for
the nine-month period ended June 30, 2002. Cash flows from financing activities
for the nine-month period ended June 30, 2003 were $121.1 million mainly due to
the issuance of the convertible debenture, which provided net proceeds of $120.5
million. Cash flows used for investment activities for the nine-month period
ended June 30, 2003 were $110.4 million mainly due to the net cash used for the
acquisition short-term investments and the acquisition of intangible assets with
the proceeds from the disposal of short-term investments.
Axcan's research and development spending totaled $8.0 million for fiscal 2002
and $6.1 million for fiscal 2001. Axcan believes that its cash and operating
cash flow will be adequate to support its existing ongoing operational
requirements for at least 12 months. However, Axcan regularly reviews product
and other acquisition opportunities and may therefore require additional debt or
equity financing. Axcan cannot be certain that such additional financing, if
required, will be available on acceptable terms, or at all.
Axcan believes that cash and temporary investments, together with funds provided
by operations, will be sufficient to meet operating cash requirements, including
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.
Earnings coverage
Based on unaudited financial statements, the earnings coverage ratios are the
following:
Under U.S. GAAP, for the twelve months ended June 30, 2003, our interest
requirements amounted to $6.5 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 6.7 to one.
Under Canadian GAAP, for the twelve months ended June 30, 2003, our interest
requirements amounted to $11.2 million on a pro forma basis and our earnings
coverage ratio was 4.1 to one. The principal difference between the earnings
coverage ratios under Canadian GAAP and U.S. GAAP is attributable to the
inclusion of implicit interest of $4.5 million as required by Canadian GAAP.
Risk Factors
Axcan is exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Axcan does not use derivative
financial instruments for speculative or trading purposes. Axcan does not use
off-balance sheet financing or similar special purpose entities.
Inflation has not had a significant impact on Axcan's results of operations.
Foreign Currency Risk
Axcan operates internationally; however, a substantial portion of the revenue
and expense activities and capital expenditures are transacted in US dollars.
Axcan's exposure to exchange rate fluctuation is reduced however because, in
general, Axcan's revenues denominated in currencies other than the US dollar are
matched by a corresponding amount of costs denominated in the same currency.
Axcan expects this matching to continue.
Interest Rate Risk
The primary objective of Axcan's investment policy is the protection of
principal. Accordingly investments are made in high-grade government and
corporate securities with varying maturities, but typically, less than 180 days.
As the intent of the Company is to hold these investments until maturity, Axcan
does not have a material exposure to interest rate risk. Therefore, a 100
basis-point adverse change in interest rates would not have a material effect on
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, US 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 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 ULTRASE and URSO, two of Axcan's most important products, as well
as for PHOTOFRIN. 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.
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. Changes in accounting standards could have
an impact on the financial statements' presentation.
Forward-looking Statements
This document contains forward-looking statements, which reflect the Company's
current expectations regarding future events. The forward-looking statements
involve risks and uncertainties. Actual events could differ materially from
those projected herein and depend on a number of factors, including the
successful and timely completion of clinical studies, the uncertainties related
to the regulatory process and the commercialization of the drug or vaccine
thereafter. Investors should consult the Company's ongoing quarterly filings,
annual reports and 40-F filings for additional information on risks and
uncertainties relating to these forward-looking statements. The reader is
cautioned not to rely on these forward-looking statements. The Company disclaims
any obligation to update these forward-looking statements.
On behalf of management
(signed)
Jean Vezina
Vice President, Finance and Chief Financial Officer
AXCAN PHARMA INC.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars)
June 30 September 30
2003 2002
----------- -------------
(unaudited)
ASSETS $ $
Current assets
Cash and cash equivalents 77,660 19,977
Short-term investments available for sale 95,714 60,740
Accounts receivable 21,844 24,369
Income taxes receivable 3,412 805
Inventories (Note 3) 17,777 19,741
Prepaid expenses and deposits 2,491 1,891
Deferred income taxes 5,791 6,335
- --------------------------------------------------------------------------------------------------------------------
Total current assets 224,689 133,858
Investments 2,050 2,681
Property, plant and equipment, net 21,536 20,086
Intangible assets, net (Note 4) 262,282 180,085
Goodwill, net 27,550 27,550
Deferred income taxes 3,742 2,456
Deferred financial expenses, net 4,475 290
- --------------------------------------------------------------------------------------------------------------------
Total assets 546,324 367,006
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable 41,707 27,198
Income taxes payable 2,268 1,605
Instalments on long-term debt 1,657 1,336
Deferred income taxes 388 269
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 46,020 30,408
Long-term debt 132,553 7,267
Deferred income taxes 36,825 34,212
Non-controlling interest 229 332
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 215,627 72,219
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares, without par value of unlimited shares authorized, 44,989,347 issued
as at June 30, 2003 and 44,863,198 as at September 30, 2002. 255,611 254,640
Preferred shares, Series A, without par value of unlimited shares authorized,
non-voting, annual preferential cumulative dividend of 5%, no shares outstanding.
Preferred shares, Series B, without par value of unlimited shares authorized,
non-voting, convertible into common shares, no shares issued.
Retained earnings 65,538 43,709
Accumulated other comprehensive income (loss) 9,548 (3,562)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 330,697 294,787
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 546,324 367,006
- --------------------------------------------------------------------------------------------------------------------
AXCAN PHARMA INC.
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Common shares (Number)
Balance, beginning of period 44,880,403 44,233,241 44,863,198 38,412,133
Exercise of options 108,944 52,381 126,149 123,489
Public offering - - - 5,000,000
Exercise of the underwriters' option - - - 750,000
Acquisition of assets - 365,532 - 365,532
- ---------------------------------------------------------------------------------------------------
Balance, end of period 44,989,347 44,651,154 44,989,347 44,651,154
- ---------------------------------------------------------------------------------------------------
$ $ $ $
Common shares
Balance, beginning of period 254,754 246,740 254,640 183,193
Exercise of options 857 346 971 731
Public offering - - - 54,537
Exercise of the underwriters' option - - - 8,625
Acquisition of assets - 4,759 - 4,759
- ---------------------------------------------------------------------------------------------------
Balance, end of period 255,611 251,845 255,611 251,845
- ---------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 59,199 30,869 43,709 22,521
Net income 6,339 5,848 21,829 14,196
- ---------------------------------------------------------------------------------------------------
Balance, end of period 65,538 36,717 65,538 36,717
- ---------------------------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss)
Balance, beginning of period 4,215 (5,290) (3,562) (5,283)
Foreign currency translation adjustments 5,333 1,943 13,110 1,936
- ---------------------------------------------------------------------------------------------------
Balance, end of period 9,548 (3,347) 9,548 (3,347)
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 330,697 285,215 330,697 285,215
- ---------------------------------------------------------------------------------------------------
Comprehensive income
Foreign currency translation adjustments 5,333 1,943 13,110 1,936
Net income 6,339 5,848 21,829 14,196
- ---------------------------------------------------------------------------------------------------
Total comprehensive income 11,672 7,791 34,939 16,132
- ---------------------------------------------------------------------------------------------------
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.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ---------- ------------ --------
$ $ $ $
Operations
Net income 6,339 5,848 21,829 14,196
Non-cash items
Share in joint venture operations 36 7 124 14
Non-controlling interest - (50) (103) (230)
Amortization of deferred financial expenses 257 - 386 -
Other amortization 1,975 1,928 6,011 5,442
Foreign currency fluctuation (413) 30 (262) 206
Deferred income taxes 239 1,582 2,177 1,914
Changes in working capital items:
Accounts receivable (2,262) 8,786 2,705 12,123
Income taxes receivable (1,998) 297 (2,634) (447)
Inventories (26) (2,157) 2,033 (3,407)
Prepaid expenses and deposits (116) (288) (581) (484)
Accounts payable 8,052 933 14,163 2,330
Income taxes payable 1,406 (1,389) 640 (381)
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities 13,489 15,527 46,488 31,276
- ------------------------------------------------------------------------------------------------------
Financing
Long-term debt 482 524 125,895 931
Repayment of long-term debt (375) (298) (1,195) (2,768)
Issue of shares 857 346 971 66,856
Share issue expenses - - - (4,667)
Deferred financial expenses (38) - (4,538) -
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities 926 572 121,133 60,352
- ------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (95,014) - (95,714) -
Disposal of short-term investments - - 60,740 -
Acquisition of investments (100) - (100) (6)
Disposal of investments 347 371 619 384
Acquisition of property, plant and equipment (1,224) (123) (2,236) (1,507)
Acquisition of intangible assets (2,003) - (73,938) -
Disposal of intangible assets - - 205 -
Net cash used for business acquisitions - (21,041) - (31,302)
- ------------------------------------------------------------------------------------------------------
Cash flows from investment activities (97,994) (20,793) (110,424) (32,431)
- ------------------------------------------------------------------------------------------------------
Foreign exchange gain on cash held
in foreign currencies 89 215 486 172
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (83,490) (4,479) 57,683 59,369
Cash and cash equivalents,
beginning of period 161,150 80,363 19,977 16,515
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 77,660 75,884 77,660 75,884
- ------------------------------------------------------------------------------------------------------
Additional information
Interest received 511 346 1,019 605
Interest paid 27 71 150 138
Income taxes paid 3,724 2,574 9,246 9,227
- ------------------------------------------------------------------------------------------------------
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ----------
$ $ $ $
REVENUE 46,877 35,493 130,344 94,504
- ----------------------------------------------------------------------------------------------------
Cost of goods sold 11,822 9,427 31,721 24,171
Selling and administrative expenses 15,626 13,254 46,133 36,922
Research and development expenses 3,936 1,968 9,290 6,063
Amortization 1,975 1,928 6,011 5,442
- ----------------------------------------------------------------------------------------------------
33,359 26,577 93,155 72,598
- ----------------------------------------------------------------------------------------------------
Operating income 13,518 8,916 37,189 21,906
- ----------------------------------------------------------------------------------------------------
Other expenses (income)
Financial expenses 1,769 282 2,620 567
Loss (gain) on foreign currency (168) 26 80 233
Interest income (514) (368) (1,083) (543)
Takeover bid expenses 3,697 - 3,697 -
- ----------------------------------------------------------------------------------------------------
4,784 (60) 5,314 257
- ----------------------------------------------------------------------------------------------------
Income before income taxes 8,734 8,976 31,875 21,649
Income taxes 2,395 3,128 10,046 7,453
- ----------------------------------------------------------------------------------------------------
NET INCOME 6,339 5,848 21,829 14,196
- ----------------------------------------------------------------------------------------------------
Income per common share
Basic 0.14 0.13 0.49 0.35
Diluted 0.13 0.13 0.47 0.34
- ----------------------------------------------------------------------------------------------------
Weighted average number of common shares
Basic 44,917,035 44,567,115 44,887,388 40,589,665
Diluted 54,521,818 45,576,061 49,398,847 41,491,616
- ----------------------------------------------------------------------------------------------------
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.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
1. Significant accounting policies
The Company decided, for the year beginning October 1, 2002, to switch from
Canadian generally accepted accounting principles (GAAP) to the United States of
America (U.S.) GAAP as its primary reporting convention. The change in GAAP was
influenced by the Company's desire to better meet the needs of its shareholders
by applying accounting rules that are consistent with the majority of its
customers and peer companies. Consolidated financial statements prepared in U.S.
dollars and in accordance with Canadian GAAP are available to shareholders and
filed with regulatory authorities.
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, 2002. 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, 2002. When necessary, the financial statements
include amounts based on informed estimates and best judgement of management.
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year.
2. PANZYTRAT acquisition
On December 3, 2002, the Company acquired the worldwide rights to the Panzytrat
enzyme product line from Abbott Laboratories (Abbott). During the period of
marketing authorizations transfer ("the interim period"), Abbott acts as an
agent for the management of the product line sales. The interim period is for a
maximum of 18 months. For the nine-month period ended June 30, 2003, the Company
included in its revenues an amount of $ 6,898,669 representing the net sales
from the product line less cost of goods sold and other related expenses. Net
sales of the Panzytrat enzyme product line for the nine-month period ended June
30, 2003 were $ 10,311,585.
3. Inventories
June 30 September 30
2003 2002
--------- ------------
$ $
Raw materials and packaging material 4,272 3,841
Work in progress 6,573 4,516
Finished goods 6,932 11,384
- -------------------------------------------------------------------------------
17,777 19,741
- --------------------------------------------------------------------------------
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
4. Intangible assets
June 30, 2003
- --------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- --------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licences and
manufacturing rights with a:
Finite life 109,269 19,119 90,150
Indefinite life 184,550 12,418 172,132
- --------------------------------------------------------------------------------
293,819 31,537 262,282
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- --------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licences and
manufacturing rights with a:
Finite life 105,736 15,508 90,228
Indefinite life 102,275 12,418 89,857
- --------------------------------------------------------------------------------
208,011 27,926 180,085
- --------------------------------------------------------------------------------
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
5. Segmented information
The Company considers that it operates in a single 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 segments:
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
$ $ $ $
Revenue
Canada
Domestic sales 5,163 4,255 14,873 12,685
Foreign sales 2,404 9,202 7,285 14,630
United States
Domestic sales 30,072 26,237 82,932 72,557
Foreign sales 188 158 294 427
France
Domestic sales 7,230 4,926 20,073 8,991
Foreign sales 4,406 12,111
Other 6 75 2,965 271
Inter-segment (2,592) (9,360) (10,189) (15,057)
- --------------------------------------------------------------------------------
46,877 35,493 130,344 94,504
- --------------------------------------------------------------------------------
Operating income (loss)
Canada (1,142) 4,235 (895) 4,411
United States 11,073 4,883 28,256 18,450
France 4,315 190 10,924 226
Other (728) (392) (1,096) (1,181)
- --------------------------------------------------------------------------------
13,518 8,916 37,189 21,906
- --------------------------------------------------------------------------------
Amortization
Canada 290 341 1,030 997
United States 944 959 2,835 3,031
France 341 230 947 245
Other 400 398 1,199 1,169
- --------------------------------------------------------------------------------
1,975 1,928 6,011 5,442
- --------------------------------------------------------------------------------
June 30 September 30
2003 2002
--------------- -------------
$ $
Total assets
Canada 440,690 297,338
United States 219,380 184,105
France 153,162 59,343
Other 126,450 67,532
Inter-segment (393,358) (241,312)
- --------------------------------------------------------------------------------
546,324 367,006
- --------------------------------------------------------------------------------
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
6. Income per common share
The following table reconciles the numerators and the denominators of the basic
and diluted income per common share computations:
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
Net Income
Basic $6,339 $5,848 $21,829 $14,196
Interests on convertible debenture 1,009 - 1,312 -
- -------------------------------------------------------------------------------------------------
Net income on a diluted basis $7,348 $5,848 $23,141 $14,196
- -------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 44,917,035 44,567,115 44,887,388 40,589,665
Effect of dilutive stock options 445,237 830,613 448,602 706,638
Effect of dilutive purchase price payable 235,433 178,333 238,237 195,313
Effect of dilutive convertible debenture 8,924,113 - 3,824,620 -
- -------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 54,521,818 45,576,061 49,398,847 41,491,616
- -------------------------------------------------------------------------------------------------
Options to purchase 1,223,550 and 388,350 common shares were outstanding as of
June 30, 2003 and 2002, respectively, but were not included in the computation
of diluted income per share because the exercise price of the options was
greater than the average market price of the common shares.
7. Stock options
The estimated fair value of stock options at the time of grant using the
Black-Scholes option pricing model was as follows:
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
Fair value per option $5.07 $7.28 $5.29 $6.92
Assumptions used in Black-Scholes
option pricing model
Expected volatility 45% 47% 45% 47%
Risk-free interest rate 4.23% 4.96% 4.39% 4.92%
Expected option life 6 6 6 6
Expected dividend - - - -
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
7. Stock options (Continued)
The Company's net income, basic income per share and diluted income per share
would have been on a pro-forma basis as follows:
For the three-month period
ended June 30
-----------------------------------------------------------------------
2003 2002
---------------------------------- ----------------------------------
As reported Pro-forma As reported Pro-forma
--------------- ---------------- ---------------- ---------------
$ $ $ $
Net income 6,339 5,548 5,848 5,186
Basic income per share 0.14 0.12 0.13 0.12
Diluted income per share 0.13 0.12 0.13 0.11
For the nine-month period
ended June 30
-----------------------------------------------------------------------
2003 2002
---------------------------------- ----------------------------------
As reported Pro-forma As reported Pro-forma
--------------- ---------------- ---------------- ---------------
$ $ $ $
Net income 21,829 19,416 14,196 12,413
Basic income per share 0.49 0.43 0.35 0.31
Diluted income per share 0.47 0.42 0.34 0.30
AXCAN PHARMA INC.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
June 30 September 30
2003 2002
----------- ------------
ASSETS (unaudited)
$ $
Current assets
Cash and cash equivalents 77,737 20,005
Short-term investments 95,714 60,740
Accounts receivable 21,858 24,521
Income taxes receivable 3,433 805
Inventories (Note 3) 17,777 19,747
Prepaid expenses and deposits 2,529 1,895
Future income taxes 5,791 6,335
- -------------------------------------------------------------------------------
Total current assets 224,839 134,048
Investments 1,857 2,348
Property, plant and equipment 21,554 20,105
Intangible assets (Note 4) 262,710 180,553
Goodwill 29,342 29,342
Future income taxes 3,742 2,456
Deferred financial expenses 4,475 290
- --------------------------------------------------------------------------------
548,519 369,142
- --------------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable 42,079 27,499
Income taxes payable 2,268 1,577
Instalments on long-term debt 1,657 1,336
Future income taxes 388 269
- --------------------------------------------------------------------------------
Total current liabilities 46,392 30,681
Long-term debt 106,894 4,563
Future income taxes 36,987 34,389
Non-controlling interest 229 332
- --------------------------------------------------------------------------------
190,502 69,965
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Equity component of convertible debt (note 5) 24,239 -
Equity component of purchase price 2,704 2,704
Capital stock 262,256 261,285
Retained earnings 55,114 34,594
Accumulated foreign currency translation adjustments 13,704 594
- --------------------------------------------------------------------------------
358,017 299,177
- --------------------------------------------------------------------------------
548,519 369,142
- --------------------------------------------------------------------------------
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.
Consolidated Cash Flows
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ----------
$ $ $ $
Operations
Net earnings 5,340 5,768 20,520 13,958
Non-cash items
Implicit interest on convertible debt 990 1,284
Non-controlling interest (50) (103) (230)
Amortization of deferred financial expenses 257 386
Other amortization 1,992 1,946 6,059 5,492
Foreign currency fluctuation (413) 30 (262) 206
Future income taxes 234 1,534 2,162 2,024
Investment tax credits - - - (254)
Changes in working capital items:
Accounts receivable (2,209) 8,784 2,843 12,121
Income taxes receivable (1,999) 297 (2,627) (447)
Inventories (26) (2,155) 2,039 (3,405)
Prepaid expenses and deposits (152) (174) (615) (142)
Accounts payable 8,139 917 14,234 2,333
Income taxes payable 1,406 (1,389) 640 (381)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 13,559 15,508 46,560 31,275
- ---------------------------------------------------------------------------------------------------------------
Financing
Long-term debt 482 524 101,656 931
Repayment of long-term debt (375) (298) (1,195) (2,768)
Equity component of convertible debt - - 24,239 -
Issue of shares 857 346 971 66,856
Share issue expenses - - - (4,667)
Deferred financial expenses (38) - (4,538) -
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities 926 572 121,133 60,352
- ---------------------------------------------------------------------------------------------------------------
Investment
Acquisition of short-term investments (95,014) - (95,714) -
Disposal of short-term investments - - 60,740 -
Acquisition of investments (100) - (100) (6)
Disposal of investments 324 371 596 384
Acquisition of property, plant and equipment (1,224) (123) (2,236) (1,507)
Acquisition of intangible assets (2,003) - (73,938) -
Disposal of intangible assets - - 205 -
Net cash used for business acquisitions - (21,041) - (31,302)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investment activities (98,017) (20,793) (110,447) (32,431)
- ---------------------------------------------------------------------------------------------------------------
Foreign exchange gain on cash held
in foreign currencies 89 215 486 172
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (83,443) (4,498) 57,732 59,368
Cash and cash equivalents, beginning of period 161,180 80,407 20,005 16,541
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 77,737 75,909 77,737 75,909
- ---------------------------------------------------------------------------------------------------------------
Additional information
Interest received 511 346 1,019 605
Interest paid 27 71 150 138
Income taxes paid 3,724 2,574 9,246 9,227
- ---------------------------------------------------------------------------------------------------------------
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the annual
Consolidated Financial Statements.
AXCAN PHARMA INC.
Consolidated Earnings
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars, except share related data)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ----------
$ $ $ $
REVENUE 46,908 35,632 130,830 94,892
- ---------------------------------------------------------------------------------------------------------------
Cost of goods sold 11,828 9,427 31,736 24,171
Selling and administrative expenses 15,625 13,160 46,552 37,296
Research and development expenses 3,602 2,159 8,542 5,899
- ---------------------------------------------------------------------------------------------------------------
31,055 24,746 86,830 67,366
- ---------------------------------------------------------------------------------------------------------------
15,853 10,886 44,000 27,526
................................................................................................................
Financial expenses 2,770 283 3,922 571
Loss (gain) on foreign currency (168) 26 80 233
Interest income (514) (368) (1,083) (543)
Amortization 1,992 1,946 6,059 5,492
Takeover bid expenses 3,697 - 3,697 -
- ----------------------------------------------------------------------------------------------------------------
7,777 1,887 12,675 5,753
- ----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 8,076 8,999 31,325 21,773
Income taxes 2,736 3,231 10,805 7,815
- ----------------------------------------------------------------------------------------------------------------
NET EARNINGS 5,340 5,768 20,520 13,958
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic 0.12 0.13 0.46 0.34
Diluted 0.12 0.13 0.45 0.34
- ----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
Basic 44,917,035 44,567,115 44,887,388 40,589,665
Diluted 45,597,705 45,576,061 45,574,227 41,491,616
- ----------------------------------------------------------------------------------------------------------------
AXCAN PHARMA INC.
Consolidated Retained Earnings
- ----------------------------------------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited)
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ----------
$ $ $ $
Balance, beginning of period 49,774 22,141 34,594 16,914
Net earnings 5,340 5,768 20,520 13,958
Share issue expenses - - - (2,963)
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period 55,114 27,909 55,114 27,909
- ---------------------------------------------------------------------------------------------------------------
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.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars, except share related data)
(unaudited)
1. Significant accounting policies
The Company decided, for the year beginning October 1, 2002, to switch from
Canadian generally accepted accounting principles (GAAP) to the United States of
America (U.S.) GAAP as its primary reporting convention. The change in GAAP was
influenced by the Company's desire to better meet the needs of its shareholders
by applying accounting rules that are consistent with the majority of its
customers and peer companies. Consolidated financial statements prepared in U.S.
dollars and in accordance with Canadian GAAP are available to shareholders and
filed with regulatory authorities.
On October 1, 2002, the Company adopted retroactively the recommendations of the
Canadian Institute of Chartered Accountants Handbook, Section 3870, Stock-based
Compensation and Other Stock-based Payments. This Section defines notably
recognition, measurement and disclosure standards for stock-based compensation
to employees. These standards define a fair value-based method of accounting for
stock-based employee compensation plans. Under this method, compensation cost
should be measured at the grant date based on the fair value of the award and
should be recognized over the related service period. An entity that does not
adopt the fair value method of accounting for its awards granted to employees is
required to include in its financial statements pro forma disclosures of net
earnings and earnings per share as if the fair value method of accounting had
been applied. The supplementary information required by this new Section is
presented in note 8.
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, 2002. 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, 2002. When necessary, the financial statements
include amounts based on informed estimates and best judgement of management.
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year.
2. PANZYTRAT acquisition
On December 3, 2002, the Company acquired the worldwide rights to the Panzytrat
enzyme product line from Abbott Laboratories (Abbott). During the period of
marketing authorizations transfer ("the interim period"), Abbott acts as an
agent for the management of the product line sales. The interim period is for a
maximum of 18 months. For the nine-month period ended June 30, 2003, the Company
included in its revenues an amount of $ 6,898,669 representing the net sales
from the product line less cost of goods sold and other related expenses. Net
sales of the Panzytrat enzyme product line for the nine-month period ended June
30, 2003 were$ 10,311,585.
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
3. Inventories
June 30 September 30
2003 2002
---------------- ---------------
$ $
Raw materials and packaging material 4,272 3,841
Work in progress 6,573 4,516
Finished goods 6,932 11,390
- --------------------------------------------------------------------------------
17,777 19,747
- --------------------------------------------------------------------------------
4. Intangible assets
June 30, 2003
- --------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- --------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licences and
manufacturing rights with a:
Finite life 109,910 19,332 90,578
Indefinite life 184,550 12,418 172,132
- --------------------------------------------------------------------------------
294,460 31,750 262,710
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Accumulated
Cost amortization Net
- --------------------------------------------------------------------------------
$ $ $
Trademarks, trademark licences
and manufacturing rights with a:
Finite life 106,375 15,679 90,696
Indefinite life 102,275 12,418 89,857
- --------------------------------------------------------------------------------
208,650 28,097 180,553
- --------------------------------------------------------------------------------
5. Equity component of convertible debt
The Company issued convertible debentures for $125,000,000 on March 5, 2003.
According to the features of this debt, an amount of $24,238,899, representing
the estimated value of the right of conversion, was included in the
shareholders' equity as equity component of convertible debt and an amount of
$100,761,101 was included in the long term debt as liability component of
convertible debt. As of June 30, 2003, implicit interest in the amount of $
1,284,298 was accounted for and added to the liability component.
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
6. Segmented information
The Company considers that it operates in a single 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 segments:
For the three-month period For the nine-month period
ended June 30 ended June 30
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
$ $ $ $
Revenue
Canada
Domestic sales 5,163 4,256 14,873 12,685
Foreign sales 2,404 9,202 7,285 14,630
United States
Domestic sales 30,072 26,237 82,932 72,557
Foreign sales 188 158 294 427
France
Domestic sales 7,230 4,927 20,073 8,991
Foreign sales 4,406 - 12,111 -
Other 37 212 3,451 659
Inter-segment (2,592) (9,360) (10,189) (15,057)
- -------------------------------------------------------------------------------------------------------------
46,908 35,632 130,830 94,892
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) before financial expenses,
loss (gain) on foreign currency, interest
income, amortization,
takeover bid expenses and income
taxes
Canada (506) 4,613 899 5,572
United States 12,017 5,842 31,091 21,481
France 4,656 420 11,871 471
Other (314) 11 139 2
- ------------------------------------------------------------------------------------------------------------
15,853 10,886 44,000 27,526
- ------------------------------------------------------------------------------------------------------------
Amortization
Canada 290 341 1,030 997
United States 958 973 2,875 3,071
France 341 230 947 245
Other 403 402 1,207 1,179
- ------------------------------------------------------------------------------------------------------------
1,992 1,946 6,059 5,492
- ------------------------------------------------------------------------------------------------------------
June 30 September 30
2003 2002
----------- ------------
$ $
Canada 442,085 298,733
United States 219,808 184,573
France 153,162 59,343
Other 126,822 67,805
Inter-segment (393,358) (241,312)
- ------------------------------------------------------------------------------------------------------------
548,519 369,142
- ------------------------------------------------------------------------------------------------------------
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
7. Earnings per common share
The following is the detail of the denominators of the basic and diluted
earnings per common share computations:
For the three-month period For the nine-month period
ended June 30 ended June 30
--------------------------- -------------------------
2003 2002 2003 2002
----------- ------------ ---------- ----------
Weighted average number of common
shares outstanding 44,917,035 44,567,115 44,887,388 40,589,665
Effect of dilutive stock options 445,237 830,613 448,602 706,638
Effect of dilutive equity component
of purchase price 235,433 178,333 238,237 195,313
- ------------------------------------------------------------------------------------------------------
Adjusted weighted average number
of common shares outstanding 45,597,705 45,576,061 45,574,227 41,491,616
- ------------------------------------------------------------------------------------------------------
Number of common shares
outstanding at the end 44,989,347 44,651,154
- ------------------------------------------------------------------------------------------------------
Options to purchase 1,223,550 and 388,350 common shares were outstanding as of
June 30, 2003 and 2002, respectively, but were not included in the computation
of diluted earnings per share because the exercise price of the options was
greater than the average market price of the common shares. As of June 30, 2003,
the convertible debenture has no effect on the diluted earnings per share.
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 three-month period For the nine-month period
ended June 30 ended June 30
--------------------------- -------------------------
2003 2002 2003 2002
----------- ------------ ---------- ----------
Fair value per option $5.07 $7.28 $5.29 $6.92
Assumptions used in Black-Scholes
option pricing model
Expected volatility 45% 47% 45% 47%
Risk-free interest rate 4.23% 4.96% 4.39% 4.92%
Expected option life 6 6 6 6
Expected dividend - - - -
AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
8. Stock options (Continued)
The Company's net earnings, basic earnings per share and diluted earnings per
share would have been, on a pro-forma basis, as follows:
For the three-month period
ended June 30
--------------------------------------------------
2003 2002
----------------------- ----------------------
As reported Pro-forma As reported Pro-forma
----------- ---------- ----------- ---------
$ $ $ $
Net earnings 5,340 4,549 5,768 5,106
Basic earnings per share 0.12 0.10 0.13 0.11
Diluted earnings per share 0.12 0.10 0.13 0.11
For the nine-month period
ended June 30
--------------------------------------------------
2003 2002
----------------------- ----------------------
As reported Pro-forma As reported Pro-forma
----------- ---------- ----------- ---------
$ $ $ $
Net earnings 20,520 18,107 13,958 12,175
Basic earnings per share 0.46 0.40 0.34 0.30
Diluted earnings per share 0.45 0.40 0.34 0.29