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 May, 2004
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
May 6, 2004, entitled "Axcan Reports Second Quarter 2004 Results Revenue up
38.6% to $63.2 Million--Net Income Rises 39.3%."
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: May 10, 2004 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: May 6, 2004
Press Release for immediate distribution
AXCAN REPORTS SECOND QUARTER 2004 RESULTS
REVENUE UP 38.6% TO $63.2 MILLION - NET INCOME RISES 39.3%
MONT-SAINT-HILAIRE, QUEBEC - Axcan Pharma Inc. ("Axcan" or the "Company")
announced today operating results for the quarter ended March 31, 2004, the
Company's second quarter of the fiscal year ending September 30, 2004. The
Company reported revenue growth of 38.6% to $63.2 million and net income of
$12.4 million, or $0.24 per share (fully diluted), representing 39.3% growth in
net income and 20% growth in diluted income per share, as compared to the second
quarter of fiscal 2003 (all amounts stated in U.S. dollars).
"Based on our strong second quarter results, we believe that our solid and
consistent financial performance should continue throughout the remainder of the
fiscal year," stated Lon F. Gosselin, President and Chief Executive Officer of
Axcan.
INTERIM FINANCIAL REPORT
This release includes, by reference, the second quarter interim financial report
incorporating the financial statements in accordance with both U.S. and Canadian
GAAP as well as the full Management Discussion & Analysis ("MD&A") including the
reconciliation to Canadian GAAP of the U.S. GAAP presentation. The interim
report, including the MD&A and financial statements, is filed with applicable
U.S. and Canadian regulatory authorities.
RECENT DEVELOPMENTS
PHOTOBARR
In March 2004, the European Commission granted Axcan market authorization for
use in the European Union ("EU") of PHOTOBARR (porfimer sodium), its
photodynamic therapy ("PDT") for the ablation of High-Grade Dysplasia associated
with Barrett's Esophagus. PHOTOBARR was also granted orphan medical product
status at the time of its submission, which guarantees Axcan exclusive marketing
rights for PHOTOBARR in the European Union for a ten-year period from March
2004. This represents a significant milestone for Axcan, because this is its
first regulatory approval in Europe. Launch in major EU markets is expected near
the end of the current fiscal year.
ITAX
In January 2004, the U.S. Food and Drug Administration ("FDA") endorsed Axcan's
development proposal to immediately initiate Phase III clinical trials with ITAX
(itopride hydrochloride). Axcan intends to initiate Phase III clinical studies
to evaluate the efficacy of ITAX in the treatment of functional dyspepsia (also
known as non ulcer dyspepsia). Axcan also plans to study ITAX as a treatment for
diabetic gastroparesis. As previously announced, Axcan believes that if approved
by the FDA, ITAX has the potential to become its highest selling product. Axcan
expects to file a New Drug Application ("NDA") in fiscal 2005.
MESALAMINE - NEW DOSAGE
In December 2003, Axcan submitted to the FDA a supplemental NDA for a 1-gram
mesalamine suppository dosage form for the treatment of ulcerative proctitis.
Axcan expects approval by the end of calendar year 2004.
URSO DS- NEW FORMULATION
In September 2003, Axcan filed a supplemental NDA for a new, double-strength
tablet formulation of URSO (ursodiol, URSO DS 500mg tablets). This new
formulation will simplify the dosing regimen used in the treatment of Primary
Biliary Cirrhosis. This new product is expected to gain approval by the FDA in
the last quarter of fiscal 2004.
HELIZIDE
The Company is in the process of qualifying a manufacturer of the biskalcitrate
potassium (bismuth salt) a component of Helizide combination therapy for the
eradication of Helicobacter Pylori bacterium. Axcan anticipates FDA resubmission
by December 2004. Assuming approval, we expect to launch the product in the
second half of fiscal 2005.
Research and development
Phase III studies
- -----------------
SALOFALK 750 milligram 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 and hopes to launch the
product in Canada in fiscal 2005.
CANASA / SALOFALK rectal gel
Axcan is currently completing Phase III studies to confirm the efficacy and
safety of a new mesalamine rectal gel in the treatment of distal ulcerative
colitis. Final results will be available in the second half of fiscal 2004.
Assuming the results of the Phase II 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 fiscal 2005.
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"). The Company will conduct a
Phase II/III clinical development program for HEPENAX and plans to seek approval
of the intravenous formulation to treat the acute symptoms of PSE. The Company
intends to initiate its clinical research program in the third quarter of fiscal
2004 and complete such studies in fiscal 2005.
PHOTOFRIN
PHOTOFRIN is approved in a number of countries for the treatment of different
forms of cancers. Axcan is currently investigating the use of PHOTOFRIN for the
treatment of cholangiocarcinoma, a serious bile duct (liver) cancer with a high
morbidity rate. The treatment under investigation combines PHOTOFRIN with PDT
and the stenting of the bile ducts. The proposed Phase III study will start in
the third quarter of fiscal 2004.
Pre-Clinical, Phase I and II studies
- ------------------------------------
NCX-1000
The FDA has accepted an Investigational NDA for NCX-1000, a patented nitric
oxide derivative of ursodiol, for the treatment of portal hypertension, a late
stage complication of chronic liver disease. The Phase I clinical development
program, which is designed to demonstrate the tolerability and safety of
NCX-1000, is almost completed. Phase II studies are planned to begin during
fiscal 2005. Completion of the entire clinical program is expected to occur in
calendar year 2006.
Ursodiol Disulfate
Axcan recently completed a proof of concept study in rats to evaluate the effect
of ursodiol disulfate on the development of colonic tumors. Axcan intends to
initiate animal toxicity studies in the third quarter of fiscal 2004, which will
be followed by clinical Phase I studies.
NMK 150
Axcan and Nordmark GmbH, a German pharmaceutical firm, have set up a
joint-venture, Norax, in order to develop NMK 150, a new high protease
pancrelipase preparation. This product will be developed for the relief of pain
in small duct chronic pancreatitis. It is expected that NMK 150 will enter
clinical development before the end of fiscal 2004.
NMK 250
Norax is also developing NMK 250, a bacterial lipase intended to correct
steatorrhea in patients suffering from diverse causes of pancreatic
insufficiency (e.g., following surgery for cancer or due to cystic fibrosis).
Norax expects to complete the formulation work before the end of fiscal 2004.
FDA DRAFT GUIDELINES FOR
EXOCRINE PANCREATIC INSUFFICIENCY DRUG PRODUCTS
In April 2004, the FDA issued for comment, draft guidelines concerning the
approval status and timelines required for regulatory submissions of all
marketed exocrine pancreatic insufficiency drug products. Based on the current
draft document, the FDA will allow manufacturers four years to obtain marketing
approval. Axcan expects to meet all regulatory requirements and timelines, as
referred to in the FDA draft guidelines, for its exocrine pancreatic
insufficiency products marketed in the U.S.
DIGESTIVE DISEASE WEEK, MAY 15 -20, 2004
On May 17, 2004, Dr. Kenneth Setchell will be presenting data from a rat model
toxicity study of the sulfated version of ursodiol ("SUDCA") for treatment of
colorectal polyps. On May 19, 2004, Dr. Gerald Holtmann will present data from
the German Phase II study of ITAX. Also, Axcan will be sponsoring a PHOTOFRIN
satellite symposium, discussing and demonstrating the treatment for High-Grade
Dysplasia associated with Barrett's Esophagus.
CONFERENCE CALL
Axcan will host a conference call at 4:30 P.M. ET, on May 6, 2004. Interested
parties may also access the conference call by way of webcast at www.axcan.com.
The webcast will be archived for 90 days. The telephone numbers to access the
conference call are (800) 814-4859 (Canada and United States) or (416) 640-4127
(international). A replay of the call will be available until May 13, 2004. The
telephone number to access the replay of the call is (416) 640-1917 code:
21043281. 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
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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 and other
regulatory approvals, acceptance and demand for new pharmaceutical products, the
impact of competitive products and pricing, new product development and launch,
reliance on key strategic alliances, availability of raw materials, the
regulatory environment, fluctuations in operating results and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission and the Canadian Multijurisdictional Disclosure System.
The names ITAX, Photobarr, Salofalk, Hepenax, Urso, Photofrin and Canasa
appearing in this press release are trademarks of Axcan Pharma Inc. and its
subsidiaries.
-30-
Management Discussion and Analysis (MD&A), Financial Statements and Notes
Attached
Management's discussion and analysis of financial condition and results
of operations
This discussion should be read in conjunction with the information contained
in Axcan's consolidated financial statements and the related notes thereto.
All amounts are in U.S. dollars.
Overview
Axcan is a leading specialty pharmaceutical company concentrating in the
field of gastroenterology, with operations in North America and Europe. Axcan
markets and sells pharmaceutical products used in the treatment of a variety of
gastrointestinal diseases and disorders. The Company seeks to expand its
gastrointestinal franchise by in-licensing products and acquiring products or
companies, as well as developing additional products and expanding indications
for existing products. Axcan's current products include ULTRASE, VIOKASE and
PANZYTRAT for the treatment of certain gastrointestinal symptoms related to
cystic fibrosis in the case of ULTRASE; 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 and other conditions. In addition, Axcan currently has
two products pending approval, one a new formulation and the other, a new dosage
form for products currently marketed in the United States. Axcan also has a
number of pharmaceutical projects in all phases of development including ITAX
for the treatment of functional dyspepsia. Axcan reported revenue of $63.2
million and operating income of $20.0 million for the three- month period ended
March 31, 2004. For the six- month period ended March 31, 2004, revenue was
$120.8 million and operating income was $37.0 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 $81.1 million (67.2% of total revenue) for the six-month
period ended March 31, 2004, compared to $52.9 million (63.3% of total revenue)
for the same period of fiscal 2003. In Canada, revenue was $13.4 million (11.1%
of total revenue) for the six-month period ended March 31, 2004, compared to
$9.7 million (11.6% of total revenue) for the same period of fiscal 2003. In
Europe, revenue was $26.1 million (21.6% of total revenue) for the six-month
period ended March 31, 2004, compared to $20.8 million (25.0% of total revenue)
for the same period of fiscal 2003.
Axcan's revenue historically has been and continues to be principally
derived from sales of pharmaceutical products, to large pharmaceutical
wholesalers and large chain pharmacies. Axcan utilizes a "pull-through"
marketing approach that is typical of pharmaceutical companies. Under this
approach, Axcan's sales representatives demonstrate the features and benefits of
its products to gastroenterologists who may write their patients prescriptions
for Axcan's products. The patients, in turn, take the prescriptions to
pharmacies to be filled. The pharmacies then place orders with the wholesalers
or, in the case of large chain pharmacies, their distribution centres, to whom
Axcan sells its products.
Axcan's expenses are comprised primarily of selling and administrative
expenses (including marketing expenses), cost of goods sold (including royalty
payments to those companies from whom Axcan licenses its products) and research
and development expenses.
Axcan's annual and quarterly operating results are primarily affected by
three factors: wholesaler buying patterns; the level of acceptance of Axcan's
products by gastroenterologists and their patients; and the extent of Axcan's
control over the marketing of its products. Wholesaler buying patterns,
including a tendency to increase inventory levels prior to an anticipated or
announced price increase, affect Axcan's operating results by shifting revenue
between quarters. To maintain good relations with wholesalers, Axcan typically
gives prior notice of price increases. The level of patient and physician
acceptance of Axcan's products, as well as the availability of similar
therapies, which may be less effective but also less expensive than some of
Axcan's products, impact Axcan's revenues by driving the level and timing of
prescriptions for its products.
Critical Accounting Policies
Axcan's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S.
GAAP"), applied on a consistent basis. Axcan's critical accounting policies
include the use of estimates, revenue recognition, the recording of research and
development expenses and the determination of the useful lives or fair value of
goodwill and intangible assets. Some of our critical accounting policies require
the use of judgment in their application or require estimates of inherently
uncertain matters. Although our accounting policies are in compliance with U.S.
GAAP, a change in the facts and circumstances of an underlying transaction could
significantly change the application of our accounting policies to that
transaction, which could have an effect on our financial statements. Discussed
below are those policies that we believe are critical and require the use of
complex judgment in their application.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the recorded
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the financial statements and the disclosure of
recognized amounts of revenues and expenses during the year. Significant
estimates and assumptions made by management include the allowance for accounts
receivable and inventories, reserves for product returns, rebates and
chargebacks, the classification of intangible assets between finite and
indefinite life, useful lives of long-lived assets, expected cash flows used in
evaluating long-lived assets for impairment, contingency provisions and other
accrued charges. These estimates were made using the historical information
available to management. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when the product is shipped to the Company's customer,
provided the Company has not retained any significant risks of ownership or
future obligations with respect to the product shipped. Revenue from product
sales is recognized net of sales discounts, allowances, returns, rebates and
chargebacks. In certain circumstances, returns or exchanges of products are
allowed under the Company's policy and provisions are maintained accordingly.
Amounts received from customers as prepayments for products to be shipped in the
future are reported as deferred revenue.
Goodwill and Intangible Assets
Axcan's goodwill and intangible assets are stated at cost, less accumulated
amortization. Prior to October 1, 2001, goodwill and intangible assets were
amortized using the straight-line method based on their estimated useful lives
from 7 to 25 years. Since October 1, 2001, the Company no longer amortizes
goodwill and intangible assets with an indefinite life. Management evaluates the
value of the unamortized portion of goodwill and intangible assets annually, by
comparing the carrying value to the future benefits of the Company's activities
or the expected sale of pharmaceutical products. Should there be a permanent
impairment in value or if the unamortized balance exceeds recoverable amounts, a
write-down will be recognized for the current year. To 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. 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
six-month period ended March 31, 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 six-month
period ended March 31, 2004 were $5,315,913, the Company included in its revenue
an amount of $3,440,421 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:
For the For the
three-month period six-month period
ended March 31 ended March 31
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2004 2003 2004 2003
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% % % %
Revenue 100.0 100.0 100.0 100.0
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Cost of goods sold 23.7 23.7 24.5 23.9
Selling and administrative
expenses 31.7 34.8 31.8 36.6
Research and development
expenses 6.3 7.1 6.6 6.4
Depreciation and
amortization 6.6 4.4 6.5 4.8
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68.3 70.0 69.4 71.7
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Operating income 31.7 30.0 30.6 28.3
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Financial expenses 2.7 1.6 2.8 1.0
Interest income - (0.6) (0.2) (0.7)
Loss on foreign exchange 0.4 - 0.3 0.3
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3.1 1.0 2.9 0.6
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Income before income taxes 28.6 29.0 27.7 27.7
Income taxes 8.9 9.4 8.8 9.1
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Net income 19.7 19.6 18.9 18.6
=========================================================================
>>
Periods ended March 31, 2004 compared to periods ended March 31, 2003
Revenue
Revenue increased $17.6 million (38.6%) to $63.2 million for the second
quarter ended March 31, 2004 from $45.6 million for the corresponding quarter of
the preceding fiscal year. For the six-month period ended March 31, 2004,
revenue was $120.8 million compared to $83.5 million for the corresponding
period of the preceding fiscal year, an increase of 44.7%. This increase in
revenue primarily resulted from $18.9 million in U.S. and Canadian sales of the
AVAX product line which was acquired in November 2003 and strong sales of
ULTRASE in the U.S. . Revenues from sales made by the French subsidiary,
following the acquisitions of DELURSAN as well as the PANZYTRAT product line
also contributed to the increase.
Cost of goods sold
Cost of goods sold consists principally of costs of raw materials, royalties
and manufacturing costs. Axcan outsources most of its manufacturing
requirements. Cost of goods sold increased $4.2 million (38.9%) to $15.0 million
for the quarter ended March 31, 2004 from $10.8 million for the corresponding
quarter of the preceding fiscal year. As a percentage of revenue, cost of goods
sold for the quarter ended March 31, 2004 remained stable as compared to the
corresponding quarter of the preceding fiscal year, at 23.7%. For the six-month
period ended March 31, 2004, cost of goods sold was $29.5 million (24.5% of
revenue) compared to $19.9 million (23.9% of revenue) for the corresponding
period of the preceding fiscal year. This increase was due primarily to the
newly acquired products which have a slightly different margin than the products
already sold by Axcan.
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 $4.1 million (25.8%) to $20.0
million for the quarter ended March 31, 2004 from $15.9 million for the
corresponding quarter of the preceding fiscal year. For the six-month period
ended March 31, 2004, selling and administrative expenses increased $7.9 million
(25.9%) to $38.4 million from $30.5 million for the corresponding period of the
preceding fiscal year. This increase is mainly due to an increase in our sales
force as a result of the recent acquisition of additional products.
Research and development expenses
Research and development expenses consist principally of fees paid to
outside parties that Axcan uses to conduct clinical studies and to submit
governmental approval applications on its behalf as well as the salaries and
benefits paid to its personnel involved in research and development projects.
Research and development expenses increased $0.7 million (21.2%) to $4.0 million
for the quarter ended March 31, 2004 from $3.3 million for the corresponding
quarter of the preceding fiscal year and $2.5 million (46.3%) to $7.9 million
for the six-month period ended March 31, 2004, from $5.4 million for the
corresponding period of the preceding fiscal year.
Depreciation and amortization
Depreciation and amortization consist principally of intangible assets with
finite life. Intangible assets include trademarks, trademark licenses and
manufacturing rights. Depreciation and amortization increased $2.2 million
(110.0%) to $4.2 million for the quarter ended March 31, 2004 from $2.0 million
for the corresponding quarter of the preceding fiscal year and $3.9 million
(97.5%) to $7.9 million for the six-month period ended March 31, 2004 from $4.0
million for the corresponding period of the preceding fiscal year. The increase
is mainly due to the amortization of the AVAX product line acquired from Aventis
on November 18, 2003 and of TAGAMET which was reclassified from intangible
assets with an indefinite life to intangible assets with a finite life on
October 1, 2003.
Financial expenses
Financial expenses consist principally of interest and fees paid in
connection with money borrowed for acquisitions. Financial expenses increased
$1.0 million to $1.7 million for the quarter ended March 31, 2004 from $0.7
million for the corresponding quarter of the preceding fiscal year and $2.5
million to $3.4 million for the six-month period ended March 31, 2004 from $0.9
million for the corresponding period of the preceding fiscal year. This increase
is mainly due to interest expense on the $125.0 million aggregate principal
amount of 4 1/4% convertible subordinated notes due 2008 which were issued on
March 5, 2003.
Income Taxes
Income taxes amounted to $5.7 million for the quarter ended March 31, 2004,
compared to $4.3 million for the quarter ended March 31, 2003. Income taxes
amounted to $10.6 million for the six-month period ended March 31, 2004 compared
to $7.7 million for the corresponding period of the preceding fiscal year. The
effective tax rates were 31.3% for the quarter ended March 31, 2004 and 32.5%
for the quarter ended March 31, 2003.
Net income
Net income was $12.4 million or $0.27 of basic income per share and $0.24 of
diluted income per share, for the quarter ended March 31, 2004, compared to $8.9
million or $0.20 of basic and diluted income per share for the corresponding
quarter of the preceding year. The weighted average number of common shares
outstanding used to establish the basic per share amounts increased from 44.9
million for the quarter ended March 31, 2003 to 45.2 million for the quarter
ended March 31, 2004, following the exercise of options previously granted
pursuant to Axcan's stock option plan. The weighted average number of common
shares used to establish the diluted per share amounts increased from 45.6
million for the quarter ended March 31, 2003 to 55.1 million for the quarter
ended March 31, 2004 as the convertible subordinated notes became dilutive
because a trigger event occurred during the last quarter as a result of the
stock trading price exceeding 110% of the conversion price.
Net income was $22.9 million or $0.51 of basic income per share and $0.48 of
diluted income per share, for the six-month period ended March 31, 2004,
compared to $15.5 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.
Canadian GAAP
The differences (in thousands of dollars) between U.S. and Canadian GAAP which
affect net income for the periods ended March 31, 2004 and 2003 are summarized
in the following table:
<<
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Net income in
accordance with U.S.GAAP 12,421 8,933 22,856 15,490
Implicit interest on
convertible debt (1,023) (294) (2,049) (294)
Amortization of new
products acquisition costs (13) (13) (26) (26)
Income tax impact of
the above adjustments 5 5 10 10
------------ ---------- ---------- ----------
Net earnings in accordance
with Canadian GAAP 11,390 8,631 20,791 15,180
============ ========== ========== ==========
>>
On March 5, 2003, the Company closed an offering of $125,000,000 aggregate
principal amount of 4 1/4% convertible subordinated notes due April 15, 2008. As
a result of the terms of the notes, under Canadian GAAP, an amount of
$24,238,899 was included in shareholders' equity as equity component of the
convertible debt and an amount of $100,761,101 was included in long- term debt,
as the liability component of the convertible notes. For the six- month period
ended March 31, 2004, implicit interest in the amount of $2,049,057 was accrued
for and added to the liability component.
Under Canadian GAAP, research and development expenses are stated net of
related tax credits which generally constitute between 10% and 15% of the
aggregate amount of such expenses. Under U.S. GAAP, these tax credits are
applied against income taxes.
Under U.S. GAAP, acquired in-process research is included in operations as
at the date of acquisition if no alternative use is established. Under Canadian
GAAP, the acquired in-process research, including the new product acquisition
costs, is deferred and amortized from the date of commencement of commercial
production.
Liquidity and capital resources
Axcan's cash, cash equivalents and short-term investments decreased $131.4
million to $39.5 million at March 31, 2004 from $170.9 million at September 30,
2003. As of March 31, 2004, working capital was $59.3 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 $38.1
million (7.0%) to $583.4 million as of March 31, 2004 from $545.3 million as of
September 30, 2003. Shareholders' equity increased $32.0 million (9.7%) to
$363.0 million as of March 31, 2004 from $331.0 million as of September 30,
2003.
Historically, Axcan has financed research and development, operations,
acquisitions, milestone payments and investments out of the proceeds of public
and private sales of its equity, cash flow from operations, 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 has borrowed from financial institutions to finance the acquisition
of Axcan Scandipharm Inc. and from Schwarz Pharma Inc., a former joint venture
partner, to finance the acquisition of Axcan URSO (these amounts have since been
repaid).
Axcan has credit facilities totalling $55.0 million with two Canadian
chartered banks. The facilities consist of a $15.0 million revolving operating
facility renewable annually and a $40.0 million 364-day, extendible revolving
facility with a three-year term-out option maturing on October 12, 2007.
The credit facilities are secured by a first priority security interest on
all present and future acquired assets of the Company and its material
subsidiaries, and provide for the maintenance of certain financial ratios. Cash
dividends, repurchase of shares (other than redeemable shares issued in
connection with a permitted acquisition) and similar distributions to
shareholders are limited to 10% of the Company's net income for the preceding
fiscal year. As of March 31, 2004, Axcan was in compliance with all credit
facilities' covenants.
The interest rate varies, depending on the Company's leverage between 25
basis points and 125 basis points over Canadian prime rate or U.S. base rate,
and between 125 basis points and 225 basis points over the LIBOR rate or bankers
acceptances. The credit facilities may be drawn in U.S. dollar or in Canadian
dollar equivalent. As at March 31, 2004, there was no amount outstanding under
these credit facilities.
Cash Flows and Financial Resources
Cash flow from operating activities increased $6.6 million (56.4%) from
$11.7 million of cash provided by operating activities for the three-month
period ended March 31, 2003 to $18.3 million for the three-month period ended
March 31, 2004. This increase is mainly due to the increase in net income before
depreciation and amortization during the quarter following the increase in sales
and the acquisition of new products. Cash flows from financing activities for
the three-month period ended March 31, 2004 were $2.0 million and cash flows
used for investment activities for the same period were $1.0 million. For the
six-month period ended March 31, 2004 cash flows from operating activities
decreased $15.9 million (48.2%) from $33.0 million of cash provided by operating
activities for the six-month period ended March 30, 2003 to $17.1 million. This
decrease is mainly due to the increase in accounts receivable and inventories
during the first quarter of this year following the increase in sales and the
acquisition of new products. Cash flows from financing activities for the
six-month period ended March 31, 2004 were $1.9 million. Cash flows used by
investment activities for the six-month period ended March 31, 2004 were $22.1
million mainly due to the net cash used for the acquisition of intangible assets
with the proceeds from the disposal of short term investments.
Axcan's research and development spending totalled $12.1 million for fiscal
2003. Axcan believes that its cash and operating cash 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, 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.
Earnings coverage
The earnings coverage ratios are the following:
Under U.S. GAAP, for the twelve months ended March 31, 2004, our interest
requirements amounted to $5.9 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 8.3 to one.
Under Canadian GAAP, for the twelve months ended March 31, 2004, our
interest requirements amounted to $10.3 million on a pro forma basis and our
earnings coverage ratio was 5.9 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 $4.4 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 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.
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, 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 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.
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. These forward- looking
statements include the expected sales growth of the Company's products and the
expected increase in funds from operations resulting from the Company's research
and development expenditures. The forward- looking statements involve risks and
uncertainties. Actual events could differ materially from those projected herein
and depend on a number of factors, including the successful and timely
completion of clinical studies, the uncertainties related to the regulatory
process, commercialization of the drug or therapy after regulatory approval is
received, difficulty of predicting acceptance and demand for pharmaceutical
products, impact of competitive products and pricing, new product development
and launch, availability of raw materials, and fluctuations in operating
results. Investors should consult the Company's ongoing quarterly filings,
annual reports and 40-F filings for additional information on risks and
uncertainties relating to these forward-looking statements. The reader is
cautioned not to rely on these forward-looking statements. The Company disclaims
any obligation to update these forward- looking statements.
On behalf of Management
(signed)
Jean Vzina
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)
March September
31 30
2004 2003
---------- ----------
(unaudited)
ASSETS $ $
Current assets
Cash and cash equivalents 34,837 37,773
Short-term investments available for sale 4,682 133,112
Accounts receivable 29,858 19,685
Income taxes receivable 6,564 5,294
Inventories (Note 3) 28,091 20,163
Prepaid expenses and deposits 3,371 2,794
Deferred income taxes 6,205 6,214
-------------------------------------------------------------------------
Total current assets 113,608 225,035
Investments 760 1,002
Property, plant and equipment, net 25,008 20,331
Intangible assets, net (Note 4) 410,520 265,423
Goodwill, net 27,550 27,550
Deferred debt issue expenses, net 3,718 4,233
Deferred income taxes 2,206 1,775
-------------------------------------------------------------------------
Total assets 583,370 545,349
=========================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 47,615 43,418
Income taxes payable 4,374 4,821
Instalments on long-term debt 1,569 1,528
Deferred income taxes 753 494
-------------------------------------------------------------------------
Total current liabilities 54,311 50,261
Long-term debt 128,790 129,474
Deferred income taxes 37,317 34,603
-------------------------------------------------------------------------
Total liabilities 220,418 214,338
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Series A preferred shares, without par value,
shares authorized: 14,175,000; no shares issued. - -
Series B preferred shares, without par value,
shares authorized: 12,000,000; no shares issued. - -
Common shares, without par value, unlimited shares
authorized, 45,328,102 issued as at
March 31, 2004 and 45,004,320 as at September
30, 2003. 258,567 255,743
Retained earnings 86,490 63,634
Accumulated other comprehensive income 17,895 11,634
-------------------------------------------------------------------------
Total shareholders' equity 362,952 331,011
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 583,370 545,349
=========================================================================
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.
Consolidated Statements of Shareholders' Equity
-------------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Common shares (Number)
Balance, beginning of
period 45,061,531 44,872,284 45,004,320 44,863,198
Exercise of options 266,571 8,119 323,782 17,205
-------------------------------------------------------------------------
Balance, end of period 45,328,102 44,880,403 45,328,102 44,880,403
=========================================================================
$ $ $ $
Common shares
Balance, beginning of
period 256,178 254,698 255,743 254,640
Exercise of options 2,389 56 2,824 114
-------------------------------------------------------------------------
Balance, end of period 258,567 254,754 258,567 254,754
-------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 74,069 50,266 63,634 43,709
Net income 12,421 8,933 22,856 15,490
-------------------------------------------------------------------------
Balance, end of period 86,490 59,199 86,490 59,199
-------------------------------------------------------------------------
Accumulated other comprehensive
income (loss)
Balance, beginning of
period 20,161 605 11,634 (3,562)
Foreign currency
translation adjustments (2,266) 3,610 6,261 7,777
-------------------------------------------------------------------------
Balance, end of period 17,895 4,215 17,895 4,215
-------------------------------------------------------------------------
Total shareholders' equity 362,952 318,168 362,952 318,168
=========================================================================
Comprehensive income
Foreign currency
translation adjustments (2,266) 3,610 6,261 7,777
Net income 12,421 8,933 22,856 15,490
-------------------------------------------------------------------------
Total comprehensive income 10,155 12,543 29,117 23,267
=========================================================================
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 For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Operations $ $ $ $
Net income 12,421 8,933 22,856 15,490
Non-cash items
Non-controlling interest - (49) - (103)
Amortization of deferred
debt issue expenses 258 104 516 129
Other depreciation and
amortization 4,196 1,998 7,919 4,036
Loss (gain) on disposal
of property, plant and
equipment (47) - 40 -
Foreign currency
fluctuation (120) 156 (120) 151
Deferred income taxes 1,582 (529) 2,885 1,938
Share in net loss of
joint ventures 60 33 60 88
Changes in working capital items:
Accounts receivable (2,429) (3,140) (11,293) 4,967
Income taxes receivable 1,241 21 (1,365) (636)
Inventories 203 1,077 (8,173) 2,059
Prepaid expenses
and deposits 419 978 (630) (465)
Accounts payable and
accrued liabilities 6,203 2,324 4,817 6,111
Income taxes payable (5,733) (200) (410) (766)
-------------------------------------------------------------------------
Cash flows from
operating activities 18,254 11,706 17,102 32,999
-------------------------------------------------------------------------
Financing
Long-term debt - 125,277 - 125,413
Repayment of long-term debt (408) (488) (950) (820)
Issue of shares 2,389 56 2,824 114
Deferred debt issue expenses - (4,500) - (4,500)
-------------------------------------------------------------------------
Cash flows from financing
activities 1,981 120,345 1,874 120,207
-------------------------------------------------------------------------
Investment
Acquisition of short-term
investments - (700) - (700)
Disposal of short-term
investments 2,030 5,992 128,390 60,740
Disposal of investments 1,101 143 1,239 272
Acquisition of property,
plant and equipment (4,151) (721) (6,514) (1,012)
Disposal of property,
plant and equipment 52 - 378 -
Acquisition of
intangible assets (14) - (145,604) (71,935)
Disposal of intangible assets - 205 - 205
-------------------------------------------------------------------------
Cash flows from
investment activities (982) 4,919 (22,111) (12,430)
-------------------------------------------------------------------------
Foreign exchange gain (loss)
on cash held in foreign
currencies (32) 149 199 397
-------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 19,221 137,119 (2,936) 141,173
Cash and cash equivalents,
beginning of period 15,616 24,031 37,773 19,977
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 34,837 161,150 34,837 161,150
=========================================================================
Additional information
Interest received 64 252 284 508
Interest paid 72 37 3,438 123
Income taxes paid 10,421 3,147 11,373 5,522
=========================================================================
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 For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
REVENUE 63,192 45,621 120,757 83,467
-------------------------------------------------------------------------
Cost of goods sold 14,972 10,830 29,544 19,899
Selling and administrative
expenses 20,043 15,877 38,410 30,507
Research and development
expenses 3,991 3,252 7,924 5,354
Depreciation and amortization 4,196 1,998 7,919 4,036
-------------------------------------------------------------------------
43,202 31,957 83,797 59,796
-------------------------------------------------------------------------
Operating income 19,990 13,664 36,960 23,671
-------------------------------------------------------------------------
Financial expenses 1,706 705 3,387 851
Interest income (55) (286) (246) (569)
Loss on foreign currency 264 19 348 248
-------------------------------------------------------------------------
1,915 438 3,489 530
-------------------------------------------------------------------------
Income before income taxes 18,075 13,226 33,471 23,141
Income taxes 5,654 4,293 10,615 7,651
-------------------------------------------------------------------------
NET INCOME 12,421 8,933 22,856 15,490
=========================================================================
Income per common share
Basic 0.27 0.20 0.51 0.35
Diluted 0.24 0.20 0.48 0.34
=========================================================================
Weighted average number
of common shares
Basic 45,188,011 44,878,289 45,105,013 44,872,564
Diluted 55,124,302 45,553,550 50,316,477 45,560,678
=========================================================================
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
(Amounts in the tables are stated in thousands of U.S. dollars, except
share related data)
(unaudited)
1. Significant accounting policies
The accompanying unaudited financial statements are prepared in accordance
with U.S. GAAP for interim financial statements and do not include all the
information required for complete financial statements. They are consistent with
the policies outlined in the Company's audited financial statements for the year
ended September 30, 2003. The interim financial statements and related notes
should be read in conjunction with the Company's audited financial statements
for the year ended September 30, 2003. When necessary, the financial statements
include amounts based on informed estimates and best judgements of management.
The results of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year. Consolidated financial
statements prepared in U.S. dollars and in accordance with Canadian GAAP are
available to shareholders and filed with regulatory authorities.
2. Product acquisition
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis for a cash purchase price of $145,000,000. The acquired products
are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and
PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company acquired
the worldwide rights to the PANZYTRAT enzyme product line from Abbott.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the six-month period ended March,
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 six-month period ended
March 31, 2004 were $5,315,913 ($6,108,286 in 2003), the Company only included
in its revenue an amount of $3,440,421 ($4,038,102 in 2003) representing the net
sales less cost of goods sold and other seller related expenses.
3. Inventories
March September
31 30
2004 2003
---------- ----------
$ $
Raw materials and packaging material 8,600 8,441
Work in progress 1,738 1,466
Finished goods 17,753 10,256
-------------------------------------------------------------------------
28,091 20,163
=========================================================================
4. Intangible assets
March 31, 2004
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 279,632 25,890 253,742
Indefinite life 169,196 12,418 156,778
-------------------------------------------------------------------------
448,828 38,308 410,520
=========================================================================
September 30, 2003
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 111,327 19,998 91,329
Indefinite life 186,512 12,418 174,094
-------------------------------------------------------------------------
297,839 32,416 265,423
=========================================================================
The cost of the product TAGAMET has been transferred from intangible assets
with an indefinite life to intangible assets with a finite life following
changes in the regulatory rules applicable to this product and resulting in the
modification of its useful life. The net cost of this product as of October 1,
2003, which amounted to $21,852,859, is therefore amortized over a 15-year
period.
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 period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Revenue
Canada
Domestic sales 6,865 4,833 13,417 9,710
Foreign sales - - - -
United States
Domestic sales 41,958 27,650 79,769 52,860
Foreign sales 1,363 - 1,363 -
Europe
Domestic sales 11,877 11,836 24,522 18,411
Foreign sales 1,060 1,279 1,589 2,416
Other 69 23 97 70
-------------------------------------------------------------------------
63,192 45,621 120,757 83,467
=========================================================================
Operating income (loss)
Canada 161 (1,385) 2,450 247
United States 20,915 10,140 34,211 17,183
Europe (680) 5,243 1,070 6,895
Other (406) (334) (771) (654)
-------------------------------------------------------------------------
19,990 13,664 36,960 23,671
=========================================================================
Depreciation and amortization
Canada 471 379 1,195 740
United States 909 943 1,945 1,891
Europe 2,522 441 4,191 892
Other 294 235 588 513
-------------------------------------------------------------------------
4,196 1,998 7,919 4,036
=========================================================================
March September
31 30
2004 2003
---------- ----------
$ $
Property, plant, equipment, intangible
assets and goodwill
Canada 36,642 14,622
United States 131,790 133,695
Europe 268,360 138,113
Other 26,286 26,874
-------------------------------------------------------------------------
463,078 313,304
=========================================================================
6. Financial information included in the consolidated statement of
operations
a) Financial expenses
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Interest on long-term debt 1,347 581 2,729 673
Bank charges 54 20 78 49
Financing fees 47 - 64 -
Amortization of deferred debt
issue expenses 258 104 516 129
-------------------------------------------------------------------------
1,706 705 3,387 851
=========================================================================
b) Other information
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Non-controlling interest - (49) - (103)
Rental expenses 274 307 548 614
Depreciation of property,
plant and equipment 789 843 2,039 1,697
Amortization of
intangible assets 3,407 1,155 5,880 2,339
Share in net loss of
joint ventures 60 33 60 88
c) Income per common share
The following tables reconcile the numerators and the denominators of the
basic and diluted income per common share computations:
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Net income
Basic 12,421 8,933 22,856 15,490
Interests on convertible
subordinated notes 1,071 - 1,071 -
-------------------------------------------------------------------------
Net income on a
diluted basis 13,492 8,933 23,927 15,490
=========================================================================
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Weighted average number
of common shares
outstanding 45,188,011 44,878,289 45,105,013 44,872,564
Effect of dilutive
stock options 1,012,178 433,130 773,790 448,306
Effect of dilutive
purchase price - 242,131 - 239,808
Effect of dilutive
convertible subordinated
notes 8,924,113 - 4,437,674 -
-------------------------------------------------------------------------
Adjusted weighted average
number of common shares
outstanding 55,124,302 45,553,550 50,316,477 45,560,678
=========================================================================
Number of common shares
outstanding as at
April 30, 2004 45,332,742
=========================================================================
Options to purchase 404,950 and 1,242,600 common shares were outstanding as
at March 31, 2004 and 2003 respectively but were not included in the computation
of diluted income per share for the six-month periods ended March 31, 2004 and
2003 respectively 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 For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Fair value per option $8.71 $5.48 $6.34 $5.17
Assumptions used in Black-Scholes
option pricing model
Expected volatility 44% 45% 44% 45%
Risk-free interest rate 3.67% 4.50% 4.28% 4.46%
Expected option life (years) 6 6 6 6
Expected dividend - - - -
The Company's net income, basic income per share and diluted income per
share would have been on a pro-forma basis as follows:
For the three-month period
ended March 31
------------------------------------------------
2004 2003
------------------------ ----------------------
As As
reported Pro-forma reported Pro-forma
------------ ---------- ---------- ----------
$ $ $ $
Net income 12,421 11,282 8,933 8,090
Basic income per share 0.27 0.25 0.20 0.18
Diluted income per share 0.24 0.22 0.20 0.18
For the six-month period
ended March 31
------------------------------------------------
2004 2003
------------------------ ----------------------
As As
reported Pro-forma reported Pro-forma
------------ ---------- ---------- ----------
$ $ $ $
Net income 22,856 20,747 15,490 13,868
Basic income per share 0.51 0.46 0.35 0.31
Diluted income per share 0.48 0.43 0.34 0.30
8. Summary of Differences Between Generally Accepted Accounting Principles
in the United States and in Canada
The consolidated interim financial statements have been prepared in
accordance with U.S. GAAP which, in the case of the Company, conform in all
materials respects with Canadian GAAP, except as set forth below:
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Operations adjustments: $ $ $ $
Net income in accordance
with U.S. GAAP 12,421 8,933 22,856 15,490
Implicit interest on
convertible debt (1,023) (294) (2,049) (294)
Amortization of new product
acquisition costs (13) (13) (26) (26)
Income tax impact of the
above adjustments 5 5 10 10
-------------------------------------------------------------------------
Net earnings in accordance
with Canadian GAAP 11,390 8,631 20,791 15,180
=========================================================================
Earnings per share in accordance
with Canadian GAAP
Basic 0.25 0.19 0.46 0.34
Diluted 0.24 0.19 0.45 0.33
March 31, 2004 September 30, 2003
------------------------ ----------------------
U.S. Canadian U.S. Canadian
GAAP GAAP GAAP GAAP
------------ ---------- ---------- ----------
Balance sheet adjustments: $ $ $ $
Current assets 113,608 113,654 225,035 225,203
Investments 760 471 1,002 775
Property, plant and equipment 25,008 25,025 20,331 20,351
Intangible assets 410,520 422,908 265,423 277,837
Goodwill 27,550 29,342 27,550 29,342
Deferred debt issue expenses 3,718 3,718 4,233 4,233
Deferred income tax asset 2,206 2,239 1,775 1,775
Current liabilities 54,311 54,515 50,261 50,634
Long-term debt 128,790 108,893 129,474 107,527
Deferred income tax
liability 37,317 38,446 34,603 35,742
Shareholders' equity
Equity component of
convertible debt - 24,239 - 24,239
Capital stock 258,567 265,212 255,743 262,388
Retained earnings 86,490 84,002 63,634 63,211
Accumulated foreign currency
translation adjustments 17,895 22,050 11,634 15,775
AXCAN PHARMA INC.
Consolidated Balance Sheets
-------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
March September
31 30
2004 2003
---------- ----------
ASSETS (unaudited)
$ $
Current assets
Cash and cash equivalents 34,877 37,886
Short-term investments 4,682 133,112
Accounts receivable 29,828 19,665
Income taxes receivable 6,564 5,315
Inventories (Note 3) 28,091 20,163
Prepaid expenses and deposits 3,407 2,848
Future income taxes 6,205 6,214
-------------------------------------------------------------------------
Total current assets 113,654 225,203
Investments 471 775
Property, plant and equipment, net 25,025 20,351
Intangible assets, net (Note 4) 422,908 277,837
Goodwill, net 29,342 29,342
Deferred debt issue expenses, net 3,718 4,233
Future income taxes 2,239 1,775
-------------------------------------------------------------------------
597,357 559,516
=========================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 47,819 43,791
Income taxes payable 4,374 4,821
Instalments on long-term debt 1,569 1,528
Future income taxes 753 494
-------------------------------------------------------------------------
Total current liabilities 54,515 50,634
Long-term debt 108,893 107,527
Future income taxes 38,446 35,742
-------------------------------------------------------------------------
201,854 193,903
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Equity component of convertible debt (Note 5) 24,239 24,239
Capital stock 265,212 262,388
Retained earnings 84,002 63,211
Accumulated foreign currency translation adjustments 22,050 15,775
-------------------------------------------------------------------------
395,503 365,613
-------------------------------------------------------------------------
597,357 559,516
=========================================================================
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.
Consolidated Cash Flows
-------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited)
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Operations
Net earnings 11,390 8,631 20,791 15,180
Non-cash items
Implicit interest on
convertible debt 1,024 294 2,050 294
Non-controlling interest - (49) - (103)
Amortization of deferred
debt issue expenses 258 104 516 129
Other depreciation and
amortization 4,213 2,013 7,949 4,067
Loss (gain) on disposal of
property, plant and equipment (47) - 40 -
Foreign currency fluctuation (120) 156 (120) 151
Future income taxes 1,577 (534) 2,875 1,928
Changes in working
capital items:
Accounts receivable (2,317) (3,148) (11,181) 5,052
Income taxes receivable 1,262 29 (1,344) (628)
Inventories 203 1,077 (8,173) 2,065
Prepaid expenses
and deposits 437 978 (612) (463)
Accounts payable and
accrued liabilities 6,034 2,361 4,648 6,095
Income taxes payable (5,733) (210) (410) (766)
-------------------------------------------------------------------------
Cash flows from operating
activities 18,181 11,702 17,029 33,001
-------------------------------------------------------------------------
Financing
Long-term debt - 101,038 - 101,174
Repayment of long-term debt (408) (488) (950) (820)
Equity component of
convertible debt - 24,239 - 24,239
Issue of shares 2,389 56 2,824 114
Deferred debt issue
expenses - (4,500) - (4,500)
-------------------------------------------------------------------------
Cash flows from financing
activities 1,981 120,345 1,874 120,207
-------------------------------------------------------------------------
Investment
Acquisition of short-term
investments - (700) - (700)
Disposal of short-term
investments 2,030 5,992 128,390 60,740
Disposal of investments 1,101 143 1,239 272
Acquisition of property,
plant and equipment (4,151) (721) (6,514) (1,012)
Disposal of property,
plant and equipment 52 - 378 -
Acquisition of intangible
assets (14) - (145,604) (71,935)
Disposal of intangible assets - 205 - 205
-------------------------------------------------------------------------
Cash flows from investment
activities (982) 4,919 (22,111) (12,430)
-------------------------------------------------------------------------
Foreign exchange gain (loss)
on cash held in foreign
currencies (32) 149 199 397
-------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 19,148 137,115 (3,009) 141,175
Cash and cash equivalents,
beginning of period 15,729 24,065 37,886 20,005
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 34,877 161,180 34,877 161,180
=========================================================================
Additional information
Interest received 64 252 284 508
Interest paid 72 37 3,438 123
Income taxes paid 10,421 3,147 11,373 5,522
=========================================================================
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 accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
REVENUE 63,213 45,892 120,928 83,922
-------------------------------------------------------------------------
Cost of goods sold 14,972 10,833 29,544 19,908
Selling and administrative
expenses 20,021 16,140 38,538 30,927
Research and development
expenses 3,931 3,078 7,646 4,940
Depreciation and amortization 4,213 2,013 7,949 4,067
-------------------------------------------------------------------------
43,137 32,064 83,677 59,842
-------------------------------------------------------------------------
Operating income 20,076 13,828 37,251 24,080
-------------------------------------------------------------------------
Financial expenses 2,736 1,001 5,443 1,173
Interest income (58) (286) (249) (569)
Loss on foreign currency 264 19 348 227
-------------------------------------------------------------------------
2,942 734 5,542 831
-------------------------------------------------------------------------
Earnings before income taxes 17,134 13,094 31,709 23,249
Income taxes 5,744 4,463 10,918 8,069
-------------------------------------------------------------------------
NET EARNINGS 11,390 8,631 20,791 15,180
=========================================================================
Earnings per common share
Basic 0.25 0.19 0.46 0.34
Diluted 0.24 0.19 0.45 0.33
=========================================================================
Weighted average number
of common shares
Basic 45,188,011 44,878,289 45,105,013 44,872,564
Diluted 55,124,302 45,553,550 50,316,477 45,560,678
=========================================================================
AXCAN PHARMA INC.
Consolidated Retained Earnings
-------------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited) For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Balance, beginning of period 72,612 41,143 63,211 34,594
Net earnings 11,390 8,631 20,791 15,180
-------------------------------------------------------------------------
Balance, end of period 84,002 49,774 84,002 49,774
=========================================================================
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 Canadian 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 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. Product acquisition
On November 18, 2003, the Company acquired the rights to a group of products
from Aventis for a cash purchase price of $145,000,000. The acquired products
are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and
PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company acquired
the worldwide rights to PANZYTRAT enzyme product line from Abbott.
During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the six-month period ended March 31,
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 six-month period ended
March 31, 2004 were $5,315,913 ($6,108,286 in 2003), the Company only included
in its revenue an amount of $3,440,421 ($4,038,102 in 2003) representing the net
sales less cost of goods sold and other seller related expenses.
3. Inventories
March September
31 30
2004 2003
---------- ----------
$ $
Raw materials and packaging material 8,600 8,441
Work in progress 1,738 1,466
Finished goods 17,753 10,256
-------------------------------------------------------------------------
28,091 20,163
=========================================================================
4. Intangible assets
March 31, 2004
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and manufacturing rights with a:
Finite life 292,462 26,332 266,130
Indefinite life 169,196 12,418 156,778
-------------------------------------------------------------------------
461,658 38,750 422,908
=========================================================================
September 30, 2003
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and manufacturing rights with a:
Finite life 124,157 20,414 103,743
Indefinite life 186,512 12,418 174,094
-------------------------------------------------------------------------
310,669 32,832 277,837
=========================================================================
The cost of the product TAGAMET has been transferred from intangible assets
with an indefinite life to intangible assets with a finite life following
changes in the regulatory rules applicable to this product and resulting in the
modification of its useful life. The net cost of this product as of October 1,
2003, which amounted to $21,852,859, is therefore amortized over a 15-year
period.
5. Equity component of convertible debt
The Company issued convertible subordinated notes for $125,000,000 on March
5, 2003. According to the features of this debt, an amount of $24,238,899,
representing the estimated value of the right of conversion, was included in the
shareholders' equity as equity component of convertible debt and an amount of
$100,761,101 was included in the long-term debt as liability component of
convertible debt. As of September 30, 2003, implicit interest of 9.17% and
totalling $2,292,478 was accounted for and added to the liability component. For
the six-month period ended March 31, 2004, implicit interest in the amount of
$2,049,057 was accounted for and added to the liability component.
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 period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Revenue
Canada
Domestic sales 6,865 4,833 13,417 9,710
Foreign sales - - - -
United States
Domestic sales 41,958 27,650 79,769 52,860
Foreign sales 1,363 - 1,363 -
Europe
Domestic sales 11,898 12,107 24,693 18,866
Foreign sales 1,060 1,279 1,589 2,416
Other 69 23 97 70
-------------------------------------------------------------------------
63,213 45,892 120,928 83,922
=========================================================================
Operating income (loss)
Canada 335 (1,210) 2,842 665
United States 20,902 10,127 34,185 17,157
Europe (755) 5,245 995 6,912
Other (406) (334) (771) (654)
-------------------------------------------------------------------------
20,076 13,828 37,251 24,080
=========================================================================
Depreciation and amortization
Canada 471 379 1,195 740
United States 922 956 1,971 1,917
Europe 2,526 443 4,195 897
Other 294 235 588 513
-------------------------------------------------------------------------
4,213 2,013 7,949 4,067
=========================================================================
March September
31 30
2004 2003
---------- ----------
Property, plant, equipment, intangible $ $
assets and goodwill
Canada 40,920 19,311
United States 132,193 133,695
Europe 268,775 138,530
Other 35,387 35,994
-------------------------------------------------------------------------
477,275 327,530
=========================================================================
7. Financial information included in the consolidated statement of earnings
a) Financial expenses
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Interest on long-term debt 2,370 875 4,778 988
Bank charges 61 22 85 56
Financing fees 47 - 64 -
Amortization of deferred debt
issue expenses 258 104 516 129
-------------------------------------------------------------------------
2,736 1,001 5,443 1,173
=========================================================================
b) Other information
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
$ $ $ $
Non-controlling interest - (49) - (103)
Rental expenses 274 307 548 614
Depreciation of property,
plant and equipment 793 845 2,043 1,702
Amortization of
intangible assets 3,420 1,168 5,906 2,365
Investment tax credits
applied against research
and development expenses 104 175 322 418
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 period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Net earnings $ $ $ $
Basic 11,390 8,631 20,791 15,180
Interests on convertible
subordinated notes 2,024 - 2,024 -
-------------------------------------------------------------------------
Net earnings on a diluted
basis 13,414 8,631 22,815 15,180
=========================================================================
For the For the
three-month period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Weighted average number
of common shares
outstanding 45,188,011 44,878,289 45,105,013 44,872,564
Effect of dilutive
stock options 1,012,178 433,130 773,790 448,306
Effect of dilutive
purchase price - 242,131 - 239,808
Effect of dilutive
convertible subordinated
notes 8,924,113 - 4,437,674 -
Adjusted weighted average
number of common shares
outstanding 55,124,302 45,553,550 50,316,477 45,560,678
=========================================================================
Number of common shares
outstanding at the end
of the period 45,328,102 44,880,403
=========================================================================
Number of common shares
outstanding as at April 30, 2004 45,332,742
=========================================================================
Options to purchase 404,950 and 1,242,600 common shares were outstanding as
at March 31, 2004 and 2003 respectively but were not included in the computation
of diluted earnings per share for the six-month periods ended March 31, 2004 and
2003 respectively because the exercise price of the options was greater than the
average market price of the common shares.
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 period six-month period
ended March 31 ended March 31
------------------------------------------------
2004 2003 2004 2003
------------ ---------- ---------- ----------
Fair value per option $8.71 $5.48 $6.34 $5.17
Assumptions used in Black-Scholes
option pricing model
Expected volatility 44% 45% 44% 45%
Risk-free interest rate 3.67% 4.50% 4.28% 4.46%
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 three-month period
ended March 31
------------------------------------------------
2004 2003
------------------------ ----------------------
As As
reported Pro-forma reported Pro-forma
------------ ---------- ---------- ----------
$ $ $ $
Net earnings 11,390 10,251 8,631 7,788
Basic earnings per share 0.25 0.23 0.19 0.17
Diluted earnings per share 0.24 0.22 0.19 0.17
For the six-month period
ended March 31
------------------------------------------------
2004 2003
------------------------ ----------------------
As As
reported Pro-forma reported Pro-forma
------------ ---------- ---------- ----------
$ $ $ $
Net earnings 20,791 18,682 15,180 13,558
Basic earnings per share 0.46 0.41 0.34 0.30
Diluted earnings per share 0.45 0.41 0.33 0.30
INFORMATION: David W. Mims
Executive Vice President and Chief Operating Officer
Axcan Pharma Inc.
Tel: (205) 991-8085 ext. 3223
or Julie Thibodeau
Manager, Investor Relations
Axcan Pharma Inc.
Tel: (450) 467-2600 ext. 2062
Web: www.axcan.com