TSX SYMBOL (Toronto Stock Exchange): AXP
NASDAQ SYMBOL (NASDAQ National Market): AXCA
MONT-SAINT-HILAIRE, QC, Nov. 10 /PRNewswire-FirstCall/ - Axcan Pharma Inc. (NASDAQ: AXCA) (TSX: AXP), a leading gastroenterology specialty pharmaceutical company, today announced its operating results for the fourth quarter and fiscal year ended September 30, 2005. All amounts are stated in U.S. dollars.
Sales for the fourth quarter are the highest quarterly sales ever recorded in the history of Axcan. Total revenues for the three months ended September 30, 2005 were $67.0 million, compared with $60.9 million for the fourth quarter of 2004, an increase of 10.0%. Total revenues for the 12-month period ended September 30, 2005, were $251.3 million, compared with $243.6 million for 2004, an increase of 3.2%.
Fourth-quarter 2005 net income was $9.1 million, compared with net income of $13.3 million for the corresponding 2004 period. Net income for the year ended September 30, 2005 totaled $26.4 million, compared with net income of $48.7 million in 2004. Diluted earnings per share (EPS) for the fourth quarter of 2005 were $0.19, versus diluted earnings per share of $0.26 for the same period in 2004. Diluted EPS for the fiscal year 2005 were $0.56, compared with diluted earnings per share of $0.96 the prior year.
"Axcan's record fourth quarter and full year revenues reflect the strength of our current product portfolio. We are pleased to report that, for fiscal 2005, the products that we promote for which prescription data is available, showed overall prescription growth of approximately 8%," said Dr. Frank Verwiel, President and Chief Executive Officer of Axcan. "Based on our best estimate, at September 30, 2005, the overall wholesaler inventory levels were within our target range and relatively stable during the fourth quarter. Our models indicate that the total impact of changes in wholesaler inventories resulted in increased revenues of less than $1 million during the quarter. Going forward, we will continue to work on enhanced monitoring of wholesaler inventory levels. At the same time, our sales and marketing teams are committed to increasing prescriptions of our current products, both in North America and Europe," he added.
"Our ITAX development is currently on track with our previously disclosed, revised timeline and we are happy to report that randomization for the International Phase III trial has been completed with more than 500 patients randomized. We are taking all steps necessary to achieve our objective of submitting the New Drug Application with the U.S. Food and Drug Administration in the summer of 2006. In order to enhance our ability to meet this important milestone we have amongst others increased the number of sites in the North American trial by 50%. These sites are currently finalizing administrative procedures, and the first of these new sites have started screening and randomizing patients, while the remaining few are completing the final steps of their administrative procedures. To date, more than 400 patients have been randomized in the North American Phase III trial. We expect to release the overall outcome of the International Phase III trial during the first half of calendar 2006, followed shortly afterwards by that of the North American Phase III trial. Detailed results of the studies will most likely be subsequently presented at a major gastroenterology conference," Dr. Verwiel concluded.
PRODUCT DEVELOPMENT PIPELINE UPDATE
Axcan's product development efforts will remain focused on compounds and products that meet medical needs in the field of gastroenterology, have a competitive advantage and allow Axcan to leverage its infrastructure or build infrastructure in certain markets.
Management recently conducted an exhaustive review of Axcan's product pipeline in order to reprioritize projects and focus resources on highest value opportunities.
An update on Axcan's major projects follows:
ITAX
In addition to the milestones that have been reached in the Phase III trials, all patients required for the supplementary 6-month and 1-year safety studies have been enrolled. Furthermore, the clinical work on most of the additional Phase I studies to complement the New Drug Application to be submitted to the FDA is now complete. Data are currently being analyzed.
HELIZIDE
The Company has successfully qualified a manufacturer of biskalcitrate potassium (bismuth salt), a component of the HELIZIDE combination therapy for the eradication of the Helicobacter pylori bacterium. Final results of stability tests on the bismuth salt should be available shortly, which should allow Axcan to file an amendment to the New Drug Application during the second quarter of fiscal 2006.
SALOFALK 750 MG TABLETS
Axcan applied for a Supplemental New Drug Submission to the Therapeutic Products Directorate of Health Canada for a new 750-milligram mesalamine (5-ASA) tablet for the oral treatment of ulcerative colitis in Canada. The Company received, and responded to, questions in a non-approvable letter from Health Canada during the third quarter of fiscal 2005. Axcan anticipates a response in the first half of fiscal 2006.
CANASA / SALOFALK rectal gel
Axcan recently completed Phase III studies to confirm the efficacy and safety of a new mesalamine rectal gel in the treatment of distal ulcerative colitis. Data is currently being analyzed. The Company plans to submit regulatory filings for approvals in the United States and Canada in the first half of calendar 2006.
NCX-1000
Axcan and its partner, NicOx S.A., are developing NCX-1000, a patented, nitric oxide donating derivative of ursodiol, for the treatment of portal hypertension, a late-stage complication of chronic, advanced liver disease. The Phase I clinical development program, which is designed to demonstrate the tolerability and safety of NCX-1000, has been completed and the Company is pleased to report that results confirmed the safety profile of this drug. The protocol of a pilot, therapeutic proof-of-concept Phase IIa study was recently approved by the relevant Ethical Review Board. The center where the study will be conducted has started the identification of potential patients. This study should be completed by the end of fiscal 2006.
URSODIOL DISULFATE
Axcan completed a proof-of-concept study in rats to evaluate the effect of ursodiol disulfate on the development of colonic tumors. The Company initiated animal toxicity studies in the fourth quarter of fiscal 2004. Both acute and subchronic toxicity studies have been completed. The Company is pleased to announce that, based on the currently available data, the compound is safe and has no toxicity effect. Clinical Phase I studies should be initiated in the first half of fiscal 2006.
NMK 150
Axcan and Nordmark GmbH, a German pharmaceutical firm, are collaborating in the development of NMK 150, a new high protease pancrelipase preparation developed for the relief of pain in small duct chronic pancreatitis. It is expected that NMK 150 will enter dose-ranging preclinical studies in the first quarter of fiscal 2006 to confirm the absence of mucosal irritation associated with the use of high doses of the drug. Phase I clinical trials will begin in the second quarter of fiscal 2006.
REVENUE GUIDANCE FOR 2006
The following 2006 revenue guidance consists of projections, based upon various assumptions, all of which are subject to uncertainties and risks. Our assumptions include, but are not limited to: wholesaler inventory levels in fiscal 2006 remaining in the range of eight to twelve weeks; the absence of any changes to GAAP applicable to revenue recognition; foreign currency rates remaining stable throughout the year; reimbursement amounts and policies, related to our products, in all markets not changing materially during the year; the absence of any material change in the regulatory status of the Company's current products and the absence of new competitive products and generics entries.
Based on its best estimates, Axcan believes overall revenue for fiscal 2006 will be in the range of $260 to $270 million, which would represent growth of approximately 4% to 8% relative to fiscal 2005. Axcan's fiscal 2006 guidance does not include any potential new product launches, licensing or acquisitions; nor does it provide for revenue from completion of any potential partnering agreement for ITAX.
BOARD MEMBERSHIP
Mr. Daniel Labrecque, President and CEO of Rothschild Canada, has resigned his position on Axcan's Board of Directors, effective November 9, 2005. In order to maintain Axcan's corporate governance objectives of director independence, Mr. Labrecque decided to resign further to his firm being granted an advisory mandate by the Company, which would no longer allow him to qualify as an independent director under applicable rules and Company guidelines. Axcan is grateful for his contribution to its success during his tenure.
INTERIM FINANCIAL REPORT
This release includes, by reference, the fourth quarter interim financial report incorporating the financial statements in accordance with both U.S. and Canadian GAAP as well as the full Management Discussion & Analysis (MD&A) including the reconciliation to Canadian GAAP of the U.S. GAAP presentation. This interim report, including the MD&A and financial statements, will be filed with applicable U.S. and Canadian regulatory authorities.
The audited financial statements and MD&A for fiscal 2005 to be included in the Company's annual report, will be in accordance with U.S. GAAP and will include a reconciliation to Canadian GAAP of the U.S. GAAP presentation.
CONFERENCE CALL
Axcan will host a conference call at 8:30 A.M. EST, on November 11, 2005. Interested parties may also access the conference call by way of a webcast at http://www.axcan.com. The webcast will be archived for 90 days. The telephone numbers to access the conference call are (866) 250-4910 (Canada and United States) or 416-640-4127 (international). A replay of the call will be available until November 18, 2005. The telephone number to access the replay of the call is (416) 640-1917 code: 21159496.
ABOUT AXCAN PHARMA
Axcan is a leading specialty pharmaceutical company specialized in the field of gastroenterology. Axcan markets a broad line of prescription products sold for the treatment of symptoms in a number of gastrointestinal diseases and disorders such as inflammatory bowel disease, irritable bowel syndrome, cholestatic liver diseases and complications related to cystic fibrosis. Axcan's products are marketed by its own sales force in North America and Europe. Its common shares are listed on the Toronto Stock Exchange under the symbol "AXP" and on the NASDAQ National Market under the symbol "AXCA".
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995.
This release contains forward-looking statements, which reflect the Company's current expectations regarding future events. To the extent any statements made in this release contain information that is not historical, these statements are essentially forward-looking and are often identified by words such as "anticipate," "expect," "estimate," "intend," "project," "plan" and "believe." Forward-looking statements are subject to risks and uncertainties, including the difficulty of predicting FDA and other regulatory approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, new product development and launch, reliance on key strategic alliances, availability of raw materials, the regulatory environment, fluctuations in operating results, the protection of our intellectual property and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission and the Canadian Multijurisdictional Disclosure System.
The names CANASA, CARAFATE, DELURSAN, HELIZIDE, ITAX, LACTEOL, PANZYTRAT, SALOFALK, SULCRATE, ULTRASE and URSO appearing in this press release are trademarks of Axcan Pharma Inc. and its subsidiaries.
Management Discussion and Analysis (MD&A), Financial Statements and Notes
Attached
KEY PRODUCT INFORMATION FOR FISCAL 2005
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Sales ($US M) Sales Growth(1) Rx(2)Growth(1)
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NORTH AMERICA
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CANASA 28.7 - 25.5% 8.7%
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SALOFALK 14.5 22.9% 5.9%
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ULTRASE 36.0 0.3% 0%
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URSO 250/FORTE/DS 47.1 4.0% 14.3%
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CARAFATE/SULCRATE 38.5 12.2% 3.0%
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EUROPE
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LACTEOL 20.3 24.5% n/a
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PANZYTRAT 14.8 9.6% n/a
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DELURSAN 13.1 21.3% n/a
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(1) Compared with fiscal 2004
(2) IMS Prescription Data
PRODUCTS IN NORTH AMERICA
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CANASA
U.S. prescriptions for fiscal 2005 were up 8.7% compared to the same period in 2004. The increase was largely due to the impact of the 1000 mg dosage form launched in the second quarter of fiscal 2005.
Sales for fiscal 2005 declined 25.5%, compared to the same period in 2004 mainly due to the impact of wholesaler reductions in inventory levels during the year.
SALOFALK
Canadian prescriptions for fiscal 2005 were up 5.9% compared with the same period in 2004.
ULTRASE
U.S. prescriptions for ULTRASE for fiscal 2005 were flat, in line with the pancreatic enzyme market that increased 1%. The Company expects prescriptions to increase going forward, as ULTRASE was listed as a single source product in June 2005, which makes it less likely to be substituted by generics.
URSO 250/URSO FORTE
Total prescriptions in North America were up 14.3% compared with fiscal 2004. In the U.S. alone, prescriptions for fiscal 2005 were up 16.1% compared with the same period in 2004. During fiscal 2005, Axcan launched URSO Forte, a 500-mg dosage form of Ursodiol, which contributed to overall prescription growth.
In the U.S. alone, sales for fiscal 2005 were up 7.3% compared with the same period in 2004. The impact of wholesaler inventory reductions resulted in less than anticipated sales during the year.
CARAFATE/SULCRATE
U.S. prescriptions for fiscal 2005 were up 3% compared with fiscal 2004. This limited growth was due primarily to limited promotion of this line of products during the year. The Company recently launched a marketing campaign for CARAFATE suspension in the U.S. market.
Sales growth was 12.2%, due mainly to the impact of a price increase in March 2005.
PRODUCTS IN EUROPE
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LACTEOL
Sales of LACTEOL increased 24.5% compared to the prior year. In local currency, the increase was 18.4%.
PANZYTRAT
Sales of PANZYTRAT increased 9.6% compared to the prior year In local currency, the increase was 5.1%.
DELURSAN
Sales of DELURSAN increased 21.3% compared to the prior year. In local currency, the increase was 15.1%.
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 speciality pharmaceutical company concentrating in the field of gastroenterology, with operations in North America and Europe. Axcan markets and sells pharmaceutical products used in the treatment of a variety of gastrointestinal diseases and disorders. The Company seeks to expand its gastrointestinal franchise by in-licensing products and acquiring products or companies, as well as developing additional products and expanding indications for existing products. Axcan's current products include ULTRASE, PANZYTRAT and VIOKASE for the treatment of certain gastrointestinal symptoms, related to cystic fibrosis in the case of ULTRASE and PANZYTRAT; URSO 250, URSO FORTE and DELURSAN for the treatment of certain cholestatic liver diseases; SALOFALK and CANASA for the treatment of certain inflammatory bowel diseases; and PHOTOFRIN for the treatment of certain types of gastrointestinal cancers and other conditions. Axcan has a number of pharmaceutical projects in all phases of development including ITAX for the treatment of functional dyspepsia. In the first quarter of fiscal 2004, Axcan filed a supplemental New Drug Submission for a new 750-milligram Mesalamine (5-ASA) tablet for the oral treatment of ulcerative colitis. On March 24, 2005, Axcan received a non-approval letter from the Therapeutic Products Directorate of Health Canada containing a list of questions and comments for both the clinical and Chemistry, Manufacturing and Controls aspects of the original New Drug Submission. Axcan responded to all questions in the non-approvable letter during the third quarter of fiscal 2005 and expects to obtain a final response in the first half of fiscal 2006.
Axcan reported revenue of $67.0 million, operating income of $13.9 million and net income of $9.1 million for the three-month period ended September 30, 2005. For the year ended September 30, 2005, revenue was $251.3 million, operating income was $40.4 million and net income was $26.4 million. Revenue from sales of Axcan's products in the United States was $159.7 million (63.5% of total revenue) for the year ended September 30, 2005, compared to $166.7 million (68.4% of total revenue) for fiscal 2004. In Canada, revenue was $34.4 million (13.7% of total revenue) for the year ended September 30, 2005, compared to $28.0 million (11.5% of total revenue) for fiscal 2004. In Europe, revenue was $57.1 million (22.7% of total revenue) for the year ended September 30, 2005, compared to $48.7 million (20.0% of total revenue) for fiscal 2004.
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 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 some of its products), research and development expenses as well as depreciation and amortization.
Axcan's annual and quarterly operating results are primarily affected by three factors: the level of acceptance of Axcan's products by gastroenterologists and their patients; the extent of Axcan's control over the marketing of its products and wholesaler buying patterns. 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 and disclosure of contingent assets and liabilities as of the date of 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, the expected cash flows used in evaluating long-lived assets, goodwill and investments for impairment, contingency provisions and other accrued charges. These estimates were made using the historical information and various other factors related to each circumstance available to management. The Company reviews all significant estimates affecting the financial statements on a recurring basis and record the effect of any adjustments when necessary. Actual results could differ from those estimates based upon future events, which could include, among other risks, changes in regulations governing the manner in which we sell our products, changes in health care environment and managed care consumption patterns.
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. Provisions for sales discounts and estimates for chargebacks, managed care and Medicaid rebates and products returns are established as a reduction of product sales revenues at the time such revenues are recognized. These revenue reductions are established by us as our best estimate at the time of sale based on historical experience adjusted to reflect known changes in the factors that impact such reserves. These revenue reductions are generally reflected as an addition to accrued expenses.
We do not provide any forms of price protection to our wholesale customers and permit product returns only if the product is returned within 12 months of expiration. Credit for returns is issued to the original purchaser at current net pricing less 10 %. Accrued liabilities include reserves of $7.5 million and $6.1 million as of September 30, 2005 and September 30, 2004 respectively for estimated products returns.
In the United States, we establish and maintain reserves for amounts payable by us to managed care organizations and state Medicaid programs for the reimbursement of portions of the retail price of prescriptions filled that are covered by the respective programs. We also establish and maintain reserves for amounts payable by us to wholesale distributors for the difference between their regular sale price and the contract price for the products sold to our contract customers. The amounts estimated to be paid relating to products sold are recognized as revenue reductions and as additions to accrued expenses at the time of sale based on our best estimate of the products utilization by these managed care and state Medicaid patients and sales to our contract customers, using historical experience adjusted to reflect known changes in the factors that impact such reserves. Accrued liabilities include reserves of $4.8 million and $2.8 million as of September 30, 2005 and September 30, 2004, respectively for estimated rebates and chargebacks.
If the levels of chargebacks, managed care and Medicaid rebates, product returns and discounts fluctuate significantly and/or if our estimates do not adequately reserve for these reductions of net product revenues, our reported revenue could be negatively affected.
Goodwill and Intangible Assets
We have in the past made acquisition of products and businesses that include goodwill, trademarks, licence agreements and other identifiable intangible assets. Axcan's goodwill and intangible assets are stated at cost, less accumulated amortization. Since October 1, 2001, the Company does not amortize goodwill and intangible assets with an indefinite life. However, management assess the impairment of goodwill and intangible assets at least annually and whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable, by comparing the carrying value of the unamortized portion of goodwill and intangible assets to the future benefits of the Company's activities or expected sales of pharmaceutical products. Should there be a permanent impairment in value or if the unamortized balance exceeds recoverable amounts, a write-down will be recognized, for the current year. To date, Axcan has not recognized any significant impairment in value.
Intangible assets with finite life are amortized over their estimated useful lives according to the straight-line method at annual rates varying from 4 to 15 %. The straight-line method of amortization is used because it reflects, in the opinion of management, the pattern in which the intangible assets with finite life are used. In determining the useful life of intangible assets, the Company considers many factors including the intention of management to support the asset on a long term basis by maintaining the level of expenditure necessary, the use of the asset, the existence and expiration date of a patent, the existence of a generic or competitor and any legal or regulatory provisions that could limit the use of the asset.
As a result of our acquisitions, we included $27.5 million of goodwill on our consolidated balance sheets as of September 30, 2005 and September 30, 2004.
As a result of our acquisitions of products rights and other identifiable intangible assets, we included $388.9 million and $407.9 million as net intangible assets on our consolidated balance sheets as of September 30, 2005 and September 30, 2004. Estimated annual amortization expenses for intangible assets with a finite life, which have a weighted-average remaining amortization period of approximately 17 years, for the next five fiscal years is approximately $16.6 million.
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 Pharma S.A. ("Aventis"). The $145.0 million purchase price was paid out of Axcan's cash on hand. These products are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market (collectively, "AVAX" product line).
On August 29, 2003, the Company acquired an exclusive license for North America, the European Union and Latin America, from Abbott Laboratories ("Abbott") to develop, manufacture and market ITAX, a patented gastroprokinetic drug. Under the terms of this license agreement, the Company paid $10.0 million in cash and assumed $2.0 million in research contract liability.
On December 10, 2002, the Company acquired the rights to the Ursodiol 250 mg tablets DELURSAN for the French market from Aventis, for a cash purchase price of $22.8 million.
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 certain of these acquisition transactions acts as selling agent for the management of these products. For the year ended September 30, 2005 sales of some of these products were still managed in part by the sellers. Axcan includes in its revenue the net sales from such products less corresponding cost of goods sold and other seller related expenses. Consequently, although net sales of such products for the year ended September 30, 2005 were $2,431,789 ($7,667,940 in 2004), the Company only included in its revenue an amount of $949,866 ($4,685,673 in 2004) 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 three-month For the years
periods ended ended
September 30, September 30,
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2005 2004 2005 2004
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% % % %
Revenue 100.0 100.0 100.0 100.0
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Cost of goods sold 27.3 18.2 28.5 22.2
Selling and administrative
expenses 31.5 30.2 34.2 31.4
Research and development
expenses 12.2 11.1 12.7 8.2
Depreciation and
amortization 8.2 6.8 8.6 6.7
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79.2 66.3 84.0 68.5
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Operating income 20.8 33.7 16.0 31.5
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Financial expenses 2.8 3.0 2.8 2.8
Interest income (1.0) (0.6) (0.5) (0.3)
Loss (gain) on foreign
exchange 0.2 (0.3) (0.1) (0.1)
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2.0 2.1 2.2 2.4
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Income before income
taxes 18.8 31.6 13.8 29.1
Income taxes 5.1 9.7 3.3 9.1
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Net income 13.7 21.9 10.5 20.0
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Periods ended September 30, 2005 compared to periods ended
September 30, 2004
Revenue
For the three-month period ended September 30, 2005, revenue was $67.0 million compared to $60.9 million for the corresponding quarter of the preceding fiscal year, an increase of 10.0% primarily resulting from increased sales in Canada and Europe. For the year ended September 30, 2005, revenue was $251.3 million compared to $243.6 million for the preceding fiscal year , an increase of 3.2%. This increase in revenue primarily resulted from higher sales in Canada and Europe partly offset by lower sales in the United States following an announced intention from major wholesalers to reduce their inventory level. The end-customer prescription demand continues to show positive growth for most of our products sold in the United States which leads us to believe that this reduction in revenue is only temporary and that sales should increase when our major wholesalers reach their targeted inventory level.
Revenue is stated net of deductions for products returns, chargebacks, contract rebates, discounts and other allowances of $39.4 million (13.6% of gross revenue) in 2005, and $28.8 million (10.6 % of gross revenue) in 2004.This increase of total deductions as a percentage of gross revenue is primarily due to the increase in returns and chargebacks during fiscal 2005.
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 $7.2 million (64.9%) to $18.3 million for the three-month period ended September 30, 2005 from $11.1 million for the corresponding quarter of the preceding fiscal year. As a percentage of revenue, cost of goods sold for the quarter ended September 30, 2005 increased as compared to the corresponding quarter of the preceding fiscal year from 18.2% to 27.3%. This increase in cost of goods sold as a percentage of revenue was due mainly to an increase in sales of products with a lower margin and a reduction in sales of products with a higher margin. For the year ended September 30, 2005, cost of goods sold increased $17.3 million (31.9%) to $71.5 million from $54.2 million for the preceding fiscal year. As a percentage of revenue, cost of goods sold for the year ended September 30, 2005 increased as compared to the preceding fiscal year from 22.2% to 28.5%. This increase in the cost of goods sold as a percentage of revenue was due mainly to the write-down of inventory of finished goods with less than twelve months of shelf life, an increase in sales of products with a lower margin and a reduction in sales of products with a higher margin. Cost of goods sold includes $4.7 million for the year ended September 30, 2005 related to the write-down of inventory of finished goods for one product line sold in the United States.
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 $2.7 million (14.7%) to $21.1 million for the three-month period ended September 30, 2005 from $18.4 million for the corresponding quarter of the preceding fiscal year. For the year ended September 30, 2005, selling and administrative expenses increased $9.6 million (12.6%) to $86.0 million from $76.4 million for the preceding fiscal year. This increase is mainly due to an increase in our sales force in preparation for additional products to be marketed, including ITAX, additional marketing efforts on our current products, increased distribution cost following the new agreement with a major wholesaler and consulting fees for IT implementation and regulatory compliance.
Research and development expenses
Research and development expenses consist principally of fees paid to outside parties that Axcan uses to conduct clinical studies and to submit governmental approval applications on its behalf as well as the salaries and benefits paid to its personnel involved in research and development projects. Research and development expenses increased $1.4 million (20.6%) to $8.2 million for the quarter ended September 30, 2005 from $6.8 million for the corresponding quarter of the preceding fiscal year. For the year ended September 30, 2005, research and development expenses increased $12.0 million (60.3%) to $31.9 million from $19.9 million for the preceding fiscal year. This increase is mainly due to the phase III development of ITAX, acquired in August 2003, for the treatment of functional dyspepsia. The phase III is the most expensive part of clinical development.
Depreciation and amortization
Depreciation and amortization consists principally of the amortization of intangible assets with a finite life. Intangible assets include trademarks, trademark licenses and manufacturing rights. Depreciation and amortization increased $1.3 million (31.0%) to $5.5 million for the quarter ended September 30, 2005 from $4.2 million for the corresponding quarter of the preceding fiscal year. For the year ended September 30, 2005, depreciation and amortization increased $5.1 million (31.1%) to $21.5 million from $16.4 million for 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 PANZYTRAT which was reclassified from intangible assets with an indefinite life to intangible assets with a finite life on October 1, 2004.
Financial expenses
Financial expenses consist principally of interest and fees paid in connection with money borrowed for acquisitions. Financial expenses remained stable at $1.8 million for the quarter ended September 30, 2005 compared to the corresponding quarter of the preceding fiscal year. For the year ended September 30, 2005, financial expenses increased $0.2 million (2.9%) to $7.1 million from $6.9 million for the preceding fiscal year.
Income Taxes
Income taxes amounted to $3.4 million for the quarter ended September 30, 2005, compared to $5.9 million for the quarter ended September 30, 2004. The effective tax rates were 27.2% for the quarter ended September 30, 2005 and 30.7% for the quarter ended September 30, 2004. The decrease in effective tax rate is mainly due to the research and development tax credits, deducted from the income taxes expense, of $0.8 million for the quarter ended September 30, 2005 compared to $0.5 million for the corresponding quarter of the preceding fiscal year. For the year ended September 30, 2005, income taxes amounted to $8.4 million compared to $22.3 million for the preceding fiscal year. The effective tax rates were 24.1% for the year ended September 30, 2005 and 31.4% for the year ended September 30, 2004. The decrease in effective tax rate is mainly due to the research and development tax credits, deducted from the income taxes expense, of $2.6 million for the year ended September 30, 2005 compared to $1.2 million for the preceding fiscal year.
The income taxes expense and corresponding tax rate are summarized in the following tables:
Income taxes expense For the three-month For the years
periods ended ended
September 30 September 30
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2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Income taxes 4,191 6,423 11,032 23,416
Research and development
tax credits (768) (519) (2,619) (1,163)
-------------------------------------------------------------------------
Income taxes expense 3,423 5,904 8,413 22,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income taxes rate For the three-month For the years
periods ended ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
% % % %
Income taxes 33.3 33.4 31.7 33.0
Research and development
tax credits (6.1) (2.7) (7.6) (1.6)
-------------------------------------------------------------------------
Effective taxes rate 27.2 30.7 24.1 31.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income
Net income was $9.1 million or $0.20 of basic income per share and $0.19 and diluted income per share, for the quarter ended September 30, 2005, compared to $13.3 million or $0.29 of basic income per share and $0.26 of diluted income per share for the corresponding quarter of the preceding year. The reduction in net income for the quarter resulted mainly from an increase in revenue of $6.1 million, an increase in operating expenses totalling $12.7 million and a decrease in income taxes of $2.5 million. The weighted average number of common shares outstanding used to establish the basic per share amounts increased from 45.6 million for the quarter ended September 30, 2004 to 45.7 million for the quarter ended September 30, 2005, 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 decreased from 55.2 million for the quarter ended September 30, 2004 to 55.0 million for the quarter ended September 30, 2005.
Net income was $26.4 million or $0.58 of basic income per share and $0.56 of diluted income per share, for the year ended September 30, 2005, compared to $48.7 million or $1.08 of basic income per share and $0.96 of diluted income per share for the preceding year. The reduction in net income for the year ended September 30, 2005 resulted mainly from an increase in revenue of $7.7 million, an increase in operating expenses totaling $44.1 million and a decrease in income taxes of $13.8 million.
Canadian GAAP
The differences (in thousands of dollars) between U.S. and Canadian GAAP which affect net income for the periods ended September 30, 2005 and 2004 are summarized in the following table:
For the three-month For the years
periods ended ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Net income in accordance
with U.S. GAAP 9,149 13,320 26,425 48,728
Implicit interest on
convertible debt (1,205) (1,103) (4,631) (4,234)
Stock-based compensation
expense (1,062) - (4,589) -
Amortization of net
product acquisition
costs (14) (14) (54) (54)
Income tax impact of
the above adjustments 6 5 337 20
-------------------------------------------------------------------------
Net earnings in accordance
with Canadian GAAP 6,874 12,208 17,488 44,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On March 5, 2003, the Company closed an offering of $125.0 million aggregate principal amount of 4.25% 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 year ended September 30, 2005, implicit interest in the amount of $4,630,987 ($4,233,768 in 2004) was accounted for and added to the liability component.
Since October 1, 2004, under Canadian GAAP, the effect of stock-based compensation has to be accounted for using the fair value method.
Under Canadian GAAP, research and development expenses are stated net of related tax credits which generally constitute between 5% and 10% 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 $59.7 million (157.5%) to $97.6 million at September 30, 2005 from $37.9 million at September 30, 2004. As of September 30, 2005, working capital was $132.0 million, compared to $87.7 million at September 30, 2004. These increases are mainly due to the cash flows from operating activities of the year ended September 30, 2005.
Total assets increased $31.8 million (5.2%) to $641.4 million as of September 30, 2005 from $609.6 million as of September 30, 2004. Shareholders' equity increased $25.5 million (6.5%) to $417.6 million as of September 30, 2005 from $392.1 million as of September 30, 2004.
Historically, Axcan has financed research and development, operations, acquisitions, milestone payments and investments out of the proceeds of public and private sales of its equity and convertible debt, cash flows from operating activities, and loans from joint venture partners and financial institutions. Since it went public in Canada in December 1995, Axcan has raised approximately $243.0 million from sales of its equity and $125.0 million from sales of convertible notes. Furthermore, Axcan has borrowed and since repaid funds from financial institutions to finance the acquisition of Axcan Scandipharm Inc. and from Schwarz Pharma Inc., a former joint venture partner, to finance the acquisition of Axcan URSO.
Axcan's research and development expenses totalled $19.9 million for fiscal 2004 and $31.9 million for fiscal 2005. 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 an increase in funds provided by operations. However, Axcan regularly reviews product and other acquisition opportunities and may therefore require additional debt or equity financing. Axcan cannot be certain that such additional financing, if required, will be available on acceptable terms, or at all.
Line of credit
Since September 22, 2004, the Company has had an amended credit facility with a banking syndicate. The amended credit facility consists in a $125.0 million 364-day extendible revolving facility with a two-year term-out option maturing on September 21, 2008.
The credit facility is secured by a first priority security interest on all present and future acquired assets of the Company and its material subsidiaries, and provides for the maintenance of certain financial ratios. Among the restrictions imposed by the credit facility is a covenant limiting cash dividends, share repurchases (other than redeemable shares issued in connection with a permitted acquisition) and similar distributions to shareholders to 10% of the Company's net income for the preceding fiscal year. As of September 30, 2005, Axcan was in compliance with all covenants under the credit facility.
The interest rate varies, depending on the Company's leverage, between 25 basis points and 100 basis points over Canadian prime rate or U.S. base rate, and between 125 basis points and 200 basis points over the LIBOR rate or bankers acceptances. The credit facility may be drawn in U.S. dollars, in Canadian dollar or in Euros equivalents. As of September 30, 2005, there was no amount outstanding under this credit facility.
Convertible subordinated notes and other long-term debt
Long-term debt, including instalments due within one year, totaled $127.8 million as of September 30, 2005 compared to $129.7 million as of September 30, 2004. As of September 30, 2005, the long-term debt included, $1.3 million of bank loans, $1.5 million of obligations under capital leases contracted by Axcan's French subsidiary and the $125.0 million 4.25% convertible subordinated notes due 2008, which were issued on March 5, 2003.
The notes are convertible into 8,924,113 common shares during any quarterly conversion period if the closing price per share for at least 20 consecutive trading days during the 30 consecutive trading-day period ending on the first day of the conversion period exceeds 110% of the conversion price in effect on that thirtieth trading day. The notes are also convertible during the five business-day period following any 10 consecutive trading-day period in which the daily average of the trading prices for the notes was less than 95% of the average conversion value for the notes during that period. The noteholders may also convert their notes upon the occurrence of specified corporate transactions or if the Company has called the notes for redemption. On or after April 20, 2006, the Company may at its option, redeem the notes, in whole or in part at redemption prices varying from 101.70% to 100.85% of the principal amount plus any accrued and unpaid interest to the redemption date. The notes also include provisions for the redemption of all the notes for cash at the option of the Company following certain changes in tax treatment.
Cash Flows
Cash flows from operating activities increased $28.3 million from $5.6 million of cash used by operating activities for the quarter ended September 30, 2004 to $22.7 million of cash provided by operating activities for the quarter ended September 30, 2005. Cash flows from operating activities increased $44.3 million from $23.4 million of cash provided by operating activities for the year ended September 30, 2004 to $67.7 million for the year ended September 30, 2005. This increase is mainly due to the fact that the inventories remained relatively stable and the accounts receivable decreased by $8.6 million during the year ended September 30, 2005 compared to the previous fiscal year when they increased by $45.0 million following the increase in sales and the acquisition of new products. Cash flows used by financing activities were $0.3 million for the quarter ended September 30, 2005 and $1.4 million for the year ended September 30, 2005. Cash flows used for investment activities for the quarter ended September 30, 2005 were $8.1 million mainly due to the net cash used for the acquisition of property, plant and equipment for $1.2 million and the acquisition of short term investments for $6.9 million. Cash used by investment activities for the year ended September 30, 2005 were $8.1 million mainly due to the net acquisition of short-term investments of $1.7 million plus the cash used for the acquisition of property, plant and equipment for $6.3 million. Cash flows used for investment activities for the year ended September 30, 2004 were $42.7 million mainly due to the net cash used for the acquisition of intangible assets for $149.6 million and property, plant and equipment for $13.4 million with the net proceeds from the disposal of short-term investments.
Off-Balance Sheet Arrangements
Axcan does not have any transactions, arrangements and other relationships with unconsolidated entities that are likely to affect its operating results, its liquidity or capital resources. Axcan has no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, engage in leasing, hedging, research and development services, or other relationships that expose the Company to liability that is not reflected on the face of the consolidated financial statements.
Contractual Obligations
The following table summarizes Axcan's significant contractual obligations (in thousands of dollars) as of September 30, 2005 and the effect such obligations are expected to have on our liquidity and cash flows in future years. This table excludes amounts already recorded on the balance sheet as current liabilities at September 30, 2005 or certain other purchase obligations as discussed below:
For the years ending September 30,
-----------------------------------------------------------
2010 and
2006 2007 2008 2009 thereafter
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
Long-term
debt 1,497 1,021 125,239 72 -
Operating
leases 1,314 416 196 41 6
Other
commitments 595 475 716 250 -
----------- ----------- ----------- ----------- -----------
3,406 1,912 126,151 363 6
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Purchase orders for raw materials, finished goods and other goods and services are not included in the above table. Management is not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purpose of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Axcan's purchase orders are based on current needs and are fulfilled by our vendors with relatively short timetables. The Company does not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed its short-term expected requirements. Axcan also enters into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty except for a sales management services contract included in the above table. As milestone payments are primarily contingent on receiving regulatory approval for products under development, they do not have defined maturities.
The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services, or for some obligations, changes to agreed-upon amounts.
Effect of recently issued U.S. accounting pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and Accounting Principles Board Opinion ("APB") No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB No. 25. As allowed by SFAS No. 123, the Company elected to continue to utilize the accounting method prescribed by APB No. 25 and applies the disclosure requirements of SFAS No. 123.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". SFAS No. 123R requires all entities to recognize compensation cost for share- based awards, including options, granted to employees. The Statement eliminated the ability to account for share-based compensation transactions using APB No. 25, "Accounting for Stock Issued to Employees", and generally require instead that such transaction be accounted for using a fair-value based method. Public companies are required to measure stock-based compensation classified as equity by valuing the instrument the employee receives at its grant-date fair value. Currently such awards are measured at intrinsic value under both APB No. 25 and SFAS 123, "Accounting for Stock- Based Compensation". The Company will apply the Statement for fiscal 2006 using the modified prospective transition approach and expects the implementation to have a material impact on the consolidated balance sheets and results of operations. For the historical impact of Stock-based compensation expense using the fair-value based method, see note 8 of the September 30, 2005 interim financial statement.
During the September 2004 meeting of the Emerging Issues Task Force ("EITF") a consensus was reached on EITF Issue 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share". The EITF 04-8 requires Companies to include certain convertible debt and equity instruments, that were previously excluded, into their calculations of diluted earnings per share. The EITF concluded that Issue 04-8 is effective for periods ending after December 15, 2004, and must be applied by restating all periods during which time the applicable convertible instruments were outstanding. The 4.25% convertible subordinated notes issued in 2003, are therefore included in the Company's diluted income per share calculation. For the year ended September 30, 2004, the weighted number of common shares used in the calculation of the diluted income per share has been increased from 52,787,964 to 55,031,184 and the diluted income per share has been reduced from $ 0.98 to $ 0.96. This change in accounting policies did not have an impact on the diluted income per share for the year ended September 30, 2003.
Earnings coverage
Under U.S. GAAP, for the twelve months ended September 30, 2005, our interest requirements amounted to $6.2 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 6.2 to one.
Under Canadian GAAP, for the twelve months ended September 30, 2005, our interest requirements amounted to $11.3 million on a pro-forma basis, and our earnings coverage ratio was 3.6 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 $5.1 million as required by Canadian GAAP.
Risk Factors
Axcan is exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. Axcan does not use derivative financial instruments for speculative or trading purposes. Axcan does not use off-balance sheet financing or similar special purpose entities. Inflation has not had a significant impact on Axcan's results of operations.
Foreign Currency Risk
Axcan operates internationally; however, a substantial portion of the revenue and expense activities and capital expenditures are transacted in U.S. dollars. Axcan's exposure to exchange rate fluctuation is reduced because, in general, Axcan's revenues denominated in currencies other than the U.S. dollar are matched by a corresponding amount of costs denominated in the same currency. Axcan expects this matching to continue.
Interest Rate Risk
The primary objective of Axcan's investment policy is the protection of capital. Accordingly, investments are made in high-grade government and corporate securities with varying maturities, but typically, less than 180 days. Therefore, Axcan does not have a material exposure to interest rate risk, and a 100 basis-point adverse change in interest rates would not have a material effect on Axcan's consolidated results of operations, financial position or cash flows. Axcan is exposed to interest rate risk on borrowings under the credit facility. The credit facility bears interest based on LIBOR, U.S. dollar base rate, Canadian dollar prime rate, or Canadian dollar Bankers' Acceptances. Based on projected advances under the credit facility, 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. To the extent that any statements in this document contain information that is not historical, the statements are essentially forward-looking and are often identified by words such as "anticipate", "expect", "estimate", "intend", "project", "plan" and "believe". These forward-looking statements include, but are not limited to, the expected sales growth of the Company's products and the expected increase in funds from operations resulting from the Company's research and development expenditures. The forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including but not limited to the successful and timely completion of clinical studies, the difficulty of predicting FDA or other regulatory approvals, the commercialization of a drug or therapy after regulatory approval is received, the difficulty of predicting acceptance and demand for pharmaceutical products, the impact of competitive products and pricing, new product development and launch, the availability of raw materials, the protection of our intellectual property, fluctuations in our operating results and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission and the Canadian Securities Commissions. The reader is cautioned not to rely on these forward looking statements. The Company disclaims any obligation to update these forward-looking statements.
This MD&A has been prepared as of November 8, 2005. Additional information on the Company is available through regular filing of press releases, quarterly financial statements and Annual Information Form on the SEDAR website.
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, except share related data
September September
30, 30,
2005 2004
----------- -----------
(unaudited)
ASSETS $ $
Current assets
Cash and cash equivalents 79,969 21,979
Short-term investments available for sale 17,619 15,922
Accounts receivable 37,587 46,585
Income taxes receivable 8,351 9,196
Inventories (Note 4) 36,016 37,270
Prepaid expenses and deposits 1,771 3,494
Deferred income taxes 9,044 4,586
-------------------------------------------------------------------------
Total current assets 190,357 139,032
Property, plant and equipment, net 31,673 31,252
Intangible assets, net (Note 5) 388,921 407,875
Goodwill, net 27,467 27,467
Deferred debt issue expenses, net 2,577 3,088
Deferred income taxes 412 930
-------------------------------------------------------------------------
Total assets 641,407 609,644
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 52,990 47,917
Income taxes payable 3,247 731
Instalments on long-term debt 1,497 1,778
Deferred income taxes 602 936
-------------------------------------------------------------------------
Total current liabilities 58,336 51,362
Long-term debt 126,332 127,916
Deferred income taxes 39,135 38,290
-------------------------------------------------------------------------
Total liabilities 223,803 217,568
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock
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; 45,682,175 and 45,562,336
issued and outstanding as at September 30,
2005 and 2004, respectively 261,714 260,643
Retained earnings 138,787 112,362
Contributed surplus 1,329 -
Accumulated other comprehensive income 15,774 19,071
-------------------------------------------------------------------------
Total shareholders' equity 417,604 392,076
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 641,407 609,644
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
Common shares (number)
Balance, beginning
of period 45,674,674 45,556,032 45,562,336 45,004,320
Exercise of options 7,501 6,304 119,839 558,016
-------------------------------------------------------------------------
Balance, end of period 45,682,175 45,562,336 45,682,175 45,562,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ $ $ $
Common shares
Balance, beginning
of period 261,531 260,572 260,643 255,743
Exercise of options 183 71 1,071 4,900
-------------------------------------------------------------------------
Balance, end of period 261,714 260,643 261,714 260,643
-------------------------------------------------------------------------
Retained earnings
Balance, beginning
of period 129,638 99,042 112,362 63,634
Net income 9,149 13,320 26,425 48,728
-------------------------------------------------------------------------
Balance, end of period 138,787 112,362 138,787 112,362
-------------------------------------------------------------------------
Contributed surplus
Balance, beginning
of period 1,329 - - -
Income tax deductions on
stock options exercise - - 1,329 -
-------------------------------------------------------------------------
Balance, end of period 1,329 - 1,329 -
-------------------------------------------------------------------------
Accumulated other
comprehensive income
Balance, beginning
of period 16,003 16,834 19,071 11,634
Foreign currency
translation adjustments (229) 2,237 (3,297) 7,437
-------------------------------------------------------------------------
Balance, end of period 15,774 19,071 15,774 19,071
-------------------------------------------------------------------------
Total shareholders' equity 417,604 392,076 417,604 392,076
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive income
Foreign currency
translation adjustments (229) 2,237 (3,297) 7,437
Net income 9,149 13,320 26,425 48,728
-------------------------------------------------------------------------
Total comprehensive income 8,920 15,557 23,128 56,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See the accompanying notes to the Consolidated Financial Statements.
These interim financial statements should be read in conjunction with the
annual Consolidated Financial Statements.
