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Axcan Reports Fourth Quarter and Fiscal 2004 Results-Revenue Up 36% to $243.6 Million and Diluted EPS Up 34% to $0.98


Nov 10, 2004 - 12:00 ET

MONT-SAINT-HILAIRE, QUEBEC--Axcan Pharma Inc.
("Axcan" or the "Company") announced today operating results for the fourth
quarter and fiscal year ended September 30, 2004 (all amounts stated in U.S.
dollars). For the quarter and the fiscal year ended September 30, 2004, the
Company reported revenue growth of 25% to $60.9 million and 36% to
$243.6 million respectively compared to the same periods in fiscal 2003. Net
income was $13.3 million, or $0.26 per share (fully diluted) and
$48.7 million, or $0.98 per share (fully diluted) for the fourth quarter and
fiscal year 2004 respectively. Fiscal 2004 net income represents a 46%
increase over fiscal 2003 net income before takeover-bid expenses, acquired 
in-process research and related income taxes of $33.4 million (a non U.S. GAAP
measure as defined in the attached Management's Discussion and Analysis of
financial condition and results of operations), and fiscal 2004 earnings per
share (fully diluted) are 34% over fiscal year 2003 earnings per share (fully
diluted) excluding takeover-bid expenses, acquired in-process research and
related income taxes.

    "During fiscal 2004, Axcan showed consistency and commitment in executing
its growth strategy, and this translated into strong financial performance,"
stated Léon F. Gosselin, President and Chief Executive Officer of Axcan. "We
are very pleased to have met our corporate objectives for the year and believe
we are now poised to seize the tremendous opportunities that await Axcan as it
enters a new era of strong future growth."

    HIGHLIGHTS OF THE QUARTER AND FISCAL 2004

    Axcan's fourth quarter marks five full years of strong growth in revenue
and earnings. The Company continues to successfully develop its core
gastroenterology franchises by extending its product lines, maintaining market
share for its key products and increasing global market penetration. The
Company believes that it is currently well positioned for strong future growth
with a solid core of gastrointestinal franchises and a deep pipeline,
including potential blockbuster, ITAX (Itopride Hydrochloride).

/T/

    PRODUCT SALES

    In fiscal 2004, the revenue increase primarily resulted from
$41.8 million in U.S. and Canadian sales of the AVAX product line which was
acquired in November 2003 and strong sales of CANASA in the U.S. Revenues from
sales made by the French subsidiary, following the acquisitions of DELURSAN as
well as the PANZYTRAT product line also contributed to the increase.

    Key sales figures for fiscal 2004 are as follows:

    -    Worldwide sales of pancreatic enzymes (ULTRASE, PANZYTRAT and
         VIOKASE) remained relatively stable at $57.6 million compared to
         $57.9 million in fiscal 2003. PANZYTRAT acquired in the first
         quarter of fiscal 2003, accounted for $10.2 million of these sales
         in fiscal 2003 and $13.5 million in fiscal 2004;

    -    Worldwide sales of ursodiol (URSO 250, URSO DS and DELURSAN)
         increased 4% to $56.1 million. DELURSAN, which was acquired in the
         second quarter of fiscal 2003, accounted for $6.9 million of these
         sales in fiscal 2003 and $ 10.8 million in fiscal 2004;

    -    Sales of mesalamine (CANASA and SALOFALK) amounted to $50.3 million,
         a 92% increase from the prior year;

    -    Sales of the AVAX product line amounted to $41.8 million. The AVAX
         product line includes CARAFATE and BENTYL for the U.S. market and
         SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market. These
         products were acquired from Aventis in November 2003;

    -    Sales of PHOTOFRIN and other products in North America amounted to
         $14.1 million, remaining stable compared to the prior year;

    -    Sales of other products in Europe, mainly LACTEOL and TAGAMET
         amounted to $23.7 million, a 14% decrease over the prior year. This
         decrease is mainly due to lower sales of TAGAMET following changes
         in the regulatory rules applicable to this product.


    RECENT DEVELOPMENTS

    PRODUCT LAUNCHES

    URSO FORTE™

    In July 2004, Axcan received approval from the U.S. Food and Drug
Administration ("FDA") for the use of a new, double-strength tablet
formulation of URSO (ursodiol, URSO 500mg tablets). This new formulation
simplifies the dosing regimen used in the treatment of Primary Biliary
Cirrhosis. The product was launched recently across the United States under
the brand name URSO Forte™.

    PHOTOBARR - European Union Market Authorization
    In March 2004, the European Commission granted Axcan market authorization
for use in the European Union ("EU") of PHOTOBARR (porfimer sodium), its
photodynamic therapy ("PDT") for the ablation of High-Grade Dysplasia
associated with Barrett's Esophagus. PHOTOBARR was also granted orphan medical
product status at the time of its submission, which guarantees Axcan exclusive
marketing rights for PHOTOBARR in the European Union for a ten-year period
from March 2004. This represented a significant milestone for Axcan, because
this was its first European regulatory approval.


    APPROVALS

    1-GRAM MESALAMINE SUPPOSITORY

    November 5, 2004, Axcan received approval from the U.S. Food and Drug
Administration for the use of a new, 1-gram mesalamine suppository dosage
form, to be administered once-per-day, for the treatment of ulcerative
proctitis.

    PENDING APPROVALS

    SALOFALK 750 MG TABLETS

    Axcan completed a Phase III trial, for the Canadian market, on the
efficacy and safety of a new 750-milligram mesalamine (5-ASA) tablet for the
oral treatment of ulcerative colitis. The Company filed a supplemental New
Drug Submission for approval in Canada in the first quarter of fiscal 2004.
Axcan expects approval in the first quarter of fiscal 2005 and expects to
launch the product in Canada soon thereafter.

    HELIZIDE
    The Company is in the process of qualifying a manufacturer of
biskalcitrate potassium (bismuth salt) a component of the Helizide combination
therapy for the eradication of Helicobacter Pylori bacterium. Axcan
anticipates FDA re-submission by the middle of calendar 2005. Assuming
approval, the Company expects to launch the product in the second half of
fiscal 2006.

    RESEARCH AND DEVELOPMENT UPDATE

    PHASE III STUDIES

    ITAX

    In May 2004, Axcan obtained the approval of the Therapeutic Products
Directorate ("TPD") of Health Canada and Investigational New Drug ("IND")
clearance from the Gastro-intestinal division of the FDA, required to initiate
Phase III clinical trials to demonstrate the safety and efficacy of ITAX
(Itopride Hydrochloride) in the treatment of functional dyspepsia (also known
as non ulcer dyspepsia).

    Enrolment for the two Phase III studies, which are being conducted in
North America and Western Europe, is well underway and should be completed in
the first half of calendar year 2005. More recently, a cardiac safety study
was completed, and top-line data is expected to be released during the first
quarter of fiscal 2005. Axcan expects to file an NDA during the first quarter
of fiscal 2006.

    Axcan also plans to study ITAX as a treatment for diabetic gastroparesis.
As previously announced, Axcan believes that, if approved by the FDA, ITAX has
the potential to become its largest selling product, and expects to launch
this product in the U.S., Canada, Germany, U.K. and France in early fiscal
2007.

    CANASA / SALOFALK rectal gel

    Axcan completed Phase III studies to confirm the efficacy and safety of a
new mesalamine rectal gel in the treatment of distal ulcerative colitis. Final
results are expected to be available in the first quarter of fiscal 2005.
Assuming the results of the Phase III studies are positive, the Company plans
to submit regulatory filings for approvals in the United States and Canada and
hopes to launch the rectal gel in the United States and Canada in the third
quarter of fiscal 2006.

    HEPENAX

    L-Ornithine L-Aspartate salt ("LOLA"), which is known as HEPENAX, was
developed by Merz Pharmaceuticals GmbH in Germany and is licensed to Axcan.
The Company intends to further develop HEPENAX in North America and Europe for
patients suffering from Porto-Systemic Encephalopathy ("PSE"), a condition
used to describe the deleterious effects of liver failure on the central
nervous system. The Company plans conduct a Phase II/III clinical development
program for HEPENAX and plans to seek approval of the intravenous formulation
to treat the acute symptoms of PSE. The Company initiated its clinical
research program in the third quarter of fiscal 2004 and expects to complete
such studies towards the end of fiscal 2006.

    PHOTOFRIN

    PHOTOFRIN is approved in a number of countries for the treatment of
different forms of cancers. Axcan is currently investigating the use of
PHOTOFRIN for the treatment of cholangiocarcinoma, a serious bile duct (liver)
cancer with a high mortality rate. The treatment under investigation combines
PHOTOFRIN with PDT and the stenting of the bile ducts. It is anticipated that
the proposed Phase III study will start in the first quarter of fiscal 2005.


    PRE-CLINICAL, PHASE I AND PHASE II

    NCX-1000

    The FDA has accepted an Investigational New Drug Application ("IND") for
NCX-1000, a patented, nitric oxide derivative of ursodiol, for the treatment
of portal hypertension, a late-stage complication of chronic, advanced liver
disease. The Phase I clinical development program, which is designed to
demonstrate the tolerability and safety of NCX-1000, is almost completed.
Phase II studies are planned to begin during fiscal 2005. Completion of the
entire clinical program is expected to occur in calendar year 2007.

    Ursodiol Disulfate

    Axcan recently completed a proof of concept study in rats to evaluate the
effect of ursodiol disulfate on the development of colonic tumors. Axcan
initiated animal toxicity studies in the fourth quarter of fiscal 2004, which
will be followed by clinical Phase I studies. Also, Axcan intends to pursue
the development of an intravenous ursodiol disulfate to be used in the domain
of liver transplant.

    NMK 150

    Axcan and Nordmark GmbH, a German pharmaceutical firm, have set up a
joint-venture, Norax, in order to develop NMK 150, a new high protease
pancrelipase preparation. This product will be developed for the relief of
pain in small duct chronic pancreatitis. It is expected that NMK 150 will
enter clinical development in the first half of calendar year 2005.

    NMK 250

    Norax is also developing NMK 250, a bacterial lipase intended to correct
steatorrhea in patients suffering from diverse causes of pancreatic
insufficiency (e.g., following surgery for cancer or due to cystic fibrosis).
Norax expects to complete the formulation work during the second quarter of
fiscal 2005.

    INTERIM FINANCIAL REPORT

    This release includes, by reference, the fourth quarter interim financial
report incorporating the financial statements in accordance with both U.S. and
Canadian GAAP as well as the full Management Discussion & Analysis (MD&A)
including the reconciliation to Canadian GAAP of the U.S. GAAP presentation.
The interim report, including the MD&A and financial statements, will be filed
with applicable U.S. and Canadian regulatory authorities.

    CONFERENCE CALL

    Axcan will host a conference call at 4:30 P.M. EST, on November 10, 2004.
Interested parties may also access the conference call by way of web cast at
www.axcan.com . The web cast will be archived for 90 days. The telephone
numbers to access the conference call are (800) 814-4941 (Canada and United
States) or (416) 850-1243 (international). A replay of the call will be
available until November 17, 2004. The telephone number to access the replay
of the call is (416) 640-1917 code: 21100317.


    ABOUT AXCAN PHARMA

    Axcan is a leading specialty pharmaceutical company involved in the field
of gastroenterology. Axcan markets a broad line of prescription products sold
for the treatment of symptoms in a number of gastrointestinal diseases and
disorders such as inflammatory bowel disease, irritable bowel syndrome,
cholestatic liver diseases and complications related to cystic fibrosis.
Axcan's products are marketed by its own sales force in North America and
Europe. Its common shares are listed on the Toronto Stock Exchange under the
symbol "AXP" and on the NASDAQ National Market under the symbol "AXCA".

    "Safe Harbor" statement under the Private Securities Litigation Reform
    Act of 1995.

    This release contains forward-looking statements, which reflect the
    Company's current expectations regarding future events. To the extent any
    statements made in this release contain information that is not
    historical, these statements are essentially forward looking and are
    often identified by words such as "anticipate," "expect," "estimate,"
    "intend," "project," "plan" and "believe." Forward-looking statements are
    subject to risks and uncertainties. Actual results could differ
    materially from those projected herein and depend on a number of factors,
    including, but not limited to, the successful and timely completion of
    clinical studies, the difficulty of predicting FDA and other regulatory
    approvals, the commercialization of a drug or therapy after regulatory
    approval is received, acceptance and demand for new pharmaceutical
    products, the impact of competitive products and pricing, new product
    development and launch, reliance on key strategic alliances, availability
    of raw materials, the regulatory environment, fluctuations in our
    operating results, the protection of our intellectual property and other
    risks detailed from time to time in the Company's filings with the
    Securities and Exchange Commission and under the Canadian Securities
    Commissions. The Company disclaims any obligation to update these forward-
    looking statements. The reader is cautioned not to rely on these forward-
    looking statement.

    The names ITAX, Photobarr, Salofalk, Hepenax, Urso, Photofrin and Canasa
    appearing in this press release are trademarks of Axcan Pharma Inc. and
    its subsidiaries.

    Management Discussion and Analysis (MD&A), Financial Statements and Notes
    Attached

                                  --------


    Management's discussion and analysis of financial condition and results
    of operations

    This discussion should be read in conjunction with the information
    contained in Axcan's consolidated financial statements and the related
    notes thereto. All amounts are in U.S. dollars.

    Overview

    Axcan is a leading specialty pharmaceutical company concentrating in the
field of gastroenterology, with operations in North America and Europe. Axcan
markets and sells pharmaceutical products used in the treatment of a variety
of gastrointestinal diseases and disorders. The Company seeks to expand its
gastrointestinal franchise by in-licensing products and acquiring products or
companies, as well as developing additional products and expanding indications
for existing products. Axcan's current products include ULTRASE, PANZYTRAT and
VIOKASE for the treatment of certain gastrointestinal symptoms, related to
cystic fibrosis in the case of ULTRASE; URSO 250 and DELURSAN for the
treatment of certain cholestatic liver diseases; SALOFALK and CANASA for the
treatment of certain inflammatory bowel diseases; and PHOTOFRIN for the
treatment of certain types of gastrointestinal cancers and other conditions.
In addition, as at September 30, 2004, Axcan had one product pending
approval,a new formulation for a product currently marketed in the United
States. Axcan also has a number of other pharmaceutical projects in all phases
of development including ITAX for the treatment of functional dyspepsia. Axcan
reported revenue of $60.9 million and operating income of $20.5 million for
the three-month period ended September 30, 2004. For the year ended September
30, 2004, revenue was $243.6 million and operating income was $76.8 million.

    Much of Axcan's recent sales growth is derived from sales in the United
States and from sales by its French subsidiary, following recent
acquisitions.During the first quarter of fiscal 2003, Axcan acquired the
worldwide rights to the PANZYTRAT enzyme product line from Abbott Laboratories
("Abbott") and the rights to DELURSAN, an ursodiol 250 mg tablet, from Aventis
Pharma S.A. ("Aventis") for the French market. During the first quarter of
fiscal 2004, Axcan acquired the rights to a group of products from Aventis for
a cash purchase price of $145.0 million. These products are CARAFATE and
BENTYL for the U.S. market and SULCRATE, BENTYLOL and PROCTOSEDYL for the
Canadian market(collectively, "AVAX" product line). Revenue from sales of
Axcan's products in the United States was $166.7 million (68.4% of total
revenue) for the year ended September 30, 2004, compared to $113.9 million
(63.6% of total revenue) for fiscal 2003. In Canada, revenue was $28.0 million
(11.5% of total revenue)for the year ended September 30, 2004, compared to
$20.6 million (11.5% of total revenue) for fiscal 2003. In Europe, revenue was
$48.7 million (20.0 % of total revenue) for the year ended September 30, 2004,
compared to $44.5 million (24.8 % of total revenue) for fiscal 2003.

    Axcan's revenue historically has been and continues to be principally
derived from sales of pharmaceutical products to large pharmaceutical
wholesalers and large chain pharmacies. Axcan utilizes a "pull-through"
marketing approach that is typical of pharmaceutical companies. Under this
approach, Axcan's sales representatives demonstrate the features and benefits
of its products to gastroenterologists who may write their patients
prescriptions for Axcan's products. The patients, in turn, take the
prescriptions to pharmacies to be filled. The pharmacies then place orders
with the wholesalers or, in the case of large chain pharmacies, their
distribution centres, to whom Axcan sells its products.

    Axcan's expenses are comprised primarily of selling and administrative
expenses (including marketing expenses), cost of goods sold (including royalty
payments to those companies from whom Axcan licenses some of its products),
research and development expenses as well as depreciation and amortization.

    Axcan's annual and quarterly operating results are primarily affected by
three factors: wholesaler buying patterns; the level of acceptance of Axcan's
products by gastroenterologists and their patients; and the extent of Axcan's
control over the marketing of its products. Wholesaler buying patterns,
including a tendency to increase inventory levels prior to an anticipated or
announced price increase, affect Axcan's operating results by shifting revenue
between quarters. To maintain good relations with wholesalers, Axcan typically
gives prior notice of price increases. The level of patient and physician
acceptance of Axcan's products, as well as the availability of similar
therapies, which may be less effective but also less expensive than some of
Axcan's products, impact Axcan's revenues by driving the level and timing of
prescriptions for its products.

    Critical Accounting Policies

    Axcan's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America
("U.S. GAAP"), applied on a consistent basis. Axcan's critical accounting
policies include the use of estimates, revenue recognition, the recording of
research and development expenses and the determination of the useful lives or
fair value of goodwill and intangible assets. Some of our critical accounting
policies require the use of judgment in their application or require estimates
of inherently uncertain matters. Although our accounting policies are in
compliance with U.S. GAAP, a change in the facts and circumstances of an
underlying transaction could significantly change the application of our
accounting policies to that transaction, which could have an effect on our
financial statements. Discussed below are those policies that we believe are
critical and require the use of complex judgment in their application.

    Use of Estimates

    The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the recorded
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the financial statements and the disclosure of
recognized amounts of revenues and expenses during the year. Significant
estimates and assumptions made by management include the allowance for
accounts receivable and inventories, reserves for product returns, rebates and
charge-backs, the classification of intangible assets between finite and
indefinite life, useful lives of long-lived assets, the expected cash flows
used in evaluating long-lived assets for impairment, contingency provisions
and other accrued charges. These estimates were made using the historical
information available to management. The Company reviews all significant
estimates affecting the financial statements on a recurring basis and records
the effect of any adjustments when necessary. Actual results could differ from
those estimates.

    Revenue Recognition

    Revenue is recognized when the product is shipped to the Company's
customer, provided the Company has not retained any significant risks of
ownership or future obligations with respect to the product shipped. Revenue
from product sales is recognized net of sales discounts, allowances, returns,
rebates and charge-backs. In certain circumstances, returns or exchanges of
products are allowed under the Company's policy and provisions are maintained
accordingly. Amounts received from customers as prepayments for products to be
shipped in the future are reported as deferred revenue.

    Goodwill and Intangible Assets

    Axcan's goodwill and intangible assets are stated at cost, less
accumulated amortization. Since October 1, 2001, the Company does not amortize
goodwill and intangible assets with an indefinite life. However, management
evaluates the value of the unamortized portion of goodwill and intangible
assets annually, by comparing the carrying value to the future benefits of the
Company's activities or the expected sale of pharmaceutical products. Should
there be a permanent impairment in value or if the unamortized balance exceeds
recoverable amounts, a write-down will be recognized for the current year. To
date, Axcan has not recognized any significant permanent impairment in value.
Intangible assets with finite life are amortized over their estimated useful
lives.

    Research and Development Expenses

    Research and development expenses are charged to operations in the year
they are incurred. Acquired in-process research and development having no
alternative future use is written off at the time of acquisition. The cost of
intangibles that are acquired from others for a particular research and
development project, with no alternative use, are written off at the time of
acquisition.

    Acquisition of Products

    On November 18, 2003, the Company acquired the rights to a group of
products from Aventis. The acquired products are CARAFATE and BENTYL for the
U.S. market and SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market.
The $145.0 million purchase price was paid out of Axcan's cash on hand.
    On December 3, 2002, the Company acquired the worldwide rights to the
PANZYTRAT enzyme product line from Abbott for a cash purchase price of
$45.0 million.

    During a transition period, the seller in each of these acquisition
transactions acts as selling agent for the management of these products. For
the year ended September 30, 2004, sales of these products were still managed
in part by the sellers. Axcan includes in its revenue the net sales from such
products less corresponding cost of goods sold and other seller related
expenses. Consequently, although net sales of such products for the year ended
September 30, 2004 were $7,667,940, the Company only included in its revenue
an amount of $4,685,673 representing the net sales less cost of goods sold and
other seller related expenses.

    Results of Operations

    The following table sets forth, for the periods indicated, the percentage
of revenue represented by items in Axcan's consolidated statements of
operations:

    <<
                               For the three-month            For the year
                         period ended September 30      ended September 30
                          _________________________ _________________________
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     %           %           %           %
    Revenue                      100.0       100.0       100.0       100.0
    _________________________________________________________________________

    Cost of goods sold            18.2        26.1        22.2        24.8
    Selling and administrative
     expenses                     30.2        34.9        31.4        35.2
    Research and development
     expenses                     11.1         5.8         8.2         6.8
    Acquired in-process
     research                        -        24.6           -         6.7
    Depreciation and
     amortization                  6.8         4.2         6.7         4.5
    _________________________________________________________________________
                                  66.3        95.6        68.5        78.0
    _________________________________________________________________________

    Operating income              33.7         4.4        31.5        22.0
    _________________________________________________________________________

    Financial expenses             3.0         3.4         2.8         2.4
    Interest income               (0.6)       (1.1)       (0.3)       (0.9)
    Loss (gain) on foreign
     exchange                     (0.3)          -        (0.1)          -
    Takeover-bid expenses            -           -           -         2.1
    _________________________________________________________________________
                                   2.1         2.3         2.4         3.6
    _________________________________________________________________________

    Income before income taxes    31.6         2.1        29.1        18.4
    Income taxes                   9.7         6.0         9.1         7.3
    _________________________________________________________________________
    Net income                    21.9        (3.9)       20.0        11.1
    _________________________________________________________________________
    _________________________________________________________________________
    >>

    Periods ended September 30, 2004 compared to periods ended September 30,
    2003

    Revenue

    Revenue increased $12.2 million (25.1 %) to $60.9 million for the fourth
quarter ended September 30, 2004 from $48.7 million for the corresponding
quarter of the preceding fiscal year. For the year ended September 30, 2004,
revenue was $243.6 million compared to $179.1 million for the preceding fiscal
year, an increase of 36.0%. This increase in revenue primarily resulted from
$41.8 million in U.S. and Canadian sales of the AVAX product line, which was
acquired in November 2003 and strong sales of CANASA in the U.S. Revenues from
sales made by the French subsidiary, following the acquisition of DELURSAN as
well as the PANZYTRAT product line, also contributed to the increase.

    Cost of goods sold

    Cost of goods sold consists principally of costs of raw materials,
royalties and manufacturing costs. Axcan outsources most of its manufacturing
requirements. Cost of goods sold decreased $1.6 million (12.6%) to
$11.1 million for the quarter ended September 30, 2004 from $12.7 million for
the corresponding quarter of the preceding fiscal year. As a percentage of
revenue, cost of goods sold for the quarter ended September 30, 2004 decreased
as compared to the corresponding quarter of the preceding fiscal year from
26.1% to 18.2%. For the year ended September 30, 2004, cost of goods sold was
$54.2 million (22.2 % of revenue) compared to $44.5 million (24.8% of revenue)
for the preceding fiscal year. These decreases in the cost of goods sold as a
percentage of revenue were due to the increase in sales of products with a
higher margin in the United States and an improved margin in Europe.

    Selling and administrative expenses

    Selling and administrative expenses consist principally of salaries and
other costs associated with Axcan's sales force and marketing activities.
Selling and administrative expenses increased $1.4 million (8.2%) to
$18.4 million for the quarter ended September 30, 2004 from $17.0 million for
the corresponding quarter of the preceding fiscal year. For the year ended
September 30, 2004, selling and administrative expenses increased
$13.3 million (21.1%) to $ 76.4 million from $63.1 million for the preceding
fiscal year. These increases are mainly due to an increase in our sales force
as a result of the recent acquisition of additional product rights.

    Research and development expenses

    Research and development expenses consist principally of fees paid to
outside parties that Axcan uses to conduct clinical studies and to submit
governmental approval applications on its behalf, as well as the salaries and
benefits paid to its personnel involved in research and development projects.
Excluding acquired in-process research, research and development expenses
increased $4.0 million (142.9 %) to $6.8 million for the quarter ended
September 30, 2004 from $2.8 million for the corresponding quarter of the
preceding fiscal year and $7.8 million (64.5%) to $19.9 million for the year
ended September 30, 2004, from $12.1 million for the preceding fiscal year.
These increases are mainly due to the development of ITAX, acquired in August
2003, for the treatment of functional dyspepsia.

    Acquired in-process research

    The acquired in-process research of $12.0 million for the year ended
September 30, 2003 was a result of the acquisition of an exclusive license for
North America, the European Union and Latin America from Abbott to develop,
manufacture and market ITAX, a patented gastroprokinetic drug. Under the terms
of this license agreement, Axcan paid $10.0 million and assumed $2.0 million
in research liability. As this product had not reached technological
feasibility and had no known alternative use, it was considered to be acquired
in-process research and was expensed in the fourth quarter of the year ended
September 30, 2003, the period of acquisition.

    Depreciation and amortization

    Depreciation and amortization consists principally of the amortization of
intangible assets with a finite life. Intangible assets include trademarks,
trademark licenses and manufacturing rights. Depreciation and amortization
increased $2.1 million (100.0%) to $4.2 million for the quarter ended
September 30, 2004 from $2.1 million for the corresponding quarter of the
preceding fiscal year and $8.3 million (102.5%) to $16.4 million for the year
ended September 30, 2004 from $8.1 million for the preceding fiscal year.
These increases are 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
$0.1 million (5.9%) to $1.8 million for the quarter ended September 30, 2004
from $1.7 million for the corresponding quarter of the preceding fiscal year
and increased $2.6 million (60.5%) to $6.9 million for the year ended
September 30, 2004 from $4.3 million for the preceding fiscal year. The
increase for the year ended September 30, 2004 is mainly due to the Company
recognizing a full year's worth of interest expense on the $125.0 million
aggregate principal amount of 41/4% convertible subordinated notes due 2008
which were issued on March 5, 2003 and the amortization of deferred debt issue
expenses.

    Takeover-bid expenses

    On April 10, 2003, Axcan made an unsolicited cash tender offer of $8.75
per share for all of the outstanding shares of common stock of Salix
Pharmacenticals Inc. ("Salix"), which was subsequently increased to $10.50 per
share. On June 27, 2003, the offer for all outstanding shares of Salix expired
without acceptance or extension. Total costs related to the offer were
$3.7 million and were expensed during the quarter ended June 30, 2003, thus
reducing net income by approximately $2.4 million, or $0.05 per share for the
year ended September 30, 2003.

    Income Taxes

    Income taxes amounted to $5.9 million for the quarter ended September
30,2004, compared to $2.9 million for the quarter ended September 30, 2003.
Income taxes amounted to $22.3 million for the year ended September 30, 2004
compared to $13.0 million for the preceding fiscal year. The effective tax
rates were 31.4% for the year ended September 30, 2004 and 39.5% for the year
ended September 30, 2003. The acquired in-process research is deductible at a
lower rate than most operating expenses. As discussed below in "net income",
excluding acquired in-process research and takeover bid expenses, the
effective tax rate was 31.4% for the year ended September 30, 2003.

    Net income

    Net income was $13.3 million or $0.29 of basic income per share and $0.26
of diluted income per share, for the quarter ended September 30, 2004,
compared to a net loss of $1.9 million or $0.04 of basic and diluted loss per
share for the corresponding quarter of the preceding year. The weighted
average number of common shares outstanding used to establish the basic per
share amounts increased from 45.0 million for the quarter ended September 30,
2003 to 45.6 million for the quarter ended September 30, 2004, following the
exercise of options previously granted pursuant to Axcan's stock option plan.
The weighted average number of common shares used to establish the diluted per
share amounts increased from 45.7 million for the quarter ended September 30,
2003 to 55.2 million for the quarter ended September 30, 2004 because the
shares issuable under the convertible subordinated notes are included because
a trigger event giving holders the right to convert their notes occurred in
each of the second, third and fourth quarter of this fiscal year as a result
of the stock trading price exceeding 110% of the conversion price of the
convertible notes.

    Net income was $48.7 million or $1.08 of basic income per share and $0.98
of diluted income per share, for the year ended September 30, 2004, compared
to $19.9 million or $0.44 of both basic and diluted income per share for the
preceding year.

    Net income (in thousands of dollars), basic income per share and diluted
income per share excluding takeover-bid expenses, acquired in-process research
and related income taxes for the periods ended September 30, 2004 and 2003
were as follows:

    <<
                               For the three-month            For the year
                         period ended September 30      ended September 30
                          _________________________ _________________________
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    Net income (loss) in
     accordance with U.S. GAAP  13,320      (1,904)     48,728      19,925
    Plus: Takeover-bid expenses      -           -           -       3,697
          Acquired in-process
           research                  -      12,000           -      12,000
    Less: Related income taxes       -        (982)          -      (2,272)
    _________________________________________________________________________

    Net income excluding
     takeover-bid expenses,
     acquired in-process
     research and related
     income taxes               13,320       9,114      48,728      33,350
    _________________________________________________________________________
    _________________________________________________________________________

    Income per common share
     excluding takeover-bid
     expenses, acquired
     in-process research
     and related income taxes
      Basic              `        0.29        0.20        1.08        0.74
      Diluted                     0.26        0.20        0.98        0.73
    >>

    This measure of net income, basic income per share and diluted income per
share excluding certain items is a non-GAAP measure that does not have a
standardized meaning and, as such, is not necessarily comparable to similarly
titled measures presented by other companies. This measure is provided to
assist our investors in assessing Axcan's operating performance. We believe
the presentation of this non-GAAP measure provides useful information because
it eliminates certain expenses unrelated to our operations and because it
provides similar information for period-to-period comparisons. Investors
should consider this non-GAAP measure in the context of Axcan's U.S. and
Canadian GAAP results of operations.

    Excluding takeover-bid expenses, acquired in-process research and related
income taxes, net income for the quarter ended September 30, 2004 was
$13.3 million or $0.29 of basic income per share and $0.26 of diluted income
per share compared to $9.1 million or $0.20 of basic and diluted income per
share for the corresponding quarter of the preceding year.

    Excluding takeover-bid expenses, acquired in-process research and related
income taxes, net income for the year ended September 30, 2004 was
$48.7 million or $1.08 of basic income per share and $0.98 of diluted income
per share compared to $33.4 million of net income or $0.74 of basic income per
share and $0.73 of diluted income per share for the year ended September 30,
2003.

    Canadian GAAP

    The differences (in thousands of dollars) between U.S. and Canadian
GAAP,which affect net income for the periods ended September 30, 2004 and
2003, are summarized in the following table:

    <<
                               For the three-month            For the year
                         period ended September 30      ended September 30
                          _________________________ _________________________
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    Net income (loss) in
     accordance with U.S. GAAP  13,320      (1,904)     48,728      19,925

    Implicit interest on
     convertible debt           (1,103)     (1,008)     (4,234)     (2,292)
    Acquired in-process
     research                        -      12,000           -      12,000
    Amortization of new product
     acquisition costs             (14)        (14)        (54)        (54)
    Income tax impact of the
     above adjustments               5        (977)         20        (962)
    _________________________________________________________________________

    Net earnings in accordance
    with Canadian GAAP          12,208        8,097     44,460      28,617
    _________________________________________________________________________
    _________________________________________________________________________
    >>

    On March 5, 2003, the Company closed an offering of $125 million
aggregate principal amount of 4 1/4% convertible subordinated notes due April
15, 2008. As a result of the terms of the notes, under Canadian GAAP,
$24,238,899 was included in shareholders' equity as equity component of the
convertible debt and $100,761,101 was included in long-term debt, as the
liability component of the convertible notes. For the year ended September 30,
2004, implicit interest in the amount of $4,233,768 ($2,292,478 in 2003) was
recognized and added to the liability component.

    Under Canadian GAAP, research and development expenses are stated net of
related tax credits, which generally constitute between 10% and 15% of the
aggregate amount of such expenses. Under U.S. GAAP, these tax credits are
applied against income taxes.

    Under U.S. GAAP, acquired in-process research is included in results of
operations as at the date of acquisition if no alternative use is
established.Under Canadian GAAP, the acquired in-process research, including
the new product acquisition costs, is deferred and amortized from the date of
commencement of commercial production.

    Liquidity and capital resources

    Axcan's cash, cash equivalents and short- term investments decreased
$133.0 million to $37.9 million at September 30, 2004 from $170.9 million at
September 30, 2003. As of September 30, 2004, working capital was $87.7
million, compared to $174.8 million at September 30, 2003. These decreases are
mainly due to the acquisition of the rights to the AVAX product line for a
total cash purchase price of $145.0 million plus transaction expenses.

    Total assets increased $64.3 million (11.8%) to $609.6 million as of
September 30, 2004 from $545.3 million as of September 30, 2003. Shareholders'
equity increased $61.1 million (18.5%) to $392.1 million as of September 30,
2004 from $331.0 million as of September 30, 2003.

    Historically, Axcan has financed research and development, operations,
acquisitions, milestone payments and investments out of the proceeds of public
and private sales of its equity and debt, cash flows from operating
activities, and loans from joint venture partners and financial institutions.
Since it went public in Canada in December 1995, Axcan has raised
approximately $243.0 million from sales of its equity and $125.0 million from
sales of convertible notes. Furthermore, Axcan borrowed and since repaid funds
from financial institutions to finance the acquisition of Axcan Scandipharm
Inc. and from Schwarz Pharma Inc., a former joint venture partner, to finance
the acquisition of Axcan URSO.

    Since September 22, 2004, the Company has had an amended credit facility
with a banking syndicate consisting of a $125 million 364-day extendible
revolving facility with a two-year term-out option maturing on September 22,
2007.

    The credit facility is secured by a first priority security interest on
all present and future acquired assets of the Company and its material
subsidiaries, and provides for the maintenance of certain financial ratios.
Among the restrictions imposed by the credit facility is a covenant limiting
cash dividends, share repurchases (other than redeemable shares issued in
connection with a permitted acquisition) and similar distributions to
shareholders to 10% of the Company's net income for the preceding fiscal
year.As of September 30, 2004, Axcan was in compliance with all covenants
under the credit facility.

    The interest rate under the credit facility varies, depending on the
Company's leverage between 25 basis points and 100 basis points over Canadian
prime rate or U.S. base rate, and between 125 basis points and 200 basis
points over the LIBOR rate or bankers acceptances. The credit facility may be
drawn in U.S. dollars or in Canadian dollar equivalents. As at September 30,
2004, there was no amount outstanding under this credit facility.

    Cash Flows and Financial Resources

    Cash flows from operating activities decreased $10.6 million (212.0%)
from $5.0 million of cash provided by operating activities for the three-
month period ended September 30, 2003 to $5.6 million of cash used by
operating activities for the three-month period ended September 30, 2004. Cash
flows used for financing activities for the three-month period ended September
30, 2004 were $0.4 million and cash flows used for investment activities for
the same period were $6.3 million. For the year ended September 30, 2004 cash
flows from operating activities decreased $28.1 million (54.6 %) from
$51.5 million of cash provided by operating activities for the year ended
September 30, 2003 to $23.4 million. This decrease is mainly due to the
increase in accounts receivable and inventories during this fiscal year
following the increase in sales and the acquisition of new products. Cash
flows from financing activities for the year ended September 30, 2004 were
$3.3 million. Cash flows used by investment activities for the year ended
September 30, 2004 were $42.7 million mainly due to the net cash used for the
acquisition of intangible assets for $149.6 million and property, plant and
equipment for $13.4 million with the proceeds from the disposal of short term
investments.

    Axcan's research and development expenses totaled $19.9 million for
fiscal 2004. Axcan believes that cash, cash equivalents and short-term
investments, together with funds provided by operations, will be sufficient to
meet its operating cash requirements, including the development of products
through research and development activities, capital expenditures and
repayment of its debt. Assuming regulatory approvals of future products and
indications stemming from its research and development efforts, Axcan believes
that these will also significantly contribute to the increase in funds
provided by operations. However, Axcan regularly reviews product and other
acquisition opportunities and may therefore require additional debt or equity
financing. Axcan cannot be certain that such additional financing, if
required, will be available on acceptable terms, or at all.

    Earnings coverage

    Based on unaudited financial statements, the earnings coverage ratios are
the following:

    Under U.S. GAAP, for the twelve months ended September 30, 2004, our
interest requirements amounted to $6.0 million on a pro forma basis and our
earnings coverage ratio, defined as the ratio of earnings before interest and
income taxes to pro forma interest requirements, was 12.8 to one.

    Under Canadian GAAP, for the twelve months ended September 30, 2004, our
interest requirements amounted to $10.6 million on a pro forma basis and our
earnings coverage ratio was 7.3 to one. The principal difference between the
earnings coverage ratios under Canadian GAAP and U.S. GAAP is attributable to
the inclusion of implicit interest of $4.6 million as required by Canadian
GAAP.

    Risk Factors

    Axcan is exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Axcan does not use derivative
financial instruments for speculative or trading purposes. Axcan does not use
off-balance sheet financing or similar special purpose entities. Inflation has
not had a significant impact on Axcan's results of operations.

    Foreign Currency Risk

    Axcan operates internationally; however, a substantial portion of our
revenue and expense activities and capital expenditures are transacted in
U.S.dollars. Axcan's exposure to exchange rate fluctuation is reduced because,
in general, Axcan's revenues denominated in currencies other than the U.S.
dollar are matched by a corresponding amount of costs denominated in the same
currency. Axcan expects this matching to continue.

    Interest Rate Risk

    The primary objective of Axcan's investment policy is the protection of
capital. Accordingly, investments are made in high-grade government and
corporate securities with varying maturities, but typically, less than 180
days. Therefore, Axcan does not have a material exposure to interest rate risk
and a 100 basis-point adverse change in interest rates would not have a
material effect on Axcan's consolidated results of operations, financial
position or cash flows. Axcan is exposed to interest rate risk on borrowings
under the credit facilities. The credit facilities bear interest based on
LIBOR, U.S. dollar base rate, Canadian dollar prime rate, or Canadian dollar
Bankers' Acceptances. Based on projected advances under the credit
facilities,a 100 basis-point adverse change in interest rates would not have a
material effect on Axcan's consolidated results of operations, financial
position, or cash flows.

    Supply and Manufacture

    Axcan depends on third parties for the supply of active ingredients and
for the manufacture of the majority of its products. Although Axcan looks to
secure alternative suppliers, Axcan may not be able to obtain the active
ingredients or products from such third parties, the active ingredients or
products may not comply with specifications, or the prices at which Axcan
purchases them may increase and Axcan may not be able to locate alternative
sources of supply in a reasonable time period, or at all. If any of these
events occur, Axcan may not be able to continue to market certain of its
products and its sales and profitability would be adversely affected.

    Volatility of Share Prices

    The market price of Axcan's shares is subject to volatility. Deviations
in actual financial or scientific results, as compared to expectations of
securities analysts who follow our activities can have a significant effect on
the trading price of Axcan's shares.

    Forward-looking Statements

    This document contains forward-looking statements, which reflect the
    Company's current expectations regarding future events. To the extent
    that any statements in this document contains information that is not
    historical, the statements are essentially forward-looking and are often
    identified by words such as "anticipate", "expect", "estimate", "intend",
    "project", "plan" and "believe". These forward-looking statements include
    but are not limited to the expected sales growth of the Company's
    products and the expected increase in funds from operations resulting
    from the Company's research and development expenditures. Forward-looking
    statements involve risks and uncertainties. Actual events could differ
    materially from those projected herein and depend on a number of factors,
    including but not limited to the successful and timely completion of
    clinical studies, the difficulty of predicting FDA or other regulatory
    approvals, the commercialization of a drug or therapy after regulatory
    approval is received, the difficulty of predicting acceptance and demand
    for pharmaceutical products, the impact of competitive products and
    pricing, new product development and launch, the availability of raw
    materials, the protection of our intellectual property, fluctuations in
    our operating results and other risks detailed from time to time in the
    Company's filings with the Securities and Exchange Commission and the
    Canadian Securities Commissions The reader is cautioned not to rely on
    these forward-looking statements. The Company disclaims any obligation to
    update these forward-looking statements.


    On behalf of Management,
    (signed)
    Jean Vézina
    Vice President, Finance and Chief Financial Officer


    <<
    AXCAN PHARMA INC.
    Consolidated Balance Sheets                                  U.S. GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
                                                     September   September
                                                           30,         30,
                                                          2004        2003
                                                    ____________ ____________
    ASSETS                                          (unaudited)
                                                             $           $
    Current assets
      Cash and cash equivalents                         21,979      37,773
      Short-term investments available for sale         15,922     133,112
      Accounts receivable                               46,585      19,685
      Income taxes receivable                            9,196       5,294
      Inventories (Note 3)                              37,270      20,163
      Prepaid expenses and deposits                      3,494       2,794
      Deferred income taxes                              4,586       6,214
    _________________________________________________________________________
    Total current assets                               139,032     225,035
    _________________________________________________________________________
    _________________________________________________________________________

    Investments                                              -       1,002
    Property, plant and equipment, net                  31,252      20,331
    Intangible assets, net (Note 4)                    407,875     265,423
    Goodwill, net                                       27,467      27,550
    Deferred debt issue expenses, net                    3,088       4,233
    Deferred income taxes                                  930       1,775
    _________________________________________________________________________
    Total assets                                       609,644     545,349
    _________________________________________________________________________
    _________________________________________________________________________

    LIABILITIES

    Current liabilities
      Accounts payable and accrued liabilities          47,917      43,418
      Income taxes payable                                 731       4,821
      Instalments on long-term debt                      1,778       1,528
      Deferred income taxes                                936         494
    _________________________________________________________________________
    Total current liabilities                           51,362      50,261

    Long-term debt                                     127,916     129,474
    Deferred income taxes                               38,290      34,603
    _________________________________________________________________________
    Total liabilities                                  217,568     214,338
    _________________________________________________________________________

    SHAREHOLDERS' EQUITY

    Series A, preferred shares, without par value,
     shares authorized; 14,175,000;
     no shares issued.                                       -           -
    Series B, preferred shares, without par value
     shares authorized; 12,000,000;
     no shares issued.                                       -           -
    Common shares, without par value of unlimited
     shares authorized; 45,562,336 issued as at
     September 30, 2004 and 45,004,320 as at
     September 30, 2003.                               260,643     255,743
    Retained earnings                                  112,362      63,634
    Accumulated other comprehensive income              19,071      11,634
    _________________________________________________________________________
    Total shareholders' equity                         392,076     331,011
    _________________________________________________________________________
    Total liabilities and shareholders' equity         609,644     545,349
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.


    AXCAN PHARMA INC.
    Consolidated Statements of Shareholders' Equity              U.S. GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars, except share related data
    (unaudited)

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________

    Common shares (number)
    Balance, beginning
     of period              45,556,032  44,989,347  45,004,320  44,863,198
      Exercise of options        6,304      14,973     558,016     141,122
    _________________________________________________________________________
    Balance, end of period  45,562,336  45,004,320  45,562,336  45,004,320
    _________________________________________________________________________
    _________________________________________________________________________

                                     $           $           $           $
    Common shares
    Balance, beginning
     of period                 260,572     255,611     255,743     254,640
      Exercise of options           71         132       4,900       1,103
    _________________________________________________________________________
    Balance, end of period     260,643     255,743     260,643     255,743
    _________________________________________________________________________

    Retained earnings
    Balance, beginning
      of period                 99,042      65,538      63,634      43,709
      Net income (loss)         13,320      (1,904)     48,728      19,925
    _________________________________________________________________________
    Balance, end of period     112,362      63,634     112,362      63,634
    _________________________________________________________________________

    Accumulated other
     comprehensive income (loss)
    Balance, beginning
     of period                  16,834       9,548      11,634      (3,562)
      Foreign currency
       translation adjustments   2,237       2,086       7,437      15,196
    _________________________________________________________________________
    Balance, end of period      19,071      11,634      19,071      11,634
    _________________________________________________________________________
    Total shareholders' equity 392,076     331,011     392,076     331,011
    _________________________________________________________________________
    _________________________________________________________________________

    Comprehensive income
    Foreign currency
     translation adjustments     2,237       2,086       7,437      15,196
    Net income (loss)           13,320      (1,904)     48,728      19,925
    _________________________________________________________________________
    Total comprehensive income  15,557         182      56,165      35,121
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.


    AXCAN PHARMA INC.
    Consolidated Statements of Cash Flows                        U.S. GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (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,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Operations
    Net income (loss)           13,320      (1,904)     48,728      19,925
    Non-cash items
      Non-controlling interest       -           -           -        (103)
      Amortization of
       deferred debt issue
      expenses                     291         260       1,144         646
      Other depreciation
       and amortization          4,164       2,052      16,359       8,063
      Loss (Gain) on
       disposal of assets           21       1,130          (5)      1,130
      Foreign currency
       fluctuation                 (89)        567         342         305
      Deferred income taxes      2,847        (329)      6,625       1,848
      Share in net loss
       (income) of
       joint ventures              511         (18)        455        106
      Changes in working
       capital items
        Accounts receivable    (15,128)      3,038     (27,795)      5,569
        Income taxes
         receivable             (1,373)     (1,837)     (3,773)     (4,438)
        Inventories             (3,700)     (2,312)    (17,157)       (417)
        Prepaid expenses
         and deposits              190        (311)       (703)       (892)
        Accounts payable and
         accrued liabilities    (2,860)      2,181       3,191      16,547
        Income taxes payable    (3,802)      2,491      (4,051)      3,207
    _________________________________________________________________________
    Cash flows from
     operating activities       (5,608)      5,008      23,360      51,496
    _________________________________________________________________________

    Financing
      Long-term debt                 -         169       2,212     126,064
      Repayment of
       long-term debt             (473)     (3,492)     (3,842)     (4,687)
      Deferred debt
       issue expenses                -         (51)          -      (4,589)
      Issue of shares               71         132       4,900       1,103
    _________________________________________________________________________
    Cash flows from
     financing activities         (402)     (3,242)      3,270     117,891
    _________________________________________________________________________

    Investment
      Acquisition of
       short-term investments   (3,348)    (37,398)    (20,936)   (133,112)
      Disposal of
       short-term investments    3,129           -     138,074      60,740
      Disposal of investments      141         118       1,876         637
      Acquisition of property,
       plant and equipment      (2,335)     (2,055)    (13,409)     (4,291)
      Disposal of property,
       plant and equipment           8           -         405           -
      Acquisition of
       intangible assets        (3,943)     (2,360)   (149,628)    (76,093)
      Disposal of
       intangible assets             -           -         917           -
    _________________________________________________________________________
    Cash flows from
     investment activities      (6,348)    (41,695)    (42,701)   (152,119)
    _________________________________________________________________________

    Foreign exchange gain
     on cash held in
     foreign currencies            103          42         277         528
    _________________________________________________________________________
    Net increase (decrease)
     in cash and cash
     equivalents               (12,255)    (39,887)    (15,794)     17,796
    Cash and cash equivalents,
    beginning of period         34,234      77,660      37,773      19,977
    _________________________________________________________________________
    Cash and cash equivalents,
     end of period              21,979      37,773      21,979      37,773
    _________________________________________________________________________
    _________________________________________________________________________

    Additional information
      Interest received            681       1,019       1,035       1,427
      Interest paid                 31         192       6,122         342
      Income taxes paid          9,330       3,171      23,620      12,417
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.


    AXCAN PHARMA INC.
    Consolidated Statements of Operations                        U.S. GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars, except share related data
    (unaudited)
                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    REVENUE                     60,872      48,740     243,634     179,084
    _________________________________________________________________________
    Cost of goods sold          11,060      12,738      54,247      44,459
    Selling and
     administrative expenses    18,412      16,951      76,365      63,084
    Research and
     development expenses        6,760       2,808      19,866      12,098
    Acquired
     in-process research             -      12,000           -      12,000
    Depreciation
     and amortization            4,164       2,052      16,359       8,063
    _________________________________________________________________________
                                40,396      46,549     166,837     139,704
    _________________________________________________________________________

    Operating income            20,476       2,191      76,797      39,380
    -------------------------------------------------------------------------

    Financial expenses           1,804       1,663       6,885       4,283
    Interest income               (350)       (556)       (756)     (1,639)
    Loss (gain) on
     foreign currency             (202)         42        (313)        122
    Takeover-bid expenses            -           -           -       3,697
    _________________________________________________________________________
                                 1,252       1,149       5,816       6,463
    _________________________________________________________________________

    Income before income taxes  19,224       1,042      70,981      32,917
    Income taxes                 5,904       2,946      22,253      12,992
    _________________________________________________________________________
    NET INCOME(LOSS)            13,320      (1,904)     48,728      19,925
    _________________________________________________________________________
    _________________________________________________________________________

    Income (loss) per
     common share
      Basic                       0.29       (0.04)       1.08        0.44
      Diluted                     0.26       (0.04)       0.98        0.44
    _________________________________________________________________________
    _________________________________________________________________________

    Weighted average number of common shares
      Basic                 45,561,149  44,993,431  45,286,199  44,914,944
      Diluted               55,214,113  45,714,290  52,787,964  45,607,992
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.
    >>

    AXCAN PHARMA INC.
    Notes to Consolidated Financial  Statements                  U.S. GAAP
    _________________________________________________________________________
    amounts in the tables are stated in thousands of U.S. dollars, except
    share related data
    (unaudited)

    1. Significant Accounting Policies

    The accompanying unaudited financial statements are prepared in
accordance with U.S. GAAP for interim financial statements and do not include
all the information required for complete financial statements. They are
consistent with the policies outlined in the Company's audited financial
statements for the year ended September 30, 2003. The interim financial
statements and related notes should be read in conjunction with the Company's
audited financial statements for the year ended September 30, 2003. When
necessary, the financial statements include amounts based on informed
estimates and best judgements of management. The results of operations for the
interim periods reported are not necessarily indicative of results to be
expected for the year. Consolidated financial statements prepared in U.S.
dollars and in accordance with Canadian GAAP are available to shareholders and
filed with regulatory authorities.


    2. Products Acquisitions

    On November 18, 2003, the Company acquired the rights to a group of
products from Aventis Pharma S.A for a cash purchase price of $145,000,000.
The  products acquired were  CARAFATE and BENTYL for the U.S. market and
SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market. On December 3,
2002, the Company acquired the worldwide rights to the PANZYTRAT enzyme
product line from Abbott Laboratories.
    During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the year ended September 30, 2004,
a portion of the sales of these products is still managed by the sellers.
Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the year ended September
30, 2004 were $7,667,940 ($14,255,979 in 2003), the Company only included in
its revenue an amount of $4,685,673 ($9,463,645 in 2003) representing the net
sales less cost of goods sold and other seller related expenses.

    3. Inventories
    <<
                                                     September   September
                                                            30,         30,
                                                          2004        2003
                                                    ____________ ____________
                                                             $           $

    Raw materials and packaging material                10,311       8,441
    Work in progress                                     1,781       1,466
    Finished goods                                      25,178      10,256
    _________________________________________________________________________
                                                        37,270      20,163
    _________________________________________________________________________
    _________________________________________________________________________


    4. Intangible Assets

                                                        September 30, 2004
    _________________________________________________________________________
                                                 Accumulated
                                          Cost  amortization           Net
    _________________________________________________________________________
                                             $             $             $
    Trademarks, trademark licenses and
    manufacturing rights with a:
      Finite life                      280,034        29,869       250,165
      Indefinite life                  170,127        12,417       157,710
    _________________________________________________________________________
                                       450,161        42,286       407,875
    _________________________________________________________________________
    _________________________________________________________________________


                                                        September 30, 2003
    _________________________________________________________________________
                                                 Accumulated
                                          Cost  amortization           Net
    _________________________________________________________________________
                                             $             $             $
    Trademarks, trademark licenses and
    manufacturing rights with a:
      Finite life                      111,327        19,998        91,329
      Indefinite life                  186,512        12,418       174,094
    _________________________________________________________________________
                                       297,839        32,416       265,423
    _________________________________________________________________________
    _________________________________________________________________________

    The cost of the product TAGAMET was transferred from intangible assets
with an indefinite life to intangible assets with a finite life following
changes in the regulatory rules applicable to this product and resulting in
the modification of its useful life.  The net cost of this product as of
October 1, 2003, which amounted to $21,852,859, is therefore amortized over a
15-year period.


    5. Segmented Information

    The Company considers that it operates in a single reportable field of
activity, the pharmaceutical industry, since its other activities do not
account for a significant portion of segment assets.

    The Company operates in the following geographic areas:

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Revenue
      Canada
        Domestic sales           7,485       5,682      28,002      20,555
        Foreign sales                -           -           -           -
      United States
        Domestic sales          41,522      30,943     162,810     113,875
        Foreign sales            1,421           -       3,921           -
      Europe
        Domestic sales           9,161      10,844      43,830      39,971
        Foreign sales            1,228       1,234       4,846       4,531
      Other                         55          37         225         152
    _________________________________________________________________________
                                60,872      48,740     243,634     179,084
    _________________________________________________________________________
    _________________________________________________________________________

                                                     September   September
                                                            30,         30,
                                                          2004        2003
                                                    ____________ ____________
                                                             $           $
    Property, plant, equipment, intangible
    assets and goodwill
      Canada                                            40,401      14,622
      United States                                    131,242     133,695
      Europe                                           265,417     138,113
      Other                                             29,534      26,874
    _________________________________________________________________________
                                                       466,594     313,304
    _________________________________________________________________________
    _________________________________________________________________________



    6. Financial Information Included in the Consolidated Statement of
       Operations

    a) Financial expenses

                               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,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    Interest on long-term debt   1,495       1,177       5,614       3,340
    Bank charges                    18         226         127         297
    Amortization of deferred
     debt issue expenses           291         260       1,144         646
    _________________________________________________________________________
                                 1,804       1,663       6,885       4,283
    _________________________________________________________________________
    _________________________________________________________________________

    b) Other information

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    Non-controling interest          -           -           -        (103)
    Rental expenses                394         307       1,216       1,228
    Depreciation of property,
     plant and equipment           808       1,067       3,720       3,467
    Amortization of
     intangible assets           3,356         985      12,639       4,596
    Share in net income
     (loss) of joint ventures     (511)         18        (455)       (106)

    c) Income (loss) per common share

    The following tables reconcile the numerators and the denominators of the
    basic and diluted income (loss) per common share computations:

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net income (loss)
      Basic                     13,320      (1,904)     48,728      19,925
      Financial expenses
       relating to the
       convertible subordinated
       notes                     1,012           -       3,169           -
    _________________________________________________________________________
    Net income (loss)
     on a diluted basis         14,332      (1,904)     51,897      19,925
    _________________________________________________________________________
    _________________________________________________________________________

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________

    Weighted average
     number of common
     shares outstanding     45,561,149  44,993,431  45,286,199  44,914,944
    Effect of dilutive
     stock options             728,851     548,067     820,872     472,599
    Effect of dilutive
     balance of
     purchase price                  -     172,792           -     220,449
    Effect of dilutive
     convertible
     subordinated notes      8,924,113           -   6,680,893           -
    _________________________________________________________________________
    Adjusted weighted
     average number
     of common shares
     outstanding            55,214,113  45,714,290  52,787,964  45,607,992
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding as at
     November 9, 2004                                     45,562,336
    _________________________________________________________________________
    _________________________________________________________________________

    Options to purchase 283,000 and 754,100 common shares were outstanding as
at September 30, 2004 and 2003 respectively but were not included in the
computation of diluted income per share for the year ended September 30, 2004
and 2003 respectively because the exercise price of the options was greater
than the average market price of the common shares.

    The $125 million aggregate principal amount of 41/4%, subordinated notes
due 2008 are initially convertible into 8,924,113 common shares. The notes are
convertible during any quarterly conversion period if the closing price per
share for at least 20 consecutive trading days during the 30 consecutive
trading-day period ending on the first day of the conversion period exceeds
110% of the conversion price in effect on that thirtieth trading day. Since
this trigger event occurred during the second, third and fourth quarter of the
current fiscal year, the 8,924,113, common shares are included in the weighted
average number of common shares outstanding for these periods. The notes are
also convertible during the five business-day period following any 10
consecutive trading-day period in which the daily average of the trading
prices for the notes was less than 95% of the average conversion value for the
notes during that period.


    6. Stock Options

    The estimated fair value of stock options at the time of grant using the
    Black-Scholes option pricing model was as follows:

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________

    Fair value per option        $8.12       $5.94       $6.80       $5.41
    Assumptions used in
     Black-Scholes
     option pricing model
      Expected volatility          43%         45%         44%         46%
      Risk-free interest rate    4.04%       4.07%       4.17%       4.43%
      Expected option life
       (years)                       6           6           6           6
      Expected dividend              -           -           -           -

    The Company's net income (loss), basic income (loss) per share and
diluted income (loss) per share would have been on a pro-forma basis as
follows:

                               For the     For the     For the     For the
                           three-month three-month three-month three-month
                                period      period      period      period
                                 ended       ended       ended       ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2004        2003        2003
                          _____________ ___________ ___________ _____________
                           As reported   Pro forma As reported   Pro forma
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net income (loss)           13,320      12,244      (1,904)     (2,860)
    Basic income (loss)
     per share                    0.29        0.27       (0.04)      (0.06)
    Diluted income (loss)
     per share                    0.26        0.24       (0.04)      (0.06)



                               For the     For the     For the     For the
                            year ended  year ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2004        2003        2003
                          _____________ ___________ ___________ _____________
                           As reported   Pro forma As reported   Pro forma
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net income                  48,728      44,442      19,925      16,556
    Basic income per share        1.08        0.98        0.44        0.37
    Diluted income per share      0.98        0.90        0.44        0.36


    7. Summary of Differences Between Generally Accepted Accounting
       Principles in the United States and in Canada

    The consolidated interim financial statements have been prepared in
accordance with U.S. GAAP which, in the case of the Company, conform in all
materials respects with Canadian GAAP, except as set forth below:

    Operations adjustments:
                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net income (loss)
     in accordance with
     U.S. GAAP                  13,320      (1,904)     48,728      19,925
    Implicit interest
     on convertible debt        (1,103)     (1,008)     (4,234)     (2,292)
    Acquired in-process
     research                        -      12,000           -      12,000
    Amortization of new
     product acquisition
     costs                         (14)        (14)        (54)        (54)
    Income tax impact of
     the above adjustments           5        (977)         20        (962)
    _________________________________________________________________________
    Net earnings in accordance with
     Canadian GAAP              12,208       8,097      44,460      28,617
    _________________________________________________________________________
    _________________________________________________________________________

    Earnings per share in accordance with
      Canadian GAAP
        Basic                     0.27        0.18        0.98        0.64
        Diluted                   0.26        0.18        0.96        0.63


    Balance sheet adjustments:
                                September 30, 2004      September 30, 2003
                                   U.S.   Canadian         U.S.   Canadian
                                  GAAP        GAAP        GAAP        GAAP
                                     $           $           $           $

    Current assets             139,032     139,054     225,035     225,203
    Investments                      -           -       1,002         775
    Property, plant
     and equipment              31,252      31,265      20,331      20,351
    Intangible assets          407,875     420,235     265,423     277,837
    Goodwill                    27,467      28,862      27,550      29,342
    Deferred debt
     issue expenses              3,088       3,088       4,233       4,233
    Deferred income tax asset      930         930       1,775       1,775
    Current liabilities         51,362      51,430      50,261      50,634
    Long-term debt             127,916     110,203     129,474     107,527
    Deferred income
     tax liability              38,290      39,376      34,603      35,742
    Shareholders' equity
      Equity component
       of convertible debt           -      24,239           -      24,239
      Capital stock            260,643     267,288     255,743     262,388
      Retained earnings        112,362     107,671      63,634      63,211
      Accumulated other
       comprehensive income     19,071      23,227      11,634      15,775


    AXCAN PHARMA INC.
    Consolidated Balance Sheets                              Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
                                                     September   September
                                                            30,         30,
                                                          2004        2003
                                                    ____________ ____________
                                                    (unaudited)
    ASSETS                                                   $           $

    Current assets
      Cash and cash equivalents                         22,063      37,886
      Short-term investments                            15,922     133,112
      Accounts receivable                               46,518      19,665
      Income taxes receivable                            9,196       5,315
      Inventories (Note 3)                              37,270      20,163
      Prepaid expenses and deposits                      3,499       2,848
      Future income taxes                                4,586       6,214
    _________________________________________________________________________
    Total current assets                               139,054     225,203

    Investments                                              -         775
    Property, plant and equipment, net                  31,265      20,351
    Intangible assets, net (Note 4)                    420,235     277,837
    Goodwill, net                                       28,862      29,342
    Deferred debt issue expenses, net                    3,088       4,233
    Future income taxes                                    930       1,775
    _________________________________________________________________________
                                                       623,434     559,516
    _________________________________________________________________________
    _________________________________________________________________________

    LIABILITIES

    Current liabilities
      Accounts payable and accrued liabilities          47,985      43,791
      Income taxes payable                                 731       4,821
      Instalments on long-term debt                      1,778       1,528
      Future income taxes                                  936         494
    _________________________________________________________________________
    Total current liabilities                           51,430      50,634

    Long-term debt                                     110,203     107,527
    Future income taxes                                 39,376      35,742
    _________________________________________________________________________
                                                       201,009     193,903
    _________________________________________________________________________

    SHAREHOLDERS' EQUITY

    Equity component of convertible debt (Note 5)       24,239      24,239
    Capital stock                                      267,288     262,388
    Retained earnings                                  107,671      63,211
    Accumulated foreign
     currency translation adjustments                   23,227      15,775
    _________________________________________________________________________
                                                       422,425     365,613
    _________________________________________________________________________
                                                       623,434     559,516
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.


    AXCAN PHARMA INC.
    Consolidated Cash Flows                                  Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (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,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
    Operations                       $           $           $           $
    Net earnings                12,208       8,097      44,460      28,617
    Non-cash items
      Implicit interest on
       convertible debt          1,102       1,008       4,234       2,292
      Non-controlling interest       -           -           -        (103)
      Amortization of deferred
       debt issue expenses         291         260       1,144         646
      Other depreciation and
       amortization              4,180       2,068      16,421       8,127
      Loss on disposal of
       assets                      506       1,130         475       1,130
      Foreign currency
       fluctuation                 (89)        567         342         305
      Future income taxes        2,834         648       6,597       2,810
      Changes in working
       capital items
        Accounts receivable    (15,052)      3,053     (27,748)      5,750
        Income taxes receivable (1,373)     (1,837)     (3,752)     (4,459)
        Inventories             (3,700)     (2,328)    (17,157)       (411)
        Prepaid expenses and
         deposits                  223        (311)       (654)       (942)
        Accounts payable and
         accrued liabilities    (2,966)     (4,818)      3,018       9,619
        Income taxes payable    (3,802)      2,491      (4,051)      3,207
    _________________________________________________________________________
    Cash flows from operating
     activities                 (5,638)     10,028      23,329      56,588
    _________________________________________________________________________

    Financing
      Long-term debt                 -         169       2,212     101,825
      Repayment of long-term
       debt                       (471)       (784)     (3,840)     (1,979)
      Equity component of
       convertible debt              -           -           -      24,239
      Repayment of balance of
       purchase price                -      (2,704)          -      (2,704)
      Deferred debt issue expenses   -         (51)          -      (4,589)
      Issue of shares               71         132       4,900       1,103
    _________________________________________________________________________
    Cash flows from financing
     activities                   (400)     (3,238)      3,272     117,895
    _________________________________________________________________________

    Investment
      Acquisition of short-term
       investments              (3,348)    (37,398)    (20,936)   (133,112)
      Disposal of short-term
       investments               3,129           -     138,074      60,740
      Disposal of investments      141         141       1,876         637
      Acquisition of property,
       plant and equipment      (2,333)     (2,066)    (13,409)     (4,302)
      Disposal of property,
       plant and equipment           1           -         405           -
      Acquisition of intangible
       assets                   (3,943)     (7,360)   (149,628)    (81,093)
      Disposal of intangible
       assets                        -           -         917           -
    _________________________________________________________________________
    Cash flows from investment
     activities                 (6,353)    (46,683)    (42,701)   (157,130)
    _________________________________________________________________________

    Foreign exchange gain on
     cash held in foreign
     currencies                    101          42         277         528
    _________________________________________________________________________

    Net increase (decrease)
     in cash and cash
     equivalents               (12,290)    (39,851)    (15,823)     17,881
    Cash and cash equivalents,
     beginning of period        34,353      77,737      37,886      20,005
    _________________________________________________________________________

    Cash and cash equivalents,
     end of period              22,063      37,886      22,063      37,886
    _________________________________________________________________________
    _________________________________________________________________________

    Additional information
      Interest received            674       1,019       1,031       1,427
      Interest paid                 31         192       6,122         342
      Income taxes paid          9,309       3,171      23,599      12,417
    _________________________________________________________________________
    _________________________________________________________________________

    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.


    AXCAN PHARMA INC.
    Consolidated Earnings                                    Canadian 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,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $

    REVENUE                     60,933      48,712     243,792     179,542
    _________________________________________________________________________

    Cost of goods sold          11,060      12,738      54,247      44,474
    Selling and administrative
     expenses                   18,618      16,909      76,574      63,461
    Research and development
     expenses                    6,088       3,096      18,641      11,638
    Depreciation and
     amortization                4,180       2,068      16,421       8,127
    _________________________________________________________________________
                                39,946      34,811     165,883     127,700
    _________________________________________________________________________

    Operating income            20,987      13,901      77,909      51,842
    -------------------------------------------------------------------------

    Financial expenses           2,912       2,668      11,131       6,590
    Interest income               (354)       (559)       (762)     (1,642)
    Loss (gain) on foreign
     currency                     (200)         48        (308)        128
    Takeover-bid expenses            -           -           -       3,697
    _________________________________________________________________________
                                 2,358       2,157      10,061       8,773
    _________________________________________________________________________

    Earnings before income
     taxes                      18,629      11,744      67,848      43,069
    Income taxes                 6,421       3,647      23,388      14,452
    _________________________________________________________________________
    NET EARNINGS                12,208       8,097      44,460      28,617
    _________________________________________________________________________
    _________________________________________________________________________

    Earnings per common share
      Basic                       0.27        0.18        0.98        0.64
      Diluted                     0.26        0.18        0.96        0.63
    _________________________________________________________________________
    _________________________________________________________________________

    Weighted average number of common shares
      Basic                 45,561,149  44,993,431  45,286,199  44,914,944
      Diluted               55,214,113  45,714,290  52,787,964  45,607,992
    _________________________________________________________________________
    _________________________________________________________________________


    AXCAN PHARMA INC.
    Consolidated Retained Earnings                           Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (unaudited)                For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Balance, beginning of
     period                     95,463      55,114      63,211      34,594
    Net earnings                12,208       8,097      44,460      28,617
    _________________________________________________________________________
    Balance, end of period     107,671      63,211     107,671      63,211
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.
    >>

    AXCAN PHARMA INC.
    Notes to Consolidated Financial Statements
    _________________________________________________________________________
    In accordance with Canadian GAAP
    (in thousands of U.S. dollars, except share related data)
    (unaudited)

    1. Significant Accounting Policies

    The accompanying unaudited financial statements are prepared in
accordance with Canadian GAAP for interim financial statements and do not
include all the information required for complete financial statements. They
are consistent with the policies outlined in the Company's audited financial
statements for the year ended September 30, 2003. The interim financial
statements and related notes should be read in conjunction with the Company's
audited financial statements for the year ended September 30, 2003. When
necessary, the financial statements include amounts based on informed
estimates and best judgements of management. The results of operations for the
interim periods reported are not necessarily indicative of results to be
expected for the year. Consolidated financial statements prepared in U.S.
dollars and in accordance with U.S. GAAP are available to shareholders and
filed with regulatory authorities.


    2. Products Acquisitions

    On November 18, 2003, the Company acquired the rights to a group of
products from Aventis Pharma S.A for a cash purchase price of $145,000,000.
The products acquired were CARAFATE and BENTYL for the U.S. market and
SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market. On December 3,
2002, the Company acquired the worldwide rights to PANZYTRAT enzyme product
line from Abbott Laboratories.

    During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the year ended September 30, 2004,
a portion of the sales of these products is still managed by the sellers.
Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the year ended September
30, 2004 were $7,667,940 ($14,255,979 in 2003), the Company only included in
its revenue an amount of $4,685,673 ($9,463,645 in 2003) representing the net
sales less cost of goods sold and other seller related expenses.

    <<
    3. Inventories
                                                     September   September
                                                            30,         30,
                                                          2004        2003
                                                    ____________ ____________
                                                             $           $

    Raw materials and packaging material                10,311       8,441
    Work in progress                                     1,781       1,466
    Finished goods                                      25,178      10,256
    _________________________________________________________________________
                                                        37,270      20,163
    _________________________________________________________________________
    _________________________________________________________________________


    4. Intangible Assets

                                                        September 30, 2004
    _________________________________________________________________________
                                                 Accumulated
                                          Cost  amortization           Net
    _________________________________________________________________________
                                             $             $             $
    Trademarks, trademark licenses and
    manufacturing rights with a:
      Finite life                      292,863        30,338       262,525
      Indefinite life                  170,127        12,417       157,710
    _________________________________________________________________________
                                       462,990        42,755       420,235
    _________________________________________________________________________
    _________________________________________________________________________


                                                        September 30, 2003
    _________________________________________________________________________
                                                 Accumulated
                                          Cost  amortization           Net
    _________________________________________________________________________
                                             $             $             $
    Trademarks, trademark licenses and
    manufacturing rights with a:
    Finite life                        124,157        20,414       103,743
    Indefinite life                    186,512        12,418       174,094
    _________________________________________________________________________
                                       310,669        32,832       277,837
    _________________________________________________________________________
    _________________________________________________________________________
    >>

    The cost of the product TAGAMET was transferred from intangible assets
with an indefinite life to intangible assets with a finite life following
changes in the regulatory rules applicable to this product and resulting in
the modification of its useful life. The net cost of this product as of
October 1, 2003, which amounted to $21,852,859, is therefore amortized over a
15-year period.


    5. Equity Component of Convertible Debt

    The Company issued for $125 million aggregate principal amount of its
41/4% convertible subordinated notes on March 5, 2003. According to the
features of this debt, an amount of $24,238,899, representing the estimated
value of the right of conversion, was included in the shareholders' equity as
equity component of convertible debt and an amount of $100,761,101 was
included in the long-term debt as liability component of convertible debt. For
the year ended September 30, 2004, implicit interest of 9.17% and totalling
$4,233,768 ($2,292,478 in 2003) was accounted for and added to the liability
component.


    6. Segmented Information

    The Company considers that it operates in a single reportable field of
activity, the pharmaceutical industry, since its other activities do not
account for a significant portion of segment assets.

    The Company operates in the following geographic areas:

    <<
                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Revenue
      Canada
        Domestic sales           7,485       5,682      28,002      20,555
        Foreign sales                -           -           -           -
      United States
        Domestic sales          41,522      30,943     162,810     113,875
        Foreign sales            1,421           -       3,921           -
      Europe
        Domestic sales           9,222      10,816      43,988      40,429
        Foreign sales            1,228       1,234       4,846       4,531
      Other                         55          37         225         152
    _________________________________________________________________________
                                60,933      48,712     243,792     179,542
    _________________________________________________________________________
    _________________________________________________________________________


                                                     September   September
                                                            30,         30,
                                                          2004        2003
                                                    ____________ ____________
    Property, plant, equipment, intangible                   $           $
     assets and goodwill
      Canada                                            44,676      19,311
      United States                                    131,602     133,695
      Europe                                           265,431     138,530
      Other                                             38,653      35,994
    _________________________________________________________________________
                                                       480,362     327,530
    _________________________________________________________________________
    _________________________________________________________________________


    7. Financial Information Included in the Consolidated Statement of
       Earnings

    a) Financial expenses

                               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,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Interest on long-term debt   2,598       2,191       9,848       5,647
    Bank charges                    23         217         139          97
    Amortization of deferred
     debt issue expenses           291         260       1,144         646
    _________________________________________________________________________
                                 2,912       2,668      11,131       6,590
    _________________________________________________________________________
    _________________________________________________________________________

    b) Other information

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Non-controling interest          -           -           -        (103)
    Rental expenses                394         307       1,216       1,228
    Depreciation of property,
     plant and equipment           810       1,071       3,728       3,477
    Amortization of intangible
     assets                      3,370         997      12,693       4,650
    Investment tax credits
     applied against research
     and development expenses      519         142       1,163         488

    c) Earnings per common share

    The following tables reconcile the numerators and the denominators of the
    basic and diluted earnings per common share computations:

                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net earnings
      Basic                     12,208       8,097      44,460      28,617
      Financial expenses
       relating to the
       convertible
       subordinated notes        2,169           -       6,379           -
    _________________________________________________________________________

    Net earnings on a
     diluted basis              14,377       8,097      50,839      28,617
    _________________________________________________________________________
    _________________________________________________________________________

    Weighted average number
     of common shares
     outstanding            45,561,149  44,993,431  45,286,199  44,914,944
    Effect of dilutive
     stock options             728,851     548,067     820,872     472,599
    Effect of dilutive
     equity component of
    purchase price                   -     172,792           -     220,449
    Effect of dilutive
     convertible
     subordinated notes      8,924,113           -   6,680,893           -
    _________________________________________________________________________
    Adjusted weighted
     average number of
     common shares
     outstanding            55,214,113  45,714,290  52,787,964  45,607,992
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding at the end
     of the period                                  45,562,336  45,004,320
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding as at
     November 9, 2004                                     45,562,336
    _________________________________________________________________________
    _________________________________________________________________________
    >>

    Options to purchase 283,000 and 754,100 common shares were outstanding as
at September 30, 2004 and 2003 respectively but were not included in the
computation of diluted earnings per share for the years ended September 30,
2004 and 2003 respectively because the exercise price of the options was
greater than the average market price of the common shares.

    The $125 million aggregate principal amount of 4 1/4% subordinated notes,
due 2008, are initially convertible into 8,924,113 common shares. The notes
are convertible during any quarterly conversion period if the closing price
per share for at least 20 consecutive trading days during the 30 consecutive
trading-day period ending on the first day of the conversion period exceeds
110% of the conversion price in effect on that thirtieth trading day. Since
this trigger event occurred during the second, the third and fourth quarter of
the current fiscal year, the 8,924,113, common shares are included in the
weighted average number of common shares outstanding for these periods. The
notes are also convertible during the five business-day period following any
10 consecutive trading-day period in which the daily average of the trading
prices for the notes was less than 95% of the average conversion value for the
notes during that period.


    8. Stock Options

    The estimated fair value of stock options at the time of grant using the
Black-Scholes option pricing model was as follows:

    <<
                               For the     For the
                           three-month three-month
                                period      period     For the     For the
                                 ended       ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2003        2004        2003
                          _____________ ___________ ___________ _____________

    Fair value per option        $8.12       $5.94       $6.80       $5.41
    Assumptions used in
     Black-Scholes option
     pricing model
      Expected volatility          43%         45%         44%         46%
      Risk-free interest rate    4.04%       4.07%       4.17%       4.43%
      Expected option life
       (years)                      6           6           6           6
      Expected dividend             -           -           -           -


    The Company's net earnings, basic earnings per share and diluted earnings
per share would have been reduced on a pro-forma basis as follows:

                               For the     For the     For the     For the
                           three-month three-month three-month three-month
                                period      period      period      period
                                 ended       ended       ended       ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2004        2003        2003
                          _____________ ___________ ___________ _____________
                           As reported   Pro-forma As reported   Pro-forma
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net earnings                12,208      11,132       8,097       7,141
    Basic earnings per share      0.27        0.24        0.18        0.16
    Diluted earnings per share    0.26        0.24        0.18        0.16

                               For the     For the     For the     For the
                            year ended  year ended  year ended  year ended
                             September   September   September   September
                                    30,         30,         30,         30,
                                  2004        2004        2003        2003
                          _____________ ___________ ___________ _____________
                           As reported   Pro-forma As reported   Pro-forma
                          _____________ ___________ ___________ _____________
                                     $           $           $           $
    Net earnings                44,460      40,174      28,617      25,248
    Basic earnings per share      0.98        0.89        0.64        0.56
    Diluted earnings per share    0.96        0.88        0.63        0.55

/T/


David W. Mims, Executive Vice President and Chief Operating Officer, Axcan Pharma Inc., (205) 991-8085, ext. 3223; Julie M. Thibodeau, Manager, Investor Relations, Axcan Pharma Inc., (450) 467-2600, ext. 2062, www.axcan.com;