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Axcan Reports Strong First Quarter 2004 Results Revenue Up 52% to $57.6 Million


Feb 05, 2004 - 12:00 ET

Axcan Reports Strong First Quarter 2004 Results Revenue Up 52% to $57.6 Million

MONT-SAINT-HILAIRE, QUEBEC--Axcan Pharma Inc. ("Axcan" or the "Company") announced today operating 
results for the quarter ended December 31, 2003, the Company's first quarter of the fiscal year ending 
September 30, 2004.  The Company reported revenue growth of 52% to $57.6 million and net income of $10.4 
million, or $0.23 per share (fully diluted), representing 59% growth in net income and 64% growth in 
diluted income per share, as compared to the first quarter of fiscal 2003 (all amounts stated in U.S. 
dollars). 

"We are pleased to announce that our first quarter financial results reflect another period of strong and 
consistent performance," said Léon F. Gosselin, President and Chief Executive Officer of Axcan. "These 
results demonstrate Axcans continued record of strong sales and income growth. During the quarter, Axcan 
also made significant progress in advancing its development pipeline in order to provide for the next 
phase of its growth," he concluded.

RECENT DEVELOPMENTS

Acquisition

In November 2003, Axcan acquired a group of gastrointestinal products from Aventis. This acquisition is 
both strategic and accretive, and  allows Axcan to  further expand its business in North America.

Product development

In December 2003, Axcan reported positive efficacy and safety data for ITAX, a drug acquired from Abbott 
Laboratories for the treatment of gastrointestinal symptoms caused by reduced gastrointestinal motility. 
Results of Phase II studies conducted in both Caucasian and Japanese patients provided very important 
data on the absence of cardiac toxicity.   

Shortly after the end of the quarter, the U.S. Food and Drug Administration ("FDA") endorsed Axcans 
proposal to progress ITAX directly to a Phase III clinical trial. Axcan intends to initiate Phase III 
clinical studies to evaluate the efficacy of ITAX in the treatment of functional dyspepsia (also known as 
non ulcer dyspepsia), in the second half of fiscal 2004. Axcan believes that, if approved by the FDA, 
ITAX has the potential to become its largest product ever, generating annual revenue of approximately 
U.S. $200-300 million within 3-5 years after launch.

Research and development

Axcan will provide an update on its research and development pipeline at the Companys Analyst/Investor 
Luncheons to be held in New York City on February 17, 2004, and Montreal on February 19, 2004.

INTERIM FINANCIAL REPORT

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

CONFERENCE CALL

Axcan will host a conference call at 4:30 P.M. EST, on February 5, 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) 814-4859 (Canada and United States) or 
(416) 640-4127 (international). A replay of the call will be available until February 12, 2004. The 
telephone number to access the replay of the call is (416) 640-1917 code: 21035576.

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. 

To the extent any statements made in this release contain information that is not historical, these 
statements are essentially forward looking and are subject to risks and uncertainties, including the 
difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact 
of competitive products and pricing, new product development and launch, reliance on key strategic 
alliances, availability of raw materials, the regulatory environment, fluctuations in operating results 
and other risks detailed from time to time in the Company's filings with the Securities and Exchange 
Commission. 

The name ITAX appearing in this press release is a trademark of Axcan Pharma Inc. and its subsidiaries.

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. Axcans current products 
include ULTRASE, VIOKASE and PANZYTRAT for the treatment of certain gastrointestinal symptoms related to 
cystic fibrosis in the case of ULTRASE; URSO 250 and DELURSAN for the treatment of certain cholestatic 
liver diseases; SALOFALK and CANASA for the treatment of certain inflammatory bowel diseases; and 
PHOTOFRIN for the treatment of certain types of gastrointestinal and other conditions. In addition, Axcan 
currently has three products pending approval, one an additional indication in Europe for a currently 
marketed product, one a new formulation for a product currently marketed in the United States and the 
third one, an indication for a new product in the United States.  Axcan also has a number of 
pharmaceutical projects in all phases of development. Axcan reported revenue of $57.6 million and 
operating income of $17.0 million for the three-month period ended December 31, 2003.

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 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 $37.8 million (65.6% of total 
revenue) for the three-month period ended December 31, 2003, compared to $25.2 million (66.7% of total 
revenue) for the same period of fiscal 2003.  In Canada, revenue was $6.6 million (11.5% of total 
revenue) for the three-month period ended December 31, 2003, compared to $4.9 million (13.0% of total 
revenue) for the same period of fiscal 2003.  In Europe, revenue was $13.2 million (22.9% of total 
revenue) for the three-month period ended December 31, 2003, compared to $7.7 million (20.3% of total 
revenue) for the same period of fiscal 2003. 

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

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

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

Critical Accounting Policies

Axcan's consolidated financial statements are prepared in accordance with 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 impact financial statements.  Discussed below are those policies that we believe 
are critical and require the use of complex judgment in their application.

Use of Estimates

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

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

Axcan's goodwill and intangible assets are stated at cost, less accumulated amortization. Prior to 
October 1, 2001, goodwill and intangible assets were amortized using the straight-line method based on 
their estimated useful lives from 7 to 25 years.  Since October 1, 2001, the Company no longer amortizes 
goodwill and intangible assets with an indefinite life. Management evaluates the value of the unamortized 
portion of goodwill and intangible assets annually, by comparing the carrying value to the future 
benefits of the Company's activities or the expected sale of pharmaceutical products. Should there be a 
permanent impairment in value or if the unamortized balance exceeds recoverable amounts, a write-down 
will be recognized for the current year.  To date, Axcan has not recognized any permanent impairment in 
value.  Intangible assets with finite life are still amortized over their estimated useful lives. 

Research and Development Expenses

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

Acquisition of products

On November 18, 2003, the Company acquired the rights to a group of products from Aventis.  The acquired 
products are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and PROCTOSEDYL for the 
Canadian market.  The $145-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 million. 

During a transition period, the sellers in each of these acquisition transactions may act as selling 
agents for the management of these products.  For the three-month period ended December 31, 2003, 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 three-month period ended December 31, 2003, 
were $2,892,231, the Company included in its revenue an amount of $1,748,359 representing the net sales 
less cost of goods sold and other seller-related expenses. 
 
Results of Operations

The following table sets forth, for the quarters indicated, the percentage of revenue represented by 
items in Axcans consolidated statements of earnings:

/T/

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                2003            2002
---------------------------------------------------------------------

Revenue                                          100%            100%
---------------------------------------------------------------------

Cost of goods sold                              25.3            24.0 
Selling and administrative expenses             31.9            38.7 
Research and development expenses                6.9             5.5 
Amortization                                     6.5             5.4 
---------------------------------------------------------------------
                                                70.6            73.6 
---------------------------------------------------------------------

Operating income                                29.4            26.4 
---------------------------------------------------------------------

Financial expenses                               2.9             0.4 
Interest income                                 (0.3)           (0.8)
Loss on foreign exchange                         0.1             0.6 
---------------------------------------------------------------------
                                                 2.7             0.2 
---------------------------------------------------------------------

Income before income taxes                      26.7            26.2 
Income taxes                                     8.6             8.9 
---------------------------------------------------------------------
Net income                                      18.1            17.3 
---------------------------------------------------------------------
---------------------------------------------------------------------

/T/

Quarter ended December 31, 2003 compared to quarter ended December 31, 2002

Revenue

Revenue increased $19.8 million (52.4%) to $57.6 million for the first quarter ended December 31, 2003 
from $37.8 million for the corresponding quarter of the preceding fiscal year. This increase in revenue 
primarily resulted from increased revenues from sales made by the French subsidiary, following the 
acquisitions of DELURSAN as well as the PANZYTRAT product line.  Also contributing to the increase were 
strong sales of CANASA rectal suppositories and ULTRASE in the U.S. and $5.6 million in U.S. and Canadian 
sales of the AVAX product line which was acquired in November 2003.

Cost of goods sold

Cost of goods sold consists principally of costs of raw materials, royalties and manufacturing costs. 
Axcan outsources most of its manufacturing requirements. Cost of goods sold increased $5.5 million 
(60.4%) to $14.6 million for the quarter ended December 31, 2003 from $9.1 million for the corresponding 
quarter of the preceding fiscal year. As a percentage of revenue, cost of goods sold for the quarter 
ended December 31, 2003 increased marginally as compared to the corresponding quarter of the preceding 
fiscal year, at 25.3% and 24.0%, respectively. This increase was due primarily to the newly acquired 
products which have a slightly different margin than the products already sold by Axcan.

Selling and administrative expenses

Selling and administrative expenses consist principally of salaries and other costs associated with 
Axcan's sales force and marketing activities. Selling and administrative expenses increased $3.8 million 
(26.0%) to $18.4 million for the quarter ended December 31, 2003 from $14.6 million for the corresponding 
quarter of the preceding fiscal year. This increase is mainly due to an increase in our sales force as a 
result of the recent acquisition of additional products.

Research and development expenses

Research and development expenses consist principally of fees paid to outside parties that Axcan uses to 
conduct clinical studies and to submit governmental approval applications on its behalf as well as the 
salaries and benefits paid to its personnel involved in research and development projects. Research and 
development expenses increased $1.8 million (85.7%) to $3.9 million for the quarter ended December 31, 
2003 from $2.1 million for the corresponding quarter of the preceding fiscal year. 

Depreciation and amortization

Depreciation and amortization consists principally of intangible assets with finite life. Intangible 
assets include trademarks, trademark licenses and manufacturing rights. Amortization increased $1.7 
million (85.0%) to $3.7 million for the quarter ended December 31, 2003 from $2.0 million for the 
corresponding quarter of the preceding fiscal year.  The increase is mainly due to the amortization of 
the AVAX product line acquired from Aventis on November 18, 2003 and of TAGAMET, which was reclassified 
from intangible assets with an indefinite life to intangible assets with a finite life on October 1, 
2003.

Financial expenses

Financial expenses consist principally of interest and fees paid in connection with money borrowed for 
acquisitions. Financial expenses increased $1.5 million to $1.7 million for the quarter ended December 
31, 2003 from $0.2 million for the corresponding quarter of the preceding fiscal year.  This increase is 
mainly due to interest expense on the $125.0 million aggregate principal amount of 4 1/4% convertible 
subordinated notes due 2008, which were issued on March 5, 2003.

Income Taxes

Income taxes amounted to $5.0 million for the quarter ended December 31, 2003, compared to $3.4 million 
for the quarter ended December 31, 2002. The effective tax rates were 32.2% for the quarter ended 
December 31, 2003 and 33.9% for the quarter ended December 31, 2002.

Net income

Net income was $10.4 million or $0.23 of basic and diluted income per share, for the quarter ended 
December 31, 2003, compared to $6.6 million or $0.15 of basic income per share and $0.14 of diluted 
income per share for the corresponding quarter of the preceding year. The basic weighted average number 
of common shares outstanding used to establish the per share amounts increased from 44.9 million for the 
quarter ended December 31, 2002 to 45.0 million for the quarter ended December 31, 2003, following the 
exercise of options previously granted pursuant to Axcans stock option plan.

Canadian GAAP

The differences (in thousands of dollars) between U.S. and Canadian GAAP which affect net income for the 
three months ended December 31, 2003 and 2002 are summarized in the following table:

/T/

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                 2003           2002
--------------------------------------------------------------------- 
                                                    $              $

Net income in accordance with U.S. GAAP        10,435          6,557 
Implicit interest on convertible debt          (1,026)             -
Amortization of new products acquisition costs    (13)           (13)
Income tax impact of the above adjustments          5              5
--------------------------------------------------------------------- 

Net earnings in accordance with Canadian GAAP   9,401          6,549 
---------------------------------------------------------------------
---------------------------------------------------------------------

/T/

On March 5, 2003, the Company closed an offering of $125,000,000 aggregate principal amount of 4 1/4% 
convertible subordinated notes due April 15, 2008.  As a result of the terms of the notes, under Canadian 
GAAP, an amount of $24,238,899 was included in shareholders equity as equity component of the 
convertible debt and an amount of $100,761,101 was included in long-term debt, as the liability component 
of the convertible notes.  For the three-month period ended December 31, 2003, implicit interest in the 
amount of $1,025,603 was accrued for and added to the liability component.

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

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

Liquidity and capital resources

Axcan's cash, cash equivalents and short-term investments decreased $148.5 million to $22.4 million at 
December 31, 2003 from $170.9 million at September 30, 2003. As of December 31, 2003, working capital was 
$42.2 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 $24.9 million (4.6%) to $570.2 million as of December 31, 
2003 from $545.3 million as of September 30, 2003.  Shareholders equity increased $19.4 million (5.9%) 
to $350.4 million as of December 31, 2003 from $331.0 million as of September 30, 2003.

Historically, Axcan has financed research and development, operations, acquisitions, milestone payments 
and investments out of the proceeds of public and private sales of its equity, cash flow from operations, 
and loans from joint venture partners and financial institutions. Since it went public in Canada in 
December 1995, Axcan has raised approximately $243.0 million from sales of its equity and has borrowed 
from financial institutions to finance the acquisition of Axcan Scandipharm, Inc. and from Schwarz 
Pharma, Inc., a former joint venture partner, to finance the acquisition of Axcan URSO (these amounts 
have since been repaid).

Axcan has credit facilities totalling $55.0 million with two Canadian chartered banks.  The facilities 
consist of a $15.0 million revolving operating facility renewable annually and a $40.0 million 364-day, 
extendible revolving facility with a three-year term-out option maturing on October 12, 2007.

The credit facilities are secured by a first priority security interest on all present and future 
acquired assets of the Company and its material subsidiaries, and provide for the maintenance of certain 
financial ratios.  Cash dividends, repurchase of shares (other than redeemable shares issued in 
connection with a permitted acquisition) and similar distributions to shareholders are limited to 10% of 
the Company's net income for the preceding fiscal year.  As of December 31, 2003, Axcan was in compliance 
with all credit facilities' covenants.

The interest rate varies, depending on the Company's leverage between 25 basis points and 125 basis 
points over Canadian prime rate or U.S. base rate, and between 125 basis points and 225 basis points over 
the LIBOR rate or bankers acceptances.  The credit facilities may be drawn in U.S. dollar or in Canadian 
dollar equivalent.  As at December 31, 2003, there was no amount outstanding under these credit 
facilities.

Cash Flows and Financial Resources

Cash flow from operating activities decreased $22.5 million (105.6%) from $21.3 million of cash provided 
by operating activities for the three-month period ended December 31, 2002 to a $1.2 million use of cash 
for the three-month period ended December 31, 2003.   This decrease is mainly due to the increase in 
accounts receivable and inventories during the quarter following the increase in sales and the 
acquisition of new products.  Cash flows used for financing activities for the three-month period ended 
December 31, 2003 were $0.1 million.  Cash flows used for investment activities for the three-month 
period ended December 31, 2003 were $21.1 million mainly due to the net cash used for the acquisition of 
intangible assets with the proceeds from the disposal of short-term investments.

Axcan's research and development spending totalled $12.1 million for fiscal 2003 and $8.9 million for 
fiscal 2002. Axcan believes that its cash and operating cash flow will be adequate to support its 
existing ongoing operational requirements for at least 12 months. However, Axcan regularly reviews 
product and other acquisition opportunities and may therefore require additional debt or equity 
financing. Axcan cannot be certain that such additional financing, if required, will be available on 
acceptable terms, or at all.

Axcan believes that cash, cash equivalents and short-term investments, together with funds provided by 
operations, will be sufficient to meet its operating cash requirements, including the  development of 
products through research and development activities, capital expenditures and repayment of its debt.  
Assuming regulatory approvals of future products and indications stemming from its research and 
development efforts, Axcan believes that these expenditures will also significantly contribute to the 
increase in funds provided by operations.

Earnings coverage

The earnings coverage ratios are the following:

Under U.S. GAAP, for the twelve months ended December 31, 2003, our interest requirements amounted to 
$5.9 million on a pro forma basis and our earnings coverage ratio, defined as the ratio of earnings 
before interest and income taxes to pro forma interest requirements, was 7.9 to one.

Under Canadian GAAP, for the twelve months ended December 31, 2003, our interest requirements amounted to 
$10.2 million on a pro forma basis and our earnings coverage ratio was 6.5 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 $4.3 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 Axcans results of operations.

Foreign Currency Risk

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

Interest Rate Risk

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

Supply and Manufacture

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

Volatility of Share Prices

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

Forward-looking Statements

This document contains forward-looking statements, which reflect the Company's current expectations 
regarding future events.  These forward-looking statements include the expected sales growth of the 
Companys products and the expected increase in funds from operations resulting from the Company's 
research and development expenditures.  The forward-looking statements involve risks and uncertainties.  
Actual events could differ materially from those projected herein and depend on a number of factors, 
including the successful and timely completion of clinical studies, the uncertainties related to the 
regulatory process, commercialization of the drug or therapy thereafter, difficulty of predicting 
acceptance and demand for pharmaceutical products, impact of competitive products and pricing, new 
product development and launch, availability of raw materials, and fluctuations in operating results.  
Investors should consult the Companys ongoing quarterly filings, annual reports and 40-F filings for 
additional information on risks and uncertainties relating to these forward-looking statements.  The 
reader is cautioned not to rely on these forward-looking statements.  The Company disclaims any 
obligation to update these forward-looking statements.

On behalf of Management

(signed)

Jean Vezina

Vice President, Finance and Chief Financial Officer  

/T/

AXCAN PHARMA INC.
Consolidated Balance Sheets
---------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars)
                                         December 31    September 30
                                                2003            2003
--------------------------------------------------------------------- 
                                          (unaudited)
ASSETS                                             $               $

Current assets
  Cash and cash equivalents                   15,616          37,773 
  Short-term investments available for sale    6,752         133,112 
  Accounts receivable                         28,503          19,685 
  Income taxes receivable                      7,898           5,294 
  Inventories (Note 3)                        28,505          20,163 
  Prepaid expenses and deposits                3,839           2,794 
  Deferred income taxes                        6,147           6,214
---------------------------------------------------------------------  
Total current assets                          97,260         225,035 

Investments                                      864           1,002 
Property, plant and equipment, net            21,847          20,331 
Intangible assets, net (Note 4)              416,435         265,423 
Goodwill, net                                 27,550          27,550 
Deferred debt issue expenses, net              3,975           4,233 
Deferred income taxes                          2,280           1,775
---------------------------------------------------------------------  
Total assets                                 570,211         545,349
--------------------------------------------------------------------- 
---------------------------------------------------------------------  

LIABILITIES

Current liabilities
  Accounts payable and accrued liabilities    42,007          43,418 
  Income taxes payable                        10,130           4,821 
  Instalments on long-term debt                1,622           1,528 
  Deferred income taxes                        1,287             494
---------------------------------------------------------------------  
Total current liabilities                     55,046          50,261 

Long-term debt                               129,282         129,474 
Deferred income taxes                         35,475          34,603 
--------------------------------------------------------------------- 
Total liabilities                            219,803         214,338 
--------------------------------------------------------------------- 

SHAREHOLDERS' EQUITY

Series A preferred shares,
 without par value, shares
 authorized: 14,175,000; no shares issued.         -               -
Series B preferred shares,
 without par value, shares
 authorized: 12,000,000; no shares issued.         -               -
Common shares, without par value,
 unlimited shares authorized, 45,061,531
 issued as at December 31, 2003 and
 45,004,320 as at September 30, 2003.        256,178         255,743 
Retained earnings                             74,069          63,634 
Accumulated other comprehensive income        20,161          11,634
---------------------------------------------------------------------  
Total shareholders' equity                   350,408         331,011 
--------------------------------------------------------------------- 
Total liabilities and shareholders' equity   570,211         545,349 
--------------------------------------------------------------------- 
--------------------------------------------------------------------- 

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



AXCAN PHARMA INC.
Consolidated Statements of Shareholders' Equity
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
                                          For the three-month period
                                                   ended December 31
--------------------------------------------------------------------- 
                                                2003            2002 
--------------------------------------------------------------------- 

Common shares (number)
Balance, beginning of period              45,004,320      44,863,198 
  Exercise of options                         57,211           9,086
---------------------------------------------------------------------  
Balance, end of period                    45,061,531      44,872,284 
--------------------------------------------------------------------- 
--------------------------------------------------------------------- 

                                                   $               $
Common shares
Balance, beginning of period                 255,743         254,640 
Exercise of options                              435              58 
--------------------------------------------------------------------- 
Balance, end of period                       256,178         254,698 
--------------------------------------------------------------------- 

Retained earnings
Balance, beginning of period                  63,634          43,709 
  Net income                                  10,435           6,557 
--------------------------------------------------------------------- 
Balance, end of period                        74,069          50,266 
--------------------------------------------------------------------- 

Accumulated other comprehensive income (loss)
Balance, beginning of period                  11,634          (3,562)
  Foreign currency translation adjustments     8,527           4,167 
--------------------------------------------------------------------- 
Balance, end of period                        20,161             605 
--------------------------------------------------------------------- 
Total shareholders' equity                   350,408         305,569 
--------------------------------------------------------------------- 
--------------------------------------------------------------------- 

Comprehensive income
Foreign currency translation adjustments       8,527           4,167 
Net income                                    10,435           6,557 
--------------------------------------------------------------------- 
Total comprehensive income                    18,962          10,724 
--------------------------------------------------------------------- 
--------------------------------------------------------------------- 

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



AXCAN PHARMA INC.
Consolidated Statements of Cash Flows
--------------------------------------------------------------------- 
In accordance with U.S. GAAP
(in thousands of U.S. dollars)
(unaudited)                               For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                2003            2002 
---------------------------------------------------------------------
                                                   $               $
Operations
Net income                                    10,435           6,557 
Non-cash items
  Non-controlling interest                         -             (54)
  Amortization of deferred debt issue expenses   258              25 
  Other depreciation and amortization          3,723           2,038 
  Loss on disposal of
   property, plant and equipment                  87               -
  Foreign currency fluctuation                     -              (5)
  Deferred income taxes                        1,303           2,467 
  Share in net loss of joint ventures              -              55 
  Changes in working capital items:
    Accounts receivable                       (8,864)          8,107 
    Income taxes receivable                   (2,606)           (657)
    Inventories                               (8,376)            982 
    Prepaid expenses and deposits             (1,049)         (1,443)
    Accounts payable and accrued liabilities  (1,386)          3,787 
    Income taxes payable                       5,323            (566)
---------------------------------------------------------------------
Cash flows from operating activities          (1,152)         21,293 
---------------------------------------------------------------------

Financing
  Long-term debt                                   -             136 
  Repayment of long-term debt                   (542)           (332)
  Issue of shares                                435              58 
---------------------------------------------------------------------
  Cash flows from financing activities          (107)           (138)
---------------------------------------------------------------------

Investment
  Disposal of short-term investments         126,360          54,748 
  Disposal of investments                        138             129 
  Acquisition of property, plant and equipment(2,363)           (291)
  Disposal of property, plant and equipment      326               - 
  Acquisition of intangible assets          (145,590)        (71,935)
---------------------------------------------------------------------
Cash flows from investment activities        (21,129)        (17,349)
---------------------------------------------------------------------

Foreign exchange gain
 on cash held in foreign currencies              231             248 
---------------------------------------------------------------------

Net increase (decrease) in
 cash and cash equivalents                   (22,157)          4,054 
Cash and cash
 equivalents, beginning of period             37,773          19,977
--------------------------------------------------------------------- 

Cash and cash equivalents, end of period      15,616          24,031
---------------------------------------------------------------------
--------------------------------------------------------------------- 

Additional information
  Interest received                              220             256 
  Interest paid                                   66              86 
  Income taxes paid                              952           2,375 
---------------------------------------------------------------------
---------------------------------------------------------------------

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


AXCAN PHARMA INC.
Consolidated Statements of Operations
---------------------------------------------------------------------
In accordance with U.S. GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                2003            2002 
---------------------------------------------------------------------
                                                   $               $

REVENUE                                       57,565          37,846 
---------------------------------------------------------------------

Cost of goods sold                            14,572           9,069 
Selling and administrative expenses           18,367          14,630 
Research and development expenses              3,933           2,101 
Depreciation and amortization                  3,723           2,038
--------------------------------------------------------------------- 
                                              40,595          27,838 
---------------------------------------------------------------------

Operating income                              16,970          10,008 
---------------------------------------------------------------------

Financial expenses                             1,681             167 
Interest income                                 (191)           (283)
Loss on foreign currency                          84             209 
---------------------------------------------------------------------
                                               1,574              93 
---------------------------------------------------------------------

Income before income taxes                    15,396           9,915 
Income taxes                                   4,961           3,358 
---------------------------------------------------------------------
NET INCOME                                    10,435           6,557 
---------------------------------------------------------------------
---------------------------------------------------------------------

Income per common share 
  Basic                                         0.23            0.15 
  Diluted                                       0.23            0.14
--------------------------------------------------------------------- 
---------------------------------------------------------------------

Weighted average number of common shares
Basic                                     45,019,129      44,866,652 
Diluted                                   45,542,094      45,569,591 
---------------------------------------------------------------------
---------------------------------------------------------------------

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



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

/T/

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 Companys audited financial statements for the year ended September 30, 2003.  When 
necessary, the financial statements include amounts based on informed estimates and best judgements of 
management.  The results of operations for the interim periods reported are not necessarily indicative of 
results to be expected for the year. Consolidated financial statements prepared in U.S. dollars and in 
accordance with Canadian GAAP are available to shareholders and filed with regulatory authorities.

2. Product acquisition

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

During a transition period, the sellers may act as agents for the management of the products sales. For 
the three-month period ended December 31, 2003, 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 three-month period ended December 31, 2003 were $2,892,231 ($796,881 in 2002), the Company only 
included in its revenue an amount of $1,748,359 ($541,836 in 2002) representing the net sales less cost 
of goods sold and other seller related expenses.

/T/

3. Inventories

                                    December 31         September 30
                                           2003                 2003 
---------------------------------------------------------------------
                                              $                    $

Raw materials and packaging material     11,604                8,441 
Work in progress                          1,477                1,466 
Finished goods                           15,424               10,256 
---------------------------------------------------------------------
                                         28,505               20,163 
---------------------------------------------------------------------
---------------------------------------------------------------------


4. Intangible assets
                                                December 31, 2003
--------------------------------------------------------------------------
                                                   Accumulated
                                         Cost     amortization         Net
--------------------------------------------------------------------------
                                            $                $           $

Trademarks, trademark licenses
 and manufacturing rights with a:
  Finite life                         280,016           22,477     257,539
  Indefinite life                     171,314           12,418     158,896
--------------------------------------------------------------------------
                                      451,330           34,895     416,435
--------------------------------------------------------------------------
--------------------------------------------------------------------------


                                               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
--------------------------------------------------------------------------
--------------------------------------------------------------------------

/T/

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

5. Segmented information

The Company considers that it operates in a single reportable segment, 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:

/T/

                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                          2003                  2002
--------------------------------------------------------------------- 
                                             $                     $
Revenue
  Canada
    Domestic sales                        6,552                4,877 
    Foreign sales                             -                    -
  United States
    Domestic sales                       37,811               25,210 
    Foreign sales                             -                    - 
  Europe
    Domestic sales                       12,645                6,575 
    Foreign sales                           529                1,137 
  Other                                      28                   47
--------------------------------------------------------------------- 
                                         57,565               37,846 
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating income (loss)
  Canada                                  2,289                1,633 
  United States                          13,296                7,043 
  Europe                                  1,750                1,652 
  Other                                    (365)                (320)
---------------------------------------------------------------------
                                         16,970               10,008 
---------------------------------------------------------------------
---------------------------------------------------------------------

Depreciation and amortization
  Canada                                    724                  361 
  United States                           1,036                  948 
  Europe                                  1,669                  451 
  Other                                     294                  278 
---------------------------------------------------------------------
                                          3,723                2,038 
---------------------------------------------------------------------
---------------------------------------------------------------------


                                    December 31         September 30
                                           2003                 2003 
---------------------------------------------------------------------
                                              $                    $
Property, plant, equipment,
 intangible assets and goodwill
  Canada                                 33,125               14,622 
  United States                         132,348              133,695 
  Europe                                273,798              138,113 
  Other                                  26,561               26,874 
---------------------------------------------------------------------
                                        465,832              313,304 
---------------------------------------------------------------------
---------------------------------------------------------------------


6. Financial information included in
    the consolidated statement of operations

a) Financial expenses


                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                           2003                 2002 
---------------------------------------------------------------------
                                              $                    $

Interest on long-term debt                1,382                  113 
Bank charges                                 24                   29 
Financing fees                               17                    -
Amortization of 
 deferred debt issue expenses               258                   25 
---------------------------------------------------------------------
                                          1,681                  167
---------------------------------------------------------------------
---------------------------------------------------------------------


b) Other information 

                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                           2003                 2002 
---------------------------------------------------------------------
                                              $                    $

Non-controling interest                       -                  (54)
Rental expenses                             274                  307 
Depreciation of property,
 plant and equipment                      1,250                  854 
Amortization of intangible assets         2,473                1,184 
Share in net loss of joint ventures           -                   55 



c) Income per common share

The following is the detail of the denominators of the basic and
diluted income per common share computations:

                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                           2003                 2002 
---------------------------------------------------------------------

Weighted average number
 of common shares outstanding        45,019,129           44,866,652 
Effect of dilutive stock options        522,965              465,409 
Effect of dilutive
 balance of purchase price                    -              237,530 
---------------------------------------------------------------------
Adjusted weighted average number
 of common shares outstanding        45,542,094           45,569,591 
---------------------------------------------------------------------
---------------------------------------------------------------------

Number of common shares
 outstanding as at January 30, 2004             45,105,523
---------------------------------------------------------------------
---------------------------------------------------------------------


Options to purchase 698,550 and 790,600 common shares were
outstanding as at December 31, 2003 and 2002 respectively but were
not included in the computation of diluted income per share because
the exercise price of the options was greater than the average market
price of the common shares.  As of December 31, 2003, the convertible
debt has no effect on the diluted income per share.

7. Stock options

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


                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                           2003                 2002 
---------------------------------------------------------------------

Fair value per option                     $5.87                $5.00 
Assumptions used in
 Black-Scholes option pricing model
Expected volatility                          44%                  46%
Risk-free interest rate                    4.40%                4.44%
Expected option life (years)                  6                    6 
Expected dividend                             -                    -



The Companys net income, basic income per share and diluted income
per share would have been on a pro-forma basis as follows:


                               For the three-month period
                                   ended December 31
---------------------------------------------------------------------
                             2003                      2002 
---------------------------------------------------------------------
                  As reported    Pro-forma  As reported    Pro-forma
---------------------------------------------------------------------
                            $            $            $            $

Net income             10,435        9,465        6,557        5,778 
Basic income per share   0.23         0.21         0.15         0.13 
Diluted income per share 0.23         0.21         0.14         0.13 



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

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



                                          For the three-month period
                                               ended December 31
---------------------------------------------------------------------
                                           2003                 2002 
---------------------------------------------------------------------
Operations adjustments:                       $                    $

Net income in accordance with U.S. GAAP  10,435                6,557 
Implicit interest on convertible debt    (1,026)                   -
Amortization of new
 product acquisition costs                  (13)                 (13)
Income tax impact of the above adjustments    5                    5
--------------------------------------------------------------------- 
Net earnings in
 accordance with Canadian GAAP            9,401                6,549 
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share in
 accordance with Canadian GAAP
  Basic                                    0.21                 0.15 
  Diluted                                  0.21                 0.14 



                             December 31, 2003    September 30, 2003
---------------------------------------------------------------------
                                U.S.  Canadian        U.S.  Canadian
                               GAAP       GAAP       GAAP       GAAP
---------------------------------------------------------------------
Balance sheet adjustments:        $          $          $          $

Current assets               97,260     97,428    225,035    225,203 
Investments                     864        637      1,002        775 
Property, plant
 and equipment               21,847     21,867     20,331     20,351 
Intangible assets           416,435    428,836    265,423    277,837 
Goodwill                     27,550     29,342     27,550     29,342 
Deferred debt issue expenses  3,975      3,975      4,233      4,233 
Deferred income tax asset     2,280      2,280      1,775      1,775 
Current liabilities          55,046     55,419     50,261     50,634 
Long-term debt              129,282    108,361    129,474    107,527 
Deferred income
 tax liability               35,475     36,609     34,603     35,742 
Shareholders' equity
  Equity component of
   convertible debt               -     24,239          -     24,239
  Capital stock             256,178    262,823    255,743    262,388 
  Retained earnings          74,069     72,612     63,634     63,211 
  Accumulated foreign
   currency translation
   adjustments               20,161     24,302     11,634     15,775 




AXCAN PHARMA INC.
Consolidated Balance Sheets
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
                                         December 31    September 30
                                                2003            2003 
---------------------------------------------------------------------
ASSETS                                    (unaudited)
                                                   $               $
Current assets equivalents                    15,729          37,886 
  Short-term investments                       6,752         133,112 
  Accounts receivable                         28,483          19,665 
  Income taxes receivable                      7,919           5,315 
  Inventories (Note 3)                        28,505          20,163 
  Prepaid expenses and deposits                3,893           2,848 
  Future income taxes                          6,147           6,214
--------------------------------------------------------------------- 
Total current assets                          97,428         225,203 

Investments                                      637             775 
Property, plant and equipment                 21,867          20,351 
Intangible assets (Note 4)                   428,836         277,837 
Goodwill                                      29,342          29,342 
Deferred debt issue expenses                   3,975           4,233 
Future income taxes                            2,280           1,775 
---------------------------------------------------------------------
                                             584,365         559,516
---------------------------------------------------------------------
--------------------------------------------------------------------- 

LIABILITIES

Current liabilities
  Accounts payable and accrued liabilities    42,380          43,791 
  Income taxes payable                        10,130           4,821 
  Instalments on long-term debt                1,622           1,528 
  Future income taxes                          1,287             494 
---------------------------------------------------------------------
Total current liabilities                     55,419          50,634 

Long-term debt                               108,361         107,527 
Future income taxes                           36,609          35,742 
---------------------------------------------------------------------
                                             200,389         193,903 
---------------------------------------------------------------------

SHAREHOLDERS' EQUITY

Equity component of convertible debt (note 5) 24,239          24,239 
Capital stock                                262,823         262,388 
Retained earnings                             72,612          63,211 
Accumulated foreign
 currency translation adjustments             24,302          15,775 
---------------------------------------------------------------------
                                             383,976         365,613 
---------------------------------------------------------------------
                                             584,365         559,516 
---------------------------------------------------------------------
---------------------------------------------------------------------


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



AXCAN PHARMA INC.
Consolidated Cash Flows
---------------------------------------------------------------------

In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited)                               For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                2003            2002 
---------------------------------------------------------------------
                                                   $               $
Operations
Net earnings                                   9,401           6,549 
Non-cash items
  Implicit interest on convertible debt        1,026               -
  Non-controlling interest                         -             (54)
  Amortization of deferred debt issue expenses   258              25 
  Other depreciation and amortization          3,736           2,054 
  Loss on disposal of property,
   plant and equipment                            87               -
  Foreign currency fluctuation                     -              (5)
  Future income taxes                          1,298           2,462 
  Changes in working capital items:
    Accounts receivable                       (8,864)          8,200 
    Income taxes receivable                   (2,606)           (657)
    Inventories                               (8,376)            988 
    Prepaid expenses and deposits             (1,049)         (1,441)
    Accounts payable and accrued liabilities  (1,386)          3,734 
    Income taxes payable                       5,323            (556)
---------------------------------------------------------------------
Cash flows from operating activities          (1,152)         21,299 
---------------------------------------------------------------------

Financing
  Long-term debt                                   -             136 
  Repayment of long-term debt                   (542)           (332)
  Issue of shares                                435              58 
---------------------------------------------------------------------
Cash flows from financing activities            (107)           (138)
---------------------------------------------------------------------

Investment
  Disposal of short-term investments         126,360          54,748 
  Disposal of investments                        138             129 
  Acquisition of property,
   plant and equipment                        (2,363)           (291)
  Disposal of property, plant and equipment      326               - 
  Acquisition of intangible assets          (145,590)        (71,935)
---------------------------------------------------------------------
Cash flows from investment activities        (21,129)        (17,349)
---------------------------------------------------------------------

Foreign exchange gain on
 cash held in foreign currencies                 231             248 
---------------------------------------------------------------------

Net increase (decrease)
 in cash and cash equivalents                (22,157)          4,060 
Cash and cash equivalents,
 beginning of period                          37,886          20,005 
---------------------------------------------------------------------

Cash and cash equivalents, end of period      15,729          24,065 
---------------------------------------------------------------------
---------------------------------------------------------------------

Additional information
  Interest received                              220             256 
  Interest paid                                   66              86 
  Income taxes paid                              952           2,375 
---------------------------------------------------------------------
---------------------------------------------------------------------

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



AXCAN PHARMA INC.
Consolidated Earnings
In accordance with Canadian GAAP
(in thousands of U.S. dollars, except share related data)
(unaudited)
                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                  2003          2002 
---------------------------------------------------------------------
                                                     $             $
REVENUE                                         57,715        38,030
--------------------------------------------------------------------- 

Cost of goods sold                              14,572         9,075 
Selling and administrative expenses             18,517        14,787 
Research and development expenses                3,715         1,861 
Depreciation and amortization                    3,736         2,054
--------------------------------------------------------------------- 
                                                40,540        27,777
--------------------------------------------------------------------- 

Operating income                                17,175        10,253
--------------------------------------------------------------------- 

Financial expenses                               2,707           172 
Interest income                                   (191)         (283)
Loss on foreign currency                            84           209 
---------------------------------------------------------------------
                                                 2,600            98 
---------------------------------------------------------------------

Earnings before income taxes                    14,575        10,155 
Income taxes                                     5,174         3,606
--------------------------------------------------------------------- 
NET EARNINGS                                     9,401         6,549
---------------------------------------------------------------------
--------------------------------------------------------------------- 

Earnings per common share
  Basic                                           0.21          0.15 
  Diluted                                         0.21          0.14
---------------------------------------------------------------------
--------------------------------------------------------------------- 

Weighted average number of common shares
  Basic                                     45,019,129    44,866,652 
  Diluted                                   45,542,094    45,569,591 
---------------------------------------------------------------------
---------------------------------------------------------------------



AXCAN PHARMA INC.
Consolidated Retained Earnings
---------------------------------------------------------------------
In accordance with Canadian GAAP
(in thousands of U.S. dollars)
(unaudited)                               For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                2003            2002 
---------------------------------------------------------------------
                                                   $               $

Balance, beginning of period                  63,211          34,594 
Net earnings                                   9,401           6,549
--------------------------------------------------------------------- 
Balance, end of period                        72,612          41,143 
---------------------------------------------------------------------
---------------------------------------------------------------------

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. Product acquisition

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

During a transition period, the sellers may act as agents for the
management of the products sales. For the three-month period ended
December 31, 2003, 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 three month period ended December 31, 2003 were
$2,892,231 ($796,881 in 2002), the Company only included in its
revenue an amount of $1,748,359 ($541,836 in 2002) representing the
net sales less cost of goods sold and other seller related expenses.



3. Inventories

                                            December 31 September 30
                                                   2003         2003
---------------------------------------------------------------------
                                                      $            $

Raw materials and packaging material             11,604        8,441
Work in progress                                  1,477        1,466
Finished goods                                   15,424       10,256
---------------------------------------------------------------------
                                                 28,505       20,163
---------------------------------------------------------------------
---------------------------------------------------------------------



4. Intangible assets
                                                December 31, 2003
--------------------------------------------------------------------------
                                                   Accumulated
                                         Cost     amortization         Net
--------------------------------------------------------------------------
                                            $                $           $

Trademarks, trademark licenses
 and manufacturing rights with a:
  Finite life                         292,846           22,906     269,940
  Indefinite life                     171,314           12,418     158,896
--------------------------------------------------------------------------
                                      464,160           35,324     428,836
--------------------------------------------------------------------------
--------------------------------------------------------------------------


                                               September 30, 2003
--------------------------------------------------------------------------
                                                  Accumulated
                                         Cost     amortization         Net
--------------------------------------------------------------------------
                                            $                $           $

Trademarks, trademark licenses
 and manufacturing rights with a:
  Finite life                         124,157           20,414     103,743
  Indefinite life                     186,512           12,418     174,094
--------------------------------------------------------------------------
                                      310,669           32,832     277,837
--------------------------------------------------------------------------
--------------------------------------------------------------------------

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

5. Equity component of convertible debt

The Company issued convertible subordinated notes for $125,000,000 on 
March 5, 2003.  According to the features of this debt, an amount of 
$24,238,899, representing the estimated value of the right of 
conversion, was included in the shareholders' equity as equity 
component of convertible debt and an amount of $100,761,101 was 
included in the long-term debt as liability component of convertible 
debt.  As of September 30, 2003, implicit interest of 9.17% and 
totalling $2,292,478 was accounted for and added to the liability 
component.  For the three-month period ended December 31, 2003, 
implicit interest in the amount of $1,025,603 was accounted for and 
added to the liability component.

6. Segmented information

The Company considers that it operates in a single reportable 
segment, 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 three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                   2003         2002
---------------------------------------------------------------------
                                                      $            $
Revenue
  Canada
    Domestic sales                                6,552        4,877
    Foreign sales                                     -            -
  United States
    Domestic sales                               37,811       25,210
    Foreign sales                                     -            -
  Europe
    Domestic sales                               12,795        6,759
    Foreign sales                                   529        1,137
  Other                                              28           47
---------------------------------------------------------------------
                                                 57,715       38,030
---------------------------------------------------------------------
---------------------------------------------------------------------

Operating income (loss)
  Canada                                          2,507        1,876
  United States                                  13,283        7,030
  Europe                                          1,750        1,667
  Other                                            (365)        (320)
---------------------------------------------------------------------
                                                 17,175       10,253
---------------------------------------------------------------------
---------------------------------------------------------------------

Depreciation and amortization
  Canada                                            724          361
  United States                                   1,049          961
  Europe                                          1,669          454
  Other                                             294          278
---------------------------------------------------------------------
                                                  3,736        2,054
---------------------------------------------------------------------
---------------------------------------------------------------------

                                            December 31 September 30
                                                   2003         2003
---------------------------------------------------------------------
                                                      $            $
Property, plant, equipment,
 intangible assets and goodwill
  Canada                                         37,400       19,311
  United States                                 132,749      133,695
  Europe                                        274,216      138,530
  Other                                          35,680       35,994
---------------------------------------------------------------------
                                                480,045      327,530
---------------------------------------------------------------------
---------------------------------------------------------------------



7. Financial information included in the consolidated statement of
    earnings

a) Financial expenses

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                   2003         2002
---------------------------------------------------------------------
                                                      $            $

Interest on long-term debt                        2,408          113
Bank charges                                         24           34
Financing fees                                       17            -
Amortization of deferred debt issue expenses        258           25
---------------------------------------------------------------------
                                                  2,707          172
---------------------------------------------------------------------
---------------------------------------------------------------------



b) Other information

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                   2003         2002
---------------------------------------------------------------------
                                                      $            $

Non-controling interest                               -          (54)
Rental expenses                                     274          307
Depreciation of property, plant and equipment     1,250          857
Amortization of intangible assets                 2,486        1,197
Investment tax credits applied
 against research and development expenses          218          243



c) Earnings per common share

The following is the detail of the denominators of the basic and
diluted earnings per common share computations:

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                   2003         2002
---------------------------------------------------------------------

Weighted average number
 of common shares outstanding                45,019,129   44,866,652
Effect of dilutive stock options                522,965      465,409
Effect of dilutive equity
 component of purchase price                          -      237,530
---------------------------------------------------------------------
Adjusted weighted average number
 of common shares outstanding                45,542,094   45,569,591
---------------------------------------------------------------------
---------------------------------------------------------------------

Number of common shares
 outstanding at the end of the period        45,061,531   44,872,284
---------------------------------------------------------------------
---------------------------------------------------------------------

Number of common shares
 outstanding as at January 30, 2004                45,105,523
---------------------------------------------------------------------
---------------------------------------------------------------------



Options to purchase 698,550 and 790,600 common shares were
outstanding as at December 31, 2003 and 2002 respectively but were
not included in the computation of diluted earnings per share because
the exercise price of the options was greater than the average market
price of the common shares.  As of December 31, 2003, the convertible
debt has no effect on the diluted earnings per share.



8. Stock options

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

                                          For the three-month period
                                                   ended December 31
---------------------------------------------------------------------
                                                   2003         2002
---------------------------------------------------------------------

Fair value per option                             $5.87        $5.00
Assumptions used in
 Black-Scholes option pricing model
  Expected volatility                                44%          46%
  Risk-free interest rate                          4.40%        4.44%
  Expected option life (years)                        6            6
  Expected dividend                                   -            -



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


                               For the three-month period
                                    ended December 31
---------------------------------------------------------------------
                             2003                      2002
---------------------------------------------------------------------
                  As reported    Pro-forma  As reported    Pro-forma
---------------------------------------------------------------------
                            $            $            $            $

Net earnings            9,401        8,431        6,549        5,770
Basic earnings
 per share               0.21         0.19         0.15         0.13
Diluted earnings
 per share               0.21         0.19         0.14         0.13

/T/


Axcan Pharma Inc.
David W. Mims
Executive Vice President and Chief Operating Officer
(205) 991-8085 ext. 3223

OR

Axcan Pharma Inc.
Isabelle Adjahi
Director, Investor Relations
(450) 467-2600 ext. 2000
www.axcan.com