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Axcan Reports Third Quarter 2004 Results - Revenue Up 32.3% to $62.0 Million


Aug 05, 2004 - 12:00 ET

Axcan Reports Third Quarter 2004 Results - Revenue Up 32.3% to $62.0 Million 

MONT-SAINT-HILAIRE, Quebec, Aug. 5 - Axcan Pharma Inc.
("Axcan" or the "Company") announced today operating results for the quarter
ended June 30, 2004, the Company's third quarter of the fiscal year ending
September 30, 2004. The Company reported revenue growth of 32.3% to
$62.0 million. Net income was $12.6 million, or $0.25 per share (fully
diluted), representing 98.0% growth in net income and 78.6% growth in diluted
income per share, as compared to third quarter fiscal 2003. Excluding takeover
bid expenses and related income taxes from third quarter fiscal 2003 net
income, net income for the fiscal quarter ended June 30, 2004 rose by 43.5%
and diluted income per share rose by 31.6%.(all amounts stated in U.S.
dollars).

"Axcan's growth strategy is clearly working," stated Léon F. Gosselin,
President and Chief Executive Officer of Axcan. "Our revenue met our
expectations and our net income has increased proportionally compared to the
third quarter a year ago. This indicates that while we have increased the size
of our sales force both in the United States and in France, we have been able,
nevertheless, to absorb many of the operating expenses related to our recent
acquisitions within our current infrastructure, building real value for our
shareholders."

INTERIM FINANCIAL REPORT

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

RECENT DEVELOPMENTS

APPROVALS

URSO 500 MG TABLETS - NEW DOSAGE

In July 2004, Axcan received approval from the U.S. Food and Drug
Administration ('FDA') for the use of a new, double-strength tablet
formulation of URSO (ursodiol, URSO 500mg tablets). This new formulation
simplifies the dosing regimen used in the treatment of Primary Biliary
Cirrhosis.

PHOTOBARR - European Union Market Authorization

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

PENDING APPROVALS

MESALAMINE - NEW DOSAGE

In December 2003, Axcan submitted to the FDA a supplemental New Drug
Application ("NDA") for a 1-gram mesalamine suppository dosage form for the
treatment of ulcerative proctitis. Axcan expects approval by the end of
calendar year 2004.

HELIZIDE

The Company is in the process of qualifying a manufacturer of
biskalcitrate potassium (bismuth salt) a component of Helizide combination
therapy for the eradication of Helicobacter Pylori bacterium. Axcan
anticipates FDA re-submission by December 2004. Assuming approval, the Company
expects to launch the product in the second half of fiscal 2005.

SALOFALK 750 MG TABLETS

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

RESEARCH AND DEVELOPMENT UPDATE

PHASE III STUDIES

ITAX

In May 2004, Axcan obtained the approval of the Therapeutic Products
Directorate ('TPD') of Health Canada and Investigational New Drug ('IND')
clearance from the Gastro-intestinal division of the FDA, required to initiate
Phase III clinical trials to demonstrate the safety and efficacy of ITAX in
the treatment of functional dyspepsia (also known as non ulcer dyspepsia).
Axcan also plans to study ITAX as a treatment for diabetic gastroparesis. As
previously announced, Axcan believes that, if approved by the FDA, ITAX has
the potential to become its highest selling product. Axcan expects to file an
NDA in fiscal 2005. Two large Phase III studies will be conducted; the North
American clinical trial has been initiated and the International Phase III
study is presently in preparation and should start in the fourth quarter of
fiscal 2004.

CANASA / SALOFALK rectal gel

Axcan has recently completed Phase III studies to confirm the efficacy
and safety of a new mesalamine rectal gel in the treatment of distal
ulcerative colitis. Final results will be available in the second half of
fiscal 2004. Assuming the results of the Phase III studies are positive, the
Company plans to submit regulatory filings for approvals in the United States
and Canada and hopes to launch the rectal gel in the United States and Canada
in late fiscal 2005 or early fiscal 2006.

PHOTOFRIN

PHOTOFRIN is approved in a number of countries for the treatment of
different forms of cancers. Axcan is currently investigating the use of
PHOTOFRIN for the treatment of cholangiocarcinoma, a serious bile duct (liver)
cancer with a high morbidity rate. The treatment under investigation combines
PHOTOFRIN with PDT and the stenting of the bile ducts. The proposed Phase III
study will start in the fourth quarter of fiscal 2004.

HEPENAX

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

PRE-CLINICAL, PHASE 1 AND PHASE II

NCX-1000

The FDA has accepted an Investigational NDA for NCX-1000, a patented,
nitric oxide derivative of ursodiol, for the treatment of portal hypertension,
a late-stage complication of chronic liver disease. The Phase I clinical
development program, which is designed to demonstrate the tolerability and
safety of NCX-1000, is almost completed. Phase II studies are planned to begin
during fiscal 2005. Completion of the entire clinical program is expected to
occur in calendar year 2006.

Ursodiol Disulfate

Axcan recently completed a proof of concept study in rats to evaluate the
effect of ursodiol disulfate on the development of colonic tumors. Axcan
intends to initiate animal toxicity studies in the fourth quarter of fiscal
2004, which will be followed by clinical Phase I studies.

NMK 150

Axcan and Nordmark GmbH, a German pharmaceutical firm, have set up a
joint-venture, Norax, in order to develop NMK 150, a new high protease
pancrelipase preparation. This product will be developed for the relief of
pain in small duct chronic pancreatitis. It is expected that NMK 150 will
enter clinical development before the end of calendar year 2004.

NMK 250

Norax is also developing NMK 250, a bacterial lipase intended to correct
steatorrhea in patients suffering from diverse causes of pancreatic
insufficiency (e.g., following surgery for cancer or due to cystic fibrosis).
Norax expects to complete the formulation work before the end of calendar year
2004.

CONFERENCE CALL

Axcan will host a conference call at 4:30 P.M. EDT, on August 5, 2004.
The telephone numbers to access the conference call are (800) 814-4861 (Canada
and United States) or (416) 640-4127 (international). A replay of the call
will be available until August 12, 2004. The telephone number to access the
replay of the call is (416) 640-1917 code: 21080166. Interested parties may
also access the conference call by way of webcast at www.axcan.com . The
webcast will be archived for 90 days.


ABOUT AXCAN PHARMA

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

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


This release contains forward-looking statements, which reflect the
Company's current expectations regarding future events. To the extent any
statements made in this release contain information that is not
historical, these statements are essentially forward looking and are
often identified by words such as "anticipate," "expect," "estimate,"
"intend," "project," "plan" and "believe." Forward-looking statements are
subject to risks and uncertainties, including the difficulty of
predicting FDA and other regulatory approvals, acceptance and demand for
new pharmaceutical products, the impact of competitive products and
pricing, new product development and launch, reliance on key strategic
alliances, availability of raw materials, the regulatory environment,
fluctuations in operating results, the protection of our intellectual
property and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission and the Canadian
Multijurisdictional Disclosure System.

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


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

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


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

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

Axcan is a leading specialty pharmaceutical company concentrating in the
field of gastroenterology, with operations in North America and Europe. Axcan
markets and sells pharmaceutical products used in the treatment of a variety
of gastrointestinal diseases and disorders. The Company seeks to expand its
gastrointestinal franchise by in-licensing products and acquiring products or
companies, as well as developing additional products and expanding indications
for existing products. Axcan's current products include ULTRASE, VIOKASE and
PANZYTRAT for the treatment of certain gastrointestinal symptoms related to
cystic fibrosis in the case of ULTRASE and PANZYTRAT; URSO 250 and DELURSAN
for the treatment of certain cholestatic liver diseases; SALOFALK and CANASA
for the treatment of certain inflammatory bowel diseases; and PHOTOFRIN for
the treatment of certain types of gastrointestinal cancers and other
conditions. In addition, as at June 30, 2004, Axcan had two products pending
approval, one a new formulation and the other a new dosage form for products
currently marketed in the United States. An approval was received in July,
2004 for the new dosage form. Axcan also has a number of pharmaceutical
projects in all phases of development including ITAX for the treatment of
functional dyspepsia. Axcan reported revenue of $62.0 million and operating
income of $19.4 million for the three- month period ended June 30, 2004. For
the nine- month period ended June 30, 2004, revenue was $182.8 million and
operating income was $56.3 million.

Much of Axcan's recent sales growth is derived from sales in the United
States and from sales by its French subsidiary, following recent acquisitions.
During the first quarter of fiscal 2003, Axcan acquired the worldwide rights
to the PANZYTRAT enzyme product line from Abbott Laboratories ("Abbott") and
the rights to DELURSAN, an ursodiol 250 mg tablet, from Aventis Pharma S.A.
("Aventis") for the French market. During the first quarter of fiscal 2004,
Axcan acquired the rights to a group of products from Aventis for a cash
purchase price of $145.0 million. These products are CARAFATE and BENTYL for
the U.S. market and SULCRATE, BENTYLOL and PROCTOSEDYL for the Canadian market
(collectively, "AVAX" product line). Revenue from sales of Axcan's products in
the United States was $123.8 million (67.7% of total revenue) for the nine-
month period ended June 30, 2004, compared to $82.9 million (63.6 % of total
revenue) for the same period of fiscal 2003. In Canada, revenue was
$20.5 million (11.2 % of total revenue) for the nine-month period ended June
30, 2004, compared to $14.9 million (11.4 % of total revenue) for the same
period of fiscal 2003.  In Europe, revenue was $38.3 million (21.0 % of total
revenue) for the nine-month period ended June 30, 2004, compared to
$32.4 million (24.9 % 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), research
and development expenses as well as depreciation and amortization.

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

Critical Accounting Policies

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

Use of Estimates

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

Revenue Recognition

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

Goodwill and Intangible Assets

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

Research and Development Expenses

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

Acquisition of Products

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

On December 3, 2002, the Company acquired the worldwide rights to the
PANZYTRAT enzyme product line from Abbott for a cash purchase price of
$45.0 million.

During a transition period, the seller in each of these acquisition
transactions acts as selling agent for the management of these products. For
the nine-month period ended June 30, 2004, sales of these products were still
managed in part by the sellers. Axcan includes in its revenue the net sales
from such products less corresponding cost of goods sold and other seller
related expenses. Consequently, although net sales of such products for the
nine-month period ended June 30, 2004 were $6,928,009, the Company only
included in its revenue an amount of $4,413,531 representing the net sales
less cost of goods sold and other seller related expenses.

Results of Operations

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

/T/
                                 For the three-month      For the nine-month
                                period ended June 30    period ended June 30
                              _______________________ _______________________
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       %           %           %           %

    Revenue                        100.0       100.0       100.0       100.0
    _________________________________________________________________________

    Cost of goods sold              22.0        25.2        23.6        24.3
    Selling and administrative
     expenses                       31.5        33.4        31.7        35.4
    Research and development
     expenses                        8.4         8.4         7.2         7.2
    Depreciation and amortization    6.9         4.2         6.7         4.6
    _________________________________________________________________________
                                    68.8        71.2        69.2        71.5
    _________________________________________________________________________

    Operating income                31.2        28.8        30.8        28.5
    _________________________________________________________________________

    Financial expenses               2.7         3.8         2.8         2.0
    Interest income                 (0.3)       (1.1)       (0.2)       (0.8)
    Loss (gain) on foreign
     exchange                       (0.7)       (0.4)       (0.1)        0.1
    Takeover bid expenses              -         7.9           -         2.8
    _________________________________________________________________________
                                     1.7        10.2         2.5         4.1
    _________________________________________________________________________

    Income before income taxes      29.5        18.6        28.3        24.4
    Income taxes                     9.2         5.1         8.9         7.7
    _________________________________________________________________________
    Net income                      20.3        13.5        19.4        16.7
    _________________________________________________________________________
    _________________________________________________________________________

/T/


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

Revenue

Revenue increased $15.1 million (32.2%) to $62.0 million for the third
quarter ended June 30, 2004 from $46.9 million for the corresponding quarter
of the preceding fiscal year. For the nine-month period ended June 30, 2004,
revenue was $182.8 million compared to $130.3 million for the corresponding
period of the preceding fiscal year, an increase of 40.3 %. This increase in
revenue primarily resulted from $29.7 million in U.S. and Canadian sales of
the AVAX product line which was acquired in November 2003 and strong sales of
CANASA and ULTRASE in the U.S.. Revenues from sales made by the French
subsidiary, following the acquisitions of DELURSAN as well as the PANZYTRAT
product line also contributed to the increase.

Cost of goods sold

Cost of goods sold consists principally of costs of raw materials,
royalties and manufacturing costs. Axcan outsources most of its manufacturing
requirements. Cost of goods sold increased $1.8 million (15.3 %) to
$13.6 million for the quarter ended June 30, 2004 from $11.8 million for the
corresponding quarter of the preceding fiscal year. As a percentage of
revenue, cost of goods sold for the quarter ended June 30, 2004 decreased as
compared to the corresponding quarter of the preceding fiscal year from 25.2 %
to 22.0 %. For the nine-month period ended June 30, 2004, cost of goods sold
was $43.2 million (23.6 % of revenue) compared to $31.7 million (24.3 % of
revenue) for the corresponding period of the preceding fiscal year. These
decreases in the cost of goods sold as a percentage of revenue were due to the
increase in sales of products with a higher margin in the United States and an
improved margin in France.

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 $ 3.9 million (25.0 %) to
$19.5 million for the quarter ended June 30, 2004 from $15.6 million for the
corresponding quarter of the preceding fiscal year. For the nine-month period
ended June 30, 2004, selling and administrative expenses increased
$11.9 million (25.8 %) to $ 58.0 million from $46.1 million for the
corresponding period of the preceding fiscal year. This increase is mainly due
to an increase in our sales force as a result of the recent acquisition of
additional products.

Research and development expenses

Research and development expenses consist principally of fees paid to
outside parties that Axcan uses to conduct clinical studies and to submit
governmental approval applications on its behalf as well as the salaries and
benefits paid to its personnel involved in research and development projects.
Research and development expenses increased $1.3 million (33.3 %) to
$5.2 million for the quarter ended June 30, 2004 from $3.9 million for the
corresponding quarter of the preceding fiscal year and $3.8 million (40.9 %)
to $13.1 million for the nine-month period ended June 30, 2004, from
$9.3 million for the corresponding period of the preceding fiscal year. These
increases are mainly due to the development of ITAX, acquired in August 2003,
for the treatment of functional dyspepsia.

Depreciation and amortization

Depreciation and amortization consists principally of the amortization of
intangible assets with finite life. Intangible assets include trademarks,
trademark licenses and manufacturing rights. Depreciation and amortization
increased $2.3 million (115.0 %) to $4.3 million for the quarter ended June
30, 2004 from $2.0 million for the corresponding quarter of the preceding
fiscal year and $6.2 million (103.3 %) to $12.2 million for the nine-month
period ended June 30, 2004 from $6.0 million for the corresponding period of
the preceding fiscal year. The increase is mainly due to the amortization of
the AVAX product line acquired from Aventis on November 18, 2003 and of
TAGAMET which was reclassified from intangible assets with an indefinite life
to intangible assets with a finite life on October 1, 2003.

Financial expenses

Financial expenses consist principally of interest and fees paid in
connection with money borrowed for acquisitions. Financial expenses decreased
$0.1 million to $1.7 million for the quarter ended June 30, 2004 from
$1.8 million for the corresponding quarter of the preceding fiscal year and
increased $2.5 million to $5.1 million for the nine-month period ended June
30, 2004 from $2.6 million for the corresponding period of the preceding
fiscal year. This increase is mainly due to interest expense on the
$125.0 million aggregate principal amount of 41/4% convertible subordinated
notes due 2008 which were issued on March 5, 2003.

Income Taxes

Income taxes amounted to $5.7 million for the quarter ended June 30,
2004, compared to $2.4 million for the quarter ended June 30, 2003. Income
taxes amounted to $16.3 million for the nine-month period ended June 30, 2004
compared to $10.0 million for the corresponding period of the preceding fiscal
year. The effective tax rates were 31.6% for the nine-month period ended June
30, 2004 and 31.5% for the nine-month period ended June 30, 2003.

Net income

Net income was $12.6 million or $0.28 of basic income per share and $0.25
of diluted income per share, for the quarter ended June 30, 2004, compared to
$6.3 million or $0.14 of basic and diluted income per share for the
corresponding quarter of the preceding year. The weighted average number of
common shares outstanding used to establish the basic per share amounts
increased from 44.9 million for the quarter ended June 30, 2003 to
45.4 million for the quarter ended June 30, 2004, following the exercise of
options previously granted pursuant to Axcan's stock option plan. The weighted
average number of common shares used to establish the diluted per share
amounts increased from 45.6 million for the quarter ended June 30, 2003 to
55.3 million for the quarter ended June 30, 2004 as the convertible
subordinated notes became dilutive because a trigger event occurred during the
second quarter of this fiscal year as a result of the stock trading price
exceeding 110 % of the conversion price.

Net income was $35.4 million or $0.78 of basic income per share and $0.72
of diluted income per share, for the nine-month period ended June 30, 2004,
compared to $21.8 million or $0.49 of basic income per share and $0.48 of
diluted income per share for the corresponding period of the preceding year.

Net income (in thousands of dollars), basic income per share and diluted
income per share excluding takeover bid expenses and related income taxes for
the same periods were as follows:

/T/
                                 For the three-month      For the nine-month
                                period ended June 30    period ended June 30
                              _______________________ _______________________
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net income in accordance
     with U.S. GAAP               12,552       6,339      35,408      21,829
    Plus: Takeover bid expenses        -       3,697           -       3,697
    Less: Related income taxes         -      (1,290)          -      (1,290)
    _________________________________________________________________________
    Net income excluding
     takeover bid expenses and
     related income taxes         12,552       8,746      35,408      24,236
    _________________________________________________________________________
    _________________________________________________________________________

    Income per common share
     excluding takeover bid
     expenses and related
     income taxes

      Basic                         0.28        0.19        0.78        0.54
      Diluted                       0.25        0.19        0.72        0.53

/T/

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

Excluding takeover bid expenses and related income taxes, net income for
the quarter ended June 30, 2004 was $12.6 million or $0.28 of basic income per
share and $0.25 of diluted income per share compared to $ 8.7 million or $0.19
of basic and diluted income per share for the corresponding quarter of the
preceding year.

Excluding takeover bid expenses and related income taxes, net income for
the nine-month period ended June 30, 2004 was $35.4 million or $0.78 of basic
income per share and $0.72 of diluted income per share compared to
$24.2 million of net income or $0.54 of basic income per share and $0.53 of
diluted income per share for the nine-month period ended June 30, 2003.

Canadian GAAP

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

/T/
                                 For the three-month      For the nine-month
                                period ended June 30    period ended June 30
                              _______________________ _______________________
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $

    Net income in accordance
     with U.S. GAAP               12,552       6,339      35,408      21,829

    Implicit interest
     on convertible debt          (1,082)       (990)     (3,131)     (1,284)
    Amortization of new product
     acquisition costs               (14)        (14)        (40)        (40)
    Income tax impact of the
     above adjustments                 5           5          15          15
    _________________________________________________________________________
    Net earnings in accordance
     with Canadian GAAP           11,461       5,340      32,252      20,520
    _________________________________________________________________________
    _________________________________________________________________________

/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 nine-
month period ended June 30, 2004, implicit interest in the amount of
$3,131,424 was accounted 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
$121.0 million to $49.9 million at June 30, 2004 from $170.9 million at
September 30, 2003. As of June 30, 2004, working capital was $75.0 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 $53.2 million (9.8 %) to $598.5 million as of June 30, 2004 from
$545.3 million as of September 30, 2003. Shareholders' equity increased
$45.4 million (13.7 %) to $376.4 million as of June 30, 2004 from
$331.0 million as of September 30, 2003.

Historically, Axcan has financed research and development, operations,
acquisitions, milestone payments and investments out of the proceeds of public
and private sales of its equity, cash flow from operating activities, and
loans from joint venture partners and financial institutions. Since it went
public in Canada in December 1995, Axcan has raised approximately
$243.0 million from sales of its equity and $125.0 million from sales of
convertible notes 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 June 30, 2004, Axcan was in compliance with all credit
facilities' covenants.

The interest rate varies, depending on the Company's leverage between
25 basis points and 125 basis points over Canadian prime rate or U.S. base
rate, and between 125 basis points and 225 basis points over the LIBOR rate or
bankers acceptances. The credit facilities may be drawn in U.S. dollar or in
Canadian dollar equivalent. As at June 30, 2004, there was no amount
outstanding under these credit facilities.

Cash Flows and Financial Resources

Cash flows from operating activities decreased $1.6 million (11.9 %) from
$13.5 million of cash provided by operating activities for the three-month
period ended June 30, 2003 to $11.9 million for the three-month period ended
June 30, 2004. Cash flows from financing activities for the three-month period
ended June 30, 2004 were $1.8 million and cash flows used for investment
activities for the same period were $14.2 million. For the nine-month period
ended June 30, 2004 cash flows from operating activities decreased
$17.5 million (37.6 %) from $46.5 million of cash provided by operating
activities for the nine-month period ended June 30, 2003 to $29.0 million.
This decrease is mainly due to the increase in accounts receivable and
inventories during this year following the increase in sales and the
acquisition of new products. Cash flows from financing activities for the 
nine- month period ended June 30, 2004 were $3.7 million. Cash flows used by
investment activities for the nine-month period ended June 30, 2004 were
$36.4 million mainly due to the net cash used for the acquisition of
intangible assets with the proceeds from the disposal of short term
investments.

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

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

Earnings coverage

The earnings coverage ratios are the following:

Under U.S. GAAP, for the twelve months ended June 30, 2004, our interest
requirements amounted to $5.8 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 10.0 to one.

Under Canadian GAAP, for the twelve months ended June 30, 2004, our
interest requirements amounted to $10.4 million on a pro forma basis and our
earnings coverage ratio was 6.8 to one. The principal difference between the
earnings coverage ratios under Canadian GAAP and U.S. GAAP is attributable to
the inclusion of implicit interest of $4.5 million as required by Canadian
GAAP.

Risk Factors

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

Foreign Currency Risk

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

Interest Rate Risk

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

Supply and Manufacture

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

Volatility of Share Prices

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

Forward-looking Statements

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

This MD&A has been prepared as of August 5, 2004. Additional information
on the Company is available through regular filings of press releases,
quarterly financial statements and Annual Information Form on SEDAR.


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

/T/

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

    Current assets
      Cash and cash equivalents                           34,234      37,773
      Short-term investments available for sale           15,703     133,112
      Accounts receivable                                 31,149      19,685
      Income taxes receivable                              7,483       5,294
      Inventories (Note 3)                                33,145      20,163
      Prepaid expenses and deposits                        3,545       2,794
      Deferred income taxes                                5,521       6,214
    _________________________________________________________________________
    Total current assets                                 130,780     225,035

    Investments                                              407       1,002
    Property, plant and equipment, net                    28,666      20,331
    Intangible assets, net (Note 4)                      405,391     265,423
    Goodwill, net                                         27,550      27,550
    Deferred debt issue expenses, net                      3,372       4,233
    Deferred income taxes                                  2,354       1,775
    _________________________________________________________________________
    Total assets                                         598,520     545,349
    _________________________________________________________________________

    LIABILITIES

    Current liabilities
      Accounts payable and accrued liabilities            48,601      43,418
      Income taxes payable                                 4,608       4,821
      Instalments on long-term debt                        1,820       1,528
      Deferred income taxes                                  729         494
    _________________________________________________________________________
    Total current liabilities                             55,758      50,261

    Long-term debt                                       128,284     129,474
    Deferred income taxes                                 38,030      34,603
    _________________________________________________________________________
    Total liabilities                                    222,072     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, 45,556,032 issued as at
     June 30, 2004 and 45,004,320 as at
     September 30, 2003.                                 260,572     255,743
    Retained earnings                                     99,042      63,634
    Accumulated other comprehensive income                16,834      11,634
    _________________________________________________________________________
    Total shareholders' equity                           376,448     331,011
    _________________________________________________________________________
    Total liabilities and shareholders' equity           598,520     545,349
    _________________________________________________________________________
    _________________________________________________________________________

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



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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                           _____________ ____________  __________  __________

    Common shares (Number)
    Balance, beginning
     of period                45,328,102  44,880,403  45,004,320  44,863,198
      Exercise of options        227,930     108,944     551,712     126,149
    _________________________________________________________________________
    Balance, end of period    45,556,032  44,989,347  45,556,032  44,989,347
    _________________________________________________________________________
    _________________________________________________________________________

                                       $           $           $           $
    Common shares
    Balance, beginning
     of period                   258,567     254,754     255,743     254,640
      Exercise of options          2,005         857       4,829         971
    _________________________________________________________________________
    Balance, end of period       260,572     255,611     260,572     255,611
    _________________________________________________________________________

    Retained earnings
    Balance, beginning
     of period                    86,490      59,199      63,634      43,709
      Net income                  12,552       6,339      35,408      21,829
    _________________________________________________________________________
    Balance, end of period        99,042      65,538      99,042      65,538
    _________________________________________________________________________

    Accumulated other
     comprehensive
     income (loss)
    Balance, beginning of period  17,895       4,215      11,634      (3,562)
      Foreign currency
       translation adjustments    (1,061)      5,333       5,200      13,110
    _________________________________________________________________________
    Balance, end of period        16,834       9,548      16,834       9,548
    _________________________________________________________________________
    Total shareholders' equity   376,448     330,697     376,448     330,697
    _________________________________________________________________________
    _________________________________________________________________________

    Comprehensive income
    Foreign currency
     translation adjustments     (1,061)       5,333       5,200      13,110
    Net income                   12,552        6,339      35,408      21,829
    _________________________________________________________________________
    Total comprehensive income   11,491       11,672      40,608      34,939
    _________________________________________________________________________
    _________________________________________________________________________

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



    AXCAN PHARMA INC.
    Consolidated Statements of Cash Flows                          U.S. GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (unaudited)
                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
    Operations                         $           $           $           $
    Net income                    12,552       6,339      35,408      21,829
    Non-cash items
      Non-controlling interest         -           -           -        (103)
      Amortization of deferred
       debt issue expenses           264         257         780         386
      Other depreciation and
       amortization                4,276       1,975      12,195       6,011
      Gain on disposal of assets     (66)          -         (26)          -
      Foreign currency fluctuation   624        (413)        504        (262)
      Deferred income taxes          893         239       3,778       2,177
      Share in net loss (income)
       of joint ventures            (116)         36         (56)        124
      Changes in working capital items
        Accounts receivable       (1,374)     (2,262)    (12,667)      2,705
        Income taxes receivable   (1,035)     (1,998)     (2,400)     (2,634)
        Inventories               (5,284)        (26)    (13,457)      2,033
        Prepaid expenses
         and deposits               (263)       (116)       (893)       (581)
        Accounts payable and
         accrued liabilities       1,234       8,052       6,051      14,163
        Income taxes payable         161       1,406        (249)        640
    _________________________________________________________________________
    Cash flows from operating
     activities                   11,866      13,489      28,968      46,488
    _________________________________________________________________________
    Financing
      Long-term debt               2,212         482       2,212     125,895
      Repayment of long-term debt (2,419)       (375)     (3,369)     (1,195)
      Issue of shares              2,005         857       4,829         971
      Deferred debt
       issue expenses                  -         (38)          -      (4,538)
    _________________________________________________________________________
    Cash flows from
     financing activities          1,798         926       3,672     121,133
    _________________________________________________________________________
    Investment
      Acquisition of short-term
       investments               (17,588)    (95,014)    (17,588)    (95,714)
      Disposal of short-term
       investments                 6,555           -     134,945      60,740
      Acquisition of investments       -        (100)          -        (100)
      Disposal of investments        496         347       1,735         619
      Acquisition of property,
       plant and equipment        (4,560)     (1,224)    (11,074)     (2,236)
      Disposal of property,
       plant and equipment            19           -         397           -
      Acquisition of
       intangible assets             (81)     (2,003)   (145,685)    (73,938)
      Disposal of intangible assets  917           -         917         205
    _________________________________________________________________________
    Cash flows from
     investment activities       (14,242)    (97,994)    (36,353)   (110,424)
    _________________________________________________________________________
    Foreign exchange gain
     (loss) on cash held in
     foreign currencies              (25)         89         174         486
    _________________________________________________________________________
    Net increase (decrease) in
     cash and cash equivalents      (603)    (83,490)     (3,539)     57,683
    Cash and cash equivalents,
     beginning of period          34,837     161,150      37,773      19,977
    _________________________________________________________________________
    Cash and cash equivalents,
     end of period                34,234      77,660      34,234      77,660
    _________________________________________________________________________
    _________________________________________________________________________
    Additional information
      Interest received               70         511         354       1,019
      Interest paid                2,653          27       6,091         150
      Income taxes paid            2,917       3,724      14,290       9,246
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.



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

    REVENUE                       62,005      46,877     182,762     130,344
    _________________________________________________________________________
    Cost of goods sold            13,643      11,822      43,187      31,721
    Selling and administrative
     expenses                     19,543      15,626      57,953      46,133
    Research and development
     expenses                      5,182       3,936      13,106       9,290
    Depreciation and amortization  4,276       1,975      12,195       6,011
    _________________________________________________________________________
                                  42,644      33,359     126,441      93,155
    _________________________________________________________________________

    Operating income              19,361      13,518      56,321      37,189
    -------------------------------------------------------------------------

    Financial expenses             1,694       1,769       5,081       2,620
    Interest income                 (160)       (514)       (406)     (1,083)
    Loss (gain) on foreign
     currency                       (459)       (168)       (111)         80
    Takeover bid expenses              -       3,697           -       3,697
    _________________________________________________________________________
                                   1,075       4,784       4,564       5,314
    _________________________________________________________________________
    Income before income taxes    18,286       8,734      51,757      31,875
    Income taxes                   5,734       2,395      16,349      10,046
    _________________________________________________________________________
    NET INCOME                    12,552       6,339      35,408      21,829
    _________________________________________________________________________

    Income per common share
      Basic                         0.28        0.14        0.78        0.49
      Diluted                       0.25        0.14        0.72        0.48
    _________________________________________________________________________
    Weighted average number
     of common shares
      Basic                   45,376,423  44,917,035  45,193,880  44,887,388
      Diluted                 55,271,713  45,597,705  51,971,458  45,574,227
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.



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

    1. Significant Accounting Policies

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

    2. Product Acquisition

    On November 18, 2003, the Company acquired the rights to a group of
products from Aventis for a cash purchase price of $145,000,000. The acquired
products are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL
and PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company
acquired the worldwide rights to the PANZYTRAT enzyme product line from
Abbott.
    During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the nine-month period ended
June 30, 2004, a portion of the sales of these products is still managed by
the sellers. Axcan includes in its revenue the net sales from such products
less corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the nine-month period
ended June 30, 2004 were $6,928,009 ($10,311,585 in 2003), the Company only
included in its revenue an amount of $4,413,531 ($6,898,669 in 2003)
representing the net sales less cost of goods sold and other seller related
expenses.

    3. Inventories

                                                            June   September
                                                              30,         30,
                                                            2004        2003
                                                      ___________ ___________
                                                               $           $
    Raw materials and packaging material                  10,001       8,441
    Work in progress                                       1,490       1,466
    Finished goods                                        21,654      10,256
    _________________________________________________________________________
                                                          33,145      20,163
    _________________________________________________________________________
    _________________________________________________________________________


    4. Intangible Assets
                                                               June 30, 2004
    _________________________________________________________________________
                                                        Accumulated
                                                Cost    amortization     Net
    _________________________________________________________________________
                                                   $           $           $
    Trademarks, trademark licenses
     and manufacturing rights with a:
      Finite life                            275,789      26,391     249,398
      Indefinite life                        168,411      12,418     155,993
    _________________________________________________________________________
                                             444,200      38,809     405,391
    _________________________________________________________________________
    _________________________________________________________________________

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

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

    5. Segmented Information

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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Revenue
      Canada
        Domestic sales             7,100       5,163      20,517      14,873
        Foreign sales                  -           -           -           -
      United States
        Domestic sales            41,519      30,072     121,288      82,932
        Foreign sales              1,137           -       2,500           -
      Europe
        Domestic sales            10,147      10,716      34,669      29,127
        Foreign sales              2,029         881       3,618       3,297
      Other                           73          45         170         115
    _________________________________________________________________________
                                  62,005      46,877     182,762     130,344
    _________________________________________________________________________
    _________________________________________________________________________

    Operating income (loss)
      Canada                         651      (1,142)      3,101        (895)
      United States               18,580      11,073      52,791      28,256
      Europe                         481       3,891       1,551      10,786
      Other                         (351)       (304)     (1,122)       (958)
    _________________________________________________________________________
                                  19,361      13,518      56,321      37,189
    _________________________________________________________________________
    _________________________________________________________________________

    Depreciation and amortization
      Canada                         650         290       1,845       1,030
      United States                  841         944       2,786       2,835
      Europe                       2,493         484       6,684       1,376
      Other                          292         257         880         770
    _________________________________________________________________________
                                   4,276       1,975      12,195       6,011
    _________________________________________________________________________
    _________________________________________________________________________


                                                            June   September
                                                              30,         30,
                                                            2004        2003
                                                      ___________ ___________
                                                               $           $
    Property, plant, equipment, intangible
     assets and goodwill
      Canada                                              40,085      14,622
      United States                                      130,635     133,695
      Europe                                             264,893     138,113
      Other                                               25,994      26,874
    _________________________________________________________________________
                                                         461,607     313,304
    _________________________________________________________________________
    _________________________________________________________________________


    6. Financial Information Included in the Consolidated Statement of
       Operations

    a) Financial expenses
                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Interest on long-term debt     1,390       1,490       4,119       2,163
    Bank charges                      31          22         109          71
    Financing fees                     9           -          73           -
    Amortization of deferred debt
     issue expenses                  264         257         780         386
    _________________________________________________________________________
                                   1,694       1,769       5,081       2,620
    _________________________________________________________________________
    _________________________________________________________________________


    b) Other information
                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Non-controling interest            -           -           -        (103)
    Rental expenses                  274         307         822         921
    Depreciation of property,
     plant and equipment             873         703       2,912       2,400
    Amortization of
     intangible assets             3,403       1,272       9,283       3,611
    Share in net loss (income)
     of joint ventures              (116)         36         (56)        124


    c) Income per common share

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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
    Net income                         $           $           $           $
      Basic                       12,552       6,339      35,408      21,829
      Financial expenses relating
       to the convertible
       subordinated notes          1,084           -       2,157           -
    _________________________________________________________________________
    Net income on a diluted basis 13,636       6,339      37,565      21,829
    _________________________________________________________________________
    _________________________________________________________________________
    Weighted average number
     of common shares
     outstanding              45,376,423  44,917,035  45,193,880  44,887,388
    Effect of dilutive
     stock options               971,177     445,237     849,883     448,602
    Effect of dilutive balance
     of purchase price                 -     235,433           -     238,237
    Effect of dilutive
     convertible subordinated
     notes                     8,924,113           -   5,927,695           -
    _________________________________________________________________________
    Adjusted weighted average
     number of common
     shares outstanding       55,271,713  45,597,705  51,971,458  45,574,227
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding as at
     July 31, 2004                                          45,561,736
    _________________________________________________________________________
    _________________________________________________________________________


    The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The notes are convertible during any quaterly conversion period if the
closing price per share for at least 20 consecutive trading days during the
30 consecutive trading-day period ending on the first day of the conversion
period exceeds 110% of the conversion price in effect on that thirtieth
trading day. Since this trigger event occurred during the second and the third
quarter of the current fiscal year, the 8,924,113, common shares are included
in the weighted average number of common shares outstanding for these periods.
The notes are also convertible during the five business-day period following
any 10 consecutive trading-day period in which the daily average of the
trading prices for the notes was less than 95% of the average conversion value
for the notes during that period.

    Options to purchase 258,500 and 1,223,550 common shares were outstanding
as at June 30, 2004 and 2003 respectively but were not included in the
computation of diluted income per share for the nine-month periods ended
June 30, 2004 and 2003 respectively because the exercise price of the options
was greater than the average market price of the common shares.

    7. Stock Options

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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________

    Fair value per option          $7.84       $5.07       $6.74       $5.29
    Assumptions used in Black-
     Scholes option pricing model
      Expected volatility             44%         45%         44%         45%
      Risk-free interest rate       3.96%       4.23%       4.18%       4.39%
      Expected option life (years)     6           6           6           6
      Expected dividend                -           -           -           -

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

                                 For the     For the     For the     For the
                             three-month three-month three-month three-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2004        2003        2003
                              ___________ ___________ ___________ ___________

                             As reported   Pro forma As reported   Pro forma
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net income                    12,552      11,456       6,339       5,548
    Basic income per share          0.28        0.25        0.14        0.12
    Diluted income per share        0.25        0.23        0.14        0.12


                                 For the     For the     For the     For the
                              nine-month  nine-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2004        2003        2003
                              ___________ ___________ ___________ ___________

                             As reported   Pro forma As reported   Pro forma
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net income                    35,408      32,198      21,829      19,416
    Basic income per share          0.78        0.71        0.49        0.43
    Diluted income per share        0.72        0.66        0.48        0.43


    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:

    Operations adjustments:

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________

    Net income in accordance
     with U.S. GAAP               12,552       6,339      35,408      21,829
    Implicit interest on
     convertible debt             (1,082)       (990)     (3,131)     (1,284)
    Amortization of new product
     acquisition costs               (14)        (14)        (40)        (40)
    Income tax impact of the
     above adjustments                 5           5          15          15
    _________________________________________________________________________
    Net earnings in accordance
     with Canadian GAAP           11,461       5,340      32,252      20,520
    _________________________________________________________________________
    _________________________________________________________________________

    Earnings per share in
     accordance with Canadian GAAP
      Basic                         0.25        0.12        0.71        0.46
      Diluted                       0.25        0.12        0.70        0.45



    Balance sheet adjustments:

                                      June 30, 2004       September 30, 2003
                              _______________________ _______________________
                                            Canadian                Canadian
                               U.S. GAAP        GAAP   U.S. GAAP        GAAP
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Current assets               130,780     130,910     225,035     225,203
    Investments                      407         143       1,002         775
    Property, plant and
     equipment                    28,666      28,678      20,331      20,351
    Intangible assets            405,391     417,765     265,423     277,837
    Goodwill                      27,550      29,342      27,550      29,342
    Deferred debt issue expenses   3,372       3,403       4,233       4,233
    Deferred income tax asset      2,354       2,354       1,775       1,775
    Current liabilities           55,758      56,064      50,261      50,634
    Long-term debt               128,284     109,468     129,474     107,527
    Deferred income tax
     liability                    38,030      39,154      34,603      35,742
    Shareholders' equity
      Equity component of
       convertible debt                -      24,239           -      24,239
      Capital stock              260,572     267,217     255,743     262,388
      Retained earnings           99,042      95,463      63,634      63,211
      Accumulated other
       comprehensive  income      16,834      20,990      11,634      15,775



    AXCAN PHARMA INC.
    Consolidated Balance Sheets                                Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
                                                            June   September
                                                              30,         30,
                                                            2004        2003
                                                      ___________ ___________
    ASSETS                                            (unaudited)
                                                               $           $
    Current assets
      Cash and cash equivalents                           34,353      37,886
      Short-term investments                              15,703     133,112
      Accounts receivable                                 31,122      19,665
      Income taxes receivable                              7,483       5,315
      Inventories (Note 3)                                33,145      20,163
      Prepaid expenses and deposits                        3,583       2,848
      Future income taxes                                  5,521       6,214
    _________________________________________________________________________
    Total current assets                                 130,910     225,203

    Investments                                              143         775
    Property, plant and equipment, net                    28,678      20,351
    Intangible assets, net (Note 4)                      417,765     277,837
    Goodwill, net                                         29,342      29,342
    Deferred debt issue expenses, net                      3,403       4,233
    Future income taxes                                    2,354       1,775
    _________________________________________________________________________
                                                         612,595     559,516
    _________________________________________________________________________
    _________________________________________________________________________

    LIABILITIES

    Current liabilities
      Accounts payable and accrued liabilities            48,907      43,791
      Income taxes payable                                 4,608       4,821
      Instalments on long-term debt                        1,820       1,528
      Future income taxes                                    729         494
    _________________________________________________________________________
    Total current liabilities                             56,064      50,634

    Long-term debt                                       109,468     107,527
    Future income taxes                                   39,154      35,742
    _________________________________________________________________________
                                                         204,686     193,903
    _________________________________________________________________________
    _________________________________________________________________________

    SHAREHOLDERS' EQUITY

    Equity component of convertible debt (Note 5)         24,239      24,239
    Capital stock                                        267,217     262,388
    Retained earnings                                     95,463      63,211
    Accumulated foreign currency translation
     adjustments                                          20,990      15,775
    _________________________________________________________________________
                                                         407,909     365,613
    _________________________________________________________________________
                                                         612,595     559,516
    _________________________________________________________________________
    _________________________________________________________________________
    See the accompanying notes to the Consolidated Financial Statements.
    These interim financial statements should be read in conjunction with the
    annual Consolidated Financial Statements.



    AXCAN PHARMA INC.
    Consolidated Cash Flows                                    Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (unaudited)
                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Operations
    Net earnings                  11,461       5,340      32,252      20,520
    Non-cash items
      Implicit interest on
       convertible debt            1,082         990       3,132       1,284
      Non-controlling interest         -           -           -        (103)
      Amortization of deferred
       debt issue expenses           264         257         780         386
      Other depreciation
       and amortization            4,292       1,992      12,241       6,059
      Gain on disposal of assets     (71)          -         (31)          -
      Foreign currency fluctuation   624        (413)        504        (262)
      Future income taxes            888         234       3,763       2,162
      Changes in working
       capital items
        Accounts receivable       (1,515)     (2,209)    (12,696)      2,843
        Income taxes receivable   (1,035)     (1,999)     (2,379)     (2,627)
        Inventories               (5,284)        (26)    (13,457)      2,039
        Prepaid expenses
         and deposits               (265)       (152)       (877)       (615)
        Accounts payable and
         accrued liabilities       1,336       8,139       5,984      14,234
        Income taxes payable         161       1,406        (249)        640
    _________________________________________________________________________
    Cash flows from
     operating activities         11,938      13,559      28,967      46,560
    _________________________________________________________________________

    Financing
      Long-term debt               2,212         482       2,212     101,656
      Repayment of long-term debt (2,419)       (375)     (3,369)     (1,195)
      Equity component of
       convertible debt                -           -           -      24,239
      Issue of shares              2,005         857       4,829         971
      Deferred debt issue expenses     -         (38)          -      (4,538)
    _________________________________________________________________________
    Cash flows from financing
     activities                    1,798         926       3,672     121,133
    _________________________________________________________________________

    Investment
      Acquisition of short-term
       investments               (17,588)    (95,014)    (17,588)    (95,714)
      Disposal of short-term
       investments                 6,555           -     134,945      60,740
      Acquisition of investments       -        (100)          -        (100)
      Disposal of investments        496         324       1,735         596
      Acquisition of property,
       plant and equipment        (4,562)     (1,224)    (11,076)     (2,236)
      Disposal of property,
       plant and equipment            26           -         404           -
      Acquisition of
       intangible assets             (81)     (2,003)   (145,685)    (73,938)
      Disposal of intangible
       assets                        917           -         917         205
    _________________________________________________________________________
    Cash flows from investment
     activities                  (14,237)    (98,017)    (36,348)   (110,447)
    _________________________________________________________________________

    Foreign exchange gain (loss)
     on cash held in foreign
     currencies                      (23)         89         176         486
    _________________________________________________________________________

    Net increase (decrease) in cash
     and cash equivalents           (524)    (83,443)     (3,533)     57,732
    Cash and cash equivalents,
     beginning of period          34,877     161,180      37,886      20,005
    _________________________________________________________________________

    Cash and cash equivalents,
     end of period                34,353      77,737      34,353      77,737
    _________________________________________________________________________
    _________________________________________________________________________

    Additional information
      Interest received               73         511         357       1,019
      Interest paid                2,653          27       6,091         150
      Income taxes paid            2,917       3,724      14,290       9,246
    _________________________________________________________________________
    _________________________________________________________________________

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



    AXCAN PHARMA INC.
    Consolidated Earnings                                      Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars, except share related data
    (unaudited)

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    REVENUE                       61,931      46,908     182,859     130,830
    _________________________________________________________________________

    Cost of goods sold            13,643      11,828      43,187      31,736
    Selling and administrative
     expenses                     19,418      15,625      57,956      46,552
    Research and development
     expenses                      4,907       3,602      12,553       8,542
    Depreciation and amortization  4,292       1,992      12,241       6,059
    _________________________________________________________________________
                                  42,260      33,047     125,937      92,889
    _________________________________________________________________________


    Operating income              19,671      13,861      56,922      37,941
    -------------------------------------------------------------------------

    Financial expenses             2,776       2,770       8,219       3,922
    Interest income                 (159)       (514)       (408)     (1,083)
    Loss (gain) on foreign
     currency                       (456)       (168)       (108)         80
    Takeover bid expenses              -       3,697           -       3,697
    _________________________________________________________________________
                                   2,161       5,785       7,703       6,616
    _________________________________________________________________________

    Earnings before income taxes  17,510       8,076      49,219      31,325
    Income taxes                   6,049       2,736      16,967      10,805
    _________________________________________________________________________
    NET EARNINGS                  11,461       5,340      32,252      20,520
    _________________________________________________________________________
    _________________________________________________________________________

    Earnings per common share
      Basic                         0.25        0.12        0.71        0.46
      Diluted                       0.25        0.12        0.70        0.45
    _________________________________________________________________________
    _________________________________________________________________________

    Weighted average number
     of common shares
      Basic                   45,376,423  44,917,035  45,193,880  44,887,388
      Diluted                 55,271,713  45,597,705  51,971,458  45,574,227
    _________________________________________________________________________
    _________________________________________________________________________



    AXCAN PHARMA INC.
    Consolidated Retained Earnings                             Canadian GAAP
    _________________________________________________________________________
    in thousands of U.S. dollars
    (unaudited)
                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $

    Balance, beginning of period  84,002      49,774      63,211      34,594
    Net earnings                  11,461       5,340      32,252      20,520
    _________________________________________________________________________
    Balance, end of period        95,463      55,114      95,463      55,114
    _________________________________________________________________________
    _________________________________________________________________________

    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                 Canadian GAAP
    _________________________________________________________________________
    amounts in the tables are stated in thousands of U.S. dollars, except
    share related data
    (unaudited)


    1. Significant Accounting Policies

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

    2. Product Acquisition

    On November 18, 2003, the Company acquired the rights to a group of
products from Aventis for a cash purchase price of $145,000,000. The acquired
products are CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL
and PROCTOSEDYL for the Canadian market. On December 3, 2002, the Company
acquired the worldwide rights to PANZYTRAT enzyme product line from Abbott.
    During a transition period, the sellers may act as Axcan's agents for the
management of sales of these products. For the nine-month period ended June
30, 2004, a portion of the sales of these products is still managed by the
sellers. Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the nine-month period
ended June 30, 2004 were $6,928,009 ($10,311,585 in 2003), the Company only
included in its revenue an amount of $4,413,531 ($6,898,669 in 2003)
representing the net sales less cost of goods sold and other seller related
expenses.

    3. Inventories
                                                            June   September
                                                              30,         30,
                                                            2004        2003
                                                      ___________ ___________
                                                               $           $

    Raw materials and packaging material                  10,001       8,441
    Work in progress                                       1,490       1,466
    Finished goods                                        21,654      10,256
    _________________________________________________________________________
                                                          33,145      20,163
    _________________________________________________________________________
    _________________________________________________________________________


    4. Intangible Assets

                                                               June 30, 2004
    _________________________________________________________________________
                                                        Accumulated
                                                Cost    amortization     Net
    _________________________________________________________________________
                                                   $           $           $
    Trademarks, trademark licenses and
     manufacturing rights with a:
      Finite life                            288,623      26,846     261,777
      Indefinite life                        168,406      12,418     155,988
    _________________________________________________________________________
                                             457,029      39,264     417,765
    _________________________________________________________________________
    _________________________________________________________________________

                                                          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 nine-month period ended June 30, 2004, implicit interest in
the amount of $3,131,424 ($1,284,298 in 2003) was accounted for and added to
the liability component.

    6. Segmented Information

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

    The Company operates in the following geographic areas:

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Revenue
      Canada
        Domestic sales             7,100       5,163      20,517      14,873
        Foreign sales                  -           -           -           -
      United States
        Domestic sales            41,519      30,072     121,288      82,932
        Foreign sales              1,137           -       2,500           -
      Europe
        Domestic sales            10,073      10,747      34,766      29,613
        Foreign sales              2,029         881       3,618       3,297
      Other                           73          45         170         115
    _________________________________________________________________________
                                  61,931      46,908     182,859     130,830
    _________________________________________________________________________
    _________________________________________________________________________

    Operating income (loss)
      Canada                         903        (796)      3,745        (131)
      United States               18,566      11,059      52,751      28,216
      Europe                         553       3,902       1,548      10,814
      Other                         (351)       (304)     (1,122)       (958)
    _________________________________________________________________________
                                  19,671      13,861      56,922      37,941
    _________________________________________________________________________
    _________________________________________________________________________

    Depreciation and amortization
      Canada                         650         290       1,845       1,030
      United States                  855         958       2,826       2,875
      Europe                       2,495         487       6,690       1,384
      Other                          292         257         880         770
    _________________________________________________________________________
                                   4,292       1,992      12,241       6,059
    _________________________________________________________________________
    _________________________________________________________________________

                                                            June   September
                                                              30,         30,
                                                            2004        2003
                                                      ___________ ___________
    Property, plant, equipment, intangible                     $           $
     assets and goodwill
      Canada                                              44,360      19,311
      United States                                      131,009     133,695
      Europe                                             265,303     138,530
      Other                                               35,113      35,994
    _________________________________________________________________________
                                                         475,785     327,530
    _________________________________________________________________________
    _________________________________________________________________________


    7. Financial Information Included in the Consolidated Statement of
       Earnings

    a) Financial expenses

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Interest on long-term debt     2,472       2,489       7,250       3,456
    Bank charges                      31          24         116          80
    Financing fees                     9           -          73           -
    Amortization of deferred
     debt issue expenses             264         257         780         386
    _________________________________________________________________________
                                   2,776       2,770       8,219       3,922
    _________________________________________________________________________
    _________________________________________________________________________


    b) Other information

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Non-controling interest            -           -           -        (103)
    Rental expenses                  274         307         822         921
    Depreciation of property,
     plant and equipment             875         704       2,918       2,406
    Amortization of
     intangible assets             3,417       1,288       9,323       3,653
    Investment tax credits
     applied against research
     and development expenses        322         346         644         764


    c) Earnings per common share

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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net earnings
      Basic                       11,461       5,340      32,252      20,520
      Financial expenses relating
       to the convertible
       subordinated notes          2,135           -       4,210           -
    _________________________________________________________________________

    Net earnings on a
     diluted basis                13,596       5,340      36,462      20,520
    _________________________________________________________________________
    _________________________________________________________________________


                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________

    Weighted average number
     of common shares
     outstanding              45,376,423  44,917,035  45,193,880  44,887,388
    Effect of dilutive
     stock options               971,177     445,237     849,883     448,602
    Effect of dilutive equity
     component of purchase price       -     235,433           -     238,237
    Effect of dilutive
     convertible subordinated
     notes                     8,924,113           -   5,927,695           -
    _________________________________________________________________________
    Adjusted weighted average
     number of common shares
     outstanding              55,271,713  45,597,705  51,971,458  45,574,227
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding at the end
     of the period                                    45,556,032  44,989,347
    _________________________________________________________________________
    _________________________________________________________________________
    Number of common shares
     outstanding as at
     July 31, 2004                                          45,561,736
    _________________________________________________________________________
    _________________________________________________________________________



    The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The notes are convertible during any quaterly conversion period if the
closing price per share for at least 20 consecutive trading days during the
30 consecutive trading-day period ending on the first day of the conversion
period exceeds 110% of the conversion price in effect on that thirtieth
trading day. Since this trigger event occurred during the second and the third
quarter of the current fiscal year, the 8,924,113, common shares are included
in the weighted average number of common shares outstanding for these periods.
The notes are also convertible during the five business-day period following
any 10 consecutive trading-day period in which the daily average of the
trading prices for the notes was less than 95% of the average conversion value
for the notes during that period.
    Options to purchase 258,500 and 1,223,550 common shares were outstanding
as at June 30, 2004 and 2003 respectively but were not included in the
computation of diluted earnings per share for the nine-month periods ended
June 30, 2004 and 2003 respectively because the exercise price of the options
was greater than the average market price of the common shares.

    8. Stock Options

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

                                 For the     For the     For the     For the
                             three-month three-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2003        2004        2003
                              ___________ ___________ ___________ ___________

    Fair value per option          $7.84       $5.07       $6.74       $5.29
    Assumptions used in
     Black-Scholes option
     pricing model
      Expected volatility             44%         45%         44%         45%
      Risk-free interest rate       3.96%       4.23%       4.18%       4.39%
      Expected option life (years)     6           6           6           6
      Expected dividend                -           -           -           -

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

                                 For the     For the     For the     For the
                             three-month three-month three-month three-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2004        2003        2003
                              ___________ ___________ ___________ ___________

                             As reported   Pro forma As reported   Pro forma
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net earnings                  11,461      10,365       5,340       4,549
    Basic earnings per share        0.25        0.23        0.12        0.10
    Diluted earnings per share      0.25        0.23        0.12        0.10


                                 For the     For the     For the     For the
                              nine-month  nine-month  nine-month  nine-month
                                  period      period      period      period
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2004        2004        2003        2003
                              ___________ ___________ ___________ ___________

                             As reported   Pro forma As reported   Pro forma
                              ___________ ___________ ___________ ___________
                                       $           $           $           $
    Net earnings                  32,252      29,042      20,520      18,107
    Basic earnings per share        0.71        0.64        0.46        0.40
    Diluted earnings per share      0.70        0.64        0.45        0.40

/T/



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


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