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Axcan reports fourth quarter and year-end 2005 financial results - Company generates record revenues of $67.0 million for the quarter


Nov 10, 2005 - 11:59 ET

MONT-SAINT-HILAIRE, QC, Nov. 10 -

Attention Business/Financial Editors:

TSX SYMBOL (Toronto Stock Exchange): AXP
NASDAQ SYMBOL (NASDAQ National Market): AXCA

Axcan Pharma Inc. (NASDAQ: AXCA)(TSX: AXP), a leading gastroenterology specialty pharmaceutical
company, today announced its operating results for the fourth quarter and
fiscal year ended September 30, 2005. All amounts are stated in U.S. dollars.

Sales for the fourth quarter are the highest quarterly sales ever
recorded in the history of Axcan. Total revenues for the three months ended
September 30, 2005 were $67.0 million, compared with $60.9 million for the
fourth quarter of 2004, an increase of 10.0%. Total revenues for the 12-month
period ended September 30, 2005, were $251.3 million, compared with
$243.6 million for 2004, an increase of 3.2%.

Fourth-quarter 2005 net income was $9.1 million, compared with net income
of $13.3 million for the corresponding 2004 period. Net income for the year
ended September 30, 2005 totaled $26.4 million, compared with net income of
$48.7 million in 2004. Diluted earnings per share (EPS) for the fourth quarter
of 2005 were $0.19, versus diluted earnings per share of $0.26 for the same
period in 2004. Diluted EPS for the fiscal year 2005 were $0.56, compared with
diluted earnings per share of $0.96 the prior year.

"Axcan's record fourth quarter and full year revenues reflect the
strength of our current product portfolio. We are pleased to report that, for
fiscal 2005, the products that we promote for which prescription data is
available, showed overall prescription growth of approximately 8%," said
Dr. Frank Verwiel, President and Chief Executive Officer of Axcan. "Based on
our best estimate, at September 30, 2005, the overall wholesaler inventory
levels were within our target range and relatively stable during the fourth
quarter. Our models indicate that the total impact of changes in wholesaler
inventories resulted in increased revenues of less than $1 million during the
quarter. Going forward, we will continue to work on enhanced monitoring of
wholesaler inventory levels. At the same time, our sales and marketing teams
are committed to increasing prescriptions of our current products, both in
North America and Europe," he added.

"Our ITAX development is currently on track with our previously
disclosed, revised timeline and we are happy to report that randomization for
the International Phase III trial has been completed with more than
500 patients randomized. We are taking all steps necessary to achieve our
objective of submitting the New Drug Application with the U.S. Food and Drug
Administration in the summer of 2006. In order to enhance our ability to meet
this important milestone we have amongst others increased the number of sites
in the North American trial by 50%. These sites are currently finalizing
administrative procedures, and the first of these new sites have started
screening and randomizing patients, while the remaining few are completing the
final steps of their administrative procedures. To date, more than
400 patients have been randomized in the North American Phase III trial. We
expect to release the overall outcome of the International Phase III trial
during the first half of calendar 2006, followed shortly afterwards by that of
the North American Phase III trial. Detailed results of the studies will most
likely be subsequently presented at a major gastroenterology conference,"
Dr. Verwiel concluded.

PRODUCT DEVELOPMENT PIPELINE UPDATE

Axcan's product development efforts will remain focused on compounds and
products that meet medical needs in the field of gastroenterology, have a
competitive advantage and allow Axcan to leverage its infrastructure or build
infrastructure in certain markets.

Management recently conducted an exhaustive review of Axcan's product
pipeline in order to reprioritize projects and focus resources on highest
value opportunities.

An update on Axcan's major projects follows:

ITAX

In addition to the milestones that have been reached in the Phase III
trials, all patients required for the supplementary 6-month and 1-year safety
studies have been enrolled. Furthermore, the clinical work on most of the
additional Phase I studies to complement the New Drug Application to be
submitted to the FDA is now complete. Data are currently being analyzed.

HELIZIDE

The Company has successfully qualified a manufacturer of biskalcitrate
potassium (bismuth salt), a component of the HELIZIDE combination therapy for
the eradication of the Helicobacter pylori bacterium. Final results of
stability tests on the bismuth salt should be available shortly, which should
allow Axcan to file an amendment to the New Drug Application during the second
quarter of fiscal 2006.

SALOFALK 750 MG TABLETS

Axcan applied for a Supplemental New Drug Submission to the Therapeutic
Products Directorate of Health Canada for a new 750-milligram mesalamine
(5-ASA) tablet for the oral treatment of ulcerative colitis in Canada. The
Company received, and responded to, questions in a non-approvable letter from
Health Canada during the third quarter of fiscal 2005. Axcan anticipates a
response in the first half of fiscal 2006.

CANASA / SALOFALK rectal gel

Axcan recently completed Phase III studies to confirm the efficacy and
safety of a new mesalamine rectal gel in the treatment of distal ulcerative
colitis. Data is currently being analyzed. The Company plans to submit
regulatory filings for approvals in the United States and Canada in the first
half of calendar 2006.

NCX-1000

Axcan and its partner, NicOx S.A., are developing NCX-1000, a patented,
nitric oxide donating derivative of ursodiol, for the treatment of portal
hypertension, a late-stage complication of chronic, advanced liver disease.
The Phase I clinical development program, which is designed to demonstrate the
tolerability and safety of NCX-1000, has been completed and the Company is
pleased to report that results confirmed the safety profile of this drug. The
protocol of a pilot, therapeutic proof-of-concept Phase IIa study was recently
approved by the relevant Ethical Review Board. The center where the study will
be conducted has started the identification of potential patients. This study
should be completed by the end of fiscal 2006.

URSODIOL DISULFATE

Axcan completed a proof-of-concept study in rats to evaluate the effect
of ursodiol disulfate on the development of colonic tumors. The Company
initiated animal toxicity studies in the fourth quarter of fiscal 2004. Both
acute and subchronic toxicity studies have been completed. The Company is
pleased to announce that, based on the currently available data, the compound
is safe and has no toxicity effect. Clinical Phase I studies should be
initiated in the first half of fiscal 2006.

NMK 150

Axcan and Nordmark GmbH, a German pharmaceutical firm, are collaborating
in the development of NMK 150, a new high protease pancrelipase preparation
developed for the relief of pain in small duct chronic pancreatitis. It is
expected that NMK 150 will enter dose-ranging preclinical studies in the first
quarter of fiscal 2006 to confirm the absence of mucosal irritation associated
with the use of high doses of the drug. Phase I clinical trials will begin in
the second quarter of fiscal 2006.

REVENUE GUIDANCE FOR 2006

The following 2006 revenue guidance consists of projections, based upon
various assumptions, all of which are subject to uncertainties and risks. Our
assumptions include, but are not limited to: wholesaler inventory levels in
fiscal 2006 remaining in the range of eight to twelve weeks; the absence of
any changes to GAAP applicable to revenue recognition; foreign currency rates
remaining stable throughout the year; reimbursement amounts and policies,
related to our products, in all markets not changing materially during the
year; the absence of any material change in the regulatory status of the
Company's current products and the absence of new competitive products and
generics entries.

Based on its best estimates, Axcan believes overall revenue for fiscal
2006 will be in the range of $260 to $270 million, which would represent
growth of approximately 4% to 8% relative to fiscal 2005. Axcan's fiscal 2006
guidance does not include any potential new product launches, licensing or
acquisitions; nor does it provide for revenue from completion of any potential
partnering agreement for ITAX.

BOARD MEMBERSHIP

Mr. Daniel Labrecque, President and CEO of Rothschild Canada, has
resigned his position on Axcan's Board of Directors, effective November 9,
2005. In order to maintain Axcan's corporate governance objectives of director
independence, Mr. Labrecque decided to resign further to his firm being
granted an advisory mandate by the Company, which would no longer allow him to
qualify as an independent director under applicable rules and Company
guidelines. Axcan is grateful for his contribution to its success during his
tenure.

INTERIM FINANCIAL REPORT

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

The audited financial statements and MD&A for fiscal 2005 to be included
in the Company's annual report, will be in accordance with U.S. GAAP and will
include a reconciliation to Canadian GAAP of the U.S. GAAP presentation.

CONFERENCE CALL

Axcan will host a conference call at 8:30 A.M. EST, on November 11, 2005.
Interested parties may also access the conference call by way of a webcast at
www.axcan.com. The webcast will be archived for 90 days. The telephone numbers
to access the conference call are (866) 250-4910 (Canada and United States) or
416-640-4127 (international). A replay of the call will be available until
November 18, 2005. The telephone number to access the replay of the call is
(416) 640-1917 code: 21159496.

ABOUT AXCAN PHARMA

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

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

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

The names CANASA, CARAFATE, DELURSAN, HELIZIDE, ITAX, LACTEOL, PANZYTRAT,
SALOFALK, SULCRATE, ULTRASE and URSO appearing in this press release are
trademarks of Axcan Pharma Inc. and its subsidiaries.


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




KEY PRODUCT INFORMATION FOR FISCAL 2005
---------------------------------------
---------------------------------------

-------------------------------------------------------------------------
Sales ($US M) Sales Growth(1) Rx(2)Growth(1)
-------------------------------------------------------------------------
NORTH AMERICA
-------------------------------------------------------------------------
CANASA 28.7 - 25.5% 8.7%
-------------------------------------------------------------------------
SALOFALK 14.5 22.9% 5.9%
-------------------------------------------------------------------------
ULTRASE 36.0 0.3% 0%
-------------------------------------------------------------------------
URSO 250/FORTE/DS 47.1 4.0% 14.3%
-------------------------------------------------------------------------
CARAFATE/SULCRATE 38.5 12.2% 3.0%
-------------------------------------------------------------------------

-------------------------------------------------------------------------
EUROPE
-------------------------------------------------------------------------
LACTEOL 20.3 24.5% n/a
-------------------------------------------------------------------------
PANZYTRAT 14.8 9.6% n/a
-------------------------------------------------------------------------
DELURSAN 13.1 21.3% n/a
-------------------------------------------------------------------------

(1) Compared with fiscal 2004
(2) IMS Prescription Data

 


PRODUCTS IN NORTH AMERICA
-------------------------

CANASA

U.S. prescriptions for fiscal 2005 were up 8.7% compared to the same
period in 2004. The increase was largely due to the impact of the 1000 mg
dosage form launched in the second quarter of fiscal 2005.

Sales for fiscal 2005 declined 25.5%, compared to the same period in 2004
mainly due to the impact of wholesaler reductions in inventory levels during
the year.

SALOFALK

Canadian prescriptions for fiscal 2005 were up 5.9% compared with the
same period in 2004.

ULTRASE

U.S. prescriptions for ULTRASE for fiscal 2005 were flat, in line with
the pancreatic enzyme market that increased 1%. The Company expects
prescriptions to increase going forward, as ULTRASE was listed as a single
source product in June 2005, which makes it less likely to be substituted by
generics.

URSO 250/URSO FORTE

Total prescriptions in North America were up 14.3% compared with fiscal
2004. In the U.S. alone, prescriptions for fiscal 2005 were up 16.1% compared
with the same period in 2004. During fiscal 2005, Axcan launched URSO Forte, a
500-mg dosage form of Ursodiol, which contributed to overall prescription
growth.

In the U.S. alone, sales for fiscal 2005 were up 7.3% compared with the
same period in 2004. The impact of wholesaler inventory reductions resulted in
less than anticipated sales during the year.

CARAFATE/SULCRATE

U.S. prescriptions for fiscal 2005 were up 3% compared with fiscal 2004.
This limited growth was due primarily to limited promotion of this line of
products during the year. The Company recently launched a marketing campaign
for CARAFATE suspension in the U.S. market.

Sales growth was 12.2%, due mainly to the impact of a price increase in
March 2005.

PRODUCTS IN EUROPE
------------------

LACTEOL

Sales of LACTEOL increased 24.5% compared to the prior year. In local
currency, the increase was 18.4%.

PANZYTRAT

Sales of PANZYTRAT increased 9.6% compared to the prior year In local
currency, the increase was 5.1%.

DELURSAN

Sales of DELURSAN increased 21.3% compared to the prior year. In local
currency, the increase was 15.1%.


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

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

Overview

Axcan is a leading speciality pharmaceutical company concentrating in the
field of gastroenterology, with operations in North America and Europe. Axcan
markets and sells pharmaceutical products used in the treatment of a variety
of gastrointestinal diseases and disorders. The Company seeks to expand its
gastrointestinal franchise by in-licensing products and acquiring products or
companies, as well as developing additional products and expanding indications
for existing products. Axcan's current products include ULTRASE, PANZYTRAT and
VIOKASE for the treatment of certain gastrointestinal symptoms, related to
cystic fibrosis in the case of ULTRASE and PANZYTRAT; URSO 250, URSO FORTE and
DELURSAN for the treatment of certain cholestatic liver diseases; SALOFALK and
CANASA for the treatment of certain inflammatory bowel diseases; and PHOTOFRIN
for the treatment of certain types of gastrointestinal cancers and other
conditions. Axcan has a number of pharmaceutical projects in all phases of
development including ITAX for the treatment of functional dyspepsia. In the
first quarter of fiscal 2004, Axcan filed a supplemental New Drug Submission
for a new 750-milligram Mesalamine (5-ASA) tablet for the oral treatment of
ulcerative colitis. On March 24, 2005, Axcan received a non-approval letter
from the Therapeutic Products Directorate of Health Canada containing a list
of questions and comments for both the clinical and Chemistry, Manufacturing
and Controls aspects of the original New Drug Submission. Axcan responded to
all questions in the non-approvable letter during the third quarter of fiscal
2005 and expects to obtain a final response in the first half of fiscal 2006.
Axcan reported revenue of $67.0 million, operating income of $13.9
million and net income of $9.1 million for the three-month period ended
September 30, 2005. For the year ended September 30, 2005, revenue was
$251.3 million, operating income was $40.4 million and net income was
$26.4 million. Revenue from sales of Axcan's products in the United States was
$159.7 million (63.5% of total revenue) for the year ended September 30, 2005,
compared to $166.7 million (68.4% of total revenue) for fiscal 2004. In
Canada, revenue was $34.4 million (13.7% of total revenue) for the year ended
September 30, 2005, compared to $28.0 million (11.5% of total revenue) for
fiscal 2004. In Europe, revenue was $57.1 million (22.7% of total revenue) for
the year ended September 30, 2005, compared to $48.7 million (20.0% of total
revenue) for fiscal 2004.

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

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

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

Critical Accounting Policies

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

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the recorded
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of financial statements and the disclosure of
recognized amounts of revenues and expenses during the year. Significant
estimates and assumptions made by management include the allowance for
accounts receivable and inventories, reserves for product returns, rebates and
chargebacks, the classification of intangible assets between finite and
indefinite life, useful lives of long-lived assets, the expected cash flows
used in evaluating long-lived assets, goodwill and investments for impairment,
contingency provisions and other accrued charges. These estimates were made
using the historical information and various other factors related to each
circumstance available to management. The Company reviews all significant
estimates affecting the financial statements on a recurring basis and record
the effect of any adjustments when necessary. Actual results could differ from
those estimates based upon future events, which could include, among other
risks, changes in regulations governing the manner in which we sell our
products, changes in health care environment and managed care consumption
patterns.

Revenue Recognition

Revenue is recognized when the product is shipped to the Company's
customer, provided the Company has not retained any significant risks of
ownership or future obligations with respect to the product shipped.
Provisions for sales discounts and estimates for chargebacks, managed care and
Medicaid rebates and products returns are established as a reduction of
product sales revenues at the time such revenues are recognized. These revenue
reductions are established by us as our best estimate at the time of sale
based on historical experience adjusted to reflect known changes in the
factors that impact such reserves. These revenue reductions are generally
reflected as an addition to accrued expenses.

We do not provide any forms of price protection to our wholesale
customers and permit product returns only if the product is returned within
12 months of expiration. Credit for returns is issued to the original
purchaser at current net pricing less 10 %. Accrued liabilities include
reserves of $7.5 million and $6.1 million as of September 30, 2005 and
September 30, 2004 respectively for estimated products returns.

In the United States, we establish and maintain reserves for amounts
payable by us to managed care organizations and state Medicaid programs for
the reimbursement of portions of the retail price of prescriptions filled that
are covered by the respective programs. We also establish and maintain
reserves for amounts payable by us to wholesale distributors for the
difference between their regular sale price and the contract price for the
products sold to our contract customers. The amounts estimated to be paid
relating to products sold are recognized as revenue reductions and as
additions to accrued expenses at the time of sale based on our best estimate
of the products utilization by these managed care and state Medicaid patients
and sales to our contract customers, using historical experience adjusted to
reflect known changes in the factors that impact such reserves. Accrued
liabilities include reserves of $4.8 million and $2.8 million as of September
30, 2005 and September 30, 2004, respectively for estimated rebates and
chargebacks.

If the levels of chargebacks, managed care and Medicaid rebates, product
returns and discounts fluctuate significantly and/or if our estimates do not
adequately reserve for these reductions of net product revenues, our reported
revenue could be negatively affected.

Goodwill and Intangible Assets

We have in the past made acquisition of products and businesses that
include goodwill, trademarks, licence agreements and other identifiable
intangible assets. Axcan's goodwill and intangible assets are stated at cost,
less accumulated amortization. Since October 1, 2001, the Company does not
amortize goodwill and intangible assets with an indefinite life. However,
management assess the impairment of goodwill and intangible assets at least
annually and whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable, by comparing the
carrying value of the unamortized portion of goodwill and intangible assets to
the future benefits of the Company's activities or expected sales of
pharmaceutical products. Should there be a permanent impairment in value or if
the unamortized balance exceeds recoverable amounts, a write-down will be
recognized, for the current year. To date, Axcan has not recognized any
significant impairment in value.

Intangible assets with finite life are amortized over their estimated
useful lives according to the straight-line method at annual rates varying
from 4 to 15 %. The straight-line method of amortization is used because it
reflects, in the opinion of management, the pattern in which the intangible
assets with finite life are used. In determining the useful life of intangible
assets, the Company considers many factors including the intention of
management to support the asset on a long term basis by maintaining the level
of expenditure necessary, the use of the asset, the existence and expiration
date of a patent, the existence of a generic or competitor and any legal or
regulatory provisions that could limit the use of the asset.

As a result of our acquisitions, we included $27.5 million of goodwill on
our consolidated balance sheets as of September 30, 2005 and September 30,
2004.

As a result of our acquisitions of products rights and other identifiable
intangible assets, we included $388.9 million and $407.9 million as net
intangible assets on our consolidated balance sheets as of September 30, 2005
and September 30, 2004. Estimated annual amortization expenses for intangible
assets with a finite life, which have a weighted-average remaining
amortization period of approximately 17 years, for the next five fiscal years
is approximately $16.6 million.

Research and Development Expenses

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

Acquisition of Products

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

On August 29, 2003, the Company acquired an exclusive license for North
America, the European Union and Latin America, from Abbott Laboratories
("Abbott") to develop, manufacture and market ITAX, a patented
gastroprokinetic drug. Under the terms of this license agreement, the Company
paid $10.0 million in cash and assumed $2.0 million in research contract
liability.

On December 10, 2002, the Company acquired the rights to the Ursodiol
250 mg tablets DELURSAN for the French market from Aventis, for a cash
purchase price of $22.8 million.

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

During a transition period, the seller in certain of these acquisition
transactions acts as selling agent for the management of these products. For
the year ended September 30, 2005 sales of some of these products were still
managed in part by the sellers. Axcan includes in its revenue the net sales
from such products less corresponding cost of goods sold and other seller
related expenses. Consequently, although net sales of such products for the
year ended September 30, 2005 were $2,431,789 ($7,667,940 in 2004), the
Company only included in its revenue an amount of $949,866 ($4,685,673 in
2004) representing the net sales less cost of goods sold and other seller
related expenses.

Results of Operations

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



For the three-month For the years
periods ended ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
% % % %
Revenue 100.0 100.0 100.0 100.0
-------------------------------------------------------------------------

Cost of goods sold 27.3 18.2 28.5 22.2
Selling and administrative
expenses 31.5 30.2 34.2 31.4
Research and development
expenses 12.2 11.1 12.7 8.2
Depreciation and
amortization 8.2 6.8 8.6 6.7
-------------------------------------------------------------------------
79.2 66.3 84.0 68.5
-------------------------------------------------------------------------

Operating income 20.8 33.7 16.0 31.5
-------------------------------------------------------------------------

Financial expenses 2.8 3.0 2.8 2.8
Interest income (1.0) (0.6) (0.5) (0.3)
Loss (gain) on foreign
exchange 0.2 (0.3) (0.1) (0.1)
-------------------------------------------------------------------------
2.0 2.1 2.2 2.4
-------------------------------------------------------------------------

Income before income
taxes 18.8 31.6 13.8 29.1
Income taxes 5.1 9.7 3.3 9.1
-------------------------------------------------------------------------
Net income 13.7 21.9 10.5 20.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Periods ended September 30, 2005 compared to periods ended
September 30, 2004

 


Revenue

For the three-month period ended September 30, 2005, revenue was
$67.0 million compared to $60.9 million for the corresponding quarter of the
preceding fiscal year, an increase of 10.0% primarily resulting from increased
sales in Canada and Europe. For the year ended September 30, 2005, revenue was
$251.3 million compared to $243.6 million for the preceding fiscal year , an
increase of 3.2%. This increase in revenue primarily resulted from higher
sales in Canada and Europe partly offset by lower sales in the United States
following an announced intention from major wholesalers to reduce their
inventory level. The end-customer prescription demand continues to show
positive growth for most of our products sold in the United States which leads
us to believe that this reduction in revenue is only temporary and that sales
should increase when our major wholesalers reach their targeted inventory
level.

Revenue is stated net of deductions for products returns, chargebacks,
contract rebates, discounts and other allowances of $39.4 million (13.6% of
gross revenue) in 2005, and $28.8 million (10.6 % of gross revenue) in
2004.This increase of total deductions as a percentage of gross revenue is
primarily due to the increase in returns and chargebacks during fiscal 2005.

Cost of goods sold

Cost of goods sold consists principally of costs of raw materials,
royalties and manufacturing costs. Axcan outsources most of its manufacturing
requirements. Cost of goods sold increased $7.2 million (64.9%) to
$18.3 million for the three-month period ended September 30, 2005 from
$11.1 million for the corresponding quarter of the preceding fiscal year. As a
percentage of revenue, cost of goods sold for the quarter ended September 30,
2005 increased as compared to the corresponding quarter of the preceding
fiscal year from 18.2% to 27.3%. This increase in cost of goods sold as a
percentage of revenue was due mainly to an increase in sales of products with
a lower margin and a reduction in sales of products with a higher margin. For
the year ended September 30, 2005, cost of goods sold increased $17.3 million
(31.9%) to $71.5 million from $54.2 million for the preceding fiscal year. As
a percentage of revenue, cost of goods sold for the year ended September 30,
2005 increased as compared to the preceding fiscal year from 22.2% to 28.5%.
This increase in the cost of goods sold as a percentage of revenue was due
mainly to the write-down of inventory of finished goods with less than twelve
months of shelf life, an increase in sales of products with a lower margin and
a reduction in sales of products with a higher margin. Cost of goods sold
includes $4.7 million for the year ended September 30, 2005 related to the
write-down of inventory of finished goods for one product line sold in the
United States.

Selling and administrative expenses

Selling and administrative expenses consist principally of salaries and
other costs associated with Axcan's sales force and marketing activities.
Selling and administrative expenses increased $2.7 million (14.7%) to
$21.1 million for the three-month period ended September 30, 2005 from
$18.4 million for the corresponding quarter of the preceding fiscal year. For
the year ended September 30, 2005, selling and administrative expenses
increased $9.6 million (12.6%) to $86.0 million from $76.4 million for the
preceding fiscal year. This increase is mainly due to an increase in our sales
force in preparation for additional products to be marketed, including ITAX,
additional marketing efforts on our current products, increased distribution
cost following the new agreement with a major wholesaler and consulting fees
for IT implementation and regulatory compliance.

Research and development expenses

Research and development expenses consist principally of fees paid to
outside parties that Axcan uses to conduct clinical studies and to submit
governmental approval applications on its behalf as well as the salaries and
benefits paid to its personnel involved in research and development projects.
Research and development expenses increased $1.4 million (20.6%) to
$8.2 million for the quarter ended September 30, 2005 from $6.8 million for
the corresponding quarter of the preceding fiscal year. For the year ended
September 30, 2005, research and development expenses increased $12.0 million
(60.3%) to $31.9 million from $19.9 million for the preceding fiscal year.
This increase is mainly due to the phase III development of ITAX, acquired in
August 2003, for the treatment of functional dyspepsia. The phase III is the
most expensive part of clinical development.

Depreciation and amortization

Depreciation and amortization consists principally of the amortization of
intangible assets with a finite life. Intangible assets include trademarks,
trademark licenses and manufacturing rights. Depreciation and amortization
increased $1.3 million (31.0%) to $5.5 million for the quarter ended
September 30, 2005 from $4.2 million for the corresponding quarter of the
preceding fiscal year. For the year ended September 30, 2005, depreciation and
amortization increased $5.1 million (31.1%) to $21.5 million from
$16.4 million for the preceding fiscal year. The increase is mainly due to the
amortization of the AVAX product line acquired from Aventis on November 18,
2003 and of PANZYTRAT which was reclassified from intangible assets with an
indefinite life to intangible assets with a finite life on October 1, 2004.

Financial expenses

Financial expenses consist principally of interest and fees paid in
connection with money borrowed for acquisitions. Financial expenses remained
stable at $1.8 million for the quarter ended September 30, 2005 compared to
the corresponding quarter of the preceding fiscal year. For the year ended
September 30, 2005, financial expenses increased $0.2 million (2.9%) to
$7.1 million from $6.9 million for the preceding fiscal year.

Income Taxes

Income taxes amounted to $3.4 million for the quarter ended September 30,
2005, compared to $5.9 million for the quarter ended September 30, 2004. The
effective tax rates were 27.2% for the quarter ended September 30, 2005 and
30.7% for the quarter ended September 30, 2004. The decrease in effective tax
rate is mainly due to the research and development tax credits, deducted from
the income taxes expense, of $0.8 million for the quarter ended September 30,
2005 compared to $0.5 million for the corresponding quarter of the preceding
fiscal year. For the year ended September 30, 2005, income taxes amounted to
$8.4 million compared to $22.3 million for the preceding fiscal year. The
effective tax rates were 24.1% for the year ended September 30, 2005 and 31.4%
for the year ended September 30, 2004. The decrease in effective tax rate is
mainly due to the research and development tax credits, deducted from the
income taxes expense, of $2.6 million for the year ended September 30, 2005
compared to $1.2 million for the preceding fiscal year.

The income taxes expense and corresponding tax rate are summarized in the
following tables:



Income taxes expense For the three-month For the years
periods ended ended
September 30 September 30
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Income taxes 4,191 6,423 11,032 23,416
Research and development
tax credits (768) (519) (2,619) (1,163)

-------------------------------------------------------------------------
Income taxes expense 3,423 5,904 8,413 22,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------


-------------------------------------------------------------------------
Income taxes rate For the three-month For the years
periods ended ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
% % % %

Income taxes 33.3 33.4 31.7 33.0
Research and development
tax credits (6.1) (2.7) (7.6) (1.6)

-------------------------------------------------------------------------
Effective taxes rate 27.2 30.7 24.1 31.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


Net income

Net income was $9.1 million or $0.20 of basic income per share and $0.19
and diluted income per share, for the quarter ended September 30, 2005,
compared to $13.3 million or $0.29 of basic income per share and $0.26 of
diluted income per share for the corresponding quarter of the preceding year.
The reduction in net income for the quarter resulted mainly from an increase
in revenue of $6.1 million, an increase in operating expenses totalling
$12.7 million and a decrease in income taxes of $2.5 million. The weighted
average number of common shares outstanding used to establish the basic per
share amounts increased from 45.6 million for the quarter ended September 30,
2004 to 45.7 million for the quarter ended September 30, 2005, following the
exercise of options previously granted pursuant to Axcan's stock option plan.
The weighted average number of common shares used to establish the diluted per
share amounts decreased from 55.2 million for the quarter ended September 30,
2004 to 55.0 million for the quarter ended September 30, 2005.

Net income was $26.4 million or $0.58 of basic income per share and $0.56
of diluted income per share, for the year ended September 30, 2005, compared
to $48.7 million or $1.08 of basic income per share and $0.96 of diluted
income per share for the preceding year. The reduction in net income for the
year ended September 30, 2005 resulted mainly from an increase in revenue of
$7.7 million, an increase in operating expenses totaling $44.1 million and a
decrease in income taxes of $13.8 million.

Canadian GAAP

The differences (in thousands of dollars) between U.S. and Canadian GAAP
which affect net income for the periods ended September 30, 2005 and 2004 are
summarized in the following table:



For the three-month For the years
periods ended ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Net income in accordance
with U.S. GAAP 9,149 13,320 26,425 48,728

Implicit interest on
convertible debt (1,205) (1,103) (4,631) (4,234)
Stock-based compensation
expense (1,062) - (4,589) -
Amortization of net
product acquisition
costs (14) (14) (54) (54)
Income tax impact of
the above adjustments 6 5 337 20

-------------------------------------------------------------------------
Net earnings in accordance
with Canadian GAAP 6,874 12,208 17,488 44,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


On March 5, 2003, the Company closed an offering of $125.0 million
aggregate principal amount of 4.25% convertible subordinated notes due April
15, 2008. As a result of the terms of the notes, under Canadian GAAP, an
amount of $24,238,899 was included in shareholders' equity as equity component
of the convertible debt and an amount of $100,761,101 was included in long-
term debt, as the liability component of the convertible notes. For the year
ended September 30, 2005, implicit interest in the amount of $4,630,987
($4,233,768 in 2004) was accounted for and added to the liability component.

Since October 1, 2004, under Canadian GAAP, the effect of stock-based
compensation has to be accounted for using the fair value method.

Under Canadian GAAP, research and development expenses are stated net of
related tax credits which generally constitute between 5% and 10% of the
aggregate amount of such expenses. Under U.S. GAAP, these tax credits are
applied against income taxes.

Liquidity and capital resources

Axcan's cash, cash equivalents and short-term investments increased
$59.7 million (157.5%) to $97.6 million at September 30, 2005 from
$37.9 million at September 30, 2004. As of September 30, 2005, working capital
was $132.0 million, compared to $87.7 million at September 30, 2004. These
increases are mainly due to the cash flows from operating activities of the
year ended September 30, 2005.

Total assets increased $31.8 million (5.2%) to $641.4 million as of
September 30, 2005 from $609.6 million as of September 30, 2004. Shareholders'
equity increased $25.5 million (6.5%) to $417.6 million as of September 30,
2005 from $392.1 million as of September 30, 2004.

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

Axcan's research and development expenses totalled $19.9 million for
fiscal 2004 and $31.9 million for fiscal 2005. Axcan believes that cash, cash
equivalents and short-term investments, together with funds provided by
operations, will be sufficient to meet its operating cash requirements,
including the development of products through research and development
activities, capital expenditures and repayment of its debt. Assuming
regulatory approvals of future products and indications stemming from its
research and development efforts, Axcan believes that these will also
significantly contribute to an increase in funds provided by operations.
However, Axcan regularly reviews product and other acquisition opportunities
and may therefore require additional debt or equity financing. Axcan cannot be
certain that such additional financing, if required, will be available on
acceptable terms, or at all.

Line of credit

Since September 22, 2004, the Company has had an amended credit facility
with a banking syndicate. The amended credit facility consists in a
$125.0 million 364-day extendible revolving facility with a two-year term-out
option maturing on September 21, 2008.

The credit facility is secured by a first priority security interest on
all present and future acquired assets of the Company and its material
subsidiaries, and provides for the maintenance of certain financial ratios.
Among the restrictions imposed by the credit facility is a covenant limiting
cash dividends, share repurchases (other than redeemable shares issued in
connection with a permitted acquisition) and similar distributions to
shareholders to 10% of the Company's net income for the preceding fiscal year.
As of September 30, 2005, Axcan was in compliance with all covenants under the
credit facility.

The interest rate varies, depending on the Company's leverage, between
25 basis points and 100 basis points over Canadian prime rate or U.S. base
rate, and between 125 basis points and 200 basis points over the LIBOR rate or
bankers acceptances. The credit facility may be drawn in U.S. dollars, in
Canadian dollar or in Euros equivalents. As of September 30, 2005, there was
no amount outstanding under this credit facility.

Convertible subordinated notes and other long-term debt

Long-term debt, including instalments due within one year, totaled
$127.8 million as of September 30, 2005 compared to $129.7 million as of
September 30, 2004. As of September 30, 2005, the long-term debt included,
$1.3 million of bank loans, $1.5 million of obligations under capital leases
contracted by Axcan's French subsidiary and the $125.0 million 4.25%
convertible subordinated notes due 2008, which were issued on March 5, 2003.

The notes are convertible into 8,924,113 common shares during any
quarterly conversion period if the closing price per share for at least 20
consecutive trading days during the 30 consecutive trading-day period ending
on the first day of the conversion period exceeds 110% of the conversion price
in effect on that thirtieth trading day. The notes are also convertible during
the five business-day period following any 10 consecutive trading-day period
in which the daily average of the trading prices for the notes was less than
95% of the average conversion value for the notes during that period. The
noteholders may also convert their notes upon the occurrence of specified
corporate transactions or if the Company has called the notes for redemption.
On or after April 20, 2006, the Company may at its option, redeem the notes,
in whole or in part at redemption prices varying from 101.70% to 100.85% of
the principal amount plus any accrued and unpaid interest to the redemption
date. The notes also include provisions for the redemption of all the notes
for cash at the option of the Company following certain changes in tax
treatment.

Cash Flows

Cash flows from operating activities increased $28.3 million from
$5.6 million of cash used by operating activities for the quarter ended
September 30, 2004 to $22.7 million of cash provided by operating activities
for the quarter ended September 30, 2005. Cash flows from operating activities
increased $44.3 million from $23.4 million of cash provided by operating
activities for the year ended September 30, 2004 to $67.7 million for the year
ended September 30, 2005. This increase is mainly due to the fact that the
inventories remained relatively stable and the accounts receivable decreased
by $8.6 million during the year ended September 30, 2005 compared to the
previous fiscal year when they increased by $45.0 million following the
increase in sales and the acquisition of new products. Cash flows used by
financing activities were $0.3 million for the quarter ended September 30,
2005 and $1.4 million for the year ended September 30, 2005. Cash flows used
for investment activities for the quarter ended September 30, 2005 were
$8.1 million mainly due to the net cash used for the acquisition of property,
plant and equipment for $1.2 million and the acquisition of short term
investments for $6.9 million. Cash used by investment activities for the year
ended September 30, 2005 were $8.1 million mainly due to the net acquisition
of short-term investments of $1.7 million plus the cash used for the
acquisition of property, plant and equipment for $6.3 million. Cash flows used
for investment activities for the year ended September 30, 2004 were
$42.7 million mainly due to the net cash used for the acquisition of
intangible assets for $149.6 million and property, plant and equipment for
$13.4 million with the net proceeds from the disposal of short-term
investments.

Off-Balance Sheet Arrangements

Axcan does not have any transactions, arrangements and other
relationships with unconsolidated entities that are likely to affect its
operating results, its liquidity or capital resources. Axcan has no special
purpose or limited purpose entities that provide off-balance sheet financing,
liquidity or market or credit risk support, engage in leasing, hedging,
research and development services, or other relationships that expose the
Company to liability that is not reflected on the face of the consolidated
financial statements.

Contractual Obligations

The following table summarizes Axcan's significant contractual
obligations (in thousands of dollars) as of September 30, 2005 and the effect
such obligations are expected to have on our liquidity and cash flows in
future years. This table excludes amounts already recorded on the balance
sheet as current liabilities at September 30, 2005 or certain other purchase
obligations as discussed below:



For the years ending September 30,
-----------------------------------------------------------
2010 and
2006 2007 2008 2009 thereafter
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
Long-term
debt 1,497 1,021 125,239 72 -
Operating
leases 1,314 416 196 41 6
Other
commitments 595 475 716 250 -
----------- ----------- ----------- ----------- -----------
3,406 1,912 126,151 363 6
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

 


Purchase orders for raw materials, finished goods and other goods and
services are not included in the above table. Management is not able to
determine the aggregate amount of such purchase orders that represent
contractual obligations, as purchase orders may represent authorizations to
purchase rather than binding agreements. For the purpose of this table,
contractual obligations for purchase of goods or services are defined as
agreements that are enforceable and legally binding on the Company and that
specify all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction. Axcan's purchase orders are based on current needs
and are fulfilled by our vendors with relatively short timetables. The Company
does not have significant agreements for the purchase of raw materials or
finished goods specifying minimum quantities or set prices that exceed its
short-term expected requirements. Axcan also enters into contracts for
outsourced services; however, the obligations under these contracts are not
significant and the contracts generally contain clauses allowing for
cancellation without significant penalty except for a sales management
services contract included in the above table. As milestone payments are
primarily contingent on receiving regulatory approval for products under
development, they do not have defined maturities.

The expected timing of payment of the obligations discussed above is
estimated based on current information. Timing of payments and actual amounts
paid may be different depending on the time of receipt of goods or services,
or for some obligations, changes to agreed-upon amounts.

Effect of recently issued U.S. accounting pronouncements

In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS
No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition to SFAS No. 123's fair value method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and Accounting Principles Board
Opinion ("APB") No. 28, "Interim Financial Reporting", to require disclosure
in the summary of significant accounting policies of the effects of an
entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method,
the disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic
value method of APB No. 25. As allowed by SFAS No. 123, the Company elected to
continue to utilize the accounting method prescribed by APB No. 25 and applies
the disclosure requirements of SFAS No. 123.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment".
SFAS No. 123R requires all entities to recognize compensation cost for share-
based awards, including options, granted to employees. The Statement
eliminated the ability to account for share-based compensation transactions
using APB No. 25, "Accounting for Stock Issued to Employees", and generally
require instead that such transaction be accounted for using a fair-value
based method. Public companies are required to measure stock-based
compensation classified as equity by valuing the instrument the employee
receives at its grant-date fair value. Currently such awards are measured at
intrinsic value under both APB No. 25 and SFAS 123, "Accounting for Stock-
Based Compensation". The Company will apply the Statement for fiscal 2006
using the modified prospective transition approach and expects the
implementation to have a material impact on the consolidated balance sheets
and results of operations. For the historical impact of Stock-based
compensation expense using the fair-value based method, see note 8 of the
September 30, 2005 interim financial statement.

During the September 2004 meeting of the Emerging Issues Task Force
("EITF") a consensus was reached on EITF Issue 04-8, "The Effect of
Contingently Convertible Debt on Diluted Earnings per Share". The EITF 04-8
requires Companies to include certain convertible debt and equity instruments,
that were previously excluded, into their calculations of diluted earnings per
share. The EITF concluded that Issue 04-8 is effective for periods ending
after December 15, 2004, and must be applied by restating all periods during
which time the applicable convertible instruments were outstanding. The 4.25%
convertible subordinated notes issued in 2003, are therefore included in the
Company's diluted income per share calculation. For the year ended September
30, 2004, the weighted number of common shares used in the calculation of the
diluted income per share has been increased from 52,787,964 to 55,031,184 and
the diluted income per share has been reduced from $ 0.98 to $ 0.96. This
change in accounting policies did not have an impact on the diluted income per
share for the year ended September 30, 2003.

Earnings coverage

Under U.S. GAAP, for the twelve months ended September 30, 2005, our
interest requirements amounted to $6.2 million on a pro-forma basis and our
earnings coverage ratio, defined as the ratio of earnings before interest and
income taxes to pro-forma interest requirements, was 6.2 to one.

Under Canadian GAAP, for the twelve months ended September 30, 2005, our
interest requirements amounted to $11.3 million on a pro-forma basis, and our
earnings coverage ratio was 3.6 to one. The principal difference between the
earnings coverage ratios under Canadian GAAP and U.S. GAAP is attributable to
the inclusion of implicit interest of $5.1 million as required by Canadian
GAAP.

Risk Factors

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

Foreign Currency Risk

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

Interest Rate Risk

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

Supply and Manufacture

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

Volatility of Share Prices

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

Forward-looking Statements

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

This MD&A has been prepared as of November 8, 2005. Additional
information on the Company is available through regular filing of press
releases, quarterly financial statements and Annual Information Form on the
SEDAR website.


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



AXCAN PHARMA INC.
Consolidated Balance Sheets
-------------------------------------------------------------------------
In accordance with U.S. GAAP
in thousands of U.S. dollars, except share related data

September September
30, 30,
2005 2004
----------- -----------
(unaudited)
ASSETS $ $

Current assets
Cash and cash equivalents 79,969 21,979
Short-term investments available for sale 17,619 15,922
Accounts receivable 37,587 46,585
Income taxes receivable 8,351 9,196
Inventories (Note 4) 36,016 37,270
Prepaid expenses and deposits 1,771 3,494
Deferred income taxes 9,044 4,586
-------------------------------------------------------------------------
Total current assets 190,357 139,032

Property, plant and equipment, net 31,673 31,252
Intangible assets, net (Note 5) 388,921 407,875
Goodwill, net 27,467 27,467
Deferred debt issue expenses, net 2,577 3,088
Deferred income taxes 412 930
-------------------------------------------------------------------------
Total assets 641,407 609,644
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities 52,990 47,917
Income taxes payable 3,247 731
Instalments on long-term debt 1,497 1,778
Deferred income taxes 602 936
-------------------------------------------------------------------------
Total current liabilities 58,336 51,362

Long-term debt 126,332 127,916
Deferred income taxes 39,135 38,290
-------------------------------------------------------------------------
Total liabilities 223,803 217,568
-------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Capital stock
Series A preferred shares, without par value,
shares authorized: 14,175,000; no shares issued. - -
Series B preferred shares, without par value,
shares authorized: 12,000,000; no shares issued. - -
Common shares, without par value, unlimited
shares authorized; 45,682,175 and 45,562,336
issued and outstanding as at September 30,
2005 and 2004, respectively 261,714 260,643
Retained earnings 138,787 112,362
Contributed surplus 1,329 -
Accumulated other comprehensive income 15,774 19,071
-------------------------------------------------------------------------
Total shareholders' equity 417,604 392,076
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 641,407 609,644
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


AXCAN PHARMA INC.
Consolidated Statements of Shareholders' Equity
-------------------------------------------------------------------------
In accordance with U.S. GAAP
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
Common shares (number)
Balance, beginning
of period 45,674,674 45,556,032 45,562,336 45,004,320
Exercise of options 7,501 6,304 119,839 558,016
-------------------------------------------------------------------------
Balance, end of period 45,682,175 45,562,336 45,682,175 45,562,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------

$ $ $ $
Common shares
Balance, beginning
of period 261,531 260,572 260,643 255,743
Exercise of options 183 71 1,071 4,900
-------------------------------------------------------------------------
Balance, end of period 261,714 260,643 261,714 260,643
-------------------------------------------------------------------------

Retained earnings
Balance, beginning
of period 129,638 99,042 112,362 63,634
Net income 9,149 13,320 26,425 48,728
-------------------------------------------------------------------------
Balance, end of period 138,787 112,362 138,787 112,362
-------------------------------------------------------------------------

Contributed surplus
Balance, beginning
of period 1,329 - - -
Income tax deductions on
stock options exercise - - 1,329 -
-------------------------------------------------------------------------
Balance, end of period 1,329 - 1,329 -
-------------------------------------------------------------------------

Accumulated other
comprehensive income
Balance, beginning
of period 16,003 16,834 19,071 11,634
Foreign currency
translation adjustments (229) 2,237 (3,297) 7,437
-------------------------------------------------------------------------
Balance, end of period 15,774 19,071 15,774 19,071
-------------------------------------------------------------------------
Total shareholders' equity 417,604 392,076 417,604 392,076
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Comprehensive income
Foreign currency
translation adjustments (229) 2,237 (3,297) 7,437
Net income 9,149 13,320 26,425 48,728
-------------------------------------------------------------------------
Total comprehensive income 8,920 15,557 23,128 56,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


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



AXCAN PHARMA INC.
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------
In accordance with U.S. GAAP
in thousands of U.S. dollars,
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
Operations $ $ $ $
Net income 9,149 13,320 26,425 48,728
Non-cash items
Amortization of deferred
debt issue expenses 275 291 1,100 1,144
Other depreciation and
amortization 5,492 4,164 21,532 16,359
Loss (Gain) on disposal
of assets - 21 - (5)
Foreign currency
fluctuation 222 (89) (84) 342
Deferred income taxes 769 2,847 (3,261) 6,625
Share in net loss of
joint ventures - 511 - 455
Changes in working
capital items
Accounts receivable 2,158 (15,128) 8,648 (27,795)
Income taxes receivable (1,318) (1,373) 1,610 (3,773)
Inventories 923 (3,700) 1,490 (17,157)
Prepaid expenses and
deposits 1,646 190 1,861 (703)
Accounts payable and
accrued liabilities 1,766 (2,860) 4,429 3,191
Income taxes payable 1,596 (3,802) 3,995 (4,051)
-------------------------------------------------------------------------
Cash flows from
operating activities 22,678 (5,608) 67,745 23,360
-------------------------------------------------------------------------
Financing
Long-term debt - - - 2,212
Repayment of long-term debt (457) (473) (1,857) (3,842)
Deferred debt issue expenses - - (589) -
Issue of shares 183 71 1,071 4,900
-------------------------------------------------------------------------
Cash flows from financing
activities (274) (402) (1,375) 3,270
-------------------------------------------------------------------------
Investment
Acquisition of short-term
investments (6,950) (3,348) (14,519) (20,936)
Disposal of short-term
investments - 3,129 12,822 138,074
Disposal of investments - 141 - 1,876
Acquisition of property,
plant and equipment (1,182) (2,335) (6,330) (13,409)
Disposal of property,
plant and equipment - 8 - 405
Acquisition of intangible
assets (7) (3,943) (51) (149,628)
Disposal of intangible assets - - - 917
-------------------------------------------------------------------------
Cash flows from investment
activities (8,139) (6,348) (8,078) (42,701)
-------------------------------------------------------------------------
Foreign exchange gain on
cash held in foreign
currencies 37 103 (302) 277
-------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 14,302 (12,255) 57,990 (15,794)
Cash and cash equivalents,
beginning of period 65,667 34,234 21,979 37,773
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 79,969 21,979 79,969 21,979
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional information
Interest received 562 681 1,256 1,035
Interest paid 41 31 5,626 6,122
Income taxes paid 2,815 9,330 6,984 23,620
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


AXCAN PHARMA INC.
Consolidated Statements of Operations
-------------------------------------------------------------------------
In accordance with U.S. GAAP
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Revenue 66,987 60,872 251,343 243,634
-------------------------------------------------------------------------

Cost of goods sold 18,299 11,060 71,534 54,247
Selling and
administrative expenses 21,068 18,412 85,997 76,365
Research and development
expenses 8,206 6,760 31,855 19,866
Depreciation and
amortization 5,492 4,164 21,532 16,359
-------------------------------------------------------------------------
53,065 40,396 210,918 166,837
-------------------------------------------------------------------------

Operating income 13,922 20,476 40,425 76,797
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Financial expenses 1,847 1,804 7,140 6,885
Interest income (659) (350) (1,340) (756)
Loss (gain) on foreign
currency 162 (202) (213) (313)
-------------------------------------------------------------------------
1,350 1,252 5,587 5,816
-------------------------------------------------------------------------

Income before income taxes 12,572 19,224 34,838 70,981
Income taxes 3,423 5,904 8,413 22,253
-------------------------------------------------------------------------
Net income 9,149 13,320 26,425 48,728
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income per common share
Basic 0.20 0.29 0.58 1.08
Diluted 0.19 0.26 0.56 0.96
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average number
of common shares
Basic 45,679,973 45,561,149 45,617,703 45,286,199
Diluted 55,016,910 55,214,113 55,219,202 55,031,184
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

 



AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------
In accordance with U.S. GAAP
Amounts in 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, 2004 except for the change
mentioned in note 2. 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, 2004. 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. Change in Accounting Policies

Effects of contingently convertible instruments on diluted income per share

During the September 2004 meeting of the Emerging Issues Task Force
("EITF") a consensus was reached on EITF Issue 04-8, "The Effect of
Contingently Convertible Debt on Diluted Earnings per Share". The EITF 04-8
requires companies to include certain convertible debt and equity instruments,
that were previously excluded, into their calculations of diluted earnings per
share. The EITF concluded that Issue 04-8 is effective for periods ending
after December 15, 2004, and must be applied by restating all periods during
which time the applicable convertible instruments were outstanding. The 4.25%
convertible subordinated notes issued in 2003, are therefore included in the
Company's diluted income per share calculation. For the year ended September
30, 2004, the weighted number of common shares used in the calculation of the
diluted income per share has been increased from 52,787,964 to 55,031,184 and
the diluted income per share has been reduced from $0.98 to $0.96.


3. Product Acquisition

On November 18, 2003, the Company acquired the rights to a group of
products from Aventis Pharma S.A. for a cash purchase price of $145,000,000.
The 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 Laboratoires.

During a transition period, the sellers may act as agents for the
management of the products sales. For the year ended September 30, 2005, a
portion of the sales of some of these products is still managed by the
sellers. Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the year ended September
30, 2005 were $2,431,789 ($7,667,940 in 2004), the Company only included in
its revenue an amount of $949,866 ($4,685,673 in 2004) representing the net
sales less cost of goods sold and other seller related expenses.



4. Inventories

September September
30, 30,
2005 2004
----------- -----------
$ $

Raw materials and packaging material 18,710 10,311
Work in progress 1,547 1,781
Finished goods 15,759 25,178
-------------------------------------------------------------------------
36,016 37,270
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Intangible Assets

-------------------------------------------------------------------------
September 30, 2005
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 334,749 45,841 288,908
Indefinite life 112,430 12,417 100,013
-------------------------------------------------------------------------
447,179 58,258 388,921
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

 



The cost of the product PANZYTRAT 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, 2004, which amounted to $56,817,802, is therefore amortized
over a 25-year period.


6. Segmented Information

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



The Company operates in the following geographic areas:

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Revenue
Canada
Domestic sales 9,054 7,485 34,412 28,002
Foreign sales - - - -
United States
Domestic sales 42,625 41,522 155,261 162,810
Foreign sales 1,264 1,421 4,394 3,921
Europe
Domestic sales 10,899 9,161 46,225 43,830
Foreign sales 3,105 1,228 10,857 4,846
Other 40 55 194 225
-------------------------------------------------------------------------
66,987 60,872 251,343 243,634
-------------------------------------------------------------------------
-------------------------------------------------------------------------


September September
30, 30,
2005 2004
----------- -----------
$ $
Property, plant, equipment, intangible
assets and goodwill
Canada 39,506 40,401
United States 127,915 131,242
Europe 252,509 265,417
Other 28,131 29,534
-------------------------------------------------------------------------
448,061 466,594
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue is attributed to geographic segments based on the sales country
of origin.


7. Financial Information Included in the Consolidated Statement of
Operations

a) Financial expenses

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Interest on long-term debt 1,422 1,495 5,542 5,614
Bank charges 71 18 165 127
Financing fees 79 - 333 -
Amortization of deferred
debt issue expenses 275 291 1,100 1,144
-------------------------------------------------------------------------
1,847 1,804 7,140 6,885
-------------------------------------------------------------------------
-------------------------------------------------------------------------


b) Selling and administrative expenses

Selling and administrative expenses include the followings:

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Shipping and handling
expenses 1,088 901 4,901 4,349
Advertising expenses 2,960 4,197 16,592 15,155


c) Other information

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Rental expenses 287 394 1,148 1,216
Depreciation of property,
plant and equipment 1,485 808 5,339 3,720
Amortization of
intangible assets 4,007 3,356 16,193 12,639
Share in net loss of
joint ventures - (399) - (455)
Investment tax credits
applied against current
income taxes 768 519 2,619 1,163


d) Income per common share

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

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Net income available to
common shareholders
Basic 9,149 13,320 26,425 48,728
Financial expenses
relating to the
convertible
subordinated notes 1,069 1,012 4,257 4,200
-------------------------------------------------------------------------
Net income available to
common shareholders
on a diluted basis 10,218 14,332 30,682 52,928
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------

Weighted average number
of common shares
Weighted average number
of common shares
outstanding 45,679,973 45,561,149 45,617,703 45,286,199
Effect of dilutive
stocks options 412,824 728,851 677,386 820,872
Effect of dilutive
convertible
subordinated notes 8,924,113 8,924,113 8,924,113 8,924,113
-------------------------------------------------------------------------
Adjusted weighted
average number of
common shares
outstanding 55,016,910 55,214,113 55,219,202 55,031,184
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Number of common shares
outstanding as at November 4, 2005 45,686,544
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


Options to purchase 706,950 and 283,000 common shares were outstanding as
at September 30, 2005 and 2004 respectively but were not included in the
computation of diluted income per share for the year ended September 30, 2005
and 2004 respectively because the exercise price of the options was greater
than the average market price of the common shares.

The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The noteholders may convert their notes during any quarterly
conversion period if the closing price per share for at least 20 consecutive
trading days during the 30 consecutive trading-day period ending on the first
day of the conversion period exceeds 110% of the conversion price in effect on
that thirtieth trading day. The noteholders may also convert their notes
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.
Finally, the noteholders may also convert their notes upon the occurrence of
specified corporate transactions or, if the company has called the notes for
redemption. On or after April 20, 2006, the Company may at its option, redeem
the notes, in whole or in part at redemption prices varying from 101.70% to
100.85% of the principal amount plus any accrued and unpaid interest to the
redemption date. The notes also include provisions for the redemption of all
the notes for cash at the option of the Company following some changes in tax
treatment.

e) Employee benefit plan

A subsidiary of the Company has a defined contribution plan ("The Plan")
for its U.S. employees. Participation is available to substantially all U.S.
employees. Employees may contribute up to 15% of their gross pay and up to
limits set by the U.S. Internal Revenue Service. For the year ended September
30, 2005, the Company made matching contributions to the Plan totalling
$495,195 ($268,757 in 2004).


8. Stock Options



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

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------

Fair value per option $6.62 $8.12 $7.01 $6.80
Assumptions used
Expected volatility 43% 43% 43% 44%
Risk-free interest rate 3.58% 4.04% 3.94% 4.17%
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 reduced on a pro-forma basis as follows:

For the For the For the For the
three-month three-month three-month three-month
period period period period
ended ended ended ended
September September September September
30, 30, 30, 30,
2005 2005 2004 2004
------------ ----------- ----------- -----------
As reported Pro-forma As reported Pro-forma
------------ ----------- ----------- -----------
$ $ $ $

Net income 9,149 8,088 13,320 12,244
Basic income per share 0.20 0.18 0.29 0.27
Diluted income per share 0.19 0.17 0.26 0.24


For the For the For the For the
year ended year ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2005 2004 2004
------------ ----------- ----------- -----------
As reported Pro-forma As reported Pro-forma
------------ ----------- ----------- -----------
$ $ $ $

Net income 26,425 21,836 48,728 44,442
Basic income per share 0.58 0.49 1.08 0.98
Diluted income per share 0.56 0.48 0.96 0.88


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

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

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
Operations adjustments $ $ $ $

Net income in accordance
with U.S. GAAP 9,149 13,320 26,425 48,728
Implicit interest on
convertible debt (1,205) (1,103) (4,631) (4,234)
Stock-based compensation
expense (1,062) - (4,589) -
Amortization of new
product acquisition costs (14) (14) (54) (54)
Income tax impact of the
above adjustments 6 5 337 20
-------------------------------------------------------------------------
Net earnings in accordance
with Canadian GAAP 6,874 12,208 17,488 44,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share in
accordance with
Canadian GAAP
Basic 0.15 0.27 0.38 0.98
Diluted 0.15 0.26 0.38 0.96


September 30, 2005 September 30, 2004
------------------------ -----------------------
U.S. Canadian U.S. Canadian
GAAP GAAP GAAP GAAP
------------ ----------- ----------- -----------
Balance sheet adjustments $ $ $ $

Current assets 190,357 190,357 139,032 139,054
Property, plant and
equipment 31,673 31,673 31,252 31,265
Intangible assets 388,921 401,229 407,875 420,235
Goodwill 27,467 28,862 27,467 28,862
Deferred debt issue
expenses 2,577 2,577 3,088 3,088
Deferred income tax asset 412 412 930 930
Current liabilities 58,336 58,336 51,362 51,430
Long-term debt 126,332 113,250 127,916 110,203
Deferred income tax
liability 39,135 40,234 38,290 39,376
Shareholders' equity
Equity component of
convertible debt - 24,239 - 24,239
Capital stock 261,714 273,022 260,643 267,288
Contributed surplus 1,329 13,293 - -
Retained earnings 138,787 112,806 112,362 107,671
Accumulated foreign
currency translation
adjustments 15,774 19,930 19,071 23,227



AXCAN PHARMA INC.
Consolidated Balance Sheets
-------------------------------------------------------------------------
In accordance with Canadian GAAP
in thousands of U.S. dollars
September September
30, 30,
2005 2004
----------- -----------
ASSETS (unaudited)
$ $
Current assets
Cash and cash equivalents 79,969 22,063
Short-term investments 17,619 15,922
Accounts receivable 37,587 46,518
Income taxes receivable 8,351 9,196
Inventories (Note 4) 36,016 37,270
Prepaid expenses and deposits 1,771 3,499
Future income taxes 9,044 4,586
-------------------------------------------------------------------------
Total current assets 190,357 139,054

Property, plant and equipment, net 31,673 31,265
Intangible assets, net (Note 5) 401,229 420,235
Goodwill, net 28,862 28,862
Deferred debt issue expenses, net 2,577 3,088
Future income taxes 412 930
-------------------------------------------------------------------------
655,110 623,434
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities 52,990 47,985
Income taxes payable 3,247 731
Instalments on long-term debt 1,497 1,778
Future income taxes 602 936
-------------------------------------------------------------------------
Total current liabilities 58,336 51,430

Long-term debt 113,250 110,203
Future income taxes 40,234 39,376
-------------------------------------------------------------------------
211,820 201,009
-------------------------------------------------------------------------

SHAREHOLDERS' EQUITY

Equity component of convertible debt (Note 6) 24,239 24,239
Capital stock 273,022 267,288
Contributed surplus 13,293 -
Retained earnings 112,806 107,671
Accumulated foreign currency translation
adjustments 19,930 23,227
-------------------------------------------------------------------------
443,290 422,425
-------------------------------------------------------------------------
655,110 623,434
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


AXCAN PHARMA INC.
Consolidated Cash Flows
-------------------------------------------------------------------------
In accordance with Canadian GAAP
in thousands of U.S. dollars,
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Operations
Net earnings 6,874 12,208 17,488 44,460
Non-cash items
Implicit interest on
convertible debt 1,205 1,102 4,631 4,234
Amortization of
deferred debt issue
expenses 275 291 1,100 1,144
Other depreciation
and amortization 5,504 4,180 21,583 16,421
Loss (Gain) on
disposal of assets - 506 - 475
Foreign currency
fluctuation 222 (89) (84) 342
Future income taxes 764 2,834 (3,281) 6,597
Stock-based
compensation expense 1,062 - 4,589 -
Changes in working
capital items
Accounts receivable 2,158 (15,052) 8,648 (27,748)
Income taxes receivable (1,003) (1,373) 1,610 (3,752)
Inventories 923 (3,700) 1,490 (17,157)
Prepaid expenses
and deposits 1,646 223 1,861 (654)
Accounts payable and
accrued liabilities 1,769 (2,966) 4,348 3,018
Income taxes payable 1,279 (3,802) 3,678 (4,051)
-------------------------------------------------------------------------
Cash flows from operating
activities 22,678 (5,638) 67,661 23,329
-------------------------------------------------------------------------
Financing
Long-term debt - - - 2,212
Repayment of long-term debt (457) (471) (1,857) (3,840)
Deferred debt issue expenses - - (589) -
Issue of shares 183 71 1,071 4,900
-------------------------------------------------------------------------
Cash flows from financing
activities (274) (400) (1,375) 3,272
-------------------------------------------------------------------------
Investment
Acquisition of short-term
investments (6,950) (3,348) (14,519) (20,936)
Disposal of short-term
investments - 3,129 12,822 138,074
Disposal of investments - 141 - 1,876
Acquisition of property,
plant and equipment (1,182) (2,333) (6,330) (13,409)
Disposal of property,
plant and equipment - 1 - 405
Acquisition of
intangible assets (7) (3,943) (51) (149,628)
Disposal of intangible
assets - - - 917
-------------------------------------------------------------------------
Cash flows from investment
activities (8,139) (6,353) (8,078) (42,701)
-------------------------------------------------------------------------
Foreign exchange gain
on cash held in foreign
currencies 37 101 (302) 277
-------------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 14,302 (12,290) 57,906 (15,823)
Cash and cash equivalents,
beginning of period 65,667 34,353 22,063 37,886
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 79,969 22,063 79,969 22,063
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional information
Interest received 562 674 1256 1,031
Interest paid 41 31 5,626 6,122
Income taxes paid 2,815 9,309 6,984 23,599
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


AXCAN PHARMA INC.
Consolidated Earnings
-------------------------------------------------------------------------
In accordance with Canadian GAAP
in thousands of U.S. dollars, except share related data
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
REVENUE 66,987 60,933 251,343 243,792
-------------------------------------------------------------------------
Cost of goods sold 18,371 11,060 71,845 54,247
Selling and
administrative expenses 21,914 18,618 89,651 76,574
Research and development
expenses 7,582 6,088 29,861 18,641
Depreciation and
amortization 5,505 4,180 21,584 16,421
-------------------------------------------------------------------------
53,372 39,946 212,941 165,883
-------------------------------------------------------------------------
Operating income 13,615 20,987 38,402 77,909
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Financial expenses 3,052 2,912 11,771 11,131
Interest income (659) (354) (1,340) (762)
Loss (gain) on foreign
currency 162 (200) (213) (308)
-------------------------------------------------------------------------
2,555 2,358 10,218 10,061
-------------------------------------------------------------------------
Earnings before income
taxes 11,060 18,629 28,184 67,848
Income taxes 4,186 6,421 10,696 23,388
-------------------------------------------------------------------------
NET EARNINGS 6,874 12,208 17,488 44,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
Basic 0.15 0.27 0.38 0.98
Diluted 0.14 0.26 0.38 0.96
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number
of common shares
Basic 45,679,973 45,561,149 45,617,703 45,286,199
Diluted 46,092,797 55,214,113 46,295,089 52,797,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------


AXCAN PHARMA INC.
Consolidated Retained Earnings
-------------------------------------------------------------------------
In accordance with Canadian GAAP
in thousands of U.S. dollars
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Balance, beginning
of period 105,932 95,463 107,671 63,211
Retroactive adjustment
for stock-based
compensation (Note 2) - - (12,353) -
Net earnings 6,874 12,208 17,488 44,460
-------------------------------------------------------------------------
Balance, end of period 112,806 107,671 112,806 107,671
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 Contributed Surplus
-------------------------------------------------------------------------
In accordance with Canadian GAAP
in thousands of U.S. dollars
(unaudited)
For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Balance, beginning
of period 12,272 - - -
Retroactive adjustment
for stock-based
compensation (Note 2) - - 8,723 -
Tax deduction from
exercise of stock
options - 544 -
Stock-based
compensation expense 1,062 - 4,589 -
Exercise of stock options (41) - (563) -
-------------------------------------------------------------------------
Balance, end of period 13,293 - 13,293 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

 



AXCAN PHARMA INC.
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------
In accordance with Canadian GAAP
Amounts in 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, 2004 except for the change
mentioned in note 2. 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, 2004. 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. Change in Accounting Policies

Stock-based compensation

In September and November 2003, the Accounting Board made amendments to
CICA Handbook Section 3870 to require that the fair value based method be
applied to awards granted to employees, which previously had not been
accounted for at fair value. Thus, enterprises are required to account for the
effect of such awards in their financial statements for fiscal years beginning
on or after January 1, 2004. The Company adopted the fair value based method
in its fiscal year 2005 with a retroactive application, without restating
prior periods. As at October 1, 2004, the retained earnings of the Company
have been reduced by $12,353,000, the capital stock has been increased by
$4,100,233, the contributed surplus has been increased by $8,722,767 and the
income taxes receivable have been increased by $470,000. Stock-based
compensation expense charged to the consolidated statement of earnings for the
year ended September 30, 2005 was $4,589,254. If this change in accounting
policy had been applied to the previous fiscal year, the Company's net
earnings, basic earnings per share and diluted earnings per share for the
periods ended September 30, 2004 would have been reduced on a pro-forma basis
as follows:



For the three-month For the year
period ended ended
September 30, 2004 September 30, 2004
------------------------ -----------------------
As reported Pro-forma As reported Pro-forma
------------ ----------- ----------- -----------
$ $ $ $
Net earnings 12,208 11,132 44,460 40,174
Basic earnings per share 0.27 0.24 0.98 0.89
Diluted earnings per share 0.26 0.24 0.96 0.88


The estimated fair value of granted stock options for the periods ended
September 30, 2005 and 2004 using the Black-Scholes model was as follows:

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
Fair value per option $6.62 $8.12 $7.01 $6.80
Assumptions used
Expected volatility 43% 43% 43% 44%
Risk-free interest rate 3.58% 4.04% 3.94% 4.17%
Expected options life
(years) 6 6 6 6
Expected dividend - - - -


 


3. Products Acquisitions

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

During a transition period, the sellers may act as agents for the
management of the products sales. For the year ended September 30, 2005, a
portion of the sales of some of these products is still managed by the
sellers. Axcan includes in its revenue the net sales from such products less
corresponding cost of goods sold and other seller related expenses.
Consequently, although net sales of such products for the year ended September
30, 2005 were $2,431,789 ($7,667,940 in 2004), the Company only included in
its revenue an amount of $949,866 ($4,685,673 in 2004) representing the net
sales less cost of goods sold and other seller related expenses.



4. Inventories

September September
30, 30,
2005 2004
----------- -----------
$ $

Raw materials and packaging material 18,710 10,311
Work in progress 1,547 1,781
Finished goods 15,759 25,178
-------------------------------------------------------------------------
36,016 37,270
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Intangible Assets

-------------------------------------------------------------------------
September 30, 2005
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
$ $ $
Trademarks, trademark licenses and
manufacturing rights with a:
Finite life 347,578 46,362 301,216
Indefinite life 112,430 12,417 100,013
-------------------------------------------------------------------------
460,008 58,779 401,229
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

The cost of the product PANZYTRAT 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, 2004, which amounted to $56,817,802, is therefore amortized
over a 25-year period.

 


6. 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, 2004, implicit interest of
9.17% and totaling $6,526,246 was accounted for and added to the liability
component. For the year ended September 30, 2005, implicit interest in the
amount of $4,630,987 ($4,233,768 in 2004) was accounted for and added to the
liability component.


7. Segmented Information

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



The Company operates in the following geographic areas:

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $
Revenue
Canada
Domestic sales 9,054 7,485 34,412 28,002
Foreign sales - - - -
United States
Domestic sales 42,625 41,522 155,261 162,810
Foreign sales 1,264 1,421 4,394 3,921
Europe
Domestic sales 10,899 9,222 46,225 43,988
Foreign sales 3,105 1,228 10,857 4,846
Other 40 55 194 225
-------------------------------------------------------------------------
66,987 60,933 251,343 243,792
-------------------------------------------------------------------------
-------------------------------------------------------------------------


September September
30, 30,
2005 2004
----------- -----------
$ $
Property, plant, equipment, intangible
assets and goodwill
Canada 43,781 44,676
United States 128,223 131,602
Europe 252,510 265,431
Other 37,250 38,653
-------------------------------------------------------------------------
461,764 480,362
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue is attributed to geographic segments based on the sales country
of origin.


8. Financial Information Included in the Consolidated Statement of
Earnings

a) Financial expenses

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Interest on long-term debt 2,627 2,598 10,173 9,848
Bank charges 71 23 165 139
Financing fees 79 - 333 -
Amortization of deferred
debt issue expenses 275 291 1,100 1,144
-------------------------------------------------------------------------
3,052 2,912 11,771 11,131
-------------------------------------------------------------------------
-------------------------------------------------------------------------


b) Selling and administrative expenses

Selling and administrative expenses include the followings:

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Shipping and handling
expenses 1,088 901 4,901 4,349
Advertising expenses 2,960 3,973 16,592 15,155


c) Other information

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Rental expenses 287 394 1,148 1,216
Depreciation of property,
plant and equipment 1,484 810 5,338 3,728
Amortization of
intangible assets 4,020 3,370 16,245 12,693
Investment tax credits
applied against research
and development expenses 768 519 2,619 1,163


d) Earnings per common share

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

For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------
$ $ $ $

Net income available to
common shareholders
Basic 6,874 12,208 17,488 44,460
Financial expenses
relating to the
convertible
subordinated notes - 2,169 - 6,379
-------------------------------------------------------------------------
Net income available to
common shareholders
on a diluted basis 6,874 14,377 17,488 50,839
-------------------------------------------------------------------------
-------------------------------------------------------------------------


For the For the
three-month three-month
period period For the For the
ended ended year ended year ended
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ----------- ----------- -----------

Weighted average number
of common shares
Weighted average number
of common shares
outstanding 45,679,973 45,561,149 45,617,703 45,286,199
Effect of dilutive
stock options 412,824 728,851 677,386 820,872
Effect of dilutive
convertible
subordinated notes - 8,924,113 - 6,680,893
-------------------------------------------------------------------------
Adjusted weighted
average number of
common shares
outstanding 46,092,797 55,214,113 46,295,089 52,787,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of common shares
outstanding at the
end of the year 45,682,175 45,562,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Number of common shares
outstanding as at November 4, 2005 45,686,544
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


Options to purchase 706,950 and 283,000 common shares were outstanding as
at September 30, 2005 and 2004 respectively but were not included in the
computation of diluted earnings per share for the years ended September 30,
2005 and 2004 respectively, because the exercise price of the options was
greater than the average market price of the common shares.

The $125,000,000 subordinated notes are convertible into 8,924,113 common
shares. The noteholders may convert their notes during any quarterly
conversion period if the closing price per share for at least 20 consecutive
trading days during the 30 consecutive trading-day period ending on the first
day of the conversion period exceeds 110% of the conversion price in effect on
that thirtieth trading day. The noteholders may also convert their notes
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.
Finally, the notesholders may also convert their notes upon the occurrence of
specified corporate transactions or, if the company has called the notes for
redemption. On or after April 20, 2006, the Company may at its option, redeem
the notes, in whole or in part at redemption prices varying from 101.70% to
100.85% of the principal amount plus any accrued and unpaid interest to the
redemption date. The notes also include provisions for the redemption of all
the notes for cash at the option of the Company following some changes in tax
treatment. As of September 30, 2005, the subordinated notes had no effect on
the diluted earnings per share. Since the trigger event did not occur during
the third and fourth quarters, the 8,924,113 common shares were not included
in the weighted number of common shares outstanding for these periods.

e) Employee benefit plan

A subsidiary of the Company has a defined contribution plan ("The Plan")
for its U.S. employees. Participation is available to substantially all U.S.
employees. Employees may contribute up to 15% of their gross pay and up to
limits set by the U.S. Internal Revenue Service. For the year ended September
30, 2005, the Company made matching contributions to the Plan totalling
$495,195 ($268,757 in 2004).



For further information: Isabelle Adjahi, Director, Investor Relations,
Axcan Pharma Inc., (450) 467-2600 ext. 2000, www.axcan.com; SOURCE: AXCAN
PHARMA INC.



Capgemini and VMware announce strategic partnership to deliver an Enterprise Mobility Management powered by AirWatch offering


Sep 09, 2014 - 09:42 ET

Capgemini will provide enterprises with mobile strategy, application development, vertical industry expertise and managed mobility services


Paris, 9 September 2014 – Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services and VMware (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced a strategic partnership in the area of Enterprise Managed Mobility / End-User Computing. This partnership will combine Capgemini’s mobility consulting, application development and system integration expertise with VMware’s industry-leading end-user computing software, including AirWatch Enterprise Mobility Management (EMM) solutions.

AirWatch by VMware will provide organizations with an industry-optimized EMM solution to manage virtually all mobile devices, across all major mobile platforms and for all deployment types – helping to navigate the complexities of securely protecting and segregating data and associated user support for enterprises. It will provide workers with a centralized console to easily access content and applications from any device underpinned by business-aligned mobile and Bring-Your-Own-Device (BYOD) strategies. Readily implemented, the solution will have the ability to innovate, scale and aid customers to move quickly to a productive mobile enterprise.

Capgemini will provide enterprises with end-to-end services including mobile strategy, mobile development, and managed mobility, which can be tailored to specific industry sectors. Capgemini will also enable organizations to build and deploy applications while also leveraging existing investments in systems of record. Base services will include: AirWatch system administration, helpdesk support, mobile platform implementation, mobile application administration and AirWatch deployment. Extended services will include BYOD (including best practices and training), managed mobility strategy (as-a-service per device per month), MDM migrations, customer application development and data analytics. Offered as part of the Capgemini Mobile Solutions portfolio, the client will select an as-a-service package, to align to their specific digital transformation strategy and needs.

Fernando Alvarez, Senior Vice President and Head of the Mobile Solutions Global Service Line at Capgemini said: “We are proud to announce this partnership with VMware. The End-User Computing market is rapidly growing, and enterprise mobility use and concerns around secure content and data management are increasing, as users have access to an ever increasing number of applications and content on their devices. The Capgemini Managed Mobile Services offering powered by VMware, addresses an important demand from CXOs and digital leaders as mobility moves increasingly higher up in terms of technology priorities.”

Sanjay Poonen, Executive Vice President and General Manager, End-User Computing, VMware said: “Enterprises worldwide are looking for innovative ways to enable their users to be able to work at the speed of life – across all devices. We’re excited about our partnership with Capgemini, with their leading brand and presence in the market, they will help us reach enterprise infrastructure customers and scale resources worldwide, but also setup and associated managed services across our Workspace Suite, so that companies can better focus on their core business needs.”

The partnership is an extension of the existing global strategic agreement between Capgemini and VMware. The two companies will collaborate by bundling market leading AirWatch EMM software with Capgemini Mobile Solutions services with industry-ready accelerators to uniquely match client’s business needs including a single monthly capital or operating expense across a multi-year term. The initial go-to-market focus will be on cloud solution models offered as off-premise hosted options or on-premise cloud models for global companies across North America, EMEA, Latin America and APAC. Capgemini will provide enterprise mobility and organizational change management with vertical industry expertise, such as in consumer products, retail, healthcare, utilities and financial services, while VMware/AirWatch will bring its EMM market leading knowledge and capability.

About VMware
VMware is the leader in virtualization and cloud infrastructure solutions that enable businesses to thrive in the Cloud Era. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs. With 2013 revenues of $5.21 billion, VMware has more than 500,000 customers and 75,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com. VMware, VMware Horizon Desktop Suite and AirWatch are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.

About AirWatch by VMware
AirWatch by VMware is the leader in enterprise mobility management, with more than 13,000 global customers. The AirWatch platform includes industry-leading mobile device, email, application, content, and browser management solutions. Organizations can implement these solutions across device types and use cases, including complete EMM for corporate and line of business deployments, and containerized solutions for Bring Your Own Device (BYOD) programs. Acquired by VMware in February 2014, AirWatch is based in Atlanta and can be found online at www.air-watch.com. VMware is headquartered in Silicon Valley and can be found online at www.vmware.com.

About Capgemini
With almost 140,000 people in over 40 countries, Capgemini is one of the world's foremost providers of consulting, technology and outsourcing services. The Group reported 2013 global revenues of EUR 10.1 billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fit their needs and drive the results they want. A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborative Business ExperienceTM, and draws on Rightshore®, its worldwide delivery model.

Capgemini offers end-to-end Mobile Solutions for mobile strategy and services as an Enterprise Mobility Orchestrator. Deploying a framework of harmonized methods, accelerators and industrialized services, the Enterprise Mobility Orchestrator services can help create, implement and support an organization’s mobile strategy. To address all areas of a business going mobile, the service portfolio covers: Strategy; Experience & Design; Development; Testing; Security; and Managed Mobility. Capgemini provides extensive capabilities in strategic consulting, technology excellence, industry solutions and global delivery to help organizations optimize their mobile business potential.

Learn more about us at www.capgemini.com/mobility.

Rightshore® is a trademark belonging to Capgemini



Capgemini Press contact:
Hester Decouz
Tel.:+44 870 904 5758
Email: hester.decouz@capgemini.com
 

VMware Press contact:
Justin Grimsley
Tel.:+1 404.353.6253
Email: justingrimsley@air-watch.com