Exhibit 99.10


                               [AXCAN PHARMA LOGO]



                             ANNUAL INFORMATION FORM

                    FOR FISCAL YEAR ENDED SEPTEMBER 30, 2003




                                FEBRUARY 20, 2004



<PAGE>


                                TABLE OF CONTENTS



GLOSSARY OF TECHNICAL TERMS...................................................II

TRADEMARKS.....................................................................V

AXCAN..........................................................................1

GENERAL DEVELOPMENT OF THE BUSINESS............................................1

BUSINESS OF AXCAN..............................................................5

SELECTED CONSOLIDATED FINANCIAL INFORMATION...................................21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        OPERATING RESULTS.....................................................28

DIVIDEND POLICY...............................................................28

DIRECTORS AND OFFICERS........................................................29

MARKET FOR SECURITIES.........................................................29

SHAREHOLDER RIGHTS PLAN.......................................................29

ADDITIONAL INFORMATION........................................................29


<PAGE>


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


                           GLOSSARY OF TECHNICAL TERMS

The  text  following  the  technical  terms   reproduced  in  this  glossary  is
explanatory only and does not in any way modify the meanings of such terms.

Adenomatous  Polyp:  Benign growth  (tumor)  arising from the inner layer of the
gastrointestinal  tract and  protruding  into the lumen of the  gastrointestinal
tract.

Barrett's  Esophagus:  Condition  that results from prolonged  heartburn,  which
causes the lining of the esophagus to be converted  into tissue  similar to that
which lines the stomach.

Bile  Ducts:  Channels  that  collect  bile from the liver and deliver it to the
intestine.

Cervical Dysplasia: Modification of the size, shape and organization of cells in
the cervix. Dysplasia is generally considered to be a pre-cancerous condition.

Cholestatic  Diseases of the Liver:  Conditions  in which the bile flow from the
liver is impaired.

Cholestasis:  Combined  conditions  causing the  reduction  of bile flow and the
retention of bile acids.

Cirrhosis:  Disease of the liver, originating from many causes and characterized
by a progressive replacement of liver cells by scarring tissue.

CMC:  Chemistry,  manufacturing  and control data. Data describing the method of
synthesis  of a new drug as well as the method of  manufacture  and the controls
applied to the drug substance and drug product.

Colorectal  Adenomateous  Polyps:  Polyps  which are  considered  precursors  to
colorectal cancer.

Crohn's  Disease (CD):  Inflammatory  bowel disease that affects the wall of the
gastrointestinal tract. CD can affect any part of the gastrointestinal tract but
mostly affects the ileum, the last portion of the small bowel and the colon.

Cystic Fibrosis (CF):  Congenital disease  characterized by excessive secretions
of  certain  glands,   resulting  in  pancreatic   insufficiency  and  pulmonary
disorders. The average lifespan of CF patients is approximately 32 years.

Distal:  The part of the colon closest to the rectum.

Double Blind Study: An experiment  designed to test the effect of a treatment or
substance using groups of experimental and control subjects in which neither the
subjects  nor the  investigators  know which  treatment  or  substance  is being
administered to which group.

Duodenum: Part of the small intestine attached to the end of the stomach.

Exocrine  Pancreatic  Insufficiency:  Decreased  production  and  release of the
enzymes produced in the pancreas, which leads to digestive problems.

Fibrosis: Formation of excess fibrous tissue characterized by increased collagen
concentrations,  which gives a rigid  consistence  to the affected  tissue (scar
tissue consists mainly of fibrosis).

Food  and  Drug  Administration  (FDA):  Regulatory  body  for the  development,
manufacture, sale and use of drugs in the United States.

Gastric Cancer:  Cancer of the cell lining of the gastric mucosa.


                                       -i-
--------------------------------------------------------------------------------
<PAGE>


--------------------------------------------------------------------------------
Helicobacter  Pylori  (Hp):  Bacterium  with a spiral tail which lives under the
gastric mucosa layer.  The presence of Hp is correlated with gastritis,  as well
as gastric and duodenal ulcers. Hp is considered to be the most important factor
in the cause of peptic  ulceration  and is formally  classified  as a Category 1
(definite) human carcinogen by the World Health  Organization.  Once a diagnosis
of Hp infection has been  established,  eradication  of the bacterium  should be
prescribed in all peptic ulcer patients to reduce the rate of ulcer recurrence.

Hepatitis:  Inflammation of the liver due to infection or toxins.

High-Grade  Dysplasia:  As  associated  with  Barrett's  Esophagus,   High-Grade
Dysplasia is a condition  that results from  prolonged  acid reflux  (heartburn)
which causes the lining of the esophagus to be converted  into tissue similar to
that which lines the stomach.  This  transformation  makes the esophageal tissue
more susceptible to cancer.

Hypertriglyceridemia:  Abnormally  elevated  blood  levels  of  triglyceride,  a
compound composed of fatty acids.

Inflammatory   Bowel  Diseases   (IBDs):   Chronic  diseases  of  unknown  cause
characterized  by  inflammation  of  portions  of  the  gastrointestinal  tract.
Ulcerative colitis,  ulcerative  proctitis (a distal form of ulcerative colitis)
and Crohn's Disease  constitute the group of illnesses referred to as idiopathic
inflammatory bowel diseases. The course of IBDs is a succession of acute attacks
followed by periods of  remission.  There are no cures for IBDs and the goals of
therapy are to reduce  symptoms  during acute attacks and to maintain  remission
when the disease is under control.

Initial New Drug  Application:  Document  containing all available data gathered
during  pre-clinical  testing  as well  as a  comprehensive  description  of the
proposed study to be conducted in humans.

Intent-to-Treat  Basis:  A  statistical  analysis  approach  based on real  life
condition of use of a drug being tested  (i.e.,  all data  included,  associated
with the correct or incorrect use of the drug).

Irritable  Bowel Syndrome  (IBS):  Functional  bowel  disorder  which  primarily
affects gastrointestinal motility.

Jaundice:  Yellowing  of the skin  caused by a  build-up  of a  chemical  called
bilirubin, normally excreted in bile.

Liver:  Organ located in the top right portion of the abdominal cavity connected
to the digestive tract. It secretes bile that is excreted in the duodenum,  thus
facilitating  digestion  of food in the small  intestine.  The liver plays a key
role in the processing and storage of various products of absorption.

Marketing Authorization Application (MAA): Document containing all pre-clinical,
clinical and CMC data  collected  on a drug.  MAAs are  submitted to  regulatory
authorities by  manufacturers in order to obtain approval to market new chemical
entities in the European Union.

Mesalamine:  5 aminosalicylic acid (5-ASA).

Motility:  Ability of the  gastrointestinal  tract to undergo rhythmic  muscular
contractions.

Mucosa:  Thin sheets of tissue that cover or line various parts of the body such
as the mouth or digestive tract.

New Drug Application (NDA): A document containing all pre-clinical, clinical and
CMC data collected on a drug. NDAs are submitted to the FDA by  manufacturers in
order to obtain approval to market new chemical entities in the United States.

New Chemical  Entities  (NCE):  Chemical  substances  of synthetic or biological
origin which have not been tested for pharmacological activity.


                                                                              ii
--------------------------------------------------------------------------------
<PAGE>


--------------------------------------------------------------------------------
New Drug Submission (NDS): A document containing all pre-clinical,  clinical and
CMC data  collected on a drug.  NDSs are submitted to the  Therapeutic  Products
Directorate  of Health Canada by  manufacturers  in order to obtain  approval to
market new chemical entities in Canada.

Orphan  Drug:  Designation  granted  by the FDA.  This  process is  designed  to
encourage  development  of drugs  intended for the treatment of rare diseases or
conditions  (affecting less than 200,000  patients for the disease in the United
States).  The  measures  include the grant of a  seven-year  exclusivity  in the
marketing of a qualified product.

Pancreas:  Abdominal  gland  located  behind the  stomach and  connected  to the
gastrointestinal   tract  that  secretes   pancreatic  juice  to  aid  digestion
(pancreatic  enzymes) and insulin,  an essential  hormone for the  metabolism of
sugars.

Pancreatic Juice: Alkaline secretion of the pancreas containing enzymes that aid
in the digestion of protein, carbohydrates, and fats.

Pancreatitis:  Inflammation of the pancreas.

Per Protocol Basis: A statistical  analysis approach based on the optimal use of
a drug being tested (i.e., in full accordance with the protocol  established for
the study).

Placebo:  Inactive substances used in experimental, blinded drug studies.

Polyp: Small tumor-like growth that projects from a mucus membrane surface (i.e.
colon or rectum).

Primary  Biliary  Cirrhosis  (PBC):  A chronic  cholestatic  liver  disease that
progresses slowly towards a terminal phase  characterized by jaundice,  signs of
decompensated cirrhosis, ascites and variceal bleeding. The prognosis averages 7
to 12 years from diagnosis to death or liver transplant.

Primary  Sclerosing  Cholangitis  (PSC):  A liver disorder  characterized  by an
inflammatory  and sclerosing  process leading to a progressive  reduction in the
diameter of the bile ducts.  Its  progressive  course  generally  leads to liver
cirrhosis,  portal hypertension and often death, as the bile that normally flows
out of the liver instead accumulates there,  resulting in an alteration of liver
cells. The average survival is 4 to 10 years following diagnosis.

Supplemental New Drug Application  (sNDA):  Document containing all clinical and
CMC data collected on a drug already on the market,  but for an new  indication.
sNDAs are submitted to the FDA by  manufacturers  in order to obtain approval to
market a drug for a new indication in the United States.

Supplemental New Drug Submission  (sNDS):  Document  containing all clinical and
CMC data collected on a drug already on the market,  but for an new  indication.
sNDSs are submitted to the Therapeutic  Products Directorate by manufacturers in
order to obtain approval to market a drug for a new indication in Canada.

Steatorrhea:  Abnormally high fecal excretion of non-digestive fat.

Therapeutic  Products  Directorate  (TPD):  Regulatory body for the development,
manufacture, sale and use of drugs in Canada.

Ulcer: Necrotic lesion characterized by a crater-like erosion of the wall of the
stomach (gastric ulcer) or the duodenum (duodenal ulcer),  often associated with
painful symptoms.

Ulcerative  Colitis/Proctitis:  Chronic  inflammatory  disease which affects the
inner mucus membrane of the colon,  more often the distal  portions of the colon
(i.e., the rectum and sigmoid).


                                                                             iii
--------------------------------------------------------------------------------
<PAGE>


--------------------------------------------------------------------------------
Ursodiol  (ursodeoxycholic  acid):  Naturally  occurring  bile acid present as a
minor fraction of the total human bile acids, and in greater concentrations,  in
the bile of certain animal  species such as bears.  Ursodiol is a drug indicated
for the  treatment of different  diseases  such as  dissolution  of  gallstones,
primary biliary cirrhosis and other cholestatic liver diseases.

                                   TRADEMARKS




The names AXCAN, AXCAN PHARMA, BENTYL,  BENTYLOL,  CANASA,  CARAFATE,  DELURSAN,
FLUTTER,  HELIZIDE,   HEPENAX,  ITAX,  LACTEOL,  LANSOYL,  MODULON,   PHOTOBARR,
PHOTOFRIN, PANZYTRAT, PROCTOSEDYL,  SALOFALK, SCANDICAL, SCANDISHAKE,  SULCRATE,
TAGAMET,  TRANSITOL,  TRANSULOSE,  ULTRASE,  URSO and VIOKASE  appearing in this
Annual Information Form are trademarks of Axcan or one of its subsidiaries.

The following  names  appearing in this Annual  Information  Form are trademarks
used under license by Axcan :

    o   ADEKs is a registered trademark of Carlsson-Rensselaer Corporation.

    o   AMPHOJEL is a registered trademark of Wyeth-Ayerst Canada Inc.

    o   FILMTAB is a registered trademark of Abbott Laboratories.

    o   MUCAINE is a registered trademark of American Home Products Corp.



                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain  statements  contained in this Annual  Information  Form, and in certain
documents  incorporated or deemed to be incorporated by reference in this Annual
Information  Form,  constitute  "forward-looking  statements." When used in this
document,  the words  "anticipate,"  "believe,"  "estimate,"  "expect,"  "plan,"
"future,"   "intend,"   "may,"  "will,"   "should,"   "predicts,"   "potential,"
"continue," and similar expressions,  as they relate to Axcan or its management,
are intended to identify forward-looking statements. Such statements reflect the
current  views of Axcan with respect to future events and are subject to certain
known and unknown risks, uncertainties and assumptions.  These statements should
not be relied upon. Many factors could cause the actual results,  performance or
achievements  of Axcan to be  materially  different  from  any  future  results,
performance  or   achievements   that  may  be  expressed  or  implied  by  such
forward-looking  statements,  including, among others, those which are discussed
under the heading "Risk Factors" in this Annual  Information Form. Should one or
more  of  these  risks  or  uncertainties  materialize,  or  should  assumptions
underlying the  forward-looking  statements prove incorrect,  actual results may
vary materially from those described herein as anticipated,  believed, estimated
or  expected.  Axcan does not  intend,  and does not assume any  obligation,  to
update these forward-looking statements.

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

Unless otherwise  stated,  all market size information  appearing in this Annual
Information  Form have been  provided  by IMS  Health  Ltd.,  a widely  accepted
provider of information services specializing in medical research information.

Unless otherwise stated, all dollar amounts appearing in this Annual Information
Form are stated in U.S. dollars,  and all financial data included in this Annual
Information  Form has been prepared in accordance with U.S.  generally  accepted
accounting principles.


                                                                              iv
--------------------------------------------------------------------------------
<PAGE>


                                      AXCAN

Axcan  Pharma  Inc.   ("Axcan")  was  incorporated  under  the  Canada  Business
Corporations  Act on May 6, 1982 under the name  115391  Canada Inc. On February
14,  1983,  Axcan  changed its name to  Interfalk  Canada Inc. and on October 1,
1993, it amalgamated with Axcan Holdings Ltd., its parent corporation, under the
name  Interfalk  Canada Inc.  which was changed to Axcan Pharma Inc. on July 12,
1994. On October 30, 1995,  Axcan's  Articles were amended to delete the private
company  restrictions,  redesignate  the existing Class "A" shares and Class "B"
shares as common shares and preferred shares, respectively,  and consolidate the
common  shares on a 0.44 for one basis.  On June 6, 2000 Axcan's  Articles  were
amended  again to create  14,175,000  Series A  preferred  shares and 12 million
Series B preferred shares.  Axcan's head office is located at 597 Laurier Blvd.,
Mont Saint-Hilaire, Quebec, J3H 6C4, Canada.

Where  reference  is made to Axcan in this  Annual  Information  Form,  the term
includes  Axcan  Pharma  Inc.,  its  predecessors  and its direct  and  indirect
subsidiaries and their predecessors  collectively,  unless the context otherwise
requires.  The following chart shows the jurisdictions of incorporation of Axcan
and  its  principal  subsidiaries.   All  of  the  outstanding  shares  of  such
subsidiaries  or  associated  corporations  are owned  directly or indirectly by
Axcan.


<TABLE>
<CAPTION>

<S>                             <C>                                  <C>                                  <C>
                                           ___________________________
                                           |    Axcan Pharma Inc.    |
                                           |         (Canada)        |
                                           ___________________________
                                                        |
                                                        |
        ______________________________________________________________________________________________________________
        |                                |                                      |                                     |
        |                                |                                      |                                     |
 ____________________            ____________________                __________________________             ______________________
| Axcan Pharma U.S., |          | Axcan Scandipharm  |              |      Axcan Pharma S.A.,  |           |    Axcan Pharma      |
|  Inc. (Delaware)   |          |  Inc. (Delaware)   |              |         (France)         |           |  Finance Iceland Ltd |
 ____________________            ____________________               |   (formerly Lacteol -    |           |                      |
                                                                    |  merged with Enteris as  |            ______________________
                                                                    |   of February 3, 2003)   |
                                                                    |                          |
                                                                     __________________________
</TABLE>



                       GENERAL DEVELOPMENT OF THE BUSINESS

Overview

Axcan is a leading specialty  pharmaceutical  company concentrating in the field
of gastroenterology,  with operations in North America and Europe. Axcan markets
and  sells  pharmaceutical  products  used  in the  treatment  of a  variety  of
gastrointestinal  diseases  and  disorders.  The  Company  seeks to  expand  its
gastrointestinal  franchise by in-licensing  products and acquiring  products or
companies,  as well as developing  additional products and expanding indications
for existing  products.  Axcan's current products  include ULTRASE,  VIOKASE and
PANZYTRAT  for the  treatment of certain  gastrointestinal  symptoms  related to
cystic  fibrosis in the case of ULTRASE and to pancreatic  insufficiency  in the
case of VIOKASE and PANZYTRAT; URSO 250 for the treatment of certain cholestatic
liver  diseases;  SALOFALK and CANASA for the treatment of certain  inflammatory
bowel   diseases;   and   PHOTOFRIN  for  the  treatment  of  certain  types  of
gastrointestinal  and other  conditions.  In addition,  Axcan currently has four
products  pending  approval,  one  an  additional  indication  in  Europe  for a
currently  marketed  product,  two a new  formulation  for a  product  currently
marketed in the United States and the third one, an indication for a new product
in the United States. Axcan also has a number of pharmaceutical  projects in all
phases of  development.  Axcan reported  revenue of $179.1 million and operating
income of $39.4 million for the year ended September 30, 2003.

Much of Axcan's  recent sales growth is derived from sales in the United  States
and from sales from its French  subsidiary,  following  recent  acquisitions  in
Europe.  During the first  quarter  of this  fiscal  year,  Axcan  acquired  the
worldwide rights to the PANZYTRAT  enzyme product line from Abbott  Laboratories
("Abbott") and the rights to DELURSAN,  an ursodiol 250 mg tablet,  from Aventis
Pharma S.A. ("Aventis") for the French market. Revenue


                                      -1-
<PAGE>


from sales of Axcan's products in the United States was $113.9 million (63.6% of
total revenue) for the year ended September 30, 2003, compared to $100.1 million
(75.6% of total  revenue) for fiscal year 2002 and $84.6 million for fiscal year
2001.  Revenue from sales in Canada was $20.6 million  (11.5% of total  revenue)
for the year ended September 30, 2003, compared to $17.4 million (13.1% of total
revenue)  for fiscal year 2002 and $18.5  million for fiscal year 2001.  Revenue
from sales in  Europe by Axcan's  French  subsidiary amounted  to $44.2  million
(24.7% of total  revenue) for the year ended  September  30,  2003,  compared to
$14.8 million (11.2% of total revenue) for fiscal year 2002. Axcan's revenue has
historically  been  and  continues  to be  principally  derived  from  sales  of
pharmaceutical  products  for the  treatment  of  gastrointestinal  diseases and
disorders, 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  its  products)  and research and
development expenses.

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

In  addition  to its  marketing  activities,  Axcan  carries  out  research  and
development of products at an advanced stage of development which it acquires or
licenses  from third  parties.  By combining its  marketing  expertise  with its
research and development  experience,  Axcan distinguishes itself from specialty
pharmaceutical  companies  that focus  solely on  distribution  of products  and
offers  potential  licensors  the prospect of rapidly  expanding  the  potential
market for their products. As a result, Axcan is presented with opportunities to
profitably  acquire or  in-license  products that have been advanced to the late
stages of development by other  companies.  This focus on products in late-stage
development enables Axcan to avoid the significant risks and expenses associated
with new drug development.

Over the past several  years,  Axcan has  experienced  rapid growth by acquiring
several products and businesses. (See "Acquisitions").


                                                                               2
<PAGE>


Acquisitions

Group of products from Aventis

On November  18,  2003,  the Company  announced  the closing of an  agreement to
acquire the rights to a group of products from Aventis.  Under the terms of this
agreement,  the Company  acquired  CARAFATE  and BENTYL for the U.S.  market and
SULCRATE,  BENTYLOL and  PROCTOSEDYL for the Canadian  market.  The $145 million
purchase price was paid out of Axcan's available cash.

ITAX

On August 29, 2003, the Company acquired an exclusive license for North America,
the European Union and Latin America,  from Abbott to develop,  manufacture  and
market ITAX, a patented  gastroprokinetic  drug. Under the terms of this license
agreement,  the Company paid out of is available cash $10 million and assumed $2
million  in  research   contract   liabilities.   Because  ITAX,  a  product  in
development,  has  not  reached  technological  feasibility  and  has  no  known
alternative  uses,  it  is  considered  to  be  acquired  in-process   research.
Therefore,  its acquisition was expensed in the fourth quarter of the year ended
September 30, 2003, the period of acquisition.

DELURSAN

On January  20,  2003,  Axcan  acquired  various  marketing  authorizations  and
intellectual  property rights including  patents and trademarks to DELURSAN (250
mg ursodiol tablets), for the French market, from Aventis. DELURSAN is indicated
for the treatment of  cholestatic  liver  diseases,  including  Primary  Biliary
Cirrhosis,  Primary Sclerosing Cholangitis and liver disorders related to Cystic
Fibrosis.

The purchase price of $22.8 million was paid using Axcan's cash on hand.

PANZYTRAT

On November  29, 2002,  Axcan  acquired  various  marketing  authorizations  and
intellectual  property rights,  including patents and trademarks  related to the
PANZYTRAT  pancreatic  enzyme product line from Abbott  Laboratories.  PANZYTRAT
products  consist  of  enterically  coated  microtablets  for the  treatment  of
exocrine  pancreatic  insufficiency and are marketed in several  countries.  The
greater  portion of PANZYTRAT  sales is reported in Germany,  the third  largest
pharmaceutical market worldwide, as well as in the Netherlands.

The purchase price of $45 million was paid using Axcan's cash on hand.

Lacteol

On April 17,  2002,  Axcan  acquired all of the  outstanding  shares and certain
related assets of Laboratoire du Lacteol du Docteur Boucard  ("Lacteol"),  which
subsequently  changed  its name to Axcan  Pharma  S.A.  and has been merged with
Enteris acquired earlier in 2001. This company  specializes in the manufacturing
and distribution of  gastrointestinal  products in France including LACTEOL (for
the treatment of diarrhea) and owns the proprietary  Lactobacillus  strain.  The
acquisition cost, including transaction expenses was $13.1 million, and was paid
through  the  issuance  of 365,532  Axcan's  common  shares and  payment of $8.4
million in cash.

Enteris

On November 7, 2001, Axcan acquired Laboiratoires Enteris ("Enteris"), a company
specializing in the distribution of gastrointestinal products in France. Enteris
has since been merged with  Lacteol  and is now known as Axcan  Pharma S.A.  The
products  marketed by Enteris  include  TAGAMET (for the treatment of gastric or
duodenal ulcers),  TRANSITOL and TRANSULOSE (both of which are for the treatment
of constipation).  The purchase price was $23 million and was paid using Axcan's
available  cash and  funds  drawn  under  Axcan's  existing  credit  facilities.


                                                                               3
<PAGE>


Management  believes that this acquisition  broadened  Axcan's product portfolio
and established an operating base and platform from which to sell certain of its
products into France and, eventually, expand in Western Europe.

Convertible debenture offering

On March 5, 2003,  Axcan completed a $125 million offering of 4 1/4% convertible
subordinated notes due 2008.  Proceeds were used for general corporate purposes,
including acquisitions of products.

Takeover-bid

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


                                                                               4
<PAGE>


                                BUSINESS OF AXCAN

Axcan Products

Axcan's   focus  is  in  the   field   of   gastroenterology,   which   includes
gastrointestinal  diseases and disorders. A discussion of the regulatory process
follows under the heading "Regulatory Environment".

The following table presents an overview of Axcan's principal  products approved
or under  development,  setting forth for each product,  (1) the  indication for
which each product in a product line is approved or under  development,  (2) the
territory  where  Axcan is  focusing  its  marketing  of the product and (3) the
regulatory status of the product:


<TABLE>
<CAPTION>

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

                 Product/Indication                        Territory            Regulatory Status
---------------------------------------------------  ---------------------- --------------------------
<S>                                                  <C>                    <C>
   CARAFATE/SULCRATE(1)
     Active duodenal ulcers......................    United States,         Marketed
                                                     Canada, Europe

   BENTYL/BENTYLOL(1)
     Irritable Bowel Syndrome....................    United States, Canada  Marketed

   PROCTOSEDYL(1)
     Hemorrhoids and rectal lesions..............    Canada                 Marketed

   ITAX

     Non ulcer dyspepsia .......................     United States,         Phase III studies planned
                                                     Canada, Europe
   HEPENAX

     Hepatic encephalopathy.....................     United States,         Phase III studies planned
                                                     Canada, Europe
   ULTRASE
     Exocrine pancreatic insufficiency..........     United States, Canada  Marketed

   URSO and related products
      URSO 250
     Cholestatic liver diseases (including
     Primary Biliary Cirrhosis and Primary
     Sclerosing Cholangitis)....................     Canada                 Marketed
     Primary Biliary Cirrhosis..................     United States          Marketed

      URSO DS
     Cholestatic liver diseases (including
     Primary Biliary Cirrhosis and Primary
     Sclerosing Cholangitis)....................     Canada                 Marketed
     Primary Biliary Cirrhosis..................     United States          sNDA filed

      Ursodiol Disulfate
     Prevention of the recurrence of colorectal
     polyps.....................................     Worldwide              Preclinical

     NCX-1000 (ursodiol derivative)
     Portal hypertension........................     United States (Axcan
                                                     has an option, which
                                                     allows it to market
                                                     NCX-1000 in the
                                                     United States),
                                                     Canada, Poland and
                                                     France                 Phase I studies


   SALOFALK (tablets, suspensions,
   suppositories)
     SALOFALK
     Inflammatory bowel diseases (distal
     ulcerative colitis, ulcerative proctitis,
     ulcerative colitis and Crohn's Disease)....     Canada                 Marketed

     SALOFALK 750 mg tablets
     Ulcerative colitis.........................     Canada                 sNDS filed
------------------------------------------------------------------------------------------------------
</TABLE>


-----------------------------------------
(1) Acquired November 18, 2003.


                                                                               5
<PAGE>


<TABLE>
<CAPTION>

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

                 Product/Indication                        Territory            Regulatory Status
---------------------------------------------------  ---------------------- --------------------------
<S>                                                  <C>                    <C>


   CANASA
     CANASA 1 g suppositories
     Ulcerative proctitis.......................     United States          sNDA filed
     CANASA 500 mg suppositories
     Ulcerative proctitis.......................     United States          Marketed
     Ulcerative proctitis (pediatric study).....     United States          Phase IV studies

      CANASA / SALOFALK rectal gel
     Distal ulcerative colitis..................     United States, Canada  Phase III studies

   VIOKASE
     VIOKASE
     Exocrine pancreatic insufficiency...........    United States,         Marketed
                                                     Canada and Poland

   PHOTOFRIN
      PHOTOFRIN
     Esophageal cancer..........................     United States,         Marketed
                                                     Canada, Japan,
                                                     United Kingdom,
                                                     France, Portugal,
                                                     Poland, Ireland,
                                                     Austria, Israel,
                                                     Korea

                                                     Netherlands,           Approved
                                                     Finland, Iceland,
                                                     Denmark, Italy,
                                                     Belgium, Sweden,
                                                     Norway, Luxembourg,
                                                     Bulgaria

                                                     China, Czech           Marketing Authorization
                                                     Republic, Spain,       Application submitted
                                                     Taiwan

     High-Grade Dysplasia associated with            United States          sNDA submitted
     Barrett's Esophagus........................     Canada                 Approved

     Bladder cancer.............................     Canada                 Approved

     Gastric and cervical cancers and cervical
     dysplasia..................................     Japan                  Marketed

     Lung cancer................................     United States,         Marketed
                                                     Canada, Japan,
                                                     France, United
                                                     Kingdom, Portugal,
                                                     Austria, Poland,
                                                     Germany, Israel,
                                                     Korea

                                                     Netherlands,           Approved
                                                     Finland, Iceland,
                                                     Denmark, Italy,
                                                     Ireland, Belgium,
                                                     Sweden, Greece,
                                                     Norway, Luxembourg,
                                                     Bulgaria

                                                     China, Czech           Marketing Authorization
                                                     Republic, Spain,       Application submitted
                                                     Taiwan

     Cholaniocarcinoma..........................     United  States,       Phase  III studies
                                                     Canada, Europe

      PHOTOBARR
     High-Grade Dysplasia associated with                                   Marketing Authorization
     Barrett's Esophagus.........................    Europe                 Application submitted


      PHOTOBAR 2
     High-Grade Dysplasia associated with
     Barrett's Esophagus.........................    Canada, United States  Phase IV studies
------------------------------------------------------------------------------------------------------
</TABLE>


                                                                               6
<PAGE>


<TABLE>
<CAPTION>

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

                 Product/Indication                        Territory            Regulatory Status
---------------------------------------------------  ---------------------- --------------------------
<S>                                                  <C>                    <C>

   PANZYTRAT
     Exocrine pancreatic insufficiency and           Argentina, Brazil,     Marketed
     pancreaticenzyme deficiency................     Bulgaria, Columbia,
                                                     Czech Republic,
                                                     Germany, Greece,
                                                     Hungary, Italy,
                                                     Luxembourg,
                                                     Netherlands, Poland,
                                                     Romania, The Russian
                                                     Federation, the
                                                     Slovak Republic,
                                                     Switzerland

   DELURSAN
     Cholestatic liver diseases (including
     Primary Biliary Cirrhosis and Primary
     Sclerosing Cholangitis)....................     France, Morocco        Marketed

   MODULON
     Relief of symptoms associated with
     Irritable Bowel Syndrome (IBS).............     Canada                 Marketed

     MODULON SR
     Pain-predominant Irritable Bowel Syndrome
     (IBS)......................................     Worldwide              Preclinical


    HELIZIDE                                         United States          NDA filed
     HELIZIDE                                        Canada                 Approved
     Helicobacter pylori eradication............     Europe                 Phase III studies completed

   NMK 150                                           United States,         Phase II studies planned
     Pancreatitis ..............................     Canada, Europe

   NMK 250                                           United States,         Phase II studies planned
     Steatorrhea................................     Canada, Europe

------------------------------------------------------------------------------------------------------
</TABLE>

Market sizes  appearing in the  descriptions  below refer to actual or potential
annual  aggregate sales for the relevant drug and not actual or potential annual
sales of Axcan.  The market size data below does not represent  Axcan's expected
sales figures,  as important  factors must be considered,  including  successful
product development,  competition,  the degree of Axcan's market penetration and
the  dilution of  revenues  resulting  from  royalty  and other  payments  under
licenses or agreements  with third  parties.  Axcan  believes that  prescription
trends indicate  potential future sales trends,  since  prescriptions  drive the
demand for  Axcan's  products,  and has  therefore  included  such  figures  for
products when available.

ULTRASE

Axcan markets under the trademark ULTRASE certain pancreatic enzyme microspheres
and minitablet  formulations  designed to help patients with exocrine pancreatic
insufficiency,  as  associated  with,  but not limited to, cystic  fibrosis,  to
better digest food.

In the  United  States,  the total  market  for  coated  pancreatic  enzymes  is
estimated to be $110 million and ULTRASE has  approximately  28% of this market.
Sales of ULTRASE in the United  States  were  approximately  $37.9  million  for
fiscal 2003 and $30.1 million for fiscal 2002.

In Canada,  the total  market for  pancreatic  enzymes is  estimated  to be $9.4
million; ULTRASE has approximately 4% of this market. Sales of ULTRASE in Canada
were less than $500,000 for fiscal 2003 and for fiscal 2002.

ULTRASE  competes  with a number of  pancreatic  enzyme  formulations  including
PANCREASE(R) (Ortho-McNeil Pharmaceutical) and CREON(R) (Solvay Pharmaceuticals,
Inc.).


                                                                               7
<PAGE>


In anticipation of new FDA regulations, Axcan has completed a Phase III study of
ULTRASE,  which may serve as the basis of an NDA submission for the treatment of
exocrine pancreatic insufficiency, once FDA regulations are issued.

URSO 250 and Related Products

Existing Indications

In the United  States,  Axcan is marketing URSO 250 for the treatment of Primary
Biliary Cirrhosis ("PBC"). URSO 250 was granted an orphan drug status by the FDA
in  December  1997,  giving  Axcan  seven-year  marketing  exclusivity  for  the
treatment  of PBC.  In  Canada,  Axcan is  marketing  URSO  250/URSO  DS for the
treatment of cholestatic liver diseases and disorders, including PBC.

In the United States, the total market for ursodiol  (ursodeoxycholic acid - the
active  ingredient  in URSO 250) is  approximately  $105  million.  URSO 250 had
approximately 38% of this market in total  prescriptions and approximately 37.5%
of this market in total sales for fiscal  2003.  Sales of URSO 250 in the United
States  amounted to  approximately  US$40.2  million for fiscal 2003 and US$25.9
million for fiscal 2002.

In Canada, the total market for ursodiol is estimated to be $6.8 million.  Sales
of URSO in Canada  amounted to  approximately  $6.8  million for fiscal 2003 and
US$4.4 million for fiscal 2002.

In the United States there is currently no therapy  specifically  approved to be
marketed for the treatment of PBC other than URSO 250.  However,  other products
are being prescribed. ACTIGALL(TM) (Watson Pharmaceuticals), a product currently
approved and marketed for gallstone dissolution as associated with active weight
loss, is being prescribed for the treatment of various liver diseases  including
PBC.  Generic  versions of  ACTIGALL(TM),  an  FDA-approved  product,  are being
marketed for the  dissolution  of gallstones but can also be prescribed for PBC.
In Canada, Axcan is the only company which markets ursodiol for the treatment of
cholestatic liver diseases.

New Formulations

Axcan developed a new  formulation  containing 500 mg of ursodiol in each tablet
called URSO DS. URSO DS was launched in Canada in the first half of 2003 for the
treatment of  cholestatic  liver  diseases.  Axcan recently filed an sNDA in the
United States in September  2003 for the use of URSO DS in the treatment of PBC.
Approval is expected at the end of fiscal 2004.

New Generation of Ursodiol

Ursodiol  disulfate:  Axcan is currently studying the possibility of using a new
ursodiol  derivative,   ursodiol  disulfate,   in  the  treatment  of  recurring
colorectal  adenormateous polyps.  Preliminary results of studies conducted with
ursodiol disulfate showed that it reduces the number of aberrant crypts in a rat
model of colon cancer.  Aberrant crypts are considered early abnormal changes in
the  intestinal  lining that are  precursors to colon  cancer.  In a small pilot
study,  where  rats  were  injected  with  the  carcinogen  azoxymethane,  a 23%
reduction in the total number of aberrant crypts in the colon was observed after
four weeks in those animals treated with this new ursodiol  formulation compared
to control models.  Ursodiol  disulfate alone fed to rats had no adverse effects
on the  appearance  of the lining of the colon.  Long-term  animal  studies  are
ongoing to determine the effect of ursodiol disulfate on the time of appearance,
the  number,  and the size of colonic  tumors in the  azoxymethane  rat model of
chemically-induced  colon  cancer.  This study is expected to be  completed  and
results  available during the second quarter of fiscal 2004. If noted trends are
confirmed  in the final  analysis,  Axcan  will then  initiate  animal  toxicity
studies,  followed by Phase I studies.  See  "Business of Axcan - Licensing  and
Intellectual Property Protection".

NCX-1000:  NCX-1000,  a nitric  oxide-releasing  derivative  of ursodiol,  is in
preclinical development for the treatment of portal hypertension, a complication
of chronic  liver  diseases.  Several  animal  studies  have  already  shown the
pharmacological effects of NCX-1000 on portal hypertension.  Experimental models
of  cirrhosis  demonstrated  that  this  compound  reduces  portal  pressure  by
decreasing intrahelpatic  resistance,  rather than through


                                                                               8
<PAGE>


direct effects on the portal vasculature.  A Phase I clinical study involving 16
subjects was successfully  completed in April 2003,  demonstrating  tolerability
and safety. Phase II studies are planned to begin in the third quarter of fiscal
2004.  Completion of all clinical studies should occur during calendar 2008. See
"Business of Axcan - Licensing and Intellectual Property Protection".

SALOFALK and CANASA

Existing Indications

SALOFALK  and  CANASA  are  mesalamine-based  products  sold  by  Axcan  for the
treatment of certain  inflammatory  bowel diseases,  such as Crohn's Disease and
ulcerative colitis.

In Canada,  Axcan markets the SALOFALK  product line (tablets,  suspensions  and
suppositories) for the treatment of certain IBDs,  including  ulcerative colitis
and Crohn's Disease. In Canada, the market for existing  mesalamine  therapeutic
products totals  approximately $34.7 million.  SALOFALK is estimated to have 28%
of this  market in total  sales and sales have grown by 16.8%  between  2002 and
2003. Sales of SALOFALK in Canada were $9.9 million for fiscal 2003.

In the United  States,  CANASA is being marketed for the treatment of ulcerative
proctitis.  The total market for rectal mesalamine is approximately $60 million.
CANASA  has  approximately  54%  of  this  market  in  total  prescriptions  and
approximately 32% of this market in total sales for fiscal 2003. The discrepancy
is mainly due to the fact that the price of suppositories is less than the price
of enemas that compose the other segment of the rectal mesalamine market.  Sales
of CANASA in the United States were approximately $16.2 million for fiscal 2003.
As agreed  with the FDA at the time of  approval  of this  product in the United
States,  Axcan is  conducting  a Phase IV  pediatric  study on the use of CANASA
suppositories in children for the treatment of active ulcerative proctitis. This
50-patient study should be completed during fiscal 2006.

Competition comes from oral or topical corticosteroids and steroid enemas. Since
these competing drugs are associated with significant side effects, other agents
have been used.  Sulfasalazine,  for example,  has been shown to be effective in
preventing relapses in both ulcerative colitis and Crohn's Disease.  However, it
has  been  associated  with  a  significant  incidence  of  side  effects.  Free
5-aminosalicylic  acid (5-ASA,  also known as mesalamine) is a safer therapy for
the treatment of IBDs and is being used as a single entity in controlled-release
dosage  forms.  As the  use of  mesalamine  for  the  treatment  of  IBDs is not
patented,  several products containing mesalamine in controlled-release  tablets
or capsules are  available  on the  Canadian  market,  including  AsacolTM  (The
Proctor & Gamble Company),  MesasalTM  (SmithKline  Beecham Plc), and DipentumTM
(Pharmacia Corporation).

New Formulations

Axcan recently completed a 114-patient Phase III trial, for the Canadian market,
on the efficacy  and safety of a new 750-mg  mesalamine  (5-ASA)  tablet for the
oral treatment of ulcerative  colitis.  Axcan submitted an sNDS in Canada during
the first quarter of fiscal 2004.

Axcan also  completed the clinical  portion of a 100-patient  Phase III trial in
North America on a new 1gram  formulation  of mesalamine  suppositories  for the
treatment of ulcerative colitis. This new formulation is administered once a day
and should improve the convenience of patients who would normally need a twice a
day  regimen  with the current  500 mg  suppositories.  An sNDA was filed in the
United States during the second quarter of fiscal 2004.

Axcan  in-licensed from Gentium SpA ("Gentium"),  an Italian company,  exclusive
rights to develop and market in North America a new mesalamine  rectal gel to be
developed for the treatment of distal  ulcerative  colitis.  Axcan  initiated an
open-label,  randomized  180-patient  Phase III study to assess the evolution of
the clinical  symptoms of the disease  during the induction of remission by this
new   formulation.   This   study   will   be   supported   by  two   50-patient
placebo-controlled  studies.  Results  should be  available in the first half of
fiscal  2004.  See  "Business  of  Axcan-Licensing  and  Intellectual   Property
Protection".


                                                                               9
<PAGE>


VIOKASE

Existing Indications

Axcan markets  under the brand name VIOKASE  non-enterically  coated  pancreatic
replacement enzymes,  both in the United States and in Canada, as digestive aids
for the treatment of exocrine  pancreatic  insufficiency  and pancreatic  enzyme
deficiency as associated  with,  but not limited to,  chronic  pancreatitis  and
surgical ablation of the pancreas.

In the United  States,  the total  market  for  uncoated  pancreatic  enzymes is
estimated to be approximately $69 million,  and Axcan sales of VIOKASE represent
approximately  14% of this  market.  Sales of VIOKASE in the United  States were
$9.8 million for fiscal 2003. In Canada, the total market for pancreatic enzymes
is estimated to be approximately $10 million, and Axcan has approximately 10% of
this market. Axcan does not actively market VIOKASE in Canada.

There  are a number  of  competing  pancreatic  enzyme  formulations,  including
PANCREASE(R) (Ortho-McNeil Pharmaceutical) and CREON(R) (Solvay Pharmaceuticals,
Inc.)


PHOTOFRIN

Existing Indications

Axcan markets  (directly or through  distributors)  PHOTOFRIN in North  America,
Europe,  and other  selected  markets,  for the treatment of esophageal and lung
cancer,  as well as certain  types of gastric  cancers and  cervical  dysplasia.
PHOTOFRIN  is  the  first  photosensitizer  commercially  approved  for  use  in
photodynamic  therapy,  an  innovative  medical  therapy  based  on  the  use of
light-activated  drugs. As a treatment for cancer,  PHOTOFRIN is injected into a
patient intravenously and after a short period of time, selectively  accumulates
in tumor cells.  Activation  of PHOTOFRIN  by a  non-thermal  laser light at the
tumor site  produces a toxic form of oxygen that destroys  cancer cells.  Unlike
other currently available therapies,  PHOTOFRIN offers a lower risk of damage to
adjacent healthy tissue thereby allowing for repeated treatment without limiting
future therapeutic options.

According  to  statistics  published  in a February  2001  article  in Scrip,  a
pharmaceutical industry newsletter,  the incidence of non-small cell lung cancer
in the United States is approximately 152,000 patients, and approximately 12,300
patients in the United States suffer from esophageal cancer.

Total sales of PHOTOFRIN were $4.9 million for fiscal 2003.  There are currently
no other  photosensitizers  approved in the United States,  Canada or Europe for
the  treatment  of  esophageal  and lung  cancer,  gastric  cancer  or  cervical
dysplasia.

New Indications

High Grade Dysplasia  associated  with Barett's  Esophagus - Based on scientific
studies  completed  to date,  Axcan  estimates  that  approximately  20  million
Americans  suffer from chronic  heartburn and that  approximately  10% to 20% of
these  Americans  are  likely  to  develop   Barrett's   Esophagus.   Of  these,
approximately  90%  are  likely  to have  metaplasia,  an  early-stage  abnormal
transformation  of tissue and  approximately  10% are likely to have  dysplasia.
These  scientific  studies also indicate that patients with Barrett's  Esophagus
have a probability  of developing  esophageal  cancer at a 50% greater rate than
people  without this  condition.  There is  currently  no approved  treatment to
reverse the condition and decrease the risk of developing this cancer.  Symptoms
can be treated with a variety of acid suppressants,  but surgical removal of the
esophagus, called an esophagectomy, is currently the only curative treatment for
patients with High-Grade Dysplasia (HGD) associated with Barrett's Esophagus.

Barrett's  Esophagus  is the term given to a change that occurs in the lining of
the  lower   esophagus   in  a   proportion   of  patients   with   longstanding
gastro-esophageal  reflux. Normally, the esophagus is lined with squamous (flat)
cells


                                                                              10
<PAGE>


which makes the  esophagus  smooth and slippery to aid the passage of food.  For
reasons that are not understood,  in some patients with longstanding reflux, the
squamous  cell lining is replaced by  columnar  (tall)  cells,  similar to those
which  are  normally  found  in the  stomach.  This  change  can  be  identified
histologically   by  taking   biopsies  of  this  area  at  the  time  of  upper
gastrointestinal  endoscopy.  It is thought that approximately 20 million people
in the United States experience acid reflux problems.  People with severe reflux
problems  are more likely to have  Barrett's  Esophagus,  which is  estimated to
affect approximately  700,000 adults in the United States. A small proportion of
patients  with  Barrett's  Esophagus  develop  cancer  (adenocarcinoma)  in  the
esophagus.  This usually develops over a period of years and can be predicted by
the finding of  pre-cancerous  changes  (dysplasia)  on biopsies,  thus allowing
treatment at an early stage before the cancer spreads.

Axcan conducted a 208-patient study, and compared PHOTOFRIN Photodynamic ("PDT")
in  combination  with  omeprazole  (2  mg/kg  intravenously  followed  by  laser
light-delivery at a wavelength of 630 nm within 48-72 hours up to a maximum of 3
courses followed by oral administration of omeprazole), to the administration of
omeprazole alone. In this analysis,  138 patients in the PHOTOFRIN PDT group and
70 patients in the  comparative  group were followed for a minimum 2-year period
(between 2 and 3.6-years).

The primary efficacy endpoint,  assessed after a minimum follow-up of 24 months,
was   the   complete   ablation   of   High-Grade   Dysplasia.    The   use   of
PHOTOBARR/PHOTOFRIN   PDT  resulted  in  the  complete  ablation  of  High-Grade
Dysplasia in 77% of the patients treated with this therapy,  while the treatment
with  omeprazole  alone  resulted  in  39%,  which  represents  a  statistically
significant difference.

Secondary  efficacy  endpoint  analysis  showed that the median  duration of the
ablation of HGD was 987 days in the PHOTOBARR/PHOTOFRIN PDT group and 98 days in
the  omeprazole-only  group;  2) the  proportion  of patients who  progressed to
oesophageal cancer was about twice as high in the omeprazole-only group compared
to PHOTOBARR/PHOTOFRIN  photodynamic therapy group (p=0.006).  The absolute risk
reduction  of  progression  to cancer of 14% would  suggest  that the  number of
patients  needed  to be  treated  to  prevent 1 patient  from  progessing  to to
esophageal cancer is only 7.

Cholangiocarcinoma - Cholangiocarcinoma  affect approximately 2,500 persons each
year in the United States. Approximately 90% of patients with this condition are
not  suitable  for  curative  surgical  resection  either due to the presence of
extensive local or metastatic  disease or because the patients are old and frail
with high operative and  post-operative  mortality and  morbidity.  Because most
patients are not eligible for curative  resection,  the media  survival  rate is
low. The worst prognosis is amongst patients with the so-called Bismuth type III
tumours  (tumours  occluding the common hepatic duct and either the right or the
left hepatic duct) and Bismuth type IV tumours  (tumours that are  multi-centric
or that involve the confluence and both right and left hepatic ducts).  In these
patients,  endoscopic  insertion  of stents is the  method of choice to  relieve
obstructive   jaundice,   which  is  a  distressing  problem  in  subjects  with
cholangiocarcinoma.

Preclinical  studies on human  cholangiocarcinoma  cell line models,  as well as
small  clinical  pilot  studies,  have  indicated  that PHOTOFRIN PDT can induce
significant tumor reduction and growth rate delay,  These  encouraging  findings
led  Axcan  to  initiate  a more  rigorous  research  program  on the use of PDT
PHOTOFRIN in the palliative treatment of advanced cholangiocarcinomas.

Axcan intiated a Phase II study of PDT PHOTOFRIN in patients with non-resectable
cholangiocarcinoma.  This trial is currently  ongoing and should be completed by
the end of fiscal 2004.

Another study is being  planned in North  America,  using US and three  Canadian
clinical  sites.  In this  trial,  PHOTOFRIN  PDT  combined  with  stent will be
compared   to   stenting   alone,   in   non-resectable   Bismuth   III  and  IV
cholangiocarcinoma  patients. Survival will be the primary efficacy endpoint. Up
to 100 patients will be  randomized  in this trial,  which will try to duplicate
the positive results obtained in a German study, in order to have the sufficient
efficacy and safety evidence required for a sNDA filing with the FDA. This trial
is planned to start in fiscal 2004.

PANZYTRAT


                                                                              11
<PAGE>


PANZYTRAT products consist of enterically coated  microtablets for the treatment
of exocrine  pancreatic  insufficiency  and pancreatic enzyme deficiency and are
marketed in several countries. Most sales of PANZYTRAT are in Germany, the third
largest pharmaceutical market worldwide, and in the Netherlands.

On December 3, 2002, the Company  acquired the worldwide rights to the PANZYTRAT
enzyme product line from Abbott.  During the period of marketing  authorizations
transfer, which may extend for up to 18 months following the acquisition, Abbott
acts as an agent for the  management  of the  product  line  sales.  During  the
interim period,  Axcan includes in its revenue the net sales from PANZYTRAT less
corresponding   cost  of  goods  sold  and  other   Abbott   related   expenses.
Consequently,  although net sales of the PAYZYTRAT  enzyme  product line for the
year ended September 30, 2003,  were  approximately  $14.3 million,  the Company
included in its revenues an amount of  approximately  $9.5 million  representing
the net sales from the  product  line less cost of goods sold and other  related
expenses.  Abbott  reported  $16.7 million in net sales of PANZYTRAT  during the
12-month period prior to Axcan's acquisition of this products.

The main markets for PANZYTRAT are Germany and the Netherlands (80% of PANZYTRAT
total sales),  where it mainly competes with CREON(R)  (Solvay  Pharmaceuticals,
Inc.). In Germany,  the total market for coated pancreatic  enzymes is estimated
to be  approximately  $90.0  million,  and Axcan  sales of  PANZYTRAT  represent
approximately  12% of this  market.  In the  Netherlands,  the total  market for
coated  pancreatic  enzymes is estimated to be approximately  $5.0 million,  and
Axcan sales of PANZYTRAT represent approximately 52% of this market.

DELURSAN

DELURSAN is an ursodiol  preparation marketed in France and is indicated for the
treatment of cholestatic liver diseases,  including  Primary Biliary  Cirrhosis,
Primary Sclerosing Cholangitis and liver disorders related to Cystic Fibrosis.

DELURSAN,  which was  acquired  on January  20,  2003,  generated  sales of $6.9
million in fiscal 2003. Aventis reported $8 million in net sales of DELURSAN for
the 12 months preceding its acquisition by Axcan.

In France,  DELURSAN mainly competes with URSOVAN(R)  (Pfizer,  Inc.). The total
market for ursodiol is estimated to be approximately $12 million,  and Axcan has
approximately 69% of this market in total units.

MODULON

MODULON,  a motility regulator  (trimebutine),  is Axcan's product candidate for
the  treatment of the relief of symptoms  associated  with IBS.  Sales in Canada
amounted to $2.2 million for fiscal 2003.  In Canada,  MODULON  mainly  competes
with   DICETEL(R)   (Solvay   Pharmaceutical,    Inc.),   ZELNORM(R)   (Novartis
Pharmaceutical Inc.) and generics. The total market for trimebutine is estimated
to be approximately  $8.5 million and Axcan has approximately 27% of this market
in total sales.

Axcan and its partner,  Labopharm  Inc.,  are  developing  a  controlled-release
formulation  of MODULON for the  treatment  of pain  predominant  IBS.  This new
slow-release   formulation  of  MODULON  would  allow  patients  to  take  their
medication once a day instead of the current rate of three times per day.

HELIZIDE

Existing Formulation

HELIZIDE is Axcan's product  candidate for the  eradication of the  Helicobacter
pylori (Hp)  bacterium.  It is a patented  bismuth-based  single  capsule triple
therapy that has the potential to be used for the eradication of Hp. It contains
the  equivalent  of  40  mg  of  bismuth  biskalcitrate  (bismuth),  125  mg  of
metronidazole and 125 mg of tetracycline  hydrochloride  (tetracycline),  and is
administered in combination with a proton pump inhibitor.


                                                                              12
<PAGE>


The discovery in 1983 of the  Helicobacter  pylori  organism is one of the major
advances  in   gastroenterology   in  recent   decades.   This   discovery   has
revolutionized the approach to many upper gastrointestinal disorders, especially
the peptic ulcer  disease.  Helicobacter  pylori causes a spectrum of disease in
humans,  including  gastritis,  ulcer disease  (gastric and  duodenal),  gastric
cancer and gastric lymphoma.  Thus, Helicobacter pylori infection is a condition
of enormous importance  throughout the world. It is estimated that approximately
10% of the world's  population will develop peptic ulcer disease at some time in
their lives,  and more than 90% of duodenal ulcers and as many as 70% of gastric
ulcers, are due to Helicobacter pylori infection.

Axcan conducted a 275-patient  Phase III trial comparing the HELIZIDE regimen (3
single-triple  capsules given 4-times a day, plus  omeprazole 20 mg twice a day)
to  the  widely  used  OAC  combination  (i.e.,   omeprazole,   amoxicillin  and
clarithromycin).  On a Per-Protocol  Basis (results in full  accordance with the
protocol established for the study), the eradication rates observed were 92% for
the group treated with HELIZIDE versus 87% for the group treated with OAC. On an
Intent-To-Treat basis (results including all data associated with the correct or
incorrect use of the drug), the eradication rates were 88% and 83%, for HELIZIDE
and OAC, respectively. In addition, although at baseline, 40% of all patients in
the   study   had   a   metronidazole-resistant    strain,   and   11%   had   a
clarithromycin-resistant  strain,  metronidazole  resistance  was overcome,  and
Helicobacter  pylori eradication was achieved in 86% of  metronidazole-resistant
patients  treated  with  HELIZIDE  on a  per-protocol  basis,  and  in 80% on an
intent-to-treat  basis. On the other hand, only 23% of  clarithromycin-resistant
patients were successfully  treated with OAC on a per-protocol  basis and 21% on
an  intent-to-treat  basis. These results confirm that HELIZIDE is statistically
and clinically  comparable to OAC and that HELIZIDE has the potential to be used
as a first-line therapy for the eradication of Helicobacter pylori.

HELIZIDE was approved in Canada in the second  quarter of fiscal of 2003 for the
eradication of Helicobacter  pylori. An NDA has been filed in the United States,
but Axcan  received a second  non-approvable  letter  from the FDA in  September
2003. The FDA has raised manufacturing issues in connection with the approval of
HELIZIDE which must be resolved before  approval is granted.  Axcan is currently
working to resolve  all  remaining  issues.  Axcan  anticipates  approval in the
United  States in fiscal 2005.  Approval  filings in Europe  should occur in the
latter part of fiscal 2004 or the beginning of fiscal 2005.

Other Drugs Marketed by Axcan

Axcan markets  SCANDISHAKE and SCANDICAL,  two high-energy  caloric  supplements
which help cystic fibrosis  patients gain and maintain their weight.  Axcan also
markets  ADEKs,  a  fat-soluble  multivitamin  supplement  marketed  in chewable
tablets and pediatric  drops,  and FLUTTER,  a mucus  clearing  device that aids
pulmonary  ventilation and expectoration by loosening mucus and liquefying mucus
secretions that obstruct the airway of cystic fibrosis patients.

In Canada,  Axcan also markets LANSOYL, a mineral-based  laxative jelly, as well
as the AMPHOJEL and MUCAINE antacid product lines, which are available in tablet
and liquid dosage forms and are sold, without prescription,  as over-the-counter
products in pharmacies.

In France,  Axcan also markets  TAGAMET,  which is indicated for the symptomatic
treatment of gastric or duodenal ulcers, TRANSULOSE and TRANSITOL, both of which
are indicated for the symptomatic  treatment of constipation and LACTEOL,  which
is indicated for the treatment of diarrhea.

During fiscal 2003 these  products,  in the aggregate,  accounted for revenue of
$34.5 million.

Sales and Marketing

Axcan's sales and marketing  force is comprised of 196  professionals,  of which
160  are  sales  representatives,  managers  and  sales  support  and  36 are in
marketing.  Of these 196  professionals,  31 are  located in Canada,  106 in the
United States and 59 in France.


                                                                              13
<PAGE>


In Canada,  Axcan sells its  products to  approximately  200  hospitals  and 160
wholesale drug companies, who in turn distribute Axcan's products to pharmacies.
Axcan's major products are included in most provincial drug benefit  formularies
and  are  promoted  by  Axcan  to  gastroenterologists   and  internal  medicine
specialists with a particular interest in gastrointestinal  diseases, as well as
to colorectal surgeons.  The 12 sales professionals located in Canada visit each
doctor in their  territory  an average of ten times per year and attend  many of
the educational  seminars and international  medical meetings organized by Axcan
and co-sponsored by the Canadian Association of Gastroenterology.

In the United  States,  Axcan sells its  products to most major  wholesale  drug
companies and distributors, who in turn distribute Axcan's products to chain and
independent  pharmacies,  hospitals and mail order organizations.  The 106 sales
professionals  located in the United  States  operate in specialty  groups.  The
first group of  professionals  calls on high-volume  prescribing  physicians and
cystic fibrosis centers; the second group visits potential and current PHOTOFRIN
centers,  hepatologists and transplant  centers;  and the third group, a team of
managed care specialists,  targets third-party payors,  clinical pharmacists and
formularies administrators.

For the fiscal year ended September 30, 2003, the following three pharmaceutical
wholesalers  each accounted for over 10% of Axcan's total sales:  McKesson HBOC,
Inc. (18.7%), Cardinal Health, Inc. (15.3%), and Bergen Brunswig, Inc. (15.6%).

Increasingly,  in North America,  third-party  payors, such as private insurance
companies  and  drug  plan  benefit  managers,  aim to  rationalize  the  use of
pharmaceutical  products  and  medical  treatments,  in  order  to  ensure  that
prescribed products are necessary for patients' condition.  Moreover, large drug
store  chains now  account  for an  increasing  portion  of the retail  sales of
prescription  medicines.  The  pharmacists  and store  managers  of such  retail
outlets are under  pressure to reduce the number of items in  inventory in order
to  reduce  costs.  As a  result  of  these  recent  changes  to  the  marketing
environment  for  prescription  pharmaceutical  drugs,  Axcan enters into retail
distribution  agreements for its prescription products with pharmacies and other
retail outlets that provide for minimum  inventory  levels of Axcan's  products,
and,  thereby ensure proper inventory levels at the point of sale. These changes
have had no material effect on Axcan.

In France, Axcan sells its products to distributors, who in turn distribute them
to wholesale drug companies, who in turn distribute them to pharmacies.  Axcan's
major products are included in the national drug benefit formularies, and the 59
sales   professionals   located  in  France  regularly  visit   high-prescribing
physicians to promote Axcan's products.

This  international  sales structure is  complemented by Axcan's  sponsorship of
high-level  international medical meetings on topics related to Axcan's products
and research  activities.  Most such medical meetings are organized by Axcan and
sponsored by the Canadian Association of Gastroenterology.  Two of these medical
meetings,  "Trends in  Inflammatory  Bowel  Disease  Therapy" and  "Helicobacter
pylori: Basic Mechanisms to Clinical Cure" have gained worldwide recognition and
allow  researchers  and  gastroenterologists  from  around the world to meet and
exchange  information.  These events are recognized by leading  institutions and
continuing medical education credits are awarded to attendees. As a consequence,
Axcan is recognized not only as a supplier of quality  products,  but also as an
important link in the continuous  medical  education  process.  These events are
summarized  in  hardcover   publications  that  are  distributed  to  healthcare
providers in Canada, the United States and elsewhere around the world.

Finally,  Axcan  founded and  continues to provide a literature  service for the
medical community.  These publications are aimed at providing pharmaceutical and
medical  specialists  with a means  of  keeping  in touch  with  the  scientific
community  and  advances in research and  development.  This  service,  which is
comprised  of  abstracts  taken  from over 650  medical  journals  published  in
approximately  50  countries,  is published on a regular basis and covers topics
pertaining  to basic  research,  diagnoses,  and  various  therapies  related to
gastroenterology and cystic fibrosis.


                                                                              14
<PAGE>


Research and Development

Axcan's  research  and  development  strategy  concentrates  on two main  areas:
further  development of acquired products and development of existing  products,
including  testing the  efficacy of such  products  in other  indications.  This
strategy  allows  Axcan to minimize the level of risk  associated  with new drug
development and also to reduce the amount of time typically  required to develop
and obtain new product approvals.

Axcan  typically  uses its own  scientific  affairs  staff to carry out clinical
trial protocol  development,  validate case report forms,  and monitor  clinical
trial sites.  Axcan also  coordinates the financial  aspects of clinical studies
conducted  by  third  parties.  Specific  tasks,  such  as  data  entry  and the
compilation of biostatistics  are contracted out to third parties.  Pre-clinical
toxicology   and   pharmacology   studies  are  also   contracted   to  research
organizations.  The preparation and submission of INDs or NDAs is contracted out
to a  consulting  firm with whom  Axcan's  research  and  development  personnel
maintains an open and frequent line of communication.

Research and development  expenses were $12.1 million for fiscal 2003,  compared
to approximately $8.9 million for fiscal 2002 and approximately $7.2 million for
fiscal 2001.

Licensing and Intellectual Property Protection

A patent is a  statutory  private  right that grants to the  patentee  exclusive
rights to exclude  others form using the patented  invention  during the term of
the patent. A patent is territorial and may be sought in may  jurisdictions.  In
Canada and the United  States,  as in most other  countries,  the term of patent
protection is 20 years from the date the patent application was filed. A drug is
patentable if it meets the criteria of being "new," "useful" and  "non-obvious."
Depending  on whether a particular  drug is  patentable  and the relative  costs
associated with obtaining the patent in each  jurisdiction  sought,  an inventor
will  either  apply for a patent in order to protect  the drug or  maintain  the
confidentiality of the information to rely on the common law protection afforded
to trade secrets.

A company may also enter into licensing agreements with third-party licensors in
order to  obtain  the  right to make,  use and sell  certain  products,  thereby
gaining access to know-how,  secret formulas and patented technology.  The value
of a license is generally  enhanced by the existence of one or more  patents.  A
license  gives the  licensee  access to  developed  and, in many  cases,  tested
technology and provides the licensee  faster and often less expensive entry into
the market. Licensing also establishes  relationships,  which may provide access
to additional  products or technology or may lead to joint ventures or alliances
affording the licensor and the licensee an  opportunity to evaluate each other's
products and technology. This is also true, to a lesser extent, for distribution
relationships. Axcan has entered into several of these types of agreements.

ULTRASE:  Axcan  Scandipharm  is the owner of the trademark  ULTRASE and markets
particular pancrelipase  microspheres and minitablets as ULTRASE and ULTRASE MT.
Under a supply  agreement  entered  into in 1991 ("1991 CR  Agreement"),  Eurand
granted to Carlsson-Rensselaer  Corp. ("CR") the right to register,  manufacture
and market  ULTRASE on an exclusive  basis in the United  States and Canada.  CR
sublicensed  its  rights to Axcan  Scandipharm  under a supply  agreement  which
terminated in 2001.

Pursuant to a letter agreement dated May 16, 2000 ("Letter  Agreement"),  Eurand
has agreed to continue to supply to Axcan  Scandipharm the current  formulations
of ULTRASE previously sublicensed to Axcan Scandipharm from CR under the 1991 CR
Agreement. CR will also supply new formulations of ULTRASE.

Under an  exclusive  Development,  License and Supply  Agreement  ("New  Product
Agreement") with Eurand  Scandipharm has the right to market a new generation of
pancrelipase minitablets with a new enteric coating to be manufactured by Eurand
and  marketed  and  sold by Axcan  Scandipharm  on an  exclusive  basis in North
America  and  Central  and South  America  under  the  trademark  ULTRASE.  This
agreement is for a period of 10 years with  automatic  renewals  for  subsequent
periods of two years. Axcan Scandipharm has paid Eurand licensing fees totalling
$3.5 million.


                                                                              15
<PAGE>


Axcan Scandipharm will pay to Eurand royalties of 6% on the first $30 million of
annual  net sales by Axcan  Scandipharm  and 5% on annual net sales in excess of
$30 million,  subject to minimum  royalty  payments of $750,000,  $1 million and
$1.5 million in the first three years,  respectively following the launch of the
new  generation  of  pancrelipase  enzymes to be  marketed  under the  trademark
ULTRASE.

Ursodiol: Axcan developed ursodiol for the Canadian market in collaboration with
Falk Pharma GmbH ("Falk") and acquired the rights to manufacture, use and market
ursodiol in the United States on March 23, 1993 through the  acquisition  of the
shares of Axcan  Pharma U.S.,  Inc.  that it did not already own. In April 1999,
Axcan  entered  into  two  agreements  with  Sanofi-Synthelabo  S.A.  of  France
("Synthelabo")  that  secured  Axcan's  right  to  manufacture,  use and  market
ursodiol as URSO 250 for the  treatment of PBC in Canada and the United  States.
These agreements effectively renew Axcan's rights over this drug, which were the
result of a previous 10-year  agreement with Synthelabo,  which expired in 2000.
For Canada, Axcan acquired full ownership of the patent relating to ursodiol for
the treatment of PBC, which expires in 2010.  The new license  agreement for the
United States is valid until the expiration of the patents in 2007.

In   1994,   Axcan,   Mitsubishi-Tokyo   Pharmaceuticals,   Inc.,   a   Japanese
pharmaceutical  company which manufactures  ursodiol,  and a research institute,
entered into an agreement to undertake various research projects with respect to
ursodiol.  Thus far,  these  projects  have  resulted in Axcan being  granted an
exclusive  license  (except for Japan) to (1) use  ursodiol  with respect to the
treatment of a cholestatic liver disease (which is the object of a United States
patent)  and (2) use,  subject to the  payment of  royalties,  ursodiol  for the
treatment  of  colorectal  cancer  (which is also the object of a United  States
patent and of patent application in several other countries, including in Canada
and  Europe).  In both  instances,  the term of the license is the greater of 10
years or the life of such patent,  and the research institute reserves the right
to terminate  the license if it is not  confident  of Axcan's  intent to develop
ursodiol commercially for the treatment of the diseases.

In October,  2000, Axcan entered into a licensing  agreement with the Children's
Hospital  Research  Foundation  ("CHRF"),  an operating  division of  Children's
Hospital  Medical  Centre  of  Cincinnati,   Ohio,  for  a  series  of  sulfated
derivatives of ursodeoxycholic acid compounds ("SUDCA" or "ursodiol disulfate").
According  to the terms of this  agreement,  Axcan has the  exclusive  worldwide
rights to  commercially  exploit a series of patented SUDCA developed by CHRF in
consideration  of (i) a one-time  licensing  fee of  $589,000  which was paid in
full; (ii) various milestone  payments of up to $525,000;  (iii) royalties based
on a certain  percentage of sales;  and (iv) bonus payments upon  achievement of
certain  milestones.  Proof-of-concept  has been  validated and CHRF's  ursodiol
disulfate is currently in  pre-clinical  trials and may constitute a significant
improvement over regular ursodiol for the prevention of recurrence of colorectal
adenomateous  polyps.  These  compounds  could also be a useful means to prevent
cholestasis induced by total parenteral malnutrition. Axcan believes that one of
the main advantages of these sulfated compounds is that they can be delivered in
high  concentrations to the colon. They also have a powerful  stimulatory effect
on bile  flow and their  high  water  solubility  could  make them  particularly
well-suited for intravenous  administration  for the treatment of  liver-related
cholestatic diseases.

In May 2002,  Axcan signed a co-development  and licensing  agreement with NicOx
for NCX-1000, a nitric oxide-donating ursodiol derivative,  for the treatment of
chronic liver diseases  including  portal  hypertension and Hepatitis "C". Under
the terms of this agreement,  Axcan has obtained from NicOx an exclusive license
to  commercialize  NCX-1000 in Canada and Poland as well as an option to acquire
the same exclusive  rights for the United  States.  Axcan and NicOx will jointly
share the cost of the future  development  of NCX-1000  until the  completion of
Phase II clinical studies.  Axcan will thereafter conduct the required Phase III
clinical  studies  and  will  be  responsible  for  regulatory  filings  in  the
exclusively licensed  territories.  Axcan has paid NicOx an upfront milestone of
$1 million and will pay other option or milestone payments totalling up to $18.5
million at various  stages of  development,  the  majority  being  payable  upon
approval. Axcan also agreed to pay royalties on net sales of the product.

SALOFALK and CANASA:  Axcan developed SALOFALK in collaboration with Falk. Axcan
owns the  trademark  SALOFALK  in Canada and CANASA in the  United  States.  The
product line marketed under these trademarks is not subject to a patent.


                                                                              16
<PAGE>


In October 2002,  Axcan  acquired from Gentium  exclusive  rights to develop and
market in North America a patented  4-gram rectal gel  formulation of mesalamine
for the treatment of active distal  ulcerative  colitis.  In return,  Axcan will
make milestone  payments  totalling  approximately  $1.5 million the majority of
which will be paid upon  approval  in the United  States.  Axcan will also pay a
royalty of 4% on net sales of the product for a 10-year  period from the date of
the product's launch.

VIOKASE:  In 1996, Axcan acquired from Wyeth worldwide rights to VIOKASE and the
right to market the product in Canada.  In 1997, Axcan also acquired the VIOKASE
marketing rights for the United States and the trademark VIOKASE for Canada, the
United States and certain  other  countries  from  American Home Products  Corp.
("AHP") and A.H.  Robins  Company,  Inc.  Axcan owns the  trademark  VIOKASE for
North, Central and South America. The product is not subject to a patent.

PHOTOFRIN:  In June 2000,  Axcan  purchased from QLT Inc.  ("QLT") the trademark
"PHOTOFRIN"  for the United States,  Canada and all other countries where it has
been  registered  as a trademark  or used in  marketing.  Axcan also  purchased,
licensed or  sublicensed  from QLT, as the case may be, the worldwide  rights of
QLT to  PHOTOFRIN.  As  part  of the  transaction,  Axcan  acquired  a  European
subsidiary of QLT which holds the European  registration  rights for  PHOTOFRIN.
The last of the patents which form part of the acquired  assets expires in April
2013. As part of the acquisition, Axcan agreed to assume QLT's obligation to pay
royalties of up to 5% on net sales of PHOTOFRIN to Health Research Inc. ("Health
Research"),  pursuant to arrangements  under which Axcan is a sublicensee of the
technology that QLT licensed from Health Research.

In August 2000, Axcan and Diomed entered into a five-year exclusive  development
and supply agreement following FDA clearance of a new laser developed by Diomed.
According  to the terms of this  agreement,  Diomed is to supply  630  nanometer
wavelength  PDT  diode  lasers  for  use  in  photodynamic  therapy  ("PDT")  in
conjunction  with PHOTOFRIN.  The FDA clearance of the Diomed laser is the first
approval of a diode laser for use with  PHOTOFRIN in PDT.  Pursuant to the terms
of the  transaction  between  Axcan and QLT,  as a result of the FDA  clearance,
Axcan has paid to QLT Inc. a milestone cash payment of $5 million.



PANZYTRAT:  In November 2002,  Axcan acquired from Abbott certain assets related
to the  distribution,  marketing and sale of a pancreatic enzyme product used to
enhance  the  digestion  of fats.  This  pancreatic  enzyme  product is commonly
marketed  under the  trademark  PANZYTRAT.  The  product  is  subject to patents
assigned to Axcan  directly from Abbott.  The know-how and trade secrets are the
object of a perpetual  unrestricted license from Abbott. The trademark PANZYTRAT
and related marks, were assigned directly from Abbott to Axcan Pharma S.A.

DELURSAN: In December 2002, Axcan. acquired from Laboratoire Aventis and Aventis
Pharma  S.A.   certain   intellectual   property   and   commercial   rights  to
ursodeoxycholic  acid-based  products  marketed under the trademark  "DELURSAN,"
(including the rights to this trademark for France) for France and Morocco.  The
product is not subject to any patent.

MODULON: In 1997, Axcan acquired  gastroenterology  products previously marketed
in Canada by Jouveinal Canada Inc.  ("Jouveinal") which included MODULON.  Axcan
owns the trademark, and the product is not subject to a patent.

HELIZIDE:  In January 2000, Axcan entered into a worldwide  (excluding Australia
and New Zealand)  licensing  agreement (which was amended in November 2000) with
Exomed Australia PTY Limited, Gastro Services PTY Limited,  Ostapat PTY Limited,
and Capacility  Services PTY Ltd..  This agreement,  as amended,  provides Axcan
with exclusive rights in a number of countries,  including Canada and the United
States,  to a series of patents  covering triple and quadruple  therapies for Hp
eradication. These patents cover the treatment of duodenal ulcer disease (and in
some countries reflux  esophagitis and gastric ulcer) through the eradication of
Hp using a bismuth  compound  together with two (2) or more  antibiotics.  Axcan
paid  approximately  $1.64  million  cash for the license and will pay a royalty
based on sales once the product is approved.


                                                                              17
<PAGE>


In May 1999, Axcan acquired the rights to a single capsule technology to be used
for HELIZIDE from Gephar S.A. ("Gephar"), in an asset swap transaction,  whereby
Axcan sold to Gephar its interest in Axcan Ltd., a manufacturer  and distributor
of the PROTECTAID(TM) contraceptive sponge.

Other  drugs  marketed  by  Axcan:   Axcan  acquired   distribution   rights  to
SCANDISHAKE,  SCANDICAL, FLUTTER and ADEKs for Canada in 1997 from Jouveinal. In
1999,  Axcan  acquired  the rights to these  products  for the United  States by
acquiring Scandipharm. Axcan owns these trademarks, and except for FLUTTER, none
of these products is subject to patent protection.  FLUTTER is subject to patent
protection in several  countries,  including the United States.  In 1997,  Axcan
acquired gastroenterology  products,  including LANSOYL,  previously marketed in
Canada by  Jouveinal.  Axcan owns the  trademarks,  and these  products  are not
subject to a patent.

In 1994 Axcan acquired the rights to the formulation and the Canadian regulatory
authorization of the products sold under the AMPHOJEL and MUCAINE trademarks, as
well as a license from Wyeth, to use these trademarks in Canada.

As a part of its  acquisition  of Enteris in February  2001,  Axcan acquired the
rights to Enteris'  gastrointestinal  products.  These products  include TAGAMET
(for the  treatment of gastric or duodenal  ulcers),  TRANSITOL  and  TRANSULOSE
(both of which are for the treatment of constipation).  Axcan owns the trademark
"TAGAMET"  for  France  and the  Principality  of  Monaco.  Axcan  also owns the
trademarks  TRANSITOL and TRANSULOSE.  TAGAMET is the object of a patent held by
SmithKline  Beecham  Laboratories  ("SmithKline")  which is  licensed  to Axcan.
TRANSULOSE  and TRANSITOL are the objects of patents held by Schwarz Pharma S.A.
("Schwarz")In  April 2002,  Axcan acquired all of the shares of Lacteol which is
the  owner  of all of the  intellectual  property  rights  to the  antibacterial
composition  marketed  by Lacteol  under  different  trademarks,  including  the
trademark  LACTEOL.  The  antibacterial  composition  is  subject to a patent in
France and to a patent application in Europe.  These patents rights are owned by
Axcan and a French  research  institute.  Certain  know-how  and  trade  secrets
regarding the  Lactobacillus  Acidophilus  strain were also acquired by Axcan as
part of the acquisition of Lacteol.

In 2003, Axcan and Nordmark Arzneimittel GmbH created a joint venture to develop
novel enzyme preparations,  NMK 150 and NMK 250. The joint venture will hold the
right  to  manufacture  the bulk  active  ingredients,  while  Axcan  will  hold
worldwide marketing rights for all finished dosage forms. In July 2003, under an
agreement  with  Merz  Pharmaceuticals  GmbH  ("Merz"),  Axcan  was  granted  an
exclusive   license   to  use,   develop   and   submit   HEPENAX,   a  patented
gastroprokinetic  drug,  for approval in a number of  countries,  including  the
United  States and Canada,  for the  treatment of hepatic  encephalopathy.  Such
agreement  also  grants  Axcan  the  right to  develop  the  product  for  other
indications. Axcan agreed to fund Phase III studies and to pay Merz a royalty on
net sales once the product is marketed.  Trademark applications for HEPENAX have
been  recently  filed in  several  countries,  including  Canada  and the United
States. HEPENAX is not subject to patents.

In August 2003,  Abbott  Laboratories  granted Axcan exclusive  rights for North
America,  the European Union and Latin America to develop manufacture and market
ITAX  (itopride  hydrochloride)  for a number of  gastrointestinal  indications.
Trademark  applications for ITAX have been filed in several countries  including
Canada and the United  States.  Such  licensed  rights are subject to patents in
numerous countries, including Canada, the United States and countries of Europe.

In November  2003,  Axcan  acquired  the rights to a group of  gastro-intestinal
products  from  Aventis  Pharma.  CARAFATE and BENTYL are marketed in the United
States and  SULCRATE,  BENTYLOL  and  PROCTOSEDYL  are  marketed  in Canada.  In
connection  with such  transaction,  Axcan acquired all the  trademarks  related
thereto. Such products are not subject to patents.

Human Resources

As of September  30, 2003,  the end of Axcan's most  recently  completed  fiscal
year,  Axcan  employed 394 persons,  of whom 113 work in production  and quality
control, 19 in research and development,  160 in sales, 36 in marketing, and the
balance in  administration.  Of these employees,  111 are located in Canada, 133
are located in the United


                                                                              18
<PAGE>


States  and  150 are  located  in  France.  In  Canada,  Axcan  is a party  to a
collective  agreement which expires in March 2007 and which covers 42 employees,
all  of  whom  are  non-management  employees.  Pursuant  to  the  terms  of the
collective  agreement,  salary disputes are settled through binding arbitration.
Salary levels were last reviewed in March 2002. In France, Axcan's employees are
subject to the Convention Collective Nationale de l'Industrie Pharmaceutique,  a
collective agreement which applies to the entire pharmaceutical  industry. Axcan
believes that relations with both its unionized and non-unionized  employees are
good.

Facilities

Axcan owns a 31,000 square foot  building in  Mont-Saint-Hilaire,  Quebec.  This
building houses the administrative,  marketing and pharmaceutical  manufacturing
operations  as well as the  research  and  development  facilities  of  Axcan in
Canada.  In fiscal 1998,  Axcan  acquired a 115,000 square foot property next to
its Mont-Saint-Hilaire  facility which will be used to expand Axcan's facilities
during fiscal 2004.  The building and real estate owned by Axcan is subject to a
hypothec in favor of its lenders,  pursuant to the credit  facilities  described
under  "Selected  Consolidated  Financial  Information  - Liquidity  and Capital
Resources."

Axcan  Scandipharm  leases  approximately  20,000 square feet of office space in
Birmingham,  Alabama under a lease expiring in December, 2005. Under this lease,
Axcan  Scandipharm  pays annual rent which  escalates over the term of the lease
and averages  between  $345,000 and $385,000 per year, plus an amount equal to a
pro rata share of operating expenses.

Axcan Pharma S.A. owns 606,837 square feet of office space in Houdan, France.

Environment

Axcan  generates  a small  amount of  hazardous  waste  that is  disposed  of by
certified   third-party   carriers.   Axcan   believes  that   compliance   with
environmental  regulations  has no  material  impact  on  capital  expenditures,
earnings or Axcan's competitive position. Axcan periodically mandates reviews of
its compliance  with  environmental  laws and  regulations  to ensure  continued
compliance with applicable norms.

Legal Proceedings

Axcan Scandipharm is a party to several legal proceedings related to the product
line it markets under the trademark ULTRASE.

In 1994, the FDA received  complaints that certain enzyme  supplements may cause
strictures  in the colon (later  identified  as fibrosing  colonopathy).  In May
1997, the New England  Journal of Medicine  published an article  co-authored by
the  Cystic  Fibrosis   Foundation  and  the  FDA  in  which  they  conducted  a
retrospective analysis of 29 cystic fibrosis patients with fibrosing colonopathy
compared to 105 control  cystic  fibrosis  patients  between 1991 and 1994.  The
study concluded that in young children with cystic fibrosis,  there was a strong
relation  between  high daily doses of  pancreatic  enzyme  supplements  and the
development   of  fibrosing   colonopathy.   The  study's   findings   supported
recommendations  that the daily dose of  pancreatic  enzymes  for most  patients
should remain below 10,000 units of lipase per kilogram of body weight.

In the  Fall  of  2001,  an  article  entitled  Fibrosing  Colonopathy  (FC) - A
Retrospective  Analysis of U.S.  Cases 1995 - 1999,  was presented at the Cystic
Fibrosis  Foundation's  annual  meeting.  The  article  stated  that during such
five-year  span,  37 new cases of fibrosing  colonopathy  were  diagnosed.  This
article also  concluded  that fibrosing  colonopathy  cases are associated  with
prolonged ingestion of high doses of pancreatic enzyme supplements.

Axcan  Scandipharm  has  been  named  as a  defendant  in 12  product  liability
lawsuits.  Of the 12 lawsuits to date, Axcan Scandipharm was dismissed from one,
non suited in another and settled ten. At this time,  it is difficult to predict
the  number of  potential  cases and  because  of the young age of the  patients
involved,  Axcan Scandipharm's  product liability exposure for this issue in the
United States will remain for a number of years. Axcan


                                                                              19
<PAGE>


Scandipharm's  insurance  carrier has defended  the lawsuits to date,  and Axcan
expects  them to  continue  to defend  Axcan  Scandipharm  (to the extent of its
product liability insurance), should lawsuits be filed in the future.

It is estimated  that there are 30,000  cystic  fibrosis  patients in the United
States.  The New England Journal of Medicine article  discussed above identified
29 cystic  fibrosis  patients with fibrosing  colonopathy  between 1991 and 1994
from a survey sent to 114 cystic fibrosis care centers in the U.S.  representing
a total of 20,000  cystic  fibrosis  patients.  The article  entitled  Fibrosing
Colonopathy (FC) - A Retrospective  Analysis of U.S. Cases 1995 - 1999 discussed
above  identified  37 new  fibrosing  colonopathy  cases between 1995 to 1999 as
reported to the Cystic Fibrosis  Foundation from 1995 to 1999. The identities of
the patients in the articles discussed above have not been disclosed,  and Axcan
Scandipharm does not know whether the 12 lawsuits to date are from these groups.
Therefore, the total amount of Axcan Scandipharm's product liability exposure is
uncertain.

Eurand (the supplier of the  pancreatic  enzymes used in ULTRASE) and its parent
at the time, AHP, filed suit against Axcan  Scandipharm and  Carlsson-Rensselaer
Corporation (the product's  licensor) in the Philadelphia County Court of Common
Pleas on March 6, 1998 seeking  reimbursement  of defense  costs and  settlement
amounts in fibrosing  colonopathy lawsuits previously settled by Eurand and AHP,
as  well  as  a  declaration   that  Axcan   Scandipharm   or  CR  must  provide
indemnification  against future claims. This lawsuit is based on contractual and
common law indemnity issues, and the parties have agreed to settle their dispute
through arbitration.  The arbitration has commenced, and the plaintiffs claim to
the amount at issue is in excess of $10 million.  Both Axcan  Scandipharm and CR
have filed cross-claims against each other and counterclaims  against Eurand and
AHP.  Axcan  Scandipharm  denies  that such  reimbursement  is owed and has also
responded with counterclaims  against the plaintiffs.  Axcan Scandipharm paid to
AHP and Eurand  approximately $1.2 million with respect to two previous lawsuits
under threat of product supply termination and denial of access to inspection of
Eurand's  manufacturing  facility  (a  requirement  imposed  by a former  merger
partner of Axcan  Scandipharm).  These lawsuits  related to the  indemnification
claim.  [Axcan  Scandipharm  had  previously  settled with one of its  insurance
carriers the  contractual  liability  claims related to this issue and, to date,
one of Axcan  Scandipharm's  insurance  carriers is denying coverage for the AHP
and Eurand indemnification claims.]

As of  September  30,  2003,  Axcan  has  recorded  reserves  in the  amount  of
approximately  $2.9 million to cover any future  liabilities in connection  with
the  indemnification  claims and the  lawsuits  discussed  above that may not be
covered by, or exceed,  applicable insurance proceeds. While Axcan believes that
the insurance  coverage and  provisions  taken to date are adequate,  an adverse
determination  of any such claims or of any future claims could exceed insurance
coverage and amounts currently accrued.

If Axcan  Scandipharm is not successful in its defense of these claims or future
lawsuits, losses could exceed its insurance coverage and provisions made to date
and would be borne  directly  by it. If  Axcan's  losses  exceed  its  insurance
coverage and its provisions, Axcan could experience a material adverse impact on
its results of  operations  and  liquidity and may impair its ability to conduct
business.

Axcan is involved in other routine  litigation  matters which Axcan believes not
to be material.


                                       20
<PAGE>


                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

              (in thousands of dollars, except share related data)

Last three fiscal years (audited)

<TABLE>
<CAPTION>

                                                        Fiscal Year Ended September 30
                                                        ------------------------------

                                                2003                 2002                   2001
                                                ----                 ----                   ----

                                                   $                    $                      $
                                                   -                    -                      -
<S>                                    <C>                 <C>                     <C>

        Statement of Operations Data:
          U.S. GAAP
        Revenue.......................         179,084             132,404                 103,814
                                           -----------         -----------             -----------
        Cost of goods sold............          44,459              34,039                  26,381
        Selling and administrative
        expenses......................          63,084              49,392                  38,185
        Research and
        development
        expenses......................          12,098               8,885                   7,243
        Acquired in-process
        research......................          12,000                 ---                     ---
        Depreciation and
        amortization..................           8,063               7,546                  11,829
                                           -----------         -----------             -----------
                                               139,704              99,832                  83,638
                                           -----------         -----------             -----------
        Operating income                        39,380              32,572                  20,176
                                           -----------         -----------             -----------

        Financial expenses............           4,283                 898                   2,870
        Interest income...............          (1,639)               (912)                   (981)
        Loss on foreign
        currency......................             122                 266                     653
        Takeover-bid
        expenses......................           3,697                 ---                     ---
                                           -----------         -----------             -----------
                                                 6,463                 252                   2,542
                                           -----------         -----------             -----------

        Income before
        income taxes..................          32,917              32,320                  17,634
        Income taxes..................          12,992              11,132                   5,809
                                           -----------         -----------             -----------

        Net income ...................          19,925              21,188                  11,825
                                           ===========         ===========             ===========


                                                        Fiscal Year Ended September 30
                                                        ------------------------------

                                                2003                 2002                   2001
                                                ----                 ----                   ----

                                                   $                    $                      $
                                                   -                    -                      -
         U.S. GAAP
         Net income                             19,925              21,188                  11,825
        Per Common Share(1)
         Basic                                    0.44                0.51                   0.32
         Diluted                                  0.44                0.50                   0.32

        Balance Sheet Data:
          U.S. GAAP
        Total assets..................         545,349             367,006                 246,484

        Total liabilities.............         214,338              72,219                  46,053

        Total shareholders' equity             331,011             294,787                 200,431
</TABLE>

    1) Based on the weighted  average  number of shares  outstanding  during the
year.

Reference  is  made to Note 23 to the  audited  consolidated  statements  of the
Company  prepared  in  accordance  with  U.S.  GAAP for the  fiscal  year  ended
September 30, 2003 for a summary of the  reconciliation of U.S. GAAP to Canadian
GAAP.


                                                                              21
<PAGE>


Fiscal Year Ended  September 30, 2003,  compared to fiscal year ended  September
30, 2002

Revenue
Revenue  increased  $46.7 million  (35.3%) to $179.1  million for the year ended
September  30, 2003,  from $132.4  million for the preceding  fiscal year.  This
increase in revenue  resulted  primarily from sales  generated by Axcan's French
subsidiary,  following the acquisitions of Enteris and Lacteol and the PANZYTRAT
and  DELURSAN  product  lines.  Strong  sales of URSO 250 in North  America also
contributed  to the  increase.  Revenue  from the French  subsidiary,  including
domestic  and  foreign  sales,  amounted  to $44.2  million  for the year  ended
September 30, 2003,  compared to $14.8 million for the year ended  September 30,
2002.

Key sales figures for fiscal 2003 are as follows:

    o   Worldwide sales of pancreatic  enzymes (ULTRASE,  VIOKASE and PANZYTRAT)
        amounted to $57.9 million,  an increase of 47% over fiscal 2002 sales of
        pancreatic enzymes.  PANZYTRAT,  acquired in the first quarter of fiscal
        2003, accounted for $10.2 million of sales;

    o   Worldwide  sales of ursodiol (URSO 250, URSO DS and DELURSAN)  increased
        79% to $53.9 million. DELURSAN, which was acquired in the second quarter
        of fiscal 2003, accounted for $6.9 million of sales;

    o   Sales of mesalamine  (CANASA and SALOFALK)  amounted to $26.2 million, a
        24% decrease  from the prior year.  This  decrease was mainly due to the
        resolution of short product supply,  that occurred in fiscal 2002, for a
        product competing with CANASA in an associated indication.

    o   Sales of PHOTOFRIN and other products in North America amounted to $14.1
        million,  an  increase of 3%. The Company  expects  growth in  PHOTOFRIN
        sales in fiscal 2004 with the launch of PHOTOFRIN  for the  treatment of
        High-Grade Dysplasia associated with Barrett's Esophagus.

    o   Sales of other products in Europe, mainly LACTEOL and TAGAMET,  amounted
        to $27.6 million, a 76% increase over such sales in the prior year.



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 $10.5 million (28.3%) to $44.5 million for the year
ended September 30, 2003, from $34.0 million for the preceding fiscal year. As a
percentage of revenue, cost of goods sold for the year ended September 30, 2003,
decreased  as  compared to the  preceding  fiscal  year,  from 25.7% to 24.8% of
revenue.  This  decrease in cost of goods sold,  expressed  as a  percentage  of
revenue,  is due in part to the  accounting  treatment of the PANZYTRAT  revenue
during the transition  period.  Since the acquisition of the PANZYTRAT rights in
December  2002,  Abbott  has acted as an agent for sales of this  product  line,
until  marketing  authorization  transfers are completed.  During the transition
period,  Axcan  includes  in its  revenue  the net  sales  from  PANZYTRAT  less
corresponding  cost of goods  sold and  other  Abbott  related  expenses.  Thus,
Axcan's  cost of goods sold does not include  costs  related to these  PANZYTRAT
sales.

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 $13.7 million (27.7%) to $63.1 million for the
year ended September 30, 2003, from $49.4 million for the preceding fiscal year.
This  increase is mainly due to the  inclusion  of $15.0  million of selling and
administrative  expenses  from Enteris and Lacteol for the year ended  September
30, 2003, compared to $7.8 million for the preceding year which represented five
months of operations for Lacteol and eleven months of operations for Enteris.


                                                                              22
<PAGE>


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,  and of salaries and benefits paid to its
personnel  involved in research and  development  projects.  Excluding  acquired
in-process research and development, research and development expenses increased
$3.2 million  (36.0%) to $12.1  million for the year ended  September  30, 2003,
from $8.9 million for the preceding  fiscal year.  The increase is primarily due
to the fact that Axcan is currently  conducting two additional  clinical studies
on  its  new  CANASA  rectal  gel   formulation  in  order  to  meet  regulatory
requirements.  Also,  additional  costs were  incurred to address  manufacturing
issues at one of the five  manufacturing  sites  involved in the  production  of
HELIZIDE.

Acquired in-process research

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

Depreciation and amortization

Depreciation and  amortization  consists  principally of intangible  assets with
finite  life.  Intangible  assets  include  trademarks,  trademark  licenses and
manufacturing  rights.  Depreciation  and  amortization  increased  $0.5 million
(6.6%) to $8.1 million for the year ended  September 30, 2003, from $7.6 million
for the preceding  fiscal year. The increase  resulted mainly from  depreciation
and  amortization of capital assets acquired in the November 2001 acquisition of
Enteris and the April 2002 acquisition of Lacteol.

Financial expenses

Financial  expenses consist  principally of interest and fees paid in connection
with money borrowed for acquisitions.  Financial expenses increased $3.4 million
to $4.3 million for the year ended September 30, 2003, from $0.9 million for the
preceding  fiscal year.  This increase is mainly due to interest  expense on the
$125.0 million  aggregate  principal amount of 4 1/4%  convertible  subordinated
notes due 2008 which were issued on March 5, 2003.

Takeover-bid expenses

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

Income taxes

Income taxes  amounted to $13.0  million for the year ended  September 30, 2003,
compared to $11.1 million for the preceding fiscal year. The effective tax rates
were 39.5% for the year ended  September 30, 2003,  and 34.4% for the year ended
September  30, 2002.  The increase in our effective tax rate was due to acquired
in-process  research  which is  deductible  at a lower rate than most  operating
expenses.  As shown  later  under  net  income,  excluding  acquired  in-process
research and  takeover-bid  expenses,  the  effective tax rate was 31.4% for the
year ended September 30, 2003.


                                                                              23
<PAGE>


Net income

Net income (in thousands of dollars),  basic income per share and diluted income
per share  according to U.S. GAAP for the years ended  September  30, 2003,  and
2002, were as follows:

                                                For the year ended September 30
                                                -------------------------------

                                                      2003           2002
                                                      -----          ----

                                                      $              $

Net income in accordance with U.S. GAAP               19,925         21,188
                                                      ======         ======

Income per common share

        Basic                                         0.44           0.51

        Diluted                                       0.44           0.50



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

<TABLE>
<CAPTION>

                                 Income before
                                 income taxes       Income taxes      Net income      Income per share

----------------------------------------------------------------------------------------------------------
                                                                                     Basic      Diluted
For the year ended                          $           $         %             $           $           $
  September 30, 2003
<S>                                    <C>         <C>         <C>         <C>           <C>         <C>
According to U.S. GAAP                 32,917      12,992      39.5        19,925        0.44
Acquired in-process research           12,000         982       8.2        11,018        0.25
Takeover-bid expenses                   3,697       1,290      .4.9         2,407        0.05
                              ---------------------------            ------------------------

Excluding acquired
  in-process research and
  takeover-bid expenses                48,614      15,264      31.4        33,350        0.74        0.73
                              ============================================================================
</TABLE>

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


                                                                              24
<PAGE>


For the year ended  September 30, 2003, net income was $19.9 million or $0.44 of
both basic and diluted  income per share,  compared to $21.2 million or $0.51 of
basic income per share and $0.50 of diluted  income per share for the  preceding
year. Excluding takeover-bid expenses,  acquired in-process research and related
income taxes, net income for the year ended September 30, 2003 was $33.4 million
or $0.74 of basic  income  per share  and $0.73 of  diluted  income  per  share,
compared to $21.2  million of net income or $0.51 of basic  income per share and
$0.50 of diluted income per share for the year ended September 30, 2002.

The basic weighted average number of common shares outstanding used to establish
the per share amounts  increased from 41.7 million for the year ended  September
30, 2002, to 44.9 million for the year ended  September 30, 2003, as a result of
the exercise of options previously granted pursuant to Axcan's stock option plan
in fiscal 2003 and the completion of equity public  offerings,  the subscription
of  investors  through  private  placements,  the  exercise  of options  and the
issuance of shares for the acquisition of assets in fiscal 2002.

The adjusted  weighted  average  number of common  shares  outstanding,  used to
establish  the diluted per share  amounts,  increased  from 42.5 million for the
year ended  September 30, 2002, to 45.6 million for the year ended September 30,
2003.



Fiscal Year Ended  September 30, 2002,  compared to fiscal year ended  September
30, 2001

Revenue

Revenue  increased  $28.6 million  (27.6%) to $132.4  million for the year ended
September  30, 2002,  from $103.8  million for the preceding  fiscal year.  This
increase  in revenue  came almost  equally  from  increased  sales in the United
States  and  France.  Fiscal  2002  revenue  from  Europe in the amount of $15.7
million included sales from Enteris for 11 months,  and sales from Lacteol for 5
months. In the United States, CANASA rectal suppositories,  marketed since April
2001, also contributed to the increase.

Key sales figures for fiscal 2002 are as follows:

    o   Sales of ULTRASE/VIOKASE amounted to $39.5 million, an increase of 4%;

    o   Sales of URSO 250 amounted to $30.2 million, an increase of 15%;

    o   Sales of CANASA/SALOFALK amounted to $34.2 million, an increase of 53%;

    o   Sales of PHOTOFRIN and other products in North America amounted to $13.6
        million;

    o   Sales of all products in Europe amounted to $15.7 million.



Cost of goods sold

Cost of goods sold increased $7.6 million  (28.8%) to $34.0 million for the year
ended September 30, 2002, from $26.4 million for the preceding fiscal year. As a
percentage of revenue, cost of goods sold for the year ended September 30, 2002,
increased  marginally  as compared to the  preceding  fiscal year,  at 25.7% and
25.4%,  respectively.  This  increase was due  primarily  to increased  sales in
Europe where margins are lower than in the United States.


                                                                              25
<PAGE>


Selling and administrative expenses

Selling and  administrative  expenses  increased  $11.2 million (29.3%) to $49.4
million  for the year ended  September  30,  2002,  from $38.2  million  for the
preceding  fiscal  year.  This  increase is mainly due to the  inclusion of $7.8
million of  selling  and  administrative  expenses  from  Enteris  and  Lacteol.
Additions  to the sales  force in the United  States,  and  increased  marketing
efforts  for  URSO 250 and  CANASA  suppositories  in the  United  States,  also
contributed to the increase.

Research and development expenses

Research and development expenses increased $1.7 million (23.6%) to $8.9 million
for the year ended  September  30,  2002,  from $7.2  million for the  preceding
fiscal  year.  During the fiscal  year ended  September  30,  2002,  the Company
completed  the filing of new drug  submissions  for the use of PHOTOFRIN for the
treatment of High-Grade Dysplasia associated with Barrett's Esophagus.

Financial expenses

Financial  expenses  decreased $2.0 million (69.0%) to $0.9 million for the year
ended  September  30,  2002,  from $2.9 million for the  preceding  fiscal year.
Financial  expenses  for the year  ended  September  30,  2001,  were  primarily
attributable to interest paid on a loan of  approximately  $52.0 million used to
acquire the 50% interest of Schwarz in the Axcan URSO joint  venture.  This loan
was repaid in fiscal 2001.

Depreciation and amortization

Depreciation and amortization decreased $4.3 million (36.7%) to $7.5 million for
the year ended September 30, 2002,  from $11.8 million for the preceding  fiscal
year. This decrease resulted from a reduction of $6.4 million due to a change in
accounting  policies  described  above regarding  goodwill and other  intangible
assets,  offset in part by an increase of $2.0  million due to  amortization  of
newly acquired capital assets.  Depreciation and amortization of assets acquired
include  $0.8 million for lasers used with  PHOTOFRIN  in the United  States and
$0.6 million for capital  assets in France,  for Enteris since November 2001 and
Lacteol since April 2002.

Income taxes

Income taxes  amounted to $11.1  million for the year ended  September 30, 2002,
compared to $5.8 million for the year ended  September  30, 2001.  The effective
tax rates were 34.4% in 2002 and 32.9% in 2001.



Net income

Net  income was $21.2  million  or $0.51 of basic  income per share and $0.50 of
diluted  income per share,  for the year ended  September 30, 2002,  compared to
$11.8  million  or $0.32 per share on both a basic and  diluted  basis,  for the
preceding year. The basic weighted  average number of common shares  outstanding
used to establish the per share amounts increased from 35.8 million for the year
ended September 30, 2001, to 41.7 million for the year ended September 30, 2002,
following  the  completion  of public  equity  offerings,  the  subscription  of
investors through private placements, the exercise of options previously granted
pursuant  to  Axcan's  stock  option  plan,  the  issuance  of  shares  for  the
acquisition  of assets and for the  redemption  of preferred  shares  previously
issued in connection  with the  acquisition  of PHOTOFRIN,  both in fiscal years
2001 and 2002.


                                                                              26
<PAGE>


Fiscal Year Ended  September 30, 2001,  compared to fiscal year ended  September
30, 2000

Revenue

Revenue  increased  $16.9 million  (19.4%) to $103.8  million for the year ended
September  30, 2001,  from $86.9  million for the  preceding  fiscal year.  This
increase is primarily due to the acquisition of PHOTOFRIN by Axcan in June 2000,
and increased sales in the United States.

Cost of goods

Cost of goods sold increased $4.1 million  (18.4%) to $26.4 million for the year
ended September 30, 2001, from $22.3 million for the preceding fiscal year. As a
percentage of revenue, cost of goods sold for the year ended September 30, 2001,
was  relatively  the same as in the  preceding  fiscal year, at 25.4% and 25.6%,
respectively.

Selling and administrative expenses

Selling and  administrative  expenses  increased  $6.4 million  (20.1%) to $38.2
million  for the year ended  September  30,  2001,  from $31.8  million  for the
preceding fiscal year.  These increases were mainly due to further  additions to
the field sales  force in the United  States,  to  increased  marketing  efforts
following  the  integration  of URSO 250 and  VIOKASE  into Axcan  Scandipharm's
product line, as well as to worldwide  marketing  expenses related to PHOTOFRIN.
The newly launched CANASA suppositories in the United States also contributed to
this increase.

Research and development expenses

Research and development  expenses increased $0.1 million (1.4%) to $7.2 million
for the year ended  September  30,  2001,  from $7.1  million for the  preceding
fiscal year.  During  fiscal 2001,  Axcan  prepared for the filing of regulatory
approvals for the use of PHOTOFRIN  for the  treatment of  High-Grade  Dysplasia
associated with Barrett's Esophagus and also prepared for regulatory filings for
HELIZIDE which were submitted in both Canada and the United States.

Financial expenses

Financial  expenses  decreased $6.7 million (69.8%) to $2.9 million for the year
ended September 30, 2001,  from $9.6 million for the preceding  fiscal year. The
unusually high financial  expenses for the year ended  September 30, 2000,  were
primarily   attributable  to  interest  expenses  paid  on  aggregate  loans  of
approximately  $93 million used to acquire Axcan  Scandipharm and  approximately
$52 million  used to acquire the 50% interest of Schwarz in the Axcan URSO joint
venture. These loans have since been repaid.

Depreciation and amortization

Amortization  increased $1.4 million (13.5%) to $11.8 million for the year ended
September  30, 2001,  from $10.4  million for the  preceding  fiscal  year.  The
increase  resulted  primarily from the  amortization of the worldwide  PHOTOFRIN
rights acquired in June 2000.

Net income

Income from  continuing  operations  increased  $7.7  million  (187.8%) to $11.8
million,  or $0.32 per share,  for the year ended  September 30, 2001, from $4.1
million, or $0.15 per share, for the preceding fiscal year. Net income increased
$5.9 million  (100.0%) to $11.8 million,  or $0.32 per share, for the year ended
September  30,  2001,  compared  to $5.9  million,  or $0.22 per share,  for the
preceding  fiscal  year.  The basic  weighted  average  number of common  shares
outstanding used to establish the per share amounts  increased from 26.6 million
for the year  ended  September  30,  2000,  to 35.8  million  for the year ended
September 30, 2001, due to a public offering of common shares.


                                                                              27
<PAGE>


Liquidity and Capital Resources

Axcan's cash,  cash  equivalents  and  short-term  investments  increased  $90.2
million to $170.9 million at September 30, 2003, from $80.7 million at September
30, 2002. As of September 30, 2003, working capital was $174.8 million, compared
to $103.5 million at September 30, 2002.  These  increases are mainly due to the
issuance of convertible subordinated notes which provided net proceeds of $120.5
million  and were  partially  offset  by the  acquisition  of the  rights to the
PANZYTRAT  product line and DELURSAN  for a total cash  purchase  price of $67.8
million plus transaction expenses. On October 8, 2003, Axcan signed an agreement
to acquire the rights to a group of  products  from  Aventis  Holding  Inc.  The
purchase price of $145 million was, in November 2003,  paid out of Axcan's cash,
cash equivalents and short-term investments.

Total assets  increased $178.3 million (48.6%) to $545.3 million as of September
30, 2003,  from $367.0  million as of September 30, 2002.  Shareholders'  equity
increased $36.2 million (12.3%) to $331.0 million as of September 30, 2003, from
$294.8  million as of  September  30,  2002.  The  increase  in total  assets in
primarily  due  to the  proceeds  from  the  issuance  of  $125  million  of our
convertible   notes  due  2008,  as  well  as  the  $36.2  million  increase  in
shareholders'  equity. The increase in shareholders' equity was primarily due to
our  net  income  of  $19.9  million  net  and a  foreign  currency  translation
adjustment of $15.2 million for the year ended September 30, 2003

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

Axcan has credit facilities  totaling $55.0 million with two Canadian  chartered
banks. The facilities  consist of a $15.0 million revolving  operating  facility
renewable  annually and a $40.0 million 364-day,  extendible  revolving facility
with a  three-year  term-out  option  maturing  October  12,  2007.  The  credit
facilities are secured by a first priority  security interest on all present and
future acquired assets of the Company and its material subsidiaries, and provide
for the maintenance of certain financial ratios.  Cash dividends,  repurchase of
shares  (other than  redeemable  shares  issued in  connection  with a permitted
acquisition) and similar distributions to shareholders are limited to 10% of the
Company's  net income for the  preceding  fiscal year. As of September 30, 2003,
Axcan was in compliance with all credit facilities' covenants.

The interest rate varies, depending on the Company's leverage,  between 25 basis
points and 125 basis  points over  Canadian  prime rate or U.S.  base rate,  and
between  125 basis  points and 225 basis  points over the LIBOR rate or bankers'
acceptances.  The  credit  facilities  may be drawn in U.S.  dollar or  Canadian
dollar  equivalents.  As at September 30, 2003, there was no amount  outstanding
under these credit facilities.



           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                              AND OPERATING RESULTS

Please refer to the  Management's  Discussion and Analysis  section included the
2003 Annual Report that is incorporated herein by reference.

                                 DIVIDEND POLICY

Axcan currently  intends to retain future earnings to finance the development of
its business  and,  accordingly,  does not  anticipate  paying  dividends on its
common shares in the near future. In addition, the terms of Axcan's existing


                                                                              28
<PAGE>


credit  facilities  restrict its ability to declare and pay  dividends to 10% of
consolidated net earnings for the preceeding fiscal year.


                                                                              29
<PAGE>


                             DIRECTORS AND OFFICERS

The following table sets forth the name,  municipality  of residence,  principal
position of each of Axcan's directors and senior officers (information regarding
residence  and  principal  occupation  if not  employed  by Axcan is provided in
reliance on information provided by the individual):


<TABLE>
<CAPTION>

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

Name and
municipality of residence          Director since                Principal occupation
----------------------------------------------------------------------------------------------
<S>                                     <C>         <C>

Leon F. Gosselin                        1993        President and Chief Executive Officer of
Mont Saint-Hilaire, Quebec                          the Company

Dr. Claude Sauriol(1)
Laval, Quebec                           1993        Consultant and Corporate Director

Jean Sauriol
Laval, Quebec                           1993        Consultant and Corporate Director

Francois Painchaud                                  Partner, Leger Robic Richard, g.p.  (law
St-Lambert, Quebec                      1995        firm) and Robic, g.p.  (patent &
                                                    trade-mark agents)

Colin R. Mallet(1) (4)
Whistler, British Columbia              1995        Corporate Director

Louis Lacasse(1) (2)                                President, GeneChem Technologies Venture
Laval, Quebec                           1995        Fund L.P.

Jacques Gauthier(2) (3)
Town of Mount Royal, Quebec             1995        Consultant and Corporate Director

David W. Mims                                       Executive Vice President and COO
Birmingham, Alabama - USA               2000        of the Company

Michael M. Tarnow(2) (3)
Boston, Massachusetts - USA             2000        Consultant and Corporate Director

Daniel Labrecque                                    President and Chief Executive Officer of
Montreal, Quebec                        2003        N.M. Rothschild & Sons Canada Limited

E. Rolland Dickson(4)
Mantorville, Minnesota - USA           -----        Consultant and Corporate Director

John R. Booth                                       Senior Vice-President, North American
Birmingham, Alabama                    -----        Commercial Operations

Dr. Francois Martin                    -----        Senior Vice-President, Scientific Affairs
Candiac, Quebec

Patrick L. McLean                      -----        Senior Vice-President, European
Montreal, Quebec                                    Commercial Operations

Dr. Patrick Colin                      -----        Vice-President, Clinical Research
Saint-Bruno, Quebec

Jean Vezina                            -----        Vice-President, Finance and Chief
Pierrefonds, Quebec                                 Financial Officer

Martha D. Donze                        -----        Vice-President, Corporate Administration
Birmingham, Alabama

Richard Tarte                          -----        General counsel
Verdun, Quebec

Jocelyn Pelchat                        -----        Vice-President, Business Development and
Mont Saint-Hilaire, Quebec                          Export Operations

Michael Thiel                                       Vice-President, Marketing-North American
Birmingham, Alabama                    -----        Operations
</TABLE>

(1)    Member of the Audit Committee.

(2)    Member of the Compensation Committee.

(3)    Member of the Corporate Governance and Nomination Committee.

(4)    The Board of  Directors  has  nominated  Mr.  Dickson for election to the
       Board of Directors.

To the  knowledge of Axcan,  as at February 9, 2004,  the  directors  and senior
officers of Axcan  beneficially  own as a group an aggregate of 4,984,032 common
shares which represents 11% of the issued and outstanding shares of Axcan.


                                                                              30
<PAGE>


During the past five years,  each of the  foregoing  directors  and officers has
held the same or a  similar  position  with the  entities  indicated  above or a
related  entity,  except for Mr.  Patrick L. McLean  who,  prior to May 1999 was
Managing  Director  with the Health Group of Cossette  Communications  Marketing
Inc., a  communication  and marketing  firm;  Mr. David Mims who, prior to March
2000,  was  Executive  Vice-President  and  Chief  Operating  Officer  of Cebert
Pharmaceuticals,  Inc., a pharmaceutical company; Mr. Jocelyn Pelchat who, prior
to November 2000, was Director of Business  Development of the Societe  Generale
de  Financement  du Quebec  ("SGF")  and who,  prior to  October  1999,  was the
Vice-President,  Business  Development of Pro-Innovation Inc.; Michael M. Tarnow
who, prior to prior to July 2000, was the President and Chief Executive  Officer
of Creative BioMolecules Inc., a biotechnology company active in the development
of products for the regeneration and restoration of human tissue;  Richard Tarte
who prior to June 2001 was in-house  counsel at the SGF and who,  prior to March
1999 was a partner at Coudert Freres,  an international  law firm; and Mr. Thiel
who  prior  to  June  2000   worked  as  Senior   product   Manager   at  Medeva
Pharmaceuticals  and held several sales and marketing positions at Bristol-Myers
Squibb.

To the  knowledge of Axcan,  no director or officer of Axcan or  shareholder  of
Axcan holding a sufficient  number of  securities of Axcan to affect  materially
the  control of Axcan (a  "control  person")  is, or has been within the past 10
years,  a director or officer of any other company  that,  while such person was
acting in that  capacity;was the subject of a cease trade or similar order or an
order  that  denied  such  company  access  to  any  exemptions  under  Canadian
securities  legislation  for a period of more than 30  consecutive  days; or was
declared bankrupt or made a voluntary  assignment in  bankruptcy;made a proposal
under any legislation relating to bankruptcy or insolvency; or was subject to or
instituted any  proceedings,  arrangement or compromise  with creditors or had a
receiver, receiver manager or trustee appointed to hold its assets.

To the knowledge of Axcan,  no director,  officer or control person of Axcan has
been  subject to any  penalties  or  sanctions  imposed by a court  relating  to
Canadian securities legislation or by a Canadian securities regulatory authority
or has entered into a settlement agreement with a Canadian securities regulatory
authority;nor has any director,  officer or control person of Axcan been subject
to any other  penalties or sanctions  imposed by a court or regulatory body that
would  likely be  considered  important  to a  reasonable  investor in making an
investment decision.

To the knowledge of Axcan, no director,  officer or control person of Axcan, nor
any personal  holding company of any such person,  has within the past 10 years,
been  declared  bankrupt or made a voluntary  assignment  in  bankruptcy;made  a
proposal  under any  legislation  relating to  bankruptcy  or  insolvency;  been
subject  to or  instituted  any  proceedings,  arrangement  or  compromise  with
creditors;or had a receiver,  receiver manager or trustee  appointed to hold the
assets of that individual.

Conflicts  of interest  may arise as a result of the  directors  and officers of
Axcan also holding  positions as directors  and/or officers of other  companies.
Some of the  directors and officers have been and will continue to be engaged in
the  identification  and  evaluation  of assets and  businesses,  with a view to
potential  acquisition  of interests in  businesses  and  companies on their own
behalf and on behalf of other  companies,  and  situations  may arise  where the
directors and officers will be in direct competition with Axcan.  Conflicts,  if
any, will be subject to the procedures  and remedies  under the Canada  Business
Corporations Act.

                              MARKET FOR SECURITIES

Since  December 27, 1995,  Axcan's  common  shares are listed for trading on the
Toronto Stock  Exchange under the trading symbol "AXP" and, since June 28, 2000,
on the Nasdaq National Market under the trading symbol "AXCA".

                             SHAREHOLDER RIGHTS PLAN

Effective  January 12, 2001, Axcan adopted a shareholder  protection rights plan
(the "Rights Plan").


                                                                              31
<PAGE>


Purpose of the Rights Plan

The Rights Plan has been designed to protect  shareholders  of Axcan from unfair
or coercive takeover  strategies,  including the acquisition of control of Axcan
by a bidder in a transaction or series of  transactions  that does not treat all
shareholders  equally or fairly nor afford all shareholders an equal opportunity
to share in the premium paid upon an acquisition of control.  The Rights Plan is
not intended to prevent a takeover or deter fair offers for securities of Axcan.
Rather,  it is designed to encourage  anyone seeking to acquire control of Axcan
to make an offer that represents fair value to all holders of all common shares.
Moreover,  the Rights Plan does not  inhibit  the use of the proxy  solicitation
rules to promote a change in the management or direction of Axcan.

Terms of the Rights Plan

On January 12, 2001,  Axcan  entered into a shareholder  protection  rights plan
agreement  (the "Rights Plan  Agreement")  with  Computershare  Trust Company of
Canada,  as rights agent (the "Rights  Agent").  Under the Rights Plan, Axcan is
authorized  to issue one share  purchase  right (a  "Right")  in respect of each
outstanding  common  share to  holders  of record as of  January  12,  2001 (the
"Record  Time") and one Right for each common share issued after the Record Time
and prior to the Separation  Time (as this term is defined  below).  Rights were
issued on or about  January 31, 2001 to holders of common  shares at the rate of
one Right for each common share outstanding at 5:00 p.m.  (Montreal time) on the
Record  Time.  After the  occurrence  of a Flip-in  Event  (defined  below) or a
Flip-over  Event (as defined below),  each Right entitles the registered  holder
thereof to purchase  from Axcan,  upon  fulfilling  the terms of the Rights Plan
Agreement  including the payment of the relevant  exercise price,  common shares
with a market  value  equal to two  times  the  exercise  price of a Right.  The
initial  exercise  price of a Right  is  Cdn$100  (the  "Exercise  Price").  The
Exercise Price is subject to certain  adjustments as described below. The Rights
are not exercisable until the Separation Time. The Rights will expire on January
12, 2011 (the "Expiration Date"),  unless exchanged or redeemed earlier by Axcan
as described below. The Exercise Price, the number and nature of securities that
may be  purchased  upon the  exercise  of the  Rights  and the  number of Rights
outstanding are subject to adjustment from time to time to prevent dilution.

Trading of Rights

The Rights Plan Agreement  provides that,  until the Separation Time, the Rights
will be transferred with and only with the associated  common shares and will be
represented by the outstanding common share  certificates.  Until the Separation
Time (or earlier  redemption  or  expiration  of the  Rights),  new common share
certificates  issued after the Record Time upon the transfer of existing  common
shares or the  issuance of  additional  common  shares  will  contain a notation
incorporating the Rights Plan Agreement by reference.  Until the Separation Time
(or earlier redemption or expiration of the Rights),  the surrender for transfer
of any certificates representing common shares outstanding as of the Record Time
will also  constitute  the  transfer of the Rights  associated  with such common
shares. Promptly following the Separation Time, separate certificates evidencing
the Rights (the  "Rights  Certificates")  will be mailed to holders of record of
common shares as of the  Separation  Time and the separate  Rights  Certificates
will evidence the Rights.

Separation Time

The Rights will separate and trade  separately  from the common shares after the
Separation  Time. The  "Separation  Time" is the close of business on the eighth
trading day following the earlier of:

    (a) the date (the "Stock Acquisition Date") of the first public announcement
        made by Axcan or an Acquiring  Person  (defined below) that a person has
        become an Acquiring Person; and

    (b) the date of the  commencement  of, or first public  announcement  of the
        intent of any person  (other than Axcan or any  subsidiary  of Axcan) to
        commence,  a takeover bid (other than a


                                                                              32
<PAGE>


       Permitted Bid, as defined below) that, if successfully  completed,  would
       result in such person becoming an Acquiring Person,

or such later date as may be determined by the Board of Directors, provided that
if any such  takeover  bid  expires or is  cancelled,  terminated  or  otherwise
withdrawn  prior to the  Separation  Time,  such offer shall be deemed,  for the
purposes of determining the Separation Time, never to have been made.

Acquiring person

An Acquiring Person is a person who  Beneficially  Owns (as this term is defined
below) 20% or more of the common shares of Axcan;  provided,  however,  that the
term Acquiring Person shall not include:

    (a) Axcan or any subsidiary of Axcan,  any employee  benefit plan,  deferred
        profit sharing plan, stock  participation  plan or trust for the benefit
        of employees of Axcan or any subsidiary of Axcan; and

    (b) any person who becomes the Beneficial Owner of 20% or more of the common
        shares of Axcan as a result of:

       (i)    an  acquisition or redemption by Axcan or a subsidiary of Axcan of
              common  shares of Axcan  that,  by  reducing  the number of common
              shares of Axcan  outstanding,  increases the  percentage of common
              shares of Axcan beneficially owned by a person to 20% or more;

       (ii)   share  acquisitions  made  pursuant  to a  Permitted  Bid  that is
              approved by the Independent  Shareholders (as this term is defined
              below); or

       (iii)  share  acquisitions  in  respect  of which the Board of  Directors
              waives the  application  of the Flip-in  Event  provisions  of the
              Rights Plan Agreement or that were made before the date the Rights
              Plan was adopted by the Board of Directors;

provided,  however,  that if a  person  referred  to in (b)  above  subsequently
becomes the Beneficial Owner of additional  common shares,  other than through a
Permitted  Bid, on terms  approved by the Board of Directors or as a result of a
pro rata  distribution  to holders of common  shares and,  upon the date of such
acquisition  such person  Beneficially  Owns 20 % or more of the common  shares,
then as of such date such person becomes the Beneficial Owner of such additional
common shares of Axcan, such person shall be an Acquiring Person.

Under the Rights Plan  Agreement,  a person is,  subject to certain  exceptions,
deemed to "Beneficially Own" and to be the "Beneficial Owner" of:

    (a) any  securities  as to  which  such  person,  or  any of  such  person's
        affiliates  or  associates,  is or would be deemed  to be the  direct or
        indirect  Beneficial  Owner  pursuant  to the  provisions  of the Canada
        Business Corporations Act or the Securities Act (Quebec) (or pursuant to
        any  comparable  laws or  regulations)  for the  purposes of the insider
        trading or take-over bid provisions thereof;

    (b) any  securities  as to  which  such  person,  or  any of  such  person's
        affiliates or associates has, directly or indirectly:

       (i)    the right to acquire  pursuant to any  agreement,  arrangement  or
              understanding  or  upon  the  exercise  of any  conversion  right,
              exchange  right,  share  purchase  right  (other than the Rights),
              warrant, or option or otherwise; or


                                                                              33
<PAGE>


       (ii)   the  right  to  vote  such  security  pursuant  to any  agreement,
              arrangement or understanding, or otherwise; and

    (c) any securities that are Beneficially Owned,  directly or indirectly,  as
        described  above by any other  person  with which such  person or any of
        such person's affiliates or associates has any agreement, arrangement or
        understanding with respect to or for the purpose of acquiring,  holding,
        voting or disposing of any common shares of Axcan or acquiring,  holding
        or disposing of a significant portion of the property or assets of Axcan
        or any  subsidiary of Axcan.

To the  knowledge of Axcan,  as of February 12, 2004, no person or company owned
more than 20% of the common shares of Axcan.

Permitted Bid

A Permitted  Bid is a take-over  bid made in  compliance  with,  and that is not
exempt from, the applicable  provisions of the Canada Business  Corporations Act
and the  regulations  made thereunder and of the Securities Act (Quebec) and the
regulations  made  thereunder and in compliance  with all other  applicable laws
(including the securities  laws of all other  relevant  jurisdictions)  and that
also complies with the following additional provisions:

    (a) the bid is made to all  holders of common  shares for all common  shares
        held, on identical terms;

    (b) the bid will not  result in Axcan or any  subsidiary  of Axcan  being in
        default under, or in  contravention  of, any laws,  regulations,  rules,
        policy statements, conditions of license or franchise;

    (c) the bidder:

       (i)    together with its  affiliates and associates and any person acting
              jointly  or in  concert  with such  person  or with such  person's
              affiliates or associates does not, and during the pendency of such
              bid does not,  Beneficially  Own more than 5% of the common shares
              of Axcan; or

       (ii)   is a person who at the  Record  Time was the  Beneficial  Owner of
              more than 5% of the outstanding common shares of Axcan and who has
              not  subsequently  become the Beneficial Owner of an additional 2%
              or more of the common shares of Axcan,

and, in either  case,  undertakes  that none of such  person,  any  affiliate or
associate of such person,  or any person acting  jointly or in concert with such
person or with such person's  affiliates or associates,  will acquire any common
shares of Axcan during the pendency of such bid;

    (d) the bidder  provides the Rights Agent with a list of all  securities  of
        Axcan  beneficially  owned  by  the  bidder  and  any of  such  person's
        affiliates  or associates  and any person  acting  jointly or in concert
        with  such  person  or with  such  person's  affiliates  or  associates,
        together with  particulars of the  registration of all such  securities,
        and  undertakes  to update  such list on a daily  basis to  reflect  any
        changes occurring or to occur in such Beneficial  Ownership prior to the
        termination  or  expiration  of the bid,  and the  bidder  performs  its
        obligation under such undertaking;

    (e) no common  shares  will be taken up and paid for under the bid  unless a
        resolution  is  passed  to  approve  the  bid at a  special  meeting  of
        Independent Shareholders (shareholders other


                                                                              34
<PAGE>


        than the bidder,  any associate or affiliate of the bidder or any person
        acting jointly or in concert with the bidder and the bidder's associates
        and affiliates) by a majority of the Independent  Shareholders voting on
        the  resolution  in person or by proxy;  the Board of Directors  will be
        required,  if an offeror  makes a  Permitted  Bid,  to hold the  special
        meeting as soon as the Board of Directors  considers  practicable in the
        circumstances  after  the bid  and in any  event  within  80 days of the
        delivery of the take-over bid material to Axcan; and

    (f) the bid will not expire prior to the earlier of five clear business days
        following  the   conclusion  of  the  special   meeting  of  Independent
        Shareholders and 60 days after the date of the bid.

Protection Against Dilution

The Exercise  Price,  the number and nature of securities  that may be purchased
upon the exercise of the Rights and the number of Rights outstanding are subject
to an adjustment from time to time to prevent dilution, including:

        (a)    In  the  event  of  a  stock   dividend  on,  or  a  subdivision,
               combination or reclassification of, Axcan common shares;

        (b)    upon the grant to holders of shares of certain rights, options or
               warrants to subscribe  for shares or  convertible  securities  at
               less then the current market price of the shares; or

        (c)    upon the  distribution  to  holders  of  shares of  evidences  of
               indebtedness,  cash (excluding regular periodic cash dividends as
               defined  in the  Rights  Plan  Agreement  or a  dividend  paid in
               shares), assets, rights or warrants (other than those referred to
               above).

Flip-in Event

In the event that a person becomes an Acquiring Person pursuant to a transaction
other than one that  constitutes a Flip-over  Event (as defined below) (any such
transaction or event being a "Flip-in Event") then each Right (except for Rights
beneficially  owned by an Acquiring Person,  any of such person's  affiliates or
associates  or any person  acting  jointly or in  concert  with such  persons or
certain transferees of an Acquiring Person,  which Rights shall be void pursuant
to the terms of the Rights Plan  Agreement)  shall,  as of the Separation  Time,
entitle the holder  thereof to purchase,  upon the exercise  thereof at the then
current Exercise Price,  that number of common shares having an aggregate market
value equal to twice the Exercise  Price.  For  example,  if at the time of such
announcement the Exercise Price is Cdn$100 and the Shares have a market value of
Cdn$50 each,  the holder of each Right would be entitled to purchase four common
shares,  being the number of common  shares that have in the  aggregate a market
value of Cdn$200, for a price of Cdn$100, that is, at a 50% discount.

Flip-over Event

In the event of:

    (a) a  transaction  or  series  of  transactions   in  which,   directly  or
        indirectly,  Axcan shall  consolidate,  merge with or amalgamate with or
        enter into a statutory  arrangement with, any other person (other than a
        wholly-owned  subsidiary of Axcan) and, in connection therewith,  all or
        part of the  outstanding  common  shares  shall be  changed  in any way,
        reclassified  or  converted  into  or  exchanged  for  shares  or  other
        securities  of  Axcan  or of any  other  person,  or cash  or any  other
        property; or


                                                                              35
<PAGE>


    (b) a  transaction  or  series  of  transactions   in  which,   directly  or
        indirectly,  Axcan shall sell or  otherwise  transfer (or one or more of
        its subsidiaries  shall sell or otherwise  transfer)  property or assets
        that, in the reasonable opinion of the Board of Directors:

        (i)     aggregate  more than 50% of the property or assets  (measured by
                either book value or fair market value); or

        (ii)    generated  during  Axcan's last  completed  fiscal year, and may
                reasonably  be  expected to  generate  in Axcan's  then  current
                fiscal year, more than 50% of the operating  income or cash flow
                of Axcan and its subsidiaries (taken as a whole)

    to any  other  person or  persons  (other  than  Axcan or one or more of its
    wholly-owned subsidiaries) (any such transaction or event being a "Flip-over
    Event"),

then Axcan  shall take such  action as is  necessary  to ensure  that each Right
shall  thereafter  entitle the holder  thereof to  purchase,  upon the  exercise
thereof at the then current  Exercise Price of the Right,  that number of common
shares of the person resulting from or engaging in the Flip-over Event having an
aggregate  market value on the date of consummation of such event equal to twice
the  Exercise  Price  and that the  person  resulting  from or  engaging  in the
Flip-over  Event  shall be subject to all of the  obligations,  liabilities  and
duties of Axcan pursuant to the Rights Plan Agreement.

Exchange Option

If at any time the Board of  Directors,  acting in good faith,  shall  determine
that conditions exist that would eliminate or otherwise  materially  diminish in
any respect the benefits  intended to be afforded to the holders of Rights under
the Rights Plan, the Board of Directors  may, at its option and without  seeking
the approval of holders of Shares or Rights,  at any time after a Flip-in  Event
has  occurred,  authorize  Axcan to issue or  deliver,  in respect of each Right
(excluding  Rights  beneficially  owned by an Acquiring  Person,  such  person's
affiliates  and  associates,  any person acting  jointly or in concert with such
persons and certain transferees of the foregoing persons) either:

    (a) in  return  for the  Exercise  Price  and  the  Right,  debt  or  equity
        securities or assets (or a combination  thereof) having a value equal to
        twice the Exercise Price; or

    (b) in return for the Right,  subject to any amounts that may be required to
        be paid under applicable law, debt or equity  securities or other assets
        (or a  combination  thereof)  having a value  equal to the  value of the
        Right,  in full and final  settlement  of all  rights  attaching  to the
        Rights,

where, in either case, the value of the debt or equity  securities or assets (or
a  combination  thereof),  and in the case of  subsection  (b), the value of the
Right,  shall be  determined  by the Board of  Directors,  who may rely upon the
advice of a nationally or internationally  recognized firm of investment dealers
or  investment  bankers  selected  by the  Board of  Directors.  If the Board of
Directors  authorizes the exchange of debt or equity  securities or assets (or a
combination  thereof) for Rights, the right of holders of Rights to exercise the
Rights will  terminate and the only right  thereafter of such holder shall be to
receive  debt or equity  securities  or assets  (or a  combination  thereof)  in
accordance with the exchange formula authorized by the Board of Directors.

Redemption and waiver

The Board of Directors  may, at its option,  at any time prior to the occurrence
of a Flip-in Event, elect to redeem all but not less than all of the Rights at a
redemption price of Cdn$0.001 per Right (the "Redemption Price"). The redemption
of the Rights by the Board of Directors  may be made  effective at


                                                                              36
<PAGE>


such time,  on such basis and with such  conditions as the Board of Directors in
its sole  discretion may establish.  If the Board of Directors  elects to redeem
the Rights,  the right to exercise the Rights will  thereupon,  without  further
action and  without  notice,  terminate,  and the only right  thereafter  of the
holders  of  Rights  shall be to  receive  the  Redemption  Price.  The Board of
Directors  may, at its option,  at any time prior to the occurrence of a Flip-in
Event or a Flip-over Event,  upon written notice to the Rights Agent,  determine
to waive the  application of the Rights Plan to any particular  Flip-in Event or
Flip-over Event.

If a person makes a Permitted Bid that, within 120 days of such bid, is accepted
by the holders of not less than 90% of the then  outstanding  common  shares and
securities convertible into common shares, other than Shares and such securities
held by the bidder and such person's  affiliates  and  associates at the date of
the bid, then the Board of Directors will,  immediately upon the consummation of
such  acquisition,  be  deemed  to have  elected  to  redeem  the  Rights at the
Redemption Price.

The Board of Directors may also waive the  application of the Rights Plan to any
Flip-in Event, provided that:

    (a) the Board of  Directors  determines  that a person  became an  Acquiring
        Person by inadvertence and without any intention to become, or knowledge
        that it would become, an Acquiring Person; and

    (b) such person has reduced its  Beneficial  Ownership  of common  shares of
        Axcan such that at the time of the  granting  of a waiver such person is
        no longer an Acquiring Person.

Shareholder Review

The Rights Plan will be submitted to shareholders for review at the first annual
meeting of  shareholders of Axcan held after January 12, 2006. If it is not then
ratified by the shareholders, Axcan will be deemed to have redeemed the Rights.


                             ADDITIONAL INFORMATION

Additional  information,  including  directors  and officers'  remuneration  and
indebtedness,  principal  holders of  Axcan's  securities,  options to  purchase
Axcan's  securities  and  interests of insiders in material  transactions  where
applicable,  is contained in the  Management  Proxy  Circular  dated January 22,
2004,  which has been  prepared  for  Axcan's  annual  meeting of  shareholders.
Furthermore,   additional  financial   information   including  the  comparative
financial  statements  is provided in the Annual  Report.  A copy of this Annual
Information  Form and  associated  documents  may be obtained  upon request from
Axcan's investor relations department at its corporate office.

Axcan will also  provide to any person upon  request to its  investor  relations
department:

    (a) when securities of Axcan are in the course of a distribution pursuant to
        a short form prospectus or when a preliminary  short form prospectus has
        been filed in respect of a distribution of the securities of Axcan:

        (i)     one copy of Axcan's Annual  Information Form,  together with one
                copy of any  document,  or the relevant  pages of any  document,
                incorporated by reference in this Annual Information Form;

        (ii)    one copy of the  comparative  financial  statements of Axcan for
                its most  recently  completed  financial  year together with the
                accompanying  report of the auditors and


                                                                              37
<PAGE>


                one copy of any interim financial statements of Axcan subsequent
                to the  financial  statements  for its most  recently  completed
                financial year;

        (iii)   one copy of Axcan's information  circular in respect of its most
                recent annual meeting of shareholders that involved the election
                of directors or one copy of any annual  filing  prepared in lieu
                of that information circular, as appropriate; and

        (iv)    one  copy  of any  other  documents  that  are  incorporated  by
                reference  into the  preliminary  short form  prospectus  or the
                short form  prospectus and are not required to be provided under
                (i), (ii) or (iii) above; or

    (b) at any other time,  one copy of any other  documents  referred to in (a)
        (i),  (ii) and (iii) above,  provided that Axcan may require the payment
        of a  reasonable  charge if a person who is not a  shareholder  of Axcan
        makes the request.


                                                                              38