Exhibit 99.4

Audited Financial Statements from Annual Report  Canadian GAAP

CONSOLIDATEDFINANCIAL STATEMENTSCanadian GAAP

|MANAGEMENT'S REPORT                        |  | 60
|------------------------------------------ |  | --
|AUDITORS' REPORT                           |  | 61
|FINANCIAL STATEMENTS                       |  |   
|CONSOLIDATED BALANCE SHEETS                |  | 62
|CONSOLIDATED EARNINGS                      |  | 63
|CONSOLIDATED RETAINED EARNINGS             |  | 63
|CONSOLIDATED CASH FLOWS                    |  | 64
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |  | 65

---



MANAGEMENT'SREPORT

The
consolidated financial statements of Axcan Pharma Inc. and the other financial information included in this annual report are the responsibility of the Company's management.

These
consolidated financial statements and the other financial information have been prepared by management in accordance with Canadian generally accepted accounting principles. This responsibility
includes the selection of appropriate accounting principles and methods in the circumstances and the use of careful judgement in establishing reasonable accounting estimates.

Management
maintains internal control systems designed among other things, to provide reasonable assurance that the Company's assets are adequately safeguarded and that the accounting records are a
reasonable basis to prepare relevant and reliable financial information.

The
Audit Committee is composed solely of external directors. This Committee meets with the external auditors and management to discuss matters relating to the audit, internal control and financial
information. The Committee also reviews the consolidated quarterly and annual financial statements.

These
consolidated financial statements have been audited by Raymond Chabot Grant Thornton, Chartered Accountants, whose report indicating the scope of their audit and their opinion on the
consolidated financial statements is presented on the right.

The
Board of Directors has approved the Company's financial statements on the recommendation of the Audit Committee.

The
Company decided, for the year beginning October 1, 2002, to switch from Canadian generally accepted accounting principles to generally accepted accounting principles in the
United States of America as its primary reporting convention. Consolidated financial statements in accordance with generally accepted accounting principles in the United States of
America have been also prepared.

|signed                                               |  | signed                                               |  | signed                                             
|---------------------------------------------------- |  | ---------------------------------------------------- |  | ---------------------------------------------------
|Léon F. Gosselin                                     |  | David W. Mims                                        |  | Jean Vézina                                        
|President and Chief Executive Officer                |  | Executive Vice President and Chief Operating Officer |  | Vice President, Finance and Chief Financial Officer
|Mont-Saint-Hilaire, Quebec, Canada
November 11, 2003 |  |                                                      |  |                                                    

60            Canadian GAAP

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AUDITORS'REPORT

To
the Shareholders of Axcan Pharma Inc.

We
have audited the consolidated balance sheets of Axcan Pharma Inc. as at September 30, 2003, and 2002, and the consolidated statements of earnings, retained earnings and cash flows for
each of the years in the three-year period ended September 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with generally accepted auditing standards in Canada and with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2003, and 2002, and the results of
its operations and its cash flows for each of the years in the three-year period ended September 30, 2003, in accordance with generally accepted accounting principles in Canada.

On
November 11, 2003, we reported separately to the shareholders of Axcan Pharma Inc. on the consolidated financial statements for the same periods, prepared in accordance with
generally accepted accounting principles in the United States of America.

signed

General
Partnership
Chartered Accountants

Montreal,
Quebec, Canada
November 11, 2003

Canadian GAAP            61

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CONSOLIDATEDBALANCE SHEETS

|                                                     |                                                    | September 30
|---------------------------------------------------- | -------------------------------------------------- | ------------
|
|
|
|Assets                                               |                                                    |             
|Current assets                                       |                                                    |             
|                                                     | Cash and cash equivalents                          |             
|                                                     | Short-term investments, at cost (Note 5)           |             
|                                                     | Accounts receivable (Note 6)                       |             
|                                                     | Income taxes receivable                            |             
|                                                     | Inventories (Note 7)                               |             
|                                                     | Prepaid expenses and deposits                      |             
|                                                     | Future income taxes (Note 8)                       |             
|                                                     |                                                    |             
|Total current assets                                 |                                                    | 225,203     
|Investments (Note 9)                                 |                                                    | 775         
|Property, plant and equipment (Note 10)              |                                                    | 20,351      
|Intangible assets (Note 11)                          |                                                    | 277,837     
|Goodwill (Note 12)                                   |                                                    | 29,342      
|Deferred debt issue expenses, at amortized cost      |                                                    | 4,233       
|Future income taxes (Note 8)                         |                                                    | 1,775       
|                                                     |                                                    |             
|                                                     |                                                    | 559,516     
|                                                     |                                                    |             
|Liabilities                                          |                                                    |             
|Current liabilities                                  |                                                    |             
|                                                     | Accounts payable and accrued liabilities (Note 14) |             
|                                                     | Income taxes payable                               |             
|                                                     | Instalments on long-term debt                      |             
|                                                     | Future income taxes (Note 8)                       |             
|                                                     |                                                    |             
|Total current liabilities                            |                                                    | 50,634      
|Long-term debt (Note 15)                             |                                                    | 107,527     
|Future income taxes (Note 8)                         |                                                    | 35,742      
|Non-controlling interest                             |                                                    |            
|                                                     |                                                    |             
|                                                     |                                                    | 193,903     
|                                                     |                                                    |             
|Shareholders' Equity                                 |                                                    |             
|Equity component of convertible debt (Note 16)       |                                                    | 24,239      
|Equity component of purchase price (Note 17)         |                                                    |            
|Capital stock (Note 18)                              |                                                    | 262,388     
|Retained earnings                                    |                                                    | 63,211      
|Accumulated foreign currency translation adjustments |                                                    | 15,775      
|                                                     |                                                    |             
|                                                     |                                                    | 365,613     
|                                                     |                                                    |             
|                                                     |                                                    | 559,516     
|                                                     |                                                    |             

The
accompanying notes are an integral part of the consolidated financial statements.

On
behalf of the Board,

|signed           |  | signed            
|---------------- |  | ------------------
|Léon F. Gosselin |  | Dr. Claude Sauriol
|Director         |  | Director          

62            Canadian GAAP

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CONSOLIDATEDEARNINGS

|                                         |         | Years Ended September 30 |           
|---------------------------------------- | ------- | ------------------------ | ----------
|
|
|
|Revenue                                  |         | 179,542                  |           
|                                         |         |                          |           
|Cost of goods sold                       |         | 44,474                   |           
|Selling and administrative expenses      |         | 63,461                   |           
|Research and development expenses        |         | 11,638                   |           
|Depreciation and amortization            |         | 8,127                    |           
|                                         |         |                          |           
|                                         |         | 127,700                  |           
|                                         |         |                          |           
|Operating income                         |         | 51,842                   |           
|                                         |         |                          |           
|Financial expenses                       |         | 6,590                    |           
|Interest income                          |         | (1,642                   | )         
|Loss on foreign currency                 |         | 128                      |           
|Takeover-bid expenses                    |         | 3,697                    |           
|                                         |         |                          |           
|                                         |         | 8,773                    |           
|                                         |         |                          |           
|Earnings before income taxes             |         | 43,069                   |           
|Income taxes (Note 8)                    |         | 14,452                   |           
|                                         |         |                          |           
|Net earnings                             |         | 28,617                   |           
|                                         |         |                          |           
|Earnings per common share                |         |                          |           
|                                         | Basic   |                          | 0.64      
|                                         | Diluted |                          | 0.63      
|Weighted average number of common shares |         |                          |           
|                                         | Basic   |                          | 44,914,944
|                                         | Diluted |                          | 45,607,992

The
accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATEDRETAINED EARNINGS

|                                                                                                         |  | Years Ended September 30 | 
|-------------------------------------------------------------------------------------------------------- |  | ------------------------ | 
|
|
|
|Balance, beginning of year                                                                               |  | 34,594                   | 
|Net earnings                                                                                             |  | 28,617                   | 
|Common share issue expenses, net of future income taxes in the amount of $1,649 for 2002 ($881 for 2001) |  |                         | 
|Cumulative dividends on preferred shares                                                                 |  |                         | 
|                                                                                                         |  |                          | 
|Balance, end of year                                                                                     |  | 63,211                   | 
|                                                                                                         |  |                          | 

The
accompanying notes are an integral part of the consolidated financial statements.

Canadian GAAP            63

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CONSOLIDATEDCASH FLOWS

|                                                                |                                              | Years Ended September 30 |       
|--------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------
|
|
|
|Operations                                                      |                                              |                          |       
|Net earnings                                                    |                                              | 28,617                   |       
|Non-cash items                                                  |                                              |                          |       
|                                                                | Implicit interest on convertible debt        |                          | 2,292 
|                                                                | Non-controlling interest                     |                          | (103  
|                                                                | Amortization of deferred debt issue expenses |                          | 646   
|                                                                | Other depreciation and amortization          |                          | 8,127 
|                                                                | Loss (gain) on disposal of assets            |                          | 1,130 
|                                                                | Foreign currency fluctuation                 |                          | 305   
|                                                                | Future income taxes                          |                          | 2,810 
|                                                                | Investment tax credits                       |                          |      
|                                                                | Changes in working capital items (Note 20)   |                          | 12,764
|                                                                |                                              |                          |       
|                                                                | Cash flows from operating activities         |                          | 56,588
|                                                                |                                              |                          |       
|Financing                                                       |                                              |                          |       
|Long-term debt                                                  |                                              | 101,825                  |       
|Repayment of long-term debt                                     |                                              | (1,979                   | )     
|Non-controlling interest                                        |                                              |                         |       
|Equity component of convertible debt                            |                                              | 24,239                   |       
|Repayment of balance of purchase price                          |                                              | (2,704                   | )     
|Deferred debt issue expenses                                    |                                              | (4,589                   | )     
|Issue of shares                                                 |                                              | 1,103                    |       
|Share issue expenses                                            |                                              |                         |       
|                                                                |                                              |                          |       
|Cash flows from financing activities                            |                                              | 117,895                  |       
|                                                                |                                              |                          |       
|Investment                                                      |                                              |                          |       
|Acquisition of short-term investments                           |                                              | (133,112                 | )     
|Disposal of short-term investments                              |                                              | 60,740                   |       
|Acquisition of investments                                      |                                              |                         |       
|Disposal of investments                                         |                                              | 637                      |       
|Acquisition of property, plant and equipment                    |                                              | (4,302                   | )     
|Acquisition of intangible assets                                |                                              | (81,093                  | )     
|Other                                                           |                                              |                         |       
|Net cash used for business acquisitions (Note 4)                |                                              |                         |       
|                                                                |                                              |                          |       
|Cash flows from investment activities                           |                                              | (157,130                 | )     
|                                                                |                                              |                          |       
|Foreign exchange gain (loss) on cash held in foreign currencies |                                              | 528                      |       
|                                                                |                                              |                          |       
|Net increase in cash and cash equivalents                       |                                              | 17,881                   |       
|Cash and cash equivalents, beginning of year                    |                                              | 20,005                   |       
|                                                                |                                              |                          |       
|Cash and cash equivalents, end of year                          |                                              | 37,886                   |       
|                                                                |                                              |                          |       

The
accompanying notes are an integral part of the consolidated financial statements.

64            Canadian GAAP

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NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

CANADIAN GAAPSeptember 30
Amounts in the tables are stated in thousands of U.S. dollars, except share related data.

1.     GOVERNING STATUTES AND NATURE OF OPERATIONS

The
Company, incorporated under the Canada Business Corporations Act, is involved in the research, development, production and distribution of pharmaceutical products, mainly in the field of
gastroenterology.

2.     CHANGES IN ACCOUNTING POLICIES

a)    Year ended September 30, 2003

Basis of presentation

The
Company decided, for the year beginning October 1, 2002, to switch from Canadian generally accepted accounting principles ("GAAP") to the United States of America ("U.S.") GAAP as
its primary reporting convention. The change in GAAP was influenced by the Company's desire to better meet the needs of its shareholders by applying accounting rules that are consistent with the
majority of its customers and peer companies. For regulatory authorities purposes, the Company continued to prepare and to file the present consolidated financial statements prepared in
U.S. dollars and in accordance with Canadian GAAP.

Guarantor's Accounting and Disclosure Requirements for Guarantees

In
February 2003, the Canadian Institute of Chartered Accountants ("CICA") issued Accounting Guidelines ("AcG") 14 "Guarantor's Accounting and Disclosure Requirements for Guarantees."
AcG-14 requires guarantors to disclose certain information for guarantees outstanding at the end of the reporting period. At adoption, AcG-14 did not have any impact on the
Company's consolidated financial statements.

Impairment or Disposal of Long-lived Assets

The
CICA issued new Handbook Section 3063 "Impairment of Long-lived Assets" and revised Section 3475 "Disposal of Long-lived Assets and Discontinued Operations".
These two sections provide guidance on how assets are grouped when testing for and measuring impairment and propose a two-step process for first determining when an impairment loss is
recognized and then measuring that loss. The adoption of these new standards had no impact on the consolidated financial statements.

Stock-based compensation

On
October 1, 2002, the Company adopted retroactively the recommendations of the CICA Handbook, Section 3870, "Stock-based Compensation and Other Stock-based Payments." This Section
defines notably recognition, measurement and disclosure standards for stock-based compensation to employees. These standards define a fair value-based method of accounting for stock-based employee
compensation plans. Under this method, compensation cost should be measured at the grant date based on the fair value of the award and should be recognized over the related service period. An entity
that does not adopt the fair value method of accounting for its awards granted to employees is required to include in its financial statements pro-forma disclosures of net earnings and
earnings per share as if the fair value method of accounting had been applied. The supplementary information required by this new Section is presented in note 25.

b)    Year ended September 30, 2002

Business combination, intangible assets and goodwill

In
2001, the CICA approved new standards modifying the method of accounting for business combinations entered into after June 30, 2001, and addressed the accounting for goodwill and other
intangible assets. The new standards on goodwill and other intangible assets should be applied for fiscal years beginning on or after January 1, 2002. The Company has elected to early adopt
and, since October 1, 2001, it no longer amortizes its goodwill and trademarks with indefinite life, but rather, evaluates goodwill and trademarks with indefinite life for impairment annually.
Intangible assets with finite life will continue to be amortized over their estimated useful lives. As required by the standards, the Company completed the impairment tests and did not record any
impairments.

Canadian GAAP            65

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The
following table presents the matching of net earnings and basic earnings per share as reported for the prior years and corresponding information recalculated as a result of applying the new
standards on intangible assets and goodwill:

|                                |      | 2003                                                   |  | 2002   |  | 2001  
|------------------------------- | ---- | ------------------------------------------------------ |  | ------ |  | ------
|
|Net earnings                    |      | 28,617                                                 |  | 20,868 |  | 11,472
|                                | Add: |                                                        |  |        |  |       
|                                |      | Amortization of goodwill                               |  |       |  |      
|                                |      | Amortization of intangible assets with indefinite life |  |       |  |      
|                                |      |                                                        |  |        |  |       
|Adjusted net earnings           |      | 28,617                                                 |  | 20,868 |  | 15,920
|                                |      |                                                        |  |        |  |       
|Basic earnings per share        |      |                                                        |  |        |  |       
|Net earnings per share          |      | 0.64                                                   |  | 0.50   |  | 0.31  
|                                | Add: |                                                        |  |        |  |       
|                                |      | Amortization of goodwill                               |  |       |  |      
|                                |      | Amortization of intangible assets with indefinite life |  |       |  |      
|                                |      |                                                        |  |        |  |       
|Adjusted net earnings per share |      | 0.64                                                   |  | 0.50   |  | 0.44  
|                                |      |                                                        |  |        |  |       

Scientific symposium costs

In
2002, the Company elected to expense its scientific symposium costs in the fiscal year they are incurred. In the previous years, these costs were deferred and amortized over a two-year
period. This change in accounting policy has led to an increase in selling and administrative expenses of $457,000 during the year 2002.

c)     Standards applicable for the year 2004

In
January 2003, the CICA issued AcG-15,"Consolidation of Variable Interest Entities". AcG-15 requires certain variable interest entities, or VIEs, to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support from other parties. The Company currently has no contractual relationship or other business relationship with a variable
interest entity and therefore the adoption of AcG-15 is not expected to have any effect on the Company's consolidated balance sheets or statements of earnings, retained earnings and cash
flows.

66            Canadian GAAP

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3.     ACCOUNTING POLICIES

Basis of presentation

The
consolidated financial statements are expressed in U.S. dollars and were prepared in accordance with Canadian GAAP. Consolidated financial statements prepared in U.S. dollars and in
accordance with U.S. GAAP are available to the shareholders and filed with various regulatory authorities.

Accounting estimates

The
preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and recognized amounts of revenues and expenses during the year. Significant estimates and
assumptions made by management include allowances for accounts receivable and inventories, reserves for product returns, rebates and chargebacks, the classification of intangible assets between finite
life and indefinite life, the useful lives of long-lived assets, the expected cash flows used in evaluating long-lived assets, goodwill and investments for impairment,
contingency provisions, the realizability of future income tax assets and the allocation of the purchase price of acquired assets and businesses. Actual results could differ from those estimates.

Principles of consolidation

These
financial statements include the accounts of the Company and its subsidiaries, the most important being Axcan Scandipharm Inc., Axcan Pharma U.S. Inc. and Axcan Pharma S.A.
(the result of the merger of Laboratoires Entéris S.A.S. with Laboratoire du Lactéol du Docteur Boucard S.A.). The Company's interest in the joint ventures
is accounted for by the proportionate consolidation method.

Revenue recognition

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

Cash and cash equivalents

The
Company includes in cash and cash equivalents cash and all highly liquid short-term investments with initial maturities of three months or less.

Accounts receivable

The
majority of the Company's accounts receivable are due from companies in the pharmaceutical industry. Credit is extended based on evaluation of a customers' financial condition and, generally,
collateral is not required. Accounts receivable are due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than
the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the
Company's previous loss history, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off
accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to bad debt expenses.

Inventory valuation

Inventories
of raw materials and packaging material are valued at the lower of cost and replacement cost. Inventories of work in progress and finished goods are valued at the lower of cost and net
realizable value. Cost is determined by the first in, first out method.

Research and development

Research
and development expenses are charged to earnings in the year they are incurred, net of related tax credits.

Canadian GAAP            67

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Depreciation and amortization

Property,
plant and equipment and intangible assets with a finite life are depreciated or amortized over their estimated useful lives according to the following methods and annual rates:

|                                                        |  | Methods                               |  | Rates    
|------------------------------------------------------- |  | ------------------------------------- |  | ---------
|Buildings                                               |  | Diminishing balance and straight-line |  | 4 to 10% 
|Furniture and equipment                                 |  | Diminishing balance and straight-line |  | 10 to 20%
|Computer equipment                                      |  | Diminishing balance and straight-line |  | 20 to 50%
|Automotive equipment                                    |  | Diminishing balance and straight-line |  | 20 to 25%
|Leasehold and building improvements                     |  | Straight-line                         |  | 10 to 20%
|Trademarks, trademark licenses and manufacturing rights |  | Straight-line                         |  | 4 to 15% 

Beginning
October 1, 2001, goodwill is no longer amortized, but instead tested for impairment at least annually. Prior to October 1, 2001, goodwill was amortized on a
straight-line basis over periods of 15 or 20 years.

Beginning
October 1, 2001, intangible assets with indefinite life are no longer amortized, but instead tested for impairment at least annually. Prior to October 1, 2001, intangible
assets with indefinite life were amortized on a straight-line basis over periods of 15 to 25 years.

Management
evaluates the value of the unamortized portion of goodwill and intangible assets annually. Should there be a permanent impairment in value or if the unamortized balance exceeds recoverable
amounts, a write-down will be recognized for the current year to reflect the assets at fair value. To date, the Company has not recognized any permanent impairment in value.

Deferred
debt issue expenses are amortized on a straight-line basis over the term of the debts until 2008.

Income taxes

Income
taxes are calculated based on the liability method. Under this method, future income tax assets and liabilities are recognized as estimated taxes for recovery or settlement arising from the
recovery or settlement of assets and liabilities recorded at their financial statement carrying amounts. Future income tax assets and liabilities are measured based on enacted or substantively enacted
tax rates and laws at the date of the financial statements for the years in which the temporary differences are expected to reverse. Adjustments to the future income tax asset and liability balances
are recognized in earnings as they occur.

Stock options

The
Company has granted stock options as described in Note 18. Canadian GAAP establish a fair value-based method of accounting for stock-based compensation plans, but also permit an election to
use an intrinsic value-based method with disclosure on a pro-forma basis for net earnings and earnings per share. The Company elected to provide such pro-forma disclosure. Any
consideration paid by employees on the exercise of stock options is credited to capital stock.

Foreign currency translation

The
current rate method of translation of foreign currencies is followed for subsidiaries, or joint ventures considered financially and operationally self-sustaining. Therefore, all gains
and losses arising from the translation of the financial statements of subsidiaries or joint ventures are deferred in an "Accumulated foreign currency translation adjustments"account under
"Shareholders' equity".

For
the operations in Canada and the United States of America, monetary assets and liabilities in currency other than U.S. dollars are translated into U.S. dollars, the functional
currency of the Company, at the exchange rate in effect at the balance sheet date whereas other assets and liabilities are translated at exchange rates in effect at transaction dates. Revenue and
operating expenses in foreign currency are translated at the average rates in effect during the year, except for depreciation and amortization, translated at historical rates. Gains and losses are
included in earnings for the year.

Earnings per share

Basic
earnings per share is calculated using the weighted average number of common shares outstanding during the year. The treasury stock method is to be used for determining the dilution effect of
options. The dilutive effect of convertible subordinated notes, balance of purchase price payable in shares and convertible preferred shares is determined using the "if-converted"method.

68            Canadian GAAP

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4.     ACQUISITIONS

a)    Business acquisitions

September 30,
2002

On
November 7, 2001, the Company acquired all the outstanding shares of Laboratoires Entéris S.A.S., a company specializing in the distribution of gastrointestinal
products in France. The acquisition cost, including transaction expenses, amounting to $23,000,840, was paid in cash.

On
April 17, 2002, the Company acquired all the outstanding shares of Laboratoire du Lactéol du Docteur Boucard S.A. and certain related assets. This company is
specialized in the manufacturing and distribution of gastrointestinal products in France. The acquisition cost, including transaction expenses, amounting to $13,137,613, was paid with the issuance of
365,532 common shares of the Company and $8,378,728 in cash. The price of the common shares issued was determined on the basis of a twenty-day trading average closing price.

These
two acquisitions will allow the Company to establish operations in France for the development of markets in all of Western Europe and add two products to the Company's product line.

The
following table shows the breakdown of these acquisitions:

|                                             |        | $                                     
|-------------------------------------------- | ------ | --------------------------------------
|Net assets acquired at the attributed values |        |                                       
|                                             | Assets |                                       
|                                             |        | Cash and cash equivalents             
|                                             |        | Other working capital items           
|                                             |        | Property, plant and equipment         
|                                             |        | Intangible assets with indefinite life
|                                             |        | Goodwill                              
|                                             |        | Future income taxes                   
|                                             |        |                                       
|                                             |        | Other assets                          
|                                             |        |                                       
|                                             |        | 57,659                                
|Liabilities                                  |        |                                       
|                                             |        | Accounts payable                      
|                                             |        | Long-term debt                        
|                                             |        | Future income taxes                   
|                                             |        |                                       
|                                             |        | 21,521                                
|                                             |        |                                       
|                                             |        | 36,138                                
|                                             |        |                                       
|Consideration                                |        |                                       
|                                             |        | Cash                                  
|                                             |        | Common shares issued                  
|                                             |        |                                       
|                                             |        | 36,138                                
|                                             |        |                                       
|Net cash used for the acquisitions           |        | 31,302                                
|                                             |        |                                       

Canadian GAAP            69

---

The
acquisition cost has been allocated to the assets and liabilities according to their estimated fair value at the acquisition dates. The operating results relating to these acquisitions have been
included in the consolidated financial statements from the acquisition dates.

Using
the assumption that the effective date of the business acquisitions is October 1, 2000, the consolidated pro-forma results of operations of the Company would have been as
follows for the years ended September 30:

|                       |  | 2002    |  | 2001   
|---------------------- |  | ------- |  | -------
|
|Revenue                |  | 140,983 |  | 125,524
|                       |  |         |  |        
|Net earnings           |  | 20,802  |  | 11,136 
|                       |  |         |  |        
|Net earnings per share |  | 0.50    |  | 0.30   

b)    Product acquisitions

On
August 29,2003, the Company acquired an exclusive license for North America, the European Union and Latin America, from Abbott Laboratories ("Abbott") to develop, manufacture and market
ITAX, a patented gastroprokinetic drug. Under the terms of this license agreement, the Company paid $10,000,000 and assumed $2,000,000 in research contract liabilities.

On
December 10, 2002, the Company acquired the rights to the Ursodiol 250 mg tablets DELURSAN for the French market, for a cash purchase price of 22,300,000 Euros ($22,800,000) from
Aventis Pharma S.A.

On
December 3, 2002, the Company acquired the worldwide rights to the PANZYTRAT enzyme product line from Abbott for a cash purchase price of $45,000,000. During the period of marketing
authorizations transfer ("the interim period"), Abbott acts as an agent for the management of the product line sales. The interim period is for a maximum of 18 months. For the year ended
September 30, 2003, the Company included in its revenues an amount of $9,463,645 representing the net sales from the product line less cost of goods sold and other related expenses. Net sales
of the PANZYTRAT enzyme product line for the year ended September 30, 2003 were $14,255,979.

5.     SHORT-TERM INVESTMENTS

As
at September 30, 2003, short-term investments include short-term notes, mutual funds and debt securities. Four short-term notes (two in 2002) represent
approximately 60% (47% in 2002) of the Company's total short-term investments. Interest rates on most of the short-term investments vary from 0.81% to 1.08% (1.52% to 1.66% in
2002).

6.     ACCOUNTS RECEIVABLE

|                                                                                          |  | 2003   |  | 2002  
|----------------------------------------------------------------------------------------- |  | ------ |  | ------
|
|Trade accounts, net of allowance for doubtful accounts of $613,000 ($403,000 in 2002) (a) |  | 16,676 |  | 23,859
|Investments receivable within one year                                                    |  | 1,102  |  | 142   
|Taxes receivable                                                                          |  | 1,479  |  | 329   
|Other                                                                                     |  | 408    |  | 191   
|                                                                                          |  |        |  |       
|                                                                                          |  | 19,665 |  | 24,521
|                                                                                          |  |        |  |       

---

70            Canadian GAAP

---

7.     INVENTORIES

|                                     |  | 2003   |  | 2002  
|------------------------------------ |  | ------ |  | ------
|
|Raw materials and packaging material |  | 8,441  |  | 3,841 
|Work in progress                     |  | 1,466  |  | 4,516 
|Finished goods                       |  | 10,256 |  | 11,390
|                                     |  |        |  |       
|                                     |  | 20,163 |  | 19,747
|                                     |  |        |  |       

8.     INCOME TAXES

The
future income tax assets and liabilities result from differences between the tax value and book value of the following items:

|                                         |                                          | 2003   |        | 2002  
|---------------------------------------- | ---------------------------------------- | ------ | ------ | ------
|
|Short-term future income tax assets      |                                          |        |        |       
|                                         | Inventories                              |        | 2,554  |       
|                                         | Accounts payable and accrued liabilities |        | 2,558  |       
|                                         | Contingency provisions                   |        | 1,102  |       
|                                         |                                          |        |        |       
|                                         |                                          | 6,214  |        | 6,335 
|                                         |                                          |        |        |       
|Long-term future income tax assets       |                                          |        |        |       
|                                         | Investments                              |        | 16     |       
|                                         | Property, plant and equipment            |        |       |       
|                                         | Share issue expenses                     |        | 1,746  |       
|                                         | Unused operating losses                  |        | 13     |       
|                                         |                                          |        |        |       
|                                         |                                          | 1,775  |        | 2,456 
|                                         |                                          |        |        |       
|Short-term future income tax liabilities |                                          |        |        |       
|                                         | Accounts receivable                      |        | 318    |       
|                                         | Prepaid expenses                         |        | 163    |       
|                                         | Investments                              |        | 13     |       
|                                         | Deferred gain                            |        |       |       
|                                         |                                          |        |        |       
|                                         |                                          | 494    |        | 269   
|                                         |                                          |        |        |       
|Long-term future income tax liabilities  |                                          |        |        |       
|                                         | Investments                              |        |       |       
|                                         | Property, plant and equipment            |        | 1,993  |       
|                                         | Intangible assets                        |        | 32,940 |       
|                                         | Goodwill                                 |        | 682    |       
|                                         | Research and development expenses        |        | 127    |       
|                                         |                                          |        |        |       
|                                         |                                          | 35,742 |        | 34,389
|                                         |                                          |        |        |       

Canadian GAAP            71

---

Income
taxes included in the statement of earnings are as follows:

|         |                                                | 2003   |        | 2002   |       | 2001  |      
|-------- | ---------------------------------------------- | ------ | ------ | ------ | ----- | ----- | -----
|
|Current  |                                                | 11,642 |        | 9,555  |       | 4,213 |      
|         |                                                |        |        |        |       |       |      
|Future   |                                                |        |        |        |       |       |      
|         | Creation and reversal of temporary differences |        | 3,640  |        | 2,043 |       | 746  
|         | Operating losses                               |        |       |        |      |       | 1,724
|         | Change in promulgated rates                    |        | (830   | )      | 144   |       | 45   
|         |                                                |        |        |        |       |       |      
|         |                                                | 2,810  |        | 2,187  |       | 2,515 |      
|         |                                                |        |        |        |       |       |      
|         |                                                | 14,452 |        | 11,742 |       | 6,728 |      
|         |                                                |        |        |        |       |       |      
|Domestic |                                                |        |        |        |       |       |      
|         | Current                                        |        | (1,265 | )      | 2,953 |       | 142  
|         | Future                                         |        | 1,328  |        | 1,530 |       | 3,395
|         |                                                |        |        |        |       |       |      
|         |                                                | 63     |        | 4,483  |       | 3,537 |      
|         |                                                |        |        |        |       |       |      
|Foreign  |                                                |        |        |        |       |       |      
|         | Current                                        |        | 12,907 |        | 6,602 |       | 4,071
|         | Future                                         |        | 1,482  |        | 657   |       | (880 
|         |                                                |        |        |        |       |       |      
|         |                                                | 14,389 |        | 7,259  |       | 3,191 |      
|         |                                                |        |        |        |       |       |      
|         |                                                | 14,452 |        | 11,742 |       | 6,728 |      
|         |                                                |        |        |        |       |       |      

The
Company's effective income tax rate differs from the combined statutory federal and provincial income tax rate in Canada (33.59% for 2003, 35.66% for 2002 and 37.41% for 2001). This difference
arises from the following:

|                                              |                                       | 2003   |        | 2002   |        | 2001  |     
|--------------------------------------------- | ------------------------------------- | ------ | ------ | ------ | ------ | ----- | ----
|
|Combined basic rate applied to pre-tax income |                                       | 14,467 |        | 11,629 |        | 6,828 |     
|Increase (decrease) in taxes resulting from:  |                                       |        |        |        |        |       |     
|                                              | Large corporations tax                |        |       |        |       |       | 59  
|                                              | Change in promulgated rates           |        | (830   | )      | 144    |       | 45  
|                                              | Difference with foreign tax rates     |        | (1,312 | )      | 1,189  |       | (548
|                                              | Non-deductible items                  |        | 1,481  |        | 228    |       | 569 
|                                              | Use of unrecorded prior years' losses |        |       |        | (231   | )     |    
|                                              | Non-taxable items and other           |        | (604   | )      | (2,008 | )     | (896
|                                              | Foreign withholding taxes             |        | 1,250  |        | 791    |       | 671 
|                                              |                                       |        |        |        |        |       |     
|                                              |                                       | 14,452 |        | 11,742 |        | 6,728 |     
|                                              |                                       |        |        |        |        |       |     

No
provision has been made for income taxes on the undistributed earnings of the Company's foreign subsidiaries as at September 30, 2003 that the Company intends to indefinitely reinvest.

72            Canadian GAAP

---

9.     INVESTMENTS

|                                                                                        |  | 2003  |  | 2002 
|--------------------------------------------------------------------------------------- |  | ----- |  | -----
|
|Investments in preferred shares of a private company, at estimated net realizable value |  | 578   |  | 1,156
|Note receivable, 8.5% beginning on January 1, 2002, maturing on January 1, 2004         |  | 936   |  | 936  
|Other                                                                                   |  | 363   |  | 398  
|                                                                                        |  |       |  |      
|                                                                                        |  | 1,877 |  | 2,490
|Investments receivable within one year                                                  |  | 1,102 |  | 142  
|                                                                                        |  |       |  |      
|                                                                                        |  | 775   |  | 2,348
|                                                                                        |  |       |  |      

10.   PROPERTY, PLANT AND EQUIPMENT

|                                    |  | 2003  
|----------------------------------- |  | ------
|
|
|Land                                |  | 940   
|Buildings                           |  | 12,431
|Furniture and equipment             |  | 13,761
|Automotive equipment                |  | 86    
|Computer equipment                  |  | 3,822 
|Leasehold and building improvements |  | 522   
|                                    |  |       
|                                    |  | 31,562
|                                    |  |       

|                                    |  | 2002  
|----------------------------------- |  | ------
|
|
|Land                                |  | 848   
|Buildings                           |  | 10,679
|Furniture and equipment             |  | 12,566
|Automotive equipment                |  | 82    
|Computer equipment                  |  | 2,253 
|Leasehold and building improvements |  | 1,139 
|                                    |  |       
|                                    |  | 27,567
|                                    |  |       

Acquisitions
of property, plant and equipment amount to $4,301,768 ($14,071,633 in 2002 and $2,415,136 in 2001).

The
cost and accumulated depreciation of equipment under capital leases amount to $5,019,440 and $891,445 ($3,154,207 and $204,000 in 2002).

Canadian GAAP            73

---

11.   INTANGIBLE ASSETS

|                                                                |                 | 2003   
|--------------------------------------------------------------- | --------------- | -------
|
|
|Trademarks, trademark licenses and manufacturing rights with a: |                 |        
|                                                                | Finite life     |        
|                                                                | Indefinite life |        
|                                                                |                 |        
|                                                                |                 | 310,669
|                                                                |                 |        

|                                                                |                 | 2002   
|--------------------------------------------------------------- | --------------- | -------
|
|
|Trademarks, trademark licenses and manufacturing rights with a: |                 |        
|                                                                | Finite life     |        
|                                                                | Indefinite life |        
|                                                                |                 |        
|                                                                |                 | 208,650
|                                                                |                 |        

Acquisitions
of intangible assets amount to $88,092,927 ($30,036,118 in 2002 and $2,592,054 in 2001).

The
annual amortization expenses without taking into account any future acquisitions expected for the years 2004 through 2008 is as follows:

|     |  | $    
|---- |  | -----
|2004 |  | 5,980
|2005 |  | 6,174
|2006 |  | 6,367
|2007 |  | 7,167
|2008 |  | 7,167

12.   GOODWILL

|                         |  | 2003   |  | 2002  
|------------------------ |  | ------ |  | ------
|
|Cost                     |  | 33,200 |  | 33,200
|Accumulated amortization |  | 3,858  |  | 3,858 
|                         |  |        |  |       
|Net                      |  | 29,342 |  | 29,342
|                         |  |        |  |       

74            Canadian GAAP

---

13.   AUTHORIZED LINE OF CREDIT

The
Company has a credit agreement with two Canadian chartered banks relative to a $55,000,000 financing. The financing comprises a $15,000,000 revolving operating facility renewable annually and a
$40,000,000 364-day, extendible revolving facility with a three-year term-out option maturing on October 12, 2007. The term-out option provides
for quarterly instalments equal to 6.81% of the amount then outstanding on the extendible revolving facility with a final instalment of 25%.

The
facilities are secured by a first 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
earnings for the preceding fiscal year.

The
interest rate varies depending on the Company's leverage between 25 basis points and 125 basis points over prime 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. dollars or in Canadian dollars equivalent. As at September 30, 2003, there was no amount outstanding under this line of
credit.

14.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

|                                                          |  | 2003   |  | 2002  
|--------------------------------------------------------- |  | ------ |  | ------
|
|Accounts payable                                          |  | 9,605  |  | 5,674 
|Contract rebates, product returns and accrued chargebacks |  | 7,248  |  | 4,828 
|Accrued interest on subordinated notes                    |  | 3,038  |  |      
|Accrued royalty fees                                      |  | 4,820  |  | 2,881 
|Accrued bonuses                                           |  | 2,883  |  | 1,670 
|Accounts payable on intangible assets                     |  | 7,000  |  |      
|Other accrued liabilities                                 |  | 6,297  |  | 9,546 
|Contingency provisions                                    |  | 2,900  |  | 2,900 
|                                                          |  |        |  |       
|                                                          |  | 43,791 |  | 27,499
|                                                          |  |        |  |       

15.   LONG-TERM DEBT

|                                                                                                                                                                                                                                                              |  | 2003    |  | 2002 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -----
|
|Convertible subordinated notes, 4.25%, interest payable semi-annually starting October 15, 2003, convertible into 8,924,113 common shares, maturing April 15, 2008. (Note 16)                                                                                 |  | 103,053 |  |     
|Bank loans, interest rates varying between 4.84% and 7.15%, secured by immovable hypothecs on land and buildings having a net book value of $4,213,164 in 2003, payable in monthly instalments of $52,911, principal and
interest, maturing in 2005 and 2013. |  | 2,576   |  | 2,565
|Obligations under capital leases, interest rates varying between 3.81% and 6.20% (2.70% and 19.84% in 2002) payable in monthly instalments, principal and interest, maturing on different dates until 2008.                                                   |  | 3,426   |  | 2,852
|Bank loans, prime rate plus 1.50% and 2.50% (6.00% and 7.00% as at September 30, 2002), secured by movable hypothecs on assets of a subsidiary.                                                                                                               |  |        |  | 482  
|                                                                                                                                                                                                                                                              |  |         |  |      
|                                                                                                                                                                                                                                                              |  | 109,055 |  | 5,899
|Instalments due within one year                                                                                                                                                                                                                               |  | 1,528   |  | 1,336
|                                                                                                                                                                                                                                                              |  |         |  |      
|                                                                                                                                                                                                                                                              |  | 107,527 |  | 4,563
|                                                                                                                                                                                                                                                              |  |         |  |      

Canadian GAAP            75

---

As
at September 30, 2003, minimum instalments on long-term debt for the next years are as follows:

|                                                |  | Obligations under capital leases |  | Other long-term loans
|----------------------------------------------- |  | -------------------------------- |  | ---------------------
|
|2004                                            |  | 1,178                            |  | 508                  
|2005                                            |  | 1,021                            |  | 465                  
|2006                                            |  | 786                              |  | 408                  
|2007                                            |  | 453                              |  | 423                  
|2008                                            |  | 248                              |  | 103,493              
|2009 and thereafter                             |  | 86                               |  | 332                  
|                                                |  |                                  |  |                      
|                                                |  | 3,772                            |  |                      
|Interest included in the minimum lease payments |  | 346                              |  |                      
|                                                |  |                                  |  |                      
|                                                |  | 3,426                            |  |                      
|                                                |  |                                  |  |                      

16.   EQUITY COMPONENT OF CONVERTIBLE DEBT

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

17.   EQUITY COMPONENT OF PURCHASE PRICE

In
April 2000, Axcan entered into a series of agreements with QLT PhotoTherapeutics Inc. ("QLT"). These agreements provided for the purchase by Axcan of PHOTOFRIN, a light sensitive
compound administered to patients and activated by a laser, and the purchase by QLT of 1,283,333 common shares of Axcan for a total cash consideration of CDN$19,250,000 (U.S. $13,007,000).
These transactions closed on June 8, 2000.

A
balance of CDN$4,000,000 (U.S. $2,704,000) which was payable, at the earliest of four years after the closing or upon the receipt of a specific approval from a regulatory authority, in cash
or in common shares, at Axcan's sole discretion, was presented as equity component. During the year 2003, the Company decided and paid in cash the balance of purchase price.

76            Canadian GAAP

---

18.   CAPITAL STOCK

Authorized

Unlimited
number of shares without par value

Common
shares

Preferred
shares, issuable in series, rights, privileges and restrictions determined at the creation date

During
the year 2000, the Company created two series of preferred shares as follows:

|           |  |                                                                                                                                                                                                                                                                                                                  
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14,175,000 |  | Series A, non-voting, annual preferential cumulative dividend of 5%, redeemable on or prior to June 8, 2001 at CDN$1.00 per share payable at the option of the Company in cash or by the issuance of common shares or in any combination of cash
and common shares.                                              
|12,000,000 |  | Series B, non-voting, redeemable on the fifth anniversary of their issuance at CDN$1.00 per share payable in cash or by the issuance of common shares at the option of the Company, convertible into common shares at the holder's option on the
basis of one common share for each 15 Series B preferred shares.

The issued and fully paid capital stock is as follows:

|                                                                              |  | 2003       |  | 2002    |  | 2001       | 
|----------------------------------------------------------------------------- |  | ---------- |  | ------- |  | ---------- | 
|
|
|Common shares                                                                 |  |            |  |         |  |            | 
|Balance, beginning of year                                                    |  | 44,863,198 |  | 261,285 |  | 38,412,133 | 
|Shares issued following public offerings (a)                                  |  |           |  |        |  | 5,000,000  | 
|Shares issued following private investors' subscription (a)                   |  |           |  |        |  | 208,044    | 
|Shares issued following the exercise of the underwriters' option (a)          |  |           |  |        |  | 750,000    | 
|Shares issued pursuant to the stock option plan (a)                           |  | 141,122    |  | 1,103   |  | 127,489    | 
|Shares issued for the acquisition of assets                                   |  |           |  |        |  | 365,532    | 
|Shares issued for the redemption of preferred shares and cumulative dividends |  |           |  |        |  |           | 
|                                                                              |  |            |  |         |  |            | 
|Balance, end of year                                                          |  | 45,004,320 |  | 262,388 |  | 44,863,198 | 
|                                                                              |  |            |  |         |  |            | 
|Series A preferred shares                                                     |  |            |  |         |  |            | 
|Balance, beginning of year                                                    |  |           |  |        |  |           | 
|Shares redeemed by the issuance of common shares                              |  |           |  |        |  |           | 
|                                                                              |  |            |  |         |  |            | 
|Balance, end of year                                                          |  |           |  |        |  |           | 
|                                                                              |  |            |  |         |  |            | 
|Total                                                                         |  |            |  | 262,388 |  |            | 
|                                                                              |  |            |  |         |  |            | 

---

Canadian GAAP            77

---

Common stock option plan

The
common stock option plan is intended for eligible directors, principal senior executives and employees. The number of stock options that can be granted under this plan cannot exceed 4,500,000,
4,500,000 and 2,590,000 as at September 30, 2003, 2002, and 2001, respectively. Options may be exercised at a rate of 20% per year and expire ten years after the granting date except for the
annual options granted to outside directors which may be exercised one year after the granting date.

The
changes to the number of stock options outstanding are as follows:

|                                   |  | 2003      |   | 2002  |  | 2001     
|---------------------------------- |  | --------- | - | ----- |  | ---------
|
|
|Balance, beginning of year         |  | 2,429,078 |   | 9.67  |  | 1,956,441
|Granted                            |  | 531,850   |   | 11.36 |  | 684,050  
|Exercised                          |  | (141,122  | ) | 7.82  |  | (127,489 
|Cancelled                          |  | (137,966  | ) | 10.73 |  | (83,924  
|                                   |  |           |   |       |  |          
|Balance, end of year               |  | 2,681,840 |   | 10.12 |  | 2,429,078
|                                   |  |           |   |       |  |          
|Options exercisable at end of year |  | 965,909   |   | 9.00  |  | 614,716  
|                                   |  |           |   |       |  |          

Stock
options outstanding at September 30, 2003 are as follows:

|                |  | Options outstanding |  | Options exercisable
|--------------- |  | ------------------- |  | -------------------
|
|
|$4.04  $5.50   |  | 46,400              |  | 4.9                
|$5.51  $7.00   |  | 71,400              |  | 5.5                
|$7.01  $8.50   |  | 779,096             |  | 6.5                
|$8.51  $10.00  |  | 472,744             |  | 7.2                
|$10.01  $11.50 |  | 448,350             |  | 8.6                
|$11.51  $13.00 |  | 487,050             |  | 8.5                
|$13.01  $14.03 |  | 376,800             |  | 8.4                
|                |  |                     |  |                    
|                |  | 2,681,840           |  | 7.6                
|                |  |                     |  |                    

Equity line agreement

On
July 4, 2002, the Solidarity Fund QFL (the "Solidarity Fund") committed to invest up to $14,100,000 in the Company's capital stock. The Solidarity Fund has initially purchased 208,044 common
shares for total proceeds of $3,000,000. As a result of the Solidarity Fund subscription in the Company's convertible subordinated notes issued on March 5, 2003, the Company agreed to waive its
rights under this equity line agreement.

78            Canadian GAAP

---

19.   FINANCIAL INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENT OF EARNINGS

a)    Financial expenses

|                                             |  | 2003  |  | 2002 |  | 2001 
|-------------------------------------------- |  | ----- |  | ---- |  | -----
|
|Interest on long-term debt                   |  | 5,647 |  | 159  |  | 2,820
|Bank charges                                 |  | 297   |  | 218  |  | 55   
|Financing fees                               |  |      |  | 282  |  |     
|Amortization of deferred debt issue expenses |  | 646   |  | 247  |  |     
|                                             |  |       |  |      |  |      
|                                             |  | 6,590 |  | 906  |  | 2,875
|                                             |  |       |  |      |  |      

b)    Other information

|                                                                         |  | 2003  |   | 2002  |   | 2001  |  
|------------------------------------------------------------------------ |  | ----- | - | ----- | - | ----- | -
|
|Non-controlling interest                                                 |  | (103  | ) | (363  | ) | (249  | )
|Rental expenses                                                          |  | 1,228 |   | 1,148 |   | 994   |  
|Depreciation of property, plant and equipment                            |  | 3,477 |   | 2,499 |   | 774   |  
|Amortization of intangible assets                                        |  | 4,650 |   | 5,114 |   | 9,728 |  
|Amortization of goodwill                                                 |  |      |   |      |   | 1,530 |  
|Investment tax credits applied against research and development expenses |  | 488   |   | 830   |   | 1,114 |  

The
Company incurred professional fees with a law firm, in which a Company's director is a partner, totaling $385,862 for the year ended September 30, 2003 ($466,056 in 2002 and $468,124 in
2001). These transactions were concluded in the normal course of operations, at the exchange amount.

c)     Earnings per common share

The
following table reconciles the numerators and denominators of the basic and diluted earnings per share computations.

|        |                                                                  | 2003 |   | 2002       |  | 2001 |           
|------- | ---------------------------------------------------------------- | ---- | - | ---------- |  | ---- | ----------
|
|Basic   |                                                                  |      |   |            |  |      |           
|        | Net earnings                                                     |      | $ | 28,617     |  | $    | 20,868    
|        | Dividends on preferred shares                                    |      |   |           |  |      |          
|        |                                                                  |      |   |            |  |      |           
|        | Net earnings available to common shareholders                    |      | $ | 28,617     |  | $    | 20,868    
|        |                                                                  |      |   |            |  |      |           
|        | Weighted average number of common shares outstanding             |      |   | 44,914,944 |  |      | 41,664,510
|        |                                                                  |      |   |            |  |      |           
|        | Basic earnings per share                                         |      | $ | 0.64       |  | $    | 0.50      
|        |                                                                  |      |   |            |  |      |           
|Diluted |                                                                  |      |   |            |  |      |           
|        | Net earnings available to common shareholders on a diluted basis |      | $ | 28,617     |  | $    | 20,868    
|        |                                                                  |      |   |            |  |      |           
|        | Weighted average number of common shares outstanding             |      |   | 44,914,944 |  |      | 41,664,510
|        | Effect of dilutive stock options                                 |      |   | 472,599    |  |      | 660,970   
|        | Effect of dilutive equity component of purchase price            |      |   | 220,449    |  |      | 202,020   
|        |                                                                  |      |   |            |  |      |           
|        | Adjusted weighted average number of common shares outstanding    |      |   | 45,607,992 |  |      | 42,527,500
|        |                                                                  |      |   |            |  |      |           
|        | Diluted earnings per share                                       |      | $ | 0.63       |  | $    | 0.49      
|        |                                                                  |      |   |            |  |      |           

Options
to purchase 754,100 common shares (553,350 for 2002 and 206,250 for 2001) were outstanding but were not included in the computation of diluted earnings per share as the exercise price of the
options was greater than the average market price of the common shares. As of September 30, 2003, the convertible subordinated notes have no effect on the diluted earnings per share.

Canadian GAAP            79

---

20.   FINANCIAL INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENT OF CASH FLOWS

a)    Changes in working capital items

|                                         |  | 2003   |   | 2002   |   | 2001   |  
|---------------------------------------- |  | ------ | - | ------ | - | ------ | -
|
|Accounts receivable                      |  | 5,750  |   | 2,120  |   | (7,270 | )
|Income taxes receivable                  |  | (4,459 | ) | (388   | ) | 2,884  |  
|Inventories                              |  | (411   | ) | (2,532 | ) | (3,400 | )
|Prepaid expenses                         |  | (942   | ) | 401    |   | 211    |  
|Accounts payable and accrued liabilities |  | 9,619  |   | 3,870  |   | (65    | )
|Income taxes payable                     |  | 3,207  |   | 795    |   | (940   | )
|                                         |  |        |   |        |   |        |  
|                                         |  | 12,764 |   | 4,266  |   | (8,580 | )
|                                         |  |        |   |        |   |        |  

b)    Cash flows relating to interest and income taxes of operating activities are as follows:

|                  |  | 2003   |  | 2002  |  | 2001 
|----------------- |  | ------ |  | ----- |  | -----
|
|Interest received |  | 1,427  |  | 787   |  | 1,010
|Interest paid     |  | 342    |  | 242   |  | 2,875
|Income taxes paid |  | 12,417 |  | 7,672 |  | 2,028

21.   JOINT VENTURES

The
following accounts represent the share of the Company in the joint ventures:

|                    |            | 2003 |     | 2002 |    | 2001 |    
|------------------- | ---------- | ---- | --- | ---- | -- | ---- | ---
|
|Current assets      |            | 217  |     | 190  |    | 186  |    
|Total assets        |            | 649  |     | 606  |    | 623  |    
|Current liabilities |            | 393  |     | 248  |    | 220  |    
|Total liabilities   |            | 422  |     | 273  |    | 245  |    
|Revenue             |            | 659  |     | 725  |    | 696  |    
|Expenses            |            | 765  |     | 771  |    | 735  |    
|Net loss            |            | (106 | )   | (46  | )  | (39  | )  
|Cash flows from:    |            |      |     |      |    |      |    
|                    | Operations |      | 92  |      | (8 | )    | (10
|                    | Financing  |      | 4   |      |   |      | 25 
|                    | Investment |      | (11 | )    | 10 |      |   

80            Canadian GAAP

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22.   SEGMENTED INFORMATION

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

No
customer represents more than 10% of the Company's revenue except for three customers (four in 2001), for which the sales represented 49.6% of revenue for the year ended September 30, 2003
(52.3% and 66.3% in 2002 and 2001).

Purchases
from one supplier represent approximately 26% of the cost of goods sold for the year ended September 30, 2003 (30% in 2002 and 38% in 2001).

The
Company operates in the following geographic segments:

|                                                           |               | 2003           |          | 2002    |          | 2001    |         
|---------------------------------------------------------- | ------------- | -------------- | -------- | ------- | -------- | ------- | --------
|
|Revenue                                                    |               |                |          |         |          |         |         
|                                                           | Canada        |                |          |         |          |         |         
|                                                           |               | Domestic sales |          | 20,555  |          | 17,413  |         
|                                                           |               | Foreign sales  |          | 9,943   |          | 22,623  |         
|                                                           | United States |                |          |         |          |         |         
|                                                           |               | Domestic sales |          | 113,875 |          | 100,088 |         
|                                                           |               | Foreign sales  |          | 421     |          | 520     |         
|                                                           | France        |                |          |         |          |         |         
|                                                           |               | Domestic sales |          | 26,975  |          | 11,409  |         
|                                                           |               | Foreign sales  |          | 17,213  |          | 3,362   |         
|                                                           | Other         |                | 3,107    |         | 1,959    |         | 7,109   
|                                                           | Inter-segment |                | (12,547  | )       | (24,199  | )       | (12,765 
|                                                           |               |                |          |         |          |         |         
|                                                           |               | 179,542        |          | 133,175 |          | 104,549 |         
|                                                           |               |                |          |         |          |         |         
|Operating income (loss)                                    |               |                |          |         |          |         |         
|                                                           | Canada        |                | (2,772   | )       | 5,732    |         | 4,119   
|                                                           | United States |                | 40,879   |         | 27,750   |         | 16,382  
|                                                           | France        |                | 14,917   |         | 1,279    |         |        
|                                                           | Other         |                | (1,182   | )       | (1,891   | )       | 246     
|                                                           |               |                |          |         |          |         |         
|                                                           |               | 51,842         |          | 32,870  |          | 20,747  |         
|                                                           |               |                |          |         |          |         |         
|Depreciation and amortization                              |               |                |          |         |          |         |         
|                                                           | Canada        |                | 1,434    |         | 1,570    |         | 1,092   
|                                                           | United States |                | 3,729    |         | 3,890    |         | 9,479   
|                                                           | France        |                | 1,376    |         | 443      |         |        
|                                                           | Other         |                | 1,588    |         | 1,710    |         | 1,461   
|                                                           |               |                |          |         |          |         |         
|                                                           |               | 8,127          |          | 7,613   |          | 12,032  |         
|                                                           |               |                |          |         |          |         |         
|Property, plant, equipment, intangible assets and goodwill |               |                |          |         |          |         |         
|                                                           | Canada        |                | 19,311   |         | 15,645   |         | 16,154  
|                                                           | United States |                | 133,695  |         | 135,839  |         | 136,920 
|                                                           | France        |                | 135,377  |         | 50,488   |         |        
|                                                           | Other         |                | 39,147   |         | 28,028   |         | 29,220  
|                                                           |               |                |          |         |          |         |         
|                                                           |               | 327,530        |          | 230,000 |          | 182,294 |         
|                                                           |               |                |          |         |          |         |         
|Total assets                                               |               |                |          |         |          |         |         
|                                                           | Canada        |                | 437,042  |         | 298,733  |         | 207,840 
|                                                           | United States |                | 214,854  |         | 184,573  |         | 181,849 
|                                                           | France        |                | 156,700  |         | 58,938   |         |        
|                                                           | Other         |                | 134,609  |         | 32,404   |         | 33,623  
|                                                           | Inter-segment |                | (383,689 | )       | (205,506 | )       | (174,209
|                                                           |               |                |          |         |          |         |         
|                                                           |               | 559,516        |          | 369,142 |          | 249,103 |         
|                                                           |               |                |          |         |          |         |         

Canadian GAAP            81

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23.   FINANCIAL INSTRUMENTS

Currency risk

The
Company is exposed to financial risk arising from fluctuation in foreign exchange rates and the degree of volatility of the rates. The Company does not use derivative instruments to reduce its
exposure to foreign currency risk.

Fair value of the financial instruments on the balance sheet:

The
estimated fair value of the financial instruments is as follows:

|            |                                          | 2003 |         | 2002
|----------- | ---------------------------------------- | ---- | ------- | ----
|
|
|Assets      |                                          |      |         |     
|            | Cash and cash equivalents                |      | 37,886  |     
|            | Short-term investments                   |      | 133,112 |     
|            | Accounts receivable                      |      | 17,894  |     
|            | Investments in a private company         |      | b       | )   
|            | Note receivable                          |      | b       | )   
|            | Other investments                        |      | 363     |     
|Liabilities |                                          |      |         |     
|            | Accounts payable and accrued liabilities |      | 43,791  |     
|            | Long-term debt                           |      | 109,055 |     

The
following methods and assumptions were used to calculate the estimated fair value of the financial instruments on the balance sheet.

a)    Financial instruments valued at carrying amount

The
estimated fair value of certain financial instruments shown on the balance sheet is equivalent to their carrying amount because they are realizable in the short-term or items whose
carrying amount approximates the fair value. These financial instruments include cash and cash equivalents, short-term investments, accounts receivable, other investments and accounts
payable and accrued liabilities.

b)    Investments in a private company and note receivable

The
fair value of investments in a private company and note receivable was not readily determinable.

c)     Long-term debt

Since
a significant portion of the long-term debt was issued during the year at current market rates and there has been little change in market rates, the fair value of
long-term debt approximates its carrying value. In 2002, the fair value of long-term debt has been established by discounting the future cash flows at interest rates
corresponding to those the Company would have obtained at that date for loans with similar maturity dates and terms.

82            Canadian GAAP

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24.   COMMITMENTS AND CONTINGENCIES

a)    Commitments

The
Company has entered into non-cancelable operating leases expiring on different dates until September 30, 2008 for the rental of office space, automotive equipment and equipment.
One of the office space leases contains an escalation clause providing for additional rent.

Minimum
future lease payments under these operating leases are as follows:

|     |  | $    
|---- |  | -----
|2004 |  | 1,094
|2005 |  | 727  
|2006 |  | 222  
|2007 |  | 44   
|2008 |  | 44   
|     |  |      
|     |  | 2,131
|     |  |      

The
Company entered into an agreement with Nordmark Arzneimittel GmbH & Co to create a joint venture to develop patent-protected novel enzyme preparations. Under the terms of this
agreement, the Company agreed to contribute up to a cumulative amount of $1,500,000 to the joint venture. As at September 30, 2003, a total amount of $100,000 has been contributed.

b)    Contingencies

The
subsidiary Axcan Scandipharm is a party to several legal proceedings related to the product line it markets under the name ULTRASE. Lawsuits have been filed and claims have been asserted against
Axcan Scandipharm and certain other companies, including the enzyme manufacturer, stemming from allegations that, among other things, Axcan Scandipharm's enzyme products caused colonic strictures.
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, nonsuited 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 Scandipharm's insurance carriers have 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.

In
addition, the enzyme manufacturer and certain other companies have claimed a right to recover amounts paid defending and settling these claims as well as a declaration that Scandipharm 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 binding arbitration. The
arbitration has commenced and the plaintiffs allege that the amount at issue may be in excess of $10,000,000. Axcan Scandipharm denies that such reimbursement is owed and has also responded with
counterclaims against the plaintiffs.

As
at September 30, 2003 and 2002, the Company has recorded reserves in the amount of approximately $2,900,000 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 the Company 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.

c)     Milestone payments

The
agreements with QLT Phototherapeutics Inc. ("QLT") relating to the purchase of PHOTOFRIN provided for milestone payments to be made by Axcan to QLT that could reach a maximum of
CDN$20,000,000 upon receipt of certain regulatory approvals for specific or additional indication for PHOTOFRIN or other conditions. Each milestone payment shall be made at the option of the Company
either in cash or in Series B preferred shares or in a combination of cash and preferred shares provided that at least one-half of the milestone payable shall be paid in cash.
During the year 2003 and 2000, CDN$5,000,000 and CDN$5,000,000 (U.S. $3,646,973 and U.S. $3,378,378) was paid by Axcan in cash upon receipt of regulatory approval.

The
agreement to acquire the exclusive licence for North America, the European Union and Latin America to develop, manufacture and market ITAX provided for milestone payments for an amount of
$20,000,000 upon regulatory submission and an amount of $45,000,000 upon regulatory approval. The Company will also pay royalties of 9% of net sales from the date of first commercial sale until the
expiration of the patent and 6% for ten years then after.

d)    Royalties

Nets
sales of certain products of the Company are subject to royalties payable to unrelated third parties.

Canadian GAAP            83

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In
particular, the Company must pay a 5% royalty on net sales of products covered under two agreements for the exclusive rights to market ULTRASE and ADEKs through August 5, 2005 in the case of
ADEKs.

Axcan
has to pay 5% of worldwide sales of PHOTOFRIN with a maximum of $500,000 per year and a maximum total aggregate of $3,108,245 until December 2007. Until September 30, 2003, an
amount of $1,263,091 has been accounted for ($983,448 in 2002 and $522,820 in 2001). Axcan also has to pay 5% of net sales of PHOTOFRIN for use in the therapeutic treatment of cancer and 2% of net
sales for other uses until December 2009.

Royalties
amounting to $4,387,092, $3,731,113 and $3,711,561 respectively for years ended September 30, 2003, 2002 and 2001 were charged to earnings.

e)     Licensing

During
the year 2000, Axcan entered into a new licensing agreement to market a new generation of pancrelipase minitablets. As at September 30, 2003, the Company paid $3,500,000 in development
fees, which is the total amount of development fees the Company agreed to pay. Axcan will pay royalties of 6% on the first $30,000,000 of annual sales and 5% on annual sales in excess of $30,000,000
subject to minimum royalty payments of respectively $750,000, $1,000,000 and $1,500,000 in the first three years of the agreement.

Axcan
also entered into a licensing agreement with the Children's Hospital Research Foundation ("CHRF") for a series of sulfated derivatives of ursodeoxycholic acid compounds ("SUDCA"). Axcan had paid
$589,000 in cash; the Company will also pay milestones for a maximum amount of $425,000 when SUDCA will be validated and a bonus when certain conditions will be meet; finally, Axcan will pay royalties
based on sales.

In
May 2002, the Company signed a co-development and license agreement with NicOx S.A. ("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, the Company 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 market. The Company and NicOx will share the cost of the future
development of NCX-1000 jointly through the completion of Phase II clinical studies. The Company will thereafter conduct the required Phase III clinical studies and be
responsible for regulatory filings in the exclusively licensed territories. The Company will pay NicOx options or milestone payments totaling $17,000,000 at various stages of development. As at
September 30, 2003, an amount of $2,000,000 has been paid. The Company also agreed to pay royalties of up to 12% on net sales of the product.

On
October 10, 2002, the Company acquired from Gentium S.p.A., an Italian company, exclusive rights to develop and market in North America, a patented 4-gram rectal gel
formulation of mesalamine (5-ASA) for the treatment of active distal ulcerative colitis. In return the Company will make milestone payments totaling approximately $1,500,000, the majority
of which will be paid upon approval in the United States. As at September 30, 2003, an amount of approximately $200,000 has been paid. The Company will also pay a royalty of 4% on net
sales for a ten-year period from product's launch.

On
July 22, 2003, the Company acquired from Merz Pharmaceutical GmbH ("Merz") an exclusive license to use, develop and submit for approval injectable and oral granule formulations
containing L-ornithine and L-aspartate. In consideration of the rights and licenses granted by Merz under this agreement, the Company shall pay a royalty of 6% of net sales or
4% of net sales if the Company develops any patentable invention or improvement and Merz incorporates such invention or improvement into its products.

f)     Employee benefit plan

A
subsidiary of the Company has a defined contribution plan (the "Plan") for its U.S. employees. Participation is available to substantially all U.S. employees. Employees may contribute
up to 15% of their gross pay and up to limits set by the U.S. Internal Revenue Service. During the year, the Board of Directors approved and the Company charged to earnings a contribution to
the Plan totaling $319,871 ($224,275 in 2002 and $231,629 in 2001).

84            Canadian GAAP

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25.   STOCK-BASED COMPENSATION

The
Company has elected to measure compensation costs related to awards of stock options using the intrinsic value-based method of accounting. No stock-based employee compensation cost is reflected in
net earnings. The Company is also required to make pro-forma disclosures of net earnings, basic earnings per share and diluted earnings per share as if the fair value-based method of
accounting had been applied.

The
average weighted fair value of granted stock options was as at September 30, 2003, 2002 and 2001, $5.41, $6.96 and $5.69.

The
fair value of granted stock options was estimated with the Black-Scholes model of evaluation of the price of options using an expected life of six years, a risk-free interest rate of
4.43%, 4.93% and 5.64% for the years ended September 30, 2003, 2002 and 2001, a volatility of 46% in 2003, 47% in 2002 and 50% in 2001 and no expected dividends.

The
Black-Scholes model, used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require highly subjective assumptions, including future
stock price volatility and expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that these models do not necessarily provide a reliable single
measure of the fair value of the Company's stock option awards.

Accordingly,
the Company's net earnings, basic earnings per share and diluted earnings per share would have been reduced for the years ended September 30, 2003, 2002 and 2001, on a
pro-forma basis, as follows:

|                           |  | 2003   |  | 2002   |  | 2001  
|-------------------------- |  | ------ |  | ------ |  | ------
|
|
|Net earnings               |  | 28,617 |  | 25,248 |  | 21,188
|Basic earnings per share   |  | 0.64   |  | 0.56   |  | 0.51  
|Diluted earnings per share |  | 0.63   |  | 0.55   |  | 0.50  

26.   SUBSEQUENT EVENT

On
October 8, 2003, the Company signed an agreement to acquire the rights to a group of products from Aventis Holding Inc. Under the terms of this agreement, the Company will acquire
CARAFATE and BENTYL for the U.S. market and SULCRATE, BENTYLOL and PROTOSEDYL for the Canadian market for a cash purchase price of $145,000,000. These products will be classified as an
intangible asset with finite life and will be amortized on a straight-line basis.

Canadian GAAP            85

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