**Exhibit
      99.4**





**ANNUAL
              INFORMATION FORM**
  **FOR
              FISCAL YEAR ENDED SEPTEMBER 30, 2006**
    **DECEMBER
              29, 2006**  
  **TABLE
                          OF CONTENTS**PART
                          I – CORPORATE STRUCTURE OF AXCAN PHARMA INC.
                      2PART
                          II - GENERAL DEVELOPMENT OF THE BUSINESS
                      21.
                      Overview
                      2PART
                          III - BUSINESS OF AXCAN
                      41.
                      Axcan
                          Products
                      42.
                      Sales
                          and Marketing
                      123.
                      Research
                          and Development
                      134.
                      Trademarks,
                          Patents, Proprietary rights and Licensing activities
                      135.
                      Human
                          Resources
                      176.
                      Facilities
                      177.
                      Environment,
                          Health and Safety
                      188.
                      Risk
                          Factors
                      189.
                      Convertible
                          Debenture Offering
                      24PART
                          IV - SELECTED CONSOLIDATED FINANCIAL INFORMATION
                      25PART
                          V - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
                          OPERATING RESULTS26PART
                          VI - DIVIDEND POLICY
                      26PART
                          VII – DESCRIPTION OF CAPITAL STRUCTURE
                      271.
                      Common
                          Shares
                      272.
                      Preferred
                          Shares
                      27PART
                          VIII - DIRECTORS AND OFFICERS
                      28PART
                          IX - LEGAL PROCEEDINGS
                      30PART
                          X - TRANSFER AGENT AND REGISTRARS
                      31PART
                          XI - MARKET FOR SECURITIES
                      311.
                      Market
                          for Securities
                      312.
                      Trading
                          History
                      31PART
                          XII - MATERIAL CONTRACTS
                      32PART
                          XIII - INTERESTS OF EXPERTS
                      32PART
                          XIV - FORWARD-LOOKING STATEMENTS
                      32PART
                          XV - TRADEMARKS
                      32PART
                          XVI - ADDITIONAL INFORMATION
                      33SCHEDULE
                          A - GLOSSARY OF TECHNICAL TERMS
                      34
  
  **PART
              I - CORPORATE STRUCTURE OF AXCAN** **PHARMA INC.**
   Axcan
              Pharma Inc. was incorporated under the Canada Business Corporations
              Act on May
              6, 1982 under the name 115391 Canada Inc. On February 14, 1983, Axcan
              changed
              its name to Interfalk Canada Inc. and on October 1, 1993, it amalgamated
              with
              Axcan Holdings Ltd., its parent corporation, under the name Interfalk
              Canada
              Inc., which was changed to Axcan Pharma Inc. on July 12, 1994. On October
              30,
              1995, Axcan's Articles were amended to delete the private company restrictions,
              re-designate the existing Class “A” shares and Class “B” shares as common shares
              and preferred shares, respectively, and consolidate the common shares
              on a 0.44
              for one basis. On June 6, 2000, Axcan's Articles were amended again
              to create
              14,175,000 Series A preferred shares and 12,000,000 Series B preferred
              shares.
              Axcan's head office is located at 597 Laurier Boulevard, Mont Saint-Hilaire,
              Quebec, J3H 6C4, Canada.
  Where
              reference is made to “Axcan” or the “Company” in this Annual Information Form,
              the term includes Axcan Pharma Inc., its predecessors and its direct
              and
              indirect subsidiaries and their predecessors, collectively, unless
              the context
              otherwise requires. Unless otherwise stated, all market size information
              appearing in this Annual Information Form has been provided by IMS
              Health Ltd.,
              a widely accepted provider of information services specializing in
              medical
              research information. Unless otherwise stated, all dollar amounts appearing
              in
              this Annual Information Form are stated in U.S. dollars, and all financial
              data
              included in this Annual Information Form has been prepared in accordance
              with
              U.S. generally accepted accounting principles.
   The
              following chart shows the jurisdictions of incorporation of Axcan and
              its
              principal subsidiaries. All of the outstanding shares of such subsidiaries
              or
              associated corporations are owned directly or indirectly by Axcan.
  
 
  **PART
              II - GENERAL DEVELOPMENT OF THE BUSINESS**
  **1.**
                    **Overview**
  Axcan
              is
              a leading speciality pharmaceutical company concentrating in the field
              of
              gastroenterology, with operations in North America and Europe. Axcan
              markets and
              sells pharmaceutical products used in the treatment of a variety of
              gastrointestinal diseases and disorders. The Company seeks to expand
              its
              gastrointestinal franchise by 1) increasing sales of products it currently
              markets; 2) in-licensing products and acquiring products and/or companies;
              3)
              developing additional products and expanding indications for existing
              products;
              and 4) expanding geographically. Axcan’s main currently marketed products
              include ULTRASE, PANZYTRAT and VIOKASE for the treatment of exocrine
              pancreatic
              insufficiency, related to cystic fibrosis in the case of ULTRASE and
              PANZYTRAT;
              URSO/URSO 250, URSO FORTE/URSO DS and DELURSAN for the treatment of
              certain
              cholestatic liver diseases; SALOFALK and CANASA for the treatment of
              certain
              inflammatory bowel diseases and CARAFATE/SULCRATE for the treatment
              of gastric
              duodenal ulcers. Axcan has a number of pharmaceutical projects in development
              further described in the section “Products in Development” of this Annual
              Information Form. In particular, in 2004, the company initiated the
              clinical
              development of Itopride Hydrochloride, also known as ITAX. Over the
              past two
              fiscal years the Company expensed significant resources and funds to
              advance the
              development of ITAX. As
              announced in September 2006, the Company decided not to pursue the
              clinical
              development of ITAX for the treatment of Functional Dyspepsia, as findings
              resulting from two Phase III studies showed that ITAX did not meet
              its
              co-primary endpoints.
  For
              the
              year ended September 30, 2006, Axcan reported total revenue of $292.3
              million,
              operating income of $57.8 million and net income of $39.1 million.
              Revenue from
              sales of Axcan's products in the United States was
  Page
                  2
  $201.8
              million (69.0% of total revenue) for the year ended September 30, 2006,
              compared
              to $159.7 million (63.5% of total revenue) for fiscal 2005. In Canada,
              revenue
              was $38.0 million (13.0% of total revenue) for the year ended September
              30,
              2006, compared to $34.4 million (13.7% of total revenue) for fiscal
              2005. In
              Europe and other international export markets, revenue was $52.1 million
              (17.8%
              of total revenue) for the year ended September 30, 2006, compared to
              $57.1
              million (22.7% of total revenue) for fiscal 2005.
  Axcan's
              revenue has historically been and continues to be principally derived
              from sales
              of pharmaceutical products to large pharmaceutical wholesalers and
              large
              pharmacy chains. Axcan utilizes a "pull-through" marketing approach
              that is
              typical of pharmaceutical companies. Under this approach, Axcan's sales
              representatives demonstrate the features and benefits of its products
              to
              physicians, in particular, gastroenterologists who may write their
              patients
              prescriptions for Axcan's products. The patients, in turn, take the
              prescriptions to pharmacies to be filled. The pharmacies then place
              orders with
              the wholesalers or, in the case of large pharmacy chains, their distribution
              centres, to whom Axcan sells its products.
  Axcan's
              expenses are comprised primarily of selling and administrative expenses
              (including marketing expenses), cost of goods sold (including royalty
              payments
              to those companies from whom Axcan licenses some of its commercialized
              products), research and development expenses as well as depreciation
              and
              amortization.
  Axcan's
              annual and quarterly operating revenues are primarily affected by three
              factors:
              the level of acceptance of Axcan's products by prescribing physicians,
              particularly gastroenterologists, and their patients; the ability of
              Axcan to
              convince practitioners to use Axcan’s products for approved indications and
              wholesaler buying patterns.
  Most
              importantly, the level of patient and physician acceptance of Axcan's
              products,
              as well as the availability of similar therapies, which may be less
              effective
              but also less expensive than some of Axcan's products, impact Axcan's
              revenues
              by driving the level and timing of prescriptions for its products.
  Historically,
              wholesalers’ business models in the U.S. were dependent on drug price inflation.
              Their profitability and gross margins were directly tied to the speculative
              purchasing of pharmaceutical products at pre-increase prices, and selling
              their
              product inventory to their customers at the increased price. This inventory
              price arbitrage accounted for a predominant portion of compensation
              of
              wholesalers for their distribution services and had a dramatic effect
              on
              wholesaler buying patterns as they invested in inventories in anticipation
              of
              generating higher gross margins from manufacturer price increases.
              More
              recently, pharmaceutical manufacturers have not been increasing drug
              prices as
              frequently, and increases, in percentage, have been lower. For these
              and other
              reasons, some wholesalers have changed their business model to a fee-for-service
              arrangement where manufacturers pay wholesalers a fee for inventory
              management
              and other services. These fees typically are a percentage of the wholesaler’s
              purchases from the manufacturer or a fixed charge per piece or per
              unit. The
              fee-for-service approach results in wholesalers’ compensation being more stable,
              and volume-based as opposed to price-increase based.
  As
              a
              result of the move to a fee-for-service business model, many wholesalers
              are no
              longer investing in inventory ahead of anticipated price increases
              and are
              reducing their inventories from their historical levels. Under the
              new model,
              the consequence for manufacturers using wholesalers is that they now
              realize the
              benefit of price increases more rapidly in return for paying wholesalers
              for the
              services they provide, on a fee-for-service basis. This change in wholesaler’s
              business model has affected Axcan’s revenue in two ways. First, since fiscal
              2005, there has been an overall gradual trend of wholesalers to reduce
              inventory
              levels of the Company’s products, from previous historic levels, which has
              affected revenue. Second, more recently in the fourth quarter ended
              September
              30, 2006, the Company chose to adopt a classification of fees incurred
              under
              distribution services agreements (“DSA”) entered into with wholesalers as a
              deduction from gross sales. Previously, these fees were included in
              selling and
              administrative expenses. DSA related fees incurred in 2005 were not
              material.
  In
              addition to its marketing activities, Axcan carries out research and
              development
              activities on products at various stages of development. These activities
              are
              carried out primarily with respect to product opportunities which it
              acquires or
              licenses from third parties. By combining its marketing expertise with
              its
              research and development experience, Axcan distinguishes itself from
              specialty
              pharmaceutical companies that focus solely on distribution of products
              and
              offers licensors the prospect of rapidly expanding the potential market
              for
              their products. As a result, Axcan is presented with opportunities
              to acquire or
              in-license products that have been advanced to the later stages of
              development
              by other companies. This focus on products in late-stage development
              enables
              Axcan to reduce risks and expenses associated with new drug
              development.
  Page
                  3
  **PART
              III - BUSINESS OF AXCAN**
  **1.**
                    **Axcan
                        Products**
  Axcan's
              focus is in the field of gastroenterology, which includes gastrointestinal
              diseases and disorders. A discussion of the regulatory process follows
              under the
              heading “Regulatory Environment”.
  The
              following table presents an overview of Axcan's principal products
              approved or
              under development, setting forth for each product, (1) the indication
              for which
              each product in a product line is approved or under development, (2)
              the
              territory in which Axcan is focusing its marketing of the product and
              (3) the
              regulatory status of the product:
  **Product/Indication**
                    
                    **Territory**
                    
                    **Regulatory
                        Status****CARAFATE/SULCRATE**Active
                        duodenal ulcers
                    
                    Canada,
                        United States
                    
                    Marketed**BENTYL/BENTYLOL**Irritable
                        Bowel Syndrome
                    
                    Canada,
                        United States
                    
                    Marketed**PROCTOSEDYL**Haemorrhoids
                        and rectal lesions
                    
                    Canada
                    
                    Marketed**ULTRASE**Exocrine
                        pancreatic insufficiency
                    
                    Canada,
                        United States, South America
                    
                    MarketedUnited
                        States
                    
                    Phase
                        III studies (to comply with FDA requirement for NDA by April
                        2008)**VIOKASE**Exocrine
                        pancreatic insufficiency
                    
                    United
                        States, Canada
                    
                    MarketedUnited
                        States
                    
                    Phase
                        III studies (to comply with FDA requirement for NDA by April
                        2008)
  Page
                  4
  **Product/Indication**
                    
                    **Territory**
                    
                    **Regulatory
                        Status****URSO
                        and related products**
                      ***URSO,
                        URSO 250, URSO DS, URSO Forte***Cholestatic
                        liver diseases (including Primary Biliary Cirrhosis and Primary
                        Sclerosing
                        Cholangitis)
                      Primary
                        Biliary Cirrhosis
                    
                    Canada
                      United
                        States
                    
                    Marketed
                      Marketed**SUDCA
                        (ursodiol disulfate)**Prevention
                        of the recurrence of colorectal polyps
                    
                    Canada,
                        Europe, United States
                    
                    Phase
                        I studies (safety/tolerance) completed**NCX-1000
                        (ursodiol derivative)**Portal
                        hypertension
                    
                    Canada,
                        France, Poland, United States (under option)
                    
                    Phase
                        IIa study in progress**SALOFALK
                        (tablets, suspensions, suppositories)**
                      **SALOFALK**Inflammatory
                        bowel diseases (distal ulcerative
                      colitis,
                        ulcerative proctitis, ulcerative colitis and
                      Crohn's
                        Disease)
                    
                    Canada
                    
                    Marketed**CANASA****CANASA
                        1000 mg suppositories**Ulcerative
                        proctitis
                    
                    United
                        States
                    
                    Marketed
  Page
                  5
  **Product/Indication**
                    
                    **Territory**
                    
                    **Regulatory
                        Status****PHOTOFRIN**
                      ***PHOTOFRIN***Completely
                        or partially obstructing esophageal cancer
                    
                    Europe,
                        Asia, United States, Canada, Mexico
                    
                    Approved
                        and/or MarketedSuperficial
                        esophageal cancer
                    
                    Japan
                    
                    MarketedHigh-Grade
                        Dysplasia associated with Barrett's Esophagus
                    
                    Canada,
                        United States, Mexico
                    
                    Approved
                        and/or MarketedPapillary
                        bladder cancer
                    
                    Canada
                    
                    ApprovedSuperficial
                        gastric cancer
                    
                    Japan
                    
                    MarketedEarly
                        cervical cancer and dysplasia
                    
                    Japan
                    
                    MarketedCompletely
                        or partially obstructing endobronchial non small cell lung
                        cancer
                    
                    Europe,
                        Asia, Canada, United States, Mexico
                    
                    Approved
                        and/or MarketedEarly
                        lung cancer (Stage 0 and 1)
                    
                    Japan
                    
                    Marketed***PHOTOBARR***High-Grade
                        Dysplasia associated with Barrett's Esophagus
                    
                    Europe
                    
                    Approved
                        and/or Marketed
  **PANZYTRAT**Exocrine
                        pancreatic insufficiency and pancreatic
                      enzyme
                        deficiency
                    
                    Europe,
                        South America, Africa
                    
                    Approved
                        and/or Marketed
  **DELURSAN**Cholestatic
                        liver diseases (including Primary Biliary Cirrhosis and Primary
                        Sclerosing
                        Cholangitis)
                    
                    France
                    
                    Marketed
  **LACTEOL**
 Diarrhoea
                    
                    Europe,
                        Asia, Africa, South America
                    Approved
                        and/or Marketed
  **PYLERA***Helicobacter
                        pylori*eradication
                    
                    United
                        States
                      Canada
                      Europe
                    
                    Approved
                      NDA
                        withdrawn
                      Phase
                        III studies completed**AGI-010**Treatment
                        of GERD and better control of NAB
                    
                    North
                        America
                    
                    Development
                        of regulatory strategy**NMK
                        150**Pancreatitis
                    
                    Canada,
                        Europe, United States
                    
                    Phase
                        I study in progress
  Page
                  6
 **PRODUCTS
              ON THE MARKET**
  Market
              size data appearing below is as of September 30, 2006 and does not
              represent
              Axcan's expected sales figures, as important factors must be considered,
              including successful product development, competition, the degree of
              Axcan's
              market penetration and the dilution of revenues resulting from royalty
              and other
              payments under licenses or agreements with third parties. Market sizes
              appearing
              in the descriptions below refer to actual or potential annual aggregate
              sales
              for the relevant drug and not Axcan’s actual or potential annual sales. Axcan
              believes that prescription trends are indicative of potential future
              sales
              trends, since prescriptions drive the demand for Axcan's products,
              and has
              therefore included such figures for products, when available.
  **ULTRASE**
  Axcan
              markets under the trademark ULTRASE certain pancreatic enzyme microspheres
              and
              minitablet formulations designed to help patients with exocrine pancreatic
              insufficiency, as associated with, but not limited to Cystic Fibrosis,
              better
              digest food.
  In
              the
              United States, the total market for coated pancreatic enzymes is estimated
              to be
              $140 million and ULTRASE has approximately 31% of this market share
              in
              prescriptions, and 28% of the Cystic Fibrosis pancreatic enzyme prescription
              market (approximately 54% of the overall coated pancreatic enzyme market).
  In
              Canada, the total market for pancreatic enzymes is estimated to be
              CAN$15.3
              million; ULTRASE has approximately 3% of the Cystic Fibrosis pancreatic
              enzyme
              prescription market.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $39.1 million
              for
              ULTRASE.
  ULTRASE
              competes with a number of pancreatic enzyme formulations including
              PANCREASE ® (Ortho-McNeil Pharmaceutical) and CREON ® (Solvay
              Pharmaceuticals, Inc.) as well as various generics.
  **VIOKASE**
  Axcan
              markets under the brand name VIOKASE non-enterically coated pancreatic
              replacement enzymes, both in the United States and in Canada, as digestive
              aids
              for the treatment of exocrine pancreatic insufficiency and pancreatic
              enzyme
              deficiency as associated with, but not limited to, chronic pancreatitis
              and
              surgical ablation of the pancreas.
  In
              the
              United States, the total market for uncoated pancreatic enzymes is
              estimated to
              be approximately $67.0 million; VIOKASE represents approximately 11%
              of the
              prescriptions in this market.
  In
              Canada, the total market for uncoated pancreatic enzymes is estimated to be
              approximately CAN$2.2 million, and Axcan has approximately 32% of total
              prescriptions in this market. Axcan does not actively market VIOKASE
              in either
              the United States or Canada.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $7.6 million
              for
              VIOKASE.
  VIOKASE
              is the only branded non-enterically coated replacement enzyme and competes
              with
              a number of generic products.
 Page
                  7
 URSO
  In
              the
              United States, Axcan has been marketing URSO 250 for the treatment
              of Primary
              Biliary Cirrhosis (“PBC”) since May 1998. URSO Forte, a 500-milligram ursodiol
              tablet indicated for PBC was launched in the first quarter of fiscal
              2005.
  In
              the
              United States, the total market for ursodiol (ursodeoxycholic acid
              - the active
              ingredient in URSO 250 and URSO Forte) is approximately $145 million.
              URSO
              250/URSO Forte had approximately 41% of the gastrointestinal market
              in total
              prescriptions and approximately 30% of the total ursodiol market for
              fiscal
              2006, which equates to approximately 49% of the dollar value of the
              gastrointestinal market (ursodiol is also used in certain non gastrointestinal
              indications) or 38% of the dollar value of the total ursodiol market.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $49.3 million
              for
              URSO250/URSO Forte in the United States.
  In
              the
              United States there is currently no therapy specifically approved to
              be marketed
              for the treatment of PBC other than URSO 250 and URSO Forte. However,
              other
              products are being prescribed. ACTIGALL TM (Watson
              Pharmaceuticals), a product currently approved and marketed for gallstone
              dissolution as associated with active weight loss, is prescribed for
              the
              treatment of various liver diseases, including PBC. Generic versions
              of
              ACTIGALLTM have also been approved for the dissolution of gallstones and can also
              be prescribed for PBC.
  In
              Canada, Axcan markets URSO/URSO DS for the treatment of cholestatic
              liver
              diseases, which includes PBC and PSC.
  In
              Canada, the total market for ursodiol is estimated to be $ 12.3 million.
              Axcan
              is the only company that markets ursodiol for the treatment of cholestatic
              liver
              diseases. In May of 2006, generic versions of URSO/URSO DS received
              approval for
              sale in Canada.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $11.4 million
              for
              URSO/URSO DS in Canada.
  **SALOFALK
              and CANASA**
  SALOFALK
              and CANASA are mesalamine-based products sold by Axcan for the treatment
              of
              certain inflammatory bowel diseases, such as ulcerative colitis and
              ulcerative
              proctitis.
  In
              the
              United States, CANASA 1000 mg suppository is being marketed for the
              treatment of
              acute ulcerative proctitis. The total market for rectally delivered
              mesalamine
              is approximately $105 million. CANASA 1000 mg has approximately 61.5%
              of this
              market in total prescriptions, which equates to approximately 58% of
              the dollar
              value of this market. The 1000 mg dosage form provides convenient once
              per day
              dosing, as opposed to two times per day with the previous CANASA 500
              milligram
              suppository.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $53.1 million
              for
              CANASA.
  Competition
              comes from either topical corticosteroid enemas or suppositories as
              well as
              mesalamine enemas. Since corticosteroids are associated with significant
              side
              effects, other agents have been used. Mesalamine suppositories are
              used to treat
              proctitis and rectal symptoms, while mesalamine enemas are used to
              treat more
              extensive distal ulcerative colitis. In the United States, CANASA mainly
              competes with generic mesalamine enemas and Rowasa TM enemas
              (Solvay Pharmaceutical, Inc.).
  In
              Canada, Axcan markets the SALOFALK product line (tablets, suspensions
              and
              suppositories) for the treatment of certain IBDs, including ulcerative
              colitis
              and Crohn's Disease. In Canada, the market for existing mesalamine
              therapeutic
              products totals approximately $ 65 million. SALOFALK is estimated to
              have 38% of
              the market in total prescriptions, which represents approximately 32%
              of the
              dollar value of this market.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $ 16.5 million
              for
              SALOFALK.
 Page
                  8
 Several
              products containing mesalamine in controlled-release tablets or capsules
              are
              available on the Canadian market, including Asacol TM (The
              Proctor & Gamble Company) and Dipentum TM (UCB
              Pharma).
  **CARAFATE/SULCRATE**
  CARAFATE/SULCRATE
              are sulcrafate based products indicated for the treatment of gastric
              duodenal
              ulcers. CARAFATE is sold in the United States and SULCRATE in Canada.
              In
              November 2005, Axcan launched a new promotional campaign in the United
              States,
              to support sales of CARAFATE suspensions.
  In
              the
              United States, the total market for anti-ulcerant tablets and suspensions
              is
              approximately $115 million and CARAFATE has approximately 43% of the
              dollar
              value of this market.
  For
              the
              year ended September 30, 2006, Axcan reported combined sales of $43.9
              million
              for CARAFATE/SULCRATE.
  **PANZYTRAT**
  On
              December 3, 2002, the Company acquired the worldwide rights to the
              PANZYTRAT
              enzyme product line from Abbott Laboratories. PANZYTRAT consists of
              enterically
              coated microtablets for use in the treatment of exocrine pancreatic
              insufficiency and pancreatic enzyme deficiency. It is available in
              various
              strengths and marketed in several countries.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $12.1 million
              for
              PANZYTRAT, including $0.8 in export markets. During a transition period
              subsequent to the acquisition of the rights to PANZYTRAT, Abbott acted
              as
              Axcan’s agent for the management of sales of this product in certain countries
              pending the transfer of regulatory authorisations and related marketing
              rights
              from Abbott to Axcan. Since this period has now ended, Abbott is no
              longer
              selling PANZYTRAT in these export markets. Axcan is in the process
              of signing
              distribution agreements with new partners. Until this process is complete,
              Axcan
              is generating and will temporarily continue to generate a lower level
              of
              PANZYTRAT sales in these export markets *.* **
  The
              primary markets for PANZYTRAT are Germany and the Netherlands (80%
              of the total
              sales of PANZYTRAT), where it mainly competes with CREON ® (Solvay
              Pharmaceuticals, Inc.).
  **DELURSAN**
  DELURSAN
              is an ursodiol preparation marketed in France and is indicated for
              the treatment
              of cholestatic liver diseases, including PBC, Primary Sclerosing Cholangitis
              and
              liver disorders related to Cystic Fibrosis.
  In
              France, DELURSAN mainly competes with URSOLVAN ® (Sanofi-Aventis S.A.).
  For
              the
              year ended September 30, 2006, Axcan reported sales of $13.9 million
              for
              DELURSAN.
  **LACTEOL**
  LACTEOL
              is product containing a specific proprietary strain of Lactobacillus
              in a
              lyophilized powder form. The product is available in a number of dosage
              forms,
              including capsules, and is primarily indicated, in most markets, for
              the
              treatment of diarrhoea. LACTEOL is sold in France and over 40 export
              markets.
  As
              part
              of new measures designed to reduce healthcare costs associated with
              the
              reimbursement of prescription drugs, effective March 1, 2006, the French
              government decided to stop the reimbursement of approximately 200 drugs,
              including LACTEOL. Although the Company took the appropriate measures
              to support
              sales of LACTEOL in France, this decision negatively impacted LACTEOL’s revenue
              in France in fiscal 2006. The measures undertaken include, but are
              not limited
              to (1) the signature of a partnership agreement with an “Over-The-Counter”
distributor and marketer; (2) the launch of a new 340 mg capsule formulation;
              and (3) an increase of wholesaler prices.
 Page
                  9
 For
              the
              year ended September 30, 2006, Axcan reported sales of $18.1 million
              for
              LACTEOL, including $9.1 million outside of France.
  **PHOTOFRIN/PHOTOBARR**
  Axcan
              markets (directly or through distributors) PHOTOFRIN/PHOTOBARR in North
              America,
              Europe, and other selected markets, for the treatment of High-Grade
              Dysplasia
              associated with Barrett's Esophagus, esophageal and non small cell
              lung cancer,
              as well as certain types of gastric cancers and cervical dysplasia.
  For
              the
              year ended September 30, 2006, Axcan reported sales of $5.5 million
              for
              PHOTOFRIN/PHOTOBARR.
  **OTHER
              DRUGS MARKETED BY AXCAN**
  In
              the
              United States, Axcan also markets ADEKs, a fat-soluble multivitamin
              supplement
              marketed in chewable tablets and paediatric drops; BENTYL for the treatment
              of
              irritable bowel syndrome; FLUTTER, a mucus clearing device that aids
              pulmonary
              ventilation and expectoration by loosening mucus and liquefying mucus
              secretions
              that obstruct the airway of cystic fibrosis patients; and SCANDISHAKE
              and
              SCANDICAL, two high-energy caloric supplements which help cystic fibrosis
              patients gain and maintain their weight.
  In
              Canada, Axcan also markets BENTYLOL for the treatment of irritable
              bowel
              syndrome; CORTENEMA an enema used as an adjunct in the treatment of
              non-specific
              inflammatory bowel diseases; FLUTTER, a mucus clearing device that
              aids
              pulmonary ventilation and expectoration by loosening mucus and liquefying
              mucus
              secretions that obstruct the airway of cystic fibrosis patients; MODULON
              for the
              treatment of irritable bowel syndrome; PROCTOSEDYL for haemorrhoids
              and rectal
              lesions *;* and
              SCANDISHAKE, a high-energy caloric supplements which help cystic fibrosis
              patients gain and maintain their weight.
  In
              France, Axcan also markets TAGAMET, which is indicated for the symptomatic
              treatment of gastric or duodenal ulcers; TRANSULOSE and TRANSITOL,
              both of which
              are indicated for the symptomatic treatment of constipation; and VIATOL,
              an oral
              solution preventing dehydration.
  For
              the
              year ended September 30, 2006, these products, in aggregate, reported
              sales of
              $21.0 million.
  **PRODUCTS
              IN DEVELOPMENT**
  Axcan’s
              product development efforts are focused on compounds and products that
              are
              designed to meet medical needs in the field of gastroenterology and
              have a
              competitive advantage. Major development projects include:
  **PYLERA
              (formerly known as HELIZIDE)**
  *Helicobacter
              pylor* i
              is a
              bacterium now recognized as being the main cause of gastric and duodenal
              ulcers.
              The discovery in 1983 of the *Helicobacter pylori* organism
              was one of the major advances in gastroenterology in recent decades,
              as it
              revolutionized the approach to many upper gastrointestinal disorders. *Helicobacter
              pylori* is
              believed to the cause of a spectrum of disease in humans, including
              gastritis,
              ulcer disease (gastric and duodenal), gastric cancer and gastric lymphoma.
  Axcan
              conducted a 275-patient Phase III trial comparing the PYLERA regimen
              (3-in-1
              capsule triple therapy containing biskalcitrate potassium (140 mg),
              metronidazole (125 mg) and tetracycline hydrochloride (125 mg) given
              four times
              per day, plus omeprazole 20 milligram twice per day), to the widely
              used OAC
              combination (i.e., omeprazole, amoxicillin and clarithromycin). Results
              confirmed that PYLERA is not only as effective as the most widely prescribed
              therapeutic regimen, but that it has the potential to be used in a
              wide range of
              patients as a first-line therapy for the eradication of *Helicobacter
              pylor* i.
  In
              September 2006, the FDA issued an approval letter for the Company's
              New Drug
              Application for PYLERA, which the Company expects to launch in the
              United States
              in the first half of calendar 2007. The US market for therapies for
              the
              eradication of *Helicobacter
              pylori* is
              in
              excess of $160 million, and due to under-diagnosis the Company believes
              there is
              significant growth potential for this market. The U.S. patent on the
              PYLERA
              capsule technology expires in December 2018. See “Business of Axcan-Licensing
              and Intellectual Property Protection”.
 Page
                  10
 **ULTRASE
              and VIOKASE**
  In
              April
              2004, the FDA formally notified manufacturers of pancreatic enzyme
              insufficiency
              products that these products, which include VIOKASE and ULTRASE, must
              receive
              NDA approval before April 2008 in order to remain on the market. The
              FDA has
              published final guidelines aimed at assisting manufacturers of exocrine
              pancreatic insufficiency drug products in preparing and submitting
              these New
              Drug Applications *(“Guidance
              for Industry - Exocrine Pancreatic Insufficiency Drug Products - Submitting
              NDAs”; April 2006).*
  ULTRASE
              -
              Axcan has completed a Phase III study on ULTRASE that will serve as
              the basis of
              the New Drug Application. This study assessed the efficacy and safety
              of ULTRASE
              MT capsules in the treatment of exocrine pancreatic insufficiency in
              cystic
              fibrosis *(Aliment
              Pharmacol. Ther. 2004; 20: 1365-1371).* Additional studies on ULTRASE are currently in process. Based on the
              above
              referenced guidelines and on ongoing discussions with the FDA, the
              Company
              believes it will be able to submit a New Drug Application for ULTRASE
              in the
              first half of calendar 2007.
   VIOKASE
              -
              Clinical work that will serve as the basis of a New Drug Application
              for VIOKASE
              is currently ongoing. Based on the above referenced guidelines and
              on ongoing
              discussions with the FDA, the Company believes it will be able to submit
              a New
              Drug Application for VIOKASE in the first half of calendar 2007.
  We
              believe that some of the manufacturers of pancreatic enzyme insufficiency
              products which are currently on the market in the United States may
              not be able
              to satisfy the FDA’s requirements for NDAs for these products.
  **SUDCA
              (Ursodiol disulfate)**
  Axcan
              is
              currently studying the use of a new ursodiol derivative, ursodiol disulfate,
              in
              the treatment of recurring colorectal adenomateous polyps.
  The
              Company had previously completed a Phase II study of the effectiveness
              of URSO
              250 (ursodeoxycholic acid) in preventing the recurrence of colorectal
              adenomateous polyps in the United States and Canada, for which 792
              patients were
              randomized. The final analysis confirmed a trend in the sub-group of
              patients
              suffering from early stage colorectal cancer at baseline: a 26% reduction
              of
              polyp recurrence rate occurred in the URSO 250 group when compared
              to placebo,
              both in terms of mean number of recurring polyps at one year (0.67
              vs 0.90) and
              the average size of the polyps (0.23 vs 0.31). In the overall study
              population
              however, no statistically significant difference between the two groups
              was
              observed in terms of mean number of recurring polyps (0.97 vs 1.04)
              and average
              polyp size (0.30 vs 0.28).
  Preliminary
              results of studies conducted with ursodiol disulfate showed that ursodiol
              disulfate reduces the number of aberrant crypts in a rat model of colon
              cancer.
              Aberrant crypts are considered to be early abnormal changes in the
              intestinal
              lining that are precursors to colon cancer. In a small pilot study,
              where rats
              were injected with the carcinogen azoxymethane, a 56% reduction in
              the total
              number of aberrant crypts in the colon was observed after four weeks
              in those
              animals treated with this new ursodiol formulation compared to control
              models.
              Ursodiol disulfate alone fed to rats had no adverse effects on the
              appearance of
              the lining of the colon. Long-term animal studies are ongoing to determine
              the
              effect of ursodiol ** disulfate
              on the timing of appearance, the number, and the size of colonic tumors
              in the
              azoxymethane rat model of chemically-induced colon cancer.
  Axcan
              completed a single ascending dose Phase I study in early 2006, as well
              as a
              multiple ascending dose Phase I study in September 2006. These studies
              evaluated
              the safety, tolerability and preliminary pharmacokinetics of ursodiol
              disulfate.
              Both studies confirmed the safety and tolerability of this compound.
              Results of
              the pharmacokinetics part of the studies will soon be analyzed and
              should be
              available in the first half of calendar 2007. The Company plans to
              initiate a
              Phase II program shortly thereafter. See “Business of Axcan - Licensing and
              Intellectual Property Protection”.
  Page
                  11
 **NCX-1000**
  Axcan
              and
              its partner, NicOx S.A., are developing NCX-1000, a patented, nitric
              oxide-donating derivative of ursodiol, for the treatment of portal
              hypertension,
              a late-stage complication of some chronic, advanced liver diseases.
              The Company
              is currently conducting a “proof-of-concept” Phase IIa randomized, double-blind,
              dose-escalating study, in which patients will receive escalating doses
              of
              NCX-1000 or a placebo. Results are expected in the first half of calendar
              2007 *.* See
“Business of Axcan - Licensing and Intellectual Property
              Protection”.
  **NMK
              150**
  Axcan
              and
              Nordmark GmbH, a German pharmaceutical firm, are collaborating in the
              development of NMK 150, a new high protease pancrelipase preparation
              developed
              for the relief of pain in small duct chronic pancreatitis, which represents
              an
              unmet medical need. A dose-ranging, animal study assessing the toxicity
              of NMK
              150, paying special attention to duodenal irritation, was completed
              and
              confirmed the safety profile of this compound. A Phase I ascending
              multiple dose
              clinical trial was initiated in the second quarter of fiscal 2006 and
              results
              should be available in the first half of calendar 2007. See “Business of
              Axcan-Licensing and Intellectual Property Protection”.
  **ITAX
              (Itopride)**
  Further
              to the results of the ITAX North American Phase III study, announced
              in
              September 2006, the Company decided to suspend further development
              of Itopride
              in the treatment of Functional Dyspepsia and Diabetic Gastropathy.
              The Company
              is currently finalizing long-term safety studies that should be completed
              in the
              second half of calendar 2007. These studies are the extension to the
              previously
              conducted Functional Dyspepsia studies and are being completed for
              ethical
              purposes as the Company believes it to be its duty to provide complete
              treatment
              to patients who initially enrolled in this program.
  **2.**
                    **Sales
                        and Marketing**
  Axcan's
              sales and marketing force is comprised of 187 professionals, of which
              115 are
              sales representatives, 50 are managers and sales support and 22 are
              in
              marketing. Of these 187 professionals, 27 are located in Canada, 104
              in the
              United States and 56 in Europe.
  In
              the
              United States, Axcan sells its products to most major wholesale drug
              companies
              and distributors, which in turn distribute Axcan's products to chain
              and
              independent pharmacies, hospitals and mail order organizations. The
              64 sales
              professionals located in the United States operate in specialty groups
              that call
              on high-volume prescribing physicians, cystic fibrosis centres, hepatologists
              and transplant centres, potential and current PHOTOFRIN centres as
              well as
              third-party payors, clinical pharmacists and formularies
              administrators.
  Three
              wholesalers represented respectively 39.0%, 24.4% and 11.4% or a total
              of 74.8%
              of Axcan’s revenue for the year ended September 30, 2006 (62.1% and 55.8% in
              2005 and 2004). No other customer represented more than 10% of the
              Company’s
              revenue.
  Increasingly,
              in North America, third-party payors, such as private insurance companies
              and
              drug plan benefit managers, aim to rationalize the use of pharmaceutical
              products and medical treatments, in order to ensure that prescribed
              products are
              necessary for the patients’ conditions. Moreover, large drug store chains now
              account for an increasing portion of the retail sales of prescription
              medicines.
              The pharmacists and store managers of such retail outlets are under
              pressure to
              reduce the number of items in inventory in order to reduce costs.
  In
              Canada, Axcan sells its products to
              hospitals and wholesale drug
              companies, which in turn distribute Axcan's products to pharmacies.
              Axcan's
              major products are included in most provincial drug benefit formularies
              and are
              promoted by Axcan’s 10 sales professionals to gastroenterologists and internal
              medicine specialists with a particular interest in gastrointestinal
              diseases, as
              well as to colorectal surgeons.
  In
              France, Axcan sells its products to distributors, which in turn distribute
              them
              to wholesale drug companies, which in turn distribute them to pharmacies.
              Until
              March 1 st ,
              2006,
              Axcan's major products were included in the national drug benefit formularies.
              Effective March 1 st ,
              2006,
              the French government decided to stop the reimbursement of approximately
              200
              drugs, including LACTEOL. In order to support sales of this product
              in
  Page
                  12
 France,
              Axcan implemented measures that include, but are not limited to (1)
              the
              signature of a partnership agreement with an “Over-The-Counter” distributor and
              marketer; (2) the launch of a new 340 mg capsule formulation and; (3)
              an
              increase of wholesaler prices. As a consequence of these governmental
              measures,
              Axcan reduced its sales force in France from 64 to 45 sales representatives.
              The
              45 sales professionals regularly visit high-prescribing physicians
              to promote
              Axcan's other products.
  This
              international sales structure is complemented by Axcan's sponsorship
              of
              high-level international medical meetings on topics related to Axcan's
              products
              and research activities. As an example, the *“Trends
              in Inflammatory Bowel Disease Therapy”* meeting
              that was organized in September 2006, allowed researchers and
              gastroenterologists from around the world to meet and exchange information.
              These events are recognized by leading institutions, and continuing
              medical
              education credits are awarded to attendees. As a consequence, Axcan
              is
              recognized not only as a supplier of quality products, but also as
              an important
              link in the continuous medical education process.
  **3.**
                    **Research
                        and Development**
  Axcan's
              research and development strategy concentrates on two main areas, i.e.
              further
              development of acquired products, and development of existing products,
              including testing the efficacy of such products in other indications.
              This
              strategy allows Axcan to minimize the level of risk associated with
              new drug
              development and also to reduce the amount of time typically required
              to develop
              and obtain new product approvals.
  Axcan
              typically uses its own scientific affairs staff to carry out clinical
              trial
              protocol development, validate case report forms, and monitor clinical
              trial
              sites. Axcan also coordinates the financial aspects of clinical studies
              conducted by third parties. Specific tasks, such as data entry and
              the
              compilation of biostatistics, are contracted out to third parties.
              Pre-clinical
              toxicology and pharmacology studies are also contracted to research
              organizations. The preparation and submission of INDs or NDAs is contracted
              out
              to a consulting firm with which Axcan's research and development personnel
              maintain an open and frequent line of communication.
  Research
              and development expenses were $39.8 million for fiscal 2006 and $31.9
              million
              for fiscal 2005, compared to approximately $19.9 million for fiscal
              2004. The
              increases in fiscal 2006 and fiscal 2005 were primarily related to
              the ITAX
              clinical development program.
  **4.**
                    **Trademarks,
                        Patents, Proprietary rights and Licensing activities******
  We
              believe that trademark protection is an important part of establishing
              product
              and brand recognition. We own a number of registered trademarks and
              trademark
              applications and have acquired the rights to several trademarks by
              license.
              Axcan maintains trademarks registrations in a number of jurisdictions
              where it
              sells its products. In the United States, trademark registrations remain
              in
              force for ten years and may be renewed every ten years after issuance,
              provided
              the mark is still being used in commerce.
  A
              patent
              is a statutory private right that grants to the patentee exclusive
              rights to
              exclude others form using the patented invention during the term of
              the patent.
              A patent is territorial and may be sought in many jurisdictions. In the United
              States, as in most other countries, the term of patent protection is
              20 years
              from the date the patent application was filed. An invention may be
              patentable
              if it meets the criteria of being "new," "useful" and "non-obvious."
              Depending
              upon whether a particular drug is patentable and the relative cost
              associated
              with obtaining its issuance in a given jurisdiction, an inventor will
              either
              apply for a patent in order to protect the invention or maintain the
              confidentiality of the information to rely on the common law protection
              afforded
              to trade secrets.
  A
              company
              may also enter into licensing agreements with third-party licensors
              in order to
              obtain the right to make, use and sell certain products, thereby gaining
              access
              to know-how, secret formulas and patented technology. The value of
              a license is
              generally enhanced by the existence of one or more patents. A license
              gives the
              licensee access to developed and, in many cases, tested technology
              and provides
              the licensee faster and often less expensive entry into the market.
              Licensing
              also establishes relationships, which may provide access to additional
              products
              or technology or may lead to joint ventures or alliances affording
              the licensor
              and the licensee an opportunity to evaluate each other's products and
              technology. This is also true, to a lesser extent, for distribution
              relationships.
  Page
                  13
 Pursuant
              to license agreements with third parties, we have acquired rights to
              manufacture, use or market certain of our existing products, as well
              as many of
              our development products and technologies. Such agreements typically
              contain
              provisions requiring us to use commercially reasonable efforts or otherwise
              exercise diligence in pursuing market development for such products
              in order to
              maintain the rights granted under the agreements, and may be cancelled
              upon our
              failure to perform our payment or other obligations.
  We
              further rely and expect to continue to rely upon unpatented proprietary
              know-how
              and technological innovation in the development and manufacture of
              many of our
              principal products. Our policy is to require all our employees, consultants
              and
              advisors to enter into confidentiality agreements with us.
  Axcan
              has
              entered into several of these types of collaborative agreements with
              licensors,
              licensees and other third parties and will continue to do so. The following
              agreements have been entered into in connection with products marketed
              by Axcan
              or under development.
  **ULTRASE** :
              Axcan
              is the owner of the trademark ULTRASE and markets certain pancreatic
              enzyme
              based microspheres and minitablets under the ULTRASE and ULTRASE MT
              brands in
              North and Latin America, under an exclusive development, license and
              supply
              agreement with Eurand International S.p.A. This agreement, which was
              entered
              into in 2000, is for a period of ten years with automatic renewals
              for
              subsequent periods of two years. Axcan has paid Eurand licensing fees
              totalling
              $3.5 million, and Axcan agreed to pay to Eurand royalties of 6% on
              the first
              $30.0 million of annual net sales and 5% on annual net sales in excess
              of $30.0
              million, subject to minimum royalty payments of $750,000, $1.0 million
              and $1.5
              million in the first three years.
  **Ursodiol** :
              Axcan
              developed URSO for the Canadian market in collaboration with Falk Pharma
              GmbH
              ("Falk") and acquired the rights to manufacture, use and market URSO
              in the
              United States on March 23, 1993 through the acquisition of the shares
              of Axcan
              Pharma U.S., Inc. that it did not already own. In April 1999, Axcan
              entered into
              two agreements with Sanofi-Synthélabo S.A. of France (now, Sanofi-Aventis) that
              secured Axcan's right to manufacture, use and market URSO for the treatment
              of
              PBC in Canada and the United States. For the United States, Axcan licensed
              the
              rights to the treatment of PBC under a patent, which expires in November,
              2007.
              For Canada, Axcan acquired full ownership of the patent relating to
              the use of
              ursodiol for the treatment of PBC, which expires in 2010. In May 2006,
              the
              Canadian PBC patent was held to be invalid for the purposes of opposing
              the
              issuance of a Notice of Compliance for a generic version of URSO 250mg,
              under
              proceedings instituted by Axcan pursuant to the Canadian Patented Medicines
              (Notice of Compliance) Regulations (‘‘Regulations’’).
  In
              October 2000, Axcan entered into a licensing agreement with the Children's
              Hospital Research Foundation ("CHRF"), an operating division of Children's
              Hospital Medical Centre of Cincinnati, Ohio, for a series of patented
              sulfated
              derivatives of ursodeoxycholic acid compounds ("SUDCA" or "ursodiol
              disulfate").
              According to the terms of this agreement, Axcan has exclusive worldwide
              rights
              to commercially exploit formulations of SUDCA under the licensed patents
              and
              know-how developed by CHRF. ****
  In
              May
              2002, Axcan signed a co-development and licensing 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, Axcan obtained from NicOx an
              exclusive
              license to commercialize NCX-1000 in Canada and Poland, as well as
              an option to
              acquire the same exclusive rights for the United States. Axcan and
              NicOx will
              jointly share the cost of the future development of NCX-1000 until
              the
              completion of Phase II clinical studies. Axcan will thereafter conduct
              the
              required Phase III clinical studies and will be responsible for regulatory
              filings in the exclusively licensed territories. Axcan has paid NicOx
              an upfront
              milestone of $2.0 million and has agreed to pay other option or milestone
              payments totalling up to $17.0 million at various stages of development,
              the
              majority being payable upon approval. Axcan also agreed to pay royalties
              on net
              sales of the product.
  **SALOFALK
              and CANASA** :
              Axcan
              developed SALOFALK in collaboration with Falk. Axcan owns the trademark
              SALOFALK
              in Canada and CANASA in the United States.
  In
              October 2002, Axcan acquired from Gentium S.p.A. exclusive rights to
              develop and
              market in North America a patented four-gram rectal gel formulation
              of
              mesalamine for the treatment of active distal ulcerative colitis. In
              return,
              Axcan agreed to make milestone payments totalling approximately $1.5
              million,
              the majority of which are payable upon approval in the United States.
              Axcan also
              agreed to pay a royalty of 4% on net sales of the product
  Page
                  14
 for
              a
              ten-year period from the date of the product's launch. In August 2006,
              we
              announced that the development of this dosage form for North America
              was no
              longer being pursued by the Company.
  In
              November, 2004, Axcan obtained approval for a new 1000 mg form of its
              CANASA
              rectal suppository from the FDA and was granted data exclusivity by
              the FDA in
              connection with this approval. This means that the FDA will not approve
              an
              application for a competitive version of mesalamine which relies upon
              data
              included in our NDA. Therefore, unless an applicant for a competitive
              version of
              CANASA were to develop its own data supporting approval of an NDA,
              this data
              exclusivity will have the effect of preventing generic competition
              for CANASA
              until at least November 2007.
  **VIOKASE** :
              In
              1996, Axcan acquired from Wyeth worldwide rights to VIOKASE and the
              right to
              market the product in Canada. In 1997, Axcan also acquired the VIOKASE
              marketing
              rights for the United States and the trademark VIOKASE for Canada,
              the United
              States and certain other countries from American Home Products Corp.
              (now,
              Wyeth) and A.H. Robins Company, Inc. Axcan owns the trademark VIOKASE
              for North,
              Central and South America. This product is not subject to a patent.
  **PHOTOFRIN** :
              In June
              2000, Axcan purchased from QLT Inc. (“QLT”) the trademark “PHOTOFRIN” for the
              United States, Canada and all other countries where it has been registered
              as a
              trademark or used in marketing. Axcan also purchased, licensed or sublicensed
              from QLT, as the case may be, the worldwide rights of other assets
              and
              intellectual property related to PHOTOFRIN. As part of the transaction,
              Axcan
              acquired a European subsidiary of QLT, which holds the European regulatory
              approvals for PHOTOFRIN. The last of the patents, which form part of
              the
              acquired assets, expires in April 2013. As part of the acquisition,
              Axcan agreed
              to assume QLT's obligation to pay royalties of up to 5% on net sales
              of
              PHOTOFRIN to Health Research Inc. (“Health Research”), pursuant to arrangements
              under which Axcan is a sub-licensee of the technology that QLT licensed
              from
              Health Research. Pursuant to the terms of the transaction between Axcan
              and QLT,
              Axcan has paid to QLT milestone cash payments of CND $5.0 million.
  **PANZYTRAT** :
              In
              December 2002, Axcan acquired from Abbott certain assets related to
              the
              distribution, marketing and sale of a line of pancreatic enzyme products
              used to
              enhance the digestion of fats. This pancreatic enzyme product line
              is commonly
              marketed under the trademark PANZYTRAT. The product line is subject
              to patents
              assigned to Axcan directly from Abbott, the last of which expires in
              2008. The
              know-how and trade secrets associated with the products and their manufacture
              are the object of a perpetual unrestricted license from Abbott. The
              PANZYTRAT
              and related mark portfolio, was assigned directly from Abbott to Axcan
              Pharma
              S.A. This portfolio contains marks associated with the product line
              for a number
              of countries throughout the world.
  **DELURSAN** :
              In
              December 2002, Axcan acquired from Laboratoire Aventis and Aventis
              Pharma S.A.
              certain intellectual property rights (including the rights to the trademarks
              in
              France) and commercial rights to ursodeoxycholic acid-based products
              marketed
              under the trademark DELURSAN for France and Morocco. This product is
              not subject
              to any patent.
  **MODULON** :
              In
              1997, Axcan acquired the rights to gastroenterology products previously
              marketed
              in Canada by Jouveinal Canada Inc. (“Jouveinal”), which included MODULON. Axcan
              owns the trademark, and the product is not subject to a patent.
  **PYLERA
              (formerly known as HELIZIDE):** In
              January 2000, Axcan entered into a worldwide (excluding Australia and
              New
              Zealand) licensing agreement (which was amended in November 2000 and
              August
              2001) with Exomed Australia PTY Limited, Gastro Services PTY Limited,
              Ostapat
              PTY Limited, and Capability Services PTY Ltd. This agreement, as amended,
              provides Axcan with exclusive rights in a number of countries, including
              Canada
              and the United States, to a series of patents covering triple and quadruple
              therapies for *Hp
              (Helicobacter pylori)* eradication. These patents cover the treatment of duodenal ulcer disease
              (and in
              some countries reflux esophagitis and gastric ulcer) through the eradication
              of *Hp* using a
              bismuth compound together with two (2) or more antibiotics. Axcan paid
              approximately $1.64 million cash for the license and will pay a royalty
              based on
              sales once the product is approved. The expiry dates of these patents
              vary
              depending on the jurisdiction and expire in December 2012 in the United
              States.
  Page
                  15
 In
              May
              1999, Axcan acquired the rights to a double capsule delivery technology
              to be
              used for PYLERA from Gephar S.A. (“Gephar”), in an asset swap transaction,
              whereby Axcan sold to Gephar its interest in Axcan Ltd., a manufacturer
              and
              distributor of the PROTECTAID TM contraceptive sponge. This patent expires in December 2018 in the United
              States.
  **SCANDISHAKE,
              SCANDICAL, FLUTTER and ADEKs:** Axcan
              acquired distribution rights to SCANDISHAKE, SCANDICAL, FLUTTER and
              ADEKs for
              Canada in 1997 from Jouveinal. In 1999, Axcan acquired the rights to
              these
              products for the United States by acquiring Scandipharm, Inc. Axcan
              owns these
              trademarks, except for ADEKS which is licensed. None of these products
              is
              subject to patent protection, except for FLUTTER. FLUTTER is subject
              to patent
              protection in several countries, including the United States, the last
              of which
              is to expire in 2013.
  **TAGAMET,
              TRANSITOL and TRANSULOSE:** As a
              part of its acquisition of Laboratoire Entéris (“Entéris”) in February 2001,
              Axcan acquired the rights to Entéris’ gastrointestinal products. These products
              include TAGAMET (for the treatment of gastric or duodenal ulcers),
              TRANSITOL and
              TRANSULOSE (both of which are for the treatment of constipation). Axcan
              owns the
              trademark TAGAMET for France and the Principality of Monaco. Axcan
              also owns the
              trademarks TRANSITOL and TRANSULOSE. TAGAMET is the subject of a patent
              held by
              SmithKline Beecham Laboratories, which is licensed to Axcan for the
              life of the
              patent expiring in 2017. TRANSULOSE and TRANSITOL are the subject of
              patents
              held by Schwarz Pharma S.A. (“Schwarz”), the last of which will expire in 2017.
  **LACTEOL
              and LACTEOL FORT** ***:*** In April
              2002, Axcan acquired all of the shares of Laboratoire du Lactéol du Docteur
              Boucard (“Lacteol”) which is the owner of all of the intellectual property
              rights to the antibacterial composition marketed by Lacteol under different
              trademarks, including the trademark LACTEOL. The antibacterial composition
              is
              also subject to a patent in France and to an international patent application.
              These patents rights are owned by Axcan and a French research institute.
  **NMK
              150 and NMK 250** :
              In
              January 2003, Axcan and Nordmark Arzneimittel GmbH (“Nordmark”) created a joint
              venture to develop novel enzyme preparations, NMK 150 and NMK 250.
              In 2005 Axcan
              and Nordmark decided to terminate the joint venture with Axcan retaining
              development and worldwide marketing rights to NMK 150 and exclusive
              supply
              rights from Nordmark for finished dosage forms.
  **ITAX
              (Itopride hydrochloride)** ***:*** In
              August 2003, Abbott granted Axcan exclusive rights for North America,
              the
              European Union and Latin America to develop, manufacture and market
              Itopride
              hydrochloride for a number of gastrointestinal indications. Trademark
              applications for the ITAX brand name have been filed in several countries,
              including Canada and the United States. This compound is subject to
              patents in
              numerous countries, including Canada, the United States and European
              Union
              member states. The United States patent expires in September 2008,
              subject to
              potential extension under applicable patent term restoration legislation.
              Furthermore, as a new chemical entity, ITAX is eligible to data exclusivity
              that
              can prohibit regulatory authorities from not only approving but even
              accepting
              other new drug applications for the same active moiety. This period
              of available
              exclusivity is of up to five years in the United States and, subject
              to certain
              conditions being met, up to ten years in the European Union. Further
              to the
              results of the ITAX North American Phase III study, announced by Axcan
              in
              September 2006, the Company decided to suspend further development
              of Itopride
              in the treatment of Functional Dyspepsia and Diabetic Gastropathy.
              The Company
              is currently finalizing long-term safety studies that should be completed
              in the
              second half of calendar 2007. These studies are the extension to the
              previously
              conducted Functional Dyspepsia studies and are being completed for
              ethical
              purposes as the Company believes it to be its duty to provide complete
              treatment
              to patients who initially enrolled in this program.
  **CARAFATE,
              BENTYL, SULCRATE, BENTYLOL and PROCTOSEDYL:** In
              November 2003, Axcan acquired the rights to a group of gastrointestinal
              products
              from Sanofi-Aventis. CARAFATE and BENTYL are marketed in the United
              States and
              SULCRATE, BENTYLOL and PROCTOSEDYL are marketed in Canada. In connection
              with
              such transaction, Axcan acquired all the trademarks related to these
              products.
              These products are not subject to patents.
  **Lisapharma
              S.p.A** ***:*** In
              February 2005, the Company licensed from Lisapharma S.p.A. (“Lisapharma”), the
              rights to commercialize in North America, products in gel sachet and
              tablet
              dosage forms that contain sucralfate under and know-how patents owned
              by
              Lisapharma. Under the agreement, the Company agreed to pay license
              fees of up to
              $2.0 million over a maximum period of four years (as of September 30,
              2006, an
              amount of $1.0 million has
  Page
                  16
 been
              expensed) and make milestone payments totalling up to $3.0 million
              upon
              regulatory approvals. The Company also agreed to pay royalties of 6%
              of net
              sales for products enjoying patent protection, and for products not
              enjoying
              patent protection, a royalty of 3% for up to five years from a first
              commercial
              sale.
  **Howard
              J. Smith & Associates PTY LTD** ***:*** On May
              1, 2005, the Company signed a license and technology agreement with
              Howard J.
              Smith & Associates PTY LTD (“HSA”) to develop and market products for the
              treatment of viral hepatitis under patents owned by HSA. Under the
              agreement,
              the Company agreed to make development and commercial milestone payments
              totalling up to $17.0 million and pay royalties of 4.5% of net sales
              in
              countries where an HSA patent is in force and 2.25% of net sales in
              countries
              where no patent is in force, for a maximum of ten years after the first
              commercial sale of a product in the relevant country.
  **AGI-010** : ** On
              September 25, 2006, the Company entered into a license and co-development
              agreement with AGI Therapeutics Research Ltd (“AGI”). Pursuant to this
              agreement, AGI and the Company will co-develop a controlled release
              omeprazole
              product (“AGI-010”) for the treatment of Gastro-esophageal Reflux Disease and a
              better control of Nocturnal Acid Breakthrough. Under the agreement
              the Company
              has licensed exclusive rights to patent applications and know-how related
              to
              AGI-010 and will retain rights to any improvements to the product for North
              America and, if extended by Axcan, to other territories. The Company
              and AGI
              have further agreed to share certain development expenses, and the
              Company paid
              a $1.5 million upfront fee and may be required to make specified milestone
              payments that could total up to $17.5 million at various stages of
              development,
              up to and including regulatory approvals. The Company also agreed to
              pay
              royalties on net sales.
  **5.**
                    **Human
                        Resources******
  As
              of
              September 30, 2006, the end of Axcan's most recently completed fiscal
              year,
              Axcan employed 425 persons, of whom 110 work in production and quality
              control,
              57 in research and development, 165 in sales, 22 in marketing, and
              the balance
              in administration. Of these employees, 130 are located in the United
              States, 161
              are located in Canada and 134 are located in Europe. In Canada, Axcan
              is a party
              to a collective bargaining agreement, which expires in March 2007 and
              which
              covers 56 employees, all of whom are non-management employees. In France,
              Axcan's employees are subject to the *Convention
              Collective Nationale de l'Industrie Pharmaceutique* ,
              a
              collective bargaining agreement which applies to the entire pharmaceutical
              industry. Axcan believes that relations with both its unionized and
              non-unionized employees are good.
  In
              connection with a reorganization of its international operations due
              to the
              French government’s budgetary initiatives, the Company has also undertaken a
              reduction of its workforce in Europe. To this end, on May 2, 2006,
              the Company’s
              French subsidiary communicated a reorganization plan to the employee
              representatives in France aimed at reducing its workforce. This plan,
              which was
              accepted by the employee representatives and the relevant labour unions,
              will
              allow our French organization to increase the focus of its sales and
              marketing
              activities on gastroenterologists. Prior to the reorganization, the
              Company’s
              French subsidiary also focused on sales and marketing of our products
              to general
              practitioners prescribing a high number of gastroenterology products.
              In
              connection with this reorganization, the Company recorded a one-time
              restructuring charge of $1.7 million in the three-month period ended
              June 30,
              2006. The charge to earnings for the cost of the plan includes items
              such as
              transition assistance, legal fees and cash severance costs as well
              as other
              administrative charges .
  **6.**
                    **Facilities**
  Axcan
              owns 86,000 square feet of office space and warehousing in Mont-Saint-Hilaire,
              Quebec, the location of its corporate headquarters. The building houses
              administrative, marketing and pharmaceutical manufacturing operations
              as well as
              the research and development facilities of Axcan. Axcan further owns
              property
              next to its corporate headquarters, which could be used to expand.
              The building
              and real estate owned by Axcan is subject to security granted in favour
              of its
              lenders, pursuant to the credit facilities described under “Selected
              Consolidated Financial Information - Liquidity and Capital
              Resources.”
  Axcan
              leases approximately 20,000 square feet of office space in Birmingham,
              Alabama
              under a lease expiring in December 2008. Under this lease, Axcan pays
              annual
              rent. For the year ended December 31, 2007, the annual rent will amount
              to
              $355,418.52.
  Axcan
              owns 606,837 square feet of office space, manufacturing facilities
              and land in
              Houdan, France.
  Page
                  17
  **7.**
                    **Environment,
                        Health and Safety**
  Axcan
              is
              committed to environmental protection and the promotion of environmental
              issues.
              This includes a safe, healthy and secure environment for its employees,
              subcontractors and customers and the community in which the Company
              is operates.
  The
              Company has established a series of policies to facilitate compliance
              with
              applicable environmental laws and regulations. These policies require
              that
              business units conduct regular environmental assessments of Company
              activities,
              establish remedial and contingency plans to deal with any incidents,
              and
              establish regular processes to review and report to senior corporate
              management
              on the environmental status of the Company and its subsidiaries.
  Axcan
              generates a small amount of hazardous waste that is disposed of by
              certified
              third-party carriers. Axcan believes its approach to environmental
              compliance
              meets applicable regulatory requirements and it is not expected that
              its
              policies or practices will have a significant impact on capital expenditures,
              consolidated earnings or our competitive position.
  **8.**
                    **Risk
                        Factors**
  This
              form
              contains forward-looking statements that involve risks and uncertainties.
              Our
              actual results could differ materially from those discussed in this
              form.
              Factors that could cause or contribute to these differences include,
              but are not
              limited to, those discussed below and elsewhere in this form and in
              any
              documents incorporated in this form by reference.
  If
              any of
              the following risks, or other risks not presently known to us or that
              we
              currently believe to not be significant, develop into actual events,
              then our
              business, financial condition, results of operations or prospects could
              be
              materially adversely affected. If that happens, the market price of
              our common
              stock could decline, and stockholders may lose all or part of their
              investment.
  The
              risks
              stated below are not necessarily listed in order of importance.
  **Axcan
              currently depends on four groups of products for a large portion of
              its sales,
              and substantial sales declines in any of them would have an adverse
              impact on
              its business.**
 Any
              factor that adversely affects the sale or price of Axcan’s key products could
              significantly decrease its sales and profits. ULTRASE, URSO 250/URSO
              DS/URSO
              Forte, CANASA and CARAFATE/SULCRATE accounted for 13.4%, 21.1%, 18.2%
              and 15.0%
              respectively, of the Company’s total revenues for the year ended September 30,
              2006. Axcan believes that sales of these products will continue to
              constitute a
              significant portion of its total revenues until it launches any new
              product. Any
              significant setback with respect to any one of these products, including
              shipping, manufacturing, product safety, marketing, government licenses
              and
              approvals, intellectual property rights problems, or generic competition,
              could
              have a material adverse effect on the company’s financial position, cash flows
              or overall trends in results of operations.
 
 **Wholesaler
              buying patterns may change, and this could have a detrimental effect
              on our
              future revenue and financial condition.**
 Wholesalers,
              on whom Axcan largely depends for revenue generation, historically
              obtained
              profitability by practicing inventory price arbitrage. Ahead of routine
              increases in prices for drugs, wholesalers would purchase excess inventory
              at
              lower prices and resell the inventory after the price increase, thereby
              profiting. This inventory price arbitrage was predominantly how wholesalers
              were
              compensated for the distribution services they provided and had a dramatic
              effect on wholesaler buying patterns as they invested in inventories
              in
              anticipation of generating higher gross margins from price increases
              from
              manufacturers. Recently, pharmaceutical manufacturers have not been
              increasing
              drug price increases as frequently, and the percentage increases have
              been
              lower. The reduction in the size and frequency of price increases contributed
              to
              wholesalers turning to a fee-for-service arrangement under which their
              fees are
              expressed as a percentage of the wholesaler’s purchases from the manufacturer or
              as an amount per unit. As a result, wholesalers’ buying patterns shifted from
              large pre-price-increase purchases to more periodic purchasing based
              on volume
              activity. Overall, wholesalers are carrying lower levels of inventory
              than in
              the past. This change in wholesaler’s business model affected Axcan’s
              revenue
  Page
                  18
 since
              fiscal 2005, and the resulting distribution services agreement (“DSA”) fees,
              totalled $2.7 million for the year ended September 30, 2006, are deducted
              from
              revenues. In the fourth quarter ended September 30, 2006 the Company
              chose to
              adopt the classification of these fees as a deduction from sales. Previously,
              these fees were included in selling and administrative expenses. As
              a result,
              sales were reduced by $2.7 million in the fourth quarter of fiscal
              2006. Fees
              associated with these agreements incurred in 2005 were not material.
              It is
              possible that changes in wholesaler buying patterns may occur in the
              future, and
              these changes could result in a reduction in our revenues and could
              have
              detrimental effect on our overall financial condition or trends in
              results of
              operations.
 
 **Axcan
              must be able to continue to manage rapid growth.**
 Largely
              as a result of past acquisitions of products and companies, Axcan has
              experienced a substantial increase in sales and in the number of its
              employees.
              Since September 30, 1998, the number of employees increased from 79
              to 425. In
              addition, as a result of acquisitions, the Company has expanded into
              Western
              Europe. Axcan’s employees in Europe now represent 31% of the workforce. Axcan’s
              failure to manage such growth effectively and to continue to improve
              and
              consolidate its management controls, reporting systems and procedures
              would
              reduce profitability.
 
 **Axcan
              relies on third parties for the supply and manufacture of certain products
              and
              loss of access to such third parties would impair its ability to carry
              on
              business.**
 Axcan
              depends on third parties for the supply of active ingredients and for
              the
              manufacture of most of its products. The Company may not be able to
              obtain the
              active ingredients or products from such third parties; the third-party
              suppliers and manufacturers may not be qualified by regulatory authorities
              to
              act as its suppliers and manufacturers; the active ingredients or products
              may
              not comply with specifications; the prices at which Axcan purchases
              active
              ingredients and products may increase significantly; the Company’s suppliers and
              manufacturers may experience shutdowns or contaminations of their facilities;
              and, in any such event, Axcan may not be able to locate alternative
              sources of
              supply in a reasonable time period, if at all. If any of these events
              occur, the
              Company may not be able to continue to market certain of its products
              and its
              sales and profitability would be adversely affected.
 
 **Axcan
              may not be able to acquire new products or businesses.**
 Axcan’s
              products are maturing and therefore a significant component of its
              strategy is
              growth through acquisitions. However, the Company cannot be certain
              that it will
              be able to identify appropriate acquisition candidates. If an acquisition
              candidate is identified, there can be no assurance that Axcan will
              be able to
              successfully negotiate the terms of any such acquisition, finance such
              acquisition or integrate such acquired product or business into its
              existing
              business. Axcan faces significant competition from other pharmaceutical
              companies, which makes it more difficult to find attractive transaction
              opportunities for products or companies on acceptable terms. Furthermore,
              the
              negotiation of potential acquisitions could divert management’s time and
              resources and require significant financial resources to consummate.
              Failure to
              acquire new products may diminish the Company’s rate of growth and adversely
              affect its competitive position.
 
 **Acquisitions
              that Axcan may undertake will involve a number of inherent risks, any
              of which
              could cause the Company not to realize the anticipated
              benefits.**
 Acquisition
              transactions involve various inherent risks, such as assessing the
              value,
              strengths, weaknesses, contingent and other liabilities and potential
              profitability of the acquisition; the potential loss of key personnel
              of an
              acquired business; the ability to achieve identified operating and
              financial
              synergies anticipated to result from an acquisition and unanticipated
              changes in
              business, industry or general economic conditions that affect the assumptions
              underlying the acquisition. Any one or more of these factors could
              cause Axcan
              not to realize the anticipated benefits from the acquisition of businesses
              or
              products.
 
 **Axcan’s
              failure to obtain FDA approval for ULTRASE, one of its key products,
              will impair
              its ability to generate sales and profits.**
 In
              April
              2004, the FDA formally notified manufacturers of pancreatic insufficiency
              products that these drugs had to get approval by the FDA before May
              2008 in
              order to remain on the market. The FDA decided to require approval
              of NDAs for
              all pancreatic extract drug products after reviewing data that showed
              substantial variation among currently marketed products. Axcan’s enterically
              coated pancreatic enzyme minitablet formulation marketed under the
              trademark
              ULTRASE accounted for 13.2%, or $38.7 million, of sales for fiscal
              2006. If
              Axcan were unable to obtain FDA approval to market ULTRASE, it would
              no longer
              be able to sell ULTRASE in the United States, which would impair its
              results of
              operations and liquidity.
  Page
                  19
 **Axcan
              may find it difficult to achieve market acceptance of its product
              pipeline.**
 Axcan
              has
              products at various stages of development, some of which are not yet
              being
              marketed. In the event such products are marketed, they may not be
              accepted by
              physicians or patients and even if initially accepted, sales may thereafter
              decline. Axcan’s failure to successfully develop and market its product
              candidates would diminish or reduce its rate of growth and adversely
              affect its
              competitive position.
 
 **If
              Axcan’s products under development fail in clinical studies or if Axcan fails
              or
              encounters difficulties in obtaining regulatory approval for new products
              or new
              indications of existing products, Axcan will not successfully develop
              its
              product pipeline and will have expended significant resources for no
              return.**
 Axcan
              has
              limited experience in obtaining regulatory approvals in the United
              States,
              Canada and Europe for new products or new indications of existing products.
              The
              Company relies on third parties to formulate, develop and manufacture
              some of
              the materials needed for clinical trials for its products under development.
              Axcan also relies on third parties to conduct clinical trials. If its
              products
              are not successful in clinical trials or if the Company does not obtain
              regulatory approvals, it will have expended significant resources for
              no return.
              Axcan’s ongoing clinical studies might be delayed or halted or additional
              studies might be required, for various reasons, including if:
 ·  the
              Company’s products are shown not to be effective;
 ·  the
              Company does not comply with requirements concerning the investigational
              NDAs or
              New Drug Submissions (‘‘NDSs’’) for the protection of the rights and welfare of
              human subjects;
 ·  patients
              experience unacceptable side effects or die during clinical trials;
 ·  patients
              do not enrol in the studies at the rate the Company expects;
 ·  a
              drug is
              modified during testing; or
 ·  product
              supplies are delayed or are not sufficient to treat the patients participating
              in the studies.
 
 If
              Axcan
              cannot obtain regulatory approvals for the products it is developing
              or it may
              seek to develop in the future, its rate of sales growth and competitive
              position
              will suffer.
 
 If
              regulatory approval of any product is granted, it will be limited to
              those
              indications for which the product has been shown to be safe and effective,
              as
              demonstrated to the regulatory authorities satisfaction through clinical
              studies. We are developing NCX-1000 as a treatment for portal hypertension,
              as
              well as studying NMK 150 for pain associated with chronic pancreatitis.
              In
              addition, we are developing SUDCA as a compound for the prevention
              of recurrence
              of colorectal polyps, as well as studying AGI-010 for the treatment
              GERD and a
              better control of Nocturnal Acid Breakthrough. We might not ever receive
              regulatory approval for these compounds in these indications, and without
              approval, we cannot market or sell these compounds for use in these
              indications.
  Approval
              might entail ongoing requirements for post-marketing studies. Even
              if regulatory
              approval is obtained, labelling and promotional activities are subject
              to
              continual scrutiny by the regulatory agencies, in particular the FDA,
              and, in
              some circumstances, the Federal Trade Commission. FDA enforcement policy
              prohibits the marketing of approved products for unapproved, or off-label,
              uses.
              These regulations and the FDA’s interpretation of them might impair our ability
              to effectively market our products.
 
 We
              and
              our third-party manufacturers are also required to comply with the
              applicable
              FDA current Good Manufacturing Practices regulations, which include
              requirements
              relating to quality control and quality assurance, as well as the corresponding
              maintenance of records and documentation. Furthermore, manufacturing
              facilities
              must be approved by regulatory authorities before they can be used
              to
              manufacture our products, and they are subject to additional inspections.
              If we
              fail to comply with any of the FDA’s or other relevant foreign counterparts
              continuing regulations, we could be subject to sanctions, including:
 ·
                    delays,
                        warning letters and fines;
 ·
                    product
                        recalls or seizures and injunctions on
                        sales;
 ·
                    refusal
                        to review pending applications;
 ·
                    total
                        or partial suspension of
                        production;
 ·
                    withdrawals
                        of previously approved marketing applications,
                        and
 ·
                    civil
                        penalties and criminal
                        prosecutions.
 
 In
              addition, identification of side effects after a drug is on the market
              or the
              occurrence of manufacturing problems could cause subsequent withdrawal
              of
              approval, reformulation of the drug, additional testing or changes
              in labelling
              of the product.
  Page
                  20
 **Axcan
              may not be able to obtain third-party reimbursement for the cost of
              its products
              and related medical treatments.**
 Axcan’s
              ability to successfully market its products depends, in part, on whether
              appropriate reimbursement levels for its products and related treatments
              are
              available from government authorities, managed care organizations and
              other
              third-party payors. Third-party payors increasingly challenge the pricing
              of
              pharmaceutical products. In addition, the trend towards managed healthcare
              in
              the United States and legislative proposals to reform healthcare and
              government
              insurance programs could significantly influence the purchase of pharmaceutical
              products, resulting in lower prices and a reduction in product demand.
              New
              legislation or regulation may affect the health care industry or third-party
              coverage and reimbursement, and the Company cannot predict the effect
              or timing
              of such legislation or regulation.
 
 Uncertainty
              also exists regarding the reimbursement status of certain newly-approved
              pharmaceutical products and reimbursement may not be available for
              some of
              Axcan’s products. Any reimbursements granted may not be maintained or limits
              on
              reimbursements available from third-party payors may reduce the demand
              for, or
              negatively affect the price of, these products. If Axcan’s products do not
              qualify for reimbursement, if reimbursement levels diminish, or if
              reimbursement
              is denied, the Company’s sales and profitability would be adversely
              affected.
 
 **Sales
              of Axcan’s products directly to patients located in the United States by
              resellers located outside the United States, or sales of the Company’s products
              in the United States but sourced outside the United States, would have
              an
              adverse effect on its sales and profits.**
 Sales
              of
              products directly from outside the United States to patients with prescriptions
              for Axcan’s products located in the United States would have a material adverse
              effect on the Company’s profitability. The prices of Axcan’s products in Canada
              are typically lower than in the United States and therefore such sales
              would,
              should they occur on a large scale, have a material adverse effect
              on the
              Company’s revenues and profitability. In particular, on October 28, 2000 the
              United States Congress passed the Medicine Equity and Drug Safety Act
              (the
‘‘Reimportation Act’’). The Reimportation Act permits pharmacists and
              wholesalers to import prescription drugs from Australia, Canada, Israel,
              Japan,
              New Zealand, Switzerland, South America and the countries forming part
              of the
              European Union and the European Free Trade Association, that were made
              originally in the United States and then exported to other countries,
              or to
              import drugs made overseas. Currently, due to concerns about public
              safety by
              the U.S. Secretary of Health and Human Services, the Reimportation
              Act is not
              being applied. Prior to the law being applied by the FDA, safeguards
              must be
              established to ensure that the drugs imported comply with existing
              United States
              legislative norms (with respect to safety and effectiveness for their
              intended
              use) and with other applicable requirements of the U.S. Food, Drug
              and Cosmetics
              Act. In addition, the U.S. Secretary of Health and Human Services must
              demonstrate to Congress that the implementation of the law will pose
              no
              additional risk to the public’s health and safety and will result in a
              significant reduction in the cost of covered products to the American
              consumer.
              Axcan does not know whether this law will be applied in the future.
              Typically,
              prices for pharmaceutical products tend to be lower outside of the
              United
              States; reimportation of its products under the Reimportation Act,
              if this law
              becomes effective, could affect the demand for the Company’s products sold in
              the United States or affect the price at which they are sold, which
              in turn
              could decrease its revenues or profitability.
 
 **Axcan
              depends on key scientific, sales and managerial personnel for continued
              success.**
 Much
              of
              Axcan’s success to date has resulted from the skills of certain of its officers,
              scientific personnel and sales force. If these individuals were no
              longer
              employed by Axcan, the Company might not be able to attract or retain
              employees
              with similar skills or carry out its business plan.
 
 **The
              pharmaceutical industry is highly competitive and is subject to rapid
              and
              significant technological change that could render certain of Axcan’s products
              and treatments obsolete or uncompetitive.**
 Axcan’s
              products face intense competition. Axcan competes with companies in
              North
              America and other countries, including major pharmaceutical and chemical
              companies, research and development firms, universities, and other
              research
              institutions. Many of the Company’s competitors have greater financial resources
              and marketing capabilities than Axcan. Some of the Company’s competitors have
              greater experience than Axcan in clinical testing, human clinical trials
              of
              pharmaceutical products and obtaining regulatory approvals.
 
 Axcan’s
              existing competitors and potential competitors may succeed in developing
              products or treatments that are more effective and less expensive to
              use than
              any products or treatments the Company may develop or license or that
              may render
              its products or treatments obsolete. This would adversely affect the
              Company’s
              rate of growth and competitive position.
  Page
                  21
 **Axcan
              faces competition from products that could lower prices and unit
              sales.**
 Some
              of
              Axcan’s key products compete with other branded products and generic versions.
              Third-party payors and pharmacists can substitute generics for the
              Company’s
              products even if physicians prescribe its products by name. Government
              agencies
              and third-party payors often put pressure on patients to purchase generic
              products instead of brand-name products as a way to reduce healthcare
              costs. An
              increase in the amount of generic competition against any one or more
              of Axcan’s
              products would lower prices and unit sales and could therefore have
              a material
              adverse effect on the Company’s profitability.
 
 **Axcan
              is uncertain of the risks of future litigation and of the outcome of
              current
              litigation.**
 In
              general, and subject to the terms of each specific agreement, Axcan
              has agreed
              to indemnify its licensors and certain of its contract manufacturers
              for product
              liability claims and there is a risk that Axcan will be subject to
              product
              liability claims and claims for indemnification from licensors. A substantial
              portion of the Company’s revenues are derived and will continue to be derived
              from activities in the United States, where pharmaceutical companies
              are exposed
              to a higher risk of litigation than in other jurisdictions.
 
 Currently
              in the United States, Axcan maintains claims-based product liability
              insurance
              coverage, including in respect of its ULTRASE, PHOTOFRIN, URSO 250/URSO
              Forte,
              CANASA, VIOKASE, CARAFATE and BENTYL products. Axcan cannot be certain
              that
              existing or future insurance coverage available to the Company will
              be adequate
              to satisfy any or all future product liability claims and defence
              costs.
 
 **Axcan’s
              business is subject to limitations imposed by government
              regulations.**
 Governmental
              agencies in the countries in which Axcan conducts business regulate
              pharmaceutical products intended for human use. Regulations require
              extensive
              clinical trials and other testing in addition to governmental review
              and final
              approval before products can be marketed. Governmental authorities
              in such
              countries also regulate the research and development, manufacture,
              distribution,
              promotion, testing and safety of products, and therefore, the cost
              of complying
              with governmental regulations can be substantial.
 
 Requirements
              for approval can vary widely from country to country. A product must
              be approved
              by regulatory authorities in each country in which a company intends
              to market
              it, prior to the commencement of marketing in such country. There are
              long
              delays in obtaining required clearances from regulatory authorities
              in any
              country after applications are filed. There can be no assurance that
              Axcan will
              obtain regulatory approvals in such countries or that Axcan will not
              incur
              significant costs in obtaining or maintaining such regulatory approvals.
              Moreover, the regulations applicable to its existing and future products
              may
              change.
 
 Government
              regulations also require detailed inspection and control of research
              and
              laboratory procedures, clinical studies, manufacturing procedures and
              marketing
              and distribution methods, all of which significantly increase the level
              of
              difficulty and the costs involved in obtaining and maintaining the
              regulatory
              approval for marketing new and existing products. Moreover, regulatory
              measures
              adopted by governments provide for the possible withdrawal of products
              from the
              market and in certain cases, suspension or revocation of the required
              approvals
              for their production and sale.
 
 Failure
              to obtain necessary regulatory approvals; the restriction, suspension
              or
              revocation of existing approvals; or any other failure to comply with
              regulatory
              requirements would restrict or impair Axcan’s ability to market its products and
              carry on business.
 
 **Axcan
              relies on the intellectual property of others and may not be able to
              protect its
              own intellectual property.**
 Axcan’s
              continued success will depend, in part, on its ability to protect and
              maintain
              intellectual property rights and licensing arrangements for its products.
              Proprietary rights in some of the Company’s products are held by third parties
              and Axcan has obtained licenses to any such proprietary rights that
              are known to
              Axcan. Axcan cannot be certain that the licenses, rights or patents
              used by the
              Company will not be challenged by third parties.
 
 To
              protect its own intellectual property, Axcan has historically relied
              on patents
              and trade secrets, know-how and other proprietary information, as well
              as
              requiring its employees and other vendors and suppliers to sign confidentiality
              agreements. However, confidentiality agreements may be breached, and
              Axcan may
              not have adequate remedies for any breach. Third parties may gain access
              to the
              Company’s proprietary information or may independently develop substantially
              equivalent proprietary information.
  Page
                  22
 Axcan’s
              inability to protect and maintain intellectual property rights in its
              products
              may impair its competitive position and adversely affect its growth.
              If a
              lawsuit is commenced with respect to any alleged patent or trademark
              infringement by the Company, the uncertainties inherent in such litigation
              make
              the outcome difficult to predict and the costs that Axcan may incur
              as a result
              may have an adverse effect on its profitability. Any such lawsuit may
              result in
              the award of monetary damages to the patent or trademark holder and
              payment by
              Axcan of any such damages, or an injunction prohibiting all of its
              business
              activities that infringe the patent or trademark, would in each case
              adversely
              affect the Company’s profitability and its business.
 
 **Our
              intellectual property rights might not afford us with meaningful protection.**
 Our
              intellectual property rights with respect to our products might not
              afford us
              with meaningful protection from generic and other competition. In addition,
              because our strategy is to in-license or acquire pharmaceutical products
              which
              typically have been discovered and initially researched by others,
              future
              products might have limited or no remaining patent protection due to
              the time
              elapsed since their discovery. Competitors could also design around
              any of our
              intellectual property or otherwise design competitive products that
              do not
              infringe our intellectual property.
  Upon
              patent expiration, our drugs could be subject to generic competition,
              which
              could negatively affect our pricing and sales volume. The patent for
              the use of
              URSO in Primary Biliary Cirrhosis expires in November 2007. In May
              2006, the
              Canadian patent for the use of URSO was held to be invalid for the
              purposes of
              opposing the issuance of a Notice of Compliance for a generic ursodiol
              250mg
              product, under proceedings instituted by Axcan pursuant to the Canadian
              Patented
              Medicines (Notice of Compliance) Regulations (‘‘Regulations’’).
  In
              November, 2004, Axcan obtained approval for a new 1000 mg form of its
              CANASA
              rectal suppository from the FDA and was granted data exclusivity by
              the FDA in
              connection with this approval. This exclusivity means that the FDA
              will not
              approve an application for a competitive version of mesalamine which
              relies upon
              data included in our NDA. Therefore, unless an applicant for a competitive
              version of CANASA were to develop its own data supporting approval
              of an NDA,
              this data exclusivity will have the effect of preventing generic competition
              for
              CANASA until at least November 2007.
 
 Because
              ULTRASE and SULCRAFATE/SULCRATE are older products, there are no patents
              or data
              exclusivity rights available, subjecting us to greater risk of generic
              competition for those products.
 
 We
              also
              rely on trade secrets, proprietary know-how and technological advances,
              which we
              seek to protect, in part, through confidentiality agreements with collaborative
              partners, employees and consultants. These agreements might be breached
              and we
              might not have adequate remedies for any breach. In addition, our trade
              secrets
              and proprietary know-how might otherwise become known or be independently
              developed by others.
 
 Any
              litigation that we become involved in to enforce intellectual property
              rights
              could result in substantial cost to us. In addition, claims by others
              that we
              infringe their intellectual property could be costly. Our patent or
              other
              proprietary rights related to our products might conflict with the
              current or
              future intellectual property rights of others. Litigation or patent
              interference
              proceedings, either of which could result in substantial cost to us,
              might be
              necessary to defend any patents to which we have rights and our other
              proprietary rights or to determine the scope and validity of other
              parties’
proprietary rights. The defence of patent and intellectual property
              claims is
              both costly and time-consuming, even if the outcome is favourable.
              Any adverse
              outcome could subject us to significant liabilities to third parties,
              require
              disputed rights to be licensed from third parties, or require us to
              cease
              selling one or more of our products. We might not be able to obtain
              a license to
              any third-party technology that we require to conduct our business,
              or, if
              obtainable, that technology might not be available at a reasonable
              cost.
  **We
              could be exposed to significant product liability claims that could
              prevent or
              interfere with our product commercialization efforts.**
 We
              might
              be subjected to product liability claims that arise through the testing,
              manufacturing, marketing and sale of our products. These claims could
              expose us
              to significant liabilities that could prevent or interfere with our
              product
              commercialization efforts. Product liability claims could require us
              to spend
              significant time and money in litigation or to pay significant damages.
              Although
              we currently maintain liability coverage for both clinical trials and
              the
              commercialization of our products, it is possible that this coverage
              will be
              insufficient to satisfy any liabilities that may arise. In the future,
              we might
              not be able to obtain adequate coverage at an acceptable cost or might
              be unable
              to obtain adequate coverage at all.
  Page
                  23
 **Axcan’s
              credit agreement imposes restrictions on the Company.**
 Axcan’s
              credit agreement requires the Company to maintain specified financial
              ratios.
              The credit agreement also contains customary covenants relating to
              its ability
              to incur additional indebtedness, make future acquisitions, enter into
              certain
              related party transactions, consummate asset dispositions, incur capital
              expenditures and make restricted payments. All of these restrictions
              may limit
              Axcan’s ability to expand, pursue its business strategies and obtain additional
              funds. Axcan’s ability to meet these financial ratios and to comply with these
              covenants may be affected by changes in business conditions or results
              of
              operations, adverse regulatory developments and other events beyond
              the
              Company’s control. Axcan cannot assure that it will meet these financial ratios
              or continue to comply with these covenants. Failure to comply with
              these
              restrictions may result in the occurrence of an event of default under
              the
              credit agreement. Upon the occurrence of an event of default, the lenders
              may
              terminate the credit agreement and demand immediate payment of all
              amounts
              borrowed by Axcan under that agreement.
 
 **Additional
              financing will cause increased dilution, an increase in debt levels,
              or
              both.**
 The
              research, development, manufacturing and marketing of products and
              the
              acquisition of new products and companies requires the application
              of
              considerable financial resources, while the revenues that are generated
              from
              such products may not be realized for a number of years. If Axcan requires
              additional capital to fund such activities, it may seek additional
              debt or
              equity financing or both. If Axcan increases its debt levels, it may
              be
              restricted in its ability to raise additional capital and may be subject
              to
              additional financial and restrictive covenants, which may impede its
              ability to
              grow or carry on its business. If Axcan issues additional equity, holders
              of
              common shares will suffer dilution of their ownership interest, which
              could be
              substantial. There can be no assurance that Axcan will be successful
              in securing
              such financing.
 
 **Axcan’s
              quarterly results may fluctuate.**
 Axcan’s
              quarterly operating results have fluctuated in the past and may continue
              to
              fluctuate in the future. Factors, many of which are not within the
              Company’s
              control, that could cause quarterly operating results to decline include
              the
              size and timing of product orders, which can be affected by customer
              budgeting
              and buying patterns. As a result, if customer buying patterns cause
              revenue
              shifts from one fiscal quarter to another, Axcan’s net income for the subsequent
              quarter may not meet the market’s expectations.
 
 **Axcan’s
              common shares are subject to market price volatility.**
 Market
              prices for the securities of pharmaceutical companies, including Axcan’s, have
              historically been highly volatile, and from time to time, the market
              has
              experienced significant price and volume fluctuations that are unrelated
              to the
              operating performance of particular companies. In addition, factors
              such as
              fluctuations in operating results which do not correspond to market
              expectations, future acquisitions, public announcements, concerns as
              to the
              safety of drugs, timing and approvals of product candidates, and general
              market
              conditions may have an adverse effect on the market price of Axcan’s common
              shares.
 
 **Axcan
              might be impacted by unfavourable decisions in any possible procedures
              related
              to any future tax assessment.**
 Axcan
              operates in a number of jurisdictions and is from time to time subject
              to audits
              and reviews by taxation authorities in the relevant jurisdictions with
              respect
              to income, consumption, payroll and other taxes and remittances, for
              current as
              well as past filings. Accordingly, the Company is subject to future
              tax
              assessments by relevant authorities. Any future tax assessment or any
              amount we
              might be required to pay in connection with an assessment may have
              a material
              adverse effect on the Company’s financial position, cash flows or overall trends
              in results of operations. There is the possibility of a material adverse
              impact
              on the results of operations of the period in which the matter is ultimately
              resolved, if it is resolved unfavourably, or in the period in which
              an
              unfavourable outcome becomes probable and reasonably estimable.
 
 **9.**
                    **Convertible
                        Debenture Offering**
  On
              March
              5, 2003, Axcan completed a $125 .0 million
              offering of 4 1/4% convertible subordinated notes due 2008. Proceeds
              were used
              for general corporate purposes, including acquisitions of products. The
              notes
              are convertible into 8,924,113 common shares during any quarterly conversion
              period if the closing price per share for at least 20 consecutive trading
              days
              during the 30 consecutive trading-day period ending on the first day
              of the
              conversion period exceeds 110 % of the conversion price in effect on
              that
              thirtieth trading day *.* The
              notes
              are also convertible during the five business-day period following
              any ten
              consecutive trading-day period in which the daily average of the trading
              prices
              for the notes was less than 95% of the average conversion value for
              the notes
              during that
  Page
                  24
 period.
              The noteholders may also convert their notes upon the occurrence of
              specified
              corporate transactions or if the Company has called the notes for redemption.
              Since April 20, 2006, the Company may at its option, redeem the notes,
              in whole
              or in part at redemption prices varying from 101.7% to 100.85% of the
              principal
              amount plus any accrued and unpaid interest to the redemption date.
              The notes
              also include provisions for the redemption of all the notes for cash
              at the
              option of the Company following certain changes in tax treatment.
 
 **PART
              IV - SELECTED CONSOLIDATED FINANCIAL INFORMATION**
  (in
              thousands of U.S. dollars, except share related data)
  **Last
              three fiscal years (audited)**
  **Fiscal
                        Year, Ended September 30****2006**
                    
                    
                    **2005**
                    
                    
                    **2004****$**
                    
                    
                    $
                    
                    
                    **$****Statement
                        of Operations Data:**
                      **U.S.
                        GAAP**Revenue
                    
                    
                    292,317
                    
                    
                    251,343
                    
                    
                    243,634Cost
                        of goods sold
                    
                    
                    72,772
                    
                    
                    71,534
                    
                    
                    54,247Selling
                        and administrative expenses
                    
                    
                    93,338
                    
                    
                    85,997
                    
                    
                    76,365Research
                        and development expenses
                    
                    
                    39,789
                    
                    
                    31,855
                    
                    
                    19,866Depreciation
                        and amortization
                    
                    
                    22,823
                    
                    
                    21,532
                    
                    
                    16,359Partial
                        write-down of intangible assets
                    
                    
                    5,800
                    
                    
                    --
                    
                    
                    --234,522
                    
                    
                    210,918
                    
                    
                    166,837**Operating
                        income**
                    
                    
                    **57,795**
                    
                    
                    **40,425**
                    
                    
                    **76,797**Financial
                        expenses
                    
                    
                    6,988
                    
                    
                    7,140
                    
                    
                    6,885Interest
                        income
                    
                    
                    (5,468
                    )
                    
                    (1,340
                    )
                    
                    (756
                    )Gain
                        on foreign currency
                    
                    
                    (1,110
                    )
                    
                    (213
                    )
                    
                    (313
                    )**410**
                    
                    
                    **5,587**
                    
                    
                    **5,816**Income
                        before income taxes
                    
                    
                    57,385
                    
                    
                    34,838
                    
                    
                    70,981Income
                        taxes
                    
                    
                    18,266
                    
                    
                    8,413
                    
                    
                    22,253**Net
                        income**
                    
                    
                    **39,119**
                    
                    
                    **26,425**
                    
                    
                    **48,728**
  Page
                  25
  **Fiscal
                        Year, Ended September 30,****2006**
                    
                    **2005**
                    
                    **2004****$**
                    
                    
                    $
                    
                    
                    **$****U.S.
                        GAAP**Net
                        income
                    
                    
                    39,119
                    
                    
                    26,425
                    
                    
                    48,728Income
                        Per Common Share(1)Basic
                    
                    
                    0.86
                    
                    
                    0.58
                    
                    
                    1.08Diluted
                    
                    
                    0.79
                    
                    
                    0.56
                    
                    
                    0.96**Balance
                        Sheet Data:**
                      **U.S.
                        GAAP**Total
                        assets
                    
                    
                    695,817
                    
                    
                    641,407
                    
                    
                    609,644Total
                        liabilities
                    
                    
                    228,393
                    
                    
                    223,803
                    
                    
                    217,568Total
                        shareholders’ equity
                    
                    
                    467,424
                    
                    
                    417,604
                    
                    
                    392,076(1)Based
                        on the weighted average number of shares outstanding during
                        the
                        year.
 
 Reference
              is made to Note 22 to the audited consolidated statements of the Company
              prepared in accordance with U.S. GAAP for the fiscal year ended September
              30,
              2006 for a summary of the reconciliation of U.S. GAAP to Canadian
              GAAP.
  **PART
              V - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**
 **AND
              OPERATING RESULTS**
  Please
              refer to the Management's Discussion and Analysis section included
              in the 2006
              Annual Report that is incorporated herein by reference *.*
 
 **PART
              VI - DIVIDEND POLICY**
   Axcan
              currently intends to retain future earnings to finance the development
              of its
              business and, accordingly, does not anticipate paying dividends on
              its common
              shares in the near future. In addition, the terms of Axcan's existing
              credit
              facilities restrict its ability to declare and pay dividends to 10%
              of
              consolidated net earnings for the preceding fiscal year.
 Page
                  26
 **PART
              VII - DESCRIPTION OF CAPITAL STRUCTURE**
  The
              authorized share capital of the Company consists of an unlimited number
              of
              Common Shares, 14,175,000 Series A preferred shares and 12,000,000
              Series B
              preferred shares. None of such Preferred Shares are issued and
              outstanding.
  **1.**
                    **Common
                        Shares**
  The
              common shares are entitled to receive dividends as and when declared
              by the
              Board of Directors and, unless otherwise provided by legislation, are
              entitled
              to one vote per common share on all matters to be voted on at all meetings
              of
              shareholders. Upon the voluntary or involuntary liquidation, dissolution
              or
              winding-up of the Company, the holders of Common Shares are entitled
              to share
              rateably in the remaining assets available for distribution, after
              payment of
              liabilities.
  **2.**
                    **Preferred
                        Shares**
  The
              preferred shares are issuable from time to time in one or more series.
              The Board
              of Directors is authorized to fix before issue the number of, the consideration
              per share of, the designation of, and the provisions attaching to,
              the shares of
              each series. The preferred shares of each series rank on a parity with
              the
              preferred shares of every other series and are entitled to preference
              over the
              common shares and any other shares ranking junior to the preferred
              shares with
              respect to the payment of dividends and distribution of assets in the
              event of
              liquidation, dissolution or winding up of the Company. If any cumulative
              dividends or amounts payable on a return of capital are not paid in
              full, the
              preferred shares of all series participate ratably in accordance with
              the
              amounts that would be payable on such shares on the return of capital
              if all
              amounts so payable were paid in full, as the case may be.
 Page
                  27
 **PART
              VIII - DIRECTORS AND OFFICERS**
   The
              following tables set forth the name, municipality of residence, and
              principal
              position of each of Axcan's directors and senior officers (information
              regarding
              residence and principal occupation if not employed by Axcan is provided
              in
              reliance on information provided by the individual):
   **DIRECTORS**
  **Name
                        and**
                      **municipality
                        of residence**
                    
                    **Director
                        since**
                    
                    **Principal
                        occupation**Léon
                        F. Gosselin
                      Mont
                        Saint-Hilaire, Quebec
                      *Chairman
                        of the Board*
                    
                    1993
                    
                    Chairman
                        of the Board of the CompanyDr.
                        Claude Sauriol
                      Laval,
                        Quebec
                      *Member
                        of the Audit Committee*
                    
                    1993
                    
                    Consultant
                        and Corporate Director of pharmaceutical companiesFrançois
                        Painchaud
                      St-Lambert,
                        Quebec
                      *Secretary*
                    
                    1995
                    
                    Partner,
                        Léger Robic Richard, g.p. (law firm) and Robic, g.p. (patent
&
                        trade-mark agents)Colin
                        R. Mallet
                      Vancouver,
                        British Columbia
                      *Member
                        of the Corporate Governance and Nominating Committee*
                      *Member
                        of the Compensation Committee*
                    
                    1995
                    
                    Corporate
                        Director of pharmaceutical companiesLouis
                        Lacasse
                      Montreal,
                        Quebec
                      *Chair,
                        Audit Committee*
                      *Member
                        of the Compensation Committee*
                    
                    1995
                    
                    President,
                        GeneChem Management Inc.a company specialized in managing specialized venture capital
                        funds that
                        target companies in the genomics industryJacques
                        Gauthier
                      Town
                        of Mount Royal, Quebec
                      *Chair,
                        Compensation Committee*
                    
                    1995
                    
                    Advisor
                        of the Clinical Research Institute of Montreal, a scientific
                        and medical
                        research centre and Director of a variety of medical and
                        pharmaceutical
                        associationsMichael
                        M. Tarnow
                      Boston,
                        Massachusetts - USA
                      *Chair,
                        Corporate Governance and Nominating Committee*
                      *Member
                        of the Audit Committee*
                    
                    2000
                    
                    Chairman
                        of Entremed, Inc. and Xenon Pharmaceuticals Incorporated,
                        which are life
                        sciences companies.Consultant
                        and Corporate Director to several other life sciences
                        companiesDr.
                        E. Rolland Dickson
                      Mantorville,
                        Minnesota - USA
                      *Member
                        of the Corporate Governance and Nominating Committee*
                    
                    2004
                    
                    Directoron
                        the Boards of NeoRx Corporation and Pathway Diagnostics Corporation,
                        two
                        specialty pharmaceutical companies. Director of a variety
                        of medical and
                        pharmaceutical research intuitions and companiesFrank
                        Verwiel, M.D.
                      Saint-Bruno,
                        Quebec
                    
                    2005
                    
                    President
                        and Chief Executive Officer of
                      the
                        CompanyMary
                        C. Ritchie
                      Edmonton,
                        Alberta
                    
                    2006
                    
                    President
                        and Chief Executive Officer of Richford Holdings Ltd., an
                        accounting and
                        investment advisory services firm
  Page
                  28
 **OFFICERS**
 
 **Name
                        and**
                      **municipality
                        of residence**
                    
                    
                    
                    **Principal
                        occupation**Martha
                        D. Donze Birmingham, Alabama
                    
                    
                    
                    Vice
                        President, Corporate AdministrationSteve
                        Gannon
                      Montreal,
                        Quebec
                    
                    
                    
                    Senior
                        Vice President and Chief Financial OfficerJean-François
                        Hébert
                      Saint-Bruno,
                        Quebec
                    
                    
                    
                    Vice
                        President, Global Procurement and Manufacturing
                        OperationsAlexandre
                        P. LeBeaut, M.D.
                      Montreal,
                        Quebec
                    
                    
                    
                    Senior
                        Vice President and Chief Scientific OfficerDavid
                        W. Mims
                      Birmingham,
                        Alabama - USA
                    
                    
                    
                    Executive
                        Vice President and
                      Chief
                        Operating OfficerJocelyn
                        Pelchat
                      Versailles,
                        France
                    
                    
                    
                    Senior
                        Vice President, International Commercial OperationsRichard
                        Tarte
                      Nuns
                        Island, Quebec
                    
                    
                    
                    Vice
                        President, Corporate Development and General CounselMichael
                        E. Thiel
                      Birmingham,
                        Alabama
                    
                    
                    
                    Vice
                        President, Global Franchise
                      and
                        Marketing ManagementJean
                        Vézina Pierrefonds, Quebec
                    
                    
                    
                    Vice
                        President, FinanceFrank
                        Verwiel, M.D.
                      Saint-Bruno,
                        Quebec
                    
                    
                    
                    President
                        and Chief Executive Officer
  Each
              Director is elected annually by the shareholders and serves for a term
              that will
              end at the Corporation’s next annual meeting .
              As at
              December 1, 2006, the directors and senior officers of Axcan beneficially
              own as
              a group an aggregate of 3,774,780 common shares, which represents 8%
              of the
              issued and outstanding shares of Axcan.
  During
              the past five years, each of the foregoing directors and officers has
              held the
              same or a similar position with the entities indicated above or a related
              entity, except for (1) Dr. Frank Verwiel, who prior to July 2005 held
              the
              position of vice president, Hypertension, Worldwide Human Health Marketing
              with
              Merck & Co., Inc., while concurrently serving as a member of Merck’s
              Worldwide Hypertension Business Strategy Team. Prior to joining Merck,
              from 1988
              to 1996, Dr. Verwiel worked with Servier in Europe in various executive
              positions; (2) Mr. Jean-François Hébert who, prior to June 2004, was with Abbott
              Laboratories in Italy, France and Canada, and with Saputo Group in
              Canada; (3)
              Mr. Steve Gannon who, prior to February 2006 held the position of Chief
              Financial Officer at CryoCath Technologies Inc.; (4) Dr. Alexandre
              LeBeaut who,
              from October 2002 to May 2005, held various executive positions at
              Novartis AG.
              Prior to that, from January 1994 to October 2002, Dr. LeBeaut worked
              with
              Schering Plough Research Institute (SPRI) -Clinical Research (USA)
              in various
              executive positions and; (5) Mary C. Ritchie who, prior to joining
              Richford
              Holdings in January 2002, was a senior member of Arnold Consulting
              Group Ltd., a
              management-consulting firm.
  No
              director or officer of Axcan or shareholder of Axcan holding a sufficient
              number
              of securities of Axcan to affect materially the control of Axcan (a
“control
              person”); is, or has been within the past ten years, a director or officer
              of
              any other company that, while such person was acting in that capacity;
              was the
              subject of a cease trade or similar order or an order that denied such
              company
              access to any exemptions under Canadian securities legislation for
              a period of
              more than 30 consecutive days; or was declared bankrupt or made a voluntary
              assignment in bankruptcy; made a proposal under any legislation relating
              to
              bankruptcy or insolvency; or was subject to or instituted any proceedings,
              arrangement or compromise with creditors or had a receiver, receiver
              manager or
              trustee appointed to hold its assets.
  No
              director, officer or control person of Axcan has been subject to any
              penalties
              or sanctions imposed by a court relating to Canadian securities legislation
              or
              by a Canadian securities regulatory authority or has entered into a
              settlement
              agreement with a Canadian securities regulatory authority; nor has
              any director,
              officer or control
  Page
                  29
 person
              of
              Axcan been subject to any other penalties or sanctions imposed by a
              court or
              regulatory body that would likely be considered important to a reasonable
              investor in making an investment decision.
  No
              director, officer or control person of Axcan, nor any personal holding
              company
              of any such person, has within the past ten years, been declared bankrupt
              or
              made a voluntary assignment in bankruptcy; made a proposal under any
              legislation
              relating to bankruptcy or insolvency; been subject to or instituted
              any
              proceedings, arrangement or compromise with creditors; or had a receiver,
              receiver manager or trustee appointed to hold the assets of that
              individual.
  Conflicts
              of interest may arise as a result of the directors and officers of
              Axcan also
              holding positions as directors and/or officers of other companies.
              Some of the
              directors and officers have been and will continue to be engaged in
              the
              identification and evaluation of assets and businesses, with a view
              to potential
              acquisition of interests in businesses and companies on their own behalf
              and on
              behalf of other companies, and situations may arise where the directors
              and
              officers will be in direct competition with Axcan. Conflicts, if any,
              will be
              subject to the procedures and remedies under the Canada Business Corporations
              Act.
  **PART
              IX - LEGAL PROCEEDINGS** ****
  Axcan
              Scandipharm was a party to several legal proceedings related to the
              product line
              it markets under the trademark ULTRASE. Lawsuits have been filed and
              claims have
              been asserted against Axcan Scandipharm and certain other companies,
              including
              the products manufacturer, stemming from allegations that, among other
              things,
              Axcan Scandipharm's enzyme products caused colonic strictures. Most
              recently, in
              November, 2006, the Company became aware that a complaint alleging
              a claim for
              damages related to these products was received in the Supreme Court
              of the Sate
              of New York. This complaint is in its initial preliminary stage such
              that the
              Company is not currently able to assess its merit. Of the 12 lawsuits
              other
              previous lawsuits, the last of which was filed in 2001, Axcan Scandipharm
              was
              dismissed from one, non-suited in another and settled ten. At this
              time, it is
              difficult to predict the number of potential cases and because of the
              young age
              of the patients involved, Axcan Scandipharm’s product liability exposure for
              this issue in the United States will remain for a number of years.
              Axcan
              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 other 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 Axcan Scandipharm and another named defendant must
              provide
              indemnification against future claims. This lawsuit is based on contractual
              and
              indemnity issues and the parties agreed to settle their dispute through
              binding
              arbitration. The arbitration was decided in part on September 19, 2005
              and on
              November 18, 2005 in Axcan Scandipharm’s favour and plaintiffs’ claims for
              recovery of their settlement and defence costs in the ten underlying
              product
              liability cases were dismissed. Axcan Scandipharm had brought counterclaims
              against the plaintiffs in the original proceedings, and the arbitrator
              has not
              yet ruled upon these counterclaims.
  In
              December 2003 and May 2004, Pharmascience Inc. (“PMS”) served the Company two
              notices of allegation in accordance with Section 5 of the Patented
              Medicines
              (Notice of Compliance) Regulations (‘‘Regulations’’). The first notice of
              allegation indicated that PMS was seeking a regulatory approval to
              market a
              generic version of URSO 250 in the Canadian market (''PMS Product'') for
              use in gallstone dissolution, an indication for which URSO 250 was formerly
              approved for and marketed in Canada. The second notice of allegation
              dealt with
              the validity of Axcan’s Canadian Primary Biliary Cirrhosis (‘’PBC’’) use patent.
              Axcan opposed both these notices of allegation by seeking prohibition
              orders. In
              September 2005, with respect to the first notice of allegation, the
              Federal
              Court of Canada held that, for purposes of the Regulations, the PMS
              Product did
              not infringe the patent that Axcan owns for the use of URSO in the
              treatment of
              PBC. In May 2006, the second application seeking a prohibition order
              was
              dismissed as Axcan's Canadian PBC use patent was held to be invalid
              for purposes
              of the Regulations.
  Axcan
              is
              involved in other routine litigation matters that Axcan believes not
              to be
              material.
  Page
                  30
 PART
              X -
              transfer agent and registrars
  The
              transfer agent and registrar for Axcan’s common shares is Computershare Trust
              Company of Canada, 1500 University Street, Suite 700, Montreal, Quebec
              Canada
              H3A 3S8.
  **PART
              XI - MARKET FOR SECURITIES**
  **1.**
                    **Market
                        for Securities**
  Since
              December 27, 1995, Axcan's common shares are listed for trading on
              the Toronto
              Stock Exchange under the trading symbol “AXP” and, since June 28, 2000, on the
              NASDAQ Global Select Market SM (formerly known as NASDAQ National Market SM )
              under
              the trading symbol “AXCA”.
  **2.**
                    **Trading
                        History**
  **TORONTO
              STOCK EXCHANGE**
  **Period**
                      **(Fiscal
                        2006)**
                    
                    **High**
                      **(CAN)**
                    
                    **Low**
                      **(CAN)**
                    
                    **Close**
                      **(CAN)**
                    
                    **Volume**October
                        2005
                    
                    15.63
                    
                    14.32
                    
                    15.00
                    
                    1,408,746November
                        2005
                    
                    17.75
                    
                    14.85
                    
                    17.20
                    
                    2,033,363December
                        2005
                    
                    18.50
                    
                    17.26
                    
                    17.62
                    
                    2,202,314January
                        2006
                    
                    21.85
                    
                    17.42
                    
                    20.80
                    
                    2,416,914February
                        2006
                    
                    20.97
                    
                    12.10
                    
                    13.74
                    
                    4,534,298March
                        2006
                    
                    15.87
                    
                    13.49
                    
                    15.49
                    
                    5,000,386April
                        2006
                    
                    15.98
                    
                    15.05
                    
                    15.05
                    
                    1,216,983May
                        2006
                    
                    15.92
                    
                    13.63
                    
                    14.19
                    
                    2,343,219June
                        2006
                    
                    14.78
                    
                    13.01
                    
                    14.65
                    
                    1,452,354July
                        2006
                    
                    14.90
                    
                    13.73
                    
                    14.71
                    
                    1,014,482August
                        2006
                    
                    15.72
                    
                    14.37
                    
                    15.43
                    
                    1,869,094September
                        2006
                    
                    16.49
                    
                    13.06
                    
                    15.19
                    
                    1,873,275
  **NASDAQ
              Global Market**
  **Period**
                      **(Fiscal
                        2006)**
                    
                    **High**
                      **(USD)**
                    
                    **Low**
                      **(USD)**
                    
                    **Close**
                      **(USD)**
                    
                    **Volume**October
                        2005
                    
                    13.25
                    
                    12.21
                    
                    12.73
                    
                    3,804,125November
                        2005
                    
                    14.93
                    
                    12.63
                    
                    14.77
                    
                    7,819,248December
                        2005
                    
                    15.97
                    
                    14.60
                    
                    15.14
                    
                    4,808,630January
                        2006
                    
                    18.94
                    
                    15.05
                    
                    18.32
                    
                    8,249,612February
                        2006
                    
                    18.35
                    
                    10.86
                    
                    12.13
                    
                    27,077,514March
                        2006
                    
                    13.63
                    
                    11.87
                    
                    13.28
                    
                    8,147,557April
                        2006
                    
                    13.95
                    
                    12.88
                    
                    13.42
                    
                    3,875,163May
                        2006
                    
                    14.47
                    
                    12.35
                    
                    12.80
                    
                    4,286,332June
                        2006
                    
                    13.23
                    
                    11.77
                    
                    13.11
                    
                    3,966,494July
                        2006
                    
                    13.19
                    
                    12.16
                    
                    12.97
                    
                    2,294,415August
                        2006
                    
                    14.07
                    
                    12.77
                    
                    13.96
                    
                    3,494,157September
                        2006
                    
                    14.50
                    
                    11.75
                    
                    13.66
                    
                    5,939,680
  Page
                  31
 **PART
              XII - MATERIAL CONTRACTS**
  Except
              for contracts entered into in the ordinary course of business, the
              only material
              contracts entered into by Axcan during the last financial year or that
              are still
              in effect are described in this Annual Information Form and in the
              2006 Annual
              Report of the Company.
  **PART
              XIII - INTERESTS OF EXPERTS**
  The
              Company's auditors are Raymond Chabot Grant Thornton LLP located at 600,
              de La Gauchetière Street West, Office 1900, Montreal, Quebec H3B 4L8 .
              The
              auditors have confirmed to the Company that they are independent in
              accordance
              with the applicable rules of professional conduct of each of the provinces
              of
              Canada and that they have complied with the rules on auditor independence
              of the
              United States Securities and Exchange Commission.
  **PART
              XIV -** **FORWARD-LOOKING
              STATEMENTS**
  Certain
              statements contained in this Annual Information Form, and in certain
              documents
              incorporated or deemed to be incorporated by reference in this Annual
              Information Form, constitute "forward-looking statements." When used
              in this
              document, the words "anticipate," "believe," "estimate," "expect,"
              "plan,"
              "future," "intend," "may," "will," "should," "predicts," "potential,"
              "continue," and similar expressions, as they relate to Axcan or its
              management,
              are intended to identify forward-looking statements. These forward-looking
              statements include, but are not limited to Axcan’s expectations about the timing
              of completion of studies for products in development, and Axcan’s ability to
              bring those products to market. Such statements reflect the current
              views of
              Axcan with respect to future events and are subject to certain known
              and unknown
              risks, uncertainties and assumptions. These statements should not be
              relied
              upon. Many factors could cause the actual results, performance or achievements
              of Axcan to be materially different from any future results, performance
              or
              achievements that may be expressed or implied by such forward-looking
              statements, including, among others, he successful and timely completion
              of
              clinical studies, the difficulty of predicting FDA or other regulatory
              approvals, finding and retaining suppliers of our products, the
              commercialization of a drug or therapy after regulatory approval is
              received,
              the difficulty of predicting acceptance an demand for pharmaceutical
              products,
              the impact of competitive products and pricing, new product development
              and
              launch, the availability of raw materials, the protection of our intellectual
              property and those risks which are discussed under the heading "Risk
              Factors" in
              this Annual Information Form. Should one or more of these risks or
              uncertainties
              materialize, or should assumptions underlying the forward-looking statements
              prove incorrect, actual results may vary materially from those described
              herein
              as anticipated, believed, estimated or expected. Axcan does not intend,
              and does
              not assume any obligation, to update these forward-looking statements,
              except as
              required by law.
  **PART
              XV - TRADEMARKS**
  The
              names
              AXCAN, AXCAN PHARMA, BENTYL, BENTYLOL, CANASA, CARAFATE, DELURSAN,
              FLUTTER,
              HELIZIDE, HEPENAX, ITAX, LACTEOL, MODULON, PHOTOBARR, PHOTOFRIN, PANZYTRAT,
              PROCTOSEDYL, PYLERA, SALOFALK, SCANDICAL, SCANDISHAKE, SULCRATE, TAGAMET,
              TRANSITOL, TRANSULOSE, ULTRASE, URSO, URSO DS, URSO Forte, VIATOL and
              VIOKASE
              appearing in this Annual Information Form are trademarks of Axcan or
              one of its
              subsidiaries.
  The
              following names appearing in this Annual Information Form are trademarks
              used
              under license by Axcan:
  ·
                    ADEKs
                        is a registered trademark ofCarlsson-Rensselaer
                        Corporation;
                        and
  ·
                    CORTENEMA****is
                        a registered trademark of Reid Rowell
                        Inc.
  Page
                  32
 **PART
              XVi - ADDITIONAL INFORMATION**
  Additional
              information, including directors and officers' remuneration and indebtedness,
              principal holders of Axcan's securities, options to purchase Axcan's
              securities
              and interests of insiders in material transactions where applicable,
              is
              contained in the Management Proxy Circular prepared for Axcan's annual
              meeting
              of shareholders. Furthermore, additional financial information including
              comparative financial statements is provided in the 2006 Annual Report.
              A copy
              of this Annual Information Form and associated documents may be obtained
              upon
              request from Axcan's investor relations department at its corporate
              office.
  Axcan
              will also provide to any person upon request to its investor relations
              department:
  (a)
                    when
                        securities of Axcan are in the course of a distribution pursuant
                        to a
                        short form prospectus or when a preliminary short form prospectus
                        has been
                        filed in respect of a distribution of the securities of
                        Axcan:
  (i)
                    one
                        copy of Axcan's Annual Information Form, together with one
                        copy of any
                        document, or the relevant pages of any document, incorporated
                        by reference
                        in this Annual Information Form;
  (ii)
                    one
                        copy of the comparative financial statements of Axcan for
                        its most
                        recently completed financial year together with the accompanying
                        report of
                        the auditors and one copy of any interim financial statements
                        of Axcan
                        subsequent to the financial statements for its most recently
                        completed
                        financial year;
  (iii)
                    one
                        copy of Axcan's information circular in respect of its most
                        recent annual
                        meeting of shareholders that involved the election of directors
                        or one
                        copy of any annual filing prepared in lieu of that information
                        circular,
                        as appropriate; and
  (iv)
                    one
                        copy of any other documents that are incorporated by reference
                        into the
                        preliminary short form prospectus or the short form prospectus
                        and are not
                        required to be provided under (i), (ii) or (iii) above;
                        or
  (b)
                    at
                        any other time, one copy of any other documents referred
                        to in (a) (i),
                        (ii) and (iii) above, provided that Axcan may require the
                        payment of a
                        reasonable charge if a person who is not a shareholder of
                        Axcan makes the
                        request.
  Page
                  33
 **SCHEDULE
              A - GLOSSARY OF TECHNICAL TERMS**
   *The
              text following the technical terms reproduced in this glossary is explanatory
              only and does not in any way modify the meanings of such
              terms.*
  Adenomatous
              Polyp: Benign growth (tumor) arising from the inner layer of the
              gastrointestinal tract and protruding into the lumen of the gastrointestinal
              tract.
  Bile
              Ducts: Channels that collect bile from the liver and deliver it to
              the
              intestine.
  Cervical
              Dysplasia: Modification of the size, shape and organization of cells
              in the
              cervix. Dysplasia is generally considered to be a pre-cancerous
              condition.
  Cholestatic
              Diseases of the Liver: Conditions in which the bile flow from the liver
              is
              impaired.
  Cholestasis:
              Combined conditions causing the reduction of bile flow and the retention
              of bile
              acids.
  Cirrhosis:
              Disease of the liver, originating from many causes and characterized
              by a
              progressive replacement of liver cells by scarring tissue.
  CMC:
              Chemistry, manufacturing and control data. Data describing the method
              of
              synthesis of a new drug as well as the method of manufacture and the
              controls
              applied to the drug substance and drug product.
  Colorectal
              Adenomateous Polyps: Polyps which are considered precursors to colorectal
              cancer.
  Crohn's
              Disease (CD): Inflammatory bowel disease that affects the wall of the
              gastrointestinal tract. CD can affect any part of the gastrointestinal
              tract but
              mostly affects the ileum, the last portion of the small bowel and the
              colon.
  Cystic
              Fibrosis (CF): Congenital disease characterized by excessive secretions
              of
              certain glands, resulting in pancreatic insufficiency and pulmonary
              disorders.
              The average lifespan of CF patients is approximately 32 years.
  Distal:
              The part of the colon closest to the rectum.
  Duodenum:
              Part of the small intestine attached to the end of the stomach.
  Exocrine
              Pancreatic Insufficiency: Decreased production and release of the enzymes
              produced in the pancreas, which leads to digestive problems.
  Fibrosis:
              Formation of excess fibrous tissue characterized by increased collagen
              concentrations, which gives a rigid consistence to the affected tissue
              (scar
              tissue consists mainly of fibrosis).
  Food
              and
              Drug Administration (FDA): Regulatory body for the development, manufacture,
              sale and use of drugs in the United States.
  Gastric
              Cancer: Cancer of the cell lining of the gastric mucosa.
  Gastro-esophageal
              reflux disease (GERD): Symptoms and/or mucosal damage produced by the
              abnormal
              reflux of gastric contents into the esophagus, causing heartburn or
              acid
              regurgitation.
  *Helicobacter
              Pylori (Hp)* :
              Bacterium with a spiral tail which lives under the gastric mucosa layer.
              The
              presence of *Hp* is
              correlated with gastritis, as well as gastric and duodenal ulcers. *Hp* is
              considered to be the most important factor in the cause of peptic ulceration
              and
              is formally classified as a Category 1 human carcinogen by the World
              Health
              Organization. Once a diagnosis of *Hp* infection has been established, a therapy should be prescribed to eradicate
              the
              bacterium in all peptic ulcer patients, to reduce the rate of ulcer
              recurrence.
  Page
                  34
 Hepatitis:
              Inflammation of the liver due to infection or toxins.
  High-Grade
              Dysplasia: As associated with Barrett's Esophagus, High-Grade Dysplasia
              is a
              condition that results from prolonged acid reflux (heartburn) which
              causes the
              lining of the esophagus to be converted into tissue similar to that
              which lines
              the stomach. This transformation makes the esophageal tissue more susceptible
              to
              cancer.
  Inflammatory
              Bowel Diseases (IBDs): Chronic diseases of unknown cause characterized
              by
              inflammation of portions of the gastrointestinal tract. Ulcerative
              colitis,
              ulcerative proctitis (a distal form of ulcerative colitis) and Crohn's
              Disease
              constitute the group of illnesses referred to as idiopathic inflammatory
              bowel
              diseases. IBDs follow a pattern of acute attacks followed by periods
              of
              remission. There are no cures for IBDs and the goals of therapy are
              to reduce
              symptoms during acute attacks and to maintain remission when the disease
              is
              under control.
  Initial
              New Drug Application: Document containing all available data gathered
              during
              pre-clinical testing as well as a comprehensive description of the
              proposed
              study to be conducted in humans.
  Irritable
              Bowel Syndrome (IBS): Functional bowel disorder which primarily affects
              gastrointestinal motility.
  Liver:
              Organ located in the top right portion of the abdominal cavity connected
              to the
              digestive tract. It secretes bile that is excreted in the duodenum,
              thus
              facilitating digestion of food in the small intestine. The liver plays
              a key
              role in the processing and storage of various products of
              absorption.
  Marketing
              Authorization Application (MAA): Document containing all pre-clinical,
              clinical
              and CMC data collected on a drug. MAAs are submitted to regulatory
              authorities
              by manufacturers in order to obtain approval to market New Chemical
              Entities
              (NCEs) in the European Union.
  Mesalamine:
              five-aminosalicylic acid (5-ASA).
  Motility:
              Ability of the gastrointestinal tract to undergo rhythmic muscular
              contractions.
  Mucosa:
              Thin sheets of tissue that cover or line various parts of the body
              such as the
              mouth or digestive tract.
  New
              Drug
              Application (NDA): A document containing all pre-clinical, clinical
              and CMC data
              collected on a drug. NDAs are submitted to the FDA by manufacturers
              in order to
              obtain approval to market New Chemical Entities (NCEs) in the United
              States.
  New
              Chemical Entity (NCE): Chemical substance of synthetic or biological
              origin
              which has not been tested for pharmacological activity.
  New
              Drug
              Submission (NDS): A document containing all pre-clinical, clinical
              and CMC data
              collected on a drug. NDSs are submitted to the Therapeutic Products
              Directorate
              of Health Canada by manufacturers in order to obtain approval to market
              new
              chemical entities in Canada.
  Nocturnal
              Acid Breakthrough (NAB): The presence of at least 60 continuous minutes
              of
              intragastric pH less than 4 during the night, in patients taking a
              proton pump
              inhibitor twice daily before meals.
  Pancreas:
              Abdominal gland located behind the stomach and connected to the gastrointestinal
              tract that secretes pancreatic juice to aid digestion (pancreatic enzymes)
              and
              insulin, an essential hormone for the metabolism of sugars.
  Pancreatic
              Juice: Alkaline secretion of the pancreas containing enzymes that aid
              in the
              digestion of protein, carbohydrates, and fats.
  Pancreatitis:
              Inflammation of the pancreas.
  Page
                  35
 Polyp:
              Small tumor-like growth that projects from a mucus membrane surface
              (i.e. colon
              or rectum).
  Primary
              Biliary Cirrhosis (PBC): A chronic cholestatic liver disease that progresses
              slowly towards a terminal phase characterized by jaundice, signs of
              decompensated cirrhosis, ascites and variceal bleeding. The prognosis
              averages
              seven to 12 years from diagnosis to death or liver transplant.
  Primary
              Sclerosing Cholangitis (PSC): A liver disorder characterized by an
              inflammatory
              and sclerosing process leading to a progressive reduction in the diameter
              of the
              bile ducts. Its progressive course generally leads to liver cirrhosis,
              portal
              hypertension and often death, as the bile that normally flows out of
              the liver
              instead accumulates there, resulting in an alteration of liver cells.
              The
              average survival rate is four to ten years following diagnosis.
  Proton
              pump inhibitor (PPI): Proton-pump
              inhibitors reduce the production of acid by blocking the enzyme in
              the wall of
              the stomach that produces acid. The reduction of acid prevents ulcers
              and allows
              any ulcers that exist in the esophagus, stomach and duodenum to
              heal.
  Supplemental
              New Drug Application (sNDA): **** Document
              containing all clinical and CMC data collected on a drug already on
              the market,
              but for an new indication. sNDAs are submitted to the FDA by manufacturers
              in
              order to obtain approval to market a drug for a new indication in the
              United
              States.
  Supplemental
              New Drug Submission (sNDS): **** Document
              containing all clinical and CMC data collected on a drug already on
              the market,
              but for an new indication. sNDSs are submitted to the Therapeutic Products
              Directorate by manufacturers in order to obtain approval to market
              a drug for a
              new indication in Canada.
  Therapeutic
              Products Directorate (TPD): Regulatory body for the development, manufacture,
              sale and use of drugs in Canada.
  Ulcer:
              Necrotic lesion characterized by a crater-like erosion of the wall
              of the
              stomach (gastric ulcer) or the duodenum (duodenal ulcer), often associated
              with
              painful symptoms.
  Ulcerative
              Colitis/Proctitis: Chronic inflammatory disease which affects the inner
              mucus
              membrane of the colon, particularly the distal portions of the colon
              (i.e., the
              rectum and sigmoid).
  Ursodiol
              (ursodeoxycholic acid): Naturally occurring bile acid present as a
              minor
              fraction of the total human bile acids, and in greater concentrations
              in the
              bile of certain animal species such as bears. Ursodiol is also a drug
              indicated
              for the treatment of different diseases such as dissolution of gallstones,
              primary biliary cirrhosis and other cholestatic liver diseases.
   
  Page
              36