SEC Company Response from AXCAN PHARMA INC (CIK 0001116094) — Aug 3, 2005
AXCAN PHARMA INC (CIK 0001116094)
Date: Aug. 3, 2005 · CIK: 0001116094 · Accession: 0001047469-05-020675
AI Filing Summary & Sentiment
File numbers found in text: 000-30860
Letter
VIA EDGAR CONFIDENTIAL TREATMENT REQUESTED BY AXCAN PHARMA INC. UNDER 17 C.F.R. Section 200.83 August 3, 2005 Securities and Exchange Commission Judiciary Plaza 100 F Street, N.W. Washington, DC 20549 Attention: Filing Desk
RE: AXCAN PHARMA 40-F FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004 FILE NO. 000-30860
Dear Sirs,
Axcan Pharma Inc. ("Axcan" or the "the Company") is pleased to submit the following reply to the comments raised in your July 6, 2005 letter (the "Comment Letter") regarding Axcan's 40-F filing for the fiscal year ended September 30, 2004. The individual responses of the Company to each of the Commission's comments are set forth below, together with the related comments. The headings and numbers of the responses coincide with the headings and comment numbers set forth in the Comment Letter.
As requested in your letter, we acknowledge that:
- The Company is responsible for the adequacy and accuracy of the disclosure in the filings;
- Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
- The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
<Page>
EXHIBIT 99.2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION, PAGE 33
1. WE BELIEVE THAT YOUR DISCLOSURE RELATED TO ESTIMATES THAT REDUCE GROSS REVENUE SUCH AS PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER DISCOUNTS AND ALLOWANCES COULD BE IMPROVED.
(a) TELL US THE NATURE AND AMOUNT OF EACH ACCRUAL AT THE BALANCE SHEET DATE AND THE EFFECT THAT COULD RESULT FROM USING OTHER REASONABLY LIKELY ASSUMPTIONS THAN WHAT YOU USED TO ARRIVE AT EACH ACCRUAL SUCH AS A RANGE OF REASONABLY LIKELY AMOUNTS OR OTHER TYPES OF SENSITIVITY ANALYSIS.
RESPONSE:
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S. DOLLARS.
We wish to mention that sub-questions a) to f) of question 1, each covers different aspects of the same subject. We answer each sub-question separately but some information related to one sub-question might be found within our answer to another sub-question.
Contract rebates, product returns and accrued chargebacks included in Note 14 to consolidated annual financial statements detail as follows:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C1] AS NOTED BY * IN THE TABLE BELOW.
<Table> <Caption> 2004 2003 ------- ------- $ $ <S> <C> <C> Product returns * * Chargebacks * * Contract rebates * * ------- ------- 8,853 7,248 ======= ======= </Table>
The accrual for discounts amounting to a $ CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C2] as of September 30, 2004 and $ CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C3] as of September 30, 2003 is reported in the balance sheet separately from the other accruals listed above. The provisions for product returns, chargebacks, contract rebates and discounts are based on estimates derived from historical experience. Quarterly, the Company validates the ending balance for each provision with an estimate based on historical experience and updated to include the most recent transactions.
<Page>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C4], we consider historical experience as the most reliable and therefore most appropriate information to estimate product returns, chargebacks, contract rebates and discounts. Because we believe our historical experience is our most reliable information at this time, we believe that calculating the accruals using a different method or assumptions could be misleading.
(b) EXPLAIN TO US THE FACTORS THAT YOU CONSIDER IN ESTIMATING EACH ACCRUAL SUCH AS HISTORICAL RETURN OF PRODUCTS, LEVELS OF INVENTORY IN THE DISTRIBUTION CHANNEL, ESTIMATED REMAINING SHELF LIFE, PRICE CHANGES FROM COMPETITORS, AND INTRODUCTIONS OF GENERICS AND/OR NEW PRODUCTS.
RESPONSE:
Factors considered in estimating each accrual:
i) For product returns, CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C5].
ii) Chargebacks are paid by Axcan to the wholesalers CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C6].
iii) Contract rebates are issued CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C7].
iv) The accrual for discounts is calculated using the assumption that CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C8].
(c) TO THE EXTENT THAT INFORMATION YOU CONSIDER IN (b) IS QUANTIFIABLE, TELL US BOTH THE QUANTITATIVE AND QUALITATIVE INFORMATION AND DISCUSS TO WHAT EXTENT INFORMATION IS FROM EXTERNAL SOURCES (E.G., END-CUSTOMER PRESCRIPTION DEMAND, THIRD-PARTY MARKET RESEARCH DATA COMPARING WHOLESALER INVENTORY LEVELS TO END-CUSTOMER DEMAND). FOR EXAMPLE, IN DISCUSSING YOUR ESTIMATE OF PRODUCT THAT MAY BE RETURNED, TELL US BY PRODUCT AND IN TABULAR FORMAT, THE TOTAL AMOUNT OF PRODUCT IN SALES DOLLARS THAT COULD POTENTIALLY BE RETURNED AS OF THE BALANCE SHEET DATE AND DISAGGREGATED BY EXPIRATION PERIOD.
RESPONSE:
Most of the information used to establish the accruals is internal and based on historical experience. Management considers such information to be the most reliable available.
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C9].
(d) IF APPLICABLE, TELL US ABOUT ANY SHIPMENTS MADE AS A RESULT OF INCENTIVES AND/OR IN EXCESS OF YOUR CUSTOMER'S ORDINARY COURSE OF BUSINESS INVENTORY LEVEL. DISCUSS YOUR REVENUE RECOGNITION POLICY FOR SUCH SHIPMENTS.
<Page>
RESPONSE:
As already discussed in our MD&A, "wholesaler buying patterns, including a tendency to increase inventory levels prior to an anticipated or announced price increase, affect Axcan's operating results by shifting revenue between quarters. To maintain good relations with wholesalers, Axcan typically gives prior notice of price increases."
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C10].
As mentioned in our MD&A, under "Revenue Recognition", revenue is recognized when the product is shipped to the Company's customer, provided the Company has not retained any significant risks of ownership or future obligations with respect to the product shipped. Revenue from product sales is recognized net of sales discounts, allowances, returns, rebates and chargebacks.
(e) PROVIDE US WITH A ROLL FORWARD OF THE ACCRUAL OF EACH ESTIMATE FOR EACH PERIOD PRESENTED SHOWING THE FOLLOWING: - BEGINNING BALANCE, - CURRENT PROVISION RELATED TO SALES MADE IN CURRENT PERIOD, - CURRENT PROVISION RELATED TO SALES MADE IN PRIOR PERIODS, - ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE IN CURRENT PERIOD, - ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE IN PRIOR PERIODS, AND - ENDING BALANCE.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C11] AS NOTED BY * IN THE TABLE BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2004
<Table> <Caption> Beginning + - Ending Balance Current Actual Balance Sep. 30, 2003 Provision Returns / Cr Sep. 30, 2004 ---------------------------------------------------------- $ $ $ $ <S> <C> <C> <C> <C> Product returns * * * * Chargebacks * * * * Contract rebates * * * *
---------------------------------------------------------- Accrual included in Note 14 7,248 * * 8,853 ============= * * ============= Discounts and other allowances * * * *
---------- Deductions from gross revenue * ---------- </Table>
<Page>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C12] AS NOTED BY * IN THE TABLE BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2003
<Table> <Caption> Beginning + - Ending Balance Current Actual Balance Sep. 30, 2002 Provision Returns / Cr Sep. 30, 2003 --------------------------------------------------------------------- $ $ $ $ <S> <C> <C> <C> <C> Product returns * * * * Chargebacks * * * * Contract rebates * * * *
--------------------------------------------------------------------- Accrual included in Note 14 4,828 * * 7,248 ===== =====
Discounts and other allowances * * * *
---------------- Deductions from gross revenue * ---------------- </Table>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C13] AS NOTED BY * IN THE TABLE BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2002
<Table> <Caption> Beginning + - Ending Balance Current Actual Balance Sep. 30, 2001 Provision Returns / Cr Sep. 30, 2002 --------------------------------------------------------------------- $ $ $ $ <S> <C> <C> <C> <C> Product returns * * * * Chargebacks * * * * Contract rebates * * * *
--------------------------------------------------------------------- Accrual included in Note 14 4,459 * * 4,828 ===== = =====
Discounts and other allowances * * * *
---------------- Deductions from gross revenue * ---------------- </Table>
The current provision is established using a percentage based on historical experience and applied to current sales. CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C14].
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C15].
The "Ending Balance" is re-evaluated quarterly using historical experience updated to include most recent actual transactions. CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C16].
(f) IN YOUR DISCUSSION OF RESULTS OF OPERATIONS FOR THE PERIOD TO PERIOD REVENUE COMPARISONS, TELL US THE AMOUNT OF AND REASON FOR FLUCTUATIONS FOR EACH TYPE OF REDUCTION OF GROSS REVENUE, SUCH AS
<Page>
PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER DISCOUNTS AND ALLOWANCES, INCLUDING THE EFFECT THAT CHANGES IN YOUR ESTIMATES OF THESE ITEMS HAD ON YOUR REVENUES AND OPERATIONS.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C17] AS NOTED BY * IN THE TABLE BELOW.
For the last three fiscal years, deductions from gross revenue detail as follows:
<Table> <Caption> 2004 2003 2002 ------------ ---------- ------------ $ $ $ <S> <C> <C> <C> Product returns * * *
Chargebacks * * *
Contract rebates * * *
Discounts and other allowances * * * ------------ ---------- ------------
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
<Page>
VIA EDGAR CONFIDENTIAL TREATMENT
REQUESTED BY AXCAN PHARMA INC.
UNDER 17 C.F.R. Section 200.83
August 3, 2005
Securities and Exchange Commission
Judiciary Plaza
100 F Street, N.W.
Washington, DC 20549
Attention: Filing Desk
RE: AXCAN PHARMA
40-F FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
FILE NO. 000-30860
Dear Sirs,
Axcan Pharma Inc. ("Axcan" or the "the Company") is pleased to submit the
following reply to the comments raised in your July 6, 2005 letter (the "Comment
Letter") regarding Axcan's 40-F filing for the fiscal year ended September 30,
2004. The individual responses of the Company to each of the Commission's
comments are set forth below, together with the related comments. The headings
and numbers of the responses coincide with the headings and comment numbers set
forth in the Comment Letter.
As requested in your letter, we acknowledge that:
- The Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
- Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
- The Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
<Page>
EXHIBIT 99.2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION, PAGE 33
1. WE BELIEVE THAT YOUR DISCLOSURE RELATED TO ESTIMATES THAT REDUCE GROSS
REVENUE SUCH AS PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER
DISCOUNTS AND ALLOWANCES COULD BE IMPROVED.
(a) TELL US THE NATURE AND AMOUNT OF EACH ACCRUAL AT THE BALANCE SHEET
DATE AND THE EFFECT THAT COULD RESULT FROM USING OTHER REASONABLY
LIKELY ASSUMPTIONS THAN WHAT YOU USED TO ARRIVE AT EACH ACCRUAL SUCH
AS A RANGE OF REASONABLY LIKELY AMOUNTS OR OTHER TYPES OF SENSITIVITY
ANALYSIS.
RESPONSE:
AMOUNTS IN THE TABLES ARE STATED IN THOUSANDS OF U.S. DOLLARS.
We wish to mention that sub-questions a) to f) of question 1, each covers
different aspects of the same subject. We answer each sub-question separately
but some information related to one sub-question might be found within our
answer to another sub-question.
Contract rebates, product returns and accrued chargebacks included in Note 14 to
consolidated annual financial statements detail as follows:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C1] AS NOTED BY * IN THE TABLE
BELOW.
<Table>
<Caption>
2004 2003
------- -------
$ $
<S> <C> <C>
Product returns * *
Chargebacks * *
Contract rebates * *
------- -------
8,853 7,248
======= =======
</Table>
The accrual for discounts amounting to a $ CONFIDENTIAL TREATMENT REQUESTED BY
THE COMPANY [C2] as of September 30, 2004 and $ CONFIDENTIAL TREATMENT REQUESTED
BY THE COMPANY [C3] as of September 30, 2003 is reported in the balance sheet
separately from the other accruals listed above. The provisions for product
returns, chargebacks, contract rebates and discounts are based on estimates
derived from historical experience. Quarterly, the Company validates the ending
balance for each provision with an estimate based on historical experience and
updated to include the most recent transactions.
<Page>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C4], we consider historical
experience as the most reliable and therefore most appropriate information to
estimate product returns, chargebacks, contract rebates and discounts. Because
we believe our historical experience is our most reliable information at this
time, we believe that calculating the accruals using a different method or
assumptions could be misleading.
(b) EXPLAIN TO US THE FACTORS THAT YOU CONSIDER IN ESTIMATING EACH ACCRUAL
SUCH AS HISTORICAL RETURN OF PRODUCTS, LEVELS OF INVENTORY IN THE
DISTRIBUTION CHANNEL, ESTIMATED REMAINING SHELF LIFE, PRICE CHANGES
FROM COMPETITORS, AND INTRODUCTIONS OF GENERICS AND/OR NEW PRODUCTS.
RESPONSE:
Factors considered in estimating each accrual:
i) For product returns, CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY
[C5].
ii) Chargebacks are paid by Axcan to the wholesalers CONFIDENTIAL TREATMENT
REQUESTED BY THE COMPANY [C6].
iii) Contract rebates are issued CONFIDENTIAL TREATMENT REQUESTED BY THE
COMPANY [C7].
iv) The accrual for discounts is calculated using the assumption that
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C8].
(c) TO THE EXTENT THAT INFORMATION YOU CONSIDER IN (b) IS QUANTIFIABLE,
TELL US BOTH THE QUANTITATIVE AND QUALITATIVE INFORMATION AND DISCUSS
TO WHAT EXTENT INFORMATION IS FROM EXTERNAL SOURCES (E.G.,
END-CUSTOMER PRESCRIPTION DEMAND, THIRD-PARTY MARKET RESEARCH DATA
COMPARING WHOLESALER INVENTORY LEVELS TO END-CUSTOMER DEMAND). FOR
EXAMPLE, IN DISCUSSING YOUR ESTIMATE OF PRODUCT THAT MAY BE RETURNED,
TELL US BY PRODUCT AND IN TABULAR FORMAT, THE TOTAL AMOUNT OF PRODUCT
IN SALES DOLLARS THAT COULD POTENTIALLY BE RETURNED AS OF THE BALANCE
SHEET DATE AND DISAGGREGATED BY EXPIRATION PERIOD.
RESPONSE:
Most of the information used to establish the accruals is internal and based on
historical experience. Management considers such information to be the most
reliable available.
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C9].
(d) IF APPLICABLE, TELL US ABOUT ANY SHIPMENTS MADE AS A RESULT OF
INCENTIVES AND/OR IN EXCESS OF YOUR CUSTOMER'S ORDINARY COURSE OF
BUSINESS INVENTORY LEVEL. DISCUSS YOUR REVENUE RECOGNITION POLICY FOR
SUCH SHIPMENTS.
<Page>
RESPONSE:
As already discussed in our MD&A, "wholesaler buying patterns, including a
tendency to increase inventory levels prior to an anticipated or announced price
increase, affect Axcan's operating results by shifting revenue between quarters.
To maintain good relations with wholesalers, Axcan typically gives prior notice
of price increases."
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C10].
As mentioned in our MD&A, under "Revenue Recognition", revenue is recognized
when the product is shipped to the Company's customer, provided the Company has
not retained any significant risks of ownership or future obligations with
respect to the product shipped. Revenue from product sales is recognized net of
sales discounts, allowances, returns, rebates and chargebacks.
(e) PROVIDE US WITH A ROLL FORWARD OF THE ACCRUAL OF EACH ESTIMATE FOR
EACH PERIOD PRESENTED SHOWING THE FOLLOWING:
- BEGINNING BALANCE,
- CURRENT PROVISION RELATED TO SALES MADE IN CURRENT PERIOD,
- CURRENT PROVISION RELATED TO SALES MADE IN PRIOR PERIODS,
- ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE
IN CURRENT PERIOD,
- ACTUAL RETURNS OR CREDITS IN CURRENT PERIOD RELATED TO SALES MADE
IN PRIOR PERIODS, AND
- ENDING BALANCE.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C11] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2004
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2003 Provision Returns / Cr Sep. 30, 2004
----------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
----------------------------------------------------------
Accrual included in Note 14 7,248 * * 8,853
============= * * =============
Discounts and other allowances * * * *
----------
Deductions from gross revenue *
----------
</Table>
<Page>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C12] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2002 Provision Returns / Cr Sep. 30, 2003
---------------------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
---------------------------------------------------------------------
Accrual included in Note 14 4,828 * * 7,248
===== =====
Discounts and other allowances * * * *
----------------
Deductions from gross revenue *
----------------
</Table>
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C13] AS NOTED BY * IN THE TABLE
BELOW.
ROLL FORWARD OF THE ACCRUALS FOR THE YEAR ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
Beginning + - Ending
Balance Current Actual Balance
Sep. 30, 2001 Provision Returns / Cr Sep. 30, 2002
---------------------------------------------------------------------
$ $ $ $
<S> <C> <C> <C> <C>
Product returns * * * *
Chargebacks * * * *
Contract rebates * * * *
---------------------------------------------------------------------
Accrual included in Note 14 4,459 * * 4,828
===== = =====
Discounts and other allowances * * * *
----------------
Deductions from gross revenue *
----------------
</Table>
The current provision is established using a percentage based on historical
experience and applied to current sales. CONFIDENTIAL TREATMENT REQUESTED BY THE
COMPANY [C14].
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C15].
The "Ending Balance" is re-evaluated quarterly using historical experience
updated to include most recent actual transactions. CONFIDENTIAL TREATMENT
REQUESTED BY THE COMPANY [C16].
(f) IN YOUR DISCUSSION OF RESULTS OF OPERATIONS FOR THE PERIOD TO PERIOD
REVENUE COMPARISONS, TELL US THE AMOUNT OF AND REASON FOR FLUCTUATIONS
FOR EACH TYPE OF REDUCTION OF GROSS REVENUE, SUCH AS
<Page>
PRODUCT RETURNS, CHARGEBACKS, CUSTOMER REBATES AND OTHER DISCOUNTS AND
ALLOWANCES, INCLUDING THE EFFECT THAT CHANGES IN YOUR ESTIMATES OF
THESE ITEMS HAD ON YOUR REVENUES AND OPERATIONS.
RESPONSE:
CONFIDENTIAL TREATMENT REQUESTED BY THE COMPANY [C17] AS NOTED BY * IN THE TABLE
BELOW.
For the last three fiscal years, deductions from gross revenue detail as
follows:
<Table>
<Caption>
2004 2003 2002
------------ ---------- ------------
$ $ $
<S> <C> <C> <C>
Product returns * * *
Chargebacks * * *
Contract rebates * * *
Discounts and other allowances * * *
------------ ---------- ------------